-----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, IzZvJcNC37vtQqQ3YG0xMtvnnTvwBokB2ffmQL/GmFnxMoRdUh3WJSA1LMmQqAC3 Yp8sS6wQ1JDXKqJOWsSFkQ== 0001077604-00-000115.txt : 20000320 0001077604-00-000115.hdr.sgml : 20000320 ACCESSION NUMBER: 0001077604-00-000115 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000317 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRW INC CENTRAL INDEX KEY: 0000100030 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 340575430 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-02384 FILM NUMBER: 572371 BUSINESS ADDRESS: STREET 1: 1900 RICHMOND RD CITY: CLEVELAND STATE: OH ZIP: 44124 BUSINESS PHONE: 2162917000 MAIL ADDRESS: STREET 1: 1900 RICHMOND ROAD CITY: CLEVELAND STATE: OH ZIP: 44124 10-K405 1 FORM 10-K [LOGO OF TRW] 1999 SEC FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K (Mark One) [X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 OR [_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-2384 TRW Inc. (Exact name of registrant as specified in its charter) Ohio 34-0575430 (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) No.) 1900 Richmond Road, Cleveland, Ohio 44124 (Address of principal executive offices) (Zip Code) (216) 291-7000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange Title of each class on which registered ------------------- --------------------- Common Stock, par value $0.625 per share New York Stock Exchange Chicago Stock Exchange Pacific Exchange Philadelphia Stock Exchange Cumulative Serial Preference Stock II, New York Stock Exchange $4.40 Convertible Series 1 Cumulative Serial Preference Stock II, New York Stock Exchange $4.50 Convertible Series 3
Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the registrant's voting and non-voting common equity held by non-affiliates was $6,539,816,584 as of March 1, 2000. This amount was computed on the basis of the closing price of the registrant's voting securities included in the NYSE-Composite Transactions report for such date, as published in the Midwest edition of The Wall Street Journal. As of March 1, 2000 there were 122,273,759 shares of TRW Common Stock, $0.625 par value, outstanding. The following documents have been incorporated herein by reference to the extent indicated herein: TRW Proxy Statement dated March 17, 2000 Part III TRW Annual Report to Security Holders for the year ended Parts I, II December 31, 1999 and IV TRW INC. INDEX TO ANNUAL REPORT ON FORM 10-K FOR YEAR ENDED DECEMBER 31, 1999
Page ---- Part I ------ Item 1. Business...................................................... 1 Item 2. Properties.................................................... 12 Item 3. Legal Proceedings............................................. 15 Item 4. Submission of Matters to a Vote of Security Holders........... 16 Executive Officers of the Registrant.................................... 17 Part II ------- Item 5. Market for Registrant's Common Equity and Related Stockholder Matters....................................................... 19 Item 6. Selected Financial Data....................................... 19 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................... 20 Item 7A. Quantitative and Qualitative Disclosures about Market Risk.... 20 Item 8. Financial Statements and Supplementary Data................... 20 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...................................... 20 Part III -------- Item 10. Directors and Executive Officers of the Registrant............ 20 Item 11. Executive Compensation........................................ 20 Item 12. Security Ownership of Certain Beneficial Owners and Management.................................................... 21 Item 13. Certain Relationships and Related Transactions................ 21 Part IV ------- Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........................................................... 21
PART I ITEM 1. BUSINESS. INDUSTRY SEGMENTS AND PRODUCT CLASSIFICATIONS TRW is an international company that provides advanced technology products and services. The principal businesses of TRW and its subsidiaries are the design, manufacture and sale of products and the performance of systems engineering, research and technical services for industry and the United States Government in the automotive and aerospace and information systems markets. TRW operates its business in the following seven operating segments: . Occupant Safety Systems; . Chassis Systems; . Automotive Electronics; . Other Automotive; . Space & Electronics; . Systems & Information Technology; and . Aeronautical Systems. TRW was incorporated under the laws of Ohio on June 17, 1916. When used in this report, the terms "TRW" and the "Company" refer to TRW Inc. or to TRW Inc. and its subsidiaries. Automotive TRW's automotive businesses design, manufacture and sell a broad range of steering, suspension, braking, engine, safety, electronic, engineered fastening and other components and systems for passenger cars, light trucks and commercial vehicles through four operating segments. TRW sells the products included in these businesses primarily to automotive original equipment manufacturers. In addition, TRW sells its automotive components for use as aftermarket and service parts to automotive original equipment manufacturers and others for resale through their own independent distribution networks. Occupant Safety Systems TRW's Occupant Safety Systems business focuses on the design, manufacture and sale of: . inflatable restraint systems, including complete air bag systems for driver, passenger, side-impact and rollover applications in cars and light trucks; . seat belt systems, including retractor and buckle assemblies, pyrotechnic retractor and buckle assemblies, energy management devices, height adjusters, seat integrated restraints and integrated child restraints; and . steering wheel systems, including steering wheel and air bag covers and a full range of steering wheels, from base wheels to top-of-the-line, that incorporate leather, wood, multifunctional switches and integral air bag modules. TRW sells the products included in its Occupant Safety Systems business to major vehicle manufacturers worldwide. 1 Chassis Systems TRW's Chassis Systems business focuses on the design, manufacture and sale of: . steering systems and components, including hydraulic and electrically assisted power and manual rack and pinion steering systems; . suspension components; . chassis modules and integrated vehicle control systems; . vehicle dynamic control systems, consisting of two-wheel and four-wheel anti-lock braking systems (ABS), ABS sensors and proportioning valves, traction control systems, vehicle stability management systems, electrohydraulic braking systems, electronic brake management systems and adaptive cruise control systems; . foundation brake systems, consisting of disc brake assemblies and components, drum brake assemblies and components, brake proportioning valves and wheel cylinders; . brake actuation systems, consisting of mechanically and electronically actuated boosters and master cylinders; . brake modules, consisting of front and rear corner modules, brake and axle modular assemblies and pedal box modules; and . aftermarket operations, including parts, service and technical and diagnostic support. TRW sells the products included in its Chassis Systems business to major original equipment (OE) vehicle manufacturers worldwide and to their suppliers. Automotive Electronics TRW's Automotive Electronics business focuses on the design, manufacture and sale of: . safety electronics systems, including front and side air bag crash sensors, air bag diagnostic modules, vehicle rollover sensors, active safety products and "smart" restraint electronics; . access and security electronics systems, including remote keyless entry systems, integrated control units, body computers, advanced theft-deterrent and security systems, vehicle communications systems, tire pressure sensing, lock cylinders and key sets; . vehicle dynamics electronics, including antilock braking, electrically powered steering, electrically powered hydraulic steering and adaptive cruise control systems; . display and heating, ventilating and air conditioning electronics, including heating, ventilating and air conditioning controls and actuators, air vents, motors, instrument clusters, overhead consoles, panel controls and secondary displays; . power management controls, including fuse boxes, power supply, variable voltage systems and intelligent distribution systems; . man/machine interface controls and switches, including a wide array of automotive ergonomic applications such as steering column and wheel switches, rotary connectors, instrument panel switches, climate controls, rotary light switches, seat controls, window lift switches, convenience controllers, rain sensors, transmission switches and air bag disable switches; . engineered, plastic and metal fasteners and precision plastic moldings and assemblies; and . control systems, including rotary, linear and bi-directional actuators, packaged switches and variable reluctance sensors for automotive and industrial applications; silicon micro-machined die and pressure sensors for medical and automotive applications; rotary, linear and tilt position sensors for industrial applications; and silicone rubber keypads and switch assemblies for cellular phones and hand-held devices. TRW sells the products included in its Automotive Electronics business primarily to major OE vehicle manufacturers worldwide and to their suppliers. 2 Other Automotive TRW's Other Automotive businesses focus on the design, manufacture and sale of: . engine components and systems, including engine valves, valve cotters, valve rotators, valve stem guides, valve retaining caps, valve train systems and valve seat inserts; and . commercial steering systems and components, including integral power steering gears, power steering pumps, steering columns, intermediate steering shafts, steering cylinders, steering linkages, torque rods, tie rods, control rods, drag links, suspension ball joints, shifter linkages, pitman arms and ball sockets. TRW sells its engine components and systems to major OE vehicle manufacturers worldwide and to their suppliers. TRW's commercial steering systems and components are sold to heavy duty vehicle manufacturers in North and South America, Europe and the Asia Pacific region. Also included within TRW's Other Automotive segment in 1999 were its Lucas Diesel Systems, TRW Nelson Stud Welding and the LucasVarity wiring businesses. Lucas Diesel Systems designs, manufactures and sells diesel fuel injection equipment for automotive and industrial engines. The sale of Lucas Diesel was substantially completed on January 7, 2000. TRW Nelson Stud Welding designs, manufactures and sells stud welding systems and related stud fasteners to industrial, metal working, transportation and construction markets, as well as to automotive manufacturers, worldwide. In January 2000, the Company reached a definitive agreement to sell TRW Nelson Stud Welding. The transaction is expected to close by the end of the first quarter of 2000. The LucasVarity wiring businesses design, manufacture and sell wiring harnesses and components for automotive vehicle manufacturers. The sale of one of these businesses was completed during the fourth quarter of 1999 and the sale of the remaining business was completed during the first quarter of 2000. Aerospace & Information Systems TRW's aerospace and information systems businesses include: spacecraft systems and subsystems; electronic systems, equipment, components and services; systems integration, systems engineering services and software development; information technology systems and services; and aeronautical systems. TRW sells and distributes its products and services in its aerospace and information systems businesses principally to the United States Government, agencies of the United States Government, state, local and foreign governments and international and commercial customers. While classified projects are not discussed in this report, the operating results relating to classified projects are included in the Company's consolidated financial statements, and the business risks associated with these projects do not differ materially from those of other projects for the U.S. Government. TRW also performs diverse testing and general research projects in many of the technical disciplines related to its aerospace and information systems products and services under both private and U.S. Government contracts. Space & Electronics TRW's Space & Electronics business focuses on the design and manufacture of: . spacecraft systems and subsystems; . electronic systems, including communication systems for space and defense; . commercial telecommunications products; . digital broadband space payloads; . space science instruments; . advanced avionics systems; . high energy laser systems; and . spacecraft products, including solar arrays and reflectors. 3 TRW's Space & Electronics business also offers systems engineering and advanced technology research and development services to its customers. TRW's Space & Electronics business sells its products and services primarily to the U.S. Government for both military and civilian applications, as well as to international and commercial customers. Systems & Information Technology TRW's Systems & Information Technology business offers its customers systems engineering, systems integration, software development, modeling and simulation, test and evaluation, training and information technology for high technology systems, products and services in the fields of: . command and control; . strategic missiles; . missile and air defense; . airborne reconnaissance; . unmanned aerial vehicles; . intelligence management and processing; . earth observation; . nuclear waste management; . air traffic control; . counterterrorism; . security; . criminal justice; . health and human services; . integrated supply chain; . warehousing; . logistics; . tax; and . finance. The programs and services offered by TRW's Systems & Information Technology business are sold to the U.S. Government and its agencies, state and local government agencies, foreign governments and commercial customers. Aeronautical Systems TRW's Aeronautical Systems business is comprised entirely of the former LucasVarity aerospace business, acquired in connection with TRW's acquisition of LucasVarity in March 1999. TRW's Aeronautical Systems business designs and manufactures high integrity systems and equipment in the following product areas: . cargo systems; . engine controls; . flight controls; . power generation and management; . hoists and winches; . missile actuation; and . equipment services. TRW sells its aeronautical systems to the world's major airlines and aircraft producers, as well as to the U.S. Government and international governments and agencies. 4 RESULTS BY SEGMENT Reference is made to the information relating to the Company's industry segments, including sales, profit before taxes and segment assets attributable to each segment for each of the years 1997 through 1999, presented under the note entitled "Operating Segments" in the Notes to Financial Statements on pages 60 through 62 of the TRW 1999 Annual Report. This information is incorporated herein by reference. FOREIGN AND DOMESTIC OPERATIONS TRW manufactures products or has principal facilities in 29 countries throughout the world. TRW's operations outside the United States are in Argentina, Australia, Austria, Bahrain, Brazil, Canada, China, the Czech Republic, Egypt, France, Germany, India, Italy, Japan, Malaysia, Mexico, the Netherlands, Oman, Poland, Portugal, Saudi Arabia, South Africa, South Korea, Spain, Taiwan, Thailand, Turkey and the United Kingdom. TRW also exports products manufactured by it in the United States. Such export sales accounted for: . 6 percent of total sales during 1999, or $1,039 million; . 6 percent of total sales during 1998, or $674 million; and . 7 percent of total sales during 1997, or $732 million. TRW's foreign operations are subject to the usual risks that may affect such operations, including, among other things: . customary exchange controls and currency restrictions; . currency fluctuations and devaluations; . changes in local economic conditions; . exposure to possible expropriation or other government actions; . unsettled political conditions; and . foreign government-sponsored boycotts of the Company's products or services for noncommercial reasons. Most of the identifiable assets associated with TRW's foreign operations are located in countries where the Company believes such risks to be minimal. In recent years, economic conditions in the Asia Pacific region and Latin America, primarily Brazil, have had a negative impact on the Company's operations. Future economic conditions in these regions could have continued unfavorable effects in 2000. Reference is made to the information relating to the dollar amounts of sales and property, plant and equipment-net by geographic area for each of the years 1997 through 1999 presented under the note entitled "Operating Segments" in the Notes to Financial Statements on pages 60 through 62 of the TRW 1999 Annual Report. This information is incorporated herein by reference. 5 GENERAL Competition TRW encounters intense competition in substantially all segments of its business. The Company's competitive position varies for its different products and services. However, TRW believes that it is a significant supplier of many of the products it manufactures and of many of the services it provides. In the automotive businesses, competitors include independent suppliers of parts and components as well as the Company's original equipment customers, many of whom are integrated manufacturers who produce or could produce substantial portions of their requirements for parts and components internally. Some of the integrated manufacturers are becoming more aggressive in attempting to sell components to other automotive manufacturers and have or are considering spinning off all or a portion of their components operations which might also make such operations more aggressive competitors. Depending on the particular product, the number of the Company's competitors varies significantly and many of the products have high capital requirements and require high engineering content. In the automotive businesses and in the Aeronautical Systems business, the principal methods of competition are: . price; . engineering excellence; . product quality; . customer service; . delivery time; and . proprietary position. TRW competes for contracts covering a variety of U.S. Government and commercial projects and programs in the Space & Electronics and Systems & Information Technology businesses of its aerospace and information systems business. Such competition is based primarily on: . technical ability; . product quality; and . price. TRW's competitors for U.S. Government contracts typically are large, technically-competent firms with substantial assets, some of which have become considerably larger in recent years. Customers Sales, directly and indirectly, to the United States Government, including the Department of Defense, the National Aeronautics & Space Administration and other agencies, represented the following percentages of TRW's total sales: . 25 percent for 1999, or $4,248 million; . 35 percent for 1998, or $4,119 million; and . 33 percent for 1997, or $3,523 million. 6 Sales, directly and indirectly, to the United States Government, including the Department of Defense, the National Aeronautics & Space Administration and other agencies, represented the following percentages of the sales of the aerospace and information systems businesses:
Systems & Information Space & Electronics Technology Aeronautical Systems ---------------------- ---------------------- ---------------------- Year Percent $(In millions) Percent $(In millions) Percent $(In millions) - ---- ------- -------------- ------- -------------- ------- -------------- 1999 31% $1,748 43% $2,438 1% $51 1998 39% 1,804 49% 2,314 -- -- 1997 50% 1,881 43% 1,641 -- --
As with all companies engaged in U.S. Government contracting, TRW is subject to certain unique business risks, including: . dependence on Congressional appropriations and administrative allotment of funds; . changes in U.S. Government policies that may reflect military and political developments; . time required for design and development; . significant changes in contract scheduling; . complexity of designs and the rapidity with which they become obsolete; . necessity of design improvements; . difficulty in forecasting costs and schedules when bidding on developmental and highly sophisticated technical work; and . other factors characteristic of the industry. United States Government contracting laws also provide that the United States Government is to do business only with responsible contractors. In this regard, the United States Department of Defense and other federal agencies have the authority, under certain circumstances, to suspend or debar a contractor or organizational parts of a contractor from further U.S. Government contracting for a certain period "to protect the Government's interest." Such action may be taken for, among other reasons, commission of fraud or a criminal offense in connection with a U.S. Government contract. A suspension may also be imposed if a contractor is indicted for such matters. In the event of any suspension or debarment, TRW's existing contracts would continue unless terminated or canceled by the U.S. Government under applicable contract provisions. Other than the United States Government, TRW's largest customers (determined by including sales to their affiliates throughout the world but excluding sales to such customers or their affiliates that ultimately result in sales to the United States Government) are Ford Motor Company, DaimlerChrysler AG, General Motors Corporation and Volkswagen AG. Such sales by each of TRW's automotive segments to Ford, DaimlerChrysler, General Motors and Volkswagen, and their respective subsidiaries, accounted for the following percentages of the sales of each of the automotive segments: 7 Ford:
Occupant Safety Automotive Year Systems Chassis Systems Electronics Other Automotive - ---- --------------- --------------- ----------- ---------------- 1999 33% 16% 11% 9% 1998 33% 11% 14% 5% 1997 33% 12% 15% 7% DaimlerChrysler: Occupant Safety Automotive Year Systems Chassis Systems Electronics Other Automotive - ---- --------------- --------------- ----------- ---------------- 1999 10% 15% 19% 7% 1998 9% 16% 21% 9% 1997/1/ 4% 13% 21% -- General Motors: Occupant Safety Automotive Year Systems Chassis Systems Electronics Other Automotive - ---- --------------- --------------- ----------- ---------------- 1999 10% 12% 9% 8% 1998 10% 7% 7% 14% 1997 9% 3% 6% 15% Volkswagen: Occupant Safety Automotive Year Systems Chassis Systems Electronics Other Automotive - ---- --------------- --------------- ----------- ---------------- 1999 14% 9% 8% 4% 1998 16% 12% 11% 8% 1997 12% 13% 9% 9%
Such sales by TRW's automotive businesses to Ford and its subsidiaries accounted for the following percentages of TRW's total sales: . 13 percent for 1999, or $2,143 million; . 12 percent for 1998, or $1,423 million; and . 14 percent for 1997, or $1,469 million. - -------- /1/1997 sales to DaimlerChrysler pre-date the merger of Chrysler Corporation and DaimlerBenz AG and reflect only sales by TRW's automotive businesses to Chrysler Corporation. 8 Backlog The backlog of orders for TRW's operations is estimated to have been approximately $7.2 billion at December 31, 1999 and $6.0 billion at December 31, 1998. Of those amounts, U.S. Government business, directly or indirectly, is estimated to have accounted for approximately $5.6 billion at December 31, 1999 and $5.1 billion at December 31, 1998, substantially all of which is related to the aerospace and information systems businesses. Reported backlog at December 31, 1999 and 1998 does not include approximately $5.2 billion and $5.8 billion, respectively, of negotiated and priced, but unexercised, options of the Company's customers to purchase products and services from TRW for defense and non-defense programs. The exercise of options is at the discretion of the customer and, in the case of U.S. Government contracts, is dependent on future government funding. Of the total backlog, 98 percent at December 31, 1999 and 96 percent at December 31, 1998 was attributable to the aerospace and information systems business. Of the backlog attributable to the aerospace and information systems business, the following percentages were attributable to each of the segments comprising that business:
Systems & Space & Information Aeronautical Year Electronics Technology Systems - ---- ----------- ----------- ------------ 1999 43% 52% 5% 1998 47% 53% --
The determination of TRW's backlog involves substantial estimating, particularly with respect to customer requirements contracts and long-term contracts of a cost-reimbursement or incentive nature. A substantial portion of the variations in TRW's estimated backlog in recent years is attributable to the timing of the award and performance of U.S. Government and certain other contracts. Subject to various qualifications, including those set forth herein, and assuming no terminations, cancellations or changes and completion of orders in the normal course of business, TRW has estimated that approximately 54 percent of the December 31, 1999 backlog will be delivered in 2000, 32 percent in 2001 and 14 percent thereafter. United States Government contracts and related customer orders generally may be terminated in whole or in part at the convenience of the United States Government whenever the United States Government believes that such termination would be in its best interest. Multi-year U.S. Government contracts and related orders may be canceled if funds for contract performance for any subsequent contract year become unavailable. If any of its U.S. Government contracts were terminated or canceled under these circumstances, TRW generally would be entitled to receive payment for work completed and allowable termination or cancellation costs. Whether the occurrence of any such termination or cancellation would have an adverse effect on TRW would depend upon the particular contract and the circumstances of the termination or cancellation. Backlog data and comparisons as of different dates may not be reliable indicators of either future sales or the ratio of future direct and indirect U.S. Government sales to other sales. Intellectual Property TRW owns significant intellectual property, including a large number of patents, copyrights and trade secrets, and is involved in numerous licensing arrangements. Although TRW's intellectual property plays an important role in maintaining TRW's competitive position in a number of the markets that it serves, no single patent, copyright, trade secret or license, or group of related patents, copyrights, trade secrets or licenses, is, in the opinion of management, of such value to TRW that the business of TRW or of any industry segment of TRW would be materially affected by the expiration or termination thereof. TRW's general policy is to apply for patents on an ongoing basis in the United States and appropriate other countries on its significant patentable developments. 9 TRW also views its name and mark as significant to its business as a whole. In addition, TRW owns a number of other trade names and marks applicable to certain of its businesses and products that it views as important to such businesses and products. Research and Development Research and development costs totaled: . $2,168 million in 1999; . $2,143 million in 1998; and . $2,146 million in 1997. Of these amounts, customer-funded research and development was: . $1,249 million in 1999; . $1,425 million in 1998; and . $1,501 million in 1997. Company-funded research and development costs, which included research and development for commercial products, independent research and development and bid and proposal work related to government products and services, totaled: . $609 million in 1999; . $522 million in 1998; and . $461 million in 1997. A portion of the cost incurred for independent research and development and bid and proposal work is recoverable through overhead charged to government contracts. Company-funded product development costs, including engineering and field support for new customer requirements, were: . $310 million in 1999; . $196 million in 1998; and . $184 million in 1997. The 1999 and 1997 research and development costs exclude the $85 million and $548 million charges for purchased in-process research and development associated with the acquisitions of LucasVarity plc and BDM International, Inc., respectively. Reference is made to the information concerning these charges in "Management's Discussion and Analysis of the Results of Operations and Financial Condition" under the caption "Acquisitions" on pages 33 through 35 of the TRW 1999 Annual Report and the note entitled "Acquisitions" in the Notes to Financial Statements on pages 48 through 50 of the TRW 1999 Annual Report. This information is incorporated herein by reference. Employees At December 31, 1999, TRW had approximately 122,000 employees, of whom approximately 45,000 were employed in the United States and 48,000 were employed in Europe. 10 Raw Materials and Supplies Materials used by TRW include or contain: . steel . sodium azide . aluminum . glass . carbon and plastic . ceramics materials . plastic powders and . stainless steel laminations . pig iron . synthetic rubber . ferro-chrome . paper . brass . gold, silver, nickel, zinc and . copper copper plating materials . tin . electronics . platinum . friction materials . special alloys TRW also purchases from suppliers various types of equipment and component parts that may include these materials. TRW's operations depend upon the ability of its suppliers of materials, equipment and component parts to meet performance and quality specifications and delivery schedules. In some cases, there are only a limited number of suppliers for a material or product due to the specialized nature of the item. Shortages of certain raw materials, equipment and component parts have existed in the past and may exist again in the future. TRW has taken a number of steps to protect against and to minimize the effect of such shortages. However, any future inability of TRW to obtain raw materials, equipment or component parts could have a material adverse effect on the Company. TRW's operations also depend on adequate supplies of energy. TRW has continued its programs to conserve energy used in its operations and has available alternative sources of energy. Environmental Regulations Federal, state and local requirements relating to the discharge of materials into the environment, or otherwise relating to the protection of the environment, have had, and will continue to have, an effect on TRW and its operations. TRW has made and continues to make expenditures for projects relating to the environment, including pollution control devices for new and existing facilities. TRW is conducting a number of environmental investigations and remedial actions at current and former TRW locations to comply with various federal, state and local laws and, along with other companies, has been named a potentially responsible party for certain waste management sites. Each of these matters is subject to various uncertainties, and some of these matters may be resolved unfavorably to TRW. A reserve estimate reflecting cost ranges is established using standard engineering cost estimating techniques for each matter for which sufficient information is available. In the determination of cost ranges, the professional judgment of TRW's environmental engineers, in consultation with outside environmental specialists, when necessary, is considered. At multi- party sites, the reserve estimate also reflects the expected allocation of total project costs among the various potentially responsible parties. At December 31, 1999, TRW had reserves for environmental matters of $136 million, including $13 million of additional expense recorded during the year and $66 million of reserves relating to the LucasVarity acquisition. TRW aggressively pursues reimbursement for environmental costs from its insurance carriers. Insurance recoveries are recorded as a reduction of environmental costs when fixed and determinable. TRW does not believe that compliance with environmental protection laws and regulations will have a material effect upon its capital expenditures or competitive position, and TRW's capital expenditures for environmental control facilities during 2000 and 2001 are not expected to be material to the Company. TRW believes that any liability that may result from the resolution of environmental matters for which sufficient information is available to support cost estimates will not have a material adverse effect on the Company's earnings. However, TRW cannot predict the effect on the Company's earnings of expenditures for aspects of certain matters for which 11 there is insufficient information. See also "Legal Proceedings" on page 15 of this Annual Report on Form 10-K. In addition, TRW cannot predict the effect on the Company's earnings of compliance with environmental laws and regulations with respect to currently unknown environmental matters or the possible effect on the Company's earnings of compliance with environmental requirements imposed in the future. Capital Expenditures -- Property, Plant and Equipment During the five years ended December 31, 1999, TRW's capital expenditures and the net book value of its assets retired or sold were:
Capital Expenditures (In Millions) (In Millions) ------------------------------- ----------------- Land, Buildings Machinery Net Book Value Year Ended and Leasehold and of Assets Retired December 31, Improvements Equipment Total or Sold - ------------ --------------- --------- ----- ----------------- 1999........................ $98 $691 $789 $111 1998........................ 92 452 544 40 1997........................ 86 463 549 54 1996........................ 76 424 500 29 1995........................ 74 392 466 21
On a segment basis, capital expenditures during 1999 and 1998 were as follows:
Capital Expenditures (In Millions) ------------------------- Year Ended Year Ended December 31, December 31, 1999 1998 ------------ ------------ Occupant Safety Systems............................... $118 $152 Chassis Systems....................................... 267 107 Automotive Electronics................................ 84 86 Other Automotive...................................... 126 45 Space & Electronics................................... 99 115 Systems & Information Technology...................... 38 32 Aeronautical Systems.................................. 55 --
Of total capital expenditures, 42 percent in 1999 and 52 percent in 1998 were invested in the United States. ITEM 2. PROPERTIES. TRW's operations include numerous manufacturing, research and development and warehousing facilities. TRW owns or leases principal facilities located in 25 states plus the District of Columbia in the United States and in 28 other countries. Approximately 46 percent of the principal domestic facilities are used by the automotive businesses, 52 percent are used by the aerospace and information systems businesses and 2 percent are used at the corporate level. The automotive businesses use a substantial majority of the foreign facilities. Of the total number of principal facilities operated by TRW, approximately 56 percent of such facilities are owned, 35 percent are leased, 5 percent are held by joint ventures in which TRW has a majority interest and 4 percent are operated on property owned directly or indirectly by the U.S. Government. The Company owns its world headquarters in Lyndhurst, Ohio as well as the headquarters for its Space & Electronics segment in Redondo Beach, California, its Aeronautical Systems segment in Birmingham, England and its Occupant Safety Systems segment in Washington, Michigan. 12 The Company also owns, leases or operates on government-owned property, certain smaller research and development properties and administrative, marketing, sales and office facilities throughout the United States and in various parts of the world. A summary of TRW's principal facilities, by segment, type of facility and geographic region, is set forth in the following tables. The multi-purpose facilities are listed under each category for which a portion of the square footage of that facility is used. For example, TRW's headquarters for its Space & Electronics segment in Redondo Beach, California is categorized as a manufacturing facility, a research and development facility and as office space, as significant portions of its square footage are utilized for each of these purposes. Additionally, where more than one segment utilizes a single facility, that facility will be categorized by the purposes for which it is used by each such segment. For example, TRW's Redondo Beach facility serves not only as the headquarters and a manufacturing and research and development facility for its Space & Electronics business but is also utilized by its Systems & Information Technology business as both office space and a research and development facility. As such, this facility will appear in the following tables under both Space & Electronics and Systems & Information Technology. Automotive Segments Occupant Safety Systems
North Asia Principal Use of Facility America Europe Pacific Other Total ------------------------- ------- ------ ------- ----- ----- Research and Development..................... 2 -- -- -- 2 Manufacturing................................ 10 16 1 2 29 Warehouse.................................... 2 1 -- -- 3 Office....................................... 3 -- -- -- 3 Total........................................ 17 17 1 2 37 Chassis Systems North Asia Principal Use of Facility America Europe Pacific Other Total ------------------------- ------- ------ ------- ----- ----- Research and Development..................... 1 -- -- -- 1 Manufacturing................................ 22 28 10 7 67 Warehouse.................................... 4 6 -- 1 11 Office....................................... 2 2 -- -- 4 Total........................................ 29 36 10 8 83 Automotive Electronics North Asia Principal Use of Facility America Europe Pacific Other Total ------------------------- ------- ------ ------- ----- ----- Research and Development..................... 1 1 -- 1 3 Manufacturing................................ 14 20 4 1 39 Office....................................... 2 -- -- -- 2 Total........................................ 17 21 4 2 44
13 Other Automotive
North Asia Principal Use of Facility America Europe Pacific Other Total ------------------------- ------- ------ ------- ----- ----- Research and Development..................... -- 1 -- -- 1 Manufacturing................................ 7 9 1 2 19 Warehouse.................................... -- 1 -- -- 1 Office....................................... 1 -- -- -- 1 Total........................................ 8 11 1 2 22 Aerospace & Information Systems Segments Space & Electronics North Asia Principal Use of Facility America Europe Pacific Other Total ------------------------- ------- ------ ------- ----- ----- Research and Development..................... 4 -- -- -- 4 Manufacturing................................ 2 -- -- -- 2 Warehouse.................................... 1 -- -- -- 1 Office....................................... 6 -- -- -- 6 Total........................................ 13 -- -- -- 13 Systems & Information Technology North Asia Principal Use of Facility America Europe Pacific Other Total ------------------------- ------- ------ ------- ----- ----- Research and Development..................... 2 -- -- -- 2 Warehouse.................................... 5 -- -- -- 5 Office....................................... 36 1 -- 6 43 Total........................................ 43 1 -- 6 50 Aeronautical Systems North Asia Principal Use of Facility America Europe Pacific Other Total ------------------------- ------- ------ ------- ----- ----- Manufacturing................................ 4 11 -- -- 15 Office....................................... 4 3 -- -- 7 Total........................................ 8 14 -- -- 22
In addition to the facilities set forth in the foregoing tables, TRW also maintains approximately eleven facilities that it utilizes as office space at the corporate level. Two of such facilities are located in North America, one in Europe and the remaining eight facilities are located in the Asia Pacific region. In the opinion of management, the Company's facilities are generally well maintained and are suitable and adequate for their intended use. For additional information concerning TRW's long-term rental obligations under operating leases, see the note entitled "Lease Commitments" in the Notes to Financial Statements on page 57 of the TRW 1999 Annual Report. This information is incorporated herein by reference. 14 ITEM 3. LEGAL PROCEEDINGS. During 1996, the United States Department of Justice, or the DOJ, advised the Company that it had been named as a defendant in two lawsuits brought by Richard D. Bagley, a former employee of the Company's former Space & Technology Group, and originally filed under seal in 1994 and 1995, respectively, in the United States District Court for the Central District of California under the qui tam provisions of the civil False Claims Act. The Act permits an individual to bring suit in the name of the United States and share in any recovery. The allegations in the lawsuits relate to the classification of costs incurred by the Company that were charged to certain of its federal contracts. Under the law, the government must investigate the allegations and determine whether it wishes to intervene and take responsibility for the lawsuits. On February 13, 1998, the DOJ intervened in the litigation. On February 19, 1998 and March 4, 1998, Bagley filed amended complaints in the Central District of California that realleged certain of the claims included in the 1994 and 1995 lawsuits and omitted the remainder. The amended complaints allege that the United States has incurred substantial damages and that the Company should be ordered to cease and desist from violations of the civil False Claims Act and is liable for treble damages, penalties, costs, including attorneys' fees, and such other relief as deemed proper by the court. On March 17, 1998, the DOJ filed its complaint against the Company upon intervention in the 1994 lawsuit, which set forth a limited number of the allegations in the 1994 lawsuit and certain additional allegations. The DOJ elected not to pursue the other claims in the 1994 lawsuit or the claims in the 1995 lawsuit. The DOJ's complaint alleges that the Company is liable for treble damages, penalties, interest, costs and "other proper relief." On March 18, 1998, Bagley withdrew the first amended complaint in the 1994 lawsuit at the request of the DOJ. On May 18, 1998, the Company filed answers to Bagley's first amended complaint in the 1995 lawsuit and to the DOJ's complaint, denying all substantive allegations contained therein. At the same time, the Company filed counterclaims against both Bagley and the federal government. On July 20, 1998, both Bagley and the DOJ filed motions seeking to dismiss the Company's counterclaims. On November 23, 1998 (entered as an Order on January 21, 1999), the court dismissed certain counterclaims asserted against Bagley and the federal government and took under advisement Bagley's motion to dismiss certain other counterclaims. On March 15, 1999, the DOJ was granted leave to file a First Amended Complaint, which adds certain allegations concerning the Company's subcontracts. On August 6, 1999, the Government filed its Second Amended Complaint, which incorporated vouchers, progress payment requests, and invoices submitted by TRW to higher tier Government contractors among the class of allegedly false claims challenged by the Government. On September 29, 1999, Bagley filed his Second Amended Complaint, which incorporated subcontracts performed by TRW for higher tier Government contractors among the class of contracts under which allegedly false claims were presented, and added allegations relating to certain of Bagley's pre- existing claims. The Company cannot presently predict the outcome of these lawsuits, although management believes that their ultimate resolution will not have a material effect on the Company's financial condition or results of operations. On December 15, 1987, the Commissioner of the Indiana Department of Environmental Management issued an Order to TRW and several other respondents relating to alleged contamination of the public water supply in Shelbyville, Indiana by, among other sources, two closed facilities that were formerly operated by TRW's Connectors Division. The Order requires the respondents to fund the relocation of the main well field for Shelbyville to a location that can provide a safe source of potable water and to perform a remedial investigation of the source and extent of contamination within a one-mile radius of the well field. The Order also requires the respondents to pay civil penalties of $25,000 per day for violations of law that allegedly occurred prior to issuance of the Order. TRW has filed a petition for review of the Order. The Order is not expected to have a material effect on the Company's financial position. 15 TRW Vehicle Safety Systems Inc., a wholly-owned subsidiary of the Company, reported to the Arizona Department of Environmental Quality, or ADEQ, in 1997, potential violations of the Arizona hazardous waste law at its Queen Creek, Arizona facility for the possible failure to properly label and dispose of wastewater that might be classified as hazardous waste. ADEQ, the United States Environmental Protection Agency, the United States Department of Justice and the Arizona State Attorney General are conducting civil and criminal investigations into these potential violations and the Company is cooperating with these investigations. If proceedings were to be initiated against the Company with respect to such matters, the Company could be liable for penalties and fines and other relief. The Company is currently engaged in settlement discussions with state and federal officials. The Company is not able to predict the outcome of these discussions at this time. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None during the fourth quarter of 1999. 16 EXECUTIVE OFFICERS OF THE REGISTRANT The names, ages of and the positions and offices held by, each person designated an executive officer of the Company as of March 1, 2000, together with the offices held by each such person during the last five years, are listed below. Each executive officer is elected annually and, unless the executive officer resigns or terminates employment with the Company or is removed from office by action of the Company's Directors, will hold office for the ensuing year or until a successor is elected in accordance with the Company's Regulations.
Positions and Business Experience Name Age During the Past Five Years ---- --- --------------------------------- J. T. Gorman 62 Chairman and Chief Executive Officer (1988 to the present) and Director (1984 to the present) D. M. Cote 47 President and Chief Operating Officer and Director (1999 to the present) Senior Vice President, General Electric Company and President and Chief Executive Officer, GE Appliances (1996 - 1999) Vice President and General Manager, GE Silicones (1994 - 1996) T. W. Hannemann 57 Executive Vice President and General Manager, TRW Space & Electronics (1993 to the present) H. V. Knicely 63 Executive Vice President, Human Resources and Communications (1995 to the present) Executive Vice President, Human Resources, Communications & Information Resources (1989 - 1994) W. B. Lawrence 55 Executive Vice President, General Counsel and Secretary (1997 to the present) Executive Vice President, Planning, Development & Government Affairs (1989 - 1997) W. K. Maciver 60 Executive Vice President and General Manager, TRW Aeronautical Systems (1999 to the present) Managing Director and President, Lucas Aerospace (1995 - 1999) Managing Director, Lucas Braking Systems (1992 - 1995) C. G. Miller 57 Executive Vice President and Chief Financial Officer (1996 to the present) Executive Vice President, Chief Financial Officer and Controller (1996) Vice President and Controller (1990 - 1996) P. A. Odeen 64 Executive Vice President, Washington Operations (2000 to the present) Executive Vice President and General Manager, TRW Systems & Information Technology (1998 - 1999) President, Chief Executive Officer and Director, BDM International, Inc. (1992 - 1997) H. Pfannschmidt 52 Executive Vice President and General Manager, TRW Automotive Electronics (1999 to the present) Vice President and General Manager, TRW Automotive Electronics (1999) Vice President and Managing Director, TRW Inflatable Restraint Systems (1997 - 1998) Executive Vice President, Hella KG Hueck & Co. (1994 - 1997)
17
Positions and Business Experience Name Age During the Past Five Years ---- --- --------------------------------- J. C. Plant 46 Executive Vice President and General Manager, TRW Chassis Systems (1999 to the present) Executive Vice President and General Manager, TRW Automotive (1999) President, LucasVarity Automotive (1998 - 1999) Managing Director, Electrical and Electronic Division, Lucas Automotive (1991 - 1998) J. S. Remick 61 Executive Vice President and General Manager, TRW Engine Components & Commercial Steering Systems (1999 to the present) Executive Vice President and Acting General Manager, TRW Automotive (1999) Executive Vice President and General Manager, TRW Occupant Restraint Systems Group (1996 - 1998) Executive Vice President and General Manager, TRW Steering, Suspension & Engine Group (1995 - 1996) Vice President and Deputy General Manager, Automotive Operations (1995) Vice President and General Manager, TRW Steering & Suspension Systems, North and South America (1991 - 1995) J. F. Smith 53 Executive Vice President and General Manager, TRW Occupant Safety Systems (1999 to the present) Vice President and General Manager, TRW Inflatable Restraint Systems (1989 - 1999) P. Staudhammer 66 Vice President, Science & Technology (1993 to the present) R. D. Sugar 51 President and Chief Operating Officer, TRW Aerospace & Information Systems (1999 to the present) Executive Vice President (1999) Executive Vice President and General Manager, TRW Automotive Electronics Group (1996 - 1998) Executive Vice President and Chief Financial Officer (1994 - 1996) D. C. Winter 51 Executive Vice President and General Manager, TRW Systems & Information Technology (2000 to the present) Vice President and Deputy General Manager for Group Development, TRW Space & Electronics (1998 - 1999) Vice President and General Manager of the Defense Systems Division, TRW Space & Electronics Group (1990 - 1997)
18 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Reference is made to the information set forth in the table presented under "Stock Prices and Dividends (Unaudited)" on page 64 of the TRW 1999 Annual Report, and to the information presented under the notes entitled "Debt and Credit Agreements" and "Events Subsequent to Date of Report of Independent Auditors (Unaudited)" in the Notes to Financial Statements on pages 56 and 57 and page 63, respectively, of the TRW 1999 Annual Report. The information contained in such table and the information contained in the second-to-last paragraph of text of the "Debt and Credit Agreements" note and in the last paragraph of the "Events Subsequent to Date of Report of Independent Auditors (Unaudited)" note to financial statements is incorporated herein by reference. The Company's Common Stock is traded principally on the New York Stock Exchange and is also traded on the Chicago, Pacific, Philadelphia, London and Frankfurt exchanges. On March 1, 2000, there were 23,062 shareholders of record of the Company's Common Stock. ITEM 6. SELECTED FINANCIAL DATA.
Years Ended December 31, -------------------------------------- 1999 1998 1997 1996 1995 ------- ------- ------- ------ ------ (In Millions, Except Per Share Amounts) Sales................................... $16,969 $11,886 $10,831 $9,857 $9,568 Earnings(loss) from continuing operations............................. 469 477 (49) 182 395 Per share of Common Stock: Diluted earnings(loss) -- continuing operations........................... 3.80 3.83 (.40) 1.37 2.94 Basic earnings(loss) -- continuing operations........................... 3.87 3.93 (.40) 1.41 3.02 Cash dividends declared................. 1.32 1.28 1.24 1.17 1.05 Total assets............................ 18, 266 7,340 6,410 5,899 5,670 Long-term debt.......................... 5,369 1,353 1,117 458 539 Shares used in computing per share amounts: Diluted............................... 123.5 124.4 123.7 132.8 134.4 Basic................................. 121.0 121.3 123.7 128.7 130.6
In 1999, earnings(loss) from continuing operations include an $85 million, $.69 per share, one-time noncash charge related to in-process research and development associated with the acquisition of LucasVarity. In 1997, earnings(loss) from continuing operations include a $548 million, $4.43 per share, one-time noncash charge related to in-process research and development associated with the acquisition of BDM. In 1996, the Company recorded special charges of $202 million after tax, $1.52 per share, primarily for actions taken, in part, to enhance the Company's competitiveness. Also during 1996, the Company applied the provisions of Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," resulting in the recognition of $50 million after tax, $0.38 per share, of impairment losses which were primarily a result of technological changes and the decision to close certain facilities in its automotive business. 19 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Reference is made to the information presented under the heading "Management's Discussion and Analysis of the Results of Operations and Financial Condition" on pages 27 through 39 of the TRW 1999 Annual Report. This information is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Reference is made to the information presented under the heading "Management's Discussion and Analysis of the Results of Operations and Financial Condition" on pages 27 through 39 of the TRW 1999 Annual Report. Reference is also made to the information presented under the heading "Summary of Significant Accounting Policies" in the Notes to Financial Statements on pages 45 through 47 of the TRW 1999 Annual Report. This information is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Reference is made to the financial statements headed "Statements of Operations," "Balance Sheets," "Statements of Cash Flows" and "Statements of Changes in Shareholders' Investment," and the accompanying notes thereto, on pages 41 through 62 of the TRW 1999 Annual Report. Reference is also made to the information included in the table presented under the heading "Quarterly Financial Information (Unaudited)" on page 63 of the report. These statements, the accompanying notes and the table are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Reference is made to the information relating to TRW's Directors which is presented under the heading "Board of Directors" on pages 4 through 8 of the TRW Proxy Statement dated March 17, 2000, as filed with the Securities and Exchange Commission (the "TRW Proxy Statement"). Reference is made to the information relating to Section 16(a) compliance which is presented under the heading "Section 16(a) Beneficial Ownership Reporting Compliance" on page 33 of the TRW Proxy Statement. This information is incorporated herein by reference. See the information presented in Part I of this Report under the heading "Executive Officers of the Registrant" for information relating to TRW's executive officers. ITEM 11. EXECUTIVE COMPENSATION. Reference is made to the information presented under the heading "Compensation of Executive Officers" on pages 17 through 28 of the TRW Proxy Statement. Reference is also made to the information presented under the heading "Director Compensation" on page 11 of the TRW Proxy Statement. This information is incorporated herein by reference. 20 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Reference is made to the information presented under the heading "Management Ownership of Shares" on page 16 of the TRW Proxy Statement. Reference is also made to the information presented under the caption "Outstanding Securities" on page 33 of the TRW Proxy Statement. This information is incorporated herein by reference. There are no agreements or arrangements known to TRW that might, at a subsequent date, result in a change in control of TRW. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Reference is made to the information presented under the heading "Director Compensation" on page 11 of the TRW Proxy Statement. This information is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) Financial Statements and Schedules (1) Financial Statements The following financial statements of the registrant and its subsidiaries included in the TRW 1999 Annual Report are incorporated herein by reference: Statements of Operations -- Years ended December 31, 1999, 1998 and 1997 (page 41) Balance Sheets -- December 31, 1999 and 1998 (page 42) Statements of Cash Flows -- Years ended December 31, 1999, 1998 and 1997 (page 43) Statements of Changes in Shareholders' Investment -- Years ended December 31, 1999, 1998 and 1997 (page 44) Notes to Financial Statements -- (pages 45 - 62) (2) Financial Statement Schedules All Schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are not applicable and, therefore, have been omitted. Financial statements and summarized financial information of unconsolidated subsidiaries and 50 percent or less owned persons accounted for by the equity method have been omitted because such subsidiaries and persons, considered individually or in the aggregate, do not constitute a significant subsidiary. 21 (3) Exhibits 2(a) Offer to Purchase dated February 6, 1999 (Exhibit (a)(1) to TRW's Schedule 14D-1 dated February 5, 1999, is incorporated herein by reference). 2(b) Form of Irrevocable Undertakings executed by each director of LucasVarity plc (Exhibit (c)(1) to TRW's Schedule 14D-1 dated February 5, 1999, is incorporated herein by reference). 2(c) Break-up Fee Agreement, dated January 28, 1999 between TRW and LucasVarity plc (Exhibit (c)(2) to TRW's Schedule 14D-1 dated February 5, 1999, is incorporated herein by reference). 3(a) Amended Articles of Incorporation as amended May 5, 1997 (Exhibit 3(a) to TRW Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, is incorporated herein by reference). 3(b) Regulations as amended April 30, 1980 (Exhibit 3(b) to TRW Annual Report on Form 10-K for the year ended December 31, 1980, is incorporated herein by reference). 4(a) Indenture between TRW Inc. and The Chase Manhattan Bank (National Association), as successor Trustee, dated as of May 1, 1986 (Exhibit 2 to TRW Form 8-A Registration Statement dated July 3, 1986, is incorporated herein by reference). 4(b) First Supplemental Indenture between TRW Inc. and The Chase Manhattan Bank (National Association), as successor Trustee, dated as of July 26, 1989 (Exhibit 4(b) to TRW Form S-3 Registration Statement, File No. 33-30350, is incorporated herein by reference). 4(c) Second Supplemental Indenture between TRW Inc. and The Chase Manhattan Bank, as successor Trustee, dated as of June 2, 1999 (Exhibit 4(c) to TRW Registration Statement on Form S-4, filed July 20, 1999, File No. 333-83227, is incorporated herein by reference). 4(d) Third Supplemental Indenture between TRW Inc. and The Chase Manhattan Bank, as successor Trustee, dated as of June 2, 1999 (Exhibit 4(d) to TRW Registration Statement on Form S-4, filed July 20, 1999, File No. 333-83227, is incorporated herein by reference). 4(e) Fourth Supplemental Indenture between TRW Inc. and The Chase Manhattan Bank, as successor Trustee, dated as of June 2, 1999 (Exhibit 4(e) to TRW Registration Statement on Form S-4, filed July 20, 1999, File No. 333-83227, is incorporated herein by reference). 4(f) Fifth Supplemental Indenture between TRW Inc. and The Chase Manhattan Bank, as successor Trustee, dated as of June 2, 1999 (Exhibit 4(f) to TRW Registration Statement on Form S-4, filed July 20, 1999, File No. 333-83227, is incorporated herein by reference). 4(g) Sixth Supplemental Indenture between TRW Inc. and The Chase Manhattan Bank, as successor Trustee, dated as of June 2, 1999 (Exhibit 4(g) to TRW Registration Statement on Form S-4, filed July 20, 1999, File No. 333-83227, is incorporated herein by reference). 4(h) Distribution Agreement, dated April 13, 1998, between TRW Inc. and each of Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co. and J.P. Morgan Securities Inc., regarding $1,000,000,000 Medium-Term Notes, Series D, due nine months or more from the date of issuance (Exhibit 1 to TRW Inc.'s Current Report on Form 8-K dated April 13, 1998, is incorporated herein by reference). 4(i) Form of Medium Term Note, Series D (Exhibit 4 to TRW Inc.'s Current Report on Form 8-K dated April 13, 1998, is incorporated herein by reference). 4(j) Registration Rights Agreement, dated May 26, 1999, among TRW and Morgan Stanley & Co. Incorporated, J.P. Morgan Securities Inc. and Salomon Smith Barney Inc., as representatives of the initial purchasers (Exhibit 4(m) to TRW Registration Statement on Form S-4, filed July 20, 1999, File No. 333-83227, is incorporated herein by reference).
22 4(k) Registration Rights Agreement, dated June 23, 1999, among TRW and Goldman, Sachs & Co., as representative of the initial purchasers (Exhibit 4(n) to TRW Registration Statement on Form S-4, filed July 20, 1999, File No. 333-83227, is incorporated herein by reference). 4(l) Distribution Agreement, dated November 17, 1999, between TRW Inc. and each of Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co. and J.P. Morgan Securities Inc., regarding $2,500,000,000 Medium- Term Notes, Series E, due nine months or more from the date of issue (Exhibit 1 to TRW Inc.'s Current Report on Form 8-K dated November 18, 1999, is incorporated herein by reference). 4(m) Form of Medium Term Note, Series E (Exhibit 2 to TRW Inc.'s Current Report on Form 8-K dated November 18, 1999, is incorporated herein by reference). *10(a) 1979 Stock Option Plan as amended April 28, 1982 (Exhibit A to TRW Proxy Statement dated March 18, 1982, is incorporated herein by reference). *10(b) TRW Operational Incentive Plan (Exhibit 10(b) to TRW Annual Report on Form 10-K for the year ended December 31, 1989, is incorporated herein by reference). *10(c) TRW Executive Health Care Plan as amended and restated effective August 1, 1995 (Exhibit 10(c) to TRW Annual Report on Form 10-K for the year ended December 31, 1995, is incorporated herein by reference). *10(d) 1984 Stock Option Plan (Exhibit A to TRW Proxy Statement dated March 19, 1984, is incorporated herein by reference). *10(e) 1989 TRW Long-Term Incentive Plan (Exhibit A to TRW Proxy Statement dated March 17, 1989, is incorporated herein by reference). *10(f) 1994 TRW Long-Term Incentive Plan as amended and restated effective February 4, 1997 (Exhibit 10(f) to TRW Annual Report on Form 10-K for the year ended December 31, 1996, is incorporated herein by reference). *10(g) 1997 TRW Long-Term Incentive Plan (Exhibit A to TRW Proxy Statement dated March 12, 1997, is incorporated herein by reference). *10(h) Amendment dated as of December 9, 1998 to 1997 TRW Long-Term Incentive Plan (Exhibit 10(h) to TRW Annual Report on Form 10-K for the year ended December 31, 1998, is incorporated herein by reference). *10(i) Form of Nonqualified Stock Option Agreement. *10(j) Form of Transferable Nonqualified Stock Option Agreement. *10(k) Form of Director Transferable Nonqualified Stock Option Agreement (Exhibit 10(k) to TRW Annual Report on Form 10-K for the year ended December 31, 1997, is incorporated herein by reference). *10(l) Form of Stock Option Agreement Qualified under the laws of France. *10(m) Deferred Compensation Plan for Non-Employee Directors of TRW Inc. dated July 1, 1997 (Exhibit 10(d) to TRW Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, is incorporated herein by reference). *10(n) TRW Directors' Pension Plan as amended and restated effective August 1, 1990 (Exhibit 10(l) to TRW Annual Report on Form 10-K for the year ended December 31, 1990, is incorporated herein by reference). *10(o) Amendment to the TRW Directors' Pension Plan (as Amended and Restated Effective August 1, 1990) effective June 30, 1997 (Exhibit 10(n) to TRW Annual Report on Form 10-K for the year ended December 31, 1997, is incorporated herein by reference).
23 *10(p) Form of Amended and Restated Employment Continuation Agreements with executive officers (Exhibit 10(k) to TRW Annual Report on Form 10-K for the year ended December 31, 1995, is incorporated herein by reference). *10(q) TRW Inc. Deferred Compensation Plan (as Amended and Restated Effective January 1, 1999) (Exhibit 10(r) to TRW Annual Report on Form 10-K for the year ended December 31, 1998, is incorporated herein by reference). *10(r) TRW Benefits Equalization Plan (as Amended and Restated Effective January 1, 1999) (Exhibit 10(s) to TRW Annual Report on Form 10-K for the year ended December 31, 1998, is incorporated herein by reference). *10(s) TRW Supplementary Retirement Income Plan (as Amended and Restated Effective January 1, 1999) (Exhibit 10(t) to TRW Annual Report on Form 10-K for the year ended December 31, 1998, is incorporated herein by reference). *10(t) TRW Inc. Key Executive Life Insurance Plan dated as of February 7, 1996 (Exhibit 10(v) to TRW Annual Report on Form 10-K for the year ended December 31, 1995, is incorporated herein by reference). *10(u) TRW Inc. Financial Counseling Program (Exhibit 10(w) to TRW Annual Report on Form 10-K for the year ended December 31, 1995, is incorporated herein by reference). *10(v) Consulting Agreement dated September 18, 1997 between TRW Inc. and G. H. Heilmeier (Exhibit 10(b) to TRW Quarterly Report on Form 10- Q for the quarter ended September 30, 1997, is incorporated herein by reference). *10(w) Amendment dated December 7, 1999 to Consulting Agreement dated September 18, 1997, between TRW Inc. and G.H. Heilmeier. *10(x) Letter Agreement, dated April 28, 1999, between TRW and Carl Hahn regarding services as an Advisory Director of TRW (Exhibit 10(c) to TRW Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, is incorporated herein by reference). *10(y) TRW Inc. Stock Plan for Non-Employee Directors (as Amended and Restated Effective August 1, 1995) (Exhibit 10.1 to TRW Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, is incorporated herein by reference). *10(z) Employment Agreement dated as of November 20, 1997 between TRW Inc. and Philip A. Odeen (Exhibit 10(ff) to TRW Annual Report on Form 10-K for the year ended December 31, 1997, is incorporated herein by reference). *10(aa) Letter Agreement between TRW Inc. and Peter S. Hellman (Exhibit 10.3 to the TRW Quarterly Report on Form 10-Q for the quarter ended March 31, 1999, is incorporated herein by reference). *10(bb) Employment Agreement by and between TRW Inc. and David M. Cote, dated as of November 11, 1999 (Exhibit 10(d) to the TRW Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, is incorporated herein by reference). *10(cc) Form of 1998-2000 Strategic Incentive Program Grant. 10(dd) Five-Year Credit Agreement dated as of January 25, 2000 among TRW Inc., the lenders party thereto, the Chase Manhattan Bank as Administrative Agent, Chase Manhattan International Limited as London Agent and Salomon Smith Barney Inc. as Syndication Agent. 10(ee) 364-Day Credit Agreement dated as of January 25, 2000 among TRW Inc., the lenders party thereto, the Chase Manhattan Bank as Administrative Agent and Salomon Smith Barney Inc. as Syndication Agent.
24 10(ff) Purchase Agreement, dated May 26, 1999, between TRW and Morgan Stanley & Co. Incorporated, J.P. Morgan Securities Inc. and Salomon Smith Barney Inc., as representatives of the initial purchasers named therein (Exhibit 10(a) to TRW Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, is incorporated herein by reference). 10(gg) Purchase Agreement, dated June 18, 1999, between TRW and Goldman, Sachs & Co., as representative of the initial purchasers named therein (Exhibit 10(b) to TRW Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, is incorporated herein by reference). 12 Computation of Ratio of Earnings to Fixed Charges -- Unaudited (Supplement to Exhibit 12 of the following Registration Statements of the Company: No. 333-83227 on Form S-4, No. 333-89133 on Form S- 3 and No. 333-48443 on Form S-3). 13 Portions of the TRW Annual Report to Security Holders for the year ended December 31, 1999, incorporated herein by reference. 21 Subsidiaries of the Registrant. 23(a) Consent of Independent Auditors. 23(b) Consent of Independent Auditors (with respect to financial statements of The TRW Canada Stock Savings Plan). 24 Power of Attorney. 27 Financial Data Schedule. 99(a) Financial Statements of The TRW Canada Stock Savings Plan for the year ended December 31, 1999.
Certain instruments with respect to long-term debt have not been filed as exhibits as the total amount of securities authorized under any one of such instruments does not exceed 10 percent of the total assets of the registrant and its subsidiaries on a consolidated basis. The registrant agrees to furnish to the Commission a copy of each such instrument upon request. * Management contract, compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of this report. (b) Reports on Form 8-K Current report on Form 8-K, dated November 12, 1999, as to the election of David M. Cote as President, Chief Operating Officer and a Director. Current Report on Form 8-K, dated November 12, 1999, as to the Company's new segment reporting procedures. Current Report on Form 8-K, dated November 12, 1999, attaching certain unaudited pro forma and balance sheet information related to the acquisition of LucasVarity. Current Report on Form 8-K, dated November 18, 1999, as to the issuance of Medium Term Notes. Current Report on Form 8-K, dated November 23, 1999, as to the sale of Lucas Diesel Systems. Current Report on Form 8-K, dated December 10, 1999, as to the discontinuation of the MARC product and the Cybershield software security product line. 25 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TRW Inc. Date: March 17, 2000 /s/ William B. Lawrence By __________________________________ William B. Lawrence, Executive Vice President, General Counsel and Secretary Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- J. T. GORMAN* Chairman of the Board, Chief Executive Officer and Director D. M. COTE* President, Chief Operating Officer and Director C. G. MILLER* Executive Vice President and Chief Financial Officer T. A. CONNELL* Vice President and Corporate Controller M. H. ARMACOST* Director M. FELDSTEIN* Director R. M. GATES* Director G. H. HEILMEIER* Director March 17, 2000 K. N. HORN* Director E. B. JONES* Director W. S. KISER* Director D. B. LEWIS* Director L. M. MARTIN* Director J. D. ONG* Director R. W. POGUE* Director
William B. Lawrence, by signing his name hereto, does hereby sign and execute this report on behalf of each of the above-named officers and Directors of TRW Inc., pursuant to a power of attorney executed by each of such officers and Directors and filed with the Securities and Exchange Commission as an exhibit to this report. March 17, 2000 /s/ William B. Lawrence *By _______________________________________ William B. Lawrence, Attorney-in-fact 26 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS Shareholders and Directors, TRW Inc. We have audited the consolidated financial statements of TRW Inc. and subsidiaries listed in Item 14(a)(1) of the Annual Report on Form 10-K of TRW Inc. for the year ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of TRW Inc. and subsidiaries at December 31, 1999 and 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Ernst & Young LLP Cleveland, Ohio January 21, 2000 F-1 EX-10.(I) 2 FORM OF NONQUALIFIED STOCK OPTION AGREEMENT EXHIBIT 10(i) Nonqualified Stock Option Agreement TERMS AND CONDITIONS 1. Purchase Rights This option cannot be exercised before the first anniversary of the date of grant. After that you will be entitled to purchase up to 33-1/3% of the shares covered by this option, rounded down to the nearest whole share for each of the first two years, for each full year of your continuous employment with TRW Inc. ("TRW") after the date of grant. The purchase rights accumulate as shown in the following table. Number of Full Years of Cumulative Maximum Percentage of Continuous Service After Date Optioned Shares That May Be of Grant Purchased - --------------------------------------------------------------------- 1 33-1/3% 2 66-2/3% 3 100% Notwithstanding the foregoing, this option will immediately become exercisable in respect of all of the shares covered by this grant in the event of the termination of your employment in the following circumstances: (a) your death; (b) your disability for a period of more than twelve months (as defined in the TRW U.S. Long-Term Disability Plan); or (c) on or after the first anniversary of the date of grant of this option, (i) your retirement at age 60 or over or (ii) a divestiture of the business or product line in which you are employed provided you are then age 60 or over and eligible for retirement. This option will also become immediately exercisable in respect of all the shares covered by this grant upon a change of control of TRW Inc. For purposes of this agreement, a change in control is defined in resolutions adopted by the Compensation Committee of the Directors of TRW on July 26, 1989, which, in summary, provide that a change in control is a change occurring (a) by virtue of TRW's merger, consolidation or reorganization into or with, or transfer of assets to, another corporation or (b) by virtue of a change in the majority of the Directors of TRW during any two-year period unless the election of each new Director was approved by a two-thirds vote of the Directors in office at the beginning of such period or (c) through the acquisition of shares representing 20% or more of the voting power of TRW or (d) through any other change in control reported in any filing with the Securities and Exchange Commission; provided, however, that no change in control is deemed to have occurred by the acquisition of shares, or any report of such acquisition, by TRW, a subsidiary of TRW or a TRW-sponsored employee benefit plan. The language of the resolutions controls over this summary language. 2. Exercise in Whole or Part To the extent this option has become exercisable, you may purchase on any date or dates all or any part of the shares which you are then entitled to purchase. However, no fractional shares may be purchased. 3. Term of Option To the extent this option has become exercisable in accordance with Section 1 above, it may be exercised by you at any time during the 10-year period beginning on the date of grant. To the extent this option remains unexercised, your unexercised purchase rights will terminate upon the first to occur of (i) the end of such ten-year period or (ii) three months after the date on which your employment with TRW terminates. Notwithstanding the foregoing, in the following cases your unexercised purchase rights will terminate at the times set forth in the following clauses: (a) If the Directors of TRW find that you intentionally committed an act, which act is inimical to the interests of TRW or a subsidiary, your unexercised purchase rights will terminate as of the time you committed such act, as determined by the Directors. (b) In the event of a change in control of TRW (as defined in Section 1 hereof), your unexercised purchase rights will not under any circumstances be subject to termination before the end of the ten-year period beginning on the date of grant. (c) If your employment is terminated by your death or by your disability for a period of more than twelve months (as defined in the TRW U.S. Long-Term Disability Plan), your unexercised purchase rights will continue for the remainder of the 10-year period. (d) If your employment is terminated by your retirement at age 55 or over, your unexercised purchase rights will continue for the remainder of the 10-year period. (e) If your employment with TRW terminates due to a divestiture of the business or product line in which you are employed, your unexercised purchase rights will terminate 12 months after the date your employment terminates. (f) If you are age 55 or over and your employment is involuntarily terminated, your unexercised purchase rights will continue for the remainder of the 10- year period, notwithstanding clause (e) above. Nothing contained in this agreement shall extend this option beyond a 10-year period or shall limit whatever right TRW or a subsidiary might otherwise have to terminate your employment at any time. 4. Payment of Option Price The option price shall be payable at the time of exercise. The option price shall be paid at the Office of Secretary at TRW's corporate headquarters or at any other place designated by the Secretary. The option price may be paid in cash, by delivery of full shares of TRW Common, by a cashless exercise, or in any combination of the foregoing, in accordance with such procedures and subject to such further conditions as the Secretary of TRW may establish from time to time. Notwithstanding the foregoing, the Compensation Committee of TRW at any time may suspend or terminate your right to pay any or all of the option price in shares of TRW Common. Cash payments shall be made in United States dollars. Shares delivered in payment of the option price shall be valued at their fair market value on the date of exercise. For purposes of this option, "fair market value" is the average of the high and low sales prices of a share of TRW Common on the date of exercise on the New York Stock Exchange Composite Transactions Listing as reported in the Midwest edition of The Wall Street Journal (or if there are no sales on such date, then the closing sale price on such Listing on the nearest date before the date of exercise) or such other method or procedure for determining fair market value as the Compensation Committee of TRW in its sole discretion may determine. For purposes of this option, the "date of exercise" is the date on which written notice, accompanied by the option price, is received by the Secretary of TRW or his designee that you have elected to exercise all or part of this option. 5. Taxes Upon any exercise of this option, TRW may withhold delivery of certificates for the purchased shares until you make arrangements satisfactory to TRW to pay any withholding, transfer or other taxes due as a result of such exercise. You may elect, in accordance with applicable regulations of the Compensation Committee of TRW, to pay a portion or all of the amount of required withholding taxes in cash, through a cashless exercise or in shares of TRW Common, either by delivering to TRW previously held shares of TRW Common or by having shares of TRW Common withheld from the shares purchased hereunder. 6. Securities Laws This option shall not be exercisable if such exercise would violate any federal or state securities law. TRW will use its best efforts to make such filings and initiate such proceedings as may be necessary to prevent such violations unless the Directors of TRW determine, in their sole discretion, that such filings or proceedings would result in undue expense or hardship for TRW. TRW may place appropriate legends on the certificates for the optioned shares, give stop- transfer instructions to its transfer agents or take any other action to achieve compliance with those laws in connection with any exercise of this option or your resale of the optioned shares. 7. Transferability This option is not transferable other than by will or the laws of descent and distribution and shall be exercisable during your lifetime only by you or your guardian or legal representative. 8. Leaves of Absence If you take a leave of absence for illness, military or governmental service or other reasons, and such leave has been specifically approved by the Chairman of the Board or the President of TRW for purposes of this option, then such leave will not be treated as an interruption of your employment. 9. Adjustments The Compensation Committee of TRW may make such adjustments in the option price and in the number or kind of shares of TRW Common or other securities covered by this option as it in its sole discretion may determine are equitably required to prevent dilution or enlargement of your rights that would otherwise result from any stock dividend, stock split, combination of shares, recapitalization or other change in the capital structure of TRW, merger, consolidation, reorganization, partial or complete liquidation or other corporate transaction or event having an effect similar to any of the foregoing. 10. Certain Definitions For purposes of this option, employment with a subsidiary will be treated as equivalent to employment with TRW itself, and your continuous employment will not be deemed to be interrupted by reason of your transfer among TRW and its subsidiaries. "Subsidiary" means a corporation or other entity in an unbroken chain of entities beginning with TRW if each of the entities other than the last entity in the unbroken chain owns stock or other ownership interests possessing 50% or more of the total outstanding combined voting power of all classes of stock or other interests in the next entity in the chain. "Subsidiary" also means, if not covered by the definition of subsidiary in the preceding sentence and if specifically approved by the Chairman of the Board of TRW with respect to this option, a corporation or other entity in which TRW has a direct or indirect ownership interest. 11. Miscellaneous By participating in the TRW stock option program, you understand and agree to the following conditions: (a) This stock option is subject to all the terms and conditions of the TRW plan pursuant to which it is granted. The Compensation Committee of TRW has authority to interpret and construe any provision of this instrument and the TRW plan pursuant to which this stock option is granted, and any such interpretation and construction shall be binding and conclusive. Any reference in this option to the Directors of TRW includes the Executive Committee of the Directors. (b) The program is discretionary and TRW can cancel or terminate it at any time. As such, the program does not create any contractual or other right to receive options or benefits in lieu of options in the future. Any future option grants, including but not limited to the timing of any grant, number of options, vesting provisions, and the exercise price, will be in TRW's sole discretion. (c) Your participation in the TRW stock option program is completely voluntary and is not a condition or right of your employment. (d) The value of your TRW stock option is an extraordinary item of compensation outside the scope of your employment contract, if any. As such, your option is not part of normal or expected compensation for purposes of calculating any severance, resignation, redundancy, end of service payments, bonuses, long- service awards, social insurance contributions (except where local law specifically provides otherwise), pension or retirement benefits, or similar payments. (e) Your vesting progress will end if your employment terminates before three years after the grant date for reasons other than those set forth in Section 1 hereof. (f) The future value of the TRW stock is unknown and cannot be predicted with any certainty. If the TRW stock does not increase in value, the option will have no value. (g) You authorize your manager to furnish TRW (and any agent of TRW administering the program or providing program recordkeeping services) with such information and data as it shall request in order to facilitate the grant of options and administration of the program. You also waive any data privacy rights you might have with respect to such information about you, which is needed to issue your TRW stock option grant. (h) Your TRW stock option may not be assigned, sold, encumbered, or in any way transferred or alienated, except as otherwise explicitly provided in the Stock Option Agreement. (i) The TRW stock option program is governed by and subject to U.S. law. Interpretation of the program and your rights thereunder will be governed by provisions of U. S. law. EX-10.(J) 3 FORM OF TRANS NONQUALIFIED STOCK OPTION AGREEMENT EXHIBIT 10(j) Transferable Nonqualified Stock Option Agreement TERMS AND CONDITIONS 1. Purchase Rights This option cannot be exercised before the first anniversary of the date of grant. After that you will be entitled to purchase up to 33-1/3% of the shares covered by this option, rounded down to the nearest whole share for each of the first two years, for each full year of your continuous employment with TRW Inc. ("TRW") after the date of grant. The purchase rights accumulate as shown in the following table. Number of Full Years of Cumulative Maximum Percentage of Continuous Service After Date Optioned Shares That May Be of Grant Purchased - ---------------------------------------------------------------------- 1 33-1/3% 2 66-2/3% 3 100% Notwithstanding the foregoing, this option will immediately become exercisable in respect of all of the shares covered by this grant in the event of the termination of your employment in the following circumstances: (a) your death; (b) your disability for a period of more than twelve months (as defined in the TRW U.S. Long-Term Disability Plan); or (c) on or after the first anniversary of the date of grant of this option, (i) your retirement at age 60 or over or (ii) a divestiture of the business or product line in which you are employed provided you are then age 60 or over and eligible for retirement. This option will also become immediately exercisable in respect of all the shares covered by this grant upon a change of control of TRW Inc. For purposes of this agreement, a change in control is defined in resolutions adopted by the Compensation Committee of the Directors of TRW on July 26, 1989, which, in summary, provide that a change in control is a change occurring (a) by virtue of TRW's merger, consolidation or reorganization into or with, or transfer of assets to, another corporation or (b) by virtue of a change in the majority of the Directors of TRW during any two-year period unless the election of each new Director was approved by a two-thirds vote of the Directors in office at the beginning of such period or (c) through the acquisition of shares representing 20% or more of the voting power of TRW or (d) through any other change in control reported in any filing with the Securities and Exchange Commission; provided, however, that no change in control is deemed to have occurred by the acquisition of shares, or any report of such acquisition, by TRW, a subsidiary of TRW or a TRW-sponsored employee benefit plan. The language of the resolutions controls over this summary language. 2. Exercise in Whole or Part To the extent this option has become exercisable, you may purchase on any date or dates all or any part of the shares which you are then entitled to purchase. However, no fractional shares may be purchased. 3. Term of Option To the extent this option has become exercisable in accordance with Section 1 above, it may be exercised by you at any time during the 10-year period beginning on the date of grant. To the extent this option remains unexercised, your unexercised purchase rights will terminate upon the first to occur of (i) the end of such ten-year period or (ii) three months after the date on which your employment with TRW terminates. Notwithstanding the foregoing, in the following cases your unexercised purchase rights will terminate at the times set forth in the following clauses: (a) If the Directors of TRW find that you intentionally committed an act, which act is inimical to the interests of TRW or a subsidiary, your unexercised purchase rights will terminate as of the time you committed such act, as determined by the Directors. (b) In the event of a change in control of TRW (as defined in Section 1 hereof), your unexercised purchase rights will not under any circumstances be subject to termination before the end of the ten-year period beginning on the date of grant. (c) If your employment is terminated by your death or by your disability for a period of more than twelve months (as defined in the TRW U.S. Long-Term Disability Plan), your unexercised purchase rights will continue for the remainder of the 10-year period. (d) If your employment is terminated by your retirement at age 55 or over, your unexercised purchase rights will continue for the remainder of the 10-year period. (e) If your employment with TRW terminates due to a divestiture of the business or product line in which you are employed, your unexercised purchase rights will terminate 12 months after the date your employment terminates. (f) If you are age 55 or over and your employment is involuntarily terminated, your unexercised purchase rights will continue for the remainder of the 10- year period, notwithstanding clause (e) above. Nothing contained in this agreement shall extend this option beyond a 10-year period or shall limit whatever right TRW or a subsidiary might otherwise have to terminate your employment at any time. 4. Payment of Option Price The option price shall be payable at the time of exercise. The option price shall be paid at the Office of Secretary at TRW's corporate headquarters or at any other place designated by the Secretary. The option price may be paid in cash, by delivery of full shares of TRW Common, by a cashless exercise, or in any combination of the foregoing, in accordance with such procedures and subject to such further conditions as the Secretary of TRW may establish from time to time. Notwithstanding the foregoing, the Compensation Committee of TRW at any time may suspend or terminate your right to pay any or all of the option price in shares of TRW Common. Cash payments shall be made in United States dollars. Shares delivered in payment of the option price shall be valued at their fair market value on the date of exercise. For purposes of this option, "fair market value" is the average of the high and low sales prices of a share of TRW Common on the date of exercise on the New York Stock Exchange Composite Transactions Listing as reported in the Midwest edition of The Wall Street Journal (or if there are no sales on such date, then the closing sale price on such Listing on the nearest date before the date of exercise) or such other method or procedure for determining fair market value as the Compensation Committee of TRW in its sole discretion may determine. For purposes of this option, the "date of exercise" is the date on which written notice, accompanied by the option price, is received by the Secretary of TRW or his designee that you have elected to exercise all or part of this option. 5. Taxes Upon any exercise of this option, TRW may withhold delivery of certificates for the purchased shares until you make arrangements satisfactory to TRW to pay any withholding, transfer or other taxes due as a result of such exercise. You may elect, in accordance with applicable regulations of the Compensation Committee of TRW, to pay a portion or all of the amount of required withholding taxes in cash, through a cashless exercise or in shares of TRW Common, either by delivering to TRW previously held shares of TRW Common or by having shares of TRW Common withheld from the shares purchased hereunder. 6. Securities Laws This option shall not be exercisable if such exercise would violate any federal or state securities law. TRW will use its best efforts to make such filings and initiate such proceedings as may be necessary to prevent such violations unless the Directors of TRW determine, in their sole discretion, that such filings or proceedings would result in undue expense or hardship for TRW. TRW may place appropriate legends on the certificates for the optioned shares, give stop- transfer instructions to its transfer agents or take any other action to achieve compliance with those laws in connection with any exercise of this option or your resale of the optioned shares. 7. Transferability This option is not transferable except (a) by will or the laws of descent and distribution, or (b) by gift to any member of your immediate family, to a trust for the benefit of an immediate family member, or to a partnership whose beneficiaries are members of your immediate family; provided, however, that there may be no consideration for any such transfer. For purposes of this agreement, "immediate family member" shall mean your spouse, children and grandchildren. Notwithstanding any transfer of this option pursuant to clause (b) of this Section 7, you will continue to be solely responsible for the taxes described in Section 5 of this agreement. Any option transferred pursuant to the terms of this Section 7 shall continue to be subject to the same terms and conditions as were applicable immediately prior to the transfer. 8. Leaves of Absence If you take a leave of absence for illness, military or governmental service or other reasons, and such leave has been specifically approved by the Chairman of the Board or the President of TRW for purposes of this option, then such leave will not be treated as an interruption of your employment. 9. Adjustments The Compensation Committee of TRW may make such adjustments in the option price and in the number or kind of shares of TRW Common or other securities covered by this option as it in its sole discretion may determine are equitably required to prevent dilution or enlargement of your rights that would otherwise result from any stock dividend, stock split, combination of shares, recapitalization or other change in the capital structure of TRW, merger, consolidation, reorganization, partial or complete liquidation or other corporate transaction or event having an effect similar to any of the foregoing. 10. Certain Definitions For purposes of this option, employment with a subsidiary will be treated as equivalent to employment with TRW itself, and your continuous employment will not be deemed to be interrupted by reason of your transfer among TRW and its subsidiaries. "Subsidiary" means a corporation or other entity in an unbroken chain of entities beginning with TRW if each of the entities other than the last entity in the unbroken chain owns stock or other ownership interests possessing 50% or more of the total outstanding combined voting power of all classes of stock or other interests in the next entity in the chain. "Subsidiary" also means, if not covered by the definition of subsidiary in the preceding sentence and if specifically approved by the Chairman of the Board of TRW with respect to this option, a corporation or other entity in which TRW has a direct or indirect ownership interest. 11. Miscellaneous By participating in the TRW stock option program, you understand and agree to the following conditions: (a) This stock option is subject to all the terms and conditions of the TRW plan pursuant to which it is granted. The Compensation Committee of TRW has authority to interpret and construe any provision of this instrument and the TRW plan pursuant to which this stock option is granted, and any such interpretation and construction shall be binding and conclusive. Any reference in this option to the Directors of TRW includes the Executive Committee of the Directors. (b) The program is discretionary and TRW can cancel or terminate it at any time. As such, the program does not create any contractual or other right to receive options or benefits in lieu of options in the future. Any future option grants, including but not limited to the timing of any grant, number of options, vesting provisions, and the exercise price, will be in TRW's sole discretion. (c) Your participation in the TRW stock option program is completely voluntary and is not a condition or right of your employment. (d) The value of your TRW stock option is an extraordinary item of compensation outside the scope of your employment contract, if any. As such, your option is not part of normal or expected compensation for purposes of calculating any severance, resignation, redundancy, end of service payments, bonuses, long- service awards, social insurance contributions (except where local law specifically provides otherwise), pension or retirement benefits, or similar payments. (e) Your vesting progress will end if your employment terminates before three years after the grant date for reasons other than those set forth in Section 1 hereof. (f) The future value of the TRW stock is unknown and cannot be predicted with any certainty. If the TRW stock does not increase in value, the option will have no value. (g) You authorize your manager to furnish TRW (and any agent of TRW administering the program or providing program recordkeeping services) with such information and data as it shall request in order to facilitate the grant of options and administration of the program. You also waive any data privacy rights you might have with respect to such information about you, which is needed to issue your TRW stock option grant. (h) Your TRW stock option may not be assigned, sold, encumbered, or in any way transferred or alienated, except as otherwise explicitly provided in the Stock Option Agreement. (i) The TRW stock option program is governed by and subject to U.S. law. Interpretation of the program and your rights thereunder will be governed by provisions of U. S. law. EX-10.(L) 4 FORM OF STOCK OPTION AGREE QUALIFIED UNDER FRANCE EXHIBIT 10(l) Stock Option Agreement Qualified Under the Laws of France TERMS AND CONDITIONS 1. Purchase Rights This option cannot be exercised before the fifth anniversary of the date of grant. After that you will be entitled to purchase all of the shares covered by this option, provided that you have been continuously employed with TRW Inc. ("TRW") since the date of grant. If the laws in France requiring that options be held for five years from the date of grant in order to qualify for favorable tax and social treatment applicable to stock options granted under the Law 70- 1322 of December 31, 1970, as subsequently amended, are amended to require a holding period of less than five years, this option shall become exercisable upon the expiration of such shorter holding period, provided that you have been continuously employed with TRW since the date of grant; provided, however, that if such holding period shall be less than three years, this option shall become exercisable in accordance with whichever of the following schedules shall be applicable: One-year holding period: - ----------------------- Number of Full Years of Cumulative Maximum Percentage of Continuous Service After Date Optioned Shares That May Be of Grant Purchased - -------------------------------------------------------------------------------- 1 33-1/3% 2 66-2/3% 3 100% Two-year holding period: - ----------------------- Number of Full Years of Cumulative Maximum Percentage of Continuous Service After Date Optioned Shares That May Be of Grant Purchased - -------------------------------------------------------------------------------- 2 66-2/3% 3 100% The number of shares that may be purchased in accordance with the foregoing schedules shall be rounded down to the nearest whole share for each of the first two years. Notwithstanding the foregoing, in the event of the termination of your employment due to your death or to your disability for a period of more than twelve months (as defined in the TRW U.S. Long-Term Disability Plan), or in the event of a change in control of TRW, this option will immediately become exercisable in respect of all of the shares covered by this grant. For purposes of this agreement, a change in control is defined in resolutions adopted by the Compensation Committee of the Directors of TRW on July 26, 1989, which, in summary, provide that a change in control is a change occurring (a) by virtue of TRW's merger, consolidation or reorganization into or with, or transfer of assets to, another corporation or (b) by virtue of a change in the majority of the Directors of TRW during any two-year period unless the election of each new Director was approved by a two-thirds vote of the Directors in office at the beginning of such period or (c) through the acquisition of shares representing 20% or more of the voting power of TRW or (d) through any other change in control reported in any filing with the Securities and Exchange Commission; provided, however, that no change in control is deemed to have occurred by the acquisition of shares, or any report of such acquisition, by TRW, a subsidiary of TRW or a TRW-sponsored employee benefit plan. The language of the resolutions controls over this summary language. 2. Exercise in Whole or Part To the extent this option has become exercisable, you may purchase on any date or dates all or any part of the shares which you are then entitled to purchase. However, no fractional shares may be purchased. 3. Term of Option To the extent this option has become exercisable in accordance with Section 1 above, it may be exercised by you at any time during the 10-year period beginning on the date of grant. To the extent this option remains unexercised, your unexercised purchase rights will terminate upon the first to occur of (i) the end of such ten-year period or (ii) three months after the date on which your employment with TRW terminates. Notwithstanding the foregoing, in the following cases your unexercised purchase rights will terminate at the times set forth in the following clauses: (a) If the Directors of TRW find that you intentionally committed an act, which act is inimical to the interests of TRW or a subsidiary, your unexercised purchase rights will terminate as of the time you committed such act, as determined by the Directors. (b) In the event of a change in control of TRW (as defined in Section 1 hereof), your unexercised purchase rights will not under any circumstances be subject to termination before the end of the ten-year period beginning on the date of grant. (c) In the event of your death at any time during the term of this option, your unexercised purchase rights will terminate upon the earlier of (i) six months after the date of your death and (ii) ten years after the date of grant. (d) If your employment is terminated by your disability for a period of more than twelve months (as defined in the TRW U.S. Long-Term Disability Plan), your unexercised purchase rights will continue for the remainder of the 10- year period. (e) If your employment is terminated by your retirement at age 55 or over, your unexercised purchase rights will continue for the remainder of the 10-year period. (f) If your employment with TRW terminates due to a divestiture of the business or product line in which you are employed, your unexercised purchase rights will terminate 12 months after the date your employment terminates. (g) If you are age 55 or over and your employment is involuntarily terminated, your unexercised purchase rights will continue for the remainder of the 10- year period, notwithstanding clause (e) above. Nothing contained in this agreement shall extend this option beyond a 10-year period or shall limit whatever right TRW or a subsidiary might otherwise have to terminate your employment at any time. 4. Payment of Option Price The option price shall be payable at the time of exercise. The option price shall be paid at the Office of Secretary at TRW's corporate headquarters or at any other place designated by the Secretary. The option price may be paid in cash, by delivery of full shares of TRW Common, by a cashless exercise, or in any combination of the foregoing, in accordance with such procedures and subject to such further conditions as the Secretary of TRW may establish from time to time. Notwithstanding the foregoing, the Compensation Committee of TRW at any time may suspend or terminate your right to pay any or all of the option price in shares of TRW Common. Cash payments shall be made in United States dollars. Shares delivered in payment of the option price shall be valued at their fair market value on the date of exercise. For purposes of this option, "fair market value" is the average of the high and low sales prices of a share of TRW Common on the date of exercise on the New York Stock Exchange Composite Transactions Listing as reported in the Midwest edition of The Wall Street Journal (or if there are no sales on such date, then the closing sale price on such Listing on the nearest date before the date of exercise) or such other method or procedure for determining fair market value as the Compensation Committee of TRW in its sole discretion may determine. For purposes of this option, the "date of exercise" is the date on which written notice, accompanied by the option price, is received by the Secretary of TRW or his designee that you have elected to exercise all or part of this option. 5. Taxes Upon any exercise of this option, TRW may withhold delivery of certificates for the purchased shares until you make arrangements satisfactory to TRW to pay any withholding, transfer or other taxes due as a result of such exercise. You may elect, in accordance with applicable regulations of the Compensation Committee of TRW, to pay a portion or all of the amount of required withholding taxes in cash, through a cashless exercise or in shares of TRW Common, either by delivering to TRW previously held shares of TRW Common or by having shares of TRW Common withheld from the shares purchased hereunder. 6. Securities Laws This option shall not be exercisable if such exercise would violate any federal or state securities law. TRW will use its best efforts to make such filings and initiate such proceedings as may be necessary to prevent such violations unless the Directors of TRW determine, in their sole discretion, that such filings or proceedings would result in undue expense or hardship for TRW. TRW may place appropriate legends on the certificates for the optioned shares, give stop- transfer instructions to its transfer agents or take any other action to achieve compliance with those laws in connection with any exercise of this option or your resale of the optioned shares. 7. Transferability This option is not transferable other than by will or the laws of descent and distribution and shall be exercisable during your lifetime only by you or your guardian or legal representative. 8. Leaves of Absence If you take a leave of absence for illness, military or governmental service or other reasons, and such leave has been specifically approved by the Chairman of the Board or the President of TRW for purposes of this option, then such leave will not be treated as an interruption of your employment. 9. Adjustments The Compensation Committee of TRW shall make adjustments in the option price and the number or kind of shares of TRW Common or other securities covered by this option only in accordance with the terms of the TRW plan and the French sub-plan thereunder, pursuant to which this stock option is granted. 10. Certain Definitions For purposes of this option, employment with a subsidiary will be treated as equivalent to employment with TRW itself, and your continuous employment will not be deemed to be interrupted by reason of your transfer among TRW and its subsidiaries. "Subsidiary" means a corporation or other entity in an unbroken chain of entities beginning with TRW if each of the entities other than the last entity in the unbroken chain owns stock or other ownership interests possessing 50% or more of the total outstanding combined voting power of all classes of stock or other interests in the next entity in the chain. "Subsidiary" also means, if not covered by the definition of subsidiary in the preceding sentence and if specifically approved by the Chairman of the Board of TRW with respect to this option, a corporation or other entity in which TRW has a direct or indirect ownership interest. 11. Miscellaneous By participating in the TRW stock option program, you understand and agree to the following conditions: (a) This stock option is subject to all the terms and conditions of the TRW plan, including the French sub-plan thereunder, pursuant to which it is granted. The Compensation Committee of TRW has authority to interpret and construe any provision of this instrument and the TRW plan and the French sub-plan thereunder pursuant to which this stock option is granted, and any such interpretation and construction shall be binding and conclusive. Any reference in this option to the Directors of TRW includes the Executive Committee of the Directors. (b) The program is discretionary and TRW can cancel or terminate it at any time. As such, the program does not create any contractual or other right to receive options or benefits in lieu of options in the future. Any future option grants, including but not limited to the timing of any grant, number of options, vesting provisions, and the exercise price, will be within TRW's sole discretion. (c) Your participation in the TRW stock option program is completely voluntary and is not a condition or right of your employment. (d) The value of your TRW stock option is an extraordinary item of compensation outside the scope of your employment contract, if any. As such, your option is not part of normal or expected compensation for purposes of calculating any severance, resignation, redundancy, end of service payments, bonuses, long- service awards, social insurance contributions (except where local law specifically provides otherwise), pension or retirement benefits, or similar payments. (e) Your vesting progress will end if your employment terminates before five years after the grant date, or such shorter period prescribed in Section 1 hereof, for reasons other than death, disability for a period of more than twelve months (as defined in the TRW U.S. Long-Term Disability Plan) or a change in control of TRW. (f) The future value of the TRW stock is unknown and cannot be predicted with any certainty. If the TRW stock does not increase in value, the option will have no value. (g) You authorize your manager to furnish TRW (and any agent of TRW administering the program or providing program recordkeeping services) with such information and data as it shall request in order to facilitate the grant of options and administration of the program. You also waive any data privacy rights you might have with respect to such information about you, which is needed to issue your TRW stock option grant. (h) Your TRW stock option may not be assigned, sold, encumbered, or in any way transferred or alienated, except as otherwise explicitly provided in the Stock Option Agreement. (i) The TRW stock option program is governed by and subject to U.S. law. Interpretation of the program and your rights thereunder will be governed by provisions of U.S. law. EX-10.(W) 5 AMEND TO CONSULTING AGREE BETW TRW & HEILMEIER EXHIBIT 10(w) [TRW Letterhead] December 7, 1999 Dr. George H. Heilmeier Bell Communications Research Morris Corporate Center (MCC) 445 South Street Morristown, New Jersey 07960-6438 Dear George: In accordance with the terms of the letter between you and TRW Inc., dated September 18, 1997 (the "Initial Agreement"), a copy of which is attached as Exhibit A hereto, this letter confirms our mutual agreement to renew the Initial Agreement for a period of twelve months (as renewed, the "Agreement"). The Agreement will become effective on January 1, 2000 and will terminate on December 31, 2000. The terms and conditions of the Agreement shall otherwise remain as set forth in the Initial Agreement. If you agree, please sign two copies of this letter and initial each page of the attached Initial Agreement. Please return one copy of the Agreement to me and keep the other copy for your records. Sincerely, /s/ Joseph T. Gorman Joseph T. Gorman ACCEPTED: /s/ George H. Heilmeier - ----------------------- Dr. George H. Heilmeier Date: 12/8/99 ------- EX-10.(CC) 6 FORM OF 1998-2000 STRATEGIC INCENTIVE GRANT EXHIBIT 10(cc) 1998 - 2000 STRATEGIC INCENTIVE PROGRAM Terms and Conditions - -------------------------------------------------------------------------------- 1. The Right This Right entitles you to receive performance units in the event that certain financial goals are achieved with respect to the calendar years 1998 through 2000 (the "Performance Period"). 2. Performance Criteria The definition of the goals, for purposes of this Right, is set forth in Exhibit A. The inclusion of the effects of unusual items in the calculations shall be at the complete discretion of the Compensation Committee of the Directors of TRW (the "Committee"). A goal scoring sheet for each of the three years in the Performance Period and weighted award levels related to each of the goals is set forth in Exhibit B. The Organic Sales goals will be adjusted to include sales attributable to acquisitions as specified in the acquisition "buy plan." The Return on Sales goals will be adjusted to reflect the inclusion of MPAT and sales attributable to the acquisition as specified in the acquisition "buy plan." 3. Payment Promptly following the availability of year-end financial information, the number of performance units to be paid out will be determined by multiplying 33.0% of the target grant by the payout percent generated by the goal scoring sheet for each of the first two years of participation in the Program and 34.0% in the third year. Each performance unit will be converted into cash at the average of the high and the low sale price averages of a share of TRW Common on the New York Stock Exchange Composite Transactions Listing for each day on which such shares are traded on the New York Stock Exchange during the months of December and January immediately prior to the date of payment. This amount will be paid to you in the currency in which you receive your compensation. 4. Taxes Upon any payment pursuant to this Right, TRW will deduct any withholding or other taxes due. 5. Transferability This Right is not transferable other than by will or the laws of descent and distribution. 6. Death In the event of your death, your estate or those so designated by will or the laws of descent and distribution will be entitled to receive, at such times as you would have received payment, such payment as would have been paid to you hereunder if you had remained employed throughout the entire year in which your death occurred and the following year of the Performance Period, if any. 7. Termination of Employment This Right shall terminate on the date of your termination of employment and you shall not be entitled to any additional payments hereunder except for any payments with respect to calendar years prior to the calendar year of your termination. However, if your employment is terminated during the last half of a calendar year, and if the Committee gives written consent on or prior to the date on which payments are to be made pursuant to this Right with respect to such year, you will be entitled to receive such payments as would have been issued to you hereunder if you remained employed through the end of the calendar year during which your employment terminated multiplied by the fraction representing the number of full months employed during such year. 8. Disability Notwithstanding the foregoing, if your termination of employment is due to disability for a period of more than twelve months (as determined in accordance with the TRW Long-Term Disability Plan), you will be entitled to receive such payment as would have been issued to you hereunder if you had remained employed for the entire year in which the disability occurred and the following year of the Performance Period, if any. 9. Adjustments The Committee shall make such adjustments in the number and kind of grants pursuant hereto as it may determine are equitably required to prevent dilution or enlargement of your rights that would otherwise result from any stock dividend, stock split, combination of shares, recapitalization or other change in the capital structure of TRW, merger, consolidation, reorganization, partial or complete liquidation or other corporate transaction or event having an effect similar to any of the foregoing. 10. Amendments In addition to the authority to make adjustments as provided in Section 9, the Committee shall have the authority, until such time as a Change in Control as defined in Section 11 occurs, to amend otherwise this grant. Notwithstanding the foregoing, if you transfer positions or change responsibilities within TRW, the Committee may amend this Right to reflect such changed circumstances; provided, however, that any such amendment after a Change in Control occurs shall not reduce the value of this Right to you. 11. Change in Control In the event of a Change in Control of TRW, this Right will remain in effect so long as you continue to be employed by TRW. For purposes of this Right, the definition of Change in Control is the same as the definition contained in resolutions adopted by the Compensation and Stock Option Committee on July 26, 1989. Such resolutions, in summary, provide that a Change in Control is a change occurring (a) by virtue of TRW's merger, consolidation or reorganization into or with, or transfer of assets to, another corporation or (b) by virtue of a change in the majority of the Directors during any two-year period unless the election of each new Director was approved by a two-thirds vote of the Directors in office at the beginning of such period or (c) through the acquisition of shares representing 20 percent or more of the voting power of TRW or (d) through any other change in control reported in any filing with the Securities and Exchange Commission, excluding, however, the acquisition of shares, or any report of such acquisition, by TRW, a subsidiary of TRW or a TRW-sponsored employee benefit plan. The language in the resolutions controls over this summary language. If a Change in Control occurs you will be entitled to receive any payment issuable to you but not yet issued with respect to any completed calendar year in the Performance Period preceding the Change in Control. In addition, with respect to each of the remaining years in the Performance Period, you will be entitled to receive payment equal to the number of units payable assuming maximum performance on all goals. The aggregate number of units payable with respect to the year of the Change in Control and subsequent years in the Performance Period, determined in accordance with the precedence sentence, will be issued to you promptly following the Change in Control. 12. Miscellaneous This Right shall not be construed as giving you any right to continue in the employ of TRW. Subject to the requirements and limitations in Sections 10 and 11 above, the Committee has authority to interpret and construe any provision of this grant and any such interpretation and construction shall be binding and conclusive. Except as provided in Section 11 above, no rights hereunder shall accrue to you with respect to any year in the Performance Period until such year is completed and the goals performance for such year has been approved as provided in Section 3 above. Thereafter your rights will be limited to those expressly given by this Right. 13. Entire Agreement This Right sets forth the entire understanding between you and TRW with respect to the subject matter hereof and supersedes all prior agreements and understandings, whether oral or written, relating hereto. February 2000 EX-10.(DD) 7 5-YR CREDIT AGREE DATED JANUARY 25, 2000 EXHIBIT 10(dd) CONFORMED COPY ================================================================================ FIVE-YEAR CREDIT AGREEMENT dated as of January 25, 2000 among TRW INC. The Borrowing Subsidiaries Party Hereto The Lenders Party Hereto and THE CHASE MANHATTAN BANK, as Administrative Agent CHASE MANHATTAN INTERNATIONAL LIMITED, as London Agent SALOMON SMITH BARNEY INC., as Syndication Agent ___________________________ CHASE SECURITIES INC. SALOMON SMITH BARNEY INC., as Joint Lead Arrangers and Book Managers BANK OF AMERICA N.A. MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Co-Documentation Agents ================================================================================ TABLE OF CONTENTS
Page ---- ARTICLE I Definitions ----------- SECTION 1.01. Defined Terms............................................... 1 ------------- SECTION 1.02. Classification of Loans and Borrowings...................... 16 -------------------------------------- SECTION 1.03. Terms Generally............................................. 16 --------------- SECTION 1.04. Accounting Terms; GAAP...................................... 16 ---------------------- SECTION 1.05. Exchange Rates.............................................. 16 -------------- SECTION 1.06. Redenomination of Certain Foreign Currencies................ 17 -------------------------------------------- ARTICLE II The Credits ----------- SECTION 2.01. Commitments................................................. 17 ----------- SECTION 2.02. Loans and Borrowings........................................ 18 -------------------- SECTION 2.03. Requests for Revolving Borrowings........................... 18 --------------------------------- SECTION 2.04. Competitive Bid Procedure................................... 19 ------------------------- SECTION 2.05. Funding of Borrowings....................................... 21 --------------------- SECTION 2.06. Interest Elections.......................................... 22 ------------------ SECTION 2.07. Termination and Reduction of Commitments.................... 23 ---------------------------------------- SECTION 2.08. Repayment of Loans; Evidence of Debt........................ 23 ------------------------------------ SECTION 2.09. Prepayment of Loans......................................... 24 ------------------- SECTION 2.10. Fees........................................................ 25 ---- SECTION 2.11. Interest.................................................... 25 -------- SECTION 2.12. Alternate Rate of Interest.................................. 26 -------------------------- SECTION 2.13. Increased Costs............................................. 27 --------------- SECTION 2.14. Break Funding Payments...................................... 28 ---------------------- SECTION 2.15. Taxes....................................................... 28 ----- SECTION 2.16. Payments Generally; Pro Rata Treatment; Sharing of Set-offs. 29 ----------------------------------------------------------- SECTION 2.17. Mitigation Obligations; Replacement of Lenders.............. 31 ---------------------------------------------- SECTION 2.18. Borrowing Subsidiaries...................................... 31 ---------------------- SECTION 2.19. Additional Reserve Costs.................................... 32 ------------------------ SECTION 2.20. Foreign Subsidiary Costs.................................... 32 ------------------------ ARTICLE III Representations and Warranties ------------------------------ SECTION 3.01. Organization; Powers........................................ 33 -------------------- SECTION 3.02. Authorization; Enforceability............................... 33 ----------------------------- SECTION 3.03. Governmental Approvals; No Conflicts........................ 33 ------------------------------------ SECTION 3.04. Financial Condition; No Material Adverse Change............. 34 ----------------------------------------------- SECTION 3.05. Litigation and Environmental Matters........................ 34 ------------------------------------ SECTION 3.06. Investment and Holding Company Status....................... 34 -------------------------------------
SECTION 3.07. Taxes....................................................... 34 ----- SECTION 3.08. ERISA....................................................... 34 ----- SECTION 3.09. Year 2000................................................... 35 --------- ARTICLE IV Conditions ---------- SECTION 4.01. Effective Date.............................................. 35 -------------- SECTION 4.02. Each Credit Event........................................... 36 ----------------- SECTION 4.03. Initial Credit Event for each Borrowing Subsidiary.......... 36 -------------------------------------------------- ARTICLE V Affirmative Covenants --------------------- SECTION 5.01. Financial Statements and Other Information.................. 37 ------------------------------------------ SECTION 5.02. Existence; Conduct of Business.............................. 38 ------------------------------ SECTION 5.03. Use of Proceeds............................................. 38 --------------- ARTICLE VI Negative Covenants ------------------ SECTION 6.01. Indebtedness of Subsidiaries................................ 38 ---------------------------- SECTION 6.02. Mortgages................................................... 38 --------- SECTION 6.03. Sale and Lease-Back Transactions............................ 40 -------------------------------- SECTION 6.04. Fundamental Changes......................................... 40 ------------------- SECTION 6.05. ERISA....................................................... 40 ----- SECTION 6.06. Change in Control........................................... 40 ----------------- SECTION 6.07. Interest Coverage Ratio..................................... 41 ----------------------- SECTION 6.08. Minimum Consolidated Net Worth.............................. 41 ------------------------------ ARTICLE VII Events of Default.......................................................... 41 - ----------------- ARTICLE VIII The Agents................................................................. 43 ARTICLE IX Guarantee.................................................................. 45 ARTICLE X Miscellaneous ------------- SECTION 10.01. Notices..................................................... 46 ------- SECTION 10.02. Waivers; Amendments......................................... 47 ------------------- SECTION 10.03. Expenses; Indemnity; Damage Waiver.......................... 47 ---------------------------------- SECTION 10.04. Successors and Assigns...................................... 48 ---------------------- SECTION 10.05. Survival.................................................... 50 -------- SECTION 10.06. Counterparts; Integration; Effectiveness.................... 51 ---------------------------------------- SECTION 10.07. Severability................................................ 51 ------------ SECTION 10.08. Right of Setoff............................................. 51 --------------- SECTION 10.09. Governing Law; Jurisdiction; Consent to Service of Process.. 51 ---------------------------------------------------------- SECTION 10.10. WAIVER OF JURY TRIAL........................................ 52 -------------------- SECTION 10.11. Headings.................................................... 52 -------- SECTION 10.12. Confidentiality............................................. 52 --------------- SECTION 10.13. Conversion of Currencies.................................... 53 ------------------------ SECTION 10.14. Interest Rate Limitation.................................... 53 ------------------------ SECTION 10.15. Lender Waiver............................................... 54 -------------
SCHEDULES: --------- Schedule 2.01 -- Commitments EXHIBITS: -------- Exhibit A-1 -- Form of Borrowing Subsidiary Agreement Exhibit A-2 -- Form of Borrowing Subsidiary Termination Exhibit B -- Form of Assignment and Acceptance Exhibit C -- Form of Opinion of General Counsel of the Company Exhibit D -- Form of Opinion of Counsel for each Borrowing Subsidiary Exhibit E -- Mandatory Costs Rate Exhibit F -- Form of Compliance Certificate FIVE-YEAR CREDIT AGREEMENT dated as of January 25, 2000, among TRW INC., the BORROWING SUBSIDIARIES from time to time party hereto, the LENDERS from time to time party hereto, THE CHASE MANHATTAN BANK, as Administrative Agent, CHASE MANHATTAN INTERNATIONAL LIMITED, as London Agent, and SALOMON SMITH BARNEY INC., as Syndication Agent. The parties hereto agree as follows: ARTICLE I Definitions ----------- SECTION 1.01. Defined Terms. As used in this Agreement, the ------------- following terms have the meanings specified below: "ABR", when used in reference to any Loan or Borrowing, refers to --- whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Alternate Base Rate. "Adjusted LIBO Rate" means, with respect to any Eurocurrency Borrowing ------------------ for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/100 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate. "Administrative Agent" means The Chase Manhattan Bank, in its capacity -------------------- as administrative agent for the Lenders hereunder. "Administrative Questionnaire" means an Administrative Questionnaire ---------------------------- in a form supplied by the Administrative Agent. "Affiliate" means, with respect to a specified Person, another Person --------- that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. "Agents" means, collectively, the Administrative Agent and the London ------ Agent. "Agreement Currency" has the meaning assigned to such term in Section ------------------ 10.13(b). "Alternate Base Rate" means, for any day, a rate per annum equal to ------------------- the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective from and including the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. "Applicable Agent" means (a) with respect to a Loan or Borrowing ---------------- denominated in Dollars, the Administrative Agent and (b) with respect to a Loan or Borrowing denominated in any Foreign Currency, the London Agent. "Applicable Creditor" has the meaning assigned to such term in Section ------------------- 10.13(b). "Applicable Percentage" means, with respect to any Lender, the --------------------- percentage of the total Commitments represented by such Lender's Commitment. If the Commitments have terminated or expired, the Applicable Percentages shall be determined based upon the Commitments most recently in effect, giving effect to any assignments. "Applicable Rate" means, for any day, with respect to any Eurocurrency --------------- Revolving Loan, or with respect to the facility fees or utilization fees payable hereunder, as the case may be, the applicable rate per annum set forth below under the caption "Eurocurrency Spread", "Facility Fee Rate", or "Utilization Fee Rate" as the case may be, based upon the ratings by Moody's and S&P, respectively, applicable on such date to the Index Debt:
========================================================================================= Eurocurrency Facility Fee Utilization Fee ------------ ------------ --------------- Index Debt Ratings: Spread Rate Rate ------------------ ------ ---- ---- - ----------------------------------------------------------------------------------------- Category 1 ---------- A or higher/A2 or higher .310% .090% .100% - ----------------------------------------------------------------------------------------- Category 2 ---------- A-/A3 .400% .100% .100% - ----------------------------------------------------------------------------------------- Category 3 ---------- BBB+/Baa1 .500% .125% .125% - ----------------------------------------------------------------------------------------- Category 4 ---------- BBB/Baa2 .600% .150% .125% - ----------------------------------------------------------------------------------------- Category 5 ---------- BBB-/Baa3 .650% .225% .125% - ----------------------------------------------------------------------------------------- Category 6 ---------- lower than BBB-/ lower .875% .375% .250% than Baa3 =========================================================================================
3 - -------------------------------------------------------------------------------- ================================================================================ For purposes of the foregoing, (i) if either Moody's or S&P shall not have in effect a rating for the Index Debt (other than by reason of the circumstances referred to in the last sentence of this definition), then such rating agency shall be deemed to have established a rating in Category 6; (ii) if the ratings established or deemed to have been established by Moody's and S&P for the Index Debt shall fall within different Categories, the Applicable Rate shall be based on the higher of the two ratings unless one of the two ratings is more than two Categories lower than the other, in which case the Applicable Rate shall be determined by reference to the lower of the two ratings; and (iii) if the ratings established or deemed to have been established by Moody's and S&P for the Index Debt shall be changed (other than as a result of a change in the rating system of Moody's or S&P), such change shall be effective as of the date on which it is first announced by the applicable rating agency. Each change in the Applicable Rate shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change. If the rating system of Moody's or S&P shall change, or if either such rating agency shall cease to be in the business of rating corporate debt obligations, the Borrower and the Lenders shall negotiate in good faith to amend this definition to reflect such changed rating system or the unavailability of ratings from such rating agency and, pending the effectiveness of any such amendment, the Applicable Rate shall be determined by reference to the rating most recently in effect prior to such change or cessation. "Assignment and Acceptance" means an assignment and acceptance entered ------------------------- into by a Lender and an assignee (with the consent of any party whose consent is required by Section 10.04), and accepted by the Administrative Agent, in the form of Exhibit B or any other form approved by the Administrative Agent. "Attributable Debt" means, as to any particular lease under which any ----------------- Person is liable at the time and at any date as of which the amount thereof is to be determined, the lesser of (a) the fair value of the property subject to such lease (as determined by the Directors of the Company) or (b) the total net amount of rent required to be paid by such Person under such lease during the remaining term thereof, discounted from the respective due dates thereof to such date at the actual interest factor included in such rent. The net amount of rent required to be paid under any such lease for any such period shall be the aggregate amount of the rent payable by the lessee with respect to such period after excluding amounts required to be paid on account of maintenance and repairs, insurance, taxes, assessments, water rates and similar charges. In the case of any lease which is terminable by the lessee upon the payment of a penalty, such net amount shall also include the amount of such penalty, but no rent shall be considered as required to be paid under such lease subsequent to the first date upon which it may be so terminated. 4 "Availability Period" means the period from and including the ------------------- Effective Date to but excluding the earlier of the Maturity Date and the date of termination of the Commitments. "Board" means the Board of Governors of the Federal Reserve System of ----- the United States of America. "Borrower" means the Company or any Borrowing Subsidiary. -------- "Borrowing" means (a) Revolving Loans of the same Type and currency, --------- made, converted or continued on the same date and, in the case of Eurocurrency Loans, as to which a single Interest Period is in effect or (b) a Competitive Loan or group of Competitive Loans of the same Type made on the same date and as to which a single Interest Period is in effect. "Borrowing Minimum" means (a) in the case of a Borrowing denominated ----------------- in Dollars, $10,000,000 and (b) in the case of a Borrowing denominated in any Foreign Currency, the smallest amount of such Foreign Currency that has a Dollar Equivalent in excess of $10,000,000. "Borrowing Multiple" means (a) in the case of a Borrowing denominated ------------------ in Dollars, $5,000,000 and (b) in the case of a Borrowing denominated in any Foreign Currency, 5,000,000 units (or, in the case of Sterling, 2,500,000 units) of such currency. "Borrowing Request" means a request by the Borrower for a Revolving ----------------- Borrowing in accordance with Section 2.03. "Borrowing Subsidiary" means, at any time, each Subsidiary that has -------------------- been designated as a Borrowing Subsidiary by the Company pursuant to Section 2.18 and that has not ceased to be a Borrowing Subsidiary as provided in such Section or Article VII. "Borrowing Subsidiary Agreement" means a Borrowing Subsidiary ------------------------------ Agreement substantially in the form of Exhibit A-1. "Borrowing Subsidiary Termination" means a Borrowing Subsidiary -------------------------------- Termination substantially in the form of Exhibit A-2. "Business Day" means any day that is not a Saturday, Sunday or other ------------ day on which commercial banks in New York City are authorized or required by law to remain closed; provided, that (a) when used in connection with a Eurocurrency -------- Loan denominated in Dollars or Sterling, the term "Business Day" shall also ------------ exclude any day on which banks are not open for dealings in deposits in the applicable currency in the 5 London interbank market and (b) when used in connection with a Loan denominated in Euro, the term "Business Day" shall also exclude any day on which the TARGET ------------ payment system is not open for the settlement of payments in Euro. "Calculation Date" means the last Business Day of each calendar month. ---------------- "Capital Lease Obligations" of any Person means the obligations of ------------------------- such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. "Change in Control" means (a) the acquisition of ownership, directly ----------------- or indirectly, beneficially or of record, by any Person or group (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof), of shares representing more than 30% of the aggregate ordinary voting power represented by the issued and outstanding capital stock of the Company; or (b) occupation of a majority of the seats (other than vacant seats) on the board of directors of the Company by Persons who are not Continuing Directors. For purposes of the foregoing, "Continuing Directors" shall mean (i) the directors of the Company on the date hereof and (ii) each other director nominated or appointed by at least two thirds of the Continuing Directors at the time of such nomination or appointment. "Change in Law" means (a) the adoption of any law, rule or regulation ------------- after the date of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by any Lender (or, for purposes of Section 2.13(b), by any lending office of such Lender or by such Lender's holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement. "Chase" means The Chase Manhattan Bank and its successors. ----- "Class", when used in reference to any Loan or Borrowing, refers to ----- whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans or Competitive Loans. "CMIL" means Chase Manhattan International Limited and its successors. ---- "Code" means the Internal Revenue Code of 1986, as amended from time ---- to time. 6 "Commitment" means, with respect to each Lender, the commitment of ---------- such Lender to make Revolving Loans, expressed as an amount representing the maximum aggregate amount of such Lender's Revolving Credit Exposure hereunder, as such commitment may be (a) reduced from time to time pursuant to Section 2.07 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 10.04. The initial amount of each Lender's Commitment is set forth on Schedule 2.01 or in the Assignment and Acceptance pursuant to which such Lender shall have assumed its Commitment, as applicable. The initial aggregate amount of the Lenders' Commitments is $1,000,000,000. "Committed Currency" means Dollars and Foreign Currencies. ------------------ "Company" means TRW Inc., an Ohio corporation. ------- "Competitive Bid" means an offer by a Lender to make a Competitive --------------- Loan in accordance with Section 2.04. "Competitive Bid Rate" means, with respect to any Competitive Bid, the -------------------- Margin or the Fixed Rate, as applicable, offered by the Lender making such Competitive Bid. "Competitive Bid Request" means a request by any Borrower for ----------------------- Competitive Bids in accordance with Section 2.04. "Competitive Loan" means a Loan made pursuant to Section 2.04. ---------------- "Consolidated EBITDA" means, for any fiscal period, with respect to ------------------- the Company and its consolidated Subsidiaries, (a) Consolidated Net Income for such period plus (b) to the extent deducted in computing such Consolidated Net ---- Income, without duplication, the sum of (i) income tax expense, (ii) Consolidated Interest Expense, (iii) depreciation and amortization expense, (iv) any extraordinary or non-recurring losses and (v) other noncash items (other than accruals) reducing Consolidated Net Income, minus (c) to the extent added ----- in computing such Consolidated Net Income, without duplication, the sum of (i) any extraordinary or non-recurring gains and (ii) other noncash items (other than accruals) increasing Consolidated Net Income, all as determined on a consolidated basis in accordance with GAAP; provided that gains on sales of the -------- Company's equity investments in publicly-traded companies and pension income related to LucasVarity will in no event be subtracted under this clause (c) for purposes of computing Consolidated EBITDA. 7 "Consolidated Funded Debt" means the Funded Debt of the Company and ------------------------ the consolidated Subsidiaries, determined on a consolidated basis in accordance with GAAP. "Consolidated Interest Expense" means, for any period, the aggregate ----------------------------- of all interest expense of the Company and its consolidated Subsidiaries for such period determined on a consolidated basis in accordance with GAAP. "Consolidated Net Assets" means the sum of (a) the total of all assets ----------------------- of the Company and the consolidated Subsidiaries that would appear on a consolidated balance sheet of the Company prepared in accordance with GAAP less (b) Consolidated Net Worth. "Consolidated Net Income" means, for any period, net income of the ----------------------- Company and the consolidated Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP. "Consolidated Net Worth" means, at any date, the consolidated ---------------------- shareholders' investment of the Company and the consolidated Subsidiaries, exclusive of foreign currency translation adjustment and unrealized gains or losses on securities as reported in the Company's financial statements under "Other Comprehensive Income," determined as of such date. Consolidated shareholders' investment, foreign currency translation adjustment and unrealized gains or losses on securities of the Company shall be as included in the annual or quarterly financial statements of the Company, as applicable. "Control" means the possession, directly or indirectly, of the power ------- to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power or by contract. "Controlling" and "Controlled" have meanings correlative thereto. ----------- ---------- "Default" means any event or condition which constitutes an Event of ------- Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default. "Dollars" or "$" refers to lawful money of the United States of ------- - America. "Dollar Equivalent" means, on any date of determination, (a) with ----------------- respect to any amount in Dollars, such amount, and (b) with respect to any amount in any Foreign Currency, the equivalent in Dollars of such amount, determined by the Administrative Agent pursuant to Section 1.05(b) using the Exchange Rate with respect to such Foreign Currency at the time in effect under the provisions of such Section. 8 "Domestic Subsidiary" means each consolidated Subsidiary other than ------------------- (a) any consolidated Subsidiary which the Directors of the Company reasonably determine not to be material to the business or financial condition of the Company; (b) any consolidated Subsidiary the major portion of the assets of which are located, or the major portion of the business of which is carried on, outside the United States of America, its territories and possessions; (c) any consolidated Subsidiary which, during the 12 most recent calendar months (or such shorter period as shall have elapsed since its organization) derived the major portion of its gross revenues from sources outside the United States of America; (d) any consolidated Subsidiary the major portion of the assets of which consists of securities or obligations, or both, of one or more corporations (whether or not consolidated Subsidiaries) of the types described in the preceding clauses (b) and (c); and (e) any consolidated Subsidiary organized after January 1, 2000 which the Company intends shall be operated in such manner as to come within one or more of the preceding clauses (b), (c) and (d). "Effective Date" means the date on which the conditions specified in -------------- Section 4.01 are satisfied (or waived in accordance with Section 10.02). "EMU Legislation" means the legislative measures of the European Union --------------- for the introduction of, changeover to or operation of the Euro in one or more member states. "ERISA" means the Employee Retirement Income Security Act of 1974, as ----- amended from time to time. "ERISA Affiliate" means any trade or business (whether or not --------------- incorporated) that, together with a Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code. "ERISA Event" means (a) any "reportable event", as defined in Section ----------- 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the existence with respect to any Plan of an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by a Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by a Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by a Borrower or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by a Borrower or any 9 ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from a Borrower or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA. "Euro" or "E" means the single currency of the European Union as ---- - constituted by the Treaty on European Union and as referred to in the EMU Legislation. "Eurocurrency", when used in reference to any Loan or Borrowing, ------------ refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate (or, in the case of a Competitive Loan, the LIBO Rate). "Event of Default" has the meaning assigned to such term in Article ---------------- VII. "Exchange Act" means the Securities Exchange Act of 1934, as amended ------------ from time to time. "Exchange Rate" means on any day, with respect to any Foreign ------------- Currency, the rate at which such Foreign Currency may be exchanged into Dollars, as set forth at approximately 11:00 a.m., London time, on such day on the Reuters World Currency Page for such Foreign Currency. In the event that such rate does not appear on any Reuters World Currency Page, the Exchange Rate shall be determined by reference to such other publicly available service for displaying exchange rates as may be agreed upon by the Administrative Agent and the Company, or, in the absence of such agreement, such Exchange Rate shall instead be the arithmetic average of the spot rates of exchange of the Administrative Agent in the market where its foreign currency exchange operations in respect of such Foreign Currency are then being conducted, at or about 10:00 a.m., local time, on such date for the purchase of Dollars for delivery two Business Days later; provided that if at the time of any such -------- determination, for any reason, no such spot rate is being quoted, the Administrative Agent, after consultation with the Company, may use any reasonable method it deems appropriate to determine such rate, and such determination shall be conclusive absent manifest error. "Excluded Taxes" means (i) with respect to each Lender, taxes imposed -------------- on its net income, and franchise or similar taxes imposed on it, by a jurisdiction under the laws of which it is organized or in which its principal executive office or applicable lending office is located, and (ii) any United States withholding tax imposed on such payment, but not excluding any portion of such tax that exceeds the United States withholding tax which would have been imposed on such a payment to such Lender under the laws and treaties in effect when such Lender first becomes a party to this Agreement. 10 "Existing Credit Agreements" means (i) the Credit Agreement dated as -------------------------- of January 27, 1999, and amended and restated as of February 26, 1999, among the Company, the eligible subsidiaries referred to therein, the lenders party thereto, Bank of America National Trust and Savings Association, Citibank, N.A. and Barclays Bank PLC, as co-syndication agents, and Morgan Guaranty Trust Company of New York, as administrative agent, (ii) the Revolving Credit Agreement dated as of December 10, 1997, among the Company and the financial institutions party thereto, (iii) the Multi-Year Revolving Credit Agreement, as amended and restated as of May 8, 1996, among the Company and the financial institutions party thereto, and (iv) the Multi-Currency Revolving Credit Facility Agreement, as amended and restated as of August 7, 1997, among TRW Finance International, Barclays Bank PLC and the financial institutions party thereto, in each case as amended from time to time. "Federal Funds Effective Rate" means, for any day, the weighted ---------------------------- average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. "Financial Officer" means the chief financial officer, treasurer or ----------------- controller of the Company. "Fixed Rate" means, with respect to any Competitive Loan (other than a ---------- Eurocurrency Competitive Loan), the fixed rate of interest per annum specified by the Lender making such Competitive Loan in its related Competitive Bid. "Fixed Rate Loan" means a Competitive Loan bearing interest at a Fixed --------------- Rate. "Foreign Currency" means Sterling and Euros. ---------------- "Foreign Lender" means any Lender that is organized under the laws of -------------- a jurisdiction other than that in which the applicable Borrower is located. For purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction. "Foreign Subsidiary" means any Subsidiary that is not a Domestic ------------------ Subsidiary. 11 "Funded Debt" means all Indebtedness of the type described in clauses ----------- (a) and (b) of the definition thereof having a maturity of more than 12 months from the date such Indebtedness was incurred or having a maturity of 12 months or less but by its terms being renewable or extendable beyond 12 months from the date such Indebtedness was incurred at the option of the obligor. "GAAP" means generally accepted accounting principles in the United ---- States of America applied in a manner consistent with the financial statements referred to in Section 3.04(a). "Governmental Authority" means the government of the United States of ---------------------- America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government. "Guarantee" of or by any Person (the "guarantor") means any --------- --------- obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the "primary obligor") in any manner, whether directly or --------------- indirectly, and including any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness or obligation; provided, that the term Guarantee shall not include -------- endorsements for collection or deposit in the ordinary course of business. "Guarantor Subsidiary" means any Subsidiary that shall have delivered -------------------- to the Administrative Agent (a) a guarantee agreement in form and substance satisfactory to the Administrative Agent under which it shall guarantee the payment of the Obligations and (b) such evidence as the Administrative Agent may reasonably have requested (which may include an opinion of counsel qualified in any relevant jurisdiction) as to the corporate power and authority of such Subsidiary to enter into and the enforceability of such guarantee agreement and such other matters related to such guarantee agreement as the Administrative Agent may reasonably have determined to be material. "Indebtedness" of any Person means, without duplication, (a) all ------------ obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or 12 similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid, (d) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (e) all obligations of such Person in respect of the deferred purchase price of property or services (excluding current accounts payable incurred in the ordinary course of business), (f) all Indebtedness of others secured by any Mortgage on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (g) all Guarantees by such Person of Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i) all non-contingent obligations (and, for purposes of Section 6.02 and the definition of Material Indebtedness, all contingent obligations) of such Person to reimburse any bank or other Person in respect of amounts paid under letters of credit and similar instruments and (j) all obligations, contingent or otherwise, of such Person in respect of bankers' acceptances. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor. "Index Debt" means senior, unsecured, long-term indebtedness for ---------- borrowed money of the Company that is not guaranteed by any other Person or subject to any other credit enhancement. "Information Memorandum" means the Confidential Information Memorandum ---------------------- dated January 2000 distributed to the Lenders, together with the appendices thereto, as amended through the date hereof. "Interest Election Request" means a request by the relevant Borrower ------------------------- to convert or continue a Revolving Borrowing in accordance with Section 2.06. "Interest Payment Date" means (a) with respect to any ABR Loan, the --------------------- last day of each March, June, September and December, (b) with respect to any Eurocurrency Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurocurrency Borrowing with an Interest Period of more than three months' duration, each day prior to the last day of such Interest Period that occurs at intervals of three months' duration after the first day of such Interest Period and (c) with respect to any Fixed Rate Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Fixed Rate Borrowing with an Interest Period of more than 90 days' duration (unless otherwise specified in the applicable Competitive Bid Request), each day prior to the last day of such Interest Period that occurs at intervals of 90 days' duration after the first day of such Interest Period, and any other dates that are specified in the applicable Competitive Bid Request as Interest Payment Dates with respect to such Borrowing. 13 "Interest Period" means (a) with respect to any Eurocurrency --------------- Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is one, two, three or six months thereafter, as the applicable Borrower may elect and (b) with respect to any Fixed Rate Borrowing, the period (which shall not be less than 7 days or more than 360 days) commencing on the date of such Borrowing and ending on the date specified in the applicable Competitive Bid Request; provided, that (i) if -------- any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, in the case of a Eurocurrency Borrowing only, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day and (ii) any Interest Period pertaining to a Eurocurrency Borrowing that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and, in the case of a Revolving Borrowing, thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing. "Judgment Currency" has the meaning assigned to such term in Section ----------------- 10.13(b). "Lenders" means the Persons listed on Schedule 2.01 and any other ------- Person that shall have become a party hereto pursuant to an Assignment and Acceptance, other than any such Person that shall have ceased to be a party hereto pursuant to an Assignment and Acceptance. "LIBO Rate" means, with respect to any Eurocurrency Borrowing for any --------- Interest Period, the rate per annum determined by the Applicable Agent at approximately 11:00 a.m., London time, on the Quotation Day for such Interest Period by reference to the British Bankers' Association Interest Settlement Rates for deposits in the currency of such Borrowing (as reflected on the applicable Telerate screen), for a period equal to such Interest Period; provided that, to the extent that an interest rate is not ascertainable pursuant - -------- to the foregoing provisions of this definition, the "LIBO Rate" shall be the average (rounded upward, if necessary, to the next 1/100 of 1%) of the respective interest rates per annum at which deposits in the currency of such Borrowing are offered for such Interest Period to major banks in the London interbank market by Chase and Citibank, N.A. at approximately 11:00 a.m., London time, on the date two Business Days prior to the beginning of such Interest Period. 14 "Loan Documents" means this Agreement, each Borrowing Subsidiary -------------- Agreement, each Borrowing Subsidiary Termination, and each promissory note delivered pursuant to this Agreement. "Loans" means the loans made by the Lenders to the Borrowers pursuant ----- to this Agreement. "Local Time" means (a) with respect to a Loan or Borrowing denominated ---------- in Dollars, New York City time, and (b) with respect to a Loan or Borrowing denominated in any Foreign Currency, London time. "London Agent" means Chase Manhattan International Limited. ------------ "LucasVarity" shall mean LucasVarity Limited, formerly known as ----------- LucasVarity plc, an English company. "Margin" means, with respect to any Competitive Loan bearing interest ------ at a rate based on the LIBO Rate, the marginal rate of interest, if any, to be added to or subtracted from the LIBO Rate to determine the rate of interest applicable to such Loan, as specified by the Lender making such Loan in its related Competitive Bid. "Margin Stock" means "margin stock" as defined in Regulation U. ------------ "Material Adverse Effect" means a material adverse effect on (a) the ----------------------- consolidated financial condition of the Company and the consolidated Subsidiaries, taken as a whole or (b) the ability of the Company to perform its payment obligations under the Loan Documents. "Material Indebtedness" means Indebtedness (other than the Loans), of --------------------- any one or more of the Company and the Material Subsidiaries in an aggregate principal amount exceeding $100,000,000. "Material Subsidiary" means (a) any Borrowing Subsidiary, (b) any ------------------- subsidiary that directly or indirectly owns or Controls any Borrowing Subsidiary or other Material Subsidiary and (c) any other Subsidiary whose assets (or, if such Subsidiary has subsidiaries, whose consolidated assets) are at least equal to $100,000,000. "Maturity Date" means January 25, 2005. ------------- "Moody's" means Moody's Investors Service, Inc. ------- "Mortgage" has the meaning assigned to such term in Section 6.02. -------- 15 "Multiemployer Plan" means a multiemployer plan as defined in Section ------------------ 4001(a)(3) of ERISA. "Obligations" means the due and punctual payment of (a) the principal ----------- of and premium, if any, and interest (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) on the Loans made to any Borrower, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise and (b) all other monetary obligations, including fees, costs, expenses and indemnities, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), of any Borrower under this Agreement and the other Loan Documents. "Other Taxes" means any present or future stamp or documentary taxes ----------- and any other excise or property taxes, or similar charges or levies, which arise from any payment made pursuant to this Agreement or any Loan Document or from the execution, delivery, registration or enforcement of, or otherwise with respect to, this Agreement or any Loan Document; provided that Other Taxes shall -------- not include Excluded Taxes. "PBGC" means the Pension Benefit Guaranty Corporation referred to and ---- defined in ERISA and any successor entity performing similar functions. "Permitted Subsidiary Indebtedness" means (a) Indebtedness under this --------------------------------- Agreement or the 364-Day Credit Agreement, (b) any Indebtedness of a Subsidiary owed to the Company or another Subsidiary, (c) Indebtedness of Guarantor Subsidiaries, (d) any Indebtedness deemed incurred in connection with one or more receivables securitization transactions entered into by the Company and/or one or more Subsidiaries in an aggregate amount of up to $500,000,000 (minus the amount of any such Indebtedness of the Company) and (e) any Indebtedness of a finance Subsidiary with no significant assets or operations to the extent (i) such Indebtedness is Guaranteed by the Company and is not Guaranteed, or secured by assets or obligations of, any other Subsidiary, (ii) the proceeds of such Indebtedness are dividended to the Company or another Subsidiary or advanced to the Company and (iii) such finance Subsidiary is not the obligee in respect of any Indebtedness of any other Subsidiary. "Person" means any natural person, corporation, limited liability ------ company, trust, joint venture, association, company, partnership, Governmental Authority or other entity. "Plan" means any employee pension benefit plan (other than a ---- Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which any Borrower or any ERISA 16 Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Prime Rate" means the rate of interest per annum publicly announced ---------- from time to time by The Chase Manhattan Bank as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective. "Principal Property" means any single manufacturing plant, engineering ------------------ facility or research facility owned or leased by the Company or a Domestic Subsidiary other than any such plant or facility or portion thereof which the Board of Directors reasonably determines not to be of material importance to the Company and its Subsidiaries taken as a whole. "Quotation Day" means, with respect to any Eurocurrency Borrowing and ------------- any Interest Period, the day on which it is market practice in the relevant interbank market for prime banks to give quotations for deposits in the currency of such Borrowing for delivery on the first day of such Interest Period. If such quotations would normally be given by prime banks on more than one day, the Quotation Day will be the last of such days. "Register" has the meaning set forth in Section 10.04. -------- "Related Parties" means, with respect to any specified Person, such --------------- Person's Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person's Affiliates. "Required Lenders" means, at any time, Lenders having Revolving Credit ---------------- Exposures and unused Commitments representing more than 50% of the sum of the total Revolving Credit Exposures and unused Commitments at such time; provided -------- that, for purposes of declaring the Loans to be due and payable pursuant to Article VII, and for all purposes after the Loans become due and payable pursuant to Article VII or the Commitments expire or terminate, the outstanding Competitive Loans of the Lenders shall be included in their respective Revolving Credit Exposures in determining the Required Lenders. "Revolving Credit Exposure" means, with respect to any Lender at any ------------------------- time, the sum at such time, without duplication, of (a) such Lender's Applicable Percentage of the principal amounts of the outstanding Revolving Loans denominated in Dollars plus (b) such Lender's Applicable Percentage of the aggregate amount of the Dollar Equivalents of the principal amounts of the outstanding Revolving Loans denominated in Foreign Currencies. 17 "Revolving Loan" means a Loan made pursuant to Sections 2.01 and -------------- 2.03. "Specified Company Indebtedness" means, at any time, (a) all ------------------------------ Indebtedness of the Company secured by Mortgages that would be prohibited by Section 6.02 but for the provisions of clause (h) thereof; (b) all Attributable Debt of the Company related to Sale and Leaseback Transactions that would be prohibited by Section 6.03 but for the provisions of clause (b) thereof; (c) all Indebtedness of the Company secured by Mortgages on capital stock of or other equity interests in Foreign Subsidiaries; and (d) all Indebtedness of the Company that is secured by Mortgages on accounts receivable or that is deemed to arise in connection with receivables securitization transactions, but only to the extent the amount of such Indebtedness of the Company and the Domestic Subsidiaries so secured or so arising exceeds $500,000,000. "S&P" means Standard & Poor's Ratings Services, a division of The --- McGraw-Hill Companies, Inc. "Statutory Reserve Rate" means a fraction (expressed as a decimal), ---------------------- the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board to which the Administrative Agent is subject for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurocurrency Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "Sterling" or "(Pounds)" means the lawful money of the United Kingdom. -------- -------- "subsidiary" means, with respect to any Person (the "parent") at any ---------- ------ date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, or (b) that is, as of such date, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent. 18 "Subsidiary" means any subsidiary of the Company. ---------- "Taxes" means any and all present or future taxes or other charges of ----- any nature deducted, withheld or otherwise imposed with respect to any payment by any Borrower pursuant to this Agreement or any Loan Document, and all liabilities with respect thereto other than Excluded Taxes. "364-Day Credit Agreement" means the 364-Day Credit Agreement dated as ------------------------ of the date hereof among the Company, the borrowing subsidiaries from time to time party thereto, the lenders from time to time party thereto, Chase, as administrative agent and Salomon Smith Barney Inc., as syndication agent. "Transactions" means the execution, delivery and performance by the ------------ Borrowers of the Loan Documents, the borrowing of Loans and the use of the proceeds thereof. "Type", when used in reference to any Loan or Borrowing, refers to ---- whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Adjusted LIBO Rate, the Alternate Base Rate or, in the case of a Competitive Loan or Borrowing, the LIBO Rate or a Fixed Rate. "Wholly Owned Domestic Subsidiary" means each Domestic Subsidiary all -------------------------------- the outstanding shares of which, other than directors' qualifying shares, shall at the time be owned by the Company or by the Company and one or more Wholly Owned Domestic Subsidiaries, or by one or more Wholly Owned Domestic Subsidiaries. "Withdrawal Liability" means liability to a Multiemployer Plan as a -------------------- result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. SECTION 1.02. Classification of Loans and Borrowings. For purposes -------------------------------------- of this Agreement, Loans may be classified and referred to by Class (e.g., a ---- "Revolving Loan") or by Type (e.g., a "Eurocurrency Loan") or by Class and Type ---- (e.g., a "Eurocurrency Revolving Loan"). Borrowings also may be classified and ---- referred to by Class (e.g., a "Revolving Borrowing") or by Type (e.g., a ---- ---- "Eurocurrency Borrowing") or by Class and Type (e.g., a "Eurocurrency Revolving ---- Borrowing"). SECTION 1.03. Terms Generally. The definitions of terms herein shall --------------- apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". The word "will" shall be construed to have the same meaning and effect as the word "shall". Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be 19 construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person's successors and assigns, (c) the words "herein", "hereof" and "hereunder", and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (e) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. SECTION 1.04. Accounting Terms; GAAP. Except as otherwise expressly ---------------------- provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided -------- that, if the Company notifies the Administrative Agent that the Company requests an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision (or if the Administrative Agent notifies the Company that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith. SECTION 1.05. Exchange Rates. (a) Not later than 1:00 p.m., New York -------------- City time, on each Calculation Date, the Administrative Agent shall (i) determine the Exchange Rate as of such Calculation Date with respect to each Foreign Currency and (ii) give notice thereof to the Lenders and the Company. The Exchange Rates so determined shall become effective on the first Business Day immediately following the relevant Calculation Date (a "Recalculation ------------- Date"), shall remain effective until the next succeeding Recalculation Date, and - ---- shall for all purposes of this Agreement (other than Section 10.13 or any other provision expressly requiring the use of a current Exchange Rate) be the Exchange Rates employed in converting any amounts between Dollars and Foreign Currencies. (b) Not later than 5:00 p.m., New York City time, on each Recalculation Date and each date on which Revolving Loans denominated in any Foreign Currency are made, the Administrative Agent shall (i) determine the aggregate amount of the Dollar Equivalents of the principal amounts of the Loans denominated in Foreign Currencies then outstanding (after giving effect to any Loans denominated in Foreign Currencies made or repaid on such date) and (ii) notify the Lenders and the Company of the results of such determination. 20 SECTION 1.06. Redenomination of Certain Foreign Currencies. (a) Each -------------------------------------------- obligation of any party to this Agreement to make a payment denominated in the national currency unit of any member state of the European Union that adopts the Euro as its lawful currency after the date hereof shall be redenominated into Euro at the time of such adoption (in accordance with the EMU Legislation). If, in relation to the currency of any such member state, the basis of accrual of interest expressed in this Agreement in respect of that currency shall be inconsistent with any convention or practice in the London Interbank Market for the basis of accrual of interest in respect of the Euro, such expressed basis shall be replaced by such convention or practice with effect from the date on which such member state adopts the Euro as its lawful currency; provided that if -------- any Borrowing in the currency of such member state is outstanding immediately prior to such date, such replacement shall take effect, with respect to such Borrowing, at the end of the then current Interest Period. (b) Without prejudice and in addition to any method of conversion or rounding prescribed by any EMU Legislation and (i) without limiting the liability of any Borrower for any amount due under this Agreement and (ii) without increasing any Commitment of any Lender, all references in this Agreement to minimum amounts (or integral multiples thereof) denominated in the national currency unit of any member state of the European Union that adopts the Euro as its lawful currency after the date hereof shall, immediately upon such adoption, be replaced by references to such minimum amounts (or integral multiples thereof) as shall be specified herein with respect to Borrowings denominated in Euro. (c) Each provision of this Agreement shall be subject to such reasonable changes of construction as the Administrative Agent may from time to time specify to be appropriate to reflect the adoption of the Euro by any member state of the European Union and any relevant market conventions or practices relating to the Euro. ARTICLE II The Credits ----------- SECTION 2.01. Commitments. Subject to the terms and conditions set ----------- forth herein, each Lender agrees to make Revolving Loans to any Borrower from time to time during the Availability Period in any Committed Currency in an aggregate principal amount that will not result in (a) such Lender's Revolving Credit Exposure exceeding its Commitment or (b) the sum of the total Revolving Credit Exposures plus the aggregate principal amount of the outstanding Competitive Loans exceeding the total Commitments. Within the foregoing limits, and subject to the terms and conditions set forth herein, any Borrower may borrow, prepay and reborrow Revolving Loans. 21 SECTION 2.02. Loans and Borrowings. (a) Each Revolving Loan shall be --------------------- made as part of a Borrowing consisting of Revolving Loans made by the Lenders ratably in accordance with their respective Commitments. Each Competitive Loan shall be made in accordance with the procedures set forth in Section 2.04. The failure of any Lender to make any Loan required to be made by it shall not relieve any other Lender of its obligations hereunder; provided that the -------- Commitments and Competitive Bids of the Lenders are several and no Lender shall be responsible for any other Lender's failure to make Loans as required hereunder. (b) Subject to Section 2.12, (i) each Revolving Borrowing denominated in a Foreign Currency shall be comprised entirely of Eurocurrency Loans, (ii) each Revolving Borrowing denominated in Dollars shall be comprised entirely of ABR Loans or Eurocurrency Loans as the applicable Borrower may request in accordance herewith, and (iii) each Competitive Borrowing shall be comprised entirely of Eurocurrency Loans or Fixed Rate Loans as the applicable Borrower may request in accordance herewith. Each Lender at its option may make any Eurocurrency Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall not -------- affect the obligation of any Borrower to repay such Loan in accordance with the terms of this Agreement. (c) At the commencement of each Interest Period for any Revolving Borrowing, such Revolving Borrowing shall be in an aggregate amount that is at least equal to the Borrowing Minimum and an integral multiple of the Borrowing Multiple; provided that an ABR Revolving Borrowing may be in an aggregate amount -------- that is equal to the entire unused balance of the total Commitments. Each Competitive Borrowing shall be in an aggregate amount that is an integral multiple of $5,000,000 and not less than $10,000,000. Borrowings of more than one Type and Class may be outstanding at the same time; provided that there -------- shall not at any time be more than a total of 20 Eurocurrency Revolving Borrowings outstanding. (d) Notwithstanding any other provision of this Agreement, no Borrower shall be entitled to request, or to elect to convert or continue, any Borrowing if the Interest Period requested with respect thereto would end after the Maturity Date. SECTION 2.03. Requests for Revolving Borrowings. To request a --------------------------------- Borrowing, the applicable Borrower, or the Company on behalf of the applicable Borrower, shall notify the Applicable Agent of such request by telephone (a) in the case of a Eurocurrency Borrowing, not later than 11:00 a.m., Local Time, three Business Days before the date of the proposed Borrowing or (b) in the case of an ABR Borrowing, not later than 10:00 a.m., New York City time, on the Business Day of the proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Applicable Agent of a written 22 Borrowing Request in a form approved by the Applicable Agent and signed by the applicable Borrower, or by the Company on behalf of the applicable Borrower. Each such telephonic and written Borrowing Request shall specify the following information in compliance with Section 2.02: (i) the Borrower requesting such Borrowing (or on whose behalf the Company is requesting such Borrowing); (ii) the currency and aggregate principal amount of the requested Borrowing; (iii) the date of the requested Borrowing, which shall be a Business Day; (iv) whether the requested Borrowing is to be an ABR Borrowing or a Eurocurrency Borrowing; (v) in the case of a Eurocurrency Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term "Interest Period"; and (vi) the location and number of the Borrower's account to which funds are to be disbursed, which shall comply with the requirements of Section 2.05. If no currency is specified with respect to any requested Eurocurrency Revolving Borrowing, then the Borrower shall be deemed to have selected Dollars. If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be (i) in the case of a Borrowing denominated in Dollars, an ABR Borrowing, and (ii) in the case of a Borrowing denominated in a Foreign Currency, a Eurocurrency Borrowing. If no Interest Period is specified with respect to any requested Eurocurrency Revolving Borrowing, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. Promptly following receipt of a Borrowing Request in accordance with this Section, the Applicable Agent shall advise each Lender of the details thereof and of the amount of such Lender's Loan to be made as part of the requested Borrowing. SECTION 2.04. Competitive Bid Procedure. (a) Subject to the terms ------------------------- and conditions set forth herein, from time to time during the Availability Period any Borrower may request Competitive Bids and may (but shall not have any obligation to) accept Competitive Bids and borrow Competitive Loans, in each case denominated in Dollars; provided that after giving effect to any Borrowing -------- of Competitive Loans the sum of the total Revolving Credit Exposures plus the aggregate principal amount of the outstanding Competitive Loans shall not exceed the total Commitments. To request Competitive Bids, the Company or the applicable Borrowing Subsidiary shall notify the Administrative Agent of such request by telephone, in the case of a Eurocurrency 23 Borrowing, not later than 11:00 a.m., New York City time, four Business Days before the date of the proposed Borrowing and, in the case of a Fixed Rate Borrowing, not later than 10:00 a.m., New York City time, one Business Day before the date of the proposed Borrowing; provided that the Borrowers may -------- submit up to (but not more than) three Competitive Bid Requests on the same day. Each such telephonic Competitive Bid Request shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Competitive Bid Request in a form approved by the Administrative Agent and signed by the relevant Borrower. Each such telephonic and written Competitive Bid Request shall specify the following information in compliance with Section 2.02: (i) the Borrower requesting such Borrowing (or on whose behalf the Company is requesting such Borrowing); (ii) the aggregate principal amount of the requested Borrowing; (iii) the date of the requested Borrowing, which shall be a Business Day; (iv) whether such Borrowing is to be a Eurocurrency Borrowing or a Fixed Rate Borrowing; (v) the Interest Period to be applicable to such Borrowing, which shall be a period contemplated by the definition of the term "Interest Period"; and (vi) the location and number of the Borrower's account to which funds are to be disbursed, which shall comply with the requirements of Section 2.05. Promptly following receipt of a Competitive Bid Request in accordance with this Section, the Administrative Agent shall notify the Lenders of the details thereof by telecopy, inviting the Lenders to submit Competitive Bids. (b) Each Lender may (but shall not have any obligation to) make one or more Competitive Bids to any Borrower in response to a Competitive Bid Request. Each Competitive Bid by a Lender must be in a form approved by the Administrative Agent and must be received by the Administrative Agent by telecopy, in the case of a Eurocurrency Competitive Borrowing, not later than 9:30 a.m., New York City time, three Business Days before the proposed date of such Competitive Borrowing, and in the case of a Fixed Rate Borrowing, not later than 9:30 a.m., New York City time, on the proposed date of such Competitive Borrowing. Competitive Bids that do not conform substantially to the form approved by the Administrative Agent may be rejected by the Administrative Agent, and the Administrative Agent shall notify the applicable Lender as promptly as practicable. Each Competitive Bid shall specify (i) the principal amount (which shall be a minimum of $5,000,000 and an integral multiple of $1,000,000 and which may equal the entire principal amount of the Competitive Borrowing requested by 24 the relevant Borrower) of the Competitive Loan or Loans that the Lender is willing to make, (ii) the Competitive Bid Rate or Rates at which the Lender is prepared to make such Loan or Loans (expressed as a percentage rate per annum in the form of a decimal to no more than four decimal places) and (iii) the Interest Period applicable to each such Loan and the last day thereof. (c) The Administrative Agent shall promptly notify the Company by telecopy of the Competitive Bid Rate and the principal amount specified in each Competitive Bid and the identity of the Lender that shall have made such Competitive Bid. (d) Subject only to the provisions of this paragraph, the Borrower may accept or reject any Competitive Bid. The Borrower shall notify the Administrative Agent by telephone, confirmed by telecopy in a form approved by the Administrative Agent, whether and to what extent it has decided to accept or reject each Competitive Bid, in the case of a Eurocurrency Competitive Borrowing, not later than 10:30 a.m., New York City time, three Business Days before the date of the proposed Competitive Borrowing, and in the case of a Fixed Rate Borrowing, not later than 10:30 a.m., New York City time, on the date of the proposed Competitive Borrowing; provided that (i) the failure of the -------- Borrower to give such notice shall be deemed to be a rejection of each Competitive Bid, (ii) the Borrower shall not accept a Competitive Bid made at a particular Competitive Bid Rate if the relevant Borrower rejects a Competitive Bid made at a lower Competitive Bid Rate, (iii) the aggregate amount of the Competitive Bids accepted by the Borrower shall not exceed the aggregate amount of the requested Competitive Borrowing specified in the related Competitive Bid Request, (iv) to the extent necessary to comply with clause (iii) above, the Borrower may accept Competitive Bids at the same Competitive Bid Rate in part, which acceptance, in the case of multiple Competitive Bids at such Competitive Bid Rate, shall be made pro rata in accordance with the amount of each such Competitive Bid, and (v) except pursuant to clause (iv) above, no Competitive Bid shall be accepted for a Competitive Loan unless the amount of such Competitive Loan is an integral multiple of $5,000,000; provided further that if ---------------- a Competitive Loan must be in an amount less than $5,000,000 because of the provisions of clause (iv) above, such Competitive Loan may have a minimum amount of $1,000,000 and in calculating the pro rata allocation of acceptances of portions of multiple Competitive Bids at a particular Competitive Bid Rate pursuant to clause (iv) the amounts shall be rounded to integral multiples of $1,000,000 in a manner determined by the Borrower. A notice given by a Borrower pursuant to this paragraph shall be irrevocable. (e) The Administrative Agent shall promptly notify each bidding Lender by telecopy whether or not its Competitive Bid has been accepted (and, if so, the amount and Competitive Bid Rate so accepted), and each successful bidder will thereupon become bound, subject to the terms and conditions hereof, to make the Competitive Loan in respect of which its Competitive Bid has been accepted. 25 (f) If the Administrative Agent shall elect to submit a Competitive Bid in its capacity as a Lender, it shall submit such Competitive Bid directly to the Borrower at least one quarter of an hour earlier than the time by which the other Lenders are required to submit their Competitive Bids to the Administrative Agent pursuant to paragraph (b) of this Section. SECTION 2.05. Funding of Borrowings. (a) Each Lender shall make each ---------------------- Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds by 12:00 noon, Local Time, to the account of the Applicable Agent most recently designated by it for such purpose by notice to the Lenders. The Applicable Agent will make such Loans available to the Borrower by promptly crediting the amounts so received, in like funds, to an account of the Borrower maintained by the Applicable Agent (i) in New York City, in the case of Loans denominated in Dollars, or (ii) in London, in the case of Foreign Currency Loans, and designated by such Borrower in the applicable Borrowing Request or Competitive Bid Request. (b) Unless the Applicable Agent shall have received notice from a Lender prior to the proposed date of any Borrowing that such Lender will not make available to the Applicable Agent such Lender's share of such Borrowing, the Applicable Agent may assume that such Lender has made such share available on such date in accordance with paragraph (a) of this Section and may, in reliance upon such assumption, make available to the relevant Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Applicable Agent, then the applicable Lender and such Borrower severally agree to pay to the Applicable Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to such Borrower to but excluding the date of payment to the Applicable Agent, at (x) the Federal Funds Effective Rate (in the case of a Borrowing in Dollars) and (y) the rate reasonably determined by the Applicable Agent to be the cost to it of funding such amount (in the case of a Borrowing in a Foreign Currency). If such Lender pays such amount to the Applicable Agent, then such amount shall constitute such Lender's Loan included in such Borrowing. SECTION 2.06. Interest Elections. (a) Each Revolving Borrowing ------------------- initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Eurocurrency Revolving Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, the relevant Borrower may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the case of a Eurocurrency Revolving Borrowing, may elect Interest Periods therefor, all as provided in this Section. A Borrower may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans 26 comprising each such portion shall be considered a separate Borrowing. This Section shall not apply to Competitive Borrowings, which may not be converted or continued. (b) To make an election pursuant to this Section, the Company or the Borrowing Subsidiary (or the Company on its behalf) shall notify the Applicable Agent of such election by telephone by the time that a Borrowing Request would be required under Section 2.03 if such Borrower were requesting a Revolving Borrowing of the Type and currency resulting from such election to be made on the effective date of such election. Each such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Applicable Agent of a written Interest Election Request in a form approved by the Applicable Agent and signed by the relevant Borrower, or by the Company on its behalf. (c) Each telephonic and written Interest Election Request shall specify the following information in compliance with Section 2.02: (i) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing); (ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day; (iii) whether the resulting Borrowing is to be an ABR Borrowing or a Eurocurrency Borrowing; and (iv) if the resulting Borrowing is a Eurocurrency Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term "Interest Period". If any such Interest Election Request requests a Eurocurrency Borrowing but does not specify an Interest Period, then the relevant Borrower shall be deemed to have selected an Interest Period of one month's duration. (d) Promptly following receipt of an Interest Election Request, the Applicable Agent shall advise each Lender of the details thereof and of such Lender's portion of each resulting Borrowing. (e) If the relevant Borrower fails to deliver a timely Interest Election Request with respect to a Eurocurrency Revolving Borrowing prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided 27 herein, at the end of such Interest Period such Borrowing shall be converted to an ABR Borrowing (unless such Borrowing is denominated in a Foreign Currency, in which case such Borrowing shall become due and payable on the last day of such Interest Period). Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Applicable Agent, at the request of the Required Lenders, so notifies the Company, then, so long as an Event of Default is continuing (i) no outstanding Revolving Borrowing denominated in Dollars may be converted to or continued as a Eurocurrency Borrowing and (ii) unless repaid, each Eurocurrency Revolving Borrowing denominated in Dollars shall be converted to an ABR Borrowing at the end of the Interest Period applicable thereto. SECTION 2.07. Termination and Reduction of Commitments. (a) Unless ----------------------------------------- previously terminated, the Commitments shall terminate on the Maturity Date. (b) The Company may at any time terminate, or from time to time reduce, the Commitments; provided that (i) each reduction of the Commitments -------- shall be in an amount that is an integral multiple of $10,000,000 and (ii) the Company shall not terminate or reduce the Commitments if, after giving effect to any concurrent prepayment of the Loans in accordance with Section 2.09, the sum of the Revolving Credit Exposures plus the aggregate principal amount of outstanding Competitive Loans would exceed the total Commitments. (c) The Company shall notify the Administrative Agent of any election to terminate or reduce the Commitments under paragraph (b) of this Section at least one Business Day prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of any notice, the Administrative Agent shall advise the London Agent and the Lenders of the contents thereof. Each notice delivered by the Company pursuant to this Section shall be irrevocable; provided that a -------- notice of termination of the Commitments delivered by the Company may state that such notice is conditioned upon the effectiveness of other credit facilities, in which case such notice may be revoked by the Company (by notice to the Administrative Agent on or prior to the specified effective date) if such condition is not satisfied. Any termination or reduction of the Commitments shall be permanent. Each reduction of the Commitments shall be made ratably among the Lenders in accordance with their respective Commitments. SECTION 2.08. Repayment of Loans; Evidence of Debt. (a) Each ------------------------------------ Borrower hereby unconditionally promises to pay (i) to the Applicable Agent for the account of each Lender the then unpaid principal amount of each Revolving Loan on the Maturity Date and (ii) to the Administrative Agent for the account of each Lender the then unpaid principal amount of each Competitive Loan on the last day of the Interest Period applicable to such Loan. 28 (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of each Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. (c) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Class and Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from each Borrower to each Lender hereunder and (iii) the amount of any sum received by the Agents hereunder for the account of the Lenders and each Lender's share thereof. (d) The entries made in the accounts maintained pursuant to paragraph (b) or (c) of this Section shall, absent manifest error, be prima facie evidence ----- ----- of the existence and amounts of the obligations recorded therein; provided that -------- the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of any Borrower to repay the Loans in accordance with the terms of this Agreement. (e) Any Lender may request that Loans made by it be evidenced by a promissory note. In such event, each Borrower shall prepare, execute and deliver to such Lender a promissory note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in a form approved by the Administrative Agent. Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 10.04) be represented by one or more promissory notes in such form payable to the order of the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns). SECTION 2.09. Prepayment of Loans. (a) Any Borrower shall have the -------------------- right at any time and from time to time to prepay any Borrowing of such Borrower in whole or in part, subject to prior notice in accordance with paragraph (c) of this Section; provided that a Borrower shall not have the right to prepay any -------- Competitive Loan without the prior consent of the Lender thereof. (b) In the event and on each occasion that the sum of the aggregate Revolving Credit Exposures and the aggregate outstanding principal amount of the Competitive Loans exceeds 105% of the total Revolving Commitments, the Borrowers shall promptly prepay Revolving Borrowings in an aggregate amount equal to such excess. The Administrative Agent shall promptly notify the Company in the event it determines that any prepayment is required under this paragraph. 29 (c) The Company shall notify the Applicable Agent by telephone (confirmed by telecopy) of any prepayment hereunder not later than 11:00 a.m., Local Time, one Business Day before the date of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date and the principal amount of each Borrowing or portion thereof to be prepaid; provided that, if a -------- notice of prepayment is given in connection with a conditional notice of termination of the Commitments as contemplated by Section 2.07, then such notice of prepayment may be revoked if such notice of termination is revoked in accordance with Section 2.07. Promptly following receipt of any such notice relating to a Revolving Borrowing, the Applicable Agent shall advise the Lenders of the contents thereof. Each partial prepayment of any Revolving Borrowing shall be in an amount that would be permitted in the case of an advance of a Revolving Borrowing of the same Type as provided in Section 2.02. Each prepayment of a Revolving Borrowing shall be applied ratably to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the extent required by Section 2.11. SECTION 2.10. Fees. (a) The Company agrees to pay to the ----- Administrative Agent for the account of each Lender a facility fee, which shall accrue at the Applicable Rate on the daily amount of the Commitment of such Lender (whether used or unused) during the period from and including the date hereof to but excluding the date on which such Commitment terminates; provided -------- that, if such Lender continues to have any Revolving Credit Exposure after its Commitment terminates, then such facility fee shall continue to accrue on the daily amount of such Lender's Revolving Credit Exposure from and including the date on which its Commitment terminates to but excluding the date on which such Lender ceases to have any Revolving Credit Exposure. Accrued facility fees shall be payable in arrears on the last day of March, June, September and December of each year and on the date on which the Commitments terminate, commencing on the first such date to occur after the date hereof; provided that any facility fees -------- accruing after the date on which the Commitments terminate shall be payable on demand. All facility fees shall be computed on the basis of a year of 365 days (or 366 days in the case of a leap year) and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). (b) For any day on which the sum of the total Revolving Credit Exposure plus the aggregate principal amount of the outstanding Competitive Loans shall be greater than 33-1/3% of the total Commitments, the Borrower shall pay to the Administrative Agent for the account of each Lender a utilization fee which shall accrue at the Applicable Rate on the aggregate amount of such Lender's outstanding Loans on such day. The accrued utilization fees, if any, shall be payable in arrears on the last day of each March, June, September and December, on any date prior to the Maturity Date on which the Commitments terminate and on the Maturity Date. All utilization fees shall be computed on the basis of a year of 365 days (or 366 days in the case of a leap year) and 30 shall be payable for the actual number of days elapsed (including the first day but excluding the last day). (c) The Company agrees to pay to the Administrative Agent, for its own account, fees payable in the amounts and at the times separately agreed upon between the Company and the Administrative Agent. (d) All fees payable hereunder shall be paid on the dates due, in immediately available funds, to the Administrative Agent for distribution, in the case of facility fees and utilization fees, to the Lenders. Fees paid shall not be refundable absent manifest error in payment or computation. SECTION 2.11. Interest. (a) The Loans comprising each ABR Borrowing --------- shall bear interest at the Alternate Base Rate. (b) The Loans comprising each Eurocurrency Borrowing shall bear interest (i) in the case of a Eurocurrency Revolving Loan, at the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Rate, or (ii) in the case of a Eurocurrency Competitive Loan, at the LIBO Rate for the Interest Period in effect for such Borrowing plus (or minus, as applicable) the Margin applicable to such Loan. (c) Each Fixed Rate Loan shall bear interest at the Fixed Rate applicable to such Loan. (d) Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or other amount payable by any Borrower hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bear interest, after as well as before judgment, at a rate per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the rate otherwise applicable to such Loan as provided in the preceding paragraphs of this Section or (ii) in the case of any other amount, 2% plus the rate applicable to ABR Loans as provided in paragraph (a) of this Section. (e) Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan and, in the case of Revolving Loans, upon termination of the Commitments; provided that (i) interest accrued pursuant to -------- paragraph (d) of this Section shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan (other than a prepayment of an ABR Revolving Loan prior to the end of the Availability Period), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (iii) in the event of any conversion of any Eurocurrency Revolving Loan prior to the end of the current Interest 31 Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion. (f) All interest hereunder shall be computed on the basis of a year of 360 days, except that (i) interest on Borrowings denominated in Sterling and (ii) interest computed by reference to the Alternate Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable Alternate Base Rate, Adjusted LIBO Rate or LIBO Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error. SECTION 2.12. Alternate Rate of Interest. If prior to the --------------------------- commencement of any Interest Period for a Eurocurrency Borrowing denominated in any currency: (a) the Applicable Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such Interest Period; or (b) the Applicable Agent is advised by the Required Lenders (or, in the case of a Eurocurrency Competitive Loan, the Lender that is required to make such Loan) that the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such Interest Period will not adequately and fairly reflect the cost to such Lenders (or Lender) of making or maintaining their Loans (or its Loan) included in such Borrowing for such Interest Period; then the Applicable Agent shall give notice thereof to the Company and the Lenders by telephone or telecopy as promptly as practicable thereafter and, until the Applicable Agent notifies the Company and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Revolving Borrowing denominated in such currency to, or continuation of any Revolving Borrowing denominated in such currency as, a Eurocurrency Borrowing shall be ineffective, and any Eurocurrency Borrowing denominated in such currency that is requested to be continued (A) if such currency is the Dollar, shall be converted to an ABR Borrowing on the last day of the Interest Period applicable thereto and (B) if such currency is a Foreign Currency, shall be repaid on the last day of the Interest Period applicable thereto, (ii) any Borrowing Request for a Eurocurrency Revolving Borrowing denominated in such currency (A) if such currency is the Dollar, shall be deemed a request for an ABR Borrowing and (B) if such currency is a Foreign Currency, shall be ineffective, and (iii) any request by a Borrower for a Eurocurrency Competitive Borrowing shall be ineffective; provided that if the circumstances giving rise to such -------- 32 notice do not affect all the Lenders, then requests by a Borrower for Eurocurrency Competitive Borrowings may be made to Lenders that are not affected thereby. SECTION 2.13. Increased Costs. (a) If any Change in Law shall: ---------------- (i) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender (except any such reserve requirement reflected in the Adjusted LIBO Rate); or (ii) impose on any Lender or the London interbank market any other condition affecting this Agreement or Eurocurrency Loans or Fixed Rate Loans made by such Lender; and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurocurrency Loan or Fixed Rate Loan (or of maintaining its obligation to make any such Loan) or to reduce the amount of any sum received or receivable by such Lender hereunder (whether of principal, interest or otherwise), then the Company will pay to such Lender such additional amount or amounts as will compensate such Lender for such additional costs incurred or reduction suffered. (b) If any Lender determines that any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on such Lender's capital or on the capital of such Lender's holding company, if any, as a consequence of this Agreement or the Loans made by, such Lender, to a level below that which such Lender or such Lender's holding company could have achieved but for such Change in Law (taking into consideration such Lender's policies and the policies of such Lender's holding company with respect to capital adequacy), then from time to time the Company will pay to such Lender, such additional amount or amounts as will compensate such Lender or such Lender's holding company for any such reduction suffered. (c) A certificate of a Lender setting forth the amount or amounts necessary to compensate such Lender or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section shall be delivered to the Company and shall be conclusive absent manifest error. The Company shall pay such Lender, as the case may be, the amount shown as due on any such certificate within 15 days after receipt thereof. (d) Failure or delay on the part of any Lender to demand compensation pursuant to this Section shall not constitute a waiver of such Lender's right to demand such compensation; provided that the Company shall not be required to -------- compensate a Lender pursuant to this Section for any increased costs or reductions incurred more than 45 days prior to the date that such Lender notifies the Company of the Change in Law giving rise to such increased costs or reductions and of such Lender's intention to claim 33 compensation therefor; provided further that, if the Change in Law giving rise -------- ------- to such increased costs or reductions is retroactive, then the 45-day period referred to above shall be extended to include the period of retroactive effect thereof. (e) Notwithstanding the foregoing provisions of this Section, a Lender shall not be entitled to compensation pursuant to this Section in respect of any Competitive Loan if the Change in Law that would otherwise entitle it to such compensation shall have been publicly announced prior to submission of the Competitive Bid pursuant to which such Loan was made. SECTION 2.14. Break Funding Payments. In the event of (a) the ---------------------- payment of any principal of any Eurocurrency Loan or Fixed Rate Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of any Eurocurrency Loan other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepay any Revolving Loan on the date specified in any notice delivered pursuant hereto, (d) the failure to borrow any Competitive Loan after accepting the Competitive Bid to make such Loan, or (e) the assignment of any Eurocurrency Loan or Fixed Rate Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Company pursuant to Section 2.17, then, in any such event, the Company shall compensate each Lender for the loss, cost and expense attributable to such event. In the case of a Eurocurrency Loan, such loss, cost or expense to any Lender shall be deemed to include an amount determined by such Lender to be the excess, if any, of (i) the amount of interest which would have accrued on the principal amount of such Loan had such event not occurred, at the Adjusted LIBO Rate that would have been applicable to such Loan, for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such Loan), over (ii) the amount of interest which would accrue on such principal amount for such period at the interest rate which such Lender would bid were it to bid, at the commencement of such period, for deposits in the applicable currency of a comparable amount and period from other banks in the eurocurrency market. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section shall be delivered to the Company and shall be conclusive absent manifest error. The Company shall pay such Lender the amount shown as due on any such certificate within 15 days after receipt thereof. SECTION 2.15. Taxes. (a) Each payment by a Borrower to or for the ----- account of a Lender hereunder or under any Loan Document shall be made without deduction for any Taxes or Other Taxes; provided that, if a Borrower shall be required by law to deduct any Taxes or Other Taxes from such payment, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) such Lender receives an amount 34 equal to the sum it would have received had no such deduction been made, (ii) such Borrower shall make such deduction, (iii) such Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law and (iv) such Borrower shall promptly furnish to the Administrative Agent, at its address specified in or pursuant to Section 10.01, the original or a certified copy of a receipt evidencing payment thereof or other reasonably satisfactory evidence thereof. (b) The relevant Borrower shall indemnify each Lender for the full amount of any Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed or asserted (whether or not correctly) by any jurisdiction on amounts payable under this Section) paid by such Lender with respect to amounts paid by such Borrower pursuant to this Agreement or any Loan Document, and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. This indemnification shall be paid within 15 days after the later of the date such Lender makes demand therefor and the date such payment is made. (c) Each Lender organized under the laws of a jurisdiction outside the United States, before it signs and delivers this Agreement in the case of each Lender listed on the signature pages hereof and before it becomes a Lender in the case of each other Lender, and from time to time thereafter if requested in writing by the Company (but only so long as such Lender remains lawfully able to do so), shall provide the Company and the Administrative Agent with Internal Revenue Service form W-8BEN or W-8ECI in duplicate, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Lender is entitled to benefits under an income tax treaty to which the United States is a party which exempts such Lender from United States withholding tax or reduces the rate of withholding tax on payments of interest for the account of such Lender or certifying that the income receivable by it pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States. (d) For any period with respect to which a Lender has failed to provide the Company or the Administrative Agent with the appropriate form as required by paragraph (c) above (unless such failure is due to a change in treaty, law or regulation occurring after the date on which such form originally was required to be provided or results from the Company's failure to make a timely written request pursuant to paragraph (c) above), such Lender shall not be entitled to indemnification under paragraphs (a) or (b) above with respect to Taxes imposed by the United States; provided that if a Lender, which is -------- otherwise exempt from or subject to a reduced rate of withholding tax, becomes subject to Taxes because of its failure to deliver a form required hereunder, the Borrowers shall take such steps as such Lender shall reasonably request to assist such Lender to recover such Taxes. 35 SECTION 2.16. Payments Generally; Pro Rata Treatment; Sharing of Set- ------------------------------------------------------ offs. (a) Each Borrower shall make each payment required to be made by it - ----- hereunder or under any other Loan Document (whether of principal, interest, fees, or of amounts payable under Section 2.13, 2.14 or 2.15, or otherwise) prior to 2:00 p.m., Local Time, on the date when due, in immediately available funds, without set-off or counterclaim. All such payments shall be made to the Applicable Agent to such account as it shall from time to time specify at its offices (i) in the case of any amount denominated in Dollars, at 270 Park Avenue, New York, New York, (ii) in the case of any amount denominated in a Foreign Currency, at Chase Manhattan International Limited, Trinity Tower, 9 Thomas More Street, London, England E19YT, or, in any such case, at such other address as the Applicable Agent shall from time to time specify in a notice delivered to the Company; provided that payments pursuant to Section 2.13, -------- Section 2.14, Section 2.15 and Section 10.03 shall be made directly to the Persons entitled thereto. The Applicable Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments hereunder of principal or interest in respect of any Loan shall be made in the currency of such Loan; all other payments hereunder and under each other Loan Document shall be made in Dollars. Any payment required to be made by an Agent hereunder shall be deemed to have been made by the time required if such Agent shall, at or before such time, have taken the necessary steps to make such payment in accordance with the regulations or operating procedures of the clearing or settlement system used by such Agent to make such payment. Any amount payable by any Agent to one or more Lenders in the national currency of a member state of the European Union that has adopted the Euro as its lawful currency shall be paid in Euro. (b) If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, interest and fees then due hereunder, such funds shall be applied (i) first, towards payment of interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, towards payment of principal then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal then due to such parties. (c) If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Revolving Loans resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Revolving Loans and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Revolving Loans of other Lenders to the extent necessary so that the benefit of all such payments shall be 36 shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Revolving Loans; provided -------- that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by any Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans to any assignee or participant, other than to the Company or any Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). Each Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against such Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation. (d) Unless the Applicable Agent shall have received notice from the Company prior to the date on which any payment is due to the Applicable Agent for the account of the Lenders hereunder that the relevant Borrower will not make such payment, the Applicable Agent may assume that such Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders, the amount due. In such event, if such Borrower has not in fact made such payment, then each of the Lenders severally agrees to repay to the Applicable Agent forthwith on demand the amount so distributed to such Lender with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Applicable Agent, at the greater of the Federal Funds Effective Rate and a rate determined by the Applicable Agent in accordance with banking industry rules on interbank compensation. (e) If any Lender shall fail to make any payment required to be made by it pursuant to Section 2.05(b) or 2.16(d), then the Administrative Agent or the London Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent or the London Agent for the account of such Lender to satisfy such Lender's obligations under such Sections until all such unsatisfied obligations are fully paid. SECTION 2.17. Mitigation Obligations; Replacement of Lenders. (a) ---------------------------------------------- If any Lender requests compensation under Section 2.13, or if any Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.15, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.13 or 2.15, as the case may be, in the future 37 and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. (b) If any Lender requests compensation under Section 2.13, or if any Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.15, or if any Lender defaults in its obligation to fund Loans hereunder, then the Company may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 10.04), all its interests, rights and obligations under the Loan Documents (other than any outstanding Competitive Loans held by it) to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that (i) the Company -------- shall have received the prior written consent of the Administrative Agent, which consent shall not unreasonably be withheld, (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans (other than Competitive Loans), accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Company (in the case of all other amounts) and (iii) in the case of any such assignment resulting from a claim for compensation under Section 2.13 or payments required to be made pursuant to Section 2.15, such assignment will result in a reduction in such compensation or payments. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Company to require such assignment and delegation cease to apply. SECTION 2.18. Borrowing Subsidiaries. On or after the Effective ---------------------- Date, the Company may designate any Subsidiary of the Company as a Borrowing Subsidiary by delivery to the Administrative Agent of a Borrowing Subsidiary Agreement executed by such Subsidiary and the Company, and upon such delivery such Subsidiary shall for all purposes of this Agreement be a Borrowing Subsidiary and a party to this Agreement until the Company shall have executed and delivered to the Administrative Agent a Borrowing Subsidiary Termination with respect to such Subsidiary, whereupon such Subsidiary shall cease to be a Borrowing Subsidiary and a party to this Agreement. Notwithstanding the preceding sentence, no Borrowing Subsidiary Termination will become effective as to any Borrowing Subsidiary at a time when any principal of or interest on any Loan to such Borrowing Subsidiary shall be outstanding hereunder, provided that -------- such Borrowing Subsidiary Termination shall be effective to terminate such Borrowing Subsidiary's right to make further Borrowings under this Agreement. Promptly following receipt of any Borrowing Subsidiary Agreement, the Administrative Agent shall send a copy thereof to each Lender. SECTION 2.19. Additional Reserve Costs. (a) If and so long as any ------------------------ Lender is required to make special deposits with the Bank of England, to maintain reserve 38 asset ratios or to pay fees, in each case in respect of such Lender's Eurocurrency Loans in any Foreign Currency, such Lender may require the relevant Borrower to pay, contemporaneously with each payment of interest on each of such Loans, additional interest on such Loan at a rate per annum equal to the Mandatory Costs Rate calculated in accordance with the formula and in the manner set forth in Exhibit E hereto. (b) If and so long as any Lender is required to comply with reserve assets, liquidity, cash margin or other requirements of any monetary or other authority (including any such requirement imposed by the European Central Bank or the European System of Central Banks, but excluding requirements reflected in the Statutory Reserve Rate or the Mandatory Costs Rate) in respect of any of such Lender's Eurocurrency Loans in any Foreign Currency, such Lender may require the relevant Borrower to pay, contemporaneously with each payment of interest on each of such Lender's Eurocurrency Loans subject to such requirements, additional interest on such Loan at a rate per annum specified by such Lender to be the cost to such Lender of complying with such requirements in relation to such Loan. (c) Any additional interest owed pursuant to paragraph (a) or (b) above shall be determined by the relevant Lender, which determination shall be conclusive absent manifest error, and notified to the relevant Borrower (with a copy to the Administrative Agent) at least five Business Days before each date on which interest is payable for the relevant Loan, and such additional interest so notified to the relevant Borrower by such Lender shall be payable to the Administrative Agent for the account of such Lender on each date on which interest is payable for such Loan. SECTION 2.20. Foreign Subsidiary Costs. (a) If the cost to any ------------------------ Lender of making or maintaining any Loan to a Borrowing Subsidiary is increased (or the amount of any sum received or receivable by any Lender (or its applicable lending office) is reduced) by an amount deemed in good faith by such Lender to be material, by reason of the fact that such Borrowing Subsidiary is incorporated in, or conducts business in, a jurisdiction outside the United States, such Borrowing Subsidiary shall indemnify such Lender for such increased cost or reduction within 15 days after demand by such Lender (with a copy to the Administrative Agent). A certificate of such Lender claiming compensation under this paragraph and setting forth the additional amount or amounts to be paid to it hereunder (and the basis for the calculation of such amount or amounts) shall be conclusive in the absence of manifest error. (b) Each Lender will promptly notify the Company and the Administrative Agent of any event of which it has knowledge that will entitle such Lender to additional interest or payments pursuant to paragraph (a) above, but in any event within 45 days after such Lender obtains actual knowledge thereof; provided that (i) if any Lender fails to give such notice within 45 -------- days after it obtains actual knowledge of such an event, such Lender shall, with respect to compensation payable pursuant to this Section 2.20 in 39 respect of any costs resulting from such event, only be entitled to payment under this Section 2.20 for costs incurred from and after the date 45 days prior to the date that such Lender does give such notice and (ii) each Lender will designate a different applicable lending office, if, in the judgment of such Lender, such designation will avoid the need for, or reduce the amount of, such compensation and will not be otherwise disadvantageous to such Lender. ARTICLE III Representations and Warranties ------------------------------ The Company represents and warrants to the Lenders that: SECTION 3.01. Organization; Powers. The Company and each Borrowing -------------------- Subsidiary is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite power and authority to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required. SECTION 3.02. Authorization; Enforceability. The Transactions are ----------------------------- within each Borrower's corporate powers and have been duly authorized by all necessary corporate and, if required, stockholder action. This Agreement has been duly executed and delivered by each Borrower and constitutes, and each other Loan Document to which any Borrower is to be a party, when executed and delivered by such Borrower, will constitute, a legal, valid and binding obligation of such Borrower, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. SECTION 3.03. Governmental Approvals; No Conflicts. The Transactions ------------------------------------ require no action by or in respect of, or filing with, any governmental body, agency or official (other than (i) Exchange Act reporting requirements and (ii) actions which have been taken, and filings which have been made, and are in full force and effect) and do not and will not contravene, or constitute a default under, any provision of applicable law or regulation or of the Amended Articles of Incorporation or Regulations (or comparable documents) of the Company or any Borrowing Subsidiary or of any agreement for borrowed money or other material agreement binding upon the Company or any Borrowing Subsidiary. 40 SECTION 3.04. Financial Condition; No Material Adverse Change. (a) ----------------------------------------------- The Company has heretofore furnished to the Lenders its consolidated balance sheet and statements of income, stockholders equity and cash flows (i) as of and for the fiscal year ended December 31, 1998, reported on by Ernst & Young LLP, independent public accountants, and (ii) as of and for the fiscal quarter and the portion of the fiscal year ended September 30, 1999. Such financial statements present fairly, in all material respects, the financial position and results of operations and cash flows of the Company and the consolidated Subsidiaries as of such dates and for such periods in accordance with GAAP, subject to year-end audit adjustments and the absence of footnotes in the case of the statements referred to in clause (ii) above. (b) As of the date of this Agreement, there has been no material adverse change in the business, financial position or results of operations of the Company and the consolidated Subsidiaries, taken as a whole, since December 31, 1998 (other than those changes relating to or arising out of, directly or indirectly, the acquisition of LucasVarity). SECTION 3.05. Litigation and Environmental Matters. (a) As of the ------------------------------------ date of this Agreement, there are no material legal proceedings, other than ordinary routine litigation incidental to the business, to which the Company or any of the consolidated Subsidiaries is a party or to which any of their respective properties is subject that are required to be disclosed in the Company's periodic reports under the Exchange Act and that have not been so disclosed or that involve this Agreement, any other Loan Document or the Transactions. (b) The Company has established accruals for matters that are probable and reasonably estimable as required by FASB Statement No. 5, "Accounting for Contingencies." To the Company's knowledge, any liability that may result from the resolution of known environmental matters in excess of amounts accrued therefor will not have a Material Adverse Effect. SECTION 3.06. Investment and Holding Company Status. Neither the ------------------------------------- Company nor any of the Borrowing Subsidiaries is (a) an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940 or (b) a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935. SECTION 3.07. Taxes. As of the date of this Agreement, the Company ----- and the consolidated Subsidiaries have timely filed or caused to be filed all material Tax returns and reports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except (a) Taxes that are being contested in good faith by appropriate proceedings and for which the Company or such Subsidiary, as applicable, has set aside on its books adequate reserves or (b) to the extent that the failure to do so could not reasonably be expected to result in a Material Adverse Effect. 41 SECTION 3.08. ERISA. As of the date of this Agreement, no ERISA ----- Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect. As of the date of this Agreement, each member of the controlled group of corporations (as defined in Section 414(b) of the Code) which includes the Company has fulfilled its obligations under the minimum funding standards of ERISA and the Code with respect to each defined benefit plan maintained by the Company and the consolidated Subsidiaries. SECTION 3.09. Year 2000. As of the date of this Agreement, there has --------- not occurred, and the Company does not expect that there will occur, any material disruption in the operations or business systems of the Company or the consolidated Subsidiaries, taken as a whole, resulting from the inability of computer systems of the Company and the consolidated Subsidiaries or equipment containing embedded microchips to recognize or properly process dates in or following the year 2000. ARTICLE IV Conditions ---------- SECTION 4.01. Effective Date. The obligations of the Lenders to make -------------- Loans hereunder shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 10.02): (a) The Administrative Agent (or its counsel) shall have received from each party hereto either (i) a counterpart of this Agreement signed on behalf of such party or (ii) written evidence satisfactory to the Administrative Agent (which may include telecopy transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement. (b) The Administrative Agent shall have received the favorable written opinions (addressed to the Administrative Agent and the Lenders and dated the Effective Date) of the General Counsel of the Company, substantially in the form of Exhibit C, and covering such other matters relating to the Borrowers, this Agreement, the other Loan Documents or the Transactions as the Administrative Agent or the Required Lenders shall reasonably request. The Borrowers hereby request such counsel to deliver such opinion. (c) The Administrative Agent shall have received such documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the organization, existence and good standing of each of the Borrowers, 42 the authorization of the Transactions and any other legal matters relating to the Borrowers, this Agreement, the other Loan Documents or the Transactions, all in form and substance satisfactory to the Administrative Agent and its counsel. (d) The Administrative Agent shall have received a certificate, dated the Effective Date and signed by the President, a Vice President or a Financial Officer of the Company, confirming compliance with the conditions set forth in paragraphs (a) and (b) of Section 4.02. (e) The Administrative Agent shall have received all fees and other amounts due and payable on or prior to the Effective Date, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Company hereunder or under any other Loan Document. (f) All loans outstanding under the Existing Credit Agreements shall have been repaid, together with accrued interest and facility fees due thereunder, and the Existing Credit Agreements shall have been terminated. The Administrative Agent shall notify the Company and the Lenders of the Effective Date, and such notice shall be conclusive and binding. Notwithstanding the foregoing, the obligations of the Lenders to make Loans hereunder shall not become effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section 10.02) on or prior to January 25, 2000 (and, in the event such conditions are not so satisfied or waived, the Commitments shall terminate at such time). SECTION 4.02. Each Credit Event. The obligation of each Lender to ------------------ make a Loan on the occasion of any Borrowing is subject to the satisfaction of the following conditions: (a) The representations and warranties of the Borrowers set forth in this Agreement shall be true and correct on and as of the date of such Borrowing (except that, in the case of the representations and warranties set forth in Section 3.04(b), Section 3.05, Section 3.07, Section 3.08 and Section 3.09, such representations and warranties shall be true and correct on and as of the date of this Agreement). (b) At the time of and immediately after giving effect to such Borrowing, no Default shall have occurred and be continuing. Each Borrowing shall be deemed to constitute a representation and warranty by the Borrowers on the date thereof as to the matters specified in paragraphs (a) and (b) of this Section. 43 SECTION 4.03. Initial Credit Event for each Borrowing Subsidiary. --------------------------------------------------- The obligation of each Lender to make Loans to any Borrowing Subsidiary is subject to the satisfaction of the following conditions: (a) The Administrative Agent (or its counsel) shall have received such Borrowing Subsidiary's Borrowing Subsidiary Agreement duly executed by all parties thereto. (b) The Administrative Agent shall have received a favorable written opinion of counsel for such Borrowing Subsidiary reasonably satisfactory to the Administrative Agent, substantially in the form of Exhibit D and covering such other matters relating to such Borrowing Subsidiary or its Borrowing Subsidiary Agreement as the Administrative Agent shall reasonably request. (c) The Administrative Agent shall have received such documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the organization, existence and good standing of such Borrowing Subsidiary, the authorization of the Transactions insofar as they relate to such Borrowing Subsidiary and any other legal matters relating to such Borrowing Subsidiary, its Borrowing Subsidiary Agreement or such Transactions, all in form and substance satisfactory to the Administrative Agent and its counsel. ARTICLE V Affirmative Covenants --------------------- Until the Commitments have expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder shall have been paid in full, the Company covenants and agrees with the Lenders that: SECTION 5.01. Financial Statements and Other Information. The ------------------------------------------- Company will furnish to the Administrative Agent and each Lender: (a) promptly upon the availability thereof and in any event within 120 days after each fiscal year, a copy of the Company's Annual Report to Shareholders and its Annual Report on Form 10-K for the fiscal year then ended, as filed with the Securities and Exchange Commission and which will include an annual audit report of the Company, prepared on a consolidated basis and in accordance with the Company's then current method of accounting, which method must be in accordance with GAAP, duly certified by independent certified public accountants of nationally recognized standing selected by the Company; 44 (b) promptly upon the availability thereof and in any event within 60 days after each fiscal quarter (except the last fiscal quarter) of each fiscal year, a copy of the Company's Quarterly Report on Form 10-Q for the fiscal quarter then ended, as filed with the Securities and Exchange Commission; (c) contemporaneously with the furnishing of a copy of each Annual Report on Form 10-K provided for in paragraph (a) and of each Quarterly Report on Form 10-Q provided for in paragraph (b), a duly completed certificate of a Financial Officer of the Company in the form of Exhibit F (each such certificate called a "Compliance Certificate"), showing ---------------------- compliance with the covenants set forth in Sections 6.07 and 6.08, and certifying that no Default or Event of Default has occurred and is continuing or, if there is any such an event, describing it and the steps, if any, being taken to cure it; (d) within five Business Days after any Financial Officer obtains knowledge of any Default, if such Default is then continuing, a certificate of a Financial Officer setting forth the details thereof and the action which the Company is taking or proposes to take with respect thereto; (e) promptly upon the filing thereof, copies of each Current Report on Form 8-K filed by the Company with the SEC; and (f) from time to time such additional information concerning the Company as the Administrative Agent, at the request of any Lender, may reasonably request. Information required to be delivered pursuant to paragraph (a), (b) or (e) above shall be deemed to have been delivered on the date on which the Company provides notice to the Lenders that such information has been posted on the Company's website on the internet at the website address listed on the signature pages hereof, at sec.gov/edaux/searches. htm or at another website identified in such notice and accessible by the Lenders without charge; provided that (i) such -------- notice may be included in a certificate delivered pursuant to paragraph (c) above and (ii) the Company shall deliver paper copies of the information referred to in paragraph (e) above to any Lender which requests such delivery. SECTION 5.02. Existence; Conduct of Business. The Company will, and ------------------------------- will cause each of the Borrowing Subsidiaries to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges and franchises material to the conduct of its business; provided that the foregoing shall not prohibit -------- any merger, consolidation, liquidation or dissolution permitted under Section 6.04. 45 SECTION 5.03. Use of Proceeds. The Borrowers will use the proceeds ---------------- of the Loans only for general corporate purposes, including commercial paper backup and the financing of acquisitions. No part of the proceeds of any Loan will be used, whether directly or indirectly, for any purpose that entails a violation of any of the Regulations of the Board, including Regulations U and X. ARTICLE VI Negative Covenants ------------------ Until the Commitments have expired or terminated and the principal of and interest on each Loan and all fees payable hereunder have been paid in full, the Company covenants and agrees with the Lenders that: SECTION 6.01. Indebtedness of Subsidiaries. The Company will not ----------------------------- permit the sum of (a) the aggregate outstanding principal amount of Indebtedness of Subsidiaries (other than Permitted Subsidiary Indebtedness) and (b) Specified Company Indebtedness at any time to exceed 15% of Consolidated Net Assets. SECTION 6.02. Mortgages. The Company will not, and will not permit ---------- any Domestic Subsidiary to, directly or indirectly, create or assume any mortgage, encumbrance, lien, pledge, charge, or security interest of any kind (collectively and individually, a "Mortgage") upon or in any of its interests in any Principal Property or upon or in any shares of capital stock or Indebtedness of any Domestic Subsidiary, whether such interest, capital stock or Indebtedness is now owned or hereafter acquired, if such mortgage secures or is intended to secure, directly or indirectly, the payment of any Indebtedness; excluding, however, from the operation of this Section 6.02: (a) Mortgages on any Principal Property acquired, constructed, or improved by the Company or any Domestic Subsidiary after January 1, 2000, which are created or assumed contemporaneously with, or within 120 days after, such acquisition or completion of such construction or improvement to secure or provide for the payment of any part of the purchase price of such Principal Property or the cost of such construction or improvement incurred after January 1, 2000, or, in addition to Mortgages contemplated by clauses (b) and (c) below, Mortgages on any such Principal Property existing at the time or placed thereon at the time of acquisition or leasing thereof by the Company or any Domestic Subsidiary, or conditional sales agreements or other title retention agreements with respect to any Principal Property now owned or leased or hereafter acquired or leased by the Company or a Domestic Subsidiary; 46 (b) Mortgages on property (including shares of capital stock or Indebtedness of a corporation) of a corporation existing at the time such corporation becomes a Domestic Subsidiary or is merged or consolidated with the Company or a Domestic Subsidiary or existing at the time of a sale, lease, or other disposition of the properties of such corporation (or a division thereof) or other Person as an entirety or substantially as an entirety (which includes the sale, lease, or other disposition of all or substantially all the assets thereof) to the Company or a Domestic Subsidiary, provided that no such Mortgage shall extend to any other Principal Property of the Company or any Domestic Subsidiary or to any shares of capital stock or any Indebtedness of any Domestic Subsidiary; (c) Mortgages created by the Company or a Domestic Subsidiary to secure Indebtedness of the Company or a Domestic Subsidiary to the Company or to a wholly owned Subsidiary; (d) Mortgages in favor of the United States of America or any State, territory or possession thereof, or any foreign country or any department, agency, instrumentality, or political subdivision of any of such domestic or foreign jurisdictions to secure partial, progress, advance or other payments pursuant to any contract or statute or to secure any Indebtedness incurred for the purpose of financing all or any part of the purchase price of, or the cost of constructing, the property subject to such Mortgages; (e) Mortgages for the sole purpose of extending, renewing, or replacing (or successively extending, renewing, or replacing) in whole or in part any mortgage existing on January 1, 2000, or referred to in the foregoing clauses (a) to (d) inclusive or of any Indebtedness secured thereby; provided, however, that the principal amount of Indebtedness -------- ------- secured thereby shall not exceed the principal amount of Indebtedness so secured at the time of such extension, renewal, or replacement and that such extension, renewal, or replacement Mortgage shall be limited to all or a part of the property which secured the Mortgage so extended, renewed, or replaced (plus improvements on such property); (f) Mortgages on Margin Stock, if and to the extent that the value of such Margin Stock exceeds 25% of the total assets of the Company and its Subsidiaries subject to this Section; (g) Mortgages under which effective provision is made for all Loans to be secured equally and ratably with any other Indebtedness secured, directly or indirectly, thereby; and (h) Mortgages (other than Mortgages permitted by any of the foregoing clauses) if, at the time of creation or assumption thereof and after giving effect 47 thereto, the aggregate principal amount of (i) the Indebtedness secured by such Mortgages and (ii) the Attributable Indebtedness related to Sale and Leaseback Transactions permitted under clause (b) of Section 6.03 does not exceed 5% of Consolidated Net Assets, determined as of a date not more than 95 days prior to such creation or assumption. SECTION 6.03. Sale and Lease-Back Transactions. (a) The Company will --------------------------------- not, and will not permit any Domestic Subsidiary to, sell, lease or transfer any Principal Property owned by the Company or a Domestic Subsidiary as an entirety, or any substantial portion thereof, to anyone other than a Wholly Owned Domestic Subsidiary (or the Company or a Wholly Owned Domestic Subsidiary in the case of a Domestic Subsidiary) with the intention of taking back a lease of such property (herein referred to as a "Sale and Leaseback Transaction") except a ------------------------------ lease for a period of not more than 36 months by the end of which it is intended that the use of such property by the lessee will be discontinued; provided, that -------- notwithstanding the foregoing, the Company or any Domestic Subsidiary may sell any such property and lease it back if the net proceeds of such sale are at least equal to the fair value (as determined by resolution adopted by the Board of Directors of the Company) of such property, and (i) the Company or such Domestic Subsidiary would be entitled pursuant to paragraphs (a)-(g) of Section 6.03 to create Indebtedness secured by a Mortgage on the property to be leased in an amount equal to the Attributable Debt with respect to such Sale and Leaseback Transaction without equally and ratably securing all the Loans, or (ii) if such sale or transfer does not come within the exception provided by the preceding clause (i), the net proceeds of such sale shall, and in any such case the Company covenants that they will, within 120 days after such sale, be applied (to the greatest extent possible) either to the repayment of the Loans then outstanding when due (whereupon the Commitments shall be reduced, on a pro rata basis, to the extent that such net proceeds are so applied) or to the retirement of Consolidated Funded Debt of the Company ranking at least on a parity with the Loans, or in part to one or more of such alternatives and in part to another. (b) Notwithstanding the provisions of paragraph (a) above, the Company and/or any Domestic Subsidiary may enter into Sale and Leaseback Transactions if, at the time of such entering into, and after giving effect thereto, the aggregate amount of (i) Attributable Indebtedness related to such Sale and Leaseback Transactions and (ii) Indebtedness secured by Mortgages permitted under clause (h) of Section 6.02 does not exceed 5% of Consolidated Net Assets, determined as of a date not more than 95 days prior to such creation or assumption. SECTION 6.04. Fundamental Changes. The Company will not merge into -------------------- or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired), or liquidate or dissolve, except that, if at the time thereof and immediately 48 after giving effect thereto no Default shall have occurred and be continuing (i) any Person may merge into the Company in a transaction in which the Company is the surviving corporation and (ii) the Company may merge into or consolidate with any other Person in a transaction the primary purpose of which is to effect a reincorporation of the Company under the laws of another state. SECTION 6.05. ERISA. The Company will not allow an ERISA Event to ------ occur that, when taken together with all other ERISA Events that have occurred, could reasonably be expected to result in a Material Adverse Effect. SECTION 6.06. Change in Control. The Company will not permit to ------------------ occur any Change in Control. SECTION 6.07. Interest Coverage Ratio. The Company will not permit ------------------------ the ratio of (a) Consolidated EBITDA to (b) Consolidated Interest Expense, in each case for any period of four consecutive fiscal quarters ending after the date hereof, to be less than 3.00 to 1.00. SECTION 6.08. Minimum Consolidated Net Worth. The Company will not ------------------------------- permit Consolidated Net Worth to be less, at any date, than the sum of (i) $1,600,000,000, (ii) 50% of Consolidated Net Income for each completed fiscal quarter of the Company that shall have begun after December 31, 1999 (excluding any fiscal quarter for which Consolidated Net Income is negative), and (iii) 50% of the amount by which Consolidated Net Worth is increased after the date hereof as a result of issuances of equity securities by the Company. ARTICLE VII Events of Default ----------------- If any of the following events ("Events of Default") shall occur: ----------------- (a) default in the payment when due of any principal of any Loan or default in the payment when due of interest on any Loan or fees payable by any Borrower hereunder and continuance of such failure to pay interest or fees for five Business Days after written notice thereof to the Company from the Administrative Agent at the request of the Lender to which such amounts are owed; (b) a default in the payment when due at maturity or on the date of any required prepayment, redemption or repurchase (subject to any applicable grace period) or by acceleration of any Material Indebtedness, or a default in the 49 performance or observance of any obligation or condition with respect to any Material Indebtedness if such default results in the acceleration of the maturity of such Material Indebtedness; provided that, if any such -------- default shall subsequently be remedied, cured, or waived prior to either the termination of the Commitments or the declaration that all Loans are immediately due and payable, in each case pursuant to this Article VII, and as a result the payment of such Material Indebtedness is no longer due, the Event of Default existing hereunder by reason thereof shall likewise be deemed thereupon to be remedied, cured, or waived and no longer in existence, all without any further action by the parties hereto; (c) the Company or any Material Subsidiary generally fails to pay, or admits in writing its inability to pay, debts as they become due; or the Company or any Material Subsidiary applies for, consents to, or acquiesces in the appointment of, a trustee, receiver, or other custodian for the Company or any Material Subsidiary or for a substantial part of the property thereof, or makes a general assignment for the benefit of creditors; or, in the absence of such application, consent or acquiescence, a trustee, or receiver, or other custodian is appointed for the Company or any Material Subsidiary or for a substantial part of the property of the Company or any Material Subsidiary; or any bankruptcy, reorganization, debt arrangement, or other case or proceeding under any bankruptcy or insolvency law, or any dissolution or liquidation proceeding is commenced in respect of the Company or any Material Subsidiary and if such case or proceeding is not commenced by the Company or any Material Subsidiary, it is consented to or acquiesced in by the Company or any Material Subsidiary or remains for 90 consecutive days undismissed or unstayed; or the Company or any Material Subsidiary takes any corporate action to authorize any of the foregoing; (d) failure by the Company to comply with or to perform in any material respect any provision of this Agreement (provided that in the case -------- of the provisions of Article VI, the preceding standard shall be applied without regard to materiality) (which failure does not constitute an Event of Default under any of the preceding subsections of this Article VII) and, in the case of any provision contained in Article V or in Section 6.01, 6.02, 6.03 or 6.05, continuance of such failure for 30 days after written notice thereof to the Company from the Administrative Agent at the request of Required Lenders; (e) any representation or warranty made by the Company in Article III of this Agreement or by any other Borrower in the applicable Borrowing Subsidiary Agreement is breached or is incorrect when made (or deemed made) in any material respect and, with respect to any representation or warranty other than those contained in Sections 3.04(b), 3.05, 3.07, 3.08 and 3.09, the Company shall fail to take corrective actions reasonably satisfactory to the Required Lenders within 30 days after written notice thereof to the Company from the Administrative Agent at the request of the Required Lenders; 50 (f) any final and nonappealable judgment or order from a judicial or administrative body (which order or judgment is fully enforceable against the Company or a Borrowing Subsidiary, as the case may be, in courts of the United States of America or any state thereof) for the payment of money in excess of $100,000,000 (after adjustments to reflect reductions for credits and set-offs asserted in good faith by the Company or such Borrowing Subsidiary shall be rendered against the Company or a Borrowing Subsidiary, shall not have been discharged or vacated and shall have been in effect, in its final and unappealable form, for a period of 30 consecutive days; (g) the Guarantee of the Company set forth in Article IX shall cease at any time to be in full force and effect, or any party hereto (other than a Lender) shall so assert in writing; then, and in every such event (other than an event with respect to any Borrower described in clause (c) of this Article), and at any time thereafter during the continuance of such event, the Administrative Agent, at the request of the Required Lenders, shall, by notice to the Company, take either or both of the following actions, at the same or different times: (i) terminate the Commitments, and thereupon the Commitments shall terminate immediately, and (ii) declare the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Borrowers accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by each Borrower; and in case of any event with respect to any Borrower described in clause (c) of this Article, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and other obligations of the Borrowers accrued hereunder, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by each Borrower. The Administrative Agent shall give notice to the Company (i) under paragraph (a) above promptly upon being requested to do so by the relevant Lender and (ii) under paragraphs (d) and (e) above promptly upon being requested to do so by the Required Lenders and, in each case, after having done so, shall notify all the Lenders thereof. 51 ARTICLE VIII The Agents ---------- In order to expedite the transactions contemplated by this Agreement, Chase is hereby appointed to act as Administrative Agent and CMIL is hereby appointed to act as London Agent, on behalf of the Lenders. Each of the Lenders and each assignee of any such Lender hereby irrevocably authorizes the Agents to take such actions on behalf of such Lender or assignee and to exercise such powers as are delegated to the Agents by the terms of the Loan Documents, together with such actions and powers as are reasonably incidental thereto. With respect to the Loans made by it hereunder, each Agent in its individual capacity and not as Agent shall have the same rights and powers as any other Lender and may exercise the same as though it were not an Agent, and the Agents and their Affiliates in their respective individual capacities may accept deposits from, lend money to and generally engage in any kind of business with the Company or any Subsidiary or other Affiliate thereof as if it were not an Agent. The Agents shall not have any duties or obligations except those expressly set forth in the Loan Documents. Without limiting the generality of the foregoing, (a) no Agent shall be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing, (b) no Agent shall have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated by the Loan Documents that such Agent is required to exercise in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 10.02), and (c) except as expressly set forth in the Loan Documents, no Agent shall have any duty to disclose, and no Agent shall be liable for the failure to disclose, any information relating to the Company or any of its Subsidiaries that is communicated to or obtained by the institution serving as Agent or any of its Affiliates in any capacity. No Agent shall be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 10.02) or in the absence of its own culpable negligence, bad faith or wilful misconduct. No Agent shall be deemed to have knowledge of any Default other than a Default of the types specified in clause (a) and (b) of Article VII unless and until written notice thereof is given to such Agent by a Borrower or a Lender, and the Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with the Loan Documents, (ii) the contents of any certificate, report or other document delivered hereunder or in connection herewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein, (iv) the validity, enforceability, effectiveness or genuineness of the 52 Loan Documents or any other agreement, instrument or document, or (v) the satisfaction of any condition set forth in Article IV or elsewhere herein or elsewhere in any Loan Document, other than to confirm receipt of items expressly required to be delivered to such Agent. Each Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it in good faith to be genuine and to have been signed or sent by the proper Person. Each Agent also may rely upon any statement made to it orally or by telephone and believed by it in good faith to be made by the proper Person, and shall not incur any liability for relying thereon. Each Agent may consult with legal counsel (who may be counsel for any Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts. Each Agent may perform any and all its duties and exercise its rights and powers by or through any one or more sub-agents appointed by such Agent. Each Agent and any such sub-agent may perform any and all its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions of the preceding paragraphs shall apply to any such sub- agent and to the Related Parties of such Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Agent. Subject to the appointment and acceptance of a successor Agent as provided in this paragraph, any Agent may resign at any time by notifying the Lenders and the Company. Upon any such resignation, the Required Lenders shall have the right, in consultation with the Company, to appoint a successor. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Agent gives notice of its resignation, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent which shall be a bank with an office in New York, New York, or an Affiliate of any such bank. Upon the acceptance of its appointment as Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. The fees payable by the Company to a successor Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Company and such successor. After the Agent's resignation hereunder, the provisions of this Article and Section 10.03 shall continue in effect for the benefit of such retiring Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while it was acting as Agent. 53 Each Lender acknowledges that it has, independently and without reliance upon the Agents or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Agents or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement or any other Loan Document or any related agreement or any document furnished hereunder or thereunder. None of the Syndication Agent or the Co-Documentation Agents, in their capacities as such, shall have any duties or obligations of any kind under this Agreement. ARTICLE IX Guarantee --------- The Company hereby unconditionally, absolutely and irrevocably guarantees, as primary obligor and not merely as surety, the repayment to each Lender, when due pursuant to the terms and conditions of this Agreement, of the amount of any Loan made pursuant to this Agreement to a Borrowing Subsidiary, together with accrued interest on such Loan, at the place and in the currency and manner specified in this Agreement; provided, however, that before any -------- ------- amount shall be deemed due and payable pursuant to this Guarantee, the Administrative Agent must first give notice to the Company of the nonpayment thereof by the Borrowing Subsidiary at the request of the relevant Lender, and the Company shall have five Business Days from the receipt of such notice to cure or cause to be cured any and all such nonpayments. The Company's obligations hereunder constitute a guaranty of payment and not of collection merely. The Company hereby waives notice of, and consents to, any extensions of time of payment, renewals, compromises, settlements, releases or other indulgences from time to time granted by the Lenders in respect of Loans made to Borrowing Subsidiaries. Except as otherwise provided in this Article IX, the Company hereby waives presentment, protest, demand of payment, notice of dishonor and all notices and demands whatsoever. The obligations of the Company hereunder shall not be released, discharged or otherwise affected by (i) any change in the corporate existence or constitution, structure or ownership of any Borrowing Subsidiary or the Company, (ii) any insolvency, bankruptcy, reorganization or similar proceeding affecting the Borrowing Subsidiary or its assets or the Company or (iii) the existence of any claim, set-off or other rights which the Company may have at any time against any Lender or any other Person. If at any time any payment of any obligation guaranteed hereunder is rescinded or must otherwise be restored or returned upon the insolvency, bankruptcy or reorganization of a Borrowing Subsidiary or otherwise, the Company's obligations under this Article IX with respect to such payment shall be reinstated at such time as though such payment had not been made. 54 If acceleration of the time for payment of any amount payable by any Borrowing Subsidiary under this Agreement or its Loans is stayed upon any bankruptcy, insolvency or reorganization of such Borrowing Subsidiary or otherwise, all such amounts otherwise subject to acceleration under the terms of this Agreement shall nonetheless be payable by the Company pursuant to this Article IX in accordance with the terms hereof. The Company shall not exercise any of its subrogation rights with respect to amounts paid to a Lender pursuant to this Article IX until all amounts guaranteed hereunder payable to any Lender have been paid in full and the Commitments have terminated. Following such payment in full and termination of the Commitments, the Company shall be entitled to subrogation in the Lenders' rights and, upon the reasonable request of the Company, each Lender agrees to cooperate with the Company in enforcement of the Company's subrogation rights, including the transfer and delivery by such Lender to the Company of any and all related evidence of indebtedness within the possession or control of such Lender. The Company further agrees that if payment in respect of any obligation of a Borrowing Subsidiary guaranteed hereunder shall be due in a currency other than Dollars and/or at a place of payment other than New York and if, by reason of any legal prohibition, disruption of currency or foreign exchange markets, war or civil disturbance or other event, payment of such obligation in such currency or at such place of payment shall be impossible or, in the judgment of any Lender, not consistent with the protection of its rights or interests, then, at the election of such Lender, the Company shall make payment of such obligation in Dollars (based upon the applicable Exchange Rate in effect on the date of payment) and/or in New York. The Administrative Agent shall give notice to the Company pursuant to the proviso set forth in the first sentence of this Article promptly upon being requested to do so by the relevant Lender. ARTICLE X Miscellaneous ------------- 55 SECTION 10.01. Notices. Except in the case of notices and other ------- communications expressly permitted to be given by telephone, all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows: (a) if to any Borrower, to it in care of the Company at 1900 Richmond Road, Cleveland, Ohio 44124, Attention of Ronald P. Vargo, Vice President and Treasurer (Telecopy No. (216) 291-7831), with a copy to TRW Inc., 1900 Richmond Road, Cleveland, Ohio 44124, Attention of Secretary (Telecopy No. (216) 291-7070); (b) if to the Administrative Agent, to The Chase Manhattan Bank, Loan and Agency Services Group, One Chase Manhattan Plaza, 8th Floor, New York, New York 10081, Attention of Jesus Sang (Telecopy No. (212) 552-5658), with a copy to The Chase Manhattan Bank, 270 Park Avenue, New York 10017, Attention of Karen May Sharf (Telecopy No. (212) 270-5127); (c) if to the London Agent, to it at Chase Manhattan International Limited, Trinity Tower, 9 Thomas More Street, London, England E19YT Attention of Loans Agency Division (Telecopy No. 011-44-171-777-2360); with a copy to the Administrative Agent as provided in paragraph (b) above; and (d) if to any other Lender, to it at its address (or telecopy number) set forth in its Administrative Questionnaire. Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt. SECTION 10.02. Waivers; Amendments. (a) No failure or delay by the ------------------- Administrative Agent or any Lender in exercising any right or power hereunder or under any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent and the Lenders hereunder and under the other Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of any Loan Document or consent to any departure by any Borrower therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan shall not be construed as a waiver of any Default, 56 regardless of whether the Administrative Agent or any Lender may have had notice or knowledge of such Default at the time. (b) Neither this Agreement nor any of the Loan Documents nor any provision hereof or thereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Company and the Required Lenders or by the Company and the Applicable Agent with the consent of the Required Lenders (and, in the case of a Borrowing Subsidiary Agreement, the applicable Borrowing Subsidiary); provided that no such agreement shall (i) -------- increase the Commitment of any Lender without the written consent of such Lender, (ii) reduce the principal amount of any Loan or reduce the rate of interest thereon, or reduce any fees payable hereunder, without the written consent of each Lender affected thereby, (iii) postpone the scheduled date of payment of the principal amount of any Loan, or any interest thereon, or any fees payable hereunder, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of any Commitment, without the written consent of each Lender affected thereby, (iv) change Section 2.16(b) or (c) in a manner that would alter the pro rata sharing of payments required thereby, without the written consent of each Lender, or (v) change any of the provisions of this Section or the definition of "Required Lenders" or any other provision of any Loan Document specifying the number or percentage of Lenders required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender; provided further that no such agreement shall amend, modify or ---------------- otherwise affect the rights or duties of the Administrative Agent hereunder without the prior written consent of the Administrative Agent. SECTION 10.03. Expenses; Indemnity; Damage Waiver. (a) The Company ---------------------------------- shall pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent and the London Agent and each of their Affiliates, including the reasonable fees, charges and disbursements of Cravath, Swaine & Moore, counsel for the Administrative Agent and London Agent, in connection with the syndication of the credit facilities provided for herein, the preparation and administration of this Agreement or the other Loan Documents or any amendments, modifications or waivers of the provisions hereof (whether or not the transactions contemplated hereby or thereby shall be consummated) and (ii) all out-of-pocket expenses incurred by the Administrative Agent, the London Agent or any Lender, including the reasonable fees, charges and disbursements of any counsel for the Administrative Agent, the London Agent or any Lender, in connection with the enforcement or protection of its rights in connection with any Loan Document, including its rights under this Section, or in connection with the Loans made hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans. (b) The Company agrees to indemnify each Lender, their respective Affiliates and the respective directors, officers, agents and employees of the foregoing 57 (each an "Indemnitee") and hold each Indemnitee harmless from and against any ---------- and all losses, damages, liabilities, costs and related expenses of any kind, including, without limitation, reasonable fees and disbursements of counsel, which may be incurred by such Indemnitee in connection with any investigative, administrative or judicial proceeding (whether or not such Indemnitee shall be designated a party thereto) brought or threatened relating to or arising out of this Agreement or any actual or proposed use of proceeds of Loans hereunder; provided that such indemnity shall not, as to any Indemnitee, be available to - -------- the extent that such losses, damages, liabilities, costs or related expenses are found by a final, nonappealable judgment of a court of competent jurisdiction to have resulted from the culpable negligence, bad faith or wilful misconduct of such Indemnitee. (c) To the extent that the Company fails to pay any amount required to be paid by it to the Administrative Agent, the London Agent or any sub-agent appointed pursuant to Article VIII under paragraph (a) or (b) of this Section, each Lender severally agrees to pay to the Administrative Agent or the London Agent such Lender's Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided that the unreimbursed expense or indemnified loss, claim, -------- damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent or London Agent in its capacity as such. (d) To the extent permitted by applicable law, no Borrower shall assert, and each Borrower hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the Transactions, any Loan or the use of the proceeds thereof. (e) All amounts due under this Section shall be payable promptly after written demand therefor. SECTION 10.04. Successors and Assigns. (a) The provisions of this ---------------------- Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that no Borrower may assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by any Borrower without such consent shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement. 58 (b) Any Lender may assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); provided that (i) -------- except in the case of an assignment to an Affiliate of that Lender, each of the Company and the Administrative Agent must give their prior written consent to such assignment (which consent shall not be unreasonably withheld or delayed), (ii) except in the case of an assignment to an Affiliate of that Lender or an assignment of the entire remaining amount of the assigning Lender's Commitment, the amount of the Commitment of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent) shall not be less than $10,000,000 unless each of the Company and the Administrative Agent otherwise consent, (iii) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under this Agreement, except that this clause (iii) shall not apply to rights in respect of outstanding Competitive Loans, (iv) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance, together with a processing and recordation fee of $3,500, and (v) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire; and provided further that any consent of ---------------- the Company otherwise required under this paragraph shall not be required if an Event of Default under clause (h) or (i) of Article VII has occurred and is continuing. Subject to acceptance and recording thereof pursuant to paragraph (d) of this Section, from and after the effective date specified in each Assignment and Acceptance the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.13, 2.14, 2.15 and 10.03, insofar as claims under such sections arise out of the period prior to the effective date of such Assignment and Acceptance). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (e) of this Section. (c) The Administrative Agent, acting for this purpose as an agent of each Borrower, shall maintain at one of its offices in The City of New York a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be -------- conclusive, and the Borrowers, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, 59 notwithstanding notice to the contrary. The Register shall be available for inspection by the Company and any Lender, at any reasonable time and from time to time upon reasonable prior notice. (d) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and an assignee, the assignee's completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Acceptance and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph. (e) Any Lender may, without the consent of any Borrower or the Administrative Agent sell participations to one or more banks or other entities (a "Participant") in all or a portion of such Lender's rights and obligations ----------- under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided that (i) such Lender's obligations under this Agreement -------- shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrowers, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such -------- agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso to Section 10.02(b) that affects such Participant. Subject to paragraph (f) of this Section, each Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.13, 2.14 and 2.15 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section. (f) A Participant shall not be entitled to receive any greater payment under Section 2.13, 2.14 or 2.15 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Company's prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 2.15 unless the Company is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrowers, to comply with Section 2.15(e) as though it were a Lender. 60 (g) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of -------- a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto. SECTION 10.05. Survival. All covenants, agreements, representations -------- and warranties made by the Borrowers herein or in any other Loan Document and in the certificates or other instruments delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the other parties hereto and thereto and shall survive the execution and delivery of this Agreement and any other Loan Document and the making of any Loans, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder (provided that any such knowledge of the Administrative Agent or any Lender will not be attributed to any other Lender or the Administrative Agent for purposes of this Section 10.05), and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement or any other Loan Document is outstanding and unpaid and so long as the Commitments have not expired or terminated. The provisions of Sections 2.13, 2.14, 2.15 and 10.03 and Article VIII shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Commitments or the termination of this Agreement or any other Loan Document or any provision hereof or thereof. SECTION 10.06. Counterparts; Integration; Effectiveness. This ---------------------------------------- Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement, the other Loan Documents and any separate letter agreements with respect to fees payable to the Administrative Agent constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement. 61 SECTION 10.07. Severability. Any provision of this Agreement held to ------------ be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. SECTION 10.08. Right of Setoff. If an Event of Default shall have --------------- occurred and be continuing and the Required Lenders shall have requested the Administrative Agent to declare the Loans immediately due and payable or such Loans have automatically become due and payable, each Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other obligations at any time owing by such Lender or Affiliate to or for the credit or the account of any Borrower against any of and all the obligations of such Borrower now or hereafter existing under this Agreement held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement and although such obligations may be unmatured. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Lender may have. SECTION 10.09. Governing Law; Jurisdiction; Consent to Service of -------------------------------------------------- Process. (a) This Agreement shall be construed in accordance with and governed - ------- by the law of the State of New York. (b) Each Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to any Loan Document, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Administrative Agent or any Lender may otherwise have to bring any action or proceeding relating to this Agreement or any other Loan Document against any Borrower or its properties in the courts of any jurisdiction. (c) Each Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or 62 hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any other Loan Document in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (d) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 10.01. Nothing in this Agreement or any other Loan Document will affect the right of any party to this Agreement to serve process in any other manner permitted by law. SECTION 10.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY --------------------- WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. SECTION 10.11. Headings. Article and Section headings and the Table --------- of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement. SECTION 10.12. Confidentiality. Each of the Administrative Agent, ---------------- the London Agent and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates' directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority, (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party to this Agreement, (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this 63 Section, to any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement, (g) with the consent of the Company or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or (ii) becomes available to the Administrative Agent, the London Agent or any Lender on a nonconfidential basis from a source other than the Company. For the purposes of this Section, "Information" means all information received from the Company ----------- relating to the Company or its business, other than any such information that is available to the Administrative Agent, the London Agent or any Lender on a nonconfidential basis prior to disclosure by the Company; provided that, in the -------- case of information received from the Company after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information. SECTION 10.13. Conversion of Currencies. (a) If, for the purpose ------------------------- of obtaining judgment in any court, it is necessary to convert a sum owing hereunder in one currency into another currency, each party hereto (including any Borrowing Subsidiary) agrees, to the fullest extent that it may effectively do so, that the rate of exchange used shall be that at which in accordance with normal banking procedures in the relevant jurisdiction the first currency could be purchased with such other currency on the Business Day immediately preceding the day on which final judgment is given. (b) The obligations of each Borrower in respect of any sum due to any party hereto or any holder of the obligations owing hereunder (the "Applicable ---------- Creditor") shall, notwithstanding any judgment in a currency (the "Judgment - -------- -------- Currency") other than the currency in which such sum is stated to be due - -------- hereunder (the "Agreement Currency"), be discharged only to the extent that, on ------------------ the Business Day following receipt by the Applicable Creditor of any sum adjudged to be so due in the Judgment Currency, the Applicable Creditor may in accordance with normal banking procedures in the relevant jurisdiction purchase the Agreement Currency with the Judgment Currency; if the amount of the Agreement Currency so purchased is less than the sum originally due to the Applicable Creditor in the Agreement Currency, such Borrower agrees, as a separate obligation and notwithstanding any such judgment, to indemnify the Applicable Creditor against such loss. The obligations of the Borrowers contained in this Section 10.13 shall survive the termination of this Agreement and the payment of all other amounts owing hereunder. 64 SECTION 10.14. Interest Rate Limitation. Notwithstanding anything ------------------------- herein to the contrary, if at any time the interest rate applicable to any Loan, together with all fees, charges and other amounts which are treated as interest on such Loan under applicable law (collectively the "Charges"), shall exceed the ------- maximum lawful rate (the "Maximum Rate") which may be contracted for, charged, ------------ taken, received or reserved by the Lender holding such Loan in accordance with applicable law, the rate of interest payable in respect of such Loan hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Loan but were not payable as a result of the operation of this Section shall be cumulated and the interest and Charges payable to such Lender in respect of other Loans or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Effective Rate to the date of repayment, shall have been received by such Lender. SECTION 10.15. Lender Waiver. Each Lender that is a party to any of ------------- the Existing Credit Agreements hereby waives any provision contained in such Existing Credit Agreement requiring notice of the termination of the commitments therein prior to the effective date of such termination. 65 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. TRW INC., by /s/ Ronald P. Vargo ----------------------------------------- Name: Ronald P. Vargo Title: Vice President and Treasurer Website: www.trw.com THE CHASE MANHATTAN BANK, individually and as Administrative Agent, by /s/ Richard W. Duker ---------------------------------------- Name: Richard W. Duker Title: Vice President CHASE MANHATTAN INTERNATIONAL LIMITED, as London Agent, by /s/ David Bell ---------------------------------------- Name: David Bell Title: Assistant Treasurer SALOMON SMITH BARNEY INC., as Syndication Agent, Joint Lead Arranger and Book Manager, by /s/ J.C.C. Byrne, Jr. ---------------------------------------- Name: J.C.C. Byrne, Jr. Title: Attorney-in-Fact 66 CHASE SECURITIES, INC., as Joint Arranger and Book Manager, by /s/ Mitchel Friedman ---------------------------------------- Name: Mitchel Friedman Title: Vice President CITICORP USA, INC., by /s/ Robert D. Wetrus ---------------------------------------- Name: Robert D. Wetrus Title: Attorney-in-Fact BANK OF AMERICA, N.A., Individually and as Co- Documentation Agent, by /s/ Raju N. Patel ---------------------------------------- Name: Raju N. Patel Title: Vice President MORGAN GUARANTY TRUST COMPANY OF NEW YORK, individually and as Co-Documentation Agent, by /s/ Robert Bottamedi ---------------------------------------- Name: Robert Bottamedi Title: Vice President DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES, by /s/ Thomas R. Brady ---------------------------------------- Name: Thomas R. Brady Title: Vice President by /s/ John W. Sweeney ---------------------------------------- Name: John W. Sweeney Title: Vice President ROYAL BANK OF CANADA, by /s/ Lynne M. Litterini --------------------------------------- Name: Lynne M. Litterini Title: Manager BANQUE NATIONALE DE PARIS, by /s/ Arnaud Collin du Bocage --------------------------------------- Name: Arnaud Collin du Bocage Title: Executive Vice President and General Manager NATIONAL CITY BANK, by /s/ Davis R. Bonner --------------------------------------- Name: Davis R. Bonner Title: Senior Vice President INDUSTRIAL BANK OF JAPAN, by /s/ Walter Wolff --------------------------------------- Name: Walter Wolff Title: Joint General Manager BANK ONE, MICHIGAN, by /s/ Glenn A. Currin --------------------------------------- Name: Glenn A. Currin Title: First Vice President COMERICA BANK, by /s/ Nicholas G. Mester --------------------------------------- Name: Nicholas G. Mester Title: Account Officer KEYBANK NATIONAL ASSOCIATION, by /s/ Marianne T. Meil --------------------------------------- Name: Marianne T. Meil Title: Vice President BAYERISCHE LANDESBANK, by /s/ James Boyle --------------------------------------- Name: James Boyle Title: Vice President by /s/ Alexander Kohnert --------------------------------------- Name: Alexander Kohnert Title: First Vice President HSBC BANK USA, by /s/ Christopher M. Samms --------------------------------------- Name: Christopher M. Samms Title: Officer #9426, Vice President SG, by /s/ Editha N. Paras --------------------------------------- Name: Editha N. Paras Title: Vice President BARCLAY'S BANK PLC, by /s/ Keith Mackie --------------------------------------- Name: Keith Mackie Title: Director CREDIT INDUSTRIAL ED COMMERCIAL, by /s/ Wolfgang Fassbender --------------------------------------- Name: Wolfgang Fassbender Title: Senior Vice President DEUTSCHE BANK AG, New York Branch and/or Cayman Islands Branch, by /s/ Oliver Schwarz --------------------------------------- Name: Oliver Schwarz Title: Assistant Vice President by /s/ Stephan Peetzen --------------------------------------- Name: Stephan Peetzen Title: Director ABN AMRO BANK N.V., by /s/ David C. Sagers --------------------------------------- Name: David C. Sagers Title: Vice President by /s/ John J. Mack --------------------------------------- Name: John J. Mack Title: Vice President BANCA DI ROMA-CHICAGO BRANCH, by /s/ James W. Semonchik --------------------------------------- Name: James W. Semonchik Title: Vice President by /s/ Claudio Perna --------------------------------------- Name: Claudio Perna (19690) Title: Senior Vice President & Branch Manager THE SUMITOMO BANK, LIMITED, by /s/ John H. Kemper --------------------------------------- Name: John H. Kemper Title: Senior Vice President BANCA NAZIONALE DEL LAVORO S.p.A. - NEW YORK, by /s/ Giulio Giovine --------------------------------------- Name: Giulio Giovine Title: Vice President by /s/ Leonardo Valentini --------------------------------------- Name: Leonardo Valentini Title: First Vice President MELLON BANK, N.A., by /s/ Mark F. Johnston --------------------------------------- Name: Mark F. Johnston Title: First Vice President SAN PAOLO IMI S.p.A., by /s/ Luca Sacchi --------------------------------------- Name: Luca Sacchi Title: Vice President by /s/ Carlo Persico --------------------------------------- Name: Carlo Persico Title: D.G.M. BANCA COMMERCIALE ITALIANA, CHICAGO BRANCH, by /s/ E. Bermant --------------------------------------- Name: E. Bermant Title: FVP/Deputy Manager by /s/ J. Dickerhof --------------------------------------- Name: J. Dickerhof Title: Vice President FIRST UNION NATIONAL BANK, by /s/ Kent Davis --------------------------------------- Name: Kent Davis Title: Vice President BANK OF NEW YORK, by /s/ John M. Lokay, Jr. --------------------------------------- Name: John M. Lokay, Jr. Title: Vice President BANK OF TOKYO-MITSUBISHI TRUST COMPANY, by /s/ Heather L. Zimmerman --------------------------------------- Name: Heather L. Zimmerman Title: Vice President BANCO BILBAO VIZCAYA (NEW YORK), by /s/ John Martini --------------------------------------- Name: John Martini Title: Vice President by /s/ Alejandro Lorca --------------------------------------- Name: Alejandro Lorca Title: Vice President EX-10.(EE) 8 364-DAY CREDIT AGREE DATED JANUARY 25, 2000 EXHIBIT 10(ee) CONFORMED COPY ================================================================================ 364-DAY CREDIT AGREEMENT dated as of January 25, 2000 among TRW INC. The Borrowing Subsidiaries Party Hereto The Lenders Party Hereto and THE CHASE MANHATTAN BANK, as Administrative Agent SALOMON SMITH BARNEY INC., as Syndication Agent ___________________________ CHASE SECURITIES INC. ================================================================================ ================================================================================ SALOMON SMITH BARNEY INC., as Joint Lead Arrangers and Book Managers BANK OF AMERICA N.A. MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Co-Documentation Agents ================================================================================ TABLE OF CONTENTS Page ---- ARTICLE I Definitions ----------- SECTION 1.01. Defined Terms................................................ 1 SECTION 1.02. Classification of Loans and Borrowings....................... 14 SECTION 1.03. Terms Generally.............................................. 14 SECTION 1.04. Accounting Terms; GAAP....................................... 15 ARTICLE II The Credits ----------- SECTION 2.01. Commitments.................................................. 15 SECTION 2.02. Loans and Borrowings......................................... 15 SECTION 2.03. Requests for Revolving Borrowings............................ 16 SECTION 2.04. Competitive Bid Procedure.................................... 16 SECTION 2.05. Funding of Borrowings........................................ 18 SECTION 2.06. Interest Elections........................................... 19 SECTION 2.07. Termination and Reduction of Commitments..................... 20 SECTION 2.08. Repayment of Loans; Evidence of Debt......................... 21 SECTION 2.09. Prepayment of Loans.......................................... 21 SECTION 2.10. Fees......................................................... 22 SECTION 2.11. Interest..................................................... 23 SECTION 2.12. Alternate Rate of Interest................................... 23 SECTION 2.13. Increased Costs.............................................. 24 SECTION 2.14. Break Funding Payments....................................... 25 SECTION 2.15. Taxes........................................................ 25 SECTION 2.16. Payments Generally; Pro Rata Treatment; Sharing of Set-offs.. 26 SECTION 2.17. Mitigation Obligations; Replacement of Lenders............... 28 SECTION 2.18. Borrowing Subsidiaries....................................... 28 SECTION 2.19. Foreign Subsidiary Costs..................................... 29 ARTICLE III Representations and Warranties ------------------------------ SECTION 3.01. Organization; Powers......................................... 30 SECTION 3.02. Authorization; Enforceability................................ 30 SECTION 3.03. Governmental Approvals; No Conflicts......................... 30 SECTION 3.04. Financial Condition; No Material Adverse Change.............. 31
SECTION 3.05. Litigation and Environmental Matters...................... 31 SECTION 3.06. Investment and Holding Company Status..................... 31 SECTION 3.07. Taxes..................................................... 31 SECTION 3.08. ERISA..................................................... 32 SECTION 3.09. Year 2000................................................. 32 ARTICLE IV Conditions ---------- SECTION 4.01. Effective Date............................................ 32 SECTION 4.02. Each Credit Event......................................... 33 SECTION 4.03. Initial Credit Event for each Borrowing Subsidiary........ 33 ARTICLE V Affirmative Covenants --------------------- SECTION 5.01. Financial Statements and Other Information................ 34 SECTION 5.02. Existence; Conduct of Business............................ 35 SECTION 5.03. Use of Proceeds........................................... 35 ARTICLE VI Negative Covenants ------------------ SECTION 6.01. Indebtedness................................................. 35 SECTION 6.02. Mortgages.................................................... 35 SECTION 6.03. Sale and Lease-Back Transactions............................. 37 SECTION 6.04. Fundamental Changes.......................................... 37 SECTION 6.05. ERISA........................................................ 38 SECTION 6.06. Change in Control............................................ 38 SECTION 6.07. Interest Coverage Ratio...................................... 38 SECTION 6.08. Minimum Consolidated Net Worth............................... 38 ARTICLE VII Events of Default........................................................... 38 - ----------------- ARTICLE VIII The Administrative Agent..................................................... 40 - ------------------------ ARTICLE IX Guarantee................................................................... 42 - --------- ARTICLE X Miscellaneous ------------- SECTION 10.01. Notices...................................................... 43 SECTION 10.02. Waivers; Amendments.......................................... 43 SECTION 10.03. Expenses; Indemnity; Damage Waiver........................... 44 SECTION 10.04. Successors and Assigns....................................... 45 SECTION 10.05. Survival..................................................... 47 SECTION 10.06. Counterparts; Integration; Effectiveness..................... 48 SECTION 10.07. Severability................................................. 48 SECTION 10.08. Right of Setoff.............................................. 48 SECTION 10.09. Governing Law; Jurisdiction; Consent to Service of Process... 48 SECTION 10.10. WAIVER OF JURY TRIAL......................................... 49 SECTION 10.11. Headings..................................................... 49 SECTION 10.12. Confidentiality.............................................. 49 SECTION 10.13. Conversion of Currencies..................................... 50 SECTION 10.14. Interest Rate Limitation..................................... 50 SECTION 10.15. Lender Waiver................................................ 50
4 SCHEDULES: - --------- Schedule 2.01 -- Commitments EXHIBITS: - -------- Exhibit A-1 -- Form of Borrowing Subsidiary Agreement Exhibit A-2 -- Form of Borrowing Subsidiary Termination Exhibit B -- Form of Assignment and Acceptance Exhibit C -- Form of Opinion of General Counsel of the Company Exhibit D -- Form of Opinion of Counsel for each Borrowing Subsidiary Exhibit E -- Form of Compliance Certificate 364-DAY CREDIT AGREEMENT dated as of January 25, 2000, among TRW INC., the BORROWING SUBSIDIARIES from time to time party hereto, the LENDERS from time to time party hereto, THE CHASE MANHATTAN BANK, as Administrative Agent and SALOMON SMITH BARNEY INC., as Syndication Agent. The parties hereto agree as follows: ARTICLE I Definitions ----------- SECTION 1.01. Defined Terms. As used in this Agreement, the -------------- following terms have the meanings specified below: "ABR", when used in reference to any Loan or Borrowing, refers to --- whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Alternate Base Rate. "Adjusted LIBO Rate" means, with respect to any Eurocurrency Borrowing ------------------ for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/100 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate. "Administrative Agent" means The Chase Manhattan Bank, in its capacity -------------------- as administrative agent for the Lenders hereunder. "Administrative Questionnaire" means an Administrative Questionnaire ---------------------------- in a form supplied by the Administrative Agent. "Affiliate" means, with respect to a specified Person, another Person --------- that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. "Agreement Currency" has the meaning assigned to such term in Section ------------------ 10.13(b). "Alternate Base Rate" means, for any day, a rate per annum equal to ------------------- the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective from and including the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. "Applicable Creditor" has the meaning assigned to such term in Section ------------------- 10.13(b). "Applicable Percentage" means, with respect to any Lender, the --------------------- percentage of the total Commitments represented by such Lender's Commitment. If the Commitments have terminated or expired, the Applicable Percentages shall be determined based upon the Commitments most recently in effect, giving effect to any assignments. "Assignment and Acceptance" means an assignment and acceptance entered ------------------------- into by a Lender and an assignee (with the consent of any party whose consent is required by Section 10.04), and accepted by the Administrative Agent, in the form of Exhibit B or any other form approved by the Administrative Agent. "Attributable Debt" means, as to any particular lease under which any ----------------- Person is liable at the time and at any date as of which the amount thereof is to be determined, the lesser of (a) the fair value of the property subject to such lease (as determined by the Directors of the Company) or (b) the total net amount of rent required to be paid by such Person under such lease during the remaining term thereof, discounted from the respective due dates thereof to such date at the actual interest factor included in such rent. The net amount of rent required to be paid under any such lease for any such period shall be the aggregate amount of the rent payable by the lessee with respect to such period after excluding amounts required to be paid on account of maintenance and repairs, insurance, taxes, assessments, water rates and similar charges. In the case of any lease which is terminable by the lessee upon the payment of a penalty, such net amount shall also include the amount of such penalty, but no rent shall be considered as required to be paid under such lease subsequent to the first date upon which it may be so terminated. "Availability Period" means the period from and including the ------------------- Effective Date to but excluding the earlier of the Termination Date and the date of termination of the Commitments. "Board" means the Board of Governors of the Federal Reserve System of ----- the United States of America. "Borrower" means the Company or any Borrowing Subsidiary. -------- "Borrowing" means (a) Revolving Loans of the same Type and currency, --------- made, converted or continued on the same date and, in the case of Eurocurrency Loans, as to which a single Interest Period is in effect or (b) a Competitive Loan or group of Competitive Loans of the same Type made on the same date and as to which a single Interest Period is in effect. 3 "Borrowing Request" means a request by the Borrower for a Revolving ----------------- Borrowing in accordance with Section 2.03. "Borrowing Subsidiary" means, at any time, each Subsidiary that has -------------------- been designated as a Borrowing Subsidiary by the Company pursuant to Section 2.19 and that has not ceased to be a Borrowing Subsidiary as provided in such Section or Article VII. "Borrowing Subsidiary Agreement" means a Borrowing Subsidiary ------------------------------ Agreement substantially in the form of Exhibit A-1. "Borrowing Subsidiary Termination" means a Borrowing Subsidiary -------------------------------- Termination substantially in the form of Exhibit A-2. "Business Day" means any day that is not a Saturday, Sunday or other ------------ day on which commercial banks in New York City are authorized or required by law to remain closed; provided, that when used in connection with a Eurocurrency -------- Loan, the term "Business Day" shall also exclude any day on which banks are not ------------ open for dealings in dollar deposits in the London interbank market. "Capital Lease Obligations" of any Person means the obligations of ------------------------- such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. "Change in Control" means (a) the acquisition of ownership, directly ----------------- or indirectly, beneficially or of record, by any Person or group (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof), of shares representing more than 30% of the aggregate ordinary voting power represented by the issued and outstanding capital stock of the Company; or (b) occupation of a majority of the seats (other than vacant seats) on the board of directors of the Company by Persons who are not Continuing Directors. For purposes of the foregoing, "Continuing Directors" shall mean (i) the directors of the Company on the date hereof and (ii) each other director nominated or appointed by at least two thirds of the Continuing Directors at the time of such nomination or appointment. "Change in Law" means (a) the adoption of any law, rule or regulation ------------- after the date of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by any Lender (or, for purposes of Section 2.13(b), by any lending office of such Lender or by such Lender's holding company, if any) with any 4 request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement. "Chase" means The Chase Manhattan Bank and its successors. ----- "Class", when used in reference to any Loan or Borrowing, refers to ----- whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans or Competitive Loans. "Code" means the Internal Revenue Code of 1986, as amended from time ---- to time. "Commitment" means, with respect to each Lender, the commitment of ---------- such Lender to make Revolving Loans, expressed as an amount representing the maximum aggregate amount of such Lender's Revolving Credit Exposure hereunder, as such commitment may be (a) reduced from time to time pursuant to Section 2.07 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 10.04. The initial amount of each Lender's Commitment is set forth on Schedule 2.01 or in the Assignment and Acceptance pursuant to which such Lender shall have assumed its Commitment, as applicable. The initial aggregate amount of the Lenders' Commitments is $2,300,000,000. "Company" means TRW Inc., an Ohio corporation. ------- "Competitive Bid" means an offer by a Lender to make a Competitive --------------- Loan in accordance with Section 2.04. "Competitive Bid Rate" means, with respect to any Competitive Bid, the -------------------- Margin or the Fixed Rate, as applicable, offered by the Lender making such Competitive Bid. "Competitive Bid Request" means a request by any Borrower for ----------------------- Competitive Bids in accordance with Section 2.04. "Competitive Loan" means a Loan made pursuant to Section 2.04. ---------------- "Consolidated EBITDA" means, for any fiscal period, with respect to ------------------- the Company and its consolidated Subsidiaries, (a) Consolidated Net Income for such period plus (b) to the extent deducted in computing such Consolidated Net ---- Income, without duplication, the sum of (i) income tax expense, (ii) Consolidated Interest Expense, (iii) depreciation and amortization expense, (iv) any extraordinary or non-recurring losses and (v) other noncash items (other than accruals) reducing Consolidated Net Income, minus (c) to the extent added ----- in computing such Consolidated Net Income, without duplication, the sum of (i) any extraordinary or non-recurring gains and (ii) other noncash 5 items (other than accruals) increasing Consolidated Net Income, all as determined on a consolidated basis in accordance with GAAP; provided that gains -------- on sales of the Company's equity investments in publicly-traded companies and pension income related to LucasVarity will in no event be subtracted under this clause (c) for purposes of computing Consolidated EBITDA. "Consolidated Funded Debt" means the Funded Debt of the Company and ------------------------ the consolidated Subsidiaries, determined on a consolidated basis in accordance with GAAP. "Consolidated Interest Expense" means, for any period, the aggregate ----------------------------- of all interest expense of the Company and its consolidated Subsidiaries for such period determined on a consolidated basis in accordance with GAAP. "Consolidated Net Assets" means the sum of (a) the total of all assets ----------------------- of the Company and the consolidated Subsidiaries that would appear on a consolidated balance sheet of the Company prepared in accordance with GAAP less (b) Consolidated Net Worth. "Consolidated Net Income" means, for any period, net income of the ----------------------- Company and the consolidated Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP. "Consolidated Net Worth" means, at any date, the consolidated ---------------------- shareholders' investment of the Company and the consolidated Subsidiaries, exclusive of foreign currency translation adjustment and unrealized gains or losses on securities as reported in the Company's financial statements under "Other Comprehensive Income," determined as of such date. Consolidated shareholders' investment, foreign currency translation adjustment and unrealized gains or losses on securities of the Company shall be as included in the annual or quarterly financial statements of the Company, as applicable. "Control" means the possession, directly or indirectly, of the power ------- to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power or by contract. "Controlling" and "Controlled" have meanings correlative thereto. ----------- ---------- "Default" means any event or condition which constitutes an Event of ------- Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default. "Dollars" or "$" refers to lawful money of the United States of ------- - America. 6 "Domestic Subsidiary" means each consolidated Subsidiary other than ------------------- (a) any consolidated Subsidiary which the Directors of the Company reasonably determine not to be material to the business or financial condition of the Company; (b) any consolidated Subsidiary the major portion of the assets of which are located, or the major portion of the business of which is carried on, outside the United States of America, its territories and possessions; (c) any consolidated Subsidiary which, during the 12 most recent calendar months (or such shorter period as shall have elapsed since its organization) derived the major portion of its gross revenues from sources outside the United States of America; (d) any consolidated Subsidiary the major portion of the assets of which consists of securities or obligations, or both, of one or more corporations (whether or not consolidated Subsidiaries) of the types described in the preceding clauses (b) and (c); and (e) any consolidated Subsidiary organized after January 1, 2000 which the Company intends shall be operated in such manner as to come within one or more of the preceding clauses (b), (c) and (d). "Effective Date" means the date on which the conditions specified in -------------- Section 4.01 are satisfied (or waived in accordance with Section 10.02). "ERISA" means the Employee Retirement Income Security Act of 1974, as ----- amended from time to time. "ERISA Affiliate" means any trade or business (whether or not --------------- incorporated) that, together with a Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code. "ERISA Event" means (a) any "reportable event", as defined in Section ----------- 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the existence with respect to any Plan of an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by a Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by a Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by a Borrower or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by a Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from a Borrower or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA. 7 "Eurocurrency", when used in reference to any Loan or Borrowing, ------------ refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate (or, in the case of a Competitive Loan, the LIBO Rate). "Event of Default" has the meaning assigned to such term in Article ---------------- VII. "Exchange Act" means the Securities Exchange Act of 1934, as amended ------------ from time to time. "Excluded Taxes" means (i) with respect to each Lender, taxes imposed -------------- on its net income, and franchise or similar taxes imposed on it, by a jurisdiction under the laws of which it is organized or in which its principal executive office or applicable lending office is located, and (ii) any United States withholding tax imposed on such payment, but not excluding any portion of such tax that exceeds the United States withholding tax which would have been imposed on such a payment to such Lender under the laws and treaties in effect when such Lender first becomes a party to this Agreement. "Existing Credit Agreements" means (i) the Credit Agreement dated as -------------------------- of January 27, 1999, and amended and restated as of February 26, 1999, among the Company, the eligible subsidiaries referred to therein, the lenders party thereto, Bank of America National Trust and Savings Association, Citibank, N.A. and Barclays Bank PLC, as co-syndication agents, and Morgan Guaranty Trust Company of New York, as administrative agent, (ii) the Revolving Credit Agreement dated as of December 10, 1997, among the Company and the financial institutions party thereto, (iii) the Multi-Year Revolving Credit Agreement, as amended and restated as of May 8, 1996, among the Company and the financial institutions party thereto, and (iv) the Multi-Currency Revolving Credit Facility Agreement, as amended and restated as of August 7, 1997, among TRW Finance International, Barclays Bank PLC and the financial institutions party thereto, in each case as amended from time to time. "Federal Funds Effective Rate" means, for any day, the weighted ---------------------------- average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. 8 "Financial Officer" means the chief financial officer, treasurer or ----------------- controller of the Company. "Five-Year Credit Agreement" means the Five-Year Credit Agreement -------------------------- dated as of the date hereof among the Company, the borrowing subsidiaries from time to time party thereto, the lenders from time to time party thereto, Chase, as administrative agent, Chase Manhattan International Limited, as London agent and Salomon Smith Barney Inc., as syndication agent. "Fixed Rate" means, with respect to any Competitive Loan (other than a ---------- Eurocurrency Competitive Loan), the fixed rate of interest per annum specified by the Lender making such Competitive Loan in its related Competitive Bid. "Fixed Rate Loan" means a Competitive Loan bearing interest at a Fixed --------------- Rate. "Foreign Lender" means any Lender that is organized under the laws of -------------- a jurisdiction other than that in which the applicable Borrower is located. For purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction. "Foreign Subsidiary" means any Subsidiary that is not a Domestic ------------------ Subsidiary. "Funded Debt" means all Indebtedness of the type described in clauses ----------- (a) and (b) of the definition thereof having a maturity of more than 12 months from the date such Indebtedness was incurred or having a maturity of 12 months or less but by its terms being renewable or extendable beyond 12 months from the date such Indebtedness was incurred at the option of the obligor. "GAAP" means generally accepted accounting principles in the United ---- States of America applied in a manner consistent with the financial statements referred to in Section 3.04(a). "Governmental Authority" means the government of the United States of ---------------------- America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government. "Guarantee" of or by any Person (the "guarantor") means any --------- --------- obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the "primary obligor") in any manner, whether directly or --------------- indirectly, and including any obligation of 9 the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness or obligation; provided, that the term -------- Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. "Guarantor Subsidiary" means any Subsidiary that shall have delivered -------------------- to the Administrative Agent (a) a guarantee agreement in form and substance satisfactory to the Administrative Agent under which it shall guarantee the payment of the Obligations and (b) such evidence as the Administrative Agent may reasonably have requested (which may include an opinion of counsel qualified in any relevant jurisdiction) as to the corporate power and authority of such Subsidiary to enter into and the enforceability of such guarantee agreement and such other matters related to such guarantee agreement as the Administrative Agent may reasonably have determined to be material. "Indebtedness" of any Person means, without duplication, (a) all ------------ obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid, (d) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (e) all obligations of such Person in respect of the deferred purchase price of property or services (excluding current accounts payable incurred in the ordinary course of business), (f) all Indebtedness of others secured by any Mortgage on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (g) all Guarantees by such Person of Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i) all non-contingent obligations (and, for purposes of Section 6.02 and the definition of Material Indebtedness, all contingent obligations) of such Person to reimburse any bank or other Person in respect of amounts paid under letters of credit and similar instruments and (j) all obligations, contingent or otherwise, of such Person in respect of bankers' acceptances. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor. "Information Memorandum" means the Confidential Information Memorandum ---------------------- dated January 2000 distributed to the Lenders, together with the appendices thereto, as amended through the date hereof. 10 "Interest Election Request" means a request by the relevant Borrower ------------------------- to convert or continue a Revolving Borrowing in accordance with Section 2.06. "Interest Payment Date" means (a) with respect to any ABR Loan, the --------------------- last day of each March, June, September and December, (b) with respect to any Eurocurrency Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurocurrency Borrowing with an Interest Period of more than three months' duration, each day prior to the last day of such Interest Period that occurs at intervals of three months' duration after the first day of such Interest Period and (c) with respect to any Fixed Rate Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Fixed Rate Borrowing with an Interest Period of more than 90 days' duration (unless otherwise specified in the applicable Competitive Bid Request), each day prior to the last day of such Interest Period that occurs at intervals of 90 days' duration after the first day of such Interest Period, and any other dates that are specified in the applicable Competitive Bid Request as Interest Payment Dates with respect to such Borrowing. "Interest Period" means (a) with respect to any Eurocurrency --------------- Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is one, two, three or six months thereafter, as the applicable Borrower may elect and (b) with respect to any Fixed Rate Borrowing, the period (which shall not be less than 7 days or more than 360 days) commencing on the date of such Borrowing and ending on the date specified in the applicable Competitive Bid Request; provided, that (i) if -------- any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, in the case of a Eurocurrency Borrowing only, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day and (ii) any Interest Period pertaining to a Eurocurrency Borrowing that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and, in the case of a Revolving Borrowing, thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing. "Judgment Currency" has the meaning assigned to such term in Section ----------------- 10.13(b). "Lenders" means the Persons listed on Schedule 2.01 and any other ------- Person that shall have become a party hereto pursuant to an Assignment and Acceptance, other 11 than any such Person that shall have ceased to be a party hereto pursuant to an Assignment and Acceptance. "LIBO Rate" means, with respect to any Eurocurrency Borrowing for any --------- Interest Period, the rate appearing on Page 3750 of the Telerate Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period; provided that, to the extent that -------- an interest rate is not ascertainable pursuant to the foregoing provisions of this definition, the "LIBO Rate" shall be the average (rounded upward, if necessary, to the next 1/100 of 1%) of the respective interest rates per annum at which dollar deposits of such Borrowing are offered for such Interest Period to major banks in the London interbank market by Chase and Citibank, N.A. at approximately 11:00 a.m., London time, on the date two Business Days prior to the beginning of such Interest Period. "Loan Documents" means this Agreement, each Borrowing Subsidiary -------------- Agreement, each Borrowing Subsidiary Termination, and each promissory note delivered pursuant to this Agreement. "Loans" means the loans made by the Lenders to the Borrowers pursuant ----- to this Agreement. "LucasVarity" shall mean LucasVarity Limited, formerly known as ----------- LucasVarity plc, an English company. "Margin" means, with respect to any Competitive Loan bearing interest ------ at a rate based on the LIBO Rate, the marginal rate of interest, if any, to be added to or subtracted from the LIBO Rate to determine the rate of interest applicable to such Loan, as specified by the Lender making such Loan in its related Competitive Bid. "Margin Stock" means "margin stock" as defined in Regulation U. ------------ "Material Adverse Effect" means a material adverse effect on (a) the ----------------------- consolidated financial condition of the Company and the consolidated Subsidiaries, taken as a whole or (b) the ability of the Company to perform its payment obligations under the Loan Documents. 12 "Material Indebtedness" means Indebtedness (other than the Loans), of --------------------- any one or more of the Company and the Material Subsidiaries in an aggregate principal amount exceeding $100,000,000. "Material Subsidiary" means (a) any Borrowing Subsidiary, (b) any ------------------- subsidiary that directly or indirectly owns or Controls any Borrowing Subsidiary or other Material Subsidiary and (c) any other Subsidiary whose assets (or, if such Subsidiary has subsidiaries, whose consolidated assets) are at least equal to $100,000,000. "Maturity Date" means the first anniversary of the Termination Date. ------------- "Moody's" means Moody's Investors Service, Inc. ------- "Mortgage" has the meaning assigned to such term in Section 6.02. -------- "Multiemployer Plan" means a multiemployer plan as defined in Section ------------------ 4001(a)(3) of ERISA. "Obligations" means the due and punctual payment of (a) the principal ----------- of and premium, if any, and interest (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) on the Loans made to any Borrower, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise and (b) all other monetary obligations, including fees, costs, expenses and indemnities, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), of any Borrower under this Agreement and the other Loan Documents. "Other Taxes" means any present or future stamp or documentary taxes ----------- and any other excise or property taxes, or similar charges or levies, which arise from any payment made pursuant to this Agreement or any Loan Document or from the execution, delivery, registration or enforcement of, or otherwise with respect to, this Agreement or any Loan Document; provided that Other Taxes shall -------- not include Excluded Taxes. "PBGC" means the Pension Benefit Guaranty Corporation referred to and ---- defined in ERISA and any successor entity performing similar functions. "Permitted Subsidiary Indebtedness" means (a) Indebtedness under this --------------------------------- Agreement or the 364-Day Credit Agreement, (b) any Indebtedness of a Subsidiary owed to the Company or another Subsidiary, (c) Indebtedness of Guarantor Subsidiaries, (d) any Indebtedness deemed incurred in connection with one or more receivables securitization transactions entered into by the Company and/or one or more Subsidiaries 13 in an aggregate amount of up to $500,000,000 (minus the amount of any such Indebtedness of the Company) and (e) any Indebtedness of a finance Subsidiary with no significant assets or operations to the extent (i) such Indebtedness is Guaranteed by the Company and is not Guaranteed, or secured by assets or obligations of, any other Subsidiary, (ii) the proceeds of such Indebtedness are dividended to the Company or another Subsidiary or advanced to the Company and (iii) such finance Subsidiary is not the obligee in respect of any Indebtedness of any other Subsidiary. "Person" means any natural person, corporation, limited liability ------ company, trust, joint venture, association, company, partnership, Governmental Authority or other entity. "Plan" means any employee pension benefit plan (other than a ---- Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which any Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Prime Rate" means the rate of interest per annum publicly announced ---------- from time to time by The Chase Manhattan Bank as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective. "Principal Property" means any single manufacturing plant, engineering ------------------ facility or research facility owned or leased by the Company or a Domestic Subsidiary other than any such plant or facility or portion thereof which the Board of Directors reasonably determines not to be of material importance to the Company and its Subsidiaries taken as a whole. "Register" has the meaning set forth in Section 10.04. -------- "Related Parties" means, with respect to any specified Person, such --------------- Person's Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person's Affiliates. "Required Lenders" means, at any time, Lenders having Revolving Credit ---------------- Exposures and unused Commitments representing more than 50% of the sum of the total Revolving Credit Exposures and unused Commitments at such time; provided -------- that, for purposes of declaring the Loans to be due and payable pursuant to Article VII, and for all purposes after the Loans become due and payable pursuant to Article VII or the Commitments expire or terminate, the outstanding Competitive Loans of the Lenders shall be included in their respective Revolving Credit Exposures in determining the Required Lenders. 14 "Revolving Credit Exposure" means, with respect to any Lender at any ------------------------- time, such Lender's Applicable Percentage of the aggregate outstanding principal amount of the Revolving Loans at such time. "Revolving Loan" means a Loan made pursuant to Sections 2.01 and -------------- 2.03. "Specified Company Indebtedness" means, at any time, (a) all ------------------------------ Indebtedness of the Company secured by Mortgages that would be prohibited by Section 6.02 but for the provisions of clause (h) thereof; (b) all Attributable Debt of the Company related to Sale and Leaseback Transactions that would be prohibited by Section 6.03 but for the provisions of clause (b) thereof; (c) all Indebtedness of the Company secured by Mortgages on capital stock of or other equity interests in Foreign Subsidiaries; and (d) all Indebtedness of the Company that is secured by Mortgages on accounts receivable or that is deemed to arise in connection with receivables securitization transactions, but only to the extent the amount of such Indebtedness of the Company and the Domestic Subsidiaries so secured or so arising exceeds $500,000,000. "S&P" means Standard & Poor's Ratings Services, a division of The --- McGraw-Hill Companies, Inc. "Statutory Reserve Rate" means a fraction (expressed as a decimal), ---------------------- the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board to which the Administrative Agent is subject for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurocurrency Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "subsidiary" means, with respect to any Person (the "parent") at any ---------- ------ date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, or (b) that is, as of 15 such date, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent. "Subsidiary" means any subsidiary of the Company. ---------- "Taxes" means any and all present or future taxes or other charges of ----- any nature deducted, withheld or otherwise imposed with respect to any payment by any Borrower pursuant to this Agreement or any Loan Document, and all liabilities with respect thereto other than Excluded Taxes. "Termination Date" means January 23, 2001. ---------------- "Transactions" means the execution, delivery and performance by the ------------ Borrowers of the Loan Documents, the borrowing of Loans and the use of the proceeds thereof. "Type", when used in reference to any Loan or Borrowing, refers to ---- whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Adjusted LIBO Rate, the Alternate Base Rate or, in the case of a Competitive Loan or Borrowing, the LIBO Rate or a Fixed Rate. "Wholly Owned Domestic Subsidiary" means each Domestic Subsidiary all -------------------------------- the outstanding shares of which, other than directors' qualifying shares, shall at the time be owned by the Company or by the Company and one or more Wholly Owned Domestic Subsidiaries, or by one or more Wholly Owned Domestic Subsidiaries. "Withdrawal Liability" means liability to a Multiemployer Plan as a -------------------- result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. SECTION 1.02. Classification of Loans and Borrowings. For purposes --------------------------------------- of this Agreement, Loans may be classified and referred to by Class (e.g., a ---- "Revolving Loan") or by Type (e.g., a "Eurocurrency Loan") or by Class and Type ---- (e.g., a "Eurocurrency Revolving Loan"). Borrowings also may be classified and ---- referred to by Class (e.g., a "Revolving Borrowing") or by Type (e.g., a ---- ---- "Eurocurrency Borrowing") or by Class and Type (e.g., a "Eurocurrency Revolving ---- Borrowing"). SECTION 1.03. Terms Generally. The definitions of terms herein shall ---------------- apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". The word "will" shall be construed to have the same meaning and effect as the word "shall". Unless the context requires otherwise (a) any 16 definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person's successors and assigns, (c) the words "herein", "hereof" and "hereunder", and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (e) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. SECTION 1.04. Accounting Terms; GAAP. Except as otherwise expressly ----------------------- provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided -------- that, if the Company notifies the Administrative Agent that the Company requests an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision (or if the Administrative Agent notifies the Company that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith. ARTICLE II The Credits ----------- SECTION 2.01. Commitments. Subject to the terms and conditions set ------------ forth herein, each Lender agrees to make Revolving Loans to any Borrower from time to time during the Availability Period in Dollars in an aggregate principal amount that will not result in (a) such Lender's Revolving Credit Exposure exceeding its Commitment or (b) the sum of the total Revolving Credit Exposures plus the aggregate principal amount of the outstanding Competitive Loans exceeding the total Commitments. Within the foregoing limits, and subject to the terms and conditions set forth herein, any Borrower may borrow, prepay and reborrow Revolving Loans. SECTION 2.02. Loans and Borrowings. (a) Each Revolving Loan shall --------------------- be made as part of a Borrowing consisting of Revolving Loans made by the Lenders ratably in accordance with their respective Commitments. Each Competitive Loan shall 17 be made in accordance with the procedures set forth in Section 2.04. The failure of any Lender to make any Loan required to be made by it shall not relieve any other Lender of its obligations hereunder; provided that the Commitments and -------- Competitive Bids of the Lenders are several and no Lender shall be responsible for any other Lender's failure to make Loans as required hereunder. (b) Subject to Section 2.12, (i) each Revolving Borrowing shall be comprised entirely of ABR Loans or Eurocurrency Loans as the applicable Borrower may request in accordance herewith, and (ii) each Competitive Borrowing shall be comprised entirely of Eurocurrency Loans or Fixed Rate Loans as the applicable Borrower may request in accordance herewith. Each Lender at its option may make any Eurocurrency Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall -------- not affect the obligation of any Borrower to repay such Loan in accordance with the terms of this Agreement. (c) At the commencement of each Interest Period for any Revolving Borrowing, such Revolving Borrowing shall be in an aggregate amount that is at least equal to $10,000,000 and an integral multiple of $5,000,000; provided that -------- an ABR Revolving Borrowing may be in an aggregate amount that is equal to the entire unused balance of the total Commitments. Each Competitive Borrowing shall be in an aggregate amount that is an integral multiple of $5,000,000 and not less than $10,000,000. Borrowings of more than one Type and Class may be outstanding at the same time; provided that there shall not at any time be more -------- than a total of 20 Eurocurrency Revolving Borrowings outstanding. (d) Notwithstanding any other provision of this Agreement, no Borrower shall be entitled to request, or to elect to convert or continue, any Borrowing if the Interest Period requested with respect thereto would end after the Maturity Date. SECTION 2.03. Requests for Revolving Borrowings. To request a ----------------------------------- Borrowing, the applicable Borrower, or the Company on behalf of the applicable Borrower, shall notify the Administrative Agent of such request by telephone (a) in the case of a Eurocurrency Borrowing, not later than 11:00 a.m., New York City time, three Business Days before the date of the proposed Borrowing or (b) in the case of an ABR Borrowing, not later than 10:00 a.m., New York City time, on the Business Day of the proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Borrowing Request in a form approved by the Administrative Agent and signed by the applicable Borrower, or by the Company on behalf of the applicable Borrower. Each such telephonic and written Borrowing Request shall specify the following information in compliance with Section 2.02: 18 (i) the Borrower requesting such Borrowing (or on whose behalf the Company is requesting such Borrowing); (ii) the aggregate principal amount of the requested Borrowing; (iii) the date of the requested Borrowing, which shall be a Business Day; (iv) whether the requested Borrowing is to be an ABR Borrowing or a Eurocurrency Borrowing; (v) in the case of a Eurocurrency Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term "Interest Period"; and (vi) the location and number of the Borrower's account to which funds are to be disbursed, which shall comply with the requirements of Section 2.05. If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be an ABR Borrowing. If no Interest Period is specified with respect to any requested Eurocurrency Revolving Borrowing, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. Promptly following receipt of a Borrowing Request in accordance with this Section, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender's Loan to be made as part of the requested Borrowing. SECTION 2.04. Competitive Bid Procedure. (a) Subject to the terms -------------------------- and conditions set forth herein, from time to time during the Availability Period any Borrower may request Competitive Bids and may (but shall not have any obligation to) accept Competitive Bids and borrow Competitive Loans, in each case denominated in Dollars; provided that after giving effect to any Borrowing -------- of Competitive Loans the sum of the total Revolving Credit Exposures plus the aggregate principal amount of the outstanding Competitive Loans shall not exceed the total Commitments. To request Competitive Bids, the Company or the applicable Borrowing Subsidiary shall notify the Administrative Agent of such request by telephone, in the case of a Eurocurrency Borrowing, not later than 11:00 a.m., New York City time, four Business Days before the date of the proposed Borrowing and, in the case of a Fixed Rate Borrowing, not later than 10:00 a.m., New York City time, one Business Day before the date of the proposed Borrowing; provided that the Borrowers may submit up to (but not more than) -------- three Competitive Bid Requests on the same day. Each such telephonic Competitive Bid Request shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Competitive Bid Request in a form approved by the Administrative Agent and signed by the relevant Borrower. Each such telephonic and written 19 Competitive Bid Request shall specify the following information in compliance with Section 2.02: (i) the Borrower requesting such Borrowing (or on whose behalf the Company is requesting such Borrowing); (ii) the aggregate principal amount of the requested Borrowing; (iii) the date of the requested Borrowing, which shall be a Business Day; (iv) whether such Borrowing is to be a Eurocurrency Borrowing or a Fixed Rate Borrowing; (v) the Interest Period to be applicable to such Borrowing, which shall be a period contemplated by the definition of the term "Interest Period"; and (vi) the location and number of the Borrower's account to which funds are to be disbursed, which shall comply with the requirements of Section 2.05. Promptly following receipt of a Competitive Bid Request in accordance with this Section, the Administrative Agent shall notify the Lenders of the details thereof by telecopy, inviting the Lenders to submit Competitive Bids. (b) Each Lender may (but shall not have any obligation to) make one or more Competitive Bids to any Borrower in response to a Competitive Bid Request. Each Competitive Bid by a Lender must be in a form approved by the Administrative Agent and must be received by the Administrative Agent by telecopy, in the case of a Eurocurrency Competitive Borrowing, not later than 9:30 a.m., New York City time, three Business Days before the proposed date of such Competitive Borrowing, and in the case of a Fixed Rate Borrowing, not later than 9:30 a.m., New York City time, on the proposed date of such Competitive Borrowing. Competitive Bids that do not conform substantially to the form approved by the Administrative Agent may be rejected by the Administrative Agent, and the Administrative Agent shall notify the applicable Lender as promptly as practicable. Each Competitive Bid shall specify (i) the principal amount (which shall be a minimum of $5,000,000 and an integral multiple of $1,000,000 and which may equal the entire principal amount of the Competitive Borrowing requested by the relevant Borrower) of the Competitive Loan or Loans that the Lender is willing to make, (ii) the Competitive Bid Rate or Rates at which the Lender is prepared to make such Loan or Loans (expressed as a percentage rate per annum in the form of a decimal to no more than four decimal places) and (iii) the Interest Period applicable to each such Loan and the last day thereof. 20 (c) The Administrative Agent shall promptly notify the Company by telecopy of the Competitive Bid Rate and the principal amount specified in each Competitive Bid and the identity of the Lender that shall have made such Competitive Bid. (d) Subject only to the provisions of this paragraph, the Borrower may accept or reject any Competitive Bid. The Borrower shall notify the Administrative Agent by telephone, confirmed by telecopy in a form approved by the Administrative Agent, whether and to what extent it has decided to accept or reject each Competitive Bid, in the case of a Eurocurrency Competitive Borrowing, not later than 10:30 a.m., New York City time, three Business Days before the date of the proposed Competitive Borrowing, and in the case of a Fixed Rate Borrowing, not later than 10:30 a.m., New York City time, on the date of the proposed Competitive Borrowing; provided that (i) the failure of the -------- Borrower to give such notice shall be deemed to be a rejection of each Competitive Bid, (ii) the Borrower shall not accept a Competitive Bid made at a particular Competitive Bid Rate if the relevant Borrower rejects a Competitive Bid made at a lower Competitive Bid Rate, (iii) the aggregate amount of the Competitive Bids accepted by the Borrower shall not exceed the aggregate amount of the requested Competitive Borrowing specified in the related Competitive Bid Request, (iv) to the extent necessary to comply with clause (iii) above, the Borrower may accept Competitive Bids at the same Competitive Bid Rate in part, which acceptance, in the case of multiple Competitive Bids at such Competitive Bid Rate, shall be made pro rata in accordance with the amount of each such Competitive Bid, and (v) except pursuant to clause (iv) above, no Competitive Bid shall be accepted for a Competitive Loan unless the amount of such Competitive Loan is an integral multiple of $5,000,000; provided further that if ---------------- a Competitive Loan must be in an amount less than $5,000,000 because of the provisions of clause (iv) above, such Competitive Loan may have a minimum amount of $1,000,000 and in calculating the pro rata allocation of acceptances of portions of multiple Competitive Bids at a particular Competitive Bid Rate pursuant to clause (iv) the amounts shall be rounded to integral multiples of $1,000,000 in a manner determined by the Borrower. A notice given by a Borrower pursuant to this paragraph shall be irrevocable. (e) The Administrative Agent shall promptly notify each bidding Lender by telecopy whether or not its Competitive Bid has been accepted (and, if so, the amount and Competitive Bid Rate so accepted), and each successful bidder will thereupon become bound, subject to the terms and conditions hereof, to make the Competitive Loan in respect of which its Competitive Bid has been accepted. (f) If the Administrative Agent shall elect to submit a Competitive Bid in its capacity as a Lender, it shall submit such Competitive Bid directly to the Borrower at least one quarter of an hour earlier than the time by which the other Lenders are required to submit their Competitive Bids to the Administrative Agent pursuant to paragraph (b) of this Section. 21 SECTION 2.05. Funding of Borrowings. (a) Each Lender shall make ---------------------- each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds by 12:00 noon, New York City time, to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders. The Administrative Agent will make such Loans available to the Borrower by promptly crediting the amounts so received, in like funds, to an account of the Borrower maintained by the Administrative Agent and designated by such Borrower in the applicable Borrowing Request or Competitive Bid Request. (b) Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender's share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with paragraph (a) of this Section and may, in reliance upon such assumption, make available to the relevant Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent, then the applicable Lender and such Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to such Borrower to but excluding the date of payment to the Administrative Agent, at the Federal Funds Effective Rate. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender's Loan included in such Borrowing. SECTION 2.06. Interest Elections. (a) Each Revolving Borrowing ------------------- initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Eurocurrency Revolving Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, the relevant Borrower may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the case of a Eurocurrency Revolving Borrowing, may elect Interest Periods therefor, all as provided in this Section. A Borrower may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing. This Section shall not apply to Competitive Borrowings, which may not be converted or continued. (b) To make an election pursuant to this Section, the Company or the Borrowing Subsidiary (or the Company on its behalf) shall notify the Administrative Agent of such election by telephone by the time that a Borrowing Request would be required under Section 2.03 if such Borrower were requesting a Revolving Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written 22 Interest Election Request in a form approved by the Administrative Agent and signed by the relevant Borrower, or by the Company on its behalf. (c) Each telephonic and written Interest Election Request shall specify the following information in compliance with Section 2.02: (i) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing); (ii) the aggregate principal amount of the requested Borrowing; (iii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day; (iv) whether the resulting Borrowing is to be an ABR Borrowing or a Eurocurrency Borrowing; and (v) if the resulting Borrowing is a Eurocurrency Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term "Interest Period". If any such Interest Election Request requests a Eurocurrency Borrowing but does not specify an Interest Period, then the relevant Borrower shall be deemed to have selected an Interest Period of one month's duration. (d) Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of the details thereof and of such Lender's portion of each resulting Borrowing. (e) If the relevant Borrower fails to deliver a timely Interest Election Request with respect to a Eurocurrency Revolving Borrowing prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period such Borrowing shall be converted to an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Administrative Agent, at the request of the Required Lenders, so notifies the Company, then, so long as an Event of Default is continuing (i) no outstanding Revolving Borrowing may be converted to or continued as a Eurocurrency Borrowing and (ii) unless repaid, each Eurocurrency Revolving Borrowing shall be converted to an ABR Borrowing at the end of the Interest Period applicable thereto. 23 SECTION 2.07. Termination and Reduction of Commitments. (a) Unless ----------------------------------------- previously terminated, the Commitments shall terminate on the Termination Date. (b) The Company may at any time terminate, or from time to time reduce, the Commitments; provided that (i) each reduction of the Commitments -------- shall be in an amount that is an integral multiple of $10,000,000 and (ii) the Company shall not terminate or reduce the Commitments if, after giving effect to any concurrent prepayment of the Loans in accordance with Section 2.09, the sum of the Revolving Credit Exposures plus the aggregate principal amount of outstanding Competitive Loans would exceed the total Commitments. (c) The Company shall notify the Administrative Agent of any election to terminate or reduce the Commitments under paragraph (b) of this Section at least one Business Day prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of any notice, the Administrative Agent shall advise the Lenders of the contents thereof. Each notice delivered by the Company pursuant to this Section shall be irrevocable; provided that a notice of termination of -------- the Commitments delivered by the Company may state that such notice is conditioned upon the effectiveness of other credit facilities, in which case such notice may be revoked by the Company (by notice to the Administrative Agent on or prior to the specified effective date) if such condition is not satisfied. Any termination or reduction of the Commitments shall be permanent. Each reduction of the Commitments shall be made ratably among the Lenders in accordance with their respective Commitments. SECTION 2.08. Repayment of Loans; Evidence of Debt. (a) Each ------------------------------------- Borrower hereby unconditionally promises to pay (i) to the Administrative Agent for the account of each Lender the then unpaid principal amount of each Revolving Loan on the Maturity Date and (ii) to the Administrative Agent for the account of each Lender the then unpaid principal amount of each Competitive Loan on the last day of the Interest Period applicable to such Loan. (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of each Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. (c) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Class and Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from each Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender's share thereof. 24 (d) The entries made in the accounts maintained pursuant to paragraph (b) or (c) of this Section shall, absent manifest error, be prima facie evidence ----- ----- of the existence and amounts of the obligations recorded therein; provided that -------- the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of any Borrower to repay the Loans in accordance with the terms of this Agreement. (e) Any Lender may request that Loans made by it be evidenced by a promissory note. In such event, each Borrower shall prepare, execute and deliver to such Lender a promissory note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in a form approved by the Administrative Agent. Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 10.04) be represented by one or more promissory notes in such form payable to the order of the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns). SECTION 2.09. Prepayment of Loans. (a) Any Borrower shall have the -------------------- right at any time and from time to time to prepay any Borrowing of such Borrower in whole or in part, subject to prior notice in accordance with paragraph (c) of this Section; provided that a Borrower shall not have the right to prepay any -------- Competitive Loan without the prior consent of the Lender thereof. (b) In the event and on each occasion that the sum of the aggregate Revolving Credit Exposures and the aggregate outstanding principal amount of the Competitive Loans exceeds 105% of the total Revolving Commitments, the Borrowers shall promptly prepay Revolving Borrowings in an aggregate amount equal to such excess. The Administrative Agent shall promptly notify the Company in the event it determines that any prepayment is required under this paragraph. (c) The Company shall notify the Administrative Agent by telephone (confirmed by telecopy) of any prepayment hereunder not later than 11:00 a.m., New York City time, one Business Day before the date of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date and the principal amount of each Borrowing or portion thereof to be prepaid; provided -------- that, if a notice of prepayment is given in connection with a conditional notice of termination of the Commitments as contemplated by Section 2.07, then such notice of prepayment may be revoked if such notice of termination is revoked in accordance with Section 2.07. Promptly following receipt of any such notice relating to a Revolving Borrowing, the Administrative Agent shall advise the Lenders of the contents thereof. Each partial prepayment of any Revolving Borrowing shall be in an amount that would be permitted in the case of an advance of a Revolving Borrowing of the same Type as provided in Section 2.02. Each 25 prepayment of a Revolving Borrowing shall be applied ratably to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the extent required by Section 2.11. SECTION 2.10. Fees. (a) The Company agrees to pay to the ----- Administrative Agent for the account of each Lender a facility fee, which shall accrue at the rate of .10% per annum on the daily amount of the Commitment of such Lender (whether used or unused) during the period from and including the date hereof to but excluding the date on which such Commitment terminates; provided that, if such Lender continues to have any Revolving Credit Exposure - -------- after its Commitment terminates, then such facility fee shall continue to accrue on the daily amount of such Lender's Revolving Credit Exposure from and including the date on which its Commitment terminates to but excluding the date on which such Lender ceases to have any Revolving Credit Exposure. Accrued facility fees shall be payable in arrears on the last day of March, June, September and December of each year and on the date on which the Commitments terminate, commencing on the first such date to occur after the date hereof; provided that any facility fees accruing after the date on which the Commitments - -------- terminate shall be payable on demand. All facility fees shall be computed on the basis of a year of 365 days (or 366 days in the case of a leap year) and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). (b) For any day on which the sum of the total Revolving Credit Exposure plus the aggregate principal amount of the outstanding Competitive Loans shall be greater than 33-1/3% of the total Commitments, and for each day after the Commitments shall have terminated, the Borrower shall pay to the Administrative Agent for the account of each Lender a utilization fee which shall accrue at the rate of .125% per annum on the aggregate amount of such Lender's outstanding Loans on such day. The accrued utilization fees, if any, shall be payable in arrears on the last day of each March, June, September and December and on the date on which the Commitments shall have terminated and no Loans shall be outstanding. All utilization fees shall be computed on the basis of a year of 365 days (or 366 days in the case of a leap year) and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). (c) The Company agrees to pay to the Administrative Agent, for its own account, fees payable in the amounts and at the times separately agreed upon between the Company and the Administrative Agent. (d) All fees payable hereunder shall be paid on the dates due, in immediately available funds, to the Administrative Agent for distribution, in the case of facility fees and utilization fees, to the Lenders. Fees paid shall not be refundable absent manifest error in payment or computation. 26 SECTION 2.11. Interest. (a) The Loans comprising each ABR Borrowing --------- shall bear interest at the Alternate Base Rate. (b) The Loans comprising each Eurocurrency Borrowing shall bear interest (i) in the case of a Eurocurrency Revolving Loan, at the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus .525% per annum, or (ii) in the case of a Eurocurrency Competitive Loan, at the LIBO Rate for the Interest Period in effect for such Borrowing plus (or minus, as applicable) the Margin applicable to such Loan. (c) Each Fixed Rate Loan shall bear interest at the Fixed Rate applicable to such Loan. (d) Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or other amount payable by any Borrower hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bear interest, after as well as before judgment, at a rate per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the rate otherwise applicable to such Loan as provided in the preceding paragraphs of this Section or (ii) in the case of any other amount, 2% plus the rate applicable to ABR Loans as provided in paragraph (a) of this Section. (e) Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan and, in the case of Revolving Loans, upon termination of the Commitments; provided that (i) interest accrued pursuant to -------- paragraph (d) of this Section shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan (other than a prepayment of an ABR Revolving Loan prior to the end of the Availability Period), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (iii) in the event of any conversion of any Eurocurrency Revolving Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion. (f) All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the Alternate Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable Alternate Base Rate, Adjusted LIBO Rate or LIBO Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error. SECTION 2.12. Alternate Rate of Interest. If prior to the --------------------------- commencement of any Interest Period for a Eurocurrency Borrowing: 27 (a) the Administrative Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such Interest Period; or (b) the Administrative Agent is advised by the Required Lenders (or, in the case of a Eurocurrency Competitive Loan, the Lender that is required to make such Loan) that the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such Interest Period will not adequately and fairly reflect the cost to such Lenders (or Lender) of making or maintaining their Loans (or its Loan) included in such Borrowing for such Interest Period; then the Administrative Agent shall give notice thereof to the Company and the Lenders by telephone or telecopy as promptly as practicable thereafter and, until the Administrative Agent notifies the Company and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Revolving Borrowing to, or continuation of any Revolving Borrowing as, a Eurocurrency Borrowing shall be ineffective, (ii) any Borrowing Request for a Eurocurrency Revolving Borrowing shall be deemed a request for an ABR Borrowing and (iii) any request by a Borrower for a Eurocurrency Competitive Borrowing shall be ineffective; provided -------- that if the circumstances giving rise to such notice do not affect all the Lenders, then requests by a Borrower for Eurocurrency Competitive Borrowings may be made to Lenders that are not affected thereby. SECTION 2.13. Increased Costs. (a) If any Change in Law shall: ---------------- (i) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender (except any such reserve requirement reflected in the Adjusted LIBO Rate); or (ii) impose on any Lender or the London interbank market any other condition affecting this Agreement or Eurocurrency Loans or Fixed Rate Loans made by such Lender; and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurocurrency Loan or Fixed Rate Loan (or of maintaining its obligation to make any such Loan) or to reduce the amount of any sum received or receivable by such Lender hereunder (whether of principal, interest or otherwise), then the Company will pay to such Lender such additional amount or amounts as will compensate such Lender for such additional costs incurred or reduction suffered. 28 (b) If any Lender determines that any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on such Lender's capital or on the capital of such Lender's holding company, if any, as a consequence of this Agreement or the Loans made by, such Lender, to a level below that which such Lender or such Lender's holding company could have achieved but for such Change in Law (taking into consideration such Lender's policies and the policies of such Lender's holding company with respect to capital adequacy), then from time to time the Company will pay to such Lender, such additional amount or amounts as will compensate such Lender or such Lender's holding company for any such reduction suffered. (c) A certificate of a Lender setting forth the amount or amounts necessary to compensate such Lender or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section shall be delivered to the Company and shall be conclusive absent manifest error. The Company shall pay such Lender, as the case may be, the amount shown as due on any such certificate within 15 days after receipt thereof. (d) Failure or delay on the part of any Lender to demand compensation pursuant to this Section shall not constitute a waiver of such Lender's right to demand such compensation; provided that the Company shall not be required to -------- compensate a Lender pursuant to this Section for any increased costs or reductions incurred more than 45 days prior to the date that such Lender notifies the Company of the Change in Law giving rise to such increased costs or reductions and of such Lender's intention to claim compensation therefor; provided further that, if the Change in Law giving rise to such increased costs - -------- ------- or reductions is retroactive, then the 45-day period referred to above shall be extended to include the period of retroactive effect thereof. (e) Notwithstanding the foregoing provisions of this Section, a Lender shall not be entitled to compensation pursuant to this Section in respect of any Competitive Loan if the Change in Law that would otherwise entitle it to such compensation shall have been publicly announced prior to submission of the Competitive Bid pursuant to which such Loan was made. SECTION 2.14. Break Funding Payments. In the event of (a) the ----------------------- payment of any principal of any Eurocurrency Loan or Fixed Rate Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of any Eurocurrency Loan other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepay any Revolving Loan on the date specified in any notice delivered pursuant hereto, (d) the failure to borrow any Competitive Loan after accepting the Competitive Bid to make such Loan, or (e) the assignment of any Eurocurrency Loan or Fixed Rate Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Company pursuant to Section 2.17, then, in any such event, the Company shall compensate each Lender for the loss, cost and expense attributable to such event. In the case of a 29 Eurocurrency Loan, such loss, cost or expense to any Lender shall be deemed to include an amount determined by such Lender to be the excess, if any, of (i) the amount of interest which would have accrued on the principal amount of such Loan had such event not occurred, at the Adjusted LIBO Rate that would have been applicable to such Loan, for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such Loan), over (ii) the amount of interest which would accrue on such principal amount for such period at the interest rate which such Lender would bid were it to bid, at the commencement of such period, for dollar deposits of a comparable amount and period from other banks in the eurocurrency market. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section shall be delivered to the Company and shall be conclusive absent manifest error. The Company shall pay such Lender the amount shown as due on any such certificate within 15 days after receipt thereof. SECTION 2.15. Taxes. (a) Each payment by a Borrower to or for the ------ account of a Lender hereunder or under any Loan Document shall be made without deduction for any Taxes or Other Taxes; provided that, if a Borrower shall be required by law to deduct any Taxes or Other Taxes from such payment, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) such Lender receives an amount equal to the sum it would have received had no such deduction been made, (ii) such Borrower shall make such deduction, (iii) such Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law and (iv) such Borrower shall promptly furnish to the Administrative Agent, at its address specified in or pursuant to Section 10.01, the original or a certified copy of a receipt evidencing payment thereof or other reasonably satisfactory evidence thereof. (b) The relevant Borrower shall indemnify each Lender for the full amount of any Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed or asserted (whether or not correctly) by any jurisdiction on amounts payable under this Section) paid by such Lender with respect to amounts paid by such Borrower pursuant to this Agreement or any Loan Document, and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. This indemnification shall be paid within 15 days after the later of the date such Lender makes demand therefor and the date such payment is made. (c) Each Lender organized under the laws of a jurisdiction outside the United States, before it signs and delivers this Agreement in the case of each Lender listed on the signature pages hereof and before it becomes a Lender in the case of each other Lender, and from time to time thereafter if requested in writing by the Company (but only so long as such Lender remains lawfully able to do so), shall provide the 30 Company and the Administrative Agent with Internal Revenue Service form W-8BEN or W-8ECI in duplicate, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Lender is entitled to benefits under an income tax treaty to which the United States is a party which exempts such Lender from United States withholding tax or reduces the rate of withholding tax on payments of interest for the account of such Lender or certifying that the income receivable by it pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States. (d) For any period with respect to which a Lender has failed to provide the Company or the Administrative Agent with the appropriate form as required by paragraph (c) above (unless such failure is due to a change in treaty, law or regulation occurring after the date on which such form originally was required to be provided or results from the Company's failure to make a timely written request pursuant to paragraph (c) above), such Lender shall not be entitled to indemnification under paragraphs (a) or (b) above with respect to Taxes imposed by the United States; provided that if a Lender, which is -------- otherwise exempt from or subject to a reduced rate of withholding tax, becomes subject to Taxes because of its failure to deliver a form required hereunder, the Borrowers shall take such steps as such Lender shall reasonably request to assist such Lender to recover such Taxes. SECTION 2.16. Payments Generally; Pro Rata Treatment; Sharing of Set- ------------------------------------------------------ offs. (a) Each Borrower shall make each payment required to be made by it - ---- hereunder or under any other Loan Document (whether of principal, interest, fees, or of amounts payable under Section 2.13, 2.14 or 2.15, or otherwise) prior to 2:00 p.m., New York City time, on the date when due, in immediately available funds, without set-off or counterclaim. All such payments shall be made to the Administrative Agent to such account as it shall from time to time specify at its offices at 270 Park Avenue, New York, New York, or, in any such case, at such other address as the Administrative Agent shall from time to time specify in a notice delivered to the Company; provided that payments pursuant to -------- Section 2.13, Section 2.14, Section 2.15 and Section 10.03 shall be made directly to the Persons entitled thereto. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments hereunder shall be made in Dollars. (b) If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, interest and fees then due hereunder, such funds shall be applied (i) first, towards payment of interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, towards payment of principal 31 then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal then due to such parties. (c) If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Revolving Loans resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Revolving Loans and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Revolving Loans of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Revolving Loans; provided that (i) if any -------- such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by any Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans to any assignee or participant, other than to the Company or any Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). Each Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against such Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation. (d) Unless the Administrative Agent shall have received notice from the Company prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders hereunder that the relevant Borrower will not make such payment, the Administrative Agent may assume that such Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders, the amount due. In such event, if such Borrower has not in fact made such payment, then each of the Lenders severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation. (e) If any Lender shall fail to make any payment required to be made by it pursuant to Section 2.05(b) or 2.16(d), then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent for the account of such Lender to satisfy such 32 Lender's obligations under such Sections until all such unsatisfied obligations are fully paid. SECTION 2.17. Mitigation Obligations; Replacement of Lenders. (a) ----------------------------------------------- If any Lender requests compensation under Section 2.13, or if any Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.15, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.13 or 2.15, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. (b) If any Lender requests compensation under Section 2.13, or if any Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.15, or if any Lender defaults in its obligation to fund Loans hereunder, then the Company may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 10.04), all its interests, rights and obligations under the Loan Documents (other than any outstanding Competitive Loans held by it) to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that (i) the Company -------- shall have received the prior written consent of the Administrative Agent, which consent shall not unreasonably be withheld, (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans (other than Competitive Loans), accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Company (in the case of all other amounts) and (iii) in the case of any such assignment resulting from a claim for compensation under Section 2.13 or payments required to be made pursuant to Section 2.15, such assignment will result in a reduction in such compensation or payments. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Company to require such assignment and delegation cease to apply. SECTION 2.18. Borrowing Subsidiaries. On or after the Effective ----------------------- Date, the Company may designate any Subsidiary of the Company as a Borrowing Subsidiary by delivery to the Administrative Agent of a Borrowing Subsidiary Agreement executed by such Subsidiary and the Company, and upon such delivery such Subsidiary shall for all purposes of this Agreement be a Borrowing Subsidiary and a party to this Agreement until the Company shall have executed and delivered to the Administrative Agent a Borrowing Subsidiary Termination with respect to such Subsidiary, whereupon such Subsidiary shall cease to be a Borrowing Subsidiary and a party to this Agreement. 33 Notwithstanding the preceding sentence, no Borrowing Subsidiary Termination will become effective as to any Borrowing Subsidiary at a time when any principal of or interest on any Loan to such Borrowing Subsidiary shall be outstanding hereunder, provided that such Borrowing Subsidiary Termination shall be -------- effective to terminate such Borrowing Subsidiary's right to make further Borrowings under this Agreement. Promptly following receipt of any Borrowing Subsidiary Agreement, the Administrative Agent shall send a copy thereof to each Lender. SECTION 2.19. Foreign Subsidiary Costs. (a) If the cost to any ------------------------- Lender of making or maintaining any Loan to a Borrowing Subsidiary is increased (or the amount of any sum received or receivable by any Lender (or its applicable lending office) is reduced) by an amount deemed in good faith by such Lender to be material, by reason of the fact that such Borrowing Subsidiary is incorporated in, or conducts business in, a jurisdiction outside the United States, such Borrowing Subsidiary shall indemnify such Lender for such increased cost or reduction within 15 days after demand by such Lender (with a copy to the Administrative Agent). A certificate of such Lender claiming compensation under this paragraph and setting forth the additional amount or amounts to be paid to it hereunder (and the basis for the calculation of such amount or amounts) shall be conclusive in the absence of manifest error. (b) Each Lender will promptly notify the Company and the Administrative Agent of any event of which it has knowledge that will entitle such Lender to additional interest or payments pursuant to paragraph (a) above, but in any event within 45 days after such Lender obtains actual knowledge thereof; provided that (i) if any Lender fails to give such notice within 45 -------- days after it obtains actual knowledge of such an event, such Lender shall, with respect to compensation payable pursuant to this Section 2.19 in respect of any costs resulting from such event, only be entitled to payment under this Section 2.19 for costs incurred from and after the date 45 days prior to the date that such Lender does give such notice and (ii) each Lender will designate a different applicable lending office, if, in the judgment of such Lender, such designation will avoid the need for, or reduce the amount of, such compensation and will not be otherwise disadvantageous to such Lender. ARTICLE III Representations and Warranties ------------------------------ The Company represents and warrants to the Lenders that: 34 SECTION 3.01. Organization; Powers. The Company and each Borrowing --------------------- Subsidiary is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite power and authority to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required. SECTION 3.02. Authorization; Enforceability. The Transactions are ------------------------------ within each Borrower's corporate powers and have been duly authorized by all necessary corporate and, if required, stockholder action. This Agreement has been duly executed and delivered by each Borrower and constitutes, and each other Loan Document to which any Borrower is to be a party, when executed and delivered by such Borrower, will constitute, a legal, valid and binding obligation of such Borrower, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. SECTION 3.03. Governmental Approvals; No Conflicts. The Transactions ------------------------------------- require no action by or in respect of, or filing with, any governmental body, agency or official (other than (i) Exchange Act reporting requirements and (ii) actions which have been taken, and filings which have been made, and are in full force and effect) and do not and will not contravene, or constitute a default under, any provision of applicable law or regulation or of the Amended Articles of Incorporation or Regulations (or comparable documents) of the Company or any Borrowing Subsidiary or of any agreement for borrowed money or other material agreement binding upon the Company or any Borrowing Subsidiary. SECTION 3.04. Financial Condition; No Material Adverse Change. (a) ------------------------------------------------ The Company has heretofore furnished to the Lenders its consolidated balance sheet and statements of income, stockholders equity and cash flows (i) as of and for the fiscal year ended December 31, 1998, reported on by Ernst & Young LLP, independent public accountants, and (ii) as of and for the fiscal quarter and the portion of the fiscal year ended September 30, 1999. Such financial statements present fairly, in all material respects, the financial position and results of operations and cash flows of the Company and the consolidated Subsidiaries as of such dates and for such periods in accordance with GAAP, subject to year-end audit adjustments and the absence of footnotes in the case of the statements referred to in clause (ii) above. (b) As of the date of this Agreement, there has been no material adverse change in the business, financial position or results of operations of the Company and the consolidated Subsidiaries, taken as a whole, since December 31, 1998 (other than those changes relating to or arising out of, directly or indirectly, the acquisition of LucasVarity). 35 SECTION 3.05. Litigation and Environmental Matters. (a) As of the ------------------------------------- date of this Agreement, there are no material legal proceedings, other than ordinary routine litigation incidental to the business, to which the Company or any of the consolidated Subsidiaries is a party or to which any of their respective properties is subject that are required to be disclosed in the Company's periodic reports under the Exchange Act and that have not been so disclosed or that involve this Agreement, any other Loan Document or the Transactions. (b) The Company has established accruals for matters that are probable and reasonably estimable as required by FASB Statement No. 5, "Accounting for Contingencies." To the Company's knowledge, any liability that may result from the resolution of known environmental matters in excess of amounts accrued therefor will not have a Material Adverse Effect. SECTION 3.06. Investment and Holding Company Status. Neither the -------------------------------------- Company nor any of the Borrowing Subsidiaries is (a) an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940 or (b) a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935. SECTION 3.07. Taxes. As of the date of this Agreement, the Company ------ and the consolidated Subsidiaries have timely filed or caused to be filed all material Tax returns and reports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except (a) Taxes that are being contested in good faith by appropriate proceedings and for which the Company or such Subsidiary, as applicable, has set aside on its books adequate reserves or (b) to the extent that the failure to do so could not reasonably be expected to result in a Material Adverse Effect. SECTION 3.08. ERISA. As of the date of this Agreement, no ERISA ------ Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect. As of the date of this Agreement, each member of the controlled group of corporations (as defined in Section 414(b) of the Code) which includes the Company has fulfilled its obligations under the minimum funding standards of ERISA and the Code with respect to each defined benefit plan maintained by the Company and the consolidated Subsidiaries. SECTION 3.09. Year 2000. As of the date of this Agreement, there has ---------- not occurred, and the Company does not expect that there will occur, any material disruption in the operations or business systems of the Company or the consolidated Subsidiaries, taken as a whole, resulting from the inability of computer systems of the 36 Company and the consolidated Subsidiaries or equipment containing embedded microchips to recognize or properly process dates in or following the year 2000. ARTICLE IV Conditions ---------- SECTION 4.01. Effective Date. The obligations of the Lenders to make --------------- Loans hereunder shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 10.02): (a) The Administrative Agent (or its counsel) shall have received from each party hereto either (i) a counterpart of this Agreement signed on behalf of such party or (ii) written evidence satisfactory to the Administrative Agent (which may include telecopy transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement. (b) The Administrative Agent shall have received the favorable written opinions (addressed to the Administrative Agent and the Lenders and dated the Effective Date) of the General Counsel of the Company, substantially in the form of Exhibit C, and covering such other matters relating to the Borrowers, this Agreement, the other Loan Documents or the Transactions as the Administrative Agent or the Required Lenders shall reasonably request. The Borrowers hereby request such counsel to deliver such opinion. (c) The Administrative Agent shall have received such documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the organization, existence and good standing of each of the Borrowers, the authorization of the Transactions and any other legal matters relating to the Borrowers, this Agreement, the other Loan Documents or the Transactions, all in form and substance satisfactory to the Administrative Agent and its counsel. (d) The Administrative Agent shall have received a certificate, dated the Effective Date and signed by the President, a Vice President or a Financial Officer of the Company, confirming compliance with the conditions set forth in paragraphs (a) and (b) of Section 4.02. (e) The Administrative Agent shall have received all fees and other amounts due and payable on or prior to the Effective Date, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Company hereunder or under any other Loan Document. 37 (f) All loans outstanding under the Existing Credit Agreements shall have been repaid, together with accrued interest and facility fees due thereunder, and the Existing Credit Agreements shall have been terminated. The Administrative Agent shall notify the Company and the Lenders of the Effective Date, and such notice shall be conclusive and binding. Notwithstanding the foregoing, the obligations of the Lenders to make Loans hereunder shall not become effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section 10.02) on or prior to January 25, 2000 (and, in the event such conditions are not so satisfied or waived, the Commitments shall terminate at such time). SECTION 4.02. Each Credit Event. The obligation of each Lender to ------------------ make a Loan on the occasion of any Borrowing is subject to the satisfaction of the following conditions: (a) The representations and warranties of the Borrowers set forth in this Agreement shall be true and correct on and as of the date of such Borrowing (except that, in the case of the representations and warranties set forth in Section 3.04(b), Section 3.05, Section 3.07, Section 3.08 and Section 3.09, such representations and warranties shall be true and correct on and as of the date of this Agreement). (b) At the time of and immediately after giving effect to such Borrowing, no Default shall have occurred and be continuing. Each Borrowing shall be deemed to constitute a representation and warranty by the Borrowers on the date thereof as to the matters specified in paragraphs (a) and (b) of this Section. SECTION 4.03. Initial Credit Event for each Borrowing Subsidiary. --------------------------------------------------- The obligation of each Lender to make Loans to any Borrowing Subsidiary is subject to the satisfaction of the following conditions: (a) The Administrative Agent (or its counsel) shall have received such Borrowing Subsidiary's Borrowing Subsidiary Agreement duly executed by all parties thereto. (b) The Administrative Agent shall have received a favorable written opinion of counsel for such Borrowing Subsidiary reasonably satisfactory to the Administrative Agent, substantially in the form of Exhibit D and covering such other matters relating to such Borrowing Subsidiary or its Borrowing Subsidiary Agreement as the Administrative Agent shall reasonably request. 38 (c) The Administrative Agent shall have received such documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the organization, existence and good standing of such Borrowing Subsidiary, the authorization of the Transactions insofar as they relate to such Borrowing Subsidiary and any other legal matters relating to such Borrowing Subsidiary, its Borrowing Subsidiary Agreement or such Transactions, all in form and substance satisfactory to the Administrative Agent and its counsel. ARTICLE V Affirmative Covenants --------------------- Until the Commitments have expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder shall have been paid in full, the Company covenants and agrees with the Lenders that: SECTION 5.01. Financial Statements and Other Information. The ------------------------------------------- Company will furnish to the Administrative Agent and each Lender: (a) promptly upon the availability thereof and in any event within 120 days after each fiscal year, a copy of the Company's Annual Report to Shareholders and its Annual Report on Form 10-K for the fiscal year then ended, as filed with the Securities and Exchange Commission and which will include an annual audit report of the Company, prepared on a consolidated basis and in accordance with the Company's then current method of accounting, which method must be in accordance with GAAP, duly certified by independent certified public accountants of nationally recognized standing selected by the Company; (b) promptly upon the availability thereof and in any event within 60 days after each fiscal quarter (except the last fiscal quarter) of each fiscal year, a copy of the Company's Quarterly Report on Form 10-Q for the fiscal quarter then ended, as filed with the Securities and Exchange Commission; (c) contemporaneously with the furnishing of a copy of each Annual Report on Form 10-K provided for in paragraph (a) and of each Quarterly Report on Form 10-Q provided for in paragraph (b), a duly completed certificate of a Financial Officer of the Company in the form of Exhibit E (each such certificate called a "Compliance Certificate"), showing ---------------------- compliance with the covenants set forth in Sections 6.07 and 6.08, and certifying that no Default or Event of Default has occurred and is continuing or, if there is any such an event, describing it and the steps, if any, being taken to cure it; 39 (d) within five Business Days after any Financial Officer obtains knowledge of any Default, if such Default is then continuing, a certificate of a Financial Officer setting forth the details thereof and the action which the Company is taking or proposes to take with respect thereto; (e) promptly upon the filing thereof, copies of each Current Report on Form 8-K filed by the Company with the SEC; and (f) from time to time such additional information concerning the Company as the Administrative Agent, at the request of any Lender, may reasonably request. Information required to be delivered pursuant to paragraph (a), (b) or (e) above shall be deemed to have been delivered on the date on which the Company provides notice to the Lenders that such information has been posted on the Company's website on the internet at the website address listed on the signature pages hereof, at sec.gov/edaux/searches.htm or at another website identified in such notice and accessible by the Lenders without charge; provided that (i) such -------- notice may be included in a certificate delivered pursuant to paragraph (c) above and (ii) the Company shall deliver paper copies of the information referred to in paragraph (e) above to any Lender which requests such delivery. SECTION 5.02. Existence; Conduct of Business. The Company will, and ------------------------------- will cause each of the Borrowing Subsidiaries to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges and franchises material to the conduct of its business; provided that the foregoing shall not prohibit -------- any merger, consolidation, liquidation or dissolution permitted under Section 6.04. SECTION 5.03. Use of Proceeds. The Borrowers will use the proceeds ---------------- of the Loans only for general corporate purposes, including commercial paper backup and the financing of acquisitions. No part of the proceeds of any Loan will be used, whether directly or indirectly, for any purpose that entails a violation of any of the Regulations of the Board, including Regulations U and X. ARTICLE VI Negative Covenants ------------------ 40 Until the Commitments have expired or terminated and the principal of and interest on each Loan and all fees payable hereunder have been paid in full, the Company covenants and agrees with the Lenders that: SECTION 6.01. Indebtedness of Subsidiaries. The Company will not ----------------------------- permit the sum of (a) the aggregate outstanding principal amount of Indebtedness of Subsidiaries (other than Permitted Subsidiary Indebtedness) and (b) Specified Company Indebtedness at any time to exceed 15% of Consolidated Net Assets. SECTION 6.02. Mortgages. The Company will not, and will not permit ---------- any Domestic Subsidiary to, directly or indirectly, create or assume any mortgage, encumbrance, lien, pledge, charge, or security interest of any kind (collectively and individually, a "Mortgage") upon or in any of its interests in any Principal Property or upon or in any shares of capital stock or Indebtedness of any Domestic Subsidiary, whether such interest, capital stock or Indebtedness is now owned or hereafter acquired, if such mortgage secures or is intended to secure, directly or indirectly, the payment of any Indebtedness; excluding, however, from the operation of this Section 6.02: (a) Mortgages on any Principal Property acquired, constructed, or improved by the Company or any Domestic Subsidiary after January 1, 2000, which are created or assumed contemporaneously with, or within 120 days after, such acquisition or completion of such construction or improvement to secure or provide for the payment of any part of the purchase price of such Principal Property or the cost of such construction or improvement incurred after January 1, 2000, or, in addition to Mortgages contemplated by clauses (b) and (c) below, Mortgages on any such Principal Property existing at the time or placed thereon at the time of acquisition or leasing thereof by the Company or any Domestic Subsidiary, or conditional sales agreements or other title retention agreements with respect to any Principal Property now owned or leased or hereafter acquired or leased by the Company or a Domestic Subsidiary; (b) Mortgages on property (including shares of capital stock or Indebtedness of a corporation) of a corporation existing at the time such corporation becomes a Domestic Subsidiary or is merged or consolidated with the Company or a Domestic Subsidiary or existing at the time of a sale, lease, or other disposition of the properties of such corporation (or a division thereof) or other Person as an entirety or substantially as an entirety (which includes the sale, lease, or other disposition of all or substantially all the assets thereof) to the Company or a Domestic Subsidiary, provided that no such Mortgage shall extend to any other Principal Property of the Company or any Domestic Subsidiary or to any shares of capital stock or any Indebtedness of any Domestic Subsidiary; 41 (c) Mortgages created by the Company or a Domestic Subsidiary to secure Indebtedness of the Company or a Domestic Subsidiary to the Company or to a wholly owned Subsidiary; (d) Mortgages in favor of the United States of America or any State, territory or possession thereof, or any foreign country or any department, agency, instrumentality, or political subdivision of any of such domestic or foreign jurisdictions to secure partial, progress, advance or other payments pursuant to any contract or statute or to secure any Indebtedness incurred for the purpose of financing all or any part of the purchase price of, or the cost of constructing, the property subject to such Mortgages; (e) Mortgages for the sole purpose of extending, renewing, or replacing (or successively extending, renewing, or replacing) in whole or in part any mortgage existing on January 1, 2000, or referred to in the foregoing clauses (a) to (d) inclusive or of any Indebtedness secured thereby; provided, however, that the principal amount of Indebtedness -------- ------- secured thereby shall not exceed the principal amount of Indebtedness so secured at the time of such extension, renewal, or replacement and that such extension, renewal, or replacement Mortgage shall be limited to all or a part of the property which secured the Mortgage so extended, renewed, or replaced (plus improvements on such property); (f) Mortgages on Margin Stock, if and to the extent that the value of such Margin Stock exceeds 25% of the total assets of the Company and its Subsidiaries subject to this Section; (g) Mortgages under which effective provision is made for all Loans to be secured equally and ratably with any other Indebtedness secured, directly or indirectly, thereby; and (h) Mortgages (other than Mortgages permitted by any of the foregoing clauses) if, at the time of creation or assumption thereof and after giving effect thereto, the aggregate principal amount of (i) the Indebtedness secured by such Mortgages and (ii) the Attributable Indebtedness related to Sale and Leaseback Transactions permitted under clause (b) of Section 6.03 does not exceed 5% of Consolidated Net Assets, determined as of a date not more than 95 days prior to such creation or assumption. SECTION 6.03. Sale and Lease-Back Transactions. (a) The Company will -------------------------------- not, and will not permit any Domestic Subsidiary to, sell, lease or transfer any Principal Property owned by the Company or a Domestic Subsidiary as an entirety, or any substantial portion thereof, to anyone other than a Wholly Owned Domestic Subsidiary (or the Company or a Wholly Owned Domestic Subsidiary in the case of a Domestic 42 Subsidiary) with the intention of taking back a lease of such property (herein referred to as a "Sale and Leaseback Transaction") except a lease for a period ------------------------------ of not more than 36 months by the end of which it is intended that the use of such property by the lessee will be discontinued; provided, that notwithstanding -------- the foregoing, the Company or any Domestic Subsidiary may sell any such property and lease it back if the net proceeds of such sale are at least equal to the fair value (as determined by resolution adopted by the Board of Directors of the Company) of such property, and (i) the Company or such Domestic Subsidiary would be entitled pursuant to paragraphs (a)-(g) of Section 6.03 to create Indebtedness secured by a Mortgage on the property to be leased in an amount equal to the Attributable Debt with respect to such Sale and Leaseback Transaction without equally and ratably securing all the Loans, or (ii) if such sale or transfer does not come within the exception provided by the preceding clause (i), the net proceeds of such sale shall, and in any such case the Company covenants that they will, within 120 days after such sale, be applied (to the greatest extent possible) either to the repayment of the Loans then outstanding when due (whereupon the Commitments shall be reduced, on a pro rata basis, to the extent that such net proceeds are so applied) or to the retirement of Consolidated Funded Debt of the Company ranking at least on a parity with the Loans, or in part to one or more of such alternatives and in part to another. (b) Notwithstanding the provisions of paragraph (a) above, the Company and/or any Domestic Subsidiary may enter into Sale and Leaseback Transactions if, at the time of such entering into, and after giving effect thereto, the aggregate amount of (i) Attributable Indebtedness related to such Sale and Leaseback Transactions and (ii) Indebtedness secured by Mortgages permitted under clause (h) of Section 6.02 does not exceed 5% of Consolidated Net Assets, determined as of a date not more than 95 days prior to such creation or assumption. SECTION 6.04. Fundamental Changes. The Company will not merge into ------------------- or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired), or liquidate or dissolve, except that, if at the time thereof and immediately after giving effect thereto no Default shall have occurred and be continuing (i) any Person may merge into the Company in a transaction in which the Company is the surviving corporation and (ii) the Company may merge into or consolidate with any other Person in a transaction the primary purpose of which is to effect a reincorporation of the Company under the laws of another state. SECTION 6.05. ERISA. The Company will not allow an ERISA Event to ----- occur that, when taken together with all other ERISA Events that have occurred, could reasonably be expected to result in a Material Adverse Effect. 43 SECTION 6.06. Change in Control. The Company will not permit to ----------------- occur any Change in Control. SECTION 6.07. Interest Coverage Ratio. The Company will not permit ----------------------- the ratio of (a) Consolidated EBITDA to (b) Consolidated Interest Expense, in each case for any period of four consecutive fiscal quarters ending after the date hereof, to be less than 3.00 to 1.00. SECTION 6.08. Minimum Consolidated Net Worth. The Company will not ------------------------------ permit Consolidated Net Worth to be less, at any date, than the sum of (i) $1,600,000,000, (ii) 50% of Consolidated Net Income for each completed fiscal quarter of the Company that shall have begun after December 31, 1999 (excluding any fiscal quarter for which Consolidated Net Income is negative), and (iii) 50% of the amount by which Consolidated Net Worth is increased after the date hereof as a result of issuances of equity securities by the Company. ARTICLE VII Events of Default ----------------- If any of the following events ("Events of Default") shall occur: ----------------- (a) default in the payment when due of any principal of any Loan or default in the payment when due of interest on any Loan or fees payable by any Borrower hereunder and continuance of such failure to pay interest or fees for five Business Days after written notice thereof to the Company from the Administrative Agent at the request of the Lender to which such amounts are owed; (b) a default in the payment when due at maturity or on the date of any required prepayment, redemption or repurchase (subject to any applicable grace period) or by acceleration of any Material Indebtedness, or a default in the performance or observance of any obligation or condition with respect to any Material Indebtedness if such default results in the acceleration of the maturity of such Material Indebtedness; provided -------- that, if any such default shall subsequently be remedied, cured, or waived prior to either the termination of the Commitments or the declaration that all Loans are immediately due and payable, in each case pursuant to this Article VII, and as a result the payment of such Material Indebtedness is no longer due, the Event of Default existing hereunder by reason thereof shall likewise be deemed thereupon to be remedied, cured, or waived and no longer in existence, all without any further action by the parties hereto; 44 (c) the Company or any Material Subsidiary generally fails to pay, or admits in writing its inability to pay, debts as they become due; or the Company or any Material Subsidiary applies for, consents to, or acquiesces in the appointment of, a trustee, receiver, or other custodian for the Company or any Material Subsidiary or for a substantial part of the property thereof, or makes a general assignment for the benefit of creditors; or, in the absence of such application, consent or acquiescence, a trustee, or receiver, or other custodian is appointed for the Company or any Material Subsidiary or for a substantial part of the property of the Company or any Material Subsidiary; or any bankruptcy, reorganization, debt arrangement, or other case or proceeding under any bankruptcy or insolvency law, or any dissolution or liquidation proceeding is commenced in respect of the Company or any Material Subsidiary and if such case or proceeding is not commenced by the Company or any Material Subsidiary, it is consented to or acquiesced in by the Company or any Material Subsidiary or remains for 90 consecutive days undismissed or unstayed; or the Company or any Material Subsidiary takes any corporate action to authorize any of the foregoing; (d) failure by the Company to comply with or to perform in any material respect any provision of this Agreement (provided that in the case -------- of the provisions of Article VI, the preceding standard shall be applied without regard to materiality) (which failure does not constitute an Event of Default under any of the preceding subsections of this Article VII) and, in the case of any provision contained in Article V or in Section 6.01, 6.02, 6.03 or 6.05, continuance of such failure for 30 days after written notice thereof to the Company from the Administrative Agent at the request of Required Lenders; (e) any representation or warranty made by the Company in Article III of this Agreement or by any other Borrower in the applicable Borrowing Subsidiary Agreement is breached or is incorrect when made (or deemed made) in any material respect and, with respect to any representation or warranty other than those contained in Sections 3.04(b), 3.05, 3.07, 3.08 and 3.09, the Company shall fail to take corrective actions reasonably satisfactory to the Required Lenders within 30 days after written notice thereof to the Company from the Administrative Agent at the request of the Required Lenders; (f) any final and nonappealable judgment or order from a judicial or administrative body (which order or judgment is fully enforceable against the Company or a Borrowing Subsidiary, as the case may be, in courts of the United States of America or any state thereof) for the payment of money in excess of $100,000,000 (after adjustments to reflect reductions for credits and set-offs asserted in good faith by the Company or such Borrowing Subsidiary shall be rendered against the Company or a Borrowing Subsidiary, shall not have been 45 discharged or vacated and shall have been in effect, in its final and unappealable form, for a period of 30 consecutive days; (g) the Guarantee of the Company set forth in Article IX shall cease at any time to be in full force and effect, or any party hereto (other than a Lender) shall so assert in writing; then, and in every such event (other than an event with respect to any Borrower described in clause (c) of this Article), and at any time thereafter during the continuance of such event, the Administrative Agent, at the request of the Required Lenders, shall, by notice to the Company, take either or both of the following actions, at the same or different times: (i) terminate the Commitments, and thereupon the Commitments shall terminate immediately, and (ii) declare the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Borrowers accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by each Borrower; and in case of any event with respect to any Borrower described in clause (c) of this Article, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and other obligations of the Borrowers accrued hereunder, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by each Borrower. The Administrative Agent shall give notice to the Company (i) under paragraph (a) above promptly upon being requested to do so by the relevant Lender and (ii) under paragraphs (d) and (e) above promptly upon being requested to do so by the Required Lenders and, in each case, after having done so, shall notify all the Lenders thereof. ARTICLE VIII The Administrative Agent ------------------------ In order to expedite the transactions contemplated by this Agreement, Chase is hereby appointed to act as Administrative Agent on behalf of the Lenders. Each of the Lenders and each assignee of any such Lender hereby irrevocably authorizes the Administrative Agent to take such actions on behalf of such Lender or assignee and to exercise such powers as are delegated to the Administrative Agent by the terms of the Loan Documents, together with such actions and powers as are reasonably incidental thereto. 46 With respect to the Loans made by it hereunder, the Administrative Agent in its individual capacity and not as Administrative Agent shall have the same rights and powers as any other Lender and may exercise the same as though it were not the Administrative Agent, and the Administrative Agent and its Affiliates in their respective individual capacities may accept deposits from, lend money to and generally engage in any kind of business with the Company or any Subsidiary or other Affiliate thereof as if it were not the Administrative Agent. The Administrative Agent shall not have any duties or obligations except those expressly set forth in the Loan Documents. Without limiting the generality of the foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing, (b) the Administrative Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated by the Loan Documents that the Administrative Agent is required to exercise in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 10.02), and (c) except as expressly set forth in the Loan Documents, the Administrative Agent shall not have any duty to disclose, and the Administrative Agent shall not be liable for the failure to disclose, any information relating to the Company or any of its Subsidiaries that is communicated to or obtained by the institution serving as Administrative Agent or any of its Affiliates in any capacity. The Administrative Agent shall not be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 10.02) or in the absence of its own culpable negligence, bad faith or wilful misconduct. The Administrative Agent shall not be deemed to have knowledge of any Default other than a Default of the types specified in clause (a) and (b) of Article VII unless and until written notice thereof is given to the Administrative Agent by a Borrower or a Lender, and the Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with the Loan Documents, (ii) the contents of any certificate, report or other document delivered hereunder or in connection herewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein, (iv) the validity, enforceability, effectiveness or genuineness of the Loan Documents or any other agreement, instrument or document, or (v) the satisfaction of any condition set forth in Article IV or elsewhere herein or elsewhere in any Loan Document, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent. The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it in good faith to be genuine and to 47 have been signed or sent by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it in good faith to be made by the proper Person, and shall not incur any liability for relying thereon. The Administrative Agent may consult with legal counsel (who may be counsel for any Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts. The Administrative Agent may perform any and all its duties and exercise its rights and powers by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions of the preceding paragraphs shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent. Subject to the appointment and acceptance of a successor Administrative Agent as provided in this paragraph, the Administrative Agent may resign at any time by notifying the Lenders and the Company. Upon any such resignation, the Required Lenders shall have the right, in consultation with the Company, to appoint a successor. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent which shall be a bank with an office in New York, New York, or an Affiliate of any such bank. Upon the acceptance of its appointment as Administrative Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. The fees payable by the Company to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Company and such successor. After the Administrative Agent's resignation hereunder, the provisions of this Article and Section 10.03 shall continue in effect for the benefit of such retiring Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while it was acting as Administrative Agent. Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to 48 make its own decisions in taking or not taking action under or based upon this Agreement or any other Loan Document or any related agreement or any document furnished hereunder or thereunder. None of the Syndication Agent or the Co-Documentation Agents, in their capacities as such, shall have any duties or obligations of any kind under this Agreement. ARTICLE IX Guarantee --------- The Company hereby unconditionally, absolutely and irrevocably guarantees, as primary obligor and not merely as surety, the repayment to each Lender, when due pursuant to the terms and conditions of this Agreement, of the amount of any Loan made pursuant to this Agreement to a Borrowing Subsidiary, together with accrued interest on such Loan, at the place and in the currency and manner specified in this Agreement; provided, however, that before any -------- ------- amount shall be deemed due and payable pursuant to this Guarantee, the Administrative Agent must first give notice to the Company of the nonpayment thereof by the Borrowing Subsidiary at the request of the relevant Lender, and the Company shall have five Business Days from the receipt of such notice to cure or cause to be cured any and all such nonpayments. The Company's obligations hereunder constitute a guaranty of payment and not of collection merely. The Company hereby waives notice of, and consents to, any extensions of time of payment, renewals, compromises, settlements, releases or other indulgences from time to time granted by the Lenders in respect of Loans made to Borrowing Subsidiaries. Except as otherwise provided in this Article IX, the Company hereby waives presentment, protest, demand of payment, notice of dishonor and all notices and demands whatsoever. The obligations of the Company hereunder shall not be released, discharged or otherwise affected by (i) any change in the corporate existence or constitution, structure or ownership of any Borrowing Subsidiary or the Company, (ii) any insolvency, bankruptcy, reorganization or similar proceeding affecting the Borrowing Subsidiary or its assets or the Company or (iii) the existence of any claim, set-off or other rights which the Company may have at any time against any Lender or any other Person. If at any time any payment of any obligation guaranteed hereunder is rescinded or must otherwise be restored or returned upon the insolvency, bankruptcy or reorganization of a Borrowing Subsidiary or otherwise, the Company's obligations under this Article IX with respect to such payment shall be reinstated at such time as though such payment had not been made. If acceleration of the time for payment of any amount payable by any Borrowing Subsidiary under this Agreement or its Loans is stayed upon any bankruptcy, insolvency or reorganization of such Borrowing Subsidiary or otherwise, all such amounts otherwise subject to acceleration under the terms of this Agreement shall nonetheless be payable by the Company pursuant to this Article IX in accordance with the terms hereof. The 49 Company shall not exercise any of its subrogation rights with respect to amounts paid to a Lender pursuant to this Article IX until all amounts guaranteed hereunder payable to any Lender have been paid in full and the Commitments have terminated. Following such payment in full and termination of the Commitments, the Company shall be entitled to subrogation in the Lenders' rights and, upon the reasonable request of the Company, each Lender agrees to cooperate with the Company in enforcement of the Company's subrogation rights, including the transfer and delivery by such Lender to the Company of any and all related evidence of indebtedness within the possession or control of such Lender. The Administrative Agent shall give notice to the Company pursuant to the proviso set forth in the first sentence of this Article promptly upon being requested to do so by the relevant Lender. ARTICLE X Miscellaneous ------------- SECTION 10.01. Notices. Except in the case of notices and other ------- communications expressly permitted to be given by telephone, all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows: (a) if to any Borrower, to it in care of the Company at 1900 Richmond Road, Cleveland, Ohio 44124, Attention of Ronald P. Vargo, Vice President and Treasurer (Telecopy No. (216) 291-7831), with a copy to TRW Inc., 1900 Richmond Road, Cleveland, Ohio 44124, Attention of Secretary (Telecopy No. (216) 291-7070); (b) if to the Administrative Agent, to The Chase Manhattan Bank, Loan and Agency Services Group, One Chase Manhattan Plaza, 8th Floor, New York, New York 10081, Attention of Jesus Sang (Telecopy No. (212) 552-5658), with a copy to The Chase Manhattan Bank, 270 Park Avenue, New York 10017, Attention of Karen May Sharf (Telecopy No. (212) 270-5127); and (c) if to any other Lender, to it at its address (or telecopy number) set forth in its Administrative Questionnaire. Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt. 50 SECTION 10.02. Waivers; Amendments. (a) No failure or delay by the ------------------- Administrative Agent or any Lender in exercising any right or power hereunder or under any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent and the Lenders hereunder and under the other Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of any Loan Document or consent to any departure by any Borrower therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan shall not be construed as a waiver of any Default, regardless of whether the Administrative Agent or any Lender may have had notice or knowledge of such Default at the time. (b) Neither this Agreement nor any of the Loan Documents nor any provision hereof or thereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Company and the Required Lenders or by the Company and the Administrative Agent with the consent of the Required Lenders (and, in the case of a Borrowing Subsidiary Agreement, the applicable Borrowing Subsidiary); provided that no such agreement shall (i) -------- increase the Commitment of any Lender without the written consent of such Lender, (ii) reduce the principal amount of any Loan or reduce the rate of interest thereon, or reduce any fees payable hereunder, without the written consent of each Lender affected thereby, (iii) postpone the scheduled date of payment of the principal amount of any Loan, or any interest thereon, or any fees payable hereunder, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of any Commitment, without the written consent of each Lender affected thereby, (iv) change Section 2.16(b) or (c) in a manner that would alter the pro rata sharing of payments required thereby, without the written consent of each Lender, or (v) change any of the provisions of this Section or the definition of "Required Lenders" or any other provision of any Loan Document specifying the number or percentage of Lenders required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender; provided further that no such agreement shall amend, modify or ---------------- otherwise affect the rights or duties of the Administrative Agent hereunder without the prior written consent of the Administrative Agent. SECTION 10.03. Expenses; Indemnity; Damage Waiver. (a) The Company ---------------------------------- shall pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates, including the reasonable fees, charges and disbursements of Cravath, Swaine & Moore, counsel for the Administrative Agent, in 51 connection with the syndication of the credit facilities provided for herein, the preparation and administration of this Agreement or the other Loan Documents or any amendments, modifications or waivers of the provisions hereof (whether or not the transactions contemplated hereby or thereby shall be consummated) and (ii) all out-of-pocket expenses incurred by the Administrative Agent or any Lender, including the reasonable fees, charges and disbursements of any counsel for the Administrative Agent or any Lender, in connection with the enforcement or protection of its rights in connection with any Loan Document, including its rights under this Section, or in connection with the Loans made hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans. (b) The Company agrees to indemnify each Lender, their respective Affiliates and the respective directors, officers, agents and employees of the foregoing (each an "Indemnitee") and hold each Indemnitee harmless from and ---------- against any and all losses, damages, liabilities, costs and related expenses of any kind, including, without limitation, reasonable fees and disbursements of counsel, which may be incurred by such Indemnitee in connection with any investigative, administrative or judicial proceeding (whether or not such Indemnitee shall be designated a party thereto) brought or threatened relating to or arising out of this Agreement or any actual or proposed use of proceeds of Loans hereunder; provided that such indemnity shall not, as to any Indemnitee, -------- be available to the extent that such losses, damages, liabilities, costs or related expenses are found by a final, nonappealable judgment of a court of competent jurisdiction to have resulted from the culpable negligence, bad faith or wilful misconduct of such Indemnitee. (c) To the extent that the Company fails to pay any amount required to be paid by it to the Administrative Agent or any sub-agent appointed pursuant to Article VIII under paragraph (a) or (b) of this Section, each Lender severally agrees to pay to the Administrative Agent such Lender's Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided that the -------- unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent in its capacity as such. (d) To the extent permitted by applicable law, no Borrower shall assert, and each Borrower hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the Transactions, any Loan or the use of the proceeds thereof. (e) All amounts due under this Section shall be payable promptly after written demand therefor. 52 SECTION 10.04. Successors and Assigns. (a) The provisions of this ----------------------- Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that no Borrower may assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by any Borrower without such consent shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement. (b) Any Lender may assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); provided that (i) -------- except in the case of an assignment to an Affiliate of that Lender, each of the Company and the Administrative Agent must give their prior written consent to such assignment (which consent shall not be unreasonably withheld or delayed), (ii) except in the case of an assignment to an Affiliate of that Lender or an assignment of the entire remaining amount of the assigning Lender's Commitment, the amount of the Commitment of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent) shall not be less than $10,000,000 unless each of the Company and the Administrative Agent otherwise consent, (iii) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under this Agreement, except that this clause (iii) shall not apply to rights in respect of outstanding Competitive Loans, (iv) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance, together with a processing and recordation fee of $3,500, and (v) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire; and provided further that any consent of ---------------- the Company otherwise required under this paragraph shall not be required if an Event of Default under clause (h) or (i) of Article VII has occurred and is continuing. Subject to acceptance and recording thereof pursuant to paragraph (d) of this Section, from and after the effective date specified in each Assignment and Acceptance the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.13, 2.14, 2.15 and 10.03, insofar as claims under such sections arise out of the period prior to the effective date of such Assignment and Acceptance). Any assignment or transfer by a Lender of rights or obligations under this 53 Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (e) of this Section. (c) The Administrative Agent, acting for this purpose as an agent of each Borrower, shall maintain at one of its offices in The City of New York a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be -------- conclusive, and the Borrowers, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Company and any Lender, at any reasonable time and from time to time upon reasonable prior notice. (d) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and an assignee, the assignee's completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Acceptance and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph. (e) Any Lender may, without the consent of any Borrower or the Administrative Agent sell participations to one or more banks or other entities (a "Participant") in all or a portion of such Lender's rights and obligations ----------- under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided that (i) such Lender's obligations under this Agreement -------- shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrowers, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such -------- agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso to Section 10.02(b) that affects such Participant. Subject to paragraph (f) of this Section, each Borrower agrees that each Participant shall be entitled 54 to the benefits of Sections 2.13, 2.14 and 2.15 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section. (f) A Participant shall not be entitled to receive any greater payment under Section 2.13, 2.14 or 2.15 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Company's prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 2.15 unless the Company is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrowers, to comply with Section 2.15(e) as though it were a Lender. (g) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of -------- a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto. SECTION 10.05. Survival. All covenants, agreements, representations --------- and warranties made by the Borrowers herein or in any other Loan Document and in the certificates or other instruments delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the other parties hereto and thereto and shall survive the execution and delivery of this Agreement and any other Loan Document and the making of any Loans, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder (provided that any such knowledge of the Administrative Agent or any Lender will not be attributed to any other Lender or the Administrative Agent for purposes of this Section 10.05), and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement or any other Loan Document is outstanding and unpaid and so long as the Commitments have not expired or terminated. The provisions of Sections 2.13, 2.14, 2.15 and 10.03 and Article VIII shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Commitments or the termination of this Agreement or any other Loan Document or any provision hereof or thereof. SECTION 10.06. Counterparts; Integration; Effectiveness. This ----------------------------------------- Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken 55 together shall constitute a single contract. This Agreement, the other Loan Documents and any separate letter agreements with respect to fees payable to the Administrative Agent constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement. SECTION 10.07. Severability. Any provision of this Agreement held to ------------- be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. SECTION 10.08. Right of Setoff. If an Event of Default shall have ---------------- occurred and be continuing and the Required Lenders shall have requested the Administrative Agent to declare the Loans immediately due and payable or such Loans have automatically become due and payable, each Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other obligations at any time owing by such Lender or Affiliate to or for the credit or the account of any Borrower against any of and all the obligations of such Borrower now or hereafter existing under this Agreement held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement and although such obligations may be unmatured. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Lender may have. SECTION 10.09. Governing Law; Jurisdiction; Consent to Service of -------------------------------------------------- Process. (a) This Agreement shall be construed in accordance with and governed - -------- by the law of the State of New York. (b) Each Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to any Loan Document, or for recognition or 56 enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Administrative Agent or any Lender may otherwise have to bring any action or proceeding relating to this Agreement or any other Loan Document against any Borrower or its properties in the courts of any jurisdiction. (c) Each Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any other Loan Document in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (d) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 10.01. Nothing in this Agreement or any other Loan Document will affect the right of any party to this Agreement to serve process in any other manner permitted by law. SECTION 10.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY --------------------- WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. SECTION 10.11. Headings. Article and Section headings and the Table --------- of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement. 57 SECTION 10.12. Confidentiality. Each of the Administrative Agent and ---------------- the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates' directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority, (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party to this Agreement, (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement, (g) with the consent of the Company or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or (ii) becomes available to the Administrative Agent or any Lender on a nonconfidential basis from a source other than the Company. For the purposes of this Section, "Information" means all information received from the ----------- Company relating to the Company or its business, other than any such information that is available to the Administrative Agent or any Lender on a nonconfidential basis prior to disclosure by the Company; provided that, in the case of -------- information received from the Company after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information. SECTION 10.13. Conversion of Currencies. (a) If, for the purpose ------------------------- of obtaining judgment in any court, it is necessary to convert a sum owing hereunder in one currency into another currency, each party hereto (including any Borrowing Subsidiary) agrees, to the fullest extent that it may effectively do so, that the rate of exchange used shall be that at which in accordance with normal banking procedures in the relevant jurisdiction the first currency could be purchased with such other currency on the Business Day immediately preceding the day on which final judgment is given. (b) The obligations of each Borrower in respect of any sum due to any party hereto or any holder of the obligations owing hereunder (the "Applicable ---------- Creditor") shall, notwithstanding any judgment in a currency (the "Judgment - -------- -------- Currency") other than the currency in which such sum is stated to be due - -------- hereunder (the "Agreement Currency"), be discharged only to the extent that, on ------------------ the Business Day following receipt by the Applicable Creditor of any sum adjudged to be so due in the Judgment Currency, the Applicable Creditor may in accordance with normal banking procedures in the 58 relevant jurisdiction purchase the Agreement Currency with the Judgment Currency; if the amount of the Agreement Currency so purchased is less than the sum originally due to the Applicable Creditor in the Agreement Currency, such Borrower agrees, as a separate obligation and notwithstanding any such judgment, to indemnify the Applicable Creditor against such loss. The obligations of the Borrowers contained in this Section 10.13 shall survive the termination of this Agreement and the payment of all other amounts owing hereunder. SECTION 10.14. Interest Rate Limitation. Notwithstanding anything ------------------------- herein to the contrary, if at any time the interest rate applicable to any Loan, together with all fees, charges and other amounts which are treated as interest on such Loan under applicable law (collectively the "Charges"), shall exceed the ------- maximum lawful rate (the "Maximum Rate") which may be contracted for, charged, ------------ taken, received or reserved by the Lender holding such Loan in accordance with applicable law, the rate of interest payable in respect of such Loan hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Loan but were not payable as a result of the operation of this Section shall be cumulated and the interest and Charges payable to such Lender in respect of other Loans or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Effective Rate to the date of repayment, shall have been received by such Lender. SECTION 10.15. Lender Waiver. Each Lender that is a party to any of -------------- the Existing Credit Agreements hereby waives any provision contained in such Existing Credit Agreement requiring notice of the termination of the commitments therein prior to the effective date of such termination. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. TRW INC., by /s/ Ronald P. Vargo ----------------------------------------- Name: Ronald P. Vargo Title: Vice President and Treasurer Website: www.trw.com 59 THE CHASE MANHATTAN BANK, individually and as Administrative Agent, by /s/ Richard W. Duker ----------------------------------- Name: Richard W. Duker Title: Vice President SALOMON SMITH BARNEY INC., as Syndication Agent, Joint Lead Arranger and Book Manager, by /s/ J.C.C. Byrne, Jr. ----------------------------------- Name: J.C.C. Byrne, Jr. Title: Attorney-in-Fact CHASE SECURITIES, INC., as Joint Arranger and Book Manager, by /s/ Mitchel Friedman ----------------------------------- Name: Mitchel Friedman Title: Vice President CITICORP USA, INC., by /s/ Robert D. Wetrus ----------------------------------- Name: Robert D. Wetrus Title: Attorney-in-Fact BANK OF AMERICA, N.A., Individually and as Co-Documentation Agent, by /s/ Raju N. Patel ----------------------------------- Name: Raju N. Patel Title: Vice President MORGAN GUARANTY TRUST COMPANY OF NEW YORK, individually and as Co-Documentation Agent, by /s/ Robert Bottamedi ----------------------------------- Name: Robert Bottamedi Title: Vice President DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES, by /s/ Thomas R. Brady ----------------------------------- Name: Thomas R. Brady Title: Vice President by /s/ John W. Sweeney ----------------------------------- Name: John W. Sweeney Title: Vice President ROYAL BANK OF CANADA, by /s/ Lynne M. Litterini ----------------------------------- Name: Lynne M. Litterini Title: Manager BANQUE NATIONALE DE PARIS, by /s/ Arnaud Collin du Bocage ----------------------------------- Name: Arnaud Collin du Bocage Title: Executive Vice President and General Manager NATIONAL CITY BANK, by /s/ Davis R. Bonner ----------------------------------- Name: Davis R. Bonner Title: Senior Vice President INDUSTRIAL BANK OF JAPAN, by /s/ Walter Wolff ----------------------------------- Name: Walter Wolff Title: Joint General Manager BANK ONE, MICHIGAN, by /s/ Glenn A. Currin ----------------------------------- Name: Glenn A. Currin Title: First Vice President COMERICA BANK, by /s/ Nicholas G. Mester ----------------------------------- Name: Nicholas G. Mester Title: Account Officer KEYBANK NATIONAL ASSOCIATION, by /s/ Marianne T. Meil ----------------------------------- Name: Marianne T. Meil Title: Vice President BAYERISCHE LANDESBANK, by /s/ James Boyle ----------------------------------- Name: James Boyle Title: Vice President by /s/ Alexander Kohnert ------------------------------------ Name: Alexander Kohnert Title: First Vice President HSBC BANK USA, by /s/ Christopher M. Samms ------------------------------------ Name: Christopher M. Samms Title: Officer #9426, Vice President SG, by /s/ Editha N. Paras ------------------------------------ Name: Editha N. Paras Title: Vice President BARCLAY'S BANK PLC, by /s/ Keith Mackie ------------------------------------ Name: Keith Mackie Title: Director CREDIT INDUSTRIAL ED COMMERCIAL, by /s/ Wolfgang Fassbender ------------------------------------ Name: Wolfgang Fassbender Title: Senior Vice President DEUTSCHE BANK AG, New York Branch and/or Cayman Islands Branch, by /s/ Oliver Schwarz ------------------------------------ Name: Oliver Schwarz Title: Assistant Vice President by /s/ Stephan Peetzen ------------------------------------ Name: Stephan Peetzen Title: Director ABN AMRO BANK N.V., by /s/ David C. Sagers ------------------------------------ Name: David C. Sagers Title: Vice President by /s/ John J. Mack ------------------------------------ Name: John J. Mack Title: Vice President BANCA DI ROMA-CHICAGO BRANCH, by /s/ James W. Semonchik ------------------------------------ Name: James W. Semonchik Title: Vice President by /s/ Claudio Perna ------------------------------------ Name: Claudio Perna (19690) Title: Senior Vice President & Branch Manager THE SUMITOMO BANK, LIMITED, by /s/ John H. Kemper ------------------------------------ Name: John H. Kemper Title: Senior Vice President BANCA NAZIONALE DEL LAVORO S.p.A. - NEW YORK, by /s/ Giulio Giovine -------------------------------------- Name: Giulio Giovine Title: Vice President by /s/ Leonardo Valentini -------------------------------------- Name: Leonardo Valentini Title: First Vice President MELLON BANK, N.A., by /s/ Mark F. Johnston -------------------------------------- Name: Mark F. Johnston Title: First Vice President SAN PAOLO IMI S.p.A., by /s/ Luca Sacchi -------------------------------------- Name: Luca Sacchi Title: Vice President by /s/ Carlo Persico -------------------------------------- Name: Carlo Persico Title: D.G.M. BANCA COMMERCIALE ITALIANA, CHICAGO BRANCH, by /s/ E. Bermant -------------------------------------- Name: E. Bermant Title: FVP/Deputy Manager by /s/ J. Dickerhof ------------------------------------- Name: J. Dickerhof Title: Vice President FIRST UNION NATIONAL BANK, by /s/ Kent Davis ------------------------------------- Name: Kent Davis Title: Vice President BANK OF NEW YORK, by /s/ John M. Lokay, Jr. ------------------------------------- Name: John M. Lokay, Jr. Title: Vice President BANK OF TOKYO-MITSUBISHI TRUST COMPANY, by /s/ Heather L. Zimmerman ------------------------------------- Name: Heather L. Zimmerman Title: Vice President BANCO BILBAO VIZCAYA (NEW YORK), by /s/ John Martini ------------------------------------- Name: John Martini Title: Vice President by /s/ Alejandro Lorca ------------------------------------- Name: Alejandro Lorca Title: Vice President EX-12 9 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES Exhibit 12 TRW Inc. and Subsidiaries Computation of Ratio of Earnings to Fixed Charges - Unaudited (In millions except ratio data)
Years Ended December 31 ------------------------------------------------------------------------------------------ 1999 1998 1997 1996 1995 1994 ---------- ---------- ---------- ---------- ---------- ---------- Earnings from continuing operations before income taxes $ 787.3(A) $746.1 $239.7(B) $302.2(C) $625.5 $435.5 Unconsolidated affiliates (37.1) 1.0 (8.0) 1.4 1.3 (0.6) Minority earnings 22.8 10.5 20.2 11.5 10.8 7.7 Fixed charges excluding capitalized interest 552.1 174.3 123.9 129.0 137.2 145.3 -------- ------ ------ ------ ------ ------ Earnings $1,325.1 $931.9 $375.8 $444.1 $774.8 $587.9 -------- ------ ------ ------ ------ ------ Fixed Charges: Interest expense $ 476.7 $114.4 $ 75.4 $ 84.2 $ 94.7 $104.7 Capitalized interest 4.7 4.7 4.5 3.5 5.1 6.6 Portion of rents representa- tive of interest factor 75.3 59.9 48.5 43.2 41.4 39.2 Interest expense of uncon- solidated affiliates 0.0 0.0 0.0 1.6 1.1 1.4 -------- ------ ------ ------ ------ ------ Total fixed charges $ 556.7 $179.0 $128.4 $132.5 $142.3 $151.9 -------- ------ ------ ------ ------ ------ Ratio of earnings to fixed charges 2.4x 5.2x 2.9x 3.4x 5.4x 3.9x -------- ------ ------ ------ ------ ------
(A) The 1999 earnings from continuing operations before income taxes of $787.3 million, includes an $85.3 million earnings charge for purchased in-process research and development. See "Acquisitions" note in the Notes to Financial Statements. (B) The 1997 earnings from continuing operations before income taxes of $239.7 million includes a $548 million earnings charge for purchased in-process research and development. See "Acquisitions" note in the Notes to Financial Statements of the Company's 1997 Annual Report to Shareholders. (C) The 1996 earnings from continuing operations before income taxes of $302.2 million includes a charge of $384.8 million as a result of actions taken in the automotive and space and defense businesses. See "Special Charges and Divestiture" note in the Notes to Financial Statements of the Company's 1996 Annual Report to Shareholders. EX-13 10 PORTIONS OF ANNUAL REPORT EXHIBIT 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS Sales rose 43 percent to $17 billion compared with 1998 sales of $11.9 billion. Sales in 1998 grew 10 percent from sales of $10.8 billion in 1997. Net earnings and diluted earnings per share for 1999 were $469 million, or $3.80 per share, compared with net earnings of $477 million, or $3.83 per share in 1998. For 1997, the net loss was $49 million, or $.40 per share. - ---------------------------------------------------------------------- EARNINGS BEFORE DILUTED EARNINGS INCOME TAXES (LOSS) PER SHARE SALES ($ IN BILLIONS) ($ IN MILLIONS) ($ PER SHARE) - --------------------- --------------- ------------- 1997 1998 1999 1997 1998 1999 1997 1998 1999 - ----------------- ---------------- ----------------- 10.8 11.9 17.0 240 746 787 (0.40) 3.83 3.80 - ---------------------------------------------------------------------- The above comparative net earnings(loss) include the following unusual items. The 1999 results include $55 million after tax, or $.45 per share, for severance and plant closing costs for the automotive restructuring program, a $53 million after tax charge, or $.43 per share, for the cost to discontinue certain products within the warehouse management systems and software security product lines within the Systems & Information Technology segment, $63 million after tax, or $.50 per share, for expenses related to the acquisition of LucasVarity plc (LucasVarity), $85 million, or $.69 per share, for a one-time noncash charge, with no income tax benefit, related to in-process research and development associated with the LucasVarity acquisition, a $51 million after tax charge, or $.41 per share, for the Company's write-off of its investment in ICO Global Communications (Holdings) Limited (ICO), and $28 million after tax, or $.23 per share, for losses on fixed-price contracts, offset in part by gains of $235 million after tax, or $1.90 per share, from asset sales, primarily RF Micro Devices, Inc. (RFMD) common stock. The 1998 results include a $16 million after tax, or $.13 per share, benefit from an adjustment of an interest accrual relating to a tax litigation settlement and a $32 million after tax, or $.25 per share, benefit from the settlement of certain patent litigation, offset in part by $28 million after tax, or $.21 per share, in charges for litigation and contract reserves and severance costs and an $18 million after tax, or $.15 per share, charge for the 1998 automotive restructuring program. The 1997 results include a $548 million,or $4.43 per share, one-time noncash charge, with no income tax benefit, related to in-process research and development associated with the acquisition of BDM International, Inc. (BDM) and a $10 million after tax, or $.08 per share, gain from the sale of a property. The unusual items in the preceding paragraph are set forth in the following table:
($ in millions except per share data) 1999 1998 1997 --------------------- ---------------------- ---------------------- Net Earnings(Loss) Amount Per Share Amount Per Share Amount Per Share - -------------------------------------------------------------------------------------------------------------------------------- Severance and plant closing costs $ (55) $(.45) $ (18) $ (.15) $ --- $ -- Discontinuance of certain software products (53) (.43) --- --- --- -- Expenses related to the acquisition of LucasVarity (63) (.50) --- --- --- -- Purchased in-process research and development (85) (.69) --- --- (548) (4.43) Write-off of investment (51) (.41) --- --- --- -- Litigation and contract reserves (28) (.23) (28) (.21) --- -- Gain from the sale of assets 235 1.90 --- --- 10 .08 Interest adjustment from tax litigation settlement --- --- 16 .13 --- -- Settlement of patent litigation --- --- 32 .25 --- -- - -------------------------------------------------------------------------------------------------------------------------------- $ (100) $(.81) $ 2 $ .02 $ (538) $(4.35) -----------------------------------------------------------------------------
TRW INC. 27 MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION The unusual items listed above are included in the Statements of Operations as follows:
($ in millions) Years ended 1999 1998 1997 - ----------------------------------------------------------------------------------------------- Cost of sales $ 91 $ 52 $ --- Administrative and selling expenses 14 13 --- Purchased in-process research and development 85 -- 548 Interest expense 3 (25) --- Amortization of goodwill and intangible assets 75 -- --- Other (income)expense-net (167) (49) (15) - ------------------------------------------------------------------------------------------------ Earnings(loss) before income taxes (101) 9 (533) Income tax expense(benefit) (1) 7 5 - ------------------------------------------------------------------------------------------------ Net earnings(loss) $(100) $ 2 $ (538) - ------------------------------------------------------------------------------------------------
Sales in 1999 of $17 billion rose 43 percent from $11.9 billion in 1998 primarily from the acquisition of LucasVarity on March 25, 1999. Sales in 1998 increased from $10.8 billion in 1997 mainly due to the acquisition of BDM in December 1997. Gross profit of $3,090 million in 1999 increased 42 percent from $2,171 million in 1998, consistent with the increase in sales. Gross profit, as a percentage of sales, was 18.2 percent for 1999 and 18.3 percent for 1998. Gross profit in 1999 included automotive restructuring expenses of $73 million and unusual items, including contract reserves and expenses related to the acquisition of LucasVarity, of $18 million. In addition, the net pension income from a LucasVarity overfunded pension plan added $192 million to gross profit in 1999. Gross profit in 1998 included automotive restructuring expenses of $11 million and litigation and contract reserves and severance costs of $41 million. The gross profit margin in the legacy automotive business declined in 1999 primarily due to production inefficiencies related to the implementation of new manufacturing systems, the start-up and transfer of certain operations to facilities in Mexico and Eastern Europe and declining margins on new business. Legacy refers to the Company's businesses prior to the acquisition of LucasVarity. The gross profit margin in the Systems & Information Technology segment also declined in 1999 due to losses associated with certain commercial contracts. Gross profit increased to $2,171 million in 1998 from $2,005 million in 1997. Gross profit as a percentage of sales declined from 18.5 percent in 1997 to 18.3 percent in 1998. The gross profit margin decline was the result of a decrease in automotive margins offset in part by higher gross profit margins in the aerospace and information systems businesses. Administrative and selling expenses of $1,150 million in 1999 increased $324 million from $826 million in 1998. The administrative and selling expenses of the LucasVarity businesses added $450 million, but were offset by the cost reductions of $75 million in legacy automotive and $55 million in the legacy aerospace and information systems business. Administrative and selling expenses were $142 million higher in 1998 than 1997 primarily due to the acquisition of BDM. Research and development expenses of $609 million in 1999 were higher than the $522 million in 1998 primarily due to the addition of the LucasVarity businesses of approximately $135 million, partially offset by reduced spending in the legacy automotive businesses of approximately $30 million and the legacy aerospace and information systems businesses of $15 million. Research and development expenses in 1998 were higher than the $461 million in 1997 mainly due to an increase in spending in both the automotive and aerospace and information systems businesses of approximately $30 million and $20 million, respectively, and the addition of approximately $10 million of research and development expenses of BDM. Purchased in-process research and development expenses of $85 million in 1999 and $548 million in 1997 resulted from the valuation of LucasVarity and BDM, respectively. Interest expense of $477 million in 1999 increased $363 million from $114 million in 1998, primarily due to interest on the debt associated with the acquisition of LucasVarity. Interest expense in 1998 was $39 million higher than the $75 million in 1997 due to higher debt levels, resulting from the acquisition of BDM, partially offset by the benefit from an adjustment of an interest accrual of $25 million relating to a tax litigation settlement. Amortization of goodwill and intangible assets was $195 million in 1999, $43 million in 1998 and $13 million in 1997. The increase of $152 million from 1998 to 1999 primarily resulted from the amortization of intangibles associated with the acquisition of LucasVarity of $74 million and the write-off of intangible assets from the discontinuance of certain warehouse management and software security products in the Systems & Information Technology segment of $75 million. The increase of $30 million from 1997 to 1998 resulted principally from the amortization of intangibles associated with the acquisition of BDM of $23 million. 28 TRW INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION Other (income)expense-net was income of $213 million in 1999, $80 million in 1998 and $16 million in 1997. Included in 1999 were the following items: gains on asset sales, primarily related to RFMD, of $362 million, partially offset by the $79 million write-off of the Company's investment in ICO, which filed for bankruptcy in 1999; amortization of bank fees for the acquisition of LucasVarity of $50 million; and foreign exchange losses relating to LucasVarity of $66 million. Other (income)expense-net for 1998 included a favorable litigation settlement relating to ICO of $49 million. The effective income tax rate in 1999 was 40.5 percent compared with 36.1 percent in 1998 and 120.3 percent in 1997. Excluding the in-process research and development charges, with no income tax benefit, the effective income tax rates would have been 36.5 percent in 1999 and 36.6 percent in 1997. In 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement is effective for years beginning after June 15, 2000. Under this statement, changes in the market value of contracts that hedge anticipated transactions will be deferred and recognized in earnings when realized. The impact of the adoption will be determined by several factors, including the specific hedging instruments in place and their relationships to the hedged items, as well as market conditions as of the date of adoption. Management is in the process of analyzing and assessing the impact of the adoption of SFAS No. 133 on the Company's consolidated results of operations and financial position, but believes that such determination of the effect currently is not meaningful. The Company intends to adopt the statement on January 1, 2001. Automotive Segments On March 25, 1999, the Company acquired LucasVarity. The sales and profit before taxes subsequent to that date have been included in the applicable Automotive segment results. Occupant Safety Systems
(In millions) Years ended 1999 1998 1997 - ---------------------------------------------------------------- Sales $3,009 $3,042 $3,020 Profit before taxes 187 257 314 - ----------------------------------------------------------------
Sales for 1999 of $3,009 million decreased $33 million from $3,042 million in 1998, as increased volume of approximately $235 million was offset by lower pricing and the effects of a strong U.S. dollar of approximately $185 million and $85 million, respectively. Profit before taxes for 1999 of $187 million decreased from $257 million in 1998. Excluding approximately $10 million of restructuring charges in 1999, profit before taxes decreased approximately $60 million. Lower pricing of approximately $185 million, costs associated with production inefficiencies related to the implementation of a new manufacturing system and the startup and transfer of certain operations to facilities in Mexico, of approximately $30 million and the effects of a strong U.S. dollar of approximately $8 million were offset in part by cost reductions, including general and administrative reductions, of approximately $145 million and increased volume of approximately $15 million. Sales for 1998 of $3,042 million increased $22 million from $3,020 million in 1997. The higher sales were primarily due to increased volume of $230 million offset in part by lower pricing of approximately $195 million, the effects of a strong U.S. dollar of approximately $20 million and the effect of weakening economic conditions in Brazil and Asia of $5 million. Profit before taxes for 1998 of $257 million decreased from $314 million in 1997. The decrease was primarily due to lower pricing of $195 million and start- up costs associated with new product launches of $20 million, which were offset in part by cost reductions of approximately $180 million. Chassis Systems
(In millions) Years ended 1999 1998 1997 - ------------------------------------------------------- Sales $5,077 $2,201 $2,181 Profit before taxes 299 129 155 - -------------------------------------------------------
Sales for 1999 of $5,077 million increased from $2,201 million in 1998, mainly due to the inclusion of LucasVarity of approximately $2,900 million and higher volume of approximately $75 million, which was offset by the effects of a strong U.S. dollar of approximately $100 million. TRW INC. 29 MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION Profit before taxes for 1999 of $299 million increased from $129 million in 1998. Excluding 1999 restructuring charges of $60 million and the one-time noncash effect of the LucasVarity inventory adjustment of $16 million, and 1998 restructuring charges of $7 million, profit before taxes increased $239 million. The higher profit before taxes resulted primarily from the inclusion of LucasVarity of approximately $260 million and cost reductions, including general and administrative expense reductions, of approximately $55 million, which were offset partially by lower pricing of approximately $12 million, losses on new product introductions and unfavorable sales mix of $35 million, increased warranty costs of $7 million and an asset impairment write-off of $5 million. Sales for 1998 of $2,201 million were $20 million higher than the $2,181 million in 1997. The increase resulted primarily from higher volume of approximately $130 million which was offset in part by the effects of a strong U.S. dollar of approximately $60 million, the effect of weakening economic conditions in Brazil and Asia of approximately $40 million and lower pricing of approximately $10 million. Profit before taxes for 1998 of $129 million was $26 million lower than the $155 million in 1997. The decrease resulted primarily from lower pricing of $10 million, higher research and development costs of approximately $25 million, start-up costs associated with new product launches of $15 million, the effects of unfavorable economic conditions in Brazil and Asia of $15 million and restructuring charges of $7 million, which was offset in part by cost reductions of approximately $90 million. During January 2000, the sale of Lucas Diesel Systems, including the associated aftermarket operations, was substantially completed. The sales and profit before taxes of the aftermarket operations have been included in the Chassis Systems segment from March 25, 1999, the date of acquisition. The sales and profit before taxes of the aftermarket business included in the Chassis Systems segment results for 1999 were approximately $155 million and $18 million, respectively. Automotive Electronics
(In millions) Years ended 1999 1998 1997 - ------------------------------------------------------------------------------- Sales $1,632 $1,137 $1,022 Profit before taxes 114 73 70 - -------------------------------------------------------------------------------
Sales for 1999 of $1,632 million increased $495 million from $1,137 in 1998, primarily due to the inclusion of LucasVarity of approximately $435 million and higher volume of approximately $120 million, offset in part by lower pricing of approximately $30 million and the effects of a strong U.S. dollar of approximately $30 million. Profit before taxes for 1999 of $114 million increased $41 million from the $73 million in 1998. Restructuring charges included in profit before taxes for 1999 and 1998 were $10 million and $13 million, respectively. Excluding the restructuring charges, profit before taxes increased $38 million primarily due to cost reductions, including lower general and administrative expenses of approximately $90 million and the inclusion of LucasVarity of approximately $30 million, offset in part by lower pricing of $30 million, unfavorable sales mix, including losses on new product introductions and production inefficiencies, of approximately $50 million and the one-time noncash effect of the LucasVarity inventory adjustment of $4 million. Sales of $1,137 million for 1998 were $115 million higher than the $1,022 million in 1997, primarily due to increased volume of $115 million which was offset in part by lower pricing of approximately $35 million and the effects of a strong U.S. dollar of approximately $5 million. Profit before taxes for 1998 was $73 million, or $86 million excluding restructuring costs of $13 million, compared to $70 million in 1997. The increase resulted primarily from cost reductions of approximately $70 million, offset in part by lower pricing of approximately $35 million, higher research and development costs of approximately $15 million and start-up costs associated with new product launches of $5 million. Other Automotive
(In millions) Years ended 1999 1998 1997 - ------------------------------------------------------------------------------ Sales $1,610 $ 821 $ 809 Profit before taxes 115 84 98 - ------------------------------------------------------------------------------
Sales for 1999 of $1,610 million increased $789 million from $821 million in 1998, primarily due to the inclusion of LucasVarity of $741 million and higher volume of approximately $75 million, offset in part by the effects of a strong U.S. dollar of approximately $25 million. 30 TRW INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION Profit before taxes for 1999 of $115 million increased $31 million from $84 million in 1998. Restructuring charges included in profit before taxes in 1999 and 1998 were approximately $2 million and $5 million, respectively. Excluding restructuring charges, profit before taxes increased $28 million, due primarily to the inclusion of LucasVarity of approximately $20 million and cost reductions, including general and administrative expense reductions, of $20 million, offset by unfavorable pricing of $7 million and unfavorable product mix and production inefficiencies of approximately $6 million. Sales for 1998 were $821 million compared to $809 million in 1997. The increase primarily resulted from higher volume of $35 million, offset by lower pricing of approximately $10 million, the effects of a strong U.S. dollar of approximately $5 million and the effect of weakening economic conditions in Brazil and Asia of $5 million. Profit before taxes of $84 million for 1998 was $14 million lower than the $98 million in 1997. The decrease was due to lower pricing of $10 million, the effects of unfavorable economic conditions in Brazil and Asia of $5 million, and restructuring costs of $5 million, offset in part by cost reductions of approximately $10 million and lower research and development costs of approximately $10 million. On May 17, 1999, the Company announced plans to divest its engine businesses, which consist of TRW Engine Components and Lucas Diesel Systems operations; TRW Nelson Stud Welding; and the LucasVarity wiring companies. The Company is no longer pursuing the disposition of TRW Engine Components due to market conditions. Sales of the businesses to be divested, included in the Other Automotive segment, were approximately $820 million, $70 million and $65 million for the years ended December 31, 1999, 1998 and 1997, respectively. Profit before taxes for those businesses included in the Other Automotive segment were approximately $30 million in 1999 and $10 million in 1998 and in 1997. The disposition of Lucas Diesel Systems was substantially completed on January 7, 2000. The Company also reached a definitive agreement to sell TRW Nelson Stud Welding, which is expected to close by the end of the first quarter of 2000. During 1999, a wiring business was sold. The sale of the remaining wiring business is expected to be completed by the end of the first quarter of 2000. The disposition of these businesses will affect the sales and profit before taxes of the Other Automotive segment in 2000 from the date of disposition. Automotive Restructuring On July 29, 1998, the Company announced actions to enhance the profit margins of the legacy Automotive segments by initiating the following actions: close 10 to 15 percent of the Company's then-existing 137 manufacturing plants; reduce employment by 7,500; eliminate $75 million of selling, general and administrative costs per year; reduce the cost of material through more effective use of global sourcing and purchasing and reduce the number of automotive suppliers by 50 percent; improve productivity by reducing manufacturing costs by at least 25 percent over the next few years through the use of lean manufacturing practices and improved quality; and reduce aggregate capital expenditures by $300 million over the next five years. To implement these changes, the Company expects to record before-tax charges of up to $150 million by the end of 2000. The Company recorded restructuring expenses of $80 million and $24 million for the years ended December 31, 1999 and 1998, respectively. The Company closed six plants during 1999, bringing the total to 11. Five additional plants are currently in the process of closure or sale. The Company reduced employee headcount by more than 4,800 against a goal of 7,500. The Company has also reduced the number of suppliers by approximately 5,000, exceeding the goal. In addition, on an annual basis, $75 million of selling, general and administrative expense reductions have been achieved. During 1999, the Company approved several restructuring actions to integrate the LucasVarity automotive businesses with the legacy automotive businesses and to dispose of several nonstrategic or inefficient facilities, discontinue production of low-margin products and relocate certain facilities. The Company recorded approximately $27 million of restructuring costs, primarily severance, as part of the purchase price allocation. During 1999, $14 million was used primarily for severance payments and the remaining balance of $13 million is expected to be used during 2000. The Company is evaluating further restructuring actions in the Chassis Systems and Automotive Electronics segments as LucasVarity becomes integrated with the legacy automotive businesses. Additional restructuring costs may be incurred, some of which may affect the purchase price allocation. Automotive Outlook The Company anticipates that North American and Western European automotive and light truck production in 2000 will be down slightly from the 1999 levels. The Company foresees growth in the emerging markets of Central and Eastern Europe and Asia Pacific. Strong price pressure, characteristic of the automotive supply industry, is expected to continue across all product lines. The Company's goal is to mitigate the pricing pressure by restructuring the automotive businesses and by continuing cost reduction efforts. The Company has invested and continues to invest in products with significant potential growth or technological advantage, such as electrically assisted steering, advanced restraint systems, advanced braking systems, power rack and pinion steering, advanced electronic components and new air bag technologies. TRW INC. 31 MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION Aerospace & Information Systems Segments Space & Electronics
(In millions) Years ended 1999 1998 1997 - ------------------------------------------------------------------------------- Sales $1,870 $1,922 $2,005 Profit before taxes 500 266 204 - -------------------------------------------------------------------------------
Sales of $1,870 million for 1999 decreased $52 million from the $1,922 million in 1998, primarily due to lower volume on several defense programs nearing completion or completed during the year of approximately $110 million and termination of the SBIRS Low demonstration and validation contract of approximately $100 million, offset in part by sales from new awards, including the start-up in the commercial satellite communication line of business, of $85 million, and higher volume on existing core programs of approximately $75 million. Profit before taxes for 1999 and 1998 was $500 million and $266 million, respectively. Profit before taxes in 1999 included the following unusual items: gains of $335 million related to RFMD stock and the sale of land of $11 million, partially offset by the write-off of the Company's investment in ICO of $79 million and a charge for a capped cost reimbursable contract for the U.S. Army of $11 million. Profit before taxes in 1998 included the following unusual items: a gain of $49 million from the settlement of certain patent litigation and a $15 million charge for litigation. Excluding these unusual items, profit before taxes increased $12 million in 1999 primarily from improved contract performance. Sales for 1998 of $1,922 million decreased $83 million from the $2,005 million in 1997 primarily due to lower volume on existing programs of approximately $90 million, offset in part by $45 million from new contract awards. Profit before taxes for 1998 of $266 million increased from the $204 million in 1997. Without the unusual items in 1998 described above, profit before taxes would have increased $28 million primarily from favorable contract performance of approximately $20 million and profit from new contract awards of approximately $5 million. Backlog at the end of 1999 was $3 billion, 11 percent higher than the $2.7 billion reported at December 31, 1998. The award of several key programs in both the defense and nondefense markets contributed to the increase. Backlog at December 31, 1999 and 1998, does not include approximately $725 million and $500 million, respectively, of negotiated and priced, but not exercised, options for defense and nondefense programs. The exercise of the options is at the discretion of the customer, and in the case of government contracts, is dependent on future government funding. Systems & Information Technology
(In millions) Years ended 1999 1998 1997 - ------------------------------------------------------------------------------ Sales $2,869 $2,763 $1,794 Profit before taxes 86 192 144 - ------------------------------------------------------------------------------
Sales for 1999 of $2,869 million increased $106 million from the $2,763 million in 1998 primarily due to new business of approximately $125 million and higher volume on existing programs, including space and missile systems contracts, of approximately $190 million. The higher sales were mitigated by lower volume on contracts nearing completion or completed during the year of approximately $150 million, lower volume associated with the discontinued warehouse management product and the decline of the Y2K and enterprise resource planning integration business, of $65 million. Profit before taxes for 1999 and 1998 was $86 million and $192 million, respectively. Profit before taxes for 1999 included a charge of $82 million to reflect primarily noncash costs for the discontinuance of a certain warehouse management systems business and the sale of a software security product line, and a charge of $33 million for a commercial fixed-price contract, partially offset by $16 million of gains from the sale of certain nonstrategic assets. Profit before taxes for 1998 included charges of $26 million for contract reserves and severance costs relating to the integration of the Company's Systems & Information Technology business with BDM. Excluding these unusual items, profit before taxes for 1999 decreased $33 million, primarily due to losses associated with the discontinued warehouse management product of $11 million and the decline of the Y2K and enterprise resource planning integration business of $14 million. Sales for 1998 of $2,763 million rose from the $1,794 million in 1997, primarily due to the acquisition of BDM of $885 million and an increase in sales from new contract awards of $245 million, offset in part by a contract modification announced in 1998 and lower volume on existing contracts of approximately $60 million and $110 million, respectively. 32 TRW INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION Profit before taxes for 1998 of $192 million increased from the $144 million in 1997, primarily due to the acquisition of BDM, which contributed $52 million, new contract awards of $15 million and improved program performance of $20 million. The increase in 1998 was offset in part by charges for contract reserves and severance of $26 million. Backlog increased 19 percent to $3.7 billion at December 31, 1999 from $3.1 billion at the end of 1998. The increase in backlog was primarily due to the award of several key programs in the segment's defense markets. The segment also received key awards in the civil and commercial markets. Backlog at December 31, 1999 and 1998, does not include approximately $4.5 billion and $5.3 billion, respectively, of negotiated and priced, but not exercised, options for defense and nondefense programs. The exercise of the options is at the discretion of the customer and, in the case of government contracts, is dependent on future government funding. Space & Electronics and Systems & Information Technology Segments' Outlook Government funding for contracts in the Space & Electronics and the Systems & Information Technology segments is expected to remain stable while certain contracts remain fiscally constrained. However, increased defense, intelligence, telecommunication and information technology spending is expected to have a favorable impact on many of the segments' major contracts and core businesses. The Company does not anticipate any significant unfavorable operational effects related to program terminations or budget reallocations. The continuing focus on diversification of the segments' sales mix has led to civil, state, commercial and international contracts, that further position the segments for growth. The Company believes that the diversity of its programs helps mitigate the Company from both funding fluctuations and the economic uncertainty of global markets. The segments remain focused on investing in new technologies, bidding and winning new contracts and continuing to provide outstanding products and services to customers. Aeronautical Systems
(In millions) Years ended 1999 1998 1997 - ------------------------------------------------------------------------------- Sales $ 902 $ --- $ --- Profit before taxes 123 --- --- - -------------------------------------------------------------------------------
Sales and profit before taxes for the Aeronautical Systems segment of $902 million and $123 million, respectively, are attributable entirely to the sales and profit before taxes of the LucasVarity aerospace business from March 25, 1999, the date of acquisition, through December 31, 1999, including two additional acquisitions during 1999. The sales included in the segment of the businesses acquired were approximately $45 million. The Company recorded approximately $13 million for severance and other costs to close certain facilities. The cost was included in the purchase price allocation and reported in other accruals. During 1999 the reserve was reduced by $9 million for severance and lease termination costs. The balance of $4 million at December 31, 1999, will be used primarily for severance payments in 2000. Due to the Aeronautical Systems segment's position on the growing Airbus platforms, sales of original equipment are expected to be sustained despite an overall reduction in deliveries of large airliners from their peak in 1999. The demand for aftermarket repair and overhaul services and related replacement parts will continue to be sustained by modest growth in airline traffic. Price pressure is expected to continue but is expected to be mitigated by continued operational improvements. Acquisitions LucasVarity On March 25, 1999, the Company acquired LucasVarity for approximately $6.8 billion in cash and assumed net debt. The acquisition was accounted for as a purchase. The preliminary purchase price allocation resulted in an $85 million charge to earnings, with no income tax benefit, for the fair value of acquired in-process research and development (IPR&D) that had not reached technological feasibility and had no future alternative use, $504 million for identifiable intangible assets including intellectual property and workforce, and incremental fair value adjustments of approximately $1.5 billion for a prepaid pension asset, primarily from an overfunded pension plan, $200 million for the valuation of fixed rate debt, and an increase of $30 million and $143 million for the valuation of inventory and fixed assets, respectively. The fair value of IPR&D was determined by an independent valuation using the income approach under the proportional method. The following projects were included in the valuation: next generation caliper of $26 million, next generation anti-lock braking systems (ABS) of $23 million, aerospace engine controls of $18 million, electro hydraulic braking of $12 million and electrical parking brake of $6 million. The fair value of identifiable intangibles was also determined by an independent valuation primarily TRW INC. 33 MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION using the income approach. A risk adjusted discount rate of 18 percent representing the cost of capital and a premium for the risk was used to discount the projects' cash flows. Operating margins were assumed to be similar to historical margins of similar products. The size of the applicable market was verified for reasonableness with outside research sources. The projects were in various stages of completion ranging from approximately 40 to 80 percent complete as of the valuation date. The stage of completion for each project was estimated by evaluating the cost to complete, complexity of the technology and time to market. The projects are anticipated to be completed by 2002. The estimated cost to complete the projects was $65 million. As of December 31, 1999, the next generation caliper project was completed. The Company currently anticipates that the remainder of the projects will be successfully developed as budgeted for both the estimated cost and time of completion. Any delay or cancellation of the projects would not have a material adverse impact on the results of operations or the financial condition of the Company. Restructuring costs, primarily severance, included in the purchase price allocation were approximately $47 million. The reserve was established for facility consolidations, relocation of certain facilities, elimination of the LucasVarity corporate facilities and divestiture of nonstrategic or inefficient facilities in the automotive and aerospace businesses. The balance at December 31, 1999, reported in other accruals, was $18 million and will be used primarily for severance payments during 2000. The financial effect of LucasVarity has been accretive to the financial results of the Company for 1999. Astrolink LLC During 1999, the Company announced that it would invest $255 million in Astrolink LLC, a strategic venture initiated by Lockheed Martin, of which the Company invested $83 million in 1999. In addition to the Company's investment, Lockheed Martin Global Telecommunications will invest $400 million, Telespazio, a Telecom Italia Group Company, will invest $250 million and Liberty Media Group will invest $425 million. Astrolink has commitments for $1.3 billion in equity, which is substantially all of Astrolink's targeted equity. With this funding, Astrolink commenced construction of a satellite-based network that will enable it to provide on-demand, wireless broadband data communication services on a global basis. Astrolink will focus on the high growth area of broadband multimedia, offering high-speed, high-quality, flexible, global bandwidth-on-demand services to large corporate customers and other consumers. The Company will build Astrolink's satellite communication payloads. These payloads will be sophisticated, orbiting switches designed to receive data signals in individually addressed packets from multiple ground cells, route the data, and transmit the data to the appropriate ground cell based on the destination address. In addition, the Company payloads will allow Astrolink to offer its customers "bandwidth-on-demand," the ability to use, and pay for, only the bandwidth they actually need, avoiding the higher cost of a dedicated connection with a fixed amount of bandwidth. The Company also has the opportunity to be an Astrolink service provider. BDM International, Inc. On December 24, 1997, the Company acquired the stock of BDM for cash of $880 million plus assumed net debt of $85 million. With the acquisition of BDM, the Company attempted to gain greater capability to serve the fast-growing market for government information technology as well as the very large, high-growth commercial information technology market. The acquisition was accounted for as a purchase with the purchase price allocated to the net assets acquired based on their fair values and to costs for employee severance of $8 million. During 1998, the reserve balance was used for severance payments. The purchase price allocation resulted in a $548 million charge to earnings, with no income tax benefit, for the fair value of acquired in-process research and development that had not reached technological feasibility and had no future alternative use, $152 million of identifiable intangible assets, including core and developed technology, workforce and trade name and goodwill of $205 million. The intangible assets are being amortized over an average period of 15 years. The fair values of in-process research and development and identifiable intangible assets were determined by an independent valuation using the income approach. Eight commercial projects were included in the valuation. The major projects included: a commercial market adaptation of core network security to achieve the highest level of network security of $201 million; a Web-enabled and substantially enhanced warehouse and distribution management project of $199 million; and a module to enhance certain applications to become compliant with the single European currency for a particular software of $69 million. Due to the high level of risk associated with the successful development of the projects arising from competition, shift in the market, technological feasibility or timeliness to market, discount rates between 25 percent and 30 percent were used to discount the projects' cash flows. Operating margins were assumed to be similar to historical margins of similar products. The market size was verified for reasonableness with outside research sources. The projects were in various stages of completion, ranging from approximately one-third to two- thirds, as of the valuation date. The stage of completion for each project was estimated by evaluating the complexity of the technology, time to market and the cost. Substantially all of the projects were expected to be complete by the end of 1999. 34 TRW INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION During the fourth quarter 1999, the Company made a decision to discontinue the development of the Web-enabled warehouse and distribution project due to competitive pressures in the warehouse and distribution market resulting from a competitor's new systems approach enabling these systems to be implemented in a modular approach. This modular approach offered nearly similar functionality at a lower cost and with reduced implementation risk to the customer. Also during the fourth quarter 1999 the Company made a decision to discontinue the sale of the network security product due to changes in the market for this product. Four key factors contributed to the change in the Company's addressable market for this product: the constraints due to hardware adaptability; the lack of current interest in the commercial market for high-end capability which would command a premium price; the fact that a number of competitive products had become available; and the increase in Internet traffic resulting in former smaller sites growing to larger sites that require different technology. The research and development of the European currency project was divested in November 1998 as part of a transaction that included the sale of the Company's assets in its enterprise resource planning software distribution business in the United Kingdom and the Netherlands. As part of the agreement, the Company received $20 million in cash for its related assets, $1.4 million for completion of the development of the European currency project and was named a global systems integrator for all of the acquirer's products. The assets were sold at book value; thus, no gain or loss was recognized in the statement of operations. Also, the acquirer became a distributor for two of the Company's developed software applications. Although circumstances associated with the three major projects changed substantially subsequent to the valuation, none of these facts or circumstances were known, contemplated or contingent as of the date the valuation was completed in January 1998. The Company has re-evaluated the carrying values of the identifiable intangible assets recorded as part of the purchase price for impairment, and based on the decisions in the fourth quarter 1999 to discontinue certain products within the warehouse management systems and software security product lines, the Company recorded a charge to write-down the carrying value of identifiable intangibles by $75 million. The Company re-evaluated the carrying value of the remaining identifiable intangible assets of $58 million as of December 31, 1999 for impairment and has concluded that the carrying values of the identifiable intangible assets will be recovered. The financial effect of BDM was relatively neutral to the Company's 1998 earnings. Excluding the write-off of identifiable intangibles of $75 million, the estimate of BDM earnings was dilutive in 1999 due to losses on the products discontinued during the fourth quarter. A major portion of the business associated with the value determined by the purchase price allocation, accounting for approximately 65 percent of the total purchase price, will not be implemented into the Company's current business. Air Bag and Steering Wheel Businesses of Magna International During 1997, the Company acquired an 80 percent equity interest in the air bag and steering wheel businesses of Magna International for cash of $415 million plus assumed net debt of $50 million. The remaining 20 percent of Magna International was acquired in 1998 for cash of $102 million. These businesses supply air bag modules, inflators, propellants, steering wheels and other related automotive components. The acquisitions were accounted for as a purchase; accordingly, the combined purchase price has been allocated to the net assets acquired based on their estimated fair values and to costs for certain restructuring actions, primarily plant closing and severance costs of $40 million. As of December 31, 1999 and 1998, the balance of the restructuring reserve, included in other accruals, was $6 million and $18 million, respectively. During 1999, the reserve was reduced by $6 million due to a decision not to close one manufacturing facility and by $6 million primarily for severance payments. During 1998, $6 million was used for severance payments, $7 million for plant closure costs and the reserve was reduced by $9 million due to a change in estimate for severance payments. The remaining reserve will be used primarily for severance and plant closure costs in 2000. Goodwill was $330 million and is being amortized over 40 years. See the "Acquisitions" note to Financial Statements for further discussion of the acquisitions of LucasVarity, BDM and the air bag and steering wheel businesses of Magna International. International Operations International sales were $7.7 billion, or 45 percent of the Company's sales in 1999; $4.5 billion, or 38 percent in 1998; and $4.4 billion, or 40 percent of sales in 1997. U.S. export sales included in those amounts were $1,039 million in 1999, $674 million in 1998 and $732 million in 1997. The increase in international and U.S. export sales in 1999 was due primarily to the LucasVarity acquisition. Most of the Company's non-U.S. operations are included in the Systems & Information Technology, Aeronautical Systems and the four Automotive segments and are located primarily in Europe, Mexico, Canada, Brazil and the Asia Pacific region. The Company's non-U.S. operations are subject to the usual risks that may affect such operations; however, most of the assets of its non- U.S. operations are in countries where the Company believes such risks to be minimal. TRW INC. 35 MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION Liquidity and Financial Position Cash flow from operations in 1999 of $1,522 million, additional borrowings of $5,455 million and proceeds from the sale of nonstrategic assets of $432 million were used primarily for acquisitions of $6,095 million, capital expenditures of $865 million, dividend payments of $160 million and other items of $144 million. As a result, cash and cash equivalents increased $145 million. Cash flow from operations in 1998 of $661 million and additional borrowings of $522 million were used primarily for capital expenditures for property, plant and equipment and other intangible assets of $625 million, acquisitions of $249 million, purchases of the Company's common stock of $184 million, of which $5 million was for the settlement of shares purchased in 1997, and dividend payments of $154 million. Net debt (short-term debt, the current portion of long-term debt and long-term debt, less cash and cash equivalents) was $8.3 billion at December 31, 1999, compared to $2.1 billion and $1.6 billion at December 31, 1998 and December 31, 1997, respectively. The ratio of net debt to total capital (net debt, minority interests and shareholders' investment) was 75 percent, 52 percent and 48 percent at December 31, 1999, 1998 and 1997, respectively. The percentage of fixed rate debt to total debt was 46 percent and 52 percent at the end of 1999 and 1998, respectively. Capital expenditures for property, plant and equipment and other intangible assets, primarily internal-use software, were $865 million in 1999, $625 million in 1998 and $571 million in 1997. The Company will maintain a capital program with estimated capital expenditures for 2000 totaling approximately $875 million. Approximately two-thirds of these expenditures will be invested in the Automotive segments and one-third in the Aerospace & Information Systems segments. The Company will continue to invest in its Automotive segments' growth businesses, including electrically assisted steering, advanced restraint systems, advanced braking systems, power rack and pinion steering and advanced electronic components. The Aerospace & Information Systems segments' expenditures will be used to support major new contract awards and the existing businesses, as well as research and development of next-generation technologies. The Company received fully underwritten financing for the acquisition of LucasVarity in the form of a $7.4 billion two-tranche credit agreement. Tranche one of $3.7 billion expired December 31, 1999 and tranche two of $3.7 billion was cancelled by the Company in 2000. During the first quarter of 1999, the Company amended the terms of its $750 million multi-year and $745 million U.S. revolving credit agreements and its $250 million multicurrency revolving credit agreement to change key terms and conditions to conform to the terms of the $7.4 billion agreement. In addition, the expiration date of the $745 million agreement was extended to January 26, 2000. The Company terminated each of these agreements simultaneous with the establishment of its new agreements in January 2000. On January 25, 2000, the Company established two committed revolving credit agreements in an aggregate amount of $3.3 billion with 29 banks. The first agreement for $2.3 billion will expire on January 23, 2001 with an option to extend the maturity of outstanding borrowings at that time to January 23, 2002. The second agreement for $1 billion will expire on January 25, 2005. The interest rates under the agreements are either the prime rate or a rate based on the London Interbank Offered Rate (LIBOR), at the option of the Company. During the second quarter of 1999, the Company refinanced $3.4 billion of short- term debt by issuing notes and debentures with $575 million Floating Rate Notes due 2000, based on a three-month LIBOR, $425 million 6.45% Notes due 2001, $400 million 6.5% Notes due 2002, $700 million 6.625% Notes due 2004, $750 million 7.125% Notes due 2009 and $550 million 7.75% Debentures due 2029. The Company's effective obligation on the $425 million 6.45% Notes due 2001 was simultaneously changed to a floating rate based on a three-month LIBOR through the execution of a $425 million interest rate swap. During the third quarter of 1999, the Company refinanced commercial paper by entering into $100 million of bank borrowings due September 2000. The interest rate under the agreement is a floating rate based on a three-month LIBOR. At December 31, 1999, $1 billion of short-term obligations were reclassified to long-term obligations as the Company intends to refinance the obligations on a long-term basis and has the ability to do so under its existing credit agreements. The Company established a $2.5 billion Universal Shelf Registration Statement during 1999 with the entire amount remaining available at December 31, 1999. Securities that may be issued under this shelf registration statement include debt securities, common stock, warrants to purchase debt securities, warrants to purchase common stock, stock purchase contracts and stock purchase units. As a result of the debt incurred for the LucasVarity acquisition, ratings on the Company's short and long-term debt were lowered. Moody's Investors Service has rated the Company's commercial paper at P-2 and senior unsecured debt at Baa1. Standard & Poor's has rated the Company's commercial paper at A-2 and senior unsecured debt at BBB. These rating changes have not had a material impact on the Company's ability to raise funds in the capital markets. 36 TRW INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION Subsequent to the acquisition of LucasVarity, the Company established a goal of reducing its net debt by approximately $2.5 billion by the end of 2000. As of December 31, 1999, net debt had been reduced by over $1 billion from the level immediately after the acquisition of LucasVarity. Additional debt reduction will be achieved through operating cash flow, working capital improvements, sale of noncore businesses, disposal of nonrevenue producing assets and management of expenditures. During 1999, the Company sold shares of RFMD for $329 million, of which $302 million was received in cash in 1999. The additional $27 million was received in January 2000. At December 31, 1999, the Company owned approximately 14.2 million shares representing approximately 18 percent of the outstanding common stock. The fair value of the Company's investment in RFMD at December 31, 1999, was approximately $1 billion and has been reflected in the balance sheet of the Company in investments in affiliated companies. On January 7, 2000, the sale of Lucas Diesel Systems for approximately $875 million was substantially completed. On January 13, 2000, the Company reached a definitive agreement to sell TRW Nelson Stud Welding which is expected to be completed by the end of the first quarter of 2000. During 1999, a wiring business was sold for approximately $45 million. The sale of the remaining wiring business is expected to be completed during the first quarter of 2000. At December 31, 1999, the Company had a working capital deficiency of approximately $1.5 billion primarily due to the issuance of debt incurred to purchase LucasVarity. Management believes that sufficient resources, from funds generated by operations, dispositions and existing borrowing capacity, are available to maintain liquidity. The Company is subject to inherent risks attributed to operating in a global economy. It is the Company's policy to utilize derivative financial instruments to manage its interest rate and foreign currency exchange rate risks. When appropriate, the Company uses derivatives to hedge its exposure to short-term interest rate changes as a lower cost substitute for the issuance of fixed-rate debt and as a means of securing long-term, floating-rate debt. Also, the Company may use interest rate agreements in the management of interest rate exposure on debt issuances. The Company manages cash flow transactional foreign exchange risk pursuant to a written corporate policy. Forward contracts and, to a lesser extent, options are utilized to protect the Company's cash flow from adverse movements in exchange rates. The Company is exposed to credit loss in the event of nonperformance by the other party to the derivative financial instruments. The Company limits this exposure by entering into agreements with a number of major financial institutions that meet credit standards established by the Company and that are expected to satisfy fully their obligations under the contracts. Derivative financial instruments are viewed by the Company as a risk management tool and are not used for speculative or trading purposes. Based on the Company's interest rate exposure on variable rate borrowings at December 31, 1999, including fixed-rate borrowings exposed due to an interest rate swap, a one-percentage-point increase in the average interest rate on the Company's variable rate borrowings would increase future interest expense by approximately $47 million per year. Based upon the Company's interest rate exposure with regard to a forward starting interest rate swap outstanding at December 31, 1999, a 10 percent increase in fixed interest rates would result in a $5 million loss in fair value. Based on the Company's exposure to foreign currency exchange rate risk resulting from derivative foreign currency instruments outstanding at December 31, 1999, a 10 percent uniform strengthening in the value of the U.S. dollar relative to the currencies in which those derivative foreign currency instruments are denominated would result in a $72 million loss in fair value. The Company's sensitivity analyses of the effects of changes in interest rates and foreign currency exchange rates do not reflect the effect of such changes on the related hedged transactions or on other operating transactions. The Company's sensitivity analyses of the effects of changes in interest rates and foreign currency exchange rates do not factor in a potential change in the level of variable rate borrowings or derivative instruments outstanding that could take place if these hypothetical conditions prevailed. Management believes the Company's current financial position and financing arrangements allow flexibility in worldwide financing activities and permit the Company to respond to changing conditions in credit markets. Management believes that funds generated from operations, divestitures and existing borrowing capacity are adequate to fund debt service requirements, capital expenditures, working capital including tax requirements, company-sponsored research and development programs and dividend payments to shareholders. TRW INC. 37 MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION Contingencies TRW Vehicle Safety Systems Inc., a wholly-owned subsidiary of the Company, reported to the Arizona Department of Environmental Quality, or ADEQ, in 1997, potential violations of the Arizona hazardous waste law at its Queen Creek, Arizona facility for the possible failure to properly label and dispose of wastewater that might be classified as hazardous waste. ADEQ, the United States Environmental Protection Agency, the United States Department of Justice and the Arizona State Attorney General are conducting civil and criminal investigations into these potential violations and the Company is cooperating with these investigations. If proceedings were to be initiated against the Company with respect to such matters, the Company could be liable for penalties and fines and other relief. The Company is currently engaged in settlement discussions with state and federal officials. The Company is not able to predict the outcome of these discussions at this time. During 1996, the Company was advised by the United States Department of Justice that it had been named as a defendant in two lawsuits brought by a former employee and filed under seal in 1994 and 1995, respectively, in the United States District Court for the Central District of California under the qui tam provisions of the civil False Claims Act. The Company cannot presently predict the outcome of these lawsuits, although management believes that their ultimate resolution will not have a material effect on the Company's financial condition or results of operations. Refer to the "Contingencies" note to Financial Statements for further discussion of these matters. Year 2000 A company-wide Year 2000 (Y2K) compliance program was implemented to determine Y2K issues and assure Y2K compliance. The Company's Y2K compliance program also encompassed the Y2K program of LucasVarity. The compliance program had four major areas: internal computer systems, factory floor systems, supplier and service management and products and contracts. The Company did not experience any material disruption due to Y2K in any of its facilities or operations, and business resumed as planned after the millennium rollover. Since January 1, 2000, the Company has not experienced and does not expect any significant impact on its operations as a result of Y2K. The Company is not aware of any Y2K problems with its customers or suppliers. In the event that such Y2K issues should arise, contingency plans developed for Y2K or business continuity plans, as appropriate, would be utilized. The total cost of the Company's Y2K compliance program, including the cost of LucasVarity from the date of acquisition, is estimated to be $180 million and includes $101 million for capitalizable costs and $79 million of costs that are being expensed as incurred. The Company has expensed approximately $77 million and capitalized $101 million to date. Euro Conversion On December 31, 1998, certain member countries of the European Union irrevocably fixed the conversion rates between their national currencies and a common currency, the "Euro," which became their legal currency on January 1, 1999. The participating countries' former national currencies will continue to exist as denominations of the Euro until January 1, 2002. The Company evaluated the business implications of conversion to the Euro, including the need to adapt internal systems to accommodate Euro-denominated transactions, including receipts and payments, the competitive implications of cross-border price transparency and other strategic implications. The Company established a Euro project team to manage changes required to conduct its business operations in compliance with Euro-related regulations. The Company's exposure to foreign currency risk and the related use of derivative contracts to mitigate that risk is expected to be reduced as a result of conversion to the Euro. The Company does not expect the conversion to the Euro to have a material effect on its financial condition or results of operations. 38 TRW INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION Forward-Looking Statements Statements in this filing that are not statements of historical fact may be forward-looking statements. In addition, from time to time, the Company and its representatives make statements that may be forward-looking. All forward-looking statements involve risks and uncertainties. This section provides readers with cautionary statements identifying, for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, important factors that could cause the Company's actual results to differ materially from those contained in forward-looking statements made in this filing or otherwise made by, or on behalf of, the Company. The following are some of the factors that could cause actual results to differ materially from estimates contained in the Company's forward-looking statements: The Company's consolidated results could be affected by: unanticipated events and circumstances that may occur and render the Company's acquisition of LucasVarity less beneficial to the Company than anticipated; intense competition in our markets that make it impossible to guarantee that the Company will achieve the expected financial and operating results and synergies from the acquisition of LucasVarity; the ability of the Company to integrate LucasVarity into its operations and thereby achieve the anticipated cost savings and be in a position to take advantage of potential growth opportunities; the ability to continue technical innovation and the development of and demand for new products and contract awards; pricing pressures from customers; the ability to reduce the level of outstanding debt from cash flow from operations and the proceeds from asset dispositions; the introduction of competing products or technology by competitors; the availability of funding for research and development; the ability to meet performance and delivery requirements on systems for customers; the economic, regulatory and political instability of Brazil, Asia and certain emerging countries; and the ability to attract and retain skilled employees with high-level technical competencies. The Company's automotive businesses also could be affected by: the ability to effectively implement the Company's automotive restructuring program and improve automotive margins; changes in consumer debt levels and interest rates; the cyclical nature of the automotive industry; moderation or decline in the automobile build rate; work stoppages; customer recall and warranty claims; product liability issues; and changes to the regulatory environment regarding automotive safety. The Company's aerospace and information systems businesses also could be affected by: the level of defense funding by the government; the termination of existing government contracts; and the ability to develop and market products and services for customers outside of the traditional aerospace and information systems markets. The above list of important factors is not exclusive. We caution that any forward-looking statement reflects only the beliefs of the Company or its management at the time the statement is made. The Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement was made. - -------------------------------------------------------------------------------- Aerospace & Information Systems Business - Defense and Intelligence Systems The following information is being provided in response to shareholder requests for additional information regarding the Company's Aerospace & Information Systems business. TRW's skills and resources are an integral part of the nation's defense and intelligence communities. TRW is a world-class integrator of complex, mission-critical ground and space communication systems enabling the exploitation of massive data streams from spaceborne assets. Space-based missile warning and communications systems are integral to the nation's strategic posture and real-time imagery is critical to tactical battlefield commanders. The Company believes that its participation in these and other defense projects has contributed both to global peace and to the protection of our armed forces, while providing jobs for employees and contributions to shareholder value. The Company believes its participation in these projects is entirely consistent with the highest standards of legal and ethical conduct. The Aerospace & Information Systems business has diversified into non-Department of Defense contracts. In 1999, 47 percent of the business' sales were from non- Department of Defense customers. This compares to 38 percent in 1998. The Company's Aerospace & Information Systems business spent approximately $1.6 billion in research and development in 1999, of which $1.2 billion was government funded. TRW INC. 39 MANAGEMENT & AUDITORS' REPORT REPORT OF MANAGEMENT Management of TRW is responsible for the preparation of the accompanying consolidated financial statements of the Company and its subsidiaries. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States and include the estimates and judgments of management. The financial statements have been audited by Ernst & Young LLP, independent auditors, whose report appears below. Management has established and is responsible for maintaining a system of internal accounting controls that it believes provides reasonable assurance that assets are safeguarded and transactions are executed and recorded in accordance with management's authorization. The system is tested and evaluated regularly by the Company's internal auditors as well as by the independent auditors in connection with their annual audit. TRW has an audit committee composed of four independent Directors who are not members of management. The committee meets regularly with management, the internal auditors and the independent auditors in connection with its review of matters relating to the Company's financial statements, the Company's internal audit program, the Company's system of internal accounting controls and the services of the independent auditors. The committee also meets with the internal auditors as well as the independent auditors, without management present, to discuss appropriate matters. The committee also recommends to the Directors the appointment of the independent auditors. /s/ Joseph T. Gorman /s/ Carl G. Miller /s/ Thomas A. Connell Joseph T. Gorman Carl G. Miller Thomas A. Connell Chairman and Executive Vice President and Vice President and Chief Executive Officer Chief Financial Officer Corporate Controller January 21, 2000 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS Shareholders and Directors, TRW Inc. We have audited the accompanying consolidated balance sheets of TRW Inc. and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of operations, cash flows and changes in shareholders' investment for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of TRW Inc. and subsidiaries at December 31, 1999 and 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Ernst & Young LLP Cleveland, Ohio January 21, 2000 40 TRW INC. FINANCIAL STATEMENTS STATEMENTS OF OPERATIONS
TRW Inc. and subsidiaries (In millions except per share data) Years ended December 31 1999 1998 1997 - -------------------------------------------------------------------------------- Sales $16,969 $11,886 $10,831 Cost of sales 13,879 9,715 8,826 - -------------------------------------------------------------------------------- Gross profit 3,090 2,171 2,005 Administrative and selling expenses 1,150 826 684 Research and development expenses 609 522 461 Purchased in-process research and development 85 -- 548 Interest expense 477 114 75 Amortization of goodwill and intangible assets 195 43 13 Other (income)expense-net (213) (80) (16) - -------------------------------------------------------------------------------- Earnings before income taxes 787 746 240 Income taxes 318 269 289 - -------------------------------------------------------------------------------- Net earnings(loss) $ 469 $ 477 $ (49) - -------------------------------------------------------------------------------- Per share of common stock Diluted earnings(loss) per share $ 3.80 $ 3.83 $ (.40) Basic earnings(loss) per share 3.87 3.93 (.40) Dividends declared 1.32 1.28 1.24 - --------------------------------------------------------------------------------
See notes to financial statements. TRW INC. 41 FINANCIAL STATEMENTS BALANCE SHEETS
TRW Inc. and subsidiaries (In millions) December 31 1999 1998 - -------------------------------------------------------------------------------------------------------------------- Assets Current assets Cash and cash equivalents $ 228 $ 83 Accounts receivable (net of allowances of $54 million in 1999 and $33 million in 1998) 2,480 1,721 Inventories Finished products and work in-process 612 316 Raw materials and supplies 427 300 - -------------------------------------------------------------------------------------------------------------------- Total inventories 1,039 616 Prepaid expenses 202 104 Net assets of acquired businesses held for sale 827 -- Deferred income taxes 423 179 - -------------------------------------------------------------------------------------------------------------------- Total current assets 5,199 2,703 Property, plant and equipment-on the basis of cost Land 139 119 Buildings 1,973 1,706 Machinery and equipment 5,914 4,779 - -------------------------------------------------------------------------------------------------------------------- 8,026 6,604 Less accumulated depreciation and amortization 4,132 3,921 - -------------------------------------------------------------------------------------------------------------------- Total property, plant and equipment-net 3,894 2,683 Intangible assets Goodwill 3,743 850 Other intangible assets 948 360 - -------------------------------------------------------------------------------------------------------------------- 4,691 1,210 Less accumulated amortization 360 143 - -------------------------------------------------------------------------------------------------------------------- Total intangible assets-net 4,331 1,067 Investments in affiliated companies 1,185 243 Long-term deferred income taxes -- 33 Other notes and accounts receivable 257 227 Prepaid pension cost 2,876 171 Other assets 524 213 - -------------------------------------------------------------------------------------------------------------------- $18,266 $ 7,340 ------------------- Liabilities and shareholders' investment Current liabilities Short-term debt $ 2,444 $ 839 Accrued compensation 468 377 Trade accounts payable 1,638 964 Other accruals 1,277 633 Dividends payable 40 40 Income taxes 104 137 Current portion of long-term debt 758 30 - -------------------------------------------------------------------------------------------------------------------- Total current liabilities 6,729 3,020 Long-term liabilities 1,991 995 Long-term debt 5,369 1,353 Deferred income taxes 1,352 -- Minority interests in subsidiaries 113 94 Shareholders' investment Serial Preference Stock II (involuntary liquidation $6 million in 1999 and $7 million in 1998) -- -- Common stock (shares outstanding 122 million in 1999 and 119.9 million in 1998) 76 75 Other capital 465 457 Retained earnings 2,312 2,021 Treasury shares-cost in excess of par value (549) (637) Accumulated other comprehensive income(loss) 408 (38) - -------------------------------------------------------------------------------------------------------------------- Total shareholders' investment 2,712 1,878 - -------------------------------------------------------------------------------------------------------------------- $18,266 $ 7,340 -------------------
See notes to financial statements. 42 TRW INC. FINANCIAL STATEMENTS
STATEMENTS OF CASH FLOWS TRW Inc. and subsidiaries (In millions) Years ended December 31 1999 1998 1997 - -------------------------------------------------------------------------------- Operating activities Net earnings(loss) $ 469 $ 477 $ (49) Adjustments to reconcile net earnings(loss) to net cash provided by operating activities Purchased in-process research and development 85 -- 548 Asset write-off 153 -- -- Gain on sale of nonoperating assets (332) -- -- LucasVarity pension income (192) -- -- Depreciation and amortization 850 566 490 Deferred income taxes 233 (223) 116 Other-net 104 8 10 Changes in assets and liabilities, net of effects of businesses acquired or sold Accounts receivable 86 (27) 32 Inventories 115 (46) (23) Trade accounts payable -- 74 (3) Prepaid expenses and other liabilities (157) (174) (166) Other-net 108 6 (1) - -------------------------------------------------------------------------------- Net cash provided by operating activities 1,522 661 954 Investing activities Acquisitions, net of cash acquired (6,095) (249) (1,270) Capital expenditures including other intangibles (865) (625) (571) Net proceeds from divestitures 432 14 -- Other-net (186) 3 24 - -------------------------------------------------------------------------------- Net cash used in investing activities (6,714) (857) (1,817) Financing activities Increase(decrease) in short-term debt 1,486 (167) 912 Proceeds from debt in excess of 90 days 6,245 1,086 113 Principal payments on debt in excess of 90 days (2,276) (397) (89) Dividends paid (160) (154) (154) Acquisition of common stock -- (184) (247) Other-net 40 26 41 - -------------------------------------------------------------------------------- Net cash provided by financing activities 5,335 210 576 Effect of exchange rate changes on cash 2 (1) (29) - -------------------------------------------------------------------------------- Increase(decrease) in cash and cash equivalents 145 13 (316) Cash and cash equivalents at beginning of year 83 70 386 - -------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 228 $ 83 $ 70 - -------------------------------------------------------------------------------- Supplemental Cash Flow Information Interest paid (net of amount capitalized) $ 456 $ 133 $ 76 Income taxes paid (net of refunds) 168 391 78 - --------------------------------------------------------------------------------
For purposes of the Statements of Cash Flows, the Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. See notes to financial statements. TRW INC. 43 FINANCIAL STATEMENTS STATEMENTS OF CHANGES IN SHAREHOLDERS' INVESTMENT
Serial Accumulated Preference Other Total TRW Inc. and subsidiaries Stock II Common Other Retained Treasury Comprehensive Shareholders' (In millions) Series 1&3 Stock Capital Earnings Shares Income(Loss) Investment - ---------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1996 $ 1 $ 80 $ 437 $1,980 $ (354) $ 45 $2,189 - ---------------------------------------------------------------------------------------------------------------------------------- Net earnings(loss) - 1997 (49) (49) Other comprehensive income(loss) Translation loss, net of tax of $7 million (177) (177) Unrealized gain on securities, net of tax of $6 million 12 12 ------ Total comprehensive income(loss) (214) Dividends declared Preference (1) (1) Common ($1.24 per share) (152) (152) ESOP funding 2 2 Purchase and sale of shares and other (2) 13 (262) (251) Shares sold under stock options 51 51 - ---------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1997 1 78 450 1,778 (563) (120) 1,624 - ---------------------------------------------------------------------------------------------------------------------------------- Net earnings - 1998 477 477 Other comprehensive income(loss) Translation gain, net of tax of $3 million 75 75 Unrealized gain on securities, net of tax of $10 million 18 18 Minimum pension liability, net of tax of $5 million (11) (11) ------ Total comprehensive income(loss) 559 Dividends declared Preference (1) (1) Common ($1.28 per share) (154) (154) Purchase and sale of shares and other (1) (3) 7 3 (181) (175) Credits (charges) from issuance of treasury shares (82) 82 -- Shares sold under stock options 25 25 - ---------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1998 -- 75 457 2,021 (637) (38) 1,878 - ---------------------------------------------------------------------------------------------------------------------------------- Net earnings - 1999 469 469 Other comprehensive income(loss) Translation loss, net of tax of $15 million (121) (121) Unrealized gain on securities, net of tax of $305 million 566 566 Minimum pension liability, net of tax 1 1 ------ Total comprehensive income(loss) 915 Dividends declared Preference (1) (1) Common ($1.32 per share) (160) (160) ESOP funding 44 44 Purchase and sale of shares and other 1 8 (1) (3) 5 Credits(charges) from issuance of treasury shares (16) 16 -- Shares sold under stock options 31 31 - ---------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1999 $ -- $ 76 $ 465 $2,312 $ (549) $ 408 $2,712 - ----------------------------------------------------------------------------------------------------------------------------------
See notes to financial statements. 44 TRW INC. NOTES TO FINANCIAL STATEMENTS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of consolidation - The financial statements include the accounts of the Company and its subsidiaries. Investments in affiliated companies are accounted for by the equity or cost method as appropriate. The consolidated financial statements reflect the preliminary allocation of the purchase price for LucasVarity Limited (LucasVarity), formerly known as LucasVarity plc, and the consolidated results of LucasVarity's operations and cash flows subsequent to the date of acquisition, March 25, 1999. Use of estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of December 31, 1999 and 1998, and reported amounts in the statements of operations for the years ended December 31, 1999, 1998 and 1997. Actual results could differ from those estimates. Long-term contracts - The percentage-of-completion (cost-to-cost) method is used to estimate sales under fixed-price and fixed-price incentive contracts. Sales under cost-reimbursement contracts are recorded as costs are incurred. Fees based on cost, award fees and incentive fees are included in sales at the time such amounts are reasonably estimable. Losses on contracts are recognized when determinable. Due to the nature and complexities of the Company's business, where contracts contain both elements of products and services, it is not practical to segregate the sales and cost of sales elements of the contracts between products and services or to collect financial information for the components in the Company's current financial systems. Accounts receivable - Accounts receivable at December 31, 1999 and 1998, included $701 million and $692 million, respectively, related to long-term contracts, of which $268 million and $339 million, respectively, were unbilled. Unbilled costs and fees represent sales earned and billable in the following month as well as sales earned but not billable under terms of the contracts. A substantial portion of such amounts is expected to be billed during the following year. Retainage receivables and receivables subject to negotiation were not significant. Inventories - Inventories are stated at the lower of cost, principally the first-in, first-out (FIFO) method, or market. Inventories related to long-term contracts were not significant at December 31, 1999 and 1998. Depreciation - Depreciation is computed over the assets' estimated useful lives using the straight-line method for the majority of the Company's depreciable assets. The remaining assets are depreciated using accelerated methods. The estimated useful lives of buildings, machinery and equipment, and computers and other office equipment are between 30-40 years, 8-12 years and 3-5 years, respectively. Depreciation expense was $718 million, $520 million and $476 million at December 31, 1999, 1998 and 1997, respectively. Intangible assets - Intangible assets are stated on the basis of cost and are being amortized by the straight-line method over the estimated future periods to be benefited, except for goodwill prior to 1971, $49 million, which is not being amortized as there is no indication of diminished value. Goodwill acquired after 1970 is being amortized over periods primarily ranging from 15 to 40 years. Other intangible assets includes capitalized internal-use software and other identifiable intangible assets acquired through acquisitions including core and developed technology and workforce. Capitalized internal-use software is being amortized over periods not to exceed 10 years. Other identifiable intangible assets acquired through acquisitions are being amortized primarily over 5 to 30 years. The carrying value of intangible assets is assessed for impairment on a quarterly basis. Asset impairment - The Company records impairment losses on long-lived and intangible assets when events and circumstances indicate that the assets may be impaired and the undiscounted net cash flows estimated to be generated by those assets are less than their carrying amounts. If the future undiscounted cash flows are not sufficient to recover the carrying value of the assets, the assets are adjusted to their fair values. Cost basis equity affiliates - The Company's investments in affiliated companies includes equity securities, accounted for using the cost method, which are classified as available-for-sale. These investments are stated at estimated fair value based upon market quotes. Unrealized gains and losses, net of tax, are reported as a separate component of accumulated other comprehensive income(loss) in shareholders' investment until realized. A decline in the value of any investment below cost that is deemed other than temporary is charged to earnings. Forward exchange contracts - The Company enters into forward exchange contracts which hedge firm foreign currency commitments, anticipated transactions and certain intercompany transactions. At December 31, 1999, the Company had contracts outstanding with a notional amount of $1 billion denominated principally in the U.S. dollar, the Euro, the Canadian dollar, the French franc and the British pound, maturing at various dates through January 2007. Contracts outstanding increased from $162 million at December 31, 1998 primarily due to the hedging of foreign currency exposures associated with the aerospace and automotive businesses of LucasVarity. The combined fair market value of the forward exchange contracts was an asset of approximately $75 million at December 31, 1999. The fair market value of forward contracts at December 31, 1998 was $1 million. Changes in market value of the contracts that hedge firm foreign currency commitments and intercompany transactions are generally included in the basis of the transactions. Changes in the market value of the contracts that hedge anticipated transactions are generally recognized in earnings. TRW INC. 45 NOTES TO FINANCIAL STATEMENTS Foreign exchange contracts are placed with a number of major financial institutions to minimize credit risk. No collateral is held in relation to the contracts, and the Company anticipates that these financial institutions will satisfy their obligations under the contracts. Fair values of financial instruments -
1999 1998 ------------------------ ----------------------- Carrying Carrying (In millions) Value Fair Value Value Fair Value - --------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents $ 228 $ 228 $ 83 $ 83 Short-term debt 2,444 2,444 839 839 Floating rate long-term debt 1,782 1,782 227 227 Fixed rate long-term debt 4,345 4,145 1,156 1,249 Interest rate hedges - (liability) -- (3) -- -- Forward currency exchange contracts - asset 73 75 -- 1 - ---------------------------------------------------------------------------------------------------------------------
The fair value of long-term debt was estimated using a discounted cash flow analysis based on the Company's current borrowing rates for similar types of borrowing arrangements. The fair value of interest rate hedges and forward currency exchange contracts is estimated based on quoted market prices of offsetting contracts. Interest rate swap agreements - In anticipation of offering debt securities to finance the acquisition of LucasVarity, the Company entered into a combination of forward starting interest rate swaps and treasury locks during the first six months of 1999 with a mandatory cash settlement in the second quarter. These agreements effectively fixed the base rate of interest on an aggregate notional principal amount of $1.8 billion of debt securities which were issued during the second quarter 1999. These hedges were settled simultaneously with the issuance of the debt securities and a before-tax gain of $23 million is being recognized as an adjustment to interest expense over the life of the debt securities issued using the effective interest rate method. During the second quarter of 1999, the Company entered into an interest rate swap in order to convert the fixed rate to a floating rate on a notional principal amount of $425 million of notes issued during the quarter. The fair market value of the interest rate swap is a liability of approximately $5 million at December 31, 1999. During the fourth quarter of 1999, the Company entered into a $100 million forward starting interest rate swap in order to hedge future long-term debt issuances. The fair market value of the interest rate swap is an asset of approximately $2 million at December 31, 1999. Net payments or receipts under the agreements will be recognized as an adjustment to interest expense. The agreements were entered into with major financial institutions. The Company anticipates that the financial institutions will satisfy their obligations under the agreements. No collateral is held in relation to the agreements. Environmental costs - The Company participates in environmental assessments and remedial efforts at operating facilities, previously owned or operated facilities and Superfund or other waste sites. Costs related to these locations are accrued when it is probable that a liability has been incurred and the amount of that liability can be reasonably estimated. Estimated costs are recorded at undiscounted amounts based on experience and assessments and are regularly evaluated as efforts proceed. Insurance recoveries are recorded as a reduction of environmental costs when fixed and determinable. Issuance of an equity affiliate's stock - The Company includes gains or losses arising from the issuance of a subsidiary's or equity affiliate's stock in other (income)expense-net. Comprehensive income - The components of accumulated other comprehensive income(loss) at December 31, 1999 and 1998 are as follows:
(In millions) 1999 1998 - -------------------------------------------------------------------------------------------------------- Foreign currency translation loss (net of tax of $16 million in 1999 and $1 million in 1998) $(176) $ (55) Unrealized gain on securities (net of tax of $321 million in 1999 and $16 million in 1998) 596 30 Minimum pension liability adjustments (net of tax of $7 million in 1999 and 1998) (12) (13) - -------------------------------------------------------------------------------------------------------- Accumulated other comprehensive income(loss) $ 408 $ (38) - --------------------------------------------------------------------------------------------------------
46 TRW INC. NOTES TO FINANCIAL STATEMENTS Treasury stock - The Company's purchases of shares of TRW common stock are recorded as treasury stock and result in a reduction of shareholders' investment. When treasury shares are issued, the Company uses a first-in, first- out method and the excess of the purchase price over the issuance price is treated as a reduction of retained earnings. Reclassifications - Certain amounts in the prior year financial statements and related notes have been reclassified to conform with the 1999 presentation. New accounting pronouncements - In 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement is effective for years beginning after June 15, 2000. Under this statement, changes in the market value of contracts that hedge anticipated transactions will be deferred and recognized in earnings when realized. The impact of the adoption will be determined by several factors, including the specific hedging instruments in place and their relationships to the hedged items, as well as market conditions as of the date of adoption. Management is in the process of analyzing and assessing the impact of the adoption of SFAS No. 133 on the Company's consolidated results of operations and financial position, but believes that such determination of the effect currently is not meaningful. The Company intends to adopt the statement on January 1, 2001. Earnings per share - The effects of preferred stock dividends, convertible preferred stock and employee stock options were excluded from the calculation of 1997 diluted earnings per share, as they would have been antidilutive.
(In millions except per share data) 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------- Numerator Net earnings(loss) $468.8 $476.8 $(48.5) Preferred stock dividends (.5) (.6) (.7) - ------------------------------------------------------------------------------------------------------------- Numerator for basic earnings per share-net earnings(loss) available to common shareholders 468.3 476.2 (49.2) Effect of dilutive securities Preferred stock dividends .5 .6 -- - ------------------------------------------------------------------------------------------------------------- Numerator for diluted earnings per share- net earnings(loss) available to common shareholders $468.8 $476.8 $(49.2) - ------------------------------------------------------------------------------------------------------------- Denominator Denominator for basic earnings per share- weighted-average common shares 121.0 121.3 123.7 Effect of dilutive securities Convertible preferred stock .8 .9 -- Employee stock options 1.7 2.2 -- - ------------------------------------------------------------------------------------------------------------- Dilutive potential common shares 2.5 3.1 -- Denominator for diluted earnings per share- adjusted weighted-average shares after assumed conversions 123.5 124.4 123.7 - ------------------------------------------------------------------------------------------------------------- Basic earnings(loss) per share $ 3.87 $ 3.93 $ (.40) - ------------------------------------------------------------------------------------------------------------- Diluted earnings(loss) per share 3.80 3.83 (.40) - -------------------------------------------------------------------------------------------------------------
TRW INC. 47 NOTES TO FINANCIAL STATEMENTS RESEARCH AND DEVELOPMENT
(In millions) 1999 1998 1997 - -------------------------------------------------------------------------------- Customer-funded $1,249 $1,425 $1,501 Company-funded Research and development 609 522 461 Product development 310 196 184 - -------------------------------------------------------------------------------- 919 718 645 ---------------------- $2,168 $2,143 $2,146 ----------------------
Customer-funded research and development projects are an integral part of the Space & Electronics and Systems & Information Technology segments. The related costs are included in cost of sales. Company-funded research and development programs include research and development for commercial products and independent research and development and bid and proposal work related to government products and services. A portion of the cost incurred for independent research and development and bid and proposal work by the Space & Electronics and Systems & Information Technology segments is recoverable through overhead charged to government contracts. Product development costs include engineering and field support for customer requirements. Product development costs are expensed as incurred and included primarily in cost of sales. The 1999 and 1997 amounts exclude charges of $85 million and $548 million, respectively, for purchased in-process research and development. ACQUISITIONS LucasVarity On February 6, 1999, the Company commenced an offer for the entire issued share capital of LucasVarity. On March 25, 1999, the offer was declared unconditional in all respects. On May 10, 1999, the Company compulsorily acquired all shares that had not been acquired in the offer, thereby closing the acquisition of LucasVarity. LucasVarity manufactures and supplies advanced technology systems, products and services in the automotive and aerospace industries. It is a major producer of braking systems, fuel injection systems, and electrical and electronic systems to the automotive industry and has a significant position in automotive aftermarket operations and services. LucasVarity provides the aerospace industry with high integrity systems in engine controls, electrical power generation and management, flight controls and cargo handling, all backed by a worldwide customer support operation. The aggregate cash purchase price and assumed net debt for LucasVarity was approximately $6.8 billion. The transaction was accounted for as a purchase. Assets and liabilities have been recorded based on their respective fair values. The purchase price allocation resulted in an $85 million charge to earnings, with no income tax benefit, for the fair value of acquired in-process research and development that had not reached technological feasibility and had no future alternative use, $504 million for identifiable intangible assets including intellectual property and workforce, and incremental fair value adjustments of approximately $1.5 billion for prepaid pension cost, primarily from an overfunded pension plan, $200 million for the valuation of fixed rate debt and the write-up of inventory of $30 million and fixed assets of $143 million. The fair value of acquired in-process research and development was determined by an independent valuation using the income approach under the proportional method. The following projects were included in the valuation: next generation caliper of $26 million, next generation anti-lock braking systems (ABS) of $23 million, aerospace engine controls of $18 million, electro hydraulic braking of $12 million and electrical parking brake of $6 million. The fair value of identifiable intangible assets was determined primarily using the income approach. A risk adjusted discount rate of 18 percent, representing the cost of capital and a premium for the risk, was used to discount the projects' cash flows. Operating margins were assumed to be similar to historical margins of similar products. The size of the applicable market was verified for reasonableness with outside research sources. The projects were in various stages of completion, ranging from approximately 40 to 80 percent, as of the valuation date. The stage of completion for each project was estimated by evaluating the cost to complete, complexity of the technology and time to market. The projects are anticipated to be completed by 2002. The estimated cost to complete the projects was $65 million. During 1999, certain pre-acquisition contingencies were adjusted. The preliminary allocation of the purchase price incorporates these items and may be adjusted through March 2000 based on changes to pre-acquisition contingencies, completion of TRW management's assessment of the recognition of liabilities in connection with the acquisition of LucasVarity in accordance with EITF 95-3 and for the valuation of net assets of businesses held for sale based upon actual proceeds received from the sale of these businesses. Adjustments, if any, are not expected to have a material effect on the Company's results of operations or financial condition. 48 TRW INC. NOTES TO FINANCIAL STATEMENTS Restructuring costs, primarily severance, recorded in the purchase price allocation were $47 million of which $29 million was paid in 1999. The remaining balance of $18 million is expected to be paid in 2000. The preliminary allocation of the purchase price and estimated goodwill are summarized as follows:
(In millions) - -------------------------------------------------------------------------------------------- Cash purchase price $ 6,692 Cash and cash equivalents 781 Accounts receivable 887 Inventory 537 Net assets of businesses held for sale 872 Prepaid expenses 137 Current deferred income taxes 105 Property, plant and equipment 1,249 Intangible assets 504 Prepaid pension costs 2,385 Other assets 477 - -------------------------------------------------------------------------------------------- 7,934 Accounts payable (701) Other accruals (1,097) Debt (877) Long-term liabilities (732) Long-term deferred income taxes (717) - -------------------------------------------------------------------------------------------- (4,124) Minority interest (28) Purchased in-process research and development 85 - -------------------------------------------------------------------------------------------- Goodwill $ 2,825 - --------------------------------------------------------------------------------------------
Goodwill is being amortized on a straight-line basis over 40 years. Identifiable intangible assets are being amortized on a straight-line basis over useful lives ranging from 5 to 30 years. The following unaudited pro forma financial information for the years ended December 31, 1999 and 1998, assumes the LucasVarity acquisition occurred as of the beginning of the respective periods, after giving effect to certain adjustments, including the amortization of intangible assets, interest expense on acquisition debt, depreciation based on the adjustments to the fair market value of the property, plant and equipment acquired, write-off of purchased in- process research and development, incremental pension income and related income tax effects. The pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the results of operations that may occur in the future or that would have occurred had the acquisition of LucasVarity been effected on the dates indicated.
(In millions except per share data) Years ended (unaudited) 1999 1998 - --------------------------------------------------------------------------------- Sales $18,595 $18,964 Net earnings 624 641 Diluted earnings per share 5.05 5.15 - ---------------------------------------------------------------------------------
BDM On December 24, 1997, the Company acquired the shares of BDM International, Inc. (BDM) for cash of $880 million plus assumed net debt of $85 million. BDM was an information technology company operating in the systems and software integration, computer and technical services and enterprise management and operations markets. The acquisition was accounted for as a purchase with the purchase price allocated to the net assets acquired based on their fair values and to costs for employee severance of $8 million, which was used for severance payments. An independent valuation was performed, primarily using the income approach for valuing the intangible assets. As a result of the valuation, $548 million was allocated to in-process research and development (IPR&D) projects that had not reached technological feasibility and had no alternative future use and $152 million was allocated to identifiable intangible assets including core and developed technology, workforce and trade name. The amount TRW INC. 49 NOTES TO FINANCIAL STATEMENTS of IPR&D was recognized as an expense with no income tax benefit at the date of acquisition. The intangible assets, including goodwill of $205 million, are being amortized over an average period of 15 years. The major projects included: a commercial market adaptation of core network security to achieve the highest level of network security of $201 million; a Web-enabled and substantially enhanced warehouse and distribution management project of $199 million; and a module to enhance certain applications to become compliant with the single European currency for particular software of $69 million. As of December 31, 1999, the Company discontinued the sale of the network security product and discontinued the development of the Web-enabled warehouse and distribution project due to changes in the market for these products, which resulted in a before tax charge of $82 million relating to the write-off of intangible assets and other associated costs. The research and development of the European currency project was divested in 1998; however, the Company will generate future sales as a global systems integrator for all of the acquirer's products and for two company-developed software packages the acquirer will distribute. The remaining identifiable intangible assets of $58 million are being amortized over an average period of 15 years. Air Bag and Steering Wheel Businesses of Magna International On February 5, 1997, the Company acquired an 80 percent equity interest in the air bag and steering wheel businesses of Magna International for cash of $415 million plus assumed net debt of $50 million. On January 30, 1998, the Company acquired the remaining 20 percent for cash of $102 million. These businesses supply air bag modules, inflators, propellants, steering wheels and other related automotive components. The acquisitions were accounted for as a purchase; accordingly, the combined purchase price has been allocated to the net assets acquired based on their estimated fair values and to costs for certain restructuring actions, primarily plant closing and severance costs of $40 million. As of December 31, 1999 and 1998, the balance of the restructuring reserve included in other accruals was $6 million and $18 million, respectively. During 1999, the reserve was reduced by $6 million due to a decision not to close one manufacturing facility and by $6 million for severance payments. During 1998, $6 million was used for severance payments, $7 million for plant closure costs and the reserve was reduced by $9 million due to a change in estimate for severance payments. The remaining reserve will be used primarily for severance and plant closure costs in 2000. Goodwill was $330 million and is being amortized over 40 years. RESTRUCTURING On July 29, 1998, the Company announced actions intended to enhance the automotive businesses' profit margin, which would result in pre-tax charges of up to $150 million by the end of 2000. In 1999 and 1998, $80 million and $24 million, respectively, was expensed primarily for plant closings, severance costs and asset impairments. Other accruals at December 31, 1999 and 1998 include $35 million and $18 million, respectively, relating to these costs. During 1999, $7 million was used for severance payments and $56 million for plant closings and asset impairments. The balance at December 31, 1999 will be used primarily for severance costs and plant closings during 2000. DIVESTITURES On May 17, 1999, the Company announced its plan to divest its engine businesses, which consist of TRW Engine Components and Lucas Diesel Systems operations; TRW Nelson Stud Welding; and the LucasVarity wiring companies. The Company is no longer pursuing the disposition of TRW Engine Components due to market conditions. In November 1999, the Company entered into an agreement to sell Lucas Diesel Systems and the associated aftermarket operations for approximately $875 million. The transaction was substantially completed on January 7, 2000. On January 13, 2000, the Company reached a definitive agreement to sell TRW Nelson Stud Welding. The transaction is expected to be completed by the end of the first quarter of 2000. During 1999, a wiring business was sold. The sale of the remaining wiring business is expected to be completed during the first quarter of 2000. Sales of the businesses to be sold included in the Company's December 31, 1999, 1998 and 1997 Statements of Operations were approximately $975 million, $70 million and $65 million, respectively. The Company's investment in the LucasVarity wiring companies and Lucas Diesel Systems operations is included in the balance sheet caption "Net assets of acquired businesses held for sale." 50 TRW INC. NOTES TO FINANCIAL STATEMENTS OTHER (INCOME)EXPENSE-NET
(In millions) 1999 1998 1997 - --------------------------------------------------------------------------------------------- Other income $(157) $(123) $ (66) Other expense 125 30 35 Minority interests 23 11 20 Earnings of affiliates (14) (5) (12) ICO investment write-off 79 -- -- Gain from issuance of equity affiliate's stock (29) -- -- Gain from sale of equity affiliates' stock (306) -- -- Foreign currency exchange 66 7 7 - --------------------------------------------------------------------------------------------- $(213) $ (80) $ (16) ---------------------
Other income in 1999 includes gains on the sale of nonoperating assets of $27 million and interest income of $28 million. Interest income in 1999 was $23 million higher than 1998. Other income in 1998 includes a $49 million benefit from the settlement of certain patent litigation. Other income in 1997 includes a $15 million gain on the sale of a property. Other expense for 1999 included charges of $50 million for underwriting and participation fees incurred to secure committed credit facilities related to the acquisition of LucasVarity. During the third quarter of 1999, ICO Global Communications (Holdings) Limited (ICO) filed a voluntary reorganization petition. As a result, ICO is operating its business under the regulations of Chapter 11 of the U.S. Bankruptcy Code. The Company recorded a charge of $79 million to reserve fully its financial exposure in ICO. During the first quarter of 1999, RF Micro Devices, Inc. (RFMD), an affiliate which designs, develops, manufactures and markets proprietary radio frequency integrated circuits for wireless communications applications, issued shares of stock in a registered public offering, resulting in a gain of $29 million. Deferred taxes have been provided on the gain. During 1999, the Company also sold 5,772,500 shares of RFMD common stock resulting in a gain of $306 million. The Company owned approximately 18 percent of the common stock of RFMD as of December 31, 1999. Foreign currency exchange for the year ended December 31, 1999 included a $50 million nonrecurring loss on foreign currency hedges related to the acquisition of LucasVarity, and losses of $16 million on foreign currency hedges of anticipated transactions. INCOME TAXES Earnings before income taxes
(In millions) 1999 1998 1997 - ---------------------------------------------------------------------------- U.S. $ 653 $ 534 $ 95 Non-U.S. 134 212 145 - ---------------------------------------------------------------------------- $ 787 $ 746 $ 240 -------------------
Provision for income taxes
(In millions) 1999 1998 1997 - ------------------------------------------------------------------------------ Current U.S. federal $ 131 $ 359 $ 136 Non-U.S. 32 86 84 U.S. state and local 2 28 23 - ------------------------------------------------------------------------------ 165 473 243 Deferred U.S. federal 65 (196) 46 Non-U.S. 75 (10) (4) U.S. state and local 13 2 4 - ------------------------------------------------------------------------------ 153 (204) 46 --------------------- $ 318 $ 269 $ 289 ---------------------
TRW INC. 51 NOTES TO FINANCIAL STATEMENTS Effective income tax rate
1999 1998 1997 - ---------------------------------------------------------------------------------------------------- U.S. statutory income tax rate 35.0% 35.0% 35.0% Nondeductible expenses .8 .9 2.7 U.S. state and local income taxes net of U.S. federal tax benefit 1.9 2.6 7.6 Non-U.S. tax rate variances net of foreign tax credits (.8) 2.1 (2.2) Prior years' adjustments (.2) (.3) (3.5) Purchased in-process research and development 3.8 -- 80.0 Other -- (4.2) .7 - ---------------------------------------------------------------------------------------------------- 40.5% 36.1% 120.3% -------------------
The effective tax rate in 1999 was 40.5 percent compared with 36.1 percent in 1998. Excluding the write-off of purchased in-process research and development, the 1999 effective tax rate would have been 36.5 percent. Excluding the write- off of purchased in-process research and development in 1997, the effective tax rate would have been 36.6 percent. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. At December 31, 1999 and 1998, the Company had unused tax benefits of $187 million and $39 million, respectively, related to U.S. and non-U.S. net operating loss carryforwards for income tax purposes, of which $124 million and $25 million can be carried forward indefinitely and the balance expires at various dates through 2004. A valuation allowance at December 31, 1999 and 1998, of $150 million and $29 million, respectively, has been recognized to offset the related deferred tax assets due to the uncertainty of realizing the benefit of the loss carryforwards. It is the Company's intention to reinvest undistributed earnings of certain of its non-U.S. subsidiaries, thereby indefinitely postponing their remittance. Accordingly, deferred income taxes have not been provided for accumulated undistributed earnings of $537 million at December 31, 1999.
Deferred tax assets Deferred tax liabilities ------------------- ------------------------ (In millions) 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------ Pensions and postretirement benefits other than pensions $ 354 $ 259 $1,017 $ -- Completed contract method of accounting for long-term contracts -- -- 191 165 Service contracts -- -- 21 24 State and local taxes 2 12 3 1 Reserves and accruals 252 161 6 -- Depreciation and amortization -- -- 192 128 Insurance accruals 36 32 -- -- U.S. net operating loss carryforwards 53 -- -- -- Non-U.S. net operating loss carryforwards 134 39 -- -- Available-for-sale equity securities -- -- 321 16 Other 155 106 14 34 - ------------------------------------------------------------------------------------------------------------------------------ 986 609 1,765 368 Valuation allowance for deferred tax assets (150) (29) -- -- - ------------------------------------------------------------------------------------------------------------------------------ $ 836 $ 580 $1,765 $ 368 ----------------------------------------------
52 TRW INC. NOTES TO FINANCIAL STATEMENTS PENSION PLANS The Company has defined benefit pension plans for substantially all employees. The following table provides a reconciliation of the changes in the plans' benefit obligations and fair value of assets over the two-year period ended December 31, 1999, and a statement of the funded status as of December 31, 1999 and 1998:
1999 1998 -------------------- ------------------ (In millions) U.S. Non-U.S. U.S. Non-U.S. - ----------------------------------------------------------------------------------------- Change in benefit obligations Benefit obligations at January 1 $3,042 $ 517 $2,872 $ 429 Service cost 109 51 94 16 Interest cost 225 184 200 29 Amendments (22) -- 3 1 Actuarial (gain)loss (425) 376 127 64 Foreign currency exchange rate changes -- (21) -- 7 Acquisitions 337 3,509 -- -- Obligations included in net assets of acquired businesses held for sale (1) (260) -- -- Benefits paid (332) (180) (254) (29) - ----------------------------------------------------------------------------------------- Benefit obligations at December 31 2,933 4,176 3,042 517 Change in plan assets Fair value of plan assets at January 1 3,304 335 3,139 322 Actual return on plan assets 458 744 392 22 Foreign currency exchange rate changes -- 8 -- (4) Acquisitions 357 5,933 -- -- Assets included in net assets of acquired businesses held for sale (1) (350) -- -- Company contributions 15 17 27 21 Plan participant contributions -- 13 -- 3 Benefits paid (332) (180) (254) (29) - ----------------------------------------------------------------------------------------- Fair value of plan assets at December 31 3,801 6,520 3,304 335 Funded status of the plan 868 2,344 262 (182) Unrecognized actuarial (gain)loss (767) 46 (172) 28 Unrecognized prior service cost 11 7 29 10 Unrecognized net transition asset (1) (7) (4) (10) - ----------------------------------------------------------------------------------------- Total recognized $ 111 $2,390 $ 115 $ (154) - -----------------------------------------------------------------------------------------
The following table provides the amounts recognized in the balance sheet as of December 31, 1999 and 1998:
1999 1998 ------------------- ------------------ (In millions) U.S. Non-U.S. U.S. Non-U.S. - ----------------------------------------------------------------------------------------- Prepaid benefit cost $ 195 $2,681 $ 169 $ 2 Accrued benefit liability (84) (291) (54) (156) Additional minimum liability (6) (22) (13) (20) Intangible asset and other 5 4 9 4 Accumulated other comprehensive income 1 18 4 16 - ----------------------------------------------------------------------------------------- Total recognized $ 111 $2,390 $ 115 $ (154) - -----------------------------------------------------------------------------------------
The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the U.S. pension plans with accumulated benefit obligations in excess of plan assets were $139 million, $116 million and $47 million, respectively, as of December 31, 1999, and $72 million, $62 million and zero, respectively, as of December 31, 1998. The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the non-U.S. pension plans with accumulated benefit obligations in excess of plan assets were $324 million, $301 million and $40 million, respectively, as of December 31, 1999, and $187 million, $169 million and $22 million, respectively, as of December 31, 1998. TRW INC. 53 NOTES TO FINANCIAL STATEMENTS The defined benefit pension plans held approximately 4.8 million shares of the Company's common stock with a fair value of approximately $247 million and $267 million at December 31, 1999 and 1998, respectively. The plans received approximately $6 million in dividends on these shares in 1999 and 1998. The following table provides the components of net pension (income)cost for the plans for years 1999, 1998 and 1997:
1999 1998 1997 ---------------- ------------------ ------------------ (In millions) U.S. Non-U.S. U.S. Non-U.S. U.S. Non-U.S. - --------------------------------------------------------------------------------------------------------------- Defined benefit plans Service cost-benefits earned during the year $ 109 $ 51 $ 94 $ 16 $ 72 $ 16 Interest cost on projected benefit obligations 225 184 200 29 179 29 Expected return on plan assets (298) (412) (260) (28) (223) (26) Amortization of recognized loss 2 1 1 1 -- -- Amortization of prior service cost 8 2 7 2 7 3 Amortization of transition asset (3) (1) (18) (1) (18) (1) - --------------------------------------------------------------------------------------------------------------- Defined benefit plans 43 (175) 24 19 17 21 Defined contribution plans 13 3 1 5 1 5 Employee stock ownership and savings plan 51 -- 47 -- 44 -- - --------------------------------------------------------------------------------------------------------------- Total pension (income)cost $ 107 $(172) $ 72 $ 24 $ 62 $ 26 - ---------------------------------------------------------------------------------------------------------------
The amount included within other comprehensive income arising from a change in the minimum pension liability was income of $1 million, net of tax, in 1999, a loss of $11 million, net of tax of $5 million, in 1998, and zero in 1997. The assumptions used in the measurement of the Company's benefit obligations are shown in the following table:
1999 1998 ----------------- ----------------- U.S. Non-U.S. U.S. Non-U.S. - --------------------------------------------------------------------------------------------------------------- Actuarial assumptions Discount rate 8.00% 5.5-7.25% 6.75% 5.5-6.0% Rate of increase in compensation levels 4.10% 3.5-4.75% 4.00% 2.0-3.5% - ---------------------------------------------------------------------------------------------------------------
The expected long-term rate of return on plan assets for U.S. plans was 9.5 percent for 1999 and 1998. For non-U.S. plans the expected long-term rate of return ranged from 8 to 8.75 percent in 1999 and 8.5 to 8.75 percent in 1998. The Company sponsors a contributory stock ownership and savings plan for which a majority of its U.S. employees are eligible and matches employee contributions up to 3 percent of the participant's qualified compensation. The Company contributions are held in an unleveraged employee stock ownership plan. The Company also sponsors other defined contribution pension plans covering employees at some of its operations. 54 TRW INC. NOTES TO FINANCIAL STATEMENTS POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The Company provides health care and life insurance benefits for a majority of its retired employees in the United States and Canada. The health care plans provide for cost sharing, in the form of employee contributions, deductibles and coinsurance, between the Company and its retirees. The postretirement health care plan covering a majority of employees who retired since August 1, 1988, limits the annual increase in the Company's contribution toward the plan's cost to a maximum of the lesser of 50 percent of medical inflation or 4 percent. Life insurance benefits are generally noncontributory. The Company's policy is to fund the cost of postretirement health care and life insurance benefits in amounts determined at the discretion of management. Retirees in certain other countries are provided similar benefits by plans sponsored by their governments. The following table provides a reconciliation of the changes in the plans' benefit obligations and fair value of assets over the two-year period ended December 31, 1999, and a statement of the funded status as of December 31, 1999 and 1998: (In millions) 1999 1998 - ----------------------------------------------------------------------------- Change in benefit obligations Benefit obligations at January 1 $ 834 $ 794 Service cost 21 19 Interest cost 81 54 Actuarial (gain)loss (142) 8 Acquisitions 531 -- Obligations included in net assets of acquired businesses held for sale (11) -- Foreign currency exchange rate changes 4 (3) Plan amendments (3) 1 Plan participant contributions 8 5 Benefits paid (74) (44) - ----------------------------------------------------------------------------- Benefit obligations at December 31 1,249 834 Change in plan assets Fair value of plan assets at January 1 151 129 Actual return on plan assets 16 12 Company contributions 83 49 Plan participant contributions 8 5 Benefits paid (74) (44) - ----------------------------------------------------------------------------- Fair value of plan assets at December 31 184 151 - ----------------------------------------------------------------------------- Funded status of the plan (1,065) (683) Unrecognized actuarial gain (156) (14) Unrecognized prior service cost (7) (5) - ----------------------------------------------------------------------------- Total accrued benefit cost recognized $(1,228) $ (702) - ----------------------------------------------------------------------------- The following table provides the components of net postretirement benefit cost for the plans for years 1999, 1998 and 1997: (In millions) 1999 1998 1997 - ----------------------------------------------------------------------------- Components of net postretirement benefit cost Service cost $ 21 $ 19 $ 13 Interest cost 81 54 54 Expected return on plan assets (15) (13) (9) Amortization of recognized income (1) -- -- - ----------------------------------------------------------------------------- Net postretirement benefit cost $ 86 $ 60 $ 58 - ----------------------------------------------------------------------------- The weighted average discount rate used in determining the accumulated postretirement benefit obligations as of December 31, 1999 and 1998 was 8 percent and 6.75 percent, respectively. The weighted average rate of compensation increase was 4 percent for 1999 and 1998. The weighted average expected long-term rate of return on plan assets was 9.5 percent for 1999 and 1998. A 7.1 percent annual rate of increase in the per capita cost of covered health care benefits was assumed for 2000. The rate was assumed to decrease gradually to 5 percent in the year 2010 and remain at that level thereafter. TRW INC. 55 NOTES TO FINANCIAL STATEMENTS A one-percentage-point change in the assumed health care cost trend rate would have the following effects:
One-percentage-point -------------------- (In millions) Increase Decrease - --------------------------------------------------------------------------------------- Effect on total of service and interest cost components $ 13 $ (10) Effect on postretirement benefit obligations 167 (137) - ---------------------------------------------------------------------------------------
DEBT AND CREDIT AGREEMENTS Short-term debt
(In millions) 1999 1998 - --------------------------------------------------------------------------------------- U.S. borrowings $2,044 $ 589 Non-U.S. borrowings 400 250 - --------------------------------------------------------------------------------------- $2,444 $ 839 - ---------------------------------------------------------------------------------------
Long-term debt
(In millions) 1999 1998 - --------------------------------------------------------------------------------------- U.S. Notes and Debentures Floating Rate Notes due 2000 $ 575 $ -- 6.45% Notes due 2001 425 -- 6.50% Notes due 2002 400 -- 6.625% Notes due 2004 700 -- 6.05% Notes due 2005 200 200 6.30% Notes due 2008 100 100 7.125% Notes due 2009 750 -- 6.25% Notes due 2010 150 150 9.35% Notes due 2020 (due 2000 at option of note holder) 100 100 9.375% Notes due 2021 100 100 6.65% Debentures due 2028 150 150 7.75% Debentures due 2029 550 -- Other notes and debentures 314 326 Other U.S. borrowings 1,105 157 Non-U.S. borrowings 508 100 - --------------------------------------------------------------------------------------- Total long-term debt 6,127 1,383 Less current portion 758 30 - --------------------------------------------------------------------------------------- $5,369 $1,353 - ---------------------------------------------------------------------------------------
The Company received fully underwritten financing for the acquisition of LucasVarity in the form of a $7.4 billion two-tranche credit agreement. Tranche one of $3.7 billion expired December 31, 1999 and tranche two of $3.7 billion expires January 26, 2000 with an option to extend the maturity of up to $2 billion of borrowings to January 26, 2001. The option to extend was cancelled in 1999. The interest rates under the agreement are the prime rate and a rate based on a London Interbank Offered Rate (LIBOR). At December 31, 1999, there were no outstanding borrowings under this agreement. The Company's available commitments under tranche two were $3.7 billion at December 31, 1999. During 1999, the Company amended the terms of its $750 million and $745 million U.S. revolving credit agreements and its $250 million multicurrency revolving credit agreement to change commitment fees, borrowing margins and other key terms and conditions to conform to the terms of the $7.4 billion agreement. In addition, the expiration date of the $745 million agreement was extended to January 26, 2000, with the provision that the Company may extend the maturity of borrowings to January 26, 2001. At December 31, 1999 and 1998, there were no outstanding borrowings under these agreements. See the "Events Subsequent to Date of Report of Independent Auditors" note for the status of the credit facilities subsequent to December 31, 1999. 56 TRW INC. NOTES TO FINANCIAL STATEMENTS The Company also maintains a committed U.S. dollar denominated revolving credit agreement with five banks for use by the Company's Brazilian operations. The agreement allows the Company to borrow up to $50 million and extends through July 2003. The interest rate under the agreement is a rate based on LIBOR. There were no outstanding borrowings as of December 31, 1999 and $20 million in outstanding borrowings under this agreement as of December 31, 1998. During 1999, the Company refinanced short-term debt by issuing $3.4 billion of notes and debentures that mature at various dates through 2029. Interest rates on $2.8 billion of the notes and debentures are fixed at rates ranging from 6.45% to 7.75%. Interest on $575 million of Notes due 2000 is floating based on three-month LIBOR. The Company's effective obligation on $425 million of 6.45% Notes due 2001 was simultaneously changed to a floating rate based on three- month LIBOR through the execution of an interest rate swap. An additional $100 million of short-term debt was refinanced during the year through a bank borrowing due in 2000. The interest rate under the bank borrowing is a floating rate based on a three-month LIBOR. At December 31, 1999, $1 billion of short-term obligations were reclassified to long-term obligations as the Company intends to refinance the obligations on a long-term basis and has the ability to do so under its revolving credit agreements. The Company established a $2.5 billion Universal Shelf Registration Statement during 1999 with the entire amount remaining available at December 31, 1999. Securities that may be issued under this shelf registration statement include debt securities, common stock, warrants to purchase debt securities, warrants to purchase common stock, stock purchase contracts and stock purchase units. The weighted average interest rate on short-term borrowings outstanding, including amounts reclassified to long-term debt, at December 31, 1999 and 1998, is 6.4 percent and 5.9 percent, respectively. Other notes and debentures bear interest at rates ranging from 6.06 percent to 9.25 percent and mature at various dates through 2020. Long-term non-U.S. borrowings bear interest, stated in terms of the local currency borrowing, at rates ranging from 3.5 percent to 10.875 percent at December 31, 1999, and mature at various dates through 2020. The maturities of long-term debt are, in millions: 2000-$758; 2001-$740; 2002- $1,167; 2003-$127; 2004-$744; and $2,591 thereafter. The indentures and other debt agreements impose, among other covenants, maintenance of minimum net worth. Under the most restrictive interpretation of these covenants, the payment of dividends was limited to approximately $1,558 million at December 31, 1999. Compensating balance arrangements and commitment fees were not material. LEASE COMMITMENTS The Company leases certain offices, manufacturing and research buildings, machinery, automobiles and computer and other equipment. Such leases, some of which are noncancelable and in many cases include renewals, expire at various dates. The Company pays most maintenance, insurance and tax expenses relating to leased assets. Rental expense for operating leases was $229 million for 1999, $180 million for 1998 and $146 million for 1997. At December 31, 1999, the future minimum lease payments for noncancelable operating leases totaled $570 million and are payable as follows: 2000-$139; 2001-$110; 2002-$84; 2003-$60; 2004-$41; and $136 thereafter. CAPITAL STOCK Serial Preference Stock II - cumulative - stated at $2.75 a share; 5 million shares authorized. Series 1 - each share convertible into 8.8 shares of common; redeemable at $104 per share; involuntary liquidation price of $104 per share; dividend rate of $4.40 per annum. Series 3 - each share convertible into 7.448 shares of common; redeemable at $100 per share; involuntary liquidation price of $40 per share; dividend rate of $4.50 per annum. Series 4 - not convertible into common shares; redemption price and involuntary liquidation price of $125 per one one-hundredth of a share; annual dividend rate per one one-hundredth of a share of the lesser of $4.00 or the current dividend on common stock; no shares outstanding at December 31, 1999. Common Stock - $0.625 par value; authorized 500 million shares; shares outstanding were reduced by treasury shares of 11.6 million in 1999 and 13.6 million in 1998. TRW INC. 57 NOTES TO FINANCIAL STATEMENTS The Company has a shareholder purchase rights plan under which each shareholder of record as of May 17, 1996, received one-half of one right for each TRW common share held. Each right entitles the holder, upon the occurrence of certain events, to buy one one-hundredth of a share of Cumulative Redeemable Serial Preference Stock II, Series 4, at a price of $300. In other events, each right entitles the holder, other than the acquiring party, to purchase $600 of TRW common stock or common stock of another person at a 50 percent discount. The Company may redeem these rights at its option at one cent per right under certain circumstances. See the "Events Subsequent to Date of Report of Independent Auditors" note for the status of the shareholder purchase rights plan subsequent to December 31, 1999. At December 31, 1999, 13.7 million shares of common stock were reserved for the exercise and issuance of stock options and conversion of the Serial Preference Stock II, Series 1 and 3. There were 1.2 million shares of Cumulative Redeemable Serial Preference Stock II, Series 4, reserved for the shareholder purchase rights plan. Holders of Series 1 preferred stock, Series 3 preferred stock and common stock each have one vote per share. STOCK OPTIONS The Company has granted nonqualified stock options to certain employees to purchase the Company's common stock at the market price on the date of grant. Stock options granted become exercisable to the extent of one-third of the optioned shares for each full year of employment following the date of grant and expire 10 years after the date of grant. The Company applies the provisions of Accounting Principles Board Opinion No. 25 in accounting for its employee stock options and, as such, no compensation expense is recognized as the exercise price equals the market price of the stock on the date of grant.
1999 1998 1997 -------------------- -------------------- -------------------- Weighted- Weighted- Weighted- average average average Millions exercise Millions exercise Millions exercise of shares price of shares price of shares price - ----------------------------------------------------------------------------------------------------------------- Outstanding at beginning of year 9.8 $40.11 8.5 $35.02 8.5 $29.72 Granted 3.2 50.18 2.4 53.31 2.0 50.19 Exercised 1.1 28.02 .9 25.68 1.6 25.96 Cancelled, expired or terminated .4 51.24 .2 46.54 .4 38.63 Outstanding at end of year 11.5 43.68 9.8 40.11 8.5 35.02 Exercisable 6.5 37.91 5.8 32.31 5.3 27.81 Weighted-average fair value of options granted 13.93 12.86 11.92 - -----------------------------------------------------------------------------------------------------------------
At December 31, 1999, approximately 2,500 employees were participants in the Company's options plans. As of that date, the per share exercise prices of options outstanding ranged from $21.75 to $58.88. The following table provides certain information with respect to stock options outstanding at December 31, 1999:
Options Options Outstanding Exercisable ------------------------------------- ------------------------ Weighted- average remaining Weighted- Weighted- Millions contractual average Millions average of shares life in exercise of shares exercise Range of exercise prices outstanding years price exercisable price - --------------------------------------------------------------------------------------------- $21.75 - $39.99 3.3 3.2 $27.75 3.3 $27.75 40.00 - 58.88 8.2 8.1 50.22 3.2 48.75 - --------------------------------------------------------------------------------------------- 11.5 6.7 $43.68 6.5 $37.91 ---------------------------------------------------------------
Had the compensation cost for the stock options granted in 1999, 1998 and 1997 been determined based on the fair value at the grant date consistent with the fair value method of SFAS No. 123, the Company's net earnings and earnings per share would have been reduced by $16 million ($.13 per share) in 1999, $13 million ($.10 per share) in 1998 and $9 million ($.08 per share) in 1997. Fair value was estimated at the date of grant using the Black-Scholes option pricing model and the following weighted-average assumptions for 1999, 1998 and 1997, respectively: risk-free interest rate of 6.21%, 4.59% and 5.83%; dividend yield of 2.50%, 2.28% and 2.54%; expected volatility of 25%, 23% and 20%; and an expected option life of six years for 1999, 1998 and 1997. 58 TRW INC. NOTES TO FINANCIAL STATEMENTS CONTINGENCIES The Company is subject to various investigations, claims and legal proceedings covering a wide range of matters that arise in the ordinary course of its business activities. In addition, the Company is conducting a number of environmental investigations and remedial actions at current and former Company locations and, along with other companies, has been named a potentially responsible party for certain waste management sites. Each of these matters is subject to various uncertainties, and some of these matters may be resolved unfavorably with respect to the Company. A reserve estimate for each matter is established using standard engineering cost estimating techniques. In the determination of such costs, consideration is given to the professional judgement of Company environmental engineers in consultation with outside environmental specialists when necessary. At multi-party sites, the reserve estimate also reflects the expected allocation of total project costs among the various potentially responsible parties. At December 31, 1999, the Company had reserves for environmental matters of $136 million, including $13 million of additional expense recorded during the year and $66 million of reserves relating to the LucasVarity acquisition. The Company aggressively pursues reimbursement for environmental costs from its insurance carriers. However, insurance recoveries are not recorded as a reduction of environmental costs until they are fixed and determinable. At December 31, 1999, the "Other notes and accounts receivable" caption on the balance sheet includes $13 million of insurance recoveries related to environmental matters. The Company believes that any liability that may result from the resolution of environmental matters for which sufficient information is available to support these cost estimates will not have a material adverse effect on the Company's financial position. However, the Company cannot predict the effect on the Company's financial position of expenditures for aspects of certain matters for which there is insufficient information. In addition, the Company cannot predict the effect of compliance with environmental laws and regulations with respect to unknown environmental matters on the Company's financial position or the possible effect of compliance with environmental requirements imposed in the future. Further, product liability claims may be asserted in the future for events not currently known by management. Although the ultimate liability from these potential claims cannot be ascertained at December 31, 1999, management does not anticipate that any related liability, after consideration of insurance recovery, would have a material adverse effect on the Company's financial position. TRW Vehicle Safety Systems Inc., a wholly-owned subsidiary of the Company, reported to the Arizona Department of Environmental Quality, or ADEQ, in 1997, potential violations of the Arizona hazardous waste law at its Queen Creek, Arizona facility for the possible failure to properly label and dispose of wastewater that might be classified as hazardous waste. ADEQ, the United States Environmental Protection Agency, the United States Department of Justice and the Arizona State Attorney General are conducting civil and criminal investigations into these potential violations and the Company is cooperating with these investigations. If proceedings were to be initiated against the Company with respect to such matters, the Company could be liable for penalties and fines and other relief. The Company is currently engaged in settlement discussions with state and federal officials. The Company is not able to predict the outcome of these discussions at this time. During 1996, the Company was advised by the United States Department of Justice (DOJ) that it had been named as a defendant in two lawsuits brought by a former employee of the Company's former Space & Technology Group and originally filed under seal in 1994 and 1995, respectively, in the United States District Court for the Central District of California under the qui tam provisions of the civil False Claims Act. The Act permits an individual to bring suit in the name of the United States and share in any recovery. The allegations in the lawsuits relate to the classification of costs incurred by the Company that were charged to certain of its federal contracts. Under the law, the government must investigate the allegations and determine whether it wishes to intervene and take responsibility for the lawsuits. On February 13, 1998, the DOJ intervened in the litigation. On February 19, 1998 and March 4, 1998, the former employee filed amended complaints in the Central District of California that realleged certain of the claims included in the 1994 and 1995 lawsuits and omitted the remainder. The amended complaints allege that the United States has incurred substantial damages and that the Company should be ordered to cease and desist from violations of the civil False Claims Act and is liable for treble damages, penalties, costs, including attorneys' fees, and such other relief as deemed proper by the court. On March 17, 1998, the DOJ filed its complaint against the Company upon intervention in the 1994 lawsuit, which set forth a limited number of the allegations in the 1994 lawsuit and other allegations not in the 1994 lawsuit. The DOJ elected not to pursue the other claims in the 1994 lawsuit or the claims in the 1995 lawsuit. The DOJ's complaint alleges that the Company is liable for treble damages, penalties, interest, costs and "other proper relief." On March 18, 1998, the former employee withdrew the first amended complaint in the 1994 lawsuit at the request of the DOJ. On May 18, 1998, the Company filed answers to the former employee's first amended complaint in the 1995 lawsuit and to the DOJ's complaint, denying all substantive allegations against the Company contained therein. At the same time, the Company filed counterclaims against both the former employee and the federal government. On July 20, 1998, both the former employee and the DOJ filed motions seeking to dismiss the Company's counterclaims. On November 23, 1998 (entered as an Order on January 21, 1999), the court dismissed certain counterclaims asserted against the former employee and the federal government and took under advisement the former employee's motion to dismiss certain other counterclaims. On March 15, 1999, the DOJ was granted leave to file a First Amended Complaint, which adds certain allegations concerning the Company's subcontracts. On August 6, 1999, the Government filed its Second Amended Complaint, which incorporated vouchers, progress payment requests, and invoices submitted by the Company to higher tier Government contractors among the class of allegedly false claims challenged by the TRW INC. 59 NOTES TO FINANCIAL STATEMENTS Government. On September 29, 1999, the former employee filed his Second Amended Complaint, which incorporated subcontracts performed by the Company for higher tier Government contractors among the class of contracts under which allegedly false claims were presented, and added allegations relating to certain of the former employee's pre-existing claims. The Company cannot presently predict the outcome of these lawsuits, although management believes that their ultimate resolution will not have a material effect on the Company's financial condition or results of operations. OPERATING SEGMENTS For the year ended December 31, 1999, the Company is reporting seven operating segments. The Company's automotive businesses are reported as Occupant Safety Systems, Chassis Systems, Automotive Electronics and Other Automotive segments. The Company's aerospace and information systems' businesses are reported as Space & Electronics, Systems & Information Technology and Aeronautical Systems segments. On August 16, 1999, the Company announced certain changes in management and organization of its automotive business to accelerate the integration of LucasVarity and strengthen its ability to serve its global customer base. As a result of these changes, the LucasVarity light vehicle braking and aftermarket businesses were integrated with Chassis Systems, LucasVarity electronics businesses were integrated with Automotive Electronics and LucasVarity Diesel Systems and wiring businesses were included in the Other Automotive segment. The LucasVarity aerospace business is reported separately as Aeronautical Systems. The Company is a United States-based company providing advanced technology products and services for the automotive and aerospace and information systems markets. The principal markets for the Company's automotive products are the North American, European and Asian original equipment manufacturers and independent distributors. The Aerospace & Information Systems segments primarily offer products and services to the United States Government, agencies of the United States Government, state and local governments and international and commercial customers. A description of the products and services provided by each of the operating segments follows. Occupant Safety Systems - inflatable restraint systems, including driver, passenger, side, knee and rollover air bags; seat belt systems, including front and rear pretensioners; and steering wheels. Chassis Systems - steering systems and components, including hydraulic and electrically assisted power and manual rack and pinion steering for light vehicles; light vehicle braking systems, including foundation, actuation, and anti-lock braking systems (ABS); vehicle stability controls (VSC); chassis modules and integrated vehicle control systems (IVCS); suspension components; and aftermarket operations, including parts, service, and technical and diagnostic support. Automotive Electronics - body control systems, safety and security systems, chassis and powertrain controls, sensors and components, and engineered fasteners. Other Automotive - engine valves and valve train parts; power steering systems and suspension components for commercial vehicles; diesel systems including fuel injection systems comprised of mechanical rotary pumps, fuel injectors and filters for fully-integrated electronically-controlled systems; stud welding systems and metal fasteners; and wiring systems. Space & Electronics - spacecraft, including the design and manufacture of spacecraft equipment, propulsion subsystems, electro-optical and instrument systems, spacecraft payloads, high-energy lasers and laser technology and other high-reliability components; and electronic systems, equipment, components and services, including the design and manufacture of space communications systems, avionics systems, commercial telecommunications, and other electronic technologies for tactical and strategic applications. Systems & Information Technology - systems engineering, systems integration, software development, modeling and simulation, test and evaluation, training and information technology for high technology systems, products and services in the fields of command and control, strategic missiles, missile and air defense, airborne reconnaissance, unmanned aerial vehicles, intelligence management and processing, earth observation, nuclear waste management, air traffic control, counterterrorism, security, criminal justice, health and human services, integrated supply chain, warehousing, logistics, tax and finance. Aeronautical Systems - engine controls, power generation, flight controls, cargo systems, hoists and winches, missile actuation and repair and overhaul. The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies. The Company evaluates operating performance based on profit before taxes and total assets net of segment current operating liabilities. Prepaid pension cost and the related pension income for corporate and divested operations, unrealized gains on securities, for affiliate investments accounted for using the cost method, debt and related interest expense, interest related to the other postretirement benefit liability, currently payable income taxes, current deferred income taxes, long-term deferred income taxes in 1998 and corporate staff expenses are maintained at the corporate level and are not a component of the operating segment results. 60 TRW INC. NOTES TO FINANCIAL STATEMENTS As a result of the acquisition of LucasVarity, segment assets increased significantly in 1999. The preliminary allocation of LucasVarity's assets for each applicable segment follows: (In millions) - ------------- - ------------------------------------------------------------------------------------------------------------------------------------ Chassis Systems $3,056 Automotive Electronics 619 Other Automotive 905 Aeronautical Systems 1,801 - ------------------------------------------------------------------------------------------------------------------------------------
Financial information for the operating segments for each of the three years ended December 31 is as follows:
Occupant Systems & Safety Chassis Automotive Other Space & Information Aeronautical (In millions) Systems Systems Electronics Automotive Electronics Technology Systems Total - ------------------------------------------------------------------------------------------------------------------------------------ 1999 - ------------------------------------------------------------------------------------------------------------------------------------ Sales from external customers $ 3,009 $ 5,077 $ 1,632 $ 1,610 $ 1,870 $ 2,869 $ 902 $16,969 Intersegment sales 3 12 81 59 29 111 -- 295 Profit before taxes 187 299 114 115 500 86 123 1,424 Unusual items - income(expense) included in profit (9) (76) (14) (1) 256 (99) -- 57 Segment assets 1,507 3,806 1,103 1,276 385 556 1,801 10,434 Depreciation and amortization 173 266 81 105 103 58 49 835 Capital expenditures including other intangibles 142 302 88 132 101 41 55 861 - ------------------------------------------------------------------------------------------------------------------------------------ 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Sales from external customers $ 3,042 $ 2,201 $ 1,137 $ 821 $ 1,922 $ 2,763 -- $11,886 Intersegment sales 4 11 40 3 40 115 -- 213 Profit before taxes 257 129 73 84 266 192 -- 1,001 Unusual items - income(expense) included in profit -- (7) (13) (4) 34 (26) -- (16) Segment assets 1,605 809 529 373 366 874 -- 4,556 Depreciation and amortization 184 109 57 46 95 61 -- 552 Capital expenditures including other intangibles 161 145 95 55 115 48 -- 619 - ------------------------------------------------------------------------------------------------------------------------------------ 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Sales from external customers $ 3,020 $ 2,181 $ 1,022 $ 809 $ 2,005 $ 1,794 -- $10,831 Intersegment sales 2 14 24 3 27 121 -- 191 Profit before taxes 314 155 70 98 204 144 -- 985 Segment assets 1,528 695 367 336 355 728 -- 4,009 Depreciation and amortization 158 107 53 44 87 28 -- 477 Capital expenditures including other intangibles 171 106 65 56 128 28 -- 554 - ------------------------------------------------------------------------------------------------------------------------------------
The Company accounts for intersegment sales or transfers at current market prices for the Automotive segments and at cost for the Aerospace & Information Systems segments. Sales to agencies of the U.S. Government, primarily by the Space & Electronics and Systems & Information Technology segments, were $4,248 million in 1999, $4,119 million in 1998 and $3,523 million in 1997. Sales to Ford Motor Company by the four Automotive segments were $2,143 million in 1999, $1,423 million in 1998 and $1,469 million in 1997. The increase in sales to Ford Motor Company in 1999 was primarily due to the LucasVarity acquisition. TRW INC. 61 NOTES TO FINANCIAL STATEMENTS Reconciliations of the items reported for the operating segments to the applicable amounts reported in the consolidated financial statements are as follows:
(In millions) 1999 1998 1997 - --------------------------------------------------------------------------------------------------------------- Profit before taxes $ 1,424 $ 1,001 $ 985 Purchased in-process research and development (85) -- (548) Financing cost (531) (119) (80) Pension income 180 -- -- Corporate expense and other (201) (136) (117) - --------------------------------------------------------------------------------------------------------------- Earnings before income taxes $ 787 $ 746 $ 240 - ---------------------------------------------------------------------------------------------------------------
(In millions) 1999 1998 1997 - --------------------------------------------------------------------------------------------------------------- Segment assets $10,434 $ 4,556 $ 4,009 Segment current operating liabilities 2,794 1,843 1,828 Current deferred taxes 423 179 96 Long-term deferred taxes -- 33 -- Prepaid pension cost 2,876 171 -- Unrealized gain on securities 917 46 18 Segment eliminations and adjustments 155 122 114 Corporate and other 667 390 345 - --------------------------------------------------------------------------------------------------------------- Total assets $18,266 $ 7,340 $ 6,410 - ---------------------------------------------------------------------------------------------------------------
Information concerning principal geographic areas for and as of the three years ended December 31 is as follows:
United (In millions) United States Germany Kingdom All Other Total - ------------------------------------------------------------------------------------------------------------------- Sales from external customers 1999 $ 9,726 $ 1,873 $ 2,079 $ 3,291 $16,969 1998 7,658 1,562 452 2,214 11,886 1997 6,919 1,442 420 2,050 10,831 - ------------------------------------------------------------------------------------------------------------------- Property, plant and equipment-net 1999 $ 1,934 $ 525 $ 515 $ 920 $ 3,894 1998 1,491 497 124 571 2,683 1997 1,560 451 119 491 2,621 - -------------------------------------------------------------------------------------------------------------------
Sales are attributable to geographic areas based on the location of the assets generating the sales. Inter-area sales are not significant to the total sales of any geographic area. 62 TRW INC. NOTES TO FINANCIAL STATEMENTS EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT AUDITORS (UNAUDITED) On January 25, 2000, the Company established two revolving credit agreements in an aggregate amount of $3.3 billion with 29 banks. The first agreement, in an amount of $2.3 billion, will expire on January 23, 2001 with an option to extend the maturity of outstanding borrowings at that time to January 23, 2002. The second agreement, in an amount of $1 billion, will expire on January 25, 2005. The interest rates under the agreements are either the prime rate or a rate based on the London Interbank Offered Rate, at the option of the Company. The covenants of these agreements, if in effect at December 31, 1999, limit the payment of dividends to approximately $690 million at December 31, 1999. Also on January 25, 2000, the Company terminated existing revolving credit agreements in an aggregate amount of approximately $5 billion. On February 11, 2000, the Company redeemed the stock purchase rights issued pursuant to the Rights Agreement dated April 24, 1996. In redeeming the rights, the Company's Directors authorized a one-time payment to shareholders of $.005 per common share, which was paid March 15, 2000, to shareholders of record on February 11, 2000. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
First Second Third Fourth ------------------------ --------------------- ------------------ ------------------- (In millions except per share data) 1999 1998 1999 1998 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------ (A) (B) (C) (D) (E) (F) (G) (H) Sales $3,097 $3,095 $4,785 $3,028 $4,462 $2,836 $4,625 $2,927 Gross profit 479 520 845 547 924 522 842 582 Earnings before income taxes 7 204 217 198 211 164 352 180 Net earnings(loss) (28) 129 139 126 134 104 224 118 Net earnings(loss) per share(I) Diluted (.24) 1.03 1.14 1.00 1.08 .85 1.81 .96 Basic (.24) 1.05 1.16 1.03 1.10 .86 1.84 .98 - ------------------------------------------------------------------------------------------------------------------------------
(A) Earnings before income taxes includes an $85 million charge (71 cents per share), with no income tax benefit, for purchased in-process research and development related to the acquisition of LucasVarity, $63 million in expenses ($41 million after tax, 34 cents per share) related to the acquisition of LucasVarity, a $43 million loss ($28 million after tax, 23 cents per share) on fixed-price type contracts, a $45 million gain ($28 million after tax, 24 cents per share) related to the sale of assets, primarily RFMD, and a $10 million charge ($7 million after tax, 6 cents per share) related to the automotive restructuring program. (B) Earnings before income taxes includes a $49 million gain ($32 million after tax, 25 cents per share) from the settlement of certain patent litigation and a $34 million charge ($22 million after tax, 17 cents per share) for litigation and contract reserves and severance costs relating to the integration of the Company's Systems & Information Technology businesses with BDM International, Inc. (C) Earnings before income taxes includes a $79 million gain ($52 million after tax, 42 cents per share) from the sale of assets, primarily RFMD common stock, a $59 million charge ($39 million after tax, 32 cents per share) related to the automotive restructuring program, and $40 million in expenses ($26 million after tax, 21 cents per share) related to the acquisition of LucasVarity. (D) Earnings before income taxes includes a $7 million charge ($6 million after tax, 4 cents per share) for a contract reserve. (E) Earnings before income taxes includes a $79 million charge ($51 million after tax, 41 cents per share) on the write-off of the Company's investment in ICO, a $39 million benefit ($24 million after tax, 19 cents per share) primarily from transactions related to the acquisition of LucasVarity, and a $22 million gain ($14 million after tax, 12 cents per share) from the sale of assets, primarily RFMD common stock. (F) Earnings before income taxes includes a charge of $13 million ($8 million after tax, 7 cents per share) related to the automotive restructuring. (G) Earnings before income taxes includes a $216 million gain ($141 million after tax, $1.14 per share) from the sale of assets, primarily RFMD common stock, an $82 million loss ($53 million after tax, 43 cents per share) related to charges associated with the discontinuance of certain product lines, $30 million in expenses ($20 million after tax, 16 cents per share) related to the acquisition of LucasVarity, and an $11 million charge ($9 million after tax, 7 cents per share) related to the automotive restructuring program. (H) Earnings before income taxes includes a benefit of $25 million ($16 million after tax, 13 cents per share) from an interest accrual adjustment relating to a tax litigation settlement and an $11 million charge ($10 million after tax, 8 cents per share) related to the automotive restructuring. (I) As a result of the loss in the first quarter of 1999, under the provisions of SFAS No. 128, the diluted calculation excludes convertible preferred stock and employee stock options as these would produce an anti-dilutive effect. In addition, under SFAS No. 128, the sum of net earnings(loss) per share for the four quarters may not equal the total year amount. TRW INC. 63 NOTES TO FINANCIAL STATEMENTS STOCK PRICES AND DIVIDENDS (UNAUDITED) The book value per common share at December 31, 1999, was $22.19 compared to $15.61 at the end of 1998. The Company's Directors declared the 246th consecutive quarterly dividend during December 1999. Dividends declared per share in 1999 were $1.32, up 3 percent from $1.28 in 1998. The following table highlights the market prices of the Company's common and preference stocks and dividends paid for the quarters of 1999 and 1998.
Price of Dividends paid traded shares per share ------------------------------------------------- ------------------- Quarter 1999 1998 1999 1998 ------- ------------------------------------------------- ------------------- High Low High Low - -------------------------------------------------------------------------------------------------------------- Common stock 1 $ 59 7/8 $ 43 1/2 $ 56 1/4 $ 50 9/16 $ .33 $ .31 Par value $0.625 2 55 1/8 41 1/4 57 3/8 50 1/16 .33 .31 per share 3 57 15/16 46 56 15/16 42 11/16 .33 .31 4 55 1/4 41 3/16 58 43 .33 .33 - -------------------------------------------------------------------------------------------------------------- Cumulative Serial 1 495 402 495 495 1.10 1.10 Preference Stock II 2 495 402 468 468 1.10 1.10 $4.40 Convertible 3 505 460 495 420 1.10 1.10 Series 1 4 452 452 480 480 1.10 1.10 - -------------------------------------------------------------------------------------------------------------- Cumulative Serial 1 418 335 390 379 1.125 1.125 Preference Stock II 2 343 1/2 330 400 400 1.125 1.125 $4.50 Convertible 3 408 390 405 405 1.125 1.125 Series 3 4 375 375 405 405 1.125 1.125 - --------------------------------------------------------------------------------------------------------------
The $4.40 Convertible Series 1 was not actively traded during the second quarter of 1999 and the first quarter of 1998, and the $4.50 Convertible Series 3 was not actively traded during the fourth quarter of 1998. The prices shown for these quarters represent the previous quarter's actual high and low prices of traded shares. 64 TRW INC. EX-21 11 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT TRW has no parent or parents. As of December 31, 1999, certain of its subsidiaries, some of which also have subsidiaries, were as follows:
Percentage of Organized under voting securities Name the laws of owned (1) ---- ----------- ----------------- BDM International, Inc. which owns Delaware 100.00% Vinnell Corporation Delaware 100.00% TRW Automotive Espana, S.A. Spain 100.00% TRW Automotive Holding Company Delaware 100.00% TRW Automotive Products Inc. which owns, Delaware 100.00% directly or indirectly, TRW Delaware Inc. Delaware 100.00% TRW Automotive Safety Systems Inc. Delaware 100.00% TRW UK Holding Limited United Kingdom 100.00% TRW Automotive UK Limited United Kingdom 100.00% LucasVarity Limited United Kingdom 100.00% Lucas Industries Limited United Kingdom 100.00% Lucas Automation & Control Engineering Inc. Virginia 100.00% Lucas-TVS Limited India 52.50% Lucas Investments Ltd. United Kingdom 100.00% Lucas France S.A.S. France 100.00% Lucas Limited United Kingdom 100.00% Lucas Systemes de Freinage S.A.S. France 100.00% Societe d'Application des Machine Motrices S.A.S. France 100.00% TRW Deutschland Holding GmbH Germany 100.00% Lucas Deutschland GmbH Germany 100.00% Lucas Automotive GmbH Germany 100.00% TRW Automotive Safety Systems Holding GmbH Germany 100.00% TRW Airbag Systems GmbH & Co. KG Germany 99.99% TRW Automotive Safety Systems GmbH & Co. KG Germany 100.00% TRW Deutschland GmbH Germany 100.00% TRW Automotive Electronics & Components GmbH & Co. KG Germany 100.00% TRW Fahrwerksysteme GmbH & Co. KG Germany 100.00% TRW Occupant Restraints Systems GmbH & Co. KG Germany 100.00% TRW Automotive Systems Limited United Kingdom 100.00% TRW LucasVarity Electric Steering Limited United Kindgom 100.00% TRW Steering Systems Limited United Kingdom 100.00% LucasVarity Inc. Delaware 100.00% NEWCO Investment Co. Michigan 100.00% Varity Automotive Inc. Delaware 100.00% Kelsey-Hayes Company Delaware 100.00% Kelsey-Hayes Canada Limited Canada 100.00% VarityKelsey-Hayes Comercial Ltda. Brazil 100.00% Freios Varga S.A. Brazil 99.00% Lucas Western Inc. Delaware 100.00%
Percentage of Organized under voting securities Name the laws of owned (1) ---- ----------- ----------------- TRW Canada Limited, which owns Canada 100.00% Quality Safety Systems Company Canada 60.00% TRW Automotive Brasil Ltda. Brazil 100.00% TRW Export Sales B.V. which, in turn, owns Netherlands 100.00% TRW Netherlands Finance B.V. Netherlands 100.00% TRW Netherlands Finance International B.V. Netherlands 100.00% TRW Netherlands Holding B.V. Netherlands 100.00% TRW France S.A. France 100.00% TRW Italia S.p.A. Italy 100.00% TRW Koyo Steering Systems Company Tennessee 51.00% TRW Microwave Inc. California 100.00% TRW Netherlands B.V. Netherlands 100.00% TRW Overseas Finance N.V. Netherlands 100.00% TRW Sabelt S.p.A. which owns Italy 90.00% TRW Air Bag Systems s.r.l. Italy 100.00% TRW Steering Systems Japan Co. Ltd. Japan 100.00% TRW Vehicle Safety Systems Inc., which owns Delaware 100.00% TRW Safety Systems Inc. Delaware 100.00% TRW Technar Inc. California 100.00%
_______________ (1) Total percentages held by TRW and/or its subsidiaries, disregarding Directors' qualifying shares, if any. The names of certain subsidiaries, which considered in the aggregate would not constitute a "significant subsidiary" as such term is defined in the regulations under the federal securities laws, have been omitted from the foregoing list. EX-23.(A) 12 CONSENT OF AUDITORS EXHIBIT 23(a) ------------- CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference of our report dated January 21, 2000, with respect to the consolidated financial statements of TRW Inc. included in the Annual Report on Form 10-K for the year ended December 31, 1999, in the following Registration Statement Nos.: 333-83227 on Form S-4, 333-89133 on Form S-3, 333-48443 on Form S-3, 333-27003 on Form S-8, 333-27001 on Form S- 8, 333-20351 on Form S-8, 333-06633 on Form S-8, 333-03973 on Form S-8, 33-53503 on Form S-8, 33-29751 on Form S-8, 2-90748 on Form S-8 and 2-64035 on Form S-8. /s/ Ernst & Young LLP ERNST & YOUNG LLP Cleveland, Ohio March 17, 2000 EX-23.(B) 13 CONSENT OF AUDITORS W/RESPECT TO CANADA STOCK PLAN EXHIBIT 23(b) ------------- CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference of our report dated March 10, 2000, with respect to the financial statements of The TRW Canada Stock Savings Plan for the year ended December 31, 1999, included as Exhibit 99(a) to the TRW Inc. Annual Report on Form 10-K for the year ended December 31, 1999, in TRW Inc.'s Registration Statement No. 333-06633 on Form S-8 pertaining to The TRW Canada Stock Savings Plan and the related prospectus. /s/ Ernst & Young LLP ERNST & YOUNG LLP Hamilton, Ontario March 17, 2000 EX-24 14 POWER OF ATTORNEY EXHIBIT 24 POWER OF ATTORNEY Directors and Certain Officers of TRW Inc. THE UNDERSIGNED Directors and Officers of TRW Inc. hereby appoint W. B. Lawrence, K. C. Syrvalin and K. A. Weigand, and each of them, as attorneys for the undersigned, with full power of substitution and resubstitution, for and in the name, place and stead of the undersigned in the capacity specified, to prepare or cause to be prepared, to execute and to file with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the "Act"), an annual report on Form 10-K for the year ended December 31, 1999 relating to TRW Inc., such other periodic reports as may be required pursuant to the Act, amendments and exhibits to any of the foregoing and any and all other documents to be filed with the Securities and Exchange Commission or elsewhere pertaining to such reports, with full power and authority to take such other action which in the judgment of such person may be necessary or appropriate to effect the filing of such documents. EXECUTED the dates set forth below.
/s/ J. T. Gorman /s/ D. M. Cote /s/ Carl G. Miller - ------------------------------ ------------------------- --------------------------- J. T. Gorman, D. M. Cote, C. G. Miller, Chairman of the Board, President, Executive Vice President Chief Executive Officer Chief Operating Officer and Chief Financial Officer and Director and Director February 16, 2000 February 16, 2000 February 16, 2000 /s/ Thomas A. Connell /s/ Michael H. Armacost /s/ M. Feldstein - ------------------------------ ------------------------- --------------------------- T. A. Connell, Vice President M. H. Armacost, Director M. Feldstein, Director and Controller February 16, 2000 February 16, 2000 February 16, 2000 /s/ Robert M. Gates /s/ George H. Heilmeier /s/ Karen N. Horn - ------------------------------ ------------------------- --------------------------- R. M. Gates, Director G. H. Heilmeier, Director K. N. Horn, Director February 16, 2000 February 16, 2000 February 16, 2000 /s/ E. B. Jones /s/ W. S. Kiser /s/ D. B. Lewis - ------------------------------ ------------------------- --------------------------- E. B. Jones, Director W. S. Kiser, Director D. B. Lewis, Director February 16, 2000 February 16, 2000 February 16, 2000 /s/ L. M. Martin /s/ J. D. Ong /s/ Richard W. Pogue - ------------------------------ ------------------------- --------------------------- L. M. Martin, Director J. D. Ong, Director R. W. Pogue, Director February 16, 2000 February 16, 2000 February 16, 2000
EX-27 15 FINANCIAL DATA SCHEDULE
5 1,000,000 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 228 0 2,480 0 1,039 5,199 8,026 4,132 18,266 6,729 5,369 0 0 76 2,636 18,266 16,969 16,969 13,879 13,879 0 0 477 787 318 469 0 0 0 469 3.87 3.80
EX-99.(A) 16 FINANCIAL STATEMENTS OF TRW CANADA STOCK PLAN EXHIBIT 99(a) FINANCIAL STATEMENTS THE TRW CANADA STOCK SAVINGS PLAN December 31, 1999 and 1998 REPORT OF INDEPENDENT AUDITORS To the Participants and the Board of Administration of The TRW Canada Stock Savings Plan We have audited the statements of financial condition of the TRW Stock Fund, Pooled Money Market Fund Employees Profit Sharing Plan, Pooled Balanced Fund Registered Retirement Savings Plan and Pooled Money Market Fund Registered Retirement Savings Plan [constituting The TRW Canada Stock Savings Plan] as at December 31, 1999 and 1998 and the related statements of operations and changes in fund equity for these funds for the years then ended. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in Canada. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these financial statements present fairly, in all material respects, the financial position of the several funds of The TRW Canada Stock Savings Plan as at December 31, 1999 and 1998 and the results of their operations and the changes in fund equity for the years then ended in accordance with accounting principles generally accepted in Canada. Hamilton, Canada, /s/ Ernst & Young LLP March 10, 2000. Chartered Accountants The TRW Canada Stock Savings Plan TRW Stock Fund STATEMENTS OF FINANCIAL CONDITION As at December 31
1999 1998 $ $ - ----------------------------------------------------------------------------------------------------- [expressed in Canadian dollars] ASSETS Cash 5,246 5,149 Receivable from TRW Canada Limited 87,163 82,681 Investments at quoted market value TRW Inc. common stock 13,089 shares [cost $957,618] in 1999 and 12,225 shares [cost $943,274] in 1998 981,170 1,048,903 - ----------------------------------------------------------------------------------------------------- 1,073,579 1,136,733 - ----------------------------------------------------------------------------------------------------- LIABILITIES AND FUND EQUITY Withdrawals, terminations, and short-term distributions 828,383 921,630 Fund equity [including net unrealized appreciation of investments] 245,196 215,103 - ----------------------------------------------------------------------------------------------------- 1,073,579 1,136,733 - ----------------------------------------------------------------------------------------------------- Number of shares outstanding at December 31 13,089 12,225 - ----------------------------------------------------------------------------------------------------- Fund equity per share at December 31 18.7329 17.5953 - -----------------------------------------------------------------------------------------------------
See accompanying notes The TRW Canada Stock Savings Plan TRW Stock Fund STATEMENTS OF OPERATIONS AND CHANGES IN FUND EQUITY Years ended December 31
1999 1998 $ $ [expressed in Canadian dollars] - -------------------------------------------------------------------------------------------------- INVESTMENT INCOME Dividends on TRW Inc. common stock 11,030 12,196 Interest 34 219 - -------------------------------------------------------------------------------------------------- 11,064 12,415 - -------------------------------------------------------------------------------------------------- CONTRIBUTIONS Participants 455,563 451,113 TRW Canada Limited 50% of total participants' contributions to all funds 440,952 428,733 - -------------------------------------------------------------------------------------------------- 896,515 879,846 - -------------------------------------------------------------------------------------------------- Net realized gain on transfer of investments to participants [note 4] 90,527 28,984 Unrealized appreciation (depreciation) of investments [note 4] (82,077) 66,083 - -------------------------------------------------------------------------------------------------- 8,450 95,067 - -------------------------------------------------------------------------------------------------- 916,029 987,328 - -------------------------------------------------------------------------------------------------- Less withdrawals and terminations Paid Cash 1,583 910 TRW Inc. common stock 713 shares in 1999; 1,352 shares in 1998 55,970 87,457 - -------------------------------------------------------------------------------------------------- 57,553 88,367 - -------------------------------------------------------------------------------------------------- Payable Cash 7,979 15,841 TRW Inc. common stock 11,594 shares in 1999; 10,557 shares in 1998 820,404 905,789 - -------------------------------------------------------------------------------------------------- 828,383 921,630 - -------------------------------------------------------------------------------------------------- 885,936 1,009,997 - -------------------------------------------------------------------------------------------------- Increase (decrease) in fund equity 30,093 (22,669) Fund equity at January 1 215,103 237,772 - -------------------------------------------------------------------------------------------------- Fund equity at December 31 245,196 215,103 - --------------------------------------------------------------------------------------------------
See accompanying notes The TRW Canada Stock Savings Plan Pooled Money Market Fund Employees Profit Sharing Plan STATEMENTS OF FINANCIAL CONDITION As at December 31
1999 1998 $ $ - ------------------------------------------------------------------------------------------ [expressed in Canadian dollars] ASSETS Cash 11,879 5,571 Receivable from TRW Canada Limited 22,019 21,253 Investments at market value Royal Trust Company Classified Money Market Fund 22,325 units [cost $223,250] in 1999 and 22,591 units [cost $225,908] in 1998 223,250 225,908 - ------------------------------------------------------------------------------------------ 257,148 252,732 - ------------------------------------------------------------------------------------------ LIABILITIES AND FUND EQUITY Withdrawals, terminations, and short-term distributions 211,299 217,815 Fund equity 45,849 34,917 - ------------------------------------------------------------------------------------------ 257,148 252,732 - ------------------------------------------------------------------------------------------ Number of units outstanding at December 31 4,584.9 3,491.7 - ------------------------------------------------------------------------------------------ Fund equity per unit at December 31 10.0 10.0 - ------------------------------------------------------------------------------------------
See accompanying notes The TRW Canada Stock Savings Plan Pooled Money Market Fund Employees Profit Sharing Plan STATEMENTS OF OPERATIONS AND CHANGES IN FUND EQUITY Years ended December 31
1999 1998 $ $ - ------------------------------------------------------------------------- [expressed in Canadian dollars] - ------------------------------------------------------------------------- Interest income 5,506 6,622 Participants' contributions 230,976 221,027 - ------------------------------------------------------------------------- 236,482 227,649 - ------------------------------------------------------------------------- Less cash withdrawals and terminations Paid 20,126 6,680 Payable 205,424 217,815 - ------------------------------------------------------------------------- 225,550 224,495 - ------------------------------------------------------------------------- Increase in fund equity 10,932 3,154 Fund equity at January 1 34,917 31,763 - ------------------------------------------------------------------------- Fund equity at December 31 45,849 34,917 - -------------------------------------------------------------------------
See accompanying notes The TRW Canada Stock Savings Plan Pooled Balanced Fund Registered Retirement Savings Plan STATEMENTS OF FINANCIAL CONDITION As at December 31
1999 1998 $ $ - ----------------------------------------------------------------------------------------------------- [expressed in Canadian dollars] ASSETS Cash 9,021 1,737 Receivable from TRW Canada Limited 12,653 13,068 Dividends receivable 5,077 14,194 Investments at quoted market value Royal Trust Company Classified Balanced Fund 40,584.5417 units [cost $565,355] in 1999 and 36,235.7677 units [cost $484,708] in 1998 686,045 562,577 - ----------------------------------------------------------------------------------------------------- 712,796 591,576 - ----------------------------------------------------------------------------------------------------- LIABILITIES AND FUND EQUITY Withdrawals, terminations, and short-term distributions 13,503 5,106 Fund equity [including net unrealized appreciation of investments] 699,293 586,470 - ----------------------------------------------------------------------------------------------------- 712,796 591,576 - ----------------------------------------------------------------------------------------------------- Number of units outstanding at December 31 40,584.5417 36,235.7677 - ----------------------------------------------------------------------------------------------------- Fund equity per unit at December 31 17.230 16.184 - -----------------------------------------------------------------------------------------------------
See accompanying notes The TRW Canada Stock Savings Plan Pooled Balanced Fund Registered Retirement Savings Plan STATEMENTS OF OPERATIONS AND CHANGES IN FUND EQUITY Years ended December 31
1999 1998 $ $ - ------------------------------------------------------------------------------------------- [expressed in Canadian dollars] Income 25,558 33,732 - ------------------------------------------------------------------------------------------- Contributions Participants' contributions 136,422 130,483 Transfer from Pooled Money Market Fund RRSP -- 1,442 - ------------------------------------------------------------------------------------------- 136,422 131,925 - ------------------------------------------------------------------------------------------- Net realized gain on disposition of investments [note 4] 10,587 5,982 Unrealized appreciation of investments [note 4] 42,821 3,953 - ------------------------------------------------------------------------------------------- 53,408 9,935 - ------------------------------------------------------------------------------------------- 215,388 175,592 - ------------------------------------------------------------------------------------------- Less cash withdrawals and terminations Paid 102,565 76,947 - ------------------------------------------------------------------------------------------- Increase in fund equity 112,823 98,645 Fund equity at January 1 586,470 487,825 - ------------------------------------------------------------------------------------------- Fund equity at December 31 699,293 586,470 - -------------------------------------------------------------------------------------------
See accompanying notes The TRW Canada Stock Savings Plan Pooled Money Market Fund Registered Retirement Savings Plan STATEMENTS OF FINANCIAL CONDITION As at December 31
1999 1998 $ $ - ------------------------------------------------------------------------------------------- [expressed in Canadian dollars] ASSETS Cash 5,177 1,432 Receivable from TRW Canada Limited 5,695 5,013 Investments at market value Royal Trust Company Classified Pooled Money Market Fund 23,897 units [cost $238,966] in 1999 and 26,331 units [cost $263,312] in 1998 238,966 263,312 - ------------------------------------------------------------------------------------------- 249,838 269,757 - ------------------------------------------------------------------------------------------- FUND EQUITY Fund equity 249,838 269,757 - ------------------------------------------------------------------------------------------- Number of units outstanding at December 31 24,983.8 26,975.7 - ------------------------------------------------------------------------------------------- Fund equity per unit at December 31 10.0 10.0 - -------------------------------------------------------------------------------------------
See accompanying notes The TRW Canada Stock Savings Plan Pooled Money Market Fund Registered Retirement Savings Plan STATEMENTS OF OPERATIONS AND CHANGES IN FUND EQUITY Years ended December 31
1999 1998 $ $ - -------------------------------------------------------------------------- [expressed in Canadian dollars] Interest income 12,336 11,782 Participants' contributions 59,633 55,108 - -------------------------------------------------------------------------- 71,969 66,890 - -------------------------------------------------------------------------- Less cash withdrawals and terminations Paid 91,888 35,015 Transfer to Pooled Balanced Fund RRSP -- 1,442 - -------------------------------------------------------------------------- 91,888 36,457 - -------------------------------------------------------------------------- Increase (decrease) in fund equity (19,919) 30,433 Fund equity at January 1 269,757 239,324 - -------------------------------------------------------------------------- Fund equity at December 31 249,838 269,757 - --------------------------------------------------------------------------
See accompanying notes The TRW Canada Stock Savings Plan NOTES TO FINANCIAL STATEMENTS December 31, 1999 and 1998 1. GENERAL PLAN PROVISIONS The investment programs of The TRW Canada Stock Savings Plan [the "Plan"] are as follows: Participant contributions Upon enrollment or re-enrollment, each participant directs that his contributions [computed in increments of one percent, from two percent to six percent of qualifying compensation] are to be invested in accordance with any of the following investment options: [a] 100% in the TRW Stock Fund [the common stock of TRW Inc. in accordance with the Trust agreement and the Plan]. [b] 100% in the Pooled Money Market Fund Employees Profit Sharing Plan. At present, the Trustee invests all of the Pooled Money Market Fund amounts in the Royal Trust Company, Classified Money Market Fund in accordance with the Trust agreement and the Plan. [c] 100% in the Pooled Balanced Fund Registered Retirement Savings Plan. At present, the Trustee invests all of the Pooled Balanced Fund amounts in the Royal Trust Company, Classified Balanced Fund, in accordance with the Trust agreement and the Plan. [d] 100% in the Pooled Money Market Fund Registered Retirement Savings Plan. At present, the Trustee invests all of the Pooled Money Market Fund amounts in the Royal Trust Company, Classified Pooled Money Market Fund in accordance with the Trust agreement and the Plan. [e] A combination of options [a] through [d] in multiples of 25%. Such direction may be revised on 30 days prior notice, effective January 1 of any year. TRW Canada Limited contributions TRW Canada Limited shall contribute to the Plan for each month, out of current or accumulated earnings, an amount equal to 50% of participant contributions for such month. TRW Canada Limited contributions vest immediately. All TRW Canada Limited contributions are invested in the TRW Stock Fund. TRW Canada Limited does not charge a fee for administering the Plans. 1 The TRW Canada Stock Savings Plan NOTES TO FINANCIAL STATEMENTS December 31, 1999 and 1998 The number of participants in each Fund at December 31 is as follows: 1999 1998 - ------------------------------------------------------------------------- TRW Stock Fund 245 293 Pooled Money Market Fund Employees Profit Sharing Plan 75 115 Pooled Balanced Fund Registered Retirement Savings Plan 62 81 Pooled Money Market Fund Registered Retirement Savings Plan 39 49 The total number of participants in the Plan is less than the sum of the number of participants shown above because many are participating in more than one Fund. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES These financial statements have been prepared in accordance with accounting principles generally accepted in Canada, and are within the framework of the accounting policies summarized below. Gains and losses on investments The realized gains or losses on disposition or transfer of an investment is determined from the market value of the investment at the date of disposition or transfer and the average cost base of that specific pool of investments prior to the disposition or transfer. Unrealized gains or losses are determined as the net effect of the change in appreciation (depreciation) of investments from January 1 to December 31, based on market value and the average cost base of each investment at those respective dates. Income recognition Dividends are recognized as earned. Interest income is recognized as it is earned consistent with the accrual basis of accounting. 2 The TRW Canada Stock Savings Plan NOTES TO FINANCIAL STATEMENTS December 31, 1999 and 1998 3. INCOME TAXES The Plan is exempt from Canadian federal income taxes under provisions of the Income Tax Act. Federal income tax consequences to the participants under the Plan are as provided in the Income Tax Act. TRW Canada Limited contributions are taxable to the participants as is the income and all post-1971 capital gains less post-1971 capital losses of the Plan, all of which are allocated to the participants by the Trustee during the year, whether or not such amounts are paid to the participants by the Trustee during the year. In some circumstances, the amounts taxable could exceed the amounts allocated. The amount of foreign non-business income tax paid on foreign source income by the trusts under the Plan for the year is allocated to and deemed to have been paid by the participants for Canadian federal income tax purposes. Participants who are non-resident taxpayers are subject to special rules depending on whether they have performed duties in Canada during the year and are subject to 15% withholding tax on amounts paid or credited to them under the Plan. 4. UNREALIZED AND REALIZED (LOSSES) GAINS Investments are stated at their quoted market value. The net unrealized appreciation (depreciation) of investments included in fund equity is as follows: TRW Pooled Stock Balanced Fund Fund $ $ - ---------------------------------------------------------- [expressed in Canadian dollars] Balance at December 31, 1997 39,546 73,916 Change for the year Market value 66,083 3,953 - ---------------------------------------------------------- Balance at December 31, 1998 105,629 77,869 Change for the year Market value (82,077) 42,821 - ---------------------------------------------------------- Balance at December 31, 1999 23,552 120,690 - ---------------------------------------------------------- 3 The TRW Canada Stock Savings Plan NOTES TO FINANCIAL STATEMENTS December 31, 1999 and 1998 The net realized gains on the transfer or disposition of investments are summarized as follows: TRW Stock Fund ------------------------------- 1999 1998 $ $ - ------------------------------------------------------------------ [expressed in Canadian dollars] Amount realized 942,356 784,783 Cost - average 851,829 755,799 - ------------------------------------------------------------------ Net realized gain (loss) 90,527 28,984 - ------------------------------------------------------------------ Pooled Balanced Fund Registered Retirement Savings Plan ------------------------------- 1999 1998 $ $ - ------------------------------------------------------------------ [expressed in Canadian dollars] Amount realized 66,113 33,999 Cost - average 55,526 28,017 - ------------------------------------------------------------------ Net realized gain 10,587 5,982 - ------------------------------------------------------------------ 5. RELATED PARTY TRANSACTIONS All expenses related to The TRW Canada Stock Savings Plan are paid by TRW Canada Limited. 4 -----END PRIVACY-ENHANCED MESSAGE-----