-----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, NGUFDalHjLrjZn/Yynam/qAR9HaU1YWiCff3ojz8rINRv3ZY7QsvJ9hOAYQ98NMV +W9vW23Nc8hNeUjr9xE0Hg== 0000950152-99-006693.txt : 19990813 0000950152-99-006693.hdr.sgml : 19990813 ACCESSION NUMBER: 0000950152-99-006693 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990812 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-Q SEC ACT: SEC FILE NUMBER: 001-02384 FILM NUMBER: 99685254 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-Q 1 TRW, INC. FORM 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____ Commission file number 1-2384 ------- TRW Inc. ----------------------------------------------------------- (Exact name of registrant as specified in its charter) Ohio 34-0575430 ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1900 Richmond Road, Cleveland, Ohio 44124 ----------------------------------------- (Address of principal executive offices) (Zip Code) (216) 291-7000 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- As of July 30, 1999, there were 121,227,924 shares of TRW Common Stock, $0.625 par value, outstanding. 2 PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS Statements of Earnings (unaudited) TRW Inc. and subsidiaries - -----------------------------------------------------------------------------
Second quarter ended Six months ended June 30 June 30 In millions except per share data 1999 1998 1999 1998 - ---------------------------------------------------------- ------------------ Sales $ 4,785 $ 3,028 $ 7,882 $ 6,123 Cost of sales 3,940 2,481 6,558 5,056 - ---------------------------------------------------------- ------------------ Gross profit 845 547 1,324 1,067 Administrative and selling expenses 331 192 515 391 Research and development expenses 171 123 315 244 Purchased in-process research and development -- -- 85 -- Interest expense 142 38 185 76 Other (income)expense-net (16) (4) -- (46) - ---------------------------------------------------------- ------------------ Earnings before income taxes 217 198 224 402 Income taxes 78 72 113 147 - ---------------------------------------------------------- ------------------ Net earnings $ 139 $ 126 $ 111 $ 255 - ---------------------------------------------------------- ------------------ - ---------------------------------------------------------- ------------------ Per share of common stock Diluted earnings per share $ 1.14 $ 1.00 $ .91 $ 2.03 Basic earnings per share $ 1.16 $ 1.03 $ .92 $ 2.08 Dividends declared $ .33 $ .31 $ .33 $ .31 - ---------------------------------------------------------- ------------------ - ---------------------------------------------------------- ------------------ Shares used in computing per share amounts Diluted 123.2 125.4 123.0 125.8 Basic 120.6 122.1 120.4 122.3 - ---------------------------------------------------------- ------------------
1 3
Balance Sheets (unaudited) TRW Inc. and subsidiaries - ------------------------------------------------------------------------------ June 30 December 31 In millions 1999 1998 - ------------------------------------------------------------------------------ Assets Current assets Cash and cash equivalents $ 609 $ 83 Accounts receivable 2,684 1,721 Inventories 1,048 616 Prepaid expenses 237 104 Net assets of acquired businesses held for sale 963 -- Deferred income taxes 227 179 - ------------------------------------------------------------------------------ Total current assets 5,768 2,703 Property, plant and equipment-on the basis of cost 7,915 6,604 Less accumulated depreciation and amortization 3,999 3,921 - ------------------------------------------------------------------------------ Total property, plant and equipment-net 3,916 2,683 Intangible assets Intangibles arising from acquisitions 3,359 850 Other 921 360 - ------------------------------------------------------------------------------ 4,280 1,210 Less accumulated amortization 180 143 - ------------------------------------------------------------------------------ Total intangible assets-net 4,100 1,067 Investments in affiliated companies 298 243 Long-term deferred income taxes -- 33 Other notes and accounts receivable 394 227 Prepaid pension cost 2,471 -- Other assets 394 213 - ------------------------------------------------------------------------------ $ 17,341 $ 7,169 - ------------------------------------------------------------------------------ Liabilities and shareholders' investment Current liabilities Short-term debt $ 3,406 $ 839 Accounts payable 1,596 964 Current portion of long-term debt 625 30 Other current liabilities 1,995 1,185 - ------------------------------------------------------------------------------ Total current liabilities 7,622 3,018 Long-term liabilities 1,708 826 Long-term debt 5,661 1,353 Long-term deferred income taxes 587 -- Minority interests in subsidiaries 107 94 Capital stock 76 75 Other capital 462 457 Retained earnings 2,089 2,021 Treasury shares-cost in excess of par value (598) (637) Accumulated other comprehensive income(loss) (373) (38) - ------------------------------------------------------------------------------ Total shareholders' investment 1,656 1,878 - ------------------------------------------------------------------------------ $ 17,341 $ 7,169 - ------------------------------------------------------------------------------
2 4 Statements of Cash Flows (unaudited) TRW Inc. and subsidiaries
- ---------------------------------------------------------------------------------- Six months ended June 30 In millions 1999 1998 - ---------------------------------------------------------------------------------- Operating activities Net earnings $ 111 $ 255 Adjustments to reconcile net earnings to net cash provided by operating activities: Purchased in-process research and development 85 -- Depreciation and amortization 363 278 Deferred income taxes (131) (123) Other-net 16 3 Changes in assets and liabilities, net of effects of businesses acquired: Accounts receivable (131) (90) Inventories and prepaid expenses 173 (88) Accounts payable and other accruals 29 (6) Other-net (169) (14) - ---------------------------------------------------------------------------------- Net cash provided by operating activities 346 215 - ---------------------------------------------------------------------------------- Investing activities Capital expenditures (356) (273) Acquisitions, net of cash acquired (6,049) (236) Proceeds from divestitures 91 -- Other-net 48 6 - ---------------------------------------------------------------------------------- Net cash used in investing activities (6,266) (503) - ---------------------------------------------------------------------------------- Financing activities Increase(decrease) in short-term debt 2,551 (263) Proceeds from debt in excess of 90 days 4,901 871 Principal payments on debt in excess of 90 days (854) (179) Reacquisition of common stock -- (72) Dividends paid (80) (76) Other-net (32) 17 - ---------------------------------------------------------------------------------- Net cash provided by financing activities 6,486 298 - ---------------------------------------------------------------------------------- Effect of exchange rate changes on cash and cash equivalents (40) (4) - ---------------------------------------------------------------------------------- Increase in cash and cash equivalents 526 6 Cash and cash equivalents at beginning of period 83 70 - ---------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 609 $ 76 - ----------------------------------------------------------------------------------
3 5 Results by Business Segments (unaudited) TRW Inc. and subsidiaries
- ----------------------------------------------------------------------------- Quarter ended Six months ended June 30 June 30 In millions 1999 1998 1999 1998 - --------------------------------------------------------- ------------------- Sales Automotive $ 3,293 $ 1,813 $ 5,258 $ 3,699 Aerospace & Information Systems 1,492 1,215 2,624 2,424 - --------------------------------------------------------- ------------------- Sales $ 4,785 $ 3,028 $ 7,882 $ 6,123 - --------------------------------------------------------- ------------------- Segment profit before income taxes Automotive $ 159 $ 153 $ 295 $ 302 Aerospace & Information Systems 221 112 312 237 - --------------------------------------------------------- ------------------- Segment profit before income taxes 380 265 607 539 Purchased in-process research and development -- -- (85) -- Corporate expense and other (66) (29) (147) (59) Pension income 58 -- 58 -- Financing costs (155) (38) (209) (78) - --------------------------------------------------------- ------------------- Earnings before income taxes $ 217 $ 198 $ 224 $ 402 - --------------------------------------------------------- -------------------
4 6 NOTES TO FINANCIAL STATEMENTS (unaudited) Principles of Consolidation - --------------------------- The financial statements include the accounts of TRW and its subsidiaries except for four wholly owned insurance subsidiaries. The insurance subsidiaries and the investments in affiliated companies are accounted for by the equity or cost method as appropriate. The consolidated financial statements reflect the adjusted preliminary allocation of the purchase price for LucasVarity Limited (LucasVarity), which may be adjusted as further information becomes available, and the consolidated results of LucasVarity's operations and cash flows subsequent to the date of acquisition, March 25, 1999. Acquisition - ----------- On February 6, 1999, TRW commenced an offer for the entire issued share capital of LucasVarity. The offer was declared unconditional in all respects on March 25, 1999. On March 29, 1999, TRW issued notices to those LucasVarity shareholders who had not already accepted the offer, informing them that it intended to exercise its rights under Section 429 of the Companies Act of 1985 to acquire compulsorily all LucasVarity shares that had not been acquired in the offer. At midnight on May 10, 1999, TRW compulsorily acquired all shares that had not been acquired in the offer, thereby closing the acquisition of LucasVarity. LucasVarity manufactures and supplies advanced technology systems, products and services in the automotive and aerospace industries. It is a major producer of braking systems, fuel injection systems, electrical and electronic systems to the automotive industry and has a significant position in automotive aftermarket operations and services. LucasVarity provides the aerospace industry with high integrity systems in engine controls, electrical power generation and management, flight controls and cargo handling, all backed by a worldwide customer support operation. LucasVarity employs approximately 51,000 employees worldwide and the majority of its operating facilities are located in Europe and the United States. The aggregate cash purchase price for LucasVarity was approximately $6.8 billion and the transaction was accounted for as a purchase business combination. Assets and liabilities have been recorded based on their respective fair values. The preliminary purchase price allocation resulted in an $85 million charge to earnings, with no income tax benefit, for the fair value of acquired in-process research and development that had not reached technological feasibility and had no future alternative use. The fair value of acquired in-process research and development was determined using the income approach under the proportional method. The fair value of identifiable intangible assets were determined primarily using the income approach. A risk adjusted discount rate of 18 percent, representing the cost of capital and a premium for the risk, was used to discount the projects' cash flows. Operating margins were assumed to be similar to historical margins of similar products. The size of the applicable market was verified for reasonableness with outside research sources. The projects were in various stages of completion, ranging from approximately 40 to 80 percent complete as of the valuation date. The stage of completion for each project was estimated by evaluating the cost to complete, complexity of the technology and time to market. The projects are anticipated to be completed from late 1999 through 2002. The estimated cost to complete the projects is $65 million. 5 7 During the second quarter 1999, the valuation of certain LucasVarity employee benefit plans was completed and certain pre-acquisition contingencies were adjusted. The preliminary allocation of the purchase price has been adjusted to incorporate these items and may be adjusted in subsequent periods through March 2000 based on changes to pre-acquisition contingencies and restructuring. The adjusted preliminary allocation of the purchase price and the estimated goodwill are summarized as follows: (In millions) Cash purchase price $ 6,778 Cash and cash equivalents 774 Accounts receivable 887 Inventory 524 Net assets of businesses held for sale 986 Prepaid expenses 182 Current deferred income taxes 37 Property, plant and equipment 1,357 Intangible assets 556 Prepaid pension costs 2,471 Other assets 426 ------- Total assets 8,200 Accounts payable (686) Other accruals (773) Debt (970) Long-term liabilities (856) Long-term deferred income taxes (773) ------- Total liabilities (4,058) Minority interest (39) Purchased in-process research and development 85 ------- Excess of purchase price over fair value of net assets acquired $ 2,590 ======= Goodwill is being amortized on a straight-line basis over 40 years and identifiable intangible assets are being amortized on a straight-line basis over useful lives ranging from 16 to 30 years. Pro Forma Financial Information - ------------------------------- The following unaudited pro forma financial information for the second quarter and six months ended June 30, 1999 and 1998, assumes the LucasVarity acquisition occurred as of the beginning of the respective periods, after giving effect to certain adjustments, including the amortization of intangible assets, interest expense on acquisition debt, additional depreciation based on the fair market value of the property, plant and equipment acquired, write-off of purchased in-process research and development and income tax effects. The pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the results of operations which may occur in the future or that would have occurred had the acquisition of LucasVarity been effected on the dates indicated, nor are they necessarily indicative of TRW's future results of operations. 6 8
Second quarter ended Six months ended (In millions) June 30 June 30 ------------------ ---------------- 1999 1998 1999 1998 ---- ---- ---- ---- Sales $4,785 $4,762 $9,508 $9,735 Net earnings from continuing operations 161 144 264 266 Diluted earnings per share from continuing operations 1.31 1.15 2.15 2.11
Foreign Exchange Contracts - -------------------------- TRW enters into forward exchange contracts which hedge firm foreign currency commitments, anticipated transactions and certain intercompany transactions. At June 30, 1999, TRW had contracts outstanding with a notional amount of $1.1 billion denominated principally in the British pound, the U.S. dollar, the Spanish peseta, the French franc, the German deutsche mark, the Euro and the Canadian dollar, maturing at various dates through January 2007. Contracts outstanding increased from $162 million at December 31, 1998 primarily due to the acquisition of LucasVarity and the hedging of foreign currency exposures associated with its aerospace and automotive businesses. The combined fair market value of the forward exchange contracts was approximately $65 million at June 30, 1999, primarily all of which related to LucasVarity. The fair market value of forward contracts at December 31, 1998 was $1 million. Changes in market value of the contracts which hedge firm foreign currency commitments and intercompany transactions are generally included in the basis of the transactions. Changes in market value of the contracts which hedge anticipated transactions are generally recognized in earnings. Foreign exchange contracts are placed with a number of major financial institutions to minimize credit risk. No collateral is held in relation to the contracts, and TRW anticipates that these financial institutions will satisfy their obligations under the contracts. Interest Rate Swap Agreements - ----------------------------- In anticipation of offering debt securities to finance the acquisition of LucasVarity, TRW entered into a combination of forward starting interest rate swaps and treasury locks during the first six months of 1999 with a mandatory cash settlement in the second quarter. These agreements effectively fixed the base rate of interest on an aggregate notional principal amount of $1.8 billion of debt securities TRW issued during the second quarter 1999. These hedges were settled simultaneously with the issuance of the debt securities and a before-tax gain of $23 million is being recognized as an adjustment to interest expense over the life of the debt securities issued using the effective interest rate. During the second quarter, TRW entered into an interest rate swap in order to convert the fixed rate to a floating rate on a notional principal amount of $425 million of notes issued during the quarter. The fair market value of the interest rate swap is a liability of approximately $400,000 at June 30, 1999. Net payments or receipts under the agreement will be recognized as an adjustment to interest expense. The agreement was entered into with a major financial institution, and TRW anticipates that the financial institution will satisfy its obligation under the agreement. No collateral is held in relation to the agreement. 7 9 Issuance of a Subsidiary's Stock - -------------------------------- TRW includes gains or losses arising from the issuance of a subsidiary's or equity affiliate's stock in non-operating income. Comprehensive Income - -------------------- The components of comprehensive income, net of related tax, for the second quarter and first six months of 1999 and 1998 are as follows:
Second quarter ended Six months ended (In millions) June 30 June 30 -------------------- ---------------- 1999 1998 1999 1998 ---- ---- ---- ---- Net earnings $ 139 $ 126 $ 111 $ 255 Foreign currency translation adjustments (186) 14 (310) (9) Unrealized losses on securities (14) (6) (25) (4) ----- ----- ----- ----- Comprehensive income(loss) $ (61) $ 134 $(224) $ 242 ----- ----- ----- -----
The components of accumulated other comprehensive income, net of related tax, at June 30, 1999 and December 31, 1998 are as follows:
June 30 December 31 (In millions) 1999 1998 --------------------------- Foreign currency translation adjustments $(365) $ (55) Unrealized gains on securities 5 30 Minimum pension liability adjustments (13) (13) ----- ----- Accumulated other comprehensive income(loss) $(373) $ (38) ----- -----
New Accounting Pronouncement - ---------------------------- In 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement is effective for years beginning after June 15, 2000. The Company is considering earlier adoption. Under this statement, changes in the market value of contracts which hedge anticipated transactions will be deferred and recognized in earnings when realized. The effect of this statement on TRW's results of operations and financial condition will not be material. 8 10 Divestitures - ------------ On May 17, 1999, TRW announced it will divest its engine businesses, which consist of TRW Engine Components and Lucas Diesel Systems operations; TRW Nelson Stud Welding; and the LucasVarity Wiring companies. Sales included in TRW's second quarter and six months ended June 30, 1999 Statements of Earnings for the businesses to be sold were $443 million and $617 million, respectively. Sales included in TRW's second quarter and six months ended 1998 Statements of Earnings for the businesses to be sold were $147 million and $300 million, respectively. TRW's investment in the LucasVarity Wiring companies and Lucas Diesel Systems operations is included in the balance sheet caption "Net assets of acquired businesses held for sale." TRW expects to complete the divestitures of these businesses by year end 1999. Operating Segments - ------------------ On April 28, 1999, TRW announced a reorganization of its business into two segments: Automotive and Aerospace & Information Systems. TRW's and LucasVarity's automotive businesses were combined into TRW's Automotive Segment and TRW's space, defense and information systems businesses were combined with LucasVarity's aerospace business to form the Aerospace & Information Systems Segment. As a result of the acquisition of LucasVarity, segment assets increased significantly. The preliminary valuation of the LucasVarity assets applicable to each segment is $4.7 billion for the Automotive Segment and $1.5 billion for the Aerospace & Information Systems Segment. The caption "Financing costs" displayed in the reconciliation of segment profit before income taxes to consolidated earnings before income taxes includes interest expense as well as the underwriting and participation fees associated with the acquisition of LucasVarity. The first quarter 1999 and 1998 results of operations for TRW's Telecommunications business were recorded as part of "Corporate expense and other." During the second quarter of 1999, management determined that the results of operations for the Telecommunications business would be reviewed and managed as part of the Aerospace & Information Systems segment and as such, segment profit for the first quarter 1999 and 1998 has been restated to include the Telecommunications business. "Corporate expense and other" includes approximately $20 million and $70 million of foreign exchange losses related to the acquisition of LucasVarity for the second quarter and first six months of 1999, respectively. 9 11 Inventories - ----------- Inventories consist of the following: June 30 December 31 (In millions) 1999 1998 ---------------------- Finished products and work in process $ 556 $ 316 Raw materials and supplies 492 300 ------ ------ $1,048 $ 616 ------ ------ The increase in inventory is due to the acquisition of LucasVarity. Long-Term Liabilities - --------------------- Long-term liabilities at June 30, 1999 and December 31, 1998, include $1,164 million and $651 million, respectively, relating to postretirement benefits other than pensions. The increase is due to the acquisition of LucasVarity. Debt and Credit Agreements - -------------------------- TRW received fully underwritten financing for the acquisition of LucasVarity in the form of a $7.4 billion two-tranche credit agreement with 59 banks. Tranche one of $3.7 billion expires December 31, 1999 and the second tranche of $3.7 billion expires January 26, 2000 with an option to extend the maturity of up to $2.0 billion of borrowings to January 26, 2001. The interest rates under the agreement are the prime rate and a rate based on a London Interbank Offered Rate. Issuance of long-term debt securities in the public or private capital markets and the net proceeds from divestitures, among other items, reduce the amount of the commitments by 100 percent under tranche one until it is zero and then by 50 percent under tranche two, with a maximum reduction under tranche two of $1.7 billion. At June 30, 1999, there were no outstanding borrowings under this agreement. During the first quarter of 1999, TRW amended the terms of its $750 million and $745 million U.S. revolving credit agreements and its $250 million multicurrency revolving credit agreement to change commitment fees, borrowing margins and other key terms and conditions to conform to the terms of the $7.4 billion agreement. In addition, the expiration date of the $745 million agreement was extended from December 6, 1999 to January 26, 2000, with the provision that TRW may extend the maturity of borrowings to January 26, 2001. During the first quarter of 1999, the Company incurred short-term borrowings of approximately $519 million to finance the purchase of LucasVarity's Ordinary Shares on the open market. In addition, a $6.3 billion payable was incurred for LucasVarity shares tendered in the offer. During the second quarter, the Company settled the payable for LucasVarity shares by the issuance of commercial paper. During the second quarter 1999, TRW refinanced commercial paper by issuing $2.4 billion of notes and debentures on May 26, 1999 with $400 million 6.5% Notes Due 2002, $700 million 6.625% Notes Due 2004, $750 million 7.125% Notes Due 2009, and $550 million 7.75% Debentures Due 2029. An additional $1.0 billion of notes was issued on June 18, 1999 with $575 million Floating Rate Notes due 2000 and $425 million 6.45% Notes due 2001. The $425 million 6.45% Notes due 2001 were simultaneously changed to floating rate through the execution of a $425 million interest rate swap. Due to the issuance of long-term debt, tranche one of the $7.4 billion credit agreement was reduced by $3.4 billion during the second quarter. At June 30, 1999, $1.1 billion of short-term obligations were reclassified to long-term obligations as TRW intends to refinance the obligations on a long-term basis and has the ability to do so under its existing credit agreements. 10 12 Other (Income)Expense-Net - ------------------------- Other (income)expense-net included the following:
(In millions) Second quarter ended Six months ended June 30 June 30 -------------------- ---------------- 1999 1998 1999 1998 ---- ---- ---- ---- Other income $ (26) $ (15) $ (51) $ (81) Other expense 68 11 104 33 Gain from issuance of equity affiliate's stock -- -- (29) -- Gain from sale of equity affiliate's stock (79) -- (94) -- Foreign currency exchange 21 -- 70 2 ----- ----- ----- ----- $ (16) $ (4) $ -- $ (46) ----- ----- ----- -----
Other income for the six months ended June 30, 1998 included a $49 million benefit from the settlement of certain patent litigation. Other expense for the second quarter of 1999 and the six months ended June 30, 1999 included charges for underwriting and participation fees incurred to secure committed credit facilities related to the acquisition of LucasVarity of $12 million and $22 million, respectively, and additional goodwill amortization of $19 million and $21 million, respectively, primarily related to the acquisition of LucasVarity. During the first quarter of 1999, RF Micro Devices, Inc. (RFMD), an equity affiliate which designs, develops, manufactures and markets priority radio frequency integrated circuits for wireless communications applications, issued 2,012,500 shares of stock at $61.44 per share in a registered public offering, resulting in a gain of $29 million. Deferred taxes have been provided on the gain. During the first quarter of 1999, TRW sold 287,500 shares of RFMD common stock in the registered public offering resulting in a gain of $15 million. TRW sold an additional 1.7 million shares of RFMD during the second quarter of 1999 resulting in a gain of $79 million. TRW owned approximately 23 percent of RFMD as of June 30, 1999. Foreign currency exchange for the six months ended June 30, 1999 included a $50 million nonrecurring loss on foreign currency hedges related to the acquisition of LucasVarity. Foreign currency exchange for the second quarter and six months ended June, 30 1999 included a $20 million loss on foreign currency hedges of anticipated transactions. Supplemental Cash Flow Information - ---------------------------------- Six months ended (In millions) June 30 ---------------- 1999 1998 ---- ---- Interest paid (net of amount capitalized) $152 $ 62 Income taxes paid (net of refunds) $111 $149 For purposes of the statements of cash flows, TRW considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. 11 13 Earnings Per Share - ------------------
Quarter ended Six months ended In millions except per share data June 30 June 30 ------------------- ------------------- 1999 1998 1999 1998 ---- ---- ---- ---- Numerator Net earnings $ 139.8 $ 125.8 $ 111.4 $ 255.2 Preferred stock dividends .1 .1 .3 .3 ------- ------- ------- ------- Numerator for basic earnings per share--earnings available to common shareholders 139.7 125.7 111.1 254.9 Effect of dilutive securities Preferred stock dividends .1 .1 .3 .3 ------- ------- ------- ------- Numerator for diluted earnings per share-- earnings available to common shareholders after assumed conversions $ 139.8 $ 125.8 $ 111.4 $ 255.2 ------- ------- ------- ------- Denominator Denominator for basic earnings per share--weighted-average common shares 120.6 122.1 120.4 122.3 Effect of dilutive securities Convertible preferred stock .8 .9 .8 .9 Employee stock options 1.8 2.4 1.8 2.6 ------- ------- ------- ------- Dilutive potential common shares 2.6 3.3 2.6 3.5 Denominator for diluted earnings per share--adjusted weighted-average shares and assumed conversions 123.2 125.4 123.0 125.8 ------- ------- ------- ------- Basic earnings per share $ 1.16 $ 1.03 $ 0.92 $ 2.08 ------- ------- ------- ------- Diluted earnings per share $ 1.14 $ 1.00 $ 0.91 $ 2.03 ------- ------- ------- -------
Contingencies - ------------- During 1997, TRW Vehicle Safety Systems Inc., a wholly owned subsidiary of the Company, reported to the Arizona Department of Environmental Quality (ADEQ) potential violations of the Arizona hazardous waste law at its Queen Creek, Arizona facility for the possible failure to properly label and dispose of wastewater that might be classified as hazardous waste. ADEQ is conducting an investigation into these potential violations and the Company is cooperating with the investigation. If ADEQ initiates proceedings against the Company with respect to such matters, the Company could be liable for penalties and fines and other relief. The Arizona State Attorney General also is investigating matters, and federal, civil and criminal governmental investigations with respect to these potential violations are ongoing. Management is currently evaluating this matter and is unable to make a meaningful estimate of the amount or range of possible liability, if any, at this time, although management believes that the Company would have meritorious defenses. During 1996, the Company was advised by the United States Department of Justice (DOJ) that it had been named as a defendant in two lawsuits brought by a former employee of the Company's former Space & Technology Group and originally filed under seal in 1994 and 1995, respectively, in the United States District Court for the Central District of California under the qui tam provisions of the civil False Claims Act. The Act permits an individual to bring suit in the name of the United States and share in any recovery. The allegations in the lawsuits relate to the classification of costs incurred by the Company that were charged to certain of its federal contracts. Under the law, the government must investigate the allegations and determine whether it wishes to intervene and take responsibility for the lawsuits. On February 13, 12 14 1998, the DOJ intervened in the litigation. On February 19, 1998 and March 4, 1998, the former employee filed amended complaints in the Central District of California that realleged certain of the claims included in the 1994 and 1995 lawsuits and omitted the remainder. The amended complaints allege that the United States has incurred substantial damages and that the Company should be ordered to cease and desist from violations of the civil False Claims Act and is liable for treble damages, penalties, costs, including attorneys' fees, and such other relief as deemed proper by the court. On March 17, 1998, the DOJ filed its complaint against the Company upon intervention in the 1994 lawsuit, which set forth a limited number of the allegations in the 1994 lawsuit and other allegations not in the 1994 lawsuit. The DOJ elected not to pursue the other claims in the 1994 lawsuit or the claims in the 1995 lawsuit. The DOJ's complaint alleges that the Company is liable for treble damages, penalties, interest, costs and "other proper relief." On March 18, 1998, the former employee withdrew the first amended complaint in the 1994 lawsuit at the request of the DOJ. On May 18, 1998, the Company filed answers to the former employee's first amended complaint in the 1995 lawsuit and to the DOJ's complaint, denying all substantive allegations against the Company contained therein. At the same time, the Company filed counterclaims against both the former employee and the federal government. On July 20, 1998, both the former employee and the DOJ filed motions seeking to dismiss the Company's counterclaims. On November 23, 1998 (entered as an Order on January 21, 1999), the court dismissed certain counterclaims asserted against the former employee and the federal government and took under advisement the former employee's motion to dismiss certain other counterclaims. On March 15, 1999, the DOJ was granted leave to file a First Amended Complaint, which adds certain allegations concerning the Company's subcontracts. The Company cannot presently predict the outcome of these lawsuits, although management believes that their ultimate resolution will not have a material effect on the Company's financial condition or results of operations. Interim Statements - ------------------ The financial statements are based in part on approximations and are subject to adjustments that may develop, such as unsettled contract and renegotiation matters and matters that arise in connection with the annual audit of the financial statements; however, in the opinion of management, all adjustments (which consist of normal recurring accruals) necessary for a fair presentation of the results of operations for the periods presented have been included. Results of operations for any interim period are not necessarily indicative of the results to be expected for the full year. 13 15 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS (In millions except per share data)
Six Months Ended Second Quarter June 30 -------------------------------- ---------------------------- Percent Percent 1999 1998 Inc (Dec) 1999 1998 Inc (Dec) ---- ---- --------- ---- ---- --------- Sales $4,785 $3,028 58% $7,882 $6,123 29% Segment profit before income taxes $ 380 $ 265 44% $ 607 $ 539 13% Net earnings $ 139 $ 126 11% $ 111 $ 255 (56%) Diluted earnings per share $ 1.14 $ 1.00 14% $ 0.91 $ 2.03 (55%) Effective tax rate 35.7% 36.5% 50.4% 36.5%
Second quarter 1999 sales, segment profit before tax and net earnings reflect the first full quarter results of LucasVarity, which was acquired on March 25. Second quarter 1999 sales and segment profit before tax increased primarily due to the inclusion of LucasVarity sales and segment profit of $1.7 billion and $111 million, respectively. Net earnings for the second quarter 1999 increased primarily due to the net effect of the LucasVarity acquisition and a gain from the sale of RFMD stock which were partially offset by increased interest expense and automotive restructuring charges. Net earnings for the second quarter 1999 included a $52 million gain from the sale of RFMD stock offset by charges of $40 million for automotive restructuring and $26 million for unusual items pertaining to LucasVarity, which included: $13 million in unrealized losses on foreign currency hedges; a $13 million reduction in earnings to reflect the adjustment of the fair market value of inventory; and $8 million for fees incurred to secure committed credit facilities, reduced by the $8 million effect of discontinuing the depreciation of assets of businesses held for sale. Net earnings for the second quarter of 1998 included the effects of the General Motors strike and a litigation settlement, which reduced earnings by $.07 per share. Sales and segment profit before tax for the six months ended June 30, 1999 increased primarily due to the inclusion of LucasVarity sales and segment profit of $1.8 billion and $121 million, respectively. Net earnings for the first half of 1999 decreased primarily due to the net effect of the LucasVarity acquisition, increased interest expense, automotive restructuring charges and charges related to aerospace and information systems' contracts which were partially offset by a gain related to RFMD. Net earnings for the first half of 1999 included a gain of $80 million related to RFMD offset by charges of $47 million for automotive restructuring, $28 million for a commercial fixed-price contract and a capped cost reimbursable contract for the U.S. Army, and $152 million for unusual items related to LucasVarity, which included: an $85 million charge for purchased in-process research and development; a non-recurring loss of $33 million relating to forward contracts and currency options to purchase British pounds; $13 million in unrealized losses on foreign currency hedges; a $13 million reduction in earnings to reflect the adjustment of the fair market value of inventory; and $16 million for fees incurred to secure committed credit facilities, reduced by the $8 million effect of discontinuing the depreciation of assets of businesses held for sale. Net earnings for the first six months of 1998 included a $32 million benefit from the settlement of certain patent litigation, offset in part by $26 million in charges for litigation and contract reserves and severance costs 14 16 relating to the combination of TRW's systems integration business with BDM International, Inc., a business acquired in December of 1997. Interest expense was $185 million for the first six months of 1999 compared to $76 million for the first half of 1998. The increase in interest expense was primarily due to the debt incurred for the purchase of LucasVarity. The effective tax rate was 50.4 percent for the first six months of 1999 compared to 36.5 percent in 1998. Excluding the write-off of purchased in-process research and development, which has no tax benefit, the effective tax rate would have been 36.5 percent for the first six months of 1999. Automotive
Six Months Ended (In millions) Second Quarter June 30 ---------------------------- --------------------------- Percent Percent 1999 1998 Inc (Dec) 1999 1998 Inc (Dec) ---- ---- --------- ---- ---- --------- Sales $3,293 $1,813 82% $5,258 $3,699 42% Segment profit before income taxes $ 159 $ 153 4% $ 295 $ 302 (3%)
Second quarter 1999 sales increased primarily due to the inclusion of LucasVarity sales of $1.4 billion. Excluding LucasVarity, second quarter 1999 sales increased 4 percent to $1.9 billion from $1.8 billion in 1998 as higher volume, primarily in occupant restraints and electronics, was partially offset by the effects of a strong U.S. dollar and lower pricing across all product lines. Second quarter 1998 sales were affected by the General Motors strike. Second quarter 1999 segment profit before tax increased due to the inclusion of LucasVarity operations of $81 million. Excluding LucasVarity results and automotive restructuring charges of $59 million, segment profit before tax decreased 11 percent to $137 million in 1999, compared with $153 million in 1998, as cost reductions and increased volume were offset by lower pricing, start-up costs, and production inefficiencies related to the transfer of certain operations to lower-cost facilities in Mexico. Second quarter 1998 segment profit was affected by the General Motors strike. Sales for the six months ended June 30, 1999 increased primarily due to the inclusion of LucasVarity operations of $1.5 billion, as higher volume was partially offset by lower pricing and the effects of a strong U.S. dollar. Segment profit for the six months ended June 30, 1999 decreased as LucasVarity results of $89 million, cost reductions and increased volume were offset by automotive restructuring charges of $69 million, lower pricing, start-up costs, and production inefficiencies related to the transfer of certain operations to lower-cost facilities in Mexico. Overall, the automotive restructuring program is progressing, as six manufacturing facilities have been closed and eight others have been announced for closure or sale, which included recently a plant in England and two facilities in Australia. TRW has reduced employee headcount by more than 3,800 against a goal of 7,500. As to elimination of suppliers, TRW has reduced the total supplier count by more than 20 percent of its goal. In addition, on an annual basis, $60 million of the planned $75 million in selling, general, and administrative expense reductions has been achieved. 15 17 Aerospace & Information Systems
Six Months Ended (In millions) Second Quarter June 30 ---------------------------- ---------------------------- Percent Percent 1999 1998 Inc (Dec) 1999 1998 Inc (Dec) ---- ---- --------- ---- ---- --------- Sales $1,492 $1,215 23% $2,624 $2,424 8% Segment profit before income taxes $ 221 $ 112 99% $ 312 $ 237 32%
Second quarter 1999 sales increased due to the inclusion of LucasVarity sales of $282 million. Second quarter 1999 segment profit before tax increased as LucasVarity operations of $30 million, a gain of $79 million from the sale of RFMD stock and new contract awards were partially offset by contracts nearing completion. Segment profit before tax in the second quarter of 1998 included a $7 million charge for a litigation settlement. Sales for the six months ended June 30, 1999 increased as LucasVarity sales of $300 million and new contract awards were partially offset by contracts nearing completion, reduced funding on current programs, including a contract modification announced in 1998, and the termination of the SBIRS-Low contract. Segment profit before tax for the six months ended June 30, 1999 increased as LucasVarity operations of $32 million, a gain of $123 million related to RFMD and new contract awards were partially offset by contracts nearing completion, reduced funding on current programs, lower sales volume, increased product development costs associated with commercial programs and a $43 million charge for a commercial fixed-price contract and a capped cost reimbursable contract for the U.S. Army. Segment profit before tax for the first six months of 1998 included a $49 million benefit from the settlement of certain patent litigation, offset in part by $41 million in charges for litigation and contract reserves and severance costs relating to the combination of TRW's systems integration business with BDM. The first quarter of 1999 and 1998 results of operations for TRW's Telecommunications business were recorded as part of "Corporate expense and other." During the second quarter of 1999, management determined that the results of operations for the Telecommunications business would be reviewed and managed as part of the Aerospace & Information Systems segment and as such, segment profit for the first quarter of 1999 and 1998 has been restated to include the Telecommunications business. 16 18 ACQUISITIONS LucasVarity - ----------- On March 25, 1999, TRW acquired LucasVarity for approximately $6.8 billion in cash. The acquisition was accounted for as a purchase. The adjusted preliminary purchase price allocation resulted in an $85 million charge to earnings, with no income tax benefit, for the fair value of acquired in-process research and development (IPR&D) that had not reached technological feasibility and had no future alternative use, $560 million for identified intangible assets including intellectual property and workforce, and incremental fair value adjustments of approximately $1.5 billion for a prepaid pension asset, primarily from an overfunded pension plan, $180 million for fixed assets and $30 million for inventory. The fair value of IPR&D was determined using the income approach under the proportional method. The following projects were included in the valuation: next generation caliper of $26 million, next generation ABS brakes of $23 million, electro hydraulic braking of $12 million, aerospace engine controls of $18 million, and electrical parking brake of $6 million. A risk adjusted discount rate of 18 percent representing the cost of capital and a premium for the risk was used to discount the projects' cash flows. Operating margins were assumed to be similar to historical margins of similar products. The size of the applicable market was verified for reasonableness with outside research sources. The projects were in various stages of completion ranging from approximately 40 to 80 percent complete as of the valuation date. The stage of completion for each project was estimated by evaluating the cost to complete, complexity of the technology, and time to market. The projects are anticipated to be completed from late 1999 through 2002. The estimated cost to complete the projects is $65 million. TRW currently anticipates that these projects will be successfully developed as budgeted for both the estimated cost and time of completion. Any delay or cancellation of the projects would not have a material adverse impact on the results of operations or the financial condition of TRW. See the "Acquisitions" footnote in the Notes to Financial Statements for further discussion of the LucasVarity acquisition. 17 19 Astrolink LLC - ------------- On May 6, 1999, TRW announced that it will invest $250 million in Astrolink LLC, a strategic venture initiated by Lockheed Martin. In addition to TRW's investment, Lockheed Martin Global Telecommunications will invest $400 million and Telespazio, a Telecom Italia Group Company, will invest $250 million. Astrolink will commence construction of a system that will enable it to provide global, on-demand, wireless broadband service. Service is scheduled to begin in 2003. Astrolink will focus on the high-growth area of broadband data services, carrying traffic for Internet, intranet, multimedia and corporate data networks. TRW will build and deliver the digital, packet-switched communications payloads to Lockheed Martin Commercial Space Systems for integration into satellites which will be delivered to Astrolink. In addition, TRW will have the opportunity to be an Astrolink service provider. TRW's $250 million investment will be made in five installments over the next eighteen months, of which $83 million was invested in July 1999. BDM International, Inc. - ----------------------- In December of 1997, TRW acquired BDM International, Inc., resulting in a charge for in-process research & development of $548 million. To date, several commercial projects, including the Web-enabled warehouse and distribution project, have been delayed about one year due to the following circumstances: competitive pressures in the information technology markets requiring different or added functionality; delay in industry standards to be enacted by third parties; change in internal project staffing; and increased focus on Year 2000 compliance by customers. The costs to complete the projects are substantially unchanged from the assumptions used in the valuation. The delays of the projects are not expected to affect materially TRW's expected investment returns. TRW anticipates that these projects will be successfully developed; however, there can be no assurance that the products will be viable in the rapidly changing commercial marketplace. Any delay or cancellation of the projects would not have a material adverse impact on the results of operations or the financial condition of TRW. LIQUIDITY AND FINANCIAL POSITION In the first six months of 1999, a net increase in debt of $6,598 million, cash flow provided by operating activities of $346 million and proceeds from divestitures of $91 million were used to fund acquisitions of $6,049 million, capital expenditures of $356 million, dividend payments of $80 million and other items of $24 million. As a result, cash and cash equivalents increased by $526 million. Net debt (short-term debt, the current portion of long-term debt, long-term debt less cash and cash equivalents) was $9.1 billion at June 30, 1999, compared to $2.1 billion at December 31, 1998. The ratio of net debt to total capital (net debt, minority interests and shareholders' investment) was 84 percent at June 30, 1999, compared to 52 percent at December 31, 1998. 18 20 During the second quarter 1999, TRW refinanced short-term debt by issuing $2.4 billion of notes and debentures on May 26, 1999 with $400 million 6.5% Notes Due 2002, $700 million 6.625% Notes Due 2004, $750 million 7.125% Notes Due 2009, and $550 million 7.75% Debentures Due 2029. An additional $1.0 billion of notes were issued on June 18, 1999 with $575 million Floating Rate Notes due 2000 and $425 million 6.45% Notes due 2001. The $425 million 6.45% Notes due 2001 were simultaneously changed to floating rate through the execution of a $425 million interest rate swap. At June 30, 1999, $1.1 billion of short-term obligations were reclassified to long-term obligations as TRW intends to refinance the obligations on a long-term basis and has the ability to do so under its existing credit agreements. TRW received fully underwritten financing for the acquisition of LucasVarity in the form of a $7.4 billion two-tranche credit agreement with 59 banks. Tranche one of $3.7 billion expires December 31, 1999 and the second tranche of $3.7 billion expires January 26, 2000 with an option to extend the maturity of up to $2.0 billion of borrowings to January 26, 2001. The interest rates under the agreement are the prime rate and a rate based on a London Interbank Offered Rate. Issuance of long-term debt securities in the public or private capital markets and the net proceeds from divestitures, among other items, reduce the amount of the commitments by 100 percent under tranche one until it is zero and then by 50 percent under tranche two, with a maximum reduction under tranche two of $1.7 billion. At June 30, 1999, there were no outstanding borrowings under this agreement and tranche one was reduced by $3.4 billion due to the issuance of long-term debt. During the first quarter of 1999, TRW amended the terms of its $750 million and $745 million U.S. revolving credit agreements and its $250 million multicurrency revolving credit agreement to change commitment fees, borrowing margins and other key terms and conditions to conform to the terms of the $7.4 billion agreement. In addition, the expiration date of the $745 million agreement was extended from December 6, 1999 to January 26, 2000, with the provision that TRW may extend the maturity of borrowings to January 26, 2001. It is currently management's intention to renegotiate the Company's revolving credit agreements upon expiration to maintain facilities adequate to meet the Company's liquidity requirements. No securities were issued under the Universal Shelf Registration Statement during the first six months of 1999. As a result of the debt incurred for the LucasVarity acquisition, ratings on TRW's short and long-term debt were lowered. Moody's Investors Service has rated TRW's commercial paper at P-2 and senior unsecured debt at Baa1. Standard & Poor's has rated TRW's commercial paper at A-2 and senior unsecured debt at BBB. These rating changes are not expected to have a material impact on TRW's financial position. On May 17, 1999, TRW announced that it will divest its engine businesses, which consist of TRW Engine Components and Lucas Diesel Systems operations; TRW Nelson Stud Welding; and the LucasVarity Wiring companies. The estimated net proceeds from these divestitures are expected to be $1.2 to $1.5 billion. TRW has established a goal of reducing its net debt by approximately $2.5 billion, including the effects of these divestitures, by year-end 2000. Management believes TRW's current financial position and financing arrangements, including financing for the acquisition of LucasVarity, allow flexibility in worldwide financing activities and permit TRW to respond to changing conditions in credit markets. Management believes that funds generated from operations, the divestiture program and existing borrowing capacity are adequate to fund capital expenditures, working capital including tax requirements, company-sponsored research and development programs, dividend payments to shareholders and debt service requirements. 19 21 OTHER MATTERS During 1997, TRW Vehicle Safety Systems Inc., a wholly owned subsidiary of the Company, reported to the Arizona Department of Environmental Quality (ADEQ) potential violations of the Arizona hazardous waste law at its Queen Creek, Arizona facility for the possible failure to properly label and dispose of wastewater that might be classified as hazardous waste. If ADEQ initiates proceedings against the Company with respect to such matters, the Company could be liable for penalties and fines and other relief. Management is currently evaluating this matter and is unable to make a meaningful estimate of the amount or range of possible liability, if any, at this time, although management believes that the Company would have meritorious defenses. During 1996, the Company was advised by the United States Department of Justice that it had been named as a defendant in two lawsuits brought by a former employee and filed under seal in 1994 and 1995, respectively, in the United States District Court for the Central District of California under the qui tam provisions of the civil False Claims Act. The Company cannot presently predict the outcome of these lawsuits, although management believes that their ultimate resolution will not have a material effect on the Company's financial condition or results of operations. Refer to the "Contingencies" footnote in the Notes to Financial Statements for further discussion of these matters. Year 2000 A company-wide Year 2000 (Y2K) compliance program has been implemented to determine Y2K issues and assure Y2K compliance. TRW's Y2K compliance program now encompasses the Y2K program of LucasVarity. The compliance program has four major areas: internal computer systems, factory floor systems, supplier and service management and products and contracts. The general phases of the compliance program are Project Start-up; Inventory and Assessment; Conversion, Upgrade and Renovation; Validation, including testing; and Implementation. The Project Start-up and the Inventory and Assessment phases are complete. Conversion, Upgrade and Renovation are essentially complete with the remainder of the Y2K compliance program scheduled to be complete by year-end 1999, except for certain Y2K upgrades for nonmaterial and low priority items. The internal computer systems are comprised of engineering and research and development facilities, business computer systems, end user systems and technical infrastructure. The Company estimates that 96 percent of TRW's internal computer systems are Y2K compliant and expects the remainder to be essentially complete by the end of September 1999. Remaining activities are driven by customer changes, planned later upgrades, or continuing updates to reflect vendor Y2K upgrades. The Company estimates that 98 percent of LucasVarity's internal computer systems are Y2K compliant and expects the remainder to be essentially complete by the end of September 1999. The majority of critical contingency plans for these systems were developed during the second quarter 1999, with the remainder to be developed during the third quarter 1999. The factory floor systems are comprised of manufacturing and warehousing equipment. The Company estimates that 96 percent of TRW's factory floor systems are Y2K compliant and expects the remainder to be essentially complete by the end of September 1999. The Company estimates that 99 percent of LucasVarity's factory floor systems are Y2K compliant and expects the remainder to be essentially complete by the end of September 1999. The majority of critical contingency plans for these systems were developed during the second quarter 1999 with the remainder to be developed during the third quarter 1999. The Company is continuing to evaluate Y2K issues associated with suppliers to TRW's Automotive business by working with the Automotive Industries Action Group (AIAG), which consists of several of TRW's largest automotive customers and suppliers. The AIAG sent self-assessment surveys to approximately 15,000 20 22 TRW suppliers. The Company continues to evaluate the criticality of suppliers and has reduced its estimated critical suppliers to TRW's automotive business from 3,900 to 3,000. The Company has validated the critical suppliers' state of Y2K readiness and evaluated the risk to the Company by reviewing the self-assessment surveys and by conducting telephone surveys or on-site visits for selected critical suppliers. Y2K readiness responses have been received from critical automotive suppliers and service providers, except for a small number of suppliers where evaluations continue. The Company has developed 86 percent of contingency plans for critical suppliers and service providers and will continue this activity throughout 1999. Such plans consider alternate sourcing, stockpiling of inventory and supplies and disaster recovery scenarios. Y2K certification requests were sent to approximately 8,200 suppliers and service providers to TRW's space, defense and information systems businesses, of which about 1,200 are considered critical. All of these critical suppliers have certified Y2K compliance. Contingency plans were developed during the second quarter and will continue to be developed throughout 1999. Approximately 5,500 of LucasVarity's 20,000 automotive and aerospace suppliers and service providers are critical to its business. Each critical supplier and service provider is being contacted and their state of Y2K readiness is being validated. LucasVarity has received responses from approximately 99 percent of its critical suppliers and service providers, and these responses have been reviewed to determine what, if any, follow up actions may be necessary. Suppliers and service providers assessed as being high risk, or of particular significance to the business, have been reviewed further to evaluate the risks to LucasVarity. The validation and contingency planning related to LucasVarity's suppliers and service providers will be essentially complete by the end of September 1999. The Company has assessed the products of the existing TRW automotive business and determined that there should be no Y2K issues. Also, LucasVarity has assessed its automotive and aerospace products and determined that there should be no Y2K issues. Contracts entered into by TRW's space, defense and information systems businesses after January 1, 1996 and contract modifications entered into after January 1, 1996 that add major scope to earlier contracts have been assessed. The Company continues to review and refine the contracts identified as having Y2K impacts. At the end of the second quarter, the Company has determined that approximately 400 contracts have Y2K impacts. The remediation and validation has been completed for 360 of these contracts. Work continues based on customer mandated schedules for the remaining contracts. The Company expects renovations and critical contingency planning to be performed throughout 1999. As part of a continuing process under the Y2K program, issues are being assessed as they are identified, using formal program reviews to assess progress and initiate required actions. As the Company's Y2K compliance program proceeds, contingency plans are being prepared, updated and implemented as necessary to address the risks identified. The Company has identified the most likely risks of Y2K noncompliance as the risk that key suppliers will not be Y2K compliant and the risk that space, defense and information systems' contracts will have unanticipated Y2K-related issues. Due to the general uncertainty inherent in the Y2K problem, the Company is unable to determine at this time whether the consequences of Y2K compliance failures will have a material effect on the Company's results of operations or financial condition. In addition, the Company does not have control over service providers and as a result cannot currently estimate to what extent future operating results may be adversely affected by the failure of these service providers to address their Y2K issues successfully. The total cost of the Company's Y2K compliance program, including LucasVarity from the date of acquisition, is estimated to be $170 million and includes $85 million for capitalizable costs and $85 million of costs that are being expensed as incurred. The Company has expensed approximately $63 million to 21 23 date, including $2 million relating to LucasVarity. The Company expects to expense an additional $15 million throughout the remainder of 1999. The Company does not anticipate that the overall costs of the Company's Y2K compliance program will have a material effect on the Company's financial results or financial condition. The dates of completion and the costs of the Company's Y2K program are based on management's estimates, which were derived utilizing assumptions of future events, including the availability of certain resources, third party modification plans and other factors. There can be no guarantee that these estimates will be achieved, and if the actual timing and costs for the Company's Y2K program differ materially from those anticipated, the Company's financial results and financial condition could be materially adversely affected. Euro Conversion On December 31, 1998, certain member countries of the European Union irrevocably fixed the conversion rates between their national currencies and a common currency, the "Euro," which became their legal currency on January 1, 1999. The participating countries' former national currencies will continue to exist as denominations of the Euro between January 1, 1999 and January 1, 2002. TRW has evaluated the business implications of conversion to the Euro, including the need to adapt internal systems to accommodate Euro-denominated transactions, including receipts and payments, the competitive implications of cross-border price transparency and other strategic implications. TRW's primary customers in the automotive industry in Europe are expected to require Euro invoicing during 1999. Invoicing and other business functions will be Euro-capable by the end of the transition period but may be converted earlier where operationally efficient or cost-effective or to meet customer requirements. TRW's exposure to foreign currency risk and the related use of derivative contracts to mitigate that risk is expected to be reduced as a result of conversion to the Euro. TRW does not expect the conversion to the Euro to have a material effect on its financial condition or results of operations. Forward-Looking Statements Statements in this filing that are not statements of historical fact are forward-looking statements. In addition, from time to time, TRW and its representatives may make statements that are forward-looking. All forward-looking statements involve risks and uncertainties. This section provides readers with cautionary statements identifying, for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, important factors that could cause TRW's actual results to differ materially from those contained in forward-looking statements made in this filing or otherwise made by, or on behalf of, TRW. The following are some of the factors that could cause actual results to differ materially from estimates contained in TRW's forward-looking statements: Our consolidated results could be affected by: unanticipated events and circumstances that may occur and render TRW's acquisition of LucasVarity less beneficial to TRW than anticipated; intense competition in our markets that make it impossible to achieve the expected financial and operating results and synergies from the acquisition of LucasVarity; the ability of TRW to integrate LucasVarity into its operations and thereby achieve the anticipated cost savings and be in a position to take advantage of potential growth opportunities; the ability to continue technical innovation and the development of and demand for new products and contract awards; pricing pressures from customers; the ability to reduce the level of outstanding debt from cash flow from operations and the proceeds from dispositions planned in 22 24 our automotive business; the ability to effectively implement the company-wide Y2K compliance program in accordance with the estimated timetable and costs described herein and the preparedness of our critical suppliers; the introduction of competing products or technology by competitors; the availability of funding for research and development; the ability to meet performance and delivery requirements on systems for customers; the economic, regulatory and political instability of Brazil, Asia and certain emerging countries; and the ability to attract and retain skilled employees with high-level technical competencies. Our automotive business also could be affected by: the ability to effectively implement the Company's automotive restructuring program and improve automotive margins; changes in consumer debt levels and interest rates; the cyclical nature of the automotive industry; moderation or decline in the automobile build rate; work stoppages; customer warranty claims; and changes to the regulatory environment regarding automotive safety. Our aerospace and information systems business also could be affected by: the level of defense funding by the government; the termination of existing government contracts; and the ability to develop and market products and services for customers outside of the traditional aerospace and information systems markets. The foregoing list of important factors is not exclusive. We caution that any forward-looking statement reflects only the beliefs of TRW or its management at the time the statement is made. The Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement was made. 23 25 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK TRW is subject to inherent risks attributed to operating in a global economy. It is TRW's policy to utilize derivative financial instruments to manage its interest rate and foreign currency exchange rate risks. When appropriate, TRW uses derivatives to hedge its exposure to short-term interest rate changes as a lower cost substitute for the issuance of fixed-rate debt. TRW manages cash flow transactional foreign exchange risk pursuant to a written corporate policy. Forward contracts and, to a lesser extent, options are utilized to protect TRW's cash flow from adverse movements in exchange rates. Also, at certain times, TRW may use interest rate agreements in the management of interest rate exposure on debt issuances. TRW is exposed to credit loss in the event of nonperformance by the other party to derivative financial instruments. TRW limits this exposure by entering into agreements with a number of major financial institutions that meet credit standards established by TRW and that are expected to satisfy fully their obligations under the contracts. Derivative financial instruments are viewed by TRW as a risk management tool and are not used for speculative or trading purposes. Based on TRW's interest rate exposure on variable rate borrowings at June 30, 1999, a one-percentage-point increase in the average interest rate on TRW's variable rate borrowings would increase future interest expense by approximately $5 million per month. Based on TRW's exposure to foreign currency exchange rate risk resulting from derivative foreign currency instruments outstanding at June 30, 1999, a 10 percent uniform strengthening in the value of the U.S. dollar relative to the currencies in which those derivative foreign currency instruments are denominated would result in a $75 million loss in fair value. Based on TRW's interest rate exposure with regard to the interest rate swap outstanding at June 30, 1999, a 10 percent increase of the fixed interest rate component of the swap at June 30, 1999 would result in a $5 million loss in fair value. TRW's sensitivity analyses of the effects of changes in interest rates and foreign currency exchange rates do not reflect the effect of such changes on the related hedged transactions or on other operating transactions. TRW's sensitivity analyses of the effects of changes in interest rates and foreign currency exchange rates do not factor in a potential change in the level of variable rate borrowings or derivative instruments outstanding that could take place if these hypothetical conditions prevailed. Refer to the "Foreign Exchange Contracts" and the "Interest Rate Swap Agreements" footnotes in the Notes to Financial Statements for further discussion of derivative instruments as of June 30, 1999. 24 26 PART II. OTHER INFORMATION Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. (a) The Company held its 1999 Annual Meeting of Shareholders on April 28, 1999. (b) Proxies for the Annual Meeting of Shareholders were solicited pursuant to Regulation 14 under the Act; there was no solicitation in opposition to management's nominees as listed in the proxy statement, and all of such nominees were elected. (c) Martin Feldstein was elected a Director of the Company with 104,704,487 votes for election, 2,086,929 votes withheld from voting and 13,307,275 shares not voted, including broker non-votes. Robert M. Gates was elected a Director of the Company with 104,707,482 votes for election, 2,083,934 votes withheld from voting and 13,307,275 shares not voted, including broker non-votes. E. Bradley Jones was elected a Director of the Company with 104,538,852 votes for election, 2,252,564 votes withheld from voting and 13,307,275 shares not voted, including broker non-votes. David Baker Lewis was elected a Director of the Company with 104,637,794 votes for election, 2,153,622 votes withheld from voting and 13,307,275 shares not voted, including broker non-votes. The shareholders ratified the appointment of Ernst & Young LLP as the Company's independent auditors for the 1999 fiscal year with 105,835,702 votes for, 496,668 votes against, 459,046 votes abstaining and 13,307,275 shares not voted, including broker non-votes. The shareholders defeated a shareholder proposal regarding the annual election of directors, with 46,562,726 votes for the annual election of directors, 52,835,188 votes against and 20,700,777 shares not voted, including broker non-votes and abstentions. (d) None. Item 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits: 4(a) Second Supplemental Indenture between TRW and The Chase Manhattan Bank, as successor Trustee, dated as of June 2, 1999 (incorporated by reference to Exhibit 4(c) to TRW Inc.'s Registration Statement on Form S-4, filed July 20, 1999, File No. 333-83227) 4(b) Third Supplemental Indenture between TRW and The Chase Manhattan Bank, as successor Trustee, dated as of June 2, 1999 (incorporated by reference to Exhibit 4(d) to TRW Inc.'s Registration Statement on Form S-4, filed July 20, 1999, File No. 333-83227) 4(c) Fourth Supplemental Indenture between TRW and The Chase Manhattan Bank, as successor Trustee, dated as of June 2, 1999 (incorporated by reference to Exhibit 4(e) to TRW Inc.'s Registration Statement on Form S-4, filed July 20, 1999, File No. 333-83227) 4(d) Fifth Supplemental Indenture between TRW and The Chase Manhattan Bank, as successor Trustee, dated as of June 2, 1999 (incorporated by reference to Exhibit 4(f) to TRW Inc.'s Registration Statement on Form S-4, filed July 20, 1999, File No. 333-83227) 25 27 4(e) Sixth Supplemental Indenture between TRW and The Chase Manhattan Bank, as successor Trustee, dated as of June 23, 1999 (incorporated by reference to Exhibit 4(g) to TRW Inc.'s Registration Statement on Form S-4, filed July 20, 1999, File No. 333-83227) 4(f) Registration Rights Agreement, dated May 26, 1999, among TRW and Morgan Stanley & Co. Incorporated, J.P. Morgan Securities Inc. and Salomon Smith Barney Inc., as representatives of the initial purchasers (incorporated by reference to Exhibit 4(m) to TRW Inc.'s Registration Statement on Form S-4, filed July 20, 1999, File No. 333-83227) 4(g) Registration Rights Agreement, dated June 23, 1999, between TRW and Goldman, Sachs & Co., as representative of the initial purchasers (incorporated by reference to Exhibit 4(n) to TRW Inc.'s Registration Statement on Form S-4, filed July 20, 1999, File No. 333-83227) 10(a) Purchase Agreement, dated May 26, 1999, between TRW and Morgan Stanley & Co. Incorporated, J.P. Morgan Securities Inc. and Salomon Smith Barney Inc., as representatives of the initial purchasers named therein 10(b) Purchase Agreement, dated June 18, 1999, between TRW and Goldman, Sachs & Co., as representative of the initial purchasers named therein 10(c) Letter Agreement, dated April 28, 1999, between TRW and Carl Hahn regarding services as an Advisory Director of TRW 27 Financial Data Schedule 99 Computation of Ratio of Earnings to Fixed Charges -- Unaudited (Supplement to Exhibit 12 of the following Form S-3 Registration Statement of the Company: No. 333-48443, filed March 23, 1998) Certain instruments with respect to long-term debt have not been filed as exhibits as the total amount of securities authorized under any one of such instruments does not exceed 10 percent of the total assets of the registrant and its subsidiaries on a consolidated basis. The registrant agrees to furnish to the Commission a copy of each such instrument upon request. (b) Reports on Form 8-K: Current Report on Form 8-K dated March 26, 1999, as amended May 17, 1999, as to the completion of the acquisition of LucasVarity plc and filing the pro forma and historical financial statements of LucasVarity plc. Current Report on Form 8-K dated May 27, 1999, as to the sale of $2.4 billion aggregate principal amount of debt securities under Rule 144A and Regulation S. Current Report on Form 8-K dated June 21, 1999, as to the sale of $1.0 billion aggregate principal amount of debt securities under Rule 144A. 26 28 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TRW Inc. Date: August 12, 1999 By: /s/ William B. Lawrence ----------------------- William B. Lawrence Executive Vice President and Secretary By: /s/ Carl G. Miller ------------------ Carl G. Miller Executive Vice President and Chief Financial Officer 27 29 EXHIBIT INDEX ------------- Exhibit Number Description -------------- ----------- 4(a) Second Supplemental Indenture between TRW and The Chase Manhattan Bank, as successor Trustee, dated as of June 2, 1999 (incorporated by reference to Exhibit 4(c) to TRW Inc.'s Registration Statement on Form S-4, filed July 20, 1999, File No. 333-83227) 4(b) Third Supplemental Indenture between TRW and The Chase Manhattan Bank, as successor Trustee, dated as of June 2, 1999 (incorporated by reference to Exhibit 4(d) to TRW Inc.'s Registration Statement on Form S-4, filed July 20, 1999, File No. 333-83227) 4(c) Fourth Supplemental Indenture between TRW and The Chase Manhattan Bank, as successor Trustee, dated as of June 2, 1999 (incorporated by reference to Exhibit 4(e) to TRW Inc.'s Registration Statement on Form S-4, filed July 20, 1999, File No. 333-83227) 4(d) Fifth Supplemental Indenture between TRW and The Chase Manhattan Bank, as successor Trustee, dated as of June 2, 1999 (incorporated by reference to Exhibit 4(f) to TRW Inc.'s Registration Statement on Form S-4, filed July 20, 1999, File No. 333-83227) 4(e) Sixth Supplemental Indenture between TRW and The Chase Manhattan Bank, as successor Trustee, dated as of June 23, 1999 (incorporated by reference to Exhibit 4(g) to TRW Inc.'s Registration Statement on Form S-4, filed July 20, 1999, File No. 333-83227) 4(f) Registration Rights Agreement, dated May 26, 1999, among TRW and Morgan Stanley & Co. Incorporated, J.P. Morgan Securities Inc. and Salomon Smith Barney Inc., as representatives of the initial purchasers (incorporated by reference to Exhibit 4(m) to TRW Inc.'s Registration Statement on Form S-4, filed July 20, 1999, File No. 333-83227) 4(g) Registration Rights Agreement, dated June 23, 1999, between TRW and Goldman, Sachs & Co., as representative of the initial purchasers (incorporated by reference to Exhibit 4(n) to TRW Inc.'s Registration Statement on Form S-4, filed July 20, 1999, File No. 333-83227) 10(a) Purchase Agreement, dated May 26, 1999, between TRW and Morgan Stanley & Co. Incorporated, J.P. Morgan Securities Inc. and Salomon Smith Barney Inc., as representatives of the initial purchasers named therein 10(b) Purchase Agreement, dated June 18, 1999, between TRW and Goldman, Sachs & Co., as representative of the initial purchasers named therein 28 30 10(c) Letter Agreement, dated April 28, 1999, between TRW and Carl Hahn regarding services as an Advisory Director of TRW 27 Financial Data Schedule 99 Computation of Ratio of Earnings to Fixed Charges - Unaudited (Supplement to Exhibit 12 of the following Form S-3 Registration Statement of the Company: No. 333-48443, filed March 23, 1998) EX-10.A 2 EXHIBIT 10(A) 1 Exhibit 10(a) ------------- $400,000,000 $700,000,000 $750,000,000 $550,000,000 TRW INC. 6 1/2% Notes Due 2002 6 5/8% Notes Due 2004 7 1/8% Notes Due 2009 7 3/4% Debentures Due 2029 PURCHASE AGREEMENT May 26, 1999 2 May 26, 1999 Morgan Stanley & Co. Incorporated J.P. Morgan Securities Inc. Salomon Smith Barney Inc., as representatives of the Initial Purchasers named in Schedule II hereto c/o Morgan Stanley & Co. Incorporated 1585 Broadway New York, New York 10036 Dear Sirs and Mesdames: TRW Inc., an Ohio corporation (the "COMPANY"), proposes to issue and sell to the several purchasers named in Schedule II hereto (the "INITIAL PURCHASERS"), for whom you (the "Representatives") are acting as representatives, $400,000,000 principal amount of its 6 1/2% Notes Due 2002, $700,000,000 principal amount of its 6 5/8% Notes Due 2004, $750,000,000 principal amount of its 7 1/8% Notes Due 2009, and $550,000,000 principal amount of its 7 3/4% Debentures Due 2029 (collectively, the "SECURITIES"), to be issued pursuant to the provisions of an Indenture dated as of May 1, 1986 (as supplemented, the "INDENTURE"), as supplemented by the First Supplemental Indenture dated as of August 24, 1989, the Second Supplemental Indenture dated as of June 2, 1999, the Third Supplemental Indenture dated as of June 2, 1999, the Fourth Supplemental Indenture dated as of June 2, 1999, and the Fifth Supplemental Indenture dated as of June 2, 1999, between the Company and The Chase Manhattan Bank, as successor Trustee (the "TRUSTEE") to Mellon Bank N.A. The Securities will be offered and sold without being registered under the Securities Act of 1933, as amended (the "SECURITIES ACT"), to qualified institutional buyers in compliance with the exemption from registration provided by Rule 144A under the Securities Act, in offshore transactions in reliance on Regulation S under the Securities Act ("REGULATION S") and to institutional accredited investors (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) that deliver a letter in the form annexed to the Final Memorandum (as defined below). In connection with the sale of the Securities, the Company has prepared a preliminary offering memorandum (the "PRELIMINARY MEMORANDUM") and will prepare a final offering memorandum (the "FINAL MEMORANDUM" and, with the Preliminary Memorandum, each a "MEMORANDUM") including or incorporating by reference a description of the terms of the Securities, the terms of the offering and a description of the Company. The Company hereby confirms that it has authorized the use of each Memorandum in connection with the offering and resale of the Securities by the Initial Purchasers, subject to their obligations hereunder. As used herein, the term "Memorandum" shall include in each case the documents incorporated by reference therein. The terms "SUPPLEMENT", "AMENDMENT" and "AMEND" as used herein with 2 3 respect to a Memorandum shall include all documents deemed to be incorporated by reference in the Preliminary Memorandum or Final Memorandum that are filed subsequent to the date of such Memorandum with the Securities and Exchange Commission (the "COMMISSION") pursuant to the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"). The Initial Purchasers and their direct and indirect permitted transferees will be entitled to the benefits of the Registration Rights Agreement dated the date hereof between the Company and the Initial Purchasers (the "Registration Rights Agreement"), pursuant to which the Company will file a registration statement or registration statements (each, a "Registration Statement") with the Commission registering the Securities and/or the Exchange Securities (as defined in the Registration Rights Agreement) under the Securities Act. 1. Representations and Warranties. The Company represents and warrants to, and agrees with, each Initial Purchaser as set forth below in this Section 1: (a) Each document, if any, filed or to be filed pursuant to the Exchange Act and incorporated by reference in either Memorandum complied or will comply when so filed in all material respects with the Exchange Act and the rules and regulations thereunder and when read together and with the other information in the Preliminary Memorandum does not contain and the Final Memorandum, in the form used by the Initial Purchasers to confirm sales and on the Closing Date (as defined in Section 4), will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (b) Any documents filed by the Company under the Exchange Act that are incorporated by reference (in whole or in part) in either Memorandum or that are incorporated by reference (in whole or in part) in a Registration Statement, as of the dates they were filed or hereafter are with the Commission, complied and will comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations of the Commission thereunder (the "Exchange Act Regulations"). (c) When the Securities are issued and delivered pursuant to this Agreement, such securities will not be of the same class (within the meaning of Rule 144A) as securities of the Company which are listed on a national securities exchange registered under Section 6 of the Exchange Act or quoted in a U.S. automated interdealer quotation system. (d) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of Ohio, with corporate power and authority to own, lease and operate its properties and to conduct its business as described in each Memorandum and is duly qualified as a foreign corporation to transact business in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent 3 4 that the failure to be so qualified would not have a material adverse effect on the financial condition or earnings, business affairs or business prospects of the Company and its subsidiaries, taken as a whole; and the Company is in good standing in the State of California and the Commonwealth of Virginia. (e) (if the Company has one or more Significant Subsidiaries as of the date hereof and as of the Closing Date) each Significant Subsidiary of the Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own, lease and operate its property and to conduct its business as described in each Memorandum and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the financial condition, or the earnings, business affairs or business prospects of the Company and its subsidiaries, taken as a whole; all of the issued shares of capital stock of each Significant Subsidiary of the Company held by the Company have been duly and validly authorized and issued, are fully paid and non-assessable and are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims. For purposes of this paragraph a "Significant Subsidiary" shall mean a "significant subsidiary" as defined in Rule 405 of Regulation C under the Act. (f) This Agreement has been duly authorized, executed and delivered by the Company. (g) The Securities have been duly authorized and, when executed and authenticated in accordance with the provisions of the Indenture and delivered to and paid for by the Initial Purchasers in accordance with the terms of this Agreement, will constitute valid and legally binding obligations of the Company enforceable in accordance with their terms, except as enforcement thereof may be limited by bankruptcy, insolvency or other laws relating to or affecting enforcement of creditors' rights or by general equity principles, and except further as enforcement thereof may be limited by (i) requirements that a claim with respect to any Securities denominated other than in United States dollars (or a foreign currency or currency unit judgment in respect of such claim) be converted into United States dollars at a rate of exchange prevailing on a date determined pursuant to applicable law or (ii) governmental authority to limit, delay or prohibit the making of payments in a foreign currency or currency units or payments outside the United States; the Securities and the Indenture will be substantially in the form heretofore delivered to the Initial Purchasers and conform in all material respects to all statements relating thereto contained in the Final Memorandum; and the Securities will be entitled to the benefits provided by the Indenture. (h) Each of the Indenture and the Registration Rights Agreement has been duly authorized, executed and delivered by, and is a valid and legally binding agreement of, the Company enforceable in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency or other laws 4 5 relating to or affecting enforcement of creditors' rights or by general equity principles and except as rights to indemnification and contribution under the Registration Rights Agreement may be limited under applicable law. The Registration Rights Agreement will conform in all material respects to the description thereof, if any, to be contained in either Memorandum. (i) The execution and delivery by the Company of, and the performance by the Company of its obligations under, this Agreement, the Indenture, the Registration Rights Agreement and the Securities will not contravene any provision of applicable law or constitute a default under the Amended Articles of Incorporation of the Company or by-laws of the Company or any indenture, other agreement or instrument binding upon the Company or any of its subsidiaries that is material to the Company and its subsidiaries, taken as a whole, or any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Company or any subsidiary, and no consent, approval, authorization or order of, or qualification with, any court or governmental body or agency is required for the performance by the Company of its obligations under this Agreement, the Indenture, the Securities or the Registration Rights Agreement, except such as may be required by the securities or Blue Sky laws of the various states in connection with the offer and sale of the Securities. (j) Except as may be set forth in either Memorandum, there is no action, suit or proceeding before or by any court or governmental agency or body, domestic or foreign, now pending, against or affecting, the Company or any of its subsidiaries, which might, in the opinion of the Company, result in any material adverse change in the financial position of the Company and its subsidiaries taken as a whole, or might materially and adversely affect the assets of the Company and its subsidiaries, taken as a whole. (k) The Company is not, and after giving effect to the offering and sale of the Securities and the application of the proceeds thereof as described in the Final Memorandum, will not be an "investment company" as such term is defined in the Investment Company Act of 1940, as amended. (l) Neither the Company nor any affiliate (as defined in Rule 501(b) of Regulation D under the Securities Act, an "AFFILIATE") of the Company has directly, or through any agent, (i) sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of, any security (as defined in the Securities Act) which is or will be integrated with the sale of the Securities in a manner that would require the registration under the Securities Act of the Securities or (ii) engaged in any form of general solicitation or general advertising in connection with the offering of the Securities, (as those terms are used in Regulation D under the Securities Act) or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act; provided, however, the Company makes no representations with respect to the activities of the Initial Purchasers. (m) None of the Company, its Affiliates or any person acting on its or their behalf has engaged or will engage in any directed selling efforts (within the 5 6 meaning of Regulation S) with respect to the Securities and the Company and its Affiliates and any person acting on its or their behalf have complied and will comply with the offering restrictions requirement of Regulation S; provided, however, the Company makes no representations with respect to the activities of the Initial Purchasers. (n) It is not necessary in connection with the offer, sale and delivery of the Securities to the Initial Purchasers in the manner contemplated by this Agreement to register the Securities under the Securities Act or to qualify any indenture in respect of the Securities under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). (o) The Securities satisfy the requirements set forth in Rule 144A(d)(3) under the Securities Act. (p) The financial statements of the Company and its consolidated subsidiaries included or incorporated by reference in either Memorandum present fairly the consolidated financial position of the Company and its consolidated subsidiaries as at the dates indicated and the consolidated results of their operations for the periods specified; and except as stated therein, said financial statements have been prepared in conformity with generally accepted accounting principles in the United States applied on a consistent basis. 2. Agreements to Sell and Purchase. The Company hereby agrees to sell to the several Initial Purchasers, and each Initial Purchaser, upon the basis of the representations and warranties herein contained, but subject to the conditions hereinafter stated, agrees, severally and not jointly, to purchase from the Company at the purchase price for the Securities set forth in Schedule I hereto, the respective principal amount of Securities set forth opposite such Initial Purchaser's name in Schedule II hereto. 3. Terms of Offering. You have advised the Company that the Initial Purchasers will make an offering of the Securities purchased by the Initial Purchasers hereunder on the terms to be set forth in the Final Memorandum, as soon as practicable after this Agreement is entered into as in your judgment is advisable. 4. Payment and Delivery. Payment for the Securities shall be made to the Company in Federal or other funds immediately available in New York City against delivery of such Securities for the respective accounts of the several Initial Purchasers at 10:00 a.m., New York City time, on June 2, 1999, or at such other time on the same or such other date, not later than June 9, 1999, as shall be designated in writing by you. The time and date of such payment are hereinafter referred to as the "CLOSING DATE." Certificates for the Securities shall be in definitive form or global form, as specified by you, and registered in such names and in such denominations as you shall request in writing not later than one full business day prior to the Closing Date. The certificates evidencing the Securities shall be delivered to you on the Closing Date for the respective accounts of the several Initial Purchasers, with any transfer taxes payable in connection with the transfer of the Securities to the Initial Purchasers duly paid, against 6 7 payment of the Purchase Price therefor plus accrued interest, if any, to the date of payment and delivery. 5. Conditions to the Initial Purchasers' Obligations. The several obligations of the Initial Purchasers to purchase and pay for the Securities on the Closing Date shall be subject to the accuracy of the representations and warranties on the part of the Company contained herein as of the date hereof, and as of the Closing Date, to the accuracy of the statements of the Company made in any certificates pursuant to the provisions hereof, to the performance by the Company of its obligations hereunder, to the due execution and delivery of the Indenture and to the following additional conditions: (a) The Initial Purchasers shall have received on the Closing Date a certificate, dated the Closing Date and signed by an executive officer of the Company, to the effect that the representations and warranties of the Company contained in this Agreement are true and correct in all material respects as of the Closing Date with the same effect as if made on the Closing Date and that the Company has complied with all of the agreements and satisfied all of the conditions on its part to be performed or satisfied hereunder on or before the Closing Date and that, subsequent to the date of most recent financial statements in the Final Memorandum, there has been no material adverse change in the condition (financial or other), earnings, business or properties of the Company and its subsidiaries taken as a whole, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated by the Final Memorandum or as described in such certificate. (b) The Initial Purchasers shall have received on the Closing Date an opinion of the General Counsel or an Assistant General Counsel of the Company, dated the Closing Date, to the effect set forth in Exhibit A. (c) The Initial Purchasers shall have received on the Closing Date an opinion of Cravath, Swaine & Moore, counsel for the Initial Purchasers, dated the Closing Date, to the effect set forth in Exhibit B. (d) The Initial Purchasers shall have received on the Closing Date a letter, dated the Closing Date in form and substance satisfactory to the Initial Purchasers, from each of (i) Ernst & Young LLP, independent public accountants, (ii) KPMG Audit plc, independent public accountants, (iii) KPMG Audit plc and Ernst & Young, jointly, and (iv) Ernst & Young, independent public accountants, in each case containing statements and information of the type ordinarily included in accountants' "comfort letters" to underwriters with respect to the financial statements and certain financial information contained in or incorporated by reference into the Final Memorandum; provided that (A) the Ernst & Young LLP letter delivered on the Closing Date shall use a "cut-off date" not earlier than the date hereof and (B) the KPMG Audit plc letter delivered on the Closing Date shall use a "cut-off date" not earlier than March 24, 1999. 7 8 (e) Subsequent to the execution of this Agreement, there shall not have been any decrease in the ratings of any of the Company's debt securities by Moody's Investors Service, Inc. or Standard & Poor's Corporation. (f) Prior to the Closing Date, the Company shall have furnished to the Initial Purchasers such further information, certificates and documents as the Representatives may reasonably request. (g) The Registration Rights Agreement shall have been duly authorized, executed and delivered by the Company, the Indenture shall have been duly authorized, executed and delivered by the Company, all the covenants and agreements contained herein to be fulfilled or complied with by the Company at or prior to such Closing Date shall have been duly performed, fulfilled or complied with in all material respects. If any of the conditions specified in this Section 5 shall not have been fulfilled in all material respects when and as provided in this Agreement, or if any of the opinions and certificates mentioned above or elsewhere in this Agreement shall not be in all material respects reasonably satisfactory in form and substance to the Initial Purchasers and counsel for the Initial Purchasers, this Agreement and all obligations of the Initial Purchasers hereunder may be canceled at, or at any time prior to, the Closing Date by the Initial Purchasers. Notice of such cancelation shall be given to the Company in writing or by telephone or telegraph confirmed in writing. 6. Covenants of the Company. In further consideration of the agreements of the Initial Purchasers contained in this Agreement, the Company covenants with each Initial Purchaser as follows: (a) To furnish to you in New York City, without charge, prior to 10:00 a.m., New York City time, on the business day next succeeding the date of this Agreement and during the period mentioned in Section 6(c), as many copies of the Final Memorandum, any documents incorporated by reference therein and any supplements and amendments thereto as you may reasonably request. The Company will pay the expenses of printing all documents relating to the offering. (b) The Company will advise the Initial Purchasers promptly of any proposal to amend or supplement either Memorandum and will afford the Initial Purchasers a reasonable opportunity to comment on any such proposed amendment or supplement. The Company will not file any document under the Exchange Act before the completion of the offering of the Securities by the Initial Purchasers if such document would be incorporated by reference in either Memorandum and if the filing of such document would cause either Memorandum, as amended or supplemented by the filing of such document, to contain an untrue statement of a material fact or to omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 8 9 (c) If, during such period after the date hereof and prior to the date on which all of the Securities shall have been sold by the Initial Purchasers to purchasers who are not affiliates of such Initial Purchaser, any event occurs as a result of which the Final Memorandum as then amended (including, without limitation, any document incorporated by reference therein) would include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, forthwith to prepare and furnish, at its own expense, to the Initial Purchasers, either amendments or supplements to the Final Memorandum which will correct such statement or omission or misstatement. (d) To endeavor to qualify the Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions as you shall reasonably request. (e) Whether or not the transactions contemplated in this Agreement are consummated or this Agreement is terminated, to pay or cause to be paid all expenses incident to the performance of its obligations under this Agreement, including: (i) the fees, disbursements and expenses of the Company's counsel and the Company's accountants in connection with the issuance and sale of the Securities and all other fees or expenses in connection with the preparation of each Memorandum and all amendments and supplements thereto, including all printing costs associated therewith, and the delivering of copies thereof to the Initial Purchasers, in the quantities herein above specified, (ii) all costs and expenses related to the transfer and delivery of the Securities to the Initial Purchasers, including any transfer or other taxes payable thereon, (iii) the cost of printing or producing any Blue Sky memorandum in connection with the offer and sale of the Securities under state securities laws and all expenses in connection with the qualification of the Securities for offer and sale under state securities laws as provided in Section 6(d) hereof, including filing fees and the reasonable fees and disbursements of counsel for the Initial Purchasers in connection with such qualification and in connection with the Blue Sky memorandum, (iv) any fees charged by rating agencies for the rating of the Securities, (v) all document production charges and expenses of counsel to the Initial Purchasers (but not including their fees for professional services) in connection with the preparation of this Agreement, (vi) the costs and charges of the Trustee and any transfer agent, listing agent, registrar or depositary, (vii) the cost of the preparation, issuance and delivery of the Securities, (viii) the costs and expenses of the Company relating to investor presentations on any "road show" undertaken in connection with the marketing of the offering of the Securities, including, without limitation, expenses associated with the production of road show slides and graphics, fees and expenses of any consultants engaged in connection with the road show presentations with the prior approval of the Company, travel and lodging expenses of the representatives and officers of the Company and any such consultants, and the cost of any aircraft chartered in connection with the road show, and (ix) all other cost and expenses incident to the performance of the obligations of the Company hereunder for which provision is not otherwise made in this Section. It is understood, however, that except as provided in this Section, Section 8, and the last paragraph of Section 10, the Initial Purchasers will pay all of their costs and 9 10 expenses, including fees and disbursements of their counsel and transfer taxes payable on resale of any of the Securities by them. (f) Neither the Company nor any Affiliate will sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in the Securities Act) which could be integrated with the sale of the Securities in a manner which would require the registration under the Securities Act of the Securities. (g) Not to solicit any offer to buy or offer or sell the Securities by means of any form of general solicitation or general advertising (as those terms are used in Regulation D under the Securities Act) or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act. (h) While any of the Securities remain "restricted securities" within the meaning of the Securities Act, to make available, upon request, to any seller of such Securities the information specified in Rule 144A(d)(4) under the Securities Act, unless the Company is then subject to Section 13 or 15(d) of the Exchange Act. (i) None of the Company, its Affiliates or any person acting on its or their behalf (other than the Initial Purchasers) will engage in any directed selling efforts (as that term is defined in Regulation S) with respect to the Securities, and the Company and its Affiliates and each person acting on its or their behalf (other than the Initial Purchasers) will comply with the offering restrictions requirement of Regulation S. (j) During the period from the Closing Date to the earlier of (i) two years after the Closing Date, or (ii) the date of effectiveness of a registration statement with respect to the Securities as contemplated in the Registration Rights Agreement, the Company will not, and will not permit any of its affiliates (as defined in Rule 144 under the Securities Act) to, resell any of the Securities that have been reacquired by them, except for Securities purchased by the Company or any of its affiliates and resold in a transaction registered under the Securities Act. (k) The Company will use its reasonable best efforts in cooperation with the Initial Purchasers to permit the Securities to be eligible for clearance and settlement through The Depository Trust Company. (l) Each Security will bear the legends specified in the Indenture until, in the opinion of counsel of the Company, such legends are is no longer advisable because such Security is no longer subject to the restrictions on transfer described therein. (m) For a period beginning at the time of execution of this Agreement and ending on the business day following the Closing Date, the Company will not, without the consent of Morgan Stanley & Co. Incorporated on behalf of the Initial Purchasers, offer, sell, contract to sell or otherwise dispose of any United States 10 11 dollar-denominated debt securities issued or guaranteed by the Company and having a maturity of more than 390 days from the date of issue. 7. Offering of Securities; Restrictions on Transfer. (a) Each Initial Purchaser, severally and not jointly, represents and warrants that such Initial Purchaser is a qualified institutional buyer as defined in Rule 144A under the Securities Act (a "QIB") and an institutional accredited investor (as defined below). Each Initial Purchaser, severally and not jointly, agrees with the Company that (i) it will not solicit offers for, or offer or sell, such Securities by any form of general solicitation or general advertising (as those terms are used in Regulation D under the Securities Act) or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act and (ii) it will solicit offers for such Securities only from, and will offer such Securities only to, persons that it reasonably believes to be (A) in the case of offers inside the United States, (1) QIBs or (2) other institutional accredited investors (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act ("INSTITUTIONAL ACCREDITED INVESTORS") that, prior to their purchase of the Securities, deliver to such Initial Purchaser a letter containing the representations and agreements set forth in Appendix A to the Memorandum and (B) in the case of offers outside the United States, to persons other than U.S. persons ("FOREIGN PURCHASERS," which term shall include dealers or other professional fiduciaries in the United States acting on a discretionary basis for foreign beneficial owners (other than an estate or trust)) in reliance upon Regulation S under the Securities Act that, in each case, in purchasing such Securities are deemed to have represented and agreed as provided in the Final Memorandum under the caption "Transfer Restrictions". (b) Each Initial Purchaser, severally and not jointly, represents, warrants, and agrees with respect to offers and sales outside the United States that: (i) such Initial Purchaser understands that no action has been or will be taken in any jurisdiction by the Company that would permit a public offering of the Securities, or possession or distribution of either Memorandum or any other offering or publicity material relating to the Securities, in any country or jurisdiction where action for that purpose is required; (ii) such Initial Purchaser will comply with all applicable laws and regulations in each jurisdiction in which it acquires, offers, sells or delivers Securities or has in its possession or distributes either Memorandum or any such other material, in all cases at its own expense; (iii) the Securities have not been registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in accordance with Rule 144A or Regulation S under the Securities Act or pursuant to another exemption from the registration requirements of the Securities Act; (iv) such Initial Purchaser has offered the Securities and will offer and sell the Securities (A) as part of their distribution at any time and (B) otherwise until 40 days after the later of the commencement of the offering and the Closing Date, 11 12 only in accordance with Rule 903 of Regulation S or as otherwise permitted in Section 7(a); accordingly, neither such Initial Purchaser, its Affiliates nor any persons acting on its or their behalf have engaged or will engage in any directed selling efforts (within the meaning of Regulation S) with respect to the Securities, and any such Initial Purchaser, its Affiliates and any such persons have complied and will comply with the offering restrictions requirement of Regulation S; (v) such Initial Purchaser has (A) not offered or sold and, prior to the date six months after the Closing Date, will not offer or sell any Securities to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995; (B) complied and will comply with all applicable provisions of the Financial Services Act 1986 with respect to anything done by it in relation to the Securities in, from or otherwise involving the United Kingdom, and (C) only issued or passed on and will only issue or pass on in the United Kingdom any document received by it in connection with the issue of the Securities to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to whom such document may otherwise lawfully be issued or passed on; (vi) such Initial Purchaser understands that the Securities have not been and will not be registered under the Securities and Exchange Law of Japan, and represents that it has not offered or sold, and agrees not to offer or sell, directly or indirectly, any Securities in Japan or for the account of any resident thereof except pursuant to any exemption from the registration requirements of the Securities and Exchange Law of Japan and otherwise in compliance with applicable provisions of Japanese law; (vii) such Initial Purchaser understands that the Securities have not been and will not be qualified for sale under the securities laws of any province or territory of Canada, and represents that it has not offered or sold, and agrees not to offer or sell, directly or indirectly, any Securities in Canada or to or for the account of any resident of Canada in contravention of the securities laws of any province or territory thereof; and (viii) such Initial Purchaser agrees that, at or prior to confirmation of sales of the Securities, it will have sent to each distributor, dealer or person receiving a selling concession, fee or other remuneration that purchases Securities from it during the restricted period a confirmation or notice to substantially the following effect: "The Securities covered hereby have not been registered under the U.S. Securities Act of 1933 (the "Securities Act") and may not be offered and sold within the United States or to, or for the account or benefit of, U.S. persons (i) as part of their distribution at any time or (ii) otherwise until 40 days after the later 12 13 of the commencement of the offering and the closing date, except in either case in accordance with Regulation S (or Rule 144A if available) under the Securities Act. Terms used above have the meaning given to them by Regulation S." Terms used in this Section 7(b) have the meanings given to them by Regulation S. 8. Indemnity and Contribution. (a) The Company agrees to indemnify and hold harmless each Initial Purchaser and each person, who controls any Initial Purchaser within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act against any and all losses, claims, damages or liabilities, joint or several (including amounts paid in settlement of any litigation if such settlement is effected with the written consent of the Company), to which they or any of them may become subject under the Act, the Exchange Act or other Federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in either Memorandum or in any amendment thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and agrees to reimburse each such indemnified party for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that (i) the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Company by or on behalf of any Initial Purchaser specifically for use in connection with the preparation thereof and (ii) such indemnity with respect to any Memorandum shall not inure to the benefit of any Initial Purchaser (or any person controlling such Initial Purchaser) from whom the person asserting any such loss, claim, damage or liability purchased the Securities which are the subject thereof if such person did not receive a copy of the Final Memorandum (as amended or supplemented) excluding documents incorporated therein by reference if such Initial Purchaser was required by law to deliver such Final Memorandum at or prior to the confirmation of the sale of such Securities to such person and the untrue statement or omission of a material fact contained in the Preliminary Memorandum was corrected in the Final Memorandum (as amended or supplemented). This indemnity agreement will be in addition to any liability which the Company may otherwise have. (b) Each Initial Purchaser severally, and not jointly, agrees to indemnify and hold harmless the Company, each of its directors, each of its officers and each person who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company to each Initial Purchaser, but only with reference to written information relating to such Initial Purchaser furnished to the Company by such Initial Purchaser expressly for use in either Memorandum or any amendments or supplements thereto. This indemnity agreement will be in addition to any liability which any Initial Purchaser may otherwise have. 13 14 (c) Promptly after receipt by an indemnified party under this Section 8 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party, under this Section 8, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party, otherwise than under this Section 8. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein, and to the extent that it may elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party; provided, however, that if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, the indemnified party, or parties shall have the right to select separate counsel to assert such legal defenses and to otherwise participate in the defense of such action on behalf of such indemnified party or parties. Upon receipt of notice from the indemnifying party to such indemnified party of its election so to assume the defense of such action and approval by the indemnified party, of counsel, the indemnifying party will not be liable to such indemnified party under this Section 8 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof unless (i) the indemnified party shall have employed separate counsel in connection with the assertion of legal defenses in accordance with the proviso to the next preceding sentence (it being understood, however, that the indemnifying party shall not be liable for the expenses of more than one separate counsel, approved by the Representatives in the case of paragraph (a) of this Section 8, representing the indemnified parties under such paragraph (a) who are parties to such action), (ii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of commencement of the action or (iii) the indemnifying party has authorized the employment of counsel for the indemnified party at the expense of the indemnifying party; and except that, if clause (i) or (iii) is applicable, such liability shall be only in respect of the counsel referred to in such clause (i) or (iii). (d) To the extent the indemnification provided for in this Section 8 is unavailable to an indemnified party under paragraph (a) or (b) hereof or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Initial Purchasers on the other hand from the offering of the Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and of the Initial Purchasers on the other in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits 14 15 received by the Company on the one hand and the Initial Purchasers on the other in connection with the offering of the Securities shall be deemed to be in the same proportion as the total net proceeds from the offering of the Securities (before deducting expenses) received by the Company bear to the total discounts and commissions received by the Initial Purchasers in respect thereof. The relative fault of the Company on the one hand and of the Initial Purchasers on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or by the Initial Purchasers and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. (e) The Company and the Initial Purchasers agree that it would not be just and equitable if contribution pursuant to this Section 8 were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in Section 8(d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages and liabilities referred to in Section 8(d) shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 8, no Initial Purchaser shall be required to contribute any amount in excess of the amount by which the total price at which the Securities resold by it in the initial placement of such Securities were offered to investors exceeds the amount of any damages that such Initial Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Initial Purchasers' obligations to contribute pursuant to this Section 8 are several, in proportion to the respective principal amounts of Securities purchased by each of such Initial Purchasers, and not joint. 9. Termination. An Initial Purchaser may terminate this Agreement, immediately upon notice to the Company, at any time prior to the Closing Date (a) if there has been, since the date of this Agreement or since the respective dates as of which information is given in the Final Memorandum, any change, or any development involving a prospective change, in or affecting the business or properties of the Company and its subsidiaries, shall have occurred the effect of which is, in the judgment of Morgan Stanley & Co. Incorporated, so material and adverse to the Company and its subsidiaries taken as a whole as to make it impractical or inadvisable to proceed with the delivery of the Securities or (b) if there shall have occurred any material adverse change in the financial markets in the United States or any outbreak or escalation of hostilities or other national or international calamity or crisis, the effect of which shall be such as to make it, in the judgment of Morgan Stanley & Co. Incorporated, impracticable to market the Securities or enforce contracts for the sale of the Securities, or (c) if trading in any securities of the Company shall have been suspended by the Commission or a national securities exchange, or if trading generally on either the American Stock Exchange or the New York Stock Exchange shall have been suspended, or minimum or maximum prices for trading shall have been fixed, or maximum ranges for prices for securities shall have been required, by either of said exchanges or by order of the Commission or any other 15 16 governmental authority, or if a banking moratorium shall have been declared by either Federal or New York authorities or if a banking moratorium shall have been declared by the relevant authorities in the country or countries of origin of any foreign currency or currencies in which the Securities are denominated or payable, or (d) if the rating assigned by any nationally recognized securities rating agency to any debt securities of the Company as of the date of this Agreement shall have been lowered since that date or if any such rating agency shall have publicly announced that it has placed any debt securities of the Company on what is commonly termed a "watch list" for possible downgrading, or (e) if there shall have come to the attention of such Initial Purchaser any facts that would cause you to believe that the Final Memorandum, at the time it was required to be delivered to a purchaser of Securities, contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in light of the circumstances existing at the time of such delivery, not misleading. 10. Effectiveness; Defaulting Initial Purchasers. This Agreement shall become effective upon the execution and delivery hereof by the parties hereto. If, on the Closing Date, any one or more of the Initial Purchasers shall fail to purchase and pay for any of the Securities that it or they have agreed to purchase hereunder on such date, and such failure to purchase shall constitute a default in the performance of its or their obligations under this Agreement, the remaining Initial Purchasers shall be obligated severally to take up and pay for (in the respective proportions which the amount of Securities set forth opposite their names in Schedule II hereto bears to the aggregate amount of Securities set forth opposite their names of all the remaining Initial Purchasers) the Securities which the defaulting Initial Purchaser or Initial Purchasers agreed but failed to purchase; provided, however, that in the event that the aggregate amount of Securities which the defaulting Initial Purchaser or Initial Purchasers agreed but failed to purchase shall exceed 10% of the aggregate amount of Securities set forth in Schedule II hereto, the remaining Initial Purchasers shall have the right to purchase all, but shall not be under any obligation to purchase any, of the Securities, and if such nondefaulting Underwriters do not purchase all the Securities, this Agreement will terminate without liability to any nondefaulting Initial Purchaser or the Company. In the event of a default by any Initial Purchaser as set forth in this Section 10, the Closing Date shall be postponed for such period, not exceeding seven days, as the Representatives shall determine in order that the required changes in the Final Memorandum or in any other documents or arrangements may be effective. Nothing contained in this Agreement shall relieve any defaulting Initial Purchaser of its liability, if any, to the Company and any nondefaulting Initial Purchaser for damages occasioned by its default hereunder. If the sale of the Securities provided for herein is not consummated because any condition to the obligations of the Initial Purchasers set forth in Section 5 hereof is not satisfied because of any refusal, inability or failure on the part of the Company to perform any agreement herein or comply with any provision hereof other than by reason of a default by any of the Initial Purchasers, the Company will reimburse the Initial Purchasers severally upon demand for all reasonable out-of-pocket expenses (including reasonable fees and disbursements of counsel) that shall have been incurred by them in connection with the proposed purchase and sale of the Securities but the 16 17 Company shall be under no further liability to the Initial Purchasers with respect to such Securities except as provided in Section 8 hereof. 11. Representatives and Indemnities to Survive. The respective agreements, representations, warranties, indemnities and other statements of the Company or its officers and of the Initial Purchasers set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of any Initial Purchaser or the Company or any of the officers, directors or controlling persons referred to in Section 8 hereof, and will survive delivery of and payment for the Securities. The provisions of the third paragraph of Section 10 and the provisions of Section 8 hereof shall survive the termination or cancellation of this Agreement. 12. Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 13. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. 14. Headings. The headings of the sections of this Agreement have been inserted for convenience of reference only and shall not be deemed a part of this Agreement. 15. Notices. All communications hereunder will be in writing and effective only on receipt, and, if sent to the Initial Purchasers, will be mailed, delivered or telegraphed and confirmed to the Representatives of the Initial Purchasers, at the address specified in Schedule II hereto; or, if sent to the Company, will be mailed, delivered or telegraphed and confirmed to it, care of 1900 Richmond Road, Cleveland, Ohio 44124, Attention of the Secretary. 16. Successors. This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and the officers and directors and controlling persons referred to in Section 8 hereof, and no other person will have any right or obligation hereunder. 17 18 17. Business Day. For purposes of this Agreement, "business day" means any day on which the New York Stock Exchange is open for trading. If the foregoing is in accordance with your understanding of our agreement, please sign and return to us the enclosed duplicate hereof, whereupon this letter and your acceptance shall represent a binding agreement between the Company and each of the Initial Purchasers. Very truly yours, TRW INC. By: /s/ Carl G. Miller Name: Carl G. Miller Title: Executive Vice President and Chief Financial Officer 18 19 Accepted as of the date hereof Morgan Stanley & Co. Incorporated J.P. Morgan Securities Inc. Salomon Smith Barney Inc. Acting severally on behalf of themselves and the several Initial Purchasers named in Schedule II hereto. By: Morgan Stanley & Co. Incorporated By: J.P. Morgan Securities Inc. By: /s/ Michael Fusco By: /s/ Maria Sramek ------------------------------------- ------------------------------ Name: Michael Fusco Name: Maria Sramek Title: Vice President Title: Vice President By: Salomon Smith Barney Inc. By: /s/ Martha D. Bailey ------------------------------------ Name: Martha D. Bailey Title: Vice President 19 20 SCHEDULE I Description of the Securities: Title and Purchase Price of 6 1/2% Notes Due 2002: Title: 61/2% Notes Due 2002 Principal amount: $400,000,000 Interest rate: 6 1/2% Interest payment dates: June 1 and December 1 Date of maturity: June 1, 2002 Purchase price (include accrued interest or amortization, if any): 99.616% Initial offering price: 99.866% Title and Purchase Price of 6 5/8% Notes Due 2004: Title: 6 5/8% Notes Due 2004 Principal amount: $700,000,000 Interest rate: 6 5/8 % Interest payment dates: June 1 and December 1 Date of maturity: June 1, 2004 Purchase price (include accrued interest or amortization, if any): 99.002% Initial offering price: 99.352% 21 Title and Purchase Price of 7 1/8% Notes Due 2009: Title: 7 1/8% Notes Due 2009 Principal amount: $750,000,000 Interest rate: 7 1/8% Interest payment dates: June 1 and December 1 Date of maturity: June 1, 2009 Purchase price (include accrued interest or amortization, if any): 98.602% Initial offering price: 99.052% Title and Purchase Price of 7 3/4% Debentures Due 2029: Title: 7 3/4% Debentures Due 2029 Principal amount: $550,000,000 Interest rate: 7 3/4% Interest payment dates: June 1 and December 1 Date of maturity: June 1, 2029 Purchase price (include accrued interest or amortization, if any): 98.206% Initial offering price: 99.081% Closing Date, Time and Location: June 2, 1999, at 9:00 a.m. at the offices of Cravath, Swaine & Moore, Worldwide Plaza, 825 Eighth Avenue, New York, New York 10019 22 SCHEDULE II $400,000,000 of 6 1/2% Notes Due 2002
INITIAL PURCHASERS PRINCIPAL AMOUNT OF 2002 NOTES TO BE PURCHASED Morgan Stanley & Co. Incorporated.............................. $108,000,000 J.P. Morgan Securities Inc..................................... 108,000,000 Salomon Smith Barney Inc....................................... 108,000,000 Banc of America Securities LLC................................. 13,000,000 Barclays Bank PLC.............................................. 13,000,000 Chase Securities Inc........................................... 13,000,000 Goldman, Sachs & Co............................................ 13,000,000 Banc One Capital Markets, Inc.................................. 4,000,000 Blaylock & Partners, L.P....................................... 4,000,000 Deutsche Bank Securities Inc................................... 4,000,000 Dresdner Bank AG (London Branch)............................... 4,000,000 McDonald Investments, Inc. (A KeyCorp Company)................. 4,000,000 RBC Dominion Securities Corporation............................ 4,000,000 Total:.................................................. $400,000,000 ============
23 $700,000,000 of 6 5/8% Notes Due 2004
INITIAL PURCHASERS PRINCIPAL AMOUNT OF 2004 NOTES TO BE PURCHASED Morgan Stanley & Co. Incorporated.............................. $189,000,000 J.P. Morgan Securities Inc..................................... 189,000,000 Salomon Smith Barney Inc....................................... 189,000,000 Banc of America Securities LLC................................. 22,750,000 Barclays Bank PLC.............................................. 22,750,000 Chase Securities Inc........................................... 22,750,000 Goldman, Sachs & Co............................................ 22,750,000 Banc One Capital Markets, Inc.................................. 7,000,000 Blaylock & Partners, L.P....................................... 7,000,000 Deutsche Bank Securities Inc................................... 7,000,000 Dresdner Bank AG (London Branch)............................... 7,000,000 McDonald Investments, Inc. (A KeyCorp Company)................. 7,000,000 RBC Dominion Securities Corporation............................ 7,000,000 Total: $700,000,000 ============
24 $750,000,000 of 7 1/8% Notes Due 2009
INITIAL PURCHASERS PRINCIPAL AMOUNT OF 2009 NOTES TO BE PURCHASED Morgan Stanley & Co. Incorporated................................. $202,500,000 J.P. Morgan Securities Inc........................................ 202,500,000 Salomon Smith Barney Inc.......................................... 202,500,000 Banc of America Securities LLC.................................... 24,375,000 Barclays Bank PLC................................................. 24,375,000 Chase Securities Inc.............................................. 24,375,000 Goldman, Sachs & Co............................................... 24,375,000 Banc One Capital Markets, Inc..................................... 7,500,000 Blaylock & Partners, L.P.......................................... 7,500,000 Deutsche Bank Securities Inc...................................... 7,500,000 Dresdner Bank AG (London Branch).................................. 7,500,000 McDonald Investments, Inc. (A KeyCorp Company).................... 7,500,000 RBC Dominion Securities Corporation............................... 7,500,000 Total:............................................. $750,000,000 ============
25 $550,000,000 of 7 3/4% Debentures Due 2029
INITIAL PURCHASERS PRINCIPAL AMOUNT OF 2029 NOTES TO BE PURCHASED Morgan Stanley & Co. Incorporated................................. $148,500,000 J.P. Morgan Securities Inc........................................ 148,500,000 Salomon Smith Barney Inc.......................................... 148,500,000 Banc of America Securities LLC.................................... 17,875,000 Barclays Bank PLC................................................. 17,875,000 Chase Securities Inc.............................................. 17,875,000 Goldman, Sachs & Co............................................... 17,875,000 Banc One Capital Markets, Inc..................................... 5,500,000 Blaylock & Partners, L.P.......................................... 5,500,000 Deutsche Bank Securities Inc...................................... 5,500,000 Dresdner Bank AG (London Branch).................................. 5,500,000 McDonald Investments, Inc. (A KeyCorp Company).................... 5,500,000 RBC Dominion Securities Corporation............................... 5,500,000 Total:................................................... $550,000,000 ============
26 EXHIBIT A FORM OF OPINION OF WILLIAM B. LAWRENCE Gentlemen and Ladies: This opinion is addressed to you with respect to $400,000,000 in aggregate principal amount of 6 1/2% Notes Due 2002, $700,000,000 aggregate principal amount of 6 5/8% Notes Due 2004, $750,000,000 aggregate principal amount of 7 1/8% Notes Due 2009, and $550,000,000 aggregate principal amount of 7 3/4% Debentures Due 2029 (collectively, the "Offered Securities") of TRW Inc., an Ohio corporation (the "Company"), to be issued under an Indenture dated as of May 1, 1986, supplemented by the First Supplemental Indenture dated August 24, 1989, the Second Supplemental Indenture dated as of June 2, 1999, the Third Supplemental Indenture dated as of June 2, 1999, the Fourth Supplemental Indenture dated as of June 2, 1999, and the Fifth Supplemental Indenture dated as of June 2, 1999 (as supplemented, the "Indenture"), between the Company and The Chase Manhattan Bank as successor trustee ("Trustee") to Mellon Bank, N.A., pursuant to Section 5(b) of the Purchase Agreement dated May 26, 1999 (the "Purchase Agreement"), entered into among the Company and each of you as representatives (the "Representatives"). Capitalized terms used but not defined in this letter are used as defined in the Purchase Agreement. I am General Counsel of the Company and have acted in such capacity in connection with the proposed issue and sale by the Company of the Offered Securities. With respect thereto, I have examined or caused to be examined by members of the TRW Law Department the following: (i) the Amended Articles of Incorporation of the Company; (ii) the Regulations of the Company; (iii) the corporate proceedings of the Company relating to the Offered Securities, the Final Offering Memorandum (as defined below), and the execution and delivery of the Purchase Agreement, the Registration Rights Agreement and the Indenture; (iv) the Company's Annual Report on Form 10-K for the year ended December 31, 1998, the Company's Quarterly Reports on Form 10-Q for the quarter ended March 31, 1999, the Company's Current Reports on Form 8-K dated as of January 28, 1999, February 5, 1999, March 26, 1999 (as amended May 17, 1999) (the "Incorporated Documents"), all of which documents have been filed with the Securities and Exchange Commission (the "Commission") pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and are incorporated by reference in the Final Offering Memorandum; (v) the Offering Memorandum dated May 26, 1999 (the "Final Offering Memorandum"); (vi) the Purchase Agreement; (vii) the Indenture; (viii) the Registration Rights Agreement and (ix) the Form of the Offered Securities. 27 I have also made or caused to be made such other examinations as I have deemed necessary to enable me to give the opinions herein expressed. However, as to each of the opinions set forth below which is limited to my knowledge, you should be aware that I have neither made nor caused to be made any independent review for purposes of rendering this opinion, although in the regular course of advising TRW I have reviewed or caused to be reviewed various documents, records and matters of law. As to matters relating to that portion of the Company that constituted LucasVarity plc ("LucasVarity") prior to its purchase by the Company, I have relied on the opinion of Russell Kelley, General Counsel of LucasVarity Ltd. As to matters relating to Lucas Limited and governed by English law, I have relied on the opinion of Allen & Overy. Based upon the foregoing, I am of the opinion that: 1. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Ohio, with full corporate power and authority to own its properties and conduct the business now being conducted by it as described in the Final Offering Memorandum, and is duly qualified to do business as a foreign corporation in each jurisdiction which requires such qualification wherein it owns or leases material properties or conducts material business, except where the failure to so qualify would not have a material adverse effect on the financial condition or the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise; and the Company is in good standing in the State of California and the Commonwealth of Virginia; 2. Lucas Limited, a private limited company organized and existing under the laws of England and Wales ("Lucas Limited"), is duly incorporated, validly existing and in good standing as a private company with limited liability under the laws of England. The registers of charges of Lucas Limited's immediate holding company, Lucas Investment Finance Limited, and of Joseph Lucas Limited, as at June 2, 1999, do not disclose any charges over the shares in Lucas Limited held by them. Each of the certificate of incorporation and Memorandum and Articles of Association of Lucas Limited do not prohibit Lucas Limited from engaging in the business of producing and selling automotive and aerospace products; 3. Kelsey-Hayes Company, a Delaware corporation ("Kelsey-Hayes"), has been duly incorporated, is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation or organization has the corporate power and authority to own its property and to conduct its business as described in the Final Memorandum and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the financial condition, or the earnings, 28 business affairs or business prospects of the Company and its subsidiaries, taken as a whole; all of the issued shares of capital stock of Kelsey-Hayes have been duly and validly authorized and issued, are fully paid and non-assessable, and are owned directly or indirectly, free and clear of all liens, encumbrances, equities or claims; 4. Each of the Indenture and the Registration Rights Agreement has been duly authorized, executed and delivered by or on behalf of the Company, and constitutes a legal, valid and binding instrument enforceable against the Company in accordance with its terms except (i) as rights to indemnification and contribution under the Registration Rights Agreement may be limited under applicable law and (ii) as the enforcement of remedies may be (A) limited by applicable bankruptcy, reorganization, insolvency, moratorium or other laws or proceedings affecting the enforcement of creditors' rights generally from time to time in effect or (B) subject to the effect of general principles of equity, whether applied by a court of law or equity; and the Offered Securities have been duly authorized and, when executed and authenticated in accordance with the provisions of the Indenture and delivered to and paid for by the Initial Purchasers pursuant to the Purchase Agreement, will constitute legal, valid and binding obligations of the Company entitled to the benefits of the Indenture, the Registration Rights Agreement and the Purchase Agreement except as the enforcement of remedies may be (i) limited by applicable bankruptcy, reorganization, insolvency, moratorium or other laws or proceedings affecting the enforcement of creditors' rights generally from time to time in effect or (ii) subject to the effect of general principles of equity, whether applied by a court of law or equity; 5. To my knowledge, there is no pending or threatened action, suit or proceeding before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its subsidiaries, of a character that would be required to be disclosed in a registration statement filed under the Securities Act of 1933, as amended (the "Act"), which is not adequately disclosed in the Final Memorandum, and there is no franchise, contract or other document of a character that would be required to be described in a registration statement or prospectus filed under the Act, or to be filed as an exhibit, which is not described or filed as required; and the statements included or incorporated in the Final Memorandum describing any legal proceedings or material contracts or agreements relating to the Company fairly summarize such matters; 6. I have no reason to believe that the Final Memorandum, or any amendment thereof, at the date of this letter contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading or that the Final Memorandum, as amended or supplemented, at the date of this letter, includes any untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; PROVIDED, HOWEVER, that I express no opinion as to 29 the information contained in or omitted from the Final Memorandum or any amendment thereof or supplement thereto in reliance upon and in conformity with written information furnished to the Company by or on behalf of any Initial Purchaser specifically for use in connection with the preparation of the Final Memorandum or any amendment thereof or supplement thereto; 7. The Purchase Agreement has been duly authorized, executed and delivered by the Company; 8. No consent, approval, authorization or order of any court or governmental agency or body is required for the consummation of the transactions contemplated herein except such as have been obtained under the Act and such as may be required under the blue sky laws of any jurisdiction in connection with the purchase and distribution of the Securities by the Initial Purchasers; 9. Neither the issue and sale of the Securities, nor the consummation of any other of the transactions contemplated by the Purchase Agreement nor the fulfillment of the terms of the Purchase Agreement, the Indenture, the Registration Rights Agreement and the Securities will conflict with, result in a breach of, or constitute a default under, the Amended Articles of Incorporation or Regulations of the Company or the terms of any indenture or other agreement or instrument known to me and to which the Company is a party or bound, or any order or regulation known to me to be applicable to the Company of any court, regulatory body, administrative agency, governmental body or arbitrator having jurisdiction over the Company; and 10. Based upon the representations, warranties and agreements of the Company in Sections 1(m), 1(n), 1(o), 6(f), 6(g) and 6(j) of the Purchase Agreement and of the Initial Purchasers in Section 7 of the Purchase Agreement, and assuming (i) the accuracy of the representations and warranties of each of the purchasers to whom the Initial Purchasers initially resell the Securities, (ii) compliance by the Initial Purchasers with the offering and transfer procedures and restrictions described in the Offering Memorandum and (iii) receipt by the purchasers to whom the Initial Purchasers initially resell the Securities of a copy of the Offering Memorandum prior to such sale, it is not necessary in connection with the offer, sale and delivery of the Securities to the Initial Purchasers under the Purchase Agreement or in connection with the initial resale of such Securities by the Initial Purchasers in accordance with Section 7 of the Purchase Agreement to register the Securities under the Securities Act of 1933, or to qualify the Indenture under the Trust Indenture Act of 1939, it being understood that no opinion is expressed as to any subsequent resale of any Security. 30 I am a member of the bar of the State of Ohio and do not purport to be an expert on, generally familiar with or qualified to express legal conclusions based on laws other than the laws of the State of Ohio and the United States of America. This opinion is being delivered to the Initial Purchasers solely for their benefit as representatives under the Purchase Agreement and Initial Purchasers and may be relied upon only by you for such purpose. Very truly yours, William B. Lawrence General Counsel 31 EXHIBIT B FORM OF OPINION OF CRAVATH, SWAINE & MOORE TRW Inc. $400,000,000 6 1/2% Notes Due 2002 $700,000,000 6 5/8% Notes Due 2004 $750,000,000 7 1/8% Notes Due 2009 $550,000,000 7 3/4% Debentures Due 2029 Ladies and Gentlemen: We have acted as your counsel in connection with the purchase by you, pursuant to the Purchase Agreement dated May 26, 1999 (the "Purchase Agreement"), among you and TRW Inc., an Ohio corporation (the "Company"), of $400,000,000 principal amount of the Company's 6 1/2% Notes Due 2002, $700,000,000 principal amount of the Company's 6 5/8% Notes Due 2004, $750,000,000 principal amount of the Company's 7 1/8% Notes Due 2009 and $550,000,000 principal amount of the Company's 7 3/4% Debentures Due 2029 (collectively, the "Securities") to be issued under the Indenture dated as of May 1, 1986, as supplemented and amended by the First Supplemental Indenture dated as of August 24, 1989, the Second Supplemental Indenture dated as of June 2, 1999, the Third Supplemental Indenture dated as of June 2, 1999, the Fourth Supplemental Indenture dated as of June 2, 1999, and the Fifth Supplemental Indenture dated June 2, 1999 (the "Indenture"), between the Company and The Chase Manhattan Bank, as Trustee. Capitalized terms used and not otherwise defined herein have the meanings ascribed thereto in the Purchase Agreement. In that connection, we have examined originals, or copies certified or otherwise identified to our satisfaction, of such documents, corporate records and other instruments as we have deemed necessary or appropriate for the purposes of this opinion, including: (a) resolutions adopted by the Board of Directors of the Company on February 10, 1999; (b) the Offering Memorandum dated May 26, 1999 (the "Offering Memorandum"); (c) the Purchase Agreement; (d) the Registration Rights Agreement; (e) the Indenture; and (f) the form of the Securities. Based on the foregoing, we are of opinion as follows: 32 1. Assuming that the Indenture has been duly authorized, executed and delivered by the Company, the Indenture constitutes a legal, valid and binding obligation of the Company enforceable in accordance with its terms (subject to applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other similar laws affecting creditors' rights generally from time to time in effect and to general principles of equity, including concepts of materiality, reasonableness, good faith and fair dealing, regardless of whether considered in a proceeding in equity or at law). 2. The Securities conform in all material respects to the description thereof contained in the Offering Memorandum. Assuming that the Securities have been duly authorized, when executed and authenticated in accordance with the provisions of the Indenture and delivered to and paid for by the Initial Purchasers pursuant to the Purchase Agreement, will constitute legal, valid and binding obligations of the Company entitled to the benefits of the Indenture and enforceable against the Company in accordance with their terms (subject to applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other similar laws affecting creditors' rights generally from time to time in effect and to general principles of equity, including concepts of materiality, reasonableness, good faith and fair dealing, regardless of whether considered in a proceeding in equity or at law). 3. Assuming (i) the accuracy of, and compliance with, the representations, warranties and covenants of the Company in the Purchase Agreement, (ii) the accuracy of, and compliance with, the representations, warranties and covenants of the Initial Purchasers in the Purchase Agreement, (iii) the accuracy of the representations and warranties of each of the purchasers to whom the Initial Purchasers initially resell the Securities, (iv) compliance by the Initial Purchasers with the offering and transfer procedures and restrictions described in the Offering Memorandum and (v) receipt by the purchasers to whom the Initial Purchasers initially resell the Securities of a copy of the Offering Memorandum prior to such sale, it is not necessary in connection with the offer, sale and delivery of the Securities or in connection with the initial resale of such Securities in the manner contemplated by the Purchase Agreement and the Offering Memorandum to register the Securities under the Securities Act of 1933, as amended, and the Indenture does not require qualification under the Trust Indenture Act of 1939, as amended, it being understood that no opinion is expressed as to any subsequent resale of any Securities. Although we have not performed an independent verification of the substance of counsel's opinion and take no responsibility therefor, the opinion dated the date hereof of William B. Lawrence, General Counsel for the Company, delivered to you pursuant to Section 5(b) of the Purchase Agreement, is substantially responsive to the requirements of the Purchase Agreement. This letter is delivered to you pursuant to Section 5(c) of the Purchase Agreement. 33 We are admitted to practice in the State of New York, and we express no opinion as to matters governed by any laws other than the laws of the State of New York, the General Corporation Law of the State of Delaware and the Federal laws of the United States of America. In particular, we do not purport to pass on any matter governed by the laws of the State of Ohio. In rendering this opinion, we have assumed without independent investigation, the correctness of, and take no responsibility for, the opinion dated June 2, 1999, of William B. Lawrence, General Counsel for the Company, a copy of which has been delivered to you pursuant to Section 5(b) of the Purchase Agreement, as to all matters of law covered therein relating to the laws of the State of Ohio. 34 We are furnishing this opinion to you solely for your benefit. This opinion may not be relied upon by any other person or for any other purpose or used, circulated, quoted or otherwise referred to for any other purpose. Very truly yours, Morgan Stanley & Co. Incorporated J.P. Morgan Securities Inc. Salomon Smith Barney Inc. Banc of America Securities LLC Barclays Bank PLC Chase Securities Inc. Goldman, Sachs & Co. Banc One Capital Markets, Inc. Blaylock & Partners, L.P. Deutsche Bank Securities Inc. Dresdner Bank AG (London Branch) McDonald Investments, Inc. (A KeyCorp Company) RBC Dominion Securities Corporation In care of Morgan Stanley & Co. Incorporated 1585 Broadway New York, NY 10036 J.P. Morgan Securities Inc. 60 Wall Street New York, NY 10260 Salomon Smith Barney Inc. Seven World Trade Center New York, NY 10048 EX-10.B 3 EXHIBIT 10(B) 1 Exhibit 10(b) ------------- TRW INC. $575,000,000 Floating Rate Notes due 2000 $425,000,000 6.45% Notes due 2001 PURCHASE AGREEMENT June 18, 1999 2 June 18, 1999 Goldman, Sachs & Co. as representative of the Initial Purchasers named in Schedule II hereto c/o Goldman, Sachs & Co. 85 Broad Street New York, New York 10004 Dear Sirs and Mesdames: TRW Inc., an Ohio corporation (the "COMPANY"), proposes to issue and sell to the several purchasers named in Schedule II hereto (the "INITIAL PURCHASERS"), for whom you (the "Representative") are acting as representative, $575,000,000 principal amount of its Floating Rate Notes due 2000 (the "2000 Notes") and $425,000,000 principal amount of its 6.45% Notes due 2001 (the "2001 Notes" and, together with 2000 Notes, the "SECURITIES"), to be issued pursuant to the provisions of an Indenture dated as of May 1, 1986 (as supplemented, the "INDENTURE"), as supplemented by the First Supplemental Indenture dated as of August 24, 1989, the Second Supplemental Indenture dated as of June 2, 1999, the Third Supplemental Indenture dated as of June 2, 1999, the Fourth Supplemental Indenture dated as of June 2, 1999, the Fifth Supplemental Indenture dated as of June 2, 1999, the Sixth Supplemental Indenture dated as of June 23, 1999, and the Seventh Supplemental Indenture dated as of June 23, 1999, between the Company and The Chase Manhattan Bank, as successor Trustee (the "TRUSTEE") to Mellon Bank N.A. The Securities will be offered and sold without being registered under the Securities Act of 1933, as amended (the "SECURITIES ACT"), to qualified institutional buyers in compliance with the exemption from registration provided by Rule 144A under the Securities Act. In connection with the sale of the Securities, the Company will prepare an offering circular (the "OFFERING CIRCULAR") including or incorporating by reference a description of the terms of the Securities, the terms of the offering and a description of the Company. The Company hereby confirms that it has authorized the use of the Offering Circular in connection with the offering and resale of the Securities by the Initial Purchasers, subject to their obligations hereunder. As used herein, the term "Offering Circular" shall include in each case the documents incorporated by reference therein. The terms "SUPPLEMENT", "AMENDMENT" and "AMEND" as used herein with respect to the Offering Circular shall include all documents deemed to be incorporated by reference in the Offering Circular that are filed subsequent to the date of the Offering Circular with the Securities and Exchange Commission (the "COMMISSION") pursuant to the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"). 3 The Initial Purchasers and their direct and indirect permitted transferees will be entitled to the benefits of the Registration Rights Agreement dated as of the Closing Date between the Company and the Initial Purchasers (the "Registration Rights Agreement"), pursuant to which the Company will file a registration statement or registration statements (each, a "Registration Statement") with the Commission registering the Securities and/or the Exchange Securities (as defined in the Registration Rights Agreement) under the Securities Act. 1. Representations and Warranties. The Company represents and warrants to, and agrees with, each Initial Purchaser as set forth below in this Section 1: (a) Each document, if any, filed or to be filed pursuant to the Exchange Act and incorporated by reference in the Offering Circular complied or will comply when so filed in all material respects with the Exchange Act and the rules and regulations thereunder and when read together and with the other information in the Offering Circular, in the form used by the Initial Purchasers to confirm sales and on the Closing Date (as defined in Section 4), will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (b) Any documents filed by the Company under the Exchange Act that are incorporated by reference (in whole or in part) in the Offering Circular or that are incorporated by reference (in whole or in part) in a Registration Statement, as of the dates they were filed or hereafter are with the Commission, complied and will comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations of the Commission thereunder (the "Exchange Act Regulations"). (c) When the Securities are issued and delivered pursuant to this Agreement, such securities will not be of the same class (within the meaning of Rule 144A) as securities of the Company which are listed on a national securities exchange registered under Section 6 of the Exchange Act or quoted in a U.S. automated interdealer quotation system. (d) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of Ohio, with corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Offering Circular and is duly qualified as a foreign corporation to transact business in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified would not have a material adverse effect on the financial condition or earnings, business affairs or business prospects of the 2 4 Company and its subsidiaries, taken as a whole; and the Company is in good standing in the State of California and the Commonwealth of Virginia. (e) (if the Company has one or more Significant Subsidiaries as of the date hereof and as of the Closing Date) each Significant Subsidiary of the Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own, lease and operate its property and to conduct its business as described in the Offering Circular and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the financial condition, or the earnings, business affairs or business prospects of the Company and its subsidiaries, taken as a whole; all of the issued shares of capital stock of each Significant Subsidiary of the Company held by the Company have been duly and validly authorized and issued, are fully paid and non-assessable and are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims. For purposes of this paragraph a "Significant Subsidiary" shall mean a "significant subsidiary" as defined in Rule 405 of Regulation C under the Act. (f) This Agreement has been duly authorized, executed and delivered by the Company. (g) The Securities have been duly authorized and, when executed and authenticated in accordance with the provisions of the Indenture and delivered to and paid for by the Initial Purchasers in accordance with the terms of this Agreement, will constitute valid and legally binding obligations of the Company enforceable in accordance with their terms, except as enforcement thereof may be limited by bankruptcy, insolvency or other laws relating to or affecting enforcement of creditors' rights or by general equity principles, and except further as enforcement thereof may be limited by (i) requirements that a claim with respect to any Securities denominated other than in United States dollars (or a foreign currency or currency unit judgment in respect of such claim) be converted into United States dollars at a rate of exchange prevailing on a date determined pursuant to applicable law or (ii) governmental authority to limit, delay or prohibit the making of payments in a foreign currency or currency units or payments outside the United States; the Securities and the Indenture will be substantially in the form heretofore delivered to the Initial Purchasers and conform in all material respects to all statements relating thereto contained in the Offering Circular; and the Securities will be entitled to the benefits provided by the Indenture. 3 5 (h) (i) The Indenture has been duly authorized, and, when executed and delivered by the Company and the Trustee, the Indenture will constitute a valid and legally binding agreement of, the Company enforceable in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency or other laws relating to or affecting enforcement of creditors' rights or by general equity principles and (ii) the Registration Rights Agreement has been duly authorized, and, when executed and delivered by the Company (assuming the due authorization, execution and delivery by the Initial Purchasers), will constitute a valid and legally binding agreement of, the Company enforceable in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency or other laws relating to or affecting enforcement of creditors' rights or by general equity principles and except as rights to indemnification and contribution under the Registration Rights Agreement may be limited under applicable law. The Registration Rights Agreement will conform in all material respects to the description thereof, if any, to be contained in the Offering Circular. (i) The execution and delivery by the Company of, and the performance by the Company of its obligations under, this Agreement, the Indenture, the Registration Rights Agreement and the Securities will not contravene any provision of applicable law or constitute a default under the Amended Articles of Incorporation of the Company or by-laws of the Company or any indenture, other agreement or instrument binding upon the Company or any of its subsidiaries that is material to the Company and its subsidiaries, taken as a whole, or any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Company or any subsidiary, and no consent, approval, authorization or order of, or qualification with, any court or governmental body or agency is required for the performance by the Company of its obligations under this Agreement, the Indenture, the Securities or the Registration Rights Agreement, except such as may be required by the securities or Blue Sky laws of the various states in connection with the offer and sale of the Securities. (j) Except as may be set forth in the Offering Circular, there is no action, suit or proceeding before or by any court or governmental agency or body, domestic or foreign, now pending, against or affecting, the Company or any of its subsidiaries, which might, in the opinion of the Company, result in any material adverse change in the financial position of the Company and its subsidiaries taken as a whole, or might materially and adversely affect the assets of the Company and its subsidiaries, taken as a whole. (k) The Company is not, and after giving effect to the offering and sale of the Securities and the application of the proceeds thereof as described in the Offering Circular, will not be an "investment company" as such term is defined in the Investment Company Act of 1940, as amended. 4 6 (l) Neither the Company nor any affiliate (as defined in Rule 501(b) of Regulation D under the Securities Act, an "AFFILIATE") of the Company has directly, or through any agent, (i) sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of, any security (as defined in the Securities Act) which is or will be integrated with the sale of the Securities in a manner that would require the registration under the Securities Act of the Securities or (ii) engaged in any form of general solicitation or general advertising in connection with the offering of the Securities, (as those terms are used in Regulation D under the Securities Act) or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act; provided, however, the Company makes no representations with respect to the activities of the Initial Purchasers. (m) None of the Company, its Affiliates or any person acting on its or their behalf has engaged or will engage in any directed selling efforts (within the meaning of Regulation S) with respect to the Securities and the Company and its Affiliates and any person acting on its or their behalf have complied and will comply with the offering restrictions requirement of Regulation S; provided, however, the Company makes no representations with respect to the activities of the Initial Purchasers. (n) It is not necessary in connection with the offer, sale and delivery of the Securities to the Initial Purchasers in the manner contemplated by this Agreement to register the Securities under the Securities Act or to qualify any indenture in respect of the Securities under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). (o) The Securities satisfy the requirements set forth in Rule 144A(d)(3) under the Securities Act. (p) The financial statements of the Company and its consolidated subsidiaries included or incorporated by reference in the Offering Circular present fairly the consolidated financial position of the Company and its consolidated subsidiaries as at the dates indicated and the consolidated results of their operations for the periods specified; and except as stated therein, said financial statements have been prepared in conformity with generally accepted accounting principles in the United States applied on a consistent basis. 2. Agreements to Sell and Purchase. The Company hereby agrees to sell to the several Initial Purchasers, and each Initial Purchaser, upon the basis of the representations and warranties herein contained, but subject to the conditions hereinafter stated, agrees, severally and not jointly, to purchase from the Company at the purchase price for the Securities set forth in Schedule I hereto, the respective principal amount of Securities set forth opposite such Initial Purchaser's name in Schedule II hereto. 5 7 3. Terms of Offering. You have advised the Company that the Initial Purchasers will make an offering of the Securities purchased by the Initial Purchasers hereunder on the terms to be set forth in the Offering Circular, as soon as practicable after this Agreement is entered into as in your judgment is advisable. 4. Payment and Delivery. Payment for the Securities shall be made to the Company in Federal or other funds immediately available in New York City against delivery of such Securities for the respective accounts of the several Initial Purchasers at 10:00 a.m., New York City time, on June 23, 1999, or at such other time on the same or such other date, not later than June 30, 1999, as shall be designated in writing by you. The time and date of such payment are hereinafter referred to as the "CLOSING DATE." Certificates for the Securities shall be in definitive form or global form, as specified by you, and registered in such names and in such denominations as you shall request in writing not later than one full business day prior to the Closing Date. The certificates evidencing the Securities shall be delivered to you on the Closing Date for the respective accounts of the several Initial Purchasers, with any transfer taxes payable in connection with the transfer of the Securities to the Initial Purchasers duly paid, against payment of the Purchase Price therefor plus accrued interest, if any, to the date of payment and delivery. 5. Conditions to the Initial Purchasers' Obligations. The several obligations of the Initial Purchasers to purchase and pay for the Securities on the Closing Date shall be subject to the accuracy of the representations and warranties on the part of the Company contained herein as of the date hereof, and as of the Closing Date, to the accuracy of the statements of the Company made in any certificates pursuant to the provisions hereof, to the performance by the Company of its obligations hereunder, to the due execution and delivery of the Indenture and to the following additional conditions: (a) The Initial Purchasers shall have received on the Closing Date a certificate, dated the Closing Date and signed by an executive officer of the Company, to the effect that the representations and warranties of the Company contained in this Agreement are true and correct in all material respects as of the Closing Date with the same effect as if made on the Closing Date and that the Company has complied with all of the agreements and satisfied all of the conditions on its part to be performed or satisfied hereunder on or before the Closing Date and that, subsequent to the date of most recent financial statements in the Offering Circular, there has been no material adverse change in the condition (financial or other), earnings, business or properties of the Company and its subsidiaries taken as a whole, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated by the Offering Circular or as described in such certificate. 6 8 (b) The Initial Purchasers shall have received on the Closing Date an opinion of the General Counsel or an Assistant General Counsel of the Company, dated the Closing Date, to the effect set forth in Exhibit A. (c) The Initial Purchasers shall have received on the Closing Date an opinion of Cravath, Swaine & Moore, counsel for the Initial Purchasers, dated the Closing Date, to the effect set forth in Exhibit B. (d) The Initial Purchasers shall have received on the Closing Date a letter, dated the Closing Date in form and substance satisfactory to the Initial Purchasers, from each of (i) Ernst & Young LLP, independent public accountants, (ii) KPMG Audit plc, independent public accountants, (iii) KPMG Audit plc and Ernst & Young, jointly, and (iv) Ernst & Young, independent public accountants, in each case containing statements and information of the type ordinarily included in accountants' "comfort letters" to underwriters with respect to the financial statements and certain financial information contained in or incorporated by reference into the Offering Circular; provided that (A) the Ernst & Young LLP letter delivered on the Closing Date shall use a "cut-off date" not earlier than the date hereof and (B) the KPMG Audit plc letter delivered on the Closing Date shall use a "cut-off date" not earlier than March 24, 1999. (e) Subsequent to the execution of this Agreement, there shall not have been any decrease in the ratings of any of the Company's debt securities by Moody's Investors Service, Inc. or Standard & Poor's Corporation. (f) Prior to the Closing Date, the Company shall have furnished to the Initial Purchasers such further information, certificates and documents as the Representatives may reasonably request. (g) The Registration Rights Agreement shall have been duly authorized, executed and delivered by the Company, the Indenture shall have been duly authorized, executed and delivered by the Company, all the covenants and agreements contained herein to be fulfilled or complied with by the Company at or prior to such Closing Date shall have been duly performed, fulfilled or complied with in all material respects. If any of the conditions specified in this Section 5 shall not have been fulfilled in all material respects when and as provided in this Agreement, or if any of the opinions and certificates mentioned above or elsewhere in this Agreement shall not be in all material respects reasonably satisfactory in form and substance to the Initial Purchasers and counsel for the Initial Purchasers, this Agreement and all obligations of the Initial Purchasers hereunder may be canceled at, or at any time prior to, the Closing Date by the 7 9 Initial Purchasers. Notice of such cancelation shall be given to the Company in writing or by telephone or telegraph confirmed in writing. 6. Covenants of the Company. In further consideration of the agreements of the Initial Purchasers contained in this Agreement, the Company covenants with each Initial Purchaser as follows: (a) To furnish to you in New York City, without charge, prior to 10:00 a.m., New York City time, on the business day next succeeding the date of this Agreement and during the period mentioned in Section 6(c), as many copies of the Offering Circular, any documents incorporated by reference therein and any supplements and amendments thereto as you may reasonably request. The Company will pay the expenses of printing all documents relating to the offering. (b) The Company will advise the Initial Purchasers promptly of any proposal to amend or supplement the Offering Circular and will afford the Initial Purchasers a reasonable opportunity to comment on any such proposed amendment or supplement. The Company will not file any document under the Exchange Act before the completion of the offering of the Securities by the Initial Purchasers if such document would be incorporated by reference in the Offering Circular and if the filing of such document would cause the Offering Circular, as amended or supplemented by the filing of such document, to contain an untrue statement of a material fact or to omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (c) If, during such period after the date hereof and prior to the date on which all of the Securities shall have been sold by the Initial Purchasers to purchasers who are not affiliates of such Initial Purchaser, any event occurs as a result of which the Offering Circular as then amended (including, without limitation, any document incorporated by reference therein) would include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, forthwith to prepare and furnish, at its own expense, to the Initial Purchasers, either amendments or supplements to the Offering Circular which will correct such statement or omission or misstatement. (d) To endeavor to qualify the Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions as you shall reasonably request. (e) Whether or not the transactions contemplated in this Agreement are consummated or this Agreement is terminated, to pay or cause to be paid all expenses incident to the performance of its obligations under this Agreement, 8 10 including: (i) the fees, disbursements and expenses of the Company's counsel and the Company's accountants in connection with the issuance and sale of the Securities and all other fees or expenses in connection with the preparation of the Offering Circular and all amendments and supplements thereto, including all printing costs associated therewith, and the delivering of copies thereof to the Initial Purchasers, in the quantities herein above specified, (ii) all costs and expenses related to the transfer and delivery of the Securities to the Initial Purchasers, including any transfer or other taxes payable thereon, (iii) the cost of printing or producing any Blue Sky memorandum in connection with the offer and sale of the Securities under state securities laws and all expenses in connection with the qualification of the Securities for offer and sale under state securities laws as provided in Section 6(d) hereof, including filing fees and the reasonable fees and disbursements of counsel for the Initial Purchasers in connection with such qualification and in connection with the Blue Sky memorandum, (iv) any fees charged by rating agencies for the rating of the Securities, (v) all document production charges and expenses of counsel to the Initial Purchasers (but not including their fees for professional services) in connection with the preparation of this Agreement, (vi) the costs and charges of the Trustee and any transfer agent, listing agent, registrar or depositary, (vii) the cost of the preparation, issuance and delivery of the Securities, (viii) the costs and expenses of the Company relating to investor presentations on any "road show" undertaken in connection with the marketing of the offering of the Securities, including, without limitation, expenses associated with the production of road show slides and graphics, fees and expenses of any consultants engaged in connection with the road show presentations with the prior approval of the Company, travel and lodging expenses of the representatives and officers of the Company and any such consultants, and the cost of any aircraft chartered in connection with the road show, and (ix) all other cost and expenses incident to the performance of the obligations of the Company hereunder for which provision is not otherwise made in this Section. It is understood, however, that except as provided in this Section, Section 8, and the last paragraph of Section 10, the Initial Purchasers will pay all of their costs and expenses, including fees and disbursements of their counsel and transfer taxes payable on resale of any of the Securities by them. (f) Neither the Company nor any Affiliate will sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in the Securities Act) which could be integrated with the sale of the Securities in a manner which would require the registration under the Securities Act of the Securities. (g) Not to solicit any offer to buy or offer or sell the Securities by means of any form of general solicitation or general advertising (as those terms are used in Regulation D under the Securities Act) or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act. 9 11 (h) While any of the Securities remain "restricted securities" within the meaning of the Securities Act, to make available, upon request, to any seller of such Securities the information specified in Rule 144A(d)(4) under the Securities Act, unless the Company is then subject to Section 13 or 15(d) of the Exchange Act. (i) None of the Company, its Affiliates or any person acting on its or their behalf (other than the Initial Purchasers) will engage in any directed selling efforts (as that term is defined in Regulation S) with respect to the Securities, and the Company and its Affiliates and each person acting on its or their behalf (other than the Initial Purchasers) will comply with the offering restrictions requirement of Regulation S. (j) During the period from the Closing Date to the earlier of (i) two years after the Closing Date, or (ii) the date of effectiveness of a registration statement with respect to the Securities as contemplated in the Registration Rights Agreement, the Company will not, and will not permit any of its affiliates (as defined in Rule 144 under the Securities Act) to, resell any of the Securities that have been reacquired by them, except for Securities purchased by the Company or any of its affiliates and resold in a transaction registered under the Securities Act. (k) The Company will use its reasonable best efforts in cooperation with the Initial Purchasers to permit the Securities to be eligible for clearance and settlement through The Depository Trust Company. (l) Each Security will bear the legends specified in the Indenture until, in the opinion of counsel of the Company, such legends are is no longer advisable because such Security is no longer subject to the restrictions on transfer described therein. (m) For a period beginning at the time of execution of this Agreement and ending on the business day following the Closing Date, the Company will not, without the consent of Goldman, Sachs & Co. on behalf of the Initial Purchasers, offer, sell, contract to sell or otherwise dispose of any United States dollar-denominated debt securities issued or guaranteed by the Company and having a maturity of more than 390 days from the date of issue. 7. Offering of Securities; Restrictions on Transfer. (a) Each Initial Purchaser, severally and not jointly, represents and warrants that such Initial Purchaser is a qualified institutional buyer as defined in Rule 144A under the Securities Act (a "QIB"). Each Initial Purchaser, severally and not jointly, agrees with the Company that (i) it will not solicit offers for, or offer or sell, such Securities by any form of general solicitation or general advertising (as those terms are used in Regulation D under the Securities Act) or 10 12 in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act and (ii) it will solicit offers for such Securities only from, and will offer such Securities only to, persons that it reasonably believes to be QIBs that, in each case, in purchasing such Securities are deemed to have represented and agreed as provided in the Offering Circular under the caption "Notice to Investors". 11 13 (b) Each Initial Purchaser, severally and not jointly, represents, warrants, and agrees with respect to offers and sales outside the United States that: (i) such Initial Purchaser understands that no action has been or will be taken in any jurisdiction by the Company that would permit a public offering of the Securities, or possession or distribution of the Offering Circular or any other offering or publicity material relating to the Securities, in any country or jurisdiction where action for that purpose is required; (ii) such Initial Purchaser will comply with all applicable laws and regulations in each jurisdiction in which it acquires, offers, sells or delivers Securities or has in its possession or distributes the Offering Circular or any such other material, in all cases at its own expense; (iii) the Securities have not been registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in accordance with Rule 144A; and (iv) such Initial Purchaser has (A) not offered or sold and, prior to the date six months after the Closing Date, will not offer or sell any Securities to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995; (B) complied and will comply with all applicable provisions of the Financial Services Act 1986 with respect to anything done by it in relation to the Securities in, from or otherwise involving the United Kingdom, and (C) only issued or passed on and will only issue or pass on in the United Kingdom any document received by it in connection with the issue of the Securities to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to whom such document may otherwise lawfully be issued or passed on. Terms used in this Section 7(b) have the meanings given to them by Regulation S. 12 14 8. Indemnity and Contribution. (a) The Company agrees to indemnify and hold harmless each Initial Purchaser and each person, who controls any Initial Purchaser within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act against any and all losses, claims, damages or liabilities, joint or several (including amounts paid in settlement of any litigation if such settlement is effected with the written consent of the Company), to which they or any of them may become subject under the Act, the Exchange Act or other Federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Offering Circular or in any amendment thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and agrees to reimburse each such indemnified party for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Company by or on behalf of any Initial Purchaser specifically for use in connection with the preparation thereof. This indemnity agreement will be in addition to any liability which the Company may otherwise have. (b) Each Initial Purchaser severally, and not jointly, agrees to indemnify and hold harmless the Company, each of its directors, each of its officers and each person who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company to each Initial Purchaser, but only with reference to written information relating to such Initial Purchaser furnished to the Company by such Initial Purchaser expressly for use in the Offering Circular or any amendments or supplements thereto. This indemnity agreement will be in addition to any liability which any Initial Purchaser may otherwise have. (c) Promptly after receipt by an indemnified party under this Section 8 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party, under this Section 8, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party, otherwise than under subparagraph (a) or (b) of this Section 8. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein, and to the extent that it may elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party; 13 15 provided, however, that if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, the indemnified party, or parties shall have the right to select separate counsel to assert such legal defenses and to otherwise participate in the defense of such action on behalf of such indemnified party or parties. Upon receipt of notice from the indemnifying party to such indemnified party of its election so to assume the defense of such action and approval by the indemnified party, of counsel, the indemnifying party will not be liable to such indemnified party under this Section 8 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof unless (i) the indemnified party shall have employed separate counsel in connection with the assertion of legal defenses in accordance with the proviso to the next preceding sentence (it being understood, however, that the indemnifying party shall not be liable for the expenses of more than one separate counsel, approved by Goldman, Sachs & Co. in the case of paragraph (a) of this Section 8, representing the indemnified parties under such paragraph (a) who are parties to such action), (ii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of commencement of the action or (iii) the indemnifying party has authorized the employment of counsel for the indemnified party at the expense of the indemnifying party; and except that, if clause (i) or (iii) is applicable, such liability shall be only in respect of the counsel referred to in such clause (i) or (iii). (d) To the extent the indemnification provided for in this Section 8 is unavailable to an indemnified party under paragraph (a) or (b) hereof or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Initial Purchasers on the other hand from the offering of the Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and of the Initial Purchasers on the other in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Initial Purchasers on the other in connection with the offering of the Securities shall be deemed to be in the same proportion as the total net proceeds from the offering of the Securities (before deducting expenses) received by the Company bear to the total discounts and commissions received by the Initial Purchasers in respect thereof. The relative fault of the Company on the one hand and of the Initial Purchasers on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged 14 16 omission to state a material fact relates to information supplied by the Company or by the Initial Purchasers and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. (e) The Company and the Initial Purchasers agree that it would not be just and equitable if contribution pursuant to this Section 8 were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in Section 8(d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages and liabilities referred to in Section 8(d) shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 8, no Initial Purchaser shall be required to contribute any amount in excess of the amount by which the total price at which the Securities resold by it in the initial placement of such Securities were offered to investors exceeds the amount of any damages that such Initial Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Initial Purchasers' obligations to contribute pursuant to this Section 8 are several, in proportion to the respective principal amounts of Securities purchased by each of such Initial Purchasers, and not joint. 9. Termination. An Initial Purchaser may terminate this Agreement, immediately upon notice to the Company, at any time prior to the Closing Date (a) if there has been, since the date of this Agreement or since the respective dates as of which information is given in the Offering Circular, any change, or any development involving a prospective change, in or affecting the business or properties of the Company and its subsidiaries, shall have occurred the effect of which is, in the judgment of Morgan Stanley & Co. Incorporated, so material and adverse to the Company and its subsidiaries taken as a whole as to make it impractical or inadvisable to proceed with the delivery of the Securities or (b) if there shall have occurred any material adverse change in the financial markets in the United States or any outbreak or escalation of hostilities or other national or international calamity or crisis, the effect of which shall be such as to make it, in the judgment of Morgan Stanley & Co. Incorporated, impracticable to market the Securities or enforce contracts for the sale of the Securities, or (c) if trading in any securities of the Company shall have been suspended by the Commission or a national securities exchange, or if trading generally on either the American Stock Exchange or the New York Stock Exchange shall have been suspended, or minimum or maximum prices for trading shall have been fixed, or maximum ranges for prices for securities shall have been required, by either of said exchanges or by order of the Commission or any other governmental authority, or if a banking moratorium shall have been declared by either Federal or New York authorities or if a banking moratorium shall have been declared by 15 17 the relevant authorities in the country or countries of origin of any foreign currency or currencies in which the Securities are denominated or payable, or (d) if the rating assigned by any nationally recognized securities rating agency to any debt securities of the Company as of the date of this Agreement shall have been lowered since that date or if any such rating agency shall have publicly announced that it has placed any debt securities of the Company on what is commonly termed a "watch list" for possible downgrading, or (e) if there shall have come to the attention of such Initial Purchaser any facts that would cause you to believe that the Offering Circular, at the time it was required to be delivered to a purchaser of Securities, contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in light of the circumstances existing at the time of such delivery, not misleading. 10. Effectiveness; Defaulting Initial Purchasers. This Agreement shall become effective upon the execution and delivery hereof by the parties hereto. If, on the Closing Date, any one or more of the Initial Purchasers shall fail to purchase and pay for any of the Securities that it or they have agreed to purchase hereunder on such date, and such failure to purchase shall constitute a default in the performance of its or their obligations under this Agreement, the remaining Initial Purchasers shall be obligated severally to take up and pay for (in the respective proportions which the amount of Securities set forth opposite their names in Schedule II hereto bears to the aggregate amount of Securities set forth opposite their names of all the remaining Initial Purchasers) the Securities which the defaulting Initial Purchaser or Initial Purchasers agreed but failed to purchase; provided, however, that in the event that the aggregate amount of Securities which the defaulting Initial Purchaser or Initial Purchasers agreed but failed to purchase shall exceed 10% of the aggregate amount of Securities set forth in Schedule II hereto, the remaining Initial Purchasers shall have the right to purchase all, but shall not be under any obligation to purchase any, of the Securities, and if such nondefaulting Underwriters do not purchase all the Securities, this Agreement will terminate without liability to any nondefaulting Initial Purchaser or the Company. In the event of a default by any Initial Purchaser as set forth in this Section 10, the Closing Date shall be postponed for such period, not exceeding seven days, as the Representatives shall determine in order that the required changes in the Offering Circular or in any other documents or arrangements may be effective. Nothing contained in this Agreement shall relieve any defaulting Initial Purchaser of its liability, if any, to the Company and any nondefaulting Initial Purchaser for damages occasioned by its default hereunder. If the sale of the Securities provided for herein is not consummated because any condition to the obligations of the Initial Purchasers set forth in Section 5 hereof is not satisfied because of any refusal, inability or failure on the part of the Company to perform any agreement herein or comply with any provision hereof other than by reason of a default by any of the Initial Purchasers, the Company will reimburse the Initial Purchasers severally upon demand for all reasonable out-of-pocket expenses (including reasonable fees and 16 18 disbursements of counsel) that shall have been incurred by them in connection with the proposed purchase and sale of the Securities but the Company shall be under no further liability to the Initial Purchasers with respect to such Securities except as provided in Section 8 hereof. 11. Representatives and Indemnities to Survive. The respective agreements, representations, warranties, indemnities and other statements of the Company or its officers and of the Initial Purchasers set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of any Initial Purchaser or the Company or any of the officers, directors or controlling persons referred to in Section 8 hereof, and will survive delivery of and payment for the Securities. The provisions of the third paragraph of Section 10 and the provisions of Section 8 hereof shall survive the termination or cancellation of this Agreement. 12. Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 13. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. 14. Headings. The headings of the sections of this Agreement have been inserted for convenience of reference only and shall not be deemed a part of this Agreement. 15. Notices. All communications hereunder will be in writing and effective only on receipt, and, if sent to the Initial Purchasers, will be mailed, delivered or telegraphed and confirmed to the Representatives of the Initial Purchasers, at the address specified in Schedule II hereto; or, if sent to the Company, will be mailed, delivered or telegraphed and confirmed to it, care of 1900 Richmond Road, Cleveland, Ohio 44124, Attention of the Secretary. 16. Successors. This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and the officers and directors and controlling persons referred to in Section 8 hereof, and no other person will have any right or obligation hereunder. 17. Business Day. For purposes of this Agreement, "business day" means any day on which the New York Stock Exchange is open for trading. If the foregoing is in accordance with your understanding of our agreement, please sign and return to us the enclosed duplicate hereof, whereupon this letter and your 17 19 acceptance shall represent a binding agreement between the Company and each of the Initial Purchasers. Very truly yours, TRW INC. By: /s/ Ronald P. Vargo --------------------------------------------- Name: Ronald P. Vargo Title: Vice President and Treasurer Accepted as of the date hereof Goldman, Sachs & Co. Acting severally on behalf of itself and the several Initial Purchasers named in Schedule II hereto. By: Goldman, Sachs & Co. By: /s/ Goldman, Sachs & Co. ---------------------------------------- 18 20 SCHEDULE I Description of the Securities: Title and Purchase Price of Floating Rate Notes due 2000: Title: Floating Rate Notes due 2000 Principal amount: $575,000,000 Interest rate: Three month LIBOR plus 0.42% Date interest begins to accrue: June 23, 1999 Interest payment dates: September 28, 1999, and thereafter on December 28, 1999, March 28, 2000, and at maturity Date of maturity: June 28, 2000 Purchase price (including accrued interest or amortization, if any): 99.991% Initial offering price: 100% 19 21 Title and Purchase Price of 6.45% Notes due 2001: Title: 6.45% Notes due 2001 Principal amount: $425,000,000 Interest rate: 6.45% Date interest begins to accrue: June 23, 1999 Interest payment dates: December 15 and June 15 of each year, commencing on December 15, 1999 Date of maturity: June 15, 2001 Purchase price (including accrued interest or amortization, if any): 99.55% Initial offering price: 99.991% Closing Date, Time and Location: June 23, 1999, at 9:00 a.m. at the offices of Cravath, Swaine & Moore, Worldwide Plaza, 825 Eighth Avenue, New York, New York 10019 20 22 $575,000,000 of Floating Rate Notes due 2000
INITIAL PURCHASERS PRINCIPAL AMOUNT OF 2000 NOTES TO BE PURCHASED Goldman, Sachs & Co..................................................... $345,000,000 Chase Securities Inc.................................................... 115,000,000 Morgan Stanley & Co. Incorporated....................................... 115,000,000 Total:..................................................... $575,000,000 ===========
21 23 $425,000,000 of 6.45% Notes due 2001
INITIAL PURCHASERS PRINCIPAL AMOUNT OF 2001 NOTES TO BE PURCHASED Goldman, Sachs & Co..................................................... $255,000,000 Chase Securities Inc.................................................... 85,000,000 Morgan Stanley & Co. Incorporated....................................... 85,000,000 Total:.................................................... $425,000,000 ===========
22 24 EXHIBIT A FORM OF OPINION OF WILLIAM B. LAWRENCE Gentlemen and Ladies: This opinion is addressed to you with respect to $575,000,000 aggregate principal amount of Floating Rate Notes due 2000, and $425,000,000 aggregate principal amount of 6.45% Notes due 2001 (collectively, the "Offered Securities") of TRW Inc., an Ohio corporation (the "Company"), to be issued under an Indenture dated as of May 1, 1986, supplemented by the First Supplemental Indenture dated August 24, 1989, the Second Supplemental Indenture dated as of June 2, 1999, the Third Supplemental Indenture dated as of June 2, 1999, the Fourth Supplemental Indenture dated as of June 2, 1999, the Fifth Supplemental Indenture dated as of June 2, 1999, the Sixth Supplemental Indenture dated as of June 23, 1999, and the Seventh Supplemental Indenture dated as of June 23, 1999 (as supplemented, the "Indenture"), between the Company and The Chase Manhattan Bank as successor trustee ("Trustee") to Mellon Bank, N.A., pursuant to Section 5(b) of the Purchase Agreement dated June 18, 1999 (the "Purchase Agreement"), entered into among the Company and you as representative (the "Representative"). Capitalized terms used but not defined in this letter are used as defined in the Purchase Agreement. I am General Counsel of the Company and have acted in such capacity in connection with the proposed issue and sale by the Company of the Offered Securities. With respect thereto, I have examined or caused to be examined by members of the TRW Law Department the following: (i) the Amended Articles of Incorporation of the Company; (ii) the Regulations of the Company; (iii) the corporate proceedings of the Company relating to the Offered Securities, the Offering Circular (as defined below), and the execution and delivery of the Purchase Agreement, the Registration Rights Agreement and the Indenture; (iv) the Company's Annual Report on Form 10-K for the year ended December 31, 1998, the Company's Quarterly Reports on Form 10-Q for the quarter ended March 31, 1999, the Company's Current Reports on Form 8-K dated as of January 28, 1999, February 5, 1999, March 26, 1999 (as amended May 17, 1999), and May 27, 1999 (the "Incorporated Documents"), all of which documents have been filed with the Securities and Exchange Commission (the "Commission") pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and are incorporated by reference in the Offering Circular; (v) the Offering Circular dated June 18, 1999 (the "Offering Circular"); (vi) the Purchase Agreement; (vii) the Indenture; (viii) the Registration Rights Agreement and (ix) the Form of the Offered Securities. 23 25 I have also made or caused to be made such other examinations as I have deemed necessary to enable me to give the opinions herein expressed. However, as to each of the opinions set forth below which is limited to my knowledge, you should be aware that I have neither made nor caused to be made any independent review for purposes of rendering this opinion, although in the regular course of advising TRW I have reviewed or caused to be reviewed various documents, records and matters of law. As to matters relating to that portion of the Company that constituted LucasVarity plc ("LucasVarity") prior to its purchase by the Company, I have relied on the opinion of Russell Kelley, General Counsel of LucasVarity Ltd. As to matters relating to Lucas Limited and governed by English law, I have relied on the opinion of Allen & Overy. Based upon the foregoing, I am of the opinion that: 1. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Ohio, with full corporate power and authority to own its properties and conduct the business now being conducted by it as described in the Offering Circular, and is duly qualified to do business as a foreign corporation in each jurisdiction which requires such qualification wherein it owns or leases material properties or conducts material business, except where the failure to so qualify would not have a material adverse effect on the financial condition or the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise; and the Company is in good standing in the State of California and the Commonwealth of Virginia; 2. Lucas Limited, a private limited company organized and existing under the laws of England and Wales ("Lucas Limited"), is duly incorporated, validly existing and in good standing as a private company with limited liability under the laws of England. The registers of charges of Lucas Limited's immediate holding company, Lucas Investment Finance Limited, and of Joseph Lucas Limited, as at June 22, 1999, do not disclose any charges over the shares in Lucas Limited held by them. Each of the certificate of incorporation and Memorandum and Articles of Association of Lucas Limited do not prohibit Lucas Limited from engaging in the business of producing and selling automotive and aerospace products; 3. Kelsey-Hayes Company, a Delaware corporation ("Kelsey-Hayes"), has been duly incorporated, is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation or organization has the corporate power and authority to own its property and to conduct its business as described in the Offering Circular and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the financial condition, or the earnings, business affairs or business prospects of the Company and its subsidiaries, 24 26 taken as a whole; all of the issued shares of capital stock of Kelsey-Hayes have been duly and validly authorized and issued, are fully paid and non-assessable, and are owned directly or indirectly, free and clear of all liens, encumbrances, equities or claims; 4. Each of the Indenture and the Registration Rights Agreement has been duly authorized, executed and delivered by or on behalf of the Company, and constitutes a legal, valid and binding instrument enforceable against the Company in accordance with its terms except (i) as rights to indemnification and contribution under the Registration Rights Agreement may be limited under applicable law and (ii) as the enforcement of remedies may be (A) limited by applicable bankruptcy, reorganization, insolvency, moratorium or other laws or proceedings affecting the enforcement of creditors' rights generally from time to time in effect or (B) subject to the effect of general principles of equity, whether applied by a court of law or equity; and the Offered Securities have been duly authorized and, when executed and authenticated in accordance with the provisions of the Indenture and delivered to and paid for by the Initial Purchasers pursuant to the Purchase Agreement, will constitute legal, valid and binding obligations of the Company entitled to the benefits of the Indenture, the Registration Rights Agreement and the Purchase Agreement except as the enforcement of remedies may be (i) limited by applicable bankruptcy, reorganization, insolvency, moratorium or other laws or proceedings affecting the enforcement of creditors' rights generally from time to time in effect or (ii) subject to the effect of general principles of equity, whether applied by a court of law or equity; 5. To my knowledge, there is no pending or threatened action, suit or proceeding before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its subsidiaries, of a character that would be required to be disclosed in a registration statement filed under the Securities Act of 1933, as amended (the "Act"), which is not adequately disclosed in the Offering Circular, and there is no franchise, contract or other document of a character that would be required to be described in a registration statement or prospectus filed under the Act, or to be filed as an exhibit, which is not described or filed as required; and the statements included or incorporated in the Offering Circular describing any legal proceedings or material contracts or agreements relating to the Company fairly summarize such matters; 6. I have no reason to believe that the Offering Circular, or any amendment thereof, at the date of this letter contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading or that the Offering Circular, as amended or supplemented, at the date of this letter, includes any untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; PROVIDED, HOWEVER, that I express no opinion as to the information contained in or omitted from the Offering Circular or any amendment thereof or supplement thereto in reliance upon and in 25 27 conformity with written information furnished to the Company by or on behalf of any Initial Purchaser specifically for use in connection with the preparation of the Offering Circular or any amendment thereof or supplement thereto; 7. The Purchase Agreement has been duly authorized, executed and delivered by the Company; 8. No consent, approval, authorization or order of any court or governmental agency or body is required for the consummation of the transactions contemplated herein except such as have been obtained under the Act and such as may be required under the blue sky laws of any jurisdiction in connection with the purchase and distribution of the Securities by the Initial Purchasers; 9. Neither the issue and sale of the Securities, nor the consummation of any other of the transactions contemplated by the Purchase Agreement nor the fulfillment of the terms of the Purchase Agreement, the Indenture, the Registration Rights Agreement and the Securities will conflict with, result in a breach of, or constitute a default under, the Amended Articles of Incorporation or Regulations of the Company or the terms of any indenture or other agreement or instrument known to me and to which the Company is a party or bound, or any order or regulation known to me to be applicable to the Company of any court, regulatory body, administrative agency, governmental body or arbitrator having jurisdiction over the Company; and 10. Based upon the representations, warranties and agreements of the Company in Sections 1(m), 1(n), 1(o), 6(f), 6(g) and 6(j) of the Purchase Agreement and of the Initial Purchasers in Section 7 of the Purchase Agreement, and assuming (i) the accuracy of the representations and warranties of each of the purchasers to whom the Initial Purchasers initially resell the Securities, (ii) compliance by the Initial Purchasers with the offering and transfer procedures and restrictions described in the Offering Circular and (iii) receipt by the purchasers to whom the Initial Purchasers initially resell the Securities of a copy of the Offering Circular prior to such sale, it is not necessary in connection with the offer, sale and delivery of the Securities to the Initial Purchasers under the Purchase Agreement or in connection with the initial resale of such Securities by the Initial Purchasers in accordance with Section 7 of the Purchase Agreement to register the Securities under the Securities Act of 1933, or to qualify the Indenture under the Trust Indenture Act of 1939, it being understood that no opinion is expressed as to any subsequent resale of any Security. I am a member of the bar of the State of Ohio and do not purport to be an expert on, generally familiar with or qualified to express legal conclusions based on laws other than the laws of the State of Ohio and the United States of America. 26 28 This opinion is being delivered to you solely for your benefit as a representative under the Purchase Agreement and to the Initial Purchasers and may be relied upon only by you for such purpose. Very truly yours, William B. Lawrence General Counsel 27 29 EXHIBIT B FORM OF OPINION OF CRAVATH, SWAINE & MOORE TRW INC. $575,000,000 FLOATING RATE NOTES DUE 2000 $425,000,000 6.45% NOTES DUE 2001 Ladies and Gentlemen: We have acted as your counsel in connection with the purchase by you, pursuant to the Purchase Agreement dated June 18, 1999 (the "Purchase Agreement"), among you and TRW Inc., an Ohio corporation (the "Company"), of $575,000,000 principal amount of the Company's Floating Rate Notes due 2000, and $425,000,000 principal amount of the Company's 6.45% Notes due 2001 (collectively, the "Securities") to be issued under the Indenture dated as of May 1, 1986, as supplemented and amended by the First Supplemental Indenture dated as of August 24, 1989, the Second Supplemental Indenture dated as of June 2, 1999, the Third Supplemental Indenture dated as of June 2, 1999, the Fourth Supplemental Indenture dated as of June 2, 1999, the Fifth Supplemental Indenture dated June 2, 1999, the Sixth supplemental Indenture dated as of June 23, 1999, and the Seventh Supplemental Indenture dated as of June 23, 1999 (the "Indenture"), between the Company and The Chase Manhattan Bank, as Trustee. Capitalized terms used and not otherwise defined herein have the meanings ascribed thereto in the Purchase Agreement. In that connection, we have examined originals, or copies certified or otherwise identified to our satisfaction, of such documents, corporate records and other instruments as we have deemed necessary or appropriate for the purposes of this opinion, including: (a) resolutions adopted by the Board of Directors of the Company on February 10, 1999; (b) the Offering Circular dated June 18, 1999 (the "Offering Circular"); (c) the Purchase Agreement; (d) the Registration Rights Agreement; (e) the Indenture; and (f) the form of the Securities. Based on the foregoing, we are of opinion as follows: 1. Assuming that the Indenture has been duly authorized, executed and delivered by the Company, the Indenture constitutes a legal, valid and binding obligation of the Company enforceable in accordance with its terms (subject to 28 30 applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other similar laws affecting creditors' rights generally from time to time in effect and to general principles of equity, including concepts of materiality, reasonableness, good faith and fair dealing, regardless of whether considered in a proceeding in equity or at law). 2. The Securities conform in all material respects to the description thereof contained in the Offering Circular. Assuming that the Securities have been duly authorized, when executed and authenticated in accordance with the provisions of the Indenture and delivered to and paid for by the Initial Purchasers pursuant to the Purchase Agreement, will constitute legal, valid and binding obligations of the Company entitled to the benefits of the Indenture and enforceable against the Company in accordance with their terms (subject to applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other similar laws affecting creditors' rights generally from time to time in effect and to general principles of equity, including concepts of materiality, reasonableness, good faith and fair dealing, regardless of whether considered in a proceeding in equity or at law). 3. Assuming (i) the accuracy of, and compliance with, the representations, warranties and covenants of the Company in the Purchase Agreement, (ii) the accuracy of, and compliance with, the representations, warranties and covenants of the Initial Purchasers in the Purchase Agreement, (iii) the accuracy of the representations and warranties of each of the purchasers to whom the Initial Purchasers initially resell the Securities, (iv) compliance by the Initial Purchasers with the offering and transfer procedures and restrictions described in the Offering Circular and (v) receipt by the purchasers to whom the Initial Purchasers initially resell the Securities of a copy of the Offering Circular prior to such sale, it is not necessary in connection with the offer, sale and delivery of the Securities or in connection with the initial resale of such Securities in the manner contemplated by the Purchase Agreement and the Offering Circular to register the Securities under the Securities Act of 1933, as amended, and the Indenture does not require qualification under the Trust Indenture Act of 1939, as amended, it being understood that no opinion is expressed as to any subsequent resale of any Securities. Although we have not performed an independent verification of the substance of counsel's opinion and take no responsibility therefor, the opinion dated the date hereof of William B. Lawrence, General Counsel for the Company, delivered to you pursuant to Section 5(b) of the Purchase Agreement, is substantially responsive to the requirements of the Purchase Agreement. This letter is delivered to you pursuant to Section 5(c) of the Purchase Agreement. We are admitted to practice in the State of New York, and we express no opinion as to matters governed by any laws other than the laws of the State of New 29 31 York, the General Corporation Law of the State of Delaware and the Federal laws of the United States of America. In particular, we do not purport to pass on any matter governed by the laws of the State of Ohio. In rendering this opinion, we have assumed without independent investigation, the correctness of, and take no responsibility for, the opinion dated June 23, 1999, of William B. Lawrence, General Counsel for the Company, a copy of which has been delivered to you pursuant to Section 5(b) of the Purchase Agreement, as to all matters of law covered therein relating to the laws of the State of Ohio. We are furnishing this opinion to you solely for your benefit. This opinion may not be relied upon by any other person or for any other purpose or used, circulated, quoted or otherwise referred to for any other purpose. Very truly yours, Goldman, Sachs & Co. Chase Securities Inc. In care of Goldman, Sachs & Co. 85 Broad Street New York, NY 10004 30 EX-10.C 4 EXHIBIT 10(C) 1 Exhibit 10(c) ------------- April 28, 1999 Dr. Carl H. Hahn Porschestrasse 53 38440 Wolfsburg Germany Dear Carl: This letter will confirm our understanding relating to your services as an Advisory Director of TRW. The attached terms and conditions (Exhibit A), together with this letter, constitute our "Agreement." We will request your advice and counsel from time to time. The services to be performed may include some or all of the following: (a) Attendance at all of the Directors' meetings; (b) Attendance at Committee meetings of the Directors from time to time as requested by the Chairman of the Board; and (c) Such advice and counsel as may be requested from time to time by the Chairman of the Board. You understand that you will not be able to exercise voting rights at any meeting of the Directors or Committees of the Directors. This arrangement will become effective on April 28, 1999 and will continue for one year, terminating on April 28, 2000. Thereafter, the Agreement may be extended on mutually agreeable terms and conditions. The Agreement may be terminated by either TRW or you in accordance with the attached terms and conditions. As compensation for your services as an Advisory Director, TRW will pay you $90,000 per year, in monthly installments, representing the current annual Directors' retainer of $70,000 and $20,000 in lieu of an annual grant of stock options. These payments are not eligible for the 2 Carl H. Hahn April 28, 1999 Page 2 Director's Deferred Compensation Plan. If at any time the current annual retainer for Directors is increased during the term of this Agreement, your compensation will be increased to equal the level of the total cash retainer paid to Directors. You will be reimbursed for all reasonable, actually incurred travel and other out-of-pocket expenses and costs in conjunction with performing the above services. Receipts for such expenses should be submitted for processing and approval in the same manner as you have been submitting your expenses for your services as a Director. Sincerely, /s/ Joseph T. Gorman Joseph T. Gorman ACCEPTED: /s/ Carl Hahn - --------------------- Carl Hahn Date: 4/28/99 ---------------------- EX-27 5 EXHIBIT 27
5 0000100030 TRW INC. 1,000,000,000 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 609 0 2,684 0 1,048 5,768 7,915 3,999 17,341 7,622 5,661 0 0 76 1,580 17,341 7,882 7,882 6,558 6,558 0 0 185 224 113 111 0 0 0 111 .92 .91
EX-99 6 EXHIBIT 99 1 Exhibit 99 TRW Inc. and Subsidiaries Computation of Ratio of Earnings to Fixed Charges - Unaudited (In millions except ratio data)
Years Ended December 31 Six Months Ended ------------------------------------------------------------- June 30, 1999 1998 1997 1996 1995 1994 ---------------- ---------- -------------- ------------- --------- ----------- Earnings from continuing operations before income taxes $ 224.5(A) $ 746.1 $ 239.7(B) $ 302.2(C) $ 625.5 $ 435.5 Unconsolidated affiliates (30.9) 1.0 (8.0) 1.4 1.3 (0.6) Minority earnings 9.2 10.5 20.2 11.5 10.8 7.7 Fixed charges excluding capitalized interest 214.7 174.3 123.9 129.0 137.2 145.3 -------- -------- -------- -------- -------- -------- Earnings $ 417.5 $ 931.9 $ 375.8 $ 444.1 $ 774.8 $ 587.9 -------- -------- -------- -------- -------- -------- Fixed Charges: Interest expense $ 184.7 $ 114.4 $ 75.4 $ 84.2 $ 94.7 $ 104.7 Capitalized interest 1.7 4.7 4.5 3.5 5.1 6.6 Portion of rents representa- tive of interest factor 30.0 59.9 48.5 43.2 41.4 39.2 Interest expense of uncon- solidated affiliates 0.0 0.0 0.0 1.6 1.1 1.4 -------- -------- -------- -------- -------- -------- Total fixed charges $ 216.4 $ 179.0 $ 128.4 $ 132.5 $ 142.3 $ 151.9 -------- -------- -------- -------- -------- -------- Ratio of earnings to fixed charges 1.9x 5.2x 2.9x 3.4x 5.4x 3.9x -------- -------- -------- -------- -------- --------
(A) Earnings from continuing operations before income taxes for the six months ended June 30, 1999 of $224.5 million, includes an $85.3 million earnings charge for purchased in-process research and development. See "Acquisitions" footnote in the Notes to Financial Statements. (B) The 1997 earnings from continuing operations before income taxes of $239.7 million includes a $548 million earnings charge for purchased in-process research and development. See "Acquisitions" footnote in the Notes to Financial Statements of the Company's 1997 Annual Report to Shareholders. (C) The 1996 earnings from continuing operations before income taxes of $302.2 million includes a charge of $384.8 million as a result of actions taken in the automotive and space and defense businesses. See "Special Charges and Divestiture" footnote in the Notes to Financial Statements of the Company's 1996 Annual Report to Shareholders. -----END PRIVACY-ENHANCED MESSAGE-----