<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 8, 1999
===============================================================================
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 JULY 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-3998
LITTON INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 95-1775499
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
21240 BURBANK BOULEVARD 91367-6675
WOODLAND HILLS, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (818) 598-5000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ------------------------
<S> <C>
Common Stock, par value $1 per share New York Stock Exchange
Pacific Exchange, Inc.
Series B $2 Cumulative Preferred Stock, New York Stock Exchange
par value $5 per share Pacific Exchange, Inc.
</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. [ ]
On September 30, 1999 the aggregate market value of the Registrant's voting
stock held by non-affiliates was $2.450 billion.
On September 30, 1999 there were 45,570,289 shares of Common Stock
outstanding, exclusive of treasury shares or shares held by subsidiaries of the
Registrant.
Part III incorporates information by reference from the definitive Proxy
Statement in connection with the Registrant's Annual Meeting of Shareholders to
be held on December 3, 1999.
================================================================================
<PAGE> 2
LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
INDEX TO ANNUAL REPORT
ON FORM 10-K
<TABLE>
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PAGE
----
<S> <C> <C>
PART I
Item 1: Business.................................................... 1
Item 2: Properties.................................................. 4
Item 3: Legal Proceedings........................................... 4
Item 4: Submission of Matters to a Vote of Security Holders......... 5
PART II
Item 5: Market for the Registrant's Common Equity and Related
Stockholder Matters....................................... 6
Item 6: Selected Financial Data..................................... 6
Item 7: Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 6
Item 7a: Quantitative and Qualitative Disclosures About Market
Risk...................................................... 6
Item 8: Financial Statements and Supplementary Data................. 6
Item 9: Disagreements on Accounting and Financial Disclosure........ 6
PART III
Item 10: Directors and Executive Officers of the Registrant.......... 13
Item 11: Executive Compensation...................................... 14
Item 12: Security Ownership of Certain Beneficial Owners and
Management................................................ 14
Item 13: Certain Relationships and Related Transactions.............. 14
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports on Form
8-K....................................................... 15
Signatures............................................................... 18
</TABLE>
<PAGE> 3
PART I
ITEM 1. BUSINESS
Litton Industries, Inc. (hereafter together with its consolidated
subsidiaries referred to as the "Company" or "Litton" unless the context
otherwise indicates) supplies advanced electronics and information systems and
is a primary builder of large surface combatant ships for the U.S. Navy. Litton
is also a global supplier of electronic components and materials for the
telecommunications, industrial, and computer markets. On August 2, 1999,
subsequent to the end of fiscal year 1999, the Company completed the acquisition
of Avondale Industries, Inc. ("Avondale"), which is engaged in the design,
construction, conversion, repair and modernization of various types of
ocean-going vessels for military and commercial markets. Avondale will be
reported with the Company's Ship Systems segment. The Company was founded in
California in 1953 and has evolved into a major international organization with
approximately 34,800 employees at more than 26 divisions and eight countries.
The Company's businesses are reported in four business segments: Advanced
Electronics, Information Systems, Ship Systems (formerly Marine Engineering and
Production), and Electronic Components and Materials. Information about the
Company's business segments appears on pages F-21 and F-22 of this Annual Report
on Form 10-K. This information includes revenue, operating profit and total
assets for each of the three years ended July 31, 1999. The segment information
for fiscal year 1997 has been restated to reflect Information Systems (which was
reported with the Advanced Electronics segment) as a separate segment.
Advanced Electronics
The Advanced Electronics segment is a major supplier and integrator of
electronic systems and related services to the U.S. and international military
and commercial markets. The principal businesses comprising the Advanced
Electronics segment are navigation, guidance and control systems, marine
electronics and electronic warfare systems. The primary products include
inertial navigation systems, IFF (identification friend or foe) systems, marine
bridge, steering and machinery control systems, displays, computers, laser range
finders and target designators, threat warning and electro-optical systems,
microwave tubes and military air traffic control systems. The Company also
provides and integrates shipboard engineering, information and communications
control systems and avionics systems.
Sales backlog for the Advanced Electronics segment was $1.310 billion and
$1.463 billion at July 31, 1999 and 1998. Of the backlog at July 31, 1999, $121
million is expected to be realized as sales in years after fiscal year 2000 and
$888 million is related to defense contract backlog.
Approximately 49% of the Advanced Electronics segment's revenues in fiscal
year 1999 were derived from sales to the U.S. Government.
Information Systems
The Information Systems segment is a leading supplier of information
systems, technology and related services to the U.S. Government (for both
defense and non-defense applications), as well as state, local and commercial
customers. In addition to systems integration and networking solutions, this
segment supplies tactical command, control and communication systems to military
customers and provides systems and related services and support to other
non-defense governmental and commercial customers.
Firm backlog for the Information Systems segment was $976.1 million and
$877.7 million at July 31, 1999 and 1998. Of the backlog at July 31, 1999, $288
million is expected to be realized as sales in years after fiscal year 2000 and
$421 million is related to defense contract backlog. In addition, PRC Inc.
("PRC") and TASC, Inc. ("TASC"), subsidiaries of the Company, had unfunded
backlog with potential future contract values totaling approximately $2.2
billion at July 31, 1999 compared with $1.8 billion at July 31, 1998.
Approximately 86% of the revenues for the Information Systems segment in
fiscal year 1999 were derived from sales to the U.S. Government.
1
<PAGE> 4
Ship Systems
The Ship Systems segment is engaged in the building of large multimission
surface combatant ships and is a provider of overhaul, repair, modernization,
ship design and engineering services primarily for the U.S. Navy. Since 1975,
the Company has delivered a total of 77 new destroyers, cruisers and amphibious
assault ships to the U.S. Navy. During fiscal year 1999, the Company signed a
contract with a commercial customer to build two passenger cruise ships, with an
option for a third vessel. The Company is also exploring opportunities in
commercial vessels, offshore drilling rigs and production platforms.
On August 2, 1999, subsequent to the end of fiscal year 1999, the Company
completed the acquisition of Avondale. With revenues of approximately $750
million in its fiscal year ended December 31, 1998, Avondale is engaged in the
design, construction, conversion, repair and modernization of various types of
ocean-going vessels for military and commercial markets. Avondale's current
major contracts include the U.S. Navy's LPD program, the newest class of
amphibious transport ship, and double-hulled crude oil carriers for a commercial
customer.
Sales backlog for the Ship Systems segment was $4.093 billion and $3.472
billion at July 31, 1999 and 1998, respectively. Of the backlog at July 31,
1999, approximately $2.952 billion is expected to be realized as sales in years
after fiscal 2000 and $3.046 billion is related to defense contract backlog.
Approximately 81% of the revenues for the Ship Systems segment in fiscal
year 1999 were derived from sales to the U.S. Government.
Electronic Components and Materials
The Electronic Components and Materials segment designs and manufactures
backpanel assemblies, printed circuit boards, specialty motors, slip rings and
signal, power and fiber optic connectors and produces soldering materials, laser
crystals, gallium arsenide substrates and microwave components for primarily
commercial markets worldwide.
Sales backlog for the Electronic Components and Materials segment was
$222.7 million and $228.7 million at July 31, 1999 and 1998, respectively.
Substantially all of the backlog at July 31, 1999 is expected to be realized in
sales in the next fiscal year and $46 million is related to defense contract
backlog.
Approximately 16% of the revenues for the Electronic Components and
Materials segment in fiscal year 1999 were derived from sales to the U.S.
Government.
Methods of Distribution
The Company principally markets its products and services throughout the
world through the home offices and branch offices of its various operations. In
general, each of the Company's operations is responsible for selecting,
implementing and maintaining an efficient and effective marketing program.
Raw Materials
The Company uses a wide variety of raw materials in the manufacture of its
many products. The availability of any individual raw material is not critical
to the Company's operations.
Patents
The Company owns a large number of patents, trademarks and copyrights
relating to its manufactured products, which have been obtained over a period of
years. The Company considers these patents, trademarks and copyrights, in the
aggregate, to be valuable to its operations. However, the Company does not
believe that the conduct of its businesses, as a whole, is materially dependent
upon any single patent, trademark or copyright.
2
<PAGE> 5
Competition
Competition exists with respect to all products manufactured and services
rendered by the Company, particularly with respect to the defense related
businesses. Competition ranges from companies which produce a single product or
offer a single service to some of the world's largest corporations. The Company
is continuing to enhance its competitive position by developing new applications
for its technologies as well as pursuing commercial opportunities and developing
strategic alliances. Additionally, recent acquisitions have provided the Company
access to non-defense markets, including the systems integration market, that
offer growth opportunities.
U.S. Government Contracts
Approximately 65% of the Company's total sales and service revenues for
fiscal year 1999 were from U.S. Government contracts and subcontracts.
Approximately 62% of these revenues related to fixed-price type contracts. As is
common with U.S. Government contracts, the Company's U.S. defense contracts are
unilaterally terminable at the option of the U.S. Government with compensation
for work completed and costs incurred. Contracts with the U.S. Government are
subject to certain laws and regulations, the noncompliance with which may result
in various sanctions. In the current government contracting environment,
contractors, sometimes without their knowledge, are subject to investigations by
the U.S. Government initiated in various ways. Most investigations result in no
action being taken or administrative resolution. Litton is aware of ongoing
investigations and is cooperating in those investigations. Should any
investigation result in the filing of formal charges against the Company by the
U.S. Government, disclosure will be made if the amount involved or the relief
sought is deemed by the Company to be material to the consolidated financial
statements.
Research and Development
Worldwide expenditures on research and development activities amounted to
$315.6 million, $233.8 million and $241.8 million, of which approximately 26%,
33% and 29% were Company-sponsored in the years ended July 31, 1999, 1998 and
1997, respectively. In fiscal 1999, the Advanced Electronics segment accounted
for 55% of the total research and development expenditures.
Environmental Protection
During the fiscal year ended July 31, 1999, the amounts incurred to comply
with federal, state and local regulations pertaining to environmental standards
did not have a material effect upon the capital expenditures or earnings of the
Company. For additional information with respect to environmental matters, see
Items 3, 7, and 8 of this Annual Report on Form 10-K.
Number of Employees
At July 31, 1999, the Company had approximately 34,800 full-time employees.
Employment by business segment was as follows:
<TABLE>
<S> <C>
Ship Systems................................................ 11,100
Advanced Electronics........................................ 9,700
Information Systems......................................... 9,500
Electronic Components and Materials......................... 4,500
------
34,800
======
</TABLE>
Financial Information by Geographic Area
See Operations by Geographic Area on pages F-21 and F-22 of this Annual
Report on Form 10-K.
3
<PAGE> 6
ITEM 2. PROPERTIES
The Company's principal plants and offices have an aggregate floor area of
approximately 8,565,000 square feet, of which 7,580,000 square feet (88.5%) are
located in the United States, and 985,000 square feet (11.5%) are located
outside of the United States, primarily in Canada and Western Europe. The
Company's executive offices, in owned premises, are at 21240 Burbank Boulevard,
Woodland Hills, California.
These properties are used by the various business segments as follows:
<TABLE>
<CAPTION>
SQUARE FEET
-----------
<S> <C>
Advanced Electronics........................................ 3,499,000
Ship Systems................................................ 1,891,000
Information Systems......................................... 1,697,000
Electronic Components and Materials......................... 1,372,000
Corporate................................................... 106,000
---------
8,565,000
=========
</TABLE>
Approximately 6,316,000 square feet (73.7%) of the principal plant, office
and commercial floor area is owned by the Company, and the balance is held under
lease.
The Company's principal plants and offices in the United States are
situated in 34 locations in 18 states as follows:
<TABLE>
<CAPTION>
STATE SQUARE FEET
----- -----------
<S> <C>
California.................................................. 2,064,000
Mississippi................................................. 1,946,000
Virginia.................................................... 1,223,000
Missouri.................................................... 263,000
Pennsylvania................................................ 236,000
Utah........................................................ 216,000
Maryland.................................................... 208,000
Iowa........................................................ 203,000
Other states................................................ 1,221,000
---------
7,580,000
=========
</TABLE>
The above-mentioned facilities are in satisfactory condition and suitable
for the particular purposes for which they were acquired or constructed and are
adequate for present operations.
The foregoing information excludes Company held properties leased to others
and also excludes plants or offices which, when added to all other Company
plants and offices in the same city, have a total floor area of less than 50,000
square feet.
ITEM 3. LEGAL PROCEEDINGS
(a) In fiscal 1999 the Company was advised that the United States
Attorney's Office in Los Angeles had decided to pursue action against the
Company in connection with a lengthy investigation first initiated in 1991,
unless the matter could be satisfactorily resolved. After extensive discussions
with the U.S. Attorney's Office of the reasons why the Company believed it
complied with applicable laws and administrative regulations with respect to
payments to foreign consultants and potential terms of settlement, this matter
was settled by the payment of $18.5 million during fiscal 1999. Although Litton
believed it had meritorious defenses, this settlement, relating to past conduct,
was determined to be in the Company's best interests.
(b) Litton brought suit against Honeywell, Inc. for patent infringement
relating to the manufacture of ring laser gyro navigation systems used in
commercial aircraft. In August 1993, the jury rendered a verdict in favor of
Litton that the District Court rejected in January 1995. In July 1996, the
Federal Circuit Court of Appeals reversed the District Court's decision,
reinstated parts of the jury's verdict related to liability in favor
4
<PAGE> 7
of Litton and ordered a new trial on the amount of damages. In March 1997, the
United States Supreme Court vacated the Court of Appeals' ruling and remanded
the case to the Court of Appeals for further consideration. On April 7, 1998,
the Court of Appeals reinstated its finding that the patent was valid, however,
it remanded the case back to the District Court for a determination on both
liability and damages. In July 1999, the District Court heard motions for
summary judgment filed on behalf of Litton and Honeywell. On September 23, 1999,
the U.S. District Court granted Honeywell's motions rejecting the patent and
state law claims. Those rulings, when finalized by the District Court, will be
appealed by the Company to the Federal Circuit Court of Appeals.
Litton also brought suit against Honeywell for illegal monopolization of
the market for inertial reference systems for large commercial air transport,
commuter and business aircraft. In February 1996, a jury rendered a verdict in
favor of Litton. The District Court upheld the jury's verdict on liability, but
declined to enter the jury's damage award on the basis that Litton's damages
study did not disaggregate damages among legal and illegal conduct. A new trial
limited to the amount of damages resulted in a jury verdict on December 9, 1998,
of $250 million in favor of Litton. On January 27, 1999, U.S. District Court
Judge Mariana R. Pfaelzer entered a final judgment against Honeywell of $250
million which, by law, is trebled to $750 million, plus post-judgment interest
from the date of entry of judgment, costs and attorney fees. On May 20, 1999,
the court heard Honeywell's post trial motions. On September 23, 1999, the court
denied Honeywell's motions as they related to Litton Systems, Inc. but granted a
motion regarding Litton Systems Canada, holding it did not have standing or
jurisdiction to bring its claims in the United States. As a result of that
ruling, the judgment against Honeywell was reduced to $660 million plus
interest, attorney fees and costs.
(c) The Company and certain of its divisions or subsidiaries have been
named as potentially responsible parties by the United States Environmental
Protection Agency, various state environmental agencies, and other potentially
responsible parties for costs associated with cleanup of a number of sites to
which they may have contributed wastes. Also, the Company and certain of its
divisions and subsidiaries have incurred costs, which have not had a material
impact on the Company's consolidated financial statements in any one year, for
cleaning up a number of sites, presently or formerly owned or leased by the
Company (or by subsidiaries or divisions thereof). In addition, the Company and
certain of its divisions or subsidiaries have been named as defendants in
certain lawsuits for personal injuries and property damage allegedly resulting
from environmental contamination. At this time, the Company believes that its
potential liability for additional expenditures associated with these matters
over the amounts currently accrued would not result in a material adverse effect
on its consolidated financial statements.
There are various other litigation proceedings in which the Company is
involved. Although the results of litigation proceedings cannot be predicted
with certainty, it is the opinion of the General Counsel that the ultimate
resolution of these other proceedings will not have a material adverse effect on
the Company's financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year ended July 31, 1999.
5
<PAGE> 8
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
See the information with respect to the market for and number of holders of
the Company's Common stock and quarterly market information which is set forth
on page F-24 and dividend information which is set forth on page F-13 of this
Annual Report on Form 10-K. The number of holders of record of the Company's
Common stock was computed by a count of record holders on September 30, 1999.
ITEM 6. SELECTED FINANCIAL DATA
See the information with respect to selected financial data on page 7 of
this Annual Report on Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
See the information under the caption "Financial Review and Analysis" on
pages 8 through 12 of this Annual Report on Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See the information under the caption "Financial Review and Analysis" on
page 11 of this Annual Report on Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
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PAGE
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Management's Responsibility for Financial Reporting......... F-1
Independent Auditors' Report................................ F-2
Consolidated Statements of Operations....................... F-3
Consolidated Balance Sheets................................. F-4
Consolidated Statements of Shareholders' Investment......... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
Quarterly Financial Information (unaudited)................. F-24
</TABLE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
6
<PAGE> 9
ITEM 6. SELECTED FINANCIAL DATA
LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
SUMMARY OF FINANCIAL INFORMATION
(DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Operating Results
Sales and Service Revenues............... $4,827.5 $4,399.9 $4,175.5 $3,611.5 $3,319.7
Segment Operating Profit
Before Special Charges and Voluntary
Settlement.......................... $ 432.4 $ 410.0 $ 369.6 $ 320.1 $ 280.5
Special Charges....................... (74.6) -- -- -- --
Voluntary Settlement.................. (18.5) -- -- -- --
-------- -------- -------- -------- --------
Total Operating Profit................... $ 339.3 $ 410.0 $ 369.6 $ 320.1 $ 280.5
======== ======== ======== ======== ========
Net Earnings............................. $ 120.6 $ 181.4 $ 162.0 $ 150.9 $ 135.0
Sales to the U.S. Government as a Percent
of Total Sales........................ 65% 66% 67% 71% 73%
Financial Position at Year End
Working Capital.......................... $ 292.6 $ 162.6 $ 121.2 $ 68.8 $ 130.1
Total Assets............................. 4,199.9 4,049.8 3,519.7 3,431.4 2,559.6
Long-term Obligations.................... 859.3 771.3 507.3 514.5 103.6
Shareholders' Investment................. 1,300.2 1,187.2 1,039.0 917.3 758.1
Total Borrowed Funds to Total Capital.... 44% 47% 39% 45% 15%
Common Share Data
Earnings per Share
Basic.................................... $ 2.63 $ 3.91 $ 3.48 $ 3.24 $ 2.92
Diluted.................................. 2.58 3.82 3.40 3.15 2.84
Book Value per Share at Year End........... 28.31 25.71 22.37 19.48 16.19
Common Shares Outstanding at Year End (in
millions)................................ 45.6 45.8 46.0 46.6 46.2
Shares Used to Compute Basic Earnings per
Share (in millions)...................... 45.5 46.1 46.3 46.3 46.0
Shares Used to Compute Diluted Earnings per
Share (in millions)...................... 46.5 47.3 47.4 47.6 47.2
Other Selected Financial Information
Capital Expenditures..................... $ 124.7 $ 115.7 $ 113.1 $ 91.0 $ 98.3
Depreciation and Amortization Expense.... 160.6 147.6 137.5 113.8 95.4
Research and Development Expenditures.... 315.6 233.8 241.8 217.0 227.1
Backlog at Year End...................... 6,602.2 6,041.5 5,525.5 5,666.9 5,137.8
Number of Employees at Year End.......... 34,800 34,900 31,500 33,500 29,100
</TABLE>
NOTES:
(A) Results for fiscal year 1999 included the effects of non-recurring and
special charges totaling $116.8 million pre-tax ($77.4 million after-tax) or
$1.67 per share. See Item 7, Financial Review and Analysis.
(B) The Company's PRC (acquired in fiscal year 1996) and TASC (acquired in
fiscal year 1998) subsidiaries had unfunded backlog with potential contract
values totaling approximately $2.2 billion, $1.8 billion, $1.5 billion and
$1.0 billion for fiscal years 1999, 1998, 1997 and 1996, respectively.
(C) During the five year period ended July 31, 1999, the Company declared no
cash dividends on its Common stock.
7
<PAGE> 10
ITEM 7. FINANCIAL REVIEW AND ANALYSIS
The Company supplies advanced electronics and information systems and is a
primary builder of large surface combatant ships for the U.S. Navy. Litton is
also a global supplier of electronic components and materials for the
telecommunications, industrial, and computer markets. On August 2, 1999,
subsequent to the end of fiscal year 1999, the Company completed the acquisition
of Avondale, which is engaged in the design, construction, conversion, repair
and modernization of various types of ocean-going vessels for military and
commercial markets. Avondale will be reported with the Company's Ship Systems
segment (formerly the Marine Engineering and Production segment).
Segment information can be found on pages F-21 and F-22.
Fiscal Year 1999 Compared To 1998
The Company reported revenues and segment operating profit of $4.83 billion
and $339.3 million for fiscal year 1999 compared with $4.40 billion and $410.0
million, respectively, for fiscal year 1998. Net earnings and diluted earnings
per share were $120.6 million and $2.58, respectively, compared with $181.4
million and $3.82, respectively, for the prior fiscal year. Results for fiscal
year 1999 included the effects of non-recurring and special charges totaling
$116.8 million pre-tax ($77.4 million after-tax) or $1.67 per share as further
discussed below.
The Advanced Electronics segment reported revenues and operating profit of
$1.52 billion and $103.6 million ($126.2 million before non-recurring and
special charges) for fiscal year 1999 compared with $1.59 billion and $110.6
million, respectively, for fiscal year 1998. The decline in revenues reflects
the leveling off in the demand for this segment's inertial navigation systems
and products and the sale of a division in the first quarter of the current
fiscal year. Operating profit margins before non-recurring and special charges
increased to 8.3% in fiscal year 1999 compared to 7.0% in fiscal year 1998
primarily due to reduced investments in several programs entering development
phase, increased customer spares purchases and productivity improvements.
Operating profit for the current fiscal year was impacted by a voluntary
settlement for $18.5 million, paid in fiscal year 1999, with the United States
Attorney's office to resolve allegations related to the use of foreign sales
consultants. Also impacting fiscal year 1999 margins was the Company's plan to
consolidate manufacturing facilities at its Applied Technology division ("ATD"),
designed to improve operating efficiencies and eliminate excess capacity. ATD
manufactures defense electronic systems. As a result, the Company recorded a
special charge totaling $4.1 million in the fourth quarter of fiscal year 1999.
The primary components of the charge included $2.3 million for severance and
related benefits in connection with the termination of approximately 170
employees (primarily manufacturing) and $1.8 million to vacate a facility and
for the abandonment of software with no future use. The cash expenditures are
estimated to total $2.4 million and the Company expects to complete this
consolidation effort during fiscal year 2000. During the third quarter of fiscal
year 1999, the Company completed the acquisition of Denro Inc. ("Denro") which
is a manufacturer of voice and data electronic switching equipment and data
recorders used in air traffic control with annual revenues of approximately $35
million. Backlog for the Advanced Electronics segment at July 31, 1999 was $1.31
billion compared with $1.46 billion at July 31, 1998.
The Information Systems segment reported revenues and operating loss of
$1.65 billion and $30.9 million ($39.6 million operating profit before special
charges) for fiscal year 1999 compared with revenues of $1.24 billion and
operating profit of $70.4 million for fiscal year 1998. The acquisition of TASC
in April 1998 and higher volume on the systems integration programs and
technology outsourcing contracts with the U.S. Government at PRC resulted in
higher revenues for the current year. Operating profit and margins at PRC and
TASC, which represented 84% of Information Systems segment revenues in fiscal
year 1999, increased primarily due to improved performance on selected systems
integration and systems engineering programs and the significant growth in
revenues in these two businesses. In July 1999, management approved a plan to
exit the professional services and the mainframe computer operations outsourcing
businesses conducted at the Litton Enterprise Solutions, Inc. subsidiary
("LES"). LES, with fiscal year 1999 sales of $60 million, experienced increased
competition from larger and more established competitors which led to the plan
to exit these businesses. The Company is committed to fulfill its obligations
under existing contracts which it expects to complete by the end of fiscal year
2000. As a result, the Company recorded a special
8
<PAGE> 11
charge in the fourth quarter of fiscal year 1999 of $50.2 million, which
included $41.3 million in software and hardware lease termination costs, $4.0
million for employee severance and termination benefits (covering substantially
all of its employees), $1.9 million for the write-off of software and building
improvements, and $3.0 million for other exit costs of which cash expenditures
are expected to be $48.4 million. The Company also wrote-off goodwill with a
residual carrying value of $15.0 million related to the businesses being exited.
In addition to the special charges, the Company recorded estimated losses to
complete the existing contracts totaling $23.7 million. The estimated contract
losses have been included as a component of Cost of service revenues on the
Consolidated Statement of Operations. The Company has also undertaken an effort
to consolidate manufacturing facilities used in the command and control
businesses at its Data Systems division to improve efficiencies and eliminate
excess capacity. In connection with this plan, the Company recorded a special
charge totaling $5.3 million, of which $4.0 million is expected to be cash,
mainly for employee severance and termination benefits relating to approximately
270 employees (primarily engineering and administrative personnel) and the
write-off of facility improvements at facilities being exited. Cost of
relocating retained employees and equipment and other costs that benefit future
operations have not been included. The Company expects to complete this plan in
fiscal year 2000. Operating profit in the fourth quarter of fiscal year 1999 for
the Information Systems segment also included a gain on sale of a unit of TASC
engaged in archive software products of $12.8 million which was offset by
investment and development costs incurred for new products and programs. Firm
backlog at July 31, 1999 for this segment increased to $976.1 million from
$877.7 million at July 31, 1998. In addition, TASC and PRC had unfunded backlog
with potential contract values of up to $2.2 billion at July 31, 1999 compared
with $1.8 billion at July 31, 1998.
The Ship Systems segment reported revenues and operating profit of $1.09
billion and $160.5 million for fiscal year 1999 compared with $1.03 billion and
$134.4 million for fiscal year 1998. The increase in revenues reflected a higher
level of construction activities on long-term contracts, including three Aegis
destroyers and a LHD class amphibious assault ship, partially offset by the
completion and delivery of an Aegis destroyer in the second quarter of the
current fiscal year and an Aegis destroyer and a LHD class amphibious assault
ship during the second half of fiscal year 1998. Operating margins benefited
from increased earnings rates on programs maturing in the production process.
Backlog for this segment increased to $4.09 billion at July 31, 1999 compared
with $3.47 billion at July 31, 1998. Contributing to the increase in backlog for
the current year was a contract signed with American Classic Voyages Co. to
build two passenger cruise ships, with an option for a third, and the exercise
of an option by the U.S. Navy to build two additional destroyers. As previously
discussed, the Company completed the acquisition of Avondale subsequent to the
close of the current fiscal year. Avondale, with revenue of approximately $750
million in its fiscal year ended December 31, 1998 and backlog of approximately
$2.0 billion, will strengthen Litton's position as a world-class shipbuilder by
expanding lines of business in new construction and support services. Current
major contracts for Avondale include the U.S. Navy's LPD program, the newest
class of amphibious transport ship, and double-hulled crude oil carriers for a
commercial customer.
The Electronic Components and Materials segment reported revenues and
operating profit of $619.1 million and $109.2 million for the current fiscal
year compared with $595.8 million and $98.6 million for the prior year.
Operating margins of 17.6% in fiscal year 1999 remained strong for the segment
compared to 16.6% in fiscal year 1998. The margin increase was primarily due to
cost reductions and increased capacity utilization at various electronic
component manufacturing sites. During the third quarter of the current fiscal
year, the Company completed the acquisitions of Tarutin Company, Ltd.
("Tarutin"), a Japanese manufacturer of paste solder and soldering products for
the consumer electronics and automobile industries, and Retconn Incorporated
("Retconn"), which designs and manufactures coaxial connectors, contacts, and
cable harnesses for the wireless communications and computer markets. Retconn
and Tarutin have combined annual revenues of approximately $35 million.
Fiscal Year 1998 Compared To 1997
The Company reported revenues and operating profit of $4.40 billion and
$410.0 million for fiscal year 1998 compared with $4.18 billion and $369.6
million, respectively, for fiscal year 1997. Operating margins improved for the
Advanced Electronics, Ship Systems and Electronic Components and Materials
segments.
9
<PAGE> 12
Net earnings and diluted earnings per share rose 12% to $181.4 million and
$3.82, respectively, compared with $162.0 million and $3.40, respectively, for
the prior fiscal year.
The Advanced Electronics segment reported revenues and operating profit of
$1.59 billion and $110.6 million for fiscal year 1998 compared with $1.53
billion and $96.5 million, respectively, for the fiscal year 1997. The
improvements in revenues and operating profit for fiscal year 1998 were
primarily attributable to higher volume on programs in the integrated avionics
systems and radar warning systems businesses and the acquisition of Racal Marine
Group ("Decca") in February 1997. Operating profit also benefited from reduced
program costs in certain defense electronics programs. Backlog for this segment
at July 31, 1998 was $1.46 billion compared with $1.61 billion at July 31, 1997.
The Information Systems segment reported revenues and operating profit of
$1.24 billion and $70.4 million for fiscal year 1998 compared with $1.08 billion
and $74.9 million for fiscal year 1997. The increase in revenues was mainly due
to the acquisitions of TASC in April 1998 and SAI Technology ("SAIT") in March
1997. The increase in revenues from these acquisitions was offset by lower than
expected volume under the PRC Inc. subsidiary's Super-Minicomputer contract with
various U.S. Government agencies to provide computer systems integration and
networking solutions. Operating profit was also impacted by an increasingly
competitive federal procurement environment and by investments in new programs
and technology made to address new market opportunities associated with software
used in mobile command and control systems and displays and computer products.
Firm backlog at July 31, 1998 for the Information Systems segment increased to
$877.7 million from $518.1 million at July 31, 1997 due mainly to the
acquisition of TASC. In addition, TASC and PRC had unfunded backlog with
potential contract values of up to $1.8 billion at July 31, 1998 compared with
$1.5 billion for PRC at July 31, 1997.
The Ship Systems segment reported revenues and operating profit of $1.03
billion and $134.4 million for fiscal year 1998 compared with $1.11 billion and
$135.0 million for fiscal year 1997. The decline in revenues reflected contracts
completed during fiscal years 1997 and 1998 including an Aegis destroyer and a
sixth LHD class amphibious assault ship delivered in the third and fourth
quarters, respectively, of fiscal year 1998. This decline in revenues was
partially offset by other contracts moving into more advanced stages of
production, including a seventh LHD class amphibious assault ship and three
Aegis destroyers. Operating margins improved as a result of increased earnings
rates on programs maturing in the production process and continued production
efficiencies. During fiscal year 1998, the U.S. Navy awarded the Company a
contract to build six additional Aegis destroyers with options for two more. Two
of the six Aegis destroyers awarded were funded for construction and contributed
to an increase in backlog to $3.47 billion at July 31, 1998 from $3.23 billion
at July 31, 1997.
The Electronic Components and Materials segment reported revenues and
operating profit of $595.8 million and $98.6 million for the current fiscal year
compared with $508.3 million and $69.7 million for the prior year. These
improvements were driven by continued strong demand for this segment's
commercial electronics products as a result of the trend of outsourcing by
original equipment manufacturers (OEMs) in the telecommunications and computer
industries. Process improvements and cost reduction also contributed to the
improved results. The Company responded to the strong demand by investing in
product development and expanding production capacity.
Liquidity and Capital Resources
During fiscal year 1999, the Company generated $244 million in cash flow
from operations which, along with proceeds of $83.7 million from issuance of
long-term obligations and $61.0 million from sale of businesses, provided the
funds to pay down more than $100 million in short-term debt, meet operating
needs, and finance capital expenditures and the previously discussed
acquisitions. The Company also repurchased 687,100 shares of Common stock,
leaving approximately 1.4 million shares available to be repurchased under the
Company's buyback program at July 31, 1999. In the fourth quarter of fiscal year
1999, the Company's Ingalls Shipbuilding, Inc. subsidiary issued, through the
Mississippi Business Finance Corporation, $83.7 million in economic development
revenue bonds to finance the construction costs of certain port facilities. The
portion of the proceeds yet to be expended for construction has been used to
reduce the Company's
10
<PAGE> 13
commercial paper borrowings. The Company expects cash flow from operations to
continue to be the primary source for anticipated operating needs in the
foreseeable future and to fund the cash requirements for the previously
discussed consolidation of manufacturing facilities and exiting of businesses
which are expected to total approximately $78 million. The Company has unused
credit commitments of $360 million under an existing revolving credit agreement
with various banks available for its general use and replacement of existing
debt. During fiscal year 1999, the Company entered into a new short-term credit
agreement, in anticipation of financing the purchase price for Avondale,
totaling $400 million which, together with an existing facility for $400
million, serve as back-up facilities for its commercial paper program.
Net interest expense was higher in the current year as a result of the
issuance of $300 million in long-term notes and debentures along with short-term
borrowings in connection with the acquisition of TASC and a payment of prior
years' taxes during fiscal year 1998.
Euro Conversion
A majority of the European Union member countries converted to a common
currency, the "Euro" on January 1, 1999. The existing national currencies of the
participating countries will continue to be acceptable until January 1, 2002
after which the Euro will be the sole legal tender for the participating
countries. The Company is continuing to evaluate the economic and operational
impact of the Euro, including competition, pricing, contracts, taxation, and
foreign currency exchange risk, but does not expect the Euro to have a material
effect on its consolidated financial statements.
Environmental Matters
As previously reported, the Company or certain of its divisions or
subsidiaries has been named as a potentially responsible party in respect to
various sites to which certain of its operations may have contributed wastes.
Also, the Company and certain of its divisions and subsidiaries have incurred
costs, which have not had a material impact on the Company's consolidated
financial statements in any one year, for cleaning up a number of sites now or
formerly owned or leased by the Company. At this time, the Company believes that
its potential liability for additional expenditures associated with such owned
or leased sites and other sites to which it may have contributed wastes over the
amounts currently accrued would not result in a material adverse effect on its
consolidated financial statements.
Market Risk Disclosure
The Company has exposures to interest rate risk primarily from its
short-term and long-term borrowings and to exchange rate risk with respect to
its foreign operations and from foreign currency transactions. In general, the
Company's long-term borrowings are fixed rate debt and the short-term borrowings
are variable rate debt. See Note C for components of the Company's short-term
and long-term obligations. At July 31, 1999, the carrying value of the long-term
fixed rate borrowings was $782.4 million compared with an estimated fair value
of $742.6 million. If the interest rates were 10% lower, the projected fair
value at July 31, 1999 would have been $804.6 million. Based on short-term
borrowings outstanding at July 31, 1999 and the weighted-average interest rates
related to such borrowings as of July 31, 1999, a hypothetical 10% increase to
the interest rates would not have a significant impact on the Company's
consolidated financial statements.
The Company from time to time enters into foreign currency exchange
contracts to hedge certain foreign currency transactions and commitments and to
reduce its exposure resulting from investments in certain foreign operations.
These contracts were not significant at July 31, 1999. A hypothetical 10% change
in the relevant currency rates at July 31, 1999 would not have a material impact
on the Company's consolidated financial statements.
Year 2000 Readiness Disclosures
The Company is substantially complete with its program to address the
potential impact of the Year 2000 on its business systems, facilities, and
products which may include imbedded software. This program includes an
assessment and inventory of potential Year 2000 issues and detailed
implementation plans for the required
11
<PAGE> 14
modifications. The Company has also continued its process of replacing
manufacturing and business systems with more efficient and technologically up to
date systems that are also Year 2000 compliant. The process and progress have
been monitored on a regular basis by a special corporate task group of
management, internal audit, and legal personnel, and reported to management and
the Audit and Compliance Committee of the Board of Directors.
The assessment and inventory phases, along with the implementation of
required changes, have been completed. Testing of the modifications implemented
has been substantially and successfully completed. The Company has also been in
contact with major suppliers and customers and has received written confirmation
regarding their Year 2000 readiness and has tested certain situations. Based on
the foregoing, the Company does not anticipate significant third party Year 2000
issues; however, there can be no assurance that non-compliance by a supplier or
other third parties will not occur. The Company is developing contingency plans
both in relation to internal systems, facilities, and products and third parties
to mitigate the impact of potential non-compliance.
Although the Company cannot accurately predict the extent of operational
and financial impact resulting from any non-compliance, including that by a
third party, the Company does not believe there are any material risks related
to Year 2000 issues based on progress and results achieved to date.
Incremental costs to address and achieve Year 2000 compliance are expensed
as incurred and have totaled approximately $23 million through July 31, 1999 of
which $14 million was expended during fiscal year 1999. Total incremental costs
will approximate $25 million.
Safe Harbor Cautionary Statement
Any statements in this report regarding Litton's outlook for its businesses
and their respective markets, such as projections of future performance,
statements of management's plans and objectives, forecasts of market trends and
other matters, are forward-looking statements. These forward-looking statements
are identified by terms such as "intends," "estimates," "expects," "projects,"
"anticipates," "goal," "plan," "should," "believes," "scheduled," and similar
expressions. Litton claims the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995 for
these statements. No assurance can be given that the results in any
forward-looking statement will be achieved and actual results could be affected
by one or more factors which could cause them to differ materially.
Litton does a significant portion of its business with the U.S. government.
It also conducts business in international markets which are subject to U.S.
export policies or which may be affected by U.S. foreign policies. Changes of
policy or enforcement practices, as well as the economic impact of U.S. policy,
may alter projections. Other specific factors that might cause such a difference
in results include, but are not limited to: successful execution of internal
performance plans; performance issues with key suppliers and subcontractors; the
status or outcome of legal proceedings and/or labor negotiations; changing
priorities, reductions, and/or restraints in U.S. government budgets,
particularly defense; the effects of consolidation in the U.S. defense industry;
actual orders issued by the U.S. government against indefinite
delivery/indefinite quantity contracts; the ability to successfully convert
defense products and technology to commercially viable products; U.S. government
statutes, policies, contracts and profit recognition thereof; termination of
government contracts due to unilateral government action; customer changes in
short-range and long-range plans; and the timing and occurrence or
non-occurrence of circumstances beyond Litton's control.
Litton does not undertake any obligation to publicly release any revisions
to forward-looking statements to reflect events or circumstances or changes in
expectations after the date of this document or to reflect the occurrence of
unanticipated events.
12
<PAGE> 15
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information on directors of the Company will be included under the caption
"Election of Directors" of the Company's definitive Proxy Statement relating to
the Annual Meeting of Shareholders to be held on December 3, 1999, which is
hereby incorporated by reference.
The executive officers of the Company are elected each year by the Board of
Directors at its first meeting following the Annual Meeting of Shareholders to
serve during the ensuing year and until their respective successors are elected
and qualify. There are no family relationships between any of the executive
officers of the Company. The following information indicates the position and
age of the executive officers at October 6, 1999 and their business experience
during the prior five years:
<TABLE>
<CAPTION>
POSITIONS AND OFFICES PRESENTLY
NAME AGE HELD AND BUSINESS EXPERIENCE
---- --- -------------------------------
<S> <C> <C>
Michael R. Brown................... 58 Chairman of the Board since March, 1999, Chief Executive
Officer since March, 1998, President since December, 1995
and a director since September, 1995; prior thereto: Chief
Operating Officer (1995-1998), Executive Vice President
(1995), Group Executive of the Information Systems Group
(1995-1997), Senior Vice President (1992-1995).
Larry A. Frame..................... 63 Senior Vice President and Group Executive of the Advanced
Electronics Systems Group since March, 1999; prior thereto:
Senior Vice President and Group Executive of the
Navigation, Guidance and Control Systems Group (1994-1999).
Harry Halamandaris................. 61 Executive Vice President and Chief Operating Officer of
Electronics and Information Systems since June, 1999; prior
thereto: Executive Vice President and Chief Operating
Officer (1999), Senior Vice President (1996-1999), Group
Executive of the Electronic Warfare Systems Group
(1995-1999), Vice President for Strategic Planning (1995),
Vice President and Group Executive of Kaiser Aerospace &
Electronics, Inc. (1994-1995), Director of Corporate
Technology, Teledyne, Inc. (1989-1994).
Donald A. Lepore................... 63 Senior Vice President since September, 1996 and Group
Executive of the Electronic Components and Materials Group
since 1986; prior thereto: Vice President (1986-1996).
Timothy G. Paulson................. 52 Vice President and Treasurer since June, 1994; prior
thereto: Vice President of Finance and Administration of
the Company's Amecom Division (1991-1994).
John E. Preston.................... 58 Senior Vice President and General Counsel since March,
1994; prior thereto: Vice President and Associate General
Counsel (1990-1994).
Gerald J. St. Pe'.................. 59 Executive Vice President and Chief Operating Officer of
Litton Ship Systems since June, 1999; prior thereto: Senior
Vice President (1986-1999), President of Ingalls
Shipbuilding, Inc. (1987-1999).
</TABLE>
13
<PAGE> 16
<TABLE>
<CAPTION>
POSITIONS AND OFFICES PRESENTLY
NAME AGE HELD AND BUSINESS EXPERIENCE
---- --- -------------------------------
<S> <C> <C>
D. Michael Steuert................. 51 Senior Vice President and Chief Financial Officer since
February 1999; prior thereto: Chief Financial Officer of
GenCorp Inc. (1990-1999).
Carol A. Wiesner................... 60 Vice President and Controller since June, 1994; prior
thereto: Vice President and Treasurer (1988-1994).
</TABLE>
ITEM 11. EXECUTIVE COMPENSATION
Information on executive compensation will be included under the caption
"Compensation of Executive Officers" of the Company's definitive Proxy Statement
relating to the Annual Meeting of Shareholders to be held on December 3, 1999,
which is hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information on beneficial ownership of the Company's voting securities by
each director and all officers and directors as a group, and by any person known
to beneficially own more than 5% of any class of voting security of the Company
will be included under the captions "Security Ownership of Directors and
Executive Officers" and "Security Ownership of Certain Beneficial Owners" of the
Company's definitive Proxy Statement relating to the Annual Meeting of
Shareholders to be held on December 3, 1999, which is hereby incorporated by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information on certain relationships and related transactions including
information with respect to management indebtedness will be included under the
caption "Indebtedness of Management to the Company" of the Company's definitive
Proxy Statement relating to the Annual Meeting of Shareholders to be held on
December 3, 1999, which is hereby incorporated by reference.
14
<PAGE> 17
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
(a)(1) Financial Statements
See Item 8 of Part II hereof
(a)(2) Financial Statement Schedules
The schedules specified under Regulation S-X are either not
applicable or immaterial to the Company's consolidated
financial statements for each of the three years in the
period ended July 31, 1999.
(a)(3) Executive Compensation Plans and Arrangements............... 16
(b) Reports on Form 8-K
(1) In a report filed on Form 8-K dated May 10, 1999, the
Company reported the proposed acquisitions of Avondale
Industries, Inc. and Newport News Shipbuilding.
(2) In a report filed on Form 8-K dated June 11, 1999, the
Company reported that it had entered into a merger agreement
with Avondale Industries, Inc.
(3) In a report filed on Form 8-K dated July 8, 1999, the
Company reported that it had entered into a voluntary
settlement agreement with the United States Attorney's
Office regarding an investigation of certain payments by
the Company's subsidiaries to foreign sales consultants
and the reporting of those payments to the U.S.
Government.
See Item 3 of Part I and Note I of Notes to Consolidated
Financial Statements included in this Annual Report on Form
10-K for further information.
(c) Index to Exhibits........................................... E-1
</TABLE>
15
<PAGE> 18
LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
<TABLE>
<CAPTION>
REPORT WITH
EXHIBIT WHICH EXHIBIT
DESCRIPTION NUMBER WAS FILED
----------- -------- --------------
<S> <C> <C>
Directors' annual retainer and attendance fees.............. 10.2 October, 1998
Form 10-Q
Director retirement age and postretirement payments to
directors................................................. 10.6 October, 1998
Form 10-Q
Litton Supplemental Retirement Plan......................... 10.3 1983 Form 10-K
-- Amendment to the Litton Supplemental Retirement
Plan................................................ 10.1 April, 1993
Form 10-Q
Form of the agreement under the Litton Industries, Inc.
Executive Survivor Benefit Plan........................... 10.4 (a) 1984 Form 10-K
-- Amendment to the Executive Survivor Benefit Plan,
adopted June 13, 1986............................... 10.4 (a) 1986 Form 10-K
Incentive loans............................................. 10.8 (a) 1991 Form 10-K
-- Amendment to Incentive loan program................. 10.5 (b) 1996 Form 10-K
Supplemental Medical Insurance Plan......................... 10.10 1990 Form 10-K
Orion L. Hoch Supplemental Retirement Agreement and
Supplemental Medical Insurance Plan....................... 10.13(b) 1983 Form 10-K
-- First Amendment..................................... 10.13(c) 1984 Form 10-K
-- Second Amendment.................................... 10.4 April, 1994
Form 10-Q
-- Approval for participation in the Supplemental
Medical Insurance Plan.............................. 10.2 April, 1994
Form 10-Q
Lifetime participation of Fred W. O'Green and Mildred G.
O'Green in the Supplemental Medical Insurance Plan........ 10.13(e) 1988 Form 10-K
Litton Industries Inc. 1984 Long-Term Stock Incentive Plan,
as amended and restated................................... 10.1 October, 1996
Form 10-Q
-- Amendment dated September 18, 1997.................. 10.10(f) 1997 Form 10-K
Litton Industries, Inc. Performance Award Plan.............. 10.2 October, 1996
Form 10-Q
Litton Industries, Inc. Restoration Plan.................... 10.16 1989 Form 10-K
-- Amendment dated September 24, 1998.................. 10.1 October, 1998
Form 10-Q
Litton Industries, Inc. Director Stock Option Plan.......... 10.18(a) 1989 Form 10-K
-- Amendment dated March 12, 1992...................... 10.18(b) 1992 Form 10-K
-- Adjustment for the distribution of Western Atlas
Inc.................................................. 10.18(c) 1993 Form 10-K
-- Board of Directors Resolution adopted October 27,
1994................................................. 10.13(d) 1995 Form 10-K
-- Board of Directors Resolution adopted September 18,
1997................................................. 10.13(e) 1997 Form 10-K
The Company's "Group Bonus Plan"............................ 10 October, 1997
Form 10-Q
Litton Industries, Inc. Supplemental Executive Retirement
Plan...................................................... 10.22 1995 Form 10-K
-- Amendment No. 1..................................... 10.22(b) 1997 Form 10-K
-- Amendment No. 2..................................... 10.22(c) 1997 Form 10-K
Litton Industries, Inc. Deferred Compensation Plan for
Directors................................................. 10.26 April, 1993
Form 10-Q
</TABLE>
16
<PAGE> 19
LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS (CONTINUED)
<TABLE>
<CAPTION>
REPORT WITH
EXHIBIT WHICH EXHIBIT
DESCRIPTION NUMBER WAS FILED
----------- -------- --------------
<S> <C> <C>
Form of Change of Control Employment Agreement.............. 10.27 1993 Form 10-K
-- Board of Directors Resolution adopted September 24,
1998................................................. 10.5 October, 1998
Form 10-Q
Litton Industries, Inc. Non-Employee Director Stock Plan.... 10.3 October, 1998
Form 10-Q
Litton Industries, Inc. Non-Employee Director Deferred
Compensation Plan......................................... 10.4 October, 1998
Form 10-Q
</TABLE>
17
<PAGE> 20
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.
LITTON INDUSTRIES, INC.
/s/ CAROL A. WIESNER
--------------------------------------
Carol A. Wiesner
Vice President and Controller
(Chief Accounting Officer)
October 8, 1999
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>
<S> <C>
/s/ ALTON J. BRANN /s/ MICHAEL R. BROWN
- ----------------------------------------------------- -----------------------------------------------------
Alton J. Brann, October 8, 1999 Michael R. Brown, October 8, 1999
Director Director,
Chairman of the Board,
President and Chief Executive Officer
/s/ JOSEPH T. CASEY /s/ CAROL B. HALLETT
- ----------------------------------------------------- -----------------------------------------------------
Joseph T. Casey, October 8, 1999 Carol B. Hallett, October 8, 1999
Director Director
/s/ O. L. HOCH /s/ DAVID E. JEREMIAH
- ----------------------------------------------------- -----------------------------------------------------
Orion L. Hoch, October 8, 1999 David E. Jeremiah, October 8, 1999
Director Director
/s/ JOHN M. LEONIS /s/ WILLIAM P. SOMMERS
- ----------------------------------------------------- -----------------------------------------------------
John M. Leonis, October 8, 1999 William P. Sommers, October 8, 1999
Director Director
/s/ C. B. THORNTON, JR. /s/ D. M. STEUERT
- ----------------------------------------------------- -----------------------------------------------------
C. B. Thornton, Jr., October 8, 1999 D. Michael Steuert, October 8, 1999
Director Senior Vice President and
Chief Financial Officer
/s/ CAROL A. WIESNER
- -----------------------------------------------------
Carol A. Wiesner, October 8, 1999
Vice President and Controller
(Chief Accounting Officer)
</TABLE>
18
<PAGE> 21
LITTON INDUSTRIES, INC.
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The consolidated financial statements of Litton Industries, Inc. and
subsidiary companies, and related financial information included in this Annual
Report, have been prepared by the Company, whose management is responsible for
their integrity. These statements, which necessarily reflect estimates and
judgments, have been prepared in conformity with generally accepted accounting
principles.
The Company maintains a system of internal controls to provide reasonable
assurance that assets are safeguarded and transactions are properly executed and
recorded. As part of this system, the Company has an internal audit staff to
monitor the compliance with and the effectiveness of established procedures.
Deloitte & Touche LLP, an independent auditing firm, is engaged to audit
the consolidated financial statements of the Company and issue a report thereon.
They have informed management and the Audit and Compliance Committee of the
Board of Directors that their audits were conducted in accordance with generally
accepted auditing standards that require a review and evaluation of internal
controls to determine the nature, timing, and extent of audit testing. The
Independent Auditors' Report is on page F-2 of this report.
The Audit and Compliance Committee of the Board of Directors, which
consists solely of independent directors who are not employees of the Company,
meets periodically with management, the independent auditors and the Company's
internal auditors to review the scope of their activities and reports relating
to internal controls and financial reporting matters. The independent and
internal auditors have full and free access to the Audit and Compliance
Committee and meet with the Committee both with and without the presence of
Company management.
/s/ MICHAEL R. BROWN
- ---------------------------------------------------------
Michael R. Brown
Chairman, President and Chief Executive Officer
/s/ D. MICHAEL STEUERT
- ---------------------------------------------------------
D. Michael Steuert
Senior Vice President and Chief Financial Officer
/s/ CAROL A. WIESNER
- ---------------------------------------------------------
Carol A. Wiesner
Vice President and Controller
October 5, 1999
F-1
<PAGE> 22
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Litton Industries, Inc.
Woodland Hills, California
We have audited the accompanying consolidated balance sheets of Litton
Industries, Inc. and subsidiary companies as of July 31, 1999 and 1998, and the
related consolidated statements of operations, shareholders' investment, and
cash flows for each of the three years in the period ended July 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 generally accepted auditing
standards. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Litton Industries, Inc. and
subsidiary companies as of July 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
July 31, 1999 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Los Angeles, California
October 5, 1999
F-2
<PAGE> 23
LITTON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
--------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Sales and Service Revenues
Product Sales........................................ $3,174,370 $3,159,142 $3,090,702
Service Revenues..................................... 1,653,147 1,240,746 1,084,822
---------- ---------- ----------
Total........................................ 4,827,517 4,399,888 4,175,524
---------- ---------- ----------
Costs and Expenses
Cost of product sales................................ 2,356,179 2,391,990 2,376,755
Cost of service revenues............................. 1,418,278 998,485 889,682
Selling, general and administrative.................. 519,037 507,531 457,239
Depreciation and amortization........................ 160,622 147,556 137,502
Special charges*..................................... 74,644 -- --
Voluntary settlement**............................... 18,500 -- --
Interest -- net...................................... 66,951 52,043 44,370
---------- ---------- ----------
Total........................................ 4,614,211 4,097,605 3,905,548
---------- ---------- ----------
Earnings before Taxes on Income........................ 213,306 302,283 269,976
Taxes on Income........................................ (92,722) (120,913) (107,990)
---------- ---------- ----------
Net Earnings................................. $ 120,584 $ 181,370 $ 161,986
========== ========== ==========
Earnings per Share
Basic................................................ $2.63 $3.91 $3.48
----- ----- -----
----- ----- -----
Diluted.............................................. $2.58 $3.82 $3.40
----- ----- -----
----- ----- -----
</TABLE>
- ---------------
* See Note K for discussion.
** See Note I for discussion.
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 24
LITTON INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
JULY 31
------------------------
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Current Assets
Cash and marketable securities............................ $ 30,693 $ 31,925
Accounts receivable less allowance for doubtful accounts
of $30,293 (1999) and $34,785 (1998)................... 859,074 820,624
Inventories less progress payments........................ 637,635 635,942
Deferred tax assets....................................... 436,512 417,719
Prepaid expenses.......................................... 28,900 27,770
---------- ----------
Total Current Assets.............................. 1,992,814 1,933,980
---------- ----------
Property, Plant and Equipment, Net.......................... 625,282 613,514
---------- ----------
Goodwill and Other Intangibles, Net of Amortization of
$193,201 (1999) and $154,062 (1998)....................... 1,062,499 1,075,299
---------- ----------
Other Assets and Long-term Investments...................... 519,277 427,022
---------- ----------
Total Assets...................................... $4,199,872 $4,049,815
========== ==========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities
Accounts payable.......................................... $ 317,651 $ 314,687
Accrued expenses.......................................... 555,626 562,163
Payrolls and related expenses............................. 207,622 200,059
Taxes on income........................................... 64,207 74,040
Short-term debt........................................... 162,751 274,178
Contract liabilities and customer deposits................ 392,320 346,270
---------- ----------
Total Current Liabilities......................... 1,700,177 1,771,397
---------- ----------
Long-term Obligations....................................... 859,315 771,321
---------- ----------
Postretirement Benefit Obligations Other than Pensions...... 205,856 206,397
---------- ----------
Deferred Tax and Other Long-term Liabilities................ 134,278 113,461
---------- ----------
Shareholders' Investment
Capital stock
Voting preferred stock -- Series B (liquidation
preference $8,213).................................... 2,053 2,053
Common stock (shares outstanding: 45,559,603 (1999) and
45,783,077 (1998)).................................... 45,560 45,783
Additional paid-in capital................................ 345,005 316,628
Retained earnings......................................... 955,538 869,359
Accumulated other comprehensive loss -- Cumulative
currency translation adjustment........................ (47,910) (46,584)
---------- ----------
Total Shareholders' Investment.................... 1,300,246 1,187,239
---------- ----------
Total Liabilities and Shareholders' Investment.... $4,199,872 $4,049,815
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 25
LITTON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
ACCUMULATED
CAPITAL STOCK OTHER
-------------------- COMPREHENSIVE
PREFERRED LOSS -- CUMULATIVE
TOTAL SERIES B COMMON ADDITIONAL CURRENCY
SHAREHOLDERS' PAR PAR PAID-IN RETAINED TRANSLATION
INVESTMENT VALUE $5 VALUE $1 CAPITAL EARNINGS ADJUSTMENT
------------- --------- -------- ---------- -------- ------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JULY 31, 1996............... $ 917,259 $2,053 $46,565 $296,899 $601,050 $(29,308)
Comprehensive Income
Net earnings...................... 161,986 -- -- -- 161,986 --
Other comprehensive
loss -- currency translation
adjustment...................... (11,580) -- -- -- -- (11,580)
----------
Total Comprehensive Income........... 150,406
Cash dividends on Preferred --
Series B ($2.00 per share)........ (821) -- -- -- (821) --
Purchase of Common stock............. (38,675) -- (875) (5,604) (32,196) --
Exercise of stock options............ 10,850 -- 306 10,544 -- --
---------- ------ ------- -------- -------- --------
BALANCE AT JULY 31, 1997............... 1,039,019 2,053 45,996 301,839 730,019 (40,888)
Comprehensive Income
Net earnings...................... 181,370 -- -- -- 181,370 --
Other comprehensive
loss -- currency translation
adjustment...................... (5,696) -- -- -- -- (5,696)
----------
Total Comprehensive Income........... 175,674
Cash dividends on Preferred --
Series B ($2.00 per share)........ (821) -- -- -- (821) --
Purchase of Common stock............. (47,448) -- (822) (5,524) (41,102) --
Exercise of stock options............ 20,815 -- 609 20,313 (107) --
---------- ------ ------- -------- -------- --------
BALANCE AT JULY 31, 1998............... 1,187,239 2,053 45,783 316,628 869,359 (46,584)
Comprehensive Income
Net earnings...................... 120,584 -- -- -- 120,584 --
Other comprehensive
loss -- currency translation
adjustment...................... (1,326) -- -- -- -- (1,326)
----------
Total Comprehensive Income........... 119,258
Cash dividends on Preferred --
Series B ($2.00 per share)........ (821) -- -- -- (821) --
Purchase of Common stock............. (38,132) -- (687) (4,755) (32,690) --
Exercise of stock options............ 32,702 -- 464 33,132 (894) --
---------- ------ ------- -------- -------- --------
BALANCE AT JULY 31, 1999............... $1,300,246 $2,053 $45,560 $345,005 $955,538 $(47,910)
========== ====== ======= ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 26
LITTON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
-----------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash and cash equivalents at beginning of period........ $ 16,175 $ 4,144 $ 77,105
--------- --------- ---------
Operating Activities
Net earnings.......................................... 120,584 181,370 161,986
Adjustments to reconcile net earnings to net cash
provided by operating activities
Special charges*................................... 74,644 -- --
Depreciation and amortization...................... 160,622 147,556 137,502
Changes in assets and liabilities, net of effects
of acquisitions/divestitures
Accounts receivable.............................. (26,931) (50,094) 41,353
Inventories...................................... (32,177) (16,831) (48,032)
Prepaid expenses................................. (2,195) 7,770 4,324
Accounts payable................................. 667 9,894 6,940
Accrued expenses................................. (39,019) (14,666) (90,694)
Payrolls and related expenses.................... (3,589) 9,552 (15,703)
Deferred and current taxes on income............. 11,384 (46,724) 14,313
Contract liabilities and customer deposits....... 46,050 34,693 63,901
Other operating activities......................... (66,257) (41,892) (53,011)
--------- --------- ---------
Cash provided by operating activities................... 243,783 220,628 222,879
--------- --------- ---------
Investing Activities
Purchase of capital assets............................ (124,727) (115,665) (113,054)
Purchase of businesses, net of cash acquired.......... (112,629) (445,483) (87,541)
Proceeds from sale of businesses...................... 60,990 5,426 --
Proceeds from sale of marketable securities........... 18,450 -- --
Proceeds from sale of capital assets.................. 15,076 47,210 47,837
Other investing activities............................ (19,091) (22,543) (15,770)
--------- --------- ---------
Cash used for investing activities...................... (161,931) (531,055) (168,528)
--------- --------- ---------
Financing Activities
Change in short-term debt, net........................ (126,302) 91,447 (113,384)
Proceeds from issuance of long-term obligations....... 82,741 296,839 33,038
Purchase of Common stock.............................. (38,132) (47,448) (38,675)
Exercise of stock options............................. 19,446 18,289 9,725
Other financing activities............................ (5,087) (36,669) (18,016)
--------- --------- ---------
Cash (used for) provided by financing activities........ (67,334) 322,458 (127,312)
--------- --------- ---------
Resulting in increase (decrease) in cash and cash
equivalents........................................... 14,518 12,031 (72,961)
--------- --------- ---------
Cash and cash equivalents at end of period.............. $ 30,693 $ 16,175 $ 4,144
========= ========= =========
Reconciliation to Consolidated Balance Sheets:
Cash and cash equivalents............................. $ 30,693 $ 16,175 $ 4,144
Marketable securities (U.S. Government obligations)... -- 15,750 15,750
--------- --------- ---------
Total cash and marketable securities.......... $ 30,693 $ 31,925 $ 19,894
========= ========= =========
</TABLE>
- ---------------
* See Note K for discussion.
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 27
LITTON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION The accounts of Litton Industries, Inc. and
its wholly-owned subsidiaries (the "Company" or "Litton") are included in the
accompanying consolidated financial statements. Intercompany accounts and
transactions have been eliminated. Certain reclassifications of prior period
information were made to conform to the current year presentation.
USE OF ESTIMATES The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions, including estimates of anticipated contract costs and
revenues utilized in the earnings recognition process, that affect the reported
amounts in the financial statements and accompanying notes. Due to the inherent
uncertainty involved in making estimates, actual results could differ from those
estimates.
CASH AND MARKETABLE SECURITIES Cash and marketable securities consist of
the following:
<TABLE>
<CAPTION>
JULY 31
----------------------
1999 1998
--------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Time deposits............................................... $30,693 $16,175
U.S. Government obligations................................. -- 15,750
------- -------
$30,693 $31,925
======= =======
</TABLE>
Cash equivalents consist of securities purchased within three months of
their maturity date and amounted to $30.7 million and $16.2 million in time
deposits at July 31, 1999 and 1998, respectively. Marketable securities at July
31, 1998 consisted of obligations issued by the U.S. Government with an
estimated fair market value of $19.4 million, based on quoted market prices,
compared with a carrying amount of $15.8 million.
EARNINGS PER SHARE The Company computes basic and diluted earnings per
share ("EPS") in accordance with Statement of Financial Accounting Standards No.
128, "Earnings per Share". Basic EPS is calculated based on the weighted-average
number of shares outstanding and diluted EPS includes the effects of dilutive
potential common shares.
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
--------------------------------------------------
1999 1998 1997
-------------- -------------- --------------
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net earnings................................ $ 120,584 $ 181,370 $ 161,986
Preferred stock dividends................... (821) (821) (821)
----------- ----------- -----------
Net earnings available to common
shareholders.............................. $ 119,763 $ 180,549 $ 161,165
=========== =========== ===========
Weighted-average common shares outstanding-
used for basic earnings per share......... 45,487,204 46,125,197 46,338,833
Dilutive effect of stock options............ 978,987 1,156,912 1,061,446
----------- ----------- -----------
Number of shares used for diluted earnings
per share................................. 46,466,191 47,282,109 47,400,279
=========== =========== ===========
Basic earnings per share.................... $ 2.63 $ 3.91 $ 3.48
=========== =========== ===========
Diluted earnings per share.................. $ 2.58 $ 3.82 $ 3.40
=========== =========== ===========
</TABLE>
INVENTORIES, LONG-TERM CONTRACTS AND REVENUE RECOGNITION Inventory costs
under long-term contracts generally reflect actual or average costs and include
general and administrative costs of the Ship Systems segment. For the Company's
other business segments, general and administrative
F-7
<PAGE> 28
LITTON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
costs are expensed as incurred. Inventories other than costs under long-term
contracts are stated at the lower of cost or market, generally using the average
or actual cost method. Progress payments received are first offset against the
related balance of unbilled receivables and inventories with any remainder
included in "Contract liabilities and customer deposits".
Product revenues and profits on long-term contracts, performed over
extended periods of time, are recognized under the percentage-of-completion
method of accounting, principally based on direct labor dollars incurred for the
Ship Systems segment and generally on the costs incurred or units-of-delivery
basis for the Company's other business segments. Service revenues from fixed
price and fixed price incentive contracts are recognized under the percentage of
completion method on the basis of costs incurred to estimated total costs.
Service revenues on cost reimbursement type contracts and time and materials
contracts are recognized as costs are incurred or as work is performed. Revenues
and profits on long-term contracts are based on the Company's estimates to
complete and are reviewed periodically, with adjustments recorded in the period
in which the revisions are made. Any anticipated losses on contracts are charged
to operations as soon as they are determinable.
RESEARCH AND DEVELOPMENT Worldwide expenditures on research and
development activities amounted to $315.6 million, $233.8 million and $241.8
million, of which 26%, 33% and 29% was Company-sponsored, in the years ended
July 31, 1999, 1998 and 1997, respectively. Company-sponsored research and
development expenditures are charged to expense as incurred.
PROPERTY, PLANT AND EQUIPMENT Investment in property, plant and equipment
is stated at cost. Allowances for depreciation and amortization, computed
generally by the straight-line method for financial statement purposes, are
provided over the estimated useful lives of the related assets.
FOREIGN CURRENCIES The currency effects of translating the financial
statements of those non-U.S. subsidiaries and divisions of the Company which
operate in local currency environments are included in the "Accumulated other
comprehensive loss -- Cumulative currency translation adjustment" component of
Shareholders' Investment. Gains and losses resulting from foreign currency
transactions are included in results of operations and were not material in each
of the three years in the period ended July 31, 1999.
GOODWILL AND OTHER INTANGIBLES For financial statement purposes, goodwill
and other intangibles are generally amortized using the straight-line method
over their estimated useful lives, not exceeding 40 years. Goodwill at July 31,
1999 and 1998 was $1,053.0 million and $1,064.6 million, respectively. The
current and future profitability of the operations to which the goodwill relates
are evaluated at least annually. These factors, along with management's plans
with respect to the operations and the projected undiscounted cash flows, are
considered in assessing the recoverability of the goodwill.
ENVIRONMENTAL COSTS Provisions for environmental costs are recorded when
the Company determines its responsibility for remedial efforts or environmental
liability and such amounts are reasonably estimable. The Company's exposure may
be mitigated by potential insurance reimbursements and recovery under the
Company's U.S. Government contracts, to the extent recoverable. These
reimbursements and recoveries are not recorded until collection is probable.
FINANCIAL INSTRUMENTS In addition to the previously discussed cash and
marketable securities and certain long-term notes and debentures discussed in
Note C, the Company's other financial instruments include accounts receivable,
accounts payable, short-term debt and other miscellaneous long-term assets and
liabilities. The carrying amounts of the short-term assets and liabilities
approximate their market values due to their short maturity. Differences between
the recorded amounts and market value of the remainder of the financial
instruments were not material. The Company, from time to time, enters into
foreign currency exchange contracts to reduce its exposure resulting from net
investments in certain foreign operations. Gains and losses are included in
"Accumulated other comprehensive loss -- Cumulative currency translation
F-8
<PAGE> 29
LITTON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
adjustment". There were no such outstanding contracts at July 31, 1999 and 1998.
The Company also occasionally enters into foreign currency exchange contracts to
hedge certain foreign currency transactions and firm commitments. The aggregate
notional amounts of these contracts were not material at July 31, 1999 and 1998.
As discussed in Note I, the Company also has off-balance sheet guarantees and
letter of credit agreements with notional values totaling $430 million at July
31, 1999, relating principally to the guarantee of future performance on foreign
government contracts.
OTHER NEW ACCOUNTING STANDARDS In June 1999, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 137, which delays the effective date of SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS 133, which requires that
all derivatives be recognized as assets or liabilities in the consolidated
balance sheet and measured at fair value, is effective for the Company starting
in its fiscal year 2001, but currently is not expected to have a significant
impact.
In December 1997, the American Institute of Certified Public Accountants
issued Statement of Position 97-3 ("SOP 97-3"), "Accounting by Insurance and
Other Enterprises for Insurance-related Assessments", which prescribes the
accounting treatment for assessments relating to insurance activities, including
assessments by workers' compensation second-injury funds. SOP 97-3 is effective
for the Company starting in its fiscal year 2000. The Company is currently
assessing the impact on its Ingalls Shipbuilding, Inc. subsidiary which is
subject to assessments by a second-injury fund administered by the U.S.
Department of Labor.
NOTE B: ACQUISITIONS
On August 2, 1999, subsequent to the end of fiscal year 1999, the Company
completed the acquisition of Avondale for $39.50 per share in cash. The total
purchase price is approximately $590 million. Avondale, with revenue of
approximately $750 million in its fiscal year ended December 31, 1998 and
approximately 6,000 employees, is engaged in the design, construction, repair,
and overhaul of various types of ocean-going vessels, primarily for the U.S.
Navy. The following table sets forth unaudited pro forma information for the
fiscal years ended July 31, 1999 and 1998 as if the combination had occurred on
August 1, 1997. The amounts reflect the purchase method of accounting. The
allocation of the excess purchase price over the fair value of net assets
acquired between tangibles, intangibles with a definite life and intangibles
with an indefinite life has not been completed. The pro forma information
presented herein reflects the amortization of this excess amount over an
estimated composite life of 25 years. The pro forma amounts are not necessarily
indicative of what the results of operations would have been if the combination
had occurred on August 1, 1997, nor are they necessarily indicative of future
operating results.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
--------------------------------------------------
1999 1998
----------------------- -----------------------
PRO FORMA PRO FORMA
(MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) REPORTED (UNAUDITED) REPORTED
- ----------------------------------------------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C>
Sales and Service Revenues................ $ 5,592.3 $4,827.5 $ 5,091.7 $4,399.9
Net Earnings.............................. 121.8 120.6 181.5 181.4
Basic Earnings per Share.................. 2.66 2.63 3.92 3.91
Diluted Earnings per Share................ 2.60 2.58 3.82 3.82
</TABLE>
During fiscal year 1999, the Company acquired Denro, which manufactures
voice and data electronic switching equipment and data recorders used in air
traffic control, Tarutin, a manufacturer of paste solder and soldering products
for the consumer electronics and automobile industries, and Retconn, which
designs and manufactures coaxial connectors, contacts and cable harnesses for
the wireless communications and computer markets. The aggregate purchase price
for these transactions was approximately $90 million, subject to adjustments. In
fiscal year 1998, the Company acquired TASC for a total purchase price of $440
million in
F-9
<PAGE> 30
LITTON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
cash. TASC is a leading provider of information technology and services to the
national intelligence sector, the Department of Defense and non-defense and
commercial customers. Acquisitions in fiscal year 1997 included Decca, a
provider of diverse marine electronic equipment, including radars, electronic
chart systems, chart video plotting systems and bridge monitoring systems, and
SAIT, which manufactures customized and ruggedized mobile computing equipment
and systems for military and commercial applications worldwide. These
acquisitions were accounted for under the purchase method of accounting.
NOTE C: DEBT AND INTEREST
Short-term debt is composed of:
<TABLE>
<CAPTION>
JULY 31
----------------------
1999 1998
--------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Commercial paper and notes payable to banks, with
weighted-average interest at 5.4%(1999) and 5.7% (1998)... $158,517 $270,538
Current portion of long-term obligations.................... 4,234 3,640
-------- --------
$162,751 $274,178
======== ========
</TABLE>
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
JULY 31
----------------------
1999 1998
--------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
6.05% senior notes due 2003................................. $100,000 $100,000
6.75% senior debentures due 2018............................ 200,000 200,000
7.75% debentures due 2026................................... 300,000 300,000
6.98% debentures due 2036................................... 100,000 100,000
7.81% Economic Development Revenue Bonds due 2024........... 83,700 --
Pension accruals (other than U.S. plans).................... 66,897 62,327
Other....................................................... 8,718 8,994
-------- --------
$859,315 $771,321
======== ========
</TABLE>
Long-term obligations at July 31, 1999 mature as follows:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS)
----------------------
<S> <C>
Year ended July 31
2001........................................................ $ 4,019
2002........................................................ 4,052
2003........................................................ 102,490
2004........................................................ 3,033
Years subsequent to July 31, 2004........................... 745,721
--------
$859,315
========
</TABLE>
During fiscal year 1999, the Company's Ingalls Shipbuilding, Inc.
subsidiary issued, through the Mississippi Business Finance Corporation, $83.7
million in economic development revenue bonds to finance the construction costs
of certain port facilities. The portion of the proceeds yet to be expended for
construction has been used to reduce the Company's commercial paper borrowings.
The bonds mature on May 1, 2024 and interest is payable semi-annually on May 1
and November 1. The estimated fair value of these bonds at July 31, 1999 was
$78.2 million, based on market quotes for debt with similar terms.
F-10
<PAGE> 31
LITTON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In connection with the acquisition of TASC in April 1998, the Company
issued $100 million principal amount of 6.05% senior notes due April 15, 2003
(the "2003 notes"), $200 million principal amount of 6.75% senior debentures due
April 15, 2018 (the "2018 debentures" and together with the 2003 notes, the
"securities") and sold commercial paper. Interest on the securities is payable
semi-annually on April 15 and October 15. The 2003 notes are not redeemable
prior to maturity. The 2018 debentures are redeemable, in whole or in part, at
the option of the Company at any time at a redemption price equal to the greater
of 100% of the principal amount of such debentures or the sum of the present
values of the remaining scheduled payments of principal and interest thereon at
U.S. Treasury Rates plus, in each case, accrued interest thereon to the date of
redemption. The aggregate estimated fair value of the $300 million principal
amount of notes and debentures at July 31, 1999 and 1998 was $274.4 million and
$297.8 million, respectively, based on market quotes for debt with similar
terms.
The $300 million principal amount of 7.75% debentures due March 15, 2026
and $100 million principal amount of 6.98% debentures due March 15, 2036 were
issued in connection with the acquisition of PRC in fiscal year 1996. Interest
on these debentures is payable semiannually on March 15 and September 15. The
debentures are redeemable, in whole or in part, at the option of the Company at
any time in the case of the 7.75% debentures and at any time after March 15,
2006 in the case of the 6.98% debentures. In either case the redemption price is
equal to the greater of 100% of the principal amount of such debentures or the
sum of the present values of the remaining scheduled payments of principal and
interest thereon at U.S. Treasury Rates plus, in each case, accrued interest
thereon to the date of redemption. The holders of the 6.98% debentures may elect
to have such debentures redeemed on March 15, 2006 at 100% of the principal
amount, together with accrued interest to March 15, 2006. The aggregate
estimated fair value of the $400 million principal amount of debentures at July
31, 1999 and 1998 was $390.0 million and $434.0 million, respectively, based on
market quotes for debt with similar terms.
During fiscal year 1999, the Company entered into a new short-term credit
agreement totaling $400 million which, together with an existing revolving
credit agreement for $400 million, serve as back-up facilities for its
commercial paper program. Commercial paper outstanding at July 31, 1999 and 1998
amounted to $92.3 million and $230.3 million, respectively. The Company has
unused credit commitments of $360 million under a third revolving credit
agreement for $400 million with various banks available for its general use and
replacement of existing debt.
The Company is in compliance with its various debt covenants the most
restrictive of which relate to the Company's incurrence of debt, mergers,
consolidations and sale of assets and which require the Company to satisfy
certain financial ratios.
Net interest expense is composed of the following:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
-----------------------------
1999 1998 1997
------- ------- -------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Interest expense...................................... $74,908 $59,308 $52,673
Interest income....................................... (7,957) (7,265) (8,303)
------- ------- -------
Net interest expense.................................. $66,951 $52,043 $44,370
======= ======= =======
</TABLE>
Total cash interest payments made during fiscal year 1999 amounted to $71.5
million compared with $47.8 million for fiscal year 1998 and $45.2 million for
fiscal year 1997. Capitalized interest costs in each of the three years in the
period ended July 31, 1999 were not material.
F-11
<PAGE> 32
LITTON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE D: ACCOUNTS RECEIVABLE AND INVENTORIES
Following are the details of accounts receivable:
<TABLE>
<CAPTION>
JULY 31
------------------------
1999 1998
---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Receivables related to long-term contracts
Amounts billed
U.S. Government........................................ $ 264,330 $ 232,468
Other.................................................. 51,205 82,353
---------- ----------
315,535 314,821
---------- ----------
Unbilled recoverable costs and accrued profit on progress
completed and retentions
U.S. Government........................................ 185,225 201,458
Other.................................................. 43,938 21,754
---------- ----------
229,163 223,212
---------- ----------
Other receivables, principally from commercial customers.... 314,376 282,591
---------- ----------
$ 859,074 $ 820,624
========== ==========
</TABLE>
Of the $229.2 million in retentions and amounts not billed at July 31,
1999, $212.0 million is expected to be collected in fiscal year 2000 with the
balance to be collected in subsequent years, as contract deliveries are made and
warranty periods expire.
Summarized below are the components of inventory balances:
<TABLE>
<CAPTION>
JULY 31
------------------------
1999 1998
---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Raw materials and work in process........................... $ 417,729 $ 346,824
Finished goods.............................................. 32,438 42,746
Inventoried costs related to long-term contracts............ 619,426 689,668
---------- ----------
Gross inventories........................................... 1,069,593 1,079,238
Less progress payments, principally related to long-term
contracts................................................. (431,958) (443,296)
---------- ----------
Net inventories............................................. $ 637,635 $ 635,942
========== ==========
</TABLE>
As stated in Note A, certain inventories applicable primarily to government
contracts include general and administrative costs. The total of such costs
incurred in fiscal years 1999 and 1998 was $85.7 million and $72.5 million,
respectively, and the amount of general and administrative costs in inventory at
the end of those years is approximately $33.5 million and $30.1 million,
respectively. Production cost of delivered units in excess of anticipated
average cost of all units expected to be produced is not significant.
F-12
<PAGE> 33
LITTON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE E: PROPERTY, PLANT AND EQUIPMENT
Investment in property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
JULY 31
------------------------
1999 1998
---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Property, plant and equipment, at cost
Land...................................................... $ 28,554 $ 33,895
Buildings................................................. 530,569 527,187
Machinery and equipment................................... 1,005,725 981,959
---------- ----------
1,564,848 1,543,041
Less accumulated depreciation............................. (939,566) (929,527)
---------- ----------
Net investment in property, plant and equipment............. $ 625,282 $ 613,514
========== ==========
</TABLE>
The net book value of assets utilized under capital leases was not material
at July 31, 1999 and 1998.
The range of estimated useful lives for determining depreciation and
amortization of the major classes of assets are:
<TABLE>
<S> <C>
Buildings................................................... 10 - 45 years
Land improvements and building improvements................. 2 - 20 years
Machinery and equipment..................................... 2 - 20 years
</TABLE>
As of July 31, 1999, minimum rental commitments under noncancellable
operating leases were:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS)
----------------------
<S> <C>
Year ended July 31
2000...................................................... $ 54,134
2001...................................................... 44,730
2002...................................................... 41,790
2003...................................................... 37,223
2004...................................................... 33,307
Years subsequent to July 31, 2004........................... 234,591
--------
Total....................................................... $445,775
========
</TABLE>
Minimum rental commitments under capital leases were not material at July
31, 1999.
Rental expense for operating leases was $79.7 million, $64.0 million and
$54.5 million for the years ended July 31, 1999, 1998 and 1997, respectively.
Contingent and sublease rentals for each of the three fiscal years ending July
31, 1999 were not material. The minimum future rentals receivable under
subleases were approximately $17 million at July 31, 1999.
NOTE F: SHAREHOLDERS' INVESTMENT
SHARE INFORMATION At July 31, 1999, there were authorized 120 million
shares of Common stock, par value $1.00; 22 million shares of Preferred stock,
par value $5.00 and 8 million shares of Preference stock, par value $2.50.
No cash dividends were paid on the Common stock in the three fiscal years
ended July 31, 1999.
The Series B Preferred stock receives a $2.00 annual dividend, is not
convertible into Common stock and is redeemable at the option of the Company at
$80.00 plus accrued dividends and, in the event of liquidation,
F-13
<PAGE> 34
LITTON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
is entitled to receive $25.00 plus accrued dividends. There were 410,643 shares
of Series B Preferred stock outstanding for each of the three fiscal years ended
July 31, 1999.
STOCK OPTION INFORMATION The Company has a stock option plan which
provides for the grant of incentive awards to officers and other key employees.
Incentive awards may be granted in the form of stock options at fair market
value of the Company's Common stock on the date of grant. Prior to August 1,
1996, options could have been and were granted at an option price of not less
than 50% nor more than 100% of the fair market value of the Company's Common
stock. Options subject to grant under the plan consist of 5,000,000 shares
originally authorized plus 1.5% of the total issued and outstanding shares of
Common stock as of the end of the preceding fiscal year, subject to certain
limitations. Options so granted remain exercisable for a period of 10 years from
date of grant.
In December 1998, the Company's shareholders approved a new Non-Employee
Director Stock Plan (the "Plan") to replace the existing Director Stock Option
Plan which terminated on December 31, 1998. The Plan authorizes the Board of
Directors to issue up to 460,000 shares of Common stock. All options are granted
at the fair market value on the date of grant and are immediately exercisable.
The following is a summary of stock option activity for the three fiscal
years ended July 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER OF AVERAGE
SHARES UNDER EXERCISE
OPTION PRICES
------------ ---------
<S> <C> <C>
Outstanding at July 31, 1996................................ 3,293,954 $26.59
Granted................................................... 727,600 $47.58
Exercised................................................. (320,749) $18.37
Canceled.................................................. (65,120) $29.15
---------
Outstanding at July 31, 1997................................ 3,635,685 $31.47
Granted................................................... 808,000 $57.73
Exercised................................................. (619,944) $18.48
Canceled.................................................. (160,975) $36.01
---------
Outstanding at July 31, 1998................................ 3,662,766 $39.26
Granted................................................... 1,102,650 $67.61
Exercised................................................. (453,662) $26.71
Canceled.................................................. (251,950) $47.82
---------
Outstanding at July 31, 1999................................ 4,059,804 $47.83
=========
</TABLE>
Exercisable options at July 31, 1999, 1998 and 1997 were 1,724,017,
1,569,089 and 1,641,094 at weighted-average exercise prices of $34.10, $28.05
and $21.82, respectively.
The following table summarizes information with respect to options
outstanding at July 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------- ---------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER OF CONTRACTUAL EXERCISE NUMBER OF EXERCISE
PRICE OPTIONS LIFE PRICE OPTIONS PRICE
- -------------- --------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$ 8.61 - 20.18.. 557,152 3.3 years $16.24 522,012 $16.17
$20.91 - 43.31.. 1,075,082 6.0 years $37.69 751,985 $36.16
$44.06 - 56.66.. 690,620 7.9 years $48.18 277,760 $47.34
$57.59 - 68.88.. 1,736,950 9.5 years $64.10 172,260 $58.09
--------- ---------
4,059,804 1,724,017
========= =========
</TABLE>
F-14
<PAGE> 35
LITTON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company recognizes compensation expense for stock options in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees". Under the provisions of Statement of Financial Accounting Standards
No. 123, compensation expense related to stock options would have been measured
using a fair value based method, resulting in the following pro forma net
earnings, basic earnings per share and diluted earnings per share amounts:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
--------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Pro forma net earnings (in millions)..................... $114.1 $176.3 $158.4
Pro forma basic earnings per share....................... $ 2.49 $ 3.80 $ 3.40
Pro forma diluted earnings per share..................... $ 2.44 $ 3.71 $ 3.32
</TABLE>
The pro forma results are based on estimated weighted-average fair values
of options granted during fiscal years 1999, 1998 and 1997 of $24.64, $19.68 and
$17.41, respectively. The fair value of each grant is estimated on the grant
date using the Black-Scholes option pricing model with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
--------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Expected life (in years).................................... 6.0 6.0 6.0
Risk-free interest rate..................................... 6.03% 5.55% 6.40%
Volatility.................................................. 22% 20% 20%
</TABLE>
SHAREHOLDER RIGHTS PLAN The Company has a Share Purchase Rights Plan which
becomes exercisable under certain circumstances involving the acquisition by a
person or group of 15% or more of the Company's Common stock. Each right will
entitle the holder to purchase one one-thousandth of a share of Series A
Participating Preferred Stock ("Preferred Share") at a price of $150 per one
one-thousandth of a Preferred Share, subject to adjustment. Alternatively, each
right will entitle its holder to purchase a number of shares of the Company's
Common stock having a market value of two times the exercise price of the right.
The Company may exchange the rights for one Common share per right or redeem
them at $.01 per right at any time before they become exercisable. The rights
expire in August 2004.
NOTE G: TAXES ON INCOME
Earnings before taxes on income and by geographic area are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
--------------------------------
1999 1998 1997
-------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
United States...................................... $207,131 $276,549 $276,705
Other nations...................................... 6,175 25,734 (6,729)
-------- -------- --------
$213,306 $302,283 $269,976
======== ======== ========
</TABLE>
F-15
<PAGE> 36
LITTON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The components of taxes on income consist of the following provisions
(benefits):
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
-------------------------------
1999 1998 1997
------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
United States
Current........................................... $39,367 $ 53,011 $ 86,804
Deferred.......................................... 35,106 44,601 13,302
------- -------- --------
74,473 97,612 100,106
------- -------- --------
Other nations
Current........................................... 11,941 3,638 3,605
Deferred.......................................... (3,536) 5,214 (5,555)
------- -------- --------
8,405 8,852 (1,950)
------- -------- --------
State and local, primarily current.................. 9,844 14,449 9,834
------- -------- --------
Taxes on income..................................... $92,722 $120,913 $107,990
======= ======== ========
</TABLE>
The primary components of the Company's deferred income tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
JULY 31
----------------------
1999 1998
--------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Deferred Tax Assets:
Inventories and receivables............................... $212,860 $226,594
Employee benefits......................................... 154,692 141,915
Accrued liabilities....................................... 97,266 84,387
Other items............................................... 47,055 44,383
-------- --------
511,873 497,279
-------- --------
Deferred Tax Liabilities:
Employee benefits......................................... 138,308 113,444
Depreciation.............................................. 54,922 56,415
-------- --------
193,230 169,859
-------- --------
Net deferred tax assets..................................... $318,643 $327,420
======== ========
</TABLE>
The deferred tax assets and liabilities are classified on the Consolidated
Balance Sheets as follows:
<TABLE>
<CAPTION>
JULY 31
----------------------
1999 1998
--------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Net current deferred tax assets............................. $436,512 $417,719
Net long-term deferred tax liabilities...................... 117,869 90,299
-------- --------
$318,643 $327,420
======== ========
</TABLE>
F-16
<PAGE> 37
LITTON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following is a reconciliation of income taxes at the U.S. statutory
rate to the provision for income taxes:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
-------------------------------
1999 1998 1997
------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Tax at U.S. statutory rate.......................... $74,657 $105,799 $ 94,492
Nondeductible goodwill amortization (tax
effected)......................................... 9,725 7,267 6,284
State taxes net of federal benefit.................. 6,398 9,392 6,392
Voluntary settlement (see Note I)................... 6,475 -- --
Earnings taxed at other than U.S. statutory rate and
other............................................. (4,533) (1,545) 822
------- -------- --------
Taxes on income..................................... $92,722 $120,913 $107,990
======= ======== ========
Effective tax rate.................................. 43.5% 40.0% 40.0%
======= ======== ========
</TABLE>
Undistributed earnings of non-U.S. subsidiaries, deemed to be permanently
reinvested, for which U.S. taxes have not been provided are included in
consolidated retained earnings in the amounts of $132 million and $130 million
at July 31, 1999 and 1998, respectively. If such earnings were distributed, U.S.
income taxes would be partially reduced for taxes paid to the jurisdictions in
which the income was earned.
The Company made tax payments of $66.3 million, $148.9 million and $105.6
million in fiscal years 1999, 1998 and 1997, respectively. The payments for
fiscal years 1998 and 1997 included amounts for prior years' taxes.
NOTE H: PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
Effective fiscal year 1999, the Company adopted SFAS No. 132, "Employers'
Disclosures about Pension and Other Post-retirement Benefits -- an amendment of
FASB Statements No. 87, 88 and 106". SFAS No. 132 revised disclosure
requirements for pension and other postretirement benefit plans, but it did not
change the existing measurement or recognition provisions. Prior year amounts
presented herein have been restated to conform to the new disclosure
requirements.
The majority of the Company's U.S. employees are covered by contributory
defined benefit plans under which employees are eligible for benefits at age 65.
Generally, benefits are determined under a formula based primarily on the
participant's total plan contributions. The Company's funding policy is to make
annual contributions to the extent such contributions are actuarially determined
and tax deductible.
The Company has a defined contribution voluntary savings plan for eligible
U.S. employees. This 401(k) plan is designed to enhance the existing retirement
programs for participating employees. The Company matches 50% of a certain
portion of participants' contributions to the plan. Additionally, PRC and TASC
have various defined contribution pension plans covering substantially all of
their employees, some of which provide for discretionary contributions.
The Company's non-U.S. subsidiaries also have retirement plans for
long-term employees. These plans are not considered to be significant
individually or in the aggregate to the Company's consolidated financial
statements. The pension liabilities and their related costs are computed in
accordance with the laws of the individual nations and appropriate actuarial
practices.
In addition to pension benefits, certain of the Company's U.S. employees
are covered by postretirement health care and life insurance benefit plans.
These benefits are unfunded.
F-17
<PAGE> 38
LITTON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following provides a reconciliation of benefit obligations, plan assets
and funded status of the plans:
<TABLE>
<CAPTION>
OTHER
POSTRETIREMENT
PENSION BENEFITS BENEFITS
FISCAL YEAR FISCAL YEAR
----------------------- ---------------------
1999 1998 1999 1998
---------- ---------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Change in Benefit Obligation
Benefit obligation at beginning of year... $1,096,493 $1,013,069 $ 176,922 $ 164,938
Service cost.............................. 35,223 31,758 1,493 1,540
Interest cost............................. 72,052 70,673 10,368 10,298
Plan participants' contributions.......... 6,997 7,554 -- --
Plan amendments........................... 9,251 -- -- --
Actuarial loss............................ 36,755 45,563 9,299 11,752
Benefits paid............................. (79,880) (72,124) (14,045) (11,606)
---------- ---------- --------- ---------
Benefit obligation at end of year......... $1,176,891 $1,096,493 $ 184,037 $ 176,922
========== ========== ========= =========
Funded (unfunded) status.................. $1,199,623 $ 972,103 $(184,037) $(176,922)
Unrecognized net actuarial gain........... (855,410) (674,760) (23,308) (31,117)
Unrecognized prior service cost........... 30,221 22,126 1,489 1,642
Unrecognized transition asset............. (20,393) (32,045) -- --
---------- ---------- --------- ---------
Prepaid (accrued) benefit cost............ $ 354,041 $ 287,424 $(205,856) $(206,397)
========== ========== ========= =========
Change in Plan Assets
Fair value of plan assets at beginning of
year.................................... $2,068,596 $1,616,205
Actual return on plan assets.............. 377,375 513,926
Plan participants' contributions.......... 6,997 7,554
Benefits paid............................. (76,454) (69,089)
---------- ----------
Fair value of plan assets at end of
year.................................... $2,376,514 $2,068,596
========== ==========
</TABLE>
The excess of plan assets over the projected benefit obligation at adoption
of SFAS No. 87 and subsequent unrecognized gains and losses are amortized over
the average remaining service period of active employees expected to receive
benefits under the plans, generally 15 years. Pension assets included in "Other
Assets and Long-term Investments" were $351.6 million and $285.7 million at July
31, 1999 and 1998, respectively. Plan assets are invested primarily in listed
common stock and fixed income securities.
F-18
<PAGE> 39
LITTON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The net pension income and the net postretirement benefit cost related to
the Company's plans include the following components:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Defined Pension Benefit Plans
Service cost..................................... $(35,223) $(31,758) $(27,590)
Interest cost.................................... (72,052) (70,673) (68,535)
Expected return on plan assets................... 146,411 125,294 108,124
Amortization of prior service cost............... (2,420) (2,052) (2,004)
Recognized net actuarial gain.................... 14,785 10,490 9,420
Amortization of transition assets................ 10,523 10,523 10,523
-------- -------- --------
Net periodic benefit income........................ 62,024 41,824 29,938
Defined contribution plans......................... (34,807) (25,055) (19,337)
Non-U.S. pension plans............................. (8,957) (6,286) (4,518)
-------- -------- --------
Net pension income................................. $ 18,260 $ 10,483 $ 6,083
======== ======== ========
Other Postretirement Benefits
Service cost..................................... $ (1,493) $ (1,540) $ (1,625)
Interest cost.................................... (10,368) (10,298) (10,779)
Amortization of prior service cost............... (152) (153) (153)
Recognized net actuarial gain.................... 582 1,406 1,575
-------- -------- --------
Net periodic benefit cost.......................... $(11,431) $(10,585) $(10,982)
======== ======== ========
</TABLE>
The following actuarial assumptions were used to determine the benefit
obligations and the net costs related to the Company's defined benefit pension
and postretirement benefit plans, as appropriate:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Weighted-average discount rate.............................. 6 3/4% 7 1/4% 7 3/4%
Expected long-term rate of return........................... 9% 9% 9%
Rate of increase on future compensation levels.............. 5% 5% 5%
</TABLE>
The assumed health care cost trend rate for fiscal year 2000 is 9.15%,
decreasing over 18 years to 6% where it is expected to remain thereafter.
A one-percentage-point change in assumed health care cost trend rates would
have the following effects:
<TABLE>
<CAPTION>
1-PERCENTAGE- 1-PERCENTAGE-
POINT INCREASE POINT DECREASE
-------------- --------------
(MILLIONS OF DOLLARS)
<S> <C> <C>
Effect on service and interest costs....................... $ 1.1 $ (1.0)
Effect on postretirement benefit obligation................ $12.1 $(10.8)
</TABLE>
NOTE I: DEFENSE CONTRACTS, LITIGATION AND CONTINGENCIES
Approximately 65%, 66% and 67% of total sales and service revenues of the
Company for the years ended July 31, 1999, 1998 and 1997, respectively, were
from U.S. Government contracts and subcontracts. Approximately 62% of these
revenues for 1999 related to fixed-price contracts. As is common with U.S.
Government contracts, the Company's U.S. defense contracts are unilaterally
terminable at the option of the U.S. Government with compensation for work
completed and costs incurred. Contracts with the U.S. Government are subject to
certain laws and regulations, the noncompliance with which may result in various
sanctions. In the current government contracting environment, contractors,
sometimes without their knowl-
F-19
<PAGE> 40
LITTON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
edge, are subject to investigations by the U.S. Government initiated in various
ways. Most investigations result in no action being taken or administrative
resolution. Litton is aware of ongoing investigations and is cooperating in
those investigations. Should any investigation result in the filing of formal
charges against the Company by the U.S. Government, disclosure will be made if
the amount involved or the relief sought is deemed by the Company to be material
to the consolidated financial statements.
In fiscal 1999 the Company was advised that the United States Attorney's
Office in Los Angeles had decided to pursue action against the Company in
connection with a lengthy investigation first initiated in 1991, unless the
matter could be satisfactorily resolved. After extensive discussions with the
U.S. Attorney's Office of the reasons why the Company believed it complied with
applicable laws and administrative regulations with respect to payments to
foreign consultants and potential terms of settlement, this matter was settled
by the payment of $18.5 million during fiscal 1999. Although Litton believed it
had meritorious defenses, this settlement, relating to past conduct, was
determined to be in the Company's best interests.
Litton brought suit against Honeywell, Inc. for patent infringement
relating to the manufacture of ring laser gyro navigation systems used in
commercial aircraft. In August 1993, the jury rendered a verdict in favor of
Litton that the District Court rejected in January 1995. In July 1996, the
Federal Circuit Court of Appeals reversed the District Court's decision,
reinstated parts of the jury's verdict related to liability in favor of Litton
and ordered a new trial on the amount of damages. In March 1997, the United
States Supreme Court vacated the Court of Appeals' ruling and remanded the case
to the Court of Appeals for further consideration. On April 7, 1998, the Court
of Appeals reinstated its finding that the patent was valid, however, it
remanded the case back to the District Court for a determination on both
liability and damages. In July 1999, the District Court heard motions for
summary judgment filed on behalf of Litton and Honeywell. On September 23, 1999,
the U.S. District Court granted Honeywell's motions rejecting the patent and
state law claims. Those rulings, when finalized by the District Court, will be
appealed by the Company to the Federal Circuit Court of Appeals.
Litton also brought suit against Honeywell for illegal monopolization of
the market for inertial reference systems for large commercial air transport,
commuter and business aircraft. In February 1996, a jury rendered a verdict in
favor of Litton. The District Court upheld the jury's verdict on liability, but
declined to enter the jury's damage award on the basis that Litton's damages
study did not disaggregate damages among legal and illegal conduct. A new trial
limited to the amount of damages resulted in a jury verdict on December 9, 1998,
of $250 million in favor of Litton. On January 27, 1999, U.S. District Court
Judge Mariana R. Pfaelzer entered a final judgment against Honeywell of $250
million which, by law, is trebled to $750 million, plus post-judgment interest
from the date of entry of judgment, costs and attorney fees. On May 20, 1999,
the court heard Honeywell's post trial motions. On September 23, 1999, the court
denied Honeywell's motions as they related to Litton Systems, Inc. but granted a
motion regarding Litton Systems Canada, holding it did not have standing or
jurisdiction to bring its claims in the United States. As a result of that
ruling, the judgment against Honeywell was reduced to $660 million plus
interest, attorney fees and costs.
There are various other litigation proceedings in which the Company is
involved. Although the results of litigation proceedings cannot be predicted
with certainty, it is the opinion of the General Counsel that the ultimate
resolution of these other proceedings will not have a material adverse effect on
the Company's financial statements.
The Company has issued or is a party to various guarantees and letter of
credit agreements totaling $430 million at July 31, 1999, relating principally
to the guarantee of future performance on foreign government contracts.
F-20
<PAGE> 41
LITTON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE J: BUSINESS SEGMENT REPORTING
Effective July 31, 1999, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information", which did not change
the number or composition of the Company's reported business segments but did
result in expanded disclosures herein. The reported segments are aggregated
consistent with the way management organizes the Company for decision making and
measures performance and have been determined based on several factors,
including the nature of products and services, and the class of customers.
Segment results are evaluated based on profit from operations before income
taxes, interest, and unallocated corporate expenses. The accounting policies
relating to the segments are the same as those discussed in Note A. All internal
sales and transfers are based on negotiated prices and are eliminated in
consolidation.
The Company's operations are reported in the four segments: Advanced
Electronics, Information Systems, Ship Systems (formerly referred to as "Marine
Engineering and Production"), and Electronic Components and Materials. The
segment information for fiscal year 1997 has been restated to reflect
Information Systems (which was reported with the Advanced Electronics segment)
as a separate segment.
The fiscal year 1999 results included the effects of special charges
totaling $74.6 million as discussed in Note K, of which $4.1 million related to
the Advanced Electronics segment and $70.5 million related to the Information
Systems segment. Additionally, the Advanced Electronics segment incurred an
$18.5 million charge in connection with a voluntary settlement to resolve
allegations by the United States Attorney's Office related to the use of foreign
sales agents (see Note I).
The Advanced Electronics segment designs, develops and manufactures
inertial navigation, guidance and control, IFF (identification friend or foe)
and marine electronic systems. This segment also provides command, control and
communications and electronic warfare systems and integrates avionics systems
and shipboard information and communication systems.
The Information Systems segment designs, develops, integrates and supports
computer-based information systems and provides information technology and
services. This segment is also engaged in the reengineering of business
processes.
The Ship Systems segment is engaged in the building of large multimission
surface combatant ships and is a provider of overhaul, repair, modernization,
ship design and engineering services.
The U.S. Government is a significant customer of the Advanced Electronics,
Information Systems and Ship Systems segments (see Note I).
The Electronic Components and Materials segment is an international
supplier of laser crystals, connectors, mutilayer circuit boards, solder
materials and other electronic components used primarily in the
telecommunication, industrial and computer markets.
Corporate amounts include primarily cash, marketable securities, deferred
tax assets and general corporate expenses.
F-21
<PAGE> 42
LITTON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OPERATIONS BY BUSINESS SEGMENT (MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
ELECTRONIC SPECIAL
YEAR COMPONENTS CHARGES &
ENDED ADVANCED INFORMATION SHIP AND VOLUNTARY INTERSEGMENT OPERATING
JULY 31 ELECTRONICS SYSTEMS SYSTEMS MATERIALS SETTLEMENT ELIMINATIONS PROFIT
------- ----------- ----------- ------- ---------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues from
unaffiliated
customers.......... 1999 $1,499 $1,632 $1,085 $612 $ -- $-- $ --
1998 1,563 1,218 1,034 585 -- -- --
1997 1,509 1,058 1,112 497 -- -- --
Intersegment sales... 1999 19 21 -- 7 -- -- --
1998 24 22 -- 11 -- -- --
1997 24 27 -- 11 -- -- --
Operating profit
(loss)............. 1999 126 40 161 109 (93) (4) 339
1998 111 70 134 99 -- (4) 410
1997 96 75 135 70 -- (6) 370
Depreciation and
amortization
expense............ 1999 65 50 21 23 -- -- --
1998 68 40 20 18 -- -- --
1997 68 33 19 16 -- -- --
Capital
expenditures....... 1999 32 16 37 39 -- -- --
1998 31 18 34 33 -- -- --
1997 30 27 29 26 -- -- --
Total assets at year
end................ 1999 1,375 1,388 361 493 -- -- --
1998 1,343 1,422 338 385 -- -- --
1997 1,443 866 327 340 -- -- --
<CAPTION>
INTEREST
AND
CORPORATE
AMOUNTS TOTAL
--------- ------
<S> <C> <C>
Revenues from
unaffiliated
customers.......... $ -- $4,828
-- 4,400
-- 4,176
Intersegment sales... -- 47
-- 57
-- 62
Operating profit
(loss)............. (126) 213
(108) 302
(100) 270
Depreciation and
amortization
expense............ 2 161
2 148
2 138
Capital
expenditures....... 1 125
-- 116
1 113
Total assets at year
end................ 583 4,200
562 4,050
544 3,520
</TABLE>
OPERATIONS BY GEOGRAPHIC AREA (MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
YEAR
ENDED UNITED OTHER
JULY 31 STATES NATIONS TOTAL
------- ------ ------- ------
<S> <C> <C> <C> <C>
Revenues from unaffiliated customers............ 1999 $4,364 $464 $4,828
1998 3,919 481 4,400
1997 3,707 469 4,176
Long-lived assets............................... 1999 2,075 132 2,207
1998 1,972 144 2,116
1997 1,595 164 1,759
</TABLE>
NOTE K: SPECIAL CHARGES
The Company's fiscal year 1999 and fourth quarter 1999 earnings were
reduced by special charges totaling $74.6 million pre-tax and $44.8 million
after-tax.
After concluding a review of strategic options, Company management approved
a plan and initiated actions in the fourth quarter of fiscal year 1999 to exit
the mainframe outsourcing and professional services businesses at the Litton
Enterprise Solutions, Inc. subsidiary. Pre-tax charges totaling $65.2 million
were recorded in the fourth quarter 1999 to reflect the costs to exit these
activities. The exit plan is scheduled to be completed by fiscal year end 2000.
Company management also approved plans to consolidate certain manufacturing
facilities at its Data Systems and Applied Technology divisions to reduce excess
capacity resulting in a pre-tax charge of $9.4 million in the fourth quarter
1999. These consolidation plans are scheduled to be completed by fiscal year end
2000.
F-22
<PAGE> 43
LITTON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The special charges (pre-tax) were comprised of:
<TABLE>
<CAPTION>
(MILLIONS OF DOLLARS)
---------------------
<S> <C>
Software and hardware lease termination costs............... $41.3
Goodwill impairment......................................... 15.0
Severance and termination costs............................. 10.2
Software and facilities improvements write-off.............. 4.8
Other closure and exit costs................................ 3.3
-----
Total special charges....................................... $74.6
=====
</TABLE>
Cash expenditures associated with the above items are estimated to total
$54.8 million, most of which are expected to be incurred during fiscal year
2000.
Severance and termination costs relate to expected payments to
approximately 800 personnel involved in manufacturing, engineering and
administrative functions. The goodwill impairment relates to the exited
businesses, the remaining cash flows of which no longer supported recovery of
the goodwill.
F-23
<PAGE> 44
LITTON INDUSTRIES, INC.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SALES EARNINGS EARNINGS (LOSS)
AND (LOSS) NET PER SHARE COMMON STOCK
SERVICE BEFORE TAXES EARNINGS ----------------- HIGH AND LOW
REVENUES ON INCOME (LOSS) BASIC DILUTED MARKET PRICES
-------- ------------ -------- ------ ------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fiscal Year 1999
First Quarter........... $1,207 $ 79 $ 47 $ 1.03 $ 1.01 High 66
Low 47 7/16
Second Quarter.......... 1,131 73 44 $ .96 $ .94 High 68
Low 55 7/16
Third Quarter........... 1,256 85 51 $ 1.12 $ 1.10 High 66 1/2
Low 50 5/8
Fourth Quarter.......... 1,234 (24)* (21)* $(0.48) $(0.48) High 74 5/8
------ ---- ----
Low 60 3/16
Fiscal Year 1999........ $4,828 $213 $121 $ 2.63 $ 2.58
====== ==== ====
Fiscal Year 1998
First Quarter........... $1,039 $ 72 $ 43 $ .94 $ .92 High 57
Low 45 7/8
Second Quarter.......... 974 68 41 $ .88 $ .86 High 59 15/16
Low 47 3/4
Third Quarter........... 1,143 78 47 $ 1.01 $ .98 High 63 7/16
Low 56 7/8
Fourth Quarter.......... 1,244 84 50 $ 1.09 $ 1.07 High 61 15/16
------ ---- ----
Low 55 1/2
Fiscal Year 1998........ $4,400 $302 $181 $ 3.91 $ 3.82
====== ==== ====
</TABLE>
- ---------------
* See Item 7, Financial Review and Analysis.
The total of quarterly amounts for earnings per share will not necessarily
equal the annual amount, since the computations are based on the
weighted-average number of common shares and dilutive potential common shares
outstanding during each period.
Litton Common stock is traded principally on the New York Stock Exchange and
the Pacific Exchange, Inc. under the symbol "LIT".
As of September 30, 1999, there were approximately 22,300 holders of record of
the Common stock.
F-24
<PAGE> 45
LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. AND
APPLICABLE SECTION
OF ITEM 601 OF
REGULATION S-K
- ------------------
<C> <S>
2.1 Stock Purchase Agreement dated as of December 13, 1995 By
and Among The Black & Decker Corporation, PRC Investments,
Inc., PRC Inc. and Litton Industries, Inc. filed as Exhibit
99.2 to the Company's Form 8-K dated February 22, 1996 and
incorporated herein by reference.
2.2 Agreement and Plan of Merger, dated as of June 3, 1999,
among Litton Industries, Inc., ATL Acquisition Corporation
and Avondale Industries, Inc., filed as Exhibit 2.1 to the
Company's Form 8-K dated June 11, 1999, and incorporated
herein by reference.
2.3 Company Stock Option Agreement, dated as of June 3, 1999,
between Avondale Industries, Inc. and Litton Industries,
Inc., filed as Exhibit 2.2 to the Company's Form 8-K dated
June 11, 1999, and incorporated herein by reference.
3.1(a) Restated Certificate of Incorporation of the Company, filed
as Exhibit 3.1 to the Company's 1984 Annual Report on Form
10-K, and incorporated herein by reference.
3.1(b) Amendment to the Company's Restated Certificate of
Incorporation, filed as Exhibit 3.1(a) to the Company's
October 31, 1986 Quarterly Report on Form 10-Q, and
incorporated herein by reference.
3.2(a) By-laws of the Company as amended through the date of this
filing, and incorporated herein by reference.
4.1 Indenture dated as of April 13, 1998 between the Company and
The Bank of New York, Trustee, under which the 6.05% Senior
Notes due 2003 and the 6.75% Senior Debentures due 2018 were
issued, filed as Exhibit 4.1 to the Company's April 30, 1998
Quarterly Report on Form 10-Q, and incorporated herein by
reference.
4.2 $400,000,000 Credit Agreement (364-Day Credit Agreement)
dated March 24, 1999 among Litton Industries, Inc., a group
of banks and Morgan Guaranty Trust Company of New York, as
Agent, filed as Exhibit 4.1 to the Company's April 30, 1999
Quarterly Report on Form 10-Q, and incorporated herein by
reference.
</TABLE>
<TABLE>
<C> <S>
4.2(a) Amendment No. 1 dated July 21, 1999 to the 364-Day Credit
Agreement.*
4.3 Indenture dated as of December 15, 1991 between the Company
and The Bank of New York, Trustee, under which the 7.75% and
6.98% debentures due 2026 and 2036 were issued and specimens
of such debentures, filed as Exhibit 4.1 of the Company's
April 30, 1996 Quarterly Report on Form 10-Q, and
incorporated herein by reference.
4.4 $400,000,000 Amended and Restated Credit Agreement dated
December 22, 1994, along with amendment dated March 17,
1995, among Litton Industries, Inc., a group of banks and
Morgan Guaranty Trust Company of New York, as Agent, and
Wells Fargo Bank, N.A., as Co-Agent, filed as Exhibit 4.3 to
the Company's 1995 Annual Report on Form 10-K, and
incorporated herein by reference.
4.4(a) Amendment No. 2 dated November 30, 1995 to the $400,000,000
Amended and Restated Credit Agreement, filed as Exhibit 4 to
the Company's Form 8-K/A dated March 4, 1996, and
incorporated herein by reference.
</TABLE>
- ---------------
* Copies of these documents have been included in this Annual Report on Form
10-K filed with the Securities and Exchange Commission.
E-1
<PAGE> 46
LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
INDEX TO EXHIBITS (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT NO. AND
APPLICABLE SECTION
OF ITEM 601 OF
REGULATION S-K
- ------------------
<C> <S>
4.4(b) Amendment No. 3 dated April 25, 1996 to the $400,000,000
Amended and Restated Credit Agreement, filed as Exhibit 4.2
to the Company's April 30, 1996 Quarterly Report on Form
10-Q, and incorporated herein by reference.
4.4(c) Amendment No. 4 dated October 18, 1996 to the $400,000,000
Amended and Restated Credit Agreement, filed as Exhibit 4 to
the Company's October 31, 1996 Quarterly Report on Form
10-Q, and incorporated herein by reference.
4.4(d) Amendment No. 5 dated March 24, 1999 to the $400,000,000
Amended and Restated Credit Agreement, filed as Exhibit 4.2
to the Company's April 30, 1999 Quarterly Report on Form
10-Q, and incorporated herein by reference.
4.4(e) Amendment No. 6 dated July 21, 1999 to the $400,000,000
Amended and Restated Credit Agreement. *
4.5 Other instruments defining the rights of holders of other
long-term debt of the Registrant are not filed as exhibits
because the amount of debt authorized under any such
instrument does not exceed 10% of the total assets of the
Registrant and its consolidated subsidiaries. The Registrant
hereby undertakes to furnish a copy of any such instrument
to the Commission upon request.
4.6 Rights Agreement, together with exhibits thereto, dated
August 17, 1994 between Litton Industries, Inc. and The Bank
of New York, as Rights Agent, filed as Exhibit 99.2 to Form
8-K dated August 17, 1994, and incorporated herein by
reference.
4.7 $400,000,000 Short-Term Credit Agreement dated July 23, 1999
among Litton Industries, Inc., a group of banks and Morgan
Guaranty Trust Company of New York as Administrative Agent.*
</TABLE>
<TABLE>
<C> <S>
10.1(a) Board of Directors Resolutions, adopted December 3, 1998,
with respect to non-employee directors' annual retainer and
attendance fees, filed as Exhibit 10.2 to the Company's
October 31, 1998 Quarterly Report on Form 10-Q, and
incorporated herein by reference.
10.1(b) Board of Directors Resolutions with respect to director
retirement age and with respect to postretirement payments
to directors, including those payments made in the event of
a change in control of the Company, adopted on September 24,
1998, filed as Exhibit 10.6 to the Company's October 31,
1998 Quarterly Report on Form 10-Q, and incorporated herein
by reference.
10.2(a) Litton Supplemental Retirement Plan, filed as Exhibit 10.3
to the Company's 1983 Annual Report on Form 10-K, and
incorporated herein by reference.
10.2(b) Board of Directors Resolution, adopted December 2, 1992,
amending the Litton Supplemental Retirement Plan, filed as
Exhibit 10.1 to the Company's April 30, 1993 Quarterly
Report on Form 10-Q, and incorporated herein by reference.
10.2(c) Agreement of Trust between the Company and First Interstate
Bank of California, dated December 20, 1988, regarding
payments of pension benefits under the Litton Supplemental
Retirement Plan to certain former and present employees or
their beneficiaries, filed as Exhibit 10.17 to the Company's
1989 Annual Report on Form 10-K, and incorporated herein by
reference.
</TABLE>
- ---------------
* Copies of these documents have been included in this Annual Report on Form
10-K filed with the Securities and Exchange Commission.
E-2
<PAGE> 47
LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
INDEX TO EXHIBITS (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT NO. AND
APPLICABLE SECTION
OF ITEM 601 OF
REGULATION S-K
- ------------------
<C> <S>
10.2(d) Amendments, through the date of the filing, to the Agreement
of Trust dated December 20, 1988, and incorporated herein by
reference.
10.2(e) Instruments dated April 16, 1990, and April 25, 1990,
removing First Interstate Bank of California as Trustee
under Agreement of Trust dated December 20, 1988, and
appointing Wells Fargo Bank, N.A., as Successor Trustee,
filed as Exhibit 10.17(c) to the Company's 1990 Annual
Report on Form 10-K, and incorporated herein by reference.
10.2(f) Letter of Credit dated November 17, 1989, issued by Wells
Fargo Bank, N.A. pursuant to Agreement of Trust dated
December 20, 1988, filed as Exhibit 10.17(d) to the
Company's 1990 Annual Report on Form 10-K, and incorporated
herein by reference.
10.3(a) Specimen of the form of the agreement presently outstanding
under the Litton Industries, Inc. Executive Survivor Benefit
Plan, applicable to officers and certain key employees,
filed as Exhibit 10.4 to the Company's 1984 Annual Report on
Form 10-K, and incorporated herein by reference.
10.3(b) Board of Directors Resolutions amending the Executive
Survivor Benefit Plan, adopted June 12, 1986, filed as
Exhibit 10.4(a) to the Company's 1986 Annual Report on Form
10-K, and incorporated herein by reference.
10.5(a) Board of Directors Resolution with respect to incentive
loans, adopted September 26, 1991, filed as Exhibit 10.8(a)
to the Company's 1991 Annual Report on Form 10-K and
incorporated herein by reference.
10.5(b) Board of Directors Resolution, adopted September 19, 1996,
amending the Company's incentive loan program, filed as
Exhibit 10.5(b) to the Company's 1996 Annual Report on Form
10-K and incorporated herein by reference.
10.5(c) Specimen of the form of promissory note applicable to loans
presently outstanding under the Company's incentive loan
program, filed as Exhibit 10.8(b) to the Company's 1991
Annual Report on Form 10-K, and incorporated herein by
reference.
10.7(a) Supplemental Medical Insurance Plan for Key Executive
Employees incorporating all amendments thereto through the
date of this filing, filed as Exhibit 10.10 to the Company's
1990 Annual Report on Form 10-K, and incorporated herein by
reference.
10.7(b) Resolution adopted by the Compensation and Selection
Committee, dated January 26, 1994, approving the
participation by Orion L. Hoch and Catherine Nan Hoch in the
Supplemental Medical Insurance Plan, filed as Exhibit 10.2
to the Company's April 30, 1994 Quarterly Report on Form
10-Q, and incorporated herein by reference.
10.9(a) Supplemental Retirement Agreement between the Company and
Orion L. Hoch, filed as Exhibit 10.13(b) to the Company's
1983 Annual Report on Form 10-K, and incorporated herein by
reference.
10.9(b) Amendments, through the date of the filing, to the
Supplemental Retirement Agreement between the Company and
Orion L. Hoch, and incorporated herein by reference.
10.9(c) Extract of the minutes of a meeting of the Compensation and
Selection Committee of the Board of Directors, held on March
31, 1988, with respect to the lifetime participation of Fred
W. O'Green and Mildred G. O'Green in the Supplemental
Medical Insurance Plan, filed as Exhibit 10.13(e) to the
Company's 1988 Annual Report on Form 10-K, and incorporated
herein by reference.
</TABLE>
E-3
<PAGE> 48
LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
INDEX TO EXHIBITS (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT NO. AND
APPLICABLE SECTION
OF ITEM 601 OF
REGULATION S-K
- ------------------
<C> <S>
10.10(a) Litton Industries, Inc. 1984 Long-Term Stock Incentive Plan,
as amended and restated, filed as Exhibit 10.1 to the
Company's October 31, 1996 Quarterly Report on Form 10-Q,
and incorporated herein by reference.
10.10(b) Amendment to Litton Industries, Inc. 1984 Long-Term Stock
Incentive Plan, adopted September 18, 1997, with respect to
options issued to employees of Western Atlas Inc. and
subsequently UNOVA, Inc., filed as Exhibit 10.10(f) to the
Company's 1997 Annual Report on Form 10-K, and incorporated
herein by reference.
10.11 Litton Industries, Inc. Performance Award Plan, filed as
Exhibit 10.2 to the Company's October 31, 1996 Quarterly
Report on Form 10-Q, and incorporated herein by reference.
10.12 Litton Industries, Inc. Restoration Plan filed as Exhibit
10.16 to the Company's 1989 Annual Report on Form 10-K, and
incorporated herein by reference.
10.12(a) Board of Directors Resolutions, adopted September 24, 1998
amending the Litton Industries, Inc. Restoration Plan, filed
as Exhibit 10.1 to the Company's October 31, 1998 Quarterly
Report on Form 10-Q, and incorporated herein by reference.
10.13(a) Litton Industries, Inc. Director Stock Option Plan, filed as
Exhibit 10.18(a) to the Company's 1989 Annual Report on Form
10-K, and incorporated herein by reference.
10.13(b) Board of Directors Resolution, adopted March 12, 1992,
amending the Litton Industries, Inc. Director Stock Option
Plan for the two-for-one Common stock split which was
effective May 8, 1992, filed as Exhibit 10.18(b) to the
Company's 1992 Annual Report on Form 10-K, and incorporated
herein by reference.
10.13(c) Board of Directors Resolution, adopted September 30, 1993,
adjusting the options outstanding under the Litton
Industries, Inc. Director Stock Option Plan for the
distribution of Western Atlas Inc. common stock, filed as
Exhibit 10.18(c) to the Company's 1993 Annual Report on Form
10-K, and incorporated herein by reference.
10.13(d) Board of Directors Resolution, adopted October 27, 1994,
with respect to options issued to directors of the Company
who became directors of Western Atlas Inc., filed as Exhibit
10.13(d) to the Company's 1995 Annual Report on Form 10-K,
and incorporated herein by reference.
10.13(e) Board of Directors Resolution, adopted September 18, 1997,
with respect to options issued to directors of the Company
who became directors of Western Atlas Inc. and subsequently
UNOVA, Inc. filed as Exhibit 10.13(e) to the Company's 1997
Annual Report on Form 10-K, and incorporated herein by
reference.
10.14 Litton Industries, Inc. Non-Employee Director Stock Plan,
filed as Exhibit 10.3 to the Company's October 31, 1998
Quarterly Report on Form 10-Q, and incorporated herein by
reference.
10.15 Litton Industries, Inc. Non-Employee Director Deferred
Compensation Plan, filed as Exhibit 10.4 to the Company's
October 31, 1998 Quarterly Report on Form 10-Q, and
incorporated herein by reference.
10.16 Copy of the Company's "Group Bonus Plan", which provides for
incentive compensation rewards for certain Group Executives
and other key group personnel, filed as Exhibit 10 to the
Company's October 31, 1997 Quarterly Report on Form 10-Q,
and incorporated herein by reference.
</TABLE>
E-4
<PAGE> 49
LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
INDEX TO EXHIBITS (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT NO. AND
APPLICABLE SECTION
OF ITEM 601 OF
REGULATION S-K
- ------------------
<C> <S>
10.18 Litton Industries, Inc. Deferred Compensation Plan for
Directors together with Board of Directors Resolution
adopted December 2, 1992, filed as Exhibit 10.3 to the
Company's April 30, 1993 Quarterly Report on Form 10-Q, and
incorporated herein by reference.
10.19 Form of Change of Control Employment Agreement between the
Company and certain executive officers, filed as Exhibit
10.27 to the Company's 1993 Annual Report on Form 10-K, and
incorporated herein by reference.
10.19(a) Board of Directors Resolutions, adopted September 24, 1998,
amending the definition of the term "Annual Bonus" in the
Change of Control Employment Agreements between the Company
and certain executive officers and group executives, filed
as Exhibit 10.5 to the Company's October 31, 1998 Quarterly
Report on Form 10-Q, and incorporated herein by reference.
10.20 Distribution and Indemnity Agreement between Litton
Industries, Inc. and Western Atlas Inc. dated March 17,
1994, filed as Exhibit 99.1 to Form 8-K dated March 17,
1994, and incorporated herein by reference.
10.21 Tax Sharing Agreement between Litton Industries, Inc. and
Western Atlas Inc. dated March 17, 1994, filed as Exhibit
99.1 to Form 8-K dated March 17, 1994, and incorporated
herein by reference.
10.22(a) Litton Industries, Inc. Supplemental Executive Retirement
Plan, effective August 1, 1995, to provide supplemental
retirement benefits to certain key executive employees,
filed as Exhibit 10.22 to the Company's 1995 Annual Report
on Form 10-K, and incorporated herein by reference.
10.22(b) Amendment No. 1 to the Litton Industries, Inc. Supplemental
Executive Retirement Plan, filed as Exhibit 10.22(b) to the
Company's 1997 Annual Report on Form 10-K, and incorporated
herein by reference.
10.22(c) Amendment No. 2 to the Litton Industries, Inc. Supplemental
Executive Retirement Plan, filed as Exhibit 10.22(c) to the
Company's 1997 Annual Report on Form 10-K, and incorporated
herein by reference.
21 Subsidiaries of the Registrant included herein on page E-6.
23 Independent Auditors' Consent included herein on page E-7.
27 Financial Data Schedule included herein.
99 Undertaking re: Indemnification for liabilities under
Securities Act, filed as Exhibit 19 to the Company's 1990
Annual Report on Form 10-K, and incorporated herein by
reference.
</TABLE>
E-5
<PAGE> 50
EXHIBIT 21
LITTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
JURISDICTION PERCENTAGE
OF OF
NAME OF SUBSIDIARY INCORPORATION OWNERSHIP
------------------ ------------- ----------
<S> <C> <C>
Ingalls Shipbuilding, Inc................................... Delaware 100
Litton Systems, Inc......................................... Delaware 100
PRC Inc..................................................... Delaware 100
Litton Marine Systems, Inc.................................. Delaware 100
TASC, Inc................................................... Massachusetts 100
</TABLE>
The Registrant has additional operating subsidiaries, which considered in
the aggregate as a single subsidiary, do not constitute a significant
subsidiary.
All above listed subsidiaries have been consolidated in the Registrant's
financial statements.
E-6
<PAGE> 51
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in (i) Registration Statement
No. 2-93044 on Form S-8, (ii) Registration Statement No. 33-27467 on Form S-8,
(iii) Registration Statement No. 33-27468 on Form S-8, (iv) Registration
Statement No. 33-44684 on Form S-3, (v) Registration Statement No. 33-55944 on
Form S-8, (vi) Registration Statement No. 333-13193 on Form S-3, (vii)
Registration Statement No. 333-23447 on Form S-8, (viii) Registration Statement
No. 333-28295 on Form S-3, (ix) Registration Statement No. 333-50675 on Form
S-8, (x) Registration Statement No. 333-68279 on Form S-8, and (xi) Registration
Statement No. 333-75049 on Form S-8 of our report dated October 5, 1999,
appearing in this Annual Report on Form 10-K of Litton Industries, Inc. for the
year ended July 31, 1999.
DELOITTE & TOUCHE LLP
Los Angeles, California
October 8, 1999
E-7
<PAGE> 1
EXHIBIT 4.2(a)
CONFORMED COPY
AMENDMENT NO. 1 TO 364-DAY CREDIT AGREEMENT
AMENDMENT dated as of July 21, 1999 among LITTON INDUSTRIES, INC. (the
"BORROWER"), the BANKS listed on the signature pages hereof (the "BANKS"), and
MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent (the
"ADMINISTRATIVE AGENT").
W I T N E S S E T H :
WHEREAS, the parties hereto have heretofore entered into the 364-Day
Credit Agreement dated as of March 24, 1999 (the "AGREEMENT") and desire to
amend the Agreement as set forth herein;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions; References. Unless otherwise specifically
defined herein, each term used herein which is defined in the Agreement shall
have the meaning assigned to such term in the Agreement. Each reference to
"hereof", "hereunder", "herein" and "hereby" and each other similar reference
and each reference to "this Agreement" and each other similar reference
contained in the Agreement shall after this Amendment becomes effective, refer
to the Agreement as amended hereby.
SECTION 2. Definition of Consolidated EBIT. The definition of
"Consolidated EBIT" in Section 1.01 is amended to read as follows:
"CONSOLIDATED EBIT" means, for any period, the sum of
Consolidated Net Income for such period plus, to the extent deducted in the
determination of such Consolidated Net Income, Consolidated Interest Expense for
such period and the provision for income taxes for such period; provided that
Consolidated EBIT shall be adjusted to exclude the effect of up to $110,000,000
in non-recurring charges relating to divestiture/exit of non-core businesses and
plant consolidation subsequent to July 31, 1998.
SECTION 3. Definition of Consolidated EBITDA. The definition of
"Consolidated EBITDA" in Section 1.01 is amended to read as follows:
<PAGE> 2
"CONSOLIDATED EBITDA" means, for any period, the Consolidated
Net Income of the Borrower and its Consolidated Subsidiaries for such period
before cumulative effect of accounting changes, provision for income tax,
interest expense and depreciation and amortization expense; provided that
Consolidated EBITDA shall be adjusted to exclude the effect of up to
$110,000,000 in non-recurring charges relating to divestiture/exit of non-core
businesses and plant consolidation subsequent to July 31, 1998.
SECTION 4. Leverage Ratio. Section 5.05 is amended to read as
follows:
SECTION 5.05. Leverage Ratio. The Leverage Ratio
will at no time exceed 320%.
SECTION 5. Representations and Warranties. The Borrower hereby
represents and warrants that as of the date hereof and after giving effect
hereto:
(a) no Default under the Agreement has occurred and is continuing;
and
(b) each representation and warranty of the Borrower set forth in the
Agreement is true and correct as though made on and as of this date.
SECTION 6. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 7. Counterparts; Effectiveness. This Amendment may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Amendment shall become effective as of the date hereof when the Agent shall
have received duly executed counterparts hereof signed by the Borrower and the
Required Banks (or, in the case of any party as to which an executed counterpart
shall not have been received, the Agent shall have received telegraphic, telex
or other written confirmation from such party of execution of a counterpart
hereof by such party).
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first above written.
LITTON INDUSTRIES, INC.
By: /s/ Timothy G. Paulson
-----------------------------------
Name: Timothy G. Paulson
Title: Vice President and Treasurer
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK, as Bank
and Administrative Agent
By: /s/ Sovonna L. Day
-----------------------------------
Name: Sovonna L. Day
Title: Vice President
By: /s/ Robert Bottamedi
-----------------------------------
Name: Robert Bottamedi
Title: Vice President
BANK OF AMERICA, N.A.
By: /s/ Brad W. DeSpain
-----------------------------------
Name: Brad W. DeSpain
Title: Managing Director
THE CHASE MANHATTAN BANK
By: /s/ Richard C. Smith
-----------------------------------
Name: Richard C. Smith
Title: Vice President
THE BANK OF NEW YORK
By: /s/ Mehrasa Raygani
-----------------------------------
Name: Mehrasa Raygani
Title: Assistant Vice President
<PAGE> 4
THE BANK OF NOVA SCOTIA
By: /s/ R. P. Reynolds
-----------------------------------
Name: R. P. Reynolds
Title: Relationship Manager
BANQUE NATIONALE DE PARIS
By: /s/ C. Bettles
-----------------------------------
Name: C. Bettles
Title: Sr. V.P. & Manager
By: /s/ Brian Dixon
-----------------------------------
Name: Brian Dixon
Title: V.P.
CREDIT SUISSE FIRST BOSTON
By: /s/ Thomas G. Muoio
-----------------------------------
Name: Thomas G. Muoio
Title: Vice President
By: /s/ Jennifer E. Toth
-----------------------------------
Name: Jennifer E. Toth
Title: Analyst
THE FIRST NATIONAL BANK OF
CHICAGO
By: /s/ Betty Francis-Similton
-----------------------------------
Name: Betty Francis-Similton
Title: Customer Service Officer
<PAGE> 5
WELLS FARGO BANK, N.A.
By: /s/ Catherine M. Wallace
-----------------------------------
Name: Catherine M. Wallace
Title: Vice President
By: /s/ Felynn C. Quilo
-----------------------------------
Name: Felynn C. Quilo
Title: Assistant Vice President
CITICORP USA, INC.
By: /s/ Hillary Savoie
-----------------------------------
Name: Hillary Savoie
Title: Attorney-in-Fact
BANCO DI ROMA - SAN FRANCISCO BRANCH
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
UNICREDITO ITALIANO
By: /s/ Nicola Longo Dente
-----------------------------------
Name: Nicola Lango Dente
Title: First Vice President
By: /s/ Saiyed A. Abbas
-----------------------------------
Name: Saiyed A. Abbas
Title: Vice President
<PAGE> 6
MELLON BANK, N.A.
By: /s/ J. Cate
-----------------------------------
Name: J. Cate
Title: Vice President
THE NORTHERN TRUST COMPANY
By: /s/ Nicole Boehm
-----------------------------------
Name: Nicole Boehm
Title: Officer
<PAGE> 1
EXHIBIT 4.4(e)
CONFORMED COPY
AMENDMENT NO. 6 TO CREDIT AGREEMENT
AMENDMENT dated as of July 21, 1999 among LITTON INDUSTRIES, INC. (the
"BORROWER"), the BANKS listed on the signature pages hereof (the "BANKS"),
MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "AGENT") and WELLS
FARGO BANK, N.A., as Co-Agent (the "CO-AGENT").
W I T N E S S E T H :
WHEREAS, the parties hereto have heretofore entered into an Amended and
Restated Credit Agreement dated as of December 22, 1994 (as heretofore amended,
the "AGREEMENT") and desire to amend the Agreement as set forth herein;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions; References. Unless otherwise specifically
defined herein, each term used herein which is defined in the Agreement shall
have the meaning assigned to such term in the Agreement. Each reference to
"hereof", "hereunder", "herein" and "hereby" and each other similar reference
and each reference to "this Agreement" and each other similar reference
contained in the Agreement shall from and after the date hereof refer to the
Agreement as amended hereby.
SECTION 2. Definition of Consolidated EBIT. The definition of
"Consolidated EBIT" in Section 1.01 is amended to read as follows:
"CONSOLIDATED EBIT" means, for any period, the sum of
Consolidated Net Income for such period plus, to the extent deducted in the
determination of such Consolidated Net Income, Consolidated Interest Expense for
such period and the provision for income taxes for such period; provided that
Consolidated EBIT shall be adjusted to exclude the effect of up to $110,000,000
in non-recurring charges relating to divestiture/exit of non-core businesses and
plant consolidation subsequent to July 31, 1998.
<PAGE> 2
SECTION 3. Definition of Consolidated EBITDA. The definition of
"Consolidated EBITDA" in Section 1.01 is amended to read as follows:
"CONSOLIDATED EBITDA" means, for any period, the Consolidated
Net Income of the Borrower and its Consolidated Subsidiaries for such period
before cumulative effect of accounting changes, provision for income tax,
interest expense and depreciation and amortization expense; provided that
Consolidated EBITDA shall be adjusted to exclude the effect of up to
$110,000,000 in non-recurring charges relating to divestiture/exit of non-core
businesses and plant consolidation subsequent to July 31, 1998.
SECTION 4. Leverage Ratio. Section 5.05 is amended to read as
follows:
SECTION 5.05. Leverage Ratio. The Leverage Ratio
will at no time exceed 320%.
SECTION 5. Representations and Warranties. The Borrower hereby
represents and warrants that as of the date hereof and after giving effect
hereto:
(a) no Default under the Agreement has occurred and is continuing;
and
(b) each representation and warranty of the Borrower set forth in the
Agreement is true and correct as though made on and as of this date.
SECTION 6. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 7. Counterparts; Effectiveness. This Amendment may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Amendment shall become effective as of the date hereof when the Agent shall
have received duly executed counterparts hereof signed by the Borrower and the
Required Banks (or, in the case of any party as to which an executed counterpart
shall not have been received, the Agent shall have received telegraphic, telex
or other written confirmation from such party of execution of a counterpart
hereof by such party).
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first above written.
LITTON INDUSTRIES, INC.
By: /s/ Timothy G. Paulson
-----------------------------------
Name: Timothy G. Paulson
Title: Vice President and Treasurer
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK, as Bank
and Agent
By: /s/ Sovonna L. Day
-----------------------------------
Name: Sovonna L. Day
Title: Vice President
By: /s/ Robert Bottamedi
-----------------------------------
Name: Robert Bottamedi
Title: Vice President
WELLS FARGO BANK, N.A., as Bank and
Co-Agent
By: /s/ Catherine M. Wallace
-----------------------------------
Name: Catherine M. Wallace
Title: Vice President
By: /s/ Felynn C. Quilo
-----------------------------------
Name: Felynn C. Quilo
Title: Assistant Vice President
BANK OF AMERICA, N.A.
By: /s/ Brad W. DeSpain
-----------------------------------
Name: Brad W. DeSpain
Title: Managing Director
<PAGE> 4
THE BANK OF NEW YORK
By: /s/ Mehrasa Raygani
-----------------------------------
Name: Mehrasa Raygani
Title: Assistant Vice President
THE CHASE MANHATTAN BANK
By: /s/ Richard C. Smith
-----------------------------------
Name: Richard C. Smith
Title: Vice President
UBS AG, Stamford Branch
By: /s/ Wilfred Saint
-----------------------------------
Name: Wilfred Saint
Title: Associate Director
Loan Portfolio Support, US
By: /s/ Lara A. Kavanagh
-----------------------------------
Name: Lara A. Kavanagh
Title: Associate Director
Loan Portfolio Support, US
THE BANK OF NOVA SCOTIA
By: /s/ R. P. Reynolds
-----------------------------------
Name: R. P. Reynolds
Title: Relationship Manager
CIBC INC.
By: /s/
-----------------------------------
Name:
Title:
<PAGE> 5
CREDIT SUISSE FIRST BOSTON
By: /s/ Thomas G. Muoio
-----------------------------------
Name: Thomas G. Muoio
Title: Vice President
By: /s/ Jennifer E. Toth
-----------------------------------
Name: Jennifer E. Toth
Title: Analyst
DRESDNER BANK AG NEW YORK
AND/OR CAYMAN ISLANDS BRANCH
By: /s/ A. Richard Morris
-----------------------------------
Name: A. Richard Morris
Title: First Vice President
By: /s/ Vincent Carotenuto
-----------------------------------
Name: Vincent Carotenuto
Title: Assistant Treasurer
MELLON BANK, N.A.
By: /s/ J. Cate
-----------------------------------
Name: J. Cate
Title: Vice President
<PAGE> 6
BANK OF AMERICA, N.A. [Successor
through merger to NationsBank, N.A.]
By: /s/ Brad W. DeSpain
-----------------------------------
Name: Brad W. DeSpain
Title: Managing Director
THE FIRST NATIONAL BANK OF
CHICAGO
By: /s/ Betty Francis-Similton
-----------------------------------
Name: Betty Francis-Similton
Title: Customer Service Officer
THE NORTHERN TRUST COMPANY
By: /s/ Nicole Boehm
-----------------------------------
Name: Nicole Boehm
Title: Officer
BANK OF HAWAII
By: /s/ Scott R. Nahme
-----------------------------------
Name: Scott R. Nahme
Title: Vice President
<PAGE> 1
EXHIBIT 4.7
CONFORMED COPY
$400,000,000
SHORT-TERM CREDIT AGREEMENT
dated as of
July 23, 1999
among
Litton Industries, Inc.,
The Banks Listed Herein
and
Morgan Guaranty Trust Company of New York,
as Administrative Agent
------------------------------------
J.P. Morgan Securities Inc.,
Arranger
Bank of America, N.A.
and
The Chase Manhattan Bank,
Co-Documentation Agents
<PAGE> 2
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
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----
<S> <C> <C>
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions.....................................................1
SECTION 1.02. Accounting Terms and Determinations............................18
SECTION 1.03. Types of Borrowings............................................18
ARTICLE 2
THE CREDITS
SECTION 2.01. Commitments to Lend............................................19
SECTION 2.02. Notice of Committed Borrowings.................................19
SECTION 2.03. Money Market Borrowings........................................20
SECTION 2.04. Notice to Banks; Funding of Loans..............................24
SECTION 2.05. Registry; Notes................................................24
SECTION 2.06. Maturity of Loans..............................................25
SECTION 2.07. Interest Rates.................................................25
SECTION 2.08. Fees...........................................................29
SECTION 2.09. Optional Termination or Reduction of Commitments...............29
SECTION 2.10. Mandatory Termination or Reduction of Commitments..............29
SECTION 2.11. Optional Prepayments...........................................31
SECTION 2.12. General Provisions as to Payments..............................31
SECTION 2.13. Funding Losses.................................................32
SECTION 2.14. Computation of Interest and Fees...............................33
SECTION 2.15. Regulation D Compensation......................................33
SECTION 2.16. Method of Electing Interest Rates..............................33
ARTICLE 3
CONDITIONS
SECTION 3.01. Effectiveness..................................................36
SECTION 3.02. Borrowings.....................................................36
ARTICLE 4
REPRESENTATIVES AND WARRANTIES
SECTION 4.01. Corporate Existence and Power..................................37
SECTION 4.02. Corporate and Governmental Authorization; No
Contravention........................................................37
SECTION 4.03. Binding Effect.................................................38
SECTION 4.04. Financial Information..........................................38
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 4.05. Litigation.....................................................38
SECTION 4.06. Compliance with ERISA..........................................39
SECTION 4.07. Environmental Matters..........................................39
SECTION 4.08. Taxes..........................................................40
SECTION 4.09. Material Subsidiaries..........................................40
SECTION 4.10. Not an Investment Company......................................40
SECTION 4.11. Use of Proceeds................................................40
SECTION 4.12. Full Disclosure................................................40
SECTION 4.13. Year 2000 Compliance...........................................41
ARTICLE 5
COVENANTS
SECTION 5.01. Information....................................................41
SECTION 5.02. Maintenance of Property; Insurance.............................43
SECTION 5.03. Maintenance of Existence.......................................44
SECTION 5.04. Compliance with Laws...........................................44
SECTION 5.05. Leverage Ratio.................................................44
SECTION 5.06. Minimum Consolidated Net Worth.................................44
SECTION 5.07. Interest Coverage Ratio........................................44
SECTION 5.08. Subsidiary Debt Limitation.....................................44
SECTION 5.09. Negative Pledge................................................44
SECTION 5.10. Consolidations, Mergers and Sales of Assets....................45
SECTION 5.11. Limitation on Affiliate Transactions...........................45
ARTICLE 6
DEFAULTS
SECTION 6.01. Events of Default..............................................46
SECTION 6.02. Notice of Default..............................................48
ARTICLE 7
THE ADMINISTRATIVE AGENT
SECTION 7.01. Appointment and Authorization..................................48
SECTION 7.02. Administrative Agent and Affiliates............................48
SECTION 7.03. Action by Administrative Agent.................................48
SECTION 7.04. Consultation with Experts......................................49
SECTION 7.05. Liability of Administrative Agent..............................49
SECTION 7.06. Indemnification................................................49
SECTION 7.07. Credit Decision................................................49
SECTION 7.08. Successor Administrative Agent.................................50
SECTION 7.09. Co-Documentation Agents........................................50
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 8
CHANGE IN CIRCUMSTANCES
SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair.......50
SECTION 8.02. Illegality.....................................................51
SECTION 8.03. Increased Cost and Reduced Return..............................52
SECTION 8.04. Taxes
....................................................................53
SECTION 8.05. Base Rate Loans Substituted for Affected Fixed Rate Loans......55
SECTION 8.06. Substitution of Bank...........................................56
ARTICLE 9
MISCELLANEOUS
SECTION 9.01. Notices........................................................56
SECTION 9.02. No Waivers.....................................................56
SECTION 9.03. Expenses; Indemnification......................................56
SECTION 9.04. Sharing of Set-Offs............................................57
SECTION 9.05. Amendments and Waivers.........................................57
SECTION 9.06. Successors and Assigns.........................................58
SECTION 9.07. Designated Lenders.............................................60
SECTION 9.08. Collateral.....................................................61
SECTION 9.09. Governing Law; Submission to Jurisdiction......................61
SECTION 9.10. Counterparts; Integration......................................61
SECTION 9.11. WAIVER OF JURY TRIAL...........................................61
Pricing Schedule
Commitment Schedule
Exhibit A - Note
Exhibit B - Money Market Quote Request
Exhibit C - Invitation for Money Market Quotes
Exhibit D - Money Market Quote
Exhibit E - Opinion of Counsel for the Borrower
Exhibit F - Opinion of Special Counsel for the Administrative Agent
Exhibit G - Assignment and Assumption Agreement
Exhibit H - Designation Agreement
</TABLE>
iii
<PAGE> 5
CREDIT AGREEMENT
AGREEMENT dated as of July 23, 1999 among LITTON INDUSTRIES, INC., the
BANKS listed on the signature pages hereof and MORGAN GUARANTY TRUST COMPANY OF
NEW YORK, as Administrative Agent.
The parties hereto hereby agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions. The following terms, as used herein, have
the following meanings:
"ABSOLUTE RATE AUCTION" means a solicitation of Money Market Quotes
setting forth Money Market Absolute Rates pursuant to Section 2.03.
"ADJUSTED CD RATE" has the meaning set forth in Section 2.07(b).
"ADMINISTRATIVE AGENT" means Morgan Guaranty Trust Company of New York
in its capacity as administrative agent for the Banks hereunder, and its
successors in such capacity.
"ADMINISTRATIVE QUESTIONNAIRE" means, with respect to each Bank, an
administrative questionnaire in the form prepared by the Administrative Agent
and submitted to the Administrative Agent (with a copy to the Borrower) duly
completed by such Bank.
"AFFILIATE" means any Person (other than a Subsidiary) directly or
indirectly controlling or controlled by or under direct or indirect common
control with the Borrower. For the purposes of this definition, "CONTROL" when
used with respect to any specified Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"CONTROLLING" and "CONTROLLED" have meanings correlative to the foregoing.
"AGENT" means the Administrative Agent or a Co-Documentation Agent, and
"AGENTS" means any two or more of the foregoing.
<PAGE> 6
"APPLICABLE LENDING OFFICE" means, with respect to any Bank, (i) in the
case of its Domestic Loans, its Domestic Lending Office, (ii) in the case of its
Euro-Dollar Loans, its Euro-Dollar Lending Office and (iii) in the case of its
Money Market Loans, its Money Market Lending Office.
"ASSESSMENT RATE" has the meaning set forth in Section 2.07(b).
"ASSET SALE" means any sale, lease or other disposition (including any
such transaction effected by way of merger or consolidation) (each, a
"DISPOSITION") by the Borrower or any of its Subsidiaries of any asset,
including without limitation any sale-leaseback transaction, whether or not
involving a capital lease, but excluding (i) any disposition in the ordinary
course of business, (ii) any disposition to the Borrower or any of its
Subsidiaries and (iii) any disposition (or series of related dispositions) the
Net Cash Proceeds of which do not exceed $5,000,000 on an individual basis.
"ASSIGNEE" has the meaning set forth in Section 9.06(c).
"AVONDALE ACQUISITION" means the acquisition by the Borrower of
Avondale Industries, Inc. pursuant to the Avondale Merger Agreement.
"AVONDALE MERGER AGREEMENT" means the Agreement and Plan of
Merger dated as of June 3, 1999, among the Borrower, Avondale Industries, Inc.
and ATL Acquisition Corporation, a Wholly-Owned Consolidated Subsidiary of
the Borrower.
"BANK" means each financial institution listed on the signature pages
hereof, each Assignee which becomes a Bank pursuant to Section 9.06(c), and
their respective successors.
"BASE RATE" means, for any day, a rate per annum equal to the higher of
(i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the Federal
Funds Rate for such day.
"BASE RATE LOAN" means a Committed Loan which bears interest at the
Base Rate pursuant to the applicable Notice of Committed Borrowing or Notice of
Interest Rate Election or the provisions of Section 2.16(a) or Article 8.
"BENEFIT ARRANGEMENT" means at any time an employee benefit plan within
the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan
and which is maintained or otherwise contributed to by any member of the ERISA
Group.
2
<PAGE> 7
"BORROWER" means Litton Industries, Inc., a Delaware corporation, and
its successors.
"BORROWER'S 1998 FORM 10-K" means the Borrower's annual report on Form
10-K for the fiscal year ended July 31, 1998, as filed with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934.
"BORROWING" has the meaning set forth in Section 1.03.
"CD BASE RATE" has the meaning set forth in Section 2.07(b).
"CD LOAN" means a Committed Loan which bears interest at a CD Rate
pursuant to the applicable Notice of Committed Borrowing or Notice of Interest
Rate Election.
"CD MARGIN" means a rate per annum determined in accordance with the
Pricing Schedule.
"CD RATE" means a rate of interest determined pursuant to Section
2.07(b) on the basis of an Adjusted CD Rate.
"CO-DOCUMENTATION AGENT" means each of Bank of America, N.A. and The
Chase Manhattan Bank, in its capacity as a co-documentation agent in respect of
this Agreement, and "CO-DOCUMENTATION AGENTS" means all of them.
"CD REFERENCE BANKS" means Bank of America, N.A., The Chase Manhattan
Bank and Morgan Guaranty Trust Company of New York, or such other bank or banks
as the Borrower and the Administrative Agent may from time to time mutually
designate.
"CHANGE OF CONTROL" means any of the following:
(a) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "EXCHANGE ACT")) (a "PERSON") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 30% or more of either (i) the then
outstanding shares of common stock of the Borrower (the "OUTSTANDING
BORROWER COMMON STOCK") or (ii) the combined voting power of the then
outstanding voting securities of the Borrower entitled to vote
generally in the election of directors (the "OUTSTANDING BORROWER
VOTING SECURITIES"); provided, however, that for purposes of this
subsection (a), the following acquisitions of stock shall not
constitute a Change of Control: (i) any
3
<PAGE> 8
acquisition by the Borrower, (ii) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Borrower
or any corporation controlled by the Borrower or (iii) any acquisition
by any corporation pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of subsection (c) of this definition;
(b) Individuals who, as of the date hereof, constitute the
Board of Directors of the Borrower (the "INCUMBENT BOARD") cease for
any reason to constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent to the date
hereof whose election, or nomination for election by the Borrower's
shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of directors
or other actual or threatened solicitation of proxies or consents by or
on behalf of a Person other than the Board;
(c) Consummation of a reorganization, merger or consolidation
or sale or other disposition of all or substantially all of the assets
of the Borrower (a "BUSINESS COMBINATION"), in each case, unless,
following such Business Combination, (i) all or substantially all of
the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Borrower Common Stock and Outstanding
Borrower Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 60% of,
respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination
(including, without limitation, a corporation which as a result of such
transaction owns the Borrower or all or substantially all of the
Borrower's assets either directly or through one or more subsidiaries)
in substantially the same proportions as their ownership, immediately
prior to such Business Combination of the Outstanding Borrower Common
Stock and Outstanding Borrower Voting Securities, as the case may be,
(ii) no Person (excluding any employee benefit plan (or related trust)
of the Borrower or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 30% or more of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined
voting power of the then outstanding voting securities of such
corporation and (iii) at least a majority of the members of the board
of
4
<PAGE> 9
directors of the corporation resulting from such Business Combination
were members of the Incumbent Board at the time of the execution of the
initial agreement, or of the action of the Board, providing for such
Business Combination; or
(d) Approval by the shareholders of the Borrower of a complete
liquidation or dissolution of the Borrower.
"COMMITMENT" means (i) with respect to each Bank listed on the
Commitment Schedule, the amount set forth opposite such Bank's name on the
Commitment Schedule and (ii) with respect to any Assignee which becomes a Bank
pursuant to Section 9.06(c), the amount of the transferor Bank's Commitment
assigned to it pursuant to Section 9.06(c), in each case as such amount may be
changed from time to time pursuant to Section 2.09, 2.10 or 9.06(c); provided
that, if the context so requires, the term "Commitment" means the obligation of
a Bank to extend credit up to such amount to the Borrower hereunder.
"COMMITMENT SCHEDULE" means the Commitment Schedule attached
hereto.
"COMMITTED LOAN" means a loan made by a Bank pursuant to Section 2.01;
provided that, if any such loan or loans (or portions thereof) are combined or
subdivided pursuant to a Notice of Interest Rate Election, the term "Committed
Loan" shall refer to the combined principal amount resulting from such
combination or to each of the separate principal amounts resulting from such
subdivision, as the case may be.
"CONSOLIDATED EBIT" means, for any period, the sum of Consolidated Net
Income for such period plus, to the extent deducted in the determination of such
Consolidated Net Income, Consolidated Interest Expense for such period and the
provision for income taxes for such period; provided that Consolidated EBIT
shall be adjusted to exclude the effect of up to $110,000,000 in non-recurring
charges relating to divestiture/exit of non-core businesses and plant
consolidation subsequent to July 31, 1998.
"CONSOLIDATED EBITDA" means, for any period, the Consolidated Net
Income of the Borrower and its Consolidated Subsidiaries for such period before
cumulative effect of accounting changes, provision for income tax, interest
expense and depreciation and amortization expense; provided that Consolidated
EBITDA shall be adjusted to exclude the effect of up to $110,000,000 in
non-recurring charges relating to divestiture/exit of non-core businesses and
plant consolidation subsequent to July 31, 1998.
5
<PAGE> 10
"CONSOLIDATED INTEREST EXPENSE" means, for any period, the interest
expense of the Borrower and its Consolidated Subsidiaries determined on a
consolidated basis for such period.
"CONSOLIDATED NET INCOME" means, for any period, the net income of the
Borrower and its Consolidated Subsidiaries for such period, determined on a
consolidated basis.
"CONSOLIDATED NET WORTH" means at any date the shareholders' investment
in the Borrower and its Consolidated Subsidiaries determined on a consolidated
basis as of such date.
"CONSOLIDATED SUBSIDIARY" means at any date any Subsidiary or other
entity the accounts of which would be consolidated with those of the Borrower in
its consolidated financial statements if such statements were prepared as of
such date.
"D&P" means Duff & Phelps Credit Rating Co., and its successors.
"DEBT" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable and deferred employee compensation
obligations arising in the ordinary course of business, (iv) all obligations of
such Person as lessee which are capitalized in accordance with generally
accepted accounting principles, (v) all unpaid reimbursement obligations of such
Person in respect of letters of credit or similar instruments but only to the
extent that either (x) the issuer has honored a drawing thereunder or (y)
payment of such obligation is otherwise due under the terms thereof, (vi) all
Debt secured by a Lien on any asset of such Person, whether or not such Debt is
otherwise an obligation of such Person, and (vii) all Debt of others Guaranteed
by such Person.
"DEBT INCURRENCE" means an issuance by the Borrower or a Subsidiary of
long-term debt securities in the public or private capital markets or a
borrowing by the Borrower or a Subsidiary under a bank credit facility, other
than borrowings under this Agreement or other existing bank credit facilities of
the Borrower and its Subsidiaries. For purposes of this definition (i)
borrowings and repayments under a revolving credit facility shall be netted and
(ii) the issuance of commercial paper supported by a committed bank credit
facility shall be treated as a borrowing under such facility.
6
<PAGE> 11
"DEFAULT" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"DERIVATIVES OBLIGATIONS" of any Person means all obligations of such
Person in respect of any rate swap transaction, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap,
equity or equity index option, bond option, interest rate option, foreign
exchange transaction, cap transaction, floor transaction, collar transaction,
currency swap transaction, cross-currency rate swap transaction, currency option
or any other similar transaction (including any option with respect to any of
the foregoing transactions) or any combination of the foregoing transactions.
"DESIGNATED LENDER" means, with respect to any Designating Bank, an
Eligible Designee designated by it pursuant to Section 9.07(a) as a Designated
Lender for purposes of this Agreement.
"DESIGNATING BANK" means, with respect to each Designated Lender, the
Bank that designated such Designated Lender pursuant to Section 9.07(a).
"DIVIDEND PAYMENT" means (i) any dividend or other distribution on any
shares of the Borrower's capital stock or (ii) any payment on account of the
purchase, redemption, retirement or acquisition of (a) any shares of the
Borrower's capital stock or (b) any option, warrant or other right to acquire
shares of the Borrower's capital stock.
"DOMESTIC BUSINESS DAY" means any day except a Saturday, Sunday or
other day on which commercial banks in New York City are authorized or required
by law to close.
"DOMESTIC LENDING OFFICE" means, as to each Bank, its office located at
its address set forth in its Administrative Questionnaire (or identified in its
Administrative Questionnaire as its Domestic Lending Office) or such other
office as such Bank may hereafter designate as its Domestic Lending Office by
notice to the Borrower and the Administrative Agent; provided that any Bank may
so designate separate Domestic Lending Offices for its Base Rate Loans, on the
one hand, and its CD Loans, on the other hand, in which case all references
herein to the Domestic Lending Office of such Bank shall be deemed to refer to
either or both of such offices, as the context may require.
"DOMESTIC LOANS" means CD Loans or Base Rate Loans or both.
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"DOMESTIC RESERVE PERCENTAGE" has the meaning set forth in Section
2.07(b).
"EFFECTIVE DATE" means the date this Agreement becomes effective in
accordance with Section 3.01.
"ELIGIBLE DESIGNEE" means a special purpose corporation that (i) is
organized under the laws of the United States or any state thereof, (ii) is
engaged in making, purchasing or otherwise investing in commercial loans in the
ordinary course of its business and (iii) issues (or the parent of which issues)
commercial paper rated at least A-1 or the equivalent thereof by S&P or P-1 or
the equivalent thereof by Moody's.
"ENVIRONMENTAL LAWS" means any and all federal, state, local and
foreign statutes, laws, judicial decisions, regulations, ordinances, rules,
judgments, orders, decrees, plans, injunctions, permits, concessions, grants,
franchises, licenses, agreements and other governmental restrictions relating to
the environment, the effect of the environment on human health or to emissions,
discharges or releases of pollutants, contaminants, Hazardous Substances or
wastes into the environment including, without limitation, ambient air, surface
water, ground water, or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, Hazardous Substances or wastes or the
clean-up or other remediation thereof.
"EQUITY ISSUANCE" means the issuance of any equity securities
(including, common or preferred stock and so-called equity equivalent
securities) by the Borrower or any of its Subsidiaries (other than equity
securities issued (i) to the Borrower or any of its Subsidiaries or (ii) in the
ordinary course of business pursuant to executive compensation or employee
benefit plans).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"ERISA GROUP" means the Borrower, any Subsidiary and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the Borrower or any
Subsidiary, are treated as a single employer under Section 414 of the Internal
Revenue Code.
"EURO-DOLLAR BUSINESS DAY" means any Domestic Business Day on which
commercial banks are open for international business (including dealings in
dollar deposits) in London.
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<PAGE> 13
"EURO-DOLLAR LENDING OFFICE" means, as to each Bank, its office, branch
or affiliate located at its address set forth in its Administrative
Questionnaire (or identified in its Administrative Questionnaire as its
Euro-Dollar Lending Office) or such other office, branch or affiliate of such
Bank as it may hereafter designate as its Euro-Dollar Lending Office by notice
to the Borrower and the Administrative Agent.
"EURO-DOLLAR LOAN" means a Committed Loan which bears interest at a
Euro-Dollar Rate pursuant to the applicable Notice of Committed Borrowing or
Notice of Interest Rate Election.
"EURO-DOLLAR MARGIN" means a rate per annum determined in accordance
with the Pricing Schedule.
"EURO-DOLLAR RATE" means a rate of interest determined pursuant to
Section 2.07(c) on the basis of a London Interbank Offered Rate.
"EURO-DOLLAR REFERENCE BANKS" means the principal London offices of
Bank of America, N.A., The Chase Manhattan Bank and Morgan Guaranty Trust
Company of New York, or such other bank or banks as the Borrower and the
Administrative Agent may from time to time mutually designate.
"EURO-DOLLAR RESERVE PERCENTAGE" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of "EUROCURRENCY LIABILITIES" (or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate on
Euro-Dollar Loans is determined or any category of extensions of credit or other
assets which includes loans by a non-United States office of any Bank to United
States residents).
"EVENT OF DEFAULT" has the meaning set forth in Section 6.01.
"FEDERAL FUNDS RATE" means, for any day (the "ACCRUAL DATE"), the rate
per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) equal to
the weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on the
accrual date, as published by the Federal Reserve Bank of New York on the
Domestic Business Day next succeeding such day, provided that (i) if the accrual
date is not a Domestic Business Day, the Federal Funds Rate for the accrual date
shall be such rate on such transactions on the next preceding Domestic Business
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<PAGE> 14
Day as so published on the next succeeding Domestic Business Day, and (ii) if no
such rate is so published on such next succeeding Domestic Business Day, the
Federal Funds Rate for the accrual date shall be the average rate quoted to
Morgan Guaranty Trust Company of New York on the accrual date (or next preceding
Domestic Business Day) on such transactions as determined by the Administrative
Agent.
"FIXED RATE LOANS" means CD Loans or Euro-Dollar Loans or Money Market
Loans (excluding Money Market LIBOR Loans bearing interest at the Base Rate
pursuant to Section 8.01(a)) or any combination of the foregoing.
"GROUP OF LOANS" means, at any time, a group of Loans consisting of (i)
all Committed Loans which are Base Rate Loans at such time, (ii) all Euro-Dollar
Loans having the same Interest Period at such time or (iii) all CD Loans having
the same Interest Period at such time, provided that, if a Committed Loan of any
particular Bank is converted to or made as a Base Rate Loan pursuant to Article
8, such Loan shall be included in the same Group or Groups of Loans from time to
time as it would have been in if it had not been so converted or made.
"GUARANTEE" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt (whether arising by virtue of partnership arrangements, by agreement to
keep-well, to purchase assets, goods, securities or services, to take-or-pay, or
to maintain financial statement conditions or otherwise) or (ii) entered into
for the purpose of assuring in any other manner the holder of such Debt of the
payment thereof or to protect such holder against loss in respect thereof (in
whole or in part), provided that the term Guarantee shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "GUARANTEE" used as a verb has a corresponding meaning.
"HAZARDOUS SUBSTANCES" means any toxic, radioactive, caustic or
otherwise hazardous substance, including petroleum, its derivatives, by-products
and other hydrocarbons, or any substance having any constituent elements
displaying any of the foregoing characteristics.
"INDEMNITEE" has the meaning set forth in Section 9.03(b).
"INTEREST COVERAGE RATIO" means, for any period, the ratio of
Consolidated EBIT for such period to Consolidated Interest Expense for such
period.
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<PAGE> 15
"INTEREST PERIOD" means:
(1) with respect to each Euro-Dollar Loan, the period commencing on the
date of borrowing specified in the applicable Notice of Borrowing or on the date
specified in an applicable Notice of Interest Rate Election and ending one, two,
three or six months thereafter, as the Borrower may elect in the applicable
Notice of Borrowing; provided that:
(a) any Interest Period which would otherwise end on a day
which is not a Euro-Dollar Business Day shall be extended to the next
succeeding Euro-Dollar Business Day unless such Euro-Dollar Business
Day falls in another calendar month, in which case such Interest Period
shall end on the next preceding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall, subject to clause (c) below, end on the last
Euro-Dollar Business Day of a calendar month; and
(c) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date;
(2) with respect to each CD Loan, the period commencing on the date of
borrowing specified in the applicable Notice of Borrowing or on the date
specified in an applicable Notice of Interest Rate Election and ending 30, 60,
90 or 180 days thereafter, as the Borrower may elect in the applicable Notice of
Borrowing; provided that:
(a) any Interest Period (other than an Interest Period
determined pursuant to clause (b) below) which would otherwise end on a
day which is not a Euro-Dollar Business Day shall be extended to the
next succeeding Euro-Dollar Business Day; and
(b) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date;
(3) with respect to each Money Market LIBOR Borrowing, the period
commencing on the date of such Borrowing and ending such whole number of months
thereafter as the Borrower may elect in accordance with Section 2.03; provided
that:
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<PAGE> 16
(a) any Interest Period which would otherwise end on a day
which is not a Euro-Dollar Business Day shall be extended to the next
succeeding Euro-Dollar Business Day unless such Euro-Dollar Business
Day falls in another calendar month, in which case such Interest Period
shall end on the next preceding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall, subject to clause (c) below, end on the last
Euro-Dollar Business Day of a calendar month; and
(c) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date;
(4) with respect to each Money Market Absolute Rate Borrowing, the
period commencing on the date of such Borrowing and ending such number of days
thereafter (but not less than 14 days) as the Borrower may elect in accordance
with Section 2.03; provided that:
(a) any Interest Period which would otherwise end on a day
which is not a Euro-Dollar Business Day shall be extended to the next
succeeding Euro-Dollar Business Day; and
(b) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as
amended, or any successor statute.
"LEVERAGE RATIO" means, at any date, the ratio of Total Borrowed Funds
at such date to Consolidated EBITDA for the period of four consecutive fiscal
quarters most recently ended on or prior to such date; provided that if there
shall have been an acquisition or disposition of operations during such period,
Consolidated EBITDA shall be calculated on a pro forma basis giving effect
thereto as if such acquisition or disposition had occurred on the first day of
such period.
"LIBOR AUCTION" means a solicitation of Money Market Quotes setting
forth Money Market Margins based on the London Interbank Offered Rate pursuant
to Section 2.03.
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<PAGE> 17
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For the purposes of this Agreement, the Borrower or any Subsidiary shall be
deemed to own subject to a Lien any asset which it has acquired or holds subject
to the interest of a vendor or lessor under any conditional sale agreement,
capital lease or other title retention agreement relating to such asset.
"LOAN" means a Committed Loan or a Money Market Loan and "LOANS" means
Committed Loans or Money Market Loans or any combination of the foregoing.
"LONDON INTERBANK OFFERED RATE" has the meaning set forth in Section
2.07(c).
"MATERIAL DEBT" means Debt (other than the Notes) of the Borrower
and/or one or more of its Subsidiaries, arising in one or more related or
unrelated transactions, in an aggregate principal amount exceeding $25,000,000.
"MATERIAL FINANCIAL OBLIGATIONS" means a principal amount of Debt
and/or payment obligations in respect of Derivatives Obligations of the Borrower
and/or one or more of its Subsidiaries, arising in one or more related or
unrelated transactions, exceeding in the aggregate $25,000,000.
"MATERIAL PLAN" means at any time a Plan or Plans having aggregate
Unfunded Liabilities in excess of $10,000,000.
"MATERIAL SUBSIDIARY" means a Subsidiary, including its Subsidiaries,
which meets any of the following conditions:
(1) the Borrower's and its other Subsidiaries' investments in
and advances to the Subsidiary exceed 5 percent of the total assets of
the Borrower and its Subsidiaries consolidated as of the end of the
most recently completed fiscal year; or
(2) the Borrower's and its other Subsidiaries' proportionate
share of the total assets (after intercompany eliminations) of the
Subsidiary exceeds 5 percent of the total assets of the Borrower and
its Subsidiaries consolidated as of the end of the most recently
completed fiscal year; or
(3) the Borrower's and its other Subsidiaries' equity in the
income from continuing operations before income taxes, extraordinary
items and cumulative effect of a change in accounting principle of the
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<PAGE> 18
Subsidiary exceeds 5 percent of such income of the Borrower and its
Subsidiaries consolidated for the most recently completed fiscal year.
Computational note: For purposes of making the prescribed income test
the following guidance should be applied:
1. When a loss has been incurred by either the Borrower and
its Subsidiaries consolidated or the tested Subsidiary, but not both,
the equity in the income or loss of the tested Subsidiary should be
excluded from the income of the Borrower and its Subsidiaries
consolidated for purposes of the computation.
2. If income of the Borrower and its Subsidiaries consolidated
for the most recent fiscal year is at least 5 percent lower than the
average of the income for the last five fiscal years, such average
income should be substituted for purposes of the computation. Any loss
years should be omitted for purposes of computing average income.
"MINIMUM COMPLIANCE LEVEL" means, at any date, an amount equal to the
sum of (i) $925,000,000 plus (ii) for each fiscal quarter of the Borrower
commencing after October 31, 1998 and on or prior to such date for which
Consolidated Net Income is a positive number, an amount equal to 50% of
Consolidated Net Income for such fiscal quarter plus (iii) for each issuance
and/or sale subsequent to October 31, 1998 and on or prior to such date by the
Borrower of shares of its capital stock, an amount equal to 100% of the amount
by which Consolidated Net Worth is increased on account of such transaction.
"MONEY MARKET ABSOLUTE RATE" has the meaning set forth in Section
2.03(d).
"MONEY MARKET ABSOLUTE RATE LOAN" means a loan to be made by a Bank
pursuant to an Absolute Rate Auction.
"MONEY MARKET LENDING OFFICE" means, as to each Bank, its Domestic
Lending Office or such other office, branch or affiliate of such Bank as it may
hereafter designate as its Money Market Lending Office by notice to the Borrower
and the Administrative Agent; provided that any Bank may from time to time by
notice to the Borrower and the Administrative Agent designate separate Money
Market Lending Offices for its Money Market LIBOR Loans, on the one hand, and
its Money Market Absolute Rate Loans, on the other hand, in which case all
references herein to the Money Market Lending Office of such Bank shall be
deemed to refer to either or both of such offices, as the context may require.
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"MONEY MARKET LIBOR LOAN" means a loan to be made by a Bank pursuant to
a LIBOR Auction (including such a loan bearing interest at the Base Rate
pursuant to Section 8.01(a)).
"MONEY MARKET LOAN" means a Money Market LIBOR Loan or a Money
Market Absolute Rate Loan.
"MONEY MARKET MARGIN" has the meaning set forth in Section 2.03(d).
"MONEY MARKET QUOTE" means an offer by a Bank to make a Money Market
Loan in accordance with Section 2.03.
"MOODY'S" means Moody's Investors Service, Inc., and its successors.
"MULTIEMPLOYER PLAN" means at any time an employee pension benefit plan
within the meaning of Section 4001(a)(3) of ERISA to which any member of the
ERISA Group is then making or accruing an obligation to make contributions in an
amount exceeding $1,000,000 per annum or has within the preceding five plan
years made such contributions, including for these purposes any Person which
ceased to be a member of the ERISA Group during such five year period.
"NET CASH PROCEEDS" means, with respect to any Asset Sale (determined
for the purpose of this definition without regard to clause (iii) of the
definition thereof), Debt Incurrence or Equity Issuance, an amount equal to the
cash proceeds received by the Borrower and/or its Subsidiaries from or in
respect of such event (including any cash proceeds received as income or other
proceeds of any noncash proceeds of any Asset Sale), less (x) any expenses
reasonably incurred by such Person in respect of such event and (y) in the case
of any Asset Sale, (i) the amount of any Debt secured by a Lien on any asset
disposed of in such Asset Sale and discharged from the proceeds thereof, (ii)
any taxes actually paid or to be payable by such Person (as reasonably estimated
by a senior financial or accounting officer of the Borrower, giving effect to
the overall tax position of the Borrower and its Subsidiaries) in respect of
such Asset Sale and (iii) any holdback or reserve for indemnities or purchase
price adjustments (as reasonably estimated by a senior financial officer of the
Borrower) reasonably likely to be paid within the next 180 days after the
closing thereof, provided that to the extent that such holdback or reserve is
not actually so used, or a claim for such use not made, before the end of such
180 day period, such amount shall be deemed to be Net Cash Proceeds on such
180th day.
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"NOTES" means promissory notes of the Borrower, substantially in the
form of Exhibit A hereto, evidencing the obligation of the Borrower to repay the
Loans, and "NOTE" means any one of such promissory notes issued hereunder.
"NOTICE OF BORROWING" means a Notice of Committed Borrowing (as defined
in Section 2.02) or a Notice of Money Market Borrowing (as defined in Section
2.03(f)).
"NOTICE OF INTEREST RATE ELECTION" has the meaning set forth in Section
2.16.
"PARENT" means, with respect to any Bank, any Person controlling such
Bank.
"PARTICIPANT" has the meaning set forth in Section 9.06(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"PERSON" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.
"PLAN" means at any time an employee pension benefit plan (other than a
Multiemployer Plan) which is covered by Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the Internal Revenue Code and
either (i) is maintained, or contributed to, by any member of the ERISA Group
for employees of any member of the ERISA Group or (ii) has at any time within
the preceding five years been maintained, or contributed to, by any Person which
was at such time a member of the ERISA Group for employees of any Person which
was at such time a member of the ERISA Group.
"PRICING SCHEDULE" means the Schedule attached hereto identified as
such.
"PRIME RATE" means the rate of interest publicly announced by Morgan
Guaranty Trust Company of New York in New York City from time to time as its
Prime Rate.
"QUARTERLY PAYMENT DATES" means each March 31, June 30, September 30
and December 31.
"RATING AGENCIES" means D&P, Moody's and S&P.
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<PAGE> 21
"REDUCTION EVENT" means (i) any Asset Sale, to the extent the Net Cash
Proceeds of such Asset Sale exceed $100,000,000, (ii) any Debt Incurrence or
(iii) any Equity Issuance.
"REFERENCE BANKS" means the CD Reference Banks or the Euro-Dollar
Reference Banks, as the context may require, and "REFERENCE BANK" means any one
of such Reference Banks.
"REGULATION T, U OR X" means Regulation T, U or X of the Board of
Governors of the Federal Reserve System, as in effect from time to time.
"REQUIRED BANKS" means at any time Banks having at least 55% of the
aggregate amount of the Commitments or, if the Commitments shall have been
terminated, holding at least 55% of the aggregate unpaid principal amount of the
Loans.
"REVOLVING CREDIT PERIOD" means the period from and including the
Effective Date to but not including the Termination Date.
"S&P" means Standard & Poor's Ratings Group, and its successors.
"SUBSIDIARY" means any corporation or other entity of which securities
or other ownership interests having ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions are at the
time directly or indirectly owned by the Borrower (or, if such term is used with
reference to another Person, by such other Person).
"TERMINATION DATE" means March 23, 2000 or, if such day is not a
Euro-Dollar Business Day, the next preceding Euro-Dollar Business Day.
"TOTAL BORROWED FUNDS" means, at any date, the Debt of the Borrower and
its Consolidated Subsidiaries determined on a consolidated basis as of such
date.
"UNFUNDED LIABILITIES" means, with respect to any Plan at any time, the
amount (if any) by which (i) the value of all benefit liabilities under such
Plan, determined on a plan termination basis using the assumptions prescribed by
the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair market
value of all Plan assets allocable to such liabilities under Title IV of ERISA
(excluding any accrued but unpaid contributions), all determined as of the then
most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the ERISA Group to the
PBGC or any other Person under Title IV of ERISA.
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<PAGE> 22
"UNITED STATES" means the United States of America, including the
States and the District of Columbia, but excluding its territories and
possessions.
"WHOLLY-OWNED CONSOLIDATED SUBSIDIARY" means any Consolidated
Subsidiary all of the shares of capital stock or other ownership interests of
which (except directors' qualifying shares) are at the time directly or
indirectly owned by the Borrower.
SECTION 1.02. Accounting Terms and Determinations. Accounting Terms and
Determinations. Unless otherwise specified herein, all accounting terms used
herein shall be interpreted, all accounting determinations hereunder shall be
made, and all financial statements required to be delivered hereunder shall be
prepared in accordance with generally accepted accounting principles as in
effect from time to time, applied on a basis consistent (except for changes
concurred in by the Borrower's independent public accountants) with the most
recent audited consolidated financial statements of the Borrower and its
Consolidated Subsidiaries delivered to the Banks; provided that, if the Borrower
notifies the Administrative Agent that the Borrower wishes to amend any covenant
in Article 5 to eliminate the effect of any change in generally accepted
accounting principles on the operation of such covenant (or if the
Administrative Agent notifies the Borrower that the Required Banks wish to amend
Article 5 for such purpose), then the Borrower's compliance with such covenant
shall be determined on the basis of generally accepted accounting principles in
effect immediately before the relevant change in generally accepted accounting
principles became effective, until either such notice is withdrawn or such
covenant is amended in a manner satisfactory to the Borrower and the Required
Banks.
SECTION 1.03. Types of Borrowings. The term "BORROWING" denotes the
aggregation of Loans of one or more Banks to be made to the Borrower pursuant to
Article 2 on a single date and for a single initial Interest Period. Borrowings
are classified for purposes of this Agreement either by reference to the pricing
of Loans comprising such Borrowing (e.g., a "BASE RATE BORROWING" is a Borrowing
comprised of Base Rate Loans and a "EURO-DOLLAR BORROWING" is a Borrowing
comprised of Euro-Dollar Loans) or by reference to the provisions of Article 2
under which participation therein is determined (i.e., a "COMMITTED BORROWING"
is a Borrowing under Section 2.01 in which all Banks participate in proportion
to their Commitments, while a "MONEY MARKET BORROWING" is a Borrowing under
Section 2.03 in which the Bank participants are determined on the basis of their
bids in accordance therewith).
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<PAGE> 23
ARTICLE 2
THE CREDITS
SECTION 2.01. Commitments to Lend. During the Revolving Credit Period
each Bank severally agrees, on the terms and conditions set forth in this
Agreement, to make loans to the Borrower pursuant to this Section from time to
time in amounts such that the aggregate principal amount of Committed Loans by
such Bank at any one time outstanding shall not exceed the amount of its
Commitment. Each Borrowing under this Section shall be in an aggregate principal
amount of $15,000,000 or any larger multiple of $1,000,000 (except that any such
Borrowing may be in the aggregate amount available in accordance with Section
3.02(b)) and shall be made from the several Banks ratably in proportion to their
respective Commitments. Within the foregoing limits, the Borrower may borrow
under this Section, repay, or to the extent permitted by Section 2.11, prepay
Loans and reborrow at any time during the Revolving Credit Period under this
Section 2.01.
SECTION 2.02. Notice of Committed Borrowings. The Borrower shall give
the Administrative Agent notice (a "NOTICE OF COMMITTED BORROWING") not later
than 10:30 A.M. (New York City time) on (x) the date of each Base Rate
Borrowing, (y) the second Domestic Business Day before each CD Borrowing and (z)
the third Euro-Dollar Business Day before each Euro-Dollar Borrowing,
specifying:
(a) the date of such Borrowing, which shall be a Domestic
Business Day in the case of a Domestic Borrowing or a Euro-Dollar
Business Day in the case of a Euro-Dollar Borrowing,
(b) the aggregate amount of such Borrowing,
(c) whether the Loans comprising such Borrowing are to bear
interest initially at the Base Rate, a CD Rate or a Euro-Dollar Rate;
and
(d) in the case of a Fixed Rate Borrowing, the duration of the
initial Interest Period applicable thereto, subject to the provisions
of the definition of Interest Period.
SECTION 2.03. Money Market Borrowings. (a) The Money Market Option.
In addition to Committed Borrowings pursuant to Section 2.01, the Borrower
may, as set forth in this Section, request the Banks during the Revolving Credit
Period to make offers to make Money Market Loans to the Borrower. The Banks
may, but shall have no obligation to, make such offers and the Borrower may, but
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<PAGE> 24
shall have no obligation to, accept any such offers in the manner set forth in
this Section.
(b) Money Market Quote Request. When the Borrower wishes to request
offers to make Money Market Loans under this Section, it shall transmit to the
Administrative Agent by telex or facsimile transmission a Money Market Quote
Request substantially in the form of Exhibit B hereto so as to be received no
later than 10:30 A.M. (New York City time) on (x) the fifth Euro-Dollar Business
Day prior to the date of Borrowing proposed therein, in the case of a LIBOR
Auction or (y) the Domestic Business Day next preceding the date of Borrowing
proposed therein, in the case of an Absolute Rate Auction (or, in either case,
such other time or date as the Borrower and the Administrative Agent shall have
mutually agreed and shall have notified to the Banks not later than the date of
the Money Market Quote Request for the first LIBOR Auction or Absolute Rate
Auction for which such change is to be effective) specifying:
(i) the proposed date of Borrowing, which shall be a
Euro-Dollar Business Day in the case of a LIBOR Auction or a Domestic
Business Day in the case of an Absolute Rate Auction,
(ii) the aggregate amount of such Borrowing, which shall be
$15,000,000 or a larger multiple of $1,000,000,
(iii) the duration of the Interest Period applicable thereto,
subject to the provisions of the definition of Interest Period, and
(iv) whether the Money Market Quotes requested are to set
forth a Money Market Margin or a Money Market Absolute Rate.
The Borrower may request offers to make Money Market Loans for more than one
Interest Period in a single Money Market Quote Request. No Money Market Quote
Request shall be given within five Euro-Dollar Business Days (or such other
number of days as the Borrower and the Administrative Agent may agree) of any
other Money Market Quote Request.
(c) Invitation for Money Market Quotes. Promptly upon receipt of a
Money Market Quote Request, the Administrative Agent shall send to the Banks by
telex or facsimile transmission an Invitation for Money Market Quotes
substantially in the form of Exhibit C hereto, which shall constitute an
invitation by the Borrower to each Bank to submit Money Market Quotes offering
to make the Money Market Loans to which such Money Market Quote Request relates
in accordance with this Section.
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(d) Submission and Contents of Money Market Quotes.
(i) Each Bank may submit a Money Market Quote containing an
offer or offers to make Money Market Loans in response to any
Invitation for Money Market Quotes. Each Money Market Quote must comply
with the requirements of this subsection 2.03(d)(i) and must be
submitted to the Administrative Agent by telex or facsimile
transmission at its offices specified in or pursuant to Section 9.01
not later than (x) 2:00 P.M. (New York City time) on the fourth
Euro-Dollar Business Day prior to the proposed date of Borrowing, in
the case of a LIBOR Auction or (y) 9:30 A.M. (New York City time) on
the proposed date of Borrowing, in the case of an Absolute Rate Auction
(or, in either case, such other time or date as the Borrower and the
Administrative Agent shall have mutually agreed and shall have notified
to the Banks not later than the date of the Money Market Quote Request
for the first LIBOR Auction or Absolute Rate Auction for which such
change is to be effective); provided that Money Market Quotes submitted
by the Administrative Agent (or any affiliate of the Administrative
Agent) in the capacity of a Bank may be submitted, and may only be
submitted, if the Administrative Agent or such affiliate notifies the
Borrower of the terms of the offer or offers contained therein not
later than (x) 1:00 P.M. (New York City time) on the fourth Euro-Dollar
Business Day prior to the proposed date of Borrowing, in the case of a
LIBOR Auction or (y) 9:15 A.M. (New York City time) on the proposed
date of Borrowing, in the case of an Absolute Rate Auction. Subject to
Articles 3 and 4, any Money Market Quote so made shall be irrevocable
except with the written consent of the Administrative Agent given on
the instructions of the Borrower.
(ii) Each Money Market Quote shall be in substantially the
form of Exhibit D hereto and shall in any case specify:
(A) the proposed date of Borrowing,
(B) the principal amount of the Money Market Loan for
which each such offer is being made, which principal amount
(w) may be greater than or less than the Commitment of the
quoting Bank, (x) must be $5,000,000 or a larger multiple of
$1,000,000, (y) may not exceed the principal amount of Money
Market Loans for which offers were requested and (z) may be
subject to an aggregate limitation as to the principal amount
of Money Market Loans for which offers being made by such
quoting Bank may be accepted,
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(C) in the case of a LIBOR Auction, the margin above
or below the applicable London Interbank Offered Rate (the
"MONEY MARKET MARGIN") offered for each such Money Market
Loan, expressed as a percentage (specified to the nearest
1/10,000th of 1%) to be added to or subtracted from such base
rate,
(D) in the case of an Absolute Rate Auction, the rate
of interest per annum (specified to the nearest 1/10,000th of
1%) (the "MONEY MARKET ABSOLUTE RATE") offered for each such
Money Market Loan, and
(E) the identity of the quoting Bank.
A Money Market Quote may set forth up to five separate offers by the
quoting Bank with respect to each Interest Period specified in the
related Invitation for Money Market Quotes.
(iii) Any Money Market Quote shall be disregarded if it:
(A) is not substantially in conformity with Exhibit D
hereto or does not specify all of the information required by
subsection (d)(ii);
(B) contains qualifying, conditional or similar
language (other than the limitation set forth in clause
(ii)(B)(z) above);
(C) proposes terms other than or in addition to those
set forth in the applicable Invitation for Money Market
Quotes; or
(D) arrives after the time set forth in subsection
(d)(i).
(e) Notice to Borrower. The Administrative Agent shall
promptly notify the Borrower of the terms (x) of any Money Market Quote
submitted by a Bank that is in accordance with subsection (d) and (y)
of any Money Market Quote that amends, modifies or is otherwise
inconsistent with a previous Money Market Quote submitted by such Bank
with respect to the same Money Market Quote Request. Any such
subsequent Money Market Quote shall be disregarded by the
Administrative Agent unless such subsequent Money Market Quote is
submitted solely to correct a manifest error in such former Money
Market Quote. The Administrative Agent's notice to the Borrower shall
specify (A) the aggregate principal amount of Money Market Loans for
which offers have been received for each Interest Period specified in
the related Money Market Quote Request, (B) the respective principal
amounts and Money Market Margins or Money Market
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Absolute Rates, as the case may be, so offered and (C) if applicable,
limitations on the aggregate principal amount of Money Market Loans for which
offers in any single Money Market Quote may be accepted.
(f) Acceptance and Notice by Borrower. Not later than 10:30
A.M. (New York City time) on (x) the third Euro-Dollar Business Day
prior to the proposed date of Borrowing, in the case of a LIBOR Auction
or (y) the proposed date of Borrowing, in the case of an Absolute Rate
Auction (or, in either case, such other time or date as the Borrower
and the Administrative Agent shall have mutually agreed and shall have
notified to the Banks not later than the date of the Money Market Quote
Request for the first LIBOR Auction or Absolute Rate Auction for which
such change is to be effective), the Borrower shall notify the
Administrative Agent of its acceptance or non-acceptance of the offers
so notified to it pursuant to subsection (e). In the case of
acceptance, such notice (a "NOTICE OF MONEY MARKET BORROWING") shall
specify the aggregate principal amount of offers for each Interest
Period that are accepted. The Borrower may accept any Money Market
Quote in whole or in part; provided that:
(i) the aggregate principal amount of each Money
Market Borrowing may not exceed the applicable amount set
forth in the related Money Market Quote Request,
(ii) the principal amount of each Money Market
Borrowing must be $15,000,000 or a larger multiple of
$1,000,000,
(iii) acceptance of offers may only be made on the
basis of ascending Money Market Margins or Money Market
Absolute Rates, as the case may be, and
(iv) the Borrower may not accept any offer that is
described in subsection (d)(iii) or that otherwise fails to
comply with the requirements of this Agreement.
(g) Allocation by Administrative Agent. If offers are made by
two or more Banks with the same Money Market Margins or Money Market
Absolute Rates, as the case may be, for a greater aggregate principal
amount than the amount in respect of which such offers are accepted for
the related Interest Period, the principal amount of Money Market Loans
in respect of which such offers are accepted shall be allocated by the
Administrative Agent among such Banks as nearly as possible (in
multiples of $1,000,000, as the Administrative Agent may deem
appropriate) in proportion to the aggregate principal amounts of such
offers. Determinations by the Administrative Agent of the amounts of
Money Market Loans shall be conclusive in the absence of manifest
error.
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SECTION 2.04. Notice to Banks; Funding of Loans. (a) Upon receipt of a
Notice of Borrowing, the Administrative Agent shall promptly notify each Bank of
the contents thereof and of such Bank's share (if any) of such Borrowing and
such Notice of Borrowing shall not thereafter be revocable by the Borrower.
(b) Not later than 12:00 Noon (New York City time) on the date of each
Borrowing, each Bank participating therein shall make available its share of
such Borrowing, in Federal or other funds immediately available in New York
City, to the Administrative Agent at its address referred to in Section 9.01.
Unless the Administrative Agent determines that any applicable condition
specified in Article 3 has not been satisfied, the Administrative Agent will
make the funds so received from the Banks available to the Borrower at the
Administrative Agent's aforesaid address.
(c) Unless the Administrative Agent shall have received notice from a
Bank prior to the date of any Borrowing that such Bank will not make available
to the Administrative Agent such Bank's share of such Borrowing, the
Administrative Agent may assume that such Bank has made such share available to
the Administrative Agent on the date of such Borrowing in accordance with
subsection (b) of this Section 2.04 and the Administrative Agent may, in
reliance upon such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent that such Bank shall not have so made
such share available to the Administrative Agent, such Bank and, if such Bank
shall fail to do so within one Domestic Business Day, the Borrower severally
agree to repay to the Administrative Agent forthwith on demand such
corresponding amount together with interest thereon, for each day from the date
such amount is made available to the Borrower until the date such amount is
repaid to the Administrative Agent, at the Federal Funds Rate. If such Bank
shall repay to the Administrative Agent such corresponding amount, such amount
so repaid shall constitute such Bank's Loan included in such Borrowing for
purposes of this Agreement.
SECTION 2.05. Registry; Notes. (a) The Administrative Agent shall
maintain a register (the "REGISTER") on which it will record the Commitment of
each Bank, each Loan made by such Bank and each repayment of any Loan made by
such Bank. Any such recordation by the Administrative Agent on the Register
shall be presumptively correct, absent manifest error. Failure to make any such
recordation, or any error in such recordation, shall not affect the Borrower's
obligations hereunder.
(b) The Borrower hereby agrees that, promptly upon the request of any
Bank at any time, the Borrower shall deliver to such Bank a duly executed Note,
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<PAGE> 29
in substantially the form of Exhibit A hereto, payable to the order of such Bank
and representing the obligation of the Borrower to pay the unpaid principal
amount of the Loans made by such Bank, with interest as provided herein on the
unpaid principal amount from time to time outstanding.
(c) Each Bank shall record the date, amount and maturity of each Loan
made by it and the date and amount of each payment of principal made by the
Borrower with respect thereto, and each Bank receiving a Note pursuant to this
Section, if such Bank so elects in connection with any transfer or enforcement
of any Note, may endorse on the schedule forming a part thereof appropriate
notations to evidence the foregoing information with respect to each such Loan
then outstanding; provided that the failure of such Bank to make any such
recordation or endorsement shall not affect the obligations of the Borrower
hereunder or under the Notes. Such Bank is hereby irrevocably authorized by the
Borrower so to endorse any Note and to attach to and make a part of any Note a
continuation of any such schedule as and when required.
(d) Each Bank may, by notice to the Borrower and the Administrative
Agent, request that its Loans of a particular type be evidenced by a separate
Note in an amount equal to the aggregate unpaid principal amount of such Loans.
Each such Note shall contain appropriate modifications to reflect the fact that
it evidences solely Loans of the relevant type. Each reference in this Agreement
to the "Note" of such Bank shall be deemed to refer to and include any or all of
such Notes, as the context may require.
SECTION 2.06. Maturity of Loans. (a) Each Committed Loan shall mature,
and the principal amount thereof shall be due and payable (together with
interest accrued thereon), on the Termination Date.
(b) Each Money Market Loan included in any Money Market Borrowing
shall mature, and the principal amount thereof shall be due and payable
(together with interest accrued thereon), on the last day of the Interest Period
applicable to such Borrowing.
SECTION 2.07. Interest Rates. (a) Each Base Rate Loan shall bear
interest on the outstanding principal amount thereof, for each day from the date
such Loan is made until it becomes due, at a rate per annum equal to the Base
Rate for such day. Such interest shall be payable quarterly in arrears on each
Quarterly Payment Date and at maturity. Any overdue principal of or interest on
any Base Rate Loan shall bear interest, payable on demand, for each day until
paid at a rate per annum equal to the sum of 2% plus the rate otherwise
applicable to Base Rate Loans for such day.
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(b) Each CD Loan shall bear interest on the outstanding principal
amount thereof, for each day during each Interest Period applicable thereto, at
a rate per annum equal to the sum of the CD Margin for such day plus the
Adjusted CD Rate applicable to such Interest Period; provided that if any CD
Loan shall, as a result of clause (2)(b) of the definition of Interest Period,
have an Interest Period of less than 30 days, such CD Loan shall bear interest
during such Interest Period at the rate applicable to Base Rate Loans during
such period. Such interest shall be payable for each Interest Period on the last
day thereof and, if such Interest Period is longer than 90 days, at intervals of
90 days after the first day thereof. Any overdue principal of or interest on any
CD Loan shall bear interest, payable on demand, for each day until paid at a
rate per annum equal to the sum of 2% plus the higher of (i) the sum of the CD
Margin for such day plus the Adjusted CD Rate applicable to such Loan on the day
before such payment was due and (ii) the rate applicable to Base Rate Loans for
such day.
The "ADJUSTED CD RATE" applicable to any Interest Period means a rate
per annum determined pursuant to the following formula:
CDBR
ACDR = [ --------------------------]* + AR
1.00 - DRP
ACDR = Adjusted CD Rate
CDBR = CD Base Rate
DRP = Domestic Reserve Percentage
AR = Assessment Rate
The "CD BASE RATE" applicable to any Interest Period is the rate of
interest determined by the Administrative Agent to be the average (rounded
upward, if necessary, to the next higher 1/100 of 1%) of the prevailing rates
per annum bid at 10:00 A.M. (New York City time) (or as soon thereafter as
practicable) on the first day of such Interest Period by two or more New York
certificate of deposit dealers of recognized standing for the purchase at face
value from each CD Reference Bank of its certificates of deposit in an amount
comparable to the principal amount of the CD Loan of such CD Reference Bank to
which such Interest Period applies and having a maturity comparable to such
Interest Period.
"DOMESTIC RESERVE PERCENTAGE" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
- --------
*The amount in brackets being rounded upward, if necessary, to the next
higher 1/100 of 1%
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Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement (including without limitation any
basic, supplemental or emergency reserves) for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of new non-personal time deposits in dollars in New York City having a
maturity comparable to the related Interest Period and in an amount of $100,000
or more. The Adjusted CD Rate shall be adjusted automatically on and as of the
effective date of any change in the Domestic Reserve Percentage.
"ASSESSMENT RATE" means for any day the annual assessment rate in
effect on such day which is payable by a member of the Bank Insurance Fund
classified as adequately capitalized and within supervisory subgroup "A" (or a
comparable successor assessment risk classification) within the meaning of 12
C.F.R. Section327.4(a) (or any successor provision) to the Federal Deposit
Insurance Corporation (or any successor) for such Corporation's (or such
successor's) insuring time deposits at offices of such institution in the United
States. The Adjusted CD Rate shall be adjusted automatically on and as of the
effective date of any change in the Assessment Rate.
(c) Each Euro-Dollar Loan shall bear interest on the outstanding
principal amount thereof, for each day during each Interest Period applicable
thereto, at a rate per annum equal to the sum of the Euro-Dollar Margin for such
day plus the London Interbank Offered Rate applicable to such Interest Period.
Such interest shall be payable for each Interest Period on the last day thereof
and, if such Interest Period is longer than three months, at intervals of three
months after the first day thereof.
The "LONDON INTERBANK OFFERED RATE" applicable to any Interest Period
means the average (rounded upward, if necessary, to the next higher 1/16 of 1%)
of the respective rates per annum at which deposits in dollars are offered to
each of the Euro-Dollar Reference Banks in the London interbank market at
approximately 11:00 A.M. (London time) two Euro-Dollar Business Days before the
first day of such Interest Period in an amount approximately equal to the
principal amount of the Euro-Dollar Loan of such Euro-Dollar Reference Bank to
which such Interest Period is to apply and for a period of time comparable to
such Interest Period.
(d) Any overdue principal of or interest on any Euro-Dollar Loan shall
bear interest, payable on demand, for each day from and including the date
payment thereof was due to but excluding the date of actual payment, at a rate
per annum equal to the sum of 2% plus the higher of (i) the sum of the
Euro-Dollar Margin for such day plus the London Interbank Offered Rate
applicable to such Loan on the day before such payment was due and (ii) the
Euro-Dollar Margin for
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<PAGE> 32
such day plus the quotient obtained (rounded upward, if necessary, to the next
higher 1/100 of 1%) by dividing (x) the average (rounded upward, if necessary,
to the next higher 1/16 of 1%) of the respective rates per annum at which one
day (or, if such amount due remains unpaid more than three Euro-Dollar Business
Days, then for such other period of time not longer than three months as the
Administrative Agent may select) deposits in dollars in an amount approximately
equal to such overdue payment due to each of the Euro-Dollar Reference Banks are
offered to such Euro-Dollar Reference Bank in the London interbank market for
the applicable period determined as provided above by (y) 1.00 minus the
Euro-Dollar Reserve Percentage (or, if the circumstances described in clause (a)
or (b) of Section 8.01 shall exist, at a rate per annum equal to the sum of 2%
plus the rate applicable to Base Rate Loans for such day).
(e) Subject to Section 8.01(a), each Money Market LIBOR Loan shall
bear interest on the outstanding principal amount thereof, for the Interest
Period applicable thereto, at a rate per annum equal to the sum of the London
Interbank Offered Rate for such Interest Period (determined in accordance with
Section 2.07(c) as if the related Money Market LIBOR Borrowing were a
Euro-Dollar Borrowing) plus (or minus) the Money Market Margin quoted by the
Bank making such Loan in accordance with Section 2.03. Each Money Market
Absolute Rate Loan shall bear interest on the outstanding principal amount
thereof, for the Interest Period applicable thereto, at a rate per annum equal
to the Money Market Absolute Rate quoted by the Bank making such Loan in
accordance with Section 2.03. Such interest shall be payable for each Interest
Period on the last day thereof and, if such Interest Period is longer than three
months, at intervals of three months after the first day thereof. Any overdue
principal of or interest on any Money Market Loan shall bear interest, payable
on demand, for each day until paid at a rate per annum equal to the sum of 2%
plus the Base Rate for such day.
(f) The Administrative Agent shall determine each interest rate
applicable to the Loans hereunder. The Administrative Agent shall give prompt
notice to the Borrower and the participating Banks of each rate of interest so
determined, and its determination thereof shall be conclusive in the absence of
manifest error.
(g) Each Reference Bank agrees to use its best efforts to furnish
quotations to the Administrative Agent as contemplated by this Section 2.07. If
any Reference Bank does not furnish a timely quotation, the Administrative Agent
shall determine the relevant interest rate on the basis of the quotation or
quotations furnished by the remaining Reference Bank or Banks or, if none of
such quotations is available on a timely basis, the provisions of Section 8.01
shall apply.
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SECTION 2.08. Fees. (a) The Borrower shall pay to the Administrative
Agent for the account of the Banks ratably in proportion to their Commitments a
facility fee at the Facility Fee Rate (determined daily in accordance with the
Pricing Schedule). Such facility fee shall accrue (i) from and including the
Effective Date to but excluding the Termination Date (or earlier date of
termination of the Commitments in their entirety), on the daily aggregate amount
of the Commitments (whether used or unused) and (ii) from and including the
Termination Date or such earlier date of termination to but excluding the date
the Loans shall be repaid in their entirety, on the daily aggregate outstanding
principal amount of the Loans. Accrued fees under this subsection (a) shall be
payable quarterly in arrears on each Quarterly Payment Date and upon the date of
termination of the Commitments in their entirety (and, if later, the date the
Loans shall be repaid in their entirety).
(b) Unless prior to December 31, 1999 the Commitments shall have been
terminated in their entirety and any Loans made hereunder repaid in full, the
Borrower shall pay on such date to each Bank listed in the Commitment Schedule a
contingent participation fee in an amount equal to 0.125% of the amount of the
Commitment of such Bank set forth in the Commitment Schedule.
SECTION 2.09. Optional Termination or Reduction of Commitments. The
Borrower may, upon at least three Domestic Business Days' notice to the
Administrative Agent, (i) terminate the Commitments at any time, if no Loans are
outstanding at such time or (ii) ratably reduce from time to time by an
aggregate amount of $10,000,000 or any larger multiple thereof, the aggregate
amount of the Commitments in excess of the aggregate outstanding principal
amount of the Loans.
SECTION 2.10. Mandatory Termination or Reduction of Commitments. (a)
The Commitments shall terminate on the Termination Date, and any Loans then
outstanding (together with accrued interest thereon) shall be due and payable on
such date.
(b) The Commitments shall be ratably reduced automatically in the event
that the Borrower or any of its Subsidiaries shall at any time, or from time to
time, after the date hereof receive any Net Cash Proceeds of any Reduction
Event, by an amount equal to the largest multiple of $1,000,000 which does not
exceed the amount of such Net Cash Proceeds. The reductions in the Commitments
required by this subsection shall be effective on the fifth Euro-Dollar Business
Day following receipt by the Borrower or any of its Subsidiaries, as the case
may be, of such Net Cash Proceeds; provided that
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<PAGE> 34
(i) if the amount of the Net Cash Proceeds in respect of any
Reduction Event is less than $5,000,000, such reduction shall be
effective upon receipt of proceeds such that, together with all other
such amounts received and not previously applied, the amount of such
Net Cash Proceeds is equal to at least $5,000,000; and
(ii) if and to the extent such reduction would otherwise
reduce the aggregate amount of the Commitments to an amount less than
the related Dedicated Amount, such reduction shall be deferred so as to
become effective simultaneously with reductions in the Dedicated
Amount. For purposes of this clause (ii):
"DEDICATED AMOUNT" means the sum of the aggregate principal
amount of Fixed Rate Loans and the aggregate face amount of Supported
Commercial Paper which, in each case, are outstanding at the time the
Borrower or a Subsidiary receives Net Cash Proceeds of the related
Reduction Event. The Dedicated Amount shall be reduced (i) at each
subsequent maturity of such Supported Commercial Paper by the amount
then maturing and (ii) on the last day of the Interest Period
applicable to each such Fixed Rate Loan by the principal amount of such
Fixed Rate Loan.
"SUPPORTED COMMERCIAL PAPER" means commercial paper of the
Borrower which requires liquidity support in the form of undrawn bank
commitments and for which no such commitments other than the
Commitments are available. At any time at which the Borrower has other
committed bank facilities available as liquidity support for commercial
paper, outstanding commercial paper shall be allocated first to such
other facilities, so that only the amount which cannot be supported
thereby shall constitute Supported Commercial Paper. Such allocation to
other facilities shall be in inverse order of maturity, so that the
earliest maturing commercial paper shall be Supported Commercial Paper.
The Borrower shall notify the Administrative Agent within two Euro-
Dollar Business Days of receipt by it or a Subsidiary of Net Cash Proceeds of a
Reduction Event, specifying the date and amount thereof and, if the provisions
of clause (ii) relating to Supported Commercial Paper are applicable, setting
forth sufficient information with respect thereto to determine the resultant
schedule for reduction of the Commitments.
(c) On the date of any reduction of Commitments pursuant to 2.10(b)
above, the Borrower shall repay such principal amount (together with accrued
interest thereon) of outstanding Loans, if any, as may be necessary so that
after
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<PAGE> 35
such repayment the aggregate outstanding principal amount of the Loans does not
exceed the amount of the Commitments as then reduced. Subject to Sections
2.11(b) and 2.13, each required payment or prepayment shall be made with respect
to such outstanding Groups of Loans or Borrowings as the Borrower may designate
to the Administrative Agent not less than three Euro-Dollar Business Days prior
to the date required for such payment or prepayment or, failing such designation
by the Borrower, as the Administrative Agent may specify by notice to the
Borrower and the Banks.
SECTION 2.11. Optional Prepayments. (a) The Borrower may (i) upon at
least one Domestic Business Day's notice to the Administrative Agent, prepay any
Base Rate Borrowing (or any Money Market Borrowing bearing interest at the Base
Rate pursuant to Section 8.01(a)), (ii) upon at least three Domestic Business
Days' notice to the Administrative Agent, subject to Section 2.13, prepay any CD
Borrowing and (iii) upon at least three Euro-Dollar Business Days' notice to the
Administrative Agent, subject to Section 2.13, prepay any Euro-Dollar Borrowing,
in whole at any time, or from time to time in part in amounts aggregating
$15,000,000 or any larger multiple of $1,000,000, by paying the principal amount
to be prepaid together with accrued interest thereon to the date of prepayment.
Each such optional prepayment shall be applied to prepay ratably the Loans of
the several Banks included in such Borrowing.
(b) Except as provided in Section 2.11(a), the Borrower may not prepay
all or any portion of the principal amount of any Money Market Loan prior to the
maturity thereof.
(c) Upon receipt of a notice of prepayment pursuant to this Section,
the Administrative Agent shall promptly notify each Bank of the contents thereof
and of such Bank's ratable share (if any) of such prepayment and such notice
shall not thereafter be revocable by the Borrower.
SECTION 2.12. General Provisions as to Payments. (a) The Borrower shall
make each payment of principal of, and interest on, the Loans and of fees
hereunder, not later than 12:00 Noon (New York City time) on the date when due,
in Federal or other funds immediately available in New York City, to the
Administrative Agent at its address referred to in Section 9.01. The
Administrative Agent will promptly distribute to each Bank its ratable share of
each such payment received by the Administrative Agent for the account of the
Banks. Whenever any payment of principal of, or interest on, the Domestic Loans
or of fees shall be due on a day which is not a Domestic Business Day, the date
for payment thereof shall be extended to the next succeeding Domestic Business
Day. Whenever any payment of principal of, or interest on, the Euro-Dollar Loans
shall be due on a day which is not a Euro-Dollar Business Day, the date for
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<PAGE> 36
payment thereof shall be extended to the next succeeding Euro-Dollar Business
Day unless such Euro-Dollar Business Day falls in another calendar month, in
which case the date for payment thereof shall be the next preceding Euro-Dollar
Business Day. Whenever any payment of principal of, or interest on, the Money
Market Loans shall be due on a day which is not a Euro-Dollar Business Day, the
date for payment thereof shall be extended to the next succeeding Euro-Dollar
Business Day. If the date for any payment of principal is extended by operation
of law or otherwise, interest thereon shall be payable for such extended time.
(b) Unless the Administrative Agent shall have received notice from the
Borrower prior to the date on which any payment is due to the Banks hereunder
that the Borrower will not make such payment in full, the Administrative Agent
may assume that the Borrower has made such payment in full to the Administrative
Agent on such date and the Administrative Agent may, in reliance upon such
assumption, cause to be distributed to each Bank on such due date an amount
equal to the amount then due such Bank. If and to the extent that the Borrower
shall not have so made such payment, each Bank shall repay to the Administrative
Agent forthwith on demand such amount distributed to such Bank together with
interest thereon, for each day from the date such amount is distributed to such
Bank until the date such Bank repays such amount to the Administrative Agent, at
the Federal Funds Rate.
SECTION 2.13. Funding Losses. If the Borrower makes any payment of
principal with respect to any Fixed Rate Loan or any Fixed Rate Loan is
converted to a different type of Loan (whether such payment or conversion is
pursuant to Article 2, 6 or 8 or otherwise) on any day other than the last day
of an Interest Period applicable thereto, or the last day of an applicable
period fixed pursuant to Section 2.07(d), or if the Borrower fails to borrow,
prepay, convert or continue any Fixed Rate Loan after notice has been given to
any Bank in accordance with Section 2.04(a), 2.11(c) or 2.16(c), the Borrower
shall reimburse each Bank within 15 days after demand for any resulting loss or
expense incurred by it (or by an existing or prospective Participant in the
related Loan), including (without limitation) any loss incurred in obtaining,
liquidating or employing deposits from third parties, but excluding loss of
margin for the period after such payment or conversion or failure to borrow,
prepay, convert or continue; provided that such Bank shall have delivered to the
Borrower a certificate as to the amount of such loss or expense, setting forth
the basis of calculation thereof, which certificate shall be conclusive in the
absence of manifest error.
SECTION 2.14. Computation of Interest and Fees. Interest based on the
Prime Rate hereunder shall be computed on the basis of a year of 365 days (or
366 days in a leap year) and paid for the actual number of days elapsed
(including the first day but excluding the last day). All other interest and
facility fees shall be
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computed on the basis of a year of 360 days and paid for the actual number of
days elapsed (including the first day but excluding the last day).
SECTION 2.15. Regulation D Compensation. For so long as any Bank
maintains reserves against "EUROCURRENCY LIABILITIES" (or any other category of
liabilities which includes deposits by reference to which the interest rate on
Euro-Dollar Loans is determined or any category of extensions of credit or other
assets which includes loans by a non-United States office of such Bank to United
States residents), and as a result the cost to such Bank (or its Euro-Dollar
Lending Office) of making or maintaining its Euro-Dollar Loans is increased,
then such Bank may require the Borrower to pay, contemporaneously (or at such
other time or times as the Borrower and such Bank may mutually agree) with each
payment of interest on the Euro-Dollar Loans, additional interest on the related
Euro-Dollar Loan of such Bank at a rate per annum up to but not exceeding the
excess of (i) (A) the applicable London Interbank Offered Rate divided by (B)
one minus the Euro-Dollar Reserve Percentage over (ii) the applicable London
Interbank Offered Rate. Any Bank wishing to require payment of such additional
interest (x) shall so notify the Borrower and the Administrative Agent, in which
case such additional interest on the Euro-Dollar Loans of such Bank shall be
payable to such Bank at the place indicated in such notice with respect to each
Interest Period commencing at least three Euro-Dollar Business Days after the
giving of such notice and (y) shall furnish to the Borrower at least five
Euro-Dollar Business Days prior to each date on which interest is payable on the
Euro-Dollar Loans (or at such other time or times as the Borrower and such Bank
may mutually agree) an officer's certificate setting forth the amount to which
such Bank is then entitled under this Section 2.15 (which shall be consistent
with such Bank's good faith estimate of the level at which the related reserves
are maintained by it). Each such certificate shall be accompanied by such
information as the Borrower may reasonably request as to the computation set
forth therein.
SECTION 2.16. Method of Electing Interest Rates. (a) The Loans included
in each Committed Borrowing shall bear interest initially at the type of rate
specified by the Borrower in the applicable Notice of Committed Borrowing.
Thereafter, the Borrower may from time to time elect to change or continue the
type of interest rate borne by each Group of Loans (subject to Section 2.16(d)
and the provisions of Article 8), as follows:
(i) if such Loans are Base Rate Loans, the Borrower may elect
to convert such Loans to CD Loans as of any Domestic Business Day or to
Euro-Dollar Loans as of any Euro-Dollar Business Day;
(ii) if such Loans are CD Loans, the Borrower may elect to
convert such Loans to Base Rate Loans as of any Domestic Business Day
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or convert such Loans to Euro-Dollar Loans as of any Euro-Dollar
Business Day or continue such Loans as CD Loans for an additional
Interest Period, subject to Section 2.13 if any such conversion is
effective on any day other than the last day of an Interest Period
applicable to such Loans; and
(iii) if such Loans are Euro-Dollar Loans, the Borrower may
elect to convert such Loans to Base Rate Loans as of any Domestic
Business Day or convert such Loans to CD Loans as of any Euro-Dollar
Business Day or elect to continue such Loans as Euro-Dollar Loans for
an additional Interest Period, subject to Section 2.13 if any such
conversion is effective on any day other than the last day of an
Interest Period applicable to such Loans.
Each such election shall be made by delivering a notice (a "NOTICE OF
INTEREST RATE ELECTION") to the Administrative Agent not later than
10:30 A.M. (New York City time) on the third Euro-Dollar Business Day
before the conversion or continuation selected in such notice is to be
effective (unless the relevant Loans are to be converted from Domestic
Loans of one type to Domestic Loans of the other type or are CD Loans
to be continued as CD Loans for an additional Interest Period, in which
case such notice shall be delivered to the Administrative Agent not
later than 10:30 A.M. (New York City time) on the second Domestic
Business Day before such conversion or continuation is to be
effective). A Notice of Interest Rate Election may, if it so specifies,
apply to only a portion of the aggregate principal amount of the
relevant Group of Loans; provided that (i) such portion is allocated
ratably among the Loans comprising such Group and (ii) the portion to
which such Notice applies, and the remaining portion to which it does
not apply, are each at least $15,000,000 (unless such portion is
comprised of Base Rate Loans). If no such notice is timely received
before the end of an Interest Period for any Group of CD Loans or
Euro-Dollar Loans, the Borrower shall be deemed to have elected that
such Group of Loans be converted to Base Rate Loans at the end of such
Interest Period.
(b) Each Notice of Interest Rate Election shall specify:
(i) the Group of Loans (or portion thereof) to which such
notice applies;
(ii) the date on which the conversion or continuation selected
in such notice is to be effective, which shall comply with the
applicable clause of Section 2.16(a) above;
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(iii) if the Loans comprising such Group are to be converted,
the new type of Loans and, if the Loans resulting from such conversion
are to be CD Loans or Euro-Dollar Loans, the duration of the next
succeeding Interest Period applicable thereto; and
(iv) if such Loans are to be continued as CD Loans or
Euro-Dollar Loans for an additional Interest Period, the duration of
such additional Interest Period.
Each Interest Period specified in a Notice of Interest Rate Election
shall comply with the provisions of the definition of Interest Period.
(c) Promptly after receiving a Notice of Interest Rate Election from
the Borrower pursuant to Section 2.16(a) above, the Administrative Agent shall
notify each Bank of the contents thereof and such notice shall not thereafter be
revocable by the Borrower.
(d) The Borrower shall not be entitled to elect to convert any
Committed Loans to, or continue any Committed Loans for an additional Interest
Period as, CD Loans or Euro-Dollar Loans if (i) the aggregate principal amount
of any Group of CD Loans or Euro-Dollar Loans created or continued as a result
of such election would be less than $15,000,000 or (ii) a Default shall have
occurred and be continuing when the Borrower delivers notice of such election to
the Administrative Agent.
(e) If any Committed Loan is converted to a different type of Loan,
the Borrower shall pay, on the date of such conversion, the interest accrued to
such date on the principal amount being converted.
ARTICLE 3
CONDITIONS
SECTION 3.01. Effectiveness. This Agreement shall become effective on
the date that each of the following conditions shall have been satisfied (or
waived in accordance with Section 9.05):
(a) receipt by the Administrative Agent of counterparts hereof
signed by each of the parties hereto (or, in the case of any party as
to which an executed counterpart shall not have been received, receipt
by the
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Administrative Agent in form satisfactory to it of telegraphic, telex
or other written confirmation from such party of execution of a
counterpart hereof by such party);
(b) receipt by the Administrative Agent of an opinion of the
principal legal officer of the Borrower, substantially in the form of
Exhibit E hereto and covering such additional matters relating to the
transactions contemplated hereby as the Required Banks may reasonably
request;
(c) receipt by the Administrative Agent of an opinion of Davis
Polk & Wardwell, special counsel for the Administrative Agent,
substantially in the form of Exhibit F hereto and covering such
additional matters relating to the transactions contemplated hereby as
the Required Banks may reasonably request; and
(d) receipt by the Administrative Agent of all documents it
may reasonably request relating to the existence of the Borrower, the
corporate authority for and the validity of this Agreement and the
Notes, and any other matters relevant hereto, all in form and substance
satisfactory to the Administrative Agent;
provided that this Agreement shall not become effective or binding on any party
hereto unless all of the foregoing conditions are satisfied not later than July
31, 1999. The Administrative Agent shall promptly notify the Borrower and each
Bank of the effectiveness of this Agreement, and such notice shall be conclusive
and binding on all parties hereto.
SECTION 3.02. Borrowings. The obligation of any Bank to make a Loan
on the occasion of any Borrowing is subject to the satisfaction of the following
conditions:
(a) receipt by the Administrative Agent of a Notice of
Borrowing as required by Section 2.02 or 2.03, as the case may be;
(b) the fact that, immediately after such Borrowing, the
aggregate outstanding principal amount of the Loans will not exceed the
aggregate amount of the Commitments;
(c) the fact that, immediately before and after such
Borrowing, no Default shall have occurred and be continuing;
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<PAGE> 41
(d) the fact that the representations and warranties of the
Borrower contained in this Agreement shall be true on and as of the
date of such Borrowing; and
(e) in the case of the first Borrowing, the fact that the
Avondale Acquisition shall have been, or shall simultaneously therewith
be, consummated in accordance with the Avondale Merger Agreement.
Each Borrowing hereunder shall be deemed to be a representation and
warranty by the Borrower on the date of such Borrowing as to the facts specified
in clauses (b), (c), (d) and, in the case of the first Borrowing, (e) of this
Section.
ARTICLE 4
REPRESENTATIVES AND WARRANTIES
The Borrower represents and warrants that:
SECTION 4.01. Corporate Existence and Power. The Borrower is a
corporation duly incorporated, validly existing and in good standing under the
laws of Delaware, and has all corporate powers and all material governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted.
SECTION 4.02. Corporate and Governmental Authorization; No
Contravention. The execution, delivery and performance by the Borrower of this
Agreement and the Notes are within the Borrower's corporate powers, have been
duly authorized by all necessary corporate action, require no action by or in
respect of, or filing with, any governmental body, agency or official and do not
contravene, or constitute a default under, any provision of applicable law or
regulation or of the certificate of incorporation or by-laws of the Borrower or
of any agreement, judgment, injunction, order, decree or other instrument
binding upon the Borrower or result in the creation or imposition of any Lien on
any asset of the Borrower or any of its Subsidiaries.
SECTION 4.03. Binding Effect. This Agreement constitutes a valid and
binding agreement of the Borrower and each Note, when executed and delivered in
accordance with this Agreement, will constitute a valid and binding obligation
of the Borrower, in each case enforceable in accordance with its terms.
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SECTION 4.04. Financial Information. (a) The consolidated balance
sheets of the Borrower and its Consolidated Subsidiaries as of July 31, 1997 and
1998 and the related consolidated statements of operations, shareholders'
investment and cash flows for each of the three years ended July 31, 1998,
reported on by Deloitte & Touche and set forth in the Borrower's 1998 Form 10-K,
a copy of which has been delivered to each of the Banks, fairly present, in
conformity with generally accepted accounting principles, the consolidated
financial position of the Borrower and its Consolidated Subsidiaries as of such
dates and their consolidated results of operations and cash flows for such
fiscal years.
(b) The consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries as of April 30, 1999 and the related consolidated
statements of operations and cash flows for the nine months then ended, set
forth in the Borrower's Quarterly Report on Form 10-Q for the quarter then
ended, a copy of which has been delivered to each of the Banks, fairly present,
in conformity with generally accepted accounting principles applied on a basis
consistent with the financial statements referred to in subsection (a) of this
Section, the consolidated financial position of the Borrower and its
Consolidated Subsidiaries as of such date and their consolidated results of
operations and cash flows for such nine month period (subject to normal year-end
adjustments).
(c) Since April 30, 1999 there has been no material adverse change in
the business, financial position, results of operations or prospects of the
Borrower and its Consolidated Subsidiaries, considered as a whole.
SECTION 4.05. Litigation. (a) Except for actions, suits or proceedings
(i) described in the Borrower's 1998 Form 10-K and the Borrower's Forms 10-Q
filed for the quarterly periods ended October 31, 1998, January 31, 1999 and
April 30, 1999 or (ii) commenced after the date of this Agreement and disclosed
in writing to the Banks, there is no action, suit or proceeding pending against,
or to the knowledge of the Borrower threatened against or affecting, the
Borrower or any of its Subsidiaries before any court or arbitrator or any
governmental body, agency or official an adverse decision in which might
materially adversely affect the business, consolidated financial position or
consolidated results of operations of the Borrower and its Consolidated
Subsidiaries taken as a whole.
(b) Since the date of the Borrower's 1998 Form 10-K and the Borrower's
Forms 10-Q filed for the quarterly periods ended October 31, 1998, January 31,
1999 and April 30, 1999, there has been no change in the status of the actions,
suits and proceedings described therein which materially and adversely affects
the business, financial position, results of operations or prospects of the
Borrower and its Consolidated Subsidiaries, considered as a whole.
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(c) There is no action, suit or proceeding pending against, or to the
knowledge of the Borrower threatened against or affecting, the Borrower or any
of its Subsidiaries before any court or arbitrator or any governmental body,
agency or official which in any manner questions the validity of this Agreement
or the Notes.
SECTION 4.06. Compliance with ERISA. Each member of the ERISA Group has
fulfilled its obligations under the minimum funding standards of ERISA and the
Internal Revenue Code with respect to each Plan and is in compliance in all
material respects with the presently applicable provisions of ERISA and the
Internal Revenue Code with respect to each Plan. No member of the ERISA Group
has (i) sought a waiver of the minimum funding standard under Section 412 of the
Internal Revenue Code in respect of any Plan, (ii) failed to make any
contribution or payment to any Plan or Multiemployer Plan or in respect of any
Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement,
which has resulted or could result in the imposition of a Lien or the posting of
a bond or other security under ERISA or the Internal Revenue Code or (iii)
incurred any liability under Title IV of ERISA other than a liability to the
PBGC for premiums under Section 4007 of ERISA.
SECTION 4.07. Environmental Matters. In the ordinary course of its
business, the Borrower conducts an ongoing review of the effect of Environmental
Laws on the business, operations and properties of the Borrower and its
Subsidiaries, in the course of which it identifies and evaluates associated
liabilities and costs (including, without limitation, any capital or operating
expenditures required for clean-up or closure of properties presently or
previously owned, any capital or operating expenditures required to achieve or
maintain compliance with environmental protection standards imposed by law or as
a condition of any license, permit or contract, any related constraints on
operating activities, including any periodic or permanent shutdown of any
facility or reduction in the level of or change in the nature of operations
conducted thereat, any costs or liabilities in connection with off-site disposal
of wastes or Hazardous Substances, and any actual or potential liabilities to
third parties, including employees, and any related costs and expenses). On the
basis of this review, and based upon conditions of which the Borrower has
knowledge and upon its estimates of the costs of compliance with and/or
remediation mandated by Environmental Laws, the Borrower has reasonably
concluded that Environmental Laws are unlikely to have a material adverse effect
on the business, financial condition, results of operations or prospects of the
Borrower and its Consolidated Subsidiaries, considered as a whole.
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SECTION 4.08. Taxes. The Borrower and its Subsidiaries have filed all
United States Federal income tax returns and all other material tax returns
which are required to be filed by them and have paid all taxes due pursuant to
such returns or pursuant to any assessment received by the Borrower or any
Subsidiary. In the Borrower's opinion, all material tax liabilities were
adequately provided for as of July 31, 1998 and are now so provided for in the
books of the Borrower and its Consolidated Subsidiaries.
SECTION 4.09. Material Subsidiaries. Each of the Borrower's Material
Subsidiaries is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation, and has all
corporate powers and all material governmental licenses, authorizations,
consents and approvals required to carry on its business as now conducted.
SECTION 4.10. Not an Investment Company. The Borrower is not an
"INVESTMENT COMPANY" within the meaning of the Investment Company Act of
1940, as amended.
SECTION 4.11. Use of Proceeds. The proceeds of the loans under this
Agreement will be used to finance the Avondale Acquisition and for the
Borrower's other general corporate purposes. None of such proceeds will be used
in contravention of Regulation T, U or X.
SECTION 4.12. Full Disclosure. All information heretofore furnished by
the Borrower to any Agent or any Bank for purposes of or in connection with this
Agreement or any transaction contemplated hereby is, and all such information
hereafter furnished by the Borrower to any Agent or any Bank will be, true and
accurate in all material respects on the date as of which such information is
stated or certified. The Borrower has disclosed to the Banks in writing any and
all facts which materially and adversely affect or may affect (to the extent the
Borrower can now reasonably foresee), the business, operations or financial
condition of the Borrower and its Consolidated Subsidiaries, taken as a whole,
or the ability of the Borrower to perform its obligations under this Agreement.
SECTION 4.13. Year 2000 Compliance. The Borrower has (i) initiated a
review and assessment of all areas within the business and operations of the
Borrower and each of its Subsidiaries (including those areas affected by
suppliers and vendors) that could be adversely affected by the "Year 2000
Problem" (that is, the risk that computer applications used by it or any of its
Subsidiaries (or their respective suppliers and vendors) may be unable to
recognize and perform properly date-sensitive functions involving certain dates
prior to and any date after December 31, 1999), (ii) developed a plan and
timetable for addressing the Year 2000 Problem on a timely basis and (iii) to
date, implemented such plan in
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accordance with such timetable. The Borrower reasonably believes that all
computer applications that are material to the business or operations of the
Borrower or any of its Subsidiaries will on a timely basis be able to perform
properly date-sensitive functions for all dates before and from and after
January 1, 2000, except to the extent that a failure to do so could not
reasonably be expected to have a material adverse effect on the business,
financial condition, results of operations or prospects of the Borrower and its
Consolidated Subsidiaries, considered as a whole.
ARTICLE 5
COVENANTS
The Borrower agrees that, from and after the Effective Date for so long
as any Bank has any Commitment hereunder or any amount payable hereunder remains
unpaid:
SECTION 5.01. Information. The Borrower will deliver to each of the
Banks:
(a) as soon as available and in any event within 120 days
after the end of each fiscal year of the Borrower, a consolidated
balance sheet of the Borrower and its Consolidated Subsidiaries as of
the end of such fiscal year and the related consolidated financial
statements in the form then required to be filed with the Securities
and Exchange Commission on Form 10-K or its then equivalent, all
reported on by Deloitte & Touche or other independent public
accountants of nationally recognized standing;
(b) as soon as available and in any event within 60 days after
the end of each of the first three quarters of each fiscal year of the
Borrower, a consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries as of the end of such quarter and the related
consolidated financial statements in the form then required to be filed
with the Securities and Exchange Commission on Form 10-Q or its then
equivalent, all certified (subject to normal year-end audit
adjustments) by the chief financial officer or the chief accounting
officer of the Borrower;
(c) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above, a certificate of
the chief financial officer or the chief accounting officer of the
Borrower (i) setting forth in reasonable detail the calculations
required to establish whether the
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Borrower was in compliance with the requirements of Sections 5.05 to
5.08, inclusive, on the date of such financial statements and (ii)
stating whether any Default exists on the date of such certificate and,
if any Default then exists, setting forth the details thereof and the
action which the Borrower is taking or proposes to take with respect
thereto;
(d) simultaneously with the delivery of each set of financial
statements referred to in clause (a) above, a statement of the firm of
independent public accountants which reported on such statements
whether anything has come to their attention to cause them to believe
that any Default existed on the date of such statements;
(e) within five days after any officer of the Borrower obtains
knowledge of any Default, if such Default is then continuing, a
certificate of the chief financial officer or the chief accounting
officer of the Borrower setting forth the details thereof and the
action which the Borrower is taking or proposes to take with respect
thereto;
(f) promptly upon the mailing thereof to the shareholders of
the Borrower generally, copies of all financial statements, reports and
proxy statements so mailed;
(g) promptly upon the filing thereof, copies of all
registration statements (other than the exhibits thereto and any
registration statements on Form S-8 or its equivalent) and reports on
Forms 10-K, 10-Q and 8-K (or their equivalents) which the Borrower
shall have filed with the Securities and Exchange Commission;
(h) if and when any member of the ERISA Group (i) gives or is
required to give notice to the PBGC of any "REPORTABLE EVENT" (as
defined in Section 4043 of ERISA) with respect to any Material Plan
which might constitute grounds for a termination of such Plan under
Title IV of ERISA, or knows that the plan administrator of any Material
Plan has given or is required to give notice of any such reportable
event, a copy of the notice of such reportable event given or required
to be given to the PBGC; (ii) receives notice of complete or partial
withdrawal liability under Title IV of ERISA or notice that any
Multiemployer Plan is in reorganization, is insolvent or has been
terminated, a copy of such notice; (iii) receives notice from the PBGC
under Title IV of ERISA of an intent to terminate, impose liability
(other than for premiums under Section 4007 of ERISA) in respect of, or
appoint a trustee to administer, any Material Plan, a copy of such
notice; (iv) applies for a waiver of the minimum funding standard under
Section 412 of the Internal Revenue Code, a copy of such
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application; (v) gives notice of intent to terminate any Material Plan
under Section 4041(c) of ERISA, a copy of such notice and other
information filed with the PBGC; (vi) gives notice of withdrawal from
any Material Plan pursuant to Section 4063 of ERISA, a copy of such
notice; or (vii) fails to make any payment or contribution to any
Material Plan or Multiemployer Plan or in respect of any Benefit
Arrangement or makes any amendment to any Material Plan or Benefit
Arrangement which has resulted or could result in the imposition of a
Lien or the posting of a bond or other security, a certificate of the
chief financial officer or the chief accounting officer of the Borrower
setting forth details as to such occurrence and action, if any, which
the Borrower or applicable member of the ERISA Group is required or
proposes to take;
(i) forthwith, notice of any change of which the Borrower
becomes aware in the rating by any Rating Agency of the Borrower's
long-term debt; and
(j) from time to time such additional information regarding
the financial position or business of the Borrower and its Subsidiaries
as the Administrative Agent, at the request of any Bank, may reasonably
request.
SECTION 5.02. Maintenance of Property; Insurance. (a) The Borrower will
keep, and will cause each Subsidiary to keep, all property useful and necessary
in its business in good working order and condition, ordinary wear and tear
excepted.
(b) The Borrower will, and will cause each of its Subsidiaries to,
maintain (either in the name of the Borrower or in such Subsidiary's own name)
with financially sound and responsible insurance companies, insurance on all
their respective properties in at least such amounts and against at least such
risks (and with such risk retention) as are usually insured against in the same
general area by companies of established repute engaged in the same or a similar
business; and will furnish to the Banks, upon request from the Administrative
Agent, information presented in reasonable detail as to the insurance so
carried.
SECTION 5.03. Maintenance of Existence. The Borrower will renew and
keep in full force and effect its corporate existence and its rights, privileges
and franchises necessary or desirable in the normal conduct of business.
SECTION 5.04. Compliance with Laws. The Borrower will comply, and cause
each Subsidiary to comply, in all material respects with all applicable laws,
ordinances, rules, regulations, and requirements of governmental authorities
(including, without limitation, Environmental Laws and ERISA and the rules and
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regulations thereunder) except where the necessity of compliance therewith is
contested in good faith by appropriate proceedings.
SECTION 5.05. Leverage Ratio. The Leverage Ratio will at no time
exceed 320%.
SECTION 5.06. Minimum Consolidated Net Worth. Consolidated Net
Worth will at no time be less than the Minimum Compliance Level.
SECTION 5.07. Interest Coverage Ratio. The Interest Coverage Ratio will
not be less than 350% for any period of four consecutive fiscal quarters.
SECTION 5.08. Subsidiary Debt Limitation. The aggregate outstanding
amount of Debt of Subsidiaries (exclusive of (i) Debt secured by a Lien
permitted by clause (g) of Section 5.09, (ii) Debt owing to the Borrower or
another Subsidiary and (iii) up to $85,000,000 of Debt consisting of obligations
in respect of industrial revenue bonds) will at no time exceed $175,000,000.
SECTION 5.09. Negative Pledge. The Borrower will not, and will not
permit any Consolidated Subsidiary to, create, assume or suffer to exist any
Lien securing Debt or Derivative Obligations on any asset now owned or hereafter
acquired by it, except:
(a) Liens existing on the date of this Agreement securing Debt
outstanding on the date of this Agreement in an aggregate principal
amount not exceeding $60,000,000;
(b) any Lien existing on the assets of any Person at the time
such Person becomes a Consolidated Subsidiary;
(c) any Lien on any asset securing Debt incurred or assumed
for the purpose of financing all or any part of the purchase price or
cost of construction of such asset, provided that such Lien attaches to
such asset within 270 days after the acquisition or completion of
construction and commencement of full operations thereof;
(d) any Lien on any asset of any Person existing at the time
such Person is acquired by, merged into or consolidated with the
Borrower or a Consolidated Subsidiary;
(e) any Lien existing on any asset prior to the acquisition
thereof by the Borrower or a Consolidated Subsidiary and not created in
contemplation of such acquisition;
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(f) any Lien arising out of the refinancing, extension,
renewal or refunding of any Debt secured by any Lien permitted by any
of the foregoing clauses of this Section, provided that such Debt is
not increased and is not secured by any additional assets;
(g) Liens on real property (and ancillary personalty) not
otherwise permitted by the foregoing clauses of this Section securing
Debt in an aggregate principal amount at any time outstanding not to
exceed $75,000,000; and
(h) Liens on cash and cash equivalents securing Derivatives
Obligations, provided that the aggregate amount of cash and cash
equivalents subject to such Liens may at no time exceed $25,000,000.
SECTION 5.10. Consolidations, Mergers and Sales of Assets. The Borrower
will not (i) consolidate or merge with or into any other Person or (ii) sell,
lease or otherwise transfer, directly or indirectly, all or any substantial part
of the assets of the Borrower and its Subsidiaries, taken as a whole, to any
other Person; provided that the Borrower may merge with another Person if the
Borrower is the surviving corporation and, after giving effect thereto, no
Default exists.
SECTION 5.11. Limitation on Affiliate Transactions. The Borrower will
not, and will not permit any of its Subsidiaries to, enter into any material
transaction, including, without limitation, the purchase, sale or exchange of
property or assets or the rendering of any services, with any Affiliate, except
(i) a transaction in the ordinary course of business which is upon terms no less
favorable to the Borrower or such Subsidiary, as the case may be, than it would
obtain in a comparable transaction on an arm's length basis with a Person not an
Affiliate and (ii) a Dividend Payment permitted by Sections 5.05 and 5.06.
ARTICLE 6
DEFAULTS
SECTION 6.01. Events of Default. If one or more of the following events
("EVENTS OF DEFAULT") shall have occurred and be continuing:
(a) the Borrower (i) shall fail to pay when due any principal
of any Loan or (ii) shall fail to pay any interest on any Loan, any
fees or any
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other amount payable hereunder within five days after the due date
thereof;
(b) the Borrower shall fail to observe or perform any covenant
contained in Sections 5.05 through 5.11, inclusive;
(c) the Borrower shall fail to observe or perform any covenant
or agreement contained in this Agreement (other than those covered by
clause (a) or (b) above) for 30 days after notice thereof has been
given to the Borrower by the Administrative Agent at the request of any
Bank;
(d) any representation, warranty, certification or statement
made (or deemed made) by the Borrower in this Agreement or in any
certificate, financial statement or other document delivered pursuant
to this Agreement shall prove to have been incorrect in any material
respect when made (or deemed made) or delivered;
(e) the Borrower or any Subsidiary shall fail to make any
payment in respect of any Material Financial Obligations when due or
within any applicable grace period (or in the case of any Derivatives
Obligation for which no grace period is otherwise provided, within five
days of the due date);
(f) any event or condition shall occur which results in the
acceleration of the maturity of any Material Debt or enables (with the
giving of appropriate notice if required) the holder of such Debt or
any Person acting on such holder's behalf to accelerate the maturity
thereof;
(g) the Borrower or any Material Subsidiary shall commence a
voluntary case or other proceeding seeking liquidation, reorganization
or other relief with respect to itself or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect
or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of
its property, or shall consent to any such relief or to the appointment
of or taking possession by any such official in an involuntary case or
other proceeding commenced against it, or shall make a general
assignment for the benefit of creditors, or shall fail generally to pay
its debts as they become due, or shall take any corporate action to
authorize any of the foregoing;
(h) an involuntary case or other proceeding shall be commenced
against the Borrower or any Material Subsidiary seeking liquidation,
reorganization or other relief with respect to it or its debts under
any
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bankruptcy, insolvency or other similar law now or hereafter in effect
or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of
its property, and such involuntary case or other proceeding shall
remain undismissed and unstayed for a period of 60 days; or an order
for relief shall be entered against the Borrower or any Material
Subsidiary under the federal bankruptcy laws as now or hereafter in
effect;
(i) any member of the ERISA Group shall fail to pay when due
an amount or amounts aggregating in excess of $10,000,000 which it
shall have become liable to pay under Title IV of ERISA; or notice of
intent to terminate a Material Plan shall be filed under Title IV of
ERISA by any member of the ERISA Group, any plan administrator or any
combination of the foregoing; or the PBGC shall institute proceedings
under Title IV of ERISA to terminate, to impose liability (other than
for premiums under Section 4007 of ERISA) in respect of, or to cause a
trustee to be appointed to administer, any Material Plan; or a
condition shall exist by reason of which the PBGC would be entitled to
obtain a decree adjudicating that any Material Plan must be terminated;
or there shall occur a complete or partial withdrawal from, or a
default, within the meaning of Section 4219(c)(5) of ERISA, with
respect to, one or more Multiemployer Plans which could cause one or
more members of the ERISA Group to incur a current payment obligation
in excess of $10,000,000;
(j) a judgment or order for the payment of money in excess of
$10,000,000 shall be rendered against the Borrower or any Material
Subsidiary and such judgment or order shall continue unsatisfied and
unstayed for a period of 30 days; or
(k) a Change of Control shall occur;
then, and in every such event, the Administrative Agent shall (i) if requested
by Banks having more than 50% in aggregate amount of the Commitments, by notice
to the Borrower terminate the Commitments and they shall thereupon terminate,
and (ii) if requested by Banks holding more than 50% in aggregate principal
amount of the Loans, by notice to the Borrower declare the Loans (together with
accrued interest thereon) to be, and the Loans (together with accrued interest
thereon) shall thereupon become, immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Borrower; provided that in the case of any of the Events of
Default specified in clause (g) or (h) above with respect to the Borrower,
without any notice to the Borrower or any other act by the Administrative Agent
or any Bank, the Commitments shall thereupon terminate and the Loans (together
with accrued
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interest thereon) shall become immediately due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
the Borrower.
SECTION 6.02. Notice of Default. The Administrative Agent shall give
notice to the Borrower under Section 6.01(c) promptly upon being requested to do
so by any Bank and shall thereupon notify all the Banks thereof.
ARTICLE 7
THE ADMINISTRATIVE AGENT
SECTION 7.01. Appointment and Authorization. Each Bank irrevocably
appoints and authorizes the Administrative Agent to take such action as
Administrative Agent on its behalf and to exercise such powers under this
Agreement and the Notes as are delegated to the Administrative Agent by the
terms hereof or thereof, together with all such powers as are reasonably
incidental thereto.
SECTION 7.02. Administrative Agent and Affiliates. Morgan Guaranty
Trust Company of New York shall have the same rights and powers under this
Agreement as any other Bank and may exercise or refrain from exercising the same
as though it were not the Administrative Agent, and Morgan Guaranty Trust
Company of New York and its affiliates may accept deposits from, lend money to,
and generally engage in any kind of business with the Borrower or any Subsidiary
or Affiliate of the Borrower as if it were not the Administrative Agent
hereunder.
SECTION 7.03. Action by Administrative Agent. The obligations of the
Administrative Agent hereunder are only those expressly set forth herein.
Without limiting the generality of the foregoing, the Administrative Agent shall
not be required to take any action with respect to any Default, except as
expressly provided in Article 4.
SECTION 7.04. Consultation with Experts. The Administrative Agent may
consult with legal counsel (who may be counsel for the Borrower), independent
public accountants and other experts selected by it and shall not be liable for
any action taken or omitted to be taken by it in good faith in accordance with
the advice of such counsel, accountants or experts.
SECTION 7.05. Liability of Administrative Agent. Neither the
Administrative Agent nor any of its affiliates nor any of the directors,
officers,
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agents or employees of the foregoing shall be liable for any action taken or not
taken by it or them in connection herewith (i) with the consent or at the
request of the Required Banks or (ii) in the absence of its or their own gross
negligence or willful misconduct. Neither the Administrative Agent nor any of
its affiliates nor any of the directors, officers, agents or employees of the
foregoing shall be responsible for or have any duty to ascertain, inquire into
or verify (i) any statement, warranty or representation made in connection with
this Agreement or any borrowing hereunder; (ii) the performance or observance of
any of the covenants or agreements of the Borrower; (iii) the satisfaction of
any condition specified in Article 3, except receipt of items required to be
delivered to the Administrative Agent; or (iv) the validity, effectiveness or
genuineness of this Agreement, the Notes or any other instrument or writing
furnished in connection herewith. The Administrative Agent shall not incur any
liability by acting in reliance upon any notice, consent, certificate,
statement, or other writing (which may be a bank wire, telex or similar writing)
believed by it to be genuine or to be signed by the proper party or parties.
SECTION 7.06. Indemnification. Each Bank shall, ratably in accordance
with its Commitment, indemnify the Administrative Agent, its affiliates and
their respective directors, officers, agents and employees (to the extent not
reimbursed by the Borrower) against any cost, expense (including counsel fees
and disbursements), claim, demand, action, loss or liability (except such as
result from such indemnitees' gross negligence or willful misconduct) that such
indemnitees may suffer or incur in connection with this Agreement or any action
taken or omitted by such indemnitees hereunder.
SECTION 7.07. Credit Decision. Each Bank acknowledges that it has,
independently and without reliance upon any Agent or any other Bank, 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 Bank also
acknowledges that it will, independently and without reliance upon any Agent or
any other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking any action under this Agreement.
SECTION 7.08. Successor Administrative Agent. The Administrative Agent
may resign at any time by giving notice thereof to the Banks and the Borrower.
Upon any such resignation, the Required Banks shall have the right to appoint a
successor Administrative Agent, subject to the approval of the Borrower. If no
successor Administrative Agent shall have been so appointed by the Required
Banks, with the approval of the Borrower, and shall have accepted such
appointment, within 30 days after the retiring Administrative Agent gives notice
of resignation, then the retiring Administrative Agent may, on behalf of the
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Banks, appoint a successor Administrative Agent, which shall be a Bank, if any
Bank is willing to accept such appointment, and in any event shall be a
commercial bank organized or licensed under the laws of the United States of
America or of any State thereof and having a combined capital and surplus of at
least $50,000,000. Upon the acceptance of its appointment as Administrative
Agent hereunder by a successor Administrative Agent, such successor
Administrative Agent shall thereupon succeed to and become vested with all the
rights and duties of the retiring Administrative Agent, and the retiring
Administrative Agent shall be discharged from its duties and obligations
hereunder. After any retiring Administrative Agent's resignation hereunder as
Administrative Agent, the provisions of this Article shall inure to its benefit
as to any actions taken or omitted to be taken by it while it was Administrative
Agent.
SECTION 7.09. Co-Documentation Agents. Nothing in this Agreement
shall impose upon any of the Co-Documentation Agents, in such capacity, any
duty or liability whatsoever.
ARTICLE 8
CHANGE IN CIRCUMSTANCES
SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair.
If on or prior to the first day of any Interest Period for any CD Loans,
Euro-Dollar Loans or Money Market LIBOR Loan:
(a) the Administrative Agent is advised by the Reference Banks
that deposits in dollars (in the applicable amounts) are not being
offered to the Reference Banks in the relevant market for such Interest
Period, or
(b) in the case of CD Loans or Euro-Dollar Loans, Banks having
50% or more of the aggregate amount of the Commitments advise the
Administrative Agent that the Adjusted CD Rate or the London Interbank
Offered Rate, as the case may be, as determined by the Administrative
Agent will not adequately and fairly reflect the cost to such Banks of
funding their CD Loans or Euro-Dollar Loans, as the case may be, for
such Interest Period,
the Administrative Agent shall forthwith give notice thereof to the Borrower and
the Banks, whereupon until the Administrative Agent notifies the Borrower that
the circumstances giving rise to such suspension no longer exist, (i) the
obligations of the Banks to make CD Loans or Euro-Dollar Loans, as the case
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may be, or to continue or convert outstanding Loans as or into CD Loans or Euro-
Dollar Loans, as the case may be, shall be suspended and (ii) each outstanding
CD Loan or Euro-Dollar Loan, as the case may be, shall be converted into a Base
Rate Loan on the last day of the then current Interest Period applicable
thereto. Unless the Borrower notifies the Administrative Agent at least two
Domestic Business Days before the date of any Fixed Rate Borrowing for which a
Notice of Borrowing has previously been given that it elects not to borrow on
such date, (i) if such Fixed Rate Borrowing is a Committed Borrowing, such
Borrowing shall instead be made as a Base Rate Borrowing and (ii) if such Fixed
Rate Borrowing is a Money Market LIBOR Borrowing, the Money Market LIBOR Loans
comprising such Borrowing shall bear interest for each day from and including
the first day to but excluding the last day of the Interest Period applicable
thereto at the Base Rate for such day.
SECTION 8.02. Illegality. If, on or after the date of this Agreement,
the adoption of any applicable law, rule or regulation, or any change in any
applicable law, rule or regulation, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by any Bank (or its Euro-Dollar Lending Office) with any request or directive
(whether or not having the force of law) of any such authority, central bank or
comparable agency shall make it unlawful or impossible for any Bank (or its
Euro-Dollar Lending Office) to make, maintain or fund its Euro-Dollar Loans and
such Bank shall so notify the Administrative Agent, the Administrative Agent
shall forthwith give notice thereof to the other Banks and the Borrower,
whereupon until such Bank notifies the Borrower and the Administrative Agent
that the circumstances giving rise to such suspension no longer exist, the
obligation of such Bank to make Euro-Dollar Loans or to convert outstanding
Loans into Euro-Dollar Loans or continue outstanding Loans as Euro-Dollar Loans,
shall be suspended. Before giving any notice to the Administrative Agent
pursuant to this Section 8.02, such Bank shall designate a different Euro-Dollar
Lending Office if such designation will avoid the need for giving such notice
and will not, in the judgment of such Bank, be otherwise disadvantageous to such
Bank. If such notice is given, each Euro-Dollar Loan of such Bank then
outstanding shall be converted to a Base Rate Loan either (i) on the last day of
the then current Interest Period applicable to such Euro-Dollar Loan if such
Bank may lawfully continue to maintain and fund such Loan as a Euro-Dollar Loan
to such day or (ii) immediately if such Bank shall determine that it may not
lawfully continue to maintain and fund such Loan as a Euro-Dollar Loan to such
day. Interest and principal on any such Base Rate Loan shall be payable on the
same dates as, and on a pro rata basis with, the interest and principal payable
on the related Euro-Dollar Loans of the other Banks.
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SECTION 8.03. Increased Cost and Reduced Return. (a) If on or after (x)
the date hereof, in the case of any Committed Loan or any obligation to make
Committed Loans or (y) the date of the related Money Market Quote, in the case
of any Money Market Loan, the adoption of any applicable law, rule or
regulation, or any change in any applicable law, rule or regulation, or any
change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Bank (or its Applicable Lending
Office) with any request or directive (whether or not having the force of law)
of any such authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Bank (or its
Applicable Lending Office) with any request or directive (whether or not having
the force of law) of any such authority, central bank or comparable agency shall
impose, modify or deem applicable any reserve (including, without limitation,
any such requirement imposed by the Board of Governors of the Federal Reserve
System, but excluding (i) with respect to any CD Loan any such requirement
included in an applicable Domestic Reserve Percentage and (ii) with respect to
any Euro-Dollar Loan any such requirement with respect to which such Bank is
entitled to compensation during the relevant Interest Period under Section
2.15), special deposit, insurance assessment (excluding, with respect to any CD
Loan, any such requirement reflected in an applicable Assessment Rate) or
similar requirement against assets of, deposits with or for the account of, or
credit extended by, any Bank (or its Applicable Lending Office) or shall impose
on any Bank (or its Applicable Lending Office) or on the United States market
for certificates of deposit or the London interbank market any other condition
affecting its Fixed Rate Loans, its Note or its obligation to make Fixed Rate
Loans and the result of any of the foregoing is to increase the cost to such
Bank (or its Applicable Lending Office) of making or maintaining any Fixed Rate
Loan, or to reduce the amount of any sum received or receivable by such Bank (or
its Applicable Lending Office) under this Agreement or under its Note with
respect thereto, by an amount deemed by such Bank to be material, then, within
15 days after demand by such Bank (with a copy to the Administrative Agent), the
Borrower shall pay to such Bank such additional amount or amounts as will
compensate such Bank for such increased cost or reduction.
(b) If any Bank shall have determined that, after the date hereof, the
adoption of any applicable law, rule or regulation regarding capital adequacy,
or any change in any such law, rule or regulation, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or any request or directive regarding capital adequacy (whether or not
having the force of law) of any such authority, central bank or comparable
agency (including any determination by any such authority, central bank or
comparable agency that,
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for purposes of capital adequacy requirements, the Commitments hereunder do not
constitute commitments with an original maturity of one year or less), has or
would have the effect of reducing the rate of return on capital of such Bank (or
its Parent) as a consequence of such Bank's obligations hereunder to a level
below that which such Bank (or its Parent) could have achieved but for such
adoption, change, request or directive (taking into consideration its policies
with respect to capital adequacy) by an amount deemed by such Bank to be
material, then from time to time, within 15 days after demand by such Bank (with
a copy to the Administrative Agent), the Borrower shall pay to such Bank such
additional amount or amounts as will compensate such Bank (or its Parent) for
such reduction; provided that the Borrower shall not be liable for any such
amounts attributable to a period more than three months prior to the date of
notice by such Bank to the Borrower of its intention to seek compensation under
this subsection (b).
(c) Each Bank will promptly notify the Borrower and the Administrative
Agent of any event of which it has knowledge, occurring after the date hereof,
which will entitle such Bank to compensation pursuant to this Section and will
designate a different Applicable Lending Office if such designation will avoid
the need for, or reduce the amount of, such compensation and will not, in the
judgment of such Bank, be otherwise disadvantageous to such Bank. A certificate
of any Bank claiming compensation under this Section, setting forth the
additional amount or amounts to be paid to it hereunder and the basis of
calculation thereof, shall be conclusive in the absence of manifest error. In
determining such amount, such Bank may use any reasonable averaging and
attribution methods.
SECTION 8.04. Taxes. (a) Any and all payments by the Borrower to or for
the account of any Bank or the Administrative Agent hereunder or under any Note
shall be made free and clear of and without deduction for any and all present or
future taxes, duties, levies, imposts, deductions, charges and withholdings, and
all liabilities with respect thereto, excluding, in the case of each Bank and
the Administrative Agent, taxes imposed on its income, and franchise taxes
imposed on it, by the jurisdiction under the laws of which such Bank or the
Administrative Agent (as the case may be) is organized or any political
subdivision thereof and, in the case of each Bank, taxes imposed on its income,
and franchise or similar taxes imposed on it, by the jurisdiction of such Bank's
Applicable Lending Office or any political subdivision thereof (all such
non-excluded taxes, duties, levies, imposts, deductions, charges, withholdings
and liabilities being hereinafter referred to as "TAXES"). If the Borrower shall
be required by law to deduct any Taxes from or in respect of any sum payable
hereunder or under any Note to any Bank or the Administrative Agent, (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 8.04) such Bank or the
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Administrative Agent (as the case may be) receives an amount equal to the sum it
would have received had no such deductions been made, (ii) the Borrower shall
make such deductions, (iii) the Borrower shall pay the full amount deducted to
the relevant taxation authority or other authority in accordance with applicable
law and (iv) the Borrower shall furnish to the Administrative Agent, at its
address referred to in Section 9.01, the original or a certified copy of a
receipt evidencing payment thereof.
(b) In addition, the Borrower agrees to pay any present or future stamp
or documentary taxes and any other excise or property taxes, or charges or
similar levies which arise from any payment made hereunder or under any Note or
from the execution or delivery of, or otherwise with respect to, this Agreement
or any Note (hereinafter referred to as "OTHER TAXES").
(c) The Borrower agrees to indemnify each Bank and the Administrative
Agent for the full amount of Taxes and Other Taxes (including, without
limitation, any Taxes and Other Taxes imposed or asserted by any jurisdiction on
amounts payable under this Section 8.04) paid by such Bank or the Administrative
Agent (as the case may be) and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto. This indemnification shall
be made within 15 days from the date such Bank or the Administrative Agent (as
the case may be) makes demand therefor.
(d) Each Bank organized under the laws of a jurisdiction outside the
United States, on or prior to the date of its execution and delivery of this
Agreement in the case of each Bank listed on the signature pages hereof and on
or prior to the date on which it becomes a Bank in the case of each other Bank,
and from time to time thereafter if requested in writing by the Borrower (but
only so long as such Bank remains lawfully able to do so), shall provide the
Borrower with Internal Revenue Service form 1001 or 4224, as appropriate, or any
successor form prescribed by the Internal Revenue Service, certifying that such
Bank is entitled to benefits under an income tax treaty to which the United
States is a party which reduces the rate of withholding tax on payments of
interest or certifying that the income receivable pursuant to this Agreement is
effectively connected with the conduct of a trade or business in the United
States. If the form provided by a Bank at the time such Bank first becomes a
party to this Agreement indicates a United States interest withholding tax rate
in excess of zero, withholding tax at such rate shall be considered excluded
from "TAXES" as defined in Section 8.04(a).
(e) For any period with respect to which a Bank has failed to provide
the Borrower with the form required pursuant to Section 8.04(d), if any (unless
such failure is due to a change in treaty, law or regulation occurring
subsequent to the
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date on which a form originally was required to be provided), such Bank shall
not be entitled to indemnification under Section 8.04(a) with respect to Taxes
imposed by the United States; provided, however, that should a Bank, which is
otherwise exempt from or subject to a reduced rate of withholding tax, become
subject to Taxes because of its failure to deliver a form required hereunder,
the Borrower shall take such steps as such Bank shall reasonably request to
assist such Bank to recover such Taxes.
(f) If the Borrower is required to pay additional amounts to or for the
account of any Bank pursuant to this Section 8.04, then such Bank will change
the jurisdiction of its Applicable Lending Office so as to eliminate or reduce
any such additional payment which may thereafter accrue if such change, in the
judgment of such Bank, is not otherwise disadvantageous to such Bank.
SECTION 8.05. Base Rate Loans Substituted for Affected Fixed Rate
Loans. If (i) the obligation of any Bank to make, or to continue or convert
outstanding Loans as or to, Euro-Dollar Loans has been suspended pursuant to
Section 8.02 or (ii) any Bank has demanded compensation under Section 8.03 or
8.04 with respect to its CD Loans or Euro-Dollar Loans, and in any such case the
Borrower shall, by at least five Euro-Dollar Business Days' prior notice to such
Bank through the Administrative Agent, have elected that the provisions of this
Section shall apply to such Bank, then, unless and until such Bank notifies the
Borrower that the circumstances giving rise to such suspension or demand for
compensation no longer exist, all Loans which would otherwise be made by such
Bank as (or continued as or converted to) CD Loans or Euro-Dollar Loans, as the
case may be, shall instead be Base Rate Loans on which interest and principal
shall be payable contemporaneously with the related CD Loans or Euro-Dollar
Loans of the other Banks. If such Bank notifies the Borrower that the
circumstances giving rise to such suspension or demand for compensation no
longer exist, the principal amount of each such Base Rate Loan shall be
converted into a CD Loan or Euro-Dollar Loan, as the case may be, on the first
day of the next succeeding Interest Period applicable to the related CD Loans or
Euro-Dollar Loans of the other Banks.
SECTION 8.06. Substitution of Bank. If (i) the obligation of any Bank
to make Euro-Dollar Loans has been suspended pursuant to Section 8.02 or (ii)
any Bank has demanded compensation under Section 8.03 or 8.04, the Borrower
shall have the right, with the assistance of the Administrative Agent, to seek a
mutually satisfactory substitute bank or banks (which may be one or more of the
Banks) to purchase the Loans and assume the Commitment of such Bank.
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ARTICLE 9
MISCELLANEOUS
SECTION 9.01. Notices. All notices, requests and other communications
to any party hereunder shall be in writing (including bank wire, telex,
facsimile transmission or similar writing) and shall be given to such party: (x)
in the case of the Borrower or the Administrative Agent, at its address or
facsimile or telex number set forth on the signature pages hereof, (y) in the
case of any Bank, at its address or facsimile or telex number set forth in its
Administrative Questionnaire or (z) in the case of any party, such other address
or facsimile or telex number as such party may hereafter specify for the purpose
by notice to the Administrative Agent and the Borrower. Each such notice,
request or other communication shall be effective (i) if given by telex, when
such telex is transmitted to the telex number specified in this Section and the
appropriate answerback is received, (ii) if given by mail, 72 hours after such
communication is deposited in the mails with first class postage prepaid,
addressed as aforesaid or (iii) if given by any other means, when delivered at
the address specified in this Section; provided that notices to the
Administrative Agent under Article 2 or Article 8 shall not be effective until
received.
SECTION 9.02. No Waivers. No failure or delay by the Administrative
Agent or any Bank in exercising any right, power or privilege hereunder or under
any Note shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies provided by law.
SECTION 9.03. Expenses; Indemnification. (a) The Borrower shall pay (i)
all out-of-pocket expenses of the Administrative Agent, including fees and
disbursements of special counsel for the Administrative Agent, in connection
with the preparation and administration of this Agreement, any waiver or consent
hereunder or any amendment hereof or any Default or alleged Default hereunder
and (ii) if an Event of Default occurs, all out-of-pocket expenses incurred by
the Administrative Agent or any Bank, including fees and disbursements of
outside counsel (or, in lieu thereof, the allocated cost of in-house counsel),
in connection with such Event of Default and collection, bankruptcy, insolvency
and other enforcement proceedings resulting therefrom.
(b) The Borrower agrees to indemnify each Agent and Bank, 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 liabilities, losses, damages, costs and
expenses of any
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kind, including, without limitation, the 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 no Indemnitee shall have the right to be
indemnified hereunder for such Indemnitee's own gross negligence or willful
misconduct.
SECTION 9.04. Sharing of Set-Offs. Each Bank agrees that if it shall,
by exercising any right of set-off or counterclaim or otherwise, receive payment
of a proportion of the aggregate amount of principal and interest due with
respect to the Loans held by it which is greater than the proportion received by
any other Bank in respect of the aggregate amount of principal and interest due
with respect to the Loans held by such other Bank, the Bank receiving such
proportionately greater payment shall purchase such participations in the Loans
held by the other Banks, and such other adjustments shall be made, as may be
required so that all such payments of principal and interest with respect to the
Loans held by the Banks shall be shared by the Banks pro rata; provided that
nothing in this Section shall impair the right of any Bank to exercise any right
of set-off or counterclaim it may have and to apply the amount subject to such
exercise to the payment of indebtedness of the Borrower other than its
indebtedness under this Agreement. The Borrower agrees, to the fullest extent it
may effectively do so under applicable law, that any holder of a participation
in a Loan, whether or not acquired pursuant to the foregoing arrangements, may
exercise rights of set-off or counterclaim and other rights with respect to such
participation as fully as if such holder of a participation were a direct
creditor of the Borrower in the amount of such participation.
SECTION 9.05. Amendments and Waivers. Any provision of this Agreement
or the Notes may be amended or waived if, but only if, such amendment or waiver
is in writing and is signed by the Borrower and the Required Banks (and, if the
rights or duties of the Administrative Agent are affected thereby, by the
Administrative Agent); provided that no such amendment or waiver shall:
(a) unless signed by all the Banks, (i) increase or decrease
the Commitment of any Bank (except for a ratable decrease in the
Commitments of all the Banks) or subject any Bank to any additional
obligation, (ii) reduce the principal of or rate of interest on any
Loan or any fees hereunder, (iii) postpone the date fixed for any
payment of principal of or interest on any Loan or any fees hereunder
or for the termination of any Commitment or (iv) change the percentage
of the Commitments or of the aggregate unpaid principal amount of the
Loans,
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or the number of Banks, which shall be required for the Banks or any of
them to take any action under this Section or any other provision of
this Agreement; or
(b) unless signed by a Designated Lender or its Designating
Bank, subject such Designated Lender to any additional obligation or
affect its rights hereunder (unless the rights of all the Banks
hereunder are similarly affected).
SECTION 9.06. 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, except that the Borrower may not
assign or otherwise transfer any of its rights under this Agreement without the
prior written consent of all Banks.
(b) Any Bank may at any time grant to one or more banks or other
institutions (each a "PARTICIPANT") participating interests in its Commitment or
in any or all of its Loans. In the event of any such grant by a Bank of a
participating interest to a Participant, whether or not upon notice to the
Borrower and the Administrative Agent, such Bank shall remain responsible for
the performance of its obligations hereunder, and the Borrower and the
Administrative Agent shall continue to deal solely and directly with such Bank
in connection with such Bank's rights and obligations under this Agreement. Any
agreement pursuant to which any Bank may grant such a participating interest
shall provide that such Bank shall retain the sole right and responsibility to
enforce the obligations of the Borrower hereunder including, without limitation,
the right to approve any amendment, modification or waiver of any provision of
this Agreement; provided that such participation agreement may provide that such
Bank will not agree to any modification, amendment or waiver of this Agreement
described in clause (i), (ii) or (iii) of Section 9.05 without the consent of
the Participant. The Borrower agrees that each Participant shall, to the extent
provided in its participation agreement, be entitled to the benefits of Section
2.15 and Article 8 with respect to its participating interest. An assignment or
other transfer which is not permitted by subsection (c) or (d) below shall be
given effect for purposes of this Agreement only to the extent of a
participating interest granted in accordance with this subsection (b).
(c) Any Bank may at any time assign to one or more banks or other
institutions (each an "ASSIGNEE") all, or a proportionate part (equivalent to a
Commitment of not less than $5,000,000) of all, of its rights and obligations
under this Agreement and the Notes (if any), and such Assignee shall assume such
rights and obligations, pursuant to an Assignment and Assumption Agreement in
substantially the form of Exhibit G hereto executed by such Assignee and such
58
<PAGE> 63
transferor Bank, with (and subject to) the subscribed consent of the Borrower
and the Administrative Agent (which consents shall not be unreasonably
withheld); provided that if an Assignee is a Bank or an affiliate of such
transferor Bank, no such consents shall be required; provided further that, if
the Borrower's long-term senior unsecured debt is rated below BBB- by S&P or
below Baa3 by Moody's, no such consent of the Borrower shall be required; and
provided further that such assignment may, but need not, include rights of the
transferor Bank in respect of outstanding Money Market Loans. Upon execution and
delivery of such instrument and payment by such Assignee to such transferor Bank
of an amount equal to the purchase price agreed between such transferor Bank and
such Assignee, such Assignee shall be a Bank party to this Agreement and shall
have all the rights and obligations of a Bank with a Commitment as set forth in
such instrument of assumption, and the transferor Bank shall be released from
its obligations hereunder to a corresponding extent, and no further consent or
action by any party shall be required. Upon the consummation of any assignment
pursuant to this subsection (c), the transferor Bank, the Administrative Agent
and the Borrower shall make appropriate arrangements so that, if required, a new
Note is issued to the Assignee. In connection with any such assignment, the
transferor Bank shall pay to the Administrative Agent an administrative fee for
processing such assignment in the amount of $3,000. If the Assignee is not
incorporated under the laws of the United States of America or a state thereof,
it shall deliver to the Borrower and the Administrative Agent certification as
to exemption from deduction or withholding of any United States federal income
taxes in accordance with Section 8.04.
(d) Any Bank may at any time assign all or any portion of its rights
under this Agreement and its Note (if any) to a Federal Reserve Bank. No such
assignment shall release the transferor Bank from its obligations hereunder.
(e) No Assignee, Participant or other transferee of any Bank's rights
shall be entitled to receive any greater payment under Section 8.03 or 8.04 than
such Bank would have been entitled to receive with respect to the rights
transferred, unless such transfer is made with the Borrower's prior written
consent or by reason of the provisions of Section 8.02, 8.03 or 8.04 requiring
such Bank to designate a different Applicable Lending Office under certain
circumstances.
SECTION 9.07. Designated Lenders. (a) Subject to the provisions of this
Section 9.07(a), any Bank may from time to time elect to designate an Eligible
Designee to provide all or a portion of the Loans to be made by such Bank
pursuant to this Agreement; provided that such designation shall not be
effective unless the Borrower and the Administrative Agent consent thereto. When
a Bank and its Eligible Designee shall have signed an agreement substantially in
the form of Exhibit H hereto (a "DESIGNATION AGREEMENT") and the Borrower and
the
59
<PAGE> 64
Administrative Agent shall have signed their respective consents thereto, such
Eligible Designee shall become a Designated Lender for purposes of this
Agreement. The Designating Bank shall thereafter have the right to permit such
Designated Lender to provide all or a portion of the Loans to be made by such
Designating Bank pursuant to Section 2.01 or 2.03, and the making of such Loans
or portions thereof shall satisfy the obligation of the Designating Bank to the
same extent, and as if, such Loans or portion thereof were made by the
Designating Bank. As to any Loans or portion thereof made by it, each Designated
Lender shall have all the rights that a Bank making such Loans or portion
thereof would have had under this Agreement and otherwise; provided that (x) its
voting rights under this Agreement shall be exercised solely by Designating Bank
and (y) its Designating Bank shall remain solely responsible to the other
parties hereto for the performance of its obligations under this Agreement,
including its obligations in respect of the Loans or portion thereof made by it.
No additional Note shall be required to evidence Loans or portions thereof made
by a Designated Lender; and the Designating Bank shall be deemed to hold its
Note (if any) as agent for its Designated Lender to the extent of the Loans or
portion thereof funded by such Designated Lender. Each Designating Bank shall
act as administrative agent for its Designated Lender and give and receive
notices and other communications on its behalf. Any payments for the account of
any Designated Lender shall be paid to its Designating Bank as administrative
agent for such Designated Lender and neither the Borrower nor the Administrative
Agent shall be responsible for any Designating Bank's application of such
payments. In addition, any Designated Lender may (i) with notice to, but without
the prior written consent of the Borrower or the Administrative Agent, assign
all or portions of its interest in any Loans to its Designating Bank or to any
financial institutions consented to by the Borrower and the Administrative Agent
providing liquidity and/or credit facilities to or for the account of such
Designated Lender to support the funding of Loans or portions thereof made by
such Designated Lender and (ii) disclose on a confidential basis any non-public
information relating to its Loans or portions thereof to any rating agency,
commercial paper dealer or provider of any guarantee, surety, credit or
liquidity enhancement to such Designated Lender.
(b) Each party to this Agreement agrees that it will not institute
against, or join any other person in instituting against, any Designated Lender
any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceeding or other proceeding under any federal or state bankruptcy or similar
law, for one year and a day after all outstanding senior indebtedness of such
Designated Lender is paid in full. The Designating Bank for each Designated
Lender agrees to indemnify, save, and hold harmless each other party hereto for
any loss, cost, damage and expense arising out of its inability to institute any
such proceeding against such Designated Lender. This Section 9.07(b) shall
survive the termination of this Agreement.
60
<PAGE> 65
SECTION 9.08. Collateral. Each of the Banks represents to the
Administrative Agent and each of the other Banks that it in good faith is not
relying upon any "MARGIN STOCK" (as defined in Regulation U) as collateral in
the extension or maintenance of the credit provided for in this Agreement.
SECTION 9.09. Governing Law; Submission to Jurisdiction. This Agreement
and each Note shall be governed by and construed in accordance with the laws of
the State of New York. The Borrower hereby submits to the nonexclusive
jurisdiction of the United States District Court for the Southern District of
New York and of any New York State court sitting in New York City for purposes
of all legal proceedings arising out of or relating to this Agreement, the Notes
or the transactions contemplated hereby. The Borrower irrevocably waives, to the
fullest extent permitted by law, any objection which it may now or hereafter
have to the laying of the venue of any such proceeding brought in such a court
and any claim that any such proceeding brought in such a court has been brought
in an inconvenient forum.
SECTION 9.10. Counterparts; Integration. This Agreement may be signed
in any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement constitutes the entire agreement and understanding among the
parties hereto and supersedes any and all prior agreements and understandings,
oral or written, relating to the subject matter hereof.
SECTION 9.11. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE
ADMINISTRATIVE AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT
TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT, THE NOTES OR THE TRANSACTIONS CONTEMPLATED HEREBY.
61
<PAGE> 66
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.
LITTON INDUSTRIES, INC.
By: /s/ Timothy G. Paulson
-------------------------------------
Name: Timothy G. Paulson
Title: Vice President and Treasurer
Address: 21240 Burbank Blvd.
Woodland Hills, CA 91367
Telecopy: 818-598-3366
<PAGE> 67
COMMITMENTS
$66,666,666.70 MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By: /s/ Sovonna L. Day
-------------------------------------
Name: Sovonna L. Day
Title: Vice President
$66,666,666.66 BANK OF AMERICA, N.A.
By: /s/ Dianne P. Allen
-------------------------------------
Name: Dianne P. Allen
Title: Vice President
$66,666,666.66 THE CHASE MANHATTAN BANK
By: /s/ Matthew H. Massie
-------------------------------------
Name: Matthew H. Massie
Title: Managing Director
$66,666,666.66 THE BANK OF NEW YORK
By: /s/ Jonathan Rollins
-------------------------------------
Name: Jonathan Rollins
Title: Vice President
COMMITMENTS
$66,666,666.66 CREDIT SUISSE FIRST BOSTON
By: /s/ Thomas G. Muoio
-------------------------------------
Name: Thomas G. Muoio
Title: Vice President
By: /s/ Jennifer E. Toth
-------------------------------------
Name: Jennifer E. Toth
Title: Analyst
$66,666,666.66 CITICORP USA, INC.
By: /s/ George E. Moyer, Jr.
-------------------------------------
Name: George E. Moyer, Jr.
Title: Vice President
<PAGE> 68
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK, as
Administrative Agent
By: /s/ Sovonna L. Day
-------------------------------------
Name: Sovonna L. Day
Title: Vice President
Address: 60 Wall Street
New York, NY 10260-0060
Attention: Robert Bottamedi
Telex number: 212-648-1349
<PAGE> 69
PRICING SCHEDULE
The "EURO-DOLLAR MARGIN", "CD MARGIN" and "FACILITY FEE RATE" for any
day are the respective percentages set forth below in the applicable row under
the column corresponding to the Status that exists on such day:
<TABLE>
<CAPTION>
STATUS LEVEL I LEVEL II LEVEL III LEVEL IV LEVEL V
------ ------- -------- --------- -------- -------
<S> <C> <C> <C> <C> <C>
Euro-Dollar Margin
Utilization < 33 % 0.4300% 0.5250% 0.6250% 0.7250% 1.1750%
-
Utilization > 33 % 0.5550% 0.6500% 0.7500% 0.8500% 1.3000%
- ------------------------------------------------------------------------------------------------
CD Margin
Utilization < 33 % 0.5550% 0.6500% 0.7500% 0.8500% 1.3000%
-
Utilization > 33 % 0.6800% 0.7750% 0.8750% 0.9750% 1.4250%
- ------------------------------------------------------------------------------------------------
Facility Fee Rate 0.0700% 0.1000% 0.1250% 0.1500% 0.2000%
- ------------------------------------------------------------------------------------------------
</TABLE>
For purposes of this Schedule, the following terms have the following
meanings:
The "COMMERCIAL PAPER TEST" is met at any date if, at such date, the
Borrower has a commercial paper rating of A-2 or higher from S&P and P-2 or
higher from Moody's.
"LEVEL I STATUS" exists at any date if, at such date, (a) the
Borrower's long-term debt is rated A-/A3 or higher by at least two Rating
Agencies and (b) the Commercial Paper Test is met.
"LEVEL II STATUS" exists at any date if, at such date, (a) (i) the
Borrower's long-term debt is rated BBB+/Baa1 or higher by at least two Rating
Agencies and (ii) Level I Status does not exist at such date and (b) the
Commercial Paper Test is met.
"LEVEL III STATUS" exists at any date if, at such date, (a) (i) the
Borrower's long-term debt is rated BBB/Baa2 or higher by at least two Rating
Agencies and (ii) neither Level I Status nor Level II Status exists at such date
and (b) the Commercial Paper Test is met.
"LEVEL IV STATUS" exists at any date if, at such date, (i) the
Borrower's long-term debt is rated BBB-/Baa3 or higher by at least two Rating
Agencies and (ii) none of Level I Status, Level II Status or Level III Status
exists at such date.
<PAGE> 70
"LEVEL V STATUS" exists at any date, if at the close of business on
such date, none of Level I Status, Level II Status, Level III Status or Level IV
Status exists.
"STATUS" refers to the determination of which of Level I Status, Level
II Status, Level III Status, Level IV Status or Level V Status exists at any
date.
"UTILIZATION" means at any date the percentage equivalent of a fraction
(i) the numerator of which is the aggregate outstanding principal amount of the
Loans at such date, after giving effect to any borrowing or payment on such
date, and (ii) the denominator of which is the aggregate amount of the
Commitments at such date, after giving effect to any reduction of the
Commitments on such date. For purposes of this Schedule, if for any reason any
Loans remain outstanding after termination of the Commitments, the Utilization
for each date on or after the date of such termination shall be deemed to be
greater than 33%.
The credit ratings to be utilized for purposes of determining a Status
hereunder are those assigned to the senior unsecured long-term debt of the
Borrower or the unsecured commercial paper of the Borrower, as the case may be,
in either case without third-party credit enhancement, and any rating assigned
to any other debt of the Borrower shall be disregarded; provided that, for
purposes of determinations based on the Borrower's long-term debt ratings, if at
any time the Borrower's senior unsecured long-term debt is rated by exactly two
Rating Agencies and the ratings assigned to such debt by such two Rating
Agencies are more than one full rating category apart, Status shall be
determined based on a rating one category higher than the lower of such two
ratings (e.g., if the S&P rating is BBB+, the Moody's rating is Baa3 and there
is no D&P rating, then Level III Status shall exist); provided further that if
at any time the Borrower's senior unsecured long-term debt, without third party
credit enhancement, is not rated by at least two Rating Agencies, then Status
shall be Level V Status. The rating in effect at any date is that in effect at
the close of business on such date.
<PAGE> 71
COMMITMENT SCHEDULE
<TABLE>
<CAPTION>
BANK COMMITMENT
- --------------------------------------------------------- ---------------
<S> <C>
Morgan Guaranty Trust Company of New York $66,666,666.70
Bank of America, N.A. $66,666,666.66
The Chase Manhattan Bank $66,666,666.66
The Bank of New York $66,666,666.66
Credit Suisse First Boston $66,666,666.66
Citicorp USA, Inc. $66,666,666.66
---------------
Total $400,000,000.00
</TABLE>
<PAGE> 72
EXHIBIT A
NOTE
New York, New York
[Date]
For value received, Litton Industries, Inc. a Delaware corporation (the
"BORROWER"), promises to pay to the order of (the "BANK"), for the
account of its Applicable Lending Office, the unpaid principal amount of each
Loan made by the Bank to the Borrower pursuant to the Credit Agreement referred
to below on the maturity date provided for in the Credit Agreement. The Borrower
promises to pay interest on the unpaid principal amount of each such Loan on the
dates and at the rate or rates provided for in the Credit Agreement. All such
payments of principal and interest shall be made in lawful money of the United
States in Federal or other immediately available funds at the office of Morgan
Guaranty Trust Company of New York, 60 Wall Street, New York, New York.
All Loans made by the Bank, the respective types and maturities thereof
and all repayments of the principal thereof shall be recorded by the Bank and,
if the Bank so elects in connection with any transfer or enforcement hereof,
appropriate notations to evidence the foregoing information with respect to each
such Loan then outstanding may be endorsed by the Bank on the schedule attached
hereto, or on a continuation of such schedule attached to and made a part
hereof; provided that the failure of the Bank to make any such recordation or
endorsement shall not affect the obligations of the Borrower hereunder or under
the Credit Agreement.
This note is one of the Notes referred to in the Credit Agreement dated
as of July 23, 1999 among the Borrower, the banks parties thereto and Morgan
Guaranty Trust Company of New York, as Administrative Agent (as the same may be
amended from time to time, the "CREDIT AGREEMENT"). Terms defined in the Credit
Agreement are used herein with the same meanings. Reference is made to the
Credit Agreement for provisions for the prepayment hereof and the acceleration
of the maturity hereof.
LITTON INDUSTRIES, INC.
By:
--------------------------------
Name:
Title:
<PAGE> 73
Note (cont'd)
LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
AMOUNT OF
AMOUNT OF TYPE PRINCIPAL MATURITY NOTATION
DATE LOAN OF LOAN REPAID DATE MADE BY
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 74
EXHIBIT B
FORM OF MONEY MARKET QUOTE REQUEST
[Date]
To: Morgan Guaranty Trust Company of New York
From: Litton Industries, Inc.
Re: Credit Agreement (as amended from time to time, the "CREDIT
AGREEMENT") dated as of July 23, 1999 among the Borrower, the
Banks parties thereto and Morgan Guaranty Trust Company of
New York, as Administrative Agent
We hereby give notice pursuant to Section 2.03 of the Credit Agreement
that we request Money Market Quotes for the following proposed Money Market
Borrowing(s):
Date of Borrowing: __________________
Principal Amount* Interest Period**
$
Such Money Market Quotes should offer a Money Market [Margin] [Absolute
Rate]. [The applicable base rate is the London Interbank Offered Rate.]
Terms used herein have the meanings assigned to them in the Credit
Agreement.
LITTON INDUSTRIES, INC.
By:
--------------------------------
Name:
Title:
- --------
*Amount must be $15,000,000 or a larger multiple of $1,000,000.
**Not less than one month (LIBOR Auction) or not less than 14 days
(Absolute Rate Auction), subject to the provisions of the definition of Interest
Period.
<PAGE> 75
EXHIBIT C
FORM OF INVITATION FOR MONEY MARKET QUOTES
To: [Name of Bank]
Re: Invitation for Money Market Quotes to Litton Industries, Inc.
(the "BORROWER")
Pursuant to Section 2.03 of the Credit Agreement (as amended from time
to time, the "CREDIT AGREEMENT") dated as of July 23, 1999 among the Borrower,
the Banks parties thereto and the undersigned, as Administrative Agent, we are
pleased on behalf of the Borrower to invite you to submit Money Market Quotes to
the Borrower for the following proposed Money Market Borrowing(s):
Date of Borrowing: __________________
Principal Amount Interest Period
$
Such Money Market Quotes should offer a Money Market [Margin] [Absolute
Rate]. [The applicable base rate is the London Interbank Offered Rate.]
Please respond to this invitation by no later than [2:00 P.M.] [9:30
A.M.] (New York City time) on [date].
Terms used herein have the meanings assigned to them in the Credit
Agreement.
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By:
--------------------------------
Name:
Title: Authorized Officer
<PAGE> 76
EXHIBIT D
FORM OF MONEY MARKET QUOTE
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Administrative Agent
60 Wall Street
New York, New York 10260-0060
Attention:
Re: Money Market Quote to
Litton Industries, Inc. (the "BORROWER")
In response to your invitation on behalf of the Borrower dated
_____________, 19__, we hereby make the following Money Market Quote on the
following terms:
1. Quoting Bank: ________________________________
2. Person to contact at Quoting Bank:
-----------------------------
3. Date of Borrowing: ____________________
4. We hereby offer to make Money Market Loan(s) in the following
principal amounts, for the following Interest Periods and at the
following rates:
<TABLE>
<CAPTION>
Principal Interest Money Market Absolute
Amount** Period*** Margin**** Rate*****
- --------- -------- ------------ --------
<S> <C> <C> <C>
$
$
</TABLE>
[Provided, that the aggregate principal amount of Money Market
Loans for which the above offers may be accepted shall not
exceed
$____________.]**
<PAGE> 77
We understand and agree that the offer(s) set forth above, subject to
the satisfaction of the applicable conditions set forth in the Credit Agreement
(as amended from time to time, the "CREDIT AGREEMENT") dated as of July 23, 1999
among the Borrower, the Banks parties thereto and yourselves, as Administrative
Agent, irrevocably obligates us to make the Money Market Loan(s) for which any
offer(s) are accepted, in whole or in part.
Terms used herein have the meanings assigned to them in the Credit
Agreement.
Very truly yours,
[NAME OF BANK]
Dated: By:
------------------------ --------------------------------
Name:
Title: Authorized Officer
- ------------------------------------
** Principal amount bid for each Interest Period may not exceed principal
amount requested. Specify aggregate limitation if the sum of the
individual offers exceeds the amount the Bank is willing to lend. Bids
must be made for $5,000,000 or a larger multiple of $1,000,000.
*** Not less than one month or not less than 14 days, as specified in the
related Invitation. No more than five bids are permitted for each
Interest Period.
**** Margin over or under the London Interbank Offered Rate determined for
the applicable Interest Period. Specify percentage (to the nearest
1/10,000 of 1%) and specify whether "PLUS" or "MINUS".
***** Specify rate of interest per annum (to the nearest 1/10,000th of 1%).
<PAGE> 78
EXHIBIT E
OPINION OF
COUNSEL FOR THE BORROWER
[Dated the Effective Date]
To the Banks and the Administrative Agent
Referred to Below
c/o Morgan Guaranty Trust Company
of New York, as Administrative Agent
60 Wall Street
New York, New York 10260-0060
Dear Sirs:
I am the chief legal officer of Litton Industries, Inc. (the
"BORROWER") and have acted in that capacity in connection with the Credit
Agreement (the "CREDIT AGREEMENT") dated as of July 23, 1999 among the Borrower,
the banks listed on the signature pages thereof and Morgan Guaranty Trust
Company of New York, as Administrative Agent. Terms defined in the Credit
Agreement are used herein as therein defined.
I, or a member of my department who reports to me, have examined
originals or copies, certified or otherwise identified to my or their
satisfaction, of such documents, corporate records, certificates of public
officials and other instruments and have conducted such other investigations of
facts and law as I or they have deemed necessary or advisable for purposes of
this opinion.
Upon the basis of the foregoing, I am of the opinion that:
1. The Borrower is a corporation duly incorporated, validly existing
and in good standing under the laws of Delaware and has all corporate powers and
all material governmental licenses, authorizations, consents and approvals
required to carry on its business as now conducted.
2. The execution, delivery and performance by the Borrower of the
Credit Agreement and the Notes are within the Borrower's corporate powers, have
been duly authorized by all necessary corporate action, require no action by or
in respect of, or filing with, any governmental body, agency or official and do
not contravene, or constitute a default under, any provision of applicable law
or regulation or of the certificate of incorporation or by-laws of the Borrower
or of any agreement, judgment, injunction, order, decree or other instrument
binding
<PAGE> 79
upon the Borrower or result in the creation or imposition of any Lien on any
asset of the Borrower or any of its Subsidiaries.
3. The Credit Agreement constitutes a valid and binding agreement of
the Borrower and each Note constitutes a valid and binding obligation of the
Borrower, in each case enforceable in accordance with its terms, except as the
same may be limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally and by general principles of equity.
4. The Borrower is a party to various contracts with the U.S.
Government. In the current government contracting environment, contractors,
sometimes without their knowledge, are subject to investigations by the U.S.
Government initiated in various ways. I am aware of ongoing investigations with
which the Borrower is cooperating. Should any investigation result in the filing
of formal charges against the Borrower by the U.S. Government, disclosure will
be made if the amount involved or the relief sought is deemed by the borrower to
be material. Except for actions, suits or proceedings described in the
Borrower's 1998 Form 10-K and the Borrower's Forms 10-Q filed for the quarterly
periods ending October 31, 1998, January 31, 1999 and April 30, 1999, there is
no action, suit or proceeding pending against, or to the knowledge of the
Borrower threatened against or affecting, the Borrower or any of its
Subsidiaries before any court or arbitrator or any governmental body, agency or
official, an adverse decision in which might materially adversely affect the
business, consolidated financial position or consolidated results of operations
of the Borrower and its Consolidated Subsidiaries, taken as a whole.
5. Each of the Borrower's Material Subsidiaries is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation, and has all corporate powers and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted.
All of the foregoing opinions are rendered as of the date hereof. I
assume no obligation to update such opinion to reflect any facts or
circumstances which may hereafter come to my attention or changes in the law
which may hereafter occur.
I am a member of the Bar of the State of California, and the foregoing
opinion is limited to the laws of the State of California, the General
Corporation Law of the State of Delaware and the Federal laws of the United
States of America. Inasmuch as the Credit Agreement and the Notes are governed
by the law of the State of New York, I have assumed for purposes of the
foregoing opinion that such law is the same as the law of the State of
California.
2
<PAGE> 80
Very truly yours,
3
<PAGE> 81
EXHIBIT F
OPINION OF
DAVIS POLK & WARDWELL, SPECIAL COUNSEL
FOR THE ADMINISTRATIVE AGENT
[Dated the Effective Date]
To the Banks and the Administrative Agent
Referred to Below
c/o Morgan Guaranty Trust Company
of New York, as Administrative Agent
60 Wall Street
New York, New York 10260-0060
Dear Sirs:
We have participated in the preparation of the Credit Agreement (the
"CREDIT AGREEMENT") dated as of July 23, 1999 among Litton Industries, Inc., a
Delaware corporation (the "BORROWER"), the banks listed on the signature pages
thereof (the "BANKS") and Morgan Guaranty Trust Company of New York, as
Administrative Agent (the "ADMINISTRATIVE AGENT"), and have acted as special
counsel for the Administrative Agent for the purpose of rendering this opinion
pursuant to Section 3.01(c) of the Credit Agreement. Terms defined in the Credit
Agreement are used herein as therein defined.
We have examined originals or copies, certified or otherwise identified
to our satisfaction, of such documents, corporate records, certificates of
public officials and other instruments and have conducted such other
investigations of fact and law as we have deemed necessary or advisable for
purposes of this opinion.
Upon the basis of the foregoing, we are of the opinion that:
1. The execution, delivery and performance by the Borrower of the
Credit Agreement and the Notes are within the Borrower's corporate powers and
have been duly authorized by all necessary corporate action.
2. The Credit Agreement constitutes a valid and binding agreement of
the Borrower and each Note constitutes a valid and binding obligation of the
Borrower, in each case enforceable in accordance with its terms, except as the
<PAGE> 82
same may be limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally and by general principles of equity.
3. The documents delivered to the Administrative Agent by the
Borrower pursuant to Section 3.01 of the Credit Agreement are substantially
responsive to the requirements of said Section.
We are members of the Bar of the State of New York and the foregoing
opinion is limited to the laws of the State of New York, the federal laws of the
United States of America and the General Corporation Law of the State of
Delaware. In giving the foregoing opinion, we express no opinion as to the
effect (if any) of any law of any jurisdiction (except the State of New York) in
which any Bank is located which limits the rate of interest that such Bank may
charge or collect.
This opinion is rendered solely to you in connection with the above
matter. This opinion may not be relied upon by you for any other purpose or
relied upon by any other person without our prior written consent.
Very truly yours,
2
<PAGE> 83
EXHIBIT G
ASSIGNMENT AND ASSUMPTION AGREEMENT
AGREEMENT dated as of _________, 19__ among [ASSIGNOR] (the
"ASSIGNOR"), [ASSIGNEE] (the "ASSIGNEE"), LITTON INDUSTRIES, INC. (the
"BORROWER") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative
Agent (the "ADMINISTRATIVE AGENT").
W I T N E S S E T H
WHEREAS, this Assignment and Assumption Agreement (the "AGREEMENT")
relates to the Credit Agreement dated as of July 23, 1999 among the Borrower,
the Assignor and the other Banks party thereto, as Banks, and the Administrative
Agent (as amended from time to time, the "CREDIT AGREEMENT");
WHEREAS, as provided under the Credit Agreement, the Assignor has a
Commitment to make Committed Loans to the Borrower in an aggregate principal
amount at any time outstanding not to exceed $__________;
WHEREAS, Committed Loans made to the Borrower by the Assignor under the
Credit Agreement in the aggregate principal amount of $__________ are
outstanding at the date hereof; and
WHEREAS, the Assignor proposes to assign to the Assignee all of the
rights of the Assignor under the Credit Agreement in respect of a portion of its
Commitment thereunder in an amount equal to $__________ (the "ASSIGNED AMOUNT"),
together with a corresponding portion of its outstanding Committed Loans, and
the Assignee proposes to accept assignment of such rights and assume the
corresponding obligations from the Assignor on such terms;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein, the parties hereto agree as follows:
SECTION 1. Definitions. All capitalized terms not otherwise defined
herein shall have the respective meanings set forth in the Credit Agreement.
SECTION 2. Assignment. The Assignor hereby assigns and sells to the
Assignee all of the rights of the Assignor under the Credit Agreement to the
extent of the Assigned Amount, and the Assignee hereby accepts such assignment
from the Assignor and assumes all of the obligations of the Assignor under the
Credit Agreement to the extent of the Assigned Amount, including the purchase
from the Assignor of the corresponding portion of the principal amount of the
<PAGE> 84
Committed Loans made by the Assignor outstanding at the date hereof. Upon the
execution and delivery hereof by the Assignor, the Assignee, the Borrower and
the Administrative Agent and the payment of the amounts specified in Section 3
required to be paid on the date hereof (i) the Assignee shall, as of the date
hereof, succeed to the rights and be obligated to perform the obligations of a
Bank under the Credit Agreement with a Commitment in an amount equal to the
Assigned Amount, and (ii) the Commitment of the Assignor shall, as of the date
hereof, be reduced by a like amount and the Assignor released from its
obligations under the Credit Agreement to the extent such obligations have been
assumed by the Assignee. The assignment provided for herein shall be without
recourse to the Assignor.
SECTION 3. Payments. As consideration for the assignment and sale
contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the
date hereof in Federal funds the amount heretofore agreed between them. It is
understood that commitment and/or facility fees accrued to the date hereof are
for the account of the Assignor and such fees accruing from and including the
date hereof in respect of the Assigned Amount are for the account of the
Assignee. Each of the Assignor and the Assignee hereby agrees that if it
receives any amount under the Credit Agreement which is for the account of the
other party hereto, it shall receive the same for the account of such other
party to the extent of such other party's interest therein and shall promptly
pay the same to such other party.
[SECTION 4. Consent of the Borrower and the Administrative Agent. This
Agreement is conditioned upon the consent of the Borrower and the Administrative
Agent, pursuant to Section 9.06(c) of the Credit Agreement. The execution of
this Agreement by the Borrower and the Administrative Agent is evidence of this
consent. Pursuant to Section 9.06(c) the Borrower agrees to execute and deliver
a Note payable to the order of the Assignee to evidence the assignment and
assumption provided for herein.]
SECTION 5. Non-reliance on Assignor. The Assignor makes no
representation or warranty in connection with, and shall have no responsibility
with respect to, the solvency, financial condition, or statements of the
Borrower, or the validity and enforceability of the obligations of the Borrower
in respect of the Credit Agreement or any Note. The Assignee acknowledges that
it has, independently and without reliance on the Assignor, and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement and will continue to be
responsible for making its own independent appraisal of the business, affairs
and financial condition of the Borrower.
2
<PAGE> 85
SECTION 6. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 7. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their duly authorized officers as of the date first
above written.
[ASSIGNOR]
By:
---------------------------------
Name:
Title:
[ASSIGNEE]
By:
---------------------------------
Name:
Title:
LITTON INDUSTRIES, INC.
By:
---------------------------------
Name:
Title:
3
<PAGE> 86
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By:
---------------------------------
Name:
Title:
4
<PAGE> 87
EXHIBIT H
DESIGNATION AGREEMENT
dated as of ________________, _____
Reference is made to the Credit Agreement dated as of July 23, 1999 (as
amended from time to time, the "CREDIT AGREEMENT") among Litton Industries,
Inc., a Delaware corporation (the "BORROWER"), the banks party thereto (the
"BANKS") and Morgan Guaranty Trust Company of New York, as Administrative Agent
(the "ADMINISTRATIVE AGENT"). Terms defined in the Credit Agreement are used
herein with the same meaning.
_________________ (the "DESIGNATOR") and ________________ (the
"DESIGNEE") agree as follows:
1. The Designator designates the Designee as its Designated Lender
under the Credit Agreement and the Designee accepts such designation.
2. The Designator makes no representations or warranties and assumes
no responsibility with respect to the financial condition of the Borrower or the
performance or observance by the Borrower of any of its obligations under the
Credit Agreement or any other instrument or document furnished pursuant thereto.
3. The Designee confirms that it is an Eligible Designee; appoints
and authorizes the Designator as its administrative agent and attorney-in-fact
and grants the Designator an irrevocable power of attorney to receive payments
made for the benefit of the Designee under the Credit Agreement and to deliver
and receive all communications and notices under the Credit Agreement, if any,
that the Designee is obligated to deliver or has the right to receive
thereunder; and acknowledges that the Designator retains the sole right and
responsibility to vote under the Credit Agreement, including, without
limitation, the right to approve any amendment or waiver of any provision of the
Credit Agreement, and agrees that the Designee shall be bound by all such votes,
approvals, amendments and waivers and all other agreements of the Designator
pursuant to or in connection with the Credit Agreement, all subject to Section
9.05(b) of the Credit Agreement.
4. The Designee confirms that it has received a copy of the Credit
Agreement, together with copies of the most recent financial statements referred
to in Article 4 or delivered pursuant to Article 5 thereof and such other
documents and information as it has deemed appropriate to make its own credit
analysis and
<PAGE> 88
decision to enter into this Designation Agreement; agrees that it will,
independently and without reliance upon the Agent, the Designator or any other
Bank and based on such documents and information as it shall deem appropriate at
the time, continue to make its own credit decisions in taking or not taking any
action it may be permitted to take under the Credit Agreement. The Designee
acknowledges that it is subject to and bound by the confidentiality provisions
of the Credit Agreement (except as provided in Section 9.07(a) thereof).
5. Following the execution of this Designation Agreement by the
Designator and the Designee and the consent hereto by the Borrower, it will be
delivered to the Administrative Agent for its consent. This Designation
Agreement shall become effective when the Administrative Agent consents hereto
or on any later date specified on the signature page hereof.
6. Upon the effectiveness hereof, (a) the Designee shall have the
right to make Loans or portions thereof as a Bank pursuant to Section 2.01 or
2.03 of the Credit Agreement and the rights of a Bank related thereto and (b)
the making of any such Loans or portions thereof by the Designee shall satisfy
the obligations of the Designator under the Credit Agreement to the same extent,
and as if, such Loans or portions thereof were made by the Designator.
7. This Designation Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the parties have caused this Designation Agreement
to be executed by their respective officers hereunto duly authorized, as of the
date first above written.
Effective Date*:______ , ____
[NAME OF DESIGNATOR]
By:
---------------------------------
Name:
Title:
- --------
*This date should be no earlier than the date of the Administrative
Agent's consent hereto.
H-2
<PAGE> 89
[NAME OF DESIGNEE]
By:
---------------------------------
Name:
Title:
The undersigned consent to the foregoing designation.
LITTON INDUSTRIES, INC.
By:
---------------------------------
Name:
Title:
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK, as
Administrative Agent
By:
---------------------------------
Name:
Title:
H-3
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT JULY 31, 1999 AND THE CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE TWELVE MONTHS ENDED JULY 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-END> JUL-31-1999
<CASH> 30,693
<SECURITIES> 0
<RECEIVABLES> 889,367
<ALLOWANCES> 30,293
<INVENTORY> 637,635
<CURRENT-ASSETS> 1,992,814
<PP&E> 1,564,848
<DEPRECIATION> 939,566
<TOTAL-ASSETS> 4,199,872
<CURRENT-LIABILITIES> 1,700,177
<BONDS> 859,315
0
2,053
<COMMON> 45,560
<OTHER-SE> 1,252,633
<TOTAL-LIABILITY-AND-EQUITY> 4,199,872
<SALES> 3,174,370
<TOTAL-REVENUES> 4,827,517
<CGS> 2,356,179
<TOTAL-COSTS> 3,774,457
<OTHER-EXPENSES> 253,766
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 66,951
<INCOME-PRETAX> 213,306
<INCOME-TAX> 92,722
<INCOME-CONTINUING> 120,584
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 120,584
<EPS-BASIC> 2.63
<EPS-DILUTED> 2.58
</TABLE>
