-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FKVQvmhsonBk23/zDmafFrzekzOC+ih0EQVveIEE44ZUhM3G0hhSOlU4lOExalRD 7mLpN6cxpaL/CgmfE3qUIQ== 0000950152-97-001996.txt : 19970321 0000950152-97-001996.hdr.sgml : 19970321 ACCESSION NUMBER: 0000950152-97-001996 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 20 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970320 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRW INC CENTRAL INDEX KEY: 0000100030 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 340575430 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-02384 FILM NUMBER: 97559630 BUSINESS ADDRESS: STREET 1: 1900 RICHMOND RD CITY: CLEVELAND STATE: OH ZIP: 44124 BUSINESS PHONE: 2162917000 MAIL ADDRESS: STREET 1: 1900 RICHMOND ROAD CITY: CLEVELAND STATE: OH ZIP: 44124 10-K405 1 TRW INC. / 10-K405 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-2384 TRW INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) OHIO 34-0575430 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 1900 RICHMOND ROAD, CLEVELAND, OHIO 44124 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (216) 291-7000 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ---------------------------------------- --------------------------- Common Stock, par value $0.625 per share New York Stock Exchange Chicago Stock Exchange Pacific Stock Exchange Philadelphia Stock Exchange Rights to Purchase Cumulative Redeemable New York Stock Exchange Serial Preference Stock II, Series 4 Chicago Stock Exchange Pacific Stock Exchange Philadelphia Stock Exchange Cumulative Serial Preference Stock II, New York Stock Exchange $4.40 Convertible Series 1 Cumulative Serial Preference Stock II, New York Stock Exchange $4.50 Convertible Series 3 SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] The aggregate market value of the registrant's voting stock held by non-affiliates was $6,376,542,513.50 as of February 28, 1997. This amount was computed on the basis of the closing price of the registrant's voting securities included in the NYSE-Composite Transactions report for such date, as published in the Midwest edition of The Wall Street Journal or, in the case of the registrant's voting cumulative preference stock, for the date of the most recent trade, as reported in the Dow Jones News Retrieval Service. As of February 28, 1997 there were 125,664,076 shares of TRW Common Stock, $0.625 par value, outstanding. The following documents have been incorporated herein by reference to the extent indicated herein: TRW Proxy Statement dated March 12, 1997 Part III TRW Annual Report to Security Holders for the year ended December 31, 1996 Parts I, II and IV 2 TRW INC. INDEX TO ANNUAL REPORT ON FORM 10-K FOR YEAR ENDED DECEMBER 31, 1996
PART I PAGE ---- Item 1. Business............................................................ 1 Item 2. Properties.......................................................... 5 Item 3. Legal Proceedings................................................... 5 Item 4. Submission of Matters to a Vote of Security Holders................. 6 Executive Officers of the Registrant.......................................... 6 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters............................................................ 7 Item 6. Selected Financial Data............................................. 8 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.............................................. 8 Item 8. Financial Statements and Supplementary Data......................... 8 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............................................... 8 PART III Item 10. Directors and Executive Officers of the Registrant................. 8 Item 11. Executive Compensation............................................. 9 Item 12. Security Ownership of Certain Beneficial Owners and Management..... 9 Item 13. Certain Relationships and Related Transactions..................... 9 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K... 9
3 PART I ITEM 1. BUSINESS INDUSTRY SEGMENTS AND PRODUCT CLASSIFICATIONS TRW is an international company that provides advanced technology products and services. The principal businesses of TRW and its subsidiaries are the design, manufacture and sale of products and the performance of systems engineering, research and technical services for industry and the United States Government in two industry segments: Automotive and Space & Defense. TRW's principal products and services include automotive systems and components; spacecraft; software and systems engineering support services; and electronic systems, equipment and services. TRW was incorporated under the laws of Ohio on June 17, 1916. As used herein the terms "TRW" and the "Company" refer to TRW Inc. or to TRW Inc. and its subsidiaries or to a subsidiary of TRW Inc. In 1996, the Company completed the sale of substantially all the businesses comprising its Information Systems & Services segment. The Company's financial statements and related notes reflect as discontinued operations for all periods presented the operating results and net assets, as well as the related transaction gain, of this segment. Financial information herein has been restated to reflect only continuing operations. Reference is made to the information related to the divestiture presented under the note entitled "Discontinued operations" in the Notes to Financial Statements on page 27 of the TRW Annual Report to Security Holders for the year ended December 31, 1996 (the "TRW 1996 Annual Report"), which information is incorporated herein by reference. AUTOMOTIVE TRW's Automotive segment designs, manufactures and sells a broad range of steering, suspension, engine, safety, engineered fastening, electronic, electromechanical and other components and systems for passenger cars and commercial vehicles, including trucks, buses, farm machinery and off-highway vehicles. These products include occupant safety systems such as seat belt systems and inflatable restraint systems, steering wheels, manual and power steering gears, engine valves and valve train components, suspension components, electronic monitoring and control systems, electromechanical assemblies, fasteners, stud welding systems and other components. The products included in this industry segment are sold primarily to automotive original equipment manufacturers. In addition, TRW sells its automotive components for use as aftermarket parts to automotive original equipment manufacturers and others for resale through their own independent distribution networks. In February 1997, TRW purchased from Magna International Inc. an 80 percent equity interest in MST Automotive GmbH Automobil-Sicherheitstechnik and Temic Bayern-Chemie Airbag GmbH for a cost of approximately U.S. $450 million. The Company and Magna also formed a strategic alliance for the design, development and production of automotive products for the global market. SPACE & DEFENSE TRW's Space & Defense segment includes spacecraft, software and systems engineering support services and electronic systems, equipment and services. The Company's spacecraft activities include the design and manufacture of spacecraft equipment, propulsion subsystems, electro-optical and instrument systems, spacecraft payloads, high-energy lasers and laser technology and other high-reliability components. TRW's software and systems engineering support services are in the fields of command and control, security for defense and nondefense applications, counterterrorism, undersea surveillance, antisubmarine warfare and other high-technology space and defense mission support systems, management of radioactive waste, automated fingerprint matching, upgrading of the nation's air traffic control program and other civilian applications. The Company's electronic systems, equipment and services include the design and manufacture of communications systems, avionics systems and other electronic technologies for space and defense applications. Products and services in this industry segment are sold and distributed principally to the United States Government. TRW's spacecraft business involves the sale to the United States Government of subsystems and components for space propulsion and unmanned spacecraft for defense, scientific research and communications purposes. TRW is currently participating in a number of spacecraft programs. Software and systems engineering and integration support services are sold primarily to the United States Government defense agencies and to Federal civilian and other state and local governmental agencies. These services include a wide variety of computer software systems and analytical services for space and defense, air traffic control, and advanced communication and data retrieval applications. Sales to the United States Government of electronic systems, equipment and services consist of systems and subsystems for defense and space 1 4 applications, including communications, command and control, guidance, navigation, electric power, sensing and electronic display equipment. While classified projects are not discussed herein, the operating results relating to classified projects are included in the Company's consolidated financial statements, and the business risks associated with such projects do not differ materially from those of other projects for the United States Government. TRW also performs diverse testing and general research projects in many of the technical disciplines related to its Space & Defense products and services under both private and United States Government contracts, including several advanced defense system projects. RESULTS BY INDUSTRY SEGMENT Reference is made to the information relating to the Company's industry segments, including sales, operating profit and identifiable assets attributable to each segment for each of the years 1994 through 1996, presented under the note entitled "Industry segments" in the Notes to Financial Statements on page 35 of the TRW 1996 Annual Report. Such information is incorporated herein by reference. FOREIGN AND DOMESTIC OPERATIONS TRW manufactures products or has facilities in 26 countries throughout the world. TRW's operations outside the United States are in Argentina, Australia, Austria, Brazil, Canada, China, the Czech Republic, France, Germany, Hong Kong, India, Italy, Japan, Malaysia, Mexico, the Netherlands, Poland, Saudi Arabia, South Africa, South Korea, Spain, Taiwan, Thailand, Turkey, and the United Kingdom. TRW also exports products manufactured by it in the United States. Such export sales accounted for 8% of total sales during 1996, 8% of total sales during 1995 and 7% of total sales during 1994, or $764 million, $813 million and $595 million, respectively. TRW's foreign operations are subject to the usual risks that may affect such operations. These include, among other things, customary exchange controls and currency restrictions, currency fluctuations, changes in local economic conditions, exposure to possible expropriation or other government actions, unsettled political conditions and foreign government-sponsored boycotts of the Company's products or services for noncommercial reasons. Most of the identifiable assets associated with TRW's foreign operations are located in countries where the Company believes such risks to be minimal. Reference is made to the information relating to the dollar amounts of sales, operating profit and identifiable assets by geographic area for each of the years 1994 through 1996 presented under the note entitled "Geographic segments" in the Notes to Financial Statements on page 36 of the TRW 1996 Annual Report. Such information is incorporated herein by reference. GENERAL COMPETITION TRW encounters intense competition in substantially all segments of its business. The Company's competitive position varies for its different products and services. However, TRW believes that it is a significant supplier of many of the products it manufactures and of many of the services it provides. In the Automotive segment, competitors include independent suppliers of parts and components as well as the Company's original equipment customers, many of whom are integrated manufacturers who produce or could produce substantial portions of their requirements for parts and components internally. Depending on the particular product, the number of the Company's competitors may vary significantly and many of the products have high capital requirements and require high engineering content. In the Automotive segment, the principal methods of competition are price, engineering excellence, product quality, customer service, delivery time and proprietary position. TRW competes for contracts covering a variety of United States Government projects and programs, principally in the Space & Defense segment of its business. Such competition is based primarily on technical ability, product quality and price. TRW's competitors for United States Government contracts typically are large, technically-competent firms with substantial assets, some of which have become considerably larger through the ongoing industrial consolidation process. CUSTOMERS Sales, directly and indirectly, to the United States Government, including the Department of Defense, the National Aeronautics and Space Administration and other agencies, constituted 32% of TRW's total sales for 1996, 30% for 1995 2 5 and 30% for 1994, or $3,121 million, $2,890 million and $2,533 million, respectively. Sales to the United States Government represented 93% of the sales of the Space & Defense segment in 1996, 93% in 1995 and 90% in 1994, or $3,120 million, $2,887 million and $2,528 million, respectively. Companies engaged in United States Government contracting are subject to certain unique business risks, including dependence on Congressional appropriations and administrative allotment of funds, changes in Government policies that may reflect military and political developments, time required for design and development, significant changes in contract scheduling, complexity of designs and the rapidity with which they become obsolete, necessity of design improvements, difficulty in forecasting costs and schedules when bidding on developmental and highly sophisticated technical work and other factors characteristic of the industry. United States Government contracting laws also provide that the Government is to do business only with responsible contractors. In this regard, the United States Department of Defense and other federal agencies have the authority, under certain circumstances, to suspend or debar a contractor or organizational parts of a contractor from further Government contracting for a certain period "to protect the Government's interest." Such action may be taken for, among other reasons, commission of fraud or a criminal offense in connection with a United States Government contract. A suspension may also be imposed if a contractor is indicted for such matters. In the event of any suspension or debarment, the Company's existing contracts would continue unless terminated or canceled by the United States Government under applicable contract provisions. Other than the United States Government, TRW's largest customers (determined by including sales to their affiliates throughout the world but excluding sales to such customers or their affiliates that ultimately result in sales to the United States Government) are Ford Motor Company, Volkswagen AG and Chrysler Corporation. Such sales by TRW's Automotive segment to Ford, Volkswagen and Chrysler, and their respective subsidiaries, during 1996 accounted for 23%, 10% and 10%, respectively, of sales of the Automotive segment, compared to 23%, 10% and 9%, respectively, during 1995 and 24%, 9% and 10%, respectively, during 1994. Such sales by TRW's Automotive segment to Ford and its subsidiaries accounted for 15% of TRW's total sales for 1996, 15% for 1995 and 16% for 1994, or $1,470 million, $1,474 million and $1,363 million, respectively. BACKLOG The backlog of orders for TRW's domestic operations, without options, at December 31, 1996 and December 31, 1995 is estimated to have been approximately $5,285 million and $5,105 million, respectively, of which it is estimated that, directly or indirectly, United States Government business accounted for approximately $4,631 million and $4,464 million, respectively. Reported backlog at the end of 1996 does not include approximately $2.9 billion of negotiated and priced, but unexercised, options for defense and non-defense programs. Unexercised options at the end of 1995 were valued at $2.6 billion. The exercise of options is at the discretion of the customer, and as in the case of Government contracts generally, dependent on future government funding. Of the total domestic backlog at December 31, 1996 and at December 31, 1995, 95% was attributable to the Space & Defense segment, and virtually all of the backlog attributable to United States Government business related to that segment. The determination of TRW's backlog involves substantial estimating, particularly with respect to customer requirements contracts and long-term contracts of a cost-reimbursement or incentive nature. A substantial portion of the variations in TRW's estimated backlog in recent years is attributable to the timing of the award and performance of United States Government and certain other contracts. Subject to various qualifications, including those set forth herein, and assuming no terminations, cancellations or changes and completion of orders in the normal course, TRW has estimated that approximately 51% of the December 31, 1996 backlog will be delivered in 1997, 19% in 1998 and 30% thereafter. United States Government contracts and related customer orders generally are subject to termination in whole or in part at the convenience of the Government whenever the Government believes that such termination would be in its best interest. Multi-year Government contracts and related orders are subject to cancellation if funds for contract performance for any subsequent contract year become unavailable. If any of its Government contracts were to be terminated or canceled under these circumstances, TRW generally would be entitled to receive payment for work completed and allowable termination or cancellation costs. Whether the occurrence of any such termination or cancellation would have an adverse effect on TRW would depend upon the particular contract and the circumstances of the termination or cancellation. Backlog data and comparisons thereof as of different dates may not be reliable indicators of either future sales or the ratio of future direct and indirect United States Government sales to other sales. 3 6 INTELLECTUAL PROPERTY TRW owns significant intellectual property, including a large number of patents, copyrights and trade secrets, and is involved in numerous licensing arrangements. Although TRW's intellectual property plays an important role in maintaining TRW's competitive position in a number of the markets that it serves, no single patent, copyright, trade secret or license, or group of related patents, copyrights, trade secrets or licenses, is, in the opinion of management, of such value to TRW that the business of TRW or of any industry segment of TRW would be materially affected by the expiration or termination thereof. TRW's general policy is to apply for patents on an ongoing basis in the United States and appropriate other countries on its significant patentable developments. TRW also views its name and mark as significant to its business as a whole. In addition, TRW owns a number of other trade names and marks applicable to certain of its businesses and products that it views as important to such businesses and products. RESEARCH AND DEVELOPMENT Research and development costs totaled $1,981 million, $1,882 million and $1,655 million in 1996, 1995 and 1994, respectively, of which customer-funded research and development was $1,425 million in 1996, $1,360 million in 1995 and $1,157 million in 1994. Company-funded research and development costs, which included research and development for commercial products, independent research and development and bid and proposal work related to government products and services, totaled $412 million in 1996, $392 million in 1995 and $390 million in 1994. A portion of the cost incurred for independent research and development and bid and proposal work is recoverable through overhead charged to government contracts. Company-funded product development costs, including engineering and field support for new customer requirements, were $144 million in 1996, $130 million in 1995 and $108 million in 1994. EMPLOYEES At December 31, 1996, TRW had approximately 65,200 employees, of whom approximately 34,100 were employed in the United States. RAW MATERIALS AND SUPPLIES Materials used by TRW include or contain steel, stainless steel, pig iron, ferro-chrome, aluminum, brass, copper, tin, platinum, special alloys, sodium azide, glass, ceramics, plastic powders and laminations, carbon and plastic materials, synthetic rubber, paper, and gold, silver, nickel, zinc and copper plating materials. TRW also purchases from suppliers various types of equipment and component parts that may include such materials. TRW's operations are dependent upon the ability of its suppliers of materials, equipment and component parts to meet performance and quality specifications and delivery schedules. In some cases, there is only a limited number of suppliers for a material or product due to the specialized nature of the item. Shortages of certain raw materials, equipment and component parts have existed in the past and may exist again in the future. TRW has taken a number of steps to protect against and to minimize the effect of such shortages. However, any future inability of TRW to obtain raw materials, equipment or component parts could have a material adverse effect on the Company. TRW's operations also are dependent on adequate supplies of energy. TRW has continued its programs to conserve energy used in its operations and has made available alternative sources of energy. ENVIRONMENTAL REGULATIONS Federal, state and local requirements relating to the discharge of materials into the environment, or otherwise relating to the protection of the environment, have had and will continue to have an effect on TRW and its operations. The Company has made and continues to make expenditures for projects relating to the environment, including pollution control devices for new and existing facilities. The Company is conducting a number of environmental investigations and remedial actions at current and former Company locations to comply with various federal, state and local laws and, along with other companies, has been named a potentially responsible party for certain waste management sites. Each of these matters is subject to various uncertainties, and some of these matters may be resolved unfavorably to the Company. A reserve estimate reflecting cost ranges is established using standard engineering cost estimating techniques for each matter for which sufficient information is available. In the determination of cost ranges, consideration is given to the professional judgment of the Company's environmental engineers in consultation with outside environmental specialists, when necessary. At multi-party sites, the reserve estimate also reflects the expected allocation of total project costs among the various potentially responsible parties. At December 31, 1996, the Company had reserves for environmental matters of $77 million, including $7 million of accruals recorded during the year. The Company aggressively pursues reimbursement for environmental costs from its insurance carriers. Insurance recoveries are recorded as a reduction of environmental costs when fixed and determinable. The Company does not believe that compliance with environmental protection laws 4 7 and regulations will have a material effect upon its capital expenditures or competitive position, and TRW's capital expenditures for environmental control facilities during 1997 and 1998 are not expected to be material to the Company. The Company believes that any liability that may result from the resolution of environmental matters for which sufficient information is available to support cost estimates will not have a material adverse effect on the Company's earnings. However, the Company cannot predict the effect on future earnings of expenditures for aspects of certain matters for which there is insufficient information. In addition, the Company cannot predict the effect on future earnings of compliance with environmental laws and regulations with respect to currently unknown environmental matters or the possible effect on future earnings of compliance with environmental requirements imposed in the future. CAPITAL EXPENDITURES During the five years ended December 31, 1996, TRW's capital expenditures and the net book value of its assets retired or sold were:
(IN MILLIONS) -------------------------------------------------------- CAPITAL EXPENDITURES ------------------------------------- LAND, NET BOOK BUILDINGS MACHINERY VALUE OF YEAR ENDED AND LEASEHOLD AND ASSETS RETIRED DECEMBER 31, IMPROVEMENTS EQUIPMENT TOTAL OR SOLD ---------------- ------------- --------- ----- -------------- 1996... $ 76 $ 424 $500 $ 29 1995... 74 392 466 21 1994... 92 396 488 19 1993... 73 386 459 47 1992... 94 419 513 62
On an industry segment basis, capital expenditures during 1996 and 1995 were as follows: Automotive, $342 million and $314 million, respectively; and Space & Defense, $157 million and $114 million, respectively. Of total capital expenditures, 59% in 1996 and 66% in 1995 were invested in the United States. ITEM 2. PROPERTIES TRW's operations include numerous manufacturing, research and development and warehousing facilities. TRW owns or leases principal facilities located in 21 states in the United States and in 25 other countries. Approximately 59% of the principal domestic facilities are used by the Automotive segment and 41% are used by the Space & Defense segment. Substantially all of the foreign facilities are used by the Automotive segment. The Company also owns or leases certain smaller research and development properties and administrative, marketing, sales and office facilities throughout the United States and in various parts of the world. In addition, TRW operates facilities on property owned directly or indirectly by the United States Government. The Company owns its world headquarters in Lyndhurst, Ohio and its regional headquarters for its Space & Defense segment in Redondo Beach, California. In the opinion of management, the Company's facilities are generally well maintained and are suitable and adequate for their intended use. Reference is made to the information concerning long-term rental obligations under operating leases presented under the note entitled "Lease commitments" in the Notes to Financial Statements on page 33 of the TRW 1996 Annual Report. Such information is incorporated herein by reference. ITEM 3. LEGAL PROCEEDINGS On December 15, 1987, the Commissioner of the Indiana Department of Environmental Management issued an Order to TRW and several other respondents relating to alleged contamination of the public water supply in Shelbyville, Indiana by, among other sources, two closed facilities that were formerly operated by TRW's Connectors Division. The Order requires the respondents to fund the relocation of the main well field for Shelbyville to a location that can provide a safe source of potable water and to perform a remedial investigation of the source and extent of contamination within a one-mile radius of the well field. The Order also requires the respondents to pay civil penalties of $25,000 per day for 5 8 violations of law which allegedly occurred prior to issuance of the Order. TRW has filed a petition for review of the Order. The Order is not expected to have a material effect on the Company's financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------- --------------------------------------------------- None during the fourth quarter of 1996. EXECUTIVE OFFICERS OF THE REGISTRANT The names and ages of, and the positions and offices held by, each person designated an executive officer of the Company as of March 20, 1997, together with the offices held by each such person during the last five years, are listed below. For purposes hereof, the term "executive officer" includes the Chairman of the Board, the President, each Vice President in charge of a principal business function and any other officer who performs a policy-making function for the Company. Each executive officer is elected annually and, unless the executive officer resigns or terminates employment with the Company or is removed from office by action of the Company's Directors, will hold office for the ensuing year or until a successor is elected in accordance with the Company's Regulations. It is expected that on or about June 1, 1997 W. B. Lawrence will assume the responsibilities of General Counsel and Secretary from M. A. Coyle. None of the Company's executive officers has a family relationship to any other executive officer.
POSITIONS AND BUSINESS EXPERIENCE NAME AGE DURING THE PAST FIVE YEARS - --------------- --- ------------------------------------------------------- B. Blankenstein 58 Executive Vice President and General Manager, TRW Steering, Suspension & Engine Group (1996 to the present) Managing Director, TRW Deutschland GmbH (1995 - 1996) Vice President and General Manager, TRW's Global Engine Components business (1994 - 1996) Managing Director, TRW Motorkomponenten GmbH & Co. KG (1991 - 1995) M. A. Coyle 55 Executive Vice President (1989 to the present), General Counsel (1980 to the present) and Secretary (1976 to the present) J. T. Gorman 59 Chairman of the Board and Chief Executive Officer (1988 to the present) and Director (1984 to the present) T. W. Hannemann 54 Executive Vice President and General Manager, TRW Space & Electronics Group (1993 to the present) Executive Vice President and General Manager, TRW Space & Defense Sector (1991 - 1992) P. S. Hellman 47 President, Chief Operating Officer and Director (1995 to the present) Executive Vice President and Assistant President (1994) Executive Vice President, Chief Financial Officer and Assistant President (1994) Executive Vice President and Chief Financial Officer (1991 - 1994) H. V. Knicely 61 Executive Vice President, Human Resources and Communications (1995 to the present) Executive Vice President, Human Resources, Communications & Information Resources (1989 - 1994) W. B. Lawrence 52 Executive Vice President, Planning, Development & Government Affairs (1989 to the present) C. G. Miller 54 Executive Vice President and Chief Financial Officer (1996 to the present) Executive Vice President, Chief Financial Officer and Controller (1996) Vice President and Controller (1990 - 1996)
6 9
POSITIONS AND BUSINESS EXPERIENCE NAME AGE DURING THE PAST FIVE YEARS - --------------- --- ------------------------------------------------------- J. S. Remick 58 Executive Vice President and General Manager, TRW Occupant Restraint Systems Group (1996 to the present) Executive Vice President and General Manager, TRW Steering, Suspension & Engine Group (1995 - 1996) Vice President and Deputy General Manager, Automotive (1995) Vice President and General Manager, TRW Steering & Suspension Systems, North and South America (1991 - 1995) P. Staudhammer 63 Vice President, Science & Technology (1993 to the present) Vice President and Director of the Center for Automotive Technology (1990 - 1993) J. P. Stenbit 56 Executive Vice President and General Manager, TRW Systems Integration Group (1994 to the present) Vice President and General Manager, TRW Systems Integration Group (1990 - 1994) R. D. Sugar 48 Executive Vice President and General Manager, TRW Automotive Electronics Group (1996 to the present) Executive Vice President and Chief Financial Officer (1994 - 1996) Vice President, Group Development, TRW Space & Electronics Group (1992 - 1994) Vice President, Strategic Business Development, TRW Space & Defense Sector (1992) Vice President and General Manager, TRW Space Communications Division (1987 - 1992)
PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS - ------- --------------------------------------------------------------------- Reference is made to the information set forth in the table presented under "Stock prices and dividends (unaudited)" on page 37 of the TRW 1996 Annual Report and to the information presented under the note entitled "Debt and credit agreements" in the Notes to Financial Statements on page 32 of the TRW 1996 Annual Report. The information contained in such table and the information contained in the next-to-last paragraph of text in such note to financial statements are incorporated herein by reference. The Company's Common Stock is traded principally on the New York Stock Exchange and is also traded on the Chicago, Pacific, Philadelphia, London and Frankfurt exchanges. On February 28, 1997, there were 26,404 shareholders of record of the Company's Common Stock. 7 10 ITEM 6. SELECTED FINANCIAL DATA
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) ---------------------------------------------------------- YEARS ENDED DECEMBER 31, ---------------------------------------------------------- 1996 1995 1994 1993 1992 ------ ------ ------ ------ ------ Sales........................................... $9,857 $9,568 $8,491 $7,330 $7,557 Earnings from continuing operations before cumulative effect of accounting changes....... 182 395 277 177 154 Per share of Common Stock: Fully diluted earnings -- continuing operations................................. 1.37 2.93 2.09 1.35 1.23 Primary earnings -- continuing operations..... 1.38 2.96 2.10 1.36 1.23 Cash dividends declared....................... 1.17 1.05 0.985 0.94 0.92 Total assets.................................... 5,899 5,670 5,435 5,042 5,158 Long-term debt.................................. 458 539 693 868 938 Shares used in computing per share amounts: Fully diluted................................. 133.2 134.8 132.9 131.5 124.6 Primary....................................... 131.7 133.2 131.6 129.5 124.6
In 1996, the Company recorded charges of $314 million ($202 million after tax, or $1.52 per share) primarily for actions taken, in part, to enhance the Company's competitiveness. As a result of these actions, several manufacturing facilities throughout the world will be closed or consolidated and employment Company-wide will be reduced by approximately 2,500 people. Also during 1996, the Company applied the provisions of Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," resulting in the recognition of $71 million ($50 million after tax, or $0.37 per share) of impairment losses. The losses were primarily a result of technological changes and the decision to close certain facilities in the Automotive segment. On October 23, 1996, the Company's Board of Directors authorized a two-for-one stock split effected in the form of a stock dividend. Accordingly, all references to the number of shares and per share amounts have been restated to give retroactive recognition to the stock dividend. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Reference is made to the information presented under the heading "Management's Discussion and Analysis of the Results of Operations and Financial Condition" on pages 17 through 20 of the TRW 1996 Annual Report. Such information is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Reference is made to the financial statements headed "Statements of Earnings," "Balance Sheets," "Statements of Cash Flows" and "Statements of Changes in Shareholders' Investment," and the accompanying notes thereto, on pages 21 through 36 of the TRW 1996 Annual Report. Reference is also made to the information included in the table presented under the heading "Quarterly financial information (unaudited)" on page 36 of such report. Such statements, the accompanying notes and such table are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Reference is made to the information relating to TRW's Directors which is presented under the heading "Election of Directors" on pages 1 through 5 of the TRW Proxy Statement dated March 12, 1997, as filed with the Securities and Exchange Commission (the "TRW Proxy Statement"). Such information, beginning with the third paragraph on page 1 and ending with the second paragraph on page 5, is incorporated herein by reference. 8 11 See the information presented in Part I of this Report under the heading "Executive Officers of the Registrant" for information relating to TRW's executive officers. ITEM 11. EXECUTIVE COMPENSATION Reference is made to the information presented under the heading "Compensation of Executive Officers" on pages 12 through 20 of the TRW Proxy Statement. Reference is also made to the information presented under the heading "Director Compensation" on page 7 of the TRW Proxy Statement. Such information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Reference is made to the information presented under the heading "Ownership of Shares" on page 6 of the TRW Proxy Statement. Reference is also made to the information presented under the heading "Outstanding Securities" on pages 21 and 22 of the TRW Proxy Statement. Such information is incorporated herein by reference. There are no agreements or arrangements known to TRW that might, at a subsequent date, result in a change in control of TRW. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) FINANCIAL STATEMENTS AND SCHEDULES (1) FINANCIAL STATEMENTS The following financial statements of the registrant and its subsidiaries included in the TRW 1996 Annual Report are incorporated herein by reference: Statements of Earnings -- Years ended December 31, 1996, 1995 and 1994 (page 21) Balance Sheets -- December 31, 1996 and 1995 (pages 22 and 23) Statements of Cash Flows -- Years ended December 31, 1996, 1995 and 1994 (page 24) Statements of Changes in Shareholders' Investment -- Years ended December 31, 1996, 1995 and 1994 (page 25) Notes to Financial Statements -- (pages 26 - 36) (2) FINANCIAL STATEMENT SCHEDULES All Schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are not applicable and, therefore, have been omitted. Financial statements and summarized financial information of unconsolidated subsidiaries and 50% or less owned persons accounted for by the equity method have been omitted because such subsidiaries and persons, considered individually or in the aggregate, do not constitute a significant subsidiary. 9 12 (3) EXHIBITS 2(a) Recapitalization Agreement, dated as of February 9, 1996, among IS&S Acquisition Corp., and TRW Inc., TRW IS&S International, Inc., Information Systems and Services, Inc. (f/k/a TRW Environmental Management Company), TRW Hotel Company Inc., TRW Microwave Inc. and IS&S Holdings, Inc. (f/k/a TRW Target Marketing Services, Inc.) (Exhibit 2.1 to TRW Form 8-K Current Report dated October 4, 1996 is incorporated herein by reference). 2(b) Amendment No. 1, dated June 17, 1996 to Recapitalization Agreement, dated as of February 9, 1996, among IS&S Acquisition Corp., and TRW Inc., TRW IS&S International, Inc., Information Systems and Services, Inc. (f/k/a TRW Environmental Management Company), TRW Hotel Company Inc., TRW Microwave Inc. and IS&S Holdings, Inc. (f/k/a TRW Target Marketing Services, Inc.) (Exhibit 2.2 to TRW Form 8-K Current Report dated October 4, 1996 is incorporated herein by reference). 2(c) Amendment No. 2, dated August 13, 1996 to Recapitalization Agreement, dated as of February 9, 1996, among IS&S Acquisition Corp., and TRW Inc., TRW IS&S International, Inc., Information Systems and Services, Inc. (f/k/a TRW Environmental Management Company), TRW Hotel Company Inc., TRW Microwave Inc. and IS&S Holdings, Inc. (f/k/a TRW Target Marketing Services, Inc.) (Exhibit 2.3 to TRW Form 8-K Current Report dated October 4, 1996 is incorporated herein by reference). 2(d) Amendment No. 3, dated September 18, 1996 to Recapitalization Agreement, dated as of February 9, 1996, among IS&S Acquisition Corp., and TRW Inc., TRW IS&S International, Inc., Information Systems and Services, Inc. (f/k/a TRW Environmental Management Company), TRW Hotel Company Inc., TRW Microwave Inc. and IS&S Holdings, Inc. (f/k/a TRW Target Marketing Services, Inc.) (Exhibit 2.4 to TRW Form 8-K Current Report dated October 4, 1996 is incorporated herein by reference). 3(a) Amended Articles of Incorporation as amended April 24, 1996 (Exhibit 3(a) to TRW Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 is incorporated herein by reference). 3(b) Regulations as amended April 30, 1980 (Exhibit 3(b) to TRW Annual Report on Form 10-K for the year ended December 31, 1980 is incorporated herein by reference). 4(a) Rights Agreement dated as of April 24, 1996 between TRW Inc. and National City Bank, as Rights Agent (Exhibit 1 to TRW Form 8-A Registration Statement dated April 25, 1996 is incorporated herein by reference). 4(b) Indenture between TRW Inc. and The Chase Manhattan Bank (National Association), as successor Trustee, dated as of May 1, 1986 (Exhibit 2 to TRW Form 8-A Registration Statement dated July 3, 1986 is incorporated herein by reference). 4(c) First Supplemental Indenture between TRW Inc. and The Chase Manhattan Bank (National Association), as successor Trustee, dated as of July 26, 1989 (Exhibit 4(b) to TRW Form S-3 Registration Statement, File No. 33-30350, is incorporated herein by reference). *10(a) 1979 Stock Option Plan as amended April 28, 1982 (Exhibit A to TRW Proxy Statement dated March 18, 1982 is incorporated herein by reference). *10(b) TRW Operational Incentive Plan (Exhibit 10(b) to TRW Annual Report on Form 10-K for the year ended December 31, 1989 is incorporated herein by reference). *10(c) TRW Executive Health Care Plan as amended and restated effective August 1, 1995 (Exhibit 10(c) to TRW Annual Report on Form 10-K for the year ended December 31, 1995 is incorporated herein by reference). *10(d) 1984 Stock Option Plan (Exhibit A to TRW Proxy Statement dated March 19, 1984 is incorporated herein by reference). *10(e) 1989 TRW Long-Term Incentive Plan (Exhibit A to TRW Proxy Statement dated March 17, 1989 is incorporated herein by reference). *10(f) 1994 TRW Long-Term Incentive Plan as amended and restated effective February 4, 1997. *10(g) 1997 TRW Long-Term Incentive Plan (Exhibit A to TRW Proxy Statement dated March 12, 1997 is incorporated herein by reference). *10(h) Form of Strategic Incentive Grant. *10(i) Form of U.S. Nonqualified Stock Option Agreement.
10 13 *10(j) Form of U.S. Transferable Nonqualified Stock Option Agreement. *10(k) Form of Director Transferable Nonqualified Stock Option Agreement. *10(l) Deferred Compensation Plan for Non-Employee Directors of TRW Inc. reflecting amendments effective August 1, 1990 (Exhibit 10(k) to TRW Annual Report on Form 10-K for the year ended December 31, 1990 is incorporated herein by reference). *10(m) Deferred Compensation Plan for Non-Employee Directors of TRW Inc. dated July 1, 1997. *10(n) TRW Directors' Pension Plan as amended and restated effective August 1, 1990 (Exhibit 10(l) to TRW Annual Report on Form 10-K for the year ended December 31, 1990 is incorporated herein by reference). *10(o) Form of Amended and Restated Employment Continuation Agreements with executive officers (Exhibit 10(k) to TRW Annual Report on Form 10-K for the year ended December 31, 1995 is incorporated herein by reference). *10(p) TRW Inc. Deferred Compensation Plan as amended and restated effective February 4, 1997. *10(q) TRW Benefits Equalization Plan (as Amended and Restated, effective August 1, 1996) (Exhibit 10(a) to TRW Quarterly Report on Form 10-Q for the quarter ended June 30, 1996 is incorporated herein by reference). *10(r) TRW Supplementary Retirement Income Plan (as Amended and Restated, effective August 1, 1996) (Exhibit 10(b) to TRW Quarterly Report on Form 10-Q for the quarter ended June 30, 1996 is incorporated herein by reference). *10(s) TRW Inc. Key Executive Life Insurance Plan dated as of February 7, 1996 (Exhibit 10(v) to TRW Annual Report on Form 10-K for the year ended December 31, 1995 is incorporated herein by reference). *10(t) TRW Inc. Financial Counseling Program (Exhibit 10(w) to TRW Annual Report on Form 10-K for the year ended December 31, 1995 is incorporated herein by reference). 10(u) Three Year Revolving Credit Agreement dated July 1, 1992 among TRW Inc. and various financial institutions (Exhibit 19.1 to TRW Quarterly Report on Form 10-Q for the quarter ended June 30, 1992 is incorporated herein by reference). 10(v) Amendment dated June 30, 1993 to Three Year Revolving Credit Agreement dated July 1, 1992 among TRW Inc. and various financial institutions (Exhibit 10.1 to TRW Quarterly Report on Form 10-Q for the quarter ended June 30, 1993 is incorporated herein by reference). 10(w) Amendment dated as of March 1, 1994 to Three Year Revolving Credit Agreement dated July 1, 1992 among TRW Inc. and various financial institutions (Exhibit 10(cc) to TRW Annual Report on Form 10-K for the year ended December 31, 1993 is incorporated herein by reference). 10(x) Amendment dated February 28, 1995 to Multi-Year Revolving Credit Agreement (formerly entitled Three Year Revolving Credit Agreement) dated July 1, 1992 among TRW Inc. and various financial institutions (Exhibit 10(u) to TRW Annual Report on Form 10-K for the year ended December 31, 1994 is incorporated herein by reference). 10(y) Amendment dated May 8, 1996 to Multi-Year Revolving Credit Agreement (formerly entitled Three Year Revolving Credit Agreement) dated July 1, 1992 among TRW Inc. and various financial institutions. *10(z) TRW Inc. Stock Plan for Non-Employee Directors (as Amended and Restated, effective August 1, 1995) (Exhibit 10.1 to TRW Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 is incorporated herein by reference). 11 Computation of Earnings per Share. 12 Computation of Ratio of Earnings to Fixed Charges -- Unaudited (Supplement to Exhibit 12 of the following Form S-3 Registration Statement of the Company: No. 33-61711, filed August 10, 1995). 13 Portions of the TRW Annual Report to Security Holders for the year ended December 31, 1996 incorporated herein by reference. 21 Subsidiaries of the Registrant. 23(a) Consent of Independent Auditors. 23(b) Consent of Independent Auditors (with respect to financial statements of The TRW Canada Stock Savings Plan).
11 14 24(a) Power of Attorney. 24(b) Certified Resolutions. 27 Financial Data Schedule. 99(a) Financial Statements of The TRW Employee Stock Ownership and Stock Savings Plan for the year ended December 31, 1996. 99(b) Financial Statements of The TRW Canada Stock Savings Plan for the year ended December 31, 1996.
Certain instruments with respect to long-term debt have not been filed as exhibits as the total amount of securities authorized under any one of such instruments does not exceed 10% of the total assets of the registrant and its subsidiaries on a consolidated basis. The registrant agrees to furnish to the Commission a copy of each such instrument upon request. * Management contract, compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of this report. (b) REPORTS ON FORM 8-K Current Report on Form 8-K dated October 4, 1996 as to Information Systems & Services divestiture, including pro forma financial information. Current Report on Form 8-K dated October 23, 1996 as to stock dividend. Current Report on Form 8-K dated December 20, 1996 as to Magna International acquisition. 12 15 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TRW Inc. Date: March 20, 1997 By /s/ M. A. COYLE ---------------------------------- MARTIN A. COYLE, EXECUTIVE VICE PRESIDENT AND SECRETARY Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE J. T. GORMAN* Chairman of the Board, March 20, 1997 Chief Executive Officer and Director P. S. HELLMAN* President, Chief Operating Officer and March 20, 1997 Director C. G. MILLER* Executive Vice President and March 20, 1997 Chief Financial Officer T. A. CONNELL* Vice President and Controller March 20, 1997 M. H. ARMACOST Director March 20, 1997 M. FELDSTEIN* Director March 20, 1997 R. M. GATES* Director March 20, 1997 C. H. HAHN* Director March 20, 1997 G. H. HEILMEIER* Director March 20, 1997 K. N. HORN* Director March 20, 1997 E. B. JONES* Director March 20, 1997 W. S. KISER* Director March 20, 1997 D. B. LEWIS* Director March 20, 1997 J. T. LYNN* Director March 20, 1997 L. M. MARTIN* Director March 20, 1997 J. D. ONG* Director March 20, 1997 R. W. POGUE* Director March 20, 1997
MARTIN A. COYLE, by signing his name hereto, does hereby sign and execute this report on behalf of each of the above-named officers and Directors of TRW Inc., pursuant to a power of attorney executed by each of such officers and Directors and filed with the Securities and Exchange Commission as an exhibit to this report. March 20, 1997 *By /s/ M. A. COYLE ------------------------------- MARTIN A. COYLE, ATTORNEY-IN-FACT 13 16 REPORT OF INDEPENDENT AUDITORS Shareholders and Directors TRW Inc. We have audited the consolidated financial statements of TRW Inc. and subsidiaries listed in Item 14(a)(1) of the annual report on Form 10-K of TRW Inc. for the year ended December 31, 1996. 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, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of TRW Inc. and subsidiaries at December 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP ERNST & YOUNG LLP Cleveland, Ohio January 20, 1997 F-1 17 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION - ----------- --------------------------------------------------------------------------------- 2(a) Recapitalization Agreement, dated as of February 9, 1996, among IS&S Acquisition Corp., and TRW Inc., TRW IS&S International, Inc., Information Systems and Services, Inc. (f/k/a TRW Environmental Management Company), TRW Hotel Company Inc., TRW Microwave Inc. and IS&S Holdings, Inc. (f/k/a TRW Target Marketing Services, Inc.) (Exhibit 2.1 to TRW Form 8-K Current Report dated October 4, 1996 is incorporated herein by reference). 2(b) Amendment No. 1, dated June 17, 1996 to Recapitalization Agreement, dated as of February 9, 1996, among IS&S Acquisition Corp., and TRW Inc., TRW IS&S International, Inc., Information Systems and Services, Inc. (f/k/a TRW Environmental Management Company), TRW Hotel Company Inc., TRW Microwave Inc. and IS&S Holdings, Inc. (f/k/a TRW Target Marketing Services, Inc.) (Exhibit 2.2 to TRW Form 8-K Current Report dated October 4, 1996 is incorporated herein by reference). 2(c) Amendment No. 2, dated August 13, 1996 to Recapitalization Agreement, dated as of February 9, 1996, among IS&S Acquisition Corp., and TRW Inc., TRW IS&S International, Inc., Information Systems and Services, Inc. (f/k/a TRW Environmental Management Company), TRW Hotel Company Inc., TRW Microwave Inc. and IS&S Holdings, Inc. (f/k/a TRW Target Marketing Services, Inc.) (Exhibit 2.3 to TRW Form 8-K Current Report dated October 4, 1996 is incorporated herein by reference). 2(d) Amendment No. 3, dated September 18, 1996 to Recapitalization Agreement, dated as of February 9, 1996, among IS&S Acquisition Corp., and TRW Inc., TRW IS&S International, Inc., Information Systems and Services, Inc. (f/k/a TRW Environmental Management Company), TRW Hotel Company Inc., TRW Microwave Inc. and IS&S Holdings, Inc. (f/k/a TRW Target Marketing Services, Inc.) (Exhibit 2.4 to TRW Form 8-K Current Report dated October 4, 1996 is incorporated herein by reference). 3(a) Amended Articles of Incorporation as amended April 24, 1996 (Exhibit 3(a) to TRW Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 is incorporated herein by reference). 3(b) Regulations as amended April 30, 1980 (Exhibit 3(b) to TRW Annual Report on Form 10-K for the year ended December 31, 1980 is incorporated herein by reference). 4(a) Rights Agreement dated as of April 24, 1996 between TRW Inc. and National City Bank, as Rights Agent (Exhibit 1 to TRW Form 8-A Registration Statement dated April 25, 1996 is incorporated herein by reference). 4(b) Indenture between TRW Inc. and The Chase Manhattan Bank (National Association), as successor Trustee, dated as of May 1, 1986 (Exhibit 2 to TRW Form 8-A Registration Statement dated July 3, 1986 is incorporated herein by reference). 4(c) First Supplemental Indenture between TRW Inc. and The Chase Manhattan Bank (National Association), as successor Trustee, dated as of July 26, 1989 (Exhibit 4(b) to TRW Form S-3 Registration Statement, File No. 33-30350, is incorporated herein by reference). *10(a) 1979 Stock Option Plan as amended April 28, 1982 (Exhibit A to TRW Proxy Statement dated March 18, 1982 is incorporated herein by reference). *10(b) TRW Operational Incentive Plan (Exhibit 10(b) to TRW Annual Report on Form 10-K for the year ended December 31, 1989 is incorporated herein by reference). *10(c) TRW Executive Health Care Plan as amended and restated effective August 1, 1995 (Exhibit 10(c) to TRW Annual Report on Form 10-K for the year ended December 31, 1995 is incorporated herein by reference).
18
EXHIBIT NO. DESCRIPTION - ----------- --------------------------------------------------------------------------------- *10(d) 1984 Stock Option Plan (Exhibit A to TRW Proxy Statement dated March 19, 1984 is incorporated herein by reference). *10(e) 1989 TRW Long-Term Incentive Plan (Exhibit A to TRW Proxy Statement dated March 17, 1989 is incorporated herein by reference). *10(f) 1994 TRW Long-Term Incentive Plan as amended and restated effective February 4, 1997. *10(g) 1997 TRW Long-Term Incentive Plan (Exhibit A to TRW Proxy Statement dated March 12, 1997 is incorporated herein by reference). *10(h) Form of Strategic Incentive Grant. *10(i) Form of U.S. Nonqualified Stock Option Agreement. *10(j) Form of U.S. Transferable Nonqualified Stock Option Agreement. *10(k) Form of Director Transferable Nonqualified Stock Option Agreement. *10(l) Deferred Compensation Plan for Non-Employee Directors of TRW Inc. reflecting amendments effective August 1, 1990 (Exhibit 10(k) to TRW Annual Report on Form 10-K for the year ended December 31, 1990 is incorporated herein by reference). *10(m) Deferred Compensation Plan for Non-Employee Directors of TRW Inc. dated July 1, 1997. *10(n) TRW Directors' Pension Plan as amended and restated effective August 1, 1990 (Exhibit 10(l) to TRW Annual Report on Form 10-K for the year ended December 31, 1990 is incorporated herein by reference). *10(o) Form of Amended and Restated Employment Continuation Agreements with executive officers (Exhibit 10(k) to TRW Annual Report on Form 10-K for the year ended December 31, 1995 is incorporated herein by reference). *10(p) TRW Inc. Deferred Compensation Plan as amended and restated effective February 4, 1997. *10(q) TRW Benefits Equalization Plan (as Amended and Restated, effective August 1, 1996) (Exhibit 10(a) to TRW Quarterly Report on Form 10-Q for the quarter ended June 30, 1996 is incorporated herein by reference). *10(r) TRW Supplementary Retirement Income Plan (as Amended and Restated, effective August 1, 1996) (Exhibit 10(b) to TRW Quarterly Report on Form 10-Q for the quarter ended June 30, 1996 is incorporated herein by reference). *10(s) TRW Inc. Key Executive Life Insurance Plan dated as of February 7, 1996 (Exhibit 10(v) to TRW Annual Report on Form 10-K for the year ended December 31, 1995 is incorporated herein by reference). *10(t) TRW Inc. Financial Counseling Program (Exhibit 10(w) to TRW Annual Report on Form 10-K for the year ended December 31, 1995 is incorporated herein by reference). 10(u) Three Year Revolving Credit Agreement dated July 1, 1992 among TRW Inc. and various financial institutions (Exhibit 19.1 to TRW Quarterly Report on Form 10-Q for the quarter ended June 30, 1992 is incorporated herein by reference). 10(v) Amendment dated June 30, 1993 to Three Year Revolving Credit Agreement dated July 1, 1992 among TRW Inc. and various financial institutions. (Exhibit 10.1 to TRW Quarterly Report on Form 10-Q for the quarter ended June 30, 1993 is incorporated herein by reference). 10(w) Amendment dated as of March 1, 1994 to Three Year Revolving Credit Agreement dated July 1, 1992 among TRW Inc. and various financial institutions. (Exhibit 10(cc) to TRW Annual Report on Form 10-K for the year ended December 31, 1993 is incorporated herein by reference).
19
EXHIBIT NO. DESCRIPTION - ----------- --------------------------------------------------------------------------------- 10(x) Amendment dated February 28, 1995 to Multi-Year Revolving Credit Agreement (for- merly entitled Three Year Revolving Credit Agreement) dated July 1, 1992 among TRW Inc. and various financial institutions (Exhibit 10(u) to TRW Annual Report on Form 10-K for the year ended December 31, 1994 is incorporated herein by reference). 10(y) Amendment dated May 8, 1996 to Multi-Year Revolving Credit Agreement (formerly entitled Three Year Revolving Credit Agreement) dated July 1, 1992 among TRW Inc. and various financial institutions. *10(z) TRW Inc. Stock Plan for Non-Employee Directors (as Amended and Restated, effective August 1, 1995) (Exhibit 10.1 to TRW Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 is incorporated herein by reference). 11 Computation of Earnings per Share. 12 Computation of Ratio of Earnings to Fixed Charges -- Unaudited. 13 Portions of the TRW Annual Report to Security Holders for the year ended December 31, 1996 incorporated herein by reference. 21 Subsidiaries of the Registrant. 23(a) Consent of Independent Auditors. 23(b) Consent of Independent Auditors (with respect to financial statements of The TRW Canada Stock Savings Plan). 24(a) Power of Attorney. 24(b) Certified Resolutions. 27 Financial Data Schedule. 99(a) Financial Statements of The TRW Employee Stock Ownership and Stock Savings Plan for the year ended December 31, 1996. 99(b) Financial Statements of The TRW Canada Stock Savings Plan for the year ended December 31, 1996.
Certain instruments with respect to long-term debt have not been filed as exhibits as the total amount of securities authorized under any one of such instruments does not exceed 10% of the total assets of the registrant and its subsidiaries on a consolidated basis. The registrant agrees to furnish to the Commission a copy of each such instrument upon request. * Management contract, compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of this report. EX-10.F 2 EXHIBIT 10(F) 1 Exhibit 10(f) 1994 TRW LONG-TERM INCENTIVE PLAN as amended and restated effective February 4, 1997 1. Purpose. The purpose of the 1994 TRW Long-Term Incentive Plan is to enhance the long-term profitability of TRW for the benefit of its shareholders by offering incentives to key employees of the Company, thus assisting in attracting, retaining and rewarding the performance of key personnel. 2. Definitions. In this Plan, except where the context otherwise indicates, the following definitions apply: (a) Committee. A Committee of at least three Directors, appointed by the Directors from among their members to take action under this Plan. The Directors may appoint one or more persons as alternate members of the Committee, who may take the place of any absent member or members at any meeting of such Committee. The Directors may appoint a separate Committee consisting of three or more Directors to take action under the Plan with respect to Grants to Eligible Employees who are also Directors. Any Committee Members or Alternatives must be "Outside Directors" for the purposes of Section 162(m) of the Internal Revenue Code of 1986, which section was adopted as part of the Omnibus Budget Reconciliation Act of 1993, and the related Conference Committee Report, or any successor provision. (b) Company and TRW. TRW Inc., an Ohio corporation, and its subsidiaries and affiliated companies. (c) Directors. The Directors of TRW Inc. (d) Eligible Employee. Any key employee of the Company, including employees who are also Directors. (e) Fair Market Value. Such value of a Share as reported for stock exchange transactions and determined in accordance with any applicable resolutions or regulations of the Committee in effect at the relevant time. (f) Grant. A grant made under the Plan by the Committee to an Eligible Employee in the form of an Option, Stock Appreciation Right, Performance Share, Other Stock-Based Grant or any combination of such Grants. (g) Option. A Grant made by the Committee in the form of an option to purchase Shares pursuant to Section 7. 2 (h) Other Stock-Based Grant. A Grant made pursuant to Section 10 that is valued in whole or in part by reference to, or is otherwise based on, Shares. (i) Participant. Any Eligible Employee of the Company to whom a Grant is made, including any former Eligible Employee who still holds a Grant. (j) Performance Period. The period specified by the terms of the Grant of a Performance Share during which specified performance criteria are to be measured. (k) Performance Share. A Share (or right related to Shares) granted pursuant to Section 9. (l) Plan. The 1994 TRW Long-Term Incentive Plan. (m) Share. A share of Common Stock of TRW issued and reacquired by TRW or previously authorized but unissued. (n) Stock Appreciation Right. A right granted by the Committee to an Eligible Employee (i) in conjunction with all or any part of any Option granted under the Plan which entitles the Participant, upon exercise of such right, to surrender such Option, or any part thereof, and to receive a payment equal to the excess of the Fair Market Value, on the date of such exercise, of the Shares covered by such Option, or part thereof, over the purchase price of such Shares pursuant to the Option (a Tandem Stock Appreciation Right) or (ii) separate and apart from any Option, which entitles the Participant, upon exercise of such right, to receive a payment measured by the increase in the Fair Market Value of a number of Shares designated by such right from the date of grant of such right to the date on which the Participant exercises such right (a Freestanding Stock Appreciation Right). For purposes of Section 4, the number of Shares subject to the Grant of a Tandem Stock Appreciation Right and related Option shall only be the number of Shares subject to the Option. For a Freestanding Stock Appreciation Right, the number of Shares subject to the Grant shall be (i) zero if such right is payable only in cash and (ii) the number of Shares designated in the right if such right is payable in Shares. 3. Plan Administration. The Committee shall determine in its sole discretion the Eligible Employees to whom Grants are to be made, the number of Options, Stock Appreciation Rights, Performance Shares, or other Stock-Based Grants to be subject to each Grant and the terms and conditions of each Grant and of any amendments to such Grants, which need not be the same with respect to each Participant. The Committee shall administer the Plan, and its decisions and interpretations with respect to the Plan shall be final and conclusive. The Committee may act by 3 act by resolution, through the adoption of regulations or in any other manner permitted by law. 4. Grants Available. The aggregate of (a) the number of outstanding Shares delivered by the Company in payment and upon exercise of Grants and (b) the number of Shares subject to outstanding Grants under which Shares may be issued under the Plan shall not exceed 3,145,000 Shares at any one time, subject to adjustments authorized by Section 6 of the Plan. Consistent with the foregoing limitations, the following Shares shall be available for future Grants: (i) Shares subject to a Grant to the extent such Grant has expired or is surrendered, canceled or terminated and (ii) Shares issued pursuant to a Grant if such Shares are surrendered or forfeited to the Company. Shares available for Grants may consist, in whole or in part, of authorized and unissued Shares or treasury Shares. 5. Transfer. No Grant may be assigned, pledged or transferred other than by will or by the laws of descent and distribution, unless otherwise provided in any Grant agreement approved by the Committee. 6. Adjustments. The Committee may make or provide for such adjustments in the number or kind of Shares or other securities available for or covered by Grants, and the purchase price per Share, if any, under such Grants, as the Committee, in its sole discretion, may determine is equitably required as the result of (a) any change in the number or kind of outstanding Shares or of other securities into which such Shares shall have been changed or for which they shall have been exchanged, (b) any reorganization or change in the capital structure of TRW, or (c) any other corporate transaction or event having an effect similar to any of the foregoing. 7. Options. Options may be granted by the Committee from time to time to any Eligible Employee as incentive stock options (as defined in Section 422A of the Internal Revenue Code or any successor provision) or nonqualified stock options, to purchase Shares on terms and conditions determined by the Committee, including the following: (a) The purchase price shall be not less than the Fair Market Value of the Shares covered by the Option on the date the Option is granted. (b) Each Option may provide for related Stock Appreciation Rights. (c) The Committee shall, in its sole discretion, determine the form of consideration (including, without limitation, cash, Shares or other securities or other property, or any combination thereof) which may be accepted in payment of the purchase price of any Option or portion thereof. The value of any Share delivered in payment of the purchase price shall be its Fair Market Value on the date the Option is exercised. 4 (d) The maximum number of shares underlying Options that may be granted to any Eligible Employee under the Plan during any four calendar year period is 500,000, subject to the adjustments authorized by Section 6 of the Plan. 8. Stock Appreciation Rights. (a) The Committee may grant to any Eligible Employee Tandem Stock Appreciation Rights either at the time of grant of an Option or at any time thereafter during the term of an Option on terms and conditions determined by the Committee. (b) The Committee may grant, from time to time to any Eligible Employee, Freestanding Stock Appreciation Rights on terms and conditions determined by the Committee. (c) The payment to which the grantee of a Stock Appreciation Right is entitled upon exercise thereof may be made in Shares valued at Fair Market Value on the date of exercise, or in cash or partly in cash and partly in Shares, as the Committee may determine. 9. Performance Shares. The committee may grant, from time to time to any Eligible Employee, Performance Shares, for no cash consideration, if permitted by applicable law, or for such other consideration as may be determined by the Committee and specified in the Grant. The performance criteria to be achieved during any Performance Period, the formula for valuing the Grant, if any, the maximum value, if any, and the length of the Performance Period shall be determined by the Committee and specified in the Grant. The terms and conditions of Grants of Performance Shares shall be determined by the Committee. Performance Shares may be paid in Shares or other consideration related to Shares as determined by the Committee. The extent to which performance criteria have been achieved shall be conclusively determined by the Committee. Performance Shares may be payable in a single payment or in installments as specified by the Grant and may be payable upon attaining performance criteria or deferred to such later date or dates as are determined by the Committee and specified by the Grant. 10. Other Stock-Based Grants. The Committee may grant, from time to time to any Eligible Employee, Other Stock-Based Grants, for no cash consideration, if permitted by applicable law, or for such other consideration as may be determined by the Committee and specified in the Grant. Such Grants may include restricted shares but only to the extent that such restricted shares have performance-related criteria to payout. The Committee may specify such criteria or periods or goals for payment to the Participant as it shall determine and the extent to which such criteria or periods or goals have been met shall be conclusively 5 determined by the Committee. Other Stock-Based Grants may be paid in Shares, or other consideration related to Shares, in a single payment or in installments as specified by the Grant and may be payable on such dates as determined by the committee and specified by the Grant. The terms and conditions of Other Stock-Based Grants shall be determined by the Committee. 11. Amendments to the Plan. The Committee may from time to time amend this Plan, or any provision hereof, as permitted by applicable law, rule or regulation; provided, however, that except for adjustments under Section 6 above, shareholder approval is required to amend the Plan to: (a) increase the maximum number of Shares that may be issued under the Plan; or (b) grant Options at a purchase price below Fair Market Value on the date of grant. 12. Amendments to Outstanding Grants. The Committee shall have the authority to amend any terms and conditions applicable to outstanding Grants, provided that no amendment shall contain terms and conditions inconsistent with the provisions of this Plan and provided further that, except for adjustments under Section 6 above, no such action shall cancel or modify in a manner adverse to the Participant a Grant theretofore made except as provided for or contemplated in the terms of the Grant or as approved by the Participant. 13. Withholding Taxes. TRW shall have the right to deduct from any cash payment made under this Plan any Federal, state or local income or other taxes required by law to be withheld with respect to such payment. It shall be a condition to the obligation of TRW to deliver Shares or securities of TRW upon exercise of an Option or Stock Appreciation Right, upon delivery of Performance Shares or upon exercise or settlement of any Other Stock-Based Grant under this Plan, that the Participant pay to TRW such amount as may be requested by TRW for the purpose of satisfying any liability for such withholding taxes. Any Option, Stock Appreciation Right, Performance Share or Other Stock-Based Grant under the Plan may provide that the Participant may elect, in accordance with any applicable regulations of the Committee, to pay a portion or all of the amount of such minimum required or additional permitted withholding taxes in Shares. EX-10.H 3 EXHIBIT 10(H) 1 Exhibit 10(h) STRATEGIC INCENTIVE GRANT To: Date of Grant: ---------------------------------------- Unit: ---------------------------------------- As a key employee of TRW Inc. ("TRW"), you are hereby granted the right (the "Right") to receive _____ (or up to 200 percent thereof in certain circumstances) performance units subject to the terms and conditions below. Each performance unit will have a value equivalent to the value of one share of TRW Common Stock. This performance unit right is granted to you pursuant to the 1994 TRW Long-Term Incentive Plan approved by the shareholders of TRW in April 1994. TRW INC. By:_________________________________________ Secretary - -------------------------------------------------------------------------------- TERMS AND CONDITIONS 1. THE RIGHT This Right entitles you to receive performance units in the event that certain improvements in return on assets employed ("ROAE") for TRW are achieved with respect to the calendar years 1994 through 1997 (the "Performance Period"). 2. PERFORMANCE CRITERIA The definition of ROAE, for purposes of this Right, is set forth in Exhibit A. The inclusion of the effects of acquisitions, divestitures and similar unusual items in the calculation of ROAE shall be at the complete discretion of the Compensation and Stock Option Committee of the Directors of TRW (the "Committee"). A TRW matrix which consists of various ROAE figures for TRW for each year of the Performance Period and percentage award levels related to each of those figures is set forth in Exhibit B. 3. PAYMENT Promptly following the availability of year-end financial information for TRW for each year in the Performance Period, a firm of certified public accountants chosen by TRW will certify to TRW the ROAE of TRW for each such year. That number of performance units determined by multiplying the target grant listed on Exhibit B by the applicable percentage shown next to the ROAE figure (pro rata between ROAE figures shown) certified as described above for the applicable calendar year will be issued to you as TRW Common Stock as soon as practicable thereafter. In the event you are entitled to receive for any applicable calendar year a number of units greater than that number of units determined by multiplying the target percentage for such year times your target grant, you will be paid the cash equivalent for such excess units unless the Committee determines in its sole discretion to issue shares in lieu of cash. Such excess units will be valued based on the average of the high and low sales prices of a share of TRW Common on the New York Stock Exchange Composite Transactions Listing on the day immediately prior to the date of payment. If you elect to defer all or a portion of your performance unit payments they will be valued as cash equivalents and paid out of the deferred compensation plan in cash in accordance with the provisions of that plan. 4. TAXES Upon any payment pursuant to this Right, TRW shall deduct any withholding or other taxes due or withhold delivery of stock certificates issued until you make arrangements satisfactory to TRW to pay any withholding, transfer or other taxes due as a result of such issuance. You may elect, in accordance with applicable regulations of the Committee, to pay a portion or all of the amount of required withholding taxes in shares of TRW Common, either by delivering to TRW previously held shares of TRW Common or by having shares of TRW Common withheld from the shares issued to you hereunder. 5. SECURITIES LAWS Shares of TRW Common shall not be issued hereunder if such issuance would violate any Federal or state securities law. TRW will use its best efforts to make such filings and initiate such proceedings as may be necessary to prevent such violations unless the Directors of TRW determine, in their sole discretion, that such filings or proceedings would result in undue expense or hardship for TRW. TRW may place appropriate legends on the certificates for the shares issued hereunder, give stop-transfer instructions to its transfer agents or take any other action to achieve compliance with those laws in connection with any issuance of shares hereunder or your resale of such shares. 6. TRANSFERABILITY This Right is not transferable other than by will or the laws of descent and distribution. 7. DEATH In the event of your death, your estate or those so designated by will or the laws of descent and distribution will be entitled to receive, at such times as you would have received payment, such payment as would have been paid to you hereunder if you had remained employed throughout the entire year in which your death occurred and the following year of the Performance Period, if any. 8. TERMINATION OF EMPLOYMENT This Right shall terminate on the date of your termination of employment and you shall not be entitled to any additional payments hereunder except for any payments with respect to calendar years prior to your termination. However, if your employment is terminated during the last 2 half of a calendar year, and if the Committee gives written consent on or prior to the date on which payments are to be made pursuant to this Right with respect to such year, you will be entitled to receive such payments as would have been issued to you hereunder if you remained employed through the end of the calendar year during which your employment terminated multiplied by the fraction representing the number of months employed during such year. 9. DISABILITY Notwithstanding the foregoing, if your termination of employment is due to disability for a period of more than twelve months (as determined in accordance with the TRW Long-Term Disability Plan), you will be entitled to receive such payment as would have been issued to you hereunder if you had remained employed for the entire year in which the disability occurred and the following year of the Performance Period, if any. 10. ADJUSTMENTS The Committee shall make such adjustments in the number and kind of securities issuable pursuant hereto as it may determine are equitably required to prevent dilution or enlargement of your rights that would otherwise result from any stock dividend, stock split, combination of shares, recapitalization or other change in the capital structure of TRW, merger, consolidation, reorganization, partial or complete liquidation or other corporate transaction or event having an effect similar to any of the foregoing. 11. AMENDMENTS In addition to the authority to make adjustments as provided in Section 10, the Committee shall have the authority, until such time as a Change in Control as defined in Section 12 occurs, to amend otherwise this grant provided that no amendment shall contain terms and conditions inconsistent with the provisions of the 1994 TRW Long-Term Incentive Plan. Notwithstanding the foregoing, if you transfer positions or change responsibilities within TRW, the Committee may amend this Right to reflect such changed circumstances; provided, however, that any such amendment after a Change in Control occurs shall not reduce the value of this Right to you. 12. CHANGE IN CONTROL In the event of a Change in Control of TRW, this Right will remain in effect so long as you continue to be employed by TRW. For purposes of this Right, the definition of Change in Control is the same as the definition contained in resolutions adopted by the Committee on July 26, 1989. Such resolutions, in summary, provide that a Change in Control is a change occurring (a) by virtue of TRW's merger, consolidation or reorganization into or with, or transfer of assets to, another corporation or (b) by virtue of a change in the majority of the Directors during any two-year period unless the election of each new Director was approved by a two-thirds vote of the Directors in office at the beginning of such period or (c) through the acquisition of shares representing 20 percent or more of the voting power of TRW or (d) through any other change in control reported in any filing with the Securities and Exchange Commission, excluding, however, the acquisition of shares, or any report of such acquisition, by TRW, a subsidiary of TRW or a TRW-sponsored employee benefit plan. The language in the resolutions controls over this summary language. If a Change in Control occurs after June 30, 1994, you will be entitled to receive any payment issuable to you but not yet issued with respect to the calendar year preceding the Change in Control. In addition, with respect to remaining years in the Performance Period, you will be entitled to receive payment equal to the greater of (a) such number of units as shall be determined by the Committee, prior to the Change in Control, to be appropriate and consistent with this Right after taking into account prior performance, trends in performance and anticipated future performance based on information available at the time of the Committee's determination and (b) a minimum number of units as follows: The minimum number of units would be based on the 12-month ROAE for TRW (calculated by determining the ROAE for TRW for the first 12 months of the 15-month period ending on the last day of the month immediately preceding the month in which the Change in Control occurred). The number of units for the year in which the Change in Control occurred would be determined by applying such 12-month ROAE figure to the column of the TRW matrix relating to the year in which the Change in Control occurred. The number of units for each subsequent year of the Performance Period would be determined by using, in that year's TRW matrix column, the ROAE appearing in the same row (or, using an arithmetic interpolation, the same position between rows) of the TRW matrix as was used to determine the payout for the year in which the Change in Control occurred. For example, if the 12-month ROAE figure were two rows below the target level on the TRW matrix for the calendar year in which the Change in Control occurred, it would be assumed that the ROAE for any additional years remaining in the Performance Period would be two rows below the target level for those years. The aggregate number of units payable with respect to the year of the Change in Control and subsequent years in the Performance Period, determined as set forth above, would be issued to you promptly following the Change in Control. If you continue employment with TRW after the Change in Control, performance units will be issued to you in accordance with this Right provided that the number of units that you are entitled to receive with respect to a calendar year will be reduced by the number of units previously issued to you with respect to such year in accordance with the foregoing paragraph. 13. MISCELLANEOUS This Right shall not be construed as giving you any right to continue in the employ of TRW and is subject to the terms and conditions of the 1994 TRW Long-Term Incentive Plan. Subject to the requirements and limitations in Sections 10, 11 and 12 above, the Committee has authority to interpret and construe any provision of this grant and any such interpretation and construction shall be binding and conclusive. Except as provided in Section 12 above, no rights hereunder shall accrue to you with respect to any year in the Performance Period until such year is completed and the ROAE for TRW for such year has been certified to TRW as provided in Section 3 above. Thereafter your rights will be limited to those expressly given by this Right. Any reference in this grant to the Directors of TRW includes the Executive Committee of the Directors. 14. ENTIRE AGREEMENT This Right sets forth the entire understanding between you and TRW with respect to the subject matter hereof and supersedes all prior agreements and understandings, whether oral or written, relating hereto. EX-10.I 4 EXHIBIT 10(I) 1 Exhibit 10(i) TRW U.S NONQUALIFIED STOCK OPTION AGREEMENT TERMS AND CONDITIONS 1. PURCHASE RIGHTS This option cannot be exercised before the first anniversary of the date of grant. After that you will be entitled to purchase up to 33-1/3% of the shares covered by this option, rounded down to the nearest whole share for each of the first two years, for each full year of your continuous employment with TRW after the date of grant. The purchase rights accumulate as shown in the following table.
Cumulative Maximum Number of Full Years Percentage of of Continuous Service Optioned Shares That After Date of Grant May Be Purchased - ---------------------------------------------------------- 1 33-1/3% 2 66-2/3% 3 100%
Notwithstanding the foregoing, in the event of the termination of your employment due to your death or to your disability for a period of more than twelve months (as determined in accordance with the TRW Long-Term Disability Plan), or in the event of a change in control of TRW, this option will immediately become exercisable in respect of all of the shares covered by this grant. For purposes of this agreement, a change in control is defined in resolutions adopted by the Compensation and Stock Option Committee of the Directors of TRW on July 26, 1989, which, in summary, provide that a change in control is a change occurring (a) by virtue of TRW's merger, consolidation or reorganization into or with, or transfer of assets to, another corporation or (b) by virtue of a change in the majority of the Directors of TRW during any two-year period unless the election of each new Director was approved by a two-thirds vote of the Directors in office at the beginning of such period or (c) through the acquisition of shares representing 20% or more of the voting power of TRW or (d) through any other change in control reported in any filing with the Securities and Exchange Commission; provided, however, that no change in control is deemed to have occurred by the acquisition of shares, or any report of such acquisition, by TRW, a subsidiary of TRW or a TRW-sponsored employee benefit plan. The language of the resolutions controls over this summary language. 2. EXERCISE IN WHOLE OR PART To the extent this option has become exercisable, you may purchase on any date or dates all or any part of the shares which you are then entitled to purchase. However, no fractional shares may be purchased. 3. TERM OF OPTION To the extent this option has become exercisable in accordance with paragraph 1 above, it may be exercised by you at any time during the 10-year period beginning on the date of grant. To the extent this option remains unexercised at the end of the 10-year period, your unexercised purchase rights will terminate. To the extent unexercised, this stock option will terminate before the end of such 10-year period in the following cases: (a) If your employment with TRW terminates before you reach age 55, your unexercised purchase rights will terminate three months after the date your employment terminates. (b) If the Directors of TRW shall find that you intentionally committed an act materially inimical to the interests of TRW or a subsidiary, your unexercised purchase rights will terminate as of the time you committed such act, as determined by the Directors. If your employment is terminated by your death or by your disability for a period of more than twelve months (as determined in accordance with the TRW Long-Term Disability Plan), your purchase rights will not be subject to termination under clause (a) above and will continue for the entire 10-year period. In the event of a change in control of TRW (as defined herein), your purchase rights will not under any circumstances be subject to termination before the end of the 10-year period beginning on the date of grant. Nothing contained in this option shall extend this option beyond a 10-year period beginning on the date of grant or shall limit whatever right TRW or a subsidiary might otherwise have to terminate your employment at any time. 4. PAYMENT OF OPTION PRICE The option price shall be payable at the time of exercise. The option price shall be paid at the Office of Secretary at TRW's corporate headquarters or at any other place designated by the Secretary. The option price may be paid in cash, in full shares of TRW Common, or in a combination of both, in accordance with such procedures and subject to such further conditions as the Secretary of TRW may establish from time to time. Notwithstanding the foregoing, the 2 Compensation and Stock Option Committee of TRW at any time may suspend or terminate your right to pay any or all of the option price in shares of TRW. Common or cash payments shall be made in United States dollars, except that, if at the time of exercise you are employed by or on assignment for TRW or a subsidiary at a location outside the United States, a cash payment may, with the prior approval of the Secretary of TRW, be made in the official currency used at such location in an amount specified by the Secretary as equivalent to the same amount in United States dollars. Shares delivered in payment of the option price shall be valued at their fair market value on the date of exercise. For purposes of this option, "fair market value" is the average of the high and low sales prices of a share of TRW Common on the date of exercise on the New York Stock Exchange Composite Transactions Listing as reported in the Midwest edition of The Wall Street Journal (or if there are no sales on such date, then the closing sale price on such Listing on the nearest date before the date of exercise) or such other method or procedure for determining fair market value as the Compensation and Stock Option Committee of TRW in its sole discretion may determine. For purposes of this option, the "date of exercise" is the date on which written notice, accompanied by the option price, is received by the Secretary of TRW or his designee that you have elected to exercise all or part of this option. 5. TAXES Upon any exercise of this option, TRW may withhold delivery of certificates for the purchased shares until you make arrangements satisfactory to TRW to pay any withholding, transfer or other taxes due as a result of such exercise. You may elect, in accordance with applicable regulations of the Compensation and Stock Option Committee of TRW, to pay a portion or all of the amount of required withholding taxes in shares of TRW Common, either by delivering to TRW previously held shares of TRW Common or by having shares of TRW Common withheld from the shares purchased hereunder. 6. SECURITIES LAWS This option shall not be exercisable if such exercise would violate any Federal or state securities law. TRW will use its best efforts to make such filings and initiate such proceedings as may be necessary to prevent such violations unless the Directors of TRW determine, in their sole discretion, that such filings or proceedings would result in undue expense or hardship for TRW. TRW may place appropriate legends on the certificates for the optioned shares, give stop-transfer instructions to its transfer agents or take any other action to achieve compliance with those laws in connection with any exercise of this option or your resale of the optioned shares. 7. TRANSFERABILITY This option is not transferable other than by will or the laws of descent and distribution and shall be exercisable during your lifetime only by you or your guardian or legal representative. 8. LEAVES OF ABSENCE If you take a leave of absence for illness, military or governmental service or other reasons, and such leave has been specifically approved by the Chairman of the Board or the President of TRW for purposes of this option, then such leave will not be treated as an interruption of your employment. 9. ADJUSTMENTS The Compensation and Stock Option Committee of TRW may make such adjustments in the option price and in the number or kind of shares of TRW Common or other securities covered by this option as it in its sole discretion may determine are equitably required to prevent dilution or enlargement of your rights that would otherwise result from any stock dividend, stock split, combination of shares, recapitalization or other change in the capital structure of TRW, merger, consolidation, reorganization, partial or complete liquidation or other corporate transaction or event having an effect similar to any of the foregoing. 10. CERTAIN DEFINITIONS For purposes of this option, employment with a subsidiary will be treated as equivalent to employment with TRW itself, and your continuous employment will not be deemed to be interrupted by reason of your transfer among TRW and its subsidiaries. "Subsidiary" means a corporation or other entity in an unbroken chain of entities beginning with TRW if each of the entities other than the last entity in the unbroken chain owns stock or other ownership interests possessing 50% or more of the total outstanding combined voting power of all classes of stock or other interests in the next entity in the chain. 11. MISCELLANEOUS This stock option is subject to all the terms and conditions of the TRW plan pursuant to which it is granted. The Compensation and Stock Option Committee of TRW has authority to interpret and construe any provision of this instrument and the TRW plan pursuant to which this stock option is granted, and any such interpretation and construction shall be binding and conclusive. Any reference in this option to the Directors of TRW includes the Executive Committee of the Directors. EX-10.J 5 EXHIBIT 10(J) 1 Exhibit 10(j) TRW U.S. TRANSFERABLE NONQUALIFIED STOCK OPTION AGREEMENT TERMS AND CONDITIONS 1. PURCHASE RIGHTS This option cannot be exercised before the first anniversary of the date of grant. After that you will be entitled to purchase up to 33-1/3% of the shares covered by this option, rounded down to the nearest whole share for each of the first two years, for each full year of your continuous employment with TRW after the date of grant. The purchase rights accumulate as shown in the following table.
Cumulative Maximum Number of Full Years Percentage of of Continuous Service Optioned Shares That After Date of Grant May Be Purchased - ---------------------------------------------------------- 1 33-1/3% 2 66-2/3% 3 100%
Notwithstanding the foregoing, in the event of the termination of your employment due to your death or to your disability for a period of more than twelve months (as determined in accordance with the TRW Long-Term Disability Plan), or in the event of a change in control of TRW, this option will immediately become exercisable in respect of all of the shares covered by this grant. For purposes of this agreement, a change in control is defined in resolutions adopted by the Compensation and Stock Option Committee of the Directors of TRW on July 26, 1989, which, in summary, provide that a change in control is a change occurring (a) by virtue of TRW's merger, consolidation or reorganization into or with, or transfer of assets to, another corporation or (b) by virtue of a change in the majority of the Directors of TRW during any two-year period unless the election of each new Director was approved by a two-thirds vote of the Directors in office at the beginning of such period or (c) through the acquisition of shares representing 20% or more of the voting power of TRW or (d) through any other change in control reported in any filing with the Securities and Exchange Commission; provided, however, that no change in control is deemed to have occurred by the acquisition of shares, or any report of such acquisition, by TRW, a subsidiary of TRW or a TRW-sponsored employee benefit plan. The language of the resolutions controls over this summary language. 2. EXERCISE IN WHOLE OR PART To the extent this option has become exercisable, you may purchase on any date or dates all or any part of the shares which you are then entitled to purchase. However, no fractional shares may be purchased. 3. TERM OF OPTION To the extent this option has become exercisable in accordance with paragraph 1 above, it may be exercised by you at any time during the 10-year period beginning on the date of grant. To the extent this option remains unexercised at the end of the 10-year period, your unexercised purchase rights will terminate. To the extent unexercised, this stock option will terminate before the end of such 10-year period in the following cases: (a) If your employment with TRW terminates before you reach age 55, your unexercised purchase rights will terminate three months after the date your employment terminates. (b) If the Directors of TRW shall find that you intentionally committed an act materially inimical to the interests of TRW or a subsidiary, your unexercised purchase rights will terminate as of the time you committed such act, as determined by the Directors. If your employment is terminated by your death or by your disability for a period of more than twelve months (as determined in accordance with the TRW Long-Term Disability Plan), your purchase rights will not be subject to termination under clause (a) above and will continue for the entire 10-year period. In the event of a change in control of TRW (as defined herein), your purchase rights will not under any circumstances be subject to termination before the end of the 10-year period beginning on the date of grant. Nothing contained in this option shall extend this option beyond a 10-year period beginning on the date of grant or shall limit whatever right TRW or a subsidiary might otherwise have to terminate your employment at any time. 4. PAYMENT OF OPTION PRICE The option price shall be payable at the time of exercise. The option price shall be paid at the Office of Secretary at TRW's corporate headquarters or at any other place designated by the Secretary. The option price may be paid in cash, in full shares of TRW Common, or in a combination of both, in accordance with such procedures and subject to such further conditions as the Secretary of TRW may establish from time to time. Notwithstanding the foregoing, the Compensation and Stock Option Committee of TRW at any time may suspend or terminate your right to pay any or all of the option price in shares of TRW Common. 2 Cash payments shall be made in United States dollars, except that, if at the time of exercise you are employed by or on assignment for TRW or a subsidiary at a location outside the United States, a cash payment may, with the prior approval of the Secretary of TRW, be made in the official currency used at such location in an amount specified by the Secretary as equivalent to the same amount in United States dollars. Shares delivered in payment of the option price shall be valued at their fair market value on the date of exercise. For purposes of this option, "fair market value" is the average of the high and low sales prices of a share of TRW Common on the date of exercise on the New York Stock Exchange Composite Transactions Listing as reported in the Midwest edition of The Wall Street Journal (or if there are no sales on such date, then the closing sale price on such Listing on the nearest date before the date of exercise) or such other method or procedure for determining fair market value as the Compensation and Stock Option Committee of TRW in its sole discretion may determine. For purposes of this option, the "date of exercise" is the date on which written notice, accompanied by the option price, is received by the Secretary of TRW or his designee that you have elected to exercise all or part of this option. 5. TAXES Upon any exercise of this option, TRW may withhold delivery of certificates for the purchased shares until you make arrangements satisfactory to TRW to pay any withholding, transfer or other taxes due as a result of such exercise. You may elect, in accordance with applicable regulations of the Compensation and Stock Option Committee of TRW, to pay a portion or all of the amount of required withholding taxes in shares of TRW Common, either by delivering to TRW previously held shares of TRW Common or by having shares of TRW Common withheld from the shares purchased hereunder. 6. SECURITIES LAWS This option shall not be exercisable if such exercise would violate any Federal or state securities law. TRW will use its best efforts to make such filings and initiate such proceedings as may be necessary to prevent such violations unless the Directors of TRW determine, in their sole discretion, that such filings or proceedings would result in undue expense or hardship for TRW. TRW may place appropriate legends on the certificates for the optioned shares, give stop-transfer instructions to its transfer agents or take any other action to achieve compliance with those laws in connection with any exercise of this option or your resale of the optioned shares. 7. TRANSFERABILITY This option is not transferable except (a) by will or the laws of descent and distribution, or (b) by gift to any member of your immediate family, to a trust for the benefit of an immediate family member, or to a partnership whose beneficiaries are members of your immediate family; provided, however, that there may be no consideration for any such transfer. For purposes of this agreement, "immediate family member" shall mean your spouse, children and grandchildren. Notwithstanding any transfer of this option pursuant to clause (b) of this Section 7, you will continue to be solely responsible for the taxes described in Section 5 of this agreement. Any option transferred pursuant to the terms of this Section 7 shall continue to be subject to the same terms and conditions as were applicable immediately prior to the transfer. 8. LEAVES OF ABSENCE If you take a leave of absence for illness, military or governmental service or other reasons, and such leave has been specifically approved by the Chairman of the Board or the President of TRW for purposes of this option, then such leave will not be treated as an interruption of your employment. 9. ADJUSTMENTS The Compensation and Stock Option Committee of TRW may make such adjustments in the option price and in the number or kind of shares of TRW Common or other securities covered by this option as it in its sole discretion may determine are equitably required to prevent dilution or enlargement of your rights that would otherwise result from any stock dividend, stock split, combination of shares, recapitalization or other change in the capital structure of TRW, merger, consolidation, reorganization, partial or complete liquidation or other corporate transaction or event having an effect similar to any of the foregoing. 10. CERTAIN DEFINITIONS For purposes of this option, employment with a subsidiary will be treated as equivalent to employment with TRW itself, and your continuous employment will not be deemed to be interrupted by reason of your transfer among TRW and its subsidiaries. "Subsidiary" means a corporation or other entity in an unbroken chain of entities beginning with TRW if each of the entities other than the last entity in the unbroken chain owns stock or other ownership interests possessing 50% or more of the total outstanding combined voting power of all classes of stock or other interests in the next entity in the chain. 11. MISCELLANEOUS This stock option is subject to all the terms and conditions of the TRW plan pursuant to which it is granted. The Compensation and Stock Option Committee of TRW has authority to interpret and construe any provision of this instrument and the TRW plan pursuant to which this stock option is granted, and any such interpretation and construction shall be binding and conclusive. Any reference in this option to the Directors of TRW includes the Executive Committee of the Directors. EX-10.K 6 EXHIBIT 10(K) 1 Exhibit 10(k) [TRW LOGO] DIRECTOR TRANSFERABLE NONQUALIFIED STOCK OPTION AGREEMENT To: Date of Grant: ------------------------ ------------------------ (Social Security Number) There hereby is granted to you, as a Director of TRW Inc. ("TRW") , an option to purchase ______ shares of Common Stock, par value $0.625 each, of TRW ("TRW Common") at an option price of $_____ per share. This option is granted to you pursuant to the 1997 Long-Term Incentive Plan and is subject to the terms and conditions set forth below. This option is not intended to be an incentive stock option as defined in Section 422A of the Internal Revenue Code. TRW INC. By:_________________________________________ Authorized Officer - ------------------------------------------------------------------------------- TERMS AND CONDITIONS 1. PURCHASE RIGHTS. This option cannot be exercised before the first anniversary of the date of grant. After that you will be entitled to purchase all of the shares covered by this option. Notwithstanding the foregoing, in the event of the termination of your service as a Director due to your death or permanent disability, or in the event of a change in control of TRW, this option will immediately become exercisable in respect of all of the shares covered by this grant. For purposes of this agreement, a change in control is defined in resolutions adopted by the Compensation and Stock Option Committee of the Directors of TRW on July 26, 1989, which, in summary, provide that a change in control is a change occurring (a) by virtue of TRW's merger, consolidation or reorganization into or with, or transfer of assets to, another corporation or (b) by virtue of a change in the majority of the Directors of TRW during any two-year period unless the election of each new Director was approved by a two-thirds vote of the Directors in office at the beginning of such period or (c) through the acquisition of shares representing 20% or more of the voting power of TRW or (d) through any other change in control reported in any filing with the Securities and Exchange Commission; provided that no change in control is deemed to have occurred by the acquisition of shares, or any report of such acquisition, by TRW, a subsidiary of TRW or a TRW-sponsored employee benefit plan. The language of the resolutions controls over this summary language. 2. EXERCISE IN WHOLE OR PART. To the extent this option has become exercisable, you may purchase on any date or dates all or any part of the shares which you are then entitled to purchase. However, no fractional shares may be purchased. 3. TERM OF OPTION. To the extent this option has become exercisable in accordance with paragraph 1 above, it may be exercised by you at any time during the 10-year period beginning on the date of grant. To the extent this option remains unexercised at the end of the 10-year period, your unexercised purchase rights will terminate. 4. PAYMENT OF OPTION PRICE. The option price shall be payable at the time of exercise. The option price shall be paid at the Office of Secretary at TRW's corporate headquarters or at any other place designated by the Secretary. The option price may be paid in cash, in full shares of TRW Common, or in a combination of both, in accordance with such procedures and subject to such further conditions as the Secretary of TRW may establish from time to time. Notwithstanding the foregoing, the Compensation and Stock Option Committee of TRW at any time may suspend or terminate your right to pay any or all of the option price in shares of TRW Common. Cash payments shall be made in United States dollars. 2 Shares delivered in payment of the option price shall be valued at their fair market value on the date of exercise. For purposes of this option, "fair market value" is the mean of the high and low sales prices of a share of TRW Common on the date of exercise on the New York Stock Exchange Composite Transactions Listing as reported in the Midwest edition of The Wall Street Journal (or if there are no sales on such date, then the closing sale price on such Listing on the nearest date before the date of exercise) or such other method or procedure for determining fair market value as the Compensation and Stock Option Committee of TRW in its sole discretion may determine. For purposes of this option, the "date of exercise" is the date on which written notice, accompanied by the option price, is received by the Secretary of TRW or his designee that you have elected to exercise all or part of this option. 5. TAXES. Upon any exercise of this option, TRW may withhold delivery of certificates for the purchased shares until you make arrangements satisfactory to TRW to pay any withholding, transfer or other taxes due as a result of such exercise. You may elect, in accordance with applicable regulations of the Compensation and Stock Option Committee of TRW, to pay a portion or all of the amount of required withholding taxes in shares of TRW Common, either by delivering to TRW previously held shares of TRW Common or by having shares of TRW Common withheld from the shares purchased hereunder. 6. SECURITIES LAWS. This option shall not be exercisable if such exercise would violate any Federal or state securities law. TRW will use its best efforts to make such filings and initiate such proceedings as may be necessary to prevent such violations unless the Directors of TRW determine, in their sole discretion, that such filings or proceedings would result in undue expense or hardship for TRW. TRW may place appropriate legends on the certificates for the optioned shares, give stop-transfer instructions to its transfer agents or take any other action to achieve compliance with those laws in connection with any exercise of this option or your resale of the optioned shares. 7. TRANSFERABILITY. This option is not transferable except (a) by will or the laws of descent and distribution, or (b) by gift to any member of your immediate family, to a trust for the benefit of an immediate family member, or to a partnership whose beneficiaries are members of your immediate family; provided that, there may be no consideration for any such transfer. For purposes of this agreement, "immediate family member" shall mean your spouse, children and grandchildren. Notwithstanding any transfer of this option, you will continue to be solely responsible for the taxes described in Section 5 of this agreement. Any option transferred pursuant to the terms of this Section 7 shall continue to be subject to the same terms and conditions as were applicable immediately prior to the transfer. 8. ADJUSTMENTS. The Compensation and Stock Option Committee of TRW may make such adjustments in the option price and in the number or kind of shares of TRW Common or other securities covered by this option as it in its sole discretion may determine are equitably required to prevent dilution or enlargement of your rights that would otherwise result from any stock dividend, stock split, combination of shares, recapitalization or other change in the capital structure of TRW, merger, consolidation, reorganization, partial or complete liquidation or other corporate transaction or event having an effect similar to any of the foregoing. 9. MISCELLANEOUS. This stock option is subject to all the terms and conditions of the TRW plan pursuant to which it is granted. The Compensation and Stock Option Committee of TRW has authority to interpret and construe any provision of this instrument and the TRW plan pursuant to which this stock option is granted, and any such interpretation and construction shall be binding and conclusive. Any reference in this option to the Directors of TRW includes the Executive Committee of the Directors. EX-10.M 7 EXHIBIT 10(M) 1 Exhibit 10(m) DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS OF TRW INC. July 1, 1997 2 DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS OF TRW INC. -------------------------------------- TABLE OF CONTENTS Page ---- Section 1. Effective Date................................. 1 Section 2. Purpose........................................ 1 Section 3. Eligibility.................................... 1 Section 4. Administration................................. 1 Section 5. Deferral of Compensation....................... 2 Section 6. Deferred Compensation Account.................. 3 Section 7. Hypothetical Investments....................... 3 Section 8. Value of Deferred Compensation Accounts........ 4 Section 9. Effect of Deferral Elections................... 5 Section 10. Distribution of Account Funds.................. 5 Section 11. Acceleration of Account Distribution Due to Unforeseeable Emergency................. 6 Section 12. Death of Eligible Director; Distribution of Account Balance................ 7 Section 13. Eligible Directors' Rights Unsecured........... 7 Section 14. Assignability.................................. 7 Section 15. Amendment...................................... 8 3 Section 1. Effective Date. - ---------- --------------- The effective date of the Deferred Compensation Plan for Non-Employee Directors of TRW Inc. (the "Plan") is July 1, 1997 (the "Effective Date"). Section 2. Purpose. - ---------- -------- The purposes of the Plan are to align a significant portion of Director compensation with creating and sustaining shareholder value and to attract and retain a diverse and truly superior Board of Directors. The Plan is intended to serve as the mechanism that will allow each eligible Director to defer all or a portion of the compensation otherwise payable to him or her for his or her services to TRW Inc. (the "Company"). Section 3. Eligibility. - ---------- ------------ Each Director of the Company who is not an employee of the Company or of one of its subsidiaries shall be eligible to, and shall participate in, the Plan (the "Eligible Director"). Following the Effective Date of the Plan, (i) a non-employee Director will be deemed an Eligible Director as of the effective date of his or her election as a Director of the Company, and (ii) an employee Director will be deemed an Eligible Director as of the date he or she ceases to be an employee of the Company or of one of its subsidiaries but continues to be a Director, in accordance with the provisions of the Directors' retirement policy as amended from time to time. Eligibility to receive and defer compensation pursuant to this Plan will cease upon the earlier of the Eligible Director's termination of service as a Director of the Company or of his or her death. Section 4. Administration. - ---------- --------------- The Plan shall be administered by a committee (the "Committee") consisting of the following three officers of the Company: the Executive Vice President and Chief Financial Officer, the Executive Vice President and General Counsel, and the Executive Vice President of Human Resources. The Committee shall have the power 4 to (i) determine all questions of fact or interpretation regarding Plan provisions; (ii) adopt rules, regulations and procedures deemed necessary and appropriate to carry out the Plan's operation; and (iii) maintain or cause to be maintained necessary and appropriate records. The Committee's determinations on questions of fact or interpretation of Plan provisions will be binding on all parties. The Committee may delegate its authority to carry out specific responsibilities given to it under the Plan. Section 5. Deferral of Compensation. - ---------- ------------------------- (a) Automatic Deferral. One-half (50 percent) of the annual retainer, exclusive of any retainer paid for chairing a Committee of the Directors, (the "Base Annual Retainer") otherwise payable by the Company to an Eligible Director for his or her services to the Company on or after the Effective Date, will be automatically deferred (the "Automatic Deferral") under the Plan. (b) Elective Deferral. In addition to the Automatic Deferral described above, an Eligible Director may elect to defer (the "Elective Deferral") all or a portion of the remaining 50 percent of his or her Base Annual Retainer, expressed either as a dollar amount or as a percentage, and any retainer that he or she may receive for chairing one of the Commitees of the Directors of the Company (together, the "Available Retainer"). For 1997, an Eligible Director may elect to defer all or any portion of the Available Retainer for services to be performed on or after the Effective Date, by completing a deferral election form prescribed by the Secretary of the Company (the "Secretary") and returning it to the Secretary by June 30, 1997. An Eligible Director who (i) is elected a Director of the Company following the Effective Date of the Plan or (ii) ceases to be an employee of the Company or one of its subsidiaries but continues to be a Director may choose to defer all or any portion of the Available Retainer for his or her subsequent services to the Company, provided that the prescribed deferral election form is delivered to the Secretary within 30 days after the -2- 5 effective date of the Eligible Director's (i) election as a Director of the Company or (ii) change in employment status. For years subsequent to 1997, an Eligible Director who elects to defer all or a portion of the Available Retainer must execute the prescribed election form and deliver it to the Secretary prior to the first day of the calendar year for which the election is to be effective. Section 6. Deferred Compensation Account. - ---------- ------------------------------ The Company shall establish a deferred compensation account (the "Account") for each Eligible Director that will set forth both the value of the Automatic Deferral and the Elective Deferral, if any. As of the date compensation would have been paid to the Eligible Director if it had not been either automatically or electively deferred, the Company shall credit his or her Account with the dollar amount of the deferred compensation. Section 7. Hypothetical Investments. - ---------- ------------------------- The Automatic Deferral portion of the Eligible Director's Account will be credited with the amount that portion of the Account would have earned based on the performance of the TRW Stock Fund of The TRW Employee Stock Ownership and Stock Savings Plan (the "Stock Savings Plan"), had that portion of the Account actually been invested in the TRW Stock Fund. The Elective Deferral portion of the Eligible Director's Account will be credited with the amount that portion of the Account would have earned based on the Eligible Director's election to allocate his or her Elective Deferral portion to one or more of the following funds established under the Stock Savings Plan: (a) Bond Index Fund; (b) Equity Fund; (c) Insured Return Fund; -3- 6 (d) Small Company Equity Fund; or (e) TRW Stock Fund. Allocation of the Elective Deferral portion of the Eligible Director's Account to any of the investment funds set forth above must be made in increments of 25 percent. The Eligible Director's allocation choices shall be implemented as soon as administratively feasible, in the sole discretion of the Committee. Subject to any restrictions imposed by Section 16(b) of the Securities Exchange Act of 1934, the Eligible Director may, at any time, (i) change his or her allocation choices with respect to future Elective Deferrals or (ii) reallocate the hypothetical investment earnings in the existing Elective Deferral portion of his or her Account. Changes or reallocations so made must also be in increments of 25 percent. Notwithstanding the foregoing provisions of this Section, the Committee shall have the right to substitute from time to time, without adversely affecting existing accruals in the Eligible Directors' Accounts, other fund choices for the Elective Deferral portion of the Accounts. Hypothetical investment earnings shall continue to accrue until the Eligible Director's Account is fully distributed. Section 8. Value of Deferred Compensation Accounts. - ---------- ---------------------------------------- The value of each Eligible Director's Account shall reflect all amounts deferred, including gains and losses from the hypothetical investments, and shall be determined on the last day of each month (the "Valuation Date"). The value of hypothetical investments in the Stock Savings Plan shall be based upon the valuation date under the Stock Savings Plan coincident with or immediately preceding such Valuation Dates. -4- 7 The amount in an Eligible Director's Account as of each Valuation Date that has not been previously deemed invested shall be deemed invested in a hypothetical investment on such date, based on the value of the hypothetical investment on such date. Section 9. Effect of Deferral Elections. - ---------- ----------------------------- Deferral elections, expressed either as a dollar amount or as a percentage, made under this Plan with respect to any calendar year may not be amended or revoked after the beginning of the calendar year with respect to compensation to be received for services performed during that calendar year. Section 10. Distribution of Account Funds. - ----------- ------------------------------ No distributions may be made from an Eligible Director's Account, except as provided in this Section and Sections 11 and 12. (a) Automatic Deferral Portion. Automatic Deferral amounts and the relevant hypothetical investment earnings credited to an Account shall be distributed, beginning as soon as practicable, after the Eligible Director ceases to hold office as a Director of the Company. The distribution shall be made in shares of TRW Common Stock, valued at the fair market value of a share of TRW Common Stock on the date of distribution. The Eligible Director may choose to take distribution of this portion of his or her Account as follows: (1) as a single payment, with any fractional shares being paid in cash; or (2) in regular installments (monthly, quarterly or annually) payable over a period not to exceed 10 years, with fractional shares paid in cash at the time of the final installment payment. (b) Elective Deferral Portion. Elective Deferral amounts and the relevant hypothetical investment earnings credited to an Account shall be distributed in accordance with the instructions given to the Secretary by the Eligible Director at -5- 8 the time of his or her election to defer all or a portion of the Available Retainer and may begin as of: (1) the date the Eligible Director ceases to hold office as a Director of the Company; (2) the date the Eligible Director reaches an age at which he or she may earn unlimited amounts without penalty under the Social Security Act and the regulations promulgated thereunder; or (3) such other date specified by the Eligible Director on the election form (at least two years from the date deferral of compensation begins). Distribution of Account funds may be made as a single payment or in regular installments (monthly, quarterly or annually) over a period of not more than 10 years. The Eligible Director may change his or her Elective Deferral distribution instructions by subsequent written notice to the Secretary. Distribution of amounts allocated to the TRW Stock Fund will be paid in whole shares of TRW Common Stock, valued at the fair market value of a share of TRW Common Stock on the date of distribution. Fractional shares, also valued on the date of distribution, will be paid in cash. If an Eligible Director should fail to give the Secretary instructions as to the type of distribution preferred, his or her Account funds will be distributed as a single payment as soon as practicable following the date on which he or she ceases to hold office as a Director of the Company. Section 11. Acceleration of Account Distribution Due to Unforeseeable - ----------- --------------------------------------------------------- Emergency. ---------- An Eligible Director will be permitted to receive distribution of all or a portion of his or her Account funds if the Committee determines that an unforeseeable emergency has occurred. An unforeseeable emergency is one that is caused by an event beyond the Eligible Director's control and that would cause severe financial hardship to him or her if the distribution of all or a portion of his or her -6- 9 Account funds were not approved. Any distribution approved under this provision shall be limited to the amount deemed necessary to meet the emergency. Section 12. Death of Eligible Director; Distribution of Account Balance. - ----------- ------------------------------------------------------------ In the event of the death of an Eligible Director before he or she has received full distribution of his or her Account, the value of the Account balance remaining to be distributed shall be determined as of the Valuation Date coincident with or immediately following the Eligible Director's death. The Account balance shall, as soon as practicable, be distributed in a single payment to the beneficiary or beneficiaries designated by the Eligible Director. In the event that an Eligible Director has failed to name a beneficiary, his or her Account balance shall be distributed to his or her estate. Section 13. Eligible Directors' Rights Unsecured. - ----------- ------------------------------------- This Plan is deemed unfunded for tax purposes and is not governed by the Employee Retirement Income Security Act of 1974. Consequently, for purposes of this Plan, no assets shall be segregated and placed beyond the reach of the Company's general creditors. The right of an Eligible Director to receive future installments under the provisions of this Plan shall be an unsecured claim against the general assets of the Company. Accordingly, the Eligible Directors will have the status of general unsecured creditors of the Company, and the Plan constitutes a mere promise by the Company to make Account distributions in the future. Section 14. Assignability. - ----------- -------------- The right of the Eligible Director, or of his or her beneficiary, to receive distribution of Account funds pursuant to the provisions of this Plan are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment by creditors of the Eligible Director, or of his or her beneficiary, except by will or by the laws of descent and distribution. -7- 10 Section 15. Amendment. - ----------- ---------- This Plan may at any time or from time to time be amended, modified or terminated by the Directors or the Executive Committee of the Directors of the Company. No amendment, modification or termination shall adversely affect existing accruals in an Eligible Director's Account, without his or her consent. -8- EX-10.P 8 EXHIBIT 10(P) 1 Exhibit 10(p) TRW INC. DEFERRED COMPENSATION PLAN THIS AMENDED AND RESTATED PLAN, established by TRW Inc. ("TRW") effective July 28, 1993, and as amended from time to time, including this amendment and restatement effective February 4, 1997, is for the benefit of certain employees of the Corporation in executive, managerial or professional capacities so as to enhance the Corporation's ability to attract and retain outstanding employees who are expected to contribute to its success. It shall remain in effect, as it may be amended from time to time, until termination as provided in Article VII of the Plan. ARTICLE I DEFINITIONS For the purposes of the Plan, the following words and phrases shall mean: 1.1 ACCOUNT. The bookkeeping or accounting records maintained (having and requiring no segregation or holding of any assets) by TRW pursuant to Article IV with respect to and resulting from a Participant's Deferral Election. 1.2 AFFILIATE. (a) Any corporation incorporated under the laws of one of the United States of America of which TRW owns, directly or indirectly, in excess of 50% of the combined voting power of all classes of stock or in excess of 50% of the total value of the shares of all classes of stock (all within the meaning of Section 1563 of the Code); (b) any partnership or other business entity organized under such laws, in which TRW owns, directly or indirectly, (i) in excess of 50% of the total capital or profits interest of such partnership, or (ii) in excess of 50% or more of the total value of such other business entity (all within the meaning of Section 414(c) of the Code); and (c) any other company designated as an Affiliate by the Committee. 1.3 BENEFICIARY. The person, persons or entity entitled under Article VI to receive any Plan Benefits payable after a Participant's death. -1- 2 1.4 CODE. The Internal Revenue Code of 1986, as amended. References in the Plan to Sections of the Code are to such Sections as in effect on the Effective Date or any successor provision. 1.5 COMMITTEE. The Compensation and Stock Option Committee of the Directors. 1.6 CORPORATION. TRW or an Affiliate of TRW. 1.7 DATE OF DEPOSIT. The Determination Date immediately preceding the date that, but for the Deferral Election, the Incentive Compensation would be paid. 1.8 DEFERRAL ELECTION. An election pursuant to Article III by an Eligible Employee to defer receipt of all or part of his Incentive Compensation. 1.9 DEFERRED COMPENSATION. The portion of Incentive Compensation which an Eligible Employee elects to defer pursuant to a Participation Agreement. 1.10 DETERMINATION DATE. The last day of each calendar month. 1.11 DIRECTORS. The Directors of TRW. 1.12 EFFECTIVE DATE. July 28, 1993, the effective date of the establishment of the Plan. 1.13 ELIGIBLE EMPLOYEE. A person (who must be a U.S. citizen or a U.S. resident alien) in the full-time active salary employ of the Corporation who is employed at Operational Incentive Plan Level III or above at the end of the year for which a Deferral Election applies, or who retires or is terminated due to a divestiture after executing a valid Deferral Election in the year the retirement is effective. 1.14 EXECUTIVE OFFICER. Any Eligible Employee who is an "executive officer" of TRW for the purposes of Rule 3b-7 under the Securities Exchange Act of 1934. 1.15 FINANCIAL HARDSHIP. A severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or of a dependent (as defined in ss.152(a) of the Code) of the Participant, loss of the Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstance arising as a result of events beyond the control of the Participant. In case of the Participant's death, the word "Beneficiary or other person or entity entitled to receive a Plan Benefit" shall be substituted for the word "Participant" wherever the latter appears in this Section 1.15. 1.16 HIGHLY-PAID EMPLOYEE. A person in the full-time active salary employ of the Corporation who (i) will earn, in salary and in bonus (assuming full year employment and no deferral of compensation), at least $150,000 (or such greater sum (effective January 1, 1997, $160,000) if the qualified benefit plan limitation is increased by the Internal Revenue Service) in the year of the Deferral Election or -2- 3 (ii) is already a participant in TRW's supplemental nonqualified benefit plans or (iii) is a U.S. citizen or U.S. resident alien who is Operational Incentive Plan Level III or above and is employed by either TRW Overseas Inc. or TRW Systems Overseas Inc. 1.17 INCENTIVE BONUS. A cash award payable to an Eligible Employee under TRW's Operational Incentive Plan (or similar compensation program that replaces the Operational Incentive Plan). 1.18 INCENTIVE COMPENSATION. Any cash award payable to an Eligible Employee as an Incentive Bonus or, if applicable, a Strategic Grant that, but for a Deferral Election under the Plan, would be paid to the Eligible Employee and considered to be "wages" for purposes of United States federal income tax withholding (or other appropriate jurisdiction). 1.19 INTEREST RATE OR INTEREST. One-twelfth of the annual interest rate, equal to 110% of the applicable long-term federal rate as published by the Internal Revenue Service pursuant to Code Section 1274(d) or any successor provision and in effect on the first business day of each calendar month. 1.20 INVESTMENT FUND RETURNS. The gains or losses in one or more of the investment funds offered to participants under the TRW Employee Stock Ownership and Savings Plan, any of which shall be available to any Participant for purposes of having such investment fund results credited to his Account under this Plan. 1.21 PARTICIPANT. An Eligible Employee who has elected to participate in the Plan and has executed and filed with TRW a Participation Agreement as provided in Article III; provided, however, that such term shall include a person who no longer has an effective Deferral Election so long as he retains, under the Plan, an interest in an Account under the Plan. 1.22 PARTICIPANT AGREEMENT. An agreement between TRW and a Participant setting forth the Participant's Deferral Election. 1.23 PLAN. This Deferred Compensation Plan, as it may be amended from time to time. 1.24 PLAN BENEFIT. The benefit payable to a Participant in accordance with Article V hereof. 1.25 PLAN YEAR. Each of the twelve-month periods ending December 31 and occurring while the Plan remains in effect. The term "Plan Year" shall also include the period beginning on the Effective Date and ending December 31, 1993, and any period of less than twelve months beginning January 1 and ending on the date the Plan is terminated. 1.26 PRE-RETIREMENT PAYMENT SUB-ACCOUNT. A Sub-Account of a Participant's Account, established pursuant to Section 4.3, to which there shall be -3- 4 credited Deferred Compensation under a single Deferral Election, and all interest accrued thereon, as to which the Participant has elected payment of his Plan Benefit in either five years or ten years from the Date of Deposit. 1.27 RETIREMENT PAYMENT SUB-ACCOUNT. A Sub-Account of a Participant's Account, established pursuant to Section 4.3, to which there shall be credited Deferred Compensation under all Deferral Elections, and all interest accrued thereon, as to which the Plan Benefit is intended to be payable following retirement of the Participant from the Corporation. 1.28 SPECIAL COMMITTEE. The committee composed of the head of Human Resources, the General Counsel and the Chief Financial Officer of TRW, which committee reviews and acts upon the requests of Participants (other than Participants who are Executive Officers, whose requests are acted upon by the Committee) to receive early payout as a result of a Financial Hardship or to change payout upon retirement. 1.29 STRATEGIC GRANT. A cash award and/or performance unit payable to an Eligible Employee pursuant to TRW's Strategic Incentive Program (or similar long-term compensation plan that replaces or augments the Strategic Incentive Program). 1.30 SUB-ACCOUNT. A Pre-Retirement Payment Sub-Account or a Retirement Payment Sub-Account. 1.31 TERMINATION OF EMPLOYMENT. Any severance of a Participant from full-time active salaried employment by the Corporation for any reason (other than a transfer of employment from TRW to an Affiliate, from an Affiliate to another Affiliate or from an Affiliate to TRW). 1.32 TRW. TRW Inc., an Ohio corporation. ARTICLE II ADMINISTRATION 2.1 ADMINISTRATORS. The Plan shall be administered by the Committee and the Special Committee, and certain decisions concerning Financial Hardship and change in payment upon retirement may be made by the Special Committee. Except as otherwise provided herein, decisions of the Committee or the Special Committee shall be final and binding on all parties. 2.2 COMMITTEE. The Committee shall have the authority (a) to make, amend, interpret and enforce all rules and regulations for the administration of the Plan and (b) to decide all questions, including interpretation of the Plan as may arise in connection with the Plan insofar as it is applicable to Participants (i) who are Executive Officers or (ii) with respect to whom questions are referred to the Committee by the head of Human Resources. A majority of the members of the Committee shall constitute a quorum. The Committee may act by a vote of a -4- 5 majority of a quorum at a meeting or by a writing signed by a majority of the members of the Committee. 2.3 HUMAN RESOURCES. The head of Human Resources shall administer the Plan in accordance with the terms of the Plan and the rules and regulations of the Plan as established by the Committee. Consistent with the authorized precedents and the rules and regulations authorized by the Committee, the head of Human Resources shall have the authority to decide all questions, including interpretations of the Plan, as may arise in connection with the Plan insofar as it is applicable to Participants other than Executive Officers. 2.4 SPECIAL COMMITTEE. With regard to all Participants, other than Participants who are Executive Officers, the Special Committee shall act upon (i) written requests of Participants concerning early payout of some or all of the Participant's Account balances as a result of Financial Hardship and (ii) written requests of Participants to change the payout of a Participant's Retirement Payment Sub-Account as provided by Section 5.1(b). The Special Committee may act by a vote of the majority at a meeting or by a writing signed by a majority of the members of the Special Committee. 2.5 FINANCIAL HARDSHIP AND RETIREMENT PAYOUT CHANGE REQUESTS. In order for a request to be considered by the Special Committee (or, in the case of a request as set forth in clauses (i) or (ii) of Section 2.4 by an Executive Officer, the Committee), the requests must (i) be in writing and delivered to the head of Human Resources, (ii) set forth whether the Participant is requesting an early payout because of a Financial Hardship or a change of payout upon retirement, (iii) set forth the reasons for such request, including in detail the Financial Hardship or the circumstances that necessitate the change of payout upon retirement, (iv) in the case of a request as a result of a Financial Hardship set forth the amount of such Participant's Account that the Participant wishes to be paid and the Sub-Accounts from which such early payout shall be made and (v) in the case of a change of payout at retirement set forth the manner in which the Participant wishes to receive payout (e.g., single sum or in five annual installments). Compliance with the petition procedures set forth in this Section 2.5 does not insure that the request will be granted by the Special Committee (or the Committee). -5- 6 ARTICLE III PARTICIPATION 3.1 PARTICIPATION. (a) Subject to the limitations set forth in this Article III, any person who is an Eligible Employee in the year for which the Incentive Compensation deferred under a Deferral Election under this Section 3.1 is payable may participate in the Plan by executing and filing with the head of Human Resources a Participation Agreement; provided, however, the election to defer Incentive Bonus will not be effective unless the Eligible Employee is also a Highly-Paid Employee. The head of Human Resources shall determine, in his sole discretion, which Eligible Employees are likely to be Highly-Paid Employees during the year in which the Deferral Election is made. The head of Human Resources shall then notify Eligible Employees whether their elections to defer Incentive Bonuses are effective. (b) In each Participation Agreement, the Eligible Employee shall specify: (i) the percentage or dollar amount of Incentive Bonus and the percentage or the dollar amount of Strategic Grant in respect of a specified TRW fiscal year to be deferred; (ii) the Investment Fund Returns and/or Interest Rate to be credited to the Participant's entire Account; (iii) subject to the limitations of Section 5.1, the form of Plan Benefit (i.e., whether such benefits are intended to be paid following retirement or five or ten years from the Date of Deposit). If the Eligible Employee chooses to defer a dollar amount of the Incentive Bonus or the Strategic Grant and to the extent that dollar amount specified exceeds the eligible amount of the Incentive Bonus or the Strategic Grant, as applicable, the amount actually deferred shall be the eligible amount of the Incentive Bonus or the Strategic Grant, as applicable. If the Eligible Employee has chosen to have Deferred Compensation paid five or ten years from the Date of Deposit, such payments shall be made as provided in Section 5.1(d) below. (c) Before September 30 of each Plan Year, each Eligible Employee who elects to become a Participant shall file with the head of Human Resources a Participation Agreement specifying the items identified in paragraph (b) above. -6- 7 3.2 DEFERRAL ELECTIONS. Subject to the restrictions concerning deferral of Incentive Bonus set forth in Section 3.1(a), any Eligible Employee may elect to defer any percentage or dollar amount (but not both a percentage and dollar amount, but an Eligible Employee can defer a specified dollar amount of one of his Incentive Bonus and Strategic Grant and a percentage of the other) of each of his Strategic Grant and his Incentive Bonus; provided, however, that, to the extent that the Eligible Employee chooses to defer a percentage of his Incentive Bonus and/or Strategic Bonus, each Deferral Election, to be effective, must result in deferral of a minimum of 10% of the Eligible Employee's Incentive Bonus and/or Strategic Grant (provided that an Eligible Employee may elect to defer a portion of his Incentive Bonus and none of his Strategic Grant and vice versa) and the Deferral Elections must be in increments of 5% for each of the Strategic Grant and Incentive Bonus, which election percentages do not need to be identical; further, provided, however, that, to the extent that the Eligible Employee chooses to defer a specified amount of his Incentive Bonus and/or Strategic Bonus, each Deferral Election, to be effective, must result in deferral of a minimum of $10,000 of the Eligible Employee's Incentive Bonus and/or Strategic Grant (provided that an Eligible Employee may elect to defer a portion of his Incentive Bonus and none of his Strategic Grant and vice versa) and the Deferral Elections must be in increments of $1,000 for each of the Strategic Grant and Incentive Bonus, which election amounts do not need to be identical. 3.3 MODIFICATION OF DEFERRAL ELECTION. By written notice to TRW, a Deferral Election filed in any Plan Year may be modified or revoked at any time prior to October 1 of such Plan Year. Thereafter, a Deferral Election specified in a Participation Agreement shall be irrevocable, except that the Committee or the Special Committee, as appropriate under Article II, may permit a Participant at any time prior to the actual deferral of the Incentive Compensation to reduce the designated percentage to be deferred upon a finding, based upon uniform standards established by the Committee, that the Participant has suffered a Financial Hardship. ARTICLE IV DEFERRED COMPENSATION 4.1 DEFERRED COMPENSATION. The amount of Incentive Compensation deferred pursuant to a Deferral Election shall be withheld in a single sum at the time such Incentive Compensation, but for a Deferral Election, would be paid. 4.2 WITHHOLDING OF TAXES AND SSP/BEP CONTRIBUTIONS. Any withholding of taxes or other amounts which is required by any federal, state, or local law shall be withheld from the Participant's remaining undeferred Incentive Compensation, if any. If necessary in order to comply with any federal, state or local law, the amount of Incentive Compensation deferred may be reduced by an amount equal to any required withholding. Otherwise, such withholding may be made from any of the Participant's other compensation payable by the Corporation, or, at the election of the head of Human Resources, a Participant may be permitted to pay to the Corporation the amount of any such required withholding at or prior to the -7- 8 time such withholding would otherwise be required to be made. In addition, the amount of Incentive Compensation deferred shall be reduced by the amount of TRW Stock Savings Plan and Benefits Equalization Plan contributions to be made by the Eligible Employee on account of such Incentive Compensation. 4.3 ACCOUNTS. For recordkeeping purposes only, a separate Account shall be established and maintained by TRW for each Participant to which his Deferred Compensation and Investment Fund Returns or Interest accrued thereon pursuant to Section 4.4 shall be credited (or charged). Each such Account shall be divided into the following Sub-Accounts for purposes of Section 5.1: (i) a Retirement Payment Sub-Account to which there shall be credited all Incentive Compensation deferred (and all Investment Fund Returns or Interest thereon) pursuant to all Deferral Elections under which a Plan Benefit is payable the year following retirement; and (ii) a separate Pre-Retirement Payment Sub-Account for each Deferral Election under which the Participant has elected that his Plan Benefit be payable five or ten years from the Date of Deposit, to which the Incentive Compensation deferred (and all Investment Fund Returns or Interest thereon) pursuant to such Deferral Election shall be credited. 4.4 DETERMINATION OF ACCOUNT. The value of each Participant's Account as of each Determination Date shall be the total of the Participant's Retirement Payment and Pre-Retirement Payment Sub-Accounts. The value of each such Sub-Account shall consist of (i) the balance of such Sub-Account as of the last preceding Determination Date plus (ii) any Deferred Compensation credited to such Sub-Account since the last preceding Determination Date, (iii) adjusted for Investment Fund Returns or Interest since the last preceding Determination Date based upon the Investment Fund Returns or Interest Rate selected by the Participant under this Plan, less (iv) the amount of all Plan Benefits, if any, paid during the period since the last preceding Determination Date. 4.5 STATEMENT OF ACCOUNTS. TRW shall submit to each Participant, within 120 days after the close of each Plan Year and at such other times as determined by the Committee, a statement setting forth the total balance of the Participant's Account, and the balance of each Sub-Account thereof, as of the last day of such Plan Year and as of the last day of the immediately preceding Plan Year, the Deferred Compensation and Investment Fund Returns credited or charged, or Interest accrued thereon, to each Sub-Account during the Plan Year and the payments of the Plan Benefits from each Sub-Account during the Plan Year. -8- 9 ARTICLE V PLAN BENEFITS 5.1 PLAN BENEFITS PAYABLE ON TERMINATION OF EMPLOYMENT, FIVE YEARS FROM DATE OF DEPOSIT OR TEN YEARS FROM DATE OF DEPOSIT. (a) Subject to the provisions of Section 5.1(b) and except as otherwise provided below, upon Termination of Employment a Participant shall receive a Plan Benefit equal to the balance of his Account as of the Determination Date immediately preceding such Termination of Employment, plus the amount of any Deferred Compensation credited his Account after such Determination Date. Such Plan Benefit shall be payable as a single sum during the January following such Termination of Employment. In addition, the Participant's Account shall be credited with gains or losses on the balance of his Account for the period from such Determination Date to the date of payment based upon the applicable Investment Fund Returns or Interest Rate. However, in the event that the Termination of Employment is the result of a divestiture of the unit or operations of the Corporation where the Participant worked prior to Termination of Employment and the Participant obtains employment with the entity that acquired such unit or operations, then the balance of such Participant's Account shall not be payable until such Participant's termination of employment from such entity (or its successor) and the balance of such Participant's Pre-Retirement Payment Sub-Account shall not be payable until such time as the Participant would have received payment in accordance with the original Deferral Election had the Participant's employment with the Corporation not been terminated. At such time, the amounts in such Participant's Account shall be paid as set forth in Sections 5.1(b) and 5.1(e). Such Participant's Account shall continue to be credited or charged with Investment Fund Returns or accrued Interest following such Participant's Termination of Employment through payment in full of his or her Account. (b) In the event that a Participant's Termination of Employment occurs as a result of his retirement, the Participant shall receive the Plan Benefit payable in respect of his Retirement Payment Sub-Account in ten annual installments commencing in the year following the year that Termination of Employment occurred; provided, however, that the Participant can petition the Special Committee (or the Committee in the case of an Executive Officer) at any time at least six months prior to retirement to change such payment into five annual installments or a single sum; further provided, that any such payment change approved by the Special Committee (or the Committee) shall not be effective until the calendar year following the date of the payment change. In the event that payment shall be made in a single sum, such payment shall be in accordance with the procedures set forth in Section 5.1(a) above, but in -9- 10 no event in the same calendar year as the year of any requested change and no earlier than January 1 of the calendar year following the year that Termination of Employment occurred. In the event that the payment shall be made in installments, such payments shall be made in accordance with Section 5.1(e) below. If, at the time of retirement, the Participant has a credit in a Pre-Retirement Payment Sub-Account, such Sub-Account balances shall be paid in a single sum following retirement in accordance with the procedures set forth in Section 5.1(a) above. (c) In the event that a Participant's Termination of Employment occurs because of his death, his Beneficiary or, if no designated Beneficiary shall survive him, his estate shall receive the Plan Benefit in the manner provided in Section 5.1(a); provided, however, that if the Participant's Beneficiary designation shall result in all or any part of his Plan Benefit passing to his surviving spouse or to an entity for the benefit of his surviving spouse in such a way as to qualify for the marital deduction under Section 2056 of the Code, and at the time of his death the Participant was eligible to retire and had elected to receive his Plan Benefits in his Retirement Payment Sub-Account in installments pursuant to Section 5.1(b), payments from his Retirement Payment Sub-Account shall be made to such surviving spouse or to such entity for the benefit of such surviving spouse, as the case may be, in the manner provided in Section 5.1(b). Notwithstanding the foregoing, if such surviving spouse shall die prior to complete distribution of all Plan Benefits, the balance then remaining in such Retirement Payment Sub-Account shall be paid to the estate of such surviving spouse or to such entity for the benefit of such surviving spouse, as the case may be, in a single sum the January following such spouse's death. (d) If the Participant has chosen in his Deferral Election to receive payouts either five or ten years from the Date of Deposit (as opposed to upon retirement from the Corporation), payments shall be made in a single sum form from each Pre-Retirement Payment Sub-Account of the Participant on or before February 15 of the year either five or ten years (depending upon the applicable Deferral Election) following the applicable Date of Deposit; provided, however, that if Termination of Employment has occurred prior to payment, payment of the Participant's Plan Benefits shall be made as provided in Section 5.1(a). (e) If the payments from the Participant's Retirement Payment Sub-Account are to be paid in installment form, such installments shall be paid in either five or ten annual installments between February 1 and February 15 of each year in which an installment is to be made; provided, however, that the initial installment payment will be made a reasonable time following Termination of Employment (but no earlier than February 1 of the calendar year following the year that Termination of Employment occurred). Installment payments will commence in the year following the Participant's Termination of Employment. If annual installments are paid, the balance of the Account shall continue to be credited or charged with -10- 11 Investment Fund Returns or Interest as previously elected by the Participant in accordance with Section 3.1(b). 5.2 WITHDRAWAL OF PLAN BENEFIT. No Plan Benefit shall be payable prior to the Participant's Termination of Employment other than in the form determined pursuant to Section 5.1(d), except that the Committee or the Special Committee, as appropriate under Article II, may permit a Participant or, after a Participant's death, a Participant's Beneficiary or other person or entity entitled to receive such Plan Benefit, to withdraw from the Participant's Account an amount necessary to meet a Financial Hardship. 5.3 WITHHOLDING; PAYROLL TAXES. TRW shall withhold from Plan Benefits payable under the Plan any taxes required to be withheld from an employee's wages for the federal or any state or local governments. 5.4 FULL PAYMENT OF BENEFITS. Notwithstanding any other provision of the Plan, all Plan Benefits shall be paid to the Participant no later than the January 5 next preceding the Participant's 80th birthday. ARTICLE VI BENEFICIARY DESIGNATION 6.1 BENEFICIARY DESIGNATION. Each Participant shall have the right, at any time, to designate any person or persons as his Beneficiary (both principal as well as contingent) to whom payment under the Plan shall be made in the event of his death prior to complete distribution of all Plan Benefits due him under the Plan. Any Beneficiary designation shall be made in writing on a form prescribed by the Committee and shall become effective only when filed with the head of Human Resources. 6.2 AMENDMENTS. Subject to the limitations of Section 6.1 of the Plan, any Beneficiary designation may be changed by a Participant only by written notice of such change to the head of Human Resources on a form prescribed by the Committee. The filing of a new Beneficiary designation form will cancel all prior Beneficiary designations. 6.3 ABSENCE OF EFFECTIVE BENEFICIARY DESIGNATION. If a Participant fails to designate a Beneficiary as provided above or if all designated Beneficiaries predecease the Participant or die prior to complete distribution of the Participant's Plan Benefit, the Participant's remaining Plan Benefit shall be paid to his estate. 6.4 EFFECT OF PAYMENT. Payment to the Beneficiary designated pursuant to Sections 6.1 and 6.2 or to the Participant's estate pursuant to Section 6.3 shall completely discharge TRW's obligations under the Plan. -11- 12 ARTICLE VII AMENDMENT AND TERMINATION OF PLAN 7.1 TERMINATION. The Committee shall have the power in its sole discretion to suspend or terminate the Plan at any time, except that no such action shall adversely affect rights with respect to any Account without the consent of the person affected. 7.2 AMENDMENT. The Committee can amend any part of this Plan (including, without limitation, changing the Interest Rate or Investment Fund Returns to be paid to current and future Participants or changing who can become Participants) in its sole discretion without notice to Participants. ARTICLE VIII MISCELLANEOUS 8.1 UNFUNDED PLAN. The Plan is an unfunded plan maintained by TRW primarily to provide Deferred Compensation benefits for a select group of executive, managerial or professional employees of the Corporation. 8.2 UNSECURED GENERAL CREDITOR. Participants and their Beneficiaries, estates, heirs, successors and assigns shall have no legal or equitable rights, interest or claims in any property or assets of TRW. Such assets of TRW shall not be held under any trust or in any other way as collateral security for the fulfillment of the obligations of TRW under the Plan. Any and all of TRW's assets shall be, and remain, the general, unpledged, unrestricted assets of TRW. TRW's sole obligation under the Plan shall be merely that of an unfunded and unsecured promise of TRW to pay money in the future. 8.3 NONASSIGNABILITY. Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey, in advance of actual receipt, any Plan Benefit. Plan Benefits and all rights to Plan Benefits are and shall be nonassignable and nontransferable prior to actual payment as provided by the Plan. Any such attempted assignment or transfer shall be ineffective; TRW's sole obligation shall be to pay Plan Benefits to the Participant, his Beneficiary or his estate as appropriate. No part of any Plan Benefit shall, prior to actual payment as provided by the Plan, be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person; nor shall any Plan Benefit be transferable by operation of law in the event of a Participant's or any other person's bankruptcy or insolvency, except as required by law. -12- 13 8.4 NOT A CONTRACT OF EMPLOYMENT. Neither the terms and conditions of the Plan nor those of any Participation Agreement shall be deemed to constitute a contract of employment between the Corporation and the Participant, and neither the Participant, his Beneficiary nor his estate shall have any rights against TRW under the Plan except as may otherwise be specifically provided in the Plan. Moreover, nothing in the Plan shall be deemed to give a Participant the right to be retained in the service of the Corporation or to interfere with the right of the Corporation to discipline, discharge or change the status of a Participant at any time. Further, nothing in the Plan shall be deemed to give a Participant a right to receive any Incentive Compensation. 8.5 PROTECTIVE PROVISIONS. A Participant will cooperate with TRW by furnishing any and all information requested by TRW in order to facilitate the payment of Plan Benefits under the Plan, and by taking such other action as may be reasonably requested by TRW. 8.6 TERMS. Whenever any words are used in the Plan in the masculine, they shall be construed as though they were used in the feminine in all cases where they would so apply; and wherever any words are used in the Plan in the singular or in the plural, they shall be construed as though they were used in the plural or singular, as the case may be, in all cases where they would so apply. 8.7 CAPTIONS. The captions of the articles and sections of the Plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions. 8.8. GOVERNING LAW. The provisions of the Plan shall be construed and interpreted according to the laws of the State of Ohio. 8.9 VALIDITY. In case any provision of the Plan shall be held illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining provisions of the Plan, and the Plan shall be construed and enforced as if such illegal or invalid provision were not included in the Plan. 8.10 NOTICE OR FILING. Any notice or filing required or permitted to be given to TRW or a Participant under the Plan shall be sufficient if in writing and hand delivered, or sent by regular mail or by registered or certified mail, to the principal office of TRW or to the last known address of the Participant, as the case may be. Such notice or filing shall be deemed given or made (i) when hand delivered to the residence or offices of the recipient, (ii) as of five days after the date of mailing if delivery is made by regular mail, or, (iii) as of five days after the date shown on the postmark on the receipt for registration or certification provided to the sender at the time of mailing, if by registered or certified mail. 8.11 SUCCESSORS. The provisions of the Plan shall bind and obligate TRW and any successors. The term "successors" as used in this Section 8.11 shall include any corporate or other business entity which shall, whether by merger, -13- 14 consolidation, purchase or otherwise acquire all or substantially all of the business and assets of TRW and successors of any such corporation or other business entity. 8.12 EXPENSES AND COSTS. TRW shall bear all expenses and costs in connection with the operation of the Plan. 8.13 RELIANCE ON CERTIFIED PUBLIC ACCOUNTANTS. TRW, the Directors, the Committee, the Special Committee, the head of Human Resources and any employee of TRW or the Corporation shall be fully protected for actions taken in good faith based on the computations and reports made pursuant to or in connection with the Plan by the independent certified public accountants who audit TRW's accounts. ARTICLE IX CLAIMS PROCEDURE 9.1 CLAIM. Any person claiming a Plan Benefit, requesting an interpretation or ruling under the Plan (other than a ruling under Section 2.5 above or the determination as to whether an Eligible Employee is a Highly Paid Employee), or requesting information under the Plan shall present the request in writing to the head of Human Resources who (a) shall respond in writing within 90 days following his receipt of the request or (b) in the case of a claimant who is an Executive Officer, shall refer the claim with his recommended response to the Committee, which shall respond in writing within 120 days following the receipt of the request by the head of Human Resources. 9.2 DENIAL OF CLAIM. If the claim or request is denied, the written notice of denial shall state (i) the reasons for denial; (ii) a description of any additional material or information required and an explanation of why it is necessary; and (iii) an explanation of the Plan's claim review procedure. 9.3 REVIEW OF CLAIM. Any person whose claim or request is denied may make a second request for review by notice given in writing to the head of Human Resources. The claim or request shall be reviewed further by the head of Human Resources or the Committee, as appropriate, and he or it may, but shall not be required to, grant the claimant a hearing. 9.4 FINAL DECISION. A decision on such second request shall normally be made within 60 days after the date of the second request. If an extension of time is required for a hearing or other special circumstances, the claimant shall be notified and the time limit shall be 120 days from the date of the second request. The decision shall be in writing and, whether made by the head of Human Resources or the Committee, shall be final and bind all parties concerned. -14- 15 PARTICIPATION AGREEMENT The undersigned hereby agrees to participate in the TRW Inc. Deferred Compensation Plan (the "Plan") for the following Incentive Compensation received by the undersigned on account of the year 19__. The undersigned acknowledges that if in accordance with the Plan the undersigned is not a Highly Paid Employee under the Plan, the undersigned's election to defer the Incentive Compensation will become invalid. The undersigned agrees that he/she has read the Plan and agrees that the following elections are governed by the Plan. DEFERRAL PERCENTAGES OR AMOUNTS (Percentage elections must be in increments of 5%, with a 10% minimum election, and dollar elections must be in increments of $1,000, with a $10,000 minimum election; elections for OIP bonus and strategic incentive grant need not be the same; you cannot elect both a percentage and a dollar amount for the same payment source): OIP Bonus ______% or $_______ Strategic Incentive Grant ______% or $_______ ELECTION OPTIONS (Choose only one): ___ Paid in lump sum five years from the Date of Deposit ___ Paid in lump sum ten years from the Date of Deposit ___ Paid following retirement in ten annual installments unless a change has been approved in accordance with Section 2.5 of the Plan In order for the above elections to be effective, this form must be fully completed and returned to the head of Human Resources no later than September 30, 19__. Unless the undersigned has a Beneficiary Designation Form on file for this Plan with Human Resources, this Participation Agreement must be accompanied by an executed Beneficiary Designation Form. --------------------------- -------------------------------- Signature of Participant Participant's Full Name --------------------------- ---------------------------------- Date Participant's Social Security # -15- EX-10.Y 9 EXHIBIT 10(Y) 1 Exhibit 10(y) AMENDMENT TO MULTI-YEAR REVOLVING CREDIT AGREEMENT This Amendment to Multi-Year Revolving Credit Agreement, dated as of May 8, 1996 (this "Amendment"), is among TRW Inc., an Ohio corporation (the "Company") and the financial institutions listed on the signature pages hereof together with their successors or assigns (collectively, the "Banks" and individually, a "Bank"). W I T N E S S E T H: -------------------- WHEREAS, on July 1, 1992, the Company and the Banks entered into the Three-Year Revolving Credit Agreement (as it was then titled), which agreement was amended on June 30, 1993, on March 1, 1994 and on February 28, 1995 (the agreement as amended is known hereinafter as the "Agreement"); and WHEREAS, the Company and the Banks have agreed to make such changes to the Agreement as are reflected in this Amendment; NOW, THEREFORE, in consideration of the mutual agreements contained herein, the parties hereto agree as follows: SECTION 1 THE AMENDMENTS 1.1 AMENDMENT OF "COMMITMENT". Section 1.1 of the Agreement shall be amended to read in its entirety as set forth below: 1.1 COMMITMENT. Subject to the terms and conditions of this Agreement, each of the Banks, severally and for itself alone, agrees to make loans (collectively, the "Loans" and individually, a "Loan") to the Company and, as provided in Section 1.8, to any Designated Subsidiary on a revolving basis from time to time before the Termination Date, as it may be extended from time to time pursuant to Section 1.2, in such aggregate amounts as the Company or any Designated Subsidiary may from time to time request from such Bank; provided, however, that the aggregate principal amount of Loans that any Bank shall be committed to have outstanding to the Company and the Designated Subsidiaries shall not at any one time exceed the amount set forth opposite such Bank's signature hereto, or any subsequent amendment hereto (except to the extent provided in Section 1.9 hereof). The foregoing commitment of each Bank to make Loans as reduced from time to time in accordance with the terms hereof is herein called such Bank's "Commitment" and the commitments of all Banks are herein sometimes collectively called the "Commitments." -1- 2 1.2 DELETION OF "TERMINATION OF COMMITMENT". Section 1.9 of the Agreement shall be deleted in its entirety. 1.3 RENUMBERING OF "LOANS OUTSTANDING UNDER PRIOR FACILITY". Section 1.10 of the Agreement shall be renumbered to now be Section 1.9. 1.4 AMENDMENT OF "COMMITMENT FEE". Section 4.1 of the Agreement shall be amended to delete references to Section 1.9 of the Agreement and, as amended, shall read in its entirety as set forth below: 4.1 COMMITMENT FEE. The Company agrees to pay to each Bank a commitment fee, for the period from and including the date of this Agreement to the Termination Date on the daily average of the Unused Amount of such Bank's Commitment hereunder equal to the Applicable Commitment Fee in effect from time to time multiplied by the Unused Amount. Such commitment fee shall be payable quarterly in arrears on the tenth day of each April, July, October, and January (the first such payment to be made on October 10, 1992) for the quarterly period ended on the last day of the preceding month and on the Termination Date. The Company may make such payments according to the Electronic Payment Instructions. 1.5 DELETION OF "UTILIZATION FEE". Section 4.2 of the Agreement shall be deleted in its entirety. 1.6 RENUMBERING OF "COMPUTATION OF FEES". Section 4.3 of the Agreement shall be renumbered to now be Section 4.2. 1.7 AMENDMENT OF "MANDATORY PREPAYMENT". Section 5.3 of the Agreement shall be amended to read in its entirety as set forth below: 5.3 MANDATORY PREPAYMENT. On each day on which the aggregate outstanding principal amount of Loans owing to any Bank on such day exceeds (whether as a result of currency fluctuations or otherwise) such Bank's Commitment hereunder, the Company shall pay to such Bank on demand a mandatory prepayment in the amount of such excess. Mandatory prepayments required by this Section 5.3 shall be applied first to Base Rate Loans until paid in full and then, at the Company's election and in the order specified by the Company, to Fixed Rate Loans. 1.8 AMENDMENT OF "NET WORTH". Section 9.2 of the Agreement shall be amended to read in its entirety as set forth below: -2- 3 9.2 NET WORTH. The Company will not permit Consolidated Net Worth to be less than 1,600,000,000 U.S. Dollars less an amount equal to the lesser of (i) the aggregate amount expended by the Company subsequent to December 31, 1995 for the repurchase of its common stock and (ii) 600,000,000 U.S. Dollars. 1.9 AMENDMENT OF "APPLICABLE COMMITMENT FEE" DEFINITION. The definition to "Applicable Commitment Fee" set forth in Section 13 shall be amended to read in its entirety as follows: "APPLICABLE COMMITMENT FEE" means the percentage in effect from time to time as set forth in the following table opposite the highest of the then-current rating assigned to the Company's senior unsecured long-term debt by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Ratings Group ("S&P"):
Rating Applicable (Moody's/S&P) Commitment Fee ------------- -------------- higher than A1/A+ 0.060% A1/A+ 0.070% A2/A 0.080% A3/A- 0.090% Baa1/BBB+ 0.100% Baa2/BBB 0.125% Baa3/BBB- 0.150% lower than Baa3/BBB- 0.175%
1.10 AMENDMENT OF "APPLICABLE MARGIN" DEFINITION. The definition to "Applicable Margin" set forth in Section 13 shall be amended to read in its entirety as follows: "APPLICABLE MARGIN" means, at any time, the percentage set forth in the following table opposite the highest of the then-current rating assigned to the Company's senior unsecured long-term debt by Moody's or S&P:
Applicable Applicable Margin for Margin for Rating Domestic CD Eurocurrency (Moody's/S&P) Loans Loans - -------------------------------------------------------------------------------- higher than A1/A+ 0.275% 0.175% A1/A+ 0.300% 0.200% A2/A 0.325% 0.225% A3/A- 0.350% 0.250% Baa1/BBB+ 0.400% 0.300% Baa2/BBB 0.475% 0.375%
-3- 4
Baa3/BBB- 0.550% 0.450% lower than Baa3/BBB- 0.600% 0.500%
1.11 REPLACEMENT OF "CONSOLIDATED TANGIBLE NET WORTH" DEFINITION. The definition of "Consolidated Tangible Net Worth" set forth in Section 13 shall be deleted and replaced by the defined term "Consolidated Net Worth" which shall read in its entirety as follows: "CONSOLIDATED NET WORTH" means at any date the sum of the consolidated shareholders' investment and minority interests of the Company and its Consolidated Subsidiaries determined as of such date. Consolidated shareholders' investment and minority interests shall be as included in the annual and quarterly financial statements of the Company, as applicable. 1.12 AMENDMENT OF "ELECTRONIC PAYMENT INSTRUCTIONS" DEFINITION. The definition of "Electronic Payment Instructions" set forth in Section 13 shall be amended to read in its entirety as follows: "ELECTRONIC PAYMENT INSTRUCTIONS" means the Bank Routing and account number information identifying the account of each Bank to receive the ACH payment of Commitment Fees. Such Electronic Payment Instructions for each Bank are set forth below the signature block of such Bank to the Amendment dated as of May 8, 1996 to the Agreement and may be changed at any time by written notice by such Bank to the Company. 1.13 AMENDMENT OF "INTEREST PERIOD" DEFINITION. The definition of "Interest Period" set forth in Section 13 shall be amended to read in its entirety as follows: "INTEREST PERIOD" means, with respect to any Fixed Rate Loan, the period commencing on the date such Loan was made, or on the date such Loan was Converted from a Loan of a different type, or on the date of expiration of the immediately preceding Interest Period for such Loan, and (i) ending 30, 60, 90, 120, 150, 180 days, or, if available, more than 180 days up to and including 360 days, thereafter in the case of a Domestic CD Loan, or (ii) ending one, two, three, or six months, or, if available, more than six months up to and including twelve months, thereafter in the case of a Eurocurrency Loan, all as the Company or any Designated Subsidiary may specify pursuant to Section 1.4, 1.5, or 3.3; the Interest Period for any Negotiated Loan or any Local Currency Loan shall be as agreed by the Company or any Designated Subsidiary and the Relevant Bank pursuant to Section 1.6 or 1.7 . Each Interest Period for a Fixed Rate Loan that would otherwise end on a day that is not a Business Day shall end on the next succeeding Business Day (unless such next succeeding Business Day is the first Business Day of a calendar month, in which case with respect to a Eurocurrency Loan such Interest Period shall end on the next preceding Business Day). -4- 5 1.14 DELETION OF "NET WORTH" DEFINITION. The definition of "Net Worth" set forth in Section 13 shall be deleted in its entirety. 1.15 AMENDMENT OF "PERCENTAGE" DEFINITION. The definition of "Percentage" set forth in Section 13 shall be amended to read in its entirety as follows: "PERCENTAGE" means as to any Bank the percentage of such Bank's share of the total Commitments of all Banks. 1.16 AMENDMENT OF "TERMINATION DATE" DEFINITION. The definition of "Termination Date" set forth in Section 13 shall be amended to read in its entirety as follows: "TERMINATION DATE" means the earlier to occur of (a) July 1, 2001, subject to extension for one or more successive one-year periods as to any Bank or Banks pursuant to Section 1.2, or (b) such other date on which the Commitments shall terminate pursuant to Section 11.2. 1.17 AMENDMENT OF "COMPUTATIONS". Section 14.4 of the Agreement shall be amended to delete references to certain calculations and, as amended, shall read in its entirety as set forth below: 14.4 COMPUTATIONS. Where the character or amount of any asset or liability or item of income or expense is required to be determined, or any consolidation or other accounting computation is required to be made, for the purpose of this Agreement, such determination or calculation shall, to the extent applicable and except as otherwise specified in this Agreement, be made in accordance with the Company's then current method of accounting, which method must be in accordance with GAAP; provided, however, if any changes in accounting principles from those used in the preparation of the financial statements referred to in Section 8.4 hereafter occasioned by the promulgation of rules, regulations, pronouncements, and opinions by or required by the Financial Accounting Standards Board or the American Institute of Certified Public Accountants (or successors thereto or agencies with similar functions) result in a change in the method of calculation of the financial covenants, standards, or terms found in Section 9.2 hereof, the parties hereto agree to enter into negotiations to amend such provisions so as equitably to reflect such changes with the desired result that the criteria for evaluating the Company's financial condition shall be the same after such changes as if such changes had not been made. -5- 6 SECTION 2 GENERAL. 2.1 RESTATEMENT OF AGREEMENT. The Three-Year Revolving Credit Agreement dated as of July 1, 1992 has been restated to incorporate all changes contained in this and all prior Amendments and is attached as Exhibit I. 2.2 REISSUANCE OF NOTES. In connection with the effectiveness of this Amendment, the Company shall issue to each of the Banks a Note in the principal amounts set forth next to such Bank's name in the signature blocks below. Contemporaneously with the issuance of such Notes, the Notes dated February 28, 1995 currently pertaining to the Agreement shall be deemed null and void and each Bank shall cancel and return to the Company such Note pertaining to the Agreement currently in such Bank's possession. 2.3 EFFECTIVENESS OF FEE CHANGES. All fee and interest rate changes set forth in this Amendment shall be effective only on a prospective basis from the date hereof. 2.4 OTHER TERMS AND CONDITIONS. Unless amended hereby, all other terms and conditions of the Agreement shall remain in full force and effect without change and are hereby ratified and confirmed in all respects. 2.5 GOVERNING LAW. This Amendment and each Note issued pursuant hereto shall be a contract made under and governed by the internal laws of the State of Ohio. Wherever possible each provision of this Amendment shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Amendment shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Amendment. All obligations of the Company and rights of the Banks and any other holders of the Notes expressed herein or in the Notes shall be in addition to and not in limitation of those provided by applicable law. 2.6 COUNTERPARTS. This Amendment may be executed in any number of counterparts and by the different parties on separate counterparts and each such counterpart shall be deemed to be an original, but all such counterparts shall together constitute but one and the same Amendment. When counterparts executed by all the parties shall have been lodged with the Company (or, in the case of any Bank as to which an executed counterpart shall not have been so lodged, the Company shall have received telegraphic, telex, or other written confirmation from such Bank of execution of a counterpart hereof by such Bank), this Amendment shall become effective as of the date hereof. -6- 7 2.7 CAPTIONS. Section captions used in this Amendment are for convenience only, and shall not affect the construction of this Amendment. Delivered at Cleveland, Ohio, as of the day and year first above written. TRW INC. By /s/ W.C. Seeger, Jr. ---------------------------- William C. Seeger, Jr. Vice President and Treasurer 1900 Richmond Road Cleveland, Ohio 44124 Telephone 216/291-7540 Facsimile: 216/291-7831 -7- 8 BANKS: Amount of Percentage of Commitment Commitments - ---------- ----------- $60,000,000 8 % Bank of America National Trust ----- and Savings Association By: /s/ Deborah Graziano ----------------------- Name: Deborah Graziano Title: Vice President DOMESTIC OFFICE Bank of America NT & SA 1850 Gateway Boulevard Concord, California 94520 Telephone: (510) 675-7485 --------------- Facsimile: (510) 675-7531 --------------- Attention: Selina Button EUROCURRENCY OFFICE Bank of America NT & SA 1850 Gateway Boulevard Concord, California 94520 Telephone: (510) 675-7485 --------------- Facsimile: (510) 675-7531 --------------- Attention: Selina Button ELECTRONIC PAYMENT INSTRUCTIONS Receiving Bank: Bank of America --------------- ABA Routing No.: 121000358 --------------- Account No.: 12331-83980 --------------- Account Name: Incoming Money Transfer ----------------------- Reference No.: TRW Commitment Fee ------------------ -8- 9 Amount of Percentage of Commitment Commitments - ---------- ----------- $60,000,000 8 % Barclays Bank PLC ----- By: /s/ L. Peter Yetman ----------------------- Name: L. Peter Yetman Title: Associate Director DOMESTIC OFFICE Barclays Bank PLC 222 Broadway New York, New York 10038 Telephone: (212) 412-1196 ----------------- Facsimile: (212) 412-1099 ----------------- EUROCURRENCY OFFICE Barclays Nassau, Bahamas Branch c/o Barclays Bank PLC 222 Broadway New York, New York 10038 Telephone: (212) 412-1196 ----------------- Facsimile: (212) 412-1099 ----------------- ELECTRONIC PAYMENT INSTRUCTIONS Receiving Bank: Barclays Bank PLC - New York ---------------------------- ABA Routing No.: 026-002--574 --------------- Account No.: 050-019-104 ---------------------- Account Name: TRW ---------------------- Reference No.: TRW Commitment Fee; N. Sangle ------------------------------ -9- 10 Amount of Percentage of Commitment Commitments - ---------- ----------- $60,000,000 8 % The Chase Manhattan Bank, N.A. ----- By: /s/ Joan F. Garvin ----------------------- Name: Joan F. Garvin Title: Vice President DOMESTIC OFFICE The Chase Manhattan Bank, N.A. One Chase Manhattan Plaza Fifth Floor New York, New York 10081 Telephone: (212) 552-2722 -------------- Facsimile: (212) 552-1372 -------------- EUROCURRENCY OFFICE The Chase Manhattan Bank, N.A. One Chase Manhattan Plaza Fifth Floor New York, New York 10081 Telephone: ------------- Facsimile: ------------- ELECTRONIC PAYMENT INSTRUCTIONS Receiving Bank: Chase Manhattan Bank ---------------------- ABA Routing No.: 021-000021 ---------------------- Account No.: 900-9-000036 ---------------------- Account Name: Commercial Loan Opns. ---------------------- Reference No.: TRW Commitment Fee ---------------------- -10- 11 Amount of Percentage of Commitment Commitments - ---------- ----------- $60,000,000 8 % Citibank, N.A. ----- By: /s/ Marjorie Futornick ----------------------- Name: Marjorie Futornick Title: Vice President DOMESTIC OFFICE Citibank, N.A. c/o Citicorp N.A., Inc. 200 S. Wacker Dr. Chicago, IL 60606 Telephone: 312-993-3871 Facsimile: 312-993-6840 EUROCURRENCY OFFICE Citibank, N.A. c/o Citicorp N.A., Inc. 200 S. Wacker Dr. Chicago, IL 60606 Telephone: 312-993-3871 Facsimile: 312-993-6840 ELECTRONIC PAYMENT INSTRUCTIONS Receiving Bank: Citibank, N.A., New York ABA Routing No.: 021000089 Account No.: 38483095 Account Name: Chicago NEO Loan Acct. ------------------------- Reference No.: TRW Commitment Fee -11- 12 Amount of Percentage of Commitment Commitments - ---------- ----------- $60,000,000 8 % Morgan Guaranty Trust Company --- of New York By: /s/ J.M. Mikolay -------------------------- Name: John M. Mikolay Title: Vice President DOMESTIC OFFICE Morgan Guaranty Trust Company of New York 60 Wall Street New York, New York 10260-0060 Telephone: (302) 634-1800 -------------- Facsimile: (302) 634-1094 -------------- EUROCURRENCY OFFICE Morgan Guaranty Trust Company of New York Nassau, Bahamas Office c/o J.P. Morgan Services Inc. Euro-Loan Servicing Unit 902 Market Street Wilmington, Delaware 19801 Telephone: (302) 634-1800 -------------- Facsimile: (302) 634-1094 -------------- ELECTRONIC PAYMENT INSTRUCTIONS Receiving Bank: Morgan Guaranty Trust --------------------- ABA Routing No.: 021000238 --------------------- Account No.: 999-99-090 --------------------- Account Name: Loan Department --------------------- Reference No.: TRW Com. Fee --------------------- Corp. Proc. Module 30 -12- 13 Amount of Percentage of Commitment Commitments - ---------- ----------- $60,000,000 8 % National City Bank ----- By: /s/ Davis R. Bonner ------------------------- Name: Davis R. Bonner Title: Vice President DOMESTIC OFFICE National City Bank National City Center P.O. Box 5756 Cleveland, Ohio 44101-0756 Telephone: (216) 575-3285 -------------- Facsimile: (216) 575-9396 -------------- EUROCURRENCY OFFICE National City Bank National City Center P.O. Box 5756 Cleveland, Ohio 44101-0756 Telephone: (216) 575-3285 -------------- Facsimile: (216) 575-9396 -------------- ELECTRONIC PAYMENT INSTRUCTIONS Receiving Bank: National City Bank ------------------ ABA Routing No.: 041000124 ------------------ Account No.: 2537557 ------------------ Account Name: ------------------ Reference No.: TRW Commitment Fee ------------------ -13- 14 Amount of Percentage of Commitment Commitments $60,000,000 8 % The Sumitomo Bank, Limited ----- By: /s/ H. Iwami ---------------------------- Name: Hiroyuki Iwami Title: Joint General Manager DOMESTIC OFFICE The Sumitomo Bank, Limited Chicago Branch Sears Tower 233 South Wacker Drive, Suite 4800 Chicago, Illinois 60606-6448 Telephone: (312) 876-6431 -------------- Facsimile: (312) 876-6436 -------------- EUROCURRENCY OFFICE The Sumitomo Bank, Limited Chicago Branch Sears Tower 233 South Wacker Drive, Suite 4800 Chicago, Illinois 60606-6448 Telephone: (312) 876-6431 -------------- Facsimile: (312) 876-6436 -------------- ELECTRONIC PAYMENT INSTRUCTIONS Receiving Bank: FNB of Chicago ------------------ ABA Routing No.: 071000013 ------------------ Account No.: 15-01208 ------------------ Account Name: Sumitomo Bank Ltd., Chicago Branch ------------------ Reference No.: TRW Commitment Fee ------------------ -14- 15 Amount of Percentage of Commitment Commitments - ---------- ----------- $45,000,000 6 % Banque Nationale De Paris ----- By: /s/ ------------------------- Name: Title: DOMESTIC OFFICE Banque Nationale De Paris Chicago Branch Rookery Building 209 South LaSalle, 5th Floor Chicago, Illinois 60604 Telephone: (312) 977-2200 ------------------- Facsimile: (312) 977-1380 ------------------- EUROCURRENCY OFFICE Banque Nationale De Paris Chicago Branch Rookery Building 209 South LaSalle, 5th Floor Chicago, Illinois 60604 Telephone: (312) 977-2200 ------------------- Facsimile: (312) 977-1380 ------------------- ELECTRONIC PAYMENT INSTRUCTIONS Receiving Bank: Banque Nationale de Paris, New York Branch ------------------- ABA Routing No.: 026007689 ------------------- Account No.: 14119400189 ------------------- Account Name: BNP, Chicago Branch ------------------- Reference No.: TRW Commitment Fee ------------------- -15- 16 Amount of Percentage of Commitment Commitments - ---------- ----------- $45,000,000 6 % Dresdner Bank AG ----- By: /s/ D. Slusarczyk ----------------------------- Name: Deborah Slusarczyk Title: Vice President By: /s/ Robert Grella ----------------------------- Name: Robert Grella Title: Vice President DOMESTIC OFFICE Dresdner Bank AG New York Branch 75 Wall Street New York, New York 10005 Telephone: (212) 429-2244 ----------------------- Facsimile: (212) 429-2524 ----------------------- EUROCURRENCY OFFICE Dresdner Bank AG Grand Cayman Branch c/o Dresdner Bank AG New York Branch 75 Wall Street New York, New York 10005 Telephone: (212) 429-2244 ----------------------- Facsimile: (212) 429-2524 ----------------------- ELECTRONIC PAYMENT INSTRUCTIONS Receiving Bank: Chase Manhattan (NY,NY) ----------------------- ABA Routing No.: 021-000-021 ----------------------- Account No.: 920-1-059-079 ----------------------- Account Name: Dresdner Bank AG, New York Branch ----------------------- Reference No.: TRW Commitment Fee ----------------------- -16- 17 Amount of Percentage of Commitment Commitments - ---------- ----------- $45,000,000 6 % NBD Bank ------ By: /s/ Andrew W. Strait --------------------------- Name: Andrew W. Strait Title: Vice President DOMESTIC OFFICE NBD Bank Attention: Mid-Corporate Banking 611 Woodward Detroit, Michigan 48226 Telephone: (313) 225-3300 -------------------- Facsimile: (313) 225-3269 -------------------- EUROCURRENCY OFFICE NBD Bank, N.A. Attention: Mid-Corporate Banking 611 Woodward Detroit, Michigan 48226 Telephone: (313) 225-3300 -------------------- Facsimile: (313) 225-3269 -------------------- ELECTRONIC PAYMENT INSTRUCTIONS Receiving Bank: NBD Bank -------------------- ABA Routing No.: 072000326 -------------------- Account No.: 1424183 -------------------- Account Name: Commercial Loans -------------------- Reference No.: TRW Commitment Fee -------------------- -17- 18 Amount of Percentage of Commitment Commitments - ---------- ----------- $45,000,000 6 % Royal Bank of Canada ----- By: /s/ P. Shields ---------------------------- Name: Patrick Shields Title: Manager, Corporate Banking DOMESTIC OFFICE Royal Bank of Canada New York Branch c/o Financial Square, 23rd Floor New York, New York 10005 Telephone: (212) 428-6323 --------------------- Facsimile: (212) 428-2372 --------------------- EUROCURRENCY OFFICE Royal Band of Canada New York Branch c/o Financial Square, 23rd Floor New York, New York 10005 Telephone: (212) 428-6323 --------------------- Facsimile: (212) 428-2372 --------------------- ELECTRONIC PAYMENT INSTRUCTIONS Receiving Bank: Chase Manhattan, NY -------------------- ABA Routing No.: 021000021 -------------------- Account No.: 9201033363 -------------------- Account Name: Royal Bank -------------------- Reference No.: TRW Commitment Fee -------------------- -18- 19 Amount of Percentage of Commitment Commitments - ---------- ----------- $30,000,000 4 % The Sakura Bank, Limited ----- By: /s/ Hajime Miyagi ------------------------- Name: Hajime Miyagi Title: Joint General Manager DOMESTIC OFFICE The Sakura Bank, Limited Chicago Branch 227 West Monroe Street Suite 4700 Chicago, Illinois 60606 Telephone: (312) 580-3276 --------------------- Facsimile: (312) 332-5345 --------------------- EUROCURRENCY OFFICE The Sakura Bank, Limited Chicago Branch 227 West Monroe Street Suite 4700 Chicago, Illinois 60606 Telephone: (312) 580-3276 --------------------- Facsimile: (312) 332-5345 --------------------- ELECTRONIC PAYMENT INSTRUCTIONS Receiving Bank: FNB of Chicago --------------------- ABA Routing No.: 071000013 --------------------- Account No.: 1512951 --------------------- Account Name: Sakura Bank Chicago --------------------- Reference No.: TRW Commitment Fee --------------------- -19- 20 Amount of Percentage of Commitment Commitments - ---------- ----------- $30,000,000 4 % Society National Bank ----- By: /s/ Marianne Meil -------------------------- Name: Marianne Meil Title: Assistant Vice President DOMESTIC OFFICE Society National Bank 127 Public Square Cleveland, Ohio 44114 Telephone: (216) 689-4450 --------------------- Facsimile: (216) 689-4981 --------------------- EUROCURRENCY OFFICE Society National Bank 127 Public Square Cleveland, Ohio 44114 Telephone: (216) 689-4450 --------------------- Facsimile: (216) 689-4981 --------------------- ELECTRONIC PAYMENT INSTRUCTIONS Receiving Bank: Society National Bank --------------------- ABA Routing No.: 041001039 --------------------- Account No.: 00100-39140 --------------------- Account Name: Commercial Loan Opns --------------------- Reference No.: TRW Commitment Fee --------------------- -20- 21 Amount of Percentage of Commitment Commitments - ---------- ----------- $30,000,000 4 % The Tokai Bank, Limited ----- By: /s/ Tatsuo Ito ----------------------------- Name: Tatsuo Ito Title: Joint General Manager DOMESTIC OFFICE The Tokai Bank, Limited Chicago Branch Attention: Corporate Finance 181 West Madison Street, Suite 3600 Chicago, Illinois 60602 Telephone: (312) 456-3427 ---------------------- Facsimile: (312) 977-0003 ---------------------- EUROCURRENCY OFFICE The Tokai Bank, Limited Chicago Branch Attention: Corporate Finance 181 West Madison Street, Suite 3600 Chicago, Illinois 60602 Telephone: ---------------------- Facsimile: ---------------------- ELECTRONIC PAYMENT INSTRUCTIONS Receiving Bank: FNB of Chicago ---------------------- ABA Routing No.: 071000013 ---------------------- Account No.: 15-08997 ---------------------- Account Name: Tokai Bank, Chicago Branch ---------------------- Reference No.: TRW Commitment Fee ---------------------- Loan Administration -21- 22 Amount of Percentage of Commitment Commitments - ---------- ----------- $30,000,000 4 % Union Bank of Switzerland ----- By: /s/ S. M. Dadmun /s/ E. P. Weinheimer -------------------------------------- Name: Steven M. Dadmun/ Eric P. Weinheimer Title: Vice President/ Lending Officer DOMESTIC OFFICE Union Bank of Switzerland Chicago Branch 30 South Wacker Drive, Suite 40 Chicago, Illinois 60606 Telephone: (312) 993-5471 ----------------------- Facsimile: (312) 993-5530 ----------------------- EUROCURRENCY OFFICE Union Bank of Switzerland Chicago Branch 30 South Wacker Drive, Suite 40 Chicago, Illinois 60606 Telephone: (312) 993-5471 ----------------------- Facsimile: (312) 993-5530 ----------------------- ELECTRONIC PAYMENT INSTRUCTIONS Receiving Bank: FNB of Chicago ----------------------- ABA Routing No.: 071000013 ----------------------- Account No.: 15-12188 ----------------------- Account Name: UBS, Chicago Branch ----------------------- Reference No.: TRW Commitment Fee ----------------------- -22- 23 Amount of Percentage of Commitment Commitments - ---------- ----------- $30,000,000 4 % Wells Fargo Bank, N.A. ----- By: /s/ Peter G. Olson ------------------------- Name: Peter G. Olson Title: SVP By: /s/ Lancy Gin ------------------------- Name: Lancy Gin Title: AVP DOMESTIC OFFICE Wells Fargo Bank, N.A. Special Loan Processing 18700 NW Walker Road, Bldg. 92 Beaverton, OR 97006 Telephone: (503) 614-6436 Facsimile: (503) 614-5878 EUROCURRENCY OFFICE Wells Fargo Bank, N.A. Special Loan Processing 18700 NW Walker Road, Bldg. 92 Beaverton, OR 97006 Telephone: (503) 614-6436 Facsimile: (503) 614-5878 ELECTRONIC PAYMENT INSTRUCTIONS Receiving Bank: First Interstate Bank of California ABA Routing No.: 122000218 Account No.: 3030-98989 Account Name: Special Loan Processing Reference No.: TRW - ------------ ---- $750,000,000 100% Total -23- 24 Exhibit I - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- MULTI-YEAR REVOLVING CREDIT AGREEMENT AS AMENDED AND RESTATED as of May 8, 1996 among TRW INC. and THE FINANCIAL INSTITUTIONS LISTED ON THE SIGNATURE PAGES HEREOF - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 25 TABLE OF CONTENTS
Page ---- PREAMBLE......................................................................................... 1 SECTION 1 COMMITMENT OF THE BANKS; TYPES OF LOANS; PROCEDURES FOR BORROWING OR CONVERTING................................................................ 1 1.1 Commitment................................................................... 1 1.2 Extension of Commitment...................................................... 1 1.3 Various Types of Loans....................................................... 2 1.4 Notice of Borrowing, Continuation, or Conversion.............................................................. 2 1.5 Conversion and Continuation Procedures....................................... 3 1.6 Negotiated Loans............................................................. 3 1.7 Local Currency Loans......................................................... 3 1.8 Loans to Designated Subsidiaries............................................. 4 1.9 Loans Outstanding Under Prior Facility....................................... 4 SECTION 2 REPAYMENT OF LOANS; NOTES EVIDENCING LOANS................................... 4 2.1 Repayment of Loans........................................................... 4 2.2 Notes........................................................................ 4 2.3 Other Provisions of the Notes................................................ 4 2.4 Recordkeeping................................................................ 5 SECTION 3 INTEREST..................................................................... 5 3.1 Interest Rates............................................................... 5 3.2 Interest Payment Dates....................................................... 5 3.3 Interest Periods for Fixed Rate Loans........................................ 6 3.4 Setting and Notice of Rates.................................................. 6 3.5 Computation of Interest...................................................... 6 SECTION 4 FEES ........................................................................ 6 4.1 Commitment Fee............................................................... 6 4.2 Computation of Fees.......................................................... 7 SECTION 5 REDUCTION OR TERMINATION OF THE COMMITMENTS; PREPAYMENT................................................. 7 5.1 Reduction or Termination of the Commitments.................................. 7
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Page ---- 5.2 Optional Prepayment.......................................................... 7 5.3 Mandatory Prepayment......................................................... 7 SECTION 6 MAKING AND APPLICATION OF PAYMENTS........................................... 7 6.1 Making of Payments........................................................... 7 6.2 Application of Certain Payments.............................................. 7 6.3 Due Date Extension........................................................... 8 SECTION 7 INCREASED COSTS AND TAXES.................................................... 8 7.1 Increased Capital............................................................ 8 7.2 Increased Costs.............................................................. 9 7.3 Basis for Determining Interest Rate Inadequate............................... 9 7.4 Changes in Law Rendering Certain Loans Unlawful.............................. 10 7.5 Funding Losses............................................................... 10 7.6 Currency Indemnity........................................................... 10 7.7 Increased Tax Costs.......................................................... 11 SECTION 8 WARRANTIES................................................................... 12 8.1 Corporate Organization....................................................... 12 8.2 Authorization; No Conflict................................................... 12 8.3 Validity and Binding Nature.................................................. 12 8.4 Financial Statements......................................................... 12 8.5 Litigation................................................................... 12 8.6 Compliance with ERISA........................................................ 13 8.7 Environmental Matters........................................................ 13 8.8 Taxes........................................................................ 13 8.9 Government Regulation........................................................ 13 SECTION 9 COVENANTS.................................................................... 14 9.1 Reports, Certificates and Other Information.................................. 14 9.1.1 Audit Report.......................................................... 14 9.1.2 Quarterly Reports..................................................... 14 9.1.3 Compliance Certificates............................................... 14 9.1.4 Current Reports....................................................... 14 9.1.5 Other Information..................................................... 14 9.2 Net Worth .................................................................. 14 9.3 Liens........................................................................ 15 9.4 Sale and Leaseback........................................................... 16 9.5 Mergers, Consolidations, Sales............................................... 17 SECTION 10 CONDITIONS OF LENDING........................................................ 17 10.1 Initial Loan to the Company.................................................. 17 10.1.1 Note.............................................................. 17
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Page ---- 10.1.2 Resolutions....................................................... 17 10.1.3 Incumbency and Signatures......................................... 18 10.1.4 Opinion of Counsel................................................ 18 10.2 Loans to Designated Subsidiaries............................................. 18 10.2.1 Resolutions....................................................... 18 10.2.2 Acceptance of this Agreement...................................... 18 10.2.3 Incumbency and Signatures......................................... 18 10.3 All Loans .................................................................. 18 10.4 Conversions.................................................................. 19 SECTION 11 EVENTS OF DEFAULT AND THEIR EFFECT........................................... 19 11.1 Events of Default............................................................ 19 11.1.1 Nonpayment of Notes or Fees....................................... 19 11.1.2 Nonpayment of Other Indebtedness for Borrowed Money.................................................. 19 11.1.3 Bankruptcy or Insolvency.......................................... 19 11.1.4 Noncompliance with Other Provisions............................... 19 11.1.5 Warranties........................................................ 20 11.1.6 Judgments......................................................... 20 11.2 Effect of Event of Default................................................... 20 SECTION 12 GUARANTY .................................................................. 21 SECTION 13 CERTAIN DEFINITIONS.......................................................... 21 SECTION 14 GENERAL .................................................................. 30 14.1 Waiver; Amendments........................................................... 30 14.2 Confirmations................................................................ 31 14.3 Notices .................................................................. 31 14.4 Computations................................................................. 32 14.5 Confidentiality.............................................................. 32 14.6 Assignments and Participations............................................... 33 14.6.1 Assignments....................................................... 33 14.6.2 Participations.................................................... 33 14.6.3 Disclosure of Information......................................... 33 14.7 Securities Laws.............................................................. 34 14.8 Costs and Expenses........................................................... 34 14.9 Governing Law................................................................ 34 14.10 Counterparts................................................................. 34 14.11 Captions .................................................................. 34 14.12 Successors and Assigns....................................................... 34 14.13 Entire Agreement............................................................. 35 14.14 Appointment of Administrator................................................. 35 14.15 Non-U.S. Bank Tax Information................................................ 35 14.16 Regulation U................................................................. 35
(iii) 28 EXHIBITS EXHIBIT A Form of Note EXHIBIT B Form of Compliance Certificate EXHIBIT C Form of Opinion of Counsel to the Company SCHEDULES SCHEDULE 1.10 Prior Facilities Pursuant to Section 1.10 SCHEDULE 8.5 Undisclosed Material Legal Proceedings (iv) 29 MULTI-YEAR REVOLVING CREDIT AGREEMENT This Multi-Year Revolving Credit Agreement, dated as of July 1, 1992, as amended pursuant to Agreements dated as of June 30, 1993, March 1, 1994 and February 28, 1995 and as amended and restated pursuant to an Agreement dated as of May 8, 1996 (this "Agreement"), is among TRW Inc., an Ohio corporation (the "Company") and the financial institutions listed on the signature pages hereof together with their successors or assigns (collectively, the "Banks" and individually, a "Bank"). Certain terms being used in this Agreement are hereinafter defined in Section 13. W I T N E S S E T H: -------------------- WHEREAS, the Company has requested the Banks to make certain unsecured loans to the Company and certain Subsidiaries of the Company designated by the Company for general corporate purposes, including without limitation for working capital, capital expenditures, acquisitions (directly or indirectly) of assets, stock or other ownership interests, and repurchases or redemptions of securities; and WHEREAS, the Banks have agreed to make such loans on the terms and subject to the conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the mutual agreements contained herein, the parties hereto agree as follows: SECTION 1 COMMITMENT OF THE BANKS; TYPES OF LOANS; PROCEDURES FOR BORROWING OR CONVERTING. 1.1 COMMITMENT. Subject to the terms and conditions of this Agreement, each of the Banks, severally and for itself alone, agrees to make loans (collectively, the "Loans" and individually, a "Loan") to the Company and, as provided in Section 1.8, to any Designated Subsidiary on a revolving basis from time to time before the Termination Date, as it may be extended from time to time pursuant to Section 1.2, in such aggregate amounts as the Company or any Designated Subsidiary may from time to time request from such Bank; provided, however, that the aggregate principal amount of Loans that any Bank shall be committed to have outstanding to the Company and the Designated Subsidiaries shall not at any one time exceed the amount set forth opposite such Bank's signature hereto, or any subsequent amendment hereto (except to the extent provided in Section 1.9 hereof). The foregoing commitment of each Bank to make Loans as reduced from time to time in accordance with the terms hereof is herein called such Bank's "Commitment" and the commitments of all Banks are herein sometimes collectively called the "Commitments." 1.2 EXTENSION OF COMMITMENT. No later than 90 days prior to the Termination Date then in effect, the Company may request, by written notice, that any one or more of the Banks extend the Termination Date as to that Bank's Commitment for a -1- 30 period of one year commencing on the Termination Date then in effect. Each Bank receiving such an extension request from the Company shall notify the Company in writing no later than 45 days prior to the Termination Date then in effect of such Bank's determination to extend or not to extend the Termination Date. A notice given by a Bank to extend the Termination Date pursuant to this Section 1.2 shall be irrevocable (subject to Section 11.2). Any Bank that fails to respond to the Company's request to extend the Termination Date within such time period shall be deemed to have given notice to the Company that such Bank does not desire to extend the Termination Date. 1.3 VARIOUS TYPES OF LOANS. Each Loan shall be either a Base Rate Loan, a Domestic CD Loan, a Eurocurrency Loan, a Local Currency Loan, or a Negotiated Loan (each herein called a "type" of Loan), as the Company shall specify in the related notice of borrowing, Continuation, or Conversion pursuant to Section 1.4 or 1.5. Domestic CD Loans, Eurocurrency Loans, Local Currency Loans, and Negotiated Loans bearing interest at a fixed rate for a fixed period of time are sometimes collectively called "Fixed Rate Loans." Each Loan shall be made in U.S. Dollars or such other currency as is requested by the Company and shall be available at the time and for the period requested by the Company. Each Loan shall bear interest at the rate specified in Section 3.1 and shall mature on and be due and payable in full on the earliest of (i) the Termination Date, (ii) the end of an Interest Period (unless the Loan is Continued or Converted) or (iii) such other date as the Company and the Relevant Bank shall otherwise agree in writing. The Eurocurrency specified in any notice of borrowing, Continuation, or Conversion given by the Company pursuant to Section 1.4 or 1.5 shall be deemed to be available for purposes of this Agreement, unless the Relevant Bank gives the Company notice (which may be by telephone) no later than the earlier of (a) 12:00 noon, Cleveland time, on the second Business Day prior to the proposed date making the Eurocurrency Loan, or (b) one hour after the Relevant Bank has received the notice of borrowing, Continuation, or Conversion, as applicable. The Relevant Bank's determination in good faith that a proposed Eurocurrency is or is not available shall be final. 1.4 NOTICE OF BORROWING. CONTINUATION. OR CONVERSION. The Company, through an Authorized Person, shall give written or telephonic notice to the Relevant Bank of each proposed borrowing from such Bank, or Conversion or Continuation of Loans made by such Bank, by 11:00 a.m., Cleveland time, (a) on the proposed date of such borrowing, Conversion, or Continuation if such borrowing, Conversion, or Continuation is comprised of Base Rate Loans, Domestic CD Loans, or Negotiated Loans, (b) at least two Business Days prior to the proposed date of such borrowing, Conversion, or Continuation if such borrowing, Conversion, or Continuation is comprised of Eurocurrency Loans (provided that at least one Business Day prior to such written or telephonic notice of proposed nondollar denominated Eurocurrency Loan borrowing, Continuation or Conversion, the Company, through an Authorized Person, shall give written or telephonic notice to the Relevant Bank of the Company's intention to request a Eurocurrency Loan), and (c) with respect to Local Currency Loans, at least two Business Days prior to the proposed date of such borrowing, Conversion, or -2- 31 Continuation or such other period of time as is customary for the particular Local Currency. Each such notice shall be effective upon receipt by the Relevant Bank and shall specify the date, amount, currency, and type of borrowing and, in the case of a borrowing comprising Fixed Rate Loans, the initial Interest Period for such borrowing. Each notice of a Conversion or Continuation of Loans shall specify the date and amount of such Conversion or Continuation, the Loans to be so Converted or Continued, the type and currency of Loans to be Converted into or Continued, and, in the case of a Conversion into or Continuation of Fixed Rate Loans, the initial or succeeding Interest Period, as the case may be. Each borrowing shall be on a Business Day and shall be in an aggregate amount of not less than 1,000,000 U.S. Dollars for Base Rate Loans and not less than 5,000,000 U.S. Dollars (or the Eurocurrency Equivalent Amount) for any other type of Loan, other than Local Currency Loans (which shall be as agreed between the Company and the Relevant Bank). 1.5 CONVERSION AND CONTINUATION PROCEDURES. The Company may convert all or part of any outstanding Loans to Loans of a different type, or may elect to continue any Fixed Rate Loans for an additional Interest Period, by giving notice to the Relevant Bank of such Conversion or Continuation within the time periods specified in Section 1.4. If, with respect to any Fixed Rate Loan, the Company shall not either repay the Loan in full by 2:00 p.m., Cleveland time, on the last day of the Interest Period applicable thereto or give notice of its intention to Convert or Continue such Fixed Rate Loan within the time periods specified in Section 1.4, then the Company shall be deemed to have requested that such Loan automatically be converted into a Base Rate Loan at the end of such Interest Period (and such Loan shall automatically so Convert into a Base Rate Loan at the end of such Interest Period). Except as provided in Section 7.4, no Fixed Rate Loans shall be Converted on any day other than the last day of the current Interest Period relating to such Loans. 1.6 NEGOTIATED LOANS. From time to time, the Company may request, through an Authorized Person, and a Bank may, but shall not be obligated to, agree to make, a Loan in U.S. Dollars bearing interest at a rate per annum, and for a fixed period, agreed to by the Relevant Bank and the Company (each, a "Negotiated Loan" and collectively, the "Negotiated Loans"). 1.7 LOCAL CURRENCY LOANS. From time to time, the Company may request, through an Authorized Person, and a Bank may, but shall not be obligated to, agree to make a Loan in a Local Currency specified by the Company bearing interest at a rate per annum agreed to by the Bank and the Company (each, a "Local Currency Loan" and collectively, the "Local Currency Loans"). Repayments of principal of and interest on Local Currency Loans shall be made in the currency borrowed and shall be paid to the local office of the Relevant Bank which made the Loan. The local office may request additional documentation of the indebtedness if customary at the place of business of the branch; provided, however, that the terms and conditions of that documentation shall be consistent with those set forth in this Agreement unless unlawful or ineffective under local law. -3- 32 1.8 LOANS TO DESIGNATED SUBSIDIARIES. Each Designated Subsidiary may request, through an Authorized Person, Local Currency Loans or Eurocurrency Loans and Convert or Continue such Loans, and shall repay the principal of and accrued interest on such Loans, all as though the Designated Subsidiaries were parties to this Agreement and references to the "Company" in Sections 1.3, 1.4, 1.5, 1.7, 2.1, 3.1, 3.4, 3.5, 5.2 and 6.1 shall mean and include the Designated Subsidiaries. The Relevant Bank may request additional documentation of the indebtedness if customary at the place of business of the Relevant Bank; provided, however, that the terms and conditions of that documentation shall be consistent with those set forth in this Agreement unless unlawful or ineffective under local law. 1.9 LOANS OUTSTANDING UNDER PRIOR FACILITY. Effective as of the date on which the conditions of lending set forth in Section 10.1 and 10.3 are satisfied, (i) the facility under this Agreement shall replace the facilities under the credit agreements set forth on Schedule 1.10 (the "Prior Facilities'), (ii) all loans outstanding under the Prior Facilities shall be and shall be deemed to be outstanding under this Agreement (with all such loans retaining the interest rate, maturity, interest period and similar terms as existed immediately prior to the termination of the Prior Facilities; provided, however, that if any such loan under the Prior Facilities exceeds the Bank's Commitment hereunder and if such Bank's commitment under the Prior Facilities exceeds such Bank's Commitment hereunder, then such Bank's commitment under the Prior Facilities will be deemed such Bank's Commitment hereunder until such loan that previously existed under the Prior Facilities has been repaid according to its original terms) and (iii) the obligations of the banks under the Prior Facilities shall terminate and be discharged. SECTION 2 REPAYMENT OF LOANS; NOTES EVIDENCING LOANS. 2.1 REPAYMENT OF LOANS. The Company hereby promises to pay to each Bank the aggregate unpaid principal amount of such Bank's Loans on the earliest of (i) the Termination Date, (ii) the end of the applicable Interest Period for such Loan (unless the Loan is Continued or Converted) or (iii) such other date as the Company and the Relevant Bank may agree in writing. Repayment of any Eurocurrency Loan shall be in the same currency in which such Loan was advanced. 2.2 NOTES. The Loans of each Bank shall be evidenced by a promissory note (individually, a "Note", and collectively for all Banks, the "Notes") substantially in the form set forth in Exhibit A, with appropriate insertions, dated the date of the initial Loan (or such earlier date as shall be satisfactory to the Relevant Bank), payable to the order of such Bank in the principal amount of such Bank's Commitment (or, if less, in the aggregate unpaid principal amount of all of such Bank's Loans hereunder). 2.3 OTHER PROVISIONS OF THE NOTES. Each Note shall provide for the payment of interest as provided in Section 3. -4- 33 2.4 RECORDKEEPING. Each Bank shall record in its records, or at its option on the schedule attached to its Note, the date, amount, and type of each Loan made by such Bank, each repayment, Continuation, or Conversion thereof, and the dates on which each Interest Period for each Fixed Rate Loan shall begin and end. The aggregate unpaid principal amount so recorded shall be rebuttable presumptive evidence of the principal amount owing and unpaid on such Note. The failure so to record any such amount or any error in so recording any such amount, however, shall not limit or otherwise affect the obligations of the Company hereunder or under any Note to repay the principal amount of the Loans, together with all interest accruing thereon. SECTION 3 INTEREST. 3.1 INTEREST RATES. With respect to each Loan, the Company hereby promises to pay interest on the unpaid principal amount thereof for the period commencing on the date of such Loan until such Loan is paid in full, as follows: (a) At all times while such Loan is a Base Rate Loan, at a rate per annum equal to the Base Rate from time to time in effect; (b) At all times while such Loan is a Domestic CD Loan, during each Interest Period, at a rate per annum equal to the Domestic CD Rate (Adjusted) applicable to such Interest Period, plus the Applicable Margin; (c) At all times while such Loan is a Eurocurrency Loan, during each Interest Period, at a rate per annum equal to the Eurocurrency Rate (Reserve Adjusted) applicable to such Interest Period, plus the Applicable Margin; and (d) At all times while such Loan is a Negotiated Loan or a Local Currency Loan, at the rate per annum agreed to by the Company and the Relevant Bank pursuant to Section 1.6 or 1.7, as applicable. Notwithstanding the provisions of the preceding clauses (a), (b), (c) or (d) and subject to Section 1.5, in the event that any principal of any Loan is not paid when due (whether by acceleration or otherwise), after the due date of such principal until such principal is paid, the unpaid principal amount of, and accrued but unpaid interest on, Revolving Loan shall bear interest at a rate per annum equal to the higher of the rate borne by such Loan or the Relevant Bank's Base Rate from time to time in effect, plus 1% per annum, subject to the maximum applicable legal rate. 3.2 INTEREST PAYMENT DATES. Accrued interest on each Base Rate Loan outstanding for 45 days or more shall be payable (i) quarterly in arrears on the tenth day of each April, July, October, and January for the quarterly period ended on the last day of the preceding month, and (ii) at maturity, commencing with the earlier of such dates to occur after the date hereof. Accrued interest on each Base Rate Loan outstanding for less than 45 days shall be payable in full on the date -5- 34 such Base Rate Loan is paid in full. Except as otherwise agreed by the Relevant Bank, accrued interest on each Fixed Rate Loan shall be payable on the last day of the Interest Period of each such Loan (or, in the case of a Domestic CD Loan or Negotiated Rate Loan with an Interest Period of 90 days or longer or a Eurocurrency Loan with an Interest Period of three months or longer, accrued interest shall be payable quarterly in arrears on the tenth day of each April, July, October and January and on the last day of each such Interest Period). After maturity, accrued interest on all Loans shall be payable on demand. Interest on any Eurocurrency Loan shall be paid in the same currency in which such Loan was advanced. 3.3 INTEREST PERIODS FOR FIXED RATE LOANS. Prior to each borrowing, Continuation, or Conversion of Fixed Rate Loans, the Company shall specify, in the related notice of borrowing, Continuation, or Conversion pursuant to Sections 1.4 or 1.5, the duration of the Interest Period for such Fixed Rate Loans. Each notice to the Relevant Bank of an Interest Period shall be in writing or by telephone and shall be given by an Authorized Person. 3.4 SETTING AND NOTICE OF RATES. For each Loan made hereunder, the applicable interest rate for each Interest Period or other period shall be the rate quoted by the Relevant Bank to the Company for that particular type of Loan. The Relevant Bank shall, upon written request of the Company, deliver to the Company a statement showing the calculation of (i) any applicable Domestic CD Rate (Adjusted), (ii) any applicable Eurocurrency Rate (Reserve Adjusted) or (iii) the rate of interest per annum applicable to Negotiated Loans or Local Currency Loans hereunder. 3.5 COMPUTATION OF INTEREST. Interest shall be computed for the actual number of days elapsed (with interest accruing on the first day, but not the last day, of such Loan) on the basis of (a) with respect to Domestic CD Loans and Eurocurrency Loans, a 360 day year, (b) with respect to Base Rate Loans, a 365 or 366 day year, as the case may be, (c) with respect to Negotiated Loans, a 365 or 366 day year, as the case may be, or such other basis as is agreed to by the Company and the Relevant Bank, and (d) with respect to Local Currency Loans, on a basis consistent with local customs that is agreed to by the Relevant Bank and the Company. SECTION 4 FEES. 4.1 COMMITMENT FEE. The Company agrees to pay to each Bank a commitment fee, for the period from and including the date of this Agreement to the Termination Date, on the daily average of the Unused Amount of such Bank's Commitment hereunder equal to the Applicable Commitment Fee in effect from time to time times the Unused Amount. Such commitment fee shall be payable quarterly in arrears on the tenth day of each April, July, October, and January (the first such payment to be made on October 10, 1992) for the quarterly period ended on the last day of the preceding month and on the Termination Date. The -6- 35 Company may make such payments according to the Electronic Payment Instructions. 4.2 COMPUTATION OF FEES. Fees shall be computed for the actual number of days elapsed on the basis of a 365 or 366 day year, as the case may be. SECTION 5 REDUCTION OR TERMINATION OF THE COMMITMENTS; PREPAYMENT. 5.1 REDUCTION OR TERMINATION OF THE COMMITMENTS. The Company may from time to time prior to the Termination Date on at least three Business Days' prior written notice given by an Authorized Person to any Bank permanently reduce the amount of such Bank's Commitment to an amount not less than the aggregate unpaid principal amount of the Loans made by such Bank then outstanding. Any such reduction shall be in an aggregate amount of not less than 1,000,000 U.S. Dollars, or such lesser amount of such Bank's Unused Amount then remaining. 5.2 OPTIONAL PREPAYMENT. The Company may from time to time prepay the Loans in whole or in part, provided that (a) an Authorized Person shall give the Relevant Bank not less than three Business Days' prior notice thereof, specifying the Loans to be prepaid, and the date and amount of prepayment and (b) each partial prepayment shall be in the principal amount of 1,000,000 U.S. Dollars (or the Eurocurrency or Local Equivalent Amount thereof) or such lesser amount as is then outstanding on the Loan being prepaid. 5.3 MANDATORY PREPAYMENT. On each day on which the aggregate outstanding principal amount of Loans owing to any Bank on such day exceeds (whether as a result of currency fluctuations or otherwise) such Bank's Commitment hereunder, the Company shall pay to such Bank on demand a mandatory prepayment in the amount of such excess. Mandatory prepayments required by this Section 5.3 shall be applied first to Base Rate Loans until paid in full and then, at the Company's election and in the order specified by the Company, to Fixed Rate Loans. SECTION 6 MAKING AND APPLICATION OF PAYMENTS. 6.1 MAKING OF PAYMENTS. Except as otherwise provided in Section 11.2 hereof, all payments (including those made pursuant to Section 5) of principal of, or interest on, the Loans shall be made by the Company to the Relevant Bank in immediately available funds in the Obligation Currency. 6.2 APPLICATION OF CERTAIN PAYMENTS. Each payment of principal on any Loan shall be applied first to Base Rate Loans and then to such of the other Loans as the Company shall direct by written or telephonic notice given by an Authorized Person to the Relevant Bank on or before the date of such payment, or in the absence of such notice, as the Relevant Bank shall determine in its discretion. -7- 36 6.3 DUE DATE EXTENSION. If any payment of principal or interest with respect to any of the Loans or Notes falls due on a Saturday, Sunday, or other day which is not a Business Day, then such due date shall be extended to the next following Business Day (except as provided in the last sentence of the definition of Interest Period), and additional interest shall accrue and be payable for the period of such extension. SECTION 7 INCREASED COSTS AND TAXES. 7.1 Increased Capital. ----------------- (a) If, after the date of this Agreement, the adoption of any applicable law, rule, or regulation regarding capital adequacy, or any change therein, or 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 with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank, or comparable agency, has the effect of reducing the rate of return on such Bank's capital as a consequence of its obligations hereunder to a level below that which such Bank would have achieved but for such adoption, change, or compliance (taking into consideration such Bank's 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, the Company shall pay to such Bank such additional amount or amounts as will compensate such Bank for such reduction; provided, that, no Bank shall request, and the Company shall not be obligated to pay, any amounts in excess of the amounts charged by such Bank to similarly situated borrowers of such Bank under revolving credit facilities similar to the one provided herein. Notwithstanding the foregoing, a Bank shall not be entitled to compensation from the Company for any such additional amounts incurred more than 30 days before the date on which the Bank notifies the Company of any event which would entitle the Bank to compensation pursuant to this Section 7.1. (b) Each Bank will promptly notify the Company of any event of which it has knowledge that will entitle such Bank to compensation pursuant to this Section 7.1, together with a certificate signed by an authorized officer of the Bank setting forth the basis of such demand and certifying that the amounts demanded hereunder are not in excess of the amounts charged by such Bank to similarly situated borrowers of such Bank under revolving credit facilities similar to the one provided herein. The Bank will designate a different lending office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the reasonable judgment of such Bank, be otherwise disadvantageous to such Bank or contrary to its stated policies. The Bank's certification of the additional -8- 37 amount or amounts to be paid to it hereunder shall be conclusive in the absence of demonstrable error. In determining such amount, such Bank may use reasonable averaging and attribution methods. 7.2 INCREASED COSTS. If, after the date hereof, the adoption of any applicable law, rule, or regulation or any change therein, or any change in the interpretation or administration thereof, or compliance by any Bank with any request, or directive (whether or not having the force of law) of any such authority, central bank, or comparable agency, (a) shall subject any Bank to any tax, duty, or other charge with respect to its Fixed Rate Loans, its Notes or its obligation to make Fixed Rate Loans, or shall change the basis of taxation of payments to any Bank of the principal of or interest on its Fixed Rate Loans or any other amounts due under this Agreement in respect of its Fixed Rate Loans or its obligation to make Fixed Rate Loans (except for the imposition of any tax or changes in the rate of tax imposed on the overall income of such Bank); or (b) shall impose, modify, or deem applicable any reserve (including, without limitation, any reserve imposed by the Board of Governors of the Federal Reserve System, but excluding any reserve included in the determination of interest rates pursuant to Section 3), special deposit, or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Bank; and as a result of any of the foregoing the cost to such Bank of making or maintaining any Fixed Rate Loan is increased (or a cost is imposed on such Bank), or the amount of any sum received or receivable by such Bank under this Agreement or under its Notes with respect thereto is reduced, then within 15 days after demand by such Bank (which demand shall be accompanied by a statement setting forth the basis of such demand), the Company shall pay directly to such Bank such additional amount or amounts as will compensate such Bank for such increased cost or such reduction. Notwithstanding the foregoing, a Bank shall not be entitled to any compensation from the Company for any such increased cost or such reduction attributable to any period that is more than 30 days before the date on which the Bank notifies the Company of any event which would entitle the Bank to compensation pursuant to this Section 7.2. No Bank is entitled to reimbursement for any amounts paid as a result of taxes currently imposed on such Bank. 7.3 BASIS FOR DETERMINING INTEREST RATE INADEQUATE. If with respect to any Interest Period: (a) a Bank reasonably determines that deposits in a requested Eurocurrency (in the applicable amounts) are not being offered to the Bank in the relevant market for such Interest Period requested by the Company, or a Bank otherwise reasonably determines (which determination shall be binding and conclusive on all parties) that by reason of circumstances affecting the interbank eurocurrency market adequate and reasonable -9- 38 means do not exist for ascertaining the applicable Eurocurrency Rate (Reserve Adjusted); or (b) a Bank advises the Company that the making or funding of Eurocurrency Loans has become impracticable as a result of an event occurring after the date of this Agreement which in the opinion of such Bank materially affects Eurocurrency Loans, then: (i) the affected Bank shall promptly notify the Company of such circumstance, (ii) so long as such circumstances shall continue the affected Bank shall not be under any obligation to make, Continue, or Convert Loans into Eurocurrency Loans, and (iii) on the last day of the then current Interest Period for Eurocurrency Loans, such Eurocurrency Loans shall, unless then repaid in full or Converted into a Loan of a different type pursuant to Section 1.5, automatically Convert to Base Rate Loans. 7.4 CHANGES IN LAW RENDERING CERTAIN LOANS UNLAWFUL. In the event that there occurs after the date hereof any change in applicable laws or regulations (including the adoption of any new laws), or any change in the interpretation of applicable laws or regulations by any governmental or other regulatory body charged with the administration thereof, that makes it unlawful for a Bank to make, maintain, or fund a type of Fixed Rate Loans, then (a) such Bank shall promptly notify the Company of such circumstance, (b) the obligation of such Bank to make, Continue, or Convert Loans into the type of Fixed Rate Loans made unlawful for that Bank shall, upon the effectiveness of such event, be suspended for the duration of such unlawfulness, and (c) on the last day of the current Interest Period for Fixed Rate Loans of such type (or, in any event, if the Bank affected by such change so requests, on such earlier date as may be required by the relevant law, regulation, or interpretation), the Fixed Rate Loans of such type made by such Bank shall, unless then repaid in full or Converted into a Loan of a different type pursuant to Section 1.5, automatically Convert to Base Rate Loans. 7.5 FUNDING LOSSES. The Company hereby agrees that upon demand by any Bank (which demand shall be accompanied by a statement setting forth the basis for the calculations of the amount being claimed), the Company will indemnify such Bank against any net loss or expense which such Bank sustains or incurs (including, without limitation, any net loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Bank to fund or maintain Fixed Rate Loans), as reasonably determined by such Bank, as a result of (a) any payment or prepayment or Conversion of any Fixed Rate Loan of such Bank on a date other than the last day of an Interest Period for such Loan, or (b) any failure of the Company to borrow, Continue, or Convert any Loans on a date specified therefor in a notice of borrowing (which shall not include the Company's notice of intention to request a Eurocurrency Loan), Continuation, or Conversion pursuant to this Agreement. 7.6 CURRENCY INDEMNITY. -10- 39 (a) The obligation of the Company under this Agreement and the Notes to make payments in Dollars or in any Eurocurrency or Local Currency in which the Loans or any portion thereof are outstanding (the "Obligation Currency") shall not be discharged or satisfied by any tender or recovery pursuant to any judgment expressed in or converted into any currency other than the Obligation Currency, except to the extent to which such tender or recovery shall result in the effective receipt by the Banks of the full amount of the Obligation Currency expressed to be payable under this Agreement or the Notes. If, for the purpose of obtaining or enforcing judgment against the Company in any court or in any jurisdiction, it becomes necessary to convert into any currency other than the Obligation Currency (such other currency being hereinafter referred to as the "Judgment Currency") an amount due in the Obligation Currency under the Notes, the conversion shall be made, at the option of the Relevant Bank, at the rate of exchange prevailing on the Business Day immediately preceding the day on which the judgment is given (such Business Day as the case may be, being hereinafter in this Section 7.6 referred to as the "Judgment Currency Conversion Date"). (b) If there is a change in the rate of exchange prevailing between the Judgment Currency Conversion Date and the date of actual payment of the amount due, the Company agrees to pay such additional amounts as may be necessary to ensure that the amount paid in the Judgment Currency, when converted at the rate of exchange prevailing on the date of payment, will produce the amount of the Obligation Currency which could have been purchased with the amount of Judgment Currency stipulated in the judgment or judicial award at the rate of exchange prevailing on the Judgment Currency Conversion Date. (c) Any amount due from the Company under the foregoing subparagraph will be due as a separate debt and shall not be affected by judgment being obtained for any other sums due otherwise hereunder. 7.7 INCREASED TAX COSTS. The Company agrees to make all payments or reimbursements under this Agreement free and clear of, and without deduction for, any future taxes (including withholding taxes) imposed (except for any tax or changes in the rate of tax imposed on overall income of any Bank) on payments of principal, interest and fees or charges under the Agreement which are attributable to, or represent, the application of any such tax for any time period after the Company has received notice of such tax from such Bank. Such Bank will use its reasonable efforts to minimize any taxes and will designate a different lending office if such designation will avoid the need for, or reduce the amount of, such tax(es) and will not, in the reasonable judgment of such Bank, be otherwise disadvantageous to such Bank or contrary to its stated policies. In the event that the Company is required to directly pay any such taxes, the Company agrees to furnish such Bank with official tax receipts evidencing payment of such taxes within forty-five (45) days after the due date for each such payment. Each Bank agrees that in the event that any such additional amount paid or reimbursed by the -11- 40 Company to or for such Bank in respect of any taxes be recovered, in whole or in part, by such Bank (by credit, offset, deduction or otherwise), against or in computing any income, franchise or other taxes, such Bank will promptly reimburse the Company the amount of such recovery. A transferee of any interest in the Agreement or the Notes shall not be entitled to the benefits of this Section 7.7 with respect to any taxes which would not have been incurred if there had been no transfer. SECTION 8 WARRANTIES. The Company warrants to the Banks as of the date of this Agreement that: 8.1 CORPORATE ORGANIZATION. The Company is a corporation duly incorporated and in good standing under the laws of the State of Ohio and the Company is duly qualified and in good standing as a foreign corporation authorized to do business in each jurisdiction of the United States where, because of the nature of its activities or properties, such qualification is required and where the failure to be so qualified would materially and adversely affect the consolidated financial condition of the Company and its Consolidated Subsidiaries taken as a whole. 8.2 AUTHORIZATION; NO CONFLICT. The execution, delivery, and performance by the Company of this Agreement and the Notes are within the Company's corporate powers, have been duly authorized by all necessary corporate action, and do not and will not contravene or conflict with any provision of applicable law in effect on the date hereof or of the Amended Articles of Incorporation or Regulations of the Company or of any agreement for borrowed money or other material agreement binding upon the Company. The Company has duly executed and delivered this Agreement. 8.3 VALIDITY AND BINDING NATURE. This Agreement is, and the Notes when duly executed and delivered will be, legal, valid and binding obligations of the Company enforceable against the Company in accordance with their respective terms. 8.4 FINANCIAL STATEMENTS. The Company's audited consolidated financial statements as at December 31, 1991 and its unaudited consolidated financial statements as at March 31, 1992, copies of which have been furnished to each Bank, have been prepared in accordance with GAAP, applied on a basis consistent with that of the preceding fiscal year, and fairly present in all material respects the consolidated financial condition and results of operations of the Company and its Consolidated Subsidiaries as of the dates and for the periods indicated, as applicable, and since the dates thereof until the date of this Agreement there has been no material adverse change in the consolidated financial condition of the Company and its Consolidated Subsidiaries taken as a whole. 8.5 LITIGATION. Except as set forth in Schedule 8.5, there are no material legal proceedings, other than ordinary routine litigation incidental to the business, to -12- 41 which the Company or any of its Consolidated Subsidiaries is a party or to which any of their respective properties is subject that are required to be disclosed in the Company's periodic reports under the Securities Exchange Act of 1934 and that have not been so disclosed. 8.6 COMPLIANCE WITH ERISA. Each member of the controlled group of corporations (as defined in Section 414(b) of the Internal Revenue Code of 1986), which includes the Company (the "TRW Group"), has (i) fulfilled its obligations under the minimum funding standards of Part 3 of Title I of the Employee Retirement Income Security Act of 1974 ("ERISA") and Section 412 of the Internal Revenue Code of 1986 ("Code") with respect to each defined benefit plan (as defined in Section 3 (35) of ERISA) maintained by a member of the TRW Group ("Plan") and (ii) is in compliance in all material respects with the presently applicable provisions of ERISA and the Code with respect to each such Plan. No member of the TRW Group has (x) sought a waiver of the minimum funding standard under Section 412 of the Code in respect of any Plan, (y) failed to make any contribution or payment required to be made to a Plan or to any multi-employer plan (as defined in Section 3 (37)(A) of ERISA) or made any amendment to any Plan 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 Code or (z) incurred any liability under Title IV of ERISA other than the liability to the Pension Benefit Guaranty Corporation for premiums under Section 4007 of ERISA. 8.7 ENVIRONMENTAL MATTERS. The Company has conducted periodic reviews of the effect of compliance with federal, state and local requirements relating to the discharge of materials into the environment, in the course of which it has identified and evaluated potential liabilities and costs. The Company has established accruals for matters that are probable and reasonably estimable as required by FASB Statement No. 5, "Accounting for Contingencies." To the Company's knowledge, any liability that may result from the resolution of known environmental matters in excess of amounts accrued therefor will not have a material adverse effect on the financial position of the Company. 8.8 TAXES. The Company and its Consolidated Subsidiaries have filed all United States federal income tax returns and all other material tax returns which are required to have been filed by them (subject to any available extensions) and have paid all taxes indicated as due on such returns. The Company has made adequate and reasonable provision for all material taxes not yet due and payable, if any, and all material assessments, if any. 8.9 GOVERNMENT REGULATION. Neither the Company nor any of its Consolidated Subsidiaries is registered as a public utility under the Public Utility Holding Company Act of 1935 or as an investment company under the Investment Company Act of 1940. -13- 42 SECTION 9 COVENANTS. Until the later of (i) the expiration or termination of the Commitments and (ii) all obligations of the Company hereunder and under the Notes are paid in full, the Company agrees that, unless at any time the Majority Banks shall otherwise expressly consent in writing: 9.1 REPORTS. CERTIFICATES AND OTHER INFORMATION. 9.1.1 AUDIT REPORT. Within 120 days after each fiscal year of the Company, the Company will provide to each Bank a copy of the Company's Annual Report to Shareholders and its Annual Report on Form 10-K for the year then ended, as filed with the Securities and Exchange Commission and which will include an annual audit report of the Company, prepared on a consolidated basis and in accordance with the Company's then current method of accounting, which methods must be in accordance with GAAP, duly certified by independent certified public accountants of nationally recognized standing selected by the Company. 9.1.2 QUARTERLY REPORTS. Within 60 days after each quarter (except the last quarter) of each fiscal year of the Company, the Company will provide to each Bank a copy of the Company's Quarterly Report on Form 10-Q for the quarter then ended, as filed with the Securities and Exchange Commission. 9.1.3 COMPLIANCE CERTIFICATES. Contemporaneously with the furnishing of a copy of each Annual Report on Form 10-K provided for in Section 9.1.1 and of each Quarterly Report on Form 10-Q provided for in Section 9.1.2, the Company will provide to each Bank a duly completed certificate in the form of Exhibit B with appropriate insertions (each such certificate called a "Compliance Certificate"), dated not more than 10 days prior to the date furnished, signed by an officer of the Company, showing compliance with the Consolidated Net Worth covenant set forth in Section 9.2, and to the effect that no Event of Default or Unmatured Event of Default has occurred and is continuing or, if there is any such an event, describing it and the steps, if any, being taken to cure it. 9.1.4 CURRENT REPORTS. The Company will provide to each Bank copies of each Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission, promptly upon the filing thereof. 9.1.5 OTHER INFORMATION. The Company will provide to a Bank such other information concerning the Company as such Bank may reasonably request from time to time. 9.2 NET WORTH. The Company will not permit Consolidated Net Worth to be less than 1,600,000,000 U.S. Dollars less an amount equal to the lesser of (i) the aggregate amount expended by the Company subsequent to December 31, 1995 for the repurchase of its common stock and (ii) 600,000,000 U.S. Dollars. -14- 43 9.3 LIENS. (a) The Company will not, and will not permit any Domestic Subsidiary to, directly or indirectly, create or assume any mortgage, encumbrance, lien, pledge, charge, or security interest of any kind (collectively and individually, a "mortgage" or "lien") upon or in any of its interests in any Principal Property or upon or in any shares of capital stock or indebtedness of any Domestic Subsidiary, whether such interest, capital stock or indebtedness is now owned or hereafter acquired, if such mortgage secures or is intended to secure, directly or indirectly, the payment of any indebtedness for money borrowed evidenced by notes, bonds, debentures, or other written evidences of indebtedness (such indebtedness for money borrowed being hereafter in Sections 9.3 and 9.4 collectively called "Debt") without making effective provision, and the Company in such case will make or cause to be made effective provision, whereby all of the Loans shall be secured by such mortgage equally and ratably with any other Debt thereby secured; excluding, however, from the operation of this Section 9.3: (i) mortgages on any Principal Property acquired, constructed, or improved by the Company or any Domestic Subsidiary after July 1, 1992 which are created or assumed contemporaneously with, or within 120 days after, such acquisition or completion of such construction or improvement to secure or provide for the payment of any part of the purchase price of such Principal Property or the cost of such construction or improvement incurred after July 1, 1992, or, in addition to mortgages contemplated by clauses (ii) and (iii) below, mortgages on any such Principal Property existing at the time or placed thereon at the time of acquisition or leasing thereof by the Company or any Domestic Subsidiary, or conditional sales agreements or other title retention agreements with respect to any Principal Property now owned or leased or hereafter acquired or leased by the Company or a Domestic Subsidiary; (ii) mortgages on property (including shares of capital stock or indebtedness of a corporation) of a corporation existing at the time such corporation becomes a Domestic Subsidiary or is merged or consolidated with the Company or a Domestic Subsidiary or existing at the time of a sale, lease, or other disposition of the properties of such corporation (or a division thereof) or other Person as an entirety or substantially as an entirety (which includes the sale, lease, or other disposition of all or substantially all the assets thereof) to the Company or a Domestic Subsidiary, provided that no such mortgage shall extend to any other Principal Property of the Company or any Domestic Subsidiary or to any shares of capital stock or any indebtedness of any Domestic Subsidiary; -15- 44 (iii) mortgages created by the Company or a Domestic Subsidiary to secure indebtedness of the Company or a Domestic Subsidiary to the Company or to a Wholly Owned Domestic Subsidiary; (iv) mortgages in favor of the United States of America or any State, territory or possession thereof, or any foreign country or any department, agency, instrumentality, or political subdivision of any of such domestic or foreign jurisdictions to secure partial, progress, advance, or other payments pursuant to any contract or statute or to secure any debt incurred for the purpose of financing all or any part of the purchase price of, or the cost of constructing, the property subject to such mortgages; and (v) mortgages for the sole purpose of extending, renewing, or replacing (or successively extending, renewing, or replacing) in whole or in part any mortgage existing on July 1, 1992 or referred to in the foregoing clauses (i) to (iv) inclusive or of any debt secured thereby; provided, however, that the principal amount of indebtedness secured thereby shall not exceed the principal amount of indebtedness so secured at the time of such extension, renewal, or replacement, and that such extension, renewal, or replacement mortgage shall be limited to all or a part of the property which secured the mortgage so extended, renewed, or replaced (plus improvements on such property). (b) Notwithstanding the provisions of paragraph (a) of this Section 9.3, the Company or any Domestic Subsidiary may, without equally and ratably securing all the Loans, create or assume mortgages which would otherwise be subject to the foregoing restrictions if at the time of such creation or assumption, and after giving effect thereto, Exempted Indebtedness does not exceed 15% of Consolidated Net Tangible Assets determined as of a date not more than 90 days prior thereto. 9.4 SALE AND LEASEBACK. (a) The Company will not, and will not permit any Domestic Subsidiary to, sell, lease or transfer any Principal Property owned by the Company or a Domestic Subsidiary as an entirety, or any substantial portion thereof, to anyone other than a Wholly Owned Domestic Subsidiary (or the Company or a Wholly Owned Domestic Subsidiary in the case of a Domestic Subsidiary) with the intention of taking back a lease of such property (herein referred to as a "Sale and Leaseback Transaction") except a lease for a period of not more than 36 months by the end of which it is intended that the use of such property by the lessee will be discontinued; provided, that, notwithstanding the foregoing, the Company or any Domestic Subsidiary may sell any such property and lease it back if the net proceeds of such sale are at least equal to the fair value (as determined by resolution adopted by the Board of Directors of the -16- 45 Company) of such property, and (i) the Company or such Domestic Subsidiary would be entitled pursuant to paragraph (a) of Section 9.3 to create Debt secured by a mortgage on the property to be leased in an amount equal to the Attributable Debt with respect to such Sale and Leaseback Transaction without equally and ratably securing all the Loans, or (ii) if such sale or transfer does not come within the exception provided by the preceding clause (i), the net proceeds of such sale shall, and in any such case the Company covenants that they will, within 120 days after such sale, be applied (to the greatest extent possible) either to the repayment of the Loans then outstanding when due (whereupon the Commitments hereunder shall be reduced, on a pro rata basis, to the extent that such net proceeds are so applied) or to the retirement of other Consolidated Funded Debt of the Company ranking at least on a parity with the Loans, or in part to one or more of such alternatives and in part to another. (b) Notwithstanding the provisions of paragraph (a) of this Section 9.4, the Company or any Domestic Subsidiary may enter into Sale and Leaseback Transactions if, at the time of such entering into, and after giving effect thereto, Exempted Indebtedness does not exceed 15% of Consolidated Net Tangible Assets determined as of a date not more than 90 days prior thereto. 9.5 MERGERS, CONSOLIDATIONS, SALES. The Company shall not consolidate with, or sell or convey all or substantially all its assets to, or merge into, any other Person, unless (a) the Company is the surviving corporation of such transaction; or (b) the Company is the nonsurviving party to a merger or consolidation, the primary purpose of which is to effect a reincorporation of the Company under the laws of another state. SECTION 10 CONDITIONS OF LENDING. The obligation of each Bank to make its Loans is subject to the following conditions precedent: 10.1 INITIAL LOAN TO THE COMPANY. The obligation of each Bank to make its initial Loan to the Company is, in addition to the conditions precedent specified in Section 10.3, subject to the condition precedent that such Bank shall have received all of the following, each duly executed and dated the date of such Loan (or such earlier date as shall be satisfactory to such Bank), in form and substance satisfactory to such Bank: 10.1.1 NOTE. The Note of the Company payable to the order of such Bank, substantially in the form of Exhibit A. 10.1.2 RESOLUTIONS. Certified copies of resolutions of the Board of Directors of the Company authorizing the Company to obtain Loans hereunder. -17- 46 10.1.3 INCUMBENCY AND SIGNATURES. A certificate of the Secretary or an Assistant Secretary of the Company certifying the names of the officer or officers of the Company who have signed or will sign this Agreement, the Notes, and other documents provided for in this Agreement to be executed by the Company, together with a sample of the true signature of each such officer, and a certificate of authorization setting forth each Person who is authorized to effect Loans and other transactions hereunder, together with a sample of the true signature of each such Authorized Person. Each Bank may conclusively rely on such certificates until it shall have received notice to the contrary. 10.1.4 OPINION OF COUNSEL. The opinion of counsel to the Company, substantially in the form of Exhibit C. 10.2 LOANS TO DESIGNATED SUBSIDIARIES. The obligation of each Bank to make any Loans to any Designated Subsidiary is subject to the condition precedent that such Bank shall have received the following: 10.2.1 RESOLUTIONS. A certified copy of the resolutions of the appropriate governing body of the Designated Subsidiary that requested the Loan authorizing it to obtain Loans hereunder or such other evidence of corporate authority as is customary in the country of domicile of the Designated Subsidiary. 10.2.2 ACCEPTANCE OF THIS AGREEMENT. A letter signed by an authorized officer of such Designated Subsidiary evidencing its agreement to be bound by the terms of this Agreement with respect to each Loan made to it hereunder. 10.2.3 INCUMBENCY AND SIGNATURES. A certificate of the Secretary or an Assistant Secretary of the Designated Subsidiary certifying the name and signature of the officer or officers of the Designated Subsidiary who have signed or will sign the letter referenced in Section 10.2.2, together with a sample of the true signature of each such officer, and a certificate of authorization setting forth each Person who is authorized to effect Loans and other transactions hereunder, together with a sample of the true signature of each such Authorized Person. Each Bank may conclusively rely on such certificates until it shall have received notice to the contrary. 10.3 ALL LOANS. The obligation of each Bank to make any Loan hereunder is subject to the further conditions precedent that: (a) No Event of Default or Unmatured Event of Default has occurred and is continuing or will result from the making of such Loan, and (b) the warranties of the Company contained in Sections 8.1, 8.2, and 8.3, are true and correct as of the date of such requested Loan, with the same effect as though made on the date of such Loan. -18- 47 10.4 CONVERSIONS. Except for Section 10.3(a), the conditions set forth in Sections 10.1, 10.2, and 10.3 shall not apply to the Conversion of Loans from one type to another type or Continuation of Loans. SECTION 11 EVENTS OF DEFAULT AND THEIR EFFECT. 11.1 EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default under this Agreement: 11.1.1 NONPAYMENT OF NOTES OR FEES. Default in the payment when due of any principal of any Note or default in the payment when due of interest on any Note or fees payable by the Company hereunder and continuance of such failure to pay interest or fees for five Business Days after written notice thereof to the Company from the Bank to which such amounts are owed. 11.1.2 NONPAYMENT OF OTHER INDEBTEDNESS FOR BORROWED MONEY. Default in the payment when due at maturity (subject to any applicable grace period) or by acceleration of any other indebtedness for borrowed money having a principal amount in excess of 50,000,000 U.S. Dollars of, or guaranteed by, the Company, or default in the performance or observance of any obligation or condition with respect to any such other indebtedness if such default results in the acceleration of the maturity of any such indebtedness; provided, that, if such default shall subsequently be remedied, cured, or waived prior to either the termination of Commitments or the declaration that all Loans are immediately due and payable, in each case pursuant to Section 11.2 hereof, and as a result the payment of such indebtedness is no longer due, the Event of Default existing hereunder by reason thereof shall likewise be deemed thereupon to be remedied, cured, or waived and no longer in existence, all without any further action by the parties hereto. 11.1.3 BANKRUPTCY OR INSOLVENCY. The Company generally fails to pay, or admits in writing its inability to pay, debts as they become due; or the Company applies for, consents to, or acquiesces in the appointment of, a trustee, receiver, or other custodian for the Company or for a substantial part of the property thereof, or makes a general assignment for the benefit of creditors; or, in the absence of such application, consent or acquiescence, a trustee, receiver, or other custodian is appointed for the Company or for a substantial part of the property of the Company; or any bankruptcy, reorganization, debt arrangement, or other case or proceeding under any bankruptcy or insolvency law, or any dissolution or liquidation proceeding is commenced in respect of the Company and if such case or proceeding is not commenced by the Company, it is consented to or acquiesced in by the Company or remains for 90 consecutive days undismissed or unstayed; or the Company takes any corporate action to authorize any of the foregoing. 11.1.4 NONCOMPLIANCE WITH OTHER PROVISIONS. Failure by the Company to comply with or to perform in any material respect any other -19- 48 provision of this Agreement (and not constituting an Event of Default under any of the preceding provisions of this Section 11.1) and continuance of such failure for 30 days after written notice thereof to the Company from the Majority Banks. 11.1.5 WARRANTIES. Any warranty made by the Company in Sections 8 or 14.16 of this Agreement is breached or is incorrect when made in any material respect and the Company shall fail to take corrective actions reasonably satisfactory to the Majority Banks within 30 days after written notice thereof to the Company from the Majority Banks, except only in the case of a breach of the warranties contained in Section 8 or 14.16 made on the date of this Agreement, in which case there shall be no opportunity to take corrective actions. 11.1.6 JUDGMENTS. Any final and unappealable judgment or order from a judicial or administrative body (which order or judgment is fully enforceable against the Company or any of its Consolidated Subsidiaries in courts of the United States of America or any state thereof) for the payment of money in excess of 50,000,000 U.S. Dollars (after adjustments to reflect reductions for credits and set-offs asserted in good faith by the Company) shall be rendered against the Company, shall not have been discharged or vacated and shall have been in effect, in its final and unappealable form, for a period of 30 consecutive days. 11.2 EFFECT OF EVENT OF DEFAULT. If any Event of Default described in Section 11.1.3 shall occur, the Commitments (if they have not theretofore terminated) shall immediately terminate and all Loans and Notes shall automatically become immediately due and payable, all without notice of any kind; and, in the case of any other Event of Default, the Majority Banks may declare the Commitments (if they have not theretofore terminated) to be terminated and the Outstanding Majority Banks may declare that all Loans and Notes shall become immediately due and payable. The Majority Banks and the Outstanding Majority Banks shall promptly advise the Company in writing of any such declaration. Following the declaration that all Loans and Notes are immediately due and payable, all payments made by the Company on account of the Loans and Notes shall be made to the Administrator, which shall distribute such payments on a pro rata basis (in relation to the amounts of outstanding Loans) to Banks with outstanding Loans. Following such declaration, if any Bank receives a payment that is not on a pro rata basis, such Bank will remit to the Administrator any amount in excess of its pro rata portion. Upon receipt of any such remittance, the Administrator will distribute such amount to the Banks with outstanding Loans in order that all distributions will be pro rata. The effect as an Event of Default of any event described in Section 11.1.1 or Section 11.1.3 may be waived only by the written concurrence of the holders of 100% of the aggregate unpaid principal amount of the Notes and the Majority Banks, and the effect as an Event of Default of any other event described in this Section 11 may be waived by the written concurrence of the Majority Banks and the Outstanding Majority Banks. -20- 49 SECTION 12 GUARANTY. The Company hereby unconditionally, absolutely and irrevocably guarantees, as primary obligor and not merely as surety, the repayment to each Relevant Bank, when due pursuant to the terms and conditions of this Agreement, of the amount of any Loan made pursuant to this Agreement to a Designated Subsidiary, together with accrued interest on such Loan; provided, however, that before any amount shall be deemed due and payable pursuant to this Section 12, the Relevant Bank must first give notice to the Company of the nonpayment by the Designated Subsidiary, and the Company shall have five Business Days from the receipt of such notice to cure or cause to be cured any and all such nonpayments. The Company's obligations hereunder constitute a guaranty of payment and not of collection merely. The Company hereby waives notice of, and consents to, any extensions of time of payment, renewals, compromises, settlements, releases or other indulgences from time to time granted by the Relevant Bank in respect of Loans made to Designated Subsidiaries. Except as otherwise provided in this Section 12, the Company hereby waives presentment, protest, demand of payment, notice of dishonor and all notices and demands whatsoever. The obligations of the Company hereunder shall not be released, discharged or otherwise affected by (i) any change in the corporate existence or constitution, structure or ownership of any Designated Subsidiary or the Company, (ii) any insolvency, bankruptcy, reorganization or similar proceeding affecting the Designated Subsidiary or its assets or the Company or (iii) the existence of any claim, set-off or other rights which the Company may have at any time against the Relevant Bank or any other person. If at any time any payment of any obligation guaranteed hereunder is rescinded or must otherwise be restored or returned upon the insolvency, bankruptcy or reorganization of a Designated Subsidiary or otherwise, the Company's obligations under this Section 12 with respect to such payment shall be reinstated at such time as though such payment had not been made. The Company shall not exercise any of its subrogation rights with respect to amounts paid to a Relevant Bank pursuant to this Section 12 until all amounts guaranteed hereunder payable to such Relevant Bank have been paid in full. Following such payment in full with regard to a Relevant Bank, the Company shall be entitled to subrogation in the Relevant Bank's rights and, upon the reasonable request of the Company, the Relevant Bank agrees to cooperate with the Company in enforcement of the Company's subrogation rights, including the transfer and delivery by the Relevant Bank to the Company of any and all evidence of indebtedness relating to such Loan within the possession or control of the Relevant Bank. SECTION 13 CERTAIN DEFINITIONS. When used herein the following terms shall have the following meaning: "AFFILIATE" means, with respect to a particular Person, any Person which, directly or indirectly, controls, is controlled by, or is under common control with, such Person. For purposes of this definition, control of a Person shall mean the power to -21- 50 direct or cause the direction of the management and policies of such Person whether by contract or otherwise. "AGREEMENT" means this Agreement, as it may be amended, modified, or supplemented and in effect from time to time. "APPLICABLE COMMITMENT FEE" means the percentage in effect from time to time as set forth in the following table opposite the highest of the then-current rating assigned to the Company's senior unsecured long-term debt by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Ratings Group ("S&P"):
Rating Applicable (Moody's/S&P) Commitment Fee ------------- -------------- higher than A1/A+ 0.060% A1/A+ 0.070% A2/A 0.080% A3/A- 0.090% Baa1/BBB+ 0.100% Baa2/BBB 0.125% Baa3/BBB- 0.150% lower than Baa3/BBB- 0.175%
"APPLICABLE MARGIN" means, at any time, the percentage set forth in the following table opposite the highest of the then-current rating assigned to the Company's senior unsecured long-term debt by Moody's or S&P:
Applicable Applicable Margin for Margin for Rating Domestic CD Eurocurrency (Moody's/S&P) Loans Loans - ------------------------------------------------------------------------------- higher than A1/A+ 0.275% 0.175% A1/A+ 0.300% 0.200% A2/A 0.325% 0.225% A3/A- 0.350% 0.250% Baa1/BBB+ 0.400% 0.300% Baa2/BBB 0.475% 0.375% Baa3/BBB- 0.550% 0.450% lower than Baa3/BBB- 0.600% 0.500%
"ASSESSMENT RATE" means, for any Domestic CD Loan (and for the purpose of computing the Domestic CD Rate (Adjusted)), the annual assessment rate (rounded upwards, if necessary, to the nearest 1/100 of 1%) applicable to the Relevant Bank on its insured deposits under the Federal Deposit Insurance Act, determined by annualizing the most recent assessment levied on the Relevant -22- 51 Bank by the Federal Deposit Insurance Corporation (the "FDIC") with respect to such deposits, after giving effect to the most recent rebate granted to the Relevant Bank by the FDIC with respect to deposit insurance as well as the loss to the Relevant Bank (determined in the good faith judgment of the Relevant Bank) of the use of such rebate prior to the date credit is taken by the Relevant Bank with respect to such rebate. "ATTRIBUTABLE DEBT" means, as to any particular lease under which any Person is liable at the time and at any date as of which the amount thereof is to be determined, the lesser of (a) the fair value of the property subject to such lease (as determined by the Directors of the Company) or (b) the total net amount of rent required to be paid by such Person under such lease during the remaining term thereof, discounted from the respective due dates thereof to such date at the actual interest factor included in such rent. The net amount of rent required to be paid under any such lease for any such period shall be the aggregate amount of the rent payable by the lessee with respect to such period after excluding amounts required to be paid on account of maintenance and repairs, insurance, taxes, assessments, water rates and similar charges. In the case of any lease which is terminable by the lessee upon the payment of a penalty, such net amount shall also include the amount of such penalty, but no rent shall be considered as required to be paid under such lease subsequent to the first date upon which it may be so terminated. "AUTHORIZED PERSON" means, as to the Company, any person designated as such in a certificate signed by the Chief Financial Officer, Treasurer, or Assistant Treasurer of the Company, and, as to any Designated Subsidiary, means any person designated as such in a certificate signed by one or more officers of the Designated Subsidiary, as authorized by resolution of the Designated Subsidiary or otherwise by law. "BANKS" or "BANK" - see Preamble. "BASE RATE" means the higher of (i) the rate of interest per annum publicly announced and in effect from time to time by the Relevant Bank at its Domestic Office identified on the signature pages hereto as its prime, base or reference rate for U.S. Dollar Loans or (ii) the Federal Funds Rate plus the Applicable Margin for Eurocurrency Loans. The Base Rate shall change simultaneously with each change in such announced prime, base or reference rate and Federal Funds Rate, as applicable. The Base Rate may not be the lowest rate charged by the Relevant Bank for commercial or other extensions of credit. "BASE RATE LOAN" means any Loan of U.S. Dollars that bears interest at or by reference to the Relevant Bank' s Base Rate. "BUSINESS DAY" means (i) in the case of a Business Day that relates to a Eurocurrency Loan, any day of the year on which banks are open for business in both New York and, with regard to any such Bank only, the city in which the applicable Eurocurrency Office of such Bank is located and on which dealings are -23- 52 carried on in the interbank eurocurrency market; (ii) in the case of a Business Day that relates to a Base Rate Loan, a Domestic CD Loan, or a Negotiated Loan, any day of the year on which banks are open for business in both New York and, with regard to any such Bank only, the city in which the applicable Domestic Office of such Bank is located; and (iii) in the case of a Business Day that relates to a Local Currency Loan, any day of the year on which the local office of the Relevant Bank in that locality is open for business. "COMMITMENT(S)" means the commitments of the Banks to make Loans hereunder; and Commitment as to any Bank shall mean the commitment of such Bank to make Loans hereunder in an aggregate amount not to exceed the U.S. Dollar amount set forth opposite its signature hereto or any subsequent amendment hereto. "COMPANY" - see Preamble. "COMPLIANCE CERTIFICATE" - see Section 9.1.3 and Exhibit B. "CONSOLIDATED FUNDED DEBT" means the Funded Debt of the Company and its Consolidated Subsidiaries consolidated in accordance with GAAP. "CONSOLIDATED NET TANGIBLE ASSETS" means the total of all assets of the Company and its Consolidated Subsidiaries appearing on a consolidated balance sheet prepared in accordance with GAAP, including the equity in and the net amount of advances to other Subsidiaries, after deducting therefrom (without duplication of deductions) as shown on such balance sheet, the sum of: (i) intangible assets, including goodwill, cost of acquired businesses in excess of recorded net assets at acquisition dates, patents, licenses, trademarks, trade names, copyrights, unamortized debt discount and expense less unamortized debt premium, and corporate organization expense (but excluding deferred charges and prepaid expense); (ii) any write-up of the book value of any assets (other than equity in Subsidiaries which are not Consolidated Subsidiaries and other than as a result of currency revaluations) resulting from the revaluation thereof subsequent to March 31, 1992; (iii) all liabilities of the Company and its Consolidated Subsidiaries other than: Funded Debt; capital stock; surplus; surplus reserves; reserves for deferred Federal income taxes arising from accelerated depreciation, investment and other tax credits, and similar provisions; and contingency reserves not allocated for any particular purpose; (iv) reserves for depreciation and amortization and other reserves (other than the reserves referred to in the preceding clause(iii) ); and -24- 53 (v) any minority interest in the shares of stock and surplus of any Consolidated Subsidiary. "CONSOLIDATED NET WORTH" means at any date the sum of the consolidated shareholders' investment and minority interests of the Company and its Consolidated Subsidiaries determined as of such date. Consolidated shareholders' investment and minority interests of the Company shall be as included in the annual and quarterly financial statements of the Company, as applicable. "CONSOLIDATED SUBSIDIARY" means each Subsidiary other than (a) any Subsidiary the accounts of which (i) are not required by GAAP to be consolidated with those of the Company for financial reporting purposes and (ii) were not consolidated with those of the Company in the Company's then most recent Annual Report to Shareholders and are not intended by the Company to be consolidated with those of the Company in its next Annual Report to Shareholders, or (b) any Subsidiary the primary business of which consists of financing the sale or lease of merchandise, equipment or services by the Company or any Subsidiary or owning, leasing, dealing in or developing real property, or providing services directly related thereto, or which is otherwise primarily engaged in the business of a finance or real estate company. "CONTINUE," "CONTINUATION" AND "CONTINUED" shall refer to a continuation of Loans pursuant to Section 1.5. "CONVERT," "CONVERSION" AND "CONVERTED" shall refer to a conversion of Loans pursuant to Sections 1.5, 3.3, 7.3, or 7.4. "DEBT" - see SECTION 9.3. "DESIGNATED SUBSIDIARY" means any Subsidiary of the Company which (i) the Company from time to time designates in writing signed by the Chief Financial Officer, Treasurer, or Assistant Treasurer of the Company as a Designated Subsidiary entitled to receive Eurocurrency and Local Currency Loans hereunder and (ii) the Relevant Bank has not objected in writing to such designation of a Designated Subsidiary within thirty (30) days of the Relevant Bank's receipt of the Company's designation. Such designation shall contain the address of the Subsidiary which shall be used to give notice to the Subsidiary pursuant to Section 14.3. "DOMESTIC CD LOAN" shall mean any Loan of U. S. Dollars that bears interest at a rate determined by reference to the Relevant Bank's Domestic CD Rate (Adjusted). "DOMESTIC CD RATE" means, with respect to any Interest Period for any Domestic CD Loan, the rate of interest determined by the Relevant Bank to be the average (rounded upward, if necessary, to the nearest 1/100 of 1%) of the rates quoted to the Relevant Bank on the first day of such Interest Period by two certificate of -25- 54 deposit dealers in New York of recognized standing selected by the Relevant Bank for the purchase from the Relevant Bank or major commercial banks at face value of certificates of deposit issued by the Relevant Bank in an amount equal or comparable to the amount of the Domestic CD Loan and having a maturity equal to such Interest Period; provided, that, if such quotations from such dealers are not available to the Relevant Bank, it shall determine a reasonably equivalent rate on the basis of another source or sources selected by it. "DOMESTIC CD RATE (ADJUSTED)" means, with respect to any Interest Period for any Domestic CD Loan, a rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined pursuant to the following formula: Domestic CD Domestic CD = Rate + Assessment Rate (Adjusted) --------------- Rate (1 - Reserve Requirement) "DOMESTIC OFFICE" means, with respect to any Bank, the office of such Bank or Affiliate of such Bank, designated as such under such Bank's signature hereto, or such other office of such Bank or Affiliate of such Bank, as such Bank may hereafter from time to time designate as its Domestic Office. "DOMESTIC SUBSIDIARY" means each Consolidated Subsidiary other than: (a) any Consolidated Subsidiary which the Directors of the Company reasonably determine not to be material to the business or financial condition of the Company; (b) any Consolidated Subsidiary the major portion of the assets of which are located, or the major portion of the business of which is carried on, outside the United States of America, its territories and possessions; (c) any Consolidated Subsidiary which, during the 12 most recent calendar months (or such shorter period as shall have elapsed since its organization) derived the major portion of its gross revenues from sources outside the United States of America; (d) any Consolidated Subsidiary the major portion of the assets of which consists of securities or obligations, or both, of one or more corporations (whether or not Consolidated Subsidiaries) of the types described in the preceding clauses (b) and (c); and (e) any Consolidated Subsidiary organized after March 31, 1992 which the Company intends shall be operated in such manner as to come within one or more of the preceding clauses (b), (c) and (d). "ELECTRONIC PAYMENT INSTRUCTIONS" means the Bank Routing and account number information identifying the account of each Bank to receive the ACH payment of Commitment Fees. Such Electronic Payment Instructions for each Bank are set forth below the signature block of such Bank to the Amendment dated as of May 8, 1996 to the Agreement and may be changed at any time by written notice by such Bank to the Company. "EUROCURRENCY" means any freely transferable and convertible currency on deposit outside the country of issuance. -26- 55 "EUROCURRENCY LOAN" means any Loan of a Eurocurrency that bears interest at a rate determined by reference to the Relevant Bank's Eurocurrency Rate (Reserve Adjusted). "EUROCURRENCY OFFICE" means, with respect to any Bank, the office of such Bank or Affiliate of such Bank, designated as such under such Bank's signature hereto, or such other office of such Bank or Affiliate of such Bank, as such Bank may hereafter from time to time designate as its Eurocurrency Office. A Eurocurrency Office may be, at the option of such Bank, either a domestic or foreign office of such Bank or a domestic or foreign office of an affiliate of such Bank. "EUROCURRENCY OR LOCAL CURRENCY EQUIVALENT AMOUNT" means, in the case of a Eurocurrency or Local Currency, on any Business Day, the amount of such currency which would be freely converted into a specified amount of U.S. Dollars, computed at the spot buying rate for dollars of the Relevant Bank at the close of business on such day. "EUROCURRENCY RATE" means, with respect to any Eurocurrency Loan for any Interest Period, the rate per annum equal to the rate per annum at which deposits of the currency of the Loan in immediately available funds are offered by the Eurocurrency Office of the Relevant Bank two Business Days prior to the beginning of such Interest Period to major banks in the interbank eurocurrency market of such Eurocurrency Office for delivery on the first day of such Interest Period and for the number of days comprised therein and in an amount equal or comparable to the amount of the Eurocurrency Loan of the Relevant Bank for such Interest Period. "EUROCURRENCY RATE (RESERVE ADJUSTED)" means, with respect to any Eurocurrency Loan for any Interest Period, a rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined pursuant to the following formula: Eurocurrency Rate = Eurocurrency Rate (Reserve Adjusted) ----------------- l-Eurocurrency Reserve Percentage "EUROCURRENCY RESERVE PERCENTAGE" means, with respect to each Interest Period, that percentage (expressed as a decimal) prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining reserve requirements applicable to "Eurocurrency Liabilities" pursuant to Regulation D or any other then applicable regulation of the Board of Governors that prescribes reserve requirements applicable to "Eurocurrency Liabilities" as presently defined in Regulation D. "EVENT OF DEFAULT" means any of the events described in Section 11.1. "EXEMPTED INDEBTEDNESS" means, as of any particular time, the sum of (i) the aggregate principal amount of all then outstanding indebtedness for borrowed money of the Company and Domestic Subsidiaries incurred after July 1, 1992 and -27- 56 secured by any mortgage, security interest, pledge or lien other than those permitted by paragraph (a) of Section 9.3 and (ii) all Attributable Debt pursuant to Sale and Leaseback Transactions (as defined in Section 9.4) incurred by the Company and Domestic Subsidiaries after July 1, 1992 at such time outstanding other than that which is not prohibited by or is permitted pursuant to paragraph (a) of Section 9.4. "FEDERAL FUNDS RATE" means, for any Interest Period selected by the Company, the average of rates for Federal funds for the Interest Period quoted to the Relevant Bank by two leading brokers of Federal funds transactions in New York City. "FIXED RATE LOAN(S)" - see Section 1.3. "FUNDED DEBT" means all indebtedness for money borrowed having a maturity of more than 12 months from the date such indebtedness was incurred or having a maturity of 12 months or less but by its terms being renewable or extendable beyond 12 months from the date such indebtedness was incurred at the option of the borrower. "GAAP" means generally accepted accounting principles in the United States of America as in effect from time to time. "INTEREST PERIOD" means, with respect to any Fixed Rate Loan, the period commencing on the date such Loan was made, or on the date such Loan was Converted from a Loan of a different type, or on the date of expiration of the immediately preceding Interest Period for such Loan, and (i) ending 30, 60, 90, 120, 150, 180 days, or, if available, more than 180 days up to and including 360 days, thereafter in the case of a Domestic CD Loan, or (ii) ending one, two, three, or six months, or, if available, more than six months up to and including twelve months, thereafter in the case of a Eurocurrency Loan, all as the Company or any Designated Subsidiary may specify pursuant to Section 1.4, 1.5, or 3.3; the Interest Period for any Negotiated Loan or any Local Currency Loan shall be as agreed by the Company or any Designated Subsidiary and the Relevant Bank pursuant to Section 1.6 or 1.7. Each Interest Period for a Fixed Rate Loan that would otherwise end on a day that is not a Business Day shall end on the next succeeding Business Day (unless such next succeeding Business Day is the first Business Day of a calendar month, in which case with respect to a Eurocurrency Loan such Interest Period shall end on the next preceding Business Day). "JUDGMENT CURRENCY" - see Section 7.6. "JUDGMENT CURRENCY CONVERSION DATE" - see Section 7.6. "LIEN" or "MORTGAGE" - see Section 9.3. "LOCAL CURRENCY" means, with respect to any Local Currency Loan, any legal currency of the nation where the Local Currency Loan is being funded. -28- 57 "LOCAL CURRENCY LOAN(S)" - see Section 1.7. "LOANS" or "LOAN" - see Section 1.1. "MAJORITY BANKS" means Banks having an aggregate Percentage of 66-2/3% or more. "NEGOTIATED LOAN(S)" - see Section 1.6. "NOTE(S)" - see Section 2.2 and Exhibit A. "OBLIGATION CURRENCY" - see Section 7.6. "OUTSTANDING MAJORITY BANKS" means Banks having 66-2/3% or more of the aggregate principal amount of Loans outstanding. "PERCENTAGE" means as to any Bank the percentage of such Bank's share of the total Commitments of all Banks. "PERSON" shall mean an individual or a corporation, partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, government (or any agency or political subdivision thereof), or other entity of any kind. "PRINCIPAL PROPERTY" means any single manufacturing plant, engineering facility or research facility owned or leased by the Company or a Domestic Subsidiary other than any such plant or facility or portion thereof which the Board of Directors reasonably determines not to be of material importance to the Company and its Subsidiaries taken as a whole. "PROPRIETARY INFORMATION" - see Section 14.5. "RELEVANT BANK" means, with respect to any Loan, the Bank that made the Loan, and, prior to the making of such Loan or requested Loan, any Bank that has been requested to make such Loan. "RESERVE REQUIREMENT" means, with respect to each Interest Period, a percentage (expressed as a decimal) equal to the daily average during such Interest Period of the aggregate reserve requirement (including all basic, supplemental, marginal, and other reserves and taking into account any transitional adjustments or other scheduled changes in reserve requirements during such Interest Period) specified under Regulation D of the Board of Governors of the Federal Reserve System, or any other regulation of the Board of Governors which prescribes reserve requirements applicable to nonpersonal time deposits as presently defined in Regulation D, as then in effect, as applicable to the class of banks of which the Relevant Bank is a member, on deposits of the type used as a reference in determining the Domestic CD Rate and having a maturity approximately equal to such Interest Period. -29- 58 "SALE AND LEASEBACK TRANSACTION" - see Section 9.4. "SUBSIDIARY" means a corporation of which the Company and/or its other Subsidiaries own, directly or indirectly, such number of outstanding shares as have more than 50% of the ordinary voting power for the election of directors. "TERMINATION DATE" means the earlier to occur of (a) July 1, 2001, subject to extension for one or more successive one-year periods as to any Bank or Banks pursuant to Section 1.2, or (b) such other date on which the Commitments shall terminate pursuant to Section 11.2. "TYPE OF LOAN OR BORROWING" - see Section 1.3. The various types of Loans or borrowings available under this Agreement are as follows: Base Rate Loans or borrowings and Fixed Rate Loans or borrowings. Fixed Rate Loans or borrowings consist of Domestic CD Loans or borrowings, Eurocurrency Loans or borrowings, Negotiated Loans or borrowings, and Local Currency Loans or borrowings. "U.S. DOLLAR(S)" and the sign "$" shall mean lawful money of the United States of America. "UNMATURED EVENT OF DEFAULT" means any event that if it continues uncured will, with lapse of time or notice or lapse of time and notice, constitute an Event of Default. "UNUSED AMOUNT" means the amount of the Commitment of the Relevant Bank less any outstanding Loans made by such Bank. Loans in an Obligation Currency other than U.S. Dollars will be translated into U.S. Dollars for purposes of this calculation at the spot rate for dollars published in THE WALL STREET JOURNAL on each day in which such Loan is outstanding (provided, that if such day is not a Business Day, the applicable spot rate for such day should be the spot rate on the Business Day immediately prior to such day). "WHOLLY OWNED DOMESTIC SUBSIDIARY" means each Domestic Subsidiary all the outstanding shares of which, other than directors' qualifying shares, shall at the time be owned by the Company, or by the Company and one or more Wholly Owned Domestic Subsidiaries, or by one or more Wholly Owned Domestic Subsidiaries. SECTION 14 GENERAL. 14.1 WAIVER; AMENDMENTS. No delay on the part of any Bank or the holder of any Note in the exercise of any right, power, or remedy shall operate as a waiver thereof, nor shall any single or partial exercise by any of them of any right, power, or remedy preclude other or further exercise thereof, or the exercise of any other right, power, or remedy. No amendment, modification, or waiver of, or consent with respect to, any provision of this Agreement or the Notes shall in any event be -30- 59 effective unless the same shall be in writing and signed and delivered by Banks having an aggregate Percentage of not less than the aggregate Percentage expressly designated herein with respect thereto (or in the case of the Outstanding Majority Banks, the aggregate principal amount outstanding) or, in the absence of such designation as to any provision of this Agreement or the Notes, by the Majority Banks, and then any such amendment, modification, waiver, or consent shall be effective only in the specific instance and for the specific purpose for which given. No amendment, modification, waiver, or consent (i) shall extend or increase the amount of the Commitments, the maturity of the Notes or reduce the fees hereunder or the rate of interest payable with respect to the Notes or reduce the aggregate Percentage required to effect an amendment, modification, waiver, or consent or eliminate the guaranty set forth in Section 12 hereof without the written consent of all of the Banks or (ii) shall extend the maturity or reduce the principal amount of, or rate of interest on, any Note without the written consent of the holder of such Note. Notwithstanding the foregoing, the Company may add one or more financial institutions as Bank parties to this Agreement, from time to time and without the consent of the then-current Bank parties to this Agreement; provided, that in no event will the aggregate amount of the Commitments of the new financial institutions exceed 125 million U.S. Dollars in excess of the Commitments as of the date hereof. Each such addition of a Bank shall be effective upon such Bank's written agreement to become a Bank party hereto and to be bound by the terms of this Agreement applicable to "Banks." The Company shall give the then-current Bank parties to this Agreement prompt notice of any change to the Bank's respective Percentages and Commitments resulting from the addition of any Bank as a party to, or the reduction of any Bank's Commitment under, this Agreement. 14.2 CONFIRMATIONS. The Company and each holder of a Loan agree from time to time, upon written request received by it from the other, to confirm to the other in writing the aggregate unpaid principal amount of Loans then outstanding to such holder. 14.3 NOTICES. Except as otherwise provided in Sections 1.3, 1.4, 1.5, 3.3, and 6.2, all notices hereunder shall be in writing. Notices given by mail shall be deemed to have been given three days after the date sent if sent by registered or certified mail, postage prepaid, and: (i) if to the Company, addressed to the Company at its address shown below its signature hereto; (ii) if to any Designated Subsidiary, addressed to it at the address given by the Company pursuant to its designation of such Subsidiary as a Designated Subsidiary entitled to receive Loans hereunder; or (iii) if to any Bank, addressed to such Bank at the address shown below its signature as its Domestic Office address; or in the case of each party, such other address as such party may, by written notice to the other parties to this Agreement, have designated as its address for notices. -31- 60 Notices given by facsimile, telegram, or telex shall be deemed to have been given when sent, if properly addressed to the party to whom sent, at its address, as aforesaid. Each Bank shall be entitled to rely upon all telephonic notices given by an Authorized Person pursuant to Sections 1.3, 1.4, 1.5, 3.3, or 6.2, and the Company shall hold each Bank harmless from any loss, cost, or expense ensuing from any such reliance, except for such loss, cost or expenses as a result of the Bank's gross negligence or willful misconduct. All notices, waivers, or consents given to, or any requests made upon, the Company by any Bank or holder of any Note shall be promptly notified to all other parties to this Agreement. Whenever a notice, declaration, or other action is required to be taken, given, or made by the Majority Banks or the Outstanding Majority Banks, such notice, declaration, or action shall be in writing and shall be signed by, as the case may be, Banks having an aggregate Percentage of 66-2/3% or more or Banks having 66-2/3% or more of the aggregate principal amount of Loans outstanding. 14.4 COMPUTATIONS. Where the character or amount of any asset or liability or item of income or expense is required to be determined, or any consolidation or other accounting computation is required to be made, for the purpose of this Agreement, such determination or calculation shall, to the extent applicable and except as otherwise specified in this Agreement, be made in accordance with the Company's then current method of accounting, which method must be in accordance with GAAP; provided, however, if any changes in accounting principles from those used in the preparation of the financial statements referred to in Section 8.4 hereafter occasioned by the promulgation of rules, regulations, pronouncements, and opinions by or required by the Financial Accounting Standards Board or the American Institute of Certified Public Accountants (or successors thereto or agencies with similar functions) result in a change in the method of calculation of the financial covenants, standards, or terms found in Section 9.2 hereof, the parties hereto agree to enter into negotiations to amend such provisions so as equitably to reflect such changes with the desired result that the criteria for evaluating the Company's financial condition shall be the same after such changes as if such changes had not been made. 14.5 CONFIDENTIALITY. Unless the Company otherwise agrees in writing, each Bank hereby agrees to keep all Proprietary Information (as defined below) confidential and not to disclose or reveal any Proprietary Information to any Person other than the Bank's directors, officers, employees, Affiliates, and agents, and then only on a confidential basis; provided, however, that a Bank may disclose Proprietary Information (a) as required by law, rule, regulation, or judicial process, (b) to its attorneys and accountants, (c) as requested or required by any state, federal, or foreign authority or examiner regulating banks or banking, or (d) to actual or potential assignees or participants as permitted by Section 14.6.3. For purposes of this Agreement, the term "Proprietary Information" shall include all information about the Company, any Subsidiary, or any of their respective Affiliates which has been furnished by the Company, any Subsidiary, or any of their respective Affiliates, whether furnished before or after the date hereof, and -32- 61 regardless of the manner furnished; provided, however, that Proprietary Information shall not include information which (x) is or becomes generally available to the public other than as a result of a disclosure by a Bank not permitted by this Agreement, (y) was available to a Bank on a nonconfidential basis prior to its disclosure to such Bank by the Company, any Subsidiary, or any of their respective Affiliates, or (z) becomes available to a Bank on a nonconfidential basis from a Person other than the Company, any Subsidiary, or any of their respective Affiliates who, to the best knowledge of such Bank, is not otherwise bound by a confidentiality agreement with the Company, any Subsidiary, or any of their respective Affiliates, or, to the best knowledge of such Bank, is not otherwise prohibited from transmitting the information to such Bank. 14.6 Assignments and Participations. ------------------------------ 14.6.1 ASSIGNMENTS. Unless the Company otherwise consents in writing, which consent shall not be unreasonably withheld, no holder of any Note (including any Bank) shall assign or transfer such Note or any interest therein to any other Person, except as otherwise permitted under Section 14.6. Except as otherwise expressly agreed in writing by the Company, no Bank shall, by reason of the assignment or transfer of any Note or otherwise, be relieved of any of its obligations hereunder. Each transferee of any Note shall take such Note subject to the provisions of this Agreement and to any request made, waiver or consent given, or other action taken hereunder, prior to such transfer, by each previous holder of such Note; and the Company shall be entitled to conclusively assume that the transferee shall thereafter be vested with all rights and powers under this Agreement of the Bank named as the payee of the Note which is the subject of such transfer. Nothing herein shall prohibit any Bank from pledging or assigning any Note to any Federal Reserve Bank pursuant to applicable law. 14.6.2 PARTICIPATIONS. Any Bank may grant participations in or to all or any part of any Loan or Loans then owing to such Bank and the Notes held by such Bank without the consent of the Company. Except as otherwise expressly agreed in writing by the Company, no grant of a participation shall relieve any Bank of its obligations hereunder, the Company shall be entitled to deal solely with the Banks (and their respective assignees) for all purposes of this Agreement and the Notes, and no holder of a participation in all or any part of the Loans or the Notes shall have any rights under this Agreement, except that the holder of a participation shall be entitled to the benefits of Section 7 hereunder (but the dollar amount of such Section 7 benefits shall not exceed those benefits that the assigning Bank would have otherwise received). 14.6.3 DISCLOSURE OF INFORMATION. The Company hereby consents to the disclosure of any information obtained in connection herewith by any Bank to any Person which is an assignee or potential assignee or a participant or potential participant pursuant to Section 14.6.1 or 14.6.2, it being understood that such Bank shall advise any such actual or potential assignee or participant of its obligation to keep confidential any nonpublic information disclosed to it -33- 62 pursuant to this Section 14.6.3 and, prior to the disclosure of such information, shall cause each such actual or potential assignee or participant to execute a confidentiality agreement containing the confidentiality provisions set forth in Section 14.5. 14.7 SECURITIES LAWS. Each Bank represents that it is the present intention of such Bank to acquire each Note drawn to its order for its own account and not with a view to the distribution or sale thereof, subject, nevertheless, to the necessity that such Bank remain in control at all times of the disposition of the property held by it for its own account, it being understood that the foregoing representation shall not affect the character of the Loans as commercial lending transactions. 14.8 COSTS AND EXPENSES. The Company agrees to pay on demand all reasonable out-of-pocket costs and expenses of the Banks (including the reasonable fees and out-of-pocket expenses of counsel for the Banks and reasonable allocated costs of in-house counsel for the Banks) in connection with the enforcement of this Agreement, the Notes, and any other instruments or documents executed in connection herewith. 14.9 GOVERNING LAW. This Agreement and each Note shall be a contract made under and governed by the internal laws of the State of Ohio. Wherever possible each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. All obligations of the Company and rights of the Banks and any other holders of the Notes expressed herein or in the Notes shall be in addition to and not in limitation of those provided by applicable law. 14.10 COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the different parties on separate counterparts and each such counterpart shall be deemed to be an original, but all such counterparts shall together constitute but one and the same Agreement. When counterparts executed by all the parties shall have been lodged with the Company (or, in the case of any Bank as to which an executed counterpart shall not have been so lodged, the Company shall have received telegraphic, telex, or other written confirmation from such Bank of execution of a counterpart hereof by such Bank), this Agreement shall become effective as of the date hereof. 14.11 CAPTIONS. Section captions used in this Agreement are for convenience only, and shall not affect the construction of this Agreement. 14.12 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the Company, each Bank, and their respective successors and assigns, and shall inure to the sole benefit of the Company, each Bank, and their respective successors and assigns. -34- 63 14.13 ENTIRE AGREEMENT. This Agreement supersedes any prior agreement or understanding of the parties hereto, and contains the entire agreement of the parties hereto, with respect to the matters covered hereby. 14.14 APPOINTMENT OF ADMINISTRATOR. TRW hereby appoints National City Bank to serve as administrator (the "Administrator") to coordinate any votes that may be taken under this Agreement and to distribute payments, if any, required to be made to the Banks on a pro rata basis as provided in Section 11.2. In the event that National City Bank is unable or unwilling to act as Administrator, TRW shall appoint a successor, subject to the approval of the Majority Banks, which shall not be unreasonably withheld. Except as otherwise specifically provided herein, borrowing, repayment and fee procedures set forth in this Agreement shall not be affected by the appointment of the Administrator. 14.15 NON-U.S. BANK TAX INFORMATION. Upon the request of the Company, any Bank that is not organized under the laws of the United States of America or any state thereof will (i) deliver to the Company accurate and complete signed copies of Forms 1001 and 4224 (or such additional or successor forms) and any amendments or modifications thereto and (ii) inform the Company if the Company can no longer rely upon such forms. 14.16 REGULATION U. The Company hereby represents and warrants that neither the Company nor any of its Consolidated Subsidiaries is principally engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System) and covenants that the Company's use of proceeds of any borrowings under this Agreement will not cause a violation of Regulation U. Each of the Banks hereby represents and warrants to the Company that it is not relying and will not rely on any margin stock (as described above) in determining whether to extend or maintain credit under this Agreement. -35- 64 SIGNATURE PAGES TO MULTI-YEAR REVOLVING CREDIT AGREEMENT, DATED AS OF --------------------------------------------------------------------- JULY 1, 1992, AS AMENDED PURSUANT TO AGREEMENTS DATED AS OF JUNE 30, -------------------------------------------------------------------- 1993, MARCH 1, 1994 AND FEBRUARY 28, 1995 AND AS AMENDED AND RESTATED --------------------------------------------------------------------- AS OF MAY 8, 1996 ----------------- Delivered at Cleveland, Ohio, as of the day and year first above written. TRW INC. /s/ William C. Seeger Jr. By William C. Seeger Jr. Vice President and Treasurer 1900 Richmond Road Cleveland, Ohio 44124 Telephone: 216/291-7540 Facsimile: 216/291-7831 -36- 65 BANKS: Amount of Percentage of Commitment Commitments - ---------- ----------- $60,000,000 8 % Bank of America National Trust ----- and Savings Association By Deborah Graziano Title: Vice President DOMESTIC OFFICE Bank of America NT & SA 1850 Gateway Boulevard Concord, California 94520 Telephone: (510) 675-7485 Facsimile: (510) 675-7531 Attention: Selina Button EUROCURRENCY OFFICE Bank of America NT & SA 1850 Gateway Boulevard Concord, California 94520 Telephone: (510) 675-7485 Facsimile: (510) 675-7531 Attention: Selina Button ELECTRONIC PAYMENT INSTRUCTIONS Receiving Bank: Bank of America ABA Routing No.: 121000358 Account No.: 12331-83980 Account Name: Incoming Money Transfer Reference No.: TRW Commitment Fee -37- 66 Amount of Percentage of Commitment Commitments - ---------- ----------- $60,000,000 8 % Barclays Bank PLC ----- By DOMESTIC OFFICE Barclays Bank PLC 222 Broadway New York, New York 10038 Telephone: _____________ Facsimile: _____________ EUROCURRENCY OFFICE Barclays Nassau, Bahamas Branch c/o Barclays Bank PLC 222 Broadway New York, New York 10038 Telephone: _____________ Facsimile: _____________ ELECTRONIC PAYMENT INSTRUCTIONS Receiving Bank: Barclays Bank PLC-New York ABA Routing No.: 026-002-574 Account No.: 050-019-104 Account Name: TRW Reference No.: TRW Commitment Fee; N. SANGLE -38- 67 Amount of Percentage of Commitment Commitments - ---------- ----------- $60,000,000 8 % The Chase Manhattan Bank, N.A. ----- By DOMESTIC OFFICE The Chase Manhattan Bank, N.A. One Chase Manhattan Plaza Fifth Floor New York, New York 10081 Telephone: _____________ Facsimile: _____________ EUROCURRENCY OFFICE The Chase Manhattan Bank, N.A. One Chase Manhattan Plaza Fifth Floor New York, New York 10081 Telephone: _____________ Facsimile: _____________ ELECTRONIC PAYMENT INSTRUCTIONS Receiving Bank: Chase Manhattan Bank ABA Routing No.: 021-000021 Account No.: 900-9-000036 Account Name: Commercial Loan Opns. Reference No.: TRW Commitment Fee -39- 68 Amount of Percentage of Commitment Commitments - ---------- ----------- $60,000,000 8 % Citibank, N.A. ----- By DOMESTIC OFFICE Citibank, N.A. c/o Citicorp Securities, Inc. 200 S. Wacker Dr. Chicago, IL 60606 Telephone: 312-993-3871 Facsimile: 312-993-6840 EUROCURRENCY OFFICE Citibank, N.A. c/o Citicorp Securities, Inc. 200 S. Wacker Dr. Chicago, IL 60606 Telephone: 312-993-3871 Facsimile: 312-993-6840 ELECTRONIC PAYMENT INSTRUCTIONS Receiving Bank: Citibank, N.A., New York ABA Routing No.: 021000089 Account No.: 38483095 Account Name: Chicago NEO Loan Acct. Reference No.: TRW Commitment Fee -40- 69 Amount of Percentage of Commitment Commitments - ---------- ----------- $60,000,000 8 % Morgan Guaranty Trust Company ----- of New York By DOMESTIC OFFICE Morgan Guaranty Trust Company of New York 60 Wall Street New York, New York 10260-0060 Telephone: _____________ Facsimile: _____________ EUROCURRENCY OFFICE Morgan Guaranty Trust Company of New York Nassau, Bahamas Office c/o J.P. Morgan Services Inc. Euro-Loan Servicing Unit 902 Market Street Wilmington, Delaware 19801 Telephone: _____________ Facsimile: _____________ ELECTRONIC PAYMENT INSTRUCTIONS Receiving Bank: Morgan Guaranty Trust ABA Routing No.: 021000238 Account No.: 999-99-090 Account Name: _____________ Reference No.: TRW Com. Fee Corp. Proc. Module 30 -41- 70 Amount of Percentage of Commitment Commitments $60,000,000 8 % National City Bank ----- By DOMESTIC OFFICE National City Bank National City Center P. O. Box 5756 Cleveland, Ohio 44101-0756 Telephone: _____________ Facsimile: _____________ EUROCURRENCY OFFICE National City Bank National City Center P. O. Box 5756 Cleveland, Ohio 44101-0756 Telephone: _____________ Facsimile: _____________ ELECTRONIC PAYMENT INSTRUCTIONS Receiving Bank: National City Bank ABA Routing No.: 041000124 Account No.: 2537557 Account Name: _____________ Reference No.: TRW Commitment Fee -42- 71 Amount of Percentage of Commitment Commitments - ---------- ----------- $60,000,000 8 % The Sumitomo Bank, Limited ----- By DOMESTIC OFFICE The Sumitomo Bank, Limited Chicago Branch Sears Tower 233 South Wacker Drive, Suite 4800 Chicago, Illinois 60606-6448 Telephone: (312) 876-6431 Facsimile: (312) 876-6436 EUROCURRENCY OFFICE The Sumitomo Bank, Limited Chicago Branch Sears Tower 233 South Wacker Drive, Suite 4800 Chicago, Illinois 60606-6448 Telephone: (312) 876-6431 Facsimile: (312) 876-6436 ELECTRONIC PAYMENT INSTRUCTIONS Receiving Bank: FNB of Chicago ABA Routing No.: 071000013 Account No.: 15-01208 Account Name: Sumitomo Bank Ltd, Chicago Branch Reference No.: TRW Commitment Fee -43- 72 Amount of Percentage of Commitment Commitments - ---------- ------------- $45,000,000 6 % Banque Nationale de Paris ----- By DOMESTIC OFFICE Banque Nationale de Paris Chicago Branch Rookery Building 209 South LaSalle, 5th Floor Chicago, Illinois 60604 Telephone: (312) 977-2200 Facsimile: (312) 977-1380 EUROCURRENCY OFFICE Banque Nationale de Paris Chicago Branch Rookery Building 209 South LaSalle, 5th Floor Chicago, Illinois 60604 Telephone: (312) 977-2200 Facsimile: (312) 977-1380 ELECTRONIC PAYMENT INSTRUCTIONS Receiving Bank: Banque Nationale de Paris, New York Branch ABA Routing No.: 026007689 Account No.: 14119400189 Account Name: BNP, Chicago Branch Reference No.: TRW Commitment Fee -44- 73 Amount of Percentage of Commitment Commitments - ---------- ----------- $45,000,000 6 % Dresdner Bank AG ----- By By DOMESTIC OFFICE Dresdner Bank AG New York Branch 75 Wall Street New York, New York 10005 Telephone: (212) 429-2244 Facsimile: (212) 429-2524 EUROCURRENCY OFFICE Dresdner Bank AG Grand Cayman Branch c/o Dresdner Bank AG New York Branch 75 Wall Street New York, New York 10005 Telephone: (212) 429-2244 Facsimile: (212) 429-2524 ELECTRONIC PAYMENT INSTRUCTIONS Receiving Bank: Chase Manhattan (NY,NY) ABA Routing No.: 021-000-021 Account No.: 920-1-059-079 Account Name: Dresdner Bank AG, New York Branch Reference No.: TRW Commitment Fee -45- 74 Amount of Percentage of Commitment Commitments - ---------- ----------- $45,000,000 6 % NBD Bank ----- By Andrew W. Strait Title: Vice President DOMESTIC OFFICE NBD Bank Attention: Mid-Corporate Banking 611 Woodward Detroit, Michigan 48226 Telephone: (313) 225-3300 Facsimile: (313) 225-3269 EUROCURRENCY OFFICE NBD Bank, N.A. Attention: Mid-Corporate Banking 611 Woodward Detroit, Michigan 48226 Telephone: (313) 225-3300 Facsimile: (313) 225-3269 ELECTRONIC PAYMENT INSTRUCTIONS Receiving Bank: NBD Bank ABA Routing No.: 072000326 Account No.: 1424183 Account Name: Commercial Loans Reference No.: TRW Commitment Fee -46- 75 Amount of Percentage of Commitment Commitments $45,000,000 6 % Royal Bank of Canada ----- By Patrick Shields Title: Manager, Corporate Banking DOMESTIC OFFICE Royal Bank of Canada New York Branch c/o Financial Square, 23rd Floor New York, New York 10005 Telephone: (212) 428-6323 Facsimile: (212) 428-2372 EUROCURRENCY OFFICE Royal Bank of Canada New York Branch c/o Financial Square, 23rd Floor New York, New York 10005 Telephone: (212) 428-6323 Facsimile: (212) 428-2372 ELECTRONIC PAYMENT INSTRUCTIONS Receiving Bank: Chase Manhattan, NY ABA Routing No.: 021000021 Account No.: 9201033363 Account Name: Royal Bank Reference No.: TRW Commitment Fee -47- 76 Amount of Percentage of Commitment Commitments $30,000,000 4 % The Sakura Bank, Limited ----- By DOMESTIC OFFICE The Sakura Bank, Limited Chicago Branch 227 West Monroe Street Suite 4700 Chicago, Illinois 60606 Telephone: (312) 580-3276 Facsimile: (312) 332-5345 EUROCURRENCY OFFICE The Sakura Bank, Limited Chicago Branch 227 West Monroe Street Suite 4700 Chicago, Illinois 60606 Telephone: (312) 580-3276 Facsimile: (312) 332-5345 ELECTRONIC PAYMENT INSTRUCTIONS Receiving Bank: FNB of Chicago ABA Routing No.: 071000013 Account No.: 1512951 Account Name: Sakura Bank, Chicago Reference No.: TRW Commitment Fee -48- 77 Amount of Percentage of Commitment Commitments - ---------- ----------- $30,000,000 4 % Society National Bank ----- By DOMESTIC OFFICE Society National Bank 127 Public Square Cleveland, Ohio 44114 Telephone: _____________ Facsimile: _____________ EUROCURRENCY OFFICE Society National Bank 127 Public Square Cleveland, Ohio 44114 Telephone: _____________ Facsimile: _____________ ELECTRONIC PAYMENT INSTRUCTIONS Receiving Bank: Society National Bank ABA Routing No.: 041001039 Account No.: 00100-39140 Account Name: Commercial Loan Opns Reference No.: TRW Commitment Fee -49- 78 Amount of Percentage of Commitment Commitments - ---------- ----------- $30,000,000 4 % The Tokai Bank, Limited ----- By DOMESTIC OFFICE The Tokai Bank, Limited Chicago Branch Attention: Corporate Finance 181 West Madison Street, Suite 3600 Chicago, Illinois 60602 Telephone: _____________ Facsimile: _____________ EUROCURRENCY OFFICE The Tokai Bank, Limited Chicago Branch Attention: Corporate Finance 181 West Madison Street, Suite 3600 Chicago, Illinois 60602 Telephone: _____________ Facsimile: _____________ ELECTRONIC PAYMENT INSTRUCTIONS Receiving Bank: FNB of Chicago ABA Routing No.: 071000013 Account No.: 15-08997 Account Name: Tokai Bank, Chicago Branch Reference No.: TRW Commitment Fee Loan Administration -50- 79 Amount of Percentage of Commitment Commitments - ---------- ----------- $30,000,000 4 % Union Bank of Switzerland ----- By DOMESTIC OFFICE Union Bank of Switzerland Chicago Branch 30 South Wacker Drive, Suite 40 Chicago, Illinois 60606 Telephone: _____________ Facsimile: _____________ EUROCURRENCY OFFICE Union Bank of Switzerland Chicago Branch 30 South Wacker Drive, Suite 40 Chicago, Illinois 60606 Telephone: _____________ Facsimile: _____________ ELECTRONIC PAYMENT INSTRUCTIONS Receiving Bank: FNB of Chicago ABA Routing No.: 071000013 Account No.: 15-12188 Account Name: UBS, Chicago Branch Reference No.: TRW Commitment Fee -51- 80 Amount of Percentage of Commitment Commitments - ---------- ----------- $30,000,000 4 % Wells Fargo Bank, N.A. ----- By By DOMESTIC OFFICE Wells Fargo Bank, N.A. Special Loan Processing 18700 NW Walker Road, Bldg. 92 Beaverton, OR 97006 Telephone: (503) 614-6436 Facsimile: (503) 614-5878 EUROCURRENCY OFFICE Wells Fargo Bank, N.A. Special Loan Processing 18700 NW Walker Road, Bldg. 92 Beaverton, OR 97006 Telephone: (503) 614-6436 Facsimile: (503) 614-5878 ELECTRONIC PAYMENT INSTRUCTIONS Receiving Bank: First Interstate Bank of California ABA Routing No.: 122000218 Account No.: 3030-98989 Account Name: Special Loan Processing Reference No.: TRW - ------------ ---- $750,000,000 100% Total -52- 81 EXHIBIT A to Multi-Year Revolving Credit Agreement REVOLVING NOTE Up to a maximum of $--------------- (or the Eurocurrency or Dated: _____________, 1996 Local Currency equivalent Cleveland, Ohio hereof) FOR VALUE RECEIVED, the undersigned hereby promises to pay to the order of ___________________ (the "Bank") for the account of its Domestic or Eurocurrency Office, as applicable (capitalized terms used herein but not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement referred to below), the outstanding principal amount of the Loans made by the Bank to the undersigned pursuant to the Credit Agreement. The principal amount of each Loan evidenced hereby shall be payable on the earliest of (i) the Termination Date, (ii) the end of the Interest Period with respect to such Loan (unless such Loan is Continued or Converted) or (iii) such other date as the Company and the Relevant Bank may agree in writing. The undersigned promises to pay interest on the unpaid principal amount of each Loan evidenced hereby from the date such Loan is made until the principal amount of such Loan is paid in full, at such interest rates, and payable at such times, as are specified in the Credit Agreement. Both principal of, and interest on, any Loan are payable in immediately available funds in the currency of such Loan to the Bank at its Domestic or Eurodollar Office that made the Loan. The Loans made by the Bank to the undersigned, and all payments made on account of principal thereof, shall be recorded by the Bank and, prior to any transfer hereof, endorsed on the grid attached hereto which is part of this Note. This Note is one of the Notes referred to in, and is entitled to the benefits of, the Multi-Year Revolving Credit Agreement dated as of July 1, 1992, as amended and restated as of May 8, 1996, among the undersigned, the Bank, and the other bank parties named therein, as Banks (as the same may be amended, modified, or supplemented and in effect from time to time, the "Credit Agreement"). The Credit Agreement, among other things, (i) provides for the making of Loans by the Bank to the undersigned from time to time in an aggregate principal amount not to exceed at any time the dollar amount first mentioned above and the indebtedness of the undersigned resulting from each such Loan being evidenced by this Note, and (ii) 82 contains provisions for acceleration of the maturity hereof upon the happening of certain stated events and also for payments on account of the principal hereof prior to the maturity hereof upon the terms and conditions and in accordance with the provisions therein specified. Reference is hereby made to the Credit Agreement for a statement of said terms and provisions. In addition to, and not in limitation of, the foregoing and the provisions of the Credit Agreement hereinabove referred to, the undersigned further agrees, subject only to any limitation imposed by applicable law, to pay all expenses, including reasonable attorneys' fees and expenses, incurred by the holder of this Note in seeking to collect any amounts payable hereunder which are not paid when due, whether by acceleration or otherwise. DEMAND, PRESENTMENT, PROTEST, AND NOTICE OF NON-PAYMENT ARE HEREBY WAIVED BY THE UNDERSIGNED. THIS PROMISSORY NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAWS (AS OPPOSED TO CONFLICT OF LAWS PROVISIONS) OF THE STATE OF OHIO. TRW INC. By: ----------------------------- William C. Seeger Jr. Vice President and Treasurer 83 Schedule Attached to Revolving Note dated ___________, 1996 of TRW Inc. payable to the order of ____________________________________ BASE RATE BORROWINGS Unpaid Date and Date and Amount Principal Amount of of Repayment Balance of Base Rate of Base Rate Base Rate Notation Borrowing Borrowing Borrowings Made by - --------- --------- ---------- ------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 84 Schedule Attached to Revolving Note dated _______________, 1996 of TRW Inc. payable to the order of _____________________________________________________ FIXED RATE BORROWINGS Date, Amount, Date and Unpaid and Type of Interest Amount of Principal Notation Borrowing Period Repayment Balance Made by - --------- ------ --------- ------- ------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 85 EXHIBlT B to Multi-Year Revolving Credit Agreement COMPLIANCE CERTIFICATE To: Each of the Bank Parties to the Credit Agreement referred to below Reference is made to our Multi-Year Revolving Credit Agreement dated as of July 1, 1992, as amended and restated as of May 8, 1996 (herein as amended, modified or supplemented and in effect from time to time called the "CREDIT AGREEMENT") with you. Terms used but not otherwise defined herein are used herein as defined in the Credit Agreement. The Company hereby certifies and warrants to you that the following is a true and correct computation as at ______________19__ (the "Computation Date") of Consolidated Net Worth contained in Section 9.2 of the Credit Agreement:
Minimum Consolidated Net Worth - ------------------------------ Required Under Section 3.2 -------------------------- $1,600,000,000 LESS: The lesser of (i) the aggregate amount expended by the Company subsequent to December 31, 1995 for repurchase of its Common Stock and (ii) $600,000,000 $ ------------------- $ ------------- CONSOLIDATED NET WORTH OF THE COMPANY Consolidated shareholders' investment $ ------------------- PLUS: Minority interests $ ------------------- $ --------------
The Company hereby further certifies and warrants to you that no Event of Default or Unmatured Event of Default has occurred and is continuing. IN WITNESS WHEREOF, the Company has caused this Certificate to be executed and delivered by its duly authorized officer this ____day of ______________, 19__. TRW INC. By ---------------------- Its --------------------- 86 EXHIBIT C to Multi-Year Revolving Credit Agreement ___________________, 1992 To: Each of the Banks party to the Credit Agreements referred to below Ladies and Gentlemen: I am General Counsel of TRW Inc., an Ohio corporation (the "Company"), and have acted in such capacity in connection with the Three-Year Revolving Credit Agreement and the 364-Day Revolving Credit Agreement, each dated as of July 1, 1992 (the "Credit Agreements") among the Company and each of the financial institutions listed on the signature pages thereof. Capitalized terms used but not otherwise defined are used herein as defined in the Credit Agreements. In connection with the opinions expressed below, I have examined or caused to be examined by members of the TRW Law Department a copy of the Credit Agreements and the Notes thereunder; and I have also made or caused to be made such other examinations and inquiries as I have deemed necessary to enable me to give the opinions hereinafter expressed. However, as to each of the opinions set forth below which is limited to my knowledge, you should be aware that I have neither made nor caused to be made any independent review for purposes of rendering this opinion, although in the regular course of advising the Company I have reviewed or caused to be reviewed various documents, records and matters of law. Based upon the foregoing, I am of the opinion that: 87 ___________________, 1992 Page 2 1. The Company is a corporation duly incorporated and in good standing under the laws of the State of Ohio. 2. The Company has full power to execute, deliver, and perform each of the Credit Agreements and to borrow moneys thereunder and to execute, deliver, and perform its obligations under the Notes. 3. The execution and delivery of the Credit Agreements and the Notes, the borrowings under the Credit Agreements, and the performance by the Company of its obligations under the Credit Agreements and the Notes, have been duly authorized by all necessary corporate action, and do not and will not contravene or conflict with any material provision of applicable law now in effect or of the Amended Articles of Incorporation or Regulations of the Company or, to my knowledge, of any agreement for borrowed money or other material agreement binding upon the Company. 4. The Credit Agreements and the Notes have been duly executed and delivered by the Company and are the legal, valid, and binding obligations of the Company, enforceable in accordance with their terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium laws or debtor relief proceedings or any similar laws or proceedings affecting creditors' rights generally or by general principles of equity. I am a member of the bar of the State of Ohio and do not purport to be an expert on, generally familiar with or qualified to express legal conclusions based on laws other than the laws of the State of Ohio and the United States of America. This opinion is being delivered to you solely for your benefit as creditor under the Credit Agreements and may be relied upon only by you for such purpose. Very truly yours, Martin A. Coyle General Counsel 88 SCHEDULE 1.10 PRIOR FACILITIES Bank of America National Trust and Savings Association Credit Agreement dated as of January 1, 1985, as amended as of September 3, 1985 and July 1, 1991 between TRW Inc. and Bank of America National Trust and Savings Association Barclays Bank PLC Credit Agreement dated as of January 1, 1985, as amended as of September 3, 1985 and July 1, 1991 between TRW Inc. and Barclays Bank PLC Banque Nationale de Paris Credit Agreement dated as of January 1, 1985, as amended as of September 3, 1985 and July 1, 1991 between TRW Inc. and Banque Nationale de Paris The Chase Manhattan Bank N.A. Credit Agreement dated as of January 1, 1985, as amended as of September 3, 1985 and July 1, 1991 between TRW Inc. and The Chase Manhattan Bank N.A. Citibank, N.A. Credit Agreement dated as of January 1, 1985, as amended as of September 3, 1985 and July 1, 1991 between TRW Inc. and Citibank, N.A. Dresdner Bank AG Credit Agreement dated as of January 1, 1985, as amended as of September 3, 1985 and July 1, 1991 between TRW Inc. and Dresdner Bank AG 89 First Interstate Bank of California Credit Agreement dated as of January 1, 1985, as amended as of September 3, 1985 and July 1, 1991 between TRW Inc. and First Interstate Bank of California Morgan Guaranty Trust Company of New York Credit Agreement dated as of January 1, 1985, as amended as of September 3, 1985 and July 1, 1991 between TRW Inc. and Morgan Guaranty Trust Company of New York NBD Bank, N.A. Credit Agreement dated as of January 1, 1985, as amended as of September 3, 1985 and July 1, 1991 between TRW Inc. and NBD Bank, N.A. National City Bank Credit Agreement dated as of January 1, 1985, as amended as of September 3, 1985 and July 1, 1991 between TRW Inc. and National City Bank Royal Bank of Canada Credit Agreement dated as of January 1, 1985, as amended as of September 3, 1985 and July 1, 1991 between TRW Inc. and Royal Bank of Canada Society National Bank Credit Agreement dated as of January 1, 1985, as amended as of September 3, 1985 and July 1, 1991 between TRW Inc. and Society National Bank The Sumitomo Bank, Limited Credit Agreement dated as of January 1, 1985, as amended as of September 3, 1985 and July 1, 1991 between TRW Inc. and The Sumitomo Bank, Limited -2- 90 The Sakura Bank, Limited Credit Agreement dated as of July 1, 1988, as amended as of July 1, 1991 between TRW Inc. and The Sakura Bank, Limited The Tokai Bank, Limited Credit Agreement dated as of July 1, 1988, as amended as of August 16, 1991 between TRW Inc. and The Tokai Bank, Limited Credit Lyonnais Credit Agreement dated as of January 10, 1992 between TRW Inc. and Credit Lyonnais Union Bank of Switzerland Credit Agreement dated as of January 10, 1992 between TRW Inc. and Union Bank of Switzerland -3- 91 SCHEDULE 8.5 UNDISCLOSED MATERIAL LEGAL PROCEEDINGS None EX-11 10 EXHIBIT 11 1 Exhibit 11
TRW INC. AND SUBSIDIARIES ------------------------- COMPUTATION OF EARNINGS PER SHARE --------------------------------- (In Millions Except Per Share Amounts) Years ended December 31 ----------------------- PRIMARY (A) 1996 1995 1994 - ----------- ---- ---- ---- Earnings from continuing operations $ 182.4 $ 395.4 $ 277.1 Less preference dividend requirements 0.8 0.8 0.7 ------- ------- ------- Earnings applicable to common shares and common share equivalents 181.6 394.6 276.4 Earnings from discontinued operations 37.9 50.8 55.7 Gain on disposal of discontinued operations 259.8 n/a n/a ------- ------- ------- Net earnings applicable to common shares and common share equivalents $ 479.3 $ 445.4 $ 332.1 ======= ======= ======= Average common shares outstanding 128.7 130.6 129.2 Stock options and performance share rights, based on the treasury stock method using average market price 3.0 2.6 2.4 ------- ------- ------- Average common shares and common share equivalents 131.7 133.2 131.6 ===== ===== ====== Primary earnings per share from continuing operations $ 1.38 $ 2.96 $ 2.10 Primary earnings per share from discontinued operations 0.29 0.38 0.42 Primary earnings per share from gain on disposal of discontinued operations 1.97 n/a n/a ------- ------- ------- Primary earnings per share $ 3.64 $ 3.34 $ 2.52 ======= ====== ======= FULLY DILUTED (A) - ----------------- Earnings from continuing operations applicable to common shares and common share equivalents $ 181.6 $ 394.6 $ 276.4 Dividends assuming conversion of other dilutive securities: (B) Dilutive preference dividends 0.8 0.8 0.7 ------- ------- ------- Earnings from continuing operations applicable to fully diluted shares 182.4 395.4 277.1 Earnings from discontinued operations 37.9 50.8 55.7 Gain on disposal of discontinued operations 259.8 n/a n/a ------- ------- ------- Net earnings applicable to fully diluted shares $ 480.1 $ 446.2 $ 332.8 ======= ======= ======= Average common shares outstanding 128.7 130.6 129.2 Common shares assuming conversion of other dilutive securities: (B) Dilutive preference shares 1.1 1.2 1.3 Stock options and performance share rights, based on the treasury stock method using closing market price if higher than average market price 3.4 3.0 2.4 ------- ------- ------- Average fully diluted shares 133.2 134.8 132.9 ===== ===== ======= Fully diluted earnings per share from continuing operations $ 1.37 $ 2.93 $ 2.09 Fully diluted earnings per share from discontinued operations 0.28 0.38 0.41 Fully diluted earnings per share from gain on disposal of discontinued operations 1.95 n/a n/a ------- ------- ------- Fully diluted earnings per share $ 3.60 $ 3.31 $ 2.50 ====== ====== ======= (A) The shares and per share amounts reflect a two-for-one stock split (in the form of a 100% stock dividend) of the company's common stock which was effective as of November 8, 1996. (B) Assuming the conversion of the Serial Preference Stock II - Series 1 and Series 3.
EX-12 11 EXHIBIT 12 1 Exhibit 12
TRW Inc. and Subsidiaries Computation of Ratio of Earnings to Fixed Charges - Unaudited (In millions except ratio data) Years Ended December 31 ----------------------------------------------------------------- 1996 1995 1994 1993 1992 ----------- ----------- ------------ ----------- ----------- Earnings from continuing operations before income taxes $302.2(A) $625.5 $435.5 $289.2 $276.4 Unconsolidated affiliates 1.4 1.3 (0.6) 0.7 (0.9) Minority earnings 11.5 10.8 7.7 1.4 0.1 Fixed charges excluding capitalized interest 129.0 137.2 145.3 177.5 208.1 ------ ------ ------ ------ ------ Earnings $444.1 $774.8 $587.9 $468.8 $483.7 ------ ------ ------ ------ ------ Fixed Charges: Interest expense $84.2 $94.7 $104.7 $137.4 $162.1 Capitalized interest 3.5 5.1 6.6 7.9 12.7 Portion of rents representa- tive of interest factor 43.2 41.4 39.2 37.9 45.8 Interest expense of uncon- solidated affiliates 1.6 1.1 1.4 2.2 0.2 --- --- --- --- --- Total fixed charges $132.5 $142.3 $151.9 $185.4 $220.8 ------ ------ ------ ------ ------ Ratio of earnings to fixed 3.4X 5.4X 3.9X 2.5X 2.2X charges --- --- --- --- --- (A) The 1996 earnings from continuing operations before income taxes of $302.2 million includes a charge of $384.8 million as a result of actions taken in the automotive and space and defense businesses. See "Special charges" footnote in the Notes to Financial Statements.
EX-13 12 EXHIBIT 13 1 Exhibit 13 Management's Discussion and Analysis of the Results of Operations and Financial Condition TRW Inc. RESULTS OF OPERATIONS Record sales in 1996 resulted in the company reporting the highest net earnings in its history, exceeding the previous records achieved in 1995. In addition, the company's liquidity and financial condition improved significantly during 1996, positioning the company to achieve strong future growth. Consolidated sales in 1996 of $9.9 billion represented a 3 percent increase over 1995 sales of $9.6 billion. Compared to 1994 sales of $8.5 billion, 1996 sales increased 16 percent. Net earnings in 1996 of $480 million exceeded earnings of $446 million in 1995 and $333 million in 1994. Fully diluted earnings per share were $3.60 in 1996, $3.31 in 1995 and $2.50 in 1994. The earnings per share amounts have been restated to reflect the company's stock dividend.
CONSOLIDATED SALES IN BILLIONS - ------------------------------ 94 $8.5 95 $9.6 96 $9.9 NET EARNINGS IN MILLIONS - ------------------------ 94 $333 95 $446 96 $480 FULLY DILUTED EARNINGS PER SHARE - -------------------------------- 94 $2.50 95 $3.31 96 $3.60
The 1996 results included three special items. First, the company sold its information services business for proceeds of $1.1 billion resulting in a gain of $484 million ($260 million after tax, or $1.95 per share). Second, the company recorded charges of $314 million ($202 million after tax, or $1.52 per share) primarily for actions taken, in part, to enhance the company's competitiveness. And third, the company applied the provisions of Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," resulting in the recognition of $71 million ($50 million after tax, or $.37 per share) of impairment losses. The losses were primarily a result of technological changes and the decision to close certain facilities in the Automotive segment. Automotive Segment Sales in 1996 rose to a record $6.49 billion from the 1995 sales level of $6.47 billion. The increase in sales resulted primarily from higher volume in virtually all product lines partially offset by lower pricing and the effect of unfavorable exchange rates. Operating profit in 1996 was $319 million compared to $607 million in 1995. Included in 1996 operating profit was $290 million of charges relating to asset impairments and writedowns, consolidation of manufacturing plants, severance costs and litigation and warranty expenses. Excluding these charges, operating profit in 1996 was $609 million. The increase in operating profit was primarily due to the effect of aggressive cost reductions and the introduction of new inflator technologies which more than offset the effects of lower pricing and new product development costs.
SALES IN BILLIONS - ----------------------- 94 $5.68 95 $6.47 96 $6.49
Sales of $6.47 billion in 1995 represented a 14 percent increase over 1994 sales of $5.68 billion. Operating profit in 1995 increased 28 percent to $607 million from the $476 million reported in 1994. The increase in sales and operating profit was the result of higher volume in the North American air bag and steering systems businesses and all European automotive businesses, primarily in air bag and steering systems. Favorable exchange rates also contributed to the sales increase.
OPERATING PROFIT IN MILLIONS - ---------------------------- 94 $476 95 $607 96 $319
The company has invested and expects to continue to invest in areas of significant potential growth, such as smart restraint systems, side-impact air bags, power rack and pinion steering, electrically assisted steering and advanced electronic components. TRW will continue to take advantage of opportunities to enhance its global 17 2 Management's Discussion and Analysis of the Results of Operations and Financial Condition TRW Inc. RESULTS OF OPERATIONS (CONTINUED) competitiveness through internal growth and strategic alliances. Examples of the progress made during 1996 include the formation of 10 alliances, joint ventures and acquisitions in 7 countries and the acquisition of a producer of steering wheel systems. In addition, we completed in February 1997, the acquisition of an eighty percent equity interest in the air bag and steering wheel businesses of Magna International. These operations supply air bag modules, inflators, propellants, steering wheels and other related automotive components. TRW and Magna also agreed to form a strategic alliance for the design, development and production of automotive products for the global market. Under this alliance, TRW will lead development efforts in occupant restraint systems, including air bags, seatbelts, inflators, sensors and steering wheels. The company anticipates that 1997 North American automotive and light truck production will be stable with the 1996 levels. We foresee modest production growth in Western Europe and strong growth in the emerging markets of Eastern Europe and Asia. Strong price pressure is expected to continue across all product lines. Productivity improvements, material cost reductions and the introduction of new, lower cost technologies will be the main initiatives taken to mitigate the price pressure. Space and Defense Segment Driven by new contract awards, sales in 1996 increased 9 percent to $3.36 billion compared to $3.10 billion in 1995 and was the third consecutive year of sales growth. Operating profit in 1996 was $157 million compared to $192 million in 1995. The lower operating profit was due primarily to the effect of program reserves more than offsetting the profit from the higher sales volume. Included in 1996 and 1995 operating profit were $90 million and $30 million, respectively, of charges related primarily to contract reserves.
SALES IN BILLIONS - ------------------------- 94 $2.81 95 $3.10 96 $3.36
Sales in 1995 increased 10 percent to $3.10 billion from the $2.81 billion reported in 1994. Operating profit of $192 million was 10 percent higher than 1994's operating profit of $175 million. The strong sales growth resulting from new contract awards and existing business more than offset the effect of contracts nearing completion. The increase in operating profit resulted primarily from the absence of investments for new business initiatives partially offset by lower fee accruals during the early period of new programs and the net effect of program reserves.
OPERATING PROFIT IN MILLIONS - ---------------------------- 94 $175 95 $192 96 $157
Continuing pressure on the Department of Defense, NASA and other U.S. Government agency budgets could affect the level of future revenues and operating profits. However, government funding for all major TRW contracts appears to be stable, and the company does not anticipate any unfavorable effect on operations relating to program terminations or budget reallocations. The diversity of our programs helps insulate the company from funding fluctuations on any given contract. We feel that our business is well positioned for growth in our traditional federal government markets, as well as our targeted commercial and international markets. We remain focused on bidding and winning new contracts and on continuing to provide outstanding products and services to our customers. Backlog estimates at the end of 1996 totaled a record $5.30 billion, up 4 percent from $5.12 billion at the end of 1995. The backlog growth was driven by a number of key program awards in both defense and non-defense related markets. Furthermore, our reported backlog has grown by 29 percent since 1994, an impressive statistic considering the reduction in total defense outlays that has occurred during this period. Reported backlog at the end of 1996 does not include $2.9 billion of negotiated and priced, but not exercised, options for defense and non-defense programs. The exercise of the options is at the discretion of the customer and, as in the case of Government contracts generally, dependent on future government funding. Special Items During 1996, the company recorded charges totaling $314 million ($202 million after tax, or $1.52 per share). The charges were taken primarily for actions to enhance the company's competitiveness. The company believes these actions will provide for a strong future with solid growth. As a result of these actions, several manufacturing facilities located throughout the world will be closed or consolidated, and employment company-wide will be 18 3 Management's Discussion and Analysis of the Results of Operations and Financial Condition TRW Inc. RESULTS OF OPERATIONS (CONTINUED) reduced by approximately 2,500 people. Refer to the "Special charges" footnote in the Notes to Financial Statements for further discussion. Discontinued Operations During 1996, the company sold its information services business receiving proceeds of $1.1 billion. This sale resulted in a gain of $484 million ($260 million after tax, or $1.95 per share). The proceeds from the sale were used to repay debt, to fund investment opportunities and to repurchase the company's Common Stock. The operating results of the information services business and the related transaction gain are reflected as discontinued operations for all periods presented in the financial statements. Interest Expense Interest expense in 1996 was $84 million compared to $95 million in 1995 and $105 million in 1994. The decrease in interest expense in 1996 was primarily due to lower average debt levels. The decrease in interest expense from 1994 to 1995 was due to lower average debt levels partially offset by higher U.S. interest rates. Income Taxes The effective tax rate on continuing operations was 39.6 percent compared to 36.8 percent in 1995 and 36.4 percent in 1994. The higher effective tax rate in 1996 was primarily due to the absence of a current tax benefit for certain of the special charges taken during 1996. Shareholders' Investment On October 23, 1996, the company's Board of Directors authorized a two-for-one stock split effected in the form of a stock dividend. Accordingly, all references to the number of shares and per share amounts have been restated to give retroactive recognition to the stock dividend. International Operations International sales were $3.94 billion, or 40 percent of TRW sales in 1996; $3.92 billion, or 41 percent of sales in 1995; and $3.11 billion, or 37 percent of sales in 1994. U.S. export sales included in those amounts were $764 million in 1996, $813 million in 1995 and $595 million in 1994. Most of TRW's non-U.S. operations are included in the Automotive segment and are located in Europe, Canada, Brazil and the Pacific Basin. TRW's non-U.S. operations are subject to the usual risks that may affect such operations; however, most of the assets of its non-U.S. operations are in countries where the company believes such risks to be minimal. Liquidity and Financial Position Cash flow from operations in 1996 of $711 million and net divestiture proceeds of $789 million were used primarily for capital expenditures of $500 million, reacquisition of common stock of $361 million, dividend payments of $148 million and the repayment of debt of $167 million. Net debt at December 31, 1996, was $196 million compared to $692 million at the end of 1995. The ratio of net debt (short-term debt, current portion of long-term debt and long-term debt less cash and cash equivalents) to total capital (net debt, minority interests and shareholders' investment) was 8 percent at December 31, 1996, compared to 24 percent at December 31, 1995. The percentage of fixed-rate debt to total debt was 86 percent at the end of 1996. During 1996, 7.9 million shares of TRW Common Stock were repurchased for approximately $366 million, of which $5 million was settled in January 1997. Pursuant to a Board of Directors authorization, the company may repurchase up to an additional 12 million shares of TRW Common Stock. The company plans to purchase the additional shares from time to time, depending on market conditions. TRW's non-U.S. operations are generally financed by borrowings from banks or through intercompany loans in the local currency of the borrower and by equity capital invested by TRW and minority shareholders. There are no significant restrictions on the remittance of funds by the company's non-U.S. subsidiaries to the United States. A discussion of TRW's credit facilities is contained in the "Debt and credit agreements" footnote in the Notes to Financial Statements. The company is subject to inherent risks attributed to operating in a global economy. It is the company's policy to utilize derivative financial instruments to manage its interest rate and foreign currency exchange risks. The company uses derivatives to hedge its exposure to short-term interest rate changes as a lower cost substitute for the issuance of fixed-rate debt after taking into consideration account-related counterparty risk. The company manages cash flow transactional foreign exchange risk pursuant to a written corporate policy. Forward contracts and to a lesser extent options are utilized to protect the company's cash flow from adverse movements in exchange rates. The company is exposed to credit loss in the event of nonperformance by the counterparties to the derivative financial instruments. The company diversifies the counterparties used and has minimum credit standards for counterparties as a means 19 4 Management's Discussion and Analysis of the Results of Operations and Financial Condition TRW Inc. RESULTS OF OPERATIONS (CONTINUED) to limit this exposure and anticipates that the counterparties will fully satisfy their obligations under the contracts. Derivative financial instruments are viewed by the company as a risk management tool and are not used for speculative or trading purposes. The effect of derivative transactions on the company's net earnings for each of the three years in the period ended December 31, 1996, is not material. Capital expenditures were $500 million in 1996, $466 million in 1995 and $488 million in 1994. The company will maintain a capital program with estimated capital expenditures for 1997 totaling about $475 million. Approximately two-thirds of these expenditures will be invested in the Automotive segment and one-third in the Space and Defense segment. The company will continue to invest in its automotive growth businesses, including air bag systems, power rack and pinion steering and automotive electronics technology. Space and defense expenditures will be used to support major new contract awards and our existing business base as well as to support research and development of next generation technologies. In addition to the planned level of 1997 capital expenditures discussed above, the company plans to invest in new investment opportunities. These investment opportunities currently include the acquisition of the Magna International businesses, with a cost of approximately $450 million. In addition, we expect to continue our involvement in Odyssey, a venture for which TRW is building a satellite-based personal communications system. In January 1997, Odyssey entered into a memorandum of understanding with ChinaSat, a wholly-owned subsidiary of China's Ministry of Post and Telecommunications. The agreement gives ChinaSat exclusive rights to distribute Odyssey satellite-based cellular phone, fax and data services in the People's Republic of China. The level of TRW's investment in Odyssey will be determined during 1997. We believe the company's current financial position and financing arrangements allow flexibility in worldwide financing activities and permit us to respond to changing conditions in credit markets. The existing arrangements are not indicative of the company's potential borrowing capacity. We believe that funds generated from operations and existing borrowing capacity are adequate to fund the current share repurchase program and support and finance planned growth, capital expenditures, company-sponsored research and development programs and dividend payments to shareholders. Other Matters Federal, state and local requirements relating to the discharge of materials into the environment, or otherwise relating to the protection of the environment, have had and will continue to have an effect on TRW and its operations. The company is conducting a number of environmental investigations and remedial actions at current and former company locations and, along with other companies, has been named a potentially responsible party for certain waste management sites. Each of these matters is subject to various uncertainties, and it is possible that some of these matters may be resolved unfavorably to the company. A reserve estimate for each matter is established using standard engineering cost estimating techniques. In the determination of such costs, consideration is given to professional judgment of company environmental engineers in consultation with outside environmental specialists when necessary. At multi-party sites, the reserve estimate also reflects the expected allocation of total project costs among the various potentially responsible parties. At December 31, 1996, the company had reserves for environmental matters of $77 million, including $7 million of additional accruals recorded during the year. The company aggressively pursues reimbursement for environmental costs from its insurance carriers. However, insurance recoveries are not recorded as a reduction of environmental costs until they are fixed and determinable. At December 31, 1996, the "Other assets" caption on the balance sheet includes $36 million of insurance recoveries related to environmental matters. The company believes that any liability that may result from the resolution of environmental matters for which sufficient information is available to support these cost estimates will not have a material adverse effect on the company's future results of operations and cash flows. However, the company cannot predict the effect on the company's future results of operations and cash flows of expenditures for aspects of certain matters for which there is insufficient information. In addition, the company cannot predict the effect of compliance with environmental laws and regulations with respect to unknown environmental matters on the company's future results of operations and cash flows or the possible effect of compliance with environmental requirements imposed in the future. During 1996, the company was advised by the Department of Justice that it had been named as a defendant in two lawsuits brought by a former employee and filed under seal under the QUI TAM provisions of the civil False Claims Act. Refer to the "Contingencies" footnote in the Notes to Financial Statements for further discussion. 20 5 Financial Statements TRW Inc.
STATEMENTS OF EARNINGS - ----------------------------------------------------------------------------------------------------- TRW Inc. and subsidiaries - ----------------------------------------------------------------------------------------------------- In millions except per share data - --------------------------------------------------------------------------------------------------- Years ended December 31 1996 1995 1994 - ---------------------------------------------------------------------------------------------------- Sales $9,857 $9,568 $8,491 Cost of sales 8,376 7,857 6,936 - ----------------------------------------------------------------------------------------------------- Gross profit 1,481 1,711 1,555 Administrative and selling expenses 613 592 597 Research and development expenses 412 392 390 Interest expense 84 95 105 Other expense(income)-net 70 7 27 - ---------------------------------------------------------------------------------------------------- Earnings from continuing operations before income taxes 302 625 436 Income taxes 120 230 159 - ---------------------------------------------------------------------------------------------------- Earnings from continuing operations 182 395 277 Discontinued operations: Earnings from operations 38 51 56 Gain on disposal 260 - - - ---------------------------------------------------------------------------------------------------- Net earnings $ 480 $ 446 $ 333 - ----------------------------------------------------------------------------------------------------- Per share of common stock Fully diluted Continuing operations $1.37 $ 2.93 $ 2.09 Discontinued operations: Earnings from operations .28 .38 .41 Gain on disposal 1.95 - - - ---------------------------------------------------------------------------------------------------- Net earnings per share $3.60 $ 3.31 $ 2.50 - ---------------------------------------------------------------------------------------------------- Primary Continuing operations $1.38 $ 2.96 $ 2.10 Discontinued operations: Earnings from operations .29 .38 .42 Gain on disposal 1.97 - - - ---------------------------------------------------------------------------------------------------- Net earnings per share $3.64 $ 3.34 $ 2.52 - ---------------------------------------------------------------------------------------------------- See notes to financial statements.
21 6 Financial Statements TRW Inc.
BALANCE SHEETS - -------------------------------------------------------------------------------------- TRW Inc. and subsidiaries - ------------------------------------------------------------------------------------ In millions - ------------------------------------------------------------------------------------ December 31 1996 1995 - ----------------------------------------------------------------------------------- Assets Current assets Cash and cash equivalents $ 386 $ 59 Accounts receivable, net of allowances of $18 million and $16 million 1,378 1,327 Inventories Finished products and work in process 295 294 Raw materials and supplies 229 236 - ------------------------------------------------------------------------------------ Total inventories 524 530 Prepaid expenses 69 67 Deferred income taxes 424 217 - ------------------------------------------------------------------------------------ Total current assets 2,781 2,200 Property, plant and equipment-on the basis of cost Land 108 108 Buildings 1,584 1,553 Machinery and equipment 4,188 4,049 - ------------------------------------------------------------------------------------ 5,880 5,710 Less accumulated depreciation and amortization 3,400 3,199 - ------------------------------------------------------------------------------------ Total property, plant and equipment-net 2,480 2,511 Intangible assets Intangibles arising from acquisitions 258 245 Other 31 36 - ------------------------------------------------------------------------------------ 289 281 Less accumulated amortization 78 78 - ----------------------------------------------------------------------------------- Total intangible assets-net 211 203 Other assets 427 317 Net assets of discontinued operations - 439 - ------------------------------------------------------------------------------------ $5,899 $5,670 - ------------------------------------------------------------------------------------
22 7 Financial Statements TRW Inc.
Balance Sheets (continued) - -------------------------------------------------------------------------------- TRW Inc. and subsidiaries - -------------------------------------------------------------------------------- In millions - -------------------------------------------------------------------------------- December 31 1996 1995 - -------------------------------------------------------------------------------- Liabilities and shareholders' investment Current liabilities Short-term debt $ 52 $ 133 Accrued compensation 386 349 Trade accounts payable 781 776 Other accruals 775 484 Dividends payable 39 36 Income taxes 52 26 Current portion of long-term debt 72 79 - ------------------------------------------------------------------------------- Total current liabilities 2,157 1,883 Long-term liabilities 767 779 Long-term debt 458 539 Deferred income taxes 272 250 Minority interests in subsidiaries 56 47 Shareholders' investment Serial Preference Stock II (involuntary liquidation $8 million and $9 million) 1 1 Common stock (shares outstanding 126.1 million and 131.2 million) 80 40 Other capital 437 398 Retained earnings 1,978 1,688 Cumulative translation adjustments 47 76 Treasury shares - cost in excess of par value (354) (31) - --------------------------------------------------------------------------------- Total shareholders' investment 2,189 2,172 - --------------------------------------------------------------------------------- $5,899 $5,670 - --------------------------------------------------------------------------------- See notes to financial statements.
23 8 Financial Statements TRW Inc.
Statements of Cash Flows - ----------------------------------------------------------------------------------------------- TRW Inc. and subsidiaries - ----------------------------------------------------------------------------------------------- In millions - ------------------------------------------------------------------------------------------------ Years ended December 31 1996 1995 1994 - ------------------------------------------------------------------------------------------------ Operating activities Net earnings $ 480 $ 446 $ 333 Adjustments to reconcile net earnings to net cash provided by continuing operations: Discontinued operations (298) (51) (56) Depreciation and amortization 452 424 391 Deferred income taxes (182) 45 16 Other-net 23 29 22 Changes in assets and liabilities, net of effects of businesses acquired or sold: Accounts receivable (46) (61) (110) Inventories and prepaid expenses 8 (68) (36) Accounts payable and other accruals 298 28 268 Other-net (24) (44) 38 - ------------------------------------------------------------------------------------------------ Net cash provided by operating activities of continuing operations 711 748 866 Net cash provided by discontinued operations - 28 87 - ------------------------------------------------------------------------------------------------ Net cash provided by operating activities 711 776 953 Investing activities Capital expenditures (500) (466) (488) Net proceeds from divestitures 789 9 12 Other-net (42) 4 (31) - ------------------------------------------------------------------------------------------------ Net cash provided by(used in) investing activities 247 (453) (507) Financing activities Decrease in short-term debt (127) (47) (270) Proceeds from debt in excess of 90 days 51 36 174 Principal payments on debt in excess of 90 days (91) (207) (151) Dividends paid (148) (134) (126) Reacquisition of common stock (361) (16) - Other-net 51 25 8 - ------------------------------------------------------------------------------------------------ Net cash used in financing activities (625) (343) (365) Effect of exchange rate changes on cash (6) (30) (35) - ------------------------------------------------------------------------------------------------ Increase(decrease) in cash and cash equivalents 327 (50) 46 Cash and cash equivalents at beginning of year 59 109 63 - ------------------------------------------------------------------------------------------------ Cash and cash equivalents at end of year $ 386 $ 59 $ 109 - ------------------------------------------------------------------------------------------------ Supplemental Cash Flow Information Interest paid (net of amount capitalized) $ 89 $ 88 $ 112 Income taxes paid (net of refunds) $ 615 $ 239 $ 93 - ------------------------------------------------------------------------------------------------ For purposes of the statements of cash flows, the company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. See notes to financial statements.
24 9 Financial Statements TRW Inc.
Statements of Changes in Shareholders' Investment - ------------------------------------------------------------------------------------------------------ TRW Inc. and subsidiaries - ------------------------------------------------------------------------------------------------------ In millions - ------------------------------------------------------------------------------------------------------ Years ended December 31 1996 1995 1994 - ------------------------------------------------------------------------------------------------------ Serial Preference Stock II Series 1 Balance at January 1 and December 31 $ - $ - $ - - ------------------------------------------------------------------------------------------------------ Series 3 Balance at January 1 and December 31 1 1 1 - ------------------------------------------------------------------------------------------------------ Common stock Balance at January 1 40 40 40 Stock dividend 42 - - Purchase of shares and other (2) - - - ------------------------------------------------------------------------------------------------------ Balance at December 31 80 40 40 - ------------------------------------------------------------------------------------------------------ Other capital Balance at January 1 398 354 293 Sale of stock and other 39 44 61 - ------------------------------------------------------------------------------------------------------ Balance at December 31 437 398 354 - ------------------------------------------------------------------------------------------------------ Retained earnings Balance at January 1 1,688 1,383 1,178 Net earnings 480 446 333 Stock dividend and other (39) (3) - Dividends declared Preference stock (1) (1) (1) Common stock ($1.17, $1.05 and $.985 per share) (150) (137) (127) - ------------------------------------------------------------------------------------------------------ Balance at December 31 1,978 1,688 1,383 - ------------------------------------------------------------------------------------------------------ Cumulative translation adjustments Balance at January 1 76 66 36 Translation adjustments (29) 10 30 - ------------------------------------------------------------------------------------------------------ Balance at December 31 47 76 66 - ------------------------------------------------------------------------------------------------------ Treasury shares-cost in excess of par value Balance at January 1 (31) (22) (14) ESOP funding 17 17 - Purchase of shares (372) (26) (8) Sold under stock options 32 - - - ------------------------------------------------------------------------------------------------------ Balance at December 31 (354) (31) (22) - ------------------------------------------------------------------------------------------------------ Total shareholders' investment $2,189 $2,172 $1,822 - ------------------------------------------------------------------------------------------------------ See notes to financial statements.
25 10 Notes to Financial Statements TRW Inc. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of consolidation -- The financial statements include the accounts of the company and its subsidiaries except for two insurance subsidiaries. The wholly-owned insurance subsidiaries and the majority of investments in affiliated companies, which are not significant individually or in the aggregate, are accounted for by the equity method. Use of estimates -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of December 31, 1996 and 1995, respectively, and reported amounts of sales and expenses for the years ended December 31, 1996, 1995 and 1994, respectively. Actual results could differ from those estimates. Long-term contracts -- The percentage-of-completion (cost-to-cost) method is used to estimate sales under fixed-price and fixed-price incentive contracts. Sales under cost-reimbursement contracts are recorded as costs are incurred. Fees based on cost, award fees and incentive fees are included in sales at the time such amounts are reasonably estimable. Losses on contracts are recognized when determinable. Accounts receivable -- Accounts receivable at December 31, 1996 and 1995, included $547 million and $496 million, respectively, related to long-term contracts, of which $257 million and $253 million, respectively, were unbilled. Unbilled costs, fees and claims represent revenues earned and billable in the following month as well as revenues earned but not billable under terms of the contracts. A substantial portion of such amounts is expected to be billed during the following year. Retainage receivables and receivables subject to negotiation are not significant. Inventories -- Inventories are stated at the lower of cost, principally the first-in, first-out (FIFO) method, or market. Inventories applicable to long-term contracts are not significant. Depreciation -- Depreciation is computed over the asset's estimated useful lives using the straight-line method for the majority of the company's depreciable assets. The remaining assets are depreciated using accelerated methods. Asset impairment -- In accordance with FASB Statement (FAS) No. 121, the company records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets may be impaired and the undiscounted net cash flows estimated to be generated by those assets are less than their carrying amounts. During 1996, the company recognized $71 million of impairment losses, including $15 million recognized upon the initial application of FAS 121, which are reflected primarily in the cost of sales caption in the Statements of Earnings. The losses were primarily a result of technological changes and the decision to close certain facilities in the Automotive segment and were calculated using the present value of the estimated future net cash flows as the asset's fair value. Intangible assets -- Intangible assets are stated on the basis of cost. Intangibles arising from acquisitions prior to 1971 ($49 million) are not being amortized because there is no indication of diminished value. Intangibles arising from acquisitions after 1970 are being amortized by the straight-line method principally over 40 years. The carrying value of intangible assets is assessed for impairment on a quarterly basis. Forward exchange contracts -- The company enters into forward exchange contracts the majority of which hedge firm foreign currency commitments and certain intercompany transactions. At December 31, 1996, the company had contracts outstanding amounting to approximately $244 million denominated in the German mark, the U.S. dollar, the British pound and the Italian lira, maturing at various dates through December 1997. Changes in market value of the contracts are generally included in the basis of the transactions. The company is exposed to credit loss in the event of nonperformance by the counterparties to the foreign exchange contracts. No collateral is held in relation to the contracts, and the company anticipates that the counterparties will satisfy their obligations under the contracts.
Fair values of financial instruments -- - ------------------------------------------------------------------------------------------------------ In millions 1996 1995 - ------------------------------------------------------------------------------------------------------ Carrying Fair Carrying Fair value value value value - ------------------------------------------------------------------------------------------------------ Cash and cash equivalents $386 $ 386 $59 $ 59 Short-term debt 52 52 133 133 Floating rate long-term debt 31 31 73 73 Fixed rate long-term debt 499 553 545 630 Interest rate swaps - (liability) - (1) - (2) Forward currency exchange contracts -asset(liability) - (4) - 1 - ------------------------------------------------------------------------------------------------------
26 11 Notes to Financial Statements TRW Inc. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The fair value of long-term debt was estimated using a discounted cash flow analysis, based on the company's current borrowing rates for similar types of borrowing arrangements. The fair value of interest rate swaps and forward currency exchange contracts is estimated based on quoted market prices of offsetting contracts. Environmental costs -- TRW participates in environmental assessments and remedial efforts at operating facilities, previously owned or operated facilities, and Superfund or other waste sites. Costs related to these locations are accrued when it is probable that a liability has been incurred and the amount of that liability can be reasonably estimated. Estimated costs are recorded at undiscounted amounts based on experience and assessments, and are regularly evaluated as efforts proceed. Insurance recoveries are recorded as a reduction of environmental costs when fixed and determinable. Earnings per share -- Fully diluted earnings per share have been computed based on the weighted average number of shares of common stock outstanding during each year, including common stock equivalents (stock options) and assuming the conversion of the Serial Preference Stock II - Series 1 and 3. Primary earnings per share have been computed based on the weighted average number of shares of common stock outstanding during each year, including common stock equivalents. On October 23, 1996, the company's Board of Directors authorized a two-for-one stock split effected in the form of a stock dividend to shareholders of record as of November 8, 1996. A total of 66.7 million additional common shares were issued on December 9, 1996, in conjunction with the stock dividend. As a result, $42 million was transferred from retained earnings to common stock. All historical share and per share amounts have been restated to reflect retroactively the stock dividend. RESEARCH AND DEVELOPMENT
- ---------------------------------------------------------------------------------------------------- In millions 1996 1995 1994 - ----------------------------------------------------------------------------------------------------- Customer-funded $1,425 $1,360 $1,157 Company-funded Research and development 412 392 390 Product development 144 130 108 - ---------------------------------------------------------------------------------------------------- 556 522 498 - ----------------------------------------------------------------------------------------------------- $1,981 $1,882 $1,655 - -----------------------------------------------------------------------------------------------------
Company-funded research and development programs include research and development for commercial products and independent research and development and bid and proposal work related to government products and services. A portion of the cost incurred for independent research and development and bid and proposal work is recoverable through overhead charged to government contracts. Product development costs include engineering and field support for new customer requirements. DISCONTINUED OPERATIONS During 1996, the company sold substantially all of the businesses in its Information Systems and Services segment. The financial statements reflect as discontinued operations for all periods presented that segment's net assets and operating results, as well as the related transaction gain. Related footnotes have been restated to reflect only continuing operations. Net proceeds of approximately $1.1 billion in cash resulted in a gain of $484 million ($260 million after tax, or $1.95 per share). Sales of the discontinued operations were $453 million, $604 million, and $596 million in 1996, 1995, and 1994, respectively. Net assets of discontinued operations of $439 million at December 31, 1995, consisted primarily of goodwill and capitalized data files. 27 12 Notes to Financial Statements TRW Inc. SPECIAL CHARGES During 1996, the company recorded before-tax charges of $385 million ($252 million after tax, or $1.89 per share) primarily for actions taken in the automotive and space and defense businesses. As a result of these actions, several manufacturing facilities throughout the world will be closed or consolidated, and employment company-wide will be reduced by approximately 2,500 people. The components of the charge include severance costs of $40 million, contract reserves of $99 million, litigation and warranty expenses of $127 million, asset writedowns of $96 million, and other items of $23 million. Cash expenditures made in 1996 for these actions were insignificant. Cash expenditures related to the severance costs are anticipated to be substantially completed by the end of 1997. The charges are included in the Statements of Earnings as follows: $321 million included in cost of sales; $18 million included in interest expense; $65 million included in other expense(income)-net; and a reduction of $19 million included in other captions. For balance sheet purposes, other accruals in 1996 include $225 million relating to these charges. OTHER EXPENSE(INCOME)-NET
- ----------------------------------------------------------------------------------------------------- In millions 1996 1995 1994 - ------------------------------------------------------------------------------------------------------ Other income $ (63) $ (33) $ (60) Other expense 130 36 54 Gain on sale of assets (4) (6) (10) Foreign currency translation 7 10 43 - ----------------------------------------------------------------------------------------------------- $ 70 $ 7 $ 27 - ----------------------------------------------------------------------------------------------------- Other expense in 1996 includes $65 million of special charges. Refer to the "Special charges" footnote.
INCOME TAXES
- ----------------------------------------------------------------------------------------------------- Earnings from continuing operations before income taxes - ----------------------------------------------------------------------------------------------------- In millions 1996 1995 1994 - ----------------------------------------------------------------------------------------------------- U.S. $ 133 $ 428 $ 288 Non-U.S. 169 197 148 - ----------------------------------------------------------------------------------------------------- $ 302 $ 625 $ 436 - ----------------------------------------------------------------------------------------------------- Provision for income taxes - ----------------------------------------------------------------------------------------------------- In millions 1996 1995 1994 - ----------------------------------------------------------------------------------------------------- Current U.S. federal $ 176 $ 90 $ 56 Non-U.S. 73 57 40 U.S. state and local 20 17 20 - ---------------------------------------------------------------------------------------------------- 269 164 116 Deferred U.S. federal (130) 31 38 Non-U.S. (6) 14 5 U.S. state and local (13) 21 - - ----------------------------------------------------------------------------------------------------- (149) 66 43 - ----------------------------------------------------------------------------------------------------- $ 120 $ 230 $ 159 - -----------------------------------------------------------------------------------------------------
28 13 Notes to Financial Statements TRW Inc. INCOME TAXES (CONTINUED)
- -------------------------------------------------------------------------------------------------------- Effective income tax rate - -------------------------------------------------------------------------------------------------------- 1996 1995 1994 - -------------------------------------------------------------------------------------------------------- U.S. statutory income tax rate 35.0% 35.0% 35.0% Non-deductible expenses 2.4 1.3 1.8 U.S. state and local income taxes net of U.S. federal tax benefit 3.0 3.8 2.7 Non-U.S. tax rate variances net of foreign tax credits 3.4 (.1) (.5) Prior years adjustments (1.9) (3.0) - Other (2.3) (.2) (2.6) - ------------------------------------------------------------------------------------------------------- Effective income tax rate 39.6% 36.8% 36.4% - -----------------------------------------------------------------------------------------------------
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. At December 31, 1996 and 1995, the company had unused tax benefits of $23 million and $33 million, respectively, related to non-U.S. net operating loss carryforwards for income tax purposes, of which $18 million and $16 million can be carried forward indefinitely and the balance expires at various dates through 2001. A valuation allowance at December 31, 1996 and 1995, of $20 million and $27 million, respectively, has been recognized to offset the related deferred tax assets due to the uncertainty of realizing the benefit of the loss carryforwards. It is the company's intention to reinvest undistributed earnings of certain of its non-U.S. subsidiaries and thereby indefinitely postpone their remittance. Accordingly, deferred income taxes have not been provided for accumulated undistributed earnings of $420 million at December 31, 1996.
- ----------------------------------------------------------------------------------------------------------- Deferred tax assets Deferred tax liabilities - ------------------------------------------------------------------------------------------------------------ In millions 1996 1995 1996 1995 - ------------------------------------------------------------------------------------------------------------ Pensions and postretirement benefits other than pensions $269 $ 263 $ 23 $ 38 Completed contract method of accounting for long-term contracts 53 52 421 425 State and local taxes 33 20 8 9 Reserves and accruals 186 69 - - Depreciation and amortization 11 11 86 89 Insurance accruals 32 26 - - Non-U.S. net operating loss carryforwards 23 33 - - Other 143 129 40 48 - ------------------------------------------------------------------------------------------------------------- 750 603 578 609 Valuation allowance for deferred tax assets (20) (27) - - - ------------------------------------------------------------------------------------------------------------ Total $730 $ 576 $578 $609 - -------------------------------------------------------------------------------------------------------------
PENSION PLANS The company has defined benefit pension plans (generally noncontributory except for those in the United Kingdom) for substantially all employees. Plans for most salaried employees provide pay-related benefits based on years of service. Plans for hourly employees generally provide benefits based on flat-dollar amounts and years of service. Under the company's funding policy, annual contributions are made to fund the plans during the participants' working lifetimes, except for unfunded plans in Germany and certain non-qualified plans in the U.S. which are funded as benefits are paid to participants. Annual contributions to funded plans have met or exceeded ERISA's minimum funding requirements or amounts required by local law or custom. The company sponsors a contributory stock savings plan for which a majority of its U.S. employees are eligible. The company matches employee contributions up to 3 percent of the participant's qualified compensation. The company contributions are held in an unleveraged employee stock ownership plan. The company also sponsors other defined contribution pension plans covering employees at some of its operations. 29 14 Notes to Financial Statements TRW Inc. PENSION PLANS (CONTINUED)
- --------------------------------------------------------------------------------------------------------- In millions 1996 1995 1994 - --------------------------------------------------------------------------------------------------------- U.S. Non-U.S. U.S. Non-U.S. U.S. Non-U.S. - --------------------------------------------------------------------------------------------------------- Defined benefit plans Service cost--benefits earned during the year $ 73 $ 14 $ 52 $ 15 $ 57 $ 13 Interest cost on projected benefit obligation 165 28 153 27 145 24 Actual (return) loss on plan assets (344) (23) (508) (38) 39 11 Net amortization and deferral 137 8 306 19 (231) (28) - --------------------------------------------------------------------------------------------------------- Total pension cost of defined benefit plans 31 27 3 23 10 20 Defined contribution plans 1 5 1 5 1 3 Stock savings plan 40 - 36 - 34 - - --------------------------------------------------------------------------------------------------------- $ 72 $ 32 $ 40 $ 28 $ 45 $ 23 - ---------------------------------------------------------------------------------------------------------
Pension cost for 1996 includes $7 million for special retirement incentive benefits for U.S. employees and $2 million in curtailments and settlements of defined benefit plans of non-U.S. operations.
- -------------------------------------------------------------------------------------------------------- In millions 1996 1995 - -------------------------------------------------------------------------------------------------------- U.S. Non-U.S. U.S. Non-U.S. - -------------------------------------------------------------------------------------------------------- Actuarial present value of benefit obligations Vested benefit obligation $1,947 $ 368 $1,961 $328 - -------------------------------------------------------------------------------------------------------- Overfunded plans $2,050 $ 253 $1,995 $208 Underfunded plans 55 129 128 136 - ------------------------------------------------------------------------------------------------------- Total accumulated benefit obligation $2,105 $ 382 $2,123 $344 - -------------------------------------------------------------------------------------------------------- Projected benefit obligation $2,381 $ 412 $2,367 $378 - -------------------------------------------------------------------------------------------------------- Overfunded plans $2,782 $ 300 $2,508 $249 Underfunded plans 5 14 78 28 - -------------------------------------------------------------------------------------------------------- Total plan assets at fair value (primarily listed stocks and bonds) 2,787 314 2,586 277 - -------------------------------------------------------------------------------------------------------- Plan assets in excess of(less than) projected benefit obligation 406 (98) 219 (101) Unrecognized net gain (253) (47) (35) (18) Unrecognized net assets from Jan. 1, 1986 (January 1, 1989 for non-U.S. plans) (41) (11) (59) (5) Unrecognized prior service cost 22 9 30 9 Additional minimum liability (16) (7) (26) (8) - -------------------------------------------------------------------------------------------------------- Net pension asset(liability) recognized in the balance sheet $ 118 $(154) $ 129 $(123) - -------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------- Actuarial Assumptions: 1996 1995 - -------------------------------------------------------------------------------------------------------- U.S. Non-U.S. U.S. Non-U.S. - -------------------------------------------------------------------------------------------------------- Discount rate 7.5% 6 1/2 - 7 3/4% 7.0% 7.0 - 8 1/2% Rate of increase in compensation levels 4.4% 4.0 - 5.0% 3.4% 4 1/2 - 5.0% - --------------------------------------------------------------------------------------------------------
The expected long-term rate of return on plan assets for U.S. plans was 9 percent for 1996, 1995 and 1994. For non-U.S. plans, the expected long-term rate of return ranged from 7 percent to 9-3/4 percent in 1996, 7 percent to 9-1/2 percent in 1995 and 6 percent to 9-1/2 percent in 1994. 30 15 Notes to Financial Statements TRW Inc. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The company provides health care and life insurance benefits for a majority of its retired employees in the United States and Canada. The health care plans provide for cost sharing, in the form of employee contributions, deductibles, and coinsurance, between the company and its retirees. The postretirement health care plan covering a majority of employees who retired since August 1, 1988, limits the annual increase in the company's contribution toward the plan's cost to a maximum of the lessor of 50 percent of medical inflation or 4 percent. Life insurance benefits are generally noncontributory. The company's policy is to fund the cost of postretirement health care and life insurance benefits in amounts determined at the discretion of management. Retirees in certain other countries are provided similar benefits by plans sponsored by their governments.
- ------------------------------------------------------------------------------------------------------- In millions 1996 1995 - ------------------------------------------------------------------------------------------------------- Accumulated postretirement benefit obligation Retirees $ 512 $ 508 Fully eligible active participants 35 38 Other active participants 213 232 - ------------------------------------------------------------------------------------------------------- 760 778 Plan assets at fair value (primarily listed stocks and bonds) 83 61 - ------------------------------------------------------------------------------------------------------- Accumulated postretirement benefit obligation in excess of plan assets (677) (717) Unrecognized prior service cost (6) (7) Unrecognized net (gain)loss (35) 7 - ------------------------------------------------------------------------------------------------------- Net liability recognized in the balance sheet $(718) $(717) - -------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------- In millions 1996 1995 1994 - ------------------------------------------------------------------------------------------------------- Service cost $13 $ 10 $ 13 Interest cost 54 54 52 Actual return on plan assets (7) (9) - Net amortization and deferral 2 5 (3) - ------------------------------------------------------------------------------------------------------- Net periodic postretirement benefit cost $62 $ 60 $ 62 - -------------------------------------------------------------------------------------------------------
The discount rate used in determining the accumulated postretirement benefit obligation as of December 31, 1996 and 1995, was 7-1/2 percent and 7 percent, respectively. At December 31, 1996, the 1997 annual rate of increase in the per capita cost of covered health care benefits was assumed to be 9 percent for participants under age 65 and 8 percent for participants age 65 or older. The rates were assumed to decrease gradually to 6 percent and 5 percent, respectively, in the year 2009 and remain at that level thereafter. At December 31, 1995, the 1996 annual rate of increase in the per capita cost of health care benefits was assumed to be 10 percent for participants under age 65 and 9 percent for participants age 65 and older. The rates were assumed to decrease gradually to 6 percent and 5 percent, respectively, in the year 2009 and remain at that level thereafter. A 1 percent annual increase in these assumed cost trend rates would increase the accumulated postretirement benefit obligation at December 31, 1996, by approximately 12 percent and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for 1996 by approximately 15 percent. The weighted average expected long-term rate of return on plan assets was 8 percent for 1996 and 1995 and 9 percent for 1994. The trust holding the majority of the plan assets is not subject to federal income taxes. 31 16 Notes to Financial Statements TRW Inc. DEBT AND CREDIT AGREEMENTS
- -------------------------------------------------------------------------------------------------------- Short-term debt - -------------------------------------------------------------------------------------------------------- In millions 1996 1995 - -------------------------------------------------------------------------------------------------------- U.S. borrowings $ 9 $ 13 Non-U.S. borrowings 43 120 - -------------------------------------------------------------------------------------------------------- $ 52 $133 Long-term debt - -------------------------------------------------------------------------------------------------------- In millions 1996 1995 - -------------------------------------------------------------------------------------------------------- Non-U.S. borrowings $ 44 $ 85 7.3% ESOP obligations due 1997 20 60 Medium-term notes: 9.35% Notes due 2020 (due 2000 at option of note holder) 100 100 9 3/8% Notes due 2021 100 100 Other medium-term notes 234 234 Other 32 39 - -------------------------------------------------------------------------------------------------------- Total long-term debt 530 618 Less current portion 72 79 - -------------------------------------------------------------------------------------------------------- $ 458 $539 - --------------------------------------------------------------------------------------------------------
TRW maintains a committed U.S. revolving credit agreement with 16 banks. The agreement allows the company to borrow up to $750 million and extends through June 2001. The interest rate under the agreement is either a negotiated rate, the banks' prime rates, a rate based upon the banks' costs of funds in the secondary certificate of deposit market or a rate based upon an Interbank Offered Rate. TRW's commercial paper borrowings are supported by this agreement. At December 31, 1996, there were no outstanding borrowings under the U.S. revolving credit agreement. The weighted average interest rate on short-term borrowings outstanding at December 31, 1996 and 1995, is 9.9 percent and 7.6 percent, respectively. The company also maintains a committed multi-currency revolving credit agreement with 16 banks. The agreement allows the company to borrow up to $250 million and extends through June 2001. The interest rate under the agreement is based on various interest rate indices. At December 31, 1996, there were no outstanding borrowings under the multi-currency credit agreement. As of December 31, 1996, the company has interest rate swap agreements for notional borrowings of $32 million in which the company pays a fixed rate and receives a floating rate. The weighted average pay rate and receive rate under these agreements is 6.2 percent and 3.2 percent, respectively. These agreements mature at various dates through 1998. The floating rates under the interest rate swap agreements are based on LIBOR rates and have been calculated using these rates at December 31, 1996. Net payments or receipts under the agreements are recognized as an adjustment to interest expense. The company is exposed to credit loss in the event of nonperformance by the counterparties to the interest rate swap agreements. No collateral is held in relation to the agreements, and the company anticipates that the counterparties will satisfy their obligations under the agreements. The other medium-term notes bear interest at rates ranging from 5.98 percent to 9.25 percent and mature at various dates through 2020. Non-U.S. borrowings bear interest, stated in terms of the local currency borrowing, at rates ranging from 3.0 percent to 9.48 percent at December 31, 1996, and mature at various dates through 2004. The maturities of long-term debt are, in millions: 1997-$72; 1998-$35; 1999-$18; 2000-$13; 2001-$38 and $354 thereafter. The indentures and other debt agreements impose, among other covenants, restrictions on funded debt and maintenance of minimum tangible net worth. Under the most restrictive interpretation of these covenants, the payment of dividends was limited to approximately $1,011 million at December 31, 1996. Compensating balance arrangements and commitment fees were not material. 32 17 Notes to Financial Statements TRW Inc. LEASE COMMITMENTS TRW leases certain offices, manufacturing and research buildings, machinery, automobiles and data processing and other equipment. Such leases, some of which are noncancelable and in many cases include renewals, expire at various dates. The company pays most maintenance, insurance and tax expenses relating to leased assets. Rental expense for operating leases was $130 million for 1996, $124 million for 1995 and $118 million for 1994. At December 31, 1996, future minimum lease payments for noncancelable operating leases totaled $230 million and are payable as follows: 1997-$71; 1998-$52; 1999-$36; 2000-$21; 2001-$15 and $35 thereafter. CAPITAL STOCK Serial Preference Stock II -- cumulative - stated at $2.75 a share; 5 million shares authorized. Series 1 -- each share convertible into 8.8 shares of common; redeemable at $104 per share; involuntary liquidation price $104 per share; dividend rate of $4.40 per annum. Series 3 -- each share convertible into 7.448 shares of common; redeemable at $100 per share; involuntary liquidation price $40 per share; dividend rate of $4.50 per annum. Series 4 --not convertible into common shares; redemption price and involuntary liquidation price of $125 per one one-hundredth of a share; annual dividend rate per one one-hundredth of a share of the lesser of $4.00 or the current dividend on common stock; no shares outstanding at December 31, 1996. Common stock -- $0.625 par value; authorized 250 million shares; shares outstanding were reduced by treasury shares of 7.2 million in 1996 and 1.2 million in 1995. Treasury share balances reflect the company's two-for-one stock dividend. TRW has a shareholder purchase rights plan under which each shareholder of record as of May 17, 1996, received one-half of one right for each TRW common share held. Each right entitles the holder, upon the occurrence of certain events, to buy one one-hundredth of a share of Cumulative Redeemable Serial Preference Stock II, Series 4, at a price of $300. In other events, each right entitles the holder, other than the acquiring party, to purchase $600 of TRW common stock or common stock of another person at a 50 percent discount. The company may redeem these rights at its option at one cent per right under certain circumstances. The rights outstanding under the company's former shareholder rights plan were redeemed at one cent per right. At December 31, 1996, 11.3 million shares of common stock were reserved for the exercise and issuance of stock options and conversion of the Serial Preference Stock II, Series 1 and 3. There were 1.3 million shares of Cumulative Redeemable Serial Preference Stock II, Series 4, reserved for the shareholder purchase rights plan. STOCK OPTIONS TRW has granted nonqualified stock options to certain employees to purchase the company's common stock at the market price on the date of grant. Stock options granted become exercisable to the extent of one-third of the optioned shares for each full year of employment following the date of grant and expire 10 years after the date of grant. The company applies the provisions of APB Opinion No. 25 in accounting for its employee stock options, and as such, no compensation expense is recognized as the exercise price equals the market price of the stock on the date of grant.
- ----------------------------------------------------------------------------------------------------------------- 1996 1995 - ----------------------------------------------------------------------------------------------------------------- Millions Weighted-average Millions Weighted-average of shares exercise price of shares exercise price - ----------------------------------------------------------------------------------------------------------------- Outstanding at beginning of year 9.2 $26.45 9.4 $ 25.09 Granted 1.7 43.98 1.4 32.32 Became exercisable 1.1 32.61 .6 32.61 Exercised 1.9 25.28 1.4 23.33 Canceled, expired or terminated .5 35.51 .2 28.23 Outstanding at end of year 8.5 29.72 9.2 26.45 Exercisable 5.6 25.18 6.6 24.07 Weighted-average fair value of options granted 9.45 8.24 - ------------------------------------------------------------------------------------------------------------------
33 18 Notes to Financial Statements TRW Inc. STOCK OPTIONS (CONTINUED) At December 31, 1996, approximately 800 employees were participants in the plan. As of that date, the per share exercise prices of options outstanding ranged from $19.88 to $48.00. The weighted-average remaining contractual life of those options is approximately 6 years. Had the compensation cost for the stock options granted in 1996 and 1995 been determined based on the fair value at the grant date consistent with the fair value method of FASB Statement No. 123, the company's net earnings and earnings per share would have been reduced by $5 million ($.04 per share) in 1996 and $2 million ($.02 per share) in 1995. The effect on 1996 and 1995 net earnings may not be representative of the effect on future years' net earnings amounts as the compensation cost of each year's grant is recognized over the three-year vesting period. Fair value was estimated at the date of grant using the Black-Scholes option pricing model and the following weighted-average assumptions for 1996 and 1995, respectively: risk-free interest rate of 5.43% and 7.44%; dividend yield of 2.84% and 2.80%; expected volatility of 20% and 19%; and an expected option life of 6 years for both 1996 and 1995. TRW grants performance share rights to certain employees under which the employees are entitled to receive shares of the company's common stock based on the achievement of a certain return on assets employed. The rights specify a target number of shares which the employee would receive for each year that goals for returns on assets employed are met. If the goals are exceeded, the employee could receive up to 200 percent of the target shares, with the excess over 100 percent payable in cash, unless the Compensation and Stock Option Committee of the Board of Directors determines to pay the excess in shares. If the goals are not met, the employee would receive fewer than the target shares or no shares. The target number of performance share rights granted to employees and still outstanding were .4 million and .5 million at December 31, 1996 and 1995, respectively. CONTINGENCIES The company is subject to various investigations, claims and legal proceedings covering a wide range of matters that arise in the ordinary course of its business activities. In addition, the company is conducting a number of environmental investigations and remedial actions at current and former company locations and, along with other companies, has been named a potentially responsible party for certain waste management sites. Each of these matters is subject to various uncertainties, and some of these matters may be resolved unfavorably to the company. The company has established accruals for matters that are probable and reasonably estimable including $77 million for environmental matters at December 31, 1996. The company believes that any liability that may result from the resolution of environmental matters for which sufficient information is available to support cost estimates will not have a material adverse effect on the company's financial position. However, the company cannot predict the effect on the company's financial position of expenditures for aspects of certain matters for which there is insufficient information. In addition, the company cannot predict the effect of compliance with environmental laws and regulations with respect to unknown environmental matters or the possible effect of compliance with environmental requirements imposed in the future. Further, product liability claims may be asserted in the future for events not currently known by management. Although the ultimate liability from these potential claims cannot be ascertained at December 31, 1996, management does not anticipate that any related liability, after consideration of insurance recovery, would have a material adverse effect on the company's financial position. During 1996, the company was advised by the Department of Justice ("DOJ") that it had been named as a defendant in two lawsuits brought by a former employee and filed under seal in 1994 and 1995, respectively, in the United States District Court for the Central District of California under the QUI TAM provisions of the civil False Claims Act. The Act permits an individual to bring suit in the name of the United States and share in any recovery. The allegations in the lawsuit relate to the classification of costs incurred by the company that were charged to certain of its federal contracts. Under the law, the government must investigate the allegations and determine whether it wishes to remain under seal until the government completes its investigations and determines whether to intervene. However, permission from the court has been obtained by the company to make the disclosures contained herein. The company is cooperating with the DOJ's investigation and is engaged in ongoing discussions with them regarding the allegations. The company cannot presently predict the outcome of these matters, although management believes that the company would have meritorious defenses if either the government decides to pursue the lawsuits or the former employee decides to do so without government participation. 34 19 Notes to Financial Statements TRW Inc. INDUSTRY SEGMENTS TRW Inc. is a United States-based company providing advanced technology products and services for the automotive and space and defense markets. The principal markets for the company's automotive products are North American, European and Asian original equipment manufacturers and independent distributors. Space and defense primarily provides products and services to the United States government, agencies of the United States government and commercial customers. Automotive -- Occupant restraint systems, including sensors, air bag and seat belt systems. Steering systems, including power and manual rack and pinion steering for light vehicles, hydraulic steering systems for commercial truck and off-highway vehicles and suspension components. Electrical and electronic controls, engineered fasteners and stud welding and control systems. Engine valves, valve train parts and pistons. Space & Defense -- Spacecraft, including the design and manufacture of military and civilian spacecraft equipment, propulsion subsystems, electro-optical and instrument systems, spacecraft payloads, high-energy lasers and laser technology and other high-reliability components. Systems integration, systems engineering services and software in the fields of military command and control, intelligence collection, public safety, telecommunications, image processing, earth observation, nuclear waste management, air traffic control, security and counterterrorism, and other high-technology space, defense, and civil government support systems. Electronic systems, equipment and services, including the design and manufacture of space communication systems, airborne reconnaissance systems, unmanned aerial vehicles, avionics systems and other electronic technologies for tactical and strategic space, defense and selected commercial applications.
- ---------------------------------------------------------------------------------------------------------- Year ended Space & Company Staff & In millions December 31 Automotive Defense Other Total - ---------------------------------------------------------------------------------------------------------- Sales 1996 $6,493 $3,364 $ - $9,857 1995 6,468 3,100 - 9,568 1994 5,679 2,812 - 8,491 - ---------------------------------------------------------------------------------------------------------- Operating profit by 1996 $ 319 $ 157 $ (174) $ 302 segment (1) 1995 607 192 (174) 625 1994 476 175 (215) 436 - ---------------------------------------------------------------------------------------------------------- Identifiable assets by 1996 $3,683 $1,278 $ 938 $5,899 segment (2) 1995 3,706 1,113 851 5,670 1994 3,481 1,111 843 5,435 - ---------------------------------------------------------------------------------------------------------- Depreciation and 1996 $ 321 $ 112 $ 10 $ 443 amortization of property, 1995 304 102 9 415 plant and equipment 1994 264 111 7 382 - ---------------------------------------------------------------------------------------------------------- Capital expenditures 1996 $ 342 $ 157 $ 1 $ 500 1995 314 114 38 466 1994 388 98 2 488 - ---------------------------------------------------------------------------------------------------------- (1)The "Company Staff & Other" column includes: (a) Company Staff and other expenses of $79, $70 and $106 million, (b) interest expense of $84, $95 and $105 million, (c) minority earnings of $11, $11 and $8 million for each of the respective years and (d) earnings from affiliates of $2 and $4 million in 1995 and 1994, respectively. The total represents earnings from continuing operations before income taxes. (2)The "Company Staff & Other" column includes: (a) eliminations of $(35), $(34) and $(26) million, (b) Company Staff assets of $922, $398 and $383 million and (c) investment in affiliates of $51, $48 and $70 million for each of the respective years and (d) net assets of discontinued operations of $439 and $416 million in 1995 and 1994, respectively. The total represents consolidated total assets.
At December 31, 1996 and 1995, accounts receivable in the Automotive segment were $850 million and $869 million, respectively, and accounts receivable in the Space & Defense segment, principally from agencies of the U.S. Government, were $489 million and $478 million, respectively. The company generally does not require collateral from its customers. Company Staff assets consist principally of cash and cash equivalents, current deferred income taxes and administrative facilities. Intersegment sales were not significant. Sales to agencies of the U.S. Government, primarily by the Space & Defense segment, were $3,121 million in 1996, $2,890 million in 1995 and $2,533 million in 1994. Sales to Ford Motor Company by the Automotive segment were $1,470 million in 1996, $1,474 million in 1995 and $1,363 million in 1994. 35 20 Notes to Financial Statements TRW Inc. GEOGRAPHIC SEGMENTS
- ---------------------------------------------------------------------------------------------------------- Year ended United Other Company Staff In millions December 31 States Europe Areas & Other Total - ---------------------------------------------------------------------------------------------------------- Sales 1996 $6,469 $2,522 $866 $ - $9,857 1995 6,212 2,525 831 - 9,568 1994 5,694 1,965 832 - 8,491 - ---------------------------------------------------------------------------------------------------------- Operating profit by 1996 $ 212 $ 224 $ 40 $(174) $ 302 segment (1) 1995 514 220 65 (174) 625 1994 432 143 76 (215) 436 - ---------------------------------------------------------------------------------------------------------- Identifiable assets by 1996 $3,056 $1,411 $590 $ 842 $5,899 segment (2) 1995 2,871 1,464 537 798 5,670 1994 2,825 1,288 531 791 5,435 - ---------------------------------------------------------------------------------------------------------- TRW's operations are located primarily in the United States and Europe. Interarea sales are not significant to the total revenue of any geographic area. (1) The "Company Staff & Other" column includes: (a) Company Staff and other expenses of $79, $70 and $106 million, (b) interest expense of $84, $95 and $105 million, (c) minority earnings of $11, $11 and $8 million for each of the respective years and (d) earnings from affiliates of $2 and $4 million in 1995 and 1994. The total represents earnings from continuing operations before income taxes. (2) The "Company Staff & Other" column includes: (a) eliminations of $(131), $(87) and $(78) million, (b) Company Staff assets of $922, $398 and $383 million and (c) investment in affiliates of $51, $48 and $70 million for each of the respective years and (d) net assets of discontinued operations of $439 and $416 million in 1995 and 1994, respectively. The total represents consolidated total assets.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------ In millions except per share data First Second Third Fourth - ------------------------------------------------------------------------------------------------------------ 1996 1995 1996 1995 1996 1995 1996 1995 - ------------------------------------------------------------------------------------------------------------ (A) (B) (C) (D) Sales (E) $2,514 $2,447 $2,572 $2,561 $2,320 $2,250 $2,451 $2,310 Gross profit (E) 463 455 479 459 133 384 406 413 Earnings(loss) from continuing operations before income taxes (E) 165 169 188 175 (218) 119 167 162 Net earnings 117 115 130 123 106 93 127 115 Net earnings per share (F) Fully diluted .86 .86 .98 .90 .79 .71 .97 .84 Primary .87 .87 .98 .92 .81 .70 .98 .85 - ------------------------------------------------------------------------------------------------------------ (A) Earnings from continuing operations before income taxes included a $18 million benefit ($12 million after taxes, 9 cents per share) related to an insurance claim settlement and a $15 million non-cash charge ($13 million after taxes, 9 cents per share) related to the initial application of FASB Statement No. 121. (B) Net earnings included a $243 million gain ($1.82 per share) related to the sale of the information services business and a $233 million charge ($1.76 per share) for actions taken in the automotive and space and defense businesses. (C) Net earnings included a $17 million gain (13 cents per share) related to the sale of the remaining interest in the information services business, a $10 million benefit (8 cents per share) related to the recovery of certain tax costs and a $28 million charge (21 cents per share) related primarily to product warranties. (D) Earnings before income taxes included a $35 million gain ($23 million after taxes, 17 cents per share) related to an insurance claim settlement and a $31 million charge ($20 million after taxes, 15 cents per share) related to certain contract reserves. (E) Amounts have been restated to reflect the company's Information Systems and Services segment as discontinued operations. (F) Amonunts have been restated to give retroactive recognition to the company's two-for-one stock dividend. 36
21 Notes to Financial Statements TRW Inc. STOCK PRICES AND DIVIDENDS (UNAUDITED) The book value per common share at December 31, 1996, was $17.30 compared to $16.49 at the end of 1995. Our directors declared the 234th consecutive quarterly dividend during December 1996. Dividends declared per share in 1996 were $1.17, up 11 percent from $1.05 in 1995. The following table highlights the market prices of our common and preference stocks and dividends paid for the quarters of 1996 and 1995.
- --------------------------------------------------------------------------------------------------------- Price of Price of Dividends traded shares traded shares paid per share - --------------------------------------------------------------------------------------------------------- Quarter 1996 1995 1996 1995 - --------------------------------------------------------------------------------------------------------- High Low High Low - --------------------------------------------------------------------------------------------------------- Common stock 1 $ 46-1/8 $ 37-7/16 $ 35 $ 30-7/8 $.275 $.25 Par value $0.625 per share 2 48-1/2 43-1/2 40-7/8 33-1/2 .275 .25 3 50-3/4 41-1/16 41-5/16 35-11/16 .275 .25 4 52 43-3/4 39-5/16 32-1/16 .31 .275 - --------------------------------------------------------------------------------------------------------- Cumulative Serial 1 379 379 350 225 1.10 1.10 Preference Stock II 2 418 414 349-1/4 348 1.10 1.10 $4.40 Convertible 3 500 300 336-1/2 336-1/2 1.10 1.10 Series 1 4 427 427 325-5/8 300-5/8 1.10 1.10 - --------------------------------------------------------------------------------------------------------- Cumulative Serial 1 332-1/2 288 236 236 1.125 1.125 Preference Stock II 2 352 350 292-1/4 265 1.125 1.125 $4.50 Convertible 3 425 250 288 283 1.125 1.125 Series 3 4 329 329 290 254 1.125 1.125 - ---------------------------------------------------------------------------------------------------------
The $4.40 Convertible Series 1 was not actively traded during the third quarter of 1996 and the first quarter of 1995. The $4.50 Convertible Series 3 was not actively traded during the third quarter of 1996. The prices shown represent the range of asked(high) and bid(low) quotations. Note: Amounts have been restated to give retroactive recognition to the company's two-for-one stock dividend. 37 EX-21 13 EXHIBIT 21 1 Exhibit 21 SUBSIDIARIES OF THE REGISTRANT TRW has no parent or parents. As of December 31, 1996, certain of its subsidiaries, some of which also have subsidiaries, were as follows:
PERCENTAGE OF ORGANIZED UNDER VOTING SECURITIES NAME THE LAWS OF OWNED (1) ---- --------------- ----------------- TRW U.K. Limited which owns United Kingdom 100.00% TRW Automotive Systems Limited United Kingdom 100.00% TRW Ceramics Limited United Kingdom 100.00% TRW Connectors Limited United Kingdom 100.00% TRW Occupant Restraints Systems Limited United Kingdom 100.00% TRW Reda Pump Limited United Kingdom 100.00% TRW Remanufactured Steering Systems Limited United Kingdom 100.00% TRW Steering Systems Limited United Kingdom 100.00% TRW Transportation Electronics Limited United Kingdom 100.00% TRW United-Carr Limited United Kingdom 100.00% ESL Incorporated California 100.00% TRW Vehicle Safety Systems Inc. which owns Delaware 100.00% TRW Technar Inc. California 100.00% TRW Safety Systems Inc. which in turn owns Delaware 100.00% TRW Vehicle Safety Systems de Mexico, Mexico 100.00% S.A. de C.V. TRW Occupant Restraints de Chihuahua S.A. de C.V. Mexico 100.00% TRW Automotive Products Inc. which, together with TRW International Holding Corporation, directly or indirectly owns Delaware 100.00% TRW Deutschland GmbH which, in turn (in some cases together with TRW Inc.), directly or indirectly owns Germany 100.00% TRW Autoelektronika s.r.o. Czechoslovakia 100.00% TRW Carr CSRS s.r.o. Czechoslovakia 100.00% TRW-DAS, a.s. Czechoslovakia 92.40% TRW Electro-Automation GmbH & Co. KG Germany 76.00% TRW Fahrwerksysteme GmbH & Co. KG Germany 100.00% TRW Fahrzeugelektrik GmbH & Co. KG Germany 100.00% TRW FahrzeugelektrikVerwaltungs-GmbH Germany 100.00% TRW Nelson Bolzenschweiss-Technik GmbH Germany 100.00% TRW Occupant Restraints Systems GmbH Germany 100.00% TRW Presswerk Krefeld GmbH & Co. KG Germany 100.00% TRW United-Carr GmbH & Co. KG Germany 100.00% TRW Steering Systems Japan Co. Ltd. Japan 100.00%
2
PERCENTAGE OF ORGANIZED UNDER VOTING SECURITIES NAME THE LAWS OF OWNED (1) ---- --------------- ----------------- TRW Canada Limited which owns Canada 100.00% TRW Vehicle Safety Systems Limited Canada 100.00% Quality Safety Systems Company Canada 60.00% TRW do Brasil, S.A. Brazil 98.8% TRW Components International Inc. Virginia 100.00% TRW Italia S.p.A. Italy 100.00% TRW France S.A. which owns France 100.00% TRW Carr France SNC France 100.00% TRW Koyo Steering Systems Company Tennessee 51.00% TRW Export Trading Corporation which owns Delaware 100.00% TRW Export Sales Corporation U.S. Virgin Islands 100.00% TRW System Services Company Delaware 100.00% TRW Sabelt S.p.A. Italy 90.00% TRW Air Bag Systems s.r.l. Italy 100.00% TRW Direcciones de Vehiculos, S.A. Spain 100.00% TRW Finance International Ireland 100.00% TRW Microwave Inc. California 100.00% TRW Steering Co. Ltd. Korea 51.00% TRW Australia Limited which owns Australia 100.00% TRW Carr Pty. Ltd. Australia 100.00% TRW Australia Holdings Limited which owns Australia 62.00% TRW Steering & Suspension Australia Limited Australia 100.00% - --------------- (1) Total percentages held by TRW and/or its subsidiaries, disregarding Directors' qualifying shares, if any.
The names of certain subsidiaries, which considered in the aggregate would not constitute a "significant subsidiary" as such term is defined in the regulations under the federal securities laws, have been omitted from the foregoing list. EX-23.A 14 EXHIBIT 23(A) 1 Exhibit 23(a) CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in Registration Statements Nos. 33-61711 on Form S-3, 33-58263 on Form S-8, 33-58257 on Form S-8, 33-53503 on Form S-8, 33-29751 on Form S-8, 33-20351 on Form S-8, 2-90748 on Form S-8, and 2-64035 on Form S-8 of our report dated January 20, 1997 with respect to the consolidated financial statements of TRW Inc. included in the Annual Report (Form 10-K) for the year ended December 31, 1996. We also consent to the incorporation by reference in TRW Inc.'s Registration Statement No. 33-58263 on Form S-8 pertaining to The TRW Employee Stock Ownership and Stock Savings Plan and the related prospectus of our report dated March 14, 1997 with respect to the financial statements of The TRW Employee Stock Ownership and Stock Savings Plan for the fiscal year ended December 31, 1996 included as Exhibit 99(a) to the TRW Inc. Annual Report (Form 10-K) for the year ended December 31, 1996. /s/ Ernst & Young LLP ERNST & YOUNG LLP Cleveland, Ohio March 20, 1997 EX-23.B 15 EXHIBIT 23(B) 1 Exhibit 23(b) CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in TRW Inc.'s Registration Statement No. 33-58257 on Form S-8 pertaining to The TRW Canada Stock Savings Plan and the related prospectus of our report dated March 12, 1997 with respect to the financial statements of The TRW Canada Stock Savings Plan for the year ended December 31, 1996 included as Exhibit 99(b) to the TRW Inc. Annual Report (Form 10-K) for the year ended December 31, 1996. /s/ Ernst & Young ERNST & YOUNG Hamilton, Ontario March 20, 1997 EX-24.A 16 EXHIBIT 24(A) 1 Exhibit 24(a) POWER OF ATTORNEY Directors and Certain Officers of TRW Inc. THE UNDERSIGNED Directors and Officers of TRW Inc. hereby appoint M. A. Coyle, J. C. Diggs, W. A. Fullmer, K. A. Weigand and J. L. Manning, Jr., and each of them, as attorneys for the undersigned, with full power of substitution and resubstitution, for and in the name, place and stead of the undersigned in the capacity specified, to prepare or cause to be prepared, to execute and to file with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the "Act"), an annual report on Form 10-K for the year ended December 31, 1996 relating to TRW Inc., such other periodic reports as may be required pursuant to the Act, amendments and exhibits to any of the foregoing and any and all other documents to be filed with the Securities and Exchange Commission or elsewhere pertaining to such reports, with full power and authority to take such other action which in the judgment of such person may be necessary or appropriate to effect the filing of such documents. EXECUTED the dates set forth below.
/s/ J.T. Gorman /s/ P.S. Hellman /s/ C.G. Miller - --------------------------------- --------------------------------- ------------------------------ J. T. Gorman, P. S. Hellman, C. G. Miller, Chairman of the Board, President, Executive Vice President Chief Executive Officer Chief Operating Officer and Chief Financial Officer and Director and Director February 4, 1997 February 4, 1997 February 4, 1997 /s/ Thomas A. Connell /s/ M. Feldstein - --------------------------------- --------------------------------- ------------------------------ T. A. Connell, Vice President M. H. Armacost, Director M. Feldstein, Director and Controller February , 1997 February 4, 1997 February 4, 1997 /s/ Robert M. Gates /s/ C.H. Hahn /s/ George H. Heilmeier - --------------------------------- --------------------------------- ------------------------------ R. M. Gates, Director C. H. Hahn, Director G. H. Heilmeier, Director February 4, 1997 February 4, 1997 February 4, 1997 /s/ Karen N. Horn /s/ E.B. Jones /s/ William S. Kiser - --------------------------------- --------------------------------- ------------------------------ K. N. Horn, Director E. B. Jones, Director W. S. Kiser, Director February 4, 1997 February 4, 1997 February 4, 1997 /s/ D.B. Lewis /s/ James T. Lynn /s/ L.M. Martin - --------------------------------- --------------------------------- ------------------------------ D. B. Lewis, Director J. T. Lynn, Director L. M. Martin, Director February 4, 1997 February 4, 1997 February 4, 1997 /s/ J.D. Ong /s/ Richard W. Pogue - --------------------------------- --------------------------------- J. D. Ong, Director R. W. Pogue, Director February 4, 1997 February 4, 1997
EX-24.B 17 EXHIBIT 24(B) 1 Exhibit 24(b) C E R T I F I C A T E I, Jean M. Schmidt, do hereby certify that I am a duly elected, qualified and acting Assistant Secretary of TRW Inc. ("TRW"), an Ohio corporation; that attached hereto and marked as "Exhibit A" is a true and correct copy of resolutions duly adopted by the Directors of TRW at a meeting thereof duly called and held on February 4, 1997, at which meeting a quorum was present and acting throughout; and that said resolutions have not been modified, revoked or rescinded in any manner and are now in full force and effect. IN WITNESS WHEREOF, I have hereunto set my hand and have caused the seal of TRW to be affixed hereto at Lyndhurst, Ohio this 18th day of March, 1997. /s/ Jean M. Schmidt ------------------------------ Assistant Secretary 2 Exhibit A RESOLVED that any officer or assistant officer of the Corporation is authorized and empowered, for and on behalf of the Corporation, to prepare or cause to be prepared, to execute and to file with the Securities and Exchange Commission, Washington, D.C. (the "Commission"), the Corporation's Annual Report on Form 10-K for the year ended December 31, 1996, such other periodic reports as may be required pursuant to the Securities Exchange Act of 1934, as amended (the "Act"), amendments and exhibits to any of the foregoing and any and all other documents to be filed with the Commission or elsewhere pertaining to such reports, and to take other action deemed necessary and appropriate to effect the filing of all such reports under the Act, including the execution of a power of attorney evidencing the authority set forth herein; and FURTHER RESOLVED that Martin A. Coyle, James C. Diggs, William A. Fullmer, Kathleen A. Weigand and J. Lawrence Manning, Jr. and each of them is appointed an attorney for the Corporation, with full power of substitution and resubstitution, to execute and file, for and on behalf of the Corporation, the Annual Report on Form 10-K, other periodic reports, amendments and exhibits to any of the foregoing and any and all other documents to be filed with the Commission or elsewhere pertaining to such reports, with full power and authority to take or cause to be taken all other actions deemed necessary and appropriate to effect the purposes of the foregoing resolution. EX-27 18 EXHIBIT 27
5 1,000,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 386 0 1,396 18 524 2,781 5,880 3,400 5,899 2,157 458 80 1 0 2,108 5,899 9,857 9,857 8,376 8,376 0 0 84 302 120 182 298 0 0 480 3.64 3.60
EX-99.A 19 EXHIBIT 99(A) 1 Exhibit 99(a) Audited Financial Statements THE TRW EMPLOYEE STOCK OWNERSHIP AND STOCK SAVINGS PLAN December 31, 1996 and 1995 2 Report of Independent Auditors Board of Administration The TRW Employee Stock Ownership and Stock Savings Plan We have audited the accompanying statements of net assets available for benefits of The TRW Employee Stock Ownership and Stock Savings Plan as of December 31, 1996 and 1995, and the related statements of changes in net assets available for benefits for the years then ended. These financial statements are the responsibility of the Plan'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, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of The TRW Employee Stock Ownership and Stock Savings Plan as of December 31, 1996 and 1995, and the changes in net assets available for benefits for the years then ended, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplemental schedule of assets held for investment purposes as of December 31, 1996, and the schedule of reportable transactions for the year then ended are presented for purposes of complying with the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974, and are not a required part of the basic financial statements. The Fund Information in the statement of net assets available for benefits and the statement of changes in net assets available for benefits is presented for purposes of additional analysis rather than to present the net assets available for benefits and changes in net assets available for benefits of each fund. The supplemental schedules and Fund Information have been subjected to the auditing procedures applied in our audit of the 1996 financial statements and, in our opinion, are fairly stated in all material respects in relation to the 1996 basic financial statements taken as a whole. /s/ Ernst & Young LLP March 14, 1997 Cleveland, Ohio 1 3 The TRW Employee Stock Ownership and Stock Savings Plan Statements of Net Assets Available for Benefits with Fund Information December 31, 1996
TRW Stock Fund ----------------------------------- Participant Non-Participant Equity Insured Directed Directed Fund Return Fund -------------------------------------------------------------------- ASSETS Investments: TRW Inc. Common Stock $ 370,742,743 $ 666,711,719 Guaranteed investment contracts $ 490,407,234 Bankers Trust Pyramid Equity Index Fund $ 462,068,568 Bankers Trust Pyramid Russell 2500 Index Fund Bankers Trust Pyramid Intermediate Government/Corporate Bond Index Fund Bankers Trust Pyramid Directed Account Cash Fund 1,743,081 2,984,140 14,739,814 Receivable from TRW Inc. 35,005 59,928 53,091 70,324 Participant loans receivable 18,539,229 16,608,418 18,690,131 Receivable from investments sold 225,304 Prepaid expenses 32,117 54,985 Interest receivable 40,194 2,798,092 Receivable from other funds 114,197 -------------------------------------------------------------------- Total assets 391,246,566 669,810,772 478,955,381 526,705,595 LIABILITIES Payable to other funds 9,673 744,540 Payable for investments acquired Accrued expenses 36,332 280,911 -------------------------------------------------------------------- Total liabilities 46,005 1,025,451 -------------------------------------------------------------------- NET ASSETS AVAILABLE FOR BENEFITS $ 391,246,566 $ 669,810,772 $ 478,909,376 $ 525,680,144 ==================================================================== Small Company Bond Equity Fund Index Fund Totals ------------------------------------------------------ ASSETS Investments: TRW Inc. Common Stock $ 1,037,454,462 Guaranteed investment contracts 490,407,234 Bankers Trust Pyramid Equity Index Fund 462,068,568 Bankers Trust Pyramid Russell 2500 Index Fund $ 96,588,565 96,588,565 Bankers Trust Pyramid Intermediate Government/Corporate Bond Index Fund $ 20,494,132 20,494,132 Bankers Trust Pyramid Directed Account Cash Fund 19,467,035 Receivable from TRW Inc. 25,730 4,358 248,436 Participant loans receivable 5,548,400 928,693 60,314,871 Receivable from investments sold 225,304 Prepaid expenses 13,902 101,004 Interest receivable 2,838,286 Receivable from other funds 562,474 77,542 754,213 ------------------------------------------------------ Total assets 102,739,071 21,504,725 2,190,962,110 LIABILITIES Payable to other funds 754,213 Payable for investments acquired 511,352 59,948 571,300 Accrued expenses 3,099 320,342 ------------------------------------------------------ Total liabilities 511,352 63,047 1,645,855 ------------------------------------------------------ NET ASSETS AVAILABLE FOR BENEFITS $ 102,227,719 $ 21,441,678 $ 2,189,316,255 ======================================================
2 See notes to financial statements. 4 The TRW Employee Stock Ownership and Stock Savings Plan Statements of Changes in Net Assets Available for Benefits with Fund Information Year Ended December 31, 1996
TRW Stock Fund ----------------------------------- Participant Non-Participant Equity Insured Directed Directed Fund Return Fund -------------------------------------------------------------------- Investment income: Dividends--TRW Inc. Common Stock $ 8,215,685 $ 15,738,158 Interest 153,951 290,907 $ 7,678 $ 33,948,650 -------------------------------------------------------------------- Investment income 8,369,636 16,029,065 7,678 33,948,650 Contributions from TRW Inc. 41,254,275 Contributions from participants 24,865,673 29,981,056 26,837,189 Net realized gain on disposition of investments 15,525,544 29,704,812 18,095,295 Unrealized appreciation of investments 64,083,341 118,056,264 69,643,225 Transfers from other funds 59,120,384 43,307,428 72,438,679 Interest income on participant loans 1,458,285 1,404,242 1,721,664 -------------------------------------------------------------------- 173,422,863 205,044,416 162,438,924 134,946,182 Less: Withdrawals and distributions: Cash 2,848,023 2,829,660 35,444,539 56,780,139 TRW Inc. Common Stock (621,145 participant directed shares and 1,251,970 non-participant 28,803,604 58,079,381 directed shares) -------------------------------------------------------------------- 31,651,627 60,909,041 35,444,539 56,780,139 Distribution of dividends on TRW Inc. Common Stock 14,963,225 Administrative expenses 178,273 342,227 329,400 886,500 Transfers to other funds 51,521,760 40,856,749 94,422,989 -------------------------------------------------------------------- 83,351,660 76,214,493 76,630,688 152,089,628 -------------------------------------------------------------------- Increase (decrease) in net assets for year 90,071,203 128,829,923 85,808,236 (17,143,446) Net assets available for benefits at beginning of year 301,175,363 540,980,849 393,101,140 542,823,590 -------------------------------------------------------------------- NET ASSETS AVAILABLE FOR BENEFITS AT END OF YEAR $ 391,246,566 $ 669,810,772 $ 478,909,376 $ 525,680,144 ==================================================================== Small Company Bond Equity Fund Index Fund Totals ------------------------------------------------------ Investment income: Dividends--TRW Inc. Common Stock $ 23,953,843 Interest $ 13 $ 36 34,401,235 ------------------------------------------------------ Investment income 13 36 58,355,078 Contributions from TRW Inc. 41,254,275 Contributions from participants 15,142,506 3,179,242 100,005,666 Net realized gain on disposition of investments 2,436,307 503,664 66,265,622 Unrealized appreciation of investments 11,162,184 15,145 262,960,159 Transfers from other funds 39,764,356 9,620,094 224,250,941 Interest income on participant loans 452,468 84,801 5,121,460 ------------------------------------------------------ 68,957,834 13,402,982 758,213,201 Less: Withdrawals and distributions: Cash 8,310,132 2,183,439 108,395,932 TRW Inc. Common Stock (621,145 participant directed shares and 1,251,970 non-participant 86,882,985 directed shares) ------------------------------------------------------ 8,310,132 2,183,439 195,278,917 Distribution of dividends on TRW Inc. Common Stock 14,963,225 Administrative expenses 105,750 28,500 1,870,650 Transfers to other funds 27,789,264 9,660,179 224,250,941 ------------------------------------------------------ 36,205,146 11,872,118 436,363,733 ------------------------------------------------------ Increase (decrease) in net assets for year 32,752,688 1,530,864 321,849,468 Net assets available for benefits at beginning of year 69,475,031 19,910,814 1,867,466,787 ------------------------------------------------------ NET ASSETS AVAILABLE FOR BENEFITS AT END OF YEAR $ 102,227,719 $ 21,441,678 $ 2,189,316,255 ======================================================
See notes to financial statements. 3 5 The TRW Employee Stock Ownership and Stock Savings Plan Statements of Net Assets Available for Benefits with Fund Information December 31, 1995
TRW Stock Fund ----------------------------------- Participant Non-Participant Equity Insured Directed Directed Fund Return Fund ------------------------------------------------------------------- ASSETS Investments: TRW Inc. Common Stock $ 285,150,030 $ 539,111,372 Guaranteed investment contracts $ 512,421,483 Bankers Trust Pyramid Equity Index Fund $ 377,675,716 Bankers Trust Pyramid Russell 2500 Index Fund Bankers Trust Pyramid Intermediate Government/Corporate Bond Index Fund Bankers Trust Pyramid Directed Account Cash Fund 1,081,907 1,940,902 6,525,288 Receivable from TRW Inc. 47,051 84,407 56,359 61,110 Participant loans receivable 15,864,840 15,037,019 21,275,831 Interest receivable 58,105 2,969,349 Receivable from other funds 452,425 ------------------------------------------------------------------- Total assets 302,201,933 541,136,681 393,221,519 543,253,061 LIABILITIES Payable to other funds 939,705 159,526 Accrued expenses 86,865 155,832 120,379 269,945 ------------------------------------------------------------------- Total liabilities 1,026,570 155,832 120,379 429,471 ------------------------------------------------------------------- NET ASSETS AVAILABLE FOR BENEFITS $ 301,175,363 $ 540,980,849 $ 393,101,140 $ 542,823,590 =================================================================== Small Company Bond Equity Fund Index Fund Totals ------------------------------------------------------- ASSETS Investments: TRW Inc. Common Stock $ 824,261,402 Guaranteed investment contracts 512,421,483 Bankers Trust Pyramid Equity Index Fund 377,675,716 Bankers Trust Pyramid Russell 2500 Index Fund $ 64,724,947 64,724,947 Bankers Trust Pyramid Intermediate Government/Corporate Bond Index Fund $ 18,567,359 18,567,359 Bankers Trust Pyramid Directed Account Cash Fund 9,548,097 Receivable from TRW Inc. 24,247 5,970 279,144 Participant loans receivable 4,513,551 952,282 57,643,523 Interest receivable 3,027,454 Receivable from other funds 250,602 396,204 1,099,231 ------------------------------------------------------- Total assets 69,513,347 19,921,815 1,869,248,356 LIABILITIES Payable to other funds 1,099,231 Accrued expenses 38,316 11,001 682,338 ------------------------------------------------------- Total liabilities 38,316 11,001 1,781,569 ------------------------------------------------------- NET ASSETS AVAILABLE FOR BENEFITS $ 69,475,031 $ 19,910,814 $ 1,867,466,787 =======================================================
See notes to financial statements. 4 6 The TRW Employee Stock Ownership and Stock Savings Plan Statements of Changes in Net Assets Available for Benefits with Fund Information Year Ended December 31, 1995
TRW Stock Fund ----------------------------------- Participant Non-Participant Equity Insured Directed Directed Fund Return Fund ------------------------------------------------------------------- Investment income: Dividends--TRW Inc. Common Stock $ 7,387,251 $ 14,198,849 Interest 168,774 324,394 $ 52,065 $ 35,421,071 ------------------------------------------------------------------- Investment income 7,556,025 14,523,243 52,065 35,421,071 Contributions from TRW Inc. 37,648,623 Contributions from participants 20,666,119 24,744,499 30,721,981 Net realized gain on disposition of investments 6,075,541 11,749,565 6,607,651 Unrealized appreciation of investments 37,014,004 68,060,707 94,567,420 Transfers from other funds 21,143,038 23,880,726 44,422,822 Interest income on participant loans 1,205,785 1,124,659 1,729,562 ------------------------------------------------------------------- 93,660,512 131,982,138 150,977,020 112,295,436 Less: Withdrawals and distributions: Cash 1,767,498 2,128,278 16,450,704 40,077,113 TRW Inc. Common Stock (354,708 participant directed shares and 773,078 non-participant directed shares) 13,223,504 27,965,611 ------------------------------------------------------------------- 14,991,002 30,093,889 16,450,704 40,077,113 Distribution of dividends on TRW Inc. Common Stock 13,785,763 Administrative expenses 162,070 314,430 279,200 905,400 Transfers to other funds 31,236,818 19,809,959 52,530,743 ------------------------------------------------------------------- 46,389,890 44,194,082 36,539,863 93,513,256 ------------------------------------------------------------------- Increase in net assets for year 47,270,622 87,788,056 114,437,157 18,782,180 Net assets available for benefits at beginning of year 253,904,741 453,192,793 278,663,983 524,041,410 ------------------------------------------------------------------- NET ASSETS AVAILABLE FOR BENEFITS AT END OF YEAR $ 301,175,363 $ 540,980,849 $ 393,101,140 $ 542,823,590 =================================================================== Small Company Bond Equity Fund Index Fund Totals ------------------------------------------------------- Investment income: Dividends--TRW Inc. Common Stock $ 21,586,100 Interest $ 60 $ 16 35,966,380 ------------------------------------------------------- Investment income 60 16 57,552,480 Contributions from TRW Inc. 37,648,623 Contributions from participants 9,472,853 2,421,588 88,027,040 Net realized gain on disposition of investments 320,904 88,688 24,842,349 Unrealized appreciation of investments 13,142,214 2,358,192 215,142,537 Transfers from other funds 21,467,113 9,328,697 120,242,396 Interest income on participant loans 293,488 72,605 4,426,099 ------------------------------------------------------- 44,696,632 14,269,786 547,881,524 Less: Withdrawals and distributions: Cash 3,038,017 813,435 64,275,045 TRW Inc. Common Stock (354,708 participant directed shares and 773,078 non-participant directed shares) 41,189,115 ------------------------------------------------------- 3,038,017 813,435 105,464,160 Distribution of dividends on TRW Inc. Common Stock 13,785,763 Administrative expenses 104,300 15,100 1,780,500 Transfers to other funds 11,872,824 4,792,052 120,242,396 ------------------------------------------------------- 15,015,141 5,620,587 241,272,819 ------------------------------------------------------- Increase in net assets for year 29,681,491 8,649,199 306,608,705 Net assets available for benefits at beginning of year 39,793,540 11,261,615 1,560,858,082 ------------------------------------------------------- NET ASSETS AVAILABLE FOR BENEFITS AT END OF YEAR $ 69,475,031 $ 19,910,814 $ 1,867,466,787 =======================================================
See notes to financial statements. 5 7 The TRW Employee Stock Ownership and Stock Savings Plan Notes to Financial Statements December 31, 1996 A. SIGNIFICANT ACCOUNTING POLICIES Investments in the TRW Stock Fund consist primarily of TRW Inc. (TRW) common stock, which is traded on the New York Stock Exchange and valued at the last reported sales price on the last business day of the fiscal year. Investments in the Equity Fund are valued at the redemption price established by the Trustee, which is based on the fair value of the Bankers Trust Pyramid Equity Index Fund assets. This Fund is constructed and maintained with the objective of providing investment results which approximate the overall performance of the Standard & Poor's Composite Index of 500 stocks. Income is accumulated and reinvested in the Fund and included in the determination of unit values. The Insured Return Fund consists of fully benefit responsive investment contracts with insurance companies, banks and other financial institutions and short-term investment funds. Benefit responsive contracts provide contract value payments for participant disbursements, loans and investment transfers as allowed under the plan. There are exceptions for payments to participants who, as a result of a corporate event, cease to be employed by TRW. A corporate event includes a divestiture of an operating unit (for example, a subsidiary or a division), a significant special early retirement program or other corporate action that could be construed as causing increased Plan payments to participants. Investment contracts provide a stated rate of interest on principal for a stated period of time. All investment contracts are accounted for at contract value because they are fully benefit responsive. In accordance with Statement of Position 94-4, which the Plan adopted effective January 1, 1995, contract value equals fair value because no event has occurred that affects the value of any contracts. The investment contracts are of three types: general account, separate account, and synthetic investment contracts. Investment contracts in the general account of an insurance company where assets are not specifically identifiable have fixed rates of interest or an indexed rate of interest for the life of the contract. Investment contracts in separate accounts of an insurance company have underlying assets that are specifically identifiable and held for the benefit of the Plan. Under synthetic investment contracts, the Plan owns assets with an investment contract from an insurance company, bank or other financial institution surrounding the asset. Both separate account and synthetic contracts have periodic interest rate resets (monthly, quarterly, or semi-annually) based on the performance of the underlying assets. All separate account and synthetic contracts have a guaranteed return of principal. As of December 31, 1996 and 1995, approximately $106 and $158 million was invested in general account assets, $137 and $124 million in separate account assets, and $247 and $230 million in assets owned by the Plan, respectively. 6 8 The TRW Employee Stock Ownership and Stock Savings Plan Notes to Financial Statements--Continued A. SIGNIFICANT ACCOUNTING POLICIES--CONTINUED The weighted average yield (excluding administrative expenses) for all investment contracts was 6.77% in 1996 and 6.95% in 1995. The crediting interest rate for all investment contracts was 6.79% at December 31, 1996 and 7.09% at December 31, 1995. Investments in the Small Company Equity Fund are valued at the redemption price established by the Trustee, which is based on the fair value of the Bankers Trust Pyramid Russell 2500 Index Fund assets. The Small Company Equity Fund is constructed and maintained with the objective of providing investment results which approximate the overall performance of the 2,500 common stocks included in the Russell 2500 Equity Index. Income is accumulated and reinvested in the Fund and included in the determination of unit values. Investments in the Bond Index Fund are valued at the redemption price established by the Trustee, which is based on the fair value of the Bankers Trust Pyramid Intermediate Government/Corporate Bond Index Fund. The Bankers Trust Pyramid Intermediate Government/Corporate Bond Index Fund is constructed and maintained with the objective of providing investment results which approximate the overall performance of the high quality U.S. government and corporate bonds included in the Lehman Brothers Government/Corporate Index. Income is accumulated and reinvested in the fund and included in the determination of unit values. The cost of securities sold is determined by the average cost method for purposes of determining realized gains and losses. The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Certain amounts in prior year financial statements have been reclassified to conform with current year presentation. On October 23, 1996, TRW's Board of Directors authorized a two-for-one stock split, effected in the form of a stock dividend, to shareholders of record as of November 8, 1996. A total of 10,463,851 additional shares were issued to the Plan in conjunction with the stock dividend. All historical share amounts have been restated to reflect retroactively the stock dividend. 7 9 The TRW Employee Stock Ownership and Stock Savings Plan Notes to Financial Statements--Continued B. DESCRIPTION OF THE PLAN The Plan is a defined contribution plan, and is comprised of the TRW Stock Fund, Equity Fund, Insured Return Fund, Small Company Equity Fund and Bond Index Fund (the Funds). Participation in the Plan is available to substantially all domestic employees of TRW who have been employed for at least three months. Prior to April 1, 1996, participants had to be employed for at least twelve months to be eligible for participation in the Plan. The Plan is governed by the Internal Revenue Code and related legislation. PARTICIPANT CONTRIBUTIONS The Plan allows eligible employees to contribute up to 13% of qualifying compensation on a before-tax basis by way of salary reduction; such contributions are made in increments of one-tenth of one percent of qualifying compensation and could not exceed $9,500 in 1996 and $9,240 in 1995. Participants may also elect to contribute, in increments of one percent, up to 10% of qualifying compensation on an after-tax basis. Participants can make up to two contribution percentage changes per month. Annual contributions to a participant's account (including before-tax, after-tax and TRW matching contributions) and to any other defined contribution plan is limited to the lesser of $30,000 or 25% of the participant's annual compensation reduced by the amount of before-tax contributions. Participants determine the funds in which to invest their contributions. Employee contributions may be invested, in multiples of 10% percent, in one or more of the five investment funds. Fund elections may be changed at any time. TRW CONTRIBUTIONS TRW contributes to the Plan, out of current or accumulated earnings, an amount equal to 100% of each participant's before-tax contributions without exceeding three percent of the participant's qualifying compensation. Participants immediately vest in the TRW contributions. All TRW matching contributions are invested in the ESOP portion of the TRW Stock Fund. TRW contributions always remain in the TRW Stock Fund and may not be transferred. TRW contributions may be in the form of cash or treasury or authorized and unissued shares of TRW Common Stock. TRW Common Stock contributed is to be valued by any reasonable method selected by TRW. 8 10 The TRW Employee Stock Ownership and Stock Savings Plan Notes to Financial Statements--Continued B. DESCRIPTION OF THE PLAN--CONTINUED The amount and type of TRW contributions are summarized as follows:
1996 1995 --------------------------------------- TRW Common Stock $ 17,718,967 $ 16,939,149 Cash 23,535,308 20,709,474 --------------------------------------- $ 41,254,275 $ 37,648,623 =======================================
WITHDRAWALS AND DISTRIBUTIONS Upon termination of employment, a participant may elect to receive his or her account, less the unpaid balance of any loan outstanding, in a single sum except a participant whose account balance exceeds $3,500 may defer such payments until he or she reaches age 70. Generally, distributions from the TRW Stock Fund will be paid only in whole shares of TRW Common Stock with the balance in cash. Participants who have less than 100 shares of TRW stock receive the value of their shares in cash unless they elect to receive shares. If a participant elects to defer payment of his or her account, the undistributed account balance remains invested in the Plan. The following is the total value of the accounts subject to deferred elections (8,144 as of December 31, 1996 and 8,243 as of December 31, 1995) that are included in the net assets of the funds:
1996 1995 -------------------------------------------- TRW Stock Fund $ 250,232,943 $ 199,229,528 Equity Fund 110,960,560 87,771,442 Insured Return Fund 161,701,413 166,987,746 Small Company Equity Fund 17,492,623 10,933,711 Bond Index Fund 3,692,881 3,233,663 -------------------------------------------- $ 544,080,420 $ 468,156,090 ============================================
9 11 The TRW Employee Stock Ownership and Stock Savings Plan Notes to Financial Statements--Continued B. DESCRIPTION OF THE PLAN--CONTINUED Effective January 1, 1988, participants who have attained age 55 as of the end of the preceding fiscal year-end and commenced participation in the Plan at least ten years prior may elect, within an election period during each of the succeeding five consecutive plan years, to receive a special ESOP distribution. The amount eligible for this special distribution is 50% of the prior fiscal year-end value (including previous withdrawals) of TRW Common Stock acquired for the participant's account by the ESOP since 1986, reduced by any previous withdrawals. PARTICIPANT LOANS Participants can borrow from $1,000 to $50,000 (in increments of $100) of their before-tax contributions, but such borrowings cannot exceed 50% of a participant's total Plan balance. The interest rate is fixed (prime rate at the end of the second to last business day of the quarter plus one percent) and the repayment period cannot be less than one year or more than five years. OTHER Although it has not expressed any intent to do so, TRW reserves the right to suspend or terminate the Plan. In the event of termination, the amount of each participant's account may be retained in trust for the benefit of the participant. The above description of the Plan provides only general information. Participants should refer to the Summary Plan Description, which is available from the Stock Savings Plan's Participant Service Center, and annual prospectus for a more complete description of the Plan's provisions. 10 12 The TRW Employee Stock Ownership and Stock Savings Plan Notes to Financial Statements--Continued C. INVESTMENTS The fair value of individual investments that represent 5% or more of the Plan's total assets are as follows:
DECEMBER 31 1996 1995 ------------------------------------------- TRW Inc. Common Stock $ 1,037,454,462 $ 824,261,402 Bankers Trust Pyramid Equity Index Fund 462,068,568 377,675,716
The net realized gain on disposition of investments is as follows:
TRW STOCK FUND 1996 1995 ---------------------------------------- Value realized $ 86,895,164 $ 41,258,096 Average cost 41,664,808 23,432,990 ---------------------------------------- NET REALIZED GAIN $ 45,230,356 $ 17,825,106 ======================================== EQUITY FUND 1996 1995 ---------------------------------------- Value realized $ 39,585,192 $ 20,436,097 Average cost 21,489,897 13,828,446 ---------------------------------------- NET REALIZED GAIN $ 18,095,295 $ 6,607,651 ======================================== SMALL COMPANY EQUITY FUND 1996 1995 ---------------------------------------- Value realized $ 11,390,594 $ 2,870,027 Average cost 8,954,287 2,549,123 ---------------------------------------- NET REALIZED GAIN $ 2,436,307 $ 320,904 ========================================
11 13 The TRW Employee Stock Ownership and Stock Savings Plan Notes to Financial Statements--Continued C. INVESTMENTS--CONTINUED
BOND INDEX FUND 1996 1995 ---------------------------------------- Value realized $ 5,692,322 $ 1,042,611 Average cost 5,188,658 953,923 ---------------------------------------- NET REALIZED GAIN $ 503,664 $ 88,688 ========================================
The net unrealized appreciation of investments included in net assets is as follows:
TRW Stock Equity Small Company Bond Index Fund Fund Equity Fund Fund ------------------------------------------------------------------------ Balance at December 31, 1994 $ 266,008,245 $ 65,221,084 $ 521,658 $ (19,837) Increase for the year 105,074,711 94,567,420 13,142,214 2,358,192 ------------------------------------------------------------------------ Balance at December 31, 1995 371,082,956 159,788,504 13,663,872 2,338,355 Increase for the year 182,139,605 69,643,225 11,162,184 15,145 ------------------------------------------------------------------------ BALANCE AT DECEMBER 31, 1996 $ 553,222,561 $ 229,431,729 $ 24,826,056 $ 2,353,500 ========================================================================
On a revalued basis, which is in accordance with Department of Labor Form 5500 requirements, the realized and unrealized gains (losses) are not available at the date of the Report of Independent Auditors. A separate schedule will be included in the Form 5500 when filed. D. ADMINISTRATIVE EXPENSES Generally, salaries and wages of the administrative staff are paid by TRW. Expenses relating to investment advisor fees, management fees, trustee fees, audit fees, printing and postage are paid from Plan assets. Expenses directly attributable to any one fund are charged to that fund. Expenses not directly attributable to any one fund are allocated to each fund in the proportion that the market value of the assets of each fund bears to the total market value of all Plan assets. Brokerage fees and commissions incident to the purchase or sale of securities are paid by the fund in which they are incurred and are included in the cost of securities purchased or sold. 12 14 The TRW Employee Stock Ownership and Stock Savings Plan Notes to Financial Statements--Continued E. FEDERAL INCOME TAX STATUS OF THE PLAN The Plan is exempt from federal income taxes as a qualified profit sharing plan. The Plan has received a favorable determination letter from the Internal Revenue Service as to the tax qualified status of the Plan. The Plan's Board of Administration believes that the Plan is in operational compliance with the Internal Revenue Code of 1986 and will remain qualified and exempt from federal income taxes. F. TRANSACTIONS WITH PARTIES-IN-INTEREST Party-in-interest transactions include the purchase and sale of short-term investments managed by the Plan's Trustee, Bankers Trust Company. At December 31, 1996 and 1995, the Bankers Trust Pyramid Equity Index Fund holds 362,916 and 164,386 shares of TRW Inc. Common Stock having a fair value of $17,964,342 and $12,739,915, respectively. Bankers Trust Company managed assets of the Plan of approximately $598,618,300 and $470,516,119 at December 31, 1996 and 1995, respectively, and received in cash trustee fees of $926,388 and $543,230 in 1996 and 1995, respectively. There were no party-in-interest transactions which were prohibited under Department of Labor Regulations. G. NUMBER OF PARTICIPANTS BY FUND (UNAUDITED) The summary below sets forth the number of contributing participants by their current investment option(s):
DECEMBER 31 1996 1995 ------------------------------------ TRW Stock Fund 16,062 13,131 Equity Fund 16,438 13,779 Insured Return Fund 14,844 15,315 Small Company Equity Fund 10,631 6,871 Bond Index Fund 4,490 3,213
The total number of participants in the Plan is less than the sum of the number of employees shown above because many are participating in more than one fund. 13 15 The TRW Employee Stock Ownership and Stock Savings Plan Notes to Financial Statements--Continued H. SALE OF IS&S Effective September 19, 1996, TRW sold substantially all of the businesses in the Information Systems and Services segment. As a result of this sale, approximately $55.7 million was transferred to the new company's 401(k) plan on October 4, 1996. This transfer is included with Withdrawals and Distributions in the current year's Statements of Changes in Net Assets Available for Benefits. 14 16 The TRW Employee Stock Ownership and Stock Savings Plan Schedule of Assets Held for Investment Purposes December 31, 1996
Crediting Fair Value Shares Maturity Date Interest Rate Cost (See Note A) - --------------- -------------------------------------------------------------------- COMMON STOCK 20,958,392 TRW Inc. $ 484,231,901 $ 1,037,454,462 ----------------------------------- TOTAL COMMON STOCK 484,231,901 1,037,454,462 SHORT-TERM INVESTMENTS Bankers Trust Pyramid Directed Account Cash Fund 19,467,035 19,467,035 ----------------------------------- TOTAL SHORT-TERM INVESTMENTS 19,467,035 19,467,035 GUARANTEED INVESTMENT CONTRACTS Security Backed Investments: Bankers Trust: Contract 93-515 ALP September 30, 2000 5.41% 49,249,926 49,249,926 People's Security Life: Contract 00212TR-11 December 1, 2000 6.42 10,086,024 10,086,024 Provident Life & Accident: Contract 630-05575 September 1, 2003 5.71 42,565,390 42,565,390 Transamerica Life & Annuity: Contract 76540 November 15, 2004 6.31 21,879,408 21,879,408 ----------------------------------- 123,780,748 123,780,748 Separate Account Contracts: Aetna Life Insurance Co.: Contract 014460 November 15, 2002 7.96 32,435,373 32,435,373 Allstate Life Ins. Co. Contract 31053 February 15, 2002 6.57 5,070,222 5,070,222 Crown Life Insurance Co.: Contract 9005876 March 3, 1998 8.91 3,482,755 3,482,755 John Hancock Mutual Life: Contract 7441 May 1, 2004 6.87 24,828,421 24,828,421 Contract 7441-2 July 1, 1999 7.14 23,810,848 23,810,848 Contract 8712 June 30, 2003 6.60 5,968,343 5,968,343
15 17 The TRW Employee Stock Ownership and Stock Savings Plan Schedule of Assets Held for Investment Purposes--Continued
Crediting Fair Value Shares Maturity Date Interest Rate Cost (See Note A) - ------------ ------------------------------------------------------------------------ GUARANTEED INVESTMENT CONTRACTS--CONTINUED Metropolitan Life Insurance Co: Contract 12702 January 2, 2001 6.05% 33,809,842 33,809,842 Contract 18544-B December 31, 1998 6.65 2,043,301 2,043,301 Prudential Insurance Co. of American: Contract 6581-1 July 11, 2001 9.35 1,077,132 1,077,132 Contract 6661-2 Oct. 11, 2001 9.32 4,034,528 4,034,528 Contract 6702-3 November 15, 2000 9.00 404,464 404,464 ---------------------------------- 136,965,229 136,965,229 Synthetic Investment Contracts: CDC Investment Management Corp. Contract 115-01 April 15, 1998 6.45 5,126,054 5,126,054 Contract 115-02 April 30, 1999 7.45 6,035,985 6,035,985 Contract 115-03 August 31, 1998 7.19 5,999,960 5,999,960 Contract 115-04 Dec. 31, 1998 8.08 5,959,866 5,959,866 Contract 115-05 June 30, 2000 7.48 4,960,092 4,960,092 Contract 115-06 July 2, 2002 6.76 8,942,901 8,942,901 People Security Life: Contract 00025TR-1 June 25, 1997 4.74 2,294,860 2,294,860 Contract 00025TR-2 April 27, 1998 5.27 4,988,867 4,988,867 Contract 00025TR-3 September 25, 1998 5.63 3,975,924 3,975,924 Contract 00025TR-4 January 15, 1998 5.42 2,451,949 2,451,949 Contract 00025TR-5 May 26, 1998 5.24 2,495,238 2,495,238 Contract 00025TR-6 May 26, 1998 5.30 4,289,272 4,289,272 Contract 00025TR-7 July 15, 1997 5.14 1,026,423 1,026,423 Contract 00025TR-8 November 15, 2000 6.51 4,841,341 4,841,341 Contract 00025TR-9 November 15, 2000 7.20 4,743,502 4,743,502 Contract 00025TR-10 May 17, 1999 7.00 9,679,880 9,679,880 Contract 00025TR-11 February 16, 1999 7.10 970,401 970,401 Contract 00025TR-12 March 25, 1999 7.54 4,867,103 4,867,103 Contract 00025TR-13 July 16, 2001 8.59 3,913,691 3,913,691 Contract 00025TR-14 June 15, 2000 7.89 6,033,697 6,033,697 Contract 00025TR-15 March 10, 2000 6.37 5,006,768 5,006,768
16 18 The TRW Employee Stock Ownership and Stock Savings Plan Schedule of Assets Held for Investment Purposes--Continued
Crediting Fair Value Shares Maturity Date Interest Rate Cost (See Note A) - ----------- ------------------------------------------------------------------------ GUARANTEED INVESTMENT CONTRACTS--CONTINUED Provident Life & Accident: Contract 630-05751 September 15, 2000 7.35% 14,223,477 14,223,477 Rabobank Nederland: Contract TRW 99601 Sept. 25, 2003 7.12 5,852,450 5,852,450 Contract TRW 109501 July 2, 2001 6.20 4,975,078 4,975,078 --------------------------------- 123,654,799 123,654,799 Fixed Rate and Fixed Term: Aetna Life Insurance Company: Contract 13822-001 April 7, 1997 9.69 17,009,110 17,009,110 Contract 13822-002 Sept. 30, 1997 9.77 8,518,069 8,518,069 Canada Life Assurance Company: Contract 45800 June 1, 1998 5.23 5,227,075 5,227,075 Contract 45839 June 16, 1999 7.06 6,189,072 6,189,072 John Hancock Mutual Life: Contract 5660 August 15, 1997 9.43 8,831,059 8,831,059 Contract 7314 January 14, 1999 5.40 11,676,547 11,676,547 Mass Mutual Life Insurance Company: Contract 10062 November 3, 1997 9.70 17,561,181 17,561,181 New York Life Ins. Company: Contract 6232 August 1, 1996 5.54 8,350,275 8,350,275 Contract GA06216 August 2, 1999 7.39 5,916,919 5,916,919 --------------------------------- 89,279,307 89,279,307 Variable rate and fixed term: John Hancock Mutual Life Contract 7839 March 1, 2000 6.80 9,998,306 9,998,306 --------------------------------- 9,998,306 9,998,306 Variable rate and term: People Security Life: Contract BDA0185ST March 30, 1997 5.83 6,728,845 6,728,845 --------------------------------- TOTAL GUARANTEED INVESTMENT CONTRACTS 490,407,234 490,407,234
17 19 The TRW Employee Stock Ownership and Stock Savings Plan Schedule of Assets Held for Investment Purposes--Continued
Crediting Fair Value Shares Maturity Date Interest Rate Cost (See Note A) - ------------- ------------------------------------------------------------------------ COMMON TRUST FUNDS 271,817.384 Bankers Trust Pyramid Equity Index Fund 232,636,839 462,068,568 382,639.593 Bankers Trust Pyramid Russell 2500 Index Fund 71,762,509 96,588,565 9,307,603.212 Bankers Trust Pyramid Government/Corporate Fixed Income Index Fund 18,140,632 20,494,132 ----------------------------------------- TOTAL COMMON TRUST FUNDS 322,539,980 579,151,265 Participant loans 9.25% 60,314,871 60,314,871 ----------------------------------------- TOTAL INVESTMENTS $ 1,376,961,021 $ 2,186,794,867 =========================================
18 20 The TRW Employee Stock Ownership and Stock Savings Plan Schedule of Reportable Transactions Year Ended December 31, 1996
Fair Value of Asset on Purchase Selling Cost Transaction Net Gain Identity of Party Involved Description of Assets Price Price of Asset Date (Loss) - ------------------------------------------------------------------------------------------------------------------------------------ SINGLE TRANSACTIONS IN EXCESS OF 5% OF THE FAIR VALUE OF PLAN ASSETS There were no single transactions in excess of 5% of the fair value of Plan assets. SERIES OF TRANSACTIONS IN EXCESS OF 5% OF THE FAIR VALUE OF PLAN ASSETS Bankers Trust: BT Pyramid Directed Account 305 Purchases Cash Fund $191,402,653 $191,402,653 $191,402,653 $ 0 92 Sales $181,483,716 181,483,716 181,483,716 0
19 EX-99.B 20 EXHIBIT 99(B) 1 Exhibit 99(b) FINANCIAL STATEMENTS THE TRW CANADA STOCK SAVINGS PLAN DECEMBER 31, 1996 AND 1995 2 REPORT OF INDEPENDENT AUDITORS To the Participants and the Board of Administration of THE TRW CANADA STOCK SAVINGS PLAN We have audited the statements of financial condition of the TRW Stock Fund, Pooled Money Market Fund Employees Profit Sharing Plan, Pooled Balanced Fund Registered Retirement Savings Plan and Pooled Money Market Fund Registered Retirement Savings Plan [constituting THE TRW CANADA STOCK SAVINGS PLAN] as at December 31, 1996 and 1995 and the related statements of operations and changes in fund equity for these funds for the years then ended. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these financial statements present fairly, in all material respects, the financial position of the several funds of THE TRW CANADA STOCK SAVINGS PLAN as at December 31, 1996 and 1995 and the results of their operations and the changes in fund equity for the years then ended in accordance with accounting principles generally accepted in Canada. /s/ Ernst & Young LLP Hamilton, Canada, March 12, 1997. Chartered Accountants 3 THE TRW CANADA STOCK SAVINGS PLAN TRW STOCK FUND STATEMENTS OF FINANCIAL CONDITION As at December 31
1996 1995 $ $ - -------------------------------------------------------------------------------------------------- [expressed in Canadian dollars] ASSETS Cash 2,080 39,477 Receivable from TRW Canada Limited 58,180 18,483 Investments at quoted market value TRW Inc. common stock 13,254 shares [cost $791,684] in 1996 and 15,536 shares [cost $760,993] in 1995 899,151 821,155 - -------------------------------------------------------------------------------------------------- 959,411 879,115 ================================================================================================== LIABILITIES AND FUND EQUITY LIABILITIES Withdrawals, terminations and short-term distributions 756,925 720,511 Fund equity [including net unrealized appreciation of investments] 202,486 158,604 - -------------------------------------------------------------------------------------------------- 959,411 879,115 ================================================================================================== NUMBER OF SHARES OUTSTANDING AT DECEMBER 31 [note 5] 13,254 15,536 ================================================================================================== FUND EQUITY PER SHARE AT DECEMBER 31 [note 5] 15.2774 10.2088 ==================================================================================================
See accompanying notes 4 THE TRW CANADA STOCK SAVINGS PLAN TRW STOCK FUND STATEMENTS OF OPERATIONS AND CHANGES IN FUND EQUITY Years ended December 31
1996 1995 $ $ - ------------------------------------------------------------------------------------------------- [expressed in Canadian dollars] INVESTMENT INCOME Dividends on TRW Inc. common stock 7,868 10,474 Interest 239 493 - ------------------------------------------------------------------------------------------------- 8,107 10,967 - ------------------------------------------------------------------------------------------------- CONTRIBUTIONS Participants 371,426 389,397 TRW Canada Limited 50% of total participants' contributions to all funds 363,022 362,356 - ------------------------------------------------------------------------------------------------- 734,448 751,753 - ------------------------------------------------------------------------------------------------- Net realized gain on transfer of investments to participants [note 4] 49,422 2,810 Unrealized appreciation of investments [note 4] 47,305 54,592 - ------------------------------------------------------------------------------------------------- 96,727 57,402 - ------------------------------------------------------------------------------------------------- 839,282 820,122 - ------------------------------------------------------------------------------------------------- Less withdrawals and terminations in respect of the current year Paid Cash 3,183 2,248 TRW Inc. common stock 598 shares in 1996; 1,612 shares in 1995 35,293 82,956 - ------------------------------------------------------------------------------------------------- 38,476 85,204 - ------------------------------------------------------------------------------------------------- Payable Cash 12,448 18,913 TRW Inc. common stock 10,974 shares in 1996; 13,274 shares in 1995 744,476 701,598 - ------------------------------------------------------------------------------------------------- 756,924 720,511 - ------------------------------------------------------------------------------------------------- 795,400 805,715 - ------------------------------------------------------------------------------------------------- INCREASE IN FUND EQUITY 43,882 14,407 Fund equity at January 1 158,604 144,197 - ------------------------------------------------------------------------------------------------- FUND EQUITY AT DECEMBER 31 202,486 158,604 =================================================================================================
See accompanying notes 5 THE TRW CANADA STOCK SAVINGS PLAN POOLED MONEY MARKET FUND EMPLOYEES PROFIT SHARING PLAN STATEMENTS OF FINANCIAL CONDITION As at December 31
1996 1995 $ $ - -------------------------------------------------------------------------------------------------- [expressed in Canadian dollars] ASSETS Cash 10 11 Receivable from TRW Canada Limited 15,973 15,581 Interest receivable 728 1,351 Investment at market value Royal Trust Company Classified Money Market Fund 22,388 units [cost $223,883] in 1996 and 21,846 units [cost $218,457] in 1995 223,883 218,457 - -------------------------------------------------------------------------------------------------- 240,594 235,400 ================================================================================================== LIABILITIES AND FUND EQUITY LIABILITIES Withdrawals, terminations and short-term distributions 205,288 201,736 Fund equity 35,306 33,664 - -------------------------------------------------------------------------------------------------- 240,594 235,400 ================================================================================================== NUMBER OF UNITS OUTSTANDING AT DECEMBER 31 3,530.6 3,366.4 ================================================================================================== FUND EQUITY PER UNIT AT DECEMBER 31 10.0 10.0 ==================================================================================================
See accompanying notes 6 THE TRW CANADA STOCK SAVINGS PLAN POOLED MONEY MARKET FUND EMPLOYEES PROFIT SHARING PLAN STATEMENTS OF OPERATIONS AND CHANGES IN FUND EQUITY Years ended December 31
1996 1995 $ $ - ------------------------------------------------------------------------------------------------- [expressed in Canadian dollars] INTEREST INCOME 6,911 8,664 Participants' contributions 214,997 203,587 - ------------------------------------------------------------------------------------------------- 221,908 212,251 - ------------------------------------------------------------------------------------------------- Less cash withdrawals and terminations Paid 14,978 2,536 Payable 205,288 201,736 - ------------------------------------------------------------------------------------------------- 220,266 204,272 - ------------------------------------------------------------------------------------------------- INCREASE IN FUND EQUITY 1,642 7,979 Fund equity at January 1 33,664 25,685 - ------------------------------------------------------------------------------------------------- FUND EQUITY AT DECEMBER 31 35,306 33,664 =================================================================================================
See accompanying notes 7 THE TRW CANADA STOCK SAVINGS PLAN POOLED BALANCED FUND REGISTERED RETIREMENT SAVINGS PLAN STATEMENTS OF FINANCIAL CONDITION As at December 31
1996 1995 $ $ - ------------------------------------------------------------------------------------------------- [expressed in Canadian dollars] ASSETS Cash -- 5 Receivable from TRW Canada Limited 8,119 6,803 Interest receivable 25,243 3,111 Investments at quoted market value Royal Trust Company Classified Balanced Fund 26,024.6831 units [cost $321,087] in 1996 and 21,702.0528 units [cost $261,441] in 1995 384,497 283,493 - ------------------------------------------------------------------------------------------------- 417,859 293,412 ================================================================================================= LIABILITIES AND FUND EQUITY LIABILITIES Withdrawals, terminations and short-term distributions 33,925 36 Fund equity [including net unrealized appreciation of investments] 383,934 293,376 - ------------------------------------------------------------------------------------------------- 417,859 293,412 ================================================================================================= NUMBER OF UNITS OUTSTANDING AT DECEMBER 31 26,024.6831 21,702.0528 ================================================================================================= FUND EQUITY PER UNIT AT DECEMBER 31 14.753 13.518 =================================================================================================
See accompanying notes 8 THE TRW CANADA STOCK SAVINGS PLAN POOLED BALANCED FUND REGISTERED RETIREMENT SAVINGS PLAN STATEMENTS OF OPERATIONS AND CHANGES IN FUND EQUITY Years ended December 31
1996 1995 $ $ - ------------------------------------------------------------------------------------------------- [expressed in Canadian dollars] INCOME 38,280 13,305 - ------------------------------------------------------------------------------------------------- CONTRIBUTIONS Participants' contributions 91,655 84,084 - ------------------------------------------------------------------------------------------------- Net realized gain (loss) on disposition of investments [note 4] 316 (182) Unrealized appreciation of investments [note 4] 41,357 23,955 - ------------------------------------------------------------------------------------------------- 41,673 23,773 - ------------------------------------------------------------------------------------------------- 171,608 121,162 - ------------------------------------------------------------------------------------------------- Less cash withdrawals and terminations Paid 47,125 26,529 Payable 33,925 36 - ------------------------------------------------------------------------------------------------- 81,050 26,565 - ------------------------------------------------------------------------------------------------- INCREASE IN FUND EQUITY 90,558 94,597 Fund equity at January 1 293,376 198,779 - ------------------------------------------------------------------------------------------------- FUND EQUITY AT DECEMBER 31 383,934 293,376 =================================================================================================
See accompanying notes 9 THE TRW CANADA STOCK SAVINGS PLAN POOLED MONEY MARKET FUND REGISTERED RETIREMENT SAVINGS PLAN STATEMENTS OF FINANCIAL CONDITION As at December 31
1996 1995 $ $ - ------------------------------------------------------------------------------------------------- [expressed in Canadian dollars] ASSETS Cash -- 4 Receivable from TRW Canada Limited 3,730 3,845 Interest receivable 865 1,546 Investment at market value Royal Trust Company Classified Pooled Money Market Fund 25,733.9 units [cost $257,339] in 1996 and 24,192.6 units [cost $241,926] in 1995 257,339 241,926 - ------------------------------------------------------------------------------------------------- 261,934 247,321 ================================================================================================= LIABILITIES AND FUND EQUITY LIABILITIES Withdrawals, terminations and short-term distributions 11,259 1,942 Fund equity 250,675 245,379 - ------------------------------------------------------------------------------------------------- 261,934 247,321 ================================================================================================= NUMBER OF UNITS OUTSTANDING AT DECEMBER 31 25,067.5 24,537.9 ================================================================================================= FUND EQUITY PER UNIT AT DECEMBER 31 10.0 10.0 =================================================================================================
See accompanying notes 10 THE TRW CANADA STOCK SAVINGS PLAN POOLED MONEY MARKET FUND REGISTERED RETIREMENT SAVINGS PLAN STATEMENTS OF OPERATIONS AND CHANGES IN FUND EQUITY Years ended December 31
1996 1995 $ $ - ------------------------------------------------------------------------------------------------- [expressed in Canadian dollars] INTEREST INCOME 13,418 15,009 Participants' contributions 47,960 47,636 - ------------------------------------------------------------------------------------------------- 61,378 62,645 - ------------------------------------------------------------------------------------------------- Less cash withdrawals and terminations Paid 44,823 10,047 Payable 11,259 1,942 - ------------------------------------------------------------------------------------------------- 56,082 11,989 - ------------------------------------------------------------------------------------------------- INCREASE IN FUND EQUITY 5,296 50,656 Fund equity at January 1 245,379 194,723 - ------------------------------------------------------------------------------------------------- FUND EQUITY AT DECEMBER 31 250,675 245,379 =================================================================================================
See accompanying notes 11 THE TRW CANADA STOCK SAVINGS PLAN NOTES TO FINANCIAL STATEMENTS December 31, 1996 and 1995 1. GENERAL PLAN PROVISIONS The investment programs of the TRW Canada Stock Savings Plan [the "Plan"] are as follows: PARTICIPANT CONTRIBUTIONS Upon enrollment or re-enrollment, each participant directs that his contributions [computed in increments of one percent, from two per cent to six per cent of qualifying compensation] are to be invested in accordance with any of the following investment options: [a] 100% in the TRW Stock Fund [the common stock of TRW Inc. in accordance with the trust agreement and the Plan]. [b] 100% in the Pooled Money Market Fund Employees Profit Sharing Plan. At present, the Trustee invests all of the Pooled Money Market Fund amounts in the Royal Trust Company, Classified Money Market Fund in accordance with the Trust agreement and the Plan. [c] 100% in the Pooled Balanced Fund Registered Retirement Savings Plan. At present, the Trustee invests all of the Pooled Balanced Fund amounts in the Royal Trust Company, Classified Balanced Fund, in accordance with the Trust agreement and the Plan. [d] 100% in the Pooled Money Market Fund Registered Retirement Savings Plan. At present, the Trustee invests all of the Pooled Money Market Fund amounts in the Royal Trust Company, Classified Pooled Money Market Fund in accordance with the Trust agreement and the Plan. [e] A combination of options [a] through [d] in multiples of 25%. Such direction may be revised on 30 days prior notice, effective January 1 of any year. TRW CANADA LIMITED CONTRIBUTIONS TRW Canada Limited shall contribute to the plan for each month, out of current or accumulated earnings, an amount equal to 50% of participant contributions for such month. TRW Canada Limited contributions vest immediately. All TRW Canada Limited contributions are invested in the TRW Stock Fund. TRW Canada Limited does not charge a fee for administering the Plans. 1 12 THE TRW CANADA STOCK SAVINGS PLAN NOTES TO FINANCIAL STATEMENTS December 31, 1996 and 1995 The number of participants in each Fund at December 31 is as follows:
1996 1995 - -------------------------------------------------------------------------------------------------- TRW Stock Fund 281 267 Pooled Money Market Fund Employees Profit Sharing Plan 114 112 Pooled Balanced Fund Registered Retirement Savings Plan 66 67 Pooled Money Market Fund Registered Retirement Savings Plan 48 49
The total number of participants in the Plan is less than the sum of the number of participants shown above because many are participating in more than one Fund. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES These financial statements have been prepared in accordance with accounting principles generally accepted in Canada, and are within the framework of the accounting policies summarized below. GAIN AND LOSSES ON INVESTMENTS The realized gain or loss on disposition or transfer of an investment is determined from the market value of the investment at the date of disposition or transfer and the average cost base of that specific pool of investments prior to the disposition or transfer. Unrealized gains or losses are determined as the net effect of the change in appreciation/depreciation of the investments from January 1 to December 31, based on market values and the average cost base of each investment at those respective dates. INCOME RECOGNITION Dividends are recognized as earned. Interest income is recognized as it is earned consistent with the accrual basis of accounting. 2 13 THE TRW CANADA STOCK SAVINGS PLAN NOTES TO FINANCIAL STATEMENTS December 31, 1996 and 1995 3. INCOME TAXES The Plan is exempt from Canadian federal income taxes under provisions of the Income Tax Act. Federal income tax consequences to the participants under the Plan are as provided in the Income Tax Act. TRW Canada Limited contributions are taxable to the participants as is the income and all post-1971 capital gains less post-1971 capital losses of the Plan, all of which are allocated to the participants by the Trustee during the year, whether or not such amounts are paid to the participants by the Trustee during the year. In some circumstances, the amounts taxable could exceed the amounts allocated. The amount of foreign non-business income tax paid on foreign source income by the trusts under the Plan for the year is allocated to and deemed to have been paid by the participants for Canadian federal income tax purposes. Participants who are non-resident taxpayers are subject to special rules depending on whether they have performed duties in Canada during the year and are subject to 15% withholding tax on amounts paid or credited to them under the Plan. 4. UNREALIZED AND REALIZED (LOSSES) GAINS Investments are stated at their quoted market value. The net unrealized appreciation (depreciation) of investments included in fund equity is as follows:
TRW POOLED STOCK BALANCED FUND FUND $ $ - -------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1994 5,570 (1,902) Change for the year Market value 54,592 23,955 - -------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1995 60,162 22,053 Change for the year Market value 47,305 41,357 - -------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1996 107,467 63,410 ==================================================================================================
3 14 THE TRW CANADA STOCK SAVINGS PLAN NOTES TO FINANCIAL STATEMENTS December 31, 1996 and 1995 The net realized gain on the transfer or disposition of investments is summarized as follows:
TRW STOCK FUND -------------- 1996 1995 $ $ - -------------------------------------------------------------------------------------------------- AMOUNT REALIZED 756,618 720,679 Cost - average 707,196 717,869 - -------------------------------------------------------------------------------------------------- NET REALIZED GAIN 49,422 2,810 ================================================================================================== POOLED BALANCED FUND REGISTERED RETIREMENT SAVINGS PLAN ------------ 1996 1995 $ $ - -------------------------------------------------------------------------------------------------- AMOUNT REALIZED 3,900 17,750 Cost - average 3,584 17,932 - -------------------------------------------------------------------------------------------------- NET REALIZED GAIN 316 (182) ==================================================================================================
5. STOCK SPLIT On October 23, 1996, TRW's Board of Directors authorized a two-for-one stock split effected in the form of a stock dividend to shareholders of record as of November 8, 1996. A total of 6,192 additional shares were issued to the Plan in conjunction with the stock dividend. All historical share amounts have been restated to reflect retroactively the stock dividend. 6. RELATED PARTY TRANSACTIONS All expenses related to the TRW Canada Stock Savings Plan are paid by TRW Canada Limited. 4 -----END PRIVACY-ENHANCED MESSAGE-----