<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR 12(G) OF THE SECURITIES EXCHANGE ACT OF 1934
----------------
NEW TENNECO INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0515284
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1275 KING STREET GREENWICH, 06831
CONNECTICUT (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
(203) 863-1000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
----------------
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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TITLE OF CLASS TO NAMES OF EACH EXCHANGE ON
BE SO REGISTERED WHICH CLASS IS TO BE REGISTERED
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<S> <C>
Common Stock ($.01 Par Value) New York, Chicago, Pacific and
(and associated Preferred London Stock
Stock Purchase Rights) Exchanges
(Regular Way and When Issued)
</TABLE>
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
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<PAGE>
NEW TENNECO INC.
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT
AND ITEMS OF FORM 10
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<CAPTION>
ITEM
NO. ITEM CAPTION LOCATION IN INFORMATION STATEMENT
---- ------------ ---------------------------------
<C> <S> <C>
1. Business.................... Summary of Certain Information;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; and Business and Properties.
2. Financial Information....... Summary of Certain Information; Unaudited
Pro Forma Combined Financial Statements;
and Management's Discussion and Analysis of
Financial Condition and Results of
Operations; and the Exhibits.
3. Properties.................. Business and Properties.
4. Security Ownership of
Certain Beneficial Owners
and Management............. Management.
5. Directors and Executive Management and Liability and
Officers................... Indemnification of Directors and Officers.
6. Executive Compensation...... Management.
7. Certain Relationships and Summary of Certain Information; The
Related Transactions....... Industrial Distribution; and Management.
8. Legal Proceedings........... Business and Properties.
9. Market Price of and
Dividends on the
Registrant's Common Equity Summary of Certain Information; The
and Related Stockholder Industrial Distribution; and Description of
Matters.................... Capital Stock.
10. Recent Sales of Unregistered
Securities................. Not Applicable.
11. Description of Registrant's
Securities to be
Registered................. Description of Capital Stock.
12. Indemnification of Directors Liability and Indemnification of Directors
and Officers............... and Officers.
13. Financial Statements and Summary of Certain Information; Unaudited
Supplementary Data......... Pro Forma Combined Financial Statements;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; and Combined Selected Financial
Data.
14. Disagreements with
Accountants and Accounting
and Financial Disclosure... Not Applicable.
15. Financial Statements and Combined Selected Financial Data and
Exhibits................... Exhibit Index.
</TABLE>
<PAGE>
INFORMATION STATEMENT
NEW TENNECO INC.
LOGO (TO BE RENAMED TENNECO INC.)
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
This Information Statement is being furnished to stockholders of Tenneco
Inc., a Delaware corporation ("Tenneco"), in connection with the distribution
(the "Industrial Distribution") by Tenneco to holders of its Common Stock, par
value $5.00 per share ("Tenneco Common Stock"), of all the outstanding shares
of Common Stock, par value $.01 per share ("Company Common Stock"), of its
wholly owned subsidiary, New Tenneco Inc., a Delaware corporation (the
"Company"). Concurrently, Tenneco will distribute to holders of Tenneco Common
Stock all of the outstanding shares of Common Stock, par value $.01 per share
("Newport News Common Stock"), of Newport News Shipbuilding Inc., a Delaware
corporation ("Newport News") (individually, the "Shipbuilding Distribution"
and, together with the Industrial Distribution, the "Distributions"). The
Distributions will occur immediately prior to the effective time (the "Merger
Effective Time") of the proposed merger (the "Merger"), pursuant to an
Agreement and Plan of Merger dated as of June 19, 1996, as amended (the
"Merger Agreement"), of a wholly owned subsidiary of El Paso Natural Gas
Company, a Delaware corporation ("El Paso"), with and into Tenneco (which upon
consummation of the Merger will be renamed El Paso Tennessee Pipeline Co.).
Pursuant to the Merger, Tenneco stockholders will receive Common Stock, par
value $3.00 per share, of El Paso ("El Paso Common Stock") and, under certain
circumstances, depositary shares each representing a 1/25th fractional
interest in a share of Preferred Stock of El Paso ("El Paso Preferred
Depositary Shares"). The Distributions, the Merger and the other transactions
contemplated thereby are collectively referred to herein as the "Transaction."
Unless the context otherwise requires, as used herein the term "Company"
refers: (i) for periods prior to the Industrial Distribution, to the Tenneco
Automotive, Tenneco Packaging and Tenneco Business Services businesses of
Tenneco (collectively, the "Industrial Business") 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. See "The Industrial Distribution--Corporate Restructuring
Transactions."
The Company is a newly formed, wholly owned subsidiary of Tenneco that will
conduct the Industrial Business. As part of the Transaction, the Industrial
Business has been consolidated into the Company and disaffiliated with the
other businesses of Tenneco as described under "The Industrial Distribution--
Corporate Restructuring Transactions."
The consummation of the Transaction is conditioned upon, among other things,
approval thereof by Tenneco stockholders. The consummation of the
Distributions is subject to the satisfaction or waiver of a number of other
conditions as described under "The Industrial Distribution--Conditions to
Consummation of the Industrial Distribution."
It is expected that the Industrial Distribution will be made on or about
December 11, 1996 to holders of record of Tenneco Common Stock on the
Distribution Record Date (as defined herein) on the basis of one share of
Company Common Stock for each share of Tenneco Common Stock held of record. In
addition, the Board of Directors of the Company will adopt a stockholder
rights plan and cause to be issued, with each share of Company Common Stock to
be distributed in the Industrial Distribution, one Right (as defined herein),
entitling the holder thereof to, among other things, purchase under certain
circumstances, and as described more fully herein, one one-hundredth of a
share of Company Junior Preferred Stock (as defined herein). No consideration
will be required to be paid by holders of Tenneco Common Stock for the shares
of Company Common Stock to be distributed in the Industrial Distribution or
the Rights associated therewith, nor will holders of Tenneco Common Stock be
required to surrender or exchange their shares of Tenneco Common Stock in
order to receive such shares of Company Common Stock and the Rights associated
therewith.
There is no current public market for Company Common Stock, although a "when
issued" market is expected to develop prior to the effective date of the
Industrial Distribution (the "Distribution Date"). The New York Stock Exchange
has approved the listing of the Company Common Stock upon notice of issuance.
The Company is also applying to the Chicago, Pacific and London Stock
Exchanges for approval of the listing of Company Common Stock upon notice of
issuance.
RECIPIENTS OF COMPANY COMMON STOCK SHOULD NOTE THE FACTORS DISCUSSED IN
"RISK FACTORS" BEGINNING ON PAGE 31.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS INFORMATION STATEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS INFORMATION STATEMENT IS NOVEMBER 4, 1996.
<PAGE>
TABLE OF CONTENTS
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PAGE
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<S> <C>
AVAILABLE INFORMATION..................................................... 1
SUMMARY OF CERTAIN INFORMATION............................................ 3
INTRODUCTION.............................................................. 15
THE INDUSTRIAL DISTRIBUTION............................................... 16
Manner of Distribution.................................................. 16
Corporate Restructuring Transactions.................................... 16
Debt and Cash Realignment............................................... 17
Relationships Among Tenneco, the Company and Newport News after the Dis-
tributions............................................................. 20
Reasons for the Distributions........................................... 25
Conditions to Consummation of the Industrial Distribution............... 25
Amendment or Termination of the Distributions........................... 26
Trading of Company Common Stock......................................... 26
Certain Federal Income Tax Aspects of the Industrial Distribution....... 26
Reasons for Furnishing the Information Statement........................ 30
RISK FACTORS.............................................................. 31
No Current Public Market for Company Common Stock....................... 31
Uncertainty Regarding Trading Prices of Stock Following the Transaction. 31
Uncertainty Regarding Future Dividends.................................. 31
Potential Federal Income Tax Liabilities................................ 31
Certain Antitakeover Features........................................... 33
Potential Liabilities Due to Fraudulent Transfer Considerations and Le-
gal Dividend Requirements.............................................. 33
THE COMPANY............................................................... 35
Introduction............................................................ 35
Business Strategy....................................................... 35
FINANCING................................................................. 38
CAPITALIZATION............................................................ 39
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS......................... 40
COMBINED SELECTED FINANCIAL DATA.......................................... 46
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................... 47
Proposed Merger with El Paso............................................ 47
Results of Operations for the Six Months Ended June 30, 1996 and 1995... 48
Results of Operations for the Years 1995, 1994 and 1993................. 54
BUSINESS AND PROPERTIES................................................... 62
Tenneco Automotive...................................................... 62
Tenneco Packaging....................................................... 70
Tenneco Business Services............................................... 76
Properties.............................................................. 76
Environmental Matters................................................... 77
LEGAL PROCEEDINGS......................................................... 78
MANAGEMENT................................................................ 79
Board of Directors...................................................... 79
Executive Officers...................................................... 81
Stock Ownership of Management........................................... 82
</TABLE>
i
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PAGE
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Committees of the Board of Directors.................................... 83
Executive Compensation.................................................. 83
Compensation of Directors............................................... 89
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements........................................................... 89
Transactions with Management and Others................................. 90
Compensation Committee Interlocks and Insider Participation............. 91
Benefit Plans Following the Industrial Distribution..................... 91
DESCRIPTION OF CAPITAL STOCK.............................................. 92
Authorized Capital Stock................................................ 92
Company Common Stock.................................................... 92
Company Preferred Stock................................................. 93
ANTITAKEOVER EFFECTS OF CERTAIN PROVISIONS................................ 93
Classified Board of Directors........................................... 93
Number of Directors; Removal; Filling Vacancies......................... 94
Special Meetings........................................................ 94
Advance Notice Provisions for Stockholder Nominations and Stockholder
Proposals.............................................................. 94
Record Date Procedure for Stockholder Action by Written Consent......... 95
Stockholders Meetings................................................... 96
Company Preferred Stock................................................. 96
Business Combinations................................................... 96
Amendment of Certain Provisions of the Certificate and By-laws.......... 97
Rights.................................................................. 97
Antitakeover Legislation................................................ 99
Comparison with Rights of Holders of Tenneco Common Stock............... 100
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS................... 103
Elimination of Liability of Directors................................... 103
Indemnification of Directors and Officers............................... 104
INDEX TO COMBINED FINANCIAL STATEMENTS AND SCHEDULE....................... F-1
</TABLE>
ii
<PAGE>
AVAILABLE INFORMATION
Tenneco is (and, following the Industrial Distribution, the Company will be)
subject to the informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and in accordance therewith files (and
the Company will file) reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by Tenneco (and to be filed by the
Company) with the Commission may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, as well as at the Commission's Regional
Offices, including the following: Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite
1300, New York, New York 10048. Copies of such information may be obtained by
mail at prescribed rates from the Public Reference Section of the Commission
at 450 Fifth Street, N.W. Street, N.W., Washington, D.C. 20549 or accessed
electronically on the Commission's Web site at (http://www.sec.gov). The
Company Common Stock has been approved for listing on the New York Stock
Exchange and reports and other information concerning the Company can be
inspected at the New York Stock Exchange offices, 20 Broad Street, New York,
New York, 10005.
The Company intends to furnish holders of Company Common Stock with annual
reports containing consolidated financial statements prepared in accordance
with United States generally accepted accounting principles and audited and
reported on, with an opinion expressed, by an independent public accounting
firm, as well as quarterly reports for the first three quarters of each fiscal
year containing unaudited financial information.
The Company has filed with the Commission a Registration Statement on Form
10 (as amended, this "Registration Statement") under the Exchange Act covering
Company Common Stock and the associated Rights.
This Information Statement does not contain all of the information in the
Registration Statement and the related exhibits and schedules. Statements in
this Information Statement as to the contents of any contract, agreement or
other document are summaries only and are not necessarily complete. For
complete information as to these matters, refer to the applicable exhibit or
schedule to the Registration Statement. The Registration Statement and the
related exhibits filed by the Company with the Commission may be inspected at
the public reference facilities of the Commission listed above.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS WITH RESPECT TO THE MATTERS DESCRIBED IN THIS INFORMATION
STATEMENT OTHER THAN THOSE CONTAINED HEREIN OR IN THE DOCUMENTS INCORPORATED
BY REFERENCE HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR TENNECO.
NEITHER THE DELIVERY OF THIS INFORMATION STATEMENT NOR CONSUMMATION OF THE
INDUSTRIAL DISTRIBUTION CONTEMPLATED HEREBY SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY OR TENNECO SINCE THE DATE HEREOF, OR THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
CAUTIONARY STATEMENT FOR PURPOSES OF "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Information Statement contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 concerning,
among other things, the Company's prospects, developments and business
strategies for its operations, all of which are subject to risks and
uncertainties. These forward-looking statements are identified by their use of
terms and phrases such as "intends," "intend," "intended," "goal," "expects,"
"expect," "expected," "plans," "anticipates," "anticipated," "should,"
"designed to," "foreseeable future," "believe" and "believes" and similar
terms and phrases, and in many cases are followed by a cross reference to
"Risk Factors." The Company's actual results may differ significantly
<PAGE>
from the results discussed in the forward-looking statements. Factors that
might cause such a difference include (a) the factors discussed in the section
or sections under "Risk Factors" and particularly, in cases where the forward-
looking statement is followed by a cross reference to "Risk Factors," the
factors discussed in the section or sections under "Risk Factors" that are
referred to in the cross reference, (b) the factors discussed under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business and Properties" and (c) the following additional
factors: (i) the general economic and competitive conditions in the markets
and countries where the Company operates; (ii) changes in capital availability
or costs such as changes in interest rates, market perceptions of the
industries in which the Company operates or security ratings;
(iii) fluctuations in demand for certain of the Company's products; (iv) the
cost of compliance with changes in regulations, including environmental
regulations; (v) employee workforce factors, including collective bargaining
agreements or work stoppages; (vi) growth strategies through acquisitions and
investments in joint ventures may face legal and regulatory delays and other
unforeseeable obstacles beyond the Company's control; (vii) cost control
efforts may be affected by the timing of related work force reductions and
might be further offset by unusual and unexpected items resulting from such
events as unexpected environmental remediation costs in excess of reserves;
(viii) future operating results and success of business ventures in the United
States and foreign markets may be subject to the effects of, and changes in,
United States and foreign trade and monetary policies, laws and regulations,
political and governmental changes, inflation and exchange rates, taxes, and
operating conditions; and (ix) authoritative generally accepted accounting
principle or policy changes from such standard setting bodies as the Financial
Accounting Standards Board and the Commission.
When a forward-looking statement includes a statement of the assumptions or
basis underlying the forward-looking statement, the Company cautions that,
while it believes such assumptions or basis to be reasonable and makes them in
good faith, assumed facts or basis almost always vary from actual results, and
the differences between assumed facts or basis and actual results can be
material, depending upon the circumstances. Where, in any forward-looking
statement, the Company or its management expresses an expectation or belief as
to future results, such expectation or belief is expressed in good faith and
believed to have a reasonable basis, but there can be no assurance that the
statement of expectation or belief will result or be achieved or accomplished.
2
<PAGE>
SUMMARY OF CERTAIN INFORMATION
This Summary is qualified by the more detailed and other information and
financial statements set forth elsewhere in this Information Statement, which
should be read in its entirety. Capitalized terms used but not defined in this
Summary are defined elsewhere in this Information Statement. Unless the context
otherwise requires, the term "Company" refers (i) for periods prior to the
Industrial Distribution, to Tenneco's Industrial Business and (ii) for periods
after the Industrial Distribution, to the Company and its consolidated
subsidiaries.
THE COMPANY
The Company is a newly formed Delaware corporation which, upon completion of
the Industrial Distribution, will be an independent, publicly held company
(symbol "TEN"). The Company 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: the Tenneco Automotive business ("Tenneco
Automotive") and the Tenneco Packaging business ("Tenneco Packaging"). The
Company will also own and operate the administrative services business of
Tenneco: Tenneco Business Services ("TBS"). Upon consummation of the Merger,
the Company 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 the Company pursuant to the Industrial
Distribution for legal, tax and other reasons, the Company will succeed to
certain important aspects of the existing Tenneco business, organization and
affairs, namely: (i) the Company will be renamed "Tenneco Inc." upon the
consummation of the Merger; (ii) the Company will be headquartered at Tenneco's
current headquarters in Greenwich, Connecticut; (iii) the Company's Board of
Directors (the "Company Board") will consist of those persons currently
constituting the Tenneco Board of Directors (the "Tenneco Board"); (iv) the
Company's executive management will consist substantially of the current
Tenneco executive management; and (v) the Industrial Business to be conducted
by the Company 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.
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 Company's principal executive offices are located at 1275 King Street,
Greenwich, Connecticut 06831; telephone: (203) 863-1000.
3
<PAGE>
BUSINESS STRATEGY
The Company
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 the Company 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 the Company. 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.
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 the Company 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 the Company has successfully reduced
the failure costs in its manufacturing and administrative processes; (ii) the
working capital initiative through which the Company plans to further reduce
its working capital requirements; and (iii) the shared services program,
administered by TBS, through which the Company plans on further improving
efficiency and reducing the cost of general and administrative support
functions. The Company 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 the Company's overall growth strategy. Tenneco's
current executive management team, which will continue to serve as the
Company'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, the Company has developed comprehensive plans to efficiently
integrate new companies into its existing corporate infrastructure. The Company
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 the Company
will require continued success in completing major acquisitions and similar
expansion efforts, and then successfully integrating the acquired businesses
and operations into the Company. 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, the Company's success in achieving its financial and other goals.
Although certain factors in this regard will be beyond the Company's control,
its executive management team believes that the Company 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.
4
<PAGE>
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 manufacturers' ("OEMs") 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
share; (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.
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.
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5
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA OF THE COMPANY
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 the Company. 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 the Company. In the opinion of the Company's
management, the summary combined financial data of the Company 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 the Company of the Cash
Realignment and Debt Realignment (as each are defined herein); (iii) the effect
on the Company of the Corporate Restructuring Transactions, and other
transactions pursuant to the provisions of the Distribution Agreement and
Merger Agreement; and (iv) the issuance of Company 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 the Company 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 "Unaudited Pro Forma
Combined Financial Statements," "Combined Selected Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Combined Financial Statements, and notes thereto, included
elsewhere in this Information Statement.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEARS ENDED DECEMBER 31,
-------------------------- ---------------------------------------------------------
PRO FORMA PRO FORMA
(MILLIONS EXCEPT PER 1996 1996(A) 1995(A) 1995 1995(A) 1994(A) 1993(A) 1992 1991
SHARE AMOUNTS) --------- ------- ------- --------- ------- ------- ------- ------ ------
<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
interest 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
income 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
====== ====== ====== ====== ====== ====== ====== ====== ======
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
activities............. N/A $ 199 $ (9) N/A $ 489 $ 571 $ 324 $ 121 $ 503
Net cash provided (used)
by investing
activities............. N/A (340) (206) N/A (2,041) (303) (152) (78) (237)
Net cash provided (used)
by financing
activities............. 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
</TABLE>
(continued on next page)
6
<PAGE>
(continued from previous page)
- -------
(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," included elsewhere in this
Information Statement.
(b) During 1995 and 1994, Tenneco Automotive and Tenneco Packaging each
completed several acquisitions, the most significant of which was Tenneco
Packaging's acquisition of Mobil Plastics for $1.3 billion in late 1995.
See Note 4 to the Combined Financial Statements, included elsewhere in this
Information Statement, for further information on the Company's
acquisitions.
(c) Includes a gain of $42 million recorded by Tenneco Packaging related to the
sale of three short-line railroads.
(d) In 1994, the Company adopted Statement of Financial Accounting Standards
("FAS") No. 112, "Employers' Accounting for Postemployment Benefits." In
1992, the Company 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 the Company from Tenneco 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. 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 the
Company's debt upon completion of the Debt Realignment (as defined), nor
debt and interest that may be incurred by the Company as a separate public
entity. See the Combined Financial Statements, and notes thereto, included
elsewhere in this Information Statement.
(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 the Company or as an alternative to operating cash
flows as a measure of liquidity.
7
<PAGE>
THE INDUSTRIAL DISTRIBUTION
Distributing Company.... Tenneco Inc. (which will be renamed El Paso Tennessee
Pipeline Co. upon consummation of the Merger).
Distributed Company..... New Tenneco Inc. (a wholly owned subsidiary of
Tenneco) which will, upon consummation of the
Industrial Distribution, directly and indirectly
through its consolidated subsidiaries, own and
operate Tenneco Automotive, Tenneco Packaging, and
TBS. Immediately following consummation of the
Industrial Distribution, Tenneco will not have an
ownership interest in the Company and, upon
consummation of the Merger, the Company will be
renamed "Tenneco Inc."
Distribution Ratio...... One share of Company Common Stock for each share of
Tenneco Common Stock held of record on the
Distribution Record Date (as defined herein).
Securities to be
Distributed............. Based on 170,755,576 shares of Tenneco Common Stock
outstanding on September 30, 1996, 170,755,576 shares
of Company Common Stock (and Rights associated
therewith) will be distributed. Company Common Stock
to be distributed will constitute all of the
outstanding Company Common Stock immediately
following the Industrial Distribution. See
"Description of Capital Stock--Company Common Stock"
and "Antitakeover Effects of Certain Provisions--
Rights."
Distribution Record December 11, 1996.
Date....................
Distribution Date....... December 11, 1996.
Distribution Agent and
Transfer Agent for the
Shares.................
First Chicago Trust Company of New York (the
"Distribution Agent").
Mailing Date............ Certificates representing the shares of Company
Common Stock to be distributed pursuant to the
Industrial Distribution will be delivered to the
Distribution Agent on the Distribution Date. The
Distribution Agent will mail certificates
representing the shares of Company Common Stock to
holders of Tenneco Common Stock as soon as
practicable thereafter. Holders of Tenneco Common
Stock should not send stock certificates to Tenneco,
the Company or the Distribution Agent in connection
with the Industrial Distribution (however, holders
will receive instructions from the Distribution Agent
with respect to the disposition of their certificates
in connection with the Merger). See "The Industrial
Distribution--Manner of Distribution."
Conditions to the
Industrial
Distribution...........
The Transaction (and, accordingly, the Industrial
Distribution) is conditioned upon, among other
things, declaration of the special distributions by
the Tenneco Board authorizing the Distributions and
approval by the stockholders of Tenneco of the
Transaction. The Transaction is also conditioned upon
receipt of a private letter ruling (the "IRS Ruling
Letter") from the Internal Revenue Service (the
"IRS") in form and substance satisfactory to the
Tenneco Board (see "The Industrial Distribution--
Certain Federal Income Tax Aspects of the Industrial
Distribution"), which IRS Ruling Letter was issued on
October 30, 1996. The Distributions and the Merger
are part of a unified transaction and will not be
effected separately (although Tenneco may elect
subsequently to
8
<PAGE>
proceed with one or more of the transactions included
in the Transaction which do not require stockholder
approval if the Transaction is not approved by
Tenneco stockholders). See "The Industrial
Distribution--Conditions to Consummation of the
Industrial Distribution" and "The Industrial
Distribution--Amendment or Termination of the
Distributions."
Reasons for the The Distributions and the Merger are designed to
Distributions........... separate three types of businesses, namely the
Industrial Business, the Shipbuilding Business (as
defined below) and the Energy Business (as defined
below), which have distinct financial, investment and
operating characteristics, so that each can adopt
strategies and pursue objectives appropriate to its
specific needs. The Distributions will (i) enable the
management of each company to concentrate its
attention and financial resources on the core
businesses of such company, (ii) permit investors to
make more focused investment decisions based on the
specific attributes of each of the three businesses,
(iii) facilitate employee compensation programs
custom-tailored to the operations of each business,
including stock-based and other incentive programs,
which will more directly reward employees of each
business based on the success of that business and
(iv) tailor the assets of Tenneco to facilitate the
acquisition of the Energy Business by El Paso. Upon
consummation of the Industrial Distribution, the
Company will, primarily through its consolidated
subsidiaries, own and operate Tenneco Automotive,
Tenneco Packaging and TBS and Newport News will,
primarily through its consolidated subsidiaries
(principally Newport News Shipbuilding and Dry Dock
Company), own and operate substantially all of the
shipbuilding and related businesses of Tenneco (the
"Shipbuilding Business"). Immediately following
consummation of the Distributions, a subsidiary of El
Paso will be merged with and into Tenneco, and
thereafter the energy and other remaining businesses
and operations of Tenneco, including liabilities and
assets relating to discontinued Tenneco operations
not related to the Industrial Business or the
Shipbuilding Business (collectively, the "Energy
Business") will be owned and operated by El Paso. See
"The Industrial Distribution--Reasons for the
Distributions."
Federal Income Tax
Consequences............
The Tenneco Board has conditioned the Industrial
Distribution on receipt of the IRS Ruling Letter
substantially to the effect, among other things, that
the Industrial Distribution and the receipt of shares
of Company Common Stock by holders of Tenneco Common
Stock will be tax-free to Tenneco and its
stockholders, respectively, for federal income tax
purposes. The IRS Ruling Letter received on October
30, 1996 satisfies the foregoing condition. Tenneco
has also requested a ruling from the IRS as to the
tax-free treatment of certain transactions to be
effected as part of the Corporate Restructuring
Transactions (as defined herein) and the Merger which
was received as part of the IRS Ruling Letter. See
"The Industrial Distribution--Certain Federal Income
Tax Aspects of the Industrial Distribution" and "Risk
Factors--Certain Federal Income Tax Considerations."
Trading Market..........
There is currently no public market for Company
Common Stock, although a "when issued" market is
expected to develop prior to the Distribution Date.
The New York Stock Exchange has approved the listing
9
<PAGE>
of the Company Common Stock upon notice of issuance.
The Company is also applying to the Chicago, Pacific
and London Stock Exchanges for approval of the
listing of Company Common Stock upon notice of
issuance. The combined market value/trading prices of
(i) Company Common Stock, (ii) Newport News Common
Stock and (iii) El Paso Common Stock and, under
certain circumstances, El Paso Preferred Depositary
Shares after the Transaction may be less than, equal
to or greater than the market value/trading price of
Tenneco Common Stock prior to the Transaction. See
"The Industrial Distribution--Trading of Company
Common Stock" and "Risk Factors--No Current Public
Market for Company Common Stock."
Dividends............... The Company's dividend policy will be established by
the Company Board from time to time based on the
results of operations and financial condition of the
Company and such other business considerations as the
Company Board considers relevant. There can be no
assurances that the combined annual dividends on (i)
El Paso Common Stock and, if issued in connection
with the Merger, El Paso Preferred Depositary Shares,
(ii) Company Common Stock and (iii) Newport News
Common Stock after the Transaction will be equal to
the annual dividends on Tenneco Common Stock prior to
the Transaction (and it is unlikely that the
dividends would be greater than the annual dividends
on Tenneco Common Stock prior to the Transaction).
See "Risk Factors--Dividends" and "Description of
Capital Stock--Company Common Stock."
Antitakeover The Restated Certificate of Incorporation and the
Provisions.............. Amended and Restated By-laws of the Company, as well
as the Company's stockholder rights plan (which will
expire on June 10, 1998 unless extended with
stockholder approval) and Delaware statutory law,
contain provisions that may have the effect of
discouraging an acquisition of control of the Company
in a transaction not approved by the Company Board.
These provisions, which are substantially the same as
those provisions which are currently applicable to
Tenneco (see "Antitakeover Effects of Certain
Provisions--Comparison with Rights of Holders of
Tenneco Common Stock"), should better enable the
Company to develop its business and foster its long-
term growth without the disruptions that can be
caused by the threat of certain types of takeovers
not deemed by the Company Board to be in the best
interests of the Company and its stockholders. Such
provisions may also have the effect of discouraging
third parties from making proposals involving an
acquisition or change of control of the Company,
although such proposals, if made, might be considered
desirable by a majority of the Company's
stockholders. Such provisions could further have the
effect of making it more difficult for third parties
to cause the immediate removal and replacement of the
members of the then current Company Board or the then
current management of the Company without the
concurrence of the Company Board. See "Risk Factors--
Certain Antitakeover Features," "Description of
Capital Stock," and "Antitakeover Effects of Certain
Provisions."
Risk Factors............ Stockholders of Tenneco should be aware that the
Industrial Distribution and ownership of Company
Common Stock involve certain risk factors, including
those described under "Risk Factors," as well as
elsewhere in this Information Statement, which could
adversely affect the value of their
10
<PAGE>
holdings. Such matters include, among others, the
lack of a current public market for Company Common
Stock, the absence of assurance that the combined
market value/trading prices of, and dividends on, El
Paso Common Stock and any El Paso Preferred
Depositary Shares, Company Common Stock and Newport
News Common Stock held by stockholders after the
Transaction will be equal to or greater than the
market value/trading price of or dividends on Tenneco
Common Stock prior to the Transaction, the risk that
the Industrial Distribution may not qualify as a tax-
free distribution under Section 355 of the Code (as
defined herein), certain antitakeover effects of
certain provisions of the Company's Restated
Certificate of Incorporation, the Amended and
Restated By-laws, the Company's stockholder rights
plan and Delaware statutory law, and the risk that
the Transaction is subject to review under federal
and state fraudulent conveyance laws. See "Risk
Factors."
Corporate Restructuring
Transactions...........
Prior to the consummation of the Industrial
Distribution, Tenneco and its subsidiaries will
undertake various intercompany transfers and
distributions designed to restructure Tenneco's
existing businesses, assets and liabilities so that
substantially all of the assets, liabilities and
operations of (i) the Industrial Business will be
directly and indirectly owned and operated by the
Company, (ii) the Shipbuilding Business will be
directly and indirectly owned and operated by Newport
News and (iii) the Energy Business will be directly
and indirectly owned and operated by Tenneco, which
will, upon consummation of the Merger, be a
subsidiary of El Paso and be renamed El Paso
Tennessee Pipeline Co. (the "Corporate Restructuring
Transactions"). See "The Industrial Distribution--
Corporate Restructuring Transactions."
Debt and Cash
Realignment; Exchange
Offer; Revolving
Credit Financing.......
The Merger Agreement, the Distribution Agreement to
be entered into pursuant to the Merger Agreement (the
"Distribution Agreement") and certain of the other
agreements and documents attached as exhibits to the
Merger Agreement or the Distribution Agreement (the
"Ancillary Agreements") provide for (i) the
restructuring (through debt tender and exchange
offers, defeasances, prepayments, refinancings and
the like), immediately prior to the Distributions, of
the outstanding indebtedness for money borrowed
("Tenneco Energy Consolidated Debt") of Tenneco and
certain of its consolidated subsidiaries (the "Debt
Realignment") and (ii) the allocation of cash and
cash equivalents of Tenneco and its consolidated
subsidiaries (the "Cash Realignment"). As of June 30,
1996, the total book value of Tenneco Energy
Consolidated Debt was $4,443 million, including
$3,734 million book value ($3,955 million principal
amount) of publicly held debt ("Tenneco Public
Debt").
Tenneco will be allocated (and thereby retain)
certain of the Tenneco Energy Consolidated Debt, as
so restructured pursuant to the Debt Realignment. A
post-Transaction audit will be conducted and if the
amount of Tenneco Energy Consolidated Debt (together
with the proceeds (which is currently expected to be
approximately $275 million) of the public offering of
one or more new series of junior preferred stock (the
11
<PAGE>
"Tenneco Junior Preferred Stock") issued by Tenneco
(the "NPS Issuance") prior to the Distributions) so
retained by Tenneco exceeds $2.65 billion (subject to
certain adjustments as more fully described in this
Information Statement), the Company will pay the
excess to Tenneco in cash, and conversely, if the
amount of Tenneco Energy Consolidated Debt (together
with the proceeds of the NPS Issuance) so retained by
Tenneco is less than $2.65 billion (subject to the
same adjustments), Tenneco will pay the difference to
the Company in cash.
As part of the Debt Realignment, the Company will
offer to exchange (the "Debt Exchange Offers") $1,950
million aggregate principal amount of new, publicly
traded debt securities of the Company ("Company
Public Debt") for an equal amount of Tenneco Public
Debt. The Company Public Debt will have similar
maturities, but higher interest rates than the
Tenneco Public Debt for which it is being exchanged.
Upon consummation of the Debt Exchange Offers,
Tenneco will purchase (and thereafter extinguish) the
Tenneco Public Debt held by the Company, and the
Company will then distribute such proceeds as a
dividend to Tenneco.
In addition, the Company will enter into a $1,750
million Revolving Credit Facility (the "Company
Credit Facility"). The Company will use the Company
Credit Facility primarily for working capital,
acquisitions and other general corporate purposes;
however, the Company may borrow funds under the
Company Credit Facility and declare and pay a
dividend to Tenneco of such amount in connection with
the Debt Realignment. See "The Industrial
Distribution--Debt and Cash Realignment."
Also as part of the Debt Realignment, Tenneco has
agreed with El Paso that Tenneco will 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
required to pay the excess to the Company in cash.
Likewise, the Company 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 thereof) from January
1, 1997 to the Merger Effective Time.
Pursuant to the Cash Realignment, Tenneco will be
allocated $25 million (subject to certain
adjustments) of cash and cash equivalents, Newport
News will be allocated $5 million of cash and cash
equivalents and the Company will be allocated all
remaining cash and cash equivalents on hand as of the
Merger Effective Time, which would have totalled
approximately $200 million if the Transaction had
been consummated as of June 30, 1996. Following the
post-Transaction audit described above, the Company
will be required to pay to each of Tenneco or Newport
News, as the case may be, the amount by which such
company's total cash and cash equivalents on hand as
of the Merger Effective Time is less than the above-
described allocation to such company. Likewise,
Tenneco and Newport News will each be required to pay
to the Company the amount of any excess as of the
Merger Effective Time from the above-described
allocation.
See "The Industrial Distribution--Debt and Cash
Realignment."
12
<PAGE>
Relationships Among
Tenneco, the Company
and Newport News after
the Distributions......
Tenneco will have no stock ownership in the Company
upon consummation of the Industrial Distribution. The
Company, Newport News and Tenneco will enter into the
Distribution Agreement prior to the Industrial
Distribution for the purposes of governing certain
ongoing relationships among Tenneco, the Company and
Newport News after the Industrial Distribution and to
provide for an orderly transition in the
disaffiliation of the Industrial Business, the Energy
Business and the Shipbuilding Business. The
Distribution Agreement provides for, among other
things, the Distributions and the allocation among
the Company, Tenneco and Newport News of assets and
liabilities. The parties will also enter into the
Ancillary Agreements, including: (i) the Benefits
Agreement, providing for allocations of
responsibilities with respect to employee
compensation, benefits and labor matters; (ii) the
Tax Sharing Agreement pursuant to which Tenneco, the
Company and Newport News will allocate liabilities
for taxes arising prior to, as a result of, and
subsequent to the Distribution Date; (iii) the Debt
Realignment plan pursuant to which the Tenneco Energy
Consolidated Debt will be restructured, paid and/or
refinanced by Tenneco, the Company and Newport News;
(iv) the Debt and Cash Allocation Agreement,
providing for, among other things, the allocation of
cash among, and the restructuring and refinancing of
certain of the debt of Tenneco existing prior to the
Distributions by (or with funds provided by) the
Company, Tenneco and Newport News; (v) the TBS
Services Agreement, pursuant to which TBS will
continue to provide certain administrative and other
services to Tenneco and Newport News for a certain
period of time; (vi) the Tenneco Transition Trademark
License and the Shipbuilding Transition Trademark
License Agreement, which will allow Tenneco and
Newport News to use the trademark and tradenames of
the Company for certain specified periods of time for
certain purposes; and (vii) the Insurance Agreement,
providing for, among other things, coverage
arrangements for Tenneco, the Company and Newport
News in respect of various insurance policies. In
addition, pursuant to a Transition Services
Agreement, the Company may also provide certain
services to Tenneco and El Paso on a transitional
basis at prevailing market rates.
In addition, the Company and Newport News will share
one common director, Dana G. Mead, and the Company
and El Paso (which will be the parent of Tenneco)
will share one common director, Peter T. Flawn. The
Company, Newport News and El Paso will adopt policies
and procedures to be followed by the Board of
Directors of each company to limit the involvement of
Mr. Mead and Dr. Flawn in situations that could give
rise to potential conflicts of interest, including
requesting them to abstain from voting as a director
of either the Company or Newport News, with respect
to Mr. Mead, or either the Company or El Paso, with
respect to Dr. Flawn, on certain matters which
present a conflict of interest between the Company
and Newport News or El Paso, as the case might be.
The Company believes that such conflict situations
will be minimal.
See "The Industrial Distribution--Relationships Among
Tenneco, the Company and Newport News After the
Distributions."
13
<PAGE>
RECENT DEVELOPMENTS
On October 22, 1996, Tenneco announced consolidated earnings for the nine
months ended September 30, 1996. The Company'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 minor-
ity interest.......................................... $ 585 $ 551
Interest expense....................................... 145 113
Income tax expense..................................... 171 180
Minority interest...................................... 15 17
-------- --------
Net income............................................. $ 254 $ 241
======== ========
</TABLE>
Tenneco 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. Tenneco
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 Tenneco 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. Tenneco 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 late in 1995 and during 1996.
14
<PAGE>
INTRODUCTION
This Information Statement is being furnished to stockholders of Tenneco in
connection with the Industrial Distribution pursuant to which Tenneco intends
to distribute to holders of Tenneco Common Stock all of the outstanding shares
of Company Common Stock. Concurrently, Tenneco will distribute to holders of
Tenneco Common Stock all of the outstanding shares of Newport News Common
Stock. The Distributions will occur prior to the consummation of the Merger
pursuant to which a subsidiary of El Paso will merge with and into Tenneco
(which will, upon consummation of the Merger, be renamed El Paso Tennessee
Pipeline Co.) and whereby Tenneco will become a subsidiary of El Paso.
It is expected that the Distribution Date of the Industrial Distribution
will be on or about December 11, 1996 to holders of record of Tenneco Common
Stock on December 11, 1996 (the "Distribution Record Date") on the basis of
one share of Company Common Stock for each share of Tenneco Common Stock held
of record. In addition, prior to the Industrial Distribution the Company Board
will adopt a stockholder rights plan and cause to be issued, with each share
of Company Common Stock to be distributed in the Industrial Distribution, one
Right, entitling the holder thereof to, among other things, purchase under
certain circumstances, and as described more fully herein, one one-hundredth
of a share of Company Junior Preferred Stock. No consideration will be
required to be paid by holders of Tenneco Common Stock for the shares of
Company Common Stock to be distributed in the Industrial Distribution or the
Rights associated therewith, nor will holders of Tenneco Common Stock be
required to surrender or exchange their shares of Tenneco Common Stock in
order to receive such shares of Company Common Stock and the Rights associated
therewith.
Upon consummation of the Distributions and the Merger (i) holders of Tenneco
Common Stock as of the Distribution Record Date and Merger Effective Time will
receive the securities of three publicly held companies--the Company, Newport
News and El Paso and (ii) holders of Tenneco Preferred Stock (as defined
herein) as of the Merger Effective Time will receive El Paso Common Stock.
Immediately thereafter, the Company will own and operate the Industrial
Business, Newport News will own and operate the Shipbuilding Business and El
Paso will own and operate the Energy Business.
The Industrial Distribution, the Shipbuilding Distribution and the Merger
are separate components of the Transaction. However, the Industrial
Distribution, the Shipbuilding Distribution and the Merger as described herein
will not be consummated unless the Transaction as a whole is approved at a
special meeting of the Tenneco stockholders (although Tenneco may elect
subsequently to proceed with one or more of the transactions included in the
Transaction which do not require stockholder approval if the Transaction is
not approved by Tenneco stockholders). Furthermore, the Industrial
Distribution will not be consummated until all other conditions to the Merger
have been satisfied (or can be contemporaneously satisfied) other than the
filing of a Certificate of Merger with the Secretary of State of Delaware. See
"The Industrial Distribution--Conditions to Consummation of the Industrial
Distribution" and "The Industrial Distribution--Amendment or Termination of
the Distributions."
Stockholders of Tenneco with inquiries relating to the Industrial
Distribution should contact the Distribution Agent at (800) 446-2617, or
Tenneco Inc., Shareholders Services, 1275 King Street, Greenwich, Connecticut
06831; telephone: (203) 863-1170.
15
<PAGE>
THE INDUSTRIAL DISTRIBUTION
The following descriptions of certain provisions of the Distribution
Agreement and certain of the Ancillary Agreements 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
Ancillary Agreements. A copy of the Distribution Agreement and each of the
Ancillary Agreements as currently agreed to is included as an exhibit to the
Company's Registration Statement on Form 10 under the Exchange Act relating to
Company Common Stock, and the following discussion with respect to such
agreements is qualified in its entirety by reference to the subject agreement
as filed.
MANNER OF DISTRIBUTION
Pursuant to the Distribution Agreement, the Tenneco Board will declare the
special distribution necessary to effect the Industrial Distribution 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,
one share of Company Common Stock for each share of Tenneco Common Stock so
held (including the Right associated therewith). Pursuant to the Distribution
Agreement as soon as practicable on or after the Distribution Date, Tenneco
will deliver to the Distribution Agent, as agent for holders of Tenneco Common
Stock as of the Distribution Record Date, certificates representing such
shares of Company Common Stock as are required for the Industrial
Distribution.
If any shares of Company Common Stock are returned to the Distribution Agent
as unclaimed or cannot be distributed by the Distribution Agent, any post-
Distribution dividends or distributions thereon will be paid to the
Distribution Agent (or set aside and retained by the Company). On the 180th
day following the Distribution Date, the Distribution Agent will return to
Tenneco all unclaimed shares of Company Common Stock and dividends or other
distributions with respect thereto. Thereafter, holders of Tenneco Common
Stock as of the Distribution Date will be entitled to look only to Tenneco for
such amounts to which they are entitled, subject to applicable escheat or
other abandoned property laws.
NO HOLDER OF TENNECO COMMON STOCK WILL BE REQUIRED TO PAY CASH OR OTHER
CONSIDERATION FOR THE SHARES OF COMPANY COMMON STOCK TO BE RECEIVED IN THE
INDUSTRIAL DISTRIBUTION, OR TO SURRENDER OR EXCHANGE SHARES OF TENNECO COMMON
STOCK IN ORDER TO RECEIVE COMPANY COMMON STOCK.
CORPORATE RESTRUCTURING TRANSACTIONS
Prior to consummation of the Distributions (and pursuant to the Distribution
Agreement), Tenneco will effect the Corporate Restructuring Transactions. Upon
completion of the Corporate Restructuring Transactions, Tenneco's existing
businesses and assets will be restructured so that, in general, substantially
all of the assets, liabilities and operations of (i) the Industrial Business
will be owned and operated, directly or indirectly, by the Company and (ii)
the Shipbuilding Business will be owned and operated, directly or indirectly,
by Newport News. The remaining assets, liabilities and operations of Tenneco
and its remaining subsidiaries will then consist solely of those related to
the Energy Business, which includes liabilities and assets relating to
discontinued Tenneco operations not related to the Industrial Business or the
Shipbuilding Business.
The assets which will be owned by the Company upon consummation of the
Corporate Restructuring Transactions (the "Industrial Assets") are generally
those related to the conduct of the past and current Industrial Business, as
reflected on the Unaudited Pro Forma Combined Balance Sheet of the Company as
of June 30, 1996 included herein under "Unaudited Pro Forma Combined Financial
Statements" which is also attached as an exhibit to the Distribution Agreement
(the "Pro Forma Balance Sheet"), 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 on the Pro Forma Balance
Sheet had it been acquired prior to the date thereof), plus all rights
expressly allocated to the Company and its subsidiaries under the Distribution
Agreement or any of the Ancillary Agreements. As part of the Corporate
Restructuring Transactions, the Company will acquire various corporate assets
of Tenneco such as the "Tenneco" trademark and associated rights. 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 conduct of the past and current Shipbuilding Business, as
reflected
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on the Newport News 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 (the "Energy Assets") will continue to be owned and
operated by Tenneco (as a subsidiary of El Paso) following the Corporate
Restructuring Transactions and the Distributions.
The liabilities to be retained or to be assumed by the Company and for which
the Company will be responsible 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 Pro Forma Balance Sheet which
remain outstanding as of the Distribution Date (plus subsequently incurred or
accrued liabilities determined on a basis consistent with the determination of
liabilities thereon), (ii) certain liabilities for possible violations of
securities laws in connection with the Transaction and (iii) those liabilities
expressly allocated to the Company or its subsidiaries under the Distribution
Agreement or any Ancillary Agreement.
The liabilities to be retained or assumed by Newport News and for which
Newport News will be responsible 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
pro forma balance sheet which remain outstanding as of the Distribution Date
(plus liabilities that were subsequently incurred or accrued, determined on a
basis consistent with the determination of liabilities thereon), (ii) certain
liabilities for possible violations of securities laws in connection with the
Transaction 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 for which Tenneco
will be responsible 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 Tenneco pro forma balance sheet attached as an
exhibit to the Distribution Agreement which remain outstanding as of the
Distribution Date (plus 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 other member of the Energy
Group which do not constitute Industrial Liabilities or Shipbuilding
Liabilities.
In connection with the Corporate Restructuring Transactions, the Company
expects to obtain all consents relating to its material contracts necessary to
effect the Transaction.
For a description of certain liabilities that will be expressly allocated
among Tenneco, the Company and Newport News by the Distribution Agreement and
Ancillary Agreements, including liability for the Tenneco Consolidated Debt,
taxes and certain employee benefits, see "--Debt and Cash Realignment" and "--
Relationships Among Tenneco, the Company and Newport News After the
Distributions."
DEBT AND CASH REALIGNMENT
From and after the Distributions, each of Tenneco, the Company and Newport
News will, in general, 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." However, 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.
Accordingly, the Merger Agreement, the Distribution Agreement and the
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, the Company and Newport News of the total
amount of the cash and cash equivalents on hand as of the Merger Effective
Time pursuant to the Cash Realignment and (iii) settlement payments with
respect to certain capital expenditures related to the Energy Business, all as
described below.
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The Debt Realignment is intended to facilitate the disaffiliation of the
Industrial Business, the Energy Business and the Shipbuilding Business in
connection with the Distributions and to facilitate the Merger. Additionally,
the Debt Realignment is intended to reduce the total amount of the Tenneco
Energy Consolidated Debt to an amount that, when added to certain other
liabilities and obligations of Tenneco outstanding as of the Merger Effective
Time (the "Actual Energy Debt Amount"), equals $2.65 billion, less the
proceeds of the NPS Issuance and subject to certain other specified
adjustments (the "Base Amount"). As of June 30, 1996, the total book value of
Tenneco Energy Consolidated Debt was $4,443 million, including $3,734 million
book value ($3,955 million principal amount) of Tenneco Public Debt. The Debt
and Cash Allocation Agreement to be entered into among the Company, Tenneco
and Newport News (the "Debt and Cash Allocation Agreement") contemplates that,
as of the Merger Effective Time, the Actual Energy Debt Amount be limited to
the Base Amount. The "Base Amount" will equal $2.65 billion less the proceeds
to Tenneco from the sale of Tenneco Junior Preferred Stock issued pursuant to
the NPS Issuance plus (i) the sum of (a) the amount of all cash payments made
by Tenneco and any of its subsidiaries after the date of the Merger Agreement
to the Merger Effective Time with respect to Tenneco 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 by Tenneco and/or any of its
subsidiaries reduced by the amount of any cash payments received by Tenneco
and its subsidiaries from customers, insurers or other third parties with
respect thereto (other than ones refunded prior to the Merger Effective Time)
or with respect to any gas supply realignment costs which are so 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 to acquire an
additional interest in certain pipeline operations prior to the Merger
Effective Time, (c) the amount of all cash payments made from the date of the
Merger Agreement to the Merger Effective Time by any member of the Energy
Business in settlement of any significant claim, action, suit or proceeding to
the extent such matter would be an Energy Liability with the consent of El
Paso (less the amount of related recoveries in respect thereof from third
parties), and (d) the amount of certain other capital expenditures and
settlements of certain claims by the Energy Business prior to the Merger, 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 finally approved settlement of a certain gas rate case which have not
been paid as of the Merger Effective Time. The Actual Energy Debt Amount is
defined by the Debt and Cash Allocation Agreement to consist of (1)
outstanding amounts of borrowings by Tenneco under a new credit facility to be
entered into by Tenneco in connection with the Transaction (plus accrued and
accreted interest and fees), (2) the value of remaining Tenneco Public Debt
after the Tenneco Debt Tender Offers (as defined below) and the Debt Exchange
Offers, (3) the outstanding amount of other Tenneco Energy Consolidated Debt
(plus accrued and accreted interest and fees), (4) the unpaid amount of
Transaction expenses incurred by Tenneco and its subsidiaries, (5) certain
sales and use, gross receipt or other transfer taxes applicable to the
Transaction, (6) certain income taxes resulting from the Transaction, (7) 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 aforesaid pipeline assets, (8) unpaid dividends
declared on Tenneco Common Stock and Tenneco Preferred Stock (as defined
herein) which have a record date before the Merger Effective Time and (9)
dividends accrued on the Tenneco Junior Preferred Stock which are unpaid as of
the Merger Effective Time.
A post-Transaction audit will be conducted and if the Actual Energy Debt
Amount as of the Merger Effective Time exceeds the Base Amount, the Company
will be required to pay the excess to Tenneco in cash. Likewise, Tenneco will
be required to pay to the Company in cash the amount, if any, by which such
Actual Energy Debt Amount is less than the Base 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, the Company and Newport News in connection with the
Distribution, any such tax benefits will be allocated to the Company. For a
description of this tax sharing arrangement, see "The Industrial
Distribution--Relationships Among Tenneco, the Company and Newport News After
the Distributions--Tax Sharing Agreement."
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 the Company in cash. Likewise, the Company 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 thereof) from
January 1, 1997 to the Merger Effective Time.
Pursuant to the Cash Realignment, as of the Merger Effective Time Tenneco
will be allocated $25 million (subject to certain adjustments) of cash and
cash equivalents, Newport News will be allocated $5 million of cash and cash
equivalents and the Company will be allocated all remaining cash and cash
equivalents on hand which would total approximately $200 million if the
Transaction had been consummated as of June 30, 1996. Following the post-
Transaction audit described above, the Company will be required to pay to each
of Tenneco or Newport News, as the case may be, the amount by which such
company's total cash and cash equivalents on hand as of the Merger Effective
Time is less than the above-described allocation to such company, as the case
may be. Likewise, Tenneco and Newport News will each be required to pay to the
Company the amount of any excess cash and cash equivalents as of the Merger
Effective Time from the above-described allocation determined pursuant to such
audit.
The Merger Agreement contemplates that Tenneco, in its discretion, will, or
will cause its relevant subsidiaries to, (i) defease or let mature
approximately $428 million of Tenneco Public Debt and (ii) offer to purchase
for cash approximately $1,580 million of aggregate principal amount of Tenneco
Public Debt prior to the Distributions (the "Tenneco Debt Tender Offers"). As
of June 30, 1996, there was outstanding approximately $4,443 million in net
book value of Tenneco Energy Consolidated Debt. The defeasences and Tenneco
Debt Tender Offers described above, as well as the retirement of existing
short-term and certain 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 net proceeds
received by Tenneco from the NPS Issuance, the sale of certain Tenneco Credit
Corporation receivables and a cash distribution of $600 million to be paid by
Newport News to Tenneco or one or more of its subsidiaries principally using
borrowings under one or more credit facilities and/or financings to be entered
into by Newport News in connection with the Transaction. The balance of the
funding will be financed by a cash distribution to be paid by the Company to
Tenneco principally using borrowings under the $1,750 million Company Credit
Facility. See "Financing."
Also in connection with the Debt Realignment, the Company will offer to
exchange up to $1,950 million of aggregate principal amount of Company Public
Debt for an equal amount of Tenneco Public Debt pursuant to the Debt Exchange
Offers. The Company Public Debt will have similar maturities, but higher
interest rates than the Tenneco Public Debt for which it is being exchanged.
Upon consummation of the Debt Exchange Offer, Tenneco will purchase for cash
(and thereafter extinguish) the Tenneco Public Debt held by the Company, and
the Company will then distribute such proceeds as a dividend to Tenneco.
Assuming all of the Tenneco Public Debt subject to the Debt Exchange Offers is
tendered and accepted for exchange, the Company will have $1,950 million
aggregate principal amount of Company Public Debt outstanding bearing interest
at a weighted average of approximately 8.38% and with a weighted average
maturity of approximately 11 years.
Concurrently with the Debt Exchange Offer, the Company will solicit consents
from the holders of the Tenneco Public Debt to certain amendments to the
indenture governing such Tenneco Public Debt which 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 the Company and Newport News to become a co-obligor
of the Tenneco Public Debt issued under such indenture in connection therewith
(the application of which the Company and Tenneco believe, in any event, is
uncertain in these circumstances).
Consummation of the Debt Exchange Offers is conditioned on, among other
things, acceptance of the Debt Exchange Offers and the Tenneco Debt Tender
Offers by holders of at least a majority of the aggregate principal amount of
the Tenneco Public Debt of all series taken together such that the necessary
amendments to the relevant indenture have been approved.
The offering of the Company Public Debt in the Debt Exchange Offers will be
made by means of a separate prospectus that constitutes a part of the
Company's Registration Statement on Form S-4 (File No. 333-14003) which has
been filed with the SEC.
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If the Debt Realignment and the acquisitions of Clevite and Amoco Foam
Products had been consummated on June 30, 1996, on a pro forma basis the
Company would have had total indebtedness for money borrowed of approximately
$2,145 million. See "Unaudited Pro Forma Consolidated Financial Statements."
RELATIONSHIPS AMONG TENNECO, THE COMPANY AND NEWPORT NEWS AFTER THE
DISTRIBUTIONS
The businesses to be owned and operated by the Company following
consummation of the Industrial Distribution have historically been included in
Tenneco's consolidated financial results. After the Transaction, neither the
Company, Tenneco nor Newport News will have an ownership in the others. The
Company and Newport News will be independent, publicly held companies, while
Tenneco will become a subsidiary of El Paso.
Tenneco, the Company and Newport News have entered into the Distribution
Agreement which governs certain aspects of their relationships both prior to
and following the Distributions. In addition, Tenneco, the Company 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 provisions governing the relationship among Tenneco, the
Company and Newport News prior to and following the Distributions.
The Distribution Agreement provides that from and after the Distribution
Date (i) Tenneco will (and will cause the other members of the Energy Business
to) assume, pay, perform and discharge all Energy Liabilities in accordance
with their terms, (ii) the Company will (and will cause the other members of
the Industrial Business to) assume, pay, perform and discharge all of the
Industrial Liabilities in accordance with their terms and (iii) Newport News
will (and will cause the other members of the Shipbuilding Business to)
assume, pay, perform and discharge all Shipbuilding Liabilities in accordance
with their terms. See "The Industrial Distribution--Corporate Restructuring
Transactions."
In addition, the Distribution Agreement provides for cross-indemnities such
that (i) Tenneco must indemnify the Company 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) the Company must
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 the Company and (iii) Newport News must indemnify Tenneco and the
Company (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
contributions in certain circumstances.
Notwithstanding the foregoing cross-indemnification provisions, the Company
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 the Company with respect to the amount,
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if any, by which the assets of the Tenneco Retirement Plan attributable to
Newport News' employees are alleged to exceed the liabilities. The Company,
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, the Company 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, the Company 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-Distribution 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, the Company 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 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, the Company and/or Newport News (and, in certain circumstances, their
appropriate subsidiaries). The Ancillary Agreements are intended to further
effectuate the disaffiliation of the Industrial Business and the Shipbuilding
Business from the Energy Business and to facilitate the operation of each of
Tenneco, the Company and Newport News as a separate entity.
Benefits Agreement. The Benefits Agreement to be entered into among Tenneco,
the Company 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, the
Company 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.
The Company will become the sole sponsor of the Tenneco Retirement Plan 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 Tenneco Retirement Plan
will be frozen as of the last day of the calendar month including the
Distribution Date, and the Company will amend the Tenneco Retirement Plan 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 related to the Energy Business.
All liabilities under the Tenneco Inc. Benefit Equalization Plan and the
Supplemental Executive Retirement Plan will be assumed by the Company pursuant
to the Benefits Agreement; however, the Company is entitled to reimbursement
for certain payments thereunder from Tenneco and Newport News. Generally, each
of Tenneco, the Company and Newport News will retain liabilities with respect
to the welfare benefits of its current and former employees and their
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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 Tenneco Inc. 1993 Deferred Compensation Plan will be
discontinued. See "Management."
Debt and Cash Allocation Agreement. The Debt and Cash Allocation Agreement
will govern the allocation among the parties of cash and cash equivalents of
Tenneco and its subsidiaries on hand as of the Merger Effective Time, the
Tenneco Consolidated Debt and settlement payments with respect to certain
capital expenditures related to the Energy Business pursuant to the Cash
Realignment and Debt Realignment, as described above. 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, the Company and Newport News (the "Insurance Agreement") 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 will be retained by and be the sole
responsibility of Tenneco, policies which relate exclusively to the Industrial
Business will be retained by the Company and policies which relate exclusively
to the Shipbuilding Business 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 the Company or
cancelled, at the Company's option. In general, "go-forward" coverage under
these policies for the Energy Business and Shipbuilding Business (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 Business,
Industrial Business and Shipbuilding Business (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 any policy limits exhausted by it). Each respective group will be
liable for premiums, costs and charges under these policies that relate to its
coverage thereunder (and will likewise get the benefit of any refunded
amounts).
Pursuant to the Insurance Agreement, policies which are cost plus, fronting,
high deductible or retrospective premium programs will be retained by the
Energy Business following the Distributions and will provide no go-forward
coverage to the Industrial Business or Shipbuilding Business. 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 Transaction, 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, the Company, Newport News and El Paso (the "Tax Sharing Agreement")
will provide for the allocation of tax liabilities among the parties 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 the
Company or Newport News under the specific terms of the Tax Sharing Agreement.
Generally, the Company will be liable for taxes imposed exclusively on the
Company and its affiliates engaged in the Industrial Business (the "Industrial
Group"), and Newport News will
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be liable for taxes imposed exclusively on Newport News and its affiliates
engaged in the Shipbuilding Business (the "Shipbuilding Group") (including for
pre-Transaction 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 the Company 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 Tenneco will make a cash payment to the
Company equal to the amount of such tax benefits when and to the extent
realized by Tenneco and (ii) tax benefits attributable to certain items
included in the Base Amount ("Base Amount Adjustment Items") will be
specifically allocated to Tenneco. The Company 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, Tenneco will be responsible for payment of the
combined tax to the state tax authority, and the Company 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 Amount
Adjustment Items will be specifically allocated to the Company 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").
The Company will be responsible for any Transaction Taxes resulting from any
inaccuracy in factual statements or representations in connection with the IRS
Ruling Letter or the opinion of counsel contemplated by the Merger Agreement
(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 the Company, 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 received in the Transaction or the 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 the Company (because the Company
must pay to Tenneco in cash the amount, if any, by which the Actual Energy
Debt Amount exceeds the Base 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
will be shared equally between the Company and Tenneco.
Transition Services Agreement. TBS currently provides certain administrative
and other services to Tenneco, including mainframe computing services, backup,
recovery and related operations, consulting services and payroll services.
Under the Transition Services Agreement to be 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 the Company) 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 Agreement. TBS will enter into a series of separate services
agreements (the "Service Agreements"), as described below, with Newport News
and the Company (and its subsidiaries other than TBS), which together will
constitute the "TBS Services Agreement" which is to be delivered as an
"Ancillary Agreement" under the Distribution Agreement.
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
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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 in
Newport News, Virginia 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.
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 the Company 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 transitional 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
negotiations among the parties pursuant to the Transition Services Agreement.
Trademark Transition License Agreements. Upon consummation of the Corporate
Restructuring Transactions, the Company 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) the Company and Tenneco and (ii) the
Company and Newport News. Pursuant to these agreements the Company 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 (after the date of the agreements) of two years
(in the case of Tenneco) and one year (in the case of Newport News). However,
so long as Tenneco or Newport News continues to use the Trademarks, it must
maintain certain quality standards prescribed by the Company 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 the
Company 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 will be immediately
terminable by the Company upon a material breach of the agreement by Tenneco
or Newport News, as the case may be.
Directors
After the Distribution Date, the Company and Newport News will share one
common director, Dana G. Mead, and the Company and El Paso (which will be the
parent of Tenneco) will share one common director, Peter T. Flawn. The
Company, Newport News and El Paso will adopt policies and procedures to be
followed by
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the Board of Directors of each company to limit the involvement of Mr. Mead
and Dr. Flawn in situations that could give rise to potential conflicts of
interest, including requesting them to abstain from voting as a director of
either the Company or Newport News, with respect to Mr. Mead, or either the
Company or El Paso, with respect to Dr. Flawn, on certain matters which
present a conflict of interest between the Company and Newport News or El
Paso, as the case might be. The Company believes that such conflict situations
will be minimal. See "Management."
Expenses
In general, and except for certain environmental costs and expenses, Tenneco
is responsible for all fees and expenses incurred by Tenneco in connection
with the Transaction for periods prior to the Distribution Date. Any such fees
and expenses which are unpaid as of the Merger Effective Time will be
allocated to and remain the responsibility of Tenneco pursuant to the Debt
Realignment, and El Paso has agreed to pay or cause to be paid all such
amounts. However, because the aggregate amount of debt to be allocated upon
consummation of the Merger to Tenneco is limited to $2.65 billion (subject to
certain adjustments), the amount of unpaid Tenneco transaction fees and
expenses as of the Merger Effective Time may impact the amount of debt
allocated to the Company in connection with the Transaction. See "--Debt and
Cash Realignment." Each party has agreed to bear its own respective fees and
expenses incurred after consummation of the Transaction.
Settlement of Intercompany Accounts
Pursuant to the Merger Agreement and the Distribution Agreement, all
intercompany receivables, payables and loans (unless specifically provided for
in any Ancillary Agreement) among the Energy Business, the Industrial Business
and the Shipbuilding Business will be settled, capitalized or converted into
ordinary trade accounts as of the close of business on the Distribution Date.
Further, all intercompany agreements among such businesses (other than those
contemplated by the Transaction) will be terminated.
REASONS FOR THE DISTRIBUTIONS
The Distributions and the Merger are designed to separate three types of
businesses, namely the Industrial Business, the Shipbuilding Business and the
Energy Business, which have distinct financial, investment and operating
characteristics, so that each can adopt strategies and pursue objectives
appropriate to its specific needs. The Distributions will (i) enable the
management of each company to concentrate its attention and financial
resources on the core businesses of such company, (ii) permit investors to
make more focused investment decisions based on the specific attributes of
each of the three businesses, (iii) facilitate employee compensation programs
custom-tailored to the operations of each business, including stock-based and
other incentive programs, which will more directly reward employees of each
business based on the success of that business and (iv) tailor the assets of
Tenneco to facilitate the acquisition of the Energy Business by El Paso. Upon
consummation of the Industrial Distribution, the Company will, primarily
through its consolidated subsidiaries, own and operate Tenneco Automotive,
Tenneco Packaging and TBS, and Newport News will, primarily through its
consolidated subsidiaries (principally Newport News Shipbuilding and Dry Dock
Company), own and operate the Shipbuilding Business. Immediately following
consummation of the Distributions, a subsidiary of El Paso will be merged with
and into Tenneco, and thereafter the Energy Business will be owned and
operated by El Paso.
CONDITIONS TO CONSUMMATION OF THE INDUSTRIAL DISTRIBUTION
The Industrial Distribution is conditioned on, among other things,
stockholder approval of the Distributions by the holders of Tenneco Stock (as
defined) at a special meeting of the Tenneco stockholders and by 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. Other conditions to the Industrial Distribution include (i) execution
and delivery of the Distribution Agreement and the Ancillary Agreements and
consummation of the various pre-Distribution transactions (such as the
Corporate Restructuring Transactions, the Debt Realignment and the Cash
Realignment), (ii) receipt of the IRS Ruling Letter to the effect that for
federal income tax purposes
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the Distributions qualify as tax-free distributions to Tenneco and its
stockholders under Section 355 of the Code (as defined herein) and that
certain internal spin-off transactions involving Tenneco or its subsidiaries
to be effected pursuant to the Corporate Restructuring Transactions will
qualify as tax-free (see "--Certain Federal Income Tax Aspects of the
Industrial Distribution"), (iii) approval for listing on the New York Stock
Exchange of Company Common Stock and Newport News Common Stock to be
distributed, (iv) registration of Company 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 "--
Corporate Restructuring Transactions," "--Debt and Cash Realignment" and "--
Relationships Among Tenneco, the Company and Newport News After the
Distributions") and (vii) lack of prohibition of the Distributions by any law
or governmental authority. The IRS Ruling Letter was issued on October 30,
1996 and covered the matters referred to in clause (ii) above. On November 1,
1996 the New York Stock Exchange approved the listing of Company Common Stock
and Newport News Common Stock upon notice of issuance. Even if all the
conditions to the Distributions are satisfied, Tenneco has reserved the right,
under certain circumstances, to amend or terminate the Distribution Agreement
and to modify or abandon the transactions contemplated thereby. The Tenneco
Board has not attempted to identify or establish objective criteria for
evaluating the particular types of events or conditions that would cause the
Tenneco Board to consider amending or terminating the Distributions. See "--
Amendment or Termination of the Distributions." Although the foregoing
conditions (other than declaration of the Distributions) may be waived by
Tenneco (to the extent permitted by law), the Tenneco Board presently has no
intention to proceed with either of the Distributions unless each of these
conditions is satisfied. See "Introduction."
AMENDMENT OR TERMINATION OF THE DISTRIBUTIONS
Prior to the Distributions, the Distribution Agreement may be terminated and
the Distributions may be amended, modified or abandoned by Tenneco without the
approval of the Company or Newport News or the stockholders of Tenneco,
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 the 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, the
Company 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 granted them rights.
TRADING OF COMPANY COMMON STOCK
See "Risk Factors--No Current Market for Company Common Stock" and "Risk
Factors--Uncertainty Regarding Trading Prices of Stock Following the
Transaction" for a discussion of certain considerations relating to the market
for and trading prices of Company Common Stock following the Industrial
Distribution.
Shares of Company Common Stock received by shareholders of Tenneco pursuant
to the Industrial Distribution will be freely transferable, except for shares
received by persons who may be deemed to be "affiliates" of the Company under
the Securities Act of 1933, as amended (the "Securities Act"). Persons who are
affiliates of the Company will be permitted to sell their shares of Company
Common Stock, only pursuant to an effective registration statement under the
Securities Act or an exemption from the registration requirements of the
Securities Act. There would not, however, be any 90-day waiting period before
sales could be made by affiliates under Rule 144 of the Securities Act, as
long as the other provisions of Rule 144 are met.
CERTAIN FEDERAL INCOME TAX ASPECTS OF THE INDUSTRIAL DISTRIBUTION
General
The following is a summary description of the material federal income tax
aspects of the Industrial Distribution. This summary is for general
informational purposes only and is not intended as a complete
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description of all of the tax consequences of the Industrial Distribution, the
Shipbuilding Distribution, the Merger or the other transactions contemplated
as part of the Transaction and does not discuss tax consequences under the
laws of state or local governments or any other jurisdiction. Moreover, the
tax treatment of a stockholder may vary depending upon his, her or its
particular situation. In this regard, certain stockholders (including
insurance companies, tax-exempt organizations, financial institutions or
broker-dealers, persons who are not citizens or residents of the United States
or who are foreign corporations, foreign partnerships or foreign trusts or
estates, as defined for United States federal income tax purposes,
stockholders that hold shares as part of a position in a "straddle" or as part
of a "hedging" or "conversion" transaction for United States federal income
tax purposes and stockholders with a "functional currency" other than the
United States dollar) may be subject to special rules not discussed below. In
addition, this summary applies only to shares which are held as capital
assets. The following discussion may not be applicable to a stockholder who
acquired his or her shares pursuant to the exercise of stock options or
otherwise as compensation.
THE FOLLOWING DISCUSSION IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), EXISTING, PROPOSED AND
TEMPORARY TREASURY REGULATIONS THEREUNDER AND CURRENT ADMINISTRATIVE RULINGS
AND COURT DECISIONS. ALL OF THE FOREGOING ARE SUBJECT TO CHANGE, WHICH MAY OR
MAY NOT BE RETROACTIVE, AND ANY SUCH CHANGES COULD AFFECT THE VALIDITY OF THE
FOLLOWING DISCUSSION. SEE "POSSIBLE FUTURE LEGISLATION" BELOW.
EACH STOCKHOLDER IS URGED TO CONSULT HIS, HER OR ITS OWN TAX ADVISOR AS TO
THE PARTICULAR TAX CONSEQUENCES TO HIM, HER OR IT OF THE TRANSACTION DESCRIBED
HEREIN, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN
TAX LAWS, AND THE POSSIBLE EFFECTS OF CHANGES OF APPLICABLE TAX LAWS.
Tax Rulings
On October 30, 1996, the IRS issued the IRS Ruling Letter to the effect,
among other things, that:
(i) the Industrial Distribution will be tax-free for federal income tax
purposes to Tenneco under Section 355(c)(1) of the Code and to the
stockholders of Tenneco under Section 355(a) of the Code;
(ii) the Shipbuilding Distribution will be tax-free for federal income
tax purposes to Tenneco under Section 355(c)(1) of the Code and to the
stockholders of Tenneco under Section 355(a) of the Code; and
(iii) the following distributions to be effected as part of the Corporate
Restructuring Transactions will be tax-free for federal income tax purposes
to the respective transferor corporations under Section 355(c)(1) or 361(c)
of the Code and to the respective stockholders of the transferor
corporations under Section 355(a) of the Code: (a) the distribution by
Newport News of the capital stock of Tenneco Packaging Inc. to Tenneco
Corporation; (b) the distribution by Tenneco Corporation of the capital
stock of the Company and Newport News to Tennessee Gas Pipeline Company
("TGP"); and (c) the distribution by TGP of the capital stock of the
Company and Newport News to Tenneco.
Receipt of the IRS Ruling Letter satisfied a condition to consummation of
the Industrial Distribution.
A ruling from the IRS, while generally binding on the IRS, may under certain
circumstances be retroactively revoked or modified by the IRS. The rulings
obtained from the IRS will be based on certain facts and representations, some
of which will have been made by El Paso. Generally, the IRS Ruling Letter
would not be revoked or modified retroactively provided that (i) there has
been no misstatement or omission of material facts, (ii) the facts at the time
of the Transaction are not materially different from the facts upon which the
IRS private letter ruling was based and (iii) there has been no change in the
applicable law.
The Distributions
It is expected that the Distributions will qualify as tax-free distributions
under Section 355 of the Code. Assuming that the Distributions so qualify, (i)
the holders of Tenneco Common Stock will not recognize gain or
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loss upon receipt of shares of Company Common Stock or shares of Newport News
Common Stock, (ii) each holder of Tenneco Common Stock will allocate his, her
or its aggregate tax basis in the Tenneco Common Stock immediately before the
Distributions among Tenneco Common Stock, Company Common Stock and Newport
News Common Stock in proportion to their respective fair market values, (iii)
the holding period of each holder of Tenneco Common Stock for Company Common
Stock and Newport News Common Stock will include the holding period for his,
her or its Tenneco Common Stock, provided that Tenneco Common Stock is held as
a capital asset at the time of the Distributions and (iv) Tenneco will not
recognize any gain or loss on its distribution of Company Common Stock or
Newport News Common Stock to its stockholders.
No fractional shares of Company Common Stock or Newport News Common Stock
will be distributed in the Distributions. A holder of Tenneco Common Stock
who, pursuant to the Distributions, receives cash in lieu of fractional shares
of Newport News Common Stock will be treated as having received such
fractional shares of Newport News Common Stock pursuant to the Distributions
and then as having received such cash in a sale of such fractional shares of
Newport News Common Stock. Such holders will generally recognize capital gain
or loss on such deemed sale equal to the difference between the amount of cash
received and such holders' adjusted tax basis in the fractional share of
Newport News Common Stock received. Such gain or loss will be capital
(provided Tenneco Common Stock is held as a capital asset at the time of the
Distributions) and will be treated as a long-term capital gain or loss if the
holding period for the fractional shares of Newport News Common Stock deemed
to be received and then sold is more than one year.
If the Distributions were not to qualify as tax-free distributions under
Section 355 of the Code, then in general a corporate level federal income tax
would be payable by the consolidated group of which Tenneco is the common
parent, which tax (assuming the internal spin-off transactions included in the
Corporate Restructuring Transactions also failed to qualify under Code Section
355) would be based upon the gain (computed as the difference between the fair
market value of the stock distributed and the distributing corporation's
adjusted basis in such stock) realized by each of the distributing
corporations upon its distribution of the stock of one or more controlled
corporations to its stockholders in the Transaction. The corporate level
federal income tax would be payable by Tenneco. Under the terms of the Tax
Sharing Agreement, the Company will not be liable to indemnify Tenneco for any
additional taxes incurred by reason of the Industrial Distribution being
taxable, unless the Industrial Distribution fails to qualify for tax-free
treatment under Section 355 of the Code as a result of the inaccuracy of
certain factual statements or representations made by the Company in
connection with the requests for the IRS private letter ruling or the Tax
Opinion or the Company takes any action which is inconsistent with any factual
statements or representations or the tax treatment of the Transaction as
contemplated in the IRS private letter ruling request or the Tax Opinion. See
the discussion of the Tax Sharing Agreement under "--Relationships Among
Tenneco, the Company and Newport News After the Distributions."
Furthermore, if the Distributions do not qualify as tax-free distributions
under Section 355 of the Code, then each holder of Tenneco Common Stock who
receives shares of Company Common Stock and Newport News Common Stock in the
Distributions would be treated as if such stockholder received taxable
distributions in an amount equal to the fair market value of Company Common
Stock and Newport News Common Stock received, which would result in (i) a
dividend to the extent paid out of Tenneco's current and accumulated earnings
and profits; then (ii) a reduction in such stockholder's basis in Tenneco's
Common Stock to the extent the amount received exceeds the amount referenced
in clause (i); and then (iii) gain from the sale or exchange of Tenneco Common
Stock to the extent the amount received exceeds the sum of the amounts
referenced in clauses (i) and (ii). Each stockholder's basis in his, her or
its Company Common Stock and Newport News Common Stock would be equal to the
fair market value of such stock at the time of the Distributions.
Possible Future Legislation
The Administration's Budget Proposal issued March 19, 1996 (the "Budget
Proposal") contains several revenue proposals, including a proposal (the
"Anti-Morris Trust Proposal") which would require a distributing corporation
in a transaction otherwise qualifying as a tax-free distribution under Section
355 of the Code to recognize gain on the distribution of the stock of the
controlled corporation unless the direct and indirect
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stockholders of the distributing corporation own more than 50% of the
distributing corporation and controlled corporations at all times during the
four-year period commencing two years prior to the distribution. The Anti-
Morris Trust Proposal would apply to any distributions occurring after March
19, 1996, unless such distribution was (i) pursuant to a binding contract on
such date, (ii) described in a ruling request submitted to the IRS on or
before such date or (iii) described in a public announcement or Commission
filing on or before such date.
On March 29, 1996, Senator William V. Roth, Chairman of the Senate Finance
Committee and Congressman Bill Archer, Chairman of the House Ways and Means
Committee, issued a joint statement (the "Roth-Archer Statement") to the
effect that should certain of the revenue proposals included in the
Administration's Budget Proposal, including the Anti-Morris Trust Proposal, be
enacted, the effective date will be no earlier than the date of "appropriate
Congressional action." As of the date of this Information Statement, no
legislation has been introduced relating to the Anti-Morris Trust Proposal. On
June 27, 1996, Tenneco submitted its request for rulings (including rulings on
the tax-free treatment of the Distributions) to the IRS. Accordingly, in view
of the Roth-Archer Statement, any future Anti-Morris Trust legislation should
not apply to the Distributions assuming that the effective date of such
legislation contains a grandfather clause for transactions for which a ruling
request has been filed with the IRS prior to the date of "appropriate
Congressional action." Nevertheless, there can be no assurances that Congress
will not adopt Anti-Morris Trust legislation which would apply retroactively
to the Distributions. In the event such legislation is announced or introduced
prior to the consummation of the Transaction, under the terms of the Merger
Agreement El Paso may elect not to proceed with the Merger if it reasonably
determines that there exists a reasonable likelihood that the Distributions or
the Merger would not be tax-free for federal income tax purposes. If El Paso
elects to proceed with the Merger notwithstanding the announcement or
introduction of Anti-Morris Trust legislation, the Distributions, if
ultimately subject to such legislation, may result in significant taxable gain
to the Tenneco consolidated group under Section 355(c) of the Code. Although
Tenneco stockholders would not recognize taxable gain or loss on the receipt
of the stock of the Company and Newport News under the current Anti-Morris
Trust Proposal, the taxable gain required to be recognized by the Tenneco
consolidated group under Code Section 355(c) would significantly reduce the
value of the El Paso Common Stock and any Depositary Shares received by the
Tenneco stockholders in the Merger.
The Budget Proposal also contains a proposal (the "Nonqualified Preferred
Stock Proposal") that would, among other things, treat certain preferred stock
received in a reorganization as "other property" (boot) resulting in gain (but
not loss) recognition to the recipient of such stock. The Nonqualified
Preferred Stock Proposal would apply to transactions entered into after
December 7, 1995, with certain exceptions, including an exception for stock
issued pursuant to a written agreement binding (subject to customary
conditions) on such date.
The Roth-Archer Statement provides that should certain revenue proposals
included in the Budget Proposal (including the Nonqualified Preferred Stock
Proposal) be enacted, their effective date will be no earlier than the date of
"appropriate congressional action." As of the date of this Information
Statement, no legislation has been introduced relating to the Nonqualified
Preferred Stock Proposal. The Merger Agreement which provides for the issuance
of preferred stock of El Paso (the "El Paso Preferred Stock"), was entered
into on June 19, 1996 and amended and restated on November 1, 1996 (effective
as of June 19, 1996). Accordingly, in view of the Roth-Archer Statement, any
future legislation including the Nonqualified Preferred Stock Proposal should
not apply to the El Paso Preferred Stock, if issued, assuming the effective
date of such legislation contains a grandfather clause for stock issued
pursuant to a binding agreement (subject to customary conditions) entered into
on or before the date of such Congressional action.
Nevertheless, there can be no assurances that Congress will not adopt
legislation containing the Nonqualified Preferred Stock Proposal that would
apply retroactively to the issuance of El Paso Preferred Stock. In the event
such legislation is announced or introduced prior to the consummation of the
Transaction, if either Tenneco or El Paso determines that there exists a
reasonable likelihood that issuance of the El Paso Preferred Stock would cause
the Merger to be taxable to holders of Tenneco stock, El Paso is obligated,
under the terms of the Merger Agreement, at its own cost, to amend the terms
of the El Paso Preferred Stock in a manner so as
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not to cause the Merger to be taxable to holders of Tenneco stock. If,
however, legislation containing the Nonqualified Preferred Stock Proposal were
enacted following the Transaction, and such legislation applied retroactively
to the issuance of the El Paso Preferred Stock, it is possible that the Merger
would not qualify as a reorganization within the meaning of Section
368(a)(1)(B) of the Code and holders of Tenneco stock receiving El Paso Common
Stock or El Paso Preferred Stock in the Merger would recognize gain on the
exchange. Even if the issuance of El Paso Preferred Stock did not prevent
qualification of the Merger as a tax-free reorganization, holders of Tenneco
stock receiving El Paso Preferred Depository Shares would recognize gain on
the exchange that might be taxable as ordinary income to the extent of the
earnings and profits of Tenneco. The failure of the Merger to qualify as a
reorganization within the meaning of Code Section 368(a)(1)(B) of the Code or
the recognition of gain by shareholders as a result of the receipt of El Paso
Preferred Depository Shares may also cause the Industrial Distribution to not
qualify as a tax-free distribution under Section 355 of the Code.
Back-up Withholding Requirements
United States information reporting requirements and backup withholding at
the rate of 31% may apply with respect to dividends paid on, and proceeds from
the taxable sale, exchange or other disposition of Company Common Stock,
unless the stockholder (i) is a corporation or comes within certain other
exempt categories, and, when required, demonstrates these facts or (ii)
provides a correct taxpayer identification number, certifies as to no loss of
exemption from backup withholding and otherwise complies with applicable
requirements of the backup withholding rules. A stockholder who does not
supply the Company with his, her or its correct taxpayer identification number
may be subject to penalties imposed by the IRS. Any amount withheld under
these rules will be creditable against the stockholder's federal income tax
liability. Stockholders should consult their tax advisors as to their
qualification for exemption from backup withholding and the procedure for
obtaining such an exemption. If information reporting requirements apply to a
stockholder, the amount of dividends paid with respect to such shares will be
reported annually to the IRS and to such stockholder.
These backup withholding tax and information reporting rules currently are
under review by the United States Treasury Department and proposed Treasury
Regulations issued on April 15, 1996 would modify certain of such rules
generally with respect to payments made after December 31, 1997. Accordingly,
the application of such rules could be changed.
REASONS FOR FURNISHING THE INFORMATION STATEMENT
This Information Statement is being furnished by Tenneco solely to provide
information to Tenneco stockholders who will receive Company Common Stock in
the Industrial Distribution. It is not, and is not to be construed as, an
inducement or encouragement to buy or sell any securities of Tenneco or the
Company. The information contained in this Information Statement is believed
by Tenneco and the Company to be accurate as of the date set forth on its
cover. Changes may occur after that date, and neither the Company nor Tenneco
will update the information except in the normal course of their respective
public disclosure practices.
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RISK FACTORS
Stockholders of Tenneco should be aware that the Industrial Distribution and
ownership of Company Common Stock involves certain risk factors, including
those described below and elsewhere in this Information Statement, which could
adversely affect the value of their holdings. Neither the Company nor Tenneco
makes, nor is any other person authorized to make, any representation as to
the future market value of Company Common Stock.
NO CURRENT PUBLIC MARKET FOR COMPANY COMMON STOCK
Currently, there is no public market for Company Common Stock, although a
"when issued" market is expected to develop prior to the Distribution Date.
There can be no assurance as to the prices at which trading in Company Common
Stock will occur after the Industrial Distribution. Until Company Common Stock
is fully distributed and an orderly market develops, the prices at which
trading in such stock occurs may fluctuate significantly. The New York Stock
Exchange has approved the listing of Company Common Stock upon notice of
issuance. The Company is also applying to the Chicago, Pacific and London
Stock Exchanges for approval of the listing of Company Common Stock upon
notice of issuance. See "The Industrial Distribution--Trading of Company
Common Stock."
UNCERTAINTY REGARDING TRADING PRICES OF STOCK FOLLOWING THE TRANSACTION
Upon consummation of the Transaction, the then-outstanding shares of Tenneco
Common Stock will be cancelled and holders of Tenneco Common Stock will
receive (i) in connection with the Merger, shares of El Paso Common Stock and,
under certain circumstances, El Paso Preferred Depositary Shares and (ii) in
connection with the Distributions, Company Common Stock and Newport News
Common Stock. Tenneco Common Stock is currently listed and traded and,
following the Distributions, Company Common Stock will be listed and traded on
the New York, Chicago, Pacific and London Stock Exchanges. El Paso Common
Stock, El Paso Preferred Depositary Shares, if any, and Newport News Common
Stock will be listed and traded on the New York Stock Exchange. There can be
no assurance that the combined market value/trading prices of El Paso Common
Stock and any Depositary Shares, Company Common Stock and Newport News Common
Stock held by stockholders after the Transaction will be equal to or greater
than the market value/trading prices of Tenneco Common Stock prior to the
Transaction. See "The Industrial Distribution--Trading of Company Common
Stock."
UNCERTAINTY REGARDING FUTURE DIVIDENDS
The Company's dividend policy will be established by the Company Board from
time to time based on the results of operations and financial condition of the
Company and such other business considerations as the Company Board considers
relevant. There can be no assurances that the combined annual dividends on El
Paso Common Stock and any El Paso Preferred Depositary Shares, Company Common
Stock and Newport News Common Stock after the transaction will be equal to the
annual dividends on Tenneco Common Stock prior to the Transaction (and it is
unlikely that the dividends would be greater than the annual dividends on
Tenneco Common Stock prior to the Transaction).
POTENTIAL FEDERAL INCOME TAX LIABILITIES
On October 30, 1996, the IRS issued the IRS Ruling Letter to the effect,
among other things, that the Industrial Distribution will qualify as a tax-
free distribution under Section 355 of the Code. Receipt of the IRS Ruling
Letter satisfied a condition to consummation of the Industrial Distribution.
See "The Industrial Distribution--Certain Federal Income Tax Aspects of the
Industrial Distribution." Such a ruling, while generally binding upon the IRS,
is based upon certain factual representations and assumptions. If any of such
factual
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<PAGE>
representations and assumptions were incomplete or untrue in a material
respect, or the facts upon which such ruling was based are materially
different from the facts at the time of the Distributions, the IRS could
modify or revoke such ruling retroactively. Tenneco is not aware of any facts
or circumstances which would cause any of such representations and assumptions
to be incomplete or untrue. The Company, Tenneco, Newport News and El Paso
have each agreed to certain covenants on its future actions to provide further
assurances that the Industrial Distribution will be tax-free for federal
income tax purposes. See "The Industrial Distribution--Relationships Among
Tenneco, the Company and Newport News After the Distributions."
If the Distributions were not to qualify as tax-free distributions under
Section 355 of the Code, then in general a corporate level federal income tax
would be payable by the consolidated group of which Tenneco is the common
parent, which tax (assuming the internal spin-off transactions included in the
Corporate Restructuring Transactions also failed to qualify under Code Section
355) would be based upon the gain (computed as the difference between the fair
market value of the stock distributed and the distributing corporation's
adjusted basis in such stock) realized by each of the distributing
corporations upon its distribution of the stock of one or more controlled
corporations to its stockholders in the Transaction. In this regard, the
failure of the Merger to qualify as a reorganization within the meaning of
Code Section 368(a)(1)(B) could cause the Industrial Distribution to be
taxable to Tenneco and its stockholders. The corporate level federal income
tax would be payable by Tenneco. Under certain limited circumstances, however,
the Company has agreed to indemnify Tenneco for a defined portion of such tax
liabilities. See "The Industrial Distribution--Relationships Among Tenneco,
the Company and Newport News After the Distributions--Terms of the Ancillary
Agreements--Tax Sharing Agreement." In addition, under IRS regulations, each
member of the consolidated group (including the Company) is severally liable
for such tax liability.
The Budget Proposal contains a provision that would require a distributing
corporation in a transaction otherwise qualifying as a tax-free distribution
under Section 355 of the Code to recognize gain on the distribution of the
stock of one or more controlled corporations under certain circumstances. If
such legislation were enacted, the Industrial Distribution, if ultimately
subject to such legislation, may result in significant taxable gain to Tenneco
under Section 355(c) of the Code. The Budget Proposal also contains a
provision under which the receipt by a stockholder of certain preferred stock
in an otherwise tax-free reorganization would result in gain recognition to
the stockholder. If such legislation were enacted, it is possible that the
receipt of the El Paso Preferred Depositary Shares would cause the Merger to
fail to qualify as a reorganization within the meaning of Section 368(a)(1)(B)
of the Code resulting in the recognition of gain by Tenneco stockholders as
described below. Even if the issuance of El Paso Preferred Stock and El Paso
Preferred Depositary Shares did not prevent qualification of the Merger as a
tax-free reorganization, holders of Tenneco Stock receiving El Paso Preferred
Depositary Shares would recognize gain on the exchange that might be taxable
as ordinary income to the extent of the earnings and profits of Tenneco. The
failure of the Merger to qualify as a reorganization within the meaning of
Section 368(a)(1)(B) of the Code or the recognition of gain by shareholders as
a result of the receipt of El Paso Preferred Depositary Shares, may also cause
the Industrial Distribution to not qualify as tax-free distributions under
Section 355 of the Code. See "Certain Federal Income Tax Consequences--
Possible Future Legislation."
Furthermore, if the Industrial Distribution were not to qualify as tax-free
distributions under Section 355 of the Code, then each holder of Tenneco
Common Stock who receives shares of Company Common Stock and Newport News
Common Stock in the Distributions would be treated as if such stockholder
received a taxable distribution in an amount equal to the fair market value of
Company Common Stock and Newport News Common Stock received, which would
result in: (i) a dividend to the extent paid out of Tenneco's current and
accumulated earnings and profits; then (ii) a reduction in such stockholder's
basis in Tenneco Common Stock to the extent the amount received exceeds the
amount referenced in clause (i); and then (iii) gain from the sale or exchange
of Tenneco Common Stock to the extent the amount received exceeds the sum of
the amounts referenced in clauses (i) and (ii). See "The Industrial
Distribution--Certain Federal Income Tax Aspects of the Industrial
Distribution."
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CERTAIN ANTITAKEOVER FEATURES
Upon consummation of the Industrial Distribution, certain provisions of the
Company's Restated Certificate of Incorporation and its Amended and Restated
By-laws, along with the Company's stockholder rights plan and Delaware
statutory law, could discourage potential acquisition proposals and could
delay or prevent a change in control of the Company. Such provisions could
diminish the opportunities for a stockholder to participate in tender offers,
including tender offers at a price above the then current market value of
Company Common Stock. Such provisions may also inhibit fluctuations in the
market price of Company Common Stock that could result from takeover attempts.
The provisions could also have the effect of making it more difficult for
third parties to cause the immediate removal and replacement of the members of
the then current Company Board or the then current management of the Company
without the concurrence of the Company Board. See "Antitakeover Effects of
Certain Provisions."
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 or debtor-in-
possession in bankruptcy of Tenneco, the Company, Newport News or any of their
subsidiaries) were to determine that Tenneco did not receive fair
consideration or reasonably equivalent value for distributing Company Common
Stock and Newport News Common Stock or that Tenneco, the Company, Newport News
or any of their subsidiaries did not receive fair consideration or reasonably
equivalent value for incurring indebtedness or transferring assets in
connection with the Debt Realignment and Corporate Restructuring Transactions
and, at the time of such distribution, incurrence of indebtedness or transfer
of assets, Tenneco, the Company, Newport News 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 would mature, then such
court could order the holders of Company Common Stock and the Newport News
Common Stock to return the value of the stock and any dividends paid thereon,
bar future dividend and redemption payments on the stock, and invalidate, in
whole or in part, the Corporate Restructuring Transactions, Debt Realignment
or 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, the
Company, Newport News 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 Debt Realignment, are subject to
review under state corporate distribution statutes. Under the General
Corporation Law of the State of Delaware (the "DGCL"), a corporation may only
pay dividends to its stockholders either (i) out of its surplus (net assets
minus 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 Industrial Distribution the Tenneco Board expects to obtain an
opinion regarding the solvency of the Company and Tenneco and the
permissibility of the Industrial Distribution and the dividend which may be
paid by the Company to Tenneco under Section 170 of the DGCL. The Tenneco
Board and management believe that, in accordance with this opinion which is
expected to be rendered in connection with the Industrial Distribution, (i)
the Company and Tenneco each will be solvent (in accordance with the foregoing
definitions) at
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<PAGE>
the time of the Transaction (including after the payment of any dividend by
the Company to Tenneco and after the consummation of the Industrial
Distribution), will be able to repay its debts as they mature following the
Transaction and will have sufficient capital to carry on its businesses and
(ii) the Industrial Distribution and the distribution to Tenneco 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 the Company or
Tenneco or that a court would reach the same conclusions set forth in such
opinion in determining whether the Company or Tenneco was insolvent at the
time of, or after giving effect to, the Transaction or whether lawful funds
were available for the Industrial Distribution and the distribution to
Tenneco.
The Distribution Agreement, the Merger Agreement and certain of the
Ancillary Agreements provide for the allocation, immediately prior to the
Distributions, of the Tenneco Energy Consolidated Debt remaining following
consummation of the Corporate Restructuring Transactions. Further, pursuant to
the Distribution Agreement, from and after the Distribution Date, each of
Tenneco, the Company and Newport News will be responsible for the debts,
liabilities and other obligations related to the business or businesses which
it owns and operates following the consummation of the Transaction. Although
the Company does not expect to be liable for any such obligations not
expressly assumed by it pursuant to the Distribution Agreement and the Debt
Realignment, it is possible that a court would disregard the allocation agreed
to among the parties, and require the Company to assume responsibility for
obligations allocated to Tenneco or Newport News (for example, tax and/or
environmental liabilities), particularly if one of such other parties were to
refuse or were to be unable to pay or perform the subject allocated
obligations. See "The Industrial Distribution--Relationships Among Tenneco,
the Company and Newport News After the Distributions."
34
<PAGE>
THE COMPANY
INTRODUCTION
The Company is a newly formed Delaware corporation which, upon completion of
the Industrial Distribution, will be an independent, publicly held company
(symbol "TEN"). The Company 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.
The Company will also own and operate the administrative services unit of
Tenneco: TBS.
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 the Company pursuant to the
Industrial Distribution for legal, tax and other reasons, the Company will
succeed to certain important aspects of the existing Tenneco business,
organization and affairs, namely: (i) the Company will be renamed "Tenneco
Inc." upon the consummation of the Merger; (ii) the Company will be
headquartered at Tenneco's current headquarters in Greenwich, Connecticut;
(iii) the Company Board will consist of those persons currently constituting
the Tenneco Board; (iv) the Company's executive management will consist
substantially of the current Tenneco executive management; and (v) the
Industrial Business to be conducted by the Company 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.
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
The Company
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 the Company 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 the Company. 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.
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.
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<PAGE>
Implementation of Management Programs. Tenneco's strategy of focusing on the
Industrial Business will allow the Company 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 the Company has successfully reduced
the failure costs in its manufacturing and administrative processes; (ii) the
working capital initiative through which the Company plans to further reduce
its working capital requirements; and (iii) the shared services program,
administered by TBS, through which the Company plans on further improving
efficiency and reducing the cost of general and administrative support
functions. The Company 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 the Company's overall growth strategy.
Tenneco's current executive management team, which will continue to serve as
the Company'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, the Company has developed comprehensive plans to
efficiently integrate new companies into its existing corporate
infrastructure. The Company 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 the Company
will require continued success in completing major acquisitions and similar
expansion efforts, and then successfully integrating the acquired businesses
and operations into the Company. 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, the Company's success in achieving its financial and other goals.
Although certain factors in this regard will be beyond the Company's control,
its executive management team believes that the Company 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 OEMs' 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.
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.
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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.
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FINANCING
The Company intends to enter into the Company Credit Facility in connection
with the Transaction, under which it is expected that a syndicate of banks
(the "Lenders") will commit to provide up to $1,750 million of financing to
the Company on an unsecured basis. It is expected that Morgan Guaranty Trust
Company of New York will arrange the Company Credit Facility and will act as
Administrative Agent for the Lenders. It is expected that Bank of America
Illinois will act as Documentation Agent. The Company Credit Facility is
expected to be 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 Company Credit Facility are expected to occur
on or shortly before the Merger Effective Time. See "Unaudited Pro Forma
Combined Financial Information" for a description of the application of the
proceeds of such borrowings.
Borrowings under the Company Credit Facility are expected to bear interest
at a rate per annum equal to, at the Company'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.
It is expected that the Company Credit Facility will require that the
Company'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 Company Credit Facility that will enable the
Lenders to refuse to loan funds to the Company and to require prepayment of
the indebtedness thereunder after a 30 day cure period.
It is also expected that the Company Credit Facility will 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.
It is expected that the Company Credit Facility will contain certain default
provisions, including, among other things, (i) nonpayment of any amount due to
the Lenders under the Company 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 the Company 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.
Also in connection with the Debt Realignment, the Company will offer to
exchange up to $1,950 million of aggregate principal amount of Company Public
Debt for an equal amount of Tenneco Public Debt pursuant to the Debt Exchange
Offers. The Company Public Debt will have similar maturities, but higher
interest rates than the Tenneco Public Debt for which it is being exchanged.
Upon consummation of the Debt Exchange Offers, Tenneco will purchase (and
thereafter extinguish) the Tenneco Public Debt held by the Company, and the
Company will then distribute such proceeds as a dividend to Tenneco. Assuming
all of the Tenneco Public Debt subject to the Debt Exchange Offers is tendered
and accepted for exchange, the Company will have $1,950 million aggregate
principal amount of Company Public Debt outstanding bearing interest at a
weighted average of approximately 8.38% and with a weighted average maturity
of approximately 11 years.
See "The Industrial Distribution--Debt and Cash Realignment" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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CAPITALIZATION
The following table sets forth the unaudited historical capitalization of
the Company as of June 30, 1996, and unaudited pro forma capitalization as of
June 30, 1996, after giving effect to the transactions described in the
"Unaudited Pro Forma Combined Financial Statements." The capitalization of the
Company should be read in conjunction with the Combined Financial Statements,
and notes thereto, the "Combined Selected Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
each contained elsewhere in this Information Statement.
<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------
HISTORICAL PRO FORMA
---------- ---------
(IN MILLIONS)
<S> <C> <C>
Short-term debt:
Allocated from Tenneco........................... $ 523(a) $ --
Other............................................ 7 13
------ ------
Total........................................... 530 13
------ ------
Long-term debt:
Allocated from Tenneco........................... 1,510(a) --
Company Public Debt.............................. -- 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 the Company from Tenneco based on the portion
of Tenneco's investment in the Company which is deemed to be debt,
generally based on the portion of the Company'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 the Company's
debt upon completion of the Debt Realignment, nor debt that may be
incurred by the Company as a separate public entity.
(b) Represents the $1,950 million aggregate principal amount of Company Public
Debt assumed to be exchanged pursuant to the Debt Exchange Offers which
will be recorded based on the fair value of the Company Public Debt
(estimated to be $2,069 million) upon consummation of the Debt Exchange
Offers. At this time, the Company and Tenneco cannot determine the
ultimate amount of Tenneco Public Debt which will be exchanged by Tenneco
Public Debt holders into Company Public Debt pursuant to the Debt Exchange
Offers, and such amount could vary significantly. For purposes of the pro
forma capitalization, it is assumed that 100% of the Tenneco Public Debt
subject to the Debt Exchange Offers will be exchanged for Company Public
Debt pursuant to the Debt Exchange Offers.
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UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Combined Balance Sheet of the Company 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 the
Company of the Cash Realignment and Debt Realignment; (iii) the effect on the
Company of the Corporate Restructuring Transactions, and other transactions
pursuant to the provisions of the Distribution Agreement and Merger Agreement;
and (iv) the issuance of Company 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 the
Company's purchase cost for the assets acquired and liabilities assumed as
well as additional depreciation and amortization resulting from the Company'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 the Company 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 the Company.
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, and notes thereto, and the
pre-acquisition Combined Financial Statements of Mobil Plastics, and notes
thereto, included elsewhere in this Information Statement. The Clevite and
Amoco Foam Products acquisitions do not meet the Commission's criteria for
inclusion of separate historical financial statements.
40
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1996
(MILLIONS)
<TABLE>
<CAPTION>
COMBINED ACQUISITIONS
-----------------------
POST-
ACQUISITIONS TRANSACTION
COMPANY 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 the Company's
classification.
See the accompanying Notes to Unaudited Pro Forma Combined Financial
Statements.
41
<PAGE>
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-
ACQUISITIONS TRANSACTION
COMPANY 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 the Company's
classification.
See the accompanying Notes to Unaudited Pro Forma Combined Financial
Statements.
42
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMBINED ACQUISITIONS
-----------------------
POST-
ACQUISITIONS TRANSACTION
COMPANY 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 the Company's
classification.
See the accompanying Notes to Unaudited Pro Forma Combined Financial
Statements.
43
<PAGE>
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 the Company of certain receivables from
Tenneco Credit Corporation, a Tenneco affiliate, in connection with the
Merger.
(c) To reflect the allocation between the Company, 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 Merger
Agreement and Distribution Agreement for certain tax benefits to be
realized as a result of the Debt Realignment.
(e) To reflect the transfer to the Company 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 the Company pursuant to
the Cash Realignment provisions of the Distribution Agreement and Merger
Agreement. The contribution of cash between Tenneco and the Company 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 the Company'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, the Company 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 Company Public Debt
($1,950 million aggregate principal amount) assumed to be exchanged in the
Debt Exchange Offers, which will be recorded based on the fair values of
the Company Public Debt, and $63 million of long-term debt of Company
subsidiaries. At this time, the Company and Tenneco cannot determine the
ultimate amount of Tenneco Public Debt which will be exchanged by the
applicable Tenneco Public Debt holders into Company Public Debt pursuant
to the Debt Exchange Offers and such amount could vary significantly. For
purposes of these pro forma adjustments, it is assumed that 100% of the
Tenneco Public Debt subject to the Debt Exchange Offers will be exchanged
for Company Public Debt pursuant to the Debt 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 the Company'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 Company Common Stock to the holders of
Tenneco Common Stock at an exchange ratio of one share of Company 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 the Company'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 the Company'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.
44
<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 the
Company pursuant to the Debt Realignment as discussed in (g) above. For
purposes of this pro forma adjustment, the Company Public Debt 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 Company Credit
Facility and amortization of deferred debt financing costs incurred in
connection with the Debt Exchange Offers and the Company 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.
(l) EBITDA, on a pro forma basis, was $603 million and $1,023 million for the
six months ended June 30, 1996 and the year ended December 31, 1995,
respectively. 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 combined 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 the
Company or as an alternative to operating cash flows as a measure of
liquidity.
45
<PAGE>
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 the Company. 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 the Company. In the
opinion of the Company's management, the combined selected financial data of
the Company 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" and the Combined Financial Statements, and notes thereto, included
elsewhere in this Information Statement.
<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
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 inter-
est--
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
</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," included elsewhere in this
Information Statement.
(b) During 1995 and 1994, Tenneco Automotive and Tenneco Packaging each
completed several acquisitions, the most significant of which was Tenneco
Packaging's acquisition of Mobil Plastics for $1.3 billion in late 1995.
See Note 4 to the Combined Financial Statements, included elsewhere in
this Information Statement, for further information on the Company's
acquisitions.
(c) Includes a gain of $42 million recorded by Tenneco Packaging related to
the sale of three short-line railroads.
(d) In 1994, the Company adopted FAS No. 112, "Employers' Accounting for
Postemployment Benefits". In 1992, the Company 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 the Company from Tenneco
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. 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 the Company's debt upon completion of the Debt Realignment,
nor debt and interest that may be incurred by the Company as a separate
public entity. See the Combined Financial Statements, and notes thereto,
included elsewhere in this Information Statement.
(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 the Company or as an alternative to operating cash flows as
a measure of liquidity.
46
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following review of the Company's financial condition and results of
operations should be read in conjunction with the Combined Financial
Statements of the Company, 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 the "Company" 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, the Company (to be
renamed Tenneco Inc.) and El Paso. The Company 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, the
Company'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
Industrial Distribution--Conditions to Consummation of the Industrial
Distribution."
47
<PAGE>
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
1996 STRATEGIC ACTIONS
In the second quarter of 1996, the Company continued its strategy to
redeploy capital to faster-growing, more profitable and less cyclical business
operations. In June, Tenneco Packaging and Caraustar Industries ("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, the Company 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
The Company'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>
The Company'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.
48
<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>
The Company'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 the Company'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 Manufacturas
Fonos, S.L. ("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.
The Company 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. The Company believes it is well positioned to respond
to the many changes currently underway in the original equipment market.
49
<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 paperboard 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 of 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
The Company'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
manage various cash functions. Consequently, corporate debt of Tenneco and its
related interest expense has been
50
<PAGE>
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 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 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 may be
incurred by the Company as a separate public company. For additional
information, see "The Industrial Distribution--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 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, the Company 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
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 the new
standard did not have a material effect on the Company'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>
51
<PAGE>
The Company'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 the Company'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
The Company 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 the Company'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. The Company 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. The Company 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 the Company'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.
LIQUIDITY
Historically, the Company'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 the Company's cash
52
<PAGE>
requirements have been in excess of cash flows from operations, Tenneco has
utilized its consolidated credit facilities to fund the Company's obligations.
Also, depending on market and other conditions, the Company has utilized
external sources of capital to meet specific funding requirements. Management
of the Company believes that cash flows from operations will generally be
sufficient to meet future capital requirements. However, during 1995, the
Company 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, certain Company Public Debt
will be offered in exchange for certain issues of Tenneco Public Debt. Tenneco
will initiate tender offers for other Tenneco Public Debt, and certain debt
issues may be defeased. These 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, 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 the Company will have responsibility for any
remaining Tenneco Energy Consolidated Debt.
The Company will enter into the Company Credit Facility, a portion of which
may be borrowed by the Company and distributed to Tenneco as a dividend for
use by Tenneco in retiring certain of the Tenneco Energy Consolidated Debt.
The remainder of the Company Credit Facility, along with cash flows from
operations, will be available by the Company to fund its future financing
needs including working capital and possible acquisitions.
For additional information, see "The Industrial Distribution--Debt and Cash
Realignment" and "Financing."
ENVIRONMENTAL MATTERS
The Company 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, the Company 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, the Company is fully
indemnified by third parties. With respect to certain other of these sites,
the Company has sought to resolve its liability through settlements which
provide for payments of the Company's allocable share of the remediation
costs. For the remaining sites, the Company 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 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, the Company'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 the Company could
53
<PAGE>
be required to pay in excess of its pro rata share of remediation costs. The
Company's understanding of the financial strength of other potentially
responsible parties has been considered, where appropriate, in the Company's
determination of its estimated liability. The Company 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
The Company 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 Corporation ("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
The Company'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, the Company 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.
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>
54
<PAGE>
The Company'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>
The Company'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
Heinrich Gillet GmbH & Company ("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 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
55
<PAGE>
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 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.
56
<PAGE>
OTHER
The Company'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)
The Company'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. The Company'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, the Company recorded tax benefits
from the realization of deferred tax assets resulting from consolidation of
the Company'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, the Company 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.
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. The Company 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 the Company's consolidated
financial position or results of operations.
57
<PAGE>
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>
The Company'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, the Company 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 the
Company'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 the Company 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.
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>
58
<PAGE>
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 the Company in 1995, the Company'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.
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
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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.
The Company'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)
The Company'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. The Company'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 the Company's German operations.
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE
Effective January 1, 1994, the Company 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 the Company's brakes business. Loss from
discontinued operations in 1993 of $7 million, net of income tax benefit of $4
million, was also attributable to the Company'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.
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 the Company's other operations ($1 million).
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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.
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BUSINESS AND PROPERTIES
TENNECO AUTOMOTIVE
Tenneco Automotive is one of the world's leading manufacturers of automotive
exhaust and ride control systems for the original equipment 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 original equipment ("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), original equipment manufacturers ("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
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
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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 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.
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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, 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 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 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
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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 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 YEAR ENDED DECEMBER 31,
ENDED ---------------------------
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, 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 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.
The following table sets forth information relating to Tenneco Automotive's
sales of ride control equipment:
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<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF SALES
--------------------------------------
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED ---------------------------
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.
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
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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, the
Company 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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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, the world's largest supplier of kraft paper
honeycomb products used for protective packaging, have reduced
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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.
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 the
Company. 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.
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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.
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.
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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 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
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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.
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 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 the Mobil Plastics
division 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
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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.
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.
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
Industrial Distributions--Relationships Among Tenneco, the Company 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
The Company'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
15 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, molded fiber products at two locations and protective packaging
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.
The Company 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.
The Company 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
The Company 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.
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 the Company.
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LEGAL PROCEEDINGS
On August 2, 1993, the U.S. Department of Justice filed suit against Tenneco
Packaging Inc. 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. The Company believes that the resolution of this matter will not
have a material adverse effect on the financial condition or results of
operations of the Company and its subsidiaries.
In 1993 and 1995, the 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 an EPA administrative complaint seeking a $126,997 penalty for
alleged emissions violations. Tenneco Packaging has filed its answer to the
complaint. The Company believes that the resolution of this matter will not
have a material adverse effect on the financial condition or results of
operations of the Company and its subsidiaries.
At July 1, 1996, the Company 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, the Company is fully indemnified by
third parties. With respect to certain other of these sites, the Company has
sought to resolve its liability through settlements which provide for payments
of the Company's allocable share of remediation costs. For the remaining
sites, the Company 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, the Company'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 the Company
could be required to pay in excess of its pro rata share of remediation costs.
The Company's understanding of the financial strength of other potentially
responsible parties has been considered, where appropriate, in the Company's
determination of its estimated liability. The Company 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," "Business and Properties" and the caption "Environmental Matters"
under Note 14, in the Combined Financial Statements of the Company.
The Company and its subsidiaries are parties to numerous other legal
proceedings arising from their operations. The Company believes that the
outcome of these other proceedings, individually and in the aggregate, will
have no material effect on the Company's combined financial condition or
results of operations.
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MANAGEMENT
BOARD OF DIRECTORS
Upon consummation of the Industrial Distribution, the Company Board will
consist of eleven 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
Certificate (as defined herein), the Company Board is divided into three
classes. Information concerning the individuals who will serve as directors of
the Company 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 the Company.
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 the Company.
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 the
Company.
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 the Company.
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 the
Company. 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.
79
<PAGE>
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 the
Company.
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 the Company.
DANA G. MEAD is Chairman and Chief Executive Officer of the Company 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 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 the Company.
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 the Company.
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 the Company.
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 the Company.
80
<PAGE>
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 the Company after
the Industrial Distribution. Each such person will be elected to the indicated
office with the Company in anticipation of the Industrial Distribution and
will serve at the discretion of the Company Board. 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
81
<PAGE>
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 the Company, (ii) each
of the executive officers of the Company whose names are set forth on the
Summary Compensation Table and (iii) all executive officers and directors of
the Company.
<TABLE>
<CAPTION>
PERCENT OF
SHARES OF TENNECO COMMON 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 di-
rectors 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 the Company 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 Table, it is anticipated
that Tenneco options held by Company employees will be replaced by options
to acquire Company Common Stock upon consummation of the Industrial
Distribution.
82
<PAGE>
(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 the Company 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 the
Company as a group.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company Board will establish four standing committees as permitted by
the By-laws, 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 the Company'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 the Company's basic
accounting system and the effectiveness of the Company's internal audit plan
and activities, (iv) review with management and the independent public
accountants the Company's certified financial statements and exercise general
oversight of the Company's financial reporting process and (v) review with the
Company litigation and other legal matters that may affect the Company's
financial condition and monitor compliance with the Company'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
the Company and its subsidiaries, (ii) examine periodically the compensation
structure of the Company and (iii) supervise the welfare and pension plans and
compensation plans of the Company.
The Nominating and Management Development Committee will have the
responsibility, among other things, to (i) review possible candidates for
election to the Company Board and recommend a slate of nominees for election
as directors at the Company's annual stockholders' meeting, (ii) review the
function and composition of the other committees of the Company Board and
recommend membership on such committees and (iii) review the qualifications
and recommend candidates for election as officers of the Company.
Other than matters assigned to the Compensation and Benefits Committee, the
Executive Committee will have, during the interval between the meetings of the
Company Board, the authority to exercise all the powers of the Company Board
that may be delegated legally to it by the Company Board in the management and
direction of the business and affairs of the Company.
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 the Company 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 the Company and (ii) to each of the four
key executive officers expected to be the most highly compensated executive
officers of the Company, other than the Chief Executive Officer, whose salary
and bonus exceeded $100,000, for the years indicated in connection with his
position with Tenneco:
83
<PAGE>
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 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;
84
<PAGE>
$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 Company employees will be replaced by options to
acquire Company Common Stock upon consummation of the Industrial
Distribution.
(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.
85
<PAGE>
(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 Company employees will be
replaced by options to acquire Company 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 the Company will be
cancelled as of the Industrial Distribution. The Company has adopted a
plan (the "Company 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 Company Stock Ownership Plan
as the sole shareholder of the Company. Options will be granted under the
Company Stock Ownership Plan as of the Distribution Date to all employees
of the Company who formerly held Tenneco options. Each such employee will
receive options of the Company 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 the
Company options will be the same as if the Tenneco options had remained
outstanding except to the extent that the Company Stock Ownership Plan
reflects legal changes adopted after the Tenneco options were granted.
These options provide that a grantee who delivers shares of Company Common
Stock to pay the option exercise price will be granted, upon such delivery
and without further action by the Company, 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 Company 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.
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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
Company 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 ESTIMATED FUTURE PAYOUTS UNDER
NUMBER OF PERIOD NON-STOCK PRICE BASED PLANS(A)
SHARES, UNTIL ---------------------------------
UNITS OR MATURATION
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.
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
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Supplemental Executive Retirement Plan") to persons in specified remuneration
and years of credited participation classifications, each of which plans were
assumed by the Company pursuant to the Benefits Agreement. Under the
Distribution Agreement and the Benefits Agreement, the Company 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" the Company has agreed to pay
Messrs. Mead, Dick and Stecko such supplemental payments (in addition to any
benefits payable under the Company's qualified and non-qualified pension
plans) as may be necessary to make each 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
the Company plus 14.6, 15 and 17 years, respectively, of credited service with
each person's former employer, and on the compensation received from the
Company as salary and bonuses).
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The Company 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 the Company or its subsidiaries will each be paid a director's fee
of $32,000 per annum and receive 300 restricted shares of Company Common Stock
(discussed below) and each will be paid an attendance fee of $1,500 plus
expenses for each meeting of the Company Board attended. Each director who
serves as a Chairman of the Audit, Compensation and Benefits, or Nominating
and Management Development Committees of the Company 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 the Company 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.
During 1995, Tenneco had a retirement plan for directors who are not also
officers of the Company 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
the Company.
Directors who are not also officers of the Company will receive annually 300
restricted shares of Company 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 Company Board prior to
the expiration of the restricted period that ends upon such director's normal
retirement from the Company Board, unless such director is disabled, dies, or
the Compensation and Benefits Committee of the Company Board, 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 the Company 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
Company Board) and the supplemental pension payments described above. Also,
the Company has agreed that in the event Mr. Mead's employment is terminated
for any reason other than for cause, death or permanent disability, the
Company 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 the Company providing for the payment to Mr. Dick of a salary of
not less than $325,000 per year (with such increases as
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determined by the Compensation and Benefits Committee of the Company Board).
Also, the Company has agreed that in the event Mr. Dick's employment is
terminated for any reason other than for cause, death or permanent disability,
the Company will pay to Mr. Dick an amount equal to his annual salary.
The Company has an employment agreement with Mr. Stecko which will also be
continued by the Company 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 Company Board). 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. The Company has also
agreed that, in the event Mr. Stecko's employment is terminated for any reason
other than for cause, death or permanent disability, the Company will pay to
Mr. Stecko an amount equal to three times his base salary and will purchase
his home in accordance with the Company'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, the Company 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.
The Company will succeed to sponsorship of the Tenneco Benefits Protection
Program (the "Tenneco Benefits Protection Program") established by Tenneco to
enable the Company 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 the Company (as
such term is defined in the Tenneco Benefits Protection Program). The Tenneco
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 Tenneco
Benefits Protection Program, Messrs. Mead, Tetzlaff, Blakely, Dick and Stecko
would have become entitled to receive payments from the Company 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 Tenneco
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 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.
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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 and each will serve as members of
the Compensation and Benefits Committee of the Company Board.
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, the Company 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. The Company 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. The Company 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, the Company will
adopt the Company Stock Ownership Plan, which will be approved by Tenneco as
the sole stockholder of the Company. The Company 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. The Company 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.
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DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
Prior to the Distribution Date, the Company Board and Tenneco, as sole
stockholder of the Company, will approve and adopt the Company's Restated
Certificate of Incorporation (the "Certificate"), and Tenneco, as sole
stockholder of the Company, will approve and adopt the Amended and Restated
By-laws of the Company (the "By-laws"). Under the Certificate, the Company's
authorized capital stock will consist of 350,000,000 shares of Company Common
Stock and 50,000,000 shares of Preferred Stock, par value $.01 per share
("Company Preferred Stock"). In addition, it is anticipated that the Company
Board will adopt resolutions pursuant to the Certificate designating 3,500,000
shares of Company Preferred Stock as Series A Participating Junior Preferred
Stock, par value $.01 per share, of the Company ("Company Junior Preferred
Stock") and reserving 3,500,000 shares of Company Junior Preferred Stock for
issuance in connection with the Rights to be issued in connection with the
Industrial Distribution. No Company Preferred Stock will be issued in the
Industrial Distribution. Based on the number of shares of Tenneco outstanding
on September 30, 1996, up to approximately 170,755,576 shares of Company
Common Stock will be issued in the Industrial Distribution.
COMPANY COMMON STOCK
The holders of Company Common Stock will be entitled to one vote for each
share on all matters on which stockholders generally are entitled to vote, and
except as otherwise required by law or provided in any resolution adopted by
the Company Board with respect to any series of Company Preferred Stock, the
holders of Company Common Stock will possess 100% of the voting power. The
Certificate does not provide for cumulative voting.
Subject to the preferential rights of any outstanding Company Preferred
Stock which may be created by the Company Board under the Certificate, the
holders of Company Common Stock will be entitled to such dividends as may be
declared from time to time by the Company Board and paid from funds legally
available therefor, and the holders of Company Common Stock will be entitled
to receive pro rata all assets of the Company available for distribution upon
liquidation. All shares of Company Common Stock received in the Industrial
Distribution will be fully paid and nonassessable, and the holders thereof
will not have any preemptive rights.
There is no established public trading market for Company Common Stock,
although a "when issued" market is expected to develop prior to the
Distribution Date. The New York Stock Exchange has approved the listing of the
Company Common Stock upon notice of issuance. The Company is also applying to
the Chicago, Pacific and London Stock Exchanges for approval of the listing of
Company Common Stock upon notice of issuance.
The declaration of dividends on Company Common Stock will be at the
discretion of the Company Board. The Company Board has not adopted a dividend
policy as such. Subject to legal and contractual restrictions, its decisions
regarding dividends will be based on all considerations that in its business
judgment are relevant at the time, including past and projected earnings, cash
flows, economic, business and securities market conditions and anticipated
developments concerning the Company's business and operations. For additional
information concerning the payment of dividends by the Company, see "Risk
Factors--Dividends" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The Company's cash flow and the consequent ability of the Company to pay any
dividends on Company Common Stock will be substantially dependent upon the
Company's earnings and cash flow available after its debt service and the
availability of such earnings to the Company by way of dividends,
distributions, loans and other advances.
Under the DGCL, dividends may be paid by the Company out of "surplus" (as
defined under Section 154 of the DGCL) or, if there is no surplus, out of net
profits for the fiscal year in which the dividends are declared and/or the
preceding fiscal year. On a pro forma basis, at June 30, 1996, the Company had
surplus of
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approximately $3,051 million (on a book value basis) for the payment of
dividends, and the Company will also be able to pay dividends out of any net
profits for the current and/or prior fiscal year, if any.
COMPANY PREFERRED STOCK
Under the Certificate, the Company Board is authorized to issue Company
Preferred Stock, in one or more series, and to fix the number of shares
constituting such series and the designation of such series, the voting powers
(if any) of the shares of such series, and the preferences and relative,
participating, optional or other special rights, if any, and any
qualifications, limitations or restrictions thereof, of the shares of such
series. See "Antitakeover Effects of Certain Provisions."
ANTITAKEOVER EFFECTS OF CERTAIN PROVISIONS
The Certificate, the By-laws, the Rights and Delaware statutory law contain
certain provisions, which are substantially the same as those provisions which
are currently applicable to Tenneco, that could make the acquisition of the
Company by means of a tender offer, a proxy contest or otherwise more
difficult. The description set forth below is intended as a summary only and
is qualified in its entirety by reference to the Certificate, the By-laws and
the Rights Agreement which are attached as exhibits to the Company's
Registration Statement on Form 10 under the Exchange Act relating to Company
Common Stock.
CLASSIFIED BOARD OF DIRECTORS
The Certificate provides that the Company Board will be divided into three
classes of directors, with the classes to be as nearly equal in number as
possible. The Company Board consists of the persons referred to in
"Management--Board of Directors" above. The Certificate provides that, of the
initial directors of the Company, approximately one-third will continue to
serve until the first succeeding annual meeting of the Company's stockholders,
approximately one-third will continue to serve until the second succeeding
annual meeting of the Company's stockholders and approximately one-third will
continue to serve until the third succeeding annual meeting of the Company's
stockholders. Of the initial directors, Messrs. Andrews, Blumenthal, Johnson
and Weiss will serve until the first succeeding annual meeting of the
Company's stockholders, Ms. Eickhoff and Messrs. Flawn, McCoy and Mead will
serve until the second succeeding annual meeting of the Company's stockholders
and Messrs. Harris, Wharton and Plastow will serve until the third succeeding
annual meeting of the Company's stockholders. At each annual meeting of the
Company's stockholders, one class of directors will be elected for a term
expiring at the third succeeding annual meeting of stockholders.
The classification of directors will have the effect of making it more
difficult for stockholders to change the composition of the Company Board. At
least two annual meetings of stockholders, instead of one, will generally be
required to effect a change in a majority of the members of the Company Board.
Such a delay may help ensure that the Company's directors, if confronted by a
stockholder attempting to force a proxy contest, a tender or exchange offer,
or an extraordinary corporate transaction, would have sufficient time to
review the proposal as well as any available alternatives to the proposal and
to act in what they believe to be the best interest of the stockholders. The
classification provisions will apply to every election of directors, however,
regardless of whether a change in the composition of the Company Board would
be beneficial to the Company and its stockholders and whether or not a
majority of the Company's stockholders believe that such a change would be
desirable.
The classification provisions could also have the effect of discouraging a
third party from initiating a proxy contest, making a tender offer or
otherwise attempting to obtain control of the Company, even though such an
attempt might be beneficial to the Company and its stockholders. The
classification of the Company Board could thus increase the likelihood that
incumbent directors will retain their positions. In addition, because the
classification provisions may discourage accumulations of large blocks of the
Company's stock by purchasers whose objective is to take control of the
Company and remove a majority of the members of the Company Board,
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the classification of the Company Board could tend to reduce the likelihood of
fluctuations in the market price of Company Common Stock that might result
from accumulations of large blocks for such a purpose. Accordingly,
stockholders could be deprived of certain opportunities to sell their shares
of Company Common Stock at a higher market price than might otherwise be the
case.
Notwithstanding the foregoing, the Certificate provides that whenever the
holders of any one or more series of Company Preferred Stock have the right,
voting separately as a class or series, to elect directors, such directors
will not be classified, unless expressly provided by the terms of such series
of Company Preferred Stock.
NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES
The Certificate provides that the business and affairs of the Company will
be managed by or under the direction of a Board of Directors, consisting of
not less than eight nor more than sixteen directors, the exact number thereof
to be determined from time to time by affirmative vote of a majority of the
entire Board of Directors. In addition, the Certificate provides that any
vacancy on the Company Board that results from an increase in the number of
directors may be filled by a majority of the Company Board then in office,
provided that a quorum is present, and any other vacancy occurring in the
Company Board may be filled by a majority of the directors then in office,
even if less than a quorum, or by a sole remaining director.
Under the DGCL, unless otherwise provided in the Certificate, directors
serving on a classified board may only be removed by the stockholders for
cause. The Certificate does not provide that directors may be removed without
cause.
Notwithstanding the foregoing, the Certificate provides that whenever the
holders of any one or more series of Company Preferred Stock have the right,
voting separately as a class or series, to elect directors, the election,
removal, term of office, filling of vacancies and other features of such
directorships will be governed by the terms of the Certificate applicable
thereto.
SPECIAL MEETINGS
The By-laws provide that special meetings of stockholders will be called by
the Company Board. Moreover, the business permitted to be conducted at any
special meeting of stockholders is limited to the purposes specified in the
notice of meeting given by the Company.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND STOCKHOLDER
PROPOSALS
The By-laws establish an advance notice procedure for stockholders to make
nominations of candidates for election of directors, or to bring other
business before an annual meeting of stockholders of the Company (the
"Stockholder Notice Procedure").
The Stockholder Notice Procedure provides that only persons who are
nominated by, or at the direction of, the Company Board, or by a stockholder
who has given timely written notice to the Secretary of the Company prior to
the meeting at which directors are to be elected, will be eligible for
election as directors of the Company. The Stockholder Notice Procedure
provides that at an annual meeting only such business may be conducted as has
been brought before the meeting by, or at the direction of, the Company Board
or by a stockholder who has given timely written notice to the Secretary of
the Company of such stockholder's intention to bring such business before such
meeting. Under the Stockholder Notice Procedure, for stockholder notice in
respect of the annual meeting of the Company's stockholders to be timely, such
notice must be delivered to the Secretary of the Company not less than 50 days
nor more than 75 days prior to the annual meeting; provided, however, that in
the event that less than 65 days' notice or prior public announcement of the
date of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not later than the close of
business on the 15th day following the day on which such notice of the date of
the annual meeting was mailed or such public announcement was made, whichever
first occurs.
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Under the Stockholder Notice Procedure, a stockholder's notice to the
Company proposing to nominate a person for election as a director must contain
certain information, including, without limitation, the identity and address
of the nominating stockholder, the class and number of shares of stock of the
Company which are beneficially owned by such stockholder, and as to each
person whom the stockholder proposes to nominate for election or reelection as
a director, (i) the name, age, business address and residence of the person,
(ii) the principal occupation or employment of the person, (iii) the class and
number of shares of capital stock of the Company which are beneficially owned
by the person and (iv) any other information relating to the person that is
required to be disclosed in solicitations for proxies for election of
directors pursuant to Rule 14A under the Exchange Act. Under the Stockholder
Notice Procedure, a stockholder's notice relating to the conduct of business
other than the nomination of directors must contain certain information about
such business and about the proposing stockholder, including, without
limitation, a brief description of the business the stockholder proposes to
bring before the meeting, the reasons for conducting such business at such
meeting, the name and address of such stockholder, the class and number of
shares of stock of the Company beneficially owned by such stockholder, and any
material interest of such stockholder in the business so proposed. If the
Chairman of the meeting determines that a person was not nominated, or other
business was not brought before the meeting, in accordance with the
Stockholder Notice Procedure, such person will not be eligible for election as
a director, or such business will not be conducted at any such meeting, as the
case may be.
By requiring advance notice of nominations by stockholders, the Stockholder
Notice Procedure will afford the Company Board an opportunity to consider the
qualifications of the proposed nominees and, to the extent deemed necessary or
desirable by the Company Board, to inform stockholders about such
qualifications. By requiring advance notice of other proposed business, the
Stockholder Notice Procedure will also provide a more orderly procedure for
conducting annual meetings of stockholders and, to the extent deemed necessary
or desirable by the Company Board, will provide the Company Board with an
opportunity to inform stockholders, prior to such meetings, of any business
proposed to be conducted at such meetings, together with any recommendations
as to the Company Board's position regarding action to be taken with respect
to such business, so that stockholders can better decide whether to attend
such a meeting or to grant a proxy regarding the disposition of any such
business.
Although the By-laws do not give the Company Board any power to approve or
disapprove stockholder nominations for the election of directors or proper
stockholder proposals for action, they may have the effect of precluding a
contest for the election of directors or the consideration of stockholder
proposals if the proper procedures are not followed, and of discouraging or
deterring a third party from conducting a solicitation of proxies to elect its
own slate of directors or to approve its own proposal, without regard to
whether consideration of such nominees or proposals might be harmful or
beneficial to the Company and its stockholders.
RECORD DATE PROCEDURE FOR STOCKHOLDER ACTION BY WRITTEN CONSENT
The By-laws establish a procedure for the fixing of a record date in respect
of action proposed to be taken by the Company's stockholders by written
consent in lieu of a meeting. The By-laws provide that any person seeking to
have the stockholders authorize or take corporate action by written consent
without a meeting shall, by written notice addressed to the Secretary and
delivered to the Company, request that a record date be fixed for such
purpose. The By-laws state that the Company Board may fix a record date for
such purpose which shall be no more than 10 days after the date upon which the
resolution fixing the record date is adopted by the Company Board and shall
not precede the date such resolution is adopted. If the Company Board fails
within 10 days after the Company receives such notice to fix a record date for
such purpose, the By-laws provide that the record date shall be the day on
which the first written consent is delivered to the Company unless prior
action by the Company Board is required under the DGCL, in which event the
record date shall be at the close of business on the day on which the Company
Board adopts the resolution taking such prior action. The By-laws also provide
that the Secretary of the Company or, under certain circumstances, two
inspectors designated by the Secretary shall promptly conduct such ministerial
review of the sufficiency of any written consents of stockholders duly
delivered to the Company and of the validity of the action to be taken by
stockholder consent as he deems necessary or appropriate, including, without
limitation, whether the holders of a number of shares having the requisite
voting power to authorize or take the action specified in the written consents
have given consent.
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STOCKHOLDER MEETINGS
The By-laws provide that the Company Board and the chairman of a meeting may
adopt rules for the conduct of stockholder meetings and specify the types of
rules that may be adopted (including the establishment of an agenda, rules
relating to presence at the meeting of persons other than stockholders,
restrictions on entry at the meeting after commencement thereof and the
imposition of time limitations for questions by participants at the meeting).
COMPANY PREFERRED STOCK
The Certificate authorizes the Company Board to provide for series of
Company Preferred Stock and, with respect to each such series, to fix the
number of shares constituting such series and the designation of such series,
the voting powers (if any) of the shares of such series, and the preferences
and relative, participating, optional or other special rights, if any, and any
qualifications, limitations or restrictions thereof, of the shares of such
series.
Tenneco and the Company believe that the ability of the Company Board to
issue one or more series of Company Preferred Stock will provide the Company
with flexibility in structuring possible future financings and acquisitions,
and in meeting other corporate needs which might arise. The authorized shares
of the Company Preferred Stock, as well as shares of Company Common Stock,
will be available for issuance without further action by the Company's
stockholders, unless such action is required by applicable law or the rules of
any stock exchange or automated quotation system on which the Company's
securities may be listed or traded. The NYSE currently requires stockholder
approval as a prerequisite to listing shares in several instances, including
where the present or potential issuance of shares could result in a 20%
increase in the number of shares of common stock outstanding or in the amount
of voting securities outstanding. If the approval of the Company's
stockholders is not required for the issuance of shares of Company Preferred
Stock or Company Common Stock, the Company Board may determine not to seek
stockholder approval.
Although the Company Board has no intention at the present time of doing so,
it could issue a series of Company Preferred Stock that could, depending on
the terms of such series, impede the completion of a merger, tender offer or
other takeover attempt. The Company Board will make any determination to issue
such shares based on its judgment as to the best interests of the Company and
its stockholders. The Company Board, in so acting, could issue Company
Preferred Stock having terms that could discourage an acquisition attempt
through which an acquiror may be able to change the composition of the Company
Board, including a tender offer or other transaction that some, or a majority,
of the Company's stockholders might believe to be in their best interests or
in which stockholders might receive a premium for their stock over the then
current market price of such stock.
BUSINESS COMBINATIONS
The Certificate prohibits "Business Combinations" (as defined in the
Certificate) with "Interested Stockholders" (as defined in the Certificate)
without the approval of the holders of at least 66 2/3% in voting power of the
outstanding shares of stock entitled to vote in the election of directors
("Voting Stock") not owned by an Interested Stockholder unless (i) approved by
a majority of the "Continuing Directors" (as defined in the Certificate) or
(ii) certain detailed requirements as to, among other things, the value and
type of consideration to be paid to the Company's stockholders, the
maintenance of the Company's dividend policy, the public disclosure of the
Business Combination and the absence of any major change in the Company's
business or equity capital structure without the approval of a majority of the
Continuing Directors, have been satisfied. The Certificate generally defines
an "Interested Stockholder" as any person (other than the Company or any
subsidiary, any employee benefit plan of the Company or any subsidiary or any
trustee or fiduciary with respect to any such plan or holding Voting Stock for
the purpose of funding any such plan or funding other employee benefits for
employees of the Company or any subsidiary when acting in such capacity) who
(a) is or has announced or publicly disclosed a plan or intention to become
the beneficial owner of Voting Stock representing five percent or more of the
votes entitled to be cast by the holders of all then outstanding shares of
Voting Stock or (b) is an affiliate or associate of the Company and at any
time within the two-year period immediately prior to the date in
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question was the beneficial owner of Voting Stock representing five percent or
more of the votes entitled to be cast by the holders of all then outstanding
shares of Voting Stock. The Certificate defines a "Continuing Director" as any
member of the Company Board, while such person is a member of the Company
Board, who is not an affiliate or associate or representative of the
Interested Stockholder and was a member of the Company Board prior to the time
that the Interested Stockholder became an Interested Stockholder, and any
successor thereto who is not an affiliate or associate or representative of
the Interested Stockholder and is recommended or elected to succeed the
Continuing Director by a majority of Continuing Directors.
AMENDMENT OF CERTAIN PROVISIONS OF THE CERTIFICATE AND BY-LAWS
Under the DGCL, the stockholders of a corporation have the right to adopt,
amend or repeal the by-laws and, with the approval of the board of directors,
the certificate of incorporation of a corporation. In addition, if the
certificate of incorporation so provides, the by-laws may be adopted, amended
or repealed by the board of directors. The Certificate provides that the By-
laws may be amended by the Company Board or by the stockholders.
The Certificate also provides that, in addition to approval by the Company
Board and notwithstanding that a lesser percentage or separate class vote may
be specified by law, the Certificate or the By-laws, any proposal to amend or
repeal, or adopt any provision inconsistent with, the provisions of the
Certificate regarding Business Combinations proposed by or on behalf of an
Interested Stockholder or affiliate thereof requires the affirmative vote of
the holders of 66 2/3% in voting power of the outstanding shares of Voting
Stock, excluding Voting Stock beneficially owned by any Interested
Stockholder, unless the amendment or repeal of, or the adoption of any
provision inconsistent with, the provisions regarding Business Combinations is
unanimously recommended by the members of the Company Board and each of the
members of the Company Board qualifies as a Continuing Director. Approval by
the Company Board, together with the affirmative vote of the holders of a
majority in voting power of the outstanding shares of Voting Stock, is
required to amend all other provisions of the Certificate. The Business
Combination supermajority voting requirement could have the effect of making
more difficult any amendment by stockholders of the Business Combination
provisions of the Certificate described above, even if a majority of the
Company's stockholders believe that such amendment would be in their best
interest.
RIGHTS
The Company Board will adopt a stockholder rights plan and cause to be
issued, with each share of Company Common Stock to be distributed in the
Industrial Distribution, one preferred share purchase right (a "Right"). Each
Right will entitle the registered holder to purchase from the Company a unit
consisting of one one-hundredth of a share (a "Unit") of Company Junior
Preferred Stock, at a price of $130 per Unit (the "Purchase Price"), subject
to adjustment. The description and terms of the Rights are set forth in a
Rights Agreement (the "Rights Agreement"), between the Company and First
Chicago Trust Company of New York, as Rights Agent (the "Rights Agent").
Initially, the Rights will be represented by Company Common Stock
certificates, and no separate certificates representing the Rights ("Rights
Certificates") will be distributed. The Rights will separate from the Company
Common Stock and a distribution date (a "Rights Distribution Date") will occur
upon the earlier of (i) 10 business days following the first date of public
announcement (the "Stock Acquisition Date") that a person or group of
affiliated or associated persons (an "Acquiring Person") has acquired, or
obtained the right to acquire, beneficial ownership of 20% or more of the
outstanding shares of Company Common Stock, (ii) 10 business days (or such
later date as may be determined by the Company Board) following the
commencement of a tender offer or exchange offer that would result in a person
or group beneficially owning 20% or more of such outstanding shares of Company
Common Stock or (iii) 10 business days after the Company Board determines that
any person, alone or together with its affiliates and associates, has become
the Beneficial Owner of an amount of Company Common Stock which the Company
Board determines to be substantial (which amount shall in no event be less
than 10% of the shares of Company Common Stock outstanding) and at least a
majority of the Company Board who are not officers of the Company, after
reasonable inquiry and investigation, including
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consultation with such persons as such directors shall deem appropriate, shall
determine that (a) such beneficial ownership by such person is intended to
cause the Company to repurchase the Company Common Stock beneficially owned by
such person or to cause pressure on the Company to take action or enter into a
transaction or series of transactions intended to provide such person with
short-term financial gain under circumstances where the Company Board
determines that the best long-term interests of the Company and its
stockholders would not be served by taking such action or entering into such
transactions or series of transactions at that time or (b) such beneficial
ownership is causing or is reasonably likely to cause a material adverse
impact (including, but not limited to, impairment of relationships with
customers or impairment of the Company's ability to maintain its competitive
position) on the business or prospects of the Company (any such person being
referred to herein and in the Rights Agreement as an "Adverse Person").
Until the Rights Distribution Date, (i) the Rights will be evidenced by
Company Common Stock certificates and will be transferred with and only with
such Company Common Stock certificates, (ii) Company Common Stock certificates
will contain a notation incorporating the Rights Agreement by reference and
(iii) the surrender for transfer of any certificates for Company Common Stock
outstanding will also constitute the transfer of the Rights associated with
Company Common Stock represented by such certificate.
The Rights will not be exercisable until the Rights Distribution Date and
will expire at the close of business on June 10, 1998 (the "Final Expiration
Date"), unless (i) earlier redeemed by the Company as described below or (ii)
the Rights Agreement is extended (with stockholder approval) as discussed
below. The Final Expiration Date is the same date on which the stockholder
rights issued under the current Tenneco's stockholder's rights plan would have
terminated, but for the Merger.
As soon as practicable after the Rights Distribution Date, Rights
Certificates will be mailed to holders of record of the Company Common Stock
as of the close of business on the Rights Distribution Date and, thereafter,
the separate Rights Certificates alone will represent the Rights. Except as
otherwise determined by the Company Board, only shares of Company Common Stock
issued prior to the Rights Distribution Date will be issued with Rights.
In the event that (i) any person becomes an Acquiring Person (except
pursuant to an offer for all outstanding shares of Company Common Stock that
the independent directors determine to be fair to and otherwise in the best
interests of the Company and its stockholders) or (ii) the Company Board
determines that a person is an Adverse Person, each holder of a Right will
thereafter have the right to receive, upon exercise, Company Common Stock (or,
in certain circumstances, cash, property or other securities of the Company)
having a value equal to two times the exercise price of the Right. Upon the
occurrence of either of the events set forth in the preceding sentence, all
Rights that are, or (under certain circumstances specified in the Rights
Agreement) were, beneficially owned by the Acquiring Person or Adverse Person
(or certain related parties) will be null and void. Rights will not be
exercisable following the occurrence of either of such events until such time
as the Rights are no longer redeemable by the Company as set forth below.
For example, at an exercise price of $130 per Right, each Right not owned by
an Acquiring Person or by an Adverse Person (or by certain related parties)
following an event set forth in the preceding paragraph would entitle its
holder to purchase $260 worth of Company Common Stock (or other consideration,
as noted above) for $130. Assuming that Company Common Stock had a per share
value of $50 at such time, the holder of each valid Right would be entitled to
purchase 5.2 shares of Company Common Stock for $130.
In the event that, at any time following the Stock Acquisition Date, (i) the
Company is acquired in a merger or other business combination transaction
(other than a merger meeting prescribed terms and conditions that follows an
offer described in the second preceding paragraph) or (ii) more than 50% of
the Company's assets or earning power is sold or transferred, each holder of a
Right (except Rights that previously have been voided as set forth above)
shall thereafter have the right to receive, upon exercise, common stock of the
acquiring company having a value equal to two times the exercise price of the
Right.
The Purchase Price payable, and the number of Units of Company Junior
Preferred Stock or other securities or property issuable, upon exercise of the
Rights are subject to adjustment from time to time to prevent dilution
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(i) in the event of a stock dividend on, or a subdivision, combination or
reclassification of, Company Junior Preferred Stock, (ii) if holders of
Company Junior Preferred Stock are granted certain rights or warrants to
subscribe for Company Junior Preferred Stock or convertible securities at less
than the current market price of Company Junior Preferred Stock or (iii) upon
the distribution to holders of the Company Junior Preferred Stock of evidences
of indebtedness or assets (excluding regular quarterly cash dividends) or of
subscription rights or warrants (other than those referred to above).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments amount to at least 1% of the Purchase
Price. No fractional Units will be issued and, in lieu thereof, an adjustment
in cash will be made based on the market price of Company Junior Preferred
Stock on the last trading date prior to the date of exercise.
In general, at any time until 10 business days following the Stock
Acquisition Date, the Company may redeem the Rights in whole, but not in part,
at a price of $.02 per Right. The Company may not redeem the Rights if the
Company Board has previously declared a person to be an Adverse Person.
Immediately upon the action of the Company Board ordering redemption of the
Rights, the Rights will terminate and the only right of the holders of Rights
will be to receive the $.02 redemption price.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a stockholder of the Company, including, without limitation, the right to
vote or to receive dividends. While the distribution of the Rights will not be
taxable to stockholders or to the Company, stockholders may, depending upon
the circumstances, recognize taxable income in the event that the Rights
became exercisable for Company Common Stock (or other consideration) of the
Company or for common stock of the acquiring company as set forth above.
Other than those provisions relating to the duration of the Rights Agreement
and the principal economic terms of the Rights, any of the provisions of the
Rights Agreement may be amended by the Company Board prior to the Rights
Distribution Date. After the Rights Distribution Date, the provisions of the
Rights Agreement may be amended by the Company Board in order to cure any
ambiguity, to make changes that do not adversely affect the interests of
holders of Rights, or to shorten or lengthen any time period under the Rights
Agreement; provided, however, that no amendment to adjust the time period
governing redemption shall be made at such time as the Rights are not
redeemable. Notwithstanding the foregoing, unless approved by a vote of the
stockholders of the Company, the Rights Agreement may not be supplemented or
amended to alter the redemption price, the Final Expiration Date, the Purchase
Price or the number of Units for which a Right is exercisable.
The Rights Agreement is designed to protect the stockholders of the Company
in the event of unsolicited offers to acquire the Company and other coercive
takeover tactics which, in the opinion of the Company Board, could impair its
ability to represent stockholder interests. The provisions of the Rights
Agreement may render an unsolicited takeover of the Company more difficult or
less likely to occur, even though such takeover may offer the Company's
stockholders the opportunity to sell their stock at a price above the
prevailing market rate and may be favored by a majority of the Company's
stockholders.
THE FOREGOING SUMMARY OF THE TERMS OF THE RIGHTS IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE RIGHTS AGREEMENT, A COPY OF WHICH HAS BEEN FILED
AS AN EXHIBIT TO THE COMPANY'S REGISTRATION STATEMENT ON FORM 10 UNDER THE
EXCHANGE ACT RELATING TO COMPANY COMMON STOCK. THE RIGHTS ARE BEING REGISTERED
UNDER THE EXCHANGE ACT, TOGETHER WITH COMPANY COMMON STOCK, PURSUANT TO SUCH
REGISTRATION STATEMENT. IN THE EVENT THAT THE RIGHTS BECOME EXERCISABLE, THE
COMPANY WILL REGISTER THE SHARES OF COMPANY JUNIOR PREFERRED STOCK FOR WHICH
THE RIGHTS MAY BE EXERCISED, IN ACCORDANCE WITH APPLICABLE LAW.
ANTITAKEOVER LEGISLATION
Section 203 of the DGCL provides that, subject to certain exceptions
specified therein, a corporation shall not engage in any "business
combination" with any "interested stockholder" for a three-year period
following the time that such stockholder becomes an interested stockholder
unless (i) prior to such time, the board of
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directors of the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder, (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced (excluding certain shares) or (iii) on or
subsequent to such time, the business combination is approved by the board of
directors of the corporation and by the affirmative vote of at least 66 2/3%
of the outstanding voting stock which is not owned by the interested
stockholder. Section 203 of the DGCL generally defines an "interested
stockholder" to include (x) any person that is the owner of 15% or more of the
outstanding voting stock of the corporation, or is an affiliate or associate
of the corporation and was the owner of 15% or more of the outstanding voting
stock of the corporation at any time within three years immediately prior to
the relevant date and (y) the affiliates and associates of any such person.
Section 203 of the DGCL generally defines a "business combination" to include
(1) mergers and sales or other dispositions of 10% or more of the assets of
the corporation with or to an interested stockholder, (2) certain transactions
resulting in the issuance or transfer to the interested stockholder of any
stock of the corporation or its subsidiaries, (3) certain transactions which
would result in increasing the proportionate share of the stock of the
corporation or its subsidiaries owned by the interested stockholder and (4)
receipt by the interested stockholder of the benefit (except proportionately
as a stockholder) of any loans, advances, guarantees, pledges, or other
financial benefits.
Under certain circumstances, Section 203 of the DGCL makes it more difficult
for a person who would be an "interested stockholder" to effect various
business combinations with a corporation for a three-year period, although the
certificate of incorporation or stockholder-adopted by-laws may exclude a
corporation from the restrictions imposed thereunder. Neither the Certificate
nor the By-laws exclude the Company from the restrictions imposed under
Section 203 of the DGCL. It is anticipated that the provisions of Section 203
of the DGCL may encourage companies interested in acquiring the Company to
negotiate in advance with the Company Board since the stockholder approval
requirement would be avoided if the Company Board approves, prior to the time
the stockholder becomes an interested stockholder, either the business
combination or the transaction which results in the stockholder becoming an
interested stockholder.
COMPARISON WITH RIGHTS OF HOLDERS OF TENNECO COMMON STOCK
Except as otherwise described herein, the provisions of the Certificate and
the By-laws (including the provisions thereof relating to the classification
of directors, the calling of special meetings of stockholders, the advance
notice requirements for stockholder nominations and proposals, the approval of
Business Combinations, the supermajority voting requirement for amendment of
the Business Combinations provisions and the setting of record dates for
actions by written consent of stockholders in lieu of a meeting) are
substantially the same as the provisions of the Tenneco Certificate of
Incorporation (the "Tenneco Certificate") and the Tenneco By-laws (the
"Tenneco By-laws").
Capitalization
Tenneco's authorized capital stock consists of 350,000,000 shares of Tenneco
Common Stock, 15,000,000 shares of Preferred Stock, without par value
("Tenneco Preferred Stock"), and 50,000,000 shares of Junior Preferred Stock,
without par value ("Tenneco Junior Preferred Stock"). The Company's authorized
capital stock consists of 350,000,000 shares of Company Common Stock,
50,000,000 shares of Company Preferred Stock, 3,500,000 shares of which have
been designated Company Junior Preferred Stock.
The Tenneco Board is generally authorized to issue Tenneco Preferred Stock
and Tenneco Junior Preferred Stock in series and to fix the terms of such
series, but such authority is subject to numerous requirements and/or
limitations relating to, among other things, the voting rights of such series
and the ability of Tenneco to pay dividends and acquire its capital stock. The
Company Board is authorized to issue Company Preferred Stock in series and to
fix the terms of such series, without limitation (other than as provided in
the DGCL).
All series of Tenneco Preferred Stock (but not Tenneco Junior Preferred
Stock) must rank on a parity with respect to the payment of dividends. Any of
the terms of a series of Company Preferred Stock may differ from those of any
other series.
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Class Voting
Under the Tenneco Certificate, approval of 66 2/3% of the outstanding shares
of Tenneco Preferred Stock or Tenneco Junior Preferred Stock, or of a series
thereof, is required for any charter amendment which adversely affects the
rights, powers or preferences of the Tenneco Preferred Stock or Tenneco Junior
Preferred Stock, or of a series thereof, as the case may be. Under the
Certificate, there is no such two-thirds approval requirement; however, the
DGCL generally requires any charter amendment that so adversely affects a
particular class or series of stock be approved by a majority of the
outstanding shares of such class or series, as the case may be.
The Tenneco Certificate requires separate class votes of Tenneco Preferred
Stock and of Tenneco Junior Preferred Stock (i) to create a class of stock
ranking senior thereto, (ii) to sell, lease, transfer or convey all or
substantially all of Tenneco's assets or (iii) to merge with another
corporation (unless Tenneco survives). No such class votes are required under
the Certificate.
Stockholder Meetings
The By-laws provide that the Company Board and the chairman of a meeting may
adopt rules for the conduct of stockholder meetings and specify the types of
rules that may be adopted (including the establishment of an agenda, rules
relating to presence at the meeting of persons other than stockholders,
restrictions on entry at the meeting after commencement thereof and the
imposition of time limitations for questions by participants at the meeting).
Such issues are not expressly addressed by the Tenneco By-laws.
Stockholder Rights Plans
Tenneco adopted a stockholder rights plan on May 24, 1988, which was amended
and restated on October 1, 1989 (the "Tenneco Rights Plan"). Pursuant to and
in accordance with such plan, one preferred share purchase right (a "Tenneco
Right") is attached to each share of Tenneco Common Stock. Each Tenneco Right
entitles the registered holder thereof to, among other things, purchase, under
certain circumstances, from Tenneco a unit consisting of one one-hundredth of
a share of Tenneco Series A Junior Preferred Stock. Tenneco has amended the
Tenneco Rights Plan to exempt El Paso and El Paso Merger Company from becoming
an "acquiring person" thereunder, or otherwise triggering the Tenneco Rights,
solely by reason of the execution of the Merger Agreement and consummation of
the transactions contemplated thereby, and to cause the Tenneco Rights to
expire at the Merger Effective Time.
The Company will adopt the Rights Agreement. The Rights Agreement is, in all
material respects, the same as the Tenneco Rights Plan except that the
Redemption Price (as defined therein), the Final Expiration Date, the Purchase
Price and the number of one one-hundredths of a share of Company Junior
Preferred Stock for which a Right is exercisable (which under the Tenneco
Rights Plan may not be supplemented or amended) may be supplemented or amended
with stockholder approval.
Indemnification
The Tenneco By-laws provide for mandatory indemnification for directors and
officers of Tenneco and for directors and officers of Tenneco serving as
directors and officers of other entities at the request of Tenneco to the
fullest extent permitted by the DGCL. The By-laws provide similar mandatory
indemnification except (i) such indemnification includes directors and
officers of the Company serving as directors, officers, employees or agents of
another entity at the request of the Company and (ii) suits (or parts thereof)
instituted by any such indemnitee without Company Board approval are excluded
from such mandatory indemnification.
The By-laws also provide for mandatory advancement of expenses in defending
any proceeding for which mandatory indemnification may be available. The
Tenneco By-laws do not provide for such mandatory advancement of expenses.
Under the By-laws, persons claiming indemnification or advancement may file
suit in respect thereof if the Company does not pay such a claim within 30
days after receipt of a written claim therefor and, if successful in
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whole or in part, are entitled to be paid the expense of prosecuting such
claim. The By-laws provide that in any such action, the Company has the burden
of proving that the indemnitee is not entitled to the requested
indemnification or advancement. Such issues are not expressly addressed by the
Tenneco By-laws.
Director Exculpation
Pursuant to Section 102(b)(7) of the DGCL, the Tenneco Certificate provides
that a director thereof shall not be liable to Tenneco or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to Tenneco or
its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of the law, (iii) under
Section 174 of the DGCL, or (iv) for any transaction from which the director
derived an improper personal benefit.
The Certificate provides that a director of the Company shall not be liable
to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director, except to the extent such exemption from
liability or limitation thereof is not permitted under the DGCL as the same
exists or may thereafter be amended. The Certificate, therefore, affords
directors of the Company the benefit of any subsequent broadening of director
exculpation permitted by the DGCL without the need for a further charter
amendment.
Ratification
The Tenneco Certificate provides that a director of Tenneco shall not be
disqualified by his office from dealing or contracting with Tenneco either as
a vendor, purchaser or otherwise, nor shall any transaction or contract of
Tenneco be void or voidable by reason of the fact that any director or any
firm of which any director is a member, or any corporation of which any
director is a shareholder, officer or director, is in any way interested in
such transaction or contract, provided that such transaction or contract is or
shall be authorized, ratified or approved either (i) by a vote of a majority
of a quorum of the Tenneco Board or of the Executive Committee of Tenneco,
without counting in such majority or quorum any director so interested or a
member of a firm so interested, or a shareholder, officer or director of a
corporation so interested or (ii) by the written consent, or by the vote at
any stockholders' meeting, of the holders of record of a majority of all the
outstanding shares of stock of Tenneco entitled to vote, nor shall any
director be liable to account to Tenneco for any profits realized by or from
or through any such transaction or contract of Tenneco authorized, ratified or
approved as aforesaid by reason of the fact that he, or any firm of which he
is a member or any corporation of which he is a shareholder, officer or
director was interested in such transaction or contract.
The Tenneco By-laws provide that any transaction questioned in any
stockholders derivative suit on the ground of lack of authority, defective or
irregular execution, adverse interest of director, officer or stockholder,
nondisclosure, miscomputation, or the application of improper principles or
practices of accounting may be ratified before or after judgment, by the
Tenneco Board or by Tenneco's stockholders. The Tenneco By-laws also provide
that, if so ratified, the transaction shall have the same force and effect as
if it had been originally duly authorized, and said ratification shall be
binding upon Tenneco and shall continue as a bar to any claim or execution of
any judgment in respect of such questioned transaction.
Such issues are not expressly addressed by either the Certificate or the By-
laws. However, Section 144 of the DGCL provides, in relevant part, that no
contract or transaction between a corporation and one or more of its directors
or officers, or between a corporation and any other corporation, partnership,
association, or other organization in which one or more of its directors or
officers are directors or officers or have a financial interest, shall be void
or voidable solely for this reason, or solely because the director or officer
is present at or participates in the meeting of the board or committee which
authorizes the contract or transaction, or solely because his or their votes
are counted for such purpose, if: (i) the material facts as to his
relationship or interest and as to the contract or transaction are disclosed
or are known to the board of directors or the committee, and the board or
committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though
the disinterested directors be less than a quorum; (ii) the material facts
102
<PAGE>
as to his relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (iii) the contract or transaction is fair as to the
corporation as of the time it is authorized, approved or ratified, by the
board of directors, a committee or the stockholders.
Contracts
The By-laws provide that, except as otherwise required by law, the
Certificate or the By-laws, any contracts or other instruments may be executed
and delivered in the name and on the behalf of the Company by such officer or
officers of the Company as the Company Board may from time to time direct. The
By-laws state that such authority may be general or confined to specific
instances as the Company Board may determine. The By-laws also provide that
(i) the Chairman of the Board, the President or any Vice President may execute
bonds, contracts, deeds, leases and other instruments to be made or executed
for or on behalf of the Company and (ii) subject to any restrictions imposed
by the Company Board, the Chairman of the Board, the President or any Vice
President of the Company may delegate contractual powers to others under his
jurisdiction, it being understood, however, that any such delegation of power
shall not relieve such officer of responsibility with respect to the exercise
of such delegated power. Such issues are not expressly addressed by the
Tenneco By-laws.
Proxies
The By-laws provide that unless otherwise provided by resolution adopted by
the Company Board, the Chairman of the Board, the President or any Vice
President may from time to time appoint an attorney or attorneys or agent or
agents of the Company, in the name and on behalf of the Company, to cast the
votes which the Company may be entitled to cast as the holder of stock or
other securities in any other corporation or other entity, any of whose stock
or other securities may be held by the Company, at meetings of the holders of
the stock or other securities of such other corporation or other entity, or to
consent in writing, in the name of the Company as such holder, to any action
by such other corporation or other entity, and may instruct the person or
persons so appointed as to the manner of casting such votes or giving such
consent, and may execute or cause to be executed in the name and on behalf of
the Company and under its corporate seal or otherwise, all such written
proxies or other instruments as he may deem necessary or proper in the
premises. Such issues are not expressly addressed by the Tenneco By-laws.
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
ELIMINATION OF LIABILITY OF DIRECTORS
The Certificate provides that a director of the Company will not be liable
to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director, except to the extent such exemption from
liability or limitation thereof is not permitted under the DGCL as the same
exists or may thereafter be amended. Based on the DGCL as presently in effect,
a director of the Company will not be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
the Company or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the DGCL, which concerns unlawful payments of dividends,
stock purchases or redemptions or (iv) for any transactions from which the
director derived an improper personal benefit.
While the Certificate provides directors with protection from awards for
monetary damages for breaches of their duty of care, it does not eliminate
such duty. Accordingly, the Certificate will have no effect on the
availability of equitable remedies such as an injunction or rescission based
on a director's breach of his or her duty of care. The provisions of the
Certificate described above apply to an officer of the Company only if he or
she is a director of the Company and is acting in his or her capacity as
director, and do not apply to officers of the Company who are not directors.
103
<PAGE>
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The By-laws provide that the Company will indemnify and hold harmless, to
the fullest extent permitted by applicable law as it presently exists or may
thereafter 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 Company or, while
a director or officer of the Company, is or was serving at the request of the
Company as a director, officer, employee or agent of another Company 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. The By-laws also provide that, notwithstanding the foregoing, but
except as described in the second following paragraph, the Company will 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 Company
Board.
The By-laws further provide that the Company will 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 will 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 the
relevant section of the By-laws or otherwise.
Pursuant to the By-laws, if a claim for indemnification or payment of
expenses thereunder is not paid in full within 30 days after a written claim
therefor by the Indemnitee has been received by the Company, the Indemnitee
may file suit to recover the unpaid amount of such claim and, if successful in
whole or in part, will be entitled to be paid the expense of prosecuting such
claim. The By-laws provide that, in any such action, the Company will have the
burden of proving that the Indemnitee is not entitled to the requested
indemnification or payment of expenses under applicable law.
The By-laws also provide (i) that the rights conferred on any Indemnitee
thereby are not exclusive of any other rights which such Indemnitee may have
or thereafter acquire under any statute, provision of the Certificate, the By-
laws, agreement, vote of stockholders or disinterested directors or otherwise,
(ii) that the Company'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 Company, partnership, joint venture,
trust, enterprise or nonprofit entity will be reduced by any amount such
Indemnitee may collect as indemnification or advancement of expenses from such
other Company, partnership, joint venture, trust, enterprise or nonprofit
enterprise and (iii) that any repeal or modification of the relevant
provisions of the By-laws will not adversely affect any right or protection
thereunder of any Indemnitee in respect of any act or omission occurring prior
to the time of such repeal or modification.
The By-laws also expressly state that the provisions thereof will not limit
the right of the Company, 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.
104
<PAGE>
INDEX TO COMBINED FINANCIAL STATEMENTS AND SCHEDULE
<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 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
FINANCIAL STATEMENT SCHEDULE
Valuation and Qualifying Accounts--The Businesses of New Tenneco ....... S-1
</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>
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 tender offers for other Tenneco debt, and certain debt issues may be
defeased. These 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, the Company 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>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
New Tenneco Inc.
/s/ Dana G. Mead
By:__________________________________
Dana G. Mead
Chairman
Dated November 4, 1996
<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>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2 Distribution Agreement, November 1, 1996, by and among Tenneco Inc.,
New Tenneco Inc., and Newport News Shipbuilding Inc.
+3.1 Certificate of Incorporation of New Tenneco Inc. 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 New Tenneco Inc. as currently in effect.
+3.4 Form of Amended and Restated By-laws to be adopted prior to the
Distribution Date.
+4.1 Form of Specimen Stock Certificate of Company Common Stock.
+4.2 Form of Rights Agreement by and between New Tenneco Inc. and First
Chicago Trust Company of New York, as Rights Agent.
+4.3 Form of Indenture between New Tenneco Inc. and The Chase Manhattan
Bank, as trustee.
10.1 Form of Debt and Cash Allocation Agreement by and among Tenneco Inc.,
New Tenneco Inc., and Newport News Shipbuilding Inc.
+10.2 Form of Benefits Agreement by and among Tenneco Inc., New Tenneco
Inc., and Newport News Shipbuilding Inc.
+10.3 Form of Insurance Agreement by and among Tenneco Inc., New Tenneco
Inc., and Newport News Shipbuilding Inc.
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.
10.5 Form of Transition Services Agreement by and among, Tenneco Business
Services, Inc., Tenneco Inc. and El Paso Natural Gas Company.
+10.6 Form of Shipbuilding Trademark Transition License Agreement by and
between Newport News Shipbuilding Inc. and New Tenneco Inc.
+10.7 Form of Tenneco Trademark Transition License Agreement by and between
New Tenneco Inc. and Tenneco Inc.
+10.8 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.
+10.9 Form of Amended and Restated Tenneco Inc. Executive Incentive
Compensation Plan, to be assumed by New Tenneco Inc. as of the
Distribution Date.
+10.10 Form of Tenneco Inc. Deferred Compensation Plan, to be assumed by New
Tenneco Inc. as of the Distribution Date.
+10.11 Form of Tenneco Inc. 1996 Deferred Compensation Plan, to be assumed by
New Tenneco, Inc. as of the Distribution Date.
+10.12 Form of Amended and Restated Tenneco Inc. Supplemental Executive
Retirement Plan, to be assumed by New Tenneco, Inc. as of the
Distribution Date.
+10.13 Form of Amended and Restated Tenneco Inc. Benefit Equalization Plan,
to be assumed by New Tenneco Inc. as of the Distribution Date.
+10.14 Form of Amended and Restated Tenneco Inc. Outside Directors Retirement
Plan, to be assumed by New Tenneco Inc. as of the Distribution Date.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
+10.15 Form of Amended and Restated Supplemental Pension Agreement, between
Dana G. Mead and Tenneco Inc., to be assumed by New Tenneco Inc. as of
the Distribution Date.
+10.16 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.
+10.17 Form of Amended and Restated Tenneco Benefits Protection Trust, to be
assumed by New Tenneco as of the Distribution Date.
+10.18 Form of Employment Agreement between Stacy S. Dick and New Tenneco
Inc.
+10.19 Form of Employment Agreement between Dana G. Mead and New Tenneco Inc.
+10.20 Form of Employment Agreement between Paul T. Stecko and Tenneco
Packaging Inc.
+10.21 Form of Agreement between Theodore R. Tetzlaff and New Tenneco Inc.
+10.22 Form of Tenneco Inc. Directors Restricted Stock Program, effective as
of the Distribution Date, to be assumed by New Tenneco Inc. as of the
Distribution Date.
+10.23 Form of Tenneco Inc. Directors Restricted Stock and Restricted Unit
Program, effective as of the Distribution Date, to be assumed by New
Tenneco Inc. as of the Distribution Date.
+10.24 Form of 1996 Tenneco Inc. Stock Ownership Plan, to be assumed by New
Tenneco Inc. as of the Distribution Date.
+10.25 Lease Agreement, Tomahawk, dated as of January 30, 1991, between The
Connecticut National Bank, as Owner Trustee, and Packaging Corporation
of America.
+10.26 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.
+10.27 Timberland Lease, dated January 31, 1991, by and between Four States
Timber Venture and Packaging Corporation of America.
10.28 Professional Services Agreement, dated August 22, 1996, by and between
Tenneco Business Services Inc. and Newport News Shipbuilding Inc.
+12 Statement re computation of ratio of earnings to fixed charges.
+21 Subsidiaries of New Tenneco Inc.
+27(a) Financial data schedule--As of December 31, 1995
+27(b) Financial data schedule--As of June 30, 1996
</TABLE>
Each exhibit identified on this Exhibit List is filed as part of this
Registration Statement. Exhibits which were previously filed are designated by
a dagger (+); all exhibits not so designated are being filed herewith.
<PAGE>
APPENDIX A
DISTRIBUTION AGREEMENT
AMONG
TENNECO INC.,
NEW TENNECO INC.
AND
NEWPORT NEWS SHIPBUILDING INC.
(FORMERLY KNOWN AS TENNECO INTERAMERICA INC.)
DATED AS OF
NOVEMBER 1, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
----
<C> <S> <C>
ARTICLE I DEFINITIONS.................................................. A-1
SECTION 1.01. General........................................ A-1
SECTION 1.02. References..................................... A-12
ARTICLE II PRE-DISTRIBUTION TRANSACTIONS; CERTAIN COVENANTS............. A-13
SECTION 2.01. Corporate Restructuring Transactions........... A-13
SECTION 2.02. Pre-Distribution Stock Dividends to Tenneco.... A-13
SECTION 2.03. Charters and Bylaws............................ A-13
SECTION 2.04. Election of Directors of Industrial Company and
Shipbuilding Company............................. A-13
SECTION 2.05. Transfer and Assignment of Certain Licenses and
Permits.......................................... A-14
SECTION 2.06. Transfer and Assignment of Certain Agreements.. A-14
SECTION 2.07. Consents....................................... A-15
SECTION 2.08. Other Transactions............................. A-15
SECTION 2.09. Election of Officers........................... A-15
SECTION 2.10. Registration Statements........................ A-16
SECTION 2.11. State Securities Laws.......................... A-16
SECTION 2.12. Listing Application............................ A-16
SECTION 2.13. Certain Financial and Other Arrangements....... A-16
SECTION 2.14. Director, Officer and Employee Resignations.... A-17
SECTION 2.15. Transfers Not Effected Prior to the
Distributions; Transfers Deemed Effective as of
the Distribution Date............................ A-17
SECTION 2.16. Ancillary Agreements........................... A-18
ARTICLE III THE DISTRIBUTIONS............................................ A-18
SECTION 3.01. Tenneco Action Prior to the Distributions...... A-18
SECTION 3.02. The Distributions.............................. A-19
SECTION 3.03. Fractional Shares.............................. A-19
ARTICLE IV CONDITIONS TO THE DISTRIBUTIONS.............................. A-20
SECTION 4.01. Conditions Precedent to the Distributions...... A-20
SECTION 4.02. No Constraint.................................. A-21
SECTION 4.03. Deferral of Distribution Date.................. A-21
SECTION 4.04. Public Notice of Deferred Distribution Date.... A-21
ARTICLE V COVENANTS.................................................... A-22
SECTION 5.01. Further Assurances............................. A-22
SECTION 5.02. Tenneco Name................................... A-22
SECTION 5.03. Supplies and Documents......................... A-22
SECTION 5.04. Assumption and Satisfaction of Liabilities..... A-23
SECTION 5.05. No Representations or Warranties; Consents..... A-23
SECTION 5.06. Removal of Certain Guarantees.................. A-24
SECTION 5.07. Public Announcements........................... A-24
SECTION 5.08. Intercompany Agreements........................ A-25
SECTION 5.09. Tax Matters.................................... A-25
ARTICLE VI ACCESS TO INFORMATION........................................ A-25
SECTION 6.01. Provision, Transfer and Delivery of Applicable
Corporate Records........................................... A-25
SECTION 6.02. Access to Information.......................... A-26
SECTION 6.03. Reimbursement; Other Matters................... A-26
SECTION 6.04. Confidentiality................................ A-26
SECTION 6.05. Witness Services............................... A-27
SECTION 6.06. Retention of Records........................... A-27
SECTION 6.07. Privileged Matters............................. A-27
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE VII INDEMNIFICATION............................................ A-28
SECTION 7.01. Indemnification by Tenneco................... A-28
SECTION 7.02. Indemnification by Industrial Company........ A-28
SECTION 7.03. Indemnification by Shipbuilding Company...... A-28
SECTION 7.04. Limitations on Indemnification Obligations... A-29
SECTION 7.05. Procedures for Indemnification............... A-30
SECTION 7.06. Indemnification Payments..................... A-31
SECTION 7.07. Other Adjustments............................ A-31
SECTION 7.08. Obligations Absolute......................... A-32
SECTION 7.09. Survival of Indemnities...................... A-32
SECTION 7.10. Remedies Cumulative.......................... A-32
SECTION 7.11. Cooperation of the Parties With Respect to
Actions and Third Party Claims................. A-32
SECTION 7.12. Contribution................................. A-33
ARTICLE VIII MISCELLANEOUS.............................................. A-33
SECTION 8.01. Complete Agreement; Construction............. A-33
SECTION 8.02. Ancillary Agreements......................... A-33
SECTION 8.03. Counterparts................................. A-33
SECTION 8.04. Survival of Agreements....................... A-33
SECTION 8.05. Responsibility for Expenses.................. A-34
SECTION 8.06. Notices...................................... A-34
SECTION 8.07. Waivers...................................... A-34
SECTION 8.08. Amendments................................... A-34
SECTION 8.09. Assignment................................... A-35
SECTION 8.10. Successors and Assigns....................... A-35
SECTION 8.11. Termination.................................. A-35
SECTION 8.12. Third Party Beneficiaries.................... A-35
SECTION 8.13. Attorney Fees................................ A-35
SECTION 8.14. Title and Headings........................... A-35
SECTION 8.15. Exhibits and Schedules....................... A-35
SECTION 8.16. Specific Performance......................... A-35
SECTION 8.17. Governing Law................................ A-35
SECTION 8.18. Severability................................. A-36
SECTION 8.19. Subsidiaries................................. A-36
SECTION 8.20. Shipbuilding Hedging Transactions............ A-36
</TABLE>
A-ii
<PAGE>
EXHIBITS
EXHIBIT ABenefits Agreement
EXHIBIT BCorporate Restructuring Transactions
EXHIBIT CDebt and Cash Allocation Agreement
EXHIBIT DEnergy Business Pro Forma Balance Sheet
EXHIBIT EEnergy Subsidiaries
EXHIBIT FIndustrial Business Pro Forma Balance Sheet
EXHIBIT GIndustrial Subsidiaries
EXHIBIT HInsurance Agreement
EXHIBIT IShipbuilding Business Pro Forma Balance Sheet
EXHIBIT JShipbuilding Subsidiaries
EXHIBIT KTax Sharing Agreement
EXHIBIT LTBS Services Agreement
EXHIBIT MTransition Services Agreement
EXHIBIT NForm of Restated Certificate of Incorporation
EXHIBIT OForm of Bylaws
EXHIBIT PTenneco Transition Trademark License
EXHIBIT QShipbuilding Transition Trademark License
iii
<PAGE>
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT is made and entered into as of this first day of
November, 1996 by and among TENNECO INC., a Delaware corporation ("TENNECO"),
NEW TENNECO INC., a Delaware corporation ("INDUSTRIAL COMPANY"), and NEWPORT
NEWS SHIPBUILDING INC. (formerly known as Tenneco InterAmerica Inc.), a
Delaware corporation ("SHIPBUILDING COMPANY").
R E C I T A L S
WHEREAS, Tenneco, El Paso Natural Gas Company, a Delaware corporation
("ACQUIROR"), and El Paso Merger Company, a Delaware corporation and an
indirect wholly owned subsidiary of Acquiror ("ACQUIROR SUBSIDIARY"), have
entered into an Amended and Restated Agreement and Plan of Merger, dated as of
June 19, 1996 (as amended from time to time, the "MERGER AGREEMENT"),
providing for the merger of Acquiror Subsidiary with and into Tenneco (the
"MERGER"), with Tenneco continuing as the surviving corporation of the Merger
(the "SURVIVING CORPORATION"), upon the terms and subject to the conditions
set forth in the Merger Agreement;
WHEREAS, the Board of Directors of Tenneco has deemed it appropriate and
advisable, prior to the Merger and as contemplated by the Merger Agreement,
to:
(a) separate and divide the existing businesses of Tenneco so that (i)
the automotive, packaging and business services businesses shall be owned
directly and indirectly by Industrial Company, and (ii) the shipbuilding
business shall be owned directly and indirectly by Shipbuilding Company;
and
(b) distribute, following such separation and division and immediately
prior to the Merger, as a dividend to the holders of shares of Common
Stock, par value $5.00 per share, of Tenneco (the "TENNECO COMMON STOCK")
all of the outstanding shares of common stock, $.01 par value, of
Industrial Company (the "INDUSTRIAL COMMON STOCK") and all of the
outstanding shares of common stock, $.01 par value, of Shipbuilding Company
(the "SHIPBUILDING COMMON STOCK");
WHEREAS, following such separation, division and distributions, the
remaining businesses, operations, assets and liabilities of Tenneco and its
remaining direct and indirect subsidiaries shall be acquired by Acquiror
pursuant to the Merger; and
WHEREAS, each of Tenneco, Industrial Company and Shipbuilding Company has
determined that it is necessary and desirable to set forth the principal
corporate transactions required to effect such separation, division and
distributions and to set forth other agreements that will govern certain other
matters prior to and following such separation, division and distributions.
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained in this Agreement, the parties hereto hereby agree as
follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. GENERAL. Unless otherwise defined herein or unless the context
otherwise requires, the following terms will have the following meanings (such
meanings to be equally applicable to both the singular and plural forms of the
terms defined).
"ACTION" means any action, suit, arbitration, inquiry, proceeding or
investigation by or before any Governmental Authority or any arbitration
tribunal.
"ACQUIROR SUBSIDIARY" has the meaning ascribed to such term in the
recitals to this Agreement.
"AFFILIATE" means, when used with respect to a specified Person, another
Person that directly, or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with the Person
specified.
A-1
<PAGE>
"AGENT" means First Chicago Trust Company of New York, or such other
trust company or bank designated by Tenneco, who shall act as agent for the
holders of Tenneco Common Stock in connection with the Distributions.
"AGREEMENT" means this Distribution Agreement by and among Tenneco,
Industrial Company and Shipbuilding Company, including any amendments
hereto and each Schedule and Exhibit attached hereto.
"ANCILLARY AGREEMENTS" means all of the written agreements, instruments,
understandings, assignments or other arrangements (other than this
Agreement or the Merger Agreement) entered into by the parties hereto or
any other member of their respective Group in connection with the Corporate
Restructuring Transactions, the Distributions and the other transactions
contemplated hereby or thereby, including, without limitation, the
following:
(i) the Debt and Cash Allocation Agreement;
(ii) the Insurance Agreement;
(iii) the Conveyancing and Assumption Instruments;
(iv) the Benefits Agreement;
(v) the Tax Sharing Agreement;
(vi) the Transition Services Agreement;
(vii) the TBS Services Agreement; and
(viii) the Transition Trademark License.
"BENEFITS AGREEMENT" means the Benefits Agreement by and among Tenneco,
Industrial Company and Shipbuilding Company, which agreement shall be
entered into on or prior to the Distribution Date in the form attached
hereto as EXHIBIT A, except for such changes or modifications thereto that
do not, individually or in the aggregate, adversely affect the Energy
Business other than to a de minimis extent.
"BOOKS AND RECORDS" means all books, records, manuals, agreements and
other materials (in any form or medium), including without limitation, all
mortgages, licenses, indentures, contracts, financial data, customer lists,
marketing materials and studies, advertising materials, price lists,
correspondence, distribution lists, supplier lists, production data, sales
and promotional materials and records, purchasing materials and records,
personnel records, manufacturing and quality control records and
procedures, blue prints, research and development files, records, data and
laboratory books, accounts records, sales order files, litigation files,
computer files, microfiche, tape recordings and photographs.
"CODE" means the Internal Revenue Code of 1986, as amended, or any
successor law.
"COMMISSION" means the United States Securities and Exchange Commission.
"CONSENTS" has the meaning ascribed to such term in SECTION 2.07 hereof.
"CONVEYANCING AND ASSUMPTION INSTRUMENTS" means, collectively, the
various written agreements, instruments and other documents to be entered
into to effect the Corporate Restructuring Transactions or to otherwise
effect the transfer of assets and the assumption of Liabilities in the
manner contemplated by this Agreement, the Ancillary Agreements and the
Corporate Restructuring Transactions.
"CORPORATE RESTRUCTURING TRANSACTIONS" means, collectively, (a) each of
the distributions, transfers, conveyances, contributions, assignments and
other transactions described and set forth on EXHIBIT B attached hereto,
and (b) such other distributions, transfers, conveyances, contributions,
assignments and other transactions (so long as such other distributions,
transfers, conveyances, contributions, assignments and other transactions
do not, individually or in the aggregate, adversely affect the Energy
Business (other than to a de minimis extent) or materially delay or prevent
the consummation of the Merger) that may be required to be accomplished,
effected or consummated by any of Tenneco, Industrial Company,
A-2
<PAGE>
Shipbuilding Company or any of their respective Subsidiaries and Affiliates
in order to separate and divide, in a series of transactions that, to the
extent intended to qualify for tax-free transactions under the Code, shall
qualify for tax-free treatment under the Code, the existing businesses of
Tenneco so that, except as otherwise expressly set forth on EXHIBIT B
hereto:
(i) the Industrial Assets, Industrial Liabilities and Industrial
Business shall be owned, directly and indirectly, by Industrial
Company;
(ii) the Shipbuilding Assets, Shipbuilding Liabilities and
Shipbuilding Business shall be owned, directly and indirectly, by
Shipbuilding Company; and
(iii) the businesses, assets and liabilities of Tenneco that remain
after the separations and divisions described in clauses (i) and (ii)
above, including, without limitation, the Energy Assets, Energy
Liabilities and Energy Business, are, after giving effect to the
Distributions, owned, directly and indirectly, by Tenneco.
"DEBT AND CASH ALLOCATION AGREEMENT" means the Debt and Cash Allocation
Agreement by and among Tenneco, Industrial Company and Shipbuilding
Company, which agreement shall be entered into on or prior to the
Distribution Date in the form attached hereto as EXHIBIT C, except for such
changes or modifications thereto that do not, individually or in the
aggregate, adversely affect the Energy Business (other than to a de minimis
extent) or materially delay or prevent the consummation of the Merger.
"DEBT REALIGNMENT" has the meaning ascribed to such term in the Merger
Agreement.
"DEBT REALIGNMENT DOCUMENTS" means all documents furnished by Tenneco or
Industrial Company to any holders of indebtedness or debt securities of
Tenneco or any of its Subsidiaries or filed by Tenneco or Industrial
Company in connection therewith with any Governmental Authority or
securities exchange in connection with the Debt Realignment.
"DISTRIBUTIONS" means the Industrial Distribution and the Shipbuilding
Distribution.
"DISTRIBUTION DATE" means such date as may hereafter be determined by
Tenneco's Board of Directors as the date on which the Distributions shall
be effected.
"DISTRIBUTION RECORD DATE" means the close of business on the date
determined by the Board of Directors of Tenneco for the purpose of
determining the holders of record of Tenneco Common Stock entitled to
participate in the Distributions.
"DGCL" means the Delaware General Corporation Law, as amended.
"ENERGY ASSETS" means, collectively, all the rights and assets owned by
Tenneco or any of its Subsidiaries as of the close of business on the
Distribution Date other than the Industrial Assets, the Shipbuilding Assets
and the capital stock of Industrial Company and Shipbuilding Company,
including without limitation:
(i) the capital stock of the Energy Subsidiaries;
(ii) all of the assets included on the Energy Business Pro Forma
Balance Sheet which are owned by Tenneco and its Subsidiaries as of the
close of business on the Distribution Date and any other asset acquired
by Tenneco or any of its Subsidiaries from the date of the Energy
Business Pro Forma Balance Sheet to the close of business on the
Distribution Date that is owned by Tenneco and its Subsidiaries as of
the close of business on the Distribution Date and that is of a type or
nature that would have resulted in such asset being included as an
asset on the Energy Business Pro Forma Balance Sheet had it been
acquired on or prior to the date of the Energy Business Pro Forma
Balance Sheet, determined on a basis consistent with the determination
of assets included on the Energy Business Pro Forma Balance Sheet; and
(iii) all of the assets and rights expressly allocated to Tenneco or
any of the Energy Subsidiaries under this Agreement, any of the
Ancillary Agreements or the Merger Agreement.
"ENERGY BUSINESS" means the businesses (other than the Industrial
Business and the Shipbuilding Business) that, after giving effect to the
Corporate Restructuring Transactions, are or were conducted by:
(i) Tenneco, the Energy Subsidiaries or any of the other members of
the Energy Group;
(ii) any other division, Subsidiary or investment of Tenneco, or any
Energy Subsidiary or any of the other members of the Energy Group
managed or operated or in existence as of the date of this Agreement or
any prior time, unless such other division, Subsidiary or investment is
expressly included
A-3
<PAGE>
in either the Industrial Group or the Shipbuilding Group immediately
after giving effect to the Corporate Restructuring Transactions; and
(iii) any business entity acquired or established by or for Tenneco
or any of the Energy Subsidiaries between the date of this Agreement
and the close of business on the Distribution Date that is engaged in,
or intends to engage in, any business that is of a type or nature that
would have resulted in such business being included either as a
Subsidiary or an asset of Tenneco on the Energy Business Pro Forma
Balance Sheet had it been acquired or established on or prior to the
date of the Energy Business Pro Forma Balance Sheet, determined on a
basis consistent with the determination of the Subsidiaries and assets
included on the Energy Business Pro Forma Balance Sheet.
"ENERGY BUSINESS PRO FORMA BALANCE SHEET" means the Pro Forma
Consolidated Balance Sheet for Tenneco and the Energy Subsidiaries as of
June 30, 1996 attached hereto as EXHIBIT D.
"ENERGY GROUP" means Tenneco, the Energy Subsidiaries and the
corporations, partnerships, joint ventures, investments and other entities
that represent equity investments of Tenneco or any of the Energy
Subsidiaries following consummation of the Corporate Restructuring
Transactions and the Distributions.
"ENERGY INDEMNITEES" means:
(i) Tenneco, the Energy Subsidiaries and each Affiliate thereof after
giving effect to the Corporate Restructuring Transactions and the
Distributions; and
(ii) each of the respective past, present and future directors,
officers, employees and agents of any of the entities described in the
immediately preceding clause (i) and each of the heirs, executors,
successors and assigns of such directors, officers, employees and
agents.
"ENERGY LIABILITIES" means, collectively, all of the Liabilities of
Tenneco and the Energy Subsidiaries and each of the other members of the
Energy Group remaining after giving effect to the Corporate Restructuring
Transactions, the Distributions and the transactions contemplated under the
Debt and Cash Allocation Agreement, including without limitation:
(i) all of the Liabilities included on the Energy Business Pro Forma
Balance Sheet which remain outstanding as of the close of business on
the Distribution Date;
(ii) all Liabilities which are incurred or which otherwise accrue or
are accrued at any time on, prior to or after the date of the Energy
Business Pro Forma Balance Sheet and which arise or arose out of, or in
connection with, the Energy Assets or the Energy Business, determined
on a basis consistent with the determination of Liabilities of Tenneco
included on the Energy Business Pro Forma Balance Sheet;
(iii) all of the Liabilities of Tenneco, the Energy Subsidiaries or
any of the other members of the Energy Group under, or to be retained
or assumed by Tenneco, any Energy Subsidiary or any of the other
members of the Energy Group pursuant to the Corporate Restructuring
Transactions, this Agreement, any of the Ancillary Agreements or the
Merger Agreement;
(iv) all of the Liabilities of the parties hereto or their respective
Subsidiaries (whenever arising whether prior to, on or following the
Distribution Date) arising out of or in connection with or otherwise
relating to the management or conduct before or after the Distribution
Date of the Energy Business;
(v) all Securities Liabilities relating to or arising out of the
information and data (financial or otherwise and including pro forma
financial data) provided by or on behalf of Acquiror for inclusion in
the Registration Statement on Form S-4 of Industrial Company
registering certain debt securities of New Tenneco to be exchanged for
certain existing debt securities of Tenneco and certain of its
Subsidiaries in connection with the Debt Realignment, including,
without limitation, information, disclosures and data relating to or
concerning Acquiror, Acquiror Subsidiary, the business, operations and
management of the Energy Business and/or Energy Group following the
Merger and any refinancing or other transactions which Acquiror,
Acquiror Subsidiary and/or any member of the Energy Group anticipates
consummating following the Merger (collectively "ENERGY EXCHANGE
LIABILITIES"); and
A-4
<PAGE>
(vi) all other Liabilities of Tenneco, the Energy Subsidiaries or any
of the other members of the Energy Group (which do not constitute
Industrial Liabilities or Shipbuilding Liabilities), which other
Liabilities of Tenneco, the Energy Subsidiaries or any of the other
members of the Energy Group shall include, without limitation, any and
all Liabilities arising out of or relating to any Action or Third Party
Claim by any Governmental Authority or any other Person that is based
on (A) any violations or alleged violations by Tenneco, its
Subsidiaries (prior to giving effect to the Distributions) and/or any
of their respective directors, officers, employees, agents or
representatives of any of the provisions of the Exchange Act,
Securities Act, or the rules and regulations of the Commission
promulgated thereunder or any other securities or similar Law (other
than Liabilities (collectively "INFORMATION STATEMENT LIABILITIES") for
violations or alleged violations that arise out of, or in connection
with, the Industrial Information Statement, the Shipbuilding
Information Statement or information or data in the Joint Proxy
Statement or the Debt Realignment Documents concerning the Shipbuilding
Business or the Industrial Business), (B) any alleged breach of
fiduciary duty by the Board of Directors of Tenneco or any member
thereof, or (C) any stockholder derivative suit or other similar
Actions.
"ENERGY RECORDS" has the meaning ascribed to such term in SECTION 6.01(C)
hereof.
"ENERGY SUBSIDIARIES" means the Subsidiaries of Tenneco set forth on
EXHIBIT E hereto and all other Subsidiaries of Tenneco other than
Shipbuilding Company, Industrial Company, the Shipbuilding Subsidiaries and
the Industrial Subsidiaries.
"ENVIRONMENTAL LAWS" means any and all federal, state, local and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions (including without limitation the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. 9601, et
seq.), whether now or hereafter in existence, relating to the environment,
natural resources or human health and safety or endangered or threatened
species of fish, wildlife and plants or to emissions, discharges or
releases of pollutants, contaminants, petroleum or petroleum products,
chemicals or industrial, toxic or hazardous substances or wastes into the
environment, including, without limitation, ambient air, surface water,
ground water or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, petroleum or petroleum products, chemicals or
industrial, toxic or hazardous substances or wastes or the cleanup or other
remediation thereof.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE FILE MATERIAL" means the Registration Statements, as amended at
the times they were declared effective under the Exchange Act, the related
Information Statements or any amendment or supplement thereto, the related
letter of transmittal, any related stockholder communication, any other
exhibits to any of the foregoing and any amendment or supplement thereto,
in each case including all information incorporated by reference therein.
"GAAP" means United States generally accepted accounting principles and
practices, as in effect on the date of this Agreement, as promulgated by
the Financial Accounting Standards Board and its predecessors.
"GOVERNMENTAL AUTHORITY" means any government or any agency, bureau,
board, commission, court, department, official, political subdivision,
tribunal or other instrumentality of any government, whether federal, state
or local, domestic or foreign.
"GROUP" means (i) with respect to Tenneco, the Energy Group, (ii) with
respect to Industrial Company, the Industrial Group, and (iii) with respect
to Shipbuilding Company, the Shipbuilding Group.
"INDEMNIFIABLE LOSSES" means, with respect to any Person, any and all
losses, liabilities, penalties, claims, damages, demands, costs and
expenses (including, without limitation, reasonable attorneys' fees,
investigation expenses and any and all other out-of-pocket expenses, but
excluding any punitive or consequential damages) or other Liabilities
whatsoever that are assessed, imposed, awarded against, incurred or accrued
by such Person either (a) in investigating, preparing for, defending
against or otherwise arising out of or in connection with any Actions, any
potential or threatened Actions or any Third Party
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Claims for which such Person would be entitled to indemnification under
ARTICLE VII hereof, or (b) in respect of any other event, occurrence or
matter for which such Person would be entitled to indemnification under
ARTICLE VII hereof, in each case whether accrued or incurred on, before or
after the date of this Agreement.
"INDEMNIFYING PARTY" has the meaning ascribed to such term in SECTION
7.04(A) hereof.
"INDEMNITEE" has the meaning ascribed to such term in SECTION 7.04(A)
hereof.
"INDUSTRIAL ASSETS" means, collectively, all of the following rights and
assets that are owned by Tenneco or any of its Subsidiaries as of the close
of business on the Distribution Date:
(i) the capital stock of the Industrial Subsidiaries;
(ii) all of the assets included on the Industrial Business Pro Forma
Balance Sheet that are owned by Tenneco or any of its Subsidiaries as
of the close of business on the Distribution Date;
(iii) all of the assets and rights expressly allocated to Industrial
Company or any of the Industrial Subsidiaries under this Agreement or
any of the Ancillary Agreements; and
(iv) any other asset acquired by Tenneco or any of its Subsidiaries
from the date of the Industrial Business Pro Forma Balance Sheet to the
close of business on the Distribution Date that is owned by Tenneco or
any of its Subsidiaries as of the close of business on the Distribution
Date and that is of a type or nature that would have resulted in such
asset being included as an asset on the Industrial Business Pro Forma
Balance Sheet had it been acquired on or prior to the date of the
Industrial Business Pro Forma Balance Sheet, determined on a basis
consistent with the determination of the assets included on the
Industrial Business Pro Forma Balance Sheet.
"INDUSTRIAL BUSINESS" means the businesses that, after giving effect to
the Corporate Restructuring Transactions, are conducted by:
(i) the Industrial Company, the Industrial Subsidiaries or any of the
other members of the Industrial Group; and
(ii) any business entity acquired or established by or for Tenneco,
Industrial Company or any of the Industrial Subsidiaries between the
date of this Agreement and the close of business on the Distribution
Date that is engaged in, or intends to engage in, any business that is
of a type or nature that would have resulted in such business being
included either as a Subsidiary or an asset of Industrial Company on
the Industrial Business Pro Forma Balance Sheet had it been acquired or
established on or prior to the date of the Industrial Business Pro
Forma Balance Sheet, determined on a basis consistent with the
determination of the Subsidiaries and assets included on the Industrial
Business Pro Forma Balance Sheet.
"INDUSTRIAL BUSINESS PRO FORMA BALANCE SHEET" means the Pro Forma
Consolidated Balance Sheet for Industrial Company and the Industrial
Subsidiaries as of June 30, 1996 attached hereto as EXHIBIT F.
"INDUSTRIAL COMMON SHARES" means the shares of Industrial Common Stock
owned by Tenneco after giving effect to the stock dividend provided for in
SECTION 2.02(A) hereof.
"INDUSTRIAL COMMON STOCK" has the meaning ascribed to such term in the
recitals to this Agreement.
"INDUSTRIAL COMPANY" means New Tenneco Inc., a Delaware corporation.
"INDUSTRIAL DISTRIBUTION" means the distribution on the Distribution Date
as a dividend to holders of record of shares of Tenneco Common Stock as of
the Distribution Record Date of all of the outstanding Industrial Common
Shares owned by Tenneco on the basis provided in SECTION 3.02 hereof.
"INDUSTRIAL GROUP" means Industrial Company, the Industrial Subsidiaries
and the corporations, partnerships, joint ventures, investments and other
entities that represent equity investments of any of Industrial Company or
any of the Industrial Subsidiaries following the consummation of the
Corporate Restructuring Transactions and the Distributions.
"INDUSTRIAL INDEMNITEES" means:
(i) Industrial Company and each Affiliate thereof after giving effect
to the Corporate Restructuring Transactions and the Distributions; and
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(ii) each of the respective past, present and future directors,
officers, employees and agents of any of the entities described in the
immediately preceding clause (i) and each of the heirs, executors,
successors and assigns of any of such directors, officers, employees
and agents.
"INDUSTRIAL INFORMATION STATEMENT" means the information statement or
registration statement relating to Industrial Company and the transactions
contemplated hereby to be distributed to holders of Tenneco Common Stock
pursuant to the terms of this Agreement.
"INDUSTRIAL LIABILITIES" means, collectively, all of the Liabilities of
Industrial Company, the Industrial Subsidiaries and each of the other
members of the Industrial Group after giving effect to the Corporate
Restructuring Transactions, the Distributions and the transactions
contemplated under the Debt and Cash Allocation Agreement, including,
without limitation:
(i) all of the Liabilities included on the Industrial Business Pro
Forma Balance Sheet which remain outstanding as of the close of
business on the Distribution Date;
(ii) all Liabilities (other than Energy Exchange Liabilities) which
are incurred or which otherwise accrue or are accrued at any time on,
prior to or after the date of the Industrial Business Pro Forma Balance
Sheet and which arise or arose out of, or in connection with (A) the
Industrial Assets, the Industrial Business or the Prior Industrial
Businesses, determined on a basis consistent with the determination of
Liabilities of Industrial Company on the Industrial Business Pro Forma
Balance Sheet, including Information Statement Liabilities which arise
or arose out of or in connection with, the Industrial Information
Statement or which arise or arose out of or in connection with
information or data in the Joint Proxy Statement or the Debt
Realignment Documents concerning the Industrial Business (except to the
extent such Liabilities constitute Shipbuilding Securities Liabilities
or are otherwise based on any of (i) the actions or inactions of
Shipbuilding Company, any other member of the Shipbuilding Group, or
any director, officer or employee of the Shipbuilding Company or any
other member of the Shipbuilding Group or any underwriter or investment
banking firm of any member of the Shipbuilding Group (or any of their
directors, officers, employees, advisors or representatives)
(collectively, the "SHIPBUILDING PARTIES," or individually, a
"SHIPBUILDING PARTY"), or (ii) the information or data provided in
writing by any Shipbuilding Party expressly for inclusion in the
Industrial Information Statement), or (B) the Shipbuilding Information
Statement to the extent such Information Statement Liabilities are
based on information or data concerning directly and solely the
Industrial Company or the Industrial Business that is provided in
writing by Industrial Company (or any other member of its Group or any
Affiliate thereof after giving effect to the Distributions) expressly
for inclusion in the Shipbuilding Information Statement;
(iii) all of the Liabilities of Industrial Company, the Industrial
Subsidiaries or any of the other members of the Industrial Group under,
or to be retained or assumed by Industrial Company, any Industrial
Subsidiary or any of the other members of the Industrial Group pursuant
to this Agreement or any of the Ancillary Agreements; and
(iv) all of the Liabilities of the parties hereto or their respective
Subsidiaries (whenever arising whether prior to, at or following the
Distribution Date) arising out of or in connection with or otherwise
relating to the management or conduct before or after the Distribution
Date of the Industrial Business.
"INDUSTRIAL RECORDS" has the meaning ascribed to such term in SECTION
6.01(A) hereof.
"INDUSTRIAL REGISTRATION STATEMENT" means the Registration Statement on
Form 10 to be filed with the Commission pursuant to the requirements of
Section 12 of the Exchange Act and the rules and regulations thereunder in
order to register the Industrial Common Stock under Section 12(b) of the
Exchange Act.
"INFORMATION STATEMENT LIABILITIES" has the meaning ascribed to such term
in CLAUSE (V) of the definitions herein of Energy Liabilities.
"INFORMATION STATEMENTS" means the Industrial Information Statement and
the Shipbuilding Information Statement.
"INDUSTRIAL SUBSIDIARIES" means the Subsidiaries listed on EXHIBIT G
hereto.
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"INSURANCE AGREEMENT" means the Insurance Agreement by and among Tenneco,
Industrial Company and Shipbuilding Company, which agreement shall be
entered into on or prior to the Distribution Date in the form attached
hereto as EXHIBIT H except for such changes or modifications thereto that
do not, individually or in the aggregate, adversely affect the Energy
Business other than to a de minimis extent.
"INSURANCE PROCEEDS" means, with respect to any insured party, those
monies, net of any applicable premium adjustment, retrospectively-rated
premium, deductible, retention, or cost of reserve paid or held by or for
the benefit of such insured, which are either:
(i) received by an insured from an insurance carrier; or
(ii) paid by an insurance carrier on behalf of an insured.
"JOINT PROXY STATEMENT" has the meaning ascribed to such term in the
Merger Agreement.
"LAW" means all laws, statutes and ordinances and all regulations, rules
and other pronouncements of Governmental Authorities having the effect of
law of the United States, any foreign country, or any domestic or foreign
state, province, commonwealth, city, country, municipality, territory,
protectorate, possession or similar instrumentality, or any Governmental
Authority thereof.
"LIABILITIES" means any and all debts, liabilities, obligations,
responsibilities, response actions, losses, damages (whether compensatory,
punitive or treble), fines, penalties and sanctions, absolute or
contingent, matured or unmatured, liquidated or unliquidated, foreseen or
unforeseen, joint, several or individual, asserted or unasserted, accrued
or unaccrued, known or unknown, whenever arising, including, without
limitation, those arising under or in connection with any Law (including
any Environmental Law), Action, threatened Action, order or consent decree
of any Governmental Authority or any award of any arbitration tribunal, and
those arising under any contract, guarantee, commitment or undertaking,
whether sought to be imposed by a Governmental Authority, private party, or
party to this Agreement, whether based in contract, tort, implied or
express warranty, strict liability, criminal or civil statute, or
otherwise, and including any costs, expenses, interest, attorneys' fees,
disbursements and expense of counsel, expert and consulting fees and costs
related thereto or to the investigation or defense thereof.
"MERGER" has the meaning ascribed to such term in the recitals to this
Agreement.
"MERGER AGREEMENT" has the meaning ascribed to such term in the recitals
to this Agreement.
"NYSE" means the New York Stock Exchange.
"PERSON" means any natural person, corporation, business trust, joint
venture, association, company, partnership, limited liability company or
other entity, or any government, or any agency or political subdivision
thereof.
"PRIOR INDUSTRIAL BUSINESSES" means, collectively, all divisions,
Subsidiaries, other business entities or investments of Tenneco (or one of
its Subsidiaries) that, at any time prior to the date of the Industrial
Business Pro Forma Balance Sheet, were included in the "automotive parts"
or "packaging" segments for purposes of segment reporting in any of
Tenneco's Annual Reports on Form 10-K, and were sold, transferred,
otherwise disposed of or discontinued prior to such date.
"PRIOR SHIPBUILDING BUSINESSES" means, collectively, all divisions,
Subsidiaries, other business entities or investments of Tenneco (or one of
its Subsidiaries) that, at any time prior to the date of the Shipbuilding
Business Pro Forma Balance Sheet, were included in the "shipbuilding"
segment for purposes of segment reporting in any of Tenneco's Annual
Reports on Form 10-K, and were sold, transferred, otherwise disposed of or
discontinued prior to such date.
"PRIVILEGE" has the meaning ascribed to such term in SECTION 6.07(A)
hereof.
"PRIVILEGED INFORMATION" has the meaning ascribed to such term in SECTION
6.07(A) hereof.
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"REGISTRATION STATEMENTS" means the Industrial Registration Statement and
the Shipbuilding Registration Statement.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES LIABILITIES" means any and all losses, liabilities,
penalties, claims, damages, demands, costs or expenses or other Liabilities
whatsoever that are assessed, imposed, awarded against, incurred or accrued
by a Person arising out of or relating in whole or in part to any Action,
any potential or threatened Action or any Third Party Claim (or potential
or threatened Third Party Claim) by any Governmental Authority or any other
Person that is based on any violations or alleged violations of the
Securities Act, Exchange Act, any of the rules or regulations of the
Commission promulgated under the Securities Act or Exchange Act, or any
other securities or other similar Law.
"SHIPBUILDING ASSETS" means, collectively, all of the following rights
and assets that are owned by Tenneco and or any of its Subsidiaries as of
the close of business on the Distribution Date:
(i) the capital stock of the Shipbuilding Subsidiaries;
(ii) all of the assets included on the Shipbuilding Business Pro
Forma Balance Sheet that are owned by Tenneco or any of its
Subsidiaries as of the close of business on the Distribution Date;
(iii) all of the assets and rights expressly allocated to
Shipbuilding Company or any of the Shipbuilding Subsidiaries under this
Agreement or any of the Ancillary Agreements; and
(iv) any other asset acquired by Tenneco or any of its Subsidiaries
from the date of the Shipbuilding Business Pro Forma Balance Sheet to
the close of business on the Distribution Date that is owned by Tenneco
or any of its Subsidiaries as of the close of business on the
Distribution Date and that is of a nature or type that would have
resulted in such asset being included as an asset on the Shipbuilding
Business Pro Forma Balance Sheet had it been acquired on or prior to
the date of the Shipbuilding Business Pro Forma Balance Sheet,
determined on a basis consistent with the determination of the assets
included on the Shipbuilding Business Pro Forma Balance Sheet.
"SHIPBUILDING BUSINESS" means the businesses that, after giving effect to
the Corporate Restructuring Transactions, are conducted by:
(i) the Shipbuilding Company, the Shipbuilding Subsidiaries or any of
the other members of the Shipbuilding Group; and
(ii) any business entity acquired or established by or for Tenneco,
Shipbuilding Company or any of the Shipbuilding Subsidiaries between
the date of this Agreement and the close of business on the
Distribution Date that is engaged in, or intends to engage in, any
business that is of a type or nature that would have resulted in such
business being included either as a Subsidiary or an asset of
Shipbuilding Company on the Shipbuilding Business Pro Forma Balance
Sheet had it been acquired or established on or prior to the date of
the Shipbuilding Business Pro Forma Balance Sheet, determined on a
basis consistent with the determination of the Subsidiaries and assets
included on the Shipbuilding Business Pro Forma Balance Sheet.
"SHIPBUILDING BUSINESS PRO FORMA BALANCE SHEET" means the Pro Forma
Consolidated Balance Sheet for Shipbuilding Company and the Shipbuilding
Subsidiaries (prepared in accordance with GAAP) as of June 30, 1996
attached hereto as EXHIBIT I.
"SHIPBUILDING COMMON SHARES" means the Shares of Shipbuilding Common
Stock owned by Tenneco after giving effect to the stock dividend provided
for in SECTION 2.02(B) hereof.
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"SHIPBUILDING COMMON STOCK" has the meaning ascribed to such term in the
recitals to this Agreement.
"SHIPBUILDING COMPANY" means Newport News Shipbuilding Inc. (formerly
known as Tenneco InterAmerica Inc.), a Delaware corporation.
"SHIPBUILDING DISTRIBUTION" means the distribution on the Distribution
Date as a dividend to holders of record of shares of Tenneco Common Stock
as of the Distribution Record Date, of all of the outstanding Shipbuilding
Common Shares owned by Tenneco on the basis provided in SECTION 3.02
hereof.
"SHIPBUILDING FINANCING MATERIALS" means any registration statement,
private placement memorandum, offering circular, prospectus, information
memorandum and/or any other document or filing (with the Commission or any
Governmental Authority or the NYSE or other stock exchange) prepared by or
on behalf of Shipbuilding Company (or its Affiliates) and distributed to
prospective lenders or prospective purchasers of any debt or equity
securities of the Shipbuilding Company (or any other member of the
Shipbuilding Group) in connection with any of the transactions contemplated
under this Agreement, the Merger Agreement or any of the Ancillary
Agreements, including, without limitation, the Confidential Information
Memorandum dated September 1996 relating to the Senior Credit Facility (as
defined in the Shipbuilding Information Statement), the 144A Offering
Memorandum relating to the Senior Subordinated Notes and Senior Notes (as
such terms are defined in the Shipbuilding Information Statement), and the
registration statement on Form S-1 to be filed by Shipbuilding Company
after the Distribution Date to register the Senior Subordinated Notes and
Senior Notes under the Securities Act and all related documents.
"SHIPBUILDING GROUP" means Shipbuilding Company, the Shipbuilding
Subsidiaries and the corporations, partnerships, joint ventures,
investments and other entities that represent equity investments of
Shipbuilding Company or any of the Shipbuilding Subsidiaries following the
consummation of the Corporate Restructuring Transactions and the
Distributions.
"SHIPBUILDING INDEMNITEES" means:
(i) Shipbuilding Company and each Affiliate thereof after giving
effect to the Corporate Restructuring Transactions and the
Distributions; and
(ii) each of the respective past, present and future directors,
officers, employees and agents of any of the entities described in the
immediately preceding clause (i) and each of the heirs, executors,
successors and assigns of any of such directors, officers, employees
and agents.
"SHIPBUILDING INFORMATION STATEMENT" means the information statement or
registration statement relating to Shipbuilding Company and the
transactions contemplated hereby to be distributed to holders of Tenneco
Common Stock pursuant to the terms of this Agreement.
"SHIPBUILDING LIABILITIES" means, collectively, all of the Liabilities of
Shipbuilding Company, the Shipbuilding Subsidiaries and each of the other
members of the Shipbuilding Group after giving effect to the Corporate
Restructuring Transactions, the Distributions and the transactions
contemplated by the Debt and Cash Allocation Agreement, including, without
limitation:
(i) all of the Liabilities included on the Shipbuilding Business Pro
Forma Balance Sheet that remain outstanding as of the close of business
on the Distribution Date;
(ii) all other Liabilities that are incurred or which accrue or are
accrued at any time on, prior to or after the date of the Shipbuilding
Business Pro Forma Balance Sheet and that arise or arose out of, or in
connection with, the Shipbuilding Assets, the Shipbuilding Business or
the Prior Shipbuilding Businesses, determined on a basis consistent
with the determination of Liabilities of Shipbuilding Company on the
Shipbuilding Business Pro Forma Balance Sheet, including, without
limitation,
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Shipbuilding Securities Liabilities and Information Statement
Liabilities to the extent such Information Statement Liabilities (A)
arise or arose out of or in connection with the Shipbuilding
Information Statement or information or data in the Joint Proxy
statement or the Debt Realignment Documents concerning the Shipbuilding
Business or (B) are based on information or data provided in writing by
Shipbuilding Company (or any member of its Group or any Affiliate
(after giving effect to the Distributions) thereof) expressly for
inclusion in the Industrial Information Statement;
(iii) all of the Liabilities of Shipbuilding Company, the
Shipbuilding Subsidiaries or any of the other members of the
Shipbuilding Group under, or to be retained or assumed by Shipbuilding
Company, any Shipbuilding Subsidiary or any of the other members of the
Shipbuilding Group pursuant to, this Agreement or any of the Ancillary
Agreements; and
(iv) all the Liabilities of the parties hereto or their respective
Subsidiaries (whenever arising whether prior to, on or following the
Distribution Date) arising out of or in connection with or otherwise
relating to the management or conduct before or after the Distribution
Date of the Shipbuilding Business.
"SHIPBUILDING RECORDS" has the meaning ascribed to such term in SECTION
6.01(B) hereof.
"SHIPBUILDING REGISTRATION STATEMENT" means the Registration Statement on
Form 10 to be filed with the Commission pursuant to the requirements of
Section 12 of the Exchange Act and the rules and regulations promulgated
thereunder in order to register the Shipbuilding Common Stock under Section
12(b) of the Exchange Act.
"SHIPBUILDING SECURITIES LIABILITIES" means any and all Securities
Liabilities arising out of, or in connection with, or relating in whole or
in part to any of the following: (i) the Shipbuilding Registration
Statement; (ii) the Shipbuilding Information Statement (whether in the form
as an Appendix to the Joint Proxy Statement or as the Information Statement
included in the Shipbuilding Registration Statement); (iii) the
Shipbuilding Financing Materials; (iv) any of the information, data
(financial or otherwise) or disclosures in (or any alleged failure to set
forth certain information, data or disclosures in) the Shipbuilding
Registration Statement, Shipbuilding Information Statement (whether in the
form as an Appendix to the Joint Proxy Statement or as the Information
Statement included in the Shipbuilding Registration Statement) or
Shipbuilding Financing Materials, irrespective of (A) who authored,
prepared or provided such information, data or disclosures (or, as the case
may be, the section or discussion in which certain information, data or
disclosure is alleged to have been omitted), or (B) the form in which, or
medium through which (e.g., verbally, in writing, etc.), such information,
data, disclosures, discussion or section were provided; or (v) any of the
information, data (financial or otherwise) or disclosures in (or any
alleged failure to set forth certain information, data or disclosures in)
the Joint Proxy Statement or the Debt Realignment Documents concerning any
matter relating to the business, operations, management, financial results
or potential risks of (or pending or threatened claims or investigations
relating to) the Shipbuilding Business, Prior Shipbuilding Businesses,
Shipbuilding Assets or Shipbuilding Liabilities, irrespective of (A) who
authored, prepared or provided such information data or disclosures (or, as
the case may be, the section or discussion in which certain information,
data or disclosure is alleged to have been omitted), or (B) the form in
which, or medium through which (e.g., verbally, in writing, etc.), such
information, data, disclosure, section or discussion were provided.
"SHIPBUILDING SUBSIDIARIES" means the Subsidiaries listed on EXHIBIT J
hereto.
"SUBSIDIARY" means, with respect to any Person:
(i) any corporation of which at least a majority in interest of the
outstanding voting stock (having by the terms thereof voting power
under ordinary circumstances to elect a majority of the directors of
such corporation, irrespective of whether or not at the time stock of
any other class or classes of such corporation shall have or might have
voting power by reason of the happening of a contingency) is at
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the time, directly or indirectly, owned or controlled by such Person or
by such Person and one or more of its Subsidiaries; or
(ii) any non-corporate entity in which such Person or such Person and
one or more Subsidiaries of such Person either (a) directly or
indirectly, at the date of determination thereof, has at least majority
ownership interest, or (b) at the date of determination is a general
partner or an entity performing similar functions (e.g., manager of a
Limited Liability Company or a trustee of a trust).
"SURVIVING CORPORATION" has the meaning ascribed to such term in the
recitals to this Agreement.
"TAX" or "TAXES" means any income, gross income, gross receipts, profits,
capital stock, franchise, withholding, payroll, social security, workers
compensation, unemployment, disability, property, ad valorem, stamp,
excise, occupation, services, sales, use, license, lease, transfer, import,
export, value added, alternative minimum, estimated or other similar tax
(including any fee, assessment or other charge in the nature of or in lieu
of any tax) imposed by any governmental entity or political subdivision
thereof, and any interest, penalties, additions to tax, or additional
amounts in respect of the foregoing.
"TAX SHARING AGREEMENT" means the Tax Sharing Agreement by and among
Tenneco, Shipbuilding Company, Industrial Company and Acquiror, which
agreement shall be entered into on or prior to the Distribution Date in the
form attached hereto as EXHIBIT K, except for such changes or modifications
thereto that do not, individually or in the aggregate, adversely affect the
Energy Business other than to a de minimis extent.
"TENNECO" means Tenneco Inc., a Delaware corporation.
"TENNECO COMMON STOCK" has the meaning ascribed to such term in the
recitals to this Agreement.
"TENNECO CORPORATE RECORDS" has the meaning ascribed to such term in
SECTION 6.01(A) hereof.
"TENNECO HOLDERS" means the holders of record of Tenneco Common Stock as
of the Distribution Record Date.
"TENNECO TRADEMARKS AND TRADENAMES" means all trademarks, service marks,
and tradenames containing "TENNECO", "TEN", or "TENN" or variations
thereof, along with their respective applications and registrations
wherever used or registered; provided, however, that the term shall not
include the word "Tennessee" to the extent such word is used in the
business and operations of Tennessee Gas Pipeline Company or otherwise in
the Energy Business.
"TERMINATION DATE" means the date on which this Agreement is terminated
pursuant to and in accordance with the provisions of SECTION 8.11 of this
Agreement.
"THIRD PARTY CLAIM" has the meaning as defined in SECTION 7.05(A) hereof.
"TBS SERVICES AGREEMENT" means the Services Agreement by and among
Industrial Company, Shipbuilding Company and Tenneco Business Services
Inc., which agreement shall be entered into on or prior to the Distribution
Date in substantially the form attached hereto as EXHIBIT L and which
agreement Tenneco and the Energy Business will not become a party to and
not be bound by without the consent of Acquiror, which Acquiror may
withhold in its sole discretion.
"TRANSITION SERVICES AGREEMENT" means the Transition Services Agreement
by and between Tenneco and Tenneco Business Services Inc., which agreement
shall be entered into on or prior to the Distribution Date in the form
attached hereto as EXHIBIT M.
"TRANSITION TRADEMARK LICENSE" has the meaning ascribed to such term in
SECTION 5.02 hereof.
SECTION 1.02. REFERENCES. References to an "EXHIBIT" or to a "SCHEDULE" are,
unless otherwise specified, to one of the Exhibits or Schedules attached to
this Agreement, and references to a "SECTION" are, unless otherwise specified,
to one of the Sections of this Agreement.
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ARTICLE II
PRE-DISTRIBUTION TRANSACTIONS;
CERTAIN COVENANTS
SECTION 2.01. CORPORATE RESTRUCTURING TRANSACTIONS. On or prior to the
Distribution Date (but in all events prior to the Distributions) and otherwise
in accordance with the terms and provisions set forth in EXHIBIT B hereto,
each of Tenneco, Industrial Company and Shipbuilding Company shall, and shall
cause each of their respective Subsidiaries to, as applicable, take such
action or actions as is necessary to cause, effect and consummate the
Corporate Restructuring Transactions. Each of Tenneco, Shipbuilding Company
and Industrial Company hereby agrees that any one or more of the Corporate
Restructuring Transactions may be modified, supplemented or eliminated;
provided such modification, supplement or elimination (a) is determined to be
necessary or appropriate (i) to divide the existing businesses of Tenneco so
that the automotive, packaging and business services businesses shall be
owned, directly and indirectly, by Industrial Company and the shipbuilding
business shall be owned, directly and indirectly, by Shipbuilding Company, or
(ii) to obtain a ruling from the Internal Revenue Service as described in
Section 7.1(g) of the Merger Agreement, and (b) does not, individually or in
the aggregate, adversely affect the Energy Business (other than to a de
minimis extent) or materially delay or prevent the consummation of the Merger.
SECTION 2.02. PRE-DISTRIBUTION STOCK DIVIDENDS TO TENNECO. On or prior to
the Distribution Date (but in all events prior to the Distributions):
(a) INDUSTRIAL COMPANY STOCK DIVIDEND. Industrial Company shall issue to
Tenneco, as a stock dividend, the number of shares of Industrial Common
Stock as is required to effect the Industrial Distribution, as certified by
the Agent. In connection therewith, Tenneco shall deliver to Industrial
Company for cancellation the share certificate (or certificates) currently
held by it representing all Industrial Common Stock, and Industrial Company
shall issue a new certificate (or certificates) to Tenneco representing the
total number of Industrial Common Shares to be owned by Tenneco after
giving effect to such stock dividend.
(b) SHIPBUILDING COMPANY STOCK DIVIDEND. Shipbuilding Company shall issue
to Tenneco, as a stock dividend, the number of shares of Shipbuilding
Common Stock as is required to effect the Shipbuilding Distribution, as
certified by the Agent. In connection therewith, Tenneco shall deliver to
Shipbuilding Company for cancellation the share certificate (or
certificates) currently held by it representing all Shipbuilding Common
Stock, and Shipbuilding Company shall issue a new certificate (or
certificates) representing the total number of Shipbuilding Common Shares
to be owned by Tenneco after giving effect to such stock dividend.
SECTION 2.03. CHARTERS AND BYLAWS.
(a) CERTIFICATE OF INCORPORATION AND BYLAWS OF INDUSTRIAL COMPANY. On or
prior to the Distribution Date (but in all events prior to the
Distributions), Tenneco and Industrial Company shall each take all
necessary actions so that, as of the Distribution Date, the Restated
Certificate of Incorporation and Bylaws of Industrial Company will be
substantially in the forms set forth in EXHIBITS N and O, respectively.
(b) CERTIFICATE OF INCORPORATION AND BYLAWS OF SHIPBUILDING COMPANY. On
or prior to the Distribution Date (but in all events prior to the
Distributions), Tenneco and Shipbuilding Company shall each take all
necessary actions so that, as of the Distribution Date, the Restated
Certificate of Incorporation and Bylaws of Shipbuilding Company will be
substantially in the forms set forth in EXHIBITS N and O, respectively.
SECTION 2.04. ELECTION OF DIRECTORS OF INDUSTRIAL COMPANY AND SHIPBUILDING
COMPANY. On or prior to the Distribution Date, Tenneco, as the sole
stockholder of each of Industrial Company and Shipbuilding Company, shall take
all necessary action so that as of the Distribution Date the directors of
Industrial Company and of Shipbuilding Company will be as set forth in the
Industrial Information Statement and the Shipbuilding Information Statement,
respectively.
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SECTION 2.05. TRANSFER AND ASSIGNMENT OF CERTAIN LICENSES AND PERMITS.
(a) LICENSES AND PERMITS RELATING TO THE INDUSTRIAL BUSINESS. On or prior
to the Distribution Date, or as soon as reasonably practicable thereafter,
each of Tenneco and Shipbuilding Company shall (and, if applicable, shall
cause any other Person over which it has legal or effective direct or
indirect control to), severally but not jointly, duly and validly transfer
or cause to be duly and validly transferred to the appropriate member of
the Industrial Group (as directed by Industrial Company) all transferrable
licenses, permits and authorizations issued by any Governmental Authority
that relate to the Industrial Business but which are held in the name of
any member of the Energy Group or the Shipbuilding Group, or any of their
respective employees, officers, directors, stockholders or agents.
(b) LICENSES AND PERMITS RELATING TO THE SHIPBUILDING BUSINESS. On or
prior to the Distribution Date, or as soon as reasonably practicable
thereafter, each of Tenneco and Industrial Company shall (and, if
applicable, shall cause any other Person over which it has legal or
effective direct or indirect control to), severally but not jointly, duly
and validly transfer or cause to be duly and validly transferred to the
appropriate member of the Shipbuilding Group (as directed by Shipbuilding
Company) all transferrable licenses, permits and authorizations issued by
any Governmental Authority that relate to the Shipbuilding Business but
which are held in the name of any member of the Energy Group or the
Industrial Group, or any of their respective employees, officers,
directors, stockholders or agents.
(c) LICENSES AND PERMITS RELATING TO THE ENERGY BUSINESS. On or prior to
the Distribution Date, or as soon as reasonably practicable thereafter,
each of Industrial Company and Shipbuilding Company shall (and, if
applicable, shall cause any other Person over which it has legal or
effective direct or indirect control to), severally but not jointly, duly
and validly transfer or cause to be duly and validly transferred to the
appropriate member of the Energy Group (as directed by Tenneco) all
transferrable licenses, permits and authorizations issued by any
Governmental Authority that relate to the Energy Business but which are
held in the name of any member of the Industrial Group or the Shipbuilding
Group, or any of their respective employees, officers, directors,
stockholders or agents.
SECTION 2.06. TRANSFER AND ASSIGNMENT OF CERTAIN AGREEMENTS.
(a) TRANSFER AND ASSIGNMENT OF ENERGY BUSINESS AGREEMENTS. On or prior to
the Distribution Date, or as soon as reasonably practicable thereafter, and
subject to the limitations set forth in this SECTION 2.06, each of Industrial
Company and Shipbuilding Company shall (and, if applicable, shall cause any of
the other members of its Group over which it has legal or effective direct or
indirect control to), severally but not jointly, assign, transfer and convey
to Tenneco (or such other member of the Energy Group as Tenneco shall direct)
all of its (or such other member of its Group's) right, title and interest in
and to any and all agreements that relate exclusively to the Energy Business
or any member of the Energy Group.
(b) TRANSFER AND ASSIGNMENT OF INDUSTRIAL BUSINESS AGREEMENTS. On or prior
to the Distribution Date, or as soon as reasonably practicable thereafter, and
subject to the limitations set forth in this SECTION 2.06, each of Tenneco and
Shipbuilding Company shall (and, if applicable, shall cause any of the other
members of its Group over which it has legal or effective direct or indirect
control to), severally but not jointly, assign, transfer and convey to
Industrial Company (or such other member of the Industrial Group as Industrial
Company shall direct) all of its (or such other member of its Group's) right,
title and interest in and to any and all agreements that relate exclusively to
the Industrial Business or any member of the Industrial Group.
(c) TRANSFER AND ASSIGNMENT OF SHIPBUILDING BUSINESS AGREEMENTS. On or prior
to the Distribution Date, or as soon as reasonably practicable thereafter, and
subject to the limitations set forth in this SECTION 2.06, each of Tenneco and
Industrial Company shall (and, if applicable, shall cause any of the other
members of its Group over which it has legal or effective direct or indirect
control to), severally but not jointly, assign, transfer and convey to
Shipbuilding Company (or such other member of the Shipbuilding Group as
Shipbuilding Company shall direct) all of its (or such other member of its
Group's) right, title and interest in and to any and all agreements that
relate exclusively to the Shipbuilding Business or any member of the
Shipbuilding Group.
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(d) JOINT AGREEMENTS. Subject to the provisions of SECTION 2.06(F) below,
any agreement to which any party hereto (or any other member of such party's
Group) is a party that inures to the benefit of more than one of the Energy
Business, the Industrial Business and the Shipbuilding Business shall be
assigned in part, at the expense and risk of the assignee, on or prior to the
Distribution Date or as soon as reasonably practicable thereafter, so that
each party (or such other member of such party's Group) shall be entitled to
the rights and benefits inuring to its business under such agreement.
(e) OBLIGATIONS OF ASSIGNEES. The assignee of any agreement assigned, in
whole or in part, hereunder (an "ASSIGNEE") shall, as a condition to such
assignment, assume and agree to pay, perform, and fully discharge all
obligations of the assignor under such agreement (whether such obligations
arose or were incurred prior to, on or subsequent to the Distribution Date and
irrespective of whether such obligations have been asserted as of the
Distribution Date) or, in the case of a partial assignment under SECTION
2.06(D) above, such Assignee's related portion of such obligations as
determined in accordance with the terms of the relevant agreement, where
determinable on the face thereof, and otherwise as determined in accordance
with the practice of the parties prior to the Distributions. Furthermore, the
Assignee shall use its commercially reasonable efforts to cause the assignor
of such agreement to be released from its obligations under the assigned
agreements.
(f) NO ASSIGNMENT OF CERTAIN AGREEMENTS. Notwithstanding anything in this
Agreement to the contrary, this Agreement shall not constitute an agreement to
assign any agreement, in whole or in part, or any rights thereunder if the
agreement to assign or attempt to assign, without the consent of a third
party, would constitute a breach thereof or in any way adversely affect the
rights of the Assignee thereof until such consent is obtained. If an attempted
assignment thereof would be ineffective or would adversely affect the rights
of any party hereto so that the Assignee would not, in fact, receive all such
rights, the parties hereto will cooperate with each other to effect any
arrangement designed reasonably to provide for the Assignee the benefits of,
and to permit the Assignee to assume liabilities under, any such agreement,
subject to the remaining sentences of this SECTION 2.06(F). There are certain
software license agreements held in the name of a member of the Industrial
Group that presently inure to the benefit of the Energy Business, the
Industrial Business and the Shipbuilding Business. Notwithstanding any other
provision of this Agreement, each such license agreement shall continue to be
held by that member of the Industrial Group without any obligation of any
party to cause the assignment or inurement to the benefit of such license
agreement, or to effect any arrangement to provide such benefit, to the Energy
Business or the Shipbuilding Business, except where the license agreement
expressly permits the benefits and obligations to be divided among the
Businesses or as may be negotiated with the licensor by that member of the
Industrial Group and such other parties and the Industrial Business shall use
commercially reasonable efforts to do so.
SECTION 2.07. CONSENTS. The parties hereto shall use their best efforts to
obtain any third-party consents or approvals that are required to consummate
the Corporate Restructuring Transactions, the Distributions and the other
transactions contemplated herein (the "CONSENTS").
SECTION 2.08. OTHER TRANSACTIONS. On or prior to the Distribution Date (but
in all events prior to the Distributions), each of Tenneco, Industrial Company
and Shipbuilding Company shall have consummated those other transactions in
connection with the Corporate Restructuring Transactions and the Distributions
that are contemplated by the Information Statements and the ruling request
submission by Tenneco to the Internal Revenue Service dated June 27, 1996 (as
subsequently supplemented), and not specifically referred to in SECTIONS 2.01
through 2.07 above, subject, however, to the limitations set forth in
SUBPARAGRAPH (B) of SECTION 2.01 above.
SECTION 2.09. ELECTION OF OFFICERS. On or prior to the Distribution Date,
each of Tenneco, Industrial Company and Shipbuilding Company shall, as
applicable, take all actions necessary and desirable so that as of the
Distribution Date the officers of Industrial Company and of Shipbuilding
Company will be as set forth in the Industrial Information Statement and the
Shipbuilding Information Statement, respectively.
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SECTION 2.10. REGISTRATION STATEMENTS. Each of Tenneco, Industrial Company
and Shipbuilding Company shall prepare, and shall file with the Commission,
the Registration Statements in accordance with the terms of this SECTION 2.10.
(a) PREPARATION AND FILING OF INDUSTRIAL REGISTRATION STATEMENT. Tenneco,
Industrial Company and Shipbuilding Company shall prepare or cause to be
prepared, and Industrial Company shall file or cause to be filed with the
Commission, the Industrial Registration Statement. The Industrial
Registration Statement shall include or incorporate by reference the
Industrial Information Statement setting forth appropriate disclosure
concerning Tenneco, Industrial Company, Shipbuilding Company, the
Distributions and such other matters as may be required to be disclosed
therein by the provisions of the Exchange Act and the rules and regulations
promulgated thereunder. Tenneco and Industrial Company shall take all such
actions as may be reasonably necessary or appropriate in order to cause the
Industrial Registration Statement to become effective by order of the
Commission pursuant to the Exchange Act.
(b) PREPARATION AND FILING OF SHIPBUILDING REGISTRATION STATEMENT.
Tenneco, Industrial Company and Shipbuilding Company shall prepare or cause
to be prepared, and Shipbuilding Company shall file or cause to be filed
with the Commission, the Shipbuilding Registration Statement. The
Shipbuilding Registration Statement shall include or incorporate by
reference the Shipbuilding Information Statement setting forth appropriate
disclosure concerning Tenneco, Shipbuilding Company, Industrial Company,
the Distributions and such other matters as may be required to be disclosed
therein by the provisions of the Exchange Act and the rules and regulations
promulgated thereunder. Tenneco and Shipbuilding Company shall take all
such actions as may be reasonably necessary or appropriate in order to
cause the Shipbuilding Registration Statement to become effective by order
of the Commission pursuant to the Exchange Act.
SECTION 2.11. STATE SECURITIES LAWS. Prior to the Distribution Date,
Tenneco, Industrial Company and Shipbuilding Company shall take all such
action as may be necessary or appropriate under the securities or blue sky
laws of states or other political subdivisions of the United States in order
to effect the Distributions.
SECTION 2.12. LISTING APPLICATION. Prior to the Distribution Date, Tenneco,
Industrial Company and Shipbuilding Company shall prepare and file with the
NYSE listing applications and related documents and shall take all such other
actions with respect thereto as shall be necessary or desirable in order to
cause the NYSE to list on or prior to the Distribution Date, subject to
official notice of issuance, the Industrial Common Shares and the Shipbuilding
Common Shares.
SECTION 2.13. CERTAIN FINANCIAL AND OTHER ARRANGEMENTS.
(a) SETTLEMENT OF INTERCOMPANY ACCOUNTS BETWEEN INDUSTRIAL GROUP AND ENERGY
GROUP. All intercompany receivables, payables and loans (other than
receivables, payables and loans otherwise specifically provided for in any of
the Ancillary Agreements or hereunder), including, without limitation, in
respect of any cash balances, any cash balances representing deposited checks
or drafts for which only a provisional credit has been allowed or any cash
held in any centralized cash management system, between any member of the
Industrial Group, on the one hand, and any member of the Energy Group, on the
other hand, shall, as of the close of business on the Distribution Date, be
settled, capitalized or converted into ordinary trade accounts, in each case
as may be agreed in writing prior to the Distribution Date by duly authorized
representatives of Tenneco, Industrial Company and the Acquiror.
(b) SETTLEMENT OF INTERCOMPANY ACCOUNTS BETWEEN SHIPBUILDING GROUP AND
ENERGY GROUP. All intercompany receivables, payables and loans (other than
receivables, payables and loans otherwise specifically provided for in any of
the Ancillary Agreements or hereunder), including, without limitation, in
respect of any cash balances, any cash balances representing deposited checks
or drafts for which only a provisional credit has been allowed or any cash
held in any centralized cash management system, between any member of the
Shipbuilding Group, on the one hand, and any member of the Energy Group, on
the other hand, shall, as of the close of business on the Distribution Date,
be settled, capitalized or converted into ordinary trade accounts, in each
case as may be agreed in writing prior to the Distribution Date by duly
authorized representatives of Tenneco, Shipbuilding Company and the Acquiror.
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(c) SETTLEMENT OF INTERCOMPANY ACCOUNTS BETWEEN INDUSTRIAL GROUP AND
SHIPBUILDING GROUP. All intercompany receivables, payables and loans (other
than receivables, payables and loans otherwise specifically provided for in
any of the Ancillary Agreements or hereunder), including, without limitation,
in respect of any cash balances, any cash balances representing deposited
checks or drafts for which only a provisional credit has been allowed or any
cash held in any centralized cash management system, between any member of the
Industrial Group, on the one hand, and any member of the Shipbuilding Group,
on the other hand, shall, as of the close of business on the Distribution
Date, be settled, capitalized or converted into ordinary trade accounts, in
each case as may be agreed in writing prior to the Distribution Date by duly
authorized representatives of Industrial Company and Shipbuilding Company.
(d) OPERATIONS IN ORDINARY COURSE. Except as otherwise provided in this
Agreement, the Merger Agreement or any Ancillary Agreement, during the period
from the date of this Agreement through the Distribution Date, each of
Tenneco, Industrial Company and Shipbuilding Company shall, and shall cause
any entity that is a Subsidiary of such party at any time during such period
to, conduct its business in a manner substantially consistent with current and
past operating practices and in the ordinary course, including, without
limitation, with respect to the payment and administration of accounts payable
and the collection and administration of accounts receivable, the purchase of
capital assets and equipment and the management of inventories.
SECTION 2.14. DIRECTOR, OFFICER AND EMPLOYEE RESIGNATIONS. Subject to the
provisions of SECTION 2.04 and SECTION 2.09 above:
(a) RESIGNATIONS BY DIRECTORS AND EMPLOYEES OF THE ENERGY GROUP. Tenneco
shall cause all of its directors and all employees of the Energy Group to
resign, effective as of the close of business on the Distribution Date,
from all boards of directors or similar governing bodies of each member of
the Industrial Group or the Shipbuilding Group on which they serve, and
from all positions as officers or employees of any member of the Industrial
Group or the Shipbuilding Group, except as otherwise set forth in the
Information Statements or mutually agreed to in writing on or prior to the
Distribution Date by Tenneco, on the one hand, and, as applicable,
Industrial Company and/or Shipbuilding Company, on the other hand.
(b) RESIGNATIONS BY DIRECTORS AND EMPLOYEES OF THE INDUSTRIAL GROUP.
Industrial Company shall cause all of its directors and all employees of
the Industrial Group to resign, effective as of the close of business on
the Distribution Date, from all boards of directors or similar governing
bodies of each member of the Energy Group or the Shipbuilding Group on
which they serve, and from all positions as officers or employees of any
member of the Energy Group or the Shipbuilding Group, except as otherwise
set forth in the Information Statements or mutually agreed to in writing on
or prior to the Distribution Date by Industrial Company, on the one hand,
and, as applicable, Tenneco and/or Shipbuilding Company, on the other hand.
(c) RESIGNATIONS BY DIRECTORS AND EMPLOYEES OF THE SHIPBUILDING GROUP.
Shipbuilding Company shall cause all of its directors and all employees of
the Shipbuilding Group to resign, effective as of the close of business on
the Distribution Date, from all boards of directors or similar governing
bodies of each member of the Energy Group or the Industrial Group on which
they serve, and from all positions as officers or employees of any member
of the Energy Group or the Industrial Group, except as otherwise set forth
in the Information Statements or mutually agreed to in writing on or prior
to the Distribution Date by Shipbuilding Company, on the one hand, and, as
applicable, Industrial Company and/or Tenneco, on the other hand.
SECTION 2.15. TRANSFERS NOT EFFECTED PRIOR TO THE DISTRIBUTIONS; TRANSFERS
DEEMED EFFECTIVE AS OF THE DISTRIBUTION DATE. To the extent that any transfers
contemplated by this ARTICLE II shall not have been consummated on or prior to
the Distribution Date, the parties hereto shall cooperate (and shall cause
each of their respective Affiliates and each member of their respective Groups
over which they have legal or effective direct or indirect control to
cooperate) to effect such transfers as promptly following the Distribution
Date as shall be practicable. Nothing herein shall be deemed to require the
transfer of any assets or the assumption of any Liabilities which by their
terms or operation of Law cannot be transferred or assumed; provided, however,
that the parties hereto shall cooperate (and shall cause each of their
respective Affiliates and each member of their respective Groups over which
they have legal or effective direct or indirect control to cooperate) to seek
to
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obtain any necessary consents or approvals for the transfer of all assets and
Liabilities contemplated to be transferred pursuant to this ARTICLE II. In the
event that any such transfer of assets or Liabilities has not been
consummated, from and after the Distribution Date the party retaining such
asset or Liability (or, as applicable, such other member or members of such
party's Group) shall hold such asset in trust for the use and benefit of the
party entitled thereto (at the expense of the party entitled thereto) or
retain such Liability for the account of the party by whom such Liability is
to be assumed pursuant hereto, as the case may be, and take such other action
as may be reasonably requested by the party to whom such asset is to be
transferred, or by whom such Liability is to be assumed, as the case may be,
in order to place such party, insofar as is reasonably possible, in the same
position as would have existed had such asset or Liability been transferred or
assumed as contemplated hereby. As and when any such asset or Liability
becomes transferable or assumable, such transfer shall be effected forthwith.
As of the Distribution Date, each party hereto (or, if applicable, such other
members of such party's Group) shall be deemed to have acquired (or, as
applicable, retained) complete and sole beneficial ownership over all of the
assets, together with all rights, powers and privileges incident thereto, and
shall be deemed to have assumed in accordance with the terms of this Agreement
all of the Liabilities, and all duties, obligations and responsibilities
incident thereto, which such party (or any other member of such party's Group)
is entitled to acquire or required to assume pursuant to the terms of this
Agreement.
SECTION 2.16. ANCILLARY AGREEMENTS. Prior to the Distribution Date, each of
Tenneco, Industrial Company and Shipbuilding Company shall enter into, and/or
where applicable shall cause such other members of their respective Groups to
enter into, (a) the Ancillary Agreements and (b) any other agreements in
respect of the Corporate Restructuring Transactions and the Distributions as
are reasonably necessary or appropriate in connection with the transactions
contemplated hereby and thereby so long as such agreements do not materially
delay or prevent consummation of the Merger or adversely affect the Energy
Business other than to a de minimis extent.
ARTICLE III
THE DISTRIBUTIONS
SECTION 3.01. TENNECO ACTION PRIOR TO THE DISTRIBUTIONS. Subject to the
terms and conditions set forth herein, Tenneco shall take, or cause to be
taken, the following acts or actions in connection with, and to otherwise
effect in accordance with the terms of this Agreement, the Distributions.
(a) DECLARATION OF DISTRIBUTIONS AND ESTABLISHMENT OF DISTRIBUTION DATE.
The Board of Directors of Tenneco shall, in its sole discretion and subject
to and in accordance with the applicable rules of the NYSE and provisions
of the DGCL, declare the Distributions and establish the Distribution
Record Date, the Distribution Date, the date on which Industrial Common
Shares, Shipbuilding Common Shares and any cash in lieu of fractional
shares shall be mailed to the Tenneco Holders and all appropriate
procedures in connection with the Distributions to the extent not provided
for herein; provided, however, that no such action shall create any
obligation on the part of Tenneco to effect the Distributions or in any way
limit Tenneco's power of termination as set forth in SECTION 8.11 hereof or
alter the consequences of any such termination from those specified in such
Section.
(b) NOTICE TO NYSE. Tenneco shall, to the extent possible, give the NYSE
not less than ten days advance notice of the Distribution Record Date in
compliance with Rule 10b-17 under the Exchange Act.
(c) MAILING OF INDUSTRIAL INFORMATION STATEMENT. Tenneco shall, as soon
as practicable after the Industrial Registration Statement shall have been
declared effective under the Exchange Act, cause the Industrial Information
Statement to be mailed to the Tenneco Holders.
(d) MAILING OF SHIPBUILDING INFORMATION STATEMENT. Tenneco shall, as soon
as practicable after the Shipbuilding Registration Statement shall have
been declared effective under the Exchange Act, cause the Shipbuilding
Information Statement to be mailed to the Tenneco Holders.
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SECTION 3.02. THE DISTRIBUTIONS.
(a) DUTIES AND OBLIGATIONS OF TENNECO. Subject to the conditions contained
herein, on the Distribution Date but effective immediately following the close
of business on the Distribution Date Tenneco shall:
(i) deliver to the Agent the share certificates representing the
Industrial Common Shares and Shipbuilding Common Shares issued to
Tenneco by Industrial Company and Shipbuilding Company, respectively,
pursuant to SECTION 2.02 hereof, endorsed by Tenneco in blank, for the
benefit of the Tenneco Holders; and
(ii) instruct the Agent to distribute, as soon as practicable
following consummation of the Distributions, to the Tenneco Holders the
following:
(A) one share of Industrial Common Stock for every one share of
Tenneco Common Stock;
(B) one share of Shipbuilding Common Stock for every five shares
of Tenneco Common Stock; and
(C) cash, if applicable, in lieu of fractional shares obtained in
the manner provided in SECTION 3.03 hereof.
(b) DUTIES AND RESPONSIBILITIES OF INDUSTRIAL COMPANY AND SHIPBUILDING
COMPANY. Industrial Subsidiary and Shipbuilding Subsidiary shall provide, or
cause to be provided, to the Agent sufficient certificates representing
Industrial Common Stock and Shipbuilding Common Stock, respectively, in such
denominations as the Agent may request in order to effect the Distributions.
All shares of Industrial Common Stock issued pursuant to the Industrial
Distribution will be validly issued, fully paid and nonassessable and free of
any preemptive (or similar) rights. All shares of Shipbuilding Common Stock
issued pursuant to the Shipbuilding Distribution will be validly issued, fully
paid and nonassessable and free of any preemptive (or similar) rights.
SECTION 3.03. FRACTIONAL SHARES.
(a) NO FRACTIONAL SHARES. Notwithstanding anything herein to the contrary,
no certificate or scrip evidencing a fractional share of Industrial Common
Stock or Shipbuilding Common Stock shall be issued in connection with the
Distributions, and any such fractional share interests to which a Tenneco
Holder would otherwise be entitled will not entitle such Tenneco Holder to
vote or to any rights of a stockholder of Industrial Company or Shipbuilding
Company, as the case may be. In lieu of any such fractional shares, each
Tenneco Holder who, but for the provisions of this SECTION 3.03, would be
entitled to receive a fractional share interest of Industrial Common Stock or
Shipbuilding Common Stock pursuant to the Distributions shall be paid cash,
without any interest thereon, as hereinafter provided. Tenneco shall instruct
the Agent to determine the number of whole shares and fractional shares of
Industrial Common Stock and Shipbuilding Common Stock allocable to each
Tenneco Holder, to aggregate all such fractional shares into whole shares, to
sell the whole shares obtained thereby in the open market at the then
prevailing prices on behalf of Tenneco Holders who otherwise would be entitled
to receive fractional share interests and to distribute to each such Tenneco
Holder his, her or its ratable share of the total proceeds of such sale, after
making appropriate deductions of the amount required for federal income tax
withholding purposes and after deducting any applicable transfer taxes. All
brokers' fees and commissions incurred in connection with such sales shall be
paid by Tenneco.
(b) UNCLAIMED STOCK OR CASH. Any Industrial Common Stock, Shipbuilding
Common Stock or cash in lieu of fractional shares and dividends or
distributions with respect to Industrial Common Stock or Shipbuilding Common
Stock that remain unclaimed by any Tenneco Holder 180 days after the
Distribution Date shall be returned to Tenneco and any such Tenneco Holders
shall look only to Tenneco for the Industrial Common Stock, Shipbuilding
Common Stock, cash, if any, in lieu of fractional share interests and any such
dividends or distributions to which they are entitled, subject in each case to
applicable escheat or other abandoned property laws.
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(c) BENEFICIAL OWNERS. Solely for purposes of computing fractional share
interests pursuant to SECTION 3.03(A), the beneficial owner of shares of
Tenneco Common Stock held of record in the name of a nominee will be treated
as the holder of record of such shares.
ARTICLE IV
CONDITIONS TO THE DISTRIBUTIONS
SECTION 4.01. CONDITIONS PRECEDENT TO THE DISTRIBUTIONS. The obligation of
Tenneco to cause the Distributions to be consummated shall be subject, at the
option of Tenneco, to the fulfillment or waiver, on or prior to the
Termination Date, of each of the following conditions.
(a) TAX SHARING AGREEMENT. Tenneco, Industrial Company, Shipbuilding
Company and Acquiror shall have executed and delivered the Tax Sharing
Agreement and such agreement shall be in full force and effect.
(b) BENEFITS AGREEMENT. Tenneco, Industrial Company and Shipbuilding
Company shall have executed and delivered the Benefits Agreement and such
agreement shall be in full force and effect.
(c) TRANSITION SERVICES AGREEMENT. Tenneco and Tenneco Business Services
Inc. shall have executed and delivered the Transition Services Agreement
and such agreement shall be in full force and effect.
(d) INSURANCE AGREEMENT. Tenneco, Industrial Company and Shipbuilding
Company shall have executed and delivered the Insurance Agreement and such
agreement shall be in full force and effect.
(e) DEBT AND CASH ALLOCATION AGREEMENT. Tenneco, Industrial Company and
Shipbuilding Company shall have executed and delivered the Debt and Cash
Allocation Agreement and such agreement shall be in full force and effect.
(f) EFFECTIVE DATE OF REGISTRATION STATEMENT. Each of the Registration
Statements shall have been declared effective by order of the Commission
and no stop order shall have been entered, and no proceeding for that
purpose shall have been initiated or threatened by the Commission with
respect thereto.
(g) NYSE LISTING. The Industrial Common Shares and the Shipbuilding
Common Shares shall have been approved for listing on the NYSE, subject to
official notice of issuance.
(h) TAX RULING. Tenneco shall have received rulings from the Internal
Revenue Service reasonably acceptable to Tenneco and Acquiror, which
rulings shall be in full force and effect as of the Distribution Date, to
the effect that:
(i) The Industrial Distribution as contemplated hereunder will be
tax-free for federal income tax purposes to Tenneco under Section
355(c)(1) of the Code and to the stockholders of Tenneco under
Section 355(a) of the Code;
(ii) The Shipbuilding Distribution as contemplated hereunder will be
tax-free for federal income tax purposes to Tenneco under
Section 355(c)(1) of the Code and to the stockholders of Tenneco
under Section 355(a) of the Code; and
(iii) The following distributions will be tax free to the respective
transferor corporations under Section 355(c)(1) of the Code and
to the respective stockholders of the transferor corporations
under Section 355(a) of the Code: (A) the distribution by the
Shipbuilding Company of the capital stock of Tenneco Packaging
Inc. to Tenneco Corporation contemplated under the Corporate
Restructuring Transactions; (B) the distribution by Tenneco
Corporation of the capital stock of the Shipbuilding Company
and the Industrial Company to Tennessee Gas Pipeline Company as
contemplated under the Corporate Restructuring Transactions;
and (C) the distribution by Tennessee Gas Pipeline Company of
the capital stock of the Shipbuilding Company and the
Industrial Company to Tenneco Inc. as contemplated under the
Corporate Restructuring Transactions.
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(i) PRE-DISTRIBUTION TRANSACTIONS. Each of the transactions and other
matters contemplated by ARTICLE II and SECTION 3.01 hereof (including,
without limitation, each of the distributions, transfers, conveyances,
contributions, assignments or other transactions included in, or otherwise
necessary to consummate, the Corporate Restructuring Transactions) shall
have been fully effected, consummated and accomplished.
(j) COVENANTS. The covenants contained in ARTICLE V of this Agreement
that are required to be performed on or before the Distribution Date shall
have been fully performed.
(k) NO PROHIBITIONS. Consummation of the transactions contemplated hereby
shall not be prohibited by Law and no Governmental Authority of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered
any statute, rule, regulation, executive order, decree, injunction or other
order (whether temporary, preliminary or permanent) which is in effect and
which materially restricts, prevents or prohibits consummation of the
Distributions, the Merger or any transaction contemplated by this Agreement
or the Merger Agreement, it being understood that the parties hereto hereby
agree to use their reasonable best efforts to cause any such decree,
judgment, injunction or other order to be vacated or lifted as promptly as
possible.
(l) CONSENTS. Tenneco, Industrial Company, Shipbuilding Company and the
other members of their respective Groups shall have obtained all Consents
the failure of which to obtain would, in the determination of the Board of
Directors of Tenneco, have a material adverse effect on the Energy Group,
the Industrial Group or the Shipbuilding Group, each taken as a whole, and
such Consents shall be in full force and effect.
(m) STOCKHOLDER APPROVAL. The Distributions shall have been approved by
the requisite vote of the holders of the outstanding Tenneco Common Stock
and the holders of the outstanding $7.40 Cumulative Preferred Stock of
Tenneco, voting together as a class, by the requisite vote of the holders
of the outstanding $4.50 Cumulative Preferred Stock of Tenneco and the
holders of the outstanding $7.40 Cumulative Preferred Stock of Tenneco,
voting together as a class, and by any requisite vote of the holders of the
outstanding New Preferred Stock (as defined in the Merger Agreement),
voting separately as a class, in accordance with the DGCL and the
provisions of Tenneco's Certificate of Incorporation.
(n) HSR ACT. The waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, applicable to the transactions
contemplated under the Merger Agreement shall have expired or been
terminated.
(o) DEBT REALIGNMENT. Each of the transactions and other matters
contemplated under the Debt Realignment (as defined under the Merger
Agreement) shall have been fully effected, consummated and accomplished.
SECTION 4.02. NO CONSTRAINT. Notwithstanding the provisions of SECTION 4.01
above (but subject to Tenneco's obligations under the Merger Agreement), the
fulfillment or waiver of any or all of the conditions precedent to the
Distributions set forth therein shall not:
(i) create any obligation on the part of Tenneco or any other party
hereto to effect the Distributions;
(ii) in any way limit Tenneco's right and power under SECTION 8.11 hereof
to terminate this Agreement and the process leading to the Distributions
and to abandon the Distributions; or
(iii) alter the consequences of any such termination under SECTION 8.11
hereof from those specified in such Section.
SECTION 4.03. DEFERRAL OF DISTRIBUTION DATE. If the Distribution Date shall
have been established by the Board of Directors of Tenneco but all the
conditions precedent to the Distributions set forth in this Agreement have not
theretofore been fulfilled or waived, or Tenneco does not reasonably
anticipate that they will be fulfilled or waived, on or prior to the date
established as the Distribution Date, Tenneco may, by resolution of its Board
of Directors (or a committee thereof, so authorized), defer the Distribution
Date to a later date.
SECTION 4.04. PUBLIC NOTICE OF DEFERRED DISTRIBUTION DATE. If the Board of
Directors (or a committee thereof, so authorized) of Tenneco shall defer the
Distribution Date in accordance with SECTION 4.03 above and public
announcement of the prior Distribution Date has theretofore been made, Tenneco
shall promptly thereafter
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issue, in accordance with the advice of legal counsel, a public announcement
with respect to such deferment and shall, with the advice of legal counsel,
take such other actions as may be deemed necessary or desirable with respect
to the dissemination of such information.
ARTICLE V
COVENANTS
SECTION 5.01. FURTHER ASSURANCES. Each of Tenneco, Industrial Company and
Shipbuilding Company shall use all reasonable efforts to:
(a) take or cause to be taken all actions, and to do or cause to be done
all things reasonably necessary, proper or advisable under applicable Law
and agreements or otherwise to consummate and make effective the
transactions contemplated hereby, including without limitation using
commercially reasonable efforts to obtain any consents and approvals from,
enter into any amendatory agreements with and make any applications,
registrations or filings with, any third Person or any Governmental
Authority necessary or desirable in order to consummate the transactions
contemplated hereby or to carry out the purposes of this Agreement; and
(b) execute and deliver such further instruments and documents and take
such other actions as the other party may reasonably request in order to
consummate the transactions contemplated hereby and effectuate the purposes
of this Agreement.
SECTION 5.02. TENNECO NAME. Industrial Company shall grant to each of
Tenneco and Shipbuilding Company transition licenses, in the forms of EXHIBIT
P and Q, respectively (the "Transition Trademark License"), to use the Tenneco
Trademarks and Tradenames for the limited use as more fully described below in
this SECTION 5.02 and in SECTION 5.03. Each of Tenneco and Shipbuilding
Company shall, and shall cause each of the other members of its Group over
which it has legal or effective direct or indirect control to, at its own
expense:
(a) Within 30 days following the Distribution Date, change, if necessary,
its corporate name to delete therefrom the word "Tenneco" or any other word
that is confusingly similar to the word "Tenneco" (except the word
"Tennessee"); and
(b) With respect to Tenneco, within two years following the Distribution
Date, and, with respect to Shipbuilding Company, within one year following
the Distribution Date, remove any and all references to the Tenneco
Trademark and Tradenames from any and all signs, displays or other
identification or advertising material (excluding any such material that is
the subject of SECTION 5.03 below). After the conclusion of such period,
each of Tenneco, Shipbuilding Company, and each other member of its
respective Group or over which it has legal or effective direct or indirect
control shall not use or display any of the Tenneco Trademarks and
Tradenames without the prior written consent of Industrial Company, which
consent may be withheld for any reason or no reason whatsoever. After the
Distribution Date, no party hereto shall represent or permit to be
represented to any third Person that it or any member of its Group has a
business affiliation with any other party hereto or any member of such
other party's Group, except as expressly permitted by any of the Ancillary
Agreements.
SECTION 5.03. SUPPLIES AND DOCUMENTS. Notwithstanding the provisions of
SECTION 5.02 above, for a period of six (6) months following the Distribution
Date, the Transition Trademark License shall license (on a nonexclusive basis)
to each of the members of the Energy Group and the Shipbuilding Group the
right to use existing supplies and documents which have imprinted thereon any
of the Tenneco Trademarks and Tradenames to the extent that such supplies and
documents were existing in the inventory of such member of the Energy Group or
Shipbuilding Group, as applicable, as of the Distribution Date.
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SECTION 5.04. ASSUMPTION AND SATISFACTION OF LIABILITIES. Except as
otherwise specifically set forth in any Ancillary Agreement, from and after
the Distribution Date:
(a) Tenneco shall, and shall cause each of the other members of the
Energy Group over which it has legal or effective direct or indirect
control to, assume, pay, perform and discharge all Energy Liabilities in
accordance with their terms, when determinable, and otherwise as determined
in accordance with the practice of the parties prior to the Distributions;
(b) Industrial Company shall, and shall cause each of the other members
of the Industrial Group over which it has legal or effective direct or
indirect control to, assume, pay, perform and discharge all Industrial
Liabilities in accordance with their terms, when determinable, and
otherwise as determined in accordance with the practice of the parties
prior to the Distributions; and
(c) Shipbuilding Subsidiary shall, and shall cause each of the other
members of the Shipbuilding Group over which it has legal or effective
direct or indirect control to, assume, pay, perform and discharge all
Shipbuilding Liabilities in accordance with their terms, when determinable,
and otherwise as determined in accordance with the practice of the parties
prior to the Distributions.
SECTION 5.05. NO REPRESENTATIONS OR WARRANTIES; CONSENTS.
(a) GENERAL. Each of the parties hereto understands and agrees that no party
hereto is, in this Agreement or in any other agreement or document
contemplated by this Agreement (including the Ancillary Agreements) or
otherwise, making any representation or warranty whatsoever, including without
limitation, any representation or warranty:
(i) as to the value or freedom from encumbrance of, or any other matter
concerning, any assets of such party; or
(ii) as to the legal sufficiency to convey title to any asset as of the
execution, delivery and filing of this Agreement or any Ancillary
Agreement, including, without limitation, any Conveyancing and Assumption
Instrument.
(b) DISCLAIMER OF MERCHANTABILITY OR FITNESS OF ASSETS. Each party hereto
further understands and agrees that there are no warranties, express or
implied, as to the merchantability or fitness of any of the assets either
transferred to or retained by the Energy Group, the Industrial Group or the
Shipbuilding Group, as the case may be, pursuant to Corporate Restructuring
Transactions and the other terms and provisions of this Agreement, any
Conveyancing and Assumption Agreement or any Ancillary Agreement, and all such
assets which are so transferred will be transferred on an "AS IS, WHERE IS"
basis, and the party to which any such assets are transferred hereunder, or
which retains assets hereunder, shall bear the economic and legal risk that
any conveyances of such assets shall prove to be insufficient or that the
title of such party or any other member of its respective Group to any such
assets shall be other than good and marketable and free from encumbrances.
(c) ACKNOWLEDGEMENT OF DISCLOSURE AND WAIVER. Each of Industrial Company and
Shipbuilding Company acknowledges, for itself and on behalf of each other
member of its respective Group, that:
(i) Tenneco and the other members of the Energy Group have disclosed, and
Industrial Company and Shipbuilding Company have knowledge of, all matters
pertaining to the assets and properties to be conveyed to Industrial
Company, Shipbuilding Company or any member of their respective Group
pursuant to the Corporate Restructuring Transactions or otherwise pursuant
to the other terms of this Agreement to the same extent that Tenneco and
the other members of the Energy Group have knowledge of such matters; and
(ii) such knowledge constitutes notice and disclosure of such matters.
Each of Industrial Company and Shipbuilding Company waives, to the fullest
extent permitted by law, for itself and for each other member of its
respective Group, any and all claims or causes of action which any of them may
have arising out of such matters or the failure of any Conveyancing and
Assumption Instrument to describe or refer to, or provide notice of, any such
matters.
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(d) NO REPRESENTATIONS OR WARRANTIES REGARDING CONSENTS. Each of the parties
hereto understands and agrees that no party hereto is, in this Agreement or
any Ancillary Agreement or in any other agreement or document contemplated by
this Agreement or any Ancillary Agreement or otherwise, representing or
warranting in any way that the obtaining of any consents or approvals, the
execution and delivery of any amendatory agreements and the making of any
filings or applications contemplated by this Agreement will satisfy the
provisions of any or all applicable agreements or the requirements of any or
all applicable Law. Each of the parties hereto further agrees and understands
that the party to which any assets are transferred as contemplated by the
Corporate Restructuring Transactions or the other provisions of this Agreement
shall bear the economic and legal risk that any necessary consents or
approvals are not obtained, that any necessary amendatory agreements are not
executed and delivered or that any requirements of Laws are not complied with.
(e) COVENANT TO USE REASONABLE EFFORTS TO OBTAIN CONSENTS. Notwithstanding
the provisions of SECTION 5.05(D) above, each of the parties hereto shall (and
shall cause each other member of its respective Group over which it has direct
or indirect legal or effective control to) use commercially reasonable efforts
to obtain all consents and approvals, to enter into all amendatory agreements
and to make all filings and applications which may be reasonably required for
the consummation of the transactions contemplated by this Agreement and shall
take all such further reasonable actions as shall be reasonably necessary to
preserve for each of the Energy Group, the Industrial Group and the
Shipbuilding Group, to the greatest extent feasible, the economic and
operational benefits of the allocation of assets and Liabilities contemplated
by this Agreement. In case at any time after the Distribution Date any further
action is necessary or desirable to carry out the purposes of this Agreement,
the proper officers and directors of each party to this Agreement shall take
all such necessary or desirable action.
SECTION 5.06. REMOVAL OF CERTAIN GUARANTEES.
(a) REMOVAL OF ENERGY GROUP AS GUARANTOR OF INDUSTRIAL AND SHIPBUILDING
LIABILITIES. Except as otherwise contemplated in the Corporate Restructuring
Transactions or otherwise specified in any Ancillary Agreement, each of
Tenneco, Industrial Company and Shipbuilding Company shall use its
commercially reasonable efforts to have, on or prior to the Distribution Date,
or as soon as practicable thereafter, Tenneco and any other member of the
Energy Group removed as a guarantor of, or obligor under or for, any
Industrial Liability or Shipbuilding Liability.
(b) REMOVAL OF INDUSTRIAL GROUP AS GUARANTOR OF ENERGY AND SHIPBUILDING
LIABILITIES. Except as otherwise contemplated in the Corporate Restructuring
Transactions or otherwise specified in any Ancillary Agreement, each of
Tenneco, Industrial Company and Shipbuilding Company shall use its
commercially reasonable efforts to have, on or prior to the Distribution Date,
or as soon as practicable thereafter, Industrial Company and any other member
of the Industrial Group removed as a guarantor of, or obligor under or for,
any Energy Liability or Shipbuilding Liability.
(c) REMOVAL OF SHIPBUILDING GROUP AS GUARANTOR OF ENERGY AND INDUSTRIAL
LIABILITIES. Except as otherwise contemplated in the Corporate Restructuring
Transactions or otherwise specified in any Ancillary Agreement, each of
Tenneco, Industrial Company and Shipbuilding Company shall use their
commercially reasonable efforts to have, on or prior to the Distribution Date,
or as soon as practicable thereafter, Shipbuilding Company and any other
member of the Shipbuilding Group removed as a guarantor of, or obligor under
or for, any Energy Liability or Industrial Liability.
SECTION 5.07. PUBLIC ANNOUNCEMENTS. Each party hereto shall consult with
each other before issuing any press release or otherwise issuing any other
similar written public statement with respect to this Agreement or the
Distributions and shall not issue any such press release or make any such
public statement without the prior consent of each other party, which shall
not be unreasonably withheld; provided, however, that a party may, without the
prior consent of any other party, issue such press release or other similar
written public statement as may be required by law or any listing agreement
with a national securities exchange to which any party hereto (or any member
of such party's Group) is a party if it has used all reasonable efforts to
consult with such other party and to obtain such party's consent but has been
unable to do so in a timely manner.
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SECTION 5.08. INTERCOMPANY AGREEMENTS. Effective as of the consummation of
the Distributions, each of Industrial Company, Shipbuilding Company and
Tenneco shall (and shall cause each other member of its respective Group over
which it has legal or effective direct or indirect control) to terminate each
and every agreement between it and any member of any of the other Groups other
than this Agreement, any of the Ancillary Agreements and any of the license
agreements referred to in SECTION 2.06(F) above; provided, however, that such
termination shall not have any effect whatsoever on any of its rights and/or
obligations that accrued or were incurred prior to the Distribution Date
(subject to the terms of SECTION 2.13 above).
SECTION 5.09. TAX MATTERS. Each of Tenneco, the Industrial Company and the
Shipbuilding Company intend the Distributions to be treated as tax-free
distributions under Code Section 355 and each such party shall use its
reasonable best efforts to cause the Distributions to so qualify. Neither
Tenneco, on the one hand, nor the Industrial Company and Shipbuilding Company,
on the other hand, shall take any action (other than the Merger) which might
cause:
(i) the Distributions to fail to qualify as tax-free distributions under
Code Section 355;
(ii) any other transfer described in the Corporate Restructuring
Transactions that is intended (as described in Tenneco's request for
rulings from the Internal Revenue Service) to qualify as a tax free
transfer under Code Sections 332, 351, 355 or 368 to fail to so qualify; or
(iii) Tenneco or any Energy Subsidiary to recognize any gains relating to
deferred intercompany transactions or excess loss accounts between or among
any member of affiliated group of corporations of which Tenneco is the
common parent, other than those defined intercompany gains listed on
EXHIBIT H to the Merger Agreement.
ARTICLE VI
ACCESS TO INFORMATION
SECTION 6.01. PROVISION, TRANSFER AND DELIVERY OF APPLICABLE CORPORATE
RECORDS.
(a) PROVISION, TRANSFER AND DELIVERY OF INDUSTRIAL RECORDS. Each of Tenneco
and Shipbuilding Company shall (and shall cause each other member of its
respective Group over which it has legal or effective direct or indirect
control to) arrange as soon as practicable following the Distribution Date for
the transportation (at Industrial Company's cost) to Industrial Company of the
Books and Records in its possession (i) that relate primarily to the
Industrial Business or are necessary to operate the Industrial Business
(collectively, the "INDUSTRIAL RECORDS"), and (ii) that consist of the
corporate minutes of the Board of Directors (or committees thereof) of Tenneco
or otherwise relate to the business, administrative and management operations
of Tenneco as the parent holding company of the Energy Business, Industrial
Business and Shipbuilding Business (collectively, the "TENNECO CORPORATE
RECORDS") except to the extent such items are already in the possession of any
member of the Industrial Group. The Industrial Records and the Tenneco
Corporate Records shall be the property of Industrial Company, but shall be
available to each of Tenneco and Shipbuilding Company for review and
duplication, at their cost, pursuant to the terms of this Agreement.
(b) PROVISION, TRANSFER AND DELIVERY OF SHIPBUILDING RECORDS. Each of
Tenneco and Industrial Company shall (and shall cause each other member of its
respective Group over which it has legal or effective direct or indirect
control to) arrange as soon as practicable following the Distribution Date for
the transportation (at Shipbuilding Company's cost) to Shipbuilding Company of
the Books and Records in its possession that relate primarily to the
Shipbuilding Business or are necessary to operate the Shipbuilding Business
(collectively, the "SHIPBUILDING RECORDS"), except to the extent such items
are already in the possession of any member of the Shipbuilding Group. The
Shipbuilding Records shall be the property of Shipbuilding Company, but shall
be available to each of Tenneco and Industrial Company for review and
duplication , at their cost, pursuant to the terms of this Agreement.
(c) PROVISION, TRANSFER AND DELIVERY OF ENERGY RECORDS. Each of Industrial
Company and Shipbuilding Company shall (and shall cause each other member of
its respective Group over which it has legal or effective direct or indirect
control to) arrange as soon as practicable following the Distribution Date for
the transportation (at Tenneco's cost) to Tenneco of the Books and Records in
its possession that relate primarily to the Energy
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Business or are necessary to operate the Energy Business (collectively, the
"ENERGY RECORDS"), except to the extent such items are already in the
possession of any member of the Energy Group. The Energy Records shall be the
property of Tenneco, but shall be available to each of Industrial Company and
Shipbuilding Company for review and duplication, at their cost, pursuant to
the terms of this Agreement.
SECTION 6.02. ACCESS TO INFORMATION.
(a) ACCESS TO BOOKS AND RECORDS. Unless otherwise contemplated by SECTION
6.06 hereof, from and after the Distribution Date, each of Tenneco, Industrial
Company and Shipbuilding Company shall (and shall cause each of the other
members of its respective Group over which it has legal or effective direct or
indirect control to) afford to each other party and its authorized
accountants, counsel and other designated representatives reasonable access
and duplicating rights (all such duplicating costs to be borne by the
requesting party) during normal business hours, subject to appropriate
restrictions for classified, privileged or confidential information, to the
personnel, properties, Books and Records and other data and information of
such party and each other member of such party's Group relating to operations
prior to the Distributions insofar as such access is reasonably required by
the other requesting party for the conduct of the requesting party's business
(but not for competitive purposes).
(b) PROVISION OF POST-DISTRIBUTION COMMISSION FILINGS. For a period of five
years following the Distribution Date, each of Tenneco, Industrial Company and
Shipbuilding Company shall (and shall cause each of the other members of its
respective Group over which it has legal or effective direct or indirect
control to) provide to the other, promptly following such time at which such
documents are filed with the Commission, all documents (other than documents
or portions thereof for which confidential treatment has been granted or a
request for confidential treatment is pending) filed by it and by each other
member of such party's Group with the Commission pursuant to the Securities
Act or the periodic and interim reporting requirements of the Exchange Act and
the rules and regulations of the Commission promulgated thereunder.
SECTION 6.03. REIMBURSEMENT; OTHER MATTERS. Except to the extent otherwise
contemplated hereby or by any Ancillary Agreement, a party providing Books and
Records or access to information to any other party (or such party's
representatives) under this ARTICLE VI shall be entitled to receive from such
other party, upon the presentation of invoices therefor, payments for such
amounts, relating to supplies, disbursements and other out-of-pocket expenses,
as may be reasonably incurred in providing such Books and Records or access to
information.
SECTION 6.04. CONFIDENTIALITY.
(a) GENERAL RESTRICTION ON DISCLOSURE. Each of Tenneco, Industrial Company
and Shipbuilding Company shall not (and shall not permit any other member of
its respective Group over which it has legal or effective direct or indirect
control to) use or permit the use of (without the prior written consent of the
other) and shall hold, and shall cause its consultants, advisors and other
representatives and any other member of its respective Group (over which it
has legal or effective direct or indirect control) to hold, in strict
confidence, all information concerning each other party hereto and the other
members of such other party's Group in its possession, custody or control to
the extent such information either
(i)relates to the period up to the Distribution Date,
(ii)relates to any Ancillary Agreement, or
(iii)is obtained in the course of performing services for the other party
pursuant to any Ancillary Agreement, and each party hereto shall not (and
shall cause each other member of its respective Group over which it has
legal or effective direct or indirect control not to) otherwise release or
disclose such information to any other Person, except its auditors,
attorneys, financial advisors, bankers and other consultants and advisors,
without the prior written consent of the other affected party or parties,
unless compelled to disclose such information by judicial or administrative
process or unless such disclosure is required by Law and such party has
used commercially reasonable efforts to consult with the other affected
party or parties prior to such disclosure.
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(b) COMPELLED DISCLOSURE. To the extent that a party hereto is compelled by
judicial or administrative process to disclose such information under
circumstances in which any evidentiary privilege would be available, such
party agrees to assert such privilege in good faith prior to making such
disclosure. Each of the parties shall consult with each relevant other party
in connection with any such judicial or administrative process, including,
without limitation, in determining whether any privilege is available, and
shall not object to each such relevant party and its counsel participating in
any hearing or other proceeding (including, without limitation, any appeal of
an initial order to disclose) in respect of such disclosure and assertion of
privilege.
(c) EXCEPTIONS TO CONFIDENTIAL TREATMENT. Anything herein to the contrary
notwithstanding, no party hereto shall be prohibited from using or permitting
the use of, or required to hold in confidence, any information to the extent
that (i) such information has been or is in the public domain through no fault
of such party, (ii) such information is, after the Distribution Date, lawfully
acquired from other sources by such party, or (iii) this Agreement, any
Ancillary Agreement or any other agreement entered into pursuant hereto
permits the use or disclosure of such information by such party.
SECTION 6.05. WITNESS SERVICES. At all times from and after the Distribution
Date, each of Tenneco, Industrial Company and Shipbuilding Company shall use
its reasonable efforts to make available to each other party hereto, upon
reasonable written request, the officers, directors, employees and agents of
each member of its respective Group for fact finding, consultation or
interviews and as witnesses to the extent that:
(a) such persons may reasonably be required in connection with the
prosecution or defense of any Action in which the requesting party or any
member of its respective Group may from time to time be involved; and
(b) there is no conflict in the Action between the requesting party or
any member of its respective Group and the party to which a request is made
pursuant to this SECTION 6.05 or any member of such party's Group. Except
as otherwise agreed by the parties, a party providing witness services to
any other party under this Section shall be entitled to receive from the
recipient of such services, upon the presentation of invoices therefor,
payments for such amounts, relating to supplies, disbursements and other
out-of-pocket expenses (but not salary expenses) and direct and indirect
costs of employees who participate in fact finding, consultation or
interviews or are witnesses, as are actually and reasonably incurred in
providing such fact finding, consulting, interviews or witness services by
the party providing such services.
SECTION 6.06. RETENTION OF RECORDS. Except when a longer period is required
by Law or is specifically provided for herein or in any Ancillary Agreement,
each party hereto shall cause the members of its Group over which it has legal
or effective direct or indirect control, to retain, for a period of at least
seven years following the Distribution Date, all material information
(including without limitation all material Books and Records) relating to such
Group and its operations prior to the Distribution Date. Notwithstanding the
foregoing, any party hereto may offer in writing to deliver to the other
parties all or a portion of such information as it relates to members of the
offering party's Group and, if such offer is accepted in writing within 90
days after receipt thereof, the offering party shall promptly arrange for the
delivery of such information (or copies thereof) to each accepting party (at
the expense of such accepting party). If such offer is not so accepted, the
offered information may be destroyed or otherwise disposed of by the offering
party at any time thereafter.
SECTION 6.07. PRIVILEGED MATTERS.
(a) PRIVILEGED INFORMATION. Each of the parties hereto shall, and shall
cause the members of its Group over which it has legal or effective direct
or indirect control to, use its reasonable efforts to maintain, preserve,
protect and assert all privileges including, without limitation, all
privileges arising under or relating to the attorney-client relationship
(including without limitation the attorney-client and attorney work product
privileges) that relate directly or indirectly to any member of any other
Group for any period prior to the Distribution Date ("PRIVILEGE" or
"PRIVILEGES"). Each of the parties hereto shall use its reasonable efforts
not to waive, or permit any member of its Group over which it has legal or
effective direct or indirect control to waive, any such Privilege that
could be asserted under applicable Law without the prior written consent of
the other parties. With respect to each party, the rights and obligations
created by this SECTION 6.07 shall apply to all information as to which a
member of any Group did assert or, but for the
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Distributions, would have been entitled to assert the protection of a
Privilege ("PRIVILEGED INFORMATION") including, but not limited to, any and
all information that either:
(i) was generated or received prior to the Distribution Date but
which, after the Distributions, is in the possession of a member of
another Group; or
(ii) is generated or received after the Distribution Date but refers
to or relates to Privileged Information that was generated or received
prior to the Distribution Date.
(b) PRODUCTION OF PRIVILEGED INFORMATION. Upon receipt by a party or any
member of its Group of any subpoena, discovery or other request that
arguably calls for the production or disclosure of Privileged Information,
or if a party or any member of its Group obtains knowledge that any current
or former employee of such party or any member of its Group has received
any subpoena, discovery or other request which arguably calls for the
production or disclosure of Privileged Information, such party shall
promptly notify the other parties of the existence of the request and shall
provide the other parties a reasonable opportunity to review the
information and to assert any rights it may have under this SECTION 6.07 or
otherwise to prevent the production or disclosure of Privileged
Information. No party will, or will permit any member of its Group over
which it has direct or indirect legal or effective control to, produce or
disclose any information arguably covered by a Privilege under this SECTION
6.07 unless:
(i) each other party has provided its express written consent to such
production or disclosure; or
(ii) a court of competent jurisdiction has entered an order which is
not then appealable or a final, nonappealable order finding that the
information is not entitled to protection under any applicable
privilege.
(c) NO WAIVER. The parties hereto understand and agree that the transfer
of any Books and Records or other information between any members of the
Energy Group, the Industrial Group, or the Shipbuilding Group shall be made
in reliance on the agreements of Tenneco, Industrial Company and
Shipbuilding Company, as set forth in SECTION 6.04 and SECTION 6.07 hereof,
to maintain the confidentiality of Privileged Information and to assert and
maintain all applicable Privileges. The Books and Records being transferred
pursuant to SECTION 6.01 hereof, the access to information being granted
pursuant to SECTION 6.02 hereof, the agreement to provide witnesses and
individuals pursuant to SECTION 6.05 hereof and the transfer of Privileged
Information to either party pursuant to this Agreement shall not be deemed
a waiver of any Privilege that has been or may be asserted under this
Section or otherwise.
ARTICLE VII
INDEMNIFICATION
SECTION 7.01. INDEMNIFICATION BY TENNECO. Except as otherwise specifically
set forth in any provision of this Agreement or of any Ancillary Agreement,
Tenneco shall, to the fullest extent permitted by law, indemnify, defend and
hold harmless the Industrial Indemnitees and the Shipbuilding Indemnitees from
and against any and all Indemnifiable Losses of the Industrial Indemnitees and
the Shipbuilding Indemnitees, respectively, arising out of, by reason of or
otherwise in connection with either (i) the Energy Liabilities, or (ii) the
breach by Tenneco of any provision of this Agreement or any Ancillary
Agreement.
SECTION 7.02. INDEMNIFICATION BY INDUSTRIAL COMPANY. Except as otherwise
specifically set forth in any provision of this Agreement or of any Ancillary
Agreement, Industrial Company shall, to the fullest extent permitted by law,
indemnify, defend and hold harmless the Energy Indemnitees and the
Shipbuilding Indemnitees from and against any and all Indemnifiable Losses of
the Energy Indemnitees and the Shipbuilding Indemnitees, respectively, arising
out of, by reason of or otherwise in connection with either (i) the Industrial
Liabilities, or (ii) the breach by Industrial Company of any provision of this
Agreement or any Ancillary Agreement.
SECTION 7.03. INDEMNIFICATION BY SHIPBUILDING COMPANY. Except as otherwise
specifically set forth in any provision of this Agreement or of any Ancillary
Agreement, Shipbuilding Company shall, to the fullest
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entent permitted by law, indemnify, defend and hold harmless the Energy
Indemnitees and the Industrial Indemnitees from and against any and all
Indemnifiable Losses of the Energy Indemnitees and the Industrial Indemnitees,
respectively, arising out of, by reason of or otherwise in connection with
either (i) the Shipbuilding Liabilities, or (ii) the breach by Shipbuilding
Company of any provision of this Agreement or any Ancillary Agreement. In
addition, and without limiting the generality of the foregoing indemnification
provisions of this SECTION 7.03, Shipbuilding Company shall, to the fullest
extent permitted by law, indemnify, defend and hold harmless the Industrial
Indemnitees and the Energy Indemnitees from and against any and all
Indemnifiable Losses of the Industrial Indemnitees and the Energy Indemnitees,
respectively, arising out of, by reason of or otherwise in connection with any
matter, of whatever kind or nature, relating in any way to the commercial
ships commonly known as the "Double Eagle" product tankers, including without
limitation, (i) the design, engineering or construction of any of the Double
Eagle product tankers, (ii) the sale or other disposition of any of the Double
Eagle product tankers (or the sale or other disposition of any direct or
indirect equity interest in any of the Double Eagle product tankers), (iii)
the direct or indirect financing of the construction of any of the Double
Eagle product tankers or any other financing relating to any of the Double
Eagle product tankers, (iv) the direct or indirect equity investments in any
of the Double Eagle product tankers, (v) the purchase of raw materials and
other materials and services in connection with the design, construction or
engineering of any of the Double Eagle product tankers, (vi) the negotiation
of any contract for the construction of or financing for the construction of,
any of the Double Eagle product tankers, or (vii) the operation by any Person
whatsoever of any of the Double Eagle product tankers.
SECTION 7.04. LIMITATIONS ON INDEMNIFICATION OBLIGATIONS.
(a) REDUCTIONS FOR INSURANCE PROCEEDS AND OTHER RECOVERIES. The amount that
any party (an "INDEMNIFYING PARTY") is or may be required to pay to any other
Person (an "INDEMNITEE") pursuant to SECTION 7.01, SECTION 7.02 or SECTION
7.03 above, as applicable, shall be reduced (retroactively or prospectively)
by any Insurance Proceeds or other amounts actually recovered from third
parties by or on behalf of such Indemnitee in respect of the related
Indemnifiable Losses (except that nothing herein shall be construed as
requiring any Indemnitee in respect of any Shipbuilding Securities Liability
to file any claim for insurance). The existence of a claim by an Indemnitee
for insurance or against a third party in respect of any Indemnifiable Loss
shall not, however, delay any payment pursuant to the indemnification
provisions contained herein and otherwise determined to be due and owing by an
Indemnifying Party. Rather the Indemnifying Party shall make payment in full
of such amount so determined to be due and owing by it against an assignment
by the Indemnitee to the Indemnifying Party of the entire claim of the
Indemnitee for such insurance or against such third party. Notwithstanding any
other provisions of this Agreement, it is the intention of the parties hereto
that no insurer or any other third party shall be (i) entitled to a benefit it
would not be entitled to receive in the absence of the foregoing
indemnification provisions or (ii) relieved of the responsibility to pay any
claims for which it is obligated. If an Indemnitee shall have received the
payment required by this Agreement from an Indemnifying Party in respect of
any Indemnifiable Losses and shall subsequently actually receive Insurance
Proceeds or other amounts in respect of such Indemnifiable Losses, then such
Indemnitee shall hold such Insurance Proceeds in trust for the benefit of such
Indemnifying Party and shall pay to such Indemnifying Party a sum equal to the
amount of such Insurance Proceeds or other amounts actually received, up to
the aggregate amount of any payments received from such Indemnifying Party
pursuant to this Agreement in respect of such Indemnifiable Losses.
(b) FOREIGN CURRENCY ADJUSTMENTS. In the event that any indemnification
payment required to be made hereunder or under any Ancillary Agreement shall
be denominated in a currency other than U.S. Dollars, the amount of such
payment shall be translated into U.S. Dollars using the foreign exchange rate
for such currency determined in accordance with the following rules:
(i) with respect to any Indemnifiable Losses arising from the payment by
a financial institution under a guarantee, comfort letter, letter of
credit, foreign exchange contract or similar instrument, the foreign
exchange rate for such currency shall be determined as of the date on which
such financial institution shall have been reimbursed;
(ii) with respect to any Indemnifiable Losses covered by insurance, the
foreign exchange rate for such currency shall be the foreign exchange rate
employed by the insurance company providing such insurance in settling such
Indemnifiable Losses with the Indemnifying Party; and
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(iii) with respect to any Indemnifiable Losses not covered by either
clause (i) or (ii) above, the foreign exchange rate for such currency shall
be determined as of the date that notice of the claim with respect to such
Indemnifiable Losses shall be given to the Indemnitee.
SECTION 7.05. PROCEDURES FOR INDEMNIFICATION. Except as otherwise
specifically provided in any Ancillary Agreement, including, without
limitation, the Tax Sharing Agreement and the Benefits Agreement:
(a) NOTICE OF THIRD PARTY CLAIMS. If a claim or demand is made against an
Indemnitee by any Person who is not a member of the Energy Group, Industrial
Group or Shipbuilding Group (a "THIRD PARTY CLAIM") as to which such
Indemnitee is entitled to indemnification pursuant to this Agreement, such
Indemnitee shall notify the Indemnifying Party in writing, and in reasonable
detail, of the Third Party Claim promptly (and in any event within 15 business
days) after receipt by such Indemnitee of written notice of the Third Party
Claim; provided, however, that failure to give such notification shall not
affect the Indemnitee's right to indemnification hereunder except to the
extent the Indemnifying Party shall have been actually prejudiced as a result
of such failure (except that the Indemnifying Party shall not be liable for
any expenses incurred during the period in which the Indemnitee failed to give
such notice). Thereafter, the Indemnitee shall deliver to the Indemnifying
Party, promptly (and in any event within 15 business days) after the
Indemnitee's receipt thereof, copies of all notices and documents (including
court papers) received by the Indemnitee relating to the Third Party Claim.
(b) LEGAL DEFENSE OF THIRD PARTY CLAIMS. If a Third Party Claim is made
against an Indemnitee, the Indemnifying Party shall be entitled to participate
in the defense thereof and, if it so chooses, to assume the defense thereof
with counsel selected by the Indemnifying Party, which counsel shall be
reasonably satisfactory to the Indemnitee. Should the Indemnifying Party so
elect to assume the defense of a Third Party Claim, the Indemnifying Party
shall not be liable to the Indemnitee for legal or other expenses subsequently
incurred by the Indemnitee in connection with the defense thereof. If the
Indemnifying Party assumes such defense, the Indemnitee shall have the right
to participate in the defense thereof and to employ counsel, at its own
expense, separate from the counsel employed by the Indemnifying Party, it
being understood that the Indemnifying Party shall control such defense. The
Indemnifying Party shall be liable for the reasonable fees and expenses of
counsel employed by the Indemnitee for any period during which the
Indemnifying Party has failed to assume the defense of the Third Party Claim
(other than during the period prior to the time the Indemnitee shall have
given notice of the Third Party Claim as provided above). If the Indemnifying
Party so elects to assume the defense of any Third Party Claim, all of the
Indemnitees shall cooperate with the Indemnifying Party in the defense or
prosecution thereof. Notwithstanding the foregoing:
(i) the Indemnifying Party shall not be entitled to assume the defense of
any Third Party Claim (and shall be liable to the Indemnitee for the
reasonable fees and expenses of counsel incurred by the Indemnitee in
defending such Third Party Claim) if the Third Party Claim either (A) seeks
an order, injunction or other equitable relief or relief for other than
money damages against the Indemnitee which the Indemnitee reasonably
determines, after conferring with its counsel, cannot be separated from any
related claim for money damages; provided, however, that if such equitable
relief or other relief portion of the Third Party Claim can be so separated
from that for money damages, the Indemnifying Party shall be entitled to
assume the defense of the portion relating to money damages; or (B) relates
to or arises out of any Shipbuilding Securities Liability.
(ii) an Indemnifying Party shall not be entitled to assume the defense of
any Third Party Claim (and shall be liable for the reasonable fees and
expenses of counsel incurred by the Indemnitee in defending such Third
Party Claim) if, in the Indemnitee's reasonable judgment, a conflict of
interest between such Indemnitee and such Indemnifying Party exists in
respect of such Third Party Claim; and
(iii) if at any time after assuming the defense of a Third Party Claim an
Indemnifying Party shall fail to prosecute or withdraw from the defense of
such Third Party Claim, the Indemnitee shall be entitled to resume the
defense thereof and the Indemnifying Party shall be liable for the
reasonable fees and expenses of counsel incurred by the Indemnitee in such
defense.
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(c) SETTLEMENT OF THIRD PARTY CLAIMS. Except as otherwise provided below in
this SECTION 7.05(C), or as otherwise specifically provided in any Ancillary
Agreement, including without limitation, the Tax Sharing Agreement and the
Benefits Agreement, if the Indemnifying Party has assumed the defense of any
Third Party Claim, then
(i) in no event will the Indemnitee admit any liability with respect to,
or settle, compromise or discharge, any Third Party Claim without the
Indemnifying Party's prior written consent; provided, however, that the
Indemnitee shall have the right to settle, compromise or discharge such
Third Party Claim without the consent of the Indemnifying Party if the
Indemnitee releases the Indemnifying Party from its indemnification
obligation hereunder with respect to such Third Party Claim and such
settlement, compromise or discharge would not otherwise adversely affect
the Indemnifying Party, and
(ii) the Indemnitee will agree to any settlement, compromise or discharge
of a Third Party Claim that the Indemnifying Party may recommend and that
by its terms obligates the Indemnifying Party to pay the full amount of the
liability in connection with such Third Party Claim and releases the
Indemnitee completely in connection with such Third Party Claim and that
would not otherwise adversely affect the Indemnitee.
provided, however, that the Indemnitee may refuse to agree to any such
settlement, compromise or discharge if the Indemnitee agrees that the
Indemnifying Party's indemnification obligation with respect to such Third
Party Claim shall not exceed the amount that would be required to be paid by
or on behalf of the Indemnifying Party in connection with such settlement,
compromise or discharge. If the Indemnifying Party has not assumed the defense
of a Third Party Claim then in no event shall the Indemnitee settle,
compromise or discharge such Third Party Claim without providing prior written
notice to the Indemnifying Party, which shall have the option within 15
business days following receipt of such notice to
(i) approve and agree to pay the settlement,
(ii) approve the amount of the settlement, reserving the right to contest
the Indemnitee's right to indemnity pursuant to this Agreement,
(iii) disapprove the settlement and assume in writing all past and future
responsibility for such Third Party Claim (including all of Indemnitee's
prior expenditures in connection therewith), or
(iv) disapprove the settlement and continue to refrain from participation
in the defense of such Third Party Claim, in which event the Indemnifying
Party shall have no further right to contest the amount or reasonableness
of the settlement if the Indemnitee elects to proceed therewith.
In the event the Indemnifying Party does not respond to such written notice
from the Indemnitee within such 15 business-day period, the Indemnifying Party
shall be deemed to have elected option (i).
(d) OTHER CLAIMS. Any claim on account of an Indemnifiable Loss which does
not result from a Third Party Claim shall be asserted by written notice given
by the Indemnitee to the applicable Indemnifying Party. Such Indemnifying
Party shall have a period of 15 business days after the receipt of such notice
within which to respond thereto. If such Indemnifying Party does not respond
within such 15 business-day period, such Indemnifying Party shall be deemed to
have refused to accept responsibility to make payment. If such Indemnifying
Party does not respond within such 15 business-day period or rejects such
claim in whole or in part, such Indemnitee shall be free to pursue such
remedies as may be available to such party under applicable Law or under this
Agreement.
SECTION 7.06. INDEMNIFICATION PAYMENTS. Indemnification required by this
ARTICLE VII shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as and when bills are received or
loss, liability, claim, damage or expense is incurred.
SECTION 7.07. OTHER ADJUSTMENTS.
(a) ADJUSTMENTS FOR TAXES. The amount of any Indemnifiable Loss shall be:
(i) increased to take into account any net Tax cost actually incurred by
the Indemnitee arising from any payments received from the Indemnifying
Party (grossed up for such increase); and
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(ii) reduced to take account of any net Tax benefit actually realized by
the Indemnitee arising from the incurrence or payment of any such
Indemnifiable Loss.
In computing the amount of such Tax cost or Tax benefit, the Indemnitee shall
be deemed to recognize all other items of income, gain, loss, deduction or
credit before recognizing any item arising from the receipt of any payment
with respect to an Indemnifiable Loss or the incurrence or payment of any
Indemnifiable Loss.
(b) REDUCTIONS FOR SUBSEQUENT RECOVERIES OR OTHER EVENTS. In addition to any
adjustments required pursuant to SECTION 7.04 hereof or SECTION 7.07(A) above,
if the amount of any Indemnifiable Losses shall, at any time subsequent to any
indemnification payment made by the Indemnifying Party pursuant to this
ARTICLE VII, be reduced by recovery, settlement or otherwise, the amount of
such reduction, less any expenses incurred in connection therewith, shall
promptly be repaid by the Indemnitee to the Indemnifying Party, up to the
aggregate amount of any payments received from such Indemnifying Party
pursuant to this Agreement in respect of such Indemnifiable Losses.
SECTION 7.08. OBLIGATIONS ABSOLUTE. The foregoing contractual obligations of
indemnification set forth in this ARTICLE VII shall:
(i) also apply to any and all Third Party Claims that allege that any
Indemnitee is independently, directly, vicariously or jointly and severally
liable to such third party;
(ii) to the extent permitted by applicable law, apply even if the
Indemnitee is partially negligent or otherwise partially culpable or at
fault, whether or not such liability arises under any doctrine of strict
liability; and
(iii) be in addition to any liability or obligation that an Indemnifying
Party may have other than pursuant to this Agreement.
SECTION 7.09. SURVIVAL OF INDEMNITIES. The obligations of Tenneco,
Industrial Company and Shipbuilding Company under this ARTICLE VII shall
survive the sale or other transfer by any of them of any assets or businesses
or the assignment by any of them of any Liabilities, with respect to any
Indemnifiable Loss of any Indemnitee related to such assets, businesses or
Liabilities.
SECTION 7.10. REMEDIES CUMULATIVE. The remedies provided in this ARTICLE VII
shall be cumulative and shall not preclude assertion by any Indemnitee of any
other rights or the seeking of any and all other remedies against any
Indemnifying Party.
SECTION 7.11. COOPERATION OF THE PARTIES WITH RESPECT TO ACTIONS AND THIRD
PARTY CLAIMS.
(a) IDENTIFICATION OF PARTY IN INTEREST. Any party to this Agreement that
has responsibility for an Action or Third Party Claim shall identify itself as
the true party in interest with respect to such Action or Third Party Claim
and shall use its commercially reasonable efforts to obtain the dismissal of
any other party to this Agreement from such Action or Third Party Claim.
(b) DISPUTES REGARDING RESPONSIBILITY FOR ACTIONS AND THIRD PARTY CLAIMS. If
there is uncertainty or disagreement concerning which party to this Agreement
has responsibility for any Action or Third Party Claim, the following
procedure shall be followed in an effort to reach agreement concerning
responsibility for such Action or Third Party Claim:
(i) The parties in disagreement over the responsibility for an Action or
Third Party Claim shall exchange brief written statements setting forth
their position concerning which party has responsibility for the Action or
Third Party Claim in accordance with the provisions of this ARTICLE VII.
These statements shall be exchanged within 5 days of a party putting
another party on written notice that the other party is or may be
responsible for the Action or Third Party Claim.
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(ii) If within 5 days of the exchange of the written statement of each
party's position agreement is not reached on responsibility for the Action
or Third Party Claim, the General Counsel for each of the parties in
disagreement over responsibility for the Action or Third Party Claim shall
speak either by telephone or in person to attempt to reach agreement on
responsibility for the Action or Third Party Claim.
(c) EFFECT OF FAILURE TO FOLLOW PROCEDURE. Failure to follow the procedure
set forth in clause (b) above shall not affect the rights and responsibilities
of the parties as established by the other provisions of this ARTICLE VII.
(d) EXCHANGE OF INFORMATION. In connection with the handling of current or
future Actions or Third Party Claims, the parties may determine that it is in
their mutual interest to exchange privileged or confidential information. If
so, the parties agree to discuss whether it is in their mutual interest to
enter into a joint defense agreement or information exchange agreement to
maintain the confidentiality of their communications and to permit them to
maintain the confidentiality of proprietary information or information that is
otherwise confidential or subject to an applicable privilege, including but
not limited to the attorney-client, work product, executive, deliberative
process, or self-evaluation privileges.
SECTION 7.12. CONTRIBUTION. To the extent that any indemnification provided
for under SECTION 7.01, SECTION 7.02 or SECTION 7.03 is unavailable to an
Indemnified Party or is insufficient in respect of any the Indemnifiable
Lossess of such Indemnified Party then the Indemnifying Party under such
Section, in lieu of indemnifying such Indemnified Party thereunder, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such Indemnifiable Losses (i) in such proportion as is appropriate to
reflect the relative benefits received by the Indemnifying Party on the one
hand and the Indemnified Party on the other hand from the transaction or other
matter which resulted in the Indemnifiable Losses or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other
hand in connection with the action, inaction, statements or omissions that
resulted in such Indemnifiable Losses as well as any other relevant equitable
considerations.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. COMPLETE AGREEMENT; CONSTRUCTION. This Agreement, including
the Exhibits and Schedules hereto, and the Ancillary Agreements shall
constitute the entire agreement between the parties with respect to the
subject matter hereof and shall supersede all previous negotiations,
commitments and writings with respect to such subject matter. In the event of
any inconsistency between this Agreement and any Schedule or Exhibit hereto,
the Schedule or Exhibit, as the case may be, shall prevail. Notwithstanding
any other provisions in this Agreement to the contrary, in the event and to
the extent that there shall be a conflict between the provisions of this
Agreement and the provisions of any Ancillary Agreement, such Ancillary
Agreement shall control.
SECTION 8.02. ANCILLARY AGREEMENTS. This Agreement is not intended to
address, and should not be interpreted to address, the matters specifically
and expressly covered by the Ancillary Agreements.
SECTION 8.03. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more such counterparts have been signed by
each of the parties and delivered to the other parties.
SECTION 8.04. SURVIVAL OF AGREEMENTS. Except as otherwise expressly provided
herein, all covenants and agreements of the parties contained in this
Agreement shall survive the Distribution Date.
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SECTION 8.05. RESPONSIBILITY FOR EXPENSES.
(a) EXPENSES INCURRED ON OR PRIOR TO DISTRIBUTION DATE. Subject to the
provisions of SECTION 8.05(C) below and except as otherwise set forth in this
Agreement or any Ancillary Agreement, all costs and expenses incurred on or
prior to the Distribution Date (whether or not paid on or prior to the
Distribution Date) in connection with the preparation, execution, delivery and
implementation of this Agreement and any Ancillary Agreement, the Information
Statements and the Distribution, and the consummation of the transactions
contemplated hereby and thereby shall be charged to and paid by Tenneco;
provided, however, that (i) such amounts shall be included in the calculation
of the Actual Energy Debt Amount to the extent expressly provided in the Debt
and Cash Allocation Agreement, and (ii) each of Industrial Company and
Shipbuilding Company shall be solely responsible and liable for any expenses,
fees, or other costs that it separately and directly incurs in connection with
any of the transactions contemplated under this Agreement or any of the
Ancillary Agreements.
(b) EXPENSES INCURRED OR ACCRUED AFTER DISTRIBUTION DATE. Subject to the
provisions of SECTION 8.05(C) below and except as otherwise set forth in this
Agreement or any Ancillary Agreement, each party shall bear its own costs and
expenses first incurred or accrued after the Distribution Date.
(c) ENVIRONMENTAL EXPENSES. Notwithstanding the provisions of SECTION
8.05(A) and SECTION 8.05(B) above, expenses and other costs incurred in
connection with compliance with any Environmental Laws applicable to the
transactions contemplated hereby shall be paid by the party that after the
Distribution Date will, or that this Agreement contemplates will, own the
assets or operate the business subject to such Environmental Laws.
SECTION 8.06. NOTICES. All notices and other communications to a party
hereunder shall be in writing and hand delivered or mailed by registered or
certified mail (return receipt requested) or sent by any means of electronic
message transmission with delivery confirmed (by voice or otherwise) to such
party (and will be deemed given on the date on which the notice is received by
such party) at the address for such party set forth below (or at such other
address for the party as the party shall, from time to time, specify by like
notice to the other parties):
If to Tenneco, at:1010 Milam Street
Houston, Texas 77002
Telecopier:
Attention: Corporate Secretary
If to Industrial Company, at:1275 King Street
Greenwich, CT 06831
Telecopier:
Attention: Corporate Secretary
If to Shipbuilding Company, at:4101 Washington Avenue
Newport News, Virginia 23607
Telecopier:
Attention: Corporate Secretary
SECTION 8.07. WAIVERS. The failure of any party hereto to require strict
performance by any other party of any provision in this Agreement will not
waive or diminish that party's right to demand strict performance thereafter
of that or any other provision hereof.
SECTION 8.08. AMENDMENTS. Subject to the terms of SECTION 8.11 hereof, this
Agreement may not be modified or amended except by an agreement in writing
signed by the parties hereto; provided, however, any such amendments or
modifications prior to the termination of the Merger Agreement or consummation
of the Merger may only be made with the prior consent of Acquiror unless such
modifications or amendments do not, individually or in the aggregate,
adversely affect the Energy Business (other than to a de minimis extent) or
materially delay or prevent the consummation of the Merger.
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SECTION 8.09. ASSIGNMENT. This Agreement shall be assignable in whole in
connection with a merger or consolidation or the sale of all or substantially
all the assets of a party hereto so long as the resulting, surviving or
transferee entity assumes all the obligations of the relevant party hereto by
operation of law or pursuant to an agreement in form and substance reasonably
satisfactory to the other parties to this Agreement. Otherwise this Agreement
shall not be assignable, in whole or in part, directly or indirectly, by any
party hereto without the prior written consent of the others, and any attempt
to assign any rights or obligations arising under this Agreement without such
consent shall be void.
SECTION 8.10. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
be binding upon, inure to the benefit of and be enforceable by the parties and
their respective permitted successors and permitted assigns.
SECTION 8.11. TERMINATION. This Agreement may be terminated and the
Distributions may be amended, modified or abandoned at any time prior to the
Distributions by and in the sole discretion of Tenneco without the approval of
Industrial Company or Shipbuilding Company or the stockholders of Tenneco;
provided, however, any such termination, abandonment, amendments or
modifications prior to the termination of the Merger Agreement or consummation
of the Merger may only be made with the prior written consent of Acquiror
unless, in the case of a modification or amendment only, such modification or
amendment does not, individually or in the aggregate, adversely affect the
Energy Business (other than to a de minimis extent) or materially delay or
prevent the consummation of the Merger. In the event of such termination, no
party shall have any liability of any kind to any other party or any other
person. After the Distributions, this Agreement may not be terminated except
by an agreement in writing signed by all of the parties hereto; provided,
however, that ARTICLE VIII shall not be terminated or amended after the
Distributions in respect of the third party beneficiaries thereto without the
consent of such persons. Nothing in this SECTION 8.11 shall relieve Tenneco of
its obligations, under Section 6.13 of the Merger Agreement.
SECTION 8.12. THIRD PARTY BENEFICIARIES. Except as provided in ARTICLE VII
hereof (relating to Indemnitees), this Agreement is solely for the benefit of
the parties hereto, the members of their respective Groups and Affiliates and
the Acquiror, after giving effect to the Distributions, and should not be
deemed to confer upon third parties any remedy, claim, liability, right of
reimbursement, claim of action or other right in excess of those existing
without reference to this Agreement.
SECTION 8.13. ATTORNEY FEES. A party in breach of this Agreement shall, on
demand, indemnify and hold harmless the other parties hereto for and against
all out-of-pocket expenses, including, without limitation, reasonable legal
fees, incurred by such other party by reason of the enforcement and protection
of its rights under this Agreement. The payment of such expenses is in
addition to any other relief to which such other party may be entitled
hereunder or otherwise.
SECTION 8.14. TITLE AND HEADINGS. Titles and headings to sections herein are
inserted for the convenience of reference only and are not intended to be a
part of or to affect the meaning or interpretation of this Agreement.
SECTION 8.15. EXHIBITS AND SCHEDULES. The Exhibits and Schedules attached
hereto shall be construed with and as an integral part of this Agreement to
the same extent as if the same had been set forth verbatim herein.
SECTION 8.16. SPECIFIC PERFORMANCE. Each of the parties hereto acknowledges
that there is no adequate remedy at law for the failure by such parties to
comply with the provisions of this Agreement and that such failure would cause
immediate harm that would not be adequately compensable in damages.
Accordingly, each of the parties hereto agrees that their agreements contained
herein may be specifically enforced without the requirement of posting a bond
or other security, in addition to all other remedies available to the parties
hereto under this Agreement.
SECTION 8.17. GOVERNING LAW. ALL QUESTIONS AND/OR DISPUTES CONCERNING THE
CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT AND THE SCHEDULES
AND EXHIBITS HERETO SHALL BE GOVERNED BY THE INTERNAL LAWS, AND NOT THE LAW
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OF CONFLICTS, OF THE STATE OF DELAWARE. EACH OF THE PARTIES TO THIS AGREEMENT
HEREBY IRREVOCABLY AND UNCONDITIONALLY (i) AGREES TO BE SUBJECT TO, AND HEREBY
CONSENTS AND SUBMITS TO, THE JURISDICTION OF THE COURTS OF THE STATE OF
DELAWARE AND OF THE FEDERAL COURTS SITTING IN THE STATE OF DELAWARE, (ii) TO
THE EXTENT SUCH PARTY IS NOT OTHERWISE SUBJECT TO SERVICE OF PROCESS IN THE
STATE OF DELAWARE, HEREBY APPOINTS THE CORPORATION TRUST COMPANY, AS SUCH
PARTY'S AGENT IN THE STATE OF DELAWARE FOR ACCEPTANCE OF LEGAL PROCESS AND
(iii) AGREES THAT SERVICE MADE ON ANY SUCH AGENT SET FORTH IN (ii) ABOVE SHALL
HAVE THE SAME LEGAL FORCE AND EFFECT AS IF SERVED UPON SUCH PARTY PERSONALLY
WITHIN THE STATE OF DELAWARE.
SECTION 8.18. SEVERABILITY. In the event any one or more of the provisions
contained in this Agreement should be held invalid, illegal or unenforceable
in any respect, the validity, legality and enforceability of the remaining
provisions contained herein and therein shall not in any way be affected or
impaired thereby. The parties shall endeavor in good-faith negotiations to
replace the invalid, illegal or unenforceable provisions with valid
provisions, the economic effect of which comes as close as possible to that of
the invalid, illegal or unenforceable provisions.
SECTION 8.19. SUBSIDIARIES. Each of the parties hereto shall cause to be
performed, and hereby guarantee the performance of, all actions, agreements
and obligations set forth herein to be performed by any Subsidiary of such
party which is contemplated to be a Subsidiary of such party on and after the
Distribution Date.
SECTION 8.20. SHIPBUILDING HEDGING TRANSACTIONS. Notwithstanding any other
provisions of this Agreement or any other document or instrument (including
any of the other Ancillary Agreements), any gains or losses relating to
hedging or similar transactions undertaken by Shipbuilding Company or any
other member of the Shipbuilding Group which are in effect on the date hereof
or at any time hereafter through the Distribution Date shall be for the
account of Shipbuilding Company, and, without limiting the generality of the
foregoing, (i) Shipbuilding Company and the other members of the Group shall
finance and fund any such losses through their own finance facilities, and
(ii) no cash or debt relating to any such gains or losses shall be taken into
account in making any of the determinations under the Debt and Cash Allocation
Agreement, including determinations regarding the amount of the Allocated
Shipbuilding Debt and/or the Guaranteed Shipbuilding Cash Amount.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
TENNECO INC.
By __________________________________
Name:
Title:
NEW TENNECO INC.
By __________________________________
Name:
Title:
NEWPORT NEWS SHIPBUILDING INC.
By __________________________________
Name:
Title:
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EXHIBIT 3.2
-----------
RESTATED CERTIFICATE OF INCORPORATION
OF
NEW TENNECO INC.
* * * * *
The present name of the corporation is New Tenneco Inc. The corporation was
incorporated under that name by the filing of its original Certificate of
Incorporation with the Secretary of State of the State of Delaware on August 26,
1996. This Restated Certificate of Incorporation of the corporation, which both
restates and further amends the provisions of the corporation's Certificate of
Incorporation, was duly adopted in accordance with the provisions of Sections
242 and 245 of the General Corporation Law of the State of Delaware and by the
written consent of its sole stockholder in accordance with Section 228 of the
General Corporation Law of the State of Delaware. The Certificate of
Incorporation of the corporation is hereby amended and restated to read in its
entirety as follows:
FIRST: The name of the corporation is New Tenneco Inc.
SECOND: The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: A. The total number of shares of all classes of stock which the
corporation shall be authorized to issue is 400,000,000 shares, divided into
350,000,000 shares of Common Stock, par value $.01 per share (herein called
"Common Stock"), and 50,000,000 shares of Preferred Stock, par value $.01 per
share (herein called "Preferred Stock").
B. The Board of Directors of the corporation (the "Board of Directors") is
hereby expressly authorized, by resolution or resolutions thereof, to provide,
out of the unissued shares of Preferred Stock, for series of Preferred Stock
and, with respect to each such series, to fix the number of shares constituting
such series and the designation of such series, the voting powers (if any) of
the shares of such series, and the preferences and relative, participating,
optional or other special rights, if any, and any qualifications, limitations or
restrictions thereof, of the shares of such series. The powers, preferences and
relative, participating, optional and other special rights of each series of
Preferred Stock, and the qualifications, limitations or restrictions thereof, if
any, may differ from those of any and all other series at any time outstanding.
<PAGE>
C. Except as may otherwise be provided in this Restated Certificate of
Incorporation (including any certificate filed with the Secretary of State of
the State of Delaware establishing the terms of a series of Preferred Stock in
accordance with Section B of this Article FOURTH) or by applicable law, each
holder of Common Stock, as such, shall be entitled to one vote for each share of
Common Stock held of record by such holder on all matters on which stockholders
generally are entitled to vote, and no holder of any series of Preferred Stock,
as such, shall be entitled to any voting powers in respect thereof.
D. Subject to applicable law and the rights, if any, of the holders of any
outstanding series of Preferred Stock, dividends may be declared and paid on the
Common Stock at such times and in such amounts as the Board of Directors in its
discretion shall determine.
E. Upon the dissolution, liquidation or winding up of the corporation,
subject to the rights, if any, of the holders of any outstanding series of
Preferred Stock, the holders of the Common Stock shall be entitled to receive
the assets of the corporation available for distribution to its stockholders
ratably in proportion to the number of shares held by them.
F. The corporation shall be entitled to treat the person in whose name any
share of its stock is registered as the owner thereof for all purposes and shall
not be bound to recognize any equitable or other claim to, or interest in, such
share on the part of any other person, whether or not the corporation shall have
notice thereof, except as expressly provided by applicable law.
FIFTH: A. The business and affairs of the corporation shall be
managed by or under the direction of the Board of Directors consisting of not
less than eight nor more than sixteen directors, with the exact number of
directors constituting the entire Board of Directors to be determined from time
to time by resolution adopted by the affirmative vote of a majority of the
entire Board of Directors. For purposes of this Restated Certificate of
Incorporation, "the entire Board of Directors" shall mean the number of
directors that would be in office if there were no vacancies nor any unfilled
newly created directorships.
The Board of Directors shall be divided into three classes, Class I, Class
II and Class III. Each class shall consist, as nearly as may be possible, of
one-third of the number of directors constituting the entire Board of Directors.
Class I directors shall be initially elected for a term expiring at the first
succeeding annual meeting of stockholders, Class II directors shall be initially
elected for a term expiring at the second succeeding annual meeting of
stockholders, and Class III directors shall be initially elected for a term
expiring at the third succeeding annual meeting of stockholders. At each annual
meeting of the stockholders following 1996, successors to the class of directors
whose term expires at that annual meeting shall be elected for a term expiring
at the third succeeding annual meeting of stockholders. If the number of
directors is changed, any increase or decrease shall be apportioned among the
classes so as to maintain the number of directors in each class as nearly equal
as possible, and
<PAGE>
any additional director of any class elected to fill a newly created
directorship resulting from an increase in such class shall hold office for a
term that shall coincide with the remaining term of that class, but in no case
shall a decrease in the number of directors shorten the term of any incumbent
director. A director shall hold office until the annual meeting for the year in
which his term expires and until his successor shall be elected and shall
qualify, subject, however, to prior death, resignation, retirement,
disqualification or removal from office. Any vacancy on the Board of Directors
that results from an increase in the number of directors may be filled by a
majority of the Board of Directors then in office, provided that a quorum is
present, and any other vacancy occurring in the Board of Directors may be filled
by a majority of the directors then in office, even if less than a quorum, or by
a sole remaining director. Directors chosen to fill any such vacancy shall hold
office for a term expiring at the annual meeting of stockholders at which the
term of office of the class to which they have been elected expires and until
such director's successor shall have been duly elected and qualified.
Notwithstanding the foregoing, whenever the holders of any one or more
series of Preferred Stock shall have the right, voting separately as a class or
series, to elect directors, the election, removal, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Restated Certificate of Incorporation applicable thereto, and such
directors so elected shall not be divided into classes pursuant to this Article
FIFTH unless expressly provided by such terms.
B. The Board of Directors shall be authorized to adopt, make, amend,
alter, change, add to or repeal the By-Laws of the corporation, subject to the
power of the stockholders to amend, alter, change, add to or repeal the By-Laws
made by the Board of Directors.
C. Unless and except to the extent that the By-Laws of the corporation
shall so require, the election of directors of the corporation need not be by
written ballot.
SIXTH: A. In addition to any affirmative vote required by law or
this Restated Certificate of Incorporation or the By-Laws of the corporation,
and except as otherwise expressly provided in Section B of this Article SIXTH, a
Business Combination (as hereinafter defined) with, or proposed by or on behalf
of, any Interested Stockholder (as hereinafter defined) or any Affiliate or
Associate (as hereinafter defined) of any Interested Stockholder or any person
who thereafter would be an Affiliate or Associate of such Interested Stockholder
shall, except as otherwise prohibited by applicable law, require the affirmative
vote of not less than 66 2/3% of the votes entitled to be cast by the holders of
all the then outstanding shares of Voting Stock (as hereinafter defined), voting
together as a single class, excluding Voting Stock beneficially owned by any
Interested Stockholder. Such affirmative vote shall be required notwithstanding
the fact that no vote may be required, or that a lesser percentage or separate
class vote may be specified, by law or in any agreement with any national
securities exchange or otherwise.
<PAGE>
B. The provisions of Section A of this Article SIXTH shall not be
applicable to any particular Business Combination, and such Business Combination
shall require only such affirmative vote, if any, as is required by law or by
any other provision of this Restated Certificate of Incorporation or the By-Laws
of the corporation, or any agreement with any national securities exchange, if
all of the conditions specified in either of the following Paragraphs 1 or 2 are
met or, in the case of a Business Combination not involving the payment of
consideration to the holders of the corporation's outstanding Capital Stock (as
hereinafter defined), if the condition specified in the following Paragraph 1 is
met:
1. The Business Combination shall have been approved, either
specifically or as a transaction which is within an approved category of
transactions, by a majority (whether such approval is made prior to or
subsequent to the acquisition of, or announcement or public disclosure of
the intention to acquire, beneficial ownership of the Voting Stock that
caused the Interested Stockholder to become an Interested Stockholder) of
the Continuing Directors (as hereinafter defined).
2. All of the following conditions shall have been met:
a. the aggregate amount of cash and the Fair Market Value (as
hereinafter defined), as of the date of the consummation of the
Business Combination, of consideration other than cash to be received
per share by holders of Common Stock in such Business Combination
shall be at least equal to the highest amount determined under clauses
(i) and (ii) below:
(i) (if applicable) the highest per share price (including
any brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by or on behalf of the Interested Stockholder for any
share of Common Stock in connection with the acquisition by the
Interested Stockholder of beneficial ownership of shares of
Common Stock (x) within the two-year period immediately prior to
the first public announcement of the proposed Business
Combination (the "Announcement Date") or (y) in the transaction
in which it became an Interested Stockholder, whichever is
higher, in either case as adjusted for any subsequent stock
split, stock dividend, subdivision or reclassification with
respect to Common Stock; and
(ii) the Fair Market Value per share of Common Stock on the
Announcement Date or on the date on which the Interested
Stockholder became an Interested Stockholder (the "Determination
Date"), whichever is higher, as adjusted for any subsequent stock
split, stock dividend, subdivision or reclassification with
respect to Common Stock.
b. The aggregate amount of cash and the Fair Market Value, as of
the date of the consummation of the Business Combination, of
consideration other than cash to be received per share by holders of
shares of any class or series of
<PAGE>
outstanding Capital Stock, other than Common Stock, shall be at least
equal to the highest amount determined under clauses (i), (ii), (iii)
and (iv) below:
(i) (if applicable) the highest per share price (including
any brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by or on behalf of the Interested Stockholder for any
share of such class or series of Capital Stock in connection with
the acquisition by the Interested Stockholder of beneficial
ownership of shares of such class or series of Capital Stock (x)
within the two-year period immediately prior to the Announcement
Date, or (y) in the transaction in which it became an Interested
Stockholder, whichever is higher, in either case as adjusted for
any subsequent stock split, stock dividend, subdivision or
reclassification with respect to such class or series of Capital
Stock;
(ii) the Fair Market Value per share of such class or
series of Capital Stock on the Announcement Date or on the
Determination Date, whichever is higher, as adjusted for any
subsequent stock split, stock dividend, subdivision or
reclassification with respect to such class or series of Capital
Stock;
(iii) (if applicable) the price per share equal to the Fair
Market Value per share of such class or series of Capital Stock
determined pursuant to the immediately preceding clause (ii),
multiplied by the ratio of (x) the highest per share price
(including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by or on behalf of the Interested
Stockholder for any share of such class or series of Capital
Stock in connection with the acquisition by the Interested
Stockholder of beneficial ownership of shares of such class or
series of Capital Stock within the two-year period immediately
prior to the Announcement Date, as adjusted for any subsequent
stock split, stock dividend, subdivision or reclassification with
respect to such class or series of Capital Stock to (y) the Fair
Market Value per share of such class or series of Capital Stock
on the first day in such two-year period on which the Interested
Stockholder acquired beneficial ownership of any share of such
class or series of Capital Stock, as adjusted for any subsequent
stock split, stock dividend, subdivision or reclassification with
respect to such class or series of Capital Stock; and
(iv) (if applicable) the highest preferential amount per
share to which the holders of shares of such class or series of
Capital Stock would be entitled in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs
of the corporation regardless of whether the Business Combination
to be consummated constitutes such an event.
<PAGE>
The provisions of this Paragraph 2 shall be required to be met
with respect to every class or series of outstanding Capital Stock,
whether or not the Interested Stockholder has previously acquired
beneficial ownership of any shares of a particular class or series of
Capital Stock.
c. The consideration to be received by holders of a particular
class or series of outstanding Capital Stock shall be in cash or in
the same form as previously has been paid by or on behalf of the
Interested Stockholder in connection with its direct or indirect
acquisition of beneficial ownership of shares of such class or series
of Capital Stock. If the consideration so paid for shares of any class
or series of Capital Stock varied as to form, the form of
consideration for such class or series of Capital Stock shall be
either cash or the form used to acquire beneficial ownership of the
largest number of shares of such class or series of Capital Stock
previously acquired by the Interested Stockholder.
d. After the Determination Date and prior to the consummation of
such Business Combination: (i) except as approved by a majority of the
Continuing Directors, there shall have been no failure to declare and
pay at the regular date therefor any full quarterly dividends (whether
or not cumulative) payable in accordance with the terms of any
outstanding Capital Stock; (ii) there shall have been no reduction in
the annual rate of dividends paid on the Common Stock (except as
necessary to reflect any stock split, stock dividend or subdivision of
the Common Stock), except as approved by a majority of the Continuing
Directors; (iii) there shall have been an increase in the annual rate
of dividends paid on the Common Stock as necessary to reflect any
reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction that has
the effect of reducing the number of outstanding shares of Common
Stock, unless the failure so to increase such annual rate is approved
by a majority of the Continuing Directors; and (iv) such Interested
Stockholder shall not have become the beneficial owner of any
additional shares of Capital Stock except as part of the transaction
that results in such Interested Stockholder becoming an Interested
Stockholder and except in a transaction that, after giving effect
thereto, would not result in any increase in the Interested
Stockholder's percentage beneficial ownership of any class or series
of Capital Stock.
e. A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the
Securities Exchange Act of 1934 and the rules and regulations
thereunder (the "Act") (or any subsequent provisions replacing such
Act, rules or regulations) shall be mailed to all stockholders of the
corporation at least 30 days prior to the consummation of such
Business Combination (whether or not such proxy or information
statement is required to be mailed pursuant to such Act or
<PAGE>
subsequent provisions). The proxy or information statement shall
contain on the first page thereof, in a prominent place, any statement
as to the advisability (or inadvisability) of the Business Combination
that the Continuing Directors, or any of them, may choose to make and,
if deemed advisable by a majority of the Continuing Directors, the
opinion of an investment banking firm selected by a majority of the
Continuing Directors as to the fairness (or not) of the terms of the
Business Combination from a financial point of view to the holders of
the outstanding shares of Capital Stock other than the Interested
Stockholder and its Affiliates or Associates (as hereinafter defined),
such investment banking firm to be paid a reasonable fee for its
services by the corporation.
f. Such Interested Stockholder shall not have made any major
change in the corporation's business or equity capital structure
without the approval of a majority of the Continuing Directors.
C. The following definitions shall apply with respect to this Article SIXTH:
1. The term "Business Combination" shall mean:
a. any merger or consolidation of the corporation or any
Subsidiary (as hereinafter defined) with (i) any Interested
Stockholder or (ii) any other company (whether or not itself an
Interested Stockholder) which is or after such merger or consolidation
would be an Affiliate or Associate of an Interested Stockholder; or
b. any sale, lease, exchange, mortgage, pledge, transfer or
other disposition or security arrangement, investment, loan, advance,
guarantee, agreement to purchase, agreement to pay, extension of
credit, joint venture participation or other arrangement (in one
transaction or a series of transactions) with or for the benefit of
any Interested Stockholder or any Affiliate or Associate of any
Interested Stockholder involving any assets, securities or commitments
of the corporation, any Subsidiary or any Interested Stockholder or
any Affiliate or Associate of any Interested Stockholder which (except
for any arrangement, whether as employee, consultant or otherwise,
other than as a director, pursuant to which any Interested Stockholder
or any Affiliate or Associate thereof shall, directly or indirectly,
have any control over or responsibility for the management of any
aspect of the business or affairs of the corporation, with respect to
which arrangements the value tests set forth below shall not apply),
together with all other such arrangements (including all contemplated
future events), has an aggregate Fair Market Value and/or involves
aggregate commitments of $25,000,000 or more or constitutes more than
five percent of the book value of the total assets (in the case of
transactions involving assets or commitments other than capital stock)
or five percent of the stockholders' equity (in the case of
transactions in capital stock)
<PAGE>
of the entity in question (the "Substantial Part"), as reflected in
the most recent fiscal year-end consolidated balance sheet of such
entity existing at the time the stockholders of the corporation would
be required to approve or authorize the Business Combination involving
the assets, securities and/or commitments constituting any Substantial
Part; or
c. the adoption of any plan or proposal for the liquidation
or dissolution of the corporation or for any amendment to the
corporation's By-Laws; or
d. any reclassification of securities (including any reverse
stock split), or recapitalization of the corporation, or any merger or
consolidation of the corporation with any of its Subsidiaries or any
other transaction (whether or not with or otherwise involving an
Interested Stockholder) that has the effect, directly or indirectly,
of increasing the proportionate share of any class or series of
Capital Stock, or any securities convertible into Capital Stock or
into equity securities of any Subsidiary, that is beneficially owned
by any Interested Stockholder or any Affiliate or Associate of any
Interested Stockholder, or
e. any agreement, contract or other arrangement providing for
any one or more of the actions specified in the foregoing clauses (a)
to (d).
2. The term "Capital Stock" shall mean all capital stock of the
corporation authorized to be issued from time to time under Article FOURTH
of this Restated Certificate of Incorporation, and the term "Voting Stock"
shall mean all Capital Stock which by its terms may be voted on all matters
submitted to stockholders of the corporation generally.
3. The term "person" shall mean any individual, firm, company or
other entity and shall include any group comprised of any person and any
other person with whom such person or any Affiliate or Associate of such
person has any agreement, arrangement or understanding, directly or
indirectly, for the purpose of acquiring, holding, voting or disposing of
Capital Stock.
4. The term "Interested Stockholder" shall mean any person (other
than (i) the corporation or any Subsidiary, any profit-sharing, employee
stock ownership or other employee benefit plan of the corporation or any
Subsidiary or any trustee or fiduciary with respect to any such plan or
holding Voting Stock for the purpose of funding any such plan or funding
other employee benefits for employees of the corporation or any Subsidiary
when acting in such capacity, and (ii) until immediately following the
Industrial Distribution (as defined in the Distribution Agreement, dated as
of ____________ ___, 1996, among the corporation, Newport News Shipbuilding
Inc., a Delaware corporation, and the corporation known as of the date
thereof as Tenneco Inc., a Delaware corporation ("Old Tenneco")), Old
Tenneco or any subsidiary of Old
<PAGE>
Tenneco) who (a) is or has announced or publicly disclosed a plan or
intention to become the beneficial owner of Voting Stock representing five
percent or more of the votes entitled to be cast by the holders of all then
outstanding shares of Voting Stock; or (b) is an Affiliate or Associate of
the corporation and at any time within the two-year period immediately
prior to the date in question was the beneficial owner of Voting Stock
representing five percent or more of the votes entitled to be cast by the
holders of all then outstanding shares of Voting Stock.
5. A person shall be a "beneficial owner" of any Capital Stock (a)
which such person or any of its Affiliates or Associates beneficially owns,
directly or indirectly; (b) which such person or any of its Affiliates or
Associates has, directly or indirectly, (i) the right to acquire (whether
such right is exercisable immediately or subject only to the passage of
time), pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants or options, or
otherwise, or (ii) the right to vote pursuant to any agreement, arrangement
or understanding; or (c) which are beneficially owned, directly or
indirectly, by any other person with which such person or any of its
Affiliates or Associates has any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting or disposing of any shares of
Capital Stock. For the purposes of determining whether a person is an
Interested Stockholder pursuant to Paragraph 4 of this Section C, the
number of shares of Capital Stock deemed to be outstanding shall include
shares deemed beneficially owned by such person through application of this
Paragraph 5 of Section C, but shall not include any other shares of Capital
Stock that may be issuable pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights, warrants or options,
or otherwise. Notwithstanding the foregoing, for purposes of this Article
SIXTH, a person shall not be deemed a "beneficial owner" of any Capital
Stock which such person has the right to acquire upon exercise of the
Rights issued pursuant to the Rights Agreement, dated as of
________________ ___, 1996, between the corporation and First Chicago Trust
Company of New York (including any successor rights plan thereto, the
"Rights Agreement"), if such person would not be deemed the beneficial
owner of such Capital Stock under the terms of such Rights Agreement.
6. The terms "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 under the Act as in effect on
___________ __, 1996 (the term "registrant" in said Rule 12b-2 meaning in
this case the corporation).
7. The term "Subsidiary" means any company of which a majority of any
class of equity securities are beneficially owned by the corporation;
provided, however, that for the purposes of the definition of Interested
Stockholder set forth in Paragraph 4 of this Section C, the term
"Subsidiary" shall mean only a company of which a majority of each class of
equity security is beneficially owned by the corporation.
<PAGE>
8. The term "Continuing Director" means any member of the Board of
Directors, while such person is a member of the Board of Directors, who is
not an Affiliate or Associate or representative of the Interested
Stockholder and was a member of the Board of Directors prior to the time
that the Interested Stockholder became an Interested Stockholder, and any
successor of a Continuing Director while such successor is a member of the
Board of Directors, who is not an Affiliate or Associate or representative
of the Interested Stockholder and is recommended or elected to succeed the
Continuing Director by a majority of Continuing Directors.
9. The term "Fair Market Value" means (a) in the case of cash, the
amount of such cash; (b) in the case of stock, the highest closing sale
price during the 30-day period immediately preceding the date in question
of a share of such stock on the Composite Tape for New York Stock Exchange-
Listed Stocks, or, if such stock is not quoted on the Composite Tape, on
the New York Stock Exchange, or, if such stock is not listed on such
Exchange, on the principal United States securities exchange registered
under the Act on which such stock is listed, or, if such stock is not
listed on any such exchange, the highest closing bid quotation with respect
to a share of such stock during the 30-day period preceding the date in
question on The Nasdaq Stock Market or any similar system then in use, or
if no such quotations are available, the fair market value on the date in
question of a share of such stock as determined by a majority of the
Continuing Directors in good faith; and (c) in the case of property other
than cash or stock, the fair market value of such property on the date in
question as determined in good faith by a majority of the Continuing
Directors.
10. In the event of any Business Combination in which the corporation
survives, the phrase "consideration other than cash to be received" as used
in Paragraphs 2.a and 2.b of Section B of this Article SIXTH shall include
the shares of Common Stock and/or the shares of any other class or series
of Capital Stock retained by the holders of such shares.
D. A majority of the Continuing Directors shall have the power and duty to
determine for the purposes of this Article SIXTH, on the basis of information
known to them after reasonable inquiry, all questions arising under this Article
SIXTH, including, without limitation, (a) whether a person is an Interested
Stockholder, (b) the number of shares of Capital Stock or other securities
beneficially owned by any person, (c) whether a person is an Affiliate or
Associate of another, (d) whether a Proposed Action is with, or proposed by, or
on behalf of an Interested Stockholder or an Affiliate or Associate of an
Interested Stockholder, (e) whether the assets that are the subject of any
Business Combination have, or the consideration to be received for the issuance
or transfer of securities by the corporation or any Subsidiary in any Business
Combination has, an aggregate Fair Market Value of $25,000,000 or more, and (f)
whether the assets or securities that are the subject of any Business
Combination constitute a Substantial Part. Any such determination made in good
faith shall be binding and conclusive on all parties.
<PAGE>
E. Nothing contained in this Article SIXTH shall be construed to relieve
any Interested Stockholder from any fiduciary obligation imposed by law.
F. The fact that any Business Combination complies with the provisions of
Section B of this Article SIXTH shall not be construed to impose any fiduciary
duty, obligation or responsibility on the Board of Directors, or any member
thereof, to approve such Business Combination or recommend its adoption or
approval to the stockholders of the corporation, nor shall such compliance
limit, prohibit or otherwise restrict in any manner the Board of Directors, or
any member thereof, with respect to evaluations of or actions and responses
taken with respect to such Business Combination.
G. For the purposes of this Article SIXTH, a Business Combination or any
proposal to amend or repeal, or to adopt any provision of this Restated
Certificate of Incorporation inconsistent with, this Article SIXTH
(collectively, "Proposed Action"), is presumed to have been proposed by or on
behalf of an Interested Stockholder or an Affiliate or Associate of an
Interested Stockholder or a person who thereafter would become such if (1) after
the Interested Stockholder became such, the Proposed Action is proposed
following the election of any director of the corporation who with respect to
such Interested Stockholder would not qualify to serve as a Continuing Director
or (2) such Interested Stockholder, Affiliate, Associate or person votes for or
consents to the adoption of any such Proposed Action, unless as to such
Interested Stockholder, Affiliate, Associate or person a majority of the
Continuing Directors makes a good faith determination that such Proposed Action
is not proposed by or on behalf of such Interested Stockholder, Affiliate,
Associate or person, based on information known to them after reasonable
inquiry.
H. Notwithstanding any other provisions of this Restated Certificate of
Incorporation or the By-Laws of the corporation (and notwithstanding the fact
that a lesser percentage or separate class vote may be specified by law, this
Restated Certificate of Incorporation or the By-Laws of the corporation), any
proposal to amend or repeal, or to adopt any provision of this Restated
Certificate of Incorporation inconsistent with, this Article SIXTH which is
proposed by or on behalf of an Interested Stockholder or an Affiliate or
Associate of an Interested Stockholder shall require the affirmative vote of the
holders of not less than 66 2/3% of the votes entitled to be cast by the holders
of all the then outstanding shares of Voting Stock, voting together as a single
class, excluding Voting Stock beneficially owned by any Interested Stockholder,
provided, however, that this Section H shall not apply to, and such 66 2/3% vote
shall not be required for, any amendment or repeal of, or the adoption of any
provision inconsistent with, this Article SIXTH unanimously recommended by the
Board of Directors if all of such directors are persons who would be eligible to
serve as Continuing Directors within the meaning of Paragraph 8 of Section C of
this Article SIXTH.
SEVENTH: A director of the corporation shall not be liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except to the extent such exemption from liability or
limitation thereof is not permitted under the General Corporation Law of the
State of Delaware as the same exists or may hereafter be amended.
<PAGE>
Any amendment, modification or repeal of the foregoing sentence shall not
adversely affect any right or protection of a director of the corporation
hereunder in respect of any act or omission occurring prior to the time of such
amendment, modification or repeal.
EIGHTH: Subject to the provisions of this Restated Certificate of
Incorporation and applicable law, the corporation reserves the right at any time
and from time to time to amend, alter, change or repeal any provision contained
in this Restated Certificate of Incorporation, and any other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted, in the manner now or hereafter prescribed herein or by
applicable law, and all rights, preferences and privileges of whatsoever nature
conferred upon stockholders, directors or any other persons whomsoever by and
pursuant to this Restated Certificate of Incorporation in its present form or as
hereafter amended are granted subject to the right reserved in this Article
EIGHTH.
IN WITNESS WHEREOF, the undersigned has executed this Restated Certificate
of Incorporation this ________ day of ______________, 1996.
NEW TENNECO INC.
By:
Name:
Office:
<PAGE>
EXHIBIT C
TO
DISTRIBUTION AGREEMENT
DEBT AND CASH ALLOCATION AGREEMENT
THIS DEBT AND CASH ALLOCATION AGREEMENT (this "Agreement") is made and
entered into as of this day of , 1996 by and among Tenneco
Inc., a Delaware corporation ("Tenneco"), Newport News Shipbuilding Inc.
(formerly known as Tenneco InterAmerica Inc.), a Delaware corporation
("Shipbuilding Company"), and New Tenneco Inc., a Delaware corporation
("Industrial Company").
WHEREAS, pursuant to the terms of that certain Distribution Agreement by and
among the parties hereto and dated as of , 1996 (the "Distribution
Agreement"), the parties have entered into this Agreement regarding the
allocation of the Cash and Cash Equivalents and Consolidated Debt of Tenneco
and its consolidated subsidiaries as of the Effective Time. For purposes of
this Agreement only, the "Effective Time" means 12:01 AM, Houston time, on the
date on which the Merger Effective Time occurs.
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained in this Agreement and the Distribution Agreement, each of
the parties hereto, on behalf of itself and each of the other members of its
Group over which it has direct or indirect legal or effective control, hereby
agrees as follows:
1. Certain Definitions. Capitalized terms which are used herein but which
are not defined below in this SECTION 1 or in any of the other provisions or
Sections of this Agreement or in the Distribution Agreement, shall have the
meaning ascribed to such terms in the Debt Realignment Plan attached as
Exhibit C to the Merger Agreement.
(a) "Actual Energy Debt Amount" means the aggregate amount, as of the
Effective Time, of the following, without duplication:
(i) the then outstanding amount of the Tenneco Revolving Debt plus
accrued and accreted interest and fees and expenses in respect thereof
(as reflected on the Energy Adjusted Closing Balance Sheet) ; plus
(ii) the Consolidated Public Debt Value; plus
(iii) the then outstanding principal amount of Consolidated Debt of
Tenneco and the Energy Subsidiaries other than that which is described
in clauses (i) and (ii) above (for this purpose undrawn letters of
credit and guarantees shall not be treated as outstanding) plus accrued
and accreted interest and fees and expenses in respect thereof as
reflected on the Energy Adjusted Closing Balance Sheet; plus
(iv) except as otherwise expressly provided in the Merger Agreement
or the Distribution Agreement, the unpaid amount of all direct and out
of pocket fees, costs and expenses (as reflected on the Energy Adjusted
Closing Balance Sheet) incurred on or prior to the Effective Time by
Tenneco and its subsidiaries in respect of the transactions
contemplated under the Debt Realignment, with respect to the Merger
Agreement, the NPS Issuance and with respect to the Distribution
Agreement, including, without limitation, the Corporate Restructuring
Transactions, the Distributions, the Merger and the other related
transactions, including by way of example items specifically set forth
on Schedule 1 to the extent incurred in respect of the aforesaid
transactions (collectively, the "Tenneco Transaction Expenses");
(v) any sales and use, gross receipts or other transfer Taxes
(including Gains Taxes and Transfer Taxes, as defined in the Merger
Agreement) imposed as a result of the Corporate Restructuring
Transactions or otherwise occurring pursuant to the Distribution
Agreement or the Merger Agreement, excluding, however, any stamp duty
imposed by the Stamp Act 1894 (Queensland) as a result of the Merger;
plus
(vi) Restructuring Taxes (as defined in the Tax Sharing Agreement),
except (A) for Taxes resulting from the deferred intercompany items on
Schedule 2, and (B) to the extent the IRS ruling provides the
Transactions (as defined in the Tax Sharing Agreement) are tax-free;
plus
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(vii) the then outstanding amount of any off-balance sheet
indebtedness incurred after June 19, 1996 and before the Effective Time
to finance the acquisition of any additional interest in the Oasis
Pipeline;
(viii) dividends declared by Tenneco on its common stock, $4.50
Preferred Stock and $7.40 Preferred Stock which have not been paid
prior to the Effective Time but as to which the record date is before
the Effective Time; plus
(ix) the total amount of dividends accrued on the shares of New
Preferred Stock issued pursuant the NPS Issuance that remain unpaid as
of the Effective Time.
The parties hereto hereby acknowledge and agree that the Actual Energy Debt
Amount shall include any amounts (including interest, fees and other charges)
that may be due and owing ASCC under or as a result of the factoring
arrangement between ASCC and Tenneco (and/or any of its Subsidiaries) other
than the amount of Factored Proceeds (the "ASCC Amount").
(b) "Actual Energy Expenditures Amount" means the actual amount of
capital expenditures (determined on a basis consistent with the past
accounting practices of the Energy Business and the 1996 capital budget
provided to Acquiror) made and paid for by the Energy Business from and
after January 1, 1996 to and including the Effective Time, including,
without limitation any capital expenditures in respect of the 70 MW
Dunaferr power project in Hungary; provided, however, that any amount paid
for the acquisition of any additional interest in either Tenneco Energy
Resources Inc. or the Oasis Pipeline or to repair any gas pipeline shall
not be capital expenditures for any purpose under this Agreement and shall
not be included in the Actual Energy Expenditures Amount.
(c) "Allocated Energy Debt" means the total amount of indebtedness
(including accrued and accreted interest and fees and expenses) outstanding
as of the Effective Time under each of the Tenneco Revolving Debt, the
Consolidated Debt (other than the Tenneco Revolving Debt) of Tenneco and
the Energy Subsidiaries and the Tenneco Transaction Expenses, and any and
all such indebtedness outstanding or other obligations and liabilities
incurred or accrued under any of the foregoing from time to time and at any
time after the Effective Time.
(d) "Allocated Industrial Debt" means the total amount of indebtedness
(including accrued and accreted interest and fees and expenses) outstanding
under the Industrial Debt Securities as of the Effective Time, any and all
such indebtedness outstanding from time to time thereafter and all other
obligations and liabilities incurred or accrued at any time under the
Industrial Debt Securities.
(e) "Allocated Shipbuilding Debt" means the total amount of indebtedness
(including accrued and accreted interest and fees and expenses) outstanding
under the Shipbuilding Credit Facility as of the Effective Time, any and
all such indebtedness outstanding from time to time at any time thereafter
and all other obligations and liabilities incurred or accrued at any time
under the Shipbuilding Credit Facility.
(f) "Auditors" has the meaning ascribed to such term in SECTION 6 below.
(g) "Base Amount" means an amount equal to $2,650,000,000, (i) plus,
without duplication, the sum of (A) with respect to Tenneco gas purchase
contracts, the amount of all cash payments made by Tenneco and/or any of
its Subsidiaries during the period commencing on the date of Merger
Agreement and ending as of the Effective Time as a result or in respect of
any settlement, judgment or satisfaction of a bond in excess of the market
price for gas received by Tenneco and/or any of its Subsidiaries reduced by
the amount of any cash payments received from customers, insurers or other
third parties with respect thereto (other than ones refunded prior to the
Effective Time) or with respect to any gas supply realignment costs which
are so recovered (and not refunded) on or prior to the Effective Time, (B)
the purchase price paid by Tenneco and/or any of its subsidiaries to
acquire any additional interest in the Oasis Pipeline, (C) the amount of
all cash payments made by Tenneco and/or any of the Energy Subsidiaries
during the period commencing on the date of the Merger Agreement and ending
on the Closing Date in settlement of any significant claim, action, suit or
proceeding to the extent such matter would be an Energy Liability and with
the consent of Acquiror, which shall not be arbitrarily withheld
(including, without limitation, cash
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payments in settlement of claims against Tenneco and/or any of its
affiliates arising from the Stock Purchase Agreement dated as of July 31,
1986 by and between Tenneco Inc. and I.C.H. Corporation) reduced by the
amount of any cash payments received by Tenneco or any of the Energy
Subsidiaries during such period from customers, insurers or other third
parties with respect thereto, and (D) the total amount of the specific
additions or increases to the Base Amount set forth on SCHEDULE 4 attached
hereto, (ii) less, without duplication, the sum of (A) the gross amount of
cash proceeds from the NPS Issuance (as defined in the Merger Agreement)
less the amount of any expenses, fees or other out-of-pocket costs related
thereto which are included in the Actual Energy Debt Amount), and (B) the
total amount of the specific subtractions and reductions to the Base Amount
set forth on SCHEDULE 4 attached hereto.
(h) "Cash and Cash Equivalents" has the meaning ascribed to such term
under United States generally accepted accounting principles; provided,
that in all events checks issued by Tenneco and the Energy Subsidiaries
which remain unpaid as of the Effective Time shall be deducted from Cash
and Cash Equivalents, and checks received by Tenneco and the Energy
Subsidiaries which remain uncollected prior to the Effective Time (other
than checks that have been dishonored) shall be included in Cash and Cash
Equivalents.
(i) "Consolidated Public Debt Value" means the value (including any
accrued and unpaid interest thereon) of publicly-held Consolidated Debt of
Tenneco and the Energy Subsidiaries outstanding as of the Effective Time
(as reflected on the Energy Adjusted Closing Balance Sheet), calculated and
determined by Tenneco and Acquiror or if, they are unable to agree, by a
nationally recognized investment banking firm selected by mutual agreement
between Tenneco and Acquiror, as of the close of business on the fifth
(5th) business day preceding the Effective Time based on the applicable
spreads to treasuries and the applicable benchmark treasury securities
listed on Schedule 3.
(j) "Closing Calendar Month" means the calendar month in which the
Effective Time occurs.
(k) "Debt Realignment" has the meaning ascribed to such term in the
Merger Agreement.
(l) "Dispute" has the meaning ascribed to such term in SECTION 6 below.
(m) "Energy Adjusted Closing Balance Sheet" has the meaning ascribed to
such term in SECTION 6 below.
(n) "Energy Closing Balance Sheet" has the meaning ascribed to such term
in SECTION 6 below.
(o) "Energy Receivables" means any and all accounts receivable of the
Energy Business (after giving effect to the Corporate Restructuring
Transactions and the Distributions and, therefore, specifically excluding
receivables relating to the business of Case Corporation and the Industrial
Business).
(p) "Factored Proceeds" means the total amount of outstanding cash
proceeds received by Tenneco from ASCC, as of the last business day of the
month preceding the Closing Calendar Month, through the factoring of Energy
Receivables, which amount shall not exceed $100,000,000.
(q) "Guaranteed Energy Cash Amount" has the meaning ascribed to such term
in SECTION 5 below.
(r) "Guaranteed Shipbuilding Cash Amount" has the meaning ascribed to
such term in SECTION 5 below.
(s) "Independent Auditors" has the meaning ascribed to such term in
SECTION 6 below.
(t) "Industrial Debt Securities" means, collectively, the notes,
debentures and other debt securities issued by Industrial Company in
exchange for certain issues of the Consolidated Debt pursuant to and in
accordance with the debt exchange by Industrial Company contemplated under
the Debt Realignment.
(u) "Merger Agreement" means the Amended and Restated Agreement and Plan
of Merger, dated as of June 19, 1996, among Tenneco, El Paso Natural Gas
Company and El Paso Merger Company, as amended from time to time.
(v) "Merger Closing Date" means the date on which the Merger is
consummated.
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(w) "Required Energy Expenditures Amount" means an aggregate amount of
capital expenditures (determined on a basis consistent with the past
accounting practices of the Energy Business and the 1996 capital budget
provided to Acquiror) by the Energy Business for 1996 equal to
$333,200,000, plus an amount of capital expenditures by the Energy Business
for 1997 equal to $27,750,000 per month for each month (or pro rata portion
thereof) from January 1, 1997 to the Effective Time.
(x) "Shipbuilding Adjusted Closing Balance Sheet" has the meaning
ascribed to such term in SECTION 6 below.
(y) "Shipbuilding Closing Balance Sheet" has the meaning ascribed to such
term in SECTION 6 below.
(z) "Shipbuilding Credit Facility" has the meaning ascribed to such term
in SECTION 3 below.
(aa) "Tenneco Allocation Percentage" means a fraction, the numerator of
which is the total number of business days remaining in the Closing
Calendar Month from and after the Effective Time (including the day on
which the Effective Time occurs), and the denominator of which is the total
number of business days in the Closing Calendar Month.
(bb) "Tenneco Revolving Debt" has the meaning ascribed to such term in
SECTION 2 below.
2. Tenneco Credit Facility and Tenneco Revolving Debt. Tenneco shall, at its
expense, have the sole right and authority to, and will use its commercially
reasonable efforts to, have in place prior to the Distribution Date a credit
facility for itself (with such guarantees of its obligations thereunder by the
Energy Subsidiaries as it deems necessary) in an aggregate principal amount
sufficient (together with other available funds to Tenneco) to fund the
tenders, redemptions, prepayments, defeasances and maturities contemplated
under the Debt Realignment; to pay all the fees, costs and expenses incurred
by Tenneco and its subsidiaries in preparing for, negotiating and effecting
the Distributions, the Merger and the Debt Realignment and any financings in
connection therewith; and for other general corporate purposes (including,
without limitation, working capital, the repayment or refinancing of
Consolidated Debt and the payments of dividends). This facility shall be in
effect at, and shall have a remaining stated maturity of at least 180 days
following, the closing of the Merger and the Distributions. The aggregate
amount of debt (including accrued and accreted interest and fees and expenses)
outstanding as of the Effective Time under this facility is hereinafter called
the "Tenneco Revolving Debt".
Notwithstanding anything contained herein, (a) contemporaneously with the
Distributions, Tenneco and the Energy Subsidiaries shall be removed as obligor
under (and released from liability with respect to) any indebtedness for
borrowed money for which Tenneco or its subsidiaries are liable and which are
assumed by the Industrial Company or the Shipbuilding Company pursuant to the
terms hereof and the Distribution Agreement, (b) any Tenneco Revolving Debt
shall be prepayable without penalty, subject to customary notice provisions,
(c) in respect of publicly-traded Consolidated Debt, between the date of the
Merger Agreement and the Effective Time there shall be no (i) extension of
maturity or average life, (ii) increase in interest rates or (iii) adverse
change in defeasance or redemption provisions with respect to any indebtedness
for borrowed money for which Tenneco or the Energy Subsidiaries will be liable
on or after the Effective Time and (d) except for the Tenneco Revolving Debt,
no indebtedness for borrowed money of Tenneco or the Energy Subsidiaries at
the Effective Time shall contain any affirmative or negative financial or
operational covenants other than ones that are (x) mutually acceptable to
Tenneco and Acquiror or (y) no more restrictive in the aggregate and
substantially equivalent to those set forth in the Indenture dated as of
January 1, 1992 of El Paso Natural Gas Company as in effect as of the date of
the Merger Agreement (other than Section 10.05 of the Indenture).
3. Shipbuilding Credit Facility and Shipbuilding Revolving Debt. Prior to
the Distributions (and at such time as Tenneco shall request), Shipbuilding
Company shall, at its expense, obtain and have in place a credit facility (the
"Shipbuilding Credit Facility") for itself (with such guarantees of its
obligations thereunder by the Shipbuilding Subsidiaries as is necessary to
obtain the Shipbuilding Credit Facility) in an aggregate principal amount of
at least $600 million (the "Minimum Debt Amount") and shall borrow the Minimum
Debt Amount thereunder and distribute the proceeds of such borrowing to
Tenneco (or such subsidiary of Tenneco as Tenneco shall designate) at such
time on or prior to the consummation of the Distributions as Tenneco shall
request.
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4. Allocation and Assumption of Debt.
(a) Allocated Energy Debt. On the Distribution Date, Tenneco shall assume,
and shall thereafter be solely liable and responsible for, the Allocated
Energy Debt. Tenneco hereby acknowledges and agrees that the Allocated Energy
Debt shall constitute an Energy Group Liability as defined in the Distribution
Agreement.
(b) Allocated Industrial Debt. On the Distribution Date, Industrial Company
shall assume, and shall thereafter be solely liable and responsible for, the
Allocated Industrial Debt. Industrial Company hereby acknowledges and agrees
that the Allocated Industrial Debt shall constitute an Industrial Group
Liability as defined in the Distribution Agreement.
(c) Allocated Shipbuilding Debt. On the Distribution Date, Shipbuilding
Company shall assume, and shall thereafter be solely liable and responsible
for, the Allocated Shipbuilding Debt. Shipbuilding Company hereby acknowledges
and agrees that the Allocated Shipbuilding Debt shall constitute a
Shipbuilding Group Liability as defined in the Distribution Agreement.
5. Allocation of Cash and Cash Equivalents. Prior to or contemporaneously
with the consummation of the Distributions, each of the parties hereto shall
make such transfers of the Cash and Cash Equivalents of Tenneco and its
consolidated subsidiaries (prior to giving effect to the Distributions) so
that to the extent possible, based on estimates of the aggregate amount of
Cash and Cash Equivalents of Tenneco and its consolidated subsidiaries then on
hand, (a) Tenneco and the Energy Subsidiaries, on a consolidated basis, shall,
as of the Effective Time, have an aggregate amount of Cash and Cash
Equivalents equal to the sum of the following:
(i) $25.0 million,
(ii) the product of (A) the Tenneco Allocation Percentage, and (B) the
lesser of (I) $100 million and (II) the total amount of the Factored
Proceeds (the lesser of such amounts being referred to as the "Section 5
Amount") and
(iii) should the Effective Time occur after the day of the month on which
Tenneco generally collects receivables from customers of its regulated
pipeline business (typically, the 25th day of a month), the lesser of the
amount of (A) the Section 5 Amount owing to ASCC as of the Effective Time,
and (B) the total amount of such receivables actually collected by Tenneco
or any of its Subsidiaries during the period beginning on the day such
receivables are first collected and ending at the Effective Time (the
"Actual Collection Amount"), so long as that amount is owing to ASCC as of
the Effective Time. It is expressly understood that as of the Effective
Time all payables and receivables are for the account of Acquiror.
(the sum of the amounts described in the immediately preceding clause (i),
(ii) and (iii) is hereinafter, referred to as the "Guaranteed Energy Cash
Amount"), and (b) Shipbuilding Company and the Shipbuilding Subsidiaries, on a
consolidated basis, shall, as of the close of business on the Merger Closing
Date, have an aggregate of $5 million of Cash and Cash Equivalents (the
"Guaranteed Shipbuilding Cash Amount"). All remaining Cash and Cash
Equivalents of Tenneco and its consolidated subsidiaries shall be allocated to
Industrial Company and the Industrial Subsidiaries.
6. Post Distribution Audit.
(a) Preparation of Closing Balance Sheets. As soon as practicable after the
Merger Closing Date, but in any event within 60 days following the Merger
Closing Date, Industrial Company shall cause Arthur Andersen LLP (the
"Auditors") to:
(i) conduct an audit of Tenneco and the Energy Subsidiaries to determine
the aggregate amount, as of the Effective Time, of each of the Factored
Proceeds, the Section 5 Amount, the Actual Collection Amount, the Tenneco
Revolving Debt, the Consolidated Debt (other than the Tenneco Revolving
Debt) of Tenneco and the Energy Subsidiaries, the Tenneco Transaction
Expenses, the Cash and Cash Equivalents of Tenneco
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and the Energy Subsidiaries and the Actual Energy Expenditures Amount, and
to prepare and deliver to each of Industrial Company and Tenneco a
consolidated balance sheet for Tenneco and the Energy Subsidiaries as of
the Effective Time reflecting (x) the amount of each of the foregoing
(other than the aggregate amount of the Factored Proceeds, the Section 5
Amount, the Actual Collection Amount (which shall be set forth in a
footnote to such consolidated balance sheet) and the Consolidated Debt
valued as part of the Consolidated Public Debt Value) and (y) the
Consolidated Public Debt Value (the "Energy Closing Balance Sheet"); and
(ii) conduct an audit of Shipbuilding Company and the Shipbuilding
Subsidiaries to determine the aggregate amount of the Cash and Cash
Equivalents of Shipbuilding Company and the Shipbuilding Subsidiaries as of
the Effective Time, and to prepare and deliver to each of Industrial
Company and Shipbuilding Company a consolidated balance sheet for
Shipbuilding Company and the Shipbuilding Subsidiaries as of the Effective
Time reflecting the aggregate amount of such Cash and Cash Equivalents (the
"Shipbuilding Closing Balance Sheet").
The Energy Closing Balance Sheet and the Shipbuilding Closing Balance Sheet
shall each be prepared on the basis of an audit conducted by the Auditors in
accordance with generally accepted auditing standards and prepared in
accordance with generally accepted accounting principles consistently applied
and without giving effect to any change in accounting principles required on
account of the consummation of the Merger or the Distributions, except that,
to the extent that any definition contained herein contemplates inclusion or
exclusion of an item that would not be included or excluded under generally
accepted accounting principles, the Auditors shall compute such item in
accordance with such definition. During the course of the preparation of the
Energy Closing Balance Sheet and the Shipbuilding Closing Balance Sheet by the
Auditors, and during any period in which there is a dispute regarding either
the Energy Closing Balance Sheet or the Shipbuilding Closing Balance Sheet,
each of Tenneco, Industrial Company and Shipbuilding Company, as the case may
be, shall cooperate with the Auditors and each other and shall have access to
all work papers of the Auditors and all pertinent accounting and other records
of Tenneco and the Energy Subsidiaries and Shipbuilding Company and the
Shipbuilding Subsidiaries, as applicable. Tenneco shall pay the fees and
expenses of the Auditors. Notwithstanding any provision of this Agreement or
the Distribution Agreement, the Claims Deposit (as defined in Insurance
Agreement) shall not be included as Cash and Cash Equivalents of Tenneco and
the Energy Subsidiaries.
(b) Disputes Regarding Closing Balance Sheet. Unless (i) in the case of the
Energy Closing Balance Sheet, Tenneco delivers written notice to Industrial
Company on or prior to the 30th day after its receipt of the Energy Closing
Balance Sheet that it disputes any of the amounts set forth on the Energy
Closing Balance Sheet (hereinafter, an "Energy Dispute"), or (ii) in the case
of the Shipbuilding Closing Balance Sheet, Shipbuilding Company delivers
written notice to Industrial Company on or prior to the 30th day after its
receipt of the Shipbuilding Closing Balance Sheet that it disputes the amount
of Cash and Cash Equivalents set forth on the Shipbuilding Closing Balance
Sheet (hereinafter, a "Shipbuilding Dispute") then, as applicable, Tenneco
and/or Shipbuilding Company shall be deemed to have accepted and agreed to the
Energy Closing Balance Sheet or the Shipbuilding Closing Balance Sheet, as
applicable, in the form in which it was delivered to it by the Auditors. If
such a notice of an Energy Dispute is given by Tenneco or a notice of a
Shipbuilding Dispute is given by Shipbuilding Company (in either case such
party being hereinafter referred to as the "Disputing Party") within such 30-
day period, then Industrial Company and the Disputing Party shall, within 15
days after the giving of any such notice, attempt to resolve such Energy
Dispute or Shipbuilding Dispute, as the case may be, and agree in writing upon
the final content of the Energy Closing Balance Sheet or Shipbuilding Closing
Balance Sheet, as the case may be. In the event that the Disputing Party and
Industrial Company are unable to resolve any Energy Dispute or Shipbuilding
Dispute, as the case may be, within such 15-day period, then the certified
public accounting firm of Ernst & Young or another mutually acceptable
independent accounting firm (the "Independent Auditors") shall be employed as
arbitrator hereunder to settle such Energy Dispute and/or Shipbuilding
Dispute, as the case may be, as soon as practicable. The Independent Auditors
shall have access to all documents and facilities necessary to perform its
function as arbitrator. The determination of the Independent Auditors with
respect to any Energy Dispute and/or Shipbuilding Dispute, as the case may be,
shall be final and binding on the applicable parties hereto. Industrial
Company and the Disputing Party shall each pay one-half ( 1/2) of the fees and
expenses of the Independent Auditors for such services. Industrial Company and
the
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Disputing Party each agree to execute, if requested by the Independent
Auditors, a reasonable engagement letter. The term "Energy Adjusted Closing
Balance Sheet," as used herein, shall mean the definitive Energy Closing
Balance Sheet agreed to by Tenneco and Industrial Company or, as the case may
be, the definitive Energy Closing Balance Sheet resulting from the
determinations made by the Independent Auditors in accordance with this
Section 6(b) (in addition to the matters theretofore agreed to by Tenneco and
Industrial Company). The term "Shipbuilding Closing Balance Sheet," as used
herein, shall mean the definitive Shipbuilding Closing Balance Sheet agreed to
by Shipbuilding Company and Industrial Company or, as the case may be, the
definitive Shipbuilding Closing Balance Sheet resulting from the
determinations made by the Independent Auditors in accordance with this
SECTION 6(B) (in addition to the matters theretofore agreed to by Shipbuilding
Company and Industrial Company). The date on which the Energy Adjusted Closing
Balance Sheet is determined and provided to each of Industrial Company and
Tenneco pursuant to this SECTION 6(B) is hereinafter referred to as the
"Energy Determination Date". The date on which the Shipbuilding Adjusted
Closing Balance Sheet is determined and provided to each of Industrial Company
and Shipbuilding Company pursuant to this SECTION 6(B) is hereinafter referred
to as the "Shipbuilding Determination Date".
7. Post Distribution Adjustments and Cash Payments.
(a) Adjustments and Payments Relating to Consolidated Debt. If the Actual
Energy Debt Amount exceeds the Base Amount, Industrial Company shall pay
Tenneco the amount of such excess in cash within 10 days after the Energy
Determination Date. If, on the other hand, the Actual Energy Debt Amount is
less than the Base Amount, Tenneco shall pay Industrial Company the amount of
such deficiency in cash within 10 days after the Energy Determination Date.
(b) Adjustments and Payments Relating to Cash and Cash Equivalents.
(i) Adjustments and Payments Relating to Shipbuilding Company. If the
amount of Cash and Cash Equivalents of Shipbuilding Company and the
Shipbuilding Subsidiaries as reflected on the Shipbuilding Adjusted
Closing Balance Sheet is less than the Guaranteed Shipbuilding Cash
Amount, Industrial Company shall pay Shipbuilding Company the amount of
such deficiency in cash within 10 days after the Shipbuilding
Determination Date. If, on the other hand, the amount of Cash and Cash
Equivalents of Shipbuilding Company and the Shipbuilding Subsidiaries
as reflected on the Shipbuilding Adjusted Closing Balance Sheet exceeds
the Guaranteed Shipbuilding Cash Amount, Shipbuilding shall pay
Industrial Company the amount of such excess in cash within 10 days
after the Shipbuilding Determination Date.
(ii) Adjustments and Payments Relating to Tenneco. (A) If the amount
of Cash and Cash Equivalents of Tenneco and the Energy Subsidiaries as
reflected on the Energy Adjusted Closing Balance Sheet is less than the
Guaranteed Energy Cash Amount, Industrial Company shall pay Tenneco the
amount of such deficiency in cash within 10 days after the Energy
Determination Date. If, on the other hand, the amount of Cash and Cash
Equivalents of Tenneco and the Energy Subsidiaries as reflected on the
Energy Adjusted Closing Balance Sheet exceeds the Guaranteed Energy
Cash Amount, Tenneco shall pay Industrial Company the amount of such
excess in cash within 10 days after the Energy Determination Date.
(B) If the Actual Energy Expenditures Amount as reflected on the
Energy Adjusted Closing Balance Sheet is less than the Required Energy
Expenditures Amount, Industrial Company shall pay Tenneco the amount of
such deficiency in cash within 10 days after the Energy Determination
Date. If, on the other hand, the Actual Energy Expenditures Amount as
reflected on the Energy Adjusted Closing Balance Sheet is greater than
the Required Energy Expenditures Amount, Tenneco shall pay to
Industrial Company the amount of such excess in cash within 10 days
after the Energy Determination Date.
(C) Each of Tenneco and Industrial Company hereby agrees that the
amount of any cash payment otherwise due it under any provision of this
SECTION 7 may be offset against and reduced, on a dollar for dollar
basis, in respect of any cash payment it may otherwise be required to
make to the other pursuant to and in accordance with any other
provision of this SECTION 7, and that the amount of such offset and
reduction shall be treated as payment of its obligations under any
provision of this SECTION 7 to the extent of such offset and reduction.
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8. Miscellaneous Provisions.
(a) Termination. This Agreement may not be terminated except upon the
written agreement of each of the parties hereto.
(b) Best Efforts. If at any time after the Merger Closing Date any further
action is necessary or desirable to carry out the purposes of this Agreement,
each of Tenneco, Industrial Company and Shipbuilding Company shall, on the
written request of any of them, take (or cause the appropriate member of its
Group over which it has direct or indirect legal or effective control to take)
all such reasonably necessary or desirable action.
(c) Cooperation. The parties hereto agree to use their reasonable best
efforts to cooperate with respect to the various matters contemplated by this
Agreement.
(d) Successors and Assigns. Except as otherwise expressly provided herein,
no party hereto may assign or delegate, whether by operation of law or
otherwise, any of such party's rights or obligations under or in connection
with this Agreement without the written consent of each other party hereto. No
assignment will, however, release the assignor of any of its obligations under
this Agreement or waive or release any right or remedy the other parties may
have against such assignor hereunder. Except as otherwise expressly provided
herein, all covenants and agreements contained in this Agreement by or on
behalf of any of the parties hereto will be binding upon and enforceable
against the respective successors and assigns of such party and will be
enforceable by and will inure to the benefit of the respective successors and
permitted assigns of such party.
(e) Modification; Waiver; Severability. This Agreement may not be amended or
modified except in a writing executed by each of the parties hereto. The
failure by any party to exercise or a delay in exercising any right provided
for herein shall not be deemed a waiver of any right hereunder. Whenever
possible, each provision of this Agreement will be interpreted in such manner
as to be effective and valid under applicable law, but if any provision of
this Agreement is held to be prohibited by or invalid under applicable law,
such provision will be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of this Agreement.
(f) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which
taken together shall constitute one and the same Agreement.
(g) Descriptive Headings. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
(h) Notices. All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally or
five business days after mailing by certified or registered mail, return
receipt requested and postage prepaid, to the recipient at such recipient's
address as indicated in the Distribution Agreement or to such other address or
to the attention of such other person as the recipient party has specified by
prior written notice to the sending party.
(i) Survival. Each of the agreements of the parties herein shall survive the
Merger Closing Date.
(j) No Third Party Beneficiaries. This Agreement is made solely for the
benefit of the parties hereto and the other members of their respective
Groups, and shall not give rise to any rights of any kind to any other third
parties.
(k) Governing Law and Consent to Jurisdiction. ALL QUESTIONS AND/OR DISPUTES
CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT AND
THE SCHEDULES AND EXHIBITS HERETO SHALL BE GOVERNED BY THE INTERNAL LAWS, AND
NOT THE LAW OF CONFLICTS, OF THE STATE OF DELAWARE. EACH OF THE PARTIES TO
THIS AGREEMENT HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES TO BE SUBJECT TO,
AND HEREBY CONSENTS AND SUBMITS TO, THE JURISDICTION OF THE COURTS OF THE
STATE OF DELAWARE AND OF THE FEDERAL COURTS SITTING IN THE STATE OF DELAWARE.
A-C-8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
TENNECO INC.
By __________________________________
Name:
Title:
NEW TENNECO INC.
By __________________________________
Name:
Title:
NEWPORT NEWS SHIPBUILDING INC.
(formerly known as Tenneco
InterAmerica Inc.)
By __________________________________
Name:
Title:
A-C-9
<PAGE>
Schedule 1
to Debt and Cash Allocation Agreement
Accounting fees and expenses
Actuarial fees and expenses
Appraisal fees and expenses
Audit fees and expenses
Broker/dealer fees and expenses
Consulting fees and expenses
Exchange/paying agent fees and expenses
Exit consent fees
Fees and expenses incurred in connection with arranging the Revolving Debt,
including commitment fees, drawdown fees, agent's fees, facility fees and
similar fees and expenses, and lender's costs and expenses payable by the
borrower
Filing fees, including SEC, NYSE, NASD, HSR and other similar fees
Information agent fees and expenses
Investment banking fees and expenses, dealer manager fees and expenses, and
similar fees and expenses
Fees and expenses with respect to legal matters pertaining to the transactions
Mailing expenses
Newspaper advertising costs
Printing fees and expenses
Proxy solicitation fees and expenses
Soliciting dealer fees and expenses
Rating Agency fees
Underwriting, placement, registration and similar fees, commissions and
discounts payable in connection with the NPS Preferred Stock
A-C-10
<PAGE>
Schedule 2
to Debt and Cash Allocation Agreement
The deferred intercompany items referred to in SECTION 1(A)(VI) of the Debt
and Cash Allocation agreement are the following intercompany transactions
<TABLE>
<CAPTION>
SELLER BUYER PROPERTY TRANSFERRED
- ------ ----- --------------------
<S> <C> <C>
Tenneco Corporation Tenneco Inc. Stock of Kern County Land Co.
Tenneco Corporation Tenneco Inc. Stock of Tenneco Credit Corp.
Tenneco Corporation Tennessee Gas Pipeline Co. Stock of Tenneco International Inc.
Channel Gas Marketing Channel Industries Gas DT Line
Tenngasco Gas Supply Channel Industries Gas Transmission facilities
Tennessee Gas Pipeline
Co. Energy TRACS Software assignment agreement
</TABLE>
A-C-11
<PAGE>
TENNECO INC.
Schedule 3
<TABLE>
<CAPTION>
PRE-DETERMINED
------------------------------------------------
SECURITY DESCRIPTION BENCHMARK TREASURY SPREAD TO TREASURY(1)
- ------------------------------------------------ ------------------------- ----------------------
INDENTURE FACE COUPON MATURITY COUPON MATURITY CASE A CASE B
--------- ------ ------ -------- ---------------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Inc. ................... $300.0 6.500% 12/15/05 5.875% 11/05 84 bp 76 bp
Inc. ................... 300.0 7.250% 12/15/25 pricing 30yr UST 125 113
Inc. ................... 500.0 7.875% 10/01/02 6.375% 08/02 73 66
Inc. ................... 250.0 8.000% 11/15/99 7.750% 11/99 58 52
Inc. ................... 150.0 9.000% 11/15/12 pricing 30yr UST 95 86
Inc. ................... 200.0 9.875% 02/01/01 7.750% 02/01 66 59
Inc. ................... 250.0 10.000% 03/15/08 pricing 30yr UST 91 82
Inc. ................... 500.0 10.000% 08/01/98 5.875% 08/98 51 46
Inc. ................... 175.0 10.375% 11/15/00 5.625% 11/00 64 58
TGP..................... 400.0 6.000% 12/15/11 pricing 30yr UST 95 86
TGP..................... 75.0 8.000% 05/15/97 NA NA NA NA
TGP..................... 250.0 9.000% 01/15/97 NA NA NA NA
TCC..................... 7.5 8.500% 01/30/97 NA NA NA NA
TCC..................... 0.5 8.500% 03/17/97 NA NA NA NA
TCC..................... 3.0 8.500% 03/24/97 NA NA NA NA
TCC..................... 5.0 8.520% 03/28/97 NA NA NA NA
TCC..................... 6.6 8.570% 03/18/97 NA NA NA NA
TCC..................... 150.0 9.250% 11/01/96 NA NA NA NA
TCC..................... 12.0 9.470% 09/21/98 5.875% 08/98 48 43
TCC..................... 10.0 9.480% 01/28/02 7.500% 11/01 69 62
TCC..................... 250.0 9.625% 08/15/01 7.875% 08/01 68 61
TCC..................... 7.6 9.720% 09/15/01 7.875% 08/01 68 61
TCC..................... 10.0 9.720% 09/25/01 7.875% 08/01 69 62
TCC..................... 5.0 9.900% 12/02/96 7.500% 12/96 45 41
TCC..................... 3.0 9.900% 08/19/98 5.875% 08/98 48 43
TCC..................... 4.5 10.000% 08/19/98 5.875% 08/98 48 43
TCC..................... 5.0 10.000% 12/13/01 7.500% 11/01 70 63
TCC..................... 50.0 10.500% 08/17/98 5.875% 08/98 48 43
TCC..................... 150.0 10.125% 12/01/97 5.250% 12/97 48 43
Inc. ................... $2,625
TGP..................... 725
TCC..................... 680
------
$4,030
------
</TABLE>
NOTE: (1) Case A represents the spread to treasury for each security in the
event that the percentage of the aggregate principal amount of the bonds
participating in any tender or exchange, measured as a group for all
bonds tendered or exchanged for, equals or exceeds 80% of all such bonds
eligible to participate. In the event that the percentage of bonds
participating in any tender or exchange falls short of 80% (calculated as
aforesaid), the market value of all bonds remaining outstanding will be
determined by using the spread to treasury indicated in Case B.
A-C-12
<PAGE>
SCHEDULE 4
TO
DEBT AND CASH ALLOCATION AGREEMENT
ADDITIONAL ADJUSTMENTS TO BASE AMOUNT
1. Indonesia (the South Sulawesi Project)
(a) All expenditures made by Acquiror at any time from and after June 19,
1996 with respect to this project shall have no effect whatsoever on the Base
Amount or the calculation thereof.
(b) All expenditures actually incurred and paid by any of Tenneco or its
consolidated subsidiaries at any time between June 19, 1996 and the Effective
Time (the "PRE-CLOSING PERIOD") shall be added to the Base Amount (but shall
not be included as a capital expenditure for purposes of determining the
Actual Energy Expenditures Amount); provided, however, the Base Amount will be
reduced by the amount of any Net Cash Proceeds (as defined) received by
Tenneco or any of its consolidated subsidiaries during the Pre-Closing Period
from any monetization of this project during the Pre-Closing Period. As used
in the Schedule 4, the term "Net Cash Proceeds" means the total amount of cash
proceeds actually received by the party in question during the Pre-Closing
Period from the consummation during the Pre-Closing Period of the transaction
or transactions in question, less the sum of any and all costs, expenses and
taxes related to the transaction or transactions in question which either are
(i) actually incurred and paid by Tenneco or any of its consolidated
subsidiaries prior to or at the Effective Time (other than taxes based upon
income, which shall not be deducted from cash proceeds in determining Net Cash
Proceeds), or (ii) incurred but not paid prior to or at the Effective Time by
any member of either the Industrial Group and/or Shipbuilding Group and which
will remain an obligation or liability of such entity (or any member of its
Group) after giving effect to the Distributions without reimbursement therefor
by Tenneco or any other member of the Energy Group.
2. Orange Cogeneration Project
(a) All expenditures made by Acquiror at any time from and after June 19,
1996 with respect to this project shall have no effect whatsoever on the Base
Amount or the calculation thereof.
(b) All expenditures actually incurred and paid by any of Tenneco or its
consolidated subsidiaries at any time during the Pre-Closing Period shall be
added to the Base Amount (but shall not be included as a capital expenditure
for purposes of determining the Actual Energy Expenditures Amount); provided,
however, the Base Amount will be reduced by the amount of any Net Cash
Proceeds received by Tenneco or any of its consolidated subsidiaries during
the Pre-Closing Period from any monetization of this project during the Pre-
Closing Period.
3. Australian Infrastructure Bonds
(a) The Base Amount shall be reduced by any Net Cash Proceeds received by
Tenneco or any of its consolidated subsidiaries during the Pre-Closing Period
from any off-balance sheet financing in respect of this project.
4. Asset Sales
(a) Microwave Licenses. The Base Amount shall be reduced by the aggregate
amount of Microwave Net Cash Proceeds (as defined below) from any sale or
assignment during the Pre-Closing Period of private operational-fixed
microwave licenses issued by the Federal Communications Commission. As used
herein, "Microwave Net Cash Proceeds" means the gross cash proceeds actually
received by Tenneco or any of its consolidated subsidiaries less the sum of
(i) the total amount of relocation costs and cost and expenses of rebuilding
an acceptable replacement communication system that are actually incurred and
paid by Tenneco or any of its consolidated subsidiaries during the Pre-Closing
Period (or incurred by any member of the Industrial Group or Shipbuilding
Group and remain unpaid as of the Effective Time), and (ii) the amount of any
taxes incurred in connection with any such sale or assignment which are either
(A) actually incurred and paid by Tenneco or any of its consolidated
subsidiaries prior to the Effective Time (other than taxes based upon income,
which shall not be deducted from cash proceeds in determining Net Cash
Proceeds), or (B) incurred by any member of the Shipbuilding Group or
Industrial Group and remain unpaid as of the Effective Time and which will
remain an obligation or liability of such entity (or any member of its Group)
after giving effect to the Distributions without reimbursement therefor by
Tenneco or any other member of the Energy Group.
A-C-13
<PAGE>
5. Land Sales
(a) 960 Acre Parcel Located Along Galveston Bay at Ingleside, Texas. The
Base Amount shall be reduced by the total amount of Net Cash Proceeds actually
received by Tenneco or any of its consolidated subsidiaries at any time during
the Pre-Closing Period, in connection with the sale of the above referenced
property.
(b) Westchase Development in West Houston (also known as Tract 6A). The Base
Amount shall be reduced by the total amount of Net Cash Proceeds actually
received by Tenneco or any of its consolidated subsidiaries at any time during
the Pre-Closing Period in connection with the sale of the above referenced
property.
(c) 1625 West Loop (also known as Post Oak Ranch). The Base Amount shall be
reduced by the total amount of Net Cash Proceeds actually received by Tenneco
or any of its consolidated subsidiaries at any time during the Pre-Closing
Period in connection with the sale of the above referenced property.
6. Sales of Gas Turbines
The Base Amount shall be reduced by the total amount of Net Cash Proceeds
actually received by Tenneco or any of its consolidated subsidiaries (and
credited to the account of Industrial Company under the Debt and Cash
Allocation Agreement) from its sale of any gas turbines at any time during the
Pre-Closing Period.
7. ICH Tax Indemnity Matter
The Base Amount shall be increased (without duplication) by any cash payment
(up to a maximum amount, however, of $19.0 million) made by Tenneco or any of
its consolidated subsidiaries during the Pre-Closing Period in respect of the
settlement of the ICH tax indemnity matter.
8. Payments due on Settlement of Certain Lawsuits During the Pre-Closing
Period
All cash payments actually received by Tenneco or any of its consolidated
subsidiaries during the Pre-Closing Period in respect of any settlement of any
of the lawsuits or other proceedings identified and referred to in paragraph 9
of, and Schedule G-2 to, Exhibit G to the Merger Agreement shall, to the
extent provided for under the terms described under paragraph 9 of such
Exhibit G, be for the account of Industrial Company and shall not be included
in the Guaranteed Energy Cash Amount or have any effect on the Base Amount or
the calculation thereof.
9. Hedging Transactions
Any hedging transactions and all costs and expenses with respect thereto
that are entered into in connection with or in anticipation of the Debt
Realignment shall be for the benefit or detriment of Industrial Company and
shall have no effect whatsoever on the Base Amount or the calculation thereof.
10. Rate Refunds Payable to Customers
The Base Amount shall be reduced by the amount, calculated as of the
Effective Time, of any rate refunds, including interest, which would be
payable to customers pursuant to the rate settlement filed with the Federal
Energy Regulatory Commission at Docket No. RP95-112 and have not been paid as
of the Effective Time, whether such amounts are to be paid to customers or
credited against gas supply realignment costs pursuant to a settlement with
customers.
11. Sale of Tenneco Ventures
The Base Amount shall be reduced by the aggregate amount of Net Cash
Proceeds actually received by Tenneco or any of its subsidiaries from any sale
of Tenneco Ventures during the Pre-Closing Period.
12. Bonuses for Energy Employees
(a) The total amount of cash bonuses for Energy Employees for the calendar
year 1996 (the "1996 Bonus Amount") shall be pro rated based on the date on
which the Effective Time occurs and shall be shared between Tenneco and
Industrial Company based on such pro ration as follows:
A-C-14
<PAGE>
(i) Tenneco shall be responsible and liable for the payment of that
portion (the "Tenneco Bonus Portion") of the 1996 Bonus Amount that equals
the product of (A) the 1996 Bonus Amount, and (B) a fraction, the numerator
of which is the number of days remaining in the 1996 calendar year
following the day on which the Effective Time occurs (the "Effective Day"),
and the denominator of which is 365.
(ii) New Tenneco shall be responsible and liable for the payment of that
portion of the 1996 Bonus Amount that equals the amount by which the 1996
Bonus Amount exceeds the Tenneco Bonus Portion.
(b) Each of Tenneco's and New Tenneco's liability for its share of the 1996
Bonus Amount shall be accounted for in the Merger as follows:
(i) If 100% of the 1996 Bonus Amount is paid on or before the Effective
Time, the Base Amount shall be increased by the Tenneco Bonus Portion.
(ii) If as of the Effective Time, the amount of the 1996 Bonus Amount
that has not been paid exceeds the Tenneco Bonus Portion, the Base Amount
shall be reduced by the amount of such excess.
(iii) If as of the Effective Time, the amount of the 1996 Bonus Amount
that has not been paid equals the Tenneco Bonus Portion, the Base Amount
shall not be increased or decreased in respect of the 1996 Bonus Amount.
(c) The 1996 Bonus Amount shall be determined by Tenneco prior to the
Effective Time with the consent of Acquiror which shall not be unreasonably
withheld.
13. Non Cash Proceeds
Any proceeds received by Tenneco or any of its subsidiaries from the
transactions described in paragraphs 1, 2, 3, 4, 5, 6 and 11 other than cash
proceeds shall be for the account of Acquiror and shall be retained by or
distributed to the Energy Business.
A-C-15
<PAGE>
EXHIBIT 10.4
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EXHIBIT K
TO
DISTRIBUTION AGREEMENT
TAX SHARING AGREEMENT
AMONG
TENNECO INC.,
NEW TENNECO INC.,
NEWPORT NEWS SHIPBUILDING INC.,
AND
EL PASO NATURAL GAS COMPANY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
Section 1. Definition of Terms......................................... 1
Section 2. Allocation of Tax Liabilities............................... 6
Section 3. Proration of Taxes for Straddle Periods..................... 10
Section 4. Preparation and Filing of Tax Returns....................... 10
Section 5. Tax Payments and Intercompany Billings...................... 13
Section 6. Tax Benefits................................................ 16
Section 7. Assistance and Cooperation.................................. 17
Section 8. Tax Records................................................. 17
Section 9. Tax Contests................................................ 18
Effective Date; Termination of Prior Intercompany Tax
Section 10. Allocation Agreements....................................... 19
Section 11. No Inconsistent Actions..................................... 19
Section 12. Survival of Obligations..................................... 19
Section 13. Employee Matters............................................ 20
Section 14. Treatment of Payments; Tax Gross Up......................... 20
Section 15. Disagreements............................................... 20
Section 16. Late Payments............................................... 20
Section 17. Expenses.................................................... 21
Section 18. Special Rules for Determining Members of Groups............. 21
Section 19. General Provisions.......................................... 21
</TABLE>
<PAGE>
TAX SHARING AGREEMENT
This Agreement is entered into as of October 31, 1996 by and between Tenneco
Inc., a Delaware corporation ("Tenneco"), Newport News Shipbuilding Inc.
(formerly known as Tenneco InterAmerica Inc.), a Delaware corporation
("Shipbuilding Company"), New Tenneco Inc., a Delaware corporation
("Industrial Company"), and El Paso Natural Gas Company, a Delaware
corporation ("Acquiror"). Tenneco, Shipbuilding Company, and Industrial
Company are sometimes collectively referred to herein as the "Companies."
Capitalized terms used in this Agreement are defined in Section 1 below.
Unless otherwise indicated, all "Section" references in this Agreement are to
sections of this Agreement.
RECITALS
WHEREAS, as of the date hereof, Tenneco is the common parent of an
affiliated group of corporations, including Shipbuilding Company and
Industrial Company, which has elected to file consolidated Federal income tax
returns; and
WHEREAS, the Companies have entered into a Distribution Agreement setting
forth the corporate transactions pursuant to which Tenneco will distribute all
of the outstanding shares of common stock of Shipbuilding Company and all of
the outstanding shares of common stock of Industrial Company to Tenneco
shareholders in transactions intended to qualify as tax-free distributions
under Section 355 of the Code (as defined below); and
WHEREAS, as a result of the Distributions, Shipbuilding Company and
Industrial Company, and their respective subsidiaries, will cease to be
members of the affiliated group of which Tenneco is the common parent,
effective as of the Distribution Date; and
WHEREAS, the Companies desire to provide for and agree upon the allocation
between the parties of liabilities for Taxes arising prior to, as a result of,
and subsequent to the transactions contemplated by the Distribution Agreement,
and to provide for and agree upon other matters relating to Taxes;
NOW THEREFORE, in consideration of the mutual agreements contained herein,
the Companies hereby agree as follows:
Section 1. Definition of Terms. For purposes of this Agreement (including
the recitals hereof), the following terms have the following meanings:
"ACCOUNTING CUTOFF DATE" means, with respect to each of Shipbuilding Company
and Industrial Company, any date as of the end of which there is a closing of
the financial accounting records for such entity.
"ACCOUNTING FIRM" shall have the meaning provided in Section 15.
"ACQUIROR" means El Paso Natural Gas Company, a Delaware corporation, and
any successor.
"ADJUSTMENT REQUEST" means any formal or informal claim or request filed
with any Tax Authority, or with any administrative agency or court, for the
adjustment, refund, or credit of Taxes, including (a) any amended Tax return
claiming adjustment to the Taxes as reported on the Tax Return or, if
applicable, as previously adjusted, or (b) any claim for refund or credit of
Taxes previously paid.
"AFFILIATE" means any entity that directly or indirectly is "controlled" by
the person or entity in question. "Control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management
and policies of a person, whether through ownership of voting securities, by
contract or otherwise. Except as otherwise provided herein, the term Affiliate
shall refer to Affiliates of a person as determined immediately after the
Distributions.
"AGREEMENT" shall mean this Tax Sharing Agreement.
1
<PAGE>
"ALLOCATED FEDERAL TAX LIABILITY" shall have the meaning provided in Section
5.01(b)(i).
"BASE AMOUNT ADJUSTMENT ITEMS" means any Tax Items arising from the amounts
described in clause (i)(A) of the definition of Base Amount in the Debt and
Cash Allocation Agreement attached as Exhibit C to the Distribution Agreement
(relating to gas supply realignment costs and recoveries of such costs) or in
clause (i)(C) of such definition of Base Amount (relating to payments made in
settlement of any significant Energy Liability (as defined in the Merger
Agreement)), and any Tax Items related to such amounts (such as income accrued
with respect to payments to be received after the Distribution Date from
customers, insurers, or other third parties with respect to gas supply
realignment costs or settlements of Energy Liabilities).
"CARRYBACK" means any net operating loss, net capital loss, excess tax
credit, or other similar Tax item which may or must be carried from one Tax
Period to another Tax Period under the Code or other applicable Tax Law.
"CODE" means the U.S. Internal Revenue Code of 1986, as amended, or any
successor law.
"COMPANIES" means Tenneco, Shipbuilding Company, and Industrial Company,
collectively, and "COMPANY" means any one of Tenneco, Shipbuilding Company, or
Industrial Company.
"CONSOLIDATED OR COMBINED INCOME TAX" means any Income Tax computed by
reference to the assets and activities of members of more than one Group.
"CONSOLIDATED OR COMBINED STATE INCOME TAX" means any State Income Tax
computed by reference to the assets and activities of members of more than one
Group.
"CONSOLIDATED TAX LIABILITY" means, with respect to any Tenneco Federal
Consolidated Return, the "tax liability of the group" as that term is used in
Treasury Regulation Section 1.1552-1(a)(1) (including applicable interest,
additions to the tax, additional amounts, and penalties as provided in the
Code), adjusted as follows:
(i) such tax liability shall be treated as including any alternative
minimum tax liability under Code Section 55;
(ii) in the case of the Tax Period which includes the Distribution Date,
the Consolidated Tax Liability shall be computed as if the Distribution
Date were the last day of the Tax Period; and
(iii) Base Amount Adjustment Items and Debt Discharge Items shall be
disregarded.
"CUMULATIVE FEDERAL TAX PAYMENT" shall have the meaning provided in Section
5.01(b)(ii).
"DEBT DISCHARGE ITEMS" means any Tax Items arising from the Debt Realignment
(as defined in the Merger Agreement).
"DISTRIBUTION AGREEMENT" means the agreement, as amended from time to time,
setting forth the corporate transactions required to effect the distribution
to Tenneco shareholders of Shipbuilding Common Shares and Industrial Common
Shares, and to which this Tax Sharing Agreement is attached as an exhibit.
"DISTRIBUTION DATE" means the Distribution Date as that term is defined in
the Distribution Agreement.
"DISTRIBUTIONS" means the distributions to Tenneco shareholders on the
Distribution Date of all of the outstanding stock of Industrial Company and
Shipbuilding Company owned by Tenneco.
"EFFECTIVE TIME" shall have the meaning provided in the Merger Agreement.
"ENERGY INVESTMENTS GROUP" means the corporations, or divisions of
corporations, identified on Schedule 3.
"FEDERAL ALLOCATION METHOD" shall have the meaning provided in Section
2.02(a).
2
<PAGE>
"FEDERAL INCOME TAX" means any Tax imposed by Subtitle A or F of the Code.
"FEDERAL TAX ADJUSTMENT" shall have the meaning provided in Section 2.02(b).
"FOREIGN INCOME TAX" means any Tax imposed by any foreign country or any
possession of the United States, or by any political subdivision of any
foreign country or United States possession, which is an income tax as defined
in Treasury Regulation Section 1.901-2.
"GROUP" means the Tenneco Group, the Shipbuilding Group, and the Industrial
Group, as the context requires.
"GSR ITEMS" means, for any Tax Period: (a) the deductions or losses
allowable in such Tax Period attributable to (i) the payment of gas supply
realignment costs as described in clause (i) of the definition of Base Amount
in the Debt and Cash Allocation Agreement attached as Exhibit C to the
Distribution Agreement, or (ii) the payment in any Post-Distribution Tax
Period of gas supply realignment costs incurred pursuant to contracts entered
into on or prior to the Distribution Date; and (b) any taxable income or gain
recognized in such Tax Period attributable to the recovery of such costs from
customers, insurers, or third parties or attributable to any reduction in any
previously deducted payments.
"INCOME TAX" means any Federal Income Tax, State Income Tax, or Foreign
Income Tax.
"INDUSTRIAL ADJUSTMENT" means any proposed adjustment by a Tax Authority or
claim for refund asserted in a Tax Contest to the extent Industrial Company
would be exclusively liable for any resulting Tax under this Agreement and
exclusively entitled to receive any resulting Tax Benefit under this
Agreement. For purposes of this Agreement, any proposed adjustment relating to
Tenneco Business Services Inc. (or the predecessor shared services project of
Tenneco) shall be an Industrial Adjustment, and Industrial Company shall be
liable for any Taxes (and shall be entitled to receive any Tax Benefit)
arising from such adjustments.
"INDUSTRIAL COMPANY" means New Tenneco Inc., a Delaware corporation, and any
successor.
"INDUSTRIAL GROUP" means Industrial Company and its Affiliates as determined
immediately after the Distributions, modified as provided in Section 18.
"INDUSTRIAL GROUP PRIOR FEDERAL TAX LIABILITY" shall have the meaning
provided in Section 2.02(b)(ii).
"INDUSTRIAL GROUP PRIOR STATE TAX LIABILITY" shall have the meaning provided
in Section 2.03(b)(ii)(B).
"INDUSTRIAL GROUP RECOMPUTED FEDERAL TAX LIABILITY" shall have the meaning
provided in Section 2.02(b)(i).
"INDUSTRIAL GROUP RECOMPUTED STATE TAX LIABILITY" shall have the meaning
provided in Section 2.03(b)(ii)(A).
"JOINT ADJUSTMENT" means any proposed adjustment by a Tax Authority or claim
for refund asserted in a Tax Contest which is neither an Industrial
Adjustment, a Shipbuilding Adjustment, nor a Tenneco Adjustment.
"MERGER" means the merger of El Paso Merger Company with and into Tenneco as
described in the Merger Agreement.
"MERGER AGREEMENT" means the Agreement and Plan of Merger among Tenneco,
Acquiror, and El Paso Merger Company dated as of June 19, 1996, as amended
from time to time.
"PAYMENT DATE" means (i) with respect to any Tenneco Federal Consolidated
Return, the due date for any required installment of estimated taxes
determined under Code Section 6655, the due date (determined without regard to
extensions) for filing the return determined under Code Section 6072, and the
date the return is filed,
3
<PAGE>
and (ii) with respect to any Tax Return for any Consolidated or Combined State
Income Tax, the corresponding dates determined under the applicable Tax Law.
"POST-DISTRIBUTION PERIOD" means any Tax Period beginning after the
Distribution Date, and, in the case of any Straddle Period, the portion of
such Straddle Period beginning the day after the Distribution Date.
"PRE-DISTRIBUTION PERIOD" means any Tax Period ending on or before the
Distribution Date, and, in the case of any Straddle Period, the portion of
such Straddle Period ending on the Distribution Date.
"PRIME RATE" means the base rate on corporate loans charged by Citibank,
N.A., New York, New York from time to time, compounded daily on the basis of a
year of 365 or 366 (as applicable) days and actual days elapsed.
"PRIOR INTERCOMPANY TAX ALLOCATION AGREEMENTS" means any written or oral
agreement or any other arrangements relating to allocation of Taxes existing
between or among the Tenneco Group, the Shipbuilding Group, and the Industrial
Group as of the Distribution Date (other than this Agreement and other than
any such agreement or arrangement between or among persons who are members of
a single Group). The following agreements, including any amendments thereto,
shall not be considered a Prior Intercompany Tax Allocation Agreement: (i) the
agreement by and between Tenneco and Case Equipment Corporation (now known as
Case Corporation) dated June 23, 1994; (ii) the agreement by and among
Tenneco, Tenneco United Kingdom Holdings Limited, and Albright and Wilson plc
dated February 16, 1995; and (iii) the agreement by and between Tennessee Gas
Pipeline Company, Tenneco Gas Marketing Company, and IGC Energy, Inc. dated
November 1, 1995.
"PROHIBITED ACTION" shall have the meaning provided in Section 11.
"RESPONSIBLE COMPANY" means, with respect to any Tax Return, the Company
having responsibility for preparing and filing such Tax Return under this
Agreement.
"RESTRUCTURING TAX" means the Taxes described in Sections 2.06(a)(ii) or
2.06(a)(iii) (relating to Tax resulting from any income or gain recognized as
a result of the Transactions).
"RULING REQUEST" means the letter filed by Tenneco with the Internal Revenue
Service requesting a ruling from the Internal Revenue Service regarding
certain tax consequences of the Transactions (including all attachments,
exhibits, and other materials submitted with such ruling request letter) and
any amendment or supplement to such ruling request letter.
"SEPARATE COMPANY TAX" means any Tax computed by reference to the assets and
activities of a member or members of a single Group.
"SHIPBUILDING ADJUSTMENT" means any proposed adjustment by a Tax Authority
or claim for refund asserted in a Tax Contest to the extent Shipbuilding
Company would be exclusively liable for any resulting Tax under this Agreement
and exclusively entitled to receive any resulting Tax Benefit under this
Agreement.
"SHIPBUILDING COMPANY" means Newport News Shipbuilding Inc. (formerly known
as Tenneco InterAmerica Inc.), a Delaware corporation, and any successor.
"SHIPBUILDING GROUP" means Shipbuilding Company and its Affiliates as
determined immediately after the Distributions, modified as provided in
Section 18.
"STRADDLE PERIOD" means any Tax Period that begins on or before and ends
after the Distribution Date.
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"STATE INCOME TAX" means any Tax imposed by any State of the United States
or by any political subdivision of any such State which is imposed on or
measured by net income, including state and local franchise or similar Taxes
measured by net income.
"TAX" or "TAXES" means any income, gross income, gross receipts, profits,
capital stock, franchise, withholding, payroll, social security, workers
compensation, unemployment, disability, property, ad valorem, stamp, excise,
severance, occupation, service, sales, use, license, lease, transfer, import,
export, value added, alternative minimum, estimated or other similar tax
(including any fee, assessment, or other charge in the nature of or in lieu of
any tax) imposed by any governmental entity or political subdivision thereof,
and any interest, penalties, additions to tax, or additional amounts in
respect of the foregoing.
"TAX AUTHORITY" means, with respect to any Tax, the governmental entity or
political subdivision thereof that imposes such Tax, and the agency (if any)
charged with the collection of such Tax for such entity or subdivision.
"TAX BENEFIT" means any refund, credit, or other reduction in otherwise
required Tax payments (including any reduction in estimated tax payments).
"TAX CONTEST" means an audit, review, examination, or any other
administrative or judicial proceeding with the purpose or effect of
redetermining Taxes of any of the Companies or their Affiliates (including any
administrative or judicial review of any claim for refund) for any Tax Period
ending on or before the Distribution Date or any Straddle Period.
"TAX CONTEST COMMITTEE" shall have the meaning provided in Section 9.02(b).
"TAX ITEM" means, with respect to any Income Tax, any item of income, gain,
loss, deduction, and credit.
"TAX LAW" means the law of any governmental entity or political subdivision
thereof relating to any Tax.
"TAX OPINION" means the opinion letter to be issued by Tenneco's tax counsel
as required by the Merger Agreement, a form of which is attached as Exhibit K
of the Merger Agreement.
"TAX PERIOD" means, with respect to any Tax, the period for which the Tax is
reported as provided under the Code or other applicable Tax Law.
"TAX RECORDS" means Tax Returns, Tax Return workpapers, documentation
relating to any Tax Contests, and any other books of account or records
required to be maintained under the Code or other applicable Tax Laws or under
any record retention agreement with any Tax Authority.
"TAX RETURN" means any report of Taxes due, any claims for refund of Taxes
paid, any information return with respect to Taxes, or any other similar
report, statement, declaration, or document required to be filed under the
Code or other Tax Law, including any attachments, exhibits, or other materials
submitted with any of the foregoing, and including any amendments or
supplements to any of the foregoing.
"TENNECO" means Tenneco Inc., a Delaware corporation, and any successor.
"TENNECO ADJUSTMENT" means any proposed adjustment by a Tax Authority or
claim for refund asserted in a Tax Contest to the extent Tenneco would be
exclusively liable for any resulting Tax under this Agreement and exclusively
entitled to receive any resulting Tax Benefit under this Agreement.
"TENNECO FEDERAL CONSOLIDATED RETURN" means any United States federal Tax
Return for the affiliated group (as that term is defined in Code Section 1504)
that includes Tenneco as the common parent and includes any member of the
Shipbuilding Group or the Industrial Group.
"TENNECO GROUP" means Tenneco and its Affiliates, excluding any entity that
is a member of the Industrial Group or the Shipbuilding Group.
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"TRANSACTIONS" means the transactions contemplated by the Distribution
Agreement (including the Corporate Restructuring Steps and Distributions, as
defined in such agreement) and by the Merger Agreement (including the Debt
Realignment, as defined in such agreement).
"TREASURY REGULATIONS" means the regulations promulgated from time to time
under the Code as in effect for the relevant Tax Period.
Section 2. Allocation of Tax Liabilities. The provisions of this Section 2
are intended to determine each Company's liability for Taxes with respect to
Pre-Distribution Periods. Once the liability has been determined under this
Section 2, Section 5 determines the time when payment of the liability is to
be made, and whether the payment is to be made to the Tax Authority directly
or to another Company.
2.01 General Rule
(a) Tenneco Liability. Tenneco shall be liable for all Taxes not
specifically allocated to either Industrial Company or Shipbuilding Company
under this Section 2. Tenneco shall indemnify and hold harmless the
Industrial Group and the Shipbuilding Group from and against any liability
for Taxes which Tenneco is liable for under this Section 2.01(a).
(b) Industrial Company Liability. Industrial Company shall be liable for,
and shall indemnify and hold harmless the Tenneco Group and the
Shipbuilding Group from and against any liability for, Taxes which are
allocated to Industrial Company under this Section 2.
(c) Shipbuilding Company Liability. Shipbuilding Company shall be liable
for, and shall indemnify and hold harmless the Tenneco Group and the
Industrial Group from and against any liability for, Taxes which are
allocated to Shipbuilding Company under this Section 2.
2.02 Allocation of United States Federal Income Tax. Except as provided in
Sections 2.06, 6.02, and 6.03:
(a) Allocation of Tax Relating to Tenneco Federal Consolidated Returns
Filed After the Distribution Date. With respect to any Tenneco Federal
Consolidated Return filed after the Distribution Date, the Consolidated Tax
Liability shall be allocated among the Groups in accordance with the method
prescribed in Treasury Regulation Section 1.1552-1(a)(1) (as in effect on
the date hereof) determined by treating each Group as a single member of
the consolidated group and by disregarding Base Amount Adjustment Items and
Debt Discharge Items in computing each Group's taxable income (the "Federal
Allocation Method"). For purposes of such allocation, the excess, if any,
of (i) Consolidated Tax Liability over (ii) Consolidated Tax Liability
determined without regard to any alternative minimum tax liability under
Code Section 55, shall be allocated among the Groups in accordance with
their respective amounts of alternative minimum taxable income, and any
corresponding alternative minimum tax credit shall be allocated in
accordance with the allocation of such alternative minimum tax liability.
Any amount so allocated to the Industrial Group shall be a liability of
Industrial Company to Tenneco under this Section 2, and any amount so
allocated to the Shipbuilding Group shall be a liability of Shipbuilding
Company to Tenneco under this Section 2. Amounts described in Code Section
1561 (relating to limitations on certain multiple benefits) shall be
divided equally among the Tenneco Group, the Industrial Group, and the
Shipbuilding Group to the extent permitted by the Code.
(b) Allocation of Tenneco Federal Consolidated Return Tax Adjustments. If
there is any adjustment to the reported Tax liability with respect to any
Tenneco Federal Consolidated Return, or to such Tax liability as previously
adjusted, Industrial Company shall be liable to Tenneco for the excess (if
any) of--
(i) the Consolidated Tax Liability of the Industrial Group computed
as if all members of the Industrial Group included in the Tax Return
had filed a consolidated Tax Return for such members based on the Tax
Items of such members as so adjusted (the "Industrial Group Recomputed
Federal Tax Liability"); over
(ii) the Consolidated Tax Liability of the Industrial Group computed
as if such members of the Industrial Group had filed a consolidated Tax
Return for such members based on the Tax Items of such
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members as reported (or, if applicable, as previously adjusted) (the
"Industrial Group Prior Federal Tax Liability").
If the Industrial Group Prior Federal Tax Liability exceeds the Industrial
Group Recomputed Federal Tax Liability, Tenneco shall be liable to
Industrial Company for such excess. The Shipbuilding Group liability shall
be recomputed in a like manner, and Shipbuilding Company shall be liable to
Tenneco for any excess of the Shipbuilding Group Recomputed Federal Tax
Liability over the Shipbuilding Group Prior Federal Tax Liability, and
Tenneco shall be liable to Shipbuilding Company for any excess of the
Shipbuilding Group Prior Federal Tax Liability over the Shipbuilding Group
Recomputed Federal Tax Liability. For purposes of this Section 2.02(b), if
the Industrial Group or the Shipbuilding Group has a net operating loss
after taking into account the adjustments allocable to such group, the
Recomputed Federal Tax Liability of the group shall be less than zero to
the extent such net operating loss produces a Tax Benefit in consolidation
for the applicable taxable year.
(c) Special Allocation With Respect to Energy Investments Group. If the
net operating loss of the Energy Investments Group as reported on the
Tenneco Federal Consolidated Tax Return for the taxable year ended December
31, 1996 (but computed as if the Distribution Date were the last day of the
Tax Period) is less than $185,000,000, Industrial Company shall be liable
to Tenneco for an amount equal to 35% of the difference between
$185,000,000 and the Energy Investments Group net operating loss or net
taxable income. If such net operating loss of the Energy Investments Group
is greater than $213,000,000, Tenneco shall be liable to Industrial Company
for an amount equal to 35% of the difference between $213,000,000 and the
amount of the Energy Investments Group net operating loss. If there is any
subsequent adjustment to the Energy Investment Group's net operating loss
or taxable income, the amount payable by or to Industrial Company under
this Section 2.02(c) shall be adjusted accordingly based on the net
operating loss or taxable income as adjusted.
2.03 Allocation of State Income Taxes. Except as provided in Sections 2.04,
2.05, 2.06, 6.02, and 6.03, State Income Taxes shall be allocated as follows:
(a) Separate Company Taxes. In the case of any State Income Tax which is
a Separate Company Tax, Industrial Company shall be liable for such Tax
imposed on any members of the Industrial Group, and Shipbuilding Company
shall be liable for such Tax imposed on any members of the Shipbuilding
Group.
(b) Consolidated or Combined State Income Taxes. In the case of any
Consolidated or Combined State Income Tax, the liability of Industrial
Company and Shipbuilding Company with respect to such Tax for any Tax
Period shall be computed as follows:
(i) Allocation of Tax Reported on Tax Returns Filed After the
Distribution Date. In the case of any Consolidated or Combined State
Income Tax reported on any Tax Return filed after the Distribution Date
(excluding any amended return), Industrial Company shall be liable to
Tenneco for the State Income Tax liability computed as if all members
of the Industrial Group included in the computation of such Tax had
filed a consolidated or combined Tax Return for such Industrial Group
members based on the income, apportionment factors, and other items of
such members, and Shipbuilding Company shall be liable to Tenneco for
the State Income Tax liability computed as if all members of the
Shipbuilding Group included in the computation of such Tax had filed a
consolidated or combined Tax Return for such Shipbuilding Group members
based on the income, apportionment factors, and other items of such
members.
(ii) Allocation of Combined or Consolidated State Income Tax
Adjustments. If there is any adjustment to the amount of Consolidated
or Combined State Income Tax reported on any Tax Return (or as
previously adjusted), the liability of the Industrial Group and the
Shipbuilding Group shall be recomputed as provided in this
subparagraph. Industrial Company shall be liable to Tenneco for the
excess (if any) of--
(A) the State Income Tax liability computed as if all members of
the Industrial Group included in the Tax Return had filed a
consolidated or combined Tax Return for such members
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based on the income, apportionment factors, and other items of such
members as so adjusted (the "Industrial Group Recomputed State Tax
Liability"); over
(B) the State Income Tax liability computed as if such members of
the Industrial Group had filed a consolidated or combined Tax Return
for such members based on the income, apportionment factors, and
other items of such members as reported (or, if applicable, as
previously adjusted) (the "Industrial Group Prior State Tax
Liability").
If the Industrial Group Prior State Tax Liability exceeds the
Industrial Group Recomputed State Tax Liability, Tenneco shall be
liable to Industrial Company for such excess. The Shipbuilding Group
liability shall be recomputed in a like manner, and Shipbuilding
Company shall be liable to Tenneco for any excess of the Shipbuilding
Group Recomputed State Tax Liability over the Shipbuilding Group Prior
State Tax Liability, and Tenneco shall be liable to Shipbuilding
Company for any excess of the Shipbuilding Group Prior State Tax
Liability over the Shipbuilding Group Recomputed State Tax Liability.
For purposes of this paragraph, the determination and payment of
estimated Taxes (including the determination and payment of any Tax
required to be paid with a request for an extension of time to file a
Tax Return) shall not be treated as an adjustment to the related
Consolidated or Combined State Income Tax.
2.04 Allocation of State Income Tax Effects of Federal Audit Adjustments.
Tenneco shall be liable for any State Income Taxes resulting from the
adjustments to Tenneco Federal Consolidated Returns for Tax Periods ending on
or before December 31, 1989. In accordance with Section 6, any Tax Benefit
realized by the Shipbuilding Group or by the Industrial Group as a result of
Tenneco's payment of such State Income Taxes shall be for the account of
Tenneco and shall be paid to Tenneco under Section 6. For example, if Tenneco
pays a State Income Tax liability of $100x related to adjustments to the Tax
Return of a member of the Shipbuilding Group, and if such payment is available
as a deduction on the Shipbuilding Group's Tax Return for Federal Income Tax,
Shipbuilding Company shall pay to Tenneco the Federal Income Tax benefit
attributable to the deduction (i.e., $35x assuming a 35% maximum marginal tax
rate under Code Section 11, and assuming the payment is treated as a
nondeductible dividend under the Code in accordance with Section 14 of this
Agreement).
2.05 Allocation of Other Taxes. Except as provided in Section 2.06, all
Taxes other than those specifically allocated pursuant to Sections 2.03
through 2.04 shall be allocated based on the legal entity on which the legal
incidence of the Tax is imposed. As between the parties to this Agreement,
Industrial Company shall be liable for all Taxes imposed on any member of the
Industrial Group (including Taxes imposed on the separate consolidated federal
income tax return of Tenneco International Holding Corp.), and Shipbuilding
Company shall be liable for all Taxes imposed on any member of the
Shipbuilding Group. The Companies believe that there is no Tax not
specifically allocated pursuant to Sections 2.03 through 2.04 which is legally
imposed on more than one legal entity (e.g., joint and several liability);
however, if there is any such Tax, it shall be allocated in accordance with
past practices as reasonably determined by the affected Companies, or in the
absence of such practices, in accordance with any allocation method agreed
upon by the affected Companies.
2.06 Transaction and Other Taxes
(a) Tenneco Liability. Except as otherwise provided in Sections 2.06 and
6.02, Tenneco shall be liable for, and shall indemnify and hold harmless
Industrial Group and the Shipbuilding Group from and against any liability
for, all Taxes resulting from the Transactions (other than Taxes allocated
to the Acquiror under the Merger Agreement), including:
(i) Any sales and use, gross receipts, or other transfer Taxes
imposed on the transfers occurring pursuant to the Transactions;
(ii) any Tax resulting from any income or gain recognized under
Treasury Regulation Sections 1.1502-13 or 1.1502-19 (or any
corresponding provisions of other applicable Tax Laws) as a result of
the Transactions; and
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(iii) any Tax resulting from any income or gain recognized as a
result of any of the transactions contemplated by the Distribution
Agreement failing to qualify for tax-free treatment under Code Sections
332, 351, 355, 361, or other provisions of the Code (as contemplated in
the Ruling Request) or other applicable Tax Laws, or as a result of the
Merger failing to qualify for tax-free treatment under Code Sections
354 and 361 or other provisions of the Code or other applicable Tax
Laws (as contemplated in the Merger Agreement).
If any Tax referred to in this Section 2.06(a) is included in the
definition of Actual Energy Debt Amount, but cannot be calculated on the
Energy Determination Date (as such terms are defined in the Debt and Cash
Allocation Agreement attached as Exhibit C to the Distribution Agreement),
then Industrial Company shall pay to Tenneco the amount which would have
been included in the Actual Energy Debt Amount. Such payments shall be made
at the time such amounts are determinable. For the purposes of this Section
2.06(a) and the definition of Actual Energy Debt Amount (as defined in the
Debt and Cash Allocation Agreement), the term "transfer Taxes" includes any
Illinois franchise tax imposed under Ill. Rev. Stat. ch. 805, (S) 15.65(b)
in connection with the transfer by Tenneco Corporation of net intercompany
receivables in the approximate amount of $6.9 billion to a subsidiary of
Midwestern Gas Transmission Company in connection with the Corporate
Restructuring Transactions.
(b) Indemnity for Inconsistent Acts. Industrial Company shall be liable
for, and shall indemnify and hold harmless the Tenneco Group and the
Shipbuilding Group from and against any liability for, any Restructuring
Tax (described in subparagraphs (ii) and (iii) above) to the extent arising
from any breach of Industrial Company's representations or covenants under
Section 11. Shipbuilding Company shall be liable for, and shall indemnify
and hold harmless the Tenneco Group and the Industrial Group from and
against any liability for, any Restructuring Tax to the extent arising from
any breach of Shipbuilding Company's representations or covenants under
Section 11. Acquiror shall be liable for, and shall indemnify and hold
harmless the Industrial Group and Shipbuilding Group from and against any
liability for, any Restructuring Tax to the extent arising from any breach
of Acquiror's representations or covenants under Section 11.
(c) Indemnity for Representations. Industrial Company shall be liable
for, and shall indemnify and hold harmless the Tenneco Group and the
Shipbuilding Group from and against any liability for, any Restructuring
Tax to the extent arising from the inaccuracy of any factual statements or
representations in connection with the Ruling Request or the Tax Opinion,
but in each case only to the extent such inaccuracy arises from facts in
existence prior to the Effective Time, and excluding any inaccuracy with
respect to any statements or representations relating to Acquiror,
Shipbuilding Company, or their Affiliates or any plan or intention on the
part of Acquiror, Shipbuilding Company, or their Affiliates as to actions
to be taken at or subsequent to the Effective Time. Shipbuilding Company
shall be liable for, and shall indemnify and hold harmless the Tenneco
Group and the Industrial Group from and against any liability for, any
Restructuring Tax to the extent arising from the inaccuracy of any factual
statements or representations relating to the Shipbuilding Company or its
Affiliates in connection with the Ruling Request or the Tax Opinion.
Acquiror shall be liable for, and shall indemnify and hold harmless the
Industrial Group and the Shipbuilding Group from and against any liability
for, any Restructuring Tax to the extent arising from the inaccuracy of any
factual statements or representations relating to Acquiror or its
Affiliates (other than the Tenneco Group) in connection with the Ruling
Request or the Tax Opinion.
(d) Change in Law Relating to Deferred Gains. If between the date of the
Merger Agreement and the Effective Time there is a change in law and as a
result of such change in law Tenneco is required to restore to income as a
result of the Merger the deferred gains identified on Schedule 2 to the
Debt and Cash Allocation Agreement attached as Exhibit C to the
Distribution Agreement, then any resulting Tax shall be allocated equally
between Industrial Company and Tenneco. For purposes of this Section
2.06(d), the term "change in law" shall mean any of the following occurring
between the date of the Merger Agreement and the Effective Time: (i) an
amendment to the Code; (ii) an amendment to the Treasury Regulations
(including any issuance of proposed, temporary, or final Treasury
Regulations); (iii) a decision of the Tax Court, any Federal District
Court, the Court of Federal Claims, the Federal Circuit Court, or the
United States Supreme Court; and (iv) any notice, announcement, or other
administrative pronouncement published by the Internal
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Revenue Service in the Internal Revenue Bulletin to the effect that the
Treasury Department intends to issue Treasury Regulations after the
Effective Time that will be effective with respect to the Transactions.
(e) Taxes Relating to Settlement Receipts For Account of Industrial
Company. To the extent the economic benefit of any amounts received by the
Energy Business prior to the Effective Time from the settlement of pending
litigation (as identified on Schedule G2 to Exhibit G of the Merger
Agreement) is allocated to Industrial Company under the Debt and Cash
Allocation Agreement, any corresponding tax liability with respect to such
amounts shall be allocated to Industrial Company.
Section 3. Proration of Taxes for Straddle Periods
3.01 General Method of Proration. In the case of any Straddle Period, Tax
Items shall be apportioned between Pre-Distribution Periods and Post-
Distribution Periods in accordance with the principles of Treasury Regulation
Section 1.1502-76(b) as reasonably interpreted and applied by the Companies.
No election shall be made under Treasury Regulation Section 1.1502-
76(b)(2)(ii) (relating to ratable allocation of a year's items). If the
Distribution Date is not an Accounting Cutoff Date, the provisions of Treasury
Regulation Section 1.1502-76(b)(2)(iii) will be applied to ratably allocate
the items (other than extraordinary items) for the month which includes the
Distribution Date.
3.02 Transaction Treated as Extraordinary Item. In determining the
apportionment of Tax Items between Pre-Distribution Periods and Post-
Distribution Periods, any Tax Items relating to the Transactions shall be
treated as an extraordinary item described in Treasury Regulation Section
1.1502-76(b)(2)(ii)(C) and shall be allocated to Pre-Distribution Periods, and
any Taxes related to such items shall be treated under Treasury Regulation
Section 1.1502-76(b)(2)(iv) as relating to such extraordinary item and shall
be allocated to Pre-Distribution Periods.
Section 4. Preparation and Filing of Tax Returns
4.01 General. Except as otherwise provided in this Section 4, Tax Returns
shall be prepared and filed when due (including extensions) by the person
obligated to file such Tax Returns under the Code or applicable Tax Law. The
Companies shall provide, and shall cause their Affiliates to provide,
assistance and cooperate with one another in accordance with Section 7 with
respect to the preparation and filing of Tax Returns, including providing
information required to be provided in Section 7. As used in this Section 4,
the terms "domestic" and "foreign" have the meanings ascribed to such terms in
Code Section 7701.
4.02 Industrial Company's Responsibility. Industrial Company has the
exclusive obligation and right to prepare and file, or to cause to be prepared
and filed:
(a) Tenneco Federal Consolidated Returns for Tax Periods ending on or
before December 31, 1996.
(b) Tax Returns for State Income Taxes (including Tax Returns with
respect to State Income Taxes that are Separate Company Taxes) which the
Companies reasonably determine, in accordance with Tenneco's past
practices, are required to be filed by the Companies or any of their
Affiliates for Tax Periods ending on or before December 31, 1996, other
than Tax Returns with respect to State Income Taxes that are Separate
Company Taxes of the Shipbuilding Group for Tax Periods beginning on or
after the Distribution Date. If Acquiror elects or is required to combine
the income of any Company or its Affiliates with the income of the Acquiror
or any of its Affiliates (other than any Company or its Affiliates) with
respect to any Tax Return for State Income Taxes for any Tax Period ending
on or before December 31, 1996, Industrial Company shall provide to
Acquiror in accordance with a compliance schedule to be agreed to by
Industrial Company and Acquiror information and documents reasonably
required by Acquiror to prepare and file such Tax Return, and Acquiror
shall have the exclusive obligation and right to prepare and file such Tax
Return, or to cause such Tax Return to be prepared and filed.
(c) Tax Returns that are required to be filed by the members of the
Industrial Group (including the federal consolidated Tax Return required to
be filed by Tenneco International Holding Corp.).
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Nothing in this Section 4.02 shall impose on Industrial Company any liability
for any failure to file any Tax Return, or for failure to file any Tax Return
when due, with respect to any Pre-Distribution Period if the due date for such
return (including extensions) was prior to the Distribution Date.
4.03 Shipbuilding Company's Responsibility. Shipbuilding Company has the
exclusive obligation and right to prepare and file, or to cause to be prepared
and filed, Tax Returns required to be filed by members of the Shipbuilding
Group other than those Tax Returns which Industrial Company is required to
prepare and file under Section 4.02.
4.04 Tenneco Responsibility. Tenneco shall prepare and file, or shall cause
to be prepared and filed, Tax Returns required to be filed by or with respect
to members of the Tenneco Group other than those Tax Returns which Industrial
Company is required to prepare and file under Section 4.02. The Tax Returns
required to be prepared and filed by Tenneco under this Section 4.04 shall
include (a) the Tenneco Federal Consolidated Return for Tax Periods ending
after December 31, 1996, (b) Tax Returns for Consolidated or Combined State
Income Taxes which the Companies reasonably determine, in accordance with
Tenneco's past practices, are required to be filed by the Companies or any of
their Affiliates for Tax Periods ending after December 31, 1996, and (c) Tax
Returns for State Income Taxes for Tax Periods ending on or before December
31, 1996 if Acquiror elects or is required to combine the income of any
Company or its Affiliates with the income of the Acquiror or any of its
Affiliates (other than any Company or its Affiliates) with respect to such Tax
Return.
4.05 Tax Accounting Practices
(a) General Rule. Except as otherwise provided in this Section 4.05, any
Tax Return for any Pre-Distribution Period or any Straddle Period, and any
Tax Return for any Post-Distribution Period to the extent items reported on
such Tax Return might reasonably affect items reported on any Tax Return
for any Pre-Distribution Period or any Straddle Period, shall be prepared
in accordance with past Tax accounting practices used with respect to the
Tax Returns in question (unless such past practices are no longer
permissible under the Code or other applicable Tax Law), and to the extent
any items are not covered by past practices (or in the event such past
practices are no longer permissible under the Code or other applicable Tax
Law), in accordance with reasonable Tax accounting practices selected by
the Responsible Company. The Companies agree to report their portion of the
consolidated cumulative overall foreign loss based on the notional account
balances determined on a legal entity basis in a manner consistent with
past practices.
(b) Reporting of Transaction Tax Items Other Than Debt Discharge Items
and Base Amount Adjustment Items. The tax treatment reported on any Tax
Return of Tax Items relating to the Transactions shall be consistent with
the treatment of such item in the IRS Ruling Letter (as defined in the
Merger Agreement) and the Tax Opinion (unless such treatment is not
permissible under the Code). To the extent there is a Tax Item relating to
the Transactions which is not covered by the IRS Ruling Letter or the Tax
Opinion, the Companies shall agree on the tax treatment of any such Tax
Item reported on any Tax Return. For this purpose, the tax treatment of
such Tax Items on a Tax Return by the Responsible Company with respect to
such Tax Return shall be agreed to by the other Company unless either (i)
there is no reasonable basis for such tax treatment, or (ii) such tax
treatment is inconsistent with the tax treatment contemplated in the Ruling
Request or in the Tax Opinion. Such Tax Return shall be submitted for
review pursuant to Section 4.07(a), and any dispute regarding such proper
tax treatment shall be referred for resolution pursuant to Section 15,
sufficiently in advance of the filing date of such Tax Return (including
extensions) to permit timely filing of the return.
(c) Debt Discharge Items. Industrial Company shall determine the tax
treatment of any Debt Discharge Item on any Tax Return, subject only to the
other Companies' rights of review under Section 4.07.
(d) Base Amount Adjustment Items. Tenneco shall determine the tax
treatment of any Base Amount Adjustment Item on any Tax Return, subject
only to the other Companies' rights of review under Section 4.07.
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4.06 Consolidated or Combined Returns. The Companies will elect and join,
and will cause their respective Affiliates to elect and join, in filing
consolidated, unitary, combined, or other similar joint Tax Returns, to the
extent each entity is eligible to join in such Tax Returns, if the Companies
reasonably determine that the filing of such Tax Returns is consistent with
past reporting practices, or in the absence of applicable past practices, will
result in the minimization of the net present value of the aggregate Tax to
the entities eligible to join in such Tax Returns.
4.07 Right to Review Tax Returns
(a) General. The Responsible Company with respect to any Tax Return shall
make such Tax Return and related workpapers available for review by the
other Companies, if requested, to the extent (i) such Tax Return relates to
Taxes for which the requesting party may be liable, (ii) such Tax Return
relates to Taxes for which the requesting party may be liable in whole or
in part for any additional Taxes owing as a result of adjustments to the
amount of Taxes reported on such Tax Return, (iii) such Tax Return relates
to Taxes for which the requesting party may have a claim for Tax Benefits
under this Agreement, or (iv) the requesting party reasonably determines
that it must inspect such Tax Return to confirm compliance with the terms
of this Agreement. The Responsible Company shall use its reasonable best
efforts to make such Tax Return available for review as required under this
paragraph sufficiently in advance of the due date for filing such Tax
Returns to provide the requesting party with a meaningful opportunity to
analyze and comment on such Tax Returns and have such Tax Returns modified
before filing, taking into account the person responsible for payment of
the tax (if any) reported on such Tax Return and the materiality of the
amount of Tax liability with respect to such Tax Return. The Companies
shall attempt in good faith to resolve any issues arising out of the review
of such Tax Returns.
(b) Execution of Returns Prepared by Other Party. In the case of any Tax
Return which is required to be prepared and filed by one Company under this
Agreement and which is required by law to be signed by another Company (or
by its authorized representative), the Company which is legally required to
sign such Tax Return shall not be required to sign such Tax Return under
this Agreement if there is no reasonable basis for the tax treatment of any
material items reported on the Tax Return.
4.08 Claims for Refund, Carrybacks, and Self-Audit Adjustments ("Adjustment
Requests")
(a) Consent Required for Adjustment Requests Related to Consolidated or
Combined Income Taxes. Except as provided in paragraphs (b), (c), and (d)
below, each of the Companies hereby agrees that, unless each of the other
Companies consents in writing, which consent shall not be unreasonably
withheld, (i) no Adjustment Request with respect to any Consolidated or
Combined Income Tax for a Pre-Distribution Period shall be filed, and (ii)
any available elections to waive the right to claim in any Pre-Distribution
Period with respect to any Consolidated or Combined Income Tax any
Carryback arising in a Post-Distribution Period shall be made, and no
affirmative election shall be made to claim any such Carryback. Any
Adjustment Request which the Companies consent to make under this Section
4.08 shall be prepared and filed by the Responsible Company under Section
4.02 for the Tax Return to be adjusted. The Company requesting the
Adjustment Request shall provide to the Responsible Company all information
required for the preparation and filing of such Adjustment Request in such
form and detail as reasonably requested by the Responsible Company.
(b) Exception for Adjustment Requests Related to Debt Discharge Items.
Industrial Company shall have the right, without the consent of any other
party, to file (i) IRS Form 4466 (Corporation Application for Quick Refund
of Overpayment of Estimated Tax) (or any similar Adjustment Request allowed
under the Code or other Tax Laws) to claim the benefit of any reduction of
required estimated Federal Income Tax as a result of Debt Discharge Items,
or (ii) IRS Form 1139 (Corporation Application for Tentative Refund) or IRS
Form 1120X (Corporation Amended Return) (or any similar Adjustment Request
allowed under the Code or other Tax Laws), and to make any elections
necessary to file such forms, with respect to any net operating loss
Carryback arising in any Tax Period in which there is any reduction of
Taxes as a result of Debt Discharge Items if any portion of such Carryback
is attributable to such Debt Discharge Items (determined in accordance with
the principles of Section 6.04). If Industrial Company is not the
Responsible
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Company with respect to any such return, then the Responsible Company shall
file such return upon request of the Industrial Company.
(c) Exception for Adjustment Requests Related to Base Amount Adjustment
Items. Tenneco shall have the right, without the consent of any other
party, to file (i) IRS Form 4466 (Corporation Application for Quick Refund
of Overpayment of Estimated Tax) (or any similar Adjustment Request allowed
under the Code or other Tax Laws) to claim the benefit of any reduction of
required estimated Federal Income Tax as a result of Base Amount Adjustment
Items, or (ii) IRS Form 1139 (Corporation Application for Tentative Refund)
or IRS Form 1120X (Corporation Amended Return) (or any similar Adjustment
Request allowed under the Code or other Tax Laws), and to make any
elections necessary to file such forms, with respect to any net operating
loss Carryback arising in Tax Period in which there is any reduction of
Taxes as a result of Base Amount Adjustment Items if any portion of such
Carryback is attributable to Base Amount Adjustment Items (determined in
accordance with the principles of Section 6.04). If Tenneco is not the
Responsible Company with respect to any such return, then the Responsible
Company shall file such return upon request of the Industrial Company.
(d) Exception for Adjustment Requests Related to Audit Adjustments. Each
of the Companies shall be entitled, without the consent of any other
Company, to require Industrial Company to file an Adjustment Request to
take into account any net operating loss, net capital loss, deduction,
credit, or other adjustment attributable to such Company or any member of
its Group corresponding to any adjustment resulting from any audit by the
Internal Revenue Service or other Tax Authority with respect to
Consolidated or Combined Income Taxes for any Pre-Distribution Tax Period.
For example, if the Internal Revenue Service requires a Company to
capitalize an item deducted for the taxable year 1993, the Company shall be
entitled, without the consent of any other Company, to require Industrial
Company to file an Adjustment Request for the taxable year 1994 (and later
years) to take into account any depreciation or amortization deductions in
such years directly related to the item capitalized in 1993.
(e) Other Adjustment Requests Permitted. Nothing in this Section 4.08
shall prevent any Company or its Affiliates from filing any Adjustment
Request with respect to Income Taxes which are not Consolidated or Combined
Income Taxes or with respect to any Taxes other than Income Taxes. Any
refund or credit obtained as a result of any such Adjustment Request (or
otherwise) shall be for the account of the person liable for the Tax under
this Agreement.
(f) Payment of Refunds. Any refunds or other Tax Benefits received by any
Company (or any of its Affiliates) as a result of any Adjustment Request
which are for the account of another Company (or member of such other
Company's Group) shall be paid by the Company receiving (or whose Affiliate
received) such refund or Tax Benefit to such other Company in accordance
with Section 6.
Section 5. Tax Payments and Intercompany Billings
5.01 Payment of Taxes With Respect to Tenneco Federal Consolidated Returns
Filed After the Distribution Date. In the case of any Tenneco Federal
Consolidated Return the due date for which (including extensions) is after the
Distribution Date,
(a) Computation and Payment of Tax Due. At least three business days
prior to any Payment Date, the Responsible Company shall compute the amount
of Tax required to be paid to the Internal Revenue Service (taking into
account the requirements of Section 4.05 relating to consistent accounting
practices) with respect to such Tax Return on such Payment Date and, if
Tenneco is not the Responsible Company with respect to such Tax Return,
shall notify Tenneco in writing of the amount of Tax required to be paid on
such Payment Date. Tenneco will pay such amount to the Internal Revenue
Service on or before such Payment Date.
(b) Computation and Payment of Industrial Company Liability With Respect
to Tax Due. Within 30 days following any Payment Date, Industrial Company
will pay to Tenneco the excess (if any) of--
(i) the Consolidated Tax Liability determined as of such Payment Date
with respect to the applicable Tax Period allocable to the members of
the Industrial Group as determined by the
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Responsible Company in a manner consistent with the provisions of
Section 2.02(a) (relating to allocation of the Consolidated Tax
Liability in accordance with the Federal Allocation Method) (the
"Allocated Federal Tax Liability"), over
(ii) the cumulative net payments with respect to such Tax Return
prior to such Payment Date by the members of the Industrial Group (the
"Cumulative Federal Tax Payment").
If the Industrial Group Cumulative Federal Tax Payment is greater than the
Industrial Group Allocated Federal Tax Liability as of any Payment Date,
then Tenneco shall pay such excess to Industrial Company within 30 days of
Tenneco's receipt of the corresponding Tax Benefit (i.e., through either a
reduction in Tenneco's otherwise required Tax payment, or a refund of prior
tax payments). Any amount due under Section 2.02(c) with respect to the
Energy Investments Group net operating loss or taxable income as reported
on the Tenneco Federal Consolidated Tax Return for the taxable year ended
December 31, 1996 shall be paid within 30 days following the Payment Date
which is the date the return is filed, and any subsequent adjustment to the
payment due under Section 2.02(c) shall be paid with interest as determined
in a manner consistent with the provisions of Section 5.02.
(c) Computation and Payment of Shipbuilding Company Liability With
Respect to Tax Due. Within the time for any payment under paragraph (b) of
this subsection, the Responsible Company shall also notify Tenneco, if
necessary, and Shipbuilding Company in writing of the Shipbuilding Group
Allocated Federal Tax Liability and the Shipbuilding Group Cumulative
Federal Tax Payment (computed in manner consistent with paragraph (b) of
this subsection). If the Shipbuilding Group Allocated Federal Tax Liability
exceeds the Shipbuilding Group Cumulative Federal Tax Payment, then
Shipbuilding Company shall pay such excess to Tenneco within three business
days following receipt of such notice. If the Shipbuilding Group Cumulative
Federal Tax Payment exceeds the Shipbuilding Group Allocated Federal Tax
Liability, then Tenneco shall pay such excess to Shipbuilding Company
within 30 days of Tenneco's receipt of the corresponding Tax Benefit (i.e.,
either a reduction in Tenneco's otherwise required Tax payment, or a refund
of estimated tax payments).
(d) Deemed Cumulative Federal Tax Payment for First Payment Date After
the Distribution Date. For purposes of Sections 5.01(b)(ii) and 5.01(c)
with respect to the Tenneco Federal Consolidated Tax Return for the taxable
year ended December 31, 1996, the Industrial Group's Cumulative Federal Tax
Payment shall be equal to $49,000,000, and the Shipbuilding Group's
Cumulative Federal Tax Payment shall be equal to $40,000,000.
(e) Interest on Intergroup Tax Allocation Payments. In the case of any
payments to Tenneco required under paragraphs (b) or (c) of this subsection
5.01, the payor shall also pay to Tenneco an amount of interest computed at
the Prime Rate on the amount of the payment required based on the number of
days from the applicable Payment Date to the date of payment. In the case
of any payments by Tenneco required under paragraphs (b) or (c) of this
subsection 5.01, Tenneco shall also pay to the payee an amount of interest
computed at the Prime Rate on the amount of the payment required based on
the number of days from the date of receipt of the Tax Benefit to the date
of payment of such amount to the payee.
(f) Representation Regarding Cumulative 1996 Federal Income Tax Payments.
Industrial Company represents and warrants to Tenneco that, as of the the
date hereof, $205,500,000 of cumulative net payments have been made by
Tenneco, and credited by the Internal Revenue Service, with respect to the
1996 Tenneco Federal Consolidated Return.
5.02 Payment of Federal Income Tax Related to Adjustments
(a) Adjustments Resulting in Underpayments. Tenneco shall pay to the
Internal Revenue Service when due any additional Federal Income Tax
required to be paid as a result of any adjustment to the Tax liability with
respect to any Tenneco Federal Consolidated Return for any Pre-Distribution
Period. The Responsible Company shall compute the amount attributable to
Industrial Group and the Shipbuilding Group in accordance with Section
2.02(b) and Industrial Company and Shipbuilding Company shall pay to
Tenneco any amount due Tenneco under Section 2.02(b) within 30 days from
the later of (i) the date the additional Tax was paid by Tenneco or (ii)
the date of receipt by Industrial Company or Shipbuilding Company (as
applicable) of a written notice and demand from Tenneco for payment of the
amount due, accompanied by evidence of payment and a statement detailing
the Taxes paid and describing in reasonable detail the
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particulars relating thereto. Any amount due to Industrial Company or
Shipbuilding Company under Section 2.02(b) shall be paid within 30 days
from the date the additional Tax was paid by Tenneco to the Internal
Revenue Service. Any payments required under this Section 5.02(a) shall
include interest computed at the Prime Rate based on the number of days
from the date the additional Tax was paid by Tenneco to the date of the
payment under this Section 5.02(a).
(b) Adjustments Resulting in Overpayments. Within 30 days of receipt by
Tenneco of any Tax Benefit resulting from any adjustment to the
Consolidated Tax Liability with respect to any Tenneco Federal Consolidated
Return for any Pre-Distribution Period, Tenneco shall pay to Industrial
Company and Shipbuilding Company, or Industrial Company and Shipbuilding
Company shall pay to Tenneco (as the case may be), their respective amounts
due from or to Tenneco as determined by the Responsible Company in
accordance with Section 2.02(b). Any payments required under this Section
5.02(a) shall include interest computed at the Prime Rate based on the
number of days from the date the Tax Benefit was received by Tenneco to the
date of payment to Industrial Company or Shipbuilding Company under this
Section 5.02(b).
5.03 Payment of State Income Tax With Respect to Returns Filed After the
Distribution Date
(a) Computation and Payment of Tax Due. At least three business days
prior to any Payment Date for any Tax Return with respect to any State
Income Tax, the Responsible Company shall compute the amount of Tax
required to be paid to the applicable Tax Authority (taking into account
the requirements of Section 4.05 relating to consistent accounting
practices) with respect to such Tax Return on such Payment Date and--
(i) If such Tax Return is with respect to a Consolidated or Combined
State Income Tax, the Responsible Company shall, if Tenneco is not the
Responsible Company with respect to such Tax Return, notify Tenneco in
writing of the amount of Tax required to be paid on such Payment Date.
Tenneco will pay such amount to such Tax Authority on or before such
Payment Date.
(ii) If such Tax Return is with respect to a Separate Company Tax,
the Responsible Company shall, if it is not the Company liable for the
Tax reported on such Tax Return, notify the Company liable for such Tax
in writing of the amount of Tax required to be paid on such Payment
Date. The Company liable for such Tax will pay such amount to such Tax
Authority on or before such Payment Date.
(b) Computation and Payment of Industrial Company Liability and
Shipbuilding Company Liability With Respect to Tax Due. Within 120 days
following the due date (including extensions) for filing any Tax Return for
any Consolidated or Combined State Income Tax (excluding any Tax Return
with respect to payment of estimated Taxes or Taxes due with a request for
extension of time to file), (i) Industrial Company shall pay to Tenneco the
tax liability allocable to the Industrial Group as determined by the
Responsible Company under the provisions of Section 2.03(b)(i), plus
interest computed at the Prime Rate on the amount of the payment based on
the number of days from the due date (including extensions) to the date of
payment by Industrial Company to Tenneco, and (ii) the Responsible Company
shall notify Tenneco (if Tenneco is not the Responsible Company with
respect to such Tax Return) and Shipbuilding Company in writing of the tax
liability allocable to the Shipbuilding Group as determined by the
Responsible Company under the provisions of Section 2.03(b)(i). Within
three business days following receipt of such notice, Shipbuilding Company
shall pay to Tenneco the Shipbuilding Group's allocated tax liability as
set forth in such notice, plus interest computed at the Prime Rate on the
amount of the payment based on the number of days from the due date
(including extensions) to the date of payment by Shipbuilding Company to
Tenneco.
5.04 Payment of State Income Taxes Related to Adjustments
(a) Adjustments Resulting in Underpayments. Tenneco shall pay to the
applicable Tax Authority when due any additional State Income Tax required
to be paid as a result of any adjustment to the tax liability with respect
to any Tax Return for any Consolidated or Combined State Income Tax for any
Pre-Distribution Period. Industrial Company and Shipbuilding Company shall
pay to Tenneco their respective shares of any such additional Tax payment
determined by the Responsible Company in accordance with Section
2.03(b)(ii) within 120 days from the later of (i) the date the additional
Tax was paid by Tenneco or
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(ii) the date of receipt by Industrial Company or Shipbuilding Company (as
applicable) of a written notice and demand from Tenneco for payment of the
amount due, accompanied by evidence of payment and a statement detailing
the Taxes paid and describing in reasonable detail the particulars relating
thereto. Industrial Company and Shipbuilding Company shall also pay to
Tenneco interest on their respective shares of such Tax computed at the
Prime Rate based on the number of days from the date the additional Tax was
paid by Tenneco to the date of their payment to Tenneco under this Section
5.04(a).
(b) Adjustments Resulting in Overpayments. Within 120 days of receipt by
Tenneco of any Tax Benefit resulting from any adjustment to the tax
liability with respect to any Tax Return for any Consolidated or Combined
State Income Tax for any Pre-Distribution Period, Tenneco shall pay to
Industrial Company and Shipbuilding Company their respective shares of any
such Tax Benefit determined by the Responsible Company in accordance with
Section 2.03(b)(ii). Tenneco shall also pay to Industrial Company or
Shipbuilding Company interest on their respective shares of such Tax
Benefit computed at the Prime Rate based on the number of days from the
date the Tax Benefit was received by Tenneco to the date of payment to
Industrial Company or Shipbuilding Company under this Section 5.04(b).
5.05 Payment of Separate Company Taxes. Each Company shall pay, or shall
cause to be paid, to the applicable Tax Authority when due all Separate
Company Taxes owed by such Company or a member of such Company's Group.
5.06 Indemnification Payments. If any Company (the "payor") is required to
pay to a Tax Authority a Tax that another Company (the "responsible party") is
required to pay to such Taxing Authority under this Agreement, the responsible
party shall reimburse the payor within 30 days of delivery by the payor to the
responsible party of an invoice for the amount due, accompanied by evidence of
payment and a statement detailing the Taxes paid and describing in reasonable
detail the particulars relating thereto. The reimbursement shall include
interest on the Tax payment computed at the Prime Rate based on the number of
days from the date of the payment to the Tax Authority to the date of
reimbursement under this Section 5.06.
Section 6. Tax Benefits
6.01 General Rule. If a member of one Group receives any Tax Benefit with
respect to any Taxes for which a member of another Group is liable hereunder,
the Company receiving such Tax Benefit shall make a payment to the Company who
is liable for such Taxes hereunder within 30 days following receipt of the Tax
Benefit in an amount equal to the Tax Benefit (including any Tax Benefit
realized as a result of the payment), plus interest on such amount computed at
the Prime Rate based on the number of days from the date of receipt of the Tax
Benefit to the date of payment of such amount under this Section 6.01.
6.02 Debt Discharge Items
(a) Any Tax Benefit attributable to Debt Discharge Items (determined in
accordance with the principles of Section 6.04) shall be credited against
any amount owed by Industrial Company to Tenneco under Sections 5.01(b) or
5.03(b), and any excess Tax Benefit shall be paid by Tenneco to Industrial
Company as an amount owed by Tenneco to Industrial Company under Sections
5.01(b) or 5.03(b). If the Tax Benefit is subsequently adjusted (including
any adjustment to the Tax Benefit received as a reduction in otherwise
required estimated tax payments), Industrial Company shall pay to Tenneco
an amount equal to any reduction in the Tax Benefit, and Tenneco shall pay
to Industrial Company an amount equal to any increase in the Tax Benefit,
in each case under Section 5.01(b) (in the case of adjustments to Tax
payments), or Sections 5.02 or 5.04 (in the case of audit adjustments).
(b) Any Tax liability attributable to Debt Discharge Items (determined in
accordance with the principles of Section 6.04) shall be paid by Industrial
Company to Tenneco as an additional amount owed by Industrial Company to
Tenneco under Section 5.01(b) or 5.03(b). Any adjustment to such Tax
liability shall be paid under Section 5.01(b) (in the case of adjustments
to Tax payments), or Sections 5.02 or 5.04 (in the case of audit
adjustments).
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(c) Payments under this Section 6.02 shall include interest as provided
under Sections 5.01, 5.02, 5.03, or 5.04, as applicable.
6.03 Base Amount Adjustment Items. Any Tax Benefit (or Tax liability)
attributable to Base Amount Adjustment Items (determined in accordance with
the principles of Section 6.04) shall be for the account of Tenneco,
regardless of the legal entity reporting such Tax Benefit or Tax liability.
Pursuant to this Section 6.03, to the extent any net operating loss of the
Tenneco Group is attributable to Base Amount Adjustment Items (determined in
accordance with the principles of Section 6.04), any Tax Benefit associated
with the deduction of such net operating loss (either in the current year or
as a carryback or carryover) shall be for the account of Tenneco.
6.04 Ordering of Tax Items. Tax Items for any Tax Period shall be taken into
account for purposes of this Agreement in the following order of priority:
(a) First, Tax Items other than Debt Discharge Items and Base Amount
Adjustment Items.
(b) Second, Debt Discharge Items and Base Amount Adjustment Items (other
than GSR Items) in proportion to the relative net amounts of such items.
(c) Third, GSR Items.
Section 7. Assistance and Cooperation
7.01 General. After the Distribution Date, each of the Companies shall
cooperate (and cause their respective Affiliates to cooperate) with each other
and with each other's agents, including accounting firms and legal counsel, in
connection with Tax matters relating to the Companies and their Affiliates
including (i) preparation and filing of Tax Returns, (ii) determining the
liability for and amount of any Taxes due (including estimated Taxes) or the
right to and amount of any refund of Taxes, (iii) examinations of Tax Returns,
and (iv) any administrative or judicial proceeding in respect of Taxes
assessed or proposed to be assessed. Such cooperation shall include making all
information and documents in their possession relating to the other Companies
and their Affiliates available to such other Companies as provided in Section
8. Each of the Companies shall also make available to each other, as
reasonably requested and available, personnel (including officers, directors,
employees and agents of the Companies or their respective Affiliates)
responsible for preparing, maintaining, and interpreting information and
documents relevant to Taxes, and personnel reasonably required as witnesses or
for purposes of providing information or documents in connection with any
administrative or judicial proceedings relating to Taxes. Any information or
documents provided under this Section 7 shall be kept confidential by the
Company receiving the information or documents, except as may otherwise be
necessary in connection with the filing of Tax Returns or in connection with
any administrative or judicial proceedings relating to Taxes.
7.02 Income Tax Return Information. Each Company will provide to each other
Company information and documents relating to their respective Groups required
by the other Companies to prepare Tax Returns. The Responsible Company shall
determine a reasonable compliance schedule for such purpose in accordance with
Tenneco's past practices. Any additional information or documents the
Responsible Company requires to prepare such Tax Returns will be provided in
accordance with past practices, if any, or as the Responsible Company
reasonably requests and in sufficient time for the Responsible Company to file
such Tax Returns timely.
Section 8. Tax Records
8.01 Retention of Tax Records. Except as provided in Section 8.02, each
Company shall preserve and keep all Tax Records exclusively relating to the
assets and activities of their respective Groups for Pre-Distribution Tax
Periods, and Tenneco shall preserve and keep all other Tax Records relating to
Taxes of the Groups for Pre-Distribution Tax Periods, for so long as the
contents thereof may become material in the administration of any matter under
the Code or other applicable Tax Law, but in any event until the later of (i)
the expiration of any applicable statutes of limitation, and (ii) seven years
after the Distribution Date. If, prior to the expiration of the applicable
statute of limitation and such seven-year period, a Company reasonably
determines that any Tax Records which it is required to preserve and keep
under this Section 8 are no longer material in the administration
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of any matter under the Code or other applicable Tax Law, such Company may
dispose of such records upon 90 days prior notice to the other Companies. Such
notice shall include a list of the records to be disposed of describing in
reasonable detail each file, book, or other record accumulation being
disposed. The notified Companies shall have the opportunity, at their cost and
expense, to copy or remove, within such 90-day period, all or any part of such
Tax Records.
8.02 State Income Tax Returns. Tax Returns with respect to State Income
Taxes and workpapers prepared in connection with preparing such Tax Returns
shall be preserved and kept, in accordance with the guidelines of Section
8.01, by the Company responsible for preparing and filing the applicable Tax
Return.
8.03 Access to Tax Records. The Companies and their respective Affiliates
shall make available to each other for inspection and copying during normal
business hours upon reasonable notice all Tax Records in their possession to
the extent reasonably required by the other Company in connection with the
preparation of Tax Returns, audits, litigation, or the resolution of items
under this Agreement.
Section 9. Tax Contests
9.01 Notice. Each of the parties shall provide prompt notice to the other
parties of any pending or threatened Tax audit, assessment or proceeding or
other Tax Contest of which it becomes aware related to Taxes for Tax Periods
for which it is indemnified by one or more other parties hereunder. Such
notice shall contain factual information (to the extent known) describing any
asserted Tax liability in reasonable detail and shall be accompanied by copies
of any notice and other documents received from any Tax Authority in respect
of any such matters. If an indemnified party has knowledge of an asserted Tax
liability with respect to a matter for which it is to be indemnified hereunder
and such party fails to give the indemnifying party prompt notice of such
asserted Tax liability, then (i) if the indemnifying party is precluded from
contesting the asserted Tax liability in any forum as a result of the failure
to give prompt notice, the indemnifying party shall have no obligation to
indemnify the indemnified party for any Taxes arising out of such asserted Tax
liability, and (ii) if the indemnifying party is not precluded from contesting
the asserted Tax liability in any forum, but such failure to give prompt
notice results in a monetary detriment to the indemnifying party, then any
amount which the indemnifying party is otherwise required to pay the
indemnified party pursuant to this Agreement shall be reduced by the amount of
such detriment.
9.02 Control of Tax Contests
(a) Separate Company Taxes. In the case of any Tax Contest with respect
to any Separate Company Tax, the Company having liability for the Tax shall
have exclusive control over the Tax Contest, including exclusive authority
with respect to any settlement of such Tax liability.
(b) Consolidated or Combined Income Taxes. In the case of any Tax Contest
with respect to any Consolidated or Combined Income Tax, (i) Shipbuilding
Company shall control the defense or prosecution of the portion of the Tax
Contest directly and exclusively related to any Shipbuilding Adjustment,
including settlement of any such Shipbuilding Adjustment, (ii) Tenneco
shall control the defense or prosecution of the portion of the Tax Contest
directly and exclusively related to any Tenneco Adjustment, including
settlement of any such Tenneco Adjustment, and (iii) Industrial Company
shall control the defense or prosecution of the portion of the Tax Contest
directly and exclusively related to any Industrial Adjustment, including
any settlement of any Industrial Adjustment, and (iv) the Tax Contest
Committee shall control the defense or prosecution of Joint Adjustments and
any and all administrative matters not directly and exclusively related to
any Shipbuilding Adjustment, Tenneco Adjustment, or Industrial Adjustment.
The Tax Contest Committee shall be comprised of two persons, one person
selected by Industrial Company (as designated in writing to Tenneco) and
one person selected by Tenneco (as designated in writing to Industrial
Company). Each person serving on the Tax Contest Committee shall continue
to serve unless and until he or she is replaced by the party designating
such person. Any and all matters to be decided by the Tax Contest Committee
shall require the unanimous approval of both persons serving on the
committee. In the event the Tax Contest Committee shall be deadlocked on
any matter, the provisions of Section 15 of this
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Agreement shall apply. The Tax Contest Committee shall consult in good
faith with Shipbuilding Company to the extent Shipbuilding Company might
reasonably be expected to be materially affected by such matters. A Company
shall not agree to any Tax liability for which another Company may be
liable under this Agreement, or compromise any claim for any Tax Benefit
which another Company may be entitled under this Agreement, without such
other Company's written consent (which consent may be given or withheld at
the sole discretion of the Company from which the consent would be
required).
Section 10. Effective Date; Termination of Prior Intercompany Tax Allocation
Agreements. This Agreement shall be effective on the Distribution Date.
Immediately prior to the close of business on the Distribution Date (i) all
Prior Intercompany Tax Allocation Agreements shall be terminated, and (ii)
amounts due under such agreements as of the Distribution Date shall be settled
as of the Distribution Date (including capitalization or distribution of
amounts due or receivable under such agreements). Upon such termination and
settlement, no further payments by or to Tenneco, by or to the Shipbuilding
Group, or by or to the Industrial Group, with respect to such agreements shall
be made, and all other rights and obligations resulting from such agreements
between the Companies and their Affiliates shall cease at such time. Any
payments pursuant to such agreements shall be ignored for purposes of
computing amounts due under this Agreement.
Section 11. No Inconsistent Actions. Each of the Companies and the Acquiror
covenants and agrees that it will not take any action, and it will cause its
Affiliates to refrain from taking any action, which is inconsistent with the
Tax treatment of the Transactions as contemplated in the Ruling Request or in
the Tax Opinion (any such action is referred to in this Section 11 as a
"Prohibited Action"), unless such Prohibited Action is required by law, or the
person acting has obtained the prior written consent of each of the other
parties (which consent shall not be unreasonably withheld). With respect to
any Prohibited Action proposed by a Company or the Acquiror (the "Requesting
Party"), each of the other parties (the "Requested Parties") shall grant its
consent to such Prohibited Action if the Requesting Party obtains a ruling
with respect to the Prohibited Action from the Internal Revenue Service or
other applicable Tax Authority that is reasonably satisfactory to each of the
Requested Parties (except that the Requesting Party shall not submit any such
ruling request if a Requested Party determines in good faith that filing such
request might have a materially adverse effect upon such Requested Party).
Without limiting the foregoing:
(a) No Inconsistent Plan or Intent
(i) Each of Industrial Company and Shipbuilding Company represents
and warrants that neither it nor any of its Affiliates has any plan or
intent to take any action which is inconsistent with any factual
statements or representations in the Ruling Request or in the Tax
Opinion. Regardless of any change in circumstances, each of Industrial
Company and Shipbuilding Company covenants and agrees that it will not
take, and it will cause its Affiliates to refrain from taking, any such
inconsistent action on or before the last day of the calendar year
ending after the second anniversary of the Distribution Date other than
as permitted in this Section 11. For purposes of applying this Section
11(a) to any such inconsistent action prior to the Effective Time, the
members of the Tenneco Group shall be treated as Affiliates of
Industrial Company.
(ii) Acquiror represents and warrants that neither it nor any of its
Affiliates has any plan or intent to take any action which is
inconsistent with any factual statements or representations in the
Ruling Request or in the Tax Opinion. Regardless of any change in
circumstances, Acquiror covenants and agrees that it will not take, and
it will cause Tenneco and the other Affiliates of Acquiror to refrain
from taking, any such inconsistent action on or before the last day of
the calendar year ending after the second anniversary of the
Distribution Date other than as permitted in this Section 11.
(b) Amended or Supplemental Rulings. Each of the Companies covenants and
agrees that it will not file, and it will cause its Affiliates to refrain
from filing, any amendment or supplement to the Ruling Request subsequent
to the Distribution Date without the consent of the other Companies, which
consent shall not be unreasonably withheld.
Section 12. Survival of Obligations. The representations, warranties,
covenants and agreements set forth in this Agreement shall be unconditional
and absolute and shall remain in effect without limitation as to time.
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<PAGE>
Section 13. Employee Matters. Each of the Companies agrees to utilize, or
cause its Affiliates to utilize, the alternative procedure set forth in
Revenue Procedure 84-77, 1984-2 C.B. 753, with respect to wage reporting.
Section 14. Treatment of Payments; Tax Gross Up
14.01 Treatment of Tax Indemnity and Tax Benefit Payments. In the absence of
any change in tax treatment under the Code or other applicable Tax Law,
(a) any Tax indemnity payments made by a Company under Section 5 shall be
reported for Tax purposes by the payor and the recipient as distributions
or capital contributions, as appropriate, occurring immediately before the
distribution of the Industrial Common Shares and the Shipbuilding Common
Shares to Tenneco shareholders on the Distribution Date, but only to the
extent the payment does not relate to a Tax allocated to the payor in
accordance with Treasury Regulation Section 1.1502-33(d) (or under
corresponding principles of other applicable Tax Laws), and
(b) any Tax Benefit payments made by a Company under Section 6, shall be
reported for Tax purposes by the payor and the recipient as distributions
or capital contributions, as appropriate, occurring immediately before the
distribution of Industrial Common Shares and Shipbuilding Common Shares to
Tenneco shareholders on the Distribution Date, but only to the extent the
payment does not relate to a Tax allocated to the payor in accordance with
Treasury Regulation Section 1.1502-33(d) (or under corresponding principles
of other applicable Tax Laws).
14.02 Tax Gross Up. If notwithstanding the manner in which Tax indemnity
payments and Tax Benefit payments were reported, there is an adjustment to the
Tax liability of a Company as a result of its receipt of a payment pursuant to
this Agreement, such payment shall be appropriately adjusted so that the
amount of such payment, reduced by the amount of all Income Taxes payable with
respect to the receipt thereof (but taking into account all correlative Tax
Benefits resulting from the payment of such Income Taxes), shall equal the
amount of the payment which the Company receiving such payment would otherwise
be entitled to receive pursuant to this Agreement.
14.03 Interest Under This Agreement. Anything herein to the contrary
notwithstanding, to the extent one Company ("indemnitor") makes a payment of
interest to another Company ("indemnitee") under this Agreement with respect
to the period from the date that the indemnitee made a payment of Tax to a Tax
Authority to the date that the indemnitor reimbursed the indemnitee for such
Tax payment, or with respect to the period from the date that the indemnitor
received a Tax Benefit to the date indemnitor paid the Tax Benefit to the
indemnitee, the interest payment shall be treated as interest expense to the
indemnitor (deductible to the extent provided by law) and as interest income
by the indemnitee (includible in income to the extent provided by law). The
amount of the payment shall not be adjusted under Section 14.02 to take into
account any associated Tax Benefit to the indemnitor or increase in Tax to the
indemnitee.
Section 15. Disagreements. If after good faith negotiations the parties
cannot agree on the application of this Agreement to any matter, then the
matter will be referred to a nationally recognized accounting firm acceptable
to each of the parties (the "Accounting Firm"). The Accounting Firm shall
furnish written notice to the parties of its resolution of any such
disagreement as soon as practical, but in any event no later than 45 days
after its acceptance of the matter for resolution. Any such resolution by the
Accounting Firm will be conclusive and binding on all parties to this
Agreement. In accordance with Section 17, each party shall pay its own fees
and expenses (including the fees and expenses of its representatives) incurred
in connection with the referral of the matter to the Accounting Firm. All fees
and expenses of the Accounting Firm in connection with such referral shall be
shared equally by the parties affected by the matter.
Section 16. Late Payments. Any amount owed by one party to another party
under this Agreement which is not paid when due shall bear interest at the
Prime Rate plus two percent, compounded semiannually, from the due date of the
payment to the date paid. To the extent interest required to be paid under
this Section 16 duplicates interest required to be paid under any other
provision of this Agreement, interest shall be computed at
20
<PAGE>
the higher of the interest rate provided under this Section 16 or the interest
rate provided under such other provision.
Section 17. Expenses. Except as provided in Section 15, each party and its
Affiliates shall bear their own expenses incurred in connection with
preparation of Tax Returns, Tax Contests, and other matters related to Taxes
under the provisions of this Agreement.
Section 18. Special Rules for Determining Members of Groups. For purposes of
this Agreement, the following special rules shall apply for determining the
members of the Industrial Group and members of the Shipbuilding Group:
18.01 Tennessee Gas Pipeline Company. The assets and activities of Tennessee
Gas Pipeline Company for Pre-Distribution Periods that comprise the Walker
Manufacturing Company Division, the Tenneco Automotive Headquarters Division,
and the Tenneco Brakes Division, as jointly determined by Industrial Company
and Tenneco in accordance with past practices, shall be combined and treated
as a separate corporate entity which is a member of the Industrial Group.
18.02 Former Affiliates of Shipbuilding Group or Industrial Group. The
entities listed on Schedule 1 attached hereto shall be treated as members of
the Shipbuilding Group, and the entities listed on Schedule 2 attached hereto
shall be treated as members of the Industrial Group. Any entity substantially
all of the assets and liabilities of which have been transferred to a member
of the Shipbuilding Group (e.g., by a statutory merger) shall be treated as a
member of the Shipbuilding Group, and any entity substantially all of the
assets and liabilities of which have been transferred to a member of the
Industrial Group shall be treated as a member of the Industrial Group. For
example, Newport News Shipbuilding and Dry Dock Company, a Virginia
corporation, shall, by virtue of its merger into Tenneco InterAmerica Inc., be
treated as a member of the Shipbuilding Group. For purposes of this paragraph,
Tenneco's Affiliates shall not be limited to persons who are Affiliates
immediately after the Distributions.
Section 19. General Provisions
19.01 Addresses and Notices. Any notice, demand, request or report required
or permitted to be given or made to any party under this Agreement shall be in
writing and shall be deemed given or made when delivered in party or when sent
by first class mail or by other commercially reasonable means of written
communication (including delivery by an internationally recognized courier
service or by facsimile transmission) to the party at the party's address as
follows:
If to Shipbuilding Company:
Director, Taxes
Newport News Shipbuilding and Dry Dock Company
4101 Washington Avenue
Newport News, VA 23607
If to Tenneco:
Director, Taxes
Tennessee Gas Pipeline Co.
1010 Milam Street
Houston, Texas 77002
With a copy to:
Director, Taxes
El Paso Natural Gas Co.
One Paul Kayser Center
100 North Stanton Street
El Paso, Texas 79901
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If to Industrial Company:
Robert G. Simpson
Vice President, Tax
Tenneco Inc.
1275 King Street
Greenwich, CT 06831
If to Acquiror:
Director, Taxes
El Paso Natural Gas Co.
One Paul Kayser Center
100 North Stanton Street
El Paso, Texas 79901
A party may change the address for receiving notices under this Agreement by
providing written notice of the change of address to the other parties.
19.02 Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their successors and assigns.
19.03 Waiver. No failure by any party to insist upon the strict performance
of any obligation under this Agreement or to exercise any right or remedy
under this Agreement shall constitute waiver of any such obligation, right, or
remedy or any other obligation, rights, or remedies under this Agreement.
19.04 Invalidity of Provisions. If any provision of this Agreement is or
becomes invalid, illegal or unenforceable in any respect, the validity,
legality, and enforceability of the remaining provisions contained herein
shall not be affected thereby.
19.05 Further Action. The parties shall execute and deliver all documents,
provide all information, and take or refrain from taking action as may be
necessary or appropriate to achieve the purposes of this Agreement, including
the execution and delivery to the other parties and their Affiliates and
representatives of such powers of attorney or other authorizing documentation
as is reasonably necessary or appropriate in connection with Tax Contests (or
portions thereof) under the control of such other parties in accordance with
Section 9.
19.06 Integration. This Agreement constitutes the entire agreement among the
parties pertaining to the subject matter of this Agreement and supersedes all
prior agreements and understandings pertaining thereto. In the event of any
inconsistency between this Agreement and the Distribution Agreement or any
other agreements relating to the transactions contemplated by the Distribution
Agreement, the provisions of this Agreement shall control.
19.07 Construction. The language in all parts of this Agreement shall in all
cases be construed according to its fair meaning and shall not be strictly
construed for or against any party.
19.08 No Double Recovery; Subrogation. No provision of this Agreement shall
be construed to provide an indemnity or other recovery for any costs, damages,
or other amounts for which the damaged party has been fully compensated under
any other provision of this Agreement or under any other agreement or action
at law or equity. Unless expressly required in this Agreement, a party shall
not be required to exhaust all remedies available under other agreements or at
law or equity before recovering under the remedies provided in this Agreement.
Subject to any limitations provided in this Agreement (for example, the
limitation on filing claims for refund in Section 4.08), the indemnifying
party shall be subrogated to all rights of the indemnified party for recovery
from any third party.
19.09 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which
taken together shall constitute one and the same instrument.
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19.10 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to contracts
executed in and to be performed in that State.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
the respective officers as of the date set forth above.
Tenneco Inc.
By: _________________________________
Its: ________________________________
Newport News Shipbuilding Inc.
By: _________________________________
Its: ________________________________
New Tenneco Inc.
By: _________________________________
Robert G. Simpson
Vice President, Taxes
El Paso Natural Gas Company
By: _________________________________
Its: ________________________________
23
<PAGE>
TAX SHARING AGREEMENT
SCHEDULE 1
ADDITIONAL MEMBERS OF THE SHIPBUILDING GROUP
For purposes of this Agreement, in addition to Shipbuilding Company and its
Affiliates as determined immediately after the Distribution Date, the
Shipbuilding Group shall be deemed to include any corporation which was (1) a
member of the affiliated group (as defined in Code Section 1504(a), but
treating all corporations as "includible corporations" for purposes of such
Code Section) of which Tenneco is the common parent, (2) was included in the
"shipbuilding" segment for purposes of segment reporting in Tenneco's Annual
Reports on Form 10-K, and (3) sold, transferred, otherwise disposed of, or
discontinued prior to the date hereof. Without limiting the foregoing, the
Shipbuilding Group shall include:
Sperry Marine Inc.
Sperry Marine-Asia Inc.
Sperry Marine (S) PTE Ltd. (Singapore)
Sperry Marine S.p.A. (Italy)
Sperry Marine S.A.R.L. (France)
Sperry Marine Limited (United Kingdom)
Sperry Marine GmbH (Germany)
Sperry Marine A/S (Denmark)
Sperry Marine A/S (Norway)
Sperry Marine B.V. (Netherlands)
24
<PAGE>
TAX SHARING AGREEMENT
SCHEDULE 2
ADDITIONAL MEMBERS OF THE INDUSTRIAL GROUP
For purposes of this Agreement, in addition to Industrial Company and its
Affiliates as determined immediately after the Distribution Date, the
Industrial Group shall be deemed to include any corporation which was (1) a
member of the affiliated group (as defined in Code Section 1504(a), but
treating all corporations as "includible corporations" for purposes of such
Code Section) of which Tenneco is the common parent, (2) was included in the
"automotive parts" or "packaging" segment for purposes of segment reporting in
Tenneco's Annual Reports on Form 10-K, and (3) sold, transferred, otherwise
disposed of, or discontinued prior to the date hereof.
25
<PAGE>
TAX SHARING AGREEMENT
SCHEDULE 3
ENERGY INVESTMENTS GROUP
KERN COUNTY LAND COMPANY
PETRO-TEX CHEMICAL CORPORATION
TENFAC CORPORATION
TENNCHASE, INC.
TENNECO COAL COMPANY
TENNECO CORPORATION
TENNECO CREDIT CORPORATION
TENNECO EQUIPMENT CORPORATION (f/k/a Case Corporation)
TENNECO EQUIPMENT HOLDING IV CO. (f/k/a Case Finance Co.)
TENNECO EQUIPMENT HOLDING V CO. (f/k/a Integrated Technical Systems, Inc.)
TENNECO EQUIPMENT HOLDING VI CO. (f/k/a Viscosity Oil Co.)
TENNECO INC.
TENNECO INSURANCE VENTURES
TENNECO INTERAMERICA, INC.
TENNECO INTERNATIONAL, INC.
TENNECO MINERALS COMPANY--CALIFORNIA
TENNECO MINERALS COMPANY--NEVADA
TENNECO OIL COMPANY
TENNECO POLYMERS, INC.
TENNECO SHALE OIL COMPANY
TENNECO SNG, INC.
TENNECO SYNFUELS COMPANY
TENNECO WEST
TENNESSEE GAS PIPELINE COMPANY--CORPORATE DIVISION
26
<PAGE>
EXHIBIT 10.5
EXHIBIT M TO
DISTRIBUTION AGREEMENT
TRANSITION SERVICES AGREEMENT
Transition Services Agreement (this "Agreement") dated as of June 19, 1996,
between Tenneco Business Services, Inc. ("TBS"), Tenneco Inc. ("Tenneco") and
El Paso Natural Gas Company ("EPG").
WHEREAS, TBS currently provides certain business services to Tenneco,
including mainframe computing services, backup, recovery and related
operations, consulting services and payroll services (collectively, the
"Services"); and
WHEREAS, Tenneco may desire to continue certain of the Services following
the consummation of the merger (the "Merger") contemplated by the Agreement
and Plan of Merger dated as of June 19, 1996 among EPG, El Paso Merger Company
and Tenneco ("the Merger Agreement");
NOW, THEREFORE, the parties hereto agree as follows:
1. Notice. No later than 45 days prior to the Effective Time (as defined in
the Merger Agreement) but only if and to the extent requested to do so by EPG,
Tenneco shall notify TBS in writing of its election to continue Services
following the Merger. This Agreement shall be of no further force or effect if
such notice is not received prior to the time provided in the preceding
sentence.
2. Services; Term. If Tenneco exercises the election set forth in paragraph
1 above, TBS shall provide the Services specified in the notice delivered by
Tenneco for a period of twelve months from the date of the Merger; provided
that any or all of the Services may be terminated by Tenneco at any time on
not less than 45 days' prior written notice to TBS. The Services shall be
performed in a manner consistent with the manner in which they have heretofore
been performed by TBS. TBS will also assist Tenneco in transferring data from
TBS' systems and establishing interconnection between TBS' and Tenneco's or
EPG's mainframes and otherwise in transferring the operations performed by TBS
on behalf of Tenneco to Tenneco's or EPG's systems.
3. Compensation. The price that Tenneco shall pay to TBS for the Services
shall be a mutually agreed to market-based rate for comparable services. TBS
shall invoice Tenneco monthly for the Services, providing a breakdown of the
Services for such month and the charges for each category of Services. In the
event of any dispute with respect to amounts payable under this Agreement, the
parties shall work together in good faith to resolve such dispute and, if the
parties are unable to resolve such dispute, it shall be referred to an
independent accounting firm mutually agreed by TBS and Tenneco.
4. Consents of Third Parties. TBS shall use commercially reasonable efforts,
at Tenneco's direction and expense, to obtain any consents or software
licenses from third parties necessary to the continuation of the requested
Services; provided that TBS shall have no obligation to provide Services for
which such consent is required and shall not have been obtained.
5. Limitations. TBS shall not be liable for any consequential, incidental,
special or punitive damages in connection with the Services.
1
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
set forth above.
TENNECO BUSINESS SERVICES, INC.
By __________________________________
TENNECO INC.
By __________________________________
EL PASO NATURAL GAS COMPANY
By __________________________________
2
<PAGE>
PROFESSIONAL SERVICES AGREEMENT
THIS PROFESSIONAL SERVICES AGREEMENT ("Agreement"), is made and entered
into this 22nd day of August, 1996, between Tenneco Technology Services Inc.
a Delaware corporation with its principal offices at 8401 New Trail Drive, The
Woodlands, Texas 77381 ("TTS") and Newport News Shipbuilding & Dry Dock
Company, a Virginia corporation with its principal offices at 4101 Washington
Avenue, Newport News, Virginia 23607 ("NNS").
RECITALS
--------
WHEREAS, TTS has been performing and/or providing certain mainframe data
processing and distributed system services to its corporate affiliate NNS
at the Newport News, Virginia data center ("Data Center");
WHEREAS, NNS will no longer be affiliated with TTS, but TTS has agreed to
provide the above-mentioned services to NNS, and NNS has agreed to continue
receiving the above-mentioned services from TTS, subject to the terms and
conditions of this Agreement;
NOW THEREFORE, in consideration of the mutual covenants contained in this
Agreement and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties agree to as follows:
1. SERVICES. During the term of this Agreement, TTS shall perform and/or
provide, as the case may be, all labor, professional services and supervision
necessary to perform certain services at the Data Center as more specifically
identified in the attached Schedule 1 relating to NNS' present mainframe and
distributed systems configurations (identified in Exhibits A and B to Schedule
1), including Business Management, Capacity Planning, Classified Processing,
Computer Operations, Production Control, Output Services, Performance and
Tuning, Service Desk Problem and Change Management, Product Installation and
Support, Service Delivery Reporting, Physical Security Management, Storage
Management, Systems Recovery Planning, Systems Security and Telecommunications.
Except to the extent otherwise provided herein, TTS will perform and/or provide
the above-mentioned services (collectively referred to herein as the "TTS
Services") in a competent and professional manner conforming to generally
accepted data processing practices and consistent with TTS' present manner and
level of performance and deliverables on behalf of NNS at the Data Center,
except as otherwise described in Schedule 1. The employees provided by TTS to
perform the Services, including the employees of any secondary suppliers
utilized by TTS, are referred to herein as the "Service Employees". It is
understood by the parties that performance of the TTS Services are conditioned
upon NNS fulfilling certain responsibilities and obligations as
<PAGE>
described in this Agreement and Schedule 1. Any additions, deletions or changes
to the TTS Services may result in a Change Order (as defined below).
2. TERM. The term of this Agreement shall begin on the effective date
("Effective Date") of NNS' spinoff from Tenneco Inc. (the "Spinoff") and
continue through December 31, 1998, unless terminated earlier pursuant to
Section 13 herein or terminated earlier or extended further by the parties'
mutual agreement.
3. TTS RESPONSIBILITIES.
a. TTS shall furnish all labor, professional services, supervision,
materials, tools and supplies necessary to perform the TTS Services.
Notwithstanding the foregoing, TTS shall not be responsible for providing
certain services and supplies identified in Schedule 1.
b. Except as identified in Schedule 1, TTS shall pay all fees and expenses
relating to performing and/or providing the TTS Services on a timely basis
and shall at all times otherwise perform the TTS Services so that no lien,
claim or encumbrance arises in connection therewith.
c. TTS will use reasonable efforts to provide to NNS information from TTS
records on TTS costs and comparable market pricing relating to the TTS
Services to assist NNS with NNS government contract compliance duties.
Further, in order to assist NNS in performing NNS obligations to the Defense
Contracting Auditing Agency ("DCAA"), DCAA will be permitted access to the
Data Center and limited computer access to verify security, compliance
procedures and cost data of NNS on the computer systems in the Data Center.
This Agreement shall not impose any other reporting or disclosure obligation
on TTS with respect to NNS or DCAA.
d. TTS will not be responsible for any potential software vendor fees or
associated taxes, if any, that may be incurred for TTS' right to continue
operating and maintaining the third party software identified in Exhibit
C of Schedule 1 on the NNS mainframe computer systems for NNS' benefit.
e. TTS will not be responsible for any potential software vendor fees or
associated taxes, if any, that may be incurred for NNS' right to continue
having the third party software identified in Exhibit D of Schedule 1 run on
its mainframe computers after TTS' right to do so for NNS' benefit has
terminated or expired.
f. If requested by NNS, TTS shall make all reasonable efforts to cooperate
with and assist NNS in the transfer of any assignable or assumable portion
of the third party software identified in Exhibit D to NNS.
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g. TTS will comply with all NNS security and safety rules and regulations
while on NNS' premises and will not allow access to such premises by non-
U.S. citizens, unless approved by NNS.
h. TTS will not use materials in the provision of TTS Services that
contain or have come in direct contact with mercury, mercury compounds or
with any mercury containing device employing a single boundary of
containment, unless approved by NNS.
4. NNS RESPONSIBILITIES.
a. NNS will allow TTS to keep system and network diagnostic and
maintenance programs and operating system software resident on NNS'
mainframe and/or distributed systems at the Data Center for TTS' use in
performing TTS Services. NNS acknowledges that NNS has no ownership
interest in such TTS-licensed software and that TTS may remove such
software from NNS' computer systems upon termination of this Agreement or
expiration of any term, if application, where TTS is permitted to continue
using such software for NNS' benefit after the Spinoff.
b. NNS will provide TTS with access to and use of all information, NNS
data, owned and licensed software, internal resources and facilities
determined necessary by TTS to provide the TTS Services.
c. NNS will secure, at its own cost and with TTS' assistance, the right
for TTS to continue installing and maintaining the third party software
identified in Exhibit C, which is currently licensed to NNS (for NNS'
benefit) and necessary for the provision of TTS Services.
d. NNS will secure, at its own cost and with TTS' assistance, the rights
for TTS to continue installing and maintaining the third party software
identified in Exhibit D, which currently runs on NNS' mainframe computers,
is licensed to TTS (in part, for NNS' benefit) and is necessary for the
provision of TTS Services after TTS' right to do so for NNS terminates or
expires.
e. NNS will renew and maintain current contracts for any services where
NNS expects TTS to act as its agent with a third party.
f. NNS will cooperate with TTS and respond to all reasonable requests to
facilitate TTS' provision of TTS Services.
g. NNS will be responsible for its own cost and expenses for services
outside the specific TTS Services provided for herein, including its costs
and expenses specifically identified in Schedule 1.
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<PAGE>
h. NNS will perform and comply with all NNS responsibilities
identified in Schedule 1.
i. NNS may, at its sole discretion and with reasonable notice to TTS,
add, delete, upgrade, modify or otherwise change NNS hardware or NNS-
licensed software or systems configurations at the Data Center (as
identified in Exhibits A-D of Schedule 1). NNS acknowledges that any
such change may adversely affect TTS' ability to provide the TTS
Services at the fixed prices identified in Article 5 herein and, if so,
will result in a Change Order to reimburse TTS for any additional
expenses incurred due to such change.
j. NNS will be responsible throughout the term hereof for advising TTS
of all applicable rules and regulations which will affect TTS'
provision of TTS Services, and of any subsequent changes thereto. If so
advised, TTS will use its reasonable efforts to comply with NNS' rules
and regulations and any changes thereto, but TTS shall not be required
to do so if such compliance would materially increase TTS costs or
burdens in relations to the TTS Services. NNS acknowledges that any
such compliance by TTS may result in a Change Order.
k. NNS will be responsible for all costs and expenses related to its
portion of software fees and associated taxes, if any, that may be
incurred by TTS for third party software identified in Exhibit D prior
to (i) the expiration of TTS' right to use the same for NNS' benefit or
(ii) NNS' entry, at its option, into an amendment, novation, new
agreement or other arrangement to effectively relieve TTS of NNS'
portion, whichever occurs first. If NNS does enter into an arrangement
to effectively relieve TTS of any such portion and TTS already has paid
for future license fee obligations related thereto which will
subsequently benefit NNS, NNS will reimburse TTS for such payment
within thirty (30) days of TTS' invoicing NNS for the same. If NNS
fails to enter into an arrangement to effectively relieve TTS of its
obligation with respect to such portion and TTS' right to use the third
party software related to such portion for NNS' benefit has
expired, NNS shall reimburse TTS for fifty percent (50%) of any
continued monetary obligation TTS subsequently incurs during the term
of this Agreement. Notwithstanding the foregoing, NNS is obligated to
relieve TTS of NNS' portion of the Computer Associates International
license agreement (see software identified in Exhibit D); and if NNS
fails to do so, it will reimburse TTS for one hundred percent (100%) of
any continued monetary obligation TTS subsequently incurs for NNS
during the term of TTS' license agreement with Computer Associates
International.
5. COMPENSATION.
a. In consideration for TTS' provision of TTS Services as described in
this Agreement, NNS will pay TTS a fixed price of Nine million One
Hundred Thousand Dollars ($9,100,000) for TTS Services in 1997 and Nine
Million Six
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<PAGE>
Hundred Thousand Dollars ($9,600,000) for TTS Services in 1998. For
each year, compensation shall be payable in equal monthly installments
due on or before the fifth of each month. If the Spinoff occurs prior
to the end of 1996, NNS shall pay TTS (as compensation for TTS Services
for the remainder of 1996) a proration of the 1997 fixed price. Except
for any initial payment, if applicable, to cover compensation for TTS
Services rendered for less than a full month, any 1996 compensation
payments shall be payable in equal monthly installments.
b. If NNS fails to fully pay any monthly installment when due, TTS may
discontinue the provision of TTS Services until payment is received
without committing breach of this Agreement.
c. If any sales, use or similar taxes are due with regard to the
annual fixed price, such taxes will be invoiced to NNS, if applicable,
as separate costs in addition to the annual fixed prices.
6. ADJUSTMENTS TO THE TTS SERVICES. During the term of this Agreement, NNS
may request changes to the TTS Services by submitting such requests in
writing to TTS. Within thirty (30) days after receipt of a change request,
TTS will advise NNS whether the requested change can be made and, if so,
the resulting impact on the provision of TTS Services and the related cost
adjustment (plus or minus) to the fixed price. TTS will not unreasonably
refuse to make a requested change. In order to implement any such
changes(s), the parties must mutually agree to any change in the TTS
Services and the resultant fixed price adjustment and execute a change
order ("Change Order") with respect thereto. TTS will not commence any work
related to any change(s) until such change(s) and fixed price adjustments
have been agreed to in writing by Change Order. If any additional TTS
Services are required in connection with transition services in the event
of any termination of this Agreement, such additional TTS Services shall be
the subject of a Change Order.
7. INTELLECTUAL PROPERTY RIGHTS.
a. Each party represents and warrants that it has the intellectual
property rights or interest necessary to perform its responsibilities
as identified in this Agreement, clear and free of all liens and
encumbrances and in a manner that does not infringe or misappropriate
any patent, copyright or trade secret of any third party.
b. NNS will defend and hold TTS harmless or settle at its own expense
any claim against TTS that TTS' use of NNS-owned hardware or software
or NNS-licensed software in the provision of TTS Services infringes or
misappropriates any third party's patent, copyright or trade secret.
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c. TTS will defend and hold NNS harmless or settle at its own expense
any claim against NNS that the use of TTS-licensed software (identified
in Exhibit D) for NNS' benefit in the provision of TTS Services
infringes or misappropriates any third party's patent, copyright or
trade secret. Notwithstanding the foregoing, this intellectual property
indemnification ceases when TTS' right to use such software for NNS'
benefit terminates or expires.
8. WORKERS COMPENSATION AND LIABILITY INSURANCE. During the term of this
Agreement, both TTS and NNS will, at the expense of each for its own
insurance, provide and keep in full force and effect Workers' Compensation,
Employer's Liability, Automobile Liability, Commercial General Liability,
Property and Umbrella Liability insurance, the kinds and minimum amounts of
such insurance to be agreed to by the parties. The types of coverage and
minimum amounts may be modified or supplemented by the parties on mutual
agreement.
Prior to or as soon as possible following commencement of the TTS Services,
each party will furnish the other party with certificates evidencing such
insurance coverage and name the other party an Additional Insured as the
party's interests may appear. There will be no cancellation of any
insurance coverage by either party without 30 days prior written notice.
9. EMPLOYEE SUPERVISION. Each party shall be responsible for supervision
of such party's own employees, including, without limitation, with respect
to compliance with all laws, regulations, rules and executive orders
relating to employment, discrimination, workplace safety, minimum wages and
overtime.
10. INDEMNIFICATIONS.
a. Subject to Sections 10.b. and 10.c. hereof, each party hereto shall
indemnify, hold harmless and defend the other party and its respective
present and future parents, subsidiaries, commonly controlled entities,
affiliates, directors, officers, employees and agents ("Related
Parties") from and against any and all claims, demands, losses,
damages, liabilities, causes of action and expenses (including but not
limited to costs of defense, mediation, settlement, and reasonable
attorneys' fees) ("Damages") on account of the death or personal injury
to any person or injury to or destruction of tangible property, if and
to the extent such Damages directly or indirectly arise out of, relate
to or are in connection with any negligent act or omission or the
intentional action of such indemnifying party or its Related Parties or
any permitted subcontractors.
b. NNS shall indemnify TTS and TTS' Related Parties for Damages on
account of the death or injury to any person, if and to the extent such
Damages directly or
-6-
<PAGE>
indirectly arise out of, relate to or are in connection with any hazardous
substances, pollutants or contaminants present on, emanating from or
affecting any property owned, operated or controlled by NNS.
c. Notwithstanding any other provision of this Section 10, neither party
will be liable to the other party hereunder for Damages to tangible
property in excess of $300,000 in the aggregate per incident.
11. DISCLAIMER OF WARRANTY; LIMITATIONS OF LIABILITY.
a. DISCLAIMER OF WARRANTY. TTS EXPRESSLY DISCLAIMS ANY AND ALL
WARRANTIES WITH RESPECT TO ANY WORK OR SERVICES PROVIDED BY TTS PURSUANT
HERETO, INCLUDING WITHOUT LIMITATION, ANY WARRANTY THAT THE WORK OR
SERVICES PROVIDED PURSUANT HERETO WILL BE FIT FOR ANY PARTICULAR PURPOSE.
b. LIMITATIONS OF LIABILITY. Except for any fixed or license agreement
amounts owed, neither party will be liable to the other party for claims,
damages or losses of any kind whatsoever arising out of, related to or in
connection with lost data, lost profits, lost revenues or loss of goodwill.
Neither party will be liable to the other party for any indirect,
consequential, special, exemplary, punitive or incidental damages. Further,
the liability of a party in any action or series of actions by the other
party arising out of any alleged breach or breaches of this Agreement,
other than an action for indemnification under Section 10.a. hereof, shall
be limited to $250,000 in the aggregate.
12. PERMITS AND LICENSES. Each party will maintain in effect during the term
of this Agreement any and all federal, state and/or local licenses and permits
which may be required with respect to the respective business in which each
party is engaged. NNS will maintain at its expense the licenses and permits
required by applicable authorities in order to engage in NNS' business, and if
TTS is requested to obtain these types of permits and/or licenses on behalf of
NNS, any related cost, including time to procure such permit and/or license,
will be billed to NNS as an expense in addition to the fixed price.
-7-
<PAGE>
13. TERMINATION.
a. Either party may terminate this Agreement if the other party fails to
keep, observe or perform any material covenant in this Agreement by
providing the breaching party with prior written notice as stated below of
the material breach and the opportunity to cure the same. In the event the
material breach is a failure to pay an amount due and payable under this
Agreement when due, the cure period after prior written notice shall be ten
(10) days. For all other material breaches, the cure period after prior
written notice shall be forty-five (45) days. If it is unreasonable to
expect a cure of a non-monetary breach within the forty-five (45) day cure
period, the breaching party shall have an additional time reasonably
necessary to cure the breach, which shall not exceed thirty (30) additional
days. If the material breach is not cured within the aforementioned
periods, the terminating party may terminate the Agreement immediately by
giving written notice of the same to the breaching party.
b. Either party may terminate this Agreement if the other party:
i. is adjudicated an involuntary bankrupt, or a decree or order
approving a petition or answer filed against such party asking for
reorganization under the Federal bankruptcy laws as now or hereafter
amended, or under the laws of any state, shall be entered, or if a
petition for involuntary bankruptcy has been filed against the other
party and such petition (and the proceeding arising therefrom, if any)
has not been dismissed within thirty (30) days of the filing.
ii. files or admits to the jurisdiction of the court and the material
allegations contained in any petition pursuant, or purporting to be
pursuant, to the Federal Bankruptcy laws as now or hereafter amended,
or such party shall institute any proceeding for any relief under any
bankruptcy or insolvency law or any law relating to the relief of
debtors, readjustment of indebtedness, reorganization, arrangements,
composition or extension; or
iii. makes any assignment for the benefit of creditors or applies for
consent to the appointment of a receiver for itself or any of its
property.
14. INDEPENDENT CONTRACTOR. TTS is an independent contractor and nothing
herein shall be construed to create the relationship of agent, partner, joint
venturer or employee between TTS and NNS. All Service Employees hereunder shall
remain employees of TTS (or a secondary supplier, where applicable).
-8-
<PAGE>
15. CONFIDENTIALITY.
a. During the course of performing the TTS Services, each party may be
given access to information that relates to the other party's past,
present, and future research, development, business activities, products,
customer and vendor data, services, and technical knowledge, and other
similar information that is considered confidential and proprietary
(collectively "Confidential Information"). Each party acknowledges that all
reports of information produced as a result of this Agreement shall be
deemed Confidential Information. In connection therewith, the following
shall apply:
i. Any Confidential Information received by either party may be used only
for the purposes intended by this Agreement.
ii. Each party agrees to protect the confidentiality of the Confidential
Information in the same manner that it protects the confidentiality of its
own proprietary and confidential information. To that end, access to the
Confidential Information shall be restricted to those of each party's
personnel on a "need to know" basis only.
iii. All Confidential Information made available hereunder, including
copies thereof, shall be returned to the owner or destroyed upon the latter
to occur of (A) the need for access has been fulfilled or (B) completion of
the TTS Services or termination of this Agreement.
iv. Nothing in this Agreement shall prohibit or limit either party's use
of information (including, but not limited to ideas, concepts, know-how,
techniques, and methodologies) (A) previously known to it without
obligation of confidence, (B) independently developed by it outside of the
scope of the Services, (C) acquired by it from a third party which is not,
to its knowledge, under an obligation of confidence with respect to such
information or (D) which is or becomes publicly available through no breach
of this Agreement.
v. As part of the performance under this Agreement, each party will
promptly notify the other party of any of the following events:
A. Any unauthorized disclosure or use of any Confidential
Information,
B. Any request by anyone to examine, inspect or copy any
Confidential Information, or
-9-
<PAGE>
C. Any attempt to serve, or the actual service of a court or
administrative order, subpoena, or summons that requires the
production of any Confidential Information.
Upon receiving such request, subpoena, order or summons, the receiving
party will surrender any Confidential Information to any third party only
with the consent of the other party or the final order of a court having
jurisdiction.
b. Nothing contained in this Agreement shall be construed as granting
either party a license, either express or implied, under any patent,
copyright, trade secret or other intellectual property right now or
hereafter owned, obtained or licensed by the other party.
16. NON-SOLICITATION OF EMPLOYEES. Throughout the term of this Agreement until
its last ninety (90) days, the parties hereto agree not to solicit or cause to
be solicited for employment any employee of the other party, or to encourage any
such employee to cease employment with the other party, unless the parties have
mutually agreed to such solicitation or encouragement. During the last ninety
(90) days of this Agreement, either party with prior written notice of the Chief
Information Officer ("CIO") of the other party may contact employees of the
other party to solicit their employment.
17. RESOLUTION OF DISPUTES. The parties hereto agree to use reasonable efforts
to resolve any disputes arising hereunder before resorting to litigation, and
the CIOs of the parties shall negotiate in good faith to reach a mutually
acceptable solution to unresolved disputes arising from time-to-time during the
term hereof. If the CIOs cannot resolve the dispute, then the dispute shall be
elevated to the presidents of TTS and NNS for their review and resolution. If
the dispute still cannot be resolved by the presidents, then either party may
initiate a formal proceeding for the judicial resolution of such dispute.
However, such formal proceeding may not be initiated until thirty (30) days
after the CIOs have initially met to negotiate such dispute.
18. PUBLICITY. Neither party shall advertise, make or issue any public
statement with respect to this Agreement or otherwise disclose the fact that
this Agreement is in existence without the prior review and written consent of
the other party; provided that either party may disclose that TTS is supplying
services to NNS. In the event, however, that legal counsel for either party is
of the opinion that a statement or announcement is required by applicable law,
then that party may issue a statement or announcement limited solely to that
which legal counsel for that party advises is required under law or such rules.
Notwithstanding the foregoing, Tenneco Inc. may make such disclosures in
connection with the reporting to the Securities and Exchange Commission and the
public by it and its subsidiaries in connection with the Spinoff and all other
transactions contemplated to take place on the Effective Date as Tenneco Inc.
and its counsel shall determine. In addition, NNS may make such disclosures in
connection with its reporting to the DCAA and related government contract
compliance procedures. The disclosing party shall
-10-
<PAGE>
provide the other party with a copy of any such statement or announcement for
prior review before issuing such statement or announcement. Subject to the
reporting requirements stated above, neither party shall in any case disclose
the contents of this Agreement to any third party.
19. NOTICES. Any and all notices and other communications necessary or
desirable to be served hereunder shall be either personally delivered or sent by
telecopy, prepaid same-day or overnight delivery service, proof of delivery
requested, or United States certified or registered mail, postage prepaid,
return receipt requested, addressed as follows:
a. If to NNS:
Newport News Shipbuilding and Dry Dock Company
4101 Washington Avenue
Newport News, Virginia 23607
Attention: Chief Information Officer
Telecopier No.: (757) 688-1900
b. If to TTS:
Director of Business Management
Tenneco Business Services Inc.
8401 New Trails Drive
The Woodlands, Texas 77381
Telecopier No.: (713) 539-6812
with a copy to:
Chief Information Officer
Tenneco Technology Services Inc.
230 41st Street
Newport News, Virginia 23607
Telecopier No.: (757) 380-4610
-11-
<PAGE>
or to such other address or addresses as either party may designate for itself
from time to time in a written notice served upon the other party hereto in
accordance herewith. Any notice sent as hereinabove provided shall be deemed
delivered upon receipt or refusal of delivery.
20. BENEFIT; ASSIGNMENT. This Agreement and all provisions hereof shall be
binding upon and inure to the benefit of TTS, NNS and their respective
successors and assigns; provided, however, that neither party may assign its
rights or obligations under this Agreement without the prior written consent of
the other party, which consent may be withheld in other party's sole discretion.
Notwithstanding the foregoing, TTS may assign this Agreement to any present or
future parent or subsidiary of, or entity commonly controlled with, TTS. Any
assignment in violation of this provision shall be void. In the event that one
party consents to an assignment by the other party, the assigning party shall
remain jointly and severally responsible with the assignee for its obligations
and duties under this Agreement. Notwithstanding any other provision in this
Agreement, it is acknowledged by the parties that TTS is supplying the TTS
Services hereunder as a vendor, and not as a subcontractor, with respect to any
contracts between NNS or its subsidiaries or divisions and the United States
government and any of its agencies or departments. Further, TTS is supplying
commercially available automatic data processing services readily available in
the open market which NNS is using for the performance of administrative tasks
in support of all of its operations, including commercial and government sales.
21. CHOICE OF LAW; VENUE. This Agreement shall be governed by, construed and
enforced in accordance with the laws of the State of New York without regard to
its conflicts of laws.
22. INTERPRETATION. This Agreement has been reviewed by counsel for both TTS
and NNS and, consequently, the parties agree that this Agreement shall not be
construed against the drafter.
23. NO WAIVER. The terms, covenants, representations, warranties and
conditions of this Agreement may be waived only by a written instrument executed
by the party waiving compliance. No failure or delay by any party in exercising
any right, power or privilege hereunder shall operate as a waiver thereof nor
shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies herein provided shall be cumulative and not exclusive of any
rights or remedies provided by law.
24. SEVERABILITY. In the event any provision of this Agreement is invalid as
applied to any fact or circumstance, its invalidity shall not affect the
validity of any other provision or of the same provision as applied to any other
fact or circumstance. If any provision of this Agreement is so broad as to be
unenforceable, such provision shall be interpreted to be only so broad as
enforceable.
-12-
<PAGE>
25. ENTIRE AGREEMENT. This Agreement, together with all Exhibits hereto and
documents incorporated herein by reference, constitutes the entire agreement
between the parties, and supersedes all prior or contemporaneous oral or written
agreements and related documents and correspondence concerning the subject
matter hereof. The parties shall not be bound by, or liable for, any statement,
covenant, representation, promise, inducement or understanding not set forth
herein.
26. FORCE MAJEURE. Any delay or failure of either party in the performance of
its obligations hereunder shall be excused if and to the extent caused by
unforeseeable events beyond the reasonable control of such party. Such events
may include, but are not limited to, acts of God, strikes, actions of regulatory
agencies, fire, flood, windstorm, explosion, riot, war, sabotage, interruption
of power or other utilities, court injunction or order. The time for performing
any obligations affected by a Force Majeure event shall be extended during the
period such event persists, provided that prompt notice of such delay is given
by the affected party to the other and the affected party diligently attempts to
remove the cause or causes of such event.
27. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and each counterpart shall constitute an original instrument, and
all such separate counterparts taken together shall constitute one and the same
agreement.
28. NO THIRD PARTY BENEFICIARIES. This Agreement is made solely for the benefit
of the parties hereto and shall not give rise to any rights of any kind to any
other third parties.
29. AMENDMENT. No amendment or modification of any of the terms or conditions
of this Agreement shall be valid unless reduced to writing and executed by TTS
and NNS.
30. HEADINGS. The paragraph headings have been inserted for convenience only
and are not intended to affect the meaning or interpretation of this Agreement.
* * * * * *
-13-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by their
respective duly authorized representatives as of the day and year shown above.
TENNECO TECHNOLOGY SERVICES INC.
By: /s/ Mathew W. Appel
------------------------------
Title: President
------------------------------
NEWPORT NEWS SHIPBUILDING & DRY DOCK COMPANY
By: /s/ John E. Shepherd Jr.
------------------------------
Title: Vice President
------------------------------
-14-
<PAGE>
Schedule 1
TTS Services
Introduction
- ------------
TTS Services to be provided NNS to support NNS' workload on its present
mainframe environment (Exhibit A) and distributed systems environment (Exhibit
B) are defined herein. References to UNIX and VMS Systems exclude Time and
Attendance, the Machine Shops VMS system and development LANs.
TTS Services
- ------------
Business Management
TTS will provide staff support for financial management, contract administration
and accounts payable relating to the TTS Services listed in this Schedule.
- --------------------------------------------------------------------------------
Functional Description NNS TTS
- --------------------------------------------------------------------------------
Mainframe Systems
- --------------------------------------------------------------------------------
Negotiate NNS hardware, hardware maintenance, software license P A
and related service contracts.
- --------------------------------------------------------------------------------
Process and pay TTS hardware maintenance, software license and
related service invoices for the benefit of NNS. P
- --------------------------------------------------------------------------------
Secure the right for TTS to continue installing and maintaining the P A
third party software identified in Exhibit D on NNS' mainframe
environment after TTS' right to do so terminates or expires. All
such software must be properly licensed for TTS to provide TTS
Services.
- --------------------------------------------------------------------------------
Process and pay NNS software license invoices. P A
- --------------------------------------------------------------------------------
Secure the right for TTS to continue installing and maintaining the P A
third party software identified in Exhibit C on NNS' mainframe
environment. All such software supplied to NNS must be properly
licensed for TTS to provide TTS Services.
- --------------------------------------------------------------------------------
Manage hardware and software inventories. P P
- --------------------------------------------------------------------------------
Assist NNS with audit requests. P A
- --------------------------------------------------------------------------------
Distributed Systems
- --------------------------------------------------------------------------------
No TTS Services provided.
- --------------------------------------------------------------------------------
Legend:
P = Primary Responsibility Page 1
A = Assists
<PAGE>
- --------------------------------------------------------------------------------
[TENNECO LOGO]
Schedule 1
TTS Services
Capacity Planning
Annually, TTS will develop the planned mainframe (processor, DASD, tape and
telecommunications) resource capacity requirements for the next three year
period, based upon workload projections and data provided by NNS. As a result of
monthly performance reviews, TTS and NNS will address mainframe resource
capacity requirements, as needed. TTS shall use reasonable efforts to meet the
performance metric response time goals contained herein (see Service Delivery
Reporting).
- --------------------------------------------------------------------------------
Functional Description NNS TTS
- --------------------------------------------------------------------------------
Mainframe Systems
- --------------------------------------------------------------------------------
Determine scope of capacity plan. P A
- --------------------------------------------------------------------------------
Gather and interpret NNS user requirements including P
proposed new applications.
- --------------------------------------------------------------------------------
Translate user requirements into systems' requirements. A P
- --------------------------------------------------------------------------------
Measure and verify base level of systems' capacity. A P
- --------------------------------------------------------------------------------
Document capacity planning assumptions and recommend A P
capacity planning strategy.
- --------------------------------------------------------------------------------
Determine tools required to monitor systems. A P
- --------------------------------------------------------------------------------
Produce capacity plan annually and deliver during the A P
first quarter.
- --------------------------------------------------------------------------------
Provide an actual versus plan utilization report quarterly. A P
- --------------------------------------------------------------------------------
Respond in writing within 30 days to a NNS request for A P
impact on a change in business volume that may necessitate
the installation of new hardware or negatively impact key
performance measurements.
- --------------------------------------------------------------------------------
Provide to NNS an actual performance and utilization report A P
monthly.
- --------------------------------------------------------------------------------
Distributed Systems
- --------------------------------------------------------------------------------
No TTS Services provided regarding capacity planning.
- --------------------------------------------------------------------------------
Legend:
P = Primary Responsibility
A = Assists
Page 2
<PAGE>
- --------------------------------------------------------------------------------
[TENNECO LOGO]
Schedule 1
TTS Services
Classified Processing
NNS is required to handle DoD (Department of Defense) classified data. TTS will
support and comply with NNS and DoD classified processing procedures.
- --------------------------------------------------------------------------------
Functional Description NNS TTS
- --------------------------------------------------------------------------------
Mainframe Systems
- --------------------------------------------------------------------------------
Provide support for classified processing on System D in P
Building 600.
- --------------------------------------------------------------------------------
Provide print and plot room operations for System D. P
- --------------------------------------------------------------------------------
Distribute System D classified output to NNS. A P
- --------------------------------------------------------------------------------
Distributed Systems
- --------------------------------------------------------------------------------
Provide UNIX operating systems installation support for P
classified processing on the AIXC System in Building 600.
- --------------------------------------------------------------------------------
Legend:
P = Primary Responsibility
A = Assists
Page 3
<PAGE>
Schedule 1
TTS Services
COMPUTER OPERATIONS
TTS is responsible for monitoring and responding to mainframe systems console
commands, detecting and resolving mainframe hardware problems and monitoring the
facilities' environment. TTS will use reasonable efforts to provide computer
operations, 24 hours/day, 7 days/week, including holidays, with mainframe
systems availability at 99%, 24 hours/day, Monday through Friday. TTS will
operate the on-site tape cartridge library (currently 101,000 cartridge tapes).
NNS is responsible for all incremental expenses incurred to maintain the on-site
tape cartridge library if library usage exceeds 106,000 cartridge tapes or if
tape cartridge mounts exceed 67,000 per month.
TTS is responsible for monitoring and responding to systems console commands for
the mid-range computers and PC-based LAN servers in Building 521, as identified
in Exhibit B, between 12:30 AM and 4:30 PM, Monday through Friday, excluding
holidays. TTS will provide two (2) Full Time Equivalent (FTE) persons to support
the distributed systems environment. An FTE equals 2080 hours/year, including
vacation, sick days, and holidays.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Functional Description NNS TTS
- -----------------------------------------------------------------------------------------
<S> <C> <C>
BOTH MAINFRAME AND DISTRIBUTED SYSTEMS ENVIRONMENTS
- -----------------------------------------------------------------------------------------
Coordinate systems maintenance with repair vendors. P
- -----------------------------------------------------------------------------------------
Pay for repair costs not covered by maintenance contracts. P
- -----------------------------------------------------------------------------------------
Initiate system problem determination. P
- -----------------------------------------------------------------------------------------
Document operations procedures. P
- -----------------------------------------------------------------------------------------
Perform backup and archive functions. P
- -----------------------------------------------------------------------------------------
Prepare and deliver to NNS backup tapes of systems data upon A P
request with reasonable notice.
- -----------------------------------------------------------------------------------------
MAINFRAME SYSTEMS
- -----------------------------------------------------------------------------------------
Use reasonable efforts to provide for mainframe systems availability P
(Building 521 9021-900, Building 600 9021-720) at 99%, 24
hours/day, Monday through Friday.
- -----------------------------------------------------------------------------------------
Legend:
P = Primary Responsibility Page 4
A = Assists
</TABLE>
<PAGE>
SCHEDULE 1
TTS SERVICES
PRODUCTION CONTROL
TTS is responsible for scheduling, processing, monitoring and distributing
output for all batch jobs submitted via the production job scheduler or restart
system. TTS will use reasonable efforts to provide job scheduling 24 hours/day,
7 days/week, including holidays. If an abnormal job termination (ABEND) occurs,
TTS will use reasonable efforts to complete the original job schedule in a
timely manner and will contact NNS if ABEND requires NNS's assistance. Job
scheduling for monthly batch jobs in excess of 75,000 or for additional IDMS
central versions, CICS regions or distributed platforms are outside the scope of
TTS Services, unless a Change Order is entered pursuant to Article 6.a. of the
Professional Services Agreement.
- --------------------------------------------------------------------------------
FUNCTIONAL DESCRIPTION NNS TTS
- --------------------------------------------------------------------------------
BOTH MAINFRAME AND DISTRIBUTED SYSTEMS ENVIRONMENTS
- --------------------------------------------------------------------------------
Job Scheduling
- --------------------------------------------------------------------------------
Set up and maintain production schedules. A P
- --------------------------------------------------------------------------------
Provided pre-turnover production analysis and
documentation as identified by TTS. P A
- --------------------------------------------------------------------------------
Schedule ad hoc jobs and tasks. A P
- --------------------------------------------------------------------------------
Establish production parameters. P A
- --------------------------------------------------------------------------------
Set and execute production parameters. P
- --------------------------------------------------------------------------------
Verify receipt of input data. A P
- --------------------------------------------------------------------------------
Select execution class, prioritize job selection and build
dependency structure during production turnover. A P
- --------------------------------------------------------------------------------
Alter dispatch priority, as necessary. A P
- --------------------------------------------------------------------------------
Execution Control
- --------------------------------------------------------------------------------
Initiate production schedule and monitor job termination
status. P
- --------------------------------------------------------------------------------
Terminate/cancel jobs. A P
- --------------------------------------------------------------------------------
Job Restart
- --------------------------------------------------------------------------------
Determine job failure condition. P
- --------------------------------------------------------------------------------
Review job rerun/restart documentation. P
- --------------------------------------------------------------------------------
Execute rerun/restart procedures and modify JCL, as
required. A P
- --------------------------------------------------------------------------------
Monitor and verify job termination status. P
- --------------------------------------------------------------------------------
Page 5
Legend:
P = Primary Responsibility
A = Assists
<PAGE>
Schedule 1
TTS Services
Output Services
TTS is responsible for the centralized printing and packaging for pick-up by NNS
of computer generated reports and drawings from Buildings 522 and 600.
Additionally, TTS will maintain mircofiche distribution information and
coordinate with the microfiche vendor the processing and delivery of microfiche
to NNS. NNS is responsible for paying for and providing consumable print and
plot supplies used for the benefit of NNS as well as paying for shipping charges
and electronic transmissions to authorized NNS addresses. TTS will exercise
reasonable efforts to reduce supply waste. The provision of more than 90,000
masters and 400,000 duplicate microfiche per year is outside the scope of TTS
Services, unless a Change Order is entered pursuant to Article 6.a. of the
Professional Services Agreement.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
FUNCTIONAL DESCRIPTION NNS TTS
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
BOTH MAINFRAME AND DISTRIBUTED SYSTEMS ENVIRONMENTS
- ----------------------------------------------------------------------------------------------------
Print and Plot
- ----------------------------------------------------------------------------------------------------
Provide NNS purchase order for consumable paper, toner, P A
special forms etc. used for NNS benefit.
- ----------------------------------------------------------------------------------------------------
Requisition consumable paper, toner, special forms, etc. P
against NNS purchase order.
- ----------------------------------------------------------------------------------------------------
Provide printer operations and maintenance. P
- ----------------------------------------------------------------------------------------------------
Collect, sort and prepare output for NNS pick-up. P
- ----------------------------------------------------------------------------------------------------
Microfiche
- ----------------------------------------------------------------------------------------------------
Prepare tapes for microfiche vendor pick-up. P
- ----------------------------------------------------------------------------------------------------
NNS' mailroom receives microfiche for local distribution. P
- ----------------------------------------------------------------------------------------------------
Magnetic Media
- ----------------------------------------------------------------------------------------------------
Package tapes and disks for NNS pick-up. P
- ----------------------------------------------------------------------------------------------------
</TABLE>
Legend:
P = Primary Responsibility Page 6
A = Assists
<PAGE>
Schedule 1
TTS Services
Performance and Tuning
TTS is responsible for monitoring systems performance and adjusting systems to
meet changing business requirements. TTS will make recommendations regarding
performance and tuning changes to NNS for NNS applications and databases. TTS
shall use reasonable efforts to meet the performance metric response time goals
contained herein. Annually, TTS will undertake a mainframe data center benchmark
analysis with an independent party.
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------------------------------------------------------------
Functional Description NNS TTS
- --------------------------------------------------------------------------------
Both Mainframe and Distributed Environments (except LAN/NT)
- --------------------------------------------------------------------------------
Monitor systems and applications performance. A P
- --------------------------------------------------------------------------------
Provide systems performance adjustments. P
- --------------------------------------------------------------------------------
Recommend applications and database performance adjustments. A P
- --------------------------------------------------------------------------------
Implement applications and database performance adjustments. P A
- --------------------------------------------------------------------------------
Define performance groups, systems specifications and priorities. A P
- --------------------------------------------------------------------------------
Distributed Systems (LAN/NT Environment)
- --------------------------------------------------------------------------------
Monitor systems and applications performance. P
- --------------------------------------------------------------------------------
Provide systems and applications performance adjustments. P
- --------------------------------------------------------------------------------
</TABLE>
Legend: Page 7
P = Primary Responsibility
A = Assists
<PAGE>
SCHEDULE 1
TTS SERVICES
SERVICE DESK PROBLEM AND CHANGE MANAGEMENT
The TTS Service Desk is responsible for the problem and change management
process within the Data Center. All reported computer, network,
telecommunications, and software problems will be recorded and assigned by the
Service Desk to the appropriate TTS or NNS resolver group or to a repair vendor.
TTS is responsible for the ongoing process of communicating, scheduling,
monitoring, and coordinating changes to the computing environment. Reported
problems are monitored through resolution, and the resolution is verified with
the reporting user.
- --------------------------------------------------------------------------------
FUNCTIONAL DESCRIPTION NNS TTS
- --------------------------------------------------------------------------------
ALL ENVIRONMENTS
- --------------------------------------------------------------------------------
Use reasonable efforts to provide Service Desk operators 24 P
hours/day, 7 days/week, including holidays.
- --------------------------------------------------------------------------------
Install, customize and maintain problem and change management P
software.
- --------------------------------------------------------------------------------
Provided problem and change management training (4 hour session) P
to NNS twice a year.
- --------------------------------------------------------------------------------
Submit change requests, review requests for impact, assess P P
criticality of the requests, approve and prioritize requests.
- --------------------------------------------------------------------------------
Log change requests, track status, escalate and process A P
emergency change requests, where authorized.
- --------------------------------------------------------------------------------
Conduct weekly change management meetings. A P
- --------------------------------------------------------------------------------
Provide problem and change activity reports. P
- --------------------------------------------------------------------------------
Maintain interface between the IBM Information Management A P
product and NNS' CIMS system.
- --------------------------------------------------------------------------------
For each problem notification, Service Desk will create a problem P
ticket. TTS will use reasonable efforts to answer calls within one
minute, 95% of the time when volumes are less than 230 per day
between 6 AM and 6 PM, Monday through Friday, excluding
holidays.
- --------------------------------------------------------------------------------
At time of problem notification, Service Desk verifies NNS A P
computer inventory data and corrects the NNS CIMS database as
to location, make, model, and serial number, as necessary.
- --------------------------------------------------------------------------------
Analyze, categorize, prioritize and assign problem to resolver A P
group(s). TTS will use reasonable efforts to forward or re-route
reported problems to NNS resolver groups within 5 minutes
following initial contact by user reporting incident,
98% of time.
- --------------------------------------------------------------------------------
Page 8
Legend:
P= Primary Responsibility
A= Assists
<PAGE>
Schedule 1
TTS Services
- --------------------------------------------------------------------------------
Functional Description NNS TTS
- --------------------------------------------------------------------------------
Contact repair vendors and coordinate repair A P
with user. Between 6 AM and 6 PM, Monday
through Friday, excluding holidays, TTS
will use reasonable efforts to initiate a
service call with the repair vendor within
30 minutes of "send to vendor" decision
98% of time.
- --------------------------------------------------------------------------------
Provide status and confirm resolution with A P
problem reporter.
- --------------------------------------------------------------------------------
Meet with repair vendor management, as needed. P
- --------------------------------------------------------------------------------
Coordinate time and material repairs for NNS A P
and Navy owned equipment and software.
- --------------------------------------------------------------------------------
Certify time and material invoices from P
repair vendors for payment by NNS.
- --------------------------------------------------------------------------------
Suspend, restart, redirect print jobs P
utilizing TSPrint and VPS.
- --------------------------------------------------------------------------------
Legend:
P = Primary Responsibility
A = Assists Page 9
<PAGE>
Schedule 1
TTS Services
PRODUCT INSTALLATION AND SUPPORT
TTS is responsible for installing and maintaining the latest version and/or
release upgrades to the existing installed mainframe software base, including a
reasonable transition to such upgrades. This includes management of the software
inventory, version and/or release levels, customization and installation
verification. TTS will perform a maximum of two software group updates per year
on the mainframe systems. TTS can only support software where maintenance is
current and available. New applications and software products which require
customization in the form of program code development are outside the scope of
TTS Services, unless a Change Order is entered pursuant to Article 6.a. of the
Professional Services Agreement.
TTS will provide ongoing product maintenance including problem identification,
regular maintenance cycles to implement fixes to known problems, and program fix
installation and validation.
TTS will provide installation and support for software products shown on the
software inventory lists attached as Exhibits C and D. NNS in-house developed
software and shareware (software code obtained from free as-is sources) is not
listed in Exhibits C and D. TTS will use reasonable efforts to support these
products, given adequate documentation exists, but cannot assume responsibility
for lost functionality due to supported software release upgrades, program
errors, lost data resulting from usage or system integrity flaws.
TTS will provide UNIX and VMS systems support expertise up to five (5) FTE
persons on an annual basis.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
FUNCTIONAL DESCRIPTION NNS TTS
- ---------------------------------------------------------------------------------------
<S> <C> <C>
MAINFRAME SYSTEMS
- ---------------------------------------------------------------------------------------
Install, customize, test and maintain operating systems and A P
database management software.
- ---------------------------------------------------------------------------------------
Install, customize, test and maintain NNS applications P A
software.
- ---------------------------------------------------------------------------------------
Perform problem resolution services for operating systems A P
software.
- ---------------------------------------------------------------------------------------
Perform problem resolution services for applications P A
software.
- ---------------------------------------------------------------------------------------
Perform problem resolution services for database P P
management software.
- ---------------------------------------------------------------------------------------
Determine placement of program libraries. P
- ---------------------------------------------------------------------------------------
Provide response to NNS technical audits. P A
- ---------------------------------------------------------------------------------------
Perform global applications changes. P A
- ---------------------------------------------------------------------------------------
DISTRIBUTED SYSTEMS
- ---------------------------------------------------------------------------------------
Support NNS' main Internet server and its installed software. A P
- ---------------------------------------------------------------------------------------
Install, customize, test and maintain UNIX and VMS operating A P
systems and associated hardware platforms.
- ---------------------------------------------------------------------------------------
Install, customize, test and maintain NT operating systems P A
and associated hardware platforms.
- ---------------------------------------------------------------------------------------
Legend:
P = Primary Responsibility Page 10
A = Assists
</TABLE>
<PAGE>
Schedule 1
TTS Services
<TABLE>
<CAPTION>
<S> <C> <C>
Functional Description NNS TTS
- --------------------------------------------------------------------------------
Set and enforce documentation standards. P
- --------------------------------------------------------------------------------
Support Unix to LAN/NT interfaces - UNIX side. A P
- --------------------------------------------------------------------------------
Support UNIX to LAN/NT interfaces - LAN/NT side. P A
- --------------------------------------------------------------------------------
Perform problem resolution services for UNIX and VMS
operating systems software. A P
- --------------------------------------------------------------------------------
Perform problem resolution services for LAN/NT
operating systems software. P
- --------------------------------------------------------------------------------
Perform problem resolution services for UNIX
and VMS applications software. P A
- --------------------------------------------------------------------------------
Perform problem resolution services for LAN/NT
applications software. P A
- --------------------------------------------------------------------------------
Perform mass script changes for NNS jobs on UNIX and VMS
systems. P A
- --------------------------------------------------------------------------------
Provide response to NNS technical audits. P A
- --------------------------------------------------------------------------------
</TABLE>
Legend: Page 11
P = Primary Responsibility
A = Assists
<PAGE>
Schedule 1
TTS Services
Service Delivery Reporting
TTS will provide a "Morning Report" identifying the previous 24 hours processing
activities for production control, including scheduled jobs not run, unscheduled
jobs submitted, problems with job execution, ABENDS, reruns and reporting
schedule versus actual availability for on-line systems. TTS will provide
monthly reports that document systems performance as compared to the performance
metric response time goals set forth below.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Users Percent of
NNS System ID/Name Max/Avg Transactions Response Time Goals
Category
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
System-D Engineering:
- ----------------------------------------------------------------------------------------------------------
TSO 35 22 90% 2 Seconds
- ----------------------------------------------------------------------------------------------------------
VIVID/R/ 60 38 85% 1 Second
- ----------------------------------------------------------------------------------------------------------
CADAM 260 150 Avg response per attention = (less than) .2 Sec.
- ----------------------------------------------------------------------------------------------------------
General Batch 90% (1st shift) 2 Hours
- ----------------------------------------------------------------------------------------------------------
Production Batch 90% (1st shift) 2 Hours
- ----------------------------------------------------------------------------------------------------------
Quickie Jobs (Class Q) 90% 15 Minutes
- ----------------------------------------------------------------------------------------------------------
System-E Business and
Manufacturing:
- ----------------------------------------------------------------------------------------------------------
TSO 70 50 90% 2 Seconds
- ----------------------------------------------------------------------------------------------------------
CICS 65 45 90% 1 Second
- ----------------------------------------------------------------------------------------------------------
IDMS 575 410 90% 5 Seconds
- ----------------------------------------------------------------------------------------------------------
General Batch 90% (1st shift) 2 Hours
- ----------------------------------------------------------------------------------------------------------
Production Batch 90% (1st shift) 2 Hours
- ----------------------------------------------------------------------------------------------------------
IDMS Batch 90% 1 Hour
- ----------------------------------------------------------------------------------------------------------
Quickie Jobs (Class Q) 90% 15 Minutes
- ----------------------------------------------------------------------------------------------------------
System-C End-User Computing:
- ----------------------------------------------------------------------------------------------------------
TSO 180 150 90% 2 Seconds
- ----------------------------------------------------------------------------------------------------------
General Batch 90% (1st shift) 1 Hour
- ----------------------------------------------------------------------------------------------------------
Quickie Jobs (Class Q) 90% 15 Minutes
- ----------------------------------------------------------------------------------------------------------
System-A Logistics and NNS
Customer Access:
- ----------------------------------------------------------------------------------------------------------
TSO 40 25 90% 2 Seconds
- ----------------------------------------------------------------------------------------------------------
CICS 65 45 90% 1 Second
- ----------------------------------------------------------------------------------------------------------
General Batch 90% (1st shift) 1 Hour
- ----------------------------------------------------------------------------------------------------------
Production Batch 90% (1st shift) 2 Hours
- ----------------------------------------------------------------------------------------------------------
Quickie Jobs (Class Q) 90% 15 Minutes
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Legend: Page 12
P= Primary Responsibility
A= Assists
<PAGE>
SCHEDULE 1
TTS SERVICES
PHYSICAL SECURITY MANAGEMENT
TTS will provide physical security to restrict access to computer areas.
- --------------------------------------------------------------------------------
FUNCTIONAL DESCRIPTION NNS TTS
- --------------------------------------------------------------------------------
BOTH MAINFRAME AND DISTRIBUTED SYSTEMS (EXCEPT LAN/NT)
- --------------------------------------------------------------------------------
Maintain computer facility access and control for Buildings 521 A P
and 522.
- --------------------------------------------------------------------------------
Maintain card access control system. P
- --------------------------------------------------------------------------------
Maintain facility access control list of authorized personnel for P
Buildings 521 and 522.
- --------------------------------------------------------------------------------
Maintain facility access control list of authorized personnel for P
Building 600.
- --------------------------------------------------------------------------------
Comply with NNS access control requirements. P P
- --------------------------------------------------------------------------------
Page 13
Legend:
P = Primary Responsibility
A = Assists
<PAGE>
SCHEDULE 1
TTS SERVICES
STORAGE MANAGEMENT
TTS is responsible for monitoring mainframe DASD usage, identifying and
correcting mainframe and distributed systems hardware problems and providing
tape backup. Except for archiving and restoring files, LAN/NT storage
management is outside the scope of TTS Services, unless a Change Order is
entered pursuant to Article 6.a. of the Professional Services Agreement.
- --------------------------------------------------------------------------------
FUNCTIONAL DESCRIPTION NNS TTS
- --------------------------------------------------------------------------------
BOTH MAINFRAME AND DISTRIBUTED SYSTEMS (EXCEPT LAN/NT)
- --------------------------------------------------------------------------------
Monitor the performance of the DASD subsystems. P
- --------------------------------------------------------------------------------
Assign and initialize DASD volumes. P
- --------------------------------------------------------------------------------
Monitor DASD usage. P
- --------------------------------------------------------------------------------
Coordinate DASD hardware maintenance. P
- --------------------------------------------------------------------------------
Define NNS mainframe Budget DASD allocation percentages. P A
- --------------------------------------------------------------------------------
Manage data migration. P
- --------------------------------------------------------------------------------
Archive and restore files, including LAN/NT files, as requested by A P
NNS.
- --------------------------------------------------------------------------------
Page 14
Legend:
P = Primary Responsibility
A = Assists
<PAGE>
Schedule 1
TTS Services
Systems Recovery Planning
In the event of a disaster, TTS will restore the mainframe systems and data as
they existed when the last weekly disaster backup tapes were created and stored
off-site. In addition, TTS will establish the telecommunications network
facility to the backup site. NNS determines the frequency of disaster recovery
backups and is responsible for continuity plans for the period between the
disaster event and restoration of systems. TTS will provide a recovery
subscription for a mainframe hot site according to the following specifications:
<TABLE>
<CAPTION>
SYSTEM MIPS DASD GB
------ ---- -------
<S> <C> <C>
NNS-A 15 194
NNS-C 41 292
NNS-E 104 609
</TABLE>
NNS is responsible for its pro rata share of charges associated with actual use
of the hot site. Such charges, when incurred, are not part of the recovery
subscription fee and are not included in the fixed fee for TTS. They will be
invoiced separately to NNS. Recovery subscription for NNS-D is outside the
scope of TTS Services, unless a Change Order is entered pursuant to Article 6.a.
of the Professional Services Agreement.
TTS will backup UNIX, VMS and LAN/NT systems located in Building 521 connected
to the NNS corporate network. Recovery services, including the provision of
recovery facilities for the distributed systems environment and equipment to
backup these systems, are outside the scope of TTS Services, unless a Change
Order is entered pursuant to Article 6.a. of the Professional Services
Agreement.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Functional Description NNS TTS
<S> <C> <C>
- --------------------------------------------------------------------------------
Mainframe Systems
- --------------------------------------------------------------------------------
Determine systems and data backup requirements and strategy. A P
- --------------------------------------------------------------------------------
Determine applications and database backup requirements and P A
strategy.
- --------------------------------------------------------------------------------
Perform complete systems and data backup weekly. P
- --------------------------------------------------------------------------------
Send disaster recovery backup tapes to an off-site vault, A P
as required by NNS.
- --------------------------------------------------------------------------------
Create business continuity plans. P A
- --------------------------------------------------------------------------------
Prepare system recovery plans. A P
- --------------------------------------------------------------------------------
Declare disaster situation. A P
- --------------------------------------------------------------------------------
Provide an operational system (from the last vaulted tapes) P
within 48 hours of a disaster declaration.
- --------------------------------------------------------------------------------
Establish testing schedule and execute test plan. A P
- --------------------------------------------------------------------------------
Provide feedback on test. P P
- --------------------------------------------------------------------------------
Distributed Systems
- --------------------------------------------------------------------------------
Determine systems and data backup strategy. A P
- --------------------------------------------------------------------------------
Determine applications and database backup strategy. P A
- --------------------------------------------------------------------------------
</TABLE>
Legend: Page 15
P = Primary Responsibility
A = Assists
<PAGE>
[TENNECO LOGO]
Schedule 1
TTS Services
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------------------------------------------------------------
Perform complete systems and data backup weekly. P
- --------------------------------------------------------------------------------
Functional Description NNS TTS
- --------------------------------------------------------------------------------
Send disaster recovery backup tapes to an off-site vault, P
as required by NNS.
- --------------------------------------------------------------------------------
Create business continuity and system recovery plans. P A
- --------------------------------------------------------------------------------
</TABLE>
Legend:
P = Primary Responsibility Page 16
A = Assists
<PAGE>
Schedule 1
TTS Services
System Security
NNS will control access to its computer resources. TTS will install and provide
software maintenance on security software packages on the NNS mainframe and UNIX
and VMS systems.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Functional Description NNS TTS
<S> <C> <C>
- --------------------------------------------------------------------------------
Both Mainframe and Distributed Systems (excluding LAN/NT)
- --------------------------------------------------------------------------------
Authorize system users (issuing User-ID's). P
- --------------------------------------------------------------------------------
Administer file access and software access controls (read/write P A
permissions).
- --------------------------------------------------------------------------------
Maintain security software. P
- --------------------------------------------------------------------------------
Define, create and administer security groups. P A
- --------------------------------------------------------------------------------
Comply with security requirements. P A
- --------------------------------------------------------------------------------
</TABLE>
Legend:
P = Primary Responsibility
A = Assists
Page 17
<PAGE>
SCHEDULE 1
TTS SERVICES
TELECOMMUNICATIONS
TTS is responsible for the Network Control Center (NCC) functions relating to
NNS business systems in Building 521. In addition, TTS will provide NNS up to
4000 consultation hours per year for various telecommunication and network
design expertise. Consultation in excess of 4000 hours per year is outside the
scope of the TTS Services, unless a Change Order is entered pursuant to Article
6.a. of the Professional Services Agreement.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FUNCTIONAL DESCRIPTION NNS TTS
- --------------------------------------------------------------------------------
<S> <C> <C>
Participate in the Problem and Change Management Process.
- --------------------------------------------------------------------------------
Provide first and second level support for A P
telecommunications problem tickets. This support includes
problem resolution from the NCC, prioritizing, directing,
and assisting NNS field engineers, and redirecting remaining
problems to appropriate resolver.
- --------------------------------------------------------------------------------
Support change management processes for A P
telecommunication changes. This includes creating,
approving, and closing NNS change management tickets
and providing a point of contact for questions and impact
assessments.
- --------------------------------------------------------------------------------
Installation and Maintenance of Communications Equipment
- --------------------------------------------------------------------------------
Provide administration for the ISN (Information Systems A P
Network) packet switchers and concentrators from Building
521 for support of equipment within the NNS campus.
- --------------------------------------------------------------------------------
Install and maintain NNS modems and maintain associated A P
leased lines supporting NNS interests in Hawaii,
Charlottesville, Houston, Norwich, Portsmouth, Medford
and warehouses in Newport News.
- --------------------------------------------------------------------------------
Install and maintain all local controllers, channel A P
extenders, multiplexers and repeaters supporting the SNA
(System Network Architecture) environment in Buildings
521, 522 and 500.
- --------------------------------------------------------------------------------
Install, and maintain communications to NNS LANs (Local P A
Area Networks) within Building 521.
- --------------------------------------------------------------------------------
Install and maintain terminal servers, bridges, routers, P A
hubs and repeaters for NNS Banyan, Novell, DEC/VAX,
Ultimate and Time & Attendance platforms within Building 521.
- --------------------------------------------------------------------------------
Provide telephone voice systems and services support. P
- --------------------------------------------------------------------------------
</TABLE>
Legend:
P = Primary Responsibility
A = Assists
Page 18
<PAGE>
Schedule 1
TTS Services
- --------------------------------------------------------------------------------
FUNCTIONAL DESCRIPTION NNS TTS
- --------------------------------------------------------------------------------
Install and maintain the following NNS networking systems:
- --------------------------------------------------------------------------------
Information System Network (ISN). A P
- --------------------------------------------------------------------------------
AT&T STARKEEPER II Management System. A P
- --------------------------------------------------------------------------------
Intellinet Network Monitoring System. A P
- --------------------------------------------------------------------------------
UDS Global View Modem Pool, and A P
- --------------------------------------------------------------------------------
IBM Token Ring Manager. A P
- --------------------------------------------------------------------------------
Provide fault management and proactive problem determination A P
and resolution utilizing the following NNS management tools:
Accumaster Integrator, Systems Manager, Computer Manager,
Netview, Intellinet, Globalview, Token-ring manager/trace and
performance and LAN analyzer.
- --------------------------------------------------------------------------------
Respond to technology related questions and design reviews and P A
provide technical support for field engineers in the Computer
Equipment/Services Request (CE/SR) Process.
- --------------------------------------------------------------------------------
Provide operations recovery support for telecommunications A P
facilities.
- --------------------------------------------------------------------------------
Provide the following ad hoc support services, up to 4000 hours
per year:
- --------------------------------------------------------------------------------
On-call support between 4:30 PM and 7:30 AM, 7 A P
days/week, including holidays, for the Network
Control Center (Building 521). TTS will use
reasonable efforts to provide one hour callback
response utilizing proper escalation procedures.
- --------------------------------------------------------------------------------
LAN, Wide Area Network (WAN) and Desktop support. P A
- --------------------------------------------------------------------------------
CADAM and VIVID network design. P A
- --------------------------------------------------------------------------------
Technical resource assistance for most computer P A
network installations at NNS.
- --------------------------------------------------------------------------------
Network management and design consulting. P A
- --------------------------------------------------------------------------------
Intranet design and implementation consulting. P A
- --------------------------------------------------------------------------------
WAN design and consulting. P A
- --------------------------------------------------------------------------------
High-level network documentation and mapping. P A
- --------------------------------------------------------------------------------
Tier 3 level support for major computer network P A
problems at NNS.
- --------------------------------------------------------------------------------
Legend:
P = Primary Responsibility
A = Assists Page 19
<PAGE>
Schedule 1
TTS Services
Exhibit A
Mainframe Hardware Listing
Mainframe Systems
-----------------
- --------------------------------------------------------------------------------
PROCESSORS STORAGE (MB)
- ------------------------ CPU ----------------------------------------
MODEL QTY MIPS CENTRAL EXPANDED TOTAL
================================================================================
9021-720 1 117 512 512 1024
- --------------------------------------------------------------------------------
9021-900 1 235 1024 1024 2048
- --------------------------------------------------------------------------------
- ------------------------------------------ ----------------------------
NNS DASD SUMMARY NNS TAPE SUMMARY
- ------------------------------------------ ----------------------------
DISK DRIVES MODEL
- ------------------------------------------ NO. QTY
MODEL QTY GB ============================
========================================== 3422-A01 3
3380-AJ4 8 20.16 ----------------------------
- ------------------------------------------ 3422-B01 6
3380-BJ4 8 20.16 ----------------------------
- ------------------------------------------ 3490-A20 7
3390-A28 15 226.50 ----------------------------
- ------------------------------------------ 3490-B40 18
3390-A38 8 181.44 ----------------------------
- ------------------------------------------ TOTAL 34
3390-B2C 30 680.40 ----------------------------
- ------------------------------------------
3390-B3C 14 476.00
- ------------------------------------------
TOTAL 83 1,604.66
- ------------------------------------------
DISK CONTROLLERS
- ------------------------------------------
3990-002 4 --
- ------------------------------------------
3990-G03 3
- ------------------------------------------
3990-JO3 10 --
- ------------------------------------------
3990-LO3 4 --
- ------------------------------------------
TOTAL 21 --
- ------------------------------------------
Page 20
<PAGE>
Schedule I
TTS Services
Exhibit B
Distributed Hardware Listing
Distributed Systems Supported by Computer Operators
---------------------------------------------------
VAX/VMS Systems:
- ----------------
Alpha Beta (B.4632)
Gamma Quark (B.4632)
Vax-B Vax-C
Vax-D Vax-E
Vax-M
Open VMS: DEC-A DEC-B
- ---------
UNIX Systems: Global A520
- ------------- B520 B521
Ultimate Manager IV
IRIX Systems: SGIA SGIB
- -------------
ULTRIX Systems: Ult-D
- ---------------
UNIX Based BANYAN Systems:
- --------------------------
NNS003 NNS004
NNS005 NNS007
NNS008 NNS012
NNS013 NNS014
NNS016 NNS017
OS/2 Systems: NNS046
- -------------
NOVELL Systems: NNS009 NNS011
- --------------- NNS012 NNS021
NNS024 NNS029
NNS032 NNS033
NNS034 NNS035
NNS037 NNS040
NNS041 NNS042
NNS043 NNS048
NNS049 NNS050
WINDOWS NT Systems:
- -------------------
NNS305 NNS307
EXHIBIT B
Page 21
<PAGE>
Schedule 1
TTS Services
DOS Based Systems:
C60LAN01 C60LAN02
C60NOV01 Inventory Mgt.
NNS045 Human Resources
Trades A36 Master
A37 Slave NNS014 PC Any Where
NNS037 PC Any Where NNS003 FOCUS
Database Server
Distributed Systems Supported by Technical Support
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Platform Operating Model Number of Disks Department
System Clients Space Supported
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SGIA/SGIB IRIX Challenge L 200 70 GB Engineering
- -------------------------------------------------------------------------------
SGID IRIX Indy 40 4 GB NNS Internet
- -------------------------------------------------------------------------------
NNSOSS IRIX Indy 2 1 GB Double Eagle
- -------------------------------------------------------------------------------
SUN SUN O/S Sparc Station 14 20 GB All Plotting
- -------------------------------------------------------------------------------
AIXC AIX RS 6000 64 30 GB Vivid
- -------------------------------------------------------------------------------
JLTD Uitrix DEC 5500 4 30 GB C60
Development
(T & A)
- -------------------------------------------------------------------------------
/AXE VMS VAX 4300 3 30 GB C60
Development
(RADCON)
- -------------------------------------------------------------------------------
/AXB/VAXC VMS VAX 4300 11 20 GB Sheet Metal
- -------------------------------------------------------------------------------
/AXD VMS VAX 3100 1 GB Automated
Steel
Fabrication
- -------------------------------------------------------------------------------
Alpha/Beta VMS VAX 4200 2 10 GB RADCON
- -------------------------------------------------------------------------------
VAXI VMS VAXStation 5 GB RADCON
Imaging
- -------------------------------------------------------------------------------
AXM VMS VAXStation 2 GB Facilities
- -------------------------------------------------------------------------------
ECA/B VMS Alpha 34 30 GB Facilities
- -------------------------------------------------------------------------------
</TABLE>
Page 22
<PAGE>
Schedule 1
TTS Services
Exhibit C
NNS Licensed Software
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Vendor Name Model Description NNSA NNBC NNSD NNSE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BGS Systems BEST/1-DATACENTER Workload Modeling Tool X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
BGS Systems BEST/1-VISUALIZER Best/1-Visualizer X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
BGS Systems CAPTURE/DATACENTER Capture / DataCenter X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Boole And Babbage, Inc. BGT-DASD Budget Dasd (BBI Bought Emplact) X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Bruning Computer Graphics GPR 5 Plotting Software X
- ------------------------------------------------------------------------------------------------------------------------------------
Bruning Computer Graphics GPR 50 Plotting Software X
- ------------------------------------------------------------------------------------------------------------------------------------
Bruning Computer Graphics ZMD-PLOT Zeta GDDM Services X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Cincom Systems, Inc. SUPRA V.1 Database Manager X
- ------------------------------------------------------------------------------------------------------------------------------------
Computational Mechanics LINEAR Beasy Linear X
- ------------------------------------------------------------------------------------------------------------------------------------
Computational Mechanics PROC Beasy Pre & Post Processor X
- ------------------------------------------------------------------------------------------------------------------------------------
Computational Mechanics SUPERTAB Beasy Supertab Interface X
- ------------------------------------------------------------------------------------------------------------------------------------
Data Base Architects, Inc. OL-HELP On-Line Help X
- ------------------------------------------------------------------------------------------------------------------------------------
Data Based Development Systems, Inc. DBA-RPTS IDMS DB Analyzer Reports X X
- ------------------------------------------------------------------------------------------------------------------------------------
Dun & Bradstreet Software Services FIX ASSET Fixed Assets Accounting X
- ------------------------------------------------------------------------------------------------------------------------------------
Dun & Bradstreet Software Services UE RPTG Use W/MSA & Non-MSA Sys X
- ------------------------------------------------------------------------------------------------------------------------------------
Erisco CLAIMFACT Claimfacts X
- ------------------------------------------------------------------------------------------------------------------------------------
Gatileo-Travelmaster (Formerly Covia) TRVL-MSTR Travel Master X
- ------------------------------------------------------------------------------------------------------------------------------------
Generative Technology (formerly Precision Nesting) GEOMETRIC Geometric Interface X
- ------------------------------------------------------------------------------------------------------------------------------------
Generative Technology (formerly Precision Nesting MEGANEST Automatic Nesting Program X
- ------------------------------------------------------------------------------------------------------------------------------------
Innovation Data Processing, Inc. ABR Automatic Backup Recovery X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Innovation Data Processing, Inc. COMPAKTOR DASD Volume Compactor X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Innovation Data Processing, Inc. FATAR Fast Analysis Tape Recovery X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Innovation Data Processing, Inc. FATS Fast Analysis Tape Surfaces X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Innovation Data Processing, Inc. FDR File Dump And Restore X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Innovation Data Processing, Inc. IAM Innovation Access Method X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Integral Systems, Inc. CSP/DB2 Payroll/Personnel Mgmnt X
- ------------------------------------------------------------------------------------------------------------------------------------
Interlink Computer Sciences DATASTORE TCP/IP-80 Datastore TCP/IP Maintenance-Model 80 X
- ------------------------------------------------------------------------------------------------------------------------------------
Interlink Computer Sciences DATASTORE/VS2 VMS Datastore VS2 VMS Site License X
- ------------------------------------------------------------------------------------------------------------------------------------
Interlink Computer Sciences NETWORK CNTRLR 3722 DECnet Network Controller Maintenance X
- ------------------------------------------------------------------------------------------------------------------------------------
Interlink Computer Sciences NETWORK CNTRLR 3752 Network Controller Maintenance - 2/2 X
- ------------------------------------------------------------------------------------------------------------------------------------
Interlink Computer Sciences NETWORK CNTRLR 3762 FDDI Network Controller Maintenance X X
- ------------------------------------------------------------------------------------------------------------------------------------
Interlink Computer Sciences SNS/NFS-60 SNS/NFS Maintenance - Model 60 X
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Schedule 1
TTS Services
Exhibit C
NNS Licensed Software
---------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Vendor Name Model Description NNS-A NNS-C NNS-D NNS-E
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interlink Computer Sciences SNS/NFS-80 SNS/NFS Maintenance - Model 80 X
- ------------------------------------------------------------------------------------------------------------------------------------
Interlink Computer Sciences SNS/TCPACCESS-60 SNS/TCPaccess Maintenance -
Model 60 X
- ------------------------------------------------------------------------------------------------------------------------------------
Interlink Computer Scienes SNS/TCPACCESS-80 SNS/TCPaccess Maintenance -
Model 80 X
- ------------------------------------------------------------------------------------------------------------------------------------
Intersolv, Inc. (formerly Sage Software, Inc.) APS 20 Seats Of Aps X
- ------------------------------------------------------------------------------------------------------------------------------------
Laderman Associates ADSO Migration Utility X
- ------------------------------------------------------------------------------------------------------------------------------------
Laderman Associates ADSO/XREF ADSO XREF Utility X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Laderman Associates LADERMAN UTILITIES Laderman Utilities X X
- ------------------------------------------------------------------------------------------------------------------------------------
Lockeed Missiles Space Corporation BOSOR4 Structural Analysis S/W X
- ------------------------------------------------------------------------------------------------------------------------------------
Lockeed Missiles Space Corporation BOSOR5 Structural Analysis S/W X
- ------------------------------------------------------------------------------------------------------------------------------------
Lucas Management ARTEMIS Artemis Project Management
(Formerly Lucas) X
- ------------------------------------------------------------------------------------------------------------------------------------
Marcon & Associates, Inc. TOSRT TSO On-Line Sorce(Trak)
(Formerly The Bridge) X
- ------------------------------------------------------------------------------------------------------------------------------------
Marcon & Associates, Inc. TRAK Traking System (Formerly
The Bridge) X
- ------------------------------------------------------------------------------------------------------------------------------------
Marcon & Associates, Inc. TSO TSO Option(TRAK) (Formerly
The Bridge) X
- ------------------------------------------------------------------------------------------------------------------------------------
Martin Marietta Data Systems EXIT Martin Marietta X
- ------------------------------------------------------------------------------------------------------------------------------------
Mazda Computer Corporation CHANGE ACTION Change Action X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Merrill Consultants MXG Site License X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Mobius Management Systems, Inc. JCLWTR Infopac-JCL Writer X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Pace Applied Technology, Inc. KOM/DAMS Direct Access Management
System/OS-A X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Pace Applied Technology, Inc. KOM/DAS Data Center Accounting System X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Pace Applied Technology, Inc. KOM/DIS Data Inquiry System/OS-A X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Pace Applied Technology, Inc. KOM/IDCI CA-IDMS Charging Interface X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Pace Applied Technology, Inc. KOM/OLC Online Costing/OS-A X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Pitney Bowes BARCODE EXPRESS Barcode Express X
- ------------------------------------------------------------------------------------------------------------------------------------
Pitney Bowes CICS ON-LINE, WINDOWS CICS ON-LINE, WINDOWS X
- ------------------------------------------------------------------------------------------------------------------------------------
Pitney Bowes FINALIST NNS Employee Address Database X
- ------------------------------------------------------------------------------------------------------------------------------------
SAS Institute SAS/ACCESS/DB2 Access DB2 Facility X X
- ------------------------------------------------------------------------------------------------------------------------------------
SAS Institute SAS/AF Application Facility X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
SAS Institute SAS/ASSIST Assist Facility X X X
- ------------------------------------------------------------------------------------------------------------------------------------
SAS Institute SAS/BASE Core Product X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
SAS Institute SAS/C C Language Compiler X
- ------------------------------------------------------------------------------------------------------------------------------------
SAS Institute SAS/CALC Calculations Facility X
- ------------------------------------------------------------------------------------------------------------------------------------
SAS Institute SAS/CBT Computer Based Training
Facility X
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Schedule 1
TTS Services
Exhibit C
NNS Licensed Software
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Vendor Name Model Description NNSA NNBC NNSD NNSE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SAS Institute SAS/CONNECT Connect Facility X X
- ------------------------------------------------------------------------------------------------------------------------------------
SAS Institute SAS/ETS Econometrics & Time Series Facility X
- ------------------------------------------------------------------------------------------------------------------------------------
SAS Institute SAS/FSP Full Screen Processing Facility X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
SAS Institute SAS/GRAPH Graphics Facility X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
SAS Institute SAS/OR Operations Research Facility X
- ------------------------------------------------------------------------------------------------------------------------------------
SAS Institute SAS/QC Quality Control Facility X
- ------------------------------------------------------------------------------------------------------------------------------------
SAS Institute SAS/SHARE Multi-User File Sharing Facility X X
- ------------------------------------------------------------------------------------------------------------------------------------
SAS Institute SAS/STAT Statistics Facility X
- ------------------------------------------------------------------------------------------------------------------------------------
Software Engineering Of America PDSFAST PDSfast/Driver X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Sterling Software FTS-MVS File Transfer System-MVS X
- ------------------------------------------------------------------------------------------------------------------------------------
Sterling Software NETMASTER FOUNDATION File Transfer Facility X
- ------------------------------------------------------------------------------------------------------------------------------------
Stone & Webster Engineering STONERULE Program #Srv-015 X
- ------------------------------------------------------------------------------------------------------------------------------------
Structural Dynamics Research I-DEAS I-Deas Complete X
- ------------------------------------------------------------------------------------------------------------------------------------
Tact-The A Consulting Team, Inc. TEDIT Tedit Software X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Technetron Unlimited, Inc. DB/DYNAM IDMS Dynamic File Allocate/Deallocate X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Tone Software Corporation TAM TSO Access Manager X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Tone Software Corporation TS-PRINT TS-Prnt License 9/96 9/96 9/96 9/96
- ------------------------------------------------------------------------------------------------------------------------------------
Trinzic Corporation ADS/DB2 Development System/HPO X
- ------------------------------------------------------------------------------------------------------------------------------------
Trinzic Corporation ADS/MVS Development System/MVS X
- ------------------------------------------------------------------------------------------------------------------------------------
Trinzic Corporation MVS HPO Development System/HPO X
- ------------------------------------------------------------------------------------------------------------------------------------
Unitech Systems, Inc. U/ACR-S Automated Control Reporting X
- ------------------------------------------------------------------------------------------------------------------------------------
Visual Numerics, Inc. IMSL LIC Class II Primary License X
- ------------------------------------------------------------------------------------------------------------------------------------
Visual Numerics, Inc. MULTIPLE 2Nd Multiple Use Pd-Up X
- ------------------------------------------------------------------------------------------------------------------------------------
Visual Numerics, Inc. MUTIEIAT EIAT Multiple Use Pd-Up X
- ------------------------------------------------------------------------------------------------------------------------------------
Vmark Labs, Inc. (Formerly APX) XCHNGMVS XMS And VTAM Connectivity Access Control X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Vmark Labs, Inc. (Formerly APX) XPLCICS Send/Receive Interface CICS Gate X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Vmark Labs, Inc. (Formerly APX) XPLIDMS Send/Receive Interface Dynamic Transactions X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Schedule 1 8/21/96
TTS Services
Exhibit D
TTS Licensed Software
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Vendor Name Model Description NNSA NNBC NNSD NNSE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Allen Systems Group, Inc. FAST/ACCESS DBMS Tool X X
- ------------------------------------------------------------------------------------------------------------------------------------
Allen Systems Group, Inc. JCLPREP JCL Checking Facility (Was Altare Owned) X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Allen Systems Group, Inc. PRE-ALERT MVS/IDMS Pre Alert (Was Shopmon) X
- ------------------------------------------------------------------------------------------------------------------------------------
BMC Software, Inc. DB2 CATALOG MANAGER Mastermind Component X
- ------------------------------------------------------------------------------------------------------------------------------------
BMC Software, Inc. DB2 MON DB2 Activity Monitor X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Candle CL/SUPER Super-XSM Gateway/XA/ESA X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Candle OMEG-CICS Omegamon Pac For CICS X X
- ------------------------------------------------------------------------------------------------------------------------------------
Candle OMEG-MVS Omegamon Pac For MVS X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Candle OMEG-VTAM Omegamon For VTAM X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Candle OMEGAVIEW Omegaview X X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International ADS BATCH ADS Batch X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International ADS/ONLINE-MVS ADS Online X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International ASTEX DASD Monitor (Formerly Legent) X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International CA90S SERVICES MVS CA Provided-Not A Product X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
Computer Associates International CAS ACCTS PAYABLE Accounts Payable X
- -----------------------------------------------------------------------------------------------------------------------------------
Computer Associates International CAS BILL OF MATERIAL Bill Of Material X
- -----------------------------------------------------------------------------------------------------------------------------------
Computer Associates International CAS INVENTORY CONTROL Inventory Control X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International CAS MASTR PROD SCHED Master Product Scheduling X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International CAS MATERIAL REQ PLN Material Requirements Planning X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International CAS PURCHASING REP Purchasing Package X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International CAS SHOP FLOOR CNTRL Shop Floor Control X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International CMA CONN CMA Connection M-D Plot (Formerly Legent) X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International EASE/AU Ease/Author (Formerly Legent) X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International EASE/IN Ease/Instructor (Formerly Legent) X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International EASYTRIEVE PLUS Easytrieve Plus MVS X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International EASYTRIEVE PLUS DL/1 Easytrieve Plus DL/1 X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International ELEVEN Job Rerun/Restart/Tracking X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Schedule 1
TTS Services
8/21/96
Exhibit D
TTS Licensed Software
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Vendor Name Model Description NNS-A NNS-C NNS-D NNS-E
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Computer Associates International ENDEVOR Endvevor CI/MVS (Formerly Legent) X X X X
- --------------------------------------------------------------------------------------------------------------------------------
Computer Associates International ENDEVOR/CSP Endevor/CSP X X X X
- --------------------------------------------------------------------------------------------------------------------------------
Computer Associates International ENDEVOR/MVS Endevor/MVS (Formerly Legent) X X X X
- --------------------------------------------------------------------------------------------------------------------------------
Computer Associates International ESSI Extended Security System
(Formerly Legent) X X X X
- --------------------------------------------------------------------------------------------------------------------------------
Computer Associates International IDMS DATA DICTIONARY Integrated Data Dictionary (IDD) IBM X X X X
- --------------------------------------------------------------------------------------------------------------------------------
Computer Associates International IDMS DBA TOOL KIT DBA Tool Kit X X
- --------------------------------------------------------------------------------------------------------------------------------
Computer Associates International IDMS DEVELOPER TOOL Developer Tool Kit X X
- --------------------------------------------------------------------------------------------------------------------------------
Computer Associates International IDMS DICTIONARY LOAD Dictionary Loader X X X X
- --------------------------------------------------------------------------------------------------------------------------------
Computer Associates International IDMS DISTRIBUTED DB Distributive Database X X X X
- --------------------------------------------------------------------------------------------------------------------------------
Computer Associates International IDMS PERF MONITOR Performance Monitor X
- --------------------------------------------------------------------------------------------------------------------------------
Computer Associates International IDMS SQL EXTEND ARCH IDMS SQL Extend Architecture X X X X
- --------------------------------------------------------------------------------------------------------------------------------
Computer Associates International IDMS-MVS IDMS-MVS X X X X
- --------------------------------------------------------------------------------------------------------------------------------
Computer Associates International IDMS/CULPRIT-MVS IDMS/Culprit/Library Of Routines X X X X
- --------------------------------------------------------------------------------------------------------------------------------
Computer Associates International IDMS/CV-MVS IDMS Central Version X X X X
- --------------------------------------------------------------------------------------------------------------------------------
Computer Associates International IDMS/DC-MVS DC X X X X
- --------------------------------------------------------------------------------------------------------------------------------
Computer Associates International INTERTEST/BATCH Intertest/Batch X X
- --------------------------------------------------------------------------------------------------------------------------------
Computer Associates International INTERTEST/CICS Intertest/CICS X X
- --------------------------------------------------------------------------------------------------------------------------------
Computer Associates International LIBRARY OF ROUTINES Library Of Routines X X X X
- --------------------------------------------------------------------------------------------------------------------------------
Computer Associates International MASTER LICENSE Computer Associates & Legent Agreement X X X X
- --------------------------------------------------------------------------------------------------------------------------------
Computer Associates International MICS BASE MICS Base (Formerly Legent) X
- --------------------------------------------------------------------------------------------------------------------------------
Computer Associates International MICS CICS CICS (Formerly Legent) X X X
- --------------------------------------------------------------------------------------------------------------------------------
Computer Associates International MICS DASD DASD Space Analyzer (Formerly Legent) X
- --------------------------------------------------------------------------------------------------------------------------------
Computer Associates International MICS DB2 DB2 Analyzer (Formerly Legent) X X X
- --------------------------------------------------------------------------------------------------------------------------------
Computer Associates International MICS IDMS IDMS Analyzer (Formerly Legent) X
- --------------------------------------------------------------------------------------------------------------------------------
Computer Associates International MICS PERF Performance Management
(Formerly Legent) X X X
- --------------------------------------------------------------------------------------------------------------------------------
Computer Associates International MICS SNA SNA Network Analyzer (Formerly Legent) X X X X
- --------------------------------------------------------------------------------------------------------------------------------
Computer Associates International MIM Multi-Image Integrity Tape Share X X X X
(Formerly Legent)
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Schedule 1
TTS Services 8/21/96
Exhibit D
TTS Licensed Software
---------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Vendor Name Model Description NNS-A NNS-C NNS-D NNS-E
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Computer Associates International ONE Tape Management System X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International ONLINE QUERY-MVS Online Query (OLQ) X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International OPS/MSF Multi-System Comm Facility (Formerly Legent) X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International OPS/MVS OPS/MVS JESS2 Base Product (Formerly Legent) X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International OPS/OCF Outboard Console Facility (Formerly Legent) X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International PHOENIX Phoenix (Foremerly Legent) X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International PROAUDIT Auditor For DB2 Software X X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International PROSECURE Secure For DB2 Software X X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International SEVEN Job Scheduler X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International SEVEN RPT Report Distribution X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International STORMATE MICS SMS Analyzer (Formerly Legent) X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International TRANSIT Data File Translator X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International TSO/MON TSO Monitor (Formerly Legent) X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International XCOM 6.2 Batch File Transfer S/W (Formerly Legent) X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Hybrid Systems Limited, Inc. DBSTATS Database Statistics X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Information Builders, Inc. FOCUS/CMT COBOL Master Translator X
- ------------------------------------------------------------------------------------------------------------------------------------
Information Builders, Inc. FOCUS/DB2 DB2 (Data Mgmt) Read/Write Interface X
- ------------------------------------------------------------------------------------------------------------------------------------
Information Builders, Inc. FOCUS/EMR Extended Matrix Reporter X
- ------------------------------------------------------------------------------------------------------------------------------------
Information Builders, Inc. FOCUS/GPH Graphics Subsystem X
- ------------------------------------------------------------------------------------------------------------------------------------
Information Builders, Inc. FOCUS/DMS IDMS Interface X
- ------------------------------------------------------------------------------------------------------------------------------------
Information Builders, Inc. FOCUS/MSO Multi-Session Option X
- ------------------------------------------------------------------------------------------------------------------------------------
Information Builders, Inc. FOCUS/PDE PC Date Export X
- ------------------------------------------------------------------------------------------------------------------------------------
Information Builders, Inc. FOCUS/TT Tabletalk/Filetalk/Modify X
- ------------------------------------------------------------------------------------------------------------------------------------
Information Builders, Inc. FOCUS/VSAM VSAM Read/Write Interface X
- ------------------------------------------------------------------------------------------------------------------------------------
Information Builders, Inc. FOCUS/WTR Report Writer/Dialog Manager X
- ------------------------------------------------------------------------------------------------------------------------------------
Insync Marketing, Inc. BATCH/MVS Insync Master License X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
Insync Marketing, Inc. DB2 Insync Master License X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Schedule 1
TTS Services 8/21/96
Exhibit D
TTS Licensed Software
---------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Vendor Name Model Description NNS-A NNS-C NNS-D NNS-E
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Insync Marketing, Inc. IMS Insync Master License X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5635-001 Cadam/Base 3.2.0 X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5635-003 Cadam/Pipe 3.2.0 X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5648-001 IGES 3.1.0 Initial Graphics Exchange Standard X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5648-063 ACF/NCP V7 X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5655-007 Nelview MVS/ESA V3 X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5655-018 CICS/ESA 4.1.1 Customer Information Control System 12/96 12/96
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5655-041 ACF/SSP MVS V4 X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5655-042 ISPF 4.1.0 X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5655-068 MVS/ESA 5.1.0 NNS Enterprise Systems Architecture X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5655-084 RMF/ESA 5.1.0 Feature X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5655-257 1.16.0 Device Suport Facility For MVS/XA (ICKDSF) X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5655-HAL TCP/IP MVS 3.1.0 X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5658-260 3.5.0 Environment Recording Edit & Print (EREP) X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5665-307 Print Management Facility (PMF) X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5665-310 Report Management & Distribution System (RMDS) X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5665-311 3270-PC File Transfer Program X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5665-403 CICS/MVS 12/96 12/96 12/96 12/96
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5665-488 System Display & Search Facility (SDSF) X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5665-948 Basic/MVS X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5668-767 Pascal Compiler & Library 1.2.0 X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5668-806 VS Fortran Compiler Library & Debug 2.6.0 X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5668-812 2.1.2 GDDM Presentation Graphics Feature (GDDM/PGF) X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5668-854 ACF/NCP For 3725 4.3.1 Network Control Program X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5668-949 1.8.1 System Modification Program Extended (SMP/E) X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5668-976 GAM/SP 1.3.1 Graphics Access Method X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5685-025 TSO/E 2.4.0 Extentions For MVS X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Schedule 1
TTS Services 8/21/96
Exhibit D
TTS Licensed Software
---------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Vendor Name Model Description NNS-A NNS-C NNS-D NNS-E
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
International Business Machine 5685-083 CICS/ESA 3.3.0 Customer Information Control Center X X
- -----------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5685-DB2 3.1.0 Database 2 MVS X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5688-015 Publishing Systems Bookmaster 1.4.0 X X X
- -----------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5688-093 GDDM/Graphigs 2.3.0 Programming Interface X X X
- -----------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5688-113 GDDM-OS2/Link 1.0 (GDDM) X
- -----------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5688-169 GDGF 2.1.0 Graphical Display Query Facility X X X
- -----------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5688-190 PPFA/370 1.1.0 Page Printer Formating Aid X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5688-191 OGL/370 1.1.0 Overlay Generation Language X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5688-197 COBOL/370 1.1.0 Ad/Cycle X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5688-198 Lang/370 1.3.0 Language Environment X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5688-206 CSP/370Rs 4.1.0 Cross Sys Product Runtime Services X X
- -----------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5688-216 C/370 Ad/Cycle Compiler 2.1.0 X X X
- -----------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5688-218 CSP/370Ad 4.1.0 Cross System Product Ad X X
- -----------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5688-235 Ad/Cycle Pt/l Compiler 1.2.0 X X X
- -----------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5695-039 RACF 2.1.0 Resource Access Control Facility X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5695-040 PSF 2.2.0 Print Service Facility Base Code X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5695-046 Book Manager/Read 1.2.0 MVS X X X
- -----------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5695-100 MVS/Ditto 2.1.0 X X X
- -----------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5695-117 VTAM 4.2.0 Virtual Telecommunications Access Methd X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5695-167 GDDM 3.1.0 Graphical Data Display Manager X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5695-171 Information Management 6.1.0 X
- -----------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5695-DB2 DB2 4.1.0 X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5695-DF1 DFSMS/MVS 1.2.0 Data Facility Systems Managed Stor X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5696-234 High Level Assembler MVS, VM, VS 1.1.0 X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5706-254 QMF/MVS 3.1.1 Query Management Facility X X X
- -----------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5713-ADX Cadam Drawing Compare X
- -----------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5719-EMI Series/1 Input/Output Executive X X X
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Schedule 1
TTS Services 8/21/96
Exhibit D
TTS Licensed Software
---------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Vendor Name Model Description NNS-A NNS-C NNS-D NNS-E
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
International Business Machine 5734-UT1 TSO/Utilities 1.1.4 TSO Data Utilities X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5735-XXB EP 1.9.0 27OX Emulation Program On 3705/20/25 X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5740-CB1 COBOL/VS 1.2.4 Compiler and Library X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5740-SM1 DF/Sort 1.12.0 Data Facility Sort/Merge X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5748-AP1 VS/APL 1.4.0 Application Programming Language X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5748-XX9 DCF/Base 1.4.0. Doc Composition Facility (Script) X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5748-XXE DLF 1.3.0 Document Library Facility X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5752-VS2 ICKD5F MVS/370 X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5756-265 ANO 1.2.0 Automatic Network Operations/MVS X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5771-ABA Fonts 1.1.2 Sonoran Serif Fonts X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5771-ABB Fonts 1.1.2 Sonoran Sans Serif X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5771-ABC Fonts 1.1.1 PL & Specials X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5771-ADA Fonts 1.1.2. Data 1 X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5771-ADT Fonts 1.1.0 Math & Science X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5796-PPN Dataset Fsm 1.2.0 Dataset and Free Space Manager X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5798-DQD Cache/Reporter 1.1.4 Cache RMF Reporter X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5798-DWR 3 Of 9 Barcode For 3800/20-III Apa Mode 1.1.0 X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5798-PXJ DSL Dynamic Symulation Language X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5798-RYA CDEP 2.1.0 Classified Data Erasure Program X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5799-AXX GASP 1.3.9 3277 Graphics Attachment Support X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5799-EPB NCIMM 1.1 Network Carrier Interconnect Mgt Agent X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5799-EPD NCIMA 1.1 Network Carrier Interconnect Mgt Manager X
- ------------------------------------------------------------------------------------------------------------------------------------
Macro 4, Inc. MACRO4 DUMPMASTER Dumpmaster/MVS Batch/CICS X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Programart STROBE Perf Measurement Includes COBOL, IDMS, CICS, DB2 X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Softworks, Inc. CATALOG SOLUTION Backup, Recovery & Integrity of File Sys Catalogs X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Teubner & Associates, Inc. A-NET A-Net Software/OS-A X
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Schedule 1
TTS Services
DOS Based Systems:
- ------------------
C60LAN01 C60LAN02
C60NOV01 Inventory Mgt.
NNS045 Human Resources
Trades A36 Master
A37 Slave NNS014 PC Any Where
NNS037 PC Any Where NNS003 FOCUS
Database Server
<TABLE>
<CAPTION>
DISTRIBUTED SYSTEMS SUPPORTED BY TECHNICAL SUPPORT
--------------------------------------------------
- -----------------------------------------------------------------------------------------------
PLATFORM OPERATING MODEL NUMBER OF DISKS DEPARTMENT
SYSTEM CLIENTS SPACE SUPPORTED
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SGIA/SGIB IRIX Challenge L 200 70 GB Engineering
- ------------------------------------------------------------------------------------------------
SGID IRIX Indy 40 4 GB NNS Internet
- ------------------------------------------------------------------------------------------------
NNSOSS IRIX Indy 2 1 GB Double Eagle
- ------------------------------------------------------------------------------------------------
SUN SUN O/S Sparc Station 14 20 GB All Plotting
- ------------------------------------------------------------------------------------------------
AIXC AIX RS 6000 64 30 GB Vivid
- ------------------------------------------------------------------------------------------------
ULTD Ultrix DEC 5500 4 30 GB C60
Development
(T & A)
- ------------------------------------------------------------------------------------------------
VAXE VMS VAX 4300 3 30 GB C60
Development
RADCON
- ------------------------------------------------------------------------------------------------
VAXB/VAXC VMS VAX 4300 11 20 GB Sheet Metal
- ------------------------------------------------------------------------------------------------
VAXD VMS VAX 3100 1 GB Automated
Steel
Fabrication
- ------------------------------------------------------------------------------------------------
Alpha/Beta VMS VAX 4200 2 10 GB RADCON
- ------------------------------------------------------------------------------------------------
VAXI VMS VAXStation 5 GB RADCON
Imaging
- ------------------------------------------------------------------------------------------------
VAXM VMS VAXStation 2 GB Facilities
- ------------------------------------------------------------------------------------------------
DECA/B VMS Alpha 34 30 GB Facilities
- ------------------------------------------------------------------------------------------------
</TABLE>
Page 22
<PAGE>
<TABLE>
<CAPTION>
Schedule 1
TTS Services
Exhibit C
NNS Licensed Software
---------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Vendor Name Model Description NNS-A NNS-C NNS-D NNS-E
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BGS Systems BEST/1-DATACENTER Workload Modeling Tool X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
BGS Systems BEST/1-VISUALIZER Best/1-Visualizer X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
BGS Systems CAPTURE/DATACENTER Capture/Datacenter X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Boole And Babbage, Inc. BGT-DASD Budget Dasd (BB1 Bought
Empact) X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Bruning Computer Graphics GPR 5 Plotting Software X
- ------------------------------------------------------------------------------------------------------------------------------------
Bruning Computer Graphics GPR 50 Plotting Software X
- ------------------------------------------------------------------------------------------------------------------------------------
Bruning Computer Graphics ZMD-PLOT Zeta GDDM Services X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Cincom Systems, Inc. SUPRA V.1 Database Manager X
- ------------------------------------------------------------------------------------------------------------------------------------
Computational Mechanics LINEAR Beasy Linear X
- ------------------------------------------------------------------------------------------------------------------------------------
Computational Mechanics PROC Beasy Pre & Post Processor X
- ------------------------------------------------------------------------------------------------------------------------------------
Computational Mechanics SUPERTAB Beasy Supertab Interface X
- ------------------------------------------------------------------------------------------------------------------------------------
Data Base Architects, Inc. OL-HELP On-Line Help X
- ------------------------------------------------------------------------------------------------------------------------------------
Data Based Development Systems, Inc. DBA-RPTS IDMS DB Analyzer Reports X X
- ------------------------------------------------------------------------------------------------------------------------------------
Dun & Bradstreet Software Services FIX ASSET Fixed Assets Accounting X
- ------------------------------------------------------------------------------------------------------------------------------------
Dun & Bradstreet Software Services UE RPTG Use W/MSA & Non-MSA Sys X
- ------------------------------------------------------------------------------------------------------------------------------------
Erisco CLAIMFACT Claimfacts X
- ------------------------------------------------------------------------------------------------------------------------------------
Galileo-Travelmaster (Formerly Covia) TRVL-MSTR Travel Master X
- ------------------------------------------------------------------------------------------------------------------------------------
Generative Technology (formerly Precision Nesting) GEOMETRIC Geometric Interface X
- ------------------------------------------------------------------------------------------------------------------------------------
Generative Technology (formerly Precision Nesting) MEGANEST Automatic Nesting Program X
- ------------------------------------------------------------------------------------------------------------------------------------
Innovation Data Processing, Inc. ABR Automatic Backup Recovery X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Innovation Data Processing, Inc. COMPAKTOR DASD Volume Compactor X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Innovation Data Processing, Inc. FATAR Fast Analysis Tape Recovery X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Innovation Data Processing, Inc. FATS Fast Analysis Tape Surfaces X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Innovation Data Processing, Inc. FDR File Dump and Restore X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Innovation Data Processing, Inc. IAM Innovation Access Method X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Integral Systems, Inc. CSP/DB2 Payroll/Personnel Mgmnt X
- ------------------------------------------------------------------------------------------------------------------------------------
Interlink Computer Sciences DATASTORE TCP/IP-80 Datastore TCP/IP
Maintenance - Model 80 X
- ------------------------------------------------------------------------------------------------------------------------------------
Interlink Computer Sciences DATASTORE/VS2 VMS Datastore VS2 VMS Site
License X
- ------------------------------------------------------------------------------------------------------------------------------------
Interlink Computer Sciences NETWORK CNTRLR 3722 DECnet Network Controller
Maintenance X
- ------------------------------------------------------------------------------------------------------------------------------------
Interlink Computer Sciences NETWORK CNTRLR 3752 Network Controller
Maintenance - 2/2 X
- ------------------------------------------------------------------------------------------------------------------------------------
Interlink Computer Sciences NETWORK CNTRLR 3762 FDDI Network Controller X X
Maintenance
- ------------------------------------------------------------------------------------------------------------------------------------
Interlink Computer Sciences SNS/NFS-60 SNS/NFS Maintenance -
Model 60 X
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Schedule 1
TTS Services
Exhibit C
NNS Licensed Software
---------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Vendor Name Model Description NNS-A NNB-C NNS-D NNS-E
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interlink Computer Sciences SNS/NFS-80 SNS/NFS Maintenance - Model 80 X
- ------------------------------------------------------------------------------------------------------------------------------------
Interlink Computer Sciences SNS/TCPACCESS-60 SNS/TCPaccess Maintenance - Model 60 X
- ------------------------------------------------------------------------------------------------------------------------------------
Interlink Computer Sciences SNS/TCPACCESS-80 SNS/TCPaccess Maintenance - Model 80 X
- ------------------------------------------------------------------------------------------------------------------------------------
Intersolv, Inc. (formerly Sage Software, Inc.) APS 20 Seats Of Aps X
- ------------------------------------------------------------------------------------------------------------------------------------
Laderman Associates ADSO Migration Utility X
- ------------------------------------------------------------------------------------------------------------------------------------
Laderman Associates ADSO/XREF ADSO XREF Utility X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Laderman Associates LADERMAN UTILITIES Laderman Utilities X X
- ------------------------------------------------------------------------------------------------------------------------------------
Lockheed Missiles Space Corporation BOSOR4 Structural Analysis S/W X
- ------------------------------------------------------------------------------------------------------------------------------------
Lockheed Missiles Space Corporation BOSOR5 Structural Analysis S/W X
- ------------------------------------------------------------------------------------------------------------------------------------
Lucas Management ARTEMIS Artemis Project Management
(Formerly Lucas) X
- ------------------------------------------------------------------------------------------------------------------------------------
Marcon & Associates, Inc. TOSRT TSO On-Line Sorce (Trak)
(Formerly The Bridge) X
- ------------------------------------------------------------------------------------------------------------------------------------
Marcon & Associates, Inc. TRAK Traking System (Formerly The Bridge) X
- ------------------------------------------------------------------------------------------------------------------------------------
Marcon & Associates, Inc. TSO TSO Option (TRAK) (Formerly The Bridge) X
- ------------------------------------------------------------------------------------------------------------------------------------
Martin Marietta Data Systems EXIT Martin Marietta X
- ------------------------------------------------------------------------------------------------------------------------------------
Mazda Computer Corporation CHANGE ACTION Change Action X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Merrill Consultants MXG Site License X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Mobius Management Systems, Inc. JCLWTR Infopac-JCL Writer X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Pace Applied Technology, Inc. KOM/DAMS Direct Access Management System/OS-A X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Pace Applied Technology, Inc. KOM/DAS Data Center Accounting System X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Pace Applied Technology, Inc. KOM/DIS Data Inquiry System/OS-A X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Pace Applied Technology, Inc. KOM/DCI CA-IDMS Changing Interface X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Pace Applied Technology, Inc. KOM/OLC Online Costing/OS-A X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Pitney Bowes BARCODE EXPRESS Barcode Express X
- ------------------------------------------------------------------------------------------------------------------------------------
Pitney Bowes CICS ON-LINE, WINDOWS CICS ON-LINE, WINDOWS X
- ------------------------------------------------------------------------------------------------------------------------------------
Pitney Bowes FINALIST NNS Employee Address Database X
- ------------------------------------------------------------------------------------------------------------------------------------
SAS Institute SAS/ACCESS/DB2 Access DB2 Facility X X
- ------------------------------------------------------------------------------------------------------------------------------------
SAS Institute SAS/AF Application Facility X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
SAS Institute SAS/ASSIST Assist Facility X X X
- ------------------------------------------------------------------------------------------------------------------------------------
SAS Institute SAS/BASE Core Product X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
SAS Institute SAS/C C Language Complier X
- ------------------------------------------------------------------------------------------------------------------------------------
SAS Institute SAS/CALC Calculations Facility X
- ------------------------------------------------------------------------------------------------------------------------------------
SAS Institute SAS/CBT Computer Based Training Facility X
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Schedule 1
TTS Services
Exhibit C
NNS Licensed Software
---------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Vendor Name Model Description NNS-A NNS-C NNS-D NNS-E
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SAS Institute SAS/CONNECT Connect Facility x x
- ------------------------------------------------------------------------------------------------------------------------------------
SAS Institute SAS/ETS Econometrics & Time Series Facility x
- ------------------------------------------------------------------------------------------------------------------------------------
SAS Institute SAS/FSP Full Screen Processing Facility x x x x
- ------------------------------------------------------------------------------------------------------------------------------------
SAS Institute SAS/GRAPH Graphics Facility x x x x
- ------------------------------------------------------------------------------------------------------------------------------------
SAS Institute SAS/OR Operations Research Facility x
- ------------------------------------------------------------------------------------------------------------------------------------
SAS Institute SAS/QC Quality Control Facility x
- ------------------------------------------------------------------------------------------------------------------------------------
SAS Institute SAS/SHARE Multi-User File Sharing Facility x x
- ------------------------------------------------------------------------------------------------------------------------------------
SAS Institute SAS/STAT Statistics Facility x
- ------------------------------------------------------------------------------------------------------------------------------------
Software Engineering Of America PDSFAST PDS fast/Driver x x x x
- ------------------------------------------------------------------------------------------------------------------------------------
Sterling Software FTS-MVS File Transfer System-MVS x
- ------------------------------------------------------------------------------------------------------------------------------------
Sterling Software NETMASTER FOUNDATION File Transfer Facility x
- ------------------------------------------------------------------------------------------------------------------------------------
Stone & Webster Engineering STONERULE Program #Srv-015 x
- ------------------------------------------------------------------------------------------------------------------------------------
Structural Dynamics Research I-DEAS I-Deas Complete x
- ------------------------------------------------------------------------------------------------------------------------------------
Tact - The A Consulting Team, Inc TEDIT Tedit Software x x x x
- ------------------------------------------------------------------------------------------------------------------------------------
Technetron Unlimited, Inc. DB/DYNAM IDMS Dynamic File Allocate/Deallocate x x x
- ------------------------------------------------------------------------------------------------------------------------------------
Tone Software Corporation TAM TSO Access Manager x x x x
- ------------------------------------------------------------------------------------------------------------------------------------
Tone Software Corporation TS-PRINT TS-Pmt License 9/96 9/96 9/96 9/96
- ------------------------------------------------------------------------------------------------------------------------------------
Trinzic Corporation ADS/DB2 Development System/HPO x
- ------------------------------------------------------------------------------------------------------------------------------------
Trinzic Corporation ADS/MVS Development System/MVS x
- ------------------------------------------------------------------------------------------------------------------------------------
Trinzic Corporation MVS/HPO Development System/HPO x
- ------------------------------------------------------------------------------------------------------------------------------------
Unitech Systems, Inc. U/ACR-S Automated Control Reporting x
- ------------------------------------------------------------------------------------------------------------------------------------
Visual Numerics, Inc. IMSL LIC Class II Primary License x
- ------------------------------------------------------------------------------------------------------------------------------------
Visual Numerics, Inc. MULTIPLE 2Nd Multiple Use Pd-Up x
- ------------------------------------------------------------------------------------------------------------------------------------
Visual Numerics, Inc. MUTI EIAT EIAT Multiple Use Pd-Up x
- ------------------------------------------------------------------------------------------------------------------------------------
Vmark Lab, Inc. (Formerly APX) XCHNGMVS XMS And VTAM Connectivity Access Control x x x x
- ------------------------------------------------------------------------------------------------------------------------------------
Vmark Labs, Inc. (Formerly APX) XPLCICS Send/Receive Interface CICS Gate x x x x
- ------------------------------------------------------------------------------------------------------------------------------------
Vmark Labs, Inc. (Formerly APX) XPLIDMS Send/Receive Interface Dynamic Transactions x x x x
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Schedule 1
TTS Services 8/21/96
Exhibit D
TTS Licensed Software
---------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Vendor Name Model Description NNS-A NNS-C NNS-D NNS-E
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Allen Systems Group, Inc. FAST/ACCESS DBMS Tool X X
- ------------------------------------------------------------------------------------------------------------------------------------
Allen Systems Group, Inc. JCLPREP JCL Checking Facility (Was Altare Owned) X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Allen Systems Group, Inc. PRE-ALERT MVS/IDMS Pre Alert (Was Shopmon) X
- ------------------------------------------------------------------------------------------------------------------------------------
BMC Software, Inc. DB2 CATALOG MANAGER Mastermind Component X
- ------------------------------------------------------------------------------------------------------------------------------------
BMC Software, Inc. DB2 MON DB2 Activity Monitor X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Candle CL/SUPER Super-XSM Gateway/XA/ESA X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Candle OMEG-CICS Omegamon Pac For CICS X X
- ------------------------------------------------------------------------------------------------------------------------------------
Candle OMEG-MVS Omegamon Pac For MVS X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Candle OMEG-VTAM Omegamon For VTAM X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Candle OMEGAVIEW Omegaview X X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International ADS BATCH ADS Batch X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International ADS/ONLINE-MVS ADS Online X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International ASTEX DASD Monitor (Formerly Legent) X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International CA90S SERVICES MVS CA Provided - Not A Product X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International CAS ACCTS PAYABLE Accounts Payable X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International CAS BILL OF MATERIAL Bill of Material X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International CAS INVENTORY CONTRL Inventory Control X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International CAS MASTR PROD SCHED Master Product Scheduling X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International CAS MATERIAL REQ PLN Material Requirements Planning X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International CAS PURCHASING REP Purchasing Package X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International CAS SHOP FLOOR CNTRL Shop Floor Control X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International CMA CONN CMA Connection M-D Plot (Formely Legent) X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International EASE/AU Ease/Author (Formerly Legent) X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International EASE/IN Ease/Instructor (Formerly Legent) X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International EASYTRIEVE PLUS Easytrieve Plus MVS X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International EASYTRIEVE PLUS DL/1 Easytrieve Plus DL/1 X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International ELEVEN Job Rerun/Restart/Tracking X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Schedule 1
TTS Services
Exhibit D 8/21/96
TTS Licensed Software
---------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Vendor Name Model Description NNS-A NNS-C NNS-D NNS-E
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Computer Associates International ONE Tape Management System X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International ONLINE QUERY-MVS Online Query (OLQ) X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International OPW/MSF Multi-System Comm Facility (Formerly
Legent) X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International OPS/MVS OPS/MVS JESS 2 Base Product (Formerly
Legent) X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International OPS/OCF Outboard Console Facility (Formerly
Legent) X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International PHOENIX Phoenix (Formerly Legent) X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International PROAUDIT Auditor For DB2 Software X X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International PROSECURE Secure For DB2 Software X X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International SEVEN Job Scheduler X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International SEVEN RPT Report Distribution X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International STORMATE MICS SMS Analyzer (Formerly Legent) X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International TRANSIT Data File Translator X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International TSO/MON TSO Monitor (Formerly Legent) X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International XCOM 6.2 Batch File Transfer S/W (Formerly
Legent) X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Hybrid Systems Limited, Inc. DBSTATS Database Statistics X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Information Builders, Inc. FOCUS/CMT COBOL Master Translator X
- ------------------------------------------------------------------------------------------------------------------------------------
Information Builders, Inc. FOCUS/DB2 DB2 (Data Mgmt) Read/Write Interface X
- ------------------------------------------------------------------------------------------------------------------------------------
Information Builders, Inc. FOCUS/EMR Extended Matrix Reporter X
- ------------------------------------------------------------------------------------------------------------------------------------
Information Builders, Inc. FOCUS/GPH Graphics Subsystem X
- ------------------------------------------------------------------------------------------------------------------------------------
Information Builders, Inc. FOCUS/DMS IDMS Interface X
- ------------------------------------------------------------------------------------------------------------------------------------
Information Builders, Inc. FOCUS/MSO Multi-Session Option X
- ------------------------------------------------------------------------------------------------------------------------------------
Information Builders, Inc. FOCUS/PDE PC Data Export X
- ------------------------------------------------------------------------------------------------------------------------------------
Information Builders, Inc. FOCUS/TT Tabletalk/Filetalk/Modify X
- ------------------------------------------------------------------------------------------------------------------------------------
Information Builders, Inc. FOCUS/VSAM VSAM Read/Write Interface X
- ------------------------------------------------------------------------------------------------------------------------------------
Information Builders, Inc. FOCUS/WTR Report Writer/Dialog Manager X
- ------------------------------------------------------------------------------------------------------------------------------------
Insync Marketing, Inc. BATCH MVS Insync Master License X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Insync Marketing, Inc DB2 Insync Master License X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Schedule 1
TTS Services 8/21/96
Exhibit D
TTS Licensed Software
---------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Vendor Name Model Description NNS-A NNS-C NNS-D NNS-E
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Insync Marketing, Inc. IMS Insync Master License X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5635-001 Cadam/Base 3.2.0 X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5635-003 Cadam/Pipe 3.2.0 X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5648-001 IGES 3.1.0 Initial Graphics Exchange
Standard X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5648-063 ACF/NCP V7 X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5655-007 Netview MVS/ESA V3 X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5655-018 CICS/ESA 4.1.1 Customer Information
Control System 12/96 12/96
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5655-041 ACF/SSP MVS V4 X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5655-042 ISPF 4.1.0 X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5655-068 MVS/ESA/ 5.1.0 MVS Enterprise
Systems Architecture X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5655-084 RMF/ESA 5.1.0 Feature X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5655-257 1.16.0 Device Support Facility for
MVS/XA (ICKDSF) X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5655-HAL TCP/IP MVS 3.1.0 X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5658-260 3.5.0 Environmental Recording Edit
& Print(EREP) X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5665-307 Print Management Facility (PMF) X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5665-310 Report Management & Distribution
System (RMDS) X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5665-311 3270-PC File Transfer Program X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5665-403 CICS/MVS 12/96 12/96 12/96 12/96
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5665-488 System Display & Search Facility (SDSF) X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5665-948 Basic/MVS X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5668-767 Pascal Complier & Library 1.2.0 X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5668-806 VS Fortran Compiler Library
& Debug 2.6.0 X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5668-812 21.2 GDDM Presentation Graphics
Feature (GDDM/PGF) X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5668-854 ACF/NCP For 3725 4.3.1 Network
Control Program X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5668-949 1.8.1 System Modification Program
Extended (SMP/E) X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5668-978 GAM/SP 1.3.1 Graphics Access Method X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5685-025 TSO/E 2.4.0 Extentions For MVS X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Schedule 1 8/21/96
TTS Services
Exhibit D
TTS Licensed Software
---------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Vendor Name Model Description NNS-A NNS-C NNS-D NNS-E
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
International Business Machine 5685-083 CICS/ESA 3.3.0 Customer Information Control System X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5685-DB2 3.1.0 Database 2 MVS X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5688-015 Publishing Systems Bookmaster 1.4.0 X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5688-093 GDDM/Graphics 2.3.0 Programming Interface X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5688-113 GDDM-OS2/Link 1.0 (GDDM) X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5688-169 GDGF 2.1.0 Graphical Display Query Facility X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5688-190 PPFA/370 1.1.0 Page Printer Formating Aid X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5688-191 OGL/370 1.1.0 Overlay Generation Language X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5688-197 COBOL/370 1.1.0 Ad/Cycle X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5688-198 Lang/370 1.3.0 Language Environment X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5688-208 CSP/370Rs 4.1.0 Cross Sys Product Runtime Services X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5688-216 C/370 Ad/Cycle Compiler 2.1.0 X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5688-218 CSP/370Ad 4.1.0 Cross System Product Ad X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5688-235 Ad/Cycle Pt/t Compiler 1.2.0 X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5695-039 RACF 2.1.0 Resource Access Control Facility X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5695-040 PSF 2.2.0 Print Service Facility Base Code X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5695-046 Book Manager/Read 1.2.0 MVS X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5695-100 MVS/Ditto 2.1.0 X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5695-117 VTAM 4.2.0 Virtual Telecommunications Access Methd X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5695-167 GDDM 3.1.0 Graphical Data Display Manager X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5695-171 Information Management 5.1.0 X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5695-DB2 DB2 4.1.0 X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5695-DF1 DFSMS/MVS 1.2.0 Data Facility Systems Managed Stor X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5696-234 High Level Assembler MVS, VM, VS 1.1.0 X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5706-254 QMF/MVS 3.1.1 Query Management Facility X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5713-ADX Cedam Drawing Compare X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5719-EMI Series/1 Input/Output Executive X X X
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Schedule 1 8/21/96
TTS Services
Exhibit D
TTS Licensed Software
---------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Vendor Name Model Description NNS-A NNS-C NNS-D NNS-E
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
International Business Machine 5734-UT1 TSO/Utilities 1.1.4 TSO Data Utilities X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5735-XXB EP 1.9.0 270X Emulation Program On 3705/20/25 X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5740-CB1 COBOL/VS 1.2.4 Compiler And Library X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5740-SM1 DF/Sort 1.12.0 Data Facility Sort/Merge X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5748-AP1 VS/APL 1.4.0 Application Programming Language X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5748-XX9 DCF/Base 1.4.0 Doc Composition Facility (Script) X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5748-XXE DLF 1.3.0 Document Library Facility X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5752-VS2 ICKD5F MVS/370 X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5756-265 ANO 1.2.0 Automatic Network Operations/MVS X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5771-ABA Fonts 1.1.2 Sonoran Serif Fonts X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5771-ABB Fonts 1.1.2 Sonoran Sans Serif X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5771-ABC Fonts 1.1.1 Pl & Specials X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5771-ADA Fonts 1.1.2 Data 1 X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5771-ADT Fonts 1.1.0 Math & Science X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5796-PPN Dataset Fsm 1.2.0 Dataset And Free Space Manager X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5798-DQD Cache/Reporter 1.1.4 Cache RMF Reporter X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5798-DWR 3 Of 9 Barcode For 3800/20-iii Apa Mode 1.1.0 X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5798-PXJ DSL Dynamic Symulation Language X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5798-RYA CDEP 2.1.0 Classified Data Erasure Program X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5799-AXX GASP 1.3.9 3277 Graphics Attachment Support X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5799-EPB NCIMM 1.1 Network Carrier Interconnect Mgt Agent X
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machine 5799-EPD NCIMA 1.1 Network Carrier Interconnect Mgt Manager X
- ------------------------------------------------------------------------------------------------------------------------------------
Macro 4, Inc. MACRO4
DUMPMASTER Dumpmaster/MVS Batch/CICS X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Programart STROBE Perf Measurment includes COBOL, IDMS, CICS, DB2 X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Softworks, Inc. CATALOG
SOLUTION Backup, Recovery & Integrity Of File Sys Catalogs X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Teubner & Associates, Inc. A-NET A-Net Software / OS-A X
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Schedule I
TTS Services 8/21/96
Exhibit D
TTS Licensed Software
---------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Vendor Name Model Description NNS-A NNS-C NNS-D NNS-E
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Computer Associates International ENDEVOR Endevor CI/MVS (Formerly Legent) x x x x
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International ENDEVOR/CSP Endevor/CSP x x x x
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International ENDEVOR/MVS Endevor/MVS (Formerly Legent) x x x x
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International ESSI Extended Security System (Formerly Legent) x x x x
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International IDMS DATA DICTIONARY Intergrated Data Dictionary (IDD) IBM x x x x
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International IDMS DBA TOOL KIT DBA Tool Kit x x
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International IDMS DEVELOPER TOOL Developer Tool Kit x x
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International IDMS DICTIONARY LOAD Dictionary Loader x x x x
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International IDMS DISTRIBUTED DB Distributive Database x x x x
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International IDMS PERF MONITOR Performance Monitor x
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International IDMS SQL ENTEND ARCH IDMS SQL Extend Architecture x x x x
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International IDMS-MVS IDMS-MVS x x x x
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International IDMS/CULPRIT-MVS IDMS/Culprit/Library Of Routines x x x x
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International IDMS/CV-MVS IDMS Central Version x x x x
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International IDMS/DC-MVS DC x x x x
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International INTERTEST/BATCH Intertest/Batch x x
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International INTERTEST/CICS Intertest/CICS x x
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International LIBRARY OF ROUTINES Library Of Routines x x x x
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International MASTER LICENSE Computer Associates & Legent Agreement x x x x
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International MICS BASE MICS Base (Formerly Legent) x
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International MICS CICS CICS (Formerly Legent) x x x
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International MICS DASD DASD Space Analyzer (Formerly Legent) x
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International MICS DB2 DB2 Analyzer (Formerly Legent) x x x
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International MICS IDMS IDMS Analyzer (Formerly Legent) x
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International MICS PERF Performance Management (Formerly Legent) x x x
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International MICS SNA SNA Network Analyzer (Formerly Legent) x x x x
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Associates International MIM Multi-Image Integrity Tape Share x x x x
(Formerly Legent)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
