<PAGE>
[LOGO OF TRW]
1999
SEC FORM 10-K
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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
TRW Inc.
(Exact name of registrant as specified in its charter)
Ohio 34-0575430
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
1900 Richmond Road, Cleveland, Ohio 44124
(Address of principal executive offices) (Zip Code)
(216) 291-7000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
------------------- ---------------------
<S> <C>
Common Stock, par value $0.625 per share New York Stock Exchange
Chicago Stock Exchange
Pacific Exchange
Philadelphia Stock Exchange
Cumulative Serial Preference Stock II, New York Stock Exchange
$4.40 Convertible Series 1
Cumulative Serial Preference Stock II, New York Stock Exchange
$4.50 Convertible Series 3
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
None
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
The aggregate market value of the registrant's voting and non-voting common
equity held by non-affiliates was $6,539,816,584 as of March 1, 2000. This
amount was computed on the basis of the closing price of the registrant's
voting securities included in the NYSE-Composite Transactions report for such
date, as published in the Midwest edition of The Wall Street Journal.
As of March 1, 2000 there were 122,273,759 shares of TRW Common Stock, $0.625
par value, outstanding.
The following documents have been incorporated herein by reference to the
extent indicated herein:
TRW Proxy Statement dated March 17, 2000 Part III
TRW Annual Report to Security Holders for the year ended Parts I, II
December 31, 1999 and IV
<PAGE>
TRW INC.
INDEX TO
ANNUAL REPORT ON FORM 10-K
FOR YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
Part I
------
Item 1. Business...................................................... 1
Item 2. Properties.................................................... 12
Item 3. Legal Proceedings............................................. 15
Item 4. Submission of Matters to a Vote of Security Holders........... 16
Executive Officers of the Registrant.................................... 17
Part II
-------
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters....................................................... 19
Item 6. Selected Financial Data....................................... 19
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 20
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.... 20
Item 8. Financial Statements and Supplementary Data................... 20
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure...................................... 20
Part III
--------
Item 10. Directors and Executive Officers of the Registrant............ 20
Item 11. Executive Compensation........................................ 20
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................... 21
Item 13. Certain Relationships and Related Transactions................ 21
Part IV
-------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K........................................................... 21
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS.
INDUSTRY SEGMENTS AND PRODUCT CLASSIFICATIONS
TRW is an international company that provides advanced technology products and
services. The principal businesses of TRW and its subsidiaries are the design,
manufacture and sale of products and the performance of systems engineering,
research and technical services for industry and the United States Government
in the automotive and aerospace and information systems markets. TRW operates
its business in the following seven operating segments:
. Occupant Safety Systems;
. Chassis Systems;
. Automotive Electronics;
. Other Automotive;
. Space & Electronics;
. Systems & Information Technology; and
. Aeronautical Systems.
TRW was incorporated under the laws of Ohio on June 17, 1916. When used in
this report, the terms "TRW" and the "Company" refer to TRW Inc. or to TRW
Inc. and its subsidiaries.
Automotive
TRW's automotive businesses design, manufacture and sell a broad range of
steering, suspension, braking, engine, safety, electronic, engineered
fastening and other components and systems for passenger cars, light trucks
and commercial vehicles through four operating segments. TRW sells the
products included in these businesses primarily to automotive original
equipment manufacturers. In addition, TRW sells its automotive components for
use as aftermarket and service parts to automotive original equipment
manufacturers and others for resale through their own independent distribution
networks.
Occupant Safety Systems
TRW's Occupant Safety Systems business focuses on the design, manufacture and
sale of:
. inflatable restraint systems, including complete air bag systems for driver,
passenger, side-impact and rollover applications in cars and light trucks;
. seat belt systems, including retractor and buckle assemblies, pyrotechnic
retractor and buckle assemblies, energy management devices, height
adjusters, seat integrated restraints and integrated child restraints; and
. steering wheel systems, including steering wheel and air bag covers and a
full range of steering wheels, from base wheels to top-of-the-line, that
incorporate leather, wood, multifunctional switches and integral air bag
modules.
TRW sells the products included in its Occupant Safety Systems business to
major vehicle manufacturers worldwide.
1
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Chassis Systems
TRW's Chassis Systems business focuses on the design, manufacture and sale of:
. steering systems and components, including hydraulic and electrically
assisted power and manual rack and pinion steering systems;
. suspension components;
. chassis modules and integrated vehicle control systems;
. vehicle dynamic control systems, consisting of two-wheel and four-wheel
anti-lock braking systems (ABS), ABS sensors and proportioning valves,
traction control systems, vehicle stability management systems,
electrohydraulic braking systems, electronic brake management systems and
adaptive cruise control systems;
. foundation brake systems, consisting of disc brake assemblies and
components, drum brake assemblies and components, brake proportioning valves
and wheel cylinders;
. brake actuation systems, consisting of mechanically and electronically
actuated boosters and master cylinders;
. brake modules, consisting of front and rear corner modules, brake and axle
modular assemblies and pedal box modules; and
. aftermarket operations, including parts, service and technical and
diagnostic support.
TRW sells the products included in its Chassis Systems business to major
original equipment (OE) vehicle manufacturers worldwide and to their
suppliers.
Automotive Electronics
TRW's Automotive Electronics business focuses on the design, manufacture and
sale of:
. safety electronics systems, including front and side air bag crash sensors,
air bag diagnostic modules, vehicle rollover sensors, active safety products
and "smart" restraint electronics;
. access and security electronics systems, including remote keyless entry
systems, integrated control units, body computers, advanced theft-deterrent
and security systems, vehicle communications systems, tire pressure sensing,
lock cylinders and key sets;
. vehicle dynamics electronics, including antilock braking, electrically
powered steering, electrically powered hydraulic steering and adaptive
cruise control systems;
. display and heating, ventilating and air conditioning electronics, including
heating, ventilating and air conditioning controls and actuators, air vents,
motors, instrument clusters, overhead consoles, panel controls and secondary
displays;
. power management controls, including fuse boxes, power supply, variable
voltage systems and intelligent distribution systems;
. man/machine interface controls and switches, including a wide array of
automotive ergonomic applications such as steering column and wheel
switches, rotary connectors, instrument panel switches, climate controls,
rotary light switches, seat controls, window lift switches, convenience
controllers, rain sensors, transmission switches and air bag disable
switches;
. engineered, plastic and metal fasteners and precision plastic moldings and
assemblies; and
. control systems, including rotary, linear and bi-directional actuators,
packaged switches and variable reluctance sensors for automotive and
industrial applications; silicon micro-machined die and pressure sensors for
medical and automotive applications; rotary, linear and tilt position
sensors for industrial applications; and silicone rubber keypads and switch
assemblies for cellular phones and hand-held devices.
TRW sells the products included in its Automotive Electronics business
primarily to major OE vehicle manufacturers worldwide and to their suppliers.
2
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Other Automotive
TRW's Other Automotive businesses focus on the design, manufacture and sale
of:
. engine components and systems, including engine valves, valve cotters, valve
rotators, valve stem guides, valve retaining caps, valve train systems and
valve seat inserts; and
. commercial steering systems and components, including integral power
steering gears, power steering pumps, steering columns, intermediate
steering shafts, steering cylinders, steering linkages, torque rods, tie
rods, control rods, drag links, suspension ball joints, shifter linkages,
pitman arms and ball sockets.
TRW sells its engine components and systems to major OE vehicle manufacturers
worldwide and to their suppliers. TRW's commercial steering systems and
components are sold to heavy duty vehicle manufacturers in North and South
America, Europe and the Asia Pacific region.
Also included within TRW's Other Automotive segment in 1999 were its Lucas
Diesel Systems, TRW Nelson Stud Welding and the LucasVarity wiring businesses.
Lucas Diesel Systems designs, manufactures and sells diesel fuel injection
equipment for automotive and industrial engines. The sale of Lucas Diesel was
substantially completed on January 7, 2000. TRW Nelson Stud Welding designs,
manufactures and sells stud welding systems and related stud fasteners to
industrial, metal working, transportation and construction markets, as well as
to automotive manufacturers, worldwide. In January 2000, the Company reached a
definitive agreement to sell TRW Nelson Stud Welding. The transaction is
expected to close by the end of the first quarter of 2000. The LucasVarity
wiring businesses design, manufacture and sell wiring harnesses and components
for automotive vehicle manufacturers. The sale of one of these businesses was
completed during the fourth quarter of 1999 and the sale of the remaining
business was completed during the first quarter of 2000.
Aerospace & Information Systems
TRW's aerospace and information systems businesses include: spacecraft systems
and subsystems; electronic systems, equipment, components and services;
systems integration, systems engineering services and software development;
information technology systems and services; and aeronautical systems.
TRW sells and distributes its products and services in its aerospace and
information systems businesses principally to the United States Government,
agencies of the United States Government, state, local and foreign governments
and international and commercial customers.
While classified projects are not discussed in this report, the operating
results relating to classified projects are included in the Company's
consolidated financial statements, and the business risks associated with
these projects do not differ materially from those of other projects for the
U.S. Government.
TRW also performs diverse testing and general research projects in many of the
technical disciplines related to its aerospace and information systems
products and services under both private and U.S. Government contracts.
Space & Electronics
TRW's Space & Electronics business focuses on the design and manufacture of:
. spacecraft systems and subsystems;
. electronic systems, including communication systems for space and defense;
. commercial telecommunications products;
. digital broadband space payloads;
. space science instruments;
. advanced avionics systems;
. high energy laser systems; and
. spacecraft products, including solar arrays and reflectors.
3
<PAGE>
TRW's Space & Electronics business also offers systems engineering and
advanced technology research and development services to its customers.
TRW's Space & Electronics business sells its products and services primarily
to the U.S. Government for both military and civilian applications, as well as
to international and commercial customers.
Systems & Information Technology
TRW's Systems & Information Technology business offers its customers systems
engineering, systems integration, software development, modeling and
simulation, test and evaluation, training and information technology for high
technology systems, products and services in the fields of:
. command and control;
. strategic missiles;
. missile and air defense;
. airborne reconnaissance;
. unmanned aerial vehicles;
. intelligence management and processing;
. earth observation;
. nuclear waste management;
. air traffic control;
. counterterrorism;
. security;
. criminal justice;
. health and human services;
. integrated supply chain;
. warehousing;
. logistics;
. tax; and
. finance.
The programs and services offered by TRW's Systems & Information Technology
business are sold to the U.S. Government and its agencies, state and local
government agencies, foreign governments and commercial customers.
Aeronautical Systems
TRW's Aeronautical Systems business is comprised entirely of the former
LucasVarity aerospace business, acquired in connection with TRW's acquisition
of LucasVarity in March 1999.
TRW's Aeronautical Systems business designs and manufactures high integrity
systems and equipment in the following product areas:
. cargo systems;
. engine controls;
. flight controls;
. power generation and management;
. hoists and winches;
. missile actuation; and
. equipment services.
TRW sells its aeronautical systems to the world's major airlines and aircraft
producers, as well as to the U.S. Government and international governments and
agencies.
4
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RESULTS BY SEGMENT
Reference is made to the information relating to the Company's industry
segments, including sales, profit before taxes and segment assets attributable
to each segment for each of the years 1997 through 1999, presented under the
note entitled "Operating Segments" in the Notes to Financial Statements on
pages 60 through 62 of the TRW 1999 Annual Report. This information is
incorporated herein by reference.
FOREIGN AND DOMESTIC OPERATIONS
TRW manufactures products or has principal facilities in 29 countries
throughout the world. TRW's operations outside the United States are in
Argentina, Australia, Austria, Bahrain, Brazil, Canada, China, the Czech
Republic, Egypt, France, Germany, India, Italy, Japan, Malaysia, Mexico, the
Netherlands, Oman, Poland, Portugal, Saudi Arabia, South Africa, South Korea,
Spain, Taiwan, Thailand, Turkey and the United Kingdom. TRW also exports
products manufactured by it in the United States. Such export sales accounted
for:
. 6 percent of total sales during 1999, or $1,039 million;
. 6 percent of total sales during 1998, or $674 million; and
. 7 percent of total sales during 1997, or $732 million.
TRW's foreign operations are subject to the usual risks that may affect such
operations, including, among other things:
. customary exchange controls and currency restrictions;
. currency fluctuations and devaluations;
. changes in local economic conditions;
. exposure to possible expropriation or other government actions;
. unsettled political conditions; and
. foreign government-sponsored boycotts of the Company's products or services
for noncommercial reasons.
Most of the identifiable assets associated with TRW's foreign operations are
located in countries where the Company believes such risks to be minimal. In
recent years, economic conditions in the Asia Pacific region and Latin
America, primarily Brazil, have had a negative impact on the Company's
operations. Future economic conditions in these regions could have continued
unfavorable effects in 2000.
Reference is made to the information relating to the dollar amounts of sales
and property, plant and equipment-net by geographic area for each of the years
1997 through 1999 presented under the note entitled "Operating Segments" in
the Notes to Financial Statements on pages 60 through 62 of the TRW 1999
Annual Report. This information is incorporated herein by reference.
5
<PAGE>
GENERAL
Competition
TRW encounters intense competition in substantially all segments of its
business. The Company's competitive position varies for its different products
and services. However, TRW believes that it is a significant supplier of many
of the products it manufactures and of many of the services it provides.
In the automotive businesses, competitors include independent suppliers of
parts and components as well as the Company's original equipment customers,
many of whom are integrated manufacturers who produce or could produce
substantial portions of their requirements for parts and components
internally. Some of the integrated manufacturers are becoming more aggressive
in attempting to sell components to other automotive manufacturers and have or
are considering spinning off all or a portion of their components operations
which might also make such operations more aggressive competitors. Depending
on the particular product, the number of the Company's competitors varies
significantly and many of the products have high capital requirements and
require high engineering content. In the automotive businesses and in the
Aeronautical Systems business, the principal methods of competition are:
. price;
. engineering excellence;
. product quality;
. customer service;
. delivery time; and
. proprietary position.
TRW competes for contracts covering a variety of U.S. Government and
commercial projects and programs in the Space & Electronics and Systems &
Information Technology businesses of its aerospace and information systems
business. Such competition is based primarily on:
. technical ability;
. product quality; and
. price.
TRW's competitors for U.S. Government contracts typically are large,
technically-competent firms with substantial assets, some of which have become
considerably larger in recent years.
Customers
Sales, directly and indirectly, to the United States Government, including the
Department of Defense, the National Aeronautics & Space Administration and
other agencies, represented the following percentages of TRW's total sales:
. 25 percent for 1999, or $4,248 million;
. 35 percent for 1998, or $4,119 million; and
. 33 percent for 1997, or $3,523 million.
6
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Sales, directly and indirectly, to the United States Government, including the
Department of Defense, the National Aeronautics & Space Administration and
other agencies, represented the following percentages of the sales of the
aerospace and information systems businesses:
<TABLE>
<CAPTION>
Systems & Information
Space & Electronics Technology Aeronautical Systems
---------------------- ---------------------- ----------------------
Year Percent $(In millions) Percent $(In millions) Percent $(In millions)
- ---- ------- -------------- ------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
1999 31% $1,748 43% $2,438 1% $51
1998 39% 1,804 49% 2,314 -- --
1997 50% 1,881 43% 1,641 -- --
</TABLE>
As with all companies engaged in U.S. Government contracting, TRW is subject
to certain unique business risks, including:
. dependence on Congressional appropriations and administrative allotment of
funds;
. changes in U.S. Government policies that may reflect military and political
developments;
. time required for design and development;
. significant changes in contract scheduling;
. complexity of designs and the rapidity with which they become obsolete;
. necessity of design improvements;
. difficulty in forecasting costs and schedules when bidding on developmental
and highly sophisticated technical work; and
. other factors characteristic of the industry.
United States Government contracting laws also provide that the United States
Government is to do business only with responsible contractors. In this
regard, the United States Department of Defense and other federal agencies
have the authority, under certain circumstances, to suspend or debar a
contractor or organizational parts of a contractor from further U.S.
Government contracting for a certain period "to protect the Government's
interest." Such action may be taken for, among other reasons, commission of
fraud or a criminal offense in connection with a U.S. Government contract. A
suspension may also be imposed if a contractor is indicted for such matters.
In the event of any suspension or debarment, TRW's existing contracts would
continue unless terminated or canceled by the U.S. Government under applicable
contract provisions.
Other than the United States Government, TRW's largest customers (determined
by including sales to their affiliates throughout the world but excluding
sales to such customers or their affiliates that ultimately result in sales to
the United States Government) are Ford Motor Company, DaimlerChrysler AG,
General Motors Corporation and Volkswagen AG. Such sales by each of TRW's
automotive segments to Ford, DaimlerChrysler, General Motors and Volkswagen,
and their respective subsidiaries, accounted for the following percentages of
the sales of each of the automotive segments:
7
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Ford:
<TABLE>
<CAPTION>
Occupant Safety Automotive
Year Systems Chassis Systems Electronics Other Automotive
- ---- --------------- --------------- ----------- ----------------
<S> <C> <C> <C> <C>
1999 33% 16% 11% 9%
1998 33% 11% 14% 5%
1997 33% 12% 15% 7%
DaimlerChrysler:
<CAPTION>
Occupant Safety Automotive
Year Systems Chassis Systems Electronics Other Automotive
- ---- --------------- --------------- ----------- ----------------
<S> <C> <C> <C> <C>
1999 10% 15% 19% 7%
1998 9% 16% 21% 9%
1997/1/ 4% 13% 21% --
General Motors:
<CAPTION>
Occupant Safety Automotive
Year Systems Chassis Systems Electronics Other Automotive
- ---- --------------- --------------- ----------- ----------------
<S> <C> <C> <C> <C>
1999 10% 12% 9% 8%
1998 10% 7% 7% 14%
1997 9% 3% 6% 15%
Volkswagen:
<CAPTION>
Occupant Safety Automotive
Year Systems Chassis Systems Electronics Other Automotive
- ---- --------------- --------------- ----------- ----------------
<S> <C> <C> <C> <C>
1999 14% 9% 8% 4%
1998 16% 12% 11% 8%
1997 12% 13% 9% 9%
</TABLE>
Such sales by TRW's automotive businesses to Ford and its subsidiaries
accounted for the following percentages of TRW's total sales:
. 13 percent for 1999, or $2,143 million;
. 12 percent for 1998, or $1,423 million; and
. 14 percent for 1997, or $1,469 million.
- --------
/1/1997 sales to DaimlerChrysler pre-date the merger of Chrysler Corporation
and DaimlerBenz AG and reflect only sales by TRW's automotive businesses to
Chrysler Corporation.
8
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Backlog
The backlog of orders for TRW's operations is estimated to have been
approximately $7.2 billion at December 31, 1999 and $6.0 billion at December
31, 1998. Of those amounts, U.S. Government business, directly or indirectly,
is estimated to have accounted for approximately $5.6 billion at December 31,
1999 and $5.1 billion at December 31, 1998, substantially all of which is
related to the aerospace and information systems businesses. Reported backlog
at December 31, 1999 and 1998 does not include approximately $5.2 billion and
$5.8 billion, respectively, of negotiated and priced, but unexercised, options
of the Company's customers to purchase products and services from TRW for
defense and non-defense programs. The exercise of options is at the discretion
of the customer and, in the case of U.S. Government contracts, is dependent on
future government funding. Of the total backlog, 98 percent at December 31,
1999 and 96 percent at December 31, 1998 was attributable to the aerospace and
information systems business. Of the backlog attributable to the aerospace and
information systems business, the following percentages were attributable to
each of the segments comprising that business:
<TABLE>
<CAPTION>
Systems &
Space & Information Aeronautical
Year Electronics Technology Systems
- ---- ----------- ----------- ------------
<S> <C> <C> <C>
1999 43% 52% 5%
1998 47% 53% --
</TABLE>
The determination of TRW's backlog involves substantial estimating,
particularly with respect to customer requirements contracts and long-term
contracts of a cost-reimbursement or incentive nature. A substantial portion
of the variations in TRW's estimated backlog in recent years is attributable
to the timing of the award and performance of U.S. Government and certain
other contracts. Subject to various qualifications, including those set forth
herein, and assuming no terminations, cancellations or changes and completion
of orders in the normal course of business, TRW has estimated that
approximately 54 percent of the December 31, 1999 backlog will be delivered in
2000, 32 percent in 2001 and 14 percent thereafter.
United States Government contracts and related customer orders generally may
be terminated in whole or in part at the convenience of the United States
Government whenever the United States Government believes that such
termination would be in its best interest. Multi-year U.S. Government
contracts and related orders may be canceled if funds for contract performance
for any subsequent contract year become unavailable. If any of its U.S.
Government contracts were terminated or canceled under these circumstances,
TRW generally would be entitled to receive payment for work completed and
allowable termination or cancellation costs. Whether the occurrence of any
such termination or cancellation would have an adverse effect on TRW would
depend upon the particular contract and the circumstances of the termination
or cancellation.
Backlog data and comparisons as of different dates may not be reliable
indicators of either future sales or the ratio of future direct and indirect
U.S. Government sales to other sales.
Intellectual Property
TRW owns significant intellectual property, including a large number of
patents, copyrights and trade secrets, and is involved in numerous licensing
arrangements. Although TRW's intellectual property plays an important role in
maintaining TRW's competitive position in a number of the markets that it
serves, no single patent, copyright, trade secret or license, or group of
related patents, copyrights, trade secrets or licenses, is, in the opinion of
management, of such value to TRW that the business of TRW or of any industry
segment of TRW would be materially affected by the expiration or termination
thereof. TRW's general policy is to apply for patents on an ongoing basis in
the United States and appropriate other countries on its significant
patentable developments.
9
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TRW also views its name and mark as significant to its business as a whole. In
addition, TRW owns a number of other trade names and marks applicable to
certain of its businesses and products that it views as important to such
businesses and products.
Research and Development
Research and development costs totaled:
. $2,168 million in 1999;
. $2,143 million in 1998; and
. $2,146 million in 1997.
Of these amounts, customer-funded research and development was:
. $1,249 million in 1999;
. $1,425 million in 1998; and
. $1,501 million in 1997.
Company-funded research and development costs, which included research and
development for commercial products, independent research and development and
bid and proposal work related to government products and services, totaled:
. $609 million in 1999;
. $522 million in 1998; and
. $461 million in 1997.
A portion of the cost incurred for independent research and development and
bid and proposal work is recoverable through overhead charged to government
contracts.
Company-funded product development costs, including engineering and field
support for new customer requirements, were:
. $310 million in 1999;
. $196 million in 1998; and
. $184 million in 1997.
The 1999 and 1997 research and development costs exclude the $85 million and
$548 million charges for purchased in-process research and development
associated with the acquisitions of LucasVarity plc and BDM International,
Inc., respectively. Reference is made to the information concerning these
charges in "Management's Discussion and Analysis of the Results of Operations
and Financial Condition" under the caption "Acquisitions" on pages 33 through
35 of the TRW 1999 Annual Report and the note entitled "Acquisitions" in the
Notes to Financial Statements on pages 48 through 50 of the TRW 1999 Annual
Report. This information is incorporated herein by reference.
Employees
At December 31, 1999, TRW had approximately 122,000 employees, of whom
approximately 45,000 were employed in the United States and 48,000 were
employed in Europe.
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<PAGE>
Raw Materials and Supplies
Materials used by TRW include or contain:
. steel . sodium azide
. aluminum . glass
. carbon and plastic . ceramics
materials . plastic powders and
. stainless steel laminations
. pig iron . synthetic rubber
. ferro-chrome . paper
. brass . gold, silver, nickel, zinc and
. copper copper plating materials
. tin . electronics
. platinum . friction materials
. special alloys
TRW also purchases from suppliers various types of equipment and component
parts that may include these materials. TRW's operations depend upon the
ability of its suppliers of materials, equipment and component parts to meet
performance and quality specifications and delivery schedules. In some cases,
there are only a limited number of suppliers for a material or product due to
the specialized nature of the item. Shortages of certain raw materials,
equipment and component parts have existed in the past and may exist again in
the future. TRW has taken a number of steps to protect against and to minimize
the effect of such shortages. However, any future inability of TRW to obtain
raw materials, equipment or component parts could have a material adverse
effect on the Company. TRW's operations also depend on adequate supplies of
energy. TRW has continued its programs to conserve energy used in its
operations and has available alternative sources of energy.
Environmental Regulations
Federal, state and local requirements relating to the discharge of materials
into the environment, or otherwise relating to the protection of the
environment, have had, and will continue to have, an effect on TRW and its
operations. TRW has made and continues to make expenditures for projects
relating to the environment, including pollution control devices for new and
existing facilities. TRW is conducting a number of environmental
investigations and remedial actions at current and former TRW locations to
comply with various federal, state and local laws and, along with other
companies, has been named a potentially responsible party for certain waste
management sites. Each of these matters is subject to various uncertainties,
and some of these matters may be resolved unfavorably to TRW.
A reserve estimate reflecting cost ranges is established using standard
engineering cost estimating techniques for each matter for which sufficient
information is available. In the determination of cost ranges, the
professional judgment of TRW's environmental engineers, in consultation with
outside environmental specialists, when necessary, is considered. At multi-
party sites, the reserve estimate also reflects the expected allocation of
total project costs among the various potentially responsible parties. At
December 31, 1999, TRW had reserves for environmental matters of $136 million,
including $13 million of additional expense recorded during the year and $66
million of reserves relating to the LucasVarity acquisition. TRW aggressively
pursues reimbursement for environmental costs from its insurance carriers.
Insurance recoveries are recorded as a reduction of environmental costs when
fixed and determinable.
TRW does not believe that compliance with environmental protection laws and
regulations will have a material effect upon its capital expenditures or
competitive position, and TRW's capital expenditures for environmental control
facilities during 2000 and 2001 are not expected to be material to the
Company. TRW believes that any liability that may result from the resolution
of environmental matters for which sufficient information is available to
support cost estimates will not have a material adverse effect on the
Company's earnings. However, TRW cannot predict the effect on the Company's
earnings of expenditures for aspects of certain matters for which
11
<PAGE>
there is insufficient information. See also "Legal Proceedings" on page 15 of
this Annual Report on Form 10-K. In addition, TRW cannot predict the effect on
the Company's earnings of compliance with environmental laws and regulations
with respect to currently unknown environmental matters or the possible effect
on the Company's earnings of compliance with environmental requirements
imposed in the future.
Capital Expenditures -- Property, Plant and Equipment
During the five years ended December 31, 1999, TRW's capital expenditures and
the net book value of its assets retired or sold were:
<TABLE>
<CAPTION>
Capital Expenditures
(In Millions) (In Millions)
------------------------------- -----------------
Land, Buildings Machinery Net Book Value
Year Ended and Leasehold and of Assets Retired
December 31, Improvements Equipment Total or Sold
- ------------ --------------- --------- ----- -----------------
<S> <C> <C> <C> <C>
1999........................ $98 $691 $789 $111
1998........................ 92 452 544 40
1997........................ 86 463 549 54
1996........................ 76 424 500 29
1995........................ 74 392 466 21
</TABLE>
On a segment basis, capital expenditures during 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
Capital Expenditures
(In Millions)
-------------------------
Year Ended Year Ended
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Occupant Safety Systems............................... $118 $152
Chassis Systems....................................... 267 107
Automotive Electronics................................ 84 86
Other Automotive...................................... 126 45
Space & Electronics................................... 99 115
Systems & Information Technology...................... 38 32
Aeronautical Systems.................................. 55 --
</TABLE>
Of total capital expenditures, 42 percent in 1999 and 52 percent in 1998 were
invested in the United States.
ITEM 2. PROPERTIES.
TRW's operations include numerous manufacturing, research and development and
warehousing facilities. TRW owns or leases principal facilities located in 25
states plus the District of Columbia in the United States and in 28 other
countries. Approximately 46 percent of the principal domestic facilities are
used by the automotive businesses, 52 percent are used by the aerospace and
information systems businesses and 2 percent are used at the corporate level.
The automotive businesses use a substantial majority of the foreign
facilities.
Of the total number of principal facilities operated by TRW, approximately 56
percent of such facilities are owned, 35 percent are leased, 5 percent are
held by joint ventures in which TRW has a majority interest and 4 percent are
operated on property owned directly or indirectly by the U.S. Government. The
Company owns its world headquarters in Lyndhurst, Ohio as well as the
headquarters for its Space & Electronics segment in Redondo Beach, California,
its Aeronautical Systems segment in Birmingham, England and its Occupant
Safety Systems segment in Washington, Michigan.
12
<PAGE>
The Company also owns, leases or operates on government-owned property,
certain smaller research and development properties and administrative,
marketing, sales and office facilities throughout the United States and in
various parts of the world.
A summary of TRW's principal facilities, by segment, type of facility and
geographic region, is set forth in the following tables. The multi-purpose
facilities are listed under each category for which a portion of the square
footage of that facility is used. For example, TRW's headquarters for its
Space & Electronics segment in Redondo Beach, California is categorized as a
manufacturing facility, a research and development facility and as office
space, as significant portions of its square footage are utilized for each of
these purposes. Additionally, where more than one segment utilizes a single
facility, that facility will be categorized by the purposes for which it is
used by each such segment. For example, TRW's Redondo Beach facility serves
not only as the headquarters and a manufacturing and research and development
facility for its Space & Electronics business but is also utilized by its
Systems & Information Technology business as both office space and a research
and development facility. As such, this facility will appear in the following
tables under both Space & Electronics and Systems & Information Technology.
Automotive Segments
Occupant Safety Systems
<TABLE>
<CAPTION>
North Asia
Principal Use of Facility America Europe Pacific Other Total
------------------------- ------- ------ ------- ----- -----
<S> <C> <C> <C> <C> <C>
Research and Development..................... 2 -- -- -- 2
Manufacturing................................ 10 16 1 2 29
Warehouse.................................... 2 1 -- -- 3
Office....................................... 3 -- -- -- 3
Total........................................ 17 17 1 2 37
Chassis Systems
<CAPTION>
North Asia
Principal Use of Facility America Europe Pacific Other Total
------------------------- ------- ------ ------- ----- -----
<S> <C> <C> <C> <C> <C>
Research and Development..................... 1 -- -- -- 1
Manufacturing................................ 22 28 10 7 67
Warehouse.................................... 4 6 -- 1 11
Office....................................... 2 2 -- -- 4
Total........................................ 29 36 10 8 83
Automotive Electronics
<CAPTION>
North Asia
Principal Use of Facility America Europe Pacific Other Total
------------------------- ------- ------ ------- ----- -----
<S> <C> <C> <C> <C> <C>
Research and Development..................... 1 1 -- 1 3
Manufacturing................................ 14 20 4 1 39
Office....................................... 2 -- -- -- 2
Total........................................ 17 21 4 2 44
</TABLE>
13
<PAGE>
Other Automotive
<TABLE>
<CAPTION>
North Asia
Principal Use of Facility America Europe Pacific Other Total
------------------------- ------- ------ ------- ----- -----
<S> <C> <C> <C> <C> <C>
Research and Development..................... -- 1 -- -- 1
Manufacturing................................ 7 9 1 2 19
Warehouse.................................... -- 1 -- -- 1
Office....................................... 1 -- -- -- 1
Total........................................ 8 11 1 2 22
Aerospace & Information Systems Segments
Space & Electronics
<CAPTION>
North Asia
Principal Use of Facility America Europe Pacific Other Total
------------------------- ------- ------ ------- ----- -----
<S> <C> <C> <C> <C> <C>
Research and Development..................... 4 -- -- -- 4
Manufacturing................................ 2 -- -- -- 2
Warehouse.................................... 1 -- -- -- 1
Office....................................... 6 -- -- -- 6
Total........................................ 13 -- -- -- 13
Systems & Information Technology
<CAPTION>
North Asia
Principal Use of Facility America Europe Pacific Other Total
------------------------- ------- ------ ------- ----- -----
<S> <C> <C> <C> <C> <C>
Research and Development..................... 2 -- -- -- 2
Warehouse.................................... 5 -- -- -- 5
Office....................................... 36 1 -- 6 43
Total........................................ 43 1 -- 6 50
Aeronautical Systems
<CAPTION>
North Asia
Principal Use of Facility America Europe Pacific Other Total
------------------------- ------- ------ ------- ----- -----
<S> <C> <C> <C> <C> <C>
Manufacturing................................ 4 11 -- -- 15
Office....................................... 4 3 -- -- 7
Total........................................ 8 14 -- -- 22
</TABLE>
In addition to the facilities set forth in the foregoing tables, TRW also
maintains approximately eleven facilities that it utilizes as office space at
the corporate level. Two of such facilities are located in North America, one
in Europe and the remaining eight facilities are located in the Asia Pacific
region.
In the opinion of management, the Company's facilities are generally well
maintained and are suitable and adequate for their intended use.
For additional information concerning TRW's long-term rental obligations under
operating leases, see the note entitled "Lease Commitments" in the Notes to
Financial Statements on page 57 of the TRW 1999 Annual Report. This
information is incorporated herein by reference.
14
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
During 1996, the United States Department of Justice, or the DOJ, advised the
Company that it had been named as a defendant in two lawsuits brought by
Richard D. Bagley, 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, 1998, the DOJ intervened in the litigation. On
February 19, 1998 and March 4, 1998, Bagley 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 certain additional allegations. 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, Bagley withdrew the first amended complaint in the 1994 lawsuit at
the request of the DOJ. On May 18, 1998, the Company filed answers to Bagley's
first amended complaint in the 1995 lawsuit and to the DOJ's complaint,
denying all substantive allegations contained therein. At the same time, the
Company filed counterclaims against both Bagley and the federal government. On
July 20, 1998, both Bagley 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 Bagley
and the federal government and took under advisement Bagley'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. On August 6, 1999, the Government filed
its Second Amended Complaint, which incorporated vouchers, progress payment
requests, and invoices submitted by TRW to higher tier Government contractors
among the class of allegedly false claims challenged by the Government. On
September 29, 1999, Bagley filed his Second Amended Complaint, which
incorporated subcontracts performed by TRW for higher tier Government
contractors among the class of contracts under which allegedly false claims
were presented, and added allegations relating to certain of Bagley's pre-
existing claims. 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.
On December 15, 1987, the Commissioner of the Indiana Department of
Environmental Management issued an Order to TRW and several other respondents
relating to alleged contamination of the public water supply in Shelbyville,
Indiana by, among other sources, two closed facilities that were formerly
operated by TRW's Connectors Division. The Order requires the respondents to
fund the relocation of the main well field for Shelbyville to a location that
can provide a safe source of potable water and to perform a remedial
investigation of the source and extent of contamination within a one-mile
radius of the well field. The Order also requires the respondents to pay civil
penalties of $25,000 per day for violations of law that allegedly occurred
prior to issuance of the Order. TRW has filed a petition for review of the
Order. The Order is not expected to have a material effect on the Company's
financial position.
15
<PAGE>
TRW Vehicle Safety Systems Inc., a wholly-owned subsidiary of the Company,
reported to the Arizona Department of Environmental Quality, or ADEQ, in 1997,
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, the United
States Environmental Protection Agency, the United States Department of
Justice and the Arizona State Attorney General are conducting civil and
criminal investigations into these potential violations and the Company is
cooperating with these investigations. If proceedings were to be initiated
against the Company with respect to such matters, the Company could be liable
for penalties and fines and other relief. The Company is currently engaged in
settlement discussions with state and federal officials. The Company is not
able to predict the outcome of these discussions at this time.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None during the fourth quarter of 1999.
16
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages of and the positions and offices held by, each person
designated an executive officer of the Company as of March 1, 2000, together
with the offices held by each such person during the last five years, are
listed below. Each executive officer is elected annually and, unless the
executive officer resigns or terminates employment with the Company or is
removed from office by action of the Company's Directors, will hold office for
the ensuing year or until a successor is elected in accordance with the
Company's Regulations.
<TABLE>
<CAPTION>
Positions and Business Experience
Name Age During the Past Five Years
---- --- ---------------------------------
<C> <C> <S>
J. T. Gorman 62 Chairman and Chief Executive Officer (1988 to the present)
and Director (1984 to the present)
D. M. Cote 47 President and Chief Operating Officer and Director (1999
to the present)
Senior Vice President, General Electric Company and
President and Chief Executive Officer, GE Appliances
(1996 - 1999)
Vice President and General Manager, GE Silicones (1994 -
1996)
T. W. Hannemann 57 Executive Vice President and General Manager, TRW Space &
Electronics (1993 to the present)
H. V. Knicely 63 Executive Vice President, Human Resources and
Communications (1995 to the present)
Executive Vice President, Human Resources, Communications
& Information Resources (1989 - 1994)
W. B. Lawrence 55 Executive Vice President, General Counsel and Secretary
(1997 to the present)
Executive Vice President, Planning, Development &
Government Affairs (1989 - 1997)
W. K. Maciver 60 Executive Vice President and General Manager, TRW
Aeronautical Systems (1999 to the present)
Managing Director and President, Lucas Aerospace (1995 -
1999)
Managing Director, Lucas Braking Systems (1992 - 1995)
C. G. Miller 57 Executive Vice President and Chief Financial Officer (1996
to the present)
Executive Vice President, Chief Financial Officer and
Controller (1996)
Vice President and Controller (1990 - 1996)
P. A. Odeen 64 Executive Vice President, Washington Operations (2000 to
the present)
Executive Vice President and General Manager, TRW Systems
& Information Technology (1998 - 1999)
President, Chief Executive Officer and Director, BDM
International, Inc. (1992 - 1997)
H. Pfannschmidt 52 Executive Vice President and General Manager, TRW
Automotive Electronics (1999 to the present)
Vice President and General Manager, TRW Automotive
Electronics (1999)
Vice President and Managing Director, TRW Inflatable
Restraint Systems (1997 - 1998)
Executive Vice President, Hella KG Hueck & Co. (1994 -
1997)
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Positions and Business Experience
Name Age During the Past Five Years
---- --- ---------------------------------
<C> <C> <S>
J. C. Plant 46 Executive Vice President and General Manager, TRW Chassis
Systems (1999 to the present)
Executive Vice President and General Manager, TRW
Automotive (1999)
President, LucasVarity Automotive (1998 - 1999)
Managing Director, Electrical and Electronic Division,
Lucas Automotive (1991 - 1998)
J. S. Remick 61 Executive Vice President and General Manager, TRW Engine
Components & Commercial Steering Systems (1999 to the
present)
Executive Vice President and Acting General Manager, TRW
Automotive (1999)
Executive Vice President and General Manager, TRW Occupant
Restraint Systems Group (1996 - 1998)
Executive Vice President and General Manager, TRW Steering,
Suspension & Engine Group (1995 - 1996)
Vice President and Deputy General Manager, Automotive
Operations (1995)
Vice President and General Manager, TRW Steering &
Suspension Systems, North and South America (1991 - 1995)
J. F. Smith 53 Executive Vice President and General Manager, TRW Occupant
Safety Systems (1999 to the present)
Vice President and General Manager, TRW Inflatable
Restraint Systems
(1989 - 1999)
P. Staudhammer 66 Vice President, Science & Technology (1993 to the present)
R. D. Sugar 51 President and Chief Operating Officer, TRW Aerospace &
Information Systems (1999 to the present)
Executive Vice President (1999)
Executive Vice President and General Manager, TRW
Automotive Electronics Group (1996 - 1998)
Executive Vice President and Chief Financial Officer
(1994 - 1996)
D. C. Winter 51 Executive Vice President and General Manager, TRW Systems &
Information Technology (2000 to the present)
Vice President and Deputy General Manager for Group
Development, TRW Space & Electronics (1998 - 1999)
Vice President and General Manager of the Defense Systems
Division, TRW Space & Electronics Group (1990 - 1997)
</TABLE>
18
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Reference is made to the information set forth in the table presented under
"Stock Prices and Dividends (Unaudited)" on page 64 of the TRW 1999 Annual
Report, and to the information presented under the notes entitled "Debt and
Credit Agreements" and "Events Subsequent to Date of Report of Independent
Auditors (Unaudited)" in the Notes to Financial Statements on pages 56 and 57
and page 63, respectively, of the TRW 1999 Annual Report. The information
contained in such table and the information contained in the second-to-last
paragraph of text of the "Debt and Credit Agreements" note and in the last
paragraph of the "Events Subsequent to Date of Report of Independent Auditors
(Unaudited)" note to financial statements is incorporated herein by reference.
The Company's Common Stock is traded principally on the New York Stock
Exchange and is also traded on the Chicago, Pacific, Philadelphia, London and
Frankfurt exchanges.
On March 1, 2000, there were 23,062 shareholders of record of the Company's
Common Stock.
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------ ------
(In Millions, Except Per Share
Amounts)
<S> <C> <C> <C> <C> <C>
Sales................................... $16,969 $11,886 $10,831 $9,857 $9,568
Earnings(loss) from continuing
operations............................. 469 477 (49) 182 395
Per share of Common Stock:
Diluted earnings(loss) -- continuing
operations........................... 3.80 3.83 (.40) 1.37 2.94
Basic earnings(loss) -- continuing
operations........................... 3.87 3.93 (.40) 1.41 3.02
Cash dividends declared................. 1.32 1.28 1.24 1.17 1.05
Total assets............................ 18, 266 7,340 6,410 5,899 5,670
Long-term debt.......................... 5,369 1,353 1,117 458 539
Shares used in computing per share
amounts:
Diluted............................... 123.5 124.4 123.7 132.8 134.4
Basic................................. 121.0 121.3 123.7 128.7 130.6
</TABLE>
In 1999, earnings(loss) from continuing operations include an $85 million,
$.69 per share, one-time noncash charge related to in-process research and
development associated with the acquisition of LucasVarity.
In 1997, earnings(loss) from continuing operations include a $548 million,
$4.43 per share, one-time noncash charge related to in-process research and
development associated with the acquisition of BDM.
In 1996, the Company recorded special charges of $202 million after tax, $1.52
per share, primarily for actions taken, in part, to enhance the Company's
competitiveness. Also during 1996, the Company applied the provisions of
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
resulting in the recognition of $50 million after tax, $0.38 per share, of
impairment losses which were primarily a result of technological changes and
the decision to close certain facilities in its automotive business.
19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Reference is made to the information presented under the heading "Management's
Discussion and Analysis of the Results of Operations and Financial Condition"
on pages 27 through 39 of the TRW 1999 Annual Report. This information is
incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Reference is made to the information presented under the heading "Management's
Discussion and Analysis of the Results of Operations and Financial Condition"
on pages 27 through 39 of the TRW 1999 Annual Report. Reference is also made
to the information presented under the heading "Summary of Significant
Accounting Policies" in the Notes to Financial Statements on pages 45 through
47 of the TRW 1999 Annual Report. This information is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Reference is made to the financial statements headed "Statements of
Operations," "Balance Sheets," "Statements of Cash Flows" and "Statements of
Changes in Shareholders' Investment," and the accompanying notes thereto, on
pages 41 through 62 of the TRW 1999 Annual Report. Reference is also made to
the information included in the table presented under the heading "Quarterly
Financial Information (Unaudited)" on page 63 of the report. These statements,
the accompanying notes and the table are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Reference is made to the information relating to TRW's Directors which is
presented under the heading "Board of Directors" on pages 4 through 8 of the
TRW Proxy Statement dated March 17, 2000, as filed with the Securities and
Exchange Commission (the "TRW Proxy Statement"). Reference is made to the
information relating to Section 16(a) compliance which is presented under the
heading "Section 16(a) Beneficial Ownership Reporting Compliance" on page 33
of the TRW Proxy Statement. This information is incorporated herein by
reference.
See the information presented in Part I of this Report under the heading
"Executive Officers of the Registrant" for information relating to TRW's
executive officers.
ITEM 11. EXECUTIVE COMPENSATION.
Reference is made to the information presented under the heading "Compensation
of Executive Officers" on pages 17 through 28 of the TRW Proxy Statement.
Reference is also made to the information presented under the heading
"Director Compensation" on page 11 of the TRW Proxy Statement. This
information is incorporated herein by reference.
20
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Reference is made to the information presented under the heading "Management
Ownership of Shares" on page 16 of the TRW Proxy Statement. Reference is also
made to the information presented under the caption "Outstanding Securities"
on page 33 of the TRW Proxy Statement. This information is incorporated herein
by reference.
There are no agreements or arrangements known to TRW that might, at a
subsequent date, result in a change in control of TRW.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Reference is made to the information presented under the heading "Director
Compensation" on page 11 of the TRW Proxy Statement. This information is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Financial Statements and Schedules
(1) Financial Statements
The following financial statements of the registrant and its subsidiaries
included in the TRW 1999 Annual Report are incorporated herein by
reference:
Statements of Operations -- Years ended December 31, 1999, 1998 and 1997
(page 41)
Balance Sheets -- December 31, 1999 and 1998 (page 42)
Statements of Cash Flows -- Years ended December 31, 1999, 1998 and 1997
(page 43)
Statements of Changes in Shareholders' Investment -- Years ended December
31, 1999, 1998 and 1997 (page 44)
Notes to Financial Statements -- (pages 45 - 62)
(2) Financial Statement Schedules
All Schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required
under the related instructions or are not applicable and, therefore, have
been omitted.
Financial statements and summarized financial information of
unconsolidated subsidiaries and 50 percent or less owned persons
accounted for by the equity method have been omitted because such
subsidiaries and persons, considered individually or in the aggregate, do
not constitute a significant subsidiary.
21
<PAGE>
(3) Exhibits
<TABLE>
<C> <S>
2(a) Offer to Purchase dated February 6, 1999 (Exhibit (a)(1) to TRW's
Schedule 14D-1 dated February 5, 1999, is incorporated herein by
reference).
2(b) Form of Irrevocable Undertakings executed by each director of
LucasVarity plc (Exhibit (c)(1) to TRW's Schedule 14D-1 dated
February 5, 1999, is incorporated herein by reference).
2(c) Break-up Fee Agreement, dated January 28, 1999 between TRW and
LucasVarity plc (Exhibit (c)(2) to TRW's Schedule 14D-1 dated
February 5, 1999, is incorporated herein by reference).
3(a) Amended Articles of Incorporation as amended May 5, 1997 (Exhibit
3(a) to TRW Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997, is incorporated herein by reference).
3(b) Regulations as amended April 30, 1980 (Exhibit 3(b) to TRW Annual
Report on Form 10-K for the year ended December 31, 1980, is
incorporated herein by reference).
4(a) Indenture between TRW Inc. and The Chase Manhattan Bank (National
Association), as successor Trustee, dated as of May 1, 1986
(Exhibit 2 to TRW Form 8-A Registration Statement dated July 3,
1986, is incorporated herein by reference).
4(b) First Supplemental Indenture between TRW Inc. and The Chase
Manhattan Bank (National Association), as successor Trustee, dated
as of July 26, 1989 (Exhibit 4(b) to TRW Form
S-3 Registration Statement, File No. 33-30350, is incorporated
herein by reference).
4(c) Second Supplemental Indenture between TRW Inc. and The Chase
Manhattan Bank, as successor Trustee, dated as of June 2, 1999
(Exhibit 4(c) to TRW Registration Statement on Form S-4, filed July
20, 1999, File No. 333-83227, is incorporated herein by reference).
4(d) Third Supplemental Indenture between TRW Inc. and The Chase
Manhattan Bank, as successor Trustee, dated as of June 2, 1999
(Exhibit 4(d) to TRW Registration Statement on Form S-4, filed July
20, 1999, File No. 333-83227, is incorporated herein by reference).
4(e) Fourth Supplemental Indenture between TRW Inc. and The Chase
Manhattan Bank, as successor Trustee, dated as of June 2, 1999
(Exhibit 4(e) to TRW Registration Statement on Form S-4, filed July
20, 1999, File No. 333-83227, is incorporated herein by reference).
4(f) Fifth Supplemental Indenture between TRW Inc. and The Chase
Manhattan Bank, as successor Trustee, dated as of June 2, 1999
(Exhibit 4(f) to TRW Registration Statement on Form S-4, filed July
20, 1999, File No. 333-83227, is incorporated herein by reference).
4(g) Sixth Supplemental Indenture between TRW Inc. and The Chase
Manhattan Bank, as successor Trustee, dated as of June 2, 1999
(Exhibit 4(g) to TRW Registration Statement on Form S-4, filed July
20, 1999, File No. 333-83227, is incorporated herein by reference).
4(h) Distribution Agreement, dated April 13, 1998, between TRW Inc. and
each of Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co. and
J.P. Morgan Securities Inc., regarding $1,000,000,000 Medium-Term
Notes, Series D, due nine months or more from the date of issuance
(Exhibit 1 to TRW Inc.'s Current Report on Form 8-K dated April 13,
1998, is incorporated herein by reference).
4(i) Form of Medium Term Note, Series D (Exhibit 4 to TRW Inc.'s Current
Report on Form 8-K dated April 13, 1998, is incorporated herein by
reference).
4(j) 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 (Exhibit 4(m) to TRW Registration Statement on Form S-4,
filed July 20, 1999, File No. 333-83227, is incorporated herein by
reference).
</TABLE>
22
<PAGE>
<TABLE>
<C> <S>
4(k) Registration Rights Agreement, dated June 23, 1999, among TRW and
Goldman, Sachs & Co., as representative of the initial purchasers
(Exhibit 4(n) to TRW Registration Statement on Form S-4, filed July
20, 1999, File No. 333-83227, is incorporated herein by reference).
4(l) Distribution Agreement, dated November 17, 1999, between TRW Inc.
and each of Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co.
and J.P. Morgan Securities Inc., regarding $2,500,000,000 Medium-
Term Notes, Series E, due nine months or more from the date of
issue (Exhibit 1 to TRW Inc.'s Current Report on Form 8-K dated
November 18, 1999, is incorporated herein by reference).
4(m) Form of Medium Term Note, Series E (Exhibit 2 to TRW Inc.'s Current
Report on Form 8-K dated November 18, 1999, is incorporated herein
by reference).
*10(a) 1979 Stock Option Plan as amended April 28, 1982 (Exhibit A to TRW
Proxy Statement dated March 18, 1982, is incorporated herein by
reference).
*10(b) TRW Operational Incentive Plan (Exhibit 10(b) to TRW Annual Report
on Form 10-K for the year ended December 31, 1989, is incorporated
herein by reference).
*10(c) TRW Executive Health Care Plan as amended and restated effective
August 1, 1995 (Exhibit 10(c) to TRW Annual Report on Form 10-K for
the year ended December 31, 1995, is incorporated herein by
reference).
*10(d) 1984 Stock Option Plan (Exhibit A to TRW Proxy Statement dated
March 19, 1984, is incorporated herein by reference).
*10(e) 1989 TRW Long-Term Incentive Plan (Exhibit A to TRW Proxy Statement
dated March 17, 1989, is incorporated herein by reference).
*10(f) 1994 TRW Long-Term Incentive Plan as amended and restated effective
February 4, 1997 (Exhibit 10(f) to TRW Annual Report on Form 10-K
for the year ended December 31, 1996, is incorporated herein by
reference).
*10(g) 1997 TRW Long-Term Incentive Plan (Exhibit A to TRW Proxy Statement
dated March 12, 1997, is incorporated herein by reference).
*10(h) Amendment dated as of December 9, 1998 to 1997 TRW Long-Term
Incentive Plan (Exhibit 10(h) to TRW Annual Report on Form 10-K for
the year ended December 31, 1998, is incorporated herein by
reference).
*10(i) Form of Nonqualified Stock Option Agreement.
*10(j) Form of Transferable Nonqualified Stock Option Agreement.
*10(k) Form of Director Transferable Nonqualified Stock Option Agreement
(Exhibit 10(k) to TRW Annual Report on Form 10-K for the year ended
December 31, 1997, is incorporated herein by reference).
*10(l) Form of Stock Option Agreement Qualified under the laws of France.
*10(m) Deferred Compensation Plan for Non-Employee Directors of TRW Inc.
dated July 1, 1997 (Exhibit 10(d) to TRW Quarterly Report on Form
10-Q for the quarter ended June 30, 1997, is incorporated herein by
reference).
*10(n) TRW Directors' Pension Plan as amended and restated effective
August 1, 1990 (Exhibit 10(l) to TRW Annual Report on Form 10-K for
the year ended December 31, 1990, is incorporated herein by
reference).
*10(o) Amendment to the TRW Directors' Pension Plan (as Amended and
Restated Effective August 1, 1990) effective June 30, 1997 (Exhibit
10(n) to TRW Annual Report on Form
10-K for the year ended December 31, 1997, is incorporated herein
by reference).
</TABLE>
23
<PAGE>
<TABLE>
<C> <S>
*10(p) Form of Amended and Restated Employment Continuation Agreements
with executive officers (Exhibit 10(k) to TRW Annual Report on
Form 10-K for the year ended December 31, 1995, is incorporated
herein by reference).
*10(q) TRW Inc. Deferred Compensation Plan (as Amended and Restated
Effective January 1, 1999) (Exhibit 10(r) to TRW Annual Report on
Form 10-K for the year ended December 31, 1998, is incorporated
herein by reference).
*10(r) TRW Benefits Equalization Plan (as Amended and Restated Effective
January 1, 1999) (Exhibit 10(s) to TRW Annual Report on Form 10-K
for the year ended December 31, 1998, is incorporated herein by
reference).
*10(s) TRW Supplementary Retirement Income Plan (as Amended and Restated
Effective January 1, 1999) (Exhibit 10(t) to TRW Annual Report on
Form 10-K for the year ended December 31, 1998, is incorporated
herein by reference).
*10(t) TRW Inc. Key Executive Life Insurance Plan dated as of February 7,
1996 (Exhibit 10(v) to TRW Annual Report on Form 10-K for the year
ended December 31, 1995, is incorporated herein by reference).
*10(u) TRW Inc. Financial Counseling Program (Exhibit 10(w) to TRW Annual
Report on Form 10-K for the year ended December 31, 1995, is
incorporated herein by reference).
*10(v) Consulting Agreement dated September 18, 1997 between TRW Inc. and
G. H. Heilmeier (Exhibit 10(b) to TRW Quarterly Report on Form 10-
Q for the quarter ended September 30, 1997, is incorporated herein
by reference).
*10(w) Amendment dated December 7, 1999 to Consulting Agreement dated
September 18, 1997, between TRW Inc. and G.H. Heilmeier.
*10(x) Letter Agreement, dated April 28, 1999, between TRW and Carl Hahn
regarding services as an Advisory Director of TRW (Exhibit 10(c)
to TRW Quarterly Report on Form 10-Q for the quarter ended June
30, 1999, is incorporated herein by reference).
*10(y) TRW Inc. Stock Plan for Non-Employee Directors (as Amended and
Restated Effective August 1, 1995) (Exhibit 10.1 to TRW Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995, is
incorporated herein by reference).
*10(z) Employment Agreement dated as of November 20, 1997 between TRW
Inc. and Philip A. Odeen (Exhibit 10(ff) to TRW Annual Report on
Form 10-K for the year ended December 31, 1997, is incorporated
herein by reference).
*10(aa) Letter Agreement between TRW Inc. and Peter S. Hellman (Exhibit
10.3 to the TRW Quarterly Report on Form 10-Q for the quarter
ended March 31, 1999, is incorporated herein by reference).
*10(bb) Employment Agreement by and between TRW Inc. and David M. Cote,
dated as of November 11, 1999 (Exhibit 10(d) to the TRW Quarterly
Report on Form 10-Q for the quarter ended September 30, 1999, is
incorporated herein by reference).
*10(cc) Form of 1998-2000 Strategic Incentive Program Grant.
10(dd) Five-Year Credit Agreement dated as of January 25, 2000 among TRW
Inc., the lenders party thereto, the Chase Manhattan Bank as
Administrative Agent, Chase Manhattan International Limited as
London Agent and Salomon Smith Barney Inc. as Syndication Agent.
10(ee) 364-Day Credit Agreement dated as of January 25, 2000 among TRW
Inc., the lenders party thereto, the Chase Manhattan Bank as
Administrative Agent and Salomon Smith Barney Inc. as Syndication
Agent.
</TABLE>
24
<PAGE>
<TABLE>
<C> <S>
10(ff) 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 (Exhibit 10(a) to TRW Quarterly Report on Form
10-Q for the quarter ended June 30, 1999, is incorporated herein by
reference).
10(gg) Purchase Agreement, dated June 18, 1999, between TRW and Goldman,
Sachs & Co., as representative of the initial purchasers named
therein (Exhibit 10(b) to TRW Quarterly Report on Form 10-Q for the
quarter ended June 30, 1999, is incorporated herein by reference).
12 Computation of Ratio of Earnings to Fixed Charges -- Unaudited
(Supplement to Exhibit 12 of the following Registration Statements
of the Company: No. 333-83227 on Form S-4, No. 333-89133 on Form S-
3 and No. 333-48443 on Form S-3).
13 Portions of the TRW Annual Report to Security Holders for the year
ended December 31, 1999, incorporated herein by reference.
21 Subsidiaries of the Registrant.
23(a) Consent of Independent Auditors.
23(b) Consent of Independent Auditors (with respect to financial
statements of The TRW Canada Stock Savings Plan).
24 Power of Attorney.
27 Financial Data Schedule.
99(a) Financial Statements of The TRW Canada Stock Savings Plan for the
year ended December 31, 1999.
</TABLE>
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.
* Management contract, compensatory plan or arrangement required to
be filed as an exhibit pursuant to Item 14(c) of this report.
(b) Reports on Form 8-K
Current report on Form 8-K, dated November 12, 1999, as to the election
of David M. Cote as President, Chief Operating Officer and a Director.
Current Report on Form 8-K, dated November 12, 1999, as to the
Company's new segment reporting procedures.
Current Report on Form 8-K, dated November 12, 1999, attaching certain
unaudited pro forma and balance sheet information related to the
acquisition of LucasVarity.
Current Report on Form 8-K, dated November 18, 1999, as to the issuance
of Medium Term Notes.
Current Report on Form 8-K, dated November 23, 1999, as to the sale of
Lucas Diesel Systems.
Current Report on Form 8-K, dated December 10, 1999, as to the
discontinuation of the MARC product and the Cybershield software
security product line.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 17, 2000
/s/ William B. Lawrence
By __________________________________
William B. Lawrence,
Executive Vice President, General
Counsel and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
J. T. GORMAN* Chairman of the Board, Chief Executive
Officer and Director
D. M. COTE* President, Chief Operating Officer and
Director
C. G. MILLER* Executive Vice President and Chief
Financial Officer
T. A. CONNELL* Vice President and Corporate Controller
M. H. ARMACOST* Director
M. FELDSTEIN* Director
R. M. GATES* Director
G. H. HEILMEIER* Director March 17, 2000
K. N. HORN* Director
E. B. JONES* Director
W. S. KISER* Director
D. B. LEWIS* Director
L. M. MARTIN* Director
J. D. ONG* Director
R. W. POGUE* Director
</TABLE>
William B. Lawrence, by signing his name hereto, does hereby sign and execute
this report on behalf of each of the above-named officers and Directors of TRW
Inc., pursuant to a power of attorney executed by each of such officers and
Directors and filed with the Securities and Exchange Commission as an exhibit
to this report.
March 17, 2000
/s/ William B. Lawrence
*By _______________________________________
William B. Lawrence, Attorney-in-fact
26
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholders and Directors, TRW Inc.
We have audited the consolidated financial statements of TRW Inc. and
subsidiaries listed in Item 14(a)(1) of the Annual Report on Form 10-K of TRW
Inc. for the year ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of TRW Inc. and
subsidiaries at December 31, 1999 and 1998, and the consolidated results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
Ernst & Young LLP
Cleveland, Ohio
January 21, 2000
F-1
<PAGE>
EXHIBIT 10(i)
Nonqualified Stock Option Agreement
TERMS AND CONDITIONS
1. Purchase Rights
This option cannot be exercised before the first anniversary of the date of
grant. After that you will be entitled to purchase up to 33-1/3% of the shares
covered by this option, rounded down to the nearest whole share for each of the
first two years, for each full year of your continuous employment with TRW Inc.
("TRW") after the date of grant. The purchase rights accumulate as shown in the
following table.
Number of Full Years of Cumulative Maximum Percentage of
Continuous Service After Date Optioned Shares That May Be
of Grant Purchased
- ---------------------------------------------------------------------
1 33-1/3%
2 66-2/3%
3 100%
Notwithstanding the foregoing, this option will immediately become exercisable
in respect of all of the shares covered by this grant in the event of the
termination of your employment in the following circumstances:
(a) your death;
(b) your disability for a period of more than twelve months (as defined in the
TRW U.S. Long-Term Disability Plan); or
(c) on or after the first anniversary of the date of grant of this option, (i)
your retirement at age 60 or over or (ii) a divestiture of the business or
product line in which you are employed provided you are then age 60 or over and
eligible for retirement.
This option will also become immediately exercisable in respect of all the
shares covered by this grant upon a change of control of TRW Inc. For purposes
of this agreement, a change in control is defined in resolutions adopted by the
Compensation Committee of the Directors of TRW on July 26, 1989, which, in
summary, provide that a change in control is a change occurring (a) by virtue of
TRW's merger, consolidation or reorganization into or with, or transfer of
assets to, another corporation or (b) by virtue of a change in the majority of
the Directors of TRW during any two-year period unless the election of each new
Director was approved by a two-thirds vote of the Directors in office at the
beginning of such period or (c) through the acquisition of shares representing
20% or more of the voting power of TRW or (d) through any other change in
control reported in any filing with the Securities and Exchange Commission;
provided, however, that no change in control is deemed to have occurred by the
acquisition of shares, or any report of such acquisition, by TRW, a subsidiary
of TRW or a TRW-sponsored employee benefit plan. The language of the
resolutions controls over this summary language.
2. Exercise in Whole or Part
To the extent this option has become exercisable, you may purchase on any date
or dates all or any part of the shares which you are then entitled to purchase.
However, no fractional shares may be purchased.
3. Term of Option
To the extent this option has become exercisable in accordance with Section 1
above, it may be exercised by you at any time during the 10-year period
beginning on the date of grant. To the extent this option remains unexercised,
your unexercised purchase rights will terminate upon the first to occur of (i)
the end of such ten-year period or (ii) three months after the date on which
your employment with TRW terminates. Notwithstanding the foregoing, in the
following cases your unexercised purchase rights will terminate at the times set
forth in the following clauses:
(a) If the Directors of TRW find that you intentionally committed an act, which
act is inimical to the interests of TRW or a subsidiary, your unexercised
purchase rights will terminate as of the time you committed such act, as
determined by the Directors.
(b) In the event of a change in control of TRW (as defined in Section 1
hereof), your unexercised purchase rights will not under any circumstances
be subject to termination before the end of the ten-year period beginning
on the date of grant.
(c) If your employment is terminated by your death or by your disability for a
period of more than twelve months (as defined in the TRW U.S. Long-Term
Disability Plan), your unexercised purchase rights will continue for the
remainder of the 10-year period.
(d) If your employment is terminated by your retirement at age 55 or over, your
unexercised purchase rights will continue for the remainder of the 10-year
period.
(e) If your employment with TRW terminates due to a divestiture of the business
or product line in which you are employed, your unexercised purchase rights
will terminate 12 months after the date your employment terminates.
(f) If you are age 55 or over and your employment is involuntarily terminated,
your unexercised purchase rights will continue for the remainder of the 10-
year period, notwithstanding clause (e) above.
Nothing contained in this agreement shall extend this option beyond a 10-year
period or shall limit whatever right TRW or a subsidiary might otherwise have to
terminate your employment at any time.
4. Payment of Option Price
The option price shall be payable at the time of exercise. The option price
shall be paid at the Office of Secretary at TRW's corporate headquarters or at
any other place designated by the Secretary. The option price may be paid in
cash, by delivery of full shares of TRW Common, by a cashless exercise, or in
any combination of the foregoing, in accordance with such procedures and subject
to such further conditions as the Secretary of TRW may establish from time to
time. Notwithstanding the foregoing, the Compensation Committee of TRW at any
time may suspend or terminate your right to pay any or all of the option price
in shares of TRW Common.
Cash payments shall be made in United States dollars.
Shares delivered in payment of the option price shall be valued at their fair
market value on the date of exercise. For purposes of this option, "fair market
value" is the average of the high and low sales prices of a share of TRW Common
on the date of exercise on the New York Stock Exchange Composite Transactions
Listing as reported in the Midwest edition of The Wall Street Journal (or if
there are no sales on such date, then the closing sale price on such Listing on
the nearest date before the date of exercise) or such other method or procedure
for determining fair market value as the Compensation Committee of TRW in its
sole discretion may determine. For purposes of this option, the "date of
exercise" is the date on which written notice, accompanied by the option price,
is received by the Secretary of TRW or his designee that you have elected to
exercise all or part of this option.
<PAGE>
5. Taxes
Upon any exercise of this option, TRW may withhold delivery of certificates for
the purchased shares until you make arrangements satisfactory to TRW to pay any
withholding, transfer or other taxes due as a result of such exercise. You may
elect, in accordance with applicable regulations of the Compensation Committee
of TRW, to pay a portion or all of the amount of required withholding taxes in
cash, through a cashless exercise or in shares of TRW Common, either by
delivering to TRW previously held shares of TRW Common or by having shares of
TRW Common withheld from the shares purchased hereunder.
6. Securities Laws
This option shall not be exercisable if such exercise would violate any federal
or state securities law. TRW will use its best efforts to make such filings and
initiate such proceedings as may be necessary to prevent such violations unless
the Directors of TRW determine, in their sole discretion, that such filings or
proceedings would result in undue expense or hardship for TRW. TRW may place
appropriate legends on the certificates for the optioned shares, give stop-
transfer instructions to its transfer agents or take any other action to achieve
compliance with those laws in connection with any exercise of this option or
your resale of the optioned shares.
7. Transferability
This option is not transferable other than by will or the laws of descent and
distribution and shall be exercisable during your lifetime only by you or your
guardian or legal representative.
8. Leaves of Absence
If you take a leave of absence for illness, military or governmental service or
other reasons, and such leave has been specifically approved by the Chairman of
the Board or the President of TRW for purposes of this option, then such leave
will not be treated as an interruption of your employment.
9. Adjustments
The Compensation Committee of TRW may make such adjustments in the option price
and in the number or kind of shares of TRW Common or other securities covered by
this option as it in its sole discretion may determine are equitably required to
prevent dilution or enlargement of your rights that would otherwise result from
any stock dividend, stock split, combination of shares, recapitalization or
other change in the capital structure of TRW, merger, consolidation,
reorganization, partial or complete liquidation or other corporate transaction
or event having an effect similar to any of the foregoing.
10. Certain Definitions
For purposes of this option, employment with a subsidiary will be treated as
equivalent to employment with TRW itself, and your continuous employment will
not be deemed to be interrupted by reason of your transfer among TRW and its
subsidiaries. "Subsidiary" means a corporation or other entity in an unbroken
chain of entities beginning with TRW if each of the entities other than the last
entity in the unbroken chain owns stock or other ownership interests possessing
50% or more of the total outstanding combined voting power of all classes of
stock or other interests in the next entity in the chain. "Subsidiary" also
means, if not covered by the definition of subsidiary in the preceding sentence
and if specifically approved by the Chairman of the Board of TRW with respect to
this option, a corporation or other entity in which TRW has a direct or indirect
ownership interest.
11. Miscellaneous
By participating in the TRW stock option program, you understand and agree to
the following conditions:
(a) This stock option is subject to all the terms and conditions of the TRW plan
pursuant to which it is granted. The Compensation Committee of TRW has
authority to interpret and construe any provision of this instrument and the TRW
plan pursuant to which this stock option is granted, and any such interpretation
and construction shall be binding and conclusive. Any reference in this option
to the Directors of TRW includes the Executive Committee of the Directors.
(b) The program is discretionary and TRW can cancel or terminate it at any time.
As such, the program does not create any contractual or other right to receive
options or benefits in lieu of options in the future. Any future option grants,
including but not limited to the timing of any grant, number of options, vesting
provisions, and the exercise price, will be in TRW's sole discretion.
(c) Your participation in the TRW stock option program is completely voluntary
and is not a condition or right of your employment.
(d) The value of your TRW stock option is an extraordinary item of compensation
outside the scope of your employment contract, if any. As such, your option is
not part of normal or expected compensation for purposes of calculating any
severance, resignation, redundancy, end of service payments, bonuses, long-
service awards, social insurance contributions (except where local law
specifically provides otherwise), pension or retirement benefits, or similar
payments.
(e) Your vesting progress will end if your employment terminates before three
years after the grant date for reasons other than those set forth in Section 1
hereof.
(f) The future value of the TRW stock is unknown and cannot be predicted with
any certainty. If the TRW stock does not increase in value, the option will
have no value.
(g) You authorize your manager to furnish TRW (and any agent of TRW
administering the program or providing program recordkeeping services) with such
information and data as it shall request in order to facilitate the grant of
options and administration of the program. You also waive any data privacy
rights you might have with respect to such information about you, which is
needed to issue your TRW stock option grant.
(h) Your TRW stock option may not be assigned, sold, encumbered, or in any way
transferred or alienated, except as otherwise explicitly provided in the Stock
Option Agreement.
(i) The TRW stock option program is governed by and subject to U.S. law.
Interpretation of the program and your rights thereunder will be governed by
provisions of U. S. law.
<PAGE>
EXHIBIT 10(j)
Transferable Nonqualified Stock Option Agreement
TERMS AND CONDITIONS
1. Purchase Rights
This option cannot be exercised before the first anniversary of the date of
grant. After that you will be entitled to purchase up to 33-1/3% of the shares
covered by this option, rounded down to the nearest whole share for each of the
first two years, for each full year of your continuous employment with TRW Inc.
("TRW") after the date of grant. The purchase rights accumulate as shown in the
following table.
Number of Full Years of Cumulative Maximum Percentage of
Continuous Service After Date Optioned Shares That May Be
of Grant Purchased
- ----------------------------------------------------------------------
1 33-1/3%
2 66-2/3%
3 100%
Notwithstanding the foregoing, this option will immediately become exercisable
in respect of all of the shares covered by this grant in the event of the
termination of your employment in the following circumstances:
(a) your death;
(b) your disability for a period of more than twelve months (as defined in the
TRW U.S. Long-Term Disability Plan); or
(c) on or after the first anniversary of the date of grant of this option, (i)
your retirement at age 60 or over or (ii) a divestiture of the business or
product line in which you are employed provided you are then age 60 or over and
eligible for retirement.
This option will also become immediately exercisable in respect of all the
shares covered by this grant upon a change of control of TRW Inc. For purposes
of this agreement, a change in control is defined in resolutions adopted by the
Compensation Committee of the Directors of TRW on July 26, 1989, which, in
summary, provide that a change in control is a change occurring (a) by virtue of
TRW's merger, consolidation or reorganization into or with, or transfer of
assets to, another corporation or (b) by virtue of a change in the majority of
the Directors of TRW during any two-year period unless the election of each new
Director was approved by a two-thirds vote of the Directors in office at the
beginning of such period or (c) through the acquisition of shares representing
20% or more of the voting power of TRW or (d) through any other change in
control reported in any filing with the Securities and Exchange Commission;
provided, however, that no change in control is deemed to have occurred by the
acquisition of shares, or any report of such acquisition, by TRW, a subsidiary
of TRW or a TRW-sponsored employee benefit plan. The language of the
resolutions controls over this summary language.
2. Exercise in Whole or Part
To the extent this option has become exercisable, you may purchase on any date
or dates all or any part of the shares which you are then entitled to purchase.
However, no fractional shares may be purchased.
3. Term of Option
To the extent this option has become exercisable in accordance with Section 1
above, it may be exercised by you at any time during the 10-year period
beginning on the date of grant. To the extent this option remains unexercised,
your unexercised purchase rights will terminate upon the first to occur of (i)
the end of such ten-year period or (ii) three months after the date on which
your employment with TRW terminates. Notwithstanding the foregoing, in the
following cases your unexercised purchase rights will terminate at the times set
forth in the following clauses:
(a) If the Directors of TRW find that you intentionally committed an act, which
act is inimical to the interests of TRW or a subsidiary, your unexercised
purchase rights will terminate as of the time you committed such act, as
determined by the Directors.
(b) In the event of a change in control of TRW (as defined in Section 1
hereof), your unexercised purchase rights will not under any circumstances
be subject to termination before the end of the ten-year period beginning
on the date of grant.
(c) If your employment is terminated by your death or by your disability for a
period of more than twelve months (as defined in the TRW U.S. Long-Term
Disability Plan), your unexercised purchase rights will continue for the
remainder of the 10-year period.
(d) If your employment is terminated by your retirement at age 55 or over, your
unexercised purchase rights will continue for the remainder of the 10-year
period.
(e) If your employment with TRW terminates due to a divestiture of the business
or product line in which you are employed, your unexercised purchase rights
will terminate 12 months after the date your employment terminates.
(f) If you are age 55 or over and your employment is involuntarily terminated,
your unexercised purchase rights will continue for the remainder of the 10-
year period, notwithstanding clause (e) above.
Nothing contained in this agreement shall extend this option beyond a 10-year
period or shall limit whatever right TRW or a subsidiary might otherwise have to
terminate your employment at any time.
4. Payment of Option Price
The option price shall be payable at the time of exercise. The option price
shall be paid at the Office of Secretary at TRW's corporate headquarters or at
any other place designated by the Secretary. The option price may be paid in
cash, by delivery of full shares of TRW Common, by a cashless exercise, or in
any combination of the foregoing, in accordance with such procedures and subject
to such further conditions as the Secretary of TRW may establish from time to
time. Notwithstanding the foregoing, the Compensation Committee of TRW at any
time may suspend or terminate your right to pay any or all of the option price
in shares of TRW Common.
Cash payments shall be made in United States dollars.
Shares delivered in payment of the option price shall be valued at their fair
market value on the date of exercise. For purposes of this option, "fair market
value" is the average of the high and low sales prices of a share of TRW Common
on the date of exercise on the New York Stock Exchange Composite Transactions
Listing as reported in the Midwest edition of The Wall Street Journal (or if
there are no sales on such date, then the closing sale price on such Listing on
the nearest date before the date of exercise) or such other method or procedure
for determining fair market value as the Compensation Committee of TRW in its
sole discretion may determine. For purposes of this option, the "date of
exercise" is the date on which written notice, accompanied by the option price,
is received by the Secretary of TRW or his designee that you have elected to
exercise all or part of this option.
<PAGE>
5. Taxes
Upon any exercise of this option, TRW may withhold delivery of certificates for
the purchased shares until you make arrangements satisfactory to TRW to pay any
withholding, transfer or other taxes due as a result of such exercise. You may
elect, in accordance with applicable regulations of the Compensation Committee
of TRW, to pay a portion or all of the amount of required withholding taxes in
cash, through a cashless exercise or in shares of TRW Common, either by
delivering to TRW previously held shares of TRW Common or by having shares of
TRW Common withheld from the shares purchased hereunder.
6. Securities Laws
This option shall not be exercisable if such exercise would violate any federal
or state securities law. TRW will use its best efforts to make such filings and
initiate such proceedings as may be necessary to prevent such violations unless
the Directors of TRW determine, in their sole discretion, that such filings or
proceedings would result in undue expense or hardship for TRW. TRW may place
appropriate legends on the certificates for the optioned shares, give stop-
transfer instructions to its transfer agents or take any other action to achieve
compliance with those laws in connection with any exercise of this option or
your resale of the optioned shares.
7. Transferability
This option is not transferable except (a) by will or the laws of descent and
distribution, or (b) by gift to any member of your immediate family, to a trust
for the benefit of an immediate family member, or to a partnership whose
beneficiaries are members of your immediate family; provided, however, that
there may be no consideration for any such transfer. For purposes of this
agreement, "immediate family member" shall mean your spouse, children and
grandchildren. Notwithstanding any transfer of this option pursuant to clause
(b) of this Section 7, you will continue to be solely responsible for the taxes
described in Section 5 of this agreement. Any option transferred pursuant to
the terms of this Section 7 shall continue to be subject to the same terms and
conditions as were applicable immediately prior to the transfer.
8. Leaves of Absence
If you take a leave of absence for illness, military or governmental service or
other reasons, and such leave has been specifically approved by the Chairman of
the Board or the President of TRW for purposes of this option, then such leave
will not be treated as an interruption of your employment.
9. Adjustments
The Compensation Committee of TRW may make such adjustments in the option price
and in the number or kind of shares of TRW Common or other securities covered by
this option as it in its sole discretion may determine are equitably required to
prevent dilution or enlargement of your rights that would otherwise result from
any stock dividend, stock split, combination of shares, recapitalization or
other change in the capital structure of TRW, merger, consolidation,
reorganization, partial or complete liquidation or other corporate transaction
or event having an effect similar to any of the foregoing.
10. Certain Definitions
For purposes of this option, employment with a subsidiary will be treated as
equivalent to employment with TRW itself, and your continuous employment will
not be deemed to be interrupted by reason of your transfer among TRW and its
subsidiaries. "Subsidiary" means a corporation or other entity in an unbroken
chain of entities beginning with TRW if each of the entities other than the last
entity in the unbroken chain owns stock or other ownership interests possessing
50% or more of the total outstanding combined voting power of all classes of
stock or other interests in the next entity in the chain. "Subsidiary" also
means, if not covered by the definition of subsidiary in the preceding sentence
and if specifically approved by the Chairman of the Board of TRW with respect to
this option, a corporation or other entity in which TRW has a direct or indirect
ownership interest.
11. Miscellaneous
By participating in the TRW stock option program, you understand and agree to
the following conditions:
(a) This stock option is subject to all the terms and conditions of the TRW plan
pursuant to which it is granted. The Compensation Committee of TRW has authority
to interpret and construe any provision of this instrument and the TRW plan
pursuant to which this stock option is granted, and any such interpretation and
construction shall be binding and conclusive. Any reference in this option to
the Directors of TRW includes the Executive Committee of the Directors.
(b) The program is discretionary and TRW can cancel or terminate it at any time.
As such, the program does not create any contractual or other right to receive
options or benefits in lieu of options in the future. Any future option grants,
including but not limited to the timing of any grant, number of options, vesting
provisions, and the exercise price, will be in TRW's sole discretion.
(c) Your participation in the TRW stock option program is completely voluntary
and is not a condition or right of your employment.
(d) The value of your TRW stock option is an extraordinary item of compensation
outside the scope of your employment contract, if any. As such, your option is
not part of normal or expected compensation for purposes of calculating any
severance, resignation, redundancy, end of service payments, bonuses, long-
service awards, social insurance contributions (except where local law
specifically provides otherwise), pension or retirement benefits, or similar
payments.
(e) Your vesting progress will end if your employment terminates before three
years after the grant date for reasons other than those set forth in Section 1
hereof.
(f) The future value of the TRW stock is unknown and cannot be predicted with
any certainty. If the TRW stock does not increase in value, the option will
have no value.
(g) You authorize your manager to furnish TRW (and any agent of TRW
administering the program or providing program recordkeeping services) with such
information and data as it shall request in order to facilitate the grant of
options and administration of the program. You also waive any data privacy
rights you might have with respect to such information about you, which is
needed to issue your TRW stock option grant.
(h) Your TRW stock option may not be assigned, sold, encumbered, or in any way
transferred or alienated, except as otherwise explicitly provided in the Stock
Option Agreement.
(i) The TRW stock option program is governed by and subject to U.S. law.
Interpretation of the program and your rights thereunder will be governed by
provisions of U. S. law.
<PAGE>
EXHIBIT 10(l)
Stock Option Agreement Qualified
Under the Laws of France
TERMS AND CONDITIONS
1. Purchase Rights
This option cannot be exercised before the fifth anniversary of the date of
grant. After that you will be entitled to purchase all of the shares covered by
this option, provided that you have been continuously employed with TRW Inc.
("TRW") since the date of grant. If the laws in France requiring that options
be held for five years from the date of grant in order to qualify for favorable
tax and social treatment applicable to stock options granted under the Law 70-
1322 of December 31, 1970, as subsequently amended, are amended to require a
holding period of less than five years, this option shall become exercisable
upon the expiration of such shorter holding period, provided that you have been
continuously employed with TRW since the date of grant; provided, however, that
if such holding period shall be less than three years, this option shall become
exercisable in accordance with whichever of the following schedules shall be
applicable:
One-year holding period:
- -----------------------
Number of Full Years of Cumulative Maximum Percentage of
Continuous Service After Date Optioned Shares That May Be
of Grant Purchased
- --------------------------------------------------------------------------------
1 33-1/3%
2 66-2/3%
3 100%
Two-year holding period:
- -----------------------
Number of Full Years of Cumulative Maximum Percentage of
Continuous Service After Date Optioned Shares That May Be
of Grant Purchased
- --------------------------------------------------------------------------------
2 66-2/3%
3 100%
The number of shares that may be purchased in accordance with the foregoing
schedules shall be rounded down to the nearest whole share for each of the first
two years. Notwithstanding the foregoing, in the event of the termination of
your employment due to your death or to your disability for a period of more
than twelve months (as defined in the TRW U.S. Long-Term Disability Plan), or in
the event of a change in control of TRW, this option will immediately become
exercisable in respect of all of the shares covered by this grant. For purposes
of this agreement, a change in control is defined in resolutions adopted by the
Compensation Committee of the Directors of TRW on July 26, 1989, which, in
summary, provide that a change in control is a change occurring (a) by virtue of
TRW's merger, consolidation or reorganization into or with, or transfer of
assets to, another corporation or (b) by virtue of a change in the majority of
the Directors of TRW during any two-year period unless the election of each new
Director was approved by a two-thirds vote of the Directors in office at the
beginning of such period or (c) through the acquisition of shares representing
20% or more of the voting power of TRW or (d) through any other change in
control reported in any filing with the Securities and Exchange Commission;
provided, however, that no change in control is deemed to have occurred by the
acquisition of shares, or any report of such acquisition, by TRW, a subsidiary
of TRW or a TRW-sponsored employee benefit plan. The language of the resolutions
controls over this summary language.
2. Exercise in Whole or Part
To the extent this option has become exercisable, you may purchase on any date
or dates all or any part of the shares which you are then entitled to purchase.
However, no fractional shares may be purchased.
3. Term of Option
To the extent this option has become exercisable in accordance with Section 1
above, it may be exercised by you at any time during the 10-year period
beginning on the date of grant. To the extent this option remains unexercised,
your unexercised purchase rights will terminate upon the first to occur of (i)
the end of such ten-year period or (ii) three months after the date on which
your employment with TRW terminates. Notwithstanding the foregoing, in the
following cases your unexercised purchase rights will terminate at the times set
forth in the following clauses:
(a) If the Directors of TRW find that you intentionally committed an act, which
act is inimical to the interests of TRW or a subsidiary, your unexercised
purchase rights will terminate as of the time you committed such act, as
determined by the Directors.
(b) In the event of a change in control of TRW (as defined in Section 1
hereof), your unexercised purchase rights will not under any circumstances
be subject to termination before the end of the ten-year period beginning
on the date of grant.
(c) In the event of your death at any time during the term of this option, your
unexercised purchase rights will terminate upon the earlier of (i) six
months after the date of your death and (ii) ten years after the date of
grant.
(d) If your employment is terminated by your disability for a period of more
than twelve months (as defined in the TRW U.S. Long-Term Disability Plan),
your unexercised purchase rights will continue for the remainder of the 10-
year period.
(e) If your employment is terminated by your retirement at age 55 or over, your
unexercised purchase rights will continue for the remainder of the 10-year
period.
(f) If your employment with TRW terminates due to a divestiture of the business
or product line in which you are employed, your unexercised purchase rights
will terminate 12 months after the date your employment terminates.
(g) If you are age 55 or over and your employment is involuntarily terminated,
your unexercised purchase rights will continue for the remainder of the 10-
year period, notwithstanding clause (e) above.
Nothing contained in this agreement shall extend this option beyond a 10-year
period or shall limit whatever right TRW or a subsidiary might otherwise have to
terminate your employment at any time.
4. Payment of Option Price
The option price shall be payable at the time of exercise. The option price
shall be paid at the Office of Secretary at TRW's corporate headquarters or at
any other place designated by the Secretary. The option price may be paid in
cash, by delivery of full shares of TRW Common, by a cashless exercise, or in
any combination of the foregoing, in accordance with such procedures and subject
to such further conditions as the Secretary of TRW may establish from time to
time. Notwithstanding the foregoing, the Compensation Committee of TRW at any
time may suspend or terminate your right to pay any or all of the option price
in shares of TRW Common.
Cash payments shall be made in United States dollars.
Shares delivered in payment of the option price shall be valued at their fair
market value on the date of exercise. For purposes of this option, "fair market
value" is the average of the high and low sales prices of a share of TRW Common
on the date of exercise on the New York Stock Exchange Composite Transactions
Listing as reported in the Midwest edition of The Wall Street Journal (or if
there are no sales on such date,
<PAGE>
then the closing sale price on such Listing on the nearest date before the date
of exercise) or such other method or procedure for determining fair market value
as the Compensation Committee of TRW in its sole discretion may determine. For
purposes of this option, the "date of exercise" is the date on which written
notice, accompanied by the option price, is received by the Secretary of TRW or
his designee that you have elected to exercise all or part of this option.
5. Taxes
Upon any exercise of this option, TRW may withhold delivery of certificates for
the purchased shares until you make arrangements satisfactory to TRW to pay any
withholding, transfer or other taxes due as a result of such exercise. You may
elect, in accordance with applicable regulations of the Compensation Committee
of TRW, to pay a portion or all of the amount of required withholding taxes in
cash, through a cashless exercise or in shares of TRW Common, either by
delivering to TRW previously held shares of TRW Common or by having shares of
TRW Common withheld from the shares purchased hereunder.
6. Securities Laws
This option shall not be exercisable if such exercise would violate any federal
or state securities law. TRW will use its best efforts to make such filings and
initiate such proceedings as may be necessary to prevent such violations unless
the Directors of TRW determine, in their sole discretion, that such filings or
proceedings would result in undue expense or hardship for TRW. TRW may place
appropriate legends on the certificates for the optioned shares, give stop-
transfer instructions to its transfer agents or take any other action to achieve
compliance with those laws in connection with any exercise of this option or
your resale of the optioned shares.
7. Transferability
This option is not transferable other than by will or the laws of descent and
distribution and shall be exercisable during your lifetime only by you or your
guardian or legal representative.
8. Leaves of Absence
If you take a leave of absence for illness, military or governmental service or
other reasons, and such leave has been specifically approved by the Chairman of
the Board or the President of TRW for purposes of this option, then such leave
will not be treated as an interruption of your employment.
9. Adjustments
The Compensation Committee of TRW shall make adjustments in the option price and
the number or kind of shares of TRW Common or other securities covered by this
option only in accordance with the terms of the TRW plan and the French sub-plan
thereunder, pursuant to which this stock option is granted.
10. Certain Definitions
For purposes of this option, employment with a subsidiary will be treated as
equivalent to employment with TRW itself, and your continuous employment will
not be deemed to be interrupted by reason of your transfer among TRW and its
subsidiaries. "Subsidiary" means a corporation or other entity in an unbroken
chain of entities beginning with TRW if each of the entities other than the last
entity in the unbroken chain owns stock or other ownership interests possessing
50% or more of the total outstanding combined voting power of all classes of
stock or other interests in the next entity in the chain. "Subsidiary" also
means, if not covered by the definition of subsidiary in the preceding sentence
and if specifically approved by the Chairman of the Board of TRW with respect to
this option, a corporation or other entity in which TRW has a direct or indirect
ownership interest.
11. Miscellaneous
By participating in the TRW stock option program, you understand and agree to
the following conditions:
(a) This stock option is subject to all the terms and conditions of the TRW
plan, including the French sub-plan thereunder, pursuant to which it is granted.
The Compensation Committee of TRW has authority to interpret and construe any
provision of this instrument and the TRW plan and the French sub-plan thereunder
pursuant to which this stock option is granted, and any such interpretation and
construction shall be binding and conclusive. Any reference in this option to
the Directors of TRW includes the Executive Committee of the Directors.
(b) The program is discretionary and TRW can cancel or terminate it at any
time. As such, the program does not create any contractual or other right to
receive options or benefits in lieu of options in the future. Any future option
grants, including but not limited to the timing of any grant, number of options,
vesting provisions, and the exercise price, will be within TRW's sole
discretion.
(c) Your participation in the TRW stock option program is completely voluntary
and is not a condition or right of your employment.
(d) The value of your TRW stock option is an extraordinary item of compensation
outside the scope of your employment contract, if any. As such, your option is
not part of normal or expected compensation for purposes of calculating any
severance, resignation, redundancy, end of service payments, bonuses, long-
service awards, social insurance contributions (except where local law
specifically provides otherwise), pension or retirement benefits, or similar
payments.
(e) Your vesting progress will end if your employment terminates before five
years after the grant date, or such shorter period prescribed in Section 1
hereof, for reasons other than death, disability for a period of more than
twelve months (as defined in the TRW U.S. Long-Term Disability Plan) or a change
in control of TRW.
(f) The future value of the TRW stock is unknown and cannot be predicted with
any certainty. If the TRW stock does not increase in value, the option will have
no value.
(g) You authorize your manager to furnish TRW (and any agent of TRW
administering the program or providing program recordkeeping services) with such
information and data as it shall request in order to facilitate the grant of
options and administration of the program. You also waive any data privacy
rights you might have with respect to such information about you, which is
needed to issue your TRW stock option grant.
(h) Your TRW stock option may not be assigned, sold, encumbered, or in any way
transferred or alienated, except as otherwise explicitly provided in the Stock
Option Agreement.
(i) The TRW stock option program is governed by and subject to U.S. law.
Interpretation of the program and your rights thereunder will be governed by
provisions of U.S. law.
<PAGE>
EXHIBIT 10(w)
[TRW Letterhead]
December 7, 1999
Dr. George H. Heilmeier
Bell Communications Research
Morris Corporate Center (MCC)
445 South Street
Morristown, New Jersey 07960-6438
Dear George:
In accordance with the terms of the letter between you and TRW Inc., dated
September 18, 1997 (the "Initial Agreement"), a copy of which is attached as
Exhibit A hereto, this letter confirms our mutual agreement to renew the Initial
Agreement for a period of twelve months (as renewed, the "Agreement"). The
Agreement will become effective on January 1, 2000 and will terminate on
December 31, 2000. The terms and conditions of the Agreement shall otherwise
remain as set forth in the Initial Agreement.
If you agree, please sign two copies of this letter and initial each page of the
attached Initial Agreement. Please return one copy of the Agreement to me and
keep the other copy for your records.
Sincerely,
/s/ Joseph T. Gorman
Joseph T. Gorman
ACCEPTED:
/s/ George H. Heilmeier
- -----------------------
Dr. George H. Heilmeier
Date: 12/8/99
-------
<PAGE>
EXHIBIT 10(cc)
1998 - 2000 STRATEGIC INCENTIVE PROGRAM
Terms and Conditions
- --------------------------------------------------------------------------------
1. The Right
This Right entitles you to receive performance units in the event that certain
financial goals are achieved with respect to the calendar years 1998 through
2000 (the "Performance Period").
2. Performance Criteria
The definition of the goals, for purposes of this Right, is set forth in Exhibit
A. The inclusion of the effects of unusual items in the calculations shall be at
the complete discretion of the Compensation Committee of the Directors of TRW
(the "Committee").
A goal scoring sheet for each of the three years in the Performance Period and
weighted award levels related to each of the goals is set forth in Exhibit B.
The Organic Sales goals will be adjusted to include sales attributable to
acquisitions as specified in the acquisition "buy plan." The Return on Sales
goals will be adjusted to reflect the inclusion of MPAT and sales attributable
to the acquisition as specified in the acquisition "buy plan."
3. Payment
Promptly following the availability of year-end financial information, the
number of performance units to be paid out will be determined by multiplying
33.0% of the target grant by the payout percent generated by the goal scoring
sheet for each of the first two years of participation in the Program and 34.0%
in the third year. Each performance unit will be converted into cash at the
average of the high and the low sale price averages of a share of TRW Common on
the New York Stock Exchange Composite Transactions Listing for each day on which
such shares are traded on the New York Stock Exchange during the months of
December and January immediately prior to the date of payment. This amount will
be paid to you in the currency in which you receive your compensation.
4. Taxes
Upon any payment pursuant to this Right, TRW will deduct any withholding or
other taxes due.
5. Transferability
This Right is not transferable other than by will or the laws of descent and
distribution.
6. Death
In the event of your death, your estate or those so designated by will or the
laws of descent and distribution will be entitled to receive, at such times as
you would have received payment, such payment as would have been paid to you
hereunder if you had remained employed throughout the entire year in which your
death occurred and the following year of the Performance Period, if any.
7. Termination of Employment
This Right shall terminate on the date of your termination of employment and you
shall not be entitled to any additional payments hereunder except for any
payments with respect to calendar years prior to the calendar year of your
termination. However, if your employment is terminated during the last half of
a calendar year, and if the Committee gives written consent on or prior to the
date on which payments are to be made pursuant to this Right with respect to
such year, you will be entitled to receive such payments as would have been
issued to you hereunder if you remained employed through the end of the calendar
year during which your employment terminated multiplied by the fraction
representing the number of full months employed during such year.
<PAGE>
8. Disability
Notwithstanding the foregoing, if your termination of employment is due to
disability for a period of more than twelve months (as determined in accordance
with the TRW Long-Term Disability Plan), you will be entitled to receive such
payment as would have been issued to you hereunder if you had remained employed
for the entire year in which the disability occurred and the following year of
the Performance Period, if any.
9. Adjustments
The Committee shall make such adjustments in the number and kind of grants
pursuant hereto as it may determine are equitably required to prevent dilution
or enlargement of your rights that would otherwise result from any stock
dividend, stock split, combination of shares, recapitalization or other change
in the capital structure of TRW, merger, consolidation, reorganization, partial
or complete liquidation or other corporate transaction or event having an effect
similar to any of the foregoing.
10. Amendments
In addition to the authority to make adjustments as provided in Section 9, the
Committee shall have the authority, until such time as a Change in Control as
defined in Section 11 occurs, to amend otherwise this grant. Notwithstanding the
foregoing, if you transfer positions or change responsibilities within TRW, the
Committee may amend this Right to reflect such changed circumstances; provided,
however, that any such amendment after a Change in Control occurs shall not
reduce the value of this Right to you.
11. Change in Control
In the event of a Change in Control of TRW, this Right will remain in effect so
long as you continue to be employed by TRW. For purposes of this Right, the
definition of Change in Control is the same as the definition contained in
resolutions adopted by the Compensation and Stock Option Committee on July 26,
1989. Such resolutions, in summary, provide that a Change in Control is a change
occurring (a) by virtue of TRW's merger, consolidation or reorganization into or
with, or transfer of assets to, another corporation or (b) by virtue of a change
in the majority of the Directors during any two-year period unless the election
of each new Director was approved by a two-thirds vote of the Directors in
office at the beginning of such period or (c) through the acquisition of shares
representing 20 percent or more of the voting power of TRW or (d) through any
other change in control reported in any filing with the Securities and Exchange
Commission, excluding, however, the acquisition of shares, or any report of such
acquisition, by TRW, a subsidiary of TRW or a TRW-sponsored employee benefit
plan. The language in the resolutions controls over this summary language.
If a Change in Control occurs you will be entitled to receive any payment
issuable to you but not yet issued with respect to any completed calendar year
in the Performance Period preceding the Change in Control. In addition, with
respect to each of the remaining years in the Performance Period, you will be
entitled to receive payment equal to the number of units payable assuming
maximum performance on all goals. The aggregate number of units payable with
respect to the year of the Change in Control and subsequent years in the
Performance Period, determined in accordance with the precedence sentence, will
be issued to you promptly following the Change in Control.
12. Miscellaneous
This Right shall not be construed as giving you any right to continue in the
employ of TRW. Subject to the requirements and limitations in Sections 10 and 11
above, the Committee has authority to interpret and construe any provision of
this grant and any such interpretation and construction shall be binding and
conclusive. Except as provided in Section 11 above, no rights hereunder shall
accrue to you with respect to any year in the Performance Period until such year
is completed and the goals performance for such year has been approved as
provided in Section 3 above. Thereafter your rights will be limited to those
expressly given by this Right.
13. Entire Agreement
This Right sets forth the entire understanding between you and TRW with respect
to the subject matter hereof and supersedes all prior agreements and
understandings, whether oral or written, relating hereto.
February 2000
<PAGE>
EXHIBIT 10(dd)
CONFORMED COPY
================================================================================
FIVE-YEAR
CREDIT AGREEMENT
dated as of
January 25, 2000
among
TRW INC.
The Borrowing Subsidiaries
Party Hereto
The Lenders Party Hereto
and
THE CHASE MANHATTAN BANK,
as Administrative Agent
CHASE MANHATTAN INTERNATIONAL LIMITED,
as London Agent
SALOMON SMITH BARNEY INC.,
as Syndication Agent
___________________________
CHASE SECURITIES INC.
SALOMON SMITH BARNEY INC.,
as Joint Lead Arrangers and Book Managers
BANK OF AMERICA N.A.
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
as Co-Documentation Agents
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
Definitions
-----------
SECTION 1.01. Defined Terms............................................... 1
-------------
SECTION 1.02. Classification of Loans and Borrowings...................... 16
--------------------------------------
SECTION 1.03. Terms Generally............................................. 16
---------------
SECTION 1.04. Accounting Terms; GAAP...................................... 16
----------------------
SECTION 1.05. Exchange Rates.............................................. 16
--------------
SECTION 1.06. Redenomination of Certain Foreign Currencies................ 17
--------------------------------------------
ARTICLE II
The Credits
-----------
SECTION 2.01. Commitments................................................. 17
-----------
SECTION 2.02. Loans and Borrowings........................................ 18
--------------------
SECTION 2.03. Requests for Revolving Borrowings........................... 18
---------------------------------
SECTION 2.04. Competitive Bid Procedure................................... 19
-------------------------
SECTION 2.05. Funding of Borrowings....................................... 21
---------------------
SECTION 2.06. Interest Elections.......................................... 22
------------------
SECTION 2.07. Termination and Reduction of Commitments.................... 23
----------------------------------------
SECTION 2.08. Repayment of Loans; Evidence of Debt........................ 23
------------------------------------
SECTION 2.09. Prepayment of Loans......................................... 24
-------------------
SECTION 2.10. Fees........................................................ 25
----
SECTION 2.11. Interest.................................................... 25
--------
SECTION 2.12. Alternate Rate of Interest.................................. 26
--------------------------
SECTION 2.13. Increased Costs............................................. 27
---------------
SECTION 2.14. Break Funding Payments...................................... 28
----------------------
SECTION 2.15. Taxes....................................................... 28
-----
SECTION 2.16. Payments Generally; Pro Rata Treatment; Sharing of Set-offs. 29
-----------------------------------------------------------
SECTION 2.17. Mitigation Obligations; Replacement of Lenders.............. 31
----------------------------------------------
SECTION 2.18. Borrowing Subsidiaries...................................... 31
----------------------
SECTION 2.19. Additional Reserve Costs.................................... 32
------------------------
SECTION 2.20. Foreign Subsidiary Costs.................................... 32
------------------------
ARTICLE III
Representations and Warranties
------------------------------
SECTION 3.01. Organization; Powers........................................ 33
--------------------
SECTION 3.02. Authorization; Enforceability............................... 33
-----------------------------
SECTION 3.03. Governmental Approvals; No Conflicts........................ 33
------------------------------------
SECTION 3.04. Financial Condition; No Material Adverse Change............. 34
-----------------------------------------------
SECTION 3.05. Litigation and Environmental Matters........................ 34
------------------------------------
SECTION 3.06. Investment and Holding Company Status....................... 34
-------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SECTION 3.07. Taxes....................................................... 34
-----
SECTION 3.08. ERISA....................................................... 34
-----
SECTION 3.09. Year 2000................................................... 35
---------
ARTICLE IV
Conditions
----------
SECTION 4.01. Effective Date.............................................. 35
--------------
SECTION 4.02. Each Credit Event........................................... 36
-----------------
SECTION 4.03. Initial Credit Event for each Borrowing Subsidiary.......... 36
--------------------------------------------------
ARTICLE V
Affirmative Covenants
---------------------
SECTION 5.01. Financial Statements and Other Information.................. 37
------------------------------------------
SECTION 5.02. Existence; Conduct of Business.............................. 38
------------------------------
SECTION 5.03. Use of Proceeds............................................. 38
---------------
ARTICLE VI
Negative Covenants
------------------
SECTION 6.01. Indebtedness of Subsidiaries................................ 38
----------------------------
SECTION 6.02. Mortgages................................................... 38
---------
SECTION 6.03. Sale and Lease-Back Transactions............................ 40
--------------------------------
SECTION 6.04. Fundamental Changes......................................... 40
-------------------
SECTION 6.05. ERISA....................................................... 40
-----
SECTION 6.06. Change in Control........................................... 40
-----------------
SECTION 6.07. Interest Coverage Ratio..................................... 41
-----------------------
SECTION 6.08. Minimum Consolidated Net Worth.............................. 41
------------------------------
ARTICLE VII
Events of Default.......................................................... 41
- -----------------
ARTICLE VIII
The Agents................................................................. 43
ARTICLE IX
Guarantee.................................................................. 45
ARTICLE X
Miscellaneous
-------------
SECTION 10.01. Notices..................................................... 46
-------
SECTION 10.02. Waivers; Amendments......................................... 47
-------------------
SECTION 10.03. Expenses; Indemnity; Damage Waiver.......................... 47
----------------------------------
SECTION 10.04. Successors and Assigns...................................... 48
----------------------
SECTION 10.05. Survival.................................................... 50
--------
SECTION 10.06. Counterparts; Integration; Effectiveness.................... 51
----------------------------------------
SECTION 10.07. Severability................................................ 51
------------
SECTION 10.08. Right of Setoff............................................. 51
---------------
SECTION 10.09. Governing Law; Jurisdiction; Consent to Service of Process.. 51
----------------------------------------------------------
SECTION 10.10. WAIVER OF JURY TRIAL........................................ 52
--------------------
SECTION 10.11. Headings.................................................... 52
--------
SECTION 10.12. Confidentiality............................................. 52
---------------
SECTION 10.13. Conversion of Currencies.................................... 53
------------------------
SECTION 10.14. Interest Rate Limitation.................................... 53
------------------------
SECTION 10.15. Lender Waiver............................................... 54
-------------
</TABLE>
<PAGE>
SCHEDULES:
---------
Schedule 2.01 -- Commitments
EXHIBITS:
--------
Exhibit A-1 -- Form of Borrowing Subsidiary Agreement
Exhibit A-2 -- Form of Borrowing Subsidiary Termination
Exhibit B -- Form of Assignment and Acceptance
Exhibit C -- Form of Opinion of General Counsel of the Company
Exhibit D -- Form of Opinion of Counsel for each Borrowing Subsidiary
Exhibit E -- Mandatory Costs Rate
Exhibit F -- Form of Compliance Certificate
<PAGE>
FIVE-YEAR CREDIT AGREEMENT dated as of January 25, 2000,
among TRW INC., the BORROWING SUBSIDIARIES from time to time party
hereto, the LENDERS from time to time party hereto, THE CHASE
MANHATTAN BANK, as Administrative Agent, CHASE MANHATTAN INTERNATIONAL
LIMITED, as London Agent, and SALOMON SMITH BARNEY INC., as
Syndication Agent.
The parties hereto agree as follows:
ARTICLE I
Definitions
-----------
SECTION 1.01. Defined Terms. As used in this Agreement, the
-------------
following terms have the meanings specified below:
"ABR", when used in reference to any Loan or Borrowing, refers to
---
whether such Loan, or the Loans comprising such Borrowing, are bearing interest
at a rate determined by reference to the Alternate Base Rate.
"Adjusted LIBO Rate" means, with respect to any Eurocurrency Borrowing
------------------
for any Interest Period, an interest rate per annum (rounded upwards, if
necessary, to the next 1/100 of 1%) equal to (a) the LIBO Rate for such Interest
Period multiplied by (b) the Statutory Reserve Rate.
"Administrative Agent" means The Chase Manhattan Bank, in its capacity
--------------------
as administrative agent for the Lenders hereunder.
"Administrative Questionnaire" means an Administrative Questionnaire
----------------------------
in a form supplied by the Administrative Agent.
"Affiliate" means, with respect to a specified Person, another Person
---------
that directly, or indirectly through one or more intermediaries, Controls or is
Controlled by or is under common Control with the Person specified.
"Agents" means, collectively, the Administrative Agent and the London
------
Agent.
"Agreement Currency" has the meaning assigned to such term in Section
------------------
10.13(b).
<PAGE>
"Alternate Base Rate" means, for any day, a rate per annum equal to
-------------------
the greater of (a) the Prime Rate in effect on such day and (b) the Federal
Funds Effective Rate in effect on such day plus 1/2 of 1%. Any change in the
Alternate Base Rate due to a change in the Prime Rate or the Federal Funds
Effective Rate shall be effective from and including the effective date of such
change in the Prime Rate or the Federal Funds Effective Rate, respectively.
"Applicable Agent" means (a) with respect to a Loan or Borrowing
----------------
denominated in Dollars, the Administrative Agent and (b) with respect to a Loan
or Borrowing denominated in any Foreign Currency, the London Agent.
"Applicable Creditor" has the meaning assigned to such term in Section
-------------------
10.13(b).
"Applicable Percentage" means, with respect to any Lender, the
---------------------
percentage of the total Commitments represented by such Lender's Commitment. If
the Commitments have terminated or expired, the Applicable Percentages shall be
determined based upon the Commitments most recently in effect, giving effect to
any assignments.
"Applicable Rate" means, for any day, with respect to any Eurocurrency
---------------
Revolving Loan, or with respect to the facility fees or utilization fees payable
hereunder, as the case may be, the applicable rate per annum set forth below
under the caption "Eurocurrency Spread", "Facility Fee Rate", or "Utilization
Fee Rate" as the case may be, based upon the ratings by Moody's and S&P,
respectively, applicable on such date to the Index Debt:
<TABLE>
<CAPTION>
=========================================================================================
Eurocurrency Facility Fee Utilization Fee
------------ ------------ ---------------
Index Debt Ratings: Spread Rate Rate
------------------ ------ ---- ----
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Category 1
----------
A or higher/A2 or higher .310% .090% .100%
- -----------------------------------------------------------------------------------------
Category 2
----------
A-/A3 .400% .100% .100%
- -----------------------------------------------------------------------------------------
Category 3
----------
BBB+/Baa1 .500% .125% .125%
- -----------------------------------------------------------------------------------------
Category 4
----------
BBB/Baa2 .600% .150% .125%
- -----------------------------------------------------------------------------------------
Category 5
----------
BBB-/Baa3 .650% .225% .125%
- -----------------------------------------------------------------------------------------
Category 6
----------
lower than BBB-/ lower .875% .375% .250%
than Baa3
=========================================================================================
</TABLE>
<PAGE>
3
- --------------------------------------------------------------------------------
================================================================================
For purposes of the foregoing, (i) if either Moody's or S&P shall not
have in effect a rating for the Index Debt (other than by reason of the
circumstances referred to in the last sentence of this definition), then such
rating agency shall be deemed to have established a rating in Category 6; (ii)
if the ratings established or deemed to have been established by Moody's and S&P
for the Index Debt shall fall within different Categories, the Applicable Rate
shall be based on the higher of the two ratings unless one of the two ratings is
more than two Categories lower than the other, in which case the Applicable Rate
shall be determined by reference to the lower of the two ratings; and (iii) if
the ratings established or deemed to have been established by Moody's and S&P
for the Index Debt shall be changed (other than as a result of a change in the
rating system of Moody's or S&P), such change shall be effective as of the date
on which it is first announced by the applicable rating agency. Each change in
the Applicable Rate shall apply during the period commencing on the effective
date of such change and ending on the date immediately preceding the effective
date of the next such change. If the rating system of Moody's or S&P shall
change, or if either such rating agency shall cease to be in the business of
rating corporate debt obligations, the Borrower and the Lenders shall negotiate
in good faith to amend this definition to reflect such changed rating system or
the unavailability of ratings from such rating agency and, pending the
effectiveness of any such amendment, the Applicable Rate shall be determined by
reference to the rating most recently in effect prior to such change or
cessation.
"Assignment and Acceptance" means an assignment and acceptance entered
-------------------------
into by a Lender and an assignee (with the consent of any party whose consent is
required by Section 10.04), and accepted by the Administrative Agent, in the
form of Exhibit B or any other form approved by the Administrative Agent.
"Attributable Debt" means, as to any particular lease under which any
-----------------
Person is liable at the time and at any date as of which the amount thereof is
to be determined, the lesser of (a) the fair value of the property subject to
such lease (as determined by the Directors of the Company) or (b) the total net
amount of rent required to be paid by such Person under such lease during the
remaining term thereof, discounted from the respective due dates thereof to such
date at the actual interest factor included in such rent. The net amount of rent
required to be paid under any such lease for any such period shall be the
aggregate amount of the rent payable by the lessee with respect to such period
after excluding amounts required to be paid on account of maintenance and
repairs, insurance, taxes, assessments, water rates and similar charges. In the
case of any lease which is terminable by the lessee upon the payment of a
penalty, such net amount shall also include the amount of such penalty, but no
rent shall be considered as required to be paid under such lease subsequent to
the first date upon which it may be so terminated.
<PAGE>
4
"Availability Period" means the period from and including the
-------------------
Effective Date to but excluding the earlier of the Maturity Date and the date of
termination of the Commitments.
"Board" means the Board of Governors of the Federal Reserve System of
-----
the United States of America.
"Borrower" means the Company or any Borrowing Subsidiary.
--------
"Borrowing" means (a) Revolving Loans of the same Type and currency,
---------
made, converted or continued on the same date and, in the case of Eurocurrency
Loans, as to which a single Interest Period is in effect or (b) a Competitive
Loan or group of Competitive Loans of the same Type made on the same date and as
to which a single Interest Period is in effect.
"Borrowing Minimum" means (a) in the case of a Borrowing denominated
-----------------
in Dollars, $10,000,000 and (b) in the case of a Borrowing denominated in any
Foreign Currency, the smallest amount of such Foreign Currency that has a Dollar
Equivalent in excess of $10,000,000.
"Borrowing Multiple" means (a) in the case of a Borrowing denominated
------------------
in Dollars, $5,000,000 and (b) in the case of a Borrowing denominated in any
Foreign Currency, 5,000,000 units (or, in the case of Sterling, 2,500,000 units)
of such currency.
"Borrowing Request" means a request by the Borrower for a Revolving
-----------------
Borrowing in accordance with Section 2.03.
"Borrowing Subsidiary" means, at any time, each Subsidiary that has
--------------------
been designated as a Borrowing Subsidiary by the Company pursuant to Section
2.18 and that has not ceased to be a Borrowing Subsidiary as provided in such
Section or Article VII.
"Borrowing Subsidiary Agreement" means a Borrowing Subsidiary
------------------------------
Agreement substantially in the form of Exhibit A-1.
"Borrowing Subsidiary Termination" means a Borrowing Subsidiary
--------------------------------
Termination substantially in the form of Exhibit A-2.
"Business Day" means any day that is not a Saturday, Sunday or other
------------
day on which commercial banks in New York City are authorized or required by law
to remain closed; provided, that (a) when used in connection with a Eurocurrency
--------
Loan denominated in Dollars or Sterling, the term "Business Day" shall also
------------
exclude any day on which banks are not open for dealings in deposits in the
applicable currency in the
<PAGE>
5
London interbank market and (b) when used in connection with a Loan denominated
in Euro, the term "Business Day" shall also exclude any day on which the TARGET
------------
payment system is not open for the settlement of payments in Euro.
"Calculation Date" means the last Business Day of each calendar month.
----------------
"Capital Lease Obligations" of any Person means the obligations of
-------------------------
such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP,
and the amount of such obligations shall be the capitalized amount thereof
determined in accordance with GAAP.
"Change in Control" means (a) the acquisition of ownership, directly
-----------------
or indirectly, beneficially or of record, by any Person or group (within the
meaning of the Securities Exchange Act of 1934 and the rules of the Securities
and Exchange Commission thereunder as in effect on the date hereof), of shares
representing more than 30% of the aggregate ordinary voting power represented by
the issued and outstanding capital stock of the Company; or (b) occupation of a
majority of the seats (other than vacant seats) on the board of directors of the
Company by Persons who are not Continuing Directors. For purposes of the
foregoing, "Continuing Directors" shall mean (i) the directors of the Company on
the date hereof and (ii) each other director nominated or appointed by at least
two thirds of the Continuing Directors at the time of such nomination or
appointment.
"Change in Law" means (a) the adoption of any law, rule or regulation
-------------
after the date of this Agreement, (b) any change in any law, rule or regulation
or in the interpretation or application thereof by any Governmental Authority
after the date of this Agreement or (c) compliance by any Lender (or, for
purposes of Section 2.13(b), by any lending office of such Lender or by such
Lender's holding company, if any) with any request, guideline or directive
(whether or not having the force of law) of any Governmental Authority made or
issued after the date of this Agreement.
"Chase" means The Chase Manhattan Bank and its successors.
-----
"Class", when used in reference to any Loan or Borrowing, refers to
-----
whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans
or Competitive Loans.
"CMIL" means Chase Manhattan International Limited and its successors.
----
"Code" means the Internal Revenue Code of 1986, as amended from time
----
to time.
<PAGE>
6
"Commitment" means, with respect to each Lender, the commitment of
----------
such Lender to make Revolving Loans, expressed as an amount representing the
maximum aggregate amount of such Lender's Revolving Credit Exposure hereunder,
as such commitment may be (a) reduced from time to time pursuant to Section 2.07
and (b) reduced or increased from time to time pursuant to assignments by or to
such Lender pursuant to Section 10.04. The initial amount of each Lender's
Commitment is set forth on Schedule 2.01 or in the Assignment and Acceptance
pursuant to which such Lender shall have assumed its Commitment, as applicable.
The initial aggregate amount of the Lenders' Commitments is $1,000,000,000.
"Committed Currency" means Dollars and Foreign Currencies.
------------------
"Company" means TRW Inc., an Ohio corporation.
-------
"Competitive Bid" means an offer by a Lender to make a Competitive
---------------
Loan in accordance with Section 2.04.
"Competitive Bid Rate" means, with respect to any Competitive Bid, the
--------------------
Margin or the Fixed Rate, as applicable, offered by the Lender making such
Competitive Bid.
"Competitive Bid Request" means a request by any Borrower for
-----------------------
Competitive Bids in accordance with Section 2.04.
"Competitive Loan" means a Loan made pursuant to Section 2.04.
----------------
"Consolidated EBITDA" means, for any fiscal period, with respect to
-------------------
the Company and its consolidated Subsidiaries, (a) Consolidated Net Income for
such period plus (b) to the extent deducted in computing such Consolidated Net
----
Income, without duplication, the sum of (i) income tax expense, (ii)
Consolidated Interest Expense, (iii) depreciation and amortization expense, (iv)
any extraordinary or non-recurring losses and (v) other noncash items (other
than accruals) reducing Consolidated Net Income, minus (c) to the extent added
-----
in computing such Consolidated Net Income, without duplication, the sum of (i)
any extraordinary or non-recurring gains and (ii) other noncash items (other
than accruals) increasing Consolidated Net Income, all as determined on a
consolidated basis in accordance with GAAP; provided that gains on sales of the
--------
Company's equity investments in publicly-traded companies and pension income
related to LucasVarity will in no event be subtracted under this clause (c) for
purposes of computing Consolidated EBITDA.
<PAGE>
7
"Consolidated Funded Debt" means the Funded Debt of the Company and
------------------------
the consolidated Subsidiaries, determined on a consolidated basis in accordance
with GAAP.
"Consolidated Interest Expense" means, for any period, the aggregate
-----------------------------
of all interest expense of the Company and its consolidated Subsidiaries for
such period determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Assets" means the sum of (a) the total of all assets
-----------------------
of the Company and the consolidated Subsidiaries that would appear on a
consolidated balance sheet of the Company prepared in accordance with GAAP less
(b) Consolidated Net Worth.
"Consolidated Net Income" means, for any period, net income of the
-----------------------
Company and the consolidated Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP.
"Consolidated Net Worth" means, at any date, the consolidated
----------------------
shareholders' investment of the Company and the consolidated Subsidiaries,
exclusive of foreign currency translation adjustment and unrealized gains or
losses on securities as reported in the Company's financial statements under
"Other Comprehensive Income," determined as of such date. Consolidated
shareholders' investment, foreign currency translation adjustment and unrealized
gains or losses on securities of the Company shall be as included in the annual
or quarterly financial statements of the Company, as applicable.
"Control" means the possession, directly or indirectly, of the power
-------
to direct or cause the direction of the management or policies of a Person,
whether through the ability to exercise voting power or by contract.
"Controlling" and "Controlled" have meanings correlative thereto.
----------- ----------
"Default" means any event or condition which constitutes an Event of
-------
Default or which upon notice, lapse of time or both would, unless cured or
waived, become an Event of Default.
"Dollars" or "$" refers to lawful money of the United States of
------- -
America.
"Dollar Equivalent" means, on any date of determination, (a) with
-----------------
respect to any amount in Dollars, such amount, and (b) with respect to any
amount in any Foreign Currency, the equivalent in Dollars of such amount,
determined by the Administrative Agent pursuant to Section 1.05(b) using the
Exchange Rate with respect to such Foreign Currency at the time in effect under
the provisions of such Section.
<PAGE>
8
"Domestic Subsidiary" means each consolidated Subsidiary other than
-------------------
(a) any consolidated Subsidiary which the Directors of the Company reasonably
determine not to be material to the business or financial condition of the
Company; (b) any consolidated Subsidiary the major portion of the assets of
which are located, or the major portion of the business of which is carried on,
outside the United States of America, its territories and possessions; (c) any
consolidated Subsidiary which, during the 12 most recent calendar months (or
such shorter period as shall have elapsed since its organization) derived the
major portion of its gross revenues from sources outside the United States of
America; (d) any consolidated Subsidiary the major portion of the assets of
which consists of securities or obligations, or both, of one or more
corporations (whether or not consolidated Subsidiaries) of the types described
in the preceding clauses (b) and (c); and (e) any consolidated Subsidiary
organized after January 1, 2000 which the Company intends shall be operated in
such manner as to come within one or more of the preceding clauses (b), (c) and
(d).
"Effective Date" means the date on which the conditions specified in
--------------
Section 4.01 are satisfied (or waived in accordance with Section 10.02).
"EMU Legislation" means the legislative measures of the European Union
---------------
for the introduction of, changeover to or operation of the Euro in one or more
member states.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
---------------
incorporated) that, together with a Borrower, is treated as a single employer
under Section 414(b) or (c) of the Code or, solely for purposes of Section 302
of ERISA and Section 412 of the Code, is treated as a single employer under
Section 414 of the Code.
"ERISA Event" means (a) any "reportable event", as defined in Section
-----------
4043 of ERISA or the regulations issued thereunder with respect to a Plan (other
than an event for which the 30-day notice period is waived); (b) the existence
with respect to any Plan of an "accumulated funding deficiency" (as defined in
Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the
filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an
application for a waiver of the minimum funding standard with respect to any
Plan; (d) the incurrence by a Borrower or any of its ERISA Affiliates of any
liability under Title IV of ERISA with respect to the termination of any Plan;
(e) the receipt by a Borrower or any ERISA Affiliate from the PBGC or a plan
administrator of any notice relating to an intention to terminate any Plan or
Plans or to appoint a trustee to administer any Plan; (f) the incurrence by a
Borrower or any of its ERISA Affiliates of any liability with respect to the
withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the
receipt by a Borrower or any
<PAGE>
9
ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from a
Borrower or any ERISA Affiliate of any notice, concerning the imposition of
Withdrawal Liability or a determination that a Multiemployer Plan is, or is
expected to be, insolvent or in reorganization, within the meaning of Title IV
of ERISA.
"Euro" or "E" means the single currency of the European Union as
---- -
constituted by the Treaty on European Union and as referred to in the EMU
Legislation.
"Eurocurrency", when used in reference to any Loan or Borrowing,
------------
refers to whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to the Adjusted LIBO Rate (or, in the
case of a Competitive Loan, the LIBO Rate).
"Event of Default" has the meaning assigned to such term in Article
----------------
VII.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
------------
from time to time.
"Exchange Rate" means on any day, with respect to any Foreign
-------------
Currency, the rate at which such Foreign Currency may be exchanged into Dollars,
as set forth at approximately 11:00 a.m., London time, on such day on the
Reuters World Currency Page for such Foreign Currency. In the event that such
rate does not appear on any Reuters World Currency Page, the Exchange Rate shall
be determined by reference to such other publicly available service for
displaying exchange rates as may be agreed upon by the Administrative Agent and
the Company, or, in the absence of such agreement, such Exchange Rate shall
instead be the arithmetic average of the spot rates of exchange of the
Administrative Agent in the market where its foreign currency exchange
operations in respect of such Foreign Currency are then being conducted, at or
about 10:00 a.m., local time, on such date for the purchase of Dollars for
delivery two Business Days later; provided that if at the time of any such
--------
determination, for any reason, no such spot rate is being quoted, the
Administrative Agent, after consultation with the Company, may use any
reasonable method it deems appropriate to determine such rate, and such
determination shall be conclusive absent manifest error.
"Excluded Taxes" means (i) with respect to each Lender, taxes imposed
--------------
on its net income, and franchise or similar taxes imposed on it, by a
jurisdiction under the laws of which it is organized or in which its principal
executive office or applicable lending office is located, and (ii) any United
States withholding tax imposed on such payment, but not excluding any portion of
such tax that exceeds the United States withholding tax which would have been
imposed on such a payment to such Lender under the laws and treaties in effect
when such Lender first becomes a party to this Agreement.
<PAGE>
10
"Existing Credit Agreements" means (i) the Credit Agreement dated as
--------------------------
of January 27, 1999, and amended and restated as of February 26, 1999, among the
Company, the eligible subsidiaries referred to therein, the lenders party
thereto, Bank of America National Trust and Savings Association, Citibank, N.A.
and Barclays Bank PLC, as co-syndication agents, and Morgan Guaranty Trust
Company of New York, as administrative agent, (ii) the Revolving Credit
Agreement dated as of December 10, 1997, among the Company and the financial
institutions party thereto, (iii) the Multi-Year Revolving Credit Agreement, as
amended and restated as of May 8, 1996, among the Company and the financial
institutions party thereto, and (iv) the Multi-Currency Revolving Credit
Facility Agreement, as amended and restated as of August 7, 1997, among TRW
Finance International, Barclays Bank PLC and the financial institutions party
thereto, in each case as amended from time to time.
"Federal Funds Effective Rate" means, for any day, the weighted
----------------------------
average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day that is a Business Day, the average (rounded upwards, if
necessary, to the next 1/100 of 1%) of the quotations for such day for such
transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it.
"Financial Officer" means the chief financial officer, treasurer or
-----------------
controller of the Company.
"Fixed Rate" means, with respect to any Competitive Loan (other than a
----------
Eurocurrency Competitive Loan), the fixed rate of interest per annum specified
by the Lender making such Competitive Loan in its related Competitive Bid.
"Fixed Rate Loan" means a Competitive Loan bearing interest at a Fixed
---------------
Rate.
"Foreign Currency" means Sterling and Euros.
----------------
"Foreign Lender" means any Lender that is organized under the laws of
--------------
a jurisdiction other than that in which the applicable Borrower is located. For
purposes of this definition, the United States of America, each State thereof
and the District of Columbia shall be deemed to constitute a single
jurisdiction.
"Foreign Subsidiary" means any Subsidiary that is not a Domestic
------------------
Subsidiary.
<PAGE>
11
"Funded Debt" means all Indebtedness of the type described in clauses
-----------
(a) and (b) of the definition thereof having a maturity of more than 12 months
from the date such Indebtedness was incurred or having a maturity of 12 months
or less but by its terms being renewable or extendable beyond 12 months from the
date such Indebtedness was incurred at the option of the obligor.
"GAAP" means generally accepted accounting principles in the United
----
States of America applied in a manner consistent with the financial statements
referred to in Section 3.04(a).
"Governmental Authority" means the government of the United States of
----------------------
America, any other nation or any political subdivision thereof, whether state or
local, and any agency, authority, instrumentality, regulatory body, court,
central bank or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or pertaining to
government.
"Guarantee" of or by any Person (the "guarantor") means any
--------- ---------
obligation, contingent or otherwise, of the guarantor guaranteeing or having the
economic effect of guaranteeing any Indebtedness or other obligation of any
other Person (the "primary obligor") in any manner, whether directly or
---------------
indirectly, and including any obligation of the guarantor, direct or indirect,
(a) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness or other obligation or to purchase (or to advance or
supply funds for the purchase of) any security for the payment thereof, (b) to
purchase or lease property, securities or services for the purpose of assuring
the owner of such Indebtedness or other obligation of the payment thereof, (c)
to maintain working capital, equity capital or any other financial statement
condition or liquidity of the primary obligor so as to enable the primary
obligor to pay such Indebtedness or other obligation or (d) as an account party
in respect of any letter of credit or letter of guaranty issued to support such
Indebtedness or obligation; provided, that the term Guarantee shall not include
--------
endorsements for collection or deposit in the ordinary course of business.
"Guarantor Subsidiary" means any Subsidiary that shall have delivered
--------------------
to the Administrative Agent (a) a guarantee agreement in form and substance
satisfactory to the Administrative Agent under which it shall guarantee the
payment of the Obligations and (b) such evidence as the Administrative Agent may
reasonably have requested (which may include an opinion of counsel qualified in
any relevant jurisdiction) as to the corporate power and authority of such
Subsidiary to enter into and the enforceability of such guarantee agreement and
such other matters related to such guarantee agreement as the Administrative
Agent may reasonably have determined to be material.
"Indebtedness" of any Person means, without duplication, (a) all
------------
obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by bonds,
debentures, notes or
<PAGE>
12
similar instruments, (c) all obligations of such Person upon which interest
charges are customarily paid, (d) all obligations of such Person under
conditional sale or other title retention agreements relating to property
acquired by such Person, (e) all obligations of such Person in respect of the
deferred purchase price of property or services (excluding current accounts
payable incurred in the ordinary course of business), (f) all Indebtedness of
others secured by any Mortgage on property owned or acquired by such Person,
whether or not the Indebtedness secured thereby has been assumed, (g) all
Guarantees by such Person of Indebtedness of others, (h) all Capital Lease
Obligations of such Person, (i) all non-contingent obligations (and, for
purposes of Section 6.02 and the definition of Material Indebtedness, all
contingent obligations) of such Person to reimburse any bank or other Person in
respect of amounts paid under letters of credit and similar instruments and (j)
all obligations, contingent or otherwise, of such Person in respect of bankers'
acceptances. The Indebtedness of any Person shall include the Indebtedness of
any other entity (including any partnership in which such Person is a general
partner) to the extent such Person is liable therefor as a result of such
Person's ownership interest in or other relationship with such entity, except to
the extent the terms of such Indebtedness provide that such Person is not liable
therefor.
"Index Debt" means senior, unsecured, long-term indebtedness for
----------
borrowed money of the Company that is not guaranteed by any other Person or
subject to any other credit enhancement.
"Information Memorandum" means the Confidential Information Memorandum
----------------------
dated January 2000 distributed to the Lenders, together with the appendices
thereto, as amended through the date hereof.
"Interest Election Request" means a request by the relevant Borrower
-------------------------
to convert or continue a Revolving Borrowing in accordance with Section 2.06.
"Interest Payment Date" means (a) with respect to any ABR Loan, the
---------------------
last day of each March, June, September and December, (b) with respect to any
Eurocurrency Loan, the last day of the Interest Period applicable to the
Borrowing of which such Loan is a part and, in the case of a Eurocurrency
Borrowing with an Interest Period of more than three months' duration, each day
prior to the last day of such Interest Period that occurs at intervals of three
months' duration after the first day of such Interest Period and (c) with
respect to any Fixed Rate Loan, the last day of the Interest Period applicable
to the Borrowing of which such Loan is a part and, in the case of a Fixed Rate
Borrowing with an Interest Period of more than 90 days' duration (unless
otherwise specified in the applicable Competitive Bid Request), each day prior
to the last day of such Interest Period that occurs at intervals of 90 days'
duration after the first day of such Interest Period, and any other dates that
are specified in the applicable Competitive Bid Request as Interest Payment
Dates with respect to such Borrowing.
<PAGE>
13
"Interest Period" means (a) with respect to any Eurocurrency
---------------
Borrowing, the period commencing on the date of such Borrowing and ending on the
numerically corresponding day in the calendar month that is one, two, three or
six months thereafter, as the applicable Borrower may elect and (b) with respect
to any Fixed Rate Borrowing, the period (which shall not be less than 7 days or
more than 360 days) commencing on the date of such Borrowing and ending on the
date specified in the applicable Competitive Bid Request; provided, that (i) if
--------
any Interest Period would end on a day other than a Business Day, such Interest
Period shall be extended to the next succeeding Business Day unless, in the case
of a Eurocurrency Borrowing only, such next succeeding Business Day would fall
in the next calendar month, in which case such Interest Period shall end on the
next preceding Business Day and (ii) any Interest Period pertaining to a
Eurocurrency Borrowing that commences on the last Business Day of a calendar
month (or on a day for which there is no numerically corresponding day in the
last calendar month of such Interest Period) shall end on the last Business Day
of the last calendar month of such Interest Period. For purposes hereof, the
date of a Borrowing initially shall be the date on which such Borrowing is made
and, in the case of a Revolving Borrowing, thereafter shall be the effective
date of the most recent conversion or continuation of such Borrowing.
"Judgment Currency" has the meaning assigned to such term in Section
-----------------
10.13(b).
"Lenders" means the Persons listed on Schedule 2.01 and any other
-------
Person that shall have become a party hereto pursuant to an Assignment and
Acceptance, other than any such Person that shall have ceased to be a party
hereto pursuant to an Assignment and Acceptance.
"LIBO Rate" means, with respect to any Eurocurrency Borrowing for any
---------
Interest Period, the rate per annum determined by the Applicable Agent at
approximately 11:00 a.m., London time, on the Quotation Day for such Interest
Period by reference to the British Bankers' Association Interest Settlement
Rates for deposits in the currency of such Borrowing (as reflected on the
applicable Telerate screen), for a period equal to such Interest Period;
provided that, to the extent that an interest rate is not ascertainable pursuant
- --------
to the foregoing provisions of this definition, the "LIBO Rate" shall be the
average (rounded upward, if necessary, to the next 1/100 of 1%) of the
respective interest rates per annum at which deposits in the currency of such
Borrowing are offered for such Interest Period to major banks in the London
interbank market by Chase and Citibank, N.A. at approximately 11:00 a.m., London
time, on the date two Business Days prior to the beginning of such Interest
Period.
<PAGE>
14
"Loan Documents" means this Agreement, each Borrowing Subsidiary
--------------
Agreement, each Borrowing Subsidiary Termination, and each promissory note
delivered pursuant to this Agreement.
"Loans" means the loans made by the Lenders to the Borrowers pursuant
-----
to this Agreement.
"Local Time" means (a) with respect to a Loan or Borrowing denominated
----------
in Dollars, New York City time, and (b) with respect to a Loan or Borrowing
denominated in any Foreign Currency, London time.
"London Agent" means Chase Manhattan International Limited.
------------
"LucasVarity" shall mean LucasVarity Limited, formerly known as
-----------
LucasVarity plc, an English company.
"Margin" means, with respect to any Competitive Loan bearing interest
------
at a rate based on the LIBO Rate, the marginal rate of interest, if any, to be
added to or subtracted from the LIBO Rate to determine the rate of interest
applicable to such Loan, as specified by the Lender making such Loan in its
related Competitive Bid.
"Margin Stock" means "margin stock" as defined in Regulation U.
------------
"Material Adverse Effect" means a material adverse effect on (a) the
-----------------------
consolidated financial condition of the Company and the consolidated
Subsidiaries, taken as a whole or (b) the ability of the Company to perform its
payment obligations under the Loan Documents.
"Material Indebtedness" means Indebtedness (other than the Loans), of
---------------------
any one or more of the Company and the Material Subsidiaries in an aggregate
principal amount exceeding $100,000,000.
"Material Subsidiary" means (a) any Borrowing Subsidiary, (b) any
-------------------
subsidiary that directly or indirectly owns or Controls any Borrowing Subsidiary
or other Material Subsidiary and (c) any other Subsidiary whose assets (or, if
such Subsidiary has subsidiaries, whose consolidated assets) are at least equal
to $100,000,000.
"Maturity Date" means January 25, 2005.
-------------
"Moody's" means Moody's Investors Service, Inc.
-------
"Mortgage" has the meaning assigned to such term in Section 6.02.
--------
<PAGE>
15
"Multiemployer Plan" means a multiemployer plan as defined in Section
------------------
4001(a)(3) of ERISA.
"Obligations" means the due and punctual payment of (a) the principal
-----------
of and premium, if any, and interest (including interest accruing during the
pendency of any bankruptcy, insolvency, receivership or other similar
proceeding, regardless of whether allowed or allowable in such proceeding) on
the Loans made to any Borrower, when and as due, whether at maturity, by
acceleration, upon one or more dates set for prepayment or otherwise and (b) all
other monetary obligations, including fees, costs, expenses and indemnities,
whether primary, secondary, direct, contingent, fixed or otherwise (including
monetary obligations incurred during the pendency of any bankruptcy, insolvency,
receivership or other similar proceeding, regardless of whether allowed or
allowable in such proceeding), of any Borrower under this Agreement and the
other Loan Documents.
"Other Taxes" means any present or future stamp or documentary taxes
-----------
and any other excise or property taxes, or similar charges or levies, which
arise from any payment made pursuant to this Agreement or any Loan Document or
from the execution, delivery, registration or enforcement of, or otherwise with
respect to, this Agreement or any Loan Document; provided that Other Taxes shall
--------
not include Excluded Taxes.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
----
defined in ERISA and any successor entity performing similar functions.
"Permitted Subsidiary Indebtedness" means (a) Indebtedness under this
---------------------------------
Agreement or the 364-Day Credit Agreement, (b) any Indebtedness of a Subsidiary
owed to the Company or another Subsidiary, (c) Indebtedness of Guarantor
Subsidiaries, (d) any Indebtedness deemed incurred in connection with one or
more receivables securitization transactions entered into by the Company and/or
one or more Subsidiaries in an aggregate amount of up to $500,000,000 (minus the
amount of any such Indebtedness of the Company) and (e) any Indebtedness of a
finance Subsidiary with no significant assets or operations to the extent (i)
such Indebtedness is Guaranteed by the Company and is not Guaranteed, or secured
by assets or obligations of, any other Subsidiary, (ii) the proceeds of such
Indebtedness are dividended to the Company or another Subsidiary or advanced to
the Company and (iii) such finance Subsidiary is not the obligee in respect of
any Indebtedness of any other Subsidiary.
"Person" means any natural person, corporation, limited liability
------
company, trust, joint venture, association, company, partnership, Governmental
Authority or other entity.
"Plan" means any employee pension benefit plan (other than a
----
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Code or Section 302 of ERISA, and in respect of which any Borrower or
any ERISA
<PAGE>
16
Affiliate is (or, if such plan were terminated, would under Section 4069 of
ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA.
"Prime Rate" means the rate of interest per annum publicly announced
----------
from time to time by The Chase Manhattan Bank as its prime rate in effect at its
principal office in New York City; each change in the Prime Rate shall be
effective from and including the date such change is publicly announced as being
effective.
"Principal Property" means any single manufacturing plant, engineering
------------------
facility or research facility owned or leased by the Company or a Domestic
Subsidiary other than any such plant or facility or portion thereof which the
Board of Directors reasonably determines not to be of material importance to the
Company and its Subsidiaries taken as a whole.
"Quotation Day" means, with respect to any Eurocurrency Borrowing and
-------------
any Interest Period, the day on which it is market practice in the relevant
interbank market for prime banks to give quotations for deposits in the currency
of such Borrowing for delivery on the first day of such Interest Period. If
such quotations would normally be given by prime banks on more than one day, the
Quotation Day will be the last of such days.
"Register" has the meaning set forth in Section 10.04.
--------
"Related Parties" means, with respect to any specified Person, such
---------------
Person's Affiliates and the respective directors, officers, employees, agents
and advisors of such Person and such Person's Affiliates.
"Required Lenders" means, at any time, Lenders having Revolving Credit
----------------
Exposures and unused Commitments representing more than 50% of the sum of the
total Revolving Credit Exposures and unused Commitments at such time; provided
--------
that, for purposes of declaring the Loans to be due and payable pursuant to
Article VII, and for all purposes after the Loans become due and payable
pursuant to Article VII or the Commitments expire or terminate, the outstanding
Competitive Loans of the Lenders shall be included in their respective Revolving
Credit Exposures in determining the Required Lenders.
"Revolving Credit Exposure" means, with respect to any Lender at any
-------------------------
time, the sum at such time, without duplication, of (a) such Lender's Applicable
Percentage of the principal amounts of the outstanding Revolving Loans
denominated in Dollars plus (b) such Lender's Applicable Percentage of the
aggregate amount of the Dollar Equivalents of the principal amounts of the
outstanding Revolving Loans denominated in Foreign Currencies.
<PAGE>
17
"Revolving Loan" means a Loan made pursuant to Sections 2.01 and
--------------
2.03.
"Specified Company Indebtedness" means, at any time, (a) all
------------------------------
Indebtedness of the Company secured by Mortgages that would be prohibited by
Section 6.02 but for the provisions of clause (h) thereof; (b) all Attributable
Debt of the Company related to Sale and Leaseback Transactions that would be
prohibited by Section 6.03 but for the provisions of clause (b) thereof; (c) all
Indebtedness of the Company secured by Mortgages on capital stock of or other
equity interests in Foreign Subsidiaries; and (d) all Indebtedness of the
Company that is secured by Mortgages on accounts receivable or that is deemed to
arise in connection with receivables securitization transactions, but only to
the extent the amount of such Indebtedness of the Company and the Domestic
Subsidiaries so secured or so arising exceeds $500,000,000.
"S&P" means Standard & Poor's Ratings Services, a division of The
---
McGraw-Hill Companies, Inc.
"Statutory Reserve Rate" means a fraction (expressed as a decimal),
----------------------
the numerator of which is the number one and the denominator of which is the
number one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board to which the Administrative Agent is subject for
eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in
Regulation D of the Board). Such reserve percentages shall include those imposed
pursuant to such Regulation D. Eurocurrency Loans shall be deemed to constitute
eurocurrency funding and to be subject to such reserve requirements without
benefit of or credit for proration, exemptions or offsets that may be available
from time to time to any Lender under such Regulation D or any comparable
regulation. The Statutory Reserve Rate shall be adjusted automatically on and as
of the effective date of any change in any reserve percentage.
"Sterling" or "(Pounds)" means the lawful money of the United Kingdom.
-------- --------
"subsidiary" means, with respect to any Person (the "parent") at any
---------- ------
date, any corporation, limited liability company, partnership, association or
other entity the accounts of which would be consolidated with those of the
parent in the parent's consolidated financial statements if such financial
statements were prepared in accordance with GAAP as of such date, as well as any
other corporation, limited liability company, partnership, association or other
entity (a) of which securities or other ownership interests representing more
than 50% of the equity or more than 50% of the ordinary voting power or, in the
case of a partnership, more than 50% of the general partnership interests are,
as of such date, owned, controlled or held, or (b) that is, as of such date,
otherwise Controlled, by the parent or one or more subsidiaries of the parent or
by the parent and one or more subsidiaries of the parent.
<PAGE>
18
"Subsidiary" means any subsidiary of the Company.
----------
"Taxes" means any and all present or future taxes or other charges of
-----
any nature deducted, withheld or otherwise imposed with respect to any payment
by any Borrower pursuant to this Agreement or any Loan Document, and all
liabilities with respect thereto other than Excluded Taxes.
"364-Day Credit Agreement" means the 364-Day Credit Agreement dated as
------------------------
of the date hereof among the Company, the borrowing subsidiaries from time to
time party thereto, the lenders from time to time party thereto, Chase, as
administrative agent and Salomon Smith Barney Inc., as syndication agent.
"Transactions" means the execution, delivery and performance by the
------------
Borrowers of the Loan Documents, the borrowing of Loans and the use of the
proceeds thereof.
"Type", when used in reference to any Loan or Borrowing, refers to
----
whether the rate of interest on such Loan, or on the Loans comprising such
Borrowing, is determined by reference to the Adjusted LIBO Rate, the Alternate
Base Rate or, in the case of a Competitive Loan or Borrowing, the LIBO Rate or a
Fixed Rate.
"Wholly Owned Domestic Subsidiary" means each Domestic Subsidiary all
--------------------------------
the outstanding shares of which, other than directors' qualifying shares, shall
at the time be owned by the Company or by the Company and one or more Wholly
Owned Domestic Subsidiaries, or by one or more Wholly Owned Domestic
Subsidiaries.
"Withdrawal Liability" means liability to a Multiemployer Plan as a
--------------------
result of a complete or partial withdrawal from such Multiemployer Plan, as such
terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Classification of Loans and Borrowings. For purposes
--------------------------------------
of this Agreement, Loans may be classified and referred to by Class (e.g., a
----
"Revolving Loan") or by Type (e.g., a "Eurocurrency Loan") or by Class and Type
----
(e.g., a "Eurocurrency Revolving Loan"). Borrowings also may be classified and
----
referred to by Class (e.g., a "Revolving Borrowing") or by Type (e.g., a
---- ----
"Eurocurrency Borrowing") or by Class and Type (e.g., a "Eurocurrency Revolving
----
Borrowing").
SECTION 1.03. Terms Generally. The definitions of terms herein shall
---------------
apply equally to the singular and plural forms of the terms defined. Whenever
the context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include", "includes" and "including" shall
be deemed to be followed by the phrase "without limitation". The word "will"
shall be construed to have the same meaning and effect as the word "shall".
Unless the context requires otherwise (a) any definition of or reference to any
agreement, instrument or other document herein shall be
<PAGE>
19
construed as referring to such agreement, instrument or other document as from
time to time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set forth herein),
(b) any reference herein to any Person shall be construed to include such
Person's successors and assigns, (c) the words "herein", "hereof" and
"hereunder", and words of similar import, shall be construed to refer to this
Agreement in its entirety and not to any particular provision hereof, (d) all
references herein to Articles, Sections, Exhibits and Schedules shall be
construed to refer to Articles and Sections of, and Exhibits and Schedules to,
this Agreement and (e) the words "asset" and "property" shall be construed to
have the same meaning and effect and to refer to any and all tangible and
intangible assets and properties, including cash, securities, accounts and
contract rights.
SECTION 1.04. Accounting Terms; GAAP. Except as otherwise expressly
----------------------
provided herein, all terms of an accounting or financial nature shall be
construed in accordance with GAAP, as in effect from time to time; provided
--------
that, if the Company notifies the Administrative Agent that the Company requests
an amendment to any provision hereof to eliminate the effect of any change
occurring after the date hereof in GAAP or in the application thereof on the
operation of such provision (or if the Administrative Agent notifies the Company
that the Required Lenders request an amendment to any provision hereof for such
purpose), regardless of whether any such notice is given before or after such
change in GAAP or in the application thereof, then such provision shall be
interpreted on the basis of GAAP as in effect and applied immediately before
such change shall have become effective until such notice shall have been
withdrawn or such provision amended in accordance herewith.
SECTION 1.05. Exchange Rates. (a) Not later than 1:00 p.m., New York
--------------
City time, on each Calculation Date, the Administrative Agent shall (i)
determine the Exchange Rate as of such Calculation Date with respect to each
Foreign Currency and (ii) give notice thereof to the Lenders and the Company.
The Exchange Rates so determined shall become effective on the first Business
Day immediately following the relevant Calculation Date (a "Recalculation
-------------
Date"), shall remain effective until the next succeeding Recalculation Date, and
- ----
shall for all purposes of this Agreement (other than Section 10.13 or any other
provision expressly requiring the use of a current Exchange Rate) be the
Exchange Rates employed in converting any amounts between Dollars and Foreign
Currencies.
(b) Not later than 5:00 p.m., New York City time, on each
Recalculation Date and each date on which Revolving Loans denominated in any
Foreign Currency are made, the Administrative Agent shall (i) determine the
aggregate amount of the Dollar Equivalents of the principal amounts of the Loans
denominated in Foreign Currencies then outstanding (after giving effect to any
Loans denominated in Foreign Currencies made or repaid on such date) and (ii)
notify the Lenders and the Company of the results of such determination.
<PAGE>
20
SECTION 1.06. Redenomination of Certain Foreign Currencies. (a) Each
--------------------------------------------
obligation of any party to this Agreement to make a payment denominated in the
national currency unit of any member state of the European Union that adopts the
Euro as its lawful currency after the date hereof shall be redenominated into
Euro at the time of such adoption (in accordance with the EMU Legislation). If,
in relation to the currency of any such member state, the basis of accrual of
interest expressed in this Agreement in respect of that currency shall be
inconsistent with any convention or practice in the London Interbank Market for
the basis of accrual of interest in respect of the Euro, such expressed basis
shall be replaced by such convention or practice with effect from the date on
which such member state adopts the Euro as its lawful currency; provided that if
--------
any Borrowing in the currency of such member state is outstanding immediately
prior to such date, such replacement shall take effect, with respect to such
Borrowing, at the end of the then current Interest Period.
(b) Without prejudice and in addition to any method of conversion or
rounding prescribed by any EMU Legislation and (i) without limiting the
liability of any Borrower for any amount due under this Agreement and (ii)
without increasing any Commitment of any Lender, all references in this
Agreement to minimum amounts (or integral multiples thereof) denominated in the
national currency unit of any member state of the European Union that adopts the
Euro as its lawful currency after the date hereof shall, immediately upon such
adoption, be replaced by references to such minimum amounts (or integral
multiples thereof) as shall be specified herein with respect to Borrowings
denominated in Euro.
(c) Each provision of this Agreement shall be subject to such
reasonable changes of construction as the Administrative Agent may from time to
time specify to be appropriate to reflect the adoption of the Euro by any member
state of the European Union and any relevant market conventions or practices
relating to the Euro.
ARTICLE II
The Credits
-----------
SECTION 2.01. Commitments. Subject to the terms and conditions set
-----------
forth herein, each Lender agrees to make Revolving Loans to any Borrower from
time to time during the Availability Period in any Committed Currency in an
aggregate principal amount that will not result in (a) such Lender's Revolving
Credit Exposure exceeding its Commitment or (b) the sum of the total Revolving
Credit Exposures plus the aggregate principal amount of the outstanding
Competitive Loans exceeding the total Commitments. Within the foregoing limits,
and subject to the terms and conditions set forth herein, any Borrower may
borrow, prepay and reborrow Revolving Loans.
<PAGE>
21
SECTION 2.02. Loans and Borrowings. (a) Each Revolving Loan shall be
---------------------
made as part of a Borrowing consisting of Revolving Loans made by the Lenders
ratably in accordance with their respective Commitments. Each Competitive Loan
shall be made in accordance with the procedures set forth in Section 2.04. The
failure of any Lender to make any Loan required to be made by it shall not
relieve any other Lender of its obligations hereunder; provided that the
--------
Commitments and Competitive Bids of the Lenders are several and no Lender shall
be responsible for any other Lender's failure to make Loans as required
hereunder.
(b) Subject to Section 2.12, (i) each Revolving Borrowing denominated
in a Foreign Currency shall be comprised entirely of Eurocurrency Loans, (ii)
each Revolving Borrowing denominated in Dollars shall be comprised entirely of
ABR Loans or Eurocurrency Loans as the applicable Borrower may request in
accordance herewith, and (iii) each Competitive Borrowing shall be comprised
entirely of Eurocurrency Loans or Fixed Rate Loans as the applicable Borrower
may request in accordance herewith. Each Lender at its option may make any
Eurocurrency Loan by causing any domestic or foreign branch or Affiliate of such
Lender to make such Loan; provided that any exercise of such option shall not
--------
affect the obligation of any Borrower to repay such Loan in accordance with the
terms of this Agreement.
(c) At the commencement of each Interest Period for any Revolving
Borrowing, such Revolving Borrowing shall be in an aggregate amount that is at
least equal to the Borrowing Minimum and an integral multiple of the Borrowing
Multiple; provided that an ABR Revolving Borrowing may be in an aggregate amount
--------
that is equal to the entire unused balance of the total Commitments. Each
Competitive Borrowing shall be in an aggregate amount that is an integral
multiple of $5,000,000 and not less than $10,000,000. Borrowings of more than
one Type and Class may be outstanding at the same time; provided that there
--------
shall not at any time be more than a total of 20 Eurocurrency Revolving
Borrowings outstanding.
(d) Notwithstanding any other provision of this Agreement, no
Borrower shall be entitled to request, or to elect to convert or continue, any
Borrowing if the Interest Period requested with respect thereto would end after
the Maturity Date.
SECTION 2.03. Requests for Revolving Borrowings. To request a
---------------------------------
Borrowing, the applicable Borrower, or the Company on behalf of the applicable
Borrower, shall notify the Applicable Agent of such request by telephone (a) in
the case of a Eurocurrency Borrowing, not later than 11:00 a.m., Local Time,
three Business Days before the date of the proposed Borrowing or (b) in the case
of an ABR Borrowing, not later than 10:00 a.m., New York City time, on the
Business Day of the proposed Borrowing. Each such telephonic Borrowing Request
shall be irrevocable and shall be confirmed promptly by hand delivery or
telecopy to the Applicable Agent of a written
<PAGE>
22
Borrowing Request in a form approved by the Applicable Agent and signed by the
applicable Borrower, or by the Company on behalf of the applicable Borrower.
Each such telephonic and written Borrowing Request shall specify the following
information in compliance with Section 2.02:
(i) the Borrower requesting such Borrowing (or on whose behalf the
Company is requesting such Borrowing);
(ii) the currency and aggregate principal amount of the requested
Borrowing;
(iii) the date of the requested Borrowing, which shall be a Business
Day;
(iv) whether the requested Borrowing is to be an ABR Borrowing or a
Eurocurrency Borrowing;
(v) in the case of a Eurocurrency Borrowing, the initial Interest
Period to be applicable thereto, which shall be a period contemplated
by the definition of the term "Interest Period"; and
(vi) the location and number of the Borrower's account to which funds
are to be disbursed, which shall comply with the requirements of
Section 2.05.
If no currency is specified with respect to any requested Eurocurrency Revolving
Borrowing, then the Borrower shall be deemed to have selected Dollars. If no
election as to the Type of Borrowing is specified, then the requested Borrowing
shall be (i) in the case of a Borrowing denominated in Dollars, an ABR
Borrowing, and (ii) in the case of a Borrowing denominated in a Foreign
Currency, a Eurocurrency Borrowing. If no Interest Period is specified with
respect to any requested Eurocurrency Revolving Borrowing, then the Borrower
shall be deemed to have selected an Interest Period of one month's duration.
Promptly following receipt of a Borrowing Request in accordance with this
Section, the Applicable Agent shall advise each Lender of the details thereof
and of the amount of such Lender's Loan to be made as part of the requested
Borrowing.
SECTION 2.04. Competitive Bid Procedure. (a) Subject to the terms
-------------------------
and conditions set forth herein, from time to time during the Availability
Period any Borrower may request Competitive Bids and may (but shall not have any
obligation to) accept Competitive Bids and borrow Competitive Loans, in each
case denominated in Dollars; provided that after giving effect to any Borrowing
--------
of Competitive Loans the sum of the total Revolving Credit Exposures plus the
aggregate principal amount of the outstanding Competitive Loans shall not exceed
the total Commitments. To request Competitive Bids, the Company or the
applicable Borrowing Subsidiary shall notify the Administrative Agent of such
request by telephone, in the case of a Eurocurrency
<PAGE>
23
Borrowing, not later than 11:00 a.m., New York City time, four Business Days
before the date of the proposed Borrowing and, in the case of a Fixed Rate
Borrowing, not later than 10:00 a.m., New York City time, one Business Day
before the date of the proposed Borrowing; provided that the Borrowers may
--------
submit up to (but not more than) three Competitive Bid Requests on the same day.
Each such telephonic Competitive Bid Request shall be confirmed promptly by hand
delivery or telecopy to the Administrative Agent of a written Competitive Bid
Request in a form approved by the Administrative Agent and signed by the
relevant Borrower. Each such telephonic and written Competitive Bid Request
shall specify the following information in compliance with Section 2.02:
(i) the Borrower requesting such Borrowing (or on whose behalf the
Company is requesting such Borrowing);
(ii) the aggregate principal amount of the requested Borrowing;
(iii) the date of the requested Borrowing, which shall be a Business
Day;
(iv) whether such Borrowing is to be a Eurocurrency Borrowing or a
Fixed Rate Borrowing;
(v) the Interest Period to be applicable to such Borrowing, which
shall be a period contemplated by the definition of the term "Interest
Period"; and
(vi) the location and number of the Borrower's account to which funds
are to be disbursed, which shall comply with the requirements of
Section 2.05.
Promptly following receipt of a Competitive Bid Request in accordance with this
Section, the Administrative Agent shall notify the Lenders of the details
thereof by telecopy, inviting the Lenders to submit Competitive Bids.
(b) Each Lender may (but shall not have any obligation to) make one
or more Competitive Bids to any Borrower in response to a Competitive Bid
Request. Each Competitive Bid by a Lender must be in a form approved by the
Administrative Agent and must be received by the Administrative Agent by
telecopy, in the case of a Eurocurrency Competitive Borrowing, not later than
9:30 a.m., New York City time, three Business Days before the proposed date of
such Competitive Borrowing, and in the case of a Fixed Rate Borrowing, not later
than 9:30 a.m., New York City time, on the proposed date of such Competitive
Borrowing. Competitive Bids that do not conform substantially to the form
approved by the Administrative Agent may be rejected by the Administrative
Agent, and the Administrative Agent shall notify the applicable Lender as
promptly as practicable. Each Competitive Bid shall specify (i) the principal
amount (which shall be a minimum of $5,000,000 and an integral multiple of
$1,000,000 and which may equal the entire principal amount of the Competitive
Borrowing requested by
<PAGE>
24
the relevant Borrower) of the Competitive Loan or Loans that the Lender is
willing to make, (ii) the Competitive Bid Rate or Rates at which the Lender is
prepared to make such Loan or Loans (expressed as a percentage rate per annum in
the form of a decimal to no more than four decimal places) and (iii) the
Interest Period applicable to each such Loan and the last day thereof.
(c) The Administrative Agent shall promptly notify the Company by
telecopy of the Competitive Bid Rate and the principal amount specified in each
Competitive Bid and the identity of the Lender that shall have made such
Competitive Bid.
(d) Subject only to the provisions of this paragraph, the Borrower
may accept or reject any Competitive Bid. The Borrower shall notify the
Administrative Agent by telephone, confirmed by telecopy in a form approved by
the Administrative Agent, whether and to what extent it has decided to accept or
reject each Competitive Bid, in the case of a Eurocurrency Competitive
Borrowing, not later than 10:30 a.m., New York City time, three Business Days
before the date of the proposed Competitive Borrowing, and in the case of a
Fixed Rate Borrowing, not later than 10:30 a.m., New York City time, on the date
of the proposed Competitive Borrowing; provided that (i) the failure of the
--------
Borrower to give such notice shall be deemed to be a rejection of each
Competitive Bid, (ii) the Borrower shall not accept a Competitive Bid made at a
particular Competitive Bid Rate if the relevant Borrower rejects a Competitive
Bid made at a lower Competitive Bid Rate, (iii) the aggregate amount of the
Competitive Bids accepted by the Borrower shall not exceed the aggregate amount
of the requested Competitive Borrowing specified in the related Competitive Bid
Request, (iv) to the extent necessary to comply with clause (iii) above, the
Borrower may accept Competitive Bids at the same Competitive Bid Rate in part,
which acceptance, in the case of multiple Competitive Bids at such Competitive
Bid Rate, shall be made pro rata in accordance with the amount of each such
Competitive Bid, and (v) except pursuant to clause (iv) above, no Competitive
Bid shall be accepted for a Competitive Loan unless the amount of such
Competitive Loan is an integral multiple of $5,000,000; provided further that if
----------------
a Competitive Loan must be in an amount less than $5,000,000 because of the
provisions of clause (iv) above, such Competitive Loan may have a minimum amount
of $1,000,000 and in calculating the pro rata allocation of acceptances of
portions of multiple Competitive Bids at a particular Competitive Bid Rate
pursuant to clause (iv) the amounts shall be rounded to integral multiples of
$1,000,000 in a manner determined by the Borrower. A notice given by a Borrower
pursuant to this paragraph shall be irrevocable.
(e) The Administrative Agent shall promptly notify each bidding
Lender by telecopy whether or not its Competitive Bid has been accepted (and, if
so, the amount and Competitive Bid Rate so accepted), and each successful bidder
will thereupon become bound, subject to the terms and conditions hereof, to make
the Competitive Loan in respect of which its Competitive Bid has been accepted.
<PAGE>
25
(f) If the Administrative Agent shall elect to submit a Competitive
Bid in its capacity as a Lender, it shall submit such Competitive Bid directly
to the Borrower at least one quarter of an hour earlier than the time by which
the other Lenders are required to submit their Competitive Bids to the
Administrative Agent pursuant to paragraph (b) of this Section.
SECTION 2.05. Funding of Borrowings. (a) Each Lender shall make each
----------------------
Loan to be made by it hereunder on the proposed date thereof by wire transfer of
immediately available funds by 12:00 noon, Local Time, to the account of the
Applicable Agent most recently designated by it for such purpose by notice to
the Lenders. The Applicable Agent will make such Loans available to the Borrower
by promptly crediting the amounts so received, in like funds, to an account of
the Borrower maintained by the Applicable Agent (i) in New York City, in the
case of Loans denominated in Dollars, or (ii) in London, in the case of Foreign
Currency Loans, and designated by such Borrower in the applicable Borrowing
Request or Competitive Bid Request.
(b) Unless the Applicable Agent shall have received notice from a
Lender prior to the proposed date of any Borrowing that such Lender will not
make available to the Applicable Agent such Lender's share of such Borrowing,
the Applicable Agent may assume that such Lender has made such share available
on such date in accordance with paragraph (a) of this Section and may, in
reliance upon such assumption, make available to the relevant Borrower a
corresponding amount. In such event, if a Lender has not in fact made its share
of the applicable Borrowing available to the Applicable Agent, then the
applicable Lender and such Borrower severally agree to pay to the Applicable
Agent forthwith on demand such corresponding amount with interest thereon, for
each day from and including the date such amount is made available to such
Borrower to but excluding the date of payment to the Applicable Agent, at (x)
the Federal Funds Effective Rate (in the case of a Borrowing in Dollars) and (y)
the rate reasonably determined by the Applicable Agent to be the cost to it of
funding such amount (in the case of a Borrowing in a Foreign Currency). If such
Lender pays such amount to the Applicable Agent, then such amount shall
constitute such Lender's Loan included in such Borrowing.
SECTION 2.06. Interest Elections. (a) Each Revolving Borrowing
-------------------
initially shall be of the Type specified in the applicable Borrowing Request
and, in the case of a Eurocurrency Revolving Borrowing, shall have an initial
Interest Period as specified in such Borrowing Request. Thereafter, the relevant
Borrower may elect to convert such Borrowing to a different Type or to continue
such Borrowing and, in the case of a Eurocurrency Revolving Borrowing, may elect
Interest Periods therefor, all as provided in this Section. A Borrower may elect
different options with respect to different portions of the affected Borrowing,
in which case each such portion shall be allocated ratably among the Lenders
holding the Loans comprising such Borrowing, and the Loans
<PAGE>
26
comprising each such portion shall be considered a separate Borrowing. This
Section shall not apply to Competitive Borrowings, which may not be converted or
continued.
(b) To make an election pursuant to this Section, the Company or the
Borrowing Subsidiary (or the Company on its behalf) shall notify the Applicable
Agent of such election by telephone by the time that a Borrowing Request would
be required under Section 2.03 if such Borrower were requesting a Revolving
Borrowing of the Type and currency resulting from such election to be made on
the effective date of such election. Each such telephonic Interest Election
Request shall be irrevocable and shall be confirmed promptly by hand delivery or
telecopy to the Applicable Agent of a written Interest Election Request in a
form approved by the Applicable Agent and signed by the relevant Borrower, or by
the Company on its behalf.
(c) Each telephonic and written Interest Election Request shall
specify the following information in compliance with Section 2.02:
(i) the Borrowing to which such Interest Election Request applies and,
if different options are being elected with respect to different portions
thereof, the portions thereof to be allocated to each resulting Borrowing
(in which case the information to be specified pursuant to clauses (iii)
and (iv) below shall be specified for each resulting Borrowing);
(ii) the effective date of the election made pursuant to such Interest
Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR Borrowing or a
Eurocurrency Borrowing; and
(iv) if the resulting Borrowing is a Eurocurrency Borrowing, the
Interest Period to be applicable thereto after giving effect to such
election, which shall be a period contemplated by the definition of the
term "Interest Period".
If any such Interest Election Request requests a Eurocurrency Borrowing but does
not specify an Interest Period, then the relevant Borrower shall be deemed to
have selected an Interest Period of one month's duration.
(d) Promptly following receipt of an Interest Election Request, the
Applicable Agent shall advise each Lender of the details thereof and of such
Lender's portion of each resulting Borrowing.
(e) If the relevant Borrower fails to deliver a timely Interest
Election Request with respect to a Eurocurrency Revolving Borrowing prior to the
end of the Interest Period applicable thereto, then, unless such Borrowing is
repaid as provided
<PAGE>
27
herein, at the end of such Interest Period such Borrowing shall be converted to
an ABR Borrowing (unless such Borrowing is denominated in a Foreign Currency, in
which case such Borrowing shall become due and payable on the last day of such
Interest Period). Notwithstanding any contrary provision hereof, if an Event of
Default has occurred and is continuing and the Applicable Agent, at the request
of the Required Lenders, so notifies the Company, then, so long as an Event of
Default is continuing (i) no outstanding Revolving Borrowing denominated in
Dollars may be converted to or continued as a Eurocurrency Borrowing and (ii)
unless repaid, each Eurocurrency Revolving Borrowing denominated in Dollars
shall be converted to an ABR Borrowing at the end of the Interest Period
applicable thereto.
SECTION 2.07. Termination and Reduction of Commitments. (a) Unless
-----------------------------------------
previously terminated, the Commitments shall terminate on the Maturity Date.
(b) The Company may at any time terminate, or from time to time
reduce, the Commitments; provided that (i) each reduction of the Commitments
--------
shall be in an amount that is an integral multiple of $10,000,000 and (ii) the
Company shall not terminate or reduce the Commitments if, after giving effect to
any concurrent prepayment of the Loans in accordance with Section 2.09, the sum
of the Revolving Credit Exposures plus the aggregate principal amount of
outstanding Competitive Loans would exceed the total Commitments.
(c) The Company shall notify the Administrative Agent of any election
to terminate or reduce the Commitments under paragraph (b) of this Section at
least one Business Day prior to the effective date of such termination or
reduction, specifying such election and the effective date thereof. Promptly
following receipt of any notice, the Administrative Agent shall advise the
London Agent and the Lenders of the contents thereof. Each notice delivered by
the Company pursuant to this Section shall be irrevocable; provided that a
--------
notice of termination of the Commitments delivered by the Company may state that
such notice is conditioned upon the effectiveness of other credit facilities, in
which case such notice may be revoked by the Company (by notice to the
Administrative Agent on or prior to the specified effective date) if such
condition is not satisfied. Any termination or reduction of the Commitments
shall be permanent. Each reduction of the Commitments shall be made ratably
among the Lenders in accordance with their respective Commitments.
SECTION 2.08. Repayment of Loans; Evidence of Debt. (a) Each
------------------------------------
Borrower hereby unconditionally promises to pay (i) to the Applicable Agent for
the account of each Lender the then unpaid principal amount of each Revolving
Loan on the Maturity Date and (ii) to the Administrative Agent for the account
of each Lender the then unpaid principal amount of each Competitive Loan on the
last day of the Interest Period applicable to such Loan.
<PAGE>
28
(b) Each Lender shall maintain in accordance with its usual practice
an account or accounts evidencing the indebtedness of each Borrower to such
Lender resulting from each Loan made by such Lender, including the amounts of
principal and interest payable and paid to such Lender from time to time
hereunder.
(c) The Administrative Agent shall maintain accounts in which it
shall record (i) the amount of each Loan made hereunder, the Class and Type
thereof and the Interest Period applicable thereto, (ii) the amount of any
principal or interest due and payable or to become due and payable from each
Borrower to each Lender hereunder and (iii) the amount of any sum received by
the Agents hereunder for the account of the Lenders and each Lender's share
thereof.
(d) The entries made in the accounts maintained pursuant to paragraph
(b) or (c) of this Section shall, absent manifest error, be prima facie evidence
----- -----
of the existence and amounts of the obligations recorded therein; provided that
--------
the failure of any Lender or the Administrative Agent to maintain such accounts
or any error therein shall not in any manner affect the obligation of any
Borrower to repay the Loans in accordance with the terms of this Agreement.
(e) Any Lender may request that Loans made by it be evidenced by a
promissory note. In such event, each Borrower shall prepare, execute and deliver
to such Lender a promissory note payable to the order of such Lender (or, if
requested by such Lender, to such Lender and its registered assigns) and in a
form approved by the Administrative Agent. Thereafter, the Loans evidenced by
such promissory note and interest thereon shall at all times (including after
assignment pursuant to Section 10.04) be represented by one or more promissory
notes in such form payable to the order of the payee named therein (or, if such
promissory note is a registered note, to such payee and its registered assigns).
SECTION 2.09. Prepayment of Loans. (a) Any Borrower shall have the
--------------------
right at any time and from time to time to prepay any Borrowing of such Borrower
in whole or in part, subject to prior notice in accordance with paragraph (c) of
this Section; provided that a Borrower shall not have the right to prepay any
--------
Competitive Loan without the prior consent of the Lender thereof.
(b) In the event and on each occasion that the sum of the aggregate
Revolving Credit Exposures and the aggregate outstanding principal amount of the
Competitive Loans exceeds 105% of the total Revolving Commitments, the Borrowers
shall promptly prepay Revolving Borrowings in an aggregate amount equal to such
excess. The Administrative Agent shall promptly notify the Company in the event
it determines that any prepayment is required under this paragraph.
<PAGE>
29
(c) The Company shall notify the Applicable Agent by telephone
(confirmed by telecopy) of any prepayment hereunder not later than 11:00 a.m.,
Local Time, one Business Day before the date of prepayment. Each such notice
shall be irrevocable and shall specify the prepayment date and the principal
amount of each Borrowing or portion thereof to be prepaid; provided that, if a
--------
notice of prepayment is given in connection with a conditional notice of
termination of the Commitments as contemplated by Section 2.07, then such notice
of prepayment may be revoked if such notice of termination is revoked in
accordance with Section 2.07. Promptly following receipt of any such notice
relating to a Revolving Borrowing, the Applicable Agent shall advise the Lenders
of the contents thereof. Each partial prepayment of any Revolving Borrowing
shall be in an amount that would be permitted in the case of an advance of a
Revolving Borrowing of the same Type as provided in Section 2.02. Each
prepayment of a Revolving Borrowing shall be applied ratably to the Loans
included in the prepaid Borrowing. Prepayments shall be accompanied by accrued
interest to the extent required by Section 2.11.
SECTION 2.10. Fees. (a) The Company agrees to pay to the
-----
Administrative Agent for the account of each Lender a facility fee, which shall
accrue at the Applicable Rate on the daily amount of the Commitment of such
Lender (whether used or unused) during the period from and including the date
hereof to but excluding the date on which such Commitment terminates; provided
--------
that, if such Lender continues to have any Revolving Credit Exposure after its
Commitment terminates, then such facility fee shall continue to accrue on the
daily amount of such Lender's Revolving Credit Exposure from and including the
date on which its Commitment terminates to but excluding the date on which such
Lender ceases to have any Revolving Credit Exposure. Accrued facility fees shall
be payable in arrears on the last day of March, June, September and December of
each year and on the date on which the Commitments terminate, commencing on the
first such date to occur after the date hereof; provided that any facility fees
--------
accruing after the date on which the Commitments terminate shall be payable on
demand. All facility fees shall be computed on the basis of a year of 365 days
(or 366 days in the case of a leap year) and shall be payable for the actual
number of days elapsed (including the first day but excluding the last day).
(b) For any day on which the sum of the total Revolving Credit
Exposure plus the aggregate principal amount of the outstanding Competitive
Loans shall be greater than 33-1/3% of the total Commitments, the Borrower shall
pay to the Administrative Agent for the account of each Lender a utilization fee
which shall accrue at the Applicable Rate on the aggregate amount of such
Lender's outstanding Loans on such day. The accrued utilization fees, if any,
shall be payable in arrears on the last day of each March, June, September and
December, on any date prior to the Maturity Date on which the Commitments
terminate and on the Maturity Date. All utilization fees shall be computed on
the basis of a year of 365 days (or 366 days in the case of a leap year) and
<PAGE>
30
shall be payable for the actual number of days elapsed (including the first day
but excluding the last day).
(c) The Company agrees to pay to the Administrative Agent, for its
own account, fees payable in the amounts and at the times separately agreed upon
between the Company and the Administrative Agent.
(d) All fees payable hereunder shall be paid on the dates due, in
immediately available funds, to the Administrative Agent for distribution, in
the case of facility fees and utilization fees, to the Lenders. Fees paid shall
not be refundable absent manifest error in payment or computation.
SECTION 2.11. Interest. (a) The Loans comprising each ABR Borrowing
---------
shall bear interest at the Alternate Base Rate.
(b) The Loans comprising each Eurocurrency Borrowing shall bear
interest (i) in the case of a Eurocurrency Revolving Loan, at the Adjusted LIBO
Rate for the Interest Period in effect for such Borrowing plus the Applicable
Rate, or (ii) in the case of a Eurocurrency Competitive Loan, at the LIBO Rate
for the Interest Period in effect for such Borrowing plus (or minus, as
applicable) the Margin applicable to such Loan.
(c) Each Fixed Rate Loan shall bear interest at the Fixed Rate
applicable to such Loan.
(d) Notwithstanding the foregoing, if any principal of or interest on
any Loan or any fee or other amount payable by any Borrower hereunder is not
paid when due, whether at stated maturity, upon acceleration or otherwise, such
overdue amount shall bear interest, after as well as before judgment, at a rate
per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the
rate otherwise applicable to such Loan as provided in the preceding paragraphs
of this Section or (ii) in the case of any other amount, 2% plus the rate
applicable to ABR Loans as provided in paragraph (a) of this Section.
(e) Accrued interest on each Loan shall be payable in arrears on each
Interest Payment Date for such Loan and, in the case of Revolving Loans, upon
termination of the Commitments; provided that (i) interest accrued pursuant to
--------
paragraph (d) of this Section shall be payable on demand, (ii) in the event of
any repayment or prepayment of any Loan (other than a prepayment of an ABR
Revolving Loan prior to the end of the Availability Period), accrued interest on
the principal amount repaid or prepaid shall be payable on the date of such
repayment or prepayment and (iii) in the event of any conversion of any
Eurocurrency Revolving Loan prior to the end of the current Interest
<PAGE>
31
Period therefor, accrued interest on such Loan shall be payable on the effective
date of such conversion.
(f) All interest hereunder shall be computed on the basis of a year
of 360 days, except that (i) interest on Borrowings denominated in Sterling and
(ii) interest computed by reference to the Alternate Base Rate at times when the
Alternate Base Rate is based on the Prime Rate shall be computed on the basis of
a year of 365 days (or 366 days in a leap year), and in each case shall be
payable for the actual number of days elapsed (including the first day but
excluding the last day). The applicable Alternate Base Rate, Adjusted LIBO Rate
or LIBO Rate shall be determined by the Administrative Agent, and such
determination shall be conclusive absent manifest error.
SECTION 2.12. Alternate Rate of Interest. If prior to the
---------------------------
commencement of any Interest Period for a Eurocurrency Borrowing denominated in
any currency:
(a) the Applicable Agent determines (which determination shall be
conclusive absent manifest error) that adequate and reasonable means do not
exist for ascertaining the Adjusted LIBO Rate or the LIBO Rate, as
applicable, for such Interest Period; or
(b) the Applicable Agent is advised by the Required Lenders (or, in
the case of a Eurocurrency Competitive Loan, the Lender that is required to
make such Loan) that the Adjusted LIBO Rate or the LIBO Rate, as
applicable, for such Interest Period will not adequately and fairly reflect
the cost to such Lenders (or Lender) of making or maintaining their Loans
(or its Loan) included in such Borrowing for such Interest Period;
then the Applicable Agent shall give notice thereof to the Company and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Applicable Agent notifies the Company and the Lenders that the
circumstances giving rise to such notice no longer exist, (i) any Interest
Election Request that requests the conversion of any Revolving Borrowing
denominated in such currency to, or continuation of any Revolving Borrowing
denominated in such currency as, a Eurocurrency Borrowing shall be ineffective,
and any Eurocurrency Borrowing denominated in such currency that is requested to
be continued (A) if such currency is the Dollar, shall be converted to an ABR
Borrowing on the last day of the Interest Period applicable thereto and (B) if
such currency is a Foreign Currency, shall be repaid on the last day of the
Interest Period applicable thereto, (ii) any Borrowing Request for a
Eurocurrency Revolving Borrowing denominated in such currency (A) if such
currency is the Dollar, shall be deemed a request for an ABR Borrowing and (B)
if such currency is a Foreign Currency, shall be ineffective, and (iii) any
request by a Borrower for a Eurocurrency Competitive Borrowing shall be
ineffective; provided that if the circumstances giving rise to such
--------
<PAGE>
32
notice do not affect all the Lenders, then requests by a Borrower for
Eurocurrency Competitive Borrowings may be made to Lenders that are not affected
thereby.
SECTION 2.13. Increased Costs. (a) If any Change in Law shall:
----------------
(i) impose, modify or deem applicable any reserve, special deposit or
similar requirement against assets of, deposits with or for the account of,
or credit extended by, any Lender (except any such reserve requirement
reflected in the Adjusted LIBO Rate); or
(ii) impose on any Lender or the London interbank market any other
condition affecting this Agreement or Eurocurrency Loans or Fixed Rate
Loans made by such Lender;
and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurocurrency Loan or Fixed Rate Loan (or of
maintaining its obligation to make any such Loan) or to reduce the amount of any
sum received or receivable by such Lender hereunder (whether of principal,
interest or otherwise), then the Company will pay to such Lender such additional
amount or amounts as will compensate such Lender for such additional costs
incurred or reduction suffered.
(b) If any Lender determines that any Change in Law regarding capital
requirements has or would have the effect of reducing the rate of return on such
Lender's capital or on the capital of such Lender's holding company, if any, as
a consequence of this Agreement or the Loans made by, such Lender, to a level
below that which such Lender or such Lender's holding company could have
achieved but for such Change in Law (taking into consideration such Lender's
policies and the policies of such Lender's holding company with respect to
capital adequacy), then from time to time the Company will pay to such Lender,
such additional amount or amounts as will compensate such Lender or such
Lender's holding company for any such reduction suffered.
(c) A certificate of a Lender setting forth the amount or amounts
necessary to compensate such Lender or its holding company, as the case may be,
as specified in paragraph (a) or (b) of this Section shall be delivered to the
Company and shall be conclusive absent manifest error. The Company shall pay
such Lender, as the case may be, the amount shown as due on any such certificate
within 15 days after receipt thereof.
(d) Failure or delay on the part of any Lender to demand compensation
pursuant to this Section shall not constitute a waiver of such Lender's right to
demand such compensation; provided that the Company shall not be required to
--------
compensate a Lender pursuant to this Section for any increased costs or
reductions incurred more than 45 days prior to the date that such Lender
notifies the Company of the Change in Law giving rise to such increased costs or
reductions and of such Lender's intention to claim
<PAGE>
33
compensation therefor; provided further that, if the Change in Law giving rise
-------- -------
to such increased costs or reductions is retroactive, then the 45-day period
referred to above shall be extended to include the period of retroactive effect
thereof.
(e) Notwithstanding the foregoing provisions of this Section, a
Lender shall not be entitled to compensation pursuant to this Section in respect
of any Competitive Loan if the Change in Law that would otherwise entitle it to
such compensation shall have been publicly announced prior to submission of the
Competitive Bid pursuant to which such Loan was made.
SECTION 2.14. Break Funding Payments. In the event of (a) the
----------------------
payment of any principal of any Eurocurrency Loan or Fixed Rate Loan other than
on the last day of an Interest Period applicable thereto (including as a result
of an Event of Default), (b) the conversion of any Eurocurrency Loan other than
on the last day of the Interest Period applicable thereto, (c) the failure to
borrow, convert, continue or prepay any Revolving Loan on the date specified in
any notice delivered pursuant hereto, (d) the failure to borrow any Competitive
Loan after accepting the Competitive Bid to make such Loan, or (e) the
assignment of any Eurocurrency Loan or Fixed Rate Loan other than on the last
day of the Interest Period applicable thereto as a result of a request by the
Company pursuant to Section 2.17, then, in any such event, the Company shall
compensate each Lender for the loss, cost and expense attributable to such
event. In the case of a Eurocurrency Loan, such loss, cost or expense to any
Lender shall be deemed to include an amount determined by such Lender to be the
excess, if any, of (i) the amount of interest which would have accrued on the
principal amount of such Loan had such event not occurred, at the Adjusted LIBO
Rate that would have been applicable to such Loan, for the period from the date
of such event to the last day of the then current Interest Period therefor (or,
in the case of a failure to borrow, convert or continue, for the period that
would have been the Interest Period for such Loan), over (ii) the amount of
interest which would accrue on such principal amount for such period at the
interest rate which such Lender would bid were it to bid, at the commencement of
such period, for deposits in the applicable currency of a comparable amount and
period from other banks in the eurocurrency market. A certificate of any Lender
setting forth any amount or amounts that such Lender is entitled to receive
pursuant to this Section shall be delivered to the Company and shall be
conclusive absent manifest error. The Company shall pay such Lender the amount
shown as due on any such certificate within 15 days after receipt thereof.
SECTION 2.15. Taxes. (a) Each payment by a Borrower to or for the
-----
account of a Lender hereunder or under any Loan Document shall be made without
deduction for any Taxes or Other Taxes; provided that, if a Borrower shall be
required by law to deduct any Taxes or Other Taxes from such payment, (i) the
sum payable shall be increased as necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section) such Lender receives an amount
<PAGE>
34
equal to the sum it would have received had no such deduction been made, (ii)
such Borrower shall make such deduction, (iii) such Borrower shall pay the full
amount deducted to the relevant taxation authority or other authority in
accordance with applicable law and (iv) such Borrower shall promptly furnish to
the Administrative Agent, at its address specified in or pursuant to Section
10.01, the original or a certified copy of a receipt evidencing payment thereof
or other reasonably satisfactory evidence thereof.
(b) The relevant Borrower shall indemnify each Lender for the full
amount of any Taxes or Other Taxes (including, without limitation, any Taxes or
Other Taxes imposed or asserted (whether or not correctly) by any jurisdiction
on amounts payable under this Section) paid by such Lender with respect to
amounts paid by such Borrower pursuant to this Agreement or any Loan Document,
and any liability (including penalties, interest and expenses) arising therefrom
or with respect thereto. This indemnification shall be paid within 15 days after
the later of the date such Lender makes demand therefor and the date such
payment is made.
(c) Each Lender organized under the laws of a jurisdiction outside the
United States, before it signs and delivers this Agreement in the case of each
Lender listed on the signature pages hereof and before it becomes a Lender in
the case of each other Lender, and from time to time thereafter if requested in
writing by the Company (but only so long as such Lender remains lawfully able to
do so), shall provide the Company and the Administrative Agent with Internal
Revenue Service form W-8BEN or W-8ECI in duplicate, as appropriate, or any
successor form prescribed by the Internal Revenue Service, certifying that such
Lender is entitled to benefits under an income tax treaty to which the United
States is a party which exempts such Lender from United States withholding tax
or reduces the rate of withholding tax on payments of interest for the account
of such Lender or certifying that the income receivable by it pursuant to this
Agreement is effectively connected with the conduct of a trade or business in
the United States.
(d) For any period with respect to which a Lender has failed to
provide the Company or the Administrative Agent with the appropriate form as
required by paragraph (c) above (unless such failure is due to a change in
treaty, law or regulation occurring after the date on which such form originally
was required to be provided or results from the Company's failure to make a
timely written request pursuant to paragraph (c) above), such Lender shall not
be entitled to indemnification under paragraphs (a) or (b) above with respect to
Taxes imposed by the United States; provided that if a Lender, which is
--------
otherwise exempt from or subject to a reduced rate of withholding tax, becomes
subject to Taxes because of its failure to deliver a form required hereunder,
the Borrowers shall take such steps as such Lender shall reasonably request to
assist such Lender to recover such Taxes.
<PAGE>
35
SECTION 2.16. Payments Generally; Pro Rata Treatment; Sharing of Set-
------------------------------------------------------
offs. (a) Each Borrower shall make each payment required to be made by it
- -----
hereunder or under any other Loan Document (whether of principal, interest,
fees, or of amounts payable under Section 2.13, 2.14 or 2.15, or otherwise)
prior to 2:00 p.m., Local Time, on the date when due, in immediately available
funds, without set-off or counterclaim. All such payments shall be made to the
Applicable Agent to such account as it shall from time to time specify at its
offices (i) in the case of any amount denominated in Dollars, at 270 Park
Avenue, New York, New York, (ii) in the case of any amount denominated in a
Foreign Currency, at Chase Manhattan International Limited, Trinity Tower, 9
Thomas More Street, London, England E19YT, or, in any such case, at such other
address as the Applicable Agent shall from time to time specify in a notice
delivered to the Company; provided that payments pursuant to Section 2.13,
--------
Section 2.14, Section 2.15 and Section 10.03 shall be made directly to the
Persons entitled thereto. The Applicable Agent shall distribute any such
payments received by it for the account of any other Person to the appropriate
recipient promptly following receipt thereof. If any payment hereunder shall be
due on a day that is not a Business Day, the date for payment shall be extended
to the next succeeding Business Day, and, in the case of any payment accruing
interest, interest thereon shall be payable for the period of such extension.
All payments hereunder of principal or interest in respect of any Loan shall be
made in the currency of such Loan; all other payments hereunder and under each
other Loan Document shall be made in Dollars. Any payment required to be made
by an Agent hereunder shall be deemed to have been made by the time required if
such Agent shall, at or before such time, have taken the necessary steps to make
such payment in accordance with the regulations or operating procedures of the
clearing or settlement system used by such Agent to make such payment. Any
amount payable by any Agent to one or more Lenders in the national currency of a
member state of the European Union that has adopted the Euro as its lawful
currency shall be paid in Euro.
(b) If at any time insufficient funds are received by and available
to the Administrative Agent to pay fully all amounts of principal, interest and
fees then due hereunder, such funds shall be applied (i) first, towards payment
of interest and fees then due hereunder, ratably among the parties entitled
thereto in accordance with the amounts of interest and fees then due to such
parties, and (ii) second, towards payment of principal then due hereunder,
ratably among the parties entitled thereto in accordance with the amounts of
principal then due to such parties.
(c) If any Lender shall, by exercising any right of set-off or
counterclaim or otherwise, obtain payment in respect of any principal of or
interest on any of its Revolving Loans resulting in such Lender receiving
payment of a greater proportion of the aggregate amount of its Revolving Loans
and accrued interest thereon than the proportion received by any other Lender,
then the Lender receiving such greater proportion shall purchase (for cash at
face value) participations in the Revolving Loans of other Lenders to the extent
necessary so that the benefit of all such payments shall be
<PAGE>
36
shared by the Lenders ratably in accordance with the aggregate amount of
principal of and accrued interest on their respective Revolving Loans; provided
--------
that (i) if any such participations are purchased and all or any portion of the
payment giving rise thereto is recovered, such participations shall be rescinded
and the purchase price restored to the extent of such recovery, without
interest, and (ii) the provisions of this paragraph shall not be construed to
apply to any payment made by any Borrower pursuant to and in accordance with the
express terms of this Agreement or any payment obtained by a Lender as
consideration for the assignment of or sale of a participation in any of its
Loans to any assignee or participant, other than to the Company or any
Subsidiary or Affiliate thereof (as to which the provisions of this paragraph
shall apply). Each Borrower consents to the foregoing and agrees, to the extent
it may effectively do so under applicable law, that any Lender acquiring a
participation pursuant to the foregoing arrangements may exercise against such
Borrower rights of set-off and counterclaim with respect to such participation
as fully as if such Lender were a direct creditor of the Borrower in the amount
of such participation.
(d) Unless the Applicable Agent shall have received notice from the
Company prior to the date on which any payment is due to the Applicable Agent
for the account of the Lenders hereunder that the relevant Borrower will not
make such payment, the Applicable Agent may assume that such Borrower has made
such payment on such date in accordance herewith and may, in reliance upon such
assumption, distribute to the Lenders, the amount due. In such event, if such
Borrower has not in fact made such payment, then each of the Lenders severally
agrees to repay to the Applicable Agent forthwith on demand the amount so
distributed to such Lender with interest thereon, for each day from and
including the date such amount is distributed to it to but excluding the date of
payment to the Applicable Agent, at the greater of the Federal Funds Effective
Rate and a rate determined by the Applicable Agent in accordance with banking
industry rules on interbank compensation.
(e) If any Lender shall fail to make any payment required to be made
by it pursuant to Section 2.05(b) or 2.16(d), then the Administrative Agent or
the London Agent may, in its discretion (notwithstanding any contrary provision
hereof), apply any amounts thereafter received by the Administrative Agent or
the London Agent for the account of such Lender to satisfy such Lender's
obligations under such Sections until all such unsatisfied obligations are fully
paid.
SECTION 2.17. Mitigation Obligations; Replacement of Lenders. (a)
----------------------------------------------
If any Lender requests compensation under Section 2.13, or if any Borrower is
required to pay any additional amount to any Lender or any Governmental
Authority for the account of any Lender pursuant to Section 2.15, then such
Lender shall use reasonable efforts to designate a different lending office for
funding or booking its Loans hereunder or to assign its rights and obligations
hereunder to another of its offices, branches or affiliates, if, in the judgment
of such Lender, such designation or assignment (i) would eliminate or reduce
amounts payable pursuant to Section 2.13 or 2.15, as the case may be, in the
future
<PAGE>
37
and (ii) would not subject such Lender to any unreimbursed cost or expense and
would not otherwise be disadvantageous to such Lender.
(b) If any Lender requests compensation under Section 2.13, or if any
Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 2.15,
or if any Lender defaults in its obligation to fund Loans hereunder, then the
Company may, at its sole expense and effort, upon notice to such Lender and the
Administrative Agent, require such Lender to assign and delegate, without
recourse (in accordance with and subject to the restrictions contained in
Section 10.04), all its interests, rights and obligations under the Loan
Documents (other than any outstanding Competitive Loans held by it) to an
assignee that shall assume such obligations (which assignee may be another
Lender, if a Lender accepts such assignment); provided that (i) the Company
--------
shall have received the prior written consent of the Administrative Agent, which
consent shall not unreasonably be withheld, (ii) such Lender shall have received
payment of an amount equal to the outstanding principal of its Loans (other than
Competitive Loans), accrued interest thereon, accrued fees and all other amounts
payable to it hereunder, from the assignee (to the extent of such outstanding
principal and accrued interest and fees) or the Company (in the case of all
other amounts) and (iii) in the case of any such assignment resulting from a
claim for compensation under Section 2.13 or payments required to be made
pursuant to Section 2.15, such assignment will result in a reduction in such
compensation or payments. A Lender shall not be required to make any such
assignment and delegation if, prior thereto, as a result of a waiver by such
Lender or otherwise, the circumstances entitling the Company to require such
assignment and delegation cease to apply.
SECTION 2.18. Borrowing Subsidiaries. On or after the Effective
----------------------
Date, the Company may designate any Subsidiary of the Company as a Borrowing
Subsidiary by delivery to the Administrative Agent of a Borrowing Subsidiary
Agreement executed by such Subsidiary and the Company, and upon such delivery
such Subsidiary shall for all purposes of this Agreement be a Borrowing
Subsidiary and a party to this Agreement until the Company shall have executed
and delivered to the Administrative Agent a Borrowing Subsidiary Termination
with respect to such Subsidiary, whereupon such Subsidiary shall cease to be a
Borrowing Subsidiary and a party to this Agreement. Notwithstanding the
preceding sentence, no Borrowing Subsidiary Termination will become effective as
to any Borrowing Subsidiary at a time when any principal of or interest on any
Loan to such Borrowing Subsidiary shall be outstanding hereunder, provided that
--------
such Borrowing Subsidiary Termination shall be effective to terminate such
Borrowing Subsidiary's right to make further Borrowings under this Agreement.
Promptly following receipt of any Borrowing Subsidiary Agreement, the
Administrative Agent shall send a copy thereof to each Lender.
SECTION 2.19. Additional Reserve Costs. (a) If and so long as any
------------------------
Lender is required to make special deposits with the Bank of England, to
maintain reserve
<PAGE>
38
asset ratios or to pay fees, in each case in respect of such Lender's
Eurocurrency Loans in any Foreign Currency, such Lender may require the relevant
Borrower to pay, contemporaneously with each payment of interest on each of such
Loans, additional interest on such Loan at a rate per annum equal to the
Mandatory Costs Rate calculated in accordance with the formula and in the manner
set forth in Exhibit E hereto.
(b) If and so long as any Lender is required to comply with reserve
assets, liquidity, cash margin or other requirements of any monetary or other
authority (including any such requirement imposed by the European Central Bank
or the European System of Central Banks, but excluding requirements reflected in
the Statutory Reserve Rate or the Mandatory Costs Rate) in respect of any of
such Lender's Eurocurrency Loans in any Foreign Currency, such Lender may
require the relevant Borrower to pay, contemporaneously with each payment of
interest on each of such Lender's Eurocurrency Loans subject to such
requirements, additional interest on such Loan at a rate per annum specified by
such Lender to be the cost to such Lender of complying with such requirements in
relation to such Loan.
(c) Any additional interest owed pursuant to paragraph (a) or (b)
above shall be determined by the relevant Lender, which determination shall be
conclusive absent manifest error, and notified to the relevant Borrower (with a
copy to the Administrative Agent) at least five Business Days before each date
on which interest is payable for the relevant Loan, and such additional interest
so notified to the relevant Borrower by such Lender shall be payable to the
Administrative Agent for the account of such Lender on each date on which
interest is payable for such Loan.
SECTION 2.20. Foreign Subsidiary Costs. (a) If the cost to any
------------------------
Lender of making or maintaining any Loan to a Borrowing Subsidiary is increased
(or the amount of any sum received or receivable by any Lender (or its
applicable lending office) is reduced) by an amount deemed in good faith by such
Lender to be material, by reason of the fact that such Borrowing Subsidiary is
incorporated in, or conducts business in, a jurisdiction outside the United
States, such Borrowing Subsidiary shall indemnify such Lender for such increased
cost or reduction within 15 days after demand by such Lender (with a copy to the
Administrative Agent). A certificate of such Lender claiming compensation under
this paragraph and setting forth the additional amount or amounts to be paid to
it hereunder (and the basis for the calculation of such amount or amounts) shall
be conclusive in the absence of manifest error.
(b) Each Lender will promptly notify the Company and the
Administrative Agent of any event of which it has knowledge that will entitle
such Lender to additional interest or payments pursuant to paragraph (a) above,
but in any event within 45 days after such Lender obtains actual knowledge
thereof; provided that (i) if any Lender fails to give such notice within 45
--------
days after it obtains actual knowledge of such an event, such Lender shall, with
respect to compensation payable pursuant to this Section 2.20 in
<PAGE>
39
respect of any costs resulting from such event, only be entitled to payment
under this Section 2.20 for costs incurred from and after the date 45 days prior
to the date that such Lender does give such notice and (ii) each Lender will
designate a different applicable lending office, if, in the judgment of such
Lender, such designation will avoid the need for, or reduce the amount of, such
compensation and will not be otherwise disadvantageous to such Lender.
ARTICLE III
Representations and Warranties
------------------------------
The Company represents and warrants to the Lenders that:
SECTION 3.01. Organization; Powers. The Company and each Borrowing
--------------------
Subsidiary is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization, has all requisite power and
authority to carry on its business as now conducted and, except where the
failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect, is qualified to do business in,
and is in good standing in, every jurisdiction where such qualification is
required.
SECTION 3.02. Authorization; Enforceability. The Transactions are
-----------------------------
within each Borrower's corporate powers and have been duly authorized by all
necessary corporate and, if required, stockholder action. This Agreement has
been duly executed and delivered by each Borrower and constitutes, and each
other Loan Document to which any Borrower is to be a party, when executed and
delivered by such Borrower, will constitute, a legal, valid and binding
obligation of such Borrower, enforceable in accordance with its terms, subject
to applicable bankruptcy, insolvency, reorganization, moratorium or other laws
affecting creditors' rights generally and subject to general principles of
equity, regardless of whether considered in a proceeding in equity or at law.
SECTION 3.03. Governmental Approvals; No Conflicts. The Transactions
------------------------------------
require no action by or in respect of, or filing with, any governmental body,
agency or official (other than (i) Exchange Act reporting requirements and (ii)
actions which have been taken, and filings which have been made, and are in full
force and effect) and do not and will not contravene, or constitute a default
under, any provision of applicable law or regulation or of the Amended Articles
of Incorporation or Regulations (or comparable documents) of the Company or any
Borrowing Subsidiary or of any agreement for borrowed money or other material
agreement binding upon the Company or any Borrowing Subsidiary.
<PAGE>
40
SECTION 3.04. Financial Condition; No Material Adverse Change. (a)
-----------------------------------------------
The Company has heretofore furnished to the Lenders its consolidated balance
sheet and statements of income, stockholders equity and cash flows (i) as of and
for the fiscal year ended December 31, 1998, reported on by Ernst & Young LLP,
independent public accountants, and (ii) as of and for the fiscal quarter and
the portion of the fiscal year ended September 30, 1999. Such financial
statements present fairly, in all material respects, the financial position and
results of operations and cash flows of the Company and the consolidated
Subsidiaries as of such dates and for such periods in accordance with GAAP,
subject to year-end audit adjustments and the absence of footnotes in the case
of the statements referred to in clause (ii) above.
(b) As of the date of this Agreement, there has been no material
adverse change in the business, financial position or results of operations of
the Company and the consolidated Subsidiaries, taken as a whole, since December
31, 1998 (other than those changes relating to or arising out of, directly or
indirectly, the acquisition of LucasVarity).
SECTION 3.05. Litigation and Environmental Matters. (a) As of the
------------------------------------
date of this Agreement, there are no material legal proceedings, other than
ordinary routine litigation incidental to the business, to which the Company or
any of the consolidated Subsidiaries is a party or to which any of their
respective properties is subject that are required to be disclosed in the
Company's periodic reports under the Exchange Act and that have not been so
disclosed or that involve this Agreement, any other Loan Document or the
Transactions.
(b) The Company has established accruals for matters that are
probable and reasonably estimable as required by FASB Statement No. 5,
"Accounting for Contingencies." To the Company's knowledge, any liability that
may result from the resolution of known environmental matters in excess of
amounts accrued therefor will not have a Material Adverse Effect.
SECTION 3.06. Investment and Holding Company Status. Neither the
-------------------------------------
Company nor any of the Borrowing Subsidiaries is (a) an "investment company" as
defined in, or subject to regulation under, the Investment Company Act of 1940
or (b) a "holding company" as defined in, or subject to regulation under, the
Public Utility Holding Company Act of 1935.
SECTION 3.07. Taxes. As of the date of this Agreement, the Company
-----
and the consolidated Subsidiaries have timely filed or caused to be filed all
material Tax returns and reports required to have been filed and has paid or
caused to be paid all Taxes required to have been paid by it, except (a) Taxes
that are being contested in good faith by appropriate proceedings and for which
the Company or such Subsidiary, as applicable, has set aside on its books
adequate reserves or (b) to the extent that the failure to do so could not
reasonably be expected to result in a Material Adverse Effect.
<PAGE>
41
SECTION 3.08. ERISA. As of the date of this Agreement, no ERISA
-----
Event has occurred or is reasonably expected to occur that, when taken together
with all other such ERISA Events for which liability is reasonably expected to
occur, could reasonably be expected to result in a Material Adverse Effect. As
of the date of this Agreement, each member of the controlled group of
corporations (as defined in Section 414(b) of the Code) which includes the
Company has fulfilled its obligations under the minimum funding standards of
ERISA and the Code with respect to each defined benefit plan maintained by the
Company and the consolidated Subsidiaries.
SECTION 3.09. Year 2000. As of the date of this Agreement, there has
---------
not occurred, and the Company does not expect that there will occur, any
material disruption in the operations or business systems of the Company or the
consolidated Subsidiaries, taken as a whole, resulting from the inability of
computer systems of the Company and the consolidated Subsidiaries or equipment
containing embedded microchips to recognize or properly process dates in or
following the year 2000.
ARTICLE IV
Conditions
----------
SECTION 4.01. Effective Date. The obligations of the Lenders to make
--------------
Loans hereunder shall not become effective until the date on which each of the
following conditions is satisfied (or waived in accordance with Section 10.02):
(a) The Administrative Agent (or its counsel) shall have received
from each party hereto either (i) a counterpart of this Agreement signed on
behalf of such party or (ii) written evidence satisfactory to the
Administrative Agent (which may include telecopy transmission of a signed
signature page of this Agreement) that such party has signed a counterpart
of this Agreement.
(b) The Administrative Agent shall have received the favorable
written opinions (addressed to the Administrative Agent and the Lenders and
dated the Effective Date) of the General Counsel of the Company,
substantially in the form of Exhibit C, and covering such other matters
relating to the Borrowers, this Agreement, the other Loan Documents or the
Transactions as the Administrative Agent or the Required Lenders shall
reasonably request. The Borrowers hereby request such counsel to deliver
such opinion.
(c) The Administrative Agent shall have received such documents and
certificates as the Administrative Agent or its counsel may reasonably
request relating to the organization, existence and good standing of each
of the Borrowers,
<PAGE>
42
the authorization of the Transactions and any other legal matters relating
to the Borrowers, this Agreement, the other Loan Documents or the
Transactions, all in form and substance satisfactory to the Administrative
Agent and its counsel.
(d) The Administrative Agent shall have received a certificate, dated
the Effective Date and signed by the President, a Vice President or a
Financial Officer of the Company, confirming compliance with the conditions
set forth in paragraphs (a) and (b) of Section 4.02.
(e) The Administrative Agent shall have received all fees and other
amounts due and payable on or prior to the Effective Date, including, to
the extent invoiced, reimbursement or payment of all out-of-pocket expenses
required to be reimbursed or paid by the Company hereunder or under any
other Loan Document.
(f) All loans outstanding under the Existing Credit Agreements shall
have been repaid, together with accrued interest and facility fees due
thereunder, and the Existing Credit Agreements shall have been terminated.
The Administrative Agent shall notify the Company and the Lenders of the
Effective Date, and such notice shall be conclusive and binding.
Notwithstanding the foregoing, the obligations of the Lenders to make Loans
hereunder shall not become effective unless each of the foregoing conditions is
satisfied (or waived pursuant to Section 10.02) on or prior to January 25, 2000
(and, in the event such conditions are not so satisfied or waived, the
Commitments shall terminate at such time).
SECTION 4.02. Each Credit Event. The obligation of each Lender to
------------------
make a Loan on the occasion of any Borrowing is subject to the satisfaction of
the following conditions:
(a) The representations and warranties of the Borrowers set forth in
this Agreement shall be true and correct on and as of the date of such
Borrowing (except that, in the case of the representations and warranties
set forth in Section 3.04(b), Section 3.05, Section 3.07, Section 3.08 and
Section 3.09, such representations and warranties shall be true and correct
on and as of the date of this Agreement).
(b) At the time of and immediately after giving effect to such
Borrowing, no Default shall have occurred and be continuing.
Each Borrowing shall be deemed to constitute a representation and warranty by
the Borrowers on the date thereof as to the matters specified in paragraphs (a)
and (b) of this Section.
<PAGE>
43
SECTION 4.03. Initial Credit Event for each Borrowing Subsidiary.
---------------------------------------------------
The obligation of each Lender to make Loans to any Borrowing Subsidiary is
subject to the satisfaction of the following conditions:
(a) The Administrative Agent (or its counsel) shall have received
such Borrowing Subsidiary's Borrowing Subsidiary Agreement duly executed by
all parties thereto.
(b) The Administrative Agent shall have received a favorable written
opinion of counsel for such Borrowing Subsidiary reasonably satisfactory to
the Administrative Agent, substantially in the form of Exhibit D and
covering such other matters relating to such Borrowing Subsidiary or its
Borrowing Subsidiary Agreement as the Administrative Agent shall reasonably
request.
(c) The Administrative Agent shall have received such documents and
certificates as the Administrative Agent or its counsel may reasonably
request relating to the organization, existence and good standing of such
Borrowing Subsidiary, the authorization of the Transactions insofar as they
relate to such Borrowing Subsidiary and any other legal matters relating to
such Borrowing Subsidiary, its Borrowing Subsidiary Agreement or such
Transactions, all in form and substance satisfactory to the Administrative
Agent and its counsel.
ARTICLE V
Affirmative Covenants
---------------------
Until the Commitments have expired or been terminated and the
principal of and interest on each Loan and all fees payable hereunder shall have
been paid in full, the Company covenants and agrees with the Lenders that:
SECTION 5.01. Financial Statements and Other Information. The
-------------------------------------------
Company will furnish to the Administrative Agent and each Lender:
(a) promptly upon the availability thereof and in any event within
120 days after each fiscal year, a copy of the Company's Annual Report to
Shareholders and its Annual Report on Form 10-K for the fiscal year then
ended, as filed with the Securities and Exchange Commission and which will
include an annual audit report of the Company, prepared on a consolidated
basis and in accordance with the Company's then current method of
accounting, which method must be in accordance with GAAP, duly certified by
independent certified public accountants of nationally recognized standing
selected by the Company;
<PAGE>
44
(b) promptly upon the availability thereof and in any event within 60
days after each fiscal quarter (except the last fiscal quarter) of each
fiscal year, a copy of the Company's Quarterly Report on Form 10-Q for the
fiscal quarter then ended, as filed with the Securities and Exchange
Commission;
(c) contemporaneously with the furnishing of a copy of each Annual
Report on Form 10-K provided for in paragraph (a) and of each Quarterly
Report on Form 10-Q provided for in paragraph (b), a duly completed
certificate of a Financial Officer of the Company in the form of Exhibit F
(each such certificate called a "Compliance Certificate"), showing
----------------------
compliance with the covenants set forth in Sections 6.07 and 6.08, and
certifying that no Default or Event of Default has occurred and is
continuing or, if there is any such an event, describing it and the steps,
if any, being taken to cure it;
(d) within five Business Days after any Financial Officer obtains
knowledge of any Default, if such Default is then continuing, a certificate
of a Financial Officer setting forth the details thereof and the action
which the Company is taking or proposes to take with respect thereto;
(e) promptly upon the filing thereof, copies of each Current Report
on Form 8-K filed by the Company with the SEC; and
(f) from time to time such additional information concerning the
Company as the Administrative Agent, at the request of any Lender, may
reasonably request.
Information required to be delivered pursuant to paragraph (a), (b) or (e) above
shall be deemed to have been delivered on the date on which the Company provides
notice to the Lenders that such information has been posted on the Company's
website on the internet at the website address listed on the signature pages
hereof, at sec.gov/edaux/searches. htm or at another website identified in such
notice and accessible by the Lenders without charge; provided that (i) such
--------
notice may be included in a certificate delivered pursuant to paragraph (c)
above and (ii) the Company shall deliver paper copies of the information
referred to in paragraph (e) above to any Lender which requests such delivery.
SECTION 5.02. Existence; Conduct of Business. The Company will, and
-------------------------------
will cause each of the Borrowing Subsidiaries to, do or cause to be done all
things necessary to preserve, renew and keep in full force and effect its legal
existence and the rights, licenses, permits, privileges and franchises material
to the conduct of its business; provided that the foregoing shall not prohibit
--------
any merger, consolidation, liquidation or dissolution permitted under Section
6.04.
<PAGE>
45
SECTION 5.03. Use of Proceeds. The Borrowers will use the proceeds
----------------
of the Loans only for general corporate purposes, including commercial paper
backup and the financing of acquisitions. No part of the proceeds of any Loan
will be used, whether directly or indirectly, for any purpose that entails a
violation of any of the Regulations of the Board, including Regulations U and X.
ARTICLE VI
Negative Covenants
------------------
Until the Commitments have expired or terminated and the principal of
and interest on each Loan and all fees payable hereunder have been paid in full,
the Company covenants and agrees with the Lenders that:
SECTION 6.01. Indebtedness of Subsidiaries. The Company will not
-----------------------------
permit the sum of (a) the aggregate outstanding principal amount of Indebtedness
of Subsidiaries (other than Permitted Subsidiary Indebtedness) and (b) Specified
Company Indebtedness at any time to exceed 15% of Consolidated Net Assets.
SECTION 6.02. Mortgages. The Company will not, and will not permit
----------
any Domestic Subsidiary to, directly or indirectly, create or assume any
mortgage, encumbrance, lien, pledge, charge, or security interest of any kind
(collectively and individually, a "Mortgage") upon or in any of its interests in
any Principal Property or upon or in any shares of capital stock or Indebtedness
of any Domestic Subsidiary, whether such interest, capital stock or Indebtedness
is now owned or hereafter acquired, if such mortgage secures or is intended to
secure, directly or indirectly, the payment of any Indebtedness; excluding,
however, from the operation of this Section 6.02:
(a) Mortgages on any Principal Property acquired, constructed, or
improved by the Company or any Domestic Subsidiary after January 1, 2000,
which are created or assumed contemporaneously with, or within 120 days
after, such acquisition or completion of such construction or improvement
to secure or provide for the payment of any part of the purchase price of
such Principal Property or the cost of such construction or improvement
incurred after January 1, 2000, or, in addition to Mortgages contemplated
by clauses (b) and (c) below, Mortgages on any such Principal Property
existing at the time or placed thereon at the time of acquisition or
leasing thereof by the Company or any Domestic Subsidiary, or conditional
sales agreements or other title retention agreements with respect to any
Principal Property now owned or leased or hereafter acquired or leased by
the Company or a Domestic Subsidiary;
<PAGE>
46
(b) Mortgages on property (including shares of capital stock or
Indebtedness of a corporation) of a corporation existing at the time such
corporation becomes a Domestic Subsidiary or is merged or consolidated with
the Company or a Domestic Subsidiary or existing at the time of a sale,
lease, or other disposition of the properties of such corporation (or a
division thereof) or other Person as an entirety or substantially as an
entirety (which includes the sale, lease, or other disposition of all or
substantially all the assets thereof) to the Company or a Domestic
Subsidiary, provided that no such Mortgage shall extend to any other
Principal Property of the Company or any Domestic Subsidiary or to any
shares of capital stock or any Indebtedness of any Domestic Subsidiary;
(c) Mortgages created by the Company or a Domestic Subsidiary to
secure Indebtedness of the Company or a Domestic Subsidiary to the Company
or to a wholly owned Subsidiary;
(d) Mortgages in favor of the United States of America or any State,
territory or possession thereof, or any foreign country or any department,
agency, instrumentality, or political subdivision of any of such domestic
or foreign jurisdictions to secure partial, progress, advance or other
payments pursuant to any contract or statute or to secure any Indebtedness
incurred for the purpose of financing all or any part of the purchase price
of, or the cost of constructing, the property subject to such Mortgages;
(e) Mortgages for the sole purpose of extending, renewing, or
replacing (or successively extending, renewing, or replacing) in whole or
in part any mortgage existing on January 1, 2000, or referred to in the
foregoing clauses (a) to (d) inclusive or of any Indebtedness secured
thereby; provided, however, that the principal amount of Indebtedness
-------- -------
secured thereby shall not exceed the principal amount of Indebtedness so
secured at the time of such extension, renewal, or replacement and that
such extension, renewal, or replacement Mortgage shall be limited to all or
a part of the property which secured the Mortgage so extended, renewed, or
replaced (plus improvements on such property);
(f) Mortgages on Margin Stock, if and to the extent that the value of
such Margin Stock exceeds 25% of the total assets of the Company and its
Subsidiaries subject to this Section;
(g) Mortgages under which effective provision is made for all Loans
to be secured equally and ratably with any other Indebtedness secured,
directly or indirectly, thereby; and
(h) Mortgages (other than Mortgages permitted by any of the foregoing
clauses) if, at the time of creation or assumption thereof and after giving
effect
<PAGE>
47
thereto, the aggregate principal amount of (i) the Indebtedness secured by
such Mortgages and (ii) the Attributable Indebtedness related to Sale and
Leaseback Transactions permitted under clause (b) of Section 6.03 does not
exceed 5% of Consolidated Net Assets, determined as of a date not more than
95 days prior to such creation or assumption.
SECTION 6.03. Sale and Lease-Back Transactions. (a) The Company will
---------------------------------
not, and will not permit any Domestic Subsidiary to, sell, lease or transfer any
Principal Property owned by the Company or a Domestic Subsidiary as an entirety,
or any substantial portion thereof, to anyone other than a Wholly Owned Domestic
Subsidiary (or the Company or a Wholly Owned Domestic Subsidiary in the case of
a Domestic Subsidiary) with the intention of taking back a lease of such
property (herein referred to as a "Sale and Leaseback Transaction") except a
------------------------------
lease for a period of not more than 36 months by the end of which it is intended
that the use of such property by the lessee will be discontinued; provided, that
--------
notwithstanding the foregoing, the Company or any Domestic Subsidiary may sell
any such property and lease it back if the net proceeds of such sale are at
least equal to the fair value (as determined by resolution adopted by the Board
of Directors of the Company) of such property, and (i) the Company or such
Domestic Subsidiary would be entitled pursuant to paragraphs (a)-(g) of Section
6.03 to create Indebtedness secured by a Mortgage on the property to be leased
in an amount equal to the Attributable Debt with respect to such Sale and
Leaseback Transaction without equally and ratably securing all the Loans, or
(ii) if such sale or transfer does not come within the exception provided by the
preceding clause (i), the net proceeds of such sale shall, and in any such case
the Company covenants that they will, within 120 days after such sale, be
applied (to the greatest extent possible) either to the repayment of the Loans
then outstanding when due (whereupon the Commitments shall be reduced, on a pro
rata basis, to the extent that such net proceeds are so applied) or to the
retirement of Consolidated Funded Debt of the Company ranking at least on a
parity with the Loans, or in part to one or more of such alternatives and in
part to another.
(b) Notwithstanding the provisions of paragraph (a) above, the Company
and/or any Domestic Subsidiary may enter into Sale and Leaseback Transactions
if, at the time of such entering into, and after giving effect thereto, the
aggregate amount of (i) Attributable Indebtedness related to such Sale and
Leaseback Transactions and (ii) Indebtedness secured by Mortgages permitted
under clause (h) of Section 6.02 does not exceed 5% of Consolidated Net Assets,
determined as of a date not more than 95 days prior to such creation or
assumption.
SECTION 6.04. Fundamental Changes. The Company will not merge into
--------------------
or consolidate with any other Person, or permit any other Person to merge into
or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one
transaction or in a series of transactions) all or substantially all of its
assets (whether now owned or hereafter acquired), or liquidate or dissolve,
except that, if at the time thereof and immediately
<PAGE>
48
after giving effect thereto no Default shall have occurred and be continuing (i)
any Person may merge into the Company in a transaction in which the Company is
the surviving corporation and (ii) the Company may merge into or consolidate
with any other Person in a transaction the primary purpose of which is to effect
a reincorporation of the Company under the laws of another state.
SECTION 6.05. ERISA. The Company will not allow an ERISA Event to
------
occur that, when taken together with all other ERISA Events that have occurred,
could reasonably be expected to result in a Material Adverse Effect.
SECTION 6.06. Change in Control. The Company will not permit to
------------------
occur any Change in Control.
SECTION 6.07. Interest Coverage Ratio. The Company will not permit
------------------------
the ratio of (a) Consolidated EBITDA to (b) Consolidated Interest Expense, in
each case for any period of four consecutive fiscal quarters ending after the
date hereof, to be less than 3.00 to 1.00.
SECTION 6.08. Minimum Consolidated Net Worth. The Company will not
-------------------------------
permit Consolidated Net Worth to be less, at any date, than the sum of (i)
$1,600,000,000, (ii) 50% of Consolidated Net Income for each completed fiscal
quarter of the Company that shall have begun after December 31, 1999 (excluding
any fiscal quarter for which Consolidated Net Income is negative), and (iii) 50%
of the amount by which Consolidated Net Worth is increased after the date hereof
as a result of issuances of equity securities by the Company.
ARTICLE VII
Events of Default
-----------------
If any of the following events ("Events of Default") shall occur:
-----------------
(a) default in the payment when due of any principal of any Loan or
default in the payment when due of interest on any Loan or fees payable by
any Borrower hereunder and continuance of such failure to pay interest or
fees for five Business Days after written notice thereof to the Company
from the Administrative Agent at the request of the Lender to which such
amounts are owed;
(b) a default in the payment when due at maturity or on the date of
any required prepayment, redemption or repurchase (subject to any
applicable grace period) or by acceleration of any Material Indebtedness,
or a default in the
<PAGE>
49
performance or observance of any obligation or condition with respect to
any Material Indebtedness if such default results in the acceleration of
the maturity of such Material Indebtedness; provided that, if any such
--------
default shall subsequently be remedied, cured, or waived prior to either
the termination of the Commitments or the declaration that all Loans are
immediately due and payable, in each case pursuant to this Article VII, and
as a result the payment of such Material Indebtedness is no longer due, the
Event of Default existing hereunder by reason thereof shall likewise be
deemed thereupon to be remedied, cured, or waived and no longer in
existence, all without any further action by the parties hereto;
(c) the Company or any Material Subsidiary generally fails to pay, or
admits in writing its inability to pay, debts as they become due; or the
Company or any Material Subsidiary applies for, consents to, or acquiesces
in the appointment of, a trustee, receiver, or other custodian for the
Company or any Material Subsidiary or for a substantial part of the
property thereof, or makes a general assignment for the benefit of
creditors; or, in the absence of such application, consent or acquiescence,
a trustee, or receiver, or other custodian is appointed for the Company or
any Material Subsidiary or for a substantial part of the property of the
Company or any Material Subsidiary; or any bankruptcy, reorganization, debt
arrangement, or other case or proceeding under any bankruptcy or insolvency
law, or any dissolution or liquidation proceeding is commenced in respect
of the Company or any Material Subsidiary and if such case or proceeding is
not commenced by the Company or any Material Subsidiary, it is consented to
or acquiesced in by the Company or any Material Subsidiary or remains for
90 consecutive days undismissed or unstayed; or the Company or any Material
Subsidiary takes any corporate action to authorize any of the foregoing;
(d) failure by the Company to comply with or to perform in any
material respect any provision of this Agreement (provided that in the case
--------
of the provisions of Article VI, the preceding standard shall be applied
without regard to materiality) (which failure does not constitute an Event
of Default under any of the preceding subsections of this Article VII) and,
in the case of any provision contained in Article V or in Section 6.01,
6.02, 6.03 or 6.05, continuance of such failure for 30 days after written
notice thereof to the Company from the Administrative Agent at the request
of Required Lenders;
(e) any representation or warranty made by the Company in Article III
of this Agreement or by any other Borrower in the applicable Borrowing
Subsidiary Agreement is breached or is incorrect when made (or deemed made)
in any material respect and, with respect to any representation or warranty
other than those contained in Sections 3.04(b), 3.05, 3.07, 3.08 and 3.09,
the Company shall fail to take corrective actions reasonably satisfactory
to the Required Lenders within 30 days after written notice thereof to the
Company from the Administrative Agent at the request of the Required
Lenders;
<PAGE>
50
(f) any final and nonappealable judgment or order from a judicial or
administrative body (which order or judgment is fully enforceable against
the Company or a Borrowing Subsidiary, as the case may be, in courts of the
United States of America or any state thereof) for the payment of money in
excess of $100,000,000 (after adjustments to reflect reductions for credits
and set-offs asserted in good faith by the Company or such Borrowing
Subsidiary shall be rendered against the Company or a Borrowing Subsidiary,
shall not have been discharged or vacated and shall have been in effect, in
its final and unappealable form, for a period of 30 consecutive days;
(g) the Guarantee of the Company set forth in Article IX shall cease
at any time to be in full force and effect, or any party hereto (other than
a Lender) shall so assert in writing;
then, and in every such event (other than an event with respect to any Borrower
described in clause (c) of this Article), and at any time thereafter during the
continuance of such event, the Administrative Agent, at the request of the
Required Lenders, shall, by notice to the Company, take either or both of the
following actions, at the same or different times: (i) terminate the
Commitments, and thereupon the Commitments shall terminate immediately, and (ii)
declare the Loans then outstanding to be due and payable in whole (or in part,
in which case any principal not so declared to be due and payable may thereafter
be declared to be due and payable), and thereupon the principal of the Loans so
declared to be due and payable, together with accrued interest thereon and all
fees and other obligations of the Borrowers accrued hereunder, shall become due
and payable immediately, without presentment, demand, protest or other notice of
any kind, all of which are hereby waived by each Borrower; and in case of any
event with respect to any Borrower described in clause (c) of this Article, the
Commitments shall automatically terminate and the principal of the Loans then
outstanding, together with accrued interest thereon and all fees and other
obligations of the Borrowers accrued hereunder, shall automatically become due
and payable, without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by each Borrower.
The Administrative Agent shall give notice to the Company (i) under
paragraph (a) above promptly upon being requested to do so by the relevant
Lender and (ii) under paragraphs (d) and (e) above promptly upon being requested
to do so by the Required Lenders and, in each case, after having done so, shall
notify all the Lenders thereof.
<PAGE>
51
ARTICLE VIII
The Agents
----------
In order to expedite the transactions contemplated by this Agreement,
Chase is hereby appointed to act as Administrative Agent and CMIL is hereby
appointed to act as London Agent, on behalf of the Lenders. Each of the Lenders
and each assignee of any such Lender hereby irrevocably authorizes the Agents to
take such actions on behalf of such Lender or assignee and to exercise such
powers as are delegated to the Agents by the terms of the Loan Documents,
together with such actions and powers as are reasonably incidental thereto.
With respect to the Loans made by it hereunder, each Agent in its
individual capacity and not as Agent shall have the same rights and powers as
any other Lender and may exercise the same as though it were not an Agent, and
the Agents and their Affiliates in their respective individual capacities may
accept deposits from, lend money to and generally engage in any kind of business
with the Company or any Subsidiary or other Affiliate thereof as if it were not
an Agent.
The Agents shall not have any duties or obligations except those
expressly set forth in the Loan Documents. Without limiting the generality of
the foregoing, (a) no Agent shall be subject to any fiduciary or other implied
duties, regardless of whether a Default has occurred and is continuing, (b) no
Agent shall have any duty to take any discretionary action or exercise any
discretionary powers, except discretionary rights and powers expressly
contemplated by the Loan Documents that such Agent is required to exercise in
writing by the Required Lenders (or such other number or percentage of the
Lenders as shall be necessary under the circumstances as provided in Section
10.02), and (c) except as expressly set forth in the Loan Documents, no Agent
shall have any duty to disclose, and no Agent shall be liable for the failure to
disclose, any information relating to the Company or any of its Subsidiaries
that is communicated to or obtained by the institution serving as Agent or any
of its Affiliates in any capacity. No Agent shall be liable for any action
taken or not taken by it with the consent or at the request of the Required
Lenders (or such other number or percentage of the Lenders as shall be necessary
under the circumstances as provided in Section 10.02) or in the absence of its
own culpable negligence, bad faith or wilful misconduct. No Agent shall be
deemed to have knowledge of any Default other than a Default of the types
specified in clause (a) and (b) of Article VII unless and until written notice
thereof is given to such Agent by a Borrower or a Lender, and the Agent shall
not be responsible for or have any duty to ascertain or inquire into (i) any
statement, warranty or representation made in or in connection with the Loan
Documents, (ii) the contents of any certificate, report or other document
delivered hereunder or in connection herewith, (iii) the performance or
observance of any of the covenants, agreements or other terms or conditions set
forth herein or therein, (iv) the validity, enforceability, effectiveness or
genuineness of the
<PAGE>
52
Loan Documents or any other agreement, instrument or document, or (v) the
satisfaction of any condition set forth in Article IV or elsewhere herein or
elsewhere in any Loan Document, other than to confirm receipt of items expressly
required to be delivered to such Agent.
Each Agent shall be entitled to rely upon, and shall not incur any
liability for relying upon, any notice, request, certificate, consent,
statement, instrument, document or other writing believed by it in good faith to
be genuine and to have been signed or sent by the proper Person. Each Agent also
may rely upon any statement made to it orally or by telephone and believed by it
in good faith to be made by the proper Person, and shall not incur any liability
for relying thereon. Each Agent may consult with legal counsel (who may be
counsel for any Borrower), independent accountants and other experts selected by
it, and shall not be liable for any action taken or not taken by it in
accordance with the advice of any such counsel, accountants or experts.
Each Agent may perform any and all its duties and exercise its rights
and powers by or through any one or more sub-agents appointed by such Agent.
Each Agent and any such sub-agent may perform any and all its duties and
exercise its rights and powers through their respective Related Parties. The
exculpatory provisions of the preceding paragraphs shall apply to any such sub-
agent and to the Related Parties of such Agent and any such sub-agent, and shall
apply to their respective activities in connection with the syndication of the
credit facilities provided for herein as well as activities as Agent.
Subject to the appointment and acceptance of a successor Agent as
provided in this paragraph, any Agent may resign at any time by notifying the
Lenders and the Company. Upon any such resignation, the Required Lenders shall
have the right, in consultation with the Company, to appoint a successor. If no
successor shall have been so appointed by the Required Lenders and shall have
accepted such appointment within 30 days after the retiring Agent gives notice
of its resignation, then the retiring Agent may, on behalf of the Lenders,
appoint a successor Agent which shall be a bank with an office in New York, New
York, or an Affiliate of any such bank. Upon the acceptance of its appointment
as Agent hereunder by a successor, such successor shall succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations
hereunder. The fees payable by the Company to a successor Agent shall be the
same as those payable to its predecessor unless otherwise agreed between the
Company and such successor. After the Agent's resignation hereunder, the
provisions of this Article and Section 10.03 shall continue in effect for the
benefit of such retiring Agent, its sub-agents and their respective Related
Parties in respect of any actions taken or omitted to be taken by any of them
while it was acting as Agent.
<PAGE>
53
Each Lender acknowledges that it has, independently and without
reliance upon the Agents or any other Lender and based on such documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Lender also acknowledges that it
will, independently and without reliance upon the Agents or any other Lender and
based on such documents and information as it shall from time to time deem
appropriate, continue to make its own decisions in taking or not taking action
under or based upon this Agreement or any other Loan Document or any related
agreement or any document furnished hereunder or thereunder.
None of the Syndication Agent or the Co-Documentation Agents, in their
capacities as such, shall have any duties or obligations of any kind under this
Agreement.
ARTICLE IX
Guarantee
---------
The Company hereby unconditionally, absolutely and irrevocably
guarantees, as primary obligor and not merely as surety, the repayment to each
Lender, when due pursuant to the terms and conditions of this Agreement, of the
amount of any Loan made pursuant to this Agreement to a Borrowing Subsidiary,
together with accrued interest on such Loan, at the place and in the currency
and manner specified in this Agreement; provided, however, that before any
-------- -------
amount shall be deemed due and payable pursuant to this Guarantee, the
Administrative Agent must first give notice to the Company of the nonpayment
thereof by the Borrowing Subsidiary at the request of the relevant Lender, and
the Company shall have five Business Days from the receipt of such notice to
cure or cause to be cured any and all such nonpayments. The Company's
obligations hereunder constitute a guaranty of payment and not of collection
merely. The Company hereby waives notice of, and consents to, any extensions of
time of payment, renewals, compromises, settlements, releases or other
indulgences from time to time granted by the Lenders in respect of Loans made to
Borrowing Subsidiaries. Except as otherwise provided in this Article IX, the
Company hereby waives presentment, protest, demand of payment, notice of
dishonor and all notices and demands whatsoever. The obligations of the Company
hereunder shall not be released, discharged or otherwise affected by (i) any
change in the corporate existence or constitution, structure or ownership of any
Borrowing Subsidiary or the Company, (ii) any insolvency, bankruptcy,
reorganization or similar proceeding affecting the Borrowing Subsidiary or its
assets or the Company or (iii) the existence of any claim, set-off or other
rights which the Company may have at any time against any Lender or any other
Person. If at any time any payment of any obligation guaranteed hereunder is
rescinded or must otherwise be restored or returned upon the insolvency,
bankruptcy or reorganization of a Borrowing Subsidiary or otherwise, the
Company's obligations under this Article IX with respect to such payment shall
be reinstated at such time as though such payment had not been made.
<PAGE>
54
If acceleration of the time for payment of any amount payable by any Borrowing
Subsidiary under this Agreement or its Loans is stayed upon any bankruptcy,
insolvency or reorganization of such Borrowing Subsidiary or otherwise, all such
amounts otherwise subject to acceleration under the terms of this Agreement
shall nonetheless be payable by the Company pursuant to this Article IX in
accordance with the terms hereof. The Company shall not exercise any of its
subrogation rights with respect to amounts paid to a Lender pursuant to this
Article IX until all amounts guaranteed hereunder payable to any Lender have
been paid in full and the Commitments have terminated. Following such payment in
full and termination of the Commitments, the Company shall be entitled to
subrogation in the Lenders' rights and, upon the reasonable request of the
Company, each Lender agrees to cooperate with the Company in enforcement of the
Company's subrogation rights, including the transfer and delivery by such Lender
to the Company of any and all related evidence of indebtedness within the
possession or control of such Lender.
The Company further agrees that if payment in respect of any
obligation of a Borrowing Subsidiary guaranteed hereunder shall be due in a
currency other than Dollars and/or at a place of payment other than New York and
if, by reason of any legal prohibition, disruption of currency or foreign
exchange markets, war or civil disturbance or other event, payment of such
obligation in such currency or at such place of payment shall be impossible or,
in the judgment of any Lender, not consistent with the protection of its rights
or interests, then, at the election of such Lender, the Company shall make
payment of such obligation in Dollars (based upon the applicable Exchange Rate
in effect on the date of payment) and/or in New York.
The Administrative Agent shall give notice to the Company pursuant to
the proviso set forth in the first sentence of this Article promptly upon being
requested to do so by the relevant Lender.
ARTICLE X
Miscellaneous
-------------
<PAGE>
55
SECTION 10.01. Notices. Except in the case of notices and other
-------
communications expressly permitted to be given by telephone, all notices and
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:
(a) if to any Borrower, to it in care of the Company at 1900 Richmond
Road, Cleveland, Ohio 44124, Attention of Ronald P. Vargo, Vice President
and Treasurer (Telecopy No. (216) 291-7831), with a copy to TRW Inc., 1900
Richmond Road, Cleveland, Ohio 44124, Attention of Secretary (Telecopy No.
(216) 291-7070);
(b) if to the Administrative Agent, to The Chase Manhattan Bank, Loan
and Agency Services Group, One Chase Manhattan Plaza, 8th Floor, New York,
New York 10081, Attention of Jesus Sang (Telecopy No. (212) 552-5658), with
a copy to The Chase Manhattan Bank, 270 Park Avenue, New York 10017,
Attention of Karen May Sharf (Telecopy No. (212) 270-5127);
(c) if to the London Agent, to it at Chase Manhattan International
Limited, Trinity Tower, 9 Thomas More Street, London, England E19YT
Attention of Loans Agency Division (Telecopy No. 011-44-171-777-2360); with
a copy to the Administrative Agent as provided in paragraph (b) above; and
(d) if to any other Lender, to it at its address (or telecopy number)
set forth in its Administrative Questionnaire.
Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto. All notices and
other communications given to any party hereto in accordance with the provisions
of this Agreement shall be deemed to have been given on the date of receipt.
SECTION 10.02. Waivers; Amendments. (a) No failure or delay by the
-------------------
Administrative Agent or any Lender in exercising any right or power hereunder or
under any other Loan Document shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The rights
and remedies of the Administrative Agent and the Lenders hereunder and under the
other Loan Documents are cumulative and are not exclusive of any rights or
remedies that they would otherwise have. No waiver of any provision of any Loan
Document or consent to any departure by any Borrower therefrom shall in any
event be effective unless the same shall be permitted by paragraph (b) of this
Section, and then such waiver or consent shall be effective only in the specific
instance and for the purpose for which given. Without limiting the generality of
the foregoing, the making of a Loan shall not be construed as a waiver of any
Default,
<PAGE>
56
regardless of whether the Administrative Agent or any Lender may have had notice
or knowledge of such Default at the time.
(b) Neither this Agreement nor any of the Loan Documents nor any
provision hereof or thereof may be waived, amended or modified except pursuant
to an agreement or agreements in writing entered into by the Company and the
Required Lenders or by the Company and the Applicable Agent with the consent of
the Required Lenders (and, in the case of a Borrowing Subsidiary Agreement, the
applicable Borrowing Subsidiary); provided that no such agreement shall (i)
--------
increase the Commitment of any Lender without the written consent of such
Lender, (ii) reduce the principal amount of any Loan or reduce the rate of
interest thereon, or reduce any fees payable hereunder, without the written
consent of each Lender affected thereby, (iii) postpone the scheduled date of
payment of the principal amount of any Loan, or any interest thereon, or any
fees payable hereunder, or reduce the amount of, waive or excuse any such
payment, or postpone the scheduled date of expiration of any Commitment, without
the written consent of each Lender affected thereby, (iv) change Section 2.16(b)
or (c) in a manner that would alter the pro rata sharing of payments required
thereby, without the written consent of each Lender, or (v) change any of the
provisions of this Section or the definition of "Required Lenders" or any other
provision of any Loan Document specifying the number or percentage of Lenders
required to waive, amend or modify any rights hereunder or make any
determination or grant any consent hereunder, without the written consent of
each Lender; provided further that no such agreement shall amend, modify or
----------------
otherwise affect the rights or duties of the Administrative Agent hereunder
without the prior written consent of the Administrative Agent.
SECTION 10.03. Expenses; Indemnity; Damage Waiver. (a) The Company
----------------------------------
shall pay (i) all reasonable out-of-pocket expenses incurred by the
Administrative Agent and the London Agent and each of their Affiliates,
including the reasonable fees, charges and disbursements of Cravath, Swaine &
Moore, counsel for the Administrative Agent and London Agent, in connection with
the syndication of the credit facilities provided for herein, the preparation
and administration of this Agreement or the other Loan Documents or any
amendments, modifications or waivers of the provisions hereof (whether or not
the transactions contemplated hereby or thereby shall be consummated) and (ii)
all out-of-pocket expenses incurred by the Administrative Agent, the London
Agent or any Lender, including the reasonable fees, charges and disbursements of
any counsel for the Administrative Agent, the London Agent or any Lender, in
connection with the enforcement or protection of its rights in connection with
any Loan Document, including its rights under this Section, or in connection
with the Loans made hereunder, including all such out-of-pocket expenses
incurred during any workout, restructuring or negotiations in respect of such
Loans.
(b) The Company agrees to indemnify each Lender, their respective
Affiliates and the respective directors, officers, agents and employees of the
foregoing
<PAGE>
57
(each an "Indemnitee") and hold each Indemnitee harmless from and against any
----------
and all losses, damages, liabilities, costs and related expenses of any kind,
including, without limitation, reasonable fees and disbursements of counsel,
which may be incurred by such Indemnitee in connection with any investigative,
administrative or judicial proceeding (whether or not such Indemnitee shall be
designated a party thereto) brought or threatened relating to or arising out of
this Agreement or any actual or proposed use of proceeds of Loans hereunder;
provided that such indemnity shall not, as to any Indemnitee, be available to
- --------
the extent that such losses, damages, liabilities, costs or related expenses are
found by a final, nonappealable judgment of a court of competent jurisdiction to
have resulted from the culpable negligence, bad faith or wilful misconduct of
such Indemnitee.
(c) To the extent that the Company fails to pay any amount required
to be paid by it to the Administrative Agent, the London Agent or any sub-agent
appointed pursuant to Article VIII under paragraph (a) or (b) of this Section,
each Lender severally agrees to pay to the Administrative Agent or the London
Agent such Lender's Applicable Percentage (determined as of the time that the
applicable unreimbursed expense or indemnity payment is sought) of such unpaid
amount; provided that the unreimbursed expense or indemnified loss, claim,
--------
damage, liability or related expense, as the case may be, was incurred by or
asserted against the Administrative Agent or London Agent in its capacity as
such.
(d) To the extent permitted by applicable law, no Borrower shall
assert, and each Borrower hereby waives, any claim against any Indemnitee, on
any theory of liability, for special, indirect, consequential or punitive
damages (as opposed to direct or actual damages) arising out of, in connection
with, or as a result of, this Agreement, any other Loan Document or any
agreement or instrument contemplated hereby, the Transactions, any Loan or the
use of the proceeds thereof.
(e) All amounts due under this Section shall be payable promptly
after written demand therefor.
SECTION 10.04. Successors and Assigns. (a) The provisions of this
----------------------
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns permitted hereby, except that no
Borrower may assign or otherwise transfer any of its rights or obligations
hereunder without the prior written consent of each Lender (and any attempted
assignment or transfer by any Borrower without such consent shall be null and
void). Nothing in this Agreement, expressed or implied, shall be construed to
confer upon any Person (other than the parties hereto, their respective
successors and assigns permitted hereby and, to the extent expressly
contemplated hereby, the Related Parties of each of the Administrative Agent and
the Lenders) any legal or equitable right, remedy or claim under or by reason of
this Agreement.
<PAGE>
58
(b) Any Lender may assign to one or more assignees all or a portion
of its rights and obligations under this Agreement (including all or a portion
of its Commitment and the Loans at the time owing to it); provided that (i)
--------
except in the case of an assignment to an Affiliate of that Lender, each of the
Company and the Administrative Agent must give their prior written consent to
such assignment (which consent shall not be unreasonably withheld or delayed),
(ii) except in the case of an assignment to an Affiliate of that Lender or an
assignment of the entire remaining amount of the assigning Lender's Commitment,
the amount of the Commitment of the assigning Lender subject to each such
assignment (determined as of the date the Assignment and Acceptance with respect
to such assignment is delivered to the Administrative Agent) shall not be less
than $10,000,000 unless each of the Company and the Administrative Agent
otherwise consent, (iii) each partial assignment shall be made as an assignment
of a proportionate part of all the assigning Lender's rights and obligations
under this Agreement, except that this clause (iii) shall not apply to rights in
respect of outstanding Competitive Loans, (iv) the parties to each assignment
shall execute and deliver to the Administrative Agent an Assignment and
Acceptance, together with a processing and recordation fee of $3,500, and (v)
the assignee, if it shall not be a Lender, shall deliver to the Administrative
Agent an Administrative Questionnaire; and provided further that any consent of
----------------
the Company otherwise required under this paragraph shall not be required if an
Event of Default under clause (h) or (i) of Article VII has occurred and is
continuing. Subject to acceptance and recording thereof pursuant to paragraph
(d) of this Section, from and after the effective date specified in each
Assignment and Acceptance the assignee thereunder shall be a party hereto and,
to the extent of the interest assigned by such Assignment and Acceptance, have
the rights and obligations of a Lender under this Agreement, and the assigning
Lender thereunder shall, to the extent of the interest assigned by such
Assignment and Acceptance, be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance covering all of the assigning
Lender's rights and obligations under this Agreement, such Lender shall cease to
be a party hereto but shall continue to be entitled to the benefits of Sections
2.13, 2.14, 2.15 and 10.03, insofar as claims under such sections arise out of
the period prior to the effective date of such Assignment and Acceptance). Any
assignment or transfer by a Lender of rights or obligations under this Agreement
that does not comply with this paragraph shall be treated for purposes of this
Agreement as a sale by such Lender of a participation in such rights and
obligations in accordance with paragraph (e) of this Section.
(c) The Administrative Agent, acting for this purpose as an agent of
each Borrower, shall maintain at one of its offices in The City of New York a
copy of each Assignment and Acceptance delivered to it and a register for the
recordation of the names and addresses of the Lenders, and the Commitment of,
and principal amount of the Loans owing to, each Lender pursuant to the terms
hereof from time to time (the "Register"). The entries in the Register shall be
--------
conclusive, and the Borrowers, the Administrative Agent and the Lenders may
treat each Person whose name is recorded in the Register pursuant to the terms
hereof as a Lender hereunder for all purposes of this Agreement,
<PAGE>
59
notwithstanding notice to the contrary. The Register shall be available for
inspection by the Company and any Lender, at any reasonable time and from time
to time upon reasonable prior notice.
(d) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an assignee, the assignee's completed
Administrative Questionnaire (unless the assignee shall already be a Lender
hereunder), the processing and recordation fee referred to in paragraph (b) of
this Section and any written consent to such assignment required by paragraph
(b) of this Section, the Administrative Agent shall accept such Assignment and
Acceptance and record the information contained therein in the Register. No
assignment shall be effective for purposes of this Agreement unless it has been
recorded in the Register as provided in this paragraph.
(e) Any Lender may, without the consent of any Borrower or the
Administrative Agent sell participations to one or more banks or other entities
(a "Participant") in all or a portion of such Lender's rights and obligations
-----------
under this Agreement (including all or a portion of its Commitment and the Loans
owing to it); provided that (i) such Lender's obligations under this Agreement
--------
shall remain unchanged, (ii) such Lender shall remain solely responsible to the
other parties hereto for the performance of such obligations and (iii) the
Borrowers, the Administrative Agent and the other Lenders shall continue to deal
solely and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement. Any agreement or instrument pursuant to which
a Lender sells such a participation shall provide that such Lender shall retain
the sole right to enforce this Agreement and to approve any amendment,
modification or waiver of any provision of this Agreement; provided that such
--------
agreement or instrument may provide that such Lender will not, without the
consent of the Participant, agree to any amendment, modification or waiver
described in the first proviso to Section 10.02(b) that affects such
Participant. Subject to paragraph (f) of this Section, each Borrower agrees that
each Participant shall be entitled to the benefits of Sections 2.13, 2.14 and
2.15 to the same extent as if it were a Lender and had acquired its interest by
assignment pursuant to paragraph (b) of this Section.
(f) A Participant shall not be entitled to receive any greater
payment under Section 2.13, 2.14 or 2.15 than the applicable Lender would have
been entitled to receive with respect to the participation sold to such
Participant, unless the sale of the participation to such Participant is made
with the Company's prior written consent. A Participant that would be a Foreign
Lender if it were a Lender shall not be entitled to the benefits of Section 2.15
unless the Company is notified of the participation sold to such Participant and
such Participant agrees, for the benefit of the Borrowers, to comply with
Section 2.15(e) as though it were a Lender.
<PAGE>
60
(g) Any Lender may at any time pledge or assign a security interest
in all or any portion of its rights under this Agreement to secure obligations
of such Lender, including any pledge or assignment to secure obligations to a
Federal Reserve Bank, and this Section shall not apply to any such pledge or
assignment of a security interest; provided that no such pledge or assignment of
--------
a security interest shall release a Lender from any of its obligations hereunder
or substitute any such pledgee or assignee for such Lender as a party hereto.
SECTION 10.05. Survival. All covenants, agreements, representations
--------
and warranties made by the Borrowers herein or in any other Loan Document and in
the certificates or other instruments delivered in connection with or pursuant
to this Agreement or any other Loan Document shall be considered to have been
relied upon by the other parties hereto and thereto and shall survive the
execution and delivery of this Agreement and any other Loan Document and the
making of any Loans, regardless of any investigation made by any such other
party or on its behalf and notwithstanding that the Administrative Agent or any
Lender may have had notice or knowledge of any Default or incorrect
representation or warranty at the time any credit is extended hereunder
(provided that any such knowledge of the Administrative Agent or any Lender will
not be attributed to any other Lender or the Administrative Agent for purposes
of this Section 10.05), and shall continue in full force and effect as long as
the principal of or any accrued interest on any Loan or any fee or any other
amount payable under this Agreement or any other Loan Document is outstanding
and unpaid and so long as the Commitments have not expired or terminated. The
provisions of Sections 2.13, 2.14, 2.15 and 10.03 and Article VIII shall survive
and remain in full force and effect regardless of the consummation of the
transactions contemplated hereby, the repayment of the Loans, the expiration or
termination of the Commitments or the termination of this Agreement or any other
Loan Document or any provision hereof or thereof.
SECTION 10.06. Counterparts; Integration; Effectiveness. This
----------------------------------------
Agreement may be executed in counterparts (and by different parties hereto on
different counterparts), each of which shall constitute an original, but all of
which when taken together shall constitute a single contract. This Agreement,
the other Loan Documents and any separate letter agreements with respect to fees
payable to the Administrative Agent constitute the entire contract among the
parties relating to the subject matter hereof and supersede any and all previous
agreements and understandings, oral or written, relating to the subject matter
hereof. Except as provided in Section 4.01, this Agreement shall become
effective when it shall have been executed by the Administrative Agent and when
the Administrative Agent shall have received counterparts hereof which, when
taken together, bear the signatures of each of the other parties hereto, and
thereafter shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. Delivery of an executed counterpart
of a signature page of this Agreement by telecopy shall be effective as delivery
of a manually executed counterpart of this Agreement.
<PAGE>
61
SECTION 10.07. Severability. Any provision of this Agreement held to
------------
be invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without affecting the validity, legality and enforceability of
the remaining provisions hereof; and the invalidity of a particular provision in
a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.
SECTION 10.08. Right of Setoff. If an Event of Default shall have
---------------
occurred and be continuing and the Required Lenders shall have requested the
Administrative Agent to declare the Loans immediately due and payable or such
Loans have automatically become due and payable, each Lender and each of its
Affiliates is hereby authorized at any time and from time to time, to the
fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other obligations at any time owing by such Lender or Affiliate to or for the
credit or the account of any Borrower against any of and all the obligations of
such Borrower now or hereafter existing under this Agreement held by such
Lender, irrespective of whether or not such Lender shall have made any demand
under this Agreement and although such obligations may be unmatured. The rights
of each Lender under this Section are in addition to other rights and remedies
(including other rights of setoff) which such Lender may have.
SECTION 10.09. Governing Law; Jurisdiction; Consent to Service of
--------------------------------------------------
Process. (a) This Agreement shall be construed in accordance with and governed
- -------
by the law of the State of New York.
(b) Each Borrower hereby irrevocably and unconditionally submits, for
itself and its property, to the nonexclusive jurisdiction of the Supreme Court
of the State of New York sitting in New York County and of the United States
District Court of the Southern District of New York, and any appellate court
from any thereof, in any action or proceeding arising out of or relating to any
Loan Document, or for recognition or enforcement of any judgment, and each of
the parties hereto hereby irrevocably and unconditionally agrees that all claims
in respect of any such action or proceeding may be heard and determined in such
New York State or, to the extent permitted by law, in such Federal court. Each
of the parties hereto agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. Nothing in this
Agreement shall affect any right that the Administrative Agent or any Lender may
otherwise have to bring any action or proceeding relating to this Agreement or
any other Loan Document against any Borrower or its properties in the courts of
any jurisdiction.
(c) Each Borrower hereby irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection which it
may now or
<PAGE>
62
hereafter have to the laying of venue of any suit, action or proceeding arising
out of or relating to this Agreement or any other Loan Document in any court
referred to in paragraph (b) of this Section. Each of the parties hereto hereby
irrevocably waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such action or proceeding in any such
court.
(d) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 10.01. Nothing in this
Agreement or any other Loan Document will affect the right of any party to this
Agreement to serve process in any other manner permitted by law.
SECTION 10.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY
---------------------
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT
OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH
PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION.
SECTION 10.11. Headings. Article and Section headings and the Table
---------
of Contents used herein are for convenience of reference only, are not part of
this Agreement and shall not affect the construction of, or be taken into
consideration in interpreting, this Agreement.
SECTION 10.12. Confidentiality. Each of the Administrative Agent,
----------------
the London Agent and the Lenders agrees to maintain the confidentiality of the
Information (as defined below), except that Information may be disclosed (a) to
its and its Affiliates' directors, officers, employees and agents, including
accountants, legal counsel and other advisors (it being understood that the
Persons to whom such disclosure is made will be informed of the confidential
nature of such Information and instructed to keep such Information
confidential), (b) to the extent requested by any regulatory authority, (c) to
the extent required by applicable laws or regulations or by any subpoena or
similar legal process, (d) to any other party to this Agreement, (e) in
connection with the exercise of any remedies hereunder or any suit, action or
proceeding relating to this Agreement or any other Loan Document or the
enforcement of rights hereunder or thereunder, (f) subject to an agreement
containing provisions substantially the same as those of this
<PAGE>
63
Section, to any assignee of or Participant in, or any prospective assignee of or
Participant in, any of its rights or obligations under this Agreement, (g) with
the consent of the Company or (h) to the extent such Information (i) becomes
publicly available other than as a result of a breach of this Section or (ii)
becomes available to the Administrative Agent, the London Agent or any Lender on
a nonconfidential basis from a source other than the Company. For the purposes
of this Section, "Information" means all information received from the Company
-----------
relating to the Company or its business, other than any such information that is
available to the Administrative Agent, the London Agent or any Lender on a
nonconfidential basis prior to disclosure by the Company; provided that, in the
--------
case of information received from the Company after the date hereof, such
information is clearly identified at the time of delivery as confidential. Any
Person required to maintain the confidentiality of Information as provided in
this Section shall be considered to have complied with its obligation to do so
if such Person has exercised the same degree of care to maintain the
confidentiality of such Information as such Person would accord to its own
confidential information.
SECTION 10.13. Conversion of Currencies. (a) If, for the purpose
-------------------------
of obtaining judgment in any court, it is necessary to convert a sum owing
hereunder in one currency into another currency, each party hereto (including
any Borrowing Subsidiary) agrees, to the fullest extent that it may effectively
do so, that the rate of exchange used shall be that at which in accordance with
normal banking procedures in the relevant jurisdiction the first currency could
be purchased with such other currency on the Business Day immediately preceding
the day on which final judgment is given.
(b) The obligations of each Borrower in respect of any sum due to any
party hereto or any holder of the obligations owing hereunder (the "Applicable
----------
Creditor") shall, notwithstanding any judgment in a currency (the "Judgment
- -------- --------
Currency") other than the currency in which such sum is stated to be due
- --------
hereunder (the "Agreement Currency"), be discharged only to the extent that, on
------------------
the Business Day following receipt by the Applicable Creditor of any sum
adjudged to be so due in the Judgment Currency, the Applicable Creditor may in
accordance with normal banking procedures in the relevant jurisdiction purchase
the Agreement Currency with the Judgment Currency; if the amount of the
Agreement Currency so purchased is less than the sum originally due to the
Applicable Creditor in the Agreement Currency, such Borrower agrees, as a
separate obligation and notwithstanding any such judgment, to indemnify the
Applicable Creditor against such loss. The obligations of the Borrowers
contained in this Section 10.13 shall survive the termination of this Agreement
and the payment of all other amounts owing hereunder.
<PAGE>
64
SECTION 10.14. Interest Rate Limitation. Notwithstanding anything
-------------------------
herein to the contrary, if at any time the interest rate applicable to any Loan,
together with all fees, charges and other amounts which are treated as interest
on such Loan under applicable law (collectively the "Charges"), shall exceed the
-------
maximum lawful rate (the "Maximum Rate") which may be contracted for, charged,
------------
taken, received or reserved by the Lender holding such Loan in accordance with
applicable law, the rate of interest payable in respect of such Loan hereunder,
together with all Charges payable in respect thereof, shall be limited to the
Maximum Rate and, to the extent lawful, the interest and Charges that would have
been payable in respect of such Loan but were not payable as a result of the
operation of this Section shall be cumulated and the interest and Charges
payable to such Lender in respect of other Loans or periods shall be increased
(but not above the Maximum Rate therefor) until such cumulated amount, together
with interest thereon at the Federal Funds Effective Rate to the date of
repayment, shall have been received by such Lender.
SECTION 10.15. Lender Waiver. Each Lender that is a party to any of
-------------
the Existing Credit Agreements hereby waives any provision contained in such
Existing Credit Agreement requiring notice of the termination of the commitments
therein prior to the effective date of such termination.
<PAGE>
65
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
TRW INC.,
by /s/ Ronald P. Vargo
-----------------------------------------
Name: Ronald P. Vargo
Title: Vice President and Treasurer
Website: www.trw.com
THE CHASE MANHATTAN BANK, individually and as
Administrative Agent,
by /s/ Richard W. Duker
----------------------------------------
Name: Richard W. Duker
Title: Vice President
CHASE MANHATTAN INTERNATIONAL LIMITED, as London
Agent,
by /s/ David Bell
----------------------------------------
Name: David Bell
Title: Assistant Treasurer
SALOMON SMITH BARNEY INC., as Syndication Agent,
Joint Lead Arranger and Book Manager,
by /s/ J.C.C. Byrne, Jr.
----------------------------------------
Name: J.C.C. Byrne, Jr.
Title: Attorney-in-Fact
<PAGE>
66
CHASE SECURITIES, INC., as Joint Arranger and Book
Manager,
by /s/ Mitchel Friedman
----------------------------------------
Name: Mitchel Friedman
Title: Vice President
CITICORP USA, INC.,
by /s/ Robert D. Wetrus
----------------------------------------
Name: Robert D. Wetrus
Title: Attorney-in-Fact
BANK OF AMERICA, N.A., Individually and as Co-
Documentation Agent,
by /s/ Raju N. Patel
----------------------------------------
Name: Raju N. Patel
Title: Vice President
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
individually and as Co-Documentation Agent,
by /s/ Robert Bottamedi
----------------------------------------
Name: Robert Bottamedi
Title: Vice President
DRESDNER BANK AG, NEW YORK
AND GRAND CAYMAN BRANCHES,
by /s/ Thomas R. Brady
----------------------------------------
Name: Thomas R. Brady
Title: Vice President
<PAGE>
by /s/ John W. Sweeney
----------------------------------------
Name: John W. Sweeney
Title: Vice President
ROYAL BANK OF CANADA,
by /s/ Lynne M. Litterini
---------------------------------------
Name: Lynne M. Litterini
Title: Manager
BANQUE NATIONALE DE PARIS,
by /s/ Arnaud Collin du Bocage
---------------------------------------
Name: Arnaud Collin du Bocage
Title: Executive Vice President and
General Manager
NATIONAL CITY BANK,
by /s/ Davis R. Bonner
---------------------------------------
Name: Davis R. Bonner
Title: Senior Vice President
INDUSTRIAL BANK OF JAPAN,
by /s/ Walter Wolff
---------------------------------------
Name: Walter Wolff
Title: Joint General Manager
BANK ONE, MICHIGAN,
by /s/ Glenn A. Currin
---------------------------------------
Name: Glenn A. Currin
Title: First Vice President
<PAGE>
COMERICA BANK,
by /s/ Nicholas G. Mester
---------------------------------------
Name: Nicholas G. Mester
Title: Account Officer
KEYBANK NATIONAL ASSOCIATION,
by /s/ Marianne T. Meil
---------------------------------------
Name: Marianne T. Meil
Title: Vice President
BAYERISCHE LANDESBANK,
by /s/ James Boyle
---------------------------------------
Name: James Boyle
Title: Vice President
by /s/ Alexander Kohnert
---------------------------------------
Name: Alexander Kohnert
Title: First Vice President
HSBC BANK USA,
by /s/ Christopher M. Samms
---------------------------------------
Name: Christopher M. Samms
Title: Officer #9426, Vice President
<PAGE>
SG,
by /s/ Editha N. Paras
---------------------------------------
Name: Editha N. Paras
Title: Vice President
BARCLAY'S BANK PLC,
by /s/ Keith Mackie
---------------------------------------
Name: Keith Mackie
Title: Director
CREDIT INDUSTRIAL ED COMMERCIAL,
by /s/ Wolfgang Fassbender
---------------------------------------
Name: Wolfgang Fassbender
Title: Senior Vice President
DEUTSCHE BANK AG, New York Branch
and/or Cayman Islands Branch,
by /s/ Oliver Schwarz
---------------------------------------
Name: Oliver Schwarz
Title: Assistant Vice President
by /s/ Stephan Peetzen
---------------------------------------
Name: Stephan Peetzen
Title: Director
<PAGE>
ABN AMRO BANK N.V.,
by /s/ David C. Sagers
---------------------------------------
Name: David C. Sagers
Title: Vice President
by /s/ John J. Mack
---------------------------------------
Name: John J. Mack
Title: Vice President
BANCA DI ROMA-CHICAGO BRANCH,
by /s/ James W. Semonchik
---------------------------------------
Name: James W. Semonchik
Title: Vice President
by /s/ Claudio Perna
---------------------------------------
Name: Claudio Perna (19690)
Title: Senior Vice President &
Branch Manager
THE SUMITOMO BANK, LIMITED,
by /s/ John H. Kemper
---------------------------------------
Name: John H. Kemper
Title: Senior Vice President
BANCA NAZIONALE DEL LAVORO
S.p.A. - NEW YORK,
by /s/ Giulio Giovine
---------------------------------------
Name: Giulio Giovine
Title: Vice President
<PAGE>
by /s/ Leonardo Valentini
---------------------------------------
Name: Leonardo Valentini
Title: First Vice President
MELLON BANK, N.A.,
by /s/ Mark F. Johnston
---------------------------------------
Name: Mark F. Johnston
Title: First Vice President
SAN PAOLO IMI S.p.A.,
by /s/ Luca Sacchi
---------------------------------------
Name: Luca Sacchi
Title: Vice President
by /s/ Carlo Persico
---------------------------------------
Name: Carlo Persico
Title: D.G.M.
BANCA COMMERCIALE ITALIANA,
CHICAGO BRANCH,
by /s/ E. Bermant
---------------------------------------
Name: E. Bermant
Title: FVP/Deputy Manager
by /s/ J. Dickerhof
---------------------------------------
Name: J. Dickerhof
Title: Vice President
FIRST UNION NATIONAL BANK,
by /s/ Kent Davis
---------------------------------------
Name: Kent Davis
Title: Vice President
<PAGE>
BANK OF NEW YORK,
by /s/ John M. Lokay, Jr.
---------------------------------------
Name: John M. Lokay, Jr.
Title: Vice President
BANK OF TOKYO-MITSUBISHI TRUST
COMPANY,
by /s/ Heather L. Zimmerman
---------------------------------------
Name: Heather L. Zimmerman
Title: Vice President
BANCO BILBAO VIZCAYA (NEW YORK),
by /s/ John Martini
---------------------------------------
Name: John Martini
Title: Vice President
by /s/ Alejandro Lorca
---------------------------------------
Name: Alejandro Lorca
Title: Vice President
<PAGE>
EXHIBIT 10(ee)
CONFORMED COPY
================================================================================
364-DAY
CREDIT AGREEMENT
dated as of
January 25, 2000
among
TRW INC.
The Borrowing Subsidiaries
Party Hereto
The Lenders Party Hereto
and
THE CHASE MANHATTAN BANK,
as Administrative Agent
SALOMON SMITH BARNEY INC.,
as Syndication Agent
___________________________
CHASE SECURITIES INC.
================================================================================
<PAGE>
================================================================================
SALOMON SMITH BARNEY INC.,
as Joint Lead Arrangers and Book Managers
BANK OF AMERICA N.A.
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
as Co-Documentation Agents
================================================================================
TABLE OF CONTENTS
Page
----
ARTICLE I
Definitions
-----------
<TABLE>
<S> <C>
SECTION 1.01. Defined Terms................................................ 1
SECTION 1.02. Classification of Loans and Borrowings....................... 14
SECTION 1.03. Terms Generally.............................................. 14
SECTION 1.04. Accounting Terms; GAAP....................................... 15
ARTICLE II
The Credits
-----------
SECTION 2.01. Commitments.................................................. 15
SECTION 2.02. Loans and Borrowings......................................... 15
SECTION 2.03. Requests for Revolving Borrowings............................ 16
SECTION 2.04. Competitive Bid Procedure.................................... 16
SECTION 2.05. Funding of Borrowings........................................ 18
SECTION 2.06. Interest Elections........................................... 19
SECTION 2.07. Termination and Reduction of Commitments..................... 20
SECTION 2.08. Repayment of Loans; Evidence of Debt......................... 21
SECTION 2.09. Prepayment of Loans.......................................... 21
SECTION 2.10. Fees......................................................... 22
SECTION 2.11. Interest..................................................... 23
SECTION 2.12. Alternate Rate of Interest................................... 23
SECTION 2.13. Increased Costs.............................................. 24
SECTION 2.14. Break Funding Payments....................................... 25
SECTION 2.15. Taxes........................................................ 25
SECTION 2.16. Payments Generally; Pro Rata Treatment; Sharing of Set-offs.. 26
SECTION 2.17. Mitigation Obligations; Replacement of Lenders............... 28
SECTION 2.18. Borrowing Subsidiaries....................................... 28
SECTION 2.19. Foreign Subsidiary Costs..................................... 29
ARTICLE III
Representations and Warranties
------------------------------
SECTION 3.01. Organization; Powers......................................... 30
SECTION 3.02. Authorization; Enforceability................................ 30
SECTION 3.03. Governmental Approvals; No Conflicts......................... 30
SECTION 3.04. Financial Condition; No Material Adverse Change.............. 31
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SECTION 3.05. Litigation and Environmental Matters...................... 31
SECTION 3.06. Investment and Holding Company Status..................... 31
SECTION 3.07. Taxes..................................................... 31
SECTION 3.08. ERISA..................................................... 32
SECTION 3.09. Year 2000................................................. 32
ARTICLE IV
Conditions
----------
SECTION 4.01. Effective Date............................................ 32
SECTION 4.02. Each Credit Event......................................... 33
SECTION 4.03. Initial Credit Event for each Borrowing Subsidiary........ 33
ARTICLE V
Affirmative Covenants
---------------------
SECTION 5.01. Financial Statements and Other Information................ 34
SECTION 5.02. Existence; Conduct of Business............................ 35
SECTION 5.03. Use of Proceeds........................................... 35
ARTICLE VI
Negative Covenants
------------------
SECTION 6.01. Indebtedness................................................. 35
SECTION 6.02. Mortgages.................................................... 35
SECTION 6.03. Sale and Lease-Back Transactions............................. 37
SECTION 6.04. Fundamental Changes.......................................... 37
SECTION 6.05. ERISA........................................................ 38
SECTION 6.06. Change in Control............................................ 38
SECTION 6.07. Interest Coverage Ratio...................................... 38
SECTION 6.08. Minimum Consolidated Net Worth............................... 38
ARTICLE VII
Events of Default........................................................... 38
- -----------------
ARTICLE VIII
The Administrative Agent..................................................... 40
- ------------------------
ARTICLE IX
Guarantee................................................................... 42
- ---------
ARTICLE X
Miscellaneous
-------------
SECTION 10.01. Notices...................................................... 43
SECTION 10.02. Waivers; Amendments.......................................... 43
SECTION 10.03. Expenses; Indemnity; Damage Waiver........................... 44
SECTION 10.04. Successors and Assigns....................................... 45
SECTION 10.05. Survival..................................................... 47
SECTION 10.06. Counterparts; Integration; Effectiveness..................... 48
SECTION 10.07. Severability................................................. 48
SECTION 10.08. Right of Setoff.............................................. 48
SECTION 10.09. Governing Law; Jurisdiction; Consent to Service of Process... 48
SECTION 10.10. WAIVER OF JURY TRIAL......................................... 49
SECTION 10.11. Headings..................................................... 49
SECTION 10.12. Confidentiality.............................................. 49
SECTION 10.13. Conversion of Currencies..................................... 50
SECTION 10.14. Interest Rate Limitation..................................... 50
SECTION 10.15. Lender Waiver................................................ 50
</TABLE>
<PAGE>
4
SCHEDULES:
- ---------
Schedule 2.01 -- Commitments
EXHIBITS:
- --------
Exhibit A-1 -- Form of Borrowing Subsidiary Agreement
Exhibit A-2 -- Form of Borrowing Subsidiary Termination
Exhibit B -- Form of Assignment and Acceptance
Exhibit C -- Form of Opinion of General Counsel of the Company
Exhibit D -- Form of Opinion of Counsel for each Borrowing Subsidiary
Exhibit E -- Form of Compliance Certificate
<PAGE>
364-DAY CREDIT AGREEMENT dated as of January 25, 2000, among
TRW INC., the BORROWING SUBSIDIARIES from time to time party
hereto, the LENDERS from time to time party hereto, THE CHASE
MANHATTAN BANK, as Administrative Agent and SALOMON SMITH BARNEY
INC., as Syndication Agent.
The parties hereto agree as follows:
ARTICLE I
Definitions
-----------
SECTION 1.01. Defined Terms. As used in this Agreement, the
--------------
following terms have the meanings specified below:
"ABR", when used in reference to any Loan or Borrowing, refers to
---
whether such Loan, or the Loans comprising such Borrowing, are bearing interest
at a rate determined by reference to the Alternate Base Rate.
"Adjusted LIBO Rate" means, with respect to any Eurocurrency Borrowing
------------------
for any Interest Period, an interest rate per annum (rounded upwards, if
necessary, to the next 1/100 of 1%) equal to (a) the LIBO Rate for such Interest
Period multiplied by (b) the Statutory Reserve Rate.
"Administrative Agent" means The Chase Manhattan Bank, in its capacity
--------------------
as administrative agent for the Lenders hereunder.
"Administrative Questionnaire" means an Administrative Questionnaire
----------------------------
in a form supplied by the Administrative Agent.
"Affiliate" means, with respect to a specified Person, another Person
---------
that directly, or indirectly through one or more intermediaries, Controls or is
Controlled by or is under common Control with the Person specified.
"Agreement Currency" has the meaning assigned to such term in Section
------------------
10.13(b).
"Alternate Base Rate" means, for any day, a rate per annum equal to
-------------------
the greater of (a) the Prime Rate in effect on such day and (b) the Federal
Funds Effective Rate in effect on such day plus 1/2 of 1%. Any change in the
Alternate Base Rate due to a change in the Prime Rate or the Federal Funds
Effective Rate shall be effective from
<PAGE>
and including the effective date of such change in the Prime Rate or the Federal
Funds Effective Rate, respectively.
"Applicable Creditor" has the meaning assigned to such term in Section
-------------------
10.13(b).
"Applicable Percentage" means, with respect to any Lender, the
---------------------
percentage of the total Commitments represented by such Lender's Commitment. If
the Commitments have terminated or expired, the Applicable Percentages shall be
determined based upon the Commitments most recently in effect, giving effect to
any assignments.
"Assignment and Acceptance" means an assignment and acceptance entered
-------------------------
into by a Lender and an assignee (with the consent of any party whose consent is
required by Section 10.04), and accepted by the Administrative Agent, in the
form of Exhibit B or any other form approved by the Administrative Agent.
"Attributable Debt" means, as to any particular lease under which any
-----------------
Person is liable at the time and at any date as of which the amount thereof is
to be determined, the lesser of (a) the fair value of the property subject to
such lease (as determined by the Directors of the Company) or (b) the total net
amount of rent required to be paid by such Person under such lease during the
remaining term thereof, discounted from the respective due dates thereof to such
date at the actual interest factor included in such rent. The net amount of rent
required to be paid under any such lease for any such period shall be the
aggregate amount of the rent payable by the lessee with respect to such period
after excluding amounts required to be paid on account of maintenance and
repairs, insurance, taxes, assessments, water rates and similar charges. In the
case of any lease which is terminable by the lessee upon the payment of a
penalty, such net amount shall also include the amount of such penalty, but no
rent shall be considered as required to be paid under such lease subsequent to
the first date upon which it may be so terminated.
"Availability Period" means the period from and including the
-------------------
Effective Date to but excluding the earlier of the Termination Date and the date
of termination of the Commitments.
"Board" means the Board of Governors of the Federal Reserve System of
-----
the United States of America.
"Borrower" means the Company or any Borrowing Subsidiary.
--------
"Borrowing" means (a) Revolving Loans of the same Type and currency,
---------
made, converted or continued on the same date and, in the case of Eurocurrency
Loans, as to which a single Interest Period is in effect or (b) a Competitive
Loan or group of Competitive Loans of the same Type made on the same date and as
to which a single Interest Period is in effect.
<PAGE>
3
"Borrowing Request" means a request by the Borrower for a Revolving
-----------------
Borrowing in accordance with Section 2.03.
"Borrowing Subsidiary" means, at any time, each Subsidiary that has
--------------------
been designated as a Borrowing Subsidiary by the Company pursuant to Section
2.19 and that has not ceased to be a Borrowing Subsidiary as provided in such
Section or Article VII.
"Borrowing Subsidiary Agreement" means a Borrowing Subsidiary
------------------------------
Agreement substantially in the form of Exhibit A-1.
"Borrowing Subsidiary Termination" means a Borrowing Subsidiary
--------------------------------
Termination substantially in the form of Exhibit A-2.
"Business Day" means any day that is not a Saturday, Sunday or other
------------
day on which commercial banks in New York City are authorized or required by law
to remain closed; provided, that when used in connection with a Eurocurrency
--------
Loan, the term "Business Day" shall also exclude any day on which banks are not
------------
open for dealings in dollar deposits in the London interbank market.
"Capital Lease Obligations" of any Person means the obligations of
-------------------------
such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP,
and the amount of such obligations shall be the capitalized amount thereof
determined in accordance with GAAP.
"Change in Control" means (a) the acquisition of ownership, directly
-----------------
or indirectly, beneficially or of record, by any Person or group (within the
meaning of the Securities Exchange Act of 1934 and the rules of the Securities
and Exchange Commission thereunder as in effect on the date hereof), of shares
representing more than 30% of the aggregate ordinary voting power represented by
the issued and outstanding capital stock of the Company; or (b) occupation of a
majority of the seats (other than vacant seats) on the board of directors of the
Company by Persons who are not Continuing Directors. For purposes of the
foregoing, "Continuing Directors" shall mean (i) the directors of the Company on
the date hereof and (ii) each other director nominated or appointed by at least
two thirds of the Continuing Directors at the time of such nomination or
appointment.
"Change in Law" means (a) the adoption of any law, rule or regulation
-------------
after the date of this Agreement, (b) any change in any law, rule or regulation
or in the interpretation or application thereof by any Governmental Authority
after the date of this Agreement or (c) compliance by any Lender (or, for
purposes of Section 2.13(b), by any lending office of such Lender or by such
Lender's holding company, if any) with any
<PAGE>
4
request, guideline or directive (whether or not having the force of law) of any
Governmental Authority made or issued after the date of this Agreement.
"Chase" means The Chase Manhattan Bank and its successors.
-----
"Class", when used in reference to any Loan or Borrowing, refers to
-----
whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans
or Competitive Loans.
"Code" means the Internal Revenue Code of 1986, as amended from time
----
to time.
"Commitment" means, with respect to each Lender, the commitment of
----------
such Lender to make Revolving Loans, expressed as an amount representing the
maximum aggregate amount of such Lender's Revolving Credit Exposure hereunder,
as such commitment may be (a) reduced from time to time pursuant to Section 2.07
and (b) reduced or increased from time to time pursuant to assignments by or to
such Lender pursuant to Section 10.04. The initial amount of each Lender's
Commitment is set forth on Schedule 2.01 or in the Assignment and Acceptance
pursuant to which such Lender shall have assumed its Commitment, as applicable.
The initial aggregate amount of the Lenders' Commitments is $2,300,000,000.
"Company" means TRW Inc., an Ohio corporation.
-------
"Competitive Bid" means an offer by a Lender to make a Competitive
---------------
Loan in accordance with Section 2.04.
"Competitive Bid Rate" means, with respect to any Competitive Bid, the
--------------------
Margin or the Fixed Rate, as applicable, offered by the Lender making such
Competitive Bid.
"Competitive Bid Request" means a request by any Borrower for
-----------------------
Competitive Bids in accordance with Section 2.04.
"Competitive Loan" means a Loan made pursuant to Section 2.04.
----------------
"Consolidated EBITDA" means, for any fiscal period, with respect to
-------------------
the Company and its consolidated Subsidiaries, (a) Consolidated Net Income for
such period plus (b) to the extent deducted in computing such Consolidated Net
----
Income, without duplication, the sum of (i) income tax expense, (ii)
Consolidated Interest Expense, (iii) depreciation and amortization expense, (iv)
any extraordinary or non-recurring losses and (v) other noncash items (other
than accruals) reducing Consolidated Net Income, minus (c) to the extent added
-----
in computing such Consolidated Net Income, without duplication, the sum of (i)
any extraordinary or non-recurring gains and (ii) other noncash
<PAGE>
5
items (other than accruals) increasing Consolidated Net Income, all as
determined on a consolidated basis in accordance with GAAP; provided that gains
--------
on sales of the Company's equity investments in publicly-traded companies and
pension income related to LucasVarity will in no event be subtracted under this
clause (c) for purposes of computing Consolidated EBITDA.
"Consolidated Funded Debt" means the Funded Debt of the Company and
------------------------
the consolidated Subsidiaries, determined on a consolidated basis in accordance
with GAAP.
"Consolidated Interest Expense" means, for any period, the aggregate
-----------------------------
of all interest expense of the Company and its consolidated Subsidiaries for
such period determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Assets" means the sum of (a) the total of all assets
-----------------------
of the Company and the consolidated Subsidiaries that would appear on a
consolidated balance sheet of the Company prepared in accordance with GAAP less
(b) Consolidated Net Worth.
"Consolidated Net Income" means, for any period, net income of the
-----------------------
Company and the consolidated Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP.
"Consolidated Net Worth" means, at any date, the consolidated
----------------------
shareholders' investment of the Company and the consolidated Subsidiaries,
exclusive of foreign currency translation adjustment and unrealized gains or
losses on securities as reported in the Company's financial statements under
"Other Comprehensive Income," determined as of such date. Consolidated
shareholders' investment, foreign currency translation adjustment and unrealized
gains or losses on securities of the Company shall be as included in the annual
or quarterly financial statements of the Company, as applicable.
"Control" means the possession, directly or indirectly, of the power
-------
to direct or cause the direction of the management or policies of a Person,
whether through the ability to exercise voting power or by contract.
"Controlling" and "Controlled" have meanings correlative thereto.
----------- ----------
"Default" means any event or condition which constitutes an Event of
-------
Default or which upon notice, lapse of time or both would, unless cured or
waived, become an Event of Default.
"Dollars" or "$" refers to lawful money of the United States of
------- -
America.
<PAGE>
6
"Domestic Subsidiary" means each consolidated Subsidiary other than
-------------------
(a) any consolidated Subsidiary which the Directors of the Company reasonably
determine not to be material to the business or financial condition of the
Company; (b) any consolidated Subsidiary the major portion of the assets of
which are located, or the major portion of the business of which is carried on,
outside the United States of America, its territories and possessions; (c) any
consolidated Subsidiary which, during the 12 most recent calendar months (or
such shorter period as shall have elapsed since its organization) derived the
major portion of its gross revenues from sources outside the United States of
America; (d) any consolidated Subsidiary the major portion of the assets of
which consists of securities or obligations, or both, of one or more
corporations (whether or not consolidated Subsidiaries) of the types described
in the preceding clauses (b) and (c); and (e) any consolidated Subsidiary
organized after January 1, 2000 which the Company intends shall be operated in
such manner as to come within one or more of the preceding clauses (b), (c) and
(d).
"Effective Date" means the date on which the conditions specified in
--------------
Section 4.01 are satisfied (or waived in accordance with Section 10.02).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
---------------
incorporated) that, together with a Borrower, is treated as a single employer
under Section 414(b) or (c) of the Code or, solely for purposes of Section 302
of ERISA and Section 412 of the Code, is treated as a single employer under
Section 414 of the Code.
"ERISA Event" means (a) any "reportable event", as defined in Section
-----------
4043 of ERISA or the regulations issued thereunder with respect to a Plan (other
than an event for which the 30-day notice period is waived); (b) the existence
with respect to any Plan of an "accumulated funding deficiency" (as defined in
Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the
filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an
application for a waiver of the minimum funding standard with respect to any
Plan; (d) the incurrence by a Borrower or any of its ERISA Affiliates of any
liability under Title IV of ERISA with respect to the termination of any Plan;
(e) the receipt by a Borrower or any ERISA Affiliate from the PBGC or a plan
administrator of any notice relating to an intention to terminate any Plan or
Plans or to appoint a trustee to administer any Plan; (f) the incurrence by a
Borrower or any of its ERISA Affiliates of any liability with respect to the
withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the
receipt by a Borrower or any ERISA Affiliate of any notice, or the receipt by
any Multiemployer Plan from a Borrower or any ERISA Affiliate of any notice,
concerning the imposition of Withdrawal Liability or a determination that a
Multiemployer Plan is, or is expected to be, insolvent or in reorganization,
within the meaning of Title IV of ERISA.
<PAGE>
7
"Eurocurrency", when used in reference to any Loan or Borrowing,
------------
refers to whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to the Adjusted LIBO Rate (or, in the
case of a Competitive Loan, the LIBO Rate).
"Event of Default" has the meaning assigned to such term in Article
----------------
VII.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
------------
from time to time.
"Excluded Taxes" means (i) with respect to each Lender, taxes imposed
--------------
on its net income, and franchise or similar taxes imposed on it, by a
jurisdiction under the laws of which it is organized or in which its principal
executive office or applicable lending office is located, and (ii) any United
States withholding tax imposed on such payment, but not excluding any portion of
such tax that exceeds the United States withholding tax which would have been
imposed on such a payment to such Lender under the laws and treaties in effect
when such Lender first becomes a party to this Agreement.
"Existing Credit Agreements" means (i) the Credit Agreement dated as
--------------------------
of January 27, 1999, and amended and restated as of February 26, 1999, among the
Company, the eligible subsidiaries referred to therein, the lenders party
thereto, Bank of America National Trust and Savings Association, Citibank, N.A.
and Barclays Bank PLC, as co-syndication agents, and Morgan Guaranty Trust
Company of New York, as administrative agent, (ii) the Revolving Credit
Agreement dated as of December 10, 1997, among the Company and the financial
institutions party thereto, (iii) the Multi-Year Revolving Credit Agreement, as
amended and restated as of May 8, 1996, among the Company and the financial
institutions party thereto, and (iv) the Multi-Currency Revolving Credit
Facility Agreement, as amended and restated as of August 7, 1997, among TRW
Finance International, Barclays Bank PLC and the financial institutions party
thereto, in each case as amended from time to time.
"Federal Funds Effective Rate" means, for any day, the weighted
----------------------------
average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day that is a Business Day, the average (rounded upwards, if
necessary, to the next 1/100 of 1%) of the quotations for such day for such
transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it.
<PAGE>
8
"Financial Officer" means the chief financial officer, treasurer or
-----------------
controller of the Company.
"Five-Year Credit Agreement" means the Five-Year Credit Agreement
--------------------------
dated as of the date hereof among the Company, the borrowing subsidiaries from
time to time party thereto, the lenders from time to time party thereto, Chase,
as administrative agent, Chase Manhattan International Limited, as London agent
and Salomon Smith Barney Inc., as syndication agent.
"Fixed Rate" means, with respect to any Competitive Loan (other than a
----------
Eurocurrency Competitive Loan), the fixed rate of interest per annum specified
by the Lender making such Competitive Loan in its related Competitive Bid.
"Fixed Rate Loan" means a Competitive Loan bearing interest at a Fixed
---------------
Rate.
"Foreign Lender" means any Lender that is organized under the laws of
--------------
a jurisdiction other than that in which the applicable Borrower is located. For
purposes of this definition, the United States of America, each State thereof
and the District of Columbia shall be deemed to constitute a single
jurisdiction.
"Foreign Subsidiary" means any Subsidiary that is not a Domestic
------------------
Subsidiary.
"Funded Debt" means all Indebtedness of the type described in clauses
-----------
(a) and (b) of the definition thereof having a maturity of more than 12 months
from the date such Indebtedness was incurred or having a maturity of 12 months
or less but by its terms being renewable or extendable beyond 12 months from the
date such Indebtedness was incurred at the option of the obligor.
"GAAP" means generally accepted accounting principles in the United
----
States of America applied in a manner consistent with the financial statements
referred to in Section 3.04(a).
"Governmental Authority" means the government of the United States of
----------------------
America, any other nation or any political subdivision thereof, whether state or
local, and any agency, authority, instrumentality, regulatory body, court,
central bank or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or pertaining to
government.
"Guarantee" of or by any Person (the "guarantor") means any
--------- ---------
obligation, contingent or otherwise, of the guarantor guaranteeing or having the
economic effect of guaranteeing any Indebtedness or other obligation of any
other Person (the "primary obligor") in any manner, whether directly or
---------------
indirectly, and including any obligation of
<PAGE>
9
the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply
funds for the purchase or payment of) such Indebtedness or other obligation or
to purchase (or to advance or supply funds for the purchase of) any security for
the payment thereof, (b) to purchase or lease property, securities or services
for the purpose of assuring the owner of such Indebtedness or other obligation
of the payment thereof, (c) to maintain working capital, equity capital or any
other financial statement condition or liquidity of the primary obligor so as to
enable the primary obligor to pay such Indebtedness or other obligation or (d)
as an account party in respect of any letter of credit or letter of guaranty
issued to support such Indebtedness or obligation; provided, that the term
--------
Guarantee shall not include endorsements for collection or deposit in the
ordinary course of business.
"Guarantor Subsidiary" means any Subsidiary that shall have delivered
--------------------
to the Administrative Agent (a) a guarantee agreement in form and substance
satisfactory to the Administrative Agent under which it shall guarantee the
payment of the Obligations and (b) such evidence as the Administrative Agent may
reasonably have requested (which may include an opinion of counsel qualified in
any relevant jurisdiction) as to the corporate power and authority of such
Subsidiary to enter into and the enforceability of such guarantee agreement and
such other matters related to such guarantee agreement as the Administrative
Agent may reasonably have determined to be material.
"Indebtedness" of any Person means, without duplication, (a) all
------------
obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such Person
upon which interest charges are customarily paid, (d) all obligations of such
Person under conditional sale or other title retention agreements relating to
property acquired by such Person, (e) all obligations of such Person in respect
of the deferred purchase price of property or services (excluding current
accounts payable incurred in the ordinary course of business), (f) all
Indebtedness of others secured by any Mortgage on property owned or acquired by
such Person, whether or not the Indebtedness secured thereby has been assumed,
(g) all Guarantees by such Person of Indebtedness of others, (h) all Capital
Lease Obligations of such Person, (i) all non-contingent obligations (and, for
purposes of Section 6.02 and the definition of Material Indebtedness, all
contingent obligations) of such Person to reimburse any bank or other Person in
respect of amounts paid under letters of credit and similar instruments and (j)
all obligations, contingent or otherwise, of such Person in respect of bankers'
acceptances. The Indebtedness of any Person shall include the Indebtedness of
any other entity (including any partnership in which such Person is a general
partner) to the extent such Person is liable therefor as a result of such
Person's ownership interest in or other relationship with such entity, except to
the extent the terms of such Indebtedness provide that such Person is not liable
therefor.
"Information Memorandum" means the Confidential Information Memorandum
----------------------
dated January 2000 distributed to the Lenders, together with the appendices
thereto, as amended through the date hereof.
<PAGE>
10
"Interest Election Request" means a request by the relevant Borrower
-------------------------
to convert or continue a Revolving Borrowing in accordance with Section 2.06.
"Interest Payment Date" means (a) with respect to any ABR Loan, the
---------------------
last day of each March, June, September and December, (b) with respect to any
Eurocurrency Loan, the last day of the Interest Period applicable to the
Borrowing of which such Loan is a part and, in the case of a Eurocurrency
Borrowing with an Interest Period of more than three months' duration, each day
prior to the last day of such Interest Period that occurs at intervals of three
months' duration after the first day of such Interest Period and (c) with
respect to any Fixed Rate Loan, the last day of the Interest Period applicable
to the Borrowing of which such Loan is a part and, in the case of a Fixed Rate
Borrowing with an Interest Period of more than 90 days' duration (unless
otherwise specified in the applicable Competitive Bid Request), each day prior
to the last day of such Interest Period that occurs at intervals of 90 days'
duration after the first day of such Interest Period, and any other dates that
are specified in the applicable Competitive Bid Request as Interest Payment
Dates with respect to such Borrowing.
"Interest Period" means (a) with respect to any Eurocurrency
---------------
Borrowing, the period commencing on the date of such Borrowing and ending on the
numerically corresponding day in the calendar month that is one, two, three or
six months thereafter, as the applicable Borrower may elect and (b) with respect
to any Fixed Rate Borrowing, the period (which shall not be less than 7 days or
more than 360 days) commencing on the date of such Borrowing and ending on the
date specified in the applicable Competitive Bid Request; provided, that (i) if
--------
any Interest Period would end on a day other than a Business Day, such Interest
Period shall be extended to the next succeeding Business Day unless, in the case
of a Eurocurrency Borrowing only, such next succeeding Business Day would fall
in the next calendar month, in which case such Interest Period shall end on the
next preceding Business Day and (ii) any Interest Period pertaining to a
Eurocurrency Borrowing that commences on the last Business Day of a calendar
month (or on a day for which there is no numerically corresponding day in the
last calendar month of such Interest Period) shall end on the last Business Day
of the last calendar month of such Interest Period. For purposes hereof, the
date of a Borrowing initially shall be the date on which such Borrowing is made
and, in the case of a Revolving Borrowing, thereafter shall be the effective
date of the most recent conversion or continuation of such Borrowing.
"Judgment Currency" has the meaning assigned to such term in Section
-----------------
10.13(b).
"Lenders" means the Persons listed on Schedule 2.01 and any other
-------
Person that shall have become a party hereto pursuant to an Assignment and
Acceptance, other
<PAGE>
11
than any such Person that shall have ceased to be a party hereto pursuant to an
Assignment and Acceptance.
"LIBO Rate" means, with respect to any Eurocurrency Borrowing for any
---------
Interest Period, the rate appearing on Page 3750 of the Telerate Service (or on
any successor or substitute page of such Service, or any successor to or
substitute for such Service, providing rate quotations comparable to those
currently provided on such page of such Service, as determined by the
Administrative Agent from time to time for purposes of providing quotations of
interest rates applicable to dollar deposits in the London interbank market) at
approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period, as the rate for dollar deposits with a
maturity comparable to such Interest Period; provided that, to the extent that
--------
an interest rate is not ascertainable pursuant to the foregoing provisions of
this definition, the "LIBO Rate" shall be the average (rounded upward, if
necessary, to the next 1/100 of 1%) of the respective interest rates per annum
at which dollar deposits of such Borrowing are offered for such Interest Period
to major banks in the London interbank market by Chase and Citibank, N.A. at
approximately 11:00 a.m., London time, on the date two Business Days prior to
the beginning of such Interest Period.
"Loan Documents" means this Agreement, each Borrowing Subsidiary
--------------
Agreement, each Borrowing Subsidiary Termination, and each promissory note
delivered pursuant to this Agreement.
"Loans" means the loans made by the Lenders to the Borrowers pursuant
-----
to this Agreement.
"LucasVarity" shall mean LucasVarity Limited, formerly known as
-----------
LucasVarity plc, an English company.
"Margin" means, with respect to any Competitive Loan bearing interest
------
at a rate based on the LIBO Rate, the marginal rate of interest, if any, to be
added to or subtracted from the LIBO Rate to determine the rate of interest
applicable to such Loan, as specified by the Lender making such Loan in its
related Competitive Bid.
"Margin Stock" means "margin stock" as defined in Regulation U.
------------
"Material Adverse Effect" means a material adverse effect on (a) the
-----------------------
consolidated financial condition of the Company and the consolidated
Subsidiaries, taken as a whole or (b) the ability of the Company to perform its
payment obligations under the Loan Documents.
<PAGE>
12
"Material Indebtedness" means Indebtedness (other than the Loans), of
---------------------
any one or more of the Company and the Material Subsidiaries in an aggregate
principal amount exceeding $100,000,000.
"Material Subsidiary" means (a) any Borrowing Subsidiary, (b) any
-------------------
subsidiary that directly or indirectly owns or Controls any Borrowing Subsidiary
or other Material Subsidiary and (c) any other Subsidiary whose assets (or, if
such Subsidiary has subsidiaries, whose consolidated assets) are at least equal
to $100,000,000.
"Maturity Date" means the first anniversary of the Termination Date.
-------------
"Moody's" means Moody's Investors Service, Inc.
-------
"Mortgage" has the meaning assigned to such term in Section 6.02.
--------
"Multiemployer Plan" means a multiemployer plan as defined in Section
------------------
4001(a)(3) of ERISA.
"Obligations" means the due and punctual payment of (a) the principal
-----------
of and premium, if any, and interest (including interest accruing during the
pendency of any bankruptcy, insolvency, receivership or other similar
proceeding, regardless of whether allowed or allowable in such proceeding) on
the Loans made to any Borrower, when and as due, whether at maturity, by
acceleration, upon one or more dates set for prepayment or otherwise and (b) all
other monetary obligations, including fees, costs, expenses and indemnities,
whether primary, secondary, direct, contingent, fixed or otherwise (including
monetary obligations incurred during the pendency of any bankruptcy, insolvency,
receivership or other similar proceeding, regardless of whether allowed or
allowable in such proceeding), of any Borrower under this Agreement and the
other Loan Documents.
"Other Taxes" means any present or future stamp or documentary taxes
-----------
and any other excise or property taxes, or similar charges or levies, which
arise from any payment made pursuant to this Agreement or any Loan Document or
from the execution, delivery, registration or enforcement of, or otherwise with
respect to, this Agreement or any Loan Document; provided that Other Taxes shall
--------
not include Excluded Taxes.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
----
defined in ERISA and any successor entity performing similar functions.
"Permitted Subsidiary Indebtedness" means (a) Indebtedness under this
---------------------------------
Agreement or the 364-Day Credit Agreement, (b) any Indebtedness of a Subsidiary
owed to the Company or another Subsidiary, (c) Indebtedness of Guarantor
Subsidiaries, (d) any Indebtedness deemed incurred in connection with one or
more receivables securitization transactions entered into by the Company and/or
one or more Subsidiaries
<PAGE>
13
in an aggregate amount of up to $500,000,000 (minus the amount of any such
Indebtedness of the Company) and (e) any Indebtedness of a finance Subsidiary
with no significant assets or operations to the extent (i) such Indebtedness is
Guaranteed by the Company and is not Guaranteed, or secured by assets or
obligations of, any other Subsidiary, (ii) the proceeds of such Indebtedness are
dividended to the Company or another Subsidiary or advanced to the Company and
(iii) such finance Subsidiary is not the obligee in respect of any Indebtedness
of any other Subsidiary.
"Person" means any natural person, corporation, limited liability
------
company, trust, joint venture, association, company, partnership, Governmental
Authority or other entity.
"Plan" means any employee pension benefit plan (other than a
----
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Code or Section 302 of ERISA, and in respect of which any Borrower or
any ERISA Affiliate is (or, if such plan were terminated, would under Section
4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of
ERISA.
"Prime Rate" means the rate of interest per annum publicly announced
----------
from time to time by The Chase Manhattan Bank as its prime rate in effect at its
principal office in New York City; each change in the Prime Rate shall be
effective from and including the date such change is publicly announced as being
effective.
"Principal Property" means any single manufacturing plant, engineering
------------------
facility or research facility owned or leased by the Company or a Domestic
Subsidiary other than any such plant or facility or portion thereof which the
Board of Directors reasonably determines not to be of material importance to the
Company and its Subsidiaries taken as a whole.
"Register" has the meaning set forth in Section 10.04.
--------
"Related Parties" means, with respect to any specified Person, such
---------------
Person's Affiliates and the respective directors, officers, employees, agents
and advisors of such Person and such Person's Affiliates.
"Required Lenders" means, at any time, Lenders having Revolving Credit
----------------
Exposures and unused Commitments representing more than 50% of the sum of the
total Revolving Credit Exposures and unused Commitments at such time; provided
--------
that, for purposes of declaring the Loans to be due and payable pursuant to
Article VII, and for all purposes after the Loans become due and payable
pursuant to Article VII or the Commitments expire or terminate, the outstanding
Competitive Loans of the Lenders shall be included in their respective Revolving
Credit Exposures in determining the Required Lenders.
<PAGE>
14
"Revolving Credit Exposure" means, with respect to any Lender at any
-------------------------
time, such Lender's Applicable Percentage of the aggregate outstanding principal
amount of the Revolving Loans at such time.
"Revolving Loan" means a Loan made pursuant to Sections 2.01 and
--------------
2.03.
"Specified Company Indebtedness" means, at any time, (a) all
------------------------------
Indebtedness of the Company secured by Mortgages that would be prohibited by
Section 6.02 but for the provisions of clause (h) thereof; (b) all Attributable
Debt of the Company related to Sale and Leaseback Transactions that would be
prohibited by Section 6.03 but for the provisions of clause (b) thereof; (c) all
Indebtedness of the Company secured by Mortgages on capital stock of or other
equity interests in Foreign Subsidiaries; and (d) all Indebtedness of the
Company that is secured by Mortgages on accounts receivable or that is deemed to
arise in connection with receivables securitization transactions, but only to
the extent the amount of such Indebtedness of the Company and the Domestic
Subsidiaries so secured or so arising exceeds $500,000,000.
"S&P" means Standard & Poor's Ratings Services, a division of The
---
McGraw-Hill Companies, Inc.
"Statutory Reserve Rate" means a fraction (expressed as a decimal),
----------------------
the numerator of which is the number one and the denominator of which is the
number one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board to which the Administrative Agent is subject for
eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in
Regulation D of the Board). Such reserve percentages shall include those
imposed pursuant to such Regulation D. Eurocurrency Loans shall be deemed to
constitute eurocurrency funding and to be subject to such reserve requirements
without benefit of or credit for proration, exemptions or offsets that may be
available from time to time to any Lender under such Regulation D or any
comparable regulation. The Statutory Reserve Rate shall be adjusted
automatically on and as of the effective date of any change in any reserve
percentage.
"subsidiary" means, with respect to any Person (the "parent") at any
---------- ------
date, any corporation, limited liability company, partnership, association or
other entity the accounts of which would be consolidated with those of the
parent in the parent's consolidated financial statements if such financial
statements were prepared in accordance with GAAP as of such date, as well as any
other corporation, limited liability company, partnership, association or other
entity (a) of which securities or other ownership interests representing more
than 50% of the equity or more than 50% of the ordinary voting power or, in the
case of a partnership, more than 50% of the general partnership interests are,
as of such date, owned, controlled or held, or (b) that is, as of
<PAGE>
15
such date, otherwise Controlled, by the parent or one or more subsidiaries of
the parent or by the parent and one or more subsidiaries of the parent.
"Subsidiary" means any subsidiary of the Company.
----------
"Taxes" means any and all present or future taxes or other charges of
-----
any nature deducted, withheld or otherwise imposed with respect to any payment
by any Borrower pursuant to this Agreement or any Loan Document, and all
liabilities with respect thereto other than Excluded Taxes.
"Termination Date" means January 23, 2001.
----------------
"Transactions" means the execution, delivery and performance by the
------------
Borrowers of the Loan Documents, the borrowing of Loans and the use of the
proceeds thereof.
"Type", when used in reference to any Loan or Borrowing, refers to
----
whether the rate of interest on such Loan, or on the Loans comprising such
Borrowing, is determined by reference to the Adjusted LIBO Rate, the Alternate
Base Rate or, in the case of a Competitive Loan or Borrowing, the LIBO Rate or a
Fixed Rate.
"Wholly Owned Domestic Subsidiary" means each Domestic Subsidiary all
--------------------------------
the outstanding shares of which, other than directors' qualifying shares, shall
at the time be owned by the Company or by the Company and one or more Wholly
Owned Domestic Subsidiaries, or by one or more Wholly Owned Domestic
Subsidiaries.
"Withdrawal Liability" means liability to a Multiemployer Plan as a
--------------------
result of a complete or partial withdrawal from such Multiemployer Plan, as such
terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Classification of Loans and Borrowings. For purposes
---------------------------------------
of this Agreement, Loans may be classified and referred to by Class (e.g., a
----
"Revolving Loan") or by Type (e.g., a "Eurocurrency Loan") or by Class and Type
----
(e.g., a "Eurocurrency Revolving Loan"). Borrowings also may be classified and
----
referred to by Class (e.g., a "Revolving Borrowing") or by Type (e.g., a
---- ----
"Eurocurrency Borrowing") or by Class and Type (e.g., a "Eurocurrency Revolving
----
Borrowing").
SECTION 1.03. Terms Generally. The definitions of terms herein shall
----------------
apply equally to the singular and plural forms of the terms defined. Whenever
the context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include", "includes" and "including"
shall be deemed to be followed by the phrase "without limitation". The word
"will" shall be construed to have the same meaning and effect as the word
"shall". Unless the context requires otherwise (a) any
<PAGE>
16
definition of or reference to any agreement, instrument or other document herein
shall be construed as referring to such agreement, instrument or other document
as from time to time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set forth herein),
(b) any reference herein to any Person shall be construed to include such
Person's successors and assigns, (c) the words "herein", "hereof" and
"hereunder", and words of similar import, shall be construed to refer to this
Agreement in its entirety and not to any particular provision hereof, (d) all
references herein to Articles, Sections, Exhibits and Schedules shall be
construed to refer to Articles and Sections of, and Exhibits and Schedules to,
this Agreement and (e) the words "asset" and "property" shall be construed to
have the same meaning and effect and to refer to any and all tangible and
intangible assets and properties, including cash, securities, accounts and
contract rights.
SECTION 1.04. Accounting Terms; GAAP. Except as otherwise expressly
-----------------------
provided herein, all terms of an accounting or financial nature shall be
construed in accordance with GAAP, as in effect from time to time; provided
--------
that, if the Company notifies the Administrative Agent that the Company requests
an amendment to any provision hereof to eliminate the effect of any change
occurring after the date hereof in GAAP or in the application thereof on the
operation of such provision (or if the Administrative Agent notifies the Company
that the Required Lenders request an amendment to any provision hereof for such
purpose), regardless of whether any such notice is given before or after such
change in GAAP or in the application thereof, then such provision shall be
interpreted on the basis of GAAP as in effect and applied immediately before
such change shall have become effective until such notice shall have been
withdrawn or such provision amended in accordance herewith.
ARTICLE II
The Credits
-----------
SECTION 2.01. Commitments. Subject to the terms and conditions set
------------
forth herein, each Lender agrees to make Revolving Loans to any Borrower from
time to time during the Availability Period in Dollars in an aggregate principal
amount that will not result in (a) such Lender's Revolving Credit Exposure
exceeding its Commitment or (b) the sum of the total Revolving Credit Exposures
plus the aggregate principal amount of the outstanding Competitive Loans
exceeding the total Commitments. Within the foregoing limits, and subject to
the terms and conditions set forth herein, any Borrower may borrow, prepay and
reborrow Revolving Loans.
SECTION 2.02. Loans and Borrowings. (a) Each Revolving Loan shall
---------------------
be made as part of a Borrowing consisting of Revolving Loans made by the Lenders
ratably in accordance with their respective Commitments. Each Competitive Loan
shall
<PAGE>
17
be made in accordance with the procedures set forth in Section 2.04. The failure
of any Lender to make any Loan required to be made by it shall not relieve any
other Lender of its obligations hereunder; provided that the Commitments and
--------
Competitive Bids of the Lenders are several and no Lender shall be responsible
for any other Lender's failure to make Loans as required hereunder.
(b) Subject to Section 2.12, (i) each Revolving Borrowing shall be
comprised entirely of ABR Loans or Eurocurrency Loans as the applicable Borrower
may request in accordance herewith, and (ii) each Competitive Borrowing shall be
comprised entirely of Eurocurrency Loans or Fixed Rate Loans as the applicable
Borrower may request in accordance herewith. Each Lender at its option may make
any Eurocurrency Loan by causing any domestic or foreign branch or Affiliate of
such Lender to make such Loan; provided that any exercise of such option shall
--------
not affect the obligation of any Borrower to repay such Loan in accordance with
the terms of this Agreement.
(c) At the commencement of each Interest Period for any Revolving
Borrowing, such Revolving Borrowing shall be in an aggregate amount that is at
least equal to $10,000,000 and an integral multiple of $5,000,000; provided that
--------
an ABR Revolving Borrowing may be in an aggregate amount that is equal to the
entire unused balance of the total Commitments. Each Competitive Borrowing
shall be in an aggregate amount that is an integral multiple of $5,000,000 and
not less than $10,000,000. Borrowings of more than one Type and Class may be
outstanding at the same time; provided that there shall not at any time be more
--------
than a total of 20 Eurocurrency Revolving Borrowings outstanding.
(d) Notwithstanding any other provision of this Agreement, no
Borrower shall be entitled to request, or to elect to convert or continue, any
Borrowing if the Interest Period requested with respect thereto would end after
the Maturity Date.
SECTION 2.03. Requests for Revolving Borrowings. To request a
-----------------------------------
Borrowing, the applicable Borrower, or the Company on behalf of the applicable
Borrower, shall notify the Administrative Agent of such request by telephone (a)
in the case of a Eurocurrency Borrowing, not later than 11:00 a.m., New York
City time, three Business Days before the date of the proposed Borrowing or (b)
in the case of an ABR Borrowing, not later than 10:00 a.m., New York City time,
on the Business Day of the proposed Borrowing. Each such telephonic Borrowing
Request shall be irrevocable and shall be confirmed promptly by hand delivery or
telecopy to the Administrative Agent of a written Borrowing Request in a form
approved by the Administrative Agent and signed by the applicable Borrower, or
by the Company on behalf of the applicable Borrower. Each such telephonic and
written Borrowing Request shall specify the following information in compliance
with Section 2.02:
<PAGE>
18
(i) the Borrower requesting such Borrowing (or on whose behalf the
Company is requesting such Borrowing);
(ii) the aggregate principal amount of the requested Borrowing;
(iii) the date of the requested Borrowing, which shall be a Business
Day;
(iv) whether the requested Borrowing is to be an ABR Borrowing or a
Eurocurrency Borrowing;
(v) in the case of a Eurocurrency Borrowing, the initial Interest
Period to be applicable thereto, which shall be a period contemplated by
the definition of the term "Interest Period"; and
(vi) the location and number of the Borrower's account to which
funds are to be disbursed, which shall comply with the requirements of
Section 2.05.
If no election as to the Type of Borrowing is specified, then the requested
Borrowing shall be an ABR Borrowing. If no Interest Period is specified with
respect to any requested Eurocurrency Revolving Borrowing, then the Borrower
shall be deemed to have selected an Interest Period of one month's duration.
Promptly following receipt of a Borrowing Request in accordance with this
Section, the Administrative Agent shall advise each Lender of the details
thereof and of the amount of such Lender's Loan to be made as part of the
requested Borrowing.
SECTION 2.04. Competitive Bid Procedure. (a) Subject to the terms
--------------------------
and conditions set forth herein, from time to time during the Availability
Period any Borrower may request Competitive Bids and may (but shall not have any
obligation to) accept Competitive Bids and borrow Competitive Loans, in each
case denominated in Dollars; provided that after giving effect to any Borrowing
--------
of Competitive Loans the sum of the total Revolving Credit Exposures plus the
aggregate principal amount of the outstanding Competitive Loans shall not exceed
the total Commitments. To request Competitive Bids, the Company or the
applicable Borrowing Subsidiary shall notify the Administrative Agent of such
request by telephone, in the case of a Eurocurrency Borrowing, not later than
11:00 a.m., New York City time, four Business Days before the date of the
proposed Borrowing and, in the case of a Fixed Rate Borrowing, not later than
10:00 a.m., New York City time, one Business Day before the date of the proposed
Borrowing; provided that the Borrowers may submit up to (but not more than)
--------
three Competitive Bid Requests on the same day. Each such telephonic
Competitive Bid Request shall be confirmed promptly by hand delivery or telecopy
to the Administrative Agent of a written Competitive Bid Request in a form
approved by the Administrative Agent and signed by the relevant Borrower. Each
such telephonic and written
<PAGE>
19
Competitive Bid Request shall specify the following information in compliance
with Section 2.02:
(i) the Borrower requesting such Borrowing (or on whose behalf the
Company is requesting such Borrowing);
(ii) the aggregate principal amount of the requested Borrowing;
(iii) the date of the requested Borrowing, which shall be a
Business Day;
(iv) whether such Borrowing is to be a Eurocurrency Borrowing or a
Fixed Rate Borrowing;
(v) the Interest Period to be applicable to such Borrowing, which
shall be a period contemplated by the definition of the term "Interest
Period"; and
(vi) the location and number of the Borrower's account to which
funds are to be disbursed, which shall comply with the requirements of
Section 2.05.
Promptly following receipt of a Competitive Bid Request in accordance with this
Section, the Administrative Agent shall notify the Lenders of the details
thereof by telecopy, inviting the Lenders to submit Competitive Bids.
(b) Each Lender may (but shall not have any obligation to) make one
or more Competitive Bids to any Borrower in response to a Competitive Bid
Request. Each Competitive Bid by a Lender must be in a form approved by the
Administrative Agent and must be received by the Administrative Agent by
telecopy, in the case of a Eurocurrency Competitive Borrowing, not later than
9:30 a.m., New York City time, three Business Days before the proposed date of
such Competitive Borrowing, and in the case of a Fixed Rate Borrowing, not later
than 9:30 a.m., New York City time, on the proposed date of such Competitive
Borrowing. Competitive Bids that do not conform substantially to the form
approved by the Administrative Agent may be rejected by the Administrative
Agent, and the Administrative Agent shall notify the applicable Lender as
promptly as practicable. Each Competitive Bid shall specify (i) the principal
amount (which shall be a minimum of $5,000,000 and an integral multiple of
$1,000,000 and which may equal the entire principal amount of the Competitive
Borrowing requested by the relevant Borrower) of the Competitive Loan or Loans
that the Lender is willing to make, (ii) the Competitive Bid Rate or Rates at
which the Lender is prepared to make such Loan or Loans (expressed as a
percentage rate per annum in the form of a decimal to no more than four decimal
places) and (iii) the Interest Period applicable to each such Loan and the last
day thereof.
<PAGE>
20
(c) The Administrative Agent shall promptly notify the Company by
telecopy of the Competitive Bid Rate and the principal amount specified in each
Competitive Bid and the identity of the Lender that shall have made such
Competitive Bid.
(d) Subject only to the provisions of this paragraph, the Borrower
may accept or reject any Competitive Bid. The Borrower shall notify the
Administrative Agent by telephone, confirmed by telecopy in a form approved by
the Administrative Agent, whether and to what extent it has decided to accept or
reject each Competitive Bid, in the case of a Eurocurrency Competitive
Borrowing, not later than 10:30 a.m., New York City time, three Business Days
before the date of the proposed Competitive Borrowing, and in the case of a
Fixed Rate Borrowing, not later than 10:30 a.m., New York City time, on the date
of the proposed Competitive Borrowing; provided that (i) the failure of the
--------
Borrower to give such notice shall be deemed to be a rejection of each
Competitive Bid, (ii) the Borrower shall not accept a Competitive Bid made at a
particular Competitive Bid Rate if the relevant Borrower rejects a Competitive
Bid made at a lower Competitive Bid Rate, (iii) the aggregate amount of the
Competitive Bids accepted by the Borrower shall not exceed the aggregate amount
of the requested Competitive Borrowing specified in the related Competitive Bid
Request, (iv) to the extent necessary to comply with clause (iii) above, the
Borrower may accept Competitive Bids at the same Competitive Bid Rate in part,
which acceptance, in the case of multiple Competitive Bids at such Competitive
Bid Rate, shall be made pro rata in accordance with the amount of each such
Competitive Bid, and (v) except pursuant to clause (iv) above, no Competitive
Bid shall be accepted for a Competitive Loan unless the amount of such
Competitive Loan is an integral multiple of $5,000,000; provided further that if
----------------
a Competitive Loan must be in an amount less than $5,000,000 because of the
provisions of clause (iv) above, such Competitive Loan may have a minimum amount
of $1,000,000 and in calculating the pro rata allocation of acceptances of
portions of multiple Competitive Bids at a particular Competitive Bid Rate
pursuant to clause (iv) the amounts shall be rounded to integral multiples of
$1,000,000 in a manner determined by the Borrower. A notice given by a Borrower
pursuant to this paragraph shall be irrevocable.
(e) The Administrative Agent shall promptly notify each bidding
Lender by telecopy whether or not its Competitive Bid has been accepted (and, if
so, the amount and Competitive Bid Rate so accepted), and each successful bidder
will thereupon become bound, subject to the terms and conditions hereof, to make
the Competitive Loan in respect of which its Competitive Bid has been accepted.
(f) If the Administrative Agent shall elect to submit a Competitive
Bid in its capacity as a Lender, it shall submit such Competitive Bid directly
to the Borrower at least one quarter of an hour earlier than the time by which
the other Lenders are required to submit their Competitive Bids to the
Administrative Agent pursuant to paragraph (b) of this Section.
<PAGE>
21
SECTION 2.05. Funding of Borrowings. (a) Each Lender shall make
----------------------
each Loan to be made by it hereunder on the proposed date thereof by wire
transfer of immediately available funds by 12:00 noon, New York City time, to
the account of the Administrative Agent most recently designated by it for such
purpose by notice to the Lenders. The Administrative Agent will make such Loans
available to the Borrower by promptly crediting the amounts so received, in like
funds, to an account of the Borrower maintained by the Administrative Agent and
designated by such Borrower in the applicable Borrowing Request or Competitive
Bid Request.
(b) Unless the Administrative Agent shall have received notice from a
Lender prior to the proposed date of any Borrowing that such Lender will not
make available to the Administrative Agent such Lender's share of such
Borrowing, the Administrative Agent may assume that such Lender has made such
share available on such date in accordance with paragraph (a) of this Section
and may, in reliance upon such assumption, make available to the relevant
Borrower a corresponding amount. In such event, if a Lender has not in fact
made its share of the applicable Borrowing available to the Administrative
Agent, then the applicable Lender and such Borrower severally agree to pay to
the Administrative Agent forthwith on demand such corresponding amount with
interest thereon, for each day from and including the date such amount is made
available to such Borrower to but excluding the date of payment to the
Administrative Agent, at the Federal Funds Effective Rate. If such Lender pays
such amount to the Administrative Agent, then such amount shall constitute such
Lender's Loan included in such Borrowing.
SECTION 2.06. Interest Elections. (a) Each Revolving Borrowing
-------------------
initially shall be of the Type specified in the applicable Borrowing Request
and, in the case of a Eurocurrency Revolving Borrowing, shall have an initial
Interest Period as specified in such Borrowing Request. Thereafter, the
relevant Borrower may elect to convert such Borrowing to a different Type or to
continue such Borrowing and, in the case of a Eurocurrency Revolving Borrowing,
may elect Interest Periods therefor, all as provided in this Section. A
Borrower may elect different options with respect to different portions of the
affected Borrowing, in which case each such portion shall be allocated ratably
among the Lenders holding the Loans comprising such Borrowing, and the Loans
comprising each such portion shall be considered a separate Borrowing. This
Section shall not apply to Competitive Borrowings, which may not be converted or
continued.
(b) To make an election pursuant to this Section, the Company or the
Borrowing Subsidiary (or the Company on its behalf) shall notify the
Administrative Agent of such election by telephone by the time that a Borrowing
Request would be required under Section 2.03 if such Borrower were requesting a
Revolving Borrowing of the Type resulting from such election to be made on the
effective date of such election. Each such telephonic Interest Election Request
shall be irrevocable and shall be confirmed promptly by hand delivery or
telecopy to the Administrative Agent of a written
<PAGE>
22
Interest Election Request in a form approved by the Administrative Agent and
signed by the relevant Borrower, or by the Company on its behalf.
(c) Each telephonic and written Interest Election Request shall
specify the following information in compliance with Section 2.02:
(i) the Borrowing to which such Interest Election Request applies
and, if different options are being elected with respect to different
portions thereof, the portions thereof to be allocated to each resulting
Borrowing (in which case the information to be specified pursuant to
clauses (iii) and (iv) below shall be specified for each resulting
Borrowing);
(ii) the aggregate principal amount of the requested Borrowing;
(iii) the effective date of the election made pursuant to such
Interest Election Request, which shall be a Business Day;
(iv) whether the resulting Borrowing is to be an ABR Borrowing or a
Eurocurrency Borrowing; and
(v) if the resulting Borrowing is a Eurocurrency Borrowing, the
Interest Period to be applicable thereto after giving effect to such
election, which shall be a period contemplated by the definition of the
term "Interest Period".
If any such Interest Election Request requests a Eurocurrency Borrowing but does
not specify an Interest Period, then the relevant Borrower shall be deemed to
have selected an Interest Period of one month's duration.
(d) Promptly following receipt of an Interest Election Request, the
Administrative Agent shall advise each Lender of the details thereof and of such
Lender's portion of each resulting Borrowing.
(e) If the relevant Borrower fails to deliver a timely Interest
Election Request with respect to a Eurocurrency Revolving Borrowing prior to the
end of the Interest Period applicable thereto, then, unless such Borrowing is
repaid as provided herein, at the end of such Interest Period such Borrowing
shall be converted to an ABR Borrowing. Notwithstanding any contrary provision
hereof, if an Event of Default has occurred and is continuing and the
Administrative Agent, at the request of the Required Lenders, so notifies the
Company, then, so long as an Event of Default is continuing (i) no outstanding
Revolving Borrowing may be converted to or continued as a Eurocurrency Borrowing
and (ii) unless repaid, each Eurocurrency Revolving Borrowing shall be converted
to an ABR Borrowing at the end of the Interest Period applicable thereto.
<PAGE>
23
SECTION 2.07. Termination and Reduction of Commitments. (a) Unless
-----------------------------------------
previously terminated, the Commitments shall terminate on the Termination Date.
(b) The Company may at any time terminate, or from time to time
reduce, the Commitments; provided that (i) each reduction of the Commitments
--------
shall be in an amount that is an integral multiple of $10,000,000 and (ii) the
Company shall not terminate or reduce the Commitments if, after giving effect to
any concurrent prepayment of the Loans in accordance with Section 2.09, the sum
of the Revolving Credit Exposures plus the aggregate principal amount of
outstanding Competitive Loans would exceed the total Commitments.
(c) The Company shall notify the Administrative Agent of any election
to terminate or reduce the Commitments under paragraph (b) of this Section at
least one Business Day prior to the effective date of such termination or
reduction, specifying such election and the effective date thereof. Promptly
following receipt of any notice, the Administrative Agent shall advise the
Lenders of the contents thereof. Each notice delivered by the Company pursuant
to this Section shall be irrevocable; provided that a notice of termination of
--------
the Commitments delivered by the Company may state that such notice is
conditioned upon the effectiveness of other credit facilities, in which case
such notice may be revoked by the Company (by notice to the Administrative Agent
on or prior to the specified effective date) if such condition is not satisfied.
Any termination or reduction of the Commitments shall be permanent. Each
reduction of the Commitments shall be made ratably among the Lenders in
accordance with their respective Commitments.
SECTION 2.08. Repayment of Loans; Evidence of Debt. (a) Each
-------------------------------------
Borrower hereby unconditionally promises to pay (i) to the Administrative Agent
for the account of each Lender the then unpaid principal amount of each
Revolving Loan on the Maturity Date and (ii) to the Administrative Agent for the
account of each Lender the then unpaid principal amount of each Competitive Loan
on the last day of the Interest Period applicable to such Loan.
(b) Each Lender shall maintain in accordance with its usual practice
an account or accounts evidencing the indebtedness of each Borrower to such
Lender resulting from each Loan made by such Lender, including the amounts of
principal and interest payable and paid to such Lender from time to time
hereunder.
(c) The Administrative Agent shall maintain accounts in which it
shall record (i) the amount of each Loan made hereunder, the Class and Type
thereof and the Interest Period applicable thereto, (ii) the amount of any
principal or interest due and payable or to become due and payable from each
Borrower to each Lender hereunder and (iii) the amount of any sum received by
the Administrative Agent hereunder for the account of the Lenders and each
Lender's share thereof.
<PAGE>
24
(d) The entries made in the accounts maintained pursuant to paragraph
(b) or (c) of this Section shall, absent manifest error, be prima facie evidence
----- -----
of the existence and amounts of the obligations recorded therein; provided that
--------
the failure of any Lender or the Administrative Agent to maintain such accounts
or any error therein shall not in any manner affect the obligation of any
Borrower to repay the Loans in accordance with the terms of this Agreement.
(e) Any Lender may request that Loans made by it be evidenced by a
promissory note. In such event, each Borrower shall prepare, execute and
deliver to such Lender a promissory note payable to the order of such Lender
(or, if requested by such Lender, to such Lender and its registered assigns) and
in a form approved by the Administrative Agent. Thereafter, the Loans evidenced
by such promissory note and interest thereon shall at all times (including after
assignment pursuant to Section 10.04) be represented by one or more promissory
notes in such form payable to the order of the payee named therein (or, if such
promissory note is a registered note, to such payee and its registered assigns).
SECTION 2.09. Prepayment of Loans. (a) Any Borrower shall have the
--------------------
right at any time and from time to time to prepay any Borrowing of such Borrower
in whole or in part, subject to prior notice in accordance with paragraph (c) of
this Section; provided that a Borrower shall not have the right to prepay any
--------
Competitive Loan without the prior consent of the Lender thereof.
(b) In the event and on each occasion that the sum of the aggregate
Revolving Credit Exposures and the aggregate outstanding principal amount of the
Competitive Loans exceeds 105% of the total Revolving Commitments, the Borrowers
shall promptly prepay Revolving Borrowings in an aggregate amount equal to such
excess. The Administrative Agent shall promptly notify the Company in the event
it determines that any prepayment is required under this paragraph.
(c) The Company shall notify the Administrative Agent by telephone
(confirmed by telecopy) of any prepayment hereunder not later than 11:00 a.m.,
New York City time, one Business Day before the date of prepayment. Each such
notice shall be irrevocable and shall specify the prepayment date and the
principal amount of each Borrowing or portion thereof to be prepaid; provided
--------
that, if a notice of prepayment is given in connection with a conditional notice
of termination of the Commitments as contemplated by Section 2.07, then such
notice of prepayment may be revoked if such notice of termination is revoked in
accordance with Section 2.07. Promptly following receipt of any such notice
relating to a Revolving Borrowing, the Administrative Agent shall advise the
Lenders of the contents thereof. Each partial prepayment of any Revolving
Borrowing shall be in an amount that would be permitted in the case of an
advance of a Revolving Borrowing of the same Type as provided in Section 2.02.
Each
<PAGE>
25
prepayment of a Revolving Borrowing shall be applied ratably to the Loans
included in the prepaid Borrowing. Prepayments shall be accompanied by accrued
interest to the extent required by Section 2.11.
SECTION 2.10. Fees. (a) The Company agrees to pay to the
-----
Administrative Agent for the account of each Lender a facility fee, which shall
accrue at the rate of .10% per annum on the daily amount of the Commitment of
such Lender (whether used or unused) during the period from and including the
date hereof to but excluding the date on which such Commitment terminates;
provided that, if such Lender continues to have any Revolving Credit Exposure
- --------
after its Commitment terminates, then such facility fee shall continue to accrue
on the daily amount of such Lender's Revolving Credit Exposure from and
including the date on which its Commitment terminates to but excluding the date
on which such Lender ceases to have any Revolving Credit Exposure. Accrued
facility fees shall be payable in arrears on the last day of March, June,
September and December of each year and on the date on which the Commitments
terminate, commencing on the first such date to occur after the date hereof;
provided that any facility fees accruing after the date on which the Commitments
- --------
terminate shall be payable on demand. All facility fees shall be computed on
the basis of a year of 365 days (or 366 days in the case of a leap year) and
shall be payable for the actual number of days elapsed (including the first day
but excluding the last day).
(b) For any day on which the sum of the total Revolving Credit
Exposure plus the aggregate principal amount of the outstanding Competitive
Loans shall be greater than 33-1/3% of the total Commitments, and for each day
after the Commitments shall have terminated, the Borrower shall pay to the
Administrative Agent for the account of each Lender a utilization fee which
shall accrue at the rate of .125% per annum on the aggregate amount of such
Lender's outstanding Loans on such day. The accrued utilization fees, if any,
shall be payable in arrears on the last day of each March, June, September and
December and on the date on which the Commitments shall have terminated and no
Loans shall be outstanding. All utilization fees shall be computed on the basis
of a year of 365 days (or 366 days in the case of a leap year) and shall be
payable for the actual number of days elapsed (including the first day but
excluding the last day).
(c) The Company agrees to pay to the Administrative Agent, for its
own account, fees payable in the amounts and at the times separately agreed upon
between the Company and the Administrative Agent.
(d) All fees payable hereunder shall be paid on the dates due, in
immediately available funds, to the Administrative Agent for distribution, in
the case of facility fees and utilization fees, to the Lenders. Fees paid shall
not be refundable absent manifest error in payment or computation.
<PAGE>
26
SECTION 2.11. Interest. (a) The Loans comprising each ABR Borrowing
---------
shall bear interest at the Alternate Base Rate.
(b) The Loans comprising each Eurocurrency Borrowing shall bear
interest (i) in the case of a Eurocurrency Revolving Loan, at the Adjusted LIBO
Rate for the Interest Period in effect for such Borrowing plus .525% per annum,
or (ii) in the case of a Eurocurrency Competitive Loan, at the LIBO Rate for the
Interest Period in effect for such Borrowing plus (or minus, as applicable) the
Margin applicable to such Loan.
(c) Each Fixed Rate Loan shall bear interest at the Fixed Rate
applicable to such Loan.
(d) Notwithstanding the foregoing, if any principal of or interest on
any Loan or any fee or other amount payable by any Borrower hereunder is not
paid when due, whether at stated maturity, upon acceleration or otherwise, such
overdue amount shall bear interest, after as well as before judgment, at a rate
per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the
rate otherwise applicable to such Loan as provided in the preceding paragraphs
of this Section or (ii) in the case of any other amount, 2% plus the rate
applicable to ABR Loans as provided in paragraph (a) of this Section.
(e) Accrued interest on each Loan shall be payable in arrears on each
Interest Payment Date for such Loan and, in the case of Revolving Loans, upon
termination of the Commitments; provided that (i) interest accrued pursuant to
--------
paragraph (d) of this Section shall be payable on demand, (ii) in the event of
any repayment or prepayment of any Loan (other than a prepayment of an ABR
Revolving Loan prior to the end of the Availability Period), accrued interest on
the principal amount repaid or prepaid shall be payable on the date of such
repayment or prepayment and (iii) in the event of any conversion of any
Eurocurrency Revolving Loan prior to the end of the current Interest Period
therefor, accrued interest on such Loan shall be payable on the effective date
of such conversion.
(f) All interest hereunder shall be computed on the basis of a year
of 360 days, except that interest computed by reference to the Alternate Base
Rate at times when the Alternate Base Rate is based on the Prime Rate shall be
computed on the basis of a year of 365 days (or 366 days in a leap year), and in
each case shall be payable for the actual number of days elapsed (including the
first day but excluding the last day). The applicable Alternate Base Rate,
Adjusted LIBO Rate or LIBO Rate shall be determined by the Administrative Agent,
and such determination shall be conclusive absent manifest error.
SECTION 2.12. Alternate Rate of Interest. If prior to the
---------------------------
commencement of any Interest Period for a Eurocurrency Borrowing:
<PAGE>
27
(a) the Administrative Agent determines (which determination shall be
conclusive absent manifest error) that adequate and reasonable means do not
exist for ascertaining the Adjusted LIBO Rate or the LIBO Rate, as
applicable, for such Interest Period; or
(b) the Administrative Agent is advised by the Required Lenders (or,
in the case of a Eurocurrency Competitive Loan, the Lender that is required
to make such Loan) that the Adjusted LIBO Rate or the LIBO Rate, as
applicable, for such Interest Period will not adequately and fairly reflect
the cost to such Lenders (or Lender) of making or maintaining their Loans
(or its Loan) included in such Borrowing for such Interest Period;
then the Administrative Agent shall give notice thereof to the Company and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Administrative Agent notifies the Company and the Lenders that the
circumstances giving rise to such notice no longer exist, (i) any Interest
Election Request that requests the conversion of any Revolving Borrowing to, or
continuation of any Revolving Borrowing as, a Eurocurrency Borrowing shall be
ineffective, (ii) any Borrowing Request for a Eurocurrency Revolving Borrowing
shall be deemed a request for an ABR Borrowing and (iii) any request by a
Borrower for a Eurocurrency Competitive Borrowing shall be ineffective; provided
--------
that if the circumstances giving rise to such notice do not affect all the
Lenders, then requests by a Borrower for Eurocurrency Competitive Borrowings may
be made to Lenders that are not affected thereby.
SECTION 2.13. Increased Costs. (a) If any Change in Law shall:
----------------
(i) impose, modify or deem applicable any reserve, special deposit or
similar requirement against assets of, deposits with or for the account of,
or credit extended by, any Lender (except any such reserve requirement
reflected in the Adjusted LIBO Rate); or
(ii) impose on any Lender or the London interbank market any other
condition affecting this Agreement or Eurocurrency Loans or Fixed Rate
Loans made by such Lender;
and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurocurrency Loan or Fixed Rate Loan (or of
maintaining its obligation to make any such Loan) or to reduce the amount of any
sum received or receivable by such Lender hereunder (whether of principal,
interest or otherwise), then the Company will pay to such Lender such additional
amount or amounts as will compensate such Lender for such additional costs
incurred or reduction suffered.
<PAGE>
28
(b) If any Lender determines that any Change in Law regarding capital
requirements has or would have the effect of reducing the rate of return on such
Lender's capital or on the capital of such Lender's holding company, if any, as
a consequence of this Agreement or the Loans made by, such Lender, to a level
below that which such Lender or such Lender's holding company could have
achieved but for such Change in Law (taking into consideration such Lender's
policies and the policies of such Lender's holding company with respect to
capital adequacy), then from time to time the Company will pay to such Lender,
such additional amount or amounts as will compensate such Lender or such
Lender's holding company for any such reduction suffered.
(c) A certificate of a Lender setting forth the amount or amounts
necessary to compensate such Lender or its holding company, as the case may be,
as specified in paragraph (a) or (b) of this Section shall be delivered to the
Company and shall be conclusive absent manifest error. The Company shall pay
such Lender, as the case may be, the amount shown as due on any such certificate
within 15 days after receipt thereof.
(d) Failure or delay on the part of any Lender to demand compensation
pursuant to this Section shall not constitute a waiver of such Lender's right to
demand such compensation; provided that the Company shall not be required to
--------
compensate a Lender pursuant to this Section for any increased costs or
reductions incurred more than 45 days prior to the date that such Lender
notifies the Company of the Change in Law giving rise to such increased costs or
reductions and of such Lender's intention to claim compensation therefor;
provided further that, if the Change in Law giving rise to such increased costs
- -------- -------
or reductions is retroactive, then the 45-day period referred to above shall be
extended to include the period of retroactive effect thereof.
(e) Notwithstanding the foregoing provisions of this Section, a
Lender shall not be entitled to compensation pursuant to this Section in respect
of any Competitive Loan if the Change in Law that would otherwise entitle it to
such compensation shall have been publicly announced prior to submission of the
Competitive Bid pursuant to which such Loan was made.
SECTION 2.14. Break Funding Payments. In the event of (a) the
-----------------------
payment of any principal of any Eurocurrency Loan or Fixed Rate Loan other than
on the last day of an Interest Period applicable thereto (including as a result
of an Event of Default), (b) the conversion of any Eurocurrency Loan other than
on the last day of the Interest Period applicable thereto, (c) the failure to
borrow, convert, continue or prepay any Revolving Loan on the date specified in
any notice delivered pursuant hereto, (d) the failure to borrow any Competitive
Loan after accepting the Competitive Bid to make such Loan, or (e) the
assignment of any Eurocurrency Loan or Fixed Rate Loan other than on the last
day of the Interest Period applicable thereto as a result of a request by the
Company pursuant to Section 2.17, then, in any such event, the Company shall
compensate each Lender for the loss, cost and expense attributable to such
event. In the case of a
<PAGE>
29
Eurocurrency Loan, such loss, cost or expense to any Lender shall be deemed to
include an amount determined by such Lender to be the excess, if any, of (i) the
amount of interest which would have accrued on the principal amount of such Loan
had such event not occurred, at the Adjusted LIBO Rate that would have been
applicable to such Loan, for the period from the date of such event to the last
day of the then current Interest Period therefor (or, in the case of a failure
to borrow, convert or continue, for the period that would have been the Interest
Period for such Loan), over (ii) the amount of interest which would accrue on
such principal amount for such period at the interest rate which such Lender
would bid were it to bid, at the commencement of such period, for dollar
deposits of a comparable amount and period from other banks in the eurocurrency
market. A certificate of any Lender setting forth any amount or amounts that
such Lender is entitled to receive pursuant to this Section shall be delivered
to the Company and shall be conclusive absent manifest error. The Company shall
pay such Lender the amount shown as due on any such certificate within 15 days
after receipt thereof.
SECTION 2.15. Taxes. (a) Each payment by a Borrower to or for the
------
account of a Lender hereunder or under any Loan Document shall be made without
deduction for any Taxes or Other Taxes; provided that, if a Borrower shall be
required by law to deduct any Taxes or Other Taxes from such payment, (i) the
sum payable shall be increased as necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section) such Lender receives an amount equal to the sum it would have
received had no such deduction been made, (ii) such Borrower shall make such
deduction, (iii) such Borrower shall pay the full amount deducted to the
relevant taxation authority or other authority in accordance with applicable law
and (iv) such Borrower shall promptly furnish to the Administrative Agent, at
its address specified in or pursuant to Section 10.01, the original or a
certified copy of a receipt evidencing payment thereof or other reasonably
satisfactory evidence thereof.
(b) The relevant Borrower shall indemnify each Lender for the full
amount of any Taxes or Other Taxes (including, without limitation, any Taxes or
Other Taxes imposed or asserted (whether or not correctly) by any jurisdiction
on amounts payable under this Section) paid by such Lender with respect to
amounts paid by such Borrower pursuant to this Agreement or any Loan Document,
and any liability (including penalties, interest and expenses) arising therefrom
or with respect thereto. This indemnification shall be paid within 15 days after
the later of the date such Lender makes demand therefor and the date such
payment is made.
(c) Each Lender organized under the laws of a jurisdiction outside
the United States, before it signs and delivers this Agreement in the case of
each Lender listed on the signature pages hereof and before it becomes a Lender
in the case of each other Lender, and from time to time thereafter if requested
in writing by the Company (but only so long as such Lender remains lawfully able
to do so), shall provide the
<PAGE>
30
Company and the Administrative Agent with Internal Revenue Service form W-8BEN
or W-8ECI in duplicate, as appropriate, or any successor form prescribed by the
Internal Revenue Service, certifying that such Lender is entitled to benefits
under an income tax treaty to which the United States is a party which exempts
such Lender from United States withholding tax or reduces the rate of
withholding tax on payments of interest for the account of such Lender or
certifying that the income receivable by it pursuant to this Agreement is
effectively connected with the conduct of a trade or business in the United
States.
(d) For any period with respect to which a Lender has failed to
provide the Company or the Administrative Agent with the appropriate form as
required by paragraph (c) above (unless such failure is due to a change in
treaty, law or regulation occurring after the date on which such form originally
was required to be provided or results from the Company's failure to make a
timely written request pursuant to paragraph (c) above), such Lender shall not
be entitled to indemnification under paragraphs (a) or (b) above with respect to
Taxes imposed by the United States; provided that if a Lender, which is
--------
otherwise exempt from or subject to a reduced rate of withholding tax, becomes
subject to Taxes because of its failure to deliver a form required hereunder,
the Borrowers shall take such steps as such Lender shall reasonably request to
assist such Lender to recover such Taxes.
SECTION 2.16. Payments Generally; Pro Rata Treatment; Sharing of Set-
------------------------------------------------------
offs. (a) Each Borrower shall make each payment required to be made by it
- ----
hereunder or under any other Loan Document (whether of principal, interest,
fees, or of amounts payable under Section 2.13, 2.14 or 2.15, or otherwise)
prior to 2:00 p.m., New York City time, on the date when due, in immediately
available funds, without set-off or counterclaim. All such payments shall be
made to the Administrative Agent to such account as it shall from time to time
specify at its offices at 270 Park Avenue, New York, New York, or, in any such
case, at such other address as the Administrative Agent shall from time to time
specify in a notice delivered to the Company; provided that payments pursuant to
--------
Section 2.13, Section 2.14, Section 2.15 and Section 10.03 shall be made
directly to the Persons entitled thereto. The Administrative Agent shall
distribute any such payments received by it for the account of any other Person
to the appropriate recipient promptly following receipt thereof. If any payment
hereunder shall be due on a day that is not a Business Day, the date for payment
shall be extended to the next succeeding Business Day, and, in the case of any
payment accruing interest, interest thereon shall be payable for the period of
such extension. All payments hereunder shall be made in Dollars.
(b) If at any time insufficient funds are received by and available
to the Administrative Agent to pay fully all amounts of principal, interest and
fees then due hereunder, such funds shall be applied (i) first, towards payment
of interest and fees then due hereunder, ratably among the parties entitled
thereto in accordance with the amounts of interest and fees then due to such
parties, and (ii) second, towards payment of principal
<PAGE>
31
then due hereunder, ratably among the parties entitled thereto in accordance
with the amounts of principal then due to such parties.
(c) If any Lender shall, by exercising any right of set-off or
counterclaim or otherwise, obtain payment in respect of any principal of or
interest on any of its Revolving Loans resulting in such Lender receiving
payment of a greater proportion of the aggregate amount of its Revolving Loans
and accrued interest thereon than the proportion received by any other Lender,
then the Lender receiving such greater proportion shall purchase (for cash at
face value) participations in the Revolving Loans of other Lenders to the extent
necessary so that the benefit of all such payments shall be shared by the
Lenders ratably in accordance with the aggregate amount of principal of and
accrued interest on their respective Revolving Loans; provided that (i) if any
--------
such participations are purchased and all or any portion of the payment giving
rise thereto is recovered, such participations shall be rescinded and the
purchase price restored to the extent of such recovery, without interest, and
(ii) the provisions of this paragraph shall not be construed to apply to any
payment made by any Borrower pursuant to and in accordance with the express
terms of this Agreement or any payment obtained by a Lender as consideration for
the assignment of or sale of a participation in any of its Loans to any assignee
or participant, other than to the Company or any Subsidiary or Affiliate thereof
(as to which the provisions of this paragraph shall apply). Each Borrower
consents to the foregoing and agrees, to the extent it may effectively do so
under applicable law, that any Lender acquiring a participation pursuant to the
foregoing arrangements may exercise against such Borrower rights of set-off and
counterclaim with respect to such participation as fully as if such Lender were
a direct creditor of the Borrower in the amount of such participation.
(d) Unless the Administrative Agent shall have received notice from
the Company prior to the date on which any payment is due to the Administrative
Agent for the account of the Lenders hereunder that the relevant Borrower will
not make such payment, the Administrative Agent may assume that such Borrower
has made such payment on such date in accordance herewith and may, in reliance
upon such assumption, distribute to the Lenders, the amount due. In such event,
if such Borrower has not in fact made such payment, then each of the Lenders
severally agrees to repay to the Administrative Agent forthwith on demand the
amount so distributed to such Lender with interest thereon, for each day from
and including the date such amount is distributed to it to but excluding the
date of payment to the Administrative Agent, at the greater of the Federal Funds
Effective Rate and a rate determined by the Administrative Agent in accordance
with banking industry rules on interbank compensation.
(e) If any Lender shall fail to make any payment required to be made
by it pursuant to Section 2.05(b) or 2.16(d), then the Administrative Agent may,
in its discretion (notwithstanding any contrary provision hereof), apply any
amounts thereafter received by the Administrative Agent for the account of such
Lender to satisfy such
<PAGE>
32
Lender's obligations under such Sections until all such unsatisfied obligations
are fully paid.
SECTION 2.17. Mitigation Obligations; Replacement of Lenders. (a)
-----------------------------------------------
If any Lender requests compensation under Section 2.13, or if any Borrower is
required to pay any additional amount to any Lender or any Governmental
Authority for the account of any Lender pursuant to Section 2.15, then such
Lender shall use reasonable efforts to designate a different lending office for
funding or booking its Loans hereunder or to assign its rights and obligations
hereunder to another of its offices, branches or affiliates, if, in the judgment
of such Lender, such designation or assignment (i) would eliminate or reduce
amounts payable pursuant to Section 2.13 or 2.15, as the case may be, in the
future and (ii) would not subject such Lender to any unreimbursed cost or
expense and would not otherwise be disadvantageous to such Lender.
(b) If any Lender requests compensation under Section 2.13, or if any
Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 2.15,
or if any Lender defaults in its obligation to fund Loans hereunder, then the
Company may, at its sole expense and effort, upon notice to such Lender and the
Administrative Agent, require such Lender to assign and delegate, without
recourse (in accordance with and subject to the restrictions contained in
Section 10.04), all its interests, rights and obligations under the Loan
Documents (other than any outstanding Competitive Loans held by it) to an
assignee that shall assume such obligations (which assignee may be another
Lender, if a Lender accepts such assignment); provided that (i) the Company
--------
shall have received the prior written consent of the Administrative Agent, which
consent shall not unreasonably be withheld, (ii) such Lender shall have received
payment of an amount equal to the outstanding principal of its Loans (other than
Competitive Loans), accrued interest thereon, accrued fees and all other amounts
payable to it hereunder, from the assignee (to the extent of such outstanding
principal and accrued interest and fees) or the Company (in the case of all
other amounts) and (iii) in the case of any such assignment resulting from a
claim for compensation under Section 2.13 or payments required to be made
pursuant to Section 2.15, such assignment will result in a reduction in such
compensation or payments. A Lender shall not be required to make any such
assignment and delegation if, prior thereto, as a result of a waiver by such
Lender or otherwise, the circumstances entitling the Company to require such
assignment and delegation cease to apply.
SECTION 2.18. Borrowing Subsidiaries. On or after the Effective
-----------------------
Date, the Company may designate any Subsidiary of the Company as a Borrowing
Subsidiary by delivery to the Administrative Agent of a Borrowing Subsidiary
Agreement executed by such Subsidiary and the Company, and upon such delivery
such Subsidiary shall for all purposes of this Agreement be a Borrowing
Subsidiary and a party to this Agreement until the Company shall have executed
and delivered to the Administrative Agent a Borrowing Subsidiary Termination
with respect to such Subsidiary, whereupon such Subsidiary shall cease to be a
Borrowing Subsidiary and a party to this Agreement.
<PAGE>
33
Notwithstanding the preceding sentence, no Borrowing Subsidiary Termination will
become effective as to any Borrowing Subsidiary at a time when any principal of
or interest on any Loan to such Borrowing Subsidiary shall be outstanding
hereunder, provided that such Borrowing Subsidiary Termination shall be
--------
effective to terminate such Borrowing Subsidiary's right to make further
Borrowings under this Agreement. Promptly following receipt of any Borrowing
Subsidiary Agreement, the Administrative Agent shall send a copy thereof to each
Lender.
SECTION 2.19. Foreign Subsidiary Costs. (a) If the cost to any
-------------------------
Lender of making or maintaining any Loan to a Borrowing Subsidiary is increased
(or the amount of any sum received or receivable by any Lender (or its
applicable lending office) is reduced) by an amount deemed in good faith by such
Lender to be material, by reason of the fact that such Borrowing Subsidiary is
incorporated in, or conducts business in, a jurisdiction outside the United
States, such Borrowing Subsidiary shall indemnify such Lender for such increased
cost or reduction within 15 days after demand by such Lender (with a copy to the
Administrative Agent). A certificate of such Lender claiming compensation under
this paragraph and setting forth the additional amount or amounts to be paid to
it hereunder (and the basis for the calculation of such amount or amounts) shall
be conclusive in the absence of manifest error.
(b) Each Lender will promptly notify the Company and the
Administrative Agent of any event of which it has knowledge that will entitle
such Lender to additional interest or payments pursuant to paragraph (a) above,
but in any event within 45 days after such Lender obtains actual knowledge
thereof; provided that (i) if any Lender fails to give such notice within 45
--------
days after it obtains actual knowledge of such an event, such Lender shall, with
respect to compensation payable pursuant to this Section 2.19 in respect of any
costs resulting from such event, only be entitled to payment under this Section
2.19 for costs incurred from and after the date 45 days prior to the date that
such Lender does give such notice and (ii) each Lender will designate a
different applicable lending office, if, in the judgment of such Lender, such
designation will avoid the need for, or reduce the amount of, such compensation
and will not be otherwise disadvantageous to such Lender.
ARTICLE III
Representations and Warranties
------------------------------
The Company represents and warrants to the Lenders that:
<PAGE>
34
SECTION 3.01. Organization; Powers. The Company and each Borrowing
---------------------
Subsidiary is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization, has all requisite power and
authority to carry on its business as now conducted and, except where the
failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect, is qualified to do business in,
and is in good standing in, every jurisdiction where such qualification is
required.
SECTION 3.02. Authorization; Enforceability. The Transactions are
------------------------------
within each Borrower's corporate powers and have been duly authorized by all
necessary corporate and, if required, stockholder action. This Agreement has
been duly executed and delivered by each Borrower and constitutes, and each
other Loan Document to which any Borrower is to be a party, when executed and
delivered by such Borrower, will constitute, a legal, valid and binding
obligation of such Borrower, enforceable in accordance with its terms, subject
to applicable bankruptcy, insolvency, reorganization, moratorium or other laws
affecting creditors' rights generally and subject to general principles of
equity, regardless of whether considered in a proceeding in equity or at law.
SECTION 3.03. Governmental Approvals; No Conflicts. The Transactions
-------------------------------------
require no action by or in respect of, or filing with, any governmental body,
agency or official (other than (i) Exchange Act reporting requirements and (ii)
actions which have been taken, and filings which have been made, and are in full
force and effect) and do not and will not contravene, or constitute a default
under, any provision of applicable law or regulation or of the Amended Articles
of Incorporation or Regulations (or comparable documents) of the Company or any
Borrowing Subsidiary or of any agreement for borrowed money or other material
agreement binding upon the Company or any Borrowing Subsidiary.
SECTION 3.04. Financial Condition; No Material Adverse Change. (a)
------------------------------------------------
The Company has heretofore furnished to the Lenders its consolidated balance
sheet and statements of income, stockholders equity and cash flows (i) as of and
for the fiscal year ended December 31, 1998, reported on by Ernst & Young LLP,
independent public accountants, and (ii) as of and for the fiscal quarter and
the portion of the fiscal year ended September 30, 1999. Such financial
statements present fairly, in all material respects, the financial position and
results of operations and cash flows of the Company and the consolidated
Subsidiaries as of such dates and for such periods in accordance with GAAP,
subject to year-end audit adjustments and the absence of footnotes in the case
of the statements referred to in clause (ii) above.
(b) As of the date of this Agreement, there has been no material
adverse change in the business, financial position or results of operations of
the Company and the consolidated Subsidiaries, taken as a whole, since December
31, 1998 (other than those changes relating to or arising out of, directly or
indirectly, the acquisition of LucasVarity).
<PAGE>
35
SECTION 3.05. Litigation and Environmental Matters. (a) As of the
-------------------------------------
date of this Agreement, there are no material legal proceedings, other than
ordinary routine litigation incidental to the business, to which the Company or
any of the consolidated Subsidiaries is a party or to which any of their
respective properties is subject that are required to be disclosed in the
Company's periodic reports under the Exchange Act and that have not been so
disclosed or that involve this Agreement, any other Loan Document or the
Transactions.
(b) The Company has established accruals for matters that are
probable and reasonably estimable as required by FASB Statement No. 5,
"Accounting for Contingencies." To the Company's knowledge, any liability that
may result from the resolution of known environmental matters in excess of
amounts accrued therefor will not have a Material Adverse Effect.
SECTION 3.06. Investment and Holding Company Status. Neither the
--------------------------------------
Company nor any of the Borrowing Subsidiaries is (a) an "investment company" as
defined in, or subject to regulation under, the Investment Company Act of 1940
or (b) a "holding company" as defined in, or subject to regulation under, the
Public Utility Holding Company Act of 1935.
SECTION 3.07. Taxes. As of the date of this Agreement, the Company
------
and the consolidated Subsidiaries have timely filed or caused to be filed all
material Tax returns and reports required to have been filed and has paid or
caused to be paid all Taxes required to have been paid by it, except (a) Taxes
that are being contested in good faith by appropriate proceedings and for which
the Company or such Subsidiary, as applicable, has set aside on its books
adequate reserves or (b) to the extent that the failure to do so could not
reasonably be expected to result in a Material Adverse Effect.
SECTION 3.08. ERISA. As of the date of this Agreement, no ERISA
------
Event has occurred or is reasonably expected to occur that, when taken together
with all other such ERISA Events for which liability is reasonably expected to
occur, could reasonably be expected to result in a Material Adverse Effect. As
of the date of this Agreement, each member of the controlled group of
corporations (as defined in Section 414(b) of the Code) which includes the
Company has fulfilled its obligations under the minimum funding standards of
ERISA and the Code with respect to each defined benefit plan maintained by the
Company and the consolidated Subsidiaries.
SECTION 3.09. Year 2000. As of the date of this Agreement, there has
----------
not occurred, and the Company does not expect that there will occur, any
material disruption in the operations or business systems of the Company or the
consolidated Subsidiaries, taken as a whole, resulting from the inability of
computer systems of the
<PAGE>
36
Company and the consolidated Subsidiaries or equipment containing embedded
microchips to recognize or properly process dates in or following the year 2000.
ARTICLE IV
Conditions
----------
SECTION 4.01. Effective Date. The obligations of the Lenders to make
---------------
Loans hereunder shall not become effective until the date on which each of the
following conditions is satisfied (or waived in accordance with Section 10.02):
(a) The Administrative Agent (or its counsel) shall have received
from each party hereto either (i) a counterpart of this Agreement signed on
behalf of such party or (ii) written evidence satisfactory to the
Administrative Agent (which may include telecopy transmission of a signed
signature page of this Agreement) that such party has signed a counterpart
of this Agreement.
(b) The Administrative Agent shall have received the favorable
written opinions (addressed to the Administrative Agent and the Lenders and
dated the Effective Date) of the General Counsel of the Company,
substantially in the form of Exhibit C, and covering such other matters
relating to the Borrowers, this Agreement, the other Loan Documents or the
Transactions as the Administrative Agent or the Required Lenders shall
reasonably request. The Borrowers hereby request such counsel to deliver
such opinion.
(c) The Administrative Agent shall have received such documents and
certificates as the Administrative Agent or its counsel may reasonably
request relating to the organization, existence and good standing of each
of the Borrowers, the authorization of the Transactions and any other legal
matters relating to the Borrowers, this Agreement, the other Loan Documents
or the Transactions, all in form and substance satisfactory to the
Administrative Agent and its counsel.
(d) The Administrative Agent shall have received a certificate, dated
the Effective Date and signed by the President, a Vice President or a
Financial Officer of the Company, confirming compliance with the conditions
set forth in paragraphs (a) and (b) of Section 4.02.
(e) The Administrative Agent shall have received all fees and other
amounts due and payable on or prior to the Effective Date, including, to
the extent invoiced, reimbursement or payment of all out-of-pocket expenses
required to be reimbursed or paid by the Company hereunder or under any
other Loan Document.
<PAGE>
37
(f) All loans outstanding under the Existing Credit Agreements shall
have been repaid, together with accrued interest and facility fees due
thereunder, and the Existing Credit Agreements shall have been terminated.
The Administrative Agent shall notify the Company and the Lenders of the
Effective Date, and such notice shall be conclusive and binding.
Notwithstanding the foregoing, the obligations of the Lenders to make Loans
hereunder shall not become effective unless each of the foregoing conditions is
satisfied (or waived pursuant to Section 10.02) on or prior to January 25, 2000
(and, in the event such conditions are not so satisfied or waived, the
Commitments shall terminate at such time).
SECTION 4.02. Each Credit Event. The obligation of each Lender to
------------------
make a Loan on the occasion of any Borrowing is subject to the satisfaction of
the following conditions:
(a) The representations and warranties of the Borrowers set forth in
this Agreement shall be true and correct on and as of the date of such
Borrowing (except that, in the case of the representations and warranties
set forth in Section 3.04(b), Section 3.05, Section 3.07, Section 3.08 and
Section 3.09, such representations and warranties shall be true and correct
on and as of the date of this Agreement).
(b) At the time of and immediately after giving effect to such
Borrowing, no Default shall have occurred and be continuing.
Each Borrowing shall be deemed to constitute a representation and warranty by
the Borrowers on the date thereof as to the matters specified in paragraphs (a)
and (b) of this Section.
SECTION 4.03. Initial Credit Event for each Borrowing Subsidiary.
---------------------------------------------------
The obligation of each Lender to make Loans to any Borrowing Subsidiary is
subject to the satisfaction of the following conditions:
(a) The Administrative Agent (or its counsel) shall have received
such Borrowing Subsidiary's Borrowing Subsidiary Agreement duly executed by
all parties thereto.
(b) The Administrative Agent shall have received a favorable written
opinion of counsel for such Borrowing Subsidiary reasonably satisfactory to
the Administrative Agent, substantially in the form of Exhibit D and
covering such other matters relating to such Borrowing Subsidiary or its
Borrowing Subsidiary Agreement as the Administrative Agent shall reasonably
request.
<PAGE>
38
(c) The Administrative Agent shall have received such documents and
certificates as the Administrative Agent or its counsel may reasonably
request relating to the organization, existence and good standing of such
Borrowing Subsidiary, the authorization of the Transactions insofar as they
relate to such Borrowing Subsidiary and any other legal matters relating to
such Borrowing Subsidiary, its Borrowing Subsidiary Agreement or such
Transactions, all in form and substance satisfactory to the Administrative
Agent and its counsel.
ARTICLE V
Affirmative Covenants
---------------------
Until the Commitments have expired or been terminated and the
principal of and interest on each Loan and all fees payable hereunder shall have
been paid in full, the Company covenants and agrees with the Lenders that:
SECTION 5.01. Financial Statements and Other Information. The
-------------------------------------------
Company will furnish to the Administrative Agent and each Lender:
(a) promptly upon the availability thereof and in any event within 120
days after each fiscal year, a copy of the Company's Annual Report to
Shareholders and its Annual Report on Form 10-K for the fiscal year then
ended, as filed with the Securities and Exchange Commission and which will
include an annual audit report of the Company, prepared on a consolidated
basis and in accordance with the Company's then current method of
accounting, which method must be in accordance with GAAP, duly certified by
independent certified public accountants of nationally recognized standing
selected by the Company;
(b) promptly upon the availability thereof and in any event within 60
days after each fiscal quarter (except the last fiscal quarter) of each
fiscal year, a copy of the Company's Quarterly Report on Form 10-Q for the
fiscal quarter then ended, as filed with the Securities and Exchange
Commission;
(c) contemporaneously with the furnishing of a copy of each Annual
Report on Form 10-K provided for in paragraph (a) and of each Quarterly
Report on Form 10-Q provided for in paragraph (b), a duly completed
certificate of a Financial Officer of the Company in the form of Exhibit E
(each such certificate called a "Compliance Certificate"), showing
----------------------
compliance with the covenants set forth in Sections 6.07 and 6.08, and
certifying that no Default or Event of Default has occurred and is
continuing or, if there is any such an event, describing it and the steps,
if any, being taken to cure it;
<PAGE>
39
(d) within five Business Days after any Financial Officer obtains
knowledge of any Default, if such Default is then continuing, a certificate
of a Financial Officer setting forth the details thereof and the action
which the Company is taking or proposes to take with respect thereto;
(e) promptly upon the filing thereof, copies of each Current Report on
Form 8-K filed by the Company with the SEC; and
(f) from time to time such additional information concerning the
Company as the Administrative Agent, at the request of any Lender, may
reasonably request.
Information required to be delivered pursuant to paragraph (a), (b) or (e) above
shall be deemed to have been delivered on the date on which the Company provides
notice to the Lenders that such information has been posted on the Company's
website on the internet at the website address listed on the signature pages
hereof, at sec.gov/edaux/searches.htm or at another website identified in such
notice and accessible by the Lenders without charge; provided that (i) such
--------
notice may be included in a certificate delivered pursuant to paragraph (c)
above and (ii) the Company shall deliver paper copies of the information
referred to in paragraph (e) above to any Lender which requests such delivery.
SECTION 5.02. Existence; Conduct of Business. The Company will, and
-------------------------------
will cause each of the Borrowing Subsidiaries to, do or cause to be done all
things necessary to preserve, renew and keep in full force and effect its legal
existence and the rights, licenses, permits, privileges and franchises material
to the conduct of its business; provided that the foregoing shall not prohibit
--------
any merger, consolidation, liquidation or dissolution permitted under Section
6.04.
SECTION 5.03. Use of Proceeds. The Borrowers will use the proceeds
----------------
of the Loans only for general corporate purposes, including commercial paper
backup and the financing of acquisitions. No part of the proceeds of any Loan
will be used, whether directly or indirectly, for any purpose that entails a
violation of any of the Regulations of the Board, including Regulations U and X.
ARTICLE VI
Negative Covenants
------------------
<PAGE>
40
Until the Commitments have expired or terminated and the principal of
and interest on each Loan and all fees payable hereunder have been paid in full,
the Company covenants and agrees with the Lenders that:
SECTION 6.01. Indebtedness of Subsidiaries. The Company will not
-----------------------------
permit the sum of (a) the aggregate outstanding principal amount of Indebtedness
of Subsidiaries (other than Permitted Subsidiary Indebtedness) and (b) Specified
Company Indebtedness at any time to exceed 15% of Consolidated Net Assets.
SECTION 6.02. Mortgages. The Company will not, and will not permit
----------
any Domestic Subsidiary to, directly or indirectly, create or assume any
mortgage, encumbrance, lien, pledge, charge, or security interest of any kind
(collectively and individually, a "Mortgage") upon or in any of its interests in
any Principal Property or upon or in any shares of capital stock or Indebtedness
of any Domestic Subsidiary, whether such interest, capital stock or Indebtedness
is now owned or hereafter acquired, if such mortgage secures or is intended to
secure, directly or indirectly, the payment of any Indebtedness; excluding,
however, from the operation of this Section 6.02:
(a) Mortgages on any Principal Property acquired, constructed, or
improved by the Company or any Domestic Subsidiary after January 1, 2000,
which are created or assumed contemporaneously with, or within 120 days
after, such acquisition or completion of such construction or improvement
to secure or provide for the payment of any part of the purchase price of
such Principal Property or the cost of such construction or improvement
incurred after January 1, 2000, or, in addition to Mortgages contemplated
by clauses (b) and (c) below, Mortgages on any such Principal Property
existing at the time or placed thereon at the time of acquisition or
leasing thereof by the Company or any Domestic Subsidiary, or conditional
sales agreements or other title retention agreements with respect to any
Principal Property now owned or leased or hereafter acquired or leased by
the Company or a Domestic Subsidiary;
(b) Mortgages on property (including shares of capital stock or
Indebtedness of a corporation) of a corporation existing at the time such
corporation becomes a Domestic Subsidiary or is merged or consolidated with
the Company or a Domestic Subsidiary or existing at the time of a sale,
lease, or other disposition of the properties of such corporation (or a
division thereof) or other Person as an entirety or substantially as an
entirety (which includes the sale, lease, or other disposition of all or
substantially all the assets thereof) to the Company or a Domestic
Subsidiary, provided that no such Mortgage shall extend to any other
Principal Property of the Company or any Domestic Subsidiary or to any
shares of capital stock or any Indebtedness of any Domestic Subsidiary;
<PAGE>
41
(c) Mortgages created by the Company or a Domestic Subsidiary to
secure Indebtedness of the Company or a Domestic Subsidiary to the Company
or to a wholly owned Subsidiary;
(d) Mortgages in favor of the United States of America or any State,
territory or possession thereof, or any foreign country or any department,
agency, instrumentality, or political subdivision of any of such domestic
or foreign jurisdictions to secure partial, progress, advance or other
payments pursuant to any contract or statute or to secure any Indebtedness
incurred for the purpose of financing all or any part of the purchase price
of, or the cost of constructing, the property subject to such Mortgages;
(e) Mortgages for the sole purpose of extending, renewing, or
replacing (or successively extending, renewing, or replacing) in whole or
in part any mortgage existing on January 1, 2000, or referred to in the
foregoing clauses (a) to (d) inclusive or of any Indebtedness secured
thereby; provided, however, that the principal amount of Indebtedness
-------- -------
secured thereby shall not exceed the principal amount of Indebtedness so
secured at the time of such extension, renewal, or replacement and that
such extension, renewal, or replacement Mortgage shall be limited to all or
a part of the property which secured the Mortgage so extended, renewed, or
replaced (plus improvements on such property);
(f) Mortgages on Margin Stock, if and to the extent that the value of
such Margin Stock exceeds 25% of the total assets of the Company and its
Subsidiaries subject to this Section;
(g) Mortgages under which effective provision is made for all Loans to
be secured equally and ratably with any other Indebtedness secured,
directly or indirectly, thereby; and
(h) Mortgages (other than Mortgages permitted by any of the foregoing
clauses) if, at the time of creation or assumption thereof and after giving
effect thereto, the aggregate principal amount of (i) the Indebtedness
secured by such Mortgages and (ii) the Attributable Indebtedness related to
Sale and Leaseback Transactions permitted under clause (b) of Section 6.03
does not exceed 5% of Consolidated Net Assets, determined as of a date not
more than 95 days prior to such creation or assumption.
SECTION 6.03. Sale and Lease-Back Transactions. (a) The Company will
--------------------------------
not, and will not permit any Domestic Subsidiary to, sell, lease or transfer any
Principal Property owned by the Company or a Domestic Subsidiary as an entirety,
or any substantial portion thereof, to anyone other than a Wholly Owned Domestic
Subsidiary (or the Company or a Wholly Owned Domestic Subsidiary in the case of
a Domestic
<PAGE>
42
Subsidiary) with the intention of taking back a lease of such property (herein
referred to as a "Sale and Leaseback Transaction") except a lease for a period
------------------------------
of not more than 36 months by the end of which it is intended that the use of
such property by the lessee will be discontinued; provided, that notwithstanding
--------
the foregoing, the Company or any Domestic Subsidiary may sell any such property
and lease it back if the net proceeds of such sale are at least equal to the
fair value (as determined by resolution adopted by the Board of Directors of the
Company) of such property, and (i) the Company or such Domestic Subsidiary would
be entitled pursuant to paragraphs (a)-(g) of Section 6.03 to create
Indebtedness secured by a Mortgage on the property to be leased in an amount
equal to the Attributable Debt with respect to such Sale and Leaseback
Transaction without equally and ratably securing all the Loans, or (ii) if such
sale or transfer does not come within the exception provided by the preceding
clause (i), the net proceeds of such sale shall, and in any such case the
Company covenants that they will, within 120 days after such sale, be applied
(to the greatest extent possible) either to the repayment of the Loans then
outstanding when due (whereupon the Commitments shall be reduced, on a pro rata
basis, to the extent that such net proceeds are so applied) or to the retirement
of Consolidated Funded Debt of the Company ranking at least on a parity with the
Loans, or in part to one or more of such alternatives and in part to another.
(b) Notwithstanding the provisions of paragraph (a) above, the Company
and/or any Domestic Subsidiary may enter into Sale and Leaseback Transactions
if, at the time of such entering into, and after giving effect thereto, the
aggregate amount of (i) Attributable Indebtedness related to such Sale and
Leaseback Transactions and (ii) Indebtedness secured by Mortgages permitted
under clause (h) of Section 6.02 does not exceed 5% of Consolidated Net Assets,
determined as of a date not more than 95 days prior to such creation or
assumption.
SECTION 6.04. Fundamental Changes. The Company will not merge into
-------------------
or consolidate with any other Person, or permit any other Person to merge into
or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one
transaction or in a series of transactions) all or substantially all of its
assets (whether now owned or hereafter acquired), or liquidate or dissolve,
except that, if at the time thereof and immediately after giving effect thereto
no Default shall have occurred and be continuing (i) any Person may merge into
the Company in a transaction in which the Company is the surviving corporation
and (ii) the Company may merge into or consolidate with any other Person in a
transaction the primary purpose of which is to effect a reincorporation of the
Company under the laws of another state.
SECTION 6.05. ERISA. The Company will not allow an ERISA Event to
-----
occur that, when taken together with all other ERISA Events that have occurred,
could reasonably be expected to result in a Material Adverse Effect.
<PAGE>
43
SECTION 6.06. Change in Control. The Company will not permit to
-----------------
occur any Change in Control.
SECTION 6.07. Interest Coverage Ratio. The Company will not permit
-----------------------
the ratio of (a) Consolidated EBITDA to (b) Consolidated Interest Expense, in
each case for any period of four consecutive fiscal quarters ending after the
date hereof, to be less than 3.00 to 1.00.
SECTION 6.08. Minimum Consolidated Net Worth. The Company will not
------------------------------
permit Consolidated Net Worth to be less, at any date, than the sum of (i)
$1,600,000,000, (ii) 50% of Consolidated Net Income for each completed fiscal
quarter of the Company that shall have begun after December 31, 1999 (excluding
any fiscal quarter for which Consolidated Net Income is negative), and (iii) 50%
of the amount by which Consolidated Net Worth is increased after the date hereof
as a result of issuances of equity securities by the Company.
ARTICLE VII
Events of Default
-----------------
If any of the following events ("Events of Default") shall occur:
-----------------
(a) default in the payment when due of any principal of any Loan or
default in the payment when due of interest on any Loan or fees payable by
any Borrower hereunder and continuance of such failure to pay interest or
fees for five Business Days after written notice thereof to the Company
from the Administrative Agent at the request of the Lender to which such
amounts are owed;
(b) a default in the payment when due at maturity or on the date of
any required prepayment, redemption or repurchase (subject to any
applicable grace period) or by acceleration of any Material Indebtedness,
or a default in the performance or observance of any obligation or
condition with respect to any Material Indebtedness if such default results
in the acceleration of the maturity of such Material Indebtedness; provided
--------
that, if any such default shall subsequently be remedied, cured, or waived
prior to either the termination of the Commitments or the declaration that
all Loans are immediately due and payable, in each case pursuant to this
Article VII, and as a result the payment of such Material Indebtedness is
no longer due, the Event of Default existing hereunder by reason thereof
shall likewise be deemed thereupon to be remedied, cured, or waived and no
longer in existence, all without any further action by the parties hereto;
<PAGE>
44
(c) the Company or any Material Subsidiary generally fails to pay, or
admits in writing its inability to pay, debts as they become due; or the
Company or any Material Subsidiary applies for, consents to, or acquiesces
in the appointment of, a trustee, receiver, or other custodian for the
Company or any Material Subsidiary or for a substantial part of the
property thereof, or makes a general assignment for the benefit of
creditors; or, in the absence of such application, consent or acquiescence,
a trustee, or receiver, or other custodian is appointed for the Company or
any Material Subsidiary or for a substantial part of the property of the
Company or any Material Subsidiary; or any bankruptcy, reorganization, debt
arrangement, or other case or proceeding under any bankruptcy or insolvency
law, or any dissolution or liquidation proceeding is commenced in respect
of the Company or any Material Subsidiary and if such case or proceeding is
not commenced by the Company or any Material Subsidiary, it is consented to
or acquiesced in by the Company or any Material Subsidiary or remains for
90 consecutive days undismissed or unstayed; or the Company or any Material
Subsidiary takes any corporate action to authorize any of the foregoing;
(d) failure by the Company to comply with or to perform in any
material respect any provision of this Agreement (provided that in the case
--------
of the provisions of Article VI, the preceding standard shall be applied
without regard to materiality) (which failure does not constitute an Event
of Default under any of the preceding subsections of this Article VII) and,
in the case of any provision contained in Article V or in Section 6.01,
6.02, 6.03 or 6.05, continuance of such failure for 30 days after written
notice thereof to the Company from the Administrative Agent at the request
of Required Lenders;
(e) any representation or warranty made by the Company in Article III
of this Agreement or by any other Borrower in the applicable Borrowing
Subsidiary Agreement is breached or is incorrect when made (or deemed made)
in any material respect and, with respect to any representation or warranty
other than those contained in Sections 3.04(b), 3.05, 3.07, 3.08 and 3.09,
the Company shall fail to take corrective actions reasonably satisfactory
to the Required Lenders within 30 days after written notice thereof to the
Company from the Administrative Agent at the request of the Required
Lenders;
(f) any final and nonappealable judgment or order from a judicial or
administrative body (which order or judgment is fully enforceable against
the Company or a Borrowing Subsidiary, as the case may be, in courts of the
United States of America or any state thereof) for the payment of money in
excess of $100,000,000 (after adjustments to reflect reductions for credits
and set-offs asserted in good faith by the Company or such Borrowing
Subsidiary shall be rendered against the Company or a Borrowing Subsidiary,
shall not have been
<PAGE>
45
discharged or vacated and shall have been in effect, in its final and
unappealable form, for a period of 30 consecutive days;
(g) the Guarantee of the Company set forth in Article IX shall cease
at any time to be in full force and effect, or any party hereto (other than
a Lender) shall so assert in writing;
then, and in every such event (other than an event with respect to any Borrower
described in clause (c) of this Article), and at any time thereafter during the
continuance of such event, the Administrative Agent, at the request of the
Required Lenders, shall, by notice to the Company, take either or both of the
following actions, at the same or different times: (i) terminate the
Commitments, and thereupon the Commitments shall terminate immediately, and (ii)
declare the Loans then outstanding to be due and payable in whole (or in part,
in which case any principal not so declared to be due and payable may thereafter
be declared to be due and payable), and thereupon the principal of the Loans so
declared to be due and payable, together with accrued interest thereon and all
fees and other obligations of the Borrowers accrued hereunder, shall become due
and payable immediately, without presentment, demand, protest or other notice of
any kind, all of which are hereby waived by each Borrower; and in case of any
event with respect to any Borrower described in clause (c) of this Article, the
Commitments shall automatically terminate and the principal of the Loans then
outstanding, together with accrued interest thereon and all fees and other
obligations of the Borrowers accrued hereunder, shall automatically become due
and payable, without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by each Borrower.
The Administrative Agent shall give notice to the Company (i) under
paragraph (a) above promptly upon being requested to do so by the relevant
Lender and (ii) under paragraphs (d) and (e) above promptly upon being requested
to do so by the Required Lenders and, in each case, after having done so, shall
notify all the Lenders thereof.
ARTICLE VIII
The Administrative Agent
------------------------
In order to expedite the transactions contemplated by this Agreement,
Chase is hereby appointed to act as Administrative Agent on behalf of the
Lenders. Each of the Lenders and each assignee of any such Lender hereby
irrevocably authorizes the Administrative Agent to take such actions on behalf
of such Lender or assignee and to exercise such powers as are delegated to the
Administrative Agent by the terms of the Loan Documents, together with such
actions and powers as are reasonably incidental thereto.
<PAGE>
46
With respect to the Loans made by it hereunder, the Administrative
Agent in its individual capacity and not as Administrative Agent shall have the
same rights and powers as any other Lender and may exercise the same as though
it were not the Administrative Agent, and the Administrative Agent and its
Affiliates in their respective individual capacities may accept deposits from,
lend money to and generally engage in any kind of business with the Company or
any Subsidiary or other Affiliate thereof as if it were not the Administrative
Agent.
The Administrative Agent shall not have any duties or obligations
except those expressly set forth in the Loan Documents. Without limiting the
generality of the foregoing, (a) the Administrative Agent shall not be subject
to any fiduciary or other implied duties, regardless of whether a Default has
occurred and is continuing, (b) the Administrative Agent shall not have any duty
to take any discretionary action or exercise any discretionary powers, except
discretionary rights and powers expressly contemplated by the Loan Documents
that the Administrative Agent is required to exercise in writing by the Required
Lenders (or such other number or percentage of the Lenders as shall be necessary
under the circumstances as provided in Section 10.02), and (c) except as
expressly set forth in the Loan Documents, the Administrative Agent shall not
have any duty to disclose, and the Administrative Agent shall not be liable for
the failure to disclose, any information relating to the Company or any of its
Subsidiaries that is communicated to or obtained by the institution serving as
Administrative Agent or any of its Affiliates in any capacity. The
Administrative Agent shall not be liable for any action taken or not taken by it
with the consent or at the request of the Required Lenders (or such other number
or percentage of the Lenders as shall be necessary under the circumstances as
provided in Section 10.02) or in the absence of its own culpable negligence, bad
faith or wilful misconduct. The Administrative Agent shall not be deemed to
have knowledge of any Default other than a Default of the types specified in
clause (a) and (b) of Article VII unless and until written notice thereof is
given to the Administrative Agent by a Borrower or a Lender, and the
Administrative Agent shall not be responsible for or have any duty to ascertain
or inquire into (i) any statement, warranty or representation made in or in
connection with the Loan Documents, (ii) the contents of any certificate, report
or other document delivered hereunder or in connection herewith, (iii) the
performance or observance of any of the covenants, agreements or other terms or
conditions set forth herein or therein, (iv) the validity, enforceability,
effectiveness or genuineness of the Loan Documents or any other agreement,
instrument or document, or (v) the satisfaction of any condition set forth in
Article IV or elsewhere herein or elsewhere in any Loan Document, other than to
confirm receipt of items expressly required to be delivered to the
Administrative Agent.
The Administrative Agent shall be entitled to rely upon, and shall not
incur any liability for relying upon, any notice, request, certificate, consent,
statement, instrument, document or other writing believed by it in good faith to
be genuine and to
<PAGE>
47
have been signed or sent by the proper Person. The Administrative Agent also may
rely upon any statement made to it orally or by telephone and believed by it in
good faith to be made by the proper Person, and shall not incur any liability
for relying thereon. The Administrative Agent may consult with legal counsel
(who may be counsel for any Borrower), independent accountants and other experts
selected by it, and shall not be liable for any action taken or not taken by it
in accordance with the advice of any such counsel, accountants or experts.
The Administrative Agent may perform any and all its duties and
exercise its rights and powers by or through any one or more sub-agents
appointed by the Administrative Agent. The Administrative Agent and any such
sub-agent may perform any and all its duties and exercise its rights and powers
through their respective Related Parties. The exculpatory provisions of the
preceding paragraphs shall apply to any such sub-agent and to the Related
Parties of the Administrative Agent and any such sub-agent, and shall apply to
their respective activities in connection with the syndication of the credit
facilities provided for herein as well as activities as Administrative Agent.
Subject to the appointment and acceptance of a successor
Administrative Agent as provided in this paragraph, the Administrative Agent may
resign at any time by notifying the Lenders and the Company. Upon any such
resignation, the Required Lenders shall have the right, in consultation with the
Company, to appoint a successor. If no successor shall have been so appointed
by the Required Lenders and shall have accepted such appointment within 30 days
after the retiring Administrative Agent gives notice of its resignation, then
the retiring Administrative Agent may, on behalf of the Lenders, appoint a
successor Administrative Agent which shall be a bank with an office in New York,
New York, or an Affiliate of any such bank. Upon the acceptance of its
appointment as Administrative Agent hereunder by a successor, such successor
shall succeed to and become vested with all the rights, powers, privileges and
duties of the retiring Administrative Agent, and the retiring Administrative
Agent shall be discharged from its duties and obligations hereunder. The fees
payable by the Company to a successor Administrative Agent shall be the same as
those payable to its predecessor unless otherwise agreed between the Company and
such successor. After the Administrative Agent's resignation hereunder, the
provisions of this Article and Section 10.03 shall continue in effect for the
benefit of such retiring Administrative Agent, its sub-agents and their
respective Related Parties in respect of any actions taken or omitted to be
taken by any of them while it was acting as Administrative Agent.
Each Lender acknowledges that it has, independently and without
reliance upon the Administrative Agent or any other Lender and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall from time to time deem appropriate, continue to
<PAGE>
48
make its own decisions in taking or not taking action under or based upon this
Agreement or any other Loan Document or any related agreement or any document
furnished hereunder or thereunder.
None of the Syndication Agent or the Co-Documentation Agents, in their
capacities as such, shall have any duties or obligations of any kind under this
Agreement.
ARTICLE IX
Guarantee
---------
The Company hereby unconditionally, absolutely and irrevocably
guarantees, as primary obligor and not merely as surety, the repayment to each
Lender, when due pursuant to the terms and conditions of this Agreement, of the
amount of any Loan made pursuant to this Agreement to a Borrowing Subsidiary,
together with accrued interest on such Loan, at the place and in the currency
and manner specified in this Agreement; provided, however, that before any
-------- -------
amount shall be deemed due and payable pursuant to this Guarantee, the
Administrative Agent must first give notice to the Company of the nonpayment
thereof by the Borrowing Subsidiary at the request of the relevant Lender, and
the Company shall have five Business Days from the receipt of such notice to
cure or cause to be cured any and all such nonpayments. The Company's
obligations hereunder constitute a guaranty of payment and not of collection
merely. The Company hereby waives notice of, and consents to, any extensions of
time of payment, renewals, compromises, settlements, releases or other
indulgences from time to time granted by the Lenders in respect of Loans made to
Borrowing Subsidiaries. Except as otherwise provided in this Article IX, the
Company hereby waives presentment, protest, demand of payment, notice of
dishonor and all notices and demands whatsoever. The obligations of the Company
hereunder shall not be released, discharged or otherwise affected by (i) any
change in the corporate existence or constitution, structure or ownership of any
Borrowing Subsidiary or the Company, (ii) any insolvency, bankruptcy,
reorganization or similar proceeding affecting the Borrowing Subsidiary or its
assets or the Company or (iii) the existence of any claim, set-off or other
rights which the Company may have at any time against any Lender or any other
Person. If at any time any payment of any obligation guaranteed hereunder is
rescinded or must otherwise be restored or returned upon the insolvency,
bankruptcy or reorganization of a Borrowing Subsidiary or otherwise, the
Company's obligations under this Article IX with respect to such payment shall
be reinstated at such time as though such payment had not been made. If
acceleration of the time for payment of any amount payable by any Borrowing
Subsidiary under this Agreement or its Loans is stayed upon any bankruptcy,
insolvency or reorganization of such Borrowing Subsidiary or otherwise, all such
amounts otherwise subject to acceleration under the terms of this Agreement
shall nonetheless be payable by the Company pursuant to this Article IX in
accordance with the terms hereof. The
<PAGE>
49
Company shall not exercise any of its subrogation rights with respect to amounts
paid to a Lender pursuant to this Article IX until all amounts guaranteed
hereunder payable to any Lender have been paid in full and the Commitments have
terminated. Following such payment in full and termination of the Commitments,
the Company shall be entitled to subrogation in the Lenders' rights and, upon
the reasonable request of the Company, each Lender agrees to cooperate with the
Company in enforcement of the Company's subrogation rights, including the
transfer and delivery by such Lender to the Company of any and all related
evidence of indebtedness within the possession or control of such Lender.
The Administrative Agent shall give notice to the Company pursuant to
the proviso set forth in the first sentence of this Article promptly upon being
requested to do so by the relevant Lender.
ARTICLE X
Miscellaneous
-------------
SECTION 10.01. Notices. Except in the case of notices and other
-------
communications expressly permitted to be given by telephone, all notices and
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:
(a) if to any Borrower, to it in care of the Company at 1900 Richmond
Road, Cleveland, Ohio 44124, Attention of Ronald P. Vargo, Vice President
and Treasurer (Telecopy No. (216) 291-7831), with a copy to TRW Inc., 1900
Richmond Road, Cleveland, Ohio 44124, Attention of Secretary (Telecopy No.
(216) 291-7070);
(b) if to the Administrative Agent, to The Chase Manhattan Bank, Loan
and Agency Services Group, One Chase Manhattan Plaza, 8th Floor, New York,
New York 10081, Attention of Jesus Sang (Telecopy No. (212) 552-5658), with
a copy to The Chase Manhattan Bank, 270 Park Avenue, New York 10017,
Attention of Karen May Sharf (Telecopy No. (212) 270-5127); and
(c) if to any other Lender, to it at its address (or telecopy number)
set forth in its Administrative Questionnaire.
Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto. All notices and
other communications given to any party hereto in accordance with the provisions
of this Agreement shall be deemed to have been given on the date of receipt.
<PAGE>
50
SECTION 10.02. Waivers; Amendments. (a) No failure or delay by the
-------------------
Administrative Agent or any Lender in exercising any right or power hereunder or
under any other Loan Document shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The
rights and remedies of the Administrative Agent and the Lenders hereunder and
under the other Loan Documents are cumulative and are not exclusive of any
rights or remedies that they would otherwise have. No waiver of any provision
of any Loan Document or consent to any departure by any Borrower therefrom shall
in any event be effective unless the same shall be permitted by paragraph (b) of
this Section, and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given. Without limiting the
generality of the foregoing, the making of a Loan shall not be construed as a
waiver of any Default, regardless of whether the Administrative Agent or any
Lender may have had notice or knowledge of such Default at the time.
(b) Neither this Agreement nor any of the Loan Documents nor any
provision hereof or thereof may be waived, amended or modified except pursuant
to an agreement or agreements in writing entered into by the Company and the
Required Lenders or by the Company and the Administrative Agent with the consent
of the Required Lenders (and, in the case of a Borrowing Subsidiary Agreement,
the applicable Borrowing Subsidiary); provided that no such agreement shall (i)
--------
increase the Commitment of any Lender without the written consent of such
Lender, (ii) reduce the principal amount of any Loan or reduce the rate of
interest thereon, or reduce any fees payable hereunder, without the written
consent of each Lender affected thereby, (iii) postpone the scheduled date of
payment of the principal amount of any Loan, or any interest thereon, or any
fees payable hereunder, or reduce the amount of, waive or excuse any such
payment, or postpone the scheduled date of expiration of any Commitment, without
the written consent of each Lender affected thereby, (iv) change Section 2.16(b)
or (c) in a manner that would alter the pro rata sharing of payments required
thereby, without the written consent of each Lender, or (v) change any of the
provisions of this Section or the definition of "Required Lenders" or any other
provision of any Loan Document specifying the number or percentage of Lenders
required to waive, amend or modify any rights hereunder or make any
determination or grant any consent hereunder, without the written consent of
each Lender; provided further that no such agreement shall amend, modify or
----------------
otherwise affect the rights or duties of the Administrative Agent hereunder
without the prior written consent of the Administrative Agent.
SECTION 10.03. Expenses; Indemnity; Damage Waiver. (a) The Company
----------------------------------
shall pay (i) all reasonable out-of-pocket expenses incurred by the
Administrative Agent and its Affiliates, including the reasonable fees, charges
and disbursements of Cravath, Swaine & Moore, counsel for the Administrative
Agent, in
<PAGE>
51
connection with the syndication of the credit facilities provided for herein,
the preparation and administration of this Agreement or the other Loan Documents
or any amendments, modifications or waivers of the provisions hereof (whether or
not the transactions contemplated hereby or thereby shall be consummated) and
(ii) all out-of-pocket expenses incurred by the Administrative Agent or any
Lender, including the reasonable fees, charges and disbursements of any counsel
for the Administrative Agent or any Lender, in connection with the enforcement
or protection of its rights in connection with any Loan Document, including its
rights under this Section, or in connection with the Loans made hereunder,
including all such out-of-pocket expenses incurred during any workout,
restructuring or negotiations in respect of such Loans.
(b) The Company agrees to indemnify each Lender, their respective
Affiliates and the respective directors, officers, agents and employees of the
foregoing (each an "Indemnitee") and hold each Indemnitee harmless from and
----------
against any and all losses, damages, liabilities, costs and related expenses of
any kind, including, without limitation, reasonable fees and disbursements of
counsel, which may be incurred by such Indemnitee in connection with any
investigative, administrative or judicial proceeding (whether or not such
Indemnitee shall be designated a party thereto) brought or threatened relating
to or arising out of this Agreement or any actual or proposed use of proceeds of
Loans hereunder; provided that such indemnity shall not, as to any Indemnitee,
--------
be available to the extent that such losses, damages, liabilities, costs or
related expenses are found by a final, nonappealable judgment of a court of
competent jurisdiction to have resulted from the culpable negligence, bad faith
or wilful misconduct of such Indemnitee.
(c) To the extent that the Company fails to pay any amount required
to be paid by it to the Administrative Agent or any sub-agent appointed pursuant
to Article VIII under paragraph (a) or (b) of this Section, each Lender
severally agrees to pay to the Administrative Agent such Lender's Applicable
Percentage (determined as of the time that the applicable unreimbursed expense
or indemnity payment is sought) of such unpaid amount; provided that the
--------
unreimbursed expense or indemnified loss, claim, damage, liability or related
expense, as the case may be, was incurred by or asserted against the
Administrative Agent in its capacity as such.
(d) To the extent permitted by applicable law, no Borrower shall
assert, and each Borrower hereby waives, any claim against any Indemnitee, on
any theory of liability, for special, indirect, consequential or punitive
damages (as opposed to direct or actual damages) arising out of, in connection
with, or as a result of, this Agreement, any other Loan Document or any
agreement or instrument contemplated hereby, the Transactions, any Loan or the
use of the proceeds thereof.
(e) All amounts due under this Section shall be payable promptly
after written demand therefor.
<PAGE>
52
SECTION 10.04. Successors and Assigns. (a) The provisions of this
-----------------------
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns permitted hereby, except that no
Borrower may assign or otherwise transfer any of its rights or obligations
hereunder without the prior written consent of each Lender (and any attempted
assignment or transfer by any Borrower without such consent shall be null and
void). Nothing in this Agreement, expressed or implied, shall be construed to
confer upon any Person (other than the parties hereto, their respective
successors and assigns permitted hereby and, to the extent expressly
contemplated hereby, the Related Parties of each of the Administrative Agent and
the Lenders) any legal or equitable right, remedy or claim under or by reason of
this Agreement.
(b) Any Lender may assign to one or more assignees all or a portion
of its rights and obligations under this Agreement (including all or a portion
of its Commitment and the Loans at the time owing to it); provided that (i)
--------
except in the case of an assignment to an Affiliate of that Lender, each of the
Company and the Administrative Agent must give their prior written consent to
such assignment (which consent shall not be unreasonably withheld or delayed),
(ii) except in the case of an assignment to an Affiliate of that Lender or an
assignment of the entire remaining amount of the assigning Lender's Commitment,
the amount of the Commitment of the assigning Lender subject to each such
assignment (determined as of the date the Assignment and Acceptance with respect
to such assignment is delivered to the Administrative Agent) shall not be less
than $10,000,000 unless each of the Company and the Administrative Agent
otherwise consent, (iii) each partial assignment shall be made as an assignment
of a proportionate part of all the assigning Lender's rights and obligations
under this Agreement, except that this clause (iii) shall not apply to rights in
respect of outstanding Competitive Loans, (iv) the parties to each assignment
shall execute and deliver to the Administrative Agent an Assignment and
Acceptance, together with a processing and recordation fee of $3,500, and (v)
the assignee, if it shall not be a Lender, shall deliver to the Administrative
Agent an Administrative Questionnaire; and provided further that any consent of
----------------
the Company otherwise required under this paragraph shall not be required if an
Event of Default under clause (h) or (i) of Article VII has occurred and is
continuing. Subject to acceptance and recording thereof pursuant to paragraph
(d) of this Section, from and after the effective date specified in each
Assignment and Acceptance the assignee thereunder shall be a party hereto and,
to the extent of the interest assigned by such Assignment and Acceptance, have
the rights and obligations of a Lender under this Agreement, and the assigning
Lender thereunder shall, to the extent of the interest assigned by such
Assignment and Acceptance, be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance covering all of the assigning
Lender's rights and obligations under this Agreement, such Lender shall cease to
be a party hereto but shall continue to be entitled to the benefits of Sections
2.13, 2.14, 2.15 and 10.03, insofar as claims under such sections arise out of
the period prior to the effective date of such Assignment and Acceptance). Any
assignment or transfer by a Lender of rights or obligations under this
<PAGE>
53
Agreement that does not comply with this paragraph shall be treated for purposes
of this Agreement as a sale by such Lender of a participation in such rights and
obligations in accordance with paragraph (e) of this Section.
(c) The Administrative Agent, acting for this purpose as an agent of
each Borrower, shall maintain at one of its offices in The City of New York a
copy of each Assignment and Acceptance delivered to it and a register for the
recordation of the names and addresses of the Lenders, and the Commitment of,
and principal amount of the Loans owing to, each Lender pursuant to the terms
hereof from time to time (the "Register"). The entries in the Register shall be
--------
conclusive, and the Borrowers, the Administrative Agent and the Lenders may
treat each Person whose name is recorded in the Register pursuant to the terms
hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding
notice to the contrary. The Register shall be available for inspection by the
Company and any Lender, at any reasonable time and from time to time upon
reasonable prior notice.
(d) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an assignee, the assignee's completed
Administrative Questionnaire (unless the assignee shall already be a Lender
hereunder), the processing and recordation fee referred to in paragraph (b) of
this Section and any written consent to such assignment required by paragraph
(b) of this Section, the Administrative Agent shall accept such Assignment and
Acceptance and record the information contained therein in the Register. No
assignment shall be effective for purposes of this Agreement unless it has been
recorded in the Register as provided in this paragraph.
(e) Any Lender may, without the consent of any Borrower or the
Administrative Agent sell participations to one or more banks or other entities
(a "Participant") in all or a portion of such Lender's rights and obligations
-----------
under this Agreement (including all or a portion of its Commitment and the Loans
owing to it); provided that (i) such Lender's obligations under this Agreement
--------
shall remain unchanged, (ii) such Lender shall remain solely responsible to the
other parties hereto for the performance of such obligations and (iii) the
Borrowers, the Administrative Agent and the other Lenders shall continue to deal
solely and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement. Any agreement or instrument pursuant to which
a Lender sells such a participation shall provide that such Lender shall retain
the sole right to enforce this Agreement and to approve any amendment,
modification or waiver of any provision of this Agreement; provided that such
--------
agreement or instrument may provide that such Lender will not, without the
consent of the Participant, agree to any amendment, modification or waiver
described in the first proviso to Section 10.02(b) that affects such
Participant. Subject to paragraph (f) of this Section, each Borrower agrees
that each Participant shall be entitled
<PAGE>
54
to the benefits of Sections 2.13, 2.14 and 2.15 to the same extent as if it were
a Lender and had acquired its interest by assignment pursuant to paragraph (b)
of this Section.
(f) A Participant shall not be entitled to receive any greater
payment under Section 2.13, 2.14 or 2.15 than the applicable Lender would have
been entitled to receive with respect to the participation sold to such
Participant, unless the sale of the participation to such Participant is made
with the Company's prior written consent. A Participant that would be a Foreign
Lender if it were a Lender shall not be entitled to the benefits of Section 2.15
unless the Company is notified of the participation sold to such Participant and
such Participant agrees, for the benefit of the Borrowers, to comply with
Section 2.15(e) as though it were a Lender.
(g) Any Lender may at any time pledge or assign a security interest
in all or any portion of its rights under this Agreement to secure obligations
of such Lender, including any pledge or assignment to secure obligations to a
Federal Reserve Bank, and this Section shall not apply to any such pledge or
assignment of a security interest; provided that no such pledge or assignment of
--------
a security interest shall release a Lender from any of its obligations hereunder
or substitute any such pledgee or assignee for such Lender as a party hereto.
SECTION 10.05. Survival. All covenants, agreements, representations
---------
and warranties made by the Borrowers herein or in any other Loan Document and in
the certificates or other instruments delivered in connection with or pursuant
to this Agreement or any other Loan Document shall be considered to have been
relied upon by the other parties hereto and thereto and shall survive the
execution and delivery of this Agreement and any other Loan Document and the
making of any Loans, regardless of any investigation made by any such other
party or on its behalf and notwithstanding that the Administrative Agent or any
Lender may have had notice or knowledge of any Default or incorrect
representation or warranty at the time any credit is extended hereunder
(provided that any such knowledge of the Administrative Agent or any Lender will
not be attributed to any other Lender or the Administrative Agent for purposes
of this Section 10.05), and shall continue in full force and effect as long as
the principal of or any accrued interest on any Loan or any fee or any other
amount payable under this Agreement or any other Loan Document is outstanding
and unpaid and so long as the Commitments have not expired or terminated. The
provisions of Sections 2.13, 2.14, 2.15 and 10.03 and Article VIII shall survive
and remain in full force and effect regardless of the consummation of the
transactions contemplated hereby, the repayment of the Loans, the expiration or
termination of the Commitments or the termination of this Agreement or any other
Loan Document or any provision hereof or thereof.
SECTION 10.06. Counterparts; Integration; Effectiveness. This
-----------------------------------------
Agreement may be executed in counterparts (and by different parties hereto on
different counterparts), each of which shall constitute an original, but all of
which when taken
<PAGE>
55
together shall constitute a single contract. This Agreement, the other Loan
Documents and any separate letter agreements with respect to fees payable to the
Administrative Agent constitute the entire contract among the parties relating
to the subject matter hereof and supersede any and all previous agreements and
understandings, oral or written, relating to the subject matter hereof. Except
as provided in Section 4.01, this Agreement shall become effective when it shall
have been executed by the Administrative Agent and when the Administrative Agent
shall have received counterparts hereof which, when taken together, bear the
signatures of each of the other parties hereto, and thereafter shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns. Delivery of an executed counterpart of a signature page
of this Agreement by telecopy shall be effective as delivery of a manually
executed counterpart of this Agreement.
SECTION 10.07. Severability. Any provision of this Agreement held to
-------------
be invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without affecting the validity, legality and enforceability of
the remaining provisions hereof; and the invalidity of a particular provision in
a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.
SECTION 10.08. Right of Setoff. If an Event of Default shall have
----------------
occurred and be continuing and the Required Lenders shall have requested the
Administrative Agent to declare the Loans immediately due and payable or such
Loans have automatically become due and payable, each Lender and each of its
Affiliates is hereby authorized at any time and from time to time, to the
fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other obligations at any time owing by such Lender or Affiliate to or for the
credit or the account of any Borrower against any of and all the obligations of
such Borrower now or hereafter existing under this Agreement held by such
Lender, irrespective of whether or not such Lender shall have made any demand
under this Agreement and although such obligations may be unmatured. The rights
of each Lender under this Section are in addition to other rights and remedies
(including other rights of setoff) which such Lender may have.
SECTION 10.09. Governing Law; Jurisdiction; Consent to Service of
--------------------------------------------------
Process. (a) This Agreement shall be construed in accordance with and governed
- --------
by the law of the State of New York.
(b) Each Borrower hereby irrevocably and unconditionally submits, for
itself and its property, to the nonexclusive jurisdiction of the Supreme Court
of the State of New York sitting in New York County and of the United States
District Court of the Southern District of New York, and any appellate court
from any thereof, in any action or proceeding arising out of or relating to any
Loan Document, or for recognition or
<PAGE>
56
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. Each of the parties hereto agrees that
a final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Agreement shall affect any right that the
Administrative Agent or any Lender may otherwise have to bring any action or
proceeding relating to this Agreement or any other Loan Document against any
Borrower or its properties in the courts of any jurisdiction.
(c) Each Borrower hereby irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection which it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or any other Loan
Document in any court referred to in paragraph (b) of this Section. Each of the
parties hereto hereby irrevocably waives, to the fullest extent permitted by
law, the defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.
(d) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 10.01. Nothing in this
Agreement or any other Loan Document will affect the right of any party to this
Agreement to serve process in any other manner permitted by law.
SECTION 10.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY
---------------------
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT
OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH
PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION.
SECTION 10.11. Headings. Article and Section headings and the Table
---------
of Contents used herein are for convenience of reference only, are not part of
this Agreement and shall not affect the construction of, or be taken into
consideration in interpreting, this Agreement.
<PAGE>
57
SECTION 10.12. Confidentiality. Each of the Administrative Agent and
----------------
the Lenders agrees to maintain the confidentiality of the Information (as
defined below), except that Information may be disclosed (a) to its and its
Affiliates' directors, officers, employees and agents, including accountants,
legal counsel and other advisors (it being understood that the Persons to whom
such disclosure is made will be informed of the confidential nature of such
Information and instructed to keep such Information confidential), (b) to the
extent requested by any regulatory authority, (c) to the extent required by
applicable laws or regulations or by any subpoena or similar legal process, (d)
to any other party to this Agreement, (e) in connection with the exercise of any
remedies hereunder or any suit, action or proceeding relating to this Agreement
or any other Loan Document or the enforcement of rights hereunder or thereunder,
(f) subject to an agreement containing provisions substantially the same as
those of this Section, to any assignee of or Participant in, or any prospective
assignee of or Participant in, any of its rights or obligations under this
Agreement, (g) with the consent of the Company or (h) to the extent such
Information (i) becomes publicly available other than as a result of a breach of
this Section or (ii) becomes available to the Administrative Agent or any Lender
on a nonconfidential basis from a source other than the Company. For the
purposes of this Section, "Information" means all information received from the
-----------
Company relating to the Company or its business, other than any such information
that is available to the Administrative Agent or any Lender on a nonconfidential
basis prior to disclosure by the Company; provided that, in the case of
--------
information received from the Company after the date hereof, such information is
clearly identified at the time of delivery as confidential. Any Person required
to maintain the confidentiality of Information as provided in this Section shall
be considered to have complied with its obligation to do so if such Person has
exercised the same degree of care to maintain the confidentiality of such
Information as such Person would accord to its own confidential information.
SECTION 10.13. Conversion of Currencies. (a) If, for the purpose
-------------------------
of obtaining judgment in any court, it is necessary to convert a sum owing
hereunder in one currency into another currency, each party hereto (including
any Borrowing Subsidiary) agrees, to the fullest extent that it may effectively
do so, that the rate of exchange used shall be that at which in accordance with
normal banking procedures in the relevant jurisdiction the first currency could
be purchased with such other currency on the Business Day immediately preceding
the day on which final judgment is given.
(b) The obligations of each Borrower in respect of any sum due to any
party hereto or any holder of the obligations owing hereunder (the "Applicable
----------
Creditor") shall, notwithstanding any judgment in a currency (the "Judgment
- -------- --------
Currency") other than the currency in which such sum is stated to be due
- --------
hereunder (the "Agreement Currency"), be discharged only to the extent that, on
------------------
the Business Day following receipt by the Applicable Creditor of any sum
adjudged to be so due in the Judgment Currency, the Applicable Creditor may in
accordance with normal banking procedures in the
<PAGE>
58
relevant jurisdiction purchase the Agreement Currency with the Judgment
Currency; if the amount of the Agreement Currency so purchased is less than the
sum originally due to the Applicable Creditor in the Agreement Currency, such
Borrower agrees, as a separate obligation and notwithstanding any such judgment,
to indemnify the Applicable Creditor against such loss. The obligations of the
Borrowers contained in this Section 10.13 shall survive the termination of this
Agreement and the payment of all other amounts owing hereunder.
SECTION 10.14. Interest Rate Limitation. Notwithstanding anything
-------------------------
herein to the contrary, if at any time the interest rate applicable to any Loan,
together with all fees, charges and other amounts which are treated as interest
on such Loan under applicable law (collectively the "Charges"), shall exceed the
-------
maximum lawful rate (the "Maximum Rate") which may be contracted for, charged,
------------
taken, received or reserved by the Lender holding such Loan in accordance with
applicable law, the rate of interest payable in respect of such Loan hereunder,
together with all Charges payable in respect thereof, shall be limited to the
Maximum Rate and, to the extent lawful, the interest and Charges that would have
been payable in respect of such Loan but were not payable as a result of the
operation of this Section shall be cumulated and the interest and Charges
payable to such Lender in respect of other Loans or periods shall be increased
(but not above the Maximum Rate therefor) until such cumulated amount, together
with interest thereon at the Federal Funds Effective Rate to the date of
repayment, shall have been received by such Lender.
SECTION 10.15. Lender Waiver. Each Lender that is a party to any of
--------------
the Existing Credit Agreements hereby waives any provision contained in such
Existing Credit Agreement requiring notice of the termination of the commitments
therein prior to the effective date of such termination.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
TRW INC.,
by /s/ Ronald P. Vargo
-----------------------------------------
Name: Ronald P. Vargo
Title: Vice President and Treasurer
Website: www.trw.com
<PAGE>
59
THE CHASE MANHATTAN BANK,
individually and as Administrative Agent,
by /s/ Richard W. Duker
-----------------------------------
Name: Richard W. Duker
Title: Vice President
SALOMON SMITH BARNEY INC., as
Syndication Agent, Joint Lead Arranger and
Book Manager,
by /s/ J.C.C. Byrne, Jr.
-----------------------------------
Name: J.C.C. Byrne, Jr.
Title: Attorney-in-Fact
CHASE SECURITIES, INC., as Joint
Arranger and Book Manager,
by /s/ Mitchel Friedman
-----------------------------------
Name: Mitchel Friedman
Title: Vice President
CITICORP USA, INC.,
by /s/ Robert D. Wetrus
-----------------------------------
Name: Robert D. Wetrus
Title: Attorney-in-Fact
BANK OF AMERICA, N.A., Individually
and as Co-Documentation Agent,
by /s/ Raju N. Patel
-----------------------------------
Name: Raju N. Patel
Title: Vice President
<PAGE>
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK, individually
and as Co-Documentation Agent,
by /s/ Robert Bottamedi
-----------------------------------
Name: Robert Bottamedi
Title: Vice President
DRESDNER BANK AG, NEW YORK AND
GRAND CAYMAN BRANCHES,
by /s/ Thomas R. Brady
-----------------------------------
Name: Thomas R. Brady
Title: Vice President
by /s/ John W. Sweeney
-----------------------------------
Name: John W. Sweeney
Title: Vice President
ROYAL BANK OF CANADA,
by /s/ Lynne M. Litterini
-----------------------------------
Name: Lynne M. Litterini
Title: Manager
BANQUE NATIONALE DE PARIS,
by /s/ Arnaud Collin du Bocage
-----------------------------------
Name: Arnaud Collin du Bocage
Title: Executive Vice President and
General Manager
<PAGE>
NATIONAL CITY BANK,
by /s/ Davis R. Bonner
-----------------------------------
Name: Davis R. Bonner
Title: Senior Vice President
INDUSTRIAL BANK OF JAPAN,
by /s/ Walter Wolff
-----------------------------------
Name: Walter Wolff
Title: Joint General Manager
BANK ONE, MICHIGAN,
by /s/ Glenn A. Currin
-----------------------------------
Name: Glenn A. Currin
Title: First Vice President
COMERICA BANK,
by /s/ Nicholas G. Mester
-----------------------------------
Name: Nicholas G. Mester
Title: Account Officer
KEYBANK NATIONAL ASSOCIATION,
by /s/ Marianne T. Meil
-----------------------------------
Name: Marianne T. Meil
Title: Vice President
<PAGE>
BAYERISCHE LANDESBANK,
by /s/ James Boyle
-----------------------------------
Name: James Boyle
Title: Vice President
by /s/ Alexander Kohnert
------------------------------------
Name: Alexander Kohnert
Title: First Vice President
HSBC BANK USA,
by /s/ Christopher M. Samms
------------------------------------
Name: Christopher M. Samms
Title: Officer #9426, Vice President
SG,
by /s/ Editha N. Paras
------------------------------------
Name: Editha N. Paras
Title: Vice President
BARCLAY'S BANK PLC,
by /s/ Keith Mackie
------------------------------------
Name: Keith Mackie
Title: Director
CREDIT INDUSTRIAL ED COMMERCIAL,
by /s/ Wolfgang Fassbender
------------------------------------
Name: Wolfgang Fassbender
Title: Senior Vice President
DEUTSCHE BANK AG, New York Branch
and/or Cayman Islands Branch,
<PAGE>
by /s/ Oliver Schwarz
------------------------------------
Name: Oliver Schwarz
Title: Assistant Vice President
by /s/ Stephan Peetzen
------------------------------------
Name: Stephan Peetzen
Title: Director
ABN AMRO BANK N.V.,
by /s/ David C. Sagers
------------------------------------
Name: David C. Sagers
Title: Vice President
by /s/ John J. Mack
------------------------------------
Name: John J. Mack
Title: Vice President
BANCA DI ROMA-CHICAGO BRANCH,
by /s/ James W. Semonchik
------------------------------------
Name: James W. Semonchik
Title: Vice President
by /s/ Claudio Perna
------------------------------------
Name: Claudio Perna (19690)
Title: Senior Vice President &
Branch Manager
THE SUMITOMO BANK, LIMITED,
by /s/ John H. Kemper
------------------------------------
Name: John H. Kemper
Title: Senior Vice President
<PAGE>
BANCA NAZIONALE DEL LAVORO S.p.A. - NEW YORK,
by /s/ Giulio Giovine
--------------------------------------
Name: Giulio Giovine
Title: Vice President
by /s/ Leonardo Valentini
--------------------------------------
Name: Leonardo Valentini
Title: First Vice President
MELLON BANK, N.A.,
by /s/ Mark F. Johnston
--------------------------------------
Name: Mark F. Johnston
Title: First Vice President
SAN PAOLO IMI S.p.A.,
by /s/ Luca Sacchi
--------------------------------------
Name: Luca Sacchi
Title: Vice President
by /s/ Carlo Persico
--------------------------------------
Name: Carlo Persico
Title: D.G.M.
BANCA COMMERCIALE ITALIANA, CHICAGO BRANCH,
by /s/ E. Bermant
--------------------------------------
Name: E. Bermant
Title: FVP/Deputy Manager
<PAGE>
by /s/ J. Dickerhof
-------------------------------------
Name: J. Dickerhof
Title: Vice President
FIRST UNION NATIONAL BANK,
by /s/ Kent Davis
-------------------------------------
Name: Kent Davis
Title: Vice President
BANK OF NEW YORK,
by /s/ John M. Lokay, Jr.
-------------------------------------
Name: John M. Lokay, Jr.
Title: Vice President
BANK OF TOKYO-MITSUBISHI TRUST COMPANY,
by /s/ Heather L. Zimmerman
-------------------------------------
Name: Heather L. Zimmerman
Title: Vice President
BANCO BILBAO VIZCAYA (NEW YORK),
by /s/ John Martini
-------------------------------------
Name: John Martini
Title: Vice President
by /s/ Alejandro Lorca
-------------------------------------
Name: Alejandro Lorca
Title: Vice President
<PAGE>
Exhibit 12
TRW Inc. and Subsidiaries
Computation of Ratio of Earnings
to Fixed Charges - Unaudited
(In millions except ratio data)
<TABLE>
<CAPTION>
Years Ended December 31
------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Earnings from continuing
operations before income
taxes $ 787.3(A) $746.1 $239.7(B) $302.2(C) $625.5 $435.5
Unconsolidated affiliates (37.1) 1.0 (8.0) 1.4 1.3 (0.6)
Minority earnings 22.8 10.5 20.2 11.5 10.8 7.7
Fixed charges excluding
capitalized interest 552.1 174.3 123.9 129.0 137.2 145.3
-------- ------ ------ ------ ------ ------
Earnings $1,325.1 $931.9 $375.8 $444.1 $774.8 $587.9
-------- ------ ------ ------ ------ ------
Fixed Charges:
Interest expense $ 476.7 $114.4 $ 75.4 $ 84.2 $ 94.7 $104.7
Capitalized interest 4.7 4.7 4.5 3.5 5.1 6.6
Portion of rents representa-
tive of interest factor 75.3 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 $ 556.7 $179.0 $128.4 $132.5 $142.3 $151.9
-------- ------ ------ ------ ------ ------
Ratio of earnings to fixed
charges 2.4x 5.2x 2.9x 3.4x 5.4x 3.9x
-------- ------ ------ ------ ------ ------
</TABLE>
(A) The 1999 earnings from continuing operations before income taxes of $787.3
million, includes an $85.3 million earnings charge for purchased in-process
research and development. See "Acquisitions" note 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" note 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" note in the Notes to Financial Statements of the Company's
1996 Annual Report to Shareholders.
<PAGE>
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
RESULTS OF OPERATIONS
Sales rose 43 percent to $17 billion compared with 1998 sales of $11.9 billion.
Sales in 1998 grew 10 percent from sales of $10.8 billion in 1997. Net earnings
and diluted earnings per share for 1999 were $469 million, or $3.80 per share,
compared with net earnings of $477 million, or $3.83 per share in 1998. For
1997, the net loss was $49 million, or $.40 per share.
- ----------------------------------------------------------------------
EARNINGS BEFORE DILUTED EARNINGS
INCOME TAXES (LOSS) PER SHARE
SALES ($ IN BILLIONS) ($ IN MILLIONS) ($ PER SHARE)
- --------------------- --------------- -------------
1997 1998 1999 1997 1998 1999 1997 1998 1999
- ----------------- ---------------- -----------------
10.8 11.9 17.0 240 746 787 (0.40) 3.83 3.80
- ----------------------------------------------------------------------
The above comparative net earnings(loss) include the following unusual items.
The 1999 results include $55 million after tax, or $.45 per share, for severance
and plant closing costs for the automotive restructuring program, a $53 million
after tax charge, or $.43 per share, for the cost to discontinue certain
products within the warehouse management systems and software security product
lines within the Systems & Information Technology segment, $63 million after
tax, or $.50 per share, for expenses related to the acquisition of LucasVarity
plc (LucasVarity), $85 million, or $.69 per share, for a one-time noncash
charge, with no income tax benefit, related to in-process research and
development associated with the LucasVarity acquisition, a $51 million after tax
charge, or $.41 per share, for the Company's write-off of its investment in ICO
Global Communications (Holdings) Limited (ICO), and $28 million after tax, or
$.23 per share, for losses on fixed-price contracts, offset in part by gains of
$235 million after tax, or $1.90 per share, from asset sales, primarily RF Micro
Devices, Inc. (RFMD) common stock. The 1998 results include a $16 million after
tax, or $.13 per share, benefit from an adjustment of an interest accrual
relating to a tax litigation settlement and a $32 million after tax, or $.25 per
share, benefit from the settlement of certain patent litigation, offset in part
by $28 million after tax, or $.21 per share, in charges for litigation and
contract reserves and severance costs and an $18 million after tax, or $.15 per
share, charge for the 1998 automotive restructuring program. The 1997 results
include a $548 million,or $4.43 per share, one-time noncash charge, with no
income tax benefit, related to in-process research and development associated
with the acquisition of BDM International, Inc. (BDM) and a $10 million after
tax, or $.08 per share, gain from the sale of a property.
The unusual items in the preceding paragraph are set forth in the following
table:
<TABLE>
<CAPTION>
($ in millions except per share data) 1999 1998 1997
--------------------- ---------------------- ----------------------
Net Earnings(Loss) Amount Per Share Amount Per Share Amount Per Share
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Severance and plant closing costs $ (55) $(.45) $ (18) $ (.15) $ --- $ --
Discontinuance of certain
software products (53) (.43) --- --- --- --
Expenses related to the acquisition
of LucasVarity (63) (.50) --- --- --- --
Purchased in-process research
and development (85) (.69) --- --- (548) (4.43)
Write-off of investment (51) (.41) --- --- --- --
Litigation and contract reserves (28) (.23) (28) (.21) --- --
Gain from the sale of assets 235 1.90 --- --- 10 .08
Interest adjustment from tax
litigation settlement --- --- 16 .13 --- --
Settlement of patent litigation --- --- 32 .25 --- --
- --------------------------------------------------------------------------------------------------------------------------------
$ (100) $(.81) $ 2 $ .02 $ (538) $(4.35)
-----------------------------------------------------------------------------
</TABLE>
TRW INC. 27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
The unusual items listed above are included in the Statements of Operations as
follows:
<TABLE>
<CAPTION>
($ in millions)
Years ended 1999 1998 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cost of sales $ 91 $ 52 $ ---
Administrative and selling expenses 14 13 ---
Purchased in-process research and development 85 -- 548
Interest expense 3 (25) ---
Amortization of goodwill and intangible assets 75 -- ---
Other (income)expense-net (167) (49) (15)
- ------------------------------------------------------------------------------------------------
Earnings(loss) before income taxes (101) 9 (533)
Income tax expense(benefit) (1) 7 5
- ------------------------------------------------------------------------------------------------
Net earnings(loss) $(100) $ 2 $ (538)
- ------------------------------------------------------------------------------------------------
</TABLE>
Sales in 1999 of $17 billion rose 43 percent from $11.9 billion in 1998
primarily from the acquisition of LucasVarity on March 25, 1999. Sales in 1998
increased from $10.8 billion in 1997 mainly due to the acquisition of BDM in
December 1997.
Gross profit of $3,090 million in 1999 increased 42 percent from $2,171 million
in 1998, consistent with the increase in sales. Gross profit, as a percentage of
sales, was 18.2 percent for 1999 and 18.3 percent for 1998. Gross profit in 1999
included automotive restructuring expenses of $73 million and unusual items,
including contract reserves and expenses related to the acquisition of
LucasVarity, of $18 million. In addition, the net pension income from a
LucasVarity overfunded pension plan added $192 million to gross profit in 1999.
Gross profit in 1998 included automotive restructuring expenses of $11 million
and litigation and contract reserves and severance costs of $41 million. The
gross profit margin in the legacy automotive business declined in 1999 primarily
due to production inefficiencies related to the implementation of new
manufacturing systems, the start-up and transfer of certain operations to
facilities in Mexico and Eastern Europe and declining margins on new business.
Legacy refers to the Company's businesses prior to the acquisition of
LucasVarity. The gross profit margin in the Systems & Information Technology
segment also declined in 1999 due to losses associated with certain commercial
contracts. Gross profit increased to $2,171 million in 1998 from $2,005 million
in 1997. Gross profit as a percentage of sales declined from 18.5 percent in
1997 to 18.3 percent in 1998. The gross profit margin decline was the result of
a decrease in automotive margins offset in part by higher gross profit margins
in the aerospace and information systems businesses.
Administrative and selling expenses of $1,150 million in 1999 increased $324
million from $826 million in 1998. The administrative and selling expenses of
the LucasVarity businesses added $450 million, but were offset by the cost
reductions of $75 million in legacy automotive and $55 million in the legacy
aerospace and information systems business. Administrative and selling expenses
were $142 million higher in 1998 than 1997 primarily due to the acquisition of
BDM.
Research and development expenses of $609 million in 1999 were higher than the
$522 million in 1998 primarily due to the addition of the LucasVarity businesses
of approximately $135 million, partially offset by reduced spending in the
legacy automotive businesses of approximately $30 million and the legacy
aerospace and information systems businesses of $15 million. Research and
development expenses in 1998 were higher than the $461 million in 1997 mainly
due to an increase in spending in both the automotive and aerospace and
information systems businesses of approximately $30 million and $20 million,
respectively, and the addition of approximately $10 million of research and
development expenses of BDM.
Purchased in-process research and development expenses of $85 million in 1999
and $548 million in 1997 resulted from the valuation of LucasVarity and BDM,
respectively.
Interest expense of $477 million in 1999 increased $363 million from $114
million in 1998, primarily due to interest on the debt associated with the
acquisition of LucasVarity. Interest expense in 1998 was $39 million higher than
the $75 million in 1997 due to higher debt levels, resulting from the
acquisition of BDM, partially offset by the benefit from an adjustment of an
interest accrual of $25 million relating to a tax litigation settlement.
Amortization of goodwill and intangible assets was $195 million in 1999, $43
million in 1998 and $13 million in 1997. The increase of $152 million from 1998
to 1999 primarily resulted from the amortization of intangibles associated with
the acquisition of LucasVarity of $74 million and the write-off of intangible
assets from the discontinuance of certain warehouse management and software
security products in the Systems & Information Technology segment of $75
million. The increase of $30 million from 1997 to 1998 resulted principally from
the amortization of intangibles associated with the acquisition of BDM of $23
million.
28 TRW INC.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
Other (income)expense-net was income of $213 million in 1999, $80 million in
1998 and $16 million in 1997. Included in 1999 were the following items: gains
on asset sales, primarily related to RFMD, of $362 million, partially offset by
the $79 million write-off of the Company's investment in ICO, which filed for
bankruptcy in 1999; amortization of bank fees for the acquisition of LucasVarity
of $50 million; and foreign exchange losses relating to LucasVarity of $66
million. Other (income)expense-net for 1998 included a favorable litigation
settlement relating to ICO of $49 million.
The effective income tax rate in 1999 was 40.5 percent compared with 36.1
percent in 1998 and 120.3 percent in 1997. Excluding the in-process research and
development charges, with no income tax benefit, the effective income tax rates
would have been 36.5 percent in 1999 and 36.6 percent in 1997.
In 1998, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities." This statement is effective for years beginning after June
15, 2000. Under this statement, changes in the market value of contracts that
hedge anticipated transactions will be deferred and recognized in earnings when
realized. The impact of the adoption will be determined by several factors,
including the specific hedging instruments in place and their relationships to
the hedged items, as well as market conditions as of the date of adoption.
Management is in the process of analyzing and assessing the impact of the
adoption of SFAS No. 133 on the Company's consolidated results of operations and
financial position, but believes that such determination of the effect currently
is not meaningful. The Company intends to adopt the statement on January 1,
2001.
Automotive Segments
On March 25, 1999, the Company acquired LucasVarity. The sales and profit before
taxes subsequent to that date have been included in the applicable Automotive
segment results.
Occupant Safety Systems
<TABLE>
<CAPTION>
(In millions)
Years ended 1999 1998 1997
- ----------------------------------------------------------------
<S> <C> <C> <C>
Sales $3,009 $3,042 $3,020
Profit before taxes 187 257 314
- ----------------------------------------------------------------
</TABLE>
Sales for 1999 of $3,009 million decreased $33 million from $3,042 million in
1998, as increased volume of approximately $235 million was offset by lower
pricing and the effects of a strong U.S. dollar of approximately $185 million
and $85 million, respectively.
Profit before taxes for 1999 of $187 million decreased from $257 million in
1998. Excluding approximately $10 million of restructuring charges in 1999,
profit before taxes decreased approximately $60 million. Lower pricing of
approximately $185 million, costs associated with production inefficiencies
related to the implementation of a new manufacturing system and the startup and
transfer of certain operations to facilities in Mexico, of approximately $30
million and the effects of a strong U.S. dollar of approximately $8 million were
offset in part by cost reductions, including general and administrative
reductions, of approximately $145 million and increased volume of approximately
$15 million.
Sales for 1998 of $3,042 million increased $22 million from $3,020 million in
1997. The higher sales were primarily due to increased volume of $230 million
offset in part by lower pricing of approximately $195 million, the effects of a
strong U.S. dollar of approximately $20 million and the effect of weakening
economic conditions in Brazil and Asia of $5 million.
Profit before taxes for 1998 of $257 million decreased from $314 million in
1997. The decrease was primarily due to lower pricing of $195 million and start-
up costs associated with new product launches of $20 million, which were offset
in part by cost reductions of approximately $180 million.
Chassis Systems
<TABLE>
<CAPTION>
(In millions)
Years ended 1999 1998 1997
- -------------------------------------------------------
<S> <C> <C> <C>
Sales $5,077 $2,201 $2,181
Profit before taxes 299 129 155
- -------------------------------------------------------
</TABLE>
Sales for 1999 of $5,077 million increased from $2,201 million in 1998, mainly
due to the inclusion of LucasVarity of approximately $2,900 million and higher
volume of approximately $75 million, which was offset by the effects of a strong
U.S. dollar of approximately $100 million.
TRW INC. 29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
Profit before taxes for 1999 of $299 million increased from $129 million in
1998. Excluding 1999 restructuring charges of $60 million and the one-time
noncash effect of the LucasVarity inventory adjustment of $16 million, and 1998
restructuring charges of $7 million, profit before taxes increased $239 million.
The higher profit before taxes resulted primarily from the inclusion of
LucasVarity of approximately $260 million and cost reductions, including general
and administrative expense reductions, of approximately $55 million, which were
offset partially by lower pricing of approximately $12 million, losses on new
product introductions and unfavorable sales mix of $35 million, increased
warranty costs of $7 million and an asset impairment write-off of $5 million.
Sales for 1998 of $2,201 million were $20 million higher than the $2,181 million
in 1997. The increase resulted primarily from higher volume of approximately
$130 million which was offset in part by the effects of a strong U.S. dollar of
approximately $60 million, the effect of weakening economic conditions in Brazil
and Asia of approximately $40 million and lower pricing of approximately $10
million.
Profit before taxes for 1998 of $129 million was $26 million lower than the $155
million in 1997. The decrease resulted primarily from lower pricing of $10
million, higher research and development costs of approximately $25 million,
start-up costs associated with new product launches of $15 million, the effects
of unfavorable economic conditions in Brazil and Asia of $15 million and
restructuring charges of $7 million, which was offset in part by cost reductions
of approximately $90 million.
During January 2000, the sale of Lucas Diesel Systems, including the associated
aftermarket operations, was substantially completed. The sales and profit before
taxes of the aftermarket operations have been included in the Chassis Systems
segment from March 25, 1999, the date of acquisition. The sales and profit
before taxes of the aftermarket business included in the Chassis Systems segment
results for 1999 were approximately $155 million and $18 million, respectively.
Automotive Electronics
<TABLE>
<CAPTION>
(In millions)
Years ended 1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $1,632 $1,137 $1,022
Profit before taxes 114 73 70
- -------------------------------------------------------------------------------
</TABLE>
Sales for 1999 of $1,632 million increased $495 million from $1,137 in 1998,
primarily due to the inclusion of LucasVarity of approximately $435 million and
higher volume of approximately $120 million, offset in part by lower pricing of
approximately $30 million and the effects of a strong U.S. dollar of
approximately $30 million.
Profit before taxes for 1999 of $114 million increased $41 million from the $73
million in 1998. Restructuring charges included in profit before taxes for 1999
and 1998 were $10 million and $13 million, respectively. Excluding the
restructuring charges, profit before taxes increased $38 million primarily due
to cost reductions, including lower general and administrative expenses of
approximately $90 million and the inclusion of LucasVarity of approximately $30
million, offset in part by lower pricing of $30 million, unfavorable sales mix,
including losses on new product introductions and production inefficiencies, of
approximately $50 million and the one-time noncash effect of the LucasVarity
inventory adjustment of $4 million.
Sales of $1,137 million for 1998 were $115 million higher than the $1,022
million in 1997, primarily due to increased volume of $115 million which was
offset in part by lower pricing of approximately $35 million and the effects of
a strong U.S. dollar of approximately $5 million.
Profit before taxes for 1998 was $73 million, or $86 million excluding
restructuring costs of $13 million, compared to $70 million in 1997. The
increase resulted primarily from cost reductions of approximately $70 million,
offset in part by lower pricing of approximately $35 million, higher research
and development costs of approximately $15 million and start-up costs associated
with new product launches of $5 million.
Other Automotive
<TABLE>
<CAPTION>
(In millions)
Years ended 1999 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $1,610 $ 821 $ 809
Profit before taxes 115 84 98
- ------------------------------------------------------------------------------
</TABLE>
Sales for 1999 of $1,610 million increased $789 million from $821 million in
1998, primarily due to the inclusion of LucasVarity of $741 million and higher
volume of approximately $75 million, offset in part by the effects of a strong
U.S. dollar of approximately $25 million.
30 TRW INC.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
Profit before taxes for 1999 of $115 million increased $31 million from $84
million in 1998. Restructuring charges included in profit before taxes in 1999
and 1998 were approximately $2 million and $5 million, respectively. Excluding
restructuring charges, profit before taxes increased $28 million, due primarily
to the inclusion of LucasVarity of approximately $20 million and cost
reductions, including general and administrative expense reductions, of $20
million, offset by unfavorable pricing of $7 million and unfavorable product mix
and production inefficiencies of approximately $6 million.
Sales for 1998 were $821 million compared to $809 million in 1997. The increase
primarily resulted from higher volume of $35 million, offset by lower pricing of
approximately $10 million, the effects of a strong U.S. dollar of approximately
$5 million and the effect of weakening economic conditions in Brazil and Asia of
$5 million.
Profit before taxes of $84 million for 1998 was $14 million lower than the $98
million in 1997. The decrease was due to lower pricing of $10 million, the
effects of unfavorable economic conditions in Brazil and Asia of $5 million, and
restructuring costs of $5 million, offset in part by cost reductions of
approximately $10 million and lower research and development costs of
approximately $10 million.
On May 17, 1999, the Company announced plans to 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 Company is no
longer pursuing the disposition of TRW Engine Components due to market
conditions. Sales of the businesses to be divested, included in the Other
Automotive segment, were approximately $820 million, $70 million and $65 million
for the years ended December 31, 1999, 1998 and 1997, respectively. Profit
before taxes for those businesses included in the Other Automotive segment were
approximately $30 million in 1999 and $10 million in 1998 and in 1997. The
disposition of Lucas Diesel Systems was substantially completed on January 7,
2000. The Company also reached a definitive agreement to sell TRW Nelson Stud
Welding, which is expected to close by the end of the first quarter of 2000.
During 1999, a wiring business was sold. The sale of the remaining wiring
business is expected to be completed by the end of the first quarter of 2000.
The disposition of these businesses will affect the sales and profit before
taxes of the Other Automotive segment in 2000 from the date of disposition.
Automotive Restructuring
On July 29, 1998, the Company announced actions to enhance the profit margins of
the legacy Automotive segments by initiating the following actions: close 10 to
15 percent of the Company's then-existing 137 manufacturing plants; reduce
employment by 7,500; eliminate $75 million of selling, general and
administrative costs per year; reduce the cost of material through more
effective use of global sourcing and purchasing and reduce the number of
automotive suppliers by 50 percent; improve productivity by reducing
manufacturing costs by at least 25 percent over the next few years through the
use of lean manufacturing practices and improved quality; and reduce aggregate
capital expenditures by $300 million over the next five years. To implement
these changes, the Company expects to record before-tax charges of up to $150
million by the end of 2000. The Company recorded restructuring expenses of $80
million and $24 million for the years ended December 31, 1999 and 1998,
respectively. The Company closed six plants during 1999, bringing the total to
11. Five additional plants are currently in the process of closure or sale. The
Company reduced employee headcount by more than 4,800 against a goal of 7,500.
The Company has also reduced the number of suppliers by approximately 5,000,
exceeding the goal. In addition, on an annual basis, $75 million of selling,
general and administrative expense reductions have been achieved.
During 1999, the Company approved several restructuring actions to integrate the
LucasVarity automotive businesses with the legacy automotive businesses and to
dispose of several nonstrategic or inefficient facilities, discontinue
production of low-margin products and relocate certain facilities. The Company
recorded approximately $27 million of restructuring costs, primarily severance,
as part of the purchase price allocation. During 1999, $14 million was used
primarily for severance payments and the remaining balance of $13 million is
expected to be used during 2000.
The Company is evaluating further restructuring actions in the Chassis Systems
and Automotive Electronics segments as LucasVarity becomes integrated with the
legacy automotive businesses. Additional restructuring costs may be incurred,
some of which may affect the purchase price allocation.
Automotive Outlook
The Company anticipates that North American and Western European automotive and
light truck production in 2000 will be down slightly from the 1999 levels. The
Company foresees growth in the emerging markets of Central and Eastern Europe
and Asia Pacific. Strong price pressure, characteristic of the automotive supply
industry, is expected to continue across all product lines. The Company's goal
is to mitigate the pricing pressure by restructuring the automotive businesses
and by continuing cost reduction efforts.
The Company has invested and continues to invest in products with significant
potential growth or technological advantage, such as electrically assisted
steering, advanced restraint systems, advanced braking systems, power rack and
pinion steering, advanced electronic components and new air bag technologies.
TRW INC. 31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
Aerospace & Information Systems Segments
Space & Electronics
<TABLE>
<CAPTION>
(In millions)
Years ended 1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $1,870 $1,922 $2,005
Profit before taxes 500 266 204
- -------------------------------------------------------------------------------
</TABLE>
Sales of $1,870 million for 1999 decreased $52 million from the $1,922 million
in 1998, primarily due to lower volume on several defense programs nearing
completion or completed during the year of approximately $110 million and
termination of the SBIRS Low demonstration and validation contract of
approximately $100 million, offset in part by sales from new awards, including
the start-up in the commercial satellite communication line of business, of $85
million, and higher volume on existing core programs of approximately $75
million.
Profit before taxes for 1999 and 1998 was $500 million and $266 million,
respectively. Profit before taxes in 1999 included the following unusual items:
gains of $335 million related to RFMD stock and the sale of land of $11 million,
partially offset by the write-off of the Company's investment in ICO of $79
million and a charge for a capped cost reimbursable contract for the U.S. Army
of $11 million. Profit before taxes in 1998 included the following unusual
items: a gain of $49 million from the settlement of certain patent litigation
and a $15 million charge for litigation. Excluding these unusual items, profit
before taxes increased $12 million in 1999 primarily from improved contract
performance.
Sales for 1998 of $1,922 million decreased $83 million from the $2,005 million
in 1997 primarily due to lower volume on existing programs of approximately $90
million, offset in part by $45 million from new contract awards.
Profit before taxes for 1998 of $266 million increased from the $204 million in
1997. Without the unusual items in 1998 described above, profit before taxes
would have increased $28 million primarily from favorable contract performance
of approximately $20 million and profit from new contract awards of
approximately $5 million.
Backlog at the end of 1999 was $3 billion, 11 percent higher than the $2.7
billion reported at December 31, 1998. The award of several key programs in both
the defense and nondefense markets contributed to the increase. Backlog at
December 31, 1999 and 1998, does not include approximately $725 million and $500
million, respectively, of negotiated and priced, but not exercised, options for
defense and nondefense programs. The exercise of the options is at the
discretion of the customer, and in the case of government contracts, is
dependent on future government funding.
Systems & Information Technology
<TABLE>
<CAPTION>
(In millions)
Years ended 1999 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $2,869 $2,763 $1,794
Profit before taxes 86 192 144
- ------------------------------------------------------------------------------
</TABLE>
Sales for 1999 of $2,869 million increased $106 million from the $2,763 million
in 1998 primarily due to new business of approximately $125 million and higher
volume on existing programs, including space and missile systems contracts, of
approximately $190 million. The higher sales were mitigated by lower volume on
contracts nearing completion or completed during the year of approximately $150
million, lower volume associated with the discontinued warehouse management
product and the decline of the Y2K and enterprise resource planning integration
business, of $65 million.
Profit before taxes for 1999 and 1998 was $86 million and $192 million,
respectively. Profit before taxes for 1999 included a charge of $82 million to
reflect primarily noncash costs for the discontinuance of a certain warehouse
management systems business and the sale of a software security product line,
and a charge of $33 million for a commercial fixed-price contract, partially
offset by $16 million of gains from the sale of certain nonstrategic assets.
Profit before taxes for 1998 included charges of $26 million for contract
reserves and severance costs relating to the integration of the Company's
Systems & Information Technology business with BDM. Excluding these unusual
items, profit before taxes for 1999 decreased $33 million, primarily due to
losses associated with the discontinued warehouse management product of $11
million and the decline of the Y2K and enterprise resource planning integration
business of $14 million.
Sales for 1998 of $2,763 million rose from the $1,794 million in 1997, primarily
due to the acquisition of BDM of $885 million and an increase in sales from new
contract awards of $245 million, offset in part by a contract modification
announced in 1998 and lower volume on existing contracts of approximately $60
million and $110 million, respectively.
32 TRW INC.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
Profit before taxes for 1998 of $192 million increased from the $144 million in
1997, primarily due to the acquisition of BDM, which contributed $52 million,
new contract awards of $15 million and improved program performance of $20
million. The increase in 1998 was offset in part by charges for contract
reserves and severance of $26 million.
Backlog increased 19 percent to $3.7 billion at December 31, 1999 from $3.1
billion at the end of 1998. The increase in backlog was primarily due to the
award of several key programs in the segment's defense markets. The segment also
received key awards in the civil and commercial markets. Backlog at December 31,
1999 and 1998, does not include approximately $4.5 billion and $5.3 billion,
respectively, of negotiated and priced, but not exercised, options for defense
and nondefense programs. The exercise of the options is at the discretion of the
customer and, in the case of government contracts, is dependent on future
government funding.
Space & Electronics and Systems & Information Technology Segments' Outlook
Government funding for contracts in the Space & Electronics and the Systems &
Information Technology segments is expected to remain stable while certain
contracts remain fiscally constrained. However, increased defense, intelligence,
telecommunication and information technology spending is expected to have a
favorable impact on many of the segments' major contracts and core businesses.
The Company does not anticipate any significant unfavorable operational effects
related to program terminations or budget reallocations. The continuing focus on
diversification of the segments' sales mix has led to civil, state, commercial
and international contracts, that further position the segments for growth. The
Company believes that the diversity of its programs helps mitigate the Company
from both funding fluctuations and the economic uncertainty of global markets.
The segments remain focused on investing in new technologies, bidding and
winning new contracts and continuing to provide outstanding products and
services to customers.
Aeronautical Systems
<TABLE>
<CAPTION>
(In millions)
Years ended 1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $ 902 $ --- $ ---
Profit before taxes 123 --- ---
- -------------------------------------------------------------------------------
</TABLE>
Sales and profit before taxes for the Aeronautical Systems segment of $902
million and $123 million, respectively, are attributable entirely to the sales
and profit before taxes of the LucasVarity aerospace business from March 25,
1999, the date of acquisition, through December 31, 1999, including two
additional acquisitions during 1999. The sales included in the segment of the
businesses acquired were approximately $45 million.
The Company recorded approximately $13 million for severance and other costs to
close certain facilities. The cost was included in the purchase price allocation
and reported in other accruals. During 1999 the reserve was reduced by $9
million for severance and lease termination costs. The balance of $4 million at
December 31, 1999, will be used primarily for severance payments in 2000.
Due to the Aeronautical Systems segment's position on the growing Airbus
platforms, sales of original equipment are expected to be sustained despite an
overall reduction in deliveries of large airliners from their peak in 1999. The
demand for aftermarket repair and overhaul services and related replacement
parts will continue to be sustained by modest growth in airline traffic. Price
pressure is expected to continue but is expected to be mitigated by continued
operational improvements.
Acquisitions
LucasVarity
On March 25, 1999, the Company acquired LucasVarity for approximately $6.8
billion in cash and assumed net debt. The acquisition was accounted for as a
purchase. 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 (IPR&D) that had not reached technological
feasibility and had no future alternative use, $504 million for identifiable
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, $200 million for the valuation
of fixed rate debt, and an increase of $30 million and $143 million for the
valuation of inventory and fixed assets, respectively.
The fair value of IPR&D was determined by an independent valuation using the
income approach under the proportional method. The following projects were
included in the valuation: next generation caliper of $26 million, next
generation anti-lock braking systems (ABS) of $23 million, aerospace engine
controls of $18 million, electro hydraulic braking of $12 million and electrical
parking brake of $6 million. The fair value of identifiable intangibles was also
determined by an independent valuation primarily
TRW INC. 33
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
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 by 2002. The
estimated cost to complete the projects was $65 million.
As of December 31, 1999, the next generation caliper project was completed. The
Company currently anticipates that the remainder of the 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 the
Company.
Restructuring costs, primarily severance, included in the purchase price
allocation were approximately $47 million. The reserve was established for
facility consolidations, relocation of certain facilities, elimination of the
LucasVarity corporate facilities and divestiture of nonstrategic or inefficient
facilities in the automotive and aerospace businesses. The balance at December
31, 1999, reported in other accruals, was $18 million and will be used primarily
for severance payments during 2000.
The financial effect of LucasVarity has been accretive to the financial results
of the Company for 1999.
Astrolink LLC
During 1999, the Company announced that it would invest $255 million in
Astrolink LLC, a strategic venture initiated by Lockheed Martin, of which the
Company invested $83 million in 1999. In addition to the Company's investment,
Lockheed Martin Global Telecommunications will invest $400 million, Telespazio,
a Telecom Italia Group Company, will invest $250 million and Liberty Media Group
will invest $425 million. Astrolink has commitments for $1.3 billion in equity,
which is substantially all of Astrolink's targeted equity. With this funding,
Astrolink commenced construction of a satellite-based network that will enable
it to provide on-demand, wireless broadband data communication services on a
global basis.
Astrolink will focus on the high growth area of broadband multimedia, offering
high-speed, high-quality, flexible, global bandwidth-on-demand services to large
corporate customers and other consumers. The Company will build Astrolink's
satellite communication payloads. These payloads will be sophisticated, orbiting
switches designed to receive data signals in individually addressed packets from
multiple ground cells, route the data, and transmit the data to the appropriate
ground cell based on the destination address. In addition, the Company payloads
will allow Astrolink to offer its customers "bandwidth-on-demand," the ability
to use, and pay for, only the bandwidth they actually need, avoiding the higher
cost of a dedicated connection with a fixed amount of bandwidth. The Company
also has the opportunity to be an Astrolink service provider.
BDM International, Inc.
On December 24, 1997, the Company acquired the stock of BDM for cash of $880
million plus assumed net debt of $85 million. With the acquisition of BDM, the
Company attempted to gain greater capability to serve the fast-growing market
for government information technology as well as the very large, high-growth
commercial information technology market. The acquisition was accounted for as a
purchase with the purchase price allocated to the net assets acquired based on
their fair values and to costs for employee severance of $8 million. During
1998, the reserve balance was used for severance payments. The purchase price
allocation resulted in a $548 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,
$152 million of identifiable intangible assets, including core and developed
technology, workforce and trade name and goodwill of $205 million. The
intangible assets are being amortized over an average period of 15 years.
The fair values of in-process research and development and identifiable
intangible assets were determined by an independent valuation using the income
approach. Eight commercial projects were included in the valuation. The major
projects included: a commercial market adaptation of core network security to
achieve the highest level of network security of $201 million; a Web-enabled and
substantially enhanced warehouse and distribution management project of $199
million; and a module to enhance certain applications to become compliant with
the single European currency for a particular software of $69 million.
Due to the high level of risk associated with the successful development of the
projects arising from competition, shift in the market, technological
feasibility or timeliness to market, discount rates between 25 percent and 30
percent were used to discount the projects' cash flows. Operating margins were
assumed to be similar to historical margins of similar products. The market size
was verified for reasonableness with outside research sources. The projects were
in various stages of completion, ranging from approximately one-third to two-
thirds, as of the valuation date. The stage of completion for each project was
estimated by evaluating the complexity of the technology, time to market and the
cost. Substantially all of the projects were expected to be complete by the end
of 1999.
34 TRW INC.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
During the fourth quarter 1999, the Company made a decision to discontinue the
development of the Web-enabled warehouse and distribution project due to
competitive pressures in the warehouse and distribution market resulting from a
competitor's new systems approach enabling these systems to be implemented in a
modular approach. This modular approach offered nearly similar functionality at
a lower cost and with reduced implementation risk to the customer. Also during
the fourth quarter 1999 the Company made a decision to discontinue the sale of
the network security product due to changes in the market for this product. Four
key factors contributed to the change in the Company's addressable market for
this product: the constraints due to hardware adaptability; the lack of current
interest in the commercial market for high-end capability which would command a
premium price; the fact that a number of competitive products had become
available; and the increase in Internet traffic resulting in former smaller
sites growing to larger sites that require different technology.
The research and development of the European currency project was divested in
November 1998 as part of a transaction that included the sale of the Company's
assets in its enterprise resource planning software distribution business in the
United Kingdom and the Netherlands. As part of the agreement, the Company
received $20 million in cash for its related assets, $1.4 million for completion
of the development of the European currency project and was named a global
systems integrator for all of the acquirer's products. The assets were sold at
book value; thus, no gain or loss was recognized in the statement of operations.
Also, the acquirer became a distributor for two of the Company's developed
software applications.
Although circumstances associated with the three major projects changed
substantially subsequent to the valuation, none of these facts or circumstances
were known, contemplated or contingent as of the date the valuation was
completed in January 1998.
The Company has re-evaluated the carrying values of the identifiable intangible
assets recorded as part of the purchase price for impairment, and based on the
decisions in the fourth quarter 1999 to discontinue certain products within the
warehouse management systems and software security product lines, the Company
recorded a charge to write-down the carrying value of identifiable intangibles
by $75 million. The Company re-evaluated the carrying value of the remaining
identifiable intangible assets of $58 million as of December 31, 1999 for
impairment and has concluded that the carrying values of the identifiable
intangible assets will be recovered.
The financial effect of BDM was relatively neutral to the Company's 1998
earnings. Excluding the write-off of identifiable intangibles of $75 million,
the estimate of BDM earnings was dilutive in 1999 due to losses on the products
discontinued during the fourth quarter. A major portion of the business
associated with the value determined by the purchase price allocation,
accounting for approximately 65 percent of the total purchase price, will not be
implemented into the Company's current business.
Air Bag and Steering Wheel Businesses of Magna International
During 1997, the Company acquired an 80 percent equity interest in the air bag
and steering wheel businesses of Magna International for cash of $415 million
plus assumed net debt of $50 million. The remaining 20 percent of Magna
International was acquired in 1998 for cash of $102 million. These businesses
supply air bag modules, inflators, propellants, steering wheels and other
related automotive components. The acquisitions were accounted for as a
purchase; accordingly, the combined purchase price has been allocated to the net
assets acquired based on their estimated fair values and to costs for certain
restructuring actions, primarily plant closing and severance costs of $40
million. As of December 31, 1999 and 1998, the balance of the restructuring
reserve, included in other accruals, was $6 million and $18 million,
respectively. During 1999, the reserve was reduced by $6 million due to a
decision not to close one manufacturing facility and by $6 million primarily for
severance payments. During 1998, $6 million was used for severance payments, $7
million for plant closure costs and the reserve was reduced by $9 million due to
a change in estimate for severance payments. The remaining reserve will be used
primarily for severance and plant closure costs in 2000. Goodwill was $330
million and is being amortized over 40 years.
See the "Acquisitions" note to Financial Statements for further discussion of
the acquisitions of LucasVarity, BDM and the air bag and steering wheel
businesses of Magna International.
International Operations
International sales were $7.7 billion, or 45 percent of the Company's sales in
1999; $4.5 billion, or 38 percent in 1998; and $4.4 billion, or 40 percent of
sales in 1997. U.S. export sales included in those amounts were $1,039 million
in 1999, $674 million in 1998 and $732 million in 1997. The increase in
international and U.S. export sales in 1999 was due primarily to the LucasVarity
acquisition. Most of the Company's non-U.S. operations are included in the
Systems & Information Technology, Aeronautical Systems and the four Automotive
segments and are located primarily in Europe, Mexico, Canada, Brazil and the
Asia Pacific region. The Company's non-U.S. operations are subject to the usual
risks that may affect such operations; however, most of the assets of its non-
U.S. operations are in countries where the Company believes such risks to be
minimal.
TRW INC. 35
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
Liquidity and Financial Position
Cash flow from operations in 1999 of $1,522 million, additional borrowings of
$5,455 million and proceeds from the sale of nonstrategic assets of $432 million
were used primarily for acquisitions of $6,095 million, capital expenditures of
$865 million, dividend payments of $160 million and other items of $144 million.
As a result, cash and cash equivalents increased $145 million. Cash flow from
operations in 1998 of $661 million and additional borrowings of $522 million
were used primarily for capital expenditures for property, plant and equipment
and other intangible assets of $625 million, acquisitions of $249 million,
purchases of the Company's common stock of $184 million, of which $5 million was
for the settlement of shares purchased in 1997, and dividend payments of $154
million.
Net debt (short-term debt, the current portion of long-term debt and long-term
debt, less cash and cash equivalents) was $8.3 billion at December 31, 1999,
compared to $2.1 billion and $1.6 billion at December 31, 1998 and December 31,
1997, respectively. The ratio of net debt to total capital (net debt, minority
interests and shareholders' investment) was 75 percent, 52 percent and 48
percent at December 31, 1999, 1998 and 1997, respectively. The percentage of
fixed rate debt to total debt was 46 percent and 52 percent at the end of 1999
and 1998, respectively.
Capital expenditures for property, plant and equipment and other intangible
assets, primarily internal-use software, were $865 million in 1999, $625 million
in 1998 and $571 million in 1997. The Company will maintain a capital program
with estimated capital expenditures for 2000 totaling approximately $875
million. Approximately two-thirds of these expenditures will be invested in the
Automotive segments and one-third in the Aerospace & Information Systems
segments. The Company will continue to invest in its Automotive segments' growth
businesses, including electrically assisted steering, advanced restraint
systems, advanced braking systems, power rack and pinion steering and advanced
electronic components. The Aerospace & Information Systems segments'
expenditures will be used to support major new contract awards and the existing
businesses, as well as research and development of next-generation technologies.
The Company received fully underwritten financing for the acquisition of
LucasVarity in the form of a $7.4 billion two-tranche credit agreement. Tranche
one of $3.7 billion expired December 31, 1999 and tranche two of $3.7 billion
was cancelled by the Company in 2000.
During the first quarter of 1999, the Company amended the terms of its $750
million multi-year and $745 million U.S. revolving credit agreements and its
$250 million multicurrency revolving credit agreement to change 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 to January 26,
2000. The Company terminated each of these agreements simultaneous with the
establishment of its new agreements in January 2000.
On January 25, 2000, the Company established two committed revolving credit
agreements in an aggregate amount of $3.3 billion with 29 banks. The first
agreement for $2.3 billion will expire on January 23, 2001 with an option to
extend the maturity of outstanding borrowings at that time to January 23, 2002.
The second agreement for $1 billion will expire on January 25, 2005. The
interest rates under the agreements are either the prime rate or a rate based on
the London Interbank Offered Rate (LIBOR), at the option of the Company.
During the second quarter of 1999, the Company refinanced $3.4 billion of short-
term debt by issuing notes and debentures with $575 million Floating Rate Notes
due 2000, based on a three-month LIBOR, $425 million 6.45% Notes due 2001, $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. The Company's
effective obligation on the $425 million 6.45% Notes due 2001 was simultaneously
changed to a floating rate based on a three-month LIBOR through the execution of
a $425 million interest rate swap.
During the third quarter of 1999, the Company refinanced commercial paper by
entering into $100 million of bank borrowings due September 2000. The interest
rate under the agreement is a floating rate based on a three-month LIBOR.
At December 31, 1999, $1 billion of short-term obligations were reclassified to
long-term obligations as the Company intends to refinance the obligations on a
long-term basis and has the ability to do so under its existing credit
agreements.
The Company established a $2.5 billion Universal Shelf Registration Statement
during 1999 with the entire amount remaining available at December 31, 1999.
Securities that may be issued under this shelf registration statement include
debt securities, common stock, warrants to purchase debt securities, warrants to
purchase common stock, stock purchase contracts and stock purchase units.
As a result of the debt incurred for the LucasVarity acquisition, ratings on the
Company's short and long-term debt were lowered. Moody's Investors Service has
rated the Company's commercial paper at P-2 and senior unsecured debt at Baa1.
Standard & Poor's has rated the Company's commercial paper at A-2 and senior
unsecured debt at BBB. These rating changes have not had a material impact on
the Company's ability to raise funds in the capital markets.
36 TRW INC.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
Subsequent to the acquisition of LucasVarity, the Company established a goal of
reducing its net debt by approximately $2.5 billion by the end of 2000. As of
December 31, 1999, net debt had been reduced by over $1 billion from the level
immediately after the acquisition of LucasVarity. Additional debt reduction will
be achieved through operating cash flow, working capital improvements, sale of
noncore businesses, disposal of nonrevenue producing assets and management of
expenditures.
During 1999, the Company sold shares of RFMD for $329 million, of which $302
million was received in cash in 1999. The additional $27 million was received in
January 2000. At December 31, 1999, the Company owned approximately 14.2 million
shares representing approximately 18 percent of the outstanding common stock.
The fair value of the Company's investment in RFMD at December 31, 1999, was
approximately $1 billion and has been reflected in the balance sheet of the
Company in investments in affiliated companies.
On January 7, 2000, the sale of Lucas Diesel Systems for approximately $875
million was substantially completed. On January 13, 2000, the Company reached a
definitive agreement to sell TRW Nelson Stud Welding which is expected to be
completed by the end of the first quarter of 2000. During 1999, a wiring
business was sold for approximately $45 million. The sale of the remaining
wiring business is expected to be completed during the first quarter of 2000.
At December 31, 1999, the Company had a working capital deficiency of
approximately $1.5 billion primarily due to the issuance of debt incurred to
purchase LucasVarity. Management believes that sufficient resources, from funds
generated by operations, dispositions and existing borrowing capacity, are
available to maintain liquidity.
The Company is subject to inherent risks attributed to operating in a global
economy. It is the Company's policy to utilize derivative financial instruments
to manage its interest rate and foreign currency exchange rate risks. When
appropriate, the Company uses derivatives to hedge its exposure to short-term
interest rate changes as a lower cost substitute for the issuance of fixed-rate
debt and as a means of securing long-term, floating-rate debt. Also, the Company
may use interest rate agreements in the management of interest rate exposure on
debt issuances. The Company 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 the Company's cash flow from adverse
movements in exchange rates.
The Company is exposed to credit loss in the event of nonperformance by the
other party to the derivative financial instruments. The Company limits this
exposure by entering into agreements with a number of major financial
institutions that meet credit standards established by the Company and that are
expected to satisfy fully their obligations under the contracts. Derivative
financial instruments are viewed by the Company as a risk management tool and
are not used for speculative or trading purposes.
Based on the Company's interest rate exposure on variable rate borrowings at
December 31, 1999, including fixed-rate borrowings exposed due to an interest
rate swap, a one-percentage-point increase in the average interest rate on the
Company's variable rate borrowings would increase future interest expense by
approximately $47 million per year. Based upon the Company's interest rate
exposure with regard to a forward starting interest rate swap outstanding at
December 31, 1999, a 10 percent increase in fixed interest rates would result in
a $5 million loss in fair value. Based on the Company's exposure to foreign
currency exchange rate risk resulting from derivative foreign currency
instruments outstanding at December 31, 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 $72
million loss in fair value.
The Company'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. The
Company'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.
Management believes the Company's current financial position and financing
arrangements allow flexibility in worldwide financing activities and permit the
Company to respond to changing conditions in credit markets. Management believes
that funds generated from operations, divestitures and existing borrowing
capacity are adequate to fund debt service requirements, capital expenditures,
working capital including tax requirements, company-sponsored research and
development programs and dividend payments to shareholders.
TRW INC. 37
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
Contingencies
TRW Vehicle Safety Systems Inc., a wholly-owned subsidiary of the Company,
reported to the Arizona Department of Environmental Quality, or ADEQ, in 1997,
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, the United States
Environmental Protection Agency, the United States Department of Justice and the
Arizona State Attorney General are conducting civil and criminal investigations
into these potential violations and the Company is cooperating with these
investigations. If proceedings were to be initiated against the Company with
respect to such matters, the Company could be liable for penalties and fines and
other relief. The Company is currently engaged in settlement discussions with
state and federal officials. The Company is not able to predict the outcome of
these discussions at this time.
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" note to Financial Statements for further discussion
of these matters.
Year 2000
A company-wide Year 2000 (Y2K) compliance program was implemented to determine
Y2K issues and assure Y2K compliance. The Company's Y2K compliance program also
encompassed the Y2K program of LucasVarity. The compliance program had four
major areas: internal computer systems, factory floor systems, supplier and
service management and products and contracts.
The Company did not experience any material disruption due to Y2K in any of its
facilities or operations, and business resumed as planned after the millennium
rollover. Since January 1, 2000, the Company has not experienced and does not
expect any significant impact on its operations as a result of Y2K. The Company
is not aware of any Y2K problems with its customers or suppliers. In the event
that such Y2K issues should arise, contingency plans developed for Y2K or
business continuity plans, as appropriate, would be utilized.
The total cost of the Company's Y2K compliance program, including the cost of
LucasVarity from the date of acquisition, is estimated to be $180 million and
includes $101 million for capitalizable costs and $79 million of costs that are
being expensed as incurred. The Company has expensed approximately $77 million
and capitalized $101 million to date.
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 until January 1, 2002.
The Company 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. The Company
established a Euro project team to manage changes required to conduct its
business operations in compliance with Euro-related regulations. The Company'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.
The Company does not expect the conversion to the Euro to have a material effect
on its financial condition or results of operations.
38 TRW INC.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
Forward-Looking Statements
Statements in this filing that are not statements of historical fact may be
forward-looking statements. In addition, from time to time, the Company and its
representatives make statements that may be 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 the Company'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, the Company.
The following are some of the factors that could cause actual results to differ
materially from estimates contained in the Company's forward-looking statements:
The Company's consolidated results could be affected by: unanticipated events
and circumstances that may occur and render the Company's acquisition of
LucasVarity less beneficial to the Company than anticipated; intense competition
in our markets that make it impossible to guarantee that the Company will
achieve the expected financial and operating results and synergies from the
acquisition of LucasVarity; the ability of the Company 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
asset dispositions; 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.
The Company's automotive businesses 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 recall and warranty claims;
product liability issues; and changes to the regulatory environment regarding
automotive safety.
The Company's aerospace and information systems businesses 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 above list of important factors is not exclusive. We caution that any
forward-looking statement reflects only the beliefs of the Company 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.
- --------------------------------------------------------------------------------
Aerospace & Information Systems Business - Defense and Intelligence Systems
The following information is being provided in response to shareholder requests
for additional information regarding the Company's Aerospace & Information
Systems business. TRW's skills and resources are an integral part of the
nation's defense and intelligence communities. TRW is a world-class integrator
of complex, mission-critical ground and space communication systems enabling the
exploitation of massive data streams from spaceborne assets. Space-based missile
warning and communications systems are integral to the nation's strategic
posture and real-time imagery is critical to tactical battlefield commanders.
The Company believes that its participation in these and other defense projects
has contributed both to global peace and to the protection of our armed forces,
while providing jobs for employees and contributions to shareholder value. The
Company believes its participation in these projects is entirely consistent with
the highest standards of legal and ethical conduct.
The Aerospace & Information Systems business has diversified into non-Department
of Defense contracts. In 1999, 47 percent of the business' sales were from non-
Department of Defense customers. This compares to 38 percent in 1998. The
Company's Aerospace & Information Systems business spent approximately $1.6
billion in research and development in 1999, of which $1.2 billion was
government funded.
TRW INC. 39
<PAGE>
MANAGEMENT & AUDITORS' REPORT
REPORT OF MANAGEMENT
Management of TRW is responsible for the preparation of the accompanying
consolidated financial statements of the Company and its subsidiaries. The
financial statements have been prepared in conformity with accounting principles
generally accepted in the United States and include the estimates and judgments
of management. The financial statements have been audited by Ernst & Young LLP,
independent auditors, whose report appears below.
Management has established and is responsible for maintaining a system of
internal accounting controls that it believes provides reasonable assurance that
assets are safeguarded and transactions are executed and recorded in accordance
with management's authorization. The system is tested and evaluated regularly by
the Company's internal auditors as well as by the independent auditors in
connection with their annual audit.
TRW has an audit committee composed of four independent Directors who are not
members of management. The committee meets regularly with management, the
internal auditors and the independent auditors in connection with its review of
matters relating to the Company's financial statements, the Company's internal
audit program, the Company's system of internal accounting controls and the
services of the independent auditors. The committee also meets with the internal
auditors as well as the independent auditors, without management present, to
discuss appropriate matters. The committee also recommends to the Directors the
appointment of the independent auditors.
/s/ Joseph T. Gorman /s/ Carl G. Miller /s/ Thomas A. Connell
Joseph T. Gorman Carl G. Miller Thomas A. Connell
Chairman and Executive Vice President and Vice President and
Chief Executive Officer Chief Financial Officer Corporate Controller
January 21, 2000
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholders and Directors, TRW Inc.
We have audited the accompanying consolidated balance sheets of TRW Inc. and
subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of operations, cash flows and changes in shareholders' investment for
each of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of TRW Inc. and
subsidiaries at December 31, 1999 and 1998, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
/s/ Ernst & Young LLP
Ernst & Young LLP
Cleveland, Ohio
January 21, 2000
40 TRW INC.
<PAGE>
FINANCIAL STATEMENTS
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
TRW Inc. and subsidiaries
(In millions except per share data)
Years ended December 31 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $16,969 $11,886 $10,831
Cost of sales 13,879 9,715 8,826
- --------------------------------------------------------------------------------
Gross profit 3,090 2,171 2,005
Administrative and selling expenses 1,150 826 684
Research and development expenses 609 522 461
Purchased in-process research and development 85 -- 548
Interest expense 477 114 75
Amortization of goodwill and intangible assets 195 43 13
Other (income)expense-net (213) (80) (16)
- --------------------------------------------------------------------------------
Earnings before income taxes 787 746 240
Income taxes 318 269 289
- --------------------------------------------------------------------------------
Net earnings(loss) $ 469 $ 477 $ (49)
- --------------------------------------------------------------------------------
Per share of common stock
Diluted earnings(loss) per share $ 3.80 $ 3.83 $ (.40)
Basic earnings(loss) per share 3.87 3.93 (.40)
Dividends declared 1.32 1.28 1.24
- --------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
TRW INC. 41
<PAGE>
FINANCIAL STATEMENTS
BALANCE SHEETS
<TABLE>
<CAPTION>
TRW Inc. and subsidiaries
(In millions)
December 31 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 228 $ 83
Accounts receivable (net of allowances of $54 million in 1999 and $33 million in 1998) 2,480 1,721
Inventories
Finished products and work in-process 612 316
Raw materials and supplies 427 300
- --------------------------------------------------------------------------------------------------------------------
Total inventories 1,039 616
Prepaid expenses 202 104
Net assets of acquired businesses held for sale 827 --
Deferred income taxes 423 179
- --------------------------------------------------------------------------------------------------------------------
Total current assets 5,199 2,703
Property, plant and equipment-on the basis of cost
Land 139 119
Buildings 1,973 1,706
Machinery and equipment 5,914 4,779
- --------------------------------------------------------------------------------------------------------------------
8,026 6,604
Less accumulated depreciation and amortization 4,132 3,921
- --------------------------------------------------------------------------------------------------------------------
Total property, plant and equipment-net 3,894 2,683
Intangible assets
Goodwill 3,743 850
Other intangible assets 948 360
- --------------------------------------------------------------------------------------------------------------------
4,691 1,210
Less accumulated amortization 360 143
- --------------------------------------------------------------------------------------------------------------------
Total intangible assets-net 4,331 1,067
Investments in affiliated companies 1,185 243
Long-term deferred income taxes -- 33
Other notes and accounts receivable 257 227
Prepaid pension cost 2,876 171
Other assets 524 213
- --------------------------------------------------------------------------------------------------------------------
$18,266 $ 7,340
-------------------
Liabilities and shareholders' investment
Current liabilities
Short-term debt $ 2,444 $ 839
Accrued compensation 468 377
Trade accounts payable 1,638 964
Other accruals 1,277 633
Dividends payable 40 40
Income taxes 104 137
Current portion of long-term debt 758 30
- --------------------------------------------------------------------------------------------------------------------
Total current liabilities 6,729 3,020
Long-term liabilities 1,991 995
Long-term debt 5,369 1,353
Deferred income taxes 1,352 --
Minority interests in subsidiaries 113 94
Shareholders' investment
Serial Preference Stock II (involuntary liquidation $6 million in 1999 and $7 million in 1998) -- --
Common stock (shares outstanding 122 million in 1999 and 119.9 million in 1998) 76 75
Other capital 465 457
Retained earnings 2,312 2,021
Treasury shares-cost in excess of par value (549) (637)
Accumulated other comprehensive income(loss) 408 (38)
- --------------------------------------------------------------------------------------------------------------------
Total shareholders' investment 2,712 1,878
- --------------------------------------------------------------------------------------------------------------------
$18,266 $ 7,340
-------------------
</TABLE>
See notes to financial statements.
42 TRW INC.
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
TRW Inc. and subsidiaries
(In millions)
Years ended December 31 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net earnings(loss) $ 469 $ 477 $ (49)
Adjustments to reconcile net earnings(loss) to
net cash provided by operating activities
Purchased in-process research and development 85 -- 548
Asset write-off 153 -- --
Gain on sale of nonoperating assets (332) -- --
LucasVarity pension income (192) -- --
Depreciation and amortization 850 566 490
Deferred income taxes 233 (223) 116
Other-net 104 8 10
Changes in assets and liabilities, net of
effects of businesses acquired or sold
Accounts receivable 86 (27) 32
Inventories 115 (46) (23)
Trade accounts payable -- 74 (3)
Prepaid expenses and other liabilities (157) (174) (166)
Other-net 108 6 (1)
- --------------------------------------------------------------------------------
Net cash provided by operating activities 1,522 661 954
Investing activities
Acquisitions, net of cash acquired (6,095) (249) (1,270)
Capital expenditures including other intangibles (865) (625) (571)
Net proceeds from divestitures 432 14 --
Other-net (186) 3 24
- --------------------------------------------------------------------------------
Net cash used in investing activities (6,714) (857) (1,817)
Financing activities
Increase(decrease) in short-term debt 1,486 (167) 912
Proceeds from debt in excess of 90 days 6,245 1,086 113
Principal payments on debt in excess of 90 days (2,276) (397) (89)
Dividends paid (160) (154) (154)
Acquisition of common stock -- (184) (247)
Other-net 40 26 41
- --------------------------------------------------------------------------------
Net cash provided by financing activities 5,335 210 576
Effect of exchange rate changes on cash 2 (1) (29)
- --------------------------------------------------------------------------------
Increase(decrease) in cash and cash equivalents 145 13 (316)
Cash and cash equivalents at beginning of year 83 70 386
- --------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 228 $ 83 $ 70
- --------------------------------------------------------------------------------
Supplemental Cash Flow Information
Interest paid (net of amount capitalized) $ 456 $ 133 $ 76
Income taxes paid (net of refunds) 168 391 78
- --------------------------------------------------------------------------------
</TABLE>
For purposes of the Statements of Cash Flows, the Company considers all highly
liquid investments purchased with a maturity of three months or less to be cash
equivalents.
See notes to financial statements.
TRW INC. 43
<PAGE>
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN SHAREHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
Serial Accumulated
Preference Other Total
TRW Inc. and subsidiaries Stock II Common Other Retained Treasury Comprehensive Shareholders'
(In millions) Series 1&3 Stock Capital Earnings Shares Income(Loss) Investment
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 1 $ 80 $ 437 $1,980 $ (354) $ 45 $2,189
- ----------------------------------------------------------------------------------------------------------------------------------
Net earnings(loss) - 1997 (49) (49)
Other comprehensive income(loss)
Translation loss, net of tax of $7 million (177) (177)
Unrealized gain on securities,
net of tax of $6 million 12 12
------
Total comprehensive income(loss) (214)
Dividends declared
Preference (1) (1)
Common ($1.24 per share) (152) (152)
ESOP funding 2 2
Purchase and sale of shares and other (2) 13 (262) (251)
Shares sold under stock options 51 51
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 1 78 450 1,778 (563) (120) 1,624
- ----------------------------------------------------------------------------------------------------------------------------------
Net earnings - 1998 477 477
Other comprehensive income(loss)
Translation gain, net of tax of $3 million 75 75
Unrealized gain on securities,
net of tax of $10 million 18 18
Minimum pension liability,
net of tax of $5 million (11) (11)
------
Total comprehensive income(loss) 559
Dividends declared
Preference (1) (1)
Common ($1.28 per share) (154) (154)
Purchase and sale of shares and other (1) (3) 7 3 (181) (175)
Credits (charges) from issuance
of treasury shares (82) 82 --
Shares sold under stock options 25 25
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 -- 75 457 2,021 (637) (38) 1,878
- ----------------------------------------------------------------------------------------------------------------------------------
Net earnings - 1999 469 469
Other comprehensive income(loss)
Translation loss, net of tax of $15 million (121) (121)
Unrealized gain on securities,
net of tax of $305 million 566 566
Minimum pension liability, net of tax 1 1
------
Total comprehensive income(loss) 915
Dividends declared
Preference (1) (1)
Common ($1.32 per share) (160) (160)
ESOP funding 44 44
Purchase and sale of shares and other 1 8 (1) (3) 5
Credits(charges) from issuance
of treasury shares (16) 16 --
Shares sold under stock options 31 31
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 $ -- $ 76 $ 465 $2,312 $ (549) $ 408 $2,712
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
44 TRW INC.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation - The financial statements include the accounts of
the Company and its subsidiaries. Investments in affiliated companies are
accounted for by the equity or cost method as appropriate. The consolidated
financial statements reflect the preliminary allocation of the purchase price
for LucasVarity Limited (LucasVarity), formerly known as LucasVarity plc, and
the consolidated results of LucasVarity's operations and cash flows subsequent
to the date of acquisition, March 25, 1999.
Use of estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities as
of December 31, 1999 and 1998, and reported amounts in the statements of
operations for the years ended December 31, 1999, 1998 and 1997. Actual results
could differ from those estimates.
Long-term contracts - The percentage-of-completion (cost-to-cost) method is used
to estimate sales under fixed-price and fixed-price incentive contracts. Sales
under cost-reimbursement contracts are recorded as costs are incurred. Fees
based on cost, award fees and incentive fees are included in sales at the time
such amounts are reasonably estimable. Losses on contracts are recognized when
determinable. Due to the nature and complexities of the Company's business,
where contracts contain both elements of products and services, it is not
practical to segregate the sales and cost of sales elements of the contracts
between products and services or to collect financial information for the
components in the Company's current financial systems.
Accounts receivable - Accounts receivable at December 31, 1999 and 1998,
included $701 million and $692 million, respectively, related to long-term
contracts, of which $268 million and $339 million, respectively, were unbilled.
Unbilled costs and fees represent sales earned and billable in the following
month as well as sales earned but not billable under terms of the contracts. A
substantial portion of such amounts is expected to be billed during the
following year. Retainage receivables and receivables subject to negotiation
were not significant.
Inventories - Inventories are stated at the lower of cost, principally the
first-in, first-out (FIFO) method, or market. Inventories related to long-term
contracts were not significant at December 31, 1999 and 1998.
Depreciation - Depreciation is computed over the assets' estimated useful lives
using the straight-line method for the majority of the Company's depreciable
assets. The remaining assets are depreciated using accelerated methods. The
estimated useful lives of buildings, machinery and equipment, and computers and
other office equipment are between 30-40 years, 8-12 years and 3-5 years,
respectively. Depreciation expense was $718 million, $520 million and $476
million at December 31, 1999, 1998 and 1997, respectively.
Intangible assets - Intangible assets are stated on the basis of cost and are
being amortized by the straight-line method over the estimated future periods to
be benefited, except for goodwill prior to 1971, $49 million, which is not being
amortized as there is no indication of diminished value. Goodwill acquired after
1970 is being amortized over periods primarily ranging from 15 to 40 years.
Other intangible assets includes capitalized internal-use software and other
identifiable intangible assets acquired through acquisitions including core and
developed technology and workforce. Capitalized internal-use software is being
amortized over periods not to exceed 10 years. Other identifiable intangible
assets acquired through acquisitions are being amortized primarily over 5 to 30
years. The carrying value of intangible assets is assessed for impairment on a
quarterly basis.
Asset impairment - The Company records impairment losses on long-lived and
intangible assets when events and circumstances indicate that the assets may be
impaired and the undiscounted net cash flows estimated to be generated by those
assets are less than their carrying amounts. If the future undiscounted cash
flows are not sufficient to recover the carrying value of the assets, the assets
are adjusted to their fair values.
Cost basis equity affiliates - The Company's investments in affiliated companies
includes equity securities, accounted for using the cost method, which are
classified as available-for-sale. These investments are stated at estimated fair
value based upon market quotes. Unrealized gains and losses, net of tax, are
reported as a separate component of accumulated other comprehensive income(loss)
in shareholders' investment until realized. A decline in the value of any
investment below cost that is deemed other than temporary is charged to
earnings.
Forward exchange contracts - The Company enters into forward exchange contracts
which hedge firm foreign currency commitments, anticipated transactions and
certain intercompany transactions. At December 31, 1999, the Company had
contracts outstanding with a notional amount of $1 billion denominated
principally in the U.S. dollar, the Euro, the Canadian dollar, the French franc
and the British pound, maturing at various dates through January 2007. Contracts
outstanding increased from $162 million at December 31, 1998 primarily due to
the hedging of foreign currency exposures associated with the aerospace and
automotive businesses of LucasVarity.
The combined fair market value of the forward exchange contracts was an asset of
approximately $75 million at December 31, 1999. The fair market value of forward
contracts at December 31, 1998 was $1 million. Changes in market value of the
contracts that hedge firm foreign currency commitments and intercompany
transactions are generally included in the basis of the transactions. Changes in
the market value of the contracts that hedge anticipated transactions are
generally recognized in earnings.
TRW INC. 45
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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 the Company anticipates that these financial institutions will
satisfy their obligations under the contracts.
Fair values of financial instruments -
<TABLE>
<CAPTION>
1999 1998
------------------------ -----------------------
Carrying Carrying
(In millions) Value Fair Value Value Fair Value
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 228 $ 228 $ 83 $ 83
Short-term debt 2,444 2,444 839 839
Floating rate long-term debt 1,782 1,782 227 227
Fixed rate long-term debt 4,345 4,145 1,156 1,249
Interest rate hedges - (liability) -- (3) -- --
Forward currency exchange contracts - asset 73 75 -- 1
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The fair value of long-term debt was estimated using a discounted cash flow
analysis based on the Company's current borrowing rates for similar types of
borrowing arrangements. The fair value of interest rate hedges and forward
currency exchange contracts is estimated based on quoted market prices of
offsetting contracts.
Interest rate swap agreements - In anticipation of offering debt securities to
finance the acquisition of LucasVarity, the Company 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 which were 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 method.
During the second quarter of 1999, the Company 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 $5
million at December 31, 1999. During the fourth quarter of 1999, the Company
entered into a $100 million forward starting interest rate swap in order to
hedge future long-term debt issuances. The fair market value of the interest
rate swap is an asset of approximately $2 million at December 31, 1999. Net
payments or receipts under the agreements will be recognized as an adjustment to
interest expense. The agreements were entered into with major financial
institutions. The Company anticipates that the financial institutions will
satisfy their obligations under the agreements. No collateral is held in
relation to the agreements.
Environmental costs - The Company participates in environmental assessments and
remedial efforts at operating facilities, previously owned or operated
facilities and Superfund or other waste sites. Costs related to these locations
are accrued when it is probable that a liability has been incurred and the
amount of that liability can be reasonably estimated. Estimated costs are
recorded at undiscounted amounts based on experience and assessments and are
regularly evaluated as efforts proceed. Insurance recoveries are recorded as a
reduction of environmental costs when fixed and determinable.
Issuance of an equity affiliate's stock - The Company includes gains or losses
arising from the issuance of a subsidiary's or equity affiliate's stock in other
(income)expense-net.
Comprehensive income - The components of accumulated other comprehensive
income(loss) at December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
(In millions) 1999 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Foreign currency translation loss
(net of tax of $16 million in 1999 and $1 million in 1998) $(176) $ (55)
Unrealized gain on securities
(net of tax of $321 million in 1999 and $16 million in 1998) 596 30
Minimum pension liability adjustments
(net of tax of $7 million in 1999 and 1998) (12) (13)
- --------------------------------------------------------------------------------------------------------
Accumulated other comprehensive income(loss) $ 408 $ (38)
- --------------------------------------------------------------------------------------------------------
</TABLE>
46 TRW INC.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Treasury stock - The Company's purchases of shares of TRW common stock are
recorded as treasury stock and result in a reduction of shareholders'
investment. When treasury shares are issued, the Company uses a first-in, first-
out method and the excess of the purchase price over the issuance price is
treated as a reduction of retained earnings.
Reclassifications - Certain amounts in the prior year financial statements and
related notes have been reclassified to conform with the 1999 presentation.
New accounting pronouncements - In 1998, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
is effective for years beginning after June 15, 2000. Under this statement,
changes in the market value of contracts that hedge anticipated transactions
will be deferred and recognized in earnings when realized. The impact of the
adoption will be determined by several factors, including the specific hedging
instruments in place and their relationships to the hedged items, as well as
market conditions as of the date of adoption. Management is in the process of
analyzing and assessing the impact of the adoption of SFAS No. 133 on the
Company's consolidated results of operations and financial position, but
believes that such determination of the effect currently is not meaningful. The
Company intends to adopt the statement on January 1, 2001.
Earnings per share - The effects of preferred stock dividends, convertible
preferred stock and employee stock options were excluded from the calculation of
1997 diluted earnings per share, as they would have been antidilutive.
<TABLE>
<CAPTION>
(In millions except per share data) 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator
Net earnings(loss) $468.8 $476.8 $(48.5)
Preferred stock dividends (.5) (.6) (.7)
- -------------------------------------------------------------------------------------------------------------
Numerator for basic earnings per share-net earnings(loss)
available to common shareholders 468.3 476.2 (49.2)
Effect of dilutive securities
Preferred stock dividends .5 .6 --
- -------------------------------------------------------------------------------------------------------------
Numerator for diluted earnings per share-
net earnings(loss) available to common
shareholders $468.8 $476.8 $(49.2)
- -------------------------------------------------------------------------------------------------------------
Denominator
Denominator for basic earnings per share-
weighted-average common shares 121.0 121.3 123.7
Effect of dilutive securities
Convertible preferred stock .8 .9 --
Employee stock options 1.7 2.2 --
- -------------------------------------------------------------------------------------------------------------
Dilutive potential common shares 2.5 3.1 --
Denominator for diluted earnings per share-
adjusted weighted-average shares after
assumed conversions 123.5 124.4 123.7
- -------------------------------------------------------------------------------------------------------------
Basic earnings(loss) per share $ 3.87 $ 3.93 $ (.40)
- -------------------------------------------------------------------------------------------------------------
Diluted earnings(loss) per share 3.80 3.83 (.40)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
TRW INC. 47
<PAGE>
NOTES TO FINANCIAL STATEMENTS
RESEARCH AND DEVELOPMENT
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Customer-funded $1,249 $1,425 $1,501
Company-funded
Research and development 609 522 461
Product development 310 196 184
- --------------------------------------------------------------------------------
919 718 645
----------------------
$2,168 $2,143 $2,146
----------------------
</TABLE>
Customer-funded research and development projects are an integral part of the
Space & Electronics and Systems & Information Technology segments. The related
costs are included in cost of sales. Company-funded research and development
programs include research and development for commercial products and
independent research and development and bid and proposal work related to
government products and services. A portion of the cost incurred for independent
research and development and bid and proposal work by the Space & Electronics
and Systems & Information Technology segments is recoverable through overhead
charged to government contracts. Product development costs include engineering
and field support for customer requirements. Product development costs are
expensed as incurred and included primarily in cost of sales.
The 1999 and 1997 amounts exclude charges of $85 million and $548 million,
respectively, for purchased in-process research and development.
ACQUISITIONS
LucasVarity
On February 6, 1999, the Company commenced an offer for the entire issued share
capital of LucasVarity. On March 25, 1999, the offer was declared unconditional
in all respects. On May 10, 1999, the Company 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, and 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.
The aggregate cash purchase price and assumed net debt for LucasVarity was
approximately $6.8 billion. The transaction was accounted for as a purchase.
Assets and liabilities have been recorded based on their respective fair values.
The 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, $504 million for identifiable intangible assets including
intellectual property and workforce, and incremental fair value adjustments of
approximately $1.5 billion for prepaid pension cost, primarily from an
overfunded pension plan, $200 million for the valuation of fixed rate debt and
the write-up of inventory of $30 million and fixed assets of $143 million.
The fair value of acquired in-process research and development was determined by
an independent valuation using the income approach under the proportional
method. The following projects were included in the valuation: next generation
caliper of $26 million, next generation anti-lock braking systems (ABS) of $23
million, aerospace engine controls of $18 million, electro hydraulic braking of
$12 million and electrical parking brake of $6 million. The fair value of
identifiable intangible assets was 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, 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 by 2002. The estimated cost
to complete the projects was $65 million.
During 1999, certain pre-acquisition contingencies were adjusted. The
preliminary allocation of the purchase price incorporates these items and may be
adjusted through March 2000 based on changes to pre-acquisition contingencies,
completion of TRW management's assessment of the recognition of liabilities in
connection with the acquisition of LucasVarity in accordance with EITF 95-3 and
for the valuation of net assets of businesses held for sale based upon actual
proceeds received from the sale of these businesses. Adjustments, if any, are
not expected to have a material effect on the Company's results of operations or
financial condition.
48 TRW INC.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Restructuring costs, primarily severance, recorded in the purchase price
allocation were $47 million of which $29 million was paid in 1999. The remaining
balance of $18 million is expected to be paid in 2000.
The preliminary allocation of the purchase price and estimated goodwill are
summarized as follows:
<TABLE>
<CAPTION>
(In millions)
- --------------------------------------------------------------------------------------------
<S> <C>
Cash purchase price $ 6,692
Cash and cash equivalents 781
Accounts receivable 887
Inventory 537
Net assets of businesses held for sale 872
Prepaid expenses 137
Current deferred income taxes 105
Property, plant and equipment 1,249
Intangible assets 504
Prepaid pension costs 2,385
Other assets 477
- --------------------------------------------------------------------------------------------
7,934
Accounts payable (701)
Other accruals (1,097)
Debt (877)
Long-term liabilities (732)
Long-term deferred income taxes (717)
- --------------------------------------------------------------------------------------------
(4,124)
Minority interest (28)
Purchased in-process research and development 85
- --------------------------------------------------------------------------------------------
Goodwill $ 2,825
- --------------------------------------------------------------------------------------------
</TABLE>
Goodwill is being amortized on a straight-line basis over 40 years. Identifiable
intangible assets are being amortized on a straight-line basis over useful lives
ranging from 5 to 30 years.
The following unaudited pro forma financial information for the years ended
December 31, 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, depreciation based on the adjustments to the fair market
value of the property, plant and equipment acquired, write-off of purchased in-
process research and development, incremental pension income and related income
tax effects. The pro forma results have been prepared for comparative purposes
only and are not necessarily indicative of the results of operations that may
occur in the future or that would have occurred had the acquisition of
LucasVarity been effected on the dates indicated.
<TABLE>
<CAPTION>
(In millions except per share data)
Years ended (unaudited) 1999 1998
- ---------------------------------------------------------------------------------
<S> <C> <C>
Sales $18,595 $18,964
Net earnings 624 641
Diluted earnings per share 5.05 5.15
- ---------------------------------------------------------------------------------
</TABLE>
BDM
On December 24, 1997, the Company acquired the shares of BDM International, Inc.
(BDM) for cash of $880 million plus assumed net debt of $85 million. BDM was an
information technology company operating in the systems and software
integration, computer and technical services and enterprise management and
operations markets. The acquisition was accounted for as a purchase with the
purchase price allocated to the net assets acquired based on their fair values
and to costs for employee severance of $8 million, which was used for severance
payments. An independent valuation was performed, primarily using the income
approach for valuing the intangible assets. As a result of the valuation, $548
million was allocated to in-process research and development (IPR&D) projects
that had not reached technological feasibility and had no alternative future use
and $152 million was allocated to identifiable intangible assets including core
and developed technology, workforce and trade name. The amount
TRW INC. 49
<PAGE>
NOTES TO FINANCIAL STATEMENTS
of IPR&D was recognized as an expense with no income tax benefit at the date of
acquisition. The intangible assets, including goodwill of $205 million, are
being amortized over an average period of 15 years. The major projects included:
a commercial market adaptation of core network security to achieve the highest
level of network security of $201 million; a Web-enabled and substantially
enhanced warehouse and distribution management project of $199 million; and a
module to enhance certain applications to become compliant with the single
European currency for particular software of $69 million. As of December 31,
1999, the Company discontinued the sale of the network security product and
discontinued the development of the Web-enabled warehouse and distribution
project due to changes in the market for these products, which resulted in a
before tax charge of $82 million relating to the write-off of intangible assets
and other associated costs. The research and development of the European
currency project was divested in 1998; however, the Company will generate future
sales as a global systems integrator for all of the acquirer's products and for
two company-developed software packages the acquirer will distribute. The
remaining identifiable intangible assets of $58 million are being amortized over
an average period of 15 years.
Air Bag and Steering Wheel Businesses of Magna International
On February 5, 1997, the Company acquired an 80 percent equity interest in the
air bag and steering wheel businesses of Magna International for cash of $415
million plus assumed net debt of $50 million. On January 30, 1998, the Company
acquired the remaining 20 percent for cash of $102 million. These businesses
supply air bag modules, inflators, propellants, steering wheels and other
related automotive components. The acquisitions were accounted for as a
purchase; accordingly, the combined purchase price has been allocated to the net
assets acquired based on their estimated fair values and to costs for certain
restructuring actions, primarily plant closing and severance costs of $40
million. As of December 31, 1999 and 1998, the balance of the restructuring
reserve included in other accruals was $6 million and $18 million, respectively.
During 1999, the reserve was reduced by $6 million due to a decision not to
close one manufacturing facility and by $6 million for severance payments.
During 1998, $6 million was used for severance payments, $7 million for plant
closure costs and the reserve was reduced by $9 million due to a change in
estimate for severance payments. The remaining reserve will be used primarily
for severance and plant closure costs in 2000. Goodwill was $330 million and is
being amortized over 40 years.
RESTRUCTURING
On July 29, 1998, the Company announced actions intended to enhance the
automotive businesses' profit margin, which would result in pre-tax charges of
up to $150 million by the end of 2000. In 1999 and 1998, $80 million and $24
million, respectively, was expensed primarily for plant closings, severance
costs and asset impairments. Other accruals at December 31, 1999 and 1998
include $35 million and $18 million, respectively, relating to these costs.
During 1999, $7 million was used for severance payments and $56 million for
plant closings and asset impairments. The balance at December 31, 1999 will be
used primarily for severance costs and plant closings during 2000.
DIVESTITURES
On May 17, 1999, the Company announced its plan to 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 Company is no
longer pursuing the disposition of TRW Engine Components due to market
conditions.
In November 1999, the Company entered into an agreement to sell Lucas Diesel
Systems and the associated aftermarket operations for approximately $875
million. The transaction was substantially completed on January 7, 2000. On
January 13, 2000, the Company reached a definitive agreement to sell TRW Nelson
Stud Welding. The transaction is expected to be completed by the end of the
first quarter of 2000. During 1999, a wiring business was sold. The sale of the
remaining wiring business is expected to be completed during the first quarter
of 2000.
Sales of the businesses to be sold included in the Company's December 31, 1999,
1998 and 1997 Statements of Operations were approximately $975 million, $70
million and $65 million, respectively.
The Company'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."
50 TRW INC.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
OTHER (INCOME)EXPENSE-NET
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Other income $(157) $(123) $ (66)
Other expense 125 30 35
Minority interests 23 11 20
Earnings of affiliates (14) (5) (12)
ICO investment write-off 79 -- --
Gain from issuance of equity affiliate's stock (29) -- --
Gain from sale of equity affiliates' stock (306) -- --
Foreign currency exchange 66 7 7
- ---------------------------------------------------------------------------------------------
$(213) $ (80) $ (16)
---------------------
</TABLE>
Other income in 1999 includes gains on the sale of nonoperating assets of $27
million and interest income of $28 million. Interest income in 1999 was $23
million higher than 1998. Other income in 1998 includes a $49 million benefit
from the settlement of certain patent litigation. Other income in 1997 includes
a $15 million gain on the sale of a property.
Other expense for 1999 included charges of $50 million for underwriting and
participation fees incurred to secure committed credit facilities related to the
acquisition of LucasVarity.
During the third quarter of 1999, ICO Global Communications (Holdings) Limited
(ICO) filed a voluntary reorganization petition. As a result, ICO is operating
its business under the regulations of Chapter 11 of the U.S. Bankruptcy Code.
The Company recorded a charge of $79 million to reserve fully its financial
exposure in ICO.
During the first quarter of 1999, RF Micro Devices, Inc. (RFMD), an affiliate
which designs, develops, manufactures and markets proprietary radio frequency
integrated circuits for wireless communications applications, issued shares of
stock in a registered public offering, resulting in a gain of $29 million.
Deferred taxes have been provided on the gain.
During 1999, the Company also sold 5,772,500 shares of RFMD common stock
resulting in a gain of $306 million. The Company owned approximately 18 percent
of the common stock of RFMD as of December 31, 1999.
Foreign currency exchange for the year ended December 31, 1999 included a $50
million nonrecurring loss on foreign currency hedges related to the acquisition
of LucasVarity, and losses of $16 million on foreign currency hedges of
anticipated transactions.
INCOME TAXES
Earnings before income taxes
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. $ 653 $ 534 $ 95
Non-U.S. 134 212 145
- ----------------------------------------------------------------------------
$ 787 $ 746 $ 240
-------------------
</TABLE>
Provision for income taxes
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Current
U.S. federal $ 131 $ 359 $ 136
Non-U.S. 32 86 84
U.S. state and local 2 28 23
- ------------------------------------------------------------------------------
165 473 243
Deferred
U.S. federal 65 (196) 46
Non-U.S. 75 (10) (4)
U.S. state and local 13 2 4
- ------------------------------------------------------------------------------
153 (204) 46
---------------------
$ 318 $ 269 $ 289
---------------------
</TABLE>
TRW INC. 51
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Effective income tax rate
<TABLE>
<CAPTION>
1999 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. statutory income tax rate 35.0% 35.0% 35.0%
Nondeductible expenses .8 .9 2.7
U.S. state and local income taxes net of U.S. federal tax benefit 1.9 2.6 7.6
Non-U.S. tax rate variances net of foreign tax credits (.8) 2.1 (2.2)
Prior years' adjustments (.2) (.3) (3.5)
Purchased in-process research and development 3.8 -- 80.0
Other -- (4.2) .7
- ----------------------------------------------------------------------------------------------------
40.5% 36.1% 120.3%
-------------------
</TABLE>
The effective tax rate in 1999 was 40.5 percent compared with 36.1 percent in
1998. Excluding the write-off of purchased in-process research and development,
the 1999 effective tax rate would have been 36.5 percent. Excluding the write-
off of purchased in-process research and development in 1997, the effective tax
rate would have been 36.6 percent.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. At December 31, 1999 and
1998, the Company had unused tax benefits of $187 million and $39 million,
respectively, related to U.S. and non-U.S. net operating loss carryforwards for
income tax purposes, of which $124 million and $25 million can be carried
forward indefinitely and the balance expires at various dates through 2004. A
valuation allowance at December 31, 1999 and 1998, of $150 million and $29
million, respectively, has been recognized to offset the related deferred tax
assets due to the uncertainty of realizing the benefit of the loss
carryforwards.
It is the Company's intention to reinvest undistributed earnings of certain of
its non-U.S. subsidiaries, thereby indefinitely postponing their remittance.
Accordingly, deferred income taxes have not been provided for accumulated
undistributed earnings of $537 million at December 31, 1999.
<TABLE>
<CAPTION>
Deferred tax assets Deferred tax liabilities
------------------- ------------------------
(In millions) 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pensions and postretirement benefits other than pensions $ 354 $ 259 $1,017 $ --
Completed contract method of accounting for long-term contracts -- -- 191 165
Service contracts -- -- 21 24
State and local taxes 2 12 3 1
Reserves and accruals 252 161 6 --
Depreciation and amortization -- -- 192 128
Insurance accruals 36 32 -- --
U.S. net operating loss carryforwards 53 -- -- --
Non-U.S. net operating loss carryforwards 134 39 -- --
Available-for-sale equity securities -- -- 321 16
Other 155 106 14 34
- ------------------------------------------------------------------------------------------------------------------------------
986 609 1,765 368
Valuation allowance for deferred tax assets (150) (29) -- --
- ------------------------------------------------------------------------------------------------------------------------------
$ 836 $ 580 $1,765 $ 368
----------------------------------------------
</TABLE>
52 TRW INC.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
PENSION PLANS
The Company has defined benefit pension plans for substantially all employees.
The following table provides a reconciliation of the changes in the plans'
benefit obligations and fair value of assets over the two-year period ended
December 31, 1999, and a statement of the funded status as of December 31, 1999
and 1998:
<TABLE>
<CAPTION>
1999 1998
-------------------- ------------------
(In millions) U.S. Non-U.S. U.S. Non-U.S.
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Change in benefit obligations
Benefit obligations at January 1 $3,042 $ 517 $2,872 $ 429
Service cost 109 51 94 16
Interest cost 225 184 200 29
Amendments (22) -- 3 1
Actuarial (gain)loss (425) 376 127 64
Foreign currency exchange rate changes -- (21) -- 7
Acquisitions 337 3,509 -- --
Obligations included in net assets of acquired
businesses held for sale (1) (260) -- --
Benefits paid (332) (180) (254) (29)
- -----------------------------------------------------------------------------------------
Benefit obligations at December 31 2,933 4,176 3,042 517
Change in plan assets
Fair value of plan assets at January 1 3,304 335 3,139 322
Actual return on plan assets 458 744 392 22
Foreign currency exchange rate changes -- 8 -- (4)
Acquisitions 357 5,933 -- --
Assets included in net assets of acquired
businesses held for sale (1) (350) -- --
Company contributions 15 17 27 21
Plan participant contributions -- 13 -- 3
Benefits paid (332) (180) (254) (29)
- -----------------------------------------------------------------------------------------
Fair value of plan assets at December 31 3,801 6,520 3,304 335
Funded status of the plan 868 2,344 262 (182)
Unrecognized actuarial (gain)loss (767) 46 (172) 28
Unrecognized prior service cost 11 7 29 10
Unrecognized net transition asset (1) (7) (4) (10)
- -----------------------------------------------------------------------------------------
Total recognized $ 111 $2,390 $ 115 $ (154)
- -----------------------------------------------------------------------------------------
</TABLE>
The following table provides the amounts recognized in the balance sheet as of
December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------------------- ------------------
(In millions) U.S. Non-U.S. U.S. Non-U.S.
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prepaid benefit cost $ 195 $2,681 $ 169 $ 2
Accrued benefit liability (84) (291) (54) (156)
Additional minimum liability (6) (22) (13) (20)
Intangible asset and other 5 4 9 4
Accumulated other comprehensive income 1 18 4 16
- -----------------------------------------------------------------------------------------
Total recognized $ 111 $2,390 $ 115 $ (154)
- -----------------------------------------------------------------------------------------
</TABLE>
The projected benefit obligation, accumulated benefit obligation and fair value
of plan assets for the U.S. pension plans with accumulated benefit obligations
in excess of plan assets were $139 million, $116 million and $47 million,
respectively, as of December 31, 1999, and $72 million, $62 million and zero,
respectively, as of December 31, 1998.
The projected benefit obligation, accumulated benefit obligation and fair value
of plan assets for the non-U.S. pension plans with accumulated benefit
obligations in excess of plan assets were $324 million, $301 million and $40
million, respectively, as of December 31, 1999, and $187 million, $169 million
and $22 million, respectively, as of December 31, 1998.
TRW INC. 53
<PAGE>
NOTES TO FINANCIAL STATEMENTS
The defined benefit pension plans held approximately 4.8 million shares of the
Company's common stock with a fair value of approximately $247 million and $267
million at December 31, 1999 and 1998, respectively. The plans received
approximately $6 million in dividends on these shares in 1999 and 1998.
The following table provides the components of net pension (income)cost for the
plans for years 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ------------------ ------------------
(In millions) U.S. Non-U.S. U.S. Non-U.S. U.S. Non-U.S.
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Defined benefit plans
Service cost-benefits earned during the year $ 109 $ 51 $ 94 $ 16 $ 72 $ 16
Interest cost on projected benefit obligations 225 184 200 29 179 29
Expected return on plan assets (298) (412) (260) (28) (223) (26)
Amortization of recognized loss 2 1 1 1 -- --
Amortization of prior service cost 8 2 7 2 7 3
Amortization of transition asset (3) (1) (18) (1) (18) (1)
- ---------------------------------------------------------------------------------------------------------------
Defined benefit plans 43 (175) 24 19 17 21
Defined contribution plans 13 3 1 5 1 5
Employee stock ownership and savings plan 51 -- 47 -- 44 --
- ---------------------------------------------------------------------------------------------------------------
Total pension (income)cost $ 107 $(172) $ 72 $ 24 $ 62 $ 26
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The amount included within other comprehensive income arising from a change in
the minimum pension liability was income of $1 million, net of tax, in 1999, a
loss of $11 million, net of tax of $5 million, in 1998, and zero in 1997.
The assumptions used in the measurement of the Company's benefit obligations are
shown in the following table:
<TABLE>
<CAPTION>
1999 1998
----------------- -----------------
U.S. Non-U.S. U.S. Non-U.S.
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial assumptions
Discount rate 8.00% 5.5-7.25% 6.75% 5.5-6.0%
Rate of increase in compensation levels 4.10% 3.5-4.75% 4.00% 2.0-3.5%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The expected long-term rate of return on plan assets for U.S. plans was 9.5
percent for 1999 and 1998. For non-U.S. plans the expected long-term rate of
return ranged from 8 to 8.75 percent in 1999 and 8.5 to 8.75 percent in 1998.
The Company sponsors a contributory stock ownership and savings plan for which a
majority of its U.S. employees are eligible and matches employee contributions
up to 3 percent of the participant's qualified compensation. The Company
contributions are held in an unleveraged employee stock ownership plan. The
Company also sponsors other defined contribution pension plans covering
employees at some of its operations.
54 TRW INC.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides health care and life insurance benefits for a majority of
its retired employees in the United States and Canada. The health care plans
provide for cost sharing, in the form of employee contributions, deductibles and
coinsurance, between the Company and its retirees. The postretirement health
care plan covering a majority of employees who retired since August 1, 1988,
limits the annual increase in the Company's contribution toward the plan's cost
to a maximum of the lesser of 50 percent of medical inflation or 4 percent. Life
insurance benefits are generally noncontributory. The Company's policy is to
fund the cost of postretirement health care and life insurance benefits in
amounts determined at the discretion of management. Retirees in certain other
countries are provided similar benefits by plans sponsored by their governments.
The following table provides a reconciliation of the changes in the plans'
benefit obligations and fair value of assets over the two-year period ended
December 31, 1999, and a statement of the funded status as of December 31, 1999
and 1998:
(In millions) 1999 1998
- -----------------------------------------------------------------------------
Change in benefit obligations
Benefit obligations at January 1 $ 834 $ 794
Service cost 21 19
Interest cost 81 54
Actuarial (gain)loss (142) 8
Acquisitions 531 --
Obligations included in net assets of acquired
businesses held for sale (11) --
Foreign currency exchange rate changes 4 (3)
Plan amendments (3) 1
Plan participant contributions 8 5
Benefits paid (74) (44)
- -----------------------------------------------------------------------------
Benefit obligations at December 31 1,249 834
Change in plan assets
Fair value of plan assets at January 1 151 129
Actual return on plan assets 16 12
Company contributions 83 49
Plan participant contributions 8 5
Benefits paid (74) (44)
- -----------------------------------------------------------------------------
Fair value of plan assets at December 31 184 151
- -----------------------------------------------------------------------------
Funded status of the plan (1,065) (683)
Unrecognized actuarial gain (156) (14)
Unrecognized prior service cost (7) (5)
- -----------------------------------------------------------------------------
Total accrued benefit cost recognized $(1,228) $ (702)
- -----------------------------------------------------------------------------
The following table provides the components of net postretirement benefit cost
for the plans for years 1999, 1998 and 1997:
(In millions) 1999 1998 1997
- -----------------------------------------------------------------------------
Components of net postretirement benefit cost
Service cost $ 21 $ 19 $ 13
Interest cost 81 54 54
Expected return on plan assets (15) (13) (9)
Amortization of recognized income (1) -- --
- -----------------------------------------------------------------------------
Net postretirement benefit cost $ 86 $ 60 $ 58
- -----------------------------------------------------------------------------
The weighted average discount rate used in determining the accumulated
postretirement benefit obligations as of December 31, 1999 and 1998 was 8
percent and 6.75 percent, respectively. The weighted average rate of
compensation increase was 4 percent for 1999 and 1998. The weighted average
expected long-term rate of return on plan assets was 9.5 percent for 1999 and
1998. A 7.1 percent annual rate of increase in the per capita cost of covered
health care benefits was assumed for 2000. The rate was assumed to decrease
gradually to 5 percent in the year 2010 and remain at that level thereafter.
TRW INC. 55
<PAGE>
NOTES TO FINANCIAL STATEMENTS
A one-percentage-point change in the assumed health care cost trend rate would
have the following effects:
<TABLE>
<CAPTION>
One-percentage-point
--------------------
(In millions) Increase Decrease
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Effect on total of service and interest cost components $ 13 $ (10)
Effect on postretirement benefit obligations 167 (137)
- ---------------------------------------------------------------------------------------
</TABLE>
DEBT AND CREDIT AGREEMENTS
Short-term debt
<TABLE>
<CAPTION>
(In millions) 1999 1998
- ---------------------------------------------------------------------------------------
<S> <C> <C>
U.S. borrowings $2,044 $ 589
Non-U.S. borrowings 400 250
- ---------------------------------------------------------------------------------------
$2,444 $ 839
- ---------------------------------------------------------------------------------------
</TABLE>
Long-term debt
<TABLE>
<CAPTION>
(In millions) 1999 1998
- ---------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Notes and Debentures
Floating Rate Notes due 2000 $ 575 $ --
6.45% Notes due 2001 425 --
6.50% Notes due 2002 400 --
6.625% Notes due 2004 700 --
6.05% Notes due 2005 200 200
6.30% Notes due 2008 100 100
7.125% Notes due 2009 750 --
6.25% Notes due 2010 150 150
9.35% Notes due 2020 (due 2000 at option of note holder) 100 100
9.375% Notes due 2021 100 100
6.65% Debentures due 2028 150 150
7.75% Debentures due 2029 550 --
Other notes and debentures 314 326
Other U.S. borrowings 1,105 157
Non-U.S. borrowings 508 100
- ---------------------------------------------------------------------------------------
Total long-term debt 6,127 1,383
Less current portion 758 30
- ---------------------------------------------------------------------------------------
$5,369 $1,353
- ---------------------------------------------------------------------------------------
</TABLE>
The Company received fully underwritten financing for the acquisition of
LucasVarity in the form of a $7.4 billion two-tranche credit agreement. Tranche
one of $3.7 billion expired December 31, 1999 and tranche two of $3.7 billion
expires January 26, 2000 with an option to extend the maturity of up to $2
billion of borrowings to January 26, 2001. The option to extend was cancelled in
1999. The interest rates under the agreement are the prime rate and a rate based
on a London Interbank Offered Rate (LIBOR). At December 31, 1999, there were no
outstanding borrowings under this agreement. The Company's available commitments
under tranche two were $3.7 billion at December 31, 1999.
During 1999, the Company 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 to
January 26, 2000, with the provision that the Company may extend the maturity of
borrowings to January 26, 2001. At December 31, 1999 and 1998, there were no
outstanding borrowings under these agreements.
See the "Events Subsequent to Date of Report of Independent Auditors" note for
the status of the credit facilities subsequent to December 31, 1999.
56 TRW INC.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
The Company also maintains a committed U.S. dollar denominated revolving credit
agreement with five banks for use by the Company's Brazilian operations. The
agreement allows the Company to borrow up to $50 million and extends through
July 2003. The interest rate under the agreement is a rate based on LIBOR. There
were no outstanding borrowings as of December 31, 1999 and $20 million in
outstanding borrowings under this agreement as of December 31, 1998.
During 1999, the Company refinanced short-term debt by issuing $3.4 billion of
notes and debentures that mature at various dates through 2029. Interest rates
on $2.8 billion of the notes and debentures are fixed at rates ranging from
6.45% to 7.75%. Interest on $575 million of Notes due 2000 is floating based on
three-month LIBOR. The Company's effective obligation on $425 million of 6.45%
Notes due 2001 was simultaneously changed to a floating rate based on three-
month LIBOR through the execution of an interest rate swap. An additional $100
million of short-term debt was refinanced during the year through a bank
borrowing due in 2000. The interest rate under the bank borrowing is a floating
rate based on a three-month LIBOR.
At December 31, 1999, $1 billion of short-term obligations were reclassified to
long-term obligations as the Company intends to refinance the obligations on a
long-term basis and has the ability to do so under its revolving credit
agreements.
The Company established a $2.5 billion Universal Shelf Registration Statement
during 1999 with the entire amount remaining available at December 31, 1999.
Securities that may be issued under this shelf registration statement include
debt securities, common stock, warrants to purchase debt securities, warrants to
purchase common stock, stock purchase contracts and stock purchase units.
The weighted average interest rate on short-term borrowings outstanding,
including amounts reclassified to long-term debt, at December 31, 1999 and 1998,
is 6.4 percent and 5.9 percent, respectively. Other notes and debentures bear
interest at rates ranging from 6.06 percent to 9.25 percent and mature at
various dates through 2020.
Long-term non-U.S. borrowings bear interest, stated in terms of the local
currency borrowing, at rates ranging from 3.5 percent to 10.875 percent at
December 31, 1999, and mature at various dates through 2020.
The maturities of long-term debt are, in millions: 2000-$758; 2001-$740; 2002-
$1,167; 2003-$127; 2004-$744; and $2,591 thereafter.
The indentures and other debt agreements impose, among other covenants,
maintenance of minimum net worth. Under the most restrictive interpretation of
these covenants, the payment of dividends was limited to approximately $1,558
million at December 31, 1999.
Compensating balance arrangements and commitment fees were not material.
LEASE COMMITMENTS
The Company leases certain offices, manufacturing and research buildings,
machinery, automobiles and computer and other equipment. Such leases, some of
which are noncancelable and in many cases include renewals, expire at various
dates. The Company pays most maintenance, insurance and tax expenses relating to
leased assets. Rental expense for operating leases was $229 million for 1999,
$180 million for 1998 and $146 million for 1997.
At December 31, 1999, the future minimum lease payments for noncancelable
operating leases totaled $570 million and are payable as follows: 2000-$139;
2001-$110; 2002-$84; 2003-$60; 2004-$41; and $136 thereafter.
CAPITAL STOCK
Serial Preference Stock II - cumulative - stated at $2.75 a share; 5 million
shares authorized.
Series 1 - each share convertible into 8.8 shares of common; redeemable at $104
per share; involuntary liquidation price of $104 per share; dividend rate of
$4.40 per annum.
Series 3 - each share convertible into 7.448 shares of common; redeemable at
$100 per share; involuntary liquidation price of $40 per share; dividend rate of
$4.50 per annum.
Series 4 - not convertible into common shares; redemption price and involuntary
liquidation price of $125 per one one-hundredth of a share; annual dividend rate
per one one-hundredth of a share of the lesser of $4.00 or the current dividend
on common stock; no shares outstanding at December 31, 1999.
Common Stock - $0.625 par value; authorized 500 million shares; shares
outstanding were reduced by treasury shares of 11.6 million in 1999 and 13.6
million in 1998.
TRW INC. 57
<PAGE>
NOTES TO FINANCIAL STATEMENTS
The Company has a shareholder purchase rights plan under which each shareholder
of record as of May 17, 1996, received one-half of one right for each TRW common
share held. Each right entitles the holder, upon the occurrence of certain
events, to buy one one-hundredth of a share of Cumulative Redeemable Serial
Preference Stock II, Series 4, at a price of $300. In other events, each right
entitles the holder, other than the acquiring party, to purchase $600 of TRW
common stock or common stock of another person at a 50 percent discount. The
Company may redeem these rights at its option at one cent per right under
certain circumstances.
See the "Events Subsequent to Date of Report of Independent Auditors" note for
the status of the shareholder purchase rights plan subsequent to December 31,
1999.
At December 31, 1999, 13.7 million shares of common stock were reserved for the
exercise and issuance of stock options and conversion of the Serial Preference
Stock II, Series 1 and 3. There were 1.2 million shares of Cumulative Redeemable
Serial Preference Stock II, Series 4, reserved for the shareholder purchase
rights plan.
Holders of Series 1 preferred stock, Series 3 preferred stock and common stock
each have one vote per share.
STOCK OPTIONS
The Company has granted nonqualified stock options to certain employees to
purchase the Company's common stock at the market price on the date of grant.
Stock options granted become exercisable to the extent of one-third of the
optioned shares for each full year of employment following the date of grant and
expire 10 years after the date of grant. The Company applies the provisions of
Accounting Principles Board Opinion No. 25 in accounting for its employee stock
options and, as such, no compensation expense is recognized as the exercise
price equals the market price of the stock on the date of grant.
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- -------------------- --------------------
Weighted- Weighted- Weighted-
average average average
Millions exercise Millions exercise Millions exercise
of shares price of shares price of shares price
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 9.8 $40.11 8.5 $35.02 8.5 $29.72
Granted 3.2 50.18 2.4 53.31 2.0 50.19
Exercised 1.1 28.02 .9 25.68 1.6 25.96
Cancelled, expired or terminated .4 51.24 .2 46.54 .4 38.63
Outstanding at end of year 11.5 43.68 9.8 40.11 8.5 35.02
Exercisable 6.5 37.91 5.8 32.31 5.3 27.81
Weighted-average fair value of
options granted 13.93 12.86 11.92
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1999, approximately 2,500 employees were participants in the
Company's options plans. As of that date, the per share exercise prices of
options outstanding ranged from $21.75 to $58.88. The following table provides
certain information with respect to stock options outstanding at December 31,
1999:
<TABLE>
<CAPTION>
Options
Options Outstanding Exercisable
------------------------------------- ------------------------
Weighted-
average
remaining Weighted- Weighted-
Millions contractual average Millions average
of shares life in exercise of shares exercise
Range of exercise prices outstanding years price exercisable price
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$21.75 - $39.99 3.3 3.2 $27.75 3.3 $27.75
40.00 - 58.88 8.2 8.1 50.22 3.2 48.75
- ---------------------------------------------------------------------------------------------
11.5 6.7 $43.68 6.5 $37.91
---------------------------------------------------------------
</TABLE>
Had the compensation cost for the stock options granted in 1999, 1998 and 1997
been determined based on the fair value at the grant date consistent with the
fair value method of SFAS No. 123, the Company's net earnings and earnings per
share would have been reduced by $16 million ($.13 per share) in 1999, $13
million ($.10 per share) in 1998 and $9 million ($.08 per share) in 1997.
Fair value was estimated at the date of grant using the Black-Scholes option
pricing model and the following weighted-average assumptions for 1999, 1998 and
1997, respectively: risk-free interest rate of 6.21%, 4.59% and 5.83%; dividend
yield of 2.50%, 2.28% and 2.54%; expected volatility of 25%, 23% and 20%; and an
expected option life of six years for 1999, 1998 and 1997.
58 TRW INC.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
CONTINGENCIES
The Company is subject to various investigations, claims and legal proceedings
covering a wide range of matters that arise in the ordinary course of its
business activities. In addition, the Company is conducting a number of
environmental investigations and remedial actions at current and former Company
locations and, along with other companies, has been named a potentially
responsible party for certain waste management sites. Each of these matters is
subject to various uncertainties, and some of these matters may be resolved
unfavorably with respect to the Company. A reserve estimate for each matter is
established using standard engineering cost estimating techniques. In the
determination of such costs, consideration is given to the professional
judgement of Company environmental engineers in consultation with outside
environmental specialists when necessary. At multi-party sites, the reserve
estimate also reflects the expected allocation of total project costs among the
various potentially responsible parties. At December 31, 1999, the Company had
reserves for environmental matters of $136 million, including $13 million of
additional expense recorded during the year and $66 million of reserves relating
to the LucasVarity acquisition. The Company aggressively pursues reimbursement
for environmental costs from its insurance carriers. However, insurance
recoveries are not recorded as a reduction of environmental costs until they are
fixed and determinable. At December 31, 1999, the "Other notes and accounts
receivable" caption on the balance sheet includes $13 million of insurance
recoveries related to environmental matters. The Company believes that any
liability that may result from the resolution of environmental matters for which
sufficient information is available to support these cost estimates will not
have a material adverse effect on the Company's financial position. However, the
Company cannot predict the effect on the Company's financial position of
expenditures for aspects of certain matters for which there is insufficient
information. In addition, the Company cannot predict the effect of compliance
with environmental laws and regulations with respect to unknown environmental
matters on the Company's financial position or the possible effect of compliance
with environmental requirements imposed in the future.
Further, product liability claims may be asserted in the future for events not
currently known by management. Although the ultimate liability from these
potential claims cannot be ascertained at December 31, 1999, management does not
anticipate that any related liability, after consideration of insurance
recovery, would have a material adverse effect on the Company's financial
position.
TRW Vehicle Safety Systems Inc., a wholly-owned subsidiary of the Company,
reported to the Arizona Department of Environmental Quality, or ADEQ, in 1997,
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, the United States
Environmental Protection Agency, the United States Department of Justice and the
Arizona State Attorney General are conducting civil and criminal investigations
into these potential violations and the Company is cooperating with these
investigations. If proceedings were to be initiated against the Company with
respect to such matters, the Company could be liable for penalties and fines and
other relief. The Company is currently engaged in settlement discussions with
state and federal officials. The Company is not able to predict the outcome of
these discussions at this time.
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, 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. On August 6, 1999, the Government filed
its Second Amended Complaint, which incorporated vouchers, progress payment
requests, and invoices submitted by the Company to higher tier Government
contractors among the class of allegedly false claims challenged by the
TRW INC. 59
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Government. On September 29, 1999, the former employee filed his Second Amended
Complaint, which incorporated subcontracts performed by the Company for higher
tier Government contractors among the class of contracts under which allegedly
false claims were presented, and added allegations relating to certain of the
former employee's pre-existing claims. 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.
OPERATING SEGMENTS
For the year ended December 31, 1999, the Company is reporting seven operating
segments. The Company's automotive businesses are reported as Occupant Safety
Systems, Chassis Systems, Automotive Electronics and Other Automotive segments.
The Company's aerospace and information systems' businesses are reported as
Space & Electronics, Systems & Information Technology and Aeronautical Systems
segments.
On August 16, 1999, the Company announced certain changes in management and
organization of its automotive business to accelerate the integration of
LucasVarity and strengthen its ability to serve its global customer base. As a
result of these changes, the LucasVarity light vehicle braking and aftermarket
businesses were integrated with Chassis Systems, LucasVarity electronics
businesses were integrated with Automotive Electronics and LucasVarity Diesel
Systems and wiring businesses were included in the Other Automotive segment. The
LucasVarity aerospace business is reported separately as Aeronautical Systems.
The Company is a United States-based company providing advanced technology
products and services for the automotive and aerospace and information systems
markets. The principal markets for the Company's automotive products are the
North American, European and Asian original equipment manufacturers and
independent distributors. The Aerospace & Information Systems segments primarily
offer products and services to the United States Government, agencies of the
United States Government, state and local governments and international and
commercial customers.
A description of the products and services provided by each of the operating
segments follows.
Occupant Safety Systems - inflatable restraint systems, including driver,
passenger, side, knee and rollover air bags; seat belt systems, including front
and rear pretensioners; and steering wheels.
Chassis Systems - steering systems and components, including hydraulic and
electrically assisted power and manual rack and pinion steering for light
vehicles; light vehicle braking systems, including foundation, actuation, and
anti-lock braking systems (ABS); vehicle stability controls (VSC); chassis
modules and integrated vehicle control systems (IVCS); suspension components;
and aftermarket operations, including parts, service, and technical and
diagnostic support.
Automotive Electronics - body control systems, safety and security systems,
chassis and powertrain controls, sensors and components, and engineered
fasteners.
Other Automotive - engine valves and valve train parts; power steering systems
and suspension components for commercial vehicles; diesel systems including fuel
injection systems comprised of mechanical rotary pumps, fuel injectors and
filters for fully-integrated electronically-controlled systems; stud welding
systems and metal fasteners; and wiring systems.
Space & Electronics - spacecraft, including the design and manufacture of
spacecraft equipment, propulsion subsystems, electro-optical and instrument
systems, spacecraft payloads, high-energy lasers and laser technology and other
high-reliability components; and electronic systems, equipment, components and
services, including the design and manufacture of space communications systems,
avionics systems, commercial telecommunications, and other electronic
technologies for tactical and strategic applications.
Systems & Information Technology - systems engineering, systems integration,
software development, modeling and simulation, test and evaluation, training and
information technology for high technology systems, products and services in the
fields of command and control, strategic missiles, missile and air defense,
airborne reconnaissance, unmanned aerial vehicles, intelligence management and
processing, earth observation, nuclear waste management, air traffic control,
counterterrorism, security, criminal justice, health and human services,
integrated supply chain, warehousing, logistics, tax and finance.
Aeronautical Systems - engine controls, power generation, flight controls, cargo
systems, hoists and winches, missile actuation and repair and overhaul.
The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies. The Company
evaluates operating performance based on profit before taxes and total assets
net of segment current operating liabilities. Prepaid pension cost and the
related pension income for corporate and divested operations, unrealized gains
on securities, for affiliate investments accounted for using the cost method,
debt and related interest expense, interest related to the other postretirement
benefit liability, currently payable income taxes, current deferred income
taxes, long-term deferred income taxes in 1998 and corporate staff expenses are
maintained at the corporate level and are not a component of the operating
segment results.
60 TRW INC.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
As a result of the acquisition of LucasVarity, segment assets increased
significantly in 1999. The preliminary allocation of LucasVarity's assets for
each applicable segment follows:
(In millions)
- -------------
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Chassis Systems $3,056
Automotive Electronics 619
Other Automotive 905
Aeronautical Systems 1,801
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Financial information for the operating segments for each of the three years
ended December 31 is as follows:
<TABLE>
<CAPTION>
Occupant Systems &
Safety Chassis Automotive Other Space & Information Aeronautical
(In millions) Systems Systems Electronics Automotive Electronics Technology Systems Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999
- ------------------------------------------------------------------------------------------------------------------------------------
Sales from
external customers $ 3,009 $ 5,077 $ 1,632 $ 1,610 $ 1,870 $ 2,869 $ 902 $16,969
Intersegment sales 3 12 81 59 29 111 -- 295
Profit before taxes 187 299 114 115 500 86 123 1,424
Unusual items -
income(expense) included
in profit (9) (76) (14) (1) 256 (99) -- 57
Segment assets 1,507 3,806 1,103 1,276 385 556 1,801 10,434
Depreciation and amortization 173 266 81 105 103 58 49 835
Capital expenditures
including other intangibles 142 302 88 132 101 41 55 861
- ------------------------------------------------------------------------------------------------------------------------------------
1998
- ------------------------------------------------------------------------------------------------------------------------------------
Sales from
external customers $ 3,042 $ 2,201 $ 1,137 $ 821 $ 1,922 $ 2,763 -- $11,886
Intersegment sales 4 11 40 3 40 115 -- 213
Profit before taxes 257 129 73 84 266 192 -- 1,001
Unusual items -
income(expense) included
in profit -- (7) (13) (4) 34 (26) -- (16)
Segment assets 1,605 809 529 373 366 874 -- 4,556
Depreciation and amortization 184 109 57 46 95 61 -- 552
Capital expenditures
including other intangibles 161 145 95 55 115 48 -- 619
- ------------------------------------------------------------------------------------------------------------------------------------
1997
- ------------------------------------------------------------------------------------------------------------------------------------
Sales from
external customers $ 3,020 $ 2,181 $ 1,022 $ 809 $ 2,005 $ 1,794 -- $10,831
Intersegment sales 2 14 24 3 27 121 -- 191
Profit before taxes 314 155 70 98 204 144 -- 985
Segment assets 1,528 695 367 336 355 728 -- 4,009
Depreciation and amortization 158 107 53 44 87 28 -- 477
Capital expenditures
including other intangibles 171 106 65 56 128 28 -- 554
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company accounts for intersegment sales or transfers at current market
prices for the Automotive segments and at cost for the Aerospace & Information
Systems segments. Sales to agencies of the U.S. Government, primarily by the
Space & Electronics and Systems & Information Technology segments, were $4,248
million in 1999, $4,119 million in 1998 and $3,523 million in 1997. Sales to
Ford Motor Company by the four Automotive segments were $2,143 million in 1999,
$1,423 million in 1998 and $1,469 million in 1997. The increase in sales to Ford
Motor Company in 1999 was primarily due to the LucasVarity acquisition.
TRW INC. 61
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Reconciliations of the items reported for the operating segments to the
applicable amounts reported in the consolidated financial statements are as
follows:
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Profit before taxes $ 1,424 $ 1,001 $ 985
Purchased in-process research and development (85) -- (548)
Financing cost (531) (119) (80)
Pension income 180 -- --
Corporate expense and other (201) (136) (117)
- ---------------------------------------------------------------------------------------------------------------
Earnings before income taxes $ 787 $ 746 $ 240
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Segment assets $10,434 $ 4,556 $ 4,009
Segment current operating liabilities 2,794 1,843 1,828
Current deferred taxes 423 179 96
Long-term deferred taxes -- 33 --
Prepaid pension cost 2,876 171 --
Unrealized gain on securities 917 46 18
Segment eliminations and adjustments 155 122 114
Corporate and other 667 390 345
- ---------------------------------------------------------------------------------------------------------------
Total assets $18,266 $ 7,340 $ 6,410
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Information concerning principal geographic areas for and as of the three years
ended December 31 is as follows:
<TABLE>
<CAPTION>
United
(In millions) United States Germany Kingdom All Other Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales from external customers
1999 $ 9,726 $ 1,873 $ 2,079 $ 3,291 $16,969
1998 7,658 1,562 452 2,214 11,886
1997 6,919 1,442 420 2,050 10,831
- -------------------------------------------------------------------------------------------------------------------
Property, plant and equipment-net
1999 $ 1,934 $ 525 $ 515 $ 920 $ 3,894
1998 1,491 497 124 571 2,683
1997 1,560 451 119 491 2,621
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Sales are attributable to geographic areas based on the location of the assets
generating the sales. Inter-area sales are not significant to the total sales of
any geographic area.
62 TRW INC.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT AUDITORS (UNAUDITED)
On January 25, 2000, the Company established two revolving credit agreements in
an aggregate amount of $3.3 billion with 29 banks. The first agreement, in an
amount of $2.3 billion, will expire on January 23, 2001 with an option to extend
the maturity of outstanding borrowings at that time to January 23, 2002. The
second agreement, in an amount of $1 billion, will expire on January 25, 2005.
The interest rates under the agreements are either the prime rate or a rate
based on the London Interbank Offered Rate, at the option of the Company. The
covenants of these agreements, if in effect at December 31, 1999, limit the
payment of dividends to approximately $690 million at December 31, 1999. Also on
January 25, 2000, the Company terminated existing revolving credit agreements in
an aggregate amount of approximately $5 billion.
On February 11, 2000, the Company redeemed the stock purchase rights issued
pursuant to the Rights Agreement dated April 24, 1996. In redeeming the rights,
the Company's Directors authorized a one-time payment to shareholders of $.005
per common share, which was paid March 15, 2000, to shareholders of record on
February 11, 2000.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
------------------------ --------------------- ------------------ -------------------
(In millions except per share data) 1999 1998 1999 1998 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
(A) (B) (C) (D) (E) (F) (G) (H)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $3,097 $3,095 $4,785 $3,028 $4,462 $2,836 $4,625 $2,927
Gross profit 479 520 845 547 924 522 842 582
Earnings before
income taxes 7 204 217 198 211 164 352 180
Net earnings(loss) (28) 129 139 126 134 104 224 118
Net earnings(loss)
per share(I)
Diluted (.24) 1.03 1.14 1.00 1.08 .85 1.81 .96
Basic (.24) 1.05 1.16 1.03 1.10 .86 1.84 .98
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Earnings before income taxes includes an $85 million charge (71 cents per
share), with no income tax benefit, for purchased in-process research and
development related to the acquisition of LucasVarity, $63 million in
expenses ($41 million after tax, 34 cents per share) related to the
acquisition of LucasVarity, a $43 million loss ($28 million after tax, 23
cents per share) on fixed-price type contracts, a $45 million gain ($28
million after tax, 24 cents per share) related to the sale of assets,
primarily RFMD, and a $10 million charge ($7 million after tax, 6 cents per
share) related to the automotive restructuring program.
(B) Earnings before income taxes includes a $49 million gain ($32 million after
tax, 25 cents per share) from the settlement of certain patent litigation
and a $34 million charge ($22 million after tax, 17 cents per share) for
litigation and contract reserves and severance costs relating to the
integration of the Company's Systems & Information Technology businesses
with BDM International, Inc.
(C) Earnings before income taxes includes a $79 million gain ($52 million after
tax, 42 cents per share) from the sale of assets, primarily RFMD common
stock, a $59 million charge ($39 million after tax, 32 cents per share)
related to the automotive restructuring program, and $40 million in expenses
($26 million after tax, 21 cents per share) related to the acquisition of
LucasVarity.
(D) Earnings before income taxes includes a $7 million charge ($6 million after
tax, 4 cents per share) for a contract reserve.
(E) Earnings before income taxes includes a $79 million charge ($51 million
after tax, 41 cents per share) on the write-off of the Company's investment
in ICO, a $39 million benefit ($24 million after tax, 19 cents per share)
primarily from transactions related to the acquisition of LucasVarity, and a
$22 million gain ($14 million after tax, 12 cents per share) from the sale
of assets, primarily RFMD common stock.
(F) Earnings before income taxes includes a charge of $13 million ($8 million
after tax, 7 cents per share) related to the automotive restructuring.
(G) Earnings before income taxes includes a $216 million gain ($141 million
after tax, $1.14 per share) from the sale of assets, primarily RFMD common
stock, an $82 million loss ($53 million after tax, 43 cents per share)
related to charges associated with the discontinuance of certain product
lines, $30 million in expenses ($20 million after tax, 16 cents per share)
related to the acquisition of LucasVarity, and an $11 million charge ($9
million after tax, 7 cents per share) related to the automotive
restructuring program.
(H) Earnings before income taxes includes a benefit of $25 million ($16 million
after tax, 13 cents per share) from an interest accrual adjustment relating
to a tax litigation settlement and an $11 million charge ($10 million after
tax, 8 cents per share) related to the automotive restructuring.
(I) As a result of the loss in the first quarter of 1999, under the provisions
of SFAS No. 128, the diluted calculation excludes convertible preferred
stock and employee stock options as these would produce an anti-dilutive
effect. In addition, under SFAS No. 128, the sum of net earnings(loss) per
share for the four quarters may not equal the total year amount.
TRW INC. 63
<PAGE>
NOTES TO FINANCIAL STATEMENTS
STOCK PRICES AND DIVIDENDS (UNAUDITED)
The book value per common share at December 31, 1999, was $22.19 compared to
$15.61 at the end of 1998. The Company's Directors declared the 246th
consecutive quarterly dividend during December 1999. Dividends declared per
share in 1999 were $1.32, up 3 percent from $1.28 in 1998. The following table
highlights the market prices of the Company's common and preference stocks and
dividends paid for the quarters of 1999 and 1998.
<TABLE>
<CAPTION>
Price of Dividends paid
traded shares per share
------------------------------------------------- -------------------
Quarter 1999 1998 1999 1998
------- ------------------------------------------------- -------------------
High Low High Low
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Common stock 1 $ 59 7/8 $ 43 1/2 $ 56 1/4 $ 50 9/16 $ .33 $ .31
Par value $0.625 2 55 1/8 41 1/4 57 3/8 50 1/16 .33 .31
per share 3 57 15/16 46 56 15/16 42 11/16 .33 .31
4 55 1/4 41 3/16 58 43 .33 .33
- --------------------------------------------------------------------------------------------------------------
Cumulative Serial 1 495 402 495 495 1.10 1.10
Preference Stock II 2 495 402 468 468 1.10 1.10
$4.40 Convertible 3 505 460 495 420 1.10 1.10
Series 1 4 452 452 480 480 1.10 1.10
- --------------------------------------------------------------------------------------------------------------
Cumulative Serial 1 418 335 390 379 1.125 1.125
Preference Stock II 2 343 1/2 330 400 400 1.125 1.125
$4.50 Convertible 3 408 390 405 405 1.125 1.125
Series 3 4 375 375 405 405 1.125 1.125
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The $4.40 Convertible Series 1 was not actively traded during the second quarter
of 1999 and the first quarter of 1998, and the $4.50 Convertible Series 3 was
not actively traded during the fourth quarter of 1998. The prices shown for
these quarters represent the previous quarter's actual high and low prices of
traded shares.
64 TRW INC.
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
TRW has no parent or parents. As of December 31, 1999, certain of its
subsidiaries, some of which also have subsidiaries, were as follows:
<TABLE>
<CAPTION>
Percentage of
Organized under voting securities
Name the laws of owned (1)
---- ----------- -----------------
<S> <C> <C>
BDM International, Inc. which owns Delaware 100.00%
Vinnell Corporation Delaware 100.00%
TRW Automotive Espana, S.A. Spain 100.00%
TRW Automotive Holding Company Delaware 100.00%
TRW Automotive Products Inc. which owns, Delaware 100.00%
directly or indirectly,
TRW Delaware Inc. Delaware 100.00%
TRW Automotive Safety Systems Inc. Delaware 100.00%
TRW UK Holding Limited United Kingdom 100.00%
TRW Automotive UK Limited United Kingdom 100.00%
LucasVarity Limited United Kingdom 100.00%
Lucas Industries Limited United Kingdom 100.00%
Lucas Automation & Control Engineering Inc. Virginia 100.00%
Lucas-TVS Limited India 52.50%
Lucas Investments Ltd. United Kingdom 100.00%
Lucas France S.A.S. France 100.00%
Lucas Limited United Kingdom 100.00%
Lucas Systemes de Freinage S.A.S. France 100.00%
Societe d'Application des Machine Motrices S.A.S. France 100.00%
TRW Deutschland Holding GmbH Germany 100.00%
Lucas Deutschland GmbH Germany 100.00%
Lucas Automotive GmbH Germany 100.00%
TRW Automotive Safety Systems Holding GmbH Germany 100.00%
TRW Airbag Systems GmbH & Co. KG Germany 99.99%
TRW Automotive Safety Systems GmbH & Co. KG Germany 100.00%
TRW Deutschland GmbH Germany 100.00%
TRW Automotive Electronics & Components GmbH & Co. KG Germany 100.00%
TRW Fahrwerksysteme GmbH & Co. KG Germany 100.00%
TRW Occupant Restraints Systems GmbH & Co. KG Germany 100.00%
TRW Automotive Systems Limited United Kingdom 100.00%
TRW LucasVarity Electric Steering Limited United Kindgom 100.00%
TRW Steering Systems Limited United Kingdom 100.00%
LucasVarity Inc. Delaware 100.00%
NEWCO Investment Co. Michigan 100.00%
Varity Automotive Inc. Delaware 100.00%
Kelsey-Hayes Company Delaware 100.00%
Kelsey-Hayes Canada Limited Canada 100.00%
VarityKelsey-Hayes Comercial Ltda. Brazil 100.00%
Freios Varga S.A. Brazil 99.00%
Lucas Western Inc. Delaware 100.00%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Organized under voting securities
Name the laws of owned (1)
---- ----------- -----------------
<S> <C> <C>
TRW Canada Limited, which owns Canada 100.00%
Quality Safety Systems Company Canada 60.00%
TRW Automotive Brasil Ltda. Brazil 100.00%
TRW Export Sales B.V. which, in turn, owns Netherlands 100.00%
TRW Netherlands Finance B.V. Netherlands 100.00%
TRW Netherlands Finance International B.V. Netherlands 100.00%
TRW Netherlands Holding B.V. Netherlands 100.00%
TRW France S.A. France 100.00%
TRW Italia S.p.A. Italy 100.00%
TRW Koyo Steering Systems Company Tennessee 51.00%
TRW Microwave Inc. California 100.00%
TRW Netherlands B.V. Netherlands 100.00%
TRW Overseas Finance N.V. Netherlands 100.00%
TRW Sabelt S.p.A. which owns Italy 90.00%
TRW Air Bag Systems s.r.l. Italy 100.00%
TRW Steering Systems Japan Co. Ltd. Japan 100.00%
TRW Vehicle Safety Systems Inc., which owns Delaware 100.00%
TRW Safety Systems Inc. Delaware 100.00%
TRW Technar Inc. California 100.00%
</TABLE>
_______________
(1) Total percentages held by TRW and/or its subsidiaries, disregarding
Directors' qualifying shares, if any.
The names of certain subsidiaries, which considered in the aggregate would
not constitute a "significant subsidiary" as such term is defined in the
regulations under the federal securities laws, have been omitted from the
foregoing list.
<PAGE>
EXHIBIT 23(a)
-------------
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference of our report dated January
21, 2000, with respect to the consolidated financial statements of TRW Inc.
included in the Annual Report on Form 10-K for the year ended December 31, 1999,
in the following Registration Statement Nos.: 333-83227 on Form S-4, 333-89133
on Form S-3, 333-48443 on Form S-3, 333-27003 on Form S-8, 333-27001 on Form S-
8, 333-20351 on Form S-8, 333-06633 on Form S-8, 333-03973 on Form S-8, 33-53503
on Form S-8, 33-29751 on Form S-8, 2-90748 on Form S-8 and 2-64035 on Form S-8.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Cleveland, Ohio
March 17, 2000
<PAGE>
EXHIBIT 23(b)
-------------
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference of our report dated March 10,
2000, with respect to the financial statements of The TRW Canada Stock Savings
Plan for the year ended December 31, 1999, included as Exhibit 99(a) to the TRW
Inc. Annual Report on Form 10-K for the year ended December 31, 1999, in TRW
Inc.'s Registration Statement No. 333-06633 on Form S-8 pertaining to The TRW
Canada Stock Savings Plan and the related prospectus.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Hamilton, Ontario
March 17, 2000
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
Directors and Certain Officers of
TRW Inc.
THE UNDERSIGNED Directors and Officers of TRW Inc. hereby appoint W. B.
Lawrence, K. C. Syrvalin and K. A. Weigand, and each of them, as attorneys for
the undersigned, with full power of substitution and resubstitution, for and in
the name, place and stead of the undersigned in the capacity specified, to
prepare or cause to be prepared, to execute and to file with the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended (the
"Act"), an annual report on Form 10-K for the year ended December 31, 1999
relating to TRW Inc., such other periodic reports as may be required pursuant to
the Act, amendments and exhibits to any of the foregoing and any and all other
documents to be filed with the Securities and Exchange Commission or elsewhere
pertaining to such reports, with full power and authority to take such other
action which in the judgment of such person may be necessary or appropriate to
effect the filing of such documents.
EXECUTED the dates set forth below.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ J. T. Gorman /s/ D. M. Cote /s/ Carl G. Miller
- ------------------------------ ------------------------- ---------------------------
J. T. Gorman, D. M. Cote, C. G. Miller,
Chairman of the Board, President, Executive Vice President
Chief Executive Officer Chief Operating Officer and Chief Financial Officer
and Director and Director February 16, 2000
February 16, 2000 February 16, 2000
/s/ Thomas A. Connell /s/ Michael H. Armacost /s/ M. Feldstein
- ------------------------------ ------------------------- ---------------------------
T. A. Connell, Vice President M. H. Armacost, Director M. Feldstein, Director
and Controller February 16, 2000 February 16, 2000
February 16, 2000
/s/ Robert M. Gates /s/ George H. Heilmeier /s/ Karen N. Horn
- ------------------------------ ------------------------- ---------------------------
R. M. Gates, Director G. H. Heilmeier, Director K. N. Horn, Director
February 16, 2000 February 16, 2000 February 16, 2000
/s/ E. B. Jones /s/ W. S. Kiser /s/ D. B. Lewis
- ------------------------------ ------------------------- ---------------------------
E. B. Jones, Director W. S. Kiser, Director D. B. Lewis, Director
February 16, 2000 February 16, 2000 February 16, 2000
/s/ L. M. Martin /s/ J. D. Ong /s/ Richard W. Pogue
- ------------------------------ ------------------------- ---------------------------
L. M. Martin, Director J. D. Ong, Director R. W. Pogue, Director
February 16, 2000 February 16, 2000 February 16, 2000
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 228
<SECURITIES> 0
<RECEIVABLES> 2,480
<ALLOWANCES> 0
<INVENTORY> 1,039
<CURRENT-ASSETS> 5,199
<PP&E> 8,026
<DEPRECIATION> 4,132
<TOTAL-ASSETS> 18,266
<CURRENT-LIABILITIES> 6,729
<BONDS> 5,369
0
0
<COMMON> 76
<OTHER-SE> 2,636
<TOTAL-LIABILITY-AND-EQUITY> 18,266
<SALES> 16,969
<TOTAL-REVENUES> 16,969
<CGS> 13,879
<TOTAL-COSTS> 13,879
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 477
<INCOME-PRETAX> 787
<INCOME-TAX> 318
<INCOME-CONTINUING> 469
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 469
<EPS-BASIC> 3.87
<EPS-DILUTED> 3.80
</TABLE>
<PAGE>
EXHIBIT 99(a)
FINANCIAL STATEMENTS
THE TRW CANADA
STOCK SAVINGS PLAN
December 31, 1999 and 1998
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Participants and the Board of Administration of
The TRW Canada Stock Savings Plan
We have audited the statements of financial condition of the TRW Stock Fund,
Pooled Money Market Fund Employees Profit Sharing Plan, Pooled Balanced Fund
Registered Retirement Savings Plan and Pooled Money Market Fund Registered
Retirement Savings Plan [constituting The TRW Canada Stock Savings Plan] as at
December 31, 1999 and 1998 and the related statements of operations and changes
in fund equity for these funds for the years then ended. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the several funds of The TRW Canada Stock
Savings Plan as at December 31, 1999 and 1998 and the results of their
operations and the changes in fund equity for the years then ended in accordance
with accounting principles generally accepted in Canada.
Hamilton, Canada, /s/ Ernst & Young LLP
March 10, 2000. Chartered Accountants
<PAGE>
The TRW Canada Stock Savings Plan
TRW Stock Fund
STATEMENTS OF FINANCIAL CONDITION
As at December 31
<TABLE>
<CAPTION>
1999 1998
$ $
- -----------------------------------------------------------------------------------------------------
[expressed in Canadian dollars]
<S> <C> <C>
ASSETS
Cash 5,246 5,149
Receivable from TRW Canada Limited 87,163 82,681
Investments at quoted market value
TRW Inc. common stock
13,089 shares [cost $957,618] in 1999 and
12,225 shares [cost $943,274] in 1998 981,170 1,048,903
- -----------------------------------------------------------------------------------------------------
1,073,579 1,136,733
- -----------------------------------------------------------------------------------------------------
LIABILITIES AND FUND EQUITY
Withdrawals, terminations, and short-term distributions 828,383 921,630
Fund equity [including net unrealized appreciation of investments] 245,196 215,103
- -----------------------------------------------------------------------------------------------------
1,073,579 1,136,733
- -----------------------------------------------------------------------------------------------------
Number of shares outstanding at December 31 13,089 12,225
- -----------------------------------------------------------------------------------------------------
Fund equity per share at December 31 18.7329 17.5953
- -----------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
<PAGE>
The TRW Canada Stock Savings Plan
TRW Stock Fund
STATEMENTS OF OPERATIONS AND
CHANGES IN FUND EQUITY
Years ended December 31
<TABLE>
<CAPTION>
1999 1998
$ $
[expressed in Canadian dollars]
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Dividends on TRW Inc. common stock 11,030 12,196
Interest 34 219
- --------------------------------------------------------------------------------------------------
11,064 12,415
- --------------------------------------------------------------------------------------------------
CONTRIBUTIONS
Participants 455,563 451,113
TRW Canada Limited
50% of total participants' contributions to all funds 440,952 428,733
- --------------------------------------------------------------------------------------------------
896,515 879,846
- --------------------------------------------------------------------------------------------------
Net realized gain on transfer
of investments to participants [note 4] 90,527 28,984
Unrealized appreciation (depreciation) of investments [note 4] (82,077) 66,083
- --------------------------------------------------------------------------------------------------
8,450 95,067
- --------------------------------------------------------------------------------------------------
916,029 987,328
- --------------------------------------------------------------------------------------------------
Less withdrawals and terminations
Paid
Cash 1,583 910
TRW Inc. common stock
713 shares in 1999; 1,352 shares in 1998 55,970 87,457
- --------------------------------------------------------------------------------------------------
57,553 88,367
- --------------------------------------------------------------------------------------------------
Payable
Cash 7,979 15,841
TRW Inc. common stock
11,594 shares in 1999; 10,557 shares in 1998 820,404 905,789
- --------------------------------------------------------------------------------------------------
828,383 921,630
- --------------------------------------------------------------------------------------------------
885,936 1,009,997
- --------------------------------------------------------------------------------------------------
Increase (decrease) in fund equity 30,093 (22,669)
Fund equity at January 1 215,103 237,772
- --------------------------------------------------------------------------------------------------
Fund equity at December 31 245,196 215,103
- --------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
<PAGE>
The TRW Canada Stock Savings Plan
Pooled Money Market Fund Employees Profit Sharing Plan
STATEMENTS OF FINANCIAL CONDITION
As at December 31
<TABLE>
<CAPTION>
1999 1998
$ $
- ------------------------------------------------------------------------------------------
[expressed in Canadian dollars]
<S> <C> <C>
ASSETS
Cash 11,879 5,571
Receivable from TRW Canada Limited 22,019 21,253
Investments at market value
Royal Trust Company Classified Money Market Fund
22,325 units [cost $223,250] in 1999 and
22,591 units [cost $225,908] in 1998 223,250 225,908
- ------------------------------------------------------------------------------------------
257,148 252,732
- ------------------------------------------------------------------------------------------
LIABILITIES AND FUND EQUITY
Withdrawals, terminations, and short-term distributions 211,299 217,815
Fund equity 45,849 34,917
- ------------------------------------------------------------------------------------------
257,148 252,732
- ------------------------------------------------------------------------------------------
Number of units outstanding at December 31 4,584.9 3,491.7
- ------------------------------------------------------------------------------------------
Fund equity per unit at December 31 10.0 10.0
- ------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
<PAGE>
The TRW Canada Stock Savings Plan
Pooled Money Market Fund Employees Profit Sharing Plan
STATEMENTS OF OPERATIONS AND
CHANGES IN FUND EQUITY
Years ended December 31
<TABLE>
<CAPTION>
1999 1998
$ $
- -------------------------------------------------------------------------
[expressed in Canadian dollars]
<S> <C> <C>
- -------------------------------------------------------------------------
Interest income 5,506 6,622
Participants' contributions 230,976 221,027
- -------------------------------------------------------------------------
236,482 227,649
- -------------------------------------------------------------------------
Less cash withdrawals and terminations
Paid 20,126 6,680
Payable 205,424 217,815
- -------------------------------------------------------------------------
225,550 224,495
- -------------------------------------------------------------------------
Increase in fund equity 10,932 3,154
Fund equity at January 1 34,917 31,763
- -------------------------------------------------------------------------
Fund equity at December 31 45,849 34,917
- -------------------------------------------------------------------------
</TABLE>
See accompanying notes
<PAGE>
The TRW Canada Stock Savings Plan
Pooled Balanced Fund Registered Retirement Savings Plan
STATEMENTS OF FINANCIAL CONDITION
As at December 31
<TABLE>
<CAPTION>
1999 1998
$ $
- -----------------------------------------------------------------------------------------------------
[expressed in Canadian dollars]
<S> <C> <C>
ASSETS
Cash 9,021 1,737
Receivable from TRW Canada Limited 12,653 13,068
Dividends receivable 5,077 14,194
Investments at quoted market value
Royal Trust Company Classified Balanced Fund
40,584.5417 units [cost $565,355] in 1999 and
36,235.7677 units [cost $484,708] in 1998 686,045 562,577
- -----------------------------------------------------------------------------------------------------
712,796 591,576
- -----------------------------------------------------------------------------------------------------
LIABILITIES AND FUND EQUITY
Withdrawals, terminations, and short-term distributions 13,503 5,106
Fund equity [including net unrealized appreciation of investments] 699,293 586,470
- -----------------------------------------------------------------------------------------------------
712,796 591,576
- -----------------------------------------------------------------------------------------------------
Number of units outstanding at December 31 40,584.5417 36,235.7677
- -----------------------------------------------------------------------------------------------------
Fund equity per unit at December 31 17.230 16.184
- -----------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
<PAGE>
The TRW Canada Stock Savings Plan
Pooled Balanced Fund Registered Retirement Savings Plan
STATEMENTS OF OPERATIONS AND
CHANGES IN FUND EQUITY
Years ended December 31
<TABLE>
<CAPTION>
1999 1998
$ $
- -------------------------------------------------------------------------------------------
[expressed in Canadian dollars]
<S> <C> <C>
Income 25,558 33,732
- -------------------------------------------------------------------------------------------
Contributions
Participants' contributions 136,422 130,483
Transfer from Pooled Money Market Fund RRSP -- 1,442
- -------------------------------------------------------------------------------------------
136,422 131,925
- -------------------------------------------------------------------------------------------
Net realized gain on disposition of investments [note 4] 10,587 5,982
Unrealized appreciation of investments [note 4] 42,821 3,953
- -------------------------------------------------------------------------------------------
53,408 9,935
- -------------------------------------------------------------------------------------------
215,388 175,592
- -------------------------------------------------------------------------------------------
Less cash withdrawals and terminations
Paid 102,565 76,947
- -------------------------------------------------------------------------------------------
Increase in fund equity 112,823 98,645
Fund equity at January 1 586,470 487,825
- -------------------------------------------------------------------------------------------
Fund equity at December 31 699,293 586,470
- -------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
<PAGE>
The TRW Canada Stock Savings Plan
Pooled Money Market Fund Registered Retirement Savings Plan
STATEMENTS OF FINANCIAL CONDITION
As at December 31
<TABLE>
<CAPTION>
1999 1998
$ $
- -------------------------------------------------------------------------------------------
[expressed in Canadian dollars]
<S> <C> <C>
ASSETS
Cash 5,177 1,432
Receivable from TRW Canada Limited 5,695 5,013
Investments at market value
Royal Trust Company Classified Pooled Money Market Fund
23,897 units [cost $238,966] in 1999 and
26,331 units [cost $263,312] in 1998 238,966 263,312
- -------------------------------------------------------------------------------------------
249,838 269,757
- -------------------------------------------------------------------------------------------
FUND EQUITY
Fund equity 249,838 269,757
- -------------------------------------------------------------------------------------------
Number of units outstanding at December 31 24,983.8 26,975.7
- -------------------------------------------------------------------------------------------
Fund equity per unit at December 31 10.0 10.0
- -------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
<PAGE>
The TRW Canada Stock Savings Plan
Pooled Money Market Fund Registered Retirement Savings Plan
STATEMENTS OF OPERATIONS AND
CHANGES IN FUND EQUITY
Years ended December 31
<TABLE>
<CAPTION>
1999 1998
$ $
- --------------------------------------------------------------------------
[expressed in Canadian dollars]
<S> <C> <C>
Interest income 12,336 11,782
Participants' contributions 59,633 55,108
- --------------------------------------------------------------------------
71,969 66,890
- --------------------------------------------------------------------------
Less cash withdrawals and terminations
Paid 91,888 35,015
Transfer to Pooled Balanced Fund RRSP -- 1,442
- --------------------------------------------------------------------------
91,888 36,457
- --------------------------------------------------------------------------
Increase (decrease) in fund equity (19,919) 30,433
Fund equity at January 1 269,757 239,324
- --------------------------------------------------------------------------
Fund equity at December 31 249,838 269,757
- --------------------------------------------------------------------------
</TABLE>
See accompanying notes
<PAGE>
The TRW Canada Stock Savings Plan
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
1. GENERAL PLAN PROVISIONS
The investment programs of The TRW Canada Stock Savings Plan [the "Plan"] are as
follows:
Participant contributions
Upon enrollment or re-enrollment, each participant directs that his
contributions [computed in increments of one percent, from two percent to six
percent of qualifying compensation] are to be invested in accordance with any of
the following investment options:
[a] 100% in the TRW Stock Fund [the common stock of TRW Inc. in accordance with
the Trust agreement and the Plan].
[b] 100% in the Pooled Money Market Fund Employees Profit Sharing Plan. At
present, the Trustee invests all of the Pooled Money Market Fund amounts in
the Royal Trust Company, Classified Money Market Fund in accordance with
the Trust agreement and the Plan.
[c] 100% in the Pooled Balanced Fund Registered Retirement Savings Plan. At
present, the Trustee invests all of the Pooled Balanced Fund amounts in the
Royal Trust Company, Classified Balanced Fund, in accordance with the Trust
agreement and the Plan.
[d] 100% in the Pooled Money Market Fund Registered Retirement Savings Plan. At
present, the Trustee invests all of the Pooled Money Market Fund amounts in
the Royal Trust Company, Classified Pooled Money Market Fund in accordance
with the Trust agreement and the Plan.
[e] A combination of options [a] through [d] in multiples of 25%.
Such direction may be revised on 30 days prior notice, effective January 1 of
any year.
TRW Canada Limited contributions
TRW Canada Limited shall contribute to the Plan for each month, out of current
or accumulated earnings, an amount equal to 50% of participant contributions for
such month. TRW Canada Limited contributions vest immediately.
All TRW Canada Limited contributions are invested in the TRW Stock Fund.
TRW Canada Limited does not charge a fee for administering the Plans.
1
<PAGE>
The TRW Canada Stock Savings Plan
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
The number of participants in each Fund at December 31 is as follows:
1999 1998
- -------------------------------------------------------------------------
TRW Stock Fund 245 293
Pooled Money Market Fund Employees Profit Sharing Plan 75 115
Pooled Balanced Fund Registered Retirement Savings Plan 62 81
Pooled Money Market Fund Registered Retirement Savings Plan 39 49
The total number of participants in the Plan is less than the sum of the number
of participants shown above because many are participating in more than one
Fund.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in accordance with accounting
principles generally accepted in Canada, and are within the framework of the
accounting policies summarized below.
Gains and losses on investments
The realized gains or losses on disposition or transfer of an investment is
determined from the market value of the investment at the date of disposition or
transfer and the average cost base of that specific pool of investments prior to
the disposition or transfer.
Unrealized gains or losses are determined as the net effect of the change in
appreciation (depreciation) of investments from January 1 to December 31, based
on market value and the average cost base of each investment at those respective
dates.
Income recognition
Dividends are recognized as earned.
Interest income is recognized as it is earned consistent with the accrual basis
of accounting.
2
<PAGE>
The TRW Canada Stock Savings Plan
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
3. INCOME TAXES
The Plan is exempt from Canadian federal income taxes under provisions of the
Income Tax Act. Federal income tax consequences to the participants under the
Plan are as provided in the Income Tax Act. TRW Canada Limited contributions
are taxable to the participants as is the income and all post-1971 capital gains
less post-1971 capital losses of the Plan, all of which are allocated to the
participants by the Trustee during the year, whether or not such amounts are
paid to the participants by the Trustee during the year. In some circumstances,
the amounts taxable could exceed the amounts allocated. The amount of foreign
non-business income tax paid on foreign source income by the trusts under the
Plan for the year is allocated to and deemed to have been paid by the
participants for Canadian federal income tax purposes. Participants who are
non-resident taxpayers are subject to special rules depending on whether they
have performed duties in Canada during the year and are subject to 15%
withholding tax on amounts paid or credited to them under the Plan.
4. UNREALIZED AND REALIZED (LOSSES) GAINS
Investments are stated at their quoted market value. The net unrealized
appreciation (depreciation) of investments included in fund equity is as
follows:
TRW Pooled
Stock Balanced
Fund Fund
$ $
- ----------------------------------------------------------
[expressed in Canadian dollars]
Balance at December 31, 1997 39,546 73,916
Change for the year
Market value 66,083 3,953
- ----------------------------------------------------------
Balance at December 31, 1998 105,629 77,869
Change for the year
Market value (82,077) 42,821
- ----------------------------------------------------------
Balance at December 31, 1999 23,552 120,690
- ----------------------------------------------------------
3
<PAGE>
The TRW Canada Stock Savings Plan
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
The net realized gains on the transfer or disposition of investments are
summarized as follows:
TRW Stock Fund
-------------------------------
1999 1998
$ $
- ------------------------------------------------------------------
[expressed in Canadian dollars]
Amount realized 942,356 784,783
Cost - average 851,829 755,799
- ------------------------------------------------------------------
Net realized gain (loss) 90,527 28,984
- ------------------------------------------------------------------
Pooled Balanced Fund
Registered Retirement
Savings Plan
-------------------------------
1999 1998
$ $
- ------------------------------------------------------------------
[expressed in Canadian dollars]
Amount realized 66,113 33,999
Cost - average 55,526 28,017
- ------------------------------------------------------------------
Net realized gain 10,587 5,982
- ------------------------------------------------------------------
5. RELATED PARTY TRANSACTIONS
All expenses related to The TRW Canada Stock Savings Plan are paid by TRW Canada
Limited.
4
