<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 7, 1996
REGISTRATION NO. 333-14003
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
NEW TENNECO INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 6719 76-0515284
(STATE OR OTHER (PRIMARY STANDARD (IRS EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NUMBER)
INCORPORATION OR CODE NUMBER)
ORGANIZATION)
1275 KING STREET
GREENWICH, CONNECTICUT 06831
(203) 863-1000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
KARL A. STEWART
VICE PRESIDENT AND SECRETARY
1275 KING STREET
GREENWICH, CONNECTICUT 06831
(203) 863-1000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement and all other conditions to the exchange offers described in the
enclosed Prospectus have been satisfied or waived.
----------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS AND CONSENT SOLICITATION (Subject to Completion, dated November 7,
1996)
$1,950,000,000
New Tenneco Inc.
(to be renamed Tenneco Inc.)
Offer to Exchange and Consent Solicitation
----------
New Tenneco Inc., a Delaware corporation ("New Tenneco"), hereby offers, upon
the terms and subject to the conditions set forth in this Prospectus and
Consent Solicitation (this "Prospectus") and in the accompanying Letter of
Transmittal (the "Letter of Transmittal"), to exchange up to $1,950,000,000
aggregate principal amount of the newly issued notes and debentures listed
below of New Tenneco (the "New Securities") for any and all of the
$1,950,000,000 aggregate principal amount of certain outstanding notes and
debentures issued by Tenneco Inc., a Delaware corporation and the indirect
parent company of New Tenneco ("Tenneco"), listed below (the "Old Securities")
(such offers, together with the related Consent Solicitation (as defined), are
referred to individually as an "Exchange Offer" and collectively as the
"Exchange Offers"). After consummation of the Exchange Offers, New Tenneco,
which will then consist of the automotive and packaging businesses of Tenneco,
will be the sole obligor on the New Securities, and exchanging holders will
look exclusively to the businesses and operations of New Tenneco for the
repayment of the principal and interest on the New Securities, rather than to
the consolidated operations of Tenneco prior to the Distribution. See "Risk
Factors--Risk Factors Relating to Holders Tendering in the Exchange Offers,"
"Description of New Tenneco" (including "--Management's Discussion of Financial
Condition and Results of Operations" and "--Unaudited Pro Forma Combined
Financial Statements of New Tenneco") and the Combined Financial Statements of
New Tenneco included elsewhere herein.
The following table sets forth the various series of Old Securities and
indicates the New Securities to be received by the holders of Old Securities
upon acceptance for exchange thereof by New Tenneco. See "The Exchange Offers."
<TABLE>
<CAPTION>
OUTSTANDING
AGGREGATE
PRINCIPAL FOR EACH $1,000 PRINCIPAL AMOUNT THE EXCHANGING HOLDERS WILL RECEIVE $1,000
CUSIP NO. AMOUNT OF THE FOLLOWING OLD SECURITIES: PRINCIPAL AMOUNT OF THE FOLLOWING NEW SECURITIES:
- --------- ------------ --------------------------------------- -------------------------------------------------
<S> <C> <C> <C>
880370BN0 $300,000,000 6 1/2% Notes due December 15, 2005 6.70% Notes due December 15, 2005
880370BP5 $300,000,000 7 1/4% Debentures due December 15, 2025 7.45% Debentures due December 15, 2025
880370BK6 $500,000,000 7 7/8% Notes due October 1, 2002 8.075% Notes due October 1, 2002
880370BL4 $250,000,000 8% Notes due November 15, 1999 8.20% Notes due November 15, 1999
880370BM2 $150,000,000 9% Debentures due November 15, 2012 9.20% Debentures due November 15, 2012
880370BH3 $200,000,000 9 7/8% Notes due February 1, 2001 10.075% Notes due February 1, 2001
880370BF7 $250,000,000 10% Debentures due March 15, 2008 10.20% Debentures due March 15, 2008
</TABLE>
Interest on the Old Securities exchanged in the Exchange Offers will continue
to accrue up to, but excluding, the applicable Issuance Date (as defined) and
will be paid in cash in immediately available same-day funds to exchanging
holders concurrently with the delivery of the New Securities. Interest on the
New Securities issued in exchange for the Old Securities will accrue from, and
including, the applicable Issuance Date at the applicable interest rate on such
New Securities. Upon the terms and subject to the conditions of the Exchange
Offers (including, if any Exchange Offer is extended or amended, the terms and
conditions of any such extension or amendment) and applicable law, New Tenneco
will accept for exchange Old Securities validly tendered (and not withdrawn)
pursuant to an Exchange Offer and will acquire such Old Securities by issuing
New Securities therefor on the first New York Stock Exchange ("NYSE") trading
day following the applicable expiration time of the Exchange Offer (the
"Issuance Date"). The Exchange Agent (as defined) will deliver such New
Securities and accrued interest to the exchanging holders of Old Securities on
the third NYSE trading day after the applicable expiration time or as soon as
practicable thereafter (the "Exchange Date").
(cover page continues)
EACH OF THE EXCHANGE OFFERS WILL EXPIRE AT
5:00 P.M., NEW YORK CITY TIME, ON TUESDAY, DECEMBER
10, 1996, UNLESS EXTENDED OR EARLIER TERMINATED.
The New Securities have been approved for listing on the NYSE subject to
official notice of issuance.
----------
SEE "RISK FACTORS" BEGINNING ON PAGE 22 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN EVALUATING THE EXCHANGE OFFERS.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------
To accept an Exchange Offer, holders of Old Securities should contact Morgan
Stanley & Co. Incorporated, which is acting as Dealer Manager for the Exchange
Offers ("Morgan Stanley" or the "Dealer Manager"). Requests for copies of the
Exchange Offer materials should be directed to Georgeson & Company Inc. (the
"Information Agent") at the telephone number set forth on the back cover of
this Prospectus. None of New Tenneco, Tenneco and Morgan Stanley makes any
recommendation as to whether or not holders should exchange their Old
Securities pursuant to the Exchange Offers and provide Consents (as defined) to
the Proposed Amendments (as defined).
----------
The Dealer Manager for the Exchange Offers is
MORGAN STANLEY & CO.
Incorporated
November , 1996
<PAGE>
(continuation of cover page)
Concurrently with the Exchange Offers, New Tenneco, on behalf of Tenneco, is
soliciting (the "Consent Solicitation") consents from the holders of the Old
Securities (together with the consents being solicited by Tenneco pursuant to
the Cash Tender Offers (as defined), the "Consents") to certain amendments
(the "Proposed Amendments") to the indenture pursuant to which the Old
Securities were issued. Holders of Old Securities who tender such Old
Securities for exchange pursuant to the Exchange Offers will be required, as a
condition to a valid tender, to have given their Consent to all of the
Proposed Amendments with respect to such Old Securities. No payments will be
made for Consents given pursuant hereto. See "The Exchange Offers--The Consent
Solicitation."
The Exchange Offers are one component of a plan (the "Debt Realignment")
designed to restructure the indebtedness for money borrowed of Tenneco and
certain of its subsidiaries as part of the proposed reorganization of Tenneco
(the "Transaction") pursuant to which, among other things, (i) Tenneco will
spin off (the "Distributions") New Tenneco, which will own Tenneco's
automotive parts, packaging and administrative services businesses, and
Newport News Shipbuilding Inc. ("Newport News"), which will own Tenneco's
shipbuilding business and (ii) an indirect wholly owned subsidiary of El Paso
Natural Gas Company ("El Paso") will merge with and into Tenneco (the
"Merger"), with Tenneco surviving the Merger as a subsidiary of El Paso. Upon
consummation of the Merger, Tenneco will be renamed El Paso Tennessee Pipeline
Co. and New Tenneco will be renamed Tenneco Inc. See "Description of the
Transaction."
New Tenneco will not be required to accept for exchange any Old Securities
tendered for exchange, and may terminate any Exchange Offer, if, among other
things: (i) Consents to the Proposed Amendments are not received from the
registered holders of at least a majority of the aggregate principal amount of
the Old Securities and the other debt securities outstanding under the Tenneco
indenture, taken together (which represent the consents required to amend the
Tenneco indenture); (ii) all conditions to the Cash Tender Offers (as defined)
have not been satisfied; or (iii) any material condition to the consummation
of the Distributions or the Merger remains unsatisfied. See "The Exchange
Offers--Conditions to the Exchange Offers."
New Tenneco expressly reserves the right, in its sole discretion, subject to
applicable law, at any time and from time to time, to (i) terminate any of the
Exchange Offers and not accept for exchange any Old Securities if any
conditions to the Exchange Offers are not satisfied and not waived by New
Tenneco, (ii) waive any condition to any Exchange Offer and accept all Old
Securities previously tendered for exchange pursuant to such Exchange Offer,
(iii) extend the expiration of any of the Exchange Offers and retain all Old
Securities tendered for exchange pursuant thereto, subject, however, to the
withdrawal rights of holders as described under "The Exchange Offers--
Withdrawal Rights," and/or (iv) amend the terms of any of the Exchange Offers.
Any amendment of an Exchange Offer will apply to all Old Securities of the
same series tendered for exchange pursuant to such Exchange Offer. See "The
Exchange Offers--Expiration Time; Extensions; Termination; Amendments."
The New Securities will be senior unsecured obligations of New Tenneco and
will rank pari passu with all existing and future senior unsecured
indebtedness of New Tenneco. The terms of each series of New Securities will
be substantially the same in all material respects as the terms of the
corresponding series of Old Securities except that (i) the New Securities will
be issued by New Tenneco, (ii) the interest rate on each series of the New
Securities will be higher than the interest rate on each corresponding series
of Old Securities as set forth herein, and (iii) the New Indenture (as
defined) contains a negative pledge covenant, events of default and other
provisions which differ, in certain respects, from the corresponding
provisions in the Tenneco indenture. See "Description of the New Securities."
New Tenneco currently has no securities outstanding that are senior or
subordinated to the New Securities.
ii
<PAGE>
(continuation of cover page)
If the Proposed Amendments become effective, each holder of Old Securities
that are not properly tendered and accepted for exchange hereunder will be
bound by the Proposed Amendments regardless of whether such holder consented
to the Proposed Amendments. After giving effect to the Proposed Amendments and
the Transaction, the Old Securities that are not exchanged pursuant to the
Exchange Offers will remain obligations of Tenneco only and will not be
guaranteed by or be an obligation of New Tenneco, El Paso or any other entity.
See "Risk Factors."
The New Securities are currently rated Baa1 by Moody's Investors Service,
Inc. ("Moody's") and BBB by Standard & Poor's Corporation ("S&P"). The Old
Securities are currently rated Baa2 (under review with direction uncertain) by
Moody's and BBB- (on CreditWatch with positive implications) by S&P.
Consummation of the Exchange Offers and the other components of the
Transaction, and the adoption of the Proposed Amendments, may have adverse
consequences for holders of Old Securities who elect not to tender in the
Exchange Offers, including the following:
. the Tenneco indenture will be amended to specifically permit the
Distributions and the Merger and certain transactions contemplated thereby
without compliance with certain existing covenants relating to sales or
other dispositions of assets (the application of which New Tenneco and
Tenneco believe, in any event, is uncertain in these circumstances);
. the Tenneco indenture will be amended to change or eliminate certain
covenants, events of default and other provisions therein;
. upon consummation of the Transaction, any Old Securities then outstanding
will remain unsecured obligations of Tenneco, the consolidated assets,
revenues, net income and scope of business of which will be significantly
reduced and changed by reason of the Transaction, and Tenneco will then
have, and may thereafter incur, substantial new debt;
. the Old Securities that remain outstanding after consummation of the
Exchange Offers and the other components of the Transaction will have lower
debt ratings than the New Securities (and may have lower debt ratings than
the Old Securities had prior to the Transaction); and
. it is presently expected that the Old Securities that are listed on the NYSE
will be delisted and the trading market for such Old Securities could become
more limited, which could adversely affect the market price of such Old
Securities. See "Risk Factors'' and ""The Exchange Offers--The Consent
Solicitation."
Tenders of Old Securities may be withdrawn at any time at or prior to the
expiration of the applicable Exchange Offer, but are thereafter irrevocable
unless the related Exchange Offer is terminated without any Old Securities
being accepted for exchange thereunder. A withdrawal of Old Securities
tendered for exchange at or prior to the expiration of the applicable Exchange
Offer will be deemed a revocation of the related Consent. See "The Exchange
Offers--The Consent Solicitation" and "The Exchange Offers--Withdrawal
Rights."
----------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS WITH RESPECT TO THE MATTERS
DESCRIBED IN THIS PROSPECTUS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS
(INCLUDING THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN). IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MAY NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY NEW TENNECO OR THE DEALER MANAGER. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE
IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF NEW TENNECO SINCE
SUCH DATE.
iii
<PAGE>
----------------
UNTIL NOVEMBER [ ], 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE NEW SECURITIES MAY BE REQUIRED TO DELIVER
A PROSPECTUS.
----------------
THE EXCHANGE OFFERS (INCLUDING THE CONSENT SOLICITATION) ARE NOT BEING MADE
TO (NOR WILL THE SURRENDER OF OLD SECURITIES FOR EXCHANGE BE ACCEPTED FROM OR
ON BEHALF OF) HOLDERS OF OLD SECURITIES IN ANY JURISDICTION IN WHICH THE MAKING
OR ACCEPTANCE OF ANY EXCHANGE OFFER (INCLUDING THE CONSENT SOLICITATION) WOULD
NOT BE IN COMPLIANCE WITH THE LAWS OF SUCH JURISDICTION.
AVAILABLE INFORMATION
New Tenneco has filed with the Securities and Exchange Commission (the
"Commission") a registration statement under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the New Securities offered
hereby (together with all amendments thereto, the "Registration Statement").
New Tenneco has also filed with the Commission a registration statement under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), with
respect to New Tenneco's common stock and associated preferred stock purchase
rights to be distributed to Tenneco common stockholders in the Distributions.
This Prospectus does not contain all of the information set forth in such
registration statements and the exhibits and schedules thereto. For further
information with respect to New Tenneco and the New Securities, reference is
made to such registration statements and the exhibits and schedules thereto.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed or
incorporated by reference as an exhibit to the Registration Statement and each
such statement is qualified in all respects by such reference.
Tenneco is subject to the informational requirements of the Exchange Act and,
in accordance therewith, files reports, proxy statements and other information
with the Commission. Following the Distributions, New Tenneco will be subject
to the informational requirements of the Exchange Act and, in accordance
therewith, will file periodic reports and other information with the
Commission.
The Registration Statement, and exhibits and schedules thereto, filed by New
Tenneco, and the reports, proxy statements and other information filed with the
Commission by Tenneco can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional
Offices located at 7 World Trade Center, 13th Floor, New York, New York 10048,
and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such materials can be obtained by mail from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates or may be accessed electronically on the
Commission's website at (http://www.sec.gov). Securities of Tenneco are listed
on the NYSE and the Chicago and Pacific Stock Exchanges, and reports and other
information concerning Tenneco can be inspected at such exchanges. Application
will be made to list the New Securities on the NYSE, and reports and other
information concerning New Tenneco can be inspected at the NYSE, 20 Broad
Street, New York, New York 10005.
Additional information concerning the Transaction is contained in the Joint
Proxy Statement/Prospectus of Tenneco and El Paso, dated November 4, 1996,
included as part of El Paso's Registration Statement on Form S-4, as amended
(File No. 333-10911) filed with the Commission in connection with the
Transaction (the "Joint Proxy Statement"). The Joint Proxy Statement is being
distributed to Tenneco's stockholders in connection with their consideration of
the Transaction at a special meeting of Tenneco stockholders (the "Tenneco
Special Meeting"), presently scheduled to be held December 10, 1996, and is
available upon written or oral request to Karl A. Stewart, Vice President and
Secretary, Tenneco Inc., 1275 King Street, Greenwich, Connecticut 06831,
telephone (203) 863-1000.
iv
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents heretofore filed with the Commission by Tenneco
pursuant to the Exchange Act are incorporated by reference into this Prospectus
and shall be deemed to be a part hereof:
(a) Tenneco's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, as amended by Tenneco's Form 10-K/A dated August 27,
1996;
(b) Tenneco's Quarterly Reports on Form 10-Q for the fiscal quarters
ended March 31, 1996 and June 30, 1996;
(c) Tenneco's Definitive Proxy Statement for the Annual Meeting of
Stockholders held on May 14, 1996; and
(d) Tenneco's Current Reports on Form 8-K dated November 17, 1995,
February 2, 1996, March 21, 1996, June 6, 1996, June 19, 1996, and November
6, 1996.
All documents subsequently filed by Tenneco and New Tenneco pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of the offering of the securities
offered hereby shall be deemed incorporated in this Prospectus by reference and
to be a part of this Prospectus from the date of the filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein, or in any other subsequently filed document that also is incorporated
or deemed to be incorporated by reference herein, modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
Subject to the foregoing, all information appearing in this Prospectus is
qualified in its entirety by the information appearing in the documents
incorporated herein by reference.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WITH RESPECT TO TENNECO
THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (EXCLUDING
EXHIBITS THERETO, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE INTO SUCH DOCUMENTS) ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON,
INCLUDING ANY BENEFICIAL OWNER OF OLD SECURITIES, TO WHOM THIS PROSPECTUS IS
DELIVERED, UPON WRITTEN OR ORAL REQUEST TO KARL A. STEWART, VICE PRESIDENT AND
SECRETARY, TENNECO INC., 1275 KING STREET, GREENWICH, CONNECTICUT 06831,
TELEPHONE (203) 863-1000. TO ENSURE TIMELY DELIVERY OF SUCH DOCUMENTS, ANY
REQUEST SHOULD BE MADE BY DECEMBER 3, 1996.
v
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION..................................................... iv
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE......................... v
SUMMARY................................................................... 1
RISK FACTORS.............................................................. 22
Risk Factors Relating to Holders Tendering in the Exchange Offers....... 22
Risk Factors Relating to Holders Not Tendering in the Exchange Offers... 24
THE EXCHANGE OFFERS....................................................... 27
Terms of the Exchange Offers............................................ 27
The Consent Solicitation................................................ 28
Expiration Time; Extensions; Termination; Amendments.................... 28
Effect of Tender........................................................ 29
Acceptance of Old Securities Tendered for Exchange; Delivery of New Se-
curities............................................................... 30
Procedures for Tendering Old Securities for Exchange and Giving Con-
sents.................................................................. 30
Conditions to the Exchange Offers....................................... 34
Withdrawal Rights....................................................... 36
Dealer Manager.......................................................... 36
Exchange Agent.......................................................... 37
Information Agent....................................................... 37
Trustee ................................................................ 37
Fees and Expenses....................................................... 37
MARKET AND TRADING INFORMATION............................................ 38
ACCOUNTING TREATMENT OF THE EXCHANGE OFFERS............................... 40
THE PROPOSED AMENDMENTS................................................... 40
DESCRIPTION OF THE NEW SECURITIES......................................... 49
General................................................................. 49
New Securities.......................................................... 49
Certain Covenants of New Tenneco........................................ 52
Consolidation, Merger and Sale of Assets................................ 55
Events of Default....................................................... 55
Modification of the New Indenture....................................... 56
Defeasance and Covenant Defeasance...................................... 56
The New Trustee......................................................... 57
Global Securities....................................................... 57
Physical Securities..................................................... 57
Book-Entry System....................................................... 57
DESCRIPTION OF THE TRANSACTION............................................ 59
THE NPS ISSUANCE.......................................................... 60
DEBT AND CASH REALIGNMENT................................................. 60
Debt Realignment........................................................ 61
Capital Expenditure Adjustment.......................................... 62
Cash Realignment ....................................................... 63
CORPORATE RESTRUCTURING TRANSACTIONS ..................................... 63
THE DISTRIBUTIONS......................................................... 65
Manner of Distribution.................................................. 65
Certain Other Pre-Distribution Transactions............................. 65
Relationship Among Tenneco, New Tenneco and Newport News After the Dis-
tributions............................................................. 65
Conditions to Consummation of the Distributions......................... 70
Amendment or Termination of the Distribution Agreement.................. 71
</TABLE>
vi
<PAGE>
TABLE OF CONTENTS (CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE MERGER................................................................ 72
General................................................................. 72
Effects of the Merger................................................... 72
Certain Other Pre-Merger Transactions .................................. 72
El Paso Guaranty of Tenneco Performance................................. 73
Employee Benefits ...................................................... 73
Conditions Precedent.................................................... 74
Amendment or Termination of the Merger Agreement........................ 75
Waiver.................................................................. 76
Termination Fee......................................................... 76
Consulting Arrangement.................................................. 77
THE CHARTER AMENDMENT..................................................... 77
DESCRIPTION OF NEW TENNECO................................................ 78
Introduction............................................................ 78
Business Strategy....................................................... 78
Tenneco Automotive...................................................... 80
Tenneco Packaging....................................................... 88
Tenneco Business Services............................................... 94
Properties.............................................................. 94
Environmental Matters................................................... 95
Legal Proceedings....................................................... 96
New Tenneco Credit Facility............................................. 96
Management.............................................................. 97
Capitalization.......................................................... 111
Unaudited Pro Forma Combined Financial Statements of New Tenneco........ 112
Combined Selected Financial Data........................................ 118
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 120
DESCRIPTION OF TENNECO.................................................... 135
Capitalization ......................................................... 136
Unaudited Pro Forma Consolidated Financial Statements of Tenneco........ 137
Consolidated Selected Financial Data.................................... 145
DESCRIPTION OF TENNECO ENERGY............................................. 147
General................................................................. 147
Interstate Pipeline Operations.......................................... 147
Gas Marketing, Intrastate Pipelines and Related Services................ 151
International, Power Generation and Ventures............................ 152
Discontinued and Other Operations....................................... 153
Employees............................................................... 153
Properties.............................................................. 153
Operation of the Energy Business After the Merger....................... 153
Environmental Matters .................................................. 154
Legal Proceedings....................................................... 156
Tenneco Credit Facility................................................. 157
Management After the Transaction........................................ 158
Executive Officers and Directors........................................ 158
Combined Selected Financial Data ....................................... 159
Management's Discussion and Analysis of Financial Condition and Results
of Operations of the Energy Business................................... 160
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS............................ 169
General................................................................. 169
Tax Considerations for Holders Who Tender in the Exchange Offers........ 169
Tax Considerations for Holders Who Do Not Tender in the Exchange Offers. 170
Backup Withholding...................................................... 170
LEGAL MATTERS............................................................. 170
EXPERTS................................................................... 171
INDEX TO COMBINED FINANCIAL STATEMENTS AND SCHEDULES...................... F-1
</TABLE>
vii
<PAGE>
SUMMARY
New Tenneco has announced its offer to exchange the New Securities set forth
below for any and all of the Old Securities set forth below and its
solicitation of Consents with respect to the Old Securities upon the terms and
subject to the conditions set forth herein. Morgan Stanley has been named
exclusive Dealer Manager for the Exchange Offers (including the Consent
Solicitation). For your convenience, the Exchange Offers are summarized below.
The following summary is not intended to be complete and is qualified in its
entirety by reference to the more detailed information included or incorporated
by reference in this Prospectus. Holders of Old Securities are urged to read
carefully this Prospectus and the documents incorporated by reference in their
entirety.
THE EXCHANGE OFFERS
THE EXCHANGE OFFERS: New Tenneco is offering to exchange the New
Securities described below for the Old Securities
described below:
<TABLE>
<CAPTION>
OUTSTANDING THE EXCHANGING HOLDERS WILL RECEIVE
AGGREGATE $1,000
PRINCIPAL FOR EACH $1,000 PRINCIPAL AMOUNT PRINCIPAL AMOUNT OF THE FOLLOWING NEW
CUSIP NO. AMOUNT OF THE FOLLOWING OLD SECURITIES: SECURITIES:
- --------- ------------ --------------------------------------- --------------------------------------
<S> <C> <C> <C>
880370BN0 $300,000,000 6 1/2% Notes due December 15, 2005 6.70% Notes due December 15, 2005
("Old 6 1/2% Notes due 2005") ("New 6.70% Notes due 2005")
880370BP5 $300,000,000 7 1/4% Debentures due December 15, 2025 7.45% Debentures due December 15, 2025
("Old 7 1/4% Debentures due 2025") ("New 7.45% Debentures due 2025")
880370BK6 $500,000,000 7 7/8% Notes due October 1, 2002 8.075% Notes due October 1, 2002
("Old 7 7/8% Notes due 2002") ("New 8.075% Notes due 2002")
880370BL4 $250,000,000 8% Notes due November 15, 1999 8.20% Notes due November 15, 1999
("Old 8% Notes due 1999") ("New 8.20% Notes due 1999")
880370BM2 $150,000,000 9% Debentures due November 15, 2012 9.20% Debentures due November 15, 2012
("Old 9% Debentures due 2012") ("New 9.20% Debentures due 2012")
880370BH3 $200,000,000 9 7/8% Notes due February 1, 2001 10.075% Notes due March 15, 2001
("Old 9 7/8% Notes due 2001") ("New 10.075% Notes due 2001")
880370BF7 $250,000,000 10% Debentures due March 15, 2008 10.20% Debentures due March 15, 2008
("Old 10% Debentures due 2008") ("New 10.20% Debentures due 2008")
</TABLE>
After consummation of the Exchange Offers, New
Tenneco, which will then consist of the
automotive and packaging businesses of Tenneco,
will be the sole obligor on the New Securities,
and exchanging holders will look exclusively to
the businesses and operations of New Tenneco for
the repayment of the principal and interest on
the New Securities, rather than to the
consolidated operations of Tenneco prior to the
Distribution. See "Risk Factors--Risk Factors
Relating to Holders Tendering in the
Exchange Offers," "Description of New Tenneco"
(including "--Management's Discussion of
Financial Condition and Results of Operations"
and "--Unaudited Pro Forma Combined Financial
Statements of New Tenneco") and the Combined
Financial Statements of New Tenneco included
elsewhere herein.
The terms of each series of New Securities will
be substantially the same in all material
respects as the terms of the corresponding series
of Old Securities, except that (i) the New
Securities will be issued by New Tenneco, (ii)
the interest rate on each series of New
Securities will be higher than the interest rate
on each corresponding series of Old Securities as
set forth herein, and (iii) the New Indenture (as
defined) contains a negative pledge covenant,
events of default and other provisions which
differ, in certain respects, from
1
<PAGE>
the corresponding provisions in the indenture
under which the Old Securities were issued. See
"Description of the New Securities."
Also as part of the Debt Realignment, Tenneco is
making offers (under separate cover) to purchase
for cash (the "Cash Tender Offers") certain debt
securities of Tenneco and its subsidiaries,
Tennessee Gas Pipeline Company ("Tennessee") and
Tenneco Credit Corporation ("TCC"), and in
connection therewith is soliciting consents to
certain amendments to the indentures under which
such securities were issued. The Tenneco debt
securities that are the subject of Cash Tender
Offers (the "Other Securities") were issued under
the same indenture as the Old Securities. To
tender Other Securities pursuant to the Cash
Tender Offers, the holders thereof will be
required to consent to the Proposed Amendments.
The Cash Tender Offers are not being made
pursuant to this Prospectus. The Cash Tender
Offers, when commenced, will only be made by
means of a separate offer to purchase and consent
solicitation. In addition, the Debt Realignment
contemplates the redemption, payment, prepayment
and defeasance of other indebtedness issued by
Tennessee and TCC.
EXPIRATION TIME: Each of the Exchange Offers shall expire at 5:00
p.m., New York City time, on Tuesday, December
10, 1996, unless extended by New Tenneco in its
sole discretion (such date and time or the latest
date and time to which an Exchange Offer is
extended being referred to herein as the
"Expiration Time" for such Exchange Offer) or
earlier terminated. See "The Exchange Offers--
Expiration Time; Extensions; Termination;
Amendments."
ISSUANCE DATE; EXCHANGE Upon the terms and subject to the conditions of
DATE: the Exchange Offers (including, if any Exchange
Offer is extended or amended, the terms and
conditions of any such extension or amendment)
and applicable law, New Tenneco will accept for
exchange Old Securities validly tendered (and not
withdrawn) at or prior to the Expiration Time
pursuant to an Exchange Offer and thereafter will
acquire such Old Securities by issuing New
Securities in exchange therefor on the first NYSE
trading day following the applicable Expiration
Time, (i.e., the Issuance Date). Such New
Securities will be delivered to the Exchange
Agent, which will deliver the New Securities to
the holders of tendered and accepted Old
Securities on the third NYSE trading day
following the applicable Expiration Time or as
soon thereafter as practicable (i.e., the
Exchange Date). See "The Exchange Offers--
Acceptance of Old Securities Tendered for
Exchange; Delivery of New Securities."
INTEREST ON NEW SECURITIES; Interest on the New Securities issued in exchange
ACCRUED INTEREST ON OLD for the Old Securities will accrue from, and
SECURITIES: including, the applicable Issuance Date at the
applicable interest rate on such New Securities.
Interest on Old Securities exchanged in an
Exchange Offer will continue to accrue up to, but
excluding, the applicable Issuance Date and will
be paid in cash in immediately available same-day
funds concurrently with the delivery of New
Securities; provided, however, that if the
Issuance Date for any series of Old Securities
occurs before an interest
2
<PAGE>
payment date for such series of Old Securities
but after the record date relating to such
interest payment date, then Tenneco (rather than
New Tenneco) will pay accrued interest up to, but
excluding, the applicable Issuance Date on such
series of Old Securities to the holders of such
Old Securities as of such record date on the
applicable Issuance Date (rather than on the
regularly scheduled interest payment date). See
"The Exchange Offers--Acceptance of Old
Securities Tendered for Exchange; Delivery of New
Securities."
PROCEDURES FOR Holders will not be entitled to participate in
TENDERING SECURITIES the Exchange Offers unless they tender their Old
AND GIVING CONSENTS: Securities and deliver Consents to the Proposed
Amendments with respect to such Old Securities.
THE TENDER OF OLD SECURITIES PURSUANT TO THE
EXCHANGE OFFERS WILL CONSTITUTE THE GIVING OF A
CONSENT TO THE PROPOSED AMENDMENTS WITH RESPECT
TO SUCH OLD SECURITIES.
Any beneficial owner whose Old Securities are
held of record by a custodian bank, depositary,
broker, trust company or other nominee and who
wishes to exchange Old Securities should promptly
instruct such record holder to tender such Old
Securities on the beneficial owner's behalf
according to one of the procedures described
below.
TENDER OF OLD SECURITIES HELD WITH DTC. Pursuant
to authority granted by The Depository Trust
Company ("DTC"), any DTC participant that has Old
Securities credited to its DTC account may
directly tender such Old Securities as if it were
the record holder thereof (and references herein
to registered or record holders shall include
such participants) by (i) effecting a book-entry
transfer of all Old Securities to be tendered in
the Exchange Offers into the account of The Chase
Manhattan Bank (the "Exchange Agent") at DTC, and
(ii) either (a) effecting an Agent's Message (as
defined), or (b) completing and signing the
Letter of Transmittal in accordance with the
instructions set forth therein and delivering
such properly completed and signed Letter of
Transmittal, together with any signature
guarantees and other documents required thereby,
to the Exchange Agent at its address set forth on
the back cover page of this Prospectus.
DTC participants may, in lieu of physically
completing, signing and delivering to the
Exchange Agent the Letter of Transmittal,
electronically transmit their acceptance of any
Exchange Offer (and thereby provide their Consent
to the Proposed Amendments) through the DTC
Automated Cash Tender Offer Program ("ATOP") by
causing DTC to transfer Old Securities to the
Exchange Agent's DTC account in accordance with
DTC's ATOP procedures for transfer. DTC will then
send an Agent's Message to the Exchange Agent.
The term "Agent's Message" means a message
transmitted by DTC to, and received by, the
Exchange Agent and forming a part of the book-
entry confirmation, which states that DTC has
received an express acknowledgement from a DTC
participant tendering Old Securities that such
participant has received and agrees to be bound
3
<PAGE>
by the terms of the Letter of Transmittal
(including, without limitation, the fact that
such participant has consented to the Proposed
Amendments in accordance with the terms of such
Letter of Transmittal) and that each of New
Tenneco and Tenneco may enforce such agreement
against such participant.
BOOK-ENTRY DELIVERY PROCEDURES FOR HOLDERS
TENDERING OLD SECURITIES HELD WITH DTC. The
Exchange Agent will establish accounts with
respect to the Old Securities at DTC for purposes
of the Exchange Offers. Any participant in DTC
may make book-entry delivery of Old Securities by
causing DTC to transfer Old Securities into the
Exchange Agent's account in accordance with DTC's
procedure for such transfer. DTC will then send
an Agent's Message to the Exchange Agent. Timely
book-entry delivery of Old Securities pursuant to
the Exchange Offers requires receipt of a book-
entry confirmation by the Exchange Agent at or
prior to the applicable Expiration Time. However,
although delivery of Old Securities may be
effected through book-entry transfer into the
Exchange Agent's account at DTC, an Agent's
Message in connection with a book-entry transfer
or a properly completed Letter of Transmittal (or
facsimile thereof), together with any signature
guarantees and any other documents required
thereby, must, in any case, be delivered to and
received by the Exchange Agent at or prior to the
applicable Expiration Time. Delivery of documents
to DTC does not constitute delivery to the
Exchange Agent.
TENDER OF OLD SECURITIES HELD IN PHYSICAL FORM. A
holder of Old Securities held in physical form
must comply with the following instructions to
tender Old Securities in any of the Exchange
Offers: (i) complete and sign the Letter of
Transmittal in accordance with the instructions
set forth therein; and (ii) deliver the properly
completed and duly executed Letter of
Transmittal, together with any required signature
guarantees and other documents required thereby,
and the Old Securities covered thereby in
physical form to the Exchange Agent at the
address set forth on the back cover page of this
Prospectus at or prior to the applicable
Expiration Time.
LETTERS OF TRANSMITTAL AND OLD SECURITIES IN
PHYSICAL FORM MUST BE SENT ONLY TO THE EXCHANGE
AGENT. DO NOT SEND LETTERS OF TRANSMITTAL OR
PHYSICAL SECURITIES TO TENNECO, NEW TENNECO, THE
INFORMATION AGENT, DTC OR THE DEALER MANAGER. THE
METHOD OF DELIVERY OF SUCH DOCUMENTS TO THE
EXCHANGE AGENT, INCLUDING DELIVERY THROUGH DTC
AND ANY ACCEPTANCE OF AN AGENT'S MESSAGE
TRANSMITTED THROUGH ATOP, IS AT THE ELECTION AND
RISK OF THE HOLDER TENDERING THE OLD SECURITIES.
IT IS RECOMMENDED THAT HOLDERS TENDERING THEIR
OLD SECURITIES IN PHYSICAL FORM DELIVER SUCH OLD
SECURITIES TO THE EXCHANGE AGENT AT THE ADDRESS
SET FORTH ON THE BACK COVER PAGE OF THIS
PROSPECTUS BY REGISTERED INSURED MAIL.
4
<PAGE>
GUARANTEED DELIVERY Holders of Old Securities who wish to tender
PROCEDURES: their Old Securities and (i) whose Old Securities
are not immediately available, (ii) who cannot
deliver certificates representing their Old
Securities, the Letter of Transmittal or any
other required documents to the Exchange Agent,
or (iii) who cannot complete the procedures for
book-entry delivery of Old Securities, at or
prior to the Expiration Time must tender their
Old Securities according to the guaranteed
delivery procedures set forth herein at or prior
to the Expiration Time. See "The Exchange
Offers--Procedures for Tendering Old Securities
for Exchange and Giving Consents--Guaranteed
Delivery Procedures."
THE CONSENT
SOLICITATION: As part of the Exchange Offers, New Tenneco, on
behalf of Tenneco, is soliciting Consents from
the holders of Old Securities to the Proposed
Amendments. As part of the Cash Tender Offers,
Tenneco is soliciting Consents from the holders
of the Other Securities to the Proposed
Amendments. See "The Exchange Offers--The Consent
Solicitation" and "The Proposed Amendments."
Unless the context otherwise requires, all
references herein to an Exchange Offer shall be
deemed to include the Consent Solicitation. THE
PROPER TENDER OF OLD SECURITIES FOR EXCHANGE
PURSUANT TO ONE OF THE PROCEDURES SET FORTH
HEREIN WILL CONSTITUTE THE GIVING OF A CONSENT
WITH RESPECT TO SUCH OLD SECURITIES.
The Old Securities and Other Securities were
issued pursuant to an indenture, dated as of
March 15, 1988 (the "Old Indenture"), between
Tenneco and The Chase Manhattan Bank, as trustee
(the "Old Trustee"). Tenneco and the Old Trustee
intend to execute a supplemental indenture to the
Old Indenture (the "Supplemental Indenture"),
providing for the Proposed Amendments, which will
become operative after receipt of the Requisite
Consents (as defined) and upon acceptance for
exchange or payment, as the case may be, of the
Old Securities and/or the Other Securities
relating to such Consents.
REQUISITE CONSENTS: Consents of registered holders of a majority of
the outstanding aggregate principal amount of the
Old Securities and the Other Securities (which
together constitute all the issued and
outstanding securities under the Old Indenture)
are required (the "Requisite Consents") to amend
the Old Indenture (the "Minimum Tender
Condition").
PROPOSED AMENDMENTS: (i) Addition of provisions to the Old Indenture
that would specifically permit Tenneco to
consummate the Distributions and the
transactions contemplated thereby without
compliance with a covenant that, if held to
apply, might otherwise require each of New
Tenneco and Newport News to become a co-
obligor of securities issued under the Old
Indenture in connection therewith (the
application of which New Tenneco and Tenneco
believe, in any event, is uncertain in these
circumstances);
5
<PAGE>
(ii) Modification of the covenant restricting
Tenneco from granting liens on its
properties to (A) apply only the principal
properties of Tenneco and its subsidiaries
located in the United States and Canada
(rather than all properties and assets
wherever located), (B) permit Tenneco to
grant liens on its properties to secure the
costs of improvements to such properties,
(C) increase the amount of debt that may be
secured by a lien on Tenneco's properties to
15% of the consolidated net tangible assets
of Tenneco and (D) specifically exclude any
liens on Tenneco's properties in existence
on the date of execution of the Supplemental
Indenture;
(iii) Elimination of the provisions whereby a
default by Tenneco or one or more of its
subsidiaries is under other obligations for
borrowed money would be an event of default
under the Indenture; and
(iv) Modification of the Satisfaction and
Discharge provision to allow defeasance of
the Old Securities (i.e. the satisfaction of
Tenneco's obligations under the Indenture by
depositing all amounts to become due and
payable thereunder in trust) within one year
of maturity.
If the Proposed Amendments become effective with
respect to the Old Indenture, they will apply to
all Old Securities issued under the Old
Indenture, and each holder of such Old Securities
not tendered or accepted for exchange pursuant to
the Exchange Offers will be bound by the Proposed
Amendments regardless of whether such holder
consented to the Proposed Amendments.
CERTAIN CONDITIONS Notwithstanding any other provision of the
PRECEDENT TO THE Exchange Offers (or any extensions or amendments
EXCHANGE OFFERS: thereof), New Tenneco will not be required to
accept any Old Securities tendered for exchange
or issue any New Securities in exchange therefor,
and may terminate any Exchange Offer, if, among
other things:
(i) the Minimum Tender Condition shall not have
been satisfied;
(ii) all conditions to the Cash Tender Offers
shall not have been satisfied; or
(iii) any material condition to the consummation
of the Distributions or the Merger remains
unsatisfied (including the approval of the
Transaction by Tenneco stockholders as more
fully described herein). See "The Exchange
Offers--Conditions to the Exchange Offers."
WAIVERS; EXTENSIONS; New Tenneco also expressly reserves the right, in
AMENDMENTS: its sole discretion, subject to applicable law,
at any time or from time to time, to (i) waive
any condition to any Exchange Offer and accept
all Old Securities previously tendered for
exchange pursuant to such Exchange Offer, (ii)
extend the Expiration Time of any of the Exchange
Offers and retain all Old Securities tendered for
exchange pursuant thereto subject, however, to
the withdrawal rights of
6
<PAGE>
holders as described under "The Exchange Offers--
Withdrawal Rights," and/or (iii) amend the terms
of any of the Exchange Offers. Any amendment
applicable to any of the Exchange Offers will
apply to all Old Securities of the same series
tendered pursuant to such Exchange Offer. See
"The Exchange Offers--Expiration Time;
Extensions; Termination; Amendments."
WITHDRAWAL RIGHTS AND
REVOCATION OF Tenders of Old Securities for exchange may be
CONSENTS: withdrawn at any time at or prior to the
applicable Expiration Time by following the
procedures described herein, but are thereafter
irrevocable unless the related Exchange Offer is
terminated without any Old Securities being
accepted for exchange thereunder. A proper
withdrawal of tendered Old Securities at or prior
to the applicable Expiration Time shall be deemed
a revocation of the related Consent. See "The
Exchange Offers--The Consent Solicitation" and
"The Exchange Offers--Withdrawal Rights."
DEALER MANAGER: Morgan Stanley & Co. Incorporated.
EXCHANGE AGENT: The Chase Manhattan Bank.
INFORMATION AGENT: Georgeson & Company Inc.
7
<PAGE>
TERMS OF THE NEW SECURITIES
The terms of each series of New Securities will be substantially the same in
all material respects as the terms of the corresponding series of Old
Securities except that (i) the New Securities will be issued by New Tenneco,
(ii) the interest rate on each series of New Securities will be higher than the
interest rate on each corresponding series of Old Securities as set forth
herein, and (iii) the New Indenture contains a negative pledge covenant, events
of default and other provisions which differ, in certain respects, from the
corresponding provisions in the Old Indenture. See "Description of the New
Securities."
ISSUER: New Tenneco Inc. (to be renamed Tenneco Inc.).
RANKING:
The New Securities will be senior unsecured
obligations of New Tenneco and will rank pari
passu with all existing and future senior
unsecured indebtedness of New Tenneco. New
Tenneco currently has no securities outstanding
that are senior or subordinated to the New
Securities.
NEW SECURITIES
<TABLE>
<CAPTION>
SERIES OF NEW SECURITIES INTEREST PAYMENT DATES
------------------------ --------------------------------------------------
<S> <C>
New 6.70% Notes due 2005 payable semi-annually on June 15 and December 15
each year, commencing June 15, 1997
New 7.45% Debentures due payable semi-annually on June 15 and December 15
2025 each year, commencing June 15, 1997
New 8.075% Notes due 2002 payable semi-annually on April 1 and October 1
each year, commencing April 1, 1997
New 8.20% Notes due 1999 payable semi-annually on May 15 and November 15
each year, commencing May 15, 1997
New 9.20% Debentures due payable semi-annually on May 15 and November 15
2012 each year, commencing May 15, 1997
New 10.075% Notes due 2001 payable semi-annually on February 1 and August 1
each year, commencing February 1, 1997
New 10.20% Debentures due payable semi-annually on March 15 and September 15
2008 each year, commencing March 15, 1997
</TABLE>
OPTIONAL REDEMPTION: The New 6.70% Notes due 2005 will be redeemable
at the option of New Tenneco prior to maturity at
a redemption price equal to the greater of (i)
100% of their principal amount and (ii) the sum
of the present values of the remaining scheduled
payments of principal and interest thereon
discounted to the date of redemption on a
semiannual basis at the Treasury Yield (as
defined herein) plus 10 basis points, plus in
each case accrued interest to the date of
redemption. The other series of New Securities
are not redeemable at the option of New Tenneco
prior to maturity.
The registered holder of each New 10.20%
Debenture due 2008 may elect to have that
Debenture repaid on March 15, 1998 at 100% of its
principal amount together with interest payable
to the date of repayment. Such election, which is
irrevocable when made, must be made within the
period commencing on January 15, 1998 and ending
at the close of business on February 15, 1998.
For more detailed information regarding the New Securities, see "Description of
the New Securities."
8
<PAGE>
THE COMPANIES
Unless the context otherwise requires, as used herein (i) the term "New
Tenneco" refers to (A) New Tenneco Inc. (to be renamed Tenneco Inc. upon
consummation of the Merger) and its subsidiaries, for all periods after
consummation of the Distributions, and (B) the entities through which Tenneco
and its subsidiaries operated the Industrial Business (as defined), for all
periods prior to consummation of the Distributions; and (ii) the term "Tenneco"
refers to (A) the entity surviving the Merger (to be renamed El Paso Tennessee
Pipeline Co. upon consummation of the Merger) and its subsidiaries, for all
periods after consummation of the Merger, and (B) Tenneco Inc. and its
subsidiaries, for all periods prior to consummation of the Merger. See "Risk
Factors" for a discussion of certain factors that should be considered in
connection with the Exchange Offers.
TENNECO PRIOR TO THE TRANSACTION
Tenneco is a diversified industrial company conducting all of its operations
through its subsidiaries. The major businesses of Tenneco presently consist of
(i) the interstate and intrastate transportation and marketing of natural gas,
(ii) the manufacture and sale of automotive exhaust and ride control systems,
(iii) the manufacture and sale of packaging materials, cartons, containers and
specialty packaging products for consumer, institutional and industrial
markets, and (iv) the design, construction, repair, and overhauling of ships
(primarily nuclear-powered aircraft carriers and submarines for the United
States Navy).
In 1987, Tenneco was incorporated in Delaware and acquired all of the
outstanding shares of Tennessee Gas Pipeline Company (which at the time was
named Tenneco Inc.). Tenneco's principal executive offices are located at 1275
King Street, Greenwich, Connecticut 06831, and its telephone number at that
address is (203) 863-1000. For further information concerning Tenneco, see "--
Summary Historical and Pro Forma Consolidated Financial Data of Tenneco,"
"Available Information," "Incorporation of Certain Information by Reference"
and "Description of Tenneco."
NEW TENNECO
New Tenneco is a newly formed Delaware corporation which, upon completion of
the Distributions, will be an independent, publicly held company (symbol
"TEN"). New Tenneco will own and operate the assets of, and will assume the
liabilities associated with, the Tenneco Automotive business ("Tenneco
Automotive"), the Tenneco Packaging business ("Tenneco Packaging") and
Tenneco's administrative services business ("TBS" and, collectively with
Tenneco Automotive and Tenneco Packaging, the "Industrial Business"). Upon
consummation of the Merger, New Tenneco will change its name to Tenneco Inc.
Although the separation of the Industrial Business from the remainder of the
businesses, operations and companies currently constituting the "Tenneco Group"
has been structured as a "spin-off" of New Tenneco for legal, tax and other
reasons, New Tenneco will succeed to certain important aspects of the existing
Tenneco business, organization and affairs, namely: (i) New Tenneco will be
renamed "Tenneco Inc." upon the consummation of the Merger; (ii) New Tenneco
will be headquartered at Tenneco's current headquarters in Greenwich,
Connecticut; (iii) New Tenneco's Board of Directors will consist of those
persons currently constituting the Tenneco Board of Directors; (iv) New
Tenneco's executive management will consist substantially of the current
Tenneco executive management; and (v) the Industrial Business to be conducted
by New Tenneco will consist largely of Tenneco Automotive and Tenneco
Packaging.
Tenneco Automotive is one of the world's leading manufacturers of automotive
exhaust and ride control systems for both the original equipment market and the
replacement market, or aftermarket. Tenneco Automotive is a global business
that sells its products in over 100 countries. Tenneco Automotive manufactures
and markets its automotive exhaust systems primarily under the Walker(R) brand
name and its ride control systems primarily under the Monroe(R) brand name.
9
<PAGE>
Tenneco Packaging is among the world's leading and most diversified packaging
companies, manufacturing packaging products for consumer, institutional and
industrial markets. The paperboard business group manufactures corrugated
containers, folding cartons and containerboard, has a joint venture in recycled
paperboard, and offers high value-added products such as enhanced graphics
packaging and displays and kraft honeycomb products. Its specialty products
group produces disposable aluminum, foam and clear plastic food containers,
molded fiber and pressed paperboard products, as well as polyethylene bags and
industrial stretch wrap. Tenneco Packaging's consumer products include such
recognized brand names as Hefty(R), Baggies(R) and E-Z Foil(R).
Tenneco's administrative services business--TBS--designs, implements and
administers shared administrative service programs for the Tenneco businesses
as well as, on an "as requested" basis, for former Tenneco business entities.
New Tenneco's principal executive offices are located at 1275 King Street,
Greenwich, Connecticut 06831 and its telephone number at that address is (203)
863-1000. See "Description of New Tenneco."
TENNECO AFTER GIVING EFFECT TO THE TRANSACTION
General. Under the terms of the Merger, after the Distributions an indirect
wholly owned subsidiary of El Paso will be merged with and into Tenneco, which
will then consist only of the assets, liabilities and operations of Tenneco and
its subsidiaries other than those relating to the Industrial Business or
Tenneco's shipbuilding business (the "Shipbuilding Business") (collectively,
"Tenneco Energy" or the "Energy Business"). Upon consummation of the Merger
Tenneco will change its name to "El Paso Tennessee Pipeline Co."
The Energy Business as currently conducted consists principally of the
interstate transportation of natural gas, as well as certain other related
business operations not generally subject to regulation by the Federal Energy
Regulatory Commission (the "FERC"), such as gas marketing, intrastate pipeline
operations, international pipelines and power generation, domestic power
generation operations and oil and gas ventures. The Energy Business also
includes certain assets and liabilities of Tenneco and its subsidiaries that do
not relate to the Industrial Business or Shipbuilding Business, including those
business operations that have been discontinued or sold. See "Risk Factors--
Risk Factors Relating to Holders Not Tendering in the Exchange Offers--
Liabilities of Tenneco Energy for Discontinued Businesses."
Tenneco Energy's principal interstate pipeline operations consist of the
pipeline systems of Tennessee and its wholly owned subsidiaries, Midwestern Gas
Transmission Company ("Midwestern") and East Tennessee Natural Gas Company
("East Tennessee"). The interstate systems, which include approximately 16,300
miles of pipeline, gathering lines and sales laterals, serve markets located
primarily in the Eastern United States. Tenneco Energy Resources Corporation, a
wholly owned subsidiary of Tenneco, and its subsidiaries operate approximately
1,300 miles of intrastate pipelines serving the Texas Gulf Coast and West Texas
markets. Tenneco Energy's businesses include buying, selling, storing,
processing and transporting natural gas and price risk management services.
Also, Tenneco Energy is engaged in various international energy-related
projects, invests in oil and gas properties and finances independent producers
engaged in exploration and development projects. See "--Summary Historical and
Pro Forma Consolidated Financial Data of Tenneco" and "Description of Tenneco
Energy."
Operation of Tenneco After the Merger. El Paso is currently engaged in a
comprehensive review of the business and operations of Tenneco Energy.
Following the completion of such review and consummation of the Merger, El Paso
has indicated that it plans to integrate, for the most part, the operations of
Tenneco Energy with those of El Paso in order to increase operating and
administrative efficiency through consolidation and reengineering of
facilities, workforce reductions and coordination of purchasing, sales and
marketing activities. El Paso has indicated that it anticipates that the
complementary interstate and intrastate pipeline operations and
10
<PAGE>
gas marketing activities of El Paso and Tenneco Energy should provide the
combined company with increased operating flexibility and access to additional
customers and markets. However, no assurance can be given as to whether, or to
what extent, the operations of Tenneco Energy as a subsidiary of El Paso will
differ from the operations of Tenneco Energy as a part of Tenneco. See "Risk
Factors." Following consummation of the Transaction, it is expected that
Tenneco Energy's principal executive offices will be located at 1010 Milam
Street, Houston, Texas, and its telephone number at that address will be (713)
757-2131.
El Paso has indicated that it intends to undertake various transactions with
respect to the Energy Business (the "Refinancing Transactions") in order to
reduce the amount of Tenneco debt that would otherwise be outstanding after
consummation of the Transaction including (i) the monetization of certain
assets of the Energy Business for anticipated net proceeds of approximately
$500 million, and (ii) a public equity offering by El Paso of approximately
$200 million and the use of the net proceeds thereof to purchase a subordinated
series of preferred stock (the "Subordinated Tenneco Preferred Stock") from
Tenneco. The cash proceeds received by Tenneco from El Paso's purchase of the
Subordinated Tenneco Preferred Stock will be used by Tenneco to repay a portion
of its post-Transaction debt. In addition, as market conditions allow, El Paso
may refinance Tenneco's remaining post-Transaction debt through the sale of
senior debt of Tenneco and/or Tennessee. See "Risk Factors--Risk Factors
Relating to Holders Not Tendering in the Exchange Offers--Uncertainty Regarding
Consummation of Refinancing Transactions" and "Description of Tenneco--
Unaudited Pro Forma Consolidated Financial Statements."
El Paso has reached, contingent upon consummation of the Merger and various
other conditions (including approval by the FERC), a preliminary understanding
with certain of Tennessee's customers regarding the customers' challenges to
Tennessee's ability to recover various gas supply realignment ("GSR") and other
costs from its customers (the "El Paso Preliminary GSR Understanding"). See
"Description of Tenneco Energy--Operation of the Energy Business After the
Merger--Proposed Post-Merger Resolution of GSR Transition Cost Disputes."
DESCRIPTION OF THE TRANSACTION
For the past several years, Tenneco has been undergoing a corporate
transformation from a highly diversified industrial corporation to a global
manufacturing company focused on its automotive and packaging businesses. The
Transaction, of which the Exchange Offers are one component, is designed to
complete this process. Consummation of the Transaction is conditioned upon,
among other things, the approval by Tenneco stockholders of the Transaction.
The Transaction will be submitted as a single, unified proposal at the Tenneco
Special Meeting, presently scheduled to be held on December 10, 1996.
The following sets forth the principal transactions which constitute part of,
and will be undertaken to consummate, the Transaction.
. New Preferred Stock Issuance. Tenneco will issue (the "NPS Issuance") in
a registered public offering shares of one or more new series of its
junior preferred stock (the "Tenneco Junior Preferred Stock") in an
amount calculated, to the extent possible, to have an aggregate value
equal to approximately 25% of the total value of all shares of Tenneco
capital stock outstanding as of the effective time of the Merger (the
"Merger Effective Time"). Holders of Tenneco Junior Preferred Stock will
have the right to elect one-sixth of the Board of Directors of Tenneco.
The proceeds (the "NPS Issuance Proceeds") to Tenneco from the sale of
the Tenneco Junior Preferred Stock in the NPS Issuance (which are
estimated to be approximately $275 million) will, net of underwriting
commissions and other expenses, be used to repay certain existing
indebtedness of Tenneco and certain of its subsidiaries in connection
with the Debt Realignment.
. Debt Realignment. Pursuant to the Debt Realignment, the indebtedness for
money borrowed of Tenneco and certain of its consolidated subsidiaries
(the "Tenneco Energy Consolidated Debt," which had a total
11
<PAGE>
book value of approximately $4,443 million at June 30, 1996) will be
restructured through the Exchange Offers and Cash Tender Offers, as well
as a series of payments, redemptions, prepayments and defeasances. The
Debt Realignment is intended to reduce the total amount of the Tenneco
Energy Consolidated Debt to an amount that, when added to the total
amount of certain other liabilities and obligations of Tenneco Energy
outstanding as of the Merger Effective Time (as so added, the "Actual
Energy Debt Amount," described more fully herein), equals $2.65 billion,
less the NPS Issuance Proceeds and subject to certain other adjustments
described herein (the "Base Debt Amount"). If the Actual Energy Debt
Amount varies from the Base Debt Amount, the amount of such variance will
be accounted for in a post-Transaction cash payment (the "Debt Cash
Adjustment") (i) from New Tenneco to Tenneco, in the event the Actual
Energy Debt Amount exceeds the Base Debt Amount, or (ii) from Tenneco to
New Tenneco, in the event the Actual Energy Debt Amount is less than the
Base Debt Amount. See "Debt and Cash Realignment." If the Debt
Realignment and other components of the Transaction had been consummated
on June 30, 1996, on a pro forma basis (assuming 100% acceptance of the
Exchange Offers), Tenneco and New Tenneco would have had indebtedness for
money borrowed of approximately $2,544 million ($1,844 million after
giving effect to the Refinancing Transactions) and $2,145 million,
respectively. See "Description of New Tenneco--Unaudited Pro Forma
Combined Financial Statements" and "Description of Tenneco--Unaudited Pro
Forma Consolidated Financial Statements."
. Corporate Restructuring Transactions. Tenneco and its subsidiaries will
undertake various intercompany transfers and distributions (collectively,
the "Corporate Restructuring Transactions") designed to restructure,
divide and separate their existing businesses and assets so that, upon
consummation of the Distributions, substantially all the assets,
liabilities and operations of (i) the Industrial Business will be
directly and indirectly owned and operated by New Tenneco, and (ii) the
Shipbuilding Business will be directly and indirectly owned and operated
by Newport News Shipbuilding Inc., a Delaware corporation which is
currently a wholly owned subsidiary of Tenneco ("Newport News"). See
"Corporate Restructuring Transactions."
. Cash Realignment. The total amount of cash and cash equivalents of
Tenneco and its consolidated subsidiaries (which, as of June 30, 1996,
totalled approximately $229 million) as of the Merger Effective Time will
be allocated $25 million to Tenneco (subject to certain adjustments), $5
million to Newport News and the balance to New Tenneco (the "Cash
Realignment"). See "Debt and Cash Realignment."
. The Charter Amendment. Prior to the Merger, Tenneco will file an
amendment (the "Charter Amendment") to eliminate specified rights, powers
and preferences of its junior preferred stock (certain of which may be
preserved or modified in the certificates of designation for the Tenneco
Junior Preferred Stock to be issued in the NPS Issuance) contained in the
Tenneco Certificate of Incorporation, as amended (the "Tenneco Charter").
. The Distributions. On the effective date of the Distributions (the
"Distribution Date"), Tenneco will distribute to all holders of Tenneco
common stock, par value $5.00 per share ("Tenneco Common Stock"), of
record as of the close of business on a record date to be specified by
the Tenneco Board of Directors (the "Distribution Record Date," which
Tenneco presently estimates will be on or about the Distribution Date)
(i) one share of New Tenneco common stock, $.01 par value per share (the
"New Tenneco Common Stock"), for every share of Tenneco Common Stock held
(the "Industrial Distribution"), and (ii) one share of Newport News
common stock, $.01 par value per share (the "Newport News Common Stock"),
for every five shares of Tenneco Common Stock held (the "Shipbuilding
Distribution"). Cash will be paid (without interest) in lieu of
fractional shares. The Distributions will be effected pursuant to a
Distribution Agreement dated as of November 1, 1996 (as the same may be
amended from time to time, the "Distribution Agreement"), among Tenneco,
New Tenneco and Newport News. The Distribution Agreement and various
agreements to be entered into in connection therewith (the "Ancillary
Agreements") will govern the post-Transaction allocation of various other
rights and obligations among Tenneco, New Tenneco and Newport News. See
"The Distributions."
. The Merger. El Paso Merger Company, an indirect wholly owned subsidiary
of El Paso ("El Paso Subsidiary"), will be merged with and into Tenneco,
which will then consist solely of the Energy Business. The Merger will be
effected pursuant to an Amended and Restated Agreement and Plan of Merger
dated as of June 19, 1996 (as the
12
<PAGE>
same may be amended from time to time, the "Merger Agreement"), among
Tenneco, El Paso and El Paso Subsidiary. Tenneco will survive the Merger,
with 100% of its common equity and approximately 75% of its combined
equity value at that time held indirectly by El Paso (and the remainder
held by the holders of the Tenneco Junior Preferred Stock issued pursuant
to the NPS Issuance). See "The Merger."
For a more detailed description of the Transaction, see "Description of the
Transaction," "The NPS Issuance," "Corporate Restructuring Transactions,"
"Debt and Cash Realignment," "The Distributions" and "The Merger." For
information with respect to the effect of the Transaction on, and the
anticipated post-Merger operation of, New Tenneco and Tenneco, see
"Description of New Tenneco" and "Description of Tenneco Energy." Holders of
Old Securities are also referred to the Joint Proxy Statement, copies of which
are available, without charge, to any such holder upon written or oral request
to Karl A. Stewart, Vice President and Secretary, Tenneco Inc., 1275 King
Street, Greenwich, Connecticut 06831, telephone (203) 863-1000.
13
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA OF NEW TENNECO
The summary combined financial data as of December 31, 1995 and 1994 and for
the years ended December 31, 1995, 1994 and 1993 were derived from the audited
Combined Financial Statements of New Tenneco. The summary combined financial
data as of December 31, 1993, 1992 and 1991 and for the years ended December
31, 1992 and 1991 are unaudited and were derived from the accounting records of
Tenneco. The summary combined financial data as of and for each of the six-
month periods ended June 30, 1996 and 1995 were derived from the unaudited
Combined Financial Statements of New Tenneco. In the opinion of New Tenneco's
management, the summary combined financial data of New Tenneco as of December
31, 1993, 1992 and 1991 and for the years ended December 31, 1992 and 1991, and
as of and for the six months ended June 30, 1996 and 1995 include all adjusting
entries (consisting only of normal recurring adjustments) necessary to present
fairly the information set forth therein. The results of operations for the six
months ended June 30, 1996 should not be regarded as indicative of the results
that may be expected for the full year.
The summary pro forma combined financial data as of and for the six months
ended June 30, 1996 and for the year ended December 31, 1995, have been
prepared to reflect: (i) the acquisition of The Pullman Company and its Clevite
products division ("Clevite") in July 1996 and the acquisition of the Amoco
Foam Products Company, a unit of Amoco Chemical Company ("Amoco Foam
Products"), in August 1996; (ii) the effect on New Tenneco of the Cash
Realignment and Debt Realignment (including the Exchange Offers); (iii) the
effect on New Tenneco of the Corporate Restructuring Transactions and other
transactions pursuant to the provisions of the Distribution Agreement and
Merger Agreement; and (iv) the issuance of New Tenneco Common Stock as part of
the Industrial Distribution. The unaudited pro forma combined financial data
for the year ended December 31, 1995 also reflects the pro forma results of
operations of the Mobil Plastics Division of Mobil Oil Corporation ("Mobil
Plastics") prior to its acquisition in November 1995. The Clevite and Amoco
Foam Products acquisitions do not meet the Commission's criteria for inclusion
of separate historical financial statements. The unaudited pro forma combined
Statements of Income Data have been prepared as if the transactions occurred on
January 1, 1995; the unaudited pro forma combined Balance Sheet Data have been
prepared as if the transactions occurred on June 30, 1996. The summary pro
forma combined financial data are not necessarily indicative of the results of
operations of New Tenneco had the transactions reflected therein actually been
consummated on the dates assumed and are not necessarily indicative of the
results of operations for any future period.
This information should be read in conjunction with "Description of New
Tenneco--Unaudited Pro Forma Combined Financial Statements," the "Combined
Selected Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and New Tenneco's Combined Financial
Statements, and notes thereto, included elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS
(DOLLARS IN MILLIONS ENDED JUNE 30, YEARS ENDED DECEMBER 31,
EXCEPT PER SHARE AMOUNTS) -------------------------- ---------------------------------------------------------
PRO FORMA PRO FORMA
1996 1996(A) 1995(A) 1995 1995(A) 1994(A) 1993(A) 1992 1991
--------- ------- ------- --------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME
DATA(B):
Net sales and operating
revenues from
continuing operations--
Automotive............ $1,583 $1,463 $1,263 $2,710 $2,479 $1,989 $1,785 $1,763 $1,668
Packaging............. 1,927 1,775 1,318 4,556 2,752 2,184 2,042 2,078 1,934
Intergroup sales and
other................ (5) (5) (4) (10) (10) (7) (7) (5) (5)
------ ------ ------ ------ ------ ------ ------ ------ ------
Total................. $3,505 $3,233 $2,577 $7,256 $5,221 $4,166 $3,820 $3,836 $3,597
====== ====== ====== ====== ====== ====== ====== ====== ======
Income from continuing
operations before in-
terest
expense, income taxes
and minority interest--
Automotive............ $ 170 $ 163 $ 134 $ 258 $ 240 $223 $ 222 $ 237 $ 188
Packaging............. 280 256 244 548 430 209 139 221 139(c)
Other................. (5) (5) -- 2 2 24 20 7 3
------ ------ ------ ------ ------ ------ ------ ------ ------
Total................. 445 414 378 808 672 456 381 465 330
Interest expense (net of
interest capitalized).. 83 100 74 166 160 104 101 102 111
Income tax expense...... 147 126 124 291 231 114 115 154 80
Minority interest....... 10 10 12 23 23 -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------
Income from continuing
operations............. 205 178 168 328 258 238 165 209 139
Loss from discontinued
operations, net of in-
come tax............... -- -- -- -- -- (31) (7) (7) (12)
Cumulative effect of
changes in accounting
principles, net of
income tax............. -- -- -- -- -- (7)(d) -- (99)(d) --
------ ------ ------ ------ ------ ------ ------ ------ ------
Net income.............. $ 205 $ 178 $ 168 $ 328 $ 258 $ 200 $ 158 $ 103 $ 127
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
(Table continued on next page)
14
<PAGE>
(Continued from previous page)
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS SIX MONTHS
EXCEPT PER SHARE ENDED JUNE 30, YEARS ENDED DECEMBER 31,
AMOUNTS) -------------------------- ---------------------------------------------------
PRO FORMA PRO FORMA
1996 1996(A) 1995(A) 1995 1995(A) 1994(A) 1993(A) 1992 1991
--------- ------- ------- --------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income from continuing
operations per share... $ 1.20 N/A N/A $ 1.89 N/A N/A N/A N/A N/A
====== ======
Net income per share.... $ 1.20 N/A N/A $ 1.89 N/A N/A N/A N/A N/A
====== ======
BALANCE SHEET DATA(B):
Total assets............ $7,617 $6,523 $4,430 N/A $6,117 $3,940 $3,029 $2,812 $2,792
Short-term debt(e)...... 13 530 205 N/A 384 108 94 182 758
Long-term debt(e)....... 2,132 1,573 1,246 N/A 1,648 1,039 1,178 1,675 1,555
Minority interest....... 301 301 297 N/A 301 301 1 1 2
Combined equity......... 2,988 2,168 1,163 N/A 1,852 987 533 (87) (553)
STATEMENT OF CASH FLOWS
DATA(B):
Net cash provided (used)
by operating activi-
ties................... N/A $ 199 $ (9) N/A $ 489 $ 571 $ 324 $ 121 $ 503
Net cash provided (used)
by investing activi-
ties................... N/A (340) (206) N/A (2,041) (303) (152) (78) (237)
Net cash provided (used)
by financing activi-
ties................... N/A 169 (52) N/A 1,297 50 (165) (41) (251)
OTHER DATA:
EBITDA(f)............... $ 603 $ 551 $ 458 $1,023 $ 845 $ 598 $ 518 $ 595 $ 463
Ratio of earnings to
fixed charges(g)....... 3.5 2.9 3.4 3.2 2.8 3.2 2.9 3.4 2.4
</TABLE>
- -------
(a) For a discussion of the significant items affecting comparability of the
financial information for 1995, 1994 and 1993 and for the six months ended
June 30, 1996 and 1995, see "Description of New Tenneco--Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(b) During 1995 and 1994, the Automotive and Packaging operating segments of
New Tenneco each completed several acquisitions, the most significant of
which was the Packaging segment's acquisition of Mobil Plastics for $1.3
billion in late 1995. See Note 4 to the Combined Financial Statements of
New Tenneco, included elsewhere herein, for further information on New
Tenneco's acquisitions.
(c) Includes a gain of $42 million recorded by the Packaging operating segment
related to the sale of three short-line railroads.
(d) In 1994, New Tenneco adopted Statement of Financial Accounting Standards
("FAS") No. 112, "Employers' Accounting for Postemployment Benefits." In
1992, New Tenneco adopted FAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," and FAS No. 109, "Accounting
for Income Taxes."
(e) Historical amounts include debt allocated to New Tenneco from Tenneco based
on the portion of Tenneco's investment in New Tenneco which is deemed to be
debt, generally based upon the ratio of New Tenneco's net assets to Tenneco
consolidated net assets plus debt. Tenneco's historical practice has been
to incur indebtedness for its consolidated group at the parent company
level or at a limited number of subsidiaries, rather than at the operating
company level, and to centrally manage various cash functions. Management
believes that the historical allocation of corporate debt and interest
expense is reasonable; however, it is not necessarily indicative of New
Tenneco's debt upon completion of the Debt Realignment, nor debt and
interest that may be incurred by New Tenneco as a separate public entity.
See the Combined Financial Statements of New Tenneco, and notes thereto,
included elsewhere herein.
(f) EBITDA represents income from continuing operations before interest
expense, income taxes and depreciation, depletion and amortization. EBITDA
is not a calculation based upon generally accepted accounting principles
("GAAP"); however, the amounts included in the EBITDA calculation are
derived from amounts included in the combined historical or pro forma
Statements of Income. In addition, EBITDA should not be considered as an
alternative to net income or operating income, as an indicator of the
operating performance of New Tenneco or as an alternative to operating cash
flows as a measure of liquidity.
(g) For purposes of computing this ratio, earnings generally consist of income
from continuing operations before income taxes and fixed charges (excluding
capitalized interest). Fixed charges consist of interest expense, preferred
stock dividend requirements of subsidiaries, the portion of rental expense
considered representative of the interest factor and capitalized interest.
The historical ratios are based upon the amount of interest expense on
corporate debt allocated to New Tenneco by Tenneco as discussed in (e)
above. The pro forma ratios give effect to the Debt Realignment discussed
in "Description of New Tenneco--Unaudited Pro Forma Combined Financial
Statements."
15
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA OF TENNECO
The summary consolidated financial data set forth below as of and for each of
the fiscal years in the five-year period ended December 31, 1995 were derived
from audited financial statements of Tenneco and its consolidated subsidiaries.
The financial statements as of and for each of the fiscal years in the five-
year period ended December 31, 1995 have been audited by Arthur Andersen LLP,
independent public accountants. The summary consolidated financial data set
forth below as of and for each of the six-month periods ended June 30, 1996 and
1995 were derived from the unaudited condensed financial statements of Tenneco
and its consolidated subsidiaries. In the opinion of Tenneco's management, the
summary historical financial data of Tenneco as of and for the six months ended
June 30, 1996 and 1995 include all adjusting entries (consisting only of normal
recurring adjustments) necessary to present fairly the information set forth
therein. The results of operations for the six months ended June 30, 1996
should not be regarded as indicative of the results that may be expected for
the full year.
The summary pro forma consolidated financial data as of and for the six
months ended June 30, 1996 and for the year ended December 31, 1995 have been
prepared to reflect: (i) the Corporate Restructuring Transactions, the Cash
Realignment and Debt Realignment (including the Exchange Offers), the NPS
Issuance and the Distributions and (ii) the Merger and the Refinancing
Transactions. The unaudited pro forma consolidated Statements of Income Data
have been prepared as if the transactions occurred on January 1, 1995; the
unaudited pro forma consolidated Balance Sheet Data have been prepared as if
the transactions occurred on June 30, 1996. The summary pro forma consolidated
financial data are based, in part, upon information and assumptions developed
by El Paso management. In addition, the summary pro forma consolidated
financial data are not necessarily indicative of the results of operations of
Tenneco had the transactions reflected therein actually been consummated on the
dates assumed and are not necessarily indicative of the results of operations
for any future period. See "Description of Tenneco--Unaudited Pro Forma
Consolidated Financial Statements."
This information should be read in conjunction with Tenneco's financial
statements, and the notes thereto, contained in the Tenneco Annual Report on
Form 10-K, as amended, for the year ended December 31, 1995 and the Tenneco
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, which are
incorporated by reference herein. See "Available Information," "Incorporation
of Certain Information By Reference" and "Description of Tenneco--Consolidated
Selected Financial Data."
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS SIX MONTHS
EXCEPT PER SHARE AMOUNTS) ENDED JUNE 30, YEARS ENDED DECEMBER 31,
- ------------------------ -------------------------- ---------------------------------------------------------------
PRO FORMA PRO FORMA
1996 1996(A) 1995(A) 1995 1995(A) 1994(A) 1993(A) 1992 1991
--------- ------- ------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME
(LOSS) DATA(B):
Net sales and operating
revenues from
continuing operations--
Automotive............. $ -- $1,463 $1,263 $ -- $ 2,479 $ 1,989 $ 1,785 $ 1,763 $ 1,668
Energy................. 1,320 1,366 937 1,869 1,916 2,378 2,862 2,183 2,183
Packaging.............. -- 1,775 1,318 -- 2,752 2,184 2,042 2,078 1,934
Shipbuilding........... -- 915 845 -- 1,756 1,753 1,861 2,265 2,216
Other.................. 4 (2) (2) 5 (4) (6) (5) 31 26
------ ------ ------ ------ --------- --------- --------- --------- ---------
Total................. $1,324 $5,517 $4,361 $1,874 $ 8,899 $ 8,298 $ 8,545 $ 8,320 $ 8,027
====== ====== ====== ====== ========= ========= ========= ========= =========
Income from continuing
operations before in-
terest expense, income
taxes and minority in-
terest--
Automotive............. $ -- $ 163 $ 134 $ -- $ 240 $ 223 $ 222 $ 237 $ 188
Energy................. 133 185 148 266 333 415 411 360 561(c)
Packaging.............. -- 256 244 -- 430 209 139 221 139(c)
Shipbuilding........... -- 81 90 -- 160 200 225 249 225
Other.................. 8 (4) (11) (55) (67) (25) 18 (32) (98)
------ ------ ------ ------ --------- --------- --------- --------- ---------
Total................. 141 681 605 211 1,096 1,022 1,015 1,035 1,015
Interest expense (net of
interest capitalized).. 73 179 152 152 306 263 254 221 237
Income tax expense
(benefit).............. 2 175 185 (46) 279 249 298 282 258
Minority interest....... -- 10 11 -- 22 7 -- -- --
------ ------ ------ ------ --------- --------- --------- --------- ---------
Income from continuing $ 66 $ 317 $ 257 $ 105 $ 489 $ 503 $ 463 $ 532 $ 520
operations............. ====== ====== ====== ====== ========= ========= ========= ========= =========
</TABLE>
(Table continued on next page)
16
<PAGE>
(Continued from previous page)
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS SIX MONTHS
EXCEPT PER SHARE AMOUNTS) ENDED JUNE 30, YEARS ENDED DECEMBER 31,
- ------------------------ -------------------------- ------------------------------------------------------------
PRO FORMA PRO FORMA
1996 1996(A) 1995(A) 1995 1995(A) 1994(A) 1993(A) 1992 1991
--------- ------- ------- --------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings (loss) per
average share of
common stock--
Continuing operations.. N/A $ 1.83 $ 1.43 N/A $ 2.75 $ 2.72 $ 2.66 $ 3.58 $ 4.10
Discontinued
operations(d)(e)...... N/A 1.99 .46 N/A 1.41 (.27) (.07) (7.93) (10.19)
Extraordinary loss..... N/A -- -- N/A -- (.03) (.15) (.08) --
Cumulative effect of
changes in accounting
principles(f)......... N/A -- -- N/A -- (.22) -- (4.86) --
------- ------- ------- ------- ------- ------- -------
Net earnings (loss).... N/A $ 3.82 $ 1.89 N/A $ 4.16 $ 2.20(g) $ 2.44(g) $ (9.29)(g) $ (6.09)
======= ======= ======= ======= ======= ======= =======
Cash dividends paid per
common share.......... N/A $ .90 $ .80 N/A $ 1.60 $ 1.60 $ 1.60 $ 1.60 $ 2.80
BALANCE SHEET DATA(B):
Total assets........... $5,801 $13,262 $12,090 N/A $13,451 $12,251 $11,105 $11,320 $12,985
Short-term debt........ 330 1,146 635 N/A 908 536 431 669 1,132
Long-term debt......... 1,514 3,374 3,309 N/A 3,751 3,568 3,620 4,718 4,593
Minority interest...... 18 320 315 N/A 320 320 150 160 171
Preferred stock with
mandatory redemption
provisions............ -- 112 129 N/A 130 147 163 191 194
Shareowners' equity:
Tenneco Junior
Preferred Stock...... 265 -- -- N/A -- -- -- -- --
Subordinated Tenneco
Preferred Stock...... 200 -- -- N/A -- -- -- -- --
Other shareowners'
equity............... 882 3,569 2,911 N/A 3,148 2,900 2,601 1,330 2,774
STATEMENT OF CASH FLOWS
DATA(B):
Net cash provided
(used) by operating
activities............ N/A $ (215) $ 255 N/A $ 1,443 $ 450 $ 1,615 $ 929 $ 950
Net cash provided
(used) by investing
activities............ N/A 505 183 N/A (1,146) (117) (338) 105 (660)
Net cash provided
(used) by financing
activities............ N/A (413) (741) N/A (356) (151) (1,166) (1,136) (205)
OTHER DATA:
EBITDA(h).............. $ 274 $ 956 $ 804 $459 $ 1,523 $ 1,321 $ 1,385 $ 1,391 $ 1,350
Ratio of earnings to
fixed charges(i)...... 1.8 2.8 2.6 1.3 2.4 2.7 2.9 3.4 3.0
Ratio of earnings to
fixed charges and
preferred stock
dividends(i).......... 1.4 2.7 2.5 1.1 2.4 2.3 2.3 2.7 2.9
</TABLE>
- --------
(a) For a discussion of significant items affecting comparability of the
financial information for 1995, 1994 and 1993, and for the six months ended
June 30, 1996 and 1995, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for Tenneco Inc. and
Consolidated Subsidiaries, included in the Tenneco Annual Report on Form
10-K, as amended, for the year ended December 31, 1995, and the Tenneco
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, which
are incorporated by reference herein.
(b) During 1995 and 1994, Tenneco completed several acquisitions at its various
operating segments, the most significant of which was Tenneco Packaging's
acquisition of Mobil Plastics for $1.3 billion in late 1995. See Note 2 to
the Financial Statements of Tenneco Inc. and Consolidated Subsidiaries,
included in the Tenneco Annual Report on Form 10-K, as amended, for the
year ended December 31, 1995, which is incorporated by reference herein,
for further information on the Tenneco acquisitions.
(c) For Tenneco Energy, includes a gain of $265 million related to the sale of
its natural gas liquids business, including its interest in an MTBE plant
then under construction. Also, Tenneco Packaging recorded a gain of $42
million related to the sale of three short-line railroads.
(d) Discontinued operations reflected in the above periods include Tenneco's
farm and construction equipment operations, which were discontinued in
March 1996, its chemicals and brakes operations, which were discontinued
during 1994, and its minerals and pulp chemicals operations, which were
discontinued in 1992. In addition, certain additional costs related to
Tenneco's discontinued oil and gas operations were reflected in the 1991
results.
(e) Includes a pre-tax restructuring charge of $920 million recorded in 1992
relating to the discontinued farm and construction equipment business. This
pre-tax restructuring charge was reduced by $20 million in 1993 and $16
million in 1994. Additionally, a $473 million pre-tax restructuring charge
was recorded in 1991, of which $461 million related to the discontinued
farm and construction equipment business.
(f) In 1994, Tenneco adopted FAS No. 112, "Employers' Accounting for
Postemployment Benefits." In 1992, Tenneco adopted FAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," and FAS No.
109, "Accounting for Income Taxes."
(Continued on next page)
17
<PAGE>
(Continued from previous page)
(g) For purposes of computing earnings per share, Series A preferred stock was
included in average common shares outstanding until its conversion into
common stock in December 1994; therefore, the preferred dividends paid were
not deducted from net income (loss) to determine net income (loss) to
common stock. The inclusion of Series A preferred stock in the computation
of earnings per share was antidilutive for the years and certain quarters
in 1994, 1993 and 1992. Other convertible securities and common stock
equivalents outstanding during each of the five years ended December 31,
1995, 1994, 1993, 1992 and 1991 were not materially dilutive.
(h) EBITDA represents income from continuing operations before interest
expense, income taxes and depreciation, depletion and amortization. EBITDA
is not a calculation based upon GAAP; however, the amounts included in the
EBITDA calculation are derived from amounts included in the historical or
pro forma Statements of Income. In addition, EBITDA should not be
considered as an alternative to net income or operating income, as an
indicator of the operating performance of Tenneco or as an alternative to
operating cash flows as a measure of liquidity.
(i) For purposes of computing this ratio, earnings generally consist of income
from continuing operations before income taxes and fixed charges (excluding
capitalized interest). Fixed charges consist of interest expense, preferred
stock dividend requirements of subsidiaries, the portion of rental expense
considered representative of the interest factor and capitalized interest.
For purposes of computing these ratios, preferred stock dividends have been
included in the calculations on a pre-tax basis. The pro forma ratios give
effect to the Transaction and Refinancing Transactions discussed in the
"Description of Tenneco--Unaudited Pro Forma Consolidated Financial
Statements," included elsewhere herein.
18
<PAGE>
RECENT DEVELOPMENTS
TENNECO
On October 22, 1996, Tenneco announced consolidated earnings for the nine
months ended September 30, 1996. The prior year's results have been restated to
reflect Tenneco's farm and construction equipment business as a discontinued
operation.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1996 1995
-------- --------
(UNAUDITED)
<S> <C> <C>
(IN MILLIONS EXCEPT PER SHARE DATA)
Revenues................................................. $ 8,320 $ 6,497
======== ========
Income before interest expense, income taxes and minority
interest................................................ $ 963 $ 855
Interest expense......................................... 268 222
Income tax expense....................................... 247 265
Minority interest........................................ 15 17
-------- --------
Income from continuing operations........................ 433 351
Income from discontinued operations, net of income tax... 339 201
Extraordinary loss, net of income tax.................... (1) --
-------- --------
Net income............................................... 771 552
Preferred stock dividends................................ 7 8
-------- --------
Net income to common stock............................... $ 764 $ 544
======== ========
Earnings (loss) per average common share:
Continuing operations.................................. $ 2.50 $ 1.96
Discontinued operations................................ 1.99 1.15
Extraordinary loss..................................... (.01) --
-------- --------
$ 4.48 $ 3.11
======== ========
</TABLE>
Revenues for the nine months increased by 28 percent from $6.5 billion to
$8.3 billion. All divisions posted volume gains. Revenues at Tenneco Automotive
and Tenneco Packaging increased by approximately $1.1 billion due to recent
acquisitions, while in Tenneco's energy segment, revenues increased 46 percent
due primarily to higher gas prices in both regulated and non-regulated
operations. The revenue increase of $147 million in Tenneco's shipbuilding
segment was primarily attributable to increased carrier construction activity
and activity on the overhaul of the carrier Eisenhower, offset by decreased
submarine construction and conversion work.
Income before interest expense, income taxes and minority interest
("operating income") increased by 13 percent to $963 million for the nine month
period. Tenneco Automotive's operating income increased approximately $21
million as a result of recent acquisitions with the balance of the increase due
primarily to higher volumes in most of Tenneco Automotive's businesses. The
operating income increase of $53 million in Tenneco's energy segment resulted
from income from Australian assets which was up $10 million from 1995, an
increase of $14 million from oil and gas production operations, and a $29
million increase primarily due to benefits derived from the new rate case
implemented in July 1995 and increased volume activity. Tenneco Packaging's
operating income declined by $14 million. While recent acquisitions contributed
approximately $127 million in operating income and Tenneco Packaging realized a
$50 million gain on the sale of two recycled paperboard mills to a joint
venture, lower price realizations in the paperboard business more than offset
that increase. Earnings in Tenneco's shipbuilding segment declined $8 million
primarily due to $57 million of estimated contract losses on commercial product
tankers as well as lower margins on conversion work, offset by
19
<PAGE>
productivity improvements and increased activity on the overhaul of the carrier
Eisenhower. Also, results in 1995 included a $25 million reserve related to the
liquidation of surplus real estate holdings.
Interest expense increased due to higher borrowings resulting from
acquisitions completed late in 1995 and during 1996.
Income from discontinued operations primarily reflects Tenneco's sale of its
remaining shares of Case Corporation ("Case") and Tenneco's share of Case's
income in 1995. The current period's net income included an extraordinary loss
of $1 million due to the early retirement of debt.
Average common shares outstanding decreased by 4.4 million shares versus the
prior year due to shares repurchased. During the third quarter the stock
buyback program was completed.
THE ENERGY BUSINESS
Earnings for the Energy Business, which includes certain of Tenneco's
corporate operations, for the nine months ended September 30, 1996 and 1995 are
summarized below (amounts in millions).
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1996 1995
-------- --------
(UNAUDITED)
<S> <C> <C>
Revenues................................................. $ 1,997 $ 1,368
======== ========
Income before interest expense and income taxes.......... $ 264 $ 182
Interest expense......................................... 101 86
Income tax expense....................................... 36 44
-------- --------
Income before extraordinary loss......................... 127 52
Extraordinary loss, net of income tax.................... (1) --
-------- --------
Net income............................................... $ 126 $ 52
======== ========
</TABLE>
The revenue increase for the Energy Business in 1996 compared to 1995
resulted primarily from higher gas prices as well as benefits from a new rate
case implemented on July 1, 1995. Volumes also increased in both of Energy's
regulated and non-regulated operations.
Operating income from regulated operations increased $43 million to $251
million due to benefits derived from the new rate case, increased volume
activity and a reduction in controllable costs. Year ago results also included
$24 million in operating income from Kern River Pipeline which was sold in late
1995. Non-regulated operations contributed $31 million in 1996, up $10 million
from 1995. The increase is primarily due to higher income of $10 million from
the acquisition of Australian assets and higher earnings of $14 million from
oil and gas production. Also, results in 1995 included a $25 million reserve
related to the liquidation of surplus real estate holdings.
20
<PAGE>
NEW TENNECO
New Tenneco's earnings, on a stand alone basis, for the nine months ended
September 30, 1996 and 1995, are summarized below (amounts in millions).
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1996 1995
-------- --------
(UNAUDITED)
<S> <C> <C>
Revenues.................................................. $ 4,886 $ 3,839
======== ========
Income before interest expense, income taxes and minority
interest................................................. $ 585 $ 551
Interest expense.......................................... 145 113
Income tax expense........................................ 171 180
Minority interest......................................... 15 17
-------- --------
Net income................................................ $ 254 $ 241
======== ========
</TABLE>
Automotive's revenues for the year to date period increased approximately
$360 million. Recent acquisitions contributed $136 million of the increase
while the remainder resulted primarily from volume increases. Packaging's
revenues were $2,671 million for the first nine months of 1996 compared with
$1,983 million in 1995. Lower price realizations in the paperboard business
were more than offset by revenues from recent acquisitions of approximately
$966 million.
Operating income for automotive for the first nine months of 1996 was $245
million, an increase of $50 million from the same period in 1995. Of the
increase, approximately $21 million was due to recent acquisitions with the
remainder primarily due to volume increases. Packaging reported operating
income of $341 million compared to $355 million in 1995. The lower pricing
realizations in the paperboard business were offset by operating income of
approximately $127 million from recent acquisitions and a $50 million gain on
the sale of two recycled paperboard mills and a recovered fiber recycling and
brokerage business to a joint venture.
Interest expense increased due to higher borrowings resulting from
acquisitions completed in late 1995 and during 1996.
21
<PAGE>
RISK FACTORS
The following factors and other information described elsewhere herein should
be carefully considered by each prospective investor before deciding to tender
Old Securities for exchange pursuant to the Exchange Offers. Neither New
Tenneco nor Tenneco makes, nor is any other person authorized to make, any
representation as to the future value of either the New Securities or the Old
Securities.
RISK FACTORS RELATING TO HOLDERS TENDERING IN THE EXCHANGE OFFERS
Energy Business and Shipbuilding Business not Available to Satisfy the
Obligations Under the New Securities
Currently, Tenneco, the obligor under the Old Securities, is engaged in, and
directly and indirectly owns the assets comprising three business segments: the
Energy Business, the Shipbuilding Business and the Industrial Business. Upon
consummation of the Distributions and the other components of the Transaction,
however, New Tenneco, the obligor of the New Securities, will only be engaged
in, and will directly and indirectly own only the assets comprising one of
those segments, the Industrial Business. New Tenneco and the Industrial
Business have less assets (and liabilities) and revenues than the current
Tenneco as comprised of the Energy Business and the Shipbuilding Business as
well as the Industrial Business. The cash flow generated from, and the assets
comprising, each of the other two segments, the Energy Business and the
Shipbuilding Business, will not be available to satisfy New Tenneco's
obligations under the New Securities. Tenneco will not guarantee the New
Securities, and holders who tender Old Securities in exchange for New
Securities will no longer be creditors of Tenneco, only New Tenneco. Upon
consummation of the Transaction, the holders of the New Securities will have no
claims against the assets or earnings of Tenneco and its subsidiaries or of
Newport News and its subsidiaries, and may look only to the assets and earnings
of New Tenneco and the Industrial Business for satisfaction of the obligations
under the New Securities. See "Description of the Transaction."
Uncertainty Regarding Debt Rating of New Securities
New Tenneco has been advised by Moody's and S&P that the New Securities will
have investment grade ratings of Baa1 by Moody's and BBB by S&P. However, no
assurance can be given that the New Securities will actually have or be able to
maintain these investment grade ratings. A reduction in the rating of the New
Securities would have an adverse effect on their value.
New Tenneco's Potential Co-obligor Status
If New Tenneco elects to consummate any of the Exchange Offers despite the
failure of the Minimum Tender Condition, New Tenneco would not only be the
obligor of the New Securities delivered in the Exchange Offers, but may also be
required to become a co-obligor of the Old Securities and any Other Securities
that remain outstanding following consummation of the Cash Tender Offers and
thereby become potentially liable for the obligations under such Old Securities
and such Other Securities. See "The Proposed Amendments."
Uncertainty Regarding Markets For and Prices of New Securities
Although the New Securities are expected to be approved for listing, subject
to issuance, on the NYSE, trading of the New Securities may be limited and
sporadic, and information concerning trading volume and prices may be difficult
to obtain. Depending on the amount of the New Securities outstanding after the
Exchange Offers, the trading market for the New Securities may be more limited
than the trading market for the Old Securities prior to the Exchange Offers,
which might adversely affect the liquidity and market price of the New
Securities. If a market for the New Securities does develop, the New Securities
may trade at a discount, depending on prevailing interest rates, the market for
similar securities, performance of New Tenneco and other factors. However,
there is no assurance that an active market in the New Securities will develop
or be maintained and no assurance as to the prices at which the New Securities
may be traded.
Claims of Other Creditors
Holders of the New Securities will become holders of unsubordinated and
unsecured obligations of New Tenneco ranking pari passu with all existing and
future unsubordinated and unsecured obligations of New
22
<PAGE>
Tenneco (including trade payables). At June 30, 1996, subsidiaries of New
Tenneco would have had approximately $70 million of debt (excluding
intercompany debt). Claims of holders of New Securities will be effectively
subordinated to the claims of holders of the debt (including trade payables) of
New Tenneco's subsidiaries with respect to the assets of such subsidiaries.
Potential Liabilities Due to Fraudulent Transfer Considerations and Legal
Dividend Requirements
The Corporate Restructuring Transactions, the Debt Realignment and the
Distributions are subject to review under federal and state fraudulent
conveyance laws. Under these laws, if a court in a lawsuit by an unpaid
creditor or a representative of creditors (such as a trustee in bankruptcy of
Tenneco or New Tenneco as a debtor-in-possession) were to determine that, at
the time of the Distributions or the incurrence of indebtedness or transfer of
assets in connection with the Corporate Restructuring Transactions or the Debt
Realignment, Tenneco, New Tenneco or any of their subsidiaries did not receive
fair consideration or reasonably equivalent value for incurring indebtedness or
transferring assets in connection with the Corporate Restructuring Transactions
or the Debt Realignment, and Tenneco or New Tenneco, or any of their
subsidiaries (i) was insolvent or would be rendered insolvent, (ii) had
unreasonably small capital with which to carry on its business and all
businesses in which it intended to engage, or (iii) intended to incur, or
believed it would incur, debts beyond its ability to repay such debts as they
mature, then such court could order the holders of the New Tenneco Common Stock
to return the value of the stock and any dividends paid thereon, bar future
dividend and redemption payments on the New Tenneco Common Stock, and
invalidate, in whole or in part, the Corporate Restructuring Transactions, the
Debt Realignment or the Distributions, as fraudulent conveyances.
The measure of insolvency for purposes of the fraudulent conveyance laws will
vary depending on which jurisdiction's law is applied. Generally, however, an
entity would be considered insolvent if the present fair saleable value of its
assets is less than (i) the amount of its liabilities (including contingent
liabilities), or (ii) the amount that will be required to pay its probable
liabilities on its existing debts as they become absolute and mature. No
assurance can be given as to what standard a court would apply in determining
insolvency or that a court would not determine that Tenneco, New Tenneco or any
of their subsidiaries was "insolvent" at the time of, or after giving effect
to, the Corporate Restructuring Transactions, the Debt Realignment and the
Distributions.
In addition, the Distributions and the distributions pursuant to the
Corporate Restructuring Transactions and the Debt Realignment are subject to
review under state corporate distribution statutes. Under Section 170 of the
Delaware General Corporation Law (the "DGCL"), a corporation may pay dividends
to its stockholders only either (i) out of its surplus (net assets minus
capital), and not out of capital, or (ii) if there is no such surplus, out of
its net profits for the fiscal year in which the dividend is declared and/or
the preceding fiscal year. Although all distributions are intended to be made
entirely from surplus, no assurance can be given that a court will not later
determine that some or all of the distributions were unlawful.
Prior to the Distributions, the Tenneco Board of Directors expects to obtain
an opinion from a third-party financial advisor regarding the solvency of New
Tenneco and Tenneco and the permissibility of the Distributions under Section
170 of the DGCL. The Tenneco Board of Directors and Tenneco's management
believe that, in accordance with this opinion (i) each of New Tenneco and
Tenneco will be solvent (and thus not insolvent) at the time of, and after
giving effect to, the Distributions (in accordance with the foregoing
definitions), will be able to repay its debts as they mature following the
Distributions and will have sufficient capital to carry on its business, and
(ii) the Distributions will be made entirely out of surplus in accordance with
Section 170 of the DGCL. There is no certainty, however, that a court would
find the solvency opinion rendered by Tenneco's financial advisor to be binding
on creditors of New Tenneco or Tenneco or that a court would reach the same
conclusions set forth in such opinion in determining whether New Tenneco or
Tenneco was insolvent at the time of, or after giving effect to, the
Distributions or whether lawful funds were available for the Distributions. If
a court reached conclusions contrary to such opinion, then such court could
invalidate, in whole or part, the Industrial Distribution as a fraudulent
conveyance.
23
<PAGE>
Potential Responsibility for Liabilities Not Expressly Assumed
The Distribution Agreement and Ancillary Agreements allocate among Tenneco,
New Tenneco and Newport News and their respective subsidiaries responsibility
for various debts, liabilities and obligations. It is possible that a court
would disregard this contractual allocation of debt, liabilities and
obligations among the parties and require either Tenneco, New Tenneco, Newport
News or their respective subsidiaries to assume responsibility for obligations
allocated to another party, particularly if such other party were to refuse or
was unable to pay or perform any of its allocated obligations. Any such
additional responsibility could have adverse consequences to the holders of
New Securities which remain outstanding after the Transaction including, but
not limited to, the impairment of the ability of New Tenneco to service its
debt obligations.
RISK FACTORS RELATING TO HOLDERS NOT TENDERING IN THE EXCHANGE OFFERS
Potential Adverse Effects of the Proposed Amendments
If the Proposed Amendments become operative, they will be effective as to
all Old Securities that were not exchanged pursuant to the Exchange Offers
(regardless of whether or not the holder thereof consented to the Proposed
Amendments). Certain of the Proposed Amendments may potentially have adverse
consequences to holders of Old Securities not exchanged pursuant to the
Exchange Offers.
The Proposed Amendments would, among other things, add provisions to the Old
Indenture which would specifically provide that nothing in the Old Indenture
shall prohibit, or place any restrictions or conditions on, consummation of
the Distributions and the transactions contemplated thereby. The effect of
these provisions would be to allow consummation of such transactions without
compliance with covenants that might, if held to apply to such transactions,
otherwise require New Tenneco and Newport News to sign supplemental indentures
and become co-obligors of the Old Securities and Other Securities that remain
outstanding after consummation of the Exchange Offers and Cash Tender Offers
(the application of which, in any event, New Tenneco and Tenneco believe is
uncertain in these circumstances). As a result, such Old Securities and Other
Securities will remain obligations solely of Tenneco following consummation of
the Transaction and holders thereof will have no claims on the assets of New
Tenneco or Newport News.
The Proposed Amendments would also provide further operational flexibility
to Tenneco by (i) modification of the covenant restricting Tenneco from
granting liens on its properties to (A) apply only to the principal properties
of Tenneco and its Subsidiaries located in the United States and Canada
(rather than all properties and assets wherever located), (B) permit Tenneco
to grant liens on its properties to shares the costs of improvements to such
properties, (C) increase the amount of debt that may be secured by a lien on
Tenneco's properties to 15% of the consolidated net taxable assets of Tenneco
and (D) specifically i exclude any liens on Tenneco's properties in existence
on the date of the execution of the Supplemental Indenture; and (ii)
elimination of the provisions whereby a default by Tenneco on one or more of
its Subsidiaries under other obligations for borrowed money would be an event
of default under the Indenture. Such flexibility might have adverse
consequences for non-tendering holders of Old Securities not exchanged
pursuant to the Exchange Offers. As (i) Tenneco will have greater flexibility
in granting liens on its properties without equally and ratably securing the
Old Securities and (ii) amounts owing under the Old Securities may not be
accelerated if Tenneco or its Subsidiaries default under other obligations for
borrowed money. For a description of the Proposed Amendments, see "The
Proposed Amendments."
Potential Adverse Impact of Leverage on Ability to Meet Interest and Dividend
Obligations
On June 30, 1996, on a pro forma basis after giving effect to the
Transaction, Tenneco would have had indebtedness for money borrowed of
approximately $2,544 million ($1,844 million after giving effect to the
Refinancing Transactions), all of which would have been pari passu with any
outstanding Old Securities, and stockholders' equity of $1,147 million ($1,347
million after giving effect to the Refinancing Transactions). The degree to
which Tenneco is leveraged could have important consequences to holders of Old
Securities not tendering such Old Securities in the Exchange Offer, including
the following: (i) Tenneco's ability to obtain additional financing for
working capital, capital expenditures, acquisitions or general corporate
purposes may be impaired; (ii) a substantial portion of Tenneco's cash flow
from operations must be dedicated to the payment of interest on its
indebtedness, thereby reducing the funds available to Tenneco for other
purposes; (iii) the agreements governing Tenneco's indebtedness contain
certain restrictive financial and operating covenants; (iv)
24
<PAGE>
certain indebtedness of Tenneco will be at variable rates of interest, which
will cause Tenneco to be vulnerable to increases in interest rates; (v) Tenneco
may be hindered in its ability to adjust rapidly to changing market conditions;
and (vi) Tenneco's substantial degree of leverage could make it more vulnerable
in the event of a downturn in general economic conditions or in its business.
See "Description of Tenneco--Unaudited Pro Forma Consolidated Financial
Statements."
Uncertainty Regarding Consummation of Refinancing Transactions
El Paso has indicated that it currently intends to enter into various
transactions with respect to the Energy Business in order to reduce the amount
of Tenneco debt that would otherwise be outstanding after consummation of the
Transaction (i.e., Refinancing Transactions). However, there can be no
assurance that any of the Refinancing Transactions will occur or as to the
price, terms or provisions of the Refinancing Transactions. The Unaudited Pro
Forma Consolidated Financial Statements of Tenneco included elsewhere herein
are based, in part, on the assumption that each of the Refinancing Transactions
will be consummated either prior to or shortly following the consummation of
the Transaction and will result in Tenneco's receipt of an estimated amount of
cash proceeds to be used by Tenneco to repay a portion of its post-Transaction
debt. If any one or more of the Refinancing Transactions is either not
consummated or, if consummated, does not generate at least the total amount of
cash proceeds currently estimated to be generated therefrom, the total amount
of Tenneco's post-Transaction debt will be higher then is currently anticipated
and the actual effect of the Refinancing Transactions on the financial
condition or results of operations of Tenneco might differ materially from that
reflected in the Unaudited Pro Forma Consolidated Financial Statements of
Tenneco. See "Description of Tenneco Energy--Operation of the Energy Business
After the Merger" and "Description of Tenneco--Unaudited Pro Forma Consolidated
Financial Statements."
Lack of Operating History as Separate Entity and Potential Disruptions in
Operations
Upon consummation of the Distributions, Tenneco (as an indirect subsidiary of
El Paso) will own and operate the Energy Business, New Tenneco will own and
operate the Industrial Business and Newport News will own and operate the
Shipbuilding Business. The Energy Business does not have any recent operating
history as a separate entity and has historically been able to rely on the
earnings, assets and cash flow of the Industrial Business and Shipbuilding
Business for capital requirements and certain administrative services.
Pursuant to the Merger Agreement, the current directors of El Paso Subsidiary
as of the Merger Effective Time will become the directors of Tenneco upon
consummation of the Merger, provided that the holders of Tenneco Junior
Preferred Stock will have the right to elect one-sixth of the Tenneco board of
directors. In addition, as of the Merger Effective Time, it is expected that
substantially all of the executive officers of Tenneco will resign and become
the initial executive officers of New Tenneco and the executive officers of El
Paso Subsidiary as of the Merger Effective Time will become the executive
officers of Tenneco. There can be no assurance that such transition in the
management of Tenneco will not disrupt, at least temporarily, the operations of
the Energy Business.
In addition, the division of Tenneco and its subsequent acquisition by El
Paso in the Merger may result in some temporary dislocation and inefficiencies
to the business operations, as well as the organization and personnel
structure, of each company, and also will result in the duplication of certain
personnel, administrative and other expenses required for the operation of
independent companies.
Reduction of Debt Ratings of Untendered Old Securities
The ratings of the Old Securities which remain outstanding after consummation
of the Transaction may be lower than the current ratings of the Old Securities
(which are currently rated Baa2 (under review with direction uncertain) by
Moody's and BBB- (on CreditWatch with positive implications) by S&P). There can
be no assurance that any Old Securities that remain outstanding after
consummation of the Exchange Offers will be able to maintain an investment
grade debt rating. In addition, if the issuance of El Paso common stock to
Tenneco stockholders in connection with the Merger (the "Stock Issuance"),
which is being submitted to El Paso's stockholders at a special meeting
presently scheduled to be held on December 9, 1996, is not approved, the Merger
is still expected to be consummated, except that El Paso will issue to the
holders of Tenneco Common Stock depositary receipts representing interests in a
new series of adjustable rate El Paso preferred stock in lieu of certain shares
of El Paso common stock that would have been issued had the Stock Issuance been
approved. The issuance by El Paso of such depositary receipts could result in a
downgrading of the ratings of the securities of El Paso and its subsidiaries,
including the Old Securities that remain outstanding after consummation of the
Exchange Offers. Any reduction in the rating of such securities would have an
adverse effect on their value.
25
<PAGE>
Potential Conflicts of Interest Due to Control by El Paso
After consummation of the Merger, Tenneco will be a subsidiary of El Paso,
which will own 100% of the common equity of Tenneco and will thus control the
management of Tenneco's business and operations. El Paso's interests as a
common equity holder of Tenneco may conflict with the interests of holders of
Old Securities which remain outstanding after consummation of the Exchange
Offers. See "Description of Tenneco Energy--Operation of the Energy Business
after the Merger."
Uncertainty Surrounding Integration of Operations
El Paso is currently engaged in a comprehensive review of the business and
operations of the Energy Business. Following the completion of such review and
the Merger, El Paso has indicated that it plans to integrate, for the most
part, the operations of Energy Business with those of El Paso in order to
increase operating and administrative efficiency through consolidation and
reengineering of facilities, workforce reductions and coordination of
purchasing, sales and marketing activities. The future operations of the Energy
Business as a subsidiary of El Paso may vary significantly from its historical
operations as a division of Tenneco. While El Paso has indicated that it
believes that operational, financial and administrative synergies can be
achieved through the combination of El Paso and the Energy Business, the amount
and timing of realization of such synergies will depend upon the ability of
El Paso to integrate successfully the businesses and operations of the
companies, and the time period over which such integration is effected.
Reduced Liquidity of Old Securities
The trading market for Old Securities that are not tendered or accepted for
exchange could become more limited due to the reduction in the amount of Old
Securities outstanding after the Exchange Offers, which might adversely affect
the liquidity and market price of such Securities. The following Old Securities
are listed on the NYSE: Old 7 7/8% Notes due 2002, Old 8% Notes due 1999, Old
9% Debentures due 2012, Old 9 7/8% Notes due 2001 and Old 10% Debentures due
2008. If the amount of such Old Securities outstanding after the Exchange
Offers is sufficiently small, such Old Securities will be delisted. Under the
current rules of the NYSE, debt securities are subject to delisting if the
aggregate market value or principal amount of publicly held debt securities is
less than $1 million. El Paso has informed Tenneco that it intends to seek to
have such Old Securities delisted following consummation of the Transaction. If
a market develops for the Old Securities that remain outstanding following the
Exchange Offers, such Old Securities may trade at a discount depending on
prevailing interest rates, the market for securities with similar credit
features, the performance of Tenneco and other factors. Furthermore, the prices
at which any such trading occurs in the Old Securities could be extremely
volatile if the amount of such Old Securities outstanding after the Exchange
Offers is substantially reduced. There can be no assurance that an active
market in the Old Securities will develop following consummation of the
Exchange Offers and no assurance as to the prices at which the Old Securities
may trade.
Liabilities of Tenneco Energy for Discontinued Businesses
Tenneco has certain actual and contingent liabilities which, under the terms
of the Distribution Agreement, will be liabilities of the Energy Business after
the Distributions. These liabilities relate to, among other things, retiree
medical and other retiree costs of former employees of Tenneco and its
subsidiaries, litigation, environmental matters, and liabilities (including
environmental liabilities) relating to discontinued businesses and operations
of Tenneco and its subsidiaries (other than the discontinued businesses of New
Tenneco and Newport News). El Paso has estimated that the aggregate amount of
these liabilities is approximately $600 million. However, the actual amount of
such liabilities could vary materially from such estimate.
Purchase Accounting Adjustments
Certain of the pro forma adjustments under "Description of Tenneco--Unaudited
Pro Forma Consolidated Financial Statements" reflect preliminary estimated
acquisition adjustments under the purchase method of accounting. A number of
these adjustments reflect El Paso's management's intended business strategies
and El Paso's allocations to property, plant and equipment of the excess of the
total purchase price of the Energy Business over the fair value of the net
assets acquired. This allocation reflects El Paso's internal evaluation of the
excess purchase price and is subject to the completion of an independent
appraisal of the fair value of the property acquired. Should the independent
valuation not support such allocation, the excess of total purchase price over
the fair value of the net assets acquired will be reflected as goodwill. There
can be no assurance as to the effect on Tenneco or the Old Securities or the
proposed Refinancing Transactions if the final purchase accounting adjustments
are materially different from those reflected in the "Description of Tenneco--
Unaudited Pro Forma Consolidated Financial Statements," included elsewhere
herein.
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<PAGE>
THE EXCHANGE OFFERS
New Tenneco hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the Letter of Transmittal, to exchange New
Securities for any and all of the Old Securities that are validly tendered and
not withdrawn at or prior to the Expiration Time. New Tenneco will accept
tenders of Old Securities only in principal amounts of $1,000 or integral
multiples of $1,000. Each of the Exchange Offers will commence at 9:00 a.m.,
New York City time, on , November [ ], 1996, and will expire at 5:00 p.m.,
New York City time, on Tuesday, December 10, 1996, unless extended by New
Tenneco in its sole discretion, subject to the right of New Tenneco, in its
sole discretion, to the extent that it is legally permitted to do so, to
terminate or amend any Exchange Offer at any time as discussed below.
Holders of Old Securities may choose to participate in the Exchange Offers
by following the procedures described herein. Holders of Old Securities who
tender their Old Securities in response to an Exchange Offer will be required,
as a condition to a valid tender, to consent to the Proposed Amendments with
respect to the tendered Old Securities. The proper tender of Old Securities
for exchange pursuant to one of the procedures set forth herein will
constitute the giving of a Consent to the Proposed Amendments and execution of
the Supplemental Indenture with respect to such Old Securities. See "--The
Consent Solicitation."
TERMS OF THE EXCHANGE OFFERS
Subject to the terms and conditions set forth in this Prospectus and in the
Letter of Transmittal, New Tenneco is offering to exchange the New Securities
described below in exchange for the Old Securities described below.
<TABLE>
<CAPTION>
OUTSTANDING
AGGREGATE THE EXCHANGING HOLDERS WILL RECEIVE
PRINCIPAL FOR EACH $1,000 PRINCIPAL AMOUNT $1,000 PRINCIPAL AMOUNT OF THE
CUSIP NO.* AMOUNT OF THE FOLLOWING OLD SECURITIES: FOLLOWING NEW SECURITIES:
- ---------- ------------ --------------------------------------- --------------------------------------
<S> <C> <C> <C>
880370BN0 $300,000,000 6 1/2% Notes due December 15, 2005 6.70% Notes due December 15, 2005
880370BP5 $300,000,000 7 1/4% Debentures due December 15, 2025 7.45% Debentures due December 15, 2025
880370BK6 $500,000,000 7 7/8% Notes due October 1, 2002 8.075% Notes due October 1, 2002
880370BL4 $250,000,000 8% Notes due November 15, 1999 8.20% Notes due November 15, 1999
880370BM2 $150,000,000 9% Debentures due November 15, 2012 9.20% Debentures due November 15, 2012
880370BH3 $200,000,000 9 7/8% Notes due February 1, 2001 10.075% Notes due February 1, 2001
880370BF7 $250,000,000 10% Debentures due March 15, 2008 10.20% Debentures due March 15, 2008
</TABLE>
- --------
* CUSIP numbers are provided solely as a convenience to holders. No
representation is made as to the correctness or accuracy of any CUSIP
numbers set forth herein, and the terms of the Exchange Offers shall not be
affected by any defect in or omission of such CUSIP numbers.
In each case, accrued but unpaid interest on the Old Securities to, but
excluding, the applicable Issuance Date will be paid to the holders of the Old
Securities exchanged pursuant to the Exchange Offers; provided, however, that
if the Issuance Date occurs before an interest payment date for any series of
Old Securities but after the record date relating to such interest payment
date, then Tenneco (rather than New Tenneco) will pay accrued interest up to,
but excluding, the applicable Issuance Date on such series of Old Securities
to the holders of such Old Securities as of such record date, on the
applicable Issuance Date (rather than on the regularly scheduled interest
payment date). Interest will cease to accrue on and after the applicable
Issuance Date for Old Securities exchanged pursuant to the Exchange Offers.
The accrued interest for the Old Securities properly tendered and accepted for
exchange will be paid to the Exchange Agent, which will then pay to such
holders such interest in immediately available (same-day) funds on the third
NYSE trading day following the applicable Expiration Time or as soon as
possible thereafter (i.e., the Exchange Date). Interest on the New Securities
will accrue at the applicable rate from and including the Issuance Date.
Upon consummation of the Exchange Offers, Tenneco will purchase (and
thereafter extinguish) the Old Securities accepted by New Tenneco for exchange
pursuant to the Exchange Offers, and New Tenneco will then distribute such
proceeds as a dividend to Tenneco.
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<PAGE>
Holders of Old Securities who tender into the Exchange Offers will be
required, as a condition to a valid tender, to consent to the Proposed
Amendments. The proper tender of Old Securities for exchange pursuant to one of
the procedures set forth herein will constitute the giving of a Consent to the
Proposed Amendments and to the execution of the Supplemental Indenture.
The terms of each series of New Securities will be substantially the same in
all material respects as the terms of the corresponding series of Old
Securities except that (i) the New Securities will be issued by New Tenneco,
(ii) the interest rate on each series of New Securities will be higher than the
interest rate on each corresponding series of Old Securities as set forth
herein and (iii) the New Indenture will contain a negative pledge covenant,
events of default and other provisions which differ, in certain respects, from
the corresponding provisions in the Old Indenture. See "Description of the New
Securities."
THE CONSENT SOLICITATION
As part of the Exchange Offers, New Tenneco, on behalf of Tenneco, is
soliciting Consents to the Proposed Amendments. The Consent Solicitation
(together with the solicitation of Consents being made pursuant to the Cash
Tender Offers) is being made to obtain the Requisite Consents of holders of Old
Securities and Other Securities to the Proposed Amendments. See "--Procedures
for Tendering Old Securities for Exchange and Giving Consents" and "The
Proposed Amendments." NEW TENNECO WILL MAKE NO PAYMENTS FOR CONSENTS DELIVERED
IN THE CONSENT SOLICITATION.
To amend the Old Indenture, the registered holders of at least a majority of
the outstanding aggregate principal amount of all series of the Old Securities
and Other Securities, considered together as a single class, must tender
Consents thereto. There are presently outstanding an aggregate principal amount
of $1,950 million and $675 million of Old Securities and Other Securities,
respectively. Accordingly, the Old Indenture could be amended by the registered
holders of the Old Securities without regard to the registered holders of the
Other Securities.
Tenneco and the Old Trustee intend to execute the Supplemental Indenture
(providing for the Proposed Amendments to the Old Indenture) following the
receipt of the Requisite Consents but prior to acceptance for exchange or
payment, as the case may be, of the related Old Securities and/or Other
Securities. Although the Supplemental Indenture will be executed prior to
acceptance of the Old Securities under the Exchange Offers, the Proposed
Amendments contained therein will not become operative until the date and time
that all Old Securities and/or Other Securities underlying the related
Requisite Consents are accepted for exchange or payment, as the case may be.
If the Proposed Amendments with respect to the Old Indenture become
effective, they will apply to all Old Securities and Other Securities. Each
holder of Old Securities that were not tendered for exchange or accepted
hereunder will be bound by the Proposed Amendments regardless of whether such
holder consented to the Proposed Amendments. Accordingly, consummation of the
Exchange Offers may potentially have adverse consequences on non-tendering
holders of Old Securities. See "Risk Factors."
EXPIRATION TIME; EXTENSIONS; TERMINATION; AMENDMENTS
Each Exchange Offer will expire at 5:00 p.m., New York City Time, on December
10, 1996, subject to extension or earlier termination by New Tenneco as herein
provided.
New Tenneco expressly reserves the right, in its sole discretion, subject to
applicable law, at any time or from time to time, to (i) terminate any of the
Exchange Offers and not accept for exchange any Old Securities if any of the
conditions set forth below under "--Conditions to the Exchange Offers" are not
satisfied and are not waived by New Tenneco, (ii) waive any condition to any
Exchange Offer and accept all Old Securities previously tendered for exchange
pursuant to such Exchange Offer, (iii) extend the Expiration Time of any of the
Exchange Offers and retain all Old Securities tendered pursuant thereto,
subject, however, to the withdrawal rights of
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<PAGE>
holders and/or (iv) amend any Exchange Offer in any respect until the Old
Securities are accepted for exchange. If New Tenneco extends any Exchange
Offer, or if, for any reason, the acceptance for exchange of Old Securities is
delayed, or if New Tenneco is unable to accept for exchange Old Securities
pursuant to any Exchange Offer, then, the Exchange Agent may retain tendered
Old Securities that have not been previously withdrawn on behalf of New
Tenneco, and such Old Securities may not be withdrawn except to the extent
tendering holders are entitled to withdrawal rights as described under "--
Withdrawal Rights," subject to Rule 14e-1(c) under the Exchange Act (which
requires that a bidder pay the consideration offered or return the securities
deposited by or on behalf of holders of securities promptly after the
termination or withdrawal of a cash tender offer).
Any extension, termination or amendment of any of the Exchange Offers may be
made by giving written or oral notice thereof to the Exchange Agent, which will
be followed as promptly as practicable by a public announcement thereof. In the
case of an extension, a public announcement will be issued prior to 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Time of the Exchange Offer or Exchange Offers subject to such
extension. Without limiting the manner in which New Tenneco may choose to make
any public announcement, New Tenneco shall have no obligation to publish,
advertise or otherwise communicate any such public announcement other than by
making a release to the Dow Jones News Service or otherwise as required by law.
All Old Securities tendered pursuant to an Exchange Offer prior to any
extension and not subsequently withdrawn will remain subject to such Exchange
Offer.
The terms of any extension or amendment of any Exchange Offer may vary from
the original Exchange Offers depending on such factors as prevailing interest
rates and the principal amount of Old Securities previously tendered. There can
be no assurance that New Tenneco will exercise its right to extend, terminate
or amend any of the Exchange Offers. New Tenneco expressly reserves the right,
in its sole discretion, to delay acceptance for exchange of Old Securities
tendered under any of the Exchange Offers or the exchange for the Old
Securities accepted for exchange (subject to Rule 14e-1(c) under the Exchange
Act) if any of the conditions of the Exchange Offers shall not have been
satisfied or waived or in order to comply, in whole or in part, with applicable
law. If, prior to the Expiration Time, New Tenneco amends the terms of any
Exchange Offer, such amendment will apply to all Old Securities of the same
series tendered pursuant thereto but will not (unless expressly provided) apply
to any other Exchange Offer. New Tenneco does not presently intend to change
the consideration currently offered.
If New Tenneco makes a material change in the terms of any Exchange Offer or
the information concerning any Exchange Offer or waives any condition of any
Exchange Offer that results in a material change to the circumstances of such
Exchange Offer, New Tenneco will disseminate additional exchange offer
materials if and to the extent required by applicable law and will extend such
Exchange Offer if and to the extent required in order to permit holders of the
Old Securities subject to such Exchange Offer adequate time to consider such
materials. If New Tenneco shall decide, in its sole discretion, to decrease the
principal amount of Old Securities being sought in any Exchange Offer or to
increase or decrease the consideration offered to holders of Old Securities
subject to any Exchange Offer, New Tenneco will, to the extent required by
applicable law, cause such Exchange Offer to be extended, if necessary, so that
such Exchange Offer remains open at least until the expiration of ten business
days from the date that such notice is first published, sent or given by New
Tenneco. For purposes of this paragraph "business day" has the meaning set
forth in Rule 14d-1(c)(6) under the Exchange Act. In addition, with respect to
any other material change in the terms of any Exchange Offer or the information
concerning any Exchange Offer, the minimum period during which any such
Exchange Offer must remain open following such material change depends upon the
facts and circumstances, including the relative materiality of such terms or
information.
EFFECT OF TENDER
Tenders of Old Securities pursuant to the Exchange Offers described herein,
in the Letter of Transmittal and, if applicable, the Notice of Guaranteed
Delivery (as defined) will constitute a binding agreement between the tendering
holder of Old Securities and New Tenneco upon the terms and subject to the
conditions of the Exchange Offers. The acceptance of an Exchange Offer by a
tendering holder of Old Securities will constitute
29
<PAGE>
the agreement by such holder to deliver good and marketable title to the
tendered Old Securities free and clear of all liens, charges, adverse claims,
encumbrances, interests and restrictions of any kind.
ACCEPTANCE OF OLD SECURITIES TENDERED FOR EXCHANGE; DELIVERY OF NEW SECURITIES
Upon the terms and subject to the conditions of the Exchange Offers
(including, if any Exchange Offer is extended or amended, the terms and
conditions if any such extension or amendment) and applicable law, New Tenneco
shall be deemed to have accepted for exchange tendered Old Securities as, if
and when New Tenneco gives oral or written notice to the Exchange Agent of New
Tenneco's acceptance of such Old Securities for exchange. Payment of accrued
interest and delivery of New Securities for Old Securities so accepted will be
made by delivery to the Exchange Agent of New Securities and accrued interest
on the exchanged Old Securities. In all cases, however, New Securities will be
issued in exchange for Old Securities only after timely receipt by the
Exchange Agent at its address on the back cover page hereof of (i)
certificates for all physically delivered Old Securities in proper form for
transfer or confirmation of a book-entry transfer of such Old Securities into
the Exchange Agent's account at DTC pursuant to the procedures set forth
herein, (ii) a properly completed and duly executed Letter of Transmittal or
properly transmitted Agent's Message, and (iii) any other documents required
by the Letter of Transmittal, in each case together with any applicable
signature guarantees.
The Exchange Agent will act as agent for the tendering holders for the
purpose of receiving Old Securities and transmitting payments and/or New
Securities to or at the direction of such holders. Tenders for exchange of Old
Securities will be accepted only in principal amounts equal to $1,000 or
integral multiples of $1,000.
If any tendered Old Securities are not accepted for exchange for any reason,
or if Old Securities in a principal amount in excess of the principal amount
indicated as being tendered on the Letter of Transmittal are submitted, an Old
Security in a principal amount equal to the principal amount not accepted for
exchange or tendered will be issued, without expense to the tendering holders
of Old Securities, as promptly as practicable following the expiration or
termination of the Exchange Offers.
New Tenneco reserves the right to transfer or assign, in whole at any time
or in part from time to time, to one or more of its affiliates, the right to
acquire Old Securities tendered pursuant to any Exchange Offer, but any such
transfer or assignment will not relieve New Tenneco of its obligations under
such Exchange Offers or prejudice the rights of tendering holders to receive
New Securities in exchange for Old Securities validly tendered and accepted
for exchange pursuant to such Exchange Offers.
PROCEDURES FOR TENDERING OLD SECURITIES FOR EXCHANGE AND GIVING CONSENTS
Holders of Old Securities wishing to participate in any of the Exchange
Offers must tender Old Securities in accordance with the procedures set forth
herein and in the Letter of Transmittal at or prior to the Expiration Time.
HOLDERS WHO DESIRE TO TENDER THEIR OLD SECURITIES PURSUANT TO ANY EXCHANGE
OFFER AND RECEIVE NEW SECURITIES IN EXCHANGE THEREFOR AS DESCRIBED HEREIN ARE
REQUIRED TO DELIVER A CONSENT TO THE PROPOSED AMENDMENTS. THE PROPER TENDER OF
OLD SECURITIES PURSUANT TO ONE OF THE PROCEDURES SET FORTH HEREIN WILL
CONSTITUTE THE GIVING OF A CONSENT TO THE PROPOSED AMENDMENTS.
The procedures by which Old Securities may be tendered and Consents given by
beneficial owners that are not registered holders will depend upon the manner
in which the Old Securities are held, as described below.
TENDER OF OLD SECURITIES HELD THROUGH A NOMINEE. Any beneficial owner of Old
Securities that are held of record by a custodian bank, depositary, broker,
trust company or other nominee and who wishes to tender Old Securities should
contact such record holder promptly and instruct such record holder to tender
the Old Securities and deliver a Consent on such beneficial owner's behalf
according to one of the procedures described herein. Pursuant to authority
granted by DTC, any DTC participant that has Old Securities credited to its
DTC account (and thereby held of record by DTC's nominee) may directly tender
such Old Securities and deliver Consents with respect thereto as if they were
the record holders thereof (and references herein to registered or
30
<PAGE>
record holders shall include such participants). A Letter of Instructions is
contained in the solicitation materials provided along with this Prospectus
which may be used by a beneficial owner to instruct the record holder to
tender Old Securities and deliver Consents.
TENDER OF OLD SECURITIES HELD WITH DTC. The Exchange Agent and DTC have
confirmed that the Exchange Offers are eligible for ATOP. Accordingly, DTC
participants may electronically transmit their acceptance of any Exchange
Offer (and thereby provide their Consent to the Proposed Amendments with
respect to the Old Securities tendered) by causing DTC to transfer Old
Securities to the Exchange Agent in accordance with DTC's ATOP procedures for
transfer. DTC will then send an Agent's Message to the Exchange Agent.
Delivery of tendered Old Securities by a DTC participant must be made to the
Exchange Agent pursuant to the book-entry procedures set forth below or the
tendering DTC participant must comply with the guaranteed delivery procedures
set forth below.
The term "Agent's Message" means a message, transmitted by DTC to, and,
received by, the Exchange Agent and forming a part of the Book-Entry
Confirmation (as defined), which states that DTC has received an express
acknowledgment from a DTC participant tendering Old Securities that such
participant has received and agrees to be bound by the terms of the Letter of
Transmittal (including, without limitation, the fact that such participant has
consented to the Proposed Amendments in accordance with the terms of such
Letter of Transmittal) and that each of New Tenneco and Tenneco may enforce
such agreement against such participant.
BOOK-ENTRY DELIVERY PROCEDURES FOR HOLDERS TENDERING OLD SECURITIES HELD
WITH DTC. Within two business days after the date of this Prospectus, the
Exchange Agent will establish accounts with respect to the Old Securities at
DTC for purposes of the Exchange Offers. Any participant in DTC may make book-
entry delivery of Old Securities by causing DTC to transfer such Old
Securities into the Exchange Agent's account at DTC in accordance with DTC's
procedures for such transfer. Timely book-entry delivery requires receipt of a
confirmation of book-entry transfer into the Exchange Agent's account at DTC
(a "Book-Entry Confirmation") by the Exchange Agent at or prior to the
Expiration Time. In addition, although delivery of Old Securities may be
effected through book-entry transfer into the Exchange Agent's account at DTC,
an Agent's Message in connection with a book-entry transfer or the Letter of
Transmittal (or a facsimile thereof), together with any required signature
guarantees and other required documents, must, in any case, be delivered or
transmitted to and received by the Exchange Agent at its address set forth on
the back cover page of this Prospectus at or prior to the Expiration Time or
the guaranteed delivery procedures described below must be complied with. A
tender for exchange of Old Securities will not be deemed validly made until
such documents are received by the Exchange Agent. Delivery of a Letter of
Transmittal or other documents to DTC will not constitute a valid delivery to
the Exchange Agent.
TENDER OF OLD SECURITIES HELD IN PHYSICAL FORM. A holder of Old Securities
held in physical form must comply with the following instructions to tender
Old Securities in any of the Exchange Offers: (i) complete and sign the Letter
of Transmittal in accordance with the instructions set forth therein and (ii)
deliver the properly completed and duly executed Letter of Transmittal (or a
facsimile thereof), together with any required signature guarantees and other
required documents, and the Old Securities covered thereby in physical form
suitable for transfer to the Exchange Agent at its address set forth on the
back cover page of this Prospectus at or prior to the Expiration Time. A
holder who desires to tender physical Old Securities and who cannot comply
with the procedures set forth herein for tender on a timely basis or whose
physical Old Securities are not immediately available must comply with the
procedures for guaranteed delivery set forth below.
If tendered physical Old Securities are registered in the name of a person
other than the signer of a Letter of Transmittal, then, in order to validly
tender such Old Securities pursuant to the Exchange Offers, such Old
Securities must be endorsed or accompanied by an appropriate written
instrument or instruments of transfer signed exactly as the name or names of
such registered holder or holders appear on the Old Securities, with the
signature(s) on the Old Securities or instruments of transfer guaranteed as
provided below. In addition, such tender of Old Securities must be accompanied
by a properly executed Consent form, or a valid proxy of, such
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<PAGE>
registered holder or holders, since Old Securities may not be tendered without
also delivering a Consent with respect to such Old Securities, and only
registered holders are entitled to deliver Consents.
LETTERS OF TRANSMITTAL AND PHYSICAL OLD SECURITIES MUST BE SENT ONLY TO THE
EXCHANGE AGENT. DO NOT SEND LETTERS OF TRANSMITTAL OR OLD SECURITIES TO
TENNECO, NEW TENNECO, THE INFORMATION AGENT, DTC OR THE DEALER MANAGER.
GUARANTEED DELIVERY PROCEDURES. Holders of Old Securities who wish to tender
their Old Securities and (i) whose Old Securities are not immediately
available, (ii) who cannot deliver their Old Securities, the Letter of
Transmittal or any other required documents to the Exchange Agent at or prior
to the Expiration Time or (iii) who cannot complete the procedure for book-
entry transfer on a timely basis, may effect a tender if:
(a) the tender is made by or through one of the following firms or other
entities identified in Rule 17Ad-15 under the Exchange Act (as such terms
are defined therein): (i) a bank; (ii) a broker, dealer, municipal
securities dealer, municipal securities broker, government securities
dealer or government securities broker; (iii) a credit union; (iv) a
national securities exchange, registered securities association or clearing
agency; or (v) a savings institution (each an "Eligible Institution");
(b) a properly completed and duly executed Notice of Guaranteed Delivery
and Consent (a "Notice of Guaranteed Delivery"), in the form provided by
New Tenneco herewith, or an Agent's Message with respect to guaranteed
delivery that is accepted by New Tenneco, is received by the Exchange Agent
at or prior to the applicable Expiration Time; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof) or a properly transmitted Agent's Message, as well as
the certificate(s) representing all tendered Old Securities or confirmation
of a book-entry transfer of such Old Securities into the Exchange Agent's
account at DTC in proper form for transfer, and all other documents
required by such Letter of Transmittal are received by the Exchange Agent
within two NYSE trading days after the Expiration Time.
The Notice of Guaranteed Delivery may be sent by hand delivery, facsimile
transmission or mail to the Exchange Agent at its address on the back cover
page of this Prospectus and must include a guarantee by an Eligible
Institution in the form set forth in the Notice of Guaranteed Delivery
provided by New Tenneco. Failure to complete the guaranteed delivery procedure
outlined above will not, of itself, affect the validity of, or effect a
revocation of, any Consent properly executed by a holder of Old Securities who
attempted to use the guaranteed delivery procedures.
Notwithstanding any other provision hereof, the issuance of New Securities
in exchange for Old Securities tendered and accepted for exchange pursuant to
the guaranteed delivery procedures described herein will, in all cases, occur
only after timely receipt by the Exchange Agent of (i) such Old Securities or
confirmation of a book-entry transfer of such Old Securities as described
above, and (ii) a properly completed and duly executed Letter of Transmittal
(or facsimile thereof), together with any other required documents, with any
required signature guarantees or a properly transmitted Agent's Message.
UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID BY NEW TENNECO BY REASON OF ANY
DELAY IN MAKING PAYMENT TO ANY PERSON USING THE GUARANTEED DELIVERY
PROCEDURES. THE PAYMENT FOR ANY OLD SECURITY TENDERED PURSUANT TO THE
GUARANTEED DELIVERY PROCEDURES WILL BE THE SAME AS THAT FOR AN EQUIVALENT OLD
SECURITY DELIVERED TO THE EXCHANGE AGENT IN ACCORDANCE WITH THE PROVISIONS
HEREOF AT OR PRIOR TO THE APPLICABLE EXPIRATION TIME, EVEN IF THE OLD SECURITY
TO BE DELIVERED PURSUANT TO THE GUARANTEED DELIVERY PROCEDURES IS NOT
DELIVERED TO THE EXCHANGE AGENT IN A TIMELY MANNER AS DESCRIBED ABOVE AND
THEREFORE DELIVERY TO THE EXCHANGE AGENT ON ACCOUNT OF SUCH OLD SECURITY IS
NOT MADE UNTIL AFTER THE ISSUANCE DATE.
PROPER EXECUTION AND DELIVERY OF LETTERS OF TRANSMITTAL. The method of
delivery of Old Securities, any required signature guarantees and all other
required documents, including delivery through DTC and any
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<PAGE>
acceptance of an Agent's Message transmitted through ATOP, is at the option
and risk of the tendering holders and, except as otherwise provided in the
Letter of Transmittal, delivery will be deemed made when actually received by
the Exchange Agent. If delivery is by mail, New Tenneco recommends that the
mailing be made (i) by registered mail with return receipt requested, properly
insured, and (ii) sufficiently in advance of the applicable Expiration Time to
allow enough time to ensure timely delivery.
Except as otherwise provided below, all signatures on a Letter of
Transmittal or a notice of withdrawal, as the case may be, must be guaranteed
by an Eligible Institution. Signatures on a Letter of Transmittal need not be
guaranteed if (i) such Letter of Transmittal is signed by the registered
physical holder(s) of Old Securities tendered therewith or by a participant in
DTC whose name appears on a security position listing as the owner of Old
Securities tendered therewith and such holder(s) have not completed the
portion entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the Letter of Transmittal, or (ii) such Old Securities are
tendered for the account of an Eligible Institution. See Instruction 2 in the
Letter of Transmittal.
If the Letter of Transmittal is signed by the registered holder(s) of Old
Securities tendered thereby, the signature(s) must correspond with the name(s)
as written on the face of Old Securities without alteration, enlargement or
any change whatsoever. If any of the Old Securities tendered thereby are held
by two or more registered holders, all such registered holders must sign such
Letter of Transmittal. If any of the Old Securities tendered thereby are
registered in different names on different Old Securities, it will be
necessary to complete, sign and submit as many separate Letters of Transmittal
as there are different registrations of certificates.
If the certificates for New Securities issued pursuant to the Exchange
Offers are to be registered in the name of, or payments are to be made to, a
person other than the person whose signature is on the Letter of Transmittal,
or if Old Securities that are not tendered for exchange pursuant to the
Exchange Offers are to be returned to a person other than the registered
owner, then certificates for such Old Securities must be endorsed or
accompanied by an appropriate instrument of transfer, signed exactly as the
name of the registered owner appears on the certificates, with the signatures
on the certificates or instruments of transfer guaranteed by an Eligible
Institution.
If a Letter of Transmittal is signed by a person other than the registered
holder(s) of Old Securities tendered thereby, then, in order to validly tender
such Old Securities pursuant to the Exchange Offers, such Old Securities must
be endorsed or accompanied by an appropriate written instrument or instruments
of transfer signed exactly as the name(s) of such registered holders(s)
appear(s) on the Old Securities, with the signature(s) on such Old Securities
or instruments of transfer guaranteed by an Eligible Institution. In addition,
such tender of Old Securities must be accompanied by either a valid proxy of,
or a Consent signed by, such registered holder(s) guaranteed by an Eligible
Institution, since Old Securities may not be tendered without also delivering
a Consent with respect to such Old Securities, and only registered holders are
entitled to deliver Consents.
No alternative, conditional, irregular or contingent tenders or Consents
will be accepted. By executing the Letter of Transmittal (or facsimile
thereof) or transmitting an Agent's Message, the tendering holders of Old
Securities waive any right to receive any notice of the acceptance for
exchange of their Old Securities.
Tendering holders should indicate in the applicable box in the Letter of
Transmittal the name and address to which payments, certificates evidencing
New Securities and/or substitute certificates evidencing Old Securities for
amounts not tendered or not accepted for exchange are to be issued or sent, if
different from the name and address of the person signing such Letter of
Transmittal. In the case of issuance in a different name, the employer
identification or social security number of the person named must also be
indicated and a Substitute Form W-9 for such recipient must be completed. If
no such instructions are given, such payments, New Securities or Old
Securities not tendered or not accepted for exchange, as the case may be, will
be issued to and returned to the registered holder of Old Securities tendered
at the address listed in the register maintained by the Old Trustee for such
Old Securities (or, in the case of Old Securities tendered by book-entry
transfer into the Exchange Agent's account at DTC pursuant to the procedures
set forth herein, such Old Securities will be credited to the account
maintained at DTC from which such Old Securities were delivered).
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<PAGE>
DETERMINATION OF VALIDITY. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance of tendered Old
Securities pursuant to the procedures described above will be determined by
New Tenneco in its sole discretion, whose determination will be final and
binding. New Tenneco reserves the absolute right to reject any or all tenders
of Old Securities determined by it not to be in proper form or the acceptance
of which may, in the opinion of counsel for New Tenneco, be unlawful. New
Tenneco also reserves the absolute right, in its sole discretion, subject to
applicable law, to waive any of the conditions of the Exchange Offers as set
forth under "--Conditions to the Exchange Offers" or any defects or
irregularities of any tender as to Old Securities, whether or not similar
defects or irregularities are waived in the case of other tendered Old
Securities. New Tenneco's interpretation of the terms and conditions of the
Exchange Offers (including the instructions in the Letter of Transmittal) will
be final and binding. Unless waived, any irregularities in connection with
tenders must be cured within such time as New Tenneco shall determine. None of
New Tenneco, the Exchange Agent, the Information Agent, DTC and the Dealer
Manager shall be under any duty to give notification of defects in any tenders
or shall incur liabilities for failure to give such notification. Tenders of
Old Securities will not be deemed to have been made until such irregularities
have been cured or waived. Any Old Securities received by the Exchange Agent
that are not properly tendered and as to which the irregularities have not
been cured or waived will be returned by the Exchange Agent to the tendering
holder, unless otherwise provided in the Letter of Transmittal, as soon as
practicable following the Expiration Time.
TRANSFER TAXES. New Tenneco will pay all transfer taxes, if any, applicable
to the transfer and sale of Old Securities to it pursuant to the Exchange
Offers. If, however, New Securities and/or substitute Old Securities for Old
Securities not tendered for exchange or not exchanged are to be delivered to,
or are to be registered or issued in the name of, any person other than the
registered holder of Old Securities tendered, or if tendered Old Securities
are registered in the name of any person other than the person signing the
Letter of Transmittal, or if a transfer tax is imposed for any reason other
than the transfer or sale of Old Securities to New Tenneco pursuant to the
Exchange Offers, the amount of any such transfer taxes (whether imposed on the
registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with the Letter of Transmittal, the amount of such
transfer taxes will be billed directly to such tendering holder.
BACKUP U.S. FEDERAL INCOME TAX WITHHOLDING. U.S. federal income tax law
requires that a holder of Old Securities whose tendered Old Securities are
accepted for exchange must provide the Exchange Agent (as payor) with such
holder's correct taxpayer identification number, which, in the case of a
holder who is an individual, is his or her social security number, or
otherwise establish a basis for an exemption from backup withholding. Exempt
holders (including, among others, all corporations and certain foreign
individuals) are not subject to these backup withholding and reporting
requirements. If the Exchange Agent is not provided with the correct taxpayer
identification number or an adequate basis for an exemption, the holder may be
subject to a penalty imposed by the IRS and amounts paid to the holder under
an Exchange Offer may be subject to 31% backup withholding. If withholding
results in an overpayment of taxes, a refund may be obtained by such holder
from the IRS.
To prevent backup U.S. federal income tax withholding, each tendering holder
of Old Securities must complete the IRS Substitute Form W-9 provided in the
Letter of Transmittal and provide either (i) his or her correct taxpayer
identification number and certain other information under penalties of
perjury, or (ii) an adequate basis for an exemption. For a discussion of other
federal income tax consequences to holders, see "Certain U.S. Federal Income
Tax Considerations."
CONDITIONS TO THE EXCHANGE OFFERS
Notwithstanding any other provision of the Exchange Offers (or any
extensions or amendments thereof) and in addition to (and not in limitation
of) New Tenneco's rights to extend or amend any Exchange Offer at any
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<PAGE>
time in its sole discretion, New Tenneco will not be required to accept or
exchange any Old Securities tendered for exchange and may terminate any
Exchange Offer if, at or prior to the Expiration Time:
(i) the Minimum Tender Condition shall not have been satisfied;
(ii) all conditions to the Cash Tender Offers shall not have been
satisfied;
(iii) any material condition to the consummation of the Distributions or
the Merger remains unsatisfied (see "The Distributions--Conditions to
Consummation of the Distributions" and "The Merger--Conditions Precedent");
(iv) there shall have been any action taken or threatened, or any
statute, rule, regulation, judgment, order, stay, decree or injunction
promulgated, enacted, entered, enforced or deemed applicable to any
component of the Transaction (including the Exchange Offers and the Cash
Tender Offers) by or before any court or governmental, regulatory or
administrative agency or authority or tribunal, domestic or foreign, which
(a) challenges the making of any component of the Transaction or might
directly or indirectly prohibit, prevent, restrict or delay consummation of
any component of the Transaction or otherwise adversely affects in any
material manner any component of the Transaction, or (b) in the sole
judgment of New Tenneco, could materially adversely affect the business,
financial condition, income, operations, properties, assets, liabilities or
prospects of Tenneco and its subsidiaries, taken as a whole, New Tenneco
and its subsidiaries, taken as a whole, or Newport News and its
subsidiaries, taken as a whole, in each case before and after giving effect
to the Transaction, or materially impair the contemplated benefits of any
component of the Transaction to Tenneco, New Tenneco or Newport News;
(v) there shall have occurred or be likely to occur any event affecting
the business or financial affairs of Tenneco or any of its subsidiaries
that, in the sole judgment of New Tenneco, would or might prohibit,
prevent, restrict or delay consummation of any component of the
Transaction, or that will, or is reasonably likely to, materially impair
the contemplated benefits of any component of the Transaction to Tenneco,
New Tenneco or Newport News, or might be material to holders of Old
Securities in determining whether to accept the Exchange Offers;
(vi) there shall have occurred (a) any general suspension of or
limitation on trading in securities on the NYSE or in the over-the-counter
market (whether or not mandatory), (b) a material impairment in the trading
market for debt securities, (c) a declaration of a banking moratorium or
any suspension of payments in respect of banks by federal or state
authorities in the United States (whether or not mandatory), (d) a
commencement of a war, armed hostilities or other national or international
crisis directly or indirectly relating to the United States, (e) any
limitation (whether or not mandatory) by any governmental authority on, or
other event having a reasonable likelihood of affecting, the extension of
credit by banks or other lending institutions in the United States or (f)
any significant adverse change in United States securities or financial
markets generally or, in the case of any of the foregoing existing at the
time of the commencement of the Exchange Offers, a material acceleration or
worsening thereof; or
(vii) the Old Trustee shall have objected in any respect to, or taken any
action that could, in the sole judgment of New Tenneco, adversely affect
the consummation of any of the Cash Tender Offers, the Exchange Offers, any
other component of the Transaction or Tenneco's ability to effect the
Proposed Amendments, or shall have taken any action that challenges the
validity or effectiveness of the procedures used by New Tenneco in
soliciting the Consents to the Proposed Amendments (including the form
thereof) or in the making of the Exchange Offers or the acceptance of the
Old Securities tendered for exchange or the procedures used by Tenneco in
soliciting Consents to the Proposed Amendments (including the forms
thereof) or in the making of the Cash Tender Offers or the acceptance of
the Other Securities tendered for purchase.
The Cash Tender Offers are subject to substantially the same conditions as
the Exchange Offers, provided however, that the Cash Tender Offers are also
subject to the consummation of the transactions contemplated by
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<PAGE>
the Debt Realignment and certain of the Cash Tender Offers are subject to the
consent of 66 2/3% of the aggregate principal amount of the securities subject
to such Cash Tender Offers.
The foregoing conditions are for the sole benefit of New Tenneco and may be
waived by New Tenneco, in whole or in part, in its sole discretion. Any
determination made by New Tenneco concerning an event, development or
circumstance described or referred to above will be final and binding on all
parties.
WITHDRAWAL RIGHTS
Tenders of Old Securities may be withdrawn at any time at or prior to the
applicable Expiration Time and thereafter only if the applicable Exchange Offer
is terminated without any Old Securities being exchanged thereunder. A valid
withdrawal of tendered Old Securities effected at or prior to the Expiration
Time shall be deemed a revocation of the related Consent.
Tenders of Old Securities that have not been accepted for exchange may be
withdrawn at or prior to the Expiration Time. For a withdrawal to be effective,
(i) a written notice of withdrawal must be received by the Exchange Agent at
its address set forth on the back cover of this Prospectus, or (ii) the
appropriate procedures of DTC's ATOP system must be complied with. Any such
notice of withdrawal must (i) specify the name of the person having deposited
the Old Securities to be withdrawn, (ii) identify the Old Securities to be
withdrawn (including the certificate number or numbers and principal amount of
such Old Securities), (iii) be signed by the holder in the same manner as the
original signature on the Letter of Transmittal by which such Old Securities
were tendered (including any required signature guarantees) or be accompanied
by a bond power in the name of the person withdrawing the tender, in
satisfactory form as determined by New Tenneco in its sole discretion, duly
executed by the registered holder, with the signature thereon guaranteed by an
Eligible Institution, and (iv) specify the name in which such Old Securities
are to be registered, if different from the the person who tendered such Old
Securities pursuant to such documents to transfer. If Old Securities have been
tendered pursuant to the procedures for book-entry transfer described above,
any notice of withdrawal must specify the name and number of the account at DTC
to be credited with the withdrawn Old Securities and otherwise comply with the
procedures of such facility. A purported notice of withdrawal which lacks any
of the required information will not be an effective withdrawal of a tender
previously made. Withdrawal of Old Securities can only be accomplished in
accordance with the foregoing procedures.
Any permitted withdrawals of tenders of Old Securities may not be rescinded,
and any Old Securities so withdrawn will thereafter be deemed not validly
tendered for purposes of the Exchange Offers; provided, however, that withdrawn
Old Securities may again be tendered by completing the procedures for tendering
at or prior to the Expiration Time.
Any Old Securities that have been tendered for exchange but which are
withdrawn will be returned to the holder thereof without cost to such holder
or, in the case of Old Securities tendered by book-entry transfer into the
Exchange Agent's accounts at DTC pursuant to the book-entry transfer procedures
described above, such Old Securities will be credited to an account maintained
with DTC for the Old Securities as soon as practicable after withdrawal.
ALL QUESTIONS AS TO THE VALIDITY (INCLUDING TIME OF RECEIPT) OF NOTICES OF
WITHDRAWAL WILL BE DETERMINED BY NEW TENNECO, IN ITS SOLE DISCRETION, WHOSE
DETERMINATION WILL BE FINAL AND BINDING. NONE OF TENNECO, NEW TENNECO, THE
EXCHANGE AGENT, DTC, THE DEALER MANAGER AND ANY OTHER PERSON WILL BE UNDER ANY
DUTY TO GIVE NOTIFICATION OF ANY DEFECTS OR IRREGULARITIES IN ANY NOTICE OF
WITHDRAWAL, OR INCUR ANY LIABILITY FOR FAILURE TO GIVE ANY SUCH NOTIFICATION.
DEALER MANAGER
Tenneco and New Tenneco have engaged Morgan Stanley to act as exclusive
Dealer Manager in connection with the Exchange Offers and to provide certain
financial advisory services to New Tenneco in connection
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<PAGE>
therewith. Any holder who has questions concerning the terms of the Exchange
Offers may contact the Dealer Manager at the address and telephone number set
forth on the back cover page of this Prospectus.
Tenneco and New Tenneco have agreed to pay the Dealer Manager predetermined
compensation for the Dealer Manager's financial advisory services and to
reimburse the Dealer Manager for its reasonable out-of-pocket expenses,
including reasonable fees and expenses of legal counsel. New Tenneco has agreed
to indemnify the Dealer Manager against certain liabilities, including certain
liabilities under the federal securities laws. The Dealer Manager has provided
in the past, and currently is providing, other investment banking and financial
advisory services to Tenneco and its affiliates, including services in
connection with the Transaction.
Morgan Stanley is also acting as exclusive Dealer Manager in connection with
the Cash Tender Offers, lead underwriter in connection with the NPS Issuance
and one of the placement agents in connection with certain financings to be
undertaken by Newport News in connection with the Transaction.
EXCHANGE AGENT
The Chase Manhattan Bank has been appointed as Exchange Agent for the
Exchange Offers. Letters of Transmittal and all correspondence in connection
with the Exchange Offers should be sent or delivered by each holder or such
holder's broker, dealer, commercial bank, trust company or other nominee to the
Exchange Agent at the address and telephone numbers set forth on the back cover
page of this Prospectus.
Any holder who has questions concerning tender procedures or whose Old
Securities have been mutilated, lost, stolen or destroyed should contact the
Exchange Agent at the address and telephone number set forth on the back cover
page of this Prospectus for instructions.
INFORMATION AGENT
Georgeson & Company Inc. has been appointed as Information Agent for the
Exchange Offers. Requests for assistance or additional copies of this
Prospectus, the Letter of Transmittal or the Notice of Guaranteed Delivery may
be directed to the Information Agent at the address and telephone number set
forth on the back cover page of this Prospectus. Holders of Old Securities may
also contact their broker, dealer, commercial bank or trust company for
assistance concerning the Exchange Offers.
TRUSTEE
The Chase Manhattan Bank is serving as the Old Trustee under the Old
Indenture and will serve as trustee (the "New Trustee") under the New
Indenture. All deliveries, correspondence and questions sent or presented to
the Old Trustee or the New Trustee relating to the Exchange Offers should be
directed to the Old Trustee at 450 W. 33rd St., 10th Floor, New York, New York
10001.
Tenneco and New Tenneco maintain, or may, in the future, maintain, normal
banking relationships with The Chase Manhattan Bank in the ordinary course of
business.
FEES AND EXPENSES
New Tenneco will pay the Exchange Agent, the Information Agent and the Old
Trustee reasonable and customary fees for their services and will reimburse
them for their reasonable out-of-pocket expenses in connection therewith. New
Tenneco will also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses incurred by them in
forwarding copies of this Prospectus and related documents to the beneficial
owners of Old Securities, and in handling or forwarding tenders for their
customers. All such fees and expenses will be paid by New Tenneco.
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<PAGE>
MARKET AND TRADING INFORMATION
The Old 7 7/8% Notes due 2002, the Old 8% Notes due 1999, the Old 9%
Debentures due 2012, the Old 9 7/8% Notes due 2001 and the Old 10% Debentures
due 2008 are listed and traded on the NYSE (collectively, the "Listed
Securities"). The following table sets forth for the calendar periods
indicated the high and low closing sales prices for such Listed Securities, as
reported by IDD Information Services.
OLD 7 7/8% NOTES DUE 2002
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1996:
Fourth Quarter (through November 5, 1996)............... 105 103 5/8
Third Quarter........................................... 104 101 1/4
Second Quarter.......................................... 103 1/4 100 3/4
First Quarter........................................... 109 103 1/4
1995:
Fourth Quarter.......................................... 107 3/4 104 3/8
Third Quarter........................................... 106 102 1/8
Second Quarter.......................................... 102 3/4 100
First Quarter........................................... 101 94 5/8
1994:
Fourth Quarter.......................................... 98 1/4 93 5/8
Third Quarter........................................... 100 5/8 97 1/8
Second Quarter.......................................... 102 99 1/4
First Quarter........................................... 110 1/4 101 1/2
OLD 8% NOTES DUE 1999
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1996:
Fourth Quarter (through November 5, 1996)............... 102 3/8 102 3/8
Third Quarter........................................... 104 1/4 101 3/4
Second Quarter.......................................... 102 3/8 102 3/8
First Quarter........................................... 106 102
1995:
Fourth Quarter.......................................... 105 5/8 101 5/8
Third Quarter........................................... 104 100
Second Quarter.......................................... 104 100 1/4
First Quarter........................................... 100 98
1994:
Fourth Quarter.......................................... 100 1/4 96
Third Quarter........................................... 102 1/2 100 1/8
Second Quarter.......................................... 102 101
First Quarter........................................... 108 7/8 101
</TABLE>
38
<PAGE>
OLD 9% DEBENTURES DUE 2012
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1996:
Fourth Quarter (through November 5, 1996)................ * *
Third Quarter............................................ * *
Second Quarter........................................... * *
First Quarter............................................ 109 1/4 109 1/4
1995:
Fourth Quarter........................................... 110 110
Third Quarter............................................ 110 109
Second Quarter........................................... 110 109
First Quarter............................................ * *
1994:
Fourth Quarter........................................... 107 1/2 107 1/2
Third Quarter............................................ * *
Second Quarter........................................... 114 1/8 114 1/8
First Quarter............................................ * *
</TABLE>
OLD 9 7/8% NOTES DUE 2001
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1996:
Fourth Quarter (through November 5, 1996)................ 108 7/8 108 7/8
Third Quarter............................................ 109 1/4 108 1/2
Second Quarter........................................... * *
First Quarter............................................ 112 1/4 108
1995:
Fourth Quarter........................................... 115 108 5/8
Third Quarter............................................ 109 109
Second Quarter........................................... 106 1/4 106 1/4
First Quarter............................................ 104 104
1994:
Fourth Quarter........................................... 104 5/8 103 1/4
Third Quarter............................................ 110 109 7/8
Second Quarter........................................... * *
First Quarter............................................ 116 3/8 116 3/8
</TABLE>
OLD 10% DEBENTURES DUE 2008
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1996:
Fourth Quarter (through November 5, 1996)................ 114 7/8 114 7/8
Third Quarter............................................ 115 1/2 112 7/8
Second Quarter........................................... 119 115
First Quarter............................................ 127 121
1995:
Fourth Quarter........................................... 124 1/2 119 3/8
Third Quarter............................................ 122 1/4 118 7/8
Second Quarter........................................... 121 1/2 113 5/8
First Quarter............................................ 116 109 1/2
1994:
Fourth Quarter........................................... 111 1/4 107 1/2
Third Quarter............................................ 111 110 7/8
Second Quarter........................................... 113 109
First Quarter............................................ 125 1/4 122
</TABLE>
- --------
*There were no reported sales of this series of Old Securities during the
indicated period.
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On November 5, 1996, the last full day the Listed Securities traded prior to
the date hereof, there were no reported sales of the Listed Securities. The
last reported sales prices of the Listed Securities and the dates of such sales
are as follows: Old 7 7/8% Notes due 2002--105 (October 31, 1996); Old 8% Notes
due 1999--102 3/8 (October 30, 1996); Old 9% Debentures due 2012--104 1/4
(January 9, 1996); Old 9 7/8% Notes due 2001--108 7/8 (October 29, 1996); and
Old 10% Debentures due 2008--114 7/8 (October 23, 1996). There can be no
assurance as to whether, or the prices at which, such Listed Securities might
be traded following the Exchange Offers. Following the completion of the
Exchange Offers, the Listed Securities will cease to be listed or traded on the
NYSE. See "Risk Factors--Risk Factors Relating to Holders Not Tendering in the
Exchange Offers--Reduced Liquidity of Old Securities." HOLDERS OF LISTED
SECURITIES ARE URGED TO OBTAIN CURRENT INFORMATION WITH RESPECT TO THE MARKET
PRICES OF THE LISTED SECURITIES.
The Old 6 1/2% Notes due 2005 and the Old 7 1/4% Debentures due 2025 (the
"Unlisted Securities") are traded in the over-the-counter market, to the extent
trading occurs. The Unlisted Securities are not actively traded and, in
general, trading of such Securities has been limited and sporadic and
information concerning trading prices and volumes may be difficult to obtain.
There can be no assurance as to whether, or the prices at which, such Unlisted
Securities might be traded following the Cash Tender Offers. HOLDERS OF
UNLISTED SECURITIES ARE URGED TO OBTAIN THE BEST AVAILABLE INFORMATION WITH
RESPECT TO THE MARKET PRICES OF THE UNLISTED SECURITIES.
ACCOUNTING TREATMENT OF THE EXCHANGE OFFERS
The New Securities will be recorded by New Tenneco based on the fair value of
the New Securities upon consummation of the Exchange Offers. The difference
between the fair value of the New Securities and the recorded net carrying
amount of the Old Securities will be recognized as an extraordinary charge by
Tenneco. As a result of the issuance of FAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities," which is
effective for transactions occurring after December 31, 1996, the Emerging
Issues Task Force ("EITF") of the Financial Accounting Standards Board is
addressing the issue of the appropriate accounting for substantive
modifications and exchanges of debt. No assurances can be given that the EITF
will reach a concensus which is consistent with New Tenneco's proposed
accounting, which is based on current GAAP.
THE PROPOSED AMENDMENTS
It is a condition to exchanging Old Securities that each holder tendering Old
Securities consent to the Proposed Amendments with respect thereto. The
Proposed Amendments are being presented as a single, unified proposal with
respect to the Old Indenture.
Although the Supplemental Indenture will be executed prior to acceptance of
the Old Securities under the Exchange Offers, the Proposed Amendments contained
therein will not become operative until after receipt of the Requisite Consents
and upon acceptance for exchange or payment, as the case may be, of the Old
Securities and/or the Other Securities relating to such Consents. If the
Proposed Amendments become operative, the holders of Old Securities which
remain outstanding will be bound by the Supplemental Indenture regardless of
whether they consented to the Proposed Amendments. See "Risk Factors."
The following sets forth a brief description, as well as the text, of the
Proposed Amendments for which Consents are being sought pursuant to the Consent
Solicitations. The summaries of provisions of the Old Indenture set forth below
are qualified in their entireties by reference to the full and complete terms
contained in the Old Indenture. Capitalized terms appearing below in regards to
the amendments to the Old Indenture have the meanings assigned to such terms in
the Old Indenture.
The Proposed Amendments would effect the following principal changes: (i) the
Old Indenture would be amended to (a) specifically provide that nothing in the
Old Indenture shall prevent, or place any restrictions or conditions on,
consummation of the transactions contemplated by the Distribution Agreement or
the Merger Agreement and (b) specifically allow Tenneco to consummate such
transactions without complying with the covenant in the Old Indenture (the
"Tenneco Asset Transfer Covenant") that generally provides that Tenneco
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<PAGE>
may not sell, lease, transfer or otherwise dispose of its property and assets
as, or substantially as, an entirety unless the corporation to which such
sale, lease, transfer or other disposition is made specifically assumes
liability for securities issued thereunder and certain other conditions are
met (the application of which Tenneco believes, in any event, is uncertain in
these circumstances); (ii) Modification of the covenant restricting Tenneco
from granting liens on its properties to (A) apply only the principal
properties of Tenneco and its subsidiaries located in the United States and
Canada (rather than all properties and assets wherever located), (B) permit
Tenneco to grant liens on its properties to secure the costs of improvements
to such properties, (C) increase the amount of debt that may be secured by a
lien on Tenneco's properties to 15% of the consolidated net tangible assets of
Tenneco and (D) specifically exclude any liens on Tenneco's properties in
existence on the date of execution of the Supplemental Indenture; (iii)
Elimination of the provisions whereby a default by Tenneco or one or more of
its subsidiaries is under other obligations for borrowed money would be an
event of default under the Indenture; and (iv) Modification of the
Satisfaction and Discharge provision to allow defeasance of the Old Securities
(i.e. the satisfaction of Tenneco's obligations under the Indenture by
depositing all amounts to become due and payable thereunder in trust) within
one year of maturity; and (v) definitions of certain terms used in connection
with the foregoing amendments would be added to the Old Indenture.
Set forth below are the Proposed Amendments to the Old Indenture in the form
that will be adopted in the Supplemental Indenture as described above. A copy
of the proposed Supplemental Indenture is an exhibit to the Registration
Statement of which this Prospectus is a part, is on file with the Old Trustee
and is available for inspection by all of the holders of Old Securities at the
Old Trustee's offices located at 450 W. 33rd St., 15th Floor, New York, NY
10001. Unless otherwise indicated, article and section references are to the
Old Indenture.
DEFINITIONS
(S) 1.01 of the Supplemental Indenture. The definition of "Consolidated Net
Tangible Assets" is hereby amended to read as follows:
Consolidated Net Tangible Assets
The term "Consolidated Net Tangible Assets" shall mean, at any date of
determination, the total amount of assets after deducting therefrom (i) all
current liabilities (excluding (A) any current liabilities that by their
terms are extendable or renewable at the option of the obligor thereon to a
time more than 12 months after the time as of which the amount thereof is
being computed, and (B) current maturities of long- term debt), and (ii)
the value (net of any applicable reserves) of all goodwill, trade names,
trademarks, patents and other like intangible assets, all as set forth on
the consolidated balance sheet of the Company and its consolidated
subsidiaries for the Company's most recently completed fiscal quarter,
prepared in accordance with generally accepted accounting principles.
(S) 1.02 of the Supplemental Indenture. The following definitions are hereby
added to Article 1 of the Original Indenture (which, for purposes of the
Supplemental Indenture, shall be defined as the Old Indenture):
Distribution Agreement
The term "Distribution Agreement" means the Distribution Agreement dated
as of November 1, 1996, among the Company, New Tenneco Inc. and Newport
News Shipbuilding Inc., as the same may be amended, modified or
supplemented from time to time.
Excluded Conveyance:
The term "Excluded Conveyance" shall mean any transaction contemplated by
the Distribution Agreement or the Merger Agreement.
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<PAGE>
Merger Agreement:
The term "Merger Agreement" means the Agreement and Plan of Merger dated
as of June 19, 1996, among El Paso Natural Gas Company, El Paso Merger
Company and the Company, as the same may be amended, modified or
supplemented from time to time.
Principal Property:
The term "Principal Property" shall mean (i) any pipeline assets of the
Company or any Subsidiary, including any related facilities employed in the
transportation, distribution or marketing of natural gas, that are located
within the continental United States of America or Canada, and (ii) any
processing or manufacturing plant owned or leased by the Company or any
Subsidiary and located within the continental United States of America or
Canada, except in the case of either clause (i) or (ii), any such assets or
plant which, in the opinion of the Board of Directors, is not material in
relation to the activities of the Company and its Subsidiaries as a whole.
Stated Maturity:
The term "Stated Maturity," when used with respect to any Security or any
installment of interest thereon, shall mean the date specified in such
Security as the fixed date on which the principal of such Security or such
installment of interest is due and payable.
MODIFICATION OF NEGATIVE PLEDGE COVENANT
(S) 1.03 of the Supplemental Indenture. Section 4.04 of the Original
Indenture is hereby amended and restated in its entirety to read as follows:
(S) 4.04. The Company will not, nor will it permit any Subsidiary to,
create, assume, incur or suffer to exist any Lien upon any Principal
Property, whether owned or leased on [the date of execution of the
Supplemental Indenture] or hereafter acquired, to secure any Debt of the
Company or any other Person (other than the Securities), without in any
such case making effective provision whereby all of the Securities
outstanding hereunder shall be secured equally and ratably with, or prior
to, such Debt so long as such Debt shall be so secured. This restriction
shall not apply to:
(i) any Lien upon any property or assets of the Company or any
Subsidiary in existence on [the date of execution of the Supplemental
Indenture] or created pursuant to an "after-acquired property" clause
or similar term in existence on [the date of execution of the
Supplemental Indenture] or any mortgage, pledge agreement, security
agreement or other similar instrument in existence on [the date of
execution of the Supplemental Indenture];
(ii) any Lien upon any property or assets created at the time of the
acquisition of such property or assets by the Company or any Subsidiary
or within one year after such time to secure all or a portion of the
purchase price for such property or assets or Debt incurred to finance
such purchase price, whether such Debt was incurred prior to, at the
time of or within one year of such acquisition;
(iii) any Lien upon any property or assets existing thereon at the
time of the acquisition thereof by the Company or any Subsidiary
(whether or not the obligations secured thereby are assumed by the
Company or any Subsidiary);
(iv) any Lien upon any property or assets of a person existing
thereon at the time such person becomes a Subsidiary by acquisition,
merger or otherwise;
(v) the assumption by the Company or any Subsidiary of obligations
secured by any Lien existing at the time of the acquisition by the
Company or any Subsidiary of the property or assets subject to such
Lien or at the time of the acquisition of the person which owns such
property or assets;
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<PAGE>
(vi) any Lien on property to secure all or part of the cost of
construction or improvements thereon or to secure Debt incurred prior
to, at the time of, or within one year after completion of such
construction or making of such improvements, to provide funds for any
such purpose;
(vii) any Lien on any oil, gas, mineral and processing and other
plant properties to secure the payment of costs, expenses or
liabilities incurred under any lease or grant or operating or other
similar agreement in connection with or incident to the exploration,
development, maintenance or operation of such properties;
(viii) any Lien arising from or in connection with a conveyance by
the Company or any Subsidiary of any production payment with respect to
oil, gas, natural gas, carbon dioxide, sulphur, helium, coal, metals,
minerals, steam, timber or other natural resources;
(ix) any Lien in favor of the Company or any Subsidiary;
(x) any Lien created or assumed by the Company or any Subsidiary in
connection with the issuance of Debt the interest on which is
excludable from gross income of the holder of such Debt pursuant to the
Internal Revenue Code of 1986, as amended, or any successor statute,
for the purpose of financing, in whole or in part, the acquisition or
construction of property or assets to be used by the Company or any
Subsidiary;
(xi) Liens upon rights-of-way for pipeline purposes;
(xii) any governmental Lien, mechanics', materialmen's, carriers' or
similar Lien incurred in the ordinary course of business which is not
yet due or which is being contested in good faith by appropriate
proceedings and any undetermined Lien which is incidental to
construction;
(xiii) the right reserved to, or vested in, any municipality or
public authority by the terms of any right, power, franchise, grant,
license, permit or by any provision of law, to purchase or recapture or
to designate a purchaser of, any property;
(xiv) Liens of taxes and assessments which are (A) for the then
current year, (B) not at the time delinquent, or (C) delinquent but the
validity of which is being contested at the time by the Company or any
Subsidiary in good faith;
(xv) Liens of, or to secure performance of, leases;
(xvi) any Lien upon, or deposits of, any assets in favor of any
surety company or clerk of court for the purpose of obtaining indemnity
or stay of judicial proceedings;
(xvii) any Lien upon property or assets acquired or sold by the
Company or any Subsidiary resulting from the exercise of any rights
arising out of defaults on receivables;
(xviii) any Lien incurred in the ordinary course of business in
connection with workmen's compensation, unemployment insurance,
temporary disability, social security, retiree health or similar laws
or regulations or to secure obligations imposed by statute or
governmental regulations;
(xix) any Lien upon property or assets of any foreign Subsidiary to
secure Debt of that foreign Subsidiary;
(xx) any Lien upon any property or assets in accordance with
customary banking practice to secure any Debt incurred by the Company
or any Subsidiary in connection with the exporting of goods to, or
between, or the marketing of goods in, or the importing of goods from,
foreign countries;
(xxi) any Lien upon any additions, improvements, replacements,
repairs, fixtures, appurtenances or component parts thereof attaching
to or required to be attached to property or assets pursuant to the
terms of any mortgage, pledge agreement, security agreement or other
similar instrument, creating a Lien upon such property or assets
permitted by clauses (i) through (xx) inclusive of this (S)4.04; or
(xxii) any extension, renewal, refinancing, refunding or replacement
(or successive extensions, renewals, refinancings, refundings or
replacements) of any Lien, in whole or in part, that is referred to in
clauses (i) through (xxi) inclusive of this (S)4.04 or any Debt secured
thereby; provided, however,
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that the principal amount of Debt secured thereby shall not exceed the
greater of the principal amount of Debt so secured at the time of such
extension, renewal, refinancing, refunding or replacement and the
original principal amount of Debt so secured (plus in each case the
aggregate amount of premiums, other payments, costs and expenses
required to be paid or incurred in connection with such extension,
renewal, refinancing, refunding or replacement); provided further,
however, that such extension, renewal, refinancing, refunding or
replacement shall be limited to all or a part of the property
(including improvements, alterations and repairs on such property)
subject to the encumbrance so extended, renewed, refinanced, refunded
or replaced (plus improvements, alterations and repairs on such
property).
Notwithstanding the foregoing provisions of this (S)4.04, the Company
may, and may permit any Subsidiary to, create, assume, incur or suffer to
exist any Lien upon any Principal Property to secure any Debt of the
Company or any other person (other than the Securities) which is not
excepted by clauses (i) through (xxii) inclusive above without securing the
Securities issued hereunder, provided that the aggregate principal amount
of all Debt then outstanding secured by such Lien and all similar Liens
does not exceed 15% of Consolidated Net Tangible Assets. For the purpose of
this (S)4.04, no Lien to secure any Debt will be deemed to be created,
assumed, incurred or suffered to exist by any Lien in favor of the United
States of America or any state thereof, or any other country, or any
political subdivision of any of the foregoing, to secure partial, progress,
advance or other payments pursuant to the provisions of any contract or
statute, or any Lien securing industrial development, pollution control or
similar revenue bonds.
ELIMINATION OF CROSS-DEFAULT PROVISIONS
(S) 1.04 of the Supplemental Indenture. Clauses (g), (h) and (i) of Section
5.01 of the Original Indenture are hereby deleted and replaced with the
following:
(g) [Intentionally omitted]
(h) [Intentionally omitted]
(i) [Intentionally omitted]
MODIFICATION OF DEFEASANCE PROVISIONS
(S) 1.05 of the Supplemental Indenture. Article 9 of the Original Indenture
is hereby amended and restated in its entirety to read as follows:
ARTICLE 9
Satisfaction and Discharge of Indenture; Unclaimed Moneys
(S) 9.01 Satisfaction and Discharge of Indenture. (A) If at any time
(a) the Company shall have paid or caused to be paid the principal of
and interest on all the Securities of any series outstanding hereunder
(other than Securities of such series which have been destroyed, lost or
stolen and which have been replaced or paid as provided in (S)2.10) as
and when the same shall have become due and payable, or
(b) the Company shall have delivered to the Trustee for cancellation
all Securities of any series theretofore authenticated (other than any
Securities of such series which shall have been destroyed, lost or stolen
and which shall have been replaced or paid as provided in (S)2.10), or
(c) in the case of any series of Securities where the exact amount
(including the currency of payment) of principal of and interest due on
which can be determined at the time of making the deposit referred to in
clause (ii) below, (i) all the Securities of such series not theretofore
delivered to the Trustee for cancellation shall have become due and
payable, or are by their terms to become due and payable within one year
or are to be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of redemption, and
(ii) the Company shall have irrevocably deposited or
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caused to be deposited with the Trustee as trust funds the entire amount
in cash (other than moneys repaid by the Trustee or any paying agent to
the Company in accordance with (S)9.04) or, in the case of any series of
Securities the payments on which may only be made in legal coin or
currency of the United States, U.S. Government Obligations, maturing as
to principal and interest at such times and in such amounts as will
insure the availability of cash, or a combination thereof, sufficient in
the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee, to pay (A) the principal and interest on all Securities of such
series on each date that such principal or interest is due and payable
and (B) any mandatory sinking fund payments on the dates on which such
payments are due and payable in accordance with the terms of the
Indenture and the Securities of such series,
and if, in any such case, the Company shall also pay or cause to be paid all
other sums payable hereunder by the Company, then this Indenture shall cease
to be of further effect (except as to (i) rights of registration of transfer
and exchange of Securities of such Series and the Company's right of optional
redemption, if any, (ii) substitution of mutilated, defaced, destroyed, lost
or stolen Securities, (iii) rights of holders of Securities to receive
payments of principal thereof and interest thereon, upon the original stated
due dates therefor or on the specified redemption dates therefor (but not upon
acceleration), and remaining rights of the holders to receive mandatory
sinking fund payments, if any, (iv) the rights, obligations, duties and
immunities of the Trustee hereunder, (v) the rights of the holders of
Securities of such series as beneficiaries hereof with respect to the property
so deposited with the Trustee payable to all or any of them, and (vi) the
obligations of the Company under (S)4.02), and the Trustee, on demand of the
Company accompanied by an officers' certificate and an opinion of counsel and
at the cost and expense of the Company, shall execute proper instruments
acknowledging such satisfaction of and discharging this Indenture; provided,
that the rights of holders of the Securities to receive amounts in respect of
principal of and interest on the Securities held by them shall not be delayed
longer than required by then-applicable mandatory rules or policies of any
securities exchange upon which the Securities are listed.
(B) The following provisions shall apply to the Securities of each series
unless specifically otherwise provided in a resolution of the Board of
Directors certified by a secretary or assistant secretary of the Company,
officers' certificate or indenture supplemental hereto provided pursuant to
(S)2.02. In addition to discharge of the Indenture pursuant to subsection (A)
above of this (S)9.01, the Company shall be deemed to have paid and discharged
the entire indebtedness on all the Securities of such a series on the 91st day
after the date of the deposit referred to in subparagraph (a) below, and the
provisions of this Indenture with respect to the Securities of such series
shall no longer be in effect (except as to (i) rights of registration of
transfer and exchange of Securities of such series and the Company's right of
optional redemption, if any, (ii) substitution of mutilated, defaced,
destroyed, lost or stolen Securities, (iii) rights of holders of Securities to
receive payments of principal thereof and interest thereon, upon the original
stated due dates therefor or on the specified redemption dates therefor (but
not upon acceleration), and remaining rights of the holders to receive
mandatory sinking fund payments, if any, (iv) the rights, obligations, duties
and immunities of the Trustee hereunder, (v) the rights of the holders of
Securities of such series as beneficiaries hereof with respect to the property
so deposited with the Trustee payable to all or any of them and (vi) the
obligations of the Company under (S)4.02), and the Trustee, at the expense of
the Company, shall at the Company's request, execute proper instruments
acknowledging the same, if the conditions set forth below are satisfied
(hereinafter, "defeasance"):
(a) the Company has irrevocably deposited or caused to be deposited with the
Trustee as trust funds in trust for the purposes of making the following
payments, specifically pledged as security for, and dedicated solely to, the
benefit of the holders of the Securities of such series (i) cash in an
amount, or (ii) in the case of any series of Securities the payments on which
may only be made in legal coin or currency of the United States, U.S.
Government Obligations, maturing as to principal and interest at such times
and in such amounts as will
insure the availability of cash, or (iii) a combination thereof, sufficient,
in the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
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Trustee, to pay (A) the principal and interest on all Securities of such
series on each date that such principal
or interest is due and payable or on any redemption date established pursuant
to clause (c) below, and (B) any mandatory sinking fund payments on the dates
on which such payments are due and payable in accordance with the terms of
the Indenture and the Securities of such series;
(b) the Company has delivered to the Trustee an opinion of counsel based on
the fact that (x) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling, or (y) since the date hereof,
there has been a change in the applicable federal income tax law, in either
case to the effect that, and such opinion shall confirm that, the holders of
the Securities of such series will not recognize income, gain or loss for
federal income tax purposes as a result of such deposit and defeasance and
will be subject to federal income tax on the same amount and in the same
manner and at the same times, as would have been the case if such deposit and
defeasance had not occurred;
(c) if the Securities are to be redeemed prior to stated maturity (other
than from mandatory sinking fund payments or analogous payments), notice of
such redemption shall have been duly given pursuant to this Indenture or
provisions therefor satisfactory to the Trustee shall have been made; and
(d) the Company has delivered to the Trustee an officers' certificate and an
opinion of counsel, each stating that all conditions precedent provided for
relating to the defeasance contemplated by this provision have been complied
with.
(C) The Company shall be released from its obligations under (S)4.04,
(S)4.05, (S)7.02 and (S)11.01 with respect to the Securities of any series
outstanding on and after the date the conditions set forth below are satisfied
(hereinafter, "covenant defeasance") and the Securities of such series shall
thereafter be deemed to be not "outstanding" for the purpose of any request,
demand, authorization, direction, notice, waiver, consent or declaration or
other action (and the consequences of any thereof) in connection with such
covenants, but shall continue to be deemed outstanding for all other purposes
hereunder. For this purpose, such covenant defeasance means that, with respect
to the outstanding Securities of any series, the Company may omit to comply
with and shall have no liability in respect of any term, condition or
limitation set forth in any such Section, whether directly or indirectly by
reason of any reference elsewhere herein to such Section or by reason of any
reference in such Section to any other provision herein or in any other
document and such omission to comply shall not constitute a default under
(S)5.01, but, except as specified above, the remainder of this Indenture and
such Securities shall be unaffected thereby. The following shall be the
conditions to application of this subsection (C) of this (S)9.01:
(a) The Company has irrevocably deposited or caused to be deposited with the
Trustee as trust funds in trust for the purpose of making the following
payments, specifically pledged as security for, and dedicated solely to, the
benefit of the holders of the Securities of such series, (i) cash in an
amount, or (ii) in the case of any series of Securities the payments on which
may only be made in legal coin or currency of the United States, U.S.
Government Obligations, maturing as to principal and interest at such times
and in such amounts as will insure the availability of cash, or (iii) a
combination thereof, sufficient, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee, to pay (A) the principal and interest on
all Securities of such series on each date that such principal or interest is
due and payable or on any redemption date, and (B) any mandatory sinking fund
payments on the day on which such payments are due and payable in accordance
with the terms of the Indenture and the Securities of such series.
(b) if the Securities are to be redeemed prior to stated maturity (other
than from mandatory sinking fund payments or analogous payments), notice of
such redemption shall have been duly given pursuant to this Indenture or
provisions therefor satisfactory to the Trustee shall have been made; and
(c) The Company shall have delivered to the Trustee an officers' certificate
stating that all conditions precedent provided for relating to the covenant
defeasance contemplated by this provision have been complied with.
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(S) 9.02 Application by Trustee of Funds Deposited for Payment of
Securities. Subject to (S)9.04, all moneys or U.S. Government Obligations
deposited with the Trustee (or other trustee) pursuant to (S)9.01 (and all
funds earned on such moneys or U.S. Government Obligations) shall be held in
trust and applied by it to the payment, either directly or through any paying
agent (including the Company acting as its own paying agent), to the holders
of the particular Securities of such series for the payment or redemption of
which such moneys have been deposited with the Trustee, of all sums due and to
become due thereon for principal and interest; but such money need not be
segregated from other funds except to the extent required by law. Subject to
(S)9.01, the Trustee promptly shall pay to the Company upon request any excess
moneys held by them at any time.
(S) 9.03 Repayment of Moneys Held by Paying Agent. In connection with the
satisfaction and discharge of this Indenture with respect to Securities of any
series, all moneys then held by any paying agent under the provisions of this
Indenture with respect to such series of Securities shall, upon demand of the
Company, be repaid to it or paid to the Trustee and thereupon such paying
agent shall be released from all further liability with respect to such
moneys.
(S) 9.04 Return of Moneys Held by Trustee and Paying Agent Unclaimed for Two
Years. Any moneys deposited with or paid to the Trustee or any paying agent
for the payment of the principal of or interest on any Security of any series
and not applied but remaining unclaimed for two years after the date upon
which such principal or interest shall have become due and payable, shall,
upon the written request of the Company and unless otherwise required by
mandatory provisions of applicable escheat or abandoned or unclaimed property
law, be repaid to the Company by the Trustee for such series or such paying
agent, and the holder of the Securities of such series shall, unless otherwise
required by mandatory provisions of applicable escheat or abandoned or
unclaimed property laws, thereafter look only to the Company for any payment
which such holder may be entitled to collect, and all liability of the Trustee
or any paying agent with respect to such moneys shall thereupon cease;
provided, however, that the Trustee or such paying agent, before being
required to make any such repayment with respect to moneys deposited with it
for any payment (a) in respect of registered Securities of any series, shall
at the expense of the Company, mail by first-class mail to holders of such
Securities at their addresses as they shall appear on the Security register,
and (b) in respect of unregistered Securities of any series, shall at the
expense of the Company cause to be published once, in The Wall Street Journal
(Eastern Edition), notice, that such moneys remain and that, after a date
specified therein, which shall not be less than 30 days from the date of such
mailing or publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
AMENDMENTS TO THE TENNECO ASSET TRANSFER COVENANT
(S) 1.06 of the Supplemental Indenture. Article 11 of the Original Indenture
is hereby amended and restated to read in its entirety as follows:
(S) 11.01. Nothing contained in this Indenture or in the Securities shall
be deemed to prevent the consolidation or merger of the Company with or
into any other person, or the merger into the Company of any other person,
or the sale, lease, transfer or other disposition by the Company of its
property and assets as, or substantially as, an entirety; provided,
however, that (1) in case of any such consolidation or merger, the person
resulting from such consolidation or any person other than the Company into
which such merger shall be made shall succeed to and be substituted for the
Company with the same effect as if it had been named herein as the party of
the first part hereto and shall become liable and be bound for, and shall
expressly assume, by indenture supplemental hereto in form reasonably
satisfactory to the Trustee executed and delivered to the Trustee, the due
and punctual payment of the principal of, and the premium, if any, and
interest on, all the Securities then outstanding and the performance and
observance of each and every covenant and condition of this Indenture on
the part of the Company to be performed or observed, and (2) in case of any
such sale, lease, transfer or other disposition of the property and assets
of the Company as, or substantially as, an entirety, the person to which
such property and assets shall be sold, leased, transferred or otherwise
disposed of shall execute and deliver to the Trustee a proper indenture
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supplemental hereto in form reasonably satisfactory to the Trustee, whereby
such person shall assume the due and punctual payment of the principal of,
and the premium, if any, and interest on, all the Securities then
outstanding and the performance and observance of each and every covenant
and condition of this Indenture on the part of the Company to be performed
or observed, to the same extent that the Company be bound and liable.
Notwithstanding the foregoing, any person that acquires such properties and
assets in
an Excluded Conveyance shall not be required to assume any payment on the
Securities or performance or observance of any covenants or conditions of
this Indenture.
(S) 11.02. Upon any consolidation or merger, or any sale, lease, transfer
or other disposition of the property and assets of the Company as, or
substantially as, an entirety, in accordance with the provisions of this
Article 11, the person formed by such consolidation or into which the
Company shall have been merged or to which such sale, lease, transfer or
other disposition (other than an Excluded Conveyance in which the persons
that acquire such properties and assets do not expressly assume any payment
on the Securities or performance or observance of any covenants or
conditions of this Indenture) shall have been made shall succeed to and be
substituted for the Company with the same effect as if it had been named
herein as a party hereto, and thereafter from time to time such person may
exercise each and every right and power of the Company under this
Indenture, in the name of the Company or in its own name; and any act or
proceeding by and provision of this Indenture required or permitted to be
done by any board or officer of the Company may be done with like force and
effect by the like board or officer of any person that shall at the time be
the successor of the Company hereunder. Upon compliance with the conditions
set forth in this Article 11, in connection with the sale, lease, transfer
or other disposition by the Company of its property and assets as, or
substantially as, an entirety, the Company shall automatically be released
and discharged from all its obligations under the Securities and this
Indenture and, upon request of the Company, the Trustee shall execute and
deliver a writing to the Company in form satisfactory to it acknowledging
such release and discharge.
AMENDMENT TO SPECIFICALLY PERMIT DISTRIBUTIONS
(S)1.07 of the Supplemental Indenture. Section 13.09 is hereby added to the
Original Indenture to read in its entirety as follows:
(S)13.09 Notwithstanding anything to the contrary herein, nothing
contained in this Indenture or in any of the Securities shall be deemed to
prevent, or place any restrictions or conditions on, the consummation by
the Company or any of its Subsidiaries of any of the transactions
contemplated by the Distribution Agreement or the Merger Agreement. Without
limiting the generality of the foregoing, the Company may sell, lease,
transfer or otherwise dispose of any of its property or assets (including,
but not limited to, those related to its automotive, packaging and
shipbuilding businesses) in connection with the transactions contemplated
by the Distribution Agreement or the Merger Agreement and the corporation
or corporations or other person or persons to which such sale, lease,
transfer or other disposition is made shall not be required to assume any
obligations under this Indenture or under the Securities.
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DESCRIPTION OF THE NEW SECURITIES
The New Securities are to be issued under an Indenture (as amended and
supplemented from time to time the "New Indenture") between New Tenneco and
the New Trustee, a copy of which is filed as an exhibit to the Registration
Statement of which this Prospectus is a part. The following summaries of
certain provisions of the New Indenture do not purport to be complete and are
subject to, and qualified in their entirety by reference to, the detailed
provisions of the New Indenture, including the definitions of certain terms
contained in the New Indenture and capitalized in this Prospectus. Wherever
particular sections or defined terms of the New Indenture are referred to in
this Prospectus, such sections or defined terms are incorporated herein by
reference. As used under this caption, the term "Debt Securities" means all
evidences of indebtedness for money borrowed which may be issued under the New
Indenture.
GENERAL
The New Indenture does not limit the amount of Debt Securities that may be
issued thereunder and provides that Debt Securities may be issued thereunder
from time to time in one or more series as from time to time authorized by New
Tenneco. The Debt Securities will be unsubordinated and unsecured obligations
of New Tenneco and will rank pari passu with other unsubordinated and
unsecured obligations of New Tenneco (including trade payables).
The New Indenture does not limit the amount of other indebtedness or
securities which may be issued by New Tenneco or its Subsidiaries, although
the issuance, assumption or guarantee of indebtedness secured by certain
property is subject to the restrictions described under "--Certain Covenants
of New Tenneco." There are no provisions of the New Indenture which afford
holders of the New Securities protection in the event of a highly leveraged
transaction involving New Tenneco.
NEW SECURITIES
New 6.70% Notes due 2005
The New 6.70% Notes due 2005 offered hereby constitute a series of Debt
Securities under the New Indenture, which series is limited to $300,000,000
aggregate principal amount. The New 6.70% Notes due 2005 will mature on
December 15, 2005. Each New 6.70% Note due 2005 will bear interest from the
date of issue at the rate of 6.70% per annum, payable semi-annually on June 15
and December 15 of each year, beginning June 15, 1997. Interest will be
computed on the basis of a 360-day year of 12 30-day months. Interest will be
payable generally to the persons in whose names the New 6.70% Notes due 2005
are registered at the close of business on the May 31 or November 30 record
date next preceding the June 15 or December 15 interest payment date. However,
interest payable at maturity will be payable to the person to whom principal
will be payable.
The New 6.70% Notes due 2005 will be redeemable in whole or in part, at the
option of New Tenneco at any time, at a redemption price equal to the greater
of (i) 100% of their principal amount and (ii) the sum of the present values
of the remaining scheduled payments of principal and interest thereon
discounted to the date of redemption on a semiannual basis (assuming a 360-day
year consisting of 12 30-day months) at the Treasury Yield plus 10 basis
points, plus in each case accrued and unpaid interest to the date of
redemption.
"Treasury Yield" means, with respect to any redemption date, the rate per
annum equal to the semiannual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed
as a percentage of its principal amount) equal to the Comparable Treasury
Price for such redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable
to the remaining term of the New 6.70% Notes due 2005 that would be utilized,
at the time of selection and in accordance with customary financial practice,
in pricing
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new issues of corporate debt securities of comparable maturity to the
remaining term of the New 6.70% Notes due 2005.
"Independent Investment Banker" means Morgan Stanley & Co. Incorporated or,
if such firm is unwilling or unable to select the Comparable Treasury Issue,
an independent investment banking institution of national standing appointed
by the New Trustee.
"Comparable Treasury Price" means, with respect to any redemption date, (i)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
business day preceding such redemption date, as set forth in the daily
statistical release (or any successor release) published by the Federal
Reserve Bank of New York and designated "Composite 3:00 p.m. Quotations for
U.S. Government Securities" or (ii) if such release (or any successor release)
is not published or does not contain such prices on such business day, (a) the
average of the Reference Treasury Dealer Quotations for such redemption date,
after excluding the highest and lowest such Reference Treasury Dealer
Quotations, or (b) if the New Trustee obtains fewer than four such Reference
Treasury Dealer Quotations, the average of all such Quotations.
"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer and any redemption date, the average, as determined by the New
Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the New Trustee by such Reference Treasury Dealer at 5:00 p.m. on
the third business day preceding such redemption date.
"Reference Treasury Dealer" means each of Morgan Stanley & Co. Incorporated,
CS First Boston Corporation, Lehman Brothers Inc. and Salomon Brothers Inc.;
provided however, that if any of the foregoing shall cease to be a primary
U.S. Government securities dealer in New York City (a "Primary Treasury
Dealer"), New Tenneco shall substitute therefor another Primary Treasury
Dealer.
Holders of New 6.70% Notes due 2005 to be redeemed will receive notice
thereof by first-class mail at least 30 and not more than 60 days prior to the
date fixed for redemption.
New 7.45% Debentures due 2025
The New 7.45% Debentures due 2025 offered hereby constitute a series of Debt
Securities under the New Indenture, which series is limited to $300,000,000
aggregate principal amount. The New 7.45% Debentures due 2025 will mature on
December 15, 2025.
The New 7.45% Debentures due 2025 will bear interest from the date of issue
at the rate of 7.45% per annum, payable semi-annually on June 15 and December
15 of each year, beginning June 15, 1997. Interest will be computed on the
basis of a 360-day year of 12 30-day months. Interest will be payable
generally to the persons in whose name the New 7.45% Debentures due 2025 are
registered at the close of business on the May 31 or November 30 record date
next preceding the June 15 or December 15 interest payment date. However,
interest payable at maturity will be payable to the person to whom principal
will be payable.
The New 7.45% Debentures due 2025 are not redeemable at the option of New
Tenneco prior to maturity. There is no provision for a sinking fund for the
New 7.45% Debentures due 2025.
New 8.075% Notes due 2002
The New 8.075% Notes due 2002 offered hereby constitute a series of Debt
Securities under the New Indenture, which series is limited to $500,000,000
aggregate principal amount. The New 8.075% Notes due 2002 will mature on
October 1, 2002.
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The New 8.075% Notes due 2002 will bear interest from the date of issue at
the rate of 8.075% per annum, payable semi-annually on April 1 and October 1
of each year, beginning April 1, 1997. Interest will be computed on the basis
of a 360-day year of 12 30-day months. Interest will be payable generally to
the persons in whose name the New 8.075% Notes due 2002 are registered at the
close of business on the March 16 or September 16 record date next preceding
the April 1 or October 1 interest payment date. However, interest payable at
maturity will be payable to the person to whom principal will be payable.
The New 8.075% Notes due 2002 are not redeemable at the option of New
Tenneco prior to maturity. There is no provision for a sinking fund for the
New 8.075% Notes due 2002.
New 8.20% Notes due 1999
The New 8.20% Notes due 1999 offered hereby constitute a series of Debt
Securities under the New Indenture, which series is limited to $250,000,000
aggregate principal amount. The New 8.20% Notes due 1999 will mature on
November 15, 1999.
The New 8.20% Notes due 1999 will bear interest from the date of issue at
the rate of 8.20% per annum, payable semi-annually on May 15 and November 15
of each year, beginning May 15, 1997. Interest will be computed on the basis
of a 360-day year of 12 30-day months. Interest will be payable generally to
the persons in whose name the New 8.20% Notes due 1999 are registered at the
close of business on the April 30 or October 31 record date next preceding the
May 15 or November 15 interest payment date. However, interest payable at
maturity will be payable to the person to whom principal will be payable.
The New 8.20% Notes due 1999 are not redeemable prior to maturity. There is
no provision for a sinking fund for the New 8.20% Notes due 1999.
New 9.20% Debentures due 2012
The New 9.20% Debentures due 2012 offered hereby constitute a series of Debt
Securities under the New Indenture, which series is limited to $150,000,000
aggregate principal amount. The New 9.20% Debentures due 2012 will mature on
November 15, 2012.
The New 9.20% Debentures due 2012 will bear interest from the date of issue
at the rate of 9.20% per annum, payable semi-annually on May 15 and November
15 of each year, beginning May 15, 1997. Interest will be computed on the
basis of a 360-day year of 12 30-day months. Interest will be payable
generally to the persons in whose name the New 9.20% Debentures due 2012 are
registered at the close of business on the April 30 or October 31 record date
next preceding the May 15 or November 15 interest payment date. However,
interest payable at maturity will be payable to the person to whom principal
will be payable.
The New 9.20% Debentures due 2012 are not redeemable at the option of New
Tenneco prior to maturity. There is no provision for a sinking fund for the
New 9.20% Debentures due 2012.
New 10.075% Notes due 2001
The New 10.075% Notes due 2001 offered hereby constitute a series of Debt
Securities under the New Indenture, which series is limited to $200,000,000
aggregate principal amount. The New 10.075% Notes due 2001 will mature on
February 1, 2001.
The New 10.075% Notes due 2001 will bear interest from the date of issue at
the rate of 10.075% per annum, payable semi-annually on February 1 and August
1 of each year, beginning February 1, 1997. Interest will be computed on the
basis of a 360-day year of 12 30-day months. Interest will be payable
generally to the persons in whose name the New 10.075% Notes due 2001 are
registered at the close of business on the January 16 or July 16 record date
next preceding the February 1 or August 1 interest payment date. However,
interest payable at maturity will be payable to the person to whom principal
will be payable.
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The New 10.075% Notes due 2001 are not redeemable at the option of New
Tenneco prior to maturity. There is no provision for a sinking fund for the
New 10.075% Notes due 2001.
New 10.20% Debentures due 2008
The New 10.20% Debentures due 2008 offered hereby constitute a series of
Debt Securities under the New Indenture, which series is limited to
$250,000,000 aggregate principal amount. The New 10.20% Debentures due 2008
will mature on March 15, 2008.
The New 10.20% Debentures due 2008 will bear interest from the date of issue
at the rate of 10.20% per annum, payable semi-annually on March 15 and
September 15 of each year, beginning March 15, 1997. Interest will be computed
on the basis of a 360-day year of 12 30-day months. Interest will be payable
generally to the persons in whose names the New 10.20% Debentures due 2008 are
registered at the close of business on the February 28 (or 29) or August 31
record date next preceding the March 15 or September 15 interest payment date.
However, interest payable at maturity will be payable to the person to whom
principal will be payable.
The New 10.20% Debentures due 2008 are not redeemable at the option of New
Tenneco prior to maturity. There is no provision for a sinking fund for the
New 10.20% Debentures due 2008.
The New 10.20% Debentures due 2008 will be repayable on March 15, 1998, at
the option of each registered holder of the New 10.20% Debentures due 2008, at
100% of their principal amount together with interest payable to the date of
repayment. In order for a New 10.20% Debenture due 2008 to be repaid, New
Tenneco must receive at the corporate trust office of the New Trustee, during
the period from and including January 15, 1998 to and including February 15,
1998 (or, if such February 15, 1998 is not a business day, the next succeeding
business day), (i) the New 10.20% Debenture due 2008 with the form entitled
"Option to Elect Repayment" on the reverse of the New 10.20% Debenture due
2008 duly completed, or (ii) a telegram, telex, facsimile transmission or
letter from a member of a national securities exchange or the National
Association of Securities Dealers, Inc. or a commercial bank or a trust
company in the United States of America setting forth the name of the holder
of the New 10.20% Debenture due 2008, the principal amount of the New 10.20%
Debenture due 2008, the amount of the New 10.20% Debenture due 2008 to be
repaid, a statement that the option to elect repayment is being exercised
thereby and a guarantee that the New 10.20% Debenture due 2008 to be repaid
with the form entitled "Option to Elect Repayment" on the reverse of the New
10.20% Debenture due 2008 duly completed will be received by New Tenneco not
later than five business days after the date of such telegram, telex,
facsimile transmission or letter and such New 10.20% Debenture due 2008 and
form duly completed are received by New Tenneco by such fifth business day.
Any such notice received by New Tenneco during the period from and including
January 15, 1998 to and including February 15, 1998 shall be irrevocable. The
repayment option may be exercised by the holder of a New 10.20% Debenture due
2008 for less than the entire principal amount of the New 10.20% Debenture due
2008, provided the principal amount which is to be repaid is equal to $1,000
or an integral multiple of $1,000. All questions as to the validity,
eligibility (including time of receipt) and acceptance of any New 10.20%
Debentures due 2008 for payment will be determined by New Tenneco, whose
determination will be final and binding.
CERTAIN COVENANTS OF NEW TENNECO
Negative Pledge. If New Tenneco or any Restricted Subsidiary (as defined
below) shall issue, assume, incur or guarantee any debt secured by a Mortgage
(as defined below) on any Principal Manufacturing Property (as defined below)
of New Tenneco or any Restricted Subsidiary or on any shares of capital stock
or debt of any Restricted Subsidiary, New Tenneco will secure, or cause such
Restricted Subsidiary to secure, the outstanding Debt Securities equally and
ratably with such secured debt, unless after giving effect thereto the
aggregate amount of all such secured debt together with all Attributable Debt
(as defined below) of New Tenneco and its Subsidiaries in respect of sale and
leaseback transactions involving Principal Manufacturing Properties would
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not exceed 15% of the Consolidated Net Tangible Assets (as defined below) of
New Tenneco and its Consolidated Subsidiaries. This restriction will not apply
in the case of
(a) the creation of Mortgages on any Principal Manufacturing Property
acquired by New Tenneco or a Restricted Subsidiary after the date of the
New Indenture to secure or provide for the payment or financing of all or
any part of the purchase price thereof or construction of fixed
improvements thereon (prior to, at the time of or within 180 days after the
latest of the acquisition, completion of construction or commencement of
commercial operation thereof), or existing Mortgages on any Principal
Manufacturing Property acquired by New Tenneco or a Restricted Subsidiary
(whether or not such Mortgages are assumed), provided the Mortgage shall
not apply to any property theretofore owned by New Tenneco or a Restricted
Subsidiary, other than any theretofore unimproved real property;
(b) any Mortgages on any Principal Manufacturing Property of a
corporation which is merged into or consolidated with New Tenneco or a
Restricted Subsidiary or substantially all of the assets of which are
acquired by New Tenneco or a Restricted Subsidiary (whether or not the
obligations secured thereby are assumed by New Tenneco or a Restricted
Subsidiary);
(c) Mortgages in favor of governmental bodies of the United States or any
State thereof or any other country or any political subdivision thereof to
secure partial, progress, advance or other payments pursuant to any
contract or statute, or to secure any debt incurred or guaranteed for the
purpose of financing all or any part of the cost of acquiring, constructing
or improving the property subject to such Mortgages;
(d) Mortgages on particular property (or any proceeds of the sale
thereof) to secure all or any part of the cost of exploration, drilling,
mining, development, maintenance or operation thereof intended to obtain or
increase the production and sale or other disposition of oil, gas, coal,
natural gas, carbon dioxide, sulphur, helium, metals, minerals, steam,
timber, or other natural resources therefrom, or any debt created, issued,
assumed or guaranteed to provide funds for any or all such purposes;
(e) Mortgages securing Debt (as defined below) of a Restricted Subsidiary
owing to New Tenneco or another Restricted Subsidiary;
(f) Mortgages on any Principal Manufacturing Property of New Tenneco or a
Restricted Subsidiary which Mortgages were in existence on the date of the
New Indenture; provided, however, that each such Mortgage shall be limited
to all or a part of the property which secured such Mortgage at such date
(plus improvements and construction on such property);
(g) certain extensions, renewals or replacements of Mortgages referred to
in the foregoing clauses; and
(h) Permitted Mortgages.
(Section 3.6 of the New Indenture.) The New Indenture will not restrict the
incurrence of unsecured debt by New Tenneco or any Subsidiary.
Restrictions on Sale and Leaseback Transactions. Neither New Tenneco nor any
Restricted Subsidiary may, after the effective date of the New Indenture,
enter into any sale and leaseback transaction involving any Principal
Manufacturing Property which has been or is to be sold or transferred by New
Tenneco or any Restricted Subsidiary, unless
(a) New Tenneco or such Restricted Subsidiary would be entitled to create
debt secured by a Mortgage on such property as described in clauses (a)-(h)
under "Negative Pledge" in an amount equal to the Attributable Debt with
respect to the sale and leaseback transaction without equally and ratably
securing the outstanding Debt Securities;
(b) during the period commencing 12 months prior to and ending 12 months
after a sale and leaseback transaction, New Tenneco or such Restricted
Subsidiary expends for facilities comprising a Principal Manufacturing
Property (or part thereof) all or a part of the net proceeds of such sale
and leaseback transaction and elects to designate such amount as a credit
against such sale and leaseback transaction; or
(c) to the extent not credited as described above, New Tenneco applies to
the retirement of long-term indebtedness of New Tenneco or any Restricted
Subsidiary an amount equal to the Attributable Debt with respect to such
sale and leaseback transaction.
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(Section 3.6 of the New Indenture.) This restriction will not apply to any
sale and leaseback transaction (a) between New Tenneco and a Restricted
Subsidiary or between Restricted Subsidiaries, (b) involving the taking back
of a lease for a period of three years or less or (c) if after giving effect
to a sale and leaseback transaction, permitted secured debt plus Attributable
Debt of New Tenneco and its Subsidiaries (as defined below) in respect of sale
and leaseback transactions involving Principal Manufacturing Properties would
not exceed 15% of the Consolidated Net Tangible Assets of New Tenneco and its
consolidated Subsidiaries.
Except as may be applicable to a particular series of Debt Securities that
may be issued in the future, there are no covenants or other provisions in the
New Indenture providing for a put or increased interest or that would
otherwise afford holders of Debt Securities additional protection in the event
of a recapitalization transaction, a change of control of New Tenneco or a
highly leveraged transaction.
The following terms which are used in the New Indenture have the meanings
set forth below:
"Attributable Debt" means the total net amount of the rent required to be
paid during the remaining term of any lease, discounted at the weighted
average rate per annum then borne by the outstanding Debt Securities. (Section
1.1 of the New Indenture.)
"Consolidated Net Tangible Assets" means the total assets shown on the
consolidated balance sheet of New Tenneco and its consolidated Subsidiaries
for the most recent fiscal quarter, after deducting the amount of all current
liabilities and intangible assets. (Section 1.1 of the New Indenture.)
"Debt" of any person shall mean any debt for money borrowed which is issued,
assumed, incurred or guaranteed in any manner by such person. (Section 1.1 of
the New Indenture.)
"Mortgage" means any mortgage, pledge, lien or other encumbrance securing
Debt of any person. (Section 1.1 of the New Indenture.)
"Permitted Mortgage" means:
(a) any governmental, mechanics', materialmen's, carriers' or similar
lien created in the ordinary course of business which is not yet due or
which is being contested in good faith by appropriate proceedings and any
undetermined lien which is incidental to construction;
(b) any right reserved to, or vested in, any municipality or public
authority by the terms of any right, power, franchise, grant, license,
permit or by any provision of law, to purchase or recapture or to designate
a purchaser of, any property;
(c) any lien of taxes and assessments which is (A) for the current year,
or (B) not at the time delinquent or (C) delinquent but the validity of
which is being contested at the time by New Tenneco or any Subsidiary in
good faith;
(d) any lien arising from or in connection with a conveyance by New
Tenneco or any Subsidiary of any production payment with respect to oil,
gas, natural gas, carbon dioxide, sulphur, helium, coal, metals, minerals,
steam, timber or other natural resources;
(e) any lien to secure obligations imposed by statute or governmental
regulations; or
(f) any lien of, or to secure performance of, leases (other than leases
relating to a sale and leaseback transaction). (Section 1.1 of the New
Indenture.)
"Principal Manufacturing Property" means any manufacturing plant or testing
or research and development facility of New Tenneco or a Subsidiary located in
the United States unless the New Tenneco Board determines that such plant or
facility is not of material importance to the total business conducted by New
Tenneco and its consolidated Subsidiaries. "Principal Manufacturing Property"
shall include, without limitation, additions, improvements, replacements,
repairs, fixtures, appurtenances or component parts of any such plant or
facility
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attaching to or required to be attached to property or assets pursuant to the
terms of any Mortgage (including, without limitation, pursuant to any "after-
acquired property" clause or similar term thereof). (Section 1.1 of the New
Indenture.)
"Restricted Subsidiary" means any Subsidiary owning or leasing any Principal
Manufacturing Property. (Section 1.1 of the New Indenture.)
"Subsidiary" means any corporation, partnership or other entity of which
more than 50% of the outstanding voting stock or equity interests is directly
or indirectly owned or controlled by New Tenneco. (Section 1.1 of the New
Indenture.)
CONSOLIDATION, MERGER AND SALE OF ASSETS
New Tenneco may not merge or consolidate with any other person or sell,
lease or convey substantially all of its assets to any person, unless (i)
either New Tenneco is the continuing entity or the successor or transferee or
lessee is a corporation organized under the laws of the United States, any
State thereof or the District of Columbia and expressly assumes New Tenneco's
obligations under the Debt Securities and the New Indenture, and (ii)
immediately after giving effect to the transaction no Event of Default, and no
event which, after notice or lapse of time or both, would become an Event of
Default, exists. (Section 9.1 of the New Indenture.) Upon any such
consolidation, merger, sale, lease or conveyance the successor corporation
formed by such consolidation, or into which New Tenneco is merged or to which
such sale, lease or conveyance is made, shall succeed to, and be substituted
for, New Tenneco under the New Indenture and under the Debt Securities.
(Section 9.2 of the New Indenture.)
EVENTS OF DEFAULT
Any one of the following events will constitute an Event of Default under
the New Indenture with respect to Debt Securities of any series: (i) failure
to pay any interest on any Debt Security of that series when due and
continuance of such default for 30 days; (ii) failure to pay principal of any
Debt Security of that series when due, either at maturity, upon any
redemption, by declaration or otherwise; (iii) failure to observe or perform
any other of the covenants or agreements of New Tenneco in the New Indenture
(other than a covenant the default or breach of which is otherwise
specifically dealt with in the New Indenture) for 60 days after written notice
as provided in the New Indenture; (iv) certain events of bankruptcy,
insolvency or reorganization of New Tenneco; or (v) any other Event of Default
provided in a supplemental indenture with respect to Debt Securities of that
series. (Section 5.1 of the New Indenture.)
If any Event of Default occurs and is continuing, either the New Trustee or
the holders of at least 25% in aggregate principal amount of the outstanding
Debt Securities of each affected series (or, in certain instances, all
series), voting as a single class, by written notice to New Tenneco (and to
the New Trustee, if given by such holders of Debt Securities), may declare the
principal amount of (or, if the Debt Securities of an affected series are
original issue discount debt securities, such portion of the principal amount
as may be specified therefor) and accrued interest on all the Debt Securities
of each affected series to be due and payable immediately. At any time after a
declaration of acceleration with respect to Debt Securities of any series has
been made, but before a judgment or decree based on such acceleration has been
obtained, the holders of a majority in aggregate principal amount of
outstanding Debt Securities of that series may, under certain circumstances,
rescind and annul such acceleration. (Section 5.1 of the New Indenture.)
The New Indenture provides that the New Trustee will, within 90 days after
the occurrence of a default with respect to the Debt Securities of any series,
give to the holders of the Debt Securities of that series notice of all
defaults known to it unless such default shall have been cured or waived;
provided that except in the case of a default in payment on the Debt
Securities of that series, the New Trustee may withhold the notice if and so
long as it in good faith determines that withholding such notice is in the
interests of the holders of the Debt Securities of that series. (Section 5.11
of the New Indenture.)
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The New Indenture provides that the holders of a majority in aggregate
principal amount of the outstanding Debt Securities of each series affected
(with all such series voting as a single class) may direct the time, method
and place of conducting any proceeding for any remedy available to the New
Trustee for such series, or exercising any trust or power conferred on the New
Trustee. (Section 5.9 of the New Indenture.)
The holders of a majority in aggregate principal amount outstanding of all
series of Debt Securities with respect to which an Event of Default has
occurred (voting as a single class) by notice to the New Trustee may waive, on
behalf of the holders of all Debt Securities of all such series, any past
default or Event of Default with respect to that series and its consequences
except in respect of a convenant or provision of the New Indenture which
cannot under the terms of the New Indenture be amended or modified without the
consent of the holder of each outstanding Debt Security affected. (Section
5.10 of the New Indenture.)
The New Indenture includes a covenant that New Tenneco will file annually
with the New Trustee a certificate as to New Tenneco's compliance with all
conditions and covenants of the New Indenture. (Section 3.5 of the New
Indenture.)
MODIFICATION OF THE NEW INDENTURE
The New Indenture contains provisions permitting New Tenneco and the New
Trustee to enter into one or more supplemental indentures without the consent
of the holders of any of the Debt Securities in order (i) to transfer or
pledge any property to the New Trustee as security for the Debt Securities of
any series; (ii) to evidence the succession of another corporation to New
Tenneco and the assumption of the covenants of New Tenneco by a successor to
New Tenneco; (iii) to add to the covenants of New Tenneco such further
covenants or provisions so as to further protect the holders of Debt
Securities; (iv) to establish the form or terms of Debt Securities; (v) to
evidence and provide for successor New Trustees; or (vi) to cure any ambiguity
or correct or supplement any defective provisions or to make any other
provisions as New Tenneco deems necessary or desirable, provided such action
does not adversely affect the interests of any holder of Debt Securities of
any series. (Section 8.1 of the New Indenture.)
The New Indenture also contains provisions permitting New Tenneco and the
New Trustee, with the consent of the holders of a majority in aggregate
principal amount of the outstanding Debt Securities affected by such
supplemental indenture (voting as one class), to execute supplemental
indentures adding any provisions to or changing or eliminating any of the
provisions of the New Indenture or any supplemental indenture or modifying the
rights of the holders of Debt Securities of such series, except that no such
supplemental indenture may, without the consent of the holder of each Debt
Security so affected, (i) extend the time for payment of principal or interest
on any Debt Security; (ii) reduce the principal of, or the rate of interest
on, any Debt Security; (iii) reduce the amount of premium, if any, payable
upon the redemption of any Debt Security; (iv) reduce the amount of principal
payable upon acceleration of the maturity of any original issue discount
security; (v) change the currency or currency unit in which any Debt Security
or any premium or interest thereon is payable; (vi) impair the right to
institute suit for the enforcement of any payment on or with respect to any
Debt Security; or (vii) reduce the percentage in principal amount of the
outstanding Debt Securities affected thereby the consent of whose holders is
required for modification or amendment of the New Indenture. (Section 8.2 of
the New Indenture.)
DEFEASANCE AND COVENANT DEFEASANCE
The New Indenture provides that New Tenneco, at its option, (a) will be
discharged from any and all obligations in respect of the Debt Securities of
any series (except for certain obligations to register the transfer or
exchange of Debt Securities of such series, replace stolen, lost or mutilated
Debt Securities of such series, maintain paying agencies and hold moneys for
payment in trust) ("defeasance") or (b) need not comply with certain covenants
of the Indenture, including those described under "Certain Covenants of New
Tenneco" and "--Consolidation, Merger and Sale of Assets," and the occurrence
of an event described in clause (iii) under "--Events of Default" shall no
longer be an Event of Default ("covenant defeasance"), in each case, if New
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Tenneco deposits, in trust, with the New Trustee money or U.S. Government
Obligations (as defined below) which through the payment of interest and
principal in accordance with their terms will provide money, in an amount
sufficient to pay all the principal of (and premium, if any) and interest on
the Debt Securities of such series, and any mandatory sinking fund or
analogous payments, on the dates such payments are due in accordance with the
terms of the Debt Securities of such series. If such defeasance is to occur at
least one year prior to the date such Debt Securities become due and payable
or are to be redeemed such defeasance may only be established if New Tenneco
shall have delivered an opinion of counsel to the effect that the holders of
Debt Securities will not recognize income, gain or loss for federal income tax
purposes as a result of such deposit or defeasance and will be subject to
federal income tax on the same amount, in the same manner and at the same
times as if such defeasance had not occurred. In addition, such opinion of
counsel must be based upon a ruling of the IRS or a change in applicable
federal income tax law occurring after the date of the New Indenture. "U.S.
Government Obligations" means obligations issued or guaranteed as to principal
and interest by the United States or by an entity controlled or supervised by
or acting as an instrumentality of the United States Government. (Article 10
of the New Indenture.)
THE NEW TRUSTEE
The Chase Manhattan Bank is the New Trustee under the New Indenture. New
Tenneco may also maintain banking and other commercial relationships with the
New Trustee in the ordinary course of business.
GLOBAL SECURITIES
Each New Security to be issued to a holder exchanging an Old Security held
through a global security will be issued in the form of one or more global
securities ("Global Securities") that will be deposited with, or on behalf of,
DTC (the "Depository"). Unless and until it is exchanged in whole or in part
for New Securities of that series in definitive form, a Global Security may
not be transferred except as a whole to a nominee of the Depository for such
Global Security, or by a nominee of the Depository to the Depository or
another nominee of the Depository, or by the Depository or any such nominee to
a successor Depository or a nominee of such successor Depository.
PHYSICAL SECURITIES
If a holder of Old Securities holds such Old Security in physical form, New
Securities issued to such holder will be in physical form. Following initial
issuance, physical New Securities will be issued to a holder of New Securities
upon request to New Tenneco and the New Trustee subject to compliance with the
procedures therefor of the Depository. If the Depository is at any time
unwilling or unable to continue as a depositary for the Global Securities and
a successor depositary is not appointed by New Tenneco within 90 days, New
Tenneco will issue certificated Debt Securities in exchange for the Global
Securities.
BOOK-ENTRY SYSTEM
Each Global Security will be registered in the name of Cede & Co., the
nominee of the Depository. Accordingly, beneficial interests in the Global
Securities will be shown on, and transfer thereof will be effected only
through, records maintained by the Depository and its participants.
The Depository has advised New Tenneco and the Dealer Manager as follows:
the Depository is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the United States Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code and a
"clearing agency" registered pursuant not the provisions of Section 17A of the
Exchange Act. The Depository holds securities that its participants ("Direct
Participants") deposit with the Depository. The Depository also facilitates
the settlement among Direct Participants of securities transactions, such as
transfers and pledges, in deposited securities through electronic computerized
book-entry changes in such Direct Participants' accounts, thereby eliminating
the need
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for physical movement of securities certificates. Direct Participants include
securities brokers and dealers, banks, trust companies, clearing corporations,
and certain other organizations. The Depository is owned by a number of its
Direct Participants and by the NYSE, the American Stock Exchange, Inc. and the
National Association of Securities Dealers, Inc. Access to the Depository's
book-entry system is also available to others such as securities brokers and
dealers, banks and trust companies that clear through or maintain a custodial
relationship with a Direct Participant, either directly or indirectly
("Indirect Participants"). The rules applicable to the Depositary and its
Direct and Indirect Participants are on file with the Commission.
The Depository advises that its established procedures provide that (i) upon
issuance of the Global Securities by New Tenneco, the Depository will credit
the accounts of Direct Participants designated by New Tenneco with the
principal amounts of the New Securities issued pursuant to the Exchange Offers
and (ii) ownership of interests in the Global Securities will be shown on, and
the transfer of the ownership will be effected only through, records
maintained by the Depository, the Direct Participants and the Indirect
Participants.
So long as a nominee of the Depository is the registered owner of the Global
Securities, such nominee for all purposes will be considered the sole owner or
holder of such Global Securities under the New Indenture.
Neither New Tenneco, the New Trustee, any paying agent nor the registrar
will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in
the Global Securities, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
Principal and interest payments on the New Securities registered in the name
of the Depository's nominee will be made in immediately available funds to the
Depository's nominee as the registered owner of the Global Securities. Under
the terms of the New Securities, New Tenneco and the New Trustee will treat
the persons in whose names the New Securities are registered as the owners of
such New Securities for the purpose of receiving payment of principal and
interest on such New Securities and for all other purposes whatsoever.
Therefore, neither New Tenneco, the New Trustee nor any paying agent has any
direct responsibility or liability for the payment of principal or interest on
the New Securities to owners of beneficial interests in the Global Securities.
The Depositary has advised New Tenneco and the New Trustee that its current
practice is, upon receipt of any payment of principal or interest, to credit
Direct Participants' accounts on the payment date in accordance with their
respective holdings of beneficial interests in the Global Securities as shown
on the Depository's records. Payments by Direct and Indirect Participants to
owners of beneficial interests in the Global Securities will be governed by
standing instructions and customary practices, as is the case with securities
held for the accounts of customers in bearer form or registered in "street
name," and will be the responsibility of such Direct and Indirect Participants
and not of the Depository, the New Trustee, or New Tenneco, subject to any
statutory requirements that may be in effect from time to time. Payment of
principal and interest to the Depository is the responsibility of New Tenneco
or the New Trustee; disbursement of such payments to the owners of beneficial
interests in the Global Securities shall be the responsibility of the
Depository and Direct and Indirect Participants.
So long as the Depository continues to make its Same-Day Funds Settlement
System available to New Tenneco, all payments of principal and interest on the
Global Securities will be made by New Tenneco in immediately available funds.
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DESCRIPTION OF THE TRANSACTION
The Distributions, Merger and Charter Amendment are separate parts of the
Transaction, none of which will be consummated unless the Transaction as a
whole is approved at the Tenneco Special Meeting (although Tenneco may elect
subsequently to proceed with one or more of the transactions included in the
Transaction which do not require the same level of stockholder approval if the
Transaction is not approved). The Charter Amendment is expected to be filed on
the day following the Tenneco Special Meeting, if the Transaction is approved
by the holders of Tenneco stock. The Distributions are expected to be
consummated as soon as practicable thereafter, and in any event one day prior
to the anticipated consummation of the Merger. The Distributions will not be
consummated until all other conditions to the Merger that are capable of being
satisfied at that time have been satisfied (or can be contemporaneously
satisfied).
The principal transactions which will be undertaken to consummate the
Transaction include the (i) NPS Issuance, (ii) Debt Realignment, (iii)
Corporate Restructuring Transactions, (iv) Cash Realignment, (v) Charter
Amendment, (vi) Distributions, and (vii) Merger. See "The NPS Issuance," "Debt
and Cash Realignment," "Corporate Restructuring Transactions," "The
Distributions," and "The Merger."
The Transaction is being submitted as a single, unified proposal to
Tenneco's existing stockholders for consideration at the Tenneco Special
Meeting. Approval of the Transaction requires the affirmative vote of (i)
holders of a majority of the outstanding shares of the Tenneco Common Stock,
and Tenneco's $7.40 Cumulative Preferred Stock (the "$7.40 Preferred Stock"),
voting together as a class, and (ii) holders of a majority of the shares of
$7.40 Preferred Stock and Tenneco's $4.50 Cumulative Preferred Stock (the
"$4.50 Preferred Stock"), voting together as a class. The holders of more than
75% of the $4.50 Preferred Stock (which are presently expected to be the
holders as of the Tenneco Record Date) have agreed to grant an irrevocable
proxy to Tenneco to so vote such shares. If the Tenneco Junior Preferred Stock
is issued prior to effectiveness of the Charter Amendment, the holders thereof
will be entitled to vote on the Distributions and the Charter Amendment. In
such event, Tenneco will obtain the consent of the initial record holders of
the Tenneco Junior Preferred Stock to the Distributions and the Charter
Amendment in connection with the NPS Issuance.
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The following sections entitled "The NPS Issuance," "Debt and Cash
Realignment," "Corporate Restructuring Transactions," "The Distributions" and
"The Merger" contain descriptions of certain provisions of the Distribution
Agreement and Merger Agreement. These descriptions are only summaries and do
not purport to be complete. These descriptions are qualified in their entirety
by reference to the complete text of the Distribution Agreement and the Merger
Agreement. Copies of the Distribution Agreement and Merger Agreement as
currently in effect are available, without charge, to any holder of Old
Securities upon written or oral request to Karl A. Stewart, Vice President and
Secretary, Tenneco Inc., 1275 King Street, Greenwich, Connecticut 06831,
telephone (203) 863-1000.
THE NPS ISSUANCE
Prior to the Merger, Tenneco will issue in a public offering new shares of
Tenneco Junior Preferred Stock in one or more series pursuant to the NPS
Issuance in an amount calculated to have, to the extent possible, an aggregate
value as of the Merger Effective Time that is equal to approximately 25% (but
in any event more than 20%) of the total value of all shares of Tenneco
capital stock then outstanding. Holders of the Tenneco Junior Preferred Stock
issued pursuant to the NPS Issuance will possess the right to elect, voting as
a class, a number of directors of Tenneco representing one-sixth of the
members of the Board of Directors of Tenneco and the number of directors
comprising the entire Tenneco Board of Directors will be set at six or an
integral multiple of six. The NPS Issuance Proceeds are estimated to be $275
million. Tenneco expects to use the net NPS Issuance Proceeds (estimated to be
$265 million) to repay a portion of the outstanding Tenneco Energy
Consolidated Debt pursuant to the Debt Realignment.
Under the existing terms of the Tenneco Charter, the approval of a majority
of the outstanding Tenneco Junior Preferred Stock will be required to effect
the Distributions and the approval of two-thirds of the outstanding Tenneco
Junior Preferred Stock will be required to effect the Charter Amendment if the
Tenneco Junior Preferred Stock is issued prior to the effectiveness of the
Charter Amendment (which is expected to occur on the day following the Tenneco
Special Meeting if the Transaction is approved thereat). Accordingly, if the
NPS Issuance occurs prior to the effectiveness of the Charter Amendment, as
part of the NPS Issuance, the Charter Amendment and Distributions will be
submitted for approval by the initial record holders of the Tenneco Junior
Preferred Stock issued pursuant to the NPS Issuance (which will be the
underwriters for the public offering) by written consent in lieu of a meeting.
Notwithstanding such approval, persons who become record holders of the
Tenneco Junior Preferred Stock at or prior to the Tenneco Special Meeting will
have the right to demand appraisal of their shares of Tenneco Junior Preferred
Stock at or prior to the Tenneco Special Meeting.
The shares of Tenneco Junior Preferred Stock issued pursuant to the NPS
Issuance will not be converted or otherwise exchanged in the Merger and will
remain outstanding immediately following consummation thereof (held by the
persons who were the holders of such shares immediately prior to the Merger),
and the holders thereof will receive no consideration in respect thereof in
connection with the Merger.
Although the NPS Issuance is one of the transactions contemplated by the
Merger Agreement, the NPS Issuance is expected to be consummated prior to the
Tenneco Special Meeting and thus regardless of the outcome of the vote on the
Transaction at the Tenneco Special Meeting.
DEBT AND CASH REALIGNMENT
In general, from and after the Distributions each of Tenneco, New Tenneco
and Newport News will be responsible for the debts, liabilities and
obligations related to the business or businesses that it owns and operates
following consummation of the Corporate Restructuring Transactions. See
"Corporate Restructuring Transactions" and "The Distributions." Tenneco's
historical practice, however, has been to incur indebtedness for its
consolidated group at the parent company level or at the level of a limited
number of subsidiaries, rather
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than at the operating company level, and to centrally manage various cash
functions. Accordingly, the Merger Agreement, Distribution Agreement and
Ancillary Agreements provide for (i) the pre-Distribution restructuring of the
Tenneco Energy Consolidated Debt pursuant to the Debt Realignment, (ii) the
allocation among each of Tenneco, New Tenneco and Newport News of the total
amount of cash and cash equivalents on hand as of the Merger Effective Time
pursuant to the Cash Realignment, and (iii) the allocation of responsibility
for certain capital expenditures related to the Energy Business.
DEBT REALIGNMENT
The Merger Agreement requires Tenneco to, or to cause its relevant
subsidiaries to, obtain the requisite consents of the various lenders to permit
consummation of the Transaction and tender for, exchange, redeem, prepay,
defease or let mature the Tenneco Energy Consolidated Debt prior to the
Distributions.
The Debt Realignment is intended to reduce the total amount of the Tenneco
Energy Consolidated Debt to an amount that, when added to the total amount of
certain other obligations of Tenneco Energy outstanding as of the Merger
Effective Time (i.e., the Actual Energy Debt Amount), equals the Base Debt
Amount. As of June 30, 1996, the total book value of Tenneco Energy
Consolidated Debt was approximately $4,443 million, including $634 million of
short-term debt (excluding the current portion of long-term debt), $75 million
of non-public debt and $3,734 million book value ($3,955 million principal
amount) of publicly held debt, including the Old Securities and the Other
Securities (the "Public Debt"). The short-term debt consists primarily of
commercial paper and bank borrowings under Tenneco's current credit facilities.
The Public Debt includes an aggregate of $2,619 million, $436 million and $679
million book value ($2,625 million, $650 million and $680 million principal
amount) of Public Debt issued in various series under several different trust
indentures by Tenneco, Tennessee and TCC, respectively.
The short-term debt and the $75 million of non-Public Debt will be retired
with cash. In addition to the Exchange Offers, Tenneco and its subsidiaries
will defease or let mature approximately $428 million of Public Debt and offer
to purchase for cash approximately $1,580 million of aggregate principal amount
of Public Debt pursuant to the Cash Tender Offers. The defeasances, Cash Tender
Offers and related extinguishments described above, as well as the retirement
of existing short-term and non-public debt, will be financed by internally
generated cash, borrowings by Tenneco under a new credit facility to be entered
into by Tenneco in connection with the Transaction (the "Tenneco Credit
Facility"), the net NPS Issuance Proceeds and a cash distribution of $600
million to be paid by Newport News to Tenneco or one of its subsidiaries using
borrowings under one or more credit facilities and/or financings to be entered
into by Newport News in connection with the Transaction (the "Newport News
Financings"). The balance of the funding will be financed by a cash
distribution to be paid by New Tenneco to Tenneco using borrowings under a new
credit facility to be entered into by New Tenneco in connection with the
Transaction (the "New Tenneco Credit Facility"). Upon consummation of the
Exchange Offers, Tenneco will purchase for cash (and subsequently extinguish)
the Public Debt held by New Tenneco (which cash will then be distributed to
Tenneco). Upon consummation of the Cash Tender Offers, the Public Debt acquired
thereby will be extinguished.
Accordingly, after giving effect to the Debt Realignment, Tenneco and its
appropriate subsidiaries, as applicable, after giving effect to the Transaction
will remain responsible for all of the Tenneco Energy Consolidated Debt which
remains outstanding and any borrowings under the Tenneco Credit Facility,
Newport News and its appropriate subsidiaries, as applicable, will be
responsible for all borrowings under the Newport News Financings and New
Tenneco will be responsible for the New Securities and all borrowings under the
New Tenneco Credit Facility. Completion of the Debt Realignment is a condition
to the obligation of Tenneco and El Paso to consummate the Merger.
The Debt and Cash Allocation Agreement to be entered into among Tenneco, New
Tenneco and Newport News in connection with the Distributions (the "Debt and
Cash Allocation Agreement") contemplates that, as of the Merger Effective Time,
the Actual Energy Debt Amount will be limited to the Base Debt Amount. The Base
Debt Amount will equal $2.65 billion less the NPS Issuance Proceeds, (i) plus
the sum of: (a) the amount
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of all cash payments made by Tenneco and its subsidiaries during the period
from June 19, 1996 to the Merger Effective Time (the "Merger Interim Period")
in respect of gas purchase contracts as a result or in respect of any
settlement, judgment or satisfaction of a bond in excess of the market price
for gas received under such contracts by Tenneco and its subsidiaries reduced
by the amount of any cash payments received by Tenneco and its subsidiaries
from customers, insurers or other third parties in respect of any such
settlement, judgment or satisfaction of a bond (other than refunds prior to
the Merger Effective Time) or with respect to any GSR costs recovered (and not
refunded) on or prior to the Merger Effective Time; (b) the amount of any
purchase price paid by Tenneco or its subsidiaries during the Merger Interim
Period to acquire an additional interest in certain existing pipeline
operations; (c) the amount of all cash payments made by Tenneco and any of its
direct and indirect subsidiaries remaining after giving effect to the
Distributions (the "Energy Subsidiaries") during the Merger Interim Period in
settlement of any significant claim, action, suit or proceeding to the extent
such matter would be an Energy Liability (as defined) and with the consent of
El Paso, which shall not be arbitrarily withheld, reduced by the amount of any
payments by or recoveries from third parties received by Tenneco or its
subsidiaries during the Merger Interim Period relating to any such settlement,
and (d) the amount of certain other capital expenditures and settlements of
certain claims by the Energy Business during the Merger Interim Period, and
(ii) less (a) the amount, calculated as of the Merger Effective Time, of any
rate refunds, including interest, which would be payable to customers pursuant
to the rate settlement at FERC Docket RP95-112 and which have not been paid as
of the Merger Effective Time, whether such amounts are to be paid to customers
or credited against GSR costs pursuant to a settlement with customers and (b)
the proceeds of the monetization of certain assets of the Energy Business
during the Merger Interim Period. The Actual Energy Debt Amount will include
the following amounts, as of the Merger Effective Time: (i) outstanding
amounts under the Tenneco Revolving Debt (plus accrued and accreted interest
and fees); (ii) the value of any remaining Public Debt; (iii) the outstanding
amount of other Tenneco Energy Consolidated Debt (plus accrued and accreted
interest and fees); (iv) the unpaid amount of Transaction expenses incurred by
Tenneco and its subsidiaries; (v) certain sales and use, gross receipt or
other transfer taxes applicable to the Transaction; (vi) certain income taxes
resulting from the Transaction; (vii) the outstanding amount of any off-
balance sheet indebtedness incurred after the date of the Merger Agreement to
finance the acquisition by Tenneco of an additional interest in the pipeline
operations referred to above; (viii) unpaid dividends declared on Tenneco
stock which have a record date before the Merger Effective Time; and (ix)
dividends accrued on the Tenneco Junior Preferred Stock which are unpaid as of
the Merger Effective Time.
Pursuant to the Debt Cash Adjustment, if the post-Transaction audit
conducted by the parties determines that the Actual Energy Debt Amount as of
the Merger Effective Time exceeds the Base Debt Amount, New Tenneco will be
required to pay the excess to Tenneco in cash. Likewise, Tenneco will be
required to pay to New Tenneco in cash the amount, if any, by which such
Actual Energy Debt Amount is less than the Base Debt Amount.
The Debt Realignment is expected to create tax benefits to Tenneco of
approximately $120 million. Pursuant to the tax sharing agreement to be
entered into by Tenneco, New Tenneco, Newport News and El Paso in connection
with the Distributions, any such tax benefits will be allocated to New
Tenneco. For a description of this tax sharing agreement, see "The
Distributions--Relationship Among Tenneco, New Tenneco and Newport News After
the Distributions."
Also in connection with the Debt Realignment, Tenneco has agreed that (i)
the indebtedness for borrowed money of the Energy Subsidiaries as of the
Merger Effective Time (other than amounts outstanding under the Tenneco Credit
Facility) will contain only specified financial and operational covenants, and
(ii) with respect to the Public Debt for which Tenneco and the Energy
Subsidiaries will remain liable after the Merger, there shall be no extension
of maturity or average life, increase in interest rates or adverse change in
defeasance or redemption provisions.
CAPITAL EXPENDITURE ADJUSTMENT
Also as part of the Debt Realignment, Tenneco has agreed to make certain
minimum capital expenditures with respect to the Energy Business pending
consummation of the Transaction. If the actual amount of such capital
expenditures exceeds the required amount, after consummation of the
Transaction Tenneco will be
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required to pay the excess to New Tenneco in cash. Likewise, New Tenneco will
be required to pay to Tenneco in cash the amount, if any, by which such actual
capital expenditures are less than the required amount. The required amount of
Energy Business capital expenditures is equal to $333,200,000 for 1996, plus
$27,750,000 per month for each month (or pro rata portion) from January 1,
1997 to the Merger Effective Time.
CASH REALIGNMENT
Pursuant to the Cash Realignment, as of the Merger Effective Time, Tenneco
will be allocated cash and cash equivalents equal to $25 million plus a
percentage of the proceeds from the sale of certain Energy Business
receivables. Newport News will be allocated $5 million of cash and cash
equivalents and New Tenneco will be allocated all remaining cash and cash
equivalents on hand. Following the post-Transaction audit described above, New
Tenneco will be required to pay to Tenneco or Newport News, as the case may
be, the amount of any shortfall as of the Merger Effective Time from the
above-reflected allocation. Likewise, Tenneco and Newport News will each be
required to pay to New Tenneco any excess cash and cash equivalents as of the
Merger Effective Time determined pursuant to such audit.
CORPORATE RESTRUCTURING TRANSACTIONS
Pursuant to the Distribution Agreement, prior to consummation of the
Distributions, Tenneco will effect the Corporate Restructuring Transactions
through a series of intercompany transfers and distributions. Upon completion
of the Corporate Restructuring Transactions, Tenneco's existing businesses and
assets will be restructured, divided and separated so that, upon consummation
of the Distributions, the assets, liabilities and operations of (i) the
Industrial Business will be owned and operated, directly and indirectly, by
New Tenneco, and (ii) the Shipbuilding Business will be owned and operated,
directly and indirectly, by Newport News. As a result of the Corporate
Restructuring Transactions, upon consummation of the Distributions the
remaining assets, liabilities and operations of Tenneco and its remaining
subsidiaries will consist solely of those related to the Energy Business,
which includes liabilities and limited assets relating to discontinued Tenneco
operations not related to the Industrial Business or the Shipbuilding
Business. See "Description of Tenneco Energy--Discontinued and Other
Operations."
The assets which will be owned by New Tenneco upon consummation of the
Corporate Restructuring Transactions (the "Industrial Assets") are generally
those related to the past and current conduct of the Industrial Business, as
reflected on the New Tenneco June 30, 1996 pro forma balance sheet attached as
an exhibit to the Distribution Agreement and included elsewhere herein, to the
extent still held on the Distribution Date (plus any subsequently acquired
asset which is of a nature or type that would have resulted in such asset
being included thereon had it been acquired prior to the date thereof), plus
all rights expressly allocated to New Tenneco and its subsidiaries under the
Distribution Agreement or any Ancillary Agreement. As part of the Corporate
Restructuring Transactions, New Tenneco will acquire various corporate assets
of Tenneco such as the "Tenneco" trademark and associated rights, other
intellectual property and certain office space and related equipment. The
assets which will be owned by Newport News (the "Shipbuilding Assets") upon
consummation of the Corporate Restructuring Transactions are generally those
related to the past and current conduct of the Shipbuilding Business, as
reflected on the Newport News June 30, 1996 pro forma balance sheet attached
as an exhibit to the Distribution Agreement, to the extent still held on the
Distribution Date (plus any subsequently acquired asset which is of a nature
or type that would have resulted in such asset being included thereon had it
been acquired prior to the date thereof), plus all rights expressly allocated
to Newport News and its subsidiaries under the Distribution Agreement or any
Ancillary Agreement. The remaining assets of Tenneco (the "Energy Assets")
will continue to be owned and operated by Tenneco following the Corporate
Restructuring Transactions and the Distributions. See "Description of Tenneco
Energy."
The liabilities to be retained or assumed by New Tenneco pursuant to the
Distribution Agreement (the "Industrial Liabilities") generally include (i)
those liabilities related to the Industrial Assets and the current and past
conduct of the Industrial Business, including liabilities reflected on the New
Tenneco June 30, 1996 pro forma balance sheet which remain outstanding as of
the Distribution Date (plus outstanding liabilities that were
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subsequently incurred or accrued, determined on a basis consistent with the
determination of liabilities thereon) (ii) certain liabilities for any
violations or alleged violations of securities or other laws arising out of
certain documents relating to, or filed by or on behalf of, New Tenneco in
connection with the Transaction, and (iii) those liabilities expressly
allocated to New Tenneco or its subsidiaries under the Distribution Agreement
or any Ancillary Agreement.
The liabilities to be retained or assumed by Newport News pursuant to the
Distribution Agreement (the "Shipbuilding Liabilities") generally include (i)
those liabilities related to the Shipbuilding Assets and the current and past
conduct of the Shipbuilding Business, including liabilities reflected on the
aforementioned Newport News June 30, 1996 pro forma balance sheet which remain
outstanding as of the Distribution Date (plus outstanding liabilities that
were subsequently incurred or accrued, determined on a basis consistent with
the determination of liabilities thereon) (ii) certain liabilities for any
violations or alleged violations of securities or other laws arising out of
certain documents relating to, or filed or delivered by or on behalf of,
Newport News in connection with the Transaction or certain financing
arrangements, and (iii) those liabilities expressly allocated to Newport News
or its subsidiaries under the Distribution Agreement or any Ancillary
Agreement.
The liabilities to be retained or assumed by Tenneco and/or Energy
Subsidiaries pursuant to the Distribution Agreement (the "Energy Liabilities")
generally include (i) those liabilities related to the Energy Assets and the
current and past conduct of the Energy Business, including liabilities
reflected on the Energy Business June 30, 1996 pro forma balance sheet
attached as an exhibit to the Distribution Agreement and included elsewhere
herein which remain outstanding as of the Distribution Date (plus outstanding
liabilities that were subsequently incurred or accrued, determined on a basis
consistent with the determination of liabilities thereon), (ii) those
liabilities expressly allocated to Tenneco or its subsidiaries under the
Distribution Agreement or any Ancillary Agreement, and (iii) all other
liabilities of Tenneco or any of the Energy Subsidiaries which do not
constitute Industrial Liabilities or Shipbuilding Liabilities (including
certain liabilities for violations of securities or other laws).
It is expected that a substantial number of the Corporate Restructuring
Transactions will be consummated prior to the date of the Tenneco Special
Meeting. Tenneco does not presently intend to unwind any such transactions if
the Transaction is not approved at the Tenneco Special Meeting.
For a description of certain liabilities that will be expressly allocated
among Tenneco, New Tenneco and Newport News and their respective subsidiaries
by the Distribution Agreement and Ancillary Agreements, including liabilities
for the Tenneco Energy Consolidated Debt, taxes and certain employee benefits,
see "Debt and Cash Realignment," "The Distributions--Certain Other Pre-
Distribution Transactions" and "The Distributions--Relationship Among Tenneco,
New Tenneco and Newport News After the Distributions."
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THE DISTRIBUTIONS
MANNER OF DISTRIBUTION
Pursuant to the Distribution Agreement, the Tenneco Board of Directors will
declare the special distribution to effect the Distributions and will set the
Distribution Record Date and the Distribution Date (which will be prior to the
Merger Effective Time). Subject to the conditions summarized below, on the
Distribution Date Tenneco will distribute, pro rata to all holders of record of
Tenneco Common Stock as of the Distribution Record Date, (i) one share of New
Tenneco Common Stock for every share of Tenneco Common Stock so held, and (ii)
one share of Newport News Common Stock for every five shares of Tenneco Common
Stock so held.
CERTAIN OTHER PRE-DISTRIBUTION TRANSACTIONS
Settlement of Intercompany Accounts. Pursuant to the Distribution Agreement,
all intercompany receivables, payables and loans (unless specifically provided
for in any Ancillary Agreement) between entities which will be the members of
separate business groups following consummation of the Distributions must be
settled, capitalized or converted into ordinary trade accounts as of the close
of business on the Distribution Date. Further, all intercompany agreements
between members of different business groups (other than those contemplated by
the Transaction) will be terminated.
Certain Consent Requirements. Pursuant to the Distribution Agreement, each
party has agreed to use its best efforts to obtain any third-party consents or
approvals that are required to consummate the transactions contemplated
thereby. As described elsewhere herein, Tenneco is seeking Consents to the
Proposed Amendments in connection with the Exchange Offers and Cash Tender
Offers. In addition, Tenneco and its subsidiaries will be required to obtain
the consent of the holders of certain other issues of Tenneco Energy
Consolidated Debt in connection with the Distributions. Tenneco presently
believes that it will be able to obtain in a timely manner all required third-
party consents with respect to its material contractual obligations in
connection with the Distributions.
Other. The Distribution Agreement also requires that a variety of other
actions be taken by Tenneco and/or its subsidiaries prior to consummation of
the Distributions, including, without limitation, (i) certain corporate
organizational actions with respect to New Tenneco and Newport News, (ii) the
transfer and assignment of certain licenses and permits among Tenneco and its
subsidiaries after giving effect to the Transaction (the "Energy Group"), New
Tenneco and its subsidiaries after giving effect to the Transaction (the
"Industrial Group") and Newport News and its subsidiaries after giving effect
to the Transaction (the "Shipbuilding Group"), (iii) assignment and assumption
of agreements that relate exclusively to the Energy Business, the Industrial
Business or the Shipbuilding Business to the Energy Group, the Industrial Group
or the Shipbuilding Group, as appropriate (with joint agreements to be assigned
and assumed in part), and (iv) the preparation and filing of NYSE listing
applications and necessary federal and state securities laws filings.
RELATIONSHIP AMONG TENNECO, NEW TENNECO AND NEWPORT NEWS AFTER THE
DISTRIBUTIONS
Tenneco, New Tenneco and Newport News have entered into the Distribution
Agreement, which governs certain aspects of their relationships both prior to
and following the Distributions. See "--Certain Other Pre-Distribution
Transactions." In addition, Tenneco, New Tenneco and/or Newport News (and their
appropriate subsidiaries) have entered into, or will prior to the Distributions
enter into, the Ancillary Agreements, which are intended to further effect the
disaffiliation of the Energy Business, the Industrial Business and the
Shipbuilding Business and to govern certain additional aspects of their ongoing
relationships.
Terms of the Distribution Agreement. In addition to providing for the terms
of the Distributions and the various actions to be taken prior to the
Distributions, the Distribution Agreement contains other agreements governing
the relationship among Tenneco, New Tenneco and Newport News prior to and
following the Distributions.
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The Distribution Agreement provides that, from and after the Distribution
Date, (i) Tenneco shall (and shall cause the other members of the Energy Group
to) assume, pay, perform and discharge all Energy Liabilities in accordance
with their terms, (ii) New Tenneco shall (and shall cause the other members of
the Industrial Group to) assume, pay, perform and discharge all Industrial
Liabilities in accordance with their terms, and (iii) Newport News shall (and
shall cause the other members of the Shipbuilding Group to) assume, pay,
perform and discharge all Shipbuilding Liabilities in accordance with their
terms. See "Corporate Restructuring Transactions."
In addition, the Distribution Agreement provides for cross-indemnities that
require (i) Tenneco to indemnify New Tenneco and Newport News (and their
respective subsidiaries, directors, officers, employees and agents and certain
other related parties) against all losses arising out of or in connection with
the Energy Liabilities or the breach of the Distribution Agreement or any
Ancillary Agreement by Tenneco, (ii) New Tenneco to indemnify Tenneco and
Newport News (and their respective subsidiaries, directors, officers,
employees and agents and certain other related parties) against all losses
arising out of or in connection with the Industrial Liabilities or the breach
of the Distribution Agreement or any Ancillary Agreement by New Tenneco, and
(iii) Newport News to indemnify Tenneco and New Tenneco (and their respective
subsidiaries, directors, officers, employees and agents and certain other
related parties) against all losses arising out of or in connection with the
Shipbuilding Liabilities or the breach of the Distribution Agreement or any
Ancillary Agreement by Newport News, and for contribution in certain
circumstances.
Notwithstanding the foregoing cross-indemnification provisions, New Tenneco
and Newport News have agreed to certain other arrangements with respect to
certain inquiries from the Defense Contract Audit Agency (the "DCAA")
concerning the disposition of the Tenneco Inc. Retirement Plan (the "Tenneco
Retirement Plan"), which covers salaried employees of Newport News and other
Tenneco divisions. The DCAA has been advised that (i) the Tenneco Retirement
Plan will retain the liability for all benefits accrued by Newport News'
employees through the Distribution Date, (ii) Newport News' employees will not
accrue additional benefits under the Tenneco Retirement Plan after the
Distribution Date, and (iii) no liabilities or assets of the Tenneco
Retirement Plan will be transferred from the Tenneco Retirement Plan to any
plan maintained by Newport News. A determination of the ratio of assets to
liabilities of the Tenneco Retirement Plan attributable to Newport News will
be based on facts, assumptions and legal issues which are complicated and
uncertain; however, it is likely that the Government will assert a claim
against Newport News and/or New Tenneco with respect to the amount, if any, by
which the assets of the Tenneco Retirement Plan attributable to Newport News'
employees are alleged to exceed the liabilities. New Tenneco, with the full
cooperation of Newport News, will defend against any claim by the Government
and, in the event there nevertheless is a determination that an amount with
respect to this matter is due to the Government, New Tenneco and Newport News
will share the obligation for such amount and related defense expenses in the
ratio of 80% and 20%, respectively. Although at this preliminary stage it is
impossible to predict with certainty any eventual outcome regarding this
matter, New Tenneco does not believe that this matter will have a material
adverse effect on its financial condition or results of operations.
Pursuant to the Distribution Agreement, each of the parties has agreed to
use all reasonable efforts to take or cause to be taken all action, and do or
cause to be done all things, reasonably necessary, proper or advisable to
consummate the transactions contemplated by and carry out the purposes of the
Distribution Agreement. As such, the Distribution Agreement provides that if
any contemplated pre-Transaction transfers and assignments have not been
effected on or prior to the Distribution Date, the parties will cooperate to
effect such transfers as quickly thereafter as practicable. The entity
retaining any asset or liability which should have been transferred prior to
the Distribution Date will continue to hold that asset for the benefit of the
party entitled thereto or that liability for the account of the party required
to assume it, and must take such other action as may be reasonably requested
by the party to whom such asset was to be transferred or by whom such
liability was to be assumed in order to place such party, insofar as
reasonably possible, in the same position as would have existed had such asset
or liability been transferred or assumed as contemplated by the Distribution
Agreement.
The Distribution Agreement provides for the transfer of books and records
among Tenneco, New Tenneco and Newport News and their respective subsidiaries
and grants to each party access to certain information in the possession of
the others (subject to certain confidentiality requirements). In addition, the
Distribution Agreement
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provides for the allocation of shared privileges with respect to certain
information and requires each party to obtain the consent of the others prior
to waiving any shared privilege.
Terms of the Ancillary Agreements. Below are descriptions of the principal
Ancillary Agreements which have been, or prior to consummation of the
Distributions will be, entered into by Tenneco, New Tenneco and/or Newport
News (and, in certain circumstances, their appropriate subsidiaries).
Benefits Agreement
The Benefits Agreement to be entered into by and among Tenneco, New Tenneco
and Newport News (the "Benefits Agreement") will define certain labor,
employment, compensation and benefit matters in connection with the
Distributions and the transactions contemplated thereby. Pursuant to the
Benefits Agreement, from and after the Distribution Date each of Tenneco, New
Tenneco and Newport News will continue employment of each of their respective
retained employees (subject to their rights to terminate said employees) with
the same compensation as prior to the Distribution Date, continue to honor
all related existing collective bargaining agreements, recognize related
incumbent labor organizations and continue sponsorship of hourly employee
benefit plans. New Tenneco will become the sole sponsor of the Tenneco Inc.
Retirement Plan (the "TRP") and of the Tenneco Inc. Thrift Plan (the "Tenneco
Thrift Plan") from and after the Distribution Date, and Tenneco and Newport
News will establish defined contribution plans for the benefit of each of
their respective employees to which the account balances of retained and
former employees of Tenneco and Newport News in the Tenneco Thrift Plan will
be transferred. The benefits accrued by Tenneco and Newport News employees in
the TRP will be frozen as of the last day of the calendar month including the
Distribution Date, and New Tenneco will amend the TRP to provide that all
benefits accrued through that day by Tenneco and Newport News employees are
fully vested and non-forfeitable. Tenneco will retain and assume employment
contracts with certain individuals. All liabilities under the Tenneco Inc.
Benefit Equalization Plan and the Supplemental Executive Retirement Plan will
be assumed by New Tenneco pursuant to the Benefits Agreement; however, New
Tenneco is entitled to reimbursement for certain payments thereunder from
Tenneco and Newport News. Generally, each of Tenneco, New Tenneco and Newport
News will retain liabilities with respect to the welfare benefits of its
current and former employees and their dependents, but Tenneco will assume
all liabilities for retiree medical benefits of the employees of discontinued
operations and their dependents. In addition, as of the Distribution Date,
participation by retained and former employees of Tenneco and Newport News in
the Tenneco Inc. Deferred Compensation Plan and the 1993 Deferred
Compensation Plan will be discontinued.
Debt and Cash Allocation Agreement
The Debt and Cash Allocation Agreement will govern the allocation among the
parties of the cash and cash equivalents of Tenneco and its consolidated
subsidiaries on hand as of the Merger Effective Time and responsibility for
certain capital expenditures related to the Energy Business, as described
under "Debt and Cash Realignment." The Debt and Cash Allocation Agreement
will also (i) require Newport News to make a $600 million distribution to
Tenneco or one or more of its subsidiaries to be used in connection with the
Debt Realignment, (ii) govern certain terms of the Tenneco Credit Facility,
(iii) govern the conduct of the post-Transaction audit to be undertaken to
ascertain the Actual Energy Debt Amount and the amount of cash and cash
equivalents held by each of Tenneco, New Tenneco and Newport News upon
consummation of the Transaction, and (iv) require New Tenneco to pay in cash
to Tenneco the amount, if any, by which the Actual Energy Debt Amount exceeds
the Base Debt Amount (and require Tenneco to pay in cash to New Tenneco the
amount, if any, by which the Actual Energy Debt Amount is less than the Base
Debt Amount). See "Debt and Cash Realignment."
Insurance Agreement
Tenneco has historically maintained at the parent-company level various
insurance policies for the benefit or protection of itself and its
subsidiaries. The Insurance Agreement to be entered into among Tenneco,
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Newport News and New Tenneco (the "Insurance Agreement") in connection with
the Distributions will provide for the respective continuing rights and
obligations from and after the Distribution Date of the parties with respect
to these insurance policies (other than directors' and officers' liability
insurance policies, which are addressed by the Merger Agreement).
In general, following consummation of the Transaction policies which relate
exclusively to the Energy Business or a member of the Energy Group will be
retained by Tenneco, policies which relate exclusively to the Industrial
Business or a member of the Industrial Group will be retained by New Tenneco
and policies which relate exclusively to the Shipbuilding Business or a
member of the Shipbuilding Group will be retained by Newport News.
Pursuant to the Insurance Agreement, any non-exclusive Tenneco policies
which are in effect as of the Distribution Date (other than those which are
cost plus, fronting, high deductible or retrospective premium programs, as
described below) will either be transferred into the name of New Tenneco or
cancelled, at New Tenneco's option. In general, "go-forward" coverage under
these policies for the Energy Group and Shipbuilding Group (and certain
related persons) will be terminated as follows: (i) coverage under "claims-
made" policies (i.e., those policies which provide coverage for claims made
during a specified period) will be terminated on the Distribution Date for
any claims not made prior thereto; and (ii) coverage under "occurrence-based"
policies (i.e., those policies which provide coverage for acts or omissions
occurring during a specified period) will be terminated on the Distribution
Date for acts or omissions occurring thereafter. However, the Energy Group,
Industrial Group and Shipbuilding Group (and certain related persons) will
all continue to have access to these policies ("go-backward" coverage) for
claims made prior to the Distribution Date, in the case of claims-made
policies, and for acts or omissions which occurred prior to the Distribution
Date, in the case of occurrence-based policies (subject to certain
obligations to replace exhausted policy limits). Each respective group will
be liable for and get the benefit of premiums, costs and charges under these
policies that relate to its coverage thereunder.
Pursuant to the Insurance Agreement, policies which are cost plus,
fronting, high deductible or retrospective premium programs will be retained
by the Energy Group following the Distributions and shall provide no go-
forward coverage to the Industrial Group or Shipbuilding Group. However, go-
backward coverage will continue to be available to these groups, subject to
an obligation to reimburse Tenneco for premiums, costs and charges under
these policies related to their respective coverages following the
Distributions. Following the Distributions, Tenneco will be required to
maintain in place certain letters of credit and surety bonds securing
obligations under these policies.
Tax Sharing Agreement
The Tax Sharing Agreement to be entered into among Tenneco, Newport News,
New Tenneco and El Paso (the "Tax Sharing Agreement") will provide for the
allocation among the parties of tax liabilities arising prior to, as a result
of, and subsequent to the Distributions. As a general rule, Tenneco will be
liable for all taxes not specifically allocated to New Tenneco or Newport
News under the specific terms of the Tax Sharing Agreement. Generally, New
Tenneco will be liable for taxes imposed exclusively on the Industrial Group,
and Newport News will be liable for taxes imposed exclusively on the
Shipbuilding Group (including for pre-Distribution periods, taxes imposed on
Newport News). In the case of federal income taxes imposed on the combined
activities of Tenneco, the Industrial Group and the Shipbuilding Group, each
of New Tenneco and Newport News will be liable to Tenneco for federal income
taxes attributable to their activities, and each will be allocated an agreed-
upon share of estimated tax payments made by the Tenneco consolidated group,
except that (i) tax benefits attributable to the Debt Realignment ("Debt
Discharge Items"), presently anticipated to total approximately $120 million,
will be specifically allocated to the Industrial Group, and (ii) tax benefits
attributable to certain items included in the Base Debt Amount ("Base Debt
Amount Adjustment Items") will be specifically allocated to Tenneco. New
Tenneco will also be responsible for tax items attributable to certain
discontinued operations of Tenneco to the extent that such items exceed
forecasted amounts by more than a specified amount. In the case of state
income taxes imposed on the combined activities of the business groups,
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Tenneco will be responsible for payment of the combined tax to the state tax
authority, and New Tenneco and Newport News will pay Tenneco a deemed tax
equal to the tax that would be imposed if the Industrial Group and the
Shipbuilding Group had filed combined returns for their respective groups,
except that Debt Discharge Items and Base Debt Amount Adjustment Items will
be specifically allocated to New Tenneco and Tenneco, respectively.
In general, and except as provided below, Tenneco will be responsible for
any taxes imposed on or resulting from the Transaction ("Transaction Taxes").
New Tenneco will be responsible for any Transaction Taxes resulting from any
inaccuracy in factual statements or representations in connection with the
IRS ruling letter (the "IRS Ruling Letter") or the tax opinion to be received
by Tenneco in connection with the Transaction (the "Tax Opinion") to the
extent attributable to facts in existence prior to the Merger, but excluding
facts relating to the Shipbuilding Group or El Paso. Newport News and El Paso
will each be responsible for the accuracy of any factual statements or
representations relating to them or their respective affiliates. Each of New
Tenneco, Newport News and El Paso will be responsible for any Transaction Tax
to the extent such tax is attributable to action taken by that entity which
is inconsistent with the tax treatment contemplated in the IRS Ruling Letter
or Tax Opinion. Certain Transaction Taxes (i.e., transfer taxes, and federal
and state income taxes imposed on those Corporate Restructuring Transactions
which are known to be taxable) are included in the determination of the
Actual Energy Debt Amount and consequently may be economically borne by New
Tenneco (because New Tenneco must pay to Tenneco in cash the amount, if any,
by which the Actual Energy Debt Amount exceeds the Base Debt Amount). If
between the date of the Merger Agreement and the Merger Effective Time, there
is a change in law (as defined in the Tax Sharing Agreement) and as a result
of such change in law Tenneco is required to restore certain deferred gains
to income, then any resulting tax shall be shared equally between New Tenneco
and Tenneco.
Transition Services Agreement
TBS currently provides certain administrative services to Tenneco,
including mainframe computing services, backup, recovery and related
operations, consulting services and payroll services. Under the Transition
Services Agreement entered into among Tenneco, TBS and El Paso (the
"Transition Services Agreement"), at the request of El Paso at least 45 days
prior to the Merger Effective Time, TBS (which will, following the
Distributions, be a subsidiary of New Tenneco) will continue to provide the
services specified in El Paso's request for a period of 12 months from the
Merger Effective Time at a price to be negotiated among the parties and based
on the market rate for comparable services. If elected, any or all of the
services may be terminated by Tenneco on 45 days notice to TBS.
TBS Services Agreements
In connection with the Distributions, TBS will enter into a series of
separate services agreements (the "Service Agreements") with Newport News, as
described below.
One of the Service Agreements between TBS and Newport News will be for
mainframe data processing services (the "NNS Processing Services Agreement").
Under the NNS Processing Services Agreement, TBS will supply, as a vendor,
mainframe data processing services to Newport News for a period from the
Merger Effective Time through December 31, 1998, and thereafter only by
mutual agreement. The rate of compensation to TBS for services will be $9.1
million in 1997 and $9.6 million in 1998, payable in monthly installments,
subject to adjustment if Newport News requests a change in the scope of
services. TBS will lease the space currently used by it at the Newport News
headquarters for the period from the Merger Effective Time through December
31, 1998, with an option for TBS to extend for one-month periods for up to 12
months, for continued use by TBS as its mainframe data processing facility.
The rent under such lease will be approximately $1.2 million per year plus
pass-throughs of certain occupancy-related costs.
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TBS has also entered into a supplier participation agreement (the "NNS
Supplier Participation Agreement") with Newport News to govern the procedures
under which Newport News will continue to participate with New Tenneco in
vendor purchase agreements between TBS and various suppliers of goods and
services. The NNS Supplier Participation Agreement will provide for continued
participation of Newport News in various purchase programs, absent a
termination for cause, for the full existing terms of the agreements with
each such vendor. Under this Agreement, as is the case currently, purchases
of goods and services will be made directly by Newport News at prices
negotiated by TBS which are applicable to all participating purchasers. TBS
will charge Newport News a fixed fee of $5,000 per month for TBS contract
administration services including data collection, negotiations, progress
reporting, benefits reporting, follow-up and consulting in connection with
the vendor agreements.
Additionally, as described above, a separate Service Agreement may also be
entered into with Tenneco for transition services to be supplied by TBS to
Tenneco and its subsidiaries. The services covered and the compensation for
such services would depend on the services elected by Tenneco, and the
negotiation among the parties, pursuant to the Transition Services Agreement.
Trademark Transition License Agreements
Upon consummation of the Corporate Restructuring Transactions, New Tenneco
will hold the rights to various trademarks, servicemarks, tradenames and
similar intellectual property, including rights in the marks "Tenneco" "Ten"
and "Tenn" (but not "Tennessee"), alone and in combination with other terms
and/or symbols and variations thereof (collectively, the "Trademarks"), in
the United States and elsewhere throughout the world. In connection with the
Distributions, Trademark Transition License Agreements will be entered into
as of the Distribution Date between both (i) New Tenneco and Tenneco, and
(ii) New Tenneco and Newport News. Pursuant to these agreements, New Tenneco
will grant to each of Tenneco and Newport News a limited, non-exclusive,
royalty-free license to use the Trademarks, with respect to specified goods
and services as follows: (a) Tenneco and Newport News will be permitted to
use the Trademarks in their corporate names for 30 days after the date of the
agreements (and, pursuant to the Distribution Agreement, each have agreed to
remove the Trademarks from such corporate names within 30 days after the
Distribution Date), (b) Tenneco and Newport News will be permitted to use
their existing supplies and documents which have the Trademarks imprinted on
them for six months after the date of the agreements, and (c) Tenneco and
Newport News will be permitted to use the Trademarks on existing signs,
displays or other identifications for a period of two years (in the case of
Tenneco) and one year (in the case of Newport News) after the date of the
agreements. However, so long as Tenneco or Newport News continues to use the
Trademarks, it must maintain certain quality standards prescribed by New
Tenneco in the conduct of business operations in which the Trademarks are
used. In addition, under these agreements each of Tenneco and Newport News
will agree to indemnify New Tenneco from any claims that arise as a result of
its use of the Trademarks or any breach of its agreement and neither Tenneco
nor Newport News may adopt or use at any time a word or mark likely to be
similar to or confused with the Trademarks. Each Trademark Transition License
Agreement shall be immediately terminable by New Tenneco upon a material
breach of the agreement by Tenneco or Newport News, as the case may be.
Directors. After the Distribution Date, there will be one director of New
Tenneco who also serves on the Board of Directors of Newport News.
CONDITIONS TO CONSUMMATION OF THE DISTRIBUTIONS
The Distributions are conditioned on, among other things, approval of the
Distributions by the holders of Tenneco Stock (as defined) at the Tenneco
Special Meeting and by the holders of Tenneco Junior Preferred Stock, if
issued prior to the effectiveness of the Charter Amendment, and formal
declaration of the Distributions by the Tenneco Board of Directors. Other
conditions to the Distributions include (i) execution and delivery of certain
of the Ancillary Agreements and consummation of the various pre-Distribution
transactions (such as the Corporate Restructuring Transactions and the Debt
Realignment), (ii) receipt of the IRS Ruling Letter to the
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effect that for federal income tax purposes the Distributions will be tax-free
to Tenneco and its stockholders under Section 355 of the Code and that certain
internal spin-off transactions involving Tenneco or its subsidiaries to be
effected pursuant to the Corporate Restructuring Transactions will also be
tax-free, (iii) approval for listing on the NYSE of the New Tenneco Common
Stock and Newport News Common Stock, (iv) registration of the New Tenneco
Common Stock and Newport News Common Stock under the Exchange Act, (v) receipt
of all material consents to the Corporate Restructuring Transactions, the
Distributions and transactions contemplated in the Distribution Agreement,
(vi) performance of the various covenants required to be performed prior to
the Distribution Date (see "--Certain Other Pre-Distribution Transactions" and
"--Relationship Among Tenneco, New Tenneco and Newport News After the
Distributions"), and (vii) lack of prohibition of the Distributions by any law
or governmental authority. On October 30, 1996, the IRS issued the IRS Ruling
Letter, which satisfied the condition referred to in clause (ii) above. Even
if all the conditions to the Distributions are satisfied, Tenneco has reserved
the right to, under certain circumstances, amend or terminate the Distribution
Agreement and the transactions contemplated thereby. The Tenneco Board of
Directors has not attempted to identify or establish objective criteria for
evaluating the particular types of events or conditions that would cause the
Tenneco Board of Directors to consider amending or terminating the
Distributions. See "--Amendment or Termination of the Distributions." Although
the foregoing conditions may be waived by Tenneco to the extent permitted by
law, the Tenneco Board of Directors presently has no intention to proceed with
the Distributions unless each of these conditions is satisfied.
AMENDMENT OR TERMINATION OF THE DISTRIBUTION AGREEMENT
Prior to the Distributions, the Distribution Agreement may be amended or
terminated and the Distributions may be modified or abandoned by Tenneco
without the approval of its stockholders or New Tenneco or Newport News,
subject to the consent of El Paso as described below. Any amendment or
modification prior to the termination of the Merger Agreement or consummation
of the Merger which adversely affects the Energy Business (other than to a de
minimis extent) or materially delays or prevents the consummation of the
Merger can be effectuated only with prior consent of El Paso. Termination of
the Distribution Agreement prior to the termination of the Merger Agreement or
consummation of the Merger can be effectuated only with the prior written
consent of El Paso.
After consummation of the Distributions, the Distribution Agreement may be
amended or terminated only by a written agreement signed by Tenneco, New
Tenneco and Newport News. Certain amendments or terminations after the
Distributions also require the consent of third-party beneficiaries to the
extent that the Distribution Agreement has expressly guaranteed them rights.
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THE MERGER
GENERAL
On June 19, 1996 the respective Boards of Directors of El Paso, El Paso
Subsidiary and Tenneco each approved, and El Paso, El Paso Subsidiary and
Tenneco each executed and delivered, the original Merger Agreement. On
November 1, 1996, the parties approved and executed an amended and restated
Merger Agreement to make certain technical changes and to fix the allocation
of the consideration among the holders of Tenneco stock. The Merger Agreement
provides that, at the Merger Effective Time, El Paso Subsidiary will be merged
with and into Tenneco, with Tenneco continuing as the surviving corporation of
the Merger and as a subsidiary of El Paso, and the separate existence of El
Paso Subsidiary will cease.
The consideration to be paid by El Paso in the Merger consists of (i) the
retention by Tenneco of any outstanding Tenneco Energy Consolidated Debt as of
the Merger Effective Time (subject to the Debt Cash Adjustment) and Tenneco's
obligations to the holders of the Tenneco Junior Preferred Stock issued in the
NPS Issuance, (ii) the retention by Tenneco after the Merger of liabilities
related to certain discontinued businesses of Tenneco estimated by El Paso at
approximately $600 million, and (iii) the issuance of El Paso equity
securities with an aggregate value equal to approximately $750 million
(subject to the effect of a collar on the average market price of El Paso's
common stock, par value $3.00 per share ("El Paso Common Stock")), to the
holders of Tenneco Common Stock, $7.40 Preferred Stock and $4.50 Preferred
Stock (collectively, the "Tenneco Stock").
Pursuant to the provisions of the Merger Agreement (unless the parties
otherwise agree), as soon as practicable (and in any event within two business
days) after the satisfaction or waiver of certain conditions summarized
herein, the closing of the transactions contemplated by the Merger Agreement
will take place (the "Closing") and a Certificate of Merger will be prepared,
executed and acknowledged and thereafter delivered to the Secretary of State
of Delaware for filing pursuant to the DGCL. The Merger shall become effective
at the Merger Effective Time, which shall be the time of the filing of the
Certificate of Merger with the Secretary of State of Delaware (or such later
date or time set forth therein). As used herein, the term "Closing Date"
refers to the date on which the Closing occurs.
EFFECTS OF THE MERGER
The Merger will have the effects specified in the DGCL. In addition, the
Merger Agreement provides that the Tenneco Charter will be further amended as
of the Merger Effective Time, to, among other things (i) alter the authorized
capital stock of Tenneco, (ii) eliminate the authorized class of preferred
stock of Tenneco, (iii) rename Tenneco's authorized class of junior preferred
stock as preferred stock, (iv) eliminate the restrictions on business
combinations with interested stockholders, (v) modify the number of members of
and the structure of the Tenneco Board of Directors, and (vi) eliminate
provisions regarding transactions between Tenneco and members of its Board
with certain interests in the transactions. See "The Charter Amendment." The
Merger Agreement also provides that the bylaws of El Paso Subsidiary, as in
effect immediately prior to the Merger Effective Time and amended to include
specified provisions regarding the indemnification of and advancement of
expenses to directors and officers, shall become the bylaws of Tenneco. In
addition, the Merger Agreement provides that the directors of El Paso
Subsidiary at the Merger Effective Time will be the initial directors of
Tenneco after the Merger.
CERTAIN OTHER PRE-MERGER TRANSACTIONS
The Merger Agreement requires that the Distributions be consummated before
the Merger Effective Time with only such changes or modifications as do not
adversely affect, other than to a de minimis extent, the Energy Business.
Accordingly, the pre-Distribution transactions and conditions must generally
be consummated or satisfied, as the case may be, substantially as described
herein prior to the Merger. See "The Distributions."
Notwithstanding the foregoing, the Merger Agreement contemplates that under
certain circumstances Tenneco may enter into negotiations and/or an agreement
regarding a sale, merger or other disposition
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transaction involving either or both of the Shipbuilding Business and
Industrial Business, or any portion thereof (an "S/I Transaction"), and
thereby abandon one or both of the Distributions. With prior notice to El
Paso, Tenneco may enter into an S/I Transaction so long as such transaction is
not adverse, other than to a de minimis extent, to El Paso or the Energy
Business and would not render the Merger impossible or impracticable or
materially delay the consummation thereof. If the S/I Transaction would have
any of the foregoing effects, the transaction may nonetheless be pursued prior
to approval of the Merger Agreement, the Merger and the Distributions by
Tenneco stockholders if the Tenneco Board of Directors determines in good
faith after consultation with counsel that there is a substantial risk that
failure to do so would constitute a breach of its fiduciary duties under
applicable law.
EL PASO GUARANTY OF TENNECO PERFORMANCE
Pursuant to the Merger Agreement and certain instruments to be executed in
connection therewith, from and after the Merger Effective Time, El Paso will
guarantee the full and timely payment and performance by Tenneco and the other
members of the Energy Group of their obligations under the Merger Agreement,
Distribution Agreement and each and every other agreement to be entered into
pursuant thereto. Such agreements will not require El Paso to guarantee any of
Tenneco's obligations under any of the Old Securities.
EMPLOYEE BENEFITS
The Merger Agreement requires Tenneco to enter into the Benefits Agreement
and to perform its obligations thereunder. See "The Distributions--
Relationship Among Tenneco, New Tenneco and Newport News After the
Distributions." In addition, pursuant to the Merger Agreement, El Paso has
agreed to provide (or cause Tenneco to provide) certain benefits to certain
employees and former employees of Tenneco and their dependents from and after
the Merger Effective Time.
El Paso has agreed to provide severance benefits, vacation pay, outplacement
services and other benefits to certain employees of the Energy Business who
are terminated within one year of the Merger Effective Time (other than for
death, disability or cause). Pursuant to this agreement, approximately 50
high-level employees of the Energy Business would be eligible to receive
severance benefits ranging from 12 to 24 months' base pay and approximately
3,200 other employees of the Energy Business would be eligible to receive
severance benefits ranging from six to 52 weeks' base pay. Additionally, El
Paso has agreed to provide health care coverage to these employees on an
optional basis (with the costs being shared by the employee as are shared by
similarly situated active El Paso employees) for a period equal to the months
of pay received as severance, up to 12 months.
El Paso has also agreed to provide retiree medical and life benefits for at
least ten years from the Merger Effective Time to former employees of Tenneco
and their dependents and to current employees who are eligible to retire as of
the Merger Effective Time and who retire within a window period after the
Merger Effective Time to be selected by El Paso, which will be not less than
six months. However, El Paso may institute changes to the retiree medical plan
to implement appropriate cost containment features and other methods of
providing comparable benefits.
El Paso has further agreed to provide retention payments to key and other
Energy Business employees. Under the executive retention program, certain key
employees will be paid an aggregate of $9 million if they cooperate with the
effort to sell the Energy Business and remain full-time active employees until
the Merger Effective Time. Additionally, a separate retention program has been
implemented for approximately 200 lower management and staff level employees
with similar conditions and an aggregate of $4 million in payments.
Employees of the Energy Business will also receive credit for past service
with Tenneco in determining entitlements under certain El Paso benefit
programs. El Paso has also agreed to satisfy certain obligations owed by
Tenneco to specific individuals.
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CONDITIONS PRECEDENT
Conditions to Obligations of the Parties
The respective obligations of each of Tenneco, El Paso and El Paso
Subsidiary to consummate the transactions contemplated by the Merger Agreement
are subject to the satisfaction, at or prior to the Closing, of the following
conditions, any or all of which may be waived, in whole or in part, to the
extent permitted by applicable law:
(i) the Merger Agreement, the Merger and the Distributions shall have
been approved and adopted by the requisite vote of the stockholders of
Tenneco, in accordance with the DGCL and the Tenneco Charter;
(ii) any waiting period applicable to the consummation of the
transactions contemplated by the Merger Agreement under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended, shall have expired
or been terminated (which condition has been satisfied);
(iii) all authorizations, consents, orders and approvals of, and
declarations or filings with, and expiration of waiting periods imposed by,
any governmental authority or other person shall have been obtained or
filed and shall be in full force and effect, other than those which if not
obtained or filed would not have a material adverse effect on El Paso and
its consolidated subsidiaries, the Energy Business or the ability of any
party to consummate the transactions contemplated by the Merger Agreement
prior to the June 30, 1997 (the "Termination Date");
(iv) no governmental authority shall have enacted, issued, promulgated,
enforced or entered any statute or rule, regulation, injunction or other
order (whether temporary, preliminary or permanent) which materially
restricts, prevents or prohibits consummation of the Merger or the other
transactions contemplated by the Merger Agreement;
(v) the securities of El Paso issuable to the holders of Tenneco Stock in
the Merger shall have been approved for listing on the NYSE, subject to
official notice of issuance;
(vi) Tenneco shall have received (a) the IRS Ruling Letter as described
under "The Distributions--Conditions to Consummation of the Distributions"
and (b) to the extent not covered by the IRS Ruling Letter, the Tax Opinion
that, among other things, the Merger will qualify as a tax-free
reorganization under Section 368(a)(1)(B) of the Code (because the IRS
Letter Ruling was received on October 30, 1996 and covered the matter to be
addressed in the Tax Opinion, delivery of the Tax Opinion is a condition of
the consummation of the Merger which has been satisfied);
(vii) the Distributions, the Debt Realignment, the Charter Amendment and
the other transactions contemplated by the Distribution Agreement
(including any S/I Transaction) shall have been effected; and
(viii) the NPS Issuance shall have been consummated.
Conditions to Obligations of Tenneco
The obligations of Tenneco to consummate the transactions contemplated by
the Merger Agreement are also subject to the satisfaction, at the Closing, of
the following conditions, any or all of which may be waived, in whole or in
part, by Tenneco:
(i) the representations and warranties of El Paso and El Paso Subsidiary
in the Merger Agreement shall be true and correct as of the Closing Date
with the same effect as if made on and as of the Closing Date (except for
changes permitted by the Merger Agreement and failures to remain true and
correct which do not have a material adverse effect on El Paso and its
consolidated subsidiaries and will not prevent consummation of the
transactions contemplated by the Merger Agreement by El Paso or El Paso
Subsidiary prior to the Termination Date);
(ii) each of El Paso and El Paso Subsidiary shall have performed in all
material respects their respective obligations under the Merger Agreement
to be performed at or prior to the Closing; and
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(iii) delivery to Tenneco by El Paso and El Paso Subsidiary of officers'
certificates with respect to the matters identified in clauses (i) and (ii)
and certain other corporate proceedings.
Conditions to Obligations of El Paso and El Paso Subsidiary
The obligations of El Paso and El Paso Subsidiary to effect the transactions
contemplated by the Merger Agreement are also subject to the satisfaction, at
the Closing, of the following conditions, any or all of which may be waived,
in whole or in part, by El Paso and El Paso Subsidiary:
(i) the representations and warranties of Tenneco contained in the Merger
Agreement shall be true and correct as of the Closing Date with the same
effect as if made on and as of the Closing Date (except for changes
permitted by the Merger Agreement and failures to remain true and correct
which do not have a material adverse effect on the Energy Business and will
not prevent consummation of the transactions contemplated by the Merger
Agreement by Tenneco prior to the Termination Date);
(ii) Tenneco shall have performed in all material respects its
obligations under the terms of the Merger Agreement to be performed at or
prior to the Closing;
(iii) El Paso shall not have reasonably determined, in good faith after
consultation with Tenneco and its advisors, that as a result of an
announcement or introduction of legislation by certain U.S. government
officials identified in the Merger Agreement there exists a reasonable
likelihood that the Distributions or the Merger would not be tax-free for
federal income tax purposes to Tenneco and El Paso; and
(iv) delivery to El Paso by Tenneco of officers' certificates with
respect to the matters identified in clauses (i) and (ii) and certain other
corporate proceedings.
AMENDMENT OR TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the Merger
Effective Time, whether before or after the approval of the Merger Agreement,
the Merger or the Distributions by the stockholders of Tenneco and the
approval of the issuance (the "Stock Issuance") of El Paso Common Stock in the
Merger by the stockholders of El Paso (which is being submitted to such
stockholders at a special meeting to be held on December 9, 1996), by: (i) the
mutual written consent of El Paso and Tenneco authorized by their respective
Boards of Directors; (ii) El Paso or Tenneco, if the Merger is not consummated
by the Termination Date (other than for the terminating party's failure to
observe any of the covenants, agreements and conditions of the Merger
Agreement to be performed or observed by such party prior to the Closing
Date); (iii) El Paso or Tenneco, if there has been a material breach on the
part of the other party of any covenant, representation or warranty set forth
in the Merger Agreement, or any failure on the part of the other party to
comply with its obligations under the Merger Agreement, or any other
circumstances have occurred such that the conditions to El Paso's or Tenneco's
consummation of the Merger, respectively, could not be satisfied on or prior
to the Termination Date; (iv) El Paso or Tenneco, if the stockholders of
Tenneco at the Tenneco Special Meeting do not approve the Transaction; (v) El
Paso, if the Board of Directors of Tenneco withdraws, amends or modifies in a
manner adverse to El Paso its favorable recommendation to its stockholders of
the Transaction or promulgates any favorable recommendation with respect to
certain business combination transactions not involving El Paso (other than in
response to a situation described in clause (iii) above); (vi) Tenneco, if the
Board of Directors of El Paso withdraws, amends or modifies in a manner
adverse to Tenneco its favorable recommendation to its stockholders or
approves an agreement for or recommends to its stockholders a business
combination transaction not involving Tenneco (other than in response to a
situation described in clause (iii) above); (vii) El Paso or Tenneco, under
certain circumstances where, prior to approval of the Transaction by Tenneco
stockholders, Tenneco enters into an S/I Transaction which would adversely
impact El Paso or the Energy Business, or render the Merger impossible or
impracticable or prevent or materially delay consummation of the Merger;
(viii) El Paso, if there has occurred since June 19, 1996 any event, change or
effect which, in the aggregate with all other events, changes or effects,
reduces the value of the Energy Business as of June 19, 1996 by more than $75
million (excluding negative events, changes or effects which result from (A)
any action by El Paso or certain affiliated
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parties, (B) changes in general economic, financial markets or industrial
conditions, or (C) matters related to the GSR Ruling (as defined)); (ix)
Tenneco, if there has occurred since June 19, 1996 any event, change or effect
which, in the aggregate with all other events, changes or effects, reduces the
value of El Paso as of June 19, 1996 by more than $75 million (excluding
negative events, changes or effects which result from (A) any action by
Tenneco or certain affiliated parties, or (B) changes in general economic,
financial markets or industrial conditions); or (x) Tenneco or El Paso (but
only prior to approval of the Transaction by Tenneco's stockholders) if
Tenneco receives a "Higher Proposal" (which is a proposal for an acquisition
or similar transaction involving Tenneco and/or the Energy Business if (a) it
is reasonably likely to result in the consummation of such a transaction which
is more favorable, from a financial point of view, to Tenneco stockholders,
and (b) Tenneco's Board of Directors determines, in good faith after
consultation with independent legal counsel, that there is a substantial risk
that failure to pursue such transaction would be found to constitute a breach
of its fiduciary duties under applicable law) that it advises El Paso in
writing that it wishes to accept and El Paso does not make, within five
business days of receipt of such written notice, an offer that the Board of
Directors of Tenneco believes, in good faith after consultation with its
financial advisors, is at least as favorable, from a financial point of view,
to the stockholders of Tenneco as the Higher Proposal.
If the Merger Agreement is terminated as permitted above, the Merger
Agreement will become void and there will be no liability or obligation on the
part of the terminating party, or the directors, officers, stockholders,
employees, agents, consultants or representatives of such party, except that
such termination shall not relieve any other party of any damages or other
amounts for which it would otherwise be liable, including Tenneco's obligation
to pay to El Paso a termination fee under certain circumstances. See "--
Termination Fee."
Prior to the Merger Effective Time, whether before or after approval and
adoption of the Transaction by the stockholders of Tenneco, the provisions of
the Merger Agreement may be amended by a written agreement executed and
delivered by the parties thereto, subject to applicable law. After the Merger
Effective Time, the provisions of the Merger Agreement may be amended only by
a written agreement executed and delivered by El Paso, Tenneco (as the
surviving corporation of the Merger) and New Tenneco.
WAIVER
Any time prior to the Merger Effective Time, any party to the Merger
Agreement may, by action of its Board of Directors set forth in writing, to
the extent legally permissible, extend the time for performance of any of the
obligations or other acts of the other parties thereto, waive any inaccuracies
in the representations and warranties of the other parties contained therein
or in any document delivered pursuant thereto, and waive compliance by any of
the other parties thereto with any of the agreements or conditions contained
therein.
TERMINATION FEE
The Merger Agreement requires Tenneco to pay to El Paso a termination fee of
$25 million (the "Termination Fee"), plus up to $10 million in actual out of
pocket expenses incurred and payable to third parties by El Paso, if the
Merger Agreement is terminated: (i) by El Paso or Tenneco, if prior to
approval of the Transaction by Tenneco stockholders Tenneco enters into an S/I
Transaction which would adversely impact El Paso or the Energy Business or
would prevent or materially delay consummation of the Merger upon a good faith
determination (after consultation with and based upon advice of independent
counsel) by Tenneco's Board of Directors that there is a substantial risk that
the failure to do so would result in a breach of its fiduciary duties under
applicable law; (ii) by El Paso or Tenneco, if the Tenneco stockholders do not
adopt and approve the Transaction; or (iii) by Tenneco or El Paso (but only
prior to approval of the Transaction by Tenneco's stockholders), if Tenneco
receives a Higher Proposal that it advises El Paso in writing that it wishes
to accept and El Paso does not make, within five business days of receipt of
such written notice, an offer that the Board of Directors of Tenneco believes,
in good faith after consultation with its financial advisors, is at least as
favorable, from a financial point of view, to the stockholders of Tenneco as
such Higher Proposal. The Termination Fee
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shall be payable by Tenneco in exchange for a complete release of any
liabilities under the Merger Agreement from El Paso.
CONSULTING ARRANGEMENT
Tenneco and El Paso have entered into a consulting agreement (the
"Consulting Agreement") pursuant to which El Paso is providing certain
consulting services to Tenneco for the six-month term of the Consulting
Agreement with respect to enhancing the Energy Business' relationships with
customers, plaintiffs in material litigation and regulatory authorities. As
consideration for these services, El Paso is entitled to an aggregate
consulting fee of $60 million. Under the terms of the Consulting Agreement,
however, this fee is only due and payable by Tenneco if the Merger Agreement
is terminated by El Paso or Tenneco in the manner described in either clause
(i) or (iii) under "--Termination Fee," or in the manner described in clause
(ii) under "--Termination Fee," if Tenneco's Board of Directors withdraws,
amends or modifies its recommendation of the Transaction prior to the vote of
the holders of Tenneco Stock at the Tenneco Special Meeting.
THE CHARTER AMENDMENT
If the Transaction is approved at the Tenneco Special Meeting, the Tenneco
Charter will be amended the following day to eliminate specified rights,
powers and preferences of the authorized class of Tenneco junior preferred
stock thereunder. Certain of the rights, powers and preferences eliminated in
the Charter Amendment may be preserved for the holders of the Tenneco Junior
Preferred Stock issued in the NPS Issuance in the Certificates of Designation
of the series.
The Charter Amendment would allow the Tenneco Board of Directors additional
flexibility in establishing the powers, preferences and relative and other
special rights, including voting rights, of any series of the Tenneco junior
preferred stock issued in the future, and to take certain actions without
first obtaining the consent of holders of any outstanding Tenneco junior
preferred stock, unless otherwise required by law and unless the Tenneco Board
of Directors elected to provide voting rights with respect to any of the
foregoing actions pursuant to the terms of any series of Tenneco junior
preferred stock issued in the future.
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DESCRIPTION OF NEW TENNECO
INTRODUCTION
New Tenneco is a newly formed Delaware corporation which, upon completion of
the Industrial Distribution, will be an independent, publicly held company
(symbol "TEN"). New Tenneco will own and operate, directly and through its
direct and indirect subsidiaries, substantially all of the assets of, and will
assume substantially all of the liabilities associated with, the principal
industrial businesses of Tenneco: Tenneco Automotive and Tenneco Packaging.
New Tenneco will also own and operate the administrative services unit of
Tenneco: TBS. Upon consummation of the Merger, New Tenneco will change its
name to "Tenneco Inc."
Although the separation of the Industrial Business from the remainder of the
businesses, operations and companies currently constituting the "Tenneco
Group" has been structured as a "spin-off" of New Tenneco pursuant to the
Industrial Distribution for legal, tax and other reasons, New Tenneco will
succeed to certain important aspects of the existing Tenneco business,
organization and affairs, namely: (i) New Tenneco will be renamed "Tenneco
Inc." upon the consummation of the Merger; (ii) New Tenneco will be
headquartered at Tenneco's current headquarters in Greenwich, Connecticut;
(iii) the New Tenneco Board will consist of those persons currently
constituting the Tenneco Board; (iv) New Tenneco's executive management will
consist substantially of the current Tenneco executive management; and (v) the
Industrial Business to be conducted by New Tenneco will consist largely of
Tenneco Automotive and Tenneco Packaging.
Tenneco Automotive is one of the world's leading manufacturers of automotive
exhaust and ride control systems for both the original equipment ("OE") market
and the replacement market, or aftermarket. Tenneco Automotive is a global
business that sells its products in over 100 countries. Tenneco Automotive
manufactures and markets its automotive exhaust systems primarily under the
Walker(R) brand name and its ride control systems primarily under the
Monroe(R) brand name.
Tenneco Packaging is among the world's leading and most diversified
packaging companies, manufacturing packaging products for consumer,
institutional and industrial markets. The paperboard business group
manufactures corrugated containers, folding cartons and containerboard, has a
joint venture in recycled paperboard, and offers high value-added products
such as enhanced graphics packaging and displays and kraft honeycomb products.
Its specialty products group produces disposable aluminum, foam and clear
plastic food containers, molded fiber and pressed paperboard products, as well
as polyethylene bags and industrial stretch wrap. Tenneco Packaging's consumer
products include such recognized brand names as Hefty(R), Baggies(R) and E-Z
Foil(R).
TBS designs, implements and administers shared administrative service
programs for the Tenneco businesses as well as, on an "as requested" basis,
for former Tenneco business entities.
BUSINESS STRATEGY
New Tenneco
The Distributions and the Merger represent the most important step to date
in accomplishing Tenneco's overall strategic objective of transforming itself
from a highly diversified industrial corporation to a global manufacturing
company focused on Tenneco Automotive and Tenneco Packaging. For the past
several years, Tenneco's management team has redeployed resources from slower
growth, more cyclical businesses to these higher growth businesses. The
Distributions are expected to provide New Tenneco with greater flexibility to
pursue additional growth opportunities for Tenneco Automotive and Tenneco
Packaging as a result of the increased management focus and additional
financial flexibility at New Tenneco. These additional growth opportunities
are expected to include, among other things, strategic acquisitions, joint
ventures, strategic alliances and further organic growth from additional
product development and international expansion initiatives.
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Management Focus. As a result of the Distributions and the Merger, Tenneco's
executive management team will be able to focus all of its efforts on
exploring and implementing the most appropriate growth opportunities for
Tenneco Automotive and Tenneco Packaging.
Implementation of Management Programs. Tenneco's strategy of focusing on the
Industrial Business will allow New Tenneco to further refine and implement
certain management processes that have been developed over the past several
years in order to improve operating performance. These programs include: (i)
the Cost of Quality program through which New Tenneco has successfully reduced
the failure costs in its manufacturing and administrative processes; (ii) the
working capital initiative through which New Tenneco plans to further reduce
its working capital requirements; and (iii) the shared services program,
administered by TBS, through which New Tenneco plans on further improving
efficiency and reducing the cost of general and administrative support
functions. New Tenneco believes that Tenneco Automotive and Tenneco Packaging
are particularly well-suited to benefit from these types of programs due to
the fragmented, non-regulated nature of the industries in which they operate.
Strategic Acquisitions. Strategic acquisitions have been, and will continue
to be, an important element of New Tenneco's overall growth strategy.
Tenneco's current executive management team, which will continue to serve as
New Tenneco's executive management team following the Industrial Distribution,
has a proven track record of identifying, structuring and integrating
strategic acquisitions. As a result of management's experience in implementing
strategic acquisitions, New Tenneco has developed comprehensive plans to
efficiently integrate new companies into its existing corporate
infrastructure. New Tenneco intends to continue to pursue appropriate
acquisition opportunities in which management can substantially improve the
profitability of strategically related businesses by, among other things,
rationalizing similar product lines and eliminating certain lower margin
product lines; reconfiguring and upgrading manufacturing facilities; moving
production to the lowest cost facilities; reducing selling, distribution,
purchasing and administrative costs; increasing market share within either a
geographic or product market; and acquiring businesses that possess leading
brand name products.
Continued growth in revenues and earnings at the pace sought by New Tenneco
will require continued success in completing major acquisitions and similar
expansion efforts, and then successfully integrating the acquired businesses
and operations into New Tenneco. The identity, timing, frequency, terms and
other factors involved in the overall acquisition/expansion program, and those
relating to any particular major acquisition, will impact, positively or
negatively, New Tenneco's success in achieving its financial and other goals.
Although certain factors in this regard will be beyond New Tenneco's control,
its executive management team believes that New Tenneco will have the
requisite significant opportunities, and the expertise, resources and
commitment to successfully act on an appropriate number of those
opportunities, to achieve its goals.
Employee Incentives. In addition, the Distributions and the Merger will
allow Tenneco's executive management team to develop incentive compensation
systems for employees that are more closely aligned with the operational
success of Tenneco Automotive and Tenneco Packaging.
Tenneco Automotive
Tenneco Automotive's primary goal is to enhance its leadership position in
the global automotive parts industry in which it is currently one of the
world's leading manufacturers of exhaust and ride control systems. Tenneco
Automotive intends to capitalize on certain significant existing and emerging
trends in the automotive industry, including (i) the consolidation and
globalization of the original equipment manufacturer ("OEM") supplier base,
(ii) increased OEM outsourcing, particularly of more complex components,
assemblies, modules and complete systems to sophisticated, independent
suppliers and (iii) growth of emerging markets for both original equipment and
replacement markets. Key components of Tenneco Automotive's strategy include:
(a) capitalizing on brand-name strength; (b) retaining and enhancing market
shares; (c) continuing development of high value-added products; (d)
increasing ability to deliver full-system capabilities (rather than merely
component parts); (e) continuing international expansion and strategic
acquisitions; (f) maintaining operating cost leadership; and (g) continuing
focus on the customer.
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Tenneco Packaging
Tenneco Packaging's primary goal is to maintain and enhance its position as
a leading specialty packaging company offering a broad line of products suited
to provide customers with the best packaging solutions. Tenneco Packaging
intends to capitalize on certain significant existing and emerging trends in
the packaging industry, including (i) increasing materials substitution, (ii)
changing fiber availability and (iii) global demand growth. Key components of
Tenneco Packaging's strategy include: (a) continued development and growth of
multi-material uses, broad product lines and packaging offering customers
enhanced functionality and value; (b) fiber flexibility (primarily in the mix
of virgin and recycled fiber sources); (c) growth through domestic and
international acquisitions and joint ventures; (d) internal growth in base
businesses; (e) reduction of sensitivity to changes in economic cyclicality
through the pursuit of specialty and other high value-added product growth;
and (f) maintenance of market leadership positions in its primary business
groups.
TENNECO AUTOMOTIVE
Tenneco Automotive is one of the world's leading manufacturers of automotive
exhaust and ride control systems for the OE market and aftermarket. Tenneco
Automotive is a global business that sells its products in over 100 countries,
manufacturing and marketing its automotive exhaust systems primarily under the
Walker(R) brand name and its ride control equipment primarily under the
Monroe(R) brand name.
Overview of Automotive Parts Industry
The global market for automotive parts was approximately $435.3 billion in
1995, comprised of $352 billion in OE sales and $83.3 billion in aftermarket
sales. This market is expected to grow by 7.6% to $468.4 billion in 1996 and
by approximately 7.2% per year through 2000 resulting in a total market size
of approximately $617.6 billion in that year. As the North American and
Western European automotive markets are relatively mature (expected to grow at
an estimated rate of 7.0% and 6.0%, respectively through 2000), OEMs and
automotive parts suppliers are increasingly focusing on emerging markets for
additional growth opportunities, particularly China, Eastern Europe, India and
Latin America.
Automotive parts are generally segmented into two categories: (i) OE sales
in which parts are sold in large quantities directly to the vehicle
manufacturers and (ii) aftermarket sales in which parts are sold in varying
quantities to a wide range of wholesalers, retailers and repair shops as
replacement parts in the aftermarket. Demand for automotive parts in the OE
market is driven by the number of new vehicle sales which in turn are
determined by prevailing economic conditions. Factors affecting demand in the
aftermarket include the number of vehicles on the road, the average useful
life of parts, the average age of such vehicles and number of miles driven.
Industry Trends
Currently, there are significant existing and emerging trends that are
dramatically reshaping the automotive industry. As the dynamics of the
automotive industry change, so do the roles, responsibilities and
relationships of its participants. Key trends affecting automotive parts
suppliers include:
Consolidation of Parts Suppliers. The automotive parts industry,
particularly with respect to OE suppliers, has been rapidly consolidating for
the last several years. The number of Tier I suppliers has decreased from
3,000 to 1,500 since 1990. By the year 2000, the number of suppliers is
expected to decrease by nearly 75%, leaving approximately 400 Tier I
suppliers. The primary reasons for this consolidation include: (i) an
increasing desire by OEMs to work with fewer, larger suppliers that can
provide fully-integrated systems and (ii) the inability of smaller suppliers
to compete on price with the larger companies who benefit from purchasing and
distribution economies of scale.
Full-System Integration by Parts Suppliers. OEMs are moving towards
outsourcing entire automotive parts systems in order to take advantage of the
lower cost structure of the automotive parts suppliers. Development of
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advanced electronics has enabled formerly independent components to become
"interactive," leading to a shift in demand from individual parts to fully-
integrated systems. OEMs seem to have accepted the need to work more closely
with suppliers, whose roles are now being transformed from "parts suppliers"
to "developers of modules and systems." This shift has created the role of the
systems integrator, who will increasingly have the ability to execute a number
of activities, such as design, product development, engineering, testing of
component systems, and purchasing from Tier II suppliers. It is estimated that
there will be approximately 60 systems integrators by the year 2005. This
emerging structure should allow the vehicle manufacturers to concentrate on
the activities which are core to their success such as product planning and
marketing, thus limiting their involvement to setting the "look and feel" and
cost parameters for new vehicle platforms. OEMs are also stimulating further
manufacturing cost improvements by implementing strategies that would provide
parts suppliers with greater input and allow them to share in the benefits of
cost savings and productivity enhancements, thus strengthening the role and
potential margins of the surviving Tier I suppliers.
Globalization of the Automotive Industry. As a result of several factors,
OEMs are increasingly requiring "global" parts suppliers with global
management expertise. As the customer base of OEMs changes, and emerging
markets become more important to achieving growth, suppliers must be prepared
to provide products any place in the world. This requires a worldwide approach
to engineering, sales and distribution.
. Location of Production Closer to End Markets. OEMs have relocated
production globally on an "on-site" basis that is closer to end markets.
This international expansion allows suppliers to pursue sales in
developing markets, to take advantage of relatively lower labor costs
and, to some extent, to offset the counter-cyclicality of the European
and North American markets.
. Growing Importance of Emerging Markets. As the North American and Western
European automotive markets are relatively mature, OEMs are increasingly
focusing on emerging markets for growth opportunities, particularly
China, Eastern Europe, India and Latin America. The increased focus on
the OE markets has in turn increased the growth opportunities in the
aftermarket.
. Increasing Requirement of Government for Local Parts Content. Many
governments are beginning to require certain percentages of local
content.
Standardization of OEM Vehicle Platforms. OEMs are increasingly designing
"world cars" with standard bases and localized features, while also developing
niche market products such as multipurpose vehicles, four-wheel drive and
sports cars for mature markets. OEMs have learned that they can realize
significant economies of scale by limiting variations across items such as
steering columns, brake systems, transmissions, axles, exhaust systems,
support structures, fasteners, and power window and door lock mechanisms. This
shift towards standardization will have a large impact on components
manufacturers, who should experience a reduction in production costs if the
OEMs reduce components variations. This should result in not only higher
production volumes per unit and greater economies of scale, but also lower
investment costs for molds and dies, reduced development and prototype costs
and more efficient die changes and retooling.
Aftermarket. There are several factors that are positively affecting the
North American demand for automotive parts in the aftermarket, including:
. The average age of vehicles on the road is at an industry record-high of
8.4 years.
. The aggregate number of annual miles driven by all vehicles has increased
by 38% from 1,925 billion miles in 1988 to 2,360 billion miles in 1995.
. The size of the vehicle fleet has increased from approximately 157
million registrations in 1988 to approximately 188 million registrations
in 1995.
On the other hand, a factor negatively affecting the demand for aftermarket
parts is the increasing average useful life of most OEM automotive parts as a
result of technological advancements.
Emphasis on Clean Air and Efficiency. The enactment of strict environmental
regulations regarding both pollution and recycling content has led suppliers
and OEMs to design products and develop materials to comply
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with increasingly stringent requirements. The Clean Air Act Amendments of 1990
require substantial reductions in automobile tailpipe emissions, longer
warranties on certain parts of an automobile's pollution-control equipment and
additional equipment to control fuel-vapor emissions. Manufacturers have
responded by focusing their efforts towards technological development, thus
lowering costs while minimizing industrial waste and pollution. Automakers are
designing vehicles that will be easier to dismantle and recycle at the end of
their useful lives and nearly all component manufacturers now deliver parts
and components in reusable shipping containers to reduce the amount of waste
produced at an assembly plant.
Overview of Tenneco Automotive
Tenneco Automotive is one of the world's leading manufacturers of automotive
exhaust and ride control systems for the OE market and the aftermarket.
Tenneco Automotive is a global business that sells its products in over 100
markets worldwide. Tenneco Automotive manufactures and markets its automotive
exhaust systems primarily under the Walker(R) brand name, and its ride control
equipment is primarily manufactured under the Monroe(R) brand name.
The following table sets forth information relating to the net sales of both
of Tenneco Automotive's primary product groups:
<TABLE>
<CAPTION>
NET SALES ($ IN MILLIONS)
----------------------------------
SIX MONTHS YEAR ENDED DECEMBER
ENDED 31,
JUNE 30, 1996 1995 1994 1993
------------- ------ ------ ------
<S> <C> <C> <C> <C>
EXHAUST SYSTEMS PRODUCTS GROUP
Aftermarket............................... $ 348 $ 637 $ 609 $ 562
OE Market................................. 499 829 465 385
------ ------ ------ ------
847 1,466 1,074 947
------ ------ ------ ------
RIDE CONTROL PRODUCTS GROUP
Aftermarket............................... 406 687 644 580
OE Market................................. 210 326 271 258
------ ------ ------ ------
616 1,013 915 838
------ ------ ------ ------
Total Tenneco Automotive................ $1,463 $2,479 $1,989 $1,785
====== ====== ====== ======
</TABLE>
Brands. Tenneco Automotive has established leading brand-name products.
Monroe(R) and Walker(R) are two of the most recognized brand names in the
automotive parts industry. As Tenneco Automotive acquires related product
lines, it is envisioned that they will be incorporated within these existing
product families.
Customers. Tenneco Automotive has developed long-standing business
relationships with many of its customers around the world, working with its
customers in all stages of production, including design, development,
component sourcing, quality assurance, manufacturing and delivery. Tenneco
Automotive has a strong and established reputation with its customers for
providing high quality products at competitive prices as well as for timely
delivery and customer service. Attention to these customer priorities has been
recognized by numerous customers who have awarded Tenneco Automotive supplier
quality awards.
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Tenneco Automotive serves both the OE market and the aftermarket since the
investment and technology required to produce products for the OEMs can be
profitably parlayed into the higher margin aftermarket. Tenneco Automotive
serves over 25 different OEM customers on a global basis, including the
following:
NORTH AMERICA EUROPE JAPAN
CAMI BMW Mazda
Chrysler DAF Nissan
Ford Daihatsu Suzuki
General Motors Fiat Toyota
Honda Ford
Mazda Jaguar AUSTRALIA
Mitsubishi Lada Ford
Nissan Leyland General Motors
NUMMI Mercedes-Benz Mitsubishi
Toyota Mitsubishi Toyota
Nissan
SOUTH AMERICA Opel
Fiat Peugeot/Citroen
Ford Porsche
General Motors Renault/Matra
Volkswagen Rover/Land Rover
Saab/Scania
Toyota
Volkswagen/Audi/SEAT/Skoda
Volvo
Tenneco Automotive's aftermarket customers include such wholesalers and
retailers as National Auto Parts Association (NAPA), Big A Stores, Midas
International Corp. ("Midas"), Speedy Muffler King and Western Auto in North
America, and Midas, Pit Stop and Kwik-Fit in Europe.
Exhaust Systems
Tenneco Automotive designs, manufactures and distributes exhaust systems
primarily under the Walker(R) brand name. These products include a variety of
automotive exhaust systems and emission control products, including mufflers,
catalytic converters, tubular exhaust manifolds, pipe, exhaust accessories and
electronic noise cancellation products. Founded in 1888 and a division of
Tenneco Automotive since 1967, the Walker business group ("Walker") is the
replacement market leader for exhaust systems in North America, Europe and
Australia. Walker is a leading supplier in the OE market in the U.S. as well,
supplying exhaust systems used in 7 of the 10 top-selling 1996 new car models
sold in the U.S. Walker has long been the European market leader in the
replacement market for exhaust systems, and with the acquisition of Heinrich
Gillet GmbH & Company ("Gillet") in 1994, Walker became Europe's leading OE
supplier.
Exhaust systems play a critical role in safely conveying noxious gases away
from the passenger compartment, reducing the level of pollutants and reducing
engine exhaust noise to an acceptable level. Precise engineering of the
manifold, pipe, catalytic converter and muffler leads to a pleasant, tuned
engine sound, minimal pollutants and optimized engine performance.
Manufacturing and Engineering. With plants in North America, Europe, South
America, South Africa, Asia and Australia, Walker locates its manufacturing
facilities in close proximity to its OE customers to provide just-in-time
delivery. In the U.S., Walker operates 10 manufacturing facilities and seven
distribution centers, three of which are located at manufacturing facilities.
Walker also has two research and development facilities in the U.S. In
addition, Walker operates 26 manufacturing facilities located in Argentina,
Australia, Canada, China, the
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Czech Republic, the United Kingdom, Mexico, Denmark, Germany, France, Spain,
Portugal, South Africa and Sweden. Walker is in the process of establishing a
production line in Brazil. It also has one engineering and technical center at
its facility in Germany and one at its facility in Australia. Its engineering
facilities include full anechoic chambers in the U.S. and Europe.
Strategic Acquisitions/Joint Ventures. As part of its international growth
strategy, Walker acquired ownership of Gillet, a manufacturer of exhaust
systems, in November 1994. The acquisition of Gillet, Europe's largest OE
exhaust supplier, recast Tenneco Automotive as the market leader in exhaust
systems for the OE market in Europe. The acquisition also brought many new OE
customers and orders to the Walker business. Before Gillet, Walker had only
Toyota as a European OE exhaust customer. As a result of the acquisition of
Gillet, a variety of new customers have been added, including: Audi, Ford-
Europe, Opel (General Motors), Mercedes Benz, Peugeot/Citroen, Renault, Seat,
Skoda and Volkswagen. Significantly, following the Gillet acquisition, Ford
selected Walker as a supplier for its 1997 "world" car.
In 1995, Walker acquired ownership of Manufacturas Fonos, S.L. ( "Fonos"),
Spain's largest participant in the exhaust systems aftermarket, and Perfection
Automotive Products, a U.S. catalytic converter producer, further expanding
Walker's presence in the exhaust systems replacement market. In 1996, Walker
established a joint venture in China (Dalian) to supply exhaust systems to the
northern Chinese automotive market.
The following table sets forth information relating to Tenneco Automotive's
sales of exhaust systems:
<TABLE>
<CAPTION>
PERCENTAGE OF SALES
--------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ---------------------------
1996 1995 1994 1993
---------- ------- ------- -------
<S> <C> <C> <C> <C>
United States Sales
Aftermarket.................... 42% 46% 48% 52%
OE Market...................... 58 54 52 48
--- ------- ------- -------
100% 100% 100% 100%
=== ======= ======= =======
Foreign Sales
Aftermarket.................... 40% 42% 68% 70%
OE Market...................... 60 58 32 30
--- ------- ------- -------
100% 100% 100% 100%
=== ======= ======= =======
Total Sales by Geographic Area
United States.................. 42% 42% 58% 60%
European Union................. 44 45 24 23
Canada......................... 8 7 10 12
Other areas.................... 6 6 8 5
--- ------- ------- -------
100% 100% 100% 100%
=== ======= ======= =======
</TABLE>
Ride Control Products
Tenneco Automotive designs, manufactures and distributes ride control
equipment primarily under the Monroe(R) brand name. Tenneco Automotive's ride
control equipment consists of hydraulic shock absorbers, air adjustable shock
absorbers, spring assisted shock absorbers, gas charged shock absorbers and
struts, replacement cartridges and electronically adjustable suspension
systems. Tenneco Automotive manufactures and markets replacement shock
absorbers for virtually all domestic and foreign makes of automobiles. In
addition, Tenneco Automotive manufactures and markets shock absorbers and
struts for use as original equipment on passenger cars and trucks, as well as
for other uses. Founded in 1916, the Monroe business group ("Monroe")
introduced the world's first shock absorber in 1926 and became part of Tenneco
Automotive in 1977. Tenneco Automotive is the market leader for ride control
equipment in the aftermarket in North America, Europe and Australia, as well
as in the OE market in Australia.
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Superior ride control is governed by a vehicle's suspension system,
including its shocks and struts. Shocks and struts are components that help
maintain vertical loads placed on a vehicle's tires to help keep the tires in
contact with the road. A vehicle's ability to steer, brake and accelerate
depends on the adhesion, or friction, between the vehicle's tires and the
road. Adhesion is directly influenced by shock absorber and strut performance.
Worn or low quality shocks and struts allow weight to transfer from side to
side (roll), from front to rear (sway) and up and down (bounce). Monroe shocks
maintain vertical loads placed on tires by providing resistance to vehicle
bounce, sway and roll. Variations in tire to road contact affect a vehicle's
handling and braking performance and the safe operation of a vehicle; thus, by
enhancing the tire to road contact, Monroe's ride control products actually
function as safety components of a vehicle rather than merely providing a
comfortable ride.
Manufacturing and Engineering. Monroe has ten manufacturing facilities in
the United States and 14 foreign manufacturing operations in Australia,
Belgium, Brazil, Canada, the Czech Republic, Mexico, the United Kingdom,
Spain, Turkey and New Zealand. Monroe also has controlling interests in joint
ventures that own manufacturing operations in China and India, as described
below. In designing its shock absorbers and struts, Monroe uses advanced
engineering and test capabilities to provide product reliability, endurance
and performance. Monroe's engineering capabilities feature state-of-the-art
testing equipment, advanced computer aided design equipment, and the talents
of over 100 engineers. Monroe's dedication to innovative solutions has led to
such technological advances as adaptive dampening systems; manual, hydraulic
and electronically adjustable suspensions; semi-active and active systems; and
air and hydraulic leveling systems. Conventional shocks and struts were only
able to provide either ride comfort or vehicle control. Monroe's innovative
new grooven-tube, gas-charged shocks and struts enable both ride comfort and
vehicle control, resulting in improved handling (less roll), reduced
vibration, a wider range of vehicle control and a lessening of the reduction
in performance as the struts become overheated (fade). This new technology,
together with Monroe's Position Sensitive Dampening(R) valve can be found in
Monroe's premium quality Sensa-Trac(R) shocks.
Strategic Acquisitions/Joint Ventures. As a means of expanding its product
lines and offering OEMs a complete modular ride control system, in July 1996,
Tenneco Automotive acquired Clevite. Clevite is a leading OE manufacturer of
elastomeric vibration control components, including bushings and engine
mounts, for the auto, light truck and heavy truck markets. With this
acquisition, Tenneco Automotive now has the full capability to deliver
complete suspension systems to the OEMs. The Clevite acquisition also
complements Tenneco Automotive's interest in global growth opportunities, as
both Clevite and Monroe have manufacturing operations in Mexico and Brazil. In
addition to the operations mentioned in the preceding paragraph, Tenneco
Automotive has a 51% interest in a joint venture that has three ride control
manufacturing facilities in India and has a 51% interest in a joint venture
that has one ride control manufacturing facility in China. It is anticipated
that the joint venture in India will also manufacture exhaust systems.
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The following table sets forth information relating to Tenneco Automotive's
sales of ride control equipment:
<TABLE>
<CAPTION>
PERCENTAGE OF SALES
--------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ---------------------------
1996 1995 1994 1993
---------- ------- ------- -------
<S> <C> <C> <C> <C>
United States Sales
Aftermarket.................... 72% 70% 72% 72%
OE Market...................... 28 30 28 28
--- ------- ------- -------
100% 100% 100% 100%
=== ======= ======= =======
Foreign Sales
Aftermarket.................... 61% 66% 69% 63%
OE Market...................... 39 34 31 37
--- ------- ------- -------
100% 100% 100% 100%
=== ======= ======= =======
Total Sales by Geographic Area
United States.................. 45% 48% 49% 50%
European Union................. 36 36 32 29
Canada......................... 4 3 5 7
Other areas.................... 15 13 14 14
--- ------- ------- -------
100% 100% 100% 100%
=== ======= ======= =======
</TABLE>
Sales and Marketing
Both of the exhaust and ride control systems groups utilize similar sales
and marketing systems to distribute Tenneco Automotive products. Both groups
take advantage of a dedicated sales force and consumer brand marketing
professionals together with extensive marketing support, including trade and
consumer marketing, promotions and general advertising. Tenneco Automotive
maintains a customer order fill rate, consistently exceeding 95%, which it
believes is among the highest in the industry.
Tenneco Automotive sells its OEM products directly. With respect to the
aftermarket, Tenneco Automotive employs three primary distribution techniques:
(i) the traditional three-step distribution system: warehouse distributors,
jobbers and installers; (ii) direct sales to retailers; and (iii) sales to
buying groups.
Strategy
Tenneco Automotive's primary goal is to enhance its leadership position in
the global automotive parts industry in which it is currently one of the
leading manufacturers of exhaust and ride control systems. Tenneco Automotive
intends to capitalize on certain significant existing and emerging trends in
the automotive industry, including (i) the consolidation and globalization of
the OEM supplier base, (ii) increased OEM outsourcing, particularly of more
complex components, assemblies, modules and complete systems to sophisticated,
independent suppliers and (iii) growth of emerging markets for both original
equipment and replacement markets. Key components of Tenneco Automotive's
strategy include:
Branding. Tenneco Automotive, whose major strategic strength is the
performance of its leading Monroe and Walker brand names and their market
shares, intends to emphasize product differentiation to give consumers added
reasons for specifying their brands. For example, Monroe introduced a premium
grade shock and strut called Sensa-Trac(R) in 1994, which helped it regain its
technological leadership in the ride control market, and Walker's
Advantage(TM) and Dyno Max(TM) brands are the leading brands in their product
categories. Tenneco Automotive also plans on capitalizing on its brand
strength by incorporating newly acquired product lines within existing product
families, as it did with Gillet.
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<PAGE>
Maintain Focus on Core Business. Tenneco Automotive intends to retain market
share in its core businesses with its primary customers while increasing
market share with customers with whom it has not fully realized its potential
market penetration. These objectives are designed to enable Tenneco Automotive
to respond better to the OEMs' evolving purchasing requirements, where in
addition to manufacturing, the supplier is required to provide design,
engineering and project management support for a complete package of
integrated products.
Continue to Develop High Value-Added Products. Tenneco Automotive intends to
continue to manufacture high value-added products and to develop strategic
alliances with Tier I and Tier II suppliers in order to facilitate development
of these value-added products, including the development of highly engineered
or complex assemblies or systems. Tenneco Automotive intends to expand its
product lines by continuing to identify and fill new fast-growing niche
markets, by developing new products for existing markets, by acquiring
companies with product portfolios that complement the products currently
applied by Tenneco Automotive and by establishing strategic alliances with
other suppliers.
Increase Ability to Provide Full-System Capabilities. The automotive parts
industry is encountering a consolidation of parts suppliers as OEMs require
suppliers to provide design assistance and innovation and full-system
capabilities rather than just specific parts. In response to this trend, New
Tenneco plans to dedicate more resources towards strengthening technical
capability and design expertise and pursue appropriate strategic acquisitions,
joint ventures and strategic alliances in order to increase Tenneco
Automotive's ability to deliver such full-system capability. For example, the
recent acquisition of Clevite now gives Tenneco Automotive the ability to
deliver complete suspension systems to OEMs.
International Expansion. As Tenneco Automotive's OE customers expand their
assembly operations globally and in response to the development of global
aftermarkets, Tenneco Automotive plans to continue its international expansion
through joint ventures, acquisitions and strategic alliances. For example,
since August 1995, Tenneco Automotive has made eight acquisitions and entered
into four international joint ventures. These strategic initiatives have given
Tenneco Automotive an enhanced presence in Argentina, Brazil, China,
Australia, the Czech Republic, Spain, India and, most recently, Turkey. In
September 1996, Tenneco Automotive acquired ownership of its Borusan Amortisor
shock absorber joint venture in Turkey ("Borusan Amortisor"). Borusan
Amortisor currently has approximately 23% of the OE market and 30% of the
aftermarket in Turkey. Both markets are expected to grow significantly by the
year 2000. The recent international acquisitions complement the November 1994
acquisitions of Gillet, Europe's largest supplier of automotive exhaust
equipment for the OEM market, which has already been successfully integrated
into Tenneco Automotive. Rather than segment the world, Tenneco Automotive
plans to integrate its international operations through the standardization of
products and processes, improvements in information technology and the global
coordination of purchasing, costing and quoting procedures.
Strategic Acquisitions. Strategic acquisitions have been, and management
believes will continue to be, an important element of Tenneco Automotive's
growth. Through such acquisitions, Tenneco Automotive can expand its product
portfolio, gain access to new customers and achieve leadership positions
within new geographic markets, while drawing on the strengths of existing
distribution channels with OEM relationships. Tenneco Automotive has developed
comprehensive integration plans to quickly integrate new companies into its
infrastructure. Tenneco Automotive intends to continue to pursue acquisition
opportunities in which management can substantially improve the profitability
of strategically related businesses by, among other things, rationalizing
similar product lines and eliminating certain lower margin product lines;
reconfiguring and upgrading manufacturing facilities; moving production to the
lowest cost facilities; and reducing selling, distribution, purchasing and
administrative costs.
Operating Cost Leadership. Tenneco Automotive will continue to seek cost
reductions as it standardizes its product and processes throughout its
international operations, improves its information technology, increases
employee training, invests in more efficient machinery and enhances the global
coordination of purchasing, costing and quoting procedures.
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<PAGE>
Other
As of July 1, 1996, Tenneco Automotive had approximately 21,000 employees.
Tenneco Automotive believes that its relations with its employees are good.
The principal raw material utilized by Tenneco Automotive is steel. Tenneco
Automotive believes that an adequate supply of steel can presently be obtained
from a number of different domestic and foreign suppliers.
Tenneco Automotive holds a number of domestic and foreign patents and
trademarks relating to its products and businesses. It manufactures and
distributes its products primarily under the names Walker(R) and Monroe(R),
which are well recognized in the marketplace. The patents, trademarks and
other intellectual property owned by Tenneco Automotive are important in the
manufacturing and distribution of its products.
The operations of Tenneco Automotive face competition from other
manufacturers of automotive equipment, including affiliates of certain of its
customers, in both the OE market and the aftermarket.
Tenneco Automotive is headquartered in Deerfield, Illinois.
TENNECO PACKAGING
Tenneco Packaging is among the world's leading and most diversified
packaging companies, manufacturing packaging products for consumer,
institutional and industrial markets. The paperboard business group
manufactures corrugated containers, folding cartons and containerboard, has a
joint venture in recycled paperboard, and offers high value-added products
such as enhanced graphics packaging and displays and kraft honeycomb products.
Its specialty products group produces disposable aluminum, foam and clear
plastic food containers, molded fiber and pressed paperboard products, as well
as polyethylene bags and industrial stretch wrap. Tenneco Packaging's consumer
products include such recognized brand names as Hefty(R), Baggies(R) and E-Z
Foil(R).
Overview of Packaging Industry
The global packaging market is estimated at nearly $360 billion with about
one quarter in North America, slightly less in Europe and the balance spread
throughout the rest of the world. Tenneco Packaging now ranks as the fourth
largest packaging manufacturer in North America by sales and the tenth largest
in the world. Packaging remains one of the most fragmented major industries,
with the top five companies comprising only a 10% worldwide market share.
Within packaging material categories, Tenneco Packaging participates in the
three growing segments of paper, plastic and aluminum, with substantial or
leading market shares in virtually all of its product segments.
Business Strategy
Tenneco Packaging has embarked upon an aggressive growth plan to be the
leading specialty packaging company offering a broad line of packaging
products to provide customers with the best packaging solutions. In the past
two years, Tenneco Packaging has doubled its size to nearly $4 billion in
annualized revenues through internal growth in its base businesses,
productivity gains and 12 acquisitions that have been completed since early
1995.
As a result of these redeployment activities, Tenneco Packaging has
significantly reduced its sensitivity to changes in economic cyclicality:
. Tenneco Packaging's business is now over half specialty (including the
full year impact of the Mobil Plastic acquisition and the recently
announced Amoco Foam Products purchase), which reduces exposure to
business cycles.
. On the paperboard side, four acquisitions in specialty graphics and the
purchase of Hexacomb Corporation ("Hexacomb"), the world's largest
supplier of kraft paper honeycomb products used for protective packaging,
have reduced its sensitivity to raw material prices and offer greater
opportunities to add value. Currently, over 20% of Tenneco Packaging's
paperboard business is in higher margin, enhanced graphics including
folding cartons, point-of-purchase displays and point-of-sale packaging,
as well as protective packaging products.
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In the future, Tenneco Packaging will continue to pursue value-added, non-
cyclical growth opportunities, maintain market leadership positions in its
primary business groups and leverage its new product development expertise.
As with any manufacturing company whose product demand is sensitive to
general economic conditions, Tenneco Packaging's business results may be
adversely impacted by several uncertainties including raw material cost
fluctuations and pricing variability related to industry supply/demand
dynamics. In addition, potential packaging legislation or regulatory changes,
material substitution, new packaging technologies and changes in consumer
preferences or distribution channels could have an adverse impact on New
Tenneco. However, Tenneco Packaging has positioned itself to deal
strategically with these challenges through its:
. Multi-material focus, broad product line and concentration of growth in
packaging that offers customers greater functionality and value;
. Fiber flexibility, which enables Tenneco Packaging's paperboard business
to manage its mix of virgin and recycled fiber sources to take advantage
of changing market conditions;
. Raw material purchasing leverage in both fiber and plastic resin;
. Technology and new product development expertise, offering innovative
packaging design and materials applications; and
. Global expansion strategy of growing its international business through
value-added acquisitions, joint ventures, and multi-national customer
partnerships.
Tenneco Packaging believes that factors critical to its success include a
focused strategic direction, operating cost leadership, management expertise,
a committed and skilled workforce and a systems infrastructure to meet
stringent customer quality requirements and service needs. Tenneco Packaging
will spend approximately $110 million by the end of 1998 to provide state-of-
the-art customer linked manufacturing systems, shop floor scheduling and real-
time data for marketing and production management.
Overview of Tenneco Packaging
Tenneco Packaging is an industry leader in the manufacture and sale of
packaging products, offering a wide range of fiber-based materials and
packaging for consumer, institutional and industrial applications, as well as
aluminum and plastic-based specialty packaging for consumer, retail, food
service and food processing applications.
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<PAGE>
The following tables set forth information relating to the net sales of both
of Tenneco Packaging's primary business groups, in dollars and by percentages:
<TABLE>
<CAPTION>
NET SALES (MILLIONS)
------------------------------------
YEAR ENDED DECEMBER
SIX MONTHS 31,
ENDED ----------------------
JUNE 30, 1996 1995 1994 1993
------------- ------ ------ ------
<S> <C> <C> <C> <C>
PAPERBOARD PRODUCTS GROUP
Corrugated shipping containers and
containerboard products............... $ 751 $1,589 $1,214 $1,086
Folding cartons and recycled paperboard
mill products......................... 92 204 196 196
Paper Stock and other.................. 60 135 119 100
------ ------ ------ ------
903 1,928 1,529 1,382
------ ------ ------ ------
SPECIALTY PRODUCTS GROUP
Disposable plastic and aluminum packag-
ing products.......................... 756 593 434 442
Molded fiber products.................. 100 191 186 183
Other.................................. 16 40 35 35
------ ------ ------ ------
872 824 655 660
------ ------ ------ ------
Total Tenneco Packaging.............. $1,775 $2,752 $2,184 $2,042
====== ====== ====== ======
<CAPTION>
PERCENTAGE OF NET SALES
------------------------------------
YEAR ENDED DECEMBER
SIX MONTHS 31,
ENDED ----------------------
JUNE 30, 1996 1995 1994 1993
------------- ------ ------ ------
<S> <C> <C> <C> <C>
PAPERBOARD PRODUCTS GROUP
Corrugated shipping containers and
containerboard products............... 42% 58% 56% 53%
Folding cartons and recycled paperboard
mill products......................... 5 7 9 10
Paper Stock and other.................. 4 5 5 5
------ ------ ------ ------
51 70 70 68
------ ------ ------ ------
SPECIALTY PRODUCTS GROUP
Disposable plastic and aluminum
packaging products.................... 43% 22% 20% 22%
Molded fiber products.................. 5 7 9 9
Other.................................. 1 1 1 1
------ ------ ------ ------
49 30 30 32
------ ------ ------ ------
Total Tenneco Packaging.............. 100% 100% 100% 100%
====== ====== ====== ======
SALES BY GEOGRAPHIC AREA(A)
United States.......................... 92% 91% 90% 88%
European Union......................... 5 5 6 8
Canada................................. 1 1 1 2
Other areas............................ 2 3 3 2
------ ------ ------ ------
100% 100% 100% 100%
====== ====== ====== ======
</TABLE>
- --------
(a) Restated 1995, 1994 and 1993 to reflect countries included in European
Union as of December 31, 1995: Austria, Belgium, Denmark, Finland, France,
Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain
and Sweden.
Paperboard Products
The paperboard business group manufactures and sells corrugated containers,
folding cartons, containerboard, lumber and building products, and has a joint
venture in recycled paperboard. The group's
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product line includes high value-added products such as enhanced graphics
packaging and displays and kraft honeycomb products. It produces over 2
million tons of containerboard that is converted by its corrugated container
plants and sold to both domestic and export customers. Over 80% of the
containerboard used by the corrugated converting operations is either produced
by Tenneco Packaging's own mills or supplied through trade partnerships for
other grades in exchange for product produced at Tenneco Packaging's mills,
which helps assure a secure supply of product in a wide variety of grades to
meet the requirements of its customers. It also produces high quality,
innovative folding carton products utilizing the latest in printing and
cutting technology for the sheet-fed offset, narrow-web flexo and rotogravure
processes. Finally, Tenneco Packaging participates in the wood products
business and has access to over 1.0 million acres of timberland in the United
States through both owned and leased properties.
Sales and Marketing. Tenneco Packaging maintains a sales and marketing
organization of over 400 sales personnel. Tenneco Packaging also has four
graphics design centers with two more planned which help it meet its
customers' design and functional requirements.
New Product Development and Design. Tenneco Packaging's paperboard group is
establishing a nationwide network of new product development and creative
packaging design centers to develop and manufacture product packaging and
product display solutions to meet more sophisticated, complex customer needs.
This network includes four regional design centers, 22 primary and mid-range
graphics facilities and almost 100 sales personnel, new product development
engineers, and product graphics and design specialists. These centers offer
state-of-the-art computer and design equipment for 24-hour turnaround and
reduced product delivery times.
Manufacturing and Engineering. Tenneco Packaging has two kraft linerboard
mills and two medium mills, located in Tennessee, Georgia, Michigan and
Wisconsin, which together account for 7% of annual U.S. production, or 2.1
million tons. As of June 30, 1996, Tenneco Packaging had invested $75 million
at the Counce, Tennessee mill, which added 120,000 tons annually of capacity
and enabled the mill to meet a growing demand for lighter weight board. Each
of the mills has a strong focus on quality and is ISO 9002 certified. Two
paperstock recycling facilities provide some of the mills' recycled fiber
requirements.
Domestically, Tenneco Packaging's corrugated container network includes 64
geographically dispersed plants that manufacture approximately 7% of the total
annual U.S. corrugated shipments based on revenue, as well as seven kraft
paper honeycomb product plants, making it one of the top six integrated
producers. Tenneco Packaging also operates six folding carton plants located
primarily in the Midwest.
Tenneco Packaging has access to 1.0 million acres of timberland in the
United States through both owned and leased properties. To maximize the value
of the timber harvested, Tenneco Packaging operates four wood products
operations which produce hardwood dimensional lumber and utility poles.
Further, Tenneco Packaging is a party to a joint venture in a chip mill, as
well as a wood drying facility.
Tenneco Packaging's paperboard group operates a manufacturing and technical
support center located in Skokie, Illinois which provides engineering,
manufacturing and technical support to its corrugated operations. In addition,
it currently has a network of four design centers and a design organization
which includes more than 60 structural, graphic and package engineering
specialists for its corrugated and folding carton converting operations.
Strategic Acquisitions/Joint Ventures. As part of Tenneco Packaging's value-
added growth strategy, eight acquisitions were made during 1995 in the
Paperboard Products Group. Tenneco Packaging expanded its graphics and
printing capabilities to that of a full service supplier of point-of-purchase
displays and point-of-sale packaging by acquiring four facilities with
expertise in high impact graphics and design. The addition of Lux Packaging,
in Waco, Texas; the United Group in Los Angeles, California; Menasha
Corporation's South Brunswick, New Jersey plant; and DeLine Box in Windsor,
Colorado have broadened Tenneco Packaging's offering of products and services
to include permanent point-of-purchase displays, rotogravure preprint, litho-
lamination and advanced graphics design.
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<PAGE>
Tenneco Packaging added to its network of specialty sheet plants through the
acquisition of Mid-Michigan Container in Michigan; Sun King Container in El
Paso, Texas; and Domtar Packaging's Watertown, New York facility. It also
increased its protective packaging capabilities through the purchase of
Hexacomb, the world's largest supplier of honeycomb corrugated products used
for protective packaging, materials handling and specialized structural
applications.
In June 1996, Tenneco Packaging and Caraustar Industries ("Caraustar")
entered a joint venture pursuant to which Tenneco Packaging contributed its
two recycled paperboard mills (Rittman, Ohio and Tama, Iowa) and a recovered
paper stock and brokerage operation for cash and a 20% equity position in the
business. The mills will continue to supply recycled paperboard to Tenneco
Packaging's six folding carton plants.
Specialty Products
Tenneco Packaging's Specialty Products Group produces disposable aluminum,
foam and clear plastic products for the food processing, food preparation and
food service industries. It also manufactures molded fiber and pressed
paperboard products, as well as polyethylene bags and industrial stretch film.
Consumer products are sold under such recognized brand names of Hefty(R),
Baggies(R), Hefty OneZip(TM) and E-Z Foil(R).
Tenneco Packaging's lightweight, durable plastic packaging for in-store
deli, produce, bakery and catering applications maintain quality and enhance
presentation. Plastic food storage and trash bags, foam and molded fiber
dinnerware, disposable aluminum baking pans and related products are sold
through a variety of retail outlets. Tenneco Packaging also manufactures
molded fiber for produce and egg packaging, food service items and
institutional tableware.
Sales and Marketing. Specialty packaging products are marketed to five
primary market segments: food service, supermarkets, institutional, packer
processor and industrial users. The sales organization is specialized by user
segment and its teams work in alliance with strategic customers to build
sales. Approximately 85% of specialty packaging products are sold to its
distributors, while the remainder are sold directly to retailers.
Consumer products are marketed primarily through three classes of retailers
or channels of trade: grocery (supermarkets and convenience stores), non-food
(mass merchandisers, drug stores, hardware stores, home centers), and
warehouse clubs with sales distributed 66%, 30%, and 4%, respectively, based
on 1994 net revenues. Consumer products' internal sales management personnel
are augmented by a national network of grocery brokers and manufacturing
representatives to provide headquarter and in-store sales coverage for the
grocery channel. Consumer products covers warehouse clubs and selected non-
food retailers on a direct basis. The overall sales breakdown is approximately
19% direct and 81% broker/representative.
Manufacturing and Engineering. In North America, Tenneco Packaging operates
30 specialty products facilities. With the acquisitions of Mobil Plastics and
Amoco Foam Products, Tenneco Packaging now has polystyrene production in 18
locations in 13 states. It produces polyethylene products in six locations
including a Canadian facility. Aluminum roll stock is converted at five
locations, including three locations shared with polystyrene production.
Molded fiber packaging is produced in six locations. Finally, pressed
paperboard products are manufactured at one facility in Columbus, Ohio.
Research and development centers for packaging and process development are
located in Macedon, New York and Northbrook, Illinois.
Within the Specialty Products Group there are two major types of plastic
manufacturing plants, offering excellent process technology and high quality
equipment in polystyrene extrusion/thermoforming/automation, consumer waste
bags and stretch films. Tenneco Packaging's polyethylene plants produce
liners, food bags, grocery sacks and stretch film, as well as retail waste and
food bags for consumer applications. Most of the Specialty Products Group's
polyethylene processes are in-line. Polystyrene plants make foam products
including consumer tableware, foodservice disposables, meat trays and clear
containers. With multiple production lines, each plant is generally capable of
making several product types. Polystyrene pellets are marketed and extruded
and subsequently thermoformed and converted into finished products.
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Strategic Acquisitions. Tenneco Packaging acquired Mobil Plastics in late
1995 which more than doubled the size of its Specialty Products Group and
added new technologies and product development capabilities. It provides
strong consumer branded products such as Hefty(R) trash bags, Baggies(R) food
bags, and Hefty OneZip(TM) food storage bags. In addition, it manufactures
clear and foam polystyrene food service containers; plates and meat trays;
and, polyethylene film products including can liners, produce and retail bags,
and medical and industrial disposable packaging.
In August 1996, Tenneco Packaging purchased Amoco Foam Products. Amoco Foam
Products, with 1995 sales of $288 million, manufactures foam polystyrene
tableware including cups, plates, carrying trays; hinged-lid food containers;
packaging trays, primarily for meat and poultry; and industrial products for
residential and commercial construction applications. The closing of this
acquisition was completed in August 1996.
International
Tenneco Packaging has a growing international presence with a revenue base
of nearly $200 million and an additional $100 million in export sales to
approximately 38 countries, manufacturing products that serve a wide range of
packaging needs. It expects to significantly enlarge its international
operations by growing its base businesses, strengthening its export
capabilities for both fiber-based and plastic products, and by growing
selectively in new markets, geographies or channels that represent high-
potential opportunities.
Manufacturing and Engineering. Tenneco Packaging currently operates or has
an ownership interest in 12 international manufacturing locations. Omni-Pac is
Europe's leading manufacturer of molded fiber packaging with facilities in
Elsfleth, Germany and Great Yarmouth, England. Tenneco Packaging's Alupak
operation in Belp, Switzerland is a major producer of smoothwall aluminum
portion packs. In plastic, Tenneco Packaging has the leading share of single-
use thermoformed plastic food containers in the United Kingdom, with four
manufacturing operations in England, Scotland and Wales.
Tenneco Packaging also operates a folding carton plant in Budapest, Hungary
and is building a wood products operation in Romania. It participates in
several international joint ventures, including folding carton plants in
Donngguan, China and Bucharest, Romania and a corrugated converting facility
in Zhejiang, China.
Acquisitions/Business Development. In 1995, Tenneco Packaging purchased
Penlea and Delyn, two plastic thermoforming operations in the United Kingdom.
In 1996, it entered the European wood products business with the startup of a
venture in Buchin, Romania. In addition to harvesting rights in excess of 1.8
million cubic meters of timber, Tenneco Packaging is constructing a wood
processing plant for value-added furniture components, to be supported by a
full sawmill operation.
Other
As of June 30, 1996, Tenneco Packaging had approximately 19,000 employees.
Tenneco Packaging believes that its relations with its employees are good.
Tenneco Packaging holds a number of domestic and foreign patents and
trademarks relating to its products and businesses. The patents, trademarks
and other intellectual property owned by Tenneco Packaging are important in
the manufacturing, marketing and distribution of its products.
The principal raw materials used by Tenneco Packaging in its manufacturing
operations are virgin pulp, recycled fiber, plastic resin and aluminum roll
stock. Tenneco Packaging obtains its virgin pulp from timberland owned or
controlled by it as well as from outside purchases. Recycled fiber is supplied
from both outside contractual sources as well as internally from its two
recycling centers and its own containerboard clippings and trim. Tenneco
Packaging obtains plastic resin and aluminum roll stock from various
suppliers.
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As of June 30, 1996, Tenneco Packaging owned approximately 188,000 acres of
timberland in Alabama, Michigan, Mississippi and Tennessee and leased, managed
or had cutting rights on an additional 808,000 acres of timberland in Alabama,
Mississippi, Tennessee, Florida, Wisconsin and Georgia. In 1995, 1994, and
1993, approximately 30%, 28% and 28%, respectively, of the virgin fiber used
by Tenneco Packaging in its mill operations was obtained from Tenneco
Packaging-controlled timberlands.
The operations of Tenneco Packaging face competition from other
manufacturers of packaging products, including manufacturers of alternative
products, in each of its geographic and product markets.
Tenneco Packaging is headquartered in Evanston, Illinois.
TENNECO BUSINESS SERVICES
TBS designs, implements and administers shared administrative service
programs for the various Tenneco businesses as well as, on an "as requested"
basis, for former Tenneco business entities.
Primary service areas of TBS include (i) Financial Accounting Services,
including asset management, general accounting, purchasing and payables,
travel and entertainment, tax compliance and reporting and other applications;
(ii) Supplier Development and Administration, including vendor negotiations
and contract administration; (iii) Employee Benefits Administration for all
major salaried and hourly benefit plans; (iv) Technology Services, including
main frame computing services, telecommunication services and distributed
processing services; (v) Human Resources and Payroll Services, including
payroll processing, relocation services, government compliance services and
expatriate relocation and repatriation services; and (vi) Environmental Health
and Safety Services, including remediation consultation, operations risk
analysis and compliance audits.
TBS has to date only serviced other Tenneco businesses and, on an as
requested basis, former Tenneco businesses such as Case Corporation. However,
TBS is in the process of investigating opportunities to provide similar
services to outside businesses. It is anticipated that after the
Distributions, TBS will continue to provide services to Newport News and
Tenneco pursuant to the terms of the TBS Services Agreement. See "The
Distributions-- Relationships Among Tenneco, New Tenneco and Newport News
After the Distributions--Terms of the Ancillary Agreements--TBS Services
Agreement."
In connection with its operations, TBS holds numerous software licenses,
owns and operates computer equipment and has agreements with numerous vendors
for supplies and services.
As of June 30, 1996, TBS had approximately 300 employees. TBS believes that
its relations with its employees are good.
Although to date TBS has provided its administrative programs exclusively to
current and former Tenneco businesses, once TBS attempts to begin providing
similar services to outside businesses it will face intense competition from
other providers of administrative services, many of whom are larger and have
more experience providing administrative services in a competitive
environment.
TBS is headquartered in The Woodlands, Texas.
PROPERTIES
Corporate Headquarters
New Tenneco's corporate offices are located in Greenwich, Connecticut.
Tenneco Automotive
In the United States, Walker operates 10 manufacturing facilities and seven
distribution centers, three of which are located at manufacturing facilities,
and also has two research and development facilities. In addition, Walker
operates 25 manufacturing facilities located in Australia, Canada, China, the
Czech Republic, the United Kingdom, Mexico, Denmark, Germany, France, Spain,
Portugal, South Africa and Sweden, and also has one engineering and technical
center in Germany.
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Monroe has seven manufacturing facilities and one research and development
facility and three distribution centers. In addition, Monroe has 14 foreign
manufacturing operations in Australia, Belgium, Brazil, Canada, China, the
Czech Republic, India, Mexico, the United Kingdom, Spain, Turkey and New
Zealand.
Overall, Tenneco Automotive now operates 65 facilities in 21 countries in
North America, Europe, South America, Australia and the Asia-Pacific region.
Tenneco Packaging
In North America, Tenneco Packaging operates or has an ownership interest in
a total of 122 facilities. The paperboard business group has 71 corrugated
products plants, six folding carton plants and nine containerboard machines at
four mills. Two of the mills (located in Georgia and Wisconsin), including
substantially all of the equipment associated with both mills, are leased from
third parties. Additionally, the paperboard business group operates a wood
products group including two hardwood facilities, one dimensional lumber
plant, one utility pole facility, one air drying facility for wood, and a
joint venture in a chip mill. Two recycled paperstock facilities provide
furnish for the mills. Tenneco Packaging also has a minority equity position
in two recycled paperboard mills and one recycling center and brokerage
operation.
In July 1996, Tenneco Packaging exercised its early termination and purchase
options under the leases of the two mills located in Georgia and Wisconsin
discussed above, pursuant to which Tenneco Packaging has the right to purchase
the mills at an agreed cost of approximately $750 million in January 1997.
Tenneco Packaging has reached an agreement in principle pursuant to which
another lessor will acquire the mills directly from Tenneco's original lessor
and thereafter enter into a new lease with Tenneco Packaging. This agreement
is subject to the completion of definitive documentation and the consent of
the original lessor to allow the assignment of Tenneco Packaging's rights
under the purchase option. In the event this new lease transaction is not
consummated, Tenneco Packaging would be required to complete the purchase of
both mills.
Tenneco Packaging's Specialty Products Group operates six molded fiber
plants, one pressed paperboard plant and 23 disposable plastic and aluminum
packaging products plants in North America.
Internationally, Tenneco Packaging operates or has an ownership position in
12 locations. These include three folding carton operations, one corrugated
container plant and a wood products operation. Additionally, it also
manufactures plastics products at four locations, aluminum portion packs at
one facility and molded fiber products at two locations.
TBS
TBS operates out of its headquarters in The Woodlands, Texas, as well as
offices in Evanston, Illinois, Newport News, Virginia and Houston, Texas.
New Tenneco believes that substantially all of its plants and equipment are,
in general, well maintained and in good operating condition. They are
considered adequate for present needs and as supplemented by planned
construction are expected to remain adequate for the near future.
New Tenneco is of the opinion that it and its subsidiaries have generally
satisfactory title to the properties owned and used in their respective
businesses, subject to liens for current taxes and easements, restrictions and
other liens which do not materially detract from the value of such property or
the interests therein or the use of such properties in their businesses.
ENVIRONMENTAL MATTERS
New Tenneco estimates that its subsidiaries will make capital expenditures
for environmental matters of approximately $15 million in 1996 and that
capital expenditures for environmental matters will be approximately $71
million in the aggregate for the years 1996 through 2006.
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For information regarding environmental matters, see "--Legal Proceedings,"
"--Management's Discussion and Analysis of Financial Condition and Results of
Operations," and Note 14, "Commitments and Contingencies," to the Combined
Financial Statements of New Tenneco.
LEGAL PROCEEDINGS
On August 2, 1993, the U.S. Department of Justice filed suit against Tenneco
Packaging in the Federal District Court for the Northern District of Indiana,
alleging that wastewater from Tenneco Packaging's molded fiber products plant
in Griffith, Indiana, interfered with or damaged the Town of Griffith's
municipal sewage pumping station on two occasions in 1991 and 1993, resulting
in discharges by the Town of Griffith of untreated wastewater into a river.
Tenneco Packaging and the Department of Justice have executed a consent decree
which has been lodged with the court and published for public notice and
comment. New Tenneco believes that the resolution of this matter will not have
a material adverse effect on the financial condition or results of operations
of New Tenneco and its subsidiaries.
In 1993 and 1995 the U.S. Environmental Protection Agency (the "U.S. EPA")
issued notices of violation for particulate and opacity violations at the
three coal-fired boilers of the Rittman, Ohio paperboard mill (owned by
Tenneco Packaging until June 1996). Tenneco Packaging filed responses
disputing the alleged violations. Stack testing has demonstrated Tenneco
Packaging's compliance. In July 1996, Tenneco Packaging received a U.S. EPA
administrative complaint seeking a $126,997 penalty for alleged emissions
violations. Tenneco Packaging has filed its answer to the complaint. New
Tenneco believes that the resolution of this matter will not have a material
adverse effect on the financial condition or results of operations of New
Tenneco and its subsidiaries.
At July 1, 1996, New Tenneco had been designated as a potentially
responsible party in 12 "Superfund" sites. With respect to its pro rata share
of the remediation costs of certain sites, New Tenneco is fully indemnified by
third parties. With respect to certain other of these sites, New Tenneco has
sought to resolve its liability through settlements which provide for payments
of New Tenneco's allocable share of remediation costs. For the remaining
sites, New Tenneco has estimated its share of the remediation costs to be
between $3 million and $23 million or .003% to .020% of the total remediation
costs for those sites and has provided reserves that it believes are adequate
for such costs. Because the clean-up costs are estimates and are subject to
revision as more information becomes available about the extent of remediation
required, New Tenneco's estimate of its share of remediation costs could
change. Moreover, liability under the Comprehensive Environmental Response,
Compensation and Liability Act is joint and several, meaning that New Tenneco
could be required to pay in excess of its pro rata share of remediation costs.
New Tenneco's understanding of the financial strength of other potentially
responsible parties has been considered, where appropriate, in New Tenneco's
determination of its estimated liability. New Tenneco believes that the costs
associated with its current status as a potentially responsible party in the
Superfund or other waste sites referenced above will not be material to its
consolidated financial position or results of operations.
For additional information concerning environmental matters, see "--
Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the caption "Environmental Matters" under Note 14, in the
Combined Financial Statements of New Tenneco.
New Tenneco and its subsidiaries are parties to numerous other legal
proceedings arising from their operations. New Tenneco believes that the
outcome of these other proceedings, individually and in the aggregate, will
have no material effect on New Tenneco's combined financial condition or
results of operations.
NEW TENNECO CREDIT FACILITY
New Tenneco has entered into the New Tenneco Credit Facility in connection
with the Transaction, under which a syndicate of banks (the "Lenders") has
committed to provide up to $1,750 million of financing to New Tenneco on an
unsecured basis. Morgan Guaranty Trust Company of New York arranged the New
Tenneco
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Credit Facility and is acting as Administrative Agent for the Lenders. Bank of
America Illinois will act as Documentation Agent. The New Tenneco Credit
Facility is a revolving credit facility, which will terminate in November 2001,
the proceeds of which will be used to effect the Debt Realignment and for other
general corporate purposes.
Initial borrowings under the New Tenneco Credit Facility are expected to
occur on or shortly before the Merger Effective Time. See "Description of New
Tenneco--Unaudited Pro Forma Combined Financial Statements" for a description
of the application of the proceeds of such borrowings.
Borrowings under the New Tenneco Credit Facility will bear interest at a rate
per annum equal to, at New Tenneco's option, either (i) a rate consisting of
the higher of Morgan Guaranty Trust Company of New York's prime rate or the
federal funds rate plus 50 basis points; (ii) a rate of LIBOR plus a margin
determined pursuant to a pricing schedule; or (iii) a rate based on money
market rates pursuant to competitive bids by the Lenders.
The New Tenneco Credit Facility requires that New Tenneco's ratio of total
indebtedness to total indebtedness plus net worth not exceed 70%. Failure to
satisfy the foregoing minimum requirement will be a prepayment event under the
New Tenneco Credit Facility that will enable the Lenders to refuse to loan
funds to New Tenneco and to require prepayment of the indebtedness thereunder
after a 30 day cure period.
The New Tenneco Credit Facility will also impose prohibitions or limitations
on liens (other than agreed permitted liens), subsidiary indebtedness and
guarantee obligations, and dispositions of substantially all of its assets,
among others.
The New Tenneco Credit Facility contains certain default provisions,
including, among other things, (i) nonpayment of any amount due to the Lenders
under the New Tenneco Credit Facility, (ii) material breach of representations
and warranties, (iii) default in the performance of covenants following a 30
day cure period, (iv) bankruptcy or insolvency, (v) cross-default with respect
to indebtedness for borrowed money and related guaranty obligations in excess
of $100 million in any one instance or $200 million of aggregate indebtedness
(but only aggregating any single item of indebtedness of at least $20 million)
and (vi) a judgment suffered by New Tenneco in excess of $100 million not
covered by insurance and which judgment shall not have been vacated,
discharged, stayed or bonded pending appeal within 30 days.
MANAGEMENT
Board of Directors
Upon consummation of the Industrial Distribution, the New Tenneco Board of
Directors will consist of 11 members. Each director will serve for a term
expiring at the annual meeting of stockholders in the year indicated below and
until his or her successor shall have been elected and qualified. Pursuant to
the Restated Certificate of Incorporation of New Tenneco (the "Certificate"),
the New Tenneco Board of Directors is divided into three classes. Information
concerning the individuals who will serve as directors of New Tenneco as of the
Distribution Date is set forth below.
Term Expiring at the 1997 Annual Meeting of Stockholders (Class I)
MARK ANDREWS has been Chairman of Andrews Associates, Inc., a government
consulting firm, since February 1987. From 1963 to 1980, he served in the U.S.
House of Representatives, and from 1980 to 1986 he served in the U.S. Senate.
He is also a director of Union Storage Co. and Case Corporation. Mr. Andrews is
70 years old and has been a director of Tenneco since 1987. He has served as a
member of the Compensation and Benefits Committee and the Nominating and
Management Development Committee of Tenneco, and will serve as a member of the
Compensation and Benefits Committee and the Nominating and Management
Development Committee of New Tenneco.
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W. MICHAEL BLUMENTHAL has been a consultant to Lazard Freres & Co. L.L.C.,
an investment banking firm, since January 1995 and was a limited partner of
that firm from April 1990 through December 1994. Prior to that time he was
Chairman of Unisys Corporation, a manufacturer of business information
systems, and had been an executive officer of that company for more than five
years. He is also a director of Daimler-Benz InterServices (Debis) AG. Mr.
Blumenthal is 70 years old and has been a director of Tenneco since 1985. He
has served as a member and the Chairman of the Nomination and Management
Development Committee of Tenneco, and will serve as a member and the Chairman
of the Nomination and Management Development Committee of New Tenneco.
BELTON K. JOHNSON is engaged in farming, ranching and investments and has
pursued such interest for more than five years. He is also a director of AT&T
Corp. Mr. Johnson is 66 years old and has been a director of Tenneco since
1979. He has served as a member of the Executive Committee and the
Compensation and Benefits Committee of Tenneco, and will serve as a member of
the Executive Committee and the Compensation and Benefits Committee of New
Tenneco.
WILLIAM L. WEISS has been Chairman Emeritus of Ameritech Corporation, a
telecommunications and information services company, since 1994, formerly
serving as Chairman and Chief Executive Officer of that company for more than
five years. Mr. Weiss is a director of Abbott Laboratories, Inc., Merrill
Lynch & Co., Inc. and the Quaker Oats Company. Mr. Weiss is 67 years old and
has been a director of Tenneco since January 1994. He has served as a member
of the Audit Committee of Tenneco and will serve as a member of the Audit
Committee of New Tenneco.
Term Expiring at the 1998 Annual Meeting of Stockholders (Class II)
M. KATHRYN EICKHOFF has been President of Eickhoff Economics, Inc., a
consulting firm, since 1987. From 1985 to 1987 she was Associate Director for
Economic Policy for the U.S. Office of Management and Budget, and prior to
1985 was Executive Vice President and Treasurer of Townsend-Greenspan & Co.,
Inc., an economic consulting firm. She is also a director of AT&T Corp.,
Pharmacia & Upjohn, Inc. and Fleet N.A. Ms. Eickhoff is 57 years old and has
been a director of Tenneco since 1987. She has served as a member of the
Executive Committee, Audit Committee and Nominating and Management Development
Committee of Tenneco, and will serve as a member of the Executive Committee,
Audit Committee and Nominating and Management Development Committee of New
Tenneco. She previously served as a member of the Tenneco Board from 1982
until her resignation to join the Office of Management and Budget in 1985.
PETER T. FLAWN is a former President of The University of Texas at Austin,
having served in such capacity for more than five years preceding his
retirement in 1985. He is also a director of National Instruments Corp.,
Harte-Hanks Communications, Inc., Global Marine Inc. and Input/Output, Inc.
Dr. Flawn is 70 years old and has been a director of Tenneco since 1980. He
has served as a member of the Executive Committee and is a member and the
Chairman of the Audit Committee of Tenneco, and will serve as a member of the
Executive Committee and as a member and Chairman of the Audit Committee of New
Tenneco.
JOHN B. MCCOY is Chairman and Chief Executive Officer of Banc One
Corporation, a bank holding company, and has served in that position since
1987, prior to which he was President of that company from 1983. He is a
director of Cardinal Health, Inc., the Federal Home Loan Mortgage Corporation,
and Ameritech Corporation. He also serves on the advisory council of the
American Bankers Association. Mr. McCoy is 53 years old and has been a
director of Tenneco since 1992. He has served as a member of the Compensation
and Benefits Committee of Tenneco, and will serve as a member of the
Compensation and Benefits Committee of New Tenneco.
DANA G. MEAD is Chairman and Chief Executive Officer of New Tenneco and has
served as an executive officer of Tenneco since April 1992, when he joined
Tenneco as Chief Operating Officer. Prior to joining Tenneco, Mr. Mead served
as an Executive Vice President of International Paper Company, a manufacturer
of paper, pulp and wood products, from 1988, and served as Senior Vice
President of that company from 1981. He
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is also a director of Alco Standard Corporation, Baker Hughes Incorporated,
Case Corporation and Textron Inc. Mr. Mead is 60 years old and has been a
director of Tenneco since April 1992. He has served as a member and Chairman
of the Executive Committee and an ex officio member of the Audit, and
Nominating and Management Development Committees of Tenneco, and will serve as
a member and Chairman of the Executive Committee and as an ex officio member
of the Audit and Nominating and Management Development Committees of New
Tenneco.
Term Expiring at the 1999 Annual Meeting of Stockholders (Class III)
HENRY U. HARRIS, JR., since 1992, has been Vice Chairman Emeritus of Smith
Barney Inc., an investment banking firm, and for more than five years prior to
which he served as an executive officer of that firm. Mr. Harris is 69 years
old and has been a director of Tenneco since 1968. He has served as a member
of the Executive Committee, Audit Committee and the Nominating and Management
Development Committee of Tenneco, and will serve as a member of the Executive
Committee, Audit Committee and the Nominating and Management Development
Committee of New Tenneco.
CLIFTON R. WHARTON, JR., served as Chairman and Chief Executive Officer of
Teachers Insurance and Annuity Association and the College Retirement Equities
Fund from 1987 to 1993 and as Deputy Secretary of State, U.S. Department of
State, from January to November of 1993. From 1978 to 1987 he served as
Chancellor of the State University of New York System. From 1970 to 1978 Mr.
Wharton served as President of Michigan State University. Prior to 1970 he
spent 22 years working in foreign economic and agricultural development in
Latin America and Southeast Asia for the Rockefeller family philanthropic
interests. He is also a director of the TIAA Board of Overseers, Ford Motor
Company, the New York Stock Exchange, Inc. and Harcourt General, Inc. Mr.
Wharton is 69 years old and has been a director of Tenneco since June 1994. He
has served as a member and Chairman of the Compensation and Benefits Committee
of Tenneco, and will serve as a member and Chairman of the Compensation and
Benefits Committee of New Tenneco.
SIR DAVID PLASTOW is Chairman of the Medical Research Council, which
promotes and supports research and post-graduate training in the biomedical
and other sciences. He served as Chairman of Inchcape plc from June 1992 to
December 1995 and Chairman and Chief Executive Officer of Vickers plc, an
engineering and manufacturing company headquartered in London, from January
1987 to May 1992. He is also a director of Lloyds TSB Group plc. Sir David
Plastow is 64 years old and has been a director of Tenneco since May 14, 1996.
He previously served as a member of the Tenneco Board from 1985 until his
resignation in 1992. He has served as a member of the Compensation and
Benefits Committee and Nominating and Management Development Committee of
Tenneco, and will serve as a member of the Compensation and Benefits Committee
and Nominating and Management Development Committee of New Tenneco.
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Executive Officers
The following table sets forth certain information concerning the persons
who have served as executive officers of Tenneco and, upon consummation of the
Industrial Distribution, will serve as executive officers of New Tenneco after
the Industrial Distribution. Each such person will be elected to the indicated
office with New Tenneco in anticipation of the Industrial Distribution and
will serve at the discretion of the New Tenneco Board of Directors. Those
persons who have been officers and/or employees of Tenneco and/or Newport News
will relinquish such positions in connection with the Industrial Distribution.
<TABLE>
<CAPTION>
EFFECTIVE DATE OF TERM
NAME (AND AGE AT JULY AS EXECUTIVE OFFICER
31, 1996) OFFICES HELD* OF TENNECO
- --------------------- ------------- ----------------------
<S> <C> <C>
Dana G. Mead (60)....... Chairman May 1994
Chief Executive Officer February 1994
Director April 1992
Chairman of the Executive Committee February 1994
Member of the Executive Committee May 1992
Theodore R. Tetzlaff General Counsel July 1992
(51)...................
Robert T. Blakely (54).. Executive Vice President May 1996
Chief Financial Officer July 1981
Stacy S. Dick (39)...... Executive Vice President January 1996
John J. Castellani (45). Senior Vice President--Government March 1995
Relations
Arthur H. House (54).... Senior Vice President--Corporate Affairs March 1995
Barry R. Schuman (55)... Senior Vice President--Human Resources March 1993
Kenneth D. Allen (57)... Vice President March 1987
David T. Ellis (43)..... Vice President--Environment, Health and July 1995
Safety
Ilene S. Gordon (43).... Vice President--Operations May 1994
Jack Lascar (42)........ Vice President--Investor Relations July 1994
Mark A. McCollum (37)... Vice President and Controller May 1995
Robert S. McKinney (54). Vice President and Chief Information Officer May 1996
Thomas G. Oakley (43)... Vice President May 1996
Karen R. Osar (47)...... Vice President and Treasurer January 1994
Robert G. Simpson (44).. Vice President--Tax May 1990
Stephen J. Smith (51)... Vice President--Human Resources July 1994
Karl A. Stewart (53).... Vice President May 1991
Secretary May 1986
R. A. Snell (54)........ President and Chief Executive Officer-- September 1993
Tenneco Automotive
Paul T. Stecko (51)..... President and Chief Executive Officer-- December 1993
Tenneco Packaging
</TABLE>
- --------
*Unless otherwise indicated, all offices held are with Tenneco.
Each of the executive officers of Tenneco has been continuously engaged in
the business of Tenneco, its subsidiaries, affiliates or predecessor companies
during the past five years except that: (i) from 1986 to 1992, Dana G. Mead
was employed by International Paper Co., last serving in the capacity of
Executive Vice President; (ii) Theodore R. Tetzlaff has been a partner in the
law firm of Jenner & Block, Chicago, for more than five years; (iii) from 1985
to 1992, Stacy S. Dick was employed by The First Boston Corporation, last
serving in the capacity of Managing Director and from August 1992 to January
1996 he served as Senior Vice President--Strategy of Tenneco; (iv) from 1980
to 1992, John J. Castellani was employed by TRW Inc., last serving in the
capacity of Vice President of Government Relations and from August 1992 to
March 1995 he served as Vice President--Government Relations of Tenneco; (v)
from 1988 until his employment by Tenneco in 1992, Barry
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R. Schuman was employed by Union Pacific Railroad Company, last serving in the
capacity of Vice President of Human Resources; (vi) from 1990 until 1992,
Arthur H. House served as Vice President, Corporate Communications of Aetna
Life & Casualty Company; from June 1992 until March 1995, he served as Vice
President--Corporate Affairs of Tenneco; (vii) from 1990 to May 1996, Robert
S. McKinney was chief information officer and a member of the board of
directors of Paine Webber; (viii) from 1975 to 1994, Karen R. Osar was
employed by J.P. Morgan & Co., Inc., last serving in the capacity of Managing
Director--Corporate Finance Group; (ix) from 1980 to 1994, Mark A. McCollum
was employed by Arthur Andersen LLP, last serving as an Audit Partner and from
January 1995 to May 1995 he served as Vice President--Financial Analysis and
Planning of Tenneco; and (x) from 1977 to 1993, Paul T. Stecko was employed by
International Paper Co., last serving as Vice President and General Manager of
Publications Papers, Bristols and Converting Papers.
Stock Ownership of Management
Set forth below is the ownership as of September 30, 1996 (without giving
effect to the Transaction) of the number of shares and percentage of Tenneco
Common Stock beneficially owned by (i) each director of New Tenneco, (ii) each
of the executive officers of New Tenneco whose names are set forth on the
Summary Compensation Table and (iii) all executive officers and directors of
New Tenneco.
<TABLE>
<CAPTION>
SHARES OF TENNECO COMMON PERCENT OF TENNECO COMMON
DIRECTORS STOCK OWNED(A)(B) STOCK OUTSTANDING
--------- ------------------------ -------------------------
<S> <C> <C>
Mark Andrews............ 5,404 (c)
W. Michael Blumenthal... 3,555 (c)
M. Kathryn Eickhoff..... 3,697 (c)
Peter T. Flawn.......... 3,850 (c)
Henry U. Harris, Jr..... 5,802 (c)
Belton K. Johnson....... 6,111 (c)
John B. McCoy........... 2,850 (c)
Dana G. Mead............ 199,310 (c)
Sir David Plastow....... 2,100 (c)
William L. Weiss........ 4,850 (c)
Clifton R. Wharton, Jr.. 2,350 (c)
<CAPTION>
EXECUTIVE OFFICERS
------------------
<S> <C> <C>
Theodore R. Tetzlaff.... 33,637 (c)
Robert T. Blakely....... 55,262 (c)
Stacy S. Dick........... 32,062 (c)
Paul T. Stecko.......... 28,151 (c)
All executive officers
and directors as a
group.................. 690,753(d) (c)
</TABLE>
- --------
(a) Each director and executive officer has sole voting and investment power
over the shares beneficially owned (or has the right to acquire shares as
set forth in note (b) below) as set forth in this column, except for (i)
shares that are held in trust for each director and executive officer
under Tenneco's restricted stock plans and (ii) shares that executive
officers of New Tenneco have the right to acquire pursuant to Tenneco's
stock option plans. It is anticipated that all restricted stock held by
employees (including executive officers) will be vested prior to the
consummation of the Distributions except that a small number of TBS
employees will be given cash in lieu of vesting of their restricted stock.
It is also anticipated that restricted stock held by directors will be
vested prior to the consummation of the Distributions, and the directors
will be paid an amount in cash to defray taxes incurred on such vesting.
As described in footnote (f) to the Option Grant
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Table, it is anticipated that Tenneco options held by New Tenneco employees
will be replaced by options to acquire New Tenneco Common Stock upon
consummation of the Industrial Distribution.
(b) Includes shares that are: (i) held in trust under Tenneco's restricted
stock plans; at September 30, 1996, Messrs. Mead, Tetzlaff, Blakely, Dick,
and Stecko held 24,500; 15,000; 7,775; 7,000; and 5,000 restricted shares,
respectively; and (ii) subject to options, which were granted under
Tenneco's stock option plans, and are exercisable at September 30, 1996 or
within 60 days of said date, for Messrs. Mead, Tetzlaff, Blakely, Dick,
and Stecko to purchase 133,335; 16,667; 16,259; 12,667; and 18,667 shares,
respectively.
(c) Less than one percent.
(d) Includes 305,231 shares of Tenneco Common Stock that are subject to
options that are exercisable at September 30, 1996 or within 60 days of
said date by all executive officers of New Tenneco as a group, and
includes 198,250 shares that are held in trust under the Tenneco
restricted stock plans, for all executive officers and directors of New
Tenneco as a group.
Committees of the Board of Directors
The New Tenneco Board of Directors will establish four standing committees
as permitted by the By-laws of New Tenneco, which will have the following
described responsibilities and authority:
The Audit Committee will have the responsibility, among other things, to (i)
recommend the selection of New Tenneco's independent public accountants, (ii)
review and approve the scope of the independent public accountants' audit
activity and extent of non-audit services, (iii) review with management and
such independent public accountants the adequacy of New Tenneco's basic
accounting system and the effectiveness of New Tenneco's internal audit plan
and activities, (iv) review with management and the independent public
accountants New Tenneco's certified financial statements and exercise general
oversight of New Tenneco's financial reporting process and (v) review with New
Tenneco litigation and other legal matters that may affect New Tenneco's
financial condition and monitor compliance with New Tenneco's business ethics
and other policies.
The Compensation and Benefits Committee will have the responsibility, among
other things, to (i) establish the salary rate of officers and employees of
New Tenneco and its subsidiaries, (ii) examine periodically the compensation
structure of New Tenneco and (iii) supervise the welfare and pension plans and
compensation plans of New Tenneco.
The Nominating and Management Development Committee will have the
responsibility, among other things, to (i) review possible candidates for
election to the New Tenneco Board of Directors and recommend a slate of
nominees for election as directors at New Tenneco's annual stockholders'
meeting, (ii) review the function and composition of the other committees of
the New Tenneco Board of Directors and recommend membership on such committees
and (iii) review the qualifications and recommend candidates for election as
officers of New Tenneco.
Other than matters assigned to the Compensation and Benefits Committee, the
Executive Committee will have, during the interval between the meetings of New
Tenneco Board of Directors, the authority to exercise all the powers of the
New Tenneco Board of Directors that may be delegated legally to it by the New
Tenneco Board in the management and direction of the business and affairs of
New Tenneco.
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<PAGE>
Executive Compensation
Prior to the Industrial Distribution, the Industrial Business was owned and
operated by Tenneco through its direct and indirect subsidiaries and as such,
the management of New Tenneco has been employed by Tenneco and its direct and
indirect subsidiaries. The following table sets forth the remuneration paid by
Tenneco and/or its direct and indirect subsidiaries (i) to the Chairman of the
Board and Chief Executive Officer of New Tenneco and (ii) to each of the four
key executive officers expected to be the most highly compensated executive
officers of New Tenneco, other than the Chief Executive Officer, whose salary
and bonus exceeded $100,000, for the years indicated in connection with his
position with Tenneco:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------- ------------------
RESTRICTED
NAME AND OTHER ANNUAL STOCK ALL OTHER
PRINCIPAL POSITION YEAR SALARY(A) BONUS COMPENSATION(B) AWARDS(C) OPTIONS COMPENSATION(D)
------------------ ---- --------- -------- --------------- ---------- ------- --------------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dana G. Mead 1995 $957,375 $800,000 $143,970 -- 100,000(e) $149,972(f)
Chairman and Chief 1994 $878,177 $900,000 $149,110 $647,256 100,000 $142,966
Executive Officer 1993 $664,839 $700,000 $ 60,007 $582,813 50,000 $ 93,979
Theodore R. Tetzlaff 1995 $400,000 $350,000 $ 14,400 -- 18,000(e) -- (f)
General Counsel 1994 $400,000 $300,000 $ 307 $539,380 16,000 --
1993 $350,000 $250,000 -- $243,440 -- --
Robert T. Blakely 1995 $422,760 $230,000 $ 33,684 -- 16,000 $ 44,570
Executive Vice President 1994 $407,640 $230,000 $ 10,704 $230,585 15,675 $ 44,144
and Chief Financial 1993 $393,846 $200,000 $ 11,288 $163,188 -- $ 49,616
Officer
Stacy S. Dick 1995 $377,736 $280,000 $ 31,317 -- 14,000 $ 31,432
Executive Vice President 1994 $343,560 $235,000 $ 582 $215,752 12,000 $ 24,926
1993 $325,214 $200,000 $ 95,392 $139,875 -- $ 23,744
Paul T. Stecko 1995 $381,545 $300,000 $ 21,027 -- 24,000 $ 31,974
President and Chief 1994 $320,004 $200,000 $200,724 $269,690 16,000 $ 30,605
Executive Officer 1993 $ 23,188 $500,000 -- -- -- --
Tenneco Packaging
</TABLE>
- --------
(a) Includes base salary plus amounts paid in lieu of Tenneco matching
contributions to the Tenneco Thrift Plan.
(b) Includes amounts attributable to (i) the value of personal benefits
provided by Tenneco to its executive officers, which have an aggregate
value in excess of $50,000, such as the personal use of Tenneco owned
property, membership dues, and assistance provided to such person with
regard to financial, tax and estate planning, (ii) reimbursement for taxes
and (iii) amounts paid as dividend equivalents on performance share
equivalent units ("Dividend Equivalents"). The amount of each such
personal benefit that exceeds 25% of the estimated value of the total
personal benefits provided by Tenneco, reimbursement for taxes and amounts
paid as Dividend Equivalents to the individuals named in the table was as
follows: During 1995: $38,984 for use of Tenneco owned property, $29,750
for financial planning services, $28,706 for reimbursement for taxes, and
$40,000 in Dividend Equivalents paid to Mr. Mead; $4,437, $16,917 and
$1,827 for reimbursement for taxes and $14,400, $14,400 and $19,200 in
Dividend Equivalents for Messrs. Blakely, Dick, and Stecko, respectively;
and $14,400 in Dividend Equivalents paid to Mr. Tetzlaff; During 1994:
$57,540 for use of Tenneco owned property and $50,606 for reimbursement
for taxes for Mr. Mead; $100,794 in relocation expenses and $59,954 in
reimbursement for taxes for Mr. Stecko; and $307, $582, and $582 for
reimbursement for taxes for Messrs. Tetzlaff, Blakely, and Dick,
respectively; During 1993: $34,832 for use of Tenneco owned property,
$19,950 for financial planning services and $824 for
103
<PAGE>
reimbursement for taxes for Mr. Mead; $823 for reimbursement for taxes for
Mr. Blakely; and $50,000 in relocation expenses and $35,266 for
reimbursement for taxes for Mr. Dick.
(c) Includes the dollar value of grants of restricted stock made pursuant to
Tenneco's restricted stock plans based on the price of Tenneco Common
Stock on the date of grant. At December 31, 1995, Messrs. Mead, Tetzlaff,
Blakely, Dick and Stecko held 49,500; 24,000; 20,280; 31,000; and 17,000
restricted shares and/or performance share equivalent units, respectively,
under such plans. The value at December 31, 1995 (based on a per share
price of $49.625 on that date) of all restricted shares and/or performance
share equivalent units held was $2,456,438 for Mr. Mead; $1,191,000 for
Mr. Tetzlaff; $1,006,395 for Mr. Blakely; $1,538,375 for Mr. Dick; and
$843,625 for Mr. Stecko. Dividends/Dividend Equivalents will be paid on
the restricted shares and performance share equivalent units held by each
individual.
(d) Includes amounts attributable during 1995 to benefit plans of Tenneco as
follows:
(i) The amounts contributed pursuant to the Tenneco Thrift Plan for the
accounts of Messrs. Mead, Blakely, Dick, and Stecko were $4,625;
$9,240; $4,626; and $6,000, respectively.
(ii) The amounts accrued under the Tenneco Inc. Deferred Compensation Plan,
together with adjustments based upon changes in the Consumer Price
Index for All Urban Households, as computed by the Bureau of Labor
Statistics, for Messrs. Mead, Blakely, Dick, and Stecko were $108,405;
$32,167; $23,764; and $23,132, respectively.
(iii) Amounts imputed as income for federal income tax purposes under
Tenneco's group life insurance plan for Messrs. Mead, Blakely, Dick,
and Stecko were $36,942; $3,163; $3,041; and $2,842, respectively.
(e) In addition to the options granted by Tenneco in 1995, Messrs. Mead and
Tetzlaff, each in his capacity as a director of Case Corporation (an
affiliate of Tenneco during 1995) ("Case"), was granted an option by Case
to acquire 1,000 shares of Case common stock. Information on terms of
Tenneco options and the Case options is set forth in "Option Grants in
1995."
(f) As directors of Case, Messrs. Mead and Tetzlaff each received a director's
fee of $20,000 and meeting attendance fees of $4,000. In addition, Mr.
Tetzlaff received from Case an additional $3,000 for attendance at the
Case Compensation Committee meetings. Messrs. Mead and Tetzlaff elected to
receive their director fees in common stock of Case. The amounts in the
above table do not include the payments from Case.
OPTION GRANTS IN 1995
The following table sets forth the number of options to acquire Tenneco
Common Stock that were granted by Tenneco during 1995 to the persons named in
the Summary Compensation Table.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(D)
--------------------------------------------------------- ---------------------
% OF TOTAL EXERCISE
OPTIONS OR BASE
OPTIONS GRANTED GRANTED TO PRICE
(NO. OF EMPLOYEES PER
NAME SHARES)(A)(B)(F) IN FISCAL YEAR SHARE(C) EXPIRATION DATE 5% 10%
---- ---------------- -------------- -------- ---------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Dana G. Mead............ 100,000(e) 6.7% $42.875 January 10, 2005 $2,696,000 $6,833,000
Theodore R. Tetzlaff.... 18,500(e) 1.2% $42.875 January 10, 2005 $ 485,280 $1,229,940
Robert T. Blakely....... 16,000 1.1% $42.875 January 10, 2005 $ 431,360 $1,093,280
Stacy S. Dick........... 14,000 .9% $42.875 January 10, 2005 $ 377,440 $ 956,620
Paul T. Stecko.......... 24,000 1.6% $42.875 January 10, 2005 $ 647,040 $1,639,920
</TABLE>
- --------
(a) The options reported in this column and in the Summary Compensation Table
consist of non-qualified options. The options become exercisable at the
rate of one-third per year on January 10 of 1996, 1997 and 1998,
respectively. As described in footnote (f) below, it is anticipated that
Tenneco options held by New Tenneco employees will be replaced by options
to acquire New Tenneco Common Stock upon consummation of the Industrial
Distribution.
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<PAGE>
(b) These options provide that a grantee who delivers shares of Tenneco Common
Stock to pay the option exercise price will be granted, upon such delivery
and without further action by Tenneco, an additional option to purchase
the number of shares so delivered. These "reload" options are granted at
100% of the fair market value (as defined in the plan) on the date they
are granted, become exercisable six months from that date and expire
coincident with the options they replace. Grantees are limited to 10
reload options and the automatic grant of such reload options is limited
to twice during any one calendar year.
(c) All options were granted at 100% of the fair market value on the date of
grant.
(d) The dollar amounts under these columns are the result of calculations for
the period from the date of grant to the expiration of the option at the
5% and 10% annual appreciation rates set by the Commission and, therefore,
are not intended to forecast possible future appreciation, if any, in the
price of Tenneco Common Stock. No gain to the optionee is possible without
an increase in price of the underlying stock. In order to realize the
potential values set forth in the 5% and 10% columns of this table, the
per share price of Tenneco Common Stock would be $69.84 and $111.21,
respectively, or 63% and 160%, respectively, above the exercise or base
price. As described in footnote (f) below, however, it is anticipated that
options to acquire Tenneco Common Stock held by New Tenneco employees will
be replaced by options to acquire New Tenneco Common Stock upon
consummation of the Industrial Distribution.
(e) In addition, Messrs. Mead and Tetzlaff, each in his capacity as a director
of Case, were granted an option to purchase 1,000 shares of Case common
stock at a purchase of $21.125 per share. These options, which are each
less than 1% of the total options granted by Case to employees in 1995,
become exercisable on January 1, 1998 and expire January 1, 2005. The
potential realizable value, calculated for the period from the date of
grant to the expiration of the respective option, at 5% and 10% assumed
annual rates of stock price appreciation for the term of the options would
be $13,285 and $33,665, respectively. In order to realize these potential
values, the per share price of the Case common stock would be $34.41 and
$54.79, respectively, or 63% and 160%, respectively, above the exercise or
base price. The 5% and 10% annual appreciation rates are not intended to
forecast possible future appreciation, if any, in the price of Case common
stock. No gain to the optionee is possible without an increase in the
price of the Case common stock.
(f) All Tenneco stock options held by employees of New Tenneco will be
cancelled as of the Industrial Distribution. New Tenneco has adopted a
plan (the "New Tenneco Stock Ownership Plan") which is substantially
similar to the 1994 Tenneco Inc. Stock Ownership Plan. Prior to the
Industrial Distribution, Tenneco will have approved the New Tenneco Stock
Ownership Plan as the sole shareholder of New Tenneco. Options will be
granted under the New Tenneco Stock Ownership Plan as of the Industrial
Distribution to all employees of New Tenneco who formerly held Tenneco
options. Each such employee will receive options of New Tenneco under
which the excess of the fair market value of the shares subject to the
options immediately after the grant over the aggregate option price is not
more than the excess of the aggregate fair market value of all Tenneco
shares subject to his or her Tenneco stock options immediately before such
cancellation over the aggregate option price under such Tenneco options.
The terms of New Tenneco options will be the same as if the Tenneco
options had remained outstanding except to the extent that New Tenneco
Stock Ownership Plan reflects legal changes adopted after the Tenneco
options were granted. These options provide that a grantee who delivers
shares of New Tenneco Common Stock to pay the option exercise price will
be granted, upon such delivery and without further action by New Tenneco,
an additional option to purchase the number of shares so delivered. These
"reload" options are granted at 100% of the fair market value (as defined
in New Tenneco Stock Ownership Plan) on the date they are granted, become
exercisable six months from that date and expire at the same time as the
options they replace. Grantees are limited to 10 reload options and
automatic grant of such reload options is limited to twice during any one
calendar year.
105
<PAGE>
OPTIONS EXERCISED IN 1995 AND 1995 YEAR-END VALUES
The following table sets forth the number of options to acquire Tenneco
Common Stock held, as of December 31, 1995, by the persons named in the
Summary Compensation Table. No options to acquire shares of Tenneco Common
Stock were exercised during 1995.
<TABLE>
<CAPTION>
TOTAL NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS HELD IN-THE-MONEY OPTIONS HELD
AT DECEMBER 31, 1995(A) AT DECEMBER 31, 1995(A)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Dana G. Mead................ 66,667 183,333 $31,233 $690,617
Theodore R. Tetzlaff........ 5,334 28,666 -- $121,500
Robert T. Blakely........... 5,700 26,450 $ 4,038 $108,000
Stacy S. Dick............... 4,000 22,000 -- $ 94,500
Paul T. Stecko.............. 5,344 34,666 -- $162,000
</TABLE>
- --------
(a) As described in footnote (f) to the Option Grant Table, the options to
acquire Tenneco Common Stock will be replaced by options to acquire New
Tenneco Common Stock.
LONG-TERM INCENTIVE PLANS
PERFORMANCE SHARE EQUIVALENT UNIT AWARDS IN LAST FISCAL YEAR
The following table sets forth information concerning performance based
awards made to the persons named in the Summary Compensation Table during 1995
by Tenneco.
<TABLE>
<CAPTION>
PERFORMANCE
OR OTHER
NUMBER OF PERIOD
SHARES, UNTIL ESTIMATED FUTURE PAYOUTS UNDER
UNITS OR MATURATION NON-STOCK PRICE BASED PLANS(A)
OTHER OR ---------------------------------
NAME RIGHTS(B) PAYOUT(C) THRESHOLD(D) TARGET(D) MAXIMUM(D)
---- --------- ----------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Dana G. Mead............ 25,000 4 years -- 12,500 25,000
Theodore R. Tetzlaff.... 9,000 4 years -- 4,500 9,000
Robert T. Blakely....... 9,000 4 years -- 4,500 9,000
Stacy S. Dick........... 9,000 4 years -- 4,500 9,000
Paul T. Stecko.......... 12,000 4 years -- 6,000 12,000
</TABLE>
- --------
(a) Estimated Future Payouts are based on earnings per share ("EPS") from
continuing operations as shown in the record of progress included in the
published financial statements of Tenneco. Earnings per share for 1995
were $4.16 and represent achievement of 25% of the performance goal
applicable to this award. Messrs. Mead, Tetzlaff, Blakely, Dick, and
Stecko each were provisionally credited with 100% of their performance
goal for 1995 and 6,250; 2,250; 2,250; 2,250; and 3,000 shares were
credited to their respective Plan accounts, subject to adjustment, for
payout at the end of the performance cycle.
(b) Each performance share equivalent unit represents one share of Tenneco's
Common Stock that may be earned under this award and the number of
performance share equivalent units listed in this column represents the
maximum number of performance share equivalent units that may be earned
under this award.
(c) Performance share equivalent units are earned at the rate of 25% per year
based on achievement of annual EPS goals. However, it is anticipated that
prior to the consummation of the Industrial Distribution the conditions to
issuance of all shares of Tenneco Common Stock underlying the performance
share unit equivalent awards will be waived and the maximum number of
shares of Tenneco Common Stock subject thereto will be issued.
(d) Represents maximum performance share equivalent units earned where the
goals were consistently within the indicated performance range on an
individual year and accumulated four year basis.
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<PAGE>
The following table sets forth the aggregate estimated annual benefits
payable upon normal retirement pursuant to the Tenneco Retirement Plan, the
Tenneco Inc. Benefit Equalization Plan (the "Tenneco Benefit Equalization
Plan"), and the Tenneco Inc. Supplemental Executive Retirement Plan (the
"Tenneco Supplemental Executive Retirement Plan") to persons in specified
remuneration and years of credited participation classifications, each of
which plans were assumed by New Tenneco pursuant to the Benefits Agreement.
Under the Distribution Agreement and the Benefits Agreement, New Tenneco will
continue to sponsor those plans, but all other entities will cease to sponsor
them, and the benefits that the employees of such entities have accrued under
those plans will be frozen.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF CREDITED PARTICIPATION
----------------------------------------------------------------
REMUNERATION 15 20 25 30 35
- ------------ -------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$ 350,000 $ 82,500 $110,000 $137,500 $ 165,000 $ 192,500
400,000 94,300 125,700 157,100 188,600 220,000
450,000 106,100 141,400 176,800 212,100 247,500
500,000 117,900 157,100 196,400 235,700 275,000
550,000 129,600 172,900 216,100 259,300 302,500
600,000 141,400 188,600 235,700 282,900 330,000
650,000 153,200 204,300 255,400 306,400 357,000
700,000 165,000 220,000 275,000 330,000 365,000
750,000 176,800 235,700 294,600 353,600 412,500
800,000 188,600 251,400 314,300 377,100 440,000
850,000 200,400 267,100 333,900 400,700 467,500
900,000 212,100 282,900 353,600 424,300 495,000
950,000 223,900 298,600 373,200 447,900 522,500
1,000,000 235,700 314,300 392,900 471,400 550,000
1,100,000 259,300 345,700 432,100 518,600 605,000
1,200,000 282,900 377,100 471,400 565,700 660,000
1,300,000 306,400 408,600 510,700 612,900 715,000
1,400,000 330,000 440,000 550,000 660,000 770,000
1,500,000 353,600 471,400 589,300 707,100 825,000
1,600,000 377,100 502,900 628,600 754,300 880,000
1,700,000 400,700 534,300 667,900 801,400 935,000
1,800,000 424,300 565,700 707,100 848,600 990,000
1,900,000 447,900 597,100 746,400 895,700 1,045,000
2,000,000 471,400 628,600 785,700 942,900 1,100,000
2,100,000 495,000 660,000 825,000 990,000 1,155,000
2,200,000 518,600 691,400 864,300 1,037,100 1,210,000
</TABLE>
The benefits set forth above are computed as a straight life annuity and are
based on years of credited participation in the Tenneco Retirement Plan and
the employee's average base salary during the final five years of credited
participation in the Tenneco Retirement Plan; such benefits are not subject to
any deduction for Social Security or other offset amounts. The years of
credited participation under the Tenneco Retirement Plan (or any supplemental
plan) For Messrs. Mead, Blakely, Dick and Stecko are 3, 14, 3 and 2,
respectively. (See the paragraph below for additional information relating to
Messrs. Mead, Dick and Stecko; and the "Summary Compensation Table" for salary
and bonus information for Messrs. Mead, Blakely, Dick and Stecko).
Pursuant to employment agreements with Messrs. Mead, Dick and Stecko
described under the heading "Employment Contracts and Termination of
Employment and Change-in-Control Arrangement" New Tenneco has agreed to pay
Messrs. Mead, Dick and Stecko such supplemental payments (in addition to any
benefits payable under New Tenneco's qualified and non-qualified pension
plans) as may be necessary to make each
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<PAGE>
person's total payments equal to the amount each would have received had he
continued to be covered under pension plans maintained by his former employer
(based on his credited service with New Tenneco plus 14.6, 15 and 17 years,
respectively, of credited service with each person's former employer, and on
the compensation received from New Tenneco as salary and bonuses).
New Tenneco provides Mr. Tetzlaff with an individual pension benefit. The
benefit is based on Mr. Tetzlaff's salary and bonus and also provides for
guaranteed graduated minimum annual benefits of $100,000 beginning in 1998,
$200,000 per year beginning in 2003 and $300,000 per year beginning in 2008
(See "Summary Compensation Table" for salary and bonus information on Mr.
Tetzlaff).
Compensation of Directors
Following the Industrial Distribution, all directors who are not also
officers of New Tenneco or its subsidiaries will each be paid a director's fee
of $32,000 per annum and receive 300 restricted shares of New Tenneco Common
Stock (discussed below) and each will be paid an attendance fee of $1,500 plus
expenses for each meeting of the New Tenneco Board of Directors attended. Each
director who serves as a Chairman of the Audit, Compensation and Benefits, or
Nominating and Management Development Committees of New Tenneco Board will be
paid an additional fee of $7,000 per Chairmanship, and directors who serve as
members of such committees will be paid an additional fee of $4,000 per
committee membership. Members of the Executive Committee will receive an
additional $1,500 attendance fee plus expenses for each meeting of that
committee attended. Payment of all or a portion of such fees, together with
interest and an adjustment based upon changes in the Consumer Price Index For
All Urban Households as computed by the Bureau of Labor Statistics, may be
deferred at the election of the director until the earliest of (i) the year
next following the date upon which he or she ceases to be a director of New
Tenneco or (ii) the year selected by the director for commencement of payment
of the deferred amount. The foregoing compensation structures and amounts are
the same as currently apply to the Tenneco Board of Directors.
During 1995, Tenneco had a retirement plan for directors who are not also
officers of New Tenneco which provided retirement payments based on years of
service and the aggregate amount of director and committee fees being received
at the time of retirement. Prior to the Industrial Distribution, Tenneco
eliminated this retirement plan, and increased the amount of restricted stock
each director will receive each year in conjunction with their annual
directors' fees. Messrs. Flawn, Harris and Johnson are vested under this prior
retirement plan and, therefore, have the option to continue under such plan
and to receive monthly payments upon retirement. This plan will be assumed by
New Tenneco.
Directors who are not also officers of New Tenneco will receive annually 300
restricted shares of New Tenneco Common Stock. Such restricted shares may not
be sold, transferred, assigned, pledged or otherwise encumbered and are
subject to forfeiture should the director cease to serve on the New Tenneco
Board of Directors prior to the expiration of the restricted period that ends
upon such director's normal retirement from the New Tenneco Board of
Directors, unless such director is disabled, dies, or the Compensation and
Benefits Committee of the New Tenneco Board of Directors, at its discretion,
determines otherwise. During such restricted period, holders of restricted
shares are entitled to vote the shares and receive dividends.
It is anticipated that restricted shares of Tenneco Common Stock held by
directors will be vested prior to the consummation of the Distributions, and
the directors will be paid an amount in cash to defray taxes incurred on such
vesting.
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements
Tenneco has an employment agreement and a supplemental pension agreement
with Mr. Mead which will be continued by New Tenneco providing for the payment
to Mr. Mead of a salary of not less than $575,000 per year (with such
increases as determined by the Compensation and Benefits Committee of the New
Tenneco Board of Directors) and the supplemental pension payments described
above. Also, New Tenneco has agreed
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<PAGE>
that in the event Mr. Mead's employment is terminated for any reason other
than for cause, death or permanent disability, New Tenneco will pay to Mr.
Mead an amount equal to three times his annual salary plus $300,000.
Tenneco also has an employment agreement with Mr. Dick which will also be
continued by New Tenneco providing for the payment to Mr. Dick of a salary of
not less than $325,000 per year (with such increases as determined by the
Compensation and Benefits Committee of the New Tenneco Board of Directors).
Also, New Tenneco has agreed that in the event Mr. Dick's employment is
terminated for any reason other than for cause, death or permanent disability,
New Tenneco will pay to Mr. Dick an amount equal to his annual salary.
New Tenneco has an employment agreement with Mr. Stecko which will also be
continued by New Tenneco providing for the payment to Mr. Stecko of a salary
of not less than $320,000 per year (with such increases as determined by the
Compensation and Benefits Committee of the New Tenneco Board of Directors).
Mr. Stecko is entitled to reimbursement for the cost of financial and estate
planning up to $20,000 per year and to be provided a country club membership
related to his performance as President and CEO of Tenneco Packaging. New
Tenneco has also agreed that, in the event Mr. Stecko's employment is
terminated for any reason other than for cause, death or permanent disability,
New Tenneco will pay to Mr. Stecko an amount equal to three times his base
salary and will purchase his home in accordance with New Tenneco's home
purchase program. Additionally, in the event Mr. Stecko's employment is
terminated within 3 years of the date of a change in control of Tenneco
Packaging, New Tenneco will pay Mr. Stecko an amount equal to three times his
base salary. The Transaction is not deemed to constitute a change in control
of Tenneco Packaging under Mr. Stecko's employment agreement.
New Tenneco will succeed to sponsorship of the Tenneco Benefits Protection
Program (the "Benefits Protection Program") established by Tenneco to enable
New Tenneco to continue to attract, retain and motivate highly qualified
employees by eliminating (to the maximum practicable extent) any concern on
the part of such employees that their job security or benefit entitlements
will be jeopardized by a "Change-in-Control" of New Tenneco (as such term is
defined in the Benefits Protection Program). The Benefits Protection Program
is designed to achieve this purpose through (i) the establishment of a
severance plan for the benefit of certain employees and officers whose
position is terminated under certain circumstances following such Change-in-
Control and (ii) the establishment of a trust fund designed to ensure the
payment of benefits accrued under certain plans. Under the Benefits Protection
Program, Messrs. Mead, Tetzlaff, Blakely, Dick and Stecko would have become
entitled to receive payments from New Tenneco in the amount of $5,175,000;
$2,151,000; $1,860,000; $1,839,000; and $1,980,000, respectively, had their
position been terminated on December 31, 1995, and, in addition, restricted
shares held in the name of such individuals under Tenneco's restricted stock
plans would have automatically reverted to Tenneco, and Tenneco would have
been obliged to pay such individuals the fair market value thereof all as
provided by such plans. The performance share equivalent units would also have
been fully vested and paid. The Transaction is not deemed to constitute a
"Change in Control" for purposes of the Benefits Protection Program.
Transactions with Management and Others
During 1995 Tenneco and its subsidiaries paid the law firm of Jenner &
Block, of which Theodore R. Tetzlaff, General Counsel of Tenneco, is a
partner, approximately $9.4 million for legal services (pursuant to an
agreement with Tenneco, Mr. Tetzlaff has agreed to devote whatever time is
necessary to attend to the responsibilities of General Counsel of Tenneco, and
will not receive from Jenner & Block any part of the fees paid by Tenneco to
that firm during such period he serves as General Counsel); and paid the firm
Eickhoff Economics, Inc., of which Ms. Eickhoff is the sole owner,
approximately $31,000 for financial consulting services. All such transactions
discussed above were in the ordinary course of business.
Tenneco and certain of its subsidiaries held, as of December 31, 1995,
approximately 21% of the outstanding common stock of Case, of which Mr. Mead
is a director. During 1995, Tenneco received payments from Case of
approximately $8.6 million in fixed charges for administrative and other
services provided to Case by Tenneco and its subsidiaries. Additionally, a
subsidiary of Tenneco paid Case approximately $11.8 million
109
<PAGE>
for retail receivable services. The fee for such services is based on the
amount of outstanding receivables. Tenneco and Case have an agreement which
provides for the allocation of obligations for income and franchise taxes with
respect to Case and its subsidiaries for years preceding the 1994
reorganization and public offering of Case common stock.
Certain executive officers of Tenneco are indebted to Tenneco, and upon
consummation of the Industrial Distribution, will be indebted to the Company.
Such indebtedness was incurred in connection with relocation of such persons
and all amounts outstanding are secured by a subordinated mortgage note which
accrues interest at the rate of 3% per year on the unpaid balance and matures
at the earlier of the individual's termination of employment or the year 2026.
Principal is payable in full at maturity and the payment of interest has been
deferred for 1996. The following sets forth the approximate aggregate amount
outstanding as of September 30, 1996 (and is the largest aggregate amount
outstanding during 1996): Robert T. Blakely, $404,000; Stacy S. Dick,
$405,000; Barry R. Schuman, $404,000; Jack Lascar, $403,000; Mark A. McCollum,
$405,000; Karen R. Osar, $404,000; Stephen J. Smith, $407,000; and Karl A.
Stewart, $410,000.
Transactions involving Mr. McCoy are set out below under the caption
"Compensation Committee Interlocks and Insider Participation."
Compensation Committee Interlocks and Insider Participation
Messrs. Andrews, Johnson, McCoy and Wharton are members of the Compensation
and Benefits Committee of the Tenneco Board of Directors and each will serve
as members of the Compensation and Benefits Committee of the New Tenneco Board
of Directors.
During 1995, an investment fund, of which a subsidiary of Tenneco owns 50%,
paid approximately $558,000 to a subsidiary of Banc One Corporation, of which
Mr. McCoy is a director and an executive officer, under a line of credit in an
amount of approximately $10 million under which approximately $9.4 million is
outstanding. Such line of credit is guaranteed 80% by a subsidiary of Tenneco
and is due to mature in 1997. All such transactions involving Banc One
Corporation were in the ordinary course of business.
Benefit Plans Following the Industrial Distribution
As described above, New Tenneco will succeed to sponsorship of two plans
qualified under Section 401(a) of the Code: the Tenneco Retirement Plan and
the Tenneco Thrift Plan. The Tenneco Retirement Plan is a defined benefit
pension plan. The Tenneco Thrift Plan is a 401(k) plan with an employer
matching contribution. New Tenneco will also succeed to sponsorship of the
Tenneco Supplemental Executive Retirement Plan and Tenneco Benefit
Equalization Plan, both of which are non-qualified plans designed to provide
covered individuals with benefits which they would receive under the Tenneco
Retirement Plan absent legal limitations. New Tenneco will also succeed to
sponsorship of the Tenneco Benefits Protection Program as well as the Tenneco
Inc. Deferred Compensation Plan and 1993 Deferred Compensation Plan, both of
which are non-qualified deferred compensation plans.
Prior to the consummation of the Industrial Distribution, New Tenneco will
adopt the New Tenneco Stock Ownership Plan, which will be approved by Tenneco
as the sole stockholder of New Tenneco. The New Tenneco Stock Ownership Plan
will be substantially similar to the Tenneco Inc. 1994 Stock Ownership Plan
and will provide for the grant of stock options, restricted stock, performance
shares and other forms of awards. New Tenneco will adopt, and Tenneco will
approve as its sole stockholder, an employee stock purchase plan which will be
substantially similar to the Tenneco employee stock purchase plan.
110
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited historical capitalization of
New Tenneco as of June 30, 1996, and unaudited pro forma capitalization of New
Tenneco as of June 30, 1996, after giving effect to the transactions described
in the "Unaudited Pro Forma Combined Financial Statements" of New Tenneco. The
capitalization of New Tenneco should be read in conjunction with the Combined
Financial Statements of New Tenneco, and notes thereto, the "Combined Selected
Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" of New Tenneco, each contained elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
NEW TENNECO
---------------------
JUNE 30, 1996
---------------------
HISTORICAL PRO FORMA
---------- ---------
(IN MILLIONS)
<S> <C> <C>
Short-term debt:
Allocated from Tenneco........................... $ 523(a) $ --
Other............................................ 7 13
------ ------
530 13
------ ------
Long-term debt:
Allocated from Tenneco........................... 1,510(a) --
New Securities................................... -- 2,069(b)
Other............................................ 63 63
------ ------
1,573 2,132
------ ------
Minority interest................................. 301 301
------ ------
Common stock...................................... -- 2
Paid-in capital................................... -- 2,986
Retained earnings................................. -- --
Combined equity................................... 2,168 --
------ ------
Total equity.................................... 2,168 2,988
------ ------
Total capitalization.............................. $4,572 $5,434
====== ======
</TABLE>
- --------
(a) Represents debt allocated to New Tenneco from Tenneco based on the portion
of Tenneco's investment in New Tenneco which is deemed to be debt,
generally based on the portion of New Tenneco's net assets to Tenneco's
consolidated net assets plus debt. Tenneco's historical practice has been
generally to incur indebtedness for its consolidated group at the parent
company level or at a limited number of subsidiaries, rather than at the
operating company level, and to centrally manage various cash functions.
Management believes that the historical allocation of corporate debt is
reasonable; however, it is not necessarily indicative of New Tenneco's
debt upon completion of the Debt Realignment, nor debt that may be
incurred by New Tenneco as a separate public entity.
(b) Represents the $1,950 million aggregate principal amount of New Securities
assumed to be exchanged pursuant to the Exchange Offers, which will be
recorded based on the fair value of the New Securities (estimated to be
$2,069 million) upon consummation of the Exchange Offers. At this time,
New Tenneco and Tenneco cannot determine the ultimate amount of Old
Securities which will be exchanged by the applicable Tenneco Public Debt
holders into New Securities pursuant to the Exchange Offers, and such
amount could vary significantly. For purposes of the pro forma
capitalization, it is assumed that 100% of the Old Securities are
exchanged for New Securities pursuant to the Exchange Offers.
111
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS OF NEW TENNECO
The following Unaudited Pro Forma Combined Balance Sheet of New Tenneco as
of June 30, 1996 and the Unaudited Pro Forma Combined Statements of Income for
the six months ended June 30, 1996 and the year ended December 31, 1995 have
been prepared to reflect: (i) the acquisition of Clevite in July 1996 and the
acquisition of Amoco Foam Products in August 1996; (ii) the effect on New
Tenneco of the Cash Realignment and Debt Realignment (including the Exchange
Offers); (iii) the effect on New Tenneco of the Corporate Restructuring
Transactions, and other transactions pursuant to the provisions of the
Distribution Agreement and Merger Agreement; and (iv) the issuance of New
Tenneco Common Stock as part of the Industrial Distribution. The "Combined
Acquisitions" caption in the Unaudited Pro Forma Combined Statement of Income
for the year ended December 31, 1995 also reflects the pro forma results of
operations of Mobil Plastics prior to its acquisition in November 1995.
The acquisitions of Clevite and Amoco Foam Products have been included in
the accompanying Unaudited Pro Forma Combined Financial Statements for the
respective periods under the caption "Combined Acquisitions." The Combined
Acquisitions have been accounted for under the purchase method of accounting.
As such, pro forma adjustments are reflected in the accompanying Unaudited Pro
Forma Combined Financial Statements to reflect a preliminary allocation of New
Tenneco's purchase cost for the assets acquired and liabilities assumed as
well as additional depreciation and amortization resulting from New Tenneco's
purchase cost.
The historical Combined Financial Statements reflect the financial position
and results of operations for the Industrial Business whose net assets will be
transferred to New Tenneco pursuant to the Corporate Restructuring
Transactions, and other transactions pursuant to the provisions of the
Distribution Agreement and Merger Agreement. The accounting for the transfer
of assets and liabilities pursuant to the Corporate Restructuring Transactions
represents a reorganization of companies under common control and,
accordingly, all assets and liabilities are reflected at their historical cost
in the Combined Financial Statements of New Tenneco.
The Unaudited Pro Forma Combined Balance Sheet has been prepared as if such
transactions occurred on June 30, 1996; the Unaudited Pro Forma Combined
Statements of Income have been prepared as if such transactions occurred as of
January 1, 1995. The Unaudited Pro Forma Combined Financial Statements set
forth on the following pages are unaudited and not necessarily indicative of
the results that would have actually occurred if the transactions had been
consummated as of June 30, 1996, or January 1, 1995, or results which may be
attained in the future.
The pro forma adjustments, as described in the Notes to the Unaudited Pro
Forma Combined Financial Statements, are based upon available information and
upon certain assumptions that management believes are reasonable. The
Unaudited Pro Forma Combined Financial Statements should be read in
conjunction with the Combined Financial Statements of New Tenneco, and notes
thereto, and the pre-acquisition Combined Financial Statements of Mobil
Plastics, and notes thereto, included elsewhere herein. The Clevite and Amoco
Foam Products acquisitions do not meet the Commission's criteria for inclusion
of separate historical financial statements.
112
<PAGE>
NEW TENNECO
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1996
(MILLIONS)
<TABLE>
<CAPTION>
COMBINED ACQUISITIONS
-----------------------
POST-
NEW ACQUISITIONS TRANSACTION
TENNECO PRO FORMA PRO FORMA PRO FORMA PRO FORMA
HISTORICAL HISTORICAL* ADJUSTMENTS COMBINED ADJUSTMENTS COMBINED
---------- ----------- ----------- ------------ ----------- ---------
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and temporary
cash investments..... $ 129 $ 2 $ $ 131 $ 36 (e) $ 205
38 (f)
Receivables........... 829 74 903 (113)(a) 1,044
182 (b)
(48)(c)
120 (d)
Inventories........... 820 46 6 (i) 872 872
Deferred income taxes. 28 28 28
Other current assets.. 196 8 204 (5)(c) 204
5 (e)
------ ---- ---------- ------ ------- ------
Total Current Assets. 2,002 130 6 2,138 215 2,353
------ ---- ---------- ------ ------- ------
Goodwill and
intangibles............ 965 384 (i) 1,349 1,349
Other assets............ 808 9 817 9 (c) 836
10 (g)
Plant, property and
equipment, net......... 2,748 148 144 (i) 3,040 39 (c) 3,079
------ ---- ---------- ------ ------- ------
Total Assets......... $6,523 $287 $ 534 $7,344 $ 273 $7,617
====== ==== ========== ====== ======= ======
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt....... $ 530 $ $ 638 (i) $1,168 $(1,155)(g) $ 13
Payables.............. 622 28 650 (23)(a) 629
2 (b)
Other current
liabilities.......... 558 76 634 17 (c) 651
------ ---- ---------- ------ ------- ------
Total Current
Liabilities......... 1,710 104 638 2,452 (1,159) 1,293
------ ---- ---------- ------ ------- ------
Long-term debt.......... 1,573 1 1,574 558 (g) 2,132
Deferred income taxes... 451 (5)(i) 446 13 (b) 459
Deferred credits and
other liabilities...... 320 53 30 (i) 403 41 (e) 444
Minority interest....... 301 301 301
------ ---- ---------- ------ ------- ------
Total Liabilities..... 4,355 158 663 5,176 (547) 4,629
------ ---- ---------- ------ ------- ------
Equity:
Combined equity....... 2,168 129 (129)(i) 2,168 (90)(a) --
167 (b)
(22)(c)
120 (d)
38 (f)
607 (g)
(2,988)(h)
Common Stock.......... -- -- -- 2 (h) 2
Paid-in Capital....... -- -- -- 2,986 (h) 2,986
Retained Earnings..... -- -- -- -- (h) --
------ ---- ---------- ------ ------- ------
Total Liabilities
and Equity......... $6,523 $287 $ 534 $7,344 $ 273 $7,617
====== ==== ========== ====== ======= ======
</TABLE>
- --------
* Certain amounts have been reclassified to conform to New Tenneco's
classification.
See the accompanying Notes to Unaudited Pro Forma Combined Financial
Statements.
113
<PAGE>
NEW TENNECO
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMBINED ACQUISITIONS
-----------------------
POST-
NEW ACQUISITIONS TRANSACTION
TENNECO PRO FORMA PRO FORMA PRO FORMA PRO FORMA
HISTORICAL HISTORICAL* ADJUSTMENTS COMBINED ADJUSTMENTS COMBINED
---------- ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Sales and Operating
Revenues............... $ 3,233 $272 $ $3,505 $ $ 3,505
Other Income, Net....... 71 -- 71 71
Costs and Expenses...... 2,890 232 9 (j) 3,131 3,131
------- ---- ------- ------ ------- -----------
Income Before Interest
Expense,
Income Taxes and Minor-
ity Interest........... 414 40 (9) 445 445
Interest Expense........ 100 12 7 (j) 119 (36)(k) 83
Income Tax Expense...... 126 8 (1)(j) 133 14 (k) 147
Minority Interest....... 10 10 10
------- ---- ------- ------ ------- -----------
Income From Continuing
Operations............. $ 178 $ 20 $ (15) $ 183 $ 22 $ 205
======= ==== ======= ====== ======= ===========
Average number of common
shares outstanding..... 170,351,740
===========
Income from continuing
operations per share... $ 1.20
===========
</TABLE>
- --------
* Certain amounts have been reclassified to conform to New Tenneco's
classification.
See the accompanying Notes to Unaudited Pro Forma Combined Financial
Statements.
114
<PAGE>
NEW TENNECO
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMBINED ACQUISITIONS
-----------------------
POST-
NEW ACQUISITIONS TRANSACTION
TENNECO PRO FORMA PRO FORMA PRO FORMA PRO FORMA
HISTORICAL HISTORICAL* ADJUSTMENTS COMBINED ADJUSTMENTS COMBINED
---------- ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Sales and Operating
Revenues............... $5,221 $2,035 $ $7,256 $ $ 7,256
Other Income, Net....... 39 6 45 45
Costs and Expenses...... 4,588 1,888 17 (j) 6,493 6,493
------ ------ ---- ------ -------- -----------
Income Before Interest
Expense,
Income Taxes and Minor-
ity Interest........... 672 153 (17) 808 808
Interest Expense........ 160 126 5 (j) 291 (125)(k) 166
Income Tax Expense...... 231 19 (9)(j) 241 50 (k) 291
Minority Interest....... 23 -- 23 23
------ ------ ---- ------ -------- -----------
Income From Continuing
Operations............. $ 258 $ 8 $(13) $ 253 $ 75 $ 328
====== ====== ==== ====== ======== ===========
Average number of common
shares outstanding..... 173,995,941
===========
Income from continuing
operations per share... $ 1.89
===========
</TABLE>
- --------
* Certain amounts have been reclassified to conform to New Tenneco's
classification.
See the accompanying Notes to Unaudited Pro Forma Combined Financial
Statements.
115
<PAGE>
NEW TENNECO
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(a) To reflect the settlement or capitalization of intercompany accounts
receivable and payable with Tenneco affiliates pursuant to the Corporate
Restructuring Transactions.
(b) To reflect the acquisition by New Tenneco of certain receivables from
Tenneco Credit Corporation, a Tenneco affiliate, in connection with the
Merger.
(c) To reflect the allocation between New Tenneco, Newport News and Tenneco of
certain corporate assets and liabilities in connection with the Corporate
Restructuring Transactions, the Distributions and the Merger.
(d) To reflect a $120 million receivable from El Paso pursuant to the
Distribution Agreement and Merger Agreement for certain tax benefits to be
realized as a result of the Debt Realignment.
(e) To reflect the transfer to New Tenneco of insurance liabilities and the
related portfolio of short-term cash investments and other assets
previously held by Eastern Insurance Company Limited, a Tenneco affiliate,
in connection with the Corporate Restructuring Transactions and the
Merger.
(f) To reflect the cash contribution from Tenneco to New Tenneco pursuant to
the Cash Realignment provisions of the Distribution Agreement and Merger
Agreement. The contribution of cash between Tenneco and New Tenneco as
part of the Cash Realignment may be adjusted by the sale of Energy
Business receivables prior to the Merger Effective Time.
(g) To reflect adjustments to New Tenneco's indebtedness for the pre-
Distribution restructuring and refinancing of debt pursuant to the Debt
Realignment. If the Debt Realignment had been consummated on June 30,
1996, on a pro forma basis, New Tenneco would have had total long-term
debt of $2,132 million, and short-term debt of $13 million. The total pro
forma long-term debt includes $2,069 million of New Securities ($1,950
million aggregate principal amount) assumed to be exchanged in the
Exchange Offers, which will be recorded based on the fair value of the New
Securities, and $63 million of long-term debt of New Tenneco subsidiaries.
At this time, New Tenneco and Tenneco cannot determine the ultimate amount
of Old Securities which will be exchanged by the applicable Public Debt
holders into New Securities pursuant to the Exchange Offers, and such
amount could vary significantly. For purposes of these pro forma
adjustments, it is assumed that 100% of the Old Securities are exchanged
for New Securities pursuant to the Exchange Offers. Tenneco expects to
incur an extraordinary charge as a result of the Debt Realignment. Tenneco
estimates that this cost will be approximately $300 million after-tax
based on current market rates of interest. Certain other costs will also
be incurred in connection with the Corporate Restructuring Transactions
and the Distributions which Tenneco estimates will be approximately $100
million after tax. The effect on New Tenneco's debt of these costs has
been reflected in this pro forma adjustment. However, such charges have
not been reflected in the pro forma income statement.
(h) To reflect the distribution of New Tenneco Common Stock to the holders of
Tenneco Common Stock at an exchange ratio of one share of New Tenneco
Common Stock for each share of Tenneco Common Stock.
(i) To reflect short-term debt issued to complete the Combined Acquisitions
and the preliminary allocation of purchase price to the assets acquired
and liabilities assumed related to the Combined Acquisitions. These
purchase accounting adjustments for Clevite and Amoco Foam Products are
based on preliminary estimates of fair values and will be adjusted when
more complete evaluations of fair values are received. The preliminary
allocations have been made solely for purposes of developing these
Unaudited Pro Forma Combined Financial Statements.
(j) To reflect additional depreciation and amortization related to the
Combined Acquisitions resulting from New Tenneco's purchase accounting
adjustments, interest expense at an assumed rate of 5.90% on the debt
issued to complete the acquisitions, and the related tax effects at an
assumed effective tax rate of 40%. The excess of New Tenneco's purchase
cost over the fair value of assets acquired and liabilities assumed is
amortized over 40 years for Clevite and 30 years for Amoco Foam Products.
116
<PAGE>
(k) To reflect the adjustment to interest expense, and related tax effects at
an assumed effective tax rate of 40%, from the changes in the debt of New
Tenneco pursuant to the Debt Realignment as discussed in (g) above. For
purposes of this pro forma adjustment, the New Securities are assumed to
bear interest at a weighted average annual effective interest rate of
7.5%. In addition, the pro forma adjustment to interest expense includes
commitment fees on the unused borrowing capacity of the New Tenneco Credit
Facility and amortization of deferred debt financing costs incurred in
connection with the Exchange Offers and the New Tenneco Credit Facility. A
1/8% change in the assumed interest rates would change annual pro forma
interest expense by approximately $2.7 million, before the effect of
income taxes.
117
<PAGE>
NEW TENNECO
COMBINED SELECTED FINANCIAL DATA
The following combined selected financial data as of December 31, 1995 and
1994 and for the years ended December 31, 1995, 1994 and 1993 were derived
from the audited Combined Financial Statements of New Tenneco. The combined
selected financial data as of December 31, 1993, 1992 and 1991 and for the
years ended December 31, 1992 and 1991 are unaudited and were derived from the
accounting records of Tenneco. The combined selected financial data as of and
for each of the six-month periods ended June 30, 1996 and 1995 were derived
from the unaudited Combined Financial Statements of New Tenneco. In the
opinion of New Tenneco's management, the combined selected financial data of
New Tenneco as of December 31, 1993, 1992 and 1991 and for the years ended
December 31, 1992 and 1991, and as of and for the six months ended June 30,
1996 and 1995 include all adjusting entries (consisting only of normal
recurring adjustments) necessary to present fairly the information set forth
therein. The results of operations for the six months ended June 30, 1996
should not be regarded as indicative of the results that may be expected for
the full year. This information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" of New Tenneco and the Combined Financial Statements of New
Tenneco, and notes thereto, included elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEARS ENDED DECEMBER 31,
---------------- -----------------------------------------------
1996(A) 1995(A) 1995(A) 1994(A) 1993(A) 1992 1991
(DOLLARS IN MILLIONS) ------- ------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME
DATA(B):
Net sales and operating
revenues from
continuing
operations--
Automotive............ $1,463 $1,263 $2,479 $1,989 $1,785 $1,763 $1,668
Packaging............. 1,775 1,318 2,752 2,184 2,042 2,078 1,934
Intergroup sales and
other................ (5) (4) (10) (7) (7) (5) (5)
------ ------ ------ ------ ------ ------ ------
Total................ $3,233 $2,577 $5,221 $4,166 $3,820 $3,836 $3,597
====== ====== ====== ====== ====== ====== ======
Income from continuing
operations before in-
terest expense, income
taxes and minority in-
terest--
Automotive............ $ 163 $ 134 $ 240 $ 223 $ 222 $ 237 $ 188
Packaging............. 256 244 430 209 139 221 139(c)
Other................. (5) -- 2 24 20 7 3
------ ------ ------ ------ ------ ------ ------
Total................ 414 378 672 456 381 465 330
Interest expense (net
of interest
capitalized).......... 100 74 160 104 101 102 111
Income tax expense..... 126 124 231 114 115 154 80
Minority interest...... 10 12 23 -- -- -- --
------ ------ ------ ------ ------ ------ ------
Income from continuing
operations............ 178 168 258 238 165 209 139
Loss from discontinued
operations, net of
income tax............ -- -- -- (31) (7) (7) (12)
Cumulative effect of
changes in accounting
principles, net of
income tax............ -- -- -- (7)(d) -- (99)(d) --
------ ------ ------ ------ ------ ------ ------
Net income............. $ 178 $ 168 $ 258 $ 200 $ 158 $ 103 $ 127
====== ====== ====== ====== ====== ====== ======
BALANCE SHEET DATA(B):
Total assets........... $6,523 $4,430 $6,117 $3,940 $3,029 $2,812 $2,792
Short-term debt(e) .... 530 205 384 108 94 182 758
Long-term debt(e) ..... 1,573 1,246 1,648 1,039 1,178 1,675 1,555
Minority interest...... 301 297 301 301 1 1 2
Combined equity........ 2,168 1,163 1,852 987 533 (87) (553)
STATEMENT OF CASH FLOWS
DATA(B):
Net cash provided
(used) by operating
activities............ $ 199 $ (9) $ 489 $ 571 $ 324 $ 121 $ 503
Net cash provided
(used) by investing
activities............ (340) (206) (2,041) (303) (152) (78) (237)
Net cash provided
(used) by financing
activities............ 169 (52) 1,297 50 (165) (41) (251)
Capital expenditures
for continuing
operations............ 263 179 562 280 217 159 202
OTHER DATA:
EBITDA(f).............. $ 551 $ 458 $ 845 $ 598 $ 518 $ 595 $ 463
Ratio of earnings to
fixed charges(g) ..... 2.9 3.4 2.8 3.2 2.9 3.4 2.4
</TABLE>
- -------
(a)For a discussion of the significant items affecting comparability of the
financial information for 1995, 1994 and 1993 and for the six months ended
June 30, 1996 and 1995, see New Tenneco's "Management's Discussion and
Analysis of Financial Condition and Results of Operations," included
elsewhere herein.
(Continued on next page)
118
<PAGE>
(Continued from previous page)
(b) During 1995 and 1994, the Automotive and Packaging operating segments of
New Tenneco each completed several acquisitions, the most significant of
which was Packaging's acquisition of Mobil Plastics for $1.3 billion in
late 1995. See Note 4 to the Combined Financial Statements of New Tenneco,
included elsewhere herein, for further information on New Tenneco's
acquisitions.
(c)Includes a gain of $42 million recorded by the Packaging operating segment
related to the sale of three short-line railroads.
(d) In 1994, New Tenneco adopted FAS No. 112, "Employers' Accounting for
Postemployment Benefits". In 1992, New Tenneco adopted FAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions,"
and FAS No. 109, "Accounting for Income Taxes."
(e) Historical amounts include debt allocated to New Tenneco from Tenneco
based on the portion of Tenneco's investment in New Tenneco which is
deemed to be debt, generally based upon the ratio of New Tenneco's net
assets to Tenneco consolidated net assets plus debt. Tenneco's historical
practice has been to incur indebtedness for its consolidated group at the
parent company level or at a limited number of subsidiaries, rather than
at the operating company level, and to centrally manage various cash
functions. Management believes that the historical allocation of corporate
debt and interest expense is reasonable; however, it is not necessarily
indicative of New Tenneco's debt upon completion of the Debt Realignment,
nor debt and interest that may be incurred by New Tenneco as a separate
public entity. See the Combined Financial Statements of New Tenneco, and
notes thereto, included elsewhere herein.
(f) EBITDA represents income from continuing operations before interest
expense, income taxes and depreciation, depletion and amortization. EBITDA
is not a calculation based upon GAAP; however, the amounts included in the
EBITDA calculation are derived from amounts included in the Statements of
Income. In addition, EBITDA should not be considered as an alternative to
net income or operating income, as an indicator of the operating
performance of New Tenneco or as an alternative to operating cash flows as
a measure of liquidity.
(g) For purposes of computing this ratio, earnings generally consist of income
from continuing operations before income taxes and fixed charges
(excluding capitalized interest). Fixed charges consist of interest
expense, preferred stock dividend requirements of subsidiaries, the
portion of rental expense considered representative of the interest factor
and capitalized interest. The historical ratios are based upon the amount
of interest expense on corporate debt allocated to New Tenneco by Tenneco
as discussed in (e) above.
119
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following review of New Tenneco's financial condition and results of
operations should be read in conjunction with the Combined Financial
Statements of New Tenneco, and notes thereto, presented on pages F-3 to F-27.
Reference is made to the "Basis of Presentation" section of Note 1 to such
Combined Financial Statements for the definition of "New Tenneco" as utilized
herein.
PROPOSED MERGER WITH EL PASO
In the first quarter of 1996, Tenneco announced its intention to focus
Tenneco on its automotive parts and packaging businesses. This strategic
action included the spin-off of the Shipbuilding Business to the holders of
Tenneco Common Stock and the development of options to separate the Energy
Business from the Industrial Business. On June 19, 1996, Tenneco announced
that it signed a definitive agreement to merge a subsidiary of El Paso into
Tenneco. Prior to the Merger, Tenneco will effect the Industrial Distribution
and the Shipbuilding Distribution.
The Merger represents a total value for Tenneco stockholders of
approximately $4 billion which includes:
. New shares of El Paso equity valued at approximately $750 million
(subject to the effect of a collar on the market price of El Paso Common
Stock issuable in connection with the Merger).
. Assumption by El Paso of $2.65 billion (subject to certain adjustments)
of Tenneco Energy Consolidated Debt and Tenneco Junior Preferred Stock.
. Other payments and certain liability retentions by El Paso which El Paso
estimated at an aggregate of approximately $600 million.
Consequently, after the Transaction is consummated, current holders of
Tenneco Common Stock will hold shares of Newport News, New Tenneco (to be
renamed Tenneco Inc.) and El Paso. New Tenneco would then consist of two
industrial manufacturing businesses, Tenneco Packaging and Tenneco Automotive,
both of which reported record earnings and revenues in 1995, and TBS, New
Tenneco's administrative services unit.
. Tenneco Automotive is one of the world's leading manufacturers of
automotive exhaust and ride control systems for both the original
equipment market and the replacement market, or aftermarket. Tenneco
Automotive is a global business that sells its products in over 100
countries. Tenneco Automotive manufactures and markets its automotive
exhaust systems primarily under the Walker(R) brand name and its ride
control systems primarily under the Monroe(R) brand name.
. Tenneco Packaging is among the world's leading and most diversified
packaging companies, manufacturing packaging products for consumer,
institutional and industrial markets. The paperboard business group
manufactures corrugated containers, folding cartons and containerboard,
has a joint venture in recycled paperboard, and offers high value-added
products such as enhanced graphics packaging and displays and kraft
honeycomb products. Its specialty products group produces disposable
aluminum, foam and clear plastic food containers, molded fiber and
pressed paperboard products, as well as polyethylene bags and industrial
stretch wrap. Tenneco Packaging's consumer products include such
recognized brand names as Hefty(R), Baggies(R) and E-Z Foil(R).
. TBS designs, implements and administers shared administrative service
programs for the Tenneco businesses as well as, on an "as requested"
basis, for former Tenneco business entities.
The consummation of the Transaction is conditioned upon approval thereof by
Tenneco stockholders. In addition, the consummation of the Transaction is
conditioned upon receipt of a favorable ruling by the IRS that the spin-offs
of Newport News and New Tenneco will be tax-free for federal income tax
purposes to Tenneco and its stockholders, which ruling was issued on October
30, 1996. The consummation of the Transaction is also subject to the
satisfaction or waiver of a number of other conditions as described under "The
Distributions--Conditions to Consummation of the Distributions."
120
<PAGE>
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
1996 STRATEGIC ACTIONS
In the second quarter of 1996, New Tenneco continued its strategy to
redeploy capital to faster-growing, more profitable and less cyclical business
operations. In June, Tenneco Packaging and Caraustar entered into an agreement
to jointly operate clay-coated recycled paperboard mills in Rittman, Ohio and
Tama, Iowa and a recovered fiber recycling and brokerage business with
operations in Rittman and Cleveland, Ohio. Tenneco Packaging sold these assets
to the joint venture for cash and an equity ownership position in the new
venture. This strategic action resulted in a pre-tax gain of $50 million.
In addition, New Tenneco initiated several other strategic actions:
. In early 1996, Tenneco Automotive acquired two ride control companies,
National Springs, the largest manufacturer of automotive coil and leaf
springs in Australia and New Zealand, and ATESO s.a., one of the largest
automotive equipment manufacturing groups in the Czech Republic, for an
aggregate of $31 million.
. In July 1996, Tenneco Automotive acquired Clevite for approximately $330
million. Clevite is a leading North American original equipment
manufacturer of automotive vibration control components, including
bushings and engine mounts for the auto, light truck and heavy truck
markets. Clevite will be integrated into Monroe to form an operation with
the ability to design, manufacture, test and sell a complete automotive
suspension system.
. In June 1996, Tenneco Packaging announced that it had reached an
agreement to acquire the stock of Amoco Foam Products for $310 million.
Amoco Foam Products manufactures expanded polystyrene tableware,
including cups, plates and carrying trays; hinged-lid food containers;
packaging trays, primarily for meat and poultry and industrial products
for residential and commercial construction applications. The transaction
closed in August 1996.
. In August 1996, Tenneco Automotive acquired Luis Minuzzi e Hijos
("Minuzzi"), an Argentinian exhaust system manufacturer. The acquisition
will establish Walker's presence in the rapidly growing Argentinean and
South American automobile markets.
RESULTS OF OPERATIONS--SIX MONTHS ENDED JUNE 30, 1996 AND 1995
New Tenneco's income from continuing operations for the 1996 first half of
$178 million improved by six percent compared with $168 million in the first
half of 1995 due to improved results from both Tenneco Packaging (which
included the $50 million pre-tax gain on the sale of two recycled paperboard
mills and a recovered fiber recycling and brokerage business to a joint
venture) and Tenneco Automotive, all of which are discussed below.
NET SALES AND OPERATING REVENUES
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE
30,
--------------
1996 1995
------ ------
(MILLIONS)
<S> <C> <C>
Tenneco Automotive........................................ $1,463 $1,263
Tenneco Packaging......................................... 1,775 1,318
Intergroup sales and other................................ (5) (4)
------ ------
$3,233 $2,577
====== ======
</TABLE>
New Tenneco's revenues for the first six months of 1996 increased $656
million or 25 percent, and benefited from higher sales volumes in the
automotive business along with revenues from recent acquisitions. The results
of each business group are discussed in detail below.
121
<PAGE>
INCOME BEFORE INTEREST EXPENSE, INCOME TAXES AND MINORITY INTEREST (OPERATING
INCOME)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE
30,
--------------
1996 1995
------ ------
(MILLIONS)
<S> <C> <C>
Tenneco Automotive......................................... $ 163 $ 134
Tenneco Packaging.......................................... 256 244
Other...................................................... (5) --
------ ------
$ 414 $ 378
====== ======
</TABLE>
New Tenneco's operating income for the first half of 1996 increased by $36
million compared with the 1995 period. Tenneco Automotive benefited from
improved results in both the exhaust and ride control operations. Also,
Tenneco Packaging recognized a gain from the sale of the recycled paperboard
mills to a joint venture of $50 million in New Tenneco's 1996 second quarter.
The results of each segment are discussed in detail below.
TENNECO AUTOMOTIVE
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE
30,
-------------
1996 1995
------ ------
(MILLIONS)
<S> <C> <C>
Revenues.................................................... $1,463 $1,263
Operating income............................................ 163 134
</TABLE>
Tenneco Automotive's revenues increased in both the exhaust and ride control
operations. Revenues for exhaust increased 16 percent to $847 million. North
American and European original equipment volumes were up, contributing $84
million in additional revenues driven by a record number of new product
launches and new vehicle production. Exhaust aftermarket volumes also
increased primarily due to the third quarter 1995 acquisition of Fonos. Fonos
added $22 million in revenue in the first half of 1996.
Ride control reported an increase in revenues of $83 million or 16 percent.
Ride control's North American aftermarket revenues increased 13 percent as a
result of new customers and consumer response to aggressive marketing
programs. The European original equipment revenues improved $25 million driven
by new vehicle production. Revenues in Australia increased $10 million as a
result of the 1996 acquisition of National Springs.
Exhaust's operating income for the 1996 first half improved 30 percent to
$74 million primarily due to increased volumes, which contributed $10 million,
and improved manufacturing efficiencies. Ride control's operating income
increase of $12 million was due primarily to higher sales volumes and product
mix.
OUTLOOK
Tenneco Automotive's aggressive acquisition and business initiative strategy
is helping it to maintain its market leadership positions around the world.
New Tenneco has committed substantial resources to improve and expand
production capacity, expand existing businesses and enter new markets in order
to serve its customers throughout the world. During the first half of 1996,
Tenneco Automotive announced an exhaust system joint venture in China and the
acquisition of Clevite. The Clevite acquisition is expected to produce
positive results immediately, impacting the second half of 1996. In addition,
Tenneco Automotive continues to develop business opportunities in emerging
markets such as China, India, Eastern Europe, and Latin America. Tenneco
Automotive expects the North American aftermarket to remain at 1995 activity
levels for the remainder of 1996. Original equipment volumes are expected to
increase as a result of the high level of new product launches undertaken in
1995 and early 1996 and continued interest by original equipment customers in
hydroforming technology. New Tenneco believes it is well positioned to respond
to the many changes currently underway in the original equipment market.
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<PAGE>
TENNECO PACKAGING
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE
30,
-------------
1996 1995
------ ------
(MILLIONS)
<S> <C> <C>
Revenues.................................................... $1,775 $1,318
Operating income............................................ 256 244
</TABLE>
Tenneco Packaging's operating income was $256 million in the first half of
1996 compared with $244 million in the prior year period. The results for the
1996 first half included a $50 million pre-tax gain on the sale of two
recycled paperboard mills and a recovered fiber recycling and brokerage
business to a new joint venture between Tenneco Packaging and Caraustar. The
results were also driven by a strong performance from its plastics business.
The recently acquired plastics business contributed $73 million in operating
income on revenues of $516 million for the first half of 1996.
In Tenneco Packaging's paperboard business, revenues were down $75 million
to $903 million compared with the 1995 first half. Operating income in the
paperboard business declined $107 million to $98 million compared with the
1995 first half, excluding the 1996 second quarter $50 million pre-tax gain on
the sale of assets to the joint venture with Caraustar. 1995 acquisitions
contributed $88 million to revenues and $5 million to operating income in
1996. Excluding acquisitions, lower volume and price realization resulted in
$157 million in lower revenues and $100 million in lower operating income for
the paper board business. The 1996 operating income was also reduced by a $14
million cost related to downtime at mills taken to match inventories to market
demand. In addition, the first half of 1995 included a $14 million gain on the
sale of a mill in North Carolina.
Revenues in Tenneco Packaging's specialty packaging business increased $532
million to $872 million compared with the 1995 first half, primarily as a
result of the recently acquired plastics business which provided $516 million
of this improvement.
The specialty packaging business earned $108 million in operating income for
the 1996 first half, an $83 million increase compared with the 1995 first half
results. Operating income from the plastics business acquired in November 1995
contributed $73 million to this increase. The plastics, aluminum and molded
fiber units also continued to improve due to lower raw material cost of
aluminum and lower operating cost as a result of productivity improvements.
Plastics volumes improved 5 percent for the first half of 1996 and demand
continued to be strong.
OUTLOOK
Tenneco Packaging anticipates strong revenue growth in the second half of
1996 in the specialty packaging unit. Tenneco Packaging will continue to make
strong progress in lessening the effects on it of cyclicality in the
paperboard industry as shown in the first half of 1996. The Amoco Foam
Products acquisition, which was finalized in the third quarter, will be
beneficial to building the specialty packaging product lines. In addition,
Tenneco Packaging continues to achieve productivity improvements, to
streamline manufacturing, and to obtain benefits from the recent restructuring
in the molded fiber and aluminum product operations.
OTHER
New Tenneco's other operations reported an operating loss of $5 million
during the first half of 1996 compared with breakeven in the 1995 first half.
This decrease in operating income resulted from decreased interest income
resulting from lower cash investments.
INTEREST EXPENSE (NET OF INTEREST CAPITALIZED)
Tenneco's historical practice has been to incur indebtedness for its
consolidated group at the parent company level or at a limited number of
subsidiaries, rather than at the operating company level, and to centrally
123
<PAGE>
manage various cash functions. Consequently, corporate debt of Tenneco and its
related interest expense has been allocated to New Tenneco based on the
portion of Tenneco's investment in New Tenneco which is deemed to be debt,
generally based upon the ratio of New Tenneco's net assets to Tenneco
consolidated net assets plus debt. Interest expense was allocated at a rate
equivalent to the weighted-average cost of all corporate debt, which was 7.7
percent, 8.3 percent and 7.4 percent for 1995, 1994 and 1993, respectively.
Although interest expense, and the related tax effects, have been allocated to
New Tenneco for financial reporting on a historical basis, New Tenneco has not
been billed for these amounts. The changes in allocated corporate debt and the
after-tax allocated interest have been included as a component of New
Tenneco's combined equity. Although management believes that the historical
allocation of corporate debt and interest is reasonable, it is not necessarily
indicative of New Tenneco's debt upon completion of the Debt Realignment nor
debt and interest that may be incurred by New Tenneco as a separate public
company. For additional information, see "Debt and Cash Realignment."
Interest expense increased from $74 million in the 1995 first half to $100
million in the 1996 first half. The increase was primarily attributable to
higher levels of allocated corporate debt. Interest capitalized was $5 million
for the 1996 first half compared with $1 million for the prior year period.
INCOME TAXES
Income tax expense for the first half of 1996 was $126 million compared with
$124 million for the 1995 first half. The effective tax rate for the first
half of 1996 was 40 percent compared with 41 percent in the prior year first
half.
In connection with the Industrial Distribution, the current tax sharing
agreement will be cancelled and New Tenneco will enter into a tax sharing
agreement with Tenneco, Newport News and El Paso. The tax sharing agreement
will provide, among other things, for the allocation of taxes among the
parties of tax liabilities arising prior to, as a result of, and subsequent to
the Distributions. Generally, New Tenneco will be liable for taxes imposed on
New Tenneco and its affiliates engaged in the automotive and packaging
businesses. In the case of federal income taxes imposed on the combined
activities of the consolidated group, New Tenneco and Newport News will be
liable to Tenneco for federal income taxes attributable to their activities,
and each will be allocated an agreed-upon share of estimated tax payments made
by the Tenneco consolidated group.
CHANGE IN ACCOUNTING PRINCIPLES
New Tenneco adopted FAS No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of," in the first
quarter of 1996. FAS No. 121 establishes new accounting standards for
measuring the impairment of long-lived assets. The adoption of the new
standard did not have a material effect on New Tenneco's financial position or
results of operations.
In June 1996, the Financial Accounting Standards Board issued FAS No. 125
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," which establishes new accounting and
reporting standards for transfers and servicing of financial assets and
extinguishment of liabilities. The statement is effective for transactions
occurring after December 31, 1996. The impact of the new standard has not been
determined.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------
CASH PROVIDED (USED) BY: 1996 1995
------------------------ -------- --------
(MILLIONS)
<S> <C> <C>
Operating activities................................ $ 199 $ (9)
Investing activities................................ (340) (206)
Financing activities................................ 169 (52)
</TABLE>
124
<PAGE>
New Tenneco's operating results, combined with proceeds from sales of assets
and businesses, contributions from Tenneco and short-term borrowings, have
provided funds for acquisitions and capital investments in existing
businesses.
Operating Activities
Operating cash flow for the first six months of 1996 increased due to higher
income from operations and improvements in working capital. Working capital
improved $147 million compared with the 1995 first half primarily due to lower
inventories and New Tenneco's working capital initiatives. Inventories dropped
as a result of downtime taken at the mills to keep inventories in line and
higher exhaust and ride control revenues driven by new vehicle production.
Investing Activities
New Tenneco invested $263 million in capital expenditures in its existing
businesses during the first half of 1996. Capital expenditures during the
first six months of 1996 included $84 million for Tenneco Automotive, $155
million for Tenneco Packaging and $24 million related to New Tenneco's other
operations. For Tenneco Packaging, these expenditures related to the paper
machine upgrade at the Counce, Tennessee mill and the expansion of specialty
packaging facilities. Capital expenditures were $179 million for continuing
operations during the first half of 1995.
Financing Activities
Cash provided by financing activities was $169 million during the first six
months of 1996, compared with cash used by financing activities of $52 million
for the same period in the previous year. New Tenneco had a net decrease in
short-term debt of $23 million in the first six months of 1996 compared to $2
million for the same period in 1995. New Tenneco also received $200 million in
cash contributions from Tenneco in the first six months of 1996 compared to a
$39 million cash contribution to Tenneco in the first six months of 1995. See
"Liquidity" below for further discussion of cash contributions to and from
Tenneco.
CAPITALIZATION
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
-------- ------------
(MILLIONS)
<S> <C> <C>
Short-term debt and current maturities.................... $ 530 $ 384
Long-term debt............................................ 1,573 1,648
Minority interest......................................... 301 301
Combined equity........................................... 2,168 1,852
------ ------
Total capitalization...................................... $4,572 $4,185
====== ======
</TABLE>
Debt increased $71 million at June 30, 1996 compared with December 31, 1995
primarily due to higher levels of allocated debt. For additional information
on corporate debt allocation, see "Interest Expense (net of interest
capitalized)" above.
OTHER
The increase in New Tenneco's plant, property and equipment and receivables
balances at June 30, 1996 when compared to December 31, 1995 is the result of
the acquisitions of ATESO and National Springs by Tenneco Automotive and
capital expenditures in the first half of 1996, as well as an increase in
receivables due to higher sales revenues from those acquisitions in the first
half of 1996.
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<PAGE>
LIQUIDITY
Historically, New Tenneco's excess net cash flows from operating and
investing activities have been used by its parent, Tenneco, to meet
consolidated debt and other obligations. Conversely, when New Tenneco's cash
requirements have been in excess of cash flows from operations, Tenneco has
utilized its consolidated credit facilities to fund New Tenneco's obligations.
Also, depending on market and other conditions, New Tenneco has utilized
external sources of capital to meet specific funding requirements. Management
of New Tenneco believes that cash flows from operations will generally be
sufficient to meet future capital requirements. However, during 1995, New
Tenneco received on a net basis $1.3 billion from Tenneco primarily to fund its
strategic acquisitions discussed below.
Prior to the Transaction as discussed under the caption "Proposed Merger with
El Paso," Tenneco intends to initiate a realignment of its existing
indebtedness. As part of the Debt Realignment, New Securities will be offered
in exchange for certain issues of Public Debt. Tenneco will initiate cash
tender offers for other Public Debt, and certain debt issues may be defeased.
These cash tender offers and defeasances will be financed by a combination of
new lines of credit of Tenneco, New Tenneco (which may declare and pay a
dividend to Tenneco, as discussed below) and Newport News (which will declare
and pay a dividend of approximately $600 million to Tenneco). Upon completion
of the Debt Realignment, Tenneco will have responsibility for $2.65 billion of
debt and preferred stock, subject to certain adjustments, Newport News will
have responsibility for the borrowings under its credit lines and New Tenneco
will have responsibility for any remaining Tenneco Energy Consolidated Debt.
New Tenneco will enter into the New Tenneco Credit Facility, a portion of
which may be borrowed by New Tenneco and distributed to Tenneco as a dividend
for use by Tenneco in retiring certain of the Tenneco Energy Consolidated Debt.
The remainder of the New Tenneco Credit Facility, along with cash flows from
operations, will be available by New Tenneco to fund its future financing needs
including working capital and possible acquisitions.
For additional information, see "Debt and Cash Realignment" and "Description
of New Tenneco--New Tenneco Credit Facility."
ENVIRONMENTAL MATTERS
New Tenneco and certain of its subsidiaries and affiliates are parties to
environmental proceedings. Expenditures for ongoing compliance with
environmental regulations that relate to current operations are expensed or
capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations and that do not contribute to current or future
revenue generation are expensed. Liabilities are recorded when environmental
assessments indicate that remedial efforts are probable and the costs can be
reasonably estimated. Estimates of the liability are based upon currently
available facts, existing technology, and presently enacted laws and
regulations taking into consideration the likely effects of inflation and other
societal and economic factors. All available evidence is considered, including
prior experience in remediation of contaminated sites, other companies' cleanup
experience and data released by the United States Environmental Protection
Agency ("EPA") or other organizations. These estimated liabilities are subject
to revision in future periods based on actual costs or new circumstances. These
liabilities are included in the balance sheet at their undiscounted amounts.
Recoveries are evaluated separately from the liability and, when recovery is
assured, are recorded and reported separately from the associated liability in
the financial statements.
At July 1, 1996, New Tenneco had been designated as a potentially responsible
party in 12 "Superfund" sites. With respect to its pro rata share of the
remediation costs of certain of these sites, New Tenneco is fully indemnified
by third parties. With respect to certain other of these sites, New Tenneco has
sought to resolve its liability through settlements which provide for payments
of New Tenneco's allocable share of the remediation costs. For the remaining
sites, New Tenneco has estimated its share of the remediation costs to be
between $3 million and $23 million or .003 percent to .020 percent of the total
remediation costs for those sites and has
126
<PAGE>
provided reserves it believes are adequate for such costs. Because the clean-
up costs are estimates and are subject to revision as more information becomes
available about the extent of remediation required, New Tenneco's estimate of
its share of remediation costs could change. Moreover, liability under the
Comprehensive Environmental Response, Compensation and Liability Act is joint
and several, meaning that New Tenneco could be required to pay in excess of
its pro rata share of remediation costs. New Tenneco's understanding of the
financial strength of other potentially responsible parties has been
considered, where appropriate, in New Tenneco's determination of its estimated
liability. New Tenneco believes that the costs associated with its current
status as a potentially responsible party in the Superfund or other waste
disposal sites referenced above will not be material to its financial position
or results of operations.
RESULTS OF OPERATIONS FOR THE YEARS 1995, 1994 AND 1993
1995 STRATEGIC ACTIONS
New Tenneco acquired or announced intentions to acquire several new
businesses during 1995, as part of its strategy to redeploy capital to less
cyclical, higher-growth businesses, including:
. On November 17, 1995 Tenneco Packaging acquired Mobil Plastics, which is
one of the largest North American producers of polyethylene and
polystyrene packaging, for $1.3 billion. Its consumer products are
marketed under the Hefty(R), Kordite(R), Baggies(R) and Hefty OneZip(TM)
brand names. The acquired plastics business is also a leader in
polystyrene foam packaging, thermoformed polystyrene packaging and
polyethylene film products for food service and industrial consumers. In
addition to this acquisition, during 1995 Tenneco Packaging acquired two
plastics packaging operations in the United Kingdom for an aggregate of
$25 million, making Tenneco Packaging a leading supplier of single-use,
thermoformed plastic packaging in that market.
. During 1995 Tenneco Packaging also completed eight acquisitions in the
paperboard packaging business for an aggregate of $171 million in cash,
notes and Tenneco Common Stock. Four of these acquisitions are in
enhanced graphics which helps reduce sensitivity to raw material prices
and offers greater opportunities to add value. Tenneco Packaging also
acquired Hexacomb, one of the world's largest suppliers of paper
honeycomb products, for $58 million. These acquisitions present many
opportunities for internal and external synergies.
. During 1995 Tenneco Automotive acquired an exhaust company in Spain and a
catalytic converter company in the United States for an aggregate of $40
million and entered into two ride control joint ventures in India and
China for an aggregate of $14 million.
RESULTS OF OPERATIONS--YEARS 1995 AND 1994
New Tenneco's income from continuing operations in 1995 of $258 million
increased by 8 percent compared with $238 million in 1994 due to improved
results from both Tenneco Packaging and Tenneco Automotive, as discussed
below.
In 1994, New Tenneco recorded a loss of $31 million from the discontinued
operations of Tenneco Automotive's brakes operations. Also, 1994 results
included a charge of $7 million for the adoption of a new accounting
principle, FAS No. 112, "Employers' Accounting for Postemployment Benefits."
No similar costs were incurred in 1995.
127
<PAGE>
NET SALES AND OPERATING REVENUES
<TABLE>
<CAPTION>
1995 1994
------ ------
(MILLIONS)
<S> <C> <C>
Tenneco Automotive........................................ $2,479 $1,989
Tenneco Packaging......................................... 2,752 2,184
Intergroup sales and other................................ (10) (7)
------ ------
$5,221 $4,166
====== ======
</TABLE>
New Tenneco's 1995 revenues increased $1,055 million, or 25 percent and
benefited from strong market conditions in its automotive and packaging
businesses along with revenues from acquisitions made in late 1994 and 1995.
The results of each segment are discussed in detail below.
INCOME BEFORE INTEREST EXPENSE, INCOME TAXES AND MINORITY INTEREST (OPERATING
INCOME)
<TABLE>
<CAPTION>
1995 1994
----- -----
(MILLIONS)
<S> <C> <C>
Tenneco Automotive............................................ $ 240 $ 223
Tenneco Packaging............................................. 430 209
Other......................................................... 2 24
----- -----
$672 $ 456
===== =====
</TABLE>
New Tenneco's 1995 operating income increased by $216 million, or 47 percent
compared with 1994. Tenneco Packaging benefited from favorable market
conditions in the packaging industry and Tenneco Automotive improved as
European original equipment and aftermarkets both performed well. The results
of each segment are discussed in detail below.
Significant transactions affecting the comparability of operating income
between 1995 and 1994 are:
. Pre-tax gains on sales of assets and businesses of $15 million in 1995
(primarily a mill in North Carolina) compared with gains of $5 million in
1994.
. Reserves established in 1995 of $30 million for restructuring at Tenneco
Packaging's molded fiber and aluminum foil packaging operations.
. Charges in 1994 of $22 million at Tenneco Automotive for a plant closing
in Ohio and consolidations in Europe associated with the acquisition of
Gillet, the German exhaust manufacturer.
TENNECO AUTOMOTIVE
<TABLE>
<CAPTION>
1995 1994
------ ------
(MILLIONS)
<S> <C> <C>
Revenues....................................................... $2,479 $1,989
Operating income............................................... 240 223
</TABLE>
Revenues from Tenneco Automotive's exhaust operations increased during 1995
by $392 million to $1,466 million. Eighty-eight percent, or $346 million of
this increase resulted from revenues at Gillet. European original equipment
volumes were up significantly in 1995 where Gillet is the leading original
equipment manufacturer of exhaust components. European exhaust business
revenues were also stronger in the aftermarket. Of the 23% increase in
European aftermarket revenues, $14 million resulted from volume increases and
$10 million from the acquisition of Fonos while positive foreign exchange rate
movements contributed $28 million. North American exhaust revenues declined
slightly in 1995. The 7 percent decrease in the North American aftermarket was
caused by an unusually mild winter in the northeast and midwest which slowed
automotive parts replacement rates. In addition, the U.S. automakers'
continued migration toward stainless steel exhaust systems has negatively
impacted North American aftermarket revenues. The aftermarket decrease was
partially offset by increased
128
<PAGE>
original equipment unit volumes, resulting in a $15 million increase in
revenues, due to increased demand for light truck and sport-utility vehicle
exhaust systems.
Operating income for the exhaust operations increased during 1995 by $14
million to $114 million. The 1994 operating income included a $5 million
charge recorded for a plant closing and a $17 million charge related to plant
consolidations as part of the Gillet acquisition. The Gillet operations
contributed $16 million to operating income in 1995. The remainder of the
operating income change in 1995 is due primarily to a high level of costs
related to new product launches. Tenneco Automotive's exhaust business
launched 50 products for 1996 model year vehicles in 1995, more than twice the
normal levels which adversely affected 1995 earnings. In connection with the
new product launches, Tenneco Automotive incurred additional costs of $10
million in 1995 including those related to a new process, hydroforming.
Hydroforming is a liquid, high-pressure process for bending and shaping metal
parts in ways not feasible using traditional manufacturing technology.
Revenues from Tenneco Automotive's ride control operations increased during
1995 by $98 million to $1,013 million. Fifty-seven percent or $56 million of
this increase resulted from increased original equipment volumes in North
America and Europe. Original equipment volumes increased due to higher demand
for light truck and sport-utility vehicles in North America and improved
economic conditions in Europe. An increase in aftermarket revenues in Europe
more than offset the decrease in North American aftermarket revenues which
declined due to the overall decline in the North American aftermarket.
Operating income for the ride control operations increased in 1995 by $3
million to $126 million. The increased revenues in 1995 did not result in
higher operating income primarily due to increased costs associated with the
large number of new product launches for 1996 model year vehicles. These 18
launches, a significant increase over 1994 launches, adversely affected 1995
earnings.
Tenneco Automotive's margins decreased to 9.7 percent from 11.2 percent in
1994. North American margins decreased to 10.2 percent in 1995 compared with
12.1 percent in 1994 due to higher costs related to new product launches and
lower North American aftermarket sales volumes. European operations margins
improved to 8.1 percent from 7.8 percent as a result of improved economic
conditions in Europe and higher earnings associated with the Gillet
acquisition.
TENNECO PACKAGING
<TABLE>
<CAPTION>
1995 1994
------ ------
(MILLIONS)
<S> <C> <C>
Revenues....................................................... $2,752 $2,184
Operating income............................................... 430 209
</TABLE>
Tenneco Packaging's paperboard operations experienced excellent results
during 1995. Revenues were up $399 million to $1,928 million in 1995,
primarily as a result of strong pricing improvements in linerboard prices
during 1995 that began in late 1994 and continued to drive the paperboard
business until the end of 1995. As a result of the move into higher margin
graphics and specialty corrugated segments, Tenneco Packaging realized higher
revenues on comparable volumes. In addition, strong industry demand for
linerboard and corrugated products served to substantially increase prices for
those products in 1995 and contributed to record revenues.
Operating income in the paperboard operations improved by $260 million to
$399 million in 1995. This improvement includes the 1995 pre-tax gain of $14
million on the sale of a recycled medium mill in North Carolina. Effective mix
management allowed Tenneco Packaging to absorb rapidly rising raw material
prices for corrugated products while posting increased margins. Additionally,
Tenneco Packaging continued to post new productivity gains, especially in the
operation of its containerboard mills, resulting in record operating margins
in 1995.
Revenues in Tenneco Packaging's specialty packaging operations increased by
$169 million to $824 million during 1995. Revenues of $106 million from the
recently acquired plastics business (November 1995) are included
129
<PAGE>
in the results of the specialty packaging business. The remainder of the
revenue increase over 1994 resulted from price realizations in the aluminum
product line.
The specialty packaging business earned $31 million in operating income in
1995, a $39 million decrease compared with 1994 results. Specialty packaging
recorded a restructuring charge of $30 million in 1995 for its molded fiber
and aluminum foil packaging operations and recognized income from the recently
acquired plastics business of $15 million. Excluding these two items, the
decline in operating income for specialty packaging resulted from 20 percent
raw material cost increases that more than offset the positive effects of the
pricing increases initiated during the year. The major contributors to the raw
material cost increases were higher prices for polystyrene, aluminum and old
newspaper. However, these prices declined during the second half of the year.
OTHER
New Tenneco's other operations reported operating income of $2 million
during 1995. During 1994, other operations reported operating income of $24
million. This decrease in operating income resulted from lower interest income
on temporary cash investments.
INTEREST EXPENSE (NET OF INTEREST CAPITALIZED)
New Tenneco's interest expense in 1995 was $160 million compared with $104
million in 1994. The higher interest expense in 1995 compared to 1994 is
principally due to higher levels of allocated corporate debt. Interest
capitalized was $5 million in 1995 compared with $2 million in 1994 due to
higher levels of capital spending in 1995. For a discussion of the historical
allocation of indebtedness of Tenneco and its subsidiaries, see "Results of
Operations--Six Months Ended June 30, 1996 and 1995--Interest Expense (Net of
Interest Capitalized)."
MINORITY INTEREST
Minority interest of $23 million in 1995 related to dividends on preferred
stock of a U.S. subsidiary which was issued in December 1994.
INCOME TAXES
Income tax expense for 1995 was $231 million compared with $114 million in
1994. New Tenneco's effective tax rate was 45 percent in 1995, compared with
32 percent in 1994.
The increased tax expense in 1995 was primarily from higher pre-tax income
and higher foreign tax expense. In 1994, New Tenneco recorded tax benefits
from the realization of deferred tax assets resulting from consolidation of
New Tenneco's German operations.
DISCONTINUED OPERATIONS
Loss from discontinued operations in 1994 of $31 million, net of income tax
benefit of $20 million, resulted from the sale of Tenneco Automotive's brakes
business. The loss on the sale of the brakes business was $26 million, net of
income tax benefit of $15 million. Net loss in 1994 from the brakes operations
was $5 million, net of income tax benefit of $5 million.
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE
Effective January 1, 1994, New Tenneco adopted FAS No. 112, "Employers'
Accounting for Postemployment Benefits," using the cumulative catch-up method.
It requires employers to account for postemployment benefits for former or
inactive employees after employment but before retirement on the accrual basis
rather than the "pay-as-you-go" basis. As a result of adopting this statement,
an after-tax charge of $7 million was recorded in 1994.
130
<PAGE>
In October 1995, the Financial Accounting Standards Board issued FAS No.
123, "Accounting for Stock-Based Compensation." This statement defines a fair
value based method of accounting for stock issued to employees and others but
also allows companies to choose to continue to measure compensation cost for
such plans as it is measured currently. New Tenneco has elected to continue to
use the current method of accounting for stock issued to employees.
Consequently, FAS No. 123 will have no impact on New Tenneco's consolidated
financial position or results of operations.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW
<TABLE>
<CAPTION>
CASH PROVIDED (USED) BY: 1995 1994
------------------------ ------ ----
(MILLIONS)
<S> <C> <C>
Operating activities...................................... $ 489 $571
Investing activities...................................... (2,041) (303)
Financing activities...................................... 1,297 50
</TABLE>
New Tenneco's operating results, combined with proceeds from sales of assets
and businesses, and supplemented by contributions from Tenneco, have provided
funds for acquisitions and capital investments in existing businesses.
Operating Activities
Operating cash flow for 1995 declined compared with 1994 primarily due to
the build up of paperboard inventories at Tenneco Packaging as a result of a
planned mill shut-down in Counce, Tennessee in early 1996 and a net increase
in other working capital balances.
Investing Activities
Cash used for business acquisitions during 1995 totaled approximately $1.5
billion. The largest single transaction was the acquisition of Mobil Plastics
by Tenneco Packaging for $1.3 billion, which was financed by a cash
contribution from Tenneco. Also, Tenneco Packaging and Tenneco Automotive made
other key acquisitions during the year. Further, New Tenneco invested $562
million in capital expenditures in its existing businesses during the year.
Capital expenditures during the year included $208 million for Tenneco
Automotive, $316 million for Tenneco Packaging and $38 million related to New
Tenneco's other operations. For Tenneco Packaging, these expenditures included
$60 million for a paper machine addition at the Counce, Tennessee mill as well
as $33 million for a new container plant in Salt Lake City, Utah. Tenneco
Automotive's capital spending included $22 million related to new product
launches in plants related to Gillet, which Tenneco Automotive acquired in
1994 for $44 million, and $24 million for expanding a key exhaust plant and
distribution center. Capital expenditures increased in 1995 compared with the
prior year in all businesses. Net proceeds from sales of businesses and assets
during 1995 were $56 million, which included the $30 million proceeds from the
sale of a mill in North Carolina.
Financing Activities
Cash flows from financing activities was $1.3 billion in 1995 and primarily
included a $1.3 billion cash contribution from Tenneco for the acquisition of
Mobil Plastics in November 1995. Cash provided from financing activities
during 1994 was $50 million. In December 1994 Tenneco sold a 25 percent
preferred stock interest in a subsidiary which resulted in net cash proceeds
of $293 million. This was included in the balance sheet as minority interest
at December 31, 1994. Furthermore, in 1994 New Tenneco had a net decrease in
short-term debt of $94 million and retired $152 million of long-term debt. See
"Results of Operations--Six Months Ended June 30, 1996 and 1995--Liquidity"
for further discussion of cash contributions to and from Tenneco.
131
<PAGE>
CAPITALIZATION
<TABLE>
<CAPTION>
1995 1994
------ ------
(MILLIONS)
<S> <C> <C>
Short-term debt and current maturities..................... $ 384 $ 108
Long-term debt............................................. 1,648 1,039
Minority interest.......................................... 301 301
Combined equity............................................ 1,852 987
------ ------
Total capitalization....................................... $4,185 $2,435
====== ======
</TABLE>
For additional information on corporate debt allocation, see "Interest
Expense (net of interest capitalized)" above.
OTHER
As a result of the acquisition of Mobil Plastics in November 1995 for $1.3
billion and other acquisitions made by New Tenneco in 1995, New Tenneco's
plant, property and equipment, goodwill and intangibles, inventories and
receivables increased at December 31, 1995 when compared to December 31, 1994.
RESULTS OF OPERATIONS--YEARS 1994 AND 1993
NET SALES AND OPERATING REVENUES
Revenues for 1994 were $4.17 billion, up from $3.82 billion in 1993. Tenneco
Automotive revenues were $1,989 million, a $204 million, or an 11 percent
increase, compared with 1993 primarily due to increased new vehicle production
in North America and an improving European economy. Aftermarket revenues also
benefited from the introduction of Monroe's new premium ride control product,
Sensa-Trac(R). A major trade and consumer promotion in North America of the
new Sensa-Trac(R) products helped lead to an 11 percent increase in revenues
for the ride control replacement business worldwide. Packaging revenues
increased $142 million, or seven percent, to $2.18 billion in 1994, as prices
in the paperboard business recovered from the seven-year low reached in the
third quarter of 1993.
INCOME BEFORE INTEREST EXPENSE, INCOME TAXES AND MINORITY INTEREST (OPERATING
INCOME)
Operating income was $456 million for 1994. This was an improvement of $75
million compared with 1993's operating income of $381 million. Excluding gains
from asset sales and other special items including plant consolidations, 1994
operating income increased $126 million, or 36 percent, compared with 1993
primarily due to improved pricing in Tenneco Packaging's containerboard
business.
Tenneco Automotive operating income for 1994 was $223 million, compared with
$222 million in 1993. The 1994 operating income included a $17 million charge
for plant consolidations in Europe associated with acquiring Gillet and a $5
million charge taken in the second quarter for closing a plant in Ohio.
Excluding special items, operating income increased $23 million, or 10
percent, compared with 1993. This increase is a result of higher volumes in
North America and Europe and was partially offset by higher costs for new
product development and new facility start-up.
Tenneco Automotive's margins were 11.2 percent in 1994 compared with 12.4
percent in 1993. North American margins decreased to 12.1 percent in 1994
compared with 13.6 percent in 1993 due to higher costs related to new product
development and new facility start-up. European operations margins decreased
to 7.8 percent from 9.5 percent as a result of costs for plant consolidations
associated with the Gillet acquisition.
In November 1994, Tenneco Automotive acquired Gillet for $44 million in cash
and $69 million in assumed debt. Gillet is the leading manufacturer of
original equipment exhaust systems and components for European automakers.
132
<PAGE>
Tenneco Packaging's operating income for 1994 was $209 million, compared
with $139 million in 1993. The 1993 operating income included $29 million from
gains related to asset realignment. Excluding these gains, operating income
increased $99 million, or 90 percent, compared with 1993 primarily because of
improved paperboard pricing.
The paperboard business earned $139 million, up $104 million compared with
1993, excluding the 1993 asset realignment gains. Prices rose from depressed
levels in 1993 and contributed $125 million, excluding the recycling business,
of increased operating income. This was partially offset by higher raw
material costs of $32 million, but improved productivity helped counter rising
raw material costs. Paperboard productivity rose 1.6 percent, with mill
operating rates exceeding rated capacity for the full year. The specialty
business operating income for 1994 declined $5 million to $70 million,
excluding the asset realignment gains in 1993. Both the aluminum and plastic
packaging businesses reported improved operating income. Plastic packaging
volumes grew seven percent in 1994 and demand continued to be strong.
Operating income for plastics rose 40 percent in 1994, reflecting increased
volumes and higher pricing. The increase in operating income provided by the
aluminum and plastic businesses was more than offset by weak performance in
the molded fiber business, where higher raw material costs had a negative
effect on operating income. Prices for recycled newspaper, a major raw
material for molded fiber, rose to over $100 per ton, compared with $26 per
ton in 1993.
New Tenneco's other operations reported operating income of $24 million in
1994, compared with operating income of $20 million for 1993.
INTEREST EXPENSE (NET OF INTEREST CAPITALIZED)
New Tenneco's interest expense in 1994 was $104 million compared with $101
million in 1993. Interest capitalized increased to $2 million in 1994 from $1
million in 1993 due to higher levels of major capital spending. For a
discussion of the historical allocation of indebtedness of Tenneco and its
subsidiaries, see "Results of Operations--Six Months Ended June 30, 1996 and
1995--Interest Expense (Net of Interest Capitalized)."
INCOME TAXES
Income tax expense was $114 million for 1994 compared with $115 million for
1993. New Tenneco's effective tax rate was 32 percent in 1994, compared with
41 percent in 1993. The lower effective tax rate in 1994 was the result of tax
benefits from the realization of deferred tax assets resulting from
consolidation of New Tenneco's German operations.
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE
Effective January 1, 1994, New Tenneco adopted FAS No. 112, "Employers'
Accounting for Postemployment Benefits." As a result, an after-tax charge of
$7 million was recorded in 1994.
DISCONTINUED OPERATIONS
Loss from discontinued operations in 1994 of $31 million, net of income tax
benefit of $20 million resulted from New Tenneco's brakes business. Loss from
discontinued operations in 1993 of $7 million, net of income tax benefit of $4
million, was also attributable to New Tenneco's brakes business.
CASH FLOW
Operating Activities
Net cash provided by operating activities was $571 million for the year
1994, compared with $324 million for 1993, an increase of $247 million. This
increase was due to higher income from operations and improved receivable
collections.
133
<PAGE>
Investing Activities
Net cash used by investing activities in 1994 was $303 million, compared
with $152 million in 1993. Net proceeds from the sale of businesses in 1993 of
$83 million resulted from the sales of various international aluminum
ventures.
Expenditures for plant, property and equipment from continuing operations
for 1994 were $280 million, compared with $217 million for 1993. Increased
expenditures were reported for Tenneco Automotive ($20 million), Tenneco
Packaging ($42 million) and New Tenneco's other operations ($1 million).
Financing Activities
Cash flows used by financing activities in 1993 was $165 million compared
with cash flows provided by financing activities of $50 million in 1994. Cash
flows used by financing activities in 1993 included a net decrease of short-
term debt of $29 million, the retirement of $21 million of long-term debt and
a cash contribution to Tenneco of $115 million. Cash flows from financing
activities in 1994 primarily included net cash proceeds of $293 million from
the sale of a 25 percent preferred stock interest in a subsidiary, offset by a
net decrease in short-term debt of $94 million and the retirement of $152
million of long-term debt. See "Results of Operations--Six Months Ended June
30, 1996 and 1995--Liquidity" for further discussion of cash contributions to
and from Tenneco.
134
<PAGE>
DESCRIPTION OF TENNECO
Tenneco is a diversified industrial company conducting all of its operations
through its subsidiaries. The major businesses of Tenneco are (a) the Energy
Business--consisting primarily of the interstate and intrastate transportation
and marketing of natural gas and all of the discontinued operations of Tenneco
not involving the Industrial Business and the Shipbuilding Business, (b) the
Industrial Business--consisting primarily of Tenneco's administrative services
business and the manufacture and sale of automotive exhaust and ride control
systems and packaging materials, cartons, containers and specialty packaging
products for consumer, institutional and industrial markets and Tenneco's
administrative services business, and (c) the Shipbuilding Business--
consisting primarily of the design, construction, repair and overhauling of
ships (primarily nuclear powered aircraft carriers and submarines for the
United States Navy). See "Incorporation of Certain Information by Reference."
Prior to the consummation of the Distributions, Tenneco and certain of its
consolidated subsidiaries will complete the Corporate Restructuring
Transactions, which are designed to facilitate the Distributions and the
Merger by separating and dividing the Industrial Business and Shipbuilding
Business from the Energy Business (including the assets and liabilities
included therein that relate to the discontinued operations of Tenneco not
involving the Industrial Business or the Shipbuilding Business). Accordingly,
upon consummation of the Corporate Restructuring Transactions, New Tenneco and
Newport News will each be a direct wholly owned subsidiary of Tenneco and will
own and operate, directly and through its direct and indirect subsidiaries,
the Industrial Business and the Shipbuilding Business, respectively.
Immediately following the consummation of the Distributions, Tenneco will
consist solely of the Energy Business. The Energy Business consists
principally of the interstate transportation of natural gas, as well as
certain other related business operations not generally subject to regulation
by the FERC, such as gas marketing, intrastate pipeline operations,
international pipelines and power generation, domestic power generation
operations and oil and gas ventures. After the Transaction, Tenneco will also
continue to hold limited assets and be responsible for the liabilities of
Tenneco and its subsidiaries that do not relate to the Industrial Business or
the Shipbuilding Business, including those business operations that have been
discontinued or sold. See "Description of Tenneco Energy."
135
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited historical capitalization of
Tenneco as of June 30, 1996, and the unaudited pro forma capitalization of
Tenneco as of June 30, 1996, after giving effect to the Transaction and the
Refinancing Transactions. See "--Unaudited Pro Forma Consolidated Financial
Statements of Tenneco." The capitalization of Tenneco should be read in
conjunction with the Tenneco and consolidated subsidiaries financial
statements, and notes thereto, and Tenneco's "Management's Discussion and
Analysis of Financial Condition and Results of Operations," included in the
Tenneco Quarterly Report on Form 10-Q for the quarter ended June 30, 1996,
which is incorporated by reference herein, and the Tenneco and consolidated
subsidiaries "Consolidated Selected Financial Data."
<TABLE>
<CAPTION>
TENNECO
--------------------
JUNE 30, 1996
--------------------
HISTORICAL PRO FORMA
---------- ---------
(IN MILLIONS)
<S> <C> <C>
Short-term debt (a)..................................... $1,146 $ 330
------ ------
Long-term debt:
Notes (a)............................................. 2,790 --
Debentures (a)........................................ 584 --
Credit facilities..................................... -- 1,509
Other................................................. -- 5
------ ------
Total long-term debt.................................... 3,374 1,514
------ ------
Minority interest....................................... 320 18
------ ------
Preferred stock with mandatory redemption provisions.... 112 --
------ ------
Shareowners' equity:
Tenneco Junior Preferred Stock........................ -- 265
Subordinated Tenneco Preferred Stock.................. -- 200
Common equity......................................... 3,569 882
------ ------
Total equity............................................ 3,569 1,347
------ ------
Total capitalization.................................... $8,521 $3,209
====== ======
</TABLE>
- --------
(a) For purposes of the pro forma capitalization, it is assumed that 100% of
the respective Public Debt holders accept the Exchange Offers and Cash
Tender Offers, as applicable. At this time, Tenneco cannot determine the
ultimate amount of Public Debt securities which will be exchanged or
tendered pursuant to the Exchange Offers and Cash Tender Offers,
respectively, and such amount could vary significantly.
136
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF TENNECO
The following Unaudited Pro Forma Consolidated Financial Statements of
Tenneco (the "Pro Forma Financial Statements") illustrate the effect of: (i)
the Corporate Restructuring Transactions, the Cash Realignment and Debt
Realignment (including the Exchange Offers), the NPS Issuance and the
Distributions (which are all part of the Transaction discussed elsewhere
herein) and (ii) the Merger and the Refinancing Transactions. See "Risk
Factors--Risk Factors Relating to Holders Not Tendering in the Exchange
Offers--Consummation of Refinancing Transactions." The Unaudited Pro Forma
Consolidated Balance Sheet has been prepared as if such transactions occurred
on June 30, 1996; the Unaudited Pro Forma Consolidated Statements of Income
have been prepared as if such transactions occurred as of January 1, 1995. The
accompanying Pro Forma Financial Statements are based, in part, upon
information and assumptions developed by El Paso management, principally
relating to the "Merger and Refinancing Transactions" adjustments.
The Corporate Restructuring Transactions represent a reorganization of
companies, assets and liabilities under common control and, accordingly, the
transfers of assets and liabilities pursuant to the Corporate Restructuring
Transactions will be accounted for at historical cost. In addition, the
Distributions represent the pro rata distribution of New Tenneco Common Stock
and Newport News Common Stock to the holders of Tenneco Common Stock in a spin
off transaction. Consequently, the Distributions will be recorded based on
historical cost.
As part of the Merger, El Paso will issue approximately $750 million
(subject to the effects of a collar on the average El Paso Common Stock market
price) of El Paso equity consideration to holders of Tenneco Stock. The
composition of the El Paso equity consideration is dependent on whether
holders of El Paso Common Stock approve the Stock Issuance. If the Stock
Issuance is not approved, the Merger will be consummated with a combination of
El Paso preferred depositary shares, with an assumed 10% dividend yield, and
El Paso Common Stock. A special meeting of El Paso's stockholders will be held
on Monday, December 9, 1996 (which is expected to occur one day prior to the
Tenneco Special Meeting) to vote on the Stock Issuance. These Pro Forma
Financial Statements assume that the Stock Issuance is approved (El Paso will
issue only El Paso Common Stock to consummate the Merger) and that the value
of the El Paso Common Stock to be issued is calculated based on the average El
Paso Common Stock price for the 20-day trading period ended October 28, 1996.
El Paso's acquisition of Tenneco will be accounted for under the purchase
method and the purchase price adjustments will be reflected in the separate
consolidated financial statements of Tenneco. According to El Paso management,
a final determination of required purchase accounting adjustments, including
the allocation of the purchase price to the assets acquired and liabilities
assumed based on their respective fair values, has not yet been made.
Accordingly, the purchase accounting adjustments made in connection with the
development of the Pro Forma Financial Statements are preliminary and have
been made solely for purposes of developing the pro forma consolidated
financial information. However, El Paso's management has represented to
Tenneco that it believes that the pro forma adjustments and the underlying
assumptions reasonably present the significant effects of the Merger and the
Refinancing Transactions. In addition, El Paso will undertake a study to
determine the fair value of Tenneco's assets and liabilities and will revise
purchase accounting adjustments upon completion of that study. Upon
consummation of the Merger, the actual financial position and results of
operations of Tenneco will differ, perhaps significantly, from the pro forma
amounts reflected herein because of a variety of factors, including access to
additional information, changes in values and changes in operating results
between the dates of the pro forma financial information and the date on which
the Merger takes place. See "Risk Factors--Risks Relating to Holders Not
Tendering in the Exchange Offers--Purchase Accounting Adjustments."
The Pro Forma Financial Statements should be read in conjunction with the
historical financial statements of Tenneco and its consolidated subsidiaries,
which are incorporated by reference herein, and the Notes to the Pro Forma
Financial Statements included elsewhere herein. The Pro Forma Financial
Statements are not necessarily indicative of actual operating results or
financial position had the transactions reflected therein occurred as of the
dates indicated above, nor do they purport to indicate operating results or
financial position which may be attained in the future.
137
<PAGE>
TENNECO
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(MILLIONS)
<TABLE>
<CAPTION>
PRE-MERGER PRO FORMA PRO FORMA MERGER
------------------------------------- --------------------------
RESTRUCTURING,
REALIGNMENT,
CONSOLIDATED NPS ISSUANCE TENNECO MERGER AND CONSOLIDATED
TENNECO AND AS REFINANCING TENNECO
HISTORICAL DISTRIBUTIONS ADJUSTED TRANSACTIONS PRO FORMA
------------ -------------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and temporary cash
investments........... $ 229 $ (166)(c) $ 25 $ $ 25
(38)(d)
Receivables............ 1,898 (1,138)(c) 760 760
Inventories............ 1,175 (1,151)(c) 24 24
Other current assets... 349 (255)(c) 94 94
------- ------- ------- ------ ------
Total current assets... 3,651 (2,748) 903 903
------- ------- ------- ------ ------
Net property, plant and
equipment.............. 6,496 (3,611)(c) 2,885 2,089 (g) 4,394
(580)(j)
Goodwill and
intangibles............ 1,001 (964)(c) 37 37
Other assets and
deferred charges....... 2,114 (1,137)(c) 977 (590)(f) 467
80 (j)
------- ------- ------- ------ ------
Total assets........... $13,262 $(8,460) $ 4,802 $ 999 $5,801
======= ======= ======= ====== ======
LIABILITIES AND
SHAREOWNERS' EQUITY
Current liabilities:
Short-term debt........ $ 1,146 $(1,146)(b) $ -- $ 330 (k) $ 330
Payables............... 1,170 (751)(c) 222 20 (e) 242
(197)(b)
Other current
liabilities........... 1,347 (660)(c) 605 120 (f) 725
(82)(b)
------- ------- ------- ------ ------
Total current
liabilities........... 3,663 (2,836) 827 470 1,297
------- ------- ------- ------ ------
Long-term debt.......... 3,374 (265)(a) 2,544 (500)(j) 1,514
(565)(b) (200)(i)
(330)(k)
Other liabilities and
deferred credits....... 1,220 (626)(c) 594 151 (f) 745
Deferred income taxes... 1,004 (603)(c) 401 479 (h) 880
------- ------- ------- ------ ------
9,261 (4,895) 4,366 70 4,436
------- ------- ------- ------ ------
Minority interest....... 320 (302)(c) 18 18
------- ------- ------- ------ ------
Preferred stock with
mandatory
redemption provisions.. 112 112 (112)(l) --
------- ------- ------- ------ ------
Shareowners' equity:
Tenneco Junior
Preferred Stock....... -- 265 (a) 265 265
Subordinated Tenneco
Preferred Stock....... -- -- 200 (i) 200
Common stock and paid-
in capital............ 4,504 4,504 (20)(e) 882
(861)(f)
2,089
(g)
(479)(h)
112 (l)
(4,463)(m)
Cumulative translation
adjustments........... 4 (4)(c) -- --
Retained earnings
(accumulated deficit). 26 1,990 (b) (3,498) 3,498 (m) --
(5,476)(c)
(38)(d)
------- ------- ------- ------ ------
4,534 (3,263) 1,271 76 1,347
Less-Shares held as
treasury stock, at
cost.................. 965 965 (965)(m) --
------- ------- ------- ------ ------
3,569 (3,263) 306 1,041 1,347
------- ------- ------- ------ ------
Total liabilities and
shareowners' equity... $13,262 $(8,460) $ 4,802 $ 999 $5,801
======= ======= ======= ====== ======
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Balance Sheet.
138
<PAGE>
TENNECO
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
RESTRUCTURING, REALIGNMENT, NPS ISSUANCE AND DISTRIBUTIONS:
(a) To reflect the NPS Issuance of $275 million of Tenneco Junior Preferred
Stock, with an assumed 8 1/2% dividend yield, for net NPS Issuance Proceeds
of $265 million, and the use of the net NPS Issuance Proceeds for the
repayment of Tenneco Energy Consolidated Debt.
(b) To reflect the restructuring and realignment of the Tenneco debt pursuant
to the Debt Realignment, the Distributions and the applicable provisions of
the Merger Agreement, and the assumed payment of accrued interest on the
Tenneco Energy Consolidated Debt defeased, redeemed, tendered or exchanged
as part of the Debt Realignment. The amount of "Tenneco as Adjusted" debt
immediately prior to the Merger will consist primarily of borrowings under
the Tenneco Credit Facility (assuming 100% acceptance of the Cash Tender
Offers and Exchange Offers) and is calculated from the provisions of the
Merger Agreement as follows (in millions):
<TABLE>
<S> <C>
Base Debt Amount per the Merger Agreement......................... $2,650
Less: NPS Issuance Proceeds--see footnote (a)..................... (275)
------
2,375
Plus: Cash settlement payments.................................... 439
Less: Estimated collections subject to refund..................... (270)
------
Assumed "Tenneco as Adjusted" debt................................ $2,544
======
</TABLE>
At this time, Tenneco cannot determine the ultimate amount of securities
which will be purchased in the Cash Tender Offers, or the ultimate amount
of Old Securities which will be exchanged into New Securities pursuant to
the Exchange Offers, and such amounts could vary significantly. However,
for purposes of these pro forma adjustments, it is assumed that 100% of the
securities subject to the Cash Tender Offers are purchased pursuant to the
Cash Tender Offers and 100% of the Old Securities are exchanged into New
Securities pursuant to the Exchange Offers.
(c) To reflect the distribution of the New Tenneco Common Stock and Newport
News Common Stock pursuant to the Industrial Distribution and the
Shipbuilding Distribution.
(d) To reflect the distribution of Tenneco cash (subsequent to the
Distributions) in excess of $25 million pursuant to the Cash Realignment
provisions of the Merger Agreement. The distribution of cash from Tenneco
as part of the Cash Realignment may be adjusted by the sale of Energy
Business receivables by Tenneco prior to the Merger Effective Time.
MERGER AND REFINANCING TRANSACTIONS:
(e) To reflect the liability for the estimated legal, investment banking and
other costs of $20 million to be incurred by Tenneco in connection with the
Merger. These costs have been included in the purchase price reflected in
footnote (g).
(f) To reflect the preliminary estimated acquisition adjustments under the
purchase method of accounting, which will be reflected in the separate
financial statements of Tenneco to record assets acquired and liabilities
assumed at estimated fair value for: (i) reduction of certain other assets,
deferred charges and regulatory assets; (ii) the revision of benefit plan
assumptions relating to the retiree medical plan obligation; (iii)
adjustments related to other employee benefit costs and environmental
costs; and (iv) the accrual of an obligation to New Tenneco which is
expected to be paid after the completion of the transaction as a result of
the utilization of certain tax benefits generated by the Debt Realignment.
The following adjustments reflect El Paso management's intended business
strategies which may differ from the business strategies employed by
Tenneco management prior to the Merger (in millions):
<TABLE>
<S> <C>
Other assets and deferred charges...................................... $590
Other current liabilities.............................................. 120
Other liabilities and deferred credits................................. 151
----
$861
====
</TABLE>
139
<PAGE>
(Continued)
(g) To reflect the allocation to property, plant and equipment of the excess
purchase price of Tenneco, which will be reflected in the separate
financial statements of Tenneco, as follows (in millions):
<TABLE>
<S> <C>
Issuance of El Paso equity consideration in the Merger*............. $ 882
Less: Conversion of the $112 million book value of $4.50 and $7.40
Preferred Stock.................................................... (112)
Less: "Tenneco as Adjusted" net common book value subsequent to the
Debt Realignment and Distributions................................. (41)
Acquisition adjustments to assets acquired and liabilities assumed.. 861
Transaction fees payable--see footnote (e).......................... 20
Deferred income taxes on allocation of purchase price and acquisi-
tion adjustments................................................... 479
------
$2,089
======
</TABLE>
--------
* Reflects the contribution to Tenneco's capital of the El Paso equity
consideration issued as part of the Merger (assumed to only consist of El
Paso Common Stock for this pro forma financial information). The
composition of the El Paso equity consideration is dependent on whether
holders of El Paso Common Stock approve the Stock Issuance to consummate
the Merger. If the Stock Issuance is not approved, the Merger will be
consummated by El Paso issuing a combination of El Paso preferred
depositary shares, with an assumed 10% dividend yield, and El Paso Common
Stock. A portion of the total El Paso equity consideration will be issued
in exchange for the $112 million book value of $7.40 Preferred Stock and
$4.50 Preferred Stock (see footnote (l) below) with the remainder
exchanged for Tenneco Common Stock.
The allocation above reflects El Paso's internal evaluation of the excess
purchase price and is subject to the completion of an independent appraisal
of the fair value of the property acquired. It is not expected that any
excess purchase price allocated to property, plant and equipment will be
allowed for regulatory purposes or recovery through rates. Should the
independent appraisal not support such allocation to property, plant and
equipment, the excess of total purchase price over the fair value of the net
assets acquired will be reflected as goodwill.
The following adjustments are made to adjust the historical values of
certain assets and liabilities to their estimated fair values (in millions):
<TABLE>
<S> <C>
Increase in property, plant and equipment............................ $2,089
Reduce other assets and deferred charges............................. (590)
Increase other current liabilities................................... (140)
Increase other liabilities and deferred credits...................... (151)
Increase deferred income tax liability............................... (479)
Eliminate Tenneco shareowners' equity:
Tenneco preferred stock............................................ 112
"Tenneco as Adjusted" common equity................................ 41
------
Total El Paso equity consideration................................... $ 882
======
</TABLE>
(h) To reflect the increase in deferred income taxes of $479 million which have
been provided for temporary differences after the allocation of the pro
forma purchase price and acquisition adjustments. The following pro forma
adjustments were required for estimated book and tax basis differences
resulting from the allocation of the pro forma purchase price, at an
assumed effective tax rate of 39% (in millions):
<TABLE>
<S> <C>
Property, plant and equipment......................................... $ 815
Other assets.......................................................... (230)
Other liabilities..................................................... (106)
-----
$ 479
=====
</TABLE>
(i) To reflect the contribution by El Paso to Tenneco of proceeds from an
assumed issuance of $200 million of El Paso Common Stock in exchange for
Subordinated Tenneco Preferred Stock with an assumed dividend yield of 9%.
The proceeds from Tenneco's issuance of Subordinated Tenneco Preferred
Stock to El Paso will be utilized by Tenneco to pay down $200 million of
the Tenneco Credit Facility.
140
<PAGE>
(Continued)
(j) To reflect the assumed monetization of $500 million of assets through
sales or project financings, at book value, and to reflect Tenneco's
remaining $80 million investment in certain Australian projects using the
equity method. These proceeds are assumed to be utilized for the repayment
of a portion of the indebtedness outstanding under the Tenneco Credit
Facility.
(k) To reflect the replacement of the remaining balance under the Tenneco
Credit Facility with short-term and long-term financing at interest rates
of 6% and 8%, respectively.
(l) To reflect the conversion of the $7.40 Preferred Stock and $4.50 Preferred
Stock into El Paso Common Stock.
(m) To reflect the retirement and cancellation of Tenneco Common Stock held as
treasury stock and the capitalization of the pre-Merger "Tenneco as
Adjusted" accumulated deficit.
141
<PAGE>
TENNECO
UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(MILLIONS)
<TABLE>
<CAPTION>
PRE-MERGER PRO FORMA PRO FORMA MERGER
------------------------------------- -------------------------
RESTRUCTURING,
REALIGNMENT,
CONSOLIDATED NPS ISSUANCE TENNECO MERGER AND CONSOLIDATED
TENNECO AND AS REFINANCING TENNECO
HISTORICAL DISTRIBUTIONS ADJUSTED TRANSACTIONS PRO FORMA
------------ -------------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues............................... $5,517 $(4,147)(c) $1,370 $(46)(g) $1,324
Operating costs and expenses........... 5,004 (3,763)(c) 1,241 26 (d) 1,247
4 (e)
(24)(g)
------ ------- ------ ---- ------
Operating income...................... 513 (384) 129 (52) 77
Other (income) expense, net............ (168) 104 (c) (64) (64)
Interest expense....................... 179 (74)(b) 105 (28)(f) 73
(1)(g)
(3)(h)
------ ------- ------ ---- ------
Income before income taxes and
minority interest.................... 502 (414) 88 (20) 68
Provision for income taxes *........... 175 29 (b) 8 (5)(g) 2
(196)(c) (1)(i)
Minority interest...................... 10 (10)(c) -- --
------ ------- ------ ---- ------
Net income from continuing operations. 317 (237) 80 (14) 66
Preferred stock dividends.............. 5 12 (a) 17 (5)(j) 21
9 (k)
------ ------- ------ ---- ------
Earnings from continuing operations
available to common stock............ $ 312 $ (249) $ 63 $(18) $ 45
====== ======= ====== ==== ======
</TABLE>
- --------
* The provision for income taxes for Tenneco reflects the realization of
unrecognized deferred tax assets; therefore, the overall actual effective
tax rate is significantly lower than the assumed effective tax rate of 39%.
If the assumed effective tax rate had been used, the pro forma provision
for income taxes would have increased by $25 million and the pro forma
amount for earnings from continuing operations available to common stock
would have been $20 million.
See accompanying Notes to Unaudited Pro Forma Consolidated Income Statements.
142
<PAGE>
TENNECO
UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1995
(MILLIONS)
<TABLE>
<CAPTION>
PRE-MERGER PRO FORMA PRO FORMA MERGER
------------------------------------- -------------------------
RESTRUCTURING,
REALIGNMENT,
CONSOLIDATED NPS ISSUANCE TENNECO MERGER AND CONSOLIDATED
TENNECO AND AS REFINANCING TENNECO
HISTORICAL DISTRIBUTIONS ADJUSTED TRANSACTIONS PRO FORMA
------------ -------------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues................ $8,899 $(6,978)(c) $1,921 $(47)(g) $1,874
Operating costs and
expenses............... 8,028 (6,278)(c) 1,750 52 (d) 1,769
8 (e)
(41)(g)
------ ------- ------ ---- ------
Operating income....... 871 (700) 171 (66) 105
Other (income) expense, (225) (106) (106)
net.................... 119 (c)
Interest expense........ 306 (89)(b) 217 (56)(f) 152
(3)(g)
(6)(h)
------ ------- ------ ---- ------
Income before income
taxes and minority
interest.............. 790 (730) 60 (1) 59
Provision for income 279 35 (b) (44) (1)(g) (46)
taxes (benefit)*....... (358)(c) (1)(i)
Minority interest....... 22 (22)(c) -- --
------ ------- ------ ---- ------
Net income from
continuing operations. 489 (385) 104 1 105
Preferred stock 12 24 (a) 36 (12)(j) 42
dividends.............. 18 (k)
------ ------- ------ ---- ------
Earnings from
continuing operations
available to common
stock................. $ 477 $ (409) $ 68 $ (5) $ 63
====== ======= ====== ==== ======
</TABLE>
- --------
* The provision for income taxes for Tenneco reflects the realization of
unrecognized deferred tax assets; therefore, the overall actual effective
tax rate is significantly lower than the assumed effective tax rate of 39%.
If the assumed effective tax rate had been used, the pro forma provision
for income taxes (benefit) would have increased by $69 million and the pro
forma amount for earnings from continuing operations available to common
stock would have been $(6) million.
See accompanying Notes to Unaudited Pro Forma Consolidated Income Statements.
143
<PAGE>
TENNECO
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENTS
RESTRUCTURING, REALIGNMENT, NPS ISSUANCE AND DISTRIBUTIONS:
(a) To reflect dividends in the Consolidated Pro Forma Income Statement on the
Tenneco Junior Preferred Stock issued in the NPS Issuance at an assumed
dividend yield of 8 1/2%.
(b) To reflect the effect on interest expense of the restructuring and
realignment of Tenneco debt pursuant to the Debt Realignment, the
Distributions and the applicable provisions of the Merger Agreement, and
the related effect on the provision for income taxes (benefit) at an
assumed effective tax rate of 39%. The "Tenneco as Adjusted" debt consists
primarily of borrowings under the Tenneco Credit Facility (assuming 100%
acceptance of the Cash Tender Offers and Exchange Offers) at an estimated
annual interest rate of 8%.
(c) To reflect the effects on Tenneco's results of operations from the
Industrial Distribution and the Shipbuilding Distribution.
MERGER AND REFINANCING TRANSACTIONS:
(d) To reflect depreciation expense related to the increase in estimated fair
value of property, plant and equipment, depreciated over a 40-year period
which approximates the FERC approved depreciation rate for the regulated
property, plant and equipment of Tenneco prospectively.
(e) To reflect the assumed pro forma postretirement benefit cost for Tenneco
employees.
(f) To reflect an interest expense reduction relating to debt repaid with
proceeds from the $200 million Subordinated Tenneco Preferred Stock issued
to El Paso by Tenneco and proceeds from the monetization of $500 million
of assets, and certain project financings, at book value.
(g) To remove the historical operating results of Tenneco Energy's exploration
and production business which is assumed to be disposed of at book value.
(h) To reflect the interest expense reduction relating to the replacement of
the remaining balance under the Tenneco Credit Facility with short-term
and long-term financing at interest rates of 6% and 8%, respectively. A
1/8% change in interest rates would have the impact of increasing pro
forma interest expense by approximately $1 million and $2 million for the
six months ended June 30, 1996 and the year ended December 31, 1995,
respectively.
(i) To reflect the income tax expense (benefit) effects of pro forma
adjustments at an assumed effective tax rate of 39%.
(j) To reflect the elimination of dividends on the $7.40 Preferred Stock and
$4.50 Preferred Stock which will be converted into El Paso Common Stock as
part of the Merger.
(k) To reflect dividends in the Consolidated Pro Forma Income Statement on the
Subordinated Tenneco Preferred Stock issued to El Paso by Tenneco with an
assumed dividend yield of 9%.
144
<PAGE>
TENNECO AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED SELECTED FINANCIAL DATA
The following consolidated selected financial data as of and for each of the
fiscal years in the five-year period ended December 31, 1995 were derived from
audited financial statements of Tenneco and its consolidated subsidiaries. The
financial statements as of and for each of the fiscal years in the five-year
period ended December 31, 1995 have been audited by Arthur Andersen LLP,
independent public accountants. The consolidated selected financial data as of
and for each of the six-month periods ended June 30, 1996 and 1995 were
derived from the unaudited condensed financial statements of Tenneco and its
consolidated subsidiaries. In the opinion of Tenneco's management, the
selected financial data of Tenneco as of and for the six months ended June 30,
1996 and 1995 include all adjusting entries (consisting only of normal
recurring adjustments) necessary to present fairly the information set forth
therein. The results of operations for the six-months ended June 30, 1996
should not be regarded as indicative of the results that may be expected for
the full year. This information should be read in conjunction with Tenneco's
financial statements, and the notes thereto, contained in the Tenneco Annual
Report on Form 10-K, as amended, for the year ended December 31, 1995 and the
Tenneco Quarterly Report on Form 10-Q for the quarterly period ended June 30,
1996, which are incorporated by reference herein.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEARS ENDED DECEMBER 31,
------------------------ ------------------------------------------------------------------------
(DOLLARS IN MILLIONS
EXCEPT PER SHARE 1996(A) 1995(A) 1995(A) 1994(A) 1993(A) 1992 1991
AMOUNTS) ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME
(LOSS) DATA(B):
Net sales and operating
revenues from
continuing
operations--
Automotive............ $ 1,463 $ 1,263 $ 2,479 $ 1,989 $ 1,785 $ 1,763 $ 1,668
Energy................ 1,366 937 1,916 2,378 2,862 2,183 2,183
Packaging............. 1,775 1,318 2,752 2,184 2,042 2,078 1,934
Shipbuilding.......... 915 845 1,756 1,753 1,861 2,265 2,216
Other................. (2) (2) (4) (6) (5) 31 26
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total................ $ 5,517 $ 4,361 $ 8,899 $ 8,298 $ 8,545 $ 8,320 $ 8,027
=========== =========== =========== =========== =========== =========== ===========
Income from continuing
operations before
interest expense,
income taxes and
minority interest--
Automotive............ $ 163 $ 134 $ 240 $ 223 $ 222 $ 237 $ 188
Energy................ 185 148 333 415 411 360 561 (c)
Packaging............. 256 244 430 209 139 221 139 (c)
Shipbuilding.......... 81 90 160 200 225 249 225
Other................. (4) (11) (67) (25) 18 (32) (98)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total................ 681 605 1,096 1,022 1,015 1,035 1,015
Interest expense (net
of interest
capitalized).......... 179 152 306 263 254 221 237
Income tax expense..... 175 185 279 249 298 282 258
Minority interest...... 10 11 22 7 -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income from continuing
operations............ 317 257 489 503 463 532 520
Income (loss) from
discontinued
operations, net of
income tax(d)......... 339 81 246 (51)(e) (12)(e) (1,144)(e) (1,252)(e)
Extraordinary loss, net
of income tax......... -- -- -- (5) (25) (12) --
Cumulative effect of
changes in accounting
principles, net of -- -- -- (39)(f) -- (699)(f) --
income tax............ ----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)...... 656 338 735 408 426 (1,323) (732)
Preferred stock 5 6 12 12 14 16 16
dividends............. ----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) to $ 651 $ 332 $ 723 $ 396 $ 412 $ (1,339) $ (748)
common stock.......... =========== =========== =========== =========== =========== =========== ===========
Average number of
shares of common stock
outstanding........... 170,351,740 175,829,883 173,995,941 180,084,909 168,772,852 144,110,151 122,777,910
Earnings (loss) per
average share of
common stock--
Continuing
operations........... $ 1.83 $ 1.43 $ 2.75 $ 2.72 $ 2.66 $ 3.58 $ 4.10
Discontinued
operations........... 1.99 .46 1.41 (.27) (.07) (7.93) (10.19)
Extraordinary loss.... -- -- -- (.03) (.15) (.08) --
Cumulative effect of
changes in
accounting -- -- -- (.22) -- (4.86) --
principles........... ----------- ----------- ----------- ----------- ----------- ----------- -----------
Net earnings (loss)... $ 3.82 $ 1.89 $ 4.16 $ 2.20 (g) $ 2.44 (g) $ (9.29)(g) $ (6.09)
=========== =========== =========== =========== =========== =========== ===========
Cash dividends paid per
common share.......... $ .90 $ .80 $ 1.60 $ 1.60 $ 1.60 $ 1.60 $ 2.80
</TABLE>
(Table continued on next page)
145
<PAGE>
(Continued from previous page)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEARS ENDED DECEMBER 31,
--------------------- ---------------------------------------------------------
1996(A) 1995(A) 1995(A) 1994(A) 1993(A) 1992 1991
---------- --------- --------- ---------- ---------- ---------- ----------
(DOLLARS IN MILLIONS)
BALANCE SHEET DATA(B):
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets........... $ 13,262 $ 12,090 $ 13,451 $ 12,251 $ 11,105 $ 11,320 $ 12,985
Short-term debt........ 1,146 635 908 536 431 669 1,132
Long-term debt......... 3,374 3,309 3,751 3,568 3,620 4,718 4,593
Minority interest...... 320 315 320 320 150 160 171
Preferred stock with
mandatory redemption
provisions............ 112 129 130 147 163 191 194
Shareowners' equity.... 3,569 2,911 3,148 2,900 2,601 1,330 2,774
STATEMENT OF CASH FLOWS
DATA(B):
Net cash provided
(used) by operating
activities............ $ (215) $ 255 $ 1,443 $ 450 $ 1,615 $ 929 $ 950
Net cash provided
(used) by investing
activities............ 505 183 (1,146) (117) (338) 105 (660)
Net cash provided
(used) by financing
activities............ (413) (741) (356) (151) (1,166) (1,136) (205)
Capital expenditures
for continuing
operations............ 464 322 976 653 424 447 564
OTHER DATA:
EBITDA(h).............. $ 956 $ 804 $ 1,523 $ 1,321 $ 1,385 $ 1,391 $ 1,350
Ratio of earnings to
fixed charges(i)...... 2.8 2.6 2.4 2.7 2.9 3.4 3.0
Ratio of earnings to
fixed charges and
preferred stock
dividends(i).......... 2.7 2.5 2.4 2.3 2.3 2.7 2.9
</TABLE>
- -------
(a)For a discussion of significant items affecting comparability of the
financial information for 1995, 1994 and 1993, and for the six months ended
June 30, 1996 and 1995, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for Tenneco and Consolidated
Subsidiaries included in the Tenneco Annual Report on Form 10-K, as amended,
for the year ended December 31, 1995 and the Tenneco Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996, which are incorporated by
reference herein.
(b) During 1995 and 1994, Tenneco completed several acquisitions at its
various operating segments, the most significant of which was Tenneco
Packaging's acquisition of Mobil Plastics for $1.3 billion in late 1995.
See Note 2 to the Financial Statements of Tenneco and Consolidated
Subsidiaries included in the Tenneco Annual Report on Form 10-K, as
amended, for the year ended December 31, 1995, which is incorporated by
reference herein, for further information on the Tenneco acquisitions.
(c) For Tenneco Energy, includes a gain of $265 million related to the sale of
its natural gas liquids business, including its interest in an MTBE plant
then under construction. Also, Tenneco Packaging recorded a gain of $42
million related to the sale of three short-line railroads.
(d) Discontinued operations reflected in the above periods include Tenneco's
farm and construction equipment operations, which were discontinued in
March 1996, its chemicals and brakes operations, which were discontinued
during 1994, and its minerals and pulp chemicals operations, which were
discontinued in 1992. In addition, certain additional costs related to
Tenneco's discontinued oil and gas operations were reflected in 1991
results.
(e) Includes a pre-tax restructuring charge of $920 million recorded in 1992
relating to the discontinued farm and construction equipment business.
This pre-tax restructuring charge was reduced by $20 million in 1993 and
$16 million in 1994. Additionally, a $473 million pre-tax restructuring
charge was recorded in 1991, of which $461 million related to the
discontinued farm and construction equipment business.
(f) In 1994, Tenneco adopted FAS No. 112, "Employers' Accounting for
Postemployment Benefits." In 1992, Tenneco adopted FAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Then Pensions,"
and FAS No. 109, "Accounting for Income Taxes."
(g) For purposes of computing earnings per share, Series A preferred stock was
included in average common shares outstanding until its conversion into
common stock in December 1994; therefore, the preferred dividends paid
were not deducted from net income (loss) to determine net income (loss) to
common stock. The inclusion of Series A preferred stock in the computation
of earnings per share was antidilutive for the years and certain quarters
in 1994, 1993 and 1992. Other convertible securities and common stock
equivalents outstanding during each of the five years ended December 31,
1995, 1994, 1993, 1992 and 1991 were not materially dilutive.
(h) EBITDA represents income from continuing operations before interest
expense, income taxes and depreciation, depletion and amortization. EBITDA
is not a calculation based upon GAAP; however, the amounts included in the
EBITDA calculation are derived from amounts included in the consolidated
historical Statements of Income. In addition, EBITDA should not be
considered as an alternative to net income or operating income, as an
indicator of the operating performance of Tenneco or as an alternative to
operating cash flows as a measure of liquidity.
(i) For purposes of computing this ratio, earnings generally consist of income
from continuing operations before income taxes and fixed charges
(excluding capitalized interest). Fixed charges consist of interest
expense, preferred stock dividend requirements of subsidiaries, the
portion of rental expense considered representative of the interest factor
and capitalized interest. For purposes of computing these ratios,
preferred stock dividends have been included in the calculations on a pre-
tax basis.
146
<PAGE>
DESCRIPTION OF TENNECO ENERGY
GENERAL
As described elsewhere herein, immediately following the consummation of the
Distributions, Tenneco will consist solely of the Energy Business. The Energy
Business consists principally of the interstate transportation of natural gas,
as well as certain other related business operations not generally subject to
regulation by the FERC, such as gas marketing, intrastate pipeline operations,
international pipelines and power generation, domestic power generation
operations and oil and gas ventures. The Energy Business also includes the
assets and the liabilities of Tenneco and its subsidiaries that do not relate
to the Industrial Business or the Shipbuilding Business, including those
business operations that have been discontinued or sold. The information under
the heading "The Energy Business" should be read in conjunction with the
factors identified under "Risk Factors--Risk Factors Relating to Holders Not
Tendering in the Exchange Offers--Liabilities of Tenneco Energy for
Discontinued Businesses" and "--Discontinued and Other Operations."
INTERSTATE PIPELINE OPERATIONS
The interstate pipeline operations of the Energy Business include the
pipeline systems of wholly owned subsidiaries Tennessee, Midwestern and East
Tennessee, as well as certain joint ventures, which are primarily engaged in
the transportation and storage of natural gas for producers, marketers, end-
users and other gas transmission and distribution companies. Tennessee's
multiple-line system begins in the gas-producing regions of Texas and
Louisiana, including the continental shelf of the Gulf of Mexico, and extends
into the northeastern section of the United States, including the New York
City and Boston metropolitan areas. Midwestern's pipeline system extends from
Portland, Tennessee, to Chicago, and principally serves the Chicago
metropolitan area. East Tennessee's pipeline system serves the states of
Tennessee, Virginia and Georgia. Revenues from the interstate gas sales and
transportation operations of the Energy Business accounted for approximately
45%, 39% and 40% of the total revenues of the Energy Business for 1993, 1994
and 1995, respectively.
The interstate gas transmission systems of the Energy Business include
approximately 16,300 miles of pipeline, gathering lines and sales laterals
(with 14,800 miles operated by Tennessee, 400 miles operated by Midwestern and
1,100 miles operated by East Tennessee), together with related facilities that
include 90 compressor stations with an aggregate of approximately 1.5 million
horsepower. The Energy Business also has interests in or contractual rights to
six underground and above-ground gas storage facilities to permit increased
deliveries of gas during peak demand periods. The total design delivery
capacity of the Energy Business' interstate systems as of December 31, 1995
was approximately 4,800 million cubic feet ("MMCF") of gas per day, and
approximately 5,600 MMCF on peak demand days, which includes gas withdrawn
from storage.
Gas Sales and Transportation
The following table sets forth the volumes of gas, stated in billions of
British thermal units ("BBtu"), sold and transported by the interstate
pipeline of the Energy Business systems for the periods shown.
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Sales*...................................... 95,397 131,097 213,210
Transportation*............................. 2,139,169 2,183,944 2,118,936
--------- --------- ---------
Total..................................... 2,234,566 2,315,041 2,332,146
========= ========= =========
</TABLE>
- --------
* Sales and transportation volumes include all natural gas sold or transported
by the Energy Business' interstate pipeline systems (including the
proportionate share of transportation volumes of the joint ventures in which
the Energy Business had interests) and have not been adjusted to reflect the
sale of (i) a 50% interest in Kern River Gas Transmission Company ("Kern
River") in December 1995, (ii) a 13.2% general partnership interest in
Iroquois Gas Transmission System, L.P. ("Iroquois") in June 1996, and (iii)
a 100% interest in Viking Gas Transmission Company ("Viking") in 1993. Kern
River owns a 904-mile pipeline system extending from Wyoming to California,
Iroquois owns a 370-mile pipeline extending from the Canadian border at
Waddington, New York to Long Island, New York and Viking owns a 549-mile
pipeline extending from the
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Canadian border near Emerson, Manitoba to Marshfield, Wisconsin. See "--
Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Energy Business." Of the total transportation volumes
shown, Kern River transported approximately 135,827 BBtu, 129,964 BBtu and
127,624 BBtu during 1995, 1994 and 1993, respectively, Iroquois transported
approximately 45,272 BBtu, 32,489 BBtu and 32,721 BBtu during 1995, 1994 and
1993, respectively, and Viking transported approximately 58,579 BBtu during
1993.
Customers of the interstate pipeline operations of the Energy Business
include natural gas producers, marketers and end-users, as well as other gas
transmission and distribution companies. Substantially all of the revenues of
these operations are generated under long-term gas transmission contracts
entered into between the Energy Business and its customers. Contracts
representing approximately 70% of the firm transportation capacity of the
interstate pipeline operations of the Energy Business will be expiring over
the next five years, principally in the year 2000. Although the Energy
Business presently intends to pursue the renegotiation, extension and/or
replacement of these contracts, there can be no assurance as to whether the
Energy Business will be able to obtain extended or replacement contracts.
Federal Regulation
The interstate natural gas pipeline companies included in the Energy
Business are "natural gas companies" as defined in the Natural Gas Act of
1938, as amended (the "Natural Gas Act"). As such, these companies are subject
to the jurisdiction of the FERC. The interstate pipeline operations of the
Energy Business are operated pursuant to certificates of public convenience
and necessity issued under the Natural Gas Act and pursuant to the Natural Gas
Policy Act of 1978. The FERC regulates the interstate transportation and
certain sales of natural gas, including, among other things, rates and charges
allowed natural gas companies, extensions and abandonments of facilities and
service, rates of depreciation and amortization and the accounting system
utilized by the companies.
Prior to the FERC's industry restructuring initiatives in the 1980's, the
interstate pipeline companies included in the Energy Business operated
primarily as merchants, purchasing natural gas under long-term contracts and
reselling the gas to customers, also under long-term contracts. On April 8,
1992, the FERC issued Order 636 which restructured the natural gas industry by
requiring mandatory unbundling of pipeline sales and transportation services.
Numerous parties appealed to the U.S. Court of Appeals for the D.C. Circuit
the legality of Order 636 generally, as well as the legality of specific
provisions of Order 636. On July 16, 1996, the U.S. Court of Appeals for the
D.C. Circuit issued its decision upholding, in large part, Order 636. The
court remanded to the FERC several issues for further explanation, including
further explanation of the FERC's decision to allow pipelines to recover 100%
of their GSR costs.
Tennessee implemented revisions to its tariff, effective on September 1,
1993, which restructured its transportation, storage and sales services to
convert Tennessee from primarily a merchant to primarily a transporter of gas
as required by Order 636. As a result of this restructuring, Tennessee's gas
sales declined while certain obligations to producers under long-term gas
supply contracts continued, causing Tennessee to incur significant
restructuring transition costs. Pursuant to the provisions of Order 636
allowing for the recovery of transition costs related to the restructuring,
Tennessee has made filings to recover GSR costs resulting from remaining gas
purchase obligations, costs related to its Bastian Bay facilities, the
remaining unrecovered balance of purchased gas ("PGA") costs and the
"stranded" cost of Tennessee's continuing contractual obligation to pay for
capacity on other pipeline systems ("TBO costs").
Tennessee's filings to recover costs related to its Bastian Bay facilities
have been rejected by the FERC based on the continued use of the gas
production from the field; however, the FERC recognized the ability of
Tennessee to file for the recovery of losses upon disposition of these assets.
Tennessee has filed for appellate review of the FERC actions and believes that
certain Bastian Bay costs will ultimately be recovered as transition costs
under Order 636; the FERC has not contested the ultimate recoverability of
these costs.
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The filings implementing Tennessee's recovery mechanisms for the following
transition costs were accepted by the FERC effective September 1, 1993;
recovery was made subject to refund pending FERC review and approval for
eligibility and prudence: (i) direct-billing of unrecovered PGA costs to its
former sales customers over a twelve-month period; (ii) recovery of TBO costs,
which Tennessee is obligated to pay under existing contracts, through a
surcharge from firm transportation customers, adjusted annually; and (iii) GSR
cost recovery of 90% of such costs over a period of up to 36 months from firm
transportation customers and recovery of 10% of such costs from interruptible
transportation customers over a period of up to 60 months.
Following negotiations with its customers, Tennessee filed in July 1994 with
the FERC a Stipulation and Agreement (the "PGA Stipulation"), which provides
for the recovery of approximately $100 million and the recovery of PGA costs
associated with the transfer of storage gas inventory to new storage customers
in Tennessee's restructuring proceeding. The PGA Stipulation eliminates all
challenges to the PGA costs, but establishes a cap on the charges that may be
imposed upon former sales customers. On November 15, 1994, the FERC issued an
order approving the PGA Stipulation and resolving all outstanding issues. On
April 5, 1995, the FERC issued its order on rehearing affirming its initial
approval of the PGA Stipulation. Tennessee implemented the terms of the PGA
Stipulation and made refunds in May 1995. The refunds had no material effect
on the net income reported by the Energy Business. The orders approving the
PGA Stipulation have been appealed to the D.C. Circuit Court of Appeals by
certain customers. Tennessee believes the FERC orders approving the PGA
Stipulation will be upheld on appeal.
Tennessee is recovering through a surcharge, subject to refund, TBO costs
formerly incurred to perform its sales function. The FERC subsequently issued
an order requiring Tennessee to refund certain costs from this surcharge and
refunds were made in May 1996. Tennessee is appealing this decision and
believes such appeal will likely be successful.
With regard to Tennessee's GSR costs, Tennessee, along with three other
pipelines, executed four separate settlement agreements with Dakota
Gasification Company and the U.S. Department of Energy and initiated four
separate proceedings at the FERC seeking approval to implement the settlement
agreements. The settlement resolved litigation concerning purchases made by
Tennessee of synthetic gas produced from the Great Plains Coal Gasification
plant ("Great Plains"). The FERC previously ruled that the costs related to
the Great Plains project are eligible for recovery through GSR and other
special recovery mechanisms and that the costs are eligible for recovery for
the duration of the term of the original gas purchase agreements. On October
18, 1994, the FERC consolidated the four proceedings and set them for hearing
before an ALJ. The hearing, which concluded in July 1995, was limited to the
issue of whether the settlement agreements are prudent. The ALJ concluded, in
his initial decision issued in December 1995, that the settlement was
imprudent. Tennessee has filed exceptions to this initial decision. Tenneco
believes that this decision will not impair Tennessee's recovery of the costs
resulting from this contract. On July 17, 1996, the FERC ordered oral
arguments to be heard in September 1996. Oral arguments were held before the
full FERC on September 25, 1996. A decision by the FERC is expected by the end
of 1996.
Also related to Tennessee's GSR costs, on October 14, 1993, Tennessee was
sued in the State District Court of Ector County, Texas, by ICA Energy, Inc.
("ICA") and TransTexas Gas Corporation ("TransTexas"). In that suit, ICA and
TransTexas contended that Tennessee had an obligation to purchase gas
production which TransTexas thereafter attempted to add unilaterally to the
reserves originally dedicated to a 1979 gas contract. An amendment to the
pleading sought $1.5 billion from Tennessee for alleged damages caused by
Tennessee's refusal to purchase gas produced from the TransTexas leases
covering the new production and lands. In June 1996, Tennessee reached a
settlement with ICA and TransTexas for $125 million wherein ICA and TransTexas
agreed to terminate their contract rights, released Tennessee from liability
under the contract, and indemnified Tennessee against future claims, including
royalty owner claims. In connection with that litigation, certain royalty
interest owners filed a claim in July 1996 against Tennessee in Webb County,
Texas, alleging that they are sellers entitled to tender gas to Tennessee
under the settled contract. This claim falls under the indemnification
provisions of Tennessee's settlement with ICA and TransTexas, which requires
ICA and TransTexas to defend and indemnify Tennessee on this claim.
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Tennessee has been engaged in other settlement and contract reformation
discussions with other holders of certain gas purchase contracts who have sued
Tennessee. On August 1, 1995, the Texas Supreme Court affirmed a ruling of the
Texas Court of Appeals favorable to Tennessee in one of these matters and
indicated that it would remand the case to the trial court. On April 18, 1996,
however, the Texas Supreme Court withdrew its initial opinion and issued an
opinion reversing the Court of Appeals opinion on the matter which was
favorable to Tennessee. In June 1996, Tennessee filed a motion for rehearing
with the Texas Supreme Court which was denied in August 1996. The Texas
Supreme Court's April 1996 ruling explicitly preserves Tennessee's defenses
based on bad faith conduct of the producers. Nothing in the Texas Supreme
Court's decision affects Tennessee's ability to seek recovery of its above-
market costs of purchasing gas under the contract from its customers as GSR
costs in proceedings currently pending before the FERC. In addition, Tennessee
has initiated two lawsuits against the holders of this gas purchase contract,
seeking damages related to their conduct in connection with that contract.
Tennessee has accrued amounts which it believes are appropriate to cover the
resolution of the litigation associated with its contract reformation efforts.
As of June 30, 1996, Tennessee has deferred GSR costs yet to be recovered
from its customers of approximately $551 million, net of $380 million
previously recovered from its customers, subject to refund. The GSR Proceeding
is underway at the FERC with respect to the recovery of Tennessee's GSR costs.
Testimony has been completed in connection with Phase I of that proceeding
relating to the eligibility of GSR cost recovery; oral argument on eligibility
issues was originally set by a FERC ALJ for late October 1996. The Chief Judge
of the FERC has since issued orders (i) cancelling the October oral arguments,
(ii) convening settlement discussions which commenced on October 9, 1996, and
(iii) postponing scheduling an oral argument on eligibility.
Phase II of the proceeding on the prudency of the costs to be recovered and
on certain contract specific eligibility issues has not yet been scheduled,
but will likely occur sometime after the ALJ's decision in Phase I is issued.
The FERC has generally encouraged pipelines to settle such issues through
negotiations with customers. Although the Order 636 transition cost recovery
mechanism provides for complete recovery by pipelines of eligible and
prudently incurred transition costs, certain customers have challenged the
prudence and eligibility of Tennessee's GSR costs and Tennessee has engaged in
settlement discussions with its customers concerning the amount of such costs
in response to the FERC statements acknowledging the desirability of such
settlements. As described under "--Operation of the Energy Business After the
Merger--Proposed Post-Merger Resolution of GSR Transition Cost Disputes," El
Paso has reached, contingent upon consummation of the Merger and various other
conditions (including approval by the FERC), the El Paso Preliminary GSR
Understanding.
Given the uncertainty over the results of ongoing discussions between
Tennessee and its customers related to the recovery of GSR costs and the
uncertainty related to predicting the outcome of its gas purchase contract
reformation efforts and the associated litigation, Tenneco is unable to
predict the timing or the ultimate impact that the resolution of these issues
will have on the combined financial position or results of operations of the
Energy Business.
On December 30, 1994, Tennessee filed for a general rate increase (the "1995
Rate Case"). On January 25, 1995, the FERC accepted the filing, suspended its
effectiveness for the maximum period of five months pursuant to normal
regulatory process, and set the matter for hearing. On July 1, 1995, Tennessee
began collecting rates, subject to refund, reflecting an $87 million increase
in Tennessee's annual revenue requirement. A Stipulation and Agreement was
filed with an ALJ in this proceeding on April 5, 1996. This Stipulation, which
is currently pending before the FERC, proposed to resolve the rates subject to
the 1995 Rate Case, including structural rate design and increased revenue
requirements, and Tennessee is reserving revenues it believes adequate to
cover the income impact from any refunds that may be required upon final
settlement of this proceeding. On October 30, 1996, the FERC approved the
Stipulation for the settlement of the 1995 Rate Case, with certain
modifications and clarifications which are not material and which should not
cause changes which are adverse to the Energy Business.
For a discussion of recent FERC proceedings relating to the recovery by the
Energy Business of certain environmental costs as a component of the rates
charged by its interstate pipeline operations see "--Environmental Matters."
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Tennessee, as with all interstate pipelines, is subject to FERC audit review
of its books and records. Tennessee currently has an open audit covering the
years 1991-1994. The FERC audit staff is expected to issue an audit report by
year end.
Competition
The regulated natural gas pipeline industry is experiencing increasing
competition, which results from actions taken by the FERC to strengthen market
forces throughout the industry. In a number of key markets, Tenneco Energy's
interstate pipelines face competitive pressure from other major pipeline
systems, enabling local distribution companies and end-users to choose a
supplier or switch suppliers based on the short term price of gas and the cost
of transportation. Competition between pipelines is particularly intense in
Midwestern's Chicago and Northern Indiana markets, in East Tennessee's
Roanoke, Chattanooga and Atlanta markets, and in Tennessee's supply area,
Louisiana and Texas. In some instances, pipelines of the Energy Business have
been required to discount their transportation rates in order to maintain
their market share. As noted above, transportation contracts representing
approximately 70% of firm interstate transportation capacity will be expiring
over the next five years, principally in the year 2000. The renegotiation of
these contracts may be impacted by these competitive factors.
Gas Supply
With full implementation of Order 636, Tennessee's firm sales obligations
requiring maintenance of long-term gas purchase contracts have declined from
over a 1.4 billion dekatherm maximum daily delivery obligation to less than a
200 million dekatherm maximum daily delivery obligation. Tennessee has
substantially reduced its natural gas purchase portfolio in line with these
requirements through termination and assignment to third parties. Although
Tennessee's requirements for purchased gas are substantially less than prior
to its implementation of Order 636, the Energy Business is pursuing the
attachment of gas supplies to Tennessee's pipeline system for transportation
by others. Current gas supply activities include development of offshore and
onshore pipeline gathering projects and utilization of production financing
programs to spur exploration and development drilling in areas adjacent to
Tennessee's system. Major gathering systems in the Gulf of Mexico were
completed during the fourth quarter of 1994.
GAS MARKETING, INTRASTATE PIPELINES AND RELATED SERVICES
Tenneco Energy Resources Corporation ("Tenneco Resources"), a wholly owned
subsidiary of Tenneco, and its subsidiaries, are engaged primarily in the
businesses of marketing natural gas and owning and operating approximately
1,300 miles of pipelines that serve the Texas Gulf Coast and West Texas
markets.
Tenneco Resources' interstate marketing operations buy, sell and contract
for the transportation of up to 1.5 billion cubic feet of natural gas per day
from approximately 200 suppliers, through 40 pipelines to about 400 customers,
marketers and end-users. Tenneco Resources offers a portfolio of products and
services which are intended to help distributors, end-users and producers
manage their entire gas sales and purchasing processes, from budget control
and risk management to flexible takes and daily balances. Tenneco Resources
also owns and manages gas gathering systems and natural gas processing plants
in Pennsylvania, Texas and Louisiana. Additionally, Tenneco Resources owns and
operates, either directly or through joint ventures, approximately 1,300 miles
of intrastate pipelines in the Texas Gulf Coast and West Texas markets. In
addition to offering transportation capacity, these intrastate pipeline
operations manage buying, selling and transportation services for almost one
billion cubic feet of natural gas per day, serving approximately 150 suppliers
and 50 customers and shippers. The intrastate pipeline operations also provide
swing storage services and access to major intrastate and interstate pipelines
in Texas. Revenues from the operations of Tenneco Resources accounted for
approximately 55%, 61% and 57% of the total revenues of the Energy Business
for 1993, 1994 and 1995, respectively.
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The following table sets forth the volumes of gas, stated in BBtu, sold and
transported by Tenneco Resources for the periods indicated:
<TABLE>
<CAPTION>
1995 1994 1993
------- --------- -------
<S> <C> <C> <C>
Sales........................................... 642,096 739,432 741,800
Transportation.................................. 229,415 273,587 235,940
------- --------- -------
Total......................................... 871,511 1,013,019 977,740
======= ========= =======
</TABLE>
In February 1994, the Energy Business sold a 20% interest in Tenneco
Resources to Ruhrgas AG, Germany's largest natural gas company. As part of the
sale, Tenneco agreed that neither it nor any of its affiliates would engage in
gas marketing activities in North America and certain gas processing and
gathering activities except through Tenneco Resources. The Energy Business
repurchased this 20% interest in Tenneco Resources in September 1996 for $41
million.
INTERNATIONAL, POWER GENERATION AND VENTURES
The Energy Business is presently engaged in various other energy-related
businesses that are consistent with Tenneco Energy's overall goal of
diversifying its operations into businesses that are not regulated by the
FERC.
International Operations. The Energy Business has recently undertaken
various activities to extend Tennessee's traditional activities in North
American pipelines to international pipeline, power generation and energy-
related projects, with a current focus on activities in Latin America,
Southeast Asia, Australia and Europe.
In 1995, the Energy Business was selected to construct, own and operate a
470-mile natural gas pipeline in Queensland, Australia at a total cost of $170
million. Construction of the pipeline commenced in late 1995 and completion is
scheduled for December 1996. It is estimated that, as of June 30, 1996,
completion of the Queensland pipeline would require an additional $56 million
of capital expenditures. Additionally, in June 1995 Tenneco acquired the
natural gas pipeline assets of the Pipeline Authority of South Australia
("PASA"), which includes a 488-mile pipeline, for $225 million. El Paso and
Tenneco are currently working together to monetize certain of Tenneco's
Australian assets as part of the Refinancing Transactions. See "--Operation of
the Energy Business After the Merger" and "Description of Tenneco--Unaudited
Pro Forma Consolidated Statements." Tenneco Energy also has interests in a
consortium pursuing the development of a natural gas pipeline from Bolivia to
Brazil and related gas-fired electric generation plants. In December 1995,
Tenneco Energy was selected by the Beijing Natural Gas Transportation Company
("BGTC") to serve as a paid technical advisor for the construction of China's
first major onshore natural gas pipeline. BGTC, a joint venture between the
Chinese National Petroleum Corporation and the city of Beijing, will build a
600-mile line linking the Jingbian gas field in central China's Eerdous Basin
with Beijing. Construction commenced in March 1996, with an in-service date
scheduled for October 1997.
Power Generation Operations. Tenneco Energy's power unit is involved in
developing, building, owning, operating and acquiring energy-related
infrastructure domestically and internationally, by capitalizing on Tenneco
Energy's experience in major project development and gas technologies,
transportation and supply. Areas targeted for development include Australia,
Southeast Asia, central and eastern Europe and Latin America.
Tenneco Power Generation Company ("Tenneco Power") has a 17.5% interest in a
240 megawatt power plant in Springfield, Massachusetts, and 50% interests in
two additional cogeneration projects in Florida which have a combined capacity
of 220 megawatts. El Paso and Tenneco are currently working together to
monetize the Energy Business interest in one of these Florida cogeneration
projects. See "--Operation of the Energy Business After the Merger" and
"Description of Tenneco--Unaudited Pro Forma Consolidated Financial
Statements." In May 1996, Tenneco Power acquired from Energy Equity Corp.,
Ltd., an Australian company, a 50% interest in two of its subsidiaries which
participate in a joint venture to construct a 135 megawatt gas-fired power
plant in Indonesia.
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Tenneco Ventures. Tenneco Gas Production Corporation ("Tenneco Production")
and Tenneco Ventures Corporation ("Tenneco Ventures"), subsidiaries of
Tenneco, together with institutional investors and partners, invest in oil and
gas properties and finance independent producers engaged in exploration and
development projects. Tenneco Ventures and Tenneco Production hold various
ownership interests in oil and gas fields located primarily in the Gulf of
Mexico, Texas and Louisiana. Tenneco Ventures is also involved in Tenneco
Energy's international projects through exploration and development of gas
reserves in Indonesia, Poland and Bolivia. It is presently expected that,
after consummation of the Merger, El Paso will sell Tenneco Ventures and
Tenneco Production as part of the Refinancing Transactions, the proceeds of
which will be used to repay a portion of the indebtedness expected to be
outstanding under the Tenneco Credit Facility. See "Risk Factors--Risk Factors
Relating to Holders Not Tendering in the Exchange Offers--Uncertainty
Regarding Consummation of Refinancing Transactions," "--Operation of the
Energy Business After the Merger" and "Description of Tenneco--Unaudited Pro
Forma Consolidated Financial Statements."
DISCONTINUED AND OTHER OPERATIONS
In addition to the operating assets and liabilities of the Energy Business,
upon consummation of the Distributions, Tenneco will continue to hold certain
limited assets and be responsible for the liabilities of the existing and
discontinued operations and businesses of Tenneco and its subsidiaries other
than those relating to the Industrial Business or the Shipbuilding Business.
These assets and liabilities consist primarily of Tenneco's remaining
interests in various discontinued operations which were engaged in (i) natural
gas pipeline transmission, gathering and processing, (ii) chemicals
production, (iii) the manufacture of farm and construction equipment through
Case and related companies, (iv) the extraction of minerals and other natural
resources, (v) oil and gas exploration, production and marketing through
Tenneco Oil Company and other companies, (vi) agricultural and urban
development, and (vii) insurance. Tenneco has established reserves which it
believes are adequate to cover these liabilities related to the various
discontinued operations of Tenneco for which it will remain liable following
consummation of the Transaction. See Note 13 to the Tenneco Energy Combined
Financial Statements included elsewhere herein and "--Environmental Matters."
EMPLOYEES
As of June 30, 1996, the Energy Business had approximately 3,200 full-time
employees.
PROPERTIES
Tenneco believes that substantially all of the facilities and equipment of
the Energy Business are, in general, well maintained and in good operating
condition. They are considered adequate for present needs and, as supplemented
by planned construction, are expected to remain adequate for the near future.
Tenneco also believes that it has generally satisfactory title to the
properties owned and used in the Energy Business, subject to liens for current
taxes and easements, restrictions and other liens which do not materially
detract from the value of such property or the interests therein or the use of
such properties in its businesses.
OPERATION OF THE ENERGY BUSINESS AFTER THE MERGER
General. El Paso is currently engaged in a comprehensive review of the
business and operations of the Energy Business. Following the completion of
such review and consummation of the Merger, El Paso has indicated that it
intends to integrate, for the most part, the operations of Tenneco Energy with
those of El Paso in order to increase operating and administrative efficiency
through consolidation and reengineering of facilities, workforce reductions
and coordination of purchasing, sales and marketing activities. El Paso has
indicated that it anticipates that the complementary interstate and intrastate
pipeline operations and gas marketing activities of El Paso and Tenneco Energy
should provide the combined company with increased operating flexibility and
access to additional customers and markets.
Refinancing Transactions. El Paso has indicated that it intends to undertake
the Refinancing Transactions in order to reduce the amount of outstanding
Tenneco debt that would otherwise be outstanding after consummation of the
Transaction. Accordingly, El Paso and Tenneco currently are working together
to monetize certain assets of the Energy Business through asset sales and non-
recourse project financings which currently are expected to
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provide net proceeds to Tenneco of approximately $500 million. El Paso has
indicated that these proceeds will be used to repay outstanding borrowings
under the Tenneco Credit Facility. Assets to be sold include Tenneco Ventures
and Tenneco Production and a 50% interest in Tenneco's Australian pipeline
operations. Project financings include one of Tenneco's U.S. cogeneration
facilities and the Australian pipeline operations. See "--International, Power
Generation and Ventures."
Subject to market conditions, El Paso also currently intends to undertake a
public offering of El Paso equity securities after the Merger for anticipated
net proceeds of approximately $200 million. Using the proceeds of this
offering, El Paso intends to purchase from Tenneco approximately $200 million
of a series of its Subordinated Tenneco Preferred Stock. El Paso intends to
use the proceeds from any sale of Subordinated Tenneco Preferred Stock to
repay outstanding borrowings under the Tenneco Credit Facility.
In addition, as market conditions may allow, El Paso may refinance Tenneco's
remaining post-Transaction debt through a sale of senior debt securities of
Tenneco and/or Tennessee. See "Description of Tenneco--Unaudited Pro Forma
Consolidated Financial Statements of Tenneco."
Proposed Post-Merger Resolution of GSR Transition Cost Disputes. On October
23, 1996, in anticipation of consummation of the Merger which will result in
Tennessee becoming a subsidiary of El Paso, El Paso reached a preliminary
understanding with certain of Tennessee's customers (i.e., the El Paso
Preliminary GSR Understanding). Under the El Paso Preliminary GSR
Understanding, if the Merger is consummated prior to April 1, 1997, then El
Paso will settle the customers' challenges to Tennessee's GSR and other
transition costs, effective January 1, 1997. It is unlikely that the El Paso
Preliminary GSR Understanding will be finalized and filed with the FERC prior
to December 31, 1996. The purchase accounting adjustments in the "Unaudited
Pro Forma Consolidated Financial Statements of Tenneco" included elsewhere
herein assume the settlement with respect to Tennessee's GSR costs on the
terms of the El Paso Preliminary GSR Understanding. Finalization of the El
Paso Preliminary GSR Understanding is subject to consummation of the Merger
before April 1, 1997, and certain other conditions. If the Merger is not
consummated prior to April 1, 1997, then Tennessee has the option to terminate
the El Paso Preliminary GSR Understanding.
Assuming the El Paso Preliminary GSR Understanding is finalized and filed
with the FERC, non-consenting customers will have the opportunity to object to
the proposed settlement. It is impossible to predict with certainty whether
the FERC would approve the proposed settlement in the form ultimately
presented to it.
ENVIRONMENTAL MATTERS
Since 1988, Tennessee has been engaged in an internal project to identify
and deal with the presence of polychlorinated biphenyls ("PCBs") and other
substances of concern, including substances on the U.S. EPA List of Hazardous
Substances ("HS List") at compressor stations and other facilities operated by
both its interstate and intrastate natural gas pipeline systems. While
conducting this project, Tennessee has been in frequent contact with federal
and state regulatory agencies, both through informal negotiation and formal
entry of consent orders, in order to assure that its efforts meet regulatory
requirements.
Tenneco has established a reserve for Tennessee's environmental expenses,
which includes: (i) expected remediation expense and associated onsite,
offsite and groundwater technical studies; (ii) legal fees; and (iii)
settlement of third party and governmental litigation, including civil
penalties. Through June 30, 1996, Tenneco has charged approximately $156
million against the environmental reserve, excluding recoveries related to
Tennessee's environmental settlement as discussed below. Of the remaining
reserve, $24 million has been recorded on the combined balance sheet under
"Payables-trade" and $132 million under "Deferred credits and other
liabilities."
Due to the current uncertainty regarding the further activity necessary for
Tennessee to address the presence of the PCBs, the substances on the HS List
and other substances of concern on its sites, including the requirements for
additional site characterization, the actual amount of such substances at the
sites, and the final, site-specific cleanup decisions to be made with respect
to cleanup levels and remediation technologies, Tenneco
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cannot at this time accurately project what additional costs, if any, may
arise from future characterization and remediation activities. While there are
still many uncertainties relating to the ultimate costs which may be incurred,
based upon Tennessee's evaluation and experience to date, Tenneco continues to
believe that the recorded estimate for the reserve is adequate.
Following negotiations with its customers, Tennessee in May 1995 filed with
the FERC a separate Stipulation and Agreement (the "Environmental
Stipulation") that establishes a mechanism for recovering a substantial
portion of the environmental costs. In November 1995, the FERC issued an order
approving the Environmental Stipulation. Although one shipper filed for
rehearing, the FERC denied rehearing of its order on February 20, 1996. This
shipper filed a Petition for Review on April 22, 1996 in the D.C. Circuit
Court of Appeals; Tennessee believes the FERC order approving the
Environmental Stipulation will be upheld on appeal. The effects of the
Environmental Stipulation, which was effective as of July 1, 1995, have been
recorded with no material effect on the combined financial position or results
of operations of the Energy Business. As of June 30, 1996, the balance of the
regulatory asset is $61 million.
Tenneco has completed settlements with and has received payments from the
majority of its liability insurance policy carriers for remediation costs and
related claims. Tenneco believes that the likelihood of recovery of a portion
of these remediation costs and claims against the remaining carriers in its
pending litigation is reasonably possible. In addition, Tennessee has settled
its pending litigation against and received payment from the manufacturer of
the PCB-containing lubricant. These recoveries have been considered in
Tennessee's recording of its environmental settlement with its customers.
Tennessee is a party in proceedings involving federal and state authorities
regarding the past use by Tennessee of a lubricant containing PCBs in its
starting air systems. Tennessee has executed a consent order with the EPA
governing the remediation of certain of its compressor stations and is working
with the Pennsylvania and New York environmental agencies to specify the
remediation requirements at the Pennsylvania and New York stations.
Remediation activities in Pennsylvania are essentially complete; in addition,
pursuant to the Consent Order dated August 1, 1995, between Tenneco and the
Pennsylvania Department of Environmental Protection, Tenneco funded an
environmentally beneficial project for $450,000 in April 1996. Remediation and
characterization work at the compressor stations under its consent order with
the U.S. EPA and the jurisdiction of the New York Department of Environmental
Conservation is ongoing. Tenneco believes that the ultimate resolution of
these matters will not have a material adverse effect on the combined
financial position or results of operations of the Energy Business.
Tennessee sold its subsidiary which owns a 13.2% general partnership
interest in Iroquois to ANR Iroquois Inc., a subsidiary of The Coastal
Corporation. Iroquois owns an interstate gas pipeline from the Canadian border
through the states of New York and Connecticut to Long Island. Tennessee is
still under contract to provide gas dispatching as well as post-construction
field operation and maintenance services for the operator of Iroquois, but
Tennessee is not the operator and is not an affiliate of the operator of
Iroquois' pipeline system. A global settlement was entered into during the
second quarter of 1996 by Iroquois and the operator of Iroquois' pipeline
system with the Federal and New York State authorities resolving all criminal,
civil and administrative enforcement actions contemplated by such authorities
as a result of their investigation of alleged environmental violations which
occurred during the construction of the pipeline. Due to the sale of Tenneco's
interest in Iroquois, Tenneco believes that any environmental matters relating
to the construction and operation of the pipeline system by Iroquois will not
have a material adverse effect on the combined financial position or results
of operations of the Energy Business.
Tenneco has identified other sites in its various operating divisions
included within the Energy Business where environmental remediation expense
may be required should there be a change in ownership, operations or
applicable regulations. These possibilities cannot be predicted or quantified
at this time and accordingly, no provision has been recorded. However,
provisions have been made for all instances where it has been determined that
the incurrence of any material remedial expense is reasonably possible.
Tenneco believes that the provisions recorded for environmental exposures of
the Energy Business are adequate based on current estimates.
155
<PAGE>
In Commonwealth of Kentucky, Natural Resources and Environmental Protection
Cabinet v. Tennessee Gas Pipeline Company (Franklin County Circuit Court,
Docket No. 88-C1-1531, November 16, 1988), the Kentucky environmental agency
alleged that Tennessee discharged pollutants into the waters of the state
without a permit and disposed of PCBs without a permit. The agency sought an
injunction against future discharges, sought an order to remediate or remove
PCBs, and sought a civil penalty. Tennessee has entered into agreed orders
with the agency to resolve many of the issues raised in the original
allegations, has received water discharge permits for its Kentucky stations
from the agency, and continues to work to resolve the remaining issues.
Counsel for Tenneco are unable to express an opinion as to the ultimate
outcome. Tenneco believes that the resolution of this issue will not have a
material adverse effect on the combined financial position or results of
operations of the Energy Business.
Certain of the entities included in the Energy Business have been
designated, have received notice that they could be designated or have been
asked for information to determine whether they could be designated as
potentially responsible parties with respect to 26 "Superfund" sites (of which
24 are related to discontinued operations included within the Energy
Business). The Energy Business has sought to resolve its liability with
respect to these sites through indemnification by third parties and/or
settlements which provide for payment of the Energy Business' allocable share
of remediation costs. Tenneco has estimated the Energy Business' share of the
remediation costs at these sites to be between $7 million and $41 million and
has provided reserves that it believes are adequate for such costs. Because
the clean up costs are estimates and are subject to revision as more
information becomes available about the extent of remediation required,
Tenneco's estimate of the Energy Business' share of remediation costs could
change. Moreover, liability under the federal Superfund statute (the
Comprehensive Environmental Response, Compensation and Liability Act) is joint
and several, meaning that the Energy Business could be required to pay in
excess of its pro rata share of remediation costs. Tenneco's understanding of
the financial strength of other potentially responsible parties has been
considered, where appropriate, in its determination of the estimated liability
of the Energy Business as described herein. Tenneco presently believes that
the costs associated with the current status of members of such Energy
Business entities as potentially responsible parties at the Superfund sites
referenced above will not have a material adverse effect on the combined
financial position or results of operations of the Energy Business.
In addition, the Energy Business includes liabilities to remediate a number
of formerly owned or leased sites, and certain other sites associated with the
discontinued operations included in the Energy Business, pursuant to state and
federal laws enacted for the protection of the environment. Tenneco estimates
the Energy Business' share of the remediation costs at these sites to be
between $23 million and $43 million and has provided reserves that it believes
are adequate for such costs. Because the cleanup costs are estimates and are
subject to revision as more information becomes available about the extent of
remediation required, Tenneco's estimate of the Energy Business' share of
remediation costs could change. Tenneco presently believes that the costs to
remediate these sites will not have a material adverse effect on the combined
financial position or results of operations of the Energy Business.
For additional information concerning environmental matters, see the caption
"Environmental Matters" under Note 15 in the notes to the Tenneco Energy
Combined Financial Statements included elsewhere herein.
For a discussion of various regulatory proceedings involving cost recovery
and contract reformation in connection with the interstate pipeline operations
of the Energy Business, see "--Interstate Pipeline Operations--Federal
Regulation."
LEGAL PROCEEDINGS
In July 1996, Tennessee was served with a complaint in the matter of Jack J.
Grynberg v. Alaska Pipeline Co., et al., filed in the U.S. District Court for
the District of Columbia. Plaintiff brings this action under the False Claims
Act against several interstate pipelines and others alleging Defendants'
mismeasured natural gas produced from federal and Indian lands, which deprived
the U.S. of royalties otherwise due it. Plaintiff seeks,
156
<PAGE>
among other things, to recover on behalf of the U.S. unspecified treble
damages, his finder's fee and attorneys' fees. All Defendants have been
granted an extension until November 13, 1996 to respond to the complaint. It
is believed that there are valid jurisdictional and procedural defenses to
Plaintiff's complaint; however, even if Plaintiff is ultimately entitled to
pursue his claims, Tenneco believes that it has substantive defenses,
including that the Energy Business' measurement practices are consistent with
industry practice and all applicable standards, regulations, contracts, and
tariffs and that Tennessee should not be liable in any event. Based on
information available at this time, Tenneco does not believe that the ultimate
resolution of this matter will have a materially adverse effect on the Energy
Business' financial condition.
In addition to the foregoing proceeding and the proceedings described herein
under "--Interstate Pipeline Operations--Federal Regulation" and "--
Environmental Matters," Tenneco and its subsidiaries are parties to numerous
other legal proceedings relating to the Energy Business and arising from their
present and former operations. Tenneco believes that the outcome of these
other proceedings, individually and in the aggregate, will have no material
adverse effect on the combined financial condition or results of operations of
the Energy Business.
TENNECO CREDIT FACILITY
Tenneco has entered into the Tenneco Credit Facility under which a syndicate
of banks (the "Lenders") has committed to provide up to $3 billion of
financing to Tenneco on an unsecured basis. Chase Securities Inc. arranged the
Tenneco Credit Facility and The Chase Manhattan Bank is acting as agent for
the Lenders. The Tenneco Credit Facility consists of a 364-day revolving
credit facility with a two-year term thereafter, the proceeds of which will be
used to effect the Debt Realignment and for other general corporate purposes,
and, upon consummation of the Merger will be guaranteed by El Paso.
Initial borrowings under the Tenneco Credit Facility are expected to occur
shortly before the Merger Effective Time. See "Description of Tenneco--
Unaudited Pro Forma Consolidated Financial Statements" for a description of
the application of the proceeds of such borrowings. The borrowings under the
Tenneco Credit Facility will mature in November 1999.
Borrowings under the Tenneco Credit Facility will bear interest at a rate
per annum equal to, at Tenneco's option, either
(a) the highest of (i) the rate from time to time publicly announced by
The Chase Manhattan Bank in New York City as its prime rate and (ii) the
federal funds effective rate from time to time plus 1/2 of 1% (such higher
rate, the "Alternate Base Rate"), plus in each case, the Applicable Margin
(as defined herein),
(b) the average of the rates at which eurodollar deposits for one, two,
three or six months or, subject to availability to each lender, nine or 12
months (as selected by Tenneco) are offered in the interbank eurodollar
market in the approximate amount of the relevant loan (the "Eurodollar
Rate"), plus the Applicable Margin; or
(c) a rate determined pursuant to competitive bids by the Lenders.
The "Applicable Margin" will be based on El Paso's senior long-term debt
rating, as determined from time to time, or, if El Paso's debt is not rated,
each rating agency will be assumed to have assigned its lowest rating.
The Tenneco Credit Facility requires that El Paso's ratio of total
indebtedness to total indebtedness plus net worth not exceed 70%. Failure to
satisfy the foregoing minimum requirement will be a default under the Tenneco
Credit Facility that will enable the Lenders to refuse to loan funds to
Tenneco and to accelerate the indebtedness thereunder.
The Tenneco Credit Facility also imposes prohibitions or limitations on
liens (other than agreed permitted liens), subsidiary indebtedness and
guarantee obligations and asset dispositions (with certain permitted
exceptions), among others.
The Tenneco Credit Facility contains certain default provisions, including,
among other things, (i) nonpayment of any amount due to the lenders under the
Tenneco Credit Facility, (ii) material breach of representations and
warranties, (iii) default in the performance of covenants, (iv) bankruptcy or
insolvency, (v) cross-default with respect to indebtedness for borrowed money
and related guaranty obligations in excess of $100 million, and (vi) a
judgment suffered by El Paso in excess of $50 million not covered by insurance
and which judgment shall not have been vacated, discharged, stayed or bonded
pending appeal within 60 days.
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<PAGE>
MANAGEMENT AFTER THE TRANSACTION
Pursuant to the Merger Agreement, the directors of El Paso Subsidiary as of
the Merger Effective Time will become the initial directors of Tenneco upon
consummation of the Merger. In addition, the executive officers of El Paso
Subsidiary as of the Merger Effective Time will become the initial executive
officers of Tenneco upon consummation of the Merger. El Paso has advised
Tenneco that the following individuals will be the directors and executive
officers of El Paso Subsidiary as of the Merger Effective Time and will become
the directors and executive officers (holding the offices indicated below) of
Tenneco upon consummation of the Merger:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
William A. Wise......... 51 Chairman of the Board, President and Chief Executive Officer
H. Brent Austin......... 42 Senior Vice President, Chief Financial Officer and Director
Joel Richards III....... 49 Senior Vice President and Director
Britton White, Jr....... 53 Senior Vice President, General Counsel and Director
Jeffrey I. Beason....... 47 Vice President, Treasurer, Controller and Director
</TABLE>
EXECUTIVE OFFICERS AND DIRECTORS
WILLIAM A. WISE--Upon consummation of the Merger, Mr. Wise will become the
Chairman of the Board, President and Chief Executive Officer of Tenneco. Mr.
Wise has been Chairman of the Board of El Paso since January 1994 and the
President and Chief Executive Officer of El Paso since January 1990. He was
President and Chief Operating Officer of El Paso from April 1989 to December
1989. From March 1987 until April 1989, Mr. Wise was an Executive Vice
President of El Paso. From January 1984 to February 1987, he was a Senior Vice
President of El Paso. He is a member of the Board of Directors of Battle
Mountain Gold Company.
H. BRENT AUSTIN--Upon consummation of the Merger, Mr. Austin will become the
Senior Vice President, Chief Financial Officer and a Director of Tenneco. Mr.
Austin has been Executive Vice President of El Paso since May 1995 and he has
been Chief Financial Officer of El Paso since April 1992. He was Senior Vice
President of El Paso from April 1992 to April 1995. He was Vice President,
Planning and Treasurer of Burlington Resources Inc. ("BR") from November 1990
to March 1992 and Assistant Vice President, Planning of BR from January 1989
to October 1990.
JOEL RICHARDS III--Upon consummation of the Merger, Mr. Richards will become
the Senior Vice President and a Director of Tenneco. Mr. Richards has been
Senior Vice President of El Paso since January 1991 and he was Vice President
from June 1990 to December 1990. He was Senior Vice President, Finance and
Human Resources of Meridian Minerals Company, a wholly owned subsidiary of BR,
from October 1988 to June 1990.
BRITTON WHITE, JR.--Upon consummation of the Merger, Mr. White will become
the Senior Vice President, General Counsel and a Director of Tenneco. Mr.
White has been Senior Vice President and General Counsel of El Paso since
March 1991 and from March 1991 to April 1992, he was also Corporate Secretary
of El Paso. For more than five years prior to that time, Mr. White was a
partner in the law firm of Holland & Hart.
JEFFREY I. BEASON--Upon consummation of the Merger, Mr. Beason will become
the Vice President, Treasurer, Controller and a Director of Tenneco. Mr.
Beason has been Vice President, Controller and Treasurer of El Paso since
April 1996 and from September 1993 to April 1996 he was Senior Vice President
of Administration for Mojave Pipeline Operating Company, a subsidiary of El
Paso. For more than five years prior to September 1993, Mr. Beason was
Director of Financial Reporting for El Paso.
158
<PAGE>
TENNECO ENERGY
COMBINED SELECTED FINANCIAL DATA
The combined selected financial data as of December 31, 1995 and 1994 and
for the years ended December 31, 1995, 1994 and 1993 were derived from the
audited Combined Financial Statements of Tenneco Energy. The combined selected
financial data as of December 31, 1993, 1992 and 1991 and for the years ended
December 31, 1992 and 1991 are unaudited and were derived from the accounting
records of Tenneco. The combined selected financial data as of and for each of
the six-month periods ended June 30, 1996 and 1995 were derived from the
unaudited Combined Financial Statements of Tenneco Energy. In the opinion of
Tenneco Energy's management, the combined selected financial data of Tenneco
Energy as of December 31, 1993, 1992 and 1991 and for the years ended December
31, 1992 and 1991, and as of and for the six months ended June 30, 1996 and
1995 include all adjusting entries (consisting only of normal recurring
adjustments) necessary to present fairly the information set forth therein.
The results of operations for the six months ended June 30, 1996 should not be
regarded as indicative of the results that may be expected for the full year.
This information should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" of the Energy
Business and Tenneco Energy's Combined Financial Statements, and notes
thereto, included elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEARS ENDED DECEMBER 31,
---------------- -----------------------------------------------
1996(A) 1995(A) 1995(A) 1994(A) 1993(A) 1992 1991
(MILLIONS) ------- ------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME
(LOSS) DATA(B):
Net sales and operating
revenues.............. $1,370 $ 939 $1,921 $2,381 $2,866 $2,221 $2,216
====== ====== ====== ====== ====== ====== ======
Income before interest
expense and income
taxes ................ $ 188 $ 140 $ 268 $ 367 $ 419 $ 337 $ 475(c)
Interest expense (net
of interest capital-
ized)................. 63 61 122 142 127 94 121
Income tax expense
(benefit)............. 22 32 (11) 72 104 63 103
------ ------ ------ ------ ------ ------ ------
Income before
extraordinary loss and
cumulative effect of
changes in accounting
principles, net of
income tax............ 103 47 157 153 188 180 251
Extraordinary loss, net
of income tax......... -- -- -- -- (25)(d) (9)(e) --
Cumulative effect of
changes in accounting
principles, net of in-
come tax.............. -- -- -- -- -- (332)(f) --
------ ------ ------ ------ ------ ------ ------
Net income (loss)...... $ 103 $ 47 $ 157 $ 153 $ 163 $ (161) $ 251
====== ====== ====== ====== ====== ====== ======
BALANCE SHEET DATA(B):
Total assets........... $5,539 $5,799 $5,792 $5,730 $4,290 $4,054 $4,464
Short-term debt(g)..... 521 376 456 399 304 392 338
Long-term debt(g)...... 1,519 1,737 1,811 2,242 2,019 2,282 2,674
Combined equity........ 1,054 899 687 382 (652) (1,503) (1,120)
STATEMENT OF CASH FLOWS
DATA(B):
Net cash provided
(used) by operating
activities............ $ (185) $ 174 $ 765 $ (278) $ 209 $ 729 $ 84
Net cash provided
(used) by investing
activities............ 117 (266) (537) (229) (35) (383) 61
Net cash provided
(used) by financing
activities............ (81) 63 (27) 426 (49) (393) (190)
Capital expenditures... 164 113 337 345 171 253 298
</TABLE>
- --------
(a)For a discussion of the significant items affecting comparability of the
financial information for 1995, 1994 and 1993 and for the six months ended
June 30, 1996 and 1995, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" of the Energy Business
included elsewhere herein.
(b) During 1995, 1994 and 1993, Tenneco Energy completed several acquisitions
and dispositions, the most significant of which was the acquisition of the
natural gas pipeline assets of the Pipeline Authority of South Australia
in 1995 and the disposition of its 50% interest in Kern River Gas
Transmission Company in 1995. See Notes 4 and 5 to the Combined Financial
Statements of Tenneco Energy, included elsewhere herein, for further
information on the Tenneco Energy acquisitions and dispositions.
(c) Includes a gain of $265 million related to the sale of Tenneco Energy's
natural gas liquids business, including its interest in an MTBE plant then
under construction.
(d) During 1993, Tenneco Energy recorded an extraordinary loss as a result of
the prepayment of long-term debt. See Note 5 to the Combined Financial
Statements of Tenneco Energy, included elsewhere herein, for further
information on the Tenneco Energy extraordinary loss.
(e) During 1992, Tenneco Energy recorded an extraordinary loss as a result of
the defeasance of $310 million of its high interest bearing long-term
debt.
(f) In 1992, Tenneco Energy adopted FAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," and FAS No. 109, "Accounting
for Income Taxes."
(g) Amounts are net of allocations from Tenneco to New Tenneco and Newport
News. The allocation is based on the portion of Tenneco's investment in
New Tenneco and Newport News which is deemed to be debt, generally based
on the ratio of New Tenneco's and Newport News' net assets to Tenneco
consolidated net assets plus debt. Tenneco's historical practice has been
to incur indebtedness for its consolidated group at the parent company
level or at a limited number of subsidiaries, rather than at the operating
company level, and to centrally manage various cash functions. Management
believes that the historical allocation of corporate debt and interest
expense is reasonable; however, it is not necessarily indicative of
Tenneco Energy's debt and interest expense upon completion of the Debt
Realignment. See Note 6 to the Combined Financial Statements of Tenneco
Energy, included elsewhere herein.
159
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF THE ENERGY BUSINESS
The following review of the financial condition and results of operations of
the Energy Business should be read in conjunction with the Combined Financial
Statements of Tenneco Energy and the notes thereto included elsewhere in this
Prospectus. Such review includes certain forward-looking statements, which
should be read in conjunction with the factors identified in "Risk Factors"
herein.
PROPOSED MERGER WITH EL PASO
In the first quarter of 1996, Tenneco announced its intention to focus on
its automotive parts and packaging businesses. This strategic action included
the spin-off of Newport News to the holders of Tenneco Common Stock and the
development of options to separate Tenneco Energy from the packaging and
automotive parts divisions. On June 19, 1996, Tenneco announced that it had
signed the Merger Agreement, pursuant to which El Paso Subsidiary will be
merged with and into Tenneco, with Tenneco surviving the Merger as a
subsidiary of El Paso. Prior to the Merger, Tenneco will spin off New Tenneco
and Newport News to the holders of Tenneco Common Stock as separate public
companies.
The Merger represents a total value for Tenneco stockholders of
approximately $4 billion which includes:
. New shares of El Paso equity to be issued to Tenneco stockholders valued
at approximately $750 million (subject to the effect of a collar on the
average market price of El Paso Common Stock issuable in connection with
the Merger).
. Retention by Tenneco after the Distributions and the Merger of
approximately $2.65 billion (subject to adjustment as more fully
described herein under "Debt and Cash Realignment") of Tenneco Energy
Consolidated Debt and the Tenneco Junior Preferred Stock to be issued in
the NPS Issuance.
. Other payments and certain liability retentions by El Paso which El Paso
has estimated at an aggregate of approximately $600 million. See "The
Merger."
Upon consummation of the Transaction, holders of Tenneco Common Stock will
own equity securities of three separate, publicly held companies--New Tenneco,
Newport News and El Paso (which will include Tenneco Energy as a subsidiary)--
and holders of $7.40 Preferred Stock and $4.50 Preferred Stock will hold El
Paso Common Stock.
The consummation of the Transaction is subject to certain conditions,
including approval of the Transaction by Tenneco stockholders at the Tenneco
Special Meeting and approval of the Distributions and the Charter Amendment by
the holders of the Tenneco Junior Preferred Stock issued in the NPS Issuance
(if issued prior to the Charter Amendment becoming effective). See "The
Distributions--Conditions to Consummation of the Distributions" and "The
Merger--Conditions Precedent."
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Net income for the 1996 first half of $103 million increased significantly
compared with $47 million in the first half of 1995.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE
30,
-----------
1996 1995
------ ----
(MILLIONS)
<S> <C> <C>
Revenues...................................................... $1,370 $939
Operating income.............................................. 188 140
</TABLE>
160
<PAGE>
NET SALES AND OPERATING REVENUES
Revenues for the 1996 first half were $1.37 billion, an increase of 46
percent compared with $939 million for the year ago period.
Revenues from Tenneco Energy's operations which are subject to regulation by
the FERC (generally referred to herein as its "regulated" operations)
increased to $423 million, or 21 percent. Non-recurring regulatory adjustments
that had no operating income impact contributed $55 million to the increase.
In addition, transportation revenues increased by $18 million primarily due to
a new rate structure implemented in July 1995 and increased transportation
volumes. Revenues from Tenneco Energy's energy-related operations which are
not generally subject to regulation by the FERC (generally referred to herein
as its "nonregulated" operations) increased 61 percent to $943 million,
primarily the result of higher gas prices resulting in a $226 million revenue
increase, an increase in gas volumes which increased revenues by $101 million,
the acquisition of the assets of the Pipeline Authority of South Australia
("PASA") in June 1995 which contributed $18 million in revenues and new
processing and gathering projects which increased revenues by $11 million.
Revenues from other operations were $4 million compared with $2 million in the
prior-year period.
INCOME BEFORE INTEREST EXPENSE AND INCOME TAXES (OPERATING INCOME)
Operating income from regulated operations in the U.S. rose $32 million to
$166 million. The increase included $15 million for a favorable legal
settlement in addition to a $4 million gain on the sale of Tennessee's
interest in Iroquois. Higher transportation revenues contributed $18 million
to the increase while related operating costs primarily remained constant.
Additionally, 1995 included a loss of $7 million from the sale of Tennessee's
interest in Ozark Gas Transmission System ("Ozark") which added to the 1996
increase. Partially offsetting these increases was the absence of earnings
contributed by Kern River, which added $16 million in the year-ago period.
Tenneco Energy's 50 percent interest in Kern River was sold in late 1995.
Nonregulated operating income increased to $19 million in the first half of
1996 from $14 million in the 1995 first half due to higher operating income
from Tenneco Ventures' oil and gas production of $10 million and the
acquisition of PASA in June 1995 which contributed $10 million. Partially
offsetting the nonregulated earnings increase was lower operating income of $5
million due to increased development costs on international programs and $5
million in unfavorable legal settlements.
Tenneco Energy's other operations reported operating income of $3 million
during the first half of 1996 compared with an operating loss of $8 million in
the 1995 first half. The increase is due to the recognition of a $32 million
deferred gain on the sale of Tenneco Energy's investment in Cummins Engine
Company stock offset by lower interest income from the rolloff of Case retail
receivables.
INTEREST EXPENSE (NET OF INTEREST ALLOCATED TO AFFILIATES)
Tenneco's historical practice has been to incur indebtedness for its
consolidated group at the parent company level or at a limited number of
subsidiaries, rather than at an operating company level and to centrally
manage various cash functions. Consequently, the corporate debt of Tenneco and
its related interest expense have been allocated to New Tenneco and Newport
News based upon the portion of Tenneco's investment in New Tenneco and Newport
News which is deemed to be debt, generally based upon the ratio of New
Tenneco's and Newport News' net assets to Tenneco consolidated net assets plus
debt. Interest expense was allocated at a rate equivalent to the weighted
average cost of all corporate debt, which was 7.7 percent, 8.3 percent and 7.4
percent for 1995, 1994 and 1993, respectively. Total pre-tax interest expense
allocated to New Tenneco and Newport News in 1995, 1994 and 1993 was $180
million, $120 million and $124 million, respectively. New Tenneco and Newport
News have also been allocated tax benefits approximating 35 percent of the
allocated pre-tax interest expense. Although interest expense and the related
tax effects have been allocated to New Tenneco and Newport News for financial
reporting on a historical basis, New Tenneco and Newport News have not been
billed for these amounts. The changes in allocated corporate debt and the
after-tax allocated interest expense have been
161
<PAGE>
included as a component of Tenneco Energy's combined equity. Although
management believes that the historical allocation of corporate debt and
interest is reasonable, it is not necessarily indicative of what Tenneco
Energy's debt and interest expense will be upon completion of the Debt
Realignment and the other components of the Transaction. For additional
information, see "Debt and Cash Realignment."
Interest expense increased from $61 million in the 1995 first half to $63
million in the 1996 first half. The increase was primarily attributable to
higher levels of debt.
INCOME TAXES
Income tax expense for the first half of 1996 was $22 million compared with
$32 million for the 1995 first half. The effective tax rate for the first half
of 1996 was 18 percent compared with 41 percent in the prior year first half.
CHANGES IN ACCOUNTING PRINCIPLES
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("FAS") No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," which
establishes new accounting and reporting standards for transfers and servicing
of financial assets and extinguishment of liabilities. The statement is
effective for transactions occurring after December 31, 1996. The impact of
the new standard has not been determined.
Tenneco Energy adopted FAS No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of," in the first
quarter of 1996. FAS No. 121 establishes new accounting standards for
measuring the impairment of long-lived assets. The adoption of the new
standard did not have a material effect on Tenneco Energy's combined financial
position or results of operations.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------
CASH PROVIDED (USED) BY: 1996 1995
------------------------ -------- --------
(MILLIONS)
<S> <C> <C>
Operating activities................................ $ (185) $ 174
Investing activities................................ 117 (266)
Financing activities................................ (81) 63
</TABLE>
Tenneco Energy's operating results, combined with proceeds from sales of
assets and businesses, supplemented by net contributions from affiliates and
borrowings, have provided funds for acquisitions and capital investments in
existing businesses, to repurchase Tenneco Common Stock and to retire long-
term debt.
Operating Activities
Operating cash flow for the first six months of 1996 declined due to lower
sales of customer receivables compared with the first half of 1995. This
decrease was due primarily to trade receivables sold to Asset Securitization
Cooperative Corporation ("ASCC"), which were $140 million lower in the first
half of 1996 compared with the first half of 1995. Operating cash flow in the
first half of 1996 also declined as a result of higher tax payments compared
with the first half of 1995 due to the settlement of 1987 through 1989 federal
tax liabilities and Tennessee's gas contract settlement with ICA and
TransTexas for $125 million.
Investing Activities
The sale of other businesses and assets, primarily Tenneco Energy's 50
percent interest in Kern River, generated an additional $278 million of cash
during the first half of 1996. The acquisition of assets, primarily the
acquisition of PASA, required $225 million of cash during the first half of
1995.
162
<PAGE>
Tenneco Energy invested $164 million in capital expenditures in its existing
businesses during the first half of 1996. Capital expenditures were $113
million during the first half of 1995.
Financing Activities
Cash used by financing activities was $81 million during the first six months
of 1996, a $144 million decrease from the same period in 1995. Tenneco
repurchased $122 million in common stock in the first half of 1996, down $328
million from the previous year. Tenneco had short term debt outstanding at the
end of June 1996 of $130 million more than 1995. Tenneco also retired $292
million of long-term debt in the first six months of 1996 compared to $180
million retired in 1995. Finally, Tenneco received $301 million in cash
contributions from affiliates, down from $786 million received in the first six
months of 1995. Cash contributions from affiliates vary based on cash generated
by affiliates from operations net of cash required for operating and investing
activities.
CAPITALIZATION
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
-------- ------------
(MILLIONS)
<S> <C> <C>
Short-term debt and current maturities.............. $ 521 $ 456
Long-term debt...................................... 1,519 1,811
Minority interest................................... 18 19
Preferred stock..................................... 112 130
Combined equity..................................... 1,054 687
------ ------
Total capitalization................................ $3,224 $3,103
====== ======
</TABLE>
Debt decreased $227 million at June 30, 1996 compared with December 31, 1995.
For additional information on corporate debt allocation, see "--Interest
Expense (net of interest allocated to affiliates)" above.
LIQUIDITY
Historically, Tenneco Energy's excess net cash flows from operating and
investing activities have been used to meet consolidated debt and other
obligations. Conversely, when Tenneco Energy's cash requirements have been in
excess of cash flows from operations, Tenneco has utilized its consolidated
credit facilities to fund Tenneco Energy's obligations. Also, depending on
market and other conditions, Tenneco Energy has utilized external sources of
capital to meet specific funding requirements. However, during 1995, Tenneco
made cash distributions of approximately $1.3 billion, in the aggregate, to its
Tenneco Automotive, Tenneco Packaging and Newport News subsidiaries to fund
strategic acquisitions and capital spending. The disposition of the Albright
and Wilson chemicals operations and the sales of Case common stock and other
assets provided approximately $1.6 billion for these cash distributions.
Prior to the Transaction, Tenneco will restructure its consolidated
indebtedness for money borrowed pursuant to the Debt Realignment through a
series of cash tender offers, exchange offers, payments, defeasances and
prepayments. In connection with the Debt Realignment, Tenneco will enter into
the Tenneco Credit Facility, which will consist of a 364-day revolving credit
facility with a two-year term thereafter. Initial borrowings under the Tenneco
Credit Facility will be used to finance certain aspects of the Debt
Realignment. For additional information, see "Description of Tenneco Energy--
Tenneco Credit Facility" and "Debt and Cash Realignment."
After giving effect to the Refinancing Transactions and based on El Paso's
representations regarding the operations of the Energy Business after the
Merger, Tenneco believes that internally generated funds of the Energy Business
and the availability under the Tenneco Credit Facility will provide adequate
sources of funds to
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<PAGE>
finance the future capital requirements of the Energy Business including any
payments associated with the settlement of the GSR issues discussed herein.
See "Risk Factors--Risk Factors Relating to Holders Not Tendering in the
Exchange Offers."
RESULTS OF OPERATIONS FOR THE YEARS 1995 AND 1994
1995 STRATEGIC ACTIONS
In December 1995, Tenneco Energy sold its 50 percent interest in Kern River,
a joint venture that owns a 904-mile pipeline extending from Wyoming to
California. The sales price was $206 million, resulting in a pre-tax gain of
$30 million.
Tenneco Energy acquired the natural gas pipeline assets of PASA, which
includes a 488-mile pipeline, in June 1995 for approximately $225 million and
a 50 percent interest in two gas-fired cogeneration plants from ARK Energy in
November 1995 for approximately $65 million in cash and Tenneco Common Stock.
During 1995, Tenneco completed the $500 million common stock repurchase
program announced in December 1994. Also, in 1995, Tenneco announced two
additional share buyback programs, one for up to 3 million shares and another
for 2.5 million shares. These programs were designed to offset the growth in
common shares resulting from shares issued pursuant to employee benefit plans.
The 3 million share repurchase program was completed in 1995. Since December
1994, Tenneco has repurchased a total of 14.3 million common shares at a cost
of $646 million.
RESULTS OF OPERATIONS--YEARS 1995 AND 1994
Tenneco Energy's net income for 1995 of $157 million increased by three
percent compared with $153 million in 1994. The increased results occurred in
both the regulated and nonregulated businesses, all of which are discussed
below.
Significant transactions affecting the comparability of operating income
between 1995 and 1994 are:
. Pre-tax gains on sales of assets and businesses of $11 million in 1995
(primarily Tenneco Energy's interest in Kern River) compared with gains
of $24 million in 1994 (primarily from the sale of a 20 percent interest
in Tenneco Resources).
. Reserves established in 1995 of $25 million for the liquidation of
surplus real estate holdings and notes and $30 million for estimated
regulatory and legal settlement costs at Tenneco Energy.
. A gain from a 1994 contract settlement between Tenneco Energy and
Columbia Gas Transmission Corporation ("Columbia Gas") of $11 million.
<TABLE>
<CAPTION>
1995 1994
------ ------
(MILLIONS)
<S> <C> <C>
Revenues....................................................... $1,921 $2,381
Operating income............................................... 268 367
</TABLE>
NET SALES AND OPERATING REVENUES
The regulated portion of Tenneco Energy's business experienced a decline in
revenues from $918 million in 1994 to $761 million in 1995. Lower regulated
merchant gas sales caused a decline of approximately $222 million. Under FERC
Order 636, customers assume the responsibility for acquiring their gas
supplies, reducing sales by the pipeline. Other non-recurring regulatory
adjustments that had no operating income impact also increased revenue by $63
million.
Revenues in Tenneco Energy's nonregulated operations were $1,155 million,
down $305 million compared with 1994. Average natural gas prices were lower in
1995 compared with 1994, contributing approximately $175
164
<PAGE>
million to the revenue decrease. Furthermore, natural gas volumes declined
contributing $148 million to the revenue decrease. Warmer weather in early
1995 resulted in lower levels of storage activity during the year, decreasing
demand for natural gas and forcing prices lower. These effects were offset
somewhat by $18 million in revenues earned by the PASA assets which were
acquired by Tenneco Energy in June 1995.
Revenues from Tenneco Energy's other operations were $5 million compared
with $3 million in 1994.
INCOME BEFORE INTEREST EXPENSE AND INCOME TAXES (OPERATING INCOME)
Operating income in the regulated portion of Tenneco Energy's business was
down by $27 million in 1995 as compared with 1994. The 1995 results included
the $30 million pre-tax gain on the sale of Tenneco Energy's interest in Kern
River, a $7 million loss on the sale of Tenneco Energy's interest in Ozark,
and a $21 million reserve for estimated regulatory and legal settlement costs
while 1994 included the $11 million benefit from the Columbia Gas contract
settlement. Excluding these transactions, Tenneco Energy's regulated business
operating income decrease of approximately $18 million was primarily due to
the termination or expiration of transportation contracts.
The 1995 operating income for the nonregulated business decreased $55
million compared with 1994. Operating income in 1994 included a $23 million
gain from the sale of a 20 percent interest in Tenneco Resources to Ruhrgas
AG. The remainder of the operating income decline was due to increased startup
and development costs on international programs of approximately $12 million,
a $9 million reserve for estimated legal settlement costs and lower margins
and volumes due to lower demand in gas marketing which resulted in a $9
million decrease and an increase in administrative costs of approximately $5
million. Tenneco Energy operating results included $9 million in income from
operating the PASA assets during the last half of 1995.
Tenneco Energy's other operations reported an operating loss of $65 million
during 1995. This included a $25 million charge to establish a reserve for
liquidation of surplus real estate holdings and notes. During 1994, other
operations reported $48 million in operating losses.
INTEREST EXPENSE (NET OF INTEREST ALLOCATED TO AFFILIATES)
Tenneco Energy's interest expense in 1995 was $122 million compared with
$142 million in 1994. For a discussion of the historical allocation of
indebtedness of Tenneco and its subsidiaries, see "--Results of Operations for
the Six Months Ended June 30, 1996 and 1995--Interest Expense (net of interest
allocated to affiliates)."
INCOME TAXES
Income tax benefit for 1995 was $11 million compared with income tax expense
of $72 million in 1994.
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE
Effective January 1, 1994, Tenneco Energy adopted FAS No. 112, "Employers'
Accounting for Postemployment Benefits," using the cumulative catch-up method.
It requires employers to account for postemployment benefits for former or
inactive employees after employment but before retirement on the accrual basis
rather than the "pay-as-you-go" basis. The adoption of this new standard had
no material impact on Tenneco Energy's financial position or results of
operations.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW
<TABLE>
<CAPTION>
CASH PROVIDED (USED) BY: 1995 1994
------------------------ ----- -----
(MILLIONS)
<S> <C> <C>
Operating activities...................................... $ 765 $(278)
Investing activities...................................... (537) (229)
Financing activities...................................... (27) 426
</TABLE>
165
<PAGE>
Tenneco Energy's operating results, combined with proceeds from sales of
assets and businesses, and supplemented by contributions from affiliates and
short-term and long-term borrowings, have provided funds for acquisitions and
capital investments in existing businesses and to repurchase Tenneco Common
Stock.
Operating Activities
Operating cash flow for 1995 improved as Tenneco Energy generated $783
million from the collection and sale of customer receivables compared with
$245 million in 1994. This increase was due primarily to trade receivables
sold to ASCC, which were $783 million higher in 1995 compared with 1994. The
increase in collections of receivables was also due in part to the collection
of approximately $300 million of Case retail receivables in 1995. In addition,
rate refund payments of approximately $250 million were made to pipeline
customers in 1994. The working capital increase of $652 million in 1994
resulted primarily from the reduction of the pipeline rate refund liability of
approximately $250 million and lower tax accruals of $252 million. The lower
tax accruals resulted from the utilization of capital losses related to the
sale of assets.
Investing Activities
Cash used for business acquisitions during 1995 totaled $241 million. This
included the acquisition of PASA for approximately $225 million. Further,
Tenneco Energy invested $337 million in capital expenditures in its existing
businesses during the year. During 1994, Tenneco Energy's other cash sources
included $68 million in proceeds from the sale of assets. Capital expenditures
were $345 million for continuing operations.
Financing Activities
In addition to business expansion, Tenneco Energy used its cash flow during
the year for the scheduled retirement of $497 million in long-term debt, to
reacquire Tenneco Common Stock for $655 million and to pay $286 million in
dividends on Tenneco Stock. During 1994, Tenneco Energy had a net reduction of
$605 million in debt and paid dividends on Tenneco Stock of $318 million.
Other cash sources included net contributions from affiliates of $1,367
million.
CAPITALIZATION
<TABLE>
<CAPTION>
1995 1994
------ ------
(MILLIONS)
<S> <C> <C>
Short-term debt and current maturities..................... $ 456 $ 399
Long-term debt............................................. 1,811 2,242
Minority interest.......................................... 19 19
Preferred stock............................................ 130 147
Combined equity............................................ 687 382
------ ------
Total capitalization....................................... $3,103 $3,189
====== ======
</TABLE>
Debt decreased $374 million at December 31, 1995 compared with December 31,
1994. For additional information on corporate debt allocation, see "--Results
of Operations for the Six Months Ended June 30, 1996 and 1995--Interest
Expense (net of interest allocated to affiliates)."
RESULTS OF OPERATIONS FOR THE YEARS 1994 AND 1993
NET SALES AND OPERATING REVENUES
Revenues for 1994 were $2.38 billion, down from $2.87 billion in 1993.
Tenneco Energy revenues were down $485 million or 17 percent as customers
shifted from sales to transportation service in the regulated business which
resulted in a decrease of approximately $390 million, and lower gas prices in
the nonregulated
166
<PAGE>
gas marketing business which decreased revenues by $167 million. Offsetting
these decreases, the nonregulated businesses reported a volume increase which
resulted in increased revenues of $56 million and the contract settlement with
Columbia Gas which increased 1994 revenues by $11 million.
INCOME BEFORE INTEREST EXPENSE AND INCOME TAXES (OPERATING INCOME)
Tenneco Energy reported operating income of $367 million in 1994 compared
with $419 million in 1993.
The energy operations reported operating income for 1994 of $415 million,
compared with $411 million in 1993. Special items in 1994 included a $23
million gain on the sale of a 20 percent interest in Tenneco Resources to
Ruhrgas AG and an $11 million contract settlement with Columbia Gas. Special
items in 1993 included a $31 million gain on the sale of Viking and Dean
Pipeline Company. When non-recurring items in both years are excluded,
operating income in 1994 declined slightly, compared with 1993. Declines
during 1994 in the regulated business were primarily due to transportation
contract expirations amounting to $12 million. Declines in nonregulated gas
marketing prices resulted in a $10 million decrease. Offsetting these declines
was significant growth in the nonregulated businesses which contributed $24
million.
Tenneco Energy's other operations reported an operating loss of $48 million
in 1994, compared with operating income of $8 million for 1993. The 1993
operating income included a gain of $39 million from contributing Tenneco
Energy's investment in Cummins Engine Company to the Case Corporation Pension
Plan for Hourly Paid Employees.
INTEREST EXPENSE (NET OF INTEREST ALLOCATED TO AFFILIATES)
Net interest expense increased $15 million from $127 million in 1993 to $142
million in 1994. For additional information on corporate debt allocation, see
"--Results of Operations for the Six Months Ended June 30, 1996 and 1995--
Interest Expense (net of interest allocated to affiliates)."
INCOME TAXES
Income tax expense for 1994 was $72 million compared with $104 million
reported for 1993. The lower tax expense in 1994 was primarily the result of
lower pre-tax earnings.
EXTRAORDINARY LOSS
Extraordinary loss for 1993 was $25 million, net of income tax benefit of
$13 million. This was the result of redemption premiums from prepaying high
interest-bearing long-term debt.
LIQUIDITY & CAPITAL RESOURCES
Operating Activities
Net cash used by operating activities was $278 million for the year 1994,
compared with net cash provided of $209 million for 1993, a decrease of $487
million. This decrease was due in part to lower sales of receivables in 1994.
Trade receivables sold to the ASCC were $313 million less in 1994 compared
with 1993. In addition, rate refund payments of approximately $250 million
were made to pipeline customers in 1994. The working capital increase of $652
million for 1994 resulted primarily from the reduction of the pipeline rate
refund liability of approximately $250 million and lower tax accruals of $252
million. The lower tax accruals resulted from the utilization of capital
losses related to the sale of assets.
Investing Activities
Net cash used by investing activities in 1994 was $229 million, compared
with net cash used of $35 million in 1993. Net proceeds from the sale of
businesses and assets were $68 million in 1994. Net proceeds from the sale of
businesses in 1993 of $114 million resulted from the sales of Dean Pipeline
Company and Viking.
167
<PAGE>
Expenditures for plant, property and equipment from continuing operations
for 1994 were $345 million, compared with $171 million for 1993.
Financing Activities
Cash provided by financing activities was $426 million in 1994 compared to
cash used of $49 million in 1993. During 1993, Tenneco issued $1.2 billion of
common stock which was used to retire long term debt. In 1994, Tenneco issued
common stock for $188 million, received cash from affiliates of $1.4 billion,
including approximately $700 million in proceeds from sales of assets by
affiliates, and retired debt of $508 million.
FERC MATTERS
Tennessee has deferred certain costs it has incurred associated with
renegotiating GSR costs as a result of FERC Order 636. For a discussion of
Tennessee's ongoing settlement and contract reformation discussions with
holders of long-term gas purchase contracts, ongoing discussions between
Tennessee and its customers related to the recovery of GSR costs and various
FERC proceedings relating to Tennessee cost recovery of transition costs
incurred pursuant to implementation of Order 636, see "Description of Tenneco
Energy--Interstate Pipeline Operations--Federal Regulation."
ENVIRONMENTAL MATTERS
Tenneco Energy and certain of its subsidiaries are subject to various
environmental claims and proceedings relating to its current businesses and
discontinued operations. See "Description of Tenneco Energy--Environmental
Matters."
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<PAGE>
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following discussion is a summary of certain U.S. federal income tax
consequences of the Exchange Offers to holders of Old Securities ("Holders").
Jenner & Block, tax counsel to New Tenneco in connection with the Exchange
Offers, has reviewed this discussion and is of the opinion that to the extent
this discussion summarizes matters of law or legal conclusions, it is accurate
in all material respects under United States Federal income tax laws as now in
effect. This discussion is general in nature and does not discuss all aspects
of U.S. federal income taxation that may be relevant to a particular Holder in
light of the Holder's particular circumstances, or to certain types of Holders
subject to special treatment under U.S. federal income tax laws (such as
insurance companies, tax-exempt organizations, financial institutions,
employee stock ownership plans, banks, brokers, dealers, Holders that hold Old
Securities as part of a position in a "straddle" or as part of a "hedging" or
"conversion" transaction for U.S. federal income tax purposes or that have a
"functional currency" other than the United States dollar, and taxpayers that
are neither citizens nor residents of the United States, or that are foreign
corporations, foreign partnerships or foreign estates or trusts as to the
United States). In addition, the discussion does not consider the effect of
any foreign, state, local, or other tax laws, or any United States tax
consequences (e.g., estate or gift tax) other than income tax consequences,
that may be applicable to particular Holders. Further, this summary assumes
that Holders hold their Old Securities as "capital assets" (generally,
property held for investment) within the meaning of Section 1221 of the Code.
This summary is based on the Code and applicable Treasury Regulations,
rulings, administrative pronouncements and decisions as of the date hereof,
all of which are subject to change or differing interpretations at any time
with possible retroactive effect.
EACH HOLDER IS URGED TO CONSULT ITS OWN TAX ADVISOR TO DETERMINE THE
FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES TO IT OF THE
EXCHANGE OFFERS.
TAX CONSIDERATIONS FOR HOLDERS WHO TENDER IN THE EXCHANGE OFFERS
A Holder who participates in the Exchange Offers will recognize capital gain
or loss at the time the Holder's Old Securities are exchanged by New Tenneco
in an amount equal to the difference between the issue price of the New
Securities (other than the amount, if any, in respect of accrued interest) and
the Holder's adjusted tax basis of the Old Securities surrendered. Such
capital gain or loss will be long-term or short-term depending on whether the
Holder's holding period for the Old Securities on the Issuance Date by New
Tenneco exceeds one year. The "issue price" of the New Securities will be
equal to (i) the fair market value of the Old Securities or the New Securities
if either the Old Securities or the New Securities are traded on an
established market or (ii) the stated principal amount of the New Securities
if neither the Old Securities nor the New Securities are traded on an
established market.
An exception to the capital gain or loss treatment described above applies
to a Holder who holds Old Securities with "market discount". Market discount
is the amount by which the Holder's basis in its Old Securities immediately
after their acquisition is exceeded by the stated redemption price at maturity
of the Old Securities. If, however, such excess is less than 1/4 of 1% of the
stated redemption price at maturity of the Old Securities multiplied by the
number of complete years from the Holder's acquisition date of the Old
Securities to its maturity date, the Old Securities will be considered to have
no market discount. The gain, if any, realized by a Holder of market discount
Old Securities on the exchange of such Old Securities will be treated as
ordinary income to the extent that market discount has accrued from the
Holder's acquisition date to the Issuance Date, unless the Holder has elected
to include market discount in income currently as it accrues. Any gain in
excess of such accrued market discount will be subject to the capital gains
rules described above. Generally, market discount obligations do not include
any Old Securities acquired by the Holder at their original issue. If a Holder
had interest expense attributable to market discount Old Securities which
interest expense was not allowed as a deduction under Section 1277(a) of the
Code, such interest expense may be allowable in whole or in part upon such
Holder's disposition of the Old Securities. Holders of Old Securities having
market discount should consult their own tax advisors as to the effect to them
of the market discount rules on the exchange of Old Securities pursuant to the
Exchange Offers.
169
<PAGE>
If either the Old Securities or the New Securities are traded on an
established market, the New Securities may have original issue discount
("OID") or amortizable bond premium in an amount equal to the difference
between their issue price and their stated principal amount. Holders would
include any OID in income as it accrues on the basis of a constant yield to
the maturity date, and would be required to include amounts in income prior to
the date such income is actually paid in cash. Holders may elect to deduct
amortization of any bond premium, using a constant yield method, over the
remaining term of the New Securities. Such an election requires basis
reductions in the amounts of the deductions, and applies to all taxable debt
obligations then owned or thereafter acquired by the taxpayer.
Any portion of the payment received by a Holder on the Issuance Date which
is attributable to accrued interest on the Old Securities up to the Issuance
Date will be taxable as ordinary income in accordance with the Holder's method
of accounting for U.S. federal income tax purposes.
TAX CONSIDERATIONS FOR HOLDERS WHO DO NOT TENDER IN THE EXCHANGE OFFERS
A Holder whose Old Securities are not exchanged in the Exchange Offers will
not recognize gain or loss for U.S. federal income tax purposes unless such
Old Securities were issued under the Old Indentures and the Supplemental
Indenture with respect to such Indenture becomes effective and is deemed to
constitute a significant modification of the Old Securities under applicable
Treasury Regulations. The changes in the terms of the Old Securities should
not constitute a significant modification under the applicable Treasury
Regulations, and should not result in a deemed exchange of securities for U.S.
federal income tax purposes. Accordingly, holders of Old Securities who elect
to retain their Old Securities should not recognize gain or loss as a result
of the changes to the terms of the Old Securities effected by the Proposed
Amendments.
BACKUP WITHHOLDING
Under the U.S. federal Income tax backup withholding provisions of the Code
and applicable Treasury Regulations, a Holder may be subject to backup
withholding at the rate of 31% with respect to interest and redemption
proceeds unless such Holder: (i) is a corporation or comes within certain
other exempt categories and, when required, demonstrates this fact or (ii)
provides a correct taxpayer identification number to the Depositary, certifies
as to no loss of exemption from backup withholding, and otherwise complies
with the applicable requirements of the backup withholding rules. Any amount
withheld under these rules will be credited against the Holder's U.S. federal
income tax liability. To prevent backup withholding with respect to the
payment of interest, each Holder must complete and sign a substitute Form W-9,
which is included as part of the Letter of Transmittal, and return it to the
Exchange Agent. If the Depositary is not provided with the correct taxpayer
identification number, the Holder may also be subject to a penalty imposed by
the IRS. If withholding results in an overpayment of taxes, a refund may be
obtained by such Holder from the IRS.
LEGAL MATTERS
Certain legal matters regarding the New Securities will be passed upon for
New Tenneco by Theodore R. Tetzlaff, General Counsel of New Tenneco and a
partner of Jenner & Block, Chicago, Illinois. Certain federal income tax
matters are also being passed upon for New Tenneco by Jenner & Block.
Mr. Tetzlaff beneficially owns 33,637 shares of Tenneco Common Stock
(including options to purchase 16,667 shares of Tenneco Common Stock, which
options are either presently exercisable or exercisable within 60 days of such
date), and other Jenner & Block attorneys participating in this matter
beneficially own 458 shares of Tenneco Common Stock. Certain legal matters
relating to Exchange Offers will be passed upon for the Dealer Manager by
Cahill Gordon & Reindel (a partnership including a professional corporation),
New York, New York. Cahill Gordon & Reindel has in the past represented and
continues to represent Tenneco in certain matters.
170
<PAGE>
EXPERTS
The following financial statements and schedules included or incorporated by
reference in this Prospectus or elsewhere in this Registration Statement, to
the extent and for the periods indicated in their reports, have been audited
by Arthur Andersen LLP, independent public accountants, and are included
herein in reliance upon the authority of said firm as experts in accounting
and auditing in giving said reports: (i) Tenneco and consolidated subsidiaries
included in Tenneco's Annual Report on Form 10-K, as amended, for the year
ended December 31, 1995, incorporated by reference herein; (ii) the Businesses
of Tenneco Energy, included herein; and (iii) the Businesses of New Tenneco,
included herein.
The combined financial statements of Mobil Plastics for the year ended
December 28, 1994 appearing in the Current Report of Tenneco on Form 8-K dated
November 17, 1995, which is incorporated by reference herein, and the combined
financial statements of Mobil Plastics for the period December 29, 1994 to
November 17, 1995 and the year ended December 28, 1994 included herein, have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon included therein and herein. Such financial statements have
been incorporated herein by reference and included herein in reliance upon
such reports given upon the authority of such firm as experts in accounting
and auditing.
171
<PAGE>
INDEX TO COMBINED FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE BUSINESSES OF NEW TENNECO
Report of Independent Public Accountants................................ F-2
Combined Statements of Income for each of the three years in the period
ended December 31, 1995 and for the six months ended June 30, 1996 and
1995................................................................... F-3
Combined Balance Sheets--December 31, 1995 and 1994 and June 30, 1996... F-4
Combined Statements of Cash Flows for each of three years in the period
ended December 31, 1995 and for the six months ended June 30, 1996 and
1995................................................................... F-5
Statements of Changes in Combined Equity for each of the three years in
the period ended
December 31, 1995 and for the six months ended June 30, 1996........... F-6
Notes to Combined Financial Statements.................................. F-7
THE MOBIL PLASTICS DIVISION OF MOBIL CORPORATION
Report of Independent Auditors.......................................... F-28
Combined Statements of Net Assets--December 28, 1994 and November 17,
1995................................................................... F-29
Combined Statements of Operations Before Income Taxes--Year ended Decem-
ber 28, 1994 and period ended November 17, 1995........................ F-30
Combined Statements of Changes in Net Assets--Year Ended December 28,
1994 and period ended November 17, 1995................................ F-31
Combined Statements of Cash Flows--Year ended December 28, 1994 and pe-
riod ended
November 17, 1995...................................................... F-32
Notes to Combined Financial Statements.................................. F-33
THE BUSINESSES OF TENNECO ENERGY
Report of Independent Public Accountants................................ F-41
Combined Statements of Income for each of the three years in the period
ended
December 31, 1995 and for the six months ended June 30, 1996 and 1995.. F-42
Combined Balance Sheets--December 31, 1995 and 1994 and June 30, 1996... F-43
Combined Statements of Cash Flows for each of the three years in the pe-
riod ended December 31, 1995 and for the six months ended June 30, 1996
and 1995............................................................... F-44
Statements of Changes in Combined Equity for each of the three years in
the period ended December 31, 1995 and for the six months ended June
30, 1996 and 1995...................................................... F-45
Notes to Combined Financial Statements.................................. F-46
FINANCIAL STATEMENT SCHEDULES
Valuation and Qualifying Accounts--The Businesses of New Tenneco ....... S-1
Valuation and Qualifying Accounts--The Businesses of Tenneco Energy..... S-2
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Tenneco Inc.:
We have audited the accompanying combined balance sheets of the businesses of
New Tenneco (see Note 1) as of December 31, 1995 and 1994, and the related
combined statements of income, cash flows and changes in combined equity for
each of the three years in the period ended December 31, 1995. These combined
financial statements and the schedule referred to below are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these combined financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the combined
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall combined financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
businesses of New Tenneco as of December 31, 1995 and 1994, and the results of
its combined operations and cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted
accounting principles.
As discussed in Note 3 to the combined financial statements, effective January
1, 1994, the businesses of New Tenneco changed its method of accounting for
postemployment benefits.
Our audits were made for the purpose of forming an opinion on the basic
combined financial statements taken as a whole. The supplemental schedule
listed in the index to the combined financial statements and schedule is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic combined financial statements.
The supplemental schedule has been subjected to the auditing procedures
applied in the audits of the basic combined financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic combined financial statements of
the businesses of New Tenneco taken as a whole.
ARTHUR ANDERSEN LLP
Houston, Texas
August 19, 1996
F-2
<PAGE>
THE BUSINESSES OF NEW TENNECO
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER SIX MONTHS ENDED
31, JUNE 30,
---------------------- ------------------
(MILLIONS) 1995 1994 1993 1996 1995
- ---------- ------ ------ ------ -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Net sales and operating revenues--
Automotive....................... $2,479 $1,989 $1,785 $ 1,463 $ 1,263
Packaging........................ 2,752 2,184 2,042 1,775 1,318
Intergroup sales and other....... (10) (7) (7) (5) (4)
------ ------ ------ -------- --------
5,221 4,166 3,820 3,233 2,577
Other income, net.................. 39 (2) 42 71 30
------ ------ ------ -------- --------
5,260 4,164 3,862 3,304 2,607
------ ------ ------ -------- --------
COSTS AND EXPENSES
Cost of sales (exclusive of depre-
ciation shown below).............. 3,737 3,050 2,854 2,303 1,828
Engineering, research and develop-
ment expenses..................... 67 43 39 44 33
Selling, general and administra-
tive.............................. 588 473 451 396 276
Depreciation, depletion and amorti-
zation............................ 196 142 137 147 92
------ ------ ------ -------- --------
4,588 3,708 3,481 2,890 2,229
------ ------ ------ -------- --------
Income before interest expense, in-
come taxes and minority
interest.......................... 672 456 381 414 378
Interest expense (net of interest
capitalized)...................... 160 104 101 100 74
------ ------ ------ -------- --------
Income before income taxes and mi-
nority interest................... 512 352 280 314 304
Income tax expense................. 231 114 115 126 124
------ ------ ------ -------- --------
Income before minority interest.... 281 238 165 188 180
Minority interest.................. 23 -- -- 10 12
------ ------ ------ -------- --------
Income from continuing operations.. 258 238 165 178 168
Loss from discontinued operations,
net of income tax................. -- (31) (7) -- --
------ ------ ------ -------- --------
Income before cumulative effect of
change in accounting
principle......................... 258 207 158 178 168
Cumulative effect of change in ac-
counting principle, net of
income tax........................ -- (7) -- -- --
------ ------ ------ -------- --------
Net income......................... $ 258 $ 200 $ 158 $ 178 $ 168
====== ====== ====== ======== ========
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these combined statements of income.
F-3
<PAGE>
THE BUSINESSES OF NEW TENNECO
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------- JUNE 30,
(MILLIONS) 1995 1994 1996
- ---------- ------ ------ ----------- ---
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and temporary cash investments............ $ 103 $ 350 $ 129
Receivables--
Customer notes and accounts (net)............ 351 284 477
Affiliated companies......................... 117 53 114
Income taxes................................. 41 2 52
Other........................................ 54 45 186
Inventories.................................... 838 557 820
Deferred income taxes.......................... 23 24 28
Prepayments and other.......................... 168 152 196
------ ------ ------
1,695 1,467 2,002
------ ------ ------
Investments and other assets:
Long-term notes receivables.................... 16 11 16
Goodwill and intangibles, net.................. 1,024 320 965
Deferred income taxes.......................... 52 49 61
Pension assets................................. 433 389 444
Other.......................................... 239 113 287
------ ------ ------
1,764 882 1,773
------ ------ ------
Plant, property and equipment, at cost........... 4,138 3,065 4,332
Less--Reserves for depreciation, depletion and
amortization.................................. 1,480 1,474 1,584
------ ------ ------
2,658 1,591 2,748
------ ------ ------
$6,117 $3,940 $6,523
====== ====== ======
LIABILITIES AND COMBINED EQUITY
Current liabilities:
Short-term debt (including current maturities
on long-term debt)............................ $ 384 $ 108 $ 530
Payables
Trade........................................ 589 465 599
Affiliated companies......................... 47 68 23
Taxes accrued.................................. 45 -- 74
Accrued liabilities............................ 237 129 242
Other.......................................... 257 282 242
------ ------ ------
1,559 1,052 1,710
------ ------ ------
Long-term debt................................... 1,648 1,039 1,573
Deferred income taxes............................ 435 342 451
Postretirement benefits.......................... 156 122 161
Deferred credits and other liabilities........... 166 97 159
Commitments and contingencies
Minority interest................................ 301 301 301
Combined equity.................................. 1,852 987 2,168
------ ------ ------
$6,117 $3,940 $6,523
====== ====== ======
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these combined balance sheets.
F-4
<PAGE>
THE BUSINESSES OF NEW TENNECO
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED ENDED
DECEMBER 31, JUNE 30,
------------------ ------------
(MILLIONS) 1995 1994 1993 1996 1995
- ---------- ------ ---- ---- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Income from continuing operations........... $ 258 $238 $165 $ 178 $ 168
Adjustments to reconcile income from contin-
uing operations to cash provided (used) by
continuing operations--
Depreciation, depletion and amortization.. 196 142 137 147 92
Deferred income taxes..................... 75 19 1 37 15
Gain on sale of businesses and assets,
net...................................... (15) (5) (29) (49) (14)
Allocated interest, net of tax............ 99 61 59 63 44
Changes in components of working capital
(Increase) decrease in receivables....... 30 87 55 (110) (79)
(Increase) decrease in inventories....... (102) (57) (1) 18 (99)
(Increase) decrease in prepayments and
other current assets.................... (39) 8 (38) (19) (10)
Increase (decrease) in payables.......... 7 69 34 (13) (59)
Increase (decrease) in taxes accrued..... 23 (17) (47) 23 (18)
Increase (decrease) in other current lia-
bilities................................ (15) (3) 79 (43) (26)
Other..................................... (28) 20 (85) (33) (23)
------ ---- ---- ----- -----
Cash provided (used) by continuing opera-
tions................................... 489 562 330 199 (9)
Cash provided (used) by discontinued op-
erations................................ -- 9 (6) -- --
------ ---- ---- ----- -----
Net cash provided (used) by operating activ-
ities...................................... 489 571 324 199 (9)
------ ---- ---- ----- -----
INVESTING ACTIVITIES
Net proceeds (expenditures) related to the
sale of discontinued operations............ -- 5 (4) -- --
Net proceeds from sale of businesses and as-
sets....................................... 56 16 83 10 34
Expenditures for plant, property and equip-
ment....................................... (562) (280) (217) (263) (179)
Acquisitions of businesses.................. (1,461) (51) (14) (23) (55)
Investments and other....................... (74) 7 -- (64) (6)
------ ---- ---- ----- -----
Net cash used by investing activities....... (2,041) (303) (152) (340) (206)
------ ---- ---- ----- -----
FINANCING ACTIVITIES
Issuance of equity securities by a combined
subsidiary................................. -- 293 -- -- --
Retirement of long-term debt................ (15) (152) (21) (8) (11)
Net increase (decrease) in short-term debt
excluding current maturities on long-term
debt....................................... 8 (94) (29) (23) (2)
Cash contributions from (distributions to)
Tenneco.................................... 1,304 3 (115) 200 (39)
------ ---- ---- ----- -----
Net cash provided (used) by financing activ-
ities...................................... 1,297 50 (165) 169 (52)
------ ---- ---- ----- -----
Effect of foreign exchange rate changes on
cash and temporary cash investments........ 8 4 (2) (2) 4
------ ---- ---- ----- -----
Increase (decrease) in cash and temporary
cash investments........................... (247) 322 5 26 (263)
Cash and temporary cash investments, January
1.......................................... 350 28 23 103 350
------ ---- ---- ----- -----
Cash and temporary cash investments, Decem-
ber 31 (Note).............................. $ 103 $350 $ 28 $ 129 $ 87
====== ==== ==== ===== =====
Cash paid during the year for interest...... $ 6 $ 14 $ 15 $ 2 $ 6
Cash paid during the year for income taxes
(net of refunds)........................... $ 180 $137 $178 $ 97 $ 137
</TABLE>
Note: Cash and temporary cash investments include highly liquid investments
with a maturity of three months or less at the date of purchase.
The accompanying notes to combined financial statements are an integral
part of these combined statements of cash flows.
F-5
<PAGE>
THE BUSINESSES OF NEW TENNECO
STATEMENTS OF CHANGES IN COMBINED EQUITY
(MILLIONS)
<TABLE>
<S> <C>
Balance, December 31, 1992............................................. $ (87)
Net income........................................................... 158
Translation adjustment............................................... (75)
Allocated interest, net of tax....................................... 59
Change in allocated corporate debt................................... 519
Cash distributions to Tenneco........................................ (115)
Noncash contributions from Tenneco................................... 74
------
Balance, December 31, 1993............................................. $ 533
Net income........................................................... 200
Translation adjustment............................................... 56
Allocated interest, net of tax....................................... 61
Change in allocated corporate debt................................... (5)
Cash contributions from Tenneco...................................... 3
Noncash contributions from Tenneco................................... 139
------
Balance, December 31, 1994............................................. $ 987
Net income........................................................... 258
Translation adjustment............................................... 49
Allocated interest, net of tax....................................... 99
Change in allocated corporate debt................................... (887)
Cash contributions from Tenneco...................................... 1,304
Noncash contributions from Tenneco................................... 42
------
Balance, December 31, 1995............................................. $1,852
Net income........................................................... 178
Translation adjustment............................................... (25)
Allocated interest, net of tax....................................... 63
Change in allocated corporate debt................................... (94)
Cash contributions from Tenneco...................................... 200
Noncash distributions to Tenneco..................................... (6)
------
Balance, June 30, 1996 (unaudited)..................................... $2,168
======
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these
statements of changes in combined equity.
F-6
<PAGE>
THE BUSINESSES OF NEW TENNECO
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying combined financial statements represent the financial
position, results of operations and cash flows for all automotive
(collectively referred to as "Tenneco Automotive") and packaging (collectively
referred to as "Tenneco Packaging") operations owned directly or indirectly by
Tenneco Inc. ("Tenneco") and its subsidiaries (see "Control" below).
Unless the context otherwise requires, as used herein the term "Company"
refers: (i) for periods prior to the Industrial Distribution, as defined
below, to Tenneco Automotive, Tenneco Packaging and certain administrative
service operations of Tenneco (collectively, "New Tenneco") which New Tenneco
Inc. will own and operate after the Industrial Distribution, and (ii) for
periods after the Industrial Distribution, to New Tenneco Inc. and its
consolidated subsidiaries.
Reference is made to Note 13, "Segment and Geographic Area Information" for
a description of the businesses of the Company.
2. THE INDUSTRIAL DISTRIBUTION
On June 19, 1996, Tenneco and El Paso Natural Gas Company ("El Paso")
entered into a merger agreement pursuant to which a subsidiary of El Paso will
be merged into Tenneco (the "Merger"). The Merger is part of a larger Tenneco
reorganization (the "Transaction") which includes the distribution of the
common stock of the Company (the "Industrial Distribution") and Newport News
Shipbuilding Inc. ("Newport News"), a subsidiary of Tenneco which will hold
all of the assets, liabilities and operations of Tenneco's current
shipbuilding business (the "Shipbuilding Distribution") (collectively, the
"Distributions") to the holders of Tenneco common stock. Upon completion of
the Transaction, holders of Tenneco common stock will receive equity
securities of the Company, Newport News and El Paso.
Prior to the Transaction, Tenneco intends to initiate a realignment of its
existing indebtedness. As part of the debt realignment, certain Company debt
will be offered in exchange for certain issues of Tenneco debt. Tenneco will
initiate cash tender offers for other Tenneco debt, and certain debt issues
may be defeased. These cash tender offers and defeasances will be financed by
a combination of new lines of credit of Tenneco, the Company (which may
declare and pay a dividend to Tenneco) and Newport News (which will declare
and pay a dividend of approximately $600 million to Tenneco). Upon completion
of the debt realignment, Tenneco will have responsibility for $2.65 billion of
debt, subject to certain adjustments, Newport News will have responsibility
for the borrowings under its credit lines and the Company will have
responsibility for the remaining debt.
The Transaction is subject to certain conditions, including receipt of a
favorable ruling from the Internal Revenue Service to the effect that the
Distributions and certain internal spin-off transactions will be tax-free for
federal income tax purposes and approval by Tenneco stockholders.
In order to assist in the orderly transition of the Company into a separate,
publicly held company, Tenneco intends to modify, amend or enter into certain
contractual agreements with the Company. Such agreements include a tax sharing
agreement between Tenneco and its subsidiaries (see "Income taxes" in Note 3),
an employee benefits agreement, an insurance agreement, an administrative
services agreement and other ancillary agreements. These agreements will
provide, among other things, that (i) the Company will become the sole sponsor
of the Tenneco Inc. Retirement Plan, the Tenneco Inc. Thrift Plan, and various
Tenneco Inc. welfare plans; (ii) the Company will retain specific insurance
policies which relate to its businesses and will retain continuing rights and
obligations for certain parent-company insurance policies of Tenneco; and
(iii) the Company will provide certain corporate services, such as mainframe
data processing and product purchasing services, to Tenneco and Newport News
for a specified period of time.
F-7
<PAGE>
THE BUSINESSES OF NEW TENNECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
3. SUMMARY OF ACCOUNTING POLICIES
Control
All of the outstanding common stock of the Company is owned directly or
indirectly by Tenneco. Thus, the companies which comprise Tenneco Automotive,
Tenneco Packaging and certain administrative service operations are under the
control of Tenneco.
Unaudited Interim Information
The unaudited interim combined financial statements as of June 30, 1996 and
for each of the six month periods ended June 30, 1996 and 1995, included
herein, have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of the Company's
management, the unaudited interim combined financial statements contain all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation. The interim financial results are not indicative of
operating results for an entire year.
Research and Development
Research and development costs are expensed as incurred. The amounts charged
to "Engineering, research and development expenses" were $42 million, $27
million, and $38 million for 1995, 1994 and 1993, respectively.
Risk Management Activities
The Company is currently a party to financial instruments to hedge its
exposure to changes in foreign currency exchange rates. These financial
instruments are accounted for on the accrual basis with gains and losses being
recognized based on the type of contract and exposure being hedged. After-tax
net gains or losses on foreign currency contracts designated as hedges of the
Company's net investments in foreign subsidiaries are recognized in the
balance sheet caption "Combined equity." Net gains and losses of foreign
currency contracts designated as hedges of firm commitments or other specific
transactions are deferred and recognized when the offsetting gains or losses
are recognized on the hedged items.
In the Combined Statements of Cash Flows, cash receipts or payments related
to the financial instruments are classified consistent with the cash flows
from the transactions being hedged.
Income Taxes
The Company utilizes the liability method of accounting for income taxes
whereby it recognizes deferred tax assets and liabilities for the future tax
consequences of temporary differences between the tax basis of assets and
liabilities and their reported amounts in the combined financial statements.
Deferred tax assets are reduced by a valuation allowance when, based upon
management's estimates, it is more likely than not that a portion of the
deferred tax assets will not be realized in a future period. The estimates
utilized in the recognition of deferred tax assets are subject to revision in
future periods based on new facts or circumstances.
The Company and Tenneco, together with certain of their respective
subsidiaries which are owned 80% or more, have entered into an agreement to
file a consolidated U.S. federal income tax return. Such agreement provides,
among other things, that (1) each company in a taxable income position will be
currently charged with an amount equivalent to its federal income tax computed
on a separate return basis and (2) each company in a tax loss position will be
reimbursed currently to the extent its deductions, including general business
credits, are utilized in the consolidated return. The income tax amounts
reflected in the combined financial statements of the
F-8
<PAGE>
THE BUSINESSES OF NEW TENNECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Company under the provisions of the tax sharing arrangement are not materially
different from the income taxes which would have been provided had the Company
filed a separate tax return. Under the tax sharing agreement, Tenneco pays all
federal taxes directly and bills or refunds, as applicable, its subsidiaries
for the applicable portion of the total tax payments. Cash taxes paid in the
Combined Statement of Cash Flows include payments to Tenneco for U.S. federal
income taxes.
The Company does not provide for U.S. income taxes on unremitted earnings of
foreign subsidiaries as it is the present intention of management to reinvest
the unremitted earnings in its foreign operations. Unremitted earnings of
foreign subsidiaries are approximately $505 million at December 31, 1995. It
is not practicable to determine the amount of U.S. income taxes that would be
payable upon remittance of the assets that represent those earnings.
In connection with the Distributions the current tax sharing agreement will
be cancelled and the Company will enter into a tax sharing agreement with
Tenneco, Newport News and El Paso. The tax sharing agreement will provide,
among other things, for the allocation of taxes among the parties of tax
liabilities arising prior to, as a result of, and subsequent to the
Distributions. Generally, the Company will be liable for taxes imposed on the
Company and its affiliates engaged in the automotive and packaging businesses.
In the case of federal income taxes imposed on the combined activities of the
consolidated group, New Tenneco and Newport News will be liable to Tenneco for
federal income taxes attributable to their activities, and each will be
allocated an agreed-upon share of estimated tax payments made by the Tenneco
consolidated group.
Changes in Accounting Principles
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("FAS") No. 125 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" which
establishes new accounting and reporting standards for transfers and servicing
of financial assets and extinguishment of liabilities. The statement is
effective for transactions occurring after December 31, 1996. The impact of
the adoption of the new standard has not been determined.
The Company adopted FAS No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of," in the first
quarter of 1996. FAS No. 121 establishes new accounting standards for
measuring the impairment of long-lived assets. The adoption of this new
standard did not have a significant effect on the Company's combined financial
position or results of operations.
Effective January 1, 1994, the Company adopted FAS No. 112, "Employers'
Accounting for Postemployment Benefits." This new accounting rule requires
employers to account for postemployment benefits for former or inactive
employees after employment but before retirement on the accrual basis rather
than the "pay-as-you-go" basis. The Company recorded an after-tax charge of $7
million which was reported as a cumulative effect of change in accounting
principle.
Inventories
At December 31, 1995 and 1994, inventory by major classification was as
follows:
<TABLE>
<CAPTION>
(MILLIONS) 1995 1994
---------- ---- ----
<S> <C> <C>
Finished goods.................................................. $396 $267
Work in process................................................. 102 81
Raw materials................................................... 253 137
Materials and supplies.......................................... 87 72
---- ----
$838 $557
==== ====
</TABLE>
F-9
<PAGE>
THE BUSINESSES OF NEW TENNECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Inventories are stated at the lower of cost or market. A portion of
inventories are valued using the "last-in, first-out" method (47% and 27% at
December 31, 1995 and 1994, respectively). All other inventories are valued on
the "first-in, first-out" ("FIFO") or "average" methods. If the FIFO or
average method of inventory accounting had been used by the Company for all
inventories, inventories would have been $48 million, $46 million and $40
million higher at December 31, 1995, 1994 and 1993, respectively.
Goodwill and Intangibles
At December 31, 1995 and 1994, goodwill and intangibles by major category
was as follows:
<TABLE>
<CAPTION>
(MILLIONS) 1995 1994
---------- ------ ----
<S> <C> <C>
Goodwill...................................................... $ 632 $299
Trademarks.................................................... 194 1
Patents....................................................... 160 --
Other......................................................... 38 20
------ ----
$1,024 $320
====== ====
</TABLE>
Goodwill is being amortized on a straight-line basis over periods ranging
from 15 years to 40 years. Such amortization amounted to $10 million, $8
million and $8 million for 1995, 1994 and 1993, respectively, and is included
in the Combined Statements of Income caption, "Depreciation, depletion and
amortization."
The Company has capitalized certain intangible assets, primarily trademarks
and patents, based on their estimated fair value at date of acquisition.
Amortization is provided on these intangible assets on a straight-line basis
over periods ranging from 5 to 40 years and was not significant during any of
the periods presented in the accompanying combined financial statements.
The majority of goodwill and intangibles at December 31, 1995, resulted from
the acquisition of the plastics division of Mobil Corporation in November
1995. See Note 4, "Acquisitions," for further information on the acquisitions.
Plant, Property and Equipment, at Cost
At December 31, 1995 and 1994, plant, property and equipment, at cost, by
major category was as follows:
<TABLE>
<CAPTION>
(MILLIONS) 1995 1994
---------- ------ ------
<S> <C> <C>
Land, buildings and improvements........................... $1,125 $ 978
Machinery and equipment.................................... 2,446 1,722
Other, including construction in progress.................. 567 365
------ ------
$4,138 $3,065
====== ======
</TABLE>
Depreciation of the Company's properties is provided on a straight-line
basis over the estimated useful lives of the related assets. Useful lives
range from 10 to 40 years for buildings and improvements and from 3 to 25
years for machinery and equipment. Depletion of timber and timberlands is
provided on a unit-of-production basis.
Notes Receivable and Allowance for Doubtful Accounts
Short-term notes receivable of $53 million and $31 million were outstanding
at December 31, 1995 and 1994, respectively.
F-10
<PAGE>
THE BUSINESSES OF NEW TENNECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1995 and 1994, the allowance for doubtful accounts and notes
receivable was $24 million and $15 million, respectively.
Environmental Liabilities
Expenditures for ongoing compliance with environmental regulations that
relate to current operations are expensed or capitalized as appropriate.
Expenditures that relate to an existing condition caused by past operations,
and which do not contribute to current or future revenue generation, are
expensed. Liabilities are recorded when environmental assessments indicate
that remedial efforts are probable and the costs can be reasonably estimated.
Estimates of the liability are based upon currently available facts, existing
technology and presently enacted laws and regulations taking into
consideration the likely effects of inflation and other societal and economic
factors. All available evidence is considered including prior experience in
remediation of contaminated sites, other companies' clean-up experience and
data released by the United States Environmental Protection Agency or other
organizations. These estimated liabilities are subject to revision in future
periods based on actual costs or new circumstances. These liabilities are
included in the combined balance sheet at their undiscounted amounts.
Recoveries are evaluated separately from the liability and, when recovery is
assured, are recorded and reported separately from the associated liability in
the combined financial statements.
For further information on this subject, reference is made to Note 14,
"Commitments and Contingencies--Environmental Matters."
Foreign Currency Translation
Financial statements of international operations are translated into U.S.
dollars using the exchange rate at each balance sheet date for assets and
liabilities and the weighted average exchange rate for each applicable period
for revenues, expenses and gains and losses. Translation adjustments are
reflected in the balance sheet caption "Combined equity."
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in determining the reported amounts of the Company's assets,
liabilities, revenues and expenses. Reference is made to the "Income Taxes"
section of this footnote and Notes 11, 12 and 14 for additional information on
significant estimates included in the Company's combined financial statements.
4. ACQUISITIONS
In June 1996, the Company entered into agreements to acquire The Pullman
Company and its Clevite products division ("Clevite") for $328 million and
Amoco Foam Products Company, a unit of Amoco Chemical Company ("Amoco Foam
Products"), for $310 million. Clevite makes suspension bushings and other
elastomeric parts for cars and trucks. Upon completion of the Clevite
acquisition in July 1996, Clevite's operations became part of Tenneco
Automotive. Amoco Foam Products manufactures expanded polystyrene tableware,
hinged-lid food containers, packaging trays and industrial products for
residential and commercial construction applications. The Company anticipates
closing the acquisition of Amoco Foam Products by the end of August 1996 and
Amoco Foam Products will become part of Tenneco Packaging.
In November 1995, Tenneco Packaging acquired the plastics division of Mobil
Corporation for $1.3 billion. The plastics business is one of the largest
North American producers of polyethylene and polystyrene consumer and food
service packaging.
F-11
<PAGE>
THE BUSINESSES OF NEW TENNECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Tenneco Packaging's acquisition of the plastics business was accounted for
as a purchase; accordingly, the purchase price has been allocated to the
assets purchased and the liabilities assumed based on preliminary estimates of
their fair values. Final purchase price allocations will be based on more
complete evaluations and may differ from the original allocation. The excess
of the purchase price over the fair value of the net assets acquired is
included in the balance sheet caption, "Goodwill and intangibles" and is being
amortized on a straight-line basis over 40 years. The purchase was financed
with a cash contribution from Tenneco.
The following unaudited pro forma information of the Company illustrates the
effect of the plastics business acquisition as if it had occurred at the
beginning of 1994, after giving effect to certain pro forma adjustments
including amortization of the excess purchase price, depreciation and other
adjustments based on the preliminary purchase price allocation related to the
acquisition, together with estimates of the related income tax effects.
<TABLE>
<CAPTION>
(UNAUDITED)
YEARS ENDED
DECEMBER 31,
-------------
(MILLIONS) 1995 1994
---------- ------ ------
<S> <C> <C>
Net sales and operating revenues........................... $6,217 $5,203
Income from continuing operations.......................... $ 268 $ 181
</TABLE>
The summarized pro forma information has been prepared for comparative
purposes only. It is not intended to be indicative of the actual operating
results that would have occurred had the acquisition been consummated at the
beginning of 1994, or the results which may be attained in the future.
Also during 1995, Tenneco Packaging completed the acquisitions of eight
paperboard packaging businesses and two specialty packaging businesses for a
total consideration of approximately $196 million. In addition, Tenneco
Automotive completed four acquisitions for approximately $54 million.
Each of the acquisitions was accounted for as a purchase. If these assets
and investments had been acquired January 1, 1995, net income would not have
been significantly different from the reported amount.
In 1994, Tenneco Automotive acquired Heinrich Gillet GmbH & Co. KG for $44
million in cash and $69 million in assumed debt.
5. TRANSACTIONS WITH TENNECO
Combined Equity
The "Combined equity" caption in the accompanying combined financial
statements represents Tenneco's cumulative investment in the combined
businesses of the Company. Changes in the "Combined equity" caption represent
the net income of the Company, net cash and non-cash contributions from
(distributions to) Tenneco, cumulative translation adjustments, changes in
allocated corporate debt, and allocated interest, net of tax. Reference is
made to the Statements of Changes in Combined Equity for an analysis of the
activity in the "Combined equity" caption for the three years ended December
31, 1995 and six months ended June 30, 1996.
General and Administrative Expenses
General and administrative expenses of $229 million, $154 million and $149
million in 1995, 1994 and 1993, respectively, are included in the "Selling,
general and administrative" caption in the Combined Statements of Income. Of
the total general and administrative expenses for 1995, 1994 and 1993, $61
million, $27 million and $21 million, respectively, represent the Company's
share of Tenneco's corporate general and administrative costs for legal,
financial, communication and other administrative services. Tenneco's
corporate general and
F-12
<PAGE>
THE BUSINESSES OF NEW TENNECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
administrative expenses are allocated based on the estimated level of effort
devoted to Tenneco's various operations and their relative size based on
revenues, gross property and payroll. Tenneco's corporate general and
administrative expenses not budgeted for allocation are absorbed by the
Company. The Company's management believes the method for allocating corporate
general and administrative expenses is reasonable. Total general and
administrative expenses reflected in the accompanying combined financial
statements are representative of the total general and administrative costs
the Company would have incurred as a separate entity.
Corporate Debt and Interest Allocation
Tenneco's historical practice has been to incur indebtedness for its
consolidated group at the parent company level or at a limited number of
subsidiaries, rather than at the operating company level, and to centrally
manage various cash functions. Consequently, corporate debt of Tenneco and its
related interest expense have been allocated to the Company based on the
portion of Tenneco's investment in the Company which is deemed to be debt,
generally based upon the ratio of the Company's net assets to Tenneco
consolidated net assets plus debt. Interest expense was allocated at a rate
equivalent to the weighted-average cost of all corporate debt, which was 7.7%,
8.3% and 7.4% for 1995, 1994, and 1993, respectively. Total pre-tax interest
expense allocated to the Company in 1995, 1994 and 1993 was $152 million, $94
million and $90 million, respectively. The Company has also been allocated tax
benefits approximating 35% of the allocated pre-tax interest expense. Although
interest expense, and the related tax effects, have been allocated to the
Company for financial reporting on a historical basis, the Company has not
been billed for these amounts. The changes in allocated corporate debt and the
after-tax allocated interest have been included as a component of the
Company's Combined equity. Although management believes that the historical
allocation of corporate debt and interest is reasonable, it is not necessarily
indicative of the Company's debt upon completion of the Debt Realignment nor
debt and interest that will be incurred by the Company as a separate public
entity.
Notes and Advances Receivable with Tenneco
"Cash contributions from (distributions to) Tenneco" in the Statements of
Changes in Combined Equity consist of net cash changes in notes and advances
receivable with Tenneco which have been included in combined equity.
Historically, Tenneco has utilized notes and advances to centrally manage cash
funding requirements for its consolidated group.
At December 31, 1995 and 1994, the Company had an interest bearing note
receivable from Tenneco totaling $494 million and $310 million, respectively,
which is payable on demand and is included as a component of the Company's
combined equity.
Accounts Receivable and Accounts Payable--Affiliated Companies
The "Receivables--Affiliated companies" balance primarily includes billings
for general and administrative costs incurred by the Company and charged to
Newport News and Tenneco Energy. The "Payables--Affiliated companies" balance
primarily relates to billings for U.S. income taxes incurred by Tenneco and
charged to the Company. Affiliated accounts receivable and accounts payable
between Tenneco, the Company and Newport News will be settled, capitalized or
converted into ordinary trade accounts, as applicable, as part of the
Distributions.
Employee Benefits
Certain employees of the Company participate in the Tenneco employee stock
option and employee stock purchase plans. The Tenneco employee stock option
plan provides for the grant of Tenneco common stock options and other stock
awards at a price not greater than market value at the date of grant. The
Tenneco employee stock purchase plan allows employees to purchase Tenneco
common stock at a 15% discount subject
F-13
<PAGE>
THE BUSINESSES OF NEW TENNECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
to certain thresholds. The Company expects to establish similar plans for its
employees after the Industrial Distribution. In connection with the Industrial
Distribution, outstanding options on Tenneco common stock held by Company
employees will be converted into options of the Company so as to preserve the
aggregate value of the options held prior to the Industrial Distribution.
Employees of the Company also participate in certain Tenneco postretirement
and pension plans. Reference is made to Notes 11 and 12 for a further
discussion of these plans.
Sales of Receivables
At December 31, 1995 and 1994, the Company sold $513 million and $384
million, respectively, of trade receivables to Tenneco Credit Corporation
("TCC"), a wholly-owned subsidiary of Tenneco Inc. TCC sells these trade
receivables to a third party in the ordinary course of its business.
6. DISCONTINUED OPERATIONS AND DISPOSITION OF ASSETS
Discontinued Operations
In 1994, the Company sold its brakes operation. Net proceeds from the sale
of the brakes operation was approximately $18 million. Net assets and results
from discontinued operations as of and for the years ended December 31, 1994
and 1993, are as follows:
<TABLE>
<CAPTION>
1994 1993
(MILLIONS) ---- ----
<S> <C> <C>
Net assets at December 31..................................... $ -- $61
==== ===
Net sales and operating revenues.............................. $ 62 $54
==== ===
Loss before income taxes and interest allocation.............. $ (8) $(8)
Income tax benefit............................................ 5 4
---- ---
Loss before interest allocation............................... (3) (4)
Allocation of interest expense, net of income tax (a)......... (2) (3)
---- ---
Net loss...................................................... (5) (7)
---- ---
Loss on disposition........................................... (41) --
Income tax benefit from loss on disposition................... 15 --
---- ---
Net loss on disposition....................................... (26) --
---- ---
Net loss from discontinued operations......................... $(31) $(7)
==== ===
</TABLE>
- --------
(a) The allocation of interest expense to discontinued operations is based on
the ratio of net assets of discontinued operations to Tenneco consolidated
net assets plus debt.
Disposition of Assets
In the second quarter of 1996, Tenneco Packaging entered into an agreement
to form a joint venture with Caraustar Industries whereby Tenneco Packaging
sold its two recycled paperboard mills and recycling operation to the joint
venture in return for cash and an equity interest in the joint venture. The
Company recognized a $50 million pre-tax gain from the sale in the second
quarter of 1996.
In 1995, the Company sold certain facilities and assets, principally at its
Tenneco Packaging segment. Proceeds from these dispositions were $56 million
resulting in a pre-tax net gain of $15 million.
F-14
<PAGE>
THE BUSINESSES OF NEW TENNECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
During 1994, the Company disposed of several assets and investments
including a facility, machinery and equipment at Tenneco Packaging. Proceeds
from these dispositions were $16 million resulting in a pre-tax gain of $5
million.
During 1993, the Company disposed several Tenneco Packaging operations. The
proceeds from dispositions were $83 million and the pre-tax gain was $29
million.
7. LONG-TERM DEBT, SHORT-TERM DEBT AND FINANCING ARRANGEMENTS
Long-Term Debt
A summary of long-term debt outstanding and allocated corporate debt
obligations at December 31, 1995 and 1994, is set forth in the following table
(Note):
<TABLE>
<CAPTION>
(MILLIONS) 1995 1994
- ---------- ------ ------
<S> <C> <C>
Notes due 1996 through 2014, average effective interest rate
10.9% in 1995 and 7.9% in 1994 (net of $32 million in 1995
and $33 million in 1994 of unamortized discount)............. $ 41 $ 52
Other obligations due 1996 through 2007, average effective in-
terest rate 8.8% in 1995 and
8.4 % in 1994................................................ 26 20
Current maturities............................................ (6) (5)
------ ------
61 67
------ ------
Allocated corporate debt obligations, average effective inter-
est rate 7.7% in 1995 and 8.3% in 1994....................... 1,587 972
------ ------
$1,648 $1,039
====== ======
</TABLE>
Note: Reference is made to Note 5 for a discussion of allocated corporate debt
obligations.
At December 31, 1995 and 1994, approximately $72 million and $154 million,
respectively, of gross plant, property and equipment was pledged as collateral
to secure $30 million and $31 million, respectively, principal amounts of
long-term debt.
The aggregate maturities applicable to non-allocated issues outstanding at
December 31, 1995, are $6 million, $7 million, $6 million, $5 million and $6
million for 1996, 1997, 1998, 1999 and 2000, respectively.
Short-Term Debt
The Company uses lines of credit and overnight borrowings to finance its
short-term capital requirements. Information regarding short-term credit
agreements for the years ended December 31, 1995 and 1994 follows:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS) 1995 1994
- --------------------- ---- ----
<S> <C> <C>
Outstanding borrowings at end of year............................... $16 $ 22
Weighted average interest rate on outstanding borrowings at end of
year............................................................... 6.8% 8.1%
Approximate maximum month-end outstanding borrowings during year.... $18 $163
Approximate average month-end outstanding borrowings during year.... $11 $ 53
</TABLE>
Note: Includes borrowings under both committed credit facilities and
uncommitted lines of credit and similar arrangements.
The Company had other short-term borrowings outstanding of $17 million at
December 31, 1995, and $8 million at December 31, 1994 and was allocated
short-term corporate debt obligations of $345 million at December 31, 1995 and
$73 million at December 31, 1994.
F-15
<PAGE>
THE BUSINESSES OF NEW TENNECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Financing Arrangements
As of December 31, 1995, the Company had arranged committed credit
facilities of $43 million of which approximately $12 million had been
utilized. The credit facilities have various terms and the Company is
generally required to pay commitment fees on the unused portion of the total
commitment and facility fees on the total commitment.
8. FINANCIAL INSTRUMENTS
The carrying and estimated fair values of the Company's financial
instruments by class at December 31, 1995 and 1994, were as follows:
<TABLE>
<CAPTION>
(MILLIONS) 1995 1994
- ---------- -------------- --------------
CARRYING FAIR CARRYING FAIR
ASSETS (LIABILITIES) AMOUNT VALUE AMOUNT VALUE
- -------------------- -------- ----- -------- -----
<S> <C> <C> <C> <C>
Asset and Liability Instruments
Cash and temporary cash investments.......... $ 103 $ 103 $ 350 $ 350
Receivables (customer, affiliated and long-
term)....................................... 484 484 348 348
Accounts payable (trade and affiliated)...... (636) (636) (533) (533)
Short-term debt (excluding current maturi-
ties) (Note)................................ (33) (33) (30) (30)
Long-term debt (including current maturities)
(Note)...................................... (67) (52) (72) (74)
Instruments With Off-Balance-Sheet Risk
Derivative
Foreign currency contracts................. 5 4 17 18
Non-derivative
Financial guarantees....................... -- (15) -- (20)
</TABLE>
Note: The carrying amounts and estimated fair values of short-term and long-
term debt are before allocation of corporate debt to the Company from Tenneco.
See Note 5.
Asset and Liability Instruments
The fair value of cash and temporary cash investments, receivables, accounts
payable, and short-term debt in the above table was considered to be the same
as or was not determined to be materially different from the carrying amount.
At December 31, 1995 and 1994, respectively, the Company's aggregate customer
and long-term receivable balance was concentrated by industry segment as
follows: Tenneco Automotive, 77% and 76%, respectively, and Tenneco Packaging,
23% and 24%, respectively.
Long-term debt--The fair value of fixed-rate long-term debt was based on the
market value of debt with similar maturities and interest rates.
Instruments With Off-Balance-Sheet Risk
Derivative
The Company utilizes foreign exchange forward contracts to hedge certain
translation effects of the Company's investment in net assets in certain
foreign affiliated companies. Pursuant to these arrangements, the Company
recognized aggregate after-tax translation gains (losses) of $3 million, $(2)
million and $5 million for 1995, 1994 and 1993, respectively, which have been
included in the balance sheet caption "Combined equity."
The Company routinely enters into various foreign currency forward purchase
and sale contracts to hedge the transaction effect of exchange rate movements
on receivables and payables denominated in foreign currencies. These foreign
currency contracts generally mature in one year or less.
F-16
<PAGE>
THE BUSINESSES OF NEW TENNECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
In managing its foreign currency exposures, the Company identifies naturally
occurring offsetting positions and then hedges residual exposures. The
following table summarizes by major currency the contractual amounts of
foreign currency contracts utilized by the Company:
<TABLE>
<CAPTION>
NOTIONAL AMOUNT
-----------------------------
DECEMBER 31, DECEMBER 31,
1995 1994
------------- ---------------
(MILLIONS) PURCHASE SELL PURCHASE SELL
---------- -------- ---- -------- ------
<S> <C> <C> <C> <C>
Foreign currency contracts (in US$):
Australian Dollars....................... $ 1 $202 $ 94 $ 26
British Pounds........................... 81 125 277 964
Canadian Dollars......................... 23 50 81 74
French Francs............................ 44 16 94 15
U.S. Dollars............................. 240 81 244 377
Other.................................... 127 83 274 123
---- ---- ------ ------
$516 $557 $1,064 $1,579
==== ==== ====== ======
</TABLE>
Based on exchange rates at December 31, 1995 and 1994, the cost of replacing
these contracts in the event of non-performance by the counterparties would
not have been material.
Non-derivative
Guarantees--At December 31, 1995 and 1994, the Company had guaranteed
payment and performance of approximately $15 million and $20 million,
respectively, primarily with respect to letters of credit and other guarantees
supporting various financing and operating activities.
9. INCOME TAXES
The domestic and foreign components of income from continuing operations
before income taxes are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 (MILLIONS) 1995 1994 1993
---------------------------------- ---- ---- ----
<S> <C> <C> <C>
U.S. income before income taxes........................... $361 $242 $169
Foreign income before income taxes........................ 151 110 111
---- ---- ----
Income before income taxes................................ $512 $352 $280
==== ==== ====
</TABLE>
Following is a comparative analysis of the components of combined income tax
expense applicable to continuing operations:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 (MILLIONS) 1995 1994 1993
---------------------------------- ---- ---- ----
<S> <C> <C> <C>
Current--
U.S.................................................... $ 54 $ 42 $ 58
State and local........................................ 38 23 21
Foreign................................................ 64 30 35
---- ---- ----
156 95 114
---- ---- ----
Deferred--
U.S.................................................... 61 31 (9)
Foreign................................................ 14 (12) 10
---- ---- ----
75 19 1
---- ---- ----
Income tax expense....................................... $231 $114 $115
==== ==== ====
</TABLE>
Current U.S. income tax expense for the years ended December 31, 1995, 1994
and 1993, include tax benefits of $53 million, $33 million and $32 million,
respectively, related to the allocation of corporate interest expense to the
Company from Tenneco. See Note 5.
F-17
<PAGE>
THE BUSINESSES OF NEW TENNECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Following is a reconciliation of income taxes computed at the statutory U.S.
federal income tax rate (35% for all years presented) to the income tax
expense reflected in the Combined Statements of Income:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 (MILLIONS) 1995 1994 1993
- ---------------------------------- ---- ---- ----
<S> <C> <C> <C>
Tax expense computed at the statutory U.S. federal income tax
rate......................................................... $179 $123 $ 98
Increases (reductions) in income tax expense resulting from:
Foreign income taxed at different rates and foreign losses
with no tax benefit........................................ 17 (12) 7
State and local taxes on income, net of U.S. federal income
tax benefit................................................ 25 16 13
U.S. federal income tax rate change......................... -- -- 2
Realization of unrecognized deferred tax assets............. -- (12) --
Other....................................................... 10 (1) (5)
---- ---- ----
Income tax expense............................................ $231 $114 $115
==== ==== ====
</TABLE>
The components of the Company's net deferred tax liability at December 31,
1995 and 1994, were as follows:
<TABLE>
<CAPTION>
(MILLIONS) 1995 1994
---------- ---- ----
<S> <C> <C>
Deferred tax assets--
Tax loss carryforwards...................................... $ 83 $ 76
Postretirement benefits other than pensions................. 41 39
Other....................................................... 31 54
Valuation allowance......................................... (83) (72)
---- ----
Net deferred tax asset...................................... 72 97
---- ----
Deferred tax liabilities--
Tax over book depreciation.................................. 204 163
Pension..................................................... 158 146
Book versus tax gains and losses on asset disposals......... 63 49
Other....................................................... 7 8
---- ----
Total deferred tax liability................................ 432 366
---- ----
Net deferred tax liability.................................... $360 $269
==== ====
</TABLE>
As reflected by the valuation allowance in the table above, the Company had
potential tax benefits of $83 million and $72 million at December 31, 1995 and
1994, respectively, which were not recognized in the Combined Statements of
Income when generated. These benefits resulted primarily from foreign tax loss
carryforwards which are available to reduce future foreign tax liabilities. At
December 31, 1995, the Company had tax benefits of $83 million from foreign
net operating loss carryforwards which will carry forward indefinitely.
10. MINORITY INTEREST
At both December 31, 1995 and 1994, the Company reported minority interest
in the balance sheet of $301 million. At December 31, 1995, $293 million of
minority interest resulted from the December 1994 sale of a 25% preferred
stock interest in Tenneco International Holding Corp. ("TIHC") to a financial
investor. TIHC holds certain assets including the capital stock of Tenneco
Canada Inc., Monroe Europe N.V., Monroe Australia Proprietary Limited, Walker
France S.A. and other subsidiaries included in the Tenneco Automotive segment.
For financial reporting purposes, the assets, liabilities and earnings of TIHC
and its subsidiaries are combined in the Company's financial statements, and
the investor's preferred stock interest has been recorded as "Minority
interest" in the Combined Balance Sheets.
F-18
<PAGE>
THE BUSINESSES OF NEW TENNECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Dividends on the TIHC preferred stock are based on the issue price ($300
million) times a rate per annum equal to 1.12% over LIBOR and are payable
quarterly in arrears on the last business day of each quarter commencing on
March 31, 1995. For 1995, the weighted average rate paid on TIHC preferred
stock was 7.30%. Additionally, beginning in 1996, the holder of the 12,000,000
shares of preferred stock will be entitled to receive, when and if declared by
the Board of Directors of TIHC, participating dividends based on the operating
income growth rate of TIHC. For financial reporting purposes, dividends paid
by TIHC to its financial investors have been recorded in the Company's
Combined Statements of Income as "Minority interest."
11. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
Postretirement Benefits
The Company's employees participate in Tenneco's postretirement health care
and life insurance plans which cover the Company's employees who meet certain
eligibility requirements. For salaried employees, the plans cover employees
retiring from the Company on or after attaining age 55 who have had at least
10 years service with the Company after attaining age 45. For hourly
employees, the postretirement benefit plans generally cover employees who
retire pursuant to one of the Company's hourly employee retirement plans. All
of these benefits may be subject to deductibles, co-payment provisions and
other limitations, and Tenneco or the Company, as applicable, has reserved the
right to change these benefits. Tenneco's postretirement benefit plans are not
funded.
Generally, the Company will retain liabilities with respect to welfare
benefits of its current and former employees and their dependents in
connection with the Distributions.
The funded status of the postretirement benefit plans reconciles with
amounts recognized in the balance sheet at December 31, 1995 and 1994, as
follows:
<TABLE>
<CAPTION>
(MILLIONS) 1995 1994
- ---------- ----- -----
<S> <C> <C>
Actuarial present value of accumulated postretirement benefit ob-
ligation at September 30:
Retirees....................................................... $ 82 $ 76
Fully eligible active plan participants........................ 19 20
Other active plan participants................................. 33 27
----- -----
Total accumulated postretirement benefit obligation.............. 134 123
Plan assets at fair value at September 30........................ -- --
----- -----
Accumulated postretirement benefit obligation in excess of plan
assets at September 30.......................................... (134) (123)
Claims paid during the fourth quarter............................ 2 2
Unrecognized reduction of prior service obligations resulting
from plan amendments............................................ (12) (13)
Unrecognized net loss resulting from plan experience and changes
in actuarial assumptions........................................ 30 22
----- -----
Accrued postretirement benefit cost at December 31............... $(114) $(112)
===== =====
</TABLE>
Note: The accrued postretirement benefit cost has been recorded based upon
certain actuarial estimates as described below. Those estimates are subject to
revision in future periods given new facts or circumstances.
F-19
<PAGE>
THE BUSINESSES OF NEW TENNECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The net periodic postretirement benefit cost from continuing operations for
the years 1995, 1994 and 1993 consist of the following components:
<TABLE>
<CAPTION>
(MILLIONS) 1995 1994 1993
- ---------- ---- ---- ----
<S> <C> <C> <C>
Service cost for benefits earned during the year................. $ 3 $ 4 $ 3
Interest cost on accumulated postretirement benefit obligation... 10 10 9
Net amortization of unrecognized amounts......................... (1) (1) --
--- --- ---
Net periodic postretirement benefit cost......................... $12 $13 $12
=== === ===
</TABLE>
The initial weighted average assumed health care cost trend rate used in
determining the 1995, 1994 and 1993 accumulated postretirement benefit
obligation was 7%, 8% and 9%, respectively, declining to 5% in 1997 and
remaining at that level thereafter.
Increasing the assumed health care cost trend rate by one percentage-point
in each year would increase the 1995, 1994 and 1993 accumulated postretirement
benefit obligations by approximately $12 million, $10 million and $12 million,
respectively, and would increase the aggregate of the service cost and
interest cost components of the net postretirement benefit cost for 1995, 1994
and 1993 by approximately $1 million, $1 million and $2 million, respectively.
The discount rates (which are based on long-term market rates) used in
determining the 1995, 1994 and 1993 accumulated postretirement benefit
obligations were 7.75%, 8.25% and 7.50%, respectively.
Postemployment Benefits
The Company adopted FAS No. 112, "Employers' Accounting for Postemployment
Benefits," in the first quarter of 1994. This new accounting rule requires
employers to account for postemployment benefits for former or inactive
employees after employment but before retirement on the accrual basis rather
than the "pay-as-you-go" basis. Implementation of this new rule reduced 1994
net income by $7 million, net of income tax benefits of $5 million, which was
reported as the cumulative effect of a change in accounting principle.
12. PENSION PLANS
The Company has various defined benefit plans which cover substantially all
of its employees. Benefits are based on years of service and, for most
salaried employees, on final average compensation. The Company's funding
policies are to contribute to the plans amounts necessary to satisfy the
funding requirements of federal laws and regulations. Plan assets consist of
listed equity and fixed income securities. Certain employees of the Company
participate in the Tenneco Inc. Retirement Plan (the "TRP"). Also, included in
the table below are pension obligations and assets related to certain former
employees of Tenneco which the Company will retain after the Distributions.
The Company will become the sole sponsor of the TRP after the Distributions.
The benefits accrued by Tenneco and Newport News employees in the TRP will be
frozen as of the last day of the calendar month including the Distributions
and the Company will amend the TRP to provide that all benefits accrued
through that day by Tenneco and Newport News employees are fully vested and
non-forfeitable.
F-20
<PAGE>
THE BUSINESSES OF NEW TENNECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The funded status of the plans reconcile with amounts on the Combined
Balance Sheets at December 31, 1995 and 1994, as follows:
<TABLE>
<CAPTION>
PLANS IN
WHICH ASSETS PLANS IN WHICH
EXCEED ACCUMULATED
ACCUMULATED BENEFITS EXCEED ALL PLANS
BENEFITS ASSETS (NOTE)
-------------- ---------------- -------------- -------
(MILLIONS) 1995 1994 1995 1994 1995 1994
- ---------- ------ ------ ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Actuarial present value
of benefits based on
service to date and
present pay levels at
September 30:
Vested benefit obliga-
tion................. $1,793 $1,672 $ 35 $ 24 $1,828 $1,696
Non-vested benefit ob-
ligation............. 38 31 4 2 42 33
------ ------ ------- ------- ------ ------
Accumulated benefit
obligation........... $1,831 $1,703 $ 39 $ 26 $1,870 $1,729
Additional amounts re-
lated to projected sal-
ary increases.......... 72 63 3 4 75 67
------ ------ ------- ------- ------ ------
Total projected benefit
obligation at September
30..................... $1,903 $1,766 $ 42 $ 30 $1,945 $1,796
Plan assets at fair
value at September 30.. 2,233 1,968 8 9 2,241 1,977
------ ------ ------- ------- ------ ------
Plan assets in excess of
(less than) total pro-
jected benefit obliga-
tion at September 30... $ 330 $ 202 $ (34) $ (21) $ 296 $ 181
Contributions during the
fourth quarter......... 4 14 -- -- 4 14
Unrecognized net loss
resulting from plan ex-
perience and changes in
actuarial assumptions.. 142 234 2 3 144 237
Unrecognized prior serv-
ice obligations result-
ing from plan amend-
ments.................. 75 81 1 1 76 82
Remaining unrecognized
net obligation (asset)
at initial application. (80) (96) 1 1 (79) (95)
Adjustment recorded to
recognize minimum lia-
bility................. -- -- (2) (2) (2) (2)
------ ------ ------- ------- ------ ------
Prepaid (accrued) pen-
sion cost at December
31..................... $ 471 $ 435 $ (32) $ (18) $ 439 $ 417
====== ====== ======= ======= ====== ======
</TABLE>
Note: Assets of one plan may not be utilized to pay benefits of other plans.
Additionally, the prepaid (accrued) pension cost has been recorded based upon
certain actuarial estimates as described below. Those estimates are subject to
revision in future periods given new facts or circumstances.
Net periodic pension costs (income) from continuing operations for the years
1995, 1994 and 1993 consist of the following components:
<TABLE>
<CAPTION>
(MILLIONS) 1995 1994 1993
- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Service cost--benefits earned during the
year................................... $ 23 $ 29 $ 20
Interest accrued on prior years pro-
jected benefit obligation.............. 144 110 60
Expected return on plan assets--
Actual (return) loss.................. (387) 16 (151)
Unrecognized excess (deficiency) of
actual return over expected return... 188 (175) 53
---- ---- ----
(199) (159) (98)
Net amortization of unrecognized
amounts................................ (3) 1 (7)
----- ----- -----
Net pension income...................... $ (35) $ (19) $ (25)
===== ===== =====
</TABLE>
The weighted average discount rates (which are based on long-term market
rates) used in determining the 1995, 1994 and 1993 actuarial present value of
the benefit obligations were 7.8%, 8.3% and 7.5%, respectively.
F-21
<PAGE>
THE BUSINESSES OF NEW TENNECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The rate of increase in future compensation was 5.1%, 5.1% and 4.9% for 1995,
1994 and 1993, respectively. The weighted average expected long-term rate of
return on plan assets was 10% for 1995, 1994 and 1993.
13. SEGMENT AND GEOGRAPHIC AREA INFORMATION
The Company is a global manufacturer with the following business segments:
Tenneco Automotive
Manufacture and sale of exhaust and ride control systems, for both the
original equipment and replacement markets.
Tenneco Packaging
Manufacture and sale of packaging materials, cartons, containers and
specialty packaging products for consumer and commercial markets.
F-22
<PAGE>
THE BUSINESSES OF NEW TENNECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The following tables summarize certain segment and geographic information of
the Company's businesses (Note):
<TABLE>
<CAPTION>
SEGMENT
--------------------------
RECLASS.
AND
(MILLIONS) AUTOMOTIVE PACKAGING OTHER ELIMINATION COMBINED
- ---------- ---------- --------- ----- ----------- --------
<S> <C> <C> <C> <C> <C>
AT DECEMBER 31, 1995, AND FOR
THE YEAR THEN ENDED
Net sales and operating
revenues..................... $2,479 $2,752 $ -- $(10) $5,221
====== ====== ===== ==== ======
Operating profit.............. 248 440 44 -- 732
Equity in net income of
affiliated companies......... 1 -- -- -- 1
General corporate expenses.... (9) (10) (42) -- (61)
------ ------ ----- ---- ------
Income before interest
expense, income taxes and
minority interest............ 240 430 2 -- 672
====== ====== ===== ==== ======
Identifiable assets........... 1,874 3,405 925 (94) 6,110
Investment in affiliated
companies.................... 3 4 -- -- 7
------ ------ ----- ---- ------
Total assets................ 1,877 3,409 925 (94) 6,117
====== ====== ===== ==== ======
Depreciation, depletion and
amortization................. 84 110 2 -- 196
====== ====== ===== ==== ======
Capital expenditures for
continuing operations......... 208 316 38 -- 562
====== ====== ===== ==== ======
AT DECEMBER 31, 1994, AND FOR
THE YEAR THEN ENDED
Net sales and operating
revenues..................... $1,989 $2,184 $ -- $ (7) $4,166
====== ====== ===== ==== ======
Operating profit.............. 231 217 35 -- 483
Equity in net income of
affiliated companies......... -- -- -- -- --
General corporate expenses.... (8) (8) (11) -- (27)
------ ------ ----- ---- ------
Income before interest
expense, income taxes and
minority interest............ 223 209 24 -- 456
====== ====== ===== ==== ======
Identifiable assets........... 1,472 1,537 1,082 (156) 3,935
Investment in affiliated
companies.................... 2 3 -- -- 5
------ ------ ----- ---- ------
Total assets................ 1,474 1,540 1,082 (156) 3,940
====== ====== ===== ==== ======
Depreciation, depletion and
amortization................. 51 89 2 -- 142
====== ====== ===== ==== ======
Capital expenditures for
continuing operations......... 113 166 1 -- 280
====== ====== ===== ==== ======
AT DECEMBER 31, 1993, AND FOR
THE YEAR THEN ENDED
Net sales and operating
revenues..................... $1,785 $2,042 $ -- $ (7) $3,820
====== ====== ===== ==== ======
Operating profit.............. 230 146 24 -- 400
Equity in net income of
affiliated companies......... -- 2 -- -- 2
General corporate expenses.... (8) (9) (4) -- (21)
------ ------ ----- ---- ------
Income before interest
expense, income taxes and
minority interest............ 222 139 20 -- 381
====== ====== ===== ==== ======
Identifiable assets........... 987 1,433 576 (46) 2,950
Investment in affiliated
companies.................... 4 6 -- -- 10
Identifiable assets related to
discontinued operations...... 70 -- -- (1) 69
------ ------ ----- ---- ------
Total assets................ 1,061 1,439 576 (47) 3,029
====== ====== ===== ==== ======
Depreciation, depletion and
amortization................. 52 83 2 -- 137
====== ====== ===== ==== ======
Capital expenditures for
continuing operations......... 93 124 -- -- 217
====== ====== ===== ==== ======
</TABLE>
Note: Included in "other" above is the operations of Tenneco Business Services
("TBS"). TBS designs, implements and administers shared administrative service
programs for the Company as well as other Tenneco business entities.
F-23
<PAGE>
THE BUSINESSES OF NEW TENNECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
GEOGRAPHIC AREA(B)
-------------------------------
RECLASS.
UNITED EUROPEAN OTHER AND
(MILLIONS) STATES CANADA UNION FOREIGN ELIMINATION COMBINED
- ---------- ------ ------ -------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
AT DECEMBER 31, 1995, AND
FOR THE YEAR THEN ENDED
Net sales and operating
revenues:
Sales to unaffiliated
customers.............. $3,683 $149 $1,140 $249 $ -- $5,221
Transfers among geo-
graphic areas(a)....... 75 43 27 21 (166) --
------ ---- ------ ---- ---- ------
Total................. 3,758 192 1,167 270 (166) 5,221
====== ==== ====== ==== ==== ======
Operating profit.......... 585 20 102 25 -- 732
Equity in net income
(loss) of affiliated
companies................ 1 -- 1 (1) -- 1
General corporate ex-
penses................... (61) -- -- -- -- (61)
------ ---- ------ ---- ---- ------
Income before interest ex-
pense, income taxes and
minority interest........ 525 20 103 24 -- 672
====== ==== ====== ==== ==== ======
Identifiable assets....... 4,664 207 1,077 241 (79) 6,110
Investment in affiliated
companies................ 3 -- 2 2 -- 7
------ ---- ------ ---- ---- ------
Total assets.......... 4,667 207 1,079 243 (79) 6,117
====== ==== ====== ==== ==== ======
AT DECEMBER 31, 1994, AND
FOR THE YEAR THEN ENDED
Net sales and operating
revenues:
Sales to unaffiliated
customers.............. $3,143 $165 $ 624 $234 $ -- $4,166
Transfers among geo-
graphic areas(a)....... 72 36 39 30 (177) --
------ ---- ------ ---- ---- ------
Total................. 3,215 201 663 264 (177) 4,166
====== ==== ====== ==== ==== ======
Operating profit.......... 376 31 47 29 -- 483
Equity in net income
(loss) of affiliated
companies................ 1 -- -- (1) -- --
General corporate ex-
penses................... (27) -- -- -- -- (27)
------ ---- ------ ---- ---- ------
Income before interest ex-
pense, income taxes and
minority interest........ 350 31 47 28 -- 456
====== ==== ====== ==== ==== ======
Identifiable assets....... 2,729 141 1,149 17 (101) 3,935
Investment in affiliated
companies................ 4 -- -- 1 -- 5
------ ---- ------ ---- ---- ------
Total assets............ 2,733 141 1,149 18 (101) 3,940
====== ==== ====== ==== ==== ======
</TABLE>
See Notes on following page.
F-24
<PAGE>
THE BUSINESSES OF NEW TENNECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
GEOGRAPHIC AREA(B)
-------------------------------
RECLASS.
UNITED EUROPEAN OTHER AND
(MILLIONS) STATES CANADA UNION FOREIGN ELIMINATION COMBINED
- ---------- ------ ------ -------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
AT DECEMBER 31, 1993, AND
FOR THE YEAR THEN ENDED
Net sales and operating
revenues:
Sales to unaffiliated
customers.............. $2,875 $176 $569 $200 $ -- $3,820
Transfers among geo-
graphic areas(a)....... 67 32 35 19 (153) --
------ ---- ---- ---- ---- ------
Total................. 2,942 208 604 219 (153) 3,820
====== ==== ==== ==== ==== ======
Operating profit.......... 293 28 56 23 -- 400
Equity in net income of
affiliated companies..... 1 -- 1 -- -- 2
General corporate ex-
penses................... (21) -- -- -- -- (21)
------ ---- ---- ---- ---- ------
Income before interest ex-
pense, income taxes and
minority interest........ 273 28 57 23 -- 381
====== ==== ==== ==== ==== ======
Identifiable assets....... 2,154 111 583 139 (37) 2,950
Investment in affiliated
companies................ 5 -- 2 3 -- 10
Identifiable assets re-
lated to discontinued op-
erations................. 54 15 1 -- (1) 69
------ ---- ---- ---- ---- ------
Total assets.......... 2,213 126 586 142 (38) 3,029
====== ==== ==== ==== ==== ======
</TABLE>
Notes: (a) Products are transferred between geographic areas on a basis
intended to reflect as nearly as possible the "market value" of the products.
(b) As reflected above, the Company's segments principally market their
products and services in the United States, with significant sales in the
European Union and other foreign countries.
The Company is engaged in the sale of products for export from the United
States. Such sales are reflected in the table below:
<TABLE>
<CAPTION>
(MILLIONS)
GEOGRAPHIC AREA PRINCIPAL PRODUCTS 1995 1994 1993
--------------- ------------------------------------------ ---- ---- ----
<C> <S> <C> <C> <C>
Canada Paperboard products, molded and pressed $ 72 $ 75 $ 80
pulp goods, corrugated boxes, aluminum and
plastics
European Union Molded and pressed pulp goods, paperboard 23 21 22
products, corrugated boxes, aluminum and
plastics
Other Foreign Ride control systems, molded and pressed 69 49 45
pulp goods, paperboard products,
corrugated boxes, aluminum and plastics
---- ---- ----
Total Export Sales $164 $145 $147
==== ==== ====
</TABLE>
14. COMMITMENTS AND CONTINGENCIES
Capital Commitments
The Company estimates that expenditures aggregating approximately $567
million will be required after December 31, 1995, to complete facilities and
projects authorized at such date, and substantial commitments have been made
in connection therewith.
F-25
<PAGE>
THE BUSINESSES OF NEW TENNECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Lease Commitments
The Company holds certain of its facilities and equipment under long-term
leases. The minimum rental commitments under non-cancelable operating leases
with lease terms in excess of one year are $134 million, $126 million, $124
million, $113 million and $117 million for the years 1996, 1997, 1998, 1999
and 2000, respectively, and $866 million for subsequent years. Of these
amounts, $81 million for 1996, $84 million for 1997, $93 million for 1998, $86
million for 1999, $92 million for 2000 and $689 million for subsequent years
are lease payment commitments to GECC, John Hancock, Metropolitan Life and
others (collectively, the "Lessors") for assets purchased by these companies
from Georgia-Pacific in January 1991 and leased to Tenneco Packaging.
The Company has the right to purchase from the Lessors the various leased
assets under certain conditions as specified in the agreements. In the event
the purchase options are not exercised, and that no event of default, as
defined, exists at the renewal dates, the Company also has the right to extend
the various lease terms on a basis set forth in the agreements. Throughout the
lease terms, the Company is required to maintain the leased properties which
includes reforestation of the timberlands harvested.
Commitments under capital leases were not significant to the accompanying
combined financial statements. Total rental expense for continuing operations
for the years 1995, 1994 and 1993, was $171 million, $161 million and $131
million, respectively, including minimum rentals under non-cancelable
operating leases of $148 million, $143 million and $138 million for the
corresponding periods.
Tenneco Packaging's various lease agreements require that it comply with
certain covenants and restrictions, including financial ratios that, among
other things, place limitations on incurring additional "funded debt" as
defined by the agreements. Under the provisions of the lease agreements, in
order to incur funded debt, Tenneco Packaging must maintain a pretax cash flow
coverage ratio, as defined, on a cumulative four quarter basis of a minimum of
2.0, subsequently modified to 1.25 through December 31, 1995. Tenneco
Packaging was in compliance with all of its covenants at December 31, 1995.
Litigation
The legal entities which comprise the Company are parties to various legal
proceedings arising from their operations. Management believes that the
outcome of these proceedings, individually and in the aggregate, will have no
material effect on the financial position or results of operations of the
Company.
Environmental Matters
The Company is subject to a variety of environmental and pollution control
laws and regulations in all jurisdictions in which it operates. The potential
costs related to the Company for various environmental matters are uncertain
due to such factors as the unknown magnitude of possible cleanup costs, the
complexity and evolving nature of governmental laws and regulations and their
interpretations, and the timing, varying costs and effectiveness of
alternative cleanup technologies. Liabilities recorded by the Company for
environmental contingencies are estimates of probable costs based upon
available information and assumptions. Because of these uncertainties,
however, the Company's estimates may change. The Company believes that any
additional costs identified as further information becomes available would not
have a material effect on the financial position or results of operations of
the Company.
F-26
<PAGE>
THE BUSINESSES OF NEW TENNECO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
CUMULATIVE
INCOME BEFORE EFFECT OF
INTEREST LOSS FROM CHANGE IN
NET SALES EXPENSE, INCOME DISCONTINUED ACCOUNTING
AND INCOME TAXES FROM OPERATIONS, PRINCIPLE,
QUARTER OPERATING AND MINORITY CONTINUING NET OF NET OF NET
(MILLIONS) REVENUES INTEREST OPERATIONS INCOME TAX INCOMETAX INCOME
---------- --------- ------------- ---------- ------------ ---------- ------
<S> <C> <C> <C> <C> <C> <C>
1996 1st..... $1,539 $161 $ 60 $ -- $-- $ 60
2nd........ 1,694 253 118 -- -- 118
------ ---- ---- ---- --- ----
$3,233 $414 $178 $ -- $-- $178
====== ==== ==== ==== === ====
1995 1st..... $1,237 $177 $ 76 $ -- $-- $ 76
2nd........ 1,340 201 92 -- -- 92
3rd........ 1,263 173 73 -- -- 73
4th........ 1,381 121 17 -- -- 17
------ ---- ---- ---- --- ----
$5,221 $672 $258 $ -- $-- $258
====== ==== ==== ==== === ====
1994 1st..... $ 954 $ 78 $ 51 $ (2) $(7) $ 42
2nd........ 1,071 125 45 (23) -- 22
3rd........ 1,071 149 117 -- -- 117
4th........ 1,070 104 25 (6) -- 19
------ ---- ---- ---- --- ----
$4,166 $456 $238 $(31) $(7) $200
====== ==== ==== ==== === ====
</TABLE>
Notes: Reference is made to Notes 3, 4 and 6 and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for items affecting
quarterly results.
The preceding notes are an integral part of the foregoing financial
statements.
F-27
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Mobil Oil Corporation
We have audited the accompanying combined statement of net assets of the
Mobil Plastics Division of Mobil Oil Corporation (the "Division") as of
November 17, 1995 and December 28, 1994 and the related combined statements of
operations before income taxes, changes in net assets and cash flows for the
period December 29, 1994 to November 17, 1995 and the year ended December 28,
1994. These financial statements are the responsibility of the Division's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As described in Note 1, the accompanying financial statements were prepared
to present the net assets and operations before income taxes of the Division,
which does not have a separate legal status or existence, and are not intended
to be a complete presentation of the assets and liabilities or the results of
operations of Mobil Oil Corporation.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined net assets of the Division at November
17, 1995 and December 28, 1994 and the combined results of its operations
before income taxes and its cash flows before income taxes for the period
December 29, 1994 to November 17, 1995 and the year ended December 28, 1994 in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Buffalo, New York
August 9, 1996
F-28
<PAGE>
MOBIL PLASTICS DIVISION OF MOBIL OIL CORPORATION
COMBINED STATEMENT OF NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NOVEMBER 17, DECEMBER 28,
1995 1994
------------ ------------
<S> <C> <C>
Current assets:
Accounts receivable--net............................ $114,219 $102,930
Inventories......................................... 92,492 73,785
Prepaid expenses and other current assets........... 1,232 552
-------- --------
Total current assets.................................. 207,943 177,267
Properties, plants and equipment--net................. 330,269 306,078
Assets held for sale.................................. 4,263 9,160
-------- --------
Total assets.......................................... 542,475 492,505
Current liabilities:
Accounts payable.................................... 53,788 53,503
Accrued restructuring charges....................... 5,575 28,837
Accrued expenses--other............................. 57,860 81,571
-------- --------
Total current liabilities............................. 117,223 163,911
-------- --------
Net assets............................................ $425,252 $328,594
======== ========
</TABLE>
See notes to combined financial statements.
F-29
<PAGE>
MOBIL PLASTICS DIVISION OF MOBIL OIL CORPORATION
COMBINED STATEMENT OF OPERATIONS BEFORE INCOME TAXES
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE
DECEMBER 29, 1994 YEAR ENDED
TO DECEMBER 28,
NOVEMBER 17, 1995 1994
----------------- ------------
<S> <C> <C>
Net sales....................................... $994,686 $1,035,884
Other operating revenue......................... 1,028 1,050
-------- ----------
995,714 1,036,934
Operating expenses:
Cost of goods sold............................ 625,330 665,150
Selling, distribution, general and administra-
tive......................................... 259,323 281,544
Research and development...................... 7,879 8,612
Restructuring and other charges............... 9,267 77,716
-------- ----------
901,799 1,033,022
-------- ----------
Operating income................................ 93,915 3,912
Other income.................................... 6,000 695
-------- ----------
Income before income taxes...................... $ 99,915 $ 4,607
======== ==========
</TABLE>
See notes to combined financial statements.
F-30
<PAGE>
MOBIL PLASTICS DIVISION OF MOBIL OIL CORPORATION
COMBINED STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<S> <C>
Excess of combined assets over liabilities at December 29, 1993...... $ 432,150
Income before income taxes........................................... 4,607
Net change in foreign currency translation adjustment................ (239)
Net change in parent company advances................................ (107,924)
---------
Excess of combined assets over liabilities at December 28, 1994...... 328,594
Income before income taxes........................................... 99,915
Net change in foreign currency transaction adjustment................ (179)
Net change in parent company advances................................ (3,078)
---------
Excess of combined assets over liabilities at November 17, 1995...... $ 425,252
=========
</TABLE>
See notes to combined financial statements.
F-31
<PAGE>
MOBIL PLASTICS DIVISION OF MOBIL OIL CORPORATION
COMBINED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED
NOVEMBER 17, DECEMBER 28,
1995 1994
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Income before income taxes.......................... $99,915 $ 4,607
Adjustments to reconcile income before income taxes
to net cash flows provided by operating activities:
Depreciation...................................... 34,538 42,184
Write down of properties, plants, equipment and
inventory as a result of restructuring program... 4,842 34,386
Gain (loss) on disposal of machinery and equip-
ment............................................. (20) 3,005
Changes in operating assets and liabilities:
Accounts receivable--net........................ (11,289) (11,605)
Inventories..................................... (18,707) 52,431
Prepaid expenses and other current assets....... (680) 5,056
Accounts payable and accrued expenses........... (23,426) 9,749
Accrued restructuring charges................... (23,262) 28,837
Other........................................... 197 462
------- --------
Cash provided by operating activities............... 62,108 169,112
INVESTING ACTIVITIES
Capital expenditures................................ (63,858) (63,031)
Proceeds from sale of machinery and equipment....... 4,828 1,843
------- --------
Cash used in investing activities................... (59,030) (61,188)
FINANCING ACTIVITIES
Change in parent company investment................. (3,078) (107,924)
------- --------
Cash used in financing activities................... (3,078) (107,924)
------- --------
Net change in cash and cash equivalents............. -- --
Cash and cash equivalents:
Beginning of period............................... -- --
------- --------
End of period..................................... $ -- $ --
======= ========
</TABLE>
See notes to combined financial statements.
F-32
<PAGE>
MOBIL PLASTICS DIVISION OF MOBIL OIL CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying combined financial statements present, on a historical cost
basis, the combined assets, liabilities, revenue and expense related to the
Mobil Plastics Division of Mobil Oil Corporation ("The Division" or the
"Plastics Division") as of November 17, 1995 and December 28, 1994. These
statements are presented as if the Division had existed as a separate entity
during the periods presented. Transactions between the businesses included in
these statements have been eliminated.
On November 17, 1995, substantially all of the assets and liabilities of the
Division were purchased by Tenneco Inc. pursuant to the Asset Purchase
Agreement dated October 1, 1995 among Mobil Oil Corporation, Mobil Chemical
Canada, Ltd. and Tenneco Inc. (the "agreement"). In accordance with the
agreement, certain assets and liabilities of the Division were retained by
Mobil Oil Corporation; however, with the exception of income taxes, these
assets and liabilites are included in the accompanying combined financial
statements.
The combined financial statements include the financial position and results
of operations of the Plastics Packaging and Consumer Products business groups,
which, prior to the sale to Tenneco Inc., were 100% owned by Mobil Corporation
("Mobil") through the legal entity, Mobil Oil Corporation ("Mobil Oil"). These
business groups have been organized as part of a division of Mobil Chemical
Company ("Mobil Chemical"), which is an operating entity of Mobil Oil.
The Division incurs certain common costs which relate to both the Division
and other Mobil Chemical operations, and management has made allocations of
these costs to the Division. Also, in order to prepare these combined
financial statements, management has made certain allocations of liabilities
to the Division. Management of Mobil Chemical believes such allocations are
reasonable; however, the amounts could differ from amounts that would be
determined if the Division were operated on a stand-alone basis.
Net assets reflect Mobil's historical cost basis investment in the Division,
accumulated earnings and losses of the Division, cumulative exchange
translation adjustments and intercompany activity with Mobil and other
affiliates which are not settled on a current basis.
Income taxes have been excluded from the accompanying combined financial
statements as the responsibility for such taxes is being retained by Mobil
Oil.
2. SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
All cash and cash equivalents are transferred to Mobil Oil Corporation
through the intercompany account on a current basis and, with the exception of
petty cash, are excluded from assets on the accompanying combined statements
of net assets. The Division is part of a centralized cash management system of
Mobil Oil, whereby all cash disbursements of the Division are funded by, and
all cash receipts are transferred to, Mobil Oil.
Inventories
Inventories are stated at cost, but not in excess of market. The cost of
substantially all product inventories is determined by the last-in, first-out
(LIFO) method. The cost of maintenance and supplies inventories is determined
by the first-in, first-out method.
Properties, Plants and Equipment
Properties, plants and equipment are stated at cost. Depreciation is
computed principally using the straight-line and various accelerated methods
over the estimated useful lives of the assets which range from 3 years to 11
F-33
<PAGE>
MOBIL PLASTICS DIVISION OF MOBIL OIL CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
years for machinery and equipment, and 25 years to 32 years for land
improvements and buildings. Expenditures for renewals and improvements that
extend the useful life of an asset are capitalized. Expenditures for routine
repairs and maintenance are charged to operations when incurred. Property
items retired or otherwise disposed of are removed from the property and
related accumulated depreciation accounts. Any profit or loss is included in
operations.
Foreign Currency Translation
Financial statements for the Canadian operations are translated into U.S.
dollars at period-end exchange rates as to assets and liabilities and weighted
average exchange rates as to revenues and expenses. The resulting translation
adjustments are recorded as part of net assets.
Use of Estimates
The financial statements, which are prepared in conformity with generally
accepted accounting principles, include amounts that are based, in part, on
management's best estimates and judgments.
Revenue Recognition
The Division recognizes revenue at the point of passage of title, which is
at the time of shipment to the customer.
Promotional Programs
The Division accrues for the costs of promotional programs, including cents-
off coupons and other trade related programs, at the time the program is made
available to customers. Any adjustments between the original estimate and
ultimate costs are recorded as a change in estimate in the period known. This
change in estimate in 1995 resulted in a reduction of expense of approximately
$9 million.
Environmental Liabilities
The estimated future costs for known environmental remediation requirements
are accrued when it is probable that a liability has been incurred and the
amount of remediation costs can be reasonably estimated. These amounts are the
undiscounted future estimated costs under existing regulatory requirements and
using existing technology.
Allocation of Expenses
The Division shares certain services with other related business groups at
the Divisional level. Services are also performed by Mobil Chemical, Mobil Oil
and Mobil Corporation. These services are allocated to the Plastics Division
primarily on the basis of estimated usage of services. A summary of the
services and the amounts allocated to the Division are described in Note 10.
3. OPERATING ACTIVITIES
The Division is comprised of two primary business groups, Plastics Packaging
and Consumer Products. Plastics Packaging serves food service, supermarkets
and industrial segments while Consumer Products serves the packaged goods
segment of the retail industry. The Division's products include waste bags,
tableware, food bags, food service disposables, meat trays, clear containers,
grocery sacks and stretch film. The Division operates ten manufacturing
facilities in the United States and one in Canada. These facilities consist of
six polyethylene and five polystyrene fabricating plants. The Division
primarily markets its products to customers in North America. There are no
further geographic concentrations of customers, and, generally, collateral is
not required.
F-34
<PAGE>
MOBIL PLASTICS DIVISION OF MOBIL OIL CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
4. ACCOUNTS RECEIVABLE
Accounts receivable consists of the following:
<TABLE>
<CAPTION>
NOVEMBER 17, DECEMBER 28,
1995 1994
------------ ------------
(THOUSANDS)
<S> <C> <C>
Accounts receivable--trade............................ $112,239 $101,911
Other receivables..................................... 3,067 2,108
Less: Allowance for doubtful accounts................. (1,087) (1,089)
-------- --------
$114,219 $102,930
======== ========
</TABLE>
5. INVENTORIES
Major classes of inventories are as follows:
<TABLE>
<CAPTION>
NOVEMBER 17, DECEMBER 28,
1995 1994
------------ ------------
(THOUSANDS)
<S> <C> <C>
Raw material.......................................... $ 25,068 $24,443
In-process............................................ 12,740 10,637
Finished product...................................... 84,752 63,866
-------- -------
Product inventory at current cost..................... 122,560 98,946
Less: LIFO and other product inventory reserves....... (43,895) (44,893)
-------- -------
78,665 54,053
Other material and supplies........................... 6,427 6,274
Maintenance........................................... 7,400 13,458
-------- -------
$ 92,492 $73,785
======== =======
</TABLE>
As a result of the decrease in the level of inventories in 1994, a LIFO
layer liquidation occurred. The impact of the liquidation was approximately a
$7,340 thousand decrease to cost of goods sold for the year ended December 28,
1994. The reduction to cost of goods sold consists of a decrease of $8,640
thousand for the Consumer Products business group which is offset by an
increase of $1,300 thousand for the Plastics Packaging business group.
6. PROPERTIES, PLANTS AND EQUIPMENT
Major classes of properties, plants and equipment are as follows:
<TABLE>
<CAPTION>
NOVEMBER 17, DECEMBER 28,
1995 1994
------------ ------------
(THOUSANDS)
<S> <C> <C>
Land and land improvements............................ $ 17,185 $ 17,092
Buildings............................................. 112,218 111,262
Machinery, equipment, furniture and fixtures.......... 591,343 561,596
Construction in progress.............................. 50,642 31,580
--------- ---------
Properties, plants and equipment--gross............... 771,388 721,530
Less accumulated depreciation......................... (441,119) (415,452)
--------- ---------
Properties, plants and equipment--net................. $ 330,269 $ 306,078
========= =========
</TABLE>
F-35
<PAGE>
MOBIL PLASTICS DIVISION OF MOBIL OIL CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
7. ASSETS HELD FOR SALE
As part of the Division's reengineering program, as described in Note 15,
the Division closed two manufacturing plants and eliminated unprofitable
product lines which resulted in either the sale or disposal of the related
machinery and equipment. The restructuring charge recorded in 1995 and 1994
includes $4,713 thousand and $28,581 thousand to write-down the two plants,
machinery and equipment to their estimated realizable value. These items had
an original cost of approximately $108,700 thousand and accumulated
depreciation of approximately $66,000 thousand prior to the restructuring
charge. The Washington, New Jersey plant was closed in September 1994, and the
Woodland, California plant was closed in March 1995. The items that have not
been sold or disposed of are included as assets held for sale in the
accompanying combined statement of net assets at management's estimate of the
realizable value.
8. ACCRUED EXPENSES--OTHER
Accrued expenses--other consists of the following:
<TABLE>
<CAPTION>
NOVEMBER 17, DECEMBER 28,
1995 1994
------------ ------------
(THOUSANDS)
<S> <C> <C>
Promotional programs.................................. $28,861 $42,139
Vacation.............................................. 6,752 7,993
Quantity discounts.................................... 5,791 7,150
Freight............................................... 4,847 6,965
Sales force and other bonuses......................... 2,624 2,331
Benefits.............................................. 2,310 3,442
Commissions........................................... 1,421 1,671
Relocation costs...................................... 1,152 873
Sales and use tax..................................... 1,042 674
Workers compensation insurance........................ 965 2,230
Insurance programs.................................... 769 773
Advertising........................................... 446 1,219
Property taxes........................................ 221 904
Salaries.............................................. -- 2,067
Other accrued expenses................................ 659 1,140
------- -------
$57,860 $81,571
======= =======
</TABLE>
9. FOREIGN CURRENCY TRANSLATION
The cumulative currency translation adjustment included in net assets
consists of the following unrealized gain (loss):
<TABLE>
<CAPTION>
(THOUSANDS)
-----------
<S> <C>
Balance at December 29, 1993........................................ $ (770)
Exchange adjustments.............................................. (239)
-------
Balance at December 28, 1994........................................ (1,009)
Exchange adjustments.............................................. (179)
-------
Balance at November 17, 1995........................................ $(1,188)
=======
</TABLE>
F-36
<PAGE>
MOBIL PLASTICS DIVISION OF MOBIL OIL CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
10. RELATED PARTY TRANSACTIONS
Mobil Chemical Company, Mobil Oil Corporation, and Mobil Corporation have
provided the Plastics Division with various administrative and financial
services. Mobil Chemical Company services include computer systems,
accounting, legal and purchasing functions. Mobil Oil Corporation and Mobil
Corporation services include computer mainframe and networking charges,
payroll and employee benefits administration, health, safety and environmental
compliance programs, and plastics industry trade dues. It is Mobil's policy to
allocate centrally incurred costs primarily on the basis of usage or on
estimated time spent. Management believes these allocations and charges have
been made on a reasonable basis; however, they are not necessarily indicative
of the level of expenses which might have been incurred had the Division been
operating as a stand-alone entity.
Charges allocated to the Division from the above-mentioned sources amounted
to approximately $21,110 thousand and $24,980 thousand for the period December
29, 1994 to November 17, 1995 and the year ended December 28, 1994,
respectively. In addition to the above charges, the Division is allocated a
surcharge based on payroll for various employee benefits, including those
mandated by statute. For U.S. operations these charges amounted to $36,606
thousand and $46,591 thousand, and for Canadian operations these charges
amounted to $502 thousand and $610 thousand for the periods ended November 17,
1995 and December 28, 1994, respectively. In addition, workers' compensation
costs were allocated to the Division from Mobil Oil based on payroll, state
mandated rates, and experience ratings. Workers' compensation costs allocated
to the Division for the periods ended November 17, 1995 and December 28, 1994,
amounted to approximately $4,811 thousand and $7,300 thousand, respectively.
The Division obtains general liability and fire and extended property
insurance coverage from a wholly-owned subsidiary of Mobil Corporation. The
Division is self-insured up to deductible limits; these limits for fire and
extended property insurance were increased effective January 1, 1995.
Insurance premiums charged to the Division were approximately $382 thousand
and $801 thousand for the periods ended November 17, 1995 and December 28,
1994, respectively.
The Division purchased approximately 7% and 10% of its polyethylene resin
raw material from Mobil affiliates during the period ended November 17, 1995
and the year ended December 28, 1994, respectively. These purchases, which
were made at market rates, amounted to approximately $12,240 thousand and
$16,600 thousand for the periods ended November 17, 1995 and December 28,
1994, respectively.
11. DEFINED BENEFIT RETIREMENT PLANS
The majority of the Division's U.S. employees are covered by funded
noncontributory pension plans sponsored by Mobil Oil. These plans are
primarily final average pay plans. Funding for these plans, at the Corporate
level, is based on the projected unit credit actuarial cost method. The assets
of these plans consist primarily of equity and fixed income securities.
The Division receives an intercompany allocation of pension costs from Mobil
or its subsidiaries. The net pension obligation is maintained on Mobil's books
and no amount has been included in the accompanying combined statement of net
assets for the Division's share of the obligation.
Net pension costs allocated by Mobil Oil to the Plastics Division
approximated a credit of $983 thousand for the period December 29, 1994 to
November 17, 1995 and a charge of $4,619 thousand for the year ended December
28, 1994. Amounts allocated are principally determined based on payroll. These
credits and charges are included in the payroll surcharge amount disclosed in
Note 10.
F-37
<PAGE>
MOBIL PLASTICS DIVISION OF MOBIL OIL CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
11. DEFINED BENEFIT RETIREMENT PLANS--(CONTINUED)
The Division also provides retirement benefits for its Canadian employees
under pension plans sponsored by a Canadian subsidiary of Mobil Corporation.
Net pension costs allocated to the Plastics Division amounted to approximately
$99 thousand and $170 thousand for the periods ended November 17, 1995 and
December 28, 1994, respectively. These charges are included in the payroll
surcharge amount disclosed in Note 10.
In accordance with certain reporting requirements, actuarial valuations for
the defined benefit retirement plans are performed on an annual basis. Mobil
Oil performed actuarial valuations as of December 31, 1995 and 1994. The
primary assumptions used for the U.S. and Canadian plans actuarial valuations
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 28,
1995 1994
------------ ------------
Percent
<S> <C> <C>
Discount rate......................................... 7.0--7.3 7.5--8.5
Rate of salary increase............................... 4.0--5.3 4.0--5.6
Expected return on plan assets........................ 8.7--9.0 8.2--8.5
</TABLE>
12. OTHER POSTRETIREMENT BENEFITS
The Division, through Mobil Oil, provides certain health care and life
insurance benefits for U.S. retired employees who meet eligibility
requirements. The cost of these benefits is allocated to the Division by Mobil
Oil. The net obligation for these benefits is maintained by Mobil Oil and no
amount has been recorded in the accompanying combined statement of net assets
for the Division's share of the obligation. Premium costs are shared on a
plan-by-plan basis between Mobil Oil and the participants. Postretirement
health care benefits are provided both before and after eligibility for
Medicare. The life insurance plans provide for a single lump-sum payment to a
designated beneficiary.
Charges for postretirement health care and life insurance plans allocated to
the Division by Mobil Oil were $951 thousand and $3,460 thousand for the
period December 28, 1994 to November 17, 1995 and the year ended December 28,
1994, respectively. Amounts allocated are principally determined based on the
Division's payroll and the number of employees. These charges are included in
the payroll surcharge amount disclosed in Note 10.
In accordance with certain reporting requirements, actuarial valuations for
postretirement health care and life insurance plans are performed on an annual
basis. Mobil Oil performed actuarial valuations as of December 31, 1995 and
1994.
The accumulated postretirement benefit obligation is based on a weighted-
average assumed discount rate of 7% and 8.5% as of December 31, 1995 and 1994,
respectively. At December 31, 1995, the health care cost trend used to
calculate the accumulated postretirement benefit obligation is 9.7% for 1996,
and is assumed to decrease generally over 9 years to 5.5%. At December 31,
1994, the health care cost trend rate was assumed to be 10.3% for 1995,
declining to 5.5% after 10 years. The effect of a one percentage point
increase in the assumed health care cost trend rate for each year would
increase the Division's postretirement benefit charge by approximately 15%.
Mobil Corporation's policy is to make contributions to funded plans and
provide book reserves for unfunded plans.
The Division does not provide postretirement benefits for its Canadian
employees because they are covered primarily by local government programs.
F-38
<PAGE>
MOBIL PLASTICS DIVISION OF MOBIL OIL CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
13. EMPLOYEE SAVINGS PLAN
The Division, through Mobil Oil, sponsors an Employee Savings Plan, which
covers most U.S. employees. The Plan includes a savings plan, which consists
primarily of an employee stock ownership plan (ESOP) and a 401(k) plan. The
ESOP consists of contributions made by Mobil Oil of 4% of eligible employees'
annual base salary. The 401(k) plan consists of Mobil Oil's contribution of 2%
of eligible employees' annual base salary and employee contributions of 1% to
10% of their base salary subject to IRS limitations. Mobil Oil contributions
to the ESOP are invested in Mobil ESOP Convertible Preferred Stock. Employee
contributions to the savings plan are invested at the employees' discretion in
Mobil Corporation common stock or a variety of mutual funds. The Division was
charged approximately $4,348 thousand and $6,506 thousand for the period
December 29, 1994 to November 17, 1995 and the year ended December 28, 1994,
respectively, for their allocated costs of these plans. These charges are
included in the payroll surcharge amount disclosed in Note 10.
The Division also sponsors, through a Canadian subsidiary of Mobil
Corporation, an Employee Savings Plan for its Canadian employees. For salaried
employees the plan consists of a 3-5% contribution by Mobil (depending on
years of service). This contribution is made only if an employee also
contributes a minimum of 5%. An employee may contribute up to 25% of their
salary. For non-salaried workers the employee has a choice of 2% of additional
wages, or a 2% contribution to the Savings Plan. All contributions are
invested at the employees' discretion in Mobil Corporation common stock or a
variety of mutual funds. Employee Savings Plan contributions allocated to the
Division amounted to approximately $65 thousand and $73 thousand for the
periods ended November 17, 1995 and December 28, 1994, respectively. These
charges are included in the payroll surcharge amount disclosed in Note 10.
14. LEASE COMMITMENTS AND RENTALS
The Division rents certain property and equipment under various operating
leases. Total rental expense for the period December 29, 1994 to November 17,
1995 and the year ended December 28, 1994, amounted to approximately $3,518
thousand and $8,169 thousand, respectively.
Future minimum lease payments under all non-cancelable operating leases
having a remaining term in excess of one year are as follows for the next five
calendar years:
<TABLE>
<CAPTION>
(THOUSANDS)
-----------
<S> <C>
1996................................................................ $2,098
1997................................................................ 1,415
1998................................................................ 930
1999................................................................ --
2000................................................................ --
</TABLE>
15. RESTRUCTURING CHARGE
During 1994, the Division implemented a major reengineering program intent
on reducing the Division's cost structure through a comprehensive redesign of
operating practices and major business processes. The program included the
closing of two manufacturing plants, equipment consolidation, elimination of
unprofitable product lines, closure of outside warehouses, and manpower
reductions made possible by improved processes and consolidating accounting
and other administrative functions. As a result of the reengineering program,
the Division's headcount was reduced by approximately 25% or 1,200 positions.
Included in operating results is a charge of $7,267 and $74,809 thousand
relating to the cost of this program for the period December 29, 1994 to
November 17, 1995 and for the year ended December 28, 1994, respectively.
F-39
<PAGE>
MOBIL PLASTICS DIVISION OF MOBIL OIL CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
15. RESTRUCTURING CHARGE--(CONTINUED)
The restructuring charge consists of the following:
<TABLE>
<CAPTION>
NOVEMBER 17, DECEMBER 28,
1995 1994
------------ ------------
(THOUSANDS)
<S> <C> <C>
Employee severance packages......................... $1,102 $37,375
Write-down of equipment and inventory and related
costs of discontinued product lines................ 3,896 27,190
Charges to record closed manufacturing facilities at
estimated realizable value and related closure and
selling costs...................................... 946 9,113
Other............................................... 1,323 1,131
------ -------
$7,267 $74,809
====== =======
</TABLE>
The Division's combined statements of net assets includes accruals for
restructuring of $5,575 thousand and $28,837 thousand at November 17, 1995 and
December 28, 1994, respectively. These accruals consist primarily of employee
severance packages which are paid on an ongoing basis; it is anticipated that
payments relating to this program will be completed in 1996.
The Division also incurred consulting charges relating to the restructuring
program of $2,000 thousand and $2,907 thousand for the period December 29,
1994 to November 17, 1995 and the year ended December 28, 1994, respectively.
16. CONTINGENCIES
Environmental Matters
The Division is subject to loss contingencies pursuant to various federal,
state and local environmental laws and regulations. These include possible
obligations to remove or mitigate the effects on the environment of the
placement, storage, disposal or release of certain chemical or other
substances by the Division or by other parties.
The Division is not aware of any significant environmental obligations and
accordingly has not made any provisions for such obligations related to its
current operating facilities. The Division may, in the future, be involved in
environmental assessments or clean-ups. While the ultimate requirement for any
such remediation, and its cost, is presently not known, the management of the
Division does not expect these costs, based upon currently known information
and existing requirements, to have a material adverse effect on its net assets
and future operating results.
17. PATENT INFRINGEMENT SETTLEMENT
In March 1995 the Division received a $6,000 thousand settlement relating to
a patent infringement suit. This amount is recorded as other income during the
period ended November 17, 1995.
F-40
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Tenneco Inc.:
We have audited the accompanying combined balance sheets of the businesses
of Tenneco Energy (see Note 1) as of December 31, 1995 and 1994, and the
related combined statements of income, cash flows and changes in combined
equity for each of the three years in the period ended December 31, 1995.
These combined financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these combined financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the combined
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall combined financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
businesses of Tenneco Energy as of December 31, 1995 and 1994, and the results
of its combined operations and cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
combined financial statements taken as a whole. The supplemental schedule
listed in the index to the combined financial statements and schedule is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic combined financial statements.
The supplemental schedule has been subjected to the auditing procedures
applied in the audits of the basic combined financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic combined financial statements of
the businesses of Tenneco Energy taken as a whole.
ARTHUR ANDERSEN LLP
Houston, Texas
August 19, 1996
F-41
<PAGE>
THE BUSINESSES OF TENNECO ENERGY
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER SIX MONTHS ENDED
31, JUNE 30,
--------------------- ------------------
(MILLIONS) 1995 1994 1993 1996 1995
- ---------- ------ ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Net sales and operating revenues..... $1,921 $2,381 $2,866 $1,370 $ 939
Other income--
Interest income.................... 85 65 25 31 44
Equity in net income of affiliated
companies......................... 65 51 47 18 37
Gain (loss) on sale of assets, net. 11 1 62 42 (7)
Gain on the sale by a subsidiary of
its stock......................... -- 23 -- -- --
Other income, net.................. 29 17 37 6 19
------ ------ ------ ------ ------
2,111 2,538 3,037 1,467 1,032
------ ------ ------ ------ ------
COSTS AND EXPENSES
Cost of gas sold..................... 954 1,472 1,786 795 493
Operating expenses................... 414 379 442 230 170
General and administrative........... 200 143 169 113 96
Finance charges...................... 79 75 51 34 43
Depreciation, depletion and amortiza-
tion................................ 196 102 170 107 90
------ ------ ------ ------ ------
1,843 2,171 2,618 1,279 892
------ ------ ------ ------ ------
Income before interest expense and
income taxes........................ 268 367 419 188 140
Interest expense, net of interest al-
located to affiliates............... 122 142 127 63 61
------ ------ ------ ------ ------
Income before income taxes........... 146 225 292 125 79
Income tax expense (benefit)......... (11) 72 104 22 32
------ ------ ------ ------ ------
Income before extraordinary loss..... 157 153 188 103 47
Extraordinary loss, net of income
tax................................. -- -- (25) -- --
------ ------ ------ ------ ------
Net income .......................... $ 157 $ 153 $ 163 $ 103 $ 47
====== ====== ====== ====== ======
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these combined statements of income.
F-42
<PAGE>
THE BUSINESSES OF TENNECO ENERGY
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------- JUNE 30,
(MILLIONS) 1995 1994 1996
- ---------- ------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and temporary cash investments................ $ 249 $ 48 $ 100
Receivables--
Customer notes and accounts (net)................. 508 961 503
Affiliated companies.............................. 199 215 170
Gas transportation and exchange................... 64 214 151
Income taxes...................................... 133 234 105
Other............................................. 436 130 261
Inventories........................................ 24 22 24
Deferred income taxes.............................. -- -- 21
Prepayments and other.............................. 83 92 93
------ ------ ------
1,696 1,916 1,428
------ ------ ------
Investments and other assets:
Investment in affiliated companies................. 280 358 230
Long-term notes and other receivables (net) ....... 352 683 235
Goodwill........................................... 22 25 37
Other.............................................. 601 307 685
------ ------ ------
1,255 1,373 1,187
------ ------ ------
Plant, property and equipment, at cost............... 6,272 5,768 6,436
Less--Reserves for depreciation, depletion and
amortization...................................... 3,431 3,327 3,512
------ ------ ------
2,841 2,441 2,924
------ ------ ------
$5,792 $5,730 $5,539
====== ====== ======
LIABILITIES AND COMBINED EQUITY
Current liabilities:
Short-term debt (including current maturities on
long-term debt)................................... $ 456 $ 399 $ 521
Payables--
Trade............................................. 365 324 312
Affiliated companies.............................. 88 47 113
Gas transportation and exchange................... 28 159 107
Taxes accrued...................................... 525 56 25
Deferred income taxes.............................. 65 29 --
Interest accrued................................... 102 124 97
Natural gas pipeline revenue reservation........... 27 190 59
Other.............................................. 428 238 537
------ ------ ------
2,084 1,566 1,771
------ ------ ------
Long-term debt....................................... 1,811 2,242 1,519
------ ------ ------
Deferred income taxes................................ 323 735 413
------ ------ ------
Postretirement benefits.............................. 260 288 246
------ ------ ------
Deferred credits and other liabilities............... 478 351 406
------ ------ ------
Commitments and contingencies
Minority interest.................................... 19 19 18
------ ------ ------
Preferred stock with mandatory redemption provisions. 130 147 112
------ ------ ------
Combined equity...................................... 687 382 1,054
------ ------ ------
$5,792 $5,730 $5,539
====== ====== ======
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these combined balance sheets.
F-43
<PAGE>
THE BUSINESSES OF TENNECO ENERGY
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED ENDED
DECEMBER 31, JUNE 30,
--------------------- ------------
(MILLIONS) 1995 1994 1993 1996 1995
- ---------- ----- ----- ------- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income................................ $ 157 $ 153 $ 163 $ 103 $ 47
Adjustments to reconcile net income to net
cash provided (used) by operating
activities --
Extraordinary loss, net of tax.......... -- -- 25 -- --
Depreciation, depletion and
amortization........................... 196 102 170 107 90
Equity in net income of affiliated
companies, net of dividends............ (12) (3) (5) (1) (12)
Deferred income taxes................... 88 51 93 5 (7)
(Gain) loss on sale of assets, net...... (11) (24) (62) (42) 7
Cash paid for interest allocated to
affiliates, net of tax................. (117) (78) (81) (75) (56)
Changes in components of working
capital--
(Increase) decrease in receivables..... 451 17 78 19 163
(Increase) decrease in prepayments and
other current assets.................. 8 35 51 4 8
Increase (decrease) in payables........ (25) (262) (241) (2) (70)
Increase (decrease) in taxes accrued... 40 (252) 90 (235) 9
Increase (decrease) in interest
accrued............................... (52) (39) (32) (15) (27)
Increase (decrease) in natural gas
pipeline revenue reservation.......... (156) (91) 136 11 (179)
Increase (decrease) in other current
liabilities........................... (102) (60) (122) (161) (7)
(Increase) decrease in long-term notes
and other receivables (net)............ 332 228 -- 138 199
Take-or-pay (refunds to customers)
recoupments, net....................... 36 26 (34) 2 25
Other................................... (68) (81) (20) (43) (16)
----- ----- ------- ----- -----
Net cash provided (used) by operating
activities............................... 765 (278) 209 (185) 174
----- ----- ------- ----- -----
INVESTING ACTIVITIES
Net proceeds from sale of assets.......... 17 68 114 278 13
Expenditures for plant, property and
equipment................................ (337) (345) (171) (164) (113)
Acquisitions of businesses................ (241) -- -- -- (225)
Investments and other..................... 24 48 22 3 59
----- ----- ------- ----- -----
Net cash provided (used) by investing
activities............................... (537) (229) (35) 117 (266)
----- ----- ------- ----- -----
FINANCING ACTIVITIES
Issuance of Tenneco Inc. common, treasury
and SECT shares.......................... 102 188 1,215 46 39
Purchase of Tenneco Inc. common stock..... (655) (26) (7) (122) (450)
Redemption of Tenneco Inc. preferred
stock.................................... (20) (20) (30) (20) (20)
Dividends (Tenneco Inc. common and
preferred stock)......................... (286) (318) (307) (158) (146)
Redemption of equity securities by a
subsidiary............................... -- (160) -- -- --
Net increase (decrease) in short-term debt
excluding current maturities on long-term
debt..................................... 415 (97) 19 164 34
Issuance of long-term debt................ 594 -- -- -- --
Retirement of long-term debt.............. (497) (508) (1,335) (292) (180)
Net cash contributions from affiliates.... 320 1,367 396 301 786
----- ----- ------- ----- -----
Net cash provided (used) by financing
activities............................... (27) 426 (49) (81) 63
----- ----- ------- ----- -----
Increase (decrease) in cash and temporary
cash investments......................... 201 (81) 125 (149) (29)
Cash and temporary cash investments, at
beginning of period...................... 48 129 4 249 48
----- ----- ------- ----- -----
Cash and temporary cash investments, at
end of period............................ $ 249 $ 48 $ 129 $ 100 $ 19
===== ===== ======= ===== =====
Cash paid during the year for interest.... $ 420 $ 349 $ 498 $ 220 $ 210
Cash paid during the year for income taxes
(net of refunds and tax payments from
affiliates).............................. $(123) $(129) $ 14 $ 516 $ 56
</TABLE>
Note: Cash and temporary cash investments include highly liquid investments
with a maturity of three months or less at the date of purchase.
The accompanying notes to combined financial statements are an integral part of
these combined statements of cash flows.
F-44
<PAGE>
THE BUSINESSES OF TENNECO ENERGY
STATEMENTS OF CHANGES IN COMBINED EQUITY
<TABLE>
<CAPTION>
(MILLIONS)
- ----------
<S> <C>
Balance, December 31, 1992............................................ $(1,503)
Net income.......................................................... 163
Cash paid for interest allocated to affiliates, net of tax.......... (81)
Change in corporate debt allocated to affiliates.................... (905)
Cash contributions from (distributions to) affiliates, net.......... 396
Noncash contributions from (distributions to) affiliates, net....... 360
Contributions from (distributions to) shareowners, net.............. 918
-------
Balance, December 31, 1993............................................ (652)
Net income.......................................................... 153
Cash paid for interest allocated to affiliates, net of tax.......... (78)
Change in corporate debt allocated to affiliates.................... (135)
Cash contributions from (distributions to) affiliates, net.......... 1,367
Noncash contributions from (distributions to) affiliates, net....... (98)
Contributions from (distributions to) shareowners, net.............. (175)
-------
Balance, December 31, 1994............................................ 382
Net income.......................................................... 157
Cash paid for interest allocated to affiliates, net of tax.......... (117)
Change in corporate debt allocated to affiliates.................... 930
Cash contributions from (distributions to) affiliates, net.......... 320
Noncash contributions from (distributions to) affiliates, net....... (235)
Contributions from (distributions to) shareowners, net.............. (750)
-------
Balance, December 31, 1995............................................ 687
Net income.......................................................... 103
Cash paid for interest allocated to affiliates, net of tax.......... (75)
Change in corporate debt allocated to affiliates.................... 111
Cash contributions from (distributions to) affiliates, net.......... 301
Noncash contributions from (distributions to) affiliates, net....... 140
Contributions from (distributions to) shareowners, net.............. (213)
-------
Balance, June 30, 1996 (unaudited).................................... $ 1,054
=======
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these statements of changes in combined equity.
F-45
<PAGE>
THE BUSINESSES OF TENNECO ENERGY
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
Basis of Presentation
The accompanying combined financial statements represent the financial
position, results of operations and cash flows of all energy businesses and
operations owned directly or indirectly by Tenneco Inc. ("Tenneco") and its
subsidiaries, and other existing and discontinued operations of Tenneco and
its subsidiaries other than those relating to Tenneco's automotive, packaging,
administrative services and shipbuilding businesses. The combination of these
energy businesses and operations and such other existing and discontinued
operations of Tenneco, together with Tenneco (which will remain the parent
company of such businesses and operations after the Distributions and Merger
described in Note 2 below) are collectively referred to herein as "Tenneco
Energy" or the "Company".
Investments in 20% to 50% owned companies where Tenneco Energy has the
ability to exert significant influence over operating and financial policies
are carried at cost plus equity in undistributed earnings since date of
acquisition. Reference is made to Note 11, "Investment in Affiliated
Companies," for information concerning significant equity method investees.
All significant transactions and balances among combined businesses have been
eliminated.
Description of Business
Tenneco Energy is engaged primarily in the interstate transportation of
natural gas. The Company is also engaged in related businesses that are not
generally subject to regulation by the Federal Energy Regulatory Commission
("FERC"). The principal activities of these businesses include the intrastate
transportation and marketing of natural gas, the development of and
participation in international natural gas pipelines, primarily in Australia,
the participation in international and domestic gas-fired power generation
projects and the development of natural gas production and production
financing programs, primarily in the United States. Tenneco Energy, through
its combined subsidiary Tenneco Credit Corporation ("TCC"), is also engaged in
financing, on a nonrecourse basis, receivables of certain current and former
operating divisions of Tenneco.
2. MERGER AND DISTRIBUTIONS
On June 19, 1996, Tenneco and El Paso Natural Gas Company ("El Paso")
entered into a merger agreement pursuant to which a subsidiary of El Paso will
be merged with and into Tenneco (the "Merger") which, immediately following
the distributions discussed below, will consist only of the energy businesses
and operations and the other existing and discontinued operations of Tenneco.
The Merger is part of a larger Tenneco reorganization (the "Transaction"),
which includes the distribution of all of the outstanding shares of common
stock of New Tenneco Inc., a newly formed subsidiary of Tenneco which, after
giving effect to certain corporate restructuring transactions, will hold
substantially all of the assets, liabilities and operations of Tenneco's
current automotive, packaging and administrative services businesses ("New
Tenneco"), and Newport News Shipbuilding Inc., a subsidiary of Tenneco that
was formerly named Tenneco InterAmerica Inc. and that will hold substantially
all of the assets, liabilities and operations of Tenneco's current
shipbuilding business ("Newport News"), to the holders of Tenneco common stock
(collectively, the "Distributions"). Upon completion of the Transaction,
holders of Tenneco common stock will receive equity securities in New Tenneco,
Newport News and El Paso.
Prior to the Transaction Tenneco intends to initiate a realignment of its
existing indebtedness. As part of the debt realignment, certain New Tenneco
debt will be offered in exchange for certain issues of Tenneco debt. Tenneco
will initiate cash tender offers for other Tenneco debt, and certain debt
issues may be defeased. These cash tender offers and defeasances will be
financed by a combination of new lines of credit of the Company,
F-46
<PAGE>
THE BUSINESSES OF TENNECO ENERGY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
New Tenneco (which may declare and pay a dividend to Tenneco) and Newport News
(which will declare and pay a dividend of approximately $600 million to
Tenneco). Upon completion of the debt realignment, Tenneco will have
responsibility for $2.65 billion of debt and preferred stock, subject to
certain adjustments, Newport News will have responsibility for the borrowings
under its credit lines and New Tenneco will have responsibility for the
remaining debt.
The Transaction is subject to certain conditions, including receipt of a
favorable ruling from the Internal Revenue Service to the effect that the
Distributions and certain internal spin-off transactions will be tax-free for
federal income tax purposes and approval by Tenneco's shareowners.
In order to assist in the orderly transition of New Tenneco and Newport News
into separate, publicly held companies, Tenneco intends to modify, amend or
enter into certain contractual agreements with New Tenneco and Newport News,
including a tax sharing agreement (see "Income taxes" in Note 3), an employee
benefits agreement, an insurance agreement, an administrative services
agreement and other ancillary agreements. These agreements will provide, among
other things, that: (i) New Tenneco will become the sole sponsor of the Tenneco
Inc. Retirement Plan, the Tenneco Inc. Thrift Plan, and various Tenneco Inc.
welfare plans; (ii) New Tenneco and Newport News will retain specific insurance
policies relating to their businesses and will continue to have rights and
obligations under certain parent-company level insurance policies of Tenneco;
and (iii) at the election of Tenneco pursuant to El Paso's request, New Tenneco
will provide certain services, such as mainframe data processing and product
purchasing services, to the Company for a limited period of time following the
Distributions.
3. SUMMARY OF ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions in
determining the reported amounts of the Company's assets, liabilities, revenues
and expenses. Reference is made to the "Revenue Recognition" and "Income Taxes"
sections of this footnote and Notes 9, 13, 14 and 15 for additional information
on significant estimates included in the Company's combined financial
statements.
Unaudited Interim Information
The unaudited interim combined financial statements as of June 30, 1996 and
for each of the six month periods ended June 30, 1996 and 1995, included
herein, have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of the Company's management,
the unaudited interim combined financial statements contain all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation. The interim financial results may not be indicative of operating
results for an entire year.
Notes Receivable and Allowance for Doubtful Accounts and Notes
Short-term notes receivable of $302 million and $305 million were outstanding
at December 31, 1995 and 1994, respectively, of which $216 million and $284
million, respectively, related to TCC. These notes receivable are presented net
of unearned finance charges of $26 million and $43 million at December 31, 1995
and 1994, respectively, which related to TCC. At December 31, 1995 and 1994,
unearned finance charges related to long-term notes and other receivables were
$23 million and $66 million, respectively, which related to TCC.
F-47
<PAGE>
THE BUSINESSES OF TENNECO ENERGY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1995 and 1994, the allowance for doubtful accounts and
notes receivable was $49 million and $21 million, respectively.
Inventory
Inventories, consisting of materials and supplies are valued at the lower of
average cost or market.
Property, Plant and Equipment, at Cost
The majority of the Company's property, plant and equipment consists of its
investment in interstate and intrastate pipeline systems. At December 31, 1995
and 1994, $223 million and $160 million, respectively, of the Company's
property, plant and equipment balance is construction work in progress.
Additionally, the Company has recorded capitalized interest and an allowance
for equity funds used during construction in the cost of property, plant and
equipment. Pursuant to a FERC order, Tennessee Gas Pipeline Company, a
combined subsidiary of the Company ("Tennessee"), recorded all natural gas in
storage as a fixed asset. As of December 31, 1995 and 1994, the balance of
Tennessee's natural gas in storage included in property, plant and equipment
was $96 million.
Depreciation, Depletion and Amortization
Depreciation of the Company's regulated transmission plants are provided
using the composite method over the estimated useful lives of the depreciable
facilities. The rates for depreciation range from 2% to 5%. Costs of
properties that are not operating units, as defined by the FERC, which are
retired, sold or abandoned by the regulated subsidiaries are credited or
charged, net of salvage, to accumulated depreciation. Gains or losses on sales
of operating units are credited or charged to income.
Depreciation of the Company's nonregulated properties is provided using the
straight line or composite method which, in the opinion of management, is
adequate to allocate the cost of properties over their estimated useful lives.
Goodwill
Goodwill is being amortized over a 15-year period using the straight-line
method. Such amortization amounted to $1.8 million for 1995, 1994 and 1993 and
is included in "Other income, net" in the accompanying combined statements of
income. Accumulated amortization of goodwill was $5.4 million and $3.6 million
at December 31, 1995 and 1994, respectively.
Environmental Liabilities
Expenditures for ongoing compliance with environmental regulations that
relate to current operations are expensed or capitalized as appropriate.
Expenditures that relate to an existing condition caused by past operations,
and which do not contribute to current or future revenue generation, are
expensed. Liabilities are recorded when environmental assessments indicate
that remedial efforts are probable and the costs can be reasonably estimated.
Estimates of the liability are based upon currently available facts, existing
technology and presently enacted laws and regulations taking into
consideration the likely effects of inflation and other societal and economic
factors. All available evidence is considered including prior experience in
remediation of contaminated sites, other companies clean-up experience and
data released by the United States Environmental Protection Agency or other
organizations. These estimated liabilities are subject to revision in future
periods based on actual costs or new circumstances. These liabilities are
included in the combined balance sheets at their undiscounted amounts.
Recoveries are evaluated separately from the liability and, when recovery is
assured, are
F-48
<PAGE>
THE BUSINESSES OF TENNECO ENERGY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
recorded and reported separately from the associated liability in the combined
financial statements. Reference is made to Note 15, "Commitments and
Contingencies--Environmental Matters" for further information on this subject.
Revenue Recognition
The regulated subsidiaries of the Company are subject to FERC regulations
and, accordingly, revenues are collected subject to possible refunds pending
final FERC orders. The regulated subsidiaries record rate refund accruals
based on management's estimate of the expected income impact of the rate
proceedings. The Company has recorded revenue reservations of $27 million and
$190 million as of December 31, 1995 and 1994, respectively. The Company
believes the estimate for revenues subject to refund is adequate.
Other Income
Gains or losses on the sale by a subsidiary of its stock are included in
"Other Income, net" in the accompanying combined statements of income.
Income Taxes
The Company utilizes the liability method of accounting for income taxes
whereby it recognizes deferred tax assets and liabilities for the future tax
consequences of temporary differences between the tax basis of assets and
liabilities and their reported amounts in the combined financial statements.
Deferred tax assets are reduced by a valuation allowance when, based upon
management's estimates, it is more likely than not that a portion of the
deferred tax assets will not be realized in a future period. The estimates
utilized in the recognition of deferred tax assets are subject to revision in
future periods based on new facts or circumstances.
Tenneco, together with certain of its subsidiaries which are owned 80% or
more (including Tenneco Energy), have entered into an agreement to file a
consolidated U.S. federal income tax return. Such agreement provides, among
other things, that (i) each company in a taxable income position will be
currently charged with an amount equivalent to its federal income tax computed
on a separate return basis, and (ii) each company in a tax loss position will
be reimbursed currently to the extent its deductions, including general
business credits, are utilized in the consolidated return. The income tax
amounts reflected in the combined financial statements of Tenneco Energy under
the provisions of the tax sharing arrangement are not materially different
from the income taxes which would have been provided had Tenneco Energy filed
a separate tax return. Under the tax sharing agreement, Tenneco pays all
federal taxes directly and bills or refunds, as applicable, its subsidiaries,
including those comprising Tenneco Energy, for the applicable portion of the
total tax payments.
In connection with the Distributions, the current tax sharing agreement will
be cancelled and the Company will enter into a tax sharing agreement with
Newport News, New Tenneco and El Paso. The tax sharing agreement will provide,
among other things, for the allocation of taxes among the parties of tax
liabilities arising prior to, as a result of, and subsequent to the
Distributions. Generally, Tenneco will be liable for taxes imposed on Tenneco
Energy. In the case of federal income taxes imposed with respect to periods
prior to the consummation of the Distributions on the combined activities of
Tenneco and other members of its consolidated group prior to giving effect to
the Distributions, New Tenneco and Newport News will be liable to Tenneco for
federal income taxes attributable to their activities, and each will be
allocated an agreed-upon share of estimated tax payments made by the Tenneco
consolidated group.
Changes in Accounting Principles
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("FAS") No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments
F-49
<PAGE>
THE BUSINESSES OF TENNECO ENERGY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
of Liabilities," which establishes new accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of
liabilities. The statement is effective for transactions occurring after
December 31, 1996. The impact of the new standard has not been determined.
Effective January 1, 1996, the Company adopted FAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of". FAS No. 121 establishes new accounting standards for measuring the
impairment of long-lived assets. The adoption of this new standard had no
material impact on the Company's combined financial position or results of
operations.
Effective January 1, 1994, the Company adopted FAS No. 112, "Employers'
Accounting for Postemployment Benefits." This new accounting rule requires
employers to account for postemployment benefits for former or inactive
employees, after employment but before retirement, on the accrual basis rather
than the "pay-as-you-go" basis. The adoption of this new standard had no
material impact on the Company's combined financial position or results of
operations.
Risk Management Activities
The Company is currently a party to financial instruments and commodity
contracts to hedge its exposure to changes in interest rates and natural gas
prices. These financial instruments and commodity contracts are accounted for
on the accrual basis with gains and losses being recognized based on the type
of contract and exposure being hedged. The amounts paid or received under
interest rate swap agreements are recognized, on the accrual basis, as an
adjustment to interest expense. Net gains and losses on energy commodity
contracts and financial instruments are deferred and recognized when the
hedged transaction is consummated. In the combined statements of cash flows,
cash receipts or payments related to these financial instruments and commodity
contracts are classified consistent with the cash flows from the transactions
being hedged.
4. ACQUISITIONS
During 1995, the Company acquired the natural gas pipeline assets of the
Pipeline Authority of South Australia, which includes a 488-mile pipeline, for
approximately $225 million. Also during 1995, the Company acquired a 50%
interest in two gas-fired cogeneration plants from ARK Energy, a privately-
owned power generation company, for approximately $65 million in cash and
Tenneco common stock. Each of the acquisitions was accounted for as a
purchase. If these assets and investments had been acquired January 1, 1995,
net income would not have been significantly different from the reported
amount.
5. DISPOSITION OF ASSETS AND EXTRAORDINARY LOSS
Disposition of Assets
During the first six months of 1996, the Company sold its 13.2% interest in
Iroquois Gas Transmission System, L.P., its 50% interest in Dauphin Island
Gathering System, an investment in stock and certain other assets, resulting
in a pre-tax gain of $42 million.
In December 1995, the Company sold its 50% interest in Kern River Gas
Transmission Company ("Kern River") for a pre-tax gain of $30 million. Kern
River owns a 904-mile pipeline extending from Wyoming to California. Also in
1995, the Company sold certain other facilities and assets for a combined pre-
tax loss of $19 million.
In 1994, Tenneco Energy Resources Corporation, a combined subsidiary which
operates the Company's nonregulated gas marketing and intrastate pipeline
businesses, issued 50 shares of its common stock, diluting Tenneco's ownership
in this subsidiary to 80% and resulting in a gain of $23 million. No taxes
were provided on the gain because management expects that the recorded
investment will be recovered in a tax-free manner.
F-50
<PAGE>
THE BUSINESSES OF TENNECO ENERGY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
During 1993, the Company disposed of two wholly-owned companies, Viking Gas
Transmission Company and Dean Pipeline Company, and investments in stock and
certain other assets for a total pre-tax gain of $62 million.
Extraordinary Loss
In April 1993, Tenneco issued 23.5 million shares of its common stock for
approximately $1.1 billion. The proceeds were used to retire $327 million of
short-term debt, $688 million of long-term debt and $14 million of variable-
rate preferred stock. In November 1993, Tenneco retired DM250 million bonds.
The redemption premium related to the retirement of long-term debt resulting
from these two transactions ($25 million, net of income tax benefits of $13
million) was recorded as an extraordinary loss.
6. TRANSACTIONS WITH AFFILIATES
Combined Equity
The "Combined equity" caption in the accompanying combined financial
statements represents Tenneco's cumulative investment in the combined
businesses of Tenneco Energy. Changes in the "Combined equity" caption
represent the net income of the Company, cash paid for interest allocated to
affiliates, net of tax, changes in corporate debt allocated to affiliates, net
cash and noncash contributions from (distributions to) affiliates and net
contributions from (distributions to) shareowners. Reference is made to the
Statements of Changes in Combined Equity for an analysis of activity in the
"Combined equity" caption for each of the three years ended December 31, 1995
and for the six months ended June 30, 1996.
General and Administrative Expenses
Included in the total general and administrative expenses for 1995, 1994 and
1993, is $16 million, $13 million, and $17 million, respectively, which
represents Tenneco Energy's share of Tenneco's corporate general and
administrative costs for legal, financial, communication and other
administrative services. Tenneco's corporate general and administrative
expenses are allocated based on the estimated level of effort devoted to
Tenneco's various operations and relative size based on revenues, gross
property and payroll. The Company's management believes the method for
allocating corporate general and administrative expenses is reasonable. Total
general and administrative expenses reflected in the accompanying combined
statements of income are reasonable when compared with the total general and
administrative costs Tenneco Energy would have incurred on a stand-alone
basis.
Corporate Debt and Interest Allocations
Tenneco's historical practice has been to incur indebtedness for its
consolidated group at the parent company level or at a limited number of
subsidiaries, rather than at the operating company level, and to centrally
manage various cash functions. Consequently, corporate debt of Tenneco and its
related interest expense have been allocated to New Tenneco and Newport News
based upon the portion of Tenneco's investment in New Tenneco and Newport News
which is deemed to be debt, generally based upon the ratio of New Tenneco's
and Newport News' net assets to Tenneco consolidated net assets plus debt.
Interest expense was allocated at a rate equivalent to the weighted-average
cost of all corporate debt, which was 7.7%, 8.3% and 7.4% for 1995, 1994 and
1993, respectively. Total pre-tax interest expense allocated to New Tenneco
and Newport News in 1995, 1994 and 1993 was $180 million, $120 million and
$124 million, respectively. New Tenneco and Newport News have also been
allocated tax benefits totaling approximately 35% of the allocated pre-tax
interest expense. Although interest expense, and the related tax effects, have
been allocated to New Tenneco and Newport News for financial
F-51
<PAGE>
THE BUSINESSES OF TENNECO ENERGY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
reporting on a historical basis, New Tenneco and Newport News have not been
billed for these amounts. The changes in allocated corporate debt and the
after-tax allocated interest expense have been included as a component of the
Company's combined equity. Although, management believes that the historical
allocation of corporate debt and interest expense is reasonable, it is not
necessarily indicative of the Company's debt upon completion of the Debt
Realignment.
Notes and Advances Payable with Affiliates
"Cash contributions from (distributions to) affiliates" in the Statements of
Changes in Combined Equity consist of net cash changes in notes and advances
payable between the Company and New Tenneco and Newport News which have been
included in combined equity. Historically, Tenneco has utilized notes and
advances to centrally manage cash funding requirements for its consolidated
group.
At December 31, 1995 and 1994, the Company had an interest bearing note
payable to New Tenneco totaling $494 million and $310 million, respectively,
which is due on demand and is included as a component of the Company's
combined equity. At December 31, 1995 and 1994, the Company had a non-interest
bearing note payable to Newport News totalling $965 million and $991 million,
respectively, which is due on demand and is included as a component of the
Company's combined equity.
Accounts Receivable and Accounts Payable--Affiliated Companies
The "Payables--Affiliated companies" balance primarily includes billings for
general and administrative costs incurred by New Tenneco and charged to
Tenneco Energy. The "Receivables--Affiliated companies" balance primarily
relates to billings for U.S. income taxes incurred by Tenneco and charged to
New Tenneco and Newport News. Affiliated accounts receivable and accounts
payable between the Company and New Tenneco and Newport News will be settled,
capitalized or converted into ordinary trade accounts, as applicable, as part
of the Distributions.
Employee Benefits
Certain employees of the Company participate in Tenneco's employee stock
ownership and employee stock purchase plans. The Tenneco employee stock
ownership plan provides for the grant of Tenneco common stock options and
other stock awards at a price not greater than market value at the date of
grant. The Tenneco employee stock purchase plan allows employees to purchase
Tenneco common stock at a 15% discount subject to certain thresholds. Certain
employees of New Tenneco and Newport News also participate in Tenneco's
employee stock ownership and employee stock purchase plans. The cost of stock
issued to these employees is billed to New Tenneco and Newport News. In
connection with the Distributions, outstanding options on Tenneco common stock
held by the Company's employees will be vested so that they become fully
exercisable prior to the Merger. If not exercised prior to the Merger, such
options will be cancelled upon consummation of the Merger. Outstanding options
on Tenneco common stock held by New Tenneco and Newport News employees will be
converted into new options of New Tenneco and Newport News, as applicable, so
as to preserve the aggregate value of the options held prior to the
Distributions.
Employees of the Company also participate in certain Tenneco postretirement
and pension plans. Reference is made to Notes 13 and 14 for a further
discussion of the plans.
Sales of Receivables
TCC purchased $513 million and $384 million of trade receivables from New
Tenneco at December 31, 1995 and 1994, respectively. TCC sells these trade
receivables to a third party in the ordinary course of business.
F-52
<PAGE>
THE BUSINESSES OF TENNECO ENERGY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
7. LONG-TERM DEBT, SHORT-TERM DEBT AND FINANCING ARRANGEMENTS
Long-Term Corporate Debt
A summary of long-term corporate debt obligations of the Company at December
31, 1995 and 1994, is set forth in the following table:
<TABLE>
<CAPTION>
(MILLIONS) 1995 1994
- ---------- ------ ------
<S> <C> <C>
Tenneco Inc.--
Debentures due 1998 through 2025, average effective interest
rate 8.7% in 1995 and 9.7% in 1994 (net of $2 million in 1995
and 1994 of unamortized discount)............................. $ 698 $ 398
Notes due 1996 through 2005, average effective interest rate
8.8% in 1995 and 9.2% in 1994 (net of $5 million in 1995 and
$4 million in 1994 of unamortized discount)................... 1,962 1,681
Tennessee Gas Pipeline Company--
Debentures due 2011, effective interest rate 15.1% in 1995 and
1994 (net of $216 million in 1995 and $219 million in 1994 of
unamortized discount)......................................... 184 181
Notes due 1996 through 1997, average effective interest rate
9.7% in 1995 and 10.1% in 1994 (net of $5 million in 1995 and
$8 million in 1994 of unamortized discount)................... 573 808
Tenneco Credit Corporation--
Senior notes due 1996 through 2001, average effective interest
rate 9.7% in 1995 and 9.6% in 1994 (net of $1 million in 1995
and $2 million in 1994 of unamortized discount)............... 549 749
Medium-term notes due 1996 through 2002, average interest rate
9.0% in 1995 and 9.4% in 1994................................. 38 73
Subordinated notes due 1998 through 2001, average interest rate
9.9% in 1995 and 1994......................................... 92 92
Other subsidiaries--
Notes due 1996 through 2014, average effective interest rate
8.6% in 1995 and 8.0% in 1994 (net of $14 million in 1995 and
$15 million in 1994 of unamortized discount).................. 8 4
------ ------
4,104 3,986
Less--Current maturities......................................... 414 485
------ ------
Total long-term corporate debt............................... $3,690 $3,501
====== ======
</TABLE>
The aggregate maturities and sinking fund requirements applicable to the
issues outstanding at December 31, 1995, are $414 million, $513 million, $838
million, $250 million and $175 million for 1996, 1997, 1998, 1999 and 2000,
respectively.
Long-Term Corporate Debt Allocation
<TABLE>
<CAPTION>
(MILLIONS) 1995 1994
- ---------- -------- --------
<S> <C> <C>
Total long-term corporate debt................................ $ 3,690 $ 3,501
Less: Long-term corporate debt allocated to New Tenneco and
Newport News................................................. (1,879) (1,259)
-------- --------
Total long-term corporate debt, net of allocation to New
Tenneco and Newport News................................... $ 1,811 $ 2,242
======== ========
</TABLE>
- --------
Note: Reference is made to Note 6 for information concerning debt allocated to
New Tenneco and Newport News.
F-53
<PAGE>
THE BUSINESSES OF TENNECO ENERGY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Short-Term Corporate Debt
The Company uses commercial paper, lines of credit and overnight borrowings
to finance its short-term capital requirements. Information regarding short-
term debt for the years ended December 31, 1995 and 1994 follows:
<TABLE>
<CAPTION>
1995 1994
--------------------- ---------------------
TENNECO TENNECO
COMMERCIAL CREDIT COMMERCIAL CREDIT
(MILLIONS) PAPER AGREEMENTS PAPER AGREEMENTS
- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Outstanding borrowings at end of
year.............................. $346 $ 85 $ -- $ 17
Weighted average interest rate on
outstanding borrowings at end of
year.............................. 6.2% 7.2% -- 10.7%
Approximate maximum month-end
outstanding borrowings during
year.............................. $615 $467 $362 $133
Approximate average month-end
outstanding borrowings during
year.............................. $109 $104 $164 $ 51
</TABLE>
- --------
Note:Includes borrowings under both committed credit facilities and
uncommitted lines of credit and similar arrangements.
Tenneco had other short-term borrowings outstanding of $24 million at
December 31, 1995, and none at December 31, 1994.
Short-Term Corporate Debt Allocation
<TABLE>
<CAPTION>
1995 1994
----- -----
<S> <C> <C>
Current maturities on long-term corporate debt.................... $ 414 $ 485
Commercial paper.................................................. 346 --
Credit agreements................................................. 85 17
Other............................................................. 24 --
----- -----
Total short-term corporate debt (including current maturities on
long-term corporate debt)...................................... 869 502
Less: Short-term corporate debt allocated to New Tenneco and
Newport News................................................... (413) (103)
----- -----
Total short-term corporate debt, net of allocation to New
Tenneco and Newport News..................................... $ 456 $399
===== =====
</TABLE>
- --------
Note:Reference is made to Note 6 for information concerning corporate debt
allocated to New Tenneco and Newport News.
Financing Arrangements
As of December 31, 1995, Tenneco had arranged committed credit facilities of
approximately $2.5 billion:
<TABLE>
<CAPTION>
COMMITTED CREDIT FACILITIES(A)
------------------------------------------
(MILLIONS) TERM COMMITMENTS UTILIZED AVAILABLE
- ---------- --------- ----------- -------- ---------
<S> <C> <C> <C> <C>
Tenneco credit agreements............ 1996-1999 $2,400(b) $346(c) $2,054
Other credit agreements.............. various 79 35 44
------ ---- ------
$2,479 $381 $2,098
====== ==== ======
</TABLE>
- --------
Notes:(a) These facilities generally require the payment of commitment fees on
the unused portion of the total commitment and facility fees on the
total commitment.
(b) In 1996, $400 million of these agreements expire; the remainder are
committed through 1999. Of the total committed long-term credit
facilities, $400 million are available to both Tenneco and TCC.
(c) Tenneco's committed long-term credit facilities support its commercial
paper borrowings; consequently, the amount available under the committed
long-term credit facilities is reduced by outstanding commercial paper
borrowings.
F-54
<PAGE>
THE BUSINESSES OF TENNECO ENERGY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
8. FINANCIAL INSTRUMENTS
The carrying and estimated fair values of the Company's financial
instruments by class at December 31, 1995 and 1994, were as follows:
<TABLE>
<CAPTION>
1995 1994
--------------- ---------------
(MILLIONS) CARRYING FAIR CARRYING FAIR
ASSETS (LIABILITIES) AMOUNT VALUE AMOUNT VALUE
- -------------------- -------- ------ -------- ------
<S> <C> <C> <C> <C>
Asset and Liability Instruments
Cash and temporary cash investments........ $ 249 $ 249 $ 48 $ 48
Receivables (customer and long-term)....... 860 860 1,644 1,644
Accounts payable (trade)................... (365) (365) (324) (324)
Short-term debt (excluding current maturi-
ties) (Note).............................. (455) (455) (17) (17)
Long-term debt (including current maturi-
ties) (Note).............................. (4,104) (4,692) (3,986) (4,206)
Instruments With Off-Balance-Sheet Risk
Derivative
Interest rate swaps:
In a net receivable position........... -- 10 -- --
In a net payable position.............. -- (22) -- (30)
Natural gas swaps, futures and options... -- 3 -- (5)
Non-derivative
Financial guarantees..................... -- (14) -- (14)
</TABLE>
- --------
Note: The carrying amounts and estimated fair values of short-term debt and
long-term debt are before allocation of corporate debt to New Tenneco
and Newport News. Reference is made to Note 6 for information concerning
corporate debt allocated to New Tenneco and Newport News.
Asset and Liability Instruments
The fair value of cash and temporary cash investments, receivables, accounts
payable, and short-term debt in the above table was considered to be the same
as or was determined not to be materially different from the carrying amount.
At December 31, 1995 and 1994, respectively, Tenneco Energy's aggregate
customer and long-term receivable balance was concentrated by industry as
follows: energy industry 22% and 21%; automotive parts industry 9% and 11%;
packaging industry 8% and 13%; and farm and construction equipment industry
52% and 47%; all other amounts were not significant. Receivables in the
automotive parts, packaging and farm and construction equipment industries
result from TCC's financing receivables of current and former operating
divisions of Tenneco. TCC sells these trade receivables to a third party in
the ordinary course of business.
Long-term debt--The fair value of fixed-rate long-term debt was based on the
market value of debt with similar maturities and interest rates; the carrying
amount of floating-rate debt was assumed to approximate its fair value.
Instruments With Off-Balance-Sheet Risk
Derivative
Interest Rate Swaps--The fair value of interest rate swaps was based on the
cost that would have been incurred to buy out those swaps in a loss position
and the consideration that would have been received to terminate those swaps
in a gain position. At December 31, 1995 and 1994, the Company was a party to
swaps with a notional value of $1.5 billion and $1.6 billion, respectively. At
December 31, 1995, $750 million were in a net receivable position and $795
million were in a net payable position. At December 31, 1994, the entire $1.6
billion was in a net payable position. Notional amounts associated with these
swaps do not represent future cash payment requirements. These contractual
amounts are only used as a base to measure amounts to be exchanged at
specified settlement dates.
F-55
<PAGE>
THE BUSINESSES OF TENNECO ENERGY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Consistent with its overall policy, the Company uses these instruments from
time to time only to hedge known, quantifiable risks arising from fluctuations
in interest rates. The counterparties to these interest rate swaps are major
international financial institutions. The risk associated with counterparty
default on interest rate swaps is measured as the cost of replacing, at the
prevailing market rates, those contracts in a gain position. In the event of
non-performance by the counterparties, the cost to replace outstanding
interest rate swaps at December 31, 1995 and 1994, would not have been
material.
Price Risk Management--The Company uses exchange-traded futures and option
contracts and over-the-counter option and swap contracts to reduce its
exposure to fluctuations in the prices of natural gas. The fair value of these
contracts is based upon the estimated consideration that would be received to
terminate those contracts in a gain position and the estimated cost that would
be incurred to terminate those contracts in a loss position. As of December
31, 1995 and 1994, these contracts, maturing through 1997 and 1996,
respectively, had an absolute notional contract quantity of 321 Bcf and 187
Bcf, respectively. Since the contracts described above are designated as
hedges whose fair values correlate to price movements of natural gas, any
gains or losses on the contracts resulting from market changes will be offset
by losses or gains on the hedged transactions. The Company has off-balance
sheet risk of credit loss in the event of non-performance by counterparties to
all over-the-counter contracts. However, the Company does not anticipate non-
performance by the counterparties.
Non-derivative
Guarantees--At December 31, 1995 and 1994, the Company had guaranteed
payment and performance of approximately $14 million, primarily with respect
to letters of credit and other guarantees supporting various financing and
operating activities.
9. FEDERAL ENERGY REGULATORY COMMISSION REGULATORY MATTERS
Restructuring Proceedings
On April 8, 1992, the FERC issued Order 636 which restructured the natural
gas industry by requiring mandatory unbundling of pipeline sales and
transportation services. Numerous parties appealed, to the U.S. Court of
Appeals for the D.C. Circuit Court, the legality of Order 636 generally, as
well as the legality of specific provisions of Order 636. On July 16, 1996,
the U.S. Court of Appeals for the D.C. Circuit issued its decision upholding,
in large part, Order 636. The Court remanded to the FERC several issues for
further explanation, including further explanation of the FERC's decision to
allow pipelines to recover 100% of their gas supply realignment ("GSR") costs.
Tennessee implemented revisions to its tariff, effective on September 1,
1993, which restructured its transportation, storage and sales services to
convert Tennessee from primarily a merchant to primarily a transporter of gas
as required by Order 636. As a result of this restructuring, Tennessee's gas
sales declined while certain obligations to producers under long-term gas
supply contracts continued, causing Tennessee to incur significant
restructuring transition costs. Pursuant to the provisions of Order 636
allowing for the recovery of transition costs related to the restructuring,
Tennessee has made filings to recover GSR costs resulting from remaining gas
purchase obligations, costs related to its Bastian Bay facilities, the
remaining unrecovered balance of purchased gas ("PGA") costs and the
"stranded" cost of Tennessee's continuing contractual obligation to pay for
capacity on other pipeline systems ("TBO costs").
Tennessee's filings to recover costs related to its Bastian Bay facilities
have been rejected by the FERC based on the continued use of the gas
production from the field; however, the FERC recognized the ability of
Tennessee to file for the recovery of losses upon disposition of these assets.
Tennessee has filed for appellate
F-56
<PAGE>
THE BUSINESSES OF TENNECO ENERGY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
review of the FERC actions and is confident that the Bastian Bay costs will
ultimately be recovered as transition costs under Order 636; the FERC has not
contested the ultimate recoverability of these costs.
The filings implementing Tennessee's recovery mechanisms for the following
transition costs were accepted by the FERC effective September 1, 1993;
recovery was made subject to refund pending FERC review and approval for
eligibility and prudence: 1) direct-billing of unrecovered PGA costs to its
former sales customers over a twelve-month period; 2) recovery of TBO costs,
which Tennessee is obligated to pay under existing contracts, through a
surcharge from firm transportation customers, adjusted annually; and 3) GSR
cost recovery of 90% of such costs over a period of up to 36 months from firm
transportation customers and recovery of 10% of such costs from interruptible
transportation customers over a period of up to 60 months.
Following negotiations with its customers, Tennessee filed in July 1994 with
the FERC a Stipulation and Agreement (the "PGA Stipulation"), which provides
for the recovery of PGA costs of approximately $100 million and the recovery
of costs associated with the transfer of storage gas inventory to new storage
customers in Tennessee's restructuring proceeding. The PGA Stipulation
eliminates all challenges to the PGA costs, but establishes a cap on the
charges that may be imposed upon former sales customers. On November 15, 1994,
the FERC issued an order approving the PGA Stipulation and resolving all
outstanding issues. On April 5, 1995, the FERC issued its order on rehearing
affirming its initial approval of the PGA Stipulation. Tennessee implemented
the terms of the PGA Stipulation and made refunds in May 1995. The refunds had
no material effect on Tenneco Energy's reported net income. The orders
approving the PGA Stipulation have been appealed to the D.C. Circuit Court of
Appeals by certain customers. Tennessee believes the FERC orders approving the
PGA Stipulation will be upheld on appeal.
Tennessee is recovering through a surcharge, subject to refund, TBO costs
formerly incurred to perform its sales function. The FERC subsequently issued
an order requiring Tennessee to refund certain costs from this surcharge and
refunds were made in May 1996. Tennessee is appealing this decision and
believes such appeal will likely be successful.
With regard to Tennessee's GSR costs, Tennessee, along with three other
pipelines, executed four separate settlement agreements with Dakota
Gasification Company and the U.S. Department of Energy and initiated four
separate proceedings at the FERC seeking approval to implement the settlement
agreements. The settlement resolved litigation concerning purchases made by
Tennessee of synthetic gas produced from the Great Plains Coal Gasification
plant ("Great Plains"). The FERC previously ruled that the costs related to
the Great Plains project are eligible for recovery through GSR and other
special recovery mechanisms and that the costs are eligible for recovery for
the duration of the term of the original gas purchase agreements. On October
18, 1994, the FERC consolidated the four proceedings and set them for hearing
before an administrative law judge ("ALJ"). The hearing, which concluded in
July 1995, was limited to the issue of whether the settlement agreements are
prudent. The ALJ concluded, in his initial decision issued in December 1995,
that the settlement was imprudent. Tennessee has filed exceptions to this
initial decision and believes that this decision will not impair Tennessee's
recovery of the costs resulting from this contract. On July 17, 1996, the FERC
ordered oral arguments to be heard September 1996.
Also related to Tennessee's GSR costs, on October 14, 1993, Tennessee was
sued in the State District Court of Ector County, Texas, by ICA Energy, Inc.
("ICA") and TransTexas Gas Corporation ("TransTexas"). In that suit, ICA and
TransTexas contended that Tennessee had an obligation to purchase gas
production which TransTexas thereafter attempted to add unilaterally to the
reserves originally dedicated to a 1979 gas contract. An amendment to the
pleading sought $1.5 billion from Tennessee for alleged damages caused by
Tennessee's refusal to purchase gas produced from the TransTexas leases
covering the new production and lands. In June 1996, Tennessee reached a
settlement with ICA and TransTexas for $125 million wherein ICA and TransTexas
agreed to terminate the contract, released Tennessee from liability under the
contract, and indemnified Tennessee against future claims, including royalty
owner claims.
F-57
<PAGE>
THE BUSINESSES OF TENNECO ENERGY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Tennessee has been engaged in other settlement and contract reformation
discussions with other holders of certain gas purchase contracts who have sued
Tennessee. On August 1, 1995, the Texas Supreme Court affirmed a ruling of the
Court of Appeals favorable to Tennessee in one of these matters and indicated
that it would remand the case to the trial court. On April 18, 1996, however,
the Texas Supreme Court withdrew its initial opinion and issued an opinion
reversing the Court of Appeals opinion on the matter which was favorable to
Tennessee. In June 1996, Tennessee filed a motion for rehearing with the Texas
Supreme Court which was denied in August 1996. The Supreme Court's April 1996
ruling explicitly preserves Tennessee's defenses based on bad faith conduct of
the producers. Nothing in the Supreme Court's decision affects Tennessee's
ability to seek recovery of its above-market costs of purchasing gas under the
contract from its customers as GSR costs in proceedings currently pending
before the FERC. In addition, Tennessee has initiated two lawsuits against the
holders of this gas purchase contract, seeking damages related to their
conduct in connection with that contract. Tennessee has accrued amounts which
it believes are appropriate to cover the resolution of the litigation
associated with its contract reformation efforts.
As of June 30, 1996, and December 31, 1995, Tennessee has deferred GSR costs
yet to be recovered from its customers of approximately $551 million and $462
million, respectively, net of $380 million and $316 million, respectively,
previously recovered from its customers, subject to refund. A phased
proceeding is underway at the FERC with respect to the recovery of Tennessee's
GSR costs. Testimony has been completed in connection with Phase I of that
proceeding relating to the eligibility of GSR cost recovery; oral argument on
eligibility issues has been set by a FERC ALJ for late October 1996. Phase II
of the proceeding on the prudency of the costs to be recovered and on certain
contract specific eligibility issues has not yet been scheduled, but will
likely occur sometime after the ALJ's decision in Phase I is issued. The FERC
has generally encouraged pipelines to settle such issues through negotiations
with customers. Although the Order 636 transition cost recovery mechanism
provides for complete recovery by pipelines of eligible and prudently incurred
transition costs, certain customers have challenged the prudence and
eligibility of Tennessee's GSR costs and Tennessee has engaged in settlement
discussions with its customers concerning the amount of such costs in response
to the FERC statements acknowledging the desirability of such settlements.
Given the uncertainty over the results of ongoing discussions between
Tennessee and its customers related to the recovery of GSR costs and the
uncertainty related to predicting the outcome of its gas purchase contract
reformation efforts and the associated litigation, the Company is unable to
predict the timing or the ultimate impact that the resolution of these issues
will have on its combined financial position or results of operations.
Rate Proceedings
On December 30, 1994, Tennessee filed for a general rate increase (the "1995
Rate Case"). On January 25, 1995, the FERC accepted the filing, suspended its
effectiveness for the maximum period of five months pursuant to normal
regulatory process, and set the matter for hearing. On July 1, 1995, Tennessee
began collecting rates, subject to refund, reflecting an $87 million increase
in Tennessee's annual revenue requirement. A Stipulation and Agreement was
filed with an ALJ in this proceeding on April 5, 1996. This Stipulation, which
is currently pending before the FERC, proposed to resolve the rates subject to
the 1995 Rate Case, including structural rate design and increased revenue
requirements, and Tennessee is reserving revenues it believes are adequate to
cover any refunds that may be required upon final settlement of this
proceeding.
F-58
<PAGE>
THE BUSINESSES OF TENNECO ENERGY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
10. INCOME TAXES
Following is a comparative analysis of the components of combined income tax
expense (benefit) for the years 1995, 1994 and 1993:
<TABLE>
<CAPTION>
(MILLIONS) 1995 1994 1993
---------- ---- ---- ----
<S> <C> <C> <C>
Current--
U.S. ................................................ $(96) $25 $(11)
State and local...................................... (3) (4) 22
---- --- ----
(99) 21 11
---- --- ----
Deferred--
U.S.................................................. 76 39 82
State and local...................................... 12 12 11
---- --- ----
88 51 93
---- --- ----
Income tax expense (benefit)........................... $(11) $72 $104
==== === ====
</TABLE>
Following is a reconciliation of income taxes computed at the statutory U.S.
federal income tax rate (35% for all years presented) to the income tax
expense (benefit) reflected in the combined statements of income for the years
1995, 1994 and 1993:
<TABLE>
<CAPTION>
(MILLIONS) 1995 1994 1993
---------- ---- ---- ----
<S> <C> <C> <C>
Tax expense computed at the statutory U.S. federal in-
come tax rate.......................................... $ 51 $79 $102
Increases (reductions) in income tax expense resulting
from:
State and local taxes on income, net of U.S. federal
income tax benefit................................... 6 5 21
U.S. federal income tax rate change................... -- -- 4
Permanent differences on sales of assets.............. 12 -- (15)
Realization of unrecognized deferred tax assets....... (72) -- --
Other................................................. (8) (12) (8)
---- --- ----
Income tax expense (benefit)............................ $(11) $72 $104
==== === ====
</TABLE>
Current U.S. income tax expense (benefit) for the years ended December 31,
1995, 1994 and 1993, includes a reduction in tax benefits of $63 million, $42
million and $44 million, respectively, related to the allocation of corporate
interest expense to New Tenneco and Newport News. Reference is made to Note 6
for information concerning corporate debt allocated to New Tenneco and Newport
News from the Company.
F-59
<PAGE>
THE BUSINESSES OF TENNECO ENERGY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The components of the Company's net deferred tax liability at December 31,
1995 and 1994, were as follows:
<TABLE>
<CAPTION>
(MILLIONS) 1995 1994
---------- ---- ------
<S> <C> <C>
Deferred tax assets--
U.S. capital loss carryforwards.......................... $163 $ 267
Postretirement benefits other than pensions.............. 104 107
GSR reserve.............................................. 141 --
Environmental reserve.................................... 75 81
Other.................................................... 76 119
Valuation allowance...................................... (117) (293)
---- ------
Net deferred tax asset................................... 442 281
---- ------
Deferred tax liabilities--
Tax over book depreciation............................... 440 437
Asset related to GSR costs of operations regulated by the
FERC.................................................... 141 --
Other regulatory assets.................................. 67 56
Debt related items....................................... 43 44
Book versus tax gains and losses on asset disposals...... 23 321
Other.................................................... 116 187
---- ------
Total deferred tax liability............................. 830 1,045
---- ------
Net deferred tax liability................................. $388 $ 764
==== ======
</TABLE>
As reflected by the valuation allowance in the table above, the Company had
potential tax benefits of $117 million and $293 million at December 31, 1995
and 1994, respectively, which were not recognized in the combined statements
of income when generated. These benefits resulted primarily from U.S. capital
loss carryforwards which are available to reduce future capital gains. During
1995, the Company reduced its deferred tax asset valuation allowance due to
the recognition of U.S. capital loss carryforwards utilized to offset income
taxes payable on asset dispositions. During 1996, these capital loss
carryfowards were utilized to offset taxes on capital gain transactions.
11. INVESTMENT IN AFFILIATED COMPANIES
The Company holds investments in various affiliates which are accounted for
on the equity method of accounting. The principal equity method investments
were the Company's 50% investment in Kern River, and joint venture interests
in power generation plants, interstate pipelines, gathering systems and
natural gas storage facilities.
At December 31, 1995 and 1994, the Company's combined equity included equity
in undistributed earnings from equity method investments of $25 million and
$69 million, respectively. Dividends and distributions received from
affiliates accounted for on the equity method were $53 million, $48 million
and $42 million during 1995, 1994 and 1993, respectively.
F-60
<PAGE>
THE BUSINESSES OF TENNECO ENERGY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Summarized financial information of the Company's proportionate share of 50%
or less owned companies accounted for by the equity method of accounting as of
December 31, 1995, 1994 and 1993, and for the years then ended is as follows:
<TABLE>
<CAPTION>
(MILLIONS) 1995 1994 1993
---------- ---- ---- ----
<S> <C> <C> <C>
Current assets............................................ $ 60 $ 47 $ 41
Non-current assets........................................ 543 901 829
Short-term debt........................................... 122 19 17
Other current liabilities................................. 24 61 37
Long-term debt............................................ 152 494 496
Other non-current liabilities............................. 25 16 13
Equity in net assets...................................... 280 358 307
Revenues and other income................................. 184 183 164
Costs and expenses........................................ 119 132 117
Net income................................................ 65 51 47
</TABLE>
- --------
Note: Balance sheet amounts related to Kern River are not included in the
table above as of December 31, 1995, due to the Company's sale of its
investment in Kern River in December 1995. Reference is made to Note 5 for
information concerning the sale of Kern River.
12. PREFERRED STOCK
At December 31, 1995, Tenneco had authorized 15,000,000 shares of preferred
stock. In addition, Tenneco has an authorized class of stock consisting of
50,000,000 shares of junior preferred stock, without par value, none of which
has been issued.
The preferred stock issues outstanding at December 31, 1995, are as follows:
<TABLE>
<CAPTION>
SHARES REDEMPTION PERIODS OPTIONAL
ISSUED AND ------------------- REDEMPTION
ISSUE OUTSTANDING OPTIONAL MANDATORY PRICE
----- ----------- --------- --------- ----------
<S> <C> <C> <C> <C>
$7.40 preferred (no par val-
ue).......................... 587,270 1996-1998 1996-1998 $100
$4.50 preferred (no par val-
ue).......................... 803,723 1996-1999 1999 $100
---------
1,390,993
=========
</TABLE>
The $7.40 and $4.50 preferred stock issues have a mandatory redemption value
of $100 per share (an aggregate of $139 million and $159 million at December
31, 1995 and 1994, respectively). Tenneco recorded these preferred stocks at
their fair value at the date of original issue (an aggregate of $250 million)
and is making periodic accretions of the excess of the redemption value over
the fair value at the date of issue.
During 1993, Tenneco retired the remainder of a variable rate preferred
stock issue at the redemption price of $100 per share, or $17 million.
The aggregate maturities applicable to preferred stock issues outstanding at
December 31, 1995, are $20 million for each of the years 1996 and 1997, $19
million for 1998 and $80 million for 1999.
F-61
<PAGE>
THE BUSINESSES OF TENNECO ENERGY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Changes in Preferred Stock with Mandatory Redemption Provisions
<TABLE>
<CAPTION>
1995 1994 1993
----------------- ----------------- -----------------
(MILLIONS EXCEPT SHARE
AMOUNTS) SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- ---------------------- --------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance January 1........ 1,586,764 $147 1,782,508 $163 2,084,796 $191
Shares redeemed........ (195,771) (20) (195,744) (20) (302,288) (31)
Accretion of excess of
redemption value over
fair value at date of
issue................. -- 3 -- 4 -- 3
--------- ---- --------- ---- --------- ----
Balance December 31...... 1,390,993 $130 1,586,764 $147 1,782,508 $163
========= ==== ========= ==== ========= ====
</TABLE>
13. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
Postretirement Benefits
Tenneco has postretirement health care and life insurance plans which cover
substantially all of Tenneco Energy's employees. For salaried employees, the
plans cover employees retiring from the Company on or after attaining age 55
who have had at least 10 years service with the Company after attaining age
45. For hourly employees, the postretirement benefit plans generally cover
employees who retire pursuant to one of Tenneco's hourly employee retirement
plans. Tenneco Energy is also obligated to provide certain benefits to former
employees of operations previously disposed of by Tenneco. Tenneco Energy will
retain this liability after the Distributions. In addition, Tenneco Energy
will retain liabilities with respect to welfare benefits of its current and
former employees of Tenneco Energy and their dependents in connection with the
Distributions. All of these benefits may be subject to deductibles, copayment
provisions and other limitations, and Tenneco has reserved the right to change
these benefits.
The majority of Tenneco's postretirement benefit plans are not funded. In
June 1994, two trusts were established to fund postretirement benefits for
certain plan participants of the Company. The contributions are collected from
customers in FERC approved rates. As of December 31, 1995, cumulative
contributions were $10 million. Plan assets consist principally of fixed
income securities.
The funded status of the postretirement benefit plans reconciles with
amounts recognized on the combined balance sheets at December 31, 1995 and
1994, as follows:
<TABLE>
<CAPTION>
(MILLIONS) 1995 1994
- ---------- ----- -----
<S> <C> <C>
Actuarial present value of accumulated postretirement benefit
obligation at September 30:
Retirees....................................................... $ 320 $ 321
Fully eligible active plan participants........................ 5 5
Other active plan participants................................. 2 2
----- -----
Total accumulated postretirement benefit obligation.............. 327 328
Plan assets at fair value at September 30........................ 3 2
----- -----
Accumulated postretirement benefit obligation in excess of plan
assets at September 30.......................................... (324) (326)
Claims paid during the fourth quarter............................ 14 10
Unrecognized reduction of prior service obligations resulting
from plan amendments............................................ (68) (83)
Unrecognized net loss resulting from plan experience and changes
in actuarial assumptions........................................ 74 65
----- -----
Accrued postretirement benefit cost at December 31............... $(304) $(334)
===== =====
</TABLE>
- --------
Note: The accrued postretirement benefit cost has been recorded based upon
certain actuarial estimates as described below. Those estimates are subject to
revision in future periods given new facts or circumstances.
F-62
<PAGE>
THE BUSINESSES OF TENNECO ENERGY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The net periodic postretirement benefit cost for the years 1995, 1994 and
1993 consist of the following components:
<TABLE>
<CAPTION>
(MILLIONS) 1995 1994 1993
---------- ---- ---- ----
<S> <C> <C> <C>
Service cost for benefits earned during the year......... $ 1 $ 1 $ 1
Interest cost on accumulated postretirement benefit obli-
gation.................................................. 26 17 8
Net amortization of unrecognized amounts................. (13) (6) (1)
---- --- ---
Net periodic postretirement benefit cost................. $ 14 $12 $ 8
==== === ===
</TABLE>
The initial weighted average assumed health care cost trend rate used in
determining the 1995, 1994 and 1993 accumulated postretirement benefit
obligation was 7%, 8% and 9%, respectively, declining to 5% in 1997 and
remaining at that level thereafter.
Increasing the assumed health care cost trend rate by one percentage-point
in each year would increase the 1995, 1994 and 1993 accumulated postretirement
benefit obligations by approximately $14 million, $14 million and $7 million,
respectively, and would increase the aggregate of the service cost and
interest cost components of the net postretirement benefit cost for 1995, 1994
and 1993 by approximately $1 million, $3 million and $1 million, respectively.
The discount rates (which are based on long-term market rates) used in
determining the 1995, 1994 and 1993 accumulated postretirement benefit
obligations were 7.75%, 8.25% and 7.50%, respectively.
Postemployment Benefits
The Company adopted FAS No. 112, "Employers' Accounting for Postemployment
Benefits," in the first quarter of 1994. This new accounting rule requires
employers to account for postemployment benefits for former or inactive
employees after employment but before retirement on the accrual basis rather
than the "pay-as-you-go" basis. The adoption of this new standard had no
material impact on the Company's combined financial position or results of
operations.
14. PENSION PLANS
Tenneco has retirement plans which cover substantially all of the Company's
employees. Benefits are based on years of service and, for most salaried
employees, on final average compensation. Tenneco's funding policies are to
contribute to the plans amounts necessary to satisfy the funding requirements
of federal laws and regulations. Plan assets consist principally of listed
equity and fixed income securities. Certain employees of the Company
participate in the Tenneco Inc. Retirement Plan (the "TRP").
New Tenneco will become the sole sponsor of the TRP upon consummation of the
Distributions. The benefits accrued by the employees of Tenneco Energy who
participate in the TRP will be frozen as of the last day of the calendar month
including the Distributions and New Tenneco will amend the TRP to provide that
all benefits accrued through that day by the employees of Tenneco Energy are
fully vested and non-forfeitable.
F-63
<PAGE>
THE BUSINESSES OF TENNECO ENERGY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The funded status of the plans reconciles with amounts recognized on the
combined balance sheets at December 31, 1995 and 1994, as follows:
<TABLE>
<CAPTION>
ALL PLANS
----------
(MILLIONS) 1995 1994
- ---------- ---- ----
<S> <C> <C>
Actuarial present value of benefits based on service to date and
present pay levels at September 30:
Vested benefit obligation....................................... $187 $169
Non-vested benefit obligation................................... 12 11
---- ----
Accumulated benefit obligation.................................. 199 180
Additional amounts related to projected salary increases.......... 41 37
---- ----
Total projected benefit obligation at September 30................ 240 217
Plan assets at fair value at September 30......................... 259 224
---- ----
Plan assets in excess of total projected benefit obligation at
September 30..................................................... 19 7
Unrecognized net loss resulting from plan experience and changes
in actuarial assumptions......................................... 14 26
Unrecognized prior service obligations resulting from plan
amendments....................................................... 2 3
Remaining unrecognized net asset at initial application........... (14) (16)
---- ----
Prepaid pension cost at December 31............................... $ 21 $ 20
==== ====
</TABLE>
- --------
Note: Assets of one plan may not be utilized to pay benefits of other plans.
Additionally, the prepaid pension cost has been recorded based upon certain
actuarial estimates as described below. Those estimates are subject to
revision in future periods given new facts or circumstances.
Net periodic pension income for the years 1995, 1994 and 1993 consist of the
following components:
<TABLE>
<CAPTION>
(MILLIONS) 1995 1994 1993
- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Service cost--benefits earned during the year. $ 6 $ 6 $ 7
Interest accrued on prior year's projected
benefit obligation........................... 18 16 15
Expected return on plan assets--
Actual (return) loss........................ (45) 4 (31)
Unrecognized excess (deficiency) of actual
return over expected return................ 22 (26) 10
--- --- ---
(23) (22) (21)
Net amortization of unrecognized amounts...... (2) (2) (2)
---- ---- ----
Net periodic pension income................... $ (1) $ (2) $ (1)
==== ==== ====
</TABLE>
The weighted average discount rates (which are based on long-term market
rates) used in determining the 1995, 1994 and 1993 actuarial present value of
the benefit obligations were 7.8%, 8.3% and 7.5%, respectively. The rate of
increase in future compensation was 4.9%, in 1995, 1994, and 1993. The
weighted average expected long-term rate of return on plan assets was 10% in
1995, 1994 and 1993.
15. COMMITMENTS AND CONTINGENCIES
Capital Commitments
The Company estimates that expenditures aggregating approximately $636
million will be required after December 31, 1995, to complete facilities and
projects authorized at such date, and substantial commitments have been made
in connection therewith.
F-64
<PAGE>
THE BUSINESSES OF TENNECO ENERGY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Purchase Obligations
In connection with the financing commitments of certain joint ventures, the
Company has entered into unconditional purchase obligations for products and
services of $145 million ($106 million on a present value basis) at December
31, 1995. The Company's annual obligations under these agreements are $22
million for the years 1996 through 2000. Payments under such obligations,
including additional purchases in excess of contractual obligations, were $26
million, $34 million and $31 million for the years 1995, 1994 and 1993,
respectively. In addition, in connection with the Great Plains coal
gasification project (Dakota Gasification Company), Tennessee has contracted
to purchase 30% of the output of the plant's original design capacity for a
remaining period of 14 years. Tennessee has executed a settlement of this
contract as a part of its gas supply realignment negotiations discussed in
Note 9.
Litigation
Reference is made to Note 9, "Federal Energy Regulatory Commission
Regulatory Matters," for information concerning gas supply litigation. The
Company is party to numerous other legal proceedings arising from their
operations. The Company believes that the outcome of these proceedings,
individually and in the aggregate, will have no material effect on the
combined financial position or results of operations of the Company.
Environmental Matters
Since 1988, Tennessee has been engaged in an internal project to identify
and deal with the presence of polychlorinated biphenyls ("PCBs") and other
substances of concern, including substances on the U.S. Environmental
Protection Agency ("EPA") List of Hazardous Substances ("HS List") at
compressor stations and other facilities operated by both its interstate and
intrastate natural gas pipeline systems. While conducting this project,
Tennessee has been in frequent contact with federal and state regulatory
agencies, both through informal negotiation and formal entry of consent
orders, in order to assure that its efforts meet regulatory requirements.
The Company has established a reserve for Tennessee's environmental
expenses, which includes: 1) expected remediation expense and associated
onsite, offsite and groundwater technical studies, 2) legal fees and 3)
settlement of third party and governmental litigation, including civil
penalties. Through June 30, 1996, and December 31, 1995, the Company has
charged approximately $156 million and $147 million, respectively, against the
environmental reserve, excluding recoveries related to Tennessee's
environmental settlement as discussed below. Of the remaining reserve at June
30, 1996 and December 31, 1995, $24 million and $38 million, respectively, has
been recorded on the combined balance sheets under "Payables-trade" and $132
million and $126 million, respectively, under "Deferred credits and other
liabilities."
Due to the current uncertainty regarding the further activity necessary for
Tennessee to address the presence of the PCBs, the substances on the HS List
and other substances of concern on its sites, including the requirements for
additional site characterization, the actual amount of such substances at the
sites, and the final, site-specific cleanup decisions to be made with respect
to cleanup levels and remediation technologies, Tennessee cannot at this time
accurately project what additional costs, if any, may arise from future
characterization and remediation activities. While there are still many
uncertainties relating to the ultimate costs which may be incurred, based upon
Tennessee's evaluation and experience to date, the Company continues to
believe that the recorded estimate for the reserve is adequate.
Following negotiations with its customers, Tennessee in May 1995 filed with
the FERC a separate Stipulation and Agreement (the "Environmental
Stipulation") that establishes a mechanism for recovering a substantial
portion of the environmental costs. In November 1995, the FERC issued an order
approving the Environmental Stipulation. Although one shipper filed for
rehearing, the FERC denied rehearing of its order on
F-65
<PAGE>
THE BUSINESSES OF TENNECO ENERGY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
February 20, 1996. This shipper filed a Petition for Review on April 22, 1996
in the D.C. Circuit Court of Appeals; Tennessee believes the FERC Order
approving the Environmental Stipulation will be upheld on appeal. The effects
of the Environmental Stipulation, which was effective as of July 1, 1995, have
been recorded with no material effect on the Company's combined financial
position or results of operations. As of June 30, 1996, and December 31, 1995,
the balance of the regulatory asset is $61 million and $74 million,
respectively.
The Company has completed settlements with and has received payments from
the majority of its liability insurance policy carriers for remediation costs
and related claims. The Company believes that the likelihood of recovery of a
portion of its remediation costs and claims against the remaining carriers in
its pending litigation is reasonably possible. In addition, Tennessee has
settled its pending litigation against and received payment from the
manufacturer of the PCB-containing lubricant. These recoveries have been
considered in Tennessee's recording of its environmental settlement with its
customers.
The Company has identified other sites where environmental remediation
expense may be required should there be a change in ownership, operations or
applicable regulations. These possibilities cannot be predicted or quantified
at this time and accordingly, no provision has been recorded. However,
provisions have been made for all instances where it has been determined that
the incurrence of any material remedial expense is reasonably possible. The
Company believes that the provisions recorded for environmental exposures are
adequate based on current estimates.
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
NET SALES INCOME
AND BEFORE INTEREST
QUARTER OPERATING EXPENSE AND NET
(MILLIONS) REVENUES INCOME TAXES INCOME
- ---------- --------- --------------- ------
<S> <C> <C> <C>
1996 1st....................................... $ 748 $119 $ 78
2nd....................................... 622 69 25
------ ---- ----
$1,370 $188 $103
====== ==== ====
1995 1st....................................... $ 505 $ 71 $ 32
2nd....................................... 434 69 15
3rd....................................... 429 43 5
4th....................................... 553 85 105
------ ---- ----
$1,921 $268 $157
====== ==== ====
1994 1st....................................... $ 693 $ 89 $ 18
2nd....................................... 607 80 60
3rd....................................... 549 71 (38)
4th....................................... 532 127 113
------ ---- ----
$2,381 $367 $153
====== ==== ====
</TABLE>
- --------
Note: Reference is made to Notes 4 and 5 and "Managements' Discussion and
Analysis of Financial Condition and Results of Operations" for
discussion of items affecting quarterly results.
The preceding notes to combined financial statements are an integral part of
the foregoing combined financial statements.
F-66
<PAGE>
The Dealer Manager for the Exchange Offers is
MORGAN STANLEY & CO.
INCORPORATED
Liability Management Group
1585 Broadway, Second Floor New York, New York 10036 Call Toll-free: (800) 624-
1808
Any questions concerning the terms of the Exchange Offers may be directed to
the Dealer Manager.
The Information Agent for the Exchange Offers is
GEORGESON & COMPANY INC.
Wall Street Plaza
New York, New York 10005
Banks and Brokers Call Collect: (212) 440-9800
All Others Call Toll Free: (800) 223-2064
Any questions concerning tender procedures or requests for additional copies
of this Prospectus may be directed to the Information Agent.
The Exchange Agent for the Exchange Offers is
THE CHASE MANHATTAN BANK
By Mail: By Overnight Delivery: By Hand:
Box 2020 c/o Bond Dept. (9:00 a.m. - 5:00 p.m.
4 Chase MetroTech Ctr. 450 W. 33rd St. New York City Time)
Brooklyn, NY 11245 10th Floor 1 Chase Manhattan Plaza
New York, NY 10001 Floor 1-B
Nassau and Liberty
Streets
New York, NY 10081
By Facsimile Transmission:
(212) 946-8016/8017
Information and Confirm by Telephone
(212) 946-3471
<PAGE>
PART II
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The by-laws of New Tenneco Inc. include the following provisions:
Section 6.1. Right to Indemnification. The corporation shall indemnify and
hold harmless, to the fullest extent permitted by applicable law as it
presently exists or may hereafter be amended, any person (an "Indemnitee") who
was or is made or is threatened to be made a party or is otherwise involved in
any action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "proceeding"), by reason of the fact that he, or a person for
whom he is the legal representative, is or was a director or officer of the
corporation or, while a director or officer of the corporation, is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust,
enterprise or nonprofit entity, including service with respect to employee
benefit plans, against all liability and loss suffered and expenses (including
attorneys' fees) reasonably incurred by such Indemnitee. Notwithstanding the
preceding sentence, except as otherwise provided in Section 6.3, the
corporation shall be required to indemnify an Indemnitee in connection with a
proceeding (or part thereof) commenced by such Indemnitee only if the
commencement of such proceeding (or part thereof) by the Indemnitee was
authorized by the Board of Directors of the corporation.
Section 6.2. Prepayment of Expenses. The corporation shall pay the expenses
(including attorneys' fees) incurred by an Indemnitee in defending any
proceeding in advance of its final disposition, provided, however, that, to
the extent required by law, such payment of expenses in advance of the final
disposition of the proceeding shall be made only upon receipt of an
undertaking by the Indemnitee to repay all amounts advanced if it should be
ultimately determined that the Indemnitee is not entitled to be indemnified
under this Article VI or otherwise.
Section 6.3. Claims. If a claim for indemnification or payment of expenses
under this Article VI is not paid in full within sixth days after a written
claim therefor by the Indemnitee has been received by the corporation, the
Indemnitee may file suit to recover the unpaid amount of such claim and, if
successful in whole or in part, shall be entitled to be paid the expense of
prosecuting such claim. In any such action the corporation shall have the
burden of proving that the Indemnitee is not entitled to the requested
indemnification or payment of expenses under applicable law.
Section 6.4. Nonexclusivity of Rights. The rights conferred on any
Indemnitee by this Article VI shall not be exclusive of any other rights which
such Indemnitee may have or hereafter acquire under any statute, provision of
the certificate of incorporation, these by-laws, agreement, vote of
stockholders or disinterested directors or otherwise.
Section 6.5. Other Sources. The corporation's obligation, if any, to
indemnify or to advance expenses to any Indemnitee who was or is serving at
its request as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, enterprise or nonprofit entity shall be
reduced by any amount such Indemnitee may collect as indemnification of
advancement of expenses from such other corporation, partnership, joint
venture, trust, enterprise or non-profit enterprise.
Section 6.6. Amendment or Repeal. Any repeal or modification of the
foregoing provisions of this Article VI shall not adversely affect any right
or protection hereunder of any Indemnitee in respect of any act or omission
occurring prior to the time of such repeal or modification.
Section 6.7. Other Indemnification and Prepayment of Expenses. This Article
VI shall not limit the right of the corporation, to the extent and in the
manner permitted by law, to indemnify and to advance expenses to persons other
than Indemnitees when and as authorized by appropriate corporate action.
II-1
<PAGE>
Prior to the effective time of the Merger, New Tenneco intends to amend and
restate its by-laws. After such amendment and restatement, New Tenneco's by-
laws will include the following provisions:
Section 14. (1) The corporation shall indemnify and hold harmless, to the
fullest extent permitted by applicable law as it presently exists or may
hereafter be amended, any person (an "Indemnitee") who was or is made or is
threatened to be made a party or is otherwise involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative,
including appeals (a "proceeding"), by reason of the fact that he, or a
person for whom he is the legal representative, is or was a director or
officer of the corporation or, while a director or officer of the
corporation, is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust, enterprise or nonprofit entity,
including service with respect to employee benefit plans, against all
liability and loss suffered and expenses (including attorneys' fees)
reasonably incurred by such Indemnitee. Notwithstanding the preceding
sentence, except as otherwise provided in paragraph (3) of this Section 14,
the corporation shall be required to indemnify an Indemnitee in connection
with a proceeding (or part thereof) commenced by such Indemnitee only if
the commencement of such proceeding (or part thereof) by the Indemnitee was
authorized by the Board.
(2) The corporation shall pay the expenses (including attorneys' fees)
incurred by an Indemnitee in defending any proceeding in advance of its
final disposition, provided, however, that, to the extent required by law,
such payment of expenses in advance of the final disposition of the
proceeding shall be made only upon receipt of an undertaking by the
Indemnitee to repay all amounts advanced if it should be ultimately
determined that the Indemnitee is not entitled to be indemnified under this
Section 14 or otherwise.
(3) If a claim for indemnification or payment of expenses under this
Section 14 is not paid in full within thirty days after a written claim
therefor by the Indemnitee has been received by the corporation, the
Indemnitee may file suit to recover the unpaid amount of such claim and, if
successful in whole or in part, shall be entitled to be paid the expense of
prosecuting such claim. In any such action the corporation shall have the
burden of proving that the Indemnitee is not entitled to the requested
indemnification or payment of expenses under applicable law.
(4) The rights conferred on any Indemnitee by this Section 14 shall not
be exclusive of any other rights which such Indemnitee may have or
hereafter acquire under any statute, provision of the Restated Certificate
of Incorporation, these By-Laws, agreement, vote of stockholders or
disinterested directors or otherwise.
(5) The corporation's obligation, if any, to indemnify or to advance
expenses to any Indemnitee who was or is serving at its request as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust, enterprise or nonprofit entity shall be reduced by
any amount such Indemnitee may collect as indemnification or advancement of
expenses from such other corporation, partnership, joint venture, trust,
enterprise or nonprofit enterprise.
(6) Any repeal or modification of the foregoing provisions of this
Section 14 shall not adversely affect any right or protection hereunder of
any Indemnitee in respect of any act or omission occurring prior to the
time of such repeal or modification.
(7) This Section 14 shall not limit the right of the corporation, to the
extent and in the manner permitted by law, to indemnify and to advance
expenses to persons other than Indemnitees when and as authorized by
appropriate corporate action.
The Company has purchased insurance which purports to insure the Company
against certain costs of indemnification which may be incurred by it pursuant
to the foregoing by-law provision, and to insure the officers and directors of
the Company, and of its subsidiary companies, against certain liabilities
incurred by them in the discharge of their functions as such officers and
directors except for liabilities resulting from their own malfeasance.
In addition, the directors and officers of the Company have been indemnified
by Tenneco and Newport News for certain liabilities for any violations or
alleged violations of securities or other laws arising out of certain
documents related to, or filed or delivered by or on behalf of, Tenneco or
Newport News in connection with the Transaction. See "Item 22, Undertakings"
for a description of the Securities and Exchange Commission's position
regarding such indemnification provisions.
II-2
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed as part of this registration statement:
<TABLE>
<C> <S>
*2 --Distribution Agreement dated as of November 1, 1996, by and among
Tenneco Inc., New Tenneco Inc., and Newport News Shipbuilding Inc.
(incorporated herein by reference from Exhibit 2 of New Tenneco
Inc.'s Registration Statement on Form 10, File No. 001-12387).
+3.1 --Certificate of Incorporation of the Company as currently in effect.
+3.2 --Form of Restated Certificate of Incorporation to be adopted prior to
the Distribution Date.
+3.3 --By-laws of the Company as currently in effect.
+3.4 --Form of Amended and Restated By-laws to be adopted prior to the
Distribution Date.
4.1 --Indenture, dated as of November 1, 1996, between New Tenneco Inc.
and The Chase Manhattan Bank, as Trustee.
4.2 Form of First Supplemental Indenture between the Registrant and The
Chase Manhattan Bank, as Trustee, relating to the 10.20% Debentures
due 2008, including the form of Debenture certificate.
4.3 Form of Second Supplemental Indenture between the Registrant and The
Chase Manhattan Bank, as Trustee, relating to the 6.70% Notes due
2005, including the form of Note certificate.
4.4 Form of Third Supplemental Indenture, between the Registrant and The
Chase Manhattan Bank, as Trustee, relating to the 7.45% Debentures
due 2025, including the form of Debenture certificate.
4.5 Form of Fourth Supplemental Indenture, between the Registrant and The
Chase Manhattan Bank, as Trustee, relating to the 9.20% Debentures
due 2012, including the form of Debenture certificate.
4.6 Form of Fifth Supplemental Indenture, between the Registrant and The
Chase Manhattan Bank, as Trustee, relating to the 8.075% Notes due
2002, including the form of Note certificate.
4.7 Form of Sixth Supplemental Indenture, between the Registrant and The
Chase Manhattan Bank, as Trustee, relating to the 8.20% Notes due
1999, including the form of Note certificate.
4.8 Form of Seventh Supplemental Indenture, between the Registrant and
The Chase Manhattan Bank, as Trustee, relating to the 10.075% Notes
due 2001, including the form of Note certificate.
4.9 Form of Global Certificate representing the 10.20% Debentures due
2008.
4.10 Form of Global Certificate representing the 6.70% Notes due 2005.
4.11 Form of Global Certificate representing the 7.45% Debentures due
2025.
4.12 Form of Global Certificate representing the 9.20% Debentures due
2012.
4.13 Form of Global Certificate representing the 8.075% Notes due 2002.
4.14 Form of Global Certificate representing the 8.20% Notes due 1999.
4.15 Form of Global Certificate representing the 10.075% Notes due 2001.
5 --Opinion of Theodore R. Tetzlaff.
8 --Opinion of Jenner & Block re: certain tax matters.
*10.1 --Form of Debt and Cash Allocation Agreement by and among Tenneco
Inc., New Tenneco Inc., and Newport News Shipbuilding Inc.
(incorporated herein by reference from Exhibit 10.1 of New Tenneco
Inc.'s Form 10, File No. 001-12387).
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
*10.2 --Form of Benefits Agreement by and among Tenneco Inc., New Tenneco
Inc., and Newport News Shipbuilding Inc. (incorporated herein by
reference from Exhibit 10.2 of New Tenneco Inc.'s Form 10, File No.
001-12387).
*10.3 --Form of Insurance Agreement by and among Tenneco Inc., New Tenneco
Inc., and Newport News Shipbuilding Inc. (incorporated herein by
reference from Exhibit 10.3 of New Tenneco Inc.'s Form 10, File No.
001-12387).
*10.4 --Form of Tax Sharing Agreement by and among Tenneco Inc., Newport
News Shipbuilding Inc., New Tenneco Inc., and El Paso Natural Gas
Company (incorporated herein by reference from Exhibit 10.4 of New
Tenneco Inc.'s Form 10, File No. 001-12387).
*10.5 --Professional Services Agreement, dated August 22, 1996, by and
between New Tenneco Inc., Tenneco Business Services Inc. and Newport
News Shipbuilding Inc. (incorporated herein by reference from Exhibit
10.28 of New Tenneco Inc.'s Form 10, File No. 001-12387).
*10.6 --Form of Transition Services Agreement by and among Tenneco Business
Services, Inc., Tenneco Inc., and El Paso Natural Gas Company
(incorporated herein by reference from Exhibit 10.5 of New Tenneco
Inc.'s Form 10, File No. 001-12387).
*10.7 --Form of Shipbuilding Trademark Transition Services Agreement by and
between Newport News Shipbuilding Inc. and Tenneco Inc. (incorporated
herein by reference from Exhibit 10.6 of New Tenneco Inc.'s Form 10,
File No. 001-12387).
*10.8 --Form of Tenneco Trademark Transition Services Agreement by and
between New Tenneco Inc. and Tenneco Inc. (incorporated herein by
reference from Exhibit 10.7 of New Tenneco Inc.'s Form 10, File No.
001-12387).
+10.9 --Form of Amended and Restated Tenneco Inc. Board of Directors
Deferred Compensation Plan, to be assumed by New Tenneco Inc. as of
the Distribution Date.
+10.10 --Form of Amended and Restated Tenneco Inc. Executive Incentive
Compensation Plan, to be assumed by New Tenneco Inc. as of the
Distribution Date.
+10.11 --Form of Tenneco Inc. Deferred Compensation Plan, to be adopted by
New Tenneco Inc. as of the Distribution Date.
+10.12 --Form of Tenneco Inc. 1996 Deferred Compensation Plan, to be adopted
by New Tenneco Inc. as of the Distribution Date.
+10.13 --Form of Amended and Restated Tenneco Inc. Supplemental Executive
Retirement Plan, to be assumed by New Tenneco Inc. as of the
Distribution Date.
+10.14 --Form of Amended and Restated Tenneco Inc. Benefit Equalization Plan,
to be assumed by New Tenneco Inc. as of the Distribution Date.
+10.15 --Form of Amended and Restated Tenneco Inc. Outside Directors
Retirement Plan, to be assumed by New Tenneco Inc. as of the
Distribution Date.
+10.16 --Form of Amended and Restated Supplemental Pension Agreement, dated
September 12, 1995, between Dana G. Mead and Tenneco Inc. to be
assumed by New Tenneco Inc. as of the Distribution Date.
+10.17 --Form of Amended and Restated Tenneco Inc. Change in Control
Severance Benefit Plan for Key Executives, to be assumed by New
Tenneco Inc. as of the Distribution Date.
+10.18 --Form of Amended and Restated Tenneco Benefits Protection Trust, to
be assumed by New Tenneco Inc. as of the Distribution Date.
+10.19 --Employment Agreement dated June 29, 1992, between Stacy S. Dick and
Tenneco Inc.
+10.20 --Employment Agreement dated March 12, 1992, between Dana G. Mead and
Tenneco Inc.
+10.21 --Employment Agreement dated December 3, 1993, between Paul T. Stecko
and Tenneco Packaging, Inc.
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
+10.22 --Form of Agreement dated September 9, 1992, between Theodore R.
Tetzlaff and Tenneco Inc.
+10.23 --Form of Tenneco Inc. Directors Restricted Stock Program, effective
as of the Distribution Date, to be adopted by New Tenneco Inc. as of
the Distribution Date.
+10.24 --Form of Tenneco Inc. Directors Restricted Stock and Restricted Unit
Program, effective as of the Distribution Date, to be adopted by New
Tenneco Inc. as of the Distribution Date.
+10.25 --Form of 1996 Tenneco Inc. Stock Ownership Plan, to be adopted by New
Tenneco Inc. as of the Distribution Date.
+10.26 --Lease Agreement, Tomahawk, dated as of January 30, 1991, between The
Connecticut National Bank, as Owner Trustee, and Packaging
Corporation of America.
+10.27 --Lease Agreement, Valdosta, dated as of January 30, 1991 between The
Connecticut National Bank, Philip G. Kane, Jr., Frank McDonald, Jr.,
and William R. Monroe, as Owner Trustee, and Packaging Corporation of
America.
+10.28 --Timberland Lease, dated January 31, 1991, by and between Four States
Timber Venture and Packaging Corporation of America.
+12.1 --Statement of Ratio of Earnings to Fixed Charges (New Tenneco Inc.)
+12.2 --Statement of Ratio of Earnings to Fixed Charges and Earnings to
Fixed Charges and Preferred Stock Dividends (Tenneco)
+21 --List of Subsidiaries and Affiliates of New Tenneco Inc.
23.1 --Consent of Theodore R. Tetzlaff (included in Exhibit 5).
23.2 --Consent of Jenner & Block (included in Exhibit 8).
23.3 --Consent of Arthur Andersen LLP
23.4 --Consent of Ernst & Young LLP
+24 --Powers of Attorney of the following directors of New Tenneco Inc.:
+(a) Mark Andrews
+(b) W. Michael Blumenthal
+(c) M. Kathryn Eickhoff
+(d) Peter T. Flawn
+(e) Henry U. Harris, Jr.
+(f) Belton K. Johnson
+(g) Sir David Plastow
+(h) William L. Weiss
+(i) Clifton R. Wharton, Jr.
+(j) John B. McCoy
+25 --Statement of Eligibility of Trustee
+27(a) --Financial Data Schedule (as of December 31, 1995)
+27(b) --Financial Data Schedule (as of June 30, 1996)
99.1 --Form of Letter of Transmittal
99.2 --Form of Notice of Guaranteed Delivery
99.3 --Form of Letter to DTC Participants
99.4 --Form of Letter to Holders of Physical Securities
99.5 --Form of Letter to Beneficial Holders
</TABLE>
II-5
<PAGE>
Each exhibit identified on this Exhibit List is filed as part of this
Registration Statement. Exhibits incorporated by reference to a prior filing
are designated by an asterisk (*); exhibits which were previously filed are
designated by a dagger (+); all exhibits not so designated are being filed
herewith.
(b) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts--The Businesses of New
Tenneco
Schedule II--Valuation and Qualifying Accounts--The Businesses of Tenneco
Energy
(c) Not Applicable
ITEM 22. UNDERTAKINGS
A. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
B. The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
C. The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
D. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in any prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Securities and Exchange Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF GREENWICH, STATE OF
CONNECTICUT, ON THE 7TH DAY OF NOVEMBER, 1996.
NEW TENNECO INC.
/s/ Dana G. Mead
BY:__________________________________
Dana G. Mead
Chairman
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Dana G. Mead Principal Executive Officer November 7, 1996
____________________________________ and Director
Dana G. Mead
/s/ Robert T. Blakely Principal Financial and November 7, 1996
____________________________________ Accounting Officer
Robert T. Blakely
</TABLE>
Mark Andrews, W. Michael Directors
Blumenthal, M. Kathryn November 7,
Eickoff, Peter T. Flawn, Henry 1996
U. Harris, Jr., Belton K.
Johnson, John B. McCoy, Sir
David Plastow, William L.
Weiss, Clifton R. Wharton, Jr.
/s/ Karl A. Stewart
BY:____________________________
Attorney-in-fact
II-7
<PAGE>
SCHEDULE II
THE BUSINESSES OF NEW TENNECO
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(MILLIONS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------------------------------------------------
ADDITIONS
---------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END
DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS OF YEAR
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful
Accounts Deducted from
Assets to Which it
Applies:
Year Ended December 31,
1995.................. $15 $20 $-- $11 $24
=== === === === ===
Year Ended December 31,
1994.................. $15 $ 5 $-- $ 5 $15
=== === === === ===
Year Ended December 31,
1993.................. $17 $10 $-- $12 $15
=== === === === ===
</TABLE>
S-1
<PAGE>
SCHEDULE II
THE BUSINESSES OF TENNECO ENERGY
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(MILLIONS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- --------------------------------------------------------------------------------
ADDITIONS
---------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END
DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS OF YEAR
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful
Accounts Deducted from
Assets to Which it
Applies:
Year Ended December 31,
1995.................. $21 $26 $ 9 $ 7 $49
=== === === === ===
Year Ended December 31,
1994.................. $37 $ 2 $22 $20 $21
=== === === === ===
Year Ended December 31,
1993.................. $15 $23 $ 3 $ 4 $37
=== === === === ===
</TABLE>
S-2
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NEW TENNECO INC.
and
THE CHASE MANHATTAN BANK,
Trustee
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INDENTURE
Dated as of November 1, 1996
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<PAGE>
CROSS REFERENCE SHEET/1/
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BETWEEN
Provisions of Trust Indenture Act of 1939 and the Indenture to be dated as of
1, 1996 between NEW TENNECO INC. and THE CHASE MANHATTAN BANK , Trustee.
<TABLE>
<CAPTION>
SECTION OF THE ACT SECTION OF INDENTURE
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<S> <C>
310(a)(1) and (2).................................. 6.9
310(a)(3) and (4).................................. Inapplicable
310(b)............................................. 6.8 and 6.10(a), (b) and (d)
310(c)............................................. Inapplicable
311(a)............................................. 6.13
311(b)............................................. 6.13
311(c)............................................. Inapplicable
312(a)............................................. 4.1 and 4.2
312(b)............................................. 4.2
312(c)............................................. 4.2
313(a)............................................. 4.4
313(b)(1).......................................... Inapplicable
313(b)(2).......................................... Inapplicable
313(c)............................................. 4.4
313(d)............................................. 4.4
314(a)............................................. 4.3
314(b)............................................. Inapplicable
314(c)(1) and (2).................................. 11.5
314(c)(3).......................................... Inapplicable
314(d)............................................. Inapplicable
314(e)............................................. 11.5
314(f)............................................. Inapplicable
315(a), (c) and (d)................................ 6.1
315(b)............................................. 5.11
315(e)............................................. 5.12
316(a)(1).......................................... 5.9
316(a)(2).......................................... Not required
316(a) (last sentence)............................. 7.4
316(b)............................................. 5.7
316(c)............................................. 7.2
317(a)............................................. 5.2
317(b)............................................. 3.4(a) and (b)
318(a)............................................. 11.7
</TABLE>
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/1/ This Cross Reference Sheet is not part of the Indenture.
<PAGE>
TABLE OF CONTENTS
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<TABLE>
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PAGE
<C> <S> <C>
Parties................................................................... 1
Recitals
Authorization of Indenture............................................. 1
Compliance with Legal Requirements..................................... 1
Purpose of and Consideration for Indenture............................. 1
ARTICLE ONE
Definitions
Section 1.1. Certain Terms Defined....................................... 1
Attributable Debt........................................... 2
Authenticating Agent........................................ 2
Authorized Newspaper........................................ 2
Board of Directors.......................................... 3
Board Resolution............................................ 3
Business Day................................................ 3
Commission.................................................. 3
Composite Rate.............................................. 3
Consolidated Net Tangible Assets............................ 3
Corporate Trust Office...................................... 4
Coupon...................................................... 4
covenant defeasance......................................... 4
Debt........................................................ 4
Depositary.................................................. 4
Dollar...................................................... 4
ECU......................................................... 4
Event of Default............................................ 4
Exempted Debt............................................... 5
Foreign Currency............................................ 5
Holder, Holder of Securities, Securityholder................ 5
Indenture................................................... 5
Interest.................................................... 5
Issuer...................................................... 5
Issuer Order................................................ 5
Judgment Currency........................................... 5
Mortgage.................................................... 5
Net Rental Payments......................................... 5
Officers' Certificate....................................... 6
Opinion of Counsel.......................................... 6
original issue date......................................... 6
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<C> <S> <C>
Original Issue Discount
Security.................................................. 6
Outstanding............................................... 6
Periodic Offering......................................... 7
Permitted Mortgage........................................ 7
Person.................................................... 7
principal................................................. 8
Principal Manufacturing
Property.................................................. 8
record date............................................... 8
Registered Global
Security.................................................. 8
Registered Security....................................... 8
Required Currency......................................... 8
Responsible Officer....................................... 8
Restricted Subsidiary..................................... 8
Security or Securities.................................... 9
Subsidiary................................................ 9
Trust Indenture Act of
1939...................................................... 9
Trustee................................................... 9
Unregistered Security..................................... 9
U.S. Government
Obligations............................................... 9
Yield to Maturity......................................... 9
ARTICLE TWO
Securities
Section 2.1. Forms Generally........................................... 10
Form of Trustee's
Certificate of
Section 2.2. Authentication............................................ 10
Amount Unlimited;
Section 2.3. Issuable in Series........................................ 11
Authentication and
Section 2.4. Delivery of Securities.................................... 13
Section 2.5. Execution of Securities................................... 16
Certificate of
Section 2.6. Authentication............................................ 17
Denomination and Date of
Securities; Payments of
Section 2.7. Interest.................................................. 17
Registration, Transfer
Section 2.8. and Exchange.............................................. 18
Mutilated, Defaced,
Destroyed, Lost and
Section 2.9. Stolen Securities......................................... 22
Cancellation of
Securities; Destruction
Section 2.10. Thereof................................................... 24
Section 2.11. Temporary Securities...................................... 24
ARTICLE THREE
Covenants of the Issuer
Payment of Principal and
Section 3.1. Interest.................................................. 25
Offices for Payments,
Section 3.2. etc....................................................... 26
Appointment To Fill a
Vacancy in Office of
Section 3.3. Trustee................................................... 27
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ii
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<C> <S> <C>
Section 3.4. Paying Agents............................................. 27
Section 3.5. Written Statement to Trustee.............................. 28
Section 3.6. Negative Pledge; Limitation on Sale and Leaseback
Transactions............................................ 29
Section 3.7. Luxembourg Publications................................... 32
ARTICLE FOUR
Securityholders Lists and Reports by the Issuer and the Trustee
Section 4.1. Issuer to Furnish Trustee Information as to Names and
Addresses of Securityholders............................ 32
Section 4.2. Preservation and Disclosure of Securityholders Lists...... 33
Section 4.3. Reports by the Issuer..................................... 33
Section 4.4. Reports by the Trustee.................................... 33
ARTICLE FIVE
Remedies of the Trustee and Securityholders on Event of Default
Section 5.1. Event of Default Defined; Acceleration of Maturity; Waiver
of Default.............................................. 33
Collection of Indebtedness by Trustee; Trustee May Prove
Section 5.2. Debt...................................................... 36
Section 5.3. Application of Proceeds................................... 39
Section 5.4. Suits for Enforcement..................................... 40
Section 5.5. Restoration of Rights on Abandonment of Proceedings....... 40
Section 5.6. Limitations on Suits by Securityholders................... 40
Unconditional Right of Securityholders to Institute
Section 5.7. Certain Suits............................................. 41
Section 5.8. Powers and Remedies Cumulative; Delay or Omission Not
Waiver of Default....................................... 41
Section 5.9. Control by Holders of Securities.......................... 42
Section 5.10. Waiver of Past Defaults................................... 42
Section 5.11. Trustee to Give Notice of Default, But May Withhold in
Certain Circumstances................................... 43
Right of Court to Require Filing of Undertaking to Pay
Section 5.12. Costs..................................................... 43
ARTICLE SIX
Concerning the Trustee
Section 6.1. Duties and Responsibilities of the Trustee; During
Default; Prior to Default............................... 44
Section 6.2. Certain Rights of the Trustee............................. 45
Section 6.3. Trustee Not Responsible for Recitals, Disposition of
Securities or Application of Proceeds Thereof........... 46
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iii
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<C> <S> <C>
Section 6.4. Trustee and Agents May Hold Securities or Coupons;
Collections, etc. ...................................... 47
Section 6.5. Moneys Held by Trustee.................................... 47
Section 6.6. Compensation and Indemnification of Trustee and Its Prior
Claim................................................... 47
Section 6.7. Right of Trustee to Rely on Officers' Certificate, etc.... 48
Section 6.8. Indentures Not Creating Potential Conflicting Interests
for the Trustee......................................... 48
Section 6.9. Persons Eligible for Appointment as Trustee............... 48
Section 6.10. Resignation and Removal; Appointment of Successor Trustee. 49
Section 6.11. Acceptance of Appointment by Successor Trustee............ 50
Section 6.12. Merger, Conversion, Consolidation or Succession to
Business of Trustee..................................... 51
Section 6.13. Preferential Collection of Claims Against the Issuer...... 52
Section 6.14. Appointment of Authenticating Agent....................... 52
ARTICLE SEVEN
Concerning the Securityholders
Section 7.1. Evidence of Action Taken by Securityholders............... 53
Proof of Execution of Instruments and of Holding of
Section 7.2. Securities................................................ 54
Section 7.3. Holders To Be Treated as Owners........................... 55
Section 7.4. Securities Owned by Issuer Deemed Not Outstanding......... 56
Section 7.5. Right of Revocation of Action Taken....................... 56
ARTICLE EIGHT
Supplemental Indentures
Supplemental Indentures Without Consent of
Section 8.1. Securityholders........................................... 57
Section 8.2. Supplemental Indentures With Consent of Securityholders... 58
Section 8.3. Effect of Supplemental Indenture.......................... 60
Section 8.4. Documents to Be Given to Trustee.......................... 60
Notation on Securities in Respect of Supplemental
Section 8.5. Indentures................................................ 60
ARTICLE NINE
Consolidation, Merger, Sale or Conveyance
Section 9.1. Covenant Not to Merge, Consolidate, Sell or Convey
Property Except Under Certain Conditions................ 61
Section 9.2. Successor Corporation Substituted......................... 61
Section 9.3. Opinion of Counsel Delivered to Trustee................... 62
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iv
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ARTICLE TEN
Satisfaction and Discharge of Indenture; Unclaimed Moneys
<C> <S> <C>
Section 10.1. Satisfaction and Discharge of Indenture.................. 62
Section 10.2. Application by Trustee of Funds Deposited for Payment of
Securities............................................. 67
Section 10.3. Repayment of Moneys Held by Paying Agent................. 67
Section 10.4. Return of Moneys Held by Trustee and Paying Agent
Unclaimed for Two Years................................ 67
ARTICLE ELEVEN
Miscellaneous Provisions
Section 11.1. Incorporators, Shareholders, Officers and Directors of
Issuer Exempt from Individual Liability................ 68
Section 11.2. Provisions of Indenture for the Sole Benefit of Parties
and Holders of Securities and Coupons.................. 68
Section 11.3. Successors and Assigns of Issuer Bound by Indenture...... 69
Section 11.4. Notices and Demands on Issuer, Trustee and Holders of
Securities and Coupons................................. 69
Section 11.5. Officer's Certificates and Opinions of Counsel;
Statements to Be Contained Therein..................... 69
Section 11.6. Payments Due on Saturdays, Sundays and Holidays.......... 71
Section 11.7. Conflict of Any Provision of Indenture with Trust
Indenture Act of 1939.................................. 71
Section 11.8. New York Law to Govern................................... 71
Section 11.9. Counterparts............................................. 71
Section 11.10. Effect of Headings....................................... 71
Section 11.11. Securities in a Foreign Currency or in ECU............... 71
Section 11.12. Judgment Currency........................................ 72
ARTICLE TWELVE
Redemption of Securities and Sinking Funds
Section 12.1. Applicability of Article................................. 73
Section 12.2. Notice of Redemption; Partial Redemptions................ 73
Section 12.3. Payment of Securities Called for Redemption.............. 75
Section 12.4. Exclusion of Certain Securities from Eligibility for
Selection for Redemption............................... 76
Section 12.5. Mandatory and Optional Sinking Funds..................... 77
Testimonium.............................................................. 80
Signatures............................................................... 80
</TABLE>
v
<PAGE>
THIS INDENTURE, dated as of November 1, 1996 between New Tenneco Inc., a Del-
aware corporation (the "Issuer"), and The Chase Manhattan Bank, a New York
banking corporation, as trustee (the "Trustee"),
WITNESSETH:
Whereas, the Issuer has duly authorized the issue from time to time of its
unsecured debentures, notes or other evidences of indebtedness to be issued in
one or more series (the "Securities") up to such principal amount or amounts
as may from time to time be authorized in accordance with the terms of this
Indenture;
Whereas, the Issuer has duly authorized the execution and delivery of this
Indenture to provide, among other things, for the authentication, delivery and
administration of the Securities; and
Whereas, all things necessary to make this Indenture a valid indenture and
agreement according to its terms have been done;
Now, Therefore:
In consideration of the premises and the purchases of the Securities by the
holders thereof, the Issuer and the Trustee mutually covenant and agree for
the equal and proportionate benefit of the respective holders from time to
time of the Securities and of the coupons, if any, appertaining thereto as
follows:
ARTICLE ONE
Definitions
Section 1.1 Certain Terms Defined. The following terms (except as otherwise
expressly provided herein, in any indenture supplemental hereto or, as to any
Security, in such Security or unless the context otherwise clearly requires)
for all purposes of this Indenture and of any indenture supplemental hereto
shall have the respective meanings specified in this Section. All other terms
used in this Indenture that are defined in the Trust Indenture Act of 1939 or
the definitions of which in the Securities Act of 1933 are referred to in the
Trust Indenture Act of 1939, including terms defined therein by reference to
the Securities Act of 1933 (except as herein otherwise expressly provided or
unless the context otherwise requires), shall have the meanings assigned to
such terms in said Trust
<PAGE>
Indenture Act and in said Securities Act as in force at the date of this In-
denture. All accounting terms used herein and not expressly defined shall have
the meanings assigned to such terms in accordance with generally accepted ac-
counting principles, and the term "generally accepted accounting principles"
means such accounting principles as are generally accepted in the United
States at the time of any computation. The words "herein," "hereof," "hereto"
and "hereunder" and other words of similar import refer to this Indenture as a
whole and not to any particular Article, Section or other subdivision. The
terms defined in this Article include the plural as well as the singular.
"Attributable Debt" means, as to any particular lease under which any Person
is at the time liable, at any date as of which the amount thereof is to be de-
termined, the total net amount of rent required to be paid by such Person un-
der such lease during the remaining term thereof, discounted from the respec-
tive due dates thereof to such date at the Composite Rate. 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 re-
pairs, financing services, insurance, taxes, assessments, water or electrical
rates, contingent rents (such as those based on sales) 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.
"Authenticating Agent" shall have the meaning set forth in Section 6.14.
"Authorized Newspaper" means a newspaper (which, in the case of The City of
New York, will, if practicable, be The Wall Street Journal (Eastern Edition),
in the case of the United Kingdom, will, if practicable, be the Financial
Times (London Edition) and, in the case of Luxembourg, will, if practicable,
be the Luxemburger Wort) published in an official language of the country of
publication customarily published at least once a day for at least five days
in each calendar week and of general circulation in The City of New York, the
United Kingdom or in Luxembourg, as applicable. If it shall be impractical in
the opinion of the Trustee to make any publication of any notice required
hereby in an Authorized Newspaper, any publication or other notice in lieu
thereof which is made or given with the approval of the Trustee shall consti-
tute a sufficient publication of such notice.
2
<PAGE>
"Board of Directors" means either the Board of Directors of the Issuer or any
committee or other designees of such Board duly authorized to act on its be-
half.
"Board Resolution" means a copy of one or more resolutions, certified by the
secretary or an assistant secretary of the Issuer to have been duly adopted or
consented to by the Board of Directors and to be in full force and effect, and
delivered to the Trustee.
"Business Day" means, with respect to any Security, a day that in the city
(or in any of the cities, if more than one) in which amounts are payable, as
specified in the form of such Security, is not a day on which banking institu-
tions are authorized or required by law or regulation to close.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Securities Exchange Act of 1934, or if at
any time after the execution and delivery of this Indenture such Commission is
not existing and performing the duties now assigned to it under the Trust In-
denture Act of 1939, then the body performing such duties on such date.
"Composite Rate" means, at any time, the rate of interest, per annum, com-
pounded semiannually, equal to the sum of the products obtained by multiplying
the rate of interest borne by the Securities of each series (as specified on
the face of the Securities of each series, provided, that, in the case of the
Securities with variable rates of interest, the interest rate to be used in
calculating the Composite Rate shall be the interest rate applicable to such
Securities at the beginning of the year in which the Composite Rate is being
determined and, provided, further, that, in the case of Original Issue Dis-
count Securities, the interest rate to be used in calculating the Composite
Rate shall be a rate equal to the yield to maturity on such Securities, calcu-
lated at the time of issuance of such Securities) by the percentage of the ag-
gregate principal amount of the Securities of all series Outstanding repre-
sented by the Outstanding Securities of such series. For the purposes of this
calculation, the aggregate principal amount of Outstanding Securities that are
denominated in a foreign currency shall be calculated in the manner set forth
in Section 11.11, and the aggregate principal amount of Original Issue Dis-
count Securities shall be the aggregate amount then payable upon the declara-
tion of acceleration of the maturity thereof pursuant to Section 5.1.
"Consolidated Net Tangible Assets" shall mean, at any date, the total assets
appearing on the consolidated balance sheet of the Issuer and its consolidated
3
<PAGE>
Subsidiaries for the Issuer's most recently completed fiscal quarter, prepared
in accordance with generally accepted accounting principles, less (a) all cur-
rent liabilities shown on such balance sheet and (b) Intangible Assets. "In-
tangible Assets" means the value (net of applicable reserves), as shown on or
reflected in such balance sheet, of: (i) all trade names, trademarks, li-
censes, patents, copyrights and goodwill; (ii) organizational or development
costs; (iii) deferred charges (other than prepaid items such as insurance,
taxes, interest, commissions, rents and similar items and tangible assets be-
ing amortized); and (iv) unamortized debt discount and expense, less premium.
"Corporate Trust Office" means the office of the Trustee at which the corpo-
rate trust business of the Trustee shall, at any particular time, be princi-
pally administered, which office is, at the date as of which this Indenture is
dated, located in 450 West 33rd Street, 15th Floor, New York, New York, Atten-
tion: Global Trust Services.
"Coupon" means any interest coupon appertaining to a Security.
"covenant defeasance" shall have the meaning set forth in Section 10.1(C).
"Debt" of any Person shall mean any debt for money borrowed which is issued,
assumed, incurred or guaranteed in any manner by such Person.
"Depositary" means, with respect to the Securities of any series issuable or
issued in the form of one or more Registered Global Securities, the Person
designated as Depositary by the Issuer pursuant to Section 2.3 until a succes-
sor Depositary shall have become such pursuant to the applicable provisions of
this Indenture, and thereafter "Depositary" shall mean or include each Person
who is then a Depositary hereunder, and if at any time there is more than one
such Person, "Depositary" as used with respect to the Securities of any such
series shall mean the Depositary with respect to the Registered Global Securi-
ties of that series.
"Dollar" means the coin or currency of the United States of America as at the
time of payment is legal tender for the payment of public and private debts.
"ECU" means the European Currency Unit as defined and revised from time to
time by the Council of European Communities.
"Event of Default" means any event or condition specified as such in
Section 5.1.
4
<PAGE>
"Exempted Debt" shall mean the sum of (a) Debt of the Issuer and its Subsidi-
aries incurred after the date as of which this Indenture is dated and secured
by liens created, assumed or permitted to exist pursuant to Section 3.6(b) and
(b) Attributable Debt of the Issuer and its Subsidiaries in respect of all
sale and leaseback transactions entered into pursuant to Section 3.6(d).
"Foreign Currency" means a currency issued by the government of a country
other than the United States.
"Holder," "Holder of Securities," "Securityholder" or other similar terms
mean (a) in the case of any Registered Security, the person in whose name such
Security is registered in the security register kept by the Issuer for that
purpose in accordance with the terms hereof, and (b) in the case of any Unreg-
istered Security, the bearer of such Security, or any Coupon appertaining
thereto, as the case may be.
"Indenture" means this instrument as originally executed and delivered or, if
amended or supplemented as herein provided, as so amended or supplemented or
both, and shall include the forms and terms of particular series of Securities
established as contemplated hereunder.
"Interest" means, when used with respect to non-interest bearing Securities,
interest payable after maturity.
"Issuer" means New Tenneco Inc., a Delaware corporation, and, subject to Ar-
ticle Nine, its successors and assigns.
"Issuer Order" means a written statement, request or order of the Issuer
signed in its name by the chairman of the Board of Directors, the chief execu-
tive officer, the president, any vice president, the chief financial officer,
the treasurer, the controller or any other officer designated by the Board of
Directors or any of the foregoing officers of the Issuer.
"Judgment Currency" shall have the meaning set forth in Section 11.12.
"Mortgage" shall have the meaning set forth in Section 3.6(a).
"Net Rental Payments" under any lease for any period shall mean the sum of
monies and other payments required to be paid by the lessee under such lease
as rent thereunder, not including amounts payable by the lessee for mainte-
nance and repairs, financing services, water or electrical rates, insurance,
taxes, assessments, contingent rents (such as those based on sales) and simi-
lar charges.
5
<PAGE>
"Officer's Certificate" means a certificate signed by the chairman of the
Board of Directors, the chief executive officer, the president, the chief fi-
nancial officer, any vice president, the treasurer, the controller or any
other officer designated by the Board of Directors or any of the foregoing of-
ficers of the Issuer and delivered to the Trustee. Each such certificate shall
comply with Section 314 of the Trust Indenture Act of 1939 and include the
statements provided for in Section 11.5.
"Opinion of Counsel" means an opinion in writing signed by the General Coun-
sel of the Issuer or by such other legal counsel who may be an employee of or
counsel to the Issuer and who shall be satisfactory to the Trustee. Each such
opinion shall comply with Section 314 of the Trust Indenture Act of 1939 and
include the statements provided for in Section 11.5.
"original issue date" of any Security (or portion thereof) means the earlier
of (a) the date of such Security or (b) the date of any Security (or portion
thereof) for which such Security was issued (directly or indirectly) on regis-
tration of transfer, exchange or substitution.
"Original Issue Discount Security" means any Security that provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the maturity thereof pursuant to Section 5.1.
"Outstanding," when used with reference to Securities, shall, subject to the
provisions of Section 7.4, mean, as of any particular time, all Securities au-
thenticated and delivered by the Trustee under this Indenture, except
(a) Securities theretofore cancelled by the Trustee or delivered to the
Trustee for cancellation;
(b) Securities, or portions thereof, for the payment or redemption of which
moneys or U.S. Government Obligations (as provided for in Section 10.1) in
the necessary amount shall have been deposited in trust with the Trustee or
with any paying agent (other than the Issuer) or shall have been set aside,
segregated and held in trust by the Issuer for the Holders of such Securi-
ties (if the Issuer shall act as its own paying agent), provided that if
such Securities, or portions thereof, are to be redeemed prior to the matu-
rity thereof, notice of such redemption shall have been given as herein pro-
vided, or provision satisfactory to the Trustee shall have been made for
giving such notice; and
(c) Securities which shall have been paid or in substitution for which
other Securities shall have been authenticated and delivered pursuant to the
terms of Section 2.9 (except with respect to any such Security as to which
proof satis-
6
<PAGE>
factory to the Trustee is presented that such Security is held by a person
in whose hands such Security is a legal, valid and binding obligation of the
Issuer).
In determining whether the Holders of the requisite principal amount of Out-
standing Securities of any or all series have given any request, demand, au-
thorization, direction, notice, consent or waiver hereunder, the principal
amount of an Original Issue Discount Security that shall be deemed to be Out-
standing for such purposes shall be the amount of the principal thereof that
would be due and payable as of the date of such determination upon a declara-
tion of acceleration of the maturity thereof pursuant to Section 5.1.
"Periodic Offering" means an offering of Securities of a series from time to
time, the specific terms of which Securities, including, without limitation,
the rate or rates of interest, if any, thereon, the stated maturity or maturi-
ties thereof and the redemption provisions, if any, with respect thereto, are
to be determined by the Issuer or its agents upon the issuance of such Securi-
ties.
"Permitted Mortgage" means:
(i) any governmental, mechanics', materialmen's, carriers' or similar lien
created in the ordinary course of business which is not yet due or which is
being contested in good faith by appropriate proceedings and any undeter-
mined lien which is incidental to construction;
(ii) any right reserved to, or vested in, any municipality or public au-
thority by the terms of any right, power, franchise, grant, license, permit
or by any provision of law, to purchase or recapture or to designate a pur-
chaser of, any property;
(iii) any lien of taxes and assessments which is (A) for the current year,
or (B) not at the time delinquent or (C) delinquent but the validity of
which is being contested at the time by the Issuer or any Subsidiary in good
faith;
(iv) any lien arising from or in connection with a conveyance by the Issuer
or any Subsidiary of any production payment with respect to oil, gas, natu-
ral gas, carbon dioxide, sulphur, helium, coal, metals, minerals, steam,
timber or other natural resources;
(v) any lien to secure obligations imposed by statute or governmental regu-
lations; or
(vi) any lien of, or to secure performance of, leases (other than leases
relating to a sale and leaseback transaction).
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint stock company, trust, unincorpo-
rated organization or government or any agency or political subdivision there-
of.
7
<PAGE>
"principal," whenever used with reference to the Securities or any Security
or any portion thereof, shall be deemed to include "and premium, if any."
"Principal Manufacturing Property" shall mean any manufacturing plant or any
testing or research and development facility of the Issuer or a Subsidiary lo-
cated in the United States of America (other than its territories and posses-
sions) unless, in the opinion of the Board of Directors, such plant or facil-
ity is not of material importance to the total business conducted by the Is-
suer and its consolidated Subsidiaries. Principal Manufacturing Property shall
include, without limitation, additions, improvements, replacements, repairs,
fixtures, appurtenances or component parts of any such plant or facility at-
taching to or required to be attached to property or assets pursuant to the
terms of any Mortgage (including, without limitation, pursuant to any "after-
acquired property" clause or similar term thereof).
"record date" shall have the meaning set forth in Section 2.7.
"Registered Global Security" means a Security evidencing all or a part of a
series of Registered Securities, issued to the Depositary for such series in
accordance with Section 2.4, and bearing the legend prescribed in Section 2.4.
"Registered Security" means any Security registered on the Security register
of the Issuer.
"Required Currency" shall have the meaning set forth in Section 11.12.
"Responsible Officer," when used with respect to the Trustee means the chair-
man of the board of directors, any vice chairman of the board of directors,
the chairman of the trust committee, the chairman of the executive committee,
any vice chairman of the executive committee, the president, any vice presi-
dent (whether or not designated by numbers or words added before or after the
title "vice president"), the cashier, the secretary, the treasurer, any trust
officer, any assistant trust officer, any assistant vice president, any assis-
tant cashier, any assistant secretary, any assistant treasurer, or any other
officer or assistant officer of the Trustee customarily performing functions
similar to those performed by the persons who at the time shall be such offi-
cers, respectively, or to whom any corporate trust matter is referred because
of his knowledge of and familiarity with the particular subject.
"Restricted Subsidiary" shall mean any Subsidiary that owns or is the lessee
of any Principal Manufacturing Property; provided, however, that the term "Re-
8
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stricted Subsidiary" does not include any Subsidiary acquired or organized for
the purpose of acquiring the stock or business or assets of any Person other
than the Issuer or any Restricted Subsidiary, whether by merger, consolida-
tion, acquisition of stock or assets or similar transaction, so long as such
Subsidiary does not acquire all or any substantial part of the business or as-
sets of the Issuer or any other Restricted Subsidiary.
"Security" or "Securities" has the meaning stated in the first recital of
this Indenture, or, as the case may be, Securities that have been authenti-
cated and delivered under this Indenture.
"Subsidiary" means any corporation, partnership or other entity of which at
the time of determination the Issuer owns or controls directly or indirectly
more than 50% of the shares of voting stock or equivalent interest, provided
that the term "Subsidiary" shall not include Tenneco Tanker Holding Corpora-
tion, Hvide Partners, L.P., Hvide Van Ommeren Tankers I LLC, Hvide Van Ommeren
Tankers II LLC, Hvide Van Ommeren III LLC, Hvide Van Ommeren Tankers IV LLC,
Hvide Van Ommeren Tankers V LLC, and Hvide Van Ommeren Tankers Options LLC.
"Trust Indenture Act of 1939" (except as otherwise required by applicable law
or as provided in Sections 8.1 and 8.2) means the Trust Indenture Act of 1939
as in force at the date as of which this Indenture was originally executed.
"Trustee" means the Person identified as "Trustee" in the first paragraph
hereof and, subject to the provisions of Article Six, shall also include any
successor trustee. "Trustee" shall also mean or include each Person who is
then a trustee hereunder and if at any time there is more than one such Per-
son, "Trustee" as used with respect to the Securities of any series shall mean
the trustee with respect to the Securities of such series.
"Unregistered Security" means any Security other than a Registered Security.
"U.S. Government Obligations" shall have the meaning set forth in Section
10.1(A).
"Yield to Maturity" means the yield to maturity on a series of Securities,
calculated at the time of issuance of such series, or, if applicable, at the
most recent redetermination of interest on such series, and calculated in ac-
cordance with accepted financial practice.
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ARTICLE TWO
Securities
Section 2.1 Forms Generally. The Securities of each series and the Coupons,
if any, to be attached thereto shall be substantially in such form (not incon-
sistent with this Indenture) as shall be established by or pursuant to one or
more Board Resolutions (as set forth in a Board Resolution or, to the extent
established pursuant to rather than set forth in a Board Resolution, an Offi-
cer's Certificate detailing such establishment) or in one or more indentures
supplemental hereto, in each case with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by this Inden-
ture and may have imprinted or otherwise reproduced thereon such legend or
legends or endorsements, not inconsistent with the provisions of this Inden-
ture, as may be required to comply with any law or with any rules or regula-
tions pursuant thereto, or with any rules of any securities exchange or to
conform to general usage, all as may be determined by the officers executing
such Securities and Coupons, if any, as evidenced by their execution of such
Securities and Coupons.
The definitive Securities and Coupons, if any, shall be printed, lithographed
or engraved on steel engraved borders or may be produced in any other manner,
all as determined by the officers executing such Securities and Coupons, if
any, as evidenced by their execution of such Securities and Coupons, if any.
Section 2.2 Form of Trustee's Certificate of Authentication. The Trustee's
certificate of authentication on all Securities shall be in substantially the
following form:
"This is one of the Securities referred to in the within-mentioned Inden-
ture.
__________________________________________ ,
as Trustee
By _________________________________________
Authorized Officer"
If at any time there shall be an Authenticating Agent appointed with respect
to any series of Securities, then the Trustee's Certificate of Authentication
to be borne by the Securities of each such series shall be substantially as
follows:
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"This is one of the Securities referred to in the within-mentioned Inden-
ture.
__________________________________________ ,
as Authenticating Agent
By _________________________________________
Authorized Officer"
Section 2.3 Amount Unlimited; Issuable in Series. The aggregate principal
amount of Securities which may be authenticated and delivered under this In-
denture is unlimited.
The Securities may be issued in one or more series and each such series shall
rank equally and pari passu with all other unsecured and unsubordinated debt
of the Issuer. There shall be established in or pursuant to one or more Board
Resolutions (and to the extent established pursuant to rather than set forth
in a Board Resolution, in an Officer's Certificate detailing such establish-
ment) or established in one or more indentures supplemental hereto, prior to
the initial issuance of Securities of a series,
(1) the designation of the Securities of the series, which shall distin-
guish the Securities of the series from the Securities of all other series;
(2) any limit upon the aggregate principal amount of the Securities of the
series that may be authenticated and delivered under this Indenture (except
for Securities authenticated and delivered upon registration of transfer of,
or in exchange for, or in lieu of, other Securities of the series pursuant
to Section 2.8, 2.9, 2.11, 8.5 or 12.3);
(3) if other than Dollars, the coin or currency in which the Securities of
that series are denominated (including, but not limited to, any Foreign Cur-
rency or ECU);
(4) the date or dates on which the principal of the Securities of the se-
ries is payable;
(5) the rate or rates at which the Securities of the series shall bear in-
terest, if any, the date or dates from which such interest shall accrue, on
which such interest shall be payable and (in the case of Registered Securi-
ties) on which a record shall be taken for the determination of Holders to
whom interest is payable and/or the method by which such rate or rates or
date or dates shall be determined;
(6) the place or places where the principal of and any interest on Securi-
ties of the series shall be payable (if other than as provided in Section
3.2);
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(7) the right, if any, of the Issuer to redeem Securities of the series, in
whole or in part, at its option and the period or periods within which, the
price or prices at which and any terms and conditions upon which Securities
of the series may be so redeemed, pursuant to any sinking fund or otherwise;
(8) the obligation, if any, of the Issuer to redeem, purchase or repay Se-
curities of the series pursuant to any mandatory redemption, sinking fund or
analogous provisions or at the option of a Holder thereof and the price or
prices at which and the period or periods within which and any terms and
conditions upon which Securities of the series shall be redeemed, purchased
or repaid, in whole or in part, pursuant to such obligation;
(9) if other than denominations of $1,000 and any integral multiple thereof
in the case of Registered Securities, or $1,000 and $5,000 in the case of
Unregistered Securities, the denominations in which Securities of the series
shall be issuable;
(10) if other than the principal amount thereof, the portion of the princi-
pal amount of Securities of the series which shall be payable upon declara-
tion of acceleration of the maturity thereof;
(11) if other than the coin or currency in which the Securities of that se-
ries are denominated, the coin or currency in which payment of the principal
of or interest on the Securities of such series shall be payable;
(12) if the principal of or interest on the Securities of such series are
to be payable, at the election of the Issuer or a Holder thereof, in a coin
or currency other than that in which the Securities are denominated, the pe-
riod or periods within which, and the terms and conditions upon which, such
election may be made;
(13) if the amount of payments of principal of and interest on the Securi-
ties of the series may be determined with reference to an index based on a
coin or currency other than that in which the Securities of the series are
denominated, the manner in which such amounts shall be determined;
(14) whether the Securities of the series will be issuable as Registered
Securities (and if so, whether such Securities will be issuable as Regis-
tered Global Securities) or Unregistered Securities (with or without Cou-
pons), or any combination of the foregoing, any restrictions applicable to
the offer, sale or delivery of Unregistered Securities or the payment of in-
terest thereon and, if other than as provided in Section 2.8, the terms upon
which Unregistered Securities of any series may be exchanged for Registered
Securities of such series and vice versa;
(15) whether and under what circumstances the Issuer will pay additional
amounts on the Securities of the series held by a person who is not a U.S.
person in respect of any tax, assessment or governmental charge withheld or
deducted and, if so, whether the Issuer will have the option to redeem such
Securities rather than pay such additional amounts;
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<PAGE>
(16) if the Securities of such series are to be issuable in definitive form
(whether upon original issue or upon exchange of a temporary Security of
such series) only upon receipt of certain certificates or other documents or
satisfaction of other conditions, the form and terms of such certificates,
documents or conditions;
(17) any trustees, depositaries, authenticating or paying agents, transfer
agents or registrars or any other agents with respect to the Securities of
such series;
(18) any other events of default or covenants with respect to the Securi-
ties of such series;
(19) whether the Securities of the series shall be issued in the form of
one or more Registered Global Securities and, in such case, the Depositary
for such Registered Global Security or Securities; and
(20) any other terms of the series (which terms shall not be inconsistent
with the provisions of this Indenture).
All Securities of any one series and Coupons, if any, appertaining thereto,
shall be substantially identical, except in the case of Registered Securities,
as to denomination and except as may otherwise be provided by or pursuant to
the Board Resolution or Officer's Certificate referred to above or as set
forth in any such indenture supplemental hereto. All Securities of any one se-
ries need not be issued at the same time and may be issued from time to time,
consistent with the terms of this Indenture, if so provided by or pursuant to
such Board Resolution, such Officer's Certificate or in any such indenture
supplemental hereto.
Section 2.4 Authentication and Delivery of Securities. The Issuer may deliver
Securities of any series having attached thereto appropriate Coupons, if any,
executed by the Issuer to the Trustee for authentication together with the ap-
plicable documents referred to below in this Section, and the Trustee shall
thereupon authenticate and deliver such Securities to or upon the order of the
Issuer (contained in the Issuer Order referred to below in this Section) or
pursuant to such procedures acceptable to the Trustee and to such recipients
as may be specified from time to time by an Issuer Order. The maturity date,
original issue date, interest rate and any other terms of the Securities of
such series and Coupons, if any, appertaining thereto shall be determined by
or pursuant to such Issuer Order and procedures. If provided for in such pro-
cedures, such Issuer Order may authorize authentication and delivery pursuant
to oral instructions from the Issuer or its duly authorized agent, which in-
structions shall be promptly confirmed in writing. In authenticating such Se-
curities and accepting the additional responsibilities under this Indenture in
relation to such Securities, the
13
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Trustee shall be entitled to receive (in the case of subparagraphs 2, 3 and 4
below only at or before the time of the first request of the Issuer to the
Trustee to authenticate Securities of such series) and (subject to Section
6.1) shall be fully protected in relying upon, unless and until such documents
have been superseded or revoked:
(1) an Issuer Order requesting such authentication and setting forth deliv-
ery instructions if the Securities and Coupons, if any, are not to be deliv-
ered to the Issuer, provided that, with respect to Securities of a series
subject to a Periodic Offering, (a) such Issuer Order may be delivered by
the Issuer to the Trustee prior to the delivery to the Trustee of such Secu-
rities for authentication and delivery, (b) the Trustee shall authenticate
and deliver Securities of such series for original issue from time to time,
in an aggregate principal amount not exceeding the aggregate principal
amount established for such series, pursuant to an Issuer Order or pursuant
to procedures acceptable to the Trustee as may be specified from time to
time by an Issuer Order, (c) the maturity date or dates, original issue date
or dates, interest rate or rates and any other terms of Securities of such
series shall be determined by an Issuer Order or pursuant to such procedures
and (d) if provided for in such procedures, such Issuer Order may authorize
authentication and delivery pursuant to oral or electronic instructions from
the Issuer or its duly authorized agent or agents, which oral instructions
shall be promptly confirmed in writing;
(2) any Board Resolution, Officer's Certificate and/or executed supplemen-
tal indenture referred to in Sections 2.1 and 2.3 by or pursuant to which
the forms and terms of the Securities and Coupons, if any, were established;
(3) an Officer's Certificate setting forth the form or forms and terms of
the Securities and Coupons, if any, stating that the form or forms and terms
of the Securities and Coupons, if any, have been established pursuant to
Sections 2.1 and 2.3 and comply with this Indenture, and covering such other
matters as the Trustee may reasonably request; and
(4) At the option of the Issuer, either Opinions of Counsel, or letters ad-
dressed to the Trustee permitting it to rely on Opinions of Counsel, sub-
stantially to the effect that:
(a) the forms of the Securities and Coupons, if any, have been duly au-
thorized and established in conformity with the provisions of this
Indenture;
(b) in the case of an underwritten offering, the terms of the Securities
have been duly authorized and established in conformity with the provi-
sions of this Indenture, and, in the case of an offering that is not un-
derwritten, certain terms of the Securities have been established pursuant
to a Board Resolution, an Officer's Certificate or a supplemental inden-
ture in accordance with this Indenture, and when such other terms as are
to be estab-
14
<PAGE>
lished pursuant to procedures set forth in an Issuer Order shall have been
established, all such terms will have been duly authorized by the Issuer
and will have been established in conformity with the provisions of this
Indenture;
(c) when the Securities and Coupons, if any, have been executed by the
Issuer and authenticated by the Trustee in accordance with the provisions
of this Indenture and delivered to and duly paid for by the purchasers
thereof, they will have been duly issued under this Indenture and will be
valid and legally binding obligations of the Issuer, enforceable in accor-
dance with their respective terms, and will be entitled to the benefits of
this Indenture; and
(d) the execution and delivery by the Issuer of, and the performance by
the Issuer of its obligations under, the Securities and Coupons, if any,
will not contravene any provision of applicable law or the certificate of
incorporation or by-laws of the Issuer or, to the best of such counsel's
knowledge, any agreement or other instrument binding upon the Issuer or
any of its Subsidiaries that is material to the Issuer and its Subsidiar-
ies, considered as one enterprise, or, to the best of such counsel's
knowledge, any judgment, order or decree of any governmental body, agency
or court having jurisdiction over the Issuer or any Subsidiary, and no
consent, approval or authorization of any governmental body or agency is
required for the performance by the Issuer of its obligations under the
Securities and Coupons, if any, except such as are specified and have been
obtained and such as may be required by the securities or blue sky laws of
the various states in connection with the offer and sale of the Securities
and Coupons, if any.
In rendering such opinions, such counsel may qualify any opinions as to en-
forceability by stating that such enforceability may be limited by bankruptcy,
insolvency, reorganization, liquidation, moratorium, fraudulent conveyance and
other similar laws affecting the rights and remedies of creditors and is sub-
ject to general principles of equity (regardless of whether such enforceabil-
ity is considered in a proceeding in equity or at law). Such counsel may rely
upon opinions of other counsel (copies of which shall be delivered to the
Trustee), who shall be counsel reasonably satisfactory to the Trustee, in
which case the opinion shall state that such counsel believes such counsel and
the Trustee are entitled so to rely. Such counsel may also state that, insofar
as such opinion involves factual matters, such counsel has relied, to the ex-
tent such counsel deems proper, upon certificates of officers of the Issuer
and its Subsidiaries and certificates of public officials.
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<PAGE>
The Trustee shall have the right to decline to authenticate and deliver any
Securities under this Section if the Trustee, being advised by counsel, deter-
mines that such action may not lawfully be taken by the Issuer or if the
Trustee in good faith by its board of directors or board of trustees, execu-
tive committee, or a trust committee of directors or trustees or Responsible
Officers shall determine that such action would expose the Trustee to personal
liability to existing Holders or would affect the Trustee's own rights, duties
or immunities under the Securities, this Indenture or otherwise.
If the Issuer shall establish pursuant to Section 2.3 that the Securities of
a series are to be issued in the form of one or more Registered Global Securi-
ties, then the Issuer shall execute and the Trustee shall, in accordance with
this Section and the Issuer Order with respect to such series, authenticate
and deliver one or more Registered Global Securities that (i) shall represent
and shall be denominated in an amount equal to the aggregate principal amount
of all of the Securities of such series to be represented by such Registered
Global Security or Securities, (ii) shall be registered in the name of the De-
positary for such Registered Global Security or Securities or the nominee of
such Depositary, (iii) shall be delivered by the Trustee to such Depositary or
pursuant to such Depositary's instructions and (iv) shall bear a legend sub-
stantially to the following effect: "Unless this certificate is presented by
an authorized representative of a Depositary to the Issuer or its agent for
registration of transfer, exchange or payment, and any certificate issued is
registered in the name of the nominee of such Depositary or such other name as
requested by an authorized representative of such Depositary and any payment
is made to the nominee of such Depositary, ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL since the regis-
tered owner hereof, the nominee, has an interest herein."
Each Depositary designated pursuant to Section 2.3 must, at the time of its
designation and at all times while it serves as Depositary, be a clearing
agency registered under the Securities Exchange Act of 1934 and any other ap-
plicable statute or regulation.
Section 2.5 Execution of Securities. The Securities and, if applicable, each
Coupon appertaining thereto shall be signed on behalf of the Issuer by any two
of the chairman of its Board of Directors or its chief executive officer or
its president or any vice president or its chief financial officer or its
treasurer or its controller or any other officer designated by the Board of
Directors, under its
16
<PAGE>
corporate seal (except in the case of Coupons), which may, but need not, be
attested. Such signatures may be the manual or facsimile signatures of the
present or any future such officers. The seal of the Issuer may be in the form
of a facsimile thereof and may be impressed, affixed, imprinted or otherwise
reproduced on the Securities. Typographical and other minor errors or defects
in any such reproduction of the seal or any such signature shall not affect
the validity or enforceability of any Security that has been duly authenti-
cated and delivered by the Trustee.
In case any officer of the Issuer who shall have signed any of the Securities
or Coupons, if any, shall cease to be such officer before the Security or Cou-
pon so signed (or the Security to which the Coupon so signed appertains) shall
be authenticated and delivered by the Trustee or disposed of by the Issuer,
such Security or Coupon nevertheless may be authenticated and delivered or
disposed of as though the person who signed such Security or Coupon had not
ceased to be such officer of the Issuer; and any Security or Coupon may be
signed on behalf of the Issuer by such persons as, at the actual date of the
execution of such Security or Coupon, shall be the proper officers of the Is-
suer, although at the date of the execution and delivery of this Indenture any
such person was not such an officer.
Section 2.6 Certificate of Authentication. Only such Securities as shall bear
thereon a certificate of authentication substantially in the form hereinbefore
recited, executed by the Trustee by the manual signature of one of its autho-
rized officers, shall be entitled to the benefits of this Indenture or be
valid or obligatory for any purpose. No Coupon shall be entitled to the bene-
fits of this Indenture or shall be valid and obligatory for any purpose until
the certificate of authentication on the Security to which such Coupon apper-
tains shall have been duly executed by the Trustee. The execution of such cer-
tificate by the Trustee upon any Security executed by the Issuer shall be con-
clusive evidence that the Security so authenticated has been duly authenti-
cated and delivered hereunder and that the Holder is entitled to the benefits
of this Indenture.
Section 2.7 Denomination and Date of Securities; Payments of Interest.
The Securities of each series shall be issuable as Registered Securities or
Unregistered Securities in denominations established as contemplated by Sec-
tion 2.3 or, with respect to the Registered Securities of any series, if not
so established, in denominations of $1,000 and any integral multiple thereof.
If denominations of Unregistered Securities of any series are not so estab-
lished, such Securities shall be issuable in denominations of $1,000 and
$5,000. The Securities of each
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<PAGE>
series shall be numbered, lettered or otherwise distinguished in such manner
or in accordance with such plan as the officers of the Issuer executing the
same may determine with the approval of the Trustee, as evidenced by the exe-
cution and authentication thereof.
Each Registered Security shall be dated the date of its authentication. Each
Unregistered Security shall be dated as provided in the resolution or resolu-
tions of the Board of Directors of the Issuer referred to in Section 2.3. The
Securities of each series shall bear interest, if any, from the date, and such
interest shall be payable on the dates, established as contemplated by Section
2.3.
Unless otherwise provided in the Registered Securities of any series, the
person in whose name any Registered Security of any series is registered at
the close of business on any record date applicable to a particular series
with respect to any interest payment date for such series shall be entitled to
receive the interest, if any, payable on such interest payment date notwith-
standing any transfer or exchange of such Registered Security subsequent to
the record date and prior to such interest payment date, except if and to the
extent the Issuer shall default in the payment of the interest due on such in-
terest payment date for such series, in which case such defaulted interest
shall be paid to the persons in whose names Outstanding Registered Securities
for such series are registered at the close of business on a subsequent record
date (which shall be not less than five Business Days prior to the date of
payment of such defaulted interest) established by notice given by mail by or
on behalf of the Issuer to the Holders of Registered Securities not less than
15 days preceding such subsequent record date. The term "record date" as used
with respect to any interest payment date (except a date for payment of de-
faulted interest) for the Securities of any series shall mean the date speci-
fied as such in the terms of the Registered Securities of such series estab-
lished as contemplated by Section 2.3, or, if no such date is so established,
if such interest payment date is the first day of a calendar month, the fif-
teenth day of the next preceding calendar month or, if such interest payment
date is the fifteenth day of a calendar month, the first day of such calendar
month, whether or not such record date is a Business Day.
Section 2.8 Registration, Transfer and Exchange. The Issuer will keep at each
office or agency to be maintained for the purpose as provided in Section 3.2
for each series of Securities a register or registers in which, subject to
such reasonable regulations as it may prescribe, it will provide for the reg-
istration of Registered Securities of such series and the registration of
transfer of Registered
18
<PAGE>
Securities of such series. Such register shall be in written form in the En-
glish language or in any other form capable of being converted into such form
within a reasonable time. At all reasonable times such register or registers
shall be open for inspection by the Trustee.
Upon due presentation for registration of transfer of any Registered Security
of any series at any such office or agency to be maintained for the purpose as
provided in Section 3.2, the Issuer shall execute and the Trustee shall au-
thenticate and deliver in the name of the transferee or transferees a new Reg-
istered Security or Registered Securities of the same series, maturity date,
interest rate and original issue date in authorized denominations for a like
aggregate principal amount.
Unregistered Securities (except for any temporary global Unregistered Securi-
ties) and Coupons (except for Coupons attached to any temporary global Unreg-
istered Securities) shall be transferable by delivery.
At the option of the Holder thereof, Registered Securities of any series
(other than a Registered Global Security, except as set forth below) may be
exchanged for a Registered Security or Registered Securities of such series
having authorized denominations and an equal aggregate principal amount, upon
surrender of such Registered Securities to be exchanged at the agency of the
Issuer that shall be maintained for such purpose in accordance with Section
3.2 and upon payment, if the Issuer shall so require, of the charges hereinaf-
ter provided. If the Securities of any series are issued in both registered
and unregistered form, except as otherwise specified pursuant to Section 2.3,
at the option of the Holder thereof, Unregistered Securities of any series may
be exchanged for Registered Securities of such series having other authorized
denominations and an equal aggregate principal amount, upon surrender of such
Unregistered Securities to be exchanged at the agency of the Issuer that shall
be maintained for such purpose in accordance with Section 3.2, with, in the
case of Unregistered Securities that have Coupons attached, all unmatured Cou-
pons and all matured Coupons in default thereto appertaining, and upon pay-
ment, if the Issuer shall so require, of the charges hereinafter provided. At
the option of the Holder thereof, if Unregistered Securities of any series,
maturity date, interest rate and original issue date are issued in more than
one authorized denomination, except as otherwise specified pursuant to Section
2.3, such Unregistered Securities may be exchanged for Unregistered Securities
of such series having authorized denominations and an equal aggregate princi-
pal amount, upon surrender of such Unregistered Securities
19
<PAGE>
to be exchanged at the agency of the Issuer that shall be maintained for such
purpose in accordance with Section 3.2 or as specified pursuant to Section
2.3, with, in the case of Unregistered Securities that have Coupons attached,
all unmatured Coupons and all matured Coupons in default thereto appertaining,
and upon payment, if the Issuer shall so require, of the charges hereinafter
provided. Unless otherwise specified pursuant to Section 2.3, Registered Secu-
rities of any series may not be exchanged for Unregistered Securities of such
series. Whenever any Securities are so surrendered for exchange, the Issuer
shall execute, and the Trustee shall authenticate and deliver, the Securities
which the Holder making the exchange is entitled to receive. All Securities
and Coupons surrendered upon any exchange or transfer provided for in this In-
denture shall be promptly cancelled and disposed of by the Trustee and the
Trustee will deliver a certificate of disposition thereof to the Issuer.
All Registered Securities presented for registration of transfer, exchange,
redemption or payment shall (if so required by the Issuer or the Trustee) be
duly endorsed by, or be accompanied by a written instrument or instruments of
transfer in form satisfactory to the Issuer and the Trustee duly executed by,
the Holder or his attorney duly authorized in writing.
The Issuer may require payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any exchange or
registration of transfer of Securities. No service charge shall be made for
any such transaction.
The Issuer shall not be required to exchange or register a transfer of (a)
any Securities of any series for a period of 15 days next preceding the first
mailing of notice of redemption of Securities of such series to be redeemed or
(b) any Securities selected, called or being called for redemption, in whole
or in part, except, in the case of any Security to be redeemed in part, the
portion thereof not so to be redeemed.
Notwithstanding any other provision of this Section 2.8, unless and until it
is exchanged in whole or in part for Securities in definitive registered form,
a Registered Global Security representing all or a portion of the Securities
of a series may not be transferred except as a whole by the Depositary for
such series to a nominee of such Depositary or by a nominee of such Depositary
to such Depositary or another nominee of such Depositary or by such Depositary
or any such nominee to a successor Depositary for such series or a nominee of
such successor Depositary.
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If at any time the Depositary for any Registered Securities of a series rep-
resented by one or more Registered Global Securities notifies the Issuer that
it is unwilling or unable to continue as Depositary for such Registered Secu-
rities or if at any time the Depositary for such Registered Securities shall
no longer be eligible under Section 2.4, the Issuer shall appoint a successor
Depositary eligible under Section 2.4 with respect to such Registered Securi-
ties. If a successor Depositary eligible under Section 2.4 for such Registered
Securities is not appointed by the Issuer within 90 days after the Issuer re-
ceives such notice or becomes aware of such ineligibility, the Issuer's elec-
tion pursuant to Section 2.3 that such Registered Securities be represented by
one or more Registered Global Securities shall no longer be effective and the
Issuer will execute, and the Trustee, upon receipt of an Officer's Certificate
for the authentication and delivery of definitive Securities of such series,
will authenticate and deliver, Securities of such series in definitive regis-
tered form without coupons, in any authorized denominations, in an aggregate
principal amount equal to the principal amount of the Registered Global Secu-
rity or Securities representing such Registered Securities in exchange for
such Registered Global Security or Securities.
The Issuer may at any time and in its sole discretion determine that the Reg-
istered Securities of any series issued in the form of one or more Registered
Global Securities shall no longer be represented by a Registered Global Secu-
rity or Securities. In such event the Issuer will execute, and the Trustee,
upon receipt of an Officer's Certificate for the authentication and delivery
of definitive Securities of such series, will authenticate and deliver, Secu-
rities of such series in definitive registered form without coupons, in any
authorized denominations, in an aggregate principal amount equal to the prin-
cipal amount of the Registered Global Security or Securities representing such
Registered Securities, in exchange for such Registered Global Security or Se-
curities.
If specified by the Issuer pursuant to Section 2.3 with respect to Securities
represented by a Registered Global Security, the Depositary for such Regis-
tered Global Security may surrender such Registered Global Security in ex-
change in whole or in part for Securities of the same series in definitive
registered form on such terms as are acceptable to the Issuer and such Deposi-
tary. Thereupon, the Issuer shall execute, and the Trustee shall authenticate
and deliver, without service charge,
(i) to the Person specified by such Depositary a new Registered Security or
Securities of the same series, of any authorized denominations as requested
by such Person, in an aggregate principal amount equal to and in exchange
for such Person's beneficial interest in the Registered Global Security; and
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(ii) to such Depositary a new Registered Global Security in a denomination
equal to the difference, if any, between the principal amount of the surren-
dered Registered Global Security and the aggregate principal amount of Reg-
istered Securities authenticated and delivered pursuant to clause (i) above.
Upon the exchange of a Registered Global Security for Securities in defini-
tive registered form without Coupons, in authorized denominations, such Regis-
tered Global Security shall be cancelled by the Trustee or an agent of the Is-
suer or the Trustee. Securities in definitive registered form without coupons
issued in exchange for a Registered Global Security pursuant to this Section
2.8 shall be registered in such names and in such authorized denominations as
the Depositary for such Registered Global Security, pursuant to instructions
from its direct or indirect participants or otherwise, shall instruct the
Trustee or an agent of the Issuer or the Trustee. The Trustee or such agent
shall deliver such Securities to or as directed by the Persons in whose names
such Securities are so registered.
All Securities issued upon any transfer or exchange of Securities shall be
valid obligations of the Issuer, evidencing the same debt, and entitled to the
same benefits under this Indenture, as the Securities surrendered upon such
transfer or exchange.
Notwithstanding anything herein or in the terms of any series of Securities
to the contrary, none of the Issuer, the Trustee or any agent of the Issuer or
the Trustee (any of which, other than the Issuer, shall rely on an Officer's
Certificate and an Opinion of Counsel) shall be required to exchange any Un-
registered Security for a Registered Security if such exchange would result in
adverse Federal income tax consequences to the Issuer (such as, for example,
the inability of the Issuer to deduct from its income, as computed for Federal
income tax purposes, the interest payable on the Unregistered Securities) un-
der then applicable United States Federal income tax laws.
Section 2.9 Mutilated, Defaced, Destroyed, Lost and Stolen Securities. In
case any temporary or definitive Security or any Coupon appertaining to any
Security shall become mutilated, defaced or be destroyed, lost or stolen, the
Issuer in its discretion may execute, and, upon the written request of any of-
ficer of the Issuer, the Trustee shall authenticate and deliver, a new Secu-
rity of the same series, maturity date, interest rate and original issue date,
bearing a number or other distinguishing symbol not contemporaneously out-
standing, in exchange and substitution for the mutilated or defaced Security,
or in lieu of and in substitution for the Security so destroyed, lost or sto-
len, with Coupons corresponding
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to the Coupons appertaining to the Securities so mutilated, defaced, de-
stroyed, lost or stolen, or in exchange or substitution for the Security to
which such mutilated, defaced, destroyed, lost or stolen Coupon appertained,
with Coupons appertaining thereto corresponding to the Coupons so mutilated,
defaced, destroyed, lost or stolen. In every case the applicant for a substi-
tute Security or Coupon shall furnish to the Issuer and to the Trustee and any
agent of the Issuer or the Trustee such security or indemnity as may be re-
quired by them to indemnify and defend and to save each of them harmless and,
in every case of destruction, loss or theft, evidence to their satisfaction of
the destruction, loss or theft of such Security or Coupon and of the ownership
thereof and in the case of mutilation or defacement shall surrender the Secu-
rity and related Coupons to the Trustee or such agent.
Upon the issuance of any substitute Security or Coupon, the Issuer may re-
quire the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (includ-
ing the fees and expenses of the Trustee) or its agent connected therewith. In
case any Security or Coupon which has matured or is about to mature or has
been called for redemption in full shall become mutilated or defaced or be de-
stroyed, lost or stolen, the Issuer may instead of issuing a substitute Secu-
rity, pay or authorize the payment of the same or the relevant Coupon (without
surrender thereof except in the case of a mutilated or defaced Security or
Coupon), if the applicant for such payment shall furnish to the Issuer and to
the Trustee and any agent of the Issuer or the Trustee such security or indem-
nity as any of them may require to save each of them harmless, and, in every
case of destruction, loss or theft, the applicant shall also furnish to the
Issuer and the Trustee and any agent of the Issuer or the Trustee evidence to
their satisfaction of the destruction, loss or theft of such Security or Cou-
pon and of the ownership thereof.
Every substitute Security or Coupon of any series issued pursuant to the pro-
visions of this Section by virtue of the fact that any such Security or Coupon
is destroyed, lost or stolen shall constitute an additional contractual obli-
gation of the Issuer, whether or not the destroyed, lost or stolen Security or
Coupon shall be at any time enforceable by anyone and shall be entitled to all
the benefits of (but shall be subject to all the limitations of rights set
forth in) this Indenture equally and proportionately with any and all other
Securities or Coupons of such series duly authenticated and delivered hereun-
der. All Securities and Coupons shall be held and owned upon the express con-
dition that, to the extent permitted by law, the foregoing provisions are ex-
clusive with respect to the replacement or
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payment of mutilated, defaced or destroyed, lost or stolen Securities and Cou-
pons and shall preclude any and all other rights or remedies notwithstanding
any law or statute existing or hereafter enacted to the contrary with respect
to the replacement or payment of negotiable instruments or other securities
without their surrender.
Section 2.10 Cancellation of Securities; Destruction Thereof. All Securities
and Coupons surrendered for payment, redemption, registration of transfer or
exchange, or for credit against any payment in respect of a sinking or analo-
gous fund, if surrendered to the Issuer or any agent of the Issuer or the
Trustee or any agent of the Trustee, shall be delivered to the Trustee or its
agent for cancellation or, if surrendered to the Trustee, shall be cancelled
by it; and no Securities or Coupons shall be issued in lieu thereof except as
expressly permitted by any of the provisions of this Indenture. The Trustee or
its agent shall dispose of cancelled Securities and Coupons held by it and de-
liver a certificate of disposition to the Issuer. If the Issuer or its agent
shall acquire any of the Securities or Coupons, such acquisition shall not op-
erate as a redemption or satisfaction of the indebtedness represented by such
Securities or Coupons unless and until the same are delivered to the Trustee
or its agent for cancellation.
Section 2.11 Temporary Securities. Pending the preparation of definitive Se-
curities for any series, the Issuer may execute and the Trustee shall authen-
ticate and deliver temporary Securities for such series (printed, litho-
graphed, typewritten or otherwise reproduced, in each case in form satisfac-
tory to the Trustee). Temporary Securities of any series shall be issuable as
Registered Securities without Coupons, or as Unregistered Securities with or
without Coupons attached thereto, of any authorized denomination, and substan-
tially in the form of the definitive Securities of such series but with such
omissions, insertions and variations as may be appropriate for temporary Secu-
rities, all as may be determined by the Issuer with the concurrence of the
Trustee as evidenced by the execution and authentication thereof. Temporary
Securities may contain such references to any provisions of this Indenture as
may be appropriate. Every temporary Security shall be executed by the Issuer
and be authenticated by the Trustee upon the same conditions and in substan-
tially the same manner, and with like effect, as the definitive Securities.
Without unreasonable delay the Issuer shall execute and shall furnish defini-
tive Securities of such series and thereupon temporary Registered Securities
of such series may be surrendered in exchange therefor without charge at each
office or agency to be maintained by the Issuer for that purpose pursuant to
Section 3.2 and, in the case of Unregistered Securities, at any agency
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maintained by the Issuer for such purpose as specified pursuant to Section
2.3, and the Trustee shall authenticate and deliver in exchange for such tem-
porary Securities of such series an equal aggregate principal amount of defin-
itive Securities of the same series having authorized denominations and, in
the case of Unregistered Securities, having attached thereto any appropriate
Coupons. Until so exchanged, the temporary Securities of any series shall be
entitled to the same benefits under this Indenture as definitive Securities of
such series, unless otherwise established pursuant to Section 2.3. The provi-
sions of this Section are subject to any restrictions or limitations on the
issue and delivery of temporary Unregistered Securities of any series that may
be established pursuant to Section 2.3 (including any provision that Unregis-
tered Securities of such series initially be issued in the form of a single
global Unregistered Security to be delivered to a depositary or agency located
outside the United States and the procedures pursuant to which definitive or
global Unregistered Securities of such series would be issued in exchange for
such temporary global Unregistered Security).
ARTICLE THREE
Covenants of the Issuer
Section 3.1 Payment of Principal and Interest. The Issuer covenants and
agrees for the benefit of each series of Securities that it will duly and
punctually pay or cause to be paid the principal of, and interest on, each of
the Securities of such series (together with any additional amounts payable
pursuant to the terms of such Securities) at the place or places, at the re-
spective times and in the manner provided in such Securities and in the Cou-
pons, if any, appertaining thereto and in this Indenture. The interest on Se-
curities with Coupons attached (together with any additional amounts payable
pursuant to the terms of such Securities) shall be payable only upon presenta-
tion and surrender of the several Coupons for such interest installments as
are evidenced thereby as they severally mature. If any temporary Unregistered
Security provides that interest thereon may be paid while such Security is in
temporary form, the interest on any such temporary Unregistered Security (to-
gether with any additional amounts payable pursuant to the terms of such Secu-
rity) shall be paid, as to the installments of interest evidenced by Coupons
attached thereto, if any, only upon presentation and surrender thereof, and,
as to the other installments of interest, if any, only upon presentation of
such Securities for notation thereon of the payment of such interest, in each
case subject to any restrictions that may be established pursuant to Section
2.3. The interest on Registered Securities (together with any additional
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amounts payable pursuant to the terms of such Securities) shall be payable
only to or upon the written order of the Holders thereof and, at the option of
the Issuer, may be paid by wire transfer or by mailing checks for such inter-
est payable to or upon the written order of such Holders at their last ad-
dresses as they appear on the registry books of the Issuer, unless otherwise
provided in such Securities.
Section 3.2 Offices for Payments, etc. So long as any Registered Securities
are authorized for issuance pursuant to this Indenture or are outstanding
hereunder, the Issuer will maintain in the Borough of Manhattan, The City of
New York, an office or agency where the Registered Securities of each series
may be presented for payment, where the Securities of each series may be pre-
sented for exchange as is provided in this Indenture and, if applicable, pur-
suant to Section 2.3 and where the Registered Securities of each series may be
presented for registration of transfer as in this Indenture provided.
The Issuer will maintain one or more offices or agencies in a city or cities
located outside the United States (including any city in which such an agency
is required to be maintained under the rules of any stock exchange on which
the Securities of such series are listed) where the Unregistered Securities,
if any, of each series and Coupons, if any, appertaining thereto may be pre-
sented for payment. No payment on any Unregistered Security or Coupon will be
made upon presentation of such Unregistered Security or Coupon at an agency of
the Issuer within the United States nor will any payment be made by transfer
to an account in, or by mail to an address in, the United States unless pursu-
ant to applicable United States laws and regulations then in effect such pay-
ment can be made without adverse tax consequences to the Issuer. Notwithstand-
ing the foregoing, payments in Dollars of Unregistered Securities of any se-
ries and Coupons appertaining thereto which are payable in Dollars may be made
at an agency of the Issuer maintained in the Borough of Manhattan, The City of
New York if such payment in Dollars at each agency maintained by the Issuer
outside the United States for payment on such Unregistered Securities is ille-
gal or effectively precluded by exchange controls or other similar restric-
tions.
The Issuer will maintain in the Borough of Manhattan, The City of New York,
an office or agency where notices and demands to or upon the Issuer in respect
of the Securities of any series, the Coupons appertaining thereto or this In-
denture may be served.
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The Issuer will give to the Trustee written notice of the location of each
such office or agency and of any change of location thereof. In case the Is-
suer shall fail to maintain any agency required by this Section to be located
in the Borough of Manhattan, The City of New York, or shall fail to give such
notice of the location or of any change in the location of any of the above
agencies, presentations and demands may be made and notices may be served at
the Corporate Trust Office of the Trustee.
The Issuer may from time to time designate one or more additional offices or
agencies where the Securities of a series and any Coupons appertaining thereto
may be presented for payment, where the Securities of that series may be pre-
sented for exchange as provided in this Indenture and pursuant to Section 2.3
and where the Registered Securities of that series may be presented for regis-
tration of transfer as in this Indenture provided, and the Issuer may from
time to time rescind any such designation, as the Issuer may deem desirable or
expedient; provided, however, that no such designation or rescission shall in
any manner relieve the Issuer of its obligation to maintain the agencies pro-
vided for in this Section. The Issuer will give to the Trustee prompt written
notice of any such designation or rescission thereof.
Section 3.3 Appointment to Fill a Vacancy in Office of Trustee. The Issuer,
whenever necessary to avoid or fill a vacancy in the office of Trustee, will
appoint, in the manner provided in Section 6.10, a Trustee, so that there
shall at all times be a Trustee with respect to each series of Securities
hereunder.
Section 3.4 Paying Agents. Whenever the Issuer shall appoint a paying agent
other than the Trustee with respect to the Securities of any series, it will
cause such paying agent to execute and deliver to the Trustee an instrument in
which such agent shall agree with the Trustee, subject to the provisions of
this Section,
(a) that it will hold all sums received by it as such agent for the payment
of the principal of or interest on the Securities of such series (whether
such sums have been paid to it by the Issuer or by any other obligor on the
Securities of such series) in trust for the benefit of the Holders of the
Securities of such series, or Coupons appertaining thereto, if any, or of
the Trustee,
(b) that it will give the Trustee notice of any failure by the Issuer (or
by any other obligor on the Securities of such series) to make any payment
of the principal of or interest on the Securities of such series when the
same shall be due and payable, and
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(c) that it will pay any such sums so held in trust by it to the Trustee
upon the Trustee's written request at any time during the continuance of the
failure referred to in clause (b) above.
The Issuer will, on or prior to each due date of the principal of or interest
on the Securities of such series, deposit with the paying agent a sum suffi-
cient to pay such principal or interest so becoming due, and (unless such pay-
ing agent is the Trustee) the Issuer will promptly notify the Trustee of any
failure to take such action.
If the Issuer shall act as its own paying agent with respect to the Securi-
ties of any series, it will, on or before each due date of the principal of or
interest on the Securities of such series, set aside, segregate and hold in
trust for the benefit of the Holders of the Securities of such series or the
Coupons appertaining thereto a sum sufficient to pay such principal or inter-
est so becoming due. The Issuer will promptly notify the Trustee of any fail-
ure to take such action.
Anything in this Section to the contrary notwithstanding, but subject to Sec-
tion 10.1, the Issuer may at any time, for the purpose of obtaining a satis-
faction and discharge with respect to one or more or all series of Securities
hereunder, or for any other reason, pay or cause to be paid to the Trustee all
sums held in trust for any such series by the Issuer or any paying agent here-
under, as required by this Section, such sums to be held by the Trustee upon
the trusts herein contained.
Anything in this Section to the contrary notwithstanding, the agreement to
hold sums in trust as provided in this Section is subject to the provisions of
Sections 10.3 and 10.4.
Section 3.5 Written Statement to Trustee. The Issuer will furnish to the
Trustee on or before April 30 in each year (beginning with April 30, 1997) a
brief certificate (which need not comply with Section 11.5) from the principal
executive, financial or accounting officer of the Issuer stating that in the
course of the performance by the signer of his duties as an officer of the Is-
suer he would normally have knowledge of any default or non-compliance by the
Issuer in the performance of any covenants or conditions contained in this In-
denture, stating whether or not he has knowledge of any such default or non-
compliance and, if so, specifying each such default or non-compliance of which
the signer has knowledge and the nature thereof.
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Section 3.6 Negative Pledge; Limitation on Sale and Leaseback Transactions.
(a) The Issuer will not issue, assume, incur or guarantee, and will not per-
mit any Restricted Subsidiary to issue, assume, incur or guarantee, any Debt
secured by any mortgage, pledge, lien or other encumbrance (any such mortgage,
pledge, lien and other encumbrance being hereinafter called a "Mortgage") upon
any Principal Manufacturing Property of the Issuer or any Restricted Subsidi-
ary, or upon shares of capital stock or Debt of any Restricted Subsidiary
(whether such Principal Manufacturing Property or shares of stock are now
owned or hereafter acquired or such Debt is now existing or hereafter incurred
or assumed), without in any such case effectively providing, concurrently with
the issuance or assumption of such Debt, that the Securities (together with,
if the Issuer shall so determine, any other Debt of the Issuer or such Re-
stricted Subsidiary ranking equally with the Securities and then existing or
thereafter created) shall be secured equally and ratably with such Debt; pro-
vided, however, that the foregoing restrictions shall not apply to:
(i) the creation of Mortgages on any Principal Manufacturing Property (in-
cluding any improvements on an existing property, as to which the Mortgage
may include such underlying real property as the Issuer may deem necessary
for the improvement and unnecessary for the operation of any theretofore ex-
isting Principal Manufacturing Property on the same or adjoining real prop-
erty) hereafter acquired by the Issuer or a Restricted Subsidiary prior to,
at the time of, or within 180 days after the latest of the acquisition, com-
pletion of construction or commencement of commercial operation of such
property, to secure or provide for the payment of financing of all or any
part of the purchase price thereof or construction of fixed improvements
thereon, or, in addition to assumptions in transactions contemplated by sub-
paragraph (ii) below, the assumption of any Mortgage upon any Principal Man-
ufacturing Property hereafter acquired existing at the time of such acquisi-
tions, or the acquisition of any Principal Manufacturing Property subject to
any Mortgage without the assumption thereof; provided that the aggregate
principal amount of Debt secured by any such Mortgage so issued, assumed or
existing shall not exceed 100% of the cost of such Principal Manufacturing
Property to the corporation acquiring the same or of the fair value thereof
(as determined by resolution adopted by the Board of Directors) at the time
of such acquisition, whichever is less, and, provided further, that in the
case of any such acquisition, construction or improvement the Mortgage shall
not apply to any property theretofore owned by the Issuer or a Restricted
Subsidiary, other than, in the case of any such construction or improvement,
any theretofore unimproved real property on which the property so construct-
ed, or the improvement, is located (which unimproved real property may at
the option of the Issuer be segregated by
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legal description from other real property of the Issuer appurtenant to such
Principal Manufacturing Property and subjected to the Mortgage related to
such construction or improvement);
(ii) any Mortgages on any Principal Manufacturing Property of a corporation
which is merged into or consolidated with the Issuer or a Restricted Subsid-
iary or substantially all of the assets of which are acquired by the Issuer
or a Restricted Subsidiary (whether or not the obligations secured by any
such Mortgage are assumed by the Issuer or a Restricted Subsidiary); pro-
vided that such Mortgages were not created in contemplation of such merger,
consolidation or acquisition;
(iii) Mortgages on any Principal Manufacturing Property of the Issuer or a
Restricted Subsidiary in favor of the United States of America or any State
thereof, or any department, agency or instrumentality or political subdivi-
sion of the United States of America or any State thereof, or in favor of
any other country, or any political subdivision thereof, to secure partial,
progress, advance or other payments pursuant to any contract or statute or
to secure any Debt incurred or guaranteed for the purpose of financing all
or any part of the cost of acquiring, constructing or improving the property
subject to such Mortgages (including Mortgages incurred in connection with
financings of the type contemplated by Section 103 of the Internal Revenue
Code, maritime financings under Title XI of the United States Code or simi-
lar financings);
(iv) Mortgages on particular property (or any proceeds of the sale thereof)
to secure all or any part of the cost of exploration, drilling, mining, de-
velopment, operation or maintenance thereof (including, without limitation,
construction of facilities for field processing) intended to obtain or in-
crease the production and sale or other disposition of oil, gas, coal, natu-
ral gas, carbon dioxide, sulphur, helium, metals, minerals, steam, timber or
other natural resources, or any Debt created, issued, assumed or guaranteed
to provide funds for any or all such purposes;
(v) Mortgages securing Debt of a Restricted Subsidiary owing to the Issuer
and/or another Restricted Subsidiary;
(vi) Mortgages on any Principal Manufacturing Property of the Issuer or a
Restricted Subsidiary which Mortgages were in existence on the date of this
Indenture; provided, however, that each such Mortgage shall be limited to
all or a part of the property which secured such Mortgage at such date (plus
improvements and construction on such Property);
(vii) any extension, renewal or replacement (or successive extensions, re-
newals or replacements) in whole or in part, of any Mortgage referred to in
the foregoing clauses (i) through (vi); provided, however, that the princi-
pal amount of Debt so secured thereby shall not exceed the principal amount
of Debt so secured at the time of such extension, renewal or replacement,
and that such extension, renewal or replacement shall be limited to all or a
part of
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the property which secured the Mortgage so extended, renewed or replaced
(plus improvements and construction on such property); and
(viii) Permited Mortgages.
(b) Notwithstanding the provisions of subsection (a) of this Section, the Is-
suer or any one or more Restricted Subsidiaries may issue or assume Debt se-
cured by a Mortgage on a Principal Manufacturing Property in addition to those
permitted by subsection (a) of this Section and renew, extend or replace such
Mortgages; provided that at the time of such creation, assumption, renewal,
extension or replacement, and after giving effect thereto, Exempted Debt does
not exceed 15% of Consolidated Net Tangible Assets.
(c) The Issuer will not, nor will it permit any Restricted Subsidiary to, en-
ter into any arrangement with any Person providing for the leasing by the Is-
suer or any Restricted Subsidiary of any Principal Manufacturing Property,
whether such Principal Manufacturing Property is now owned or hereafter ac-
quired (except for temporary leases for a term, including renewals at the op-
tion of the lessee, of not more than three years and except for leases between
the Issuer and a Restricted Subsidiary or between Restricted Subsidiaries),
which property has been or is to be sold or transferred by the Issuer or such
Restricted Subsidiary to such Person with the intention of taking back a lease
on such property (a "sale and leaseback transaction") unless the net proceeds
of such sale or transfer shall be at least equal to the fair value of such
property as determined by resolution adopted by the Board of Directors and ei-
ther:
(i) the Issuer or such Restricted Subsidiary would be entitled, pursuant to
the provisions of subsection (a) of this Section, to issue or assume Debt
secured by a Mortgage on such property at least equal in amount to the At-
tributable Debt in respect of such sale and leaseback transaction without
equally and ratable securing the Securities; or
(ii) since the date hereof and within a period commencing twelve months
prior to the consummation of such sale and leaseback transaction and ending
twelve months after the consummation of such sale and leaseback transaction
the Issuer or such Restricted Subsidiary, as the case may be, has expended
or will expend, or a combination of both, for facilities comprising all or a
part of a Principal Manufacturing Property an amount equal to (A) the net
proceeds of such sale and leaseback transaction and the Issuer elects to
designate such amount as a credit against such sale and leaseback transac-
tion or (B) a part of the net proceeds of such sale and leaseback transac-
tion and the Issuer elects to designate such amount as a credit against such
sale and leaseback transaction and applies an amount equal to the remainder
of the net proceeds as provided in clause (iii) hereof; or
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(iii) such sale and leaseback transactions do not come within the excep-
tions provided in clause (i) hereof and the Issuer does not make the elec-
tion permitted by clause (ii) hereof or makes such election only as to part
of such net proceeds, in either which event the Issuer will, within 180 days
after such sale and leaseback transaction, apply an amount equal to the At-
tributable Debt in respect of such sale and leaseback transaction (less an
amount equal to the amount, if any, elected under clause (ii) hereof) to the
retirement (other than any mandatory retirement or by way of payment at ma-
turity) of Debt with a maturity of greater than one year of the Issuer or
any Restricted Subsidiary (other than Debt of the Issuer to any Restricted
Subsidiary or of any Restricted Subsidiary to the Issuer or another Re-
stricted Subsidiary).
(d) Notwithstanding the provisions of paragraph (c) of this Section, the Is-
suer and any Restricted Subsidiary may enter into sale and leaseback transac-
tions in addition to those permitted by paragraph (c) of this Section and
without any obligation to make expenditures for facilities comprising a part
or all of a Principal Manufacturing Property or to retire any Debt, provided
that at the time of entering into such sale and leaseback transaction and af-
ter giving effect thereto, Exempted Debt does not exceed 15% of Consolidated
Net Tangible Assets.
Section 3.7 Luxembourg Publications. In the event of the publication of any
notice pursuant to Section 5.11, 6.10(a), 6.11, 8.2, 10.4, 12.2 or 12.5, the
party making such publication in the Borough of Manhattan, The City of New
York and London shall also, to the extent that notice is required to be given
to Holders of Securities of any series by applicable Luxembourg law or stock
exchange regulation, as evidenced by an Officer's Certificate delivered to
such party, make a similar publication in Luxembourg.
ARTICLE FOUR
Securityholders Lists and Reports by the Issuer and the Trustee
Section 4.1 Issuer to Furnish Trustee Information as to Names and Addresses
of Securityholders. If and so long as the Trustee shall not be the Security
registrar for the Securities of any series, the Issuer and any other obligor
on the Securities will furnish or cause to be furnished to the Trustee a list
in such form as the Trustee may reasonably require of the names and addresses
of the Holders of the Registered Securities of such series pursuant to Section
312 of the Trust Indenture Act of 1939 (a) semi-annually not more than 15 days
after each record date for the payment of interest on such Registered Securi-
ties, as hereinabove specified, as of such record date and on dates to be de-
termined
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pursuant to Section 2.3 for non-interest bearing Registered Securities in each
year, and (b) at such other times as the Trustee may request in writing,
within 30 days after receipt by the Issuer of any such request as of a date
not more than 15 days prior to the time such information is furnished.
Section 4.2 Preservation and Disclosure of Securityholders Lists.
This Section intentionally left blank.
Section 4.3 Reports by the Issuer. The Issuer covenants to file with the
Trustee, within 30 days after the Issuer is required to file the same with the
Commission, copies of the annual reports and of the information, documents,
and other reports that the Issuer may be required to file with the Commission
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934
or pursuant to Section 314 of the Trust Indenture Act of 1939.
Section 4.4 Reports by the Trustee. Any Trustee's report required under Sec-
tion 313(a) of the Trust Indenture Act of 1939 shall be transmitted on or be-
fore January 15 in each year beginning January 15, 1997, as provided in Sec-
tion 313(c) of the Trust Indenture Act of 1939, so long as any Securities are
Outstanding hereunder, and shall be dated as of a date convenient to the
Trustee no more than 60 days prior thereto.
ARTICLE FIVE
Remedies of the Trustee and Securityholders on Event of Default
Section 5.1 Event of Default Defined; Acceleration of Maturity; Waiver of
Default. "Event of Default," with respect to Securities of any series wherever
used herein, means each one of the following events which shall have occurred
and be continuing (whatever the reason for such Event of Default and whether
it shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(a) default in the payment of any installment of interest upon any of the
Securities of such series as and when the same shall become due and payable,
and continuance of such default for a period of 30 days; or
(b) default in the payment of all or any part of the principal of any of
the Securities of such series as and when the same shall become due and pay-
able either at maturity, upon any redemption, by declaration or otherwise;
or
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(c) failure on the part of the Issuer duly to observe or perform any other
of the covenants or agreements on the part of the Issuer in the Securities
of such series (other than a covenant or warranty in respect of the Securi-
ties of such series a default in the performance or breach of which is else-
where in this Section specifically dealt with) or in this Indenture con-
tained for a period of 60 days after the date on which written notice speci-
fying such failure, stating that such notice is a "Notice of Default" here-
under and demanding that the Issuer remedy the same, shall have been given
by registered or certified mail, return receipt requested, to the Issuer by
the Trustee, or to the Issuer and the Trustee by the holders of at least 25%
in aggregate principal amount of the Outstanding Securities of all series
affected thereby; or
(d) a court having jurisdiction in the premises shall enter a decree or or-
der for relief in respect of the Issuer in an involuntary case under any ap-
plicable bankruptcy, insolvency or other similar law now or hereafter in ef-
fect, or appointing a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or similar official) of the Issuer or for any substantial part
of its property or ordering the winding up or liquidation of its affairs,
and such decree or order shall remain unstayed and in effect for a period of
60 consecutive days; or
(e) the Issuer shall commence a voluntary case under any applicable bank-
ruptcy, insolvency or other similar law now or hereafter in effect, or con-
sent to the entry of an order for relief in an involuntary case under any
such law, or consent to the appointment or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar official)
of the Issuer or for any substantial part of its property, or make any gen-
eral assignment for the benefit of creditors; or
(f) any other Event of Default provided in the supplemental indenture under
which such series of Securities is issued or in the form of Security for
such series.
If an Event of Default described in clauses (a), (b), (c) or (f) (if the
Event of Default under clause (c) or (f), as the case may be, is with respect
to less than all series of Securities then Outstanding) occurs and is continu-
ing, then, and in each and every such case, except for any series of Securi-
ties the principal of which shall have already become due and payable, either
the Trustee or the Holders of not less than 25% in aggregate principal amount
of the Securities of each such affected series then Outstanding hereunder
(voting as a single class) by notice in writing to the Issuer (and to the
Trustee if given by Securityholders), may declare the entire principal (or, if
the Securities of any such affected series are Original Issue Discount Securi-
ties, such portion of the principal amount as may be specified in the terms of
such series) of all Securities of all such affected series, and the interest
accrued thereon, if any, to be due and payable immediately, and upon any such
declaration the same shall become immediately due and payable. If an
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Event of Default described in clause (c) or (f) (if the Event of Default under
clause (c) or (f), as the case may be, is with respect to all series of Secu-
rities then Outstanding), (d) or (e) occurs and is continuing, then and in
each and every such case, unless the principal of all the Securities shall
have already become due and payable, either the Trustee or the Holders of not
less than 25% in aggregate principal amount of all the Securities then Out-
standing hereunder (treated as one class), by notice in writing to the Issuer
(and to the Trustee if given by Securityholders), may declare the entire prin-
cipal (or, if any Securities are Original Issue Discount Securities, such por-
tion of the principal amount as may be specified in the terms thereof) of all
the Securities then Outstanding, and interest accrued thereon, if any, to be
due and payable immediately, and upon any such declaration the same shall be-
come immediately due and payable.
The foregoing provisions, however, are subject to the condition that if, at
any time after the principal (or, if the Securities are Original Issue Dis-
count Securities, such portion of the principal as may be specified in the
terms thereof) of the Securities of any series (or of all the Securities, as
the case may be) shall have been so declared due and payable, and before any
judgment or decree for the payment of the moneys due shall have been obtained
or entered as hereinafter provided, the Issuer shall pay or shall deposit with
the Trustee a sum sufficient to pay all matured installments of interest upon
all the Securities of such series (or of all the Securities, as the case may
be) and the principal of any and all Securities of each such series (or of all
the Securities, as the case may be) which shall have become due otherwise than
by acceleration (with interest upon such principal and, to the extent that
payment of such interest is enforceable under applicable law, on overdue in-
stallments of interest, at the same rate as the rate of interest or Yield to
Maturity (in the case of Original Issue Discount Securities) specified in the
Securities of each such series (or at the respective rates of interest or
Yields to Maturity of all the Securities, as the case may be) to the date of
such payment or deposit) and such amount as shall be sufficient to cover rea-
sonable compensation to the Trustee and each predecessor Trustee, its agents,
attorneys and counsel, and all other expenses and liabilities incurred, and
all advances made, by the Trustee and each predecessor Trustee except as a re-
sult of negligence or bad faith, and if any and all Events of Default under
the Indenture, other than the non-payment of the principal of Securities which
shall have become due by acceleration, shall have been cured, waived or other-
wise remedied as provided herein--then and in every such case the Holders of a
majority in aggregate principal amount of all the Securities of each such se-
ries, or of all the Securities, as the case may be, in each case voting as a
single class, then Outstanding, by
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written notice to the Issuer and to the Trustee, may waive all defaults with
respect to each such series (or with respect to all the Securities, as the
case may be) and rescind and annul such declaration and its consequences, but
no such waiver or rescission and annulment shall extend to or shall affect any
subsequent default or shall impair any right consequent thereon.
For all purposes under this Indenture, if a portion of the principal of any
Original Issue Discount Securities shall have been accelerated and declared
due and payable pursuant to the provisions hereof, then, from and after such
declaration, unless such declaration has been rescinded and annulled, the
principal amount of such Original Issue Discount Securities shall be deemed,
for all purposes hereunder, to be such portion of the principal thereof as
shall be due and payable as a result of such acceleration, and payment of such
portion of the principal thereof as shall be due and payable as a result of
such acceleration, together with interest, if any, thereon and all other
amounts owing thereunder, shall constitute payment in full of such Original
Issue Discount Securities.
Section 5.2 Collection of Indebtedness by Trustee; Trustee May Prove
Debt. The Issuer covenants that (a) in case default shall be made in the pay-
ment of any instalment of interest on any of the Securities of any series when
such interest shall have become due and payable, and such default shall have
continued for a period of 30 days or (b) in case default shall be made in the
payment of all or any part of the principal of any of the Securities of any
series when the same shall have become due and payable, whether upon maturity
of the Securities of such series or upon any redemption or by declaration or
otherwise--then upon demand of the Trustee, the Issuer will pay to the Trustee
for the benefit of the Holders of the Securities of such series the whole
amount that then shall have become due and payable on all Securities of such
series, and such Coupons, for principal or interest, as the case may be (with
interest to the date of such payment upon the overdue principal and, to the
extent that payment of such interest is enforceable under applicable law, on
overdue installments of interest at the same rate as the rate of interest or
Yield to Maturity (in the case of Original Issue Discount Securities) speci-
fied in the Securities of such series); and in addition thereto, such further
amount as shall be sufficient to cover the costs and expenses of collection,
including reasonable compensation to the Trustee and each predecessor Trustee,
their respective agents, attorneys and counsel, and any expenses and liabili-
ties incurred, and all advances made, by the Trustee and each predecessor
Trustee except as a result of its negligence or bad faith.
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Until such demand is made by the Trustee, the Issuer may pay the principal of
and interest on the Securities of any series to the Holders thereof, whether
or not the Securities of such Series be overdue.
In case the Issuer shall fail forthwith to pay such amounts upon such demand,
the Trustee, in its own name and as trustee of an express trust, shall be en-
titled and empowered to institute any action or proceedings at law or in eq-
uity for the collection of the sums so due and unpaid, and may prosecute any
such action or proceedings to judgment or final decree, and may enforce any
such judgment or final decree against the Issuer or other obligor upon the Se-
curities and collect in the manner provided by law out of the property of the
Issuer or other obligor upon the Securities, wherever situated the moneys ad-
judged or decreed to be payable.
In case there shall be pending proceedings relative to the Issuer or any
other obligor upon the Securities under Title 11 of the United States Code or
any other applicable Federal or state bankruptcy, insolvency or other similar
law, or in case a receiver, assignee or trustee in bankruptcy or reorganiza-
tion, liquidator, sequestrator or similar official shall have been appointed
for or taken possession of the Issuer or its property or such other obligor,
or in case of any other comparable judicial proceedings relative to the Issuer
or other obligor upon the Securities, or to the creditors or property of the
Issuer or such other obligor, the Trustee, irrespective of whether the princi-
pal of the Securities shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Trustee shall have
made any demand pursuant to the provisions of this Section, shall be entitled
and empowered, by intervention in such proceedings or otherwise:
(a) to file and prove a claim or claims for the whole amount of principal
and interest (or, if the Securities of any series are Original Issue Dis-
count Securities, such portion of the principal amount as may be specified
in the terms of such series) owing and unpaid in respect of the Securities
of any series, and to file such other papers or documents as may be neces-
sary or advisable in order to have the claims of the Trustee (including any
claim for reasonable compensation to the Trustee and each predecessor Trust-
ee, and their respective agents, attorneys and counsel, and for reimburse-
ment of all expenses and liabilities incurred, and all advances made, by the
Trustee and each predecessor Trustee, except as a result of negligence or
bad faith) and of the Securityholders allowed in any judicial proceedings
relative to the Issuer or other obligor upon the Securities, or to the cred-
itors or property of the Issuer or such other obligor,
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(b) unless prohibited by applicable law and regulations, to vote on behalf
of the holders of the Securities of any series in any election of a trustee
or a standby trustee in arrangement, reorganization, liquidation or other
bankruptcy or insolvency proceedings or person performing similar functions
in comparable proceedings, and
(c) to collect and receive any moneys or other property payable or deliver-
able on any such claims, and to distribute all amounts received with respect
to the claims of the Securityholders and of the Trustee on their behalf; and
any trustee, receiver, or liquidator, custodian or other similar official is
hereby authorized by each of the Securityholders to make payments to the
Trustee, and, in the event that the Trustee shall consent to the making of
payments directly to the Securityholders, to pay to the Trustee such amounts
as shall be sufficient to cover reasonable compensation to the Trustee, each
predecessor Trustee and their respective agents, attorneys and counsel, and
all other expenses and liabilities incurred, and all advances made, by the
Trustee and each predecessor Trustee except as a result of negligence or bad
faith.
Nothing herein contained shall be deemed to authorize the Trustee to autho-
rize or consent to or vote for or accept or adopt on behalf of any
Securityholder any plan of reorganization, arrangement, adjustment or composi-
tion affecting the Securities of any series or the rights of any Holder there-
of, or to authorize the Trustee to vote in respect of the claim of any
Securityholder in any such proceeding except, as aforesaid, to vote for the
election of a trustee in bankruptcy or similar person.
All rights of action and of asserting claims under this Indenture, or under
any of the Securities of any series or Coupons appertaining to such Securi-
ties, may be enforced by the Trustee without the possession of any of the Se-
curities of such series or Coupons appertaining to such Securities or the pro-
duction thereof on any trial or other proceedings relative thereto, and any
such action or proceedings instituted by the Trustee shall be brought in its
own name as trustee of an express trust, and any recovery of judgment, subject
to the payment of the expenses, disbursements and compensation of the Trustee,
each predecessor Trustee and their respective agents and attorneys, shall be
for the ratable benefit of the Holders of the Securities or Coupons appertain-
ing to such Securities in respect of which such action was taken.
In any proceedings brought by the Trustee (and also any proceedings involving
the interpretation of any provision of this Indenture to which the Trustee
shall be a party) the Trustee shall be held to represent all the Holders of
the Securities or Coupons appertaining to such Securities in respect to which
such action was
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taken, and it shall not be necessary to make any Holders of such Securities or
Coupons appertaining to such Securities parties to any such proceedings.
Section 5.3 Application of Proceeds. Any moneys collected by the Trustee pur-
suant to this Article in respect of any series shall be applied in the follow-
ing order at the date or dates fixed by the Trustee and, in case of the dis-
tribution of such moneys on account of principal or interest, upon presenta-
tion of the several Securities and Coupons appertaining to such Securities in
respect of which monies have been collected and stamping (or otherwise noting)
thereon the payment, or issuing Securities of such series in reduced principal
amounts in exchange for the presented Securities of like series if only par-
tially paid, or upon surrender thereof if fully paid:
First: To the payment of costs and expenses applicable to such series in
respect of which monies have been collected, including reasonable compensa-
tion to the Trustee and each predecessor Trustee and their respective agents
and attorneys and of all expenses and liabilities incurred, and all advances
made, by the Trustee and each predecessor Trustee except as a result of neg-
ligence or bad faith;
Second: In case the principal of the Securities of such series in respect
of which moneys have been collected shall not have become and be then due
and payable, to the payment of interest on the Securities of such series in
default in the order of the maturity of the installments of such interest,
with interest (to the extent that such interest has been collected by the
Trustee) upon the overdue installments of interest at the same rate as the
rate of interest or Yield to Maturity (in the case of Original Issue Dis-
count Securities) specified in such Securities, such payments to be made
ratably to the persons entitled thereto, without discrimination or prefer-
ence;
Third: In case the principal of the Securities of such series in respect of
which moneys have been collected shall have become and shall be then due and
payable, to the payment of the whole amount then owing and unpaid upon all
the Securities of such series for principal and interest, with interest upon
the overdue principal, and (to the extent that such interest has been col-
lected by the Trustee) upon overdue installments of interest at the same
rate as the rate of interest or Yield to Maturity (in the case of Original
Issue Discount Securities) specified in the Securities of such series; and
in case such moneys shall be insufficient to pay in full the whole amount so
due and unpaid upon the Securities of such series, then to the payment of
such principal and interest or Yield to Maturity, without preference or pri-
ority of principal over interest or Yield to Maturity, or of interest or
Yield to Maturity over principal, or of any instalment of interest over any
other instalment of interest, or of any Security of such series over any
other Security of such series, ratably to the
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aggregate of such principal and accrued and unpaid interest or Yield to Ma-
turity; and
Fourth: To the payment of the remainder, if any, to the Issuer or any other
person lawfully entitled thereto.
Section 5.4 Suits for Enforcement. In case an Event of Default has occurred,
has not been waived and is continuing, the Trustee may in its discretion pro-
ceed to protect and enforce the rights vested in it by this Indenture by such
appropriate judicial proceedings as the Trustee shall deem most effectual to
protect and enforce any of such rights, either at law or in equity or in bank-
ruptcy or otherwise, whether for the specific enforcement of any covenant or
agreement contained in this Indenture or in aid of the exercise of any power
granted in this Indenture or to enforce any other legal or equitable right
vested in the Trustee by this Indenture or by law.
Section 5.5 Restoration of Rights on Abandonment of Proceedings. In case the
Trustee shall have proceeded to enforce any right under this Indenture and
such proceedings shall have been discontinued or abandoned for any reason, or
shall have been determined adversely to the Trustee, then and in every such
case the Issuer and the Trustee shall be restored respectively to their former
positions and rights hereunder, and all rights, remedies and powers of the Is-
suer, the Trustee and the Securityholders shall continue as though no such
proceedings had been taken.
Section 5.6 Limitations on Suits by Securityholders. No Holder of any Secu-
rity of any series or of any Coupon appertaining thereto shall have any right
by virtue or by availing of any provision of this Indenture to institute any
action or proceeding at law or in equity or in bankruptcy or otherwise upon or
under or with respect to this Indenture, or for the appointment of a trustee,
receiver, liquidator, custodian or other similar official or for any other
remedy hereunder, unless such Holder previously shall have given to the
Trustee written notice of default and of the continuance thereof, as hereinbe-
fore provided, and unless also the Holders of not less than 25% in aggregate
principal amount of the Securities of each affected series then Outstanding
(treated as a single class) shall have made written request upon the Trustee
to institute such action or proceedings in its own name as trustee hereunder
and shall have offered to the Trustee such reasonable indemnity as it may re-
quire against the costs, expenses and liabilities to be incurred therein or
thereby and the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity shall have failed to institute any such
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action or proceeding and no direction inconsistent with such written request
shall have been given to the Trustee pursuant to Section 5.9; it being under-
stood and intended, and being expressly covenanted by the taker and Holder of
every Security or Coupon with every other taker and Holder and the Trustee,
that no one or more Holders of Securities of any series or Coupons appertain-
ing to such Securities shall have any right in any manner whatever by virtue
or by availing of any provision of this Indenture to affect, disturb or preju-
dice the rights of any other such Holder of Securities or Coupons appertaining
to such Securities, or to obtain or seek to obtain priority over or preference
to any other such Holder or to enforce any right under this Indenture, except
in the manner herein provided and for the equal, ratable and common benefit of
all Holders of Securities of the applicable series and Coupons appertaining to
such Securities. For the protection and enforcement of the provisions of this
Section, each and every Securityholder and the Trustee shall be entitled to
such relief as can be given either at law or in equity.
Section 5.7 Unconditional Right of Securityholders to Institute Certain
Suits. Notwithstanding any other provision in this Indenture and any provision
of any Security, the right of any Holder of any Security or Coupon to receive
payment of the principal of and interest on such Security or Coupon on or af-
ter the respective due dates expressed in such Security or Coupon or any date
fixed for redemption of such Security or Coupon, or to institute suit for the
enforcement of any such payment on or after such respective dates, shall not
be impaired or affected without the consent of such Holder.
Section 5.8 Powers and Remedies Cumulative; Delay or Omission Not Waiver of
Default. Except as provided in Section 5.6, no right or remedy herein con-
ferred upon or reserved to the Trustee or to the Holders of Securities or Cou-
pons is intended to be exclusive of any other right or remedy, and every right
and remedy shall, to the extent permitted by law, be cumulative and in addi-
tion to every other right and remedy given hereunder or now or hereafter ex-
isting at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent as-
sertion or employment of any other appropriate right or remedy.
No delay or omission of the Trustee or of any Holder of Securities or Coupons
to exercise any right or power accruing upon any Event of Default occurring
and continuing as aforesaid shall impair any such right or power or shall be
construed to be a waiver of any such Event of Default or an acquiescence
therein; and, subject to Section 5.6, every power and remedy given by this In-
denture or by
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law to the Trustee or to the Holders of Securities or Coupons may be exercised
from time to time, and as often as shall be deemed expedient, by the Trustee
or by the Holders of Securities or Coupons.
Section 5.9 Control by Holders of Securities. The Holders of a majority in
aggregate principal amount of the Securities of each series affected (with all
such series voting as a single class) at the time Outstanding shall have the
right to direct the time, method, and place of conducting any proceeding for
any remedy available to the Trustee, or exercising any trust or power con-
ferred on the Trustee with respect to the Securities of such series by this
Indenture; provided that such direction shall not be otherwise than in accor-
dance with law and the provisions of this Indenture and provided further that
(subject to the provisions of Section 6.1) the Trustee shall have the right to
decline to follow any such direction if the Trustee, being advised by counsel,
shall determine that the action or proceeding so directed may not lawfully be
taken or if the Trustee in good faith by its board of directors, the executive
committee, or a trust committee of directors or Responsible Officers of the
Trustee shall determine that the action or proceedings so directed would in-
volve the Trustee in personal liability or if the Trustee in good faith shall
so determine that the actions or forebearances specified in or pursuant to
such direction would be unduly prejudicial to the interests of Holders of the
Securities of all series so affected not joining in the giving of said direc-
tion, it being understood that (subject to Section 6.1) the Trustee shall have
no duty to ascertain whether or not such actions or forebearances are unduly
prejudicial to such Holders.
Nothing in this Indenture shall impair the right of the Trustee in its dis-
cretion to take any action deemed proper by the Trustee and which is not in-
consistent with such direction or directions by Securityholders.
Section 5.10 Waiver of Past Defaults. Prior to the acceleration of the matu-
rity of any Securities as provided in Section 5.1, the Holders of a majority
in aggregate principal amount of the Securities of all series at the time Out-
standing with respect to which an Event of Default shall have occurred and be
continuing (voting as a single class) may on behalf of the Holders of all such
Securities waive any past default or Event of Default described in Section 5.1
and its consequences, except a default in respect of a covenant or provision
hereof which cannot be modified or amended without the consent of the Holder
of each Security affected. In the case of any such waiver, the Issuer, the
Trustee and the Holders of all such Securities shall be restored to their for-
mer positions and
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rights hereunder, respectively; but no such waiver shall extend to any subse-
quent or other default or impair any right consequent thereon.
Upon any such waiver, such default shall cease to exist and be deemed to have
been cured and not to have occurred, and any Event of Default arising there-
from shall be deemed to have been cured, and not to have occurred for every
purpose of this Indenture; but no such waiver shall extend to any subsequent
or other default or Event of Default or impair any right consequent thereon.
Section 5.11 Trustee to Give Notice of Default, But May Withhold in Certain
Circumstances. The Trustee shall, within 90 days after the occurrence of a de-
fault with respect to the Securities of any series, give notice of all de-
faults with respect to that series known to the Trustee (i) if any Unregis-
tered Securities of that series are then Outstanding, to the Holders thereof,
by publication at least once in an Authorized Newspaper in the Borough of Man-
hattan, The City of New York, and at least once in an Authorized Newspaper in
London (and, if required by Section 3.7, at least once in an Authorized News-
paper in Luxembourg) and (ii) to all Holders of Securities of such series in
the manner and to the extent provided herein unless in each case such defaults
shall have been cured before the mailing or publication of such notice (the
term "defaults" for the purpose of this Section being hereby defined to mean
any event or condition which is, or with notice or lapse of time or both would
become, an Event of Default); provided that, except in the case of default in
the payment of the principal of or interest on any of the Securities of such
series, or in the payment of any sinking fund instalment on such series, the
Trustee shall be protected in withholding such notice if and so long as the
board of directors, the executive committee, or a trust committee of directors
or trustees and/or Responsible Officers of the Trustee in good faith deter-
mines that the withholding of such notice is in the interests of the
Securityholders of such series.
Section 5.12 Right of Court to Require Filing of Undertaking to Pay Costs.
All parties to this Indenture agree, and each Holder of any Security or Coupon
by his acceptance thereof shall be deemed to have agreed, that any court may
in its discretion require, in any suit for the enforcement of any right or
remedy under this Indenture or in any suit against the Trustee for any action
taken, suffered or omitted by it as Trustee, the filing by any party litigant
in such suit of an undertaking to pay the costs of such suit, and that such
court may in its discretion assess reasonable costs, including reasonable at-
torneys' fees, against any party litigant in such suit, having due regard to
the merits and good faith of
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the claims or defenses made by such party litigant; but the provisions of this
Section shall not apply to any suit instituted by the Trustee, to any suit in-
stituted by any Securityholder or group of Securityholders of any series hold-
ing in the aggregate more than 10% in aggregate principal amount of the Secu-
rities of such series, or, in the case of any suit relating to or arising un-
der clause (c) or (f) of Section 5.1 (if the suit relates to Securities of
more than one but less than all series), 10% in aggregate principal amount of
Securities then Outstanding and affected thereby, or in the case of any suit
relating to or arising under clause (c) or (f) (if the suit under clause (c)
or (f) relates to all the Securities then Outstanding), (d) or (e) of Section
5.1, 10% in aggregate principal amount of all Securities then Outstanding, or
to any suit instituted by any Securityholder for the enforcement of the pay-
ment of the principal of or interest on any Security on or after the due date
expressed in such Security or any date fixed for redemption.
ARTICLE SIX
Concerning the Trustee
Section 6.1 Duties and Responsibilities of the Trustee; During Default; Prior
to Default. With respect to the Holders of any series of Securities issued
hereunder, the Trustee, prior to the occurrence of an Event of Default with
respect to the Securities of a particular series and after the curing or waiv-
ing of all Events of Default which may have occurred with respect to such se-
ries, undertakes to perform such duties and only such duties as are specifi-
cally set forth in this Indenture. In case an Event of Default with respect to
the Securities of a series has occurred (which has not been cured or waived)
the Trustee shall exercise with respect to such series of Securities such of
the rights and powers vested in it by this Indenture, and use the same degree
of care and skill in their exercise, as a prudent man would exercise or use
under the circumstances in the conduct of his own affairs.
No provision of this Indenture shall be construed to relieve the Trustee from
liability for its own negligent action, its own negligent failure to act or
its own willful misconduct, except that
(a) prior to the occurrence of an Event of Default with respect to the Se-
curities of any series and after the curing or waiving of all such Events of
Default with respect to such series which may have occurred:
(i) the duties and obligations of the Trustee with respect to the Securi-
ties of any series shall be determined solely by the express provisions of
this
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Indenture, and the Trustee shall not be liable except for the performance
of such duties and obligations as are specifically set forth in this In-
denture, and no implied covenants or obligations shall be read into this
Indenture against the Trustee; and
(ii) in the absence of bad faith on the part of the Trustee, the Trustee
may conclusively rely, as to the truth of the statements and the correct-
ness of the opinions expressed therein, upon any statements, certificates
or opinions furnished to the Trustee and conforming to the requirements of
this Indenture; but in the case of any such statements, certificates or
opinions which by any provision hereof are specifically required to be
furnished to the Trustee, the Trustee shall be under a duty to examine the
same to determine whether or not they conform to the requirements of this
Indenture;
(b) the Trustee shall not be liable for any error of judgment made in good
faith by a Responsible Officer or Responsible Officers of the Trustee, un-
less it shall be proved that the Trustee was negligent in ascertaining the
pertinent facts; and
(c) the Trustee shall not be liable with respect to any action taken or
omitted to be taken by it in good faith in accordance with the direction of
the Holders pursuant to Section 5.9 relating to the time, method and place
of conducting any proceeding for any remedy available to the Trustee, or ex-
ercising any trust or power conferred upon the Trustee, under this Inden-
ture.
None of the provisions contained in this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur personal financial liabil-
ity in the performance of any of its duties or in the exercise of any of its
rights or powers if there shall be reasonable ground for believing that the
repayment of such funds or adequate indemnity against such liability is not
reasonably assured to it.
The provisions of this Section 6.1 are in furtherance of and subject to Sec-
tion 315 of the Trust Indenture Act of 1939.
Section 6.2 Certain Rights of the Trustee. In furtherance of and subject to
the Trust Indenture Act of 1939, and subject to Section 6.1:
(a) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, Officer's Certificate or any other certifi-
cate, statement, instrument, opinion, report, notice, request, consent, or-
der, bond, debenture, note, coupon, security or other paper or document be-
lieved by it to be genuine and to have been signed or presented by the
proper party or parties;
(b) any request, direction, order or demand of the Issuer mentioned herein
shall be sufficiently evidenced by an Officer's Certificate (unless other
evidence in respect thereof be herein specifically prescribed); and any res-
olution of the Board of Directors may be evidenced to the Trustee by a copy
thereof certified by the secretary or an assistant secretary of the Issuer;
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(c) the Trustee may consult with counsel and any written advice or any
Opinion of Counsel shall be full and complete authorization and protection
in respect of any action taken, suffered or omitted to be taken by it here-
under in good faith and in reliance thereon in accordance with such advice
or Opinion of Counsel;
(d) the Trustee shall be under no obligation to exercise any of the trusts
or powers vested in it by this Indenture at the request, order or direction
of any of the Securityholders pursuant to the provisions of this Indenture,
unless such Securityholders shall have offered to the Trustee reasonable se-
curity or indemnity against the costs, expenses and liabilities which might
be incurred therein or thereby;
(e) the Trustee shall not be liable for any action taken or omitted by it
in good faith and believed by it to be authorized or within the discretion,
rights or powers conferred upon it by this Indenture;
(f) prior to the occurrence of an Event of Default hereunder and after the
curing or waiving of all Events of Default, the Trustee shall not be bound
to make any investigation into the facts or matters stated in any resolu-
tion, certificate, statement, instrument, opinion, report, notice, request,
consent, order, approval, appraisal, bond, debenture, note, coupon, securi-
ty, or other paper or document unless requested in writing so to do by the
Holders of a majority in aggregate principal amount of the Securities of all
series affected then Outstanding; provided that, if the payment within a
reasonable time to the Trustee of the costs, expenses or liabilities likely
to be incurred by it in the making of such investigation is, in the opinion
of the Trustee, not reasonably assured to the Trustee by the security af-
forded to it by the terms of this Indenture, the Trustee may require reason-
able indemnity against such expenses or liabilities as a condition to pro-
ceeding; the reasonable expenses of every such investigation shall be paid
by the Issuer or, if paid by the Trustee or any predecessor Trustee, shall
be repaid by the Issuer upon demand; and
(g) the Trustee may execute any of the trusts or powers hereunder or per-
form any duties hereunder either directly or by or through agents or attor-
neys not regularly in its employ and the Trustee shall not be responsible
for any misconduct or negligence on the part of any such agent or attorney
appointed with due care by it hereunder.
Section 6.3 Trustee Not Responsible for Recitals, Disposition of Securities
or Application of Proceeds Thereof. The recitals contained herein and in the
Securities, except the Trustee's certificates of authentication, shall be
taken as the statements of the Issuer, and the Trustee assumes no responsibil-
ity for the correctness of the same. The Trustee makes no representation as to
the validity or sufficiency of this Indenture or of the Securities or Coupons.
The Trustee shall not be accountable for the use or application by the Issuer
of any of the Securities or of the proceeds thereof.
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Section 6.4 Trustee and Agents May Hold Securities or Coupons; Collections,
etc. The Trustee or any agent of the Issuer or the Trustee, in its individual
or any other capacity, may become the owner or pledgee of Securities or Cou-
pons with the same rights it would have if it were not the Trustee or such
agent and may otherwise deal with the Issuer and receive, collect, hold and
retain collections from the Issuer with the same rights it would have if it
were not the Trustee or such agent.
Section 6.5 Moneys Held by Trustee. Subject to the provisions of Section 10.4
hereof, all moneys received by the Trustee shall, until used or applied as
herein provided, be held in trust for the purposes for which they were re-
ceived, but need not be segregated from other funds except to the extent re-
quired by mandatory provisions of law. Neither the Trustee nor any agent of
the Issuer or the Trustee shall be under any liability for interest on any
moneys received by it hereunder.
Section 6.6 Compensation and Indemnification of Trustee and Its Prior
Claim. The Issuer covenants and agrees to pay to the Trustee from time to
time, and the Trustee shall be entitled to, reasonable compensation (which
shall not be limited by any provision of law in regard to the compensation of
a trustee of an express trust) and the Issuer covenants and agrees to pay or
reimburse the Trustee and each predecessor Trustee upon its request for all
reasonable expenses, disbursements and advances incurred or made by or on be-
half of it in accordance with any of the provisions of this Indenture (includ-
ing the reasonable compensation and the expenses and disbursements of its
counsel and of all agents and other persons not regularly in its employ) ex-
cept any such expense, disbursement or advance as may arise from its negli-
gence or bad faith. Any such payments and reimbursements not made in a timely
fashion shall be made with interest at the Trustee's corporate base rate. The
Issuer also covenants to indemnify the Trustee and each predecessor Trustee
for, and to hold it harmless against, any loss, liability or expense incurred
without negligence or bad faith on its part, arising out of or in connection
with the acceptance or administration of this Indenture or the trusts hereun-
der and its duties hereunder, including the costs and expenses of defending
itself against or investigating any claim of liability in the premises. The
obligations of the Issuer under this Section to compensate and indemnify the
Trustee and each predecessor Trustee and to pay or reimburse the Trustee and
each predecessor Trustee for expenses, disbursements and advances shall con-
stitute additional indebtedness hereunder and shall survive the satisfaction
and discharge of this Indenture. Such additional indebtedness shall be a se-
nior claim to
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that of the Securities upon all property and funds held or collected by the
Trustee as such, except funds held in trust for the benefit of the Holders of
particular Securities or Coupons, and the Securities are hereby subordinated
to such senior claim.
Section 6.7 Right of Trustee to Rely on Officer's Certificate, etc. Subject
to Sections 6.1 and 6.2, whenever in the administration of the trusts of this
Indenture the Trustee shall deem it necessary or desirable that a matter be
proved or established prior to taking or suffering or omitting any action
hereunder, such matter (unless other evidence in respect thereof be herein
specifically prescribed) may, in the absence of negligence or bad faith on the
part of the Trustee, be deemed to be conclusively proved and established by an
Officer's Certificate delivered to the Trustee, and such certificate, in the
absence of negligence or bad faith on the part of the Trustee, shall be full
warrant to the Trustee for any action taken, suffered or omitted by it under
the provisions of this Indenture upon the faith thereof.
Section 6.8 Indentures Not Creating Potential Conflicting Interests for the
Trustee.
This Section intentionally left blank.
Section 6.9 Persons Eligible for Appointment as Trustee. The Trustee for each
series of Securities hereunder shall at all times be a corporation organized
and doing business under the laws of the United States of America or of any
State or the District of Columbia having a combined capital and surplus of at
least $5,000,000, and which is authorized under such laws to exercise corpo-
rate trust powers and is subject to supervision or examination by Federal,
State or District of Columbia authority. If such corporation publishes reports
of condition at least annually, pursuant to law or to the requirements of the
aforesaid supervising or examining authority, then, for the purposes of this
Section, the combined capital and surplus of such corporation shall be deemed
to be its combined capital and surplus as set forth in its most recent report
of condition so published. In case at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section, the Trustee shall
resign immediately in the manner and with the effect specified in Section
6.10.
The provisions of this Section 6.9 are in furtherance of and subject to Sec-
tion 310(a) of the Trust Indenture Act of 1939.
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Section 6.10 Resignation and Removal; Appointment of Successor Trustee.
(a) The Trustee, or any trustee or trustees hereafter appointed, may at any
time resign and be discharged of the trusts hereby created by giving written
notice of resignation to the Issuer and (i) if any Unregistered Securities are
then Outstanding, by giving notice of such resignation to the Holders thereof,
by publication at least once in an Authorized Newspaper in the Borough of Man-
hattan, The City of New York, and at least once in an Authorized Newspaper in
London (and, if required by Section 3.7, at least once in an Authorized News-
paper in Luxembourg), (ii) if any Unregistered Securities are then Outstand-
ing, by mailing notice of such resignation to the Holders thereof who have
filed their names and addresses with the Trustee at such addresses as were so
furnished to the Trustee and (iii) by mailing notice of such resignation to
the Holders of then Outstanding Registered Securities at their addresses as
they shall appear on the registry books. Upon receiving such notice of resig-
nation, the Issuer shall promptly appoint a successor trustee or trustees by
written instrument in duplicate, executed by authority of the Board of Direc-
tors, one copy of which instrument shall be delivered to the resigning Trustee
and one copy to the successor trustee or trustees. If no successor trustee
shall have been so appointed and have accepted appointment within 30 days af-
ter the mailing of such notice of resignation, the resigning trustee may peti-
tion any court of competent jurisdiction for the appointment of a successor
trustee, or any Securityholder who has been a bona fide Holder of a Security
or Securities for at least six months may, subject to the provisions of Sec-
tion 5.12, on behalf of himself and all others similarly situated, petition
any such court for the appointment of a successor trustee. Such court may
thereupon, after such notice, if any, as it may deem proper and prescribe, ap-
point a successor trustee.
(b) In case at any time any of the following shall occur:
(i) the Trustee shall fail to comply with the provisions of Section 310(b)
of the Trust Indenture Act of 1939 after written request therefor by the Is-
suer or by any Securityholder who has been a bona fide Holder of a Security
or Securities for at least six months; or
(ii) the Trustee shall cease to be eligible in accordance with the provi-
sions of Section 6.9 and Section 310(a) of the Trust Indenture Act of 1939
and shall fail to resign after written request therefor by the Issuer or by
any Securityholder; or
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(iii) the Trustee shall become incapable of acting or shall be adjudged a
bankrupt or insolvent, or a receiver or liquidator of the Trustee or of its
property shall be appointed, or any public officer shall take charge or con-
trol of the Trustee or of its property or affairs for the purpose of reha-
bilitation, conservation or liquidation;
then, in any such case, the Issuer may remove the Trustee and appoint a suc-
cessor trustee by written instrument, in duplicate, executed by order of the
Board of Directors of the Issuer, one copy of which instrument shall be deliv-
ered to the Trustee so removed and one copy to the successor trustee, or, sub-
ject to the provisions of Section 315(e) of the Trust Indenture Act of 1939,
any Securityholder who has been a bona fide Holder of a Security or Securities
for at least six months may on behalf of himself and all others similarly sit-
uated, petition any court of competent jurisdiction for the removal of the
Trustee and the appointment of a successor trustee. Such court may thereupon,
after such notice, if any, as it may deem proper and prescribe, remove the
Trustee and appoint a successor trustee.
(c) The Holders of a majority in aggregate principal amount of the Securities
of all series at the time outstanding may at any time remove the Trustee and
appoint a successor trustee by delivering to the Trustee so removed, to the
successor trustee so appointed and to the Issuer the evidence provided for in
Section 7.1 of the action in that regard taken by the Securityholders.
(d) Any resignation or removal of the Trustee and any appointment of a suc-
cessor trustee pursuant to any of the provisions of this Section 6.10 shall
become effective upon acceptance of appointment by the successor trustee as
provided in Section 6.11.
Section 6.11 Acceptance of Appointment by Successor Trustee. Any successor
trustee appointed as provided in Section 6.10 shall execute and deliver to the
Issuer and to its predecessor trustee an instrument accepting such appointment
hereunder, and thereupon the resignation or removal of the predecessor trustee
shall become effective and such successor trustee, without any further act,
deed or conveyance, shall become vested with all rights, powers, duties and
obligations of its predecessor hereunder, with like effect as if originally
named as trustee hereunder; but, nevertheless, on the written request of the
Issuer or
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of the successor trustee, upon payment of its charges then unpaid, the trustee
ceasing to act shall, subject to Section 10.4, pay over to the successor
trustee all moneys at the time held by it hereunder and shall execute and de-
liver an instrument transferring to such successor trustee all such rights,
powers, duties and obligations. Upon request of any such successor trustee,
the Issuer shall execute any and all instruments in writing for more fully and
certainly vesting in and confirming to such successor trustee all such rights
and powers. Any trustee ceasing to act shall, nevertheless, retain a prior
claim upon all property or funds held or collected by such trustee to secure
any amounts then due it pursuant to the provisions of Section 6.6.
No successor trustee shall accept appointment as provided in this Section
6.11 unless at the time of such acceptance such successor trustee shall be
qualified under Section 310(b) of the Trust Indenture Act of 1939 and eligible
under the provisions of Section 6.9.
Upon acceptance of appointment by any successor trustee as provided in this
Section 6.11, the Issuer shall give notice thereof (a) if any Unregistered Se-
curities are then Outstanding, to the Holders thereof, by publication of such
notice at least once in an Authorized Newspaper in the Borough of Manhattan,
The City of New York and at least once in an Authorized Newspaper in London
(and, if required by Section 3.7, at least once in an Authorized Newspaper in
Luxembourg), (b) if any Unregistered Securities are then Outstanding, to the
Holders thereof who have filed their names and addresses with the Trustee, by
mailing such notice to such Holders at such addresses as were so furnished to
the Trustee (and the Trustee shall make such information available to the Is-
suer for such purpose) and (c) to the Holders of Registered Securities, by
mailing such notice to such Holders at their addresses as they shall appear on
the registry books. If the acceptance of appointment is substantially contem-
poraneous with the resignation, then the notice called for by the preceding
sentence may be combined with the notice called for by Section 6.10. If the
Issuer fails to give such notice within ten days after acceptance of appoint-
ment by the successor trustee, the successor trustee shall cause such notice
to be given at the expense of the Issuer.
Section 6.12 Merger, Conversion, Consolidation or Succession to Business of
Trustee. Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merg-
er, conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to the corporate trust business of the Trustee, shall
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be the successor of the Trustee hereunder, provided that such corporation
shall be qualified under Section 310(b) of the Trust Indenture Act of 1939 and
eligible under the provisions of Section 6.9, without the execution or filing
of any paper or any further act on the part of any of the parties hereto, any-
thing herein to the contrary notwithstanding.
In case at the time such successor to the Trustee shall succeed to the trusts
created by this Indenture any of the Securities of any series shall have been
authenticated but not delivered, any such successor to the Trustee may adopt
the certificate of authentication of any predecessor Trustee and deliver such
Securities so authenticated; and, in case at that time any of the Securities
of any series shall not have been authenticated, any successor to the Trustee
may authenticate such Securities either in the name of any predecessor hereun-
der or in the name of the successor Trustee; and in all such cases such cer-
tificate shall have the full force which it is anywhere in the Securities of
such series or in this Indenture provided that the certificate of the Trustee
shall have; provided, that the right to adopt the certificate of authentica-
tion of any predecessor Trustee or to authenticate Securities of any series in
the name of any predecessor Trustee shall apply only to its successor or suc-
cessors by merger, conversion or consolidation.
Section 6.13 Preferential Collection of Claims Against the Issuer.
This Section intentionally left blank.
Section 6.14 Appointment of Authenticating Agent. As long as any Securities
of a series remain Outstanding, the Trustee may, by an instrument in writing,
appoint with the approval of the Issuer an authenticating agent (the "Authen-
ticating Agent") which shall be authorized to act on behalf of the Trustee to
authenticate Securities, including Securities issued upon exchange, registra-
tion of transfer, partial redemption or pursuant to Section 2.9. Securities of
each such series authenticated by such Authenticating Agent shall be entitled
to the benefits of this Indenture and shall be valid and obligatory for all
purposes as if authenticated by the Trustee. Whenever reference is made in
this Indenture to the authentication and delivery of Securities of any series
by the Trustee or to the Trustee's Certificate of Authentication, such refer-
ence shall be deemed to include authentication and delivery on behalf of the
Trustee by an Authenticating Agent for such series and a Certificate of Au-
thentication executed on behalf of the Trustee by such Authenticating Agent.
Such Authenticating Agent shall at all times be a corporation organized and
doing business under the laws of the United States of America or of any State,
authorized under such laws to exercise corpo-
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rate trust powers, having a combined capital and surplus of at least
$5,000,000 (determined as provided in Section 6.9 with respect to the Trustee)
and subject to supervision or examination by Federal or State authority.
Any corporation into which any Authenticating Agent may be merged or convert-
ed, or with which it may be consolidated, or any corporation resulting from
any merger, conversion or consolidation to which any Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency busi-
ness of any Authenticating Agent, shall continue to be the Authenticating
Agent with respect to all series of Securities for which it served as Authen-
ticating Agent without the execution or filing of any paper or any further act
on the part of the Trustee or such Authenticating Agent. Any Authenticating
Agent may at any time, and if it shall cease to be eligible shall, resign by
giving written notice of resignation to the Trustee and to the Issuer.
Upon receiving such a notice of resignation or upon such a termination, or in
case at any time any Authenticating Agent shall cease to be eligible in accor-
dance with the provisions of this Section 6.14 with respect to one or more se-
ries of Securities, the Trustee shall upon receipt of an Issuer Order appoint
a successor Authenticating Agent and the Issuer shall provide notice of such
appointment to all Holders of Securities of such series in the manner and to
the extent provided in Section 11.4. Any successor Authenticating Agent upon
acceptance of its appointment hereunder shall become vested with all rights,
powers, duties and responsibilities of its predecessor hereunder, with like
effect as if originally named as Authenticating Agent. The Issuer agrees to
pay to the Authenticating Agent for such series from time to time reasonable
compensation. The Authenticating Agent for the Securities of any series shall
have no responsibility or liability for any action taken by it as such at the
direction of the Trustee.
Sections 6.2, 6.3, 6.4, 6.6, 6.9 and 7.3 shall be applicable to any Authenti-
cating Agent.
ARTICLE SEVEN
Concerning the Securityholders
Section 7.1 Evidence of Action Taken by Securityholders. Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by a specified percentage in principal
amount of the Securityholders of any or all series may be embodied in and
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evidenced by one or more instruments of substantially similar tenor signed
(either physically or by means of an electronic transmission) by such speci-
fied percentage of Securityholders in person or by agent duly appointed in
writing; and, except as herein otherwise expressly provided, such action shall
become effective when such instrument or instruments are delivered (either
physically or by means of an electronic transmission) to the Trustee. Proof of
execution of any instrument or of a writing appointing any such agent shall be
sufficient for any purpose of this Indenture and (subject to Sections 6.1 and
6.2) conclusive in favor of the Trustee and the Issuer, if made in the manner
provided in this Article.
Section 7.2 Proof of Execution of Instruments and of Holding of Securities.
Subject to Sections 6.1 and 6.2, the execution of any instrument by a
Securityholder or his agent or proxy may be proved in the following manner:
(a) The fact and date of the execution by any Holder of any instrument may
be proved by the certificate of any notary public or other officer of any
jurisdiction authorized to take acknowledgments of deeds or administer oaths
that the person executing such instruments acknowledged to him the execution
thereof, or by an affidavit of a witness to such execution sworn to before
any such notary or other such officer. Where such execution is by or on be-
half of any legal entity other than an individual, such certificate or affi-
davit shall also constitute sufficient proof of the authority of the person
executing the same. The fact of the holding by any Holder of an Unregistered
Security of any series, and the identifying number of such Security and the
date of his holding the same, may be proved by the production of such Secu-
rity or by a certificate executed by any trust company, bank, banker or rec-
ognized securities dealer wherever situated satisfactory to the Trustee, if
such certificate shall be deemed by the Trustee to be satisfactory. Each
such certificate shall be dated and shall state that on the date thereof a
Security of such series bearing a specified identifying number was deposited
with or exhibited to such trust company, bank, banker or recognized securi-
ties dealer by the person named in such certificate. Any such certificate
may be issued in respect of one or more Unregistered Securities of one or
more series specified therein. The holding by the person named in any such
certificate of any Unregistered Securities of any series specified therein
shall be presumed to continue for a period of one year from the date of such
certificate unless at the time of any determination of such holding (1) an-
other certificate bearing a later date issued in respect of the same Securi-
ties shall be produced, or (2) the Security of such series specified in such
certificate shall be produced by some other person, or (3) the Security of
such series specified in such certificate shall have ceased to be Outstand-
ing. Subject to Sections 6.1 and 6.2, the fact and date of the execution of
any such instrument and the amount and numbers of Securities of any series
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held by the person so executing such instrument and the amount and numbers
of any Security or Securities for such series may also be proven in accor-
dance with such reasonable rules and regulations as may be prescribed by the
Trustee for such series or in any other manner which the Trustee for such
series may deem sufficient.
(b) In the case of Registered Securities, the ownership of such Securities
shall be proved by the Security register or by a certificate of the Security
registrar.
The Issuer may set a record date for purposes of determining the identity of
Holders of Registered Securities of any series entitled to vote or consent to
any action referred to in Section 7.1, which record date may be set at any
time or from time to time by notice to the Trustee, for any date or dates (in
the case of any adjournment or reconsideration) not more than 60 days nor less
than five days prior to the proposed date of such vote or consent, and there-
after, notwithstanding any other provisions hereof, with respect to Registered
Securities of any series, only Holders of Registered Securities of such series
of record on such record date shall be entitled to so vote or give such con-
sent or revoke such vote or consent.
Section 7.3 Holders to Be Treated as Owners. The Issuer, the Trustee and any
agent of the Issuer or the Trustee may deem and treat the person in whose name
any Security shall be registered upon the Security register for such series as
the absolute owner of such Security (whether or not such Security shall be
overdue and notwithstanding any notation of ownership or other writing there-
on) for the purpose of receiving payment of or on account of the principal of
and, subject to the provisions of this Indenture, interest on such Security
and for all other purposes; and neither the Issuer nor the Trustee nor any
agent of the Issuer or the Trustee shall be affected by any notice to the con-
trary. The Issuer, the Trustee and any agent of the Issuer or the Trustee may
treat the Holder of any Unregistered Security and the Holder of any Coupon as
the absolute owner of such Unregistered Security or Coupon (whether or not
such Unregistered Security or Coupon shall be overdue) for the purpose of re-
ceiving payment thereof or on account thereof and for all other purposes and
neither the Issuer, the Trustee, nor any agent of the Issuer or the Trustee
shall be affected by any notice to the contrary. All such payments so made to
any such person, or upon his order, shall be valid, and, to the extent of the
sum or sums so paid, effectual to satisfy and discharge the liability for mon-
eys payable upon any such Security or Coupon.
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Section 7.4 Securities Owned by Issuer Deemed Not Outstanding. In determining
whether the Holders of the requisite aggregate principal amount of Outstanding
Securities of any or all series have concurred in any direction, consent or
waiver under this Indenture, Securities which are owned by the Issuer or any
other obligor on the Securities with respect to which such determination is
being made or by any person directly or indirectly controlling or controlled
by or under direct or indirect common control with the Issuer or any other ob-
ligor on the Securities with respect to which such determination is being made
shall be disregarded and deemed not to be Outstanding for the purpose of any
such determination, except that for the purpose of determining whether the
Trustee shall be protected in relying on any such direction, consent or waiver
only Securities which the Trustee knows are so owned shall be so disregarded.
Securities so owned which have been pledged in good faith may be regarded as
Outstanding if the pledgee establishes to the satisfaction of the Trustee the
pledgee's right so to act with respect to such Securities and that the pledgee
is not the Issuer or any other obligor upon the Securities or any person di-
rectly or indirectly controlling or controlled by or under direct or indirect
common control with the Issuer or any other obligor on the Securities. In case
of a dispute as to such right, the advice of counsel shall be full protection
in respect of any decision made by the Trustee in accordance with such advice.
Upon request of the Trustee, the Issuer shall furnish to the Trustee promptly
an Officer's Certificate listing and identifying all Securities, if any, known
by the Issuer to be owned or held by or for the account of any of the above-
described persons; and, subject to Sections 6.1 and 6.2, the Trustee shall be
entitled to accept such Officer's Certificate as conclusive evidence of the
facts therein set forth and of the fact that all Securities not listed therein
are Outstanding for the purpose of any such determination.
Section 7.5 Right of Revocation of Action Taken. At any time prior to (but
not after) the evidencing to the Trustee, as provided in Section 7.1, of the
taking of any action by the Holders of the percentage in aggregate principal
amount of the Securities of any or all series, as the case may be, specified
in this Indenture in connection with such action, any Holder of a Security the
serial number of which is shown by the evidence to be included among the se-
rial numbers of the Securities the Holders of which have consented to such ac-
tion may, by filing written notice at the Corporate Trust Office and upon
proof of holding as provided in this Article, revoke such action so far as
concerns such Security. Except as aforesaid any such action taken by the
Holder of any Security shall be conclusive and binding upon such Holder and
upon all future Holders and owners of
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such Security and of any Securities issued in exchange or substitution there-
for or on registration of transfer thereof, irrespective of whether or not any
notation in regard thereto is made upon any such Security. Any action taken by
the Holders of the percentage in aggregate principal amount of the Securities
of any or all series, as the case may be, specified in this Indenture in con-
nection with such action shall be conclusively binding upon the Issuer, the
Trustee and the Holders of all the Securities affected by such action.
ARTICLE EIGHT
Supplemental Indentures
Section 8.1 Supplemental Indentures Without Consent of Securityholders. The
Issuer, when authorized by a resolution of its Board of Directors (which reso-
lution may provide general terms or parameters for such action and may provide
that the specific terms of such action may be determined in accordance with or
pursuant to an Issuer Order), and the Trustee may from time to time and at any
time enter into an indenture or indentures supplemental hereto for one or more
of the following purposes:
(a) to convey, transfer, assign, mortgage or pledge to the Trustee as secu-
rity for the Securities of one or more series any property or assets;
(b) to evidence the succession of another corporation to the Issuer, or
successive successions, and the assumption by the successor corporation of
the covenants, agreements and obligations of the Issuer pursuant to Article
Nine;
(c) to add to the covenants of the Issuer such further covenants, restric-
tions, conditions or provisions as the Issuer and the Trustee shall consider
to be for the protection of the Holders of Securities or Coupons, and to
make the occurrence, or the occurrence and continuance, of a default in any
such additional covenants, restrictions, conditions or provisions an Event
of Default permitting the enforcement of all or any of the several remedies
provided in this Indenture as herein set forth; provided, that in respect of
any such additional covenant, restriction, condition or provision such sup-
plemental indenture may provide for a particular period of grace after de-
fault (which period may be shorter or longer than that allowed in the case
of other defaults) or may provide for an immediate enforcement upon such an
Event of Default or may limit the remedies available to the Trustee upon
such an Event of Default or may limit the right of the Holders of a majority
in aggregate principal amount of the Securities of such series to waive such
an Event of Default;
(d) to cure any ambiguity or to correct or supplement any provision con-
tained herein or in any supplemental indenture which may be defective or in-
consistent with any other provision contained herein or in any supplemental
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indenture, or to make any other provisions as the Issuer may deem necessary
or desirable, provided that no such action shall adversely affect the inter-
ests of the Holders of the Securities or Coupons;
(e) to establish the forms or terms of Securities of any series or of the
Coupons appertaining to such Securities as permitted by Sections 2.1 and
2.3; and
(f) to evidence and provide for the acceptance of appointment hereunder by
a successor trustee with respect to the Securities of one or more series and
to add to or change any of the provisions of this Indenture as shall be nec-
essary to provide for or facilitate the administration of the trusts hereun-
der by more than one trustee, pursuant to the requirements of Section 6.11.
The Trustee is hereby authorized to join with the Issuer in the execution of
any such supplemental indenture, to make any further appropriate agreements
and stipulations which may be therein contained and to accept the conveyance,
transfer, assignment, mortgage or pledge of any property thereunder, but the
Trustee shall not be obligated to enter into any such supplemental indenture
which affects the Trustee's own rights, duties or immunities under this Inden-
ture or otherwise.
Any supplemental indenture authorized by the provisions of this Section may
be executed without the consent of the Holders of any of the Securities at the
time outstanding, notwithstanding any of the provisions of Section 8.2.
Section 8.2 Supplemental Indentures With Consent of Securityholders. With the
consent (evidenced as provided in Article Seven) of the Holders of a majority
in aggregate principal amount of the Securities at the time Outstanding of all
series affected by such supplemental indenture (voting as one class), the Is-
suer, when authorized by a resolution of its Board of Directors (which resolu-
tion may provide general terms or parameters for such action and may provide
that the specific terms of such action may be determined in accordance with or
pursuant to an Issuer Order), and the Trustee may, from time to time and at
any time, enter into an indenture or indentures supplemental hereto for the
purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of this Indenture or of any supplemental indenture or of
modifying in any manner the rights of the Holders of the Securities of each
such series or of the Coupons appertaining to such Securities; provided, that
no such supplemental indenture shall (a) extend the final maturity of any Se-
curity, or reduce the principal amount thereof, or reduce the rate or extend
the time of payment of interest thereon, or reduce any amount payable on re-
demption thereof, or make the prin-
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cipal thereof (including any amount in respect of original issue discount), or
interest thereon, payable in any coin or currency other than that provided in
the Securities and Coupons or in accordance with the terms thereof, or reduce
the amount of the principal of an Original Issue Discount Security that would
be due and payable upon an acceleration of the maturity thereof pursuant to
Section 5.1 or the amount thereof provable in bankruptcy pursuant to Section
5.2, or alter the provisions of Section 11.11 or 11.12 or impair or affect the
right of any Securityholder to institute suit for the payment thereof or, if
the Securities provide therefor, any right of repayment or repurchase at the
option of the Securityholder, in each case without the consent of the Holder
of each Security so affected, or (b) reduce the aforesaid percentage of Secu-
rities of any series, the consent of the Holders of which is required for any
such supplemental indenture, without the consent of the Holders of each Secu-
rity so affected.
A supplemental indenture which changes or eliminates any covenant or other
provision of this Indenture which has expressly been included solely for the
benefit of one or more particular series of Securities, or which modifies the
rights of Holders of Securities of such series, or of Coupons appertaining to
such Securities, with respect to such covenant or provision, shall be deemed
not to affect the rights under this Indenture of the Holders of Securities of
any other series or of the Coupons appertaining to such Securities.
Upon the request of the Issuer, accompanied by a copy of a resolution of the
Board of Directors (which resolution may provide general terms or parameters
for such action and may provide that the specific terms of such action may be
determined in accordance with or pursuant to an Issuer Order) certified by the
secretary or an assistant secretary of the Issuer authorizing the execution of
any such supplemental indenture, and upon the filing with the Trustee of evi-
dence of the consent of the Holders of the Securities as aforesaid and other
documents, if any, required by Section 7.1, the Trustee shall join with the
Issuer in the execution of such supplemental indenture unless such supplemen-
tal indenture affects the Trustee's own rights, duties or immunities under
this Indenture or otherwise, in which case the Trustee may in its discretion,
but shall not be obligated to, enter into such supplemental indenture.
It shall not be necessary for the consent of the Securityholders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such consent shall approve the substance there-
of.
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Promptly after the execution by the Issuer and the Trustee of any supplemen-
tal indenture pursuant to the provisions of this Section, the Trustee shall
give notice thereof (i) to the Holders of then Outstanding Registered Securi-
ties of each series affected thereby, by mailing a notice thereof by first-
class mail to such Holders at their addresses as they shall appear on the Se-
curity register, (ii) if any Unregistered Securities of a series affected
thereby are then Outstanding, to the Holders thereof who have filed their
names and addresses with the Trustee, by mailing a notice thereof by first-
class mail to such Holders at such addresses as were so furnished to the
Trustee and (iii) if any Unregistered Securities of a series affected thereby
are then Outstanding, to all Holders thereof, by publication of a notice
thereof at least once in an Authorized Newspaper in the Borough of Manhattan,
The City of New York and at least once in an Authorized Newspaper in London
(and, if required by Section 3.7, at least once in an Authorized Newspaper in
Luxembourg), and in each case such notice shall set forth in general terms the
substance of such supplemental indenture. Any failure of the Issuer to give
such notice, or any defect therein, shall not, however, in any way impair or
affect the validity of any such supplemental indenture.
Section 8.3 Effect of Supplemental Indenture. Upon the execution of any sup-
plemental indenture pursuant to the provisions hereof, this Indenture shall be
and be deemed to be modified and amended in accordance therewith and the re-
spective rights, limitations of rights, obligations, duties and immunities un-
der this Indenture of the Trustee, the Issuer and the Holders of Securities of
each series affected thereby shall thereafter be determined, exercised and en-
forced hereunder subject in all respects to such modifications and amendments,
and all the terms and conditions of any such supplemental indenture shall be
and be deemed to be part of the terms and conditions of this Indenture for any
and all purposes.
Section 8.4 Documents to Be Given to Trustee. The Trustee, subject to the
provisions of Sections 6.1 and 6.2, may receive an Officer's Certificate and
an Opinion of Counsel as conclusive evidence that any supplemental indenture
executed pursuant to this Article Eight complies with the applicable provi-
sions of this Indenture.
Section 8.5 Notation on Securities in Respect of Supplemental Indentures. Se-
curities of any series authenticated and delivered after the execution of any
supplemental indenture pursuant to the provisions of this Article may bear a
notation in form approved by the Trustee for such series as to any matter pro-
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vided for by such supplemental indenture or as to any action taken by
Securityholders. If the Issuer or the Trustee shall so determine, new Securi-
ties of any series so modified as to conform, in the opinion of the Trustee
and the Board of Directors, to any modification of this Indenture contained in
any such supplemental indenture may be prepared by the Issuer, authenticated
by the Trustee and delivered in exchange for the Securities of such series
then Outstanding.
ARTICLE NINE
Consolidation, Merger, Sale or Conveyance
Section 9.1 Covenant Not to Merge, Consolidate, Sell or Convey Property Ex-
cept Under Certain Conditions. The Issuer covenants that it will not merge or
consolidate with any other Person or sell, lease or convey all or substan-
tially all of its assets to any other Person, unless (i) either the Issuer
shall be the continuing corporation, or the successor corporation or the Per-
son which acquires by sale, lease or conveyance substantially all the assets
of the Issuer (if other than the Issuer) shall be a corporation organized un-
der the laws of the United States of America or any State thereof or the Dis-
trict of Columbia and shall expressly assume the due and punctual payment of
the principal of and interest on all the Securities and Coupons, if any, ac-
cording to their tenor, and the due and punctual performance and observance of
all of the covenants and conditions of this Indenture to be performed or ob-
served by the Issuer, by supplemental indenture satisfactory to the Trustee,
executed and delivered to the Trustee by such corporation, and (ii) the Issu-
er, such Person or such successor corporation, as the case may be, shall not,
immediately after such merger or consolidation, or such sale, lease or convey-
ance, be in default in the performance of any such covenant or condition.
Section 9.2 Successor Corporation Substituted. In case of any such consolida-
tion, merger, sale, lease or conveyance, and following such an assumption by
the successor corporation, such successor corporation shall succeed to and be
substituted for the Issuer, with the same effect as if it had been named here-
in. Such successor corporation may cause to be signed, and may issue either in
its own name or in the name of the Issuer prior to such succession any or all
of the Securities issuable hereunder which together with any Coupons apper-
taining thereto theretofore shall not have been signed by the Issuer and de-
livered to the Trustee; and, upon the order of such successor corporation, in-
stead of the Issuer, and subject to all the terms, conditions and limitations
in this Indenture pre-
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scribed, the Trustee shall authenticate and shall deliver any Securities to-
gether with any Coupons appertaining thereto which previously shall have been
signed and delivered by the officers of the Issuer to the Trustee for authen-
tication, and any Securities which such successor corporation thereafter shall
cause to be signed and delivered to the Trustee for that purpose. All of the
Securities so issued together with any Coupons appertaining thereto shall in
all respects have the same legal rank and benefit under this Indenture as the
Securities theretofore or thereafter issued in accordance with the terms of
this Indenture as though all of such Securities had been issued at the date of
the execution hereof.
In case of any such consolidation, merger, sale, lease or conveyance such
changes in phrasing and form (but not in substance) may be made in the Securi-
ties and Coupons thereafter to be issued as may be appropriate.
In the event of any such sale or conveyance (other than a conveyance by way
of lease) the Issuer or any successor corporation which shall theretofore have
become such in the manner described in this Article shall be discharged from
all obligations and covenants under this Indenture and the Securities and may
be liquidated and dissolved.
Section 9.3 Opinion of Counsel Delivered to Trustee. The Trustee, subject to
the provisions of Sections 6.1 and 6.2, may receive an Opinion of Counsel as
conclusive evidence that any such consolidation, merger, sale, lease or con-
veyance, and any such assumption, and any such liquidation or dissolution,
complies with the applicable provisions of this Indenture.
ARTICLE TEN
Satisfaction and Discharge of Indenture; Unclaimed Moneys
Section 10.1 Satisfaction and Discharge of Indenture. (A) If at any time (a)
the Issuer shall have paid or caused to be paid the principal of and interest
on all the Securities of any series Outstanding hereunder and all unmatured
Coupons appertaining thereto (other than Securities of such series and Coupons
appertaining thereto which have been destroyed, lost or stolen and which have
been replaced or paid as provided in Section 2.9) as and when the same shall
have become due and payable, or (b) the Issuer shall have delivered to the
Trustee for cancellation all Securities of any series theretofore authenti-
cated and all unmatured Coupons appertaining thereto (other than any Securi-
ties of such series and Coupons appertaining thereto which shall have been de-
stroyed, lost or stolen
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and which shall have been replaced or paid as provided in Section 2.9) or (c)
in the case of any series of Securities where the exact amount (including the
currency of payment) of principal of and interest due on which can be deter-
mined at the time of making the deposit referred to in clause (ii) below, (i)
all the Securities of such series and all unmatured Coupons appertaining
thereto not theretofore delivered to the Trustee for cancellation shall have
become due and payable, or are by their terms to become due and payable within
one year or are to be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of redemption, and (ii)
the Issuer shall have irrevocably deposited or caused to be deposited with the
Trustee as trust funds the entire amount in cash (other than moneys repaid by
the Trustee or any paying agent to the Issuer in accordance with Section 10.4)
or, in the case of any series of Securities the payments on which may only be
made in Dollars, obligations issued or guaranteed as to principal and interest
by the United States or by a Person controlled or supervised by and acting as
an instrumentality of the government of the United States pursuant to author-
ity granted by the Congress of the United States ("U.S. Government Obliga-
tions"), maturing as to principal and interest at such times and in such
amounts as will insure the availability of cash, or a combination thereof,
sufficient in the opinion of a nationally recognized firm of independent pub-
lic accountants expressed in a written certification thereof delivered to the
Trustee, to pay (A) the principal and interest on all Securities of such se-
ries and Coupons appertaining thereto on each date that such principal or in-
terest is due and payable and (B) any mandatory sinking fund payments on the
dates on which such payments are due and payable in accordance with the terms
of the Indenture and the Securities of such series; and if, in any such case,
the Issuer shall also pay or cause to be paid all other sums payable hereunder
by the Issuer, then this Indenture shall cease to be of further effect (except
as to (i) rights of registration of transfer and exchange of Securities of
such series and of Coupons appertaining thereto and the Issuer's right of op-
tional redemption, if any, (ii) substitution of mutilated, defaced, destroyed,
lost or stolen Securities or Coupons, (iii) rights of holders of Securities
and Coupons appertaining thereto to receive payments of principal thereof and
interest thereon, upon the original stated due dates therefor or on the speci-
fied redemption dates therefor (but not upon acceleration), and remaining
rights of the Holders to receive mandatory sinking fund payments, if any, (iv)
the rights, obligations, duties and immunities of the Trustee hereunder, (v)
the rights of the Holders of Securities of such series and Coupons appertain-
ing thereto as beneficiaries hereof with respect to the property so deposited
with the Trustee payable to all or any
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of them, and (vi) the obligations of the Issuer under Section 3.2) and the
Trustee, on demand of the Issuer accompanied by an Officer's Certificate and
an Opinion of Counsel and at the cost and expense of the Issuer, shall execute
proper instruments acknowledging such satisfaction of and discharging this In-
denture; provided, that the rights of Holders of the Securities and Coupons to
receive amounts in respect of principal of and interest on the Securities and
Coupons held by them shall not be delayed longer than required by then-appli-
cable mandatory rules or policies of any securities exchange upon which the
Securities are listed.
(B) The following provisions shall apply to the Securities of each series un-
less specifically otherwise provided in a Board Resolution, Officer's Certifi-
cate or indenture supplemental hereto provided pursuant to Section 2.3. In ad-
dition to discharge of the Indenture pursuant to the next preceding paragraph,
in the case of any series of Securities the exact amounts (including the cur-
rency of payment) of principal of and interest due on which can be determined
at the time of making the deposit referred to in clause (a) below, the Issuer
shall be deemed to have paid and discharged the entire indebtedness on all the
Securities of such a series and the Coupons appertaining thereto on the 91st
day after the date of the deposit referred to in subparagraph (a) below, and
the provisions of this Indenture with respect to the Securities of such series
and Coupons appertaining thereto shall no longer be in effect (except as to
(i) rights of registration of transfer and exchange of Securities of such se-
ries and of Coupons appertaining thereto and the Issuer's right of optional
redemption, if any, (ii) substitution of mutilated, defaced, destroyed, lost
or stolen Securities or Coupons, (iii) rights of Holders of Securities and
Coupons appertaining thereto to receive payments of principal thereof and in-
terest thereon, upon the original stated due dates therefor or on the speci-
fied redemption dates therefor (but not upon acceleration), and remaining
rights of the Holders to receive mandatory sinking fund payments, if any, (iv)
the rights, obligations, duties and immunities of the Trustee hereunder, (v)
the rights of the Holders of Securities of such series and Coupons appertain-
ing thereto as beneficiaries hereof with respect to the property so deposited
with the Trustee payable to all or any of them, and (vi) the obligations of
the Issuer under Section 3.2) and the Trustee, at the expense of the Issuer,
shall at the Issuer's request, execute proper instruments acknowledging the
same, if
(a) with reference to this provision the Issuer has irrevocably deposited
or caused to be irrevocably deposited with the Trustee as trust funds in
trust, specifically pledged as security for, and dedicated solely to, the
benefit of the Holders of the Securities of such series and Coupons apper-
taining thereto (i) cash in an amount, or (ii) in the case of any series of
Securities the payments
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on which may only be made in Dollars, U.S. Government Obligations, maturing
as to principal and interest at such times and in such amounts as will in-
sure the availability of cash, or (iii) a combination thereof, sufficient,
in the opinion of a nationally recognized firm of independent public accoun-
tants expressed in a written certification thereof delivered to the Trustee,
to pay (A) the principal and interest on all Securities of such series and
Coupons appertaining thereto on each date that such principal or interest is
due and payable and (B) any mandatory sinking fund payments on the dates on
which such payments are due and payable in accordance with the terms of the
Indenture and the Securities of such series;
(b) the Issuer has delivered to the Trustee an Opinion of Counsel based on
the fact that (x) the Issuer has received from, or there has been published
by, the Internal Revenue Service a ruling or (y) since the date hereof,
there has been a change in the applicable Federal income tax law, in either
case to the effect that, and such opinion shall confirm that, the Holders of
the Securities of such series and Coupons appertaining thereto will not rec-
ognize income, gain or loss for Federal income tax purposes as a result of
such deposit, defeasance and discharge and will be subject to Federal income
tax on the same amount and in the same manner and at the same times, as
would have been the case if such deposit, defeasance and discharge had not
occurred; and
(c) the Issuer has delivered to the Trustee an Officer's Certificate and an
Opinion of Counsel, each stating that all conditions precedent provided for
relating to the defeasance contemplated by this provision have been complied
with.
(C) The Issuer shall be released from its obligations under Sections 3.6 and
9.1 with respect to the Securities of any Series, and any Coupons appertaining
thereto, Outstanding on and after the date the conditions set forth below are
satisfied (hereinafter, "covenant defeasance"). For this purpose, such cove-
nant defeasance means that, with respect to the Outstanding Securities of any
Series, the Issuer may omit to comply with and shall have no liability in re-
spect of any term, condition or limitation set forth in such Section, whether
directly or indirectly by reason of any reference elsewhere herein to such
Section or by reason of any reference in such Section to any other provision
herein or in any other document and such omission to comply shall not consti-
tute an Event of Default under Section 5.1, but the remainder of this Inden-
ture and such Securities and Coupons shall be unaffected thereby. The follow-
ing shall be the conditions to application of this subsection C of this Sec-
tion 10.1:
(a) The Issuer has irrevocably deposited or caused to be deposited with the
Trustee as trust funds in trust for the purpose of making the following pay-
ments, specifically pledged as security for, and dedicated solely to, the
benefit
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of the holders of the Securities of such series and coupons appertaining
thereto, (i) cash in an amount, or (ii) in the case of any series of Securi-
ties the payments on which may only be made in Dollars, U.S. Government Ob-
ligations maturing as to principal and interest at such times and in such
amounts as will insure the availability of cash, or (iii) a combination
thereof, sufficient, in the opinion of a nationally recognized firm of inde-
pendent public accountants expressed in a written certification thereof de-
livered to the Trustee, to pay (A) the principal and interest on all Securi-
ties of such series and Coupons appertaining thereto and (B) any mandatory
sinking fund payments on the day on which such payments are due and payable
in accordance with the terms of the Indenture and the Securities of such se-
ries.
(b) The Issuer shall have delivered to the Trustee an Officer's Certificate
stating that all conditions precedent provided for relating to the covenant
defeasance contemplated by this provision have been complied with.
Section 10.2 Application by Trustee of Funds Deposited for Payment of
Securities. Subject to Section 10.4, all moneys or U.S. Government Obligations
deposited with the Trustee (or other trustee) pursuant to Section 10.1 (and
all funds earned on such moneys or U.S. Government Obligations) shall be held
in trust and applied by it to the payment, either directly or through any pay-
ing agent (including the Issuer acting as its own paying agent), to the Hold-
ers of the particular Securities of such series and of Coupons appertaining
thereto for the payment or redemption of which such moneys have been deposited
with the Trustee, of all sums due and to become due thereon for principal and
interest; but such money need not be segregated from other funds except to the
extent required by law. Subject to Section 10.1, the Trustee promptly shall
pay to the Issuer upon request any excess moneys held by it at any time.
Section 10.3 Repayment of Moneys Held by Paying Agent. In connection with the
satisfaction and discharge of this Indenture with respect to Securities of any
series, all moneys then held by any paying agent under the provisions of this
Indenture with respect to such series of Securities shall, upon demand of the
Issuer, be repaid to it or paid to the Trustee and thereupon such paying agent
shall be released from all further liability with respect to such moneys.
Section 10.4 Return of Moneys Held by Trustee and Paying Agent Unclaimed for
Two Years. Any moneys deposited with or paid to the Trustee or any paying
agent for the payment of the principal of or interest on any Security of any
series or Coupons attached thereto and not applied but remaining unclaimed for
two years after the date upon which such principal or interest shall
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have become due and payable, shall, upon the written request of the Issuer and
unless otherwise required by mandatory provisions of applicable escheat or
abandoned or unclaimed property law, be repaid to the Issuer by the Trustee
for such series or such paying agent, and the Holder of the Securities of such
series and of any Coupons appertaining thereto shall, unless otherwise re-
quired by mandatory provisions of applicable escheat or abandoned or unclaimed
property laws, thereafter look only to the Issuer for any payment which such
Holder may be entitled to collect, and all liability of the Trustee or any
paying agent with respect to such moneys shall thereupon cease; provided, how-
ever, that the Trustee or such paying agent, before being required to make any
such repayment with respect to moneys deposited with it for any payment (a) in
respect of Registered Securities of any series, shall at the expense of the
Issuer, mail by first-class mail to Holders of such Securities at their ad-
dresses as they shall appear on the Security register, and (b) in respect of
Unregistered Securities of any series, shall at the expense of the Issuer
cause to be published once, in an Authorized Newspaper in the Borough of Man-
hattan, The City of New York and once in an Authorized Newspaper in London
(and if required by Section 3.7, once in an Authorized Newspaper in Luxem-
bourg), notice, that such moneys remain and that, after a date specified
therein, which shall not be less than thirty days from the date of such mail-
ing or publication, any unclaimed balance of such money then remaining will be
repaid to the Issuer.
ARTICLE ELEVEN
Miscellaneous Provisions
Section 11.1 Incorporators, Stockholders, Officers and Directors of Issuer
Exempt from Individual Liability. No recourse under or upon any obligation,
covenant or agreement contained in this Indenture, or in any Security, or be-
cause of any indebtedness evidenced thereby, shall be had against any incorpo-
rator, as such, or against any past, present or future stockholder, officer or
director, as such, of the Issuer or of any successor, either directly or
through the Issuer or any successor, under any rule of law, statute or consti-
tutional provision or by the enforcement of any assessment or by any legal or
equitable proceeding or otherwise, all such liability being expressly waived
and released by the acceptance of the Securities and the Coupons appertaining
thereto by the Holders thereof and as part of the consideration for the issue
of the Securities and the Coupons appertaining thereto.
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Section 11.2 Provisions of Indenture for the Sole Benefit of Parties and
Holders of Securities and Coupons. Nothing in this Indenture, in the Securi-
ties or in the Coupons appertaining thereto, expressed or implied, shall give
or be construed to give to any person, firm or corporation, other than the
parties hereto and their successors and the Holders of the Securities or Cou-
pons, if any, any legal or equitable right, remedy or claim under this Inden-
ture or under any covenant or provision herein contained, all such covenants
and provisions being for the sole benefit of the parties hereto and their suc-
cessors and of the Holders of the Securities or Coupons, if any.
Section 11.3 Successors and Assigns of Issuer Bound by Indenture. All the
covenants, stipulations, promises and agreements in this Indenture contained
by or in behalf of the Issuer shall bind its successors and assigns, whether
so expressed or not.
Section 11.4 Notices and Demands on Issuer, Trustee and Holders of Securities
and Coupons. Any notice or demand which by any provision of this Indenture is
required or permitted to be given or served by the Trustee or by the Holders
of Securities or Coupons to or on the Issuer may be given or served by being
deposited postage prepaid, first-class mail (except as otherwise specifically
provided herein) addressed (until another address of the Issuer is filed by
the Issuer with the Trustee) to New Tenneco Inc., 1275 King Street, Greenwich,
Connecticut 06831, Attention: Chief Financial Officer. Any notice, direction,
request or demand by the Issuer or any Holder of Securities or Coupons to or
upon the Trustee shall be deemed to have been sufficiently given or served by
being deposited postage prepaid, first-class mail (except as otherwise specif-
ically provided herein) addressed (until another address of the Trustee is
filed by the Trustee with the Issuer) to 450 West 33rd Street, 15th Floor, New
York, New York 10001-2697, Attention: Global Trust Services.
Where this Indenture provides for notice to Holders of Registered Securities,
such notice shall be sufficiently given (unless otherwise herein expressly
provided) if in writing and mailed, first-class postage prepaid, to each
Holder entitled thereto, at his last address as it appears in the Security
register. In any case where notice to such Holders is given by mail, neither
the failure to mail such notice, nor any defect in any notice so mailed, to
any particular Holder shall affect the sufficiency of such notice with respect
to other Holders. Where this Indenture provides for notice in any manner, such
notice may be waived in writing by the person entitled to receive such notice,
either before or after the event, and such waiver shall be the equivalent of
such notice. Waivers of notice by Holders shall
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be filed with the Trustee, but such filing shall not be a condition precedent
to the validity of any action taken in reliance upon such waiver.
In case, by reason of the suspension of or irregularities in regular mail
service, it shall be impracticable to mail notice to the Issuer when such no-
tice is required to be given pursuant to any provision of this Indenture, then
any manner of giving such notice as shall be reasonably satisfactory to the
Trustee shall be deemed to be a sufficient giving of such notice.
Section 11.5 Officer's Certificates and Opinions of Counsel; Statements to Be
Contained Therein. Upon any application or demand by the Issuer to the Trustee
to take any action under any of the provisions of this Indenture, the Issuer
shall furnish to the Trustee an Officer's Certificate stating that all condi-
tions precedent provided for in this Indenture relating to the proposed action
have been complied with and an Opinion of Counsel stating that in the opinion
of such counsel all such conditions precedent have been complied with, except
that in the case of any such application or demand as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or demand, no additional certificate
or opinion need be furnished.
Each certificate or opinion provided for in this Indenture and delivered to
the Trustee with respect to compliance with a condition or covenant provided
for in this Indenture shall include (a) a statement that the person making
such certificate or opinion has read such covenant or condition, (b) a brief
statement as to the nature and scope of the examination or investigation upon
which the statements or opinions contained in such certificate or opinion are
based, (c) a statement that, in the opinion of such person, he has made such
examination or investigation as is necessary to enable him to express an in-
formed opinion as to whether or not such covenant or condition has been com-
plied with and (d) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.
Any certificate, statement or opinion of an officer of the Issuer may be
based, insofar as it relates to legal matters, upon a certificate or opinion
of or representations by counsel, unless such officer knows that the certifi-
cate or opinion or representations with respect to the matters upon which his
certificate, statement or opinion may be based as aforesaid are erroneous, or
in the exercise of reasonable care should know that the same are erroneous.
Any certificate, statement or opinion of counsel may be based, insofar as it
relates to factual matters, information with respect to which is in the pos-
session of the Issuer, upon the certificate,
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statement or opinion of or representations by an officer or officers of the
Issuer, unless such counsel knows that the certificate, statement or opinion
or representations with respect to the matters upon which his certificate,
statement or opinion may be based as aforesaid are erroneous, or in the exer-
cise of reasonable care should know that the same are erroneous.
Any certificate, statement or opinion of an officer of the Issuer or of coun-
sel may be based, insofar as it relates to accounting matters, upon a certifi-
cate or opinion of or representations by an accountant or firm of accountants
in the employ of the Issuer, unless such officer or counsel, as the case may
be, knows that the certificate or opinion or representations with respect to
the accounting matters upon which his certificate, statement or opinion may be
based as aforesaid are erroneous, or in the exercise of reasonable care should
know that the same are erroneous.
Any certificate or opinion of any independent firm of public accountants
filed with and directed to the Trustee shall contain a statement that such
firm is independent.
Section 11.6 Payments Due on Saturdays, Sundays and Holidays. If the date of
maturity of interest on or principal of the Securities of any series or any
Coupons appertaining thereto or the date fixed for redemption or repayment of
any such Security or Coupon shall not be a Business Day, then payment of in-
terest or principal need not be made on such date, but may be made on the next
succeeding Business Day with the same force and effect as if made on the date
of maturity or the date fixed for redemption, and no interest shall accrue for
the period after such date.
Section 11.7 Conflict of Any Provision of Indenture with Trust Indenture Act
of 1939. If and to the extent that any provision of this Indenture limits,
qualifies or conflicts with the duties imposed by, or with another provision
(an "incorporated provision") included in this Indenture by operation of, Sec-
tions 310 to 318, inclusive, of the Trust Indenture Act of 1939, such imposed
duties or incorporated provision shall control.
Section 11.8 New York Law to Govern. This Indenture and each Security and
Coupon shall be deemed to be a contract under the laws of the State of New
York, and for all purposes shall be construed in accordance with the laws of
such State, except as may otherwise be required by mandatory provisions of
law.
Section 11.9 Counterparts. This Indenture may be executed in any number of
counterparts, each of which shall be an original; but such counterparts shall
together constitute but one and the same instrument.
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Section 11.10 Effect of Headings. The Article and Section headings herein and
the Table of Contents are for convenience only and shall not affect the con-
struction hereof.
Section 11.11 Securities in a Foreign Currency or in ECU. Unless otherwise
specified in an Officer's Certificate delivered pursuant to Section 2.3 of
this Indenture with respect to a particular series of Securities, whenever for
purposes of this Indenture any action may be taken by the Holders of a speci-
fied percentage in aggregate principal amount of Securities of all series or
all series affected by a particular action at the time Outstanding and, at
such time, there are Outstanding Securities of any series which are denomi-
nated in a coin or currency other than Dollars (including ECUs), then the
principal amount of Securities of such series which shall be deemed to be Out-
standing for the purpose of taking such action shall be that amount of Dollars
that could be obtained for such amount at the Market Exchange Rate. For pur-
poses of this Section 11.11, Market Exchange Rate shall mean the noon Dollar
buying rate in New York City for cable transfers of that currency as published
by the Federal Reserve Bank of New York; provided, however, in the case of
ECUs, Market Exchange Rate shall mean the rate of exchange determined by the
Commission of the European Communities (or any successor thereto) as published
in the Official Journal of the European Communities (such publication or any
successor publication, the "Journal"). If such Market Exchange Rate is not
available for any reason with respect to such currency, the Trustee shall use,
in its sole discretion and without liability on its part, such quotation of
the Federal Reserve Bank of New York or, in the case of ECUs, the rate of ex-
change as published in the Journal, as of the most recent available date, or
quotations or, in the case of ECUs, rates of exchange from one or more major
banks in The City of New York or in the country of issue of the currency in
question, which for purposes of the ECU shall be Brussels, Belgium, or such
other quotations or, in the case of ECU, rates of exchange as the Trustee
shall deem appropriate. The provisions of this paragraph shall apply in deter-
mining the equivalent principal amount in respect of Securities of a series
denominated in a currency other than Dollars in connection with any action
taken by Holders of Securities pursuant to the terms of this Indenture.
All decisions and determinations of the Trustee regarding the Market Exchange
Rate or any alternative determination provided for in the preceding paragraph
shall be in its sole discretion and shall, in the absence of manifest error,
be conclusive to the extent permitted by law for all purposes and irrevocably
binding upon the Issuer and all Holders.
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Section 11.12 Judgment Currency. The Issuer agrees, to the fullest extent
that it may effectively do so under applicable law, that (a) if for the pur-
pose of obtaining judgment in any court it is necessary to convert the sum due
in respect of the principal of or interest on the Securities of any series
(the "Required Currency") into a currency in which a judgment will be rendered
(the "Judgment Currency"), the rate of exchange used shall be the rate at
which in accordance with normal banking procedures the Trustee could purchase
in The City of New York the Required Currency with the Judgment Currency on
the day on which final unappealable judgment is entered, unless such day is
not a New York Banking Day, then, to the extent permitted by applicable law,
the rate of exchange used shall be the rate at which in accordance with normal
banking procedures the Trustee could purchase in The City of New York the Re-
quired Currency with the Judgment Currency on the New York Banking Day preced-
ing the day on which final unappealable judgment is entered and (b) its obli-
gations under this Indenture to make payments in the Required Currency (i)
shall not be discharged or satisfied by any tender, or any recovery pursuant
to any judgment (whether or not entered in accordance with subsection (a)), in
any currency other than the Required Currency, except to the extent that such
tender or recovery shall result in the actual receipt, by the payee, of the
full amount of the Required Currency expressed to be payable in respect of
such payments, (ii) shall be enforceable as an alternative or additional cause
of action for the purpose of recovering in the Required Currency the amount,
if any, by which such actual receipt shall fall short of the full amount of
the Required Currency so expressed to be payable and (iii) shall not be af-
fected by judgment being obtained for any other sum due under this Indenture.
For purposes of the foregoing, "New York Banking Day" means any day except a
Saturday, Sunday or a legal holiday in The City of New York or a day on which
banking institutions in The City of New York are authorized or required by law
or executive order to close.
ARTICLE TWELVE
Redemption of Securities and Sinking Funds
Section 12.1 Applicability of Article. The provisions of this Article shall
be applicable to the Securities of any series which are redeemable before
their maturity or to any sinking fund for the retirement of Securities of a
series except as otherwise specified as contemplated by Section 2.3 for Secu-
rities of such series.
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Section 12.2 Notice of Redemption; Partial Redemptions. Notice of redemption
to the Holders of Registered Securities of any series to be redeemed as a
whole or in part at the option of the Issuer shall be given by mailing notice
of such redemption by first class mail, postage prepaid, at least 30 days and
not more than 60 days prior to the date fixed for redemption to such Holders
of Securities of such series at their last addresses as they shall appear upon
the registry books. Notice of redemption to the Holders of Unregistered Secu-
rities to be redeemed as a whole or in part, who have filed their names and
addresses with the Trustee, shall be given by mailing notice of such redemp-
tion, by first class mail, postage prepaid, at least 30 days and not more than
60 prior to the date fixed for redemption, to such Holders at such addresses
as were so furnished to the Trustee (and, in the case of any such notice given
by the Issuer, the Trustee shall make such information available to the Issuer
for such purpose). Notice of redemption to all other Holders of Unregistered
Securities shall be published in an Authorized Newspaper in the Borough of
Manhattan, The City of New York and in an Authorized Newspaper in London (and,
if required by Section 3.7, in an Authorized Newspaper in Luxembourg), in each
case, once in each of three successive calendar weeks, the first publication
to be not less than 30 nor more than 60 days prior to the date fixed for re-
demption. Any notice which is mailed in the manner herein provided shall be
conclusively presumed to have been duly given, whether or not the Holder re-
ceives the notice. Failure to give notice by mail, or any defect in the notice
to the Holder of any Security of a series designated for redemption as a whole
or in part shall not affect the validity of the proceedings for the redemption
of any other Security of such series.
The notice of redemption to each such Holder shall specify the principal
amount of each Security of such series held by such Holder to be redeemed, the
date fixed for redemption, the redemption price, the place or places of pay-
ment, that payment will be made upon presentation and surrender of such Secu-
rities and, in the case of Securities with Coupons attached thereto, of all
Coupons appertaining thereto maturing after the date fixed for redemption,
that such redemption is pursuant to the mandatory or optional sinking fund, or
both, if such be the case, that interest accrued to the date fixed for redemp-
tion will be paid as specified in such notice and that on and after said date
interest thereon or on the portions thereof to be redeemed will cease to ac-
crue. In case any Security of a series is to be redeemed in part only the no-
tice of redemption shall state the portion of the principal amount thereof to
be redeemed and shall state that on and after the date fixed for redemption,
upon surrender of such Security, a new Security or Securities of such series
in principal amount equal to the unredeemed portion thereof will be issued.
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The notice of redemption of Securities of any series to be redeemed at the
option of the Issuer shall be given by the Issuer or, at the Issuer's request,
by the Trustee in the name and at the expense of the Issuer.
On or before the redemption date specified in the notice of redemption given
as provided in this Section, the Issuer will deposit with the Trustee or with
one or more paying agents (or, if the Issuer is acting as its own paying
agent, set aside, segregate and hold in trust as provided in Section 3.4) an
amount of money sufficient to redeem on the redemption date all the Securities
of such series so called for redemption at the appropriate redemption price,
together with accrued interest to the date fixed for redemption. The Issuer
will deliver to the Trustee at least 70 days prior to the date fixed for re-
demption an Officer's Certificate stating the aggregate principal amount of
Securities to be redeemed. In case of a redemption at the election of the Is-
suer prior to the expiration of any restriction on such redemption, the Issuer
shall deliver to the Trustee, prior to the giving of any notice of redemption
to Holders pursuant to this Section, an Officer's Certificate stating that
such restriction has been complied with.
If less than all the Securities of a series are to be redeemed, the Trustee
shall select, in such manner as it shall deem appropriate and fair, Securities
of such Series to be redeemed in whole or in part. Securities may be redeemed
in part in multiples equal to the minimum authorized denomination for Securi-
ties of such series or any multiple thereof. The Trustee shall promptly notify
the Issuer in writing of the Securities of such series selected for redemption
and, in the case of any Securities of such series selected for partial redemp-
tion, the principal amount thereof to be redeemed. For all purposes of this
Indenture, unless the context otherwise requires, all provisions relating to
the redemption of Securities of any series shall relate, in the case of any
Security redeemed or to be redeemed only in part, to the portion of the prin-
cipal amount of such Security which has been or is to be redeemed.
Section 12.3 Payment of Securities Called for Redemption. If notice of re-
demption has been given as above provided, the Securities or portions of Secu-
rities specified in such notice shall become due and payable on the date and
at the place stated in such notice at the applicable redemption price, to-
gether with interest accrued to the date fixed for redemption, and on and af-
ter said date (unless the Issuer shall default in the payment of such Securi-
ties at the redemption price, together with interest accrued to said date) in-
terest on the Securities or portions of Securities so called for redemption
shall cease to accrue, and the
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unmatured Coupons, if any, appertaining thereto shall be void, and, except as
provided in Sections 6.5 and 10.4, such Securities shall cease from and after
the date fixed for redemption to be entitled to any benefit or security under
this Indenture, and the Holders thereof shall have no right in respect of such
Securities except the right to receive the redemption price thereof and unpaid
interest to the date fixed for redemption. On presentation and surrender of
such Securities at a place of payment specified in said notice, together with
all Coupons, if any, appertaining thereto maturing after the date fixed for
redemption, said Securities or the specified portions thereof shall be paid
and redeemed by the Issuer at the applicable redemption price, together with
interest accrued thereon to the date fixed for redemption; provided that pay-
ment of interest becoming due on or prior to the date fixed for redemption
shall be payable in the case of Securities with Coupons attached thereto, to
the Holders of the Coupons for such interest upon surrender thereof, and in
the case of Registered Securities, to the Holders of such Registered Securi-
ties registered as such on the relevant record date subject to the terms and
provisions of Sections 2.3 and 2.7 hereof.
If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal shall, until paid or duly provided for,
bear interest from the date fixed for redemption at the rate of interest or
Yield to Maturity (in the case of an Original Issue Discount Security) borne
by such Security.
If any Security with Coupons attached thereto is surrendered for redemption
and is not accompanied by all appurtenant Coupons maturing after the date
fixed for redemption, the surrender of such missing Coupon or Coupons may be
waived by the Issuer and the Trustee, if there be furnished to each of them
such security or indemnity as they may require to save each of them harmless.
Upon presentation of any Security redeemed in part only, the Issuer shall ex-
ecute and the Trustee shall authenticate and deliver to or on the order of the
Holder thereof, at the expense of the Issuer, a new Security or Securities of
such series, of authorized denominations, in principal amount equal to the un-
redeemed portion of the Security so presented.
Section 12.4 Exclusion of Certain Securities from Eligibility for Selection
for Redemption. Securities shall be excluded from eligibility for selection
for redemption if they are identified by registration and certificate number
in an Officer's Certificate delivered to the Trustee at least 40 days prior to
the last date
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on which notice of redemption may be given as being owned of record and bene-
ficially by, and not pledged or hypothecated by either (a) the Issuer or (b)
an entity specifically identified in such written statement as directly or in-
directly controlling or controlled by or under direct or indirect common con-
trol with the Issuer.
Section 12.5 Mandatory and Optional Sinking Funds. The minimum amount of any
sinking fund payment provided for by the terms of the Securities of any series
is herein referred to as a "mandatory sinking fund payment," and any payment
in excess of such minimum amount provided for by the terms of the Securities
of any series is herein referred to as an "optional sinking fund payment." The
date on which a sinking fund payment is to be made is herein referred to as
the "sinking fund payment date."
In lieu of making all or any part of any mandatory sinking fund payment with
respect to any series of Securities in cash, the Issuer may at its option (a)
deliver to the Trustee Securities of such series theretofore purchased or oth-
erwise acquired (except upon redemption pursuant to the mandatory sinking
fund) by the Issuer or receive credit for Securities of such series (not pre-
viously so credited) theretofore purchased or otherwise acquired (except as
aforesaid) by the Issuer and delivered to the Trustee for cancellation pursu-
ant to Section 2.10, (b) receive credit for optional sinking fund payments
(not previously so credited) made pursuant to this Section, or (c) receive
credit for Securities of such series (not previously so credited) redeemed by
the Issuer through any optional redemption provision contained in the terms of
such series. Securities so delivered or credited shall be received or credited
by the Trustee at the sinking fund redemption price specified in such Securi-
ties.
On or before the 60th day next preceding each sinking fund payment date for
any series, the Issuer will deliver to the Trustee an Officer's Certificate
(which need not contain the statements required by Section 11.5) (a) specify-
ing the portion of the mandatory sinking fund payment to be satisfied by pay-
ment of cash and the portion to be satisfied by credit of Securities of such
series and the basis for such credit, (b) stating that none of the Securities
of such series has theretofore been so credited, (c) stating that no defaults
in the payment of interest or Events of Default with respect to such series
have occurred (which have not been waived or cured) and are continuing and (d)
stating whether or not the Issuer intends to exercise its right to make an op-
tional sinking fund payment with respect to such series and, if so, specifying
the amount of such optional sinking
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fund payment which the Issuer intends to pay on or before the next succeeding
sinking fund payment date. Any Securities of such series to be credited and
required to be delivered to the Trustee in order for the Issuer to be entitled
to credit therefor as aforesaid which have not theretofore been delivered to
the Trustee shall be delivered for cancellation pursuant to Section 2.10 to
the Trustee with such Officer's Certificate (or reasonably promptly thereafter
if acceptable to the Trustee). Such Officer's Certificate shall be irrevocable
and upon its receipt by the Trustee the Issuer shall become unconditionally
obligated to make all the cash payments or payments therein referred to, if
any, on or before the next succeeding sinking fund payment date. Failure of
the Issuer, on or before any such 60th day, to deliver such Officer's Certifi-
cate and Securities specified in this paragraph, if any, shall not constitute
a default but shall constitute, on and as of such date, the irrevocable elec-
tion of the Issuer (i) that the mandatory sinking fund payment for such series
due on the next succeeding sinking fund payment date shall be paid entirely in
cash without the option to deliver or credit Securities of such series in re-
spect thereof and (ii) that the Issuer will make no optional sinking fund pay-
ment with respect to such series as provided in this Section.
If the sinking fund payment or payments (mandatory or optional or both) to be
made in cash on the next succeeding sinking fund payment date plus any unused
balance of any preceding sinking fund payments made in cash shall exceed
$50,000 (or the equivalent thereof in any Foreign Currency or ECU) or a lesser
sum in Dollars (or the equivalent thereof in any Foreign Currency or ECU) if
the Issuer shall so request with respect to the Securities of any particular
series, such cash shall be applied on the next succeeding sinking fund payment
date to the redemption of Securities of such series at the sinking fund re-
demption price together with accrued interest to the date fixed for redemp-
tion. If such amount shall be $50,000 (or the equivalent thereof in any For-
eign Currency or ECU) or less and the Issuer makes no such request then it
shall be carried over until a sum in excess of $50,000 (or the equivalent
thereof in any Foreign Currency or ECU) is available. The Trustee shall se-
lect, in the manner provided in Section 12.2, for redemption on such sinking
fund payment date a sufficient principal amount of Securities of such series
to absorb said cash, as nearly as may be, and shall (if requested in writing
by the Issuer) inform the Issuer of the serial numbers of the Securities of
such series (or portions thereof) so selected. Securities shall be excluded
from eligibility for redemption under this Section if they are identified by
registration and certificate number in an Officer's Certificate delivered to
the Trustee at least 60 days prior to the sinking fund payment date as being
owned of record and beneficially by, and not pledged or hypothecated by
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either (a) the Issuer or (b) an entity specifically identified in such Offi-
cer's Certificate as directly or indirectly controlling or controlled by or
under direct or indirect common control with the Issuer. The Trustee, in the
name and at the expense of the Issuer (or the Issuer, if it shall so request
the Trustee in writing) shall cause notice of redemption of the Securities of
such series to be given in substantially the manner provided in Section 12.2
(and with the effect provided in Section 12.3) for the redemption of Securi-
ties of such series in part at the option of the Issuer. The amount of any
sinking fund payments not so applied or allocated to the redemption of Securi-
ties of such series shall be added to the next cash sinking fund payment for
such series and, together with such payment, shall be applied in accordance
with the provisions of this Section. Any and all sinking fund moneys held on
the stated maturity date of the Securities of any particular series (or earli-
er, if such maturity is accelerated), which are not held for the payment or
redemption of particular Securities of such series shall be applied, together
with other moneys, if necessary, sufficient for the purpose, to the payment of
the principal of, and interest on, the Securities of such series at maturity.
On or before each sinking fund payment date, the Issuer shall pay to the
Trustee in cash or shall otherwise provide for the payment of all interest ac-
crued to the date fixed for redemption on Securities to be redeemed on the
next following sinking fund payment date.
The Trustee shall not redeem or cause to be redeemed any Securities of a se-
ries with sinking fund moneys or give any notice of redemption of Securities
for such series by operation of the sinking fund during the continuance of a
default in payment of interest on such Securities or of any Event of Default
except that, where the giving of notice of redemption of any Securities shall
theretofore have been made, the Trustee shall redeem or cause to be redeemed
such Securities, provided that it shall have received from the Issuer a sum
sufficient for such redemption. Except as aforesaid, any moneys in the sinking
fund for such series at the time when any such default or Event of Default
shall occur, and any moneys thereafter paid into the sinking fund, shall, dur-
ing the continuance of such default or Event of Default, be deemed to have
been collected under Article Five and held for the payment of all such Securi-
ties. In case such Event of Default shall have been waived as provided in Sec-
tion 5.10 or the default cured on or before the 60th day preceding the sinking
fund payment date in any year, such moneys shall thereafter be applied on the
next succeeding sinking fund payment date in accordance with this Section to
the redemption of such Securities.
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In Witness Whereof, the parties hereto have caused this Indenture to be duly
executed all as of November 1, 1996.
New Tenneco Inc.
/s/ Karen R. Osar
By _________________________________________
Name: Karen R. Osar
Title: Vice President and Treasurer
Attest:
/s/ James Gaughan
________________________________
Assistant Secretary
The Chase Manhattan Bank, Trustee
/s/ Ronald J. Halleran
By _________________________________________
Name: Ronald J. Halleran
Title: Second Vice President
Attest:
/s/ Gemmel Richards
________________________________
Assistant Secretary
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EXHIBIT 4.2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NEW TENNECO INC.
AND
THE CHASE MANHATTAN BANK,
AS TRUSTEE
------------------
FIRST SUPPLEMENTAL INDENTURE
DATED AS OF DECEMBER [ ], 1996
TO
INDENTURE
DATED AS OF NOVEMBER 1, 1996
------------------
PROVIDING FOR THE ISSUANCE OF
10.20% DEBENTURES DUE 2008
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
First Supplemental Indenture dated as of December [ ], 1996 between New
Tenneco Inc., a corporation duly organized and existing under the laws of the
State of Delaware (hereinafter called the "Company"), and The Chase Manhattan
Bank, a New York banking corporation, as trustee (hereinafter called the
"Trustee").
Whereas, the Company has heretofore executed and delivered to the Trustee an
indenture dated as of November 1, 1996 (hereinafter called the "Original
Indenture"), to provide for the issue of an unlimited amount of debentures,
notes and/or other debt obligations of the Company (hereinafter referred to as
the "Securities"), the terms of which are to be determined as set forth in
Section 2.3 of the Original Indenture; and
Whereas, Section 8.1 of the Original Indenture provides, among other things,
that the Company and the Trustee may enter into indentures supplemental to the
Original Indenture for, among other things, the purpose of setting forth the
terms of Securities of any series; and
Whereas, the Company desires to create a series of the Securities in an
aggregate principal amount of $250,000,000 to be designated the "10.20%
Debentures due 2008" (the "Debentures"), and all action on the part of the
Company necessary to authorize the issuance of the Debentures under the
Original Indenture and this First Supplemental Indenture has been duly taken;
and
Whereas, all acts and things necessary to make the Debentures, when executed
by the Company and authenticated and delivered by the Trustee as in the
Original Indenture provided, the valid and binding obligations of the Company,
and to constitute these presents a valid and binding supplemental indenture
and agreement according to its terms, have been done and performed;
Now, therefore, in consideration of the premises and of the mutual covenants
herein contained, and of the acceptance of this trust by the Trustee, and of
the sum of one dollar to the Company duly paid by the Trustee at the execution
and delivery of these presents, and of other valuable consideration the
receipt whereof is hereby acknowledged and in order to authorize the
authentication and delivery of and to set forth the terms of the Debentures,
<PAGE>
It is hereby covenanted, declared and agreed by and between the parties
hereto, for the benefit of holders of the Debentures issued under the Original
Indenture, as follows:
ARTICLE 1.
Terms and Issuance of 10.20% Debentures Due 2008
Section 1.1. Issue of Debentures. A series of Securities which shall be
designated the "10.20% Debentures due 2008" shall be executed, authenticated
and delivered in accordance with the provisions of, and shall in all respects
be subject to, the terms, conditions and covenants of the Indenture, including
without limitation the terms set forth in this First Supplemental Indenture
(including the form of Debentures set forth in Section 1.2 hereof). The
aggregate principal amount of Debentures which may be authenticated and
delivered under the Indenture shall not, except as permitted by the provisions
of Sections 2.8, 2.9, 2.11, 8.5 and 12.3 of the Indenture, exceed
$250,000,000. The entire amount of Debentures may forthwith be executed by the
Company and delivered to the Trustee and shall be authenticated by the Trustee
and delivered to or upon the order of the Company pursuant to Section 2.4 of
the Indenture.
Section 1.2. Forms of Debentures and Authentication Certificate. The forms
of the Debentures and the Trustee's certificate of authentication shall be
substantially as follows:
[form of face of debenture]
NEW TENNECO INC.
10.20% DEBENTURE DUE 2008
No. $
New Tenneco Inc., a corporation organized and existing under the laws of the
State of Delaware (hereinafter called the "Company," which term shall include
any successor corporation as defined in the Indenture hereinafter referred
to), for value received, hereby promises to pay to or registered
assigns, the sum of Dollars on March 15, 2008, in any coin or currency
of the United States of America which at the time of payment is legal tender
for the payment of public and private debts, and to pay to the registered
holder hereof as hereinafter provided interest thereon at the rate per annum
specified in the title hereof in like coin or currency, from the September 15
or the March 15 next preceding the date hereof to which interest has been
paid, unless the date hereof is a September 15 or March 15
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to which interest on the Debentures has been paid, in which case from the date
hereof, or unless no interest has been paid on the Debentures since the
original issue date (hereinafter referred to) of this Debenture, in which case
from the original issue date, semi-annually on September 15 and March 15 in
each year, until payment of said principal sum has been made or duly provided
for, and to pay interest on any overdue principal and (to the extent permitted
by law) on any overdue installment of interest at the rate of 10.20% per
annum. Notwithstanding the foregoing, when there is no existing default in the
payment of interest on the Debentures, if the date hereof is after August 31
or February 28 (or 29) and prior to the following September 15 or March 15, as
the case may be, this Debenture shall bear interest from such September 15 or
March 15 or, if no interest has been paid on the Debentures since the original
issue date of this Debenture, from the original issue date; provided, however,
that if the Company shall default in the payment of interest due on such
September 15 or March 15, then this Debenture shall bear interest from the
September 15 or March 15 to which interest has been paid or, if no interest
has been paid on the Debentures since the original issue date of this
Debenture, from the original issue date. The interest so payable on any
September 15 or March 15 will, subject to certain exceptions provided in the
Indenture hereinafter referred to, be paid to the person in whose name this
Debenture is registered at the close of business on the August 31 or February
28 (or 29), as the case may be, next preceding such September 15 or March 15,
or if such August 31 or February 28 (or 29) is not a business day, the
business day next preceding such August 31 or February 28 (or 29). Interest on
this Debenture shall be computed on the basis of a 360-day year of twelve 30-
day months. Both principal of and interest on this Debenture are payable at
the principal office of the Trustee in the Borough of Manhattan, The City of
New York, New York; provided, however, that payment of interest may be made,
at the option of the Company, by check mailed to the address of the person
entitled thereto as such address shall appear on the Debenture register. The
original issue date in respect of the Debentures is December [ ], 1996.
ADDITIONAL PROVISIONS OF THIS DEBENTURE ARE CONTAINED ON THE REVERSE HEREOF
AND SUCH PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS THOUGH
FULLY SET FORTH AT THIS PLACE.
This Debenture shall not be entitled to any benefit under the Indenture
hereafter referred to, or become valid or obligatory for any purpose, until
the Trustee under the Indenture shall have signed the form of certificate of
authentication endorsed hereon.
3
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In Witness Whereof, New Tenneco Inc. has caused this Instrument to be signed
in its name by its Chairman of the Board or its President or a Vice President,
and its corporate seal (or a facsimile thereof) to be hereto affixed and
attested by its Secretary or an Assistant Secretary.
Dated ..........................
New Tenneco Inc.
By .......................................
Chairman of the Board
Attest:
................................
Secretary.
[form of reverse of debenture]
NEW TENNECO INC.
10.20% DEBENTURE DUE 2008
This Debenture is one of a duly authorized issue of Debentures of the
Company known as its 10.20% Debentures due 2008 (herein called the
"Debentures"), limited to the aggregate principal amount of $250,000,000, all
issued under and equally entitled to the benefits of an Indenture (herein,
together with any amendments and supplements thereto, including without
limitation the form and terms of Securities issued pursuant thereto, called
the
4
<PAGE>
"Indenture"), dated as of November 1, 1996, executed by the Company to The
Chase Manhattan Bank (herein, together with any successor thereto, called the
"Trustee"), as Trustee, to which Indenture reference is hereby made for a
statement of the rights thereunder of the Trustee and of the registered
holders of the Debentures and of the duties thereunder of the Trustee and the
Company.
The Debentures are not subject to redemption by the Company prior to
maturity.
The Debentures are subject to repayment on March 15, 1998, in whole or in
part, in increments of $1,000 or integral multiples of $1,000 in excess of
$1,000, provided that the portion of the principal amount of any Debenture not
being repaid shall be at least $1,000, at the option of the holders thereof at
a repayment price equal to the principal amount thereof to be repaid, together
with interest payable thereon to the repayment date. For this Debenture to be
repaid at the option of the holder, the Company must receive at the corporate
trust office of the Trustee in the Borough of Manhattan, The City of New York,
during the period from and including January 15, 1998 to and including
February 15, 1998 or, if February 15, 1998 is not a Business Day, the next
succeeding Business Day, (i) this Debenture with the form entitled "Option to
Elect Repayment" below duly completed or (ii) a telegram, telex, facsimile
transmission or letter from a member of a national securities exchange or the
National Association of Securities Dealers, Inc. or a commercial bank or trust
company in the United States of America setting forth the name of the holder
of the Debenture, the principal amount of the Debenture, the amount of such
Debenture to be repaid, a statement that the option to elect repayment is
being made thereby and a guarantee that the Debenture to be repaid with the
form entitled "Option to Elect Repayment" on the reverse thereof duly
completed will be received by the Company no later than five Business days
after the date of such telegram, telex, facsimile transmission or letter, and
such Debenture and form duly completed are received by the Company by such
fifth Business Day. Either form of notice duly received during the period from
and including January 15, 1998 to and including February 15, 1998 shall be
irrevocable. All questions as to the validity, eligibility (including time of
receipt) and acceptance of any Debentures for repayment will be determined by
the Company, whose determination shall be final and binding.
The Indenture permits the Company to issue unsecured debentures, notes
and/or other evidences of indebtedness in one or more series ("Securities") up
to such principal amount or amounts as may be authorized in accordance with
the terms of the Indenture.
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<PAGE>
To the extent permitted by, and as provided in, the Indenture, modifications
or alterations of the Indenture and of the rights and obligations of the
Company and of the holders of the Debentures may be made with the consent of
the Company and with the consent of the holders of not less than a majority in
principal amount of the Securities of all series then outstanding under the
Indenture (treated as a single class) which are affected by the modification
or amendment thereto; provided, however, that without the consent of the
holder hereof no such modification or alteration shall be made which will
affect the terms of payment of the principal of or interest on this Debenture.
In case a default, as defined in the Indenture, shall occur, the principal
of all the Debentures at any such time outstanding under the Indenture may be
declared or may become due and payable, upon the conditions and in the manner
and with the effect provided in the Indenture. The Indenture provides that
such declaration may in certain events be waived by the holders of a majority
in principal amount of the Debentures outstanding in the case of payment
defaults on the Debentures and in certain other events by the holders of a
majority in principal amount of the Securities of all series then outstanding
under the Indenture (treated as a single class) which are affected thereby.
The Indenture provides that no holder of any Debenture may enforce any
remedy under the Indenture except in the case of refusal or neglect of the
Trustee to act after notice of default and after request by the holders of a
majority in principal amount of the outstanding Debentures in certain events
(and in certain other events by the holders of a majority in principal amount
of the Securities of all series then outstanding under the Indenture, treated
as a single class, which are affected thereby) and the offer to the Trustee of
security and indemnity satisfactory to it; provided, however, that such
provision shall not prevent the holder hereof from enforcing payment of the
principal of or interest on this Debenture.
The transfer of this Debenture is registrable by the registered holder
hereof, in person or by duly authorized attorney, at the agency of the Company
in the Borough of Manhattan, The City of New York, New York, on books of the
Company to be kept for that purpose at said agency, upon surrender and
cancellation of this Debenture and on presentation of a duly executed written
instrument of transfer, and thereupon a new Debenture or Debentures, of the
same aggregate principal amount and in authorized denominations, will be
issued to the transferee or transferees in exchange herefor; and this
Debenture, with or without other Debentures, may in like manner be exchanged
for one
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<PAGE>
or more new Debentures of other authorized denominations but of the same
aggregate principal amount; all subject to the terms and conditions set forth
in the Indenture.
The Company, the Trustee, any paying agent and any Registrar of the
Debentures may deem and treat the person in whose name this Debenture is
registered as the absolute owner hereof for all purposes whatsoever, and
neither the Company nor the Trustee nor any paying agent nor any Registrar of
the Debentures shall be affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or the interest
on, this Debenture, or for any claim based hereon or on the Indenture, against
any incorporator, or against any stockholder, director or officer, as such,
past, present or future, of the Company, or of any predecessor or successor
corporation, either directly or through the Company or any such predecessor or
successor corporation, whether by virtue of any constitution, statute or rule
of law, or by the enforcement of any assessment or penalty or otherwise, all
such liability, whether at common law, in equity, by any constitution, statute
or otherwise, of incorporators, stockholders, directors or officers being
released by every owner hereof by the acceptance of this Debenture and as part
of the consideration for the issue hereof, and being likewise released by the
terms of the Indenture; provided, however, that nothing herein or in the
Indenture contained shall be taken to prevent recourse to and the enforcement
of the liability, if any, of any stockholder or subscriber to capital stock of
the Company upon or in respect of shares of capital stock not fully paid up.
All terms used in this Debenture which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
7
<PAGE>
OPTION TO ELECT REPAYMENT
The undersigned hereby irrevocably requests and instructs the Company to
repay the within Debenture (or portion thereof specified below) pursuant to
its terms at a price equal to the principal amount thereof, together with
interest to the repayment date, to the undersigned, at
- -------------------------------------------------------------------------------
Tax I.D. No.
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(Please Print or Typewrite Name, Address and Tax Identification Number of the
Undersigned)
For this Debenture to be repaid the Company must receive at the corporate
trust office of the Trustee in the Borough of Manhattan, The City of New York
or at such additional place or places of which the Company shall from time to
time notify the holder of the within Debenture during the period from and
including January 15, 1998 to and including February 15, 1998 or, if February
15, 1998 is not a Business Day, the next succeeding Business Day, (i) this
Debenture with this "Option to Elect Repayment" form duly completed or (ii) a
telegram, telex, facsimile transmission or letter from a member of a national
securities exchange or the National Association of Securities Dealers, Inc. or
a commercial bank or trust company in the United States of America setting
forth the name of the holder of the Debenture, the principal amount of the
Debenture, the amount of the Debenture to be repaid, a statement that the
option to elect repayment is being made thereby and a guarantee that the
Debenture to be repaid with the form entitled "Option to Elect Repayment" on
the reverse of the Debenture duly completed will be received by the Company
not later than five Business Days after the date of such telegram, telex,
facsimile transmission or letter, and such Debenture and form duly completed
are received by the Company by such fifth Business Day.
If less than the entire principal amount of the within Debenture is to be
repaid, specify the portion thereof (which shall be $1,000 or an integral
multiple of $1,000 in excess of $1,000) which the holder elects to have
repaid: $ ; and specify the denomination or denominations (which shall be
$1,000 or an integral multiple of $1,000 in excess of $1,000) of the Debenture
or Debentures to be issued to the holder for the amount of the portion of the
8
<PAGE>
within Debenture not being repaid (in the absence of any such specification,
one such Debenture will be issued for the portion not being repaid: $ ).
Dated: -------------------------------------
NOTICE: The signature on this Option to Elect
Repayment must correspond with the name as
written upon the face of this instrument in
every particular without alteration or
enlargement or any other change whatsoever.
[form of trustee's certificate of authentication]
This Debenture is one of the 10.20% Debentures due 2008 described in the
within-mentioned Indenture.
THE CHASE MANHATTAN BANK,
Trustee,
By _________________________________________
Authorized Officer.
ARTICLE 2.
Miscellaneous
Section 2.1. Execution as Supplemental Indenture. This First Supplemental
Indenture is executed and shall be construed as an indenture supplemental to
the Original Indenture and, as provided in the Original Indenture, this First
Supplemental Indenture forms a part thereof. Except as herein expressly
otherwise defined, the use of the terms and expressions herein is in
accordance with the definitions, uses and constructions contained in the
Original Indenture.
Section 2.2. Responsibility for Recitals, Etc. The recitals herein and in
the Debentures (except in the Trustee's certificate of authentication) shall
be taken as the statements of the Company, and the Trustee assumes no
responsibility for the correctness thereof. The Trustee makes no
representations as to the validity or sufficiency of this First Supplemental
Indenture or of the Debentures. The Trustee shall not be accountable for the
use or application by the Company of the Debentures or of the proceeds
thereof.
9
<PAGE>
Section 2.3. Provisions Binding on Company's Successors. All the covenants,
stipulations, promises and agreements in this First Supplemental Indenture
contained by the Company shall bind its successors and assigns whether so
expressed or not.
Section 2.4. New York Contract. THIS FIRST SUPPLEMENTAL INDENTURE AND EACH
DEBENTURE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF
NEW YORK, AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS
OF SAID STATE.
Section 2.5. Execution and Counterparts. This First Supplemental Indenture
may be executed in any number of courterparts, each of which shall be an
original but such counterparts shall together constitute but one and the same
instrument.
In Witness Whereof, said New Tenneco Inc. has caused this First Supplemental
Indenture to be executed in its corporate name by its President or one of its
Vice Presidents, and said The Chase Manhattan Bank has caused this Indenture
to be executed in its Corporate name by one of its Vice Presidents as of
December [ ], 1996.
New Tenneco Inc.
Robert T. Blakely
By _________________________________________
Robert T. Blakely
Executive Vice President and
Chief Financial Officer
The Chase Manhattan Bank
By _________________________________________
[ ]
Vice President
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<PAGE>
EXHIBIT 4.3
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- --------------------------------------------------------------------------------
NEW TENNECO INC.
AND
THE CHASE MANHATTAN BANK,
AS TRUSTEE
------------------
SECOND SUPPLEMENTAL INDENTURE
DATED AS OF DECEMBER [ ], 1996
TO
INDENTURE
DATED AS OF NOVEMBER 1, 1996
------------------
PROVIDING FOR THE ISSUANCE OF
6.70% NOTES DUE 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Second Supplemental Indenture dated as of December [ ], 1996 between New
Tenneco Inc., a corporation duly organized and existing under the laws of the
State of Delaware (hereinafter called the "Company"), and The Chase Manhattan
Bank, a New York banking corporation, as trustee (hereinafter called the
"Trustee").
Whereas, the Company has heretofore executed and delivered to the Trustee an
indenture dated as of November 1, 1996 (hereinafter called the "Original
Indenture"), to provide for the issue of an unlimited amount of debentures,
notes and/or other debt obligations of the Company (hereinafter referred to as
the "Securities"), the terms of which are to be determined as set forth in
Section 2.3 of the Original Indenture; and
Whereas, Section 8.1 of the Original Indenture provides, among other things,
that the Company and the Trustee may enter into indentures supplemental to the
Original Indenture for, among other things, the purpose of setting forth the
terms of Securities of any series; and
Whereas, the Company desires to create a series of the Securities in an
aggregate principal amount of $300,000,000 to be designated the "6.70% Notes
due 2005" (the "Notes"), and all action on the part of the Company necessary
to authorize the issuance of the Notes under the Original Indenture and this
Second Supplemental Indenture has been duly taken; and
Whereas, all acts and things necessary to make the Notes, when executed by
the Company and authenticated and delivered by the Trustee as in the Original
Indenture provided, the valid and binding obligations of the Company, and to
constitute these presents a valid and binding supplemental indenture and
agreement according to its terms, have been done and performed;
Now, therefore, in consideration of the premises and of the mutual covenants
herein contained, and of the acceptance of this trust by the Trustee, and of
the sum of one dollar to the Company duly paid by the Trustee at the execution
and delivery of these presents, and of other valuable consideration the
receipt whereof is hereby acknowledged and in order to authorize the
authentication and delivery of and to set forth the terms of the Notes,
<PAGE>
It is hereby covenanted, declared and agreed by and between the parties
hereto, for the benefit of holders of the Notes issued under the Original
Indenture, as follows:
ARTICLE 1.
Terms and Issuance of 6.70% Notes Due 2005
Section 1.1. Issue of Notes. A series of Securities which shall be
designated the "6.70% Notes due 2005" shall be executed, authenticated and
delivered in accordance with the provisions of, and shall in all respects be
subject to, the terms, conditions and covenants of the Indenture, including
without limitation the terms set forth in this Second Supplemental Indenture
(including the form of Notes set forth in Section 1.2 hereof). The aggregate
principal amount of Notes which may be authenticated and delivered under the
Indenture shall not, except as permitted by the provisions of Sections 2.8,
2.9, 2.11, 8.5 and 12.3 of the Indenture, exceed $300,000,000. The entire
amount of Notes may forthwith be executed by the Company and delivered to the
Trustee and shall be authenticated by the Trustee and delivered to or upon the
order of the Company pursuant to Section 2.4 of the Indenture.
Section 1.2. Forms of Notes and Authentication Certificate. The forms of the
Notes and the Trustee's certificate of authentication shall be substantially
as follows:
[form of face of note]
NEW TENNECO INC.
6.70% NOTE DUE 2005
No. $
CUSIP
New Tenneco Inc., a corporation organized and existing under the laws of the
State of Delaware (hereinafter called the "Company," which term shall include
any successor corporation as defined in the Indenture hereinafter referred
to), for value received, hereby promises to pay to or registered assigns, the
sum of Dollars on December 15, 2005, in any coin or currency of the United
States of America which at the time of payment is legal tender for the payment
of public and private debts, and to pay to the registered holder hereof as
hereinafter provided interest thereon at the rate per annum specified in the
title hereof in like coin or currency, from the June 15 or December 15 next
preceding the date hereof to which interest has been paid,
2
<PAGE>
unless the date hereof is a June 15 or December 15 to which interest on the
Notes has been paid, in which case from the date hereof, or unless no interest
has been paid on the Notes since the original issue date (hereinafter referred
to) of this Note, in which case from the original issue date, semi-annually on
June 15 and December 15 in each year commencing June 15, 1997, until payment
of said principal sum has been made or duly provided for, and to pay interest
on any overdue principal and (to the extent permitted by law) on any overdue
installment of interest at the rate of 6.70% per annum. Notwithstanding the
foregoing, when there is no existing default in the payment of interest on the
Notes, if the date hereof is after May 31 or November 30 and prior to the
following June 15 or December 15, as the case may be, this Note shall bear
interest from such June 15 or December 15, or, if no interest has been paid on
the Notes since the original issue date of this Note, from the original issue
date; provided, however, that if the Company shall default in the payment of
interest due on such June 15 or December 15, then this Note shall bear
interest from the June 15 or December 15 to which interest has been paid or,
if no interest has been paid on the Notes since the original issue date of
this Note, from the original issue date. The interest so payable on any June
15 or December 15 will, subject to certain exceptions provided in the
Indenture hereinafter referred to, be paid to the person in whose name this
Note is registered at the close of business on the May 31 or November 30, as
the case may be, next preceding such June 15 or December 15, or if such May 31
or November 30 is not a business day, the business day next preceding such May
31 or November 30. Interest on this Note shall be computed on the basis of a
360-day year consisting of twelve 30-day months. Both principal of and
interest on this Note are payable at the principal office of the Trustee in
the Borough of Manhattan, The City of New York, New York; provided, however,
that payment of interest may be made, at the option of the Company, by check
mailed to the address of the person entitled thereto as such address shall
appear on the Note register. The original issue date in respect of the Notes
is December [ ], 1996.
ADDITIONAL PROVISIONS OF THIS NOTE ARE CONTAINED ON THE REVERSE HEREOF AND
SUCH PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS THOUGH FULLY
SET FORTH AT THIS PLACE.
This Note shall not be entitled to any benefit under the Indenture
hereinafter referred to, or become valid or obligatory for any purpose, until
the Trustee under the Indenture shall have signed the form of certificate of
authentication endorsed hereon.
3
<PAGE>
In Witness Whereof, New Tenneco Inc. has caused this Instrument to be signed
in its name by its Chairman of the Board or its President or a Vice President,
and its corporate seal (or a facsimile thereof) to be hereto affixed and
attested by its Secretary or an Assistant Secretary.
Dated ..........................
New Tenneco Inc.
By .......................................
Vice President
Attest:
................................
Secretary
[form of reverse of note]
NEW TENNECO INC.
6.70% NOTE DUE 2005
This Note is one of a duly authorized issue of Notes of the Company known as
its 6.70% Notes due 2005 (herein called the "Notes"), limited to the aggregate
principal amount of $300,000,000, all issued under and equally entitled to the
benefits of an Indenture (herein, together with any amendments and supplements
thereto, including without limitation the form and terms of Securities issued
pursuant thereto, called the "Indenture"), dated as of November 1, 1996,
executed by the Company to The Chase Manhattan Bank (herein, together with any
successor thereto, called the "Trustee"), as Trustee, to which Indenture
reference is hereby made for a statement of the rights thereunder of the
Trustee and of the registered holders of the Notes and of the duties
thereunder of the Trustee and the Company.
The Notes will be redeemable as a whole or in part, at the option of the
Company at any time, at a redemption price equal to the greater of (i) 100% of
their principal amount and (ii) the sum of the present values of the
4
<PAGE>
remaining scheduled payments of principal and interest thereon discounted to
the date of redemption on a semiannual basis (assuming a 360-day year
consisting of twelve 30-day months) at the Treasury Yield plus 10 basis
points, plus in each case accrued interest to the date of redemption.
"Treasury Yield" means, with respect to any redemption date, the rate per
annum equal to the semiannual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed
as a percentage of its principal amount) equal to the Comparable Treasury
Price for such redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable
to the remaining term of the Notes that would be utilized, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to the remaining
term of the Notes. "Independent Investment Banker" means Morgan Stanley & Co.
Incorporated or, if such firm is unwilling or unable to select the Comparable
Treasury Issue, an independent investment banking institution of national
standing appointed by the Trustee.
"Comparable Treasury Price" means, with respect to any redemption date, (i)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
business day preceding such redemption date, as set forth in the daily
statistical release (or any successor release) published by the Federal
Reserve Bank of New York and designated "Composite 3:00 p.m. Quotations for
U.S. Government Securities" or (ii) if such release (or any successor release)
is not published or does not contain such prices on such business day, (A) the
average of the Reference Treasury Dealer Quotations for such redemption date,
after excluding the highest and lowest such Reference Treasury Dealer
Quotations, or (B) if the Trustee obtains fewer than four such Reference
Treasury Dealer Quotations, the average of all such Quotations. "Reference
Treasury Dealer Quotations" means, with respect to each Reference Treasury
Dealer and any redemption date, the average, as determined by the Trustee, of
the bid and asked prices for the Comparable Treasury Issue (expressed in each
case as a percentage of its principal amount) quoted in writing to the Trustee
by such Reference Treasury Dealer at 5:00 p.m. on the third business day
preceding such redemption date.
"Reference Treasury Dealer" means each of Morgan Stanley & Co. Incorporated,
CS First Boston Corporation, Lehman Brothers Inc. and
5
<PAGE>
Salomon Brothers Inc and their respective successors; provided however, that
if any of the foregoing cease to be a primary U.S. Government Securities
dealer in New York City (a "Primary Treasury Dealer"), the Company shall
substitute therefor another Primary Treasury Dealer.
Holders of Notes to be redeemed will receive notice thereof by first-class
mail at least 30 and not more than 60 days prior to the date fixed for
redemption.
The Indenture permits the Company to issue unsecured debentures, notes
and/or other evidences of indebtedness in one or more series ("Securities") up
to such principal amount or amounts as may be authorized in accordance with
the terms of the Indenture.
To the extent permitted by, and as provided in, the Indenture, modifications
or alterations of the Indenture and of the rights and obligations of the
Company and of the holders of the Notes may be made with the consent of the
Company and with the consent of the holders of not less than a majority in
principal amount of the Securities of all series then outstanding under the
Indenture (treated as a single class) which are affected by the modification
or amendment thereto; provided, however, that without the consent of the
holder hereof no such modification or alteration shall be made which will
affect the terms of payment of the principal of or interest on this Note.
In case a default, as defined in the Indenture, shall occur, the principal
of all the Notes at any such time outstanding under the Indenture may be
declared or may become due and payable, upon the conditions and in the manner
and with the effect provided in the Indenture. The Indenture provides that
such declaration may in certain events be waived by the holders of a majority
in principal amount of the Notes outstanding in the case of payment defaults
on the Notes and in certain other events by the holders of a majority in
principal amount of the Securities of all series then outstanding under the
Indenture (treated as a single class) which are affected thereby.
The Indenture provides that no holder of any Note may enforce any remedy
under the Indenture except in the case of refusal or neglect of the Trustee to
act after notice of default and after request by the holders of a majority in
principal amount of the outstanding Notes in certain events (and in certain
other events by the holders of a majority in principal amount of the
Securities of all series then outstanding under the Indenture, treated as a
single class, which are affected thereby) and the offer to the Trustee of
security and indemnity satisfactory to it; provided, however, that such
provision shall not
6
<PAGE>
prevent the holder hereof from enforcing payment of the principal of or
interest on this Note.
The transfer of this Note is registrable by the registered holder hereof, in
person or by duly authorized attorney, at the agency of the Company in the
Borough of Manhattan, The City of New York, New York, on books of the Company
to be kept for that purpose at said agency, upon surrender and cancellation of
this Note and on presentation of a duly executed written instrument of
transfer, and thereupon a new Note or Notes, of the same aggregate principal
amount and in authorized denominations, will be issued to the transferee or
transferees in exchange herefor; and this Note, with or without other Notes,
may in like manner be exchanged for one or more new Notes of other authorized
denominations but of the same aggregate principal amount; all subject to the
terms and conditions set forth in the Indenture.
The Company, the Trustee, any paying agent and any Registrar of the Notes
may deem and treat the person in whose name this Note is registered as the
absolute owner hereof for all purposes whatsoever, and neither the Company nor
the Trustee nor any paying agent nor any Registrar of the Notes shall be
affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or the interest
on, this Note, or for any claim based hereon or on the Indenture, against any
incorporator, or against any stockholder, director or officer, as such, past,
present or future, of the Company, or of any predecessor or successor
corporation, either directly or through the Company or any such predecessor or
successor corporation, whether by virtue of any constitution, statute or rule
of law, or by the enforcement of any assessment or penalty or otherwise, all
such liability, whether at common law, in equity, by any constitution, statute
or otherwise, of incorporators, stockholders, directors or officers being
released by every owner hereof by the acceptance of this Note and as part of
the consideration for the issue hereof, and being likewise released by the
terms of the Indenture; provided, however, that nothing herein or in the
Indenture contained shall be taken to prevent recourse to and the enforcement
of the liability, if any, of any stockholder or subscriber to capital stock of
the Company upon or in respect of shares of capital stock not fully paid up.
All terms used in this Note which are defined in the Indenture shall have
the meanings assigned to them in the Indenture.
7
<PAGE>
[form of trustee's certificate of authentication]
This Note is one of the 6.70% Notes due 2005 described in the within-
mentioned Indenture.
THE CHASE MANHATTAN BANK,
Trustee,
By........................................
Authorized Officer.
ARTICLE 2.
Miscellaneous
Section 2.1. Execution as Supplemental Indenture. This Second Supplemental
Indenture is executed and shall be construed as an indenture supplemental to
the Original Indenture and, as provided in the Original Indenture, this Second
Supplemental Indenture forms a part thereof. Except as herein expressly
otherwise defined, the use of the terms and expressions herein is in
accordance with the definitions, uses and constructions contained in the
Original Indenture.
Section 2.2. Responsibility for Recitals, Etc. The recitals herein and in
the Notes (except in the Trustee's certificate of authentication) shall be
taken as the statements of the Company, and the Trustee assumes no
responsibility for the correctness thereof. The Trustee makes no
representations as to the validity or sufficiency of this Second Supplemental
Indenture or of the Notes. The Trustee shall not be accountable for the use or
application by the Company of the Notes or of the proceeds thereof.
Section 2.3. Provisions Binding on Company's Successors. All the covenants,
stipulations, promises and agreements in this Second Supplemental Indenture
contained by the Company shall bind its successors and assigns whether so
expressed or not.
SECTION 2.4. NEW YORK CONTRACT. THIS SECOND SUPPLEMENTAL INDENTURE AND EACH
NOTE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF NEW
YORK, AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF
SAID STATE WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
8
<PAGE>
Section 2.5. Execution and Counterparts. This Second Supplemental Indenture
may be executed in any number of counterparts, each of which shall be an
original but such counterparts shall together constitute but one and the same
instrument.
In Witness Whereof, said New Tenneco Inc. has caused this Second
Supplemental Indenture to be executed in its corporate name by its Chairman of
the Board or its President or one of its Vice Presidents, and said The Chase
Manhattan Bank has caused this Second Supplemental Indenture to be executed in
its corporate name by one of its Vice Presidents as of December [ ], 1996.
New Tenneco Inc.
Robert T. Blakely
By _________________________________________
Robert T. Blakely
Executive Vice President and Chief
Financial Officer
The Chase Manhattan Bank
By _________________________________________
Vice President
9
<PAGE>
EXHIBIT 4.4
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NEW TENNECO INC.
AND
THE CHASE MANHATTAN BANK,
AS TRUSTEE
------------------
THIRD SUPPLEMENTAL INDENTURE
DATED AS OF DECEMBER [ ], 1996
TO
INDENTURE
DATED AS OF NOVEMBER 1, 1996
------------------
PROVIDING FOR THE ISSUANCE OF
7.45% DEBENTURES DUE 2025
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Third Supplemental Indenture dated as of December [ ], 1996 between New
Tenneco Inc., a corporation duly organized and existing under the laws of the
State of Delaware (hereinafter called the "Company"), and The Chase Manhattan
Bank, a New York banking corporation, as trustee (hereinafter called the
"Trustee").
Whereas, the Company has heretofore executed and delivered to the Trustee an
indenture dated as of November 1, 1996 (hereinafter called the "Original
Indenture"), to provide for the issue of an unlimited amount of debentures,
notes and/or other debt obligations of the Company (hereinafter referred to as
the "Securities"), the terms of which are to be determined as set forth in
Section 2.3 of the Original Indenture; and
Whereas, Section 8.1 of the Original Indenture provides, among other things,
that the Company and the Trustee may enter into indentures supplemental to the
Original Indenture for, among other things, the purpose of setting forth the
terms of Securities of any series; and
Whereas, the Company desires to create a series of the Securities in an
aggregate principal amount of $300,000,000 to be designated the "7.45%
Debentures due 2025" (the "Debentures"), and all action on the part of the
Company necessary to authorize the issuance of the Debentures under the
Original Indenture and this Third Supplemental Indenture has been duly taken;
and
Whereas, all acts and things necessary to make the Debentures, when executed
by the Company and authenticated and delivered by the Trustee as in the
Original Indenture provided, the valid and binding obligations of the Company,
and to constitute these presents a valid and binding supplemental indenture
and agreement according to its terms, have been done and performed;
Now, therefore, in consideration of the premises and of the mutual covenants
herein contained, and of the acceptance of this trust by the Trustee, and of
the sum of one dollar to the Company duly paid by the Trustee at the execution
and delivery of these presents, and of other valuable consideration the
receipt whereof is hereby acknowledged and in order to authorize the
authentication and delivery of and to set forth the terms of the Debentures,
<PAGE>
It is hereby covenanted, declared and agreed by and between the parties
hereto, for the benefit of holders of the Debentures issued under the Original
Indenture, as follows:
ARTICLE 1.
Terms and Issuance of 7.45% Debentures Due 2025
Section 1.1. Issue of Debentures. A series of Securities which shall be
designated the "7.45% Debentures due 2025" shall be executed, authenticated
and delivered in accordance with the provisions of, and shall in all respects
be subject to, the terms, conditions and covenants of the Indenture, including
without limitation the terms set forth in this Third Supplemental Indenture
(including the form of Debentures set forth in Section 1.2 hereof). The
aggregate principal amount of Debentures which may be authenticated and
delivered under the Indenture shall not, except as permitted by the provisions
of Sections 2.8, 2.9, 2.11, 8.5 and 12.3 of the Indenture, exceed
$300,000,000. The entire amount of Debentures may forthwith be executed by the
Company and delivered to the Trustee and shall be authenticated by the Trustee
and delivered to or upon the order of the Company pursuant to Section 2.4 of
the Indenture.
Section 1.2. Forms of Debentures and Authentication Certificate. The forms
of the Debentures and the Trustee's certificate of authentication shall be
substantially as follows:
[form of face of debenture]
NEW TENNECO INC.
7.45% DEBENTURE DUE 2025
No. $
New Tenneco Inc., a corporation organized and existing under the laws of the
State of Delaware (hereinafter called the "Company," which term shall include
any successor corporation as defined in the Indenture hereinafter referred
to), for value received, hereby promises to pay to or registered
assigns, the sum of Dollars on December 15, 2025, in any coin or
currency of the United States of America which at the time of payment is legal
tender for the payment of public and private debts, and to pay to the
registered holder hereof as hereinafter provided interest thereon at the rate
per annum specified in the title hereof in like coin or currency, from
2
<PAGE>
the June 15 or December 15 next preceding the date hereof to which interest
has been paid, unless the date hereof is a June 15 or December 15 to which
interest on the Debentures has been paid, in which case from the date hereof,
or unless no interest has been paid on the Debentures since the original
issue date (hereinafter referred to) of this Debenture, in which case from the
original issue date, semi-annually on June 15 and December 15 in each year
commencing June 15, 1997, until payment of said principal sum has been made or
duly provided for, and to pay interest on any overdue principal and (to the
extent permitted by law) on any overdue installment of interest at the rate of
7.45% per annum. Notwithstanding the foregoing, when there is no existing
default in the payment of interest on the Debentures, if the date hereof is
after May 31 or November 30 and prior to the following June 15 or December 15,
as the case may be, this Debenture shall bear interest from such June 15 or
December 15, or, if no interest has been paid on the Debentures since the
original issue date of this Debenture, from the original issue date; provided,
however, that if the Company shall default in the payment of interest due on
such June 15 or December 15, then this Debenture shall bear interest from the
June 15 or December 15 to which interest has been paid or, if no interest has
been paid on the Debentures since the original issue date of this Debenture,
from the original issue date. The interest so payable on any June 15 or
December 15 will, subject to certain exceptions provided in the Indenture
hereinafter referred to, be paid to the person in whose name this Debenture is
registered at the close of business on the May 31 or November 30, as the case
may be, next preceding such June 15 or December 15, or if such May 31 or
November 30 is not a business day, the business day next preceding such May 31
or November 30. Interest on this Debenture shall be computed on the basis of a
360-day year of twelve 30-day months. Both principal of and interest on this
Debenture are payable at the principal office of the Trustee in the Borough of
Manhattan, The City of New York, New York; provided, however, that payment of
interest may be made, at the option of the Company, by check mailed to the
address of the person entitled thereto as such address shall appear on the
Debenture register. The original issue date in respect of the Debentures is
December [ ], 1996.
ADDITIONAL PROVISIONS OF THIS DEBENTURE ARE CONTAINED ON THE REVERSE HEREOF
AND SUCH PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS THOUGH
FULLY SET FORTH AT THIS PLACE.
This Debenture shall not be entitled to any benefit under the Indenture
hereafter referred to, or become valid or obligatory for any purpose, until
the Trustee under the Indenture shall have signed the form of certificate of
authentication endorsed hereon.
3
<PAGE>
In Witness Whereof, New Tenneco Inc. has caused this Instrument to be signed
in its name by its Chairman of the Board or its President or a Vice President,
and its corporate seal (or a facsimile thereof) to be hereto affixed and
attested by its Secretary or an Assistant Secretary.
Dated ..........................
New Tenneco Inc.
By .......................................
Chairman of the Board
Attest:
................................
Secretary
[form of reverse of debenture]
NEW TENNECO INC.
7.45% DEBENTURE DUE 2025
This Debenture is one of a duly authorized issue of Debentures of the
Company known as its 7.45% Debentures due 2025 (herein called the
"Debentures"), limited to the aggregate principal amount of $300,000,000, all
issued under and equally entitled to the benefits of an Indenture (herein,
together with any amendments and supplements thereto, including without
limitation the form and terms of Securities issued pursuant thereto, called
the
4
<PAGE>
"Indenture"), dated as of November 1, 1996, executed by the Company to The
Chase Manhattan Bank (herein, together with any successor thereto, called the
"Trustee"), as Trustee, to which Indenture reference is hereby made for a
statement of the rights thereunder of the Trustee and of the registered
holders of the Debentures and of the duties thereunder of the Trustee and the
Company.
The Debentures will not be redeemable prior to maturity.
The Indenture permits the Company to issue unsecured debentures, notes
and/or other evidences of indebtedness in one or more series ("Securities") up
to such principal amount or amounts as may be authorized in accordance with
the terms of the Indenture.
To the extent permitted by, and as provided in, the Indenture, modifications
or alterations of the Indenture and of the rights and obligations of the
Company and of the holders of the Debentures may be made with the consent of
the Company and with the consent of the holders of not less than a majority in
principal amount of the Securities of all series then outstanding under the
Indenture (treated as a single class) which are affected by the modification
or amendment thereto; provided, however, that without the consent of the
holder hereof no such modification or alteration shall be made which will
affect the terms of payment of the principal of or interest on this Debenture.
In case a default, as defined in the Indenture, shall occur, the principal
of all the Debentures at any such time outstanding under the Indenture may be
declared or may become due and payable, upon the conditions and in the manner
and with the effect provided in the Indenture. The Indenture provides that
such declaration may in certain events be waived by the holders of a majority
in principal amount of the Debentures outstanding in the case of payment
defaults on the Debentures and in certain other events by the holders of a
majority in principal amount of the Securities of all series then outstanding
under the Indenture (treated as a single class) which are affected thereby.
The Indenture provides that no holder of any Debenture may enforce any
remedy under the Indenture except in the case of refusal or neglect of the
Trustee to act after notice of default and after request by the holders of a
majority in principal amount of the outstanding Debentures in certain events
(and in certain other events by the holders of a majority in principal amount
of the Securities of all series then outstanding under the Indenture, treated
as a single class, which are affected thereby) and the offer to the Trustee of
5
<PAGE>
security and indemnity satisfactory to it; provided, however, that such
provision shall not prevent the holder hereof from enforcing payment of the
principal of or interest on this Debenture.
The transfer of this Debenture is registrable by the registered holder
hereof, in person or by duly authorized attorney, at the agency of the Company
in the Borough of Manhattan, The City of New York, New York, on books of the
Company to be kept for that purpose at said agency, upon surrender and
cancellation of this Debenture and on presentation of a duly executed written
instrument of transfer, and thereupon a new Debenture or Debentures, of the
same aggregate principal amount and in authorized denominations, will be
issued to the transferee or transferees in exchange herefor; and this
Debenture, with or without other Debentures, may in like manner be exchanged
for one or more new Debentures of other authorized denominations but of the
same aggregate principal amount; all subject to the terms and conditions set
forth in the Indenture.
The Company, the Trustee, any paying agent and any Registrar of the
Debentures may deem and treat the person in whose name this Debenture is
registered as the absolute owner hereof for all purposes whatsoever, and
neither the Company nor the Trustee nor any paying agent nor any Registrar of
the Debentures shall be affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or the interest
on, this Debenture, or for any claim based hereon or on the Indenture, against
any incorporator, or against any stockholder, director or officer, as such,
past, present or future, of the Company, or of any predecessor or successor
corporation, either directly or through the Company or any such predecessor or
successor corporation, whether by virtue of any constitution, statute or rule
of law, or by the enforcement of any assessment or penalty or otherwise, all
such liability, whether at common law, in equity, by any constitution, statute
or otherwise, of incorporators, stockholders, directors or officers being
released by every owner hereof by the acceptance of this Debenture and as part
of the consideration for the issue hereof, and being likewise released by the
terms of the Indenture; provided, however, that nothing herein or in the
Indenture contained shall be taken to prevent recourse to and the enforcement
of the liability, if any, of any stockholder or subscriber to capital stock of
the Company upon or in respect of shares of capital stock not fully paid up.
All terms used in this Debenture which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
6
<PAGE>
[form of trustee's certificate of authentication]
This Debenture is one of the 7.45% Debentures due 2025 described in the
within-mentioned Indenture.
THE CHASE MANHATTAN BANK,
Trustee,
By _________________________________________
Authorized Officer.
ARTICLE 2.
Miscellaneous
Section 2.1. Execution as Supplemental Indenture. This Third Supplemental
Indenture is executed and shall be construed as an indenture supplemental to
the Original Indenture and, as provided in the Original Indenture, this Third
Supplemental Indenture forms a part thereof. Except as herein expressly
otherwise defined, the use of the terms and expressions herein is in
accordance with the definitions, uses and constructions contained in the
Original Indenture.
Section 2.2. Responsibility for Recitals, Etc. The recitals herein and in
the Debentures (except in the Trustee's certificate of authentication) shall
be taken as the statements of the Company, and the Trustee assumes no
responsibility for the correctness thereof. The Trustee makes no
representations as to the validity or sufficiency of this Third Supplemental
Indenture or of the Debentures. The Trustee shall not be accountable for the
use or application by the Company of the Debentures or of the proceeds
thereof.
Section 2.3. Provisions Binding on Company's Successors. All the covenants,
stipulations, promises and agreements in this Third Supplemental Indenture
contained by the Company shall bind its successors and assigns whether so
expressed or not.
Section 2.4. New York Contract. THIS THIRD SUPPLEMENTAL INDENTURE AND EACH
DEBENTURE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF
NEW YORK, AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS
OF SAID STATE.
7
<PAGE>
Section 2.5. Execution and Counterparts. This Third Supplemental Indenture
may be executed in any number of courterparts, each of which shall be an
original but such counterparts shall together constitute but one and the same
instrument.
In Witness Whereof, said New Tenneco Inc. has caused this Third Supplemental
Indenture to be executed in its corporate name by its President or one of its
Vice Presidents, and said The Chase Manhattan Bank has caused this Indenture
to be executed in its Corporate name by one of its Vice Presidents as of
December [ ], 1996.
New Tenneco Inc.
Robert T. Blakely
By _________________________________________
Robert T. Blakely
Executive Vice President and
Chief Financial Officer
The Chase Manhattan Bank
By _________________________________________
[ ]
Vice President
8
<PAGE>
EXHIBIT 4.5
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NEW TENNECO INC.
AND
THE CHASE MANHATTAN BANK,
AS TRUSTEE
------------------
FOURTH SUPPLEMENTAL INDENTURE
DATED AS OF DECEMBER [ ], 1996
TO
INDENTURE
DATED AS OF NOVEMBER 1, 1996
------------------
PROVIDING FOR THE ISSUANCE OF
9.20% DEBENTURES DUE 2012
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Fourth Supplemental Indenture dated as of December [ ], 1996 between New
Tenneco Inc., a corporation duly organized and existing under the laws of the
State of Delaware (hereinafter called the "Company"), and The Chase Manhattan
Bank, a New York banking corporation, as trustee (hereinafter called the
"Trustee").
Whereas, the Company has heretofore executed and delivered to the Trustee an
indenture dated as of November 1, 1996 (hereinafter called the "Original
Indenture"), to provide for the issue of an unlimited amount of debentures,
notes and/or other debt obligations of the Company (hereinafter referred to as
the "Securities"), the terms of which are to be determined as set forth in
Section 2.3 of the Original Indenture; and
Whereas, Section 8.1 of the Original Indenture provides, among other things,
that the Company and the Trustee may enter into indentures supplemental to the
Original Indenture for, among other things, the purpose of setting forth the
terms of Securities of any series; and
Whereas, the Company desires to create a series of the Securities in an
aggregate principal amount of $150,000,000 to be designated the "9.20%
Debentures due 2012" (the "Debentures"), and all action on the part of the
Company necessary to authorize the issuance of the Debentures under the
Original Indenture and this Fourth Supplemental Indenture has been duly taken;
and
Whereas, all acts and things necessary to make the Debentures, when executed
by the Company and authenticated and delivered by the Trustee as in the
Original Indenture provided, the valid and binding obligations of the Company,
and to constitute these presents a valid and binding supplemental indenture
and agreement according to its terms, have been done and performed;
Now, therefore, in consideration of the premises and of the mutual covenants
herein contained, and of the acceptance of this trust by the Trustee, and of
the sum of one dollar to the Company duly paid by the Trustee at the execution
and delivery of these presents, and of other valuable consideration the
receipt whereof is hereby acknowledged and in order to authorize the
authentication and delivery of and to set forth the terms of the Debentures,
<PAGE>
It is hereby covenanted, declared and agreed by and between the parties
hereto, for the benefit of holders of the Debentures issued under the Original
Indenture, as follows:
ARTICLE 1.
Terms and Issuance of 9.20% Debentures Due 2012
Section 1.1. Issue of Debentures. A series of Securities which shall be
designated the "9.20% Debentures due 2012" shall be executed, authenticated
and delivered in accordance with the provisions of, and shall in all respects
be subject to, the terms, conditions and covenants of the Indenture, including
without limitation the terms set forth in this Fourth Supplemental Indenture
(including the form of Debentures set forth in Section 1.2 hereof). The
aggregate principal amount of Debentures which may be authenticated and
delivered under the Indenture shall not, except as permitted by the provisions
of Sections 2.8, 2.9, 2.11, 8.5 and 12.3 of the Indenture, exceed
$150,000,000. The entire amount of Debentures may forthwith be executed by the
Company and delivered to the Trustee and shall be authenticated by the Trustee
and delivered to or upon the order of the Company pursuant to Section 2.4 of
the Indenture.
Section 1.2. Forms of Debentures and Authentication Certificate. The forms
of the Debentures and the Trustee's certificate of authentication shall be
substantially as follows:
[form of face of debenture]
NEW TENNECO INC.
9.20% DEBENTURE DUE 2012
No. $
New Tenneco Inc., a corporation organized and existing under the laws of the
State of Delaware (hereinafter called the "Company," which term shall include
any successor corporation as defined in the Indenture hereinafter referred
to), for value received, hereby promises to pay to or registered
assigns, the sum of Dollars on November 15, 2012, in any coin or
currency of the United States of America which at the time of payment is legal
tender for the payment of public and private debts, and to pay to the
registered holder hereof as hereinafter provided interest thereon at the rate
per annum specified in the title hereof in like coin or currency, from
2
<PAGE>
the May 15 or November 15 next preceding the date hereof to which interest has
been paid, unless the date hereof is a May 15 or November 15 to which interest
on the Debentures has been paid, in which case from the date hereof, or unless
no interest has been paid on the Debentures since the original issue date
(hereinafter referred to) of this Debenture, in which case from the original
issue date, semi-annually on May 15 and November 15 in each year, until
payment of said principal sum has been made or duly provided for, and to pay
interest on any overdue principal and (to the extent permitted by law) on any
overdue installment of interest at the rate of 9.20% per annum.
Notwithstanding the foregoing, when there is no existing default in the
payment of interest on the Debentures, if the date hereof is after April 30 or
October 31 and prior to the following May 15 or November 15, as the case may
be, this Debenture shall bear interest from such May 15 or November 15 or, if
no interest has been paid on the Debentures since the original issue date of
this Debenture, from the original issue date; provided, however, that if the
Company shall default in the payment of interest due on such May 15 or
November 15, then this Debenture shall bear interest from the May 15 or
November 15 to which interest has been paid or, if no interest has been paid
on the Debentures since the original issue date of this Debenture, from the
original issue date. The interest so payable on any May 15 or November 15
will, subject to certain exceptions provided in the Indenture hereinafter
referred to, be paid to the person in whose name this Debenture is registered
at the close of business on the April 30 or October 31, as the case may be,
next preceding such May 15 or November 15, or if such April 30 or October 31
is not a business day, the business day next preceding such April 30 or
October 31. Interest on this Debenture shall be computed on the basis of a
360-day year of twelve 30-day months. Both principal of and interest on this
Debenture are payable at the principal office of the Trustee in the Borough of
Manhattan, The City of New York, New York; provided, however, that payment of
interest may be made, at the option of the Company, by check mailed to the
address of the person entitled thereto as such address shall appear on the
Debenture register. The original issue date in respect of the Debentures is
December [ ], 1996.
ADDITIONAL PROVISIONS OF THIS DEBENTURE ARE CONTAINED ON THE REVERSE HEREOF
AND SUCH PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS THOUGH
FULLY SET FORTH AT THIS PLACE.
This Debenture shall not be entitled to any benefit under the Indenture
hereafter referred to, or become valid or obligatory for any purpose, until
the Trustee under the Indenture shall have signed the form of certificate of
authentication endorsed hereon.
3
<PAGE>
In Witness Whereof, New Tenneco Inc. has caused this Instrument to be signed
in its name by its Chairman of the Board or its President or a Vice President,
and its corporate seal (or a facsimile thereof) to be hereto affixed and
attested by its Secretary or an Assistant Secretary.
Dated ..........................
New Tenneco Inc.
By .......................................
Chairman of the Board
Attest:
................................
Secretary
[form of reverse of debenture]
NEW TENNECO INC.
9.20% DEBENTURE DUE 2012
This Debenture is one of a duly authorized issue of Debentures of the
Company known as its 9.20% Debentures due 2012 (herein called the
"Debentures"), limited to the aggregate principal amount of $150,000,000, all
issued under and equally entitled to the benefits of an Indenture (herein,
together with any amendments and supplements thereto, including without
limitation the form and terms of Securities issued pursuant thereto, called
the
4
<PAGE>
"Indenture"), dated as of November 1, 1996, executed by the Company to The
Chase Manhattan Bank (herein, together with any successor thereto, called the
"Trustee"), as Trustee, to which Indenture reference is hereby made for a
statement of the rights thereunder of the Trustee and of the registered
holders of the Debentures and of the duties thereunder of the Trustee and the
Company.
The Debentures are not subject to redemption by the Company prior to
maturity.
The Indenture permits the Company to issue unsecured debentures, notes
and/or other evidences of indebtedness in one or more series ("Securities") up
to such principal amount or amounts as may be authorized in accordance with
the terms of the Indenture.
To the extent permitted by, and as provided in, the Indenture, modifications
or alterations of the Indenture and of the rights and obligations of the
Company and of the holders of the Debentures may be made with the consent of
the Company and with the consent of the holders of not less than a majority in
principal amount of the Securities of all series then outstanding under the
Indenture (treated as a single class) which are affected by the modification
or amendment thereto; provided, however, that without the consent of the
holder hereof no such modification or alteration shall be made which will
affect the terms of payment of the principal of or interest on this Debenture.
In case a default, as defined in the Indenture, shall occur, the principal
of all the Debentures at any such time outstanding under the Indenture may be
declared or may become due and payable, upon the conditions and in the manner
and with the effect provided in the Indenture. The Indenture provides that
such declaration may in certain events be waived by the holders of a majority
in principal amount of the Debentures outstanding in the case of payment
defaults on the Debentures and in certain other events by the holders of a
majority in principal amount of the Securities of all series then outstanding
under the Indenture (treated as a single class) which are affected thereby.
The Indenture provides that no holder of any Debenture may enforce any
remedy under the Indenture except in the case of refusal or neglect of the
Trustee to act after notice of default and after request by the holders of a
majority in principal amount of the outstanding Debentures in certain events
(and in certain other events by the holders of a majority in principal amount
of the Securities of all series then outstanding under the Indenture, treated
as
5
<PAGE>
a single class, which are affected thereby) and the offer to the Trustee of
security and indemnity satisfactory to it; provided, however, that such
provision shall not prevent the holder hereof from enforcing payment of the
principal of or interest on this Debenture.
The transfer of this Debenture is registrable by the registered holder
hereof, in person or by duly authorized attorney, at the agency of the Company
in the Borough of Manhattan, The City of New York, New York, on books of the
Company to be kept for that purpose at said agency, upon surrender and
cancellation of this Debenture and on presentation of a duly executed written
instrument of transfer, and thereupon a new Debenture or Debentures, of the
same aggregate principal amount and in authorized denominations, will be
issued to the transferee or transferees in exchange herefor; and this
Debenture, with or without other Debentures, may in like manner be exchanged
for one or more new Debentures of other authorized denominations but of the
same aggregate principal amount; all subject to the terms and conditions set
forth in the Indenture.
The Company, the Trustee, any paying agent and any Registrar of the
Debentures may deem and treat the person in whose name this Debenture is
registered as the absolute owner hereof for all purposes whatsoever, and
neither the Company nor the Trustee nor any paying agent nor any Registrar of
the Debentures shall be affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or the interest
on, this Debenture, or for any claim based hereon or on the Indenture, against
any incorporator, or against any stockholder, director or officer, as such,
past, present or future, of the Company, or of any predecessor or successor
corporation, either directly or through the Company or any such predecessor or
successor corporation, whether by virtue of any constitution, statute or rule
of law, or by the enforcement of any assessment or penalty or otherwise, all
such liability, whether at common law, in equity, by any constitution, statute
or otherwise, of incorporators, stockholders, directors or officers being
released by every owner hereof by the acceptance of this Debenture and as part
of the consideration for the issue hereof, and being likewise released by the
terms of the Indenture; provided, however, that nothing herein or in the
Indenture contained shall be taken to prevent recourse to and the enforcement
of the liability, if any, of any stockholder or subscriber to capital stock of
the Company upon or in respect of shares of capital stock not fully paid up.
All terms used in this Debenture which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
6
<PAGE>
[form of trustee's certificate of authentication]
This Debenture is one of the 9.20% Debentures due 2012 described in the
within-mentioned Indenture.
THE CHASE MANHATTAN BANK,
Trustee,
By _________________________________________
Authorized Officer.
ARTICLE 2.
Miscellaneous
Section 2.1. Execution as Supplemental Indenture. This Fourth Supplemental
Indenture is executed and shall be construed as an indenture supplemental to
the Original Indenture and, as provided in the Original Indenture, this Fourth
Supplemental Indenture forms a part thereof. Except as herein expressly
otherwise defined, the use of the terms and expressions herein is in
accordance with the definitions, uses and constructions contained in the
Original Indenture.
Section 2.2. Responsibility for Recitals, Etc. The recitals herein and in
the Debentures (except in the Trustee's certificate of authentication) shall
be taken as the statements of the Company, and the Trustee assumes no
responsibility for the correctness thereof. The Trustee makes no
representations as to the validity or sufficiency of this Fourth Supplemental
Indenture or of the Debentures. The Trustee shall not be accountable for the
use or application by the Company of the Debentures or of the proceeds
thereof.
Section 2.3. Provisions Binding on Company's Successors. All the covenants,
stipulations, promises and agreements in this Fourth Supplemental Indenture
contained by the Company shall bind its successors and assigns whether so
expressed or not.
Section 2.4. New York Contract. THIS FOURTH SUPPLEMENTAL INDENTURE AND EACH
DEBENTURE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF
NEW YORK, AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS
OF SAID STATE.
7
<PAGE>
Section 2.5. Execution and Counterparts. This Fourth Supplemental Indenture
may be executed in any number of courterparts, each of which shall be an
original but such counterparts shall together constitute but one and the same
instrument.
In Witness Whereof, said New Tenneco Inc. has caused this Fourth
Supplemental Indenture to be executed in its corporate name by its President
or one of its Vice Presidents, and said The Chase Manhattan Bank has caused
this Indenture to be executed in its Corporate name by one of its Vice
Presidents as of December [ ], 1996.
New Tenneco Inc.
Robert T. Blakely
By _________________________________________
Robert T. Blakely
Executive Vice President and
Chief Financial Officer
The Chase Manhattan Bank
By _________________________________________
[ ]
Vice President
8
<PAGE>
EXHIBIT 4.6
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NEW TENNECO INC.
AND
THE CHASE MANHATTAN BANK,
AS TRUSTEE
------------------
FIFTH SUPPLEMENTAL INDENTURE
DATED AS OF DECEMBER [ ], 1996
TO
INDENTURE
DATED AS OF NOVEMBER 1, 1996
------------------
PROVIDING FOR THE ISSUANCE OF
8.075% NOTES DUE 2002
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Fifth Supplemental Indenture dated as of December [ ], 1996 between New
Tenneco Inc., a corporation duly organized and existing under the laws of the
State of Delaware (hereinafter called the "Company"), and The Chase Manhattan
Bank, a New York banking corporation, as trustee (hereinafter called the
"Trustee").
Whereas, the Company has heretofore executed and delivered to the Trustee an
indenture dated as of November 1, 1996 (hereinafter called the "Original
Indenture"), to provide for the issue of an unlimited amount of debentures,
notes and/or other debt obligations of the Company (hereinafter referred to as
the "Securities"), the terms of which are to be determined as set forth in
Section 2.3 of the Original Indenture; and
Whereas, Section 8.1 of the Original Indenture provides, among other things,
that the Company and the Trustee may enter into indentures supplemental to the
Original Indenture for, among other things, the purpose of setting forth the
terms of Securities of any series; and
Whereas, the Company desires to create a series of the Securities in an
aggregate principal amount of $500,000,000 to be designated the "8.075% Notes
due 2002" (the "Notes"), and all action on the part of the Company necessary
to authorize the issuance of the Notes under the Original Indenture and this
Fifth Supplemental Indenture has been duly taken; and
Whereas, all acts and things necessary to make the Notes, when executed by
the Company and authenticated and delivered by the Trustee as in the Original
Indenture provided, the valid and binding obligations of the Company, and to
constitute these presents a valid and binding supplemental indenture and
agreement according to its terms, have been done and performed;
Now, therefore, in consideration of the premises and of the mutual covenants
herein contained, and of the acceptance of this trust by the Trustee, and of
the sum of one dollar to the Company duly paid by the Trustee at the execution
and delivery of these presents, and of other valuable consideration the
receipt whereof is hereby acknowledged and in order to authorize the
authentication and delivery of and to set forth the terms of the Notes,
<PAGE>
It is hereby covenanted, declared and agreed by and between the parties
hereto, for the benefit of holders of the Notes issued under the Original
Indenture, as follows:
ARTICLE 1.
Terms and Issuance of 8.075% Notes Due 2002
Section 1.1. Issue of Notes. A series of Securities which shall be
designated the "8.075% Notes due 2002" shall be executed, authenticated and
delivered in accordance with the provisions of, and shall in all respects be
subject to, the terms, conditions and covenants of the Indenture, including
without limitation the terms set forth in this Fifth Supplemental Indenture
(including the form of Notes set forth in Section 1.2 hereof). The aggregate
principal amount of Notes which may be authenticated and delivered under the
Indenture shall not, except as permitted by the provisions of Sections 2.8,
2.9, 2.11, 8.5 and 12.3 of the Indenture, exceed $500,000,000. The entire
amount of Notes may forthwith be executed by the Company and delivered to the
Trustee and shall be authenticated by the Trustee and delivered to or upon the
order of the Company pursuant to Section 2.4 of the Indenture.
Section 1.2. Forms of Notes and Authentication Certificate. The forms of the
Notes and the Trustee's certificate of authentication shall be substantially
as follows:
[form of face of note]
NEW TENNECO INC.
8.075% NOTE DUE 2002
No. $
CUSIP
New Tenneco Inc., a corporation organized and existing under the laws of the
State of Delaware (hereinafter called the "Company," which term shall include
any successor corporation as defined in the Indenture hereinafter referred
to), for value received, hereby promises to pay to or registered assigns, the
sum of Dollars on October 1, 2002, in any coin or currency of the United
States of America which at the time of payment is legal tender for the payment
of public and private debts, and to pay to the registered holder hereof as
hereinafter provided interest thereon at the rate per annum specified in the
title hereof in like coin or currency, from the April 1 or October 1 next
preceding the date hereof to which interest has been paid, unless the date
hereof
2
<PAGE>
is a April 1 or October 1 to which interest on the Notes has been paid, in
which case from the date hereof, or unless no interest has been paid on the
Notes since the original issue date (hereinafter referred to) of this Note, in
which case from the original issue date, semi-annually on April 1 and October
1 in each year, until payment of said principal sum has been made or duly
provided for, and to pay interest on any overdue principal and (to the extent
permitted by law) on any overdue installment of interest at the rate of 8.075%
per annum. Notwithstanding the foregoing, when there is no existing default in
the payment of interest on the Notes, if the date hereof is after March 16 or
September 16 and prior to the following April 1 or October 1, as the case may
be, this Note shall bear interest from such April 1 or October 1, or, if no
interest has been paid on the Notes since the original issue date of this
Note, from the original issue date; provided however, that if the Company
shall default in the payment of interest due on such April 1 or October 1,
then this Note shall bear interest from the April 1 or October 1 to which
interest has been paid or, if no interest has been paid on the Notes since the
original issue date of this Note, from the original issue date. The interest
so payable on any April 1 or October 1 will, subject to certain exceptions
provided in the Indenture hereinafter referred to, be paid to the person in
whose name this Note is registered at the close of business on the March 16 or
September 16, as the case may be, next preceding such April 1 or October 1, or
if such March 16 or September 16 is not a business day, the business day next
preceding such March 16 or September 16. Interest on this Note shall be
computed on the basis of a 360-day year consisting of twelve 30-day months.
Both principal of and interest on this Note are payable at the principal
office of the Trustee in the Borough of Manhattan, The City of New York, New
York; provided, however, that payment of interest may be made, at the option
of the Company, by check mailed to the address of the person entitled thereto
as such address shall appear on the Note register. The original issue date in
respect of the Notes is December [ ], 1996.
ADDITIONAL PROVISIONS OF THIS NOTE ARE CONTAINED ON THE REVERSE HEREOF AND
SUCH PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS THOUGH FULLY
SET FORTH AT THIS PLACE.
This Note shall not be entitled to any benefit under the Indenture
hereinafter referred to, or become valid or obligatory for any purpose, until
the Trustee under the Indenture shall have signed the form of certificate of
authentication endorsed hereon.
3
<PAGE>
In Witness Whereof, New Tenneco Inc. has caused this Instrument to be signed
in its name by its Chairman of the Board or its President or a Vice President,
and its corporate seal (or a facsimile thereof) to be hereto affixed and
attested by its Secretary or an Assistant Secretary.
Dated ..........................
New Tenneco Inc.
By .......................................
Vice President
Attest:
................................
Secretary
[form of reverse of note]
NEW TENNECO INC.
8.075% NOTE DUE 2002
This Note is one of a duly authorized issue of Notes of the Company known as
its 8.075% Notes due 2002 (herein called the "Notes"), limited to the
aggregate principal amount of $500,000,000, all issued under and equally
entitled to the benefits of an Indenture (herein, together with any amendments
and supplements thereto, including without limitation the form and terms of
Securities issued pursuant thereto, called the "Indenture"), dated as of
November 1, 1996, executed by the Company to The Chase Manhattan Bank (herein,
together with any successor thereto, called the "Trustee"), as Trustee, to
which Indenture reference is hereby made for a statement of the rights
thereunder of the Trustee and of the registered holders of the Notes and of
the duties thereunder of the Trustee and the Company.
The Notes are not subject to redemption prior to maturity.
4
<PAGE>
The Indenture permits the Company to issue unsecured debentures, notes
and/or other evidences of indebtedness in one or more series ("Securities") up
to such principal amount or amounts as may be authorized in accordance with
the terms of the Indenture.
To the extent permitted by, and as provided in, the Indenture, modifications
or alterations of the Indenture and of the rights and obligations of the
Company and of the holders of the Notes may be made with the consent of the
Company and with the consent of the holders of not less than a majority in
principal amount of the Securities of all series then outstanding under the
Indenture (treated as a single class) which are affected by the modification
or amendment thereto; provided, however, that without the consent of the
holder hereof no such modification or alteration shall be made which will
affect the terms of payment of the principal of or interest on this Note.
In case a default, as defined in the Indenture, shall occur, the principal
of all the Notes at any such time outstanding under the Indenture may be
declared or may become due and payable, upon the conditions and in the manner
and with the effect provided in the Indenture. The Indenture provides that
such declaration may in certain events be waived by the holders of a majority
in principal amount of the Notes outstanding in the case of payment defaults
on the Notes and in certain other events by the holders of a majority in
principal amount of the Securities of all series then outstanding under the
Indenture (treated as a single class) which are affected thereby.
The Indenture provides that no holder of any Note may enforce any remedy
under the Indenture except in the case of refusal or neglect of the Trustee to
act after notice of default and after request by the holders of a majority in
principal amount of the outstanding Notes in certain events (and in certain
other events by the holders of a majority in principal amount of the
Securities of all series then outstanding under the Indenture, treated as a
single class, which are affected thereby) and the offer to the Trustee of
security and indemnity satisfactory to it; provided, however, that such
provision shall not prevent the holder hereof from enforcing payment of the
principal of or interest on this Note.
The transfer of this Note is registrable by the registered holder hereof, in
person or by duly authorized attorney, at the agency of the Company in the
Borough of Manhattan, The City of New York, New York, on books of the Company
to be kept for that purpose at said agency, upon surrender and cancellation of
this Note and on presentation of a duly executed written instrument of
transfer, and thereupon a new Note or Notes, of the same aggregate principal
amount and in authorized denominations, will be issued to the
5
<PAGE>
transferee or transferees in exchange herefor; and this Note, with or without
other Notes, may in like manner be exchanged for one or more new Notes of
other authorized denominations but of the same aggregate principal amount; all
subject to the terms and conditions set forth in the Indenture.
The Company, the Trustee, any paying agent and any Registrar of the Notes
may deem and treat the person in whose name this Note is registered as the
absolute owner hereof for all purposes whatsoever, and neither the Company nor
the Trustee nor any paying agent nor any Registrar of the Notes shall be
affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or the interest
on, this Note, or for any claim based hereon or on the Indenture, against any
incorporator, or against any stockholder, director or officer, as such, past,
present or future, of the Company, or of any predecessor or successor
corporation, either directly or through the Company or any such predecessor or
successor corporation, whether by virtue of any constitution, statute or rule
of law, or by the enforcement of any assessment or penalty or otherwise, all
such liability, whether at common law, in equity, by any constitution, statute
or otherwise, of incorporators, stockholders, directors or officers being
released by every owner hereof by the acceptance of this Note and as part of
the consideration for the issue hereof, and being likewise released by the
terms of the Indenture; provided, however, that nothing herein or in the
Indenture contained shall be taken to prevent recourse to and the enforcement
of the liability, if any, of any stockholder or subscriber to capital stock of
the Company upon or in respect of shares of capital stock not fully paid up.
All terms used in this Note which are defined in the Indenture shall have
the meanings assigned to them in the Indenture.
[form of trustee's certificate of authentication]
This Note is one of the 8.075% Notes due 2002 described in the within-
mentioned Indenture.
THE CHASE MANHATTAN BANK,
Trustee,
By........................................
Authorized Officer.
6
<PAGE>
ARTICLE 2.
Miscellaneous
Section 2.1. Execution as Supplemental Indenture. This Fifth Supplemental
Indenture is executed and shall be construed as an indenture supplemental to
the Original Indenture and, as provided in the Original Indenture, this Fifth
Supplemental Indenture forms a part thereof. Except as herein expressly
otherwise defined, the use of the terms and expressions herein is in
accordance with the definitions, uses and constructions contained in the
Original Indenture.
Section 2.2. Responsibility for Recitals, Etc. The recitals herein and in
the Notes (except in the Trustee's certificate of authentication) shall be
taken as the statements of the Company, and the Trustee assumes no
responsibility for the correctness thereof. The Trustee makes no
representations as to the validity or sufficiency of this Fifth Supplemental
Indenture or of the Notes. The Trustee shall not be accountable for the use or
application by the Company of the Notes or of the proceeds thereof.
Section 2.3. Provisions Binding on Company's Successors. All the covenants,
stipulations, promises and agreements in this Fifth Supplemental Indenture
contained by the Company shall bind its successors and assigns whether so
expressed or not.
SECTION 2.4. NEW YORK CONTRACT. THIS FIFTH SUPPLEMENTAL INDENTURE AND EACH
NOTE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF NEW
YORK, AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF
SAID STATE WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
Section 2.5. Execution and Counterparts. This Fifth Supplemental Indenture
may be executed in any number of counterparts, each of which shall be an
original but such counterparts shall together constitute but one and the same
instrument.
7
<PAGE>
In Witness Whereof, said New Tenneco Inc. has caused this Fifth Supplemental
Indenture to be executed in its corporate name by its Chairman of the Board or
its President or one of its Vice Presidents, and said The Chase Manhattan Bank
has caused this Fifth Supplemental Indenture to be executed in its corporate
name by one of its Vice Presidents as of December [ ], 1996.
New Tenneco Inc.
Robert T. Blakely
By _________________________________________
Robert T. Blakely
Executive Vice President and Chief
Financial Officer
The Chase Manhattan Bank
By _________________________________________
Vice President
8
<PAGE>
EXHIBIT 4.7
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NEW TENNECO INC.
AND
THE CHASE MANHATTAN BANK,
AS TRUSTEE
------------------
SIXTH SUPPLEMENTAL INDENTURE
DATED AS OF DECEMBER [ ], 1996
TO
INDENTURE
DATED AS OF NOVEMBER 1, 1996
------------------
PROVIDING FOR THE ISSUANCE OF
8.20% NOTES DUE 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Sixth Supplemental Indenture dated as of December [ ], 1996 between New
Tenneco Inc., a corporation duly organized and existing under the laws of the
State of Delaware (hereinafter called the "Company"), and The Chase Manhattan
Bank, a New York banking corporation, as trustee (hereinafter called the
"Trustee").
Whereas, the Company has heretofore executed and delivered to the Trustee an
indenture dated as of November 1, 1996 (hereinafter called the "Original
Indenture"), to provide for the issue of an unlimited amount of debentures,
notes and/or other debt obligations of the Company (hereinafter referred to as
the "Securities"), the terms of which are to be determined as set forth in
Section 2.3 of the Original Indenture; and
Whereas, Section 8.1 of the Original Indenture provides, among other things,
that the Company and the Trustee may enter into indentures supplemental to the
Original Indenture for, among other things, the purpose of setting forth the
terms of Securities of any series; and
Whereas, the Company desires to create a series of the Securities in an
aggregate principal amount of $250,000,000 to be designated the "8.20% Notes
due 1999" (the "Notes"), and all action on the part of the Company necessary
to authorize the issuance of the Notes under the Original Indenture and this
Sixth Supplemental Indenture has been duly taken; and
Whereas, all acts and things necessary to make the Notes, when executed by
the Company and authenticated and delivered by the Trustee as in the Original
Indenture provided, the valid and binding obligations of the Company, and to
constitute these presents a valid and binding supplemental indenture and
agreement according to its terms, have been done and performed;
Now, therefore, in consideration of the premises and of the mutual covenants
herein contained, and of the acceptance of this trust by the Trustee, and of
the sum of one dollar to the Company duly paid by the Trustee at the execution
and delivery of these presents, and of other valuable consideration the
receipt whereof is hereby acknowledged and in order to authorize the
authentication and delivery of and to set forth the terms of the Notes,
<PAGE>
It is hereby covenanted, declared and agreed by and between the parties
hereto, for the benefit of holders of the Notes issued under the Original
Indenture, as follows:
ARTICLE 1.
Terms and Issuance of 8.20% Notes Due 1999
Section 1.1. Issue of Notes. A series of Securities which shall be
designated the "8.20 Notes due 1999" shall be executed, authenticated and
delivered in accordance with the provisions of, and shall in all respects be
subject to, the terms, conditions and covenants of the Indenture, including
without limitation the terms set forth in this Sixth Supplemental Indenture
(including the form of Notes set forth in Section 1.2 hereof). The aggregate
principal amount of Notes which may be authenticated and delivered under the
Indenture shall not, except as permitted by the provisions of Sections 2.8,
2.9, 2.11, 8.5 and 12.3 of the Indenture, exceed $250,000,000. The entire
amount of Notes may forthwith be executed by the Company and delivered to the
Trustee and shall be authenticated by the Trustee and delivered to or upon the
order of the Company pursuant to Section 2.4 of the Indenture.
Section 1.2. Forms of Notes and Authentication Certificate. The forms of the
Notes and the Trustee's certificate of authentication shall be substantially
as follows:
[form of face of note]
NEW TENNECO INC.
8.20% NOTE DUE 2002
No. $
CUSIP
New Tenneco Inc., a corporation organized and existing under the laws of the
State of Delaware (hereinafter called the "Company," which term shall include
any successor corporation as defined in the Indenture hereinafter referred
to), for value received, hereby promises to pay to or registered assigns, the
sum of Dollars on November 15, 1999, in any coin or currency of the United
States of America which at the time of payment is legal tender for the payment
of public and private debts, and to pay to the registered holder hereof as
hereinafter provided interest thereon at the rate per annum specified in the
title hereof in like coin or currency, from the May 15 or November 15 next
preceding the date hereof to which interest has been paid,
2
<PAGE>
unless the date hereof is a May 15 or November 15 to which interest on the
Notes has been paid, in which case from the date hereof, or unless no interest
has been paid on the Notes since the original issue date (hereinafter referred
to) of this Note, in which case from the original issue date, semi-annually on
May 15 and November 15 in each year, until payment of said principal sum has
been made or duly provided for, and to pay interest on any overdue principal
and (to the extent permitted by law) on any overdue installment of interest at
the rate of 8.20% per annum. Notwithstanding the foregoing, when there is no
existing default in the payment of interest on the Notes, if the date hereof
is after April 30 or October 31 and prior to the following May 15 or November
15, as the case may be, this Note shall bear interest from such May 15 or
November 15, or, if no interest has been paid on the Notes since the original
issue date of this Note, from the original issue date; provided, however, that
if the Company shall default in the payment of interest due on such May 15 or
November 15, then this Note shall bear interest from the May 15 or November 15
to which interest has been paid or, if no interest has been paid on the Notes
since the original issue date of this Note, from the original issue date. The
interest so payable on any May 15 or November 15 will, subject to certain
exceptions provided in the Indenture hereinafter referred to, be paid to the
person in whose name this Note is registered at the close of business on the
April 30 or October 31, as the case may be, next preceding such May 15 or
November 15, or if such April 30 or October 31 is not a business day, the
business day next preceding such April 30 or October 31. Interest on this Note
shall be computed on the basis of a 360-day year consisting of twelve 30-day
months. Both principal of and interest on this Note are payable at the
principal office of the Trustee in the Borough of Manhattan, The City of New
York, New York; provided, however, that payment of interest may be made, at
the option of the Company, by check mailed to the address of the person
entitled thereto as such address shall appear on the Note register. The
original issue date in respect of the Notes is December [ ], 1996.
ADDITIONAL PROVISIONS OF THIS NOTE ARE CONTAINED ON THE REVERSE HEREOF AND
SUCH PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS THOUGH FULLY
SET FORTH AT THIS PLACE.
This Note shall not be entitled to any benefit under the Indenture
hereinafter referred to, or become valid or obligatory for any purpose, until
the Trustee under the Indenture shall have signed the form of certificate of
authentication endorsed hereon.
In Witness Whereof, New Tenneco Inc. has caused this Instrument to be signed
in its name by its Chairman of the Board or its President or a Vice
3
<PAGE>
President, and its corporate seal (or a facsimile thereof) to be hereto
affixed and attested by its Secretary or an Assistant Secretary.
Dated ..........................
New Tenneco Inc.
By .......................................
Vice President
Attest:
................................
Secretary
[form of reverse of note]
NEW TENNECO INC.
8.20% NOTE DUE 1999
This Note is one of a duly authorized issue of Notes of the Company known as
its 8.20% Notes due 1999 (herein called the "Notes"), limited to the aggregate
principal amount of $250,000,000, all issued under and equally entitled to the
benefits of an Indenture (herein, together with any amendments and supplements
thereto, including without limitation the form and terms of Securities issued
pursuant thereto, called the "Indenture"), dated as of November 1, 1996,
executed by the Company to The Chase Manhattan Bank (herein, together with any
successor thereto, called the "Trustee"), as Trustee, to which Indenture
reference is hereby made for a statement of the rights thereunder of the
Trustee and of the registered holders of the Notes and of the duties
thereunder of the Trustee and the Company.
The Notes are not subject to redemption prior to maturity.
The Indenture permits the Company to issue unsecured debentures, notes
and/or other evidences of indebtedness in one or more series ("Securities") up
4
<PAGE>
to such principal amount or amounts as may be authorized in accordance with
the terms of the Indenture.
To the extent permitted by, and as provided in, the Indenture, modifications
or alterations of the Indenture and of the rights and obligations of the
Company and of the holders of the Notes may be made with the consent of the
Company and with the consent of the holders of not less than a majority in
principal amount of the Securities of all series then outstanding under the
Indenture (treated as a single class) which are affected by the modification
or amendment thereto; provided, however, that without the consent of the
holder hereof no such modification or alteration shall be made which will
affect the terms of payment of the principal of or interest on this Note.
In case a default, as defined in the Indenture, shall occur, the principal
of all the Notes at any such time outstanding under the Indenture may be
declared or may become due and payable, upon the conditions and in the manner
and with the effect provided in the Indenture. The Indenture provides that
such declaration may in certain events be waived by the holders of a majority
in principal amount of the Notes outstanding in the case of payment defaults
on the Notes and in certain other events by the holders of a majority in
principal amount of the Securities of all series then outstanding under the
Indenture (treated as a single class) which are affected thereby.
The Indenture provides that no holder of any Note may enforce any remedy
under the Indenture except in the case of refusal or neglect of the Trustee to
act after notice of default and after request by the holders of a majority in
principal amount of the outstanding Notes in certain events (and in certain
other events by the holders of a majority in principal amount of the
Securities of all series then outstanding under the Indenture, treated as a
single class, which are affected thereby) and the offer to the Trustee of
security and indemnity satisfactory to it; provided, however, that such
provision shall not prevent the holder hereof from enforcing payment of the
principal of or interest on this Note.
The transfer of this Note is registrable by the registered holder hereof, in
person or by duly authorized attorney, at the agency of the Company in the
Borough of Manhattan, The City of New York, New York, on books of the Company
to be kept for that purpose at said agency, upon surrender and cancellation of
this Note and on presentation of a duly executed written instrument of
transfer, and thereupon a new Note or Notes, of the same aggregate principal
amount and in authorized denominations, will be issued to the transferee or
transferees in exchange herefor; and this Note, with or without other Notes,
may in like manner be exchanged for one or more new Notes of other
5
<PAGE>
authorized denominations but of the same aggregate principal amount; all
subject to the terms and conditions set forth in the Indenture.
The Company, the Trustee, any paying agent and any Registrar of the Notes
may deem and treat the person in whose name this Note is registered as the
absolute owner hereof for all purposes whatsoever, and neither the Company nor
the Trustee nor any paying agent nor any Registrar of the Notes shall be
affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or the interest
on, this Note, or for any claim based hereon or on the Indenture, against any
incorporator, or against any stockholder, director or officer, as such, past,
present or future, of the Company, or of any predecessor or successor
corporation, either directly or through the Company or any such predecessor or
successor corporation, whether by virtue of any constitution, statute or rule
of law, or by the enforcement of any assessment or penalty or otherwise, all
such liability, whether at common law, in equity, by any constitution, statute
or otherwise, of incorporators, stockholders, directors or officers being
released by every owner hereof by the acceptance of this Note and as part of
the consideration for the issue hereof, and being likewise released by the
terms of the Indenture; provided, however, that nothing herein or in the
Indenture contained shall be taken to prevent recourse to and the enforcement
of the liability, if any, of any stockholder or subscriber to capital stock of
the Company upon or in respect of shares of capital stock not fully paid up.
All terms used in this Note which are defined in the Indenture shall have
the meanings assigned to them in the Indenture.
[form of trustee's certificate of authentication]
This Note is one of the 8.20% Notes due 1999 described in the within-
mentioned Indenture.
THE CHASE MANHATTAN BANK,
Trustee,
By........................................
Authorized Officer.
6
<PAGE>
EXHIBIT 4.8
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NEW TENNECO INC.
AND
THE CHASE MANHATTAN BANK,
AS TRUSTEE
------------------
SEVENTH SUPPLEMENTAL INDENTURE
DATED AS OF DECEMBER [ ], 1996
TO
INDENTURE
DATED AS OF NOVEMBER 1, 1996
------------------
PROVIDING FOR THE ISSUANCE OF
10.075% NOTES DUE 2001
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Seventh Supplemental Indenture dated as of December [ ], 1996 between New
Tenneco Inc., a corporation duly organized and existing under the laws of the
State of Delaware (hereinafter called the "Company"), and The Chase Manhattan
Bank, a New York banking corporation, as trustee (hereinafter called the
"Trustee").
Whereas, the Company has heretofore executed and delivered to the Trustee an
indenture dated as of November 1, 1996 (hereinafter called the "Original
Indenture"), to provide for the issue of an unlimited amount of debentures,
notes and/or other debt obligations of the Company (hereinafter referred to as
the "Securities"), the terms of which are to be determined as set forth in
Section 2.3 of the Original Indenture; and
Whereas, Section 8.1 of the Original Indenture provides, among other things,
that the Company and the Trustee may enter into indentures supplemental to the
Original Indenture for, among other things, the purpose of setting forth the
terms of Securities of any series; and
Whereas, the Company desires to create a series of the Securities in an
aggregate principal amount of $200,000,000 to be designated the "10.075% Notes
due 2001" (the "Notes"), and all action on the part of the Company necessary
to authorize the issuance of the Notes under the Original Indenture and this
Seventh Supplemental Indenture has been duly taken; and
Whereas, all acts and things necessary to make the Notes, when executed by
the Company and authenticated and delivered by the Trustee as in the Original
Indenture provided, the valid and binding obligations of the Company, and to
constitute these presents a valid and binding supplemental indenture and
agreement according to its terms, have been done and performed;
Now, therefore, in consideration of the premises and of the mutual covenants
herein contained, and of the acceptance of this trust by the Trustee, and of
the sum of one dollar to the Company duly paid by the Trustee at the execution
and delivery of these presents, and of other valuable consideration the
receipt whereof is hereby acknowledged and in order to authorize the
authentication and delivery of and to set forth the terms of the Notes,
<PAGE>
It is hereby covenanted, declared and agreed by and between the parties
hereto, for the benefit of holders of the Notes issued under the Original
Indenture, as follows:
ARTICLE 1.
Terms and Issuance of 10.075% Notes Due 2001
Section 1.1. Issue of Notes. A series of Securities which shall be
designated the "10.075% Notes due 2001" shall be executed, authenticated and
delivered in accordance with the provisions of, and shall in all respects be
subject to, the terms, conditions and covenants of the Indenture, including
without limitation the terms set forth in this Seventh Supplemental Indenture
(including the form of Notes set forth in Section 1.2 hereof). The aggregate
principal amount of Notes which may be authenticated and delivered under the
Indenture shall not, except as permitted by the provisions of Sections 2.8,
2.9, 2.11, 8.5 and 12.3 of the Indenture, exceed $200,000,000. The entire
amount of Notes may forthwith be executed by the Company and delivered to the
Trustee and shall be authenticated by the Trustee and delivered to or upon the
order of the Company pursuant to Section 2.4 of the Indenture.
Section 1.2. Forms of Notes and Authentication Certificate. The forms of the
Notes and the Trustee's certificate of authentication shall be substantially
as follows:
[form of face of note]
NEW TENNECO INC.
10.075% NOTE DUE 2001
No. $
CUSIP
New Tenneco Inc., a corporation organized and existing under the laws of the
State of Delaware (hereinafter called the "Company," which term shall include
any successor corporation as defined in the Indenture hereinafter referred
to), for value received, hereby promises to pay to or registered assigns, the
sum of Dollars on February 1, 2001, in any coin or currency of the United
States of America which at the time of payment is legal tender for the payment
of public and private debts, and to pay to the registered holder hereof as
hereinafter provided interest thereon at the rate per annum specified in the
title hereof in like coin or currency, from the February 1 or August 1 next
preceding the date hereof to which interest has been paid, unless the date
hereof
2
<PAGE>
is a February 1 or August 1 to which interest on the Notes has been paid, in
which case from the date hereof, or unless no interest has been paid on the
Notes since the original issue date (hereinafter referred to) of this Note, in
which case from the original issue date, semi-annually on February 1 or August
1 in each year, until payment of said principal sum has been made or duly
provided for, and to pay interest on any overdue principal and (to the extent
permitted by law) on any overdue installment of interest at the rate of
10.075% per annum. Notwithstanding the foregoing, when there is no existing
default in the payment of interest on the Notes, if the date hereof is after
January 16 or July 16 and prior to the following February 1 or August 1, as
the case may be, this Note shall bear interest from such February 1 or August
1, or, if no interest has been paid on the Notes since the original issue date
of this Note, from the original issue date; provided, however, that if the
Company shall default in the payment of interest due on such February 1 or
August 1, then this Note shall bear interest from the February 1 or August 1
to which interest has been paid or, if no interest has been paid on the Notes
since the original issue date of this Note, from the original issue date. The
interest so payable on any February 1 or August 1 will, subject to certain
exceptions provided in the Indenture hereinafter referred to, be paid to the
person in whose name this Note is registered at the close of business on the
January 16 or July 16, as the case may be, next preceding such February 1 or
August 1, or if such January 16 or July 16 is not a business day, the business
day next preceding such January 16 or July 16. Interest on this Note shall be
computed on the basis of a 360-day year consisting of twelve 30-day months.
Both principal of and interest on this Note are payable at the principal
office of the Trustee in the Borough of Manhattan, The City of New York, New
York; provided, however, that payment of interest may be made, at the option
of the Company, by check mailed to the address of the person entitled thereto
as such address shall appear on the Note register. The original issue date in
respect of the Notes is December [ ], 1996.
ADDITIONAL PROVISIONS OF THIS NOTE ARE CONTAINED ON THE REVERSE HEREOF AND
SUCH PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS THOUGH FULLY
SET FORTH AT THIS PLACE.
This Note shall not be entitled to any benefit under the Indenture
hereinafter referred to, or become valid or obligatory for any purpose, until
the Trustee under the Indenture shall have signed the form of certificate of
authentication endorsed hereon.
In Witness Whereof, New Tenneco Inc. has caused this Instrument to be signed
in its name by its Chairman of the Board or its President or a Vice
3
<PAGE>
President, and its corporate seal (or a facsimile thereof) to be hereto
affixed and attested by its Secretary or an Assistant Secretary.
Dated ..........................
New Tenneco Inc.
By .......................................
Vice President
Attest:
................................
Secretary
[form of reverse of note]
NEW TENNECO INC.
10.075% NOTE DUE 2001
This Note is one of a duly authorized issue of Notes of the Company known as
its 10.075% Notes due 2001 (herein called the "Notes"), limited to the
aggregate principal amount of $200,000,000, all issued under and equally
entitled to the benefits of an Indenture (herein, together with any amendments
and supplements thereto, including without limitation the form and terms of
Securities issued pursuant thereto, called the "Indenture"), dated as of
November 1, 1996, executed by the Company to The Chase Manhattan Bank (herein,
together with any successor thereto, called the "Trustee"), as Trustee, to
which Indenture reference is hereby made for a statement of the rights
thereunder of the Trustee and of the registered holders of the Notes and of
the duties thereunder of the Trustee and the Company.
The Notes are not subject to redemption prior to maturity.
The Indenture permits the Company to issue unsecured debentures, notes
and/or other evidences of indebtedness in one or more series ("Securities") up
4
<PAGE>
to such principal amount or amounts as may be authorized in accordance with
the terms of the Indenture.
To the extent permitted by, and as provided in, the Indenture, modifications
or alterations of the Indenture and of the rights and obligations of the
Company and of the holders of the Notes may be made with the consent of the
Company and with the consent of the holders of not less than a majority in
principal amount of the Securities of all series then outstanding under the
Indenture (treated as a single class) which are affected by the modification
or amendment thereto; provided, however, that without the consent of the
holder hereof no such modification or alteration shall be made which will
affect the terms of payment of the principal of or interest on this Note.
In case a default, as defined in the Indenture, shall occur, the principal
of all the Notes at any such time outstanding under the Indenture may be
declared or may become due and payable, upon the conditions and in the manner
and with the effect provided in the Indenture. The Indenture provides that
such declaration may in certain events be waived by the holders of a majority
in principal amount of the Notes outstanding in the case of payment defaults
on the Notes and in certain other events by the holders of a majority in
principal amount of the Securities of all series then outstanding under the
Indenture (treated as a single class) which are affected thereby.
The Indenture provides that no holder of any Note may enforce any remedy
under the Indenture except in the case of refusal or neglect of the Trustee to
act after notice of default and after request by the holders of a majority in
principal amount of the outstanding Notes in certain events (and in certain
other events by the holders of a majority in principal amount of the
Securities of all series then outstanding under the Indenture, treated as a
single class, which are affected thereby) and the offer to the Trustee of
security and indemnity satisfactory to it; provided, however, that such
provision shall not prevent the holder hereof from enforcing payment of the
principal of or interest on this Note.
The transfer of this Note is registrable by the registered holder hereof, in
person or by duly authorized attorney, at the agency of the Company in the
Borough of Manhattan, The City of New York, New York, on books of the Company
to be kept for that purpose at said agency, upon surrender and cancellation of
this Note and on presentation of a duly executed written instrument of
transfer, and thereupon a new Note or Notes, of the same aggregate principal
amount and in authorized denominations, will be issued to the transferee or
transferees in exchange herefor; and this Note, with or without other Notes,
may in like manner be exchanged for one or more new Notes of other
5
<PAGE>
authorized denominations but of the same aggregate principal amount; all
subject to the terms and conditions set forth in the Indenture.
The Company, the Trustee, any paying agent and any Registrar of the Notes
may deem and treat the person in whose name this Note is registered as the
absolute owner hereof for all purposes whatsoever, and neither the Company nor
the Trustee nor any paying agent nor any Registrar of the Notes shall be
affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or the interest
on, this Note, or for any claim based hereon or on the Indenture, against any
incorporator, or against any stockholder, director or officer, as such, past,
present or future, of the Company, or of any predecessor or successor
corporation, either directly or through the Company or any such predecessor or
successor corporation, whether by virtue of any constitution, statute or rule
of law, or by the enforcement of any assessment or penalty or otherwise, all
such liability, whether at common law, in equity, by any constitution, statute
or otherwise, of incorporators, stockholders, directors or officers being
released by every owner hereof by the acceptance of this Note and as part of
the consideration for the issue hereof, and being likewise released by the
terms of the Indenture; provided, however, that nothing herein or in the
Indenture contained shall be taken to prevent recourse to and the enforcement
of the liability, if any, of any stockholder or subscriber to capital stock of
the Company upon or in respect of shares of capital stock not fully paid up.
All terms used in this Note which are defined in the Indenture shall have
the meanings assigned to them in the Indenture.
[form of trustee's certificate of authentication]
This Note is one of the 10.075% Notes due 2001 described in the within-
mentioned Indenture.
THE CHASE MANHATTAN BANK,
Trustee,
By........................................
Authorized Officer.
6
<PAGE>
Exhibit 4.9
[FORM OF FACE OF DEBENTURE]
NEW TENNECO INC.
10.20% DEBENTURE DUE 2008
No. $
CUSIP 88037E AG 6
New Tenneco Inc., a corporation organized and existing under the laws of
the State of Delaware (hereinafter called the "Company," which term shall
include any successor corporation as defined in the Indenture hereinafter
referred to), for value received, hereby promises to pay to or
registered assigns, the sum of Dollars on March 15, 2008, in any coin
or currency of the United States of America which at the time of payment is
legal tender for the payment of public and private debts, and to pay to the
registered holder hereof as hereinafter provided interest thereon at the rate
per annum specified in the title hereof in like coin or currency, from the
September 15 or the March 15 next preceding the date hereof to which interest
has been paid, unless the date hereof is a September 15 or March 15 to which
interest on the Debentures has been paid, in which case from the date hereof, or
unless no interest has been paid on the Debentures since the original issue date
(hereinafter referred to) of this Debenture, in which case from the original
issue date, semi-annually on September 15 and March 15 in each year, until
payment of said principal sum has been made or duly provided for, and to pay
interest on any overdue principal and (to the extent permitted by law) on any
overdue installment of interest at the rate of 10.20% per annum.
Notwithstanding the foregoing, when there is no existing default in the payment
of interest on the Debentures, if the date hereof is after August 31 or February
28 (or 29) and prior to the following September 15 or March 15, as the case may
be, this Debenture shall bear interest from such September 15 or March 15 or, if
no interest has been paid on the Debentures since the original issue date of
this Debenture, from the original issue date; provided, however, that if the
Company shall default in the payment of interest due on such September 15 or
March 15, then this Debenture shall bear interest from the September 15 or March
15 to which interest has been paid or, if no interest has been paid on the
Debentures since the original issue date of this Debenture, from the original
issue date. The interest so payable on any September 15 or March 15 will,
subject to certain exceptions provided in the Indenture hereinafter referred to,
be paid to the person in whose name this Debenture is registered at the close of
business on the August 31 or February 28 (or 29), as the case may be, next
preceding such September 15 or March 15, or if such August 31 or February 28 (or
29) is not a business day, the business day next preceding such August 31 or
February 28 (or 29). Interest on this Debenture shall be computed on the basis
of a 360-day year of twelve 30-day months. Both principal of and interest on
this Debenture are payable at the principal office of the Trustee in the Borough
of Manhattan, The City of New York, New York; provided, however, that payment of
interest may be made, at the option of the Company, by check mailed to the
address of the person entitled thereto as such address shall appear on the
Debenture register. The original issue date in respect of the Debentures is
December [ ], 1996.
ADDITIONAL PROVISIONS OF THIS DEBENTURE ARE CONTAINED ON THE REVERSE HEREOF
AND SUCH PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS THOUGH FULLY
SET FORTH AT THIS PLACE.
This Debenture shall not be entitled to any benefit under the Indenture
hereafter referred to, or become valid or obligatory for any purpose, until the
Trustee under the Indenture shall have signed the form of certificate of
authentication endorsed hereon.
In Witness Whereof, New Tenneco Inc. has caused this Instrument to be
signed in its name by its Chairman of the Board or its President or a Vice
President, and its corporate seal (or a facsimile thereof) to be hereto affixed
and attested by its Secretary or an Assistant Secretary.
Dated ..........................
New Tenneco Inc.
By .......................................
Chairman of the Board
Attest:
................................
Secretary.
[FORM OF REVERSE OF DEBENTURE]
NEW TENNECO INC.
10.20% DEBENTURE DUE 2008
This Debenture is one of a duly authorized issue of Debentures of the
Company known as its 10.20% Debentures due 2008 (herein called the
"Debentures"), limited to the aggregate principal amount of $250,000,000, all
issued under and equally entitled to the benefits of an Indenture (herein,
together with any amendments and supplements thereto, including without
limitation the form and terms of Securities issued pursuant thereto, called the
1
<PAGE>
"Indenture"), dated as of November 1, 1996, executed by the Company to The
Chase Manhattan Bank (herein, together with any successor thereto, called the
"Trustee"), as Trustee, to which Indenture reference is hereby made for a
statement of the rights thereunder of the Trustee and of the registered holders
of the Debentures and of the duties thereunder of the Trustee and the Company.
The Debentures are not subject to redemption by the Company prior to
maturity.
The Debentures are subject to repayment on March 15, 1998, in whole or in
part, in increments of $1,000 or integral multiples of $1,000 in excess of
$1,000, provided that the portion of the principal amount of any Debenture not
being repaid shall be at least $1,000, at the option of the holders thereof at a
repayment price equal to the principal amount thereof to be repaid, together
with interest payable thereon to the repayment date. For this Debenture to be
repaid at the option of the holder, the Company must receive at the corporate
trust office of the Trustee in the Borough of Manhattan, The City of New York,
during the period from and including January 15, 1998 to and including February
15, 1998 or, if February 15, 1998 is not a Business Day, the next succeeding
Business Day, (i) this Debenture with the form entitled "Option to Elect
Repayment" below duly completed or (ii) a telegram, telex, facsimile
transmission or letter from a member of a national securities exchange or the
National Association of Securities Dealers, Inc. or a commercial bank or trust
company in the United States of America setting forth the name of the holder of
the Debenture, the principal amount of the Debenture, the amount of such
Debenture to be repaid, a statement that the option to elect repayment is being
made thereby and a guarantee that the Debenture to be repaid with the form
entitled "Option to Elect Repayment" on the reverse thereof duly completed will
be received by the Company no later than five Business days after the date of
such telegram, telex, facsimile transmission or letter, and such Debenture and
form duly completed are received by the Company by such fifth Business Day.
Either form of notice duly received during the period from and including January
15, 1998 to and including February 15, 1998 shall be irrevocable. All questions
as to the validity, eligibility (including time of recept) and acceptance of any
Debentures for repayment will be determined by the Company, whose determination
shall be final and binding.
The Indenture permits the Company to issue unsecured debentures, notes
and/or other evidences of indebtedness in one or more series ("Securities") up
to such principal amount or amounts as may be authorized in accordance with the
terms of the Indenture.
To the extent permitted by, and as provided in, the Indenture,
modifications or alterations of the Indenture and of the rights and obligations
of the Company and of the holders of the Debentures may be made with the consent
of the Company and with the consent of the holders of not less than a majority
in principal amount of the Securities of all series then outstanding under the
Indenture (treated as a single class) which are affected by the modification or
amendment thereto; provided, however, that without the consent of the holder
hereof no such modification or alteration shall be made which will affect the
terms of payment of the principal of or interest on this Debenture.
In case a default, as defined in the Indenture, shall occur, the principal
of all the Debentures at any such time outstanding under the Indenture may be
declared or may become due and payable, upon the conditions and in the manner
and with the effect provided in the Indenture. The Indenture provides that such
declaration may in certain events be waived by the holders of a majority in
principal amount of the Debentures outstanding in the case of payment defaults
on the Debentures and in certain other events by the holders of a majority in
principal amount of the Securities of all series then outstanding under the
Indenture (treated as a single class) which are affected thereby.
The Indenture provides that no holder of any Debenture may enforce any
remedy under the Indenture except in the case of refusal or neglect of the
Trustee to act after notice of default and after request by the holders of a
majority in principal amount of the outstanding Debentures in certain events
(and in certain other events by the holders of a majority in principal amount of
the Securities of all series then outstanding under the Indenture, treated as a
single class, which are affected thereby) and the offer to the Trustee of
security and indemnity satisfactory to it; provided, however, that such
provision shall not prevent the holder hereof from enforcing payment of the
principal of or interest on this Debenture.
The transfer of this Debenture is registrable by the registered holder
hereof, in person or by duly authorized attorney, at the agency of the Company
in the Borough of Manhattan, The City of New York, New York, on books of the
Company to be kept for that purpose at said agency, upon surrender and
cancellation of this Debenture and on presentation of a duly executed written
instrument of transfer, and thereupon a new Debenture or Debentures, of the same
aggregate principal amount and in authorized denominations, will be issued to
the transferee or transferees in exchange herefor; and this Debenture, with or
without other Debentures, may in like manner be exchanged for one or more new
Debentures of other authorized denominations but of the same aggregate principal
amount; all subject to the terms and conditions set forth in the Indenture.
2
<PAGE>
or more new Debentures of other authorized denominations but of the same
aggregate principal amount; all subject to the terms and conditions set forth in
the Indenture.
The Company, the Trustee, any paying agent and any Registrar of the
Debentures may deem and treat the person in whose name this Debenture is
registered as the absolute owner hereof for all purposes whatsoever, and neither
the Company nor the Trustee nor any paying agent nor any Registrar of the
Debentures shall be affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or the
interest on, this Debenture, or for any claim based hereon or on the Indenture,
against any incorporator, or against any stockholder, director or officer, as
such, past, present or future, of the Company, or of any predecessor or
successor corporation, either directly or through the Company or any such
predecessor or successor corporation, whether by virtue of any constitution,
statute or rule of law, or by the enforcement of any assessment or penalty or
otherwise, all such liability, whether at common law, in equity, by any
constitution, statute or otherwise, of incorporators, stockholders, directors or
officers being released by every owner hereof by the acceptance of this
Debenture and as part of the consideration for the issue hereof, and being
likewise released by the terms of the Indenture; provided, however, that nothing
herein or in the Indenture contained shall be taken to prevent recourse to and
the enforcement of the liability, if any, of any stockholder or subscriber to
capital stock of the Company upon or in respect of shares of capital stock not
fully paid up.
All terms used in this Debenture which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
OPTION TO ELECT REPAYMENT
The undersigned hereby irrevocably requests and instructs the Company to
repay the within Debenture (or portion thereof specified below) pursuant to its
terms at a price equal to the principal amount thereof, together with interest
to the repayment date, to the undersigned, at
- -------------------------------------------------------------------------------
Tax I.D. No.
- -------------------------------------------------------------------------------
(Please Print or Typewrite Name, Address and
Tax Identification Number of the Undersigned)
For this Debenture to be repaid the Company must receive at the corporate
trust office of the Trustee in the Borough of Manhattan, The City of New York or
at such additional place or places of which the Company shall from time to time
notify the holder of the within Debenture during the period from and including
January 15, 1998 to and including February 15, 1998 or, if February 15, 1998 is
not a Business Day, the next succeeding Business Day, (i) this Debenture with
this "Option to Elect Repayment" form duly completed or (ii) a telegram, telex,
facsimile transmission or letter from a member of a national securities exchange
or the National Association of Securities Dealers, Inc. or a commercial bank or
trust company in the United States of America setting forth the name of the
holder of the Debenture, the principal amount of the Debenture, the amount of
the Debenture to be repaid, a statement that the option to elect repayment is
being made thereby and a guarantee that the Debenture to be repaid with the form
entitled "Option to Elect Repayment" on the reverse of the Debenture duly
completed will be received by the Company not later than five Business Days
after the date of such telegram, telex, facsimile transmission or letter, and
such Debenture and form duly completed are received by the Company by such fifth
Business Day.
If less than the entire principal amount of the within Debenture is to be
repaid, specify the portion thereof (which shall be $1,000 or an integral
multiple of $1,000 in excess of $1,000) which the holder elects to have
repaid: $ ; and specify the denomination or denominations (which shall be
$1,000 or an integral multiple of $1,000 in excess of $1,000) of the Debenture
or Debentures to be issued to the holder for the amount of the portion of the
within Debenture not being repaid (in the absence of any such specification,
one such Debenture will be issued for the portion not being repaid: $ ).
Dated: ---------------------------------------------
NOTICE: The signature on this Option to Elect
Repayment must correspond with the name as
written upon the face of this instrument in
every particular without alteration or
enlargement or any other change whatsoever.
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This Debenture is one of the 10.20% Debentures due 2008 described in the
within-mentioned Indenture.
THE CHASE MANHATTAN BANK,
Trustee,
By _________________________________________
Authorized Officer.
3
<PAGE>
EXHIBIT 4.10
[FORM OF FACE OF NOTE]
NEW TENNECO INC.
6.70% NOTE DUE 2005
No. $
CUSIP 88037E AA9
New Tenneco Inc., a corporation organized and existing under the laws of
the State of Delaware (hereinafter called the "Company," which term shall
include any successor corporation as defined in the Indenture hereinafter
referred to), for value received, hereby promises to pay to or
registered assigns, the sum of Dollars on December 15, 2005, in
any coin or currency of the United States of America which at the time of
payment is legal tender for the payment of public and private debts, and to pay
to the registered holder hereof as hereinafter provided interest thereon at the
rate per annum specified in the title hereof in like coin or currency, from the
June 15 or December 15 next preceding the date hereof to which interest has been
paid, unless the date hereof is a June 15 or December 15 to which interest on
the Notes has been paid, in which case from the date hereof, or unless no
interest has been paid on the Notes since the original issue date (hereinafter
referred to) of this Note, in which case from the original issue date, semi-
annually on June 15 and December 15 in each year commencing June 15, 1997, until
payment of said principal sum has been made or duly provided for, and to pay
interest on any overdue principal and (to the extent permitted by law) on any
overdue installment of interest at the rate of 6.70% per annum. Notwithstanding
the foregoing, when there is no existing default in the payment of interest on
the Notes, if the date hereof is after May 31 or November 30 and prior to the
following June 15 or December 15, as the case may be, this Note shall bear
interest from such June 15 or December 15, or, if no interest has been paid on
the Notes since the original issue date of this Note, from the original issue
date; provided, however, that if the Company shall default in the payment of
interest due on such June 15 or December 15, then this Note shall bear interest
from the June 15 or December 15 to which interest has been paid or, if no
interest has been paid on the Notes since the original issue date of this Note,
from the original issue date. The interest so payable on any June 15 or December
15 will, subject to certain exceptions provided in the Indenture hereinafter
referred to, be paid to the person in whose name this Note is registered at the
close of business on the May 31 or November 30, as the case may be, next
preceding such June 15 or December 15, or if such May 31 or November 30 is not a
business day, the business day next preceding such May 31 or November 30.
Interest on this Note shall be computed on the basis of a 360-day year
consisting of twelve 30-day months. Both principal of and interest on this Note
are payable at the principal office of the Trustee in the Borough of Manhattan,
The City of New York, New York; provided, however, that payment of interest may
be made, at the option of the Company, by check mailed to the address of the
person entitled thereto as such address shall appear on the Note register. The
original issue date in respect of the Notes is December [ ], 1996.
ADDITIONAL PROVISIONS OF THIS NOTE ARE CONTAINED ON THE REVERSE HEREOF AND
SUCH PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS THOUGH FULLY SET
FORTH AT THIS PLACE.
This Note shall not be entitled to any benefit under the Indenture
hereinafter referred to, or become valid or obligatory for any purpose, until
the Trustee under the Indenture shall have signed the form of certificate of
authentication endorsed hereon.
In Witness Whereof, New Tenneco Inc. has caused this Instrument to be
signed in its name by its Chairman of the Board or its President or a Vice
President, and its corporate seal (or a facsimile thereof) to be hereto affixed
and attested by its Secretary or an Assistant Secretary.
Dated
--------------------------
New Tenneco Inc.
By
-------------------------------------
Vice President
Attest:
--------------------------
Secretary
[FORM OF REVERSE OF NOTE]
NEW TENNECO INC.
6.70% NOTE DUE 2005
This Note is one of a duly authorized issue of Notes of the Company known
as its 6.70% Notes due 2005 (herein called the "Notes"), limited to the
aggregate principal amount of $300,000,000, all issued under and equally
entitled to the benefits of an Indenture (herein, together with any amendments
and supplements thereto, including without limitation the form and terms of
Securities issued pursuant thereto, called the "Indenture"), dated as of
November 1, 1996, executed by the Company to The Chase Manhattan Bank (herein,
together with any successor thereto, called the "Trustee"), as Trustee, to which
Indenture reference is hereby made for a statement of the rights thereunder of
the Trustee and of the registered holders of the Notes and of the duties
thereunder of the Trustee and the Company.
1
<PAGE>
The Notes will be redeemable as a whole or in part, at the option of the
Company at any time, at a redemption price equal to the greater of (i) 100% of
their principal amount and (ii) the sum of the present values of the
remaining scheduled payments of principal and interest thereon discounted to
the date of redemption on a semiannual basis (assuming a 360-day year
consisting of twelve 30-day months) at the Treasury Yield plus 10 basis
points, plus in each case accrued interest to the date of redemption.
"Treasury Yield" means, with respect to any redemption date, the rate per
annum equal to the semiannual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as
a percentage of its principal amount) equal to the Comparable Treasury Price for
such redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of the Notes that would be utilized, at the time of selection
and in accordance with customary financial practice, in pricing new issues of
corporate debt securities of comparable maturity to the remaining term of the
Notes. "Independent Investment Banker" means Morgan Stanley & Co. Incorporated
or, if such firm is unwilling or unable to select the Comparable Treasury Issue,
an independent investment banking institution of national standing appointed by
the Trustee.
"Comparable Treasury Price" means, with respect to any redemption date, (i)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
business day preceding such redemption date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S.
Government Securities" or (ii) if such release (or any successor release) is not
published or does not contain such prices on such business day, (A) the average
of the Reference Treasury Dealer Quotations for such redemption date, after
excluding the highest and lowest such Reference Treasury Dealer Quotations, or
(B) if the Trustee obtains fewer than four such Reference Treasury Dealer
Quotations, the average of all such Quotations. "Reference Treasury Dealer
Quotations" means, with respect to each Reference Treasury Dealer and any
redemption date, the average, as determined by the Trustee, of the bid and asked
prices for the Comparable Treasury Issue (expressed in each case as a percentage
of its principal amount) quoted in writing to the Trustee by such Reference
Treasury Dealer at 5:00 p.m. on the third business day preceding such redemption
date.
"Reference Treasury Dealer" means each of Morgan Stanley & Co.
Incorporated, CS First Boston Corporation, Lehman Brothers Inc. and Salomon
Brothers Inc and their respective successors; provided however, that if any of
the foregoing cease to be a primary U.S. Government Securities dealer in New
York City (a "Primary Treasury Dealer"), the Company shall substitute therefor
another Primary Treasury Dealer.
Holders of Notes to be redeemed will receive notice thereof by first-class
mail at least 30 and not more than 60 days prior to the date fixed for
redemption.
The Indenture permits the Company to issue unsecured debentures, notes
and/or other evidences of indebtedness in one or more series ("Securities") up
to such principal amount or amounts as may be authorized in accordance with
the terms of the Indenture.
To the extent permitted by, and as provided in, the Indenture,
modifications or alterations of the Indenture and of the rights and obligations
of the Company and of the holders of the Notes may be made with the consent of
the Company and with the consent of the holders of not less than a majority in
principal amount of the Securities of all series then outstanding under the
Indenture (treated as a single class) which are affected by the modification or
amendment thereto; provided, however, that without the consent of the holder
hereof no such modification or alteration shall be made which will affect the
terms of payment of the principal of or interest on this Note.
In case a default, as defined in the Indenture, shall occur, the principal
of all the Notes at any such time outstanding under the Indenture may be
declared or may become due and payable, upon the conditions and in the manner
and with the effect provided in the Indenture. The Indenture provides that such
declaration may in certain events be waived by the holders of a majority in
principal amount of the Notes outstanding in the case of payment defaults on the
Notes and in certain other events by the holders of a majority in principal
amount of the Securities of all series then outstanding under the Indenture
(treated as a single class) which are affected thereby.
The Indenture provides that no holder of any Note may enforce any remedy
under the Indenture except in the case of refusal or neglect of the Trustee to
act after notice of default and after request by the holders of a majority in
principal amount of the outstanding Notes in certain events (and in certain
other events by the holders of a majority in principal amount of the Securities
of all series then outstanding under the Indenture, treated as a single class,
which are affected thereby) and the offer to the Trustee of security and
indemnity satisfactory to it; provided, however, that such provision shall not
prevent the holder hereof from enforcing payment of the principal of or interest
on this Note.
2
<PAGE>
The transfer of this Note is registrable by the registered holder hereof,
in person or by duly authorized attorney, at the agency of the Company in the
Borough of Manhattan, The City of New York, New York, on books of the Company to
be kept for that purpose at said agency, upon surrender and cancellation of this
Note and on presentation of a duly executed written instrument of transfer, and
thereupon a new Note or Notes, of the same aggregate principal amount and in
authorized denominations, will be issued to the transferee or transferees in
exchange herefor; and this Note, with or without other Notes, may in like manner
be exchanged for one or more new Notes of other authorized denominations but of
the same aggregate principal amount; all subject to the terms and conditions set
forth in the Indenture.
The Company, the Trustee, any paying agent and any Registrar of the Notes
may deem and treat the person in whose name this Note is registered as the
absolute owner hereof for all purposes whatsoever, and neither the Company nor
the Trustee nor any paying agent nor any Registrar of the Notes shall be
affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or the
interest on, this Note, or for any claim based hereon or on the Indenture,
against any incorporator, or against any stockholder, director or officer, as
such, past, present or future, of the Company, or of any predecessor or
successor corporation, either directly or through the Company or any such
predecessor or successor corporation, whether by virtue of any constitution,
statute or rule of law, or by the enforcement of any assessment or penalty or
otherwise, all such liability, whether at common law, in equity, by any
constitution, statute or otherwise, of incorporators, stockholders, directors or
officers being released by every owner hereof by the acceptance of this Note and
as part of the consideration for the issue hereof, and being likewise released
by the terms of the Indenture; provided, however, that nothing herein or in the
Indenture contained shall be taken to prevent recourse to and the enforcement of
the liability, if any, of any stockholder or subscriber to capital stock of the
Company upon or in respect of shares of capital stock not fully paid up.
All terms used in this Note which are defined in the Indenture shall have
the meanings assigned to them in the Indenture.
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This Note is one of the 6.70% Notes due 2005 described in the within-
mentioned Indenture.
THE CHASE MANHATTAN BANK,
Trustee,
By........................................
Authorized Officer.
3
<PAGE>
Exhibit 4.11
[FORM OF FACE OF DEBENTURE]
NEW TENNECO INC.
7.45% DEBENTURE DUE 2025
No. $
CUSIP 88037E AB 7
New Tenneco Inc., a corporation organized and existing under the laws of
the State of Delaware (hereinafter called the "Company," which term shall
include any successor corporation as defined in the Indenture hereinafter
referred to), for value received, hereby promises to pay to or
registered assigns, the sum of Dollars on December 15, 2025, in any
coin or currency of the United States of America which at the time of payment is
legal tender for the payment of public and private debts, and to pay to the
registered holder hereof as hereinafter provided interest thereon at the rate
per annum specified in the title hereof in like coin or currency, from
the June 15 or December 15 next preceding the date hereof to which interest has
been paid, unless the date hereof is a June 15 or December 15 to which interest
on the Debentures has been paid, in which case from the date hereof, or unless
no interest has been paid on the Debentures since the original issue date
(hereinafter referred to) of this Debenture, in which case from the original
issue date, semi-annually on June 15 and December 15 in each year commencing
June 15, 1997, until payment of said principal sum has been made or duly
provided for, and to pay interest on any overdue principal and (to the extent
permitted by law) on any overdue installment of interest at the rate of 7.45%
per annum. Notwithstanding the foregoing, when there is no existing default in
the payment of interest on the Debentures, if the date hereof is after May 31 or
November 30 and prior to the following June 15 or December 15, as the case may
be, this Debenture shall bear interest from such June 15 or December 15, or, if
no interest has been paid on the Debentures since the original issue date of
this Debenture, from the original issue date; provided, however, that if the
Company shall default in the payment of interest due on such June 15 or December
15, then this Debenture shall bear interest from the June 15 or December 15 to
which interest has been paid or, if no interest has been paid on the Debentures
since the original issue date of this Debenture, from the original issue date.
The interest so payable on any June 15 or December 15 will, subject to certain
exceptions provided in the Indenture hereinafter referred to, be paid to the
person in whose name this Debenture is registered at the close of business on
the May 31 or November 30, as the case may be, next preceding such June 15 or
December 15, or if such May 31 or November 30 is not a business day, the
business day next preceding such May 31 or November 30. Interest on this
Debenture shall be computed on the basis of a 360-day year of twelve 30-day
months. Both principal of and interest on this Debenture are payable at the
principal office of the Trustee in the Borough of Manhattan, The City of New
York, New York; provided, however, that payment of interest may be made, at the
option of the Company, by check mailed to the address of the person entitled
thereto as such address shall appear on the Debenture register. The original
issue date in respect of the Debentures is December [ ], 1996.
ADDITIONAL PROVISIONS OF THIS DEBENTURE ARE CONTAINED ON THE REVERSE HEREOF
AND SUCH PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS THOUGH FULLY
SET FORTH AT THIS PLACE.
This Debenture shall not be entitled to any benefit under the Indenture
hereafter referred to, or become valid or obligatory for any purpose, until the
Trustee under the Indenture shall have signed the form of certificate of
authentication endorsed hereon.
In Witness Whereof, New Tenneco Inc. has caused this Instrument to be
signed in its name by its Chairman of the Board or its President or a Vice
President, and its corporate seal (or a facsimile thereof) to be hereto affixed
and attested by its Secretary or an Assistant Secretary.
Dated ..........................
New Tenneco Inc.
By .......................................
Chairman of the Board
Attest:
................................
Secretary
[FORM OF REVERSE OF DEBENTURE]
NEW TENNECO INC.
7.45% DEBENTURE DUE 2025
This Debenture is one of a duly authorized issue of Debentures of the
Company known as its 7.45% Debentures due 2025 (herein called the "Debentures"),
limited to the aggregate principal amount of $300,000,000, all issued under and
equally entitled to the benefits of an Indenture (herein, together with any
amendments and supplements thereto, including without limitation the form and
terms of Securities issued pursuant thereto, called the
1
<PAGE>
"Indenture"), dated as of November 1, 1996, executed by the Company to The
Chase Manhattan Bank (herein, together with any successor thereto, called the
"Trustee"), as Trustee, to which Indenture reference is hereby made for a
statement of the rights thereunder of the Trustee and of the registered
holders of the Debentures and of the duties thereunder of the Trustee and the
Company.
The Debentures will not be redeemable prior to maturity.
The Indenture permits the Company to issue unsecured debentures, notes
and/or other evidences of indebtedness in one or more series ("Securities") up
to such principal amount or amounts as may be authorized in accordance with
the terms of the Indenture.
To the extent permitted by, and as provided in, the Indenture,
modifications or alterations of the Indenture and of the rights and obligations
of the Company and of the holders of the Debentures may be made with the consent
of the Company and with the consent of the holders of not less than a majority
in principal amount of the Securities of all series then outstanding under the
Indenture (treated as a single class) which are affected by the modification or
amendment thereto; provided, however, that without the consent of the holder
hereof no such modification or alteration shall be made which will affect the
terms of payment of the principal of or interest on this Debenture.
In case a default, as defined in the Indenture, shall occur, the principal
of all the Debentures at any such time outstanding under the Indenture may be
declared or may become due and payable, upon the conditions and in the manner
and with the effect provided in the Indenture. The Indenture provides that
such declaration may in certain events be waived by the holders of a majority
in principal amount of the Debentures outstanding in the case of payment
defaults on the Debentures and in certain other events by the holders of a
majority in principal amount of the Securities of all series then outstanding
under the Indenture (treated as a single class) which are affected thereby.
The Indenture provides that no holder of any Debenture may enforce any
remedy under the Indenture except in the case of refusal or neglect of the
Trustee to act after notice of default and after request by the holders of a
majority in principal amount of the outstanding Debentures in certain events
(and in certain other events by the holders of a majority in principal amount of
the Securities of all series then outstanding under the Indenture, treated as a
single class, which are affected thereby) and the offer to the Trustee of
security and indemnity satisfactory to it; provided, however, that such
provision shall not prevent the holder hereof from enforcing payment of the
principal of or interest on this Debenture.
The transfer of this Debenture is registrable by the registered holder
hereof, in person or by duly authorized attorney, at the agency of the Company
in the Borough of Manhattan, The City of New York, New York, on books of the
Company to be kept for that purpose at said agency, upon surrender and
cancellation of this Debenture and on presentation of a duly executed written
instrument of transfer, and thereupon a new Debenture or Debentures, of the
same aggregate principal amount and in authorized denominations, will be
issued to the transferee or transferees in exchange herefor; and this
Debenture, with or without other Debentures, may in like manner be exchanged
for one or more new Debentures of other authorized denominations but of the
same aggregate principal amount; all subject to the terms and conditions set
forth in the Indenture.
The Company, the Trustee, any paying agent and any Registrar of the
Debentures may deem and treat the person in whose name this Debenture is
registered as the absolute owner hereof for all purposes whatsoever, and
neither the Company nor the Trustee nor any paying agent nor any Registrar of
the Debentures shall be affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or the
interest on, this Debenture, or for any claim based hereon or on the Indenture,
against any incorporator, or against any stockholder, director or officer, as
such, past, present or future, of the Company, or of any predecessor or
successor corporation, either directly or through the Company or any such
predecessor or successor corporation, whether by virtue of any constitution,
statute or rule of law, or by the enforcement of any assessment or penalty or
otherwise, all such liability, whether at common law, in equity, by any
constitution, statute or otherwise, of incorporators, stockholders, directors or
officers being released by every owner hereof by the acceptance of this
Debenture and as part of the consideration for the issue hereof, and being
likewise released by the terms of the Indenture; provided, however, that nothing
herein or in the Indenture contained shall be taken to prevent recourse to and
the enforcement of the liability, if any, of any stockholder or subscriber to
capital stock of the Company upon or in respect of shares of capital stock not
fully paid up.
All terms used in this Debenture which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
2
<PAGE>
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This Debenture is one of the 7.45% Debentures due 2025 described in the
within-mentioned Indenture.
THE CHASE MANHATTAN BANK,
Trustee,
By _________________________________________
Authorized Officer.
3
<PAGE>
Exhibit 4.12
[FORM OF FACE OF DEBENTURE]
NEW TENNECO INC.
9.20% DEBENTURE DUE 2012
No. $
CUSIP 88037E AE 1
New Tenneco Inc., a corporation organized and existing under the laws of the
State of Delaware (hereinafter called the "Company," which term shall include
any successor corporation as defined in the Indenture hereinafter referred
to), for value received, hereby promises to pay to or registered
assigns, the sum of Dollars on November 15, 2012, in any coin or
currency of the United States of America which at the time of payment is legal
tender for the payment of public and private debts, and to pay to the
registered holder hereof as hereinafter provided interest thereon at the rate
per annum specified in the title hereof in like coin or currency, from the May
15 or November 15 next preceding the date hereof to which interest has been
paid, unless the date hereof is a May 15 or November 15 to which interest on
the Debentures has been paid, in which case from the date hereof, or unless no
interest has been paid on the Debentures since the original issue date
(hereinafter referred to) of this Debenture, in which case from the original
issue date, semi-annually on May 15 and November 15 in each year, until
payment of said principal sum has been made or duly provided for, and to pay
interest on any overdue principal and (to the extent permitted by law) on any
overdue installment of interest at the rate of 9.20% per annum.
Notwithstanding the foregoing, when there is no existing default in the
payment of interest on the Debentures, if the date hereof is after April 30 or
October 31 and prior to the following May 15 or November 15, as the case may
be, this Debenture shall bear interest from such May 15 or November 15 or, if
no interest has been paid on the Debentures since the original issue date of
this Debenture, from the original issue date; provided, however, that if the
Company shall default in the payment of interest due on such May 15 or
November 15, then this Debenture shall bear interest from the May 15 or
November 15 to which interest has been paid or, if no interest has been paid
on the Debentures since the original issue date of this Debenture, from the
original issue date. The interest so payable on any May 15 or November 15
will, subject to certain exceptions provided in the Indenture hereinafter
referred to, be paid to the person in whose name this Debenture is registered
at the close of business on the April 30 or October 31, as the case may be,
next preceding such May 15 or November 15, or if such April 30 or October 31
is not a business day, the business day next preceding such April 30 or
1
<PAGE>
October 31. Interest on this Debenture shall be computed on the basis of a
360-day year of twelve 30-day months. Both principal of and interest on this
Debenture are payable at the principal office of the Trustee in the Borough of
Manhattan, The City of New York, New York; provided, however, that payment of
interest may be made, at the option of the Company, by check mailed to the
address of the person entitled thereto as such address shall appear on the
Debenture register. The original issue date in respect of the Debentures is
December [ ], 1996.
ADDITIONAL PROVISIONS OF THIS DEBENTURE ARE CONTAINED ON THE REVERSE HEREOF
AND SUCH PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS THOUGH
FULLY SET FORTH AT THIS PLACE.
This Debenture shall not be entitled to any benefit under the Indenture
hereafter referred to, or become valid or obligatory for any purpose, until
the Trustee under the Indenture shall have signed the form of certificate of
authentication endorsed hereon.
In Witness Whereof, New Tenneco Inc. has caused this Instrument to be signed
in its name by its Chairman of the Board or its President or a Vice President,
and its corporate seal (or a facsimile thereof) to be hereto affixed and
attested by its Secretary or an Assistant Secretary.
Dated ..........................
New Tenneco Inc.
By .......................................
Chairman of the Board
Attest:
................................
Secretary
2
<PAGE>
[FORM OF REVERSE OF DEBENTURE]
NEW TENNECO INC.
9.20% DEBENTURE DUE 2012
This Debenture is one of a duly authorized issue of Debentures of the Company
known as its 9.20% Debentures due 2012 (herein called the "Debentures"),
limited to the aggregate principal amount of $150,000,000, all issued under and
equally entitled to the benefits of an Indenture (herein, together with any
amendments and supplements thereto, including without limitation the form and
terms of Securities issued pursuant thereto, called the "Indenture"), dated as
of November 1, 1996, executed by the Company to The Chase Manhattan Bank
(herein, together with any successor thereto, called the "Trustee"), as
Trustee, to which Indenture reference is hereby made for a statement of the
rights thereunder of the Trustee and of the registered holders of the
Debentures and of the duties thereunder of the Trustee and the Company.
The Debentures are not subject to redemption by the Company prior to
maturity.
The Indenture permits the Company to issue unsecured debentures, notes and/or
other evidences of indebtedness in one or more series ("Securities") up to such
principal amount or amounts as may be authorized in accordance with the terms
of the Indenture.
To the extent permitted by, and as provided in, the Indenture, modifications
or alterations of the Indenture and of the rights and obligations of the
Company and of the holders of the Debentures may be made with the consent of
the Company and with the consent of the holders of not less than a majority in
principal amount of the Securities of all series then outstanding under the
Indenture (treated as a single class) which are affected by the modification or
amendment thereto; provided, however, that without the consent of the holder
hereof no such modification or alteration shall be made which will affect the
terms of payment of the principal of or interest on this Debenture.
In case a default, as defined in the Indenture, shall occur, the principal of
all the Debentures at any such time outstanding under the Indenture may be
declared or may become due and payable, upon the conditions and in the manner
and with the effect provided in the Indenture. The Indenture provides
3
<PAGE>
that such declaration may in certain events be waived by the holders of a
majority in principal amount of the Debentures outstanding in the case of
payment defaults on the Debentures and in certain other events by the holders
of a majority in principal amount of the Securities of all series then
outstanding under the Indenture (treated as a single class) which are affected
thereby.
The Indenture provides that no holder of any Debenture may enforce any remedy
under the Indenture except in the case of refusal or neglect of the Trustee to
act after notice of default and after request by the holders of a majority in
principal amount of the outstanding Debentures in certain events (and in
certain other events by the holders of a majority in principal amount of the
Securities of all series then outstanding under the Indenture, treated as a
single class, which are affected thereby) and the offer to the Trustee of
security and indemnity satisfactory to it; provided, however, that such
provision shall not prevent the holder hereof from enforcing payment of the
principal of or interest on this Debenture.
The transfer of this Debenture is registrable by the registered holder
hereof, in person or by duly authorized attorney, at the agency of the Company
in the Borough of Manhattan, The City of New York, New York, on books of the
Company to be kept for that purpose at said agency, upon surrender and
cancellation of this Debenture and on presentation of a duly executed written
instrument of transfer, and thereupon a new Debenture or Debentures, of the
same aggregate principal amount and in authorized denominations, will be issued
to the transferee or transferees in exchange herefor; and this Debenture, with
or without other Debentures, may in like manner be exchanged for one or more
new Debentures of other authorized denominations but of the same aggregate
principal amount; all subject to the terms and conditions set forth in the
Indenture.
The Company, the Trustee, any paying agent and any Registrar of the
Debentures may deem and treat the person in whose name this Debenture is
registered as the absolute owner hereof for all purposes whatsoever, and
neither the Company nor the Trustee nor any paying agent nor any Registrar of
the Debentures shall be affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or the interest
on, this Debenture, or for any claim based hereon or on the Indenture, against
any incorporator, or against any stockholder, director or officer, as such,
past, present or future, of the Company, or of any predecessor or successor
corporation, either directly or through the Company or any such predecessor or
successor corporation, whether by virtue of any constitution, statute or rule
4
<PAGE>
of law, or by the enforcement of any assessment or penalty or otherwise, all
such liability, whether at common law, in equity, by any constitution, statute
or otherwise, of incorporators, stockholders, directors or officers being
released by every owner hereof by the acceptance of this Debenture and as part
of the consideration for the issue hereof, and being likewise released by the
terms of the Indenture; provided, however, that nothing herein or in the
Indenture contained shall be taken to prevent recourse to and the enforcement
of the liability, if any, of any stockholder or subscriber to capital stock of
the Company upon or in respect of shares of capital stock not fully paid up.
All terms used in this Debenture which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This Debenture is one of the 9.20% Debentures due 2012 described in the
within-mentioned Indenture.
THE CHASE MANHATTAN BANK,
Trustee,
By _____________________________________
Authorized Officer.
5
<PAGE>
EXHIBIT 4.13
[FORM OF FACE OF NOTE]
NEW TENNECO INC.
8.075% NOTE DUE 2002
No. $
CUSIP 88037E AC 5
New Tenneco Inc., a corporation organized and existing under the laws of
the State of Delaware (hereinafter called the "Company," which term shall
include any successor corporation as defined in the Indenture hereinafter
referred to), for value received, hereby promises to pay to or
registered assigns, the sum of Dollars on October 1, 2002,
in any coin or currency of the United States of America which at the time of
payment is legal tender for the payment of public and private debts, and to pay
to the registered holder hereof as hereinafter provided interest thereon at the
rate per annum specified in the title hereof in like coin or currency, from the
April 1 or October 1 next preceding the date hereof to which interest has been
paid, unless the date hereof is a April 1 or October 1 to which interest on the
Notes has been paid, in which case from the date hereof, or unless no interest
has been paid on the Notes since the original issue date (hereinafter referred
to) of this Note, in which case from the original issue date, semi-annually on
April 1 and October 1 in each year, until payment of said principal sum has been
made or duly provided for, and to pay interest on any overdue principal and (to
the extent permitted by law) on any overdue installment of interest at the rate
of 8.075% per annum. Notwithstanding the foregoing, when there is no existing
default in the payment of interest on the Notes, if the date hereof is after
March 16 or September 16 and prior to the following April 1 or October 1, as the
case may be, this Note shall bear interest from such April 1 or October 1, or,
if no interest has been paid on the Notes since the original issue date of this
Note, from the original issue date; provided however, that if the Company shall
default in the payment of interest due on such April 1 or October 1, then this
Note shall bear interest from the April 1 or October 1 to which interest has
been paid or, if no interest has been paid on the Notes since the original issue
date of this Note, from the original issue date. The interest so payable on any
April 1 or October 1 will, subject to certain exceptions provided in the
Indenture hereinafter referred to, be paid to the person in whose name this Note
is registered at the close of business on the March 16 or September 16, as the
case may be, next preceding such April 1 or October 1, or if such March 16 or
September 16 is not a business day, the business day next preceding such March
16 or September 16. Interest on this Note shall be computed on the basis of a
360-day year consisting of twelve 30-day months. Both principal of and interest
on this Note are payable at the principal office of the Trustee in the Borough
of Manhattan, The City of New York, New York; provided, however, that payment of
interest may be made, at the option of the Company, by check mailed to the
address of the person entitled thereto as such address shall appear on the Note
register. The original issue date in respect of the Notes is December [ ], 1996.
ADDITIONAL PROVISIONS OF THIS NOTE ARE CONTAINED ON THE REVERSE HEREOF AND
SUCH PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS THOUGH FULLY SET
FORTH AT THIS PLACE.
This Note shall not be entitled to any benefit under the Indenture
hereinafter referred to, or become valid or obligatory for any purpose, until
the Trustee under the Indenture shall have signed the form of certificate of
authentication endorsed hereon.
1
<PAGE>
In Witness Whereof, New Tenneco Inc. has caused this Instrument to be
signed in its name by its Chairman of the Board or its President or a Vice
President, and its corporate seal (or a facsimile thereof) to be hereto affixed
and attested by its Secretary or an Assistant Secretary.
Dated ..........................
New Tenneco Inc.
By .......................................
Vice President
Attest:
................................
Secretary
[FORM OF REVERSE OF NOTE]
NEW TENNECO INC.
8.075% NOTE DUE 2002
This Note is one of a duly authorized issue of Notes of the Company known
as its 8.075% Notes due 2002 (herein called the "Notes"), limited to the
aggregate principal amount of $500,000,000, all issued under and equally
entitled to the benefits of an Indenture (herein, together with any amendments
and supplements thereto, including without limitation the form and terms of
Securities issued pursuant thereto, called the "Indenture"), dated as of
November 1, 1996, executed by the Company to The Chase Manhattan Bank (herein,
together with any successor thereto, called the "Trustee"), as Trustee, to which
Indenture reference is hereby made for a statement of the rights thereunder of
the Trustee and of the registered holders of the Notes and of the duties
thereunder of the Trustee and the Company.
The Notes are not subject to redemption prior to maturity.
The Indenture permits the Company to issue unsecured debentures, notes
and/or other evidences of indebtedness in one or more series ("Securities") up
to such principal amount or amounts as may be authorized in accordance with
the terms of the Indenture.
To the extent permitted by, and as provided in, the Indenture,
modifications or alterations of the Indenture and of the rights and obligations
of the Company and of the holders of the Notes may be made with the consent of
the Company and with the consent of the holders of not less than a majority in
principal amount of the Securities of all series then outstanding under the
Indenture (treated as a single class) which are affected by the modification or
amendment thereto; provided, however, that without the consent of the holder
hereof no such modification or alteration shall be made which will affect the
terms of payment of the principal of or interest on this Note.
In case a default, as defined in the Indenture, shall occur, the principal
of all the Notes at any such time outstanding under the Indenture may be
declared or may become due and payable, upon the conditions and in the manner
and with the effect provided in the Indenture. The Indenture provides that such
declaration may in certain events be waived by the holders of a majority in
principal amount of the Notes outstanding in the case of payment defaults on the
Notes and in certain other events by the holders of a majority in principal
amount of the Securities of all series then outstanding under the Indenture
(treated as a single class) which are affected thereby.
The Indenture provides that no holder of any Note may enforce any remedy
under the Indenture except in the case of refusal or neglect of the Trustee to
act after notice of default and after request by the holders of a majority in
principal amount of the outstanding Notes in certain events (and in certain
other events by the holders of a majority in principal amount of the Securities
of all series then outstanding under the Indenture, treated as a single class,
which are affected thereby) and the offer to the Trustee of security and
indemnity satisfactory to it; provided, however, that such provision shall not
prevent the holder hereof from enforcing payment of the principal of or interest
on this Note.
2
<PAGE>
The transfer of this Note is registrable by the registered holder hereof,
in person or by duly authorized attorney, at the agency of the Company in the
Borough of Manhattan, The City of New York, New York, on books of the Company to
be kept for that purpose at said agency, upon surrender and cancellation of this
Note and on presentation of a duly executed written instrument of transfer, and
thereupon a new Note or Notes, of the same aggregate principal amount and in
authorized denominations, will be issued to the transferee or transferees in
exchange herefor; and this Note, with or without other Notes, may in like manner
be exchanged for one or more new Notes of other authorized denominations but of
the same aggregate principal amount; all subject to the terms and conditions set
forth in the Indenture.
The Company, the Trustee, any paying agent and any Registrar of the Notes
may deem and treat the person in whose name this Note is registered as the
absolute owner hereof for all purposes whatsoever, and neither the Company nor
the Trustee nor any paying agent nor any Registrar of the Notes shall be
affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or the
interest on, this Note, or for any claim based hereon or on the Indenture,
against any incorporator, or against any stockholder, director or officer, as
such, past, present or future, of the Company, or of any predecessor or
successor corporation, either directly or through the Company or any such
predecessor or successor corporation, whether by virtue of any constitution,
statute or rule of law, or by the enforcement of any assessment or penalty or
otherwise, all such liability, whether at common law, in equity, by any
constitution, statute or otherwise, of incorporators, stockholders, directors or
officers being released by every owner hereof by the acceptance of this Note and
as part of the consideration for the issue hereof, and being likewise released
by the terms of the Indenture; provided, however, that nothing herein or in the
Indenture contained shall be taken to prevent recourse to and the enforcement of
the liability, if any, of any stockholder or subscriber to capital stock of the
Company upon or in respect of shares of capital stock not fully paid up.
All terms used in this Note which are defined in the Indenture shall have
the meanings assigned to them in the Indenture.
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This Note is one of the 8.075% Notes due 2002 described in the within-
mentioned Indenture.
THE CHASE MANHATTAN BANK, Trustee,
By
--------------------------------
Authorized Officer.
3
<PAGE>
EXHIBIT 4.14
[FORM OF FACE OF NOTE]
NEW TENNECO INC.
8.20% NOTE DUE 1999
No. $
CUSIP 88037E AD 3
New Tenneco Inc., a corporation organized and existing under the laws of the
State of Delaware (hereinafter called the "Company," which term shall include
any successor corporation as defined in the Indenture hereinafter referred to),
for value received, hereby promises to pay to or registered assigns,
the sum of Dollars on November 15, 1999, in any coin or currency of
the United States of America which at the time of payment is legal tender for
the payment of public and private debts, and to pay to the registered holder
hereof as hereinafter provided interest thereon at the rate per annum specified
in the title hereof in like coin or currency, from the May 15 or November 15
next preceding the date hereof to which interest has been paid, unless the date
hereof is a May 15 or November 15 to which interest on the Notes has been paid,
in which case from the date hereof, or unless no interest has been paid on the
Notes since the original issue date (hereinafter referred to) of this Note, in
which case from the original issue date, semi-annually on May 15 and November 15
in each year, until payment of said principal sum has been made or duly provided
for, and to pay interest on any overdue principal and (to the extent permitted
by law) on any overdue installment of interest at the rate of 8.20% per annum.
Notwithstanding the foregoing, when there is no existing default in the payment
of interest on the Notes, if the date hereof is after April 30 or October 31 and
prior to the following May 15 or November 15, as the case may be, this Note
shall bear interest from such May 15 or November 15, or, if no interest has been
paid on the Notes since the original issue date of this Note, from the original
issue date; provided, however, that if the Company shall default in the payment
of interest due on such May 15 or November 15, then this Note shall bear
interest from the May 15 or November 15 to which interest has been paid or, if
no interest has been paid on the Notes since the original issue date of this
Note, from the original issue date. The interest so payable on any May 15 or
November 15 will, subject to certain exceptions provided in the Indenture
hereinafter referred to, be paid to the person in whose name this Note is
registered at the close of business on the April 30 or October 31, as the case
may be, next preceding such May 15 or November 15, or if such April 30 or
October 31 is not a business day, the business day next preceding such April 30
or October 31. Interest on this Note shall be computed on the basis of a 360-day
year consisting of twelve 30-day months. Both principal of and interest on this
1
<PAGE>
Note are payable at the principal office of the Trustee in the Borough of
Manhattan, The City of New York, New York; provided, however, that payment of
interest may be made, at the option of the Company, by check mailed to the
address of the person entitled thereto as such address shall appear on the Note
register. The original issue date in respect of the Notes is December [ ], 1996.
ADDITIONAL PROVISIONS OF THIS NOTE ARE CONTAINED ON THE REVERSE HEREOF AND
SUCH PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS THOUGH FULLY
SET FORTH AT THIS PLACE.
This Note shall not be entitled to any benefit under the Indenture
hereinafter referred to, or become valid or obligatory for any purpose, until
the Trustee under the Indenture shall have signed the form of certificate of
authentication endorsed hereon.
In Witness Whereof, New Tenneco Inc. has caused this Instrument to be signed
in its name by its Chairman of the Board or its President or a Vice President,
and its corporate seal (or a facsimile thereof) to be hereto affixed and
attested by its Secretary or an Assistant Secretary.
Dated ..........................
New Tenneco Inc.
By .......................................
Vice President
Attest:
................................
Secretary
2
<PAGE>
[FORM OF REVERSE OF NOTE]
NEW TENNECO INC.
8.20% NOTE DUE 1999
This Note is one of a duly authorized issue of Notes of the Company known as
its 8.20% Notes due 1999 (herein called the "Notes"), limited to the aggregate
principal amount of $250,000,000, all issued under and equally entitled to the
benefits of an Indenture (herein, together with any amendments and supplements
thereto, including without limitation the form and terms of Securities issued
pursuant thereto, called the "Indenture"), dated as of November 1, 1996,
executed by the Company to The Chase Manhattan Bank (herein, together with any
successor thereto, called the "Trustee"), as Trustee, to which Indenture
reference is hereby made for a statement of the rights thereunder of the Trustee
and of the registered holders of the Notes and of the duties thereunder of the
Trustee and the Company.
The Notes are not subject to redemption prior to maturity.
The Indenture permits the Company to issue unsecured debentures, notes
and/or other evidences of indebtedness in one or more series ("Securities") up
to such principal amount or amounts as may be authorized in accordance with
the terms of the Indenture.
To the extent permitted by, and as provided in, the Indenture, modifications
or alterations of the Indenture and of the rights and obligations of the
Company and of the holders of the Notes may be made with the consent of the
Company and with the consent of the holders of not less than a majority in
principal amount of the Securities of all series then outstanding under the
Indenture (treated as a single class) which are affected by the modification
or amendment thereto; provided, however, that without the consent of the
holder hereof no such modification or alteration shall be made which will
affect the terms of payment of the principal of or interest on this Note.
In case a default, as defined in the Indenture, shall occur, the principal
of all the Notes at any such time outstanding under the Indenture may be
declared or may become due and payable, upon the conditions and in the manner
and with the effect provided in the Indenture. The Indenture provides that
such declaration may in certain events be waived by the holders of a majority
in principal amount of the Notes outstanding in the case of payment defaults
on the Notes and in certain other events by the holders of a majority in
principal amount of the Securities of all series then outstanding under the
Indenture (treated as a single class) which are affected thereby.
3
<PAGE>
The Indenture provides that no holder of any Note may enforce any remedy
under the Indenture except in the case of refusal or neglect of the Trustee to
act after notice of default and after request by the holders of a majority in
principal amount of the outstanding Notes in certain events (and in certain
other events by the holders of a majority in principal amount of the
Securities of all series then outstanding under the Indenture, treated as a
single class, which are affected thereby) and the offer to the Trustee of
security and indemnity satisfactory to it; provided, however, that such
provision shall not prevent the holder hereof from enforcing payment of the
principal of or interest on this Note.
The transfer of this Note is registrable by the registered holder hereof, in
person or by duly authorized attorney, at the agency of the Company in the
Borough of Manhattan, The City of New York, New York, on books of the Company to
be kept for that purpose at said agency, upon surrender and cancellation of this
Note and on presentation of a duly executed written instrument of transfer, and
thereupon a new Note or Notes, of the same aggregate principal amount and in
authorized denominations, will be issued to the transferee or transferees in
exchange herefor; and this Note, with or without other Notes, may in like manner
be exchanged for one or more new Notes of other authorized denominations but of
the same aggregate principal amount; all subject to the terms and conditions set
forth in the Indenture.
The Company, the Trustee, any paying agent and any Registrar of the Notes may
deem and treat the person in whose name this Note is registered as the absolute
owner hereof for all purposes whatsoever, and neither the Company nor the
Trustee nor any paying agent nor any Registrar of the Notes shall be affected by
any notice to the contrary.
No recourse shall be had for the payment of the principal of or the interest
on, this Note, or for any claim based hereon or on the Indenture, against any
incorporator, or against any stockholder, director or officer, as such, past,
present or future, of the Company, or of any predecessor or successor
corporation, either directly or through the Company or any such predecessor or
successor corporation, whether by virtue of any constitution, statute or rule of
law, or by the enforcement of any assessment or penalty or otherwise, all such
liability, whether at common law, in equity, by any constitution, statute or
otherwise, of incorporators, stockholders, directors or officers being released
by every owner hereof by the acceptance of this Note and as part of the
consideration for the issue hereof, and being likewise released by the terms of
the Indenture; provided, however, that nothing herein or in the Indenture
contained shall be taken to prevent recourse to and the enforcement of the
liability, if any, of any stockholder or subscriber to capital stock of the
Company upon or in respect of shares of capital stock not fully paid up.
4
<PAGE>
All terms used in this Note which are defined in the Indenture shall have
the meanings assigned to them in the Indenture.
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This Note is one of the 8.20% Notes due 1999 described in the within-
mentioned Indenture.
THE CHASE MANHATTAN BANK,
Trustee,
By........................................
Authorized Officer.
5
<PAGE>
Exhibit 4.8
[FORM OF FACE OF NOTE]
NEW TENNECO INC.
10.075% NOTE DUE 2001
No. $
CUSIP 88037E AF 8
New Tenneco Inc., a corporation organized and existing under the laws of the
State of Delaware (hereinafter called the "Company," which term shall include
any successor corporation as defined in the Indenture hereinafter referred to),
for value received, hereby promises to pay to or registered
assigns, the sum of Dollars on February 1, 2001, in any coin or
currency of the United States of America which at the time of payment is legal
tender for the payment of public and private debts, and to pay to the registered
holder hereof as hereinafter provided interest thereon at the rate per annum
specified in the title hereof in like coin or currency, from the February 1 or
August 1 next preceding the date hereof to which interest has been paid, unless
the date hereof is a February 1 or August 1 to which interest on the Notes has
been paid, in which case from the date hereof, or unless no interest has been
paid on the Notes since the original issue date (hereinafter referred to) of
this Note, in which case from the original issue date, semi-annually on February
1 or August 1 in each year, until payment of said principal sum has been made or
duly provided for, and to pay interest on any overdue principal and (to the
extent permitted by law) on any overdue installment of interest at the rate of
10.075% per annum. Notwithstanding the foregoing, when there is no existing
default in the payment of interest on the Notes, if the date hereof is after
January 16 or July 16 and prior to the following February 1 or August 1, as the
case may be, this Note shall bear interest from such February 1 or August 1, or,
if no interest has been paid on the Notes since the original issue date of this
Note, from the original issue date; provided, however, that if the Company shall
default in the payment of interest due on such February 1 or August 1, then this
Note shall bear interest from the February 1 or August 1 to which interest has
been paid or, if no interest has been paid on the Notes since the original issue
date of this Note, from the original issue date. The interest so payable on any
February 1 or August 1 will, subject to certain exceptions provided in the
Indenture hereinafter referred to, be paid to the person in whose name this Note
is registered at the close of business on the January 16 or July 16, as the case
may be, next preceding such February 1 or August 1, or if such January 16 or
July 16 is not a business day, the business day next preceding such January 16
or July 16. Interest on this Note shall be computed on the basis of a 360-day
year consisting of twelve 30-day months. Both principal of and interest on this
Note are payable at the principal
1
<PAGE>
office of the Trustee in the Borough of Manhattan, The City of New York, New
York; provided, however, that payment of interest may be made, at the option
of the Company, by check mailed to the address of the person entitled thereto
as such address shall appear on the Note register. The original issue date in
respect of the Notes is December [ ], 1996.
ADDITIONAL PROVISIONS OF THIS NOTE ARE CONTAINED ON THE REVERSE HEREOF AND
SUCH PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS THOUGH FULLY
SET FORTH AT THIS PLACE.
This Note shall not be entitled to any benefit under the Indenture
hereinafter referred to, or become valid or obligatory for any purpose, until
the Trustee under the Indenture shall have signed the form of certificate of
authentication endorsed hereon.
In Witness Whereof, New Tenneco Inc. has caused this Instrument to be signed
in its name by its Chairman of the Board or its President or a Vice President,
and its corporate seal (or a facsimile thereof) to be hereto affixed and
attested by its Secretary or an Assistant Secretary.
Dated ..........................
New Tenneco Inc.
By .......................................
Vice President
Attest:
................................
Secretary
2
<PAGE>
[FORM OF REVERSE OF NOTE]
NEW TENNECO INC.
10.075% NOTE DUE 2001
This Note is one of a duly authorized issue of Notes of the Company known as
its 10.075% Notes due 2001 (herein called the "Notes"), limited to the
aggregate principal amount of $200,000,000, all issued under and equally
entitled to the benefits of an Indenture (herein, together with any amendments
and supplements thereto, including without limitation the form and terms of
Securities issued pursuant thereto, called the "Indenture"), dated as of
November 1, 1996, executed by the Company to The Chase Manhattan Bank
(herein, together with any successor thereto, called the "Trustee"), as
Trustee, to which Indenture reference is hereby made for a statement of the
rights thereunder of the Trustee and of the registered holders of the Notes
and of the duties thereunder of the Trustee and the Company.
The Notes are not subject to redemption prior to maturity.
The Indenture permits the Company to issue unsecured debentures, notes
and/or other evidences of indebtedness in one or more series ("Securities") up
to such principal amount or amounts as may be authorized in accordance with
the terms of the Indenture.
To the extent permitted by, and as provided in, the Indenture, modifications
or alterations of the Indenture and of the rights and obligations of the
Company and of the holders of the Notes may be made with the consent of the
Company and with the consent of the holders of not less than a majority in
principal amount of the Securities of all series then outstanding under the
Indenture (treated as a single class) which are affected by the modification
or amendment thereto; provided, however, that without the consent of the
holder hereof no such modification or alteration shall be made which will
affect the terms of payment of the principal of or interest on this Note.
In case a default, as defined in the Indenture, shall occur, the principal
of all the Notes at any such time outstanding under the Indenture may be
declared or may become due and payable, upon the conditions and in the manner
and with the effect provided in the Indenture. The Indenture provides that
such declaration may in certain events be waived by the holders of a majority
in principal amount of the Notes outstanding in the case of payment defaults
on the Notes and in certain other events by the holders of a majority in
principal amount of the Securities of all series then outstanding under the
Indenture (treated as a single class) which are affected thereby.
3
<PAGE>
The Indenture provides that no holder of any Note may enforce any remedy
under the Indenture except in the case of refusal or neglect of the Trustee to
act after notice of default and after request by the holders of a majority in
principal amount of the outstanding Notes in certain events (and in certain
other events by the holders of a majority in principal amount of the
Securities of all series then outstanding under the Indenture, treated as a
single class, which are affected thereby) and the offer to the Trustee of
security and indemnity satisfactory to it; provided, however, that such
provision shall not prevent the holder hereof from enforcing payment of the
principal of or interest on this Note.
The transfer of this Note is registrable by the registered holder hereof, in
person or by duly authorized attorney, at the agency of the Company in the
Borough of Manhattan, The City of New York, New York, on books of the Company to
be kept for that purpose at said agency, upon surrender and cancellation of this
Note and on presentation of a duly executed written instrument of transfer, and
thereupon a new Note or Notes, of the same aggregate principal amount and in
authorized denominations, will be issued to the transferee or transferees in
exchange herefor; and this Note, with or without other Notes, may in like manner
be exchanged for one or more new Notes of other authorized denominations but of
the same aggregate principal amount; all subject to the terms and conditions set
forth in the Indenture.
The Company, the Trustee, any paying agent and any Registrar of the Notes
may deem and treat the person in whose name this Note is registered as the
absolute owner hereof for all purposes whatsoever, and neither the Company nor
the Trustee nor any paying agent nor any Registrar of the Notes shall be
affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or the interest
on, this Note, or for any claim based hereon or on the Indenture, against any
incorporator, or against any stockholder, director or officer, as such, past,
present or future, of the Company, or of any predecessor or successor
corporation, either directly or through the Company or any such predecessor or
successor corporation, whether by virtue of any constitution, statute or rule of
law, or by the enforcement of any assessment or penalty or otherwise, all such
liability, whether at common law, in equity, by any constitution, statute or
otherwise, of incorporators, stockholders, directors or officers being released
by every owner hereof by the acceptance of this Note and as part of the
consideration for the issue hereof, and being likewise released by the terms of
the Indenture; provided, however, that nothing herein or in the Indenture
contained shall be taken to prevent recourse to and the enforcement of the
liability, if any, of any stockholder or subscriber to capital stock of the
Company upon or in respect of shares of capital stock not fully paid up.
4
<PAGE>
All terms used in this Note which are defined in the Indenture shall have
the meanings assigned to them in the Indenture.
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This Note is one of the 10.075% Notes due 2001 described in the within-
mentioned Indenture.
THE CHASE MANHATTAN BANK,
Trustee,
By........................................
Authorized Officer.
5
<PAGE>
EXHIBIT 5
THEODORE R. TETZLAFF Tenneco
1275 King Street
General Counsel Greenwich, Connecticut 06831
LOGO
[LOGO OF TENNECO INC. APPEARS HERE]
November 6, 1996
New Tenneco Inc.
1275 King Street
Greenwich, Connecticut 06831
Ladies and Gentlemen:
As General Counsel of Tenneco Inc. ("Tenneco") I have acted as counsel to
New Tenneco Inc. (the "Company") in connection with the Registration Statement
on Form S-4 (Reg. No. 333-14003) filed with the Securities and Exchange
Commission (the "Registration Statement"), for the purpose of registering
under the Securities Act of 1933, as amended (the "Act"), $1,950,000,000
aggregate principal amount of the Company's notes and debentures (the "New
Securities"). The New Securities are to be issued pursuant to an Indenture
dated as of November 1, 1996 (the "Indenture") between the Company and The
Chase Manhattan Bank, as Trustee (the "Trustee") as proposed to be
supplemented.
I am familiar with the Registration Statement and the exhibits thereto. I,
or attorneys under my supervision, have also examined originals or copies,
certified or otherwise, of such other documents, evidence of corporate action
and instruments, including the Indenture and the form of the New Securities,
as I have deemed necessary or advisable for the purpose of rendering this
opinion. As to questions of fact relevant to this opinion, I have relied upon
certificates or written statements from officers and other appropriate
representatives of the Company and its subsidiaries or public officials. In
all such examinations I have assumed the genuineness of all signatures, the
authority to sign, and the authenticity of all documents submitted to me as
originals. I have also assumed the conformity with the originals of all
documents submitted to me as copies.
Based on and subject to the foregoing, I am of the opinion that the
Indenture and the New Securities have been duly authorized by the Company. I
am also of the opinion that, assuming (i) the Indenture is duly executed by
the Trustee, (ii) the Registration Statement has become effective under the
Act, (iii) the New Securities are duly authorized, executed and authenticated
in accordance with the Indenture, and (iv) delivery of the New Securities to
the purchasers thereof in exchange for certain debt securities of Tenneco in
the manner described in the Registration Statement, the New Securities will be
valid and binding obligations of the Company.
The opinions expressed above are limited to the federal laws of the United
States, the laws of the State of Illinois and, to the extent relevant thereto,
the General Corporation Law of the State of Delaware as currently in effect.
For purposes of this opinion, I have assumed that the laws of the State of New
York are identical to the laws of the State of Illinois. I assume no
obligation to supplement this opinion if any applicable laws change after the
date hereof or if I become aware of any facts that might change the opinions
expressed herein after the date hereof.
I hereby consent to the use of my name under the caption "Legal Matters" in
the Prospectus forming a part of the Registration Statement and to the filing,
as an exhibit to the Registration Statement, of this opinion. In giving this
consent, I do not hereby admit that I am in the category of persons whose
consent is required under Section 7 of the Act or the rules and regulations of
the Securities and Exchange Commission.
Very truly yours,
Theodore R. Tetzlaff
General Counsel
<PAGE>
EXHIBIT 8
LAW OFFICES
JENNER & BLOCK
A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
ONE IBM PLAZA
CHICAGO, ILLINOIS 60611
(312) 222-8350
(312) 527-0484 FAX
November 6, 1996
New Tenneco Inc.
1275 King Street
Greenwich, Connecticut 06831
Re: FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFERS
Ladies and Gentlemen:
You have requested our opinion as to certain federal income tax consequences
of the exchange of up to $1,950,000,000 aggregate principal amount of newly
issued notes and debentures (the "New Securities") of New Tenneco Inc., a
Delaware corporation ("New Tenneco"), for any and all of the $1,950,000,000
aggregate principal amount of certain outstanding notes and debentures (the
"Old Securities") issued by Tenneco Inc., a Delaware corporation ("Tenneco"),
as described in the Registration Statement on Form S-4 (Reg. No. 333-14003),
filed by New Tenneco with the Securities and Exchange Commission (the
"Registration Statement"). Capitalized terms used herein and not otherwise
defined have the meanings given to them in the Registration Statement.
In rendering our opinion, we have examined and relied upon the accuracy and
completeness of the facts, information, covenants and representations
contained in originals or copies, certified or otherwise identified to our
satisfaction, of the Prospectus and Consent Solicitation filed as part of the
Registration Statement (the "Prospectus"), and such other documents and
representations of representatives of New Tenneco as we have deemed necessary
or appropriate. In our examination we have assumed the genuineness of all
signatures, the legal capacity of natural persons, the authenticity of all
documents submitted to us as originals, the conformity to original documents
of all documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such documents. We have also assumed the
transactions related to the Exchange Offers will be consummated as described
in the Prospectus.
In rendering our opinion, we have considered the applicable provisions of
the Internal Revenue Code of 1986, as amended, proposed, temporary and final
Treasury Regulations promulgated thereunder, pertinent judicial authorities,
interpretive rulings of the Internal Revenue Service and other authorities as
we have considered relevant. We caution that statutes, regulations, judicial
decisions and administrative interpretations are subject to change at any time
and, in some circumstances, with retroactive effect. A change in the
authorities upon which our opinion is based could affect the conclusions
stated herein.
Based on the foregoing, we are of the opinion that the statements and legal
conclusions contained in the Prospectus under the caption "CERTAIN U.S.
FEDERAL INCOME TAX CONSIDERATIONS", to the extent that they constitute matters
of law or legal conclusions, are correct in all material respects. In
addition, we consent to the reference to Jenner & Block in the Prospectus
under the caption "Legal Matters" and to the filing of this opinion as an
exhibit to the Registration Statement. In giving this consent, we do not
hereby admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission.
Except as expressly set forth in the Prospectus, we express no opinion to
any party as to the tax consequences, whether federal, state, local or
foreign, of the Exchange Offers or of any transaction related to the Exchange
Offers. This opinion is solely for your benefit and is not to be used,
circulated, quoted or otherwise referred to for any purpose without our
express prior written permission.
Very truly yours,
Jenner & Block
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement of our reports dated February 8, 1996
(except with respect to the matter discussed in Note 3, as to which the date
is March 7, 1996), included in Tenneco Inc.'s Annual Report on Form 10-K, as
amended, for the year ended December 31, 1995, and August 19, 1996 for (i) the
Businesses of Tenneco Energy and (ii) the Businesses of New Tenneco, included
in or made a part of this Registration Statement, and to all references to our
Firm included in this Registration Statement.
ARTHUR ANDERSEN LLP
Houston, Texas
November 7, 1996
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in this
Amendment No. 3 to the Registration Statement (Form S-4) and to the
incorporation by reference therein of our report dated August 18, 1995 with
respect to the December 28, 1994 combined financial statements of Mobil
Plastics Division of Mobil Corporation included in the Current Report of
Tenneco Inc. on Form 8-K dated November 17, 1995 filed with the Securities and
Exchange Commission and to the use of our report dated August 9, 1996 with
respect to the combined financial statements of Mobil Plastics Division of
Mobil Oil Corporation for the period December 29, 1994 to November 17, 1995
and the year ended December 28, 1994 in this Registration Statement.
Ernst & Young LLP
Buffalo, New York
November 7, 1996
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL AND CONSENT
TO TENDER AND TO GIVE CONSENT IN RESPECT OF
6 1/2% NOTES DUE 2005
7 1/4% DEBENTURES DUE 2025
7 7/8% NOTES DUE 2002
8% NOTES DUE 1999
9% DEBENTURES DUE 2012
9 7/8% NOTES DUE 2001
10% DEBENTURES DUE 2008
OF
TENNECO INC.
PURSUANT TO THE OFFER TO EXCHANGE AND CONSENT SOLICITATION
OF
NEW TENNECO INC.
DATED NOVEMBER , 1996
EACH OF THE EXCHANGE OFFERS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON TUESDAY, DECEMBER 10, 1996, UNLESS EXTENDED OR EARLIER TERMINATED.
To: The Chase Manhattan Bank, Exchange Agent
By Mail: Facsimile Transmission:
(212) 946-8016/8017
Box 2020 Confirm by Telephone:
4 Chase MetroTech Ctr. (212) 946-3471
Brooklyn, NY 11245
By Hand:
By Overnight Delivery: (9:00 a.m. - 5:00 p.m.
New York City Time)
c/o Bond Dept. 1 Chase Manhattan Plaza
450 W. 33rd St. Floor 1-B
10th Floor Nassau and Liberty Streets
New York, NY 10001 New York, NY 10081
Any questions concerning tender procedures may be directed to Georgeson &
Company Inc., who is acting as Information Agent for the Exchange Offers, at
(800) 223-2064 or banks and brokers may call collect at (212) 440-9800.
DELIVERY OF THIS LETTER OF TRANSMITTAL AND CONSENT (THE "LETTER OF
TRANSMITTAL") TO AN ADDRESS, OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE
NUMBER, OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal must be used to accept an Exchange Offer (as
defined in the Prospectus and Consent Solicitation dated November , 1996
(the "Prospectus"), of New Tenneco Inc. ("New Tenneco")) if certificates
representing Old Securities (as defined in the Prospectus) are to be
physically delivered to The Chase Manhattan Bank, as exchange agent (the
"Exchange Agent"). This Letter of Transmittal may be used (but is not required
to be used) if (i) Old Securities are to be tendered by effecting a book-entry
transfer into the Exchange Agent's account at The Depository Trust Company
("DTC") or (ii) a tender of Old Securities is to be made according to the
guaranteed delivery procedures described in the Prospectus under the heading
"The Exchange Offers--Procedures for Tendering Old Securities for Exchange and
Giving Consents--Guaranteed Delivery Procedures"; and, in each case,
instructions are not being transmitted through DTC's Automated Tender Offer
Program ("ATOP").
Holders of Old Securities that are tendering by book-entry transfer to the
Exchange Agent's account at DTC can execute the tender through ATOP, for which
the Exchange Offers will be eligible. DTC participants that are accepting the
Exchange Offers may transmit their acceptance to DTC, which will verify the
acceptance and execute a book-entry delivery to the Exchange Agent's account
at DTC. DTC will then send an Agent's Message (as defined in the Prospectus)
to the Exchange Agent for its acceptance. Delivery of the Agent's Message by
DTC will satisfy the terms of the Exchange Offers as to execution and delivery
of a Letter of Transmittal by the participant identified in the Agent's
Message. DTC participants may also accept the Exchange Offers by submitting a
notice of guaranteed delivery through ATOP.
<PAGE>
HOLDERS WHO TENDER OLD SECURITIES ARE REQUIRED TO CONSENT TO THE PROPOSED
AMENDMENTS (AS DEFINED). THE COMPLETION, EXECUTION AND DELIVERY OF THIS LETTER
OF TRANSMITTAL WILL CONSTITUTE A CONSENT (AS DEFINED) TO THE PROPOSED
AMENDMENTS.
SUBJECT TO THE TERMS AND CONDITIONS OF THE EXCHANGE OFFERS, NEW TENNECO WILL
ACCEPT FOR EXCHANGE ALL OLD SECURITIES PROPERLY TENDERED (AND NOT WITHDRAWN)
PURSUANT TO THE EXCHANGE OFFERS AT OR PRIOR TO THE EXPIRATION TIME. ON THE
FIRST NEW YORK STOCK EXCHANGE ("NYSE") TRADING DAY AFTER THE APPLICABLE
EXPIRATION TIME (THE "ISSUANCE DATE"), NEW TENNECO WILL ISSUE TO THE EXCHANGE
AGENT NEW SECURITIES (AS DEFINED IN THE PROSPECTUS) IN EXCHANGE FOR THE
TENDERED AND ACCEPTED OLD SECURITIES AND WILL PAY (OR IN CERTAIN CIRCUMSTANCES
TENNECO WILL PAY) TO THE EXCHANGE AGENT ACCRUED AND UNPAID INTEREST ON THE OLD
SECURITIES TO BUT EXCLUDING THE ISSUANCE DATE. THE EXCHANGE AGENT WILL DELIVER
SUCH NEW SECURITIES AND ACCRUED INTEREST PAYABLE IN IMMEDIATELY AVAILABLE
(SAME-DAY) FUNDS TO THE EXCHANGING HOLDERS OF OLD SECURITIES (OR, IN CERTAIN
CIRCUMSTANCES, THE HOLDER OF SUCH OLD SECURITIES AS OF AN INTEREST PAYMENT
RECORD DATE WHICH PRECEDES THE ISSUANCE DATE) ON THE THIRD NYSE TRADING DAY
AFTER THE APPLICABLE EXPIRATION TIME OR AS SOON AS POSSIBLE THEREAFTER (THE
"EXCHANGE DATE"). SUCH DELIVERY WILL BE MADE IN THE FORM OF PHYSICAL
CERTIFICATES WITH RESPECT TO NEW SECURITIES EXCHANGED FOR OLD SECURITIES THAT
WERE HELD IN PHYSICAL FORM AND WILL BE MADE BY BOOK ENTRY TRANSFER WITH
RESPECT TO OLD SECURITIES THAT WERE TENDERED BY BOOK ENTRY TRANSFER.
Holders of Old Securities whose Old Securities are not immediately available
or who cannot deliver their Old Securities and all other documents required
hereby to the Exchange Agent at or prior to the Expiration Time or who cannot
complete the procedure for book-entry transfer on a timely basis may
nevertheless tender their Old Securities and consent to the Proposed
Amendments according to the guaranteed delivery procedures set forth in the
Prospectus under the heading "The Exchange Offers--Procedures for Tendering
Old Securities for Exchange and Giving Consents--Guaranteed Delivery
Procedures." See Instruction 2.
Holders who wish to consent to the Proposed Amendments and tender their Old
Securities must, at a minimum, complete columns (1) through (4) in the table
below entitled "Description of Old Securities Tendered and In Respect of Which
Consent Is Given" and sign in the appropriate box below. IF ONLY THOSE COLUMNS
ARE COMPLETED, THE HOLDER WILL BE DEEMED TO HAVE CONSENTED TO THE PROPOSED
AMENDMENTS IN RESPECT OF, AND TO HAVE TENDERED, ALL OLD SECURITIES LISTED IN
THE TABLE. If a holder wishes to tender less than all of such Old Securities,
column (5) must be completed in full. See Instruction 4.
[_] CHECK HERE IF CONSENTS ARE GIVEN AND TENDERED OLD SECURITIES ARE
ENCLOSED HEREWITH.
[_] CHECK HERE IF CONSENTS ARE GIVEN AND TENDERED OLD SECURITIES ARE BEING
DELIVERED BY BOOK-ENTRY TRANSFER TO THE EXCHANGE AGENT'S ACCOUNT AT DTC
AND COMPLETE THE FOLLOWING:
Name of Tendering Institution ___________________________________________
DTC Account No. _________________________________________________________
Date Tendered ___________________________________________________________
[_] CHECK HERE IF CONSENTS ARE GIVEN AND TENDERED OLD SECURITIES ARE BEING
DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO
THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING:
Name(s) of holder(s) ____________________________________________________
Date of Execution of Notice of Guaranteed Delivery ______________________
Name of Eligible Institution That Guaranteed Delivery ___________________
If delivery is by book-entry transfer, complete the following:
DTC Account No. _________________________________________________________
Date Sent _______________________________________________________________
<PAGE>
List below the Old Securities to which this Letter of Transmittal relates.
If the space provided is inadequate, list the certificate numbers and
principal amounts on a separately executed schedule and affix the schedule to
this Letter of Transmittal. Tenders of Old Securities will be accepted only in
principal amounts equal to $1,000 or integral multiples thereof.
DESCRIPTION OF OLD SECURITIES TENDERED AND IN RESPECT OF WHICH CONSENT IS
GIVEN
(SEE INSTRUCTIONS 3 AND 4)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NAME(S) AND
ADDRESS(ES)
OF
HOLDER(S)
(PLEASE OLD SECURITIES TENDERED AND IN RESPECT
FILL IN, IF OF WHICH CONSENT IS GIVEN
BLANK) (ATTACH ADDITIONAL SIGNED SCHEDULE IF NECESSARY)
- -----------------------------------------------------------------------------
(1) (2) (3) (4) (5)
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SERIES OF CERTIFICATE TOTAL PRINCIPAL PRINCIPAL AMOUNT
OLD SECURITIES* NUMBER(S)** AMOUNT OF TENDERED***
SERIES OF OLD AND IN RESPECT OF
SECURITIES*** WHICH CONSENT
IS GIVEN
(IF LESS THAN ALL)
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
TOTAL
- -------------------------------------------------------------------------------
</TABLE>
* Indicate series of Old Securities: 6 1/2% Notes due 2005; 7 1/4%
Debentures due 2025; 7 7/8% Notes due 2002; 8% Notes due 1999; 9%
Debentures due 2012; 9 7/8% Notes due 2001; or 10% Debentures due 2008.
** Need not be completed by holders tendering by book-entry transfer.
*** You must consent to the Proposed Amendments in respect to all of the
Old Securities tendered by you; completion of column (4) will
constitute a Consent to the Proposed Amendments in respect of such Old
Securities, unless less than all such Old Securities are to be tendered
as specified in column (5), in which case a Consent only with respect
to such lesser amount of such Old Securities tendered shall be given.
All capitalized terms used herein and not defined herein have the meaning
ascribed to them in the Prospectus.
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
Ladies and Gentlemen:
The undersigned hereby consents (the "Consent") to the proposed amendments
described in the Prospectus (the "Proposed Amendments") to the indenture dated
as of March 15, 1988 (as amended prior to the date hereof, the "Indenture")
between Tenneco Inc., a Delaware corporation ("Tenneco"), and The Chase
Manhattan Bank, as trustee (the "Trustee") with respect to, and hereby tenders
to New Tenneco, the principal amount of Old Securities indicated in the table
above entitled "Description of Old Securities Tendered and in Respect of Which
Consent is Given," upon the terms and subject to the conditions set forth in
the Prospectus (receipt of which is hereby acknowledged) and in this Letter of
Transmittal, which together constitute New Tenneco's offers (the "Exchange
Offers") to exchange the applicable series of New Securities for the
applicable series of Old Securities properly tendered and accepted for
exchange. New Tenneco will acquire such Old Securities by issuing New
Securities in exchange therefor on the Issuance Date. Such New Securities will
be delivered to the Exchange Agent, which will deliver the New Securities to
the holders of tendered and accepted Old Securities on the Exchange Date.
Interest on Old Securities exchanged in an Exchange Offer will continue to
accrue up to, but excluding, the applicable Issuance Date and will be paid to
exchanging holders in cash in immediately available same-day funds
concurrently with the delivery of New Securities; provided, however, that if
the Issuance Date for any series of Old Securities occurs before an interest
payment date for such series of Old Securities but after the record date
relating to such interest payment date, then Tenneco (rather than New Tenneco)
will pay accrued interest up to, but excluding, the applicable Issuance Date
on such series of Old Securities to the holders of such Old Securities as of
such record date (which holder may be different than the exchanging holder) on
the applicable Exchange Date (rather than on the regularly scheduled interest
payment date). The Proposed Amendments will be effected through the execution
and delivery by Tenneco and the Trustee of the Tenneco Supplemental Indenture
(as defined in the Prospectus).
<PAGE>
Subject to, and effective upon, acceptance for exchange of the Old
Securities tendered hereby in accordance with the terms and subject to the
conditions of the Exchange Offers, the undersigned hereby sells, assigns and
transfers to, or upon the order of, New Tenneco, all right, title and interest
in and to, and any and all claims in respect of or arising or having arisen as
a result of the undersigned's status as a holder of, all Old Securities
tendered hereby. The undersigned hereby irrevocably constitutes and appoints
the Exchange Agent as the true and lawful agent and attorney-in-fact of the
undersigned (with full knowledge that the Exchange Agent also acts as the
agent of New Tenneco) with respect to such Old Securities, with full powers of
substitution and revocation (such power of attorney being deemed to be an
irrevocable power coupled with an interest), to (a) deliver certificates for
such Old Securities or transfer ownership of such Old Securities on the
account books maintained by DTC, in either such case together with all
accompanying evidences of transfer and authenticity, to or upon the order of
New Tenneco, (b) present such Old Securities for transfer of ownership on the
books of Tenneco, (c) deliver to Tenneco and the Trustee the Consent contained
herein as evidence of the undersigned's Consent to the Proposed Amendments and
as confirmation that the Requisite Consents to the Proposed Amendments duly
executed by holders of Old Securities have been received, (d) receive all
benefits and otherwise exercise all rights of beneficial ownership of such Old
Securities, all in accordance with the terms of the Exchange Offers and (e)
accept delivery of the New Securities and any accured interest on behalf of
the undersigned.
The undersigned agrees and acknowledges that, by the execution and delivery
hereof, the undersigned makes and provides the written Consent to the Proposed
Amendments (with respect to the principal amount of Old Securities indicated
in the table above entitled "Description of Old Securities Tendered and in
Respect of Which Consent is Given" (or, if nothing is indicated therein, with
respect to the principal amount of Old Securities with respect to which the
undersigned's consent is deemed given in connection with a tender of Old
Securities)) as permitted by the Indenture. The undersigned understands that
the Consent provided hereby shall remain in full force and effect unless and
until such Consent is revoked in accordance with the procedures set forth in
the Prospectus and this Letter of Transmittal. The undersigned understands
that after the Expiration Time no Consents may be revoked.
The undersigned hereby represents and warrants that: (a) the undersigned (i)
has full power and authority to tender the Old Securities tendered hereby and
to sell, assign and transfer all right, title and interest in and to such Old
Securities and (ii) either has full power and authority to Consent to the
Proposed Amendments or is delivering a duly executed Consent (which is
included in this Letter of Transmittal) from a person or entity having such
power and authority; and (b) New Tenneco will acquire good, indefeasible and
unencumbered title to such Old Securities, free and clear of all liens,
restrictions, charges, claims and encumbrances and not subject to an adverse
claim, when the same are acquired by New Tenneco. The undersigned, upon
request, will execute and deliver any additional documents deemed by the
Exchange Agent or New Tenneco to be necessary or desirable to complete the
sale, assignment and transfer of the Old Securities tendered hereby or to
perfect the undersigned's Consent to the Proposed Amendments.
The undersigned understands that Old Securities properly tendered and not
withdrawn prior to the Expiration Time may be exchanged for the applicable New
Securities, subject to the terms and conditions of the Exchange Offers. If any
amount of tendered Old Securities is not exchanged for any reason, or if
certificates are submitted that evidence a greater principal amount of Old
Securities than the principal amount to be tendered, such unexchanged Old
Securities or new certificates evidencing Old Securities for untendered
amounts, as the case may be, will be returned, without expense, to the
undersigned at the address shown below, or at such different address as may be
indicated herein under "Special Delivery Instructions" (or, in the case of Old
Securities tendered by book-entry transfer, such Old Securities will be
credited to the account registered at DTC from which Old Securities were
delivered).
The undersigned understands that the procedures described in the Prospectus
under the heading "The Exchange Offers--Procedures for Tendering Old
Securities for Exchange and Giving Consents" and in the instructions hereto
will constitute a binding agreement between the undersigned and New Tenneco
upon the terms and subject to the conditions described in the Prospectus. For
purposes of the Exchange Offers, the undersigned understands that validly
tendered Old Securities (or defectively tendered Old Securities with respect
to which New Tenneco has, or has caused
<PAGE>
to be, waived such defect) will be deemed to have been accepted by New Tenneco
if, as and when New Tenneco gives oral or written notice thereof to the
Exchange Agent for purposes of the Consent Solicitation. Consents received by
the Exchange Agent will be deemed to have been accepted if, as and when New
Tenneco has accepted the Old Securities for purchase and exchange pursuant to
the applicable Exchange Offer.
TENDERS OF OLD SECURITIES MADE PURSUANT TO THE EXCHANGE OFFERS MAY NOT BE
WITHDRAWN AFTER THE EXPIRATION TIME. AT OR PRIOR TO SUCH TIME, THE WITHDRAWAL
OF OLD SECURITIES IN ACCORDANCE WITH THE PROCEDURES SET FORTH IN THE
PROSPECTUS WILL EFFECT A REVOCATION OF THE CORRESPONDING CONSENT. A purported
notice of withdrawal will be effective only if delivered to the Exchange Agent
in accordance with the specific procedures set forth in the Prospectus under
the heading "The Exchange Offers--Withdrawal Rights."
All authority conferred or agreed to be conferred in this Letter of
Transmittal shall not be affected by and shall survive the death or incapacity
of the undersigned and any obligation of the undersigned hereunder shall be
binding upon the heirs, executors, administrators, trustees in bankruptcy,
personal and legal representatives, successors and assigns of the undersigned.
Unless otherwise indicated under "Special Issuance Instructions," please
issue the applicable New Securities and any certificates for Old Securities
not tendered or not exchanged in the name(s) of the undersigned (and, in the
case of Old Securities tendered by book-entry transfer, by credit to the DTC
account specified above). Similarly, unless otherwise indicated under "Special
Delivery Instructions," please mail the applicable New Securities and any
certificates for Old Securities not tendered or not exchanged (and
accompanying documents, as appropriate) to the undersigned at the address
shown below the undersigned's signature(s). In the event that both "Special
Issuance Instructions" and "Special Delivery Instructions" are completed,
please issue the applicable New Securities in the name(s) of, and mail the
applicable New Securities and any certificates for the Old Securities not
tendered or not exchanged to, the person(s) so indicated. The undersigned
recognizes that New Tenneco has no obligation under the "Special Issuance
Instructions" or the "Special Delivery Instructions" provision of this Letter
of Transmittal to effect the transfer of any Old Securities from the name of
the holder(s) thereof if New Tenneco does not accept for payment any of the
principal amount of such Old Securities.
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 4, 5, 6 AND 7) (SEE INSTRUCTIONS 1, 4, 5, 6 AND 7)
To be completed ONLY if Old
To be completed ONLY if Old Securities to be issued in the
Securities to be issued in the principal amount of Old
principal amount of Old Securities not tendered or not
Securities not tendered or not exchanged, and/or any New
exchanged, and/or any New Securities, are to be sent to
Securities, are to be issued in someone other than the
the name of someone other than undersigned, or to the
the undersigned. If any of the undersigned at an address other
Old Securities or New Securities than that shown above.
are to be issued in the name of
someone other than the
undersigned, the assignment
block on the back of such Old
Securities must be properly
completed or an appropriate
instrument of transfer must be
provided (unless delivered by
book-entry transfer).
Send to:
Name.............................
(Please Print)
Address..........................
.................................
.................................
Issue to: (Include Zip Code)
Name.............................
(Please Print)
Address..........................
.................................
.................................
(Include Zip Code)
.................................
(Taxpayer Identification or
Social Security
Number(s)* of Payee)
*PLEASE ALSO COMPLETE THE
ENCLOSED SUBSTITUTE FORM W-9.
<PAGE>
SIGN HERE
(PLEASE COMPLETE THE SUBSTITUTE FORM W-9 ON THIS LETTER OF TRANSMITTAL)
^ ^ ^ ^
----------------------------------- -----------------------------------
SIGNATURE OF OWNER SIGNATURE OF OWNER (IF MORE THAN
Dated _____________________ , 1996. ONE)
(Must be signed by (A) holder(s) exactly as name(s) appear(s) on
certificates for Old Securities tendered, or if tendered by a participant
in DTC, exactly as such participant's name appears on the security
position listing as an owner of Old Securities (each, a "Record Holder")
or (B) person(s) authorized to become holder(s) of Old Securities by
endorsements and documents transmitted herewith. If the signature(s)
appearing above is (are) not of the Record Holder(s), then the Record
Holder(s) must sign the form of Consent appearing below. If signature is
by a trustee, executor, administrator, guardian, attorney-in-fact, officer
of a corporation, agent or other person acting in a fiduciary or
representative capacity, please provide the following information and see
Instruction 5.)
BY SIGNING THIS LETTER OF TRANSMITTAL THE HOLDER HEREBY CONSENTS TO THE
PROPOSED AMENDMENTS AND EXECUTION OF THE SUPPLEMENTAL INDENTURE.
Name(s) ___________________________ Address ___________________________
----------------------------------- -----------------------------------
(Please Print) (Include Zip Code)
Capacity (full title) _____________ Daytime Area Code and Telephone
Social Security Number or No. _______________________________
Employer Identification Number ____
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED -- SEE INSTRUCTIONS 1 AND 5)
Name of Firm ______________________ Authorized Signature ______________
Dated ______________________ , 1996
<PAGE>
CONSENT
IF THIS LETTER OF TRANSMITTAL IS SIGNED BY A HOLDER OF OLD SECURITIES WHO
IS NOT THE RECORD HOLDER, THEN THE RECORD HOLDER MUST SIGN THE FOLLOWING
CONSENT (OR A SEPARATE DOCUMENT SUBSTANTIALLY IN THE FORM OF THE FOLLOWING
CONSENT, WHICH DOCUMENT MUST BE DELIVERED TO THE EXCHANGE AGENT AT OR
BEFORE THE APPLICABLE EXPIRATION TIME) WITH SIGNATURE GUARANTEED BY AN
ELIGIBLE INSTITUTION (AS DEFINED IN INSTRUCTION 1):
Pursuant to the Exchange Offers and Tenneco's solicitation of Consents to
the Proposed Amendments, the undersigned Record Holder(s) of the Old
Securities tendered pursuant to this Letter of Transmittal hereby
consent(s) to the Proposed Amendments and execution of the Supplemental
Indenture.
^ ^ ^ ^
------------------------------------ ------------------------------------
Signature of Record Holder Signature of Record Holder (if more
Dated ______________________ , 1996. than one)
(Must be signed by Record Holder(s) exactly as name(s) appear(s) on the
Old Securities tendered or on the security position listing. If signature
is by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation, agent or other person acting in a fiduciary or
representative capacity, please provide the following information and see
Instruction 5.)
Name(s) ____________________________ Address ____________________________
------------------------------------ ------------------------------------
(Please Print) (Include Zip Code)
Capacity (full title) ______________ Daytime Area Code and Telephone
No. ________________________________
GUARANTEE OF SIGNATURE(S)
Name of Firm _______________________ Authorized Signature _______________
Dated _______________________ , 1996
<PAGE>
INSTRUCTIONS FORMING PART
OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFERS
1. SIGNATURE GUARANTEES. All signatures on this Letter of Transmittal must
be guaranteed by an Eligible Institution (as defined below) unless the Old
Securities tendered hereby are tendered (a) by a holder who has not completed
either the box entitled "Special Issuance Instructions" or the box entitled
"Special Delivery Instructions," (b) for the account of an Eligible
Institution or (c) by a participant in DTC whose name appears on a security
position listing as the owner of such Old Securities. If the holder of the Old
Securities tendered hereby is a person other than the signer of this Letter of
Transmittal, see Instruction 5. As used herein, "Eligible Institution" means a
firm or other entity identified in Rule 17Ad-15 under the Securities Exchange
Act of 1934, as amended, including (as such terms are defined therein): (i) a
bank; (ii) a broker, dealer, municipal securities dealer, municipal securities
broker, government securities dealer or government securities broker; (iii) a
credit union; (iv) a national securities exchange, registered securities
association or clearing agency; or (v) a savings institution.
2. DELIVERY OF LETTER OF TRANSMITTAL AND OLD SECURITIES; GUARANTEED DELIVERY
PROCEDURES. This Letter of Transmittal is to be used only if Old Securities
tendered hereby are (i) to be forwarded herewith, (ii) delivered by book-entry
transfer to the Exchange Agent's account at DTC or (iii) to be made according
to the guaranteed delivery procedures set forth in the Prospectus under "The
Exchange Offers--Procedures for Tendering Old Securities for Exchange and
Giving Consents--Guaranteed Delivery Procedures" and, in each case,
instructions are not being transmitted through ATOP. All physically tendered
Old Securities, or a confirmation of a book-entry transfer into the Exchange
Agent's account at DTC of all Old Securities delivered electronically,
together with a properly completed and duly executed Letter of Transmittal (or
facsimile thereof), and any other documents required by this Letter of
Transmittal, must be mailed or delivered to the Exchange Agent at its address
set forth on the front page hereof and must be received by the Exchange Agent
at or prior to the applicable Expiration Time. Delivery of documents to DTC
does not constitute delivery to the Exchange Agent.
Holders of Old Securities whose Old Securities are not immediately available
or who cannot deliver Old Securities and all other required documents to the
Exchange Agent at or prior to the Expiration Time or who cannot complete the
procedure for delivery by book-entry transfer on a timely basis may
nevertheless effect a tender of the Old Securities if all of the following
conditions are satisfied:
(a) the tender and delivery are made by or through an Eligible Institution;
(b) at or prior to the Expiration Time, the Exchange Agent receives (by hand
delivery, mail or facsimile transmission) a properly completed and duly
executed Notice of Guaranteed Delivery and Consent substantially in the form
provided by New Tenneco or an Agent's Message with respect to guaranteed
delivery that is accepted by New Tenneco; and
(c) the certificate(s) for the tendered Old Securities (or confirmation of a
book-entry transfer of such Old Securities into the Exchange Agent's account
at DTC, as described above), together with a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof) or a properly
transmitted Agent's Message, are received by the Exchange Agent within two New
York Stock Exchange trading days after the applicable Expiration Time. (The
Consent contained in the Notice of Guaranteed Delivery and Consent described
in paragraph (b) above will be effective upon the receipt thereof by the
Exchange Agent regardless of whether or when the certificates for the tendered
Old Securities (or a confirmation of a book-entry transfer thereof) and an
executed Letter of Transmittal or a properly transmitted Agent's Message are
received.)
THE METHOD OF DELIVERY OF CERTIFICATES FOR OLD SECURITIES, THIS LETTER OF
TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS, INCLUDING BOOK-ENTRY DELIVERY
THROUGH DTC AND ANY ACCEPTANCE OF AN AGENT'S MESSAGE DELIVERED THROUGH ATOP,
IS AT THE OPTION AND RISK OF THE TENDERING HOLDER AND, EXCEPT AS OTHERWISE
PROVIDED IN THIS LETTER OF TRANSMITTAL, DELIVERY WILL BE DEEMED MADE ONLY WHEN
ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED
MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL
CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
No alternative, conditional or contingent tenders will be accepted. All
tendering holders, by execution of this Letter of Transmittal (or a facsimile
thereof), waive any right to receive any notice of the acceptance of their
tender.
3. INADEQUATE SPACE. If the space provided herein is inadequate, the series
of Old Securities, the certificate numbers of the Old Securities and the
principal amount of Old Securities tendered should be listed on a separate
signed schedule and attached hereto.
4. PARTIAL TENDERS AND CONSENTS. (Not applicable to holders who tender by
book-entry transfer.) Tenders of Old Securities and Consents to the Proposed
Amendments will be accepted only in integral multiples of $1,000. The
aggregate principal amount of all Old Securities delivered to the Exchange
Agent will be deemed to have been tendered and Consents given with respect
thereto unless otherwise indicated. If tenders are made with respect to less
than the entire principal amount of the Old Securities delivered herewith,
enter the principal amount (in integral multiples of $1,000) of the Old
Securities that are to be tendered and in respect of which a Consent is given
in the column entitled "Principal Amount Tendered and in Respect of Which
Consent Is Given." In such case, Old Securities of the same series for the
principal amount of the nontendered Old Securities will be issued and sent to
the holder, unless otherwise specified in the "Special Issuance Instructions"
box or the "Special Delivery Instructions" box in this Letter of Transmittal.
<PAGE>
5. SIGNATURES ON LETTER OF TRANSMITTAL, BOND POWERS AND ENDORSEMENTS. IF
THIS LETTER OF TRANSMITTAL IS SIGNED BY A PERSON OTHER THAN THE RECORD HOLDER,
EITHER A VALID PROXY FROM, OR A CONSENT IN THE FORM PROVIDED IN THIS LETTER OF
TRANSMITTAL, MUST BE OBTAINED FROM THE RECORD HOLDER WITH THE SIGNATURE
GUARANTEED BY AN ELIGIBLE INSTITUTION.
If this Letter of Transmittal is signed by a person other than the Record
Holder(s) of Old Securities tendered hereby, then, in order to validly tender
such Old Securities pursuant to the Exchange Offers, such Old Securities must
be endorsed or accompanied by an appropriate written instrument or instruments
of transfer signed exactly as the name(s) of such Record Holder(s) appear(s)
on the Old Securities, with the signature(s) on such Old Securities or
instruments of transfer guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by the Record Holder(s) of the Old
Securities tendered hereby, the signature(s) must correspond with the name(s)
as written on the face of the Old Securities without any change whatsoever.
If any of the tendered Old Securities are held of record by two or more
persons, all such persons must sign this Letter of Transmittal.
If any of the tendered Old Securities are registered in different names, it
will be necessary to complete, sign and submit as many separate Letters of
Transmittal as there are different registrations.
If this Letter of Transmittal, any Consents or any Old Securities or bond
powers are signed by a trustee, executor, administrator, guardian, attorney-
in-fact, officer of a corporation, agent or other person(s) acting in a
fiduciary or representative capacity, such person(s) should so indicate when
signing and must submit proper evidence satisfactory to the Exchange Agent of
their authority so to act.
6. TRANSFER TAXES. Except as set forth in this Instruction 6, New Tenneco
will pay or cause to be paid all transfer taxes, if any, with respect to the
sale and transfer of any Old Securities to it pursuant to the Exchange Offers.
If, however, New Securities or Old Securities not tendered or not exchanged
are to be delivered to or are to be registered or issued in the name of any
person other than the undersigned, or if a transfer tax is imposed for any
reason other than the transfer or sale of Old Securities to New Tenneco
pursuant to the Exchange Offers, the amount of any such transfer taxes
(whether imposed on the undersigned, such other person or otherwise) will be
deducted from the payment unless satisfactory evidence of the payment of such
taxes, or exemption therefrom, is submitted.
7. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If Old Securities
representing the aggregate principal amount of Old Securities not tendered or
not exchanged under the Exchange Offers and/or New Securities are to be issued
in the name of a person other than the signer of this Letter of Transmittal or
if such Old Securities and/or New Securities are to be sent to someone other
than the signer of this Letter of Transmittal or to the signer at a different
address, the boxes entitled "Special Issuance Instructions" or "Special
Delivery Instructions" in this Letter of Transmittal should be completed, as
applicable. All Old Securities tendered by book-entry transfer and not
accepted for exchange will be returned by crediting the account at DTC
designated above as the account for which such Old Securities were delivered.
8. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Requests for assistance or
additional copies of the Prospectus or this Letter of Transmittal may be
obtained from the Information Agent at its address set forth on the back cover
page of the Prospectus. Holders of Old Securities may also contact the Dealer
Manager at its telephone number set forth below or such holder's broker,
dealer, commercial bank or trust company or nominee for assistance concerning
the Exchange Offers.
9. SUBSTITUTE FORM W-9. A tendering holder (or other payee) is required to
provide the Exchange Agent with a correct taxpayer identification number
("TIN") on the Substitute Form W-9 that is provided below and to certify that
it is not subject to backup withholding. Failure to provide the information on
the form may subject the tendering holder (or other payee) to a $50 penalty
imposed by the Internal Revenue Service and 31% federal income tax withholding
on the payments made to such person.
IMPORTANT: TO ACCEPT AN EXCHANGE OFFER, THIS LETTER OF TRANSMITTAL OR A
MANUALLY SIGNED FACSIMILE HEREOF (TOGETHER WITH OLD SECURITIES), AN AGENT'S
MESSAGE (TOGETHER WITH CONFIRMATION OF BOOK-ENTRY TRANSFER) OR THE NOTICE OF
GUARANTEED DELIVERY AND CONSENT MUST BE RECEIVED BY THE EXCHANGE AGENT AT OR
PRIOR TO THE EXPIRATION TIME.
<PAGE>
IMPORTANT TAX INFORMATION
THE U.S. FEDERAL INCOME TAX DISCUSSION SET FORTH BELOW IS INCLUDED FOR
GENERAL INFORMATION ONLY. EACH HOLDER IS URGED TO CONSULT A TAX ADVISOR TO
DETERMINE THE PARTICULAR TAX CONSEQUENCES TO IT (INCLUDING THE APPLICATION AND
EFFECT OF FOREIGN, STATE AND LOCAL TAX LAWS) OF THE EXCHANGE OFFERS. CERTAIN
HOLDERS (INCLUDING INSURANCE COMPANIES, TAX-EXEMPT ORGANIZATIONS AND FOREIGN
TAXPAYERS) MAY BE SUBJECT TO SPECIAL RULES NOT DISCUSSED BELOW. THE DISCUSSION
DOES NOT CONSIDER THE EFFECT OF ANY APPLICABLE FOREIGN, STATE AND LOCAL TAX
LAWS.
SUBSTITUTE FORM W-9
Under the U.S. federal income tax laws, the Exchange Agent may be required
to withhold 31% of the amount of the gross proceeds paid to certain holders or
other payees pursuant to the Exchange Offers. To prevent backup withholding on
any gross proceeds paid to a holder or other payee with respect to Old
Securities tendered pursuant to the Exchange Offers, the holder is required to
notify the Exchange Agent (as payor) of the holder's current TIN (or the TIN
of any other payee) by completing the form below, certifying that the TIN
provided on Substitute Form W-9 is correct (or that such holder is awaiting a
TIN), and that (i) the holder has not been notified by the IRS that the holder
is subject to backup withholding as a result of failure to report all interest
or dividends or (ii) the IRS has notified the holder that the holder is no
longer subject to backup withholding. In general, if a holder of Old
Securities is an individual, the TIN is the Social Security number of such
individual. In addition, if the Exchange Agent is not provided with the
correct TIN, the holder may be subject to a $50 penalty imposed by the
Internal Revenue Service (the "IRS").
Certain holders of Old Securities (including, among others, all corporations
and certain foreign individuals) are not subject to these backup withholding
and information reporting requirements. In order for a foreign individual to
qualify as an exempt recipient, that holder must submit a statement signed
under penalty of perjury attesting as to that status. Forms for such statement
can be obtained from the Exchange Agent. For further information regarding
backup withholding and instructions for completing Substitute Form W-9
(including how to obtain a TIN if you do not have one and how to complete
Substitute Form W-9 if Old Securities are held in more than one name), consult
the enclosed "Guidelines for Certification of Taxpayer Identification Number
on Substitute Form W-9."
CONSEQUENCES OF FAILURE TO COMPLETE SUBSTITUTE FORM W-9
Failure to complete Substitute Form W-9 will not, by itself, cause the Old
Securities to be deemed invalidly tendered but may require the Exchange Agent
to withhold 31% of the amount of the gross proceeds paid pursuant to the
Exchange Offers. Backup withholding is not an additional U.S. federal income
tax. Rather, the U.S. federal income tax liability of a person subject to
backup withholding will be reduced by the amount of tax withheld. If
withholding results in an overpayment of taxes, the holder may claim a refund
from the IRS.
<PAGE>
WHAT NUMBER TO GIVE THE DEPOSITARY
The holder is required to give the Exchange Agent the TIN (e.g., Social
Security number or Employer Identification Number) of the record owner of the
Old Securities. If the Securities are registered in more than one name or are
not registered in the name of the actual owner, consult the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9," for additional guidance on which number to report.
PAYER'S NAME: THE CHASE MANHATTAN BANK
- -------------------------------------------------------------------------------
Social Security
Number
----------------------
SUBSTITUTE
OR
FORM W-9 PART 1 -- PLEASE PROVIDE Employer
YOUR TAXPAYER Identification Number
IDENTIFICATION NUMBER IN
THE BOX AT THE RIGHT AND
CERTIFY BY SIGNING AND
DATING BELOW.
DEPARTMENT OF THE ----------------------
TREASURY
INTERNAL REVENUE
SERVICE
[See Guidelines]
PAYER'S REQUEST FOR
TAXPAYER
IDENTIFICATION
NUMBER AND
CERTIFICATION
("TIN") --------------------------------------------------------
PART II -- For Payees exempt from backup
withholding, see "Important Tax Information" above
and Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9
enclosed herewith and complete as instructed
therein.
- -------------------------------------------------------------------------------
Certifications -- Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification
Number (or a Taxpayer Identification Number has not been issued to me
and either (a) I have mailed or delivered an application to receive a
Taxpayer Identification Number to the appropriate Internal Revenue
Service Center or Social Security Administration office or (b) I intend
to mail or deliver an application in the near future. I understand that
if I do not provide a Taxpayer Identification Number to the payer, 31%
of all reportable payments made to me thereafter will be withheld until
I provide a number to the payer and that, if I do not provide my
Taxpayer Identification Number within sixty (60) days, such retained
amounts shall be remitted to the Internal Revenue Service ("IRS") as
backup withholding.)
(2) I am not subject to backup withholding either because I have not been
notified by the IRS that I am subject to backup withholding as a result
of a failure to report all interest or dividends or the IRS has
notified me that I am no longer subject to backup withholding.
Certification Instruction -- You must cross out item (2) above if you have
been notified by the IRS that you are subject to backup withholding because
of underreporting interest or dividends on your tax return. However, if
after being notified by the IRS that you were subject to backup withholding
you received another notification from the IRS that you are no longer
subject to backup withholding, do not cross out item (2). (Also see the
"Important Tax Information" above).
- -------------------------------------------------------------------------------
Name _______________________________________________________________________
(Please Print)
Address ____________________________________________________________________
----------------------------------------------------------------------
(Include Zip Code)
Signature _____________________________________________________________Date
NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN A
$50 PENALTY IMPOSED BY THE IRS AND BACKUP WITHHOLDING OF 31% OF ANY
PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFERS. PLEASE REVIEW THE
"GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON
SUBSTITUTE FORM W-9" FOR ADDITIONAL DETAILS.
<PAGE>
ANY QUESTIONS CONCERNING TENDER PROCEDURES OR
REQUESTS FOR ADDITIONAL COPIES OF THIS LETTER OF TRANSMITTAL
MAY BE DIRECTED TO THE INFORMATION AGENT AT
(800) 223-2064 OR BANKS AND BROKERS MAY CALL COLLECT AT (212) 440-9800.
The Dealer Manager for the Exchange Offers is
MORGAN STANLEY & CO.
INCORPORATED
Liability Management Group
1585 Broadway, Second Floor New York, New York 10036 Call Toll-free: (800) 624-
1808
<PAGE>
EXHIBIT 99.2
THIS NOTICE OF GUARANTEED DELIVERY IS BEING USED
WITH RESPECT TO THE FOLLOWING SECURITIES (CHECK
ONLY ONE*):
[_6]1/2% NOTES DUE 2005
[_7]1/4% DEBENTURES DUE 2025
[_7]7/8% NOTES DUE 2002
[_]8% NOTES DUE 1999
[_9%]DEBENTURES DUE 2012
[_9]7/8% NOTES DUE 2001
[_10%]DEBENTURES DUE 2008
NOTICE OF GUARANTEED DELIVERY
AND CONSENT
EXCHANGE OFFER AND CONSENT SOLICITATION
OF
NEW TENNECO INC.
DATED NOVEMBER [ ], 1996
EACH OF THE EXCHANGE OFFERS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
TUESDAY, DECEMBER 10, 1996, UNLESS EXTENDED (THE "EXPIRATION TIME") OR
EARLIER TERMINATED.
This form or one substantially equivalent hereto must be used to accept the
Exchange Offers (as defined below) if certificates for the outstanding debt
securities indicated above of Tenneco Inc., a Delaware corporation
("Tenneco"), are not immediately available, or cannot be delivered along with
other required documents to the Exchange Agent (as defined below) or if the
procedure for book-entry transfer as set forth in the Prospectus and Consent
Solicitation of New Tenneco Inc., a Delaware corporation ("New Tenneco"),
dated November [ ], 1996 (the "Prospectus") cannot be completed on or prior
to the applicable Expiration Time. Such form may be delivered by hand or
transmitted by facsimile transmission or mailed to The Chase Manhattan Bank,
as Exchange Agent (the "Exchange Agent"), and must include a guarantee by an
Eligible Institution (as defined below) in the form set forth at the end of
this Notice of Guaranteed Delivery and Consent (this "Notice of Guaranteed
Delivery"). See "The Exchange Offers--Procedures for Tendering Old Securities
for Exchange and Giving Consents--Guaranteed Delivery Procedures" in the
Prospectus. The outstanding debt securities of Tenneco of each series
indicated above are collectively referred to herein as the "Old Securities."
- --------
*IF MORE THAN ONE SERIES OF OLD SECURITIES ARE BEING TENDERED, IT IS NECESSARY
TO RETURN A SEPARATE FORM IN RESPECT OF EACH SERIES OF OLD SECURITIES.
PLEASE CHECK THE APPROPRIATE BOX AT THE TOP OF THIS PAGE TO INDICATE THE
OLD SECURITIES TO WHICH THIS NOTICE OF GUARANTEED DELIVERY RELATES.
<PAGE>
To: The Chase Manhattan Bank, Exchange Agent
By Mail: Facsimile Transmission:
(212) 946-8016/8017
Box 2020
4 Chase MetroTech Ctr.
Brooklyn, NY 11245 Confirm by Telephone:
(212) 946-3471
By Overnight Delivery: By Hand:
c/o Bond Dept. (9:00 a.m. - 5:00 p.m.
450 W. 33rd St. New York City Time)
10th Floor One Chase Manhattan Plaza
New York, NY 10001 Floor 1-B
Nassau and Liberty Streets
New York, NY 10081
Any questions concerning tender procedures may be directed to Georgeson &
Company Inc., who is acting as Information Agent for the Exchange Offers, at
(800) 223-2064 or banks and brokers may call collect at (212) 440-9800.
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN
AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
For information with respect to the Exchange
Offers, call the Dealer Manager:
MORGAN STANLEY & CO.
INCORPORATED
Liability Management Group
1585 Broadway
New York, New York 10036
Telephone: 1-800-624-1808 (toll-free)
Ladies and Gentlemen:
The undersigned hereby tenders to New Tenneco, upon the terms and subject to
the conditions set forth in the Prospectus and the accompanying Letter of
Transmittal and Consent relating to the Old Securities (the "Letter of
Transmittal") (which together constitute the "Exchange Offers"), receipt of
which is hereby acknowledged, the principal amount of the Old Securities
specified below pursuant to the guaranteed delivery procedure set forth in the
Prospectus under the caption entitled "The Exchange Offers--Procedures for
Tendering Old Securities for Exchange and Giving Consents--Guaranteed Delivery
Procedures." The undersigned hereby tenders the Old Securities listed below
and (i) to the extent that the undersigned is the registered holder thereof,
agrees and consents to the Proposed Amendments (as defined in the Prospectus)
and the execution of the Supplemental Indenture (as defined in the Prospectus)
with respect to the principal amount of the Old Securities tendered as
indicated below and (ii) to the extent that the undersigned is not the
registered holder, represents and warrants to New Tenneco that the registered
holder thereof has executed, and the undersigned is delivering herewith, a
consent in the form set forth below to the Proposed Amendments and the
execution of the Supplemental Indenture.
<TABLE>
<CAPTION>
TYPE OF OLD SECURITIES CERTIFICATE NUMBER PRINCIPAL AMOUNT
TENDERED (IF AVAILABLE) TENDERED*
<S> <C> <C>
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
</TABLE>
- --------
* The tender of Old Securities will constitute a consent to the Proposed
Amendments and the execution of the Supplemental Indenture. If you are not
the registered holder of the Old Securities tendered hereby, you must obtain
a consent (the form of which is included in this Notice of Guaranteed
Delivery) from the registered holder of such Old Securities to tender them.
2
<PAGE>
If Old Securities will be tendered SIGN HERE
by book-entry transfer, specify the ^ ^
DTC account number ---------------------------------------
Signature
DTC Account Number:__________________ ^ ^
---------------------------------------
Signature (if more than one)
---------------------------------------
Name(s) (Please Print)
---------------------------------------
Address
---------------------------------------
Zip Code
---------------------------------------
Daytime Area Code and Telephone No.
Dated: __________________________, 199
GUARANTEE OF SIGNATURE(S)
Name of Firm ________________________ Authorized Signature __________________
Date __________________________, 199
ONLY REGISTERED HOLDERS OF OLD SECURITIES MAY CONSENT TO THE PROPOSED
AMENDMENTS AND EXECUTION OF THE SUPPLEMENTAL INDENTURE. IF THE SIGNATURE ABOVE
IS NOT THAT OF THE REGISTERED HOLDER OF THE OLD SECURITIES BEING TENDERED,
SUCH REGISTERED HOLDER MUST SIGN THE FOLLOWING CONSENT OR A SEPARATE CONSENT
WHICH MUST BE DELIVERED HEREWITH. DELIVERY OF THE CONSENT TO THE EXCHANGE
AGENT IS A CONDITION TO THE VALID TENDER OF OLD SECURITIES.
Pursuant to the Prospectus and New Tenneco's solicitation of consents to the
Proposed Amendments and execution of the Supplemental Indenture, the
undersigned registered holder hereby consents to the Proposed Amendments and
execution of the Supplemental Indenture in respect of the Old Securities
indicated above.
^ ^ ^ ^
- ------------------------------------- ---------------------------------------
Signature of Registered Holder Signature of Registered Holder
(if more than one)
Dated: ________________________, 199
(Must be signed by the registered holder(s) exactly as name(s) appear(s) on
the Old Securities or on a security position listing. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation, agent or other person acting in a fiduciary or representative
capacity, please provide the following information and see Instruction 5 of
the Letter of Transmittal.)
Name(s)______________________________ Address________________________________
- ------------------------------------- ---------------------------------------
(Please Print) (Include Zip Code)
Capacity_____________________________ Daytime Telephone No.__________________
(Include Area Code)
GUARANTEE OF SIGNATURE(S)
Name of Firm_________________________ Authorized Signature __________________
Dated__________________________, 199
- -------------------------------------------------------------------------------
THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED
3
<PAGE>
GUARANTEE
(Not to be used for guarantees of signatures)
The undersigned, an "eligible guarantor institution," as such term is
defined in Rule 17Ad-15 promulgated under the Securities Exchange Act of 1934,
as amended (each, an "Eligible Institution"), hereby guarantees to (a) deliver
to the Exchange Agent either (i) a book-entry transfer of the Old Securities
tendered hereby into the account of the Exchange Agent at DTC or (ii) the Old
Securities tendered hereby in proper form for transfer and (b) either (i)
effect as Agent's Message (as defined in the Prospectus) or (ii) complete and
sign the Letter of Transmittal in accordance with the instructions set forth
therein together with any other required documents, all by 5:00 p.m., New York
City time, within two New York Stock Exchange trading days after the
applicable Expiration Time.
The undersigned acknowledges that it must comply with the procedures set
forth above within the time period set forth above and that failure to do so
could result in a financial loss to the undersigned.
SIGN HERE
- ------------------------------------- ---------------------------------------
Name of Firm Address
- ------------------------------------- ---------------------------------------
Authorized Signature Zip Code
- ------------------------------------- ---------------------------------------
Name (Please Print) Area Code and Telephone No.
Dated: _________________________, 199
DO NOT SEND OLD SECURITIES WITH THIS FORM. ACTUAL SURRENDER OF OLD
SECURITIES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, A PROPERLY
COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED
DOCUMENTS (OR AN AGENT'S MESSAGE).
THE CONSENT CONTAINED IN THIS NOTICE OF GUARANTEED DELIVERY WILL BE
EFFECTIVE UPON THE RECEIPT THEREOF BY THE EXCHANGE AGENT REGARDLESS OF WHETHER
OR WHEN THE CERTIFICATES FOR TENDERED OLD SECURITIES (OR A CONFIRMATION OF
BOOK-ENTRY TRANSFER THEREOF) AND AN EXECUTED LETTER OF TRANSMITTAL (OR AN
AGENT'S MESSAGE) ARE RECEIVED.
4
<PAGE>
EXHIBIT 99.3
LETTER TO DTC PARTICIPANTS MORGAN STANLEY & CO.
INCORPORATED
$1,950,000,000
NEW TENNECO INC.
EXCHANGE OFFER
AND
CONSENT SOLICITATION
EACH OF THE EXCHANGE OFFERS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON TUESDAY, DECEMBER 10, 1996, UNLESS EXTENDED (THE "EXPIRATION TIME") OR
EARLIER TERMINATED.
November [ ], 1996
TO DTC PARTICIPANTS, INCLUDING BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES AND OTHER NOMINEES:
We have been appointed by New Tenneco Inc., a Delaware corporation ("New
Tenneco"), to act as Dealer Manager in connection with the offers to exchange,
upon the terms and subject to the conditions set forth in the Prospectus and
Consent Solicitation of New Tenneco dated November [ ], 1996 (the
"Prospectus") and in the related Letter of Transmittal and Consent enclosed
herewith (the "Letter of Transmittal"), up to $1,950,000,000 aggregate
principal amount of newly issued notes and debentures (the "New Securities")
for any and all of the $1,950,000,000 aggregate principal amount of certain
outstanding notes and debentures issued (the "Old Securities") by Tenneco Inc.,
a Delaware corporation ("Tenneco"), described herein (each such offer is
referred to individually as an "Exchange Offer" and collectively as the
"Exchange Offers").
The following table sets forth the seven series of Old Securities that are
subject to the Exchange Offers and indicates the New Securities to be received
by the holders of Old Securities upon acceptance for exchange thereof by New
Tenneco.
<TABLE>
<CAPTION>
THE EXCHANGING HOLDERS OUTSTANDING
WILL RECEIVE $1,000 AGGREGATE
FOR EACH $1,000 PRINCIPAL AMOUNT PRINCIPAL AMOUNT OF THE FOLLOWING NEW PRINCIPAL
OF THE FOLLOWING OLD SECURITIES: SECURITIES: AMOUNT
-------------------------------- ------------------------------------- -----------
<C> <C> <S>
6 1/2% Notes due 2005 of Tenneco 6.70% Notes due 2005 of New Tenneco $300,000,000
7 1/4% Debentures due 2025 of Tenneco 7.45% Debentures due 2025 of New Tenneco $300,000,000
7 7/8% Notes due 2002 of Tenneco 8.075% Notes due 2002 of New Tenneco $500,000,000
8% Notes due 1999 of Tenneco 8.20% Notes due 1999 of New Tenneco $250,000,000
9% Debentures due 2012 of Tenneco 9.20% Debentures due 2012 of New Tenneco $150,000,000
9 7/8% Notes due 2001 of Tenneco 10.075% Notes due 2001 of New Tenneco $200,000,000
10% Debentures due 2008 of Tenneco 10.20% Debentures due 2008 of New Tenneco $250,000,000
</TABLE>
<PAGE>
The New Securities will be issued in exchange for the Old Securities (and all
accrued and unpaid interest on the Old Securities will be paid in immediately
available (same-day) funds) on the first New York Stock Exchange ("NYSE")
trading day following the acceptance by New Tenneco of the tenders for exchange
of Old Securities (the "Issuance Date") to The Chase Manhattan Bank, as
Exchange Agent (the "Exchange Agent"), which will forward such New Securities
and accrued interest (if applicable) to exchanging holders of Old Securities on
the third NYSE trading day following the applicable Expiration Time (the
"Exchange Date").
For your information and for forwarding to your clients for whom you hold Old
Securities registered in your name or in the name of your nominee or who hold
Old Securities registered in their own names, we are enclosing the following
documents:
1. The Prospectus;
2. The Letter of Transmittal to be used by holders of Old Securities to
tender their Old Securities and to consent to the Proposed Amendments (as
defined in the Prospectus);
3. A form of letter which may be sent to your clients for whose accounts
you hold Old Securities in your name or in the name of your nominee with
space provided for obtaining such clients' instructions with regard to the
Exchange Offers;
4. The Notice of Guaranteed Delivery and Consent to be used to accept
Exchange Offers if certificates for Old Securities cannot be delivered to
the Exchange Agent, or if the procedure for book-entry transfer cannot be
completed, at or prior to the Expiration Time;
5. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9; and
6. A return envelope addressed to the Exchange Agent.
YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS
PROMPTLY. PLEASE NOTE THAT EACH EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW
YORK CITY TIME, ON DECEMBER 10, 1996, UNLESS EXTENDED OR EARLIER TERMINATED.
Holders of Old Securities who desire to accept an Exchange Offer must consent
to the Proposed Amendments with respect to such Old Securities. The Proposed
Amendments are described in the Prospectus under the caption "The Proposed
Amendments."
CONSUMMATION OF AN EXCHANGE OFFER WITH RESPECT TO ANY SERIES OF OLD
SECURITIES IS CONDITIONED UPON, AMONG OTHER THINGS, ACCEPTANCE OF THE EXCHANGE
OFFERS AND THE TENDER OFFERS (AS DEFINED IN THE PROSPECTUS) BY HOLDERS OF AT
LEAST A MAJORITY OF THE AGGREGATE PRINCIPAL AMOUNT OF THE SECURITIES AND OTHER
SECURITIES (AS DEFINED IN THE PROSPECTUS) OF ALL SERIES OUTSTANDING UNDER THE
OLD INDENTURE (AS DEFINED IN THE PROSPECTUS). NEW TENNECO MAY IN ITS SOLE
DISCRETION WAIVE THE MINIMUM TENDER CONDITION (AS DEFINED IN THE PROSPECTUS)
WITH RESPECT TO ONE OR MORE SERIES AND ACCEPT ANY OLD SECURITIES TENDERED;
PROVIDED THAT THE PROPOSED AMENDMENTS WILL NOT BECOME EFFECTIVE IF NEW TENNECO
HAS NOT RECEIVED THE REQUISITE CONSENTS (AS DEFINED IN THE PROSPECTUS).
In order to take advantage of the Exchange Offers, a duly executed and
properly completed Letter of Transmittal and any signature guarantees (or an
Agent's Message (as described in the Prospectus)) should be delivered to the
Exchange Agent, and certificates representing the tendered Old Securities (or
confirmations of book-entry transfer) should be delivered to the Exchange
Agent, all in accordance with the instructions set forth in the Letter of
Transmittal and the Prospectus.
Holders of Old Securities whose certificates for such Old Securities are not
immediately available, or who cannot deliver their certificates and other
required documents to the Exchange Agent or complete the procedure for the
book-entry transfer on or prior to the Expiration Date, may nevertheless tender
their Old Securities by following the guaranteed delivery procedures specified
in the section of the Prospectus captioned "The Exchange Offers--Procedures for
Tendering Old Securities and Giving Consents--Guaranteed Delivery Procedures."
New Tenneco will not pay any fees or commissions to any broker or dealer or
other person other than the Dealer Manager, the Information Agent identified in
the Prospectus and the Exchange Agent, as described in the Prospectus, in
connection with the solicitation of tenders of Old Securities pursuant to the
Exchange Offers. However, New Tenneco will reimburse brokers, dealers,
commercial banks and trust companies for customary mailing and handling
expenses incurred by them in forwarding material to their customers.
2
<PAGE>
New Tenneco will pay or cause to be paid all transfer taxes, if any, with
respect to the sale and transfer of any Old Securities to it pursuant to the
Exchange Offers, except as otherwise provided in Instruction 6 of the Letter
of Transmittal.
Questions and requests for assistance or for additional copies of the
enclosed materials should be addressed to the Dealer Manager at its address
and telephone number set forth on the back cover page of the enclosed
Prospectus. Such additional copies will be furnished promptly at New Tenneco's
expense.
Very truly yours,
MORGAN STANLEY & CO.
INCORPORATED
----------------
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS IS INTENDED TO
CONSTITUTE YOU OR ANY PERSON THE AGENT OF NEW TENNECO, MORGAN STANLEY & CO.
INCORPORATED, THE EXCHANGE AGENT, THE INFORMATION AGENT OR ANY OF THEIR
AFFILIATES OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENT ON THEIR
BEHALF OTHER THAN STATEMENTS EXPRESSLY MADE IN THE PROSPECTUS OR THE LETTER OF
TRANSMITTAL OR USE ANY DOCUMENTS IN CONNECTION WITH THE EXCHANGE OFFERS OTHER
THAN FOR THE PURPOSES DESCRIBED HEREIN.
3
<PAGE>
EXHIBIT 99.4
LETTER TO HOLDERS MORGAN STANLEY & CO.
OF PHYSICAL SECURITIES INCORPORATED
$1,950,000,000
NEW TENNECO INC.
OFFER TO EXCHANGE
AND
CONSENT SOLICITATION
EACH OF THE EXCHANGE OFFERS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON TUESDAY, DECEMBER 10, 1996, UNLESS EXTENDED (THE "EXPIRATION TIME") OR
EARLIER TERMINATED.
November [ ], 1996
TO HOLDERS OF PHYSICAL SECURITIES:
We have been appointed by New Tenneco Inc., a Delaware corporation ("New
Tenneco"), to act as Dealer Manager in connection with the offers to exchange,
upon the terms and subject to the conditions set forth in the Prospectus and
Consent Solicitation of New Tenneco dated November [ ], 1996 (the
"Prospectus") and in the related Letter of Transmittal and Consent enclosed
herewith (the "Letter of Transmittal"), up to $1,950,000,000 aggregate
principal amount of newly issued notes and debentures (the "New Securities) for
any and all of the $1,950,000,000 aggregate principal amount of certain
outstanding notes and debentures (the "Old Securities") issued by Tenneco Inc.,
a Delaware corporation ("Tenneco"), described herein (each such exchange offer
is referred to individually as an "Exchange Offer" and collectively as the
"Exchange Offers").
The following table sets forth the seven series of Old Securities that are
subject to the Exchange Offers and indicates the New Securities to be received
by the holders of Old Securities upon acceptance for exchange thereof by New
Tenneco.
<TABLE>
<CAPTION>
THE EXCHANGING HOLDERS OUTSTANDING
WILL RECEIVE $1,000 AGGREGATE
FOR EACH $1,000 PRINCIPAL AMOUNT PRINCIPAL AMOUNT OF THE FOLLOWING NEW PRINCIPAL
OF THE FOLLOWING OLD SECURITIES: SECURITIES: AMOUNT
-------------------------------- ------------------------------------- -----------
<C> <C> <S>
6 1/2% Notes due 2005 of Tenneco 6.70% Notes due 2005 of New Tenneco $300,000,000
7 1/4% Debentures due 2025 of Tenneco 7.45% Debentures due 2025 of New Tenneco $300,000,000
7 7/8% Notes due 2002 of Tenneco 8.075% Notes due 2002 of New Tenneco $500,000,000
8% Notes due 1999 of Tenneco 8.20% Notes due 1999 of New Tenneco $250,000,000
9% Debentures due 2012 of Tenneco 9.20% Debentures due 2012 of New Tenneco $150,000,000
9 7/8% Notes due 2001 of Tenneco 10.075% Notes due 2001 of New Tenneco $200,000,000
10% Debentures due 2008 of Tenneco 10.20% Debentures due 2008 of New Tenneco $250,000,000
</TABLE>
<PAGE>
The New Securities will be issued in exchange for the Old Securities (and
all accrued and unpaid interest on the Old Securities will be paid in
immediately available (same-day) funds) on the first New York Stock Exchange
("NYSE") trading day following the acceptance by New Tenneco of the tender for
exchange of Old Securities (the "Issuance Date") to The Chase Manhattan Bank,
as Exchange Agent (the "Exchange Agent"), which will forward such New
Securities and accrued interest (if applicable) to exchanging holders of Old
Securities on the third NYSE trading day following the applicable Expiration
Time (the "Exchange Date").
For your information, we are enclosing the following documents:
1. The Prospectus;
2. The Letter of Transmittal to be used by you to tender your Old
Securities and to consent to the Proposed Amendments (as defined in the
Prospectus);
3. The Notice of Guaranteed Delivery and Consent to be used to accept
Exchange Offers, if certificates for Old Securities cannot be delivered to
the Exchange Agent or if the procedure for book-entry transfer cannot be
completed at or prior to the Expiration Date;
4. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9; and
5. A return envelope addressed to the Exchange Agent.
YOUR PROMPT ACTION IS REQUESTED. PLEASE NOTE THAT EACH EXCHANGE OFFER WILL
EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON DECEMBER 10, 1996, UNLESS EXTENDED
OR EARLIER TERMINATED.
LETTERS OF TRANSMITTAL AND OLD SECURITIES MUST BE SENT ONLY TO THE EXCHANGE
AGENT. DO NOT SEND LETTERS OF TRANSMITTAL OR OLD SECURITIES TO NEW TENNECO,
THE INFORMATION AGENT, DTC, THE OLD TRUSTEE OR THE DEALER MANAGER. PLEASE
REFER TO THE PROSPECTUS FOR TENDERING OLD SECURITIES HELD IN PHYSICAL FORM.
Holders of Old Securities who desire to accept an Exchange Offer must
consent to the Proposed Amendments with respect to such Old Securities. The
Proposed Amendments are described in the Prospectus under the caption "The
Proposed Amendments."
CONSUMMATION OF THE EXCHANGE OFFER WITH RESPECT TO ANY SERIES OF OLD
SECURITIES IS CONDITIONED UPON, AMONG OTHER THINGS, ACCEPTANCE OF THE EXCHANGE
OFFERS AND THE TENDER OFFERS (AS DEFINED IN THE PROSPECTUS) BY HOLDERS OF AT
LEAST A MAJORITY OF THE AGGREGATE PRINCIPAL AMOUNT OF THE OLD SECURITIES AND
OTHER SECURITIES (AS DEFINED IN THE PROSPECTUS) OF ALL SERIES UNDER THE OLD
INDENTURE (AS DEFINED IN THE PROSPECTUS). NEW TENNECO MAY IN ITS SOLE
DISCRETION WAIVE THE MINIMUM TENDER CONDITION (AS DEFINED IN THE PROSPECTUS)
WITH RESPECT TO ONE OR MORE SERIES OF OLD SECURITIES AND ACCEPT ANY OLD
SECURITIES TENDERED; PROVIDED THAT THE PROPOSED AMENDMENTS WILL NOT BECOME
EFFECTIVE IF NEW TENNECO HAS NOT RECEIVED THE REQUISITE CONSENTS (AS DEFINED
IN THE PROSPECTUS).
In order to take advantage of the Exchange Offers, a duly executed and
properly completed Letter of Transmittal and any signature guarantees should
be delivered to the Exchange Agent, and certificates representing the tendered
Old Securities should be delivered to the Exchange Agent, all in accordance
with the instructions set forth in the Letter of Transmittal and the
Prospectus.
Holders of Old Securities whose certificates for such Old Securities are not
immediately available, or who cannot deliver their certificates and other
required documents to the Exchange Agent on or prior to the Expiration Date
may nevertheless tender their Old Securities by following the guaranteed
delivery procedures specified in the section of the Prospectus captioned "The
Exchange Offers--Procedures for Tendering Old Securities and Giving Consents--
Guaranteed Delivery Procedures."
New Tenneco will pay or cause to be paid all transfer taxes, if any, with
respect to the sale and transfer of any Old Securities to it pursuant to the
Exchange Offers, except as otherwise provided in Instruction 6 of the Letter
of Transmittal.
Questions and requests for assistance or for additional copies of the
enclosed materials should be addressed to the Dealer Manager at its address
and telephone number set forth on the back cover page of the enclosed
Prospectus. Such additional copies will be furnished promptly at New Tenneco's
expense.
Very truly yours,
MORGAN STANLEY & CO.
INCORPORATED
<PAGE>
EXHIBIT 99.5
LETTER TO BENEFICIAL HOLDERS
$1,950,000,000
NEW TENNECO INC.
OFFER TO EXCHANGE
AND
CONSENT SOLICITATION
EACH OF THE EXCHANGE OFFERS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON TUESDAY, DECEMBER 10, 1996, UNLESS EXTENDED (THE "EXPIRATION
TIME") OR EARLIER TERMINATED.
November [ ], 1996
To Our Clients:
Enclosed for your consideration are a Prospectus and Consent Solicitation of
New Tenneco Inc., a Delaware corporation ("New Tenneco"), dated November [ ],
1996 (the "Prospectus") and the related Letter of Transmittal and Consent (the
"Letter of Transmittal") in connection with the offers by New Tenneco to
exchange, upon the terms and subject to the conditions set forth in the
Prospectus and in the Letter of Transmittal up to $1,950,000,000 principal
amount of newly issued notes and debentures (the "New Securities") for any and
all of the $1,950,000,000 aggregate principal amount of certain outstanding
notes and debentures (the "Old Securities") issued by Tenneco Inc., a Delaware
corporation ("Tenneco"), described herein (each such offer is referred to
individually as an "Exchange Offer" and collectively as the "Exchange
Offers").
The following table sets forth the seven series of Old Securities that are
subject to the Exchange Offers and indicates the New Securities to be received
by the holders of Old Securities upon acceptance for exchange thereof by New
Tenneco.
<TABLE>
<CAPTION>
THE EXCHANGING HOLDERS OUTSTANDING
WILL RECEIVE $1,000 AGGREGATE
FOR EACH $1,000 PRINCIPAL AMOUNT PRINCIPAL AMOUNT OF THE FOLLOWING NEW PRINCIPAL
OF THE FOLLOWING OLD SECURITIES: SECURITIES: AMOUNT
-------------------------------- ------------------------------------- -----------
<C> <C> <S>
6 1/2% Notes due 2005 of Tenneco 6.70% Notes due 2005 of New Tenneco $300,000,000
7 1/4% Debentures due 2025 of Tenneco 7.45% Debentures due 2025 of New Tenneco $300,000,000
7 7/8% Notes due 2002 of Tenneco 8.075% Notes due 2002 of New Tenneco $500,000,000
8% Notes due 1999 of Tenneco 8.20% Notes due 1999 of New Tenneco $250,000,000
9% Debentures due 2012 of Tenneco 9.20% Debentures due 2012 of New Tenneco $150,000,000
9 7/8% Notes due 2001 of Tenneco 10.075% Notes due 2001 of New Tenneco $200,000,000
10% Debentures due 2008 of Tenneco 10.20% Debentures due 2008 of New Tenneco $250,000,000
</TABLE>
We are the registered holder of Old Securities held for your account. A
tender of such securities can be made and consent to the Proposed Amendments
(as defined in the Prospectus) and execution of the Supplemental Indenture (as
defined in the Prospectus) may be given only by us as the registered holder
and pursuant to your instructions. THE LETTER OF TRANSMITTAL IS FURNISHED TO
YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER OLD
SECURITIES HELD BY US FOR YOUR ACCOUNT OR TO CONSENT TO THE PROPOSED
AMENDMENTS AND EXECUTION OF THE SUPPLEMENTAL INDENTURE.
We request that you advise us whether you wish us to tender any or all of
the Old Securities held by us for your account and to consent to the Proposed
Amendments and execution of the Supplemental Indenture upon the terms and
subject to the conditions set forth in the Prospectus and the Letter of
Transmittal.
<PAGE>
Your instructions to us should be forwarded as promptly as possible in order
to permit us to execute the Letter of Transmittal and tender your Old
Securities and consent to the Proposed Amendments and the execution of the
Supplemental Indenture on your behalf in accordance with the terms of the
Exchange Offers.
Your attention is directed to the following:
1. The New Securities will be issued in exchange for the Old Securities
(and all accrued and unpaid interest on the Old Securities will be paid in
immediately available (same-day) funds) on the first New York Stock
Exchange ("NYSE") trading day following the acceptance by New Tenneco of
the tenders for exchange of Old Securities (the "Issuance Date") to The
Chase Manhattan Bank, as Exchange Agent (the "Exchange Agent"), which will
forward such New Securities and accrued interest (if applicable) to
exchanging holders of Old Securities on the third NYSE trading day
following the applicable Expiration Time (the "Exchange Date").
2. Each Exchange Offer will expire at 5:00 p.m., New York City time, on
Tuesday, December 10, 1996, unless extended or earlier terminated.
Consummation of the Exchange Offer with respect to any series of Old
Securities is conditioned upon, among other things, acceptance of the
Exchange Offers and the Tender Offers (as defined in the Prospectus) by
holders of at least a majority of the aggregate principal amount of the Old
Securities and Other Securities (as defined in the Prospectus) of all
series outstanding under the Indenture (as defined in the Prospectus). New
Tenneco may in its sole discretion waive the Minimum Tender Condition (as
defined in the Prospectus) with respect to one or more series of Old
Securities and accept any Old Securities tendered; provided that the
Proposed Amendments will not become effective if New Tenneco has not
received the Requisite Consents (as defined in the Prospectus).
3. Tenders of Old Securities may be withdrawn (and consents thereby may
be revoked) at any time prior to the applicable Expiration Time.
4. The Proposed Amendments would, among other things, amend the
provisions in the Old Indenture that, if not amended, would require New
Tenneco and Newport News Shipbuilding Inc., an existing wholly owned
subsidiary of Tenneco, in connection with the Distributions referred to in
the Prospectus to sign supplemental indentures and become co-obligors of
securities issued under the Old Indenture (the application of which New
Tenneco and Tenneco believe, in any event, is uncertain).
5. Any transfer taxes with respect to the sale and transfer of any Old
Securities pursuant to the Exchange Offers will be paid by New Tenneco,
except as otherwise provided in Instruction 6 of the Letter of Transmittal.
6. Holders of Old Securities who desire to accept an Exchange Offer in
respect of their Old Securities must consent to the Proposed Amendments
with respect to such Old Securities. The valid tender of any Old Securities
will constitute a consent to the Proposed Amendments with respect to such
Old Securities.
If you wish to have us tender any or all of your Old Securities and consent
to the Proposed Amendments, please so instruct us by completing, detaching and
returning to us the instruction form set forth below. An envelope to return
your instructions is enclosed. Your instructions should be forwarded to us in
ample time to permit us to submit a tender and consent on your behalf by the
Expiration Time.
Exchange Offers are not being made to, and consents are not being solicited
from (nor will tenders of Old Securities be accepted from or on behalf of),
holders in any jurisdiction in which the making of the Exchange Offers or
acceptance for payment of the Old Securities would not be in compliance with
the laws of that jurisdiction. However, New Tenneco may, in its sole
discretion, take such action as it may deem necessary to make the Exchange
Offers and solicit consents in any such jurisdiction, and may extend the
Exchange Offers to, and solicit consents from, holders in that jurisdiction.
2
<PAGE>
INSTRUCTION WITH RESPECT TO EXCHANGE OFFERS
The undersigned acknowledge(s) receipt of your letter and the enclosed
Prospectus of New Tenneco dated November , 1996, and the related Letter of
Transmittal in connection with the Exchange Offers by New Tenneco.
This will instruct you to (a) tender the Old Securities indicated below held
by you for the account of the undersigned, upon the terms and subject to the
conditions set forth in the Prospectus and the related Letter of Transmittal
and (b) consent to the Proposed Amendments and the execution of the
Supplemental Indenture with respect to the Old Securities tendered.
SIGN HERE
^ ^ ^ ^
____________________________________ ______________________________________
Signature Signature
(If more than one account holder)
____________________________________ ______________________________________
____________________________________ Address
Names (Please Print) ______________________________________
Zip Code
______________________________________
Daytime Telephone No. (including Area
Code)
Dated: _________________________, 199
Type of Old Securities to be tendered
and as to which consent to the
Proposed Amendments
is given
(check only one*): Principal Amount Tendered**
[_] 6 1/2% NOTES DUE 2005
[_] 7 1/4% DEBENTURES DUE 2025
[_] 7 7/8% NOTES DUE 2002
[_] 8% NOTES DUE 1999
[_] 9% DEBENTURES DUE 2012
[_] 9 7/8% NOTES DUE 2001
[_] 10% DEBENTURES DUE 2008
- --------
* A separate instruction must be completed for each type of Old Security
tendered.
** The tender of Old Securities will constitute a consent to the Proposed
Amendments.
3
