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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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
(STATE OR OTHER JURISDICTION OF 76-0515284
INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
1275 KING STREET GREENWICH, 06831
CONNECTICUT (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
(203) 863-1000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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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
</TABLE>
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
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NEW TENNECO INC.
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT
AND ITEMS OF FORM 10
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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
Officers................... Management and Liability and
Indemnification of Directors and Officers.
6. Executive Compensation...... Management.
7. Certain Relationships and
Related Transactions....... Summary of Certain Information; The
Industrial Distribution; and Management.
8. Legal Proceedings........... Business and Properties.
9. Market Price of and
Dividends on the
Registrant's Common Equity
and Related Stockholder
Matters.................... Summary of Certain Information; The
Industrial Distribution; and Description of
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
and Officers............... Liability and Indemnification of Directors
and Officers.
13. Financial Statements and
Supplementary Data......... Summary of Certain Information; Unaudited
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
Exhibits................... Combined Selected Financial Data and
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 Company has applied to
the New York Stock Exchange for the listing of the Company Common Stock upon
notice of issuance and expects to receive approval of such listing prior to
the Distributions. 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 30.
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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 , 1996.
<PAGE>
TABLE OF CONTENTS
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PAGE
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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........................ 29
RISK FACTORS.............................................................. 30
No Current Public Market for Company Common Stock....................... 30
Uncertainty Regarding Trading Prices of Stock Following the Transaction. 30
Uncertainty Regarding Future Dividends.................................. 30
Potential Federal Income Tax Liabilities................................ 30
Certain Antitakeover Features........................................... 31
Potential Liabilities Due to Fraudulent Transfer Considerations and Le-
gal Dividend Requirements.............................................. 31
THE COMPANY............................................................... 33
Introduction............................................................ 33
Business Strategy....................................................... 33
FINANCING................................................................. 36
CAPITALIZATION............................................................ 37
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS......................... 38
COMBINED SELECTED FINANCIAL DATA.......................................... 44
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................... 45
Proposed Merger with El Paso............................................ 45
Results of Operations for the Six Months Ended June 30, 1996 and 1995... 46
Results of Operations for the Years 1995, 1994 and 1993................. 52
BUSINESS AND PROPERTIES................................................... 60
Tenneco Automotive...................................................... 60
Tenneco Packaging....................................................... 68
Tenneco Business Services............................................... 73
Properties.............................................................. 74
Environmental Matters................................................... 75
LEGAL PROCEEDINGS......................................................... 76
MANAGEMENT................................................................ 77
Board of Directors...................................................... 77
Executive Officers...................................................... 79
Stock Ownership of Management........................................... 80
</TABLE>
i
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PAGE
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Committees of the Board of Directors.................................... 81
Executive Compensation.................................................. 81
Compensation of Directors............................................... 87
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements........................................................... 87
Transactions with Management and Others................................. 88
Compensation Committee Interlocks and Insider Participation............. 89
Benefit Plans Following the Industrial Distribution..................... 89
DESCRIPTION OF CAPITAL STOCK.............................................. 90
Authorized Capital Stock................................................ 90
Company Common Stock.................................................... 90
Company Preferred Stock................................................. 91
ANTITAKEOVER EFFECTS OF CERTAIN PROVISIONS................................ 91
Classified Board of Directors........................................... 91
Number of Directors; Removal; Filling Vacancies......................... 92
Special Meetings........................................................ 92
Advance Notice Provisions for Stockholder Nominations and Stockholder
Proposals.............................................................. 92
Record Date Procedure for Stockholder Action by Written Consent......... 93
Stockholders Meetings................................................... 94
Company Preferred Stock................................................. 94
Business Combinations................................................... 94
Amendment of Certain Provisions of the Certificate and By-laws.......... 95
Rights.................................................................. 95
Antitakeover Legislation................................................ 97
Comparison with Rights of Holders of Tenneco Common Stock............... 98
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS................... 101
Elimination of Liability of Directors................................... 101
Indemnification of Directors and Officers............................... 102
INDEX TO 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(e)
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)
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 Based on 170,644,461 shares of Tenneco Common Stock
Distributed............. outstanding on July 31, 1996, 170,644,461 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.
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,
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") and approval by the stockholders of
Tenneco of the Transaction. The Distributions and the
8
<PAGE>
Merger are part of a unified transaction and will not
be effected separately (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). 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. Tenneco has requested a ruling from the IRS
as to the foregoing, as well 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. 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 Company has applied to the New York Stock
9
<PAGE>
Exchange for listing of the Company Common Stock upon
notice of issuance and the Company expects to receive
approval of such listing prior to the Distributions.
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 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") (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 on the Newport News pro forma
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balance sheet attached as an exhibit to the Distribution Agreement (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 Transaction.
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 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 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 subsequently incurred or accrued liabilities 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.
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.
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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 and
(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 less (ii) the
amount, calculated as of the Merger Effective Time, of any rate refunds,
including interest, which become 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) any 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 and (8) unpaid dividends on Tenneco Common Stock and Tenneco Preferred
Stock (as defined herein) which have a record date before 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 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.
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Pursuant to the Cash Realignment, as of the Merger Effective Time Tenneco
will be allocated $25 million 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 dividend 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 dividend 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.
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."
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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.
Prior to the Distributions Tenneco, the Company and Newport News will enter
into the Distribution Agreement which governs certain aspects of their
relationships both prior to and following the Distributions. In addition, prior
to the Distributions, Tenneco, the Company and/or Newport News (and their
appropriate subsidiaries) will 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.
In addition, the Distribution Agreement provides for cross-indemnities such
that (i) Tenneco must indemnify the Company and Newport News (and their
respective subsidiaries, their directors, officers, agents and employees, 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, their
directors, officers, agents and employees, 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, their directors, officers, agents
and employees, 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.
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, 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
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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 to be entered
into by Tenneco, the Company and/or Newport News (and, in certain
circumstances, their appropriate subsidiaries) prior to consummation of the
Distributions, as required under the terms of the Distribution Agreement. 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 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. 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 such 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
Consummation of the Industrial Distribution is conditioned upon the receipt
of the IRS Ruling Letter reasonably acceptable to Tenneco and El Paso, to the
effect 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(a)
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.
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 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 stockholders of the distributing corporation own
more than 50% of the distributing corporation and controlled corporations at
all times during
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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.
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 Company has
applied to the New York Stock Exchange to list Company Common Stock upon notice
of issuance and the Company expects to receive approval of such listing prior
to the Distributions. 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
The Industrial Distribution is conditioned upon the receipt of a favorable
ruling from the IRS to the effect, among other things, that the Industrial
Distribution will qualify as a tax-free distribution under Section 355 of the
Code. 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 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
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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.
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."
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
31
<PAGE>
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 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."
32
<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.
33
<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.
34
<PAGE>
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.
35
<PAGE>
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."
36
<PAGE>
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 is
exchanged for Company Public Debt pursuant to the Debt Exchange Offers.
37
<PAGE>
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.
38
<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.
39
<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
===========
EBITDA(1)............... $ 551 $ 603
======= ===========
</TABLE>
- --------
* Certain amounts have been reclassified to conform to the Company's
classification.
See the accompanying Notes to Unaudited Pro Forma Combined Financial
Statements.
40
<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
===========
EBITDA(1)............... $ 845 $ 1,023
====== ===========
</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>
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 is exchanged for Company Public Debt pursuant to the
Debt Exchange Offers.
(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.
(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.
42
<PAGE>
(l) 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
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.
43
<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.
44
<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 and 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. 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."
45
<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.
46
<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.
47
<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
48
<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>
49
<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
50
<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
51
<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>
52
<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
53
<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.
54
<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.
55
<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>
56
<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
57
<PAGE>
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).
58
<PAGE>
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.
59
<PAGE>
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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<PAGE>
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:
65
<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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<PAGE>
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 it product and processes throughout its
international operations, improves its information technology, increases
employee training, invests in more efficient machinery and enhances the global
coordination of purchasing, costing and quoting procedures.
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<PAGE>
Other
As of July 1, 1996, Tenneco Automotive had approximately 21,000 employees.
Tenneco Automotive believes that its relations with its employees are good.
The principal raw material utilized by Tenneco Automotive is steel. Tenneco
Automotive believes that an adequate supply of steel can presently be obtained
from a number of different domestic and foreign suppliers.
Tenneco Automotive holds a number of domestic and foreign patents and
trademarks relating to its products and businesses. It manufactures and
distributes its products primarily under the names Walker(R) and Monroe(R),
which are well recognized in the marketplace. The patents, trademarks and other
intellectual property owned by Tenneco Automotive are important in the
manufacturing and distribution of its products.
The operations of Tenneco Automotive face competition from other
manufacturers of automotive equipment, including affiliates of certain of its
customers, in both the OE market and the aftermarket.
Tenneco Automotive is headquartered in Deerfield, Illinois.
TENNECO PACKAGING
Tenneco Packaging is among the world's leading and most diversified packaging
companies, manufacturing packaging products for consumer, institutional and
industrial markets. The paperboard business group manufactures corrugated
containers, folding cartons and containerboard, has a joint venture in recycled
paperboard, and offers high value-added products such as enhanced graphics
packaging and displays and kraft honeycomb products. Its specialty products
group produces disposable aluminum, foam and clear plastic food containers,
molded fiber and pressed paperboard products, as well as polyethylene bags and
industrial stretch wrap. Tenneco Packaging's consumer products include such
recognized brand names as Hefty(R), Baggies(R) and E-Z Foil(R).
Overview of Packaging Industry
The global packaging market is estimated at nearly $360 billion with about
one quarter in North America, slightly less in Europe and the balance spread
throughout the rest of the world. Tenneco Packaging now ranks as the fourth
largest packaging manufacturer in North America by sales and the tenth largest
in the world. Packaging remains one of the most fragmented major industries,
with the top five companies comprising only a 10% worldwide market share.
Within packaging material categories, Tenneco Packaging participates in the
three growing segments of paper, plastic and aluminum, with substantial or
leading market shares in virtually all of its product segments.
Business Strategy
Tenneco Packaging has embarked upon an aggressive growth plan to be the
leading specialty packaging company offering a broad line of packaging products
to provide customers with the best packaging solutions. In the past two years,
Tenneco Packaging has doubled its size to nearly $4 billion in annualized
revenues through internal growth in its base businesses, productivity gains and
12 acquisitions that have been completed since early 1995.
As a result of these redeployment activities, Tenneco Packaging has
significantly reduced its sensitivity to changes in economic cyclicality:
. Tenneco Packaging's business is now over half specialty (including the full
year impact of the Mobil Plastic acquisition and the recently announced
Amoco Foam Products purchase), which reduces exposure to business cycles.
. On the paperboard side, four acquisitions in specialty graphics and the
purchase of Hexacomb, 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.
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 paper-
board 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
packaging products................ 756 593 434 442
Molded fiber products.............. 100 191 186 183
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
NET SALES (MILLIONS)
------------------------------------
YEAR ENDED DECEMBER
SIX MONTHS 31,
ENDED ----------------------
JUNE 30, 1996 1995 1994 1993
------------- ------ ------ ------
<S> <C> <C> <C> <C>
Other........................... 16 40 35 35
------ ------ ------ ------
872 824 655 660
------ ------ ------ ------
Total Tenneco Packaging....... $1,775 $2,752 $2,184 $2,042
====== ====== ====== ======
<CAPTION>
PERCENTAGE OF NET SALES
------------------------------------
YEAR ENDED DECEMBER
SIX MONTHS 31,
ENDED ----------------------
JUNE 30, 1996 1995 1994 1993
------------- ------ ------ ------
<S> <C> <C> <C> <C>
PAPERBOARD PRODUCTS GROUP
Corrugated shipping containers
and containerboard products.... 42% 58% 56% 53%
Folding cartons and recycled
paperboard mill products....... 5 7 9 10
Paper Stock and other........... 4 5 5 5
------ ------ ------ ------
51 70 70 68
------ ------ ------ ------
SPECIALTY PRODUCTS GROUP
Disposable plastic and aluminum
packaging products............. 43% 22% 20% 22%
Molded fiber products........... 5 7 9 9
Other........................... 1 1 1 1
------ ------ ------ ------
49 30 30 32
------ ------ ------ ------
Total Tenneco Packaging....... 100% 100% 100% 100%
====== ====== ====== ======
SALES BY GEOGRAPHIC AREA(A)
United States................... 92% 91% 90% 88%
European Union.................. 5 5 6 8
Canada.......................... 1 1 1 2
Other areas..................... 2 3 3 2
------ ------ ------ ------
100% 100% 100% 100%
====== ====== ====== ======
</TABLE>
- --------
(a) Restated 1995, 1994 and 1993 to reflect countries included in European
Union as of December 31, 1995: Austria, Belgium, Denmark, Finland, France,
Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain
and Sweden.
Paperboard Products
The paperboard business group manufactures and sells corrugated containers,
folding cartons, containerboard, lumber and building products, and has a joint
venture in recycled paperboard. The group's 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.
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Sales and Marketing. Tenneco Packaging maintains a sales and marketing
organization of over 400 sales personnel. Tenneco Packaging also has four
graphics design centers with two more planned which help it meet its customers'
design and functional requirements.
New Product Development and Design. Tenneco Packaging's paperboard group is
establishing a nationwide network of new product development and creative
packaging design centers to develop and manufacture product packaging and
product display solutions to meet more sophisticated, complex customer needs.
This network includes four regional design centers, 22 primary and mid-range
graphics facilities and almost 100 sales personnel, new product development
engineers, and product graphics and design specialists. These centers offer
state-of-the-art computer and design equipment for 24-hour turnaround and
reduced product delivery times.
Manufacturing and Engineering. Tenneco Packaging has two kraft linerboard
mills and two medium mills, located in Tennessee, Georgia, Michigan and
Wisconsin, which together account for 7% of annual U.S. production, or 2.1
million tons. As of June 30, 1996, Tenneco Packaging had invested $75 million
at the Counce, Tennessee mill, which added 120,000 tons annually of capacity
and enabled the mill to meet a growing demand for lighter weight board. Each of
the mills has a strong focus on quality and is ISO 9002 certified. Two
paperstock recycling facilities provide some of the mills' recycled fiber
requirements.
Domestically, Tenneco Packaging's corrugated container network includes 64
geographically dispersed plants that manufacture approximately 7% of the total
annual U.S. corrugated shipments based on revenue, as well as seven kraft paper
honeycomb product plants, making it one of the top six integrated producers.
Tenneco Packaging also operates six folding carton plants located primarily in
the Midwest.
Tenneco Packaging has access to 1.0 million acres of timberland in the United
States through both owned and leased properties. To maximize the value of the
timber harvested, Tenneco Packaging operates four wood products operations
which produce hardwood dimensional lumber and utility poles. Further, Tenneco
Packaging is a party to a joint venture in a chip mill, as well as a wood
drying facility.
Tenneco Packaging's paperboard group operates a manufacturing and technical
support center located in Skokie, Illinois which provides engineering,
manufacturing and technical support to its corrugated operations. In addition,
it currently has a network of four design centers and a design organization
which includes more than 60 structural, graphic and package engineering
specialists for its corrugated and folding carton converting operations.
Strategic Acquisitions/Joint Ventures. As part of Tenneco Packaging's value-
added growth strategy, eight acquisitions were made during 1995 in the
Paperboard Products Group. Tenneco Packaging expanded its graphics and printing
capabilities to that of a full service supplier of point-of-purchase displays
and point-of-sale packaging by acquiring four facilities with expertise in high
impact graphics and design. The addition of Lux Packaging, in Waco, Texas; the
United Group in Los Angeles, California; Menasha Corporation's South Brunswick,
New Jersey plant; and DeLine Box in Windsor, Colorado have broadened Tenneco
Packaging's offering of products and services to include permanent point-of-
purchase displays, rotogravure preprint, litho-lamination and advanced graphics
design.
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.
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<PAGE>
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 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.
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<PAGE>
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.
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.
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<PAGE>
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.
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
74
<PAGE>
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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<PAGE>
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.
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<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.
78
<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
79
<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 July 31, 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.................. 5,398 (c)
W. Michael Blumenthal......... 3,536 (c)
M. Kathryn Eickhoff........... 3,680 (c)
Peter T. Flawn................ 3,850 (c)
Henry U. Harris, Jr........... 15,255 (c)
Belton K. Johnson............. 6,111 (c)
John B. McCoy................. 2,850 (c)
Dana G. Mead.................. 199,284 (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............. 55,185 (c)
Stacy S. Dick................. 19,292 (c)
Paul T. Stecko................ 28,137 (c)
All executive officers and di-
rectors as a group........... 684,162(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.
80
<PAGE>
(b) Includes shares that are: (i) held in trust under Tenneco's restricted
stock plans; at July 31, 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 July 31, 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 278,015 shares of Tenneco Common Stock that are subject to options
that are exercisable by all executive officers of the Company as a group,
and includes 217,020 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:
81
<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;
82
<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.
83
<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.
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.
84
<PAGE>
<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 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
85
<PAGE>
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 July 31, 1996, up to approximately 170,644,461 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 Company has applied to the New York Stock Exchange for
the listing of the Company Common Stock upon notice of issuance and the Company
expects to receive approval of such listing prior to the Distribution. 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
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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.
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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.
102
<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
December 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
period 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
depreciation shown below)......... 3,737 3,050 2,854 2,303 1,828
Engineering, research and
development expenses.............. 67 43 39 44 33
Selling, general and
administrative.................... 588 473 451 396 276
Depreciation, depletion and
amortization...................... 196 142 137 147 92
------ ------ ------ -------- --------
4,588 3,708 3,481 2,890 2,229
------ ------ ------ -------- --------
Income before interest expense,
income 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
minority 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
accounting 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
interest rate 8.8% in 1995 and
8.4 % in 1994................................................ 26 20
Current maturities............................................ (6) (5)
------ ------
61 67
------ ------
Allocated corporate debt obligations, average effective
interest 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
maturities) (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
obligation 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>
Actuarial present value
of benefits based on
service to date and
present pay levels at
September 30:
Vested benefit
obligation........... $1,793 $1,672 $ 35 $ 24 $1,828 $1,696
Non-vested benefit
obligation........... 38 31 4 2 42 33
------ ------ ------- ------- ------ ------
Accumulated benefit
obligation........... $1,831 $1,703 $ 39 $ 26 $1,870 $1,729
Additional amounts
related to projected
salary 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
projected benefit
obligation at September
30..................... $ 330 $ 202 $ (34) $ (21) $ 296 $ 181
Contributions during the
fourth quarter......... 4 14 -- -- 4 14
Unrecognized net loss
resulting from plan
experience and changes
in actuarial
assumptions............ 142 234 2 3 144 237
Unrecognized prior
service obligations
resulting from plan
amendments............. 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
liability.............. -- -- (2) (2) (2) (2)
------ ------ ------- ------- ------ ------
Prepaid (accrued)
pension 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
projected 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
geographic 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
expenses................. (61) -- -- -- -- (61)
------ ---- ------ ---- ---- ------
Income before interest
expense, 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
geographic 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
expenses................. (27) -- -- -- -- (27)
------ ---- ------ ---- ---- ------
Income before interest
expense, 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
administrative............................... 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 equipment. (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 October 30, 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 Form of Distribution Agreement 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.
10.6 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.
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.
<PAGE>
EXHIBIT 2
DISTRIBUTION AGREEMENT
AMONG
TENNECO INC.,
NEW TENNECO INC.
AND
NEWPORT NEWS SHIPBUILDING INC.
(FORMERLY KNOWN AS TENNECO INTERAMERICA INC.)
DATED AS OF
, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE I DEFINITIONS.................................................. 1
SECTION 1.01. General........................................ 1
SECTION 1.02. References..................................... 12
ARTICLE II PRE-DISTRIBUTION TRANSACTIONS; CERTAIN COVENANTS............. 13
SECTION 2.01. Corporate Restructuring Transactions........... 13
SECTION 2.02. Pre-Distribution Stock Dividends to Tenneco.... 13
SECTION 2.03. Charters and Bylaws............................ 13
SECTION 2.04. Election of Directors of Industrial Company and
Shipbuilding Company............................. 13
SECTION 2.05. Transfer and Assignment of Certain Licenses and
Permits.......................................... 14
SECTION 2.06. Transfer and Assignment of Certain Agreements.. 14
SECTION 2.07. Consents....................................... 15
SECTION 2.08. Other Transactions............................. 15
SECTION 2.09. Election of Officers........................... 15
SECTION 2.10. Registration Statements........................ 16
SECTION 2.11. State Securities Laws.......................... 16
SECTION 2.12. Listing Application............................ 16
SECTION 2.13. Certain Financial and Other Arrangements....... 16
SECTION 2.14. Director, Officer and Employee Resignations.... 17
SECTION 2.15. Transfers Not Effected Prior to the
Distributions; Transfers Deemed Effective as of
the Distribution Date............................ 17
SECTION 2.16. Ancillary Agreements........................... 18
ARTICLE III THE DISTRIBUTIONS............................................ 18
SECTION 3.01. Tenneco Action Prior to the Distributions...... 18
SECTION 3.02. The Distributions.............................. 19
SECTION 3.03. Fractional Shares.............................. 19
ARTICLE IV CONDITIONS TO THE DISTRIBUTIONS.............................. 20
SECTION 4.01. Conditions Precedent to the Distributions...... 20
SECTION 4.02. No Constraint.................................. 21
SECTION 4.03. Deferral of Distribution Date.................. 21
SECTION 4.04. Public Notice of Deferred Distribution Date.... 21
ARTICLE V COVENANTS.................................................... 22
SECTION 5.01. Further Assurances............................. 22
SECTION 5.02. Tenneco Name................................... 22
SECTION 5.03. Supplies and Documents......................... 22
SECTION 5.04. Assumption and Satisfaction of Liabilities..... 23
SECTION 5.05. No Representations or Warranties; Consents..... 23
SECTION 5.06. Removal of Certain Guarantees.................. 24
SECTION 5.07. Public Announcements........................... 24
SECTION 5.08. Intercompany Agreements........................ 25
SECTION 5.09. Tax Matters.................................... 25
ARTICLE VI ACCESS TO INFORMATION........................................ 25
SECTION 6.01. Provision, Transfer and Delivery of Applicable
Corporate Records........................................... 25
SECTION 6.02. Access to Information.......................... 26
SECTION 6.03. Reimbursement; Other Matters................... 26
SECTION 6.04. Confidentiality................................ 26
SECTION 6.05. Witness Services............................... 27
SECTION 6.06. Retention of Records........................... 27
SECTION 6.07. Privileged Matters............................. 27
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<C> <S> <C>
ARTICLE VII INDEMNIFICATION............................................ 28
SECTION 7.01. Indemnification by Tenneco................... 28
SECTION 7.02. Indemnification by Industrial Company........ 28
SECTION 7.03. Indemnification by Shipbuilding Company...... 28
SECTION 7.04. Limitations on Indemnification Obligations... 29
SECTION 7.05. Procedures for Indemnification............... 30
SECTION 7.06. Indemnification Payments..................... 31
SECTION 7.07. Other Adjustments............................ 31
SECTION 7.08. Obligations Absolute......................... 32
SECTION 7.09. Survival of Indemnities...................... 32
SECTION 7.10. Remedies Cumulative.......................... 32
SECTION 7.11. Cooperation of the Parties With Respect to
Actions and Third Party Claims................. 32
SECTION 7.12. Contribution................................. 33
ARTICLE VIII MISCELLANEOUS.............................................. 33
SECTION 8.01. Complete Agreement; Construction............. 33
SECTION 8.02. Ancillary Agreements......................... 33
SECTION 8.03. Counterparts................................. 33
SECTION 8.04. Survival of Agreements....................... 33
SECTION 8.05. Responsibility for Expenses.................. 34
SECTION 8.06. Notices...................................... 34
SECTION 8.07. Waivers...................................... 34
SECTION 8.08. Amendments................................... 34
SECTION 8.09. Assignment................................... 35
SECTION 8.10. Successors and Assigns....................... 35
SECTION 8.11. Termination.................................. 35
SECTION 8.12. Third Party Beneficiaries.................... 35
SECTION 8.13. Attorney Fees................................ 35
SECTION 8.14. Title and Headings........................... 35
SECTION 8.15. Exhibits and Schedules....................... 35
SECTION 8.16. Specific Performance......................... 35
SECTION 8.17. Governing Law................................ 35
SECTION 8.18. Severability................................. 36
SECTION 8.19. Subsidiaries................................. 36
</TABLE>
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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
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DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT is made and entered into as of this day of
, 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
October , 1996, but effective 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.
<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,
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1Shipbuilding 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
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<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
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(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 each of Industrial Company and 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 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.
(i) 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.
33
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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.
34
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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
35
<PAGE>
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.
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:
36
<PAGE>
EXHIBIT 3.1
-----------
CERTIFICATE OF INCORPORATION
OF
NEW TENNECO INC.
I, the undersigned, for the purposes of incorporating and organizing a
corporation under the General Corporation Law of the State of Delaware, do
execute this Certificate of Incorporation and do hereby certify as follows:
FIRST. The name of the corporation is New Tenneco Inc.
SECOND. The address of the corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle, 19801. 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. The total number of shares of stock which the corporation shall
have authority to issue is 3,000. All such shares are to be Common Stock, par
value of $.01 per share, and are to be of one class.
FIFTH. The incorporator of the corporation is Dana G. Mead, whose mailing
address is c/o Tenneco Inc., 1275 King Street, Greenwich, Connecticut 06831.
SIXTH. 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.
SEVENTH. In furtherance and not in limitation of the powers conferred by
the laws of the State of Delaware, the Board of Directors of the corporation is
expressly authorized to make, alter and repeal the by-laws of the corporation,
subject to the power of the stockholders of the corporation to alter or repeal
any by-law whether adopted by them or otherwise.
EIGHTH. 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. 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, modifica tion or
repeal.
<PAGE>
NINTH. The corporation reserves the right at any time, and from time to
time, to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, and 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 by law; and all rights, preferences and privileges
of whatsoever nature conferred upon stockhold ers, directors or any other
persons whomsoever by and pursuant to this Certificate of Incorporation in its
present form or as hereafter amended are granted subject to the rights reserved
in this article.
TENTH. The powers of the incorporator are to terminate upon the filing of
this Certificate of Incorporation with the Secretary of State of the State of
Delaware. The name and mailing address of the persons who are to serve as the
initial directors of the corporation until the first annual meeting of
stockholders of the corporation, or until their successors are elected and
qualified, are :
Name Address
---- -------
Mark Andrews c/o Tenneco Inc.
1275 King Street
Greenwich, CT 06831
W. Michael Blumenthal c/o Tenneco Inc.
1275 King Street
Greenwich, CT 06831
M. Kathryn Eickhoff c/o Tenneco Inc.
1275 King Street
Greenwich, CT 06831
Peter T. Flawn c/o Tenneco Inc.
1275 King Street
Greenwich, CT 06831
Henry U. Harris, Jr. c/o Tenneco Inc.
1275 King Street
Greenwich, CT 06831
Belton K. Johnson c/o Tenneco Inc.
1275 King Street
Greenwich, CT 06831
John B. McCoy c/o Tenneco Inc.
1275 King Street
-2-
<PAGE>
Greenwich, CT 06831
Dana G. Mead c/o Tenneco Inc.
1275 King Street
Greenwich, CT 06831
Sir David Plastow c/o Tenneco Inc.
1275 King Street
Greenwich, CT 06831
William L. Weiss c/o Tenneco Inc.
1275 King Street
Greenwich, CT 06831
Clifton R. Wharton, Jr. c/o Tenneco Inc.
1275 King Street
Greenwich, CT 06831
The undersigned incorporator hereby acknowledges that the foregoing
certificate of incorporation is his act and deed on this the ___ of August,
1996.
____________________________________
Dana G. Mead
Incorporator
-3-
<PAGE>
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_% 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_% 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_% 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 3.3
-----------
BY-LAWS
OF
NEW TENNECO INC.
____________________________________________________________
ARTICLE I
Stockholders
------------
Section 1.1. Annual Meetings. An annual meeting of stockholders
shall be held for the election of directors at such date, time and place, either
within or without the State of Delaware, as may be designated by resolution of
the Board of Directors from time to time. Any other proper business may be
transacted at the annual meeting.
Section 1.2. Special Meetings. Special meetings of stockholders for
any purpose or purposes may be called at any time by the Board of Directors, but
such special meetings may not be called by any other person or persons.
Section 1.3. Notice of Meetings. Whenever stockholders are required
or permitted to take any action at a meeting, a written notice of the meeting
shall be given that shall state the place, date and hour of the meeting and, in
the case of a special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise provided by law, the certificate of incorporation or
these by-laws, the written notice of any meeting shall be given not less than
ten nor more than sixty days before the date of the meeting to each stockholder
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
given when deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation.
Section 1.4. Adjournments. Any meeting of stockholders, annual or
special, may adjourn from time to time to reconvene at the same or some other
place, and notice need not be given of any such adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
<PAGE>
Section 1.5. Quorum. Except as otherwise provided by law, the
certificate of incorporation or these by-laws, at each meeting of stockholders
the presence in person or by proxy of the holders of a majority in voting power
of the outstanding shares of stock entitled to vote at the meeting shall be
necessary and sufficient to constitute a quorum. In the absence of a quorum, the
stockholders so present may, by a majority in voting power thereof, adjourn the
meeting from time to time in the manner provided in Section 1.4 of these by-laws
until a quorum shall attend. Shares of its own stock belonging to the
corporation or to another corporation, if a majority of the shares entitled to
vote in the election of directors of such other corporation is held, directly or
indirectly, by the corporation, shall neither be entitled to vote nor be counted
for quorum purposes; provided, however, that the foregoing shall not limit the
right of the corporation or any subsidiary of the corporation to vote stock,
including but not limited to its own stock, held by it in a fiduciary capacity.
Section 1.6. Organization. Meetings of stockholders shall be
presided over by the Chairman of the Board, if any, or in his absence by the
Vice Chairman of the Board, if any, or in his absence by the President, or in
his absence by a Vice President, or in the absence of the foregoing persons by a
chairman designated by the Board of Directors, or in the absence of such
designation by a chairman chosen at the meeting. The Secretary shall act as
secretary of the meeting, but in his absence the chairman of the meeting may
appoint any person to act as secretary of the meeting.
Section 1.7. Voting; Proxies. Except as otherwise provided by the
certificate of incorporation, each stockholder entitled to vote at any meeting
of stock holders shall be entitled to one vote for each share of stock held by
him which has voting power upon the matter in question. Each stockholder
entitled to vote at a meeting of stockholders or to express consent or dissent
to corporate action in writing without a meeting may authorize another person or
persons to act for him by proxy, but no such proxy shall be voted or acted upon
after three years from its date, unless the proxy provides for a longer period.
A proxy shall be irrevocable if it states that it is irrevocable and if, and
only as long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A stockholder may revoke any proxy which is not irrevocable
by attending the meeting and voting in person or by filing an instrument in
writing revoking the proxy or by delivering a proxy in accordance with
applicable law bearing a later date to the Secretary of the corporation. Voting
at meetings of stock holders need not be by written ballot. At all meetings of
stockholders for the election of directors a plurality of the votes cast shall
be sufficient to elect. All other elections and questions shall, unless
otherwise provided by law, the certificate of incorporation or these by-laws, be
decided by the affirmative vote of the holders of a majority in voting power of
the shares of stock which are present in person or by proxy and entitled to vote
thereon.
<PAGE>
Section 1.8. Fixing Date for Determination of Stockholders of Record.
In order that the corporation may determine the stockholders entitled to notice
of or to vote at any meeting of stockholders or any adjournment thereof, or to
express consent to corporate action in writing without a meeting, or entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of stock or for the purpose of any other lawful action, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which record date: (1) in the case of determin ation of
stockholders entitled to vote at any meeting of stockholders or adjournment
thereof, shall, unless otherwise required by law, not be more than sixty nor
less than ten days before the date of such meeting; (2) in the case of
determination of stockhold ers entitled to express consent to corporate action
in writing without a meeting, shall not be more than ten days from the date upon
which the resolution fixing the record date is adopted by the Board of
Directors; and (3) in the case of any other action, shall not be more than sixty
days prior to such other action. If no record date is fixed: (1) the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held; (2) the record date
for determining stockholders entitled to express consent to corporate action in
writing without a meeting, when no prior action of the Board of Directors is
required by law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
corporation in accordance with applicable law, or, if prior action by the Board
of Directors is required by law, shall be at the close of business on the day on
which the Board of Directors adopts the resolution taking such prior action; and
(3) the record date for determining stockholders for any other purpose shall be
at the close of business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
Section 1.9. List of Stockholders Entitled to Vote. The Secretary
shall prepare and make, at least ten days before every meeting of stockholders,
a complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockhold er, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole
<PAGE>
time thereof and may be inspected by any stockholder who is present. Upon the
willful neglect or refusal of the directors to produce such a list at any
meeting for the election of direc tors, they shall be ineligible for election to
any office at such meeting. Except as otherwise provided by law, the stock
ledger shall be the only evidence as to who are the stockholders entitled to
examine the stock ledger, the list of stockholders or the books of the
corporation, or to vote in person or by proxy at any meeting of stockholders.
Section 1.10. Action By Written Consent of Stockholders. Unless
otherwise restricted by the certificate of incorporation, any action required or
permitted to be taken at any annual or special meeting of the stockholders may
be taken without a meeting, without prior notice and without a vote, if a
consent or consents in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted and
shall be delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business, or an officer or agent
of the corporation having custody of the book in which proceedings of minutes of
stockholders are recorded. Delivery made to the corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall, to the extent required by law, be given to
those stockholders who have not consented in writing.
Section 1.11. Inspectors of Election. The corporation may, and shall
if required by law, in advance of any meeting of stockholders, appoint one or
more inspectors of election, who may be employees of the corporation, to act at
the meeting or any adjournment thereof and to make a written report thereof. The
corporation may designate one or more persons as alternate inspectors to replace
any inspector who fails to act. In the event that no inspector so appointed or
designated is able to act at a meeting of stockholders, the person presiding at
the meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before entering upon the discharge of his or her duties, shall take
and sign an oath to execute faithfully the duties of inspector with strict
impartiality and according to the best of his or her ability. The inspector or
inspectors so appointed or designated shall (i) ascertain the number of shares
of capital stock of the corporation outstanding and the voting power of each
such share, (ii) determine the shares of capital stock of the corporation
represented at the meeting and the validity of proxies and ballots, (iii) count
all votes and ballots, (iv) determine and retain for a reasonable period a
record of the disposition of any challenges made to any determination by the
inspectors, and (v) certify their determination of the number of shares of
capital stock of the corporation represented at the meeting and such inspectors'
count of all votes and ballots. Such certification and report shall specify such
other information as may be required by law. In determining the validity and
counting of proxies and ballots cast at any meeting of stockholders of the
corporation, the inspectors
<PAGE>
may consider such information as is permitted by applicable law. No person who
is a candidate for an office at an election may serve as an inspector at such
election.
Section 1.12. Conduct of Meetings. The date and time of the opening
and the closing of the polls for each matter upon which the stockholders will
vote at a meeting shall be announced at the meeting by the person presiding over
the meeting. The Board of Directors of the corporation may adopt by resolution
such rules and regulations for the conduct of the meeting of stockholders as it
shall deem appropriate. Except to the extent inconsistent with such rules and
regulations as adopted by the Board of Directors, the chairman of any meeting of
stockholders shall have the right and authority to prescribe such rules,
regulations and procedures and to do all such acts as, in the judgment of such
chairman, are appropriate for the proper conduct of the meeting. Such rules,
regulations or procedures, whether adopted by the Board of Directors or
prescribed by the chairman of the meeting, may include, without limitation, the
following: (i) the establishment of an agenda or order of business for the
meeting; (ii) rules and procedures for maintaining order at the meeting and the
safety of those present; (iii) limitations on attendance at or participation in
the meeting to stockholders of record of the corporation, their duly authorized
and constituted proxies or such other persons as the chairman of the meeting
shall determine; (iv) restrictions on entry to the meeting after the time fixed
for the commencement thereof; and (v) limitations on the time allotted to
questions or comments by participants. Unless and to the extent determined by
the Board of Directors or the chairman of the meeting, meetings of stockholders
shall not be required to be held in accordance with the rules of parliamentary
procedure.
<PAGE>
ARTICLE II
Board of Directors
------------------
Section 2.1. Number; Qualifications. The Board of Directors shall
consist of one or more members, the number thereof to be determined from time to
time by resolution of the Board of Directors. Directors need not be
stockholders.
Section 2.2. Election; Resignation; Vacancies. The Board of Directors
shall initially consist of the persons named as directors in the certificate of
incor poration, and each director so elected shall hold office until the first
annual meeting of stockholders or until his successor is elected and qualified.
At the first annual meeting of stockholders and at each annual meeting
thereafter, the stockholders shall elect directors each of whom shall hold
office for a term of one year or until his successor is elected and qualified.
Any director may resign at any time upon written notice to the corporation. Any
newly created directorship or any vacancy occurring in the Board of Directors
for any cause may be filled by a majority of the remaining members of the Board
of Directors, although such majority is less than a quorum, or by a plurality of
the votes cast at a meeting of stockholders, and each director so elected shall
hold office until the expiration of the term of office of the director whom he
has replaced or until his successor is elected and qualified.
Section 2.3. Regular Meetings. Regular meetings of the Board of
Directors may be held at such places within or without the State of Delaware and
at such times as the Board of Directors may from time to time determine, and if
so determined notices thereof need not be given.
Section 2.4. Special Meetings. Special meetings of the Board of
Directors may be held at any time or place within or without the State of
Delaware whenever called by the President, any Vice President, the Secretary, or
by any member of the Board of Directors. Notice of a special meeting of the
Board of Directors shall be given by the person or persons calling the meeting
at least twenty-four hours before the special meeting.
Section 2.5. Telephonic Meetings Permitted. Members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting thereof by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this by-
law shall constitute presence in person at such meeting.
Section 2.6. Quorum; Vote Required for Action. At all meetings of the
Board of Directors a majority of the whole Board of Directors shall constitute a
quorum for the transaction of business. Except in cases in which the certificate
of incorporation,
<PAGE>
these by-laws or applicable law otherwise provides, the vote of a majority of
the directors present at a meeting at which a quorum is present shall be the act
of the Board of Directors.
Section 2.7. Organization. Meetings of the Board of Directors shall be
presided over by the Chairman of the Board, if any, or in his absence by the
Vice Chairman of the Board, if any, or in his absence by the President, or in
their absence by a chairman chosen at the meeting. The Secretary shall act as
secretary of the meeting, but in his absence the chairman of the meeting may
appoint any person to act as secretary of the meeting.
Section 2.8. Action by Written Consent of Directors. Unless otherwise
restricted by the certificate of incorporation or these by-laws, any action
required or permitted to be taken at any meeting of the Board of Directors, or
of any committee thereof, may be taken without a meeting if all members of the
Board of Directors or such committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board of Directors or such committee.
<PAGE>
ARTICLE III
Committees
----------
Section 3.1. Committees. The Board of Directors may designate one or
more committees, each committee to consist of one or more of the directors of
the corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of a
member of the committee, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in place of any such absent or disqualified member. Any such committee,
to the extent permitted by law and to the extent provided in the resolution of
the Board of Directors, shall have and may exercise all the powers and authority
of the Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it.
Section 3.2. Committee Rules. Unless the Board of Directors otherwise
provides, each committee designated by the Board of Directors may make, alter
and repeal rules for the conduct of its business. In the absence of such rules
each commit tee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article II of these by-laws.
<PAGE>
ARTICLE IV
Officers
--------
Section 4.1. Executive Officers; Election; Qualifications; Term of
Office; Resignation; Removal; Vacancies. The Board of Directors shall elect a
President and Secretary, and it may, if it so determines, choose a Chairman of
the Board and a Vice Chairman of the Board from among its members. The Board of
Directors may also choose one or more Vice Presidents, one or more Assistant
Secretaries, a Treasurer and one or more Assistant Treasurers. Each such officer
shall hold office until the first meeting of the Board of Directors after the
annual meeting of stockholders next succeeding his election, and until his
successor is elected and qualified or until his earlier resignation or removal.
Any officer may resign at any time upon written notice to the corporation. The
Board of Directors may remove any officer with or without cause at any time, but
such removal shall be without prejudice to the contractual rights of such
officer, if any, with the corporation. Any number of offices may be held by the
same person. Any vacancy occurring in any office of the corporation by death,
resignation, removal or otherwise may be filled for the unexpired portion of the
term by the Board of Directors at any regular or special meeting.
Section 4.2. Powers and Duties of Executive Officers. The officers of
the corporation shall have such powers and duties in the management of the
corporation as may be prescribed in a resolution by the Board of Directors and,
to the extent not so provided, as generally pertain to their respective offices,
subject to the control of the Board of Directors. The Board of Directors may
require any officer, agent or em ployee to give security for the faithful
performance of his duties.
<PAGE>
ARTICLE V
Stock
-----
Section 5.1. Certificates. Every holder of stock shall be entitled to
have a certificate signed by or in the name of the corporation by the Chairman
or Vice Chairman of the Board of Directors, if any, or the President or a Vice
President, and by the Treasurer or an Assistant Treasurer, or the Secretary or
an Assistant Secretary, of the corporation certifying the number of shares owned
by him in the corporation. Any of or all the signatures on the certificate may
be a facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent, or registrar before such certificate
is issued, it may be issued by the corporation with the same effect as if he
were such officer, transfer agent, or registrar at the date of issue.
Section 5.2. Lost, Stolen or Destroyed Stock Certificates; Issuance of
New Certificates. The corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it, alleged to have been lost,
stolen or destroyed, and the corporation may require the owner of the lost,
stolen or destroyed certificate, or his legal representative, to give the
corporation a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
<PAGE>
ARTICLE VI
Indemnification
---------------
Section 6.1. Right to Indemnification. The corporation shall indemnify
and hold harmless, to the fullest extent permitted by applicable law as it
presently exists or may hereafter be amended, any person (an "Indemnitee") who
was or is made or is threatened to be made a party or is otherwise involved in
any action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "proceeding"), by reason of the fact that he, or a person for
whom he is the legal representative, is or was a director or officer of the
corporation or, while a director or officer of the corporation, is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust,
enterprise or nonprofit entity, including service with respect to employee
benefit plans, against all liability and loss suffered and expenses (including
attorneys' fees) reasonably incurred by such Indemnitee. Notwithstanding the
preceding sentence, except as otherwise provided in Section 6.3, the corporation
shall be required to indemnify an Indemnitee in connection with a proceeding (or
part thereof) commenced by such Indemnitee only if the commencement of such
proceeding (or part thereof) by the Indemnitee was authorized by the Board of
Directors of the corporation.
Section 6.2. Prepayment of Expenses. The corporation shall pay the
expenses (including attorneys' fees) incurred by an Indemnitee in defending any
proceeding in advance of its final disposition, provided, however, that, to the
extent required by law, such payment of expenses in advance of the final
disposition of the proceeding shall be made only upon receipt of an undertaking
by the Indemnitee to repay all amounts advanced if it should be ultimately
determined that the Indemnitee is not entitled to be indemnified under this
Article VI or otherwise.
Section 6.3. Claims. If a claim for indemnification or payment of
expenses under this Article VI is not paid in full within sixty days after a
written claim therefor by the Indemnitee has been received by the corporation,
the Indemnitee may file suit to recover the unpaid amount of such claim and, if
successful in whole or in part, shall be entitled to be paid the expense of
prosecuting such claim. In any such action the corporation shall have the burden
of proving that the Indemnitee is not entitled to the requested indemnification
or payment of expenses under applicable law.
Section 6.4. Nonexclusivity of Rights. The rights conferred on any
Indemnitee by this Article VI shall not be exclusive of any other rights which
such Indemnitee may have or hereafter acquire under any statute, provision of
the certificate of incorporation, these by-laws, agreement, vote of stockholders
or disinterested directors or otherwise.
<PAGE>
Section 6.5. Other Sources. The corporation's obligation, if any, to
indemnify or to advance expenses to any Indemnitee who was or is serving at its
request as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, enterprise or nonprofit entity shall be
reduced by any amount such Indemnitee may collect as indemnification or
advancement of expenses from such other corporation, partnership, joint venture,
trust, enterprise or non-profit enterprise.
Section 6.6. Amendment or Repeal. Any repeal or modification of the
foregoing provisions of this Article VI shall not adversely affect any right or
protection hereunder of any Indemnitee in respect of any act or omission
occurring prior to the time of such repeal or modification.
Section 6.7. Other Indemnification and Prepayment of Expenses. This
Article VI shall not limit the right of the corporation, to the extent and in
the manner permitted by law, to indemnify and to advance expenses to persons
other than Indemnitees when and as authorized by appropriate corporate action.
<PAGE>
ARTICLE VII
Miscellaneous
-------------
Section 7.1. Fiscal Year. The fiscal year of the corporation shall be
determined by resolution of the Board of Directors.
Section 7.2. Seal. The corporate seal shall have the name of the
corporation inscribed thereon and shall be in such form as may be approved from
time to time by the Board of Directors.
Section 7.3. Waiver of Notice of Meetings of Stockholders, Directors
and Committees. Any written waiver of notice, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at nor the purpose of any
regular or special meeting of the stockholders, directors, or members of a
committee of directors need be specified in any written waiver of notice.
Section 7.4. Interested Directors; Quorum. No contract or transaction
between the corporation and one or more of its directors or officers, or between
the 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 of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose, if: (1) the material facts as to his relation ship 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 of Directors 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; or (2) the material facts 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 stock holders; or (3) 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
thereof, or the stockholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
Section 7.5. Form of Records. Any records maintained by the
corporation in the regular course of its business, including its stock ledger,
books of account,
<PAGE>
and minute books, may be kept on, or be in the form of, punch cards, magnetic
tape, photographs, microphotographs, or any other information storage device,
provided that the records so kept can be converted into clearly legible form
within a reasonable time.
Section 7.6. Amendment of By-Laws. These by-laws may be altered or
repealed, and new by-laws made, by the Board of Directors, but the stockholders
may make additional by-laws and may alter and repeal any by-laws whether adopted
by them or otherwise.
<PAGE>
EXHIBIT 3.4
-----------
BY-LAWS
OF
NEW TENNECO INC.
AMENDED AND RESTATED AS OF _____ __, 1996
ARTICLE I
PLACE OF STOCKHOLDER MEETINGS
Section 1. All meetings of the stockholders of the corporation shall be
held at such place or places, within or without the State of Delaware, as may
from time to time be fixed by the Board of Directors of the corporation (the
"Board"), or as shall be specified or fixed in the respective notices or waivers
of notice thereof.
ANNUAL MEETING
Section 2. The Annual Meeting of Stockholders shall be held on such date
and at such time as may be fixed by the Board and stated in the notice thereof,
for the purpose of electing directors and for the transaction of only such other
business as is properly brought before the meeting in accordance with these By-
Laws.
To be properly brought before the meeting, business must be either (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board, (b) otherwise properly brought before the meeting by
or at the direction of the Board, or (c) otherwise properly brought before the
meeting by a stockholder. In addition to any other applicable requirements, for
business to be properly brought before the Annual Meeting by a stockholder, the
stockholder must have been given timely notice thereof in writing to the
Secretary of the corporation. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
corporation, not less than 50 days nor more than 75 days prior to the meeting;
provided, however, that in the event that less than 65 days' notice or prior
public disclosure 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 disclosure was made,
whichever first occurs. A stockholder's notice to the Secretary shall set forth
as to each matter the stockholder proposes to bring before the Annual Meeting
(i) a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (ii)
the name and record address of the stockholder proposing such business, (iii)
the class and number of shares of the corporation which are beneficially owned
by the stockholder, and (iv) any material interest of the stockholder in such
business.
Notwithstanding anything in these By-Laws to the contrary, no business
shall be transacted at the Annual Meeting except in accordance with the
procedures set forth in this Section, provided, however, that nothing in this
Section shall be deemed to preclude
<PAGE>
discussion by any stockholder of any business properly brought before the Annual
Meeting.
The Chairman of the Annual Meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting in accordance with the provisions of this Section, and if he should so
determine, he shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted.
SPECIAL MEETING
Section 3. Subject to the rights of the holders of any series of preferred
stock, par value $.01 per share, of the corporation (the "Preferred Stock") to
elect additional directors under specified circumstances, special meetings of
the stockholders shall be called by the Board. The business transacted at a
special meeting shall be confined to the purposes specified in the notice
thereof. Special meetings shall be held at such date and at such time as the
Board may designate.
NOTICE OF MEETING
Section 4. Written notice of each meeting of stockholders, stating the
place, date and hour of the meeting, and the purpose or purposes thereof, shall
be mailed not less than ten nor more than sixty days before the date of such
meeting to each stockholder entitled to vote thereat.
QUORUM
Section 5. Unless otherwise provided by statute, the holders of shares of
stock entitled to cast a majority of votes at a meeting, present either in
person or by proxy, shall constitute a quorum at such meeting. The Secretary of
the corporation or in his absence as Assistant Secretary or an appointee of the
presiding officer of the meeting, shall act as the Secretary of the meeting.
VOTING
Section 6. Except as otherwise provided by law or the Restated Certificate
of Incorporation, each stockholder entitled to vote at any meeting shall be
entitled to one vote, in person or by written proxy, for each share held of
record on the record date fixed as provided in Section 4 of Article V of these
By-Laws for determining the stockholders entitled to vote at such meeting.
Except as otherwise provided by law, the Restated Certificate of Incorporation
or these By-Laws, the vote of a majority of any quorum shall be sufficient to
elect directors and to pass any resolution within the power of the holders of
all the outstanding shares.
Elections of directors need not be by written ballot; provided, however,
that by resolution duly adopted, a vote by written ballot may be required.
<PAGE>
PROXIES
Section 7. Each stockholder entitled to vote at a meeting of stockholders
or to express consent or dissent to corporate action in writing without a
meeting may authorize another person or persons to act for him by proxy, but no
such proxy shall be voted or acted upon after three years from its date, unless
the proxy provides for a longer period. A proxy shall be irrevocable if it
states that it is irrevocable and if, and only as long as, it is coupled with an
interest sufficient in law to support an irrevocable power. A stockholder may
revoke any proxy which is not irrevocable by attending the meeting and voting in
person or by filing an instrument revoking the proxy or by delivering a proxy in
accordance with applicable law bearing a later date to the Secretary of the
corporation. In order to be exercised at a meeting of stockholders, proxies
shall be delivered to the Secretary of the corporation or his representative at
or before the time of such meeting.
INSPECTORS
Section 8. At each meeting of the stockholders the polls shall be opened
and closed; the proxies and ballots shall be received and be taken in charge,
and all questions touching the qualification of voters and the validity of
proxies and the acceptance or rejection of votes shall be decided by three
Inspectors, two of whom shall have power to make a decision. Such Inspectors
shall be appointed by the Board before the meeting, or in default thereof by the
presiding officer at the meeting, and shall be sworn to the faithful performance
of their duties. If any of the Inspectors previously appointed shall fail to
attend or refuse or be unable to serve, substitutes shall be appointed by the
presiding officer.
CONDUCT OF MEETINGS
Section 9. The date and time of the opening and the closing of the polls
for each matter upon which the stockholders will vote at a meeting shall be
announced at the meeting by the chairman of the meeting. The Board may adopt
by resolution such rules and regulations for the conduct of the meeting of
stockholders as it shall deem appropriate. Except to the extent inconsistent
with such rules and regulations as adopted by the Board, the chairman of any
meeting of stockholders shall have the right and authority to prescribe such
rules, regulations and procedures and to do all such acts as, in the judgment of
such chairman, are appropriate for the proper conduct of the meeting. Such
rules, regulations or procedures, whether adopted by the Board or prescribed by
the chairman of the meeting, may include, without limitation, the following: (i)
the establishment of an agenda or order of business for the meeting; (ii) rules
and procedures for maintaining order at the meeting and the safety of those
present; (iii) limitations on attendance at or participation in the meeting to
stockholders of record of the corporation, their duly authorized and constituted
proxies or such other persons as the chairman of the meeting shall determine;
(iv) restrictions on entry to the meeting after the time fixed for the
commencement thereof; and (v) limitations on the time allotted to questions or
comments by participants. Unless and to the extent determined by the Board or
the chairman of the meeting, meetings of stockholders shall not be required
<PAGE>
to be held in accordance with the rules of parliamentary procedure.
ARTICLE II
BOARD OF DIRECTORS
NUMBER; METHOD OF ELECTION;
TERMS OF OFFICE AND QUALIFICATION
Section 1. The business and affairs of the corporation shall be managed
under the direction of the Board. The number of directors which shall constitute
the entire Board shall not be less than eight nor more than sixteen and shall be
determined from time to time by resolution adopted by a majority of the entire
Board.
Nominations of persons for election to the Board of the corporation at the
Annual Meeting of Stockholders may be made at a meeting of stockholders by or at
the direction of the Board of Directors by any nominating committee or person
appointed by the Board or by any stockholder of the corporation entitled to vote
for the election of directors at the meeting who complies with the notice
procedures set forth in this Article II. Such nominations, other than those made
by or at the direction of the Board, shall be made pursuant to timely notice in
writing to the Secretary of the corporation. To be timely, a stockholder's
notice shall be delivered to or mailed and received at the principal executive
offices of the corporation not less than 50 days nor more than 75 days prior to
the meeting; provided, however, that in the event that less than 65 days' notice
or prior public disclosure 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 meeting was mailed or such public disclosure was made,
whichever first occurs. Such stockholder's notice to the Secretary shall set
forth (a) 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 corporation
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 Securities
Exchange Act of 1934 as amended; and (b) as to the stockholder giving the notice
(i) the name and record address of the stockholder and (ii) the class and number
of shares of capital stock of the corporation which are beneficially owned by
the stockholder. The corporation may require any proposed nominee to furnish
such other information as may reasonably be required by the corporation to
determine the eligibility of such proposed nominee to serve as director of the
corporation. No person shall be eligible for election as a director of the
corporation at the Annual Meeting of Stockholders unless nominated in accordance
with the procedures set forth herein. The Chairman of the meeting shall, if the
facts warrant, determine and declare to the meeting that a nomination was not
made in accordance with the foregoing procedure, and if he should so determine,
he shall so declare to the meeting and the defective nomination shall be
disregarded.
<PAGE>
Any director may resign his office at any time by delivering his
resignation in writing to the corporation, and the acceptance of such
resignation unless required by the terms thereof shall not be necessary to make
such resignation effective.
No person who shall have attained the age of 72 shall be eligible for
election or reelection, as the case may be, as a director of the corporation.
MEETINGS
Section 2. The Board may hold its meetings and have an office in such
place or places within or without the State of Delaware as the Board by
resolution from time to time may determine.
The Board may in its discretion provide for regular or stated meetings of
the Board. Notice of regular or stated meetings need not be given. Special
meetings of the Board shall be held whenever called by direction of the Chief
Executive Officer, the President or any two of the directors.
Notice of any special meeting shall be given by the Secretary to each
director either by mail or by telegram, facsimile, telephone or other electronic
communication or transmission. If mailed, such notice shall be deemed adequately
delivered when deposited in the United States mails so addressed, with postage
thereon prepaid, at least three days before such meeting. If by telegram, such
notice shall be deemed adequately delivered when the telegram is delivered to
the telegraph corporation at least twenty-four hours before such meeting. If by
facsimile, telephone or other electronic communication or transmission, such
notice shall be transmitted at least twenty-four hours before such meeting.
Unless otherwise indicated in the notice thereof, any and all business may be
transacted at a special meeting.
Except as otherwise provided by applicable law, at any meeting at which
every director shall be present, even though without notice, any business may be
transacted. No notice of any adjourned meeting need be given.
The Board shall meet immediately after election, following the Annual
Meeting of Stockholders, for the purpose of organizing, for the election of
corporate officers as hereinafter specified, and for the transaction of any
other business which may come before it. No notice of such meeting shall be
necessary.
QUORUM
Section 3. Except as otherwise expressly required by these By-Laws or by
statute, a majority of the directors then in office (but not less than one-third
of the total number of directors constituting the entire Board) shall be present
at any meeting of the Board in order to constitute a quorum for the transaction
of business at such meeting, and the vote of a majority of the directors present
at any such meeting at which quorum is present shall be
<PAGE>
necessary for the passage of any resolution or for an act to be the act of the
Board. In the absence of a quorum, a majority of the directors present may
adjourn such meeting from time to time until a quorum shall be present. Notice
of any adjourned meeting need not be given.
COMPENSATION OF BOARD OF DIRECTORS
Section 4. Each director (other than a director who is a salaried officer
of the corporation or of any subsidiary of the corporation), in consideration of
his serving as such, shall be entitled to receive from the corporation such
amount per annum and such fees for attendance at meetings of the Board or of any
committee of the Board (a "Committee"), or both, as the Board shall from time to
time determine. The Board may likewise provide that the corporation shall
reimburse each director or member of a Committee for any expenses incurred by
him on account of his attendance at any such meeting. Nothing contained in this
Section shall be construed to preclude any director from serving the corporation
in any other capacity and receiving compensation therefor.
ARTICLE III
COMMITTEES OF THE BOARD
COMMITTEES
Section 1. The Board shall elect from the directors an Executive
Committee, an Audit Committee, a Compensation Committee and any other Committee
which the Board may by resolution prescribe. Any such other Committee shall be
comprised of such persons and shall possess such authority as shall be set forth
in such resolution.
PROCEDURE
Section 2. (1) Each Committee shall fix its own rules of procedure and
shall meet where and as provided by such rules. Unless otherwise stated in these
By-Laws, a majority of a Committee shall constitute a quorum.
(2) In the absence or disqualification of a member of any Committee, the
members of such Committee present at any meeting, and not disqualified from
voting, whether or not they constitute a quorum, may unanimously appoint another
member of the Board to act at the meeting in the place of any such absent or
disqualified member. Fees in connection with such appointments shall be
established by the Board.
REPORTS TO THE BOARD
Section 3. All completed actions by the Executive, Audit and Compensation
Committees shall be reported to the Board at the next succeeding Board meeting
and shall be subject to revision or alteration by the Board, provided, that no
acts or rights of third parties shall be affected by any such revision or
alteration.
<PAGE>
EXECUTIVE COMMITTEE
Section 4. The Board shall elect an Executive Committee comprised of the
Chief Executive Officer and not less than four additional members of the Board.
During the interval between the meetings of the Board, the Executive Committee
shall possess and may exercise all the powers of the Board in the management and
direction of all the business and affairs of the corporation (except the matters
hereinafter assigned to the Compensation Committee) including, without
limitation, the power and authority to declare dividends and to authorize the
issuance of stock, in such manner as the Executive Committee shall deem best for
the interests of the corporation in all cases in which specific directions shall
not have been given by the Board.
COMPENSATION COMMITTEE
Section 5. The Board shall elect a Compensation Committee consisting of at
least four members of the Board, none of whom shall be officers or employees of
the corporation or of any subsidiary corporation. The Board shall appoint a
chairman of such Committee who shall be one of its members. The Compensation
Committee shall have such authority and duties as the Board by resolution shall
prescribe.
AUDIT COMMITTEE
Section 6. The Board shall elect from among its members an Audit Committee
consisting of at least three members. The Board shall appoint a chairman of said
Committee who shall be one of its members. The Audit Committee shall have such
authority and duties as the Board by resolution shall prescribe. In no event
shall a director who is also an officer or employee of the corporation or any of
its subsidiary companies serve as a member of such Committee. The Chief
Executive Officer shall have the right to attend (but not vote at) each meeting
of such Committee.
NOMINATING AND MANAGEMENT DEVELOPMENT COMMITTEE
Section 7. The Board shall elect from among its members a Nominating and
Management Development Committee consisting of at least three members. The Board
shall appoint a chairman of said Committee who shall be one of its members. The
Nominating and Management Development Committee shall have such authority and
duties as the Board by resolution shall prescribe. In no event shall a director
who is also an officer or employee of the corporation or any of its subsidiary
companies serve as a member of such Committee. The Chief Executive Officer shall
have the right to attend (but not vote at) each meeting of such Committee.
<PAGE>
ARTICLE IV
OFFICERS
GENERAL PROVISIONS
Section 1. The corporate officers of the corporation shall consist of the
following: a Chairman and/or a President, one of whom shall be designated Chief
Executive Officer and each of whom shall be chosen from the Board; one or more
Vice Chairman, Executive Vice Presidents, Senior Vice Presidents, Vice
Presidents and Assistant Vice Presidents; a General Counsel, a Secretary, one or
more Assistant Secretaries, a Treasurer, one or more Assistant Treasurers, a
Controller, and such other officers as the Board may from time to time
designate. Insofar as permitted by statute, the same person may hold two or more
offices. All officers chosen by the Board shall each have such powers and duties
as generally pertain to their respective offices, subject to the specific
provisions of this Article IV.
The Chairman and/or President, each Vice Chairman, Executive Vice
President, Senior Vice President and Vice President, the Secretary and the
Treasurer shall be elected by the Board. Each such officer shall hold office
until his successor is elected or appointed and qualified or until his earlier
death, resignation or removal.
Any officer may be removed, with or without cause, at any time by the
Board.
A vacancy in any office may be filled for the unexpired portion of the term
in the same manner as provided in these By-Laws for election or appointment to
such office.
POWERS AND DUTIES OF THE CHIEF EXECUTIVE OFFICER
Section 2. The Chief Executive Officer shall have general charge and
management of the affairs, property and business of the corporation, subject to
the Board, the Executive Committee and the provisions of these By-Laws. The
Chief Executive Officer or in his absence such other individual as the Board may
select, shall preside at all meetings of the stockholders. He shall also preside
at meetings of the Board and the Executive Committee, and in his absence the
Board or the Executive Committee, as the case may be, shall appoint one of their
number to preside.
The Chief Executive Officer shall perform all duties assigned to him in
these By-Laws and such other duties as may from time to time be assigned to him
by the Board. He shall have the power to appoint and remove, with or without
cause, such officers, other than those elected by the Board as provided for in
these By-Laws, as in his judgment may be necessary or proper for the transaction
of the business of the corporation, and shall determine their duties, all
subject to ratification by the Board.
<PAGE>
POWERS AND DUTIES OF OTHER OFFICERS
Section 3. The Chairman shall perform such duties as may from time to time
be assigned to him by the Board, the Executive Committee or the Chief Executive
Officer.
Section 4. Each Vice Chairman shall perform such duties as may from time
to time be assigned to him by the Board, the Executive Committee or the Chief
Executive Officer.
Section 5. The President shall perform such duties as may from time to
time be assigned to him by the Board, the Executive Committee or the Chief
Executive Officer.
Section 6. Each Executive Vice President shall perform such duties as may
from time to time be assigned to him by the Board, the Executive Committee or
the Chief Executive Officer.
Section 7. Each Senior Vice President shall perform such duties as may
from time to time be assigned to him by the Board, the Executive Committee or
the Chief Executive Officer.
Section 8. Each Vice President and Assistant Vice President shall perform
such duties as may from time to time be assigned to him by the Board, the
Executive Committee, the Chief Executive Officer or an Executive Vice President.
Section 9. The General Counsel shall have general supervision and control
of all of the corporation's legal business. He shall perform such other duties
as may be assigned to him by the Board, the Executive Committee or the Chief
Executive Officer.
Section 10. The Secretary or an Assistant Secretary shall record the
proceedings of all meetings of the Board, the Executive Committee of the Board
and the stockholders, in books kept for that purpose. The Secretary shall be the
custodian of the corporate seal, and he or an Assistant Secretary shall affix
the same to and countersign papers requiring such acts; and he and the Assistant
Secretaries shall perform such other duties as may be required by the Board, the
Executive Committee or the Chief Executive Officer.
Section 11. The Treasurer and Assistant Treasurers shall have care and
custody of all funds of the corporation and disburse and administer the same
under the direction of the Board, the Executive Committee or the Chief Executive
Officer and shall perform such other duties as the Board, the Executive
Committee or the Chief Executive Officer shall assign to them.
Section 12. The Controller shall maintain adequate records of all assets,
liabilities and transactions of the corporation and see that audits thereof are
currently and regularly made; and he shall perform such other duties as may be
required by the Board, the Executive
<PAGE>
Committee or the Chief Executive Officer.
SALARIES AND APPOINTMENTS
Section 13. The salaries of corporate officers shall be fixed by the
Compensation Committee provided for in Section 5 of Article III hereof, except
that the fixing of salaries below certain levels, determinable from time to time
by the Compensation Committee, may in the discretion of the Committee be
delegated to the Chief Executive Officer, subject to the approval of the Board.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 14. (1) The corporation shall indemnify and hold harmless, to the
fullest extent permitted by applicable law as it presently exists or may
hereafter be amended, any person (an "Indemnitee") who was or is made or is
threatened to be made a party or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative, including
appeals (a "proceeding"), by reason of the fact that he, or a person for whom he
is the legal representative, is or was a director or officer of the corporation
or, while a director or officer of the corporation, is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust, enterprise or nonprofit
entity, including service with respect to employee benefit plans, against all
liability and loss suffered and expenses (including attorneys' fees) reasonably
incurred by such Indemnitee. Notwithstanding the preceding sentence, except as
otherwise provided in paragraph (3) of this Section 14, the corporation shall be
required to indemnify an Indemnitee in connection with a proceeding (or part
thereof) commenced by such Indemnitee only if the commencement of such
proceeding (or part thereof) by the Indemnitee was authorized by the Board.
(2) The corporation shall pay the expenses (including attorneys' fees)
incurred by an Indemnitee in defending any proceeding in advance of its final
disposition, provided, however, that, to the extent required by law, such
payment of expenses in advance of the final disposition of the proceeding shall
be made only upon receipt of an undertaking by the Indemnitee to repay all
amounts advanced if it should be ultimately determined that the Indemnitee is
not entitled to be indemnified under this Section 14 or otherwise.
(3) If a claim for indemnification or payment of expenses under this
Section 14 is not paid in full within thirty days after a written claim therefor
by the Indemnitee has been received by the corporation, the Indemnitee may file
suit to recover the unpaid amount of such claim and, if successful in whole or
in part, shall be entitled to be paid the expense of prosecuting such claim. In
any such action the corporation shall have the burden of proving that the
Indemnitee is not entitled to the requested indemnification or payment of
expenses under applicable law.
<PAGE>
(4) The rights conferred on any Indemnitee by this Section 14 shall not be
exclusive of any other rights which such Indemnitee may have or hereafter
acquire under any statute, provision of the Restated Certificate of
Incorporation, these By-Laws, agreement, vote of stockholders or disinterested
directors or otherwise.
(5) The corporation's obligation, if any, to indemnify or to advance
expenses to any Indemnitee who was or is serving at its request as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, enterprise or nonprofit entity shall be reduced by any amount such
Indemnitee may collect as indemnification or advancement of expenses from such
other corporation, partnership, joint venture, trust, enterprise or nonprofit
enterprise.
(6) Any repeal or modification of the foregoing provisions of this Section
14 shall not adversely affect any right or protection hereunder of any
Indemnitee in respect of any act or omission occurring prior to the time of such
repeal or modification.
(7) This Section 14 shall not limit the right of the corporation, to the
extent and in the manner permitted by law, to indemnify and to advance expenses
to persons other than Indemnitees when and as authorized by appropriate
corporate action.
ARTICLE V
CAPITAL STOCK
CERTIFICATES OF STOCK
Section 1. Certificates of stock certifying the number of shares owned
shall be issued to each stockholder in such form not inconsistent with the
Restated Certificate of Incorporation as shall be approved by the Board. Such
certificates of stock shall be numbered and registered in the order in which
they are issued and shall be signed by the Chairman, the President or a Vice
President, and by the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary. Any and all the signatures on the certificates may be a
facsimile.
TRANSFER OF SHARES
Section 2. Transfers of shares shall be made only upon the books of the
corporation by the holder, in person, or by power of attorney duly executed and
filed with the Secretary of the corporation, and on the surrender of the
certificate or certificates of such shares, properly assigned. The corporation
may, if and whenever the Board shall so determine, maintain one or more offices
or agencies, each in charge of an agent designated by the Board, where the
shares of the capital stock of the corporation shall be transferred and/or
registered. The Board may also make such additional rules and regulations as it
may deem expedient concerning the issue, transfer and registration of
certificates for shares of the capital stock of the corporation.
<PAGE>
LOST, STOLEN OR DESTROYED CERTIFICATES
Section 3. The corporation may issue a new certificate of capital stock of
the corporation in place of any certificate theretofore issued by the
corporation, alleged to have been lost, stolen or destroyed, and the corporation
may, but shall not be obligated to, require the owner of the alleged lost,
stolen or destroyed certificate, or his legal representatives, to give the
corporation a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate, as the officers of the
corporation may, in their discretion, require.
FIXING OF RECORD DATE
Section 4. In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board, and which record date: (1) in the case of determination of
stockholders entitled to vote at any meeting of stockholders or adjournment
thereof, shall, unless otherwise required by law, not be more than sixty nor
less than ten days before the date of such meeting; (2) in the case of
determination of stockholders entitled to express consent to corporate action in
writing without a meeting, shall not be more than ten days from the date upon
which the resolution fixing the record date is adopted by the Board; and (3) in
the case of any other action, shall not be more than sixty days prior to such
other action. If no record date is fixed by the Board: (1) the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held; (2) the record date
for determining stockholders entitled to express consent to corporate action in
writing without a meeting shall be determined in accordance with Article VI of
these By-Laws; and (3) the record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the Board
adopts the resolution relating thereto. A determination of stockholders of
record entitled to notice of or to vote at a meeting of stockholders shall apply
to any adjournment of the meeting; provided, however, that the Board may fix a
new record date for the adjourned meeting.
ARTICLE VI
CONSENTS TO CORPORATE ACTION
RECORD DATE
Section 1. The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting shall be as
fixed by the Board or as otherwise
<PAGE>
established under this Section. 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 corporation,
request that a record date be fixed for such purpose. The 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 Board and shall
not precede the date such resolution is adopted. If the Board fails within 10
days after the corporation receives such notice to fix a record date for such
purpose, the record date shall be the day on which the first written consent is
delivered to the corporation in the manner described in Section 2 below unless
prior action by the Board is required under the General Corporation Law of
Delaware, in which event the record date shall be at the close of business on
the day on which the Board adopts the resolution taking such prior action.
PROCEDURES
Section 2. Every written consent purporting to take or authorizing the
taking of corporate action and/or related revocations (each such written consent
and related revocation is referred to in this Article VI as a "Consent") shall
bear the date of signature of each stockholder who signs the Consent, and no
Consent shall be effective to take the corporate action referred to therein
unless, within 60 days of the earliest dated Consent delivered in the manner
required by this Section 2, Consents signed by a sufficient number of
stockholders to take such action are delivered to the corporation.
A Consent shall be delivered to the corporation by delivery to its
registered office in the State of Delaware, its principal place of business, or
an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery to the
corporation's registered office shall be made by hand or by certified or
registered mail, return receipt requested.
In the event of the delivery to the corporation of a Consent, the Secretary
of the corporation shall provide for the safe-keeping of such Consent and shall
promptly conduct such ministerial review of the sufficiency of the Consents and
of the validity of the action to be taken by shareholder 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 Consent have given consent; provided, however, that if
the corporate action to which the Consent relates is the removal or replacement
of one or more members of the Board, the Secretary of the corporation shall
promptly designate two persons, who shall not be members of the Board, to serve
as Inspectors with respect to such Consent and such Inspectors shall discharge
the functions of the Secretary of the corporation under this Section 2. If after
such investigation the Secretary or the Inspectors (as the case may be) shall
determine that the Consent is valid and that the action therein specified has
been validly authorized, that fact shall forthwith be certified on the records
of the corporation kept for the purpose of recording the proceedings of meetings
of stockholders, and the Consent shall be filed in such records, at which time
the Consent shall become effective as stockholder action. In conducting the
investigation required by this Section 2, the Secretary
<PAGE>
or the Inspectors (as the case may be) may, at the expense of the corporation,
retain special legal counsel and any other necessary or appropriate professional
advisors, and such other personnel as they may deem necessary or appropriate to
assist them, and shall be fully protected in relying in good faith upon the
opinion of such counsel or advisors.
ARTICLE VII
MISCELLANEOUS
DIVIDENDS AND RESERVES
Section 1. Dividends upon the capital stock of the corporation may be
declared as permitted by law by the Board or the Executive Committee at any
regular or special meeting. Before payment of any dividend or making any
distribution of profits, there may be set aside out of the surplus or net
profits of the corporation such sum or sums as the Board or the Executive
Committee, from time to time, in their absolute discretion, think proper as a
reserve fund to meet contingencies, or for such other purposes as the Board or
Executive Committee shall think conducive to the interests of the corporation,
and any reserve so established may be abolished and restored to the surplus
account by like action of the Board or the Executive Committee.
SEAL
Section 2. The seal of the corporation shall bear the corporate name
of the corporation, the year of its incorporation and the words "Corporate Seal,
Delaware".
WAIVER
Section 3. Whenever any notice whatever is required to be given by
statute or under the provisions of the Restated Certificate of Incorporation or
these By-Laws, a waiver thereof in writing signed by the person or persons
entitled to such notice, whether before or after the time stated therein, shall
be deemed equivalent thereto. Neither the business to be transacted at, nor the
purpose of, any annual or special meeting of the stockholders or the Board, as
the case may be, need be specified in any waiver of notice of such meeting.
FISCAL YEAR
Section 4. The fiscal year of the corporation shall begin with January
first and end with December thirty-first.
CONTRACTS
Section 5. Except as otherwise required by law, the Restated Certificate
of Incorporation or these By-Laws, any contracts or other instruments may be
executed and delivered in the name and on the behalf of the corporation by such
officer or officers of the corporation as the Board may from time to time
direct. Such authority may be general or
<PAGE>
confined to specific instances as the Board may determine. 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
corporation. Subject to any restrictions imposed by the Board, the Chairman of
the Board, the President or any Vice President of the corporation 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.
PROXIES
Section 6. Unless otherwise provided by resolution adopted by the 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 corporation, in
the name and on behalf of the corporation, to cast the votes which the
corporation 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 corporation, 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 corporation 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 corporation and under
its corporate seal or otherwise, all such written proxies or other instruments
as he may deem necessary or proper in the premises.
AMENDMENTS
Section 7. The Board from time to time shall have the power to make,
alter, amend or repeal any and all of these By-Laws, but any By-Laws so made,
altered or repealed by the Board may be amended, altered or repealed by the
stockholders.
<PAGE>
CERTIFICATION
The undersigned hereby certifies that he is the duly elected and acting
_______________ Secretary of New Tenneco Inc., a Delaware corporation, and the
keeper of its corporate records and minutes. The undersigned further hereby
certifies that the above and foregoing is a true and correct copy of the By-Laws
of said corporation, as in force at the date hereof.
WITNESS the hand of the undersigned and the seal of said corporation,
this _____ day of ______________________, 19___.
Secretary
<PAGE>
Exhibit 4.1
CERTIFICATE OMITTED: THE FACE OF THE CERTIFICATE HAS A COLORED BORDER DESIGN
APPROXIMATELY ONE INCH IN WIDTH ON THE LEFT AND RIGHT MARGINS. THE CERTIFICATE
NUMBER AND THE NUMBER OF SHARES ALSO HAVE A BORDER DESIGN.
TEMPORARY CERTIFICATE:
EXCHANGEABLE FOR DEFINITIVE ENGRAVED
CERTIFICATE WHEN AVAILABLE FOR DELIVERY
COMMON STOCK COMMON STOCK
SEE REVERSE SIDE TENNECO INC.
FOR RIGHTS LEGEND
THIS CERTIFICATE IS TRANSFERABLE IN CUSIP 88037E 10 1
NEW YORK, NEW YORK
SEE REVERSE FOR CERTAIN DEFINITIONS
PAR VALUE $.01 PAR VALUE $.O1
INCORPORATED UNDER LAWS OF THE STATE OF DELAWARE
This certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
TENNECO INC.
transferable on the records of the corporation in person or by duly authorized
attorney upon surrender of this certificate properly endorsed. This certificate
and the shares represented hereby are issued and shall be held subject to all of
the provisions of the Certificate of Incorporation of the Corporation (copies
which are on file with the Transfer Agent), to all of which the holder by
acceptance hereof assents. This certificate is not valid unless countersigned by
the Transfer Agent and registered by the Registrar.
WITNESS the facsimile corporate seal and the facsimile signatures of its duly
authorized officers.
/s/ Dana G. Mead DATED:
Chairman of the Board
COUNTERSIGNED AND REGISTERED:
/s/ Karl A. Stewart
Secretary TRANSFER AGENT AND REGISTER
BY:
-------------------------------------
AUTHORIZED SIGNATURE
FIRST CHICAGO TRUST COMPANY OF NEW YORK
(NEW YORK, N.Y.)
<PAGE>
TENNECO INC.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entirities
JT TEN - as joint tenants with right of survivorship and not as tenants in
common
UNIF GIFT MIN ACT -____________Custodian______________________
(Cust) (Minor)
under Uniform Gifts to Minors
Act_________________
(State)
Additional abbreviations may also be used though not in the above list.
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS, THE DESIGNATIONS, POWERS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF OF THE
CORPORATION, AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH
PREFERENCES AND/OR RIGHTS. SUCH REQUEST MAY BE MADE TO THE CORPORATION OR THE
TRANSFER AGENT.
For value received,_____________________hereby sell, assign and transfer
unto
Please insert social security or other identifying number of Assignee
________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF
ASSIGNEE.
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Shares of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________________________
________________________________________________________________________________
Attorney to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
Dated, ____________________________________
NOTICE:
THE SIGNATURES TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAMES AS WRITTEN UPON THE FACE OF THE .
CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT, OR ANY CHANGE WHATEVER.
--------------------------------------------
This Certificate also evidences and entitles the holder hereof to certain
Rights as set forth in the Rights Agreement between Tenneco Inc. (the "Company")
and First Chicago Trust Company of New York (the "Rights Agent") dated as of
(the "Rights Agreement"), the terms of which are
hereby incorporated herein by reference and a copy of which is on file at the
principal offices of the Company. Under certain circumstances, as set forth in
the Rights Agreement, such Rights will be evidenced by separate certificates and
will no longer be evidenced by this certificate. The Company will mail to the
holder of this certificate a copy of the Rights Agreement, as in effect on the
date of mailing, without charge promptly after receipt of a written request
therefor. Under certain circumstances set forth in the Rights Agreement, Rights
issued to, or held by, any Person who is, was or becomes an Acquiring Person, an
Adverse Person or any Affiliate or Associates thereof (as such terms are defined
in the Rights Agreement), whether currently held by or on behalf of such Person
or by any subsequent holder, may become null or void.
<PAGE>
RIGHTS AGREEMENT
----------------
RIGHTS AGREEMENT, dated as of ______ __, 1996 (the "Agreement"),
between New Tenneco Inc., a Delaware corporation (the "Company"), and First
Chicago Trust Company of New York (the "Rights Agent").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, on ______ __, 1996 (the "Rights Dividend Declaration Date"),
the Board of Directors of the Company authorized and declared a dividend
distribution of one preferred share purchase right (a "Right") for each share of
common stock, par value $.01 per share, of the Company outstanding immediately
prior to the Industrial Distribution (as hereinafter defined) (the "Record
Date"), and has authorized the issuance of one Right (as such number may
hereinafter be adjusted pursuant to the provisions of Section 11(p) hereof) for
each share of Common Stock (as hereinafter defined) of the Company issued
between the Record Date (whether originally issued or delivered from the
Company's treasury) and the Distribution Date (as hereinafter defined), each
Right initially representing the right to purchase one one-hundredth of a share
of Series A Participating Junior Preferred Stock of the Company having the
rights, powers and preferences set forth in the form of Certificate of
Designation, Preferences and Rights attached hereto as Exhibit A, upon the terms
and subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person who or which,
together with all Affiliates and Associates of such Person, shall be the
Beneficial Owner of 20% or more of the shares of Common Stock then
outstanding, but shall not include (i) the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or of any Subsidiary of
the Company, or any Person or entity organized, appointed or established by
the Company for or pursuant to the terms of any such plan or (ii) until
immediately following the Industrial Distribution, the corporation known as
of the date hereof as Tenneco Inc., a Delaware corporation ("Old Tenneco"),
or any subsidiary of Old Tenneco.
(b) "Act" shall mean the Securities Act of 1933.
(c) "Adverse Person" shall mean any Person declared to be an
Adverse Person by the Board of Directors upon a determination that the
criteria set forth in Section 11(a)(ii)(B) apply to such Person.
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<PAGE>
(d) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended and in
effect on the dates of this Agreement (the "Exchange Act").
(e) A Person shall be deemed the "Beneficial Owner" of, and shall
be deemed to "beneficially own," any securities:
(i) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to acquire (whether
such right is exercisable immediately or only after the passage of
time) pursuant to any agreement, arrangement or understanding (whether
or not in writing) or upon the exercise of conversion rights, exchange
rights, rights, warrants or options, or otherwise; provided, however,
that a Person shall not be deemed the "Beneficial Owner" of, or to
"beneficially own," (A) securities tendered pursuant to a tender or
exchange offer made by such Person or any of such Person's Affiliates
or Associates until such tendered securities are accepted for purchase
or exchange, or (B) securities issuable upon exercise of Rights at any
time prior to the occurrence of a Triggering Event, or (C) securities
issuable upon exercise of Rights from and after the occurrence of a
Triggering Event which Rights were acquired by such Person or any of
such Person's Affiliates or Associates prior to the Distribution Date
or pursuant to Section 3(a) or Section 22 hereof (the "Original
Rights") or pursuant to Section 11(i) hereof in connection with an
adjustment made with respect to any Original Rights;
(ii) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to vote or dispose
of or has "beneficial ownership" of (as determined pursuant to Rule
13d-3 of the General Rules and Regulations under the Exchange Act),
including pursuant to any agreement, arrangement or understanding,
whether or not in writing; provided, however, that a Person shall not
be deemed the "Beneficial Owner" of, or to "beneficially own," any
security under this subparagraph (ii) as a result of an agreement,
arrangement or understanding to vote such security if such agreement,
arrangement or understanding: (A) arises solely from a revocable proxy
given in response to a public proxy or consent solicitation made
pursuant to, and in accordance with, the applicable provisions of the
General Rules and Regulations under the Exchange Act, and (B) is not
also then reportable by such Person on Schedule 13D under the Exchange
Act (or any comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly,
by any other Person (or any Affiliate or Associate thereof) with which
such Person (or any of such Person's Affiliates or Associates) has any
agreement, arrangement or understanding (whether or not in writing),
for the purpose of acquiring, holding, voting (except pursuant to a
revocable proxy as described in the proviso to subparagraph (ii) of
this paragraph (e)) or disposing of any voting securities of the
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<PAGE>
Company; provided, however, that nothing in this paragraph (e) shall
cause a person engaged in business as an underwriter of securities to
be the "Beneficial Owner" of, or to "beneficially own," any securities
acquired through such person's participation in good faith in a firm
commitment underwriting until the expiration of forty days after the
date of such acquisition.
(f) "Business Day" shall mean any day other than a Saturday,
Sunday or a day on which banking institutions in the State of New York are
authorized or obligated by law or executive order to close.
(g) "Close of business" on any given date shall mean 5:00 P.M.,
Greenwich, Connecticut time, on such date; provided, however, that if such
date is not a Business Day it shall mean 5:00 P.M., Greenwich, Connecticut
time, on the next succeeding Business Day.
(h) "Common Stock" shall mean the common stock, par value $.01
per share, of the Company, except that "Common Stock" when used with
reference to any Person other than the Company shall mean the capital stock
of such Person with the greatest voting power, or the equity securities or
other equity interest having power to control or direct the management, of
such Person.
(i) "Common stock equivalents" shall have the meaning set forth
in Section 11(a)(iii) hereof.
(j) "Current market price" shall have the meaning set forth in
Section 11(d)(i) hereof.
(k) "Current Value" shall have the meaning set forth in Section
11(a)(iii) hereof.
(l) "Distribution Date" shall have the meaning set forth in
Section 3(a) hereof.
(m) "Exchange Act" shall have the meaning set forth in Section
1(d) hereof.
(n) "Expiration Date" shall have the meaning set forth in Section
7(a) hereof.
(o) "Final Expiration Date" shall mean the close of business on
June 10, 1998.
(p) "Industrial Distribution" shall have the meaning set forth in
the Distribution Agreement among Old Tenneco, the Company and Newport News
Shipbuilding Inc., a Delaware corporation, dated as of ______ __, 1996.
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<PAGE>
(q) "Person" shall mean any individual, firm, corporation,
partnership or other entity.
(r) "Preferred Stock" shall mean shares of Series A Participating
Junior Preferred Stock, par value $.01 per share, of the Company, and, to
the extent that there are not a sufficient number of shares of Series A
Participating Junior Preferred Stock authorized to permit the full exercise
of the Rights, any other series of preferred stock, par value $.01 per
share, of the Company designated for such purpose containing terms
substantially similar to the terms of the Series A Participating Junior
Preferred Stock.
(s) "Principal Party" shall have the meaning set forth in Section
13(b) hereof.
(t) "Purchase Price" shall have the meaning set forth in Section
4(a) hereof.
(u) "Record Date" shall have the meaning set forth in the WHEREAS
clause at the beginning of this Agreement.
(v) "Redemption Price" shall have the meaning set forth in
Section 23(a) hereof.
(w) "Rights" shall have the meaning set forth in the WHEREAS
clause at the beginning of the Agreement.
(x) "Rights Agent" shall have the meaning set forth in the
parties clause at the beginning of this Agreement.
(y) "Rights Certificates" shall have the meaning set forth in
Section 3(a) hereof.
(z) "Rights Dividend Declaration Date" shall have the meaning set
forth in the WHEREAS clause at the beginning of this Agreement.
(aa) "Section 11(a)(ii) Event" shall mean any event described in
Section 11(a)(ii) (A) or (B) hereof.
(bb) "Section 11(a)(ii) Trigger Date" shall have the meaning set
forth in Section 11(a)(iii) hereof.
(cc) "Section 13 Event" shall mean any event described in clauses
(x), (y) or (z) of Section 13(a) hereof.
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<PAGE>
(dd) "Spread" shall have the meaning set forth in Section
11(a)(iii) hereof.
(ee) "Stock Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition, shall include,
without limitation, a report filed pursuant to Section 13(d) under the
Exchange Act) by the Company or any Acquiring Person that an Acquiring
Person has become such.
(ff) "Subsidiary" shall mean, with reference to any Person, any
corporation of which an amount of voting securities sufficient to elect at
least a majority of the directors of such corporation is beneficially
owned, directly or indirectly, by such Person, or otherwise controlled by
such Person.
(gg) "Substitution Period" shall have the meaning set forth in
Section 11(a)(iii) hereof.
(hh) "Summary of Rights" shall have the meaning set forth in
Section 3(b) hereof.
(ii) "Trading Day" shall have the meaning set forth in Section
11(d)(i) hereof.
(jj) "Triggering Event" shall mean any Section 11(a)(ii) Event or
any Section 13 Event.
Section 2. Appointment of Rights Agent. The Company hereby appoints
the Rights Agent to act as agent for the Company and the holders of the Rights
(who, in accordance with Section 3 hereof, shall prior to the Distribution Date
also be the holders of the Common Stock) in accordance with the terms and
conditions hereof, and the Rights Agent hereby accepts such appointment. The
Company may from time to time appoint such Co-Rights Agents as it may deem
necessary or desirable.
Section 3. Issue of Rights Certificates.
(a) Until the earlier of
(i) the close of business on the tenth business day after
the Stock Acquisition Date,
(ii) the close of business on the tenth business day (or
such later date as may be determined by the Board of Directors) after
the date that a tender or exchange offer by any Person (other than the
Company, any Subsidiary of the Company, any employee benefit plan of
the Company or of any Subsidiary of the Company, or any Person or
entity organized, appointed or established by the Company for or
pursuant to the
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<PAGE>
terms of any such plan) is first published or sent or given within the
meaning of Rule 14d-2(a) of the General Rules and Regulations under
the Exchange Act, if upon consummation thereof, such Person would be
the Beneficial Owner of 20% or more of the shares of Common Stock then
outstanding; or
(iii) the close of business on the tenth business day after
the Board of Directors of the Company determines, pursuant to the
criteria set forth in Section 11(a)(ii)(B) hereof, that a Person is an
Adverse Person (the earliest of (i), (ii) or (iii) being herein
referred to as the "Distribution Date"),
(x) the Rights will be evidenced (subject to the provisions of paragraph (b) of
this Section 3) by the certificates for the Common Stock registered in the names
of the holders of the Common Stock (which certificates for Common Stock shall be
deemed also to be certificates for Rights) and not by separate certificates, and
(y) the Rights will be transferable only in connection with the transfer of the
underlying shares of Common Stock (including a transfer to the Company). As soon
as practicable after the Distribution Date, the Rights Agent will send by first-
class, insured, postage prepaid mail, to each record holder of the Common Stock
as of the close of business on the Distribution Date, at the address of such
holder shown on the records of the Company, one or more right certificates, in
substantially the form of Exhibit B hereto (the "Rights Certificates"),
evidencing one Rights for each share of Common Stock so held, subject to
adjustment as provided herein. In the event that an adjustment in the number of
Rights per share of Common Stock has been made pursuant to Section 11(p) hereof,
at the time of distribution of the Right Certificates, the Company shall make
the necessary and appropriate rounding adjustments (in accordance with Section
14(a) hereof) so that Rights Certificates representing only whole numbers of
Rights are distributed and cash is paid in lieu of any fractional Rights. As of
and after the Distribution Date, the Rights will be evidenced solely by such
Rights Certificates.
(b) The Company will deliver a copy of the Summary of Rights, in
substantially the form attached hereto as Exhibit C (the "Summary of Rights"),
to the record holder of the Common Stock as of the Record Date. With respect to
outstanding certificates for the Common Stock as of the Record Date, until the
Distribution Date the Rights will be evidenced by such certificates together
with the Summary of Rights, and, until the earlier of the Distribution Date or
the Expiration Date (as such term is defined in Section 7 hereof), the transfer
of any such certificate (with or without the Summary of Rights) shall also
constitute the transfer of the Rights associated with the shares of Common Stock
represented thereby.
(c) Rights shall be issued in respect of all shares of Common Stock
that are issued (whether originally issued or from the Company's treasury) after
the Record Date but prior to the earlier of the Distribution Date or the
Expiration Date. Certificates issued for Common Stock (including, without
limitation, upon transfer of outstanding Common Stock, disposition of Common
Stock out of treasury stock or issuance or reissuance of Common Stock out of
authorized but unissued shares) after the Record Date but prior to the earlier
of the Distribution Date or the Expiration Date (including, without limitation,
all such certificates
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<PAGE>
issued pursuant to the Industrial Distribution) shall also be deemed to be
certificates for Rights, and shall bear the following legend:
This certificate also evidences and entitles the holder hereof to
certain Rights as set forth in the Rights Agreement between Tenneco Inc.
(the "Company") and First Chicago Trust Company of New York (the "Rights
Agent") dated as of ______ __, 1996 as amended from time to time (the
"Rights Agreement"), the terms of which are hereby incorporated herein by
reference and a copy of which is on file at the principal offices of the
Company. Under certain circumstances, as set forth in the Rights Agreement,
such Rights will be evidenced by separate certificates and will no longer
be evidenced by this certificate. The Company will mail to the holder of
this certificate a copy of the Rights Agreement, as in effect on the date
of mailing, without charge promptly after receipt of a written request
therefor. Under certain circumstances set forth in the Rights Agreement,
Rights issued to, or held by, any Person who is, was or becomes an
Acquiring Person, an Adverse Person or any Affiliate or Associates thereof
(as such terms are defined in the Rights Agreement), whether currently held
by or on behalf of such Person or by any subsequent holder, may become null
and void.
With respect to such certificates bearing the foregoing legend, until the
earlier of (i) the Distribution Date or (ii) the Expiration Date, the Rights
associated with the Common Stock represented by such certificates shall be
evidenced by such certificates alone and registered holders of Common Stock
shall also be the registered holders of the associated Rights, and the transfer
of any of such certificates shall also constitute the transfer of the Rights
associated with the Common Stock represented by such certificates.
Section 4. Form of Rights Certificates.
(a) The Rights Certificates (and the forms of election to purchase and
of assignment to be printed on the reverse thereof) shall each be substantially
in the form set forth in Exhibit B hereto and may have such marks of
identification or designation and such legends, summaries or endorsements
printed thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
applicable law or with any rule or regulation of any stock exchange on which the
Rights may from time to time be listed, or to conform to usage. Subject to the
provisions of Section 11 and Section 22 hereof, the Rights Certificates,
whenever distributed, shall be dated as of the Record Date and on their face
shall entitle the holders thereof to purchase such number of one one-hundredths
of a share of Preferred Stock as shall be set forth therein at the price set
forth therein (such exercise price per one one-hundredth of a share, the
"Purchase Price"), but the amount and type of securities purchasable upon the
exercise of each Right and the Purchase Price thereof shall be subject to
adjustment as provided herein.
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<PAGE>
(b) Any Rights Certificate issued pursuant to Section 3(a) or Section
22 hereof that represents Rights beneficially owned by: (i) an Acquiring Person
or an Adverse Person or any Associate or Affiliate of an Acquiring Person or an
Adverse Person, (ii) a transferee of an Acquiring Person or an Adverse Person
(or of any such Associate or Affiliate) who becomes a transferee after such
Acquiring Person or Adverse Person becomes such, or (iii) a transferee of an
Acquiring Person or an Adverse Person (or of any such Associate or Affiliate)
who becomes a transferee prior to or concurrently with the Acquiring Person or
Adverse Person becoming such and receives such Rights pursuant to either (A) a
transfer (whether or not for consideration) from the Acquiring Person or Adverse
Person to holders of equity interests in such Acquiring Person or Adverse Person
or to any Person with whom such Acquiring Person or Adverse Person has any
continuing agreement, arrangement or understanding regarding the transferred
Rights or (B) a transfer which the Board of Directors of the Company has
determined is part of a plan, arrangement or understanding which has as a
primary purpose or effect avoidance of Section 7(e) hereof, and any Rights
Certificate issued pursuant to Section 6 or Section 11 hereof upon transfer,
exchange, replacement or adjustment of any other Rights Certificate referred to
in this sentence, shall contain (to the extent feasible) the following legend
modified as applicable to apply to such Person:
The Rights represented by this Rights Certificate are or were beneficially
owned by a Person who was or became an [Acquiring Person] [Adverse Person]
or an Affiliate or Associate thereof (as such terms are defined in the
Rights Agreement). Accordingly, this Rights Certificate and the Rights
represented hereby may become null and void in the circumstances specified
in Section 7(e) of such Agreement.
Section 5. Countersignature and Registration.
(a) The Rights Certificates shall be executed on behalf of the Company
by its Chairman of the Board, its President or any Vice President, either
manually or by facsimile signature, and shall have affixed thereto the Company's
seal or a facsimile thereof, which shall be attested by the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer of the Company,
either manually or by facsimile signature. The Rights Certificates shall be
manually countersigned (or by facsimile if permitted by law) by the Rights Agent
and shall not be valid for any purpose unless so countersigned. In case any
officer of the Company who shall have signed any of the Rights Certificates
shall cease to be such officer of the Company before counter- signature by the
Rights Agent and issuance and delivery by the Company, such Rights Certificates,
nevertheless, may be counter- signed by the Rights Agent and issued and
delivered by the Company with the same force and effect as though the person who
signed such Rights Certificates had not ceased to be such officer of the
Company; and any Rights Certificates may be signed on behalf of the Company by
any person who, at the actual date of the execution of such Rights Certificate,
shall be a proper officer of the Company to sign such Rights Certificate,
although at the date of the execution of this Rights Agreement any such person
was not such an officer.
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<PAGE>
(b) Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at its principal office or offices designated as the
appropriate place for surrender of Rights Certificates upon exercise or
transfer, books for registration and transfer of the Rights Certificates issued
hereunder. Such books shall show the names and addresses of the respective
holders of the Rights Certificates, the number of Rights evidenced on its face
by each of the Rights Certificates and the date of each of the Rights
Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Rights
Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates. (a)
Subject to the provisions of Section 4(b), Section 7(e) and Section 14 hereof,
at any time after the close of business on the Distribution Date, and at or
prior to the close of business on the Expiration Date, any Rights Certificate or
Certificates may be transferred, split up, combined or exchanged for another
Rights Certificate or Certificates, entitling the registered holder to purchase
a like number of one one-hundredths of a share of Preferred Stock (or, following
a Triggering Event, Common Stock, other securities, cash or other assets, as the
case may be) as the Rights Certificate or Certificates surrendered then entitled
such holder (or former holder in the case of a transfer) to purchase. Any
registered holder desiring to transfer, split up, combine or exchange any Rights
Certificate or Certificates shall make such request in writing delivered to the
Rights Agent, and shall surrender the Rights Certificate or Certificates to be
transferred, split up, combined or exchanged at the principal office or offices
of the Rights Agent designated for such purpose. Neither the Rights Agent nor
the Company shall be obligated to take any action whatsoever with respect to the
transfer of any such surrendered Rights Certificate until the registered holder
shall have completed and signed the certificate contained in the form of
assignment on the reverse side of such Rights Certificate and shall have
provided such additional evidence of the identity of the Beneficial Owner (or
former Beneficial Owner) or Affiliates or Associates thereof as the Company
shall reasonably request. Thereupon the Rights Agent shall, subject to Section
4(b), Section 7(e) and Section 14 hereof, countersign and deliver to the Person
entitled thereto a Rights Certificate or Rights Certificates, as the case may
be, as so requested. The Company may require payment of a sum sufficient to
cover any tax or governmental charge that may be imposed in connection with any
transfer, split up, combination or exchange of Rights Certificates.
(b) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Rights Certificate, and, in case of loss, theft or destruction, of indemnity
or security reasonably satisfactory to them, and reimbursement to the Company
and the Rights Agent of all reasonable expenses incidental thereto, and upon
surrender to the Rights Agent and cancellation of the Rights Certificate if
mutilated, the Company will execute and deliver a new Rights Certificate of like
tenor to the Rights Agent for countersignature and delivery to the registered
owner in lieu of the Rights Certificate so lost, stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
Rights. (a) Subject to Section 7(e) hereof, the registered holder of any Rights
Certificate may exercise the Rights evidenced thereby (except as otherwise
provided herein including, without limitation, the restrictions on
exercisability set forth in Section 9(c), Section 11(a)(iii) and Section 23(a)
hereof) in whole or in part at any time after the Distribution Date upon
surrender of the Rights
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<PAGE>
Certificate, with the form of election to purchase and the certificate on the
reverse side thereof duly executed, to the Rights Agent at the principal office
or offices of the Rights Agent designated for such purpose, together with
payment of the aggregate Purchase Price with respect to the total number of one
one-hundredths of a share (or other securities, cash or other assets, as the
case may be) as to which such surrendered Rights are then exercisable, at or
prior to the earlier of (i) the close of business on June 10, 1998 (the "Final
Expiration Date"), or (ii) the time at which the Rights are redeemed as provided
in Section 23 hereof (the earlier of (i) and (ii) being herein referred to as
the "Expiration Date").
(b) The Purchase Price for each one one-hundredth of a share of
Preferred Stock pursuant to the exercise of a Right shall initially be $130.00,
and shall be subject to adjustment from time to time as provided in Sections 11
and 13(a) hereof and shall be payable in accordance with paragraph (c) below.
(c) Upon receipt of a Rights Certificate representing exercisable
Rights, with the form of election to purchase and the certificate duly executed,
accompanied by payment, with respect to each Right so exercised, of the Purchase
Price per one one-hundredth of a share of Preferred Stock (or other shares,
securities, cash or other assets, as the case may be) to be purchased as set
forth below and an amount equal to any applicable transfer tax, the Rights Agent
shall, subject to Section 20(k) hereof, thereupon promptly (i) (A) requisition
from any transfer agent of the shares of Preferred Stock (or make available, if
the Rights Agent is the transfer agent for such shares) certificates for the
total number of one one-hundredths of a share of Preferred Stock to be purchased
and the Company hereby irrevocably authorizes its transfer agent to comply with
all such requests, or (B) if the Company shall have elected to deposit the total
number of shares of Preferred Stock issuable upon exercise of the Rights
hereunder with a depositary agent, requisition from the depositary agent
depositary receipts representing such number of one one-hundredths of a share of
Preferred Stock as are to be purchased (in which case certificates for the
shares of Preferred Stock represented by such receipts shall be deposited by the
transfer agent with the depositary agent) and the Company will direct the
depositary agent to comply with such request, (ii) requisition from the Company
the amount of cash, if any, to be paid in lieu of fractional shares in
accordance with Section 14 hereof, (iii) after receipt of such certificates or
depositary receipts, cause the same to be delivered to or upon the order of the
registered holder of such Rights Certificate, registered in such name or names
as may be designated by such holder, and (iv) after receipt thereof, deliver
such cash, if any, to or upon the order of the registered holder of such Rights
Certificate. The payment of the Purchase Price (as such amount may be reduced
pursuant to Section 11(a)(iii) hereof) shall be made in cash or by check
(certified bank check or money order) payable to the order of the Company. In
the event that the Company is obligated to issue other securities (including
Common Stock) of the Company, pay cash and/or distribute other property pursuant
to Section 11(a) hereof, the Company will make all arrangements necessary so
that such other securities, cash and/or other property are available for
distribution by the Rights Agent, if and when appropriate. The Company reserves
the right to require prior to the occurrence of a Triggering Event that, upon
exercise of Rights, a number of Rights be exercised so that only whole shares of
Preferred Stock would be issued.
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(d) In case the registered holder of any Rights Certificate shall
exercise less than all the Rights evidenced thereby, a new Rights Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be issued
by the Rights Agent and delivered to, or upon the order of, the registered
holder of such Rights Certificate, registered in such name or names as may be
designated by such holder, subject to the provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the contrary, from
and after the first occurrence of a Section 11(a)(ii) Event, any Rights
beneficially owned by (i) an Acquiring Person, an Adverse Person, or an
Associate or Affiliate of an Acquiring Person or an Adverse Person, (ii) a
transferee of an Acquiring Person or an Adverse Person (or of any such Associate
or Affiliate) who becomes a transferee after the Acquiring Person or Adverse
Person becomes such, or (iii) a transferee of an Acquiring Person or an Adverse
Person (or of any such Associate or Affiliate) who becomes a transferee prior to
or concurrently with the Acquiring Person or Adverse Person becoming such and
receives such Rights pursuant to either (A) a transfer (whether or not for
consideration) from the Acquiring Person or Adverse Person to holders of equity
interests in such Acquiring Person or Adverse Person or to any Person with whom
the Acquiring Person or Adverse Person has any continuing agreement, arrangement
of understanding regarding the transferred Rights or (B) a transfer which the
Board of Directors of the Company has determined is part of a plan, arrangement
or understanding which has as a primary purpose or effect the avoidance of this
Section 7(e), shall become null and void without any further action and no
holder of such Rights shall have any rights whatsoever with respect to such
Rights, whether under any provision of this Agreement or otherwise. The Company
shall use all reasonable efforts to insure that the provisions of this Section
7(e) and Section 4(b) hereof are complied with, but shall have no liability to
any holder of Rights Certificates or other Person as a result of its failure to
make any determinations with respect to an Acquiring Person or an Adverse Person
or any of their respective Affiliates, Associates or transferees hereunder.
(f) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder upon the occurrence of any purported
exercise as set forth in this Section 7 unless such registered holder shall have
(i) completed and signed the certificate contained in the form of election to
purchase set forth on the reverse side of the Rights Certificate surrendered for
such exercise, and (ii) provided such additional evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof as the Company shall reasonably request.
Section 8. Cancellation and Destruction of Rights Certificates. All
Rights Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if surrendered to the Rights Agent, shall be canceled by it, and no Rights
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the
Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Rights Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall
deliver all canceled Rights Certificates to the Company, or shall, at the
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written request of the Company, destroy such cancelled Rights Certificates, and
in such case shall deliver a certificate of destruction thereof to the Company.
Section 9. Reservation and Availability of Capital Stock. (a) The
Company covenants and agrees that it will cause to be reserved and kept
available out of its authorized and unissued shares of Preferred Stock (and,
following the occurrence of a Triggering Event, out of its authorized and
unissued shares of Common Stock and/or other securities or out of its
authorized and issued shares held in its treasury), the number of shares of
Preferred Stock (and, following the occurrence of a Triggering Event, Common
Stock and/or other securities) that, as provided in this Agreement including
Section 11(a)(iii) hereof, will be sufficient to permit the exercise in full of
all outstanding Rights.
(b) So long as the shares of Preferred Stock (and, following the
occurrence of a Triggering Event, Common Stock and/or other securities) issuable
and deliverable upon the exercise of the Rights may be listed on any national
securities exchange, the Company shall use its best efforts to cause, from and
after such time as the Rights become exercisable, all shares reserved for such
issuance to be listed on such exchange upon official notice of issuance upon
such exercise.
(c) The Company shall use its best efforts to (i) file, as soon as
practicable following the earliest date after the first occurrence of a Section
11(a)(ii) Event on which the consideration to be delivered by the Company upon
exercise of the Rights has been determined in accordance with Section 11(a)(iii)
hereof, a registration statement under the Act, with respect to the securities
purchasable upon exercise of the Rights on an appropriate form, (ii) cause such
registration statement to remain effective (with a prospectus at all times
meeting the requirements of the Act) until the earlier of (A) the date as of
which the Rights are no longer exercisable for such securities, and (B) the date
of the expiration of the Rights. The Company will also take such action as may
be appropriate under, or to ensure compliance with, the securities or "blue sky"
laws of the various states in connection with the exercisability of the Rights.
The Company may temporarily suspend, for a period of time not to exceed ninety
(90) days after the date set forth in clause (i) of the first sentence of this
Section 9(c), the exercisability of the Rights in order to prepare and file such
registration statement and permit it to become effective. Upon any such
suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a public
announcement at such time as the suspension is no longer in effect.
Notwithstanding any provision of this Agreement to the contrary, the Rights
shall not be exercisable in any jurisdiction unless the requisite qualification
in such jurisdiction shall have been obtained and until a registration statement
has been declared effective.
(d) The Company covenants and agrees that it will take all such action
as may be necessary to ensure that all one one-hundredths of a share of
Preferred Stock (and, following the occurrence of a Triggering Event, Common
Stock and/or other securities) delivered upon exercise of Rights shall, at the
time of delivery of the certificates for such shares (subject to payment of the
Purchase Price), be duly and validly authorized and issued and fully paid and
nonassessable.
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(e) The Company further covenants and agrees that it will pay when due
and payable any and all federal and state transfer taxes and charges which may
be payable in respect of the issuance or delivery of the Rights Certificates and
of any certificates for a number of one one-hundredths of a share of Preferred
Stock (or Common Stock and/or other securities, as the case may be) upon the
exercise of Rights. The Company shall not, however, be required to pay any
transfer tax which may be payable in respect of any transfer or delivery of
Rights Certificates to a Person other than, or the issuance or delivery of a
number of one one-hundredths of a share of Preferred Stock (or Common Stock
and/or other securities, as the case may be) in a name other than that of the
registered holder upon the exercise of any Rights until such tax shall have been
paid (any such tax being payable by the holder of such Rights Certificate at the
time of surrender) or until it has been established to the Company's
satisfaction that no such tax is due.
Section 10. Preferred Stock Record Date. Each person in whose name
any certificate for a number of one one-hundredths of a share of Preferred Stock
(or Common Stock and/or other securities, as the case may be) is issued upon the
exercise of Rights shall for all purposes be deemed to have become the holder of
record of such fractional shares of Preferred Stock (or Common Stock and/or
other securities, as the case may be) represented thereby on, and such
certificate shall be dated, the date upon which the Rights Certificate
evidencing such Rights was duly surrendered and payment of the Purchase Price
(and all applicable transfer taxes) was made; provided, however, that if the
date of such surrender and payment is a date upon which the Preferred Stock (or
Common Stock and/or other securities, as the case may be) transfer books of the
Company are closed, such Person shall be deemed to have become the record holder
of such shares (fractional or otherwise) on, and such certificate shall be
dated, the next succeeding Business Day on which the Preferred Stock (or Common
Stock and/or other securities, as the case may be) transfer books of the Company
are open. Prior to the exercise of the Rights evidenced thereby, the holder of
a Rights Certificate shall not be entitled to any rights of a stockholder of the
Company with respect to shares for which the Rights shall be exercisable,
including, without limitation, the right to vote, to receive dividends or other
distributions or to exercise any preemptive rights, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number and Kind of Shares
or Number of Rights. The Purchase Price, the number and kind of shares covered
by each Right and the number of Rights outstanding are subject to adjustment
from time to time as provided in this Section 11.
(a)(i) In the event the Company shall at any time after the date
of this Agreement (A) declare a dividend on the Preferred Stock payable in
shares of Preferred Stock, (B) subdivide the outstanding Preferred Stock,
(C) combine the outstanding Preferred Stock into a smaller number of
shares, or (D) issue any shares of its capital stock in a reclassification
of the Preferred Stock (including any such reclassification in connection
with a consolidation or merger in which the Company is the continuing or
surviving corporation), except as otherwise provided in this Section 11(a)
and Section 7(e) hereof, the Purchase Price in effect at the time of the
record date for such dividend or of the effective date of such subdivision,
combination or reclassification, and the number
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and kind of shares of Preferred Stock or capital stock, as the case may be,
issuable on such date, shall be proportionately adjusted so that the holder
of any Right exercised after such time shall be entitled to receive, upon
payment of the Purchase Price then in effect, the aggregate number and kind
of shares of Preferred Stock or capital stock, as the case may be, which,
if such Right had been exercised immediately prior to such date and at a
time when the Preferred Stock transfer books of the Company were open, he
would have owned upon such exercise and been entitled to receive by virtue
of such dividend, subdivision, combination or reclassification. If an event
occurs which would require an adjustment under both this Section 11(a)(i)
and Section 11(a)(ii) hereof, the adjustment provided for in this Section
11(a)(i) shall be in addition to, and shall be made prior to, any
adjustment required pursuant to Section 11(a)(ii) hereof.
(ii) In the event:
(A) any Person, alone or together with its Affiliates and
Associates, shall, at any time after the Rights Dividend Declaration
Date, become an Acquiring Person, unless the event causing such Person
to become an Acquiring Person is a transaction set forth in Section
13(a) hereof, or is an acquisition of shares of Common Stock pursuant
to a tender offer or an exchange offer for all outstanding shares of
Common Stock at a price and on terms determined by at least a majority
of the members of the Board of Directors who are not officers of the
Company and who are not representatives, nominees, Affiliates or
Associates of an Acquiring Person, after receiving advice from one or
more investment banking firms, to be (a) at a price that is fair to
stockholders (taking into account all factors that the members of the
Board deem relevant including, without limitation, prices that could
reasonably be achieved if the Company or its assets were sold on an
orderly basis designed to realize maximum value) and (b) otherwise in
the best interests of the Company and its stockholders, or
(B) the Board of Directors of the Company shall declare any
Person to be an Adverse Person, upon a determination that such Person,
alone or together with its Affiliates and Associates, has, at any time
after the Rights Dividend Declaration Date, become the Beneficial
Owner of an amount of Common Stock that the Board of Directors
determines to be substantial (which amount shall in no event be less
than 10% of the shares of Common Stock then outstanding) and a
determination by at least a majority of the members of the Board of
Directors who are not officers of the Company, after reasonable
inquiry and investigation, including consultation with such persons as
the directors shall deem appropriate, that (a) such Beneficial
Ownership by such Person is intended to cause the Company to
repurchase the 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 Board of
Directors determines that the best long-term interests of the Company
and its stockholders would not be
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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 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,
then, promptly following the first occurrence of any Section 11(a)(ii) Event,
proper provision shall be made so that each holder of a Right (except as
provided below and in Section 7(e) hereof) shall thereafter have the right to
receive, upon exercise thereof at the then current Purchase Price in accordance
with the terms of this Agreement, in lieu of a number of one one-hundredths of a
share of Preferred Stock, such number of shares of Common Stock of the Company
as shall equal the result obtained by (x) multiplying the then current Purchase
Price by the then number of one one-hundredths of a share of Preferred Stock for
which a Right was exercisable immediately prior to the first occurrence of a
Section 11(a)(ii) Event, and (y) dividing that product (which, following such
first occurrence, shall thereafter be referred to as the "Purchase Price" for
each Right and for all purposes of this Agreement) by 50% of the current market
price (determined pursuant to Section 11(d) hereof) per share of Common Stock on
the date of such first occurrence (such number of shares, the "Adjustment
Shares").
(iii) In the event that the number of shares of Common Stock that
are authorized by the Company's certificate of incorporation but not
outstanding or reserved for issuance for purposes other than upon exercise
of the Rights are not sufficient to permit the exercise in full of the
Rights in accordance with the foregoing subparagraph (ii) of this Section
11(a), the Company shall: (A) determine the excess of (1) the value of the
Adjustment Shares issuable upon the exercise of a Right (the "Current
Value") over (2) the Purchase Price (such excess, the "Spread"), and (B)
with respect to each Right, make adequate provision to substitute for the
Adjustment Shares, upon payment of the applicable Purchase Price, (1) cash,
(2) a reduction in the Purchase Price, (3) Common Stock or other equity
securities of the Company (including, without limitation, shares, or units
of shares, of the Preferred Stock that the Board of Directors of the
Company has deemed to have the same value as shares of Common Stock (such
shares of Preferred Stock, "common stock equivalents")), (4) debt
securities of the Company, (5) other assets, or (6) any combination of the
foregoing, having an aggregate value equal to the Current Value, where such
aggregate value has been determined by the Board of Directors of the
Company based upon the advice of a nationally recognized investment banking
firm selected by the Board of Directors of the Company; provided, however,
if the Company shall not have made adequate provision to deliver value
pursuant to clause (B) above within thirty (30) days following the later of
(x) the first occurrence of a Section 11(a)(ii) Event and (y) the date on
which the Company's right of redemption pursuant to Section 23(a) expires
(the later of (x) and (y) being referred to herein as the "Section
11(a)(ii) Trigger Date"), then the Company shall be obligated to deliver,
upon the surrender for exercise of a Right and without requiring payment of
the Purchase Price, shares of Common Stock (to the extent available) and
then, if necessary, cash, which shares and/or cash have an aggregate value
equal to the Spread. If the Board of Directors
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of the Company shall determine in good faith that it is likely that
sufficient additional shares of Common Stock could be authorized for
issuance upon exercise in full of the Rights, the thirty (30) day period
set forth above may be extended to the extent necessary, but not more than
ninety (90) days after the Section 11(a)(ii) Trigger Date, in order that
the Company may seek shareholder approval for the authorization of such
additional shares (such period, as it may be extended, the "Substitution
Period"). To the extent that the Company determines that some action need
be taken pursuant to the first and/or second sentences of this Section
11(a)(iii), the Company (x) shall provide, subject to Section 7(e) hereof,
that such action shall apply uniformly to all outstanding Rights, and (y)
may suspend the exercisability of the Rights until the expiration of the
Substitution Period in order to seek any authorization of additional shares
and/or to decide the appropriate form of distribution to be made pursuant
to such first sentence and to determine the value thereof. In the event of
any such suspension, the Company shall issue a public announcement stating
that the exercisability of the Rights has been temporarily suspended, as
well as a public announcement at such time as the suspension is no longer
in effect. For purposes of this Section 11(a)(iii), the value of the Common
Stock shall be the current market price (as determined pursuant to Section
11(d) hereof) per share of the Common Stock on the Section 11(a)(ii)
Trigger Date and the value of any "common stock equivalent" shall be deemed
to have the same value as the Common Stock on such date.
(b) In case the Company shall fix a record date for the issuance of
rights, options or warrants to all holders of Preferred Stock entitling them to
subscribe for or purchase (for a period expiring within forty-five (45) calendar
days after such record date) Preferred Stock (or shares having the same rights,
privileges and preferences as the shares of Preferred Stock ("equivalent
preferred stock")) or securities convertible into Preferred Stock or equivalent
preferred stock at a price per share of Preferred Stock or per share of
equivalent preferred stock (or having a conversion price per share, if a
security convertible into Preferred Stock or equivalent preferred stock) less
than the current market price (as determined pursuant to Section 11(d) hereof)
per share of Preferred Stock on such record date, the Purchase Price to be in
effect after such record date shall be determined by multiplying the Purchase
Price in effect immediately prior to such record date by a fraction, the
numerator of which shall be the number of shares of Preferred Stock outstanding
on such record date, plus the number of shares of Preferred Stock that the
aggregate offering price of the total number of shares of Preferred Stock and/or
equivalent preferred stock so to be offered (and/or the aggregate initial
conversion price of the convertible securities so to be offered) would purchase
at such current market price, and the denominator of which shall be the number
of shares of Preferred Stock outstanding on such record date, plus the number of
additional shares of Preferred Stock and/or equivalent preferred stock to be
offered for subscription or purchase (or into which the convertible securities
so to be offered are initially convertible). In case such subscription price
may be paid by delivery of consideration part or all of which may be in a form
other than cash, the value of such consideration shall be as determined in good
faith by the Board of Directors of the Company, whose determination shall be
described in a statement filed with the Rights Agent and shall be binding on the
Rights Agent and the holders of the Rights. Shares of Preferred Stock owned by
or held for the account of the Company shall not be deemed outstanding for the
purpose of any
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such computation. Such adjustment shall be made successively whenever such a
record date is fixed, and in the event that such rights or warrants are not so
issued, the Purchase Price shall be adjusted to be the Purchase Price that would
then be in effect if such record date had not been fixed.
(c) In case the Company shall fix a record date for a distribution to
all holders of Preferred Stock (including any such distribution made in
connection with a consolidation or merger in which the Company is the continuing
corporation) of evidences of indebtedness, cash (other than a regular quarterly
cash dividend out of the earnings or retained earnings of the Company), assets
(other than a dividend payable in Preferred Stock, but including any dividend
payable in stock other than Preferred Stock) or subscription rights or warrants
(excluding those referred to in Section 11(b) hereof), the Purchase Price to be
in effect after such record date shall be determined by multiplying the Purchase
Price in effect immediately prior to such record date by a fraction, the
numerator of which shall be the current market price (as determined pursuant to
Section 11(d) hereof) per share of Preferred Stock on such record date, less the
fair market value (as determined in good faith by the Board of Directors of the
Company, whose determination shall be described in a statement filed with the
Rights Agent) of the portion of the cash, assets or evidences of indebtedness so
to be distributed or of such subscription rights or warrants applicable to a
share of Preferred Stock and the denominator of which shall be such current
market price (as determined pursuant to Section 11(d) hereof) per share of
Preferred Stock. Such adjustments shall be made successively whenever such a
record date is fixed, and in the event that such distribution is not so made,
the Purchase Price shall be adjusted to be the Purchase Price that would have
been in effect if such record date had not been fixed.
(d)(i) For the purpose of any computation hereunder, other than
computations made pursuant to Section 11(a)(iii) hereof, the "current
market price" per share of Common Stock on any date shall be deemed to be
the average of the daily closing prices per share of such Common Stock for
the thirty (30) consecutive Trading Days (as such term is hereinafter
defined) immediately prior to such date, and for purposes of computations
made pursuant to Section 11(a)(iii) hereof, the "current market price" per
share of Common Stock on any date shall be deemed to be the average of the
daily closing prices per share of such Common Stock for the ten (10)
consecutive Trading Days immediately following such date; provided,
however, that in the event that the current market price per share of the
Common Stock is determined during a period following the announcement by
the issuer of such Common Stock of (A) a dividend or distribution on such
Common Stock payable in shares of such Common Stock or securities
convertible into shares of such Common Stock (other than the Rights), or
(B) any subdivision, combination or reclassification of such Common Stock,
and prior to the expiration of the requisite thirty (30) Trading Day or ten
(10) Trading Day Period, as set forth above, after the ex-dividend date for
such divided or distribution, or the record date for such subdivision,
combination or reclassification, then, and in each such case, the "current
market price" shall be properly adjusted to take into account ex-dividend
trading. The closing price for each day shall be the last sale price,
regular way, or, in case no such sale takes place on such day, the average
of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with
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respect to securities listed or admitted to trading on the New York Stock
Exchange or, if the shares of Common Stock are not listed or admitted to
trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed
on the principal national securities exchange on which the shares of Common
Stock are listed or admitted to trading or, if the shares of Common Stock
are not listed or admitted to trading on any national securities exchange,
the last quoted price or, if not so quoted, the average of the high bid and
low asked prices in the over-the-counter market, as reported by The Nasdaq
Stock Market ("NASDAQ") or such other system then in use, or, if on any
such date the shares of Common Stock are not quoted by any such
organization, the average of the closing bid and asked prices as furnished
by a professional market maker making a market in the Common Stock selected
by the Board of Directors of the Company. If on any such date no market
maker is making a market in the Common Stock, the fair value of such shares
on such date as determined in good faith by the Board of Directors of the
Company shall be used. The term "Trading Day" shall mean a day on which the
principal national securities exchange on which the shares of Common Stock
are listed or admitted to trading is open for the transaction of business
or, if the shares of Common Stock are not listed or admitted to trading on
any national securities exchange, a Business Day. If the Common Stock is
not publicly held or not so listed or traded, "current market price" per
share shall mean the fair value per share as determined in good faith by
the Board of Directors of the Company, whose determination shall be
described in a statement filed with the Rights Agent and shall be
conclusive for all purposes.
(ii) For the purpose of any computation hereunder, the "current
market price" per share of Preferred Stock shall be determined in the same
manner as set forth above for the Common Stock in clause (i) of this
Section 11(d) (other than the last sentence thereof). If the current market
price per share of Preferred Stock cannot be determined in the manner
provided above or if the Preferred Stock is not publicly held or listed or
traded in a manner described in clause (i) of this Section 11(d), the
"current market price" per share of Preferred Stock shall be conclusively
deemed to be an amount equal to 100 (as such number may be appropriately
adjusted for such events as stock splits, stock dividends and
recapitalizations with respect to the Common Stock occurring after the
Record Date) multiplied by the current market price per share of the Common
Stock. If neither the Common Stock nor the Preferred Stock is publicly held
or so listed or traded, "current market price" per share of the Preferred
Stock shall mean the fair value per share as determined in good faith by
the Board of Directors of the Company, whose determination shall be
described in a statement filed with the Rights Agent and shall be
conclusive for all purposes. For all purposes of this Agreement, the
"current market price" of one one-hundredth of a share of Preferred Stock
shall be equal to the "current market price" of one share of Preferred
Stock divided by 100.
(e) Anything herein to the contrary notwithstanding, no adjustment in
the Purchase Price shall be required unless such adjustment would require an
increase or decrease of at least one percent (1%) in the Purchase Price;
provided, however, that any adjustments which by reason of this Section 11(e)
are not required to be made shall be carried
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forward and taken into account in any subsequent adjustment. All calculations
under this Section 11 shall be made to the nearest cent or to the nearest ten-
thousandth of a share of Common Stock or other share or one-millionth of a share
of Preferred Stock, as the case may be. Notwithstanding the first sentence of
this Section 11(e), any adjustment required by this Section 11 shall be made no
later than the earlier of (i) three (3) years from the date of the transaction
that mandates such adjustment, or (ii) the Expiration Date.
(f) If as a result of an adjustment made pursuant to Section 11(a)(ii)
or Section 13(a) hereof, the holder of any Right thereafter exercised shall
become entitled to receive any shares of capital stock other than Preferred
Stock, thereafter the number of such other shares so receivable upon exercise of
any Right and the Purchase Price thereof shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Preferred Stock contained in Sections 11(a), (b),
(c), (e), (g), (h), (i), (j), (k) and (m), and the provisions of Sections 7, 9,
10, 13 and 14 hereof with respect to the Preferred Stock shall apply on like
terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-hundredths of a
share of Preferred Stock purchasable from time to time hereunder upon exercise
of the Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided
in Section 11(i), upon each adjustment of the Purchase Price as a result of the
calculations made in Sections 11(b) and (c), each Right outstanding immediately
prior to the making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Purchase Price, that number of one one-hundredths of a
share of Preferred Stock (calculated to the nearest one-millionth) obtained by
(i) multiplying (x) the number of one one-hundredths of a share covered by a
Right immediately prior to this adjustment, by (y) the Purchase Price in effect
immediately prior to such adjustment of the Purchase Price, and (ii) dividing
the product so obtained by the Purchase Price in effect immediately after such
adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any adjustment of
the Purchase Price to adjust the number of Rights, in lieu of any adjustment in
the number of one one-hundredths of a share of Preferred Stock purchasable upon
the exercise of a Right. Each of the Rights outstanding after the adjustment in
the number of Rights shall be exercisable for the number of one-hundredths of a
share of Preferred Stock for which a Right was exercisable immediately prior to
such adjustment. Each Right held of record prior to such adjustment of the
number of Rights shall become that number of Rights (calculated to the nearest
one-ten-thousandth) obtained by dividing the Purchase Price in effect
immediately prior to adjustment of the Purchase Price by the Purchase Price in
effect immediately after adjustment of the Purchase Price. The Company shall
make a public announcement of its election to adjust the number of Rights,
indicating the record date for the adjustment to be made. This record date may
be the date on which the Purchase Price is adjusted or any day thereafter, the
Purchase Price is adjusted or any day thereafter, but, if the Rights
Certificates have been issued, shall be at least ten (10)
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days later than the date of the public announcement. If Rights Certificates have
been issued, upon each adjustment of the number of Rights pursuant to this
Section 11(i), the Company shall, as promptly as practicable, cause to be
distributed to holders of record of Rights Certificates evidencing, subject to
Section 14 hereof, the additional Rights to which such holders shall be entitled
as a result of such adjustment, or, at the option of the Company, shall cause to
be distributed to such holders of record in substitution and replacement for the
Rights Certificates held by such holders prior to the date of adjustment, and
upon surrender thereof, if required by the Company, new Rights Certificates
evidencing all the Rights to which such holders shall be entitled after such
adjustment. Rights Certificates so to be distributed shall be issued, executed
and countersigned in the manner provided for herein (and may bear, at the option
of the Company, the adjusted Purchase Price) and shall be registered in the
names of the holders of record of Rights Certificates on the record date
specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or
the number of one one-hundredths of a share of Preferred Stock issuable upon the
exercise of the Rights, the Rights Certificates theretofore and thereafter
issued may continue to express the Purchase Price per one one-hundredth of a
share and the number of one one-hundredths of a share that were expressed in the
initial Rights Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment reducing
the Purchase Price below the then par value, if any, of the number of one one-
hundredths of a share of Preferred Stock issuable upon exercise of the Rights,
the Company shall take any corporate action that may, in the opinion of its
counsel, be necessary in order that the Company may validly and legally issue
fully paid and nonassessable such number of one one-hundredths of a share of
Preferred Stock at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuance to the holder of any Right exercised after such record date
the number of one one-hundredths of a share of Preferred Stock and other capital
stock or securities of the Company, if any, issuable upon such exercise over and
above the number of one one-hundredths of a share of Preferred Stock and other
capital stock or securities of the Company, if any, issuable upon such exercise
on the basis of the Purchase Price in effect prior to such adjustment; provided,
however, that the Company shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares (fractional or otherwise) or securities upon the occurrence of the event
requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that in their good faith judgment the Board of Directors of the
Company shall determine to be advisable in order that any (i) consolidation or
subdivision of the Preferred Stock, (ii) issuance wholly for cash of any shares
of Preferred Stock at less than the current market price, (iii) issuance wholly
for cash of shares of Preferred Stock or securities that by their terms are
convertible into or exchangeable for
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shares of Preferred Stock, (iv) stock dividends or (v) issuance of rights,
options or warrants referred to in this Section 11, hereafter made by the
Company to holders of its Preferred Stock shall not be taxable to such
stockholders.
(n) The Company covenants and agrees that it shall not, at any time
after the Distribution Date, (i) consolidate with any other Person (other than a
Subsidiary of the Company in a transaction that complies with Section 11(o)
hereof), (ii) merge with or into any other Person (other than a Subsidiary of
the Company in a transaction which complies with Section 11(o) hereof), or (iii)
sell or transfer (or permit any Subsidiary to sell or transfer), in one
transaction, or a series of related transactions, assets or earning power
aggregating more than 50% of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to any other Person or Persons (other than the
Company and/or any of its Subsidiaries in one or more transactions each of which
complies with Section 11(o) hereof), if (x) at the time of or immediately after
such consolidation, merger or sale there are any rights, warrants or other
instruments or securities outstanding or agreements in effect that would
substantially diminish or otherwise eliminate the benefits intended to be
afforded by the Rights or (y) prior to, simultaneously with or immediately after
such consolidation, merger or sale, the shareholders of the Person who
constitutes, or would constitute, the "Principal Party" for purposes of Section
13(a) hereof shall have received a distribution of Rights previously owned by
such Person or any of its Affiliates and Associates.
(o) The Company covenants and agrees that, after the Distribution
Date, it will not, except as permitted by Section 23 or Section 26 hereof, take
(or permit any Subsidiary to take) any action if at the time such action is
taken it is reasonably foreseeable that such action will diminish substantially
or otherwise eliminate the benefits intended to be afforded by the Rights.
(p) Anything in this Agreement to the contrary notwithstanding, in the
event that the Company shall at any time after the Record Date and prior to the
Distribution Date (i) declare a dividend on the outstanding shares of Common
Stock payable in shares of Common Stock, (ii) subdivide the outstanding shares
of Common Stock, or (iii) combine the outstanding shares of Common Stock into a
smaller number of shares, the number of Rights associated with each share of
Common Stock then outstanding, or issued or delivered thereafter but prior to
the Distribution Date, shall be proportionately adjusted so that the number of
Rights thereafter associated with each share of Common Stock following any such
event shall equal the result obtained by multiplying the number of Rights
associated with each share of Common Stock immediately prior to such event by a
fraction the numerator which shall be the total number of shares of Common Stock
outstanding immediately prior to the occurrence of the event and the denominator
of which shall be the total number of shares of Common Stock outstanding
immediately following the occurrence of such event.
(q) The failure by Board of Directors to declare a Person to be an
Adverse Person following such Person becoming the Beneficial Owner of 10% or
more of the outstanding Common Stock shall not imply that such Person is not an
Adverse Person or limit
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the Board of Directors' right at any time in the future to declare such Person
to be an Adverse Person.
Section 12. Certificate of Adjusted Purchase Price or Number of
Shares. Whenever an adjustment is made as provided in Section 11 and Section 13
hereof, the Company shall (a) promptly prepare a certificate setting forth such
adjustment and a brief statement of the facts accounting for such adjustment,
(b) promptly file with the Rights Agent, and with each transfer agent for the
Preferred Stock and the Common Stock, a copy of such certificate, and (c) mail a
brief summary thereof to each holder of a Rights Certificate (or, if prior to
the Distribution Date, to each holder of a certificate representing shares of
Common Stock) in accordance with Section 25 hereof. The Rights Agent shall be
fully protected in relying on any such certificate and on any adjustment therein
contained.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power.
(a) In the event that, following the Stock Acquisition Date, directly
or indirectly, (x) the Company shall consolidate with, or merge with and into,
any other Person (other than a Subsidiary of the Company in a transaction that
complies with Section 11(o) hereof), and the Company shall not be the continuing
or surviving corporation of such consolidation or merger, (y) any Person (other
than a Subsidiary of the Company in a transaction which complies with Section
11(o) hereof) shall consolidate with, or merge with or into, the Company, and
the Company shall be the continuing or surviving corporation of such
consolidation or merger and, in connection with such consolidation or merger,
all or part of the outstanding shares of Common Stock shall be changed into or
exchanged for stock or other securities of any other Person or cash or any other
property, or (z) the Company shall sell or otherwise transfer (or one or more of
its Subsidiaries shall sell or otherwise transfer), in one transaction or a
series of related transactions, assets or earning power aggregating more than
50% of the assets or earning power of the Company and its Subsidiaries (taken as
a whole) to any Person or Persons (other than the Company or any Subsidiary of
the Company in one or more transactions each of which complies with Section
11(o) hereof, then, and in each such case (except as may be contemplated by
Section 13(d) hereof), proper provision shall be made so that: (i) each holder
of a Right, except as provided in Section 7(e) hereof, shall thereafter have the
right to receive, upon exercise thereof at the then current Purchase Price in
accordance with the terms of this Agreement, such number of validly authorized
and issued, fully paid, non-assessable and freely tradeable shares of Common
Stock of the Principal Party (as such term is hereinafter defined), not subject
to any liens, encumbrances, rights of first refusal or other adverse claims, as
shall be equal to the result obtained by (1) multiplying the then current
Purchase Price by the number of one one-hundredths of a share of Preferred Stock
for which a Right is exercisable immediately prior to the first occurrence of a
Section 13 Event (or, if a Section 11(a)(ii) Event has occurred prior to the
first occurrence of a Section 13 Event multiplying the number of such one one-
hundredths of a share for which a Right was exercisable immediately prior to the
first occurrence of a Section 11(a)(ii) Event by the Purchase Price in effect
immediately prior to such first occurrence), and (2) dividing that product
(which, following the first occurrence of a Section 13 Event, shall be referred
to as the "Purchase Price"
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for each Right and for all purposes of this Agreement) by 50% of the current
market price (determined pursuant to Section 11(d)(i) hereof) per share of the
Common Stock of such Principal Party on the date of consummation of such Section
13 Event; (ii) such Principal Party shall thereafter be liable for, and shall
assume, by virtue of such Section 13 Event, all the obligations and duties of
the Company pursuant to this Agreement; (iii) the term "Company" shall
thereafter be deemed to refer to such Principal Party, it being specifically
intended that the provisions of Section 11 hereof shall apply only to such
Principal Party following the first occurrence of a Section 13 Event; (iv) such
Principal Party shall take such steps (including, but not limited to, the
reservation of a sufficient number of shares of its Common Stock) in connection
with the consummation of any such transaction as may be necessary to assure that
the provisions hereof shall thereafter be applicable, as nearly as reasonably
may be, in relation to its shares of Common Stock thereafter deliverable upon
the exercise of the Rights; and (v) the provisions of Section 11(a)(ii) hereof
shall be of no effect following the first occurrence of any Section 13 Event.
(b) "Principal Party" shall mean
(i) in the case of any transaction described in clause (x) or (y)
of the first sentence of Section 13(a), the Person that is the issuer of
any securities into which shares of Common Stock of the Company are
converted in such merger or consolidation, and if no securities are so
issued, the Person that is the other party to such merger or consolidation;
and
(ii) in the case of any transaction described in clause (z) of
the first sentence of Section 13(a), the Person that is the party receiving
the greatest portion of the assets or earning power transferred pursuant to
such transaction or transactions;
provided, however, that in any such case, (1) if the Common Stock of such Person
is not at such time and has not been continuously over the preceding twelve (12)
month period registered under Section 12 of the Exchange Act, and such Person is
a direct or indirect Subsidiary of another Person the Common Stock of which is
and has been so registered, "Principal Party" shall refer to such other Person;
and (2) in case such Person is a Subsidiary, directly or indirectly, of more
than one Person, the Common Stocks of two or more of which are and have been so
registered, "Principal Party" shall refer to whichever of such Persons is the
issuer of the Common Stock having the greatest aggregate market value.
(c) The Company shall not consummate any such consolidation, merger,
sale or transfer unless the Principal Party shall have a sufficient number of
authorized shares of its Common Stock that have not been issued or reserved for
issuance to permit the exercise in full of the Rights in accordance with this
Section 13 and unless prior thereto the Company and such Principal Party shall
have executed and delivered to the Rights Agent a supplemental agreement
providing for the terms set forth in paragraphs (a) and (b) of this Section 13
and further providing that, as soon as practicable after the date of any
consolidation, merger or sale of assets mentioned in paragraph (a) of this
Section 13, the Principal Party will
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(i) prepare and file a registration statement under the Act, with
respect to the Rights and the securities purchasable upon exercise of the
Rights on an appropriate form, and will use its best efforts to cause such
registration statement to (A) become effective as soon as practicable after
such filing and (B) remain effective (with a prospectus at all times
meeting the requirements of the Act) until the Expiration Date; and
(ii) will deliver to holders of the Rights historical financial
statements for the Principal Party and each of its Affiliates that comply
in all respects with the requirements for registration on Form 10 under the
Exchange Act.
The provisions of this Section 13 shall similarly apply to successive mergers or
consolidations or sales or other transfers. In the event that a Section 13
Event shall occur at any time after the occurrence of a Section 11(a)(ii) Event,
the Rights that have not theretofore been exercised shall thereafter become
exercisable in the manner described in Section 13(a).
(d) Notwithstanding anything in this Agreement to the contrary,
Section 13 shall not be applicable to a transaction described in subparagraphs
(x) and (y) of Section 13(a) if (i) such transaction is consummated with a
Person or Persons who acquired shares of Common Stock pursuant to a tender or
exchange offer for all outstanding shares of Common Stock which complies with
the provisions of Section 11(a)(ii)(A) hereof (or a wholly owned subsidiary of
any such Person or Persons) (ii) the price per share of Common Stock offered in
such transaction is not less than the price per share of Common Stock paid to
all holders of shares of Common Stock whose shares were purchased pursuant to
such tender or exchange offer and (iii) the form of consideration being offered
to the remaining holders of shares of Common Stock pursuant to such transaction
is the same as the form of consideration paid pursuant to such tender or
exchange offer. Upon consummation of any such transaction contemplated by this
Section 13(d), all Rights hereunder shall expire.
Section 14. Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue fractions of Rights,
except prior to the Distribution Date as provided in Section 11(p) hereof, or to
distribute Rights Certificates which evidence fractional Rights. In lieu of
such fractional Rights, there shall be paid to the registered holders of the
Rights Certificates with regard to which such fractional Rights would otherwise
be issuable, an amount in cash equal to the same fraction of the current market
value of a whole Right. For purposes of this Section 14(a), the current market
value of a whole Right shall be the closing price of the Rights for the Trading
Date immediately prior to the date on which such fractional Rights would have
been otherwise issuable. The closing price of the Rights for any day shall be
the last sale price, regular way, or, in case no such sale takes place on such
day, the average of the closing bid and asked prices, regular way, in either
case as reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the New York Stock
Exchange or, if the Rights are not listed or admitted to trading on the New York
Stock Exchange, as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national securities
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exchange on which the Rights are listed or admitted to trading, or if the Rights
are not listed or admitted to trading on any national securities exchange, the
last quoted price or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by NASDAQ or such other
system then in use or, if on any such date the Rights are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Rights selected by the Board of
Directors of the Company. If on any such date no such market maker is making a
market in the Rights the fair value of the Rights on such date as determined in
good faith by the Board of Directors of the Company shall be used.
(b) The Company shall not be required to issue fractions of shares of
Preferred Stock (other than, except as provided in Section 7(c) hereof,
fractions that are integral multiples of one one-hundredth of a share of
Preferred Stock) upon exercise of the Rights or to distribute certificates that
evidence fractional shares of Preferred Stock (other than fractions that are
integral multiples of one one-hundredth of a share of Preferred Stock). In lieu
of fractional shares of Preferred Stock that are not integral multiples of one
one-hundredth of a share of Preferred Stock, the Company may pay to the
registered holders of Rights Certificates at the time such Rights are exercised
as herein provided an amount in cash equal to the same fraction of the current
market value of one one-hundredth of a share of Preferred Stock. For purposes of
this Section 14(b), the current market value of one one-hundredth of a share of
Preferred Stock (as determined pursuant to Section 11(d)(ii) hereof) for the
Trading Day immediately prior to the date of such exercise.
(c) Following the occurrence of a Triggering Event, the Company shall
not be required to issue fractions of shares of Common Stock upon exercise of
the Rights or to distribute certificates which evidence fractional shares of
Common Stock. In lieu of fractional shares of Common Stock, the Company may pay
to the registered holders of Rights Certificates at the time such Rights are
exercised as herein provided an amount in cash equal to the same fraction of the
current market value of one (1) share of Common Stock. For purposes of this
Section 14(c), the current market value of one share of Common Stock shall be
the closing price of one share of Common Stock (as determined pursuant to
Section 11(d)(i) hereof) for the Trading Day immediately prior to the date of
such exercise.
(d) The holder of a Right by the acceptance of the Rights expressly
waives his right to receive any fractional Rights or any fractional shares upon
exercise of a Right, except as permitted by this Section 14.
Section 15. Rights of Action. All rights of action in respect of
this Agreement are vested in the respective registered holders of the Rights
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Stock); and any registered holder of any Rights Certificate (or, prior to
the Distribution Date, of the Common Stock), without the consent of the Rights
Agent or of the holder of any other Rights Certificate (or, prior to the
Distribution Date, of the Common Stock), may, in his own behalf and for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company to enforce, or otherwise act in respect of, his right to
exercise the Rights evidenced by such Rights Certificate
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in the manner provided in such Rights Certificate and in this Agreement. Without
limiting the foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have an adequate
remedy at law for any breach of this Agreement and shall be entitled to specific
performance of the obligations hereunder and injunctive relief against actual or
threatened violations of the obligations hereunder of any Person subject to this
Agreement.
Section 16. Agreement of Rights Holders. Every holder of a Right by
accepting the same consents and agrees with the Company and the Rights Agent and
with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of Common Stock;
(b) after the Distribution Date, the Rights Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal office or offices of the Rights Agent designated for such
purposes, duly endorsed or accompanied by a proper instrument of transfer and
with the appropriate forms and certificates fully executed;
(c) subject to Section 6(a) and Section 7(f) hereof, the Company
and the Rights Agent may deem and treat the person in whose name a Rights
Certificate (or, prior to the Distribution Date, the associated Common Stock
certificate) is registered as the absolute owner thereof and of the Rights
evidenced thereby (notwithstanding any notations of ownership or writing on the
Rights Certificates or the associated Common Stock certificate made by anyone
other than the Company or the Rights Agent) for all purposes whatsoever, and
neither the Company nor the Rights Agent, subject to the last sentence of
Section 7(e) hereof, shall be required to be affected by any notice to the
contrary; and
(d) notwithstanding anything in this Agreement to the contrary,
neither the Company nor the Rights Agent shall have any liability to any holder
of a Right or other Person as a result of its inability to perform any of its
obligations under this Agreement by reason of any preliminary or permanent
injunction or other order, decree or ruling issued by a court of competent
jurisdiction or by a governmental, regulatory or administrative agency or
commission, or any statute, rule, regulation or executive order promulgated or
enacted by any governmental authority, prohibiting or otherwise restraining
performance of such obligation; provided, however, the Company must use its best
efforts to have any such order, decree or ruling lifted or otherwise overturned
as soon as possible.
Section 17. Rights Certificate Holder Not Deemed a Stockholder. No
holder, as such, of any Rights Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the number of one one-
hundredths of a share of Preferred Stock or any other securities of the Company
that may at any time be issuable on the exercise of the Rights represented
thereby, nor shall anything contained herein or in any Rights Certificate be
construed to confer upon the holder of any Rights Certificate, as such, any of
the rights of a stockholder of the Company or any right to vote for the election
of directors or upon any matter submitted to
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stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 24 hereof), or to receive dividends
or subscription rights, or otherwise, until the Right or Rights evidenced by
such Rights Certificate shall have been exercised in accordance with the
provisions hereof.
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Section 18. Concerning the Rights Agent.
(a) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to time,
on demand of the Rights Agent, its reasonable expenses and counsel fees and
disbursements and other disbursements incurred in the administration and
execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability, or expense, incurred without
negligence, bad faith or willful misconduct on the part of the Rights Agent, for
anything done or omitted by the Rights Agent in connection with the acceptance
and administration of this Agreement, including the costs and expenses of
defending against any claim of liability in the premises.
(b) The Rights Agent shall be protected and shall incur no
liability for or in respect of any action taken, suffered or omitted by it in
connection with its administration of this Agreement in reliance upon any Rights
Certificate or certificate for Common Stock or for other securities of the
Company, instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate, statement, or other
paper or document believed by it to be genuine and to be signed, executed and,
where necessary, verified or acknowledged, by the proper Person or Persons.
Section 19. Merger or Consolidation or Change of Name of Rights
Agent.
(a) Any corporation into which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to which the Rights Agent
or any successor Rights Agent shall be a party, or any corporation succeeding to
the corporate trust or stock transfer business of the Rights Agent or any
successor Rights Agent, shall be the successor to the Rights Agent under this
Agreement without the execution or filing of any paper or any further act on the
part of any of the parties hereto; provided, however, that such corporation
would be eligible for appointment as a successor Rights Agent under the
provisions of Section 21 hereof. In case at the time such successor Rights
Agent shall succeed to the agency created by this Agreement, any of the Rights
Certificates shall have been countersigned but not delivered, any such successor
Rights Agent may adopt the countersignature of a predecessor Rights Agent and
deliver such Rights Certificates so countersigned; and in case at that time any
of the Rights Certificates shall not have been countersigned, any successor
Rights Agent may countersign such Rights Certificates either in the name of the
predecessor or in the name of the successor Rights Agent; and in all such cases
such Rights Certificates shall have the full force provided in the Rights
Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent shall be
changed and at such time any of the Rights Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Rights Certificates so countersigned; and in
case at that time any of the Rights Certificates shall not have been
countersigned, the Rights Agent may countersign such Rights Certificates either
in its
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prior name or in its changed name; and in all such cases such Rights
Certificates shall have the full force provided in the Rights Certificates and
in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Rights Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be
legal counsel for the Company), and the opinion of such counsel shall be full
and complete authorization and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter (including, without limitation, the identity of any Acquiring Person and
the determination of "current market price") be proved or established by the
Company prior to taking or suffering any action hereunder, such fact or matter
(unless other evidence in respect thereof be herein specifically prescribed) may
be deemed to be conclusively proved and established by a certificate signed by
the Chairman of the Board, the President, any Vice President, the Treasurer, any
Assistant Treasurer, the Secretary or any Assistant Secretary of the Company and
delivered to the Rights Agent; and such certificate shall be full authorization
to the Rights Agent for any action taken or suffered in good faith by it under
the provisions of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only for its own
negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any
of the statements of fact or recitals contained in this Agreement or in the
Rights Certificates or be required to verify the same (except as to its
countersignature on such Rights Certificates), but all such statements and
recitals are and shall be deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Rights Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Agreement or in any Rights Certificate;
nor shall it be responsible for any adjustment required under the provisions of
Section 11 or Section 13 hereof or responsible for the manner, method or amount
of any such adjustment or the ascertaining of the existence of facts that would
require any such adjustment (except with respect to the exercise of Rights
evidenced by Rights Certificates after actual notice of any such adjustment);
nor shall it by any act hereunder be deemed to make any representation of
warranty as to the authorization or reservation of any shares of Common Stock or
Preferred Stock to be issued pursuant to this Agreement or any Rights
Certificate or as to whether any shares of Common Stock or Preferred Stock will,
when so issued, be validly authorized and issued, fully paid and nonassessable.
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(f) The Company agrees that it will perform, execute, acknowledge
and deliver or cause to be performed, executed, acknowledged and delivered all
such further and other acts, instruments and assurances as may reasonably be
required by the Rights Agent for the carrying out or performing by the Rights
Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from the
Chairman of the Board, the President, any Vice President, the Secretary, any
Assistant Secretary, the Treasurer or any Assistant Treasurer of the Company,
and to apply to such officers for advice or instructions in connection with its
duties, and it shall not be liable for any action taken or suffered to be taken
by it in good faith in accordance with instructions of any such officer.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from
acting in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights
or powers hereby vested in it or perform any duty hereunder either itself or by
or through its attorneys or agents, and the Rights Agent shall not be answerable
or accountable for any act, default, neglect or misconduct of any such attorneys
or agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct; provided, however, reasonable care was exercised in the
selection and continued employment thereof.
(j) No provision of this Agreement shall require the Rights Agent
to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder or in the exercise of its rights
if there shall be reasonable grounds for believing that repayment of such funds
or adequate indemnification against such risk or liability is not reasonably
assured to it.
(k) If, with respect to any Rights Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate attached to the form of
assignment or form of election to purchase, as the case may be, has either not
been completed or indicates an affirmative response to clause 1 and/or 2
thereof, the Rights Agent shall not take any further action with respect to such
requested exercise or transfer without first consulting with the Company.
Section 21. Change of Rights Agent. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under this
Agreement upon thirty (30) days' notice in writing mailed to the Company, and to
each transfer agent of the Common Stock and Preferred Stock, by registered or
certified mail, and to the holders of the Rights Certificates by first-class
mail. The Company may remove the Rights Agent or any successor Rights Agent
upon thirty (30) days' notice in writing, mailed to the Rights Agent or
successor Rights Agent, as
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the case may be, and to each transfer agent of the Common Stock and Preferred
Stock, by registered or certified mail, and to the holders of the Rights
Certificates by first-class mail. If the Rights Agent shall resign or be removed
or shall otherwise become incapable of acting, the Company shall appoint a
successor to the Rights Agent. If the Company shall fail to make such
appointment within a period of thirty (30) days after giving notice of such
removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Rights Agent or by the holder of a
Rights Certificate (who shall, with such notice, submit his Rights Certificate
for inspection by the Company), then any registered holder of any Rights
Certificate may apply to any court of competent jurisdiction for the appointment
of a new Rights Agent. Any successor Rights Agent, whether appointed by the
Company or by such a court, shall be (a) a corporation organized and doing
business under the laws of the United States or of the States of New York or
Connecticut (or of any other state of the United States so long as such
corporation is authorized to do business as a banking institution in the States
of New York or Connecticut), in good standing, having a principal office in the
States of New York or Connecticut, which is authorized under such laws to
exercise corporate trust or stock transfer powers and is subject to supervision
or examination by federal or state authority and which has at the time of its
appointment as Rights Agent a combined capital and surplus of at least
$100,000,000 or (b) an affiliate of a corporation described in clause (a) of
this sentence. After appointment, the successor Rights Agent shall be vested
with the same powers, rights, duties and responsibilities as if it had been
originally named as Rights Agent without further act or deed; but the
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment, the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Common Stock and the Preferred Stock, and mail a notice thereof in writing
to the registered holders of the Rights Certificates. Failure to give any notice
provided for in this Section 21, however, or any defect therein, shall not
affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may be.
Section 22. Issuance of New Rights Certificates. Notwithstanding any
of the provisions of this Agreement or of the Rights to the contrary, the
Company may, at its option, issue new Rights Certificates evidencing Rights in
such form as may be approved by its Board of Directors to reflect any adjustment
or change in the Purchase Price and the number or kind or class of shares or
other securities or property purchasable under the Rights Certificates made in
accordance with the provisions of this Agreement. In addition, in connection
with the issuance or sale of shares of Common Stock following the Distribution
Date and prior to the redemption or expiration of the Rights, the Company (a)
shall, with respect to shares of Common Stock so issued or sold pursuant to the
exercise of stock options or under any employee plan or arrangement outstanding,
granted or awarded as of the Distribution Date, or upon the exercise, conversion
or exchange of securities hereinafter issued by the Company, and (b) may, in any
other case, if deemed necessary or appropriate by the Board of Directors of the
Company, issue Rights Certificates representing the appropriate number of Rights
in connection with such issuance or sale; provided, however, that (i) no such
Rights Certificate shall be issued if, and to the extent that, the Company shall
be advised by counsel that such issuance would create a
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significant risk of material adverse tax consequences to the Company or the
Person to whom such Rights Certificate would be issued, and (ii) no such Rights
Certificate shall be issued if, and to the extent that, appropriate adjustment
shall otherwise have been made in lieu of the issuance thereof.
Section 23. Redemption and Termination.
(a) The Board of Directors of the Company may, at its option, at
any time prior to the earlier of (i) the close of business on the tenth business
day following the Stock Acquisition Date, or (ii) the Final Expiration Date,
redeem all but not less than all the then outstanding Rights at a redemption
price of $.02 per Right, as such amount may be appropriately adjusted to reflect
any stock split, stock dividend or similar transaction occurring after the date
hereof (such redemption price being hereinafter referred to as the "Redemption
Price"). Notwithstanding the foregoing, the Board of Directors may not redeem
any Rights following its declaration that any Person is an Adverse Person.
Notwithstanding anything contained in this Agreement to the contrary, the Rights
shall not be exercisable after the first occurrence of a Section 11(a)(ii) Event
until such time as the Company's right of redemption hereunder has expired. The
Company may, at its option, pay the Redemption Price in cash, shares of Common
Stock (based on the "current market price", as defined in Section 11(d)(i)
hereof, of the Common Stock at the time of redemption) or any other form of
consideration deemed appropriate by the Board of Directors.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights, evidence of which shall have been
filed with the Rights Agent and without any further action and without any
notice, the right to exercise the Rights will terminate and the only right
thereafter of the holders of Rights shall be to receive the Redemption Price for
each Right so held. Promptly after the action of the Board of Directors
ordering the redemption of the Rights, the Company shall give notice of such
redemption to the Rights Agent and the holders of the then outstanding Rights by
mailing such notice to all such holders at each holder's last address as it
appears upon the registry books of the Rights Agent or, prior to the
Distribution Date, on the registry books of the Transfer Agent for the Common
Stock. Any notice that is mailed in the manner herein provided shall be deemed
given, whether or not the holder receives the notice. Each such notice of
redemption will state the method by which the payment of the Redemption Price
will be made.
Section 24. Notice of Certain Events.
(a) In case the Company shall propose, at any time after the
Distribution Date, (i) to pay any dividend payable in stock of any class to the
holders of Preferred Stock or to make any other distribution to the holders of
Preferred Stock (other than a regular quarterly cash dividend out of earnings or
retained earnings of the Company), or (ii) to offer to the holders of Preferred
Stock rights or warrants to subscribe for or to purchase any additional shares
of Preferred Stock or shares of stock of any class or any other securities,
rights or options, or (iii) to effect any reclassification of its Preferred
Stock (other than a reclassification involving only the subdivision of
outstanding shares of Preferred Stock), or (iv) to effect any consolidation
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or merger into or with any other Person (other than a Subsidiary of the Company
in a transaction which complies with Section 11(o) hereof), or to effect any
sale or other transfer (or to permit one or more of its Subsidiaries to effect
any sale or other transfer), in one transaction or a series of related
transactions, of more than 50% of the assets or earning power of the Company and
its Subsidiaries (taken as a whole) to any other Person or Persons (other than
the Company and/or any of its Subsidiaries in one or more transactions each of
which complies with Section 11(o) hereof), or (v) to effect the liquidation,
dissolution or winding up of the Company, then, in each such case, the Company
shall give to each holder of a Rights Certificate, to the extent feasible and in
accordance with Section 25 hereof, a notice of such proposed action, which shall
specify the record date for the purposes of such stock dividend, distribution of
rights or warrants, or the date on which such reclassification, consolidation,
merger, sale, transfer, liquidation, dissolution, or winding up is to take place
and the date of participation therein by the holders of the shares of Preferred
Stock, if any such date is to be fixed, and such notice shall be so given in the
case of any action covered by clause (i) or (ii) above at least twenty (20) days
prior to the record date for determining holders of the shares of Preferred
Stock for purposes of such action, and in the case of any such other action, at
least twenty (20) days prior to the date of the taking of such proposed action
or the date of participation therein by the holders of the shares of Preferred
Stock whichever shall be the earlier.
(b) In case any Section 11(a)(ii) Event hereof shall occur, then,
in any such case, (i) the Company shall as soon as practicable thereafter give
to each holder of a Rights Certificate, to the extent feasible and in accordance
with Section 25 hereof, a notice of the occurrence of such event, which shall
specify the event and the consequences of the event to holders of Rights under
Section 11(a)(ii) hereof, and (ii) all references in the preceding paragraph to
Preferred Stock shall be deemed thereafter to refer to Common Stock and/or, if
appropriate, other securities.
Section 25. Notices. Notices or demands authorized by this Agreement
to be given or made by the Rights Agent or by the holder of any Rights
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
New Tenneco Inc.
1275 King Street
Greenwich, Connecticut 06831
Attention: Corporate Secretary
Subject to the provisions of Section 21, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of any Rights
Certificate to or on the Rights Agent shall be sufficiently given or made if
sent by first-class mail, postage prepaid, addressed (until another address is
filed in writing with the Company) as follows:
First Chicago Trust Company of New York
P. O. Box 2500
Jersey City, New Jersey 07303-2500
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Attention: President
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate (or, if
prior to the Distribution Date, to the holder of certificates representing
shares of Common Stock) shall be sufficiently given or made if sent by first-
class mail, postage prepaid, addressed to such holder at the address of such
holder as shown on the registry books of the Company.
Section 26. Supplements and Amendments. Prior to the Distribution
Date and subject to the penultimate sentence of this Section 26, the Company and
the Rights Agent shall, if the Company so directs, supplement or amend any
provision of this Agreement without the approval of any holders of certificates
representing shares of Common Stock. From and after the Distribution Date and
subject to the penultimate sentence of this Section 26, the Company and the
Rights Agent shall, if the Company so directs, supplement or amend this
Agreement without the approval of any holders of Rights Certificates in order
(i) to cure any ambiguity, (ii) to correct or supplement any provision contained
herein that may be defective or inconsistent with any other provisions herein,
(iii) to shorten or lengthen any time period hereunder, or (iv) to change or
supplement the provisions hereunder in any manner that the Company may deem
necessary or desirable and which shall not adversely affect the interests of the
holders of Rights Certificates; provided, this Agreement may not be supplemented
or amended to lengthen, pursuant to clause (iii) of this sentence, (A) a time
period relating to when the Rights may be redeemed at such time as the Rights
are not then redeemable, or (B) any other time period unless such lengthening is
for the purpose of protecting, enhancing or clarifying the rights of, and/or the
benefits to, the holders of Rights. Upon the delivery of a certificate from an
appropriate officer of the Company that states that the proposed supplement or
amendment is in compliance with the terms of this Section 26, the Rights Agent
shall execute such supplement or amendment. Notwithstanding anything contained
in this Agreement to the contrary, unless approved by a vote of the stockholders
of the Company, no supplement or amendment shall be made that changes the
Redemption Price, the Final Expiration Date, the Purchase Price or the number of
one one-hundredths of a share of Preferred Stock for which a Right is
exercisable.
Section 27. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 28. Determinations and Actions by the Board of Directors,
etc. For all purposes of this Agreement, any calculation of the number of
shares of Common Stock outstanding at any particular time, including for
purposes of determining the particular percentage of such outstanding shares of
Common Stock of which any Person is the Beneficial owner, shall be made in
accordance with the last sentence of Rule 13d-3(d)(1)(i) of the General Rules
and Regulations under the Exchange Act. The Board of Directors of the Company
(or as set forth herein, certain specified members thereof) shall have the
exclusive power and authority to administer this Agreement and to exercise all
rights and powers specifically granted to the Board or to the Company, or as may
be necessary or advisable in the administration of this Agreement, including,
without limitation, the right and power to (i) interpret the provisions of
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<PAGE>
this Agreement, and (ii) make all determinations deemed necessary or advisable
for the administration of this Agreement (including a determination to redeem or
not redeem the Rights or to amend the Agreement). All such actions,
calculations, interpretations and determinations (including, for purposes of
clause (y) below, all omissions with respect to the foregoing) which are done or
made by the Board (with, where specifically provided for herein, the concurrence
of the Continuing Directors) in good faith, shall (x) be final, conclusive and
binding on the Company, the Rights Agent, the holders of the Rights and all
other parties, and (y) not subject the Board to any liability to the holders of
the Rights.
Section 29. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any Person other than the Company, the Rights
Agent and the registered holders of the Rights Certificates (and, prior to the
Distribution Date, registered holders of the Common Stock) any legal or
equitable right, remedy or claim under this Agreement; but this Agreement shall
be for the sole and exclusive benefit of the Company, the Rights Agent and the
registered holders of the Rights Certificates (and, prior to the Distribution
Date, registered holders of the Common Stock).
Section 30. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated;
provided, however, that notwithstanding anything in this Agreement to the
contrary, if any such term, provision, covenant or restriction is held by such
court or authority to be invalid, void or unenforceable and the Board of
Directors of the Company determines in its good faith judgment that severing the
invalid language from this Agreement would adversely affect the purpose or
effect of this Agreement, the right of redemption set forth in Section 23 hereof
shall be reinstated and shall not expire until the close of business on the
tenth day following the date of such determination by the Board of Directors.
Section 31. Governing Law. This Agreement, each Right and each
Rights Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts made
and to be performed entirely within such State.
Section 32. Counterparts. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
Section 33. Descriptive Headings. Descriptive headings of the
several Sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
Attest: NEW TENNECO INC.
By________________________ By________________________
Name: Name:
Title: Title:
Attest: FIRST CHICAGO TRUST COMPANY
OF NEW YORK
By________________________ By________________________
Name: Name:
Title: Title:
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<PAGE>
Exhibit A
---------
FORM OF
CERTIFICATE OF DESIGNATION,
PREFERENCES AND RIGHTS OF SERIES A
PARTICIPATING JUNIOR PREFERRED STOCK
NEW TENNECO INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
The undersigned, Chairman of the Board and Secretary of New Tenneco
Inc., a corporation organized and existing under the General Corporation Law of
the State of Delaware (the "Corporation"), in accordance with the provisions of
Section 103 thereof, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors
by the Restated Certificate of Incorporation of the said Corporation, the said
Board of Directors on ______ __, 1996, adopted the following resolution creating
a series of 3,500,000 shares of Preferred Stock designated as Series A
Participating Junior Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of this Corporation in accordance with the provisions of its Restated
Certificate of Incorporation, a series of Preferred Stock of the Corporation be
and it hereby is created, and that the designation and amount thereof and the
voting powers, preferences and relative, participating, optional and other
special rights of the shares of such series, and the qualifications, limitations
or restrictions thereof are as follows:
Section 1. Designation and Amount. The shares of such series shall
be designated as "Series A Participating Junior Preferred Stock" and the number
of shares constituting such series shall be 3,500,000.
Section 2. Dividends and Distributions.
(A) The dividend rate on the shares of Series A Participating Junior
Preferred Stock for each quarterly dividend period (hereinafter referred to as a
"quarterly dividend period"), which quarterly dividend periods shall commence on
January 1, April 1, July 1 and October 1 in each year (each such date being
referred to herein as a "Quarterly Dividend Payment Date") (or in the case of
original issuance, from the date of original issuance) and shall end on and
include the day next preceding the first date of the next quarterly dividend
period, shall be equal (rounded to the nearest cent) to the greater of (a) $5.00
or (b) subject to the provision for adjustment hereinafter set forth, 100 times
the aggregate per share amount of all cash dividends,
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and 100 times the aggregate per share amount (payable in cash, based upon the
fair market value at the time the non-cash dividend or other distribution is
declared as determined in good faith by the Board of Directors) of all non-cash
dividends or other distributions other than a dividend payable in shares of
Common Stock or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared (but not withdrawn) on the common
stock, par value $.01 per share, of this Corporation (the "Common Stock") during
the immediately preceding quarterly dividend period, or, with respect to the
first quarterly dividend period, since the first issuance of any share or
fraction of a share of Series A Participating Junior Preferred Stock. In the
event the Corporation shall at any time after ______ __, 1996 (the "Record
Date") (i) declare any dividend on Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the amount to which holders of shares of Series A Participating Junior Preferred
Stock were entitled immediately prior to such event under clause (b) of the
preceding sentence shall be adjusted by multiplying such amount by a fraction
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(B) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Participating Junior Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares of Series
A Participating Junior Preferred Stock, unless the date of issue of such shares
is prior to the record date for the first Quarterly Dividend Payment Date, in
which case dividends on such shares shall begin to accrue from the date of issue
of such shares, or unless the date of issue is a Quarterly Dividend Payment Date
or is a date after the record date for the determination of holders of shares of
Series A Participating Junior Preferred Stock entitled to receive a quarterly
dividend and before such Quarterly Dividend Payment Date, in each of which
events such dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of Series A Participating Junior
Preferred Stock in an amount less than the total amount of such dividends at the
time accrued and payable on such shares shall be allocated pro rata on a share-
by-share basis among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of holders of shares of
Series A Participating Junior Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be no more
than 45 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A
Participating Junior Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Participating Junior Preferred Stock shall entitle the
holder thereof to 100 votes on all matters submitted to a vote of the
stockholders of the Corporation and will vote together with the shares of Common
Stock as one class on all such matters. In the event the Corporation shall at
any time after the Record Date (i) declare any dividend on Common Stock payable
in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common
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<PAGE>
Stock into a smaller number of shares, then in each such case the number of
votes per share to which holders of shares of Series A Participating Junior
Preferred Stock were entitled immediately prior to such event shall be adjusted
by multiplying such number by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) (i) If at any time dividends on any Series A Participating
Junior Preferred Stock shall be in arrears in an amount equal to six quarterly
dividends thereon, the holders of the Series A Participating Junior Preferred
Stock, voting as a separate series from all other series of Preferred Stock and
classes of capital stock, shall be entitled to elect two members of the Board of
Directors in addition to any Directors elected by any other series, class or
classes of securities and the authorized number of Directors will automatically
be increased by two. Promptly thereafter, the Board of Directors of this
Corporation shall, as soon as may be practicable, call a special meeting of
holders of Series A Participating Junior Preferred Stock for the purpose of
electing such members of the Board of Directors. Said special meeting shall in
any event be held within 45 days of the occurrence of such arrearage.
(ii) During any period when the holders of Series A Participating
Junior Preferred Stock, voting as a separate series, shall be entitled and shall
have exercised their right to elect two Directors, then and during such time as
such right continues (a) the then authorized number of Directors shall be
increased by two, and the holders of Series A Participating Junior Preferred
Stock, voting as a separate series, shall be entitled to elect the additional
Directors so provided for, and (b) each such additional Director shall not be a
member of Class I, Class II or Class III of the Board of Directors, but shall
serve until the next annual meeting of stockholders for the election of
Directors, or until his successor shall be elected and shall qualify, or until
his right to hold such office terminates pursuant to the provisions of this
Section 3B.
(iii) A Director elected pursuant to the terms hereof may be removed
without cause by the holders of Series A Participating Junior Preferred Stock
entitled to vote in an election of such Director.
(iv) If, during any interval between annual meetings of stockholders
for the election of Directors and while the holders of Series A Participating
Junior Preferred Stock shall be entitled to elect two Directors, there is no
such Director in office by reason of resignation, death or removal, then,
promptly thereafter, the Board of Directors shall cause a special meeting of the
holders of Series A Participating Junior Preferred Stock for the purpose of
filling such vacancy and such vacancy shall be filled at such special meeting.
Such special meeting shall in any event be held within 45 days of the occurrence
of such vacancy.
(v) At such time as the arrearage is fully cured, and all dividends
accumulated and unpaid on any shares of Series A Participating Junior Preferred
Stock outstanding are paid, and, in addition thereto, at least one regular
dividend has been paid subsequent to curing such arrearage, the term of office
of any Director elected pursuant hereto, or his successor, shall automatically
terminate, and the authorized number of Directors shall automatically decrease
by
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<PAGE>
two, the rights of the holders of the shares of the Series A Participating
Junior Preferred Stock to vote as provided in this Section 3(B) shall cease,
subject to renewal from time to time upon the same terms and conditions, and the
holders of shares of the Series A Participating Junior Preferred Stock shall
have only the voting rights elsewhere herein set forth.
Section 4. Reacquired Shares. Any shares of Series A Participating
Junior Preferred Stock purchased or otherwise acquired by the Corporation in any
manner whatsoever shall be retired and cancelled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock and may be reissued as part of a new series
of Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein.
Section 5. Liquidation, Dissolution or Winding Up. In the event of
any voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, the holders of the Series A Participating Junior Preferred Stock
shall be entitled to receive the greater of (a) $100.00 per share, plus accrued
dividends to the date of distribution, whether or not earned or declared, or (b)
an amount per share, subject to the provision for adjustment hereinafter set
forth, equal to 100 times the aggregate amount to be distributed per share to
holders of Common Stock. In the event the Corporation shall at any time after
the Record Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the amount to which holders of shares of Series A Participating Junior Preferred
Stock were entitled immediately prior to such event pursuant to clause (b) of
the preceding sentence shall be adjusted by multiplying such amount by a
fraction of the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
Section 6. Optional Redemption. (a) The Company shall have the
option to redeem the whole or any part of the Series A Participating Junior
Preferred Stock at any time at a redemption price equal to, subject to the
provision for adjustment hereinafter set forth, 100 times the "current per share
market price" of the Common Stock on the date of the mailing of the notice of
redemption, together with unpaid accumulated dividends to the date of such
redemption. In the event the Company shall at any time after the Record Date
(i) declare any dividend on Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock or (iii) combine the outstanding Common
Stock into a smaller number of shares, then in each such case the amount to
which holders of shares of Series A Participating Junior Preferred Stock were
otherwise entitled immediately prior to such event under the preceding sentence
shall be adjusted by multiplying such amount by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event. The "current per share market
price" on any date shall be deemed to be the average of the closing price per
share of such Common Stock for the 10 consecutive Trading Days (as such term is
hereinafter defined) immediately prior to such date. The closing price for each
day shall be the last sale price, regular way, or, in case no such sale takes
place on such day, the average of the
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<PAGE>
closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the Common
Stock is not listed or admitted to trading on the New York Stock Exchange, as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the principal national securities
exchange on which the Common Stock is listed or admitted to trading or, if the
Common Stock is not listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted the average of the high bid
and low asked prices in the over-the-counter market, as reported by The Nasdaq
Stock Market ("NASDAQ") or such other system then in use or, if on any such
date, the Common Stock is not quoted by any such organization, the average of
the closing bid and asked prices as furnished by a professional market maker
making a market in the Common Stock selected by the Board of Directors of the
Company. If on such date no such market maker is making a market in the Common
Stock, the fair value of the Common Stock on such date as determined in good
faith by the Board of Directors of the Company shall be used. The term "Trading
Day" shall mean a day on which the principal national securities exchange on
which the Common Stock is listed or admitted to trading is open for the
transaction of business or, if the Common Stock is not listed or admitted to
trading on any national securities exchange, a Monday, Tuesday, Wednesday,
Thursday or Friday on which banking institutions in the State of New York are
not authorized or obligated by law or executive order to close.
(b) Notice of any such redemption shall be given by mailing to the
holders of the Series A Participating Junior Preferred Stock a notice of such
redemption, first class postage prepaid, not later than the thirtieth day and
not earlier than the sixtieth day before the date fixed for redemption, at their
last address as the same shall appear upon the books of the Company. Any notice
which is mailed in the manner herein provided shall be conclusively presumed to
have been duly given, whether or not the shareholder received such notice, and
failure duly to give such notice by mail, or any defect in such notice, to any
holder of Series A Participating Junior Preferred Stock shall not affect the
validity of the proceedings for the redemption of such Series A Participating
Junior Preferred Stock. If less than all the outstanding shares of Series A
Participating Junior Preferred Stock are to be redeemed, the redemption shall be
made by lot as determined by the Board of Directors.
(c) The notice of redemption to each holder of Series A Participating
Junior Preferred Stock shall specify (a) the number of shares of Series A
Participating Junior Preferred Stock of such holder to be redeemed, (b) the date
fixed for redemption, (c) the redemption price and (d) the place of payment of
the redemption price.
(d) If any such notice of redemption shall have been duly given or if
the Company shall have given to the bank or trust company hereinafter referred
to irrevocable written authorization promptly to give or complete such notice,
and if on or before the redemption date specified therein the funds necessary
for such redemption shall have been deposited by the Company with the bank or
trust company designated in such notice, doing business in Greenwich,
Connecticut, and having a capital, surplus and undivided profits aggregating at
least $25,000,000 according to its last published statement of condition, in
trust for the benefit of the holders of Series A Participating Junior Preferred
Stock called for
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<PAGE>
redemption, then, notwithstanding that any certificate for such shares so called
for redemption shall not have been surrendered for cancellation, from and after
the time of such deposit all such shares called for redemption shall no longer
be deemed outstanding and all rights with respect to such shares shall no longer
be deemed outstanding and shall forthwith cease and terminate, except the right
of the holders thereof to receive from such bank or trust company at any time
after the time of such deposit the funds so deposited, without interest, and the
right to exercise, up to the close of business on the fifth day before the date
fixed for redemption. In case less than all the shares represented by any
surrendered certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares. Any interest accrued on such funds shall be
paid to the Company from time to time. Any funds so deposited and unclaimed at
the end of six years from such redemption date shall be repaid to the Company,
after which the holders of shares of Series A Participating Junior Preferred
Stock called for redemption shall look only to the Company for payment thereof.
Section 7. Fractional Shares. Series A Participating Junior
Preferred Stock may be issued in fractions of a share that shall entitle the
holder, in proportion to such holders fractional shares, to exercise voting
rights, receive dividends, participate in distributions and to have the benefit
of all other rights of holders of Series A Participating Junior Preferred Stock.
IN WITNESS WHEREOF, we have executed and subscribed this Certificate
and do affirm the foregoing as true under the penalties of perjury as of the
____ day of ______, 1996.
NEW TENNECO INC.
_______________________
[Name]
Chairman of the Board
Attest:
___________________
[Name]
Secretary
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Exhibit B
---------
[Form of Rights Certificate]
Certificate No. R-___________ Rights
NOT EXERCISABLE AFTER JUNE 10, 1998 OR EARLIER
IF REDEEMED BY THE COMPANY. THE RIGHTS ARE
SUBJECT TO REDEMPTION, AT THE OPTION OF THE
COMPANY, AT $.02 PER RIGHT ON THE TERMS SET
FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN
CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN
ACQUIRING PERSON OR ADVERSE PERSON (AS SUCH
TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) AND
ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME
NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS
RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY
OWNED BY A PERSON WHO WAS OR WERE BENEFICIALLY
OWNED BY A PERSON WHO WAS OR BECAME AN [ACQUIRING]
[ADVERSE] PERSON OR AN AFFILIATE OR ASSOCIATE
OF AN [ACQUIRING] [ADVERSE] PERSON (AS SUCH
TERMS ARE DEFINED IN THE RIGHTS AGREEMENT).
ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE
RIGHTS REPRESENTED HEREBY MAY BECOME NULL AND
VOID IN THE CIRCUMSTANCES SPECIFIED IN
SECTION 7(e) OF SUCH AGREEMENT.]/*/
Rights Certificate
TENNECO INC.
This certifies that , or registered assigns,
is the registered owner of the number of Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions of
the Rights Agreement, dated as of ______ __, 1996, as amended from time to time
(the "Rights Agreement"), between Tenneco Inc., a Delaware corporation (the
"Company"), and First Chicago Trust Company of New York (the "Rights Agent"), to
purchase
- -----------------
/*/The portion of the legend in brackets shall be inserted only if
applicable and shall replace the preceding sentence.
-1-
<PAGE>
from the Company at any time prior to 5:00 P.M. (Greenwich, Connecticut time) on
June 10, 1998 at the office or offices of the Rights Agent designated for such
purpose, or its successors as Rights Agent, one one-hundredth of a fully paid,
non-assessable share of Series A Participating Junior Preferred Stock (the
"Preferred Stock") of the Company, at a purchase price of $130.00 per one one-
hundredth of a share (the "Purchase Price"), upon presentation and surrender of
this Rights Certificate with the Form of Election to Purchase and related
Certificate duly executed. The number of Rights evidenced by this Rights
Certificate (and the number of shares that may be purchased upon exercise
thereof) set forth above, and the Purchase Price per share set forth above, are
the number and Purchase Price as of ______ __, 1996, based on the Preferred
Stock as constituted at such date. The Company reserves the right to require
prior to the occurrence of a Triggering Event (as such term is defined in the
Rights Agreement) that a number of Rights be exercised so that only whole shares
of Preferred Stock will be issued.
Upon the occurrence of a Section 11(a)(ii) Event (as such term is
defined in the Rights Agreement), if the Rights evidenced by this Rights
Certificate are beneficially owned by (i) an Acquiring Person, an Adverse Person
or an Affiliate or Associate of any such Person (as such terms are defined in
the Rights Agreement), (ii) a transferee of any such Acquiring Person, Adverse
Person, Associate or Affiliate, or (iii) under certain circumstances specified
in the Rights Agreement, a transferee of a person who, after such transfer,
became an Acquiring Person, an Adverse Person, or an Affiliate or Associate of
any such Person, such Rights shall become null and void and no holder hereof
shall have any right with respect to such Rights from and after the occurrence
of such Section 11(a)(ii) Event.
As provided in the Rights Agreement, the Purchase Price and the number
and kind of shares of Preferred Stock or other securities that may be purchased
upon the exercise of the Rights evidenced by this Rights Certificate are subject
to modification and adjustment upon the happening of certain events, including
Triggering Events.
This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Rights Certificates, which
limitations of rights include the temporary suspension of the exercisability of
such Rights under the specific circumstances set forth in the Rights Agreement.
Copies of the Rights Agreement are on file at the above-mentioned office of the
Rights Agent and are also available upon written request to the Company.
This Rights Certificate, with or without other Rights Certificates,
upon surrender at the principal office or offices of the Rights Agent designated
for such purpose, may be exchanged for another Rights Certificate or Rights
Certificates of like tenor and date evidencing Rights entitling the holder to
purchase a like aggregate number of one one-hundredths of a share of Preferred
Stock as the Rights evidenced by the Rights Certificate or Rights Certificates
surrendered shall have entitled such holder to purchase. If this Rights
Certificate shall be
-2-
<PAGE>
exercised in part, the holder shall be entitled to receive upon surrender hereof
another Rights Certificate or Rights Certificates for the number of whole Rights
not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate may (unless the Board of Directors shall have made
a determination that a Person is an Adverse Person) be redeemed by the Company
at its option at a redemption price of $.02 per Right at any time prior to the
earlier of the close of business on (i) the tenth business day following the
Stock Acquisition Date (as such time period may be extended pursuant to the
Rights Agreement), and (ii) June 10, 1998.
No fractional shares of Preferred Stock will be issued upon the
exercise of any Right or Rights evidenced hereby (other than fractions that are
integral multiples of one one-hundredth of a share of Preferred Stock, which
may, at the election of the Company, be evidenced by depositary receipts), but
in lieu thereof a cash payment will be made, as provided in the Rights
Agreement.
No holder of this Rights Certificate shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of shares of Preferred
Stock or of any other securities of the Company that may at any time be issuable
on the exercise hereof, nor shall anything contained in the Rights Agreement or
herein be construed to confer upon the holder hereof, as such, any of the rights
of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action, or, to receive notice of
meetings or other actions affecting stockholders (except as provided in the
Rights Agreement), or to receive dividends or subscription rights, or otherwise,
until the Right or Rights evidenced by this Rights Certificate shall have been
exercised as provided in the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal.
Dated as of __________ __, 19__
ATTEST: TENNECO INC.
____________________________ By____________________________
Secretary Title:
-3-
<PAGE>
Countersigned:
FIRST CHICAGO TRUST COMPANY
OF NEW YORK
By___________________________
Authorized Signature
-4-
<PAGE>
[Form of Reverse Side of Rights Certificate]
FORM OF ASSIGNMENT
------------------
(To be executed by the registered holder if such
holder desires to transfer the Rights Certificate.)
FOR VALUE RECEIVED ____________________________________________ hereby sells,
assigns and transfers unto _____________________________________________________
(Please print name and address of transferee)
_________________________________________________________ this Rights
Certificate, together with all right, title and interest therein, and does
hereby irrevocably constitute and appoint _______________ Attorney, to transfer
the within Rights Certificate on the books of the within-named Company, with
full power of substitution.
Dated: _____________________, 19__
______________________________________________
Signature
Signature Guaranteed:
-1-
<PAGE>
Certificate
-----------
The undersigned hereby certifies by checking the appropriate boxes that:
(1) this Rights Certificate [ ] is [ ] is not being sold, assigned and
transferred by or on behalf of a Person who is or was an Acquiring Person, an
Adverse Person or an Affiliate or Associate of any such Person (as such terms
are defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned, it [ ]
did [ ] did not acquire the Rights evidenced by this Rights Certificate from any
Person who is, was or became an Acquiring Person, an Adverse Person or an
Affiliate or Associate of any such Person.
Dated: _______________, 19__ ___________________________________________
Signature
Signature Guaranteed:
NOTICE
------
The signature to the foregoing Assignment and Certificate must correspond
to the name as written upon the face of this Rights Certificate in every
particular, without alteration or enlargement or any change whatsoever.
-1-
<PAGE>
FORM OF ELECTION TO PURCHASE
----------------------------
(To be executed if holder desires to
exercise Rights represented by the
Rights Certificate.)
To: TENNECO INC.:
The undersigned hereby irrevocably elects to exercise ____________ Rights
represented by this Rights Certificate to purchase the shares of Preferred Stock
issuable upon the exercise of the Rights (or such other securities of the
Company or of any other person which may be issuable upon the exercise of the
Rights) and requests that certificates for such shares be issued in the name of
and delivered to:
Please insert social security or other identifying number
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
If such number of Rights shall not be all the Rights evidenced by this
Rights Certificate, a new Rights Certificate for the balance of such Rights
shall be registered in the name of and delivered to:
Please insert social security or other identifying number
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
________________________________________________________________________________
Dated: ______________, 19__
________________________________________________
Signature
Signature Guaranteed:
-1-
<PAGE>
Certificate
-----------
The undersigned hereby certifies by checking the appropriate boxes that:
(1) the Rights evidenced by this Rights Certificate [ ] are [ ] are not
being exercised by or on behalf of a Person who is or was an Acquiring Person,
an Adverse Person or an Affiliate or Associate of any such Person (as such terms
are defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned, it [ ]
did [ ] did not acquire the Rights evidenced by this Rights Certificate from any
Person who is, was or became an Acquiring Person, an Adverse Person or an
Affiliate or Associate of any such Person.
Dated: _______________, 19__ __________________________________________
Signature
Signature Guaranteed:
NOTICE
------
The signature to the foregoing Election to Purchase and Certificate
must correspond to the name as written upon the face of this Rights Certificate
in every particular, without alteration or enlargement or any change whatsoever.
-1-
<PAGE>
Exhibit C
---------
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED STOCK
On ______ __, 1996, the Board of Directors of New Tenneco Inc. (the
"Company") declared a dividend distribution of one Right for each outstanding
share of Tenneco Common Stock to stockholders of record at the close of business
on ______ __, 1996. Each Right entitles the registered holder to purchase from
the Company a unit consisting of one one-hundredth of a share (a "Unit") of
Series A Participating Junior Preferred Stock, par value $.01 per share (the
"Preferred Stock"), at a Purchase Price of $130.00 per Unit, subject to
adjustment. The description and terms of the Rights are set forth in a Rights
Agreement, as amended from time to time (the "Rights Agreement"), between the
Company and First Chicago Trust Company of New York, as Rights Agent.
Initially, the Rights will be attached to all Common Stock
certificates representing shares then outstanding, and no separate Rights
Certificates will be distributed. The Rights will separate from the Common
Stock and a Distribution Date will occur upon the earlier of (i) 10 business
days following a public announcement 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
Common Stock (the "Stock Acquisition Date"), (ii) 10 business days (or such
later date as may be determined by the Board of Directors) 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 Common
Stock or (iii) 10 business days after the Board of Directors of the Company
determines any person, alone or together with its affiliates and associates, has
become the Beneficial Owner of an amount of Common Stock which the Board of
Directors determines to be substantial (which amount shall in no event be less
than 10% of the shares of Common Stock outstanding) and at least a majority of
the Board of Directors who are not officers of the Company, after reasonable
inquiry and investigation, including 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
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 Board of Directors 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 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").
-2-
<PAGE>
Until the Distribution Date, (i) the Rights will be evidenced by the
Common Stock certificates and will be transferred with and only with such Common
Stock certificates, (ii) new Common Stock certificates issued after ______ __,
1996 will contain a notation incorporating the Rights Agreement by reference and
(iii) the surrender for transfer of any certificates for Common Stock
outstanding will also constitute the transfer of the Rights associated with the
Common Stock represented by such certificate.
The Rights are not exercisable until the Distribution Date and will
expire at the close of business on June 10, 1998, unless earlier redeemed by the
Company as described below.
As soon as practicable after the Distribution Date, Rights
Certificates will be mailed to holders of record of the Common Stock as of the
close of business on the Distribution Date and, thereafter, the separate Rights
Certificates alone will represent the Rights. Except as otherwise determined by
the Board of Directors, only shares of Common Stock issued prior to the
Distribution Date will be issued with Rights.
In the event (a "Flip-In Event") that (i) a Person becomes the
beneficial owner of 20% or more of the then outstanding shares of Common Stock
(except pursuant to an offer for all outstanding shares of 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 Board of Directors
determines that a person is an Adverse Person, each holder of a Right will
thereafter have the right to receive, upon exercise, 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. Notwithstanding any
of the foregoing, following the occurrence of a Flip-In Event, all Rights that
are, or (under certain circumstances specified in the Rights Agreement) were,
beneficially owned by any Acquiring Person or Adverse Person will be null and
void. However, Rights are not exercisable following the occurrence of a Flip-In
Event until such time as the Rights are no longer redeemable by the Company as
set forth below.
For example, at an exercise price of $130.00 per Right, each Right not
owned by an Acquiring Person or by an Adverse Person (or by certain related
parties) following a Flip-In Event would entitle its holder to purchase $260.00
worth of Common Stock (or other consideration, as noted above) for $130.00.
Assuming that the Common Stock had a per share value of $50.00 at such time, the
holder of each valid Right would be entitled to purchase 5.2 shares of Common
Stock for $130.00.
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 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.
-3-
<PAGE>
The Purchase Price payable, and the number of Units of Preferred Stock
or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
Preferred Stock, (ii) if holders of the Preferred Stock are granted certain
rights or warrants to subscribe for Preferred Stock or convertible securities at
less than the current market price of the Preferred Stock, or (iii) upon the
distribution to holders of the 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 the Preferred Stock on the
last trading date prior to the date of exercise.
In general, at any time until ten 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
Board of Directors has previously declared a person to be an Adverse Person.
Immediately upon the action of the Board of Directors 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 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 (which may be amended
only with stockholder approval), any of the provisions of the Rights Agreement
may be amended by the Board of Directors of the Company prior to the
Distribution Date. After the Distribution Date, the provisions of the Rights
Agreement (other than those described in the preceding sentence) may be amended
by the 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.
A copy of the Rights Agreement is being filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form 10. A
copy of the Rights Agreement is available free of charge from the Company. This
summary description of the Rights does not purport to be complete and is
qualified in its entirety by reference to the Rights Agreement, which is
incorporated herein by reference.
-4-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NEW TENNECO INC.
and
THE CHASE MANHATTAN BANK,
Trustee
--------------
INDENTURE
Dated as of , 1996
--------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET/1/
--------------
BETWEEN
Provisions of Trust Indenture Act of 1939 and the Indenture to be dated as of
1, 1996 between NEW TENNECO INC. and THE CHASE MANHATTAN BANK , Trustee.
<TABLE>
<CAPTION>
SECTION OF THE ACT SECTION OF INDENTURE
- ------------------ --------------------
<S> <C>
310(a)(1) and (2).................................. 6.9
310(a)(3) and (4).................................. Inapplicable
310(b)............................................. 6.8 and 6.10(a), (b) and (d)
310(c)............................................. Inapplicable
311(a)............................................. 6.13
311(b)............................................. 6.13
311(c)............................................. Inapplicable
312(a)............................................. 4.1 and 4.2
312(b)............................................. 4.2
312(c)............................................. 4.2
313(a)............................................. 4.4
313(b)(1).......................................... Inapplicable
313(b)(2).......................................... Inapplicable
313(c)............................................. 4.4
313(d)............................................. 4.4
314(a)............................................. 4.3
314(b)............................................. Inapplicable
314(c)(1) and (2).................................. 11.5
314(c)(3).......................................... Inapplicable
314(d)............................................. Inapplicable
314(e)............................................. 11.5
314(f)............................................. Inapplicable
315(a), (c) and (d)................................ 6.1
315(b)............................................. 5.11
315(e)............................................. 5.12
316(a)(1).......................................... 5.9
316(a)(2).......................................... Not required
316(a) (last sentence)............................. 7.4
316(b)............................................. 5.7
316(c)............................................. 7.2
317(a)............................................. 5.2
317(b)............................................. 3.4(a) and (b)
318(a)............................................. 11.7
</TABLE>
- ---------
/1/ This Cross Reference Sheet is not part of the Indenture.
<PAGE>
TABLE OF CONTENTS
---------------------
<TABLE>
<CAPTION>
PAGE
<C> <S> <C>
Parties................................................................... 1
Recitals
Authorization of Indenture............................................. 1
Compliance with Legal Requirements..................................... 1
Purpose of and Consideration for Indenture............................. 1
ARTICLE ONE
Definitions
Section 1.1. Certain Terms Defined....................................... 1
Attributable Debt........................................... 2
Authenticating Agent........................................ 2
Authorized Newspaper........................................ 2
Board of Directors.......................................... 3
Board Resolution............................................ 3
Business Day................................................ 3
Commission.................................................. 3
Composite Rate.............................................. 3
Consolidated Net Tangible Assets............................ 3
Corporate Trust Office...................................... 4
Coupon...................................................... 4
covenant defeasance......................................... 4
Debt........................................................ 4
Depositary.................................................. 4
Dollar...................................................... 4
ECU......................................................... 4
Event of Default............................................ 4
Exempted Debt............................................... 5
Foreign Currency............................................ 5
Holder, Holder of Securities, Securityholder................ 5
Indenture................................................... 5
Interest.................................................... 5
Issuer...................................................... 5
Issuer Order................................................ 5
Judgment Currency........................................... 5
Mortgage.................................................... 5
Net Rental Payments......................................... 5
Officers' Certificate....................................... 6
Opinion of Counsel.......................................... 6
original issue date......................................... 6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
<C> <S> <C>
Original Issue Discount
Security.................................................. 6
Outstanding............................................... 6
Periodic Offering......................................... 7
Permitted Mortgage........................................ 7
Person.................................................... 7
principal................................................. 8
Principal Manufacturing
Property.................................................. 8
record date............................................... 8
Registered Global
Security.................................................. 8
Registered Security....................................... 8
Required Currency......................................... 8
Responsible Officer....................................... 8
Restricted Subsidiary..................................... 8
Security or Securities.................................... 9
Subsidiary................................................ 9
Trust Indenture Act of
1939...................................................... 9
Trustee................................................... 9
Unregistered Security..................................... 9
U.S. Government
Obligations............................................... 9
Yield to Maturity......................................... 9
ARTICLE TWO
Securities
Section 2.1. Forms Generally........................................... 10
Form of Trustee's
Certificate of
Section 2.2. Authentication............................................ 10
Amount Unlimited;
Section 2.3. Issuable in Series........................................ 11
Authentication and
Section 2.4. Delivery of Securities.................................... 13
Section 2.5. Execution of Securities................................... 16
Certificate of
Section 2.6. Authentication............................................ 17
Denomination and Date of
Securities; Payments of
Section 2.7. Interest.................................................. 17
Registration, Transfer
Section 2.8. and Exchange.............................................. 18
Mutilated, Defaced,
Destroyed, Lost and
Section 2.9. Stolen Securities......................................... 22
Cancellation of
Securities; Destruction
Section 2.10. Thereof................................................... 24
Section 2.11. Temporary Securities...................................... 24
ARTICLE THREE
Covenants of the Issuer
Payment of Principal and
Section 3.1. Interest.................................................. 25
Offices for Payments,
Section 3.2. etc....................................................... 26
Appointment To Fill a
Vacancy in Office of
Section 3.3. Trustee................................................... 27
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
<C> <S> <C>
Section 3.4. Paying Agents............................................. 27
Section 3.5. Written Statement to Trustee.............................. 28
Section 3.6. Negative Pledge; Limitation on Sale and Leaseback
Transactions............................................ 29
Section 3.7. Luxembourg Publications................................... 32
ARTICLE FOUR
Securityholders Lists and Reports by the Issuer and the Trustee
Section 4.1. Issuer to Furnish Trustee Information as to Names and
Addresses of Securityholders............................ 32
Section 4.2. Preservation and Disclosure of Securityholders Lists...... 33
Section 4.3. Reports by the Issuer..................................... 33
Section 4.4. Reports by the Trustee.................................... 33
ARTICLE FIVE
Remedies of the Trustee and Securityholders on Event of Default
Section 5.1. Event of Default Defined; Acceleration of Maturity; Waiver
of Default.............................................. 33
Collection of Indebtedness by Trustee; Trustee May Prove
Section 5.2. Debt...................................................... 36
Section 5.3. Application of Proceeds................................... 39
Section 5.4. Suits for Enforcement..................................... 40
Section 5.5. Restoration of Rights on Abandonment of Proceedings....... 40
Section 5.6. Limitations on Suits by Securityholders................... 40
Unconditional Right of Securityholders to Institute
Section 5.7. Certain Suits............................................. 41
Section 5.8. Powers and Remedies Cumulative; Delay or Omission Not
Waiver of Default....................................... 41
Section 5.9. Control by Holders of Securities.......................... 42
Section 5.10. Waiver of Past Defaults................................... 42
Section 5.11. Trustee to Give Notice of Default, But May Withhold in
Certain Circumstances................................... 43
Right of Court to Require Filing of Undertaking to Pay
Section 5.12. Costs..................................................... 43
ARTICLE SIX
Concerning the Trustee
Section 6.1. Duties and Responsibilities of the Trustee; During
Default; Prior to Default............................... 44
Section 6.2. Certain Rights of the Trustee............................. 45
Section 6.3. Trustee Not Responsible for Recitals, Disposition of
Securities or Application of Proceeds Thereof........... 46
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
PAGE
<C> <S> <C>
Section 6.4. Trustee and Agents May Hold Securities or Coupons;
Collections, etc. ...................................... 47
Section 6.5. Moneys Held by Trustee.................................... 47
Section 6.6. Compensation and Indemnification of Trustee and Its Prior
Claim................................................... 47
Section 6.7. Right of Trustee to Rely on Officers' Certificate, etc.... 48
Section 6.8. Indentures Not Creating Potential Conflicting Interests
for the Trustee......................................... 48
Section 6.9. Persons Eligible for Appointment as Trustee............... 48
Section 6.10. Resignation and Removal; Appointment of Successor Trustee. 49
Section 6.11. Acceptance of Appointment by Successor Trustee............ 50
Section 6.12. Merger, Conversion, Consolidation or Succession to
Business of Trustee..................................... 51
Section 6.13. Preferential Collection of Claims Against the Issuer...... 52
Section 6.14. Appointment of Authenticating Agent....................... 52
ARTICLE SEVEN
Concerning the Securityholders
Section 7.1. Evidence of Action Taken by Securityholders............... 53
Proof of Execution of Instruments and of Holding of
Section 7.2. Securities................................................ 54
Section 7.3. Holders To Be Treated as Owners........................... 55
Section 7.4. Securities Owned by Issuer Deemed Not Outstanding......... 56
Section 7.5. Right of Revocation of Action Taken....................... 56
ARTICLE EIGHT
Supplemental Indentures
Supplemental Indentures Without Consent of
Section 8.1. Securityholders........................................... 57
Section 8.2. Supplemental Indentures With Consent of Securityholders... 58
Section 8.3. Effect of Supplemental Indenture.......................... 60
Section 8.4. Documents to Be Given to Trustee.......................... 60
Notation on Securities in Respect of Supplemental
Section 8.5. Indentures................................................ 60
ARTICLE NINE
Consolidation, Merger, Sale or Conveyance
Section 9.1. Covenant Not to Merge, Consolidate, Sell or Convey
Property Except Under Certain Conditions................ 61
Section 9.2. Successor Corporation Substituted......................... 61
Section 9.3. Opinion of Counsel Delivered to Trustee................... 62
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
PAGE
ARTICLE TEN
Satisfaction and Discharge of Indenture; Unclaimed Moneys
<C> <S> <C>
Section 10.1. Satisfaction and Discharge of Indenture.................. 62
Section 10.2. Application by Trustee of Funds Deposited for Payment of
Securities............................................. 67
Section 10.3. Repayment of Moneys Held by Paying Agent................. 67
Section 10.4. Return of Moneys Held by Trustee and Paying Agent
Unclaimed for Two Years................................ 67
ARTICLE ELEVEN
Miscellaneous Provisions
Section 11.1. Incorporators, Shareholders, Officers and Directors of
Issuer Exempt from Individual Liability................ 68
Section 11.2. Provisions of Indenture for the Sole Benefit of Parties
and Holders of Securities and Coupons.................. 68
Section 11.3. Successors and Assigns of Issuer Bound by Indenture...... 69
Section 11.4. Notices and Demands on Issuer, Trustee and Holders of
Securities and Coupons................................. 69
Section 11.5. Officer's Certificates and Opinions of Counsel;
Statements to Be Contained Therein..................... 69
Section 11.6. Payments Due on Saturdays, Sundays and Holidays.......... 71
Section 11.7. Conflict of Any Provision of Indenture with Trust
Indenture Act of 1939.................................. 71
Section 11.8. New York Law to Govern................................... 71
Section 11.9. Counterparts............................................. 71
Section 11.10. Effect of Headings....................................... 71
Section 11.11. Securities in a Foreign Currency or in ECU............... 71
Section 11.12. Judgment Currency........................................ 72
ARTICLE TWELVE
Redemption of Securities and Sinking Funds
Section 12.1. Applicability of Article................................. 73
Section 12.2. Notice of Redemption; Partial Redemptions................ 73
Section 12.3. Payment of Securities Called for Redemption.............. 75
Section 12.4. Exclusion of Certain Securities from Eligibility for
Selection for Redemption............................... 76
Section 12.5. Mandatory and Optional Sinking Funds..................... 77
Testimonium.............................................................. 80
Signatures............................................................... 80
</TABLE>
v
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THIS INDENTURE, dated as of , 1996 between New Tenneco Inc., a Delaware
corporation (the "Issuer"), and The Chase Manhattan Bank, a New York banking
corporation, as trustee (the "Trustee"),
WITNESSETH:
Whereas, the Issuer has duly authorized the issue from time to time of its
unsecured debentures, notes or other evidences of indebtedness to be issued in
one or more series (the "Securities") up to such principal amount or amounts
as may from time to time be authorized in accordance with the terms of this
Indenture;
Whereas, the Issuer has duly authorized the execution and delivery of this
Indenture to provide, among other things, for the authentication, delivery and
administration of the Securities; and
Whereas, all things necessary to make this Indenture a valid indenture and
agreement according to its terms have been done;
Now, Therefore:
In consideration of the premises and the purchases of the Securities by the
holders thereof, the Issuer and the Trustee mutually covenant and agree for
the equal and proportionate benefit of the respective holders from time to
time of the Securities and of the coupons, if any, appertaining thereto as
follows:
ARTICLE ONE
Definitions
Section 1.1 Certain Terms Defined. The following terms (except as otherwise
expressly provided herein, in any indenture supplemental hereto or, as to any
Security, in such Security or unless the context otherwise clearly requires)
for all purposes of this Indenture and of any indenture supplemental hereto
shall have the respective meanings specified in this Section. All other terms
used in this Indenture that are defined in the Trust Indenture Act of 1939 or
the definitions of which in the Securities Act of 1933 are referred to in the
Trust Indenture Act of 1939, including terms defined therein by reference to
the Securities Act of 1933 (except as herein otherwise expressly provided or
unless the context otherwise requires), shall have the meanings assigned to
such terms in said Trust
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Indenture Act and in said Securities Act as in force at the date of this In-
denture. All accounting terms used herein and not expressly defined shall have
the meanings assigned to such terms in accordance with generally accepted ac-
counting principles, and the term "generally accepted accounting principles"
means such accounting principles as are generally accepted in the United
States at the time of any computation. The words "herein," "hereof," "hereto"
and "hereunder" and other words of similar import refer to this Indenture as a
whole and not to any particular Article, Section or other subdivision. The
terms defined in this Article include the plural as well as the singular.
"Attributable Debt" means, as to any particular lease under which any Person
is at the time liable, at any date as of which the amount thereof is to be de-
termined, the total net amount of rent required to be paid by such Person un-
der such lease during the remaining term thereof, discounted from the respec-
tive due dates thereof to such date at the Composite Rate. The net amount of
rent required to be paid under any such lease for any such period shall be the
aggregate amount of the rent payable by the lessee with respect to such period
after excluding amounts required to be paid on account of maintenance and re-
pairs, financing services, insurance, taxes, assessments, water or electrical
rates, contingent rents (such as those based on sales) and similar charges. In
the case of any lease which is terminable by the lessee upon the payment of a
penalty, such net amount shall also include the amount of such penalty, but no
rent shall be considered as required to be paid under such lease subsequent to
the first date upon which it may be so terminated.
"Authenticating Agent" shall have the meaning set forth in Section 6.14.
"Authorized Newspaper" means a newspaper (which, in the case of The City of
New York, will, if practicable, be The Wall Street Journal (Eastern Edition),
in the case of the United Kingdom, will, if practicable, be the Financial
Times (London Edition) and, in the case of Luxembourg, will, if practicable,
be the Luxemburger Wort) published in an official language of the country of
publication customarily published at least once a day for at least five days
in each calendar week and of general circulation in The City of New York, the
United Kingdom or in Luxembourg, as applicable. If it shall be impractical in
the opinion of the Trustee to make any publication of any notice required
hereby in an Authorized Newspaper, any publication or other notice in lieu
thereof which is made or given with the approval of the Trustee shall consti-
tute a sufficient publication of such notice.
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"Board of Directors" means either the Board of Directors of the Issuer or any
committee or other designees of such Board duly authorized to act on its be-
half.
"Board Resolution" means a copy of one or more resolutions, certified by the
secretary or an assistant secretary of the Issuer to have been duly adopted or
consented to by the Board of Directors and to be in full force and effect, and
delivered to the Trustee.
"Business Day" means, with respect to any Security, a day that in the city
(or in any of the cities, if more than one) in which amounts are payable, as
specified in the form of such Security, is not a day on which banking institu-
tions are authorized or required by law or regulation to close.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Securities Exchange Act of 1934, or if at
any time after the execution and delivery of this Indenture such Commission is
not existing and performing the duties now assigned to it under the Trust In-
denture Act of 1939, then the body performing such duties on such date.
"Composite Rate" means, at any time, the rate of interest, per annum, com-
pounded semiannually, equal to the sum of the products obtained by multiplying
the rate of interest borne by the Securities of each series (as specified on
the face of the Securities of each series, provided, that, in the case of the
Securities with variable rates of interest, the interest rate to be used in
calculating the Composite Rate shall be the interest rate applicable to such
Securities at the beginning of the year in which the Composite Rate is being
determined and, provided, further, that, in the case of Original Issue Dis-
count Securities, the interest rate to be used in calculating the Composite
Rate shall be a rate equal to the yield to maturity on such Securities, calcu-
lated at the time of issuance of such Securities) by the percentage of the ag-
gregate principal amount of the Securities of all series Outstanding repre-
sented by the Outstanding Securities of such series. For the purposes of this
calculation, the aggregate principal amount of Outstanding Securities that are
denominated in a foreign currency shall be calculated in the manner set forth
in Section 11.11, and the aggregate principal amount of Original Issue Dis-
count Securities shall be the aggregate amount then payable upon the declara-
tion of acceleration of the maturity thereof pursuant to Section 5.1.
"Consolidated Net Tangible Assets" shall mean, at any date, the total assets
appearing on the consolidated balance sheet of the Issuer and its consolidated
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Subsidiaries for the Issuer's most recently completed fiscal quarter, prepared
in accordance with generally accepted accounting principles, less (a) all cur-
rent liabilities shown on such balance sheet and (b) Intangible Assets. "In-
tangible Assets" means the value (net of applicable reserves), as shown on or
reflected in such balance sheet, of: (i) all trade names, trademarks, li-
censes, patents, copyrights and goodwill; (ii) organizational or development
costs; (iii) deferred charges (other than prepaid items such as insurance,
taxes, interest, commissions, rents and similar items and tangible assets be-
ing amortized); and (iv) unamortized debt discount and expense, less premium.
"Corporate Trust Office" means the office of the Trustee at which the corpo-
rate trust business of the Trustee shall, at any particular time, be princi-
pally administered, which office is, at the date as of which this Indenture is
dated, located in 450 West 33rd Street, 15th Floor, New York, New York, Atten-
tion: Global Trust Services.
"Coupon" means any interest coupon appertaining to a Security.
"covenant defeasance" shall have the meaning set forth in Section 10.1(C).
"Debt" of any Person shall mean any debt for money borrowed which is issued,
assumed, incurred or guaranteed in any manner by such Person.
"Depositary" means, with respect to the Securities of any series issuable or
issued in the form of one or more Registered Global Securities, the Person
designated as Depositary by the Issuer pursuant to Section 2.3 until a succes-
sor Depositary shall have become such pursuant to the applicable provisions of
this Indenture, and thereafter "Depositary" shall mean or include each Person
who is then a Depositary hereunder, and if at any time there is more than one
such Person, "Depositary" as used with respect to the Securities of any such
series shall mean the Depositary with respect to the Registered Global Securi-
ties of that series.
"Dollar" means the coin or currency of the United States of America as at the
time of payment is legal tender for the payment of public and private debts.
"ECU" means the European Currency Unit as defined and revised from time to
time by the Council of European Communities.
"Event of Default" means any event or condition specified as such in
Section 5.1.
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"Exempted Debt" shall mean the sum of (a) Debt of the Issuer and its Subsidi-
aries incurred after the date as of which this Indenture is dated and secured
by liens created, assumed or permitted to exist pursuant to Section 3.6(b) and
(b) Attributable Debt of the Issuer and its Subsidiaries in respect of all
sale and leaseback transactions entered into pursuant to Section 3.6(d).
"Foreign Currency" means a currency issued by the government of a country
other than the United States.
"Holder," "Holder of Securities," "Securityholder" or other similar terms
mean (a) in the case of any Registered Security, the person in whose name such
Security is registered in the security register kept by the Issuer for that
purpose in accordance with the terms hereof, and (b) in the case of any Unreg-
istered Security, the bearer of such Security, or any Coupon appertaining
thereto, as the case may be.
"Indenture" means this instrument as originally executed and delivered or, if
amended or supplemented as herein provided, as so amended or supplemented or
both, and shall include the forms and terms of particular series of Securities
established as contemplated hereunder.
"Interest" means, when used with respect to non-interest bearing Securities,
interest payable after maturity.
"Issuer" means New Tenneco Inc., a Delaware corporation, and, subject to Ar-
ticle Nine, its successors and assigns.
"Issuer Order" means a written statement, request or order of the Issuer
signed in its name by the chairman of the Board of Directors, the chief execu-
tive officer, the president, any vice president, the chief financial officer,
the treasurer, the controller or any other officer designated by the Board of
Directors or any of the foregoing officers of the Issuer.
"Judgment Currency" shall have the meaning set forth in Section 11.12.
"Mortgage" shall have the meaning set forth in Section 3.6(a).
"Net Rental Payments" under any lease for any period shall mean the sum of
monies and other payments required to be paid by the lessee under such lease
as rent thereunder, not including amounts payable by the lessee for mainte-
nance and repairs, financing services, water or electrical rates, insurance,
taxes, assessments, contingent rents (such as those based on sales) and simi-
lar charges.
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"Officer's Certificate" means a certificate signed by the chairman of the
Board of Directors, the chief executive officer, the president, the chief fi-
nancial officer, any vice president, the treasurer, the controller or any
other officer designated by the Board of Directors or any of the foregoing of-
ficers of the Issuer and delivered to the Trustee. Each such certificate shall
comply with Section 314 of the Trust Indenture Act of 1939 and include the
statements provided for in Section 11.5.
"Opinion of Counsel" means an opinion in writing signed by the General Coun-
sel of the Issuer or by such other legal counsel who may be an employee of or
counsel to the Issuer and who shall be satisfactory to the Trustee. Each such
opinion shall comply with Section 314 of the Trust Indenture Act of 1939 and
include the statements provided for in Section 11.5.
"original issue date" of any Security (or portion thereof) means the earlier
of (a) the date of such Security or (b) the date of any Security (or portion
thereof) for which such Security was issued (directly or indirectly) on regis-
tration of transfer, exchange or substitution.
"Original Issue Discount Security" means any Security that provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the maturity thereof pursuant to Section 5.1.
"Outstanding," when used with reference to Securities, shall, subject to the
provisions of Section 7.4, mean, as of any particular time, all Securities au-
thenticated and delivered by the Trustee under this Indenture, except
(a) Securities theretofore cancelled by the Trustee or delivered to the
Trustee for cancellation;
(b) Securities, or portions thereof, for the payment or redemption of which
moneys or U.S. Government Obligations (as provided for in Section 10.1) in
the necessary amount shall have been deposited in trust with the Trustee or
with any paying agent (other than the Issuer) or shall have been set aside,
segregated and held in trust by the Issuer for the Holders of such Securi-
ties (if the Issuer shall act as its own paying agent), provided that if
such Securities, or portions thereof, are to be redeemed prior to the matu-
rity thereof, notice of such redemption shall have been given as herein pro-
vided, or provision satisfactory to the Trustee shall have been made for
giving such notice; and
(c) Securities which shall have been paid or in substitution for which
other Securities shall have been authenticated and delivered pursuant to the
terms of Section 2.9 (except with respect to any such Security as to which
proof satis-
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factory to the Trustee is presented that such Security is held by a person
in whose hands such Security is a legal, valid and binding obligation of the
Issuer).
In determining whether the Holders of the requisite principal amount of Out-
standing Securities of any or all series have given any request, demand, au-
thorization, direction, notice, consent or waiver hereunder, the principal
amount of an Original Issue Discount Security that shall be deemed to be Out-
standing for such purposes shall be the amount of the principal thereof that
would be due and payable as of the date of such determination upon a declara-
tion of acceleration of the maturity thereof pursuant to Section 5.1.
"Periodic Offering" means an offering of Securities of a series from time to
time, the specific terms of which Securities, including, without limitation,
the rate or rates of interest, if any, thereon, the stated maturity or maturi-
ties thereof and the redemption provisions, if any, with respect thereto, are
to be determined by the Issuer or its agents upon the issuance of such Securi-
ties.
"Permitted Mortgage" means:
(i) any governmental, mechanics', materialmen's, carriers' or similar lien
created in the ordinary course of business which is not yet due or which is
being contested in good faith by appropriate proceedings and any undeter-
mined lien which is incidental to construction;
(ii) any right reserved to, or vested in, any municipality or public au-
thority by the terms of any right, power, franchise, grant, license, permit
or by any provision of law, to purchase or recapture or to designate a pur-
chaser of, any property;
(iii) any lien of taxes and assessments which is (A) for the current year,
or (B) not at the time delinquent or (C) delinquent but the validity of
which is being contested at the time by the Issuer or any Subsidiary in good
faith;
(iv) any lien arising from or in connection with a conveyance by the Issuer
or any Subsidiary of any production payment with respect to oil, gas, natu-
ral gas, carbon dioxide, sulphur, helium, coal, metals, minerals, steam,
timber or other natural resources;
(v) any lien to secure obligations imposed by statute or governmental regu-
lations; or
(vi) any lien of, or to secure performance of, leases (other than leases
relating to a sale and leaseback transaction).
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint stock company, trust, unincorpo-
rated organization or government or any agency or political subdivision there-
of.
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"principal," whenever used with reference to the Securities or any Security
or any portion thereof, shall be deemed to include "and premium, if any."
"Principal Manufacturing Property" shall mean any manufacturing plant or any
testing or research and development facility of the Issuer or a Subsidiary lo-
cated in the United States of America (other than its territories and posses-
sions) unless, in the opinion of the Board of Directors, such plant or facil-
ity is not of material importance to the total business conducted by the Is-
suer and its consolidated Subsidiaries. Principal Manufacturing Property shall
include, without limitation, additions, improvements, replacements, repairs,
fixtures, appurtenances or component parts of any such plant or facility at-
taching to or required to be attached to property or assets pursuant to the
terms of any Mortgage (including, without limitation, pursuant to any "after-
acquired property" clause or similar term thereof).
"record date" shall have the meaning set forth in Section 2.7.
"Registered Global Security" means a Security evidencing all or a part of a
series of Registered Securities, issued to the Depositary for such series in
accordance with Section 2.4, and bearing the legend prescribed in Section 2.4.
"Registered Security" means any Security registered on the Security register
of the Issuer.
"Required Currency" shall have the meaning set forth in Section 11.12.
"Responsible Officer," when used with respect to the Trustee means the chair-
man of the board of directors, any vice chairman of the board of directors,
the chairman of the trust committee, the chairman of the executive committee,
any vice chairman of the executive committee, the president, any vice presi-
dent (whether or not designated by numbers or words added before or after the
title "vice president"), the cashier, the secretary, the treasurer, any trust
officer, any assistant trust officer, any assistant vice president, any assis-
tant cashier, any assistant secretary, any assistant treasurer, or any other
officer or assistant officer of the Trustee customarily performing functions
similar to those performed by the persons who at the time shall be such offi-
cers, respectively, or to whom any corporate trust matter is referred because
of his knowledge of and familiarity with the particular subject.
"Restricted Subsidiary" shall mean any Subsidiary that owns or is the lessee
of any Principal Manufacturing Property; provided, however, that the term "Re-
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stricted Subsidiary" does not include any Subsidiary acquired or organized for
the purpose of acquiring the stock or business or assets of any Person other
than the Issuer or any Restricted Subsidiary, whether by merger, consolida-
tion, acquisition of stock or assets or similar transaction, so long as such
Subsidiary does not acquire all or any substantial part of the business or as-
sets of the Issuer or any other Restricted Subsidiary.
"Security" or "Securities" has the meaning stated in the first recital of
this Indenture, or, as the case may be, Securities that have been authenti-
cated and delivered under this Indenture.
"Subsidiary" means any corporation, partnership or other entity of which at
the time of determination the Issuer owns or controls directly or indirectly
more than 50% of the shares of voting stock or equivalent interest, provided
that the term "Subsidiary" shall not include Tenneco Tanker Holding Corpora-
tion, Hvide Partners, L.P., Hvide Van Ommeren Tankers I LLC, Hvide Van Ommeren
Tankers II LLC, Hvide Van Ommeren III LLC, Hvide Van Ommeren Tankers IV LLC,
Hvide Van Ommeren Tankers V LLC, and Hvide Van Ommeren Tankers Options LLC.
"Trust Indenture Act of 1939" (except as otherwise required by applicable law
or as provided in Sections 8.1 and 8.2) means the Trust Indenture Act of 1939
as in force at the date as of which this Indenture was originally executed.
"Trustee" means the Person identified as "Trustee" in the first paragraph
hereof and, subject to the provisions of Article Six, shall also include any
successor trustee. "Trustee" shall also mean or include each Person who is
then a trustee hereunder and if at any time there is more than one such Per-
son, "Trustee" as used with respect to the Securities of any series shall mean
the trustee with respect to the Securities of such series.
"Unregistered Security" means any Security other than a Registered Security.
"U.S. Government Obligations" shall have the meaning set forth in Section
10.1(A).
"Yield to Maturity" means the yield to maturity on a series of Securities,
calculated at the time of issuance of such series, or, if applicable, at the
most recent redetermination of interest on such series, and calculated in ac-
cordance with accepted financial practice.
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ARTICLE TWO
Securities
Section 2.1 Forms Generally. The Securities of each series and the Coupons,
if any, to be attached thereto shall be substantially in such form (not incon-
sistent with this Indenture) as shall be established by or pursuant to one or
more Board Resolutions (as set forth in a Board Resolution or, to the extent
established pursuant to rather than set forth in a Board Resolution, an Offi-
cer's Certificate detailing such establishment) or in one or more indentures
supplemental hereto, in each case with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by this Inden-
ture and may have imprinted or otherwise reproduced thereon such legend or
legends or endorsements, not inconsistent with the provisions of this Inden-
ture, as may be required to comply with any law or with any rules or regula-
tions pursuant thereto, or with any rules of any securities exchange or to
conform to general usage, all as may be determined by the officers executing
such Securities and Coupons, if any, as evidenced by their execution of such
Securities and Coupons.
The definitive Securities and Coupons, if any, shall be printed, lithographed
or engraved on steel engraved borders or may be produced in any other manner,
all as determined by the officers executing such Securities and Coupons, if
any, as evidenced by their execution of such Securities and Coupons, if any.
Section 2.2 Form of Trustee's Certificate of Authentication. The Trustee's
certificate of authentication on all Securities shall be in substantially the
following form:
"This is one of the Securities referred to in the within-mentioned Inden-
ture.
__________________________________________ ,
as Trustee
By _________________________________________
Authorized Officer"
If at any time there shall be an Authenticating Agent appointed with respect
to any series of Securities, then the Trustee's Certificate of Authentication
to be borne by the Securities of each such series shall be substantially as
follows:
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"This is one of the Securities referred to in the within-mentioned Inden-
ture.
__________________________________________ ,
as Authenticating Agent
By _________________________________________
Authorized Officer"
Section 2.3 Amount Unlimited; Issuable in Series. The aggregate principal
amount of Securities which may be authenticated and delivered under this In-
denture is unlimited.
The Securities may be issued in one or more series and each such series shall
rank equally and pari passu with all other unsecured and unsubordinated debt
of the Issuer. There shall be established in or pursuant to one or more Board
Resolutions (and to the extent established pursuant to rather than set forth
in a Board Resolution, in an Officer's Certificate detailing such establish-
ment) or established in one or more indentures supplemental hereto, prior to
the initial issuance of Securities of a series,
(1) the designation of the Securities of the series, which shall distin-
guish the Securities of the series from the Securities of all other series;
(2) any limit upon the aggregate principal amount of the Securities of the
series that may be authenticated and delivered under this Indenture (except
for Securities authenticated and delivered upon registration of transfer of,
or in exchange for, or in lieu of, other Securities of the series pursuant
to Section 2.8, 2.9, 2.11, 8.5 or 12.3);
(3) if other than Dollars, the coin or currency in which the Securities of
that series are denominated (including, but not limited to, any Foreign Cur-
rency or ECU);
(4) the date or dates on which the principal of the Securities of the se-
ries is payable;
(5) the rate or rates at which the Securities of the series shall bear in-
terest, if any, the date or dates from which such interest shall accrue, on
which such interest shall be payable and (in the case of Registered Securi-
ties) on which a record shall be taken for the determination of Holders to
whom interest is payable and/or the method by which such rate or rates or
date or dates shall be determined;
(6) the place or places where the principal of and any interest on Securi-
ties of the series shall be payable (if other than as provided in Section
3.2);
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(7) the right, if any, of the Issuer to redeem Securities of the series, in
whole or in part, at its option and the period or periods within which, the
price or prices at which and any terms and conditions upon which Securities
of the series may be so redeemed, pursuant to any sinking fund or otherwise;
(8) the obligation, if any, of the Issuer to redeem, purchase or repay Se-
curities of the series pursuant to any mandatory redemption, sinking fund or
analogous provisions or at the option of a Holder thereof and the price or
prices at which and the period or periods within which and any terms and
conditions upon which Securities of the series shall be redeemed, purchased
or repaid, in whole or in part, pursuant to such obligation;
(9) if other than denominations of $1,000 and any integral multiple thereof
in the case of Registered Securities, or $1,000 and $5,000 in the case of
Unregistered Securities, the denominations in which Securities of the series
shall be issuable;
(10) if other than the principal amount thereof, the portion of the princi-
pal amount of Securities of the series which shall be payable upon declara-
tion of acceleration of the maturity thereof;
(11) if other than the coin or currency in which the Securities of that se-
ries are denominated, the coin or currency in which payment of the principal
of or interest on the Securities of such series shall be payable;
(12) if the principal of or interest on the Securities of such series are
to be payable, at the election of the Issuer or a Holder thereof, in a coin
or currency other than that in which the Securities are denominated, the pe-
riod or periods within which, and the terms and conditions upon which, such
election may be made;
(13) if the amount of payments of principal of and interest on the Securi-
ties of the series may be determined with reference to an index based on a
coin or currency other than that in which the Securities of the series are
denominated, the manner in which such amounts shall be determined;
(14) whether the Securities of the series will be issuable as Registered
Securities (and if so, whether such Securities will be issuable as Regis-
tered Global Securities) or Unregistered Securities (with or without Cou-
pons), or any combination of the foregoing, any restrictions applicable to
the offer, sale or delivery of Unregistered Securities or the payment of in-
terest thereon and, if other than as provided in Section 2.8, the terms upon
which Unregistered Securities of any series may be exchanged for Registered
Securities of such series and vice versa;
(15) whether and under what circumstances the Issuer will pay additional
amounts on the Securities of the series held by a person who is not a U.S.
person in respect of any tax, assessment or governmental charge withheld or
deducted and, if so, whether the Issuer will have the option to redeem such
Securities rather than pay such additional amounts;
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(16) if the Securities of such series are to be issuable in definitive form
(whether upon original issue or upon exchange of a temporary Security of
such series) only upon receipt of certain certificates or other documents or
satisfaction of other conditions, the form and terms of such certificates,
documents or conditions;
(17) any trustees, depositaries, authenticating or paying agents, transfer
agents or registrars or any other agents with respect to the Securities of
such series;
(18) any other events of default or covenants with respect to the Securi-
ties of such series;
(19) whether the Securities of the series shall be issued in the form of
one or more Registered Global Securities and, in such case, the Depositary
for such Registered Global Security or Securities; and
(20) any other terms of the series (which terms shall not be inconsistent
with the provisions of this Indenture).
All Securities of any one series and Coupons, if any, appertaining thereto,
shall be substantially identical, except in the case of Registered Securities,
as to denomination and except as may otherwise be provided by or pursuant to
the Board Resolution or Officer's Certificate referred to above or as set
forth in any such indenture supplemental hereto. All Securities of any one se-
ries need not be issued at the same time and may be issued from time to time,
consistent with the terms of this Indenture, if so provided by or pursuant to
such Board Resolution, such Officer's Certificate or in any such indenture
supplemental hereto.
Section 2.4 Authentication and Delivery of Securities. The Issuer may deliver
Securities of any series having attached thereto appropriate Coupons, if any,
executed by the Issuer to the Trustee for authentication together with the ap-
plicable documents referred to below in this Section, and the Trustee shall
thereupon authenticate and deliver such Securities to or upon the order of the
Issuer (contained in the Issuer Order referred to below in this Section) or
pursuant to such procedures acceptable to the Trustee and to such recipients
as may be specified from time to time by an Issuer Order. The maturity date,
original issue date, interest rate and any other terms of the Securities of
such series and Coupons, if any, appertaining thereto shall be determined by
or pursuant to such Issuer Order and procedures. If provided for in such pro-
cedures, such Issuer Order may authorize authentication and delivery pursuant
to oral instructions from the Issuer or its duly authorized agent, which in-
structions shall be promptly confirmed in writing. In authenticating such Se-
curities and accepting the additional responsibilities under this Indenture in
relation to such Securities, the
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Trustee shall be entitled to receive (in the case of subparagraphs 2, 3 and 4
below only at or before the time of the first request of the Issuer to the
Trustee to authenticate Securities of such series) and (subject to Section
6.1) shall be fully protected in relying upon, unless and until such documents
have been superseded or revoked:
(1) an Issuer Order requesting such authentication and setting forth deliv-
ery instructions if the Securities and Coupons, if any, are not to be deliv-
ered to the Issuer, provided that, with respect to Securities of a series
subject to a Periodic Offering, (a) such Issuer Order may be delivered by
the Issuer to the Trustee prior to the delivery to the Trustee of such Secu-
rities for authentication and delivery, (b) the Trustee shall authenticate
and deliver Securities of such series for original issue from time to time,
in an aggregate principal amount not exceeding the aggregate principal
amount established for such series, pursuant to an Issuer Order or pursuant
to procedures acceptable to the Trustee as may be specified from time to
time by an Issuer Order, (c) the maturity date or dates, original issue date
or dates, interest rate or rates and any other terms of Securities of such
series shall be determined by an Issuer Order or pursuant to such procedures
and (d) if provided for in such procedures, such Issuer Order may authorize
authentication and delivery pursuant to oral or electronic instructions from
the Issuer or its duly authorized agent or agents, which oral instructions
shall be promptly confirmed in writing;
(2) any Board Resolution, Officer's Certificate and/or executed supplemen-
tal indenture referred to in Sections 2.1 and 2.3 by or pursuant to which
the forms and terms of the Securities and Coupons, if any, were established;
(3) an Officer's Certificate setting forth the form or forms and terms of
the Securities and Coupons, if any, stating that the form or forms and terms
of the Securities and Coupons, if any, have been established pursuant to
Sections 2.1 and 2.3 and comply with this Indenture, and covering such other
matters as the Trustee may reasonably request; and
(4) At the option of the Issuer, either Opinions of Counsel, or letters ad-
dressed to the Trustee permitting it to rely on Opinions of Counsel, sub-
stantially to the effect that:
(a) the forms of the Securities and Coupons, if any, have been duly au-
thorized and established in conformity with the provisions of this
Indenture;
(b) in the case of an underwritten offering, the terms of the Securities
have been duly authorized and established in conformity with the provi-
sions of this Indenture, and, in the case of an offering that is not un-
derwritten, certain terms of the Securities have been established pursuant
to a Board Resolution, an Officer's Certificate or a supplemental inden-
ture in accordance with this Indenture, and when such other terms as are
to be estab-
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lished pursuant to procedures set forth in an Issuer Order shall have been
established, all such terms will have been duly authorized by the Issuer
and will have been established in conformity with the provisions of this
Indenture;
(c) when the Securities and Coupons, if any, have been executed by the
Issuer and authenticated by the Trustee in accordance with the provisions
of this Indenture and delivered to and duly paid for by the purchasers
thereof, they will have been duly issued under this Indenture and will be
valid and legally binding obligations of the Issuer, enforceable in accor-
dance with their respective terms, and will be entitled to the benefits of
this Indenture; and
(d) the execution and delivery by the Issuer of, and the performance by
the Issuer of its obligations under, the Securities and Coupons, if any,
will not contravene any provision of applicable law or the certificate of
incorporation or by-laws of the Issuer or, to the best of such counsel's
knowledge, any agreement or other instrument binding upon the Issuer or
any of its Subsidiaries that is material to the Issuer and its Subsidiar-
ies, considered as one enterprise, or, to the best of such counsel's
knowledge, any judgment, order or decree of any governmental body, agency
or court having jurisdiction over the Issuer or any Subsidiary, and no
consent, approval or authorization of any governmental body or agency is
required for the performance by the Issuer of its obligations under the
Securities and Coupons, if any, except such as are specified and have been
obtained and such as may be required by the securities or blue sky laws of
the various states in connection with the offer and sale of the Securities
and Coupons, if any.
In rendering such opinions, such counsel may qualify any opinions as to en-
forceability by stating that such enforceability may be limited by bankruptcy,
insolvency, reorganization, liquidation, moratorium, fraudulent conveyance and
other similar laws affecting the rights and remedies of creditors and is sub-
ject to general principles of equity (regardless of whether such enforceabil-
ity is considered in a proceeding in equity or at law). Such counsel may rely
upon opinions of other counsel (copies of which shall be delivered to the
Trustee), who shall be counsel reasonably satisfactory to the Trustee, in
which case the opinion shall state that such counsel believes such counsel and
the Trustee are entitled so to rely. Such counsel may also state that, insofar
as such opinion involves factual matters, such counsel has relied, to the ex-
tent such counsel deems proper, upon certificates of officers of the Issuer
and its Subsidiaries and certificates of public officials.
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The Trustee shall have the right to decline to authenticate and deliver any
Securities under this Section if the Trustee, being advised by counsel, deter-
mines that such action may not lawfully be taken by the Issuer or if the
Trustee in good faith by its board of directors or board of trustees, execu-
tive committee, or a trust committee of directors or trustees or Responsible
Officers shall determine that such action would expose the Trustee to personal
liability to existing Holders or would affect the Trustee's own rights, duties
or immunities under the Securities, this Indenture or otherwise.
If the Issuer shall establish pursuant to Section 2.3 that the Securities of
a series are to be issued in the form of one or more Registered Global Securi-
ties, then the Issuer shall execute and the Trustee shall, in accordance with
this Section and the Issuer Order with respect to such series, authenticate
and deliver one or more Registered Global Securities that (i) shall represent
and shall be denominated in an amount equal to the aggregate principal amount
of all of the Securities of such series to be represented by such Registered
Global Security or Securities, (ii) shall be registered in the name of the De-
positary for such Registered Global Security or Securities or the nominee of
such Depositary, (iii) shall be delivered by the Trustee to such Depositary or
pursuant to such Depositary's instructions and (iv) shall bear a legend sub-
stantially to the following effect: "Unless this certificate is presented by
an authorized representative of a Depositary to the Issuer or its agent for
registration of transfer, exchange or payment, and any certificate issued is
registered in the name of the nominee of such Depositary or such other name as
requested by an authorized representative of such Depositary and any payment
is made to the nominee of such Depositary, ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL since the regis-
tered owner hereof, the nominee, has an interest herein."
Each Depositary designated pursuant to Section 2.3 must, at the time of its
designation and at all times while it serves as Depositary, be a clearing
agency registered under the Securities Exchange Act of 1934 and any other ap-
plicable statute or regulation.
Section 2.5 Execution of Securities. The Securities and, if applicable, each
Coupon appertaining thereto shall be signed on behalf of the Issuer by any two
of the chairman of its Board of Directors or its chief executive officer or
its president or any vice president or its chief financial officer or its
treasurer or its controller or any other officer designated by the Board of
Directors, under its
16
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corporate seal (except in the case of Coupons), which may, but need not, be
attested. Such signatures may be the manual or facsimile signatures of the
present or any future such officers. The seal of the Issuer may be in the form
of a facsimile thereof and may be impressed, affixed, imprinted or otherwise
reproduced on the Securities. Typographical and other minor errors or defects
in any such reproduction of the seal or any such signature shall not affect
the validity or enforceability of any Security that has been duly authenti-
cated and delivered by the Trustee.
In case any officer of the Issuer who shall have signed any of the Securities
or Coupons, if any, shall cease to be such officer before the Security or Cou-
pon so signed (or the Security to which the Coupon so signed appertains) shall
be authenticated and delivered by the Trustee or disposed of by the Issuer,
such Security or Coupon nevertheless may be authenticated and delivered or
disposed of as though the person who signed such Security or Coupon had not
ceased to be such officer of the Issuer; and any Security or Coupon may be
signed on behalf of the Issuer by such persons as, at the actual date of the
execution of such Security or Coupon, shall be the proper officers of the Is-
suer, although at the date of the execution and delivery of this Indenture any
such person was not such an officer.
Section 2.6 Certificate of Authentication. Only such Securities as shall bear
thereon a certificate of authentication substantially in the form hereinbefore
recited, executed by the Trustee by the manual signature of one of its autho-
rized officers, shall be entitled to the benefits of this Indenture or be
valid or obligatory for any purpose. No Coupon shall be entitled to the bene-
fits of this Indenture or shall be valid and obligatory for any purpose until
the certificate of authentication on the Security to which such Coupon apper-
tains shall have been duly executed by the Trustee. The execution of such cer-
tificate by the Trustee upon any Security executed by the Issuer shall be con-
clusive evidence that the Security so authenticated has been duly authenti-
cated and delivered hereunder and that the Holder is entitled to the benefits
of this Indenture.
Section 2.7 Denomination and Date of Securities; Payments of Interest.
The Securities of each series shall be issuable as Registered Securities or
Unregistered Securities in denominations established as contemplated by Sec-
tion 2.3 or, with respect to the Registered Securities of any series, if not
so established, in denominations of $1,000 and any integral multiple thereof.
If denominations of Unregistered Securities of any series are not so estab-
lished, such Securities shall be issuable in denominations of $1,000 and
$5,000. The Securities of each
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series shall be numbered, lettered or otherwise distinguished in such manner
or in accordance with such plan as the officers of the Issuer executing the
same may determine with the approval of the Trustee, as evidenced by the exe-
cution and authentication thereof.
Each Registered Security shall be dated the date of its authentication. Each
Unregistered Security shall be dated as provided in the resolution or resolu-
tions of the Board of Directors of the Issuer referred to in Section 2.3. The
Securities of each series shall bear interest, if any, from the date, and such
interest shall be payable on the dates, established as contemplated by Section
2.3.
Unless otherwise provided in the Registered Securities of any series, the
person in whose name any Registered Security of any series is registered at
the close of business on any record date applicable to a particular series
with respect to any interest payment date for such series shall be entitled to
receive the interest, if any, payable on such interest payment date notwith-
standing any transfer or exchange of such Registered Security subsequent to
the record date and prior to such interest payment date, except if and to the
extent the Issuer shall default in the payment of the interest due on such in-
terest payment date for such series, in which case such defaulted interest
shall be paid to the persons in whose names Outstanding Registered Securities
for such series are registered at the close of business on a subsequent record
date (which shall be not less than five Business Days prior to the date of
payment of such defaulted interest) established by notice given by mail by or
on behalf of the Issuer to the Holders of Registered Securities not less than
15 days preceding such subsequent record date. The term "record date" as used
with respect to any interest payment date (except a date for payment of de-
faulted interest) for the Securities of any series shall mean the date speci-
fied as such in the terms of the Registered Securities of such series estab-
lished as contemplated by Section 2.3, or, if no such date is so established,
if such interest payment date is the first day of a calendar month, the fif-
teenth day of the next preceding calendar month or, if such interest payment
date is the fifteenth day of a calendar month, the first day of such calendar
month, whether or not such record date is a Business Day.
Section 2.8 Registration, Transfer and Exchange. The Issuer will keep at each
office or agency to be maintained for the purpose as provided in Section 3.2
for each series of Securities a register or registers in which, subject to
such reasonable regulations as it may prescribe, it will provide for the reg-
istration of Registered Securities of such series and the registration of
transfer of Registered
18
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Securities of such series. Such register shall be in written form in the En-
glish language or in any other form capable of being converted into such form
within a reasonable time. At all reasonable times such register or registers
shall be open for inspection by the Trustee.
Upon due presentation for registration of transfer of any Registered Security
of any series at any such office or agency to be maintained for the purpose as
provided in Section 3.2, the Issuer shall execute and the Trustee shall au-
thenticate and deliver in the name of the transferee or transferees a new Reg-
istered Security or Registered Securities of the same series, maturity date,
interest rate and original issue date in authorized denominations for a like
aggregate principal amount.
Unregistered Securities (except for any temporary global Unregistered Securi-
ties) and Coupons (except for Coupons attached to any temporary global Unreg-
istered Securities) shall be transferable by delivery.
At the option of the Holder thereof, Registered Securities of any series
(other than a Registered Global Security, except as set forth below) may be
exchanged for a Registered Security or Registered Securities of such series
having authorized denominations and an equal aggregate principal amount, upon
surrender of such Registered Securities to be exchanged at the agency of the
Issuer that shall be maintained for such purpose in accordance with Section
3.2 and upon payment, if the Issuer shall so require, of the charges hereinaf-
ter provided. If the Securities of any series are issued in both registered
and unregistered form, except as otherwise specified pursuant to Section 2.3,
at the option of the Holder thereof, Unregistered Securities of any series may
be exchanged for Registered Securities of such series having other authorized
denominations and an equal aggregate principal amount, upon surrender of such
Unregistered Securities to be exchanged at the agency of the Issuer that shall
be maintained for such purpose in accordance with Section 3.2, with, in the
case of Unregistered Securities that have Coupons attached, all unmatured Cou-
pons and all matured Coupons in default thereto appertaining, and upon pay-
ment, if the Issuer shall so require, of the charges hereinafter provided. At
the option of the Holder thereof, if Unregistered Securities of any series,
maturity date, interest rate and original issue date are issued in more than
one authorized denomination, except as otherwise specified pursuant to Section
2.3, such Unregistered Securities may be exchanged for Unregistered Securities
of such series having authorized denominations and an equal aggregate princi-
pal amount, upon surrender of such Unregistered Securities
19
<PAGE>
to be exchanged at the agency of the Issuer that shall be maintained for such
purpose in accordance with Section 3.2 or as specified pursuant to Section
2.3, with, in the case of Unregistered Securities that have Coupons attached,
all unmatured Coupons and all matured Coupons in default thereto appertaining,
and upon payment, if the Issuer shall so require, of the charges hereinafter
provided. Unless otherwise specified pursuant to Section 2.3, Registered Secu-
rities of any series may not be exchanged for Unregistered Securities of such
series. Whenever any Securities are so surrendered for exchange, the Issuer
shall execute, and the Trustee shall authenticate and deliver, the Securities
which the Holder making the exchange is entitled to receive. All Securities
and Coupons surrendered upon any exchange or transfer provided for in this In-
denture shall be promptly cancelled and disposed of by the Trustee and the
Trustee will deliver a certificate of disposition thereof to the Issuer.
All Registered Securities presented for registration of transfer, exchange,
redemption or payment shall (if so required by the Issuer or the Trustee) be
duly endorsed by, or be accompanied by a written instrument or instruments of
transfer in form satisfactory to the Issuer and the Trustee duly executed by,
the Holder or his attorney duly authorized in writing.
The Issuer may require payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any exchange or
registration of transfer of Securities. No service charge shall be made for
any such transaction.
The Issuer shall not be required to exchange or register a transfer of (a)
any Securities of any series for a period of 15 days next preceding the first
mailing of notice of redemption of Securities of such series to be redeemed or
(b) any Securities selected, called or being called for redemption, in whole
or in part, except, in the case of any Security to be redeemed in part, the
portion thereof not so to be redeemed.
Notwithstanding any other provision of this Section 2.8, unless and until it
is exchanged in whole or in part for Securities in definitive registered form,
a Registered Global Security representing all or a portion of the Securities
of a series may not be transferred except as a whole by the Depositary for
such series to a nominee of such Depositary or by a nominee of such Depositary
to such Depositary or another nominee of such Depositary or by such Depositary
or any such nominee to a successor Depositary for such series or a nominee of
such successor Depositary.
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<PAGE>
If at any time the Depositary for any Registered Securities of a series rep-
resented by one or more Registered Global Securities notifies the Issuer that
it is unwilling or unable to continue as Depositary for such Registered Secu-
rities or if at any time the Depositary for such Registered Securities shall
no longer be eligible under Section 2.4, the Issuer shall appoint a successor
Depositary eligible under Section 2.4 with respect to such Registered Securi-
ties. If a successor Depositary eligible under Section 2.4 for such Registered
Securities is not appointed by the Issuer within 90 days after the Issuer re-
ceives such notice or becomes aware of such ineligibility, the Issuer's elec-
tion pursuant to Section 2.3 that such Registered Securities be represented by
one or more Registered Global Securities shall no longer be effective and the
Issuer will execute, and the Trustee, upon receipt of an Officer's Certificate
for the authentication and delivery of definitive Securities of such series,
will authenticate and deliver, Securities of such series in definitive regis-
tered form without coupons, in any authorized denominations, in an aggregate
principal amount equal to the principal amount of the Registered Global Secu-
rity or Securities representing such Registered Securities in exchange for
such Registered Global Security or Securities.
The Issuer may at any time and in its sole discretion determine that the Reg-
istered Securities of any series issued in the form of one or more Registered
Global Securities shall no longer be represented by a Registered Global Secu-
rity or Securities. In such event the Issuer will execute, and the Trustee,
upon receipt of an Officer's Certificate for the authentication and delivery
of definitive Securities of such series, will authenticate and deliver, Secu-
rities of such series in definitive registered form without coupons, in any
authorized denominations, in an aggregate principal amount equal to the prin-
cipal amount of the Registered Global Security or Securities representing such
Registered Securities, in exchange for such Registered Global Security or Se-
curities.
If specified by the Issuer pursuant to Section 2.3 with respect to Securities
represented by a Registered Global Security, the Depositary for such Regis-
tered Global Security may surrender such Registered Global Security in ex-
change in whole or in part for Securities of the same series in definitive
registered form on such terms as are acceptable to the Issuer and such Deposi-
tary. Thereupon, the Issuer shall execute, and the Trustee shall authenticate
and deliver, without service charge,
(i) to the Person specified by such Depositary a new Registered Security or
Securities of the same series, of any authorized denominations as requested
by such Person, in an aggregate principal amount equal to and in exchange
for such Person's beneficial interest in the Registered Global Security; and
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<PAGE>
(ii) to such Depositary a new Registered Global Security in a denomination
equal to the difference, if any, between the principal amount of the surren-
dered Registered Global Security and the aggregate principal amount of Reg-
istered Securities authenticated and delivered pursuant to clause (i) above.
Upon the exchange of a Registered Global Security for Securities in defini-
tive registered form without Coupons, in authorized denominations, such Regis-
tered Global Security shall be cancelled by the Trustee or an agent of the Is-
suer or the Trustee. Securities in definitive registered form without coupons
issued in exchange for a Registered Global Security pursuant to this Section
2.8 shall be registered in such names and in such authorized denominations as
the Depositary for such Registered Global Security, pursuant to instructions
from its direct or indirect participants or otherwise, shall instruct the
Trustee or an agent of the Issuer or the Trustee. The Trustee or such agent
shall deliver such Securities to or as directed by the Persons in whose names
such Securities are so registered.
All Securities issued upon any transfer or exchange of Securities shall be
valid obligations of the Issuer, evidencing the same debt, and entitled to the
same benefits under this Indenture, as the Securities surrendered upon such
transfer or exchange.
Notwithstanding anything herein or in the terms of any series of Securities
to the contrary, none of the Issuer, the Trustee or any agent of the Issuer or
the Trustee (any of which, other than the Issuer, shall rely on an Officer's
Certificate and an Opinion of Counsel) shall be required to exchange any Un-
registered Security for a Registered Security if such exchange would result in
adverse Federal income tax consequences to the Issuer (such as, for example,
the inability of the Issuer to deduct from its income, as computed for Federal
income tax purposes, the interest payable on the Unregistered Securities) un-
der then applicable United States Federal income tax laws.
Section 2.9 Mutilated, Defaced, Destroyed, Lost and Stolen Securities. In
case any temporary or definitive Security or any Coupon appertaining to any
Security shall become mutilated, defaced or be destroyed, lost or stolen, the
Issuer in its discretion may execute, and, upon the written request of any of-
ficer of the Issuer, the Trustee shall authenticate and deliver, a new Secu-
rity of the same series, maturity date, interest rate and original issue date,
bearing a number or other distinguishing symbol not contemporaneously out-
standing, in exchange and substitution for the mutilated or defaced Security,
or in lieu of and in substitution for the Security so destroyed, lost or sto-
len, with Coupons corresponding
22
<PAGE>
to the Coupons appertaining to the Securities so mutilated, defaced, de-
stroyed, lost or stolen, or in exchange or substitution for the Security to
which such mutilated, defaced, destroyed, lost or stolen Coupon appertained,
with Coupons appertaining thereto corresponding to the Coupons so mutilated,
defaced, destroyed, lost or stolen. In every case the applicant for a substi-
tute Security or Coupon shall furnish to the Issuer and to the Trustee and any
agent of the Issuer or the Trustee such security or indemnity as may be re-
quired by them to indemnify and defend and to save each of them harmless and,
in every case of destruction, loss or theft, evidence to their satisfaction of
the destruction, loss or theft of such Security or Coupon and of the ownership
thereof and in the case of mutilation or defacement shall surrender the Secu-
rity and related Coupons to the Trustee or such agent.
Upon the issuance of any substitute Security or Coupon, the Issuer may re-
quire the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (includ-
ing the fees and expenses of the Trustee) or its agent connected therewith. In
case any Security or Coupon which has matured or is about to mature or has
been called for redemption in full shall become mutilated or defaced or be de-
stroyed, lost or stolen, the Issuer may instead of issuing a substitute Secu-
rity, pay or authorize the payment of the same or the relevant Coupon (without
surrender thereof except in the case of a mutilated or defaced Security or
Coupon), if the applicant for such payment shall furnish to the Issuer and to
the Trustee and any agent of the Issuer or the Trustee such security or indem-
nity as any of them may require to save each of them harmless, and, in every
case of destruction, loss or theft, the applicant shall also furnish to the
Issuer and the Trustee and any agent of the Issuer or the Trustee evidence to
their satisfaction of the destruction, loss or theft of such Security or Cou-
pon and of the ownership thereof.
Every substitute Security or Coupon of any series issued pursuant to the pro-
visions of this Section by virtue of the fact that any such Security or Coupon
is destroyed, lost or stolen shall constitute an additional contractual obli-
gation of the Issuer, whether or not the destroyed, lost or stolen Security or
Coupon shall be at any time enforceable by anyone and shall be entitled to all
the benefits of (but shall be subject to all the limitations of rights set
forth in) this Indenture equally and proportionately with any and all other
Securities or Coupons of such series duly authenticated and delivered hereun-
der. All Securities and Coupons shall be held and owned upon the express con-
dition that, to the extent permitted by law, the foregoing provisions are ex-
clusive with respect to the replacement or
23
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payment of mutilated, defaced or destroyed, lost or stolen Securities and Cou-
pons and shall preclude any and all other rights or remedies notwithstanding
any law or statute existing or hereafter enacted to the contrary with respect
to the replacement or payment of negotiable instruments or other securities
without their surrender.
Section 2.10 Cancellation of Securities; Destruction Thereof. All Securities
and Coupons surrendered for payment, redemption, registration of transfer or
exchange, or for credit against any payment in respect of a sinking or analo-
gous fund, if surrendered to the Issuer or any agent of the Issuer or the
Trustee or any agent of the Trustee, shall be delivered to the Trustee or its
agent for cancellation or, if surrendered to the Trustee, shall be cancelled
by it; and no Securities or Coupons shall be issued in lieu thereof except as
expressly permitted by any of the provisions of this Indenture. The Trustee or
its agent shall dispose of cancelled Securities and Coupons held by it and de-
liver a certificate of disposition to the Issuer. If the Issuer or its agent
shall acquire any of the Securities or Coupons, such acquisition shall not op-
erate as a redemption or satisfaction of the indebtedness represented by such
Securities or Coupons unless and until the same are delivered to the Trustee
or its agent for cancellation.
Section 2.11 Temporary Securities. Pending the preparation of definitive Se-
curities for any series, the Issuer may execute and the Trustee shall authen-
ticate and deliver temporary Securities for such series (printed, litho-
graphed, typewritten or otherwise reproduced, in each case in form satisfac-
tory to the Trustee). Temporary Securities of any series shall be issuable as
Registered Securities without Coupons, or as Unregistered Securities with or
without Coupons attached thereto, of any authorized denomination, and substan-
tially in the form of the definitive Securities of such series but with such
omissions, insertions and variations as may be appropriate for temporary Secu-
rities, all as may be determined by the Issuer with the concurrence of the
Trustee as evidenced by the execution and authentication thereof. Temporary
Securities may contain such references to any provisions of this Indenture as
may be appropriate. Every temporary Security shall be executed by the Issuer
and be authenticated by the Trustee upon the same conditions and in substan-
tially the same manner, and with like effect, as the definitive Securities.
Without unreasonable delay the Issuer shall execute and shall furnish defini-
tive Securities of such series and thereupon temporary Registered Securities
of such series may be surrendered in exchange therefor without charge at each
office or agency to be maintained by the Issuer for that purpose pursuant to
Section 3.2 and, in the case of Unregistered Securities, at any agency
24
<PAGE>
maintained by the Issuer for such purpose as specified pursuant to Section
2.3, and the Trustee shall authenticate and deliver in exchange for such tem-
porary Securities of such series an equal aggregate principal amount of defin-
itive Securities of the same series having authorized denominations and, in
the case of Unregistered Securities, having attached thereto any appropriate
Coupons. Until so exchanged, the temporary Securities of any series shall be
entitled to the same benefits under this Indenture as definitive Securities of
such series, unless otherwise established pursuant to Section 2.3. The provi-
sions of this Section are subject to any restrictions or limitations on the
issue and delivery of temporary Unregistered Securities of any series that may
be established pursuant to Section 2.3 (including any provision that Unregis-
tered Securities of such series initially be issued in the form of a single
global Unregistered Security to be delivered to a depositary or agency located
outside the United States and the procedures pursuant to which definitive or
global Unregistered Securities of such series would be issued in exchange for
such temporary global Unregistered Security).
ARTICLE THREE
Covenants of the Issuer
Section 3.1 Payment of Principal and Interest. The Issuer covenants and
agrees for the benefit of each series of Securities that it will duly and
punctually pay or cause to be paid the principal of, and interest on, each of
the Securities of such series (together with any additional amounts payable
pursuant to the terms of such Securities) at the place or places, at the re-
spective times and in the manner provided in such Securities and in the Cou-
pons, if any, appertaining thereto and in this Indenture. The interest on Se-
curities with Coupons attached (together with any additional amounts payable
pursuant to the terms of such Securities) shall be payable only upon presenta-
tion and surrender of the several Coupons for such interest installments as
are evidenced thereby as they severally mature. If any temporary Unregistered
Security provides that interest thereon may be paid while such Security is in
temporary form, the interest on any such temporary Unregistered Security (to-
gether with any additional amounts payable pursuant to the terms of such Secu-
rity) shall be paid, as to the installments of interest evidenced by Coupons
attached thereto, if any, only upon presentation and surrender thereof, and,
as to the other installments of interest, if any, only upon presentation of
such Securities for notation thereon of the payment of such interest, in each
case subject to any restrictions that may be established pursuant to Section
2.3. The interest on Registered Securities (together with any additional
25
<PAGE>
amounts payable pursuant to the terms of such Securities) shall be payable
only to or upon the written order of the Holders thereof and, at the option of
the Issuer, may be paid by wire transfer or by mailing checks for such inter-
est payable to or upon the written order of such Holders at their last ad-
dresses as they appear on the registry books of the Issuer, unless otherwise
provided in such Securities.
Section 3.2 Offices for Payments, etc. So long as any Registered Securities
are authorized for issuance pursuant to this Indenture or are outstanding
hereunder, the Issuer will maintain in the Borough of Manhattan, The City of
New York, an office or agency where the Registered Securities of each series
may be presented for payment, where the Securities of each series may be pre-
sented for exchange as is provided in this Indenture and, if applicable, pur-
suant to Section 2.3 and where the Registered Securities of each series may be
presented for registration of transfer as in this Indenture provided.
The Issuer will maintain one or more offices or agencies in a city or cities
located outside the United States (including any city in which such an agency
is required to be maintained under the rules of any stock exchange on which
the Securities of such series are listed) where the Unregistered Securities,
if any, of each series and Coupons, if any, appertaining thereto may be pre-
sented for payment. No payment on any Unregistered Security or Coupon will be
made upon presentation of such Unregistered Security or Coupon at an agency of
the Issuer within the United States nor will any payment be made by transfer
to an account in, or by mail to an address in, the United States unless pursu-
ant to applicable United States laws and regulations then in effect such pay-
ment can be made without adverse tax consequences to the Issuer. Notwithstand-
ing the foregoing, payments in Dollars of Unregistered Securities of any se-
ries and Coupons appertaining thereto which are payable in Dollars may be made
at an agency of the Issuer maintained in the Borough of Manhattan, The City of
New York if such payment in Dollars at each agency maintained by the Issuer
outside the United States for payment on such Unregistered Securities is ille-
gal or effectively precluded by exchange controls or other similar restric-
tions.
The Issuer will maintain in the Borough of Manhattan, The City of New York,
an office or agency where notices and demands to or upon the Issuer in respect
of the Securities of any series, the Coupons appertaining thereto or this In-
denture may be served.
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The Issuer will give to the Trustee written notice of the location of each
such office or agency and of any change of location thereof. In case the Is-
suer shall fail to maintain any agency required by this Section to be located
in the Borough of Manhattan, The City of New York, or shall fail to give such
notice of the location or of any change in the location of any of the above
agencies, presentations and demands may be made and notices may be served at
the Corporate Trust Office of the Trustee.
The Issuer may from time to time designate one or more additional offices or
agencies where the Securities of a series and any Coupons appertaining thereto
may be presented for payment, where the Securities of that series may be pre-
sented for exchange as provided in this Indenture and pursuant to Section 2.3
and where the Registered Securities of that series may be presented for regis-
tration of transfer as in this Indenture provided, and the Issuer may from
time to time rescind any such designation, as the Issuer may deem desirable or
expedient; provided, however, that no such designation or rescission shall in
any manner relieve the Issuer of its obligation to maintain the agencies pro-
vided for in this Section. The Issuer will give to the Trustee prompt written
notice of any such designation or rescission thereof.
Section 3.3 Appointment to Fill a Vacancy in Office of Trustee. The Issuer,
whenever necessary to avoid or fill a vacancy in the office of Trustee, will
appoint, in the manner provided in Section 6.10, a Trustee, so that there
shall at all times be a Trustee with respect to each series of Securities
hereunder.
Section 3.4 Paying Agents. Whenever the Issuer shall appoint a paying agent
other than the Trustee with respect to the Securities of any series, it will
cause such paying agent to execute and deliver to the Trustee an instrument in
which such agent shall agree with the Trustee, subject to the provisions of
this Section,
(a) that it will hold all sums received by it as such agent for the payment
of the principal of or interest on the Securities of such series (whether
such sums have been paid to it by the Issuer or by any other obligor on the
Securities of such series) in trust for the benefit of the Holders of the
Securities of such series, or Coupons appertaining thereto, if any, or of
the Trustee,
(b) that it will give the Trustee notice of any failure by the Issuer (or
by any other obligor on the Securities of such series) to make any payment
of the principal of or interest on the Securities of such series when the
same shall be due and payable, and
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(c) that it will pay any such sums so held in trust by it to the Trustee
upon the Trustee's written request at any time during the continuance of the
failure referred to in clause (b) above.
The Issuer will, on or prior to each due date of the principal of or interest
on the Securities of such series, deposit with the paying agent a sum suffi-
cient to pay such principal or interest so becoming due, and (unless such pay-
ing agent is the Trustee) the Issuer will promptly notify the Trustee of any
failure to take such action.
If the Issuer shall act as its own paying agent with respect to the Securi-
ties of any series, it will, on or before each due date of the principal of or
interest on the Securities of such series, set aside, segregate and hold in
trust for the benefit of the Holders of the Securities of such series or the
Coupons appertaining thereto a sum sufficient to pay such principal or inter-
est so becoming due. The Issuer will promptly notify the Trustee of any fail-
ure to take such action.
Anything in this Section to the contrary notwithstanding, but subject to Sec-
tion 10.1, the Issuer may at any time, for the purpose of obtaining a satis-
faction and discharge with respect to one or more or all series of Securities
hereunder, or for any other reason, pay or cause to be paid to the Trustee all
sums held in trust for any such series by the Issuer or any paying agent here-
under, as required by this Section, such sums to be held by the Trustee upon
the trusts herein contained.
Anything in this Section to the contrary notwithstanding, the agreement to
hold sums in trust as provided in this Section is subject to the provisions of
Sections 10.3 and 10.4.
Section 3.5 Written Statement to Trustee. The Issuer will furnish to the
Trustee on or before April 30 in each year (beginning with April 30, 1997) a
brief certificate (which need not comply with Section 11.5) from the principal
executive, financial or accounting officer of the Issuer stating that in the
course of the performance by the signer of his duties as an officer of the Is-
suer he would normally have knowledge of any default or non-compliance by the
Issuer in the performance of any covenants or conditions contained in this In-
denture, stating whether or not he has knowledge of any such default or non-
compliance and, if so, specifying each such default or non-compliance of which
the signer has knowledge and the nature thereof.
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Section 3.6 Negative Pledge; Limitation on Sale and Leaseback Transactions.
(a) The Issuer will not issue, assume, incur or guarantee, and will not per-
mit any Restricted Subsidiary to issue, assume, incur or guarantee, any Debt
secured by any mortgage, pledge, lien or other encumbrance (any such mortgage,
pledge, lien and other encumbrance being hereinafter called a "Mortgage") upon
any Principal Manufacturing Property of the Issuer or any Restricted Subsidi-
ary, or upon shares of capital stock or Debt of any Restricted Subsidiary
(whether such Principal Manufacturing Property or shares of stock are now
owned or hereafter acquired or such Debt is now existing or hereafter incurred
or assumed), without in any such case effectively providing, concurrently with
the issuance or assumption of such Debt, that the Securities (together with,
if the Issuer shall so determine, any other Debt of the Issuer or such Re-
stricted Subsidiary ranking equally with the Securities and then existing or
thereafter created) shall be secured equally and ratably with such Debt; pro-
vided, however, that the foregoing restrictions shall not apply to:
(i) the creation of Mortgages on any Principal Manufacturing Property (in-
cluding any improvements on an existing property, as to which the Mortgage
may include such underlying real property as the Issuer may deem necessary
for the improvement and unnecessary for the operation of any theretofore ex-
isting Principal Manufacturing Property on the same or adjoining real prop-
erty) hereafter acquired by the Issuer or a Restricted Subsidiary prior to,
at the time of, or within 180 days after the latest of the acquisition, com-
pletion of construction or commencement of commercial operation of such
property, to secure or provide for the payment of financing of all or any
part of the purchase price thereof or construction of fixed improvements
thereon, or, in addition to assumptions in transactions contemplated by sub-
paragraph (ii) below, the assumption of any Mortgage upon any Principal Man-
ufacturing Property hereafter acquired existing at the time of such acquisi-
tions, or the acquisition of any Principal Manufacturing Property subject to
any Mortgage without the assumption thereof; provided that the aggregate
principal amount of Debt secured by any such Mortgage so issued, assumed or
existing shall not exceed 100% of the cost of such Principal Manufacturing
Property to the corporation acquiring the same or of the fair value thereof
(as determined by resolution adopted by the Board of Directors) at the time
of such acquisition, whichever is less, and, provided further, that in the
case of any such acquisition, construction or improvement the Mortgage shall
not apply to any property theretofore owned by the Issuer or a Restricted
Subsidiary, other than, in the case of any such construction or improvement,
any theretofore unimproved real property on which the property so construct-
ed, or the improvement, is located (which unimproved real property may at
the option of the Issuer be segregated by
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legal description from other real property of the Issuer appurtenant to such
Principal Manufacturing Property and subjected to the Mortgage related to
such construction or improvement);
(ii) any Mortgages on any Principal Manufacturing Property of a corporation
which is merged into or consolidated with the Issuer or a Restricted Subsid-
iary or substantially all of the assets of which are acquired by the Issuer
or a Restricted Subsidiary (whether or not the obligations secured by any
such Mortgage are assumed by the Issuer or a Restricted Subsidiary); pro-
vided that such Mortgages were not created in contemplation of such merger,
consolidation or acquisition;
(iii) Mortgages on any Principal Manufacturing Property of the Issuer or a
Restricted Subsidiary in favor of the United States of America or any State
thereof, or any department, agency or instrumentality or political subdivi-
sion of the United States of America or any State thereof, or in favor of
any other country, or any political subdivision thereof, to secure partial,
progress, advance or other payments pursuant to any contract or statute or
to secure any Debt incurred or guaranteed for the purpose of financing all
or any part of the cost of acquiring, constructing or improving the property
subject to such Mortgages (including Mortgages incurred in connection with
financings of the type contemplated by Section 103 of the Internal Revenue
Code, maritime financings under Title XI of the United States Code or simi-
lar financings);
(iv) Mortgages on particular property (or any proceeds of the sale thereof)
to secure all or any part of the cost of exploration, drilling, mining, de-
velopment, operation or maintenance thereof (including, without limitation,
construction of facilities for field processing) intended to obtain or in-
crease the production and sale or other disposition of oil, gas, coal, natu-
ral gas, carbon dioxide, sulphur, helium, metals, minerals, steam, timber or
other natural resources, or any Debt created, issued, assumed or guaranteed
to provide funds for any or all such purposes;
(v) Mortgages securing Debt of a Restricted Subsidiary owing to the Issuer
and/or another Restricted Subsidiary;
(vi) Mortgages on any Principal Manufacturing Property of the Issuer or a
Restricted Subsidiary which Mortgages were in existence on the date of this
Indenture; provided, however, that each such Mortgage shall be limited to
all or a part of the property which secured such Mortgage at such date (plus
improvements and construction on such Property);
(vii) any extension, renewal or replacement (or successive extensions, re-
newals or replacements) in whole or in part, of any Mortgage referred to in
the foregoing clauses (i) through (vi); provided, however, that the princi-
pal amount of Debt so secured thereby shall not exceed the principal amount
of Debt so secured at the time of such extension, renewal or replacement,
and that such extension, renewal or replacement shall be limited to all or a
part of
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the property which secured the Mortgage so extended, renewed or replaced
(plus improvements and construction on such property); and
(viii) Permited Mortgages.
(b) Notwithstanding the provisions of subsection (a) of this Section, the Is-
suer or any one or more Restricted Subsidiaries may issue or assume Debt se-
cured by a Mortgage on a Principal Manufacturing Property in addition to those
permitted by subsection (a) of this Section and renew, extend or replace such
Mortgages; provided that at the time of such creation, assumption, renewal,
extension or replacement, and after giving effect thereto, Exempted Debt does
not exceed 15% of Consolidated Net Tangible Assets.
(c) The Issuer will not, nor will it permit any Restricted Subsidiary to, en-
ter into any arrangement with any Person providing for the leasing by the Is-
suer or any Restricted Subsidiary of any Principal Manufacturing Property,
whether such Principal Manufacturing Property is now owned or hereafter ac-
quired (except for temporary leases for a term, including renewals at the op-
tion of the lessee, of not more than three years and except for leases between
the Issuer and a Restricted Subsidiary or between Restricted Subsidiaries),
which property has been or is to be sold or transferred by the Issuer or such
Restricted Subsidiary to such Person with the intention of taking back a lease
on such property (a "sale and leaseback transaction") unless the net proceeds
of such sale or transfer shall be at least equal to the fair value of such
property as determined by resolution adopted by the Board of Directors and ei-
ther:
(i) the Issuer or such Restricted Subsidiary would be entitled, pursuant to
the provisions of subsection (a) of this Section, to issue or assume Debt
secured by a Mortgage on such property at least equal in amount to the At-
tributable Debt in respect of such sale and leaseback transaction without
equally and ratable securing the Securities; or
(ii) since the date hereof and within a period commencing twelve months
prior to the consummation of such sale and leaseback transaction and ending
twelve months after the consummation of such sale and leaseback transaction
the Issuer or such Restricted Subsidiary, as the case may be, has expended
or will expend, or a combination of both, for facilities comprising all or a
part of a Principal Manufacturing Property an amount equal to (A) the net
proceeds of such sale and leaseback transaction and the Issuer elects to
designate such amount as a credit against such sale and leaseback transac-
tion or (B) a part of the net proceeds of such sale and leaseback transac-
tion and the Issuer elects to designate such amount as a credit against such
sale and leaseback transaction and applies an amount equal to the remainder
of the net proceeds as provided in clause (iii) hereof; or
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(iii) such sale and leaseback transactions do not come within the excep-
tions provided in clause (i) hereof and the Issuer does not make the elec-
tion permitted by clause (ii) hereof or makes such election only as to part
of such net proceeds, in either which event the Issuer will, within 180 days
after such sale and leaseback transaction, apply an amount equal to the At-
tributable Debt in respect of such sale and leaseback transaction (less an
amount equal to the amount, if any, elected under clause (ii) hereof) to the
retirement (other than any mandatory retirement or by way of payment at ma-
turity) of Debt with a maturity of greater than one year of the Issuer or
any Restricted Subsidiary (other than Debt of the Issuer to any Restricted
Subsidiary or of any Restricted Subsidiary to the Issuer or another Re-
stricted Subsidiary).
(d) Notwithstanding the provisions of paragraph (c) of this Section, the Is-
suer and any Restricted Subsidiary may enter into sale and leaseback transac-
tions in addition to those permitted by paragraph (c) of this Section and
without any obligation to make expenditures for facilities comprising a part
or all of a Principal Manufacturing Property or to retire any Debt, provided
that at the time of entering into such sale and leaseback transaction and af-
ter giving effect thereto, Exempted Debt does not exceed 15% of Consolidated
Net Tangible Assets.
Section 3.7 Luxembourg Publications. In the event of the publication of any
notice pursuant to Section 5.11, 6.10(a), 6.11, 8.2, 10.4, 12.2 or 12.5, the
party making such publication in the Borough of Manhattan, The City of New
York and London shall also, to the extent that notice is required to be given
to Holders of Securities of any series by applicable Luxembourg law or stock
exchange regulation, as evidenced by an Officer's Certificate delivered to
such party, make a similar publication in Luxembourg.
ARTICLE FOUR
Securityholders Lists and Reports by the Issuer and the Trustee
Section 4.1 Issuer to Furnish Trustee Information as to Names and Addresses
of Securityholders. If and so long as the Trustee shall not be the Security
registrar for the Securities of any series, the Issuer and any other obligor
on the Securities will furnish or cause to be furnished to the Trustee a list
in such form as the Trustee may reasonably require of the names and addresses
of the Holders of the Registered Securities of such series pursuant to Section
312 of the Trust Indenture Act of 1939 (a) semi-annually not more than 15 days
after each record date for the payment of interest on such Registered Securi-
ties, as hereinabove specified, as of such record date and on dates to be de-
termined
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pursuant to Section 2.3 for non-interest bearing Registered Securities in each
year, and (b) at such other times as the Trustee may request in writing,
within 30 days after receipt by the Issuer of any such request as of a date
not more than 15 days prior to the time such information is furnished.
Section 4.2 Preservation and Disclosure of Securityholders Lists.
This Section intentionally left blank.
Section 4.3 Reports by the Issuer. The Issuer covenants to file with the
Trustee, within 30 days after the Issuer is required to file the same with the
Commission, copies of the annual reports and of the information, documents,
and other reports that the Issuer may be required to file with the Commission
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934
or pursuant to Section 314 of the Trust Indenture Act of 1939.
Section 4.4 Reports by the Trustee. Any Trustee's report required under Sec-
tion 313(a) of the Trust Indenture Act of 1939 shall be transmitted on or be-
fore January 15 in each year beginning January 15, 1997, as provided in Sec-
tion 313(c) of the Trust Indenture Act of 1939, so long as any Securities are
Outstanding hereunder, and shall be dated as of a date convenient to the
Trustee no more than 60 days prior thereto.
ARTICLE FIVE
Remedies of the Trustee and Securityholders on Event of Default
Section 5.1 Event of Default Defined; Acceleration of Maturity; Waiver of
Default. "Event of Default," with respect to Securities of any series wherever
used herein, means each one of the following events which shall have occurred
and be continuing (whatever the reason for such Event of Default and whether
it shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(a) default in the payment of any installment of interest upon any of the
Securities of such series as and when the same shall become due and payable,
and continuance of such default for a period of 30 days; or
(b) default in the payment of all or any part of the principal of any of
the Securities of such series as and when the same shall become due and pay-
able either at maturity, upon any redemption, by declaration or otherwise;
or
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(c) failure on the part of the Issuer duly to observe or perform any other
of the covenants or agreements on the part of the Issuer in the Securities
of such series (other than a covenant or warranty in respect of the Securi-
ties of such series a default in the performance or breach of which is else-
where in this Section specifically dealt with) or in this Indenture con-
tained for a period of 60 days after the date on which written notice speci-
fying such failure, stating that such notice is a "Notice of Default" here-
under and demanding that the Issuer remedy the same, shall have been given
by registered or certified mail, return receipt requested, to the Issuer by
the Trustee, or to the Issuer and the Trustee by the holders of at least 25%
in aggregate principal amount of the Outstanding Securities of all series
affected thereby; or
(d) a court having jurisdiction in the premises shall enter a decree or or-
der for relief in respect of the Issuer in an involuntary case under any ap-
plicable bankruptcy, insolvency or other similar law now or hereafter in ef-
fect, or appointing a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or similar official) of the Issuer or for any substantial part
of its property or ordering the winding up or liquidation of its affairs,
and such decree or order shall remain unstayed and in effect for a period of
60 consecutive days; or
(e) the Issuer shall commence a voluntary case under any applicable bank-
ruptcy, insolvency or other similar law now or hereafter in effect, or con-
sent to the entry of an order for relief in an involuntary case under any
such law, or consent to the appointment or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar official)
of the Issuer or for any substantial part of its property, or make any gen-
eral assignment for the benefit of creditors; or
(f) any other Event of Default provided in the supplemental indenture under
which such series of Securities is issued or in the form of Security for
such series.
If an Event of Default described in clauses (a), (b), (c) or (f) (if the
Event of Default under clause (c) or (f), as the case may be, is with respect
to less than all series of Securities then Outstanding) occurs and is continu-
ing, then, and in each and every such case, except for any series of Securi-
ties the principal of which shall have already become due and payable, either
the Trustee or the Holders of not less than 25% in aggregate principal amount
of the Securities of each such affected series then Outstanding hereunder
(voting as a single class) by notice in writing to the Issuer (and to the
Trustee if given by Securityholders), may declare the entire principal (or, if
the Securities of any such affected series are Original Issue Discount Securi-
ties, such portion of the principal amount as may be specified in the terms of
such series) of all Securities of all such affected series, and the interest
accrued thereon, if any, to be due and payable immediately, and upon any such
declaration the same shall become immediately due and payable. If an
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Event of Default described in clause (c) or (f) (if the Event of Default under
clause (c) or (f), as the case may be, is with respect to all series of Secu-
rities then Outstanding), (d) or (e) occurs and is continuing, then and in
each and every such case, unless the principal of all the Securities shall
have already become due and payable, either the Trustee or the Holders of not
less than 25% in aggregate principal amount of all the Securities then Out-
standing hereunder (treated as one class), by notice in writing to the Issuer
(and to the Trustee if given by Securityholders), may declare the entire prin-
cipal (or, if any Securities are Original Issue Discount Securities, such por-
tion of the principal amount as may be specified in the terms thereof) of all
the Securities then Outstanding, and interest accrued thereon, if any, to be
due and payable immediately, and upon any such declaration the same shall be-
come immediately due and payable.
The foregoing provisions, however, are subject to the condition that if, at
any time after the principal (or, if the Securities are Original Issue Dis-
count Securities, such portion of the principal as may be specified in the
terms thereof) of the Securities of any series (or of all the Securities, as
the case may be) shall have been so declared due and payable, and before any
judgment or decree for the payment of the moneys due shall have been obtained
or entered as hereinafter provided, the Issuer shall pay or shall deposit with
the Trustee a sum sufficient to pay all matured installments of interest upon
all the Securities of such series (or of all the Securities, as the case may
be) and the principal of any and all Securities of each such series (or of all
the Securities, as the case may be) which shall have become due otherwise than
by acceleration (with interest upon such principal and, to the extent that
payment of such interest is enforceable under applicable law, on overdue in-
stallments of interest, at the same rate as the rate of interest or Yield to
Maturity (in the case of Original Issue Discount Securities) specified in the
Securities of each such series (or at the respective rates of interest or
Yields to Maturity of all the Securities, as the case may be) to the date of
such payment or deposit) and such amount as shall be sufficient to cover rea-
sonable compensation to the Trustee and each predecessor Trustee, its agents,
attorneys and counsel, and all other expenses and liabilities incurred, and
all advances made, by the Trustee and each predecessor Trustee except as a re-
sult of negligence or bad faith, and if any and all Events of Default under
the Indenture, other than the non-payment of the principal of Securities which
shall have become due by acceleration, shall have been cured, waived or other-
wise remedied as provided herein--then and in every such case the Holders of a
majority in aggregate principal amount of all the Securities of each such se-
ries, or of all the Securities, as the case may be, in each case voting as a
single class, then Outstanding, by
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written notice to the Issuer and to the Trustee, may waive all defaults with
respect to each such series (or with respect to all the Securities, as the
case may be) and rescind and annul such declaration and its consequences, but
no such waiver or rescission and annulment shall extend to or shall affect any
subsequent default or shall impair any right consequent thereon.
For all purposes under this Indenture, if a portion of the principal of any
Original Issue Discount Securities shall have been accelerated and declared
due and payable pursuant to the provisions hereof, then, from and after such
declaration, unless such declaration has been rescinded and annulled, the
principal amount of such Original Issue Discount Securities shall be deemed,
for all purposes hereunder, to be such portion of the principal thereof as
shall be due and payable as a result of such acceleration, and payment of such
portion of the principal thereof as shall be due and payable as a result of
such acceleration, together with interest, if any, thereon and all other
amounts owing thereunder, shall constitute payment in full of such Original
Issue Discount Securities.
Section 5.2 Collection of Indebtedness by Trustee; Trustee May Prove
Debt. The Issuer covenants that (a) in case default shall be made in the pay-
ment of any instalment of interest on any of the Securities of any series when
such interest shall have become due and payable, and such default shall have
continued for a period of 30 days or (b) in case default shall be made in the
payment of all or any part of the principal of any of the Securities of any
series when the same shall have become due and payable, whether upon maturity
of the Securities of such series or upon any redemption or by declaration or
otherwise--then upon demand of the Trustee, the Issuer will pay to the Trustee
for the benefit of the Holders of the Securities of such series the whole
amount that then shall have become due and payable on all Securities of such
series, and such Coupons, for principal or interest, as the case may be (with
interest to the date of such payment upon the overdue principal and, to the
extent that payment of such interest is enforceable under applicable law, on
overdue installments of interest at the same rate as the rate of interest or
Yield to Maturity (in the case of Original Issue Discount Securities) speci-
fied in the Securities of such series); and in addition thereto, such further
amount as shall be sufficient to cover the costs and expenses of collection,
including reasonable compensation to the Trustee and each predecessor Trustee,
their respective agents, attorneys and counsel, and any expenses and liabili-
ties incurred, and all advances made, by the Trustee and each predecessor
Trustee except as a result of its negligence or bad faith.
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Until such demand is made by the Trustee, the Issuer may pay the principal of
and interest on the Securities of any series to the Holders thereof, whether
or not the Securities of such Series be overdue.
In case the Issuer shall fail forthwith to pay such amounts upon such demand,
the Trustee, in its own name and as trustee of an express trust, shall be en-
titled and empowered to institute any action or proceedings at law or in eq-
uity for the collection of the sums so due and unpaid, and may prosecute any
such action or proceedings to judgment or final decree, and may enforce any
such judgment or final decree against the Issuer or other obligor upon the Se-
curities and collect in the manner provided by law out of the property of the
Issuer or other obligor upon the Securities, wherever situated the moneys ad-
judged or decreed to be payable.
In case there shall be pending proceedings relative to the Issuer or any
other obligor upon the Securities under Title 11 of the United States Code or
any other applicable Federal or state bankruptcy, insolvency or other similar
law, or in case a receiver, assignee or trustee in bankruptcy or reorganiza-
tion, liquidator, sequestrator or similar official shall have been appointed
for or taken possession of the Issuer or its property or such other obligor,
or in case of any other comparable judicial proceedings relative to the Issuer
or other obligor upon the Securities, or to the creditors or property of the
Issuer or such other obligor, the Trustee, irrespective of whether the princi-
pal of the Securities shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Trustee shall have
made any demand pursuant to the provisions of this Section, shall be entitled
and empowered, by intervention in such proceedings or otherwise:
(a) to file and prove a claim or claims for the whole amount of principal
and interest (or, if the Securities of any series are Original Issue Dis-
count Securities, such portion of the principal amount as may be specified
in the terms of such series) owing and unpaid in respect of the Securities
of any series, and to file such other papers or documents as may be neces-
sary or advisable in order to have the claims of the Trustee (including any
claim for reasonable compensation to the Trustee and each predecessor Trust-
ee, and their respective agents, attorneys and counsel, and for reimburse-
ment of all expenses and liabilities incurred, and all advances made, by the
Trustee and each predecessor Trustee, except as a result of negligence or
bad faith) and of the Securityholders allowed in any judicial proceedings
relative to the Issuer or other obligor upon the Securities, or to the cred-
itors or property of the Issuer or such other obligor,
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(b) unless prohibited by applicable law and regulations, to vote on behalf
of the holders of the Securities of any series in any election of a trustee
or a standby trustee in arrangement, reorganization, liquidation or other
bankruptcy or insolvency proceedings or person performing similar functions
in comparable proceedings, and
(c) to collect and receive any moneys or other property payable or deliver-
able on any such claims, and to distribute all amounts received with respect
to the claims of the Securityholders and of the Trustee on their behalf; and
any trustee, receiver, or liquidator, custodian or other similar official is
hereby authorized by each of the Securityholders to make payments to the
Trustee, and, in the event that the Trustee shall consent to the making of
payments directly to the Securityholders, to pay to the Trustee such amounts
as shall be sufficient to cover reasonable compensation to the Trustee, each
predecessor Trustee and their respective agents, attorneys and counsel, and
all other expenses and liabilities incurred, and all advances made, by the
Trustee and each predecessor Trustee except as a result of negligence or bad
faith.
Nothing herein contained shall be deemed to authorize the Trustee to autho-
rize or consent to or vote for or accept or adopt on behalf of any
Securityholder any plan of reorganization, arrangement, adjustment or composi-
tion affecting the Securities of any series or the rights of any Holder there-
of, or to authorize the Trustee to vote in respect of the claim of any
Securityholder in any such proceeding except, as aforesaid, to vote for the
election of a trustee in bankruptcy or similar person.
All rights of action and of asserting claims under this Indenture, or under
any of the Securities of any series or Coupons appertaining to such Securi-
ties, may be enforced by the Trustee without the possession of any of the Se-
curities of such series or Coupons appertaining to such Securities or the pro-
duction thereof on any trial or other proceedings relative thereto, and any
such action or proceedings instituted by the Trustee shall be brought in its
own name as trustee of an express trust, and any recovery of judgment, subject
to the payment of the expenses, disbursements and compensation of the Trustee,
each predecessor Trustee and their respective agents and attorneys, shall be
for the ratable benefit of the Holders of the Securities or Coupons appertain-
ing to such Securities in respect of which such action was taken.
In any proceedings brought by the Trustee (and also any proceedings involving
the interpretation of any provision of this Indenture to which the Trustee
shall be a party) the Trustee shall be held to represent all the Holders of
the Securities or Coupons appertaining to such Securities in respect to which
such action was
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taken, and it shall not be necessary to make any Holders of such Securities or
Coupons appertaining to such Securities parties to any such proceedings.
Section 5.3 Application of Proceeds. Any moneys collected by the Trustee pur-
suant to this Article in respect of any series shall be applied in the follow-
ing order at the date or dates fixed by the Trustee and, in case of the dis-
tribution of such moneys on account of principal or interest, upon presenta-
tion of the several Securities and Coupons appertaining to such Securities in
respect of which monies have been collected and stamping (or otherwise noting)
thereon the payment, or issuing Securities of such series in reduced principal
amounts in exchange for the presented Securities of like series if only par-
tially paid, or upon surrender thereof if fully paid:
First: To the payment of costs and expenses applicable to such series in
respect of which monies have been collected, including reasonable compensa-
tion to the Trustee and each predecessor Trustee and their respective agents
and attorneys and of all expenses and liabilities incurred, and all advances
made, by the Trustee and each predecessor Trustee except as a result of neg-
ligence or bad faith;
Second: In case the principal of the Securities of such series in respect
of which moneys have been collected shall not have become and be then due
and payable, to the payment of interest on the Securities of such series in
default in the order of the maturity of the installments of such interest,
with interest (to the extent that such interest has been collected by the
Trustee) upon the overdue installments of interest at the same rate as the
rate of interest or Yield to Maturity (in the case of Original Issue Dis-
count Securities) specified in such Securities, such payments to be made
ratably to the persons entitled thereto, without discrimination or prefer-
ence;
Third: In case the principal of the Securities of such series in respect of
which moneys have been collected shall have become and shall be then due and
payable, to the payment of the whole amount then owing and unpaid upon all
the Securities of such series for principal and interest, with interest upon
the overdue principal, and (to the extent that such interest has been col-
lected by the Trustee) upon overdue installments of interest at the same
rate as the rate of interest or Yield to Maturity (in the case of Original
Issue Discount Securities) specified in the Securities of such series; and
in case such moneys shall be insufficient to pay in full the whole amount so
due and unpaid upon the Securities of such series, then to the payment of
such principal and interest or Yield to Maturity, without preference or pri-
ority of principal over interest or Yield to Maturity, or of interest or
Yield to Maturity over principal, or of any instalment of interest over any
other instalment of interest, or of any Security of such series over any
other Security of such series, ratably to the
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aggregate of such principal and accrued and unpaid interest or Yield to Ma-
turity; and
Fourth: To the payment of the remainder, if any, to the Issuer or any other
person lawfully entitled thereto.
Section 5.4 Suits for Enforcement. In case an Event of Default has occurred,
has not been waived and is continuing, the Trustee may in its discretion pro-
ceed to protect and enforce the rights vested in it by this Indenture by such
appropriate judicial proceedings as the Trustee shall deem most effectual to
protect and enforce any of such rights, either at law or in equity or in bank-
ruptcy or otherwise, whether for the specific enforcement of any covenant or
agreement contained in this Indenture or in aid of the exercise of any power
granted in this Indenture or to enforce any other legal or equitable right
vested in the Trustee by this Indenture or by law.
Section 5.5 Restoration of Rights on Abandonment of Proceedings. In case the
Trustee shall have proceeded to enforce any right under this Indenture and
such proceedings shall have been discontinued or abandoned for any reason, or
shall have been determined adversely to the Trustee, then and in every such
case the Issuer and the Trustee shall be restored respectively to their former
positions and rights hereunder, and all rights, remedies and powers of the Is-
suer, the Trustee and the Securityholders shall continue as though no such
proceedings had been taken.
Section 5.6 Limitations on Suits by Securityholders. No Holder of any Secu-
rity of any series or of any Coupon appertaining thereto shall have any right
by virtue or by availing of any provision of this Indenture to institute any
action or proceeding at law or in equity or in bankruptcy or otherwise upon or
under or with respect to this Indenture, or for the appointment of a trustee,
receiver, liquidator, custodian or other similar official or for any other
remedy hereunder, unless such Holder previously shall have given to the
Trustee written notice of default and of the continuance thereof, as hereinbe-
fore provided, and unless also the Holders of not less than 25% in aggregate
principal amount of the Securities of each affected series then Outstanding
(treated as a single class) shall have made written request upon the Trustee
to institute such action or proceedings in its own name as trustee hereunder
and shall have offered to the Trustee such reasonable indemnity as it may re-
quire against the costs, expenses and liabilities to be incurred therein or
thereby and the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity shall have failed to institute any such
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action or proceeding and no direction inconsistent with such written request
shall have been given to the Trustee pursuant to Section 5.9; it being under-
stood and intended, and being expressly covenanted by the taker and Holder of
every Security or Coupon with every other taker and Holder and the Trustee,
that no one or more Holders of Securities of any series or Coupons appertain-
ing to such Securities shall have any right in any manner whatever by virtue
or by availing of any provision of this Indenture to affect, disturb or preju-
dice the rights of any other such Holder of Securities or Coupons appertaining
to such Securities, or to obtain or seek to obtain priority over or preference
to any other such Holder or to enforce any right under this Indenture, except
in the manner herein provided and for the equal, ratable and common benefit of
all Holders of Securities of the applicable series and Coupons appertaining to
such Securities. For the protection and enforcement of the provisions of this
Section, each and every Securityholder and the Trustee shall be entitled to
such relief as can be given either at law or in equity.
Section 5.7 Unconditional Right of Securityholders to Institute Certain
Suits. Notwithstanding any other provision in this Indenture and any provision
of any Security, the right of any Holder of any Security or Coupon to receive
payment of the principal of and interest on such Security or Coupon on or af-
ter the respective due dates expressed in such Security or Coupon or any date
fixed for redemption of such Security or Coupon, or to institute suit for the
enforcement of any such payment on or after such respective dates, shall not
be impaired or affected without the consent of such Holder.
Section 5.8 Powers and Remedies Cumulative; Delay or Omission Not Waiver of
Default. Except as provided in Section 5.6, no right or remedy herein con-
ferred upon or reserved to the Trustee or to the Holders of Securities or Cou-
pons is intended to be exclusive of any other right or remedy, and every right
and remedy shall, to the extent permitted by law, be cumulative and in addi-
tion to every other right and remedy given hereunder or now or hereafter ex-
isting at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent as-
sertion or employment of any other appropriate right or remedy.
No delay or omission of the Trustee or of any Holder of Securities or Coupons
to exercise any right or power accruing upon any Event of Default occurring
and continuing as aforesaid shall impair any such right or power or shall be
construed to be a waiver of any such Event of Default or an acquiescence
therein; and, subject to Section 5.6, every power and remedy given by this In-
denture or by
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law to the Trustee or to the Holders of Securities or Coupons may be exercised
from time to time, and as often as shall be deemed expedient, by the Trustee
or by the Holders of Securities or Coupons.
Section 5.9 Control by Holders of Securities. The Holders of a majority in
aggregate principal amount of the Securities of each series affected (with all
such series voting as a single class) at the time Outstanding shall have the
right to direct the time, method, and place of conducting any proceeding for
any remedy available to the Trustee, or exercising any trust or power con-
ferred on the Trustee with respect to the Securities of such series by this
Indenture; provided that such direction shall not be otherwise than in accor-
dance with law and the provisions of this Indenture and provided further that
(subject to the provisions of Section 6.1) the Trustee shall have the right to
decline to follow any such direction if the Trustee, being advised by counsel,
shall determine that the action or proceeding so directed may not lawfully be
taken or if the Trustee in good faith by its board of directors, the executive
committee, or a trust committee of directors or Responsible Officers of the
Trustee shall determine that the action or proceedings so directed would in-
volve the Trustee in personal liability or if the Trustee in good faith shall
so determine that the actions or forebearances specified in or pursuant to
such direction would be unduly prejudicial to the interests of Holders of the
Securities of all series so affected not joining in the giving of said direc-
tion, it being understood that (subject to Section 6.1) the Trustee shall have
no duty to ascertain whether or not such actions or forebearances are unduly
prejudicial to such Holders.
Nothing in this Indenture shall impair the right of the Trustee in its dis-
cretion to take any action deemed proper by the Trustee and which is not in-
consistent with such direction or directions by Securityholders.
Section 5.10 Waiver of Past Defaults. Prior to the acceleration of the matu-
rity of any Securities as provided in Section 5.1, the Holders of a majority
in aggregate principal amount of the Securities of all series at the time Out-
standing with respect to which an Event of Default shall have occurred and be
continuing (voting as a single class) may on behalf of the Holders of all such
Securities waive any past default or Event of Default described in Section 5.1
and its consequences, except a default in respect of a covenant or provision
hereof which cannot be modified or amended without the consent of the Holder
of each Security affected. In the case of any such waiver, the Issuer, the
Trustee and the Holders of all such Securities shall be restored to their for-
mer positions and
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rights hereunder, respectively; but no such waiver shall extend to any subse-
quent or other default or impair any right consequent thereon.
Upon any such waiver, such default shall cease to exist and be deemed to have
been cured and not to have occurred, and any Event of Default arising there-
from shall be deemed to have been cured, and not to have occurred for every
purpose of this Indenture; but no such waiver shall extend to any subsequent
or other default or Event of Default or impair any right consequent thereon.
Section 5.11 Trustee to Give Notice of Default, But May Withhold in Certain
Circumstances. The Trustee shall, within 90 days after the occurrence of a de-
fault with respect to the Securities of any series, give notice of all de-
faults with respect to that series known to the Trustee (i) if any Unregis-
tered Securities of that series are then Outstanding, to the Holders thereof,
by publication at least once in an Authorized Newspaper in the Borough of Man-
hattan, The City of New York, and at least once in an Authorized Newspaper in
London (and, if required by Section 3.7, at least once in an Authorized News-
paper in Luxembourg) and (ii) to all Holders of Securities of such series in
the manner and to the extent provided herein unless in each case such defaults
shall have been cured before the mailing or publication of such notice (the
term "defaults" for the purpose of this Section being hereby defined to mean
any event or condition which is, or with notice or lapse of time or both would
become, an Event of Default); provided that, except in the case of default in
the payment of the principal of or interest on any of the Securities of such
series, or in the payment of any sinking fund instalment on such series, the
Trustee shall be protected in withholding such notice if and so long as the
board of directors, the executive committee, or a trust committee of directors
or trustees and/or Responsible Officers of the Trustee in good faith deter-
mines that the withholding of such notice is in the interests of the
Securityholders of such series.
Section 5.12 Right of Court to Require Filing of Undertaking to Pay Costs.
All parties to this Indenture agree, and each Holder of any Security or Coupon
by his acceptance thereof shall be deemed to have agreed, that any court may
in its discretion require, in any suit for the enforcement of any right or
remedy under this Indenture or in any suit against the Trustee for any action
taken, suffered or omitted by it as Trustee, the filing by any party litigant
in such suit of an undertaking to pay the costs of such suit, and that such
court may in its discretion assess reasonable costs, including reasonable at-
torneys' fees, against any party litigant in such suit, having due regard to
the merits and good faith of
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the claims or defenses made by such party litigant; but the provisions of this
Section shall not apply to any suit instituted by the Trustee, to any suit in-
stituted by any Securityholder or group of Securityholders of any series hold-
ing in the aggregate more than 10% in aggregate principal amount of the Secu-
rities of such series, or, in the case of any suit relating to or arising un-
der clause (c) or (f) of Section 5.1 (if the suit relates to Securities of
more than one but less than all series), 10% in aggregate principal amount of
Securities then Outstanding and affected thereby, or in the case of any suit
relating to or arising under clause (c) or (f) (if the suit under clause (c)
or (f) relates to all the Securities then Outstanding), (d) or (e) of Section
5.1, 10% in aggregate principal amount of all Securities then Outstanding, or
to any suit instituted by any Securityholder for the enforcement of the pay-
ment of the principal of or interest on any Security on or after the due date
expressed in such Security or any date fixed for redemption.
ARTICLE SIX
Concerning the Trustee
Section 6.1 Duties and Responsibilities of the Trustee; During Default; Prior
to Default. With respect to the Holders of any series of Securities issued
hereunder, the Trustee, prior to the occurrence of an Event of Default with
respect to the Securities of a particular series and after the curing or waiv-
ing of all Events of Default which may have occurred with respect to such se-
ries, undertakes to perform such duties and only such duties as are specifi-
cally set forth in this Indenture. In case an Event of Default with respect to
the Securities of a series has occurred (which has not been cured or waived)
the Trustee shall exercise with respect to such series of Securities such of
the rights and powers vested in it by this Indenture, and use the same degree
of care and skill in their exercise, as a prudent man would exercise or use
under the circumstances in the conduct of his own affairs.
No provision of this Indenture shall be construed to relieve the Trustee from
liability for its own negligent action, its own negligent failure to act or
its own willful misconduct, except that
(a) prior to the occurrence of an Event of Default with respect to the Se-
curities of any series and after the curing or waiving of all such Events of
Default with respect to such series which may have occurred:
(i) the duties and obligations of the Trustee with respect to the Securi-
ties of any series shall be determined solely by the express provisions of
this
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Indenture, and the Trustee shall not be liable except for the performance
of such duties and obligations as are specifically set forth in this In-
denture, and no implied covenants or obligations shall be read into this
Indenture against the Trustee; and
(ii) in the absence of bad faith on the part of the Trustee, the Trustee
may conclusively rely, as to the truth of the statements and the correct-
ness of the opinions expressed therein, upon any statements, certificates
or opinions furnished to the Trustee and conforming to the requirements of
this Indenture; but in the case of any such statements, certificates or
opinions which by any provision hereof are specifically required to be
furnished to the Trustee, the Trustee shall be under a duty to examine the
same to determine whether or not they conform to the requirements of this
Indenture;
(b) the Trustee shall not be liable for any error of judgment made in good
faith by a Responsible Officer or Responsible Officers of the Trustee, un-
less it shall be proved that the Trustee was negligent in ascertaining the
pertinent facts; and
(c) the Trustee shall not be liable with respect to any action taken or
omitted to be taken by it in good faith in accordance with the direction of
the Holders pursuant to Section 5.9 relating to the time, method and place
of conducting any proceeding for any remedy available to the Trustee, or ex-
ercising any trust or power conferred upon the Trustee, under this Inden-
ture.
None of the provisions contained in this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur personal financial liabil-
ity in the performance of any of its duties or in the exercise of any of its
rights or powers if there shall be reasonable ground for believing that the
repayment of such funds or adequate indemnity against such liability is not
reasonably assured to it.
The provisions of this Section 6.1 are in furtherance of and subject to Sec-
tion 315 of the Trust Indenture Act of 1939.
Section 6.2 Certain Rights of the Trustee. In furtherance of and subject to
the Trust Indenture Act of 1939, and subject to Section 6.1:
(a) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, Officer's Certificate or any other certifi-
cate, statement, instrument, opinion, report, notice, request, consent, or-
der, bond, debenture, note, coupon, security or other paper or document be-
lieved by it to be genuine and to have been signed or presented by the
proper party or parties;
(b) any request, direction, order or demand of the Issuer mentioned herein
shall be sufficiently evidenced by an Officer's Certificate (unless other
evidence in respect thereof be herein specifically prescribed); and any res-
olution of the Board of Directors may be evidenced to the Trustee by a copy
thereof certified by the secretary or an assistant secretary of the Issuer;
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(c) the Trustee may consult with counsel and any written advice or any
Opinion of Counsel shall be full and complete authorization and protection
in respect of any action taken, suffered or omitted to be taken by it here-
under in good faith and in reliance thereon in accordance with such advice
or Opinion of Counsel;
(d) the Trustee shall be under no obligation to exercise any of the trusts
or powers vested in it by this Indenture at the request, order or direction
of any of the Securityholders pursuant to the provisions of this Indenture,
unless such Securityholders shall have offered to the Trustee reasonable se-
curity or indemnity against the costs, expenses and liabilities which might
be incurred therein or thereby;
(e) the Trustee shall not be liable for any action taken or omitted by it
in good faith and believed by it to be authorized or within the discretion,
rights or powers conferred upon it by this Indenture;
(f) prior to the occurrence of an Event of Default hereunder and after the
curing or waiving of all Events of Default, the Trustee shall not be bound
to make any investigation into the facts or matters stated in any resolu-
tion, certificate, statement, instrument, opinion, report, notice, request,
consent, order, approval, appraisal, bond, debenture, note, coupon, securi-
ty, or other paper or document unless requested in writing so to do by the
Holders of a majority in aggregate principal amount of the Securities of all
series affected then Outstanding; provided that, if the payment within a
reasonable time to the Trustee of the costs, expenses or liabilities likely
to be incurred by it in the making of such investigation is, in the opinion
of the Trustee, not reasonably assured to the Trustee by the security af-
forded to it by the terms of this Indenture, the Trustee may require reason-
able indemnity against such expenses or liabilities as a condition to pro-
ceeding; the reasonable expenses of every such investigation shall be paid
by the Issuer or, if paid by the Trustee or any predecessor Trustee, shall
be repaid by the Issuer upon demand; and
(g) the Trustee may execute any of the trusts or powers hereunder or per-
form any duties hereunder either directly or by or through agents or attor-
neys not regularly in its employ and the Trustee shall not be responsible
for any misconduct or negligence on the part of any such agent or attorney
appointed with due care by it hereunder.
Section 6.3 Trustee Not Responsible for Recitals, Disposition of Securities
or Application of Proceeds Thereof. The recitals contained herein and in the
Securities, except the Trustee's certificates of authentication, shall be
taken as the statements of the Issuer, and the Trustee assumes no responsibil-
ity for the correctness of the same. The Trustee makes no representation as to
the validity or sufficiency of this Indenture or of the Securities or Coupons.
The Trustee shall not be accountable for the use or application by the Issuer
of any of the Securities or of the proceeds thereof.
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Section 6.4 Trustee and Agents May Hold Securities or Coupons; Collections,
etc. The Trustee or any agent of the Issuer or the Trustee, in its individual
or any other capacity, may become the owner or pledgee of Securities or Cou-
pons with the same rights it would have if it were not the Trustee or such
agent and may otherwise deal with the Issuer and receive, collect, hold and
retain collections from the Issuer with the same rights it would have if it
were not the Trustee or such agent.
Section 6.5 Moneys Held by Trustee. Subject to the provisions of Section 10.4
hereof, all moneys received by the Trustee shall, until used or applied as
herein provided, be held in trust for the purposes for which they were re-
ceived, but need not be segregated from other funds except to the extent re-
quired by mandatory provisions of law. Neither the Trustee nor any agent of
the Issuer or the Trustee shall be under any liability for interest on any
moneys received by it hereunder.
Section 6.6 Compensation and Indemnification of Trustee and Its Prior
Claim. The Issuer covenants and agrees to pay to the Trustee from time to
time, and the Trustee shall be entitled to, reasonable compensation (which
shall not be limited by any provision of law in regard to the compensation of
a trustee of an express trust) and the Issuer covenants and agrees to pay or
reimburse the Trustee and each predecessor Trustee upon its request for all
reasonable expenses, disbursements and advances incurred or made by or on be-
half of it in accordance with any of the provisions of this Indenture (includ-
ing the reasonable compensation and the expenses and disbursements of its
counsel and of all agents and other persons not regularly in its employ) ex-
cept any such expense, disbursement or advance as may arise from its negli-
gence or bad faith. Any such payments and reimbursements not made in a timely
fashion shall be made with interest at the Trustee's corporate base rate. The
Issuer also covenants to indemnify the Trustee and each predecessor Trustee
for, and to hold it harmless against, any loss, liability or expense incurred
without negligence or bad faith on its part, arising out of or in connection
with the acceptance or administration of this Indenture or the trusts hereun-
der and its duties hereunder, including the costs and expenses of defending
itself against or investigating any claim of liability in the premises. The
obligations of the Issuer under this Section to compensate and indemnify the
Trustee and each predecessor Trustee and to pay or reimburse the Trustee and
each predecessor Trustee for expenses, disbursements and advances shall con-
stitute additional indebtedness hereunder and shall survive the satisfaction
and discharge of this Indenture. Such additional indebtedness shall be a se-
nior claim to
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that of the Securities upon all property and funds held or collected by the
Trustee as such, except funds held in trust for the benefit of the Holders of
particular Securities or Coupons, and the Securities are hereby subordinated
to such senior claim.
Section 6.7 Right of Trustee to Rely on Officer's Certificate, etc. Subject
to Sections 6.1 and 6.2, whenever in the administration of the trusts of this
Indenture the Trustee shall deem it necessary or desirable that a matter be
proved or established prior to taking or suffering or omitting any action
hereunder, such matter (unless other evidence in respect thereof be herein
specifically prescribed) may, in the absence of negligence or bad faith on the
part of the Trustee, be deemed to be conclusively proved and established by an
Officer's Certificate delivered to the Trustee, and such certificate, in the
absence of negligence or bad faith on the part of the Trustee, shall be full
warrant to the Trustee for any action taken, suffered or omitted by it under
the provisions of this Indenture upon the faith thereof.
Section 6.8 Indentures Not Creating Potential Conflicting Interests for the
Trustee.
This Section intentionally left blank.
Section 6.9 Persons Eligible for Appointment as Trustee. The Trustee for each
series of Securities hereunder shall at all times be a corporation organized
and doing business under the laws of the United States of America or of any
State or the District of Columbia having a combined capital and surplus of at
least $5,000,000, and which is authorized under such laws to exercise corpo-
rate trust powers and is subject to supervision or examination by Federal,
State or District of Columbia authority. If such corporation publishes reports
of condition at least annually, pursuant to law or to the requirements of the
aforesaid supervising or examining authority, then, for the purposes of this
Section, the combined capital and surplus of such corporation shall be deemed
to be its combined capital and surplus as set forth in its most recent report
of condition so published. In case at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section, the Trustee shall
resign immediately in the manner and with the effect specified in Section
6.10.
The provisions of this Section 6.9 are in furtherance of and subject to Sec-
tion 310(a) of the Trust Indenture Act of 1939.
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Section 6.10 Resignation and Removal; Appointment of Successor Trustee.
(a) The Trustee, or any trustee or trustees hereafter appointed, may at any
time resign and be discharged of the trusts hereby created by giving written
notice of resignation to the Issuer and (i) if any Unregistered Securities are
then Outstanding, by giving notice of such resignation to the Holders thereof,
by publication at least once in an Authorized Newspaper in the Borough of Man-
hattan, The City of New York, and at least once in an Authorized Newspaper in
London (and, if required by Section 3.7, at least once in an Authorized News-
paper in Luxembourg), (ii) if any Unregistered Securities are then Outstand-
ing, by mailing notice of such resignation to the Holders thereof who have
filed their names and addresses with the Trustee at such addresses as were so
furnished to the Trustee and (iii) by mailing notice of such resignation to
the Holders of then Outstanding Registered Securities at their addresses as
they shall appear on the registry books. Upon receiving such notice of resig-
nation, the Issuer shall promptly appoint a successor trustee or trustees by
written instrument in duplicate, executed by authority of the Board of Direc-
tors, one copy of which instrument shall be delivered to the resigning Trustee
and one copy to the successor trustee or trustees. If no successor trustee
shall have been so appointed and have accepted appointment within 30 days af-
ter the mailing of such notice of resignation, the resigning trustee may peti-
tion any court of competent jurisdiction for the appointment of a successor
trustee, or any Securityholder who has been a bona fide Holder of a Security
or Securities for at least six months may, subject to the provisions of Sec-
tion 5.12, on behalf of himself and all others similarly situated, petition
any such court for the appointment of a successor trustee. Such court may
thereupon, after such notice, if any, as it may deem proper and prescribe, ap-
point a successor trustee.
(b) In case at any time any of the following shall occur:
(i) the Trustee shall fail to comply with the provisions of Section 310(b)
of the Trust Indenture Act of 1939 after written request therefor by the Is-
suer or by any Securityholder who has been a bona fide Holder of a Security
or Securities for at least six months; or
(ii) the Trustee shall cease to be eligible in accordance with the provi-
sions of Section 6.9 and Section 310(a) of the Trust Indenture Act of 1939
and shall fail to resign after written request therefor by the Issuer or by
any Securityholder; or
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(iii) the Trustee shall become incapable of acting or shall be adjudged a
bankrupt or insolvent, or a receiver or liquidator of the Trustee or of its
property shall be appointed, or any public officer shall take charge or con-
trol of the Trustee or of its property or affairs for the purpose of reha-
bilitation, conservation or liquidation;
then, in any such case, the Issuer may remove the Trustee and appoint a suc-
cessor trustee by written instrument, in duplicate, executed by order of the
Board of Directors of the Issuer, one copy of which instrument shall be deliv-
ered to the Trustee so removed and one copy to the successor trustee, or, sub-
ject to the provisions of Section 315(e) of the Trust Indenture Act of 1939,
any Securityholder who has been a bona fide Holder of a Security or Securities
for at least six months may on behalf of himself and all others similarly sit-
uated, petition any court of competent jurisdiction for the removal of the
Trustee and the appointment of a successor trustee. Such court may thereupon,
after such notice, if any, as it may deem proper and prescribe, remove the
Trustee and appoint a successor trustee.
(c) The Holders of a majority in aggregate principal amount of the Securities
of all series at the time outstanding may at any time remove the Trustee and
appoint a successor trustee by delivering to the Trustee so removed, to the
successor trustee so appointed and to the Issuer the evidence provided for in
Section 7.1 of the action in that regard taken by the Securityholders.
(d) Any resignation or removal of the Trustee and any appointment of a suc-
cessor trustee pursuant to any of the provisions of this Section 6.10 shall
become effective upon acceptance of appointment by the successor trustee as
provided in Section 6.11.
Section 6.11 Acceptance of Appointment by Successor Trustee. Any successor
trustee appointed as provided in Section 6.10 shall execute and deliver to the
Issuer and to its predecessor trustee an instrument accepting such appointment
hereunder, and thereupon the resignation or removal of the predecessor trustee
shall become effective and such successor trustee, without any further act,
deed or conveyance, shall become vested with all rights, powers, duties and
obligations of its predecessor hereunder, with like effect as if originally
named as trustee hereunder; but, nevertheless, on the written request of the
Issuer or
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of the successor trustee, upon payment of its charges then unpaid, the trustee
ceasing to act shall, subject to Section 10.4, pay over to the successor
trustee all moneys at the time held by it hereunder and shall execute and de-
liver an instrument transferring to such successor trustee all such rights,
powers, duties and obligations. Upon request of any such successor trustee,
the Issuer shall execute any and all instruments in writing for more fully and
certainly vesting in and confirming to such successor trustee all such rights
and powers. Any trustee ceasing to act shall, nevertheless, retain a prior
claim upon all property or funds held or collected by such trustee to secure
any amounts then due it pursuant to the provisions of Section 6.6.
No successor trustee shall accept appointment as provided in this Section
6.11 unless at the time of such acceptance such successor trustee shall be
qualified under Section 310(b) of the Trust Indenture Act of 1939 and eligible
under the provisions of Section 6.9.
Upon acceptance of appointment by any successor trustee as provided in this
Section 6.11, the Issuer shall give notice thereof (a) if any Unregistered Se-
curities are then Outstanding, to the Holders thereof, by publication of such
notice at least once in an Authorized Newspaper in the Borough of Manhattan,
The City of New York and at least once in an Authorized Newspaper in London
(and, if required by Section 3.7, at least once in an Authorized Newspaper in
Luxembourg), (b) if any Unregistered Securities are then Outstanding, to the
Holders thereof who have filed their names and addresses with the Trustee, by
mailing such notice to such Holders at such addresses as were so furnished to
the Trustee (and the Trustee shall make such information available to the Is-
suer for such purpose) and (c) to the Holders of Registered Securities, by
mailing such notice to such Holders at their addresses as they shall appear on
the registry books. If the acceptance of appointment is substantially contem-
poraneous with the resignation, then the notice called for by the preceding
sentence may be combined with the notice called for by Section 6.10. If the
Issuer fails to give such notice within ten days after acceptance of appoint-
ment by the successor trustee, the successor trustee shall cause such notice
to be given at the expense of the Issuer.
Section 6.12 Merger, Conversion, Consolidation or Succession to Business of
Trustee. Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merg-
er, conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to the corporate trust business of the Trustee, shall
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be the successor of the Trustee hereunder, provided that such corporation
shall be qualified under Section 310(b) of the Trust Indenture Act of 1939 and
eligible under the provisions of Section 6.9, without the execution or filing
of any paper or any further act on the part of any of the parties hereto, any-
thing herein to the contrary notwithstanding.
In case at the time such successor to the Trustee shall succeed to the trusts
created by this Indenture any of the Securities of any series shall have been
authenticated but not delivered, any such successor to the Trustee may adopt
the certificate of authentication of any predecessor Trustee and deliver such
Securities so authenticated; and, in case at that time any of the Securities
of any series shall not have been authenticated, any successor to the Trustee
may authenticate such Securities either in the name of any predecessor hereun-
der or in the name of the successor Trustee; and in all such cases such cer-
tificate shall have the full force which it is anywhere in the Securities of
such series or in this Indenture provided that the certificate of the Trustee
shall have; provided, that the right to adopt the certificate of authentica-
tion of any predecessor Trustee or to authenticate Securities of any series in
the name of any predecessor Trustee shall apply only to its successor or suc-
cessors by merger, conversion or consolidation.
Section 6.13 Preferential Collection of Claims Against the Issuer.
This Section intentionally left blank.
Section 6.14 Appointment of Authenticating Agent. As long as any Securities
of a series remain Outstanding, the Trustee may, by an instrument in writing,
appoint with the approval of the Issuer an authenticating agent (the "Authen-
ticating Agent") which shall be authorized to act on behalf of the Trustee to
authenticate Securities, including Securities issued upon exchange, registra-
tion of transfer, partial redemption or pursuant to Section 2.9. Securities of
each such series authenticated by such Authenticating Agent shall be entitled
to the benefits of this Indenture and shall be valid and obligatory for all
purposes as if authenticated by the Trustee. Whenever reference is made in
this Indenture to the authentication and delivery of Securities of any series
by the Trustee or to the Trustee's Certificate of Authentication, such refer-
ence shall be deemed to include authentication and delivery on behalf of the
Trustee by an Authenticating Agent for such series and a Certificate of Au-
thentication executed on behalf of the Trustee by such Authenticating Agent.
Such Authenticating Agent shall at all times be a corporation organized and
doing business under the laws of the United States of America or of any State,
authorized under such laws to exercise corpo-
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rate trust powers, having a combined capital and surplus of at least
$5,000,000 (determined as provided in Section 6.9 with respect to the Trustee)
and subject to supervision or examination by Federal or State authority.
Any corporation into which any Authenticating Agent may be merged or convert-
ed, or with which it may be consolidated, or any corporation resulting from
any merger, conversion or consolidation to which any Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency busi-
ness of any Authenticating Agent, shall continue to be the Authenticating
Agent with respect to all series of Securities for which it served as Authen-
ticating Agent without the execution or filing of any paper or any further act
on the part of the Trustee or such Authenticating Agent. Any Authenticating
Agent may at any time, and if it shall cease to be eligible shall, resign by
giving written notice of resignation to the Trustee and to the Issuer.
Upon receiving such a notice of resignation or upon such a termination, or in
case at any time any Authenticating Agent shall cease to be eligible in accor-
dance with the provisions of this Section 6.14 with respect to one or more se-
ries of Securities, the Trustee shall upon receipt of an Issuer Order appoint
a successor Authenticating Agent and the Issuer shall provide notice of such
appointment to all Holders of Securities of such series in the manner and to
the extent provided in Section 11.4. Any successor Authenticating Agent upon
acceptance of its appointment hereunder shall become vested with all rights,
powers, duties and responsibilities of its predecessor hereunder, with like
effect as if originally named as Authenticating Agent. The Issuer agrees to
pay to the Authenticating Agent for such series from time to time reasonable
compensation. The Authenticating Agent for the Securities of any series shall
have no responsibility or liability for any action taken by it as such at the
direction of the Trustee.
Sections 6.2, 6.3, 6.4, 6.6, 6.9 and 7.3 shall be applicable to any Authenti-
cating Agent.
ARTICLE SEVEN
Concerning the Securityholders
Section 7.1 Evidence of Action Taken by Securityholders. Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by a specified percentage in principal
amount of the Securityholders of any or all series may be embodied in and
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evidenced by one or more instruments of substantially similar tenor signed
(either physically or by means of an electronic transmission) by such speci-
fied percentage of Securityholders in person or by agent duly appointed in
writing; and, except as herein otherwise expressly provided, such action shall
become effective when such instrument or instruments are delivered (either
physically or by means of an electronic transmission) to the Trustee. Proof of
execution of any instrument or of a writing appointing any such agent shall be
sufficient for any purpose of this Indenture and (subject to Sections 6.1 and
6.2) conclusive in favor of the Trustee and the Issuer, if made in the manner
provided in this Article.
Section 7.2 Proof of Execution of Instruments and of Holding of Securities.
Subject to Sections 6.1 and 6.2, the execution of any instrument by a
Securityholder or his agent or proxy may be proved in the following manner:
(a) The fact and date of the execution by any Holder of any instrument may
be proved by the certificate of any notary public or other officer of any
jurisdiction authorized to take acknowledgments of deeds or administer oaths
that the person executing such instruments acknowledged to him the execution
thereof, or by an affidavit of a witness to such execution sworn to before
any such notary or other such officer. Where such execution is by or on be-
half of any legal entity other than an individual, such certificate or affi-
davit shall also constitute sufficient proof of the authority of the person
executing the same. The fact of the holding by any Holder of an Unregistered
Security of any series, and the identifying number of such Security and the
date of his holding the same, may be proved by the production of such Secu-
rity or by a certificate executed by any trust company, bank, banker or rec-
ognized securities dealer wherever situated satisfactory to the Trustee, if
such certificate shall be deemed by the Trustee to be satisfactory. Each
such certificate shall be dated and shall state that on the date thereof a
Security of such series bearing a specified identifying number was deposited
with or exhibited to such trust company, bank, banker or recognized securi-
ties dealer by the person named in such certificate. Any such certificate
may be issued in respect of one or more Unregistered Securities of one or
more series specified therein. The holding by the person named in any such
certificate of any Unregistered Securities of any series specified therein
shall be presumed to continue for a period of one year from the date of such
certificate unless at the time of any determination of such holding (1) an-
other certificate bearing a later date issued in respect of the same Securi-
ties shall be produced, or (2) the Security of such series specified in such
certificate shall be produced by some other person, or (3) the Security of
such series specified in such certificate shall have ceased to be Outstand-
ing. Subject to Sections 6.1 and 6.2, the fact and date of the execution of
any such instrument and the amount and numbers of Securities of any series
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held by the person so executing such instrument and the amount and numbers
of any Security or Securities for such series may also be proven in accor-
dance with such reasonable rules and regulations as may be prescribed by the
Trustee for such series or in any other manner which the Trustee for such
series may deem sufficient.
(b) In the case of Registered Securities, the ownership of such Securities
shall be proved by the Security register or by a certificate of the Security
registrar.
The Issuer may set a record date for purposes of determining the identity of
Holders of Registered Securities of any series entitled to vote or consent to
any action referred to in Section 7.1, which record date may be set at any
time or from time to time by notice to the Trustee, for any date or dates (in
the case of any adjournment or reconsideration) not more than 60 days nor less
than five days prior to the proposed date of such vote or consent, and there-
after, notwithstanding any other provisions hereof, with respect to Registered
Securities of any series, only Holders of Registered Securities of such series
of record on such record date shall be entitled to so vote or give such con-
sent or revoke such vote or consent.
Section 7.3 Holders to Be Treated as Owners. The Issuer, the Trustee and any
agent of the Issuer or the Trustee may deem and treat the person in whose name
any Security shall be registered upon the Security register for such series as
the absolute owner of such Security (whether or not such Security shall be
overdue and notwithstanding any notation of ownership or other writing there-
on) for the purpose of receiving payment of or on account of the principal of
and, subject to the provisions of this Indenture, interest on such Security
and for all other purposes; and neither the Issuer nor the Trustee nor any
agent of the Issuer or the Trustee shall be affected by any notice to the con-
trary. The Issuer, the Trustee and any agent of the Issuer or the Trustee may
treat the Holder of any Unregistered Security and the Holder of any Coupon as
the absolute owner of such Unregistered Security or Coupon (whether or not
such Unregistered Security or Coupon shall be overdue) for the purpose of re-
ceiving payment thereof or on account thereof and for all other purposes and
neither the Issuer, the Trustee, nor any agent of the Issuer or the Trustee
shall be affected by any notice to the contrary. All such payments so made to
any such person, or upon his order, shall be valid, and, to the extent of the
sum or sums so paid, effectual to satisfy and discharge the liability for mon-
eys payable upon any such Security or Coupon.
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Section 7.4 Securities Owned by Issuer Deemed Not Outstanding. In determining
whether the Holders of the requisite aggregate principal amount of Outstanding
Securities of any or all series have concurred in any direction, consent or
waiver under this Indenture, Securities which are owned by the Issuer or any
other obligor on the Securities with respect to which such determination is
being made or by any person directly or indirectly controlling or controlled
by or under direct or indirect common control with the Issuer or any other ob-
ligor on the Securities with respect to which such determination is being made
shall be disregarded and deemed not to be Outstanding for the purpose of any
such determination, except that for the purpose of determining whether the
Trustee shall be protected in relying on any such direction, consent or waiver
only Securities which the Trustee knows are so owned shall be so disregarded.
Securities so owned which have been pledged in good faith may be regarded as
Outstanding if the pledgee establishes to the satisfaction of the Trustee the
pledgee's right so to act with respect to such Securities and that the pledgee
is not the Issuer or any other obligor upon the Securities or any person di-
rectly or indirectly controlling or controlled by or under direct or indirect
common control with the Issuer or any other obligor on the Securities. In case
of a dispute as to such right, the advice of counsel shall be full protection
in respect of any decision made by the Trustee in accordance with such advice.
Upon request of the Trustee, the Issuer shall furnish to the Trustee promptly
an Officer's Certificate listing and identifying all Securities, if any, known
by the Issuer to be owned or held by or for the account of any of the above-
described persons; and, subject to Sections 6.1 and 6.2, the Trustee shall be
entitled to accept such Officer's Certificate as conclusive evidence of the
facts therein set forth and of the fact that all Securities not listed therein
are Outstanding for the purpose of any such determination.
Section 7.5 Right of Revocation of Action Taken. At any time prior to (but
not after) the evidencing to the Trustee, as provided in Section 7.1, of the
taking of any action by the Holders of the percentage in aggregate principal
amount of the Securities of any or all series, as the case may be, specified
in this Indenture in connection with such action, any Holder of a Security the
serial number of which is shown by the evidence to be included among the se-
rial numbers of the Securities the Holders of which have consented to such ac-
tion may, by filing written notice at the Corporate Trust Office and upon
proof of holding as provided in this Article, revoke such action so far as
concerns such Security. Except as aforesaid any such action taken by the
Holder of any Security shall be conclusive and binding upon such Holder and
upon all future Holders and owners of
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such Security and of any Securities issued in exchange or substitution there-
for or on registration of transfer thereof, irrespective of whether or not any
notation in regard thereto is made upon any such Security. Any action taken by
the Holders of the percentage in aggregate principal amount of the Securities
of any or all series, as the case may be, specified in this Indenture in con-
nection with such action shall be conclusively binding upon the Issuer, the
Trustee and the Holders of all the Securities affected by such action.
ARTICLE EIGHT
Supplemental Indentures
Section 8.1 Supplemental Indentures Without Consent of Securityholders. The
Issuer, when authorized by a resolution of its Board of Directors (which reso-
lution may provide general terms or parameters for such action and may provide
that the specific terms of such action may be determined in accordance with or
pursuant to an Issuer Order), and the Trustee may from time to time and at any
time enter into an indenture or indentures supplemental hereto for one or more
of the following purposes:
(a) to convey, transfer, assign, mortgage or pledge to the Trustee as secu-
rity for the Securities of one or more series any property or assets;
(b) to evidence the succession of another corporation to the Issuer, or
successive successions, and the assumption by the successor corporation of
the covenants, agreements and obligations of the Issuer pursuant to Article
Nine;
(c) to add to the covenants of the Issuer such further covenants, restric-
tions, conditions or provisions as the Issuer and the Trustee shall consider
to be for the protection of the Holders of Securities or Coupons, and to
make the occurrence, or the occurrence and continuance, of a default in any
such additional covenants, restrictions, conditions or provisions an Event
of Default permitting the enforcement of all or any of the several remedies
provided in this Indenture as herein set forth; provided, that in respect of
any such additional covenant, restriction, condition or provision such sup-
plemental indenture may provide for a particular period of grace after de-
fault (which period may be shorter or longer than that allowed in the case
of other defaults) or may provide for an immediate enforcement upon such an
Event of Default or may limit the remedies available to the Trustee upon
such an Event of Default or may limit the right of the Holders of a majority
in aggregate principal amount of the Securities of such series to waive such
an Event of Default;
(d) to cure any ambiguity or to correct or supplement any provision con-
tained herein or in any supplemental indenture which may be defective or in-
consistent with any other provision contained herein or in any supplemental
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indenture, or to make any other provisions as the Issuer may deem necessary
or desirable, provided that no such action shall adversely affect the inter-
ests of the Holders of the Securities or Coupons;
(e) to establish the forms or terms of Securities of any series or of the
Coupons appertaining to such Securities as permitted by Sections 2.1 and
2.3; and
(f) to evidence and provide for the acceptance of appointment hereunder by
a successor trustee with respect to the Securities of one or more series and
to add to or change any of the provisions of this Indenture as shall be nec-
essary to provide for or facilitate the administration of the trusts hereun-
der by more than one trustee, pursuant to the requirements of Section 6.11.
The Trustee is hereby authorized to join with the Issuer in the execution of
any such supplemental indenture, to make any further appropriate agreements
and stipulations which may be therein contained and to accept the conveyance,
transfer, assignment, mortgage or pledge of any property thereunder, but the
Trustee shall not be obligated to enter into any such supplemental indenture
which affects the Trustee's own rights, duties or immunities under this Inden-
ture or otherwise.
Any supplemental indenture authorized by the provisions of this Section may
be executed without the consent of the Holders of any of the Securities at the
time outstanding, notwithstanding any of the provisions of Section 8.2.
Section 8.2 Supplemental Indentures With Consent of Securityholders. With the
consent (evidenced as provided in Article Seven) of the Holders of a majority
in aggregate principal amount of the Securities at the time Outstanding of all
series affected by such supplemental indenture (voting as one class), the Is-
suer, when authorized by a resolution of its Board of Directors (which resolu-
tion may provide general terms or parameters for such action and may provide
that the specific terms of such action may be determined in accordance with or
pursuant to an Issuer Order), and the Trustee may, from time to time and at
any time, enter into an indenture or indentures supplemental hereto for the
purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of this Indenture or of any supplemental indenture or of
modifying in any manner the rights of the Holders of the Securities of each
such series or of the Coupons appertaining to such Securities; provided, that
no such supplemental indenture shall (a) extend the final maturity of any Se-
curity, or reduce the principal amount thereof, or reduce the rate or extend
the time of payment of interest thereon, or reduce any amount payable on re-
demption thereof, or make the prin-
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cipal thereof (including any amount in respect of original issue discount), or
interest thereon, payable in any coin or currency other than that provided in
the Securities and Coupons or in accordance with the terms thereof, or reduce
the amount of the principal of an Original Issue Discount Security that would
be due and payable upon an acceleration of the maturity thereof pursuant to
Section 5.1 or the amount thereof provable in bankruptcy pursuant to Section
5.2, or alter the provisions of Section 11.11 or 11.12 or impair or affect the
right of any Securityholder to institute suit for the payment thereof or, if
the Securities provide therefor, any right of repayment or repurchase at the
option of the Securityholder, in each case without the consent of the Holder
of each Security so affected, or (b) reduce the aforesaid percentage of Secu-
rities of any series, the consent of the Holders of which is required for any
such supplemental indenture, without the consent of the Holders of each Secu-
rity so affected.
A supplemental indenture which changes or eliminates any covenant or other
provision of this Indenture which has expressly been included solely for the
benefit of one or more particular series of Securities, or which modifies the
rights of Holders of Securities of such series, or of Coupons appertaining to
such Securities, with respect to such covenant or provision, shall be deemed
not to affect the rights under this Indenture of the Holders of Securities of
any other series or of the Coupons appertaining to such Securities.
Upon the request of the Issuer, accompanied by a copy of a resolution of the
Board of Directors (which resolution may provide general terms or parameters
for such action and may provide that the specific terms of such action may be
determined in accordance with or pursuant to an Issuer Order) certified by the
secretary or an assistant secretary of the Issuer authorizing the execution of
any such supplemental indenture, and upon the filing with the Trustee of evi-
dence of the consent of the Holders of the Securities as aforesaid and other
documents, if any, required by Section 7.1, the Trustee shall join with the
Issuer in the execution of such supplemental indenture unless such supplemen-
tal indenture affects the Trustee's own rights, duties or immunities under
this Indenture or otherwise, in which case the Trustee may in its discretion,
but shall not be obligated to, enter into such supplemental indenture.
It shall not be necessary for the consent of the Securityholders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such consent shall approve the substance there-
of.
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Promptly after the execution by the Issuer and the Trustee of any supplemen-
tal indenture pursuant to the provisions of this Section, the Trustee shall
give notice thereof (i) to the Holders of then Outstanding Registered Securi-
ties of each series affected thereby, by mailing a notice thereof by first-
class mail to such Holders at their addresses as they shall appear on the Se-
curity register, (ii) if any Unregistered Securities of a series affected
thereby are then Outstanding, to the Holders thereof who have filed their
names and addresses with the Trustee, by mailing a notice thereof by first-
class mail to such Holders at such addresses as were so furnished to the
Trustee and (iii) if any Unregistered Securities of a series affected thereby
are then Outstanding, to all Holders thereof, by publication of a notice
thereof at least once in an Authorized Newspaper in the Borough of Manhattan,
The City of New York and at least once in an Authorized Newspaper in London
(and, if required by Section 3.7, at least once in an Authorized Newspaper in
Luxembourg), and in each case such notice shall set forth in general terms the
substance of such supplemental indenture. Any failure of the Issuer to give
such notice, or any defect therein, shall not, however, in any way impair or
affect the validity of any such supplemental indenture.
Section 8.3 Effect of Supplemental Indenture. Upon the execution of any sup-
plemental indenture pursuant to the provisions hereof, this Indenture shall be
and be deemed to be modified and amended in accordance therewith and the re-
spective rights, limitations of rights, obligations, duties and immunities un-
der this Indenture of the Trustee, the Issuer and the Holders of Securities of
each series affected thereby shall thereafter be determined, exercised and en-
forced hereunder subject in all respects to such modifications and amendments,
and all the terms and conditions of any such supplemental indenture shall be
and be deemed to be part of the terms and conditions of this Indenture for any
and all purposes.
Section 8.4 Documents to Be Given to Trustee. The Trustee, subject to the
provisions of Sections 6.1 and 6.2, may receive an Officer's Certificate and
an Opinion of Counsel as conclusive evidence that any supplemental indenture
executed pursuant to this Article Eight complies with the applicable provi-
sions of this Indenture.
Section 8.5 Notation on Securities in Respect of Supplemental Indentures. Se-
curities of any series authenticated and delivered after the execution of any
supplemental indenture pursuant to the provisions of this Article may bear a
notation in form approved by the Trustee for such series as to any matter pro-
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vided for by such supplemental indenture or as to any action taken by
Securityholders. If the Issuer or the Trustee shall so determine, new Securi-
ties of any series so modified as to conform, in the opinion of the Trustee
and the Board of Directors, to any modification of this Indenture contained in
any such supplemental indenture may be prepared by the Issuer, authenticated
by the Trustee and delivered in exchange for the Securities of such series
then Outstanding.
ARTICLE NINE
Consolidation, Merger, Sale or Conveyance
Section 9.1 Covenant Not to Merge, Consolidate, Sell or Convey Property Ex-
cept Under Certain Conditions. The Issuer covenants that it will not merge or
consolidate with any other Person or sell, lease or convey all or substan-
tially all of its assets to any other Person, unless (i) either the Issuer
shall be the continuing corporation, or the successor corporation or the Per-
son which acquires by sale, lease or conveyance substantially all the assets
of the Issuer (if other than the Issuer) shall be a corporation organized un-
der the laws of the United States of America or any State thereof or the Dis-
trict of Columbia and shall expressly assume the due and punctual payment of
the principal of and interest on all the Securities and Coupons, if any, ac-
cording to their tenor, and the due and punctual performance and observance of
all of the covenants and conditions of this Indenture to be performed or ob-
served by the Issuer, by supplemental indenture satisfactory to the Trustee,
executed and delivered to the Trustee by such corporation, and (ii) the Issu-
er, such Person or such successor corporation, as the case may be, shall not,
immediately after such merger or consolidation, or such sale, lease or convey-
ance, be in default in the performance of any such covenant or condition.
Section 9.2 Successor Corporation Substituted. In case of any such consolida-
tion, merger, sale, lease or conveyance, and following such an assumption by
the successor corporation, such successor corporation shall succeed to and be
substituted for the Issuer, with the same effect as if it had been named here-
in. Such successor corporation may cause to be signed, and may issue either in
its own name or in the name of the Issuer prior to such succession any or all
of the Securities issuable hereunder which together with any Coupons apper-
taining thereto theretofore shall not have been signed by the Issuer and de-
livered to the Trustee; and, upon the order of such successor corporation, in-
stead of the Issuer, and subject to all the terms, conditions and limitations
in this Indenture pre-
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scribed, the Trustee shall authenticate and shall deliver any Securities to-
gether with any Coupons appertaining thereto which previously shall have been
signed and delivered by the officers of the Issuer to the Trustee for authen-
tication, and any Securities which such successor corporation thereafter shall
cause to be signed and delivered to the Trustee for that purpose. All of the
Securities so issued together with any Coupons appertaining thereto shall in
all respects have the same legal rank and benefit under this Indenture as the
Securities theretofore or thereafter issued in accordance with the terms of
this Indenture as though all of such Securities had been issued at the date of
the execution hereof.
In case of any such consolidation, merger, sale, lease or conveyance such
changes in phrasing and form (but not in substance) may be made in the Securi-
ties and Coupons thereafter to be issued as may be appropriate.
In the event of any such sale or conveyance (other than a conveyance by way
of lease) the Issuer or any successor corporation which shall theretofore have
become such in the manner described in this Article shall be discharged from
all obligations and covenants under this Indenture and the Securities and may
be liquidated and dissolved.
Section 9.3 Opinion of Counsel Delivered to Trustee. The Trustee, subject to
the provisions of Sections 6.1 and 6.2, may receive an Opinion of Counsel as
conclusive evidence that any such consolidation, merger, sale, lease or con-
veyance, and any such assumption, and any such liquidation or dissolution,
complies with the applicable provisions of this Indenture.
ARTICLE TEN
Satisfaction and Discharge of Indenture; Unclaimed Moneys
Section 10.1 Satisfaction and Discharge of Indenture. (A) If at any time (a)
the Issuer shall have paid or caused to be paid the principal of and interest
on all the Securities of any series Outstanding hereunder and all unmatured
Coupons appertaining thereto (other than Securities of such series and Coupons
appertaining thereto which have been destroyed, lost or stolen and which have
been replaced or paid as provided in Section 2.9) as and when the same shall
have become due and payable, or (b) the Issuer shall have delivered to the
Trustee for cancellation all Securities of any series theretofore authenti-
cated and all unmatured Coupons appertaining thereto (other than any Securi-
ties of such series and Coupons appertaining thereto which shall have been de-
stroyed, lost or stolen
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and which shall have been replaced or paid as provided in Section 2.9) or (c)
in the case of any series of Securities where the exact amount (including the
currency of payment) of principal of and interest due on which can be deter-
mined at the time of making the deposit referred to in clause (ii) below, (i)
all the Securities of such series and all unmatured Coupons appertaining
thereto not theretofore delivered to the Trustee for cancellation shall have
become due and payable, or are by their terms to become due and payable within
one year or are to be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of redemption, and (ii)
the Issuer shall have irrevocably deposited or caused to be deposited with the
Trustee as trust funds the entire amount in cash (other than moneys repaid by
the Trustee or any paying agent to the Issuer in accordance with Section 10.4)
or, in the case of any series of Securities the payments on which may only be
made in Dollars, obligations issued or guaranteed as to principal and interest
by the United States or by a Person controlled or supervised by and acting as
an instrumentality of the government of the United States pursuant to author-
ity granted by the Congress of the United States ("U.S. Government Obliga-
tions"), maturing as to principal and interest at such times and in such
amounts as will insure the availability of cash, or a combination thereof,
sufficient in the opinion of a nationally recognized firm of independent pub-
lic accountants expressed in a written certification thereof delivered to the
Trustee, to pay (A) the principal and interest on all Securities of such se-
ries and Coupons appertaining thereto on each date that such principal or in-
terest is due and payable and (B) any mandatory sinking fund payments on the
dates on which such payments are due and payable in accordance with the terms
of the Indenture and the Securities of such series; and if, in any such case,
the Issuer shall also pay or cause to be paid all other sums payable hereunder
by the Issuer, then this Indenture shall cease to be of further effect (except
as to (i) rights of registration of transfer and exchange of Securities of
such series and of Coupons appertaining thereto and the Issuer's right of op-
tional redemption, if any, (ii) substitution of mutilated, defaced, destroyed,
lost or stolen Securities or Coupons, (iii) rights of holders of Securities
and Coupons appertaining thereto to receive payments of principal thereof and
interest thereon, upon the original stated due dates therefor or on the speci-
fied redemption dates therefor (but not upon acceleration), and remaining
rights of the Holders to receive mandatory sinking fund payments, if any, (iv)
the rights, obligations, duties and immunities of the Trustee hereunder, (v)
the rights of the Holders of Securities of such series and Coupons appertain-
ing thereto as beneficiaries hereof with respect to the property so deposited
with the Trustee payable to all or any
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of them, and (vi) the obligations of the Issuer under Section 3.2) and the
Trustee, on demand of the Issuer accompanied by an Officer's Certificate and
an Opinion of Counsel and at the cost and expense of the Issuer, shall execute
proper instruments acknowledging such satisfaction of and discharging this In-
denture; provided, that the rights of Holders of the Securities and Coupons to
receive amounts in respect of principal of and interest on the Securities and
Coupons held by them shall not be delayed longer than required by then-appli-
cable mandatory rules or policies of any securities exchange upon which the
Securities are listed.
(B) The following provisions shall apply to the Securities of each series un-
less specifically otherwise provided in a Board Resolution, Officer's Certifi-
cate or indenture supplemental hereto provided pursuant to Section 2.3. In ad-
dition to discharge of the Indenture pursuant to the next preceding paragraph,
in the case of any series of Securities the exact amounts (including the cur-
rency of payment) of principal of and interest due on which can be determined
at the time of making the deposit referred to in clause (a) below, the Issuer
shall be deemed to have paid and discharged the entire indebtedness on all the
Securities of such a series and the Coupons appertaining thereto on the 91st
day after the date of the deposit referred to in subparagraph (a) below, and
the provisions of this Indenture with respect to the Securities of such series
and Coupons appertaining thereto shall no longer be in effect (except as to
(i) rights of registration of transfer and exchange of Securities of such se-
ries and of Coupons appertaining thereto and the Issuer's right of optional
redemption, if any, (ii) substitution of mutilated, defaced, destroyed, lost
or stolen Securities or Coupons, (iii) rights of Holders of Securities and
Coupons appertaining thereto to receive payments of principal thereof and in-
terest thereon, upon the original stated due dates therefor or on the speci-
fied redemption dates therefor (but not upon acceleration), and remaining
rights of the Holders to receive mandatory sinking fund payments, if any, (iv)
the rights, obligations, duties and immunities of the Trustee hereunder, (v)
the rights of the Holders of Securities of such series and Coupons appertain-
ing thereto as beneficiaries hereof with respect to the property so deposited
with the Trustee payable to all or any of them, and (vi) the obligations of
the Issuer under Section 3.2) and the Trustee, at the expense of the Issuer,
shall at the Issuer's request, execute proper instruments acknowledging the
same, if
(a) with reference to this provision the Issuer has irrevocably deposited
or caused to be irrevocably deposited with the Trustee as trust funds in
trust, specifically pledged as security for, and dedicated solely to, the
benefit of the Holders of the Securities of such series and Coupons apper-
taining thereto (i) cash in an amount, or (ii) in the case of any series of
Securities the payments
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on which may only be made in Dollars, U.S. Government Obligations, maturing
as to principal and interest at such times and in such amounts as will in-
sure the availability of cash, or (iii) a combination thereof, sufficient,
in the opinion of a nationally recognized firm of independent public accoun-
tants expressed in a written certification thereof delivered to the Trustee,
to pay (A) the principal and interest on all Securities of such series and
Coupons appertaining thereto on each date that such principal or interest is
due and payable and (B) any mandatory sinking fund payments on the dates on
which such payments are due and payable in accordance with the terms of the
Indenture and the Securities of such series;
(b) the Issuer has delivered to the Trustee an Opinion of Counsel based on
the fact that (x) the Issuer has received from, or there has been published
by, the Internal Revenue Service a ruling or (y) since the date hereof,
there has been a change in the applicable Federal income tax law, in either
case to the effect that, and such opinion shall confirm that, the Holders of
the Securities of such series and Coupons appertaining thereto will not rec-
ognize income, gain or loss for Federal income tax purposes as a result of
such deposit, defeasance and discharge and will be subject to Federal income
tax on the same amount and in the same manner and at the same times, as
would have been the case if such deposit, defeasance and discharge had not
occurred; and
(c) the Issuer has delivered to the Trustee an Officer's Certificate and an
Opinion of Counsel, each stating that all conditions precedent provided for
relating to the defeasance contemplated by this provision have been complied
with.
(C) The Issuer shall be released from its obligations under Sections 3.6 and
9.1 with respect to the Securities of any Series, and any Coupons appertaining
thereto, Outstanding on and after the date the conditions set forth below are
satisfied (hereinafter, "covenant defeasance"). For this purpose, such cove-
nant defeasance means that, with respect to the Outstanding Securities of any
Series, the Issuer may omit to comply with and shall have no liability in re-
spect of any term, condition or limitation set forth in such Section, whether
directly or indirectly by reason of any reference elsewhere herein to such
Section or by reason of any reference in such Section to any other provision
herein or in any other document and such omission to comply shall not consti-
tute an Event of Default under Section 5.1, but the remainder of this Inden-
ture and such Securities and Coupons shall be unaffected thereby. The follow-
ing shall be the conditions to application of this subsection C of this Sec-
tion 10.1:
(a) The Issuer has irrevocably deposited or caused to be deposited with the
Trustee as trust funds in trust for the purpose of making the following pay-
ments, specifically pledged as security for, and dedicated solely to, the
benefit
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of the holders of the Securities of such series and coupons appertaining
thereto, (i) cash in an amount, or (ii) in the case of any series of Securi-
ties the payments on which may only be made in Dollars, U.S. Government Ob-
ligations maturing as to principal and interest at such times and in such
amounts as will insure the availability of cash, or (iii) a combination
thereof, sufficient, in the opinion of a nationally recognized firm of inde-
pendent public accountants expressed in a written certification thereof de-
livered to the Trustee, to pay (A) the principal and interest on all Securi-
ties of such series and Coupons appertaining thereto and (B) any mandatory
sinking fund payments on the day on which such payments are due and payable
in accordance with the terms of the Indenture and the Securities of such se-
ries.
(b) The Issuer shall have delivered to the Trustee an Officer's Certificate
stating that all conditions precedent provided for relating to the covenant
defeasance contemplated by this provision have been complied with.
Section 10.2 Application by Trustee of Funds Deposited for Payment of
Securities. Subject to Section 10.4, all moneys or U.S. Government Obligations
deposited with the Trustee (or other trustee) pursuant to Section 10.1 (and
all funds earned on such moneys or U.S. Government Obligations) shall be held
in trust and applied by it to the payment, either directly or through any pay-
ing agent (including the Issuer acting as its own paying agent), to the Hold-
ers of the particular Securities of such series and of Coupons appertaining
thereto for the payment or redemption of which such moneys have been deposited
with the Trustee, of all sums due and to become due thereon for principal and
interest; but such money need not be segregated from other funds except to the
extent required by law. Subject to Section 10.1, the Trustee promptly shall
pay to the Issuer upon request any excess moneys held by it at any time.
Section 10.3 Repayment of Moneys Held by Paying Agent. In connection with the
satisfaction and discharge of this Indenture with respect to Securities of any
series, all moneys then held by any paying agent under the provisions of this
Indenture with respect to such series of Securities shall, upon demand of the
Issuer, be repaid to it or paid to the Trustee and thereupon such paying agent
shall be released from all further liability with respect to such moneys.
Section 10.4 Return of Moneys Held by Trustee and Paying Agent Unclaimed for
Two Years. Any moneys deposited with or paid to the Trustee or any paying
agent for the payment of the principal of or interest on any Security of any
series or Coupons attached thereto and not applied but remaining unclaimed for
two years after the date upon which such principal or interest shall
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have become due and payable, shall, upon the written request of the Issuer and
unless otherwise required by mandatory provisions of applicable escheat or
abandoned or unclaimed property law, be repaid to the Issuer by the Trustee
for such series or such paying agent, and the Holder of the Securities of such
series and of any Coupons appertaining thereto shall, unless otherwise re-
quired by mandatory provisions of applicable escheat or abandoned or unclaimed
property laws, thereafter look only to the Issuer for any payment which such
Holder may be entitled to collect, and all liability of the Trustee or any
paying agent with respect to such moneys shall thereupon cease; provided, how-
ever, that the Trustee or such paying agent, before being required to make any
such repayment with respect to moneys deposited with it for any payment (a) in
respect of Registered Securities of any series, shall at the expense of the
Issuer, mail by first-class mail to Holders of such Securities at their ad-
dresses as they shall appear on the Security register, and (b) in respect of
Unregistered Securities of any series, shall at the expense of the Issuer
cause to be published once, in an Authorized Newspaper in the Borough of Man-
hattan, The City of New York and once in an Authorized Newspaper in London
(and if required by Section 3.7, once in an Authorized Newspaper in Luxem-
bourg), notice, that such moneys remain and that, after a date specified
therein, which shall not be less than thirty days from the date of such mail-
ing or publication, any unclaimed balance of such money then remaining will be
repaid to the Issuer.
ARTICLE ELEVEN
Miscellaneous Provisions
Section 11.1 Incorporators, Stockholders, Officers and Directors of Issuer
Exempt from Individual Liability. No recourse under or upon any obligation,
covenant or agreement contained in this Indenture, or in any Security, or be-
cause of any indebtedness evidenced thereby, shall be had against any incorpo-
rator, as such, or against any past, present or future stockholder, officer or
director, as such, of the Issuer or of any successor, either directly or
through the Issuer or any successor, under any rule of law, statute or consti-
tutional provision or by the enforcement of any assessment or by any legal or
equitable proceeding or otherwise, all such liability being expressly waived
and released by the acceptance of the Securities and the Coupons appertaining
thereto by the Holders thereof and as part of the consideration for the issue
of the Securities and the Coupons appertaining thereto.
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Section 11.2 Provisions of Indenture for the Sole Benefit of Parties and
Holders of Securities and Coupons. Nothing in this Indenture, in the Securi-
ties or in the Coupons appertaining thereto, expressed or implied, shall give
or be construed to give to any person, firm or corporation, other than the
parties hereto and their successors and the Holders of the Securities or Cou-
pons, if any, any legal or equitable right, remedy or claim under this Inden-
ture or under any covenant or provision herein contained, all such covenants
and provisions being for the sole benefit of the parties hereto and their suc-
cessors and of the Holders of the Securities or Coupons, if any.
Section 11.3 Successors and Assigns of Issuer Bound by Indenture. All the
covenants, stipulations, promises and agreements in this Indenture contained
by or in behalf of the Issuer shall bind its successors and assigns, whether
so expressed or not.
Section 11.4 Notices and Demands on Issuer, Trustee and Holders of Securities
and Coupons. Any notice or demand which by any provision of this Indenture is
required or permitted to be given or served by the Trustee or by the Holders
of Securities or Coupons to or on the Issuer may be given or served by being
deposited postage prepaid, first-class mail (except as otherwise specifically
provided herein) addressed (until another address of the Issuer is filed by
the Issuer with the Trustee) to New Tenneco Inc., 1275 King Street, Greenwich,
Connecticut 06831, Attention: Chief Financial Officer. Any notice, direction,
request or demand by the Issuer or any Holder of Securities or Coupons to or
upon the Trustee shall be deemed to have been sufficiently given or served by
being deposited postage prepaid, first-class mail (except as otherwise specif-
ically provided herein) addressed (until another address of the Trustee is
filed by the Trustee with the Issuer) to 450 West 33rd Street, 15th Floor, New
York, New York 10001-2697, Attention: Global Trust Services.
Where this Indenture provides for notice to Holders of Registered Securities,
such notice shall be sufficiently given (unless otherwise herein expressly
provided) if in writing and mailed, first-class postage prepaid, to each
Holder entitled thereto, at his last address as it appears in the Security
register. In any case where notice to such Holders is given by mail, neither
the failure to mail such notice, nor any defect in any notice so mailed, to
any particular Holder shall affect the sufficiency of such notice with respect
to other Holders. Where this Indenture provides for notice in any manner, such
notice may be waived in writing by the person entitled to receive such notice,
either before or after the event, and such waiver shall be the equivalent of
such notice. Waivers of notice by Holders shall
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be filed with the Trustee, but such filing shall not be a condition precedent
to the validity of any action taken in reliance upon such waiver.
In case, by reason of the suspension of or irregularities in regular mail
service, it shall be impracticable to mail notice to the Issuer when such no-
tice is required to be given pursuant to any provision of this Indenture, then
any manner of giving such notice as shall be reasonably satisfactory to the
Trustee shall be deemed to be a sufficient giving of such notice.
Section 11.5 Officer's Certificates and Opinions of Counsel; Statements to Be
Contained Therein. Upon any application or demand by the Issuer to the Trustee
to take any action under any of the provisions of this Indenture, the Issuer
shall furnish to the Trustee an Officer's Certificate stating that all condi-
tions precedent provided for in this Indenture relating to the proposed action
have been complied with and an Opinion of Counsel stating that in the opinion
of such counsel all such conditions precedent have been complied with, except
that in the case of any such application or demand as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or demand, no additional certificate
or opinion need be furnished.
Each certificate or opinion provided for in this Indenture and delivered to
the Trustee with respect to compliance with a condition or covenant provided
for in this Indenture shall include (a) a statement that the person making
such certificate or opinion has read such covenant or condition, (b) a brief
statement as to the nature and scope of the examination or investigation upon
which the statements or opinions contained in such certificate or opinion are
based, (c) a statement that, in the opinion of such person, he has made such
examination or investigation as is necessary to enable him to express an in-
formed opinion as to whether or not such covenant or condition has been com-
plied with and (d) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.
Any certificate, statement or opinion of an officer of the Issuer may be
based, insofar as it relates to legal matters, upon a certificate or opinion
of or representations by counsel, unless such officer knows that the certifi-
cate or opinion or representations with respect to the matters upon which his
certificate, statement or opinion may be based as aforesaid are erroneous, or
in the exercise of reasonable care should know that the same are erroneous.
Any certificate, statement or opinion of counsel may be based, insofar as it
relates to factual matters, information with respect to which is in the pos-
session of the Issuer, upon the certificate,
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statement or opinion of or representations by an officer or officers of the
Issuer, unless such counsel knows that the certificate, statement or opinion
or representations with respect to the matters upon which his certificate,
statement or opinion may be based as aforesaid are erroneous, or in the exer-
cise of reasonable care should know that the same are erroneous.
Any certificate, statement or opinion of an officer of the Issuer or of coun-
sel may be based, insofar as it relates to accounting matters, upon a certifi-
cate or opinion of or representations by an accountant or firm of accountants
in the employ of the Issuer, unless such officer or counsel, as the case may
be, knows that the certificate or opinion or representations with respect to
the accounting matters upon which his certificate, statement or opinion may be
based as aforesaid are erroneous, or in the exercise of reasonable care should
know that the same are erroneous.
Any certificate or opinion of any independent firm of public accountants
filed with and directed to the Trustee shall contain a statement that such
firm is independent.
Section 11.6 Payments Due on Saturdays, Sundays and Holidays. If the date of
maturity of interest on or principal of the Securities of any series or any
Coupons appertaining thereto or the date fixed for redemption or repayment of
any such Security or Coupon shall not be a Business Day, then payment of in-
terest or principal need not be made on such date, but may be made on the next
succeeding Business Day with the same force and effect as if made on the date
of maturity or the date fixed for redemption, and no interest shall accrue for
the period after such date.
Section 11.7 Conflict of Any Provision of Indenture with Trust Indenture Act
of 1939. If and to the extent that any provision of this Indenture limits,
qualifies or conflicts with the duties imposed by, or with another provision
(an "incorporated provision") included in this Indenture by operation of, Sec-
tions 310 to 318, inclusive, of the Trust Indenture Act of 1939, such imposed
duties or incorporated provision shall control.
Section 11.8 New York Law to Govern. This Indenture and each Security and
Coupon shall be deemed to be a contract under the laws of the State of New
York, and for all purposes shall be construed in accordance with the laws of
such State, except as may otherwise be required by mandatory provisions of
law.
Section 11.9 Counterparts. This Indenture may be executed in any number of
counterparts, each of which shall be an original; but such counterparts shall
together constitute but one and the same instrument.
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Section 11.10 Effect of Headings. The Article and Section headings herein and
the Table of Contents are for convenience only and shall not affect the con-
struction hereof.
Section 11.11 Securities in a Foreign Currency or in ECU. Unless otherwise
specified in an Officer's Certificate delivered pursuant to Section 2.3 of
this Indenture with respect to a particular series of Securities, whenever for
purposes of this Indenture any action may be taken by the Holders of a speci-
fied percentage in aggregate principal amount of Securities of all series or
all series affected by a particular action at the time Outstanding and, at
such time, there are Outstanding Securities of any series which are denomi-
nated in a coin or currency other than Dollars (including ECUs), then the
principal amount of Securities of such series which shall be deemed to be Out-
standing for the purpose of taking such action shall be that amount of Dollars
that could be obtained for such amount at the Market Exchange Rate. For pur-
poses of this Section 11.11, Market Exchange Rate shall mean the noon Dollar
buying rate in New York City for cable transfers of that currency as published
by the Federal Reserve Bank of New York; provided, however, in the case of
ECUs, Market Exchange Rate shall mean the rate of exchange determined by the
Commission of the European Communities (or any successor thereto) as published
in the Official Journal of the European Communities (such publication or any
successor publication, the "Journal"). If such Market Exchange Rate is not
available for any reason with respect to such currency, the Trustee shall use,
in its sole discretion and without liability on its part, such quotation of
the Federal Reserve Bank of New York or, in the case of ECUs, the rate of ex-
change as published in the Journal, as of the most recent available date, or
quotations or, in the case of ECUs, rates of exchange from one or more major
banks in The City of New York or in the country of issue of the currency in
question, which for purposes of the ECU shall be Brussels, Belgium, or such
other quotations or, in the case of ECU, rates of exchange as the Trustee
shall deem appropriate. The provisions of this paragraph shall apply in deter-
mining the equivalent principal amount in respect of Securities of a series
denominated in a currency other than Dollars in connection with any action
taken by Holders of Securities pursuant to the terms of this Indenture.
All decisions and determinations of the Trustee regarding the Market Exchange
Rate or any alternative determination provided for in the preceding paragraph
shall be in its sole discretion and shall, in the absence of manifest error,
be conclusive to the extent permitted by law for all purposes and irrevocably
binding upon the Issuer and all Holders.
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Section 11.12 Judgment Currency. The Issuer agrees, to the fullest extent
that it may effectively do so under applicable law, that (a) if for the pur-
pose of obtaining judgment in any court it is necessary to convert the sum due
in respect of the principal of or interest on the Securities of any series
(the "Required Currency") into a currency in which a judgment will be rendered
(the "Judgment Currency"), the rate of exchange used shall be the rate at
which in accordance with normal banking procedures the Trustee could purchase
in The City of New York the Required Currency with the Judgment Currency on
the day on which final unappealable judgment is entered, unless such day is
not a New York Banking Day, then, to the extent permitted by applicable law,
the rate of exchange used shall be the rate at which in accordance with normal
banking procedures the Trustee could purchase in The City of New York the Re-
quired Currency with the Judgment Currency on the New York Banking Day preced-
ing the day on which final unappealable judgment is entered and (b) its obli-
gations under this Indenture to make payments in the Required Currency (i)
shall not be discharged or satisfied by any tender, or any recovery pursuant
to any judgment (whether or not entered in accordance with subsection (a)), in
any currency other than the Required Currency, except to the extent that such
tender or recovery shall result in the actual receipt, by the payee, of the
full amount of the Required Currency expressed to be payable in respect of
such payments, (ii) shall be enforceable as an alternative or additional cause
of action for the purpose of recovering in the Required Currency the amount,
if any, by which such actual receipt shall fall short of the full amount of
the Required Currency so expressed to be payable and (iii) shall not be af-
fected by judgment being obtained for any other sum due under this Indenture.
For purposes of the foregoing, "New York Banking Day" means any day except a
Saturday, Sunday or a legal holiday in The City of New York or a day on which
banking institutions in The City of New York are authorized or required by law
or executive order to close.
ARTICLE TWELVE
Redemption of Securities and Sinking Funds
Section 12.1 Applicability of Article. The provisions of this Article shall
be applicable to the Securities of any series which are redeemable before
their maturity or to any sinking fund for the retirement of Securities of a
series except as otherwise specified as contemplated by Section 2.3 for Secu-
rities of such series.
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Section 12.2 Notice of Redemption; Partial Redemptions. Notice of redemption
to the Holders of Registered Securities of any series to be redeemed as a
whole or in part at the option of the Issuer shall be given by mailing notice
of such redemption by first class mail, postage prepaid, at least 30 days and
not more than 60 days prior to the date fixed for redemption to such Holders
of Securities of such series at their last addresses as they shall appear upon
the registry books. Notice of redemption to the Holders of Unregistered Secu-
rities to be redeemed as a whole or in part, who have filed their names and
addresses with the Trustee, shall be given by mailing notice of such redemp-
tion, by first class mail, postage prepaid, at least 30 days and not more than
60 prior to the date fixed for redemption, to such Holders at such addresses
as were so furnished to the Trustee (and, in the case of any such notice given
by the Issuer, the Trustee shall make such information available to the Issuer
for such purpose). Notice of redemption to all other Holders of Unregistered
Securities shall be published in an Authorized Newspaper in the Borough of
Manhattan, The City of New York and in an Authorized Newspaper in London (and,
if required by Section 3.7, in an Authorized Newspaper in Luxembourg), in each
case, once in each of three successive calendar weeks, the first publication
to be not less than 30 nor more than 60 days prior to the date fixed for re-
demption. Any notice which is mailed in the manner herein provided shall be
conclusively presumed to have been duly given, whether or not the Holder re-
ceives the notice. Failure to give notice by mail, or any defect in the notice
to the Holder of any Security of a series designated for redemption as a whole
or in part shall not affect the validity of the proceedings for the redemption
of any other Security of such series.
The notice of redemption to each such Holder shall specify the principal
amount of each Security of such series held by such Holder to be redeemed, the
date fixed for redemption, the redemption price, the place or places of pay-
ment, that payment will be made upon presentation and surrender of such Secu-
rities and, in the case of Securities with Coupons attached thereto, of all
Coupons appertaining thereto maturing after the date fixed for redemption,
that such redemption is pursuant to the mandatory or optional sinking fund, or
both, if such be the case, that interest accrued to the date fixed for redemp-
tion will be paid as specified in such notice and that on and after said date
interest thereon or on the portions thereof to be redeemed will cease to ac-
crue. In case any Security of a series is to be redeemed in part only the no-
tice of redemption shall state the portion of the principal amount thereof to
be redeemed and shall state that on and after the date fixed for redemption,
upon surrender of such Security, a new Security or Securities of such series
in principal amount equal to the unredeemed portion thereof will be issued.
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The notice of redemption of Securities of any series to be redeemed at the
option of the Issuer shall be given by the Issuer or, at the Issuer's request,
by the Trustee in the name and at the expense of the Issuer.
On or before the redemption date specified in the notice of redemption given
as provided in this Section, the Issuer will deposit with the Trustee or with
one or more paying agents (or, if the Issuer is acting as its own paying
agent, set aside, segregate and hold in trust as provided in Section 3.4) an
amount of money sufficient to redeem on the redemption date all the Securities
of such series so called for redemption at the appropriate redemption price,
together with accrued interest to the date fixed for redemption. The Issuer
will deliver to the Trustee at least 70 days prior to the date fixed for re-
demption an Officer's Certificate stating the aggregate principal amount of
Securities to be redeemed. In case of a redemption at the election of the Is-
suer prior to the expiration of any restriction on such redemption, the Issuer
shall deliver to the Trustee, prior to the giving of any notice of redemption
to Holders pursuant to this Section, an Officer's Certificate stating that
such restriction has been complied with.
If less than all the Securities of a series are to be redeemed, the Trustee
shall select, in such manner as it shall deem appropriate and fair, Securities
of such Series to be redeemed in whole or in part. Securities may be redeemed
in part in multiples equal to the minimum authorized denomination for Securi-
ties of such series or any multiple thereof. The Trustee shall promptly notify
the Issuer in writing of the Securities of such series selected for redemption
and, in the case of any Securities of such series selected for partial redemp-
tion, the principal amount thereof to be redeemed. For all purposes of this
Indenture, unless the context otherwise requires, all provisions relating to
the redemption of Securities of any series shall relate, in the case of any
Security redeemed or to be redeemed only in part, to the portion of the prin-
cipal amount of such Security which has been or is to be redeemed.
Section 12.3 Payment of Securities Called for Redemption. If notice of re-
demption has been given as above provided, the Securities or portions of Secu-
rities specified in such notice shall become due and payable on the date and
at the place stated in such notice at the applicable redemption price, to-
gether with interest accrued to the date fixed for redemption, and on and af-
ter said date (unless the Issuer shall default in the payment of such Securi-
ties at the redemption price, together with interest accrued to said date) in-
terest on the Securities or portions of Securities so called for redemption
shall cease to accrue, and the
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unmatured Coupons, if any, appertaining thereto shall be void, and, except as
provided in Sections 6.5 and 10.4, such Securities shall cease from and after
the date fixed for redemption to be entitled to any benefit or security under
this Indenture, and the Holders thereof shall have no right in respect of such
Securities except the right to receive the redemption price thereof and unpaid
interest to the date fixed for redemption. On presentation and surrender of
such Securities at a place of payment specified in said notice, together with
all Coupons, if any, appertaining thereto maturing after the date fixed for
redemption, said Securities or the specified portions thereof shall be paid
and redeemed by the Issuer at the applicable redemption price, together with
interest accrued thereon to the date fixed for redemption; provided that pay-
ment of interest becoming due on or prior to the date fixed for redemption
shall be payable in the case of Securities with Coupons attached thereto, to
the Holders of the Coupons for such interest upon surrender thereof, and in
the case of Registered Securities, to the Holders of such Registered Securi-
ties registered as such on the relevant record date subject to the terms and
provisions of Sections 2.3 and 2.7 hereof.
If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal shall, until paid or duly provided for,
bear interest from the date fixed for redemption at the rate of interest or
Yield to Maturity (in the case of an Original Issue Discount Security) borne
by such Security.
If any Security with Coupons attached thereto is surrendered for redemption
and is not accompanied by all appurtenant Coupons maturing after the date
fixed for redemption, the surrender of such missing Coupon or Coupons may be
waived by the Issuer and the Trustee, if there be furnished to each of them
such security or indemnity as they may require to save each of them harmless.
Upon presentation of any Security redeemed in part only, the Issuer shall ex-
ecute and the Trustee shall authenticate and deliver to or on the order of the
Holder thereof, at the expense of the Issuer, a new Security or Securities of
such series, of authorized denominations, in principal amount equal to the un-
redeemed portion of the Security so presented.
Section 12.4 Exclusion of Certain Securities from Eligibility for Selection
for Redemption. Securities shall be excluded from eligibility for selection
for redemption if they are identified by registration and certificate number
in an Officer's Certificate delivered to the Trustee at least 40 days prior to
the last date
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on which notice of redemption may be given as being owned of record and bene-
ficially by, and not pledged or hypothecated by either (a) the Issuer or (b)
an entity specifically identified in such written statement as directly or in-
directly controlling or controlled by or under direct or indirect common con-
trol with the Issuer.
Section 12.5 Mandatory and Optional Sinking Funds. The minimum amount of any
sinking fund payment provided for by the terms of the Securities of any series
is herein referred to as a "mandatory sinking fund payment," and any payment
in excess of such minimum amount provided for by the terms of the Securities
of any series is herein referred to as an "optional sinking fund payment." The
date on which a sinking fund payment is to be made is herein referred to as
the "sinking fund payment date."
In lieu of making all or any part of any mandatory sinking fund payment with
respect to any series of Securities in cash, the Issuer may at its option (a)
deliver to the Trustee Securities of such series theretofore purchased or oth-
erwise acquired (except upon redemption pursuant to the mandatory sinking
fund) by the Issuer or receive credit for Securities of such series (not pre-
viously so credited) theretofore purchased or otherwise acquired (except as
aforesaid) by the Issuer and delivered to the Trustee for cancellation pursu-
ant to Section 2.10, (b) receive credit for optional sinking fund payments
(not previously so credited) made pursuant to this Section, or (c) receive
credit for Securities of such series (not previously so credited) redeemed by
the Issuer through any optional redemption provision contained in the terms of
such series. Securities so delivered or credited shall be received or credited
by the Trustee at the sinking fund redemption price specified in such Securi-
ties.
On or before the 60th day next preceding each sinking fund payment date for
any series, the Issuer will deliver to the Trustee an Officer's Certificate
(which need not contain the statements required by Section 11.5) (a) specify-
ing the portion of the mandatory sinking fund payment to be satisfied by pay-
ment of cash and the portion to be satisfied by credit of Securities of such
series and the basis for such credit, (b) stating that none of the Securities
of such series has theretofore been so credited, (c) stating that no defaults
in the payment of interest or Events of Default with respect to such series
have occurred (which have not been waived or cured) and are continuing and (d)
stating whether or not the Issuer intends to exercise its right to make an op-
tional sinking fund payment with respect to such series and, if so, specifying
the amount of such optional sinking
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fund payment which the Issuer intends to pay on or before the next succeeding
sinking fund payment date. Any Securities of such series to be credited and
required to be delivered to the Trustee in order for the Issuer to be entitled
to credit therefor as aforesaid which have not theretofore been delivered to
the Trustee shall be delivered for cancellation pursuant to Section 2.10 to
the Trustee with such Officer's Certificate (or reasonably promptly thereafter
if acceptable to the Trustee). Such Officer's Certificate shall be irrevocable
and upon its receipt by the Trustee the Issuer shall become unconditionally
obligated to make all the cash payments or payments therein referred to, if
any, on or before the next succeeding sinking fund payment date. Failure of
the Issuer, on or before any such 60th day, to deliver such Officer's Certifi-
cate and Securities specified in this paragraph, if any, shall not constitute
a default but shall constitute, on and as of such date, the irrevocable elec-
tion of the Issuer (i) that the mandatory sinking fund payment for such series
due on the next succeeding sinking fund payment date shall be paid entirely in
cash without the option to deliver or credit Securities of such series in re-
spect thereof and (ii) that the Issuer will make no optional sinking fund pay-
ment with respect to such series as provided in this Section.
If the sinking fund payment or payments (mandatory or optional or both) to be
made in cash on the next succeeding sinking fund payment date plus any unused
balance of any preceding sinking fund payments made in cash shall exceed
$50,000 (or the equivalent thereof in any Foreign Currency or ECU) or a lesser
sum in Dollars (or the equivalent thereof in any Foreign Currency or ECU) if
the Issuer shall so request with respect to the Securities of any particular
series, such cash shall be applied on the next succeeding sinking fund payment
date to the redemption of Securities of such series at the sinking fund re-
demption price together with accrued interest to the date fixed for redemp-
tion. If such amount shall be $50,000 (or the equivalent thereof in any For-
eign Currency or ECU) or less and the Issuer makes no such request then it
shall be carried over until a sum in excess of $50,000 (or the equivalent
thereof in any Foreign Currency or ECU) is available. The Trustee shall se-
lect, in the manner provided in Section 12.2, for redemption on such sinking
fund payment date a sufficient principal amount of Securities of such series
to absorb said cash, as nearly as may be, and shall (if requested in writing
by the Issuer) inform the Issuer of the serial numbers of the Securities of
such series (or portions thereof) so selected. Securities shall be excluded
from eligibility for redemption under this Section if they are identified by
registration and certificate number in an Officer's Certificate delivered to
the Trustee at least 60 days prior to the sinking fund payment date as being
owned of record and beneficially by, and not pledged or hypothecated by
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either (a) the Issuer or (b) an entity specifically identified in such Offi-
cer's Certificate as directly or indirectly controlling or controlled by or
under direct or indirect common control with the Issuer. The Trustee, in the
name and at the expense of the Issuer (or the Issuer, if it shall so request
the Trustee in writing) shall cause notice of redemption of the Securities of
such series to be given in substantially the manner provided in Section 12.2
(and with the effect provided in Section 12.3) for the redemption of Securi-
ties of such series in part at the option of the Issuer. The amount of any
sinking fund payments not so applied or allocated to the redemption of Securi-
ties of such series shall be added to the next cash sinking fund payment for
such series and, together with such payment, shall be applied in accordance
with the provisions of this Section. Any and all sinking fund moneys held on
the stated maturity date of the Securities of any particular series (or earli-
er, if such maturity is accelerated), which are not held for the payment or
redemption of particular Securities of such series shall be applied, together
with other moneys, if necessary, sufficient for the purpose, to the payment of
the principal of, and interest on, the Securities of such series at maturity.
On or before each sinking fund payment date, the Issuer shall pay to the
Trustee in cash or shall otherwise provide for the payment of all interest ac-
crued to the date fixed for redemption on Securities to be redeemed on the
next following sinking fund payment date.
The Trustee shall not redeem or cause to be redeemed any Securities of a se-
ries with sinking fund moneys or give any notice of redemption of Securities
for such series by operation of the sinking fund during the continuance of a
default in payment of interest on such Securities or of any Event of Default
except that, where the giving of notice of redemption of any Securities shall
theretofore have been made, the Trustee shall redeem or cause to be redeemed
such Securities, provided that it shall have received from the Issuer a sum
sufficient for such redemption. Except as aforesaid, any moneys in the sinking
fund for such series at the time when any such default or Event of Default
shall occur, and any moneys thereafter paid into the sinking fund, shall, dur-
ing the continuance of such default or Event of Default, be deemed to have
been collected under Article Five and held for the payment of all such Securi-
ties. In case such Event of Default shall have been waived as provided in Sec-
tion 5.10 or the default cured on or before the 60th day preceding the sinking
fund payment date in any year, such moneys shall thereafter be applied on the
next succeeding sinking fund payment date in accordance with this Section to
the redemption of such Securities.
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In Witness Whereof, the parties hereto have caused this Indenture to be duly
executed all as of , 1996.
New Tenneco Inc.
By _________________________________________
Name:
Title:
Attest:
________________________________
Secretary
The Chase Manhattan Bank, Trustee
By _________________________________________
Name:
Title:
Attest:
________________________________
Assistant Secretary
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EXHIBIT 10.1
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.
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 not include any amounts 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) and that are included in the amount of Factored Proceeds.
(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 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 on the Closing Date (as defined in the Merger
Agreement) 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 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.)
reduced by
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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 actually received by Tenneco from the NPS Issuance (as
defined in the Merger Agreement) less the amount of any expenses 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.
(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.
(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 Closing Date" means the date on which the Merger is
consummated.
(v) "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.
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(w) "Shipbuilding Adjusted Closing Balance Sheet" has the meaning
ascribed to such term in SECTION 6 below.
(x) "Shipbuilding Closing Balance Sheet" has the meaning ascribed to such
term in SECTION 6 below.
(y) "Shipbuilding Credit Facility" has the meaning ascribed to such term
in SECTION 3 below.
(z) "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; provided, however,
that the day on which the Effective Time occurs shall be excluded from the
numerator of such fraction if Tenneco and/or any of its Subsidiaries has
paid as of the Effective Time the payables of Tenneco and its Subsidiaries
for that day, as determined in accordance with Tenneco's past practices for
the payment of such payables.
(aa) "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 plus any interest due ASCC thereon for the
Closing Calendar Month, and (II) the total amount of the Factored Proceeds
plus any interest due ASCC thereon for the Closing Calendar Month, and
(iii) should the Effective Time occur on December 27, 30 or 31, 1996, the
lesser of (A) $100 million, and (B) the total amount of the Factored
Proceeds.
(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 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 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 (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
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(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 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
6
<PAGE>
"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.
7
<PAGE>
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.
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:
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
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>
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.
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 made 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 herein) received by Tenneco or any of its
consolidated subsidiaries (and credited to the account of Industrial Company
under the Debt and Cash Allocation Agreement) 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, 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.
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 made 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 (and credited to the account
of Industrial Company under the Debt and Cash Allocation Agreement) 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 (and credited to the account
of Industrial Company under the Debt and Cash Allocation Agreement) 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 (and credited to
the account of Industrial Company under the Debt and Cash Allocation
Agreement) 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, or (B)
incurred by any member of the Shipbuilding Group or Industrial Group and
remain unpaid as of the Effective Time.
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 (and credited to
the account of Industrial Company under the Debt and Cash Allocation
Agreement) 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 (and credited to
the account of Industrial Company under the Debt and Cash Allocation
Agreement) 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 (and credited to the account of
Industrial Company under the Debt and Cash Allocation Agreement) 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 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 (and credited
to the account of Industrial Company under the Debt and Cash Allocation
Agreement) from any sale of Tenneco Ventures during the Pre-Closing Period.
1.2 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:
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 remains due and unpaid 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 remains due and unpaid equals the Tenneco Bonus Portion, the Base
Amount shall not be increased or decreased in respect of the 1996 Bonus
Amount.
15
<PAGE>
EXHIBIT 10.2
EXHIBIT A
TO
DISTRIBUTION AGREEMENT
BENEFITS AGREEMENT
THIS BENEFITS AGREEMENT is made and entered into as of this day of
, 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").
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 certain
labor, employment, compensation and benefit matters occasioned by the
Distributions.
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 other member of its Group
over which it has direct or indirect legal or effective control, hereby agrees
as follows:
SECTION 1. DEFINITIONS. The following terms, when capitalized herein, shall
have the meanings set forth below in this Section 1. All other capitalized
terms which are used but are not otherwise defined herein shall have the
meanings ascribed to them in the Distribution Agreement.
"ACTIVE EMPLOYEES" means, with respect to each Group, all employees
regularly engaged in the performance of services to, for or on behalf of
any member of such Group as of the close of business on the Distribution
Date.
"FORMER EMPLOYEES" means, with respect to each Group, all former
employees of Tenneco and/or its Subsidiaries (including, but not limited
to, such employees who, as of the close of business on the Distribution
Date, are on leave of absence, long-term disability or layoff with recall
rights and the dependents of those persons) who, if they were regularly
engaged in the performance of services to, for or on behalf of Tenneco or
any of its Subsidiaries at the close of business on the Distribution Date,
would be an Active Employee of such Group, determined on a basis consistent
with the determination of the Active Employees of such Group.
"PENSION MATTERS" means, collectively, (a) Tenneco's 1986 pension plan
asset valuation and its cost accounting treatment, as described in the DCAA
Audit Report dated November 28, 1995, and (b) any claim which the DCAA may
assert that (or based on any allegation that) the aggregate amount of
assets of the TRP attributable to the Active Employees and Former Employees
of the Shipbuilding Group exceeds the aggregate amount of the liabilities
under the TRP attributable to Active and Former Employees of the
Shipbuilding Group.
"TENNECO SALARIED WELFARE PLANS" means, collectively, the Tenneco Inc.
Health Care Plan, the Tenneco Inc. Group Life Insurance Plan, the Tenneco
Inc. Long Term Disability Plan, the Tenneco Inc. Travel Accident Insurance
Plan, the Tenneco Inc. Health Care Flexible Spending Account Program and
the Tenneco Inc. Dependent Day Care Flexible Spending Account Plan.
SECTION 2. GENERAL EMPLOYMENT MATTERS.
2.01. GENERAL OBLIGATIONS. From and after the Distribution Date, each of
Tenneco, Industrial Company and Shipbuilding Company shall (and shall, as
applicable, cause each of the other members of its respective Group over which
it has direct or indirect legal or effective control to) (a) continue the
employment of all of the Active Employees of its respective Group, subject,
however to the terms of SECTION 2.03 below and (b) except as otherwise
specifically provided herein, pay, perform and discharge any and all labor,
employment, compensation and benefit liabilities, whether arising prior to, on
or after the Distribution Date, with respect to all such Active
1
<PAGE>
Employees and all Former Employees of its respective Group. Except as
specifically provided herein, each of Tenneco, Industrial Company and
Shipbuilding Company shall be solely responsible for the Former Employees of
its respective Group.
2.02. INITIAL COMPENSATION OF ACTIVE EMPLOYEES. The initial compensation
(base salary or wage level) of each Active Employee of each Group shall be the
same as the compensation (base salary or wage level) of such Active Employee
immediately prior to the Distribution Date.
2.03. NO ADDITIONAL EMPLOYMENT RIGHTS CREATED. Nothing in this Agreement
shall give any Active Employee of any Group any right to continued employment
by any member of that Group or any other Group beyond the Distribution Date,
which is in addition to or supplemental to any such right he or she may have
arising under contract or otherwise.
SECTION 3. COLLECTIVE BARGAINING.
3.01. CONTINUATION OF EXISTING COLLECTIVE BARGAINING AGREEMENTS. Each of
Tenneco, Industrial Company and Shipbuilding Company shall (and shall cause,
as applicable, each other member of its Group over which it has direct or
indirect legal or effective control to) continue to honor all collective
bargaining agreements covering the Active Employees of its respective Group
which are in effect as of the close of business on the Distribution Date, in
accordance with and subject to the terms of each such collective bargaining
agreement. Each of the parties hereto hereby agrees and acknowledges, however,
that nothing herein, including its obligation to continue its applicable
collective bargaining agreements, shall be construed to restrict any right it,
or any other member of its respective Group, may have to terminate,
renegotiate, reopen or otherwise seek changes in any of its collective
bargaining agreements.
3.02. RECOGNITION OF INCUMBENT LABOR ORGANIZATIONS. Each of Tenneco,
Industrial Company and Shipbuilding Company shall (and shall cause, as
applicable, each other member of its Group over which it has direct or
indirect legal or effective control to) continue to recognize all incumbent
labor organizations which, as of the close of business on the Distribution
Date, have established collective bargaining relationships in respect of the
Active Employees of its respective Group.
3.03. CONTINUED SPONSORSHIP OF HOURLY EMPLOYEE BENEFIT PLANS. Each of
Tenneco, Industrial Company and Shipbuilding Company shall continue (and
shall, as applicable, cause each other member of its respective Group over
which it has direct or indirect legal or effective control to continue) to
sponsor all hourly employee benefit plans which, as of the close of business
on the Distribution Date, are in existence and relate to the Active Employees
of its respective Group, subject to its rights under such plans to amend or
terminate such plans.
3.04. PROVISION OF WAGES, RIGHTS AND OTHER EMPLOYMENT BENEFITS REQUIRED
UNDER EXISTING COLLECTIVE BARGAINING AGREEMENTS. Without limiting the
generality of the foregoing, each of Tenneco, Industrial Company and
Shipbuilding Company shall provide those of its Active Employees whose
employment is subject to collective bargaining agreements and/or established
collective bargaining relationships with the wages, benefits, and terms and
conditions of employment required by such agreements or relationships, except
that (i) participation in the Tenneco Inc. Employee Stock Purchase Plan will
cease as of September 30, 1996, and (ii) no additional amounts may be invested
in any shares of the common stock, par value $5.00 per share, of Tenneco
("TENNECO COMMON STOCK") in any defined contribution plan from and after the
Effective Time.
SECTION 4. UNITED STATES SALARIED PENSION AND THRIFT BENEFITS.
4.01 TENNECO INC. RETIREMENT PLAN. Effective as of the Distribution Date,
Tenneco and Shipbuilding Company shall cease to be sponsors of the Tenneco
Inc. Retirement Plan (the "TRP"), and Industrial Company shall become the
sponsor of the TRP. The TRP shall retain liability for all pension benefits
accrued by the Active and Former Employees of the Energy Group and
Shipbuilding Group who are or were formerly participants in the TRP through
the last day of the calendar month in which the Distribution Date occurs (the
"Impact Date").
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4.02 AMENDMENT OF TRP. After Industrial Company has become the sponsor of
the TRP, it shall amend the TRP to (a) "freeze" the benefit accruals of the
Active Employees of the Energy Group and Shipbuilding Group as of the Impact
Date, and (b) provide that all benefits accrued as of the Impact Date by the
Active Employees of either the Energy Group or the Shipbuilding Group will be
fully vested and non-forfeitable, and Industrial Company shall inform, in
writing, each such Active Employee of his or her accrued benefits under the
TRP as of the Distribution Date; provided, however, that if the Distribution
Date occurs on the Impact Date, Industrial Company shall in any event (i)
first become the sponsor of the TRP as provided under SECTION 4.01 above, and
(ii) immediately thereafter amend the TRP as provided in this SECTION 4.02.
4.03 NO CREDIT FOR POST-DISTRIBUTION DATE SERVICE. Except as may be required
by law, the TRP shall not be required to count service with any entity other
than Industrial Company after the Distribution Date for any purpose.
4.04 NO LIABILITY TO ENERGY GROUP. Following the Distribution Date, the
Energy Group will have no liability, contingent or otherwise, with respect to
the TRP or any other defined benefit pension plan that is subject to Title IV
of the Employee Retirement Income Security Act of 1974, as amended, including
any liability for benefits accrued prior to the Distribution Date (including
early retirement benefits and related subsidies) for employees of the Energy
Group, and Industrial Company shall assume or retain, as the case may be, all
such liabilities.
4.05 SHIPBUILDING COMPANY LIABILITIES.
(a) GENERAL INDEMNIFICATION OF INDUSTRIAL COMPANY. Except as specifically
provided in this SECTION 4.05, Shipbuilding Company shall retain, and shall
indemnify and hold the Industrial Company harmless from, any liability
incurred or accrued at any time (whether before on or after the date hereof),
which has been, or may in the future be, asserted by any of (i) the Defense
Contract Audit Agency ("DCAA"), (ii) the United States Navy, or (iii) any and
all other agencies of, within or affiliated with the United States Department
of Defense (the "DOD"), that arise or arose out of, or in connection with
either (A) the participation of Active Employees or Former Employees of the
Shipbuilding Group in the TRP, (B) payments made by any agency of the DOD with
respect to benefits accrued under the TRP, (C) any claim by any agency of the
DOD relating to the assets of the TRP, and (D) any other related matters.
(b) SHARING OF CERTAIN SHIPBUILDING COMPANY LIABILITIES. Notwithstanding the
foregoing, Industrial Company and Shipbuilding Company have agreed to share
the cost, if any, of certain specified liabilities described in SUBSECTION
4.05(A) above on the terms and conditions set forth in the remaining
Subsections of this SECTION 4.05. The liabilities which Industrial Company and
Shipbuilding Company have agreed to share are only those arising from a
Pension Matter.
(c) INDEMNIFICATION PERCENTAGES FOR PENSION MATTERS. Industrial Company
shall indemnify Shipbuilding Company from 80%, and Shipbuilding Company shall
retain and indemnify Industrial Company from 20%, of the following:
(i) all amounts paid in satisfaction of a Government claim for Pension
Matters; and
(ii) all costs incurred, including attorneys' and actuaries' fees, in
defending against the Government's claims in the Pension Matters, as
described in SUBSECTION 4.05(F) below.
(d) CONTROL OVER PENSION MATTERS. Industrial Company shall have total and
exclusive control of and over all aspects of the defense by Industrial Company
and Shipbuilding Company against the Government's claims in the Pension
Matters. Without limiting the generality of the foregoing, Industrial Company
shall have the exclusive right to:
(i) engage and dismiss any and all law firms, actuarial firms and other
service providers;
(ii) settle, compromise or otherwise dispose of either Pension Matter;
(iii) determine to not appeal any adverse determination with respect to
either Pension Matter; and
(iv) negotiate and determine the terms of a deferral agreement described
in item (iv) of SUBSECTION 4.05(E) below.
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(e) COOPERATION OF SHIPBUILDING COMPANY. Shipbuilding Company shall
cooperate fully with Industrial Company and its attorneys, actuaries and other
advisors and representatives in defending against the Government's claims in
the Pension Matters. Without limiting the generality of the foregoing,
Shipbuilding Company shall:
(i) advise Industrial Company in writing of any and all claims made by
the Government which may be included in the Pension Matters promptly after
Shipbuilding Company receives notice or otherwise becomes aware of such
claims;
(ii) provide Industrial Company copies of any and all correspondence,
pleadings or other papers it has or receives with respect to the Pension
Matters promptly upon receipt;
(iii) give Industrial Company at least 10 days written notice of and
afford Industrial Company an opportunity to be present at any and all
meetings, conferences or hearings relating to such issues; and
(iv) diligently seek an agreement to defer collection of any Government
claim for Pension Matters.
(f) BILLING FOR PAYMENT TO GOVERNMENT. Whenever the Shipbuilding Company or
Industrial Company makes a payment to the Government for a claim related to
Pension Matters or incurs a cost in defending against the Government's claims
in Pension Matters, it may bill the other party for that party's share of said
claim or cost. A payment to the Government for a claim related to Pension
Matters shall include (i) amounts paid directly to Government to satisfy the
claim; (ii) progress payments withheld to satisfy the Government claim; and
(iii) pension costs disallowed under Shipbuilding Company's new salaried
pension plan to satisfy the Government claim. Costs incurred in defending
against the Government's claims in the Pension Matters shall include outside
attorneys' fees, accounting fees and actuary fees and all other out-of-pocket
costs incurred in defending against the Government's claims. Neither
Industrial Company nor Shipbuilding Company shall charge the other any amounts
for the services of its employees. A bill for the other party's share of a
claim or cost shall be accompanied by adequate documentation and shall be paid
promptly upon receipt. However, any amounts so billed shall be subject to set-
off for amounts owed by the presenter to recipient whether relating to matters
covered by this SECTION 4.05 or otherwise.
(g) ADVANCES BY INDUSTRIAL COMPANY. Any amounts which Industrial Company may
advance to Shipbuilding Company to satisfy a Government Claim pending appeal
(regardless of whether the Government claim is satisfied by (i) direct payment
to the Government; (ii) progress payments withheld; or (iii) pension costs
disallowed under the Shipbuilding Company's new salaried pension plan) shall
be deducted from any amount due from Industrial Company to Shipbuilding
Company upon the ultimate resolution of the appeal of the Government's claim.
To the extent that the amounts advanced to Shipbuilding Company by Industrial
Company exceed the amount due upon the ultimate resolution of the appeal,
Shipbuilding Company shall, within 5 days after the date of such ultimate
resolution, reimburse such excess to Industrial Company with interest charged
from the date the amount was advanced at the interest rate established by the
Secretary of the Treasury under Public Law 92-41.
(h) PROHIBITION AGAINST CERTAIN ACTION OF SHIPBUILDING COMPANY. Shipbuilding
Company shall not take any action or permit or suffer any act or omission
within its control that is, or is likely to be, in any way detrimental to the
defense against the Government's claims under the Pension Matters. Without
limiting the generality of the preceding sentence, Shipbuilding Company will
not, without the express written consent of Industrial Company, which consent
may be withheld in Industrial Company's sole discretion, link either of the
Pension Matters to any other matter which it now has or may in the future have
pending with the Government in terms of settlement or otherwise.
(i) ASSERTION OF AFFIRMATIVE CLAIMS. If Industrial Company determines to
submit an affirmative claim against the Government in connection with the
Pension Matters, Industrial Company and Shipbuilding Company shall share the
cost of pursuing such claim and any recovery on such claim on a percentage
basis of 80% for Industrial Company and 20% for Shipbuilding Company.
(j) NO LIABILITY OF ENERGY BUSINESS. It is expressly acknowledged and agreed
that any liabilities described in this SECTION 4.05 are solely liabilities of
Shipbuilding Company and Industrial Company, in accordance with the terms of
the other provisions of this SECTION 4.05, and the Energy Business has no
obligation with respect to any of such liabilities.
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4.06. TENNECO INC. THRIFT PLAN. The active participation in the Tenneco Inc.
Thrift Plan (the "Tenneco DC Plan") by persons other than the Active Employees
of the Industrial Group shall cease effective as of the Distribution Date. In
addition, each of Tenneco and Shipbuilding Company shall cease to be sponsors
of the Tenneco DC Plan as of the Distribution Date and Industrial Company shall
become the sponsor of the Tenneco DC Plan from and after the Distribution Date.
4.07. ESTABLISHMENT OF ENERGY AND SHIPBUILDING DC PLANS.
(a) ENERGY DC PLAN. Tenneco shall establish or make available on or with
effect from the Distribution Date a defined contribution plan for the
benefit of the Active Employees of the Energy Group (the "Energy DC Plan").
(b) SHIPBUILDING DC PLAN. Shipbuilding Company shall establish on or with
effect from the Distribution Date a defined contribution plan for the
benefit of the Active Employees of the Shipbuilding Group (the
"Shipbuilding DC Plan").
(c) TRANSFER OF ACCOUNT BALANCES TO ENERGY AND SHIPBUILDING DC PLANS.
Industrial Company shall cause the Tenneco DC Plan to transfer: (i) to the
Shipbuilding DC Plan, the account balances of each Active Employee of the
Shipbuilding Group and each Former Employee of the Shipbuilding Group with
respect to whom the Tenneco DC Plan maintains an account as of the close of
business on the Distribution Date, and (ii) to the Energy DC Plan, the
account balances of each Active Employee of the Energy Group and each
Former Employee of the Energy Group with respect to whom the Tenneco DC
Plan maintains an account as of the close of business on the Distribution
Date. Such transfers shall be in cash, except that the Energy DC Plan and
the Shipbuilding DC Plan will accept the following: (i) Tenneco Common
Stock (or stock of the Acquiror, as defined in the Merger Agreement) for
the Tenneco Common Stock fund portion of such account balances (together
with any and all of the shares of the common stock of Industrial Company
and/or Shipbuilding Company distributed in connection with the
Distributions); and (ii) amounts credited to the Tenneco DC Plan which are
held in mutual funds which are also investment media in the Energy DC Plan
or the Shipbuilding DC Plan, as the case may be.
4.08. NO TENNECO COMMON STOCK. No Tenneco Common Stock shall be offered as an
investment option with respect to contributions made after the Distribution
Date by any of the Tenneco DC Plan, Energy DC Plan or Shipbuilding DC Plan. The
sponsor of each of the foregoing plans shall cause the plan to afford each
participant therein an election to sell the stock of any entity held in the
Tenneco stock fund in the Tenneco DC Plan which does not employ him or her
immediately following the Distribution Date. Shipbuilding Company shall
administer each defined contribution plan which it maintains consistent with
any and all representations which Tenneco made to the Internal Revenue Service
at any time prior to the Distribution Date. No further contributions shall be
made under the Tenneco Inc. Employee Stock Purchase Plan after September 30,
1996.
SECTION 5. PENSION MATTERS OUTSIDE THE UNITED STATES. With respect to the
business and operations of each Group in jurisdictions outside the United
States, each of the parties hereto shall (and, as applicable, shall cause each
other member of its Group over which it has direct or indirect legal or
effective control to) retain any and all pension liabilities and attendant
plans and their assets related to its Active Employees and Former Employees.
SECTION 6. EXECUTIVE COMPENSATION.
6.01. TENNECO BENEFIT EQUALIZATION PLAN AND SUPPLEMENT EXECUTIVE RETIREMENT
PLAN. None of the Active Employees of either the Shipbuilding Group or the
Energy Group shall accrue any benefits under the Tenneco Benefit Equalization
Plan (the "BEP") or the Supplement Executive Retirement Plan (the "SERP") from
and after the Distribution Date. Industrial Company shall assume all
liabilities under the BEP and the SERP and shall cause the BEP and the SERP to
continue to cover the Active Employees and Former Employees of the Energy Group
and Shipbuilding Group after the Distribution Date who have accrued benefits
under either or both of such plans as of the close of business on the
Distribution Date, and the accrued benefits of such Active Employees under such
plans as of the close of business on the Distribution Date shall be fully
vested and non-forfeitable. Each of Tenneco and Shipbuilding Company shall
reimburse Industrial Company for any payments Industrial Company may make from
time to time under the BEP or the SERP to Mr. Edward J. Casey, Jr. in the
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case of the Energy Group and any Active Employee or Former Employee of the
Shipbuilding Group, in the case of the Shipbuilding Group. Such charges shall
be made by written notice thereof to, and shall be promptly paid by, the Energy
Group and/or Shipbuilding Group, as the case may be. Tenneco shall retain and
assume any and all supplemental pension obligations (and any related assets)
which are in addition to benefits under the TRP, BEP and SERP under the
contract with Mr. Edward J. Casey, Jr.
6.02. TENNECO INC. DEFERRED COMPENSATION PLAN. The participation of the
Active Employees and Former Employees of the Energy Group and the Shipbuilding
Group in the Tenneco Inc. Deferred Compensation Plan (the "DC Plan") and 1993
Deferred Compensation Plan (the "1993 Plan") shall cease as of the Distribution
Date. As of the Distribution Date, Shipbuilding Company shall assume the
liability for the accounts of its Active Employees and Former Employees in the
DC Plan and the 1993 Plan, Tenneco shall assume the liability for the accounts
of the Active Employees and Former Employees of the Energy Group in the DC Plan
and the 1993 Plan, and Industrial Company shall succeed to sponsorship of the
1993 Plan and the DC Plan and shall assume the liability for the accounts of
the Active Employees and Former Employees of the Industrial Group in the DC
Plan and the 1993 Plan. The total of each such Active Employee's or Former
Employee's account in the DC Plan and the 1993 Plan as of the Distribution Date
shall become the opening balance of such Active Employee's or Former Employee's
account in a Nonqualified Deferred Compensation Plan created, as of the
Distribution Date by either, (i) Tenneco, in the case of Active Employees and
Former Employees of the Energy Group, or (ii) Shipbuilding Company, in the case
of Active Employees or Former Employees of the Shipbuilding Group. Such opening
balances shall become fully vested as of the close of business on the
Distribution Date.
6.03. TENNECO BENEFITS PROTECTION PROGRAM. Effective upon the Distribution
Date, Shipbuilding Company and Tenneco shall each be released from any
obligations which it may have under the Tenneco Benefits Protection Program.
Neither Shipbuilding Company nor Tenneco shall be entitled to any portion of
the Tenneco Inc. Benefit Protection Trust (the "Trust"), other than to the
assets, if any, of the Trust allocable to the respective liabilities retained
or assumed by them pursuant to this Agreement. Industrial Company shall
continue to sponsor and maintain the Trust.
SECTION 6.04. TENNECO OPTIONS AND RESTRICTED STOCK. Prior to the Distribution
Date, Tenneco shall cause all outstanding restricted stock and performance
share equivalent unit awards to become fully vested. Except as provided in the
last sentence of this paragraph, the parties hereto shall cause all outstanding
Tenneco stock options to be converted to options to acquire stock of Tenneco,
Industrial Company or Shipbuilding Company in amounts and with exercise prices
adjusted so that as to each grant the excess of the aggregate fair market value
of the shares subject to the option immediately after the Distributions over
the aggregate option price of such shares is not more than the excess of the
aggregate fair market value of the shares subject to the option immediately
before the Distributions over the aggregate option price of such shares. In all
other respects, the options shall remain subject to the terms and conditions of
the grants under which they were issued, conforming changes excepted. Except to
the extent determined by the Compensation and Benefits Committee of Tenneco's
Board of Directors, each grantee shall receive options with respect to the
stock of the entity which employs him (or with which he is otherwise
affiliated) immediately after the Distributions. If Tenneco has entered into a
definitive agreement for a third-party to acquire Tenneco, the Tenneco stock
options held by employees of the Energy Group shall not be treated as provided
in the preceding portion of this SECTION 6.04; rather such options shall be
made fully exercisable no less than 30 days prior to the closing date of such
acquisition, and if such options are not exercised prior to the closing date,
they will be cancelled effective as of the closing date.
SECTION 6.05. EMPLOYMENT CONTRACTS. Tenneco shall retain and assume any and
all contractual obligations to Messrs. Casey, Menikoff and Sinclair. Tenneco
shall retain and assume any and all obligations to provide office space and
secretarial help to Messrs. Ketelsen and Scott. Industrial Company shall assume
and discharge all supplemental pension obligations to Mr. Ketelsen.
SECTION 7. WELFARE BENEFITS.
7.01. TENNECO SALARIED WELFARE PLANS. Effective on the Distribution Date,
Tenneco and Shipbuilding Company shall each cease to be a sponsor of the
Tenneco Salaried Welfare Plans, and Industrial Company shall
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serve as the sponsor of the Tenneco Salaried Welfare Plans from and after the
Distribution Date. If the Energy Group or the Shipbuilding Group adopt one or
more welfare plans which is (are) identical to the comparable Tenneco Salaried
Welfare Plan, the Industrial Company shall use its best efforts to administer
such plan on behalf of the Energy Group or the Shipbuilding Group, as the case
may be, for a period ending not later thanDecember 31, 1997. Each of
Shipbuilding Company and Tenneco hereby agrees to reimburse Industrial Company
for all costs incurred by it with respect thereto.
7.02. ALLOCATION AND DISCHARGE OF WELFARE PLAN LIABILITIES. Shipbuilding
Company shall retain and discharge all welfare plan liabilities with respect to
Active Employees and Former Employees of the Shipbuilding Group and their
dependents. Industrial Company shall retain and discharge all welfare plan
liabilities with respect to Active Employees and Former Employees of the
Industrial Group and their dependents. Tenneco shall retain and discharge all
other welfare plan liabilities which remain after allocation of liabilities to
Shipbuilding Company and Industrial Company under the two immediately preceding
sentences, including, without limitation, all such liabilities relating to the
Active Employees and Former Employees of the Energy Group and their dependents,
and shall retain or have transferred to it all related assets allocable to such
liabilities, including without limitation, the Tennessee Gas Pipeline Company
Health Care Plan VEBA.
SECTION 8. GENERAL.
8.01. POST-DISTRIBUTION ADMINISTRATION OF PLANS. The parties hereto agree to
administer all plans consistently herewith, and to the extent necessary to
amend plans accordingly.
8.02. COST AND EXPENSES. Each party shall bear all costs and expenses,
including but not limited to legal and actuarial fees, incurred in the design,
drafting and implementation of any and all plans and compensation structures
which it enables or creates and the amendment of its existing plans or
compensation structures.
SECTION 9. MISCELLANEOUS.
9.01. COMPLETE AGREEMENT; CONSTRUCTION. This Agreement and the Distribution
Agreement, 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.
Notwithstanding any other provisions in this Agreement or the Distribution
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 the
Distribution Agreement or any other Ancillary Agreement, this Agreement shall
control.
9.02. OTHER ANCILLARY AGREEMENTS. This Agreement is not intended to address,
and should not be interpreted to address, the matters specifically and
expressly covered by any of the other Ancillary Agreements.
9.03. 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.
9.04. 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.
9.05. 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
Attention: Corporate Secretary
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If to Industrial Company, at:1275 King Street
Greenwich, CT 06831
Attention: Corporate Secretary
If to Shipbuilding Company, at:4101 Washington Avenue
Newport News, Virginia 23607
Attention: Corporate Secretary
9.06. 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.
9.07. AMENDMENTS. This Agreement may not be modified or amended except by an
agreement in writing signed by the parties hereto.
9.08. 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.
9.09. 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.
9.10. NO THIRD PARTY BENEFICIARIES. This Agreement is solely for the benefit
of the parties hereto and the members of their respective Groups and
Affiliates, 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.
9.11. 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.
9.12. 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.
9.13. GOVERNING LAW. ALL QUESTIONS AND/OR DISPUTES CONCERNING THE
CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT AND THE 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 (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.
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9.14. 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.
9.15. 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.
9.16. RELEASE FROM POST EMPLOYMENT LIABILITY. Tenneco hereby agrees that in
the event it intends to request of any Energy Employee at any time on or
within 5 years subsequent to the Effective Time any release of liability and
further obligation on the part of Tenneco that it will promptly notify New
Tenneco in writing of such intent and, if so requested by New Tenneco, in
connection with such request also request from such Energy Employee a release
of liability and further obligation on the part of New Tenneco either, at New
Tenneco's election, (a) in the form provided to Tenneco by New Tenneco prior
to the Effective Time, with such changes thereto as may subsequently be
reasonably requested from time to time by New Tenneco, or (b) in substantially
the same form as the release obtained from such Energy Employee by Tenneco.
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: _________________________________
NEWPORT NEWS SHIPBUILDING INC.
(formerly known as Tenneco
InterAmerica Inc.)
By: _________________________________
NEW TENNECO INC.
By: _________________________________
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EXHIBIT 10.3
EXHIBIT H
TO
DISTRIBUTION AGREEMENT
INSURANCE AGREEMENT
This Insurance Agreement (the "AGREEMENT") is made and entered into as of
this day of , 1996, by and among Tenneco Inc., a Delaware
corporation ("TENNECO"), New Tenneco Inc., a Delaware corporation ("INDUSTRIAL
COMPANY") and Newport News Shipbuilding Inc., a Delaware corporation
("SHIPBUILDING COMPANY").
WHEREAS, Tenneco, Industrial Company and Shipbuilding Company have entered
into that certain Distribution Agreement, dated as of , 1996
(the "DISTRIBUTION AGREEMENT"), pursuant to which (i) Tenneco and its
Subsidiaries shall cause to be consummated the Corporate Restructuring
Transactions in order to restructure, divide and separate their existing
businesses and assets so that (a) the Industrial Assets and Industrial
Business shall be owned, controlled and operated, directly or indirectly, by
the Industrial Company, and (b) the Shipbuilding Assets and Shipbuilding
Business shall be owned, controlled and operated, directly or indirectly, by
the Shipbuilding Company, and (ii) Tenneco shall distribute on the
Distribution Date all of the outstanding capital stock of Industrial Company
and Shipbuilding Company as a dividend to the holders of shares of the common
stock, par value $5.00 per share, of Tenneco upon the terms and subject to the
conditions set forth in the Distribution Agreement;
WHEREAS, Tenneco, its Subsidiaries and their respective predecessors have
historically maintained various Policies for the benefit or protection of one
or more of the Energy Covered Persons, Industrial Covered Persons and
Shipbuilding Covered Persons;
WHEREAS, in connection with the transactions contemplated by the
Distribution Agreement, Tenneco, Industrial Company and Shipbuilding Company
have determined that it is necessary and desirable to provide for the
respective continuing rights and obligations in respect of said Policies from
and after the Distribution Date; and
WHEREAS, pursuant to the Distribution Agreement the parties hereto have
agreed to enter into this Agreement.
NOW THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained in this Agreement and the Distribution Agreement, the
parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 General. Unless otherwise defined herein or unless the context otherwise
requires, the following terms shall have the following meanings (such meanings
to be equally applicable to both the singular and plural forms of the terms
defined).
"AGREEMENT" shall mean this Insurance Agreement, dated as of , 1996,
by and among Tenneco, Industrial Company and Shipbuilding Company, including
any amendments hereto and each Schedule attached hereto.
"CLAIMS ADMINISTRATION" shall mean, with respect to any Policy, the
processing of claims made under such Policy, including, without limitation,
the reporting of losses or claims to insurance carriers and the management,
defense and settlement of claims.
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"CLAIMS DEPOSIT" shall mean the amount of funds, as of the Distribution
Date, maintained by Tenneco on deposit for the benefit of the insurance
carriers under the Retained Policies.
"CLAIMS-MADE" shall mean, with respect to any Policy, coverage provided by
such Policy for claims made during a period specified therein.
"CLAIMS-MADE POLICIES" shall mean those current and past Policies which are
Claims-Made in nature, including but not limited to those Policies identified
on SCHEDULE A hereto, which show Tenneco or any of its predecessors as the
named insured, but excluding (i) any directors' and officers' liability
insurance policies which are or were maintained by or on behalf of Tenneco,
(ii) the Exclusive Policies, and (iii) the Retained Policies.
"COMMON POLICIES" shall mean the Claims-Made Policies, Occurrence-Based
Policies, Eastern Policies and Retained Policies.
"CONSENT" shall have the meaning set forth in Section 2.3 hereof.
"CORPORATE RESTRUCTURING TRANSACTIONS" shall have the meaning set forth in
the Distribution Agreement.
"COVERED PERSONS" shall mean (i) with respect to Tenneco, the Energy Covered
Persons, (ii) with respect to Industrial Company, the Industrial Covered
Persons, and (iii) with respect to Shipbuilding Company, the Shipbuilding
Covered Persons.
"CURRENT CLAIMS-MADE POLICIES" shall mean the Claims-Made Policies in effect
as of the Distribution Date, which Policies are set forth on SCHEDULE A
hereto.
"CURRENT OCCURRENCE-BASED POLICIES" shall mean the Occurrence-Based Policies
in effect as of the Distribution Date, which Policies are set forth on
SCHEDULE B hereto.
"DISTRIBUTION AGREEMENT" shall mean that certain Distribution Agreement,
dated as of , 1996, by and among Tenneco, Industrial Company and
Shipbuilding Company, including any amendments, exhibits and schedules
thereto.
"DISTRIBUTION DATE" shall have the meaning set forth in the Distribution
Agreement.
"EASTERN POLICIES" shall mean the Policies identified on SCHEDULE C hereto,
which Policies show a member of the Energy Group as the named insured,
together with any predecessor policies thereto.
"ENERGY" shall mean, when unqualified, the Energy Assets, Energy Liabilities
and/or Energy Business.
"ENERGY BUSINESS" shall have the meaning set forth in the Distribution
Agreement.
"ENERGY COVERED PERSON" shall mean each member of the Energy Group and any
other Person, in each case to the extent any Policy addressed herein purports
to provide insurance coverage in respect of any claims, suits, actions,
proceedings, injuries, losses, liabilities, occurrences, damages or expenses
incurred by such Person arising out of, in connection with or otherwise
related to Energy.
"ENERGY GROUP" shall have the meaning set forth in the Distribution
Agreement.
"ENERGY LIABILITIES" shall have the meaning set forth in the Distribution
Agreement.
"EXCLUSIVE POLICIES" shall mean the Tenneco Exclusive Policies, Industrial
Exclusive Policies and Shipbuilding Exclusive Policies.
"GROUP" shall have the meaning set forth in the Distribution Agreement.
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"INDUSTRIAL" shall mean, when unqualified, the Industrial Assets, Industrial
Liabilities, Prior Industrial Businesses and/or Industrial Business.
"INDUSTRIAL ASSETS" shall have the meaning set forth in the Distribution
Agreement.
"INDUSTRIAL BUSINESS" shall have the meaning set forth in the Distribution
Agreement.
"INDUSTRIAL COVERED PERSON" shall mean each member of the Industrial Group
and any other Person, in each case to the extent any Policy addressed herein
purports to provide insurance coverage in respect of any claims, suits,
actions, proceedings, injuries, losses, liabilities, occurrences, damages or
expenses incurred by such Person arising out of, in connection with or
otherwise related to Industrial.
"INDUSTRIAL EXCLUSIVE POLICIES" shall mean all current and past Policies
which show Industrial Company, any other member of the Industrial Group or any
of their respective predecessors as the named insured and do not purport to
relate to Energy or Shipbuilding or to cover any Energy Covered Person or
Shipbuilding Covered Person, but excluding any Retained Policy.
"INDUSTRIAL GROUP" shall have the meaning set forth in the Distribution
Agreement.
"INDUSTRIAL LIABILITIES" shall have the meaning set forth in the
Distribution Agreement.
"INSURANCE ADMINISTRATION" shall mean, with respect to any Policy, the
accounting for premiums, defense costs, indemnity payments, deductibles and
retentions, as appropriate, under the terms and conditions of such Policy, and
the distribution of Insurance Proceeds.
"INSURANCE PROCEEDS" shall mean those monies, net of any applicable premium
adjustment, deductible, retention or similar cost paid or held by or for the
benefit of an insured party which are either (i) received by an insured from
an insurance carrier, or (ii) paid by an insurance carrier on behalf of an
insured.
"LETTERS OF CREDIT" shall have the meaning set forth in Section 7.1 hereof.
"MERGER AGREEMENT" shall have the meaning set forth in the Distribution
Agreement.
"OCCURRENCE-BASED" shall mean, with respect to any Policy, coverage provided
by such Policy for acts, omissions, damages or injuries which occur or are
alleged to have occurred during a period specified in such Policy.
"OCCURRENCE-BASED POLICIES" shall mean those current and past Policies which
are Occurrence-Based in nature, including but not limited to those policies
identified on SCHEDULE B hereto, which show Tenneco or any of its predecessors
as the named insured, but excluding (i) any directors' and officers' liability
policies which are or were maintained by or on behalf of Tenneco, (ii) the
Exclusive Policies, (iii) the Retained Policies, and (iv) the Eastern
Policies.
"OTHER CLAIMS-MADE POLICIES" shall mean the Claims-Made Policies other than
the Transferred Claims-Made Policies.
"OTHER OCCURRENCE-BASED POLICIES" shall mean the Occurrence-Based Policies
other than the Transferred Occurrence-Based Policies.
"PERSON" shall have the meaning set forth in the Distribution Agreement.
"POLICIES" means insurance policies and insurance contracts of any kind
(other than life and benefits policies or contracts), including, without
limitation, primary, excess and umbrella policies, commercial general
liability policies, fiduciary liability, automobile, aircraft, property and
casualty, workers' compensation and employee dishonesty insurance policies,
bond and self-insurance and captive insurance company arrangements, together
with the rights, benefits and privileges thereunder.
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"PRIOR INDUSTRIAL BUSINESSES" shall have the meaning set forth in the
Distribution Agreement.
"PRIOR SHIPBUILDING BUSINESSES" shall have the meaning set forth in the
Distribution Agreement.
"RETAINED POLICIES" shall mean the Policies identified on SCHEDULE D hereto,
together with all other current and past primary, workers' compensation,
automobile liability and general liability (including products liability)
Policies showing Tenneco, any other member of the Energy Group or any of their
respective predecessors as the insured party and which are cost plus,
fronting, high deductible or retrospective premium programs but excluding the
Eastern Policies.
"SHIPBUILDING" shall mean, when unqualified, the Shipbuilding Assets,
Shipbuilding Liabilities, Prior Shipbuilding Businesses and/or Shipbuilding
Business.
"SHIPBUILDING ASSETS" shall have the meaning set forth in the Distribution
Agreement.
"SHIPBUILDING BUSINESS" shall have the meaning set forth in the Distribution
Agreement.
"SHIPBUILDING COVERED PERSON" shall mean each member of the Shipbuilding
Group and any other Person, in each case to the extent any Policy addressed
herein purports to provide insurance coverage in respect of any claims, suits,
actions, proceedings, injuries, losses, liabilities, occurrences, damages or
expenses incurred by such Person arising out of, in connection with or
otherwise related to Shipbuilding.
"SHIPBUILDING EXCLUSIVE POLICIES" shall mean all current and past Policies
which show Shipbuilding Company, any other member of the Shipbuilding Group or
any of their respective predecessors as the named insured and do not purport
to relate to Energy or Industrial or to cover any Energy Covered Person or
Industrial Covered Person, but excluding any Retained Policy.
"SHIPBUILDING GROUP" shall have the meaning set forth in the Distribution
Agreement.
"SHIPBUILDING LIABILITIES" shall have the meaning set forth in the
Distribution Agreement.
"SUBSIDIARY" shall have the meaning set forth in the Distribution Agreement.
"TENNECO EXCLUSIVE POLICIES" shall mean all current and past Policies,
including but not limited to the current Policies set forth on SCHEDULE E
hereto, which show Tenneco, any other member of the Energy Group or any of
their respective predecessors as the named insured and do not purport to
relate to Shipbuilding or Industrial or to cover any Shipbuilding Covered
Person or Industrial Covered Person, excluding (i) any directors' and
officers' liability policies which are or were maintained by or on behalf of
Tenneco, and (ii) any Retained Policy.
"TERMINATION TIME" shall mean 11:59 p.m., Houston, Texas time, on the
Distribution Date.
"TRANSFERRED CLAIMS-MADE POLICIES" shall have the meaning set forth in
Section 2.2 hereof.
"TRANSFERRED OCCURRENCE-BASED POLICIES" shall have the meaning set forth in
Section 2.1 hereof.
"TRANSFERRED POLICIES" shall have the meaning set forth in Section 2.3
hereof.
1.2 References. References herein to a "Schedule" are, unless otherwise
specified, to one of the Schedules attached to this Agreement, and references
to an "Article" or a "Section" are, unless otherwise specified, to one of the
Articles or Sections, respectively, of this Agreement.
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ARTICLE II
SUBSTITUTION OF NAMED INSUREDS AND CANCELLATION OF POLICIES
2.1 Current Occurrence-Based Policies. On or prior to the Distribution Date,
Tenneco shall take or cause to be taken all necessary or appropriate action
(i) so that the Industrial Company is substituted as the named insured under
those Current Occurrence-Based Policies identified on SCHEDULE 2.1-A hereto
(the "TRANSFERRED OCCURRENCE-BASED POLICIES"), effective as of the Termination
Time, and (ii) to cause the Current Occurrence-Based Policies identified on
SCHEDULE 2.1-B hereto to be cancelled as of, and to afford no further coverage
to the insureds thereunder except as otherwise contemplated by this Agreement
from and after, the Termination Time. Industrial Company agrees to be
substituted as a named insured under the Transferred Occurrence-Based Policies
and to execute such further documents as Tenneco may reasonably request in
connection therewith.
2.2 Current Claims-Made Policies. On or prior to the Distribution Date,
Tenneco shall take or cause to be taken all necessary or appropriate action
(i) so that the Industrial Company is substituted as the named insured under
those Current Claims-Made Policies identified on SCHEDULE 2.2-A hereto (the
"TRANSFERRED CLAIMS-MADE POLICIES"), effective as of the Termination Time, and
(ii) to cause the Current Claims-Made Policies identified on SCHEDULE 2.2-B
hereto to be cancelled as of, and to afford no further coverage to the
insureds thereunder except as otherwise contemplated by this Agreement from
and after, the Termination Time. Industrial Company agrees to be substituted
as a named insured under the Transferred Claims-Made Policies and to execute
such further documents as Tenneco may reasonably request in connection
therewith.
2.3 Consent. Tenneco and Industrial Company shall each use its best efforts
to obtain prior to the Distribution Date the consent of each insurance carrier
under the Transferred Occurrence-Based Policies and the Transferred Claims-
Made Policies (collectively, the "TRANSFERRED POLICIES") that is required to
consummate the transactions contemplated by Sections 2.1 and 2.2 hereof (each,
a "CONSENT"), it being understood that if Consent to such transactions is not
received as contemplated by this Section 2.3 with respect to any Policy, such
Policy shall nonetheless be considered and treated as a Transferred Claims-
Made Policy or Transferred Occurrence-Based Policy, as the case may be, for
purposes of this Agreement.
2.4 No Transfer of Certain Policies. Notwithstanding anything in this
Agreement to the contrary, this Agreement shall not constitute an agreement to
substitute Industrial Company as the named insured under any Transferred
Policy without Consent thereto if such substitution or attempt to substitute
without such Consent would constitute a breach of such Transferred Policy. If
Consent to such substitution is not obtained prior to the Distribution Date,
Tenneco and Industrial Company agree to negotiate in good faith an arrangement
which shall place the Industrial Company, insofar as reasonably possible, in
the same position as would have existed had such Consent to substitution been
obtained prior to the Distribution Date.
ARTICLE III
COVERAGE
3.1 Maintenance of Coverage Through Distribution Date. From the date hereof
up to the Termination Time, the parties hereto agree to maintain (and to cause
each member of their respective Groups over which they have legal or effective
direct or indirect control to maintain) in full force and effect the
Occurrence-Based Policies, Claims-Made Policies, Eastern Policies and Retained
Policies for the benefit of any Energy Covered Person, Industrial Covered
Person and Shipbuilding Covered Person to which such Policies by their terms
relate.
3.2 Coverage Under Occurrence-Based Policies.
(a) Termination of Coverage Under Transferred Occurrence-Based Policies. The
parties hereto agree to take or cause to be taken all necessary or appropriate
action so that, notwithstanding anything to the contrary contained in any
Transferred Occurrence-Based Policy, effective as of the Termination Time
coverage under the Transferred Occurrence-Based Policies shall be terminated
(it being understood that such Transferred
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Occurrence-Based Policies shall nonetheless remain in full force and effect)
so that none of the Transferred Occurrence-Based Policies shall afford any
further coverage to any Energy Covered Person or Shipbuilding Covered Person
for occurrences which take place or are alleged to have taken place after the
Termination Time. From and after the Termination Time, coverage under any
Transferred Occurrence-Based Policy may, at the option of Industrial Company,
continue for any Industrial Covered Person upon the terms and conditions of
such Transferred Occurrence-Based Policy.
(b) Termination of Coverage Under Other Occurrence-Based Policies. The
parties hereto agree to take or cause to be taken all necessary or appropriate
action so that, notwithstanding anything to the contrary contained in any
Other Occurrence-Based Policy, effective as of the Termination Time coverage
under the Other Occurrence-Based Policies shall be terminated so that none of
the Other Occurrence-Based Policies shall afford any further coverage to any
Energy Covered Person, Industrial Covered Person or Shipbuilding Covered
Person for occurrences which take place or are alleged to have taken place
after the Termination Time.
(c) Access to Policies Following Termination Time. Notwithstanding the
provisions of Sections 3.2(a) and 3.2(b) hereof, from and after the
Termination Time each Energy Covered Person, Industrial Covered Person and
Shipbuilding Covered Person shall have the right to coverage and to make or
pursue a claim for coverage under any Occurrence-Based Policy with respect to
all claims, suits, actions, proceedings, injuries, losses, liabilities,
occurrences, damages and expenses incurred or claimed to have been incurred
prior to the Termination Time by such Covered Person in or in connection with
the operation of, or otherwise related to, (i) Energy, with respect to any
Energy Covered Person, (ii) Industrial, with respect to any Industrial Covered
Person, or (iii) Shipbuilding, with respect to any Shipbuilding Covered
Person, in each case subject to the terms, conditions and limitations of such
Occurrence-Based Policy, provided, however, that nothing in this Section
3.2(c) shall be deemed to constitute or reflect an assignment of any such
Occurrence-Based Policy.
(d) Policy Limits. Any Energy Covered Person, Industrial Covered Person or
Shipbuilding Covered Person entitled hereunder to make or pursue a claim for
insurance coverage under an Occurrence-Based Policy may claim for such
insurance as and to the extent that such insurance is available up to the full
extent of the applicable limits of liability under such Occurrence-Based
Policy. Notwithstanding the foregoing, each of Tenneco, Industrial Company and
Shipbuilding Company shall, to the extent any of its respective Covered
Persons shall have exhausted all or any portion of the limits of liability, if
any, under any Occurrence-Based Policy, use its best efforts to either (i)
obtain and comply in full with the conditions required to effect the
reinstatement of the full limits of liability under such Occurrence-Based
Policy for all claims which would be covered thereby absent such exhaustion
(including any pending or known claims) and be responsible for and pay all
costs and expenses, including the amount of any resultant increase in the
premium charged in respect of such Occurrence-Based Policy or any renewal
thereof, in connection therewith, or (ii) obtain and maintain in full force
and effect a Policy in replacement of the limits of liability exhausted under
such Occurrence-Based Policy for all claims which would be covered thereby
absent such exhaustion (including any pending or known claims), and be
responsible for and pay all costs and expenses in connection therewith, which
Policy shall provide at least the same coverage, and contain terms and
provisions which are no less favorable to the insured parties, as existed
under the Occurrence-Based Policy in respect of which such replacement is
obtained, provided, however, that no party hereto shall be required to expend
more than an amount equal to 350% of the original premium paid with respect to
the portion of the limits of liability under such Occurrence-Based Policy
(determined on a pro rata basis) exhausted by such party's respective Covered
Persons to obtain reinstatement or a replacement Policy as contemplated
hereby, it being understood that each party hereto shall nonetheless be
required to obtain the maximum amount of reinstatement or replacement coverage
available for such 350% premium amount in accordance with the terms and
provisions of clauses (i) or (ii) hereof, as applicable. If at any time a
party (an "Impairing Party") hereto becomes aware (such party being deemed to
be aware whenever any of the directors or executive officers of such party or
any other member of its respective Group become aware) of a claim or potential
claim against any of such Impairing Party's respective Covered Persons which
claim is reasonably likely to exhaust (but has not yet exhausted) all or any
portion of the aggregate limits of liability, if any, under any Occurrence-
Based Policy (a "Potential Impairment"), such Impairing Party shall promptly
provide notice of
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such Potential Impairment to the other parties hereto. Such Impairing Party
shall have five business days after providing such notice to elect to, at that
time, either secure reinstatement of the limits of liability under such
Occurrence-Based Policy (to the extent provided for therein) or purchase a
Policy in replacement of such limits of liability (in each case in accordance
with the terms and provisions of the second preceding sentence) in respect of
such Potential Impairment (but shall not be required to so elect at such
time). If such Impairing Party does not timely elect to secure reinstatement
or replacement coverage, then either or both of the other parties hereto may
elect to reinstate the limits of liability under such Occurrence-Based Policy
(to the extent provided for therein) and pay all expenses incurred in
connection therewith, provided, however, that if such Potential Impairment
actually occurs, the Impairing Party shall reimburse the other parties for any
fees and expenses incurred by such parties in connection with such
reinstatement.
3.3 Coverage Under Claims-Made Policies.
(a) Termination of Coverage Under Transferred Claims-Made Policies. The
parties hereto agree to take or cause to be taken all necessary or appropriate
action so that, notwithstanding anything to the contrary contained in any
Transferred Claims-Made Policy, effective as of the Termination Time coverage
under the Transferred Claims-Made Policies shall be terminated (it being
understood that such Transferred Claims-Made Policies shall nonetheless remain
in full force and effect) so that none of the Transferred Claims-Made Policies
shall afford any further coverage to any Energy Covered Person or Shipbuilding
Covered Person for claims which have not been reported or made as provided by
the terms of such Transferred Claims-Made Policy prior to the Termination
Time. From and after the Termination Time, coverage under any Transferred
Claims-Made Policy may, at the option of Industrial Company, continue for any
Industrial Covered Person upon the terms and conditions of such Transferred
Claims-Made Policy.
(b) Termination of Coverage Under Other Claims-Made Policies. The parties
hereto agree to take or cause to be taken all necessary or appropriate action
so that, notwithstanding anything to the contrary contained in any Other
Claims-Made Policy, effective as of the Termination Time coverage under the
Other Claims-Made Policies shall be terminated so that no Other Claims-Made
Policy shall afford any further coverage to any Energy Covered Person,
Industrial Covered Person or Shipbuilding Covered Person for claims which have
not been reported or made as provided by the terms of such Other Claims-Made
Policy prior to the Termination Time.
(c) Access to Policies Following Termination Time. Notwithstanding the
provisions of Sections 3.3(a) and 3.3(b) hereof, from and after the
Termination Time each Energy Covered Person, Industrial Covered Person and
Shipbuilding Covered Person shall have the right to coverage and to make or
pursue a claim for coverage under any Claims-Made Policy with respect to all
claims, suits, actions, proceedings, injuries, losses, liabilities,
occurrences, damages and expenses which are reported in accordance with the
terms of such Claims-Made Policy prior to the Termination Time and which are
incurred or claimed to be incurred by such Covered Person in or in connection
with the operation of, or otherwise related to, (i) Energy, with respect to
any Energy Covered Person, (ii) Industrial, with respect to any Industrial
Covered Person, or (iii) Shipbuilding, with respect to any Shipbuilding
Covered Person, in each case subject to the terms, conditions and limitations
of such Claims-Made Policy, provided, however, that nothing in this Section
3.3(c) shall be deemed to constitute or reflect an assignment of any such
Claims-Made Policy.
(d) Policy Limits. Any Energy Covered Person, Industrial Covered Person or
Shipbuilding Covered Person entitled hereunder to make or pursue a claim for
insurance coverage under a Claims-Made Policy may claim for such insurance as
and to the extent that such insurance is available up to the full extent of
the applicable limits of liability under such Claims-Made Policy.
Notwithstanding the foregoing, each of Tenneco, Industrial Company and
Shipbuilding Company shall, to the extent any of its respective Covered
Persons shall have exhausted all or any portion of the limits of liability, if
any, under any Claims-Made Policy, use its best efforts to either (i) obtain
and comply in full with the conditions required to effect the reinstatement of
the full limits of liability under such Claims-Made Policy for all claims
which would be covered thereby absent such exhaustion (including any pending
or known claims) and be responsible for and pay all costs and expenses,
including the amount of any resultant increase in the premium charged in
respect of such Claims-Made Policy or any renewal
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thereof, in connection therewith, or (ii) obtain and maintain in full force
and effect at its own cost a Policy in replacement of the limits of liability
exhausted under such Claims-Made Policy for all claims which would be covered
thereby absent such exhaustion (including any pending or known claims), and be
responsible for and pay all costs and expenses in connection therewith, which
Policy shall provide at least the same coverage, and contain terms and
provisions which are no less favorable to the insured parties, as existed
under the Claims-Made Policy in respect of which such replacement is obtained,
provided, however, that no party hereto shall be required to expend more than
an amount equal to 350% of the original premium paid with respect to the
portion of the limits of liability under such Claims-Made Policy (determined
on a pro rata basis) exhausted by such party's respective Covered Persons to
obtain reinstatement or a replacement Policy as contemplated hereby, it being
understood that each party hereto shall nonetheless be required to obtain the
maximum amount of reinstatement or replacement coverage available for such
350% premium amount in accordance with the terms and provisions of clauses (i)
or (ii) hereof, as applicable. If at any time an Impairing Party becomes aware
(such party being deemed to be aware whenever any of the directors or
executive officers of such party or any other member of its respective Group
become aware) of a claim or potential claim against any of such Impairing
Party's respective Covered Persons which claim is reasonably likely to exhaust
(but has not yet exhausted) all or any portion of the aggregate limits of
liability, if any, under any Claims-Made Policy (a "Potential Impairment"),
such Impairing Party shall promptly provide notice of such Potential
Impairment to the other parties hereto. Such Impairing Party shall have five
business days after providing such notice to elect to, at that time, either
secure reinstatement of the limits of liability under such Claims-Made Policy
(to the extent provided for therein) or purchase a Policy in replacement of
such limits of liability (in each case in accordance with the terms and
provisions of the second preceding sentence) in respect of such Potential
Impairment (but shall not be required to so elect at such time). If such
Impairing Party does not timely elect to secure reinstatement or replacement
coverage, then either or both of the other parties hereto may elect to
reinstate the limits of liability under such Claims-Made Policy (to the extent
provided for therein) and pay all expenses incurred in connection therewith,
provided, however, that if such Potential Impairment actually occurs, the
Impairing Party shall reimburse the other parties for any fees and expenses
incurred by such parties in connection with such reinstatement.
3.4 Coverage Under Retained Policies.
(a) Termination of Coverage at Termination Time. The parties hereto agree to
take or cause to be taken all necessary or appropriate action so that, except
as otherwise contemplated by the terms of this Agreement and notwithstanding
anything to the contrary contained in any Retained Policy, effective as of the
Termination Time any and all coverage of any Industrial Covered Person or
Shipbuilding Covered Person under the Retained Policies shall be terminated
(it being understood that such Retained Policies shall nonetheless remain in
full force and effect). From and after the Termination Time, coverage under
any of the Retained Policies may, at the option of Tenneco, continue for any
Energy Covered Person upon the terms and conditions of such Retained Policies.
(b) Access to Policies and Policy Limits. Notwithstanding the provisions of
Section 3.4(a) hereof, from and after the Termination Time each Industrial
Covered Person and Shipbuilding Covered Person shall have the right to
coverage and to make or pursue a claim for coverage under any Retained Policy
with respect to all claims, suits, actions, proceedings, injuries, losses,
liabilities, occurrences, damages and expenses incurred or claimed to have
been incurred prior to the Termination Time by such Covered Person in or in
connection with the operation of, or otherwise related to, (i) Industrial,
with respect to any Industrial Covered Person, or (ii) Shipbuilding, with
respect to any Shipbuilding Covered Person, in each case subject to the terms,
conditions and limitations of such Retained Policy, provided, however, that
nothing in this Section 3.4(b) shall be deemed to constitute or reflect an
assignment of any such Retained Policy. Any Industrial Covered Person or
Shipbuilding Covered Person may claim insurance coverage under a Retained
Policy as and to the extent that such insurance is available up to the full
extent of the applicable limits of liability under such Retained Policy.
3.5 Coverage Under Eastern Policies.
(a) Termination of Coverage Under Eastern Policies. The parties hereto agree
to take or cause to be taken all necessary or appropriate action so that,
notwithstanding anything to the contrary contained in any Eastern
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Policies, effective as of the Termination Time coverage under the Eastern
Policies shall be terminated (it being understood that such Eastern Policies
in full force and effect as of the Termination Time shall nonetheless remain
in full force and effect) so that the Eastern Policies do not afford any
further coverage to any Industrial Covered Person or Shipbuilding Covered
Person for occurrences which take place or are alleged to have taken place
after the Termination Time. From and after the Termination Time, coverage
under the Eastern Policies may, at the option of Tenneco, continue for any
Energy Covered Person upon the terms and conditions of the Eastern Policies.
(b) Access to Eastern Policies Following Termination Time. Notwithstanding
the provisions of Sections 3.5(a) hereof, from and after the Termination Time
each Energy Covered Person, Industrial Covered Person (to the extent (but only
to that extent and subject to the last sentence of this Section 3.5(b) and
Section 3.5(d)) payment under any Eastern Policy is a condition precedent to
the provision of coverage by any insurer providing coverage in the same layer
as, or a layer excess to that of, such Eastern Policy) and Shipbuilding
Covered Person (to the extent (but only to the extent and subject to the last
sentence of this Section 3.5(b)) necessary to access reinsurance policies)
shall have the right to coverage and to make or pursue a claim for coverage
under any Eastern Policy with respect to all claims, suits, actions,
proceedings, injuries, losses, liabilities, occurrences, damages and expenses
incurred or claimed to have been incurred prior to the Termination Time by
such Covered Person in or in connection with the operation of, or otherwise
related to, (i) Energy, with respect to any Energy Covered Person, (ii)
Industrial, with respect to any Industrial Covered Person, or (iii)
Shipbuilding, with respect to any Shipbuilding Covered Person, in each case,
subject to the terms, conditions and limitations of such Eastern Policy,
provided, however, that nothing in this Section 3.5(b) shall be deemed to
constitute or reflect an assignment of the Eastern Policies. The parties
hereto agree to take or cause to be taken all necessary or appropriate actions
so that, from and after the Termination Time, no Industrial Covered Person or
Shipbuilding Covered Person shall be entitled to coverage or to make or pursue
a claim for coverage under the Eastern Policies except to the extent expressly
provided for herein and in no event shall the Eastern Insurance Provider (as
defined below) or any of its subsidiaries have any obligation or liability to
any Shipbuilding Covered Person or Industrial Covered Person under any Eastern
Policy which is not either as a conduit with respect to third party
reinsurance or subject to reimbursement by Industrial Company pursuant to
Section 3.5(d).
(c) Policy Limits. Any Energy Covered Person, Industrial Covered Person or
Shipbuilding Covered Person entitled hereunder to make or pursue a claim for
insurance coverage under the Eastern Policies may claim for such insurance as
and to the extent that such insurance is available up to the full extent of
the applicable limits of liability under the Eastern Policies, subject to the
provisions of Section 3.5(b).
(d) Reimbursement Obligation of Industrial Company. Industrial Company
agrees to reimburse to the insurer under each Eastern Policy (the "EASTERN
INSURANCE PROVIDER") the full amount of any claim for insurance coverage for
an Industrial Covered Person under such Eastern Policy made pursuant to the
terms of Section 3.5(b) hereof which is actually paid by said Eastern
Insurance Provider after the Termination Time.
3.6 Coverage Under Exclusive Policies. From and after the Termination Time,
coverage under any Exclusive Policy may continue with respect to any claims,
suits, actions, proceedings, injuries, losses, liabilities, occurrences,
damages or expenses incurred or claimed to have been incurred prior to, on or
after the Distribution Date, subject to the terms, conditions and limitations
of such Exclusive Policy, provided, however, that (i) no member of the Energy
Group shall have any liability or obligation with respect to any of the
Industrial Exclusive Policies or Shipbuilding Exclusive Policies, (ii) no
member of the Industrial Group shall have any liability or obligation with
respect to any of the Tenneco Exclusive Policies or Shipbuilding Exclusive
Policies, and (iii) no member of the Shipbuilding Group shall have any
liability or obligation with respect to any of the Tenneco Exclusive Policies
or Industrial Exclusive Policies.
3.7 Assistance in Obtaining Additional Coverage. Each of the parties hereto
agrees to use its reasonable best efforts to assist the other parties in the
transition to separate insurance coverage for the Energy Group, Industrial
Group and Shipbuilding Group from and after the Distribution Date which
assistance shall include, but shall not be limited to, the identification of
potential insurance carriers.
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3.8 Discovery Periods. Except with respect to any Industrial Covered Person
and except as the parties hereto may otherwise agree, the parties hereto
acknowledge and agree that when this Agreement calls for the termination of
insurance coverage under a Claims-Made Policy such insurance coverage shall be
terminated as of the time specified and that no discovery period of coverage
in respect of such Policy shall be provided thereunder, notwithstanding
anything to the contrary contained herein or in any such Policy.
Notwithstanding the foregoing, if requested to do so by Tenneco, Industrial
Company shall use its reasonable efforts to procure that the relevant insurers
under the Claims-Made Policies offer to Tenneco a discovery period of coverage
under said Claims-Made Policies for Energy Covered Persons with an aggregate
limitation of liability separate from the limitation of liability under said
Claims-Made Policies for coverage afforded Industrial Covered Persons. All
premiums, costs and other charges with respect to any discovery period of
coverage provided under any Claims-Made Policy shall be the sole
responsibility of (i) Tenneco, with respect to coverage for Energy Covered
Persons, and (ii) Industrial Company, with respect to coverage for Industrial
Covered Persons. Each party hereto shall not (and shall not permit any of its
respective Covered Persons over which it has legal or effective direct or
indirect control to) take any action contrary to the provisions of this
Section 3.8.
3.9 Further Assurances. Each of Tenneco, Industrial Company and Shipbuilding
Company agree to take (and to cause each of its respective Covered Persons
over which it has direct or indirect legal or effective control to take) all
such actions as are necessary or appropriate, including the provision of
notice to all relevant insurance carriers and cooperation with respect to the
obtaining of any reinstatement of limitations on liability as contemplated
hereby, to effectuate the purposes of this Article III.
ARTICLE IV
PREMIUMS, DEDUCTIBLES AND RELATED MATTERS
4.1 Occurrence-Based and Claims-Made Policies.
(a) Premiums in Respect of Occurrence-Based and Claims-Made Policies. From
and after the Termination Time, all premiums, costs and other charges with
respect to any Occurrence-Based Policy or Claims-Made Policy shall be paid by
Industrial Company, provided, however, that (i) Tenneco shall promptly
reimburse Industrial Company in full for any such premiums, costs or other
charges in respect of the cover afforded under any such Occurrence-Based
Policy or Claims-Made Policy to any Energy Covered Person, and (ii)
Shipbuilding Company shall promptly reimburse Industrial Company in full for
any such premiums, costs or other charges in respect of the cover afforded
under any such Occurrence-Based Policy or Claims-Made Policy to any
Shipbuilding Covered Person, in each case determined in accordance with
Tenneco's historical practices with respect to the allocation of such
premiums, costs and charges prior to the date hereof. All amounts refunded
from and after the Termination Time by insurance carriers in respect of
premiums previously paid under any Occurrence-Based Policy or Claims-Made
Policy shall be the sole property of Industrial Company, provided, however,
that Industrial Company shall promptly pay to Tenneco or the Shipbuilding
Company, as applicable, upon receipt thereof from an insurance carrier, the
Energy Group's or the Shipbuilding Group's respective share of any such
amounts refunded (such respective share to be determined in accordance with
Tenneco's historical practices with respect to the allocation of insurance
premiums among its Subsidiaries and divisions prior to the date hereof). Each
of Tenneco and Shipbuilding Company shall (and shall cause each member of its
respective Group over which it has direct or indirect legal or effective
control to) promptly pay to Industrial Company any such refunded amounts
actually received by it to which Industrial Company is entitled pursuant
hereto.
(b) Deductibles, Retentions and Self-Insured Amounts. From and after the
Termination Time, all deductibles, retentions and self-insured amounts with
respect to coverage or a claim for coverage under any Occurrence-Based Policy
or Claims-Made Policy shall be the sole responsibility of (i) Tenneco, with
respect to any coverage or claim for coverage in respect of any Energy Covered
Person, (ii) Industrial Company, with respect to any coverage or claim for
coverage in respect of any Industrial Covered Person, and (iii) Shipbuilding
Company, with respect to any coverage or claim for coverage in respect of any
Shipbuilding Covered Person.
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4.2 Retained Policies.
(a) Premiums, Costs and Other Charges. From and after the Termination Time,
all premiums, costs and other charges with respect to any Retained Policy,
including claim payments and associated expenses under cost plus or fronting
policies, shall be the sole responsibility of and be paid by Tenneco,
provided, however, that (i) Industrial Company shall promptly reimburse
Tenneco for all such premiums, costs and other charges paid by Tenneco
(including amounts paid by Tenneco as reimbursement in respect of amounts
drawn under letters of credit maintained by Tenneco pursuant to Section 7.1
hereof) in respect of coverage provided for any Industrial Covered Person to
the extent such premiums, costs and other charges exceed the amount of the
Claims Deposit, and (ii) Shipbuilding Company shall promptly reimburse Tenneco
for all such premiums, costs and other charges paid by Tenneco (including
amounts paid by Tenneco as reimbursement in respect of amounts drawn under
letters of credit maintained by Tenneco pursuant to Section 7.1 hereof) in
respect of coverage provided for any Shipbuilding Covered Person. All amounts
refunded from and after the Termination Time by insurance carriers in respect
of premiums previously paid under any Retained Policy shall be the sole
property of Tenneco, provided, however, that Tenneco shall promptly pay to (i)
Industrial Company, all such refunded amounts in respect of coverage provided
for any Industrial Covered Person under such Retained Policy, and (ii)
Shipbuilding Company, all such refunded amounts in respect of coverage
provided for any Shipbuilding Covered Person under such Retained Policy.
(b) Deductibles, Retentions and Self-Insured Amounts. From and after the
Termination Time, all deductibles, retentions and self-insured amounts with
respect to coverage or a claim for coverage under any Retained Policy shall be
the sole responsibility of (i) Tenneco, with respect to any coverage or claim
for coverage in respect of any Energy Covered Person, (ii) Industrial Company,
with respect to any coverage or claim for coverage in respect of any
Industrial Covered Person, and (iii) Shipbuilding Company, with respect to any
coverage or claim for coverage in respect of any Shipbuilding Covered Person.
4.3 Eastern Policies.
(a) Premiums in Respect of Eastern Policies. All amounts refunded from and
after the Termination Time by insurance carriers in respect of premiums
previously paid under any Eastern Policy shall be the sole property of
Tenneco, provided, however, that Tenneco shall promptly pay to (i) Industrial
Company, upon receipt thereof from an insurance carrier, the Industrial
Group's respective share of any such amounts refunded, and (ii) Shipbuilding
Company, upon receipt thereof from an insurance carrier, the Shipbuilding
Group's respective share of any such amounts refunded, in each case determined
in accordance with Tenneco's historical practices with respect to the
allocation of insurance premiums among its Subsidiaries and divisions prior to
the date hereof. Each party shall (and shall cause each member of its
respective Group over which it has direct or indirect legal or effective
control to) promptly pay to any other party any such amounts actually received
by it to which such other party is entitled pursuant to this Section 4.3(a).
(b) Deductibles, Retentions and Self-Insured Amounts. From and after the
Termination Time, all deductibles, retentions and self-insured amounts with
respect to coverage or a claim for coverage under any Eastern Policy shall be
the sole responsibility of (i) Tenneco, with respect to any coverage or claim
for coverage in respect of any Energy Covered Person, (ii) Industrial Company,
with respect to any coverage or claim for coverage in respect of any
Industrial Covered Person, and (iii) Shipbuilding Company, with respect to any
coverage or claim for coverage in respect of any Shipbuilding Covered Person.
(c) Amounts to be Refunded. Tenneco shall direct and instruct the Eastern
Insurance Provider to pay to Industrial Company in cash promptly after the
Termination Time, to the extent permitted by law, and to record a
corresponding dollar-for-dollar reduction in all associated liabilities on its
books and records for, (i) all amounts which appear as reserves on the books
and records of the Eastern Insurance Provider as of the Termination Time in
respect of claims relating to any Industrial Covered Person which have been
reported prior to the Termination Time, (ii) the full amount of any "incurred
but not reported" reserve and any portfolio loss transfer reserve appearing on
the books and records of the Eastern Insurance Provider as of the Termination
Time under the contingent liability programs of the Eastern Policies, and
(iii) 50% of the amount of any "incurred but not reported" reserve appearing
on the books and records of the Eastern Insurance Provider as of the
Termination Time under the excess liability programs of the Eastern Policies
with respect to Industrial and Energy.
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4.4 Exclusive Policies. From and after the Termination Time, all
deductibles, retentions, self-insured amounts, premiums and other costs with
respect to any Exclusive Policy or claim for coverage thereunder shall be the
sole responsibility of, and all refunded premiums with respect to any
Exclusive Policy shall be the sole property of, (i) Tenneco, with respect to
any Tenneco Exclusive Policy, (ii) Industrial Company, with respect to any
Industrial Exclusive Policy, and (iii) Shipbuilding Company, with respect to
any Shipbuilding Exclusive Policy.
4.5 Excess Costs and Settlements. Each Covered Person shall be responsible
for any excess costs and expenses relating to its respective claims permitted
hereunder (or those of any member of its respective Group) under the Common
Policies, including defense costs to the extent such defense costs are not
covered under such Common Policies, and shall be responsible for obtaining or
reviewing the appropriateness of releases upon settlement of such claims.
4.6 Effect on Other Agreements. Notwithstanding anything to the contrary
contained herein, nothing in this Article IV shall be construed to alter or in
any way limit any rights to indemnity provided in the Distribution Agreement
or in any other Ancillary Agreement (as such term is defined in the
Distribution Agreement).
ARTICLE V
ADMINISTRATION
5.1 Occurrence-Based and Claims-Made Policies.
(a) Administration. From and after the Distribution Date, Claims
Administration and Insurance Administration with respect to the Occurrence-
Based Policies and Claims-Made Policies shall be the responsibility of (i)
Tenneco, with respect to any coverage or claim for coverage of any Energy
Covered Person, (ii) Industrial Company, with respect to any coverage or claim
for coverage of any Industrial Covered Person, and (iii) Shipbuilding Company,
with respect to any coverage or claim for coverage of any Shipbuilding Covered
Person. Each of Shipbuilding Company and Tenneco shall (and shall cause each
of its respective Covered Persons over which it has direct or indirect legal
or effective control to) provide prompt notice to Industrial Company of all
actions taken by it with respect to the Claims Administration and Insurance
Administration for the Occurrence-Based Policies and Claims-Made Policies as
contemplated by this Section 5.1. Each party hereto shall (and shall cause
each other member of its Group over which it has direct or indirect legal or
effective control to) take all necessary or appropriate action, if any, to
delegate Claims Administration and Insurance Administration with respect to
the Occurrence-Based Policies and Claims-Made Policies to any other party who
is to assume such responsibilities pursuant hereto and, to the extent such
delegation is not permitted by the terms of any such policy, shall engage in
Claims Administration or Insurance Administration for any such policy only
upon the express authorization and direction of such other party. Each party
hereto shall be responsible for its own disbursements and out-of-pocket
expenses and the direct and indirect costs of its employees or agents relating
to Claims Administration and Insurance Administration contemplated by this
Section 5.1. Notwithstanding anything to the contrary contained herein,
Industrial Company shall have the right, at its option, to undertake at its
own cost and expense Claims Administration and/or Insurance Administration
with respect to any coverage or claim for coverage of any Energy Covered
Person or Shipbuilding Covered Person.
(b) Effect of Administrative Responsibilities. Each of Tenneco, Industrial
Company and Shipbuilding Company acknowledges and agrees that each other
party's responsibilities under this Section 5.1 for Claims Administration and
Insurance Administration shall not relieve any party submitting an insured
claim under any Occurrence-Based Policy or Claims-Made Policy of (a) the
primary responsibility for reporting such insured claim accurately, completely
and in a timely manner, or (b) any other right or responsibility which such
party may have pursuant to the terms of any Occurrence-Based Policy or Claims-
Made Policy.
5.2 Eastern and Retained Policies. From and after the Termination Time,
Tenneco shall be solely responsible for Claims Administration and Insurance
Administration with respect to the Retained Policies and Eastern Policies
including, without limitation, the administration of all billings associated
with the Retained
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Policies by the insurance carriers thereunder. Notwithstanding the foregoing,
each of Industrial Company and Shipbuilding Company shall retain the right to,
at its option, direct the management, defense, reporting and settlement of
claims involving its respective Covered Persons under the Retained Policies
and Eastern Policies.
ARTICLE VI
PROCEEDS
6.1 Occurrence-Based and Claims-Made Policies. From and after the
Distribution Date, Insurance Proceeds received with respect to claims, costs
and expenses under the Occurrence-Based Policies and Claims-Made Policies
shall be paid to the Covered Person to which such Insurance Proceeds are due
pursuant to the terms of such Policies.
6.2 Eastern and Retained Policies. From and after the Distribution Date,
Insurance Proceeds received with respect to claims, costs and expenses under
the Retained Policies and Eastern Policies shall be paid, as appropriate, to
the Covered Person to which such Insurance Proceeds are due pursuant to the
terms of such Policies.
6.3 Return of Proceeds. Each of Tenneco, Industrial Company and Shipbuilding
Company shall (and shall cause each of its respective Covered Persons over
which it has direct or indirect legal or effective control to) to promptly pay
to each other party any Insurance Proceeds actually received by it to which
any of such other party's Covered Persons are entitled pursuant hereto, which
other party shall then distribute such Insurance Proceeds to the Covered
Person to which they are due pursuant hereto.
ARTICLE VII
LETTERS OF CREDIT AND SURETY BONDS
7.1 Maintenance. (a) Letters of Credit. From and after the Distribution
Date, to secure obligations under the Retained Policies relating to periods
preceding the Termination Time, Tenneco shall, for such time as may be
required by law or the terms of any Retained Policy, maintain in full force
and effect the letters of credit identified on SCHEDULE 7.1-A hereto or, as
necessary or appropriate, substitute therefor and maintain in full force and
effect letters of credit acceptable to the insurance carriers and/or surety
under the Retained Policies issued by comparably rated lenders containing
substantially identical terms and conditions (collectively, the "LETTERS OF
CREDIT"). The parties hereto shall use reasonable commercial efforts to obtain
the necessary consents and approvals, and shall thereafter negotiate in good
faith an agreement, to allocate the Letters of Credit among the parties hereto
such that each party becomes responsible for the maintenance of letters of
credit for such time as may be required by law or the terms of any Retained
Policy to secure obligations under the Retained Policies relating to periods
prior to the Termination Time in respect of coverage afforded thereunder to
such party's respective Covered Persons, provided, however, that neither
Industrial Company nor Shipbuilding Company shall be required to use such
reasonable commercial efforts or negotiate any such agreement if such party
determines that the allocation contemplated hereby cannot be accomplished
without commercially unreasonable expense.
(b) Surety Bonds. The parties hereto acknowledge that Tenneco is obligated
to indemnify the sureties under certain performance bonds and other surety
instruments that secure obligations of the Energy Business, Energy Group,
Industrial Business, Prior Industrial Businesses, Industrial Group,
Shipbuilding Business, Prior Shipbuilding Businesses and/or Shipbuilding Group
including, but not limited to, the surety instruments identified on SCHEDULE
7.1-B hereto (the "TENNECO-PROVIDED BONDS"). From and after the Termination
Time, Tenneco shall maintain such Tenneco-Provided Bonds in place for such
time as may be required by law. To the extent possible on commercially
reasonable terms, each of Industrial Company and Shipbuilding Company shall
use reasonable commercial efforts to obtain a replacement for each Tenneco-
Provided Bond that secures obligations of the Industrial Business, Prior
Industrial Businesses or Industrial Group (in the case of Industrial Company)
or the Shipbuilding Business, Prior Shipbuilding Businesses or Shipbuilding
Group (in the case of Shipbuilding Company) and to thereafter arrange for the
release of Tenneco from the Tenneco-Provided Bond
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which has been so replaced. If the surety under any Tenneco-Provided Bond is
required to and does in fact perform according to the terms of said Tenneco-
Provided Bond and Tenneco is required to and does in fact indemnify such
surety in respect thereof, (i) Industrial Company shall reimburse Tenneco for
all amounts actually paid by Tenneco to such surety to the extent such amounts
constitute Industrial Liabilities, and (ii) Shipbuilding Company shall
reimburse Tenneco for all amounts actually paid by Tenneco to such surety to
the extent such amounts constitute Shipbuilding Liabilities.
7.2 Reimbursement for Maintenance Fees. Each of Industrial Company and
Shipbuilding Company hereby agrees to reimburse Tenneco annually commencing on
, 1997 (to be a date as of the end of the thirteenth month
following execution hereof) (such date and each anniversary thereof being
referred to herein as a "DUE DATE") for the actual and reasonable
administrative fees and expenses paid by Tenneco (the "LC MAINTENANCE FEES")
in respect of the issuance and maintenance of the Letters of Credit during the
twelve-month period ended 30 days prior to such year's Due Date (each, a
"YEARLY PERIOD"), to the extent such Letters of Credit secure obligations
relating to any Industrial Covered Person or Shipbuilding Covered Person,
respectively, under the Retained Policies. The amount of the LC Maintenance
Fees for each Yearly Period which shall be the responsibility of Industrial
Company and Shipbuilding Company hereunder shall be based on the total
outstanding reserves showing on the books and records of CIGNA, as of February
28 during such Yearly Period, for claims by all Industrial Covered Persons,
Energy Covered Persons and Shipbuilding Covered Persons under the Retained
Policies relating to periods prior to the Termination Time (the "YEARLY TOTAL
RESERVES"). Industrial Company shall reimburse Tenneco hereunder for an amount
equal to the LC Maintenance Fees for each Yearly Period multiplied by a
fraction, (i) the numerator of which is equal to the outstanding reserves
showing on the books and records of CIGNA, as of February 28 during such
Yearly Period, for claims by all Industrial Covered Persons under the Retained
Policies relating to periods prior to the Termination Time, and (ii) the
denominator of which is equal to the Yearly Total Reserves for such Yearly
Period. Shipbuilding Company shall reimburse Tenneco hereunder for an amount
equal to the LC Maintenance Fees for each Yearly Period multiplied by a
fraction, (i) the numerator of which is equal to the outstanding reserves
showing on the books and records of CIGNA, as of February 28 during such
Yearly Period, for claims by all Shipbuilding Covered Persons under the
Retained Policies relating to periods prior to the Termination Time, and (ii)
the denominator of which is equal to the Yearly Total Reserves for such Yearly
Period.
ARTICLE VIII
MISCELLANEOUS
8.1 Termination. This Agreement may not be terminated except upon the
written agreement of each of the parties hereto.
8.2 Further Assurances. If at any time after the Distribution 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. If subsequent to
the Distribution Date any Policy showing any member of the Energy Group,
Industrial Group or Shipbuilding Group, or any of their respective
predecessors, as named insured is discovered which was in effect for periods
prior to the Termination Time and has not been addressed by the provisions of
this Agreement or the Merger Agreement, the parties hereto agree to negotiate
in good faith an arrangement with respect to such Policy which shall give, to
the fullest extent possible, effect to the purposes of this Agreement and the
transactions contemplated by the Distribution Agreement.
8.3 Cooperation. The parties hereto agree to use their reasonable best
efforts to cooperate with respect to the various insurance matters
contemplated by this Agreement. Each party hereto shall not (and shall not
permit any of its respective Covered Persons over which it has legal or
effective direct or indirect control to) take any action or permit any
inaction that could reasonably be expected to jeopardize or otherwise
interfere with the rights of any other party (or any of such other party's
respective Covered Persons) hereunder or the ability of
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any other party (or any of such other party's respective Covered Persons) to
collect any proceeds which might be available under any of the Policies
addressed herein in accordance with the terms of this Agreement.
8.4 No Representations and Warranties. The parties hereto understand and
agree that no representation or warranty as to the existence, applicability or
extent of insurance coverage for Energy, Industrial or Shipbuilding under any
Policy is herein being made.
8.5 Limitation on Liability. Except as may be otherwise expressly provided
for herein, no party hereto shall be liable hereunder to another party or any
of such other party's Covered Persons for claims not reimbursed by insurers
for any reason not within the control of such party including, without
limitation, coinsurance provisions, deductibles, quota share deductibles,
exhaustion of aggregates, self-insured retentions, bankruptcy or insolvency of
an insurance carrier, Policy limitations or restrictions, any coverage
disputes, any failure to timely claim or any defect in such claim or its
processing.
8.6 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.
8.7 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.
8.8 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.
8.9 Descriptive Headings. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
8.10 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 below:
TENNECO INC.: 1010 Milam Street
Houston, TX 77002
Attention: Corporate Secretary
INDUSTRIAL COMPANY: 1275 King Street
Greenwich, CT 06831
Attention: Corporate Secretary
SHIPBUILDING COMPANY: 4101 Washington Avenue
Newport News, VA 23607
Attention: Corporate Secretary
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.
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8.11 Survival. Each of the agreements of the parties herein shall survive
the Distribution Date.
8.12 No Third Party Beneficiaries. This Agreement is made solely for the
benefit of the parties hereto and their respective Covered Persons, and shall
not give rise to any rights of any kind to any other third parties.
8.13 Other. ALL QUESTIONS AND/OR DISPUTES CONCERNING THE CONSTRUCTION,
VALIDITY AND INTERPRETATION OF THIS AGREEMENT 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. This Agreement, together with the Distribution Agreement and
other Ancillary Agreements (as such term is defined in the Distribution
Agreement), constitutes the entire agreement and supersedes all other prior
and contemporaneous agreements and undertakings, both written and oral, among
the parties with respect to the subject matter hereof.
8.14 Sole Agent. In all matters relating to this Agreement, including the
resolution of any disputes relating to this Agreement between any members of
different Groups, (i) Tenneco shall be the sole agent for the members of the
Energy Group, (ii) Industrial Company shall be the sole agent for the members
of the Industrial Group, and (iii) Shipbuilding Company shall be the sole
agent for members of the Shipbuilding Group. No member of any Group shall have
any authority to represent itself in any such matter or to terminate such
agency without the prior written consent of each party hereto.
8.15 No Double Recovery. No provision of this Agreement shall be construed
to provide recovery to any Person for any costs, expenses or other amounts for
which such Person has been fully compensated under any other provision of this
Agreement, any other agreement or otherwise.
IN WITNESS WHEREOF, the parties have made and entered into this Insurance
Agreement as of the date first set forth above.
TENNECO INC.
By:__________________________________
Name:________________________________
Title:_______________________________
NEW TENNECO INC.
By:__________________________________
Name:________________________________
Title:_______________________________
NEWPORT NEWS SHIPBUILDING INC.
By:__________________________________
Name:________________________________
Title:_______________________________
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SCHEDULE A
TO INSURANCE AGREEMENT
CURRENT CLAIMS-MADE POLICIES
See attached (to be updated and made current as of the signing of the
Insurance Agreement).
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SCHEDULE B
TO INSURANCE AGREEMENT
CURRENT OCCURRENCE-BASED POLICIES
See attached (to be updated and made current as of the signing of the
Insurance Agreement). To the extent a policy listed herein has expired, this
schedule shall be deemed to refer to the successor policy thereto.
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SCHEDULE C
TO INSURANCE AGREEMENT
EASTERN POLICIES
(to be updated and made current as of the signing of the Insurance Agreement)
Eastern Insurance Company Limited Policy Number 95ED2501
Eastern Insurance Company Limited Contingent Liability Policies (policy
numbers not currently available)
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SCHEDULE D
TO INSURANCE AGREEMENT
CURRENT RETAINED POLICIES
See attached (to be updated and made current as of the signing of the
Insurance Agreement).
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SCHEDULE E
TO INSURANCE AGREEMENT
CURRENT TENNECO EXCLUSIVE POLICIES
See attached (to be updated and made current as of the signing of the
Insurance Agreement). To the extent a policy noted herein has expired, this
schedule shall be deemed to refer to the successor policy thereto.
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SCHEDULE 2.1-A
TO INSURANCE AGREEMENT
TRANSFERRED OCCURRENCE-BASED POLICIES
To be determined by Tenneco prior to execution of Insurance Agreement.
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SCHEDULE 2.1-B
TO INSURANCE AGREEMENT
CANCELLED OCCURRENCE-BASED POLICIES
To be determined by Tenneco prior to execution of Insurance Agreement.
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SCHEDULE 2.2-A
TO INSURANCE AGREEMENT
TRANSFERRED CLAIMS-MADE POLICIES
To be determined by Tenneco prior to execution of Insurance Agreement.
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<PAGE>
SCHEDULE 2.2-B
TO INSURANCE AGREEMENT
CANCELLED CLAIMS-MADE POLICIES
To be determined by Tenneco prior to execution of Insurance Agreement.
25
<PAGE>
SCHEDULE 7.1-A
TO INSURANCE AGREEMENT
LETTERS OF CREDIT CURRENTLY IN PLACE
Tenneco Inc. is presently maintaining letters of credit totalling
approximately $45 million to secure its obligations under the Retained
Policies. The letters of credit in effect as of the Distribution Date will be
listed hereon.
26
<PAGE>
SCHEDULE 7.1-B
TO INSURANCE AGREEMENT
SURETY BONDS CURRENTLY IN PLACE
Tenneco Inc. is presently obligated to indemnify the surety under various
performance bonds and other surety instruments which secure obligations
relating to Energy, Industrial and/or Shipbuilding. Bidder has been provided a
current list thereof. Such surety bonds in effect as of the Distribution Date
will be listed hereon.
27
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
TYPE OF COVERAGE POLICY NUMBER POLICY DATES UNDERWRITER LIMITS DEDUCTIBLES
---------------- ----------------- ------------ -------------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Excess Liability XLUMB 00912 9/1/95-96 XL Insurance Company $100,000,000 xs
Bermuda $100,000,000
Excess Liability UO5138609 9/1/95-96 OCIL
Excess Liability TGT 5035/4 9/1/95-96 ACE Insurance $200,000,000 xs
Company--Bermuda $300,000,000
Fiduciary Liability NIA 0120995-96 3/1/96-97 Reliance $50,000,000 $500,000
71FF 101007525BCM Aetna
8141-48-49-A Federal
ERISA Bond (Crime) 445-71-61 9/1/95-96 National Union Fire $15,000,000 NIL
(AIG)
</TABLE>
28
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
POLICY
TYPE OF COVERAGE NUMBER POLICY DATES UNDERWRITERS LIMITS DEDUCTIBLES
---------------- ------------ ------------ ------------------------ ---------------------- -----------------
<S> <C> <C> <C> <C> <C>
Excess Liability DL039795 9/1/95-96 Gerling-Konzern $10,000,000 xs
$10,000,000
Excess Liability BE8180249RA 9/1/95-96 American International $25,000,000 xs
(AIG) $20,000,000
Excess Liability 95ER2501 9/1/95-96 Eastern Insurance Co. $10,000,000 p/o
(Front for AME Re) $55,000,000 xs
$45,000,000
Excess Liability 8784725 9/1/95-96 Lexington $5,000,000 p/o
$55,000,000 xs
$45,000,000
Excess Liability CSR2839501 9/1/95-96 Fireman's Fund $20,000,000 p/o
$55,000,000 xs
$45,000,000
Excess Liability EU 08355330 9/1/95-96 Steadfast Zurich $20,000,000 p/o
$55,000,000 xs
$45,000,000
Automobile--Mexico HLN 00261 1/1/96-97 Serguros Commercial BI:$30,000/$60,000
America PD:$30,000
Aviation Hull & 87BVH-153922 7/1/94-97 Associated Aviation $100,000,000
Liability Underwriters Per Occurrence
Ocean Cargo EIPH1006 7/1/94-96 ESIS International, Inc. $10,000,000 $10,000,000
One Conveyance Per Occurrence
All Risk Property 213601-95 6/1/95-96 Protection Mutual $10,318,608,000 $5,000,000
Damage/Business Blanket Per Occurrence Per Occurrence
Interruption
(USA/Canada)
All Risk Property TBD 6/1/95-96 Royal Insurance $1,771,781,531 $75,000 PD
Damage/Business Blanket Per $150,000 BI
Interruption Occurrence Per Occurrence
(International)
Comprehensive Boiler & BMI-SA- 11/1/95-96 Hartford Steam Boiler $100,000,000 $5,000,000
Machinery Property 9138264-20 Per Accident Any One Accident
Damage/ Business
Interruption
Foreign Public & 62/99102/D 9/1/95-96 Gerling-Konzern $2,000,000 $5,000 Per Claim
Products Liability Per Occurrence $50,000 Pollution
Insurance
(Primary Cover)
Umbrella Excess W51010 9/1/95-96 Winterthur $8,000,000
Liability (Front for Eastern Any One Occurrence
Insurance Company) xs
$2,000,000
</TABLE>
29
<PAGE>
SCHEDULE D
<TABLE>
<CAPTION>
POLICY
TYPE OF COVERAGE NUMBER POLICY DATES UNDERWRITER LIMITS DEDUCTIBLES
---------------- ------------ ------------ --------------- ------------------ -----------
<S> <C> <C> <C> <C> <C>
Workers' Compensation CCSC6162624 9/1/95-96 CIGNA $2,000,000 $2,000,000
Texas--Ded
Workers' Compensation WLRC36163008 9/1/95-96 CIGNA $2,000,000 $2,000,000
NE--Ded
Workers' Compensation WLRC36162600 9/1/95-96 CIGNA $2,000,000 $2,000,000
Other States--Ded
Workers' Compensation CCSC36162624 9/1/95-96 CIGNA $2,000,000 $2,000,000
Retro
Workers' Compensation 1810017884 9/1/95-96 Maine Employers $100,000/$500,000/ $5,000
Maine Mutual $100,000
General Liability HDOG13214001 9/1/95-96 CIGNA $2,000,000 $2,000,000
Automobile Liability ISA042952 9/1/95-96 CIGNA $2,000,000 $2,000,000
Environmental HDCG13214013 9/1/95-96 CIGNA $1,000,000 $1,000,000
Automobile--Canada CAC391021 9/1/95-96 CIGNA $2,000,000 $2,000,000
General Liability-- CGL23835 9/1/95-96 CIGNA $2,000,000 $2,000,000
Canada
</TABLE>
30
<PAGE>
SCHEDULE E
<TABLE>
<CAPTION>
POLICY
TYPE OF COVERAGE NUMBER POLICY DATES UNDERWRITER LIMITS DEDUCTIBLES
---------------- ----------- --------------- ----------------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C>
Tenneco Gas Production JHB 503266 6/19/95-96 Sphere Drake $1,000,000 $5,000 Land
General Liability $10,000 Offshore
Tenneco Gas Production JHB 000297 6/19/95-96 Commercial Underwriters $5,000,000 xs
Excess Liability Ins. Co. $1,000,000
Tenneco Gas South 62/900194/D 7/24/95-1/24/97 Gerling Konzern $2,000,000 $10,000
Australia Construction
Risk Liability
Tenneco Gas Australia CXC 042840 7/24/95-1/24/97 CIGNA $8,000,000 xs
Construction Risk $2,000,000
Liability
Railroad Protective HDOG 8/1/95-96 CIGNA $2,000,000/ $2,000,000/
Bessemer & Lake Erie RR 13214025 $6,000,000 $6,000,000
Co.
Railroad Protective ORPG 8/1/95-96 CIGNA $2,000,000/ $2,000,000/
Boston & Marine Corp. 13214037 $6,000,000 $6,000,000
Railroad Protective ORP 4/8/96-97 CIGNA $2,000,000/ $2,000,000/
National RR Passenger G18967923 $6,000,000 $6,000,000
Corp. (AMTRAK)
Railroad Protective ORP 4/8/96-97 CIGNA $2,000,000/ $2,000,000/
Massachusetts Bay G18967881 $6,000,000 $6,000,000
Transp.
Michigan Production BE 9320742 4/26/96-97 National Union $10,000,000 $500,000
Company Fire Ins. Co. (AIG)
Owners & Contractors OCPG 10/10/95-96 CIGNA $500,000/ $500,000/
Protective Liability 14231298 $500,000 $500,000
Offshore Property/OEE MMA 95-126 7/27/95-96 SEC. IA SEC. IA SEC. IA
Package UNI 25.0% -- Per Schedule -- $5,000,000
SEC. 1A & B--OFFSHORE Gjensidige 15.0% Assured's Int. AOO
PROP. Vesta 15.0% SEC. IB
SEC. II--OEE Protector 10.5% -- Per Schedule SEC. IB
SEC. III--CHARTERER'S Commonwealth 3.0% -- $1,000,000
LIAB. Hull & Co. 5.0% SEC. II (100%)
C.T. Bowring 26.5% OEE $50,000,000 AOO
OCSLA $35,000,000
SEC. IB, II, & III CCC $5,000,000 SEC. II
Gjensidige 17.5% -- $200,000
Vesta 15.0% SEC. III (100%) AOO
Protector 16.0% -- $1,000,000
Commonwealth 20.0% OCSLA $200,000
Hull & Co. 5.0% (100%) Per Occ.
C.T. Bowring 26.5%
CCC $200,000
(100%) Per Occ.
SEC. III
-- $50,000
(100%) AOO
Construction All Risk HG 015595 10/5/95-10/1/96 National Vulcan Aus. $209,032,000 Aus. $30,000
Cornhill Ins. All Perils
SR International except:
Royal Insurance Global Aus. $250,000
Generali Windstorm, Flood,
SCOR and Earth Movement
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
POLICY
TYPE OF COVERAGE NUMBER POLICY DATES UNDERWRITER LIMITS DEDUCTIBLES
---------------- ------------ ------------ ------------------------------------- ------------------ --------------------
<S> <C> <C> <C> <C> <C>
Worker's Employer No. TBD TBD
Compensation E 1344308
South Australia
Employer Cost CPA 000134 7/31/95-96 CIGNA Maximum Weekly
Control Benefit: $500
Insurance
Professional 9517VK18625 7/28/95-96 HIH Casualty & General Insurance Ltd. TBD A $20,000
Indemnity each and every claim
Motor Vehicle MV 452743 7/31/95-96 CIC Insurance Own Damage:
$24,000
T/P Claim: $1,000
Each and Every Claim
Personal Accident 5 011 9265 9/1/95-96 CIGNA PERSONAL ACCIDENT:
Insurance GBP 2,500,000
Any One Claim or
Series of Claims
Arising Out of
Single Incident
GBP 900,000
Per Person Any
One Claim
MEDICAL EXPENSES:
GBP 75,000
Per Event and
Per Person
Increased to
GBP 500,000
Per Event and
Per Person for
Claims Arising in
USA/Canada
RESCUE
Unlimited
</TABLE>
32
<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) 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 (iii) 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.
4
<PAGE>
"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.
5
<PAGE>
"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.
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 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
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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 (ii) the date of receipt by Industrial Company
or Shipbuilding Company (as applicable) of a written notice
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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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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
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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
21
<PAGE>
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.
22
<PAGE>
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>
EXHIBIT 10.5
EXHIBIT Q
TO
DISTRIBUTION
AGREEMENT
TRADEMARK TRANSITION LICENSE AGREEMENT
Agreement made as of , ("Effective Date") by and between
[Industrial Company], a corporation organized and existing under the laws of
the State of Delaware, whose principal place of business is located at 1275
King St., Greenwich, CT 06831-2946, hereinafter referred to as Licensor, and
[Newport News Shipbuilding and Drydock Company], a corporation organized under
the laws of the State of Virginia, whose principal place of business is
located at 4101 Washington Avenue, Newport News, Virginia 23607, hereinafter
referred to as Licensee,
Whereas, Licensor has adopted and is using the name and mark "Tenneco",
alone and in combination with other terms and/or symbols and variations
thereof including "Tenn-Speed", "Tenn-Speed 2" and "Tennnet", in the United
States and elsewhere throughout the world and is the owner of the U.S.
Trademark Applications and the U.S. Trademark Registrations, listed on Exhibit
A of this Agreement, from the United States Patent and Trademark Office,
(hereinafter collectively referred to as the "Trademark"); and
Whereas, Licensee is desirous of using said Trademark with respect to the
goods and services listed on Exhibit B, to assist Licensee in its transition
to a new identity and for the limited purposes more fully described below;
Now, therefore, in consideration of the foregoing Recitals which are hereby
incorporated into the operative terms hereof, the mutual promises contained in
this Agreement and good and valuable consideration from the Licensee to the
Licensor, the receipt and sufficiency of which is hereby acknowledged by said
Licensor, the parties hereby agree as follows:
1. License. Licensor grants to Licensee and its subsidiary companies the
limited, non-exclusive right to use the Trademark under the common law and
under the auspices and privileges provided by any of the registrations
covering the same during the term of this Agreement, and Licensee hereby
undertakes to use the Trademark as follows:
a. For a period of 30 days following the Effective Date of this
Agreement, Licensee may use the Trademark in its corporate name. After 30
days following the Effective Date of this Agreement, Licensee shall change,
if necessary, its corporate name to delete the Trademark or any other word
that is confusingly similar to the Trademark (except the word "Tennessee");
b. For a period of six (6) months following the Effective Date of this
Agreement, Licensee shall be entitled to use its existing supplies and
documents which have imprinted thereon the Trademark to the extent that
such supplies and documents were existing inventory prior to the Effective
Date of this Agreement. Licensee shall not print any new supplies or
documents bearing the Trademark as of the Effective Date of this Agreement.
c. For a period of one year from the Effective Date of this Agreement,
Licensee may use the Trademark on existing signs, displays or other
identifications or advertising material (except as limited in b above).
Licensee shall not prepare or install any new signs, displays or other
identifications or advertising material bearing the Trademark. Licensee
shall remove any and all references to the Trademark from any and all
signs, displays or other identifications or advertising material by the end
of the one year period.
2. Quality of Services. Licensee agrees to maintain such quality standards
as shall be prescribed by Licensor in the conduct of the business operations
with which the Trademark is used. Licensee shall use the Trademark only with
goods and services listed in Exhibit B rendered by Licensee in accordance with
the terms of this
1
<PAGE>
agreement and with the guidance and directions furnished to the Licensee by
the Licensor, or its authorized representatives or agents, from time to time,
if any; but always the quality of the goods and services shall be satisfactory
to the Licensor or as specified by it.
3. Inspection. Licensee will permit duly authorized representatives of the
Licensor to inspect the premises of Licensee using the Trademarks at all
reasonable times, for the purpose of ascertaining or determining compliance
with Paragraphs 1 and 2 hereof.
4. Use of Trademark. When using the Trademark under this Agreement, Licensee
undertakes to comply substantially with all laws pertaining to the Trademark.
This provision includes compliance with marking requirements. Licensee
represents and warrants that all goods and services to be sold under the
Trademark and the marketing, sales, and distribution of them shall meet or
exceed all federal, state, and local laws, ordinances, standards, regulations,
and guidelines pertaining to such products or activities, including, but not
limited to, those pertaining to product safety, quality, labeling and
propriety. Licensee agrees that it will not package, market, sell, or
distribute any goods or services or cause or permit any goods or services to
be packaged, marketed, sold, or distributed in violation of any such federal,
state, or local law, ordinance, standard, regulation, or guideline.
5. Extent of License. The license granted herein is for the sole purpose of
assisting Licensee in its transition to a new identity and is not assignable
or transferable in any manner whatsoever. Licensee has no right to grant any
sublicenses or to use the Trademark for any other purpose.
6. Indemnity. Licensee acknowledges that it will have no claims against
Licensor for any damage to property or injury to persons arising out of the
operation of Licensee's business. Licensee agrees to indemnify, hold harmless,
and defend Licensor and its subsidiaries and its authorized representatives
with legal counsel acceptable to Licensor from and against any and all
demands, claims, injuries, losses, damages, actions, suits, causes of action,
proceedings, judgments, liabilities and expenses, including attorneys' fees,
court costs and other legal expenses, arising out of or connected with:
a. Licensee's use of the Trademark; or
b. any breach by Licensee of any provision of this Agreement or of any
warranty made by Licensee in this Agreement.
No approval by Licensor of any action by Licensee shall affect any right of
Licensor to indemnification hereunder.
7. Termination. Except as otherwise provided herein, this Agreement shall
remain in full force and effect for the periods stated in Paragraph 1, above.
However, Licensor retains the right to immediately terminate this Agreement in
the event of a material breach of any term of this Agreement by Licensee, upon
written notice to the Licensee.
8. Ownership of Trademark. The Licensee acknowledges Licensor's exclusive
right, title and interest in and to the Trademark and will not at any time do
or cause to be done any act or thing contesting or in any way impairing or
tending to impair any part or all of such right, title and interest. In
connection with the use of the Trademark, Licensee shall not in any manner
represent that it has any ownership in the Trademark or registrations thereof,
and acknowledges that use of the Trademark shall enure to the benefit of the
Licensor. On termination of this Agreement or any portion thereof in any
manner provided herein, the Licensee will destroy all signs, displays or other
identifications or advertising material, supplies and documents, and any other
materials bearing the Trademark and will certify to Licensor in writing that
it has done so. Furthermore, Licensee will not at any time adopt or use
without the Licensor's prior written consent, any word or mark which is likely
to be similar to or confusing with the Trademark (except the word
"Tennessee").
9. Infringement of Trademark. If Licensee learns of any actual or threatened
infringement of the Trademark or of the existence, use, or promotion of any
mark or design similar to the Trademark, Licensee shall promptly notify
Licensor. Licensor has the right to decide at its sole discretion what legal
proceedings or other action, if
2
<PAGE>
any, shall be taken, by who, how such proceedings or other action shall be
conducted, and in whose name such proceedings or other action shall be
performed. Any legal proceedings instituted pursuant to this Section shall be
for the sole benefit of Licensor and all sums recovered in such proceedings,
whether by judgment, settlement, or otherwise, shall be retained solely and
exclusively by Licensor.
10. Injunctive Relief. Licensee acknowledges that any breach or threatened
breach of any of Licensee's covenants in this Agreement relating to the
Trademark, including, without limitation, Licensee's failure to cease the
manufacture, sale, marketing, or distribution of the goods bearing the
Trademark at the termination or expiration of this Agreement will result in
immediate and irreparable damage to Licensor and to the rights of any
subsequent Licensee of them. Licensee acknowledges and admits that there is no
adequate remedy at law for failure to cease such activities, and Licensee
agrees that in the event of such breach or threatened breach, Licensor shall
be entitled to temporary and permanent injunctive relief and such other relief
as any court with jurisdiction may deem just and proper.
11. Severability. If any provision of this Agreement shall be determined to
be illegal and unenforceable by any court of law or any competent government
or other authority, the remaining provisions shall be severable and
enforceable in accordance with their terms so as this Agreement without such
terms or provisions does not fail of its essential purpose or purposes. The
parties will negotiate in good faith to replace any such illegal or
unenforceable provision or provisions with suitable substitute provisions
which maintain the economic purposes and intentions of this Agreement.
12. Notice. Any notices required or permitted to be given under this
Agreement shall be deemed sufficiently given if mailed by registered mail,
postage prepaid, addressed to the party to be notified at its address shown
above, (followed by facsimile) or at such other address as may be furnished in
writing to the notifying party.
13. Miscellaneous.
a. Captions. The captions for each Section have been inserted for the
sake of convenience and shall not be deemed to be binding upon the parties
for the purpose of interpretation of this Agreement.
b. Interpretation. The parties agree that each party and its counsel has
reviewed this Agreement and the normal rule of construction that any
ambiguities are to be resolved against the drafting party shall not be
employed in the interpretation of this Agreement.
c. Waiver. The failure of Licensor to insist in any one or more instances
upon the performance of any term, obligation, or condition of this
Agreement by Licensee or to exercise any right or privilege herein
conferred upon Licensor shall not be construed as thereafter waiving such
term, obligation, or condition, or relinquishing such right or privilege,
and the acknowledged waiver or relinquishment by Licensor of any default or
right shall not constitute waiver of any other default or right. No waiver
shall be deemed to have been made unless expressed in writing.
d. Time of Essence. Time is of the essence with respect to the
obligations to be performed under this Agreement, and Licensee shall use
its best efforts to transition all existing materials, including signs and
displays, bearing the Trademark to a new name and mark.
e. Rights Cumulative. Except as expressly provided in this Agreement, and
to the extent permitted by law, any remedies described in this Agreement
are cumulative and not alternative to any other remedies available at law
or in equity.
3
<PAGE>
f. Governing Law and Consent to Jurisdiction. ALL QUESTIONS AND/OR
DISPUTES CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS
AGREEMENT 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.
Attest: LICENSOR
- -------------------------------
By: _________________________________
Attest:
- ------------------------------- LICENSEE
By: _________________________________
4
<PAGE>
EXHIBIT "A"
<TABLE>
<CAPTION>
REGISTRATION EXPIRATION
TRADEMARK NO. DATE
--------- ------------ -----------
<S> <C> <C>
Tenneco 1050475 19OC1996
Tenneco 866995 25MR2009
Tenneco 823408 31JA2007
Tenneco 786614 16MR2005
Tenneco 783055 12JA2005
Tenneco 827435 18AP2007
Tenneco 1250178 06SE2003
Tenneco 1251601 20SE2003
Tenneco 1310943 25DE2004
Tenneco 1930571 31OC2005
Tenneco 1917869 12SE2005
Tennnet 1956845 13FE2006
Tennnet 1929997 24OC2005
Tenneco & Shield 831633 14JL2007
Tenneco & Shield 857262 24SE1998
Tenneco & Shield 823409 31JA2007
Tenneco & Shield 827436 18AP2007
Tenneco & Shield 786595 16MR2005
Tenneco & Shield 786984 23MR2005
Tenneco & Shield 1250177 06SE2003
Tenneco & Shield 1236187 03MY2003
Tenneco & Shield 1310944 25DE2004
Tenneco & Shield 1614779 25SE2000
Tenn-Speed 1542283 06JU2009
Tenn-Speed 2 1841694 28JU2004
Tenn-Speed 2 1855752 27SE2004
<CAPTION>
APPLICATION APPLICATION
TRADEMARK NO. DATE
--------- ------------ -----------
<S> <C> <C>
Tenneco 731906 13SE1995
Tenneco 521074 09MY1994
Tenneco & Horizon 731464 13SE1995
</TABLE>
5
<PAGE>
EXHIBIT B
Ships
Custom and naval shipbuilding, drydock and ship repair services.
Naval architectural design.
6
<PAGE>
EXHIBIT P
TO
DISTRIBUTION
AGREEMENT
TRADEMARK TRANSITION LICENSE AGREEMENT
Agreement made as of , ("Effective Date") by and between
[Industrial Company], a corporation organized and existing under the laws of
the State of Delaware, whose principal place of business is located at 1275
King St., Greenwich, CT 06831-2946, hereinafter referred to as Licensor, and
Tenneco Inc., a corporation organized under the laws of the State of Delaware,
whose principal place of business is located at 1010 Milam St., Houston, TX
77002, hereinafter referred to as Licensee,
Whereas, Licensor has adopted and is using the name and mark "Tenneco",
alone and in combination with other terms and/or symbols and variations
thereof including "Tenn-Speed", "Tenn-Speed 2" and "Tennnet", in the United
States and elsewhere throughout the world and is the owner of the U.S.
Trademark Applications and the U.S. Trademark Registrations, listed on Exhibit
A of this Agreement, from the United States Patent and Trademark Office,
(hereinafter collectively referred to as the "Trademark"); and
Whereas, Licensee is desirous of using said Trademark with respect to the
goods and services listed on Exhibit B, to assist Licensee in its transition
to a new identity and for the limited purposes more fully described below;
Now, therefore, in consideration of the foregoing Recitals which are hereby
incorporated into the operative terms hereof, the mutual promises contained in
this Agreement and good and valuable consideration from the Licensee to the
Licensor, the receipt and sufficiency of which is hereby acknowledged by said
Licensor, the parties hereby agree as follows:
1. License. Licensor grants to Licensee and its subsidiary companies the
limited, non-exclusive right to use the Trademark under the common law and
under the auspices and privileges provided by any of the registrations
covering the same during the term of this Agreement, and Licensee hereby
undertakes to use the Trademark as follows:
a. For a period of 30 days following the Effective Date of this
Agreement, Licensee may use the Trademark in its corporate name. After 30
days following the Effective Date of this Agreement, Licensee shall change,
if necessary, its corporate name to delete the Trademark or any other word
that is confusingly similar to the Trademark (except the word "Tennessee");
b. For a period of six (6) months following the Effective Date of this
Agreement, Licensee shall be entitled to use its existing supplies and
documents which have imprinted thereon the Trademark to the extent that
such supplies and documents were existing inventory prior to the Effective
Date of this Agreement. Licensee shall not print any new supplies or
documents bearing the Trademark as of the Effective Date of this Agreement.
c. For a period of two years from the Effective Date of this Agreement,
Licensee may use the Trademark on existing signs, displays or other
identifications or advertising material (except as limited in b above).
Licensee shall not prepare or install any new signs, displays or other
identifications or advertising material bearing the Trademark. Licensee
shall remove any and all references to the Trademark from any and all
signs, displays or other identifications or advertising material by the end
of the two year period.
2. Quality of Services. Licensee agrees to maintain such quality standards
as shall be prescribed by Licensor in the conduct of the business operations
with which the Trademark is used. Licensee shall use the Trademark only with
goods and services listed in Exhibit B rendered by Licensee in accordance with
the terms of this agreement and with the guidance and directions furnished to
the Licensee by the Licensor, or its authorized representatives or agents,
from time to time, if any; but always the quality of the goods and services
shall be satisfactory to the Licensor or as specified by it.
1
<PAGE>
3. Inspection. Licensee will permit duly authorized representatives of the
Licensor to inspect the premises of Licensee using the Trademarks at all
reasonable times, for the purpose of ascertaining or determining compliance
with Paragraphs 1 and 2 hereof.
4. Use of Trademark. When using the Trademark under this Agreement, Licensee
undertakes to comply substantially with all laws pertaining to the Trademark.
This provision includes compliance with marking requirements. Licensee
represents and warrants that all goods and services to be sold under the
Trademark and the marketing, sales, and distribution of them shall meet or
exceed all federal, state, and local laws, ordinances, standards, regulations,
and guidelines pertaining to such products or activities, including, but not
limited to, those pertaining to product safety, quality, labeling and
propriety. Licensee agrees that it will not package, market, sell, or
distribute any goods or services or cause or permit any goods or services to
be packaged, marketed, sold, or distributed in violation of any such federal,
state, or local law, ordinance, standard, regulation, or guideline.
5. Extent of License. The license granted herein is for the sole purpose of
assisting Licensee in its transition to a new identity and is not assignable
or transferable in any manner whatsoever. Licensee has no right to grant any
sublicenses or to use the Trademark for any other purpose.
6. Indemnity. Licensee acknowledges that it will have no claims against
Licensor for any damage to property or injury to persons arising out of the
operation of Licensee's business. Licensee agrees to indemnify, hold harmless,
and defend Licensor and its subsidiaries and its authorized representatives
with legal counsel acceptable to Licensor from and against any and all
demands, claims, injuries, losses, damages, actions, suits, causes of action,
proceedings, judgments, liabilities and expenses, including attorneys' fees,
court costs and other legal expenses, arising out of or connected with:
a. Licensee's use of the Trademark; or
b. any breach by Licensee of any provision of this Agreement or of any
warranty made by Licensee in this Agreement.
No approval by Licensor of any action by Licensee shall affect any right of
Licensor to indemnification hereunder.
7. Termination. Except as otherwise provided herein, this Agreement shall
remain in full force and effect for the periods stated in Paragraph 1, above.
However, Licensor retains the right to immediately terminate this Agreement in
the event of a material breach of any term of this Agreement by Licensee, upon
written notice to the Licensee.
8. Ownership of Trademark. The Licensee acknowledges Licensor's exclusive
right, title and interest in and to the Trademark and will not at any time do
or cause to be done any act or thing contesting or in any way impairing or
tending to impair any part or all of such right, title and interest. In
connection with the use of the Trademark, Licensee shall not in any manner
represent that it has any ownership in the Trademark or registrations thereof,
and acknowledges that use of the Trademark shall enure to the benefit of the
Licensor. On termination of this Agreement or any portion thereof in any
manner provided herein, the Licensee will destroy all signs, displays or other
identifications or advertising material, supplies and documents, and any other
materials bearing the Trademark and will certify to Licensor in writing that
it has done so. Furthermore, Licensee will not at any time adopt or use
without the Licensor's prior written consent, any word or mark which is likely
to be similar to or confusing with the Trademark (except the word
"Tennessee").
9. Infringement of Trademark. If Licensee learns of any actual or threatened
infringement of the Trademark or of the existence, use, or promotion of any
mark or design similar to the Trademark, Licensee shall promptly notify
Licensor. Licensor has the right to decide at its sole discretion what legal
proceedings or other action, if any, shall be taken, by who, how such
proceedings or other action shall be conducted, and in whose name such
proceedings or other action shall be performed. Any legal proceedings
instituted pursuant to this Section shall be for the sole benefit of Licensor
and all sums recovered in such proceedings, whether by judgment, settlement,
or otherwise, shall be retained solely and exclusively by Licensor.
2
<PAGE>
10. Injunctive Relief. Licensee acknowledges that any breach or threatened
breach of any of Licensee's covenants in this Agreement relating to the
Trademark, including, without limitation, Licensee's failure to cease the
manufacture, sale, marketing, or distribution of the goods bearing the
Trademark at the termination or expiration of this Agreement will result in
immediate and irreparable damage to Licensor and to the rights of any
subsequent Licensee of them. Licensee acknowledges and admits that there is no
adequate remedy at law for failure to cease such activities, and Licensee
agrees that in the event of such breach or threatened breach, Licensor shall
be entitled to temporary and permanent injunctive relief and such other relief
as any court with jurisdiction may deem just and proper.
11. Severability. If any provision of this Agreement shall be determined to
be illegal and unenforceable by any court of law or any competent government
or other authority, the remaining provisions shall be severable and
enforceable in accordance with their terms so as this Agreement without such
terms or provisions does not fail of its essential purpose or purposes. The
parties will negotiate in good faith to replace any such illegal or
unenforceable provision or provisions with suitable substitute provisions
which maintain the economic purposes and intentions of this Agreement.
12. Notice. Any notices required or permitted to be given under this
Agreement shall be deemed sufficiently given if mailed by registered mail,
postage prepaid, addressed to the party to be notified at its address shown
above, (followed by facsimile) or at such other address as may be furnished in
writing to the notifying party.
13. Miscellaneous.
a. Captions. The captions for each Section have been inserted for the sake
of convenience and shall not be deemed to be binding upon the parties for the
purpose of interpretation of this Agreement.
b. Interpretation. The parties agree that each party and its counsel has
reviewed this Agreement and the normal rule of construction that any
ambiguities are to be resolved against the drafting party shall not be
employed in the interpretation of this Agreement.
c. Waiver. The failure of Licensor to insist in any one or more instances
upon the performance of any term, obligation, or condition of this Agreement
by Licensee or to exercise any right or privilege herein conferred upon
Licensor shall not be construed as thereafter waiving such term, obligation,
or condition, or relinquishing such right or privilege, and the acknowledged
waiver or relinquishment by Licensor of any default or right shall not
constitute waiver of any other default or right. No waiver shall be deemed to
have been made unless expressed in writing.
d. Time of Essence. Time is of the essence with respect to the obligations
to be performed under this Agreement, and Licensee shall use its best efforts
to transition all existing materials, including signs and displays, bearing
the Trademark to a new name and mark.
e. Rights Cumulative. Except as expressly provided in this Agreement, and to
the extent permitted by law, any remedies described in this Agreement are
cumulative and not alternative to any other remedies available at law or in
equity.
Attest: LICENSOR
- -------------------------------
By: _________________________________
Attest:
- ------------------------------- LICENSOR
By: _________________________________
3
<PAGE>
EXHIBIT "A"
<TABLE>
<CAPTION>
REGISTRATION EXPIRATION
TRADEMARK NO. DATE
--------- ------------ -----------
<S> <C> <C> <C>
Tenneco 1050475 19OC1996
Tenneco 866995 25MR2009
Tenneco 823408 31JA2007
Tenneco 786614 16MR2005
Tenneco 783055 12JA2005
Tenneco 827435 18AP2007
Tenneco 1250178 06SE2003
Tenneco 1251601 20SE2003
Tenneco 1310943 25DE2004
Tenneco 1930571 31OC2005
Tenneco 1917869 12SE2005
Tennnet 1956845 13FE2006
Tennnet 1929997 24OC2005
Tenneco & Shield 831633 14JL2007
Tenneco & Shield 857262 24SE1998
Tenneco & Shield 823409 31JA2007
Tenneco & Shield 827436 18AP2007
Tenneco & Shield 786595 16MR2005
Tenneco & Shield 786984 23MR2005
Tenneco & Shield 1250177 06SE2003
Tenneco & Shield 1236187 03MY2003
Tenneco & Shield 1310944 25DE2004
Tenneco & Shield 1614779 25SE2000
Tenn-Speed 1542283 06JU2009
Tenn-Speed 2 1841694 28JU2004
Tenn-Speed 2 1855752 27SE2004
<CAPTION>
APPLICATION APPLICATION
TRADEMARK NO. DATE
--------- ------------ ----------- ---
<S> <C> <C> <C>
Tenneco 731906 13SE1995
Tenneco 521074 09MY1994
Tenneco & Horizon 731464 13SE1995
</TABLE>
4
<PAGE>
EXHIBIT B
Natural gas.
Business management and planning services in the field of natural gas,
liquefied natural gas, power generation and cogeneration projects; and
economic analysis.
Telephone calling card services.
Computer programs for use as an interactive request system for the
transportation and exchange of natural gas.
Books, brochures, printed instructional materials and computer manuals in
the field of computer programs which are used as an interactive request system
for the transportation and exchange of natural gas.
Management of construction.
Telecommunications services.
Transportation by pipeline and storage of natural gas, and transmission of
oil or gas through pipelines.
Educational services, namely conducting classes, conferences, and workshops,
regarding the training of others in the operation, maintenance, and management
of facilities relating to the natural gas industry, natural gas pipelines,
natural gas and liquefied natural gas facilities, and cogeneration and power
generation stations.
Engineering and drafting services; technical consulting in the field of
energy; and inspection and supervision of maintenance services provided by
others.
Ships
Custom and naval shipbuilding, drydock and ship repair services.
Naval architectural design.
5
<PAGE>
EXHIBIT 10.8
------------
9-16-96
TENNECO INC. BOARD OF DIRECTORS
DEFERRED COMPENSATION PLAN
(Tenneco Inc. 1988 Board of Directors Deferred Compensation
Plan as amended and restated to new Tenneco plan)
1. Purpose. Each member of the Board of Directors of Tenneco Inc., (the
"Board") who is not also an employee of Tenneco Inc. (the "Company") or any
of its subsidiaries, is entitled to receive compensation ("Director's
Compensation") from the Company for service on the Board and, if
applicable, on one or more of the committees of the Board and/or on the
Board of Managers of the Tenneco Foundation. Generally, Director's
Compensation is paid on a current basis. It is the purpose of this plan to
provide a method to defer the payment of Director's Compensation, with
deferred compensation subject to adjustment for changes in the consumer
price index and crediting of interest during the period of deferral, in
order to enhance the ability of the Company to attract and retain
individuals of experience, ability, industry, loyalty and inventiveness to
serve on the Board.
2. Participation. Any director of the Company who is not also a salaried
employee of the Company or any of its subsidiaries may become a Participant
in this Plan by electing to defer all or any portion of Director's
Compensation otherwise payable for a particular calendar year (the
"Deferred Year"). Such election shall be made in writing and in such form
as shall be approved for such purpose by the Senior Vice President - Human
Resources of the Company, which form shall, among other things, specify:
the Deferred
<PAGE>
Year; the amount of Director's Compensation to be deferred; the time at
which distribution of the Participant's Account for the Deferred Year shall
commence; and the form of distribution. To be effective, the completed
election form must be filed with the Senior Vice President - Human
Resources of the Company prior to the first day of the Deferred Year. The
election shall be irrevocable upon being so filed.
3. Accounting. The Company shall establish a Director's deferred compensation
ledger under which a Participant's Account for the Deferred Year shall be
created in the name of each participant who elects to defer Director's
Compensation for a particular Deferred Year. Each Participant's Account
for a Deferred Year shall be maintained in accordance with the following
rules:
a. Crediting of Deferred Director's Compensation. Director's
Compensation deferred pursuant to this Plan shall be credited to the
Participant's Account for the Deferred Year as of the last day of the
month within the Deferred Year during which the compensation would
otherwise have been payable.
b. Interest. As of the last day of a calendar year during which the
Participant serves as a Director of the Company and which coincides
with or follows the Deferred Year, interest for the calendar year
shall be credited to the Participant's Account for the Deferred Year
in an amount equal to the product obtained by multiplying the average
monthly closing balance of the Account during the calendar year by the
Prime Interest Rate announced by the Chase Manhattan Bank, N.A., as in
<PAGE>
effect on the last business day of the calendar year.
c. CPI Adjustment. As soon as administratively feasible following the
completion of a calendar year, during which the Participant serves as
a Director of the Company and which coincides with or follows the
Deferred Year, and following the announcement by the Bureau of Labor
Statistics of the Consumer Price Index for All Urban Households (the
"CPI") for the last day of the calendar year, a CPI Adjustment to the
Participant's Account for the Deferred Year shall be calculated by
multiplying (i) the percentage change in the CPI for the last day of
the calendar year, from the CPI for the last day of the preceding
calendar year, times (ii) the amount of Director's Compensation
credited to the Account as of the last day of the Deferred Year. To
the extent allowable, the CPI Adjustment shall be credited to (or if
negative, debited from) the Participant's Account for the Deferred
Year as of the first day of the succeeding calendar year. For
purposes of the foregoing, no CPI Adjustment to a Participant's
Account for the Deferred Year shall be allowable to the extent that
such adjustment, when added to all previous CPI Adjustments to the
Account, would exceed the amount of Director's Compensation credited
to the Account as of the last day of the Deferred Year.
d. Debiting of Distribution. Any distribution from a Participant's
Account for a Deferred Year that is made during a month shall be
debited prior to calculating the closing balance of the Account for
the month.
<PAGE>
e. Statement. The Company shall furnish each Participant with an
annual statement showing the closing balance for the respective
calendar year of each Participant's Accounts.
4. Distribution From Account
a. Form of Distribution. Distribution of a Participant's Account for a
Deferred Year shall be made in whichever of the following payment
forms was designated by the Participant in the election form which
deferred Director's Compensation to the Account:
1. Single sum;
2. Two annual installments;
3. Three annual installments;
4. Four annual installments; or
5. Five annual installments.
The amount of any installment shall be determined by dividing the net
balance of the Participant's Account for the Deferred Year by the number of
installments then unpaid.
b. Payment Date. Distribution of a Participant's Account for a Deferred Year
shall commence as soon as administratively feasible following the earliest
of (i) the expiration of the month during which the Participant attains age
seventy-four, (ii) the expiration of
<PAGE>
the calendar year during which the Participant ceases to be a director of
the Company, or (iii) the date for commencement of payment designated in
the election form which deferred Director's Compensation to the Account.
If an installment type payment form has been designated, each subsequent
installment shall be made as soon as administratively feasible in the
calendar year in which such installment falls due.
c. Designation of Beneficiary. A Participant may at any time designate the
beneficiary or beneficiaries to whom any payment made from the
Participant's Accounts shall be made after the Participant's death. Such
designation shall be in writing and shall not become effective until filed
with the Senior Vice President - Human Resources of the Company. If no
designation is on file with the Senior Vice President - Human Resources of
the Company or if the person so designated is not living or otherwise in
existence at the time of the Participant's death, then the deceased
Participant's estate shall be deemed to be the Participant's designated
beneficiary. If the designated beneficiary survives the Participant's
death but dies thereafter before all distributions from the Participant's
Accounts have been made, any remaining distribution shall be made to the
estate of the designated beneficiary. Distribution of a Participant's
Account for a Deferred Year to the designated beneficiary or the estate of
the designated beneficiary shall be made in such payment form and at such
time as has been designated by the Participant in the election form which
deferred Director's Compensation to the Account.
5. Nature and Source of Payments. Any amount credited by the Company to
Participant's Accounts shall constitute a liability of the Company to the
Participant or, after the
<PAGE>
Participant's death, to the designated beneficiary. Any payment with
respect to a Participant's Accounts shall be made from the general funds of
the Company. No special or separate fund shall be established or
segregation of assets made to assure such payment and no Participant and/or
designated beneficiary shall have any interest in any particular asset of
the Company by virtue of the existence of a credit balance in the
Participant's Accounts.
6. Administration. The Board has authorized the Senior Vice President - Human
Resources of the Company to administer, construe and interpret this Plan
and his construction and interpretation of any provision of this Plan shall
be final, conclusive and binding upon the Company and any Participant
and/or designated beneficiary. The Senior Vice President - Human Resources
of the Company shall not be liable for any act done or determination made
in good faith.
7. Non-Alienation of Benefits. No benefit under this Plan shall be subject
in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, or charge, and any attempt at such shall be void.
Benefits under this Plan shall not in any way be subject to the debts,
contracts, liabilities, engagements, or torts of the person who shall be
entitled to the payment thereof, nor shall such benefits be subject to
attachment, garnishment, or legal process for or against such person.
8. Plan Amendment or Termination. The Board may terminate this Plan at any
time or may amend or modify this Plan at any time and from time to time;
provided, however, that the
<PAGE>
amendment or termination of this Plan shall in no way affect the right of a
Participant and/or, following the Participant's death, the designated
beneficiary to the receipt of the then credit balances of the Participant's
Accounts, plus subsequent interest crediting and CPI Adjustments.
<PAGE>
EXHIBIT 10.9
------------
TENNECO INC.
------------
EXECUTIVE INCENTIVE COMPENSATION PLAN
-------------------------------------
PLAN DOCUMENT
-------------
Adopted: April 1 , 1975
Amended: March 4, 1981
Amended: March 1, 1986
Amended: July 31, 1986
Amended: January 1, 1993
Amended: March 14, 1995
<PAGE>
TENNECO INC.
------------
EXECUTIVE INCENTIVE COMPENSATION PLAN
-------------------------------------
Section 1. Establishment and Purpose
1.1 Establishment of the Plan. Tenneco Inc. hereby establishes
the "TENNECO INC. EXECUTIVE INCENTIVE COMPENSATION PLAN" (the "Plan"), set
forth herein, effective January 1, 1975.
1.2 Purpose. The objectives of the Plan are to:
(a) Reinforce a results-oriented management culture with executive
pay that varies according to corporate, division, and individual performance
against extraordinarily aggressive goals.
(b) Provide incentives, in the form of substantial reward
potential, for executives to remain employees of the Company.
(c) Focus on business results that include financial measures such
as net income, cash flow, and economic value added (EVA) with improvement in
cost of quality, safety, environmental, risk management, effective leadership
and equal employment opportunities performance.
(d) De-emphasize fixed compensation in the form of base salary and
place greater emphasis on variable performance-based compensation.
(e) Provide key executives with competitive levels of total
current compensation and incentive earning opportunities commensurate with the
results achieved and individual performance.
(f) Provide plans that are simple and easy to describe and
understand.
Section 2. Plan Definitions
(a) Company means Tenneco Inc. and any successor employer which
adopts the Plan and any subsidiary corporation designated by the Board as
eligible to participate in the Plan; except that when used with reference to
authority under this Plan, Company shall mean Tenneco Inc. exclusively.
(b) Board means the Board of Directors of the Company.
<PAGE>
(c) Compensation and Benefits Committee means those members of
the Compensation and Benefits Committee of the Board who are not employees of
the Company. This Committee is charged with the overall responsibility for
this Plan.
(d) Corporate means the entity which is responsible for the overall
management and staff support functions of the Company.
(e) Division means each operating organizational entity which,
through the conduct of its business, produces revenues for the Company.
(f) Executive means a regular, full-time salaried employee of the
Company who is in a position meeting the defined eligibility criteria for
participation in the Plan.
(g) Participant means an executive who has been approved for
participation in the Plan.
(h) Effective Date means January 1, 1975.
(i) Plan Year means the calendar year.
(j) Salary Grade means the position classification assigned to the
Participant in accordance with the position evaluation system adopted by
Tenneco Management for Plan purposes.
(k) EICP Objectives means the "Target" (Budget) level of financial
objectives (e.g., net income, cash flow, and economic value added (EVA)) or
other operating measurements for the Plan Year, assigned annually by the
Company to each Division. This represents the expected level of achievement
for the Plan Year. The target goal (budget) for Corporate will be the
Company's consolidated operating measurements.
(l) Individual Incentive Target Award means the anticipated
individual incentive award to be allocated to a Participant in the event EICP
objectives are met and his/her individual performance is fully satisfactory.
The schedule of individual incentive target awards applicable to the various
salary grades shall be determined by the Company.
Section 3. Eligibility and Participation
3.1 Eligibility and Participation. Eligibility for participation
in the Plan will be limited to those key executives who, by the nature and
scope of their positions, regularly and directly make or influence policy
decisions which significantly impact the overall results or success of the
Company. The Company will receive recommendations for participation from
Division Chief Executive Officers and appropriate Corporate Staff Officers.
Each such nominated executive shall become a Participant upon being approved
<PAGE>
by the Company. All such executives approved for participation shall be notified
of their selection as soon as practical following approval.
3.2 Cessation of Participation. The Company may withdraw its
approval of an existing position at any time during the Plan Year. Participants
whose employment is terminated during the Plan Year for reasons other than
disability, death, or retirement under a Company retirement plan shall forfeit
participation in the Plan unless otherwise authorized by the Company. At the
sole discretion of the Company, participation may be prorated for participants
who become disabled, die, retire or are assigned to a non-eligible position
during the Plan Year.
Section 4. Fund Generation
4.1 Division/Corporate Incentive Amounts. Annually, the Company
shall establish Division and Corporate EICP Objectives (Target/Budget)
applicable to each participating Division. In addition, the Company shall
determine for each participating Division a target incentive amount equal to the
sum of individual incentive targets. The Company may adjust the target incentive
amount during the Plan Year to accommodate the admission or elimination of
Participants to the Plan and to incorporate adjustments to individual incentive
targets of Participants whose salary grade changes during the Plan Year.
Division and corporate incentive funds will be determined based on the budgeted
financial objectives (e.g., net income, cash flow and EVA) with each weighted to
reflect appropriate emphasis.
The size of the incentive fund applicable to each division will be determined
as follows:
1995 FINANCIAL OBJECTIVES
A preliminary fund will be established based on performance against
financial objectives from the Annual Operating Plan (AOP). These
objectives will include but will not be limited to net income, cash flow
and economic value added (EVA).
- Performance on AOP for net income, cash flow and EVA will generate a
fund equal to the sum of individual target awards.
- Performance below AOP will not result in an incentive fund except as
determined by Tenneco Management taking into consideration the reasons
that AOP was not attained.
- Performance above AOP may result in a higher than target level fund as
determined by Tenneco Management taking into consideration the reasons
that AOP was exceeded.
1995 NON-FINANCIAL OBJECTIVES
Quantitative Adjustments
Once the preliminary fund is established, the following quantitative
adjustment factors will be applied to determine a final incentive fund:
<PAGE>
- Environmental Performance
- Safety Performance
- Cost of Quality Takeout, NOI Impact and Discovery
- EEO Performance
Each of these quantitative adjustment factors will be applied a maximum
of 5% for a total increase/decrease to the fund of as much as 20%.
Qualitative Adjustments
The following qualitative adjustment factors will also be applied:
- Global Market Development
- Customer Satisfaction
- Leadership of Change
- Leadership Development (Recruiting/Staffing/Training)
- Operational Considerations (division specific)
These qualitative factors will be applied to increase the fund as much
as an additional 10%.
4.2 Committee Authority. The Committee shall have the right at any
time in its sole discretion to modify, eliminate or withdraw for such period
or periods as it may determine, the incentive amounts, in part or in whole, to
be made available under this Section 4 for payment of awards to any or all
participating Corporate or Division entities or any Participant or
Participants hereunder.
Section 5. Determination of Individual Awards
5.1 Determination of Individual Incentive Target Awards. Annually, the
Compensation and Benefits Committee shall determine the Salary Grade
applicable to the Chairman and CEO of the Company and the Company shall
determine the salary grade applicable to all other Participants. Each
Participant's individual incentive target award will be determined by the
Company.
5.2 Determination of Individual Incentive Awards. Actual individual
awards to be paid to Participants will vary above or below the assigned
individual incentive target awards dependent upon each individual's
performance in accordance with guidelines prescribed by the Company. The
actual award to a Participant must be approved by both the Company and the
Compensation and Benefits Committee (or only the Committee for awards
applicable to the Chairman and President of the Company) and shall not exceed
100% of the Participant's annual base salary.
Section 6. Form of Timing of Awards
Payment of Individual Awards. The actual awards to be paid to
participants in accordance with Section 5.2 shall be paid in cash as soon as
practical once final operating performance is available.
<PAGE>
Section 7. Administration
This Plan shall be administered by the Company in accordance with
rules that may be established from time to time by the Compensation and Benefits
Committee. The determination of the Company as to any disputed question arising
under this Plan, including any question of construction or interpretation, shall
be final, binding, and conclusive upon all persons.
Section 8. Amendment and Termination
The Committee, in its absolute discretion and without notice, may at
any time and from time to time modify or amend, in whole or in part, any or all
of the provisions of this Plan, or suspend or terminate it entirely.
Section 9. Applicable Laws
This Plan shall be construed, administered and governed in all
respects under and by the laws of the State of Texas.
<PAGE>
EXHIBIT 10.10
-------------
TENNECO INC. DEFERRED COMPENSATION PLAN
DECEMBER 1967
AS AMENDED JANUARY 1, 1970,
AMENDED AND RESTATED JANUARY 1, 1980,
AMENDED AND RESTATED JANUARY 1, 1982,
AMENDED AND RESTATED AUGUST 1, 1984,
AMENDED AND RESTATED NOVEMBER 1, 1984,
AMENDED AND RESTATED JANUARY 1, 1986,
AMENDED AND RESTATED JANUARY 1, 1987,
AMENDED AND RESTATED NOVEMBER 1, 1988,
AND AMENDED AND RESTATED SEPTEMBER 12, 1995.
1. NAME AND PURPOSE. The name of this plan is the "Tenneco Inc. Deferred
Compensation Plan" (the Plan). The purpose of this Plan is to provided
reward and incentive to employees who contribute to the success of the
Company's business by their ability, industry, loyalty, inventiveness, or
exceptional service, through making such employees participants in that
success.
2. DEFINITIONS. For purposes of this Plan, the following definitions shall be
applicable:
a. The term "Employee" shall mean any person who is regularly employed on
a salaried basis by the Company or by a Qualified Subsidiary,
including, but not limited to, any employee who is also an officer or
director of the Company or of a Qualified Subsidiary.
b. The term "Participant" shall mean an Employee who has been credited
with any portion of an award pursuant to Section 4 hereof for any year
during which this Plan is in effect and who (or whose beneficiary) has
not received the total vested portion of the balance of the
Participant's account.
c. The term "Company" shall mean Tenneco Inc.
d. The term "Qualified Subsidiary" shall mean a company 50 percent or
more of whose voting stock is owned (directly or through another
Qualified Subsidiary) by the Company.
e. The term "Board of Directors" shall mean the Board of Directors of the
Company.
f. The term "Compensation and Benefits Committee" shall mean the
Compensation and Benefits Committee established by the Board of
Directors.
<PAGE>
g. The term "Normal Retirement Date" when applied to a Participant shall
mean the Participant's Normal Retirement Date under the Tenneco Inc.
Retirement Plan.
h. The term "Early Retirement Benefit" shall mean an Early Retirement
Benefit under the Tenneco Inc. Retirement Plan.
i. The term "Disability" shall have the same meaning as that provided in
the Tenneco Inc. Retirement Plan.
j. The term "Accumulation Limit" shall mean $1.5 million or such other
amount as the Compensation and Benefits Committee may, from time to
time, designate as in effect.
3. ADMINISTRATION. The Board of Directors has designated the Compensation and
Benefits Committee to administer, construe and interpret this Plan. The
construction and interpretation by the Compensation and Benefits Committee
of any provision of this Plan shall be final, conclusive and binding upon
all parties, including the Company, its stockholders and its Employees. No
member of the Compensation and Benefits Committee shall be liable for any
act done or determination made in good faith.
4. ACCOUNTING. The Company shall create a Deferred Compensation Ledger under
which an account shall be maintained in the name of each Employee who is
selected by the Board of Directors to be a Participant. Each Participant's
account shall be maintained in accordance with the following rules:
a. CREDITING OF AWARD. The Participant's award for a particular calendar
year, if any, shall be declared by the Board of Directors as of the
commencement of the calendar year. As of the first day of each month
of the calendar year, the Participant's account will be credited for
1/12 of the award, provided, that on such day the Participant is an
employee.
b. INTEREST. As of the last day of each month on which the Participant
is an Employee, interest for the month shall be credited on the
closing balance of the Participant's account as of the last day of the
immediately preceding month at a rate (or rates) that is equal to the
Prime Interest Rate (or Rates) announced by the Chase Manhattan Bank
for such later month (or applicable portions thereof).
c. CPI ADJUSTMENT. If the Participant is an Employee on the last day of
a calendar year (the "current year"), then as soon as is
administratively feasible following the completion of the current
year, the percentage change in the Consumer Price Index For All Urban
Households as prepared by the Bureau of Labor Statistics (the "CPI")
as of the last day of the current year from the CPI as of the last day
of the preceding calendar year shall be calculated. The
-2-
<PAGE>
award credited to the Participant's account for the current year and
the sum of each award credited to the Participant's account for each
preceding calendar year plus the total allowable CPI adjustments that
have previously been determined with respect thereto shall be
separately multiplied by the percentage to determine the current year
CPI adjustment to the award credited for the current year and to the
award credited for each preceding calendar year. The total of the
allowable current year CPI adjustments to the award credited for the
current year and to the award credited for each of the preceding
calendar years shall be credited to (or, if negative, debited from)
the Participant's account as of the last day of the current year.
In the event that a Participant ceases to be an Employee prior to the
last day of the current year, the percentage change in the CPI as of
the last day of the month coinciding with or immediately preceding the
date upon which the Participant ceased to be an Employee from the CPI
of the last day of the preceding calendar year shall be calculated.
Such percentage shall be utilized to determine the total of the
allowable current year CPI adjustments to the award credited for the
partial current year and to the award credited for each of the
preceding calendar years in the manner hereinbefore described and such
total shall be credited to (or, if negative, debited from) the
Participant's account as of the last day of the month coinciding with
or immediately preceding the date upon which the Participant ceased to
be an Employee.
For purposes of the foregoing, no current year CPI adjustment to an
award credited for any calendar year shall be allowable to the extent
that such adjustment, when added to all previous CPI adjustments to
such award, would exceed the original amount of the award credited for
the calendar year.
d. VESTING. A Participant will vest in any award credited to his or her
account for a particular calendar year beginning on or after January
1, 1980, and in any CPI adjustments made to such award, based upon the
consecutive calendar years, commencing with the particular calendar
year, throughout which the Participant has been an Employee, in
accordance with the following schedule:
CALENDAR VESTING
YEARS OF EMPLOYMENT PERCENTAGE
1 33 1/3%
2 66%
3 100%
Notwithstanding the foregoing, a Participant will be fully vested in
all awards credited to his or her account and in all CPI adjustments
made to such awards (i) if the Participant continues to be an Employee
until the earliest of attainment of his or her Normal Retirement Date,
attainment of eligibility to elect to receive an Early Retirement
Benefit or termination of employment
-3-
<PAGE>
on account of disability or death; or (ii) if the Compensation and
Benefits Committee determines that it would be in the best interests
of the Company to fully vest the Participant upon termination of
employment. A Participant will always be fully vested in any interest
that has been credited to his or her account.
5. PAYMENT OF BENEFITS. Distributions under this Plan shall be made only in
accordance with the following rules:
a. RETIREMENT OR DISABILITY. In the case of a Participant who ceases to
be an Employee after having attained his or her Normal Retirement Date
or having attained eligibility to elect to receive an Early Retirement
Benefit or on account of disability, the Participant shall be entitled
to receive an amount equal to the balance of the Participant's account
in a lump sum as soon as administratively feasible following the
reporting of the CPI as of the last day of the month during which he
or she ceased to be an Employee or in a number of post termination
annual installments, not to exceed five, as the Participant shall
elect. Interest and CPI adjustment will continue to be credited to a
Participant's account when a post termination distribution is elected.
b. OTHER TERMINATION OF EMPLOYMENT. In the case of a Participant who
ceases to be an Employee, otherwise than on account of disability,
after attainment of his or her Normal Retirement Date or after
attainment of eligibility to elect to receive an Early Retirement
Benefit, the Participant shall be entitled to receive an amount equal
to the vested portion of the balance of the Participant's account in
60 equal monthly installments commencing as of the first day of the
monthly immediately following the reporting of the CPI as of the last
day of the month during which he or she ceased to be an Employee.
However, in the event a Participant ceases to be an Employee on or
after November 1, 1988, the Compensation and Benefits Committee, in
its sole and absolute discretion, may direct that, in lieu of said
installments, the Participant shall be paid an amount equal to the
vested portion of the balance of the Participant's account in a lump
sum as soon as administratively feasible following the reporting of
the CPI as of the last day of the month during which he or she ceases
to be an Employee. No interest or CPI adjustments will be credited
following termination of employment for reasons other than disability,
retirement, or death.
c. DEATH DURING EMPLOYMENT. In the case of a Participant who dies while
an Employee, the Participant's beneficiary shall be entitled to
receive an amount equal to the balance of the Participant's account in
a lump sum as soon as administratively feasible following the
reporting of the CPI as of the last day of the month during which the
Participant's death occurred or in a number of post termination annual
installments, not to exceed five, as elected by the Administrator of
the Participant's estate. Interest and CPI adjustments
-4-
<PAGE>
will continue to be credited to the account when a post termination
distribution election is made.
d. ACCUMULATION LIMIT. In the event the balance of a Participant's
account as of the last day of a calendar year equals or exceeds the
Accumulation Limit then in effect, an amount equal to the Distribution
Amount shall be distributed to the Participant in a lump sum as soon
as administratively feasible following the expiration of the calendar
year and the crediting of CPI adjustments for the calendar year to the
Participant's account, provided, that if the Participant ceases to be
an Employee prior to such distribution, distribution shall be
suspended and, thereafter, shall be made in accordance with paragraphs
a, b, or c, whichever applicable.
For purposes of the foregoing, the Distribution Amount shall be equal
to the sum of:
(i) each award, credited to the Participant's account for a
particular calendar year, in which the Participant is 100%
vested and with respect to which net CPI adjustments have been
credited to the Participant's account in an amount equal to the
original amount of the award credited, determined as of the
close of the calendar year; plus
(ii) the net CPI adjustments credited to the Participant's account
with respect to each award included in clause (i); plus
(iii) the portion of interest credited to the Participant's account
that is allocated to each award included in clause (i) and to
the net CPI adjustments included in clause (ii), determined in
accordance with such allocation methods as may be approved for
such purpose by the Compensation Committee.
e. DEATH FOLLOWING TERMINATION OF EMPLOYMENT. In the case of a
Participant who dies after ceasing to be an Employee and before having
received an amount equal to the entire vested portion of the balance
of his or her account, the Participant's beneficiary shall be entitled
to receive an amount equal to the remainder of the vested portion of
the balance of the Participant's account in a continuation of such
form of distribution as the Participant was receiving prior to death,
or if distribution to the Participant had not commenced, in such form
as to which the Participant was entitled under paragraphs a, b, or c.
In the event that, upon written application of the recipient
Participant or beneficiary, the Compensation and Benefits Committee
determines that distribution in the form or commencing at the time
specified above would impose a significant hardship on the recipient,
the Compensation and Benefits
-5-
<PAGE>
Committee may authorize distribution in a different form or commencing
at a different time.
Notwithstanding anything to the contrary contained in the foregoing
provisions of this Section 5:
(i) if distribution of a Participant's account is to commence on or
after September 1, 1984 and at the time of such commencement
the vested portion of the balance of the account does not
exceed fifteen thousand dollars ($15,000.00), said portion
shall be distributed in a lump sum, and shall not be
distributed in installments.
(ii) if, after distribution of a Participant's account in
installments has commenced, the vested portion of the balance
of the account at any time on or after September 1, 1984 does
not exceed fifteen thousand dollars ($15,000.00), said portion
shall promptly be distributed in a lump sum, and shall not
continue to be distributed in installments.
(iii) if a Participant ceased to be an Employee under circumstances
described in paragraphs (a) or (c) and distribution of the
Participant's account in installment form commenced prior to
January 1, 1986, the remaining balance of the account shall
continue to be distributed in such installment form.
The amount of any distribution to a Participant or his or her
beneficiary during a month shall be debited, as of the last day of the
immediately preceding month, against the vested portion of the balance
of the Participant's account.
6. DESIGNATION OF BENEFICIARY. Each Participant may at any time designate the
beneficiary or beneficiaries to whom payments hereunder shall be made on
account of the Participant's death. Any such designation shall be in
writing and filed with the Compensation and Benefits Committee. If no such
designation is on file with the Compensation and Benefits Committee or if
no person so designated is living, or otherwise in existence, at the time
of the Participant's death, then the deceased Participant's estate shall be
deemed to be his or designated beneficiary.
7. NATURE AND SOURCE OF BENEFIT PAYMENTS. Portions of awards credited
pursuant to Section 4 hereof are compensation for services, and the
benefits provided herein with respect to such amounts shall constitute a
liability of the Company to the Participants and/or the beneficiaries in
accordance with the terms hereof. The payment of such benefits shall be
made from the general funds of the Company. No special or separate fund
shall be established or other segregation of assets made to assure the
payment of such benefits and no Participants shall have any interest in any
particular asset of the Company by virtue of the existence of a credit
balance in such Participant's account.
-6-
<PAGE>
8. EXPENSES OF ADMINISTERING PLAN. All expenses of administering this Plan
shall be borne by the Company and no part thereof shall be charged against
any Participant's account.
9. AMENDMENT OR TERMINATION OF PLAN. The Board of Directors may:
a. terminate this Plan at any time; and
b. amend or modify this Plan, from time to time, in any respect;
c. provided, that any amendment or termination of this Plan shall in no
way affect the rights of any Participant or beneficiary to the receipt
of benefits to the extent of the balance of the Participant's account
at the time of such amendment or termination.
10. NON-ALIENATION OF BENEFITS. No benefit under this Plan shall be subject in
any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, or charge, and any attempt at such shall be void, and any such
benefit shall not in any way be subject to the debts, contracts,
liabilities, engagements, or torts of the person who shall be entitled to
such benefit, nor shall it be subject to attachment or legal process for or
against such person.
11. CLAIMS PROCEDURE. The Compensation and Benefits Committee shall establish
a claims procedure which satisfies the requirements of the Employee
Retirement Income Security Act of 1974.
APPROVED ON BEHALF OF THE BOARD OF DIRECTORS
By /s/ Dana G. Mead
-----------------------------
Pursuant to Section 11 of the Tenneco Inc. Deferred Compensation Plan (the
"Plan"), the Compensation and Benefits Committee of the Board of Directors of
Tenneco Inc. (the "Compensation and Benefits Committee") adopts the following
procedure for use in the administration of the Plan:
TENNECO INC. DEFERRED COMPENSATION PLAN CLAIMS PROCEDURE
A. CLAIMS OF BENEFITS
1. As a prerequisite to payment of any benefit under the Plan, the
Participant or the beneficiary of the deceased Participant shall make
a claim in such
-7-
<PAGE>
manner as the Compensation and Benefits Committee may reasonably
require;
2. Promptly upon the receipt of such claim, the Compensation and Benefits
Committee shall determine whether the claimant is entitled to the
benefit and, if so, the amount thereof.
B. DENIAL OF BENEFITS
In the event that any claim for a benefit under this Plan is denied, in
whole or in part, the Compensation and Benefits Committee shall furnish the
claimant with a written notice setting forth in a manner calculated to be
understood by the claimant:
1. The specific reasons for the denial;
2. Specific reference to any pertinent provisions of this Plan upon which
the denial is based;
3. A description of any additional material or information necessary for
the claimant to perfect the claim and an explanation of why such
material or information is necessary; and
4. Appropriate information as to the steps to be taken if the claimant
wishes to submit the claim for review.
A claim shall be deemed denied if the Compensation and Benefits Committee
does not approve the claim and fails to furnish the aforesaid notice of
denial before the expiration of a period commencing with its receipt of the
claim and consisting of 90 days, plus such extension of time for processing
the claim, not to exceed 90 additional days, as special circumstances
require, provided, that, prior to the expiration of the initial 90 days of
the period, the claimant has been furnished with a written notice, which
indicates the special circumstances requiring the extension and the date by
which a decision regarding the claim is expected to be rendered.
C. PROCEDURE FOR REVIEW OF DENIED CLAIMS
A claimant whose claim for a benefit under the Plan is denied, either in
whole or in part, shall have the right, to be exercised be written
application filed with the Compensation and Benefits Committee not later
than the 60th day after receipt of notice of such denial, to request a
review of the claim. Such request for review may contain such issues and
comments as the claimant may wish considered in the review and the
Compensation and Benefits Committee shall permit the claimant to review
pertinent documents in its possession, including copies of the Plan. The
Compensation and Benefits Committee shall make a final determination with
respect to the claim as soon as practicable. Notice of the final
determination shall be furnished to the claimant in writing, in a manner
reasonably calculated to be
-8-
<PAGE>
understood by the claimant, and shall set forth the specific reasons for
the determination and specific references to any pertinent provisions of
the Plan upon which the determination is based. A claim shall be deemed
denied on review if the Compensation and Benefits Committee fails to
furnish the aforesaid notice of final determination before the expiration
of a period commencing with its receipt of the request for review of the
claim and consisting of 60 days, plus such extension of time for completing
the review, not to exceed 60 additional days, as special circumstances
require, provided, that prior to the expiration of the initial 60 days of
the period, the claimant has been furnished with a written notice which
indicates the special circumstances requiring the extension and the date by
which a decision regarding the review of the claim is expected to be
rendered.
APPROVED ON BEHALF OF THE COMPENSATION AND BENEFITS COMMITTEE
By /s/ Dana G. Mead
-----------------------------
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<PAGE>
EXHIBIT 10.11
-------------
TENNECO INC. 1996 DEFERRED COMPENSATION PLAN
(TENNECO INC. 1993 DEFERRED COMPENSATION PLAN AS
AMENDED AND RESTATED TO NEW TENNECO PLAN)
1. PURPOSE
The purpose of the Tenneco Inc. 1996 Deferred Compensation Plan (the "Plan") is
to provide to a select group of management or highly compensated employees of
Tenneco Inc. and its subsidiaries and affiliates (hereinafter collectively
referred to as "Tenneco") an opportunity to defer compensation received by them
from Tenneco in accordance with the terms and conditions set forth herein.
2. ADOPTION AND ADMINISTRATION
The Plan shall be adopted by the Board of Directors of Tenneco Inc. and
administered by the Compensation and Benefits Committee of the Tenneco Inc.
Board of Directors (the "Committee"). The Committee shall have sole and complete
authority and discretion to interpret the terms and provisions of the Plan and
to adopt, alter and repeal such administrative rules, regulations and practices
governing the operation of the Plan, and to determine facts under the Plan as it
shall from time to time deem advisable.
3. ELIGIBILITY
U.S. paid participants in the Tenneco Inc. Executive Incentive Compensation Plan
shall be eligible to participate in the Plan.
Such persons shall be collectively referred to as the "Participant" or
"Participants" as the case may be.
4. ELECTION TO DEFER
(a) A Participant may elect in writing to defer receipt of all or a
specified portion of his or her bonuses or incentive compensation to
be received during a calendar year; provided, however, that any
election, occurring after August 15, 1996 by a Participant who is
subject to the reporting and short swing profits liability
provisions of Section 16 of the Securities Exchange Act of 1934, as
amended, to defer income into a "Tenneco stock index account"
pursuant to Section 6 of the Plan shall not be effective until such
election and the transactions contemplated thereby shall have been
specifically approved by the Committee. Amounts deferred under this
Section 4(a) shall be referred to as the "Deferred Amounts". Once
received by the Committee, an election cannot be revoked.
<PAGE>
(b) Except as provided in this Section 4(b) or in Section 14, the
election must be made prior to September 30 of the calendar year
in which the bonus or incentive compensation will be awarded. A
Participant must make a separate election with respect to each
calendar year of participation in the Plan. A new Participant in
the Plan shall have 30 days following his or her notification by
the Committee of his or her eligibility to participate in the Plan
to make an election with respect to bonus or incentive
compensation to be awarded within the calendar year.
(c) As specified by the Participant in the election to defer, the
period of deferral shall be until the Participant dies, terminates
employment with Tenneco, or until a specific date selected by the
Participant in the election to defer.
5. ESTABLISHMENT OF DEFERRED COMPENSATION ACCOUNT
At the time of the Participant's initial election to defer pursuant to Section 4
or 13, the Tenneco company which employed the Participant shall establish a
memorandum account (a "Deferred Compensation Account") for such Participant on
its books. The Deferred Amount shall be credited to the Participant's Deferred
Compensation Account as of the day on which the Participant would otherwise be
entitled to receive the bonus or incentive compensation. Any required
withholding for taxes (e.g. Social Security taxes) on the Deferred Amount shall
be made from other compensation of the Participant. Adjustments as provided in
Section 6 below, shall be made to the Participant's Deferred Compensation
Account.
6. ADJUSTMENTS TO DEFERRED AMOUNTS
The Committee shall credit the balance of the Participant's Deferred
Compensation Account with an earnings factor. The earnings factor will equal the
amount the Participant's Deferred Compensation Account would have earned if it
had been invested in the investment options listed below. The Participant is
permitted to select the investment option used to determine the earnings factor
and may change the selection at any time. The Participant may choose more than
one investment option in increments of at least one (1) percent. The company
reserves the right to change or amend any of the investment options at any time.
The investment options used to determine the earnings factor are:
(a) The prime rate of interest as reported by The Chase Manhattan Bank
at the first day of each calendar month.
2
<PAGE>
(b) Tenneco stock index account -- amount of deferral will be
invested in Tenneco stock equivalent unit account. Any investment
in this account will be measured solely by the performance of the
company's common stock (including dividends that will be
reinvested).
(c) The return for selected Mutual Funds currently offered in the
Tenneco Inc. Thrift Plan:
(1) Fidelity Growth Company Fund
(2) BZW Barklays U.S. Debt Index Fund (Bond)
(3) BZW Barklays Daily Equity Index Fund
Tenneco is under no obligation to acquire or provide any of the investments
designated by a Participant, and any investments actually made by Tenneco will
be made solely in the name of Tenneco and will remain the property of Tenneco.
The crediting of an earnings factor shall occur so long as there is a balance in
the Participant's Deferred Compensation Account regardless of whether the
Participant has terminated employment with Tenneco.
7. PAYMENT OF DEFERRED AMOUNTS
(a) Except as otherwise provided in subsection (b), (c) or (d) below, a
Participant's Deferred Amount shall be paid, or commence to be paid,
to the Participant, or the Participant's beneficiary, as soon as
practicable after:
(i) the Participant's death,
(ii) the termination of Participant's Tenneco employment, or
(iii) the date specified in the election made by the Participant.
In the event of the Participant's death, payment of the balance in the
Participant's Deferred Compensation Account shall be made, either (i)
in a lump sum or (i) in a number of annual installments, not to exceed
five, as soon as administratively feasible to the Participant's
designated beneficiary, or if none, to the Participant's estate.
(b) The Participant may elect to receive payment of the balance of his
or her Deferred Compensation Account either (i) in a lump sum upon
termination or (ii) in a single payment at a specified date prior to
termination or (iii) in a number of post termination annual
installments, not to exceed five, as the Participant shall elect.
The distribution election must be made at least one year before the
Deferred Amount is payable and must have approval
3
<PAGE>
of the Committee. If no election is made, a lump sum payment will be
made upon a Participant's termination.
(c) Anything contained in this Section to the contrary not withstanding,
in the event a Participant incurs a severe financial hardship, the
Committee, in its sole discretion and upon written application of such
Participant, may direct immediate payment of all or a portion of the
then current value of such Participant's Deferred Compensation
Account; provided that such payment shall in no event exceed the
amount necessary to alleviate such financial hardship; and provided
further that in the case of such payment, the Participant's Deferred
Compensation Account shall be reduced by 110% of the amount of such
payment.
8. PARTICIPANT REPORTS
The Committee shall provide a statement to the Participant quarterly concerning
the status of his or her Deferred Compensation Account.
9. TRANSFERABILITY OF INTERESTS
During the period of deferral, all Deferred Amounts shall be considered as
general assets of the Tenneco companies which employ or have employed the
Participant for use as they deem necessary and shall be subject to the claims
of the companies' creditors.
The rights and interests of a Participant during the period of deferral shall
be those of a general creditor except that such Participant's rights and
interests may not be reached by the creditors of the Participant or the
beneficiary, or anticipated, assigned, pledged, transferred or otherwise
encumbered except in the event of the death of the Participant, and then only
by will or the laws of descent and distribution.
10. AMENDMENT, SUSPENSION AND TERMINATION
Tenneco Inc. at any time may amend, suspend or terminate the Plan or any portion
thereof in such manner and to such extent as it may deem advisable and in the
best interests of Tenneco. No amendment, suspension and termination shall reduce
the amount then credited to a Participant's Deferred Compensation Account.
11. UNFUNDED OBLIGATION
The Plan shall not be funded; no trust, escrow or other provisions shall be
established to secure payments due under the Plan; and the Plan shall be
regarded as unfunded for purposes of the Employee Retirement Income Security Act
of 1974, as amended, and the
4
<PAGE>
Internal Revenue Code. A Participant shall be treated as a general, unsecured
creditor at all times under the Plan, and shall have no rights to any specific
assets of any Tenneco company. All amounts credited to the memorandum
accounts of the Participants will remain general assets of the respective
companies.
12. NO RIGHT TO EMPLOYMENT OR OTHER BENEFITS
Nothing contained herein shall be construed as conferring upon any Participant
the right to continue in the employ of Tenneco. Any compensation deferred and
any payments made under this Plan shall not be included in creditable
compensation in computing benefits under any employee benefit plan of Tenneco
except to the extent expressly provided for therein.
13. DISPUTE RESOLUTION
By participating in the Plan, the Participant agrees than any dispute arising
under the Plan shall be resolved by binding arbitration in Greenwich,
Connecticut under the rules of the American Arbitration Association and that
there will be no remedy besides the disputed deferred compensation amount at
issue.
14. EFFECTIVE DATE
The Plan shall be effective on January 1, 1997 if previously approved by the
Board of Directors of Tenneco Inc.; otherwise it shall be effective
immediately after such approval. After such effective date, eligible
Participants shall be permitted to make within 30 days an initial election to
defer under Section 4 with respect to the bonus or incentive compensation to
be awarded within the first calendar year of the Plan.
5
<PAGE>
TENNECO INC. 1997 DEFERRED COMPENSATION PLAN
ELECTION TO PARTICIPATE
Pursuant to the Tenneco Inc. 1997 Deferred Compensation Plan, I hereby elect
to defer, as provided in the Plan, the receipt of one of the following amounts
from any bonus or incentive compensation to be awarded to me in calendar year
_____ as a result of my employment by a Tenneco company:
(Choose one) ( $_______________
( ____% of such bonuses or compensation
( All such bonuses or compensation in excess of $______
I elect the following investment option(s) for the amount deferred under this
Election to Participate:
Election For Current Year
-------------------------
Chase Prime Rate ______%
Tenneco Common Stock Index Account ______%
Fidelity Growth Company Fund ______%
BZW Barclays U.S. Debt Index Fund (Bond) ______%
BZW Barclays Daily Equity Index Fund ______%
100%
Subject to the terms of the Plan, payment of such amounts shall be deferred
until my death, termination of my Tenneco employment, or the following date
______________ (maximum 5 years from the date of termination).
__________________________
(Participant Signature)
__________________________
(Printed Name)
__________________________
(Social Security Number)
__________________________
(Division)
__________________________
(Date)
6
<PAGE>
Receipt Acknowledged on Behalf of Plan by:
__________________________
__________________________
(Date)
7
<PAGE>
EXHIBIT 10.12
-------------
THE AMENDED AND RESTATED
TENNECO INC. SUPPLEMENTAL
EXECUTIVE RETIREMENT PLAN
PURPOSE
-------
The Tenneco Inc. Supplemental Executive Retirement Plan (the "Plan") is
maintained as an unfunded plan solely for the purpose of providing retirement
benefits with respect to certain employees that are equal to retirement benefits
lost under the Tenneco Inc. Retirement Plan (the "Retirement Plan") as a result
of the imposition of the limitation, contained in Section 401(a)(17) of the
Internal Revenue Code of 1986, as amended (the "Code"), upon the amount of a
Retirement Plan participant's annual compensation that may be taken into account
under the Retirement Plan for any plan year.
THE PLAN
--------
Effective Date
- --------------
This Plan is effective as of January 1, 1989.
Eligibility
- -----------
An employee shall be eligible for benefits under this Plan if the employee
is a participant in the Tenneco Inc. Retirement Plan and the employee's benefits
under the Retirement Plan are limited by provisions of the Retirement Plan which
are designed solely to comply with Section 401(a)(17) of the Code. In no event
shall an employee who is not entitled to benefits under the Retirement Plan be
eligible for benefits under this Plan. An employee who is eligible for benefits
under this Plan is identified herein as a "Participant". Except where this Plan
expressly indicates otherwise, any term used in this Plan shall have the same
definition that the term has in the Retirement Plan.
Amount of Benefit
- -----------------
The benefit payable under this Plan to a Participant, or to (the
Participant's eligible spouse, Eligible Child(ren), joint annuitant or other
beneficiary(ies), all as determined under the provisions of the Retirement Plan,
shall equal the excess, if any, of (a) over (b) where:
(a) is the benefit that would be paid to such Participant, or to the
Participant's beneficiary(ies), under the Retirement Plan if the provisions
of the Retirement Plan were administered without regard to the limitation
imposed pursuant to Section 401(a)(17) of the Code upon the amount of
annual compensation that may be taken into account under the Retirement
Plan for any plan year, as well as the limitations imposed pursuant to
<PAGE>
Section 415 of the Code upon benefits that may be provided by the
Retirement Plan; and
(b) is the benefit that is payable to such Participant, or to the
Participant's beneficiary(ies), under the Retirement Plan and under the
Retirement Plan Benefit Equalization portion (arising with respect to the
Retirement Plan) of the Tenneco Inc. Benefit Equalization Plan.
Form of Benefit
Any benefit under this Plan shall be paid to the Participant, or to his
beneficiary, in the same form and manner as the benefit payments made to, or
with respect to, the Participant under the Tenneco Inc. Retirement Plan ("TRP").
Notwithstanding the preceding sentence, a Participant or his beneficiary also
may elect to receive payment of the benefit described in the section entitled
Amount of Benefit in the form of a lump sum. In addition, if the benefit payable
from this Plan (expressed as an age 65 life annuity) would be less than $50 per
month, the benefit payable from this Plan automatically shall be paid as a lump
sum. The actuarial factors set forth in the TRP shall be used to compute
benefits hereunder.
Funding
This Plan shall be maintained as an unfunded plan which is not intended to
meet the qualification requirements of Section 401 of the Code. All benefits
under this Plan shall be payable solely from the general assets of or its
appropriate affiliates of Tenneco Inc. No Participant or beneficiary shall be
entitled to receive any benefits under this Plan from the funds maintained in
accordance with the provisions of the Retirement Plan.
No Assignment
No benefit under this Plan shall be assignable or alienable or subjected,
by attachment or otherwise, to the claims of creditors of a Participant or
beneficiary.
No Guarantee of Employment
This Plan shall not be construed to give any Participant the right to be
retained in the employment of Tenneco Inc. or any of its affiliates.
Operation and Administration
This Plan shall be operated under the direction of the Compensation and
Benefits Committee of the Board of Directors of Tenneco Inc. and administered by
the Tenneco Benefits Committee.
The Tenneco Benefits Committee's decision in all matters involving the
interpretation and application of this Plan shall be final and binding. The
Tenneco Benefits
-2-
<PAGE>
Committee shall establish a claims procedure which satisfies the requirements of
the Employee Retirement Income Security Act of 1974, as amended.
Governing Law
To the extent not preempted by federal law, this Plan shall be construed,
administered and enforced in accordance with the laws of the State of Texas.
Amendment and Discontinuance
Tenneco Inc. expects to continue this Plan indefinitely but reserves the
right, by action of its Board of Directors, to amend or discontinue it, if the
Board, in its sole judgment, deems such amendment or discontinuance to be
necessary or desirable. However, no such amendment or discontinuance shall
impair or adversely affect any benefits accrued under this Plan as of the date
of such action (determined as if each Participant then employed had terminated
his employment with Tenneco Inc. and its affiliates as of the date of such
amendment or discontinuance).
IN WITNESS WHEREOF, and as conclusive evidence of the adoption of the
foregoing, Tenneco Inc., a Delaware corporation, has caused its corporate seal
to be affixed hereto and these presents to be duly executed in its name and
behalf by its proper officers thereunto duly authorized this ____ day of
__________________, 1996.
(Corporate Seal) TENNECO INC.
By: /s/ Robert G. Simpson
----------------------------
Senior Vice President
-3-
<PAGE>
THE TENNECO INC. SUPPLEMENTAL EXECUTIVE
RETIREMENT PLAN CLAIMS PROCEDURE
Pursuant to the provisions of the Tenneco Inc. Supplemental Executive Retirement
Plan (the "Plan"), the Tenneco Benefits Committee (the "Committee") adopts the
following claims procedure for use in the administration of the Plan:
CLAIMS PROCEDURE
A. Claims for Benefits
1. As a prerequisite to payment of any benefit under the Plan, the
Participant or the beneficiary of the deceased Participant shall make
a claim in such manner as the Committee may reasonably require;
2. Promptly upon the receipt of such claim, the Committee shall determine
whether the claimant is entitled to the benefit and, if so, the amount
thereof.
B. Denial of Benefits
In the event that any claim for a benefit under this Plan is denied, in
whole or in part, the Committee shall furnish the claimant with a written
notice setting forth in a manner calculated to be understood by the
claimant:
1. The specific reasons for the denial;
2. Specific reference to any pertinent provisions of this Plan upon which
the denial is based;
3. A description of any additional material or information necessary for
the claimant to perfect the claim and an explanation of why such
material or information is necessary; and
4. Appropriate information as to the steps to be taken if the claimant
wishes to submit the claim for review.
A claim shall be deemed denied if the Committee does not approve the claim
and fails to furnish the aforesaid notice of denial before the expiration
of a period commencing with its receipt of the claim and consisting of 90
days, plus such extension of time for processing the claim, not to exceed
90 additional days, as special circumstances require, provided, that, prior
to the expiration of the initial 90 days of the period, the claimant has
been furnished with a written notice, which indicates the special
circumstances requiring the extension and the date by which a decision
regarding the claim is expected to be rendered.
-4-
<PAGE>
C. Review of Denied Claims
A claimant whose claim for a benefit under the Plan is denied, either in
whole or in part, shall have the right, to be exercised by written
application filed with the Committee not later than the 60th day after
receipt of notice of such denial, to request a review of the claim. Such
request for review may contain such issues and comments as the claimant may
wish considered in the review and the Committee shall permit the claimant
to review pertinent documents in its possession, including copies of the
Plan. The Committee shall make a final determination with respect to the
claim as soon as practicable. Notice of the final determination shall be
furnished to the claimant in writing, in a manner reasonably calculated to
be understood by the claimant, and shall set forth the specific reasons for
the determination and specific references to any pertinent provisions of
the Plan upon which the determination is based. A claim shall be deemed
denied on review if the Committee fails to furnish the aforesaid notice of
final determination before the expiration of a period commencing with its
receipt of the request for review of the claim and consisting of 60 days,
plus such extension of time for completing the review, not to exceed 60
additional days, as special circumstances require, provided, that prior to
the expiration of the initial 60 days of the period, the claimant has been
furnished with a written notice which indicates the special circumstances
requiring the extension and the date by which a decision regarding the
review of the claim is expected to be rendered.
APPROVED ON BEHALF OF THE TENNECO BENEFITS COMMITTEE:
By: /s/ Kim R. Bacon
----------------------
-5-
<PAGE>
SPECIAL APPENDIX I
TO THE TENNECO INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Pursuant to the authority reserved by the Company to amend the Tenneco
Inc. Supplemental Executive Retirement Plan ("Plan"), the Plan is hereby amended
by adding Special Appendix I thereto effective October 1, 1995.
The purpose of this Special Appendix I to the Tenneco Inc.
Supplemental Retirement Plan is to provide a window benefit "Window Benefit" to
those highly compensated employees employed within the Tenneco Affiliated Group
("the Company") who elect to participate in the Tenneco Management Company Early
Retirement Window Program ("Program").
The amount of the benefits payable under this Special Appendix I shall
be in lieu of (i) any benefits that would otherwise be payable to a highly
compensated employee of the Company if the Window Benefit was paid in accordance
with Special Appendix XLV-AA of the Tenneco Inc. Retirement Plan ("TRP") and
(ii) any benefits to which an Eligible Participant would otherwise be entitled
under the Benefits Equalization Plan.
The following rules shall govern notwithstanding any other provision of the Plan
to the contrary:
A. Window Benefit:
(1) An Eligible Participant, as defined below, who retires from the
Company during the Window Period shall receive one of the following:
a. An addition two (2) Years of Participation, as defined in Section
1.37 of the TRP and an additional two (2) Years of Service as
defined in Section 1.38 of the TRP; or
b. An additional two (2) years of age under the TRP.
Each Eligible Participant who elects to retire during the Window
Period shall be permitted to elect which of the foregoing additions he
shall receive. The elected addition shall be used for all purposes under
this Plan. The additional years of age or Years of Service and
Participation, as applicable, shall be added at the date the Eligible
Participant actually separates from service with the Company.
Notwithstanding the foregoing, nothing in this Special Appendix should be
deemed to alter the TRP's rules which limit the number of Years of
Participation or Years of Service counted.
-6-
<PAGE>
(2) The amount of the Window Benefit shall be the difference between (a)
the benefit payable under the TRP without regard to the restrictions of
Sections 415 or 401(a)(17) of the Code, computed including the additional
years of Participation, Years of Service or age as set forth in (1) above,
and (b) the benefit actually payable under the TRP.
(3) Benefits payable under this Special Appendix I shall be payable in a
lump sum or in those forms of payment set forth in the TRP.
(4) The spousal consent requirements and provisions with respect to
payments to beneficiaries set forth in the TRP shall apply to the benefits
payable under this Special Appendix I.
(5) The benefit described in this Special Appendix I shall not be a
permanent benefit under the Plan and its availability as a Plan benefit
shall expire on September 30, 1996.
B. Definitions:
(1) Any capitalized term not defined in this Special Appendix shall have
the same meaning as provided in the Plan or in the TRP, except where the
context specifically provides for another meaning. For purposes of this
Special Appendix, the following terms defined in this Section shall have
the defined meaning when capitalized.
a. "Eligible Participant" means an individual who during the
Window Period and at the time retirement is elected, meets
each of the following requirements:
1. is a Highly Compensated Employee;
2. is an active Participant under the TRP;
3. attains or has attained age 53 and at least ten (1) Years
of Service or has attained age 55 and at least eight (8)
Years of Service;
4. is an active Employee of Tenneco Management Company
(discharged employees or those on lay-off status
(permanent or temporary) and who are not accruing service
under the TRP are not Eligible Participants); and
5. executes such documents as may be required by Tenneco Inc.
or by the Tenneco Benefits Committee.
-7-
<PAGE>
Notwithstanding the foregoing, the Chief Executive Officer of Tenneco
Inc. and those individuals eligible for benefits under the Tenneco Inc.
Pilots' Supplemental Retirement Plan shall not be Eligible Participants
under the Plan.
b. "Highly Compensated Employee" means an employee who on his date of
termination of employment is a participant in the TRP (as defined
therein) and is also a highly compensated employee within the
meaning of section 414(q) of the Code.
c. "Tenneco Affiliated Group" shall have the same meaning as set
forth in the TRP.
d. "Window Period" means the period beginning October 1, 1995 and
ending September 30, 1996.
IN WITNESS WHEREOF, and as conclusive evidence of the adoption of the
foregoing, the Tenneco Benefits Committee hereby adopts this Special Appendix I
on this _____ day of_________, 1996 to be effective as of October 1, 1995.
TENNECO BENEFITS COMMITTEE
By: /s/ Kim R. Bacon
-----------------------------------
Its: Member
-8-
<PAGE>
SPECIAL APPENDIX II TO THE
TENNECO INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
---------------------------------------------------
In consideration of his services to Tenneco Management Company (the
"Company") and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company, pursuant to the
authority set forth in the Tenneco Inc. Supplemental Executive Retirement Plan
("Plan"), hereby amends the Plan to add Special Appendix II ("Special Appendix
II") for the benefit of Robert T. Blakely ("Blakely"), and the parties hereto
agree as follows, effective January 1, 1996:
1. The aggregate monthly pension benefits to which Blakely and his
surviving spouse shall be entitled hereunder (provided that Blakely vests in
such benefits as provided in Section 3 hereof) shall be equal to the additional
benefits to which Blakely and his surviving spouse would be entitled under the
Tenneco Inc. Retirement Plan, the Tenneco Inc. Benefit Equalization Plan and the
Tenneco Inc. Supplemental Executive Retirement Plan (without regard to this
Special Appendix II), each computed as a single life annuity and using the
generally applicable rules and actuarial factors of such plans, except that
Blakely's compensation used to compute his monthly pension benefit shall include
his bonus for the year earned (regardless of when paid).
2. Blakely shall receive benefits under this Special Appendix II in the
form of a single life annuity, or in a lump sum or in another form permitted
under the Tenneco Inc. Retirement Plan. If Blakely dies before commencing to
receive the benefits described hereunder, his beneficiary will receive a death
benefit which is the present value of the benefits which he has accrued
hereunder as of the date of his death. The actuarial factors set forth in the
Tenneco Inc. Retirement Plan shall be used to compute the benefits payable
hereunder.
3. Blakely shall vest in the pension benefit provided under this Special
Appendix II as follows:
(a) Provided that Blakely serves the Company as an officer until
December 31, 1996, he shall be 50% vested in the benefit provided
under this Special Appendix II.
-9-
<PAGE>
(b) Provided that Blakely serves the Company as an officer until
December 31, 1997, he shall be 100% vested in the benefit
provided under this Special Appendix II.
4. Notwithstanding any other provision hereof, Blakely shall have a fully
vested and non-forfeitable interest in the benefit provided under this Special
Appendix II in the event of a Change in Control. For this purpose, "Change in
Control" means a Change in Control as that term is defined in the Tenneco
Benefits Protection Trust Agreement, a copy of which is attached for ease of
reference.
5. This Special Appendix II shall be administered by the Company, and the
Company shall bear all costs of administration.
6. This Special Appendix II contains all of the terms agreed upon by the
parties with respect to the subject matter hereof and supersedes all prior
agreements, arrangements and communications between the parties dealing with
such subject matter, whether oral or written.
7. Benefits provided for hereunder may not be assigned or hypothecated,
and to the extent permitted by law, no such benefits shall be subject to legal
process or attachment for the payment of any claims against any person entitled
to receive the same.
8. If it shall be found that any person to whom a payment is due
hereunder is unable to care for his affairs because of physical or mental
disability, as determined by a licensed physician, the Company shall have the
authority to cause the payments becoming due such person to be made to the
legally appointed guardian of any such person or the spouse, brother, sister, or
other person as it shall determine. Payments made pursuant to such power shall
operate as a complete discharge of the Company.
9. The Special Appendix II shall be construed, regulated and administered
according to the laws of the State of Texas.
10. This Special Appendix II shall be binding upon any successor (whether
direct or indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business and/or assets of the Company in the same
manner and to the same extent that the Company would be bound to perform if no
such succession had taken place.
11. Benefits to be paid under this Special Appendix II shall be paid out
of general corporate assets when due, and are not funded, or guaranteed by any
government agency.
-10-
<PAGE>
12. This Special Appendix II may be amended or terminated only by written
agreement between and among the parties hereto.
/s/ Robert T. Blakely
---------------------
Robert T. Blakely
TENNECO MANAGEMENT COMPANY
By /s/ Dana G. Mead
-----------------------------------
Its
--------------------------------
-11-
<PAGE>
SPECIAL APPENDIX III TO THE
TENNECO INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
---------------------------------------------------
In consideration of his services to Tenneco Management Company (the
"Company") and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company, pursuant to the
authority set forth in the Tenneco Inc. Supplemental Executive Retirement Plan
("Plan"), hereby amends the Plan to add Special Appendix III for the benefit of
John J. Castellani ("Castellani"), and the parties hereto agree as follows,
effective January 1, 1996:
1. The monthly normal retirement pension benefits to which
Castellani and his surviving spouse shall be entitled hereunder shall be equal
to the normal retirement pension benefits to which Castellani and his surviving
spouse would be entitled under the Tenneco Inc. Retirement Plan (the "TRP"),
computed using the generally applicable rules of such plan and adding eleven
(11) years of additional service, for all purposes, less the total of (i) any
normal retirement benefit payable to Castellani from TRW's qualified defined
benefit pension plan; and (ii) any normal retirement benefit payable under the
TRP.
2. Castellani shall receive benefits under this Special Appendix III
in the form of a single life annuity, or in a lump sum or in another form
permitted under the Tenneco Inc. Retirement Plan. If Castellani dies before
commencing to receive the benefits described hereunder, his beneficiary will
receive a death benefit which is the present value of the benefits which he has
accrued hereunder as of the date of his death. The actuarial factors set forth
in the TRP shall be used to compute the benefits payable hereunder.
3. Castellani and his surviving spouse shall be entitled to benefits
hereunder prior to his normal retirement under the following rules. If
Castellani or his surviving spouse become entitled to benefits under the TRP
under its generally applicable rules prior to Castellani attaining normal
retirement, Castellani and his surviving spouse shall be entitled to a benefit
hereunder equal to the benefit that would be payable under the TRP at the time
in question if the benefit stated in Section 1 hereof were Castellani's normal
retirement benefit under the TRP. Only actual service is counted for purposes
of determining whether Castellani or his surviving spouse qualify for benefits
under the TRP prior to Castellani attaining normal retirement.
4. This Special Appendix III shall be administered by the Company,
and the Company shall bear all costs of administration.
<PAGE>
5. This Special Appendix III contains all of the terms agreed upon by
the parties with respect to the subject matter hereof and supersedes all prior
agreements, arrangements and communications between the parties dealing with
such subject matter, whether oral or written.
6. Benefits provided for hereunder may not be assigned or
hypothecated, and to the extent permitted by law, no such benefits shall be
subject to legal process or attachment for the payment of any claims against any
person entitled to receive the same.
7. If it shall be found that any person to whom a payment is due
hereunder is unable to care for his affairs because of physical or mental
disability, as determined by a licensed physician, the Company shall have the
authority to cause the payments becoming due such person to be made to the
legally appointed guardian of any such person or the spouse, brother, sister, or
other person as it shall determine. Payments made pursuant to such power shall
operate as a complete discharge of the Company.
8. The Special Appendix III shall be construed, regulated and
administered according to the laws of the State of Texas.
9. This Special Appendix III shall be binding upon any successor
(whether direct or indirect, by purchase, merger, consolidation, or otherwise)
to all or substantially all of the business and/or assets of the Company in the
same manner and to the same extent that the Company would be bound to perform if
no such succession had taken place.
10. Benefits to be paid under this Special Appendix III shall be paid
out of general corporate assets when due, and are not funded, or guaranteed by
any government agency.
11. This Special Appendix III may be amended or terminated only by
written agreement between and among the parties hereto.
/s/ John J. Castellani
--------------------------
John J. Castellani
TENNECO MANAGEMENT COMPANY
By /s/ Dana G. Mead
------------------------
Its ______________________
<PAGE>
SPECIAL APPENDIX IV TO THE
TENNECO INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
---------------------------------------------------
In consideration of his services to Tenneco Management Company (the
"Company") and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company, pursuant to the
authority set forth in the Tenneco Inc. Supplemental Executive Retirement Plan
("Plan"), hereby amends the Plan to add Special Appendix IV ("Special Appendix
IV") for the benefit of Stacy S. Dick ("Dick"), and the parties hereto agree as
follows, effective January 1, 1996:
1. The monthly pension benefits to which Dick and his surviving
spouse shall be entitled hereunder shall be equal to the additional benefits to
which Dick and his surviving spouse would be entitled under the Tenneco Inc.
Retirement Plan, the Tenneco Inc. Benefit Equalization Plan and the Tenneco Inc.
Supplemental Executive Retirement Plan (without regard to this Special Appendix
IV) (the "Tenneco Plans") each computed as a single life annuity and using the
generally applicable rules and actuarial factors of such plans with the
following special provisions:
(a) For all purposes, including without limitation, benefit accrual
and eligibility for early retirement benefits, Dick shall be
credited with five (5) additional years of service; and
(b) Dick's compensation used to compute his monthly pension benefit
shall include his bonus for the year earned (regardless of when
paid).
2. Dick shall receive benefits under this Special Appendix IV in the form
of a single life annuity, or in a lump sum or in another form permitted under
the Tenneco Inc. Retirement Plan. If Dick dies before commencing to receive the
benefits described hereunder, his beneficiary will receive a death benefit which
is the present value of the benefits which he has accrued hereunder as of the
date of his death. The actuarial factors set forth in the Tenneco Inc.
Retirement Plan shall be used to compute the benefits payable hereunder.
3. This Special Appendix IV shall be administered by the Company, and the
Company shall bear all costs of administration.
4. This Special Appendix IV contains all of the terms agreed upon by the
parties with respect to the subject matter hereof and supersedes all prior
agreements, arrangements and communications between the parties dealing with
such subject matter, whether oral or written.
<PAGE>
5. Benefits provided for hereunder may not be assigned or hypothecated,
and to the extent permitted by law, no such benefits shall be subject to legal
process or attachment for the payment of any claims against any person entitled
to receive the same.
6. If it shall be found that any person to whom a payment is due
hereunder is unable to care for his affairs because of physical or mental
disability, as determined by a licensed physician, the Company shall have the
authority to cause the payments becoming due such person to be made to the
legally appointed guardian of any such person or the spouse, brother, sister, or
other person as it shall determine. Payments made pursuant to such power shall
operate as a complete discharge of the Company.
7. The Special Appendix IV shall be construed, regulated and administered
according to the laws of the State of Texas.
8. This Special Appendix IV shall be binding upon any successor (whether
direct or indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business and/or assets of the Company in the same
manner and to the same extent that the Company would be bound to perform if no
such succession had taken place.
9. Benefits to be paid under this Special Appendix IV shall be paid out
of general corporate assets when due, and are not funded, or guaranteed by any
government agency.
10. This Special Appendix IV may be amended or terminated only by written
agreement between and among the parties hereto.
/s/ Stacy S. Dick
--------------------------
Stacy S. Dick
TENNECO MANAGEMENT COMPANY
By /s/ Dana G. Mead
-----------------------
Its_______________________
<PAGE>
SPECIAL APPENDIX V TO THE
TENNECO INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
---------------------------------------------------
In consideration of his services to Tenneco Management Company (the
"Company") and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company, pursuant to the
authority set forth in the Tenneco Inc. Supplemental Executive Retirement Plan
("Plan"), amends the Plan to add Special Appendix V for the benefit of Arthur H.
House ("House"), and the parties hereto agree as follows, effective January 1,
1996:
1. The monthly normal retirement pension benefits to which House and
his surviving spouse shall be entitled hereunder shall be equal to the normal
retirement pension benefits to which House and his surviving spouse would be
entitled under the Tenneco Inc. Retirement Plan (the "TRP"), computed using the
generally applicable rules of such plan and adding five (5) years of additional
service, for all purposes, including without limitation, benefit accrual and
eligibility for early retirement benefits, less any benefit payable under the
TRP.
2. House shall receive benefits under this Special Appendix V in the
form of a single life annuity, or in a lump sum or in another form permitted
under the Tenneco Inc. Retirement Plan. If House dies before commencing to
receive the benefits described hereunder, his beneficiary will receive a death
benefit which is the present value of the benefits which he has accrued
hereunder as of the date of his death. The actuarial factors set forth in the
TRP shall be used to compute the benefits payable hereunder.
3. This Special Appendix V shall be administered by the Company, and
the Company shall bear all costs of administration.
4. This Special Appendix V contains all of the terms agreed upon by
the parties with respect to the subject matter hereof and supersedes all prior
agreements, arrangements and communications between the parties dealing with
such subject matter, whether oral or written.
5. Benefits provided for hereunder may not be assigned or
hypothecated, and to the extent permitted by law, no such benefits shall be
subject to legal process or attachment for the payment of any claims against any
person entitled to receive the same.
6. If it shall be found that any person to whom a payment is due
hereunder is unable to care for his affairs because of physical or mental
disability, as determined by a licensed physician, the Company shall have the
authority to cause the
<PAGE>
payments becoming due such person to be made to the legally appointed guardian
of any such person or the spouse, brother, sister, or other person as it shall
determine. Payments made pursuant to such power shall operate as a complete
discharge of the Company.
7. The Special Appendix V shall be construed, regulated and
administered according to the laws of the State of Texas.
8. This Special Appendix V shall be binding upon any successor
(whether direct or indirect, by purchase, merger, consolidation, or otherwise)
to all or substantially all of the business and/or assets of the Company in the
same manner and to the same extent that the Company would be bound to perform if
no such succession had taken place.
9. Benefits to be paid under this Special Appendix V shall be paid
out of general corporate assets when due, and are not funded, or guaranteed by
any government agency.
10. This Special Appendix V may be amended or terminated only by
written agreement between and among the parties hereto.
/s/ Arthur H. House
--------------------------
Arthur H. House
TENNECO MANAGEMENT COMPANY
By /s/ Dana G. Mead
------------------------
Its_______________________
<PAGE>
SPECIAL APPENDIX VI TO THE
TENNECO INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
---------------------------------------------------
In consideration of his services to Newport News Shipbuilding & Dry
Dock Company (the "Company") and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company, pursuant
to the authority set forth in the Tenneco Inc. Supplemental Executive Retirement
Plan ("Plan"), amends the Plan to add Special Appendix VI for the benefit of W.
R. Phillips, Jr. ("Phillips"), as that term is defined herein, and the parties
hereto agree as follows, effective January 1, 1996:
1. Phillips shall be entitled to a monthly life only pension benefit
from the Company in the amount of $14,461.34 commencing on the first day of the
calendar month immediately following the termination of his employment with the
Company, less any normal retirement benefit payable under the Tenneco Inc.
Retirement Plan (the "TRP"). Such benefit shall be converted to a benefit
payable in either a lump sum or in the same form as Phillips's benefit under the
TRP. If Phillips dies before commencing to receive the benefits described
hereunder, his beneficiary will receive a death benefit which is the present
value of the benefits which he has accrued hereunder as of the date of his
death. The actuarial factors set forth in the TRP shall be used to compute the
amount of the benefit payable hereunder.
2. This Special Appendix VI shall be administered by the Company,
and the Company shall bear all costs of administration.
3. This Special Appendix VI contains all of the terms agreed upon by
the parties with respect to the subject matter hereof and supersedes all prior
agreements, arrangements and communications between the parties dealing with
such subject matter, whether oral or written.
4. Benefits provided for hereunder may not be assigned or
hypothecated, and to the extent permitted by law, no such benefits shall be
subject to legal process or attachment for the payment of any claims against any
person entitled to receive the same.
5. If it shall be found that any person to whom a payment is due
hereunder is unable to care for his affairs because of physical or mental
disability, as determined by a licensed physician, the Company shall have the
authority to cause the payments becoming due such person to be made to the
legally appointed guardian of any such person or the spouse, brother, sister, or
other person as it shall determine. Payments made pursuant to such power shall
operate as a complete discharge of the Company.
<PAGE>
6. The Special Appendix VI shall be construed, regulated and
administered according to the laws of the State of Texas.
7. This Special Appendix VI shall be binding upon any successor
(whether direct or indirect, by purchase, merger, consolidation, or otherwise)
to all or substantially all of the business and/or assets of the Company in the
same manner and to the same extent that the Company would be bound to perform if
no such succession had taken place.
8. Benefits to be paid under this Special Appendix VI shall be paid
out of general corporate assets when due, and are not funded, or guaranteed by
any government agency.
9. This Special Appendix VI may be amended or terminated only by
written agreement between and among the parties hereto.
IN WITNESS WHEREOF, and to record the adoption of this Special
Appendix VI, the undersigned has executed this document this ____ day of
______________, 1996, on behalf of the Company.
/s/ W.R. Phillips, Jr.
--------------------------
W. R. Phillips, Jr.
TENNECO MANAGEMENT COMPANY
By /s/ Dana G. Mead
-----------------------
Its
----------------------
<PAGE>
SPECIAL APPENDIX VII TO THE
TENNECO INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
---------------------------------------------------
In consideration of his services to Tenneco Management Company (the
"Company") and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company, pursuant to the
authority set forth in the Tenneco Inc. Supplemental Executive Retirement Plan
("Plan"), amends the Plan to add Special Appendix VII for the benefit of Barry
R. Schuman ("Schuman"), and the parties hereto agree as follows, effective
January 1, 1996:
1. The monthly pension benefits to which Schuman and his surviving spouse
shall be entitled hereunder shall be equal to the additional benefits to which
Schuman and his surviving spouse would be entitled under the Tenneco Inc.
Retirement Plan, the Tenneco Inc. Benefit Equalization Plan, and the Tenneco
Inc. Supplemental Executive Retirement Plan, (collectively, the "Tenneco
Plans"), computed using the generally applicable rules of such plans, with the
following special provisions:
(a) For all purposes, including without limitation, benefit accrual,
death benefits, normal retirement and eligibility for early
retirement benefits, Schuman shall be credited with 11 additional
years of service; and
(b) Schuman's compensation used to compute his monthly pension
benefit shall include his bonus earned for the year (regardless
of when paid).
2. Schuman shall receive benefits under this Special Appendix VII in the
form of a single life annuity, or in a lump sum or in another form permitted
under the Tenneco Inc. Retirement Plan. If Schuman dies before commencing to
receive the benefits described hereunder, his beneficiary will receive a death
benefit which is the present value of the benefits which he has accrued
hereunder as of the date of his death. The actuarial factors set forth in the
Tenneco Inc. Retirement Plan shall be used to compute the benefits payable
hereunder.
3. The aggregate monthly pension benefits to which Schuman and his
surviving spouse shall be entitled under the Tenneco Plans and this Special
Appendix VII shall be no less than the amount to which Schuman and his surviving
spouse would have been entitled if Schuman's coverage under the Union Pacific
Basic and Supplemental defined benefit plans in effect at the time he left Union
Pacific had continued until Schuman's
<PAGE>
separation from service with the Company, less any benefits Schuman and his
surviving spouse are entitled to receive from such Union Pacific defined benefit
plans.
4. This Special Appendix VII shall be administered by the Company, and
the Company shall bear all costs of administration.
5. This Special Appendix VII contains all of the terms agreed upon by the
parties with respect to the subject matter hereof and supersedes all prior
agreements, arrangements and communications between the parties dealing with
such subject matter, whether oral or written.
6. Benefits provided for hereunder may not be assigned or hypothecated,
and to the extent permitted by law, no such benefits shall be subject to legal
process or attachment for the payment of any claims against any person entitled
to receive the same.
7. If it shall be found that any person to whom a payment is due
hereunder is unable to care for his affairs because of physical or mental
disability, as determined by a licensed physician, the Company shall have the
authority to cause the payments becoming due such person to be made to the
legally appointed guardian of any such person or the spouse, brother, sister, or
other person as it shall determine. Payments made pursuant to such power shall
operate as a complete discharge of the Company.
8. The Special Appendix VII shall be construed, regulated and
administered according to the laws of the State of Texas.
9. This Special Appendix VII shall be binding upon any successor (whether
direct or indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business and/or assets of the Company in the same
manner and to the same extent that the Company would be bound to perform if no
such succession had taken place.
10. Benefits to be paid under this Special Appendix VII shall be paid out
of general corporate assets when due, and are not funded, or guaranteed by any
government agency.
11. This Special Appendix VII may be amended or terminated only by written
agreement between and among the parties hereto.
/s/ Barry R. Schuman
--------------------------
Barry R. Schuman
TENNECO MANAGEMENT COMPANY
By /s/ Dana G. Mead
-----------------------
Its
----------------------
<PAGE>
SPECIAL APPENDIX VIII TO THE
TENNECO INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
---------------------------------------------------
In consideration of his services to Tenneco Packaging Inc. (the
"Company") and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company, pursuant to the
authority set forth in the Tenneco Inc. Supplemental Executive Retirement Plan
("Plan"), hereby amends the Plan to add Special Appendix VIII ("Special Appendix
VIII") for the benefit of Paul T. Stecko ("Stecko"), and the parties hereto
agree as follows, effective January 1, 1996:
12. The aggregate monthly pension benefits to which Stecko and his
surviving spouse shall be entitled under the Tenneco Inc. Retirement Plan, the
Tenneco Inc. Benefit Equalization Plan, the Tenneco Inc. Supplemental Executive
Retirement Plan (without regard to this Special Appendix VIII) (collectively,
the "Tenneco Plans") and this Special Appendix VIII shall be no less than the
amount to which Stecko and his surviving spouse would have been entitled if
Stecko's coverage under the International Paper defined benefit plans in effect
as of December 3, 1993, had continued until Stecko's separation from service
with the Company, less any benefits Stecko and his surviving spouse are entitled
to receive from such International Paper defined benefit plans. The amount of
the benefits payable under the Tenneco Plans and the International Paper defined
plans shall be computed as a single life annuity based on the actuarial factors
applicable to each such plan.
13. If Stecko would not otherwise meet the service requirements for
early retirement eligibility under the Tenneco Plans but he would meet such
service requirements counting his years of service with International Paper, he
and his surviving spouse shall be entitled to monthly benefits hereunder which,
when taken together with monthly benefits to which he and his surviving spouse
are entitled under the Tenneco Plans and the International Paper defined benefit
plans, are no less than the benefits to which he and his surviving spouse would
have been entitled (subject to the rule stated in Section 1 above) had he met
such requirements.
14. For purposes of determining the amount to which Stecko and his
surviving spouse would have been entitled if Stecko's coverage under the
International Paper defined benefit plans in effect as of December 3, 1993, had
continued until Stecko's separation from service with the Company, (i.e., the
minimum benefit described in Section 1 hereof) all of Stecko's service with
International Paper and the Company shall be aggregated to determine whether
Stecko has met the service requirements for early retirement eligibility under
the International Paper defined benefit plans.
<PAGE>
15. Stecko shall receive benefits under this Special Appendix VIII in
the form of a single life annuity. In addition Stecko may elect to receive
benefits under this Special Appendix VIII in the form of a lump sum distribution
or in any other form then permitted under the Tenneco Inc. Retirement Plan
("TRP"). If Stecko dies before commencing to receive the benefits described
hereunder, his Beneficiary will receive a death benefit in a lump sum
distribution which is the present value of the benefits which he has accrued
hereunder as of the date of his death. If Stecko dies before commencing to
receive the benefits described hereunder, his beneficiary will receive a death
benefit which is the present value of the benefits which he has accrued
hereunder as of the date of his death. The actuarial factors set forth in the
TRP shall be used to compute the benefits payable hereunder.
16. This Special Appendix VIII shall be administered by the Company,
and the Company shall bear all costs of administration.
17. This Special Appendix VIII contains all of the terms agreed upon
by the parties with respect to the subject matter hereof and supersedes all
prior agreements, arrangements and communications between the parties dealing
with such subject matter, whether oral or written.
18. Benefits provided for hereunder may not be assigned or
hypothecated, and to the extent permitted by law, no such benefits shall be
subject to legal process or attachment for the payment of any claims against any
person entitled to receive the same.
19. If it shall be found that any person to whom a payment is due
hereunder is unable to care for his affairs because of physical or mental
disability, as determined by a licensed physician, the Company shall have the
authority to cause the payments becoming due such person to be made to the
legally appointed guardian of any such person or the spouse, brother, sister, or
other person as it shall determine. Payments made pursuant to such power shall
operate as a complete discharge of the Company.
20. The Special Appendix VIII shall be construed, regulated and
administered according to the laws of the State of Texas.
21. This Special Appendix VIII shall be binding upon any successor
(whether direct or indirect, by purchase, merger, consolidation, or otherwise)
to all or substantially all of the business and/or assets of the Company in the
same manner and to the same extent that the Company would be bound to perform if
no such succession had taken place.
22. Benefits to be paid under this Special Appendix VIII shall be
paid out of general corporate assets when due, and are not funded, or guaranteed
by any government agency.
<PAGE>
23. This Special Appendix VIII may be amended or terminated only by
written agreement between and among the parties hereto.
/s/ Paul T. Stecko
-----------------------------------------
Paul T. Stecko
TENNECO PACKAGING INC.
By /s/ Dana G. Mead
--------------------------------------
Its
--------------------------------------
<PAGE>
SPECIAL APPENDIX IX TO THE
TENNECO INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
---------------------------------------------------
In consideration of his services to Tenneco Management Company (the
"Company") and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company, pursuant to the
authority set forth in the Tenneco Inc. Supplemental Executive Retirement Plan
("Plan"), amends the Plan to add Special Appendix IX for the benefit of Theodore
R. Tetzlaff ("Tetzlaff"), and the parties hereto agree as follows, effective
January 1, 1996:
1. The monthly pension benefits to which Tetzlaff and his surviving
spouse shall be entitled, provided that Tetzlaff serves the Company as an
officer until January 1, 1997, shall be equal to the benefits to which Tetzlaff
and his surviving spouse would be entitled under the Tenneco Inc. Retirement
Plan (the "TRP"), the Tenneco Inc. Benefit Equalization Plan, and the Tenneco
Inc. Supplemental Executive Retirement Plan (collectively, the "Tenneco Plans"),
each computed as a single life annuity and using the generally applicable rules
and actuarial factors of such plans if he were a participant in such plans,
computed using the following special provisions:
(a) Tetzlaff's service and participation will be regarded as
beginning July 1, 1992.
(b) Tetzlaff's retainer and bonus for each calendar year will be
prorated for each month that Tetzlaff performs services for the
Company as an officer during the calendar year to arrive at a
covered monthly compensation under the TRP formula.
(c) If Tetzlaff reaches age 55 while performing services for the
Company as an officer, Tetzlaff will be eligible for an early
retirement benefit with subsidized reductions factors parallel to
the TRP factors, even though Tetzlaff does not have the service
or participation required under the TRP provisions.
(d) Tetzlaff's guaranteed minimum annual life only benefit will be as
follows:
Age 55 $100,000 per year
Age 60 $200,000 per year
Age 65 $300,000 per year
with a prorated guaranteed minimum annual life only benefit
between the above ages.
<PAGE>
(e) In all other respects, the provisions of the Tenneco Plans shall
apply.
2. Tetzlaff shall receive benefits under this Special Appendix IX in the
form of a single life annuity, or in a lump sum or in another form permitted
under the TRP. If Tetzlaff dies before commencing to receive the benefits
described hereunder, his beneficiary will receive a death benefit which is the
present value of the benefits which he has accrued hereunder as of the date of
his death. The actuarial factors set forth in the TRP shall be used to compute
the benefits payable hereunder.
3. This Special Appendix IX shall be administered by the Company, and the
Company shall bear all costs of administration.
4. This Special Appendix IX contains all of the terms agreed upon by the
parties with respect to the subject matter hereof and supersedes all prior
agreements, arrangements and communications between the parties dealing with
such subject matter, whether oral or written.
5. Benefits provided for hereunder may not be assigned or hypothecated,
and to the extent permitted by law, no such benefits shall be subject to legal
process or attachment for the payment of any claims against any person entitled
to receive the same.
6. If it shall be found that any person to whom a payment is due
hereunder is unable to care for his affairs because of physical or mental
disability, as determined by a licensed physician, the Company shall have the
authority to cause the payments becoming due such person to be made to the
legally appointed guardian of any such person or the spouse, brother, sister, or
other person as it shall determine. Payments made pursuant to such power shall
operate as a complete discharge of the Company.
7. The Special Appendix IX shall be construed, regulated and administered
according to the laws of the State of Texas.
8. This Special Appendix IX shall be binding upon any successor (whether
direct or indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business and/or assets of the Company in the same
manner and to the same extent that the Company would be bound to perform if no
such succession had taken place.
9. Benefits to be paid under this Special Appendix IX shall be paid out
of general corporate assets when due, and are not funded, or guaranteed by any
government agency.
<PAGE>
10. This Special Appendix IX may be amended or terminated only by written
agreement between and among the parties hereto.
/s/ Theodore R. Tetzlaff
-----------------------------------------
Theodore R. Tetzlaff
TENNECO MANAGEMENT COMPANY
By /s/ Dana G. Mead
--------------------------------------
Its
--------------------------------------
<PAGE>
Exhibit 10.13
-------------
AMENDED AND RESTATED TENNECO INC.
BENEFIT EQUALIZATION PLAN
1. Name. The name of this plan is the "Tenneco Inc. Benefit Equalization
Plan" (hereinafter called "the Plan").
2. Purpose. Section 415 of the Internal Revenue Code of 1954, as amended
by the Employee Retirement Income Security Act of 1974 (hereinafter called
"Section 415"), imposes a limitation on the amount of retirement benefits which
may be paid to certain Employees of the Company and/or its Qualified
Subsidiaries under the Retirement Plan for Eligible Employees of Tenneco Inc.
and Designated Domestic Companies (hereinafter called "The Retirement Plan"),
and also imposes a limitation on the amount of annual contributions and other
additions which may be made to certain Employees' thrift accounts under the
Tenneco Inc. Thrift Plan (hereinafter called the "Thrift Plan"). The exclusive
purpose of the Plan is to provide additional benefits to those Employees
(hereinafter called the "Participants") whose retirement benefits under the
Retirement Plan or annual contributions under the Thrift Plan are reduced solely
as a result of the limitations imposed by Section 415.
3. Administration. The Plan shall be administered by the Tenneco Inc.
Benefits Committee (the "Benefits Committee") and supervised, construed and
interpreted by the Salary Committee of the Board of Directors (the "Compensation
Committee"). The construction and interpretation by the Salary Committee of any
provision of the Plan shall be final, conclusive and binding upon all parties
including the Company, its stockholders and its employees. No member of either
of said Committees shall be liable for any act done or determination made in
good faith.
<PAGE>
4. Payment of Benefits to Participants.
a. Retirement Plan Benefit Equalization.
At such time as a Participant's retirement benefit is payable under
the terms of the Retirement Plan, the Company will calculate the retirement
benefit which would have been payable had not the provisions of Section 415
limited the retirement benefit. The difference between the amount of the
retirement benefit which would have been payable but for the limitation imposed
by Section 415 and the amount of the benefit actually payable under the
Retirement Plan is hereinafter referred to as "the Retirement plan Benefit
Equalization". The Company shall pay a Participant's Retirement Plan Benefit
Equalization payment to such persons, at such times, and in such manner as the
Retirement Plan benefit is payable pursuant to the terms of the Retirement Plan;
provided, however that the Company shall at the Participant's request convert
the payment of the Retirement Plan Benefit Equalization into any actuarial
equivalent including but not limited to a lump sum as may be requested by the
Participant. Conversion of the Retirement Plan Benefit Equalization Payment into
any actuarial equivalent form of payment shall be made based on the actuarial
factors set forth in the Tenneco Inc. Retirement Plan.
b. Thrift Plan Benefit Equalization.
If, during any calendar year prior to January 1, 1988, the Company
and/or a Qualified subsidiary was prevented from making the maximum matching
Employer contribution to the Participant's thrift account under the terms of the
Thrift Plan because of the Section 415 limitation upon annual additions to such
Participant's thrift account, the Company shall establish a ledger account,
referred to as a "Thrift Plan Benefit Equalization Account", in the
Participant's name. At any time that the Company and/or Qualified
-2-
<PAGE>
Subsidiary would otherwise have made a matching Employer contribution to the
Participant's thrift account and (1) the Participant had made the maximum
Employee contribution and maximum Salary Deferral contribution to his thrift
account that he was entitled to make determined with regard to the Section 415
limitation or (2) the Participant, with the approval of the Benefits Committee,
in order to be permitted to make maximum Salary Deferral contributions to his
thrift account within the Section 415 limitation, had elected that his Thrift
Plan Benefit Equalization Account be credited with amounts equal to, but in lieu
of, the matching Employer contributions which would otherwise be credited to his
thrift account (a "Section 415/Maximum Salary Deferral Election"), the
Participant's Thrift Plan Benefit Equalization Account shall be credited with
the difference between (1) the matching Employer contribution which would have
been made at such time to the Participant's thrift account if the Participant
had made the maximum Employee contribution or Salary Deferral contribution to
his thrift account that he was entitled to make, determined without regard to
the Section 415 limitation and any Section 415/Maximum Salary Deferral Election,
and (2) the actual matching Employer contribution made to the Participant's
thrift account at such time.
As of the last day of each month on which a Participant's Thrift Plan
Benefit Equalization Account had a positive balance, interest for the month
shall be credited in an amount obtained by applying the Thrift Plan Time Deposit
interest rate announced for such month to the closing balance of the
Participant's Thrift Plan Benefit Equalization Account on the first day of such
month. No interest shall be credited for the month during which the balance of
the Participant's Thrift Plan Benefit Equalization Account is distributed.
-3-
<PAGE>
A Participant shall be fully vested in any amount credited to his Thrift
Plan Benefit Equalization Account.
At such time as a Participant terminates employment with the Company, all
Qualified Subsidiaries and all other companies controlled thereby, the Company
shall cause the Participant or, if the Participant is deceased, the
Participant's beneficiary under the Thrift Plan, to be paid the balance of the
Participant's Thrift Plan Benefit Equalization Account in a single sum as soon
as administratively feasible following termination of employment.
c. Nature and Source of Benefit Equalization Payments.
The benefit equalization payments described in this Plan shall be deemed to
be compensation for services, and shall constitute a liability to the
Participants and/or their beneficiaries in accordance with the terms hereof.
The payment of such benefits shall be made from the general funds of the
Company. No special or separate fund need be established and no segregation of
assets need be made to assure the payment of such benefits. No Participant
shall have any interest in any particular asset of the Company by virtue of his
rights under this Plan.
5. Expenses of Administering the Plan. All expenses of administering the
Plan shall be borne by the Company.
6. Amendment or Termination of the Plan.
a. The Board of Directors may terminate this Plan at any time.
b. The Board of Directors may amend or modify this Plan from time to
time in any respect.
-4-
<PAGE>
c. No such termination or amendment by the Board of Directors shall
divest a Participant of any benefit then payable to him under this Plan unless
the Participant agrees in writing to such divestment.
7. Non-Alienation of Benefits. Except by mutual agreement between Tenneco
Inc. and the Participant, any benefit which shall be payable under this Plan
shall not be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, or charge, and any attempt at such shall be
void, and no such benefit shall in any way be subject to the debts, contracts,
liabilities, engagements, or torts of the person who shall be entitled to such
benefit, nor shall it be subject to attachment or legal process for or against
such person.
8. Definitions. For purposes of this Plan, the following definitions
shall be applicable:
a. The term "Employee" shall mean any person who is regularly
employed on a salary basis by the Company or by a Qualified Subsidiary,
including, but not limited to, any employee who is also an officer or director
of the Company or of a Qualified Subsidiary.
b. The term "Participant" shall mean any Employee who is entitled to
benefits under the provisions of 4a or 4b of the Plan.
c. The term "Company" shall mean Tenneco Inc.
d. The term "Qualified Subsidiary" shall mean a company which has
adopted either the Retirement Plan or Thrift Plan.
e. The term "Board of Directors" shall mean the Board of Directors
of Tenneco Inc.
-5-
<PAGE>
9. Claims Procedure.
a. Claims for Benefits.
(i) As a prerequisite to payment of any benefit under the
Plan, the Participant or the beneficiary of the
deceased Participant shall make a claim in such manner
as the committee may reasonably require;
(ii) Promptly upon the receipt of such claim, the Benefits
Committee shall determine whether the claimant is
entitled to the benefit and, if so, the amount thereof.
b. Denial of Benefits.
In the event that any claim for a benefit under this Plan is
denied, in whole or in part, the Benefits Committee shall furnish
the claimant with a written notice setting forth in a manner
calculated to be understood by the claimant:
(i) The specific reasons for the denial;
(ii) Specific reference to any pertinent provisions of this
Plan upon which the denial is based.
(iii) A description of any additional material or information
necessary for the claimant to perfect the claim and an
explanation of why such material or information is
necessary; and
(iv) Appropriate information as to the steps to be taken if
the claimant wishes to subject the claim for review.
-6-
<PAGE>
A claim shall be deemed denied if the Benefits Committee does not approve the
claim and fails to furnish the aforesaid notice of denial before the expiration
of a period commencing with its receipt of the claim and consisting of 90 days,
plus such extension of time for processing the claim, not to exceed 90
additional days, as special circumstances require, provided, that, prior to the
expiration of the initial 90 days of the period, the claimant has been furnished
with a written notice, which indicates the special circumstances requiring the
extension and the date by which a decision regarding the claim is expected to be
rendered.
c. Review of Denied Claims.
A claimant whose claim for a benefit under the Plan is denied, either
in whole or in part, shall have the right, to be exercised by written
application filed with the Benefits Committee not later than the 60th day after
receipt of notice of such denial, to request a review of the claim. Such
request for review may contain such issues and comments as the claimant may wish
considered in the review and the committee shall permit the claimant to review
pertinent documents in its possession, including copies of the Plan.
The Benefits Committee shall make a final determination with respect to the
claim as soon as practicable. Notice of the final determination shall be
furnished to the claimant in writing, in a manner reasonably calculated to be
understood by the claimant, and shall set forth the specific reasons for the
determination and specific references to any pertinent provisions of the Plan
upon which the determination is based. A claim shall be deemed denied on review
if the Benefits Committee fails to furnish the aforesaid notice of final
determination before the expiration of a period commencing with its receipt of
the request
-7-
<PAGE>
for review of the claim and consisting of 60 days, plus such extension of time
for completing the review, not to exceed 60 additional days, as special
circumstances require, provided, that prior to the expiration of the initial 60
days of the period, the claimant has been furnished with a written notice which
indicates the special circumstances requiring the extension and the date by
which a decision regarding the review of the claim is expected to be rendered.
10. Effective Date. The Plan shall become effective January 1, 1976.
-8-
<PAGE>
EXHIBIT 10.14
-------------
AMENDED AND RESTATED TENNECO INC.
OUTSIDE DIRECTORS RETIREMENT PLAN
JUNE 14, 1994
This Plan was terminated on March 12, 1996; however, Directors who were
fully vested in the maximum benefit were afforded an election to continue under
the Plan and receive monthly benefits upon their separation from service.
1. Purposes. The purpose of this Plan is to provide retirement income to
persons who have served as outside (non-employee) directors on the Board of
Directors of Tenneco Inc.
2. Eligibility. Effective for an outside director who separates from
Board Service on or after June 14, 1994, such outside director who has served as
an outside director of Tenneco Inc. for five or more years will, upon ceasing to
serve as a director, receive a monthly retirement payment based upon his or her
years of service (or fractional years based on whole months of service actually
completed) as an outside director, and based on the retainer amounts being
received at the time he or she ceased to serve as an outside director, according
to the schedule in Section 3.
3. Payment Schedule.
(a) An eligible director with years of Board service as an
outside director equal to or greater than 5 years but less than 15
years, shall receive a monthly retirement payment equal to the sum of
the basic monthly retainer plus any committee or committee chairman
monthly retainers. Such monthly payments shall continue for a period
equal to the number of years (or fractional years) of Board service as
an outside director, provided that if the director dies before
receiving all of the foregoing monthly payments, the remaining
payments shall be made to the director's designated beneficiary or, if
none, to his or her estate, or if the estate is closed, to his or her
heirs at law.
(b) An eligible director with years of Board service as an
outside director equal to or greater than 15 years, shall receive a
monthly retirement payment equal to the sum of the basic monthly
retainer plus any committee or committee chairman monthly retainer.
Such monthly payments shall continue for the director's life, provided
that if the director dies before receiving 15 years of payment, the
remainder of the 15 years of payments shall be made to the director's
designated beneficiary or, if none, to his or her estate, or if the
estate is closed, to his or her heirs at law.
4. Method of Payment. The foregoing monthly retirement payments
shall be payable on the first of the month. After the death of a director, any
remaining payments due the beneficiary or estate may be paid as a lump sum
present value.
<PAGE>
5. Amendment or Termination. Tenneco Inc. may, at any time, amend
or terminate this retirement Plan for outside directors, provided that the
retirement benefit based on years (or fractional years) of Board service as an
outside director up to the time of plan amendment or termination shall be
preserved. In case of plan amendment or termination, Tenneco Inc. may pay the
earned retirement benefit to an eligible director or beneficiary as a lump sum
present value.
6. Assignment or Attachment. Payments due under this Plan may not
be assigned, transferred, pledged or encumbered by the director nor will such
payments be subject to garnishment, attachment, execution or other levy.
7. Withholding. Any payments under the Plan may be subject to tax
or other withholding, as required by law.
8. Designation of Beneficiary. To be valid, a designation of
beneficiary form must, before the date of the director's death, be filed with
the Secretary of Tenneco Inc. in a form reasonably acceptable to the Secretary.
9. Controlling Law. This Plan shall be interpreted exclusively
under the laws of the State of Texas without regard for Texas conflict of laws
provisions.
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<PAGE>
EXHIBIT 10.15
-------------
SUPPLEMENTAL PENSION AGREEMENT
BETWEEN
DANA G. MEAD
AND
TENNECO INC.
In consideration of his services to Tenneco Inc. and Tenneco
Management Company (collectively, the "Company") and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Company hereby establishes the supplemental pension plan (the "Plan") described
herein for the benefit of Dana G. Mead ("Mead") and his Beneficiaries, as that
term is defined herein, and the parties hereto agree as follows, effective
September 12, 1995:
1. Mead shall be entitled to monthly pension benefits from the
Company in the amount determined under Section 2 hereof commencing on the first
day of the calendar month immediately following the termination of his
employment with the Company.
2. The monthly pension benefits to which Mead shall be entitled shall
be equal to the greater of (a) or (b), where
(a) equals the benefits to which Mead would be entitled under the
Tenneco Inc. Retirement Plan (the "TRP"), Tenneco Inc. Benefit
Equalization Plan and Tenneco Inc. Supplemental Executive
Retirement Plan, computed using Final Average Earnings, as
defined in Section 3 hereof, and Years of Credited Service, as
defined in Section 4 hereof, and substituting the rules of
Sections 1, 5 and 6 hereof for the generally applicable rules of
such plans; and
(b) equals 2.48% of Mead's Final Average Earnings, as defined in
Section 3 hereof, times his Years of Credited Services, as
defined in Section 4 hereof, but not exceeding 20 Years of
Credited Service.
3. "Final Average Earnings" means the quotient of (i) Mead's
Earnings, as defined below, for the 3 calendar years in which his Earnings were
the highest in the 5 consecutive calendar year period ending prior to his
termination of employment, divided by (ii) 36. "Earnings" means regular base
salary plus Executive Incentive Compensation Plan bonus earned (regardless of
when paid) with respect to that period.
4. "Years of Credit Service" means the total of (i) 14 2/3 plus (ii)
Mead's Actual Tenneco Service, as defined below. "Actual Tenneco Service" means
the period, in whole years and fractions thereof with each month or portion
thereof counting as one-twelfth of one year, from April 1, 1992 through the date
of Mead's termination of employment with the Company.
<PAGE>
5. The benefits provided hereunder shall be paid in the joint and
50% survivor form of annuity if Mead is married at the time benefits are to
commence-- i.e., to Mead for life and, after his death, 50% of the monthly
amount payable during Mead's life continuing to the spouse, if any, to whom he
was legally married at the date of the commencement of payment of benefits
hereunder and to whom he was so married on the date of his death. There shall be
no reduction in the amount of the benefits payable during Mead's life on account
of payment in the joint and 50% survivor form. The benefits provided hereunder
shall be paid in the life only form of annuity if Mead is not married at the
time that benefit payments are to commence. Subject to the rules stated in the
immediately following paragraph, Mead may elect to receive such benefits in
another form which is the actuarial equivalent of the normal form of benefit
specified above for his marital status at the time in question. At Mead's
election, the Company will purchase and distribute to him an annuity contract
issued by an insurance company acceptable to Mead to provide such benefits.
If his termination of employment is effective after he attains age 62
or earlier with the consent of the Company, Mead may elect to receive such
benefits in the form of a lump sum distribution. If a lump sum distribution is
elected, it shall be computed under the assumptions then in use with respect to
the Tenneco Inc. Retirement Plan, or its successor; provided, that in no event
shall the interest assumption be greater than the Pension Benefit Guaranty
Corporation immediate annuity interest rate in effect as of January 1 of the
year in which the payment is to be made, and provided further that the mortality
table shall be no less favorable to Mead or his Beneficiary than the 1983 group
annuity table, 50% male, 50% female mix.
6. If Mead dies before commencing to receive the benefits described
hereunder, his Beneficiary will receive a death benefit in a lump sum
distribution which is the present value of the benefits which he has accrued
hereunder as of the date of his death computed in accordance with the rules set
forth herein, including the interest assumption specified in Section 5 hereof.
Without limiting the generality of the foregoing, it is specifically provided
that the special alterative death benefit called for by the TRP as in effect on
December 31, 1994, shall apply if that produces a higher benefit. Mead's
Beneficiary shall be the person or entity which he has designated on a form
filed with the Company prior to his death. If, at the time of his death, no
valid beneficiary designation is on file, his Beneficiary shall be his spouse,
or, if his spouse does not survive him, his estate.
7. The benefits provided hereunder are in lieu of any benefits to
which Mead might otherwise be entitled under the Tenneco Inc. Retirement Plan,
Tenneco Inc. Benefit Equalization Plan or Tenneco Inc. Supplemental Executive
Retirement Plan, but shall not adversely affect his entitlement to benefits
under any other plan, fund or program maintained by the Company, not shall
benefits provided under any other such plan fund or program be offset against or
otherwise reduce the benefits provided for hereunder.
8. This Plan shall be administered by the Company, and the Company
shall bear all costs of administration.
-2-
<PAGE>
9. This Plan contains all of the terms agreed upon by the parties
with respect to the subject matter hereof and supersedes all prior agreements,
arrangements and communications between the parties dealing with such subject
matter, whether oral or written, including, without limitation, Section 9 of
that certain agreement among the parties dated March 12, 1992.
10. Benefits provided for hereunder may not be assigned or
hypothecated, and to the extent permitted by law, no such benefits shall be
subject to legal process or attachment for the payment of any claims against any
person entitled to receive the same.
11. If it shall be found that any person to whom a payment is due
hereunder is unable to care for his affairs because of physical or mental
disability, as determined by a licensed physician, the Company shall have the
authority to cause the payments becoming due such person to be made to the
legally appointed guardian of any such person or the spouse, brother, sister, or
other person as it shall determine. Payments made pursuant to such power shall
operate as a complete discharge of the Company.
12. The Plan shall be construed, regulated and administered according
to the laws of the State of Texas.
13. This Plan shall be binding upon any successor (whether direct or
indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business and/or assets of the Company in the same
manner and to the same extent that the Company would be bound to perform if no
such succession had taken place.
14. This Plan may be amended or terminated only by written agreement
between and among the parties hereto.
DANA G. MEAD
Dana G. Mead
TENNECO MANAGEMENT COMPANY
By: ROBERT T. BLAKELY
Its: Senior Vice President and chief Financial
Officer
TENNECO INC.
By: KARL A. STEWART
Its: Vice President and Secretary
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<PAGE>
EXHIBIT 10.16
-------------
TENNECO INC. CHANGE IN CONTROL
SEVERANCE BENEFIT PLAN FOR KEY EXECUTIVES
(AMENDED AND RESTATED EFFECTIVE OCTOBER 1, 1996)
----------------------------------------------
1. Definitions
A. "Change in Control" shall mean the first to occur of the following
events (but no event other than the following events), except as
otherwise provided below:
(1) any person and any of their affiliates or associates becomes the
beneficial owner, directly or indirectly, of securities of
Tenneco representing twenty-five percent (25%) or more of the
combined voting power of Tenneco's then outstanding securities
having general voting rights, and a majority of the Incumbent
Board does not approve the acquisition (other than in response to
a Threatened Change in Control under circumstances making it
reasonably apparent that a change in control of Tenneco has
become inevitable) before the acquisition occurs, notwithstanding
the foregoing, a Change in Control shall not be deemed to occur
pursuant to this clause (i) solely because twenty-five percent
(25%) or more of the combined voting power of Tenneco's then
outstanding securities having general voting rights is acquired
by one or more employee benefit plans maintained by one or more
Tenneco Companies;
(2) members of the Incumbent Board cease to constitute a majority of
the Tenneco Board; or
(3) The consummation of any plan of merger, consolidation or
combination between Tenneco and any person including becoming a
subsidiary of any other person without members of the Incumbent
Board, as constituted immediately prior to the merger,
consolidation or combination constituting a majority of the board
of directors of (a) the surviving or successor corporation, or,
(b) if the surviving or successor corporation is a majority-owned
subsidiary of another corporation or corporations, the ultimate
parent company of the surviving or successor corporation; or
(4) the consummation of any sale, exchange or other disposition of
all or substantially all of Tenneco's assets without members of
the Incumbent Board immediately prior to any sale, exchange or
disposition of all or substantially all of Tenneco's assets
constituting a majority of the board of directors of (a) the
corporation which holds such assets after such disposition, or,
(b) if such corporation is a
<PAGE>
majority-owned subsidiary of another corporation or corporations,
the ultimate parent company of the successor corporation; or
(5) if any person and any of their affiliates and associates, shall
elect or have elected, during any period not exceeding 24 months,
at least 25% of the members of the Tenneco Board, without the
approval of the Incumbent Board and such members are comprised of
persons not serving as members of the Tenneco Board immediately
prior to the formation of such group or the first solicitation of
proxies by such shareholder;
provided however that the Incumbent Board may determine that any
transaction is not a Change in Control.
B. "Constructive Termination" will be deemed to have occurred if,
following the Change in Control, a Key Executive separates from
service with all Tenneco Companies after the Tenneco Companies, by
action or inaction, and without the Key Executive's express written
consent:
(1) diminish the Key Executive's status, position, duties or
responsibilities with Tenneco Companies from those in effect
immediately prior to the Change in Control;
(2) reduce the Key Executive's current annual cash compensation from
Tenneco Companies below the sum of (a) the Key Executive's annual
base salary or annual base compensation from Tenneco Companies in
effect immediately prior to the Change in Control and (b) the Key
Executive's average annual award under the Tenneco Inc. Executive
Incentive Compensation Plan for the three calendar year periods
completed immediately prior to the Change in Control;
(3) cause a material reduction in (a) the level of aggregate Tenneco
Companies-paid medical benefit, life insurance and disability
plan coverages; or (b) the aggregate rate of Tenneco Companies-
paid thrift/savings plan contributions and of Tenneco Companies-
paid defined benefit retirement plan benefit accrual, from those
coverages and rates in effect immediately prior to the Change in
Control; or
(4) effectively require the Key Executive to relocate because of
transfer of the Key Executive's place of employment with Tenneco
Companies.
C. "Discharge for Cause" shall be deemed to have occurred only if,
following the Change in Control, a Key Executive is discharged by
Tenneco Companies from employment or as a non-employee officer
because:
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(1) the Key Executive has engaged in dishonesty or other serious
misconduct in his or her capacity as an employee or non-employee
officer of Tenneco Companies having the effect of injuring the
reputation or business of Tenneco Companies, monetarily or
otherwise; or
(2) the Key Executive has willfully and continually failed (unless
due to incapacity resulting from physical or mental illness) to
perform either his or her duties as a non-employee officer or the
duties of his or her employment by Tenneco Companies after
written demand for substantial performance is delivered to the
Key Executive by Tenneco Companies specifically identifying the
manner in which the Key Executive has not substantially performed
such duties.
Notwithstanding the foregoing, a Key Executive who, immediately prior
to the Change in Control, is a member of Executive Group 1 shall not
be deemed to have been Discharged for Cause unless a written notice
has been delivered to the Key Executive stating that either the
Tenneco Companies have terminated the Key Executive's employment or
status as a non-employee officer, which notice shall include a
resolution, adopted by a three-quarter's vote of the Incumbent Board
(after the Key Executive has been provided with reasonable notice and
an opportunity, together with counsel, for a hearing before the entire
Incumbent Board), finding that the Key Executive has engaged in the
conduct set forth in clauses "(1)" or "(2)" of the preceding sentence.
D. "Executive Group I" shall consist of each individual who, immediately
prior to a Change in Control,
(1) is an officer of Tenneco of the rank of Vice President or above;
(2) who is the President (or other principal officer) of any other
Tenneco Company, if designated by the Chairman and Chief
Executive Officer of Tenneco, in writing on or before the Change
in Control, as a member of Executive Group I; or
(3) is a non-employee officer of Tenneco.
E. "Executive Group II" shall consist of each individual
(1) who is not a member of Executive Group I; and
(2) (a) who, immediately prior to the Change in Control, is an active
participant in the Tenneco Inc. Executive Incentive Compensation
Plan, or (b) who, immediately prior to the Change in Control, is
an employee of a Tenneco Company who has been designated by the
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<PAGE>
Chairman and Chief Executive Officer of Tenneco, in writing on or
before the Change in Control, as a member of Executive Group II.
F. "Incumbent Board" means
(1) the members of the Tenneco Board on May 15, 1996, to the extent
that they continue to serve as members of the Tenneco Board; and
(2) any individual who becomes a member of the Tenneco Board after
May 15, 1996, if his or her election or nomination for election
as a director is approved by a vote of at least three-quarters of
the then Incumbent Board.
G. "Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended.
H. "Key Executive" means an individual who, immediately prior to the
Change in Control, is a member of Executive Group I or Executive Group
II.
I. "Plan" means the Tenneco Inc. Change in Control Severance Benefit Plan
for Key Executives.
J. "Tenneco" means Tenneco Inc.
K. "Tenneco Board" means the Board of Directors of Tenneco.
L. "Tenneco Company" means Tenneco and any stock corporation of which a
majority of the voting common or capital stock is owned directly or
indirectly by Tenneco.
M. "Tenneco Inc. Benefits Protection Trust" means the Tenneco Inc.
Benefits Protection Trust.
N. "Threatened Change in Control" shall mean each of the following events
(but no event other than the following events), except as otherwise
provided below:
(1) any person and any of their affiliates or associates, without the
prior approval of a majority of the Incumbent Board (a) becomes
the beneficial owner, directly or indirectly, of securities of
Tenneco representing fifteen percent (15%) or more of the
combined voting power of Tenneco's then outstanding securities
having general voting rights, or (b) initiates a tender offer to
acquire (as the beneficial owner) securities of Tenneco
representing fifteen percent (15%) or more of the combined voting
power of Tenneco's then outstanding securities having general
voting rights, notwithstanding the foregoing,
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<PAGE>
a Threatened Change in the Control shall not be deemed to occur
pursuant to this clause (i) solely because fifteen percent (15%)
or more of the combined voting power of Tenneco's then
outstanding securities having general voting rights is acquired
by one or more employee benefit plans maintained by a Tenneco
Company; or
(2) three or more directors, whose election or nomination for
election is not approved by a majority of the Incumbent Board,
are elected within any single twelve-month period to serve on the
Tenneco Board; or
(3) the Incumbent Board has determined that a Threatened Change in
Control exists;
provided however the Incumbent Board may determine that any
transaction is not a Threatened Change in Control.
O. "Threatened Change in Control Period" shall mean the period beginning
on the date a Threatened Change in Control occurs and ending on the
earliest of
(1) if the Threatened Change in Control was caused by an event
described in clause (i) of the definition of "Threatened Change
in Control", on the date first subsequent to the date on which
the person referred to therein does not own securities of Tenneco
representing fifteen percent (15%) or more of the combined voting
power of Tenneco's then outstanding securities having general
voting rights, or terminates the tender offer instituted by him
as the case may be; or
(2) if the Threatened Change in Control was caused by an event
described in clause (ii) of the definition of "Threatened Change
in Control", on the date first subsequent to the date on which
each member of the Tenneco Board shall be either a member of the
Incumbent Board or an individual whose election or nomination for
election as a director was approved by a majority of the
Incumbent Board.
(3) if the Threatened Change in Control shall be deemed to have
occurred by reason of the determination described in clause (iii)
of the definition of "Threatened Change in Control", on the date
the Incumbent Board has determined that the circumstances which
constituted the Threatened Change in Control no longer exist; or
(4) the date the Change in Control occurs.
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For purposes of the foregoing definitions, the terms "person" and
"beneficial owner" shall have the meaning set forth in Sections 3(a) and
13(d) of the Securities Exchange Act of 1934, as amended, and the
regulations promulgated thereunder.
2. Plan Purpose. The purpose of the Plan is to induce Key Executives to
enter into, or continue their services or employment with, and to
steadfastly serve Tenneco Companies if and when a Change in Control is
threatened, despite attendant career uncertainties, by committing Tenneco
to provide severance benefits in the event their employment with Tenneco
Companies terminates as a result of a Change in Control.
3. Effective Date. The Plan was originally effective on May 10, 1988.
4. Eligibility for Benefits. (i) If within two years after a Change in
Control, a Key Executive is separated from service as either an employee or
as a non-employee officer with Tenneco Companies because (a) the Key
Executive is discharged by the Tenneco Companies, provided, such discharge
is not Discharge for Cause, or (b) because of Constructive Termination, and
(ii) throughout the period beginning with the Change in Control and ending
with such separation from service with Tenneco Companies, the Key Executive
remains an employee or non-employee officer of Tenneco Companies, then the
Key Executive shall be paid the following severance benefit:
A. If the Key Executive is a member of Executive Group I immediately
prior to the Change in Control -- an amount equal to three times the
sum of (a) the Key Executive's annual base salary or other annual base
compensation in effect immediately prior to the Change in Control,
plus (b) the average of the Key Executive's annual awards under the
Tenneco Inc. Executive Incentive Compensation Plan and the Tenneco
Inc. Performance Unit Plan, together with any special awards from
Tenneco Companies, for the last three years of the Key Executive's
employment or provision of services in the case of non-employee
officers with Tenneco Companies.
B. If the Key Executive is a member of Executive Group II immediately
prior to the Change in Control -- an amount equal to two times the sum
of (a) the Key Executive's annual base salary in effect immediately
prior to the Change in Control, plus (b) the average of the Key
Executive's annual awards under the Tenneco Inc. Executive Incentive
Compensation Plan and the Tenneco Inc. Performance Unit Plan, together
with any special awards from Tenneco Companies, for the last three
years of the Key Executive's employment with Tenneco Companies.
C. During the first thirty days following the first anniversary of a
Change in Control, a member of Executive Group I on the date of the
Change in Control, may voluntarily elect to separate from service and
will be provided with the severance benefit described in A. above.
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<PAGE>
D. The foregoing constitute minimum severance benefit amounts and, if a
Key Executive receives other cash severance benefits from Tenneco
Companies, the amount of severance benefit to which the Key Executive
is entitled under the Plan shall be considered to be satisfied to the
extent of such other cash severance payment.
5. Method of Payment. Tenneco shall pay, or cause to be paid, the severance
benefit under the Plan to the Key Executive in a single cash sum within 30
days following the later of the Key Executive's separation from service as
either an employee or non-employee officer with Tenneco Companies and
submission of a claim as required by Section 13 of the Plan. Except for
withholdings required by law to satisfy local, state, and federal tax
withholding requirements, no offset nor any other reduction shall be taken
in paying such benefit.
6. Gross-Up Payment. If any portion of the severance payments described
herein, and/or any payments described in the Tenneco Inc. Benefit
Protection Trust, and/or any other payments, shall be subject to the tax
imposed by Section 4999 of the Internal Revenue Code (the portion of such
payments which are subject to the Excise Tax being referred to herein as
the "Payments") Tenneco shall pay to the affected Key Executive, not later
than the 30th day following the date the Key Executive becomes subject to
the Excise Tax an additional amount (the "Gross-Up Payment"), such that the
net amount retained by the Key Executive after deduction of the Excise Tax
on such Payments, and all federal, state and local income tax, interest and
penalties and Excise Tax on the Gross-Up Payment, shall be equal to the
amount which would have been retained by the Key Executive had the payments
not been subject to the Excise Tax.
7. Assignment. No Key Executive may assign, transfer, convey, mortgage,
hypothecate, or in any way encumber any severance benefit payable under the
Plan, nor shall the Key Executive have any right to receive any severance
benefit under the Plan except at the time, in the amount and in the manner
provided in the Plan.
This Plan may and shall be assigned or transferred to, and shall be binding
upon and shall inure to the benefit of, any successor of Tenneco, and any
such successor shall be deemed substituted for all purposes of "Tenneco"
under the provisions of the Plan. As used in the preceding sentence, the
term "successor" shall mean any person, firm, corporation, or business
entity which at any time, whether by merger, purchase or otherwise,
acquires all, or essentially all, of the assets or business of Tenneco.
Notwithstanding such assignment, Tenneco shall remain, with such successor,
jointly and severally liable for all obligations under the Plan, which,
except as herein provided, may not be assigned by Tenneco.
8. Plan Amendment and Termination. The Plan may be terminated or amended at
any time by the Board of Directors except during a Threatened Change in
Control Period. However, in the event of a Change in Control, no
amendment, or termination, made on or after the date of the Change in
Control shall apply to any Key Executive until
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<PAGE>
the expiration of two years and thirty-one days from the date of the Change
in Control.
9. Funding. Tenneco shall pay, or cause to be paid, any severance benefit
under the Plan out of general assets of Tenneco Companies.
10. Controlling Law. The Plan shall be interpreted under the laws of the State
of Texas, except to the extent that federal law preempts.
11. Named Fiduciary and Plan Administrator. The Company is the plan
administrator, and it shall have the authority to control and manage the
operation of this Plan with the authority to interpret the Plan. The Plan
Administrator shall make all reports and disclosures required by law.
12. Plan Sponsor. The Plan sponsor is Tenneco Inc., 1275 King Street,
Greenwich, CT 06831. EIN: 76-0233548, Plan No. 829.
13. Agent for Service of Process. Legal process may be served on the Plan
Administrator or:
Corporate Secretary
Tenneco Inc.
1275 King Street
Greenwich, CT 06831
14. Making a Claim
A. Submission of a Claim. In order to claim a severance benefit under
this Plan, a Key Executive need only advise the Plan Administrator in
writing that the Key Executive's employment with Tenneco Companies has
terminated, that the Key Executive claims a severance benefit under
the Plan and of the mailing address to which the severance benefit or
related correspondence is to be sent.
B. Denial of a Claim. If a Key Executive has made a claim for benefits
under this Plan and any portion of the claim is denied, the Plan
Administrator will furnish the Key Executive with a written notice
stating the specific reasons for the denial, specific reference to
pertinent Plan provisions upon which the denial was based, a
description of any additional information or material necessary to
perfect the claim and an explanation of why such information or
material is necessary, and appropriate information concerning steps to
take if the Key Executive wishes to submit the claim for review.
The claim will be deemed denied if the Plan Administrator does not
approve the claim and fails to notify the Key Executive within 90 days
after receipt of the claim, plus any extension of time for processing
the claim, not to
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exceed 90 additional days, as special circumstances require. To
obtain an extension, the Plan Administrator must advise the Key
Executive in writing during the initial 90 days if an extension is
necessary, stating the special circumstances requiring the extension
and the date by which the Key Executive can expect the Plan
Administrator's decision regarding the claim.
C. Review Procedure. Within 60 days after the date of written notice
denying any benefits, the Key Executive or the Key Executive's
authorized representative may write to the Plan Administrator
requesting a review of that decision.
The request for review may contain such issues and comments as the Key
Executive wishes considered in the review. The Key Executive may also
review pertinent documents in the Plan Administrator's possession.
The Plan Administrator will make a final determination with respect to
the claim as soon as practicable. The Plan Administrator will advise
the Key Executive of the determination in writing and will set forth
the specific reasons for the determination and the specific references
to any pertinent Plan provisions upon which the determination is
based.
The claim will be deemed denied on review if the Plan Administrator
fails to give the Key Executive written notice of final determination
within 60 days after receipt of the request for review, plus any
extension of time for completing the review, not to exceed 60
additional days, as special circumstances require. To obtain an
extension, the Plan Administrator must advise the Key Executive in
writing during the initial 60 days if any extension is necessary,
stating the special circumstances requiring the extension and the date
by which the Key Executive can expect the Plan Administrator's
decision regarding the review of the claim.
IN WITNESS WHEREOF, and as conclusive evidence of the adoption of the
"Tenneco Inc. Change In Control Severance Benefit Plan For Key Executives",
Tenneco Inc., a Delaware corporation, as plan sponsor, has caused its corporate
seal to be affixed hereto and these presents to be duly executed in its name and
behalf by its proper officers thereunto duly authorized, this 30th day of
September, 1996.
(CORPORATE SEAL) TENNECO INC.
By: /s/ Robert G. Simpson
--------------------------
Its: Vice President
------------------------------
ATTEST:
/s/ Kim Bacon
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Assistant Secretary
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EXHIBIT 10.17
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TENNECO
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BENEFITS PROTECTION TRUST
-------------------------
(as amended and restated
effective as of October 1, 1996)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE PAGE
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<S> <C>
FIRST: Definitions................................................ 1
SECOND: Creation of Trust.......................................... 6
THIRD: Payments from the Trust.................................... 9
FOURTH: Management of Trust Assets................................. 10
FIFTH: Administrative Powers...................................... 13
SIXTH: [RESERVED]................................................. 15
SEVENTH: [RESERVED]................................................. 15
EIGHTH: Taxes, Expenses and Compensation of Trustee................ 15
NINTH: General Duties of Trustee.................................. 16
TENTH: Indemnification............................................ 18
ELEVENTH: No Duty to Advance Funds................................... 18
TWELFTH: Accounts................................................... 18
THIRTEENTH: Administration of the Plans; Communications................ 20
FOURTEENTH: Resignation or Removal of Trustee.......................... 22
FIFTEENTH: Amendment of Agreement; Termination of Trust............... 24
SIXTEENTH: Prohibition of Diversion................................... 26
SEVENTEENTH: Prohibition of Assignment of Interest...................... 27
EIGHTEENTH: [RESERVED]................................................. 27
NINETEENTH: Miscellaneous.............................................. 27
SCHEDULE 1............................................................... 30
SCHEDULE 1 SUPPLEMENT.................................................... 31
</TABLE>
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TENNECO BENEFITS PROTECTION TRUST AGREEMENT
-------------------------------------------
(as amended and restated
effective as of October 1, 1996)
THIS AGREEMENT, made as of the 1st day of October 1996, by and between Tenneco
Inc., a corporation organized and existing under the laws of the State of
Delaware (hereinafter referred to as the "Company" or "Tenneco"), and Dana G.
Mead, Theodore R. Tetzlaff, Stacy S. Dick and Robert T. Blakely (hereinafter
referred to individually and collectively as the "Trustee").
W I T N E S S E T H:
-------------------
WHEREAS, the Company desires to amend and restate
the Trust;
NOW, THEREFORE, the Company and the Trustee agree
as follows:
FIRST: Definitions.
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(a) "Affiliate" shall mean any corporation, partnership
or other entity, the majority interest in which is held by the Company, directly
or through one or more intermediaries.
(b) "Change in Control" shall mean the first to occur
of the following events (but no event other than the following events), except
as otherwise provided below:
(i) Any person and any of their affiliates or associates
becomes the beneficial owner, directly or indirectly, of securities of Tenneco
representing twenty-five percent (25%) or more of the combined voting power of
Tenneco's then outstanding securities having general voting rights, and a
majority of the Incumbent Board (as hereinafter defined) does not approve the
acquisition (other than in response to a Threatened Change in Control under
circumstances making it reasonably apparent that a change in control of Tenneco
has
<PAGE>
become inevitable) before the acquisition occurs. Notwithstanding the foregoing,
a Change in Control shall not be deemed to occur (i), solely because twenty-five
percent (25%) or more of the combined voting power of Tenneco's then outstanding
securities having general voting rights is acquired by one or more employee
benefit plans maintained by Tenneco; or
(ii) Members of the Incumbent Board cease to
constitute a majority of the Tenneco Board (as hereinafter defined); or
(iii) The consummation of any plan of merger,
consolidation or combination between Tenneco and any person including becoming a
subsidiary of any other person without members of the Incumbent Board, as
constituted immediately prior to the merger, consolidation or combination
constituting a majority of the board of directors of (A) the successor
corporation, or, (B) if the surviving or successor corporation is a majority-
owned subsidiary of another corporation or corporations, the ultimate parent of
the surviving or successor corporation; or
(iv) The consummation of any sale, exchange or other
disposition of all or substantially all of the Company's assets without members
of the Incumbent Board immediately prior to any sale, exchange or disposition of
all or substantially all of the Company's assets constituting a majority of the
board of directors of (A) the corporation which holds such assets after such
disposition, or, (B) if such corporation is a majority-owned subsidiary of
another corporation or corporations, the ultimate parent of such corporation; or
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(v) if any person and any of their affiliates and
associates, shall elect or have elected, during any period not exceeding 24
months, at least 25% of the members of the Tenneco Board, without the approval
of the Incumbent Board and such members are comprised of persons not serving as
members of the Tenneco Board immediately prior to the formation of such group or
the first solicitation of proxies by such shareholder;
provided however, that the Incumbent Board may determine
that any transaction is not a Change in Control.
For purposes of this definition, the terms "person" and "beneficial
owner" shall have the meaning set forth in Sections 3(a) and 13(d) of the
Securities Exchange Act of 1934, as amended, and in the regulations promulgated
thereunder. If the Trustee requests in writing that the Company determine or
furnish evidence to enable the Trustee to determine whether a Change in Control
has occurred, the Company shall do so in writing as soon as practicable
following receipt of such request.
(c) "Threatened Change in Control" shall mean each of the
following events (but no event other than the following events), except as
otherwise provided below:
(i) Any person, (as defined in Paragraph (b) above), and
any of their affiliates and associates without the prior approval of a majority
of the Incumbent Board
(A) becomes the beneficial owner, (as defined in (b)
above), directly or indirectly, of securities of Tenneco
representing fifteen
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<PAGE>
percent (15%) or more of the combined voting power of Tenneco's
then outstanding securities having general voting rights, or
(B) initiates a tender offer to acquire (as the beneficial
owner as defined in (b) above) securities of Tenneco representing
fifteen (15%) or more of the combined voting power of Tenneco's
then outstanding securities having general voting rights.
Notwithstanding the foregoing, a Threatened Change in Control
shall not be deemed to occur pursuant to this (i) solely because
fifteen percent (15%) or more of the combined voting power of
Tenneco's then outstanding securities having general voting
rights is acquired by one or more employee benefit plans
maintained by Tenneco; or
(ii) Three or more directors, whose election or nomination
for election is not approved by a majority of the Incumbent Board, are elected
within any single twelve-month period to serve on the Tenneco Board; or
(iii) The Company notifies the Trustee in writing that the
Incumbent Board has determined that a Threatened Change in Control exists;
provided however the Incumbent Board may determine that any
transaction is not a Threatened Change in Control.
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<PAGE>
(d) "Threatened Change in Control Period" shall mean the period
beginning on the date a Threatened Change in Control occurs and ending on the
earliest of:
(i) If the Threatened Change in Control was caused by an event
described in Subparagraph (c)(i), on the date first subsequent to
the date on which the person referred to therein does not own
securities of Tenneco representing fifteen percent (15%) or more
of the combined voting power of Tenneco's then outstanding
securities having general voting rights, or terminates the tender
offer instituted by him as the case may be; or
(ii) If the Threatened Change in Control was caused by an
event described in Subparagraph (c)(ii), on the date first
subsequent to the date on which each member of the Tenneco Board
shall be either a member of the Incumbent Board or an individual
whose election or nomination for election as a director was
approved by a majority of the Incumbent Board.
(iii) If the Threatened Change in Control shall be deemed to
have occurred by reason of the notice described in Subparagraph
(c)(iii), on the date the Trustee shall be notified by the
Company in writing that the Incumbent Board has determined that
the circumstances
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<PAGE>
which constituted the Threatened Change in Control no longer
exist; or
(iv) the date the Change in Control occurs.
(e) "Tenneco Board" shall mean the Board of Directors of Tenneco.
(f) "Incumbent Board" shall mean (i) the members of the Tenneco Board
on May 15, 1996, to the extent that they continue to serve as members of the
Tenneco Board, and (ii) any individual who becomes a member of the Tenneco Board
after May 15, 1996, if his election or nomination for election as a director was
approved by a vote of at least three quarters of the then Incumbent Board.
(g) "Plan or Plans" means the plans, arrangements and structures set
forth on Schedule 1.
(h) "Plan Sponsor" means the corporate entity that maintains any of
the Plans set forth on Schedule 1.
SECOND: Creation of Trust. (a) The Company hereby establishes with
the Trustee and the Trustee hereby accepts the Tenneco Benefits Protection Trust
(the "Trust") consisting of:
(i) an irrevocable letter of credit in an amount not less than three
million dollars ($3,000,000) obtained by the Company at its expense, and cash in
the amount of two million dollars ($2,000,000), as well as any earnings thereon,
and realized and unrealized gains (net of any losses) attributable thereto, to
the extent not withdrawn from the Trust by the Company pursuant hereto. The
Company shall continue to maintain such letter of credit in effect
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<PAGE>
until it is replaced by cash or another irrevocable letter of credit or this
Agreement terminates, whichever occurs first. The Company shall renew or replace
such letter of credit at least thirty (30) days before its expiration for an
additional period of one (1) year. If such letter of credit, or any such renewal
is not renewed or replaced by a letter of credit delivered to the Trustee at
least thirty (30) days before the expiration of the predecessor letter of
credit, the Trustee may draw down the full amount of such letter of credit and
hold the proceeds pursuant to the terms of this Agreement. The Trustee may also
draw down on such letter of credit at any time the Trustee determines the
proceeds of such letter of credit are necessary to allow the Trustee to fulfill
its obligations under this Agreement. The proceeds of such letter of credit
shall be available to the Trustee upon the Trustee's presentation of its sight
draft. The Company may, at any time, replace such letter of credit with another
irrevocable letter of credit having substantially similar terms or an equal
amount of cash or any combination thereof. Any letter of credit shall be issued
by a bank reasonably acceptable to the Trustee, and shall be in a form
reasonably acceptable to the Trustee; and
(ii) such additional cash or other property acceptable to the Trustee
as shall be paid or delivered to the Trustee as described herein from time to
time to provide benefits under one or more Plans, together with the earnings,
income, additions and appreciation thereon and thereto. At any time such
payments or deliveries are made, the Company
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<PAGE>
shall designate to the Trustee, in writing, the Plan or Plans to which the
payment or delivery shall be allocated.
(b) The Trustee, for investment purposes only, may commingle all
Trust assets and treat them as a single fund, but the records of the Trustee at
all times shall show the percentages of the Trust allocable to each of the
several Plans.
(c) The Company and the Trustee agree that the Trust created herein
shall not be revocable by the Company or by any successor thereto during a
Threatened Change in Control Period or after a Change in Control, and is
intended to be a grantor trust under the provisions of Sections 671 through 678
of the Internal Revenue Code of 1986, as amended.
(d) Except as provided in this subparagraph (d), the Company may,
from time to time, add to or withdraw from the assets of the Trust, but subject
to the termination provisions hereof, such withdrawal may not reduce the cash in
the Trust below two million dollars ($2,000,000) plus the letter of credit
described in Subparagraph (a)(i), above, or its proceeds. The Company may direct
that certain funds subsequently added to the Trust be available for the payment
of benefits under one or more designated Plans, but such additional funds shall
also be available to pay the fees and expenses of the Trustee if the amounts
transferred pursuant to Subparagraph (a)(i) are exhausted. Notwithstanding the
foregoing, the Company shall not make any withdrawal from the Trust during a
Threatened Change in Control Period or after a Change in Control.
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<PAGE>
(e) Within five business days following a Threatened Change of
Control, the Company shall deposit cash and stock to the Trust equal to the
amounts specified in Schedule 1 Supplement. Such deposits shall become
irrevocable upon the occurrence of a Change in Control or during a Threatened
Change in Control Period.
(f) Upon the expiration of the Threatened Change in Control Period
and absent a Change in Control, the amounts deposited into the Trust as
described in (e) above adjusted for investment experience and expenses shall be
returned to Tenneco.
THIRD: Payments from the Trust. (a) Subject to the rules hereof, the
Trustee, from time to time upon receipt (other than during a Threatened Change
in Control Period) of direction from the Company prior to a Change in Control
shall make payments from the Trust, as specified in such direction to such
persons, in such manner and in such amounts as the Company shall direct.
(b) The Company shall, from time to time, furnish the Trustee with
such written information regarding the participants and beneficiaries under the
Plans and the amount and method of determination of benefits under the Plans
(hereinafter referred to as "Participant Data") as the Company deems relevant or
as the Trustee shall request in writing. The Company shall, during a Threatened
Change in Control Period, and after a Change in Control, furnish the Trustee
with Participant Data at least once each year or at such other times as the
Trustee reasonably requests. Such Participant Data will be for the Plans set
forth in Schedule 1. The Company, prior
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<PAGE>
to a Change in Control, will, from time to time, update Schedule 1 as Plans are
added, terminated or amended.
During a Threatened Change in Control Period or after a Change in
Control and notwithstanding any other provisions of this Agreement, the Trustee
may, without direction from the Company, make payments to participants and
beneficiaries in such manner and in such amounts as the Trustee shall determine
they are entitled to be paid under the Plans (to the extent funded through the
Trust) based on the most recent Participant Data furnished to the Trustee by the
Company prior to a Change in Control and any supplemental information furnished
to the Trustee by a participant or beneficiary upon which the Trustee may
reasonably rely in making such determination.
(c) Any unpaid benefits due participants and beneficiaries shall be
paid by the Plan Sponsor.
FOURTH: Management of Trust Assets. (a) Prior to a Change in
Control, Trust assets will be invested by the Trustee (i) in obligations of the
United States or any agency thereof or in obligations guaranteed by the United
States or any agency thereof, having a term of not more than five (5) years, or
(ii) in shares of one or more mutual funds which principally invest in such
obligations. Prior to a Change in Control, but not during a Threatened Change
in Control Period, the Company may change the requirement described in the first
sentence of this Article.
(b) After a Change in Control, the Trustee shall have exclusive
authority and discretion to manage and control the Trust assets and may employ
investment managers and other
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professionals including affiliates of the Trustee to manage the investment of
the Trust assets. Pursuant to such authority and discretion, the Trustee may
exercise, from time to time and at any time, the power:
(i) To invest and reinvest the Trust, without distinction between
principal and income, in shares of stock (whether common or preferred)
or other evidences of ownership, bonds, debentures, notes or other
evidences of indebtedness, unsecured or secured by mortgages on real
or personal property wherever situated (including any part interest in
a bond and mortgage or note and mortgage whether insured or uninsured)
and other property, or part interest in property, real or personal,
foreign or domestic, and in order to reduce the rate of interest rate
fluctuations, contracts, as either buyer or seller, for the future
delivery of United States Treasury securities and comparable Federal
government-backed securities:
(ii) To sell, convey, redeem, exchange, grant options for the
purchase or exchange of, or otherwise dispose of, any real or personal
property, at public or private sale, for cash or upon credit, with or
without security, without obligation on the part of any person dealing
with the Trustee to see to the application of the proceeds of or to
inquire into the validity, expediency or propriety of any such
disposition;
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<PAGE>
(iii) To exercise, personally or by general or limited proxy, the
right to vote any shares of stock, bonds or other securities held in
the Trust; to delegate discretionary voting power to trustees of a
voting trust for any period of time; and to exercise, personally or by
power of attorney, any other right appurtenant to any securities or
other property of the Trust;
(iv) To join in or oppose any reorganization, recapitalization,
consolidation, merger or liquidation, or any plan therefor, or any
lease, mortgage or sale of the property of any organization the
securities of which are held in the Trust; to pay from the Trust any
assessments, charges or compensation specified in any plan of
reorganization, recapitalization, consolidation, merger or
liquidation; to deposit any property with any committee or depositary;
and to retain any property allotted to the Trust in any
reorganization, recapitalization, consolidation, merger or
liquidation;
(v) To exercise or sell any conversion or subscription or other
rights appurtenant to any stock, security or other property held in
the Trust;
(vi) To borrow from any lender (including the Trustee in its
individual capacity) money, in any amount and upon any reasonable
terms and conditions, for purposes of this Agreement, and to
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<PAGE>
pledge or mortgage any property held in the Trust to secure the
repayment of any such loan;
(vii) To compromise, settle or arbitrate any claim, debt, or
obligation of or against the Trust; to enforce or abstain from
enforcing any right, claim, debt or obligation; and to abandon any
property determined by it to be worthless;
(viii) To make loans of securities held in the Trust to registered
brokers and dealers upon such terms and conditions as are permitted by
applicable law and regulations, and in each instance to permit the
securities so lent to be registered in the name of the borrower or a
nominee of the borrower, provided that in each instance the loan is
adequately secured and neither the borrower nor any affiliate of the
borrower has discretionary authority or control with respect to the
assets of the Trust involved in the transaction or renders investment
advice with respect to those assets; and
(ix) To invest and reinvest any property in the Trust in any
other form or type of investment not specifically mentioned in this
Paragraph, to the extent permitted by law.
(x) To employ suitable agents including but not limited to
custodians, actuaries, accountants and counsel and to pay their
reasonable expenses and compensation.
FIFTH: Administrative Powers. The Trustee shall have and in its
sole and absolute discretion may exercise
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from time to time and at any time the following administrative powers and
authority with respect to the Trust:
(a) To hold property of the Trust in its own name or in the name of a
nominee or nominees, without disclosure of the Trust, or in bearer form so that
it will pass by delivery, but no such holding shall relieve the Trustee of its
responsibility for the safe custody and disposition of the Trust in accordance
herewith; the Trustee's books and records shall at all times show that such
property is part of the Trust; and the Trustee shall be absolutely liable for
any loss occasioned by the acts of its nominee or nominees with respect to
securities registered in the name of the nominee or nominees;
(b) To organize and incorporate under the laws of any state it may
deem advisable one or more corporations (and to acquire an interest in any such
corporation that it may have organized and incorporated) for the purpose of
acquiring and holding title to any property, interests or rights that the
Trustee is authorized to acquire hereunder;
(c) To employ in the management of the Trust suitable agents;
(d) To make, execute and deliver, as Trustee, any deeds, conveyances,
leases, mortgages, contracts, waivers or other instruments in writing that the
Trustee may deem necessary or desirable in the exercise of its powers under this
Agreement; and
(e) To do all other acts that the Trustee may deem necessary or proper
to carry out any of the powers set forth herein hereof or otherwise in the best
interests of the
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Trust, provided further that a majority of any non-corporate Trustee(s) shall be
necessary to authorize any action under this Agreement.
SIXTH: [RESERVED]
SEVENTH: [RESERVED]
EIGHTH: Taxes, Expenses and Compensation of Trustee. (a) The Company
shall pay any Federal, state, local or other taxes imposed or levied with
respect to the corpus and/or income of the Trust or any part thereof under
existing or future laws, and the Company, in its discretion, or the Trustee, in
its discretion, may contest the validity or amount of any tax, assessment, claim
or demand respecting the Trust or any part thereof. The Trustee shall deduct
any payroll taxes required to be withheld with respect to any payments made
pursuant to the Trust.
(b) The Trustee, without direction from the Company, shall pay from
the Trust the reasonable and necessary expenses and compensation of counsel and
all other reasonable and necessary expenses of managing and administering the
Trust and Plans that are not paid by the Company including, but not limited to,
computer time charges, data retrieval and input costs, and charges for time
expended by personnel of the Trustee and those persons retained by the Trustee
in fulfilling the Trustee's duties.
(c) The Company shall pay to the Trustee from time to time such
reasonable compensation for its services as Trustee as is agreed to by the
Company and the Trustee from time to time, but until paid, such compensation and
reimbursement for expenses incurred by the Trustee pursuant
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<PAGE>
hereto shall constitute a charge upon the Trust, such charge to have priority
over any payments due participants or beneficiaries under the Plans; provided,
that any officer of the Company serving as Trustee shall serve without
compensation but shall nevertheless be entitled to reimbursement of expenses.
(d) After a Change in Control, the Trustee shall bill the Company
directly, on a monthly basis, for all expenses and fees which amounts shall be
immediately due and payable. The Trustee may commence legal action to recover
any amount not paid within thirty (30) days of the billing date, and shall be
obligated to commence such an action if the Company's failure to pay causes a
reduction below $2,000,000 in the assets of the Trust attributable to
contributions made pursuant to Subparagraph (a)(i) of Article SECOND.
NINTH: General Duties of Trustee. (a) Subject to the rules hereof,
the Trustee shall discharge its duties under this Agreement solely in the
interest of the participants in the Plans and their beneficiaries and (i) for
the exclusive purpose of providing benefits to such participants and their
beneficiaries and defraying reasonable expenses of administering the Plans; and
(ii) with the care, skill, prudence and diligence under the circumstances then
prevailing that a prudent man acting in a like capacity and familiar with such
matters would use in the conduct of an enterprise of a like character and with
like aims.
(b) The Trustee may consult with counsel, who may be counsel for the
Trustee in its individual capacity, (or,
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<PAGE>
prior to a Change in Control, for the Company) and shall not be deemed imprudent
by reason of its taking or refraining from taking any action in accordance with
the opinion of counsel.
(c) (1) Within ninety (90) days after a Change in Control, the
Company shall notify participants and beneficiaries of the Plans in writing of
the Trustee's availability to aid them in pursuing any claims they may have
against the Company under the terms of those of the Plans under which they are
covered. If the Company fails to do so, the Trustee shall provide such
notification.
(2) If, after a Change in Control, a participant or beneficiary
notifies the Trustee that the Company or an Affiliate or any other party, if
applicable has refused to pay a claim asserted by the participant or beneficiary
under any of the Plans, then, unless the Trustee shall determine that the claim
has no basis in law or fact (in which case the Trustee shall notify the
participant or beneficiary of such determination and shall take no further
action with respect to the claim), the Trustee shall, in its discretion:
(A) pay the participant or beneficiary the amount of the claim
from the Trust assets; or
(B) commence negotiations and legal proceedings to recover on the
claim on behalf of the participant or beneficiary in accordance with
subsection C below.
(C) to the extent that the Trustee determines to commence
negotiations and legal proceeds, it:
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(i) shall direct the course of the litigation and shall keep the
participant or beneficiary informed of the progress of the litigation as the
Trustee deems appropriate.
(ii) if the Trustee determines that all reasonable litigation efforts
have been exhausted but the participant or beneficiary has not received all that
he or she is entitled to receive, the Trustee may in its discretion pay
additional amounts to such person out of the assets of the Trust.
TENTH: Indemnification. The Company agrees, to the extent permitted
by law, to indemnify and hold the Trustee harmless from and against any
liability that it may incur in the administration of the Trust and the Plans,
unless arising from the Trustee's own gross negligence or willful breach of its
obligations under this Agreement. The Trustee shall not be required to give any
bond or any other security for the faithful performance of its duties under this
Agreement, except as required by law.
ELEVENTH: No Duty to Advance Funds. The Trustee shall have no
obligation to advance its own funds for the purposes of fulfilling its
responsibilities under this Agreement, and its obligations to incur expenses
shall at all times be limited to amounts in the Trust available to be applied
toward such expenses.
TWELFTH : Accounts: (a)(i) The Trustee shall keep accurate and
detailed accounts of all its receipts, investments and disbursements under this
Agreement on a calendar year basis. Such person or persons as the Company shall
designate shall be allowed to inspect the books of
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account relating to the Trust upon request at any reasonable time during the
business hours of the Trustee.
(ii) Within 120 days after the close of each calendar year, the
Trustee shall transmit to the Company, and certify the accuracy of, a written
statement of the assets and liabilities of the Trust, showing the current value
of each asset at that date, and a written account of all the Trustee's
transactions relating to the Trust during the period from the last previous
accounting to the close of that year. For the purposes of this Subparagraph,
the date of the Trustee's resignation or removal or the date of termination of
the Trust shall be deemed to be the close of a year.
(iii) Unless the Company shall have filed with the Trustee written
exceptions or objections to any such statement and account within 120 days after
receipt thereof, the Company shall be deemed to have approved such statement and
account; and in such case or upon the written approval by the Company of any
such statement and account, the Trustee shall be forever released and discharged
with respect to all matters and things contained in such statement and account
as though it had been settled by decree of a court of competent jurisdiction in
an action or proceeding to which the Company and all persons having any
beneficial interest in the Trust were parties.
(b) Nothing contained in this Agreement or in the Plans shall deprive
the Trustee of the right to have a judicial settlement of its accounts. In any
proceeding for a judicial settlement of the Trustee's accounts or for
instructions in connection with the Trust, the only other
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necessary party thereto in addition to the Trustee shall be the Company. If the
Trustee so elects, it may bring in as a party or parties defendant any other
person or persons. No person interested in the Trust, other than the Company,
shall have a right to compel an accounting, judicial or otherwise, by the
Trustee, and each such person shall be bound by all accountings by the Trustee
to the Company, as herein provided, as if the account had been settled by decree
of a court of competent jurisdiction in an action or proceeding to which such
person was a party.
THIRTEENTH: Administration of the Plans; Communications. (a) The
Plans shall be administered as provided therein. The Trustee shall not be
responsible in any respect for administering the Plans nor shall the Trustee be
responsible for the adequacy of the Trust to meet and discharge all payments and
liabilities under the Plans. The Trustee shall be fully protected in relying
upon any written notice, instruction, direction or other communication signed by
an officer of the Company who is authorized to execute and deliver, in the name
and on behalf of the Company, documents or instruments relating to the Trust
(hereinafter an "authorized officer"). The Company, from time to time, shall
furnish the Trustee with the names and specimen signatures of the authorized
officers and shall promptly notify the Trustee of the termination of office of
any authorized officer and the appointment of a successor thereto. Until
notified to the contrary, the Trustee shall be fully protected in relying upon
the most recent list of the authorized officers furnished to it by the Company.
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(b) Any action required by any provision of this Agreement to be
taken by the Tenneco Board shall be evidenced by a resolution of such Board
certified to the Trustee by the Secretary or an Assistant Secretary of the
Company, and the Trustee shall be fully protected in relying upon any resolution
so certified to it. Unless other evidence with respect thereto has been
specifically prescribed in this Agreement, any other action of the Company under
any provision of this Agreement, including any approval of or exceptions to the
Trustee's accounts, shall be evidenced by a certificate signed by an authorized
officer, and the Trustee shall be fully protected in relying upon such
certificate. The Trustee may accept a certificate signed by an authorized
officer as proof of any fact or matter that it deems necessary or desirable to
have established in the administration of the Trust (unless other evidence of
such fact or matter is expressly prescribed herein), and the Trustee shall be
fully protected in relying upon the statements in the certificate.
(c) The Trustee shall be entitled conclusively to rely upon any
written notice, instruction, direction, certificate or other communication
reasonably believed by it to be genuine and to be signed by an authorized
officer, and the Trustee shall be under no duty to make investigation or inquiry
as to the truth or accuracy of any statement contained therein.
(d) Until written notice is given to the contrary, communications to
the Trustee shall be sent to it at Tenneco Inc., 1275 King Street, Greenwich,
Connecticut 06831,
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Attn: Dana Mead; communications to the Company shall be sent to it at its
office at 1275 King Street, Greenwich, Connecticut 06831, Attn: Corporate
Secretary.
FOURTEENTH: Resignation or Removal of Trustee. (a) A Trustee may
resign at any time other than during a Threatened Change in Control Period or
after a Change in Control upon 30 days written notice to the Company or such
shorter period as is acceptable to the Company. During a Threatened Change in
Control Period or after a Change in Control, a Trustee may resign only under one
of the following circumstances:
(i) In the case of a corporate Trustee only, the Trustee is no
longer in the business, or is actively in the process of removing
itself from the business, of acting as trustee for employee benefit
plans.
(ii) The Trustee determines that a conflict of interest exists
which would prohibit it from fulfilling its duties under this
Agreement in an ethically proper manner. The Trustee shall use its
best efforts to avoid the creation of such a conflict.
(iii) The assets of the Trust have been exhausted or are
insufficient to pay accrued and reasonably anticipated fees and
expenses of the Trustee hereunder, the Company has refused to pay
voluntarily the Trustee's accrued fees and expenses as required
hereunder and the Trustee has been unsuccessful in obtaining a court
order requiring
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the Company to make such payments or has been unable to collect on a
judgment for such accrued fees and expenses.
(iv) The death or incapacity of a Trustee. Notwithstanding the
above, a corporate Trustee may resign for reasons set forth in (i) or
(ii) above only if it has obtained the agreement of a bank with assets
in excess of $2 billion and net worth in excess of $100 million to
replace it as trustee under the terms of this Agreement.
In addition, upon the death, incapacity or resignation of a non-corporate
Trustee(s), the remaining non-corporate Trustee(s) shall appoint the successor
Trustee(s).
(b) The Tenneco Board, may, other than during a Threatened Change in
Control Period, remove a Trustee before a Change in Control, upon 30 days
written notice to the Trustee, or upon shorter notice if acceptable to the
Trustee. The Company may not remove a Trustee during a Threatened Change in
Control Period or after a Change in Control. In the event a Trustee resigns or
is removed, the Trustee shall have a right to have its accounts settled as
provided herein.
(c) Each successor trustee shall have the powers and duties conferred
upon the Trustee in this Agreement, and the term "Trustee" as used in this
Agreement shall be deemed to include any successor trustee. Upon designation or
appointment of a successor trustee, the Trustee shall transfer and deliver the
Trust to the successor trustee, reserving such sums as the Trustee shall deem
necessary to defray its expenses in settling its accounts, to pay any of
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its compensation due and unpaid and to discharge any obligation of the Trust for
which the Trustee may be liable. If the sums so reserved are not sufficient for
these purposes, the Trustee shall be entitled to recover the amount of any
deficiency from either the Company or from the Trust through the successor
trustee, or both. When the Trust shall have been transferred and delivered to
the successor trustee and the accounts of the Trustee have been settled as
provided herein, the Trustee shall be released and discharged from all further
accountability or liability for the Trust and shall not be responsible in any
way for the further disposition of the Trust or any part thereof.
FIFTEENTH: Amendment of Agreement; Termination of Trust. (a) Subject
to Paragraph (b) below, the Company expressly reserves the right at any time to
amend or terminate this Agreement and the Trust created thereby to any extent
that it may deem advisable. No amendment shall be made without the Trustee's
consent thereto in writing if, and to the extent that, the effect of such
amendment is to increase the Trustee's responsibilities hereunder. Such
proposed amendment shall be delivered to the Trustee as a written instrument of
amendment, duly executed and acknowledged by the Company and accompanied by a
certified copy of a resolution of the Tenneco Board. The Company also shall
deliver to the Trustee a copy of any modifications or amendments to the Plans.
The Trustee's consent shall not be required for the termination of the Trust or
its removal as Trustee.
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(b) Notwithstanding any other provision of this Agreement other than
the following sentence, the provisions of this Agreement and the Trust created
thereby may not be amended or terminated by the Company or the Trustee during a
Threatened Change in Control Period or after a Change in Control. The Company,
during a Threatened Change in Control Period, or the Trustee, after a Change in
Control, upon written advice of counsel, may amend the provisions of this
Agreement to the extent required by applicable law.
(c) In the event the Company terminates the Trust prior to the
occurrence of a Change in Control, other than during a Threatened Change in
Control Period, the Trustee shall reserve such sums it deems necessary to pay
its fees and expenses, and shall distribute all remaining assets of the Trust in
accordance with the written directions of the Company.
(d) The Trust shall continue in effect until payment or provision has
been made for all benefits payable under the Plans. Upon termination of the
Trust, the Trustee shall have a right to have its accounts settled. Any assets
remaining in the Trust after payment or provision for all benefits payable under
the Plans, and after the Trustee has reserved such sums as it deems necessary
for the payment of its expenses and fees hereunder, shall be paid in accordance
with the written directions of the Company. When the Trust assets shall have
been so applied or distributed and the accounts of the Trustee shall have been
so settled, the Trustee shall be released and discharged from all further
accountability or liability respecting the Trust.
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SIXTEENTH: Prohibition of Diversion. (a) At no time prior to the
satisfaction of all liabilities with respect to the beneficiaries under this
Trust shall any part of the corpus and/or income of the Trust be used for, or
diverted to, purposes other than for the exclusive benefit of such beneficiaries
or defraying the fees and reasonable expenses of the Trustee hereunder, and the
assets of the Trust shall never inure to the benefit of the Company and shall be
held for the exclusive purposes of providing benefits to participants in the
Plans and their beneficiaries and defraying the fees and reasonable expenses of
administering the Plans or performing any of the Trustee's duties under this
Agreement.
(b) Notwithstanding any provision of this Agreement to the contrary,
the assets of the Trust shall at all times be subject to claims of the creditors
of the Company. Upon notice that the Company may be insolvent, the Trustee
shall not pay benefits from such Trust assets, shall hold the assets for the
general creditors of the Company, shall promptly seek a judicial determination
regarding the insolvency of the Company, and shall deliver the assets of the
Trust to satisfy the claims of creditors, as directed by the court. The Trustee
shall resume payments from such Trust assets under the terms of the Trust only
after determining that the Company is not insolvent or after receiving a
judicial decision to that effect. The Company shall have the duty to inform the
Trustee of the insolvency of the Company. The Company shall be considered
insolvent if it is unable to
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pay its debts as they mature or if it is subject to a pending proceeding as a
debtor under the Bankruptcy Code.
SEVENTEENTH: Prohibition of Assignment of Interest. No interest,
right or claim in or to any part of the Trust or any payment therefrom shall be
assignable, transferable or subject to sale, mortgage, pledge, hypothecation,
commutation, anticipation, garnishment, attachment, execution or levy of any
kind, and the Trustee shall not recognize any attempt to assign, transfer, sell,
mortgage, pledge, hypothecate, commute or anticipate the same, except to the
extent required by law.
EIGHTEENTH: [RESERVED]
NINETEENTH: Miscellaneous. (a) This Agreement shall be interpreted,
construed and enforced, and the trust hereby created shall be administered, in
accordance with the laws of the United States and of the State of Delaware.
Prior to a Change in Control, nothing in this Agreement shall be construed to
subject the Trust created hereunder to the Employee Retirement Income Security
Act of 1974, as amended.
(b) The titles to Articles of this Agreement are placed herein for
convenience of reference only, and the Agreement is not to be construed by
reference thereto.
(c) This Agreement shall bind and inure to the benefit of the
successors and assigns of the Company and the Trustee, respectively, and the
Plans.
(d) This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original but all of which together shall
constitute but one
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instrument, which may be sufficiently evidenced by any counterpart.
(e) If any provision of this Agreement is determined to be invalid or
unenforceable, the remaining provisions shall not for that reason alone also be
determined to be invalid or unenforceable.
(f) This document supersedes in its entirety and amends and restates
the Tenneco Benefits Trust Agreement made as of May 19, 1996.
(g) IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in their respective names as of the day and year first
above written.
TENNECO INC.
By_______________________________________
Its______________________________________
TENNECO MANAGEMENT COMPANY
By_______________________________________
Its______________________________________
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TRUSTEE
_________________________________________
Dana G. Mead
_________________________________________
Theodore R. Tetzlaff
_________________________________________
Stacy S. Dick
_________________________________________
Robert T. Blakely
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SCHEDULE 1
----------
I. EXECUTIVE NON-QUALIFIED PLANS
-----------------------------
Tenneco Inc. Benefit Equalization Plan
Tenneco Inc. Deferred Compensation Plan
Tenneco Inc. 1993 Deferred Compensation Plan
Tenneco Inc. Board of Directors Deferred Compensation Plan
Tenneco Inc. Pilots' Supplemental Retirement Plan
Tenneco Inc. Executive Incentive Compensation Plan
Tenneco Inc. Supplemental Executive Retirement Plan
1994 Tenneco Inc. Stock Ownership Plan
Tenneco Inc. Director's Restricted Stock/Restricted Unit Plan
Supplemental Pensions For Dana Mead, Stacy Dick, Arthur House, Theodore
Tetzlaff, W.R. Phillips, Paul Stecko, Barry Schuman and Robert Blakely.
II. SALARY CONTINUATION ARRANGEMENTS
--------------------------------
Tenneco Inc. Change in Control Severance Benefit Plan for Key Executives
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SCHEDULE 1
SUPPLEMENT
TENNECO INC.
------------
BENEFITS PROTECTION PROGRAM
---------------------------
Set out below is a description of the special rights which will arise with
respect to the Plans, upon a Change in Control ("CIC") and which are to be
protected by this program.
I. EXECUTIVE NON-QUALIFIED PLANS
-----------------------------
A. Tenneco Inc. Benefit Equalization Plan
1. Upon a Threatened Change in Control, Tenneco will calculate each
participant's benefit payment amount (estimated as at the end of the
then current calendar year) consisting of
(i) the account balance for the Thrift Plan portion and
(ii) the total, maximum straight-life, monthly annuity payments that
could become payable over the next succeeding five-year period
with respect to the accrued benefit for the Retirement Plan
portion, and Tenneco will deposit the aggregate of the benefit
payment amounts so calculated into the Benefits Protection Trust
within five business days of the Threatened Change in Control.
B. Tenneco Inc. Deferred Compensation Plan, 1993 Deferred Compensation Plan
and Board of Directors Deferred Compensation Plan
1. Upon a Threatened Change of Control, Tenneco will calculate the
account balance of each participant, including CPI and interest
adjustments, (estimated as at the end of the then calendar year) and
will deposit the aggregate amount so calculated into the Benefits
Protection Trust within five business days of the Threatened Change in
Control.
C. Tenneco Inc. Pilots' Supplemental Retirement Plan
1. Upon a Threatened Change in Control, Tenneco will estimate (as of the
end of the then calendar year) the amount of the benefits payable
under the plan and will deposit this amount into the Benefits
Protection Trust within five business days of the Threatened Change in
Control.
-31-
<PAGE>
D. Tenneco Inc. Executive Incentive Compensation Plan
1. Upon a Threatened Change in Control, Tenneco will deposit into the
Benefits Protection Trust within five business days of a Threatened
Change in Control an amount equal to the aggregate corporate and
divisional individual target incentive award for the current year (or
for the immediately preceding year, if no such target awards have been
established for the current year), to be paid out by the Trustee, on
behalf of the Company, in accordance with the provisions of the Plan.
E. Tenneco Inc. Supplemental Executive Retirement Plan
1. Upon a Threatened Change in Control, Tenneco will estimate (as of the
end of the then calendar year) the amount of the benefits payable
under the plan and will deposit this amount into the Benefits
Protection Trust within five business days of a Threatened Change in
Control.
F. 1994 Tenneco Inc. Stock Ownership Plan.
1. (a) Upon a Change in Control, all Stock Options granted under the
plan shall become fully exercisable.
(b) Upon a Threatened Change in Control all Stock Appreciation Rights
granted under the plan shall become fully vested. Tenneco will
estimate the amount payable to employees holding Stock Appreciation
Rights and will deposit this amount into the Benefits Protection Trust
within five business days of the Threatened Change in Control.
(c) Upon a Threatened Change in Control, certificates for all
Restricted Stock then held by Tenneco and issued under the plan
together with funds in an amount estimated to be sufficient to pay the
aggregate cash settlement amounts payable upon reversion of such
shares in the event of a Change in Control and a subsequent discharge
or constructive termination of the employee beneficiaries (which
estimate may not be based on an assumed fair market value per share in
excess of 150% of the fair market value on the date of the Threatened
Change in Control) will be deposited into the Benefits Protection
Trust within five business days of a Threatened Change in Control.
(d) Upon a Threatened Change in Control, Tenneco will estimate the
aggregate amount payable under the Performance Units, issued pursuant
to the plan on account of all Units the cycle for which ends with the
then current calendar year and will deposit the amount so estimated
into the Benefits Protection
-32-
<PAGE>
Trust within five business days of the Threatened Change in Control.
(e) Upon a Threatened Change in Control, Tenneco will estimate the
aggregate amount payable under the Stock Equivalent Units and Dividend
Equivalent Units issued pursuant to the plan and will deposit the
amount so estimated into the Benefits Protection Trust within five
business days of the Threatened Change in Control.
For purposes of this subsection F, the term "constructive termination"
shall have the same meaning as set forth in the Tenneco Inc. Change in
Control Severance Benefit Plan for Key Executives.
G. Tenneco Inc. Directors Restricted Stock/Restricted Unit Plan.
1. (a) Upon a Threatened Change in Control, certificates for all
Restricted Stock then held by the Company and issued under the plan
together with funds in an amount estimated to be sufficient to pay the
aggregate cash settlement amounts payable upon reversion of such
shares in the event of a CIC and a subsequent removal of the Director
from the Board (which estimate may not be based on an assumed fair
market value per share in excess of 150% of the fair market value on
the date of the Threatened Change in Control) will be deposited into
the Benefits Protection Trust within five business days of a
Threatened Change in Control.
(b) Upon a Threatened Change in Control, Tenneco will estimate the
aggregate amount payable under the Restricted Units issued pursuant to
the plan and will deposit the amount so estimated into the Benefits
Protection Trust within five business days of the Threatened Change in
Control.
H. Supplemental Pensions.
1. Employees Protected - Dana Mead, Stacy Dick, Arthur House, John
Castellani, Theodore Tetzlaff, W. R. Phillips, Paul Stecko, Barry
Schuman and Robert Blakely.
2. Plan Provision - Upon a Threatened Change in Control, Tenneco will
estimate (as of the end of the then calendar year) the amount of the
benefits payable under the supplemental pension agreements and will
deposit the amount so estimated into the Benefits Protection Trust
within five business days of the Threatened Change in Control.
-33-
<PAGE>
II. SALARY AND OTHER CONTINUATION ARRANGEMENTS
------------------------------------------
Upon a Threatened Change in Control, Tenneco will estimate the aggregate
amount that it reasonably anticipates may become payable under the Tenneco
Inc. Change in Control Severance Benefit Plan for Key Executives and will
deposit the amount so estimated into the Benefits Protection Trust within
five business days of the Threatened Change in Control.
-34-
<PAGE>
EXHIBIT 10.18
-------------
[ON TENNECO LETTERHEAD]
June 29, 1992
Mr. Stacy Dick
1220 Park Avenue, #2D
New York, NY 10128
Dear Stacy:
On behalf of Tenneco, Inc. ("Tenneco") and Tenneco Management Company
("Company"), I am pleased to offer you the position of Sr. Vice President-
Strategy under the following terms and conditions:
1. Your employment will commence as soon as you can conveniently terminate
your employment with First Boston. You will report to me.
2. The Company will pay you a monthly base salary of $25,000 ($300,000 per
year), which shall be subject to such increases as may from time to time be
approved by the Compensation and Benefits Committee of the Board of
Directors of Tenneco, payable according to the regular pay schedule for
salaried employees. As discussed, effective January 1, 1992, we will
adjust your salary to $27,083 per month ($325,000 per year).
3. You will be a participant in Tenneco's Executive Incentive Compensation
Plan ("EIC Plan"). The amount distributed to you under the EIC Plan with
respect to 1992 will be $100,000 and 1993 will be no less than $125,000,
payable in accordance with the terms of the EIC Plan.
4. You will be a participant in Tenneco's Deferred Compensation Plan ("DC
Plan"). The amount awarded to you under the DC Plan with respect to 1992
will be $15,000, payable in accordance with the terms of the DC Plan.
<PAGE>
Mr. Stacy Dick
June 29, 1992
Page 2
5. You will be awarded 15,000 restricted shares under Tenneco's Key Employee
Restricted Stock and Restricted Unit Plan, vesting in four years following
date of grant. You will be eligible to vote the stock and receive
quarterly dividends. You will be eligible to receive additional stock
grants annually at the discretion of the Compensation and Benefits
Committee of the Board of Directors.
6. In consideration of benefits you will forego from your current employer,
the Company will pay you the following upon commencement of your
employment.
. $145,000 if First Boston requires you to reimburse them for 40% of your
1991 bonus.
. $290,000 which represents one-half of your estimated accrued 1992
bonus from First Boston. Should the final amount of the bonus
generated and earned be more or less than the $290,000, we will settle
which each other as is appropriate as soon as the final amount is
known.
7. You will receive non-cash compensation and personal benefits comparable to
those currently provided to Tenneco's senior executive officers under
Tenneco's policies in effect at the time hereof, including reimbursement
for the costs of financial, tax and estate planning up to $20,000 per year.
8. We will credit five years of service under our pension effective with your
date of employment, plus you will receive a SERP which covers the incentive
compensation in addition to base salary.
9. The Company will purchase from you your home in New York for a price equal
to the greater of the fair market value determined by an independent
appraiser or your cost for the property.
10. You will be reimbursed for the costs incurred in relocating to the Houston,
Texas area.
11. If the Company terminates your employment other than upon your death,
disability or the material non-performance of your duties, it will pay you
a severance benefit in an amount equal to the sum of one times your base
salary then in effect.
12. You will be provided an annual physical examination. You will also be
provided membership in a country club of your choice and a dining or social
club of your choice related to the performance of your role as Sr. Vice
President.
<PAGE>
Mr. Stacy Dick
June 29, 1992
Page 3
13. You will be provided an automobile, including gas, maintenance, and
insurance in accordance with Tenneco company policy.
Materials for the Tenneco Inc. Executive Incentive Plan, Restricted Stock and
Deferred Compensation Plan are being mailed to you. Ken Otto is available to
answer any questions you may have.
Please acknowledge your agreement to these terms by executing a copy of this
letter in the space provided below and returning it to me.
Very truly yours,
/s/ Michael H. Walsh
Michael H. Walsh
Chairman and
Chief Executive Officer
Agreed:
/s/ Stacy Dick
- ------------------
Stacy Dick
<PAGE>
EXHIBIT 10.19
-------------
[ON TENNECO LETTERHEAD]
March 12, 1992
Mr. Dana G. Mead
27 Strickland Road
Cos Cob, CT 06807
Dear Dana:
On behalf of Tenneco, Inc. ("Tenneco") and Tenneco Management Company
("Company"), I am pleased to offer you the position of President and Chief
Operating Officer under the following terms and conditions:
1. Your employment will commence about April 1, 1992 or upon termination of
your present employment if that occurs earlier. You will report directly
to the Chief Executive Officer. You will serve as Chief Operating Officer
and, as of May 12, 1992, you will become President of Tenneco and Chief
Operating Officer.
2. The Company will pay you a monthly base salary of $47,917 ($575,000 per
year), which shall be subject to such increases as may from time to time be
approved by the Compensation and Benefits Committee of the Board of
Directors of Tenneco, payable according to the regular pay schedule for
salaried employees.
3. You will be a participant in Tenneco's Incentive Compensation Plan ("EIC
Plan"). The amount distributed to you under the EIC Plan with respect to
1992 and 1993 will be no less than $300,000 for each year, payable in
accordance with the terms of the EIC Plan.
4. You will be a participant in Tenneco's Deferred Compensation Plan ("DC
Plan"). The amount awarded to you under the DC Plan with respect to 1992
will be no less than $60,000, payable in accordance with the terms of the
DC Plan.
<PAGE>
Mr. Dana G. Mead
March 12, 1992
Page 2
5. You will be awarded 55,000 restricted shares under Tenneco's Key Employee
Restricted Stock and Restricted Unit Plan, vesting in five years following
date of grant. You will be eligible to vote the stock and receive
quarterly dividends. You will be eligible to receive additional stock
grants annually at the discretion of the Compensation and Benefits
Committee of the Board of Directors. In the event of your termination for
any reason, other than death, disability or retirement, these shares will
vest on a prorated basis, at a minimum, based on the number of months
employed during the five year vesting period. In the event of retirement,
death or disability, all shares will be fully vested regardless of length
of service. Early retirement (prior to age 65) will require Board approval
for vesting.
6. You will be nominated for membership on the Tenneco Inc. Board of Directors
at its next meeting on March 10, 1992.
7. In consideration of benefits you will forego from your current employer,
the Company will pay you $1,000,000 upon commencement of your employment.
8. You will receive non-cash compensation and personal benefits comparable to
those currently provided to Tenneco's senior executive officers under
Tenneco's policies in effect at the time hereof, including reimbursement
for the costs of financial, tax and estate planning up to $20,000 per year.
9. Your pension benefits from all defined pension benefit plans (whether
qualified or non-qualified) will at a minimum be equal to an amount to
which you will have been entitled to if your coverage under the
International Paper ("IP") defined benefit plans (whether qualified or non-
qualified) in effect at this time had continued until your separation from
service with Tenneco (less any benefits from such IP Plans). If the
Company terminates your employment non-performance of your duties prior to
age 60, the Company will guarantee an age 60 retirement (equivalent to that
received if you fully vested at age 60), including your IP past service and
bonus included in the calculation of such benefit. In the event of death
while actively employed, the surviving spouse will receive retirement
benefits under a 50% joint and survivor benefit provision.
Long Term Disability is a separate program which pays 60% of base pay. If
disabled, the retirement plan recognizes the years of disability towards
the individual's accrual in the retirement plan.
10. The Company will purchase from you your homes in Greenwich, Connecticut and
Cape Cod, Massachusetts or Windham, Vermont for a price equal to the
greater of their fair market value determined by an independent appraiser
or your cost for the properties.
<PAGE>
Mr. Dana G. Mead
March 12, 1992
Page 3
11. You will be reimbursed for the costs incurred in relocating to the Houston,
Texas area, including the cost of transporting your boat for normal
temporary living expenses during the duration of the move to Houston and
relocation from the Northeast.
12. If the Company terminates your employment other than upon your death,
disability or the material non-performance of your duties, it will pay you
a severance benefit in an amount equal to the sum of (i) three times your
base salary then in effect and (ii) $300,000. If you resign voluntarily,
you will not be entitled to any severance benefits.
13. You will be provided an annual physical examination. You will also be
provided membership in a country club of your choice and a dining or social
club of your choice related to the performance of your role as President
and Chief Operating Officer.
14. You will be provided an automobile, including gas, maintenance, and
insurance in accordance with Tenneco company policy.
Materials for the Tenneco Inc. Executive Incentive Plan, Restricted Stock and
Deferred Compensation Plan are being mailed to you. Ken Otto is available to
answer any questions you may have.
Please acknowledge your agreement to these terms by executing a copy of this
letter in the space provided below and returning it to me.
Sincerely,
/s/ Michael H. Walsh
Michael H. Walsh
President and
Chief Executive Officer
Agreed:
/s/ Dana G. Mead
- -------------------
Dana G. Mead
<PAGE>
EXHIBIT 10.20
-------------
[ON TENNECO LETTERHEAD]
December 3, 1993
PERSONAL AND CONFIDENTIAL
- -------------------------
Mr. Paul T. Stecko
9469 Plantation Way Lane
Germantown, Tennessee 38139
Dear Paul:
On behalf of Tenneco, I am pleased to offer you the position of President and
Chief Executive Officer of Packaging Corporation of America, under the following
terms and conditions:
1. Your employment will commence on or about December 6, 1993 or upon
termination of your present employment, if that occurs earlier. You will
report to me as President and Chief Operating Officer of Tenneco.
2. You will be paid a base salary of $320,000 a year, which shall be subject
to such increases as may from time to time be approved by the Compensation
and Benefits Committee of the Board of Directors of Tenneco, payable
according to the regular pay schedule for salaried employees.
3. You will be a participant in the Tenneco Executive Incentive Compensation
Plan ("EICP"). The amount distributed to you under the EICP for 1994 will
be no less than $175,000, payable in accordance with the terms of the EICP.
4. You will be a participant in Tenneco's Deferred Compensation Plan ("DCP").
The amount awarded to you under the DCP with respect to 1994 will be no
less than $22,000, payable in accordance with the terms of the DCP.
<PAGE>
Mr. Paul T. Stecko
December 3, 1993
Page 2
5. At the time of your employment, you will be awarded 5,000 restricted shares
under Tenneco's Key Employee Restricted Stock and Restricted Unit Plan,
vesting in one year following the date of the grant, subject to Board
approval. You will be eligible to vote the stock and receive quarterly
dividends. You will be eligible to receive additional restricted stock
grants and stock options annually at the discretion of the Compensation and
Benefits Committee of the Board of Directors. (1994 target award levels for
your position are approximately 5,000 restricted and 16,000 option grants.
Annual awards may be greater or lesser than the target depending on
performance.)
6. In consideration of the benefits you will forego from your current
employer, you will be paid $300,000 upon commencement of your employment.
You will be paid an additional signing bonus of $200,000, also payable upon
commencement of your employment.
7. You will receive non-cash compensation and personal benefits comparable to
those currently provided to Tenneco senior executives under Tenneco's
policy in effect at the time hereof, including Health Care, Thrift Plan,
Long-Term Disability, and Life Insurance (the plan provides for coverage of
one and one-half times your salary paid for by the Company, with the option
to purchase at your expense up to five times your salary). You will also be
reimbursed the costs for financial and estate planning up to $20,000 per
year. The Company will purchase from you your home in Memphis for a price
equal to the greater of the fair market value determined by an appraiser,
or your cost for the property-which you have indicated is $375,000. You
will also be reimbursed for the costs incurred in relocating to the Chicago
area according to the Company's relocation plan, which includes a payment
equal to one month's salary.
8. You will have four weeks vacation.
9. Your pension benefits from all defined pension benefit plans will, at a
minimum, be equal to an amount to which you would have been entitled if
your coverage under the International Paper ("IP") defined benefit plans in
effect at this time had continued until your separation of service with
Tenneco, less any benefits from such IP plans. Years of service with IP
will count towards satisfaction of early retirement service requirements in
the Tenneco Plan.
10. If your employment is terminated other than for the cause of death,
disability or the gross neglect of your duties, you will be paid a
severance benefit in an amount equal to three times your base salary
($320,000). We also agree to purchase your Chicago-area home at "fair
market value" in the event you become entitled to this severance benefit.
Fair market value will be determined by the average of two independent
appraisals. These two appraisers will be chosen from a list provided by
Tenneco's
<PAGE>
Mr. Paul T. Stecko
December 3, 1993
Page 3
home purchase agent in accordance with the Company's Home Purchase Plan. If
you resign voluntarily you will not be entitled to any severance or home
purchase plan benefits.
11. If a change in control of Packaging Corporation of America occurs and your
relationship with Tenneco and the acquiring company is severed, you will be
paid a severance benefit in an amount equal to three times your base salary
($320,000). This severance benefit may be exercised by you at any time
within three years of the date of change of control.
12. You will be provided membership in a country club of your choice related to
the performance of your role as President and Chief Executive Officer.
13. This offer is contingent upon your successful completion of a pre-
employment physical which includes a requisite substance abuse screening.
The materials describing the Tenneco Executive Incentive Compensation Plan,
Restricted Stock, Deferred Compensation and other benefit plans will be mailed
to you. Barry Schuman is available to answer questions you may have.
Please acknowledge your agreement of these terms by executing a copy of this
letter in the space provided below and returning it to me.
Sincerely,
/s/ Dana G. Mead
Dana G. Mead
President and Chief Operating Officer
ACKNOWLEDGED AND ACCEPTED:
/s/ Paul T. Stecko
- ---------------------
Paul T. Stecko
On this ______ day of December, 1993.
<PAGE>
EXHIBIT 10.21
-------------
[ON TENNECO LETTERHEAD]
September 9, 1992
Mr. Theodore R. Tetzlaff
Jenner & Block
One IBM Plaza
Chicago, IL 60611
Dear Ted:
As you know, on September 1, 1991, you and Jenner & Block were engaged by
Walter W. Sapp, the General Counsel of Tenneco, Inc., to represent Tenneco and
its subsidiaries and affiliates ("Tenneco"). In addition, effective July 1,
1992, the Board of Directors of Tenneco designated you to serve as General
Counsel of Tenneco. I am writing to confirm our understanding of certain terms
concerning Jenner & Block's representation of Tenneco and your service as
General Counsel.
Tenneco's Board of Directors has appointed you General Counsel with the
understanding that during your tenure as General Counsel you will continue to be
a partner of Jenner & Block, to reside in Chicago, and to engage in the practice
of law with that firm. You have agreed to devote whatever time is necessary to
attend to your professional responsibilities as General Counsel of Tenneco, and
Tenneco agrees to pay you $300,000 per year for your service as General Counsel.
Tenneco will pay for your travel to Houston as well as travel and other expenses
you incur on behalf of Tenneco.
As an officer of Tenneco, you are also eligible to participate in those
benefit plans or programs which are generally available to the other senior
officers of Tenneco. It is Tenneco's understanding that Jenner & Block has
agreed that Tenneco may pay this compensation and extend these benefits to you
to be retained for your personal benefit.
You have advised me that during your tenure as General Counsel of Tenneco
you will not receive from Jenner & Block any part of the fees paid by Tenneco to
Jenner &
<PAGE>
Mr. Theodore R. Tetzlaff
September 9, 1992
Page 2
Block, and that Jenner & Block agrees to take appropriate action to exclude you
from participating in the distribution of those fees paid by Tenneco.
Also, Jenner & Block agrees that it will not bill Tenneco for your
professional services rendered after July 1, 1992. It is Tenneco's understanding
that Jenner & Block will render professional services in accordance with the
terms contained in the letter dated April 13, 1992, from Tenneco confirming
Jenner & Block's engagement. Tenneco understands that Jenner & Block will bill
for other members of the firm in accordance with Jenner & Block's regular hourly
rates or as otherwise agreed upon by Jenner & Block and the Deputy General
Counsels of Tenneco or other members of Tenneco's Office of General Counsel
responsible for requesting or monitoring those services.
If I have accurately reflected our understanding, I would appreciate it if
you and Jenner & Block would kindly acknowledge one copy of this letter.
Sincerely,
/s/ Dana G. Mead
Dana G. Mead,
President
AGREED:
/s/ Theodore R. Tetzlaff
- --------------------------
Theodore R. Tetzlaff
- ------------------------------------
Jenner & Block
<PAGE>
EXHIBIT 10.22
-------------
9/16/96
TENNECO INC.
BOARD OF DIRECTORS
RESTRICTED STOCK PROGRAM
Pursuant to the Company's directors' fee structure, annually, on the second
Tuesday of January, 300 shares (the "Restricted Shares") of the Company's Common
Stock, par value $5 per share (the "Common Stock"), held by the Company in
treasury shall be transferred to each non-employee director of the Company (the
"Outside Director"). The stock certificate representing said Restricted Shares
shall be registered in the Outside Director's name, effective as of such second
Tuesday in January (the "Registration Date"). Each Outside Director shall
provide the Company with an executed acknowledgment of the transaction, relating
to the Restricted Shares, in such form as the Company may reasonably require.
Valuation of Restricted Shares. The Restricted Shares issued in connection
with this Restricted Stock Program shall be issued at the Fair Market Value
thereof, as of the Registration Date. "Fair Market Value" of a Restricted Share
is the mean between the highest and the lowest sales prices of a share of the
Common Stock on the Composite Tape for such date, as reported by the National
Quotation Bureau Incorporated; provided, that (i) if no sales of Common Stock
are included on the Composite Tape for such date, or (ii) if in the opinion of
the Committee the sales of Common Stock on such date are insufficient to
constitute a representative market, the Fair Market Value of a Restricted Share
on such date shall be deemed equal to the mean between the highest and lowest
sales prices of a share of Common Stock on the Composite Tape for the first
preceding date on which sales of Common Stock are included and to which clause
(ii) of this paragraph does not apply.
Restrictive Legend. The stock certificate shall bear the following legend:
"The shares represented by this certificate have been issued pursuant to
the terms of the Tenneco Inc. Board of Directors Restricted Stock Program,
are subject to forfeiture, and may not be sold, transferred, assigned,
pledged, or otherwise encumbered, tendered or exchanged, or disposed of in
any manner until such time as is set forth in the terms of such Restricted
Stock Program."
Restricted Period. The restricted period (the "Restricted Period")
applicable to the Restricted Shares begins on the Registration Date and, unless
the disinterested members of the Committee shall determine otherwise, ends on
the earliest of the Outside Director's: (i) death; (ii) total disability; or
(iii) retirement from the Board, after reaching the mandatory retirement age
provided by Article II, Section 1 of the By Laws of the Company.
Restrictions. During the Restricted Period the Restricted Shares shall be
held in custody by the Company for such Outside Director's account. The Outside
Directors shall have generally the rights and privileges of a stockholder as to
any Restricted Shares, including the right to receive dividends and the right to
vote such Restricted Shares, except that the following
<PAGE>
restrictions shall apply:
(i) An Outside Director shall not be entitled to delivery of a stock
certificate, representing the Restricted Shares, until the
expiration or earlier termination of the Restricted Period:
(ii) Should an Outside Director, prior to the expiration or earlier
termination of the Restricted Period, resign from the Board, fail to
stand for reelection to the Board, or otherwise cease to be a member
of the Board of Directors of the Company, the Restricted Shares
shall be forfeited, unless otherwise determined by the disinterested
members of the Committee; and
(iii) No Restricted Shares may be sold, transferred, assigned, pledged, or
otherwise encumbered, tendered or exchanged, or disposed of until
the expiration or earlier termination of the Restricted Period.
In the event of a tender or exchange offer that is applicable to any Restricted
Shares, the Committee shall have the sole right to instruct the Company as to
whether such Restricted Shares are to be tendered or exchanged, and the Company
shall respond in accordance with the instructions so received.
Delivery of Shares. Upon the expiration or earlier termination of the
Restricted Period, the restrictions applicable to the Restricted Shares shall
lapse. As promptly as administratively feasible thereafter, the Company shall
deliver to such Outside Director or, if deceased, such Outside Director's
beneficiary or estate, a stock certificate for the appropriate number of shares
of Common Stock, free of all such restrictions and without the legend described
above, except for any restrictions that may be imposed by law.
Upon the forfeiture of any Restricted Share, such forfeited share shall be
transferred to the Company, without further action by an Outside Director, as an
issued, reacquired share.
Tax Matters. Under current tax law, the Outside Directors receiving
Restricted Shares will generally be taxed on the value of the Restricted Shares
on the date the restrictions lapse. However, as an alternative, an Outside
Director may elect under the Internal Revenue Code Section 83(b) to be taxed on
the value of the Restricted Shares on the Registration Date, identified above.
If an Outside Director makes this election, the value of the Restricted Shares
will be taxable in the year of the Registrations Date, rather than in the year
that the restrictions lapse. An Outside Director making this election, must so
notify the Company in writing and file the election with the Internal Revenue
Service within thirty (30) days of the Registration Date.
This Program and the total compensation of any Outside Director of the
Company may be changed at any time by the Committee, and any Outside Director
shall not have any rights to Restricted Shares in any particular year until such
shares are registered in his or her name.
THE RESTRICTED SHARES REFERRED TO HEREIN SHALL NOT BE REGISTERED PURSUANT
TO THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
EXHIBIT 10.23
-------------
9/16/96
TENNECO INC.
BOARD OF DIRECTORS
RESTRICTED STOCK AND RESTRICTED UNIT PROGRAM
Pursuant to the Company's directors' fee structure, annually, on the second
Tuesday of January, (the "Registration Date"), 300 units (the "Restricted
Units") shall be credited to the account of each non-employee director of the
Company (the "Outside Director") who is not a United States Resident, and said
account shall be maintained by the Company's Compensation and Benefits Planning
Department.
Restrictions. During the Restricted Period the following restrictions
shall apply to each Restricted Unit:
(i) Should an Outside Director, prior to the expiration or earlier
termination of the Restricted Period, resign from the Board, fail to
stand for reelection to the Board, or otherwise cease to be a member
of the Board of Directors of the Company, the Restricted Units shall
be forfeited, unless otherwise determined by the disinterested members
of the Committee; and
(ii) No Restricted Unit may be sold, transferred, assigned, pledged, or
otherwise encumbered, tendered or exchanged, or disposed of until the
expiration or earlier termination of the Restricted Period.
Dividend Equivalent. As soon as administratively feasible following the
payment of any cash dividend on its Common Stock, the Company shall pay a
"dividend equivalent" in an amount equal to any cash dividend paid by the
Company on one share of Common Stock for each Restricted Unit outstanding under
this Program.
Delivery of Shares. Upon the expiration or earlier termination of the
Restricted Period, the restrictions applicable to the Restricted Units shall
lapse. As promptly as administratively feasible thereafter, the Company shall
deliver to the Outside Director a stock certificate for the appropriate number
of shares of Common Stock, free of all such restrictions, except for any
restrictions that may be imposed by law, and the Restricted Units with respect
to which the restrictions have lapsed shall cease to be outstanding. In the
event the disinterested members of the Committee reasonably believe that the
laws of the country in which the Outside Director resides prohibit payment in
shares of Common Stock, then, in lieu of the delivery of such stock certificate
and without any consent by the Outside Director, the company shall, at the
direction of the disinterested members of the Committee, pay the Outside
Director a cash amount equal to the Fair Market Value (as of the date the
restrictions lapse) of the appropriate number of shares
<PAGE>
of Common Stock. The appropriate number of shares shall be equal to the number
of Restricted Units with respect to which the restrictions have lapsed.
Restricted Period. The restricted period (the "Restricted Period")
applicable to the Restricted Units, as the case may be, begins on the
Registration Date and, unless the disinterested members of the Committee shall
determine otherwise, ends on the earliest of the Outside Director's: (i) death;
(ii) total disability; or (iii) retirement from the Board, after reaching the
mandatory retirement age provided by Article II, Section 1 of the By Laws of the
Company.
Valuation of Restricted Units. The Restricted Units issued in connection
with this Restricted Stock and Restricted Unit Program shall be issued at the
Fair Market Value thereof, as of the Registration Date. "Fair Market Value" of a
Restricted Unit is the mean between the highest and the lowest sales prices of a
share of the Common Stock on the Composite Tape for such date, as reported by
the National Quotation Bureau Incorporated; provided, that (i) if no sales of
Common Stock are included on the Composite Tape for such date, or (ii) if in the
opinion of the Committee the sales of Common Stock on such date are insufficient
to constitute a representative market, the Fair Market Value of a Restricted
Unit on such date shall be deemed equal to the mean between the highest and
lowest sales prices of a share of Common Stock on the Composite Tape for the
first preceding date on which sales of Common Stock are included and to which
clause (ii) of this paragraph does not apply.
Adjustments Upon Changes in Capitalization. Notwithstanding the foregoing,
the Committee may at any time make or provide for adjustments to any outstanding
Restricted Units with respect to which restrictions have not lapsed as it shall
deem appropriate to prevent dilution or enlargement of rights, including
adjustments in the event of changes in the outstanding Common Stock by reason of
stock dividends, split-ups, recapitalizations, mergers, consolidations,
combinations or exchanges of shares, separations, reorganizations, liquidations
and the like.
Tax Matters. Under current tax law, the Outside Directors will incur no
immediate U.S. income tax liability upon the award of the Restricted Units. The
U.S. tax effect will be determined at the expiration or earlier termination of
the Restricted Period, at which time the Restricted Units will cease to be
outstanding and Common Stock will be delivered to the Director. The tax effect
of such transaction will be determined by each Director's individual situation
in the year of the delivery. Factors such as the amount of time spent in the
United States and the existence and terms of any applicable tax treaty in effect
at the time of the delivery of the Common Stock may affect the Director's
ultimate income tax liability, both U.S. and foreign. Consultation with a
professional tax advisor is recommended.
Payments of the dividend equivalent will be regarded as compensation to the
Director. As discussed above the proper tax treatment will depend on each
Director's individual situation in the year in which the payments are made.
Acknowledgment of Transaction. Each Outside Director shall provide the
Company with an executed acknowledgment of the transaction, relating to the
Restricted Units in such form as the Company may reasonably require.
<PAGE>
This Program and the total compensation of any Outside Director of the
Company may be changed at any time by the Committee, and any Outside Director
shall not have any rights to Restricted Units in any particular year until such
shares are registered in his or her name.
THE RESTRICTED UNITS REFERRED TO HEREIN SHALL NOT BE REGISTERED
PRUSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
EXHIBIT 10.24
-------------
1996 TENNECO INC. STOCK OWNERSHIP PLAN
1. PURPOSE
The purpose of the Plan is to promote the long-tenn success of the
Company for the benefit of shareholders by encouraging its officers and key
employees to have meaningful investments in the Company so that, as stockholders
themselves, those individuals will be more likely to represent the views and
interests of other stockholders and by providing incentives to such officers and
key employees for continued service. The Company believes that the possibility
of participation under the Plan will provide this group of officers and
employees an incentive to perform more effectively and will assist the Company
in attracting and retaining people of outstanding training, experience and
ability.
2. DEFINITIONS
"Authorized Plan Shares" has the meaning set forth in Section 6(a).
"Award" means an award or grant made to a Participant under Section 8.
"Award Agreement" means the agreement provided in connection with an
Award under Section 12.
"Award Date" means the date that an Award is made, as specified in an
Award Agreement.
"Board of Directors" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended, or
any successor legislation.
"Company" means Tenneco Inc.
"Committee" means the Compensation and Benefits Committee of the Board
of Directors, or any successor committee thereto.
"Common Stock" means the Company's common stock, $.01 par value per
share.
"Covered Employees" shall have the meaning specified in Section
162(m)(3) of the Code.
"Dividend Equivalent" means an amount equal to the amount of the cash
dividends that are declared and become payable after the Award Date for the
Award to which it relates and on or before the Settlement Date for such Award.
<PAGE>
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" on any date means the average of the highest and
the lowest sales prices of a share of Common Stock on the Composite Tape for
such date, as reported by the National Quotation Bureau Incorporated, provided
that if (i) no sales of Common Stock are included on the Composite Tape for such
date, or (ii) in the opinion of the Committee, the sales of Common Stock on such
date are insufficient to constitute a representative market, then the Fair
Market Value of a share of Common Stock on such date shall be deemed to be the
average of the highest and lowest prices of a share of Common Stock as reported
on said Composite Tape for the next preceding day on which (x) sales of Common
Stock are included and (y) the circumstances described in this clause (ii) do
not exist.
"ISO" means any Stock Option designated in an Award Agreement as an
"Incentive Stock Option" within the meaning of Section 422 of the Code.
"Non-Qualified Stock Option" means any Stock Option that is not an
ISO.
"Option Price" means the purchase price of one share of Common Stock
under a Stock Option.
"Participant" means an employee or officer of a Tenneco Company who
has been selected by the Committee to receive an Award under the Plan.
"Performance Unit" means an Award denominated in cash, the amount of
which may be based on performance of the Participant or of Tenneco Inc. or of
any subsidiary or division thereof.
"Plan" means this 1996 Tenneco Inc. Stock Ownership Plan, as amended
from time to time.
"Reload Stock Option" means a Stock Option (i) that is awarded, either
automatically in accordance with the terms of an Award Agreement in which one or
more other Awards are made or by separate Award, upon the exercise of a stock
option granted under this Plan or otherwise where the option price is paid by
the option holder by delivery of shares of Common Stock on the Settlement Date
for such exercise and (ii) that entitles such holder to purchase the number of
shares so delivered for an Option Price equal to the Fair Market Value of a
share of Common Stock on such Settlement Date.
"Restricted Stock" means shares of Common Stock subject to
restrictions and conditions pursuant to Section 8(c).
"Rule 16b-3" means Regulation (S) 240.16b-3 of the rules and
regulations of the Securities and Exchange Commission promulgated under the
Exchange Act.
-2-
<PAGE>
"Settlement Date" means, (i) with respect to any Stock Option that has
been exercised in whole or in part, the date or dates upon which shares of
Common Stock are to be delivered to the Participant and the Option Price
therefor paid, (ii) with respect to any SARs that have been exercised, the date
or dates upon which a cash payment is to be made to the Participant, or in the
case of SARs that are to be settled in shares of Common Stock, the date or dates
upon which such shares are to be delivered to the Participant, (iii) with
respect to Performance Units, the date or dates upon which cash or shares of
Common Stock are to be delivered to the Participant, (iv) with respect to
Dividend Equivalents, the date upon which payment thereof is to be made, and (v)
with respect to Stock Equivalent Units, the date upon which payment thereof is
to be made, in each case, determined in accordance with the terms of the Award
Agreement under which any such Award was made.
"Stock Appreciation Right" or "SAR" means an Award that entitles the
Participant to receive on the Settlement Date an amount equal to the excess of
(i) the Fair Market Value of a share of Common Stock on the
date of exercise of the SAR over
(ii) the Fair Market Value of one share of Common Stock on
the Award Date or any other higher amount specified in the Award
Agreement.
"Stock Equivalent Unit" means an Award that entitles the Participant
to receive on the Settlement Date an amount equal to the Fair Market Value of
one share of Common Stock on such date.
"Stock Option" or "Option" means any right to purchase shares of
Common Stock (including a Reload Stock Option) awarded pursuant to Section 8(a).
"Tenneco Company" means the Company, any stock corporation of which a
majority of the capital stock generally entitled to vote for directors is owned
directly or indirectly by the Company, and any other company designated as such
by the Committee, but only during the period of such ownership or designation.
3. TERM
The Plan shall be effective as of October 8, 1996, and shall remain in
effect through December 31, 2001. After termination of the Plan, no further
Awards may be granted other than Reload Stock Options granted in accordance with
Award Agreements existing as of December 31, 2001, but outstanding Awards shall
remain effective in accordance with their terms and the terms of the Plan.
4. PLAN ADMINISTRATION
(a) The Committee shall be responsible for administering the Plan.
-3-
<PAGE>
(i) Composition of the Committee. The Committee shall be
comprised of two or more members of the Board of Directors, all of
whom shall be "non-employee directors" as defined in Rule 16b-3) and
"outside directors" as that term is used in Section 162 of the Code
and the regulations promulgated thereunder.
(ii) Powers. The Committee shall have full and exclusive
discretionary power to interpret the Plan and to determine eligibility
for benefits and to adopt such rules, regulations and guidelines for
administering the Plan as the Committee may deem necessary or proper.
Such power shall include, but not be limited to, selecting Award
recipients, establishing all Award terms and conditions and, subject
to Section 13, adopting modifications and amendments to the Plan or
any Award Agreement, including without limitation, any that are
necessary to comply with the laws of the countries in which the
Company or its affiliates operate.
(iii) Delegation. The Committee may delegate to one or
more of its members or to one or more agents or advisors such non-
discretionary administrative duties as it may deem advisable, and the
Committee or any person to whom it has delegated duties as aforesaid
may employ one or more persons to render advice with respect to any
responsibility the Committee or such person may have under the Plan.
(b) The Committee may employ attorneys, consultants, accountants and
other persons, and the Committee, the Company and its officers and directors
shall be entitled to rely upon the advice, opinions or valuations of any such
persons. All actions taken and all interpretations and determinations made by
the Committee in good faith shall be final and binding upon the Participants,
the Company and all other interested persons. No member of the Committee shall
be personally liable for any action, determination, or interpretation made in
good faith with respect to the Plan or Awards, and all members of the Committee
shall be fully protected by the Company, to the fullest extent permitted by
applicable law, in respect of any such action, determination or interpretation.
5. ELIGIBILITY
Awards will be limited to persons who are officers or key employees of
the Tenneco Companies. In determining the persons to whom Awards shall be made,
the Committee shall, in its discretion, take into account the nature of the
person's duties, past and potential contributions to the success of the Tenneco
Companies and such other factors as the Committee shall deem relevant in
connection with accomplishing the purposes of the Plan. A director of the
Company who is not also an officer or employee shall not be eligible to receive
an Award. A person who has received an Award or Awards may receive an
additional Award or Awards. For purposes of this Section 5, the terms
"employee" and "officer" shall also include any former employee or former
officer of a Tenneco Company eligible to receive a replacement award as
contemplated in the third sentence of Section 8.
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<PAGE>
6. AUTHORIZED AWARDS; LIMITATIONS
(a) Except for adjustments pursuant to Section 7, the maximum number
of shares of Common Stock that shall be available for issuance under the Plan
(the "Authorized Plan Shares") shall be 17,000,000 (approximately 10% of the
issued and outstanding shares of Common Stock on the effective date of the
Plan).
(b) Except for adjustments pursuant to Section 7, in no event (i)
shall more than 6.0 million of the Authorized Plan Shares be available for
issuance pursuant to the exercise of ISOs awarded under the Plan; and (ii) shall
more than 5.0 million of the Authorized Plan Shares be available for issuance
pursuant to Restricted Stock Awards.
(c) If an Award expires unexercised or is forfeited, surrendered,
canceled, terminated or settled in cash in lieu of Common Stock, the shares of
Common Stock that were theretofore subject (or potentially subject) to such
Award may again be made subject to an Award Agreement.
(d) Common Stock that may be issued under the Plan may be either
authorized and unissued shares, or issued shares that have been reacquired by
the Company and that are being held as treasury shares. No fractional shares of
Common Stock shall be issued under the Plan; provided, however, that cash, in an
amount equal to the Fair Market Value of a fractional share of Common Stock as
of the Settlement Date of the Award, shall be paid in lieu of any fractional
shares in the settlement of Awards payable in shares of Common Stock.
(e) In no event shall the number of shares of Common Stock subject to
Stock Options plus the number of shares underlying SARs awarded to any one
Participant during the period from October 8, 1996, through December 31, 2001,
exceed 10% of the Authorized Plan Shares. In all events, determinations under
the preceding sentence shall be made in a manner that is consistent with Code
Section 162 and the regulations promulgated thereunder.
7. ADJUSTMENTS AND REORGANIZATIONS
The Committee may make such adjustments to Awards granted under the
Plan (including the terms, exercise price and otherwise) as it deems appropriate
in the event of changes that impact the Company, the Company's share price, or
share status, provided that any such actions are consistently and equitably
applied to all affected Participants; provided, that, notwithstanding any other
provision hereof, insofar as any Award is subject to performance goals
established to qualify payments thereunder as "performance-based compensation"
as described in Section 162(m) of the Code, the Committee shall have no power to
adjust such Awards other than (i) negative discretion and (ii) the power to
adjust Awards for corporate transactions, in either case to the extent
permissible under regulations interpreting Code Section 162(m).
-5-
<PAGE>
In the event of any merger, reorganization, consolidation,
recapitalization, separation, liquidation, stock dividend, extraordinary
dividend, spin-off, split-up, rights offering, share combination, or other
change in the corporate structure of the Company affecting the Common Stock, the
number and kind of shares that may be delivered under the Plan shall be subject
to such equitable adjustment as the Committee, in its sole discretion, may deem
appropriate in order to preserve the benefits or potential benefits to be made
available under the Plan, and the number and kind and price of shares subject to
outstanding Awards and any other terms of outstanding Awards shall be subject to
such equitable adjustment as the Committee, in its sole discretion, may deem
appropriate in order to prevent dilution or enlargement of outstanding Awards.
8. AWARDS
The Committee shall determine the type and amount of any Award to be
made to any Participant; provided, however, that, except as provided in
paragraph (g), no Award granted pursuant to this Plan shall vest in less than
six months after the date the Award is granted. Awards may be granted singly, in
combination, or in tandem. Awards may also be made in combination or in tandem
with, in replacement of, as alternatives to, or as the payment form for, grants
or rights under any other employee benefit or compensation plan of the Tenneco
Companies, including any such employee benefit or compensation plan of any
acquired entity.
(a) Stock Options.
(i) Grants. Stock Options (including Reload Stock Options)
granted under this Plan may be either of the following:
(1) an ISO or
(2) a Non-Qualified Stock Option
The Committee may grant any Participant one or more ISOs, Non-
Qualified Stock Options, or both types of Stock Options, in each case with or
without SARs or Reload Stock Options or any other form of Award. Stock Options
granted pursuant to this Plan shall be subject to such additional terms,
conditions, or restrictions as may be provided in the Award Agreement relating
to such Stock Option.
(ii) Option Price. The Option Price of a Stock Option shall be not
less than 100% of the Fair Market Value of a share of Common Stock on the Award
Date; provided, however, that in the case of a Stock Option granted
retroactively in tandem with or as a substitution for another Award, the Option
Price shall be not less than 100% of the Fair Market Value of a share of Common
Stock on the date of such other Award; and provided further that in any case
ISOs shall have a price equal to 100% of the Fair Market Value of a share of
Common Stock on the Award Date.
-6-
<PAGE>
(iii) ISOs. Anything in this Plan to the contrary notwithstanding, no
term of this Plan relating to ISOs shall be interpreted, amended or altered, nor
shall any discretion or authority awarded under the Plan be exercised, so as to
disqualify this Plan under Section 422 of the Code, or, without the consent of
the Participants affected, to disqualify any ISO under Section 422 of the Code.
An ISO shall not be granted to an individual who, on the date of
grant, owns stock possessing more than 10% of the total combined voting power of
all classes of stock of the employing Company or of its parent or any subsidiary
corporation.
The aggregate Fair Market Value, determined on the Award Date, of the
shares of Common Stock or other stock with respect to which one or more ISOs (or
other "incentive stock options," within the meaning of Subsection (b) of Section
422 of the Code, under all other stock option plans of the Participant's
employing Company and its parent and subsidiary corporations) that are
exercisable for the first time by the Participant during any particular calendar
year shall not exceed the $100,000 limitation imposed by Section 422(d) of the
Code.
(iv) Manner of Payment of Option Price. The Option Price shall be paid
in full at the time of the exercise of the Stock Option and may be paid in any
of the following methods or combinations thereof:
(A) In United States dollars in cash, check, bank draft or
money order payable to the order of the Company;
(B) By the delivery of shares of Common Stock having an
aggregate Fair Market Value on the date of such exercise equal to the
Option Price;
(C) Participants may simultaneously exercise Stock Options
and sell their shares of Common Stock acquired thereby and apply the
proceeds to the payment of the Option Price pursuant to the procedures
established by the Committee; and
(D) In any other manner that the committee shall approve.
(E) Any shares of Common Stock required or permitted to be
sold by an executive officer of the Company in connection with the
payment of the Option Price shall be transferred to the Company.
(v) Reload Stock Options. The Committee may award Reload Stock
Options to any Participant either in combination with other Awards or in
separate Award Agreements that grant Reload Stock Options upon exercise of
outstanding stock options granted under this Plan or otherwise.
-7-
<PAGE>
(b) Stock Appreciation Rights.
(i)Grants. The Committee may award any Participant SARs,
which shall be subject to such additional terms, conditions, or
restrictions as may be provided in the Award Agreement to such SAR
Award, including any limits on aggregate appreciation. SARs may be
settled in Common Stock or cash or both.
(ii)Award Price. The Award Price per share of Common Stock
of a SAR shall be fixed in the Award Agreement and shall be not less
than 100% of the Fair Market Value of a share of Common Stock on the
date of the award; provided, however, that in the case of a SAR
awarded retroactively in tandem with or as a substitution for another
Award, the Award Price per share of a SAR shall be not less than 100%
of the Fair Market Value of a share of Common Stock on the date of
such other Award.
(iii)Distribution of SARs. SARs shall be exercisable in
accordance with the conditions and procedures set out in the Award
Agreement relating to such SAR Award.
(c) Restricted Stock. The Committee may award Restricted Stock to any
Participant Awards of Restricted Stock shall be subject to such conditions and
restrictions as are established by the Committee and set forth in the Award
Agreement, which may include, but are not limited to, continued service with the
Company, achievement of specific business objectives, and other measurements of
individual or business unit or Company performance.
(d) Stock Equivalent Units. The Committee may award Stock Equivalent
Units to any Participant. All or part of any Stock Equivalent Units Award may be
subject to conditions and restrictions established by the Committee, and set
forth in the Award Agreement, which may include some or all of the following;
continued service with the Company, achievement of specific business objectives,
and other measurements of individual or business unit or Company performance
that may include but shall not be limited to, earnings per share, net profits,
total shareholder return, cash flow, return on shareholders' equity, EVA, and
cumulative return on net assets employed. Without limiting the generality of the
foregoing, it is intended that the Committee shall establish performance goals
applicable to Stock Equivalent Units granted to Participants who, in the
judgment of the Committee, may be Covered Employees in such manner as shall
permit it to qualify as "performance-based compensation" as described in Section
162(m)(4)(C) of the Code. The maximum number of Stock Equivalent Units that may
be granted to any Participant in any one calendar year shall not exceed 100,000.
(e) Dividend Equivalents. The Committee may provide in any Award
Agreement in which Stock Equivalent Units are awarded that such Stock Equivalent
Units may accrue Dividend Equivalents. In lieu of awarding Dividend Equivalents,
the Committee may provide for automatic awards of additional Stock Equivalent
Units on each date that
-8-
<PAGE>
cash dividends are paid on the Common Stock in an amount equal to (i) the
product of the dividend per share on the Common Stock times the total number of
Stock Equivalent Units then held by the Participant, divided by (ii) the Fair
Market Value of the Common Stock on the dividend payment date.
(f) Performance Units. Performance Units shall be based on attainment
over a specified period of individual performance targets or on other parameters
that may include but shall not be limited to, earnings per share, net profits,
total shareholder return, cash flow, return on shareholders' equity, EVA, and
cumulative return on net assets employed. Performance Units may be settled in
Common Stock or cash or both. Without limiting the generality of the foregoing,
it is intended that the Committee shall establish performance goals applicable
to Performance Units granted to Participants who, in the judgment of the
Committee, may be Covered Employees in such a manner as shall permit payments
with respect thereto to qualify as "performance-based compensation" as described
in Section 162(m)(4)(C) of the Code. The maximum amount of compensation that may
be paid to any one Participant with respect to any one year shall be $2,000,000.
(g) The Committee may also, in its sole discretion, shorten or
terminate the restricted period or waive any other conditions for the lapse of
restrictions with respect to all or any portion of any Award. Notwithstanding
the foregoing, all restricted periods shall terminate and the Awards shall be
fully vested with respect to any Participant upon the Participant's Retirement,
death, or Total Disability, coincident with termination of employment with
Tenneco Companies. For purposes of this Section 8:
"Retirement" means the Participant's termination of employment with
the Tenneco Company at a time when, under the Tenneco Inc. Retirement Plan or
under any other retirement plan that is maintained by a Tenneco Company and that
is determined by the Committee to be the functional equivalent of the Tenneco
Inc. Retirement Plan, the Participant is eligible to receive an immediately
payable normal retirement benefit, or, if approved by the Committee, the
Participant is eligible to receive an immediately payable early retirement
benefit under such plans; and
"Total Disability" means the permanent inability of the Participant,
which is a result of accident or sickness, to perform such Participant's
occupation or employment for which the Participant is suited by reason of the
Participant's previous training, education and experience and which results in
the termination of the Participant's employment with any Tenneco Company.
9. DIVIDENDS
The Committee may provide in the appropriate Award Agreement that
dividends on Restricted Stock may be paid currently in cash or credited to a
Participant's account for subsequent distribution as determined by the
Committee. The Award Agreement may provide for the reinvestment of dividends
paid on Restricted Stock in shares of Common Stock.
-9-
<PAGE>
10. DEFERRALS AND SETTLEMENTS
Settlement of Awards may be in the form of cash, Common Stock, other
Awards, or in combinations thereof as the Committee shall determine, and with
such other restrictions as it may impose. The Committee may also require or
permit Participants to defer the issuance or vesting of shares or the settlement
of Awards under such rules and procedures as it may establish under the Plan.
The Committee may also provide that deferred settlements include the payment of,
or crediting of interest on, the deferral amounts or the payment or crediting of
Dividend Equivalents on deferred settlements denominated in shares.
11. TRANSFERABILITY AND BENEFICIARIES
No Awards under the Plan shall be assignable, alienable, saleable or
otherwise transferable other than by will or the laws of descent and
distribution, or pursuant to a qualified domestic relations order (as defined by
the Code) or Title I of the Employee Retirement Income Security Act, or the
rules thereunder unless otherwise determined by the Committee.
12. AWARD AGREEMENTS
Awards under the Plan shall be evidenced by Award Agreements that set
forth the details, conditions and limitations for each Award, which may include
the term of an Award (except that (i) except as provided in Section 8(g), no
Award shall vest in less than six months after the date the Award is granted and
(ii) in no event shall the term of any ISO exceed a period of ten years from the
date of its grant), the provisions applicable in the event the Participant's
employment terminates, and the Company's authority to unilaterally or
bilaterally amend, modify, suspend, cancel or rescind any Award.
13. AMENDMENTS; COMPLIANCE WITH RULE 16B-3
The Committee may suspend, terminate, or amend the Plan as it deems
necessary or appropriate to better achieve the purposes of the Plan, except
that, without the approval of the Company's shareholders, no such amendment
shall be made for which shareholder approval is necessary to comply with any
applicable tax or regulatory requirement, including for these purposes any
approval requirement which is a prerequisite for exemptive relief under Section
16b of the Exchange Act.
14. TAX WITHHOLDING
The Company shall have the right to (i) make deductions from any
settlement of an Award made under the Plan, including the delivery or vesting of
shares, or require shares or cash or both be withheld from any Award, in each
case in an amount sufficient to satisfy withholding of any federal, state or
local taxes required by law, or (ii) take such other action as may be necessary
or appropriate to satisfy any such withholding obligations. The Committee may
determine the manner in which such tax withholding may be satisfied,
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<PAGE>
and may permit shares of Common Stock (rounded up to the next whole number) to
be used to satisfy required tax withholding based on the Fair Market Value of
any such shares of Common Stock, as of the Settlement Date of the applicable
Award.
15. OTHER COMPANY BENEFIT AND COMPENSATION PROGRAMS
Unless otherwise specifically determined by the Committee, settlements
of Awards received by a Participant under the Plan shall not be deemed a part of
the Participant's regular, recurring compensation for purposes of calculating
payments or benefits from any Company benefit plan, severance program or
severance pay law of any country. Further, the Company may adopt other
compensation programs, plans or arrangements as it deems appropriate or
necessary.
16. UNFUNDED PLAN
Unless otherwise determined by the Committee, the Plan shall be
unfunded and shall not create (or be construed to create) a trust or a separate
fund or funds. The Plan shall not establish any fiduciary relationship between
the Company and any Participant or other person. To the extent any person holds
any rights by virtue of a grant awarded under the Plan, such right (unless
otherwise determined by the Committee) shall be no greater than the right of an
unsecured general creditor of the Company.
17. FUTURE RIGHTS
No person shall have any claim or right to be granted an award under
the Plan, and no Participant shall have any right under the Plan to be retained
in the employment of the Company or its affiliates.
18. GOVERNING LAW
The validity, construction and effect of the Plan, and any actions
taken or relating to the Plan, shall be determined in accordance with the laws
of the State of Delaware and applicable federal law.
19. SUCCESSORS AND ASSIGNS
The Plan shall be binding on all successors and assigns of a
Participant, including, without limitation, the estate of such Participant and
the executor, administrator or trustee of such estate, or any receiver or
trustee in bankruptcy or representative of the Participant's creditors.
20. RIGHTS AS A SHAREHOLDER
Except as otherwise provided in any Award Agreement, a Participant
shall have no rights as a shareholder of the Company until he or she becomes the
holder of record of Common Stock.
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<PAGE>
21.
No Award or other transaction shall be permitted under this Plan which
would have the effect of imposing liability for a participant under Section 16
of the Exchange Act. Irrespective of any other provision of this Plan or Award
Agreement, any such Award or other transaction purportedly made under or
pursuant to this Plan shall be void, ab initio.
-12-
<PAGE>
Exhibit 10.25
-------------
================================================================================
LEASE AGREEMENT, TOMAHAWK
Dated as of January 30, 1991
between
THE CONNECTICUT NATIONAL BANK,
as Owner Trustee, Lessor
and
PACKAGING CORPORATION OF AMERICA,
Lessee
---------------------------------
Papermill in
Tomahawk, WI
---------------------------------
This Lease has been executed in multiple counterparts. No security
interest in Lessor's right, title and interest in and to this Lease may be
created through the transfer or possession of any counterpart other than the
original counterpart. ONLY THE ORIGINAL COUNTERPART CONTAINS THE RECEIPT
THEREFOR EXECUTED BY STATE STREET BANK AND TRUST COMPANY OF CONNECTICUT,
NATIONAL ASSOCIATION, AS INDENTURE TRUSTEE, ON THE SIGNATURE PAGE THEREOF. THIS
IS NOT THE ORIGINAL COUNTERPART.
================================================================================
This instrument was drafted by and after recording return to:
Peter Schwartz, Esq.
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
<PAGE>
TABLE OF CONTENTS
ARTICLE I - Definitions.................................................. 1
ARTICLE II - Lease of Facility............................................ 1
SECTION 2.01. Lease.................................................. 1
SECTION 2.02. Personal Property...................................... 1
SECTION 2.03. Enforcement of Warranties.............................. 1
SECTION 2.04. Site Sublease.......................................... 1
ARTICLE III - Rent......................................................... 2
SECTION 3.01. Interim Rent and Basic Rent............................ 2
SECTION 3.02. Supplemental Rent...................................... 2
SECTION 3.03. Adjustments............................................ 2
SECTION 3.04. Method of Payment...................................... 4
SECTION 3.05. Late Payment........................................... 4
SECTION 3.06. Net Lease; No Setoff; etc.............................. 5
ARTICLE IV - Lessee Options............................................... 6
SECTION 4.01. Renewal................................................ 6
SECTION 4.02. Obsolescence Termination............................... 8
ARTICLE V - Return of Facility........................................... 9
SECTION 5.01. Return of Facility..................................... 9
SECTION 5.02. Disposition Services................................... 9
ARTICLE VI - Lessor Agreements and Rights................................. 9
SECTION 6.01. Quiet Enjoyment........................................ 9
SECTION 6.02. Disclaimer of Warranties............................... 10
SECTION 6.03. Inspection............................................. 10
SECTION 6.04. Right to Perform for Lessee............................ 11
ARTICLE VII - Lessee Agreements............................................ 11
SECTION 7.01. Indemnification........................................ 11
SECTION 7.02. Compliance with Laws................................... 13
SECTION 7.03. No Liens............................................... 14
SECTION 7.04. Merger, Consolidation, etc............................. 15
SECTION 7.05. Debt................................................... 16
i
<PAGE>
SECTION 7.06. Restricted Payments...................................... 16
SECTION 7.07. Transactions with Affiliates............................. 17
ARTICLE VIII - General Tax Indemnity......................................... 17
SECTION 8.01. Indemnity................................................ 17
SECTION 8.02. Exclusions from General Tax Indemnity.................... 18
SECTION 8.03. Contests................................................. 21
SECTION 8.04. Refunds.................................................. 23
SECTION 8.05. Tax Savings.............................................. 23
SECTION 8.06. Payments................................................. 23
SECTION 8.07. Reports.................................................. 24
SECTION 8.08. Verification............................................. 24
ARTICLE IX - Special Tax Indemnities....................................... 24
SECTION 9.01. Tax Assumptions.......................................... 24
SECTION 9.02. Records.................................................. 26
SECTION 9.03. Representations, Warranties and Covenants
of Lessee............................................. 27
SECTION 9.04. Indemnity................................................ 28
SECTION 9.05. Foreign Tax Credit Indemnity............................. 30
SECTION 9.06. Income Inclusion: Reverse Indemnities.................... 30
SECTION 9.07. Excluded Losses.......................................... 32
SECTION 9.08. Contest Provisions....................................... 34
SECTION 9.09. Determination of Payments................................ 35
SECTION 9.10. Affiliated Group......................................... 36
SECTION 9.11. Recalculation............................................ 36
ARTICLE X - Lessee Agreements Relating to Facility........................ 37
SECTION 10.01. Liens.................................................... 37
SECTION 10.02. Operation, Maintenance and Completion.................... 37
SECTION 10.03. Reports.................................................. 38
SECTION 10.04. Replacement of Parts..................................... 38
SECTION 10.05. Required Alterations..................................... 39
SECTION 10.06. Optional Alterations..................................... 39
SECTION 10.07. Reports of Alterations................................... 39
SECTION 10.08. Title to Alterations..................................... 39
SECTION 10.09. Funding of Alterations................................... 40
SECTION 10.10. Identification........................................... 40
SECTION 10.11. Manuals, Logs, Plans and Specifications.................. 40
ARTICLE XI - Insurance..................................................... 41
SECTION 11.01. Coverage................................................. 41
ii
<PAGE>
SECTION 11.02. Endorsements. . . . . . . . . . . . . . . . . . . . . . 42
SECTION 11.03. Adjustment of Losses. . . . . . . . . . . . . . . . . 43
SECTION 11.04. Application of Insurance Proceeds . . . . . . . . . . 43
SECTION 11.05. Evidence of Insurance . . . . . . . . . . . . . . . . 44
SECTION 11.06. Additional Insurance. . . . . . . . . . . . . . . . . 44
SECTION 11.07. Insurance Report. . . . . . . . . . . . . . . . . . . . 44
ARTICLE XII - Events of Loss . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 12.01. Payment of Stipulated Loss Value. . . . . . . . . . . 44
SECTION 12.02. Application of Other Payments on an Event of
Loss. . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 12.03. Application of Payments Not Relating to an Event of Loss. 45
SECTION 12.04. Other Dispositions. . . . . . . . . . . . . . . . . . . 45
ARTICLE XIII - Events of Default . . . . . . . . . . . . . . . . . . . . . 46
ARTICLE XIV - Enforcement . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 14.01. Remedies. . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 14.02. No Release. . . . . . . . . . . . . . . . . . . . . . 51
SECTION 14.03. Remedies Cumulative. . . . . . . . . . . . . . . . . . 51
ARTICLE XV - Assignments and Subleases . . . . . . . . . . . . . . . . . . 51
SECTION 15.01. Assignment or Sublease by Lessee. . . . . . . . . . . 51
SECTION 15.02. Assignment by Lessor; Security for
Lessor's Obligations to Indenture Trustee . . . . . . . 52
ARTICLE XVI - Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 16.01. Further Assurances. . . . . . . . . . . . . . . . . . 53
SECTION 16.02. Notices . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 16.03. Severability. . . . . . . . . . . . . . . . . . . . . . 54
SECTION 16.04. Survival . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 16.05. Successors and Assigns. . . . . . . . . . . . . . . . . 54
SECTION 16.06. Amendment. . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 16.07. Headings . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 16.08. Counterparts. . . . . . . . . . . . . . . . . . . . . 55
SECTION 16.09. GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . 55
SECTION 16.10. True Lease . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 16.11. Liabilities of Owner Trustee. . . . . . . . . . . . . . 55
SECTION 16.12. Consent to Jurisdiction; Forum Selection. . . . . . . 56
iii
<PAGE>
LEASE AGREEMENT, TOMAHAWK dated as of January 30, 1991,
between THE CONNECTICUT NATIONAL BANK, a national banking
association, not in its individual capacity but solely as trustee
under the Trust Agreement as Lessor, and PACKAGING CORPORATION OF
AMERICA, a Delaware corporation, as Lessee.
In consideration of the mutual agreements herein contained and other
good and valuable consideration, receipt of which is hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I
Definitions
-----------
Capitalized terms used herein have the meanings assigned to them in
Exhibit A hereto, and the rules of usage contained in Exhibit A are applicable
hereto.
ARTICLE II
Lease of Facility
-----------------
SECTION 2.01. Lease. On the Closing Date, subject to all the terms
and conditions of this Lease and the satisfaction of the conditions set forth in
the Participation Agreement, Lessor shall lease, and hereby as of the Closing
Date does lease, the Facility Assets to Lessee, and Lessee shall lease, and
hereby as of the Closing Date does lease, the Facility Assets from Lessor, for
the Term or such shorter period as may result from earlier termination of this
Lease as provided herein.
SECTION 2.02. Personal Property. It is the express intention of
Lessor and Lessee that the Facility Assets shall at all times be and remain
personal property as to all Persons and for all purposes to the fullest extent
permitted by law.
SECTION 2.03. Enforcement of Warranties. Lessor hereby authorizes
Lessee (except at such time as a Default or Event of Default exists) to assert
and enforce during the Term for Lessor's account all Lessor's claims and rights
under the Acquisition Agreements against Sellers and under any warranties and
indemnities of and claims against dealers, manufacturers, vendors, contractors
and subcontractors relating to the Facility which were assigned to Lessor
pursuant to the Acquisition Agreements. Any amount received by Lessee under any
such warranty, indemnity or claim shall be applied as provided in Section 12.03.
SECTION 2.04. Site Sublease. On the Closing Date, subject to all the
terms and conditions of this Lease and satisfaction of the conditions set forth
in the Participation Agreement, Lessor shall sublease, and hereby as of the
Closing Date does
<PAGE>
sublease, the Site to Lessee and Lessee shall sublease, and hereby as of the
Closing Date does sublease, the Site from Lessor, for the Term or such shorter
period as may result from earlier termination of this Lease as provided herein.
During the term of such sublease, Lessee shall pay Lessor on each anniversary of
the Closing Date $100 per annum as a sublease rental payment for the Site for
the year preceding such anniversary of the Site; provided, however, that Lessor
hereby directs Lessee to deliver each such sublease rental payment to Ground
Lessor as payment, on behalf of Ground Lessee, of the rental payments due under
the Ground Lease. Notwithstanding any provision to the contrary contained in
this Lease, it is understood that such sublease is and shall at all times remain
subordinate to the Ground Lease.
ARTICLE III
Rent
----
SECTION 3.01. Interim Rent and Basic Rent. (a) Lessee shall pay to
Lessor, in respect of the Facility Assets, rent for the Interim Term on July 31,
1991, in an amount equal to all accrued and unpaid interest on the Loan
Certificates payable on such date not paid by Owner Participant as required by
Section 6.01(b) of the Participation Agreement.
(b) Lessee shall pay to Lessor, in respect of the Facility Assets,
Basic Rent in installments in arrears on the Rent Dates during the Basic Term,
each such installment to be in an amount equal to the percentage of Lessor's
Cost set forth opposite such Rent Date on Schedule A. Such amounts of Basic
Rent are subject to adjustment pursuant to Section 3.03. Lessee shall pay Basic
Rent with respect to any Renewal Term as provided in Section 4.01.
(c) Each installment of Interim Rent and Basic Rent shall be payable
and paid in the manner set forth in Section 3.04.
SECTION 3.02. Supplemental Rent. Lessee shall pay to Lessor, or to
whoever shall be entitled thereto, any and all Supplemental Rent promptly as the
same shall become due and payable. Lessee shall pay, as Supplemental Rent,
amounts equal to all amounts payable by Lessor under the Indenture, including
any premium payable in connection with the prepayment of any Loan Certificate
(but excluding principal of and interest on the Loan Certificates) and all
amounts payable to Owner Participant in respect of the commitment fee payable
pursuant to Section 8.02 of the Participation Agreement.
SECTION 3.03. Adjustments. If at any time
(i) any of the Variable Assumptions set forth in Schedule 3.03(i) is
incorrect,
2
<PAGE>
(ii) the Refinancing occurs at the request of Lessee pursuant to
Section 8.01 of the Participation Agreement,
(iii) Lessor finances the cost of any Alterations pursuant to Section
8.02 of the Participation Agreement,
(iv) a Change in Tax Law occurs or clause (ii) of section 9.04 is
applicable, or
(v) any Work in Progress is not completed by April 30, 1991,
the schedules of Basic Rent and Stipulated Loss Values shall be adjusted (upward
or downward) to preserve Net Economic Return and the percentages set forth in
clauses (ii) and (v) of Section 4.02(a) shall be adjusted (upward or downward)
based on the original method of computation thereof (but taking into account, in
the case of clause (iii) above, any change in the conclusion of an appraiser
mutually agreeable to Owner Participant and Lessee arising in respect of such
Alterations, it being understood that the issue will be presented to such
appraiser), except that, in the case of clause (v) above, the percentages set
forth in Section 9.01(e) shall be adjusted as applicable and except that, in the
case of clause (iii) above, the portion of Net Economic Return with respect to
such Alterations shall be adjusted to reflect the assumptions set forth in
Schedule 3.03(i) and to reflect any increase or decrease, at the time of
determination, in the per annum rate paid an five-year Treasury Certificates
issued by the United States of America from the rate paid an such Treasury
Certificates on the date five days prior to the Closing Dates. All such
adjustments shall be made as soon as practicable after the occurrence of the
event giving rise thereto and shall be made in respect of installments of Basic
Rent falling due after the determination thereof, except that if the next Rent
Date falls due within 30 days after such determination, such adjustments shall
be made in respect of all installments of Basic Rent falling due after such Rent
Date. All such adjustments (x) shall be in compliance with the provisions of
Revenue Procedure 75-21 and Revenue Procedure 75-28, (y) shall not cause the
Lease to be treated as a "disqualified leaseback or long-term agreement" within
the meaning of Section 467 of the Code and shall be made in a manner otherwise
designed to comply with Section 467 of the Code and any regulations thereunder
(except that, in connection with an adjustment made within four months after the
Closing Date to take into account Transaction Expenses, such compliance with
Section 467 shall be required to the extent the original calculation of Interim
and Basic Rent would have so complied and, in connection with an adjustment made
pursuant to clause (iii) above with respect to Known Alterations, if such
compliance, taking into account each payment of Basic Rent as so adjusted, would
increase the net present value of Basic Rent over the net present value of Basic
Rent if such compliance with Section 467 were required to this extent the
original calculation of Interim and Basic Rent would have so complied, then,
unless Lessee, and Owner Participant shall otherwise agree, the portion of Basic
Rent attributable to such Known Alterations shall be treated as a separate
tranche of Basic Rent and such compliance with Section 467 shall be required
with respect to such separate tranche of Basic Rent attributable to such Known
Alterations) and (z) to the
3
<PAGE>
extent not inconsistent with the foregoing clauses (x) and (y), shall generally
preserve, to the extent practicable, the original pattern of payments of Basic
Rent. Such adjustments may, but need not, be reflected in an amendment to this
Lease but shall become effective upon completion and verification of the
computations, as provided in this Section 3.03. Upon the occurrence of an event
requiring an adjustment, Owner Participant shall make the necessary computations
as soon as practicable and furnish to Lessee, Owner Trustee and Indenture
Trustee an instrument setting forth the adjusted schedules. Upon request of
Lessee made within a reasonable time following the delivery to Lessee by Owner
Participant of such instrument, such amounts shall be verified by the
independent public accounting firm that audits owner Participant's financial
statements. The cost of such verification shall be borne by Lessee unless such
verification results in a reduction of 2% or more in the net present value of
Basic Rent as computed by Owner Participant, in which case such cost shall be
borne by Owner Participant.
Notwithstanding any other provision in this Lease or in any of the
other Operative Documents, under all circumstances the Basic Rent payable on any
Rent Date during the Basic Term will be an amount at least sufficient to pay in
full on such Rent Date the aggregate amount of principal of and interest on the
Loan Certificates scheduled to be payable on such Rent Date, and each payment of
Stipulated Loss Value will be in an amount at least sufficient, when combined
with any Rent payable simultaneously therewith, to pay the unpaid principal
amount of and unpaid and accrued interest on and premium then payable on all
Loan Certificates outstanding at the time Stipulated Loss Value and such Rent is
due and payable hereunder.
SECTION 3.04. Method of Payment. Subject to section 15.02, Interim
Rent and Basic Rent payable to Lessor shall be paid to Owner Participant's
Account No. 50-205-776 at Bankers Trust Company, New York, N.Y., ABA No. 0210-
0103-3 GECC/T&I Depository Account (and shall reference "1991 Packaging
Corporation Tomahawk"), or to such other account at such other place as owner
Participant shall specify in writing. Each payment of Rent shall be initiated
into the Federal Reserve Funds wire transfer system and such initiation shall
have been confirmed by telephone or other notice by the initiating bank to
Indenture Trustee and Lessor prior to 12:00 noon, local time at the place of
receipt, on the scheduled date on which such payment shall be due, unless such
scheduled date shall not be a Business Day, in which case such payment shall be
made on the next Business Day and be accompanied by interest at the Payment Rate
on the amount of such payment from and including such scheduled date to the date
of payment.
SECTION 3.05. Late Payment. If any Rent shall not be paid when due,
Lessee shall pay to Lessor (or, in the case of Supplemental Rent, to whoever
shall be entitled thereto), as Supplemental Rent, interest (to the extent
permitted by law) on such overdue amount from and including the due date thereof
to but excluding the date of payment thereof (unless such payment shall not have
been initiated into the Federal Reserve Funds wire transfer system or such
initiation shall not have been confirmed by telephone or other notice by the
initiating bank to Indenture Trustee and Lessor prior to
4
<PAGE>
12:00 noon, local time at the place of receipt, on such date of payment, in
which case such date of payment shall be included) at the Designated Rate. If
any Rent shall be paid an the date when due, but either not initiated into the
Federal Reserve Funds wire transfer system or such initiation shall not have
been confirmed by telephone or other notice by the initiating bank to Indenture
Trustee and Lessor prior to 12:00 noon, local time at the place of receipt
interest shall be payable as aforesaid for one day.
SECTION 3.06. Net Lease; No Setoff; etc. This Lease is a net lease
and, notwithstanding any other provision of this Lease except as may be
expressly provided herein or in Section 6.01(b) of the Participation Agreement,
all Rent shall be paid without notice, demand, counterclaim, setoff, deduction
or defense and without abatement, suspension, deferment, diminution or
reduction. The obligations and liabilities of Lessee hereunder shall in no way
be released, discharged or otherwise affected (except as may be expressly
provided herein or in Section 6.01(b) of the Participation Agreement) for any
reason, including: (a) any defect in the condition, merchantability, quality or
fitness for use of the Facility or any part thereof; (b) any damage to, removal,
abandonment salvage, loss, scrapping or destruction of or any requisition or
taking of the Facility or any part thereof; (c) any restriction, prevention or
curtailment of or interference with any use of the Facility or any part thereof;
(d) any defect in or any Lien on the Facility or any part thereof; (e) any
change, waiver, extension, indulgence or other action or omission in respect of
any obligation or liability of Lessee or Lessor; (f) any bankruptcy insolvency,
reorganization composition, adjustment, dissolution, liquidation or other like
proceeding relating to Lessee, any Lessor Party, any holder of Loan Certificates
or any other Person, or any action taken with respect to this Lease by any
trustee or receiver of any Person mentioned above, or by any court; (g) any
claim that Lessee has or might have against any Person, including any failure on
the part of any Lessor Party to perform or comply with any of the terms hereof
or of any other agreement; (i) any invalidity or unenforceability or
disaffirmance of this Lease or any provision hereof or any of the other
Operative Documents or any provision of any thereof, in each case whether
against or by Lessee or otherwise; or (j) any other occurrence whatsoever,
whether similar or dissimilar to the foregoing, whether or not Lessee shall have
notice or knowledge of any of the foregoing.
This Lease shall be noncancelable by Lessee, and, except as expressly
provided herein, Lessee, to the extent permitted by law, waives all rights now
or hereafter conferred by statute or otherwise to quit, terminate or surrender
this Lease, or to any diminution or reduction of Rent payable by Lessee
hereunder. All payments by Lessee made hereunder shall be final, absent
manifest error, and Lessee shall not seek to recover any such payment or any
part thereof for any reason whatsoever, absent manifest error. If for any
reason whatsoever this Lease shall be terminated in whole or part by operation
of Law or otherwise except as expressly provided herein, Lessee shall
nonetheless pay an amount equal to each Rent payment at the time and in the
manner that such payment would have become due and payable under the terms of
this Lease if it had not been terminated in whole or in part. All covenants and
agreements of Lessee shall be performed at its cost, expense and risk unless
expressly otherwise stated.
5
<PAGE>
Nothing in this.Article III shall be construed as a guaranty by Lessee of any
residual value in the Facility or as a guaranty of the Loan Certificates.
ARTICLE IV
Lessee Options
--------------
SECTION 4.01. Renewal. (a) Right to Renew. Unless the Facility
Assets shall have been sold or disposed of pursuant to this Lease or an Event of
Loss shall have occurred or a Default described in clause (a) or (f) of Article
XIII or an Event of Default shall exist at the time of giving the notice
referred to below or at the commencement of the relevant Renewal Term, Lessee
shall have the right to renew this Lease (i) at the end of the Basic Term for
the Fixed Price Renewal Term and (ii) at the end of the Basic Term or the Fixed
Price Renewal Term, if elected, or a Fair Market Renewal Term, if elected, for a
Fair Market Renewal Term. In order to exercise any such right, Lessee shall
notify each Lessor Party thereof in writing not more than 12 month nor less than
6 months prior to the commencement of the relevant Renewal Term, which notice
shall be irrevocable and shall specify the type of renewal term elected in
accordance with this Section 4.01(a) and the duration thereof (which shall be an
integral multiple of six months, shall not end after the end of the Ground Lease
Term
6
<PAGE>
and, in the case of a Fair Market Renewal Term, shall be at least one year and
not more than five years or, in the case of the Fixed Price Renewal Term, shall
be, subject to Section 4.01(c), at least one year and not more than 50% of the
Basic Term). If Lessee shall fail to renew this Lease as provided above, Lessor
shall, subject to Section 4.02, be free to lease or dispose of all or any part
of the Facility to any other Person on any terms acceptable to Owner
Participant.
(b) Terms. All the terms and provisions of this Lease shall be
applicable during any Renewal Term. Lessee shall pay to Lessor as Basic Rent
for the Facility Assets (i) on each of the Rent Dates during the Fixed Price
Renewal Term an amount equal to 60% of the average of the installments of Basic
Rent payable during the Basic Term and (ii) on each of the Rent Dates during any
Fair Market Rental Value of the Facility Assets.
(c) Determinations. Promptly after Lessee shall have given a notice
pursuant to Section 4.01(a), Lessee and Owner Participant shall agree upon the
Fair Market Rental Value (if such notice designates a Fair Market Renewal Term)
of the Facility Assets, the Fair Market Sale Value of the Facility Assets, the
useful life of the Facility Assets and the first date at which the Facility
Assets will no longer be expected to have a Fair Market Sale Value of at least
20% of Lessor's Cost after eliminating the effect of any inflation or deflation
since the Closing Date, each as of the commencement of the relevant Renewal
Term, or, if they shall fail to agree within 30 days after the giving of such
notice, such values, life and date shall be determined by the Appraisal
Procedure. Promptly after any such determination, Schedule B hereto shall be
modified to set forth therein the Fair Market Sale Value so determined as the
Stipulated Loss Value applicable at the commencement of such Renewal Term,
amortized ratably in semiannual steps over the estimated remaining useful life
of the Facility Assets. If Lessee has elected the Fixed Price Renewal Term and
either the date at which 75% of the redetermined useful life of the Facility
Assets will have expired or the first date at which the Facility Assets will no
longer be expected to have a Fair Market Sale Value of at least 20% of Lessor's
Cost, as determined above, is before the Rent Date on which the Fixed Price
Renewal Term would otherwise end, the duration thereof shall automatically be
reduced so that it ends on the latest Rent Date which precedes the earlier of
the two dates mentioned above.
SECTION 4.02. Purchase. (a) Right to Purchase. Unless the Facility
Assets shall have been sold or disposed of pursuant to this Lease or an Event of
Loss shall have occurred or an Event of Default shall exist at the time of
giving the notice referred to below or at the date fixed for purchase, Lessee
shall have the right, at its option, to purchase the Facility Assets at the time
and at the price as follows: (i) on July 31, 2005, January 31, 2006, or July
31, 2006, for a purchase price equal to the greater of Stipulated Loss Value on
such Rent Date and the Fair Market Sale Value of the Facility Assets of such
Rent Date, (ii) on January 31, 1997, for a purchase price equal to 117.03223952%
of Lessor's Cost, (iii) on the first Rent Date occurring more than 90 days after
Lessee shall have delivered to Lessor and Indenture Trustee an Officer's
Certificate in form and substance satisfactory to each of them evidencing in
reasonable detail that Burdensome Alterations are required and have not yet been
effected (if such Rent Date is after the fifth anniversary of the Closing Date)
or, if there shall have occurred a Burdensome Event, on the first Rent Date
occurring more than 90 days after such occurrence, in either case for a purchase
price equal to the greater of Stipulated Loss Value on such Rent Date and the
Fair Market Sale Value of the Facility Assets on such Rent Date, (iv) on the
last day of the Basic Term, for a purchase price equal to the Fair Market Sale
Value of the Facility Assets, (v) on the last day of the Basic Term, for a
purchase price equal to 74% of Lessor's Cost or (vi) on the last day of any
Renewal Term, for a purchase price equal to the Fair Market Sale Value of the
Facility Assets on such date. In order to exercise any such right, Lessee shall
notify each Lessor Party thereof in writing not more than 12 months nor less
than 6 months (30 days in the case of clause (iii) above) prior to the date
fixed for purchase, which notice shall be irrevocable and shall specify the
basis for the notice, the option selected and the date purchase is to be made.
If Lessee shall fail to purchase the Facility Assets pursuant to this Section
4.02 at the end of the Term (including any elected Renewal Term), Lessor shall,
subject to Section 4.01, be free to lease or dispose of all or any part of the
Facility Assets to any other Person on any terms acceptable to Owner
Participant.
(b) Payment. If Lessee has elected to purchase the Facility Assets as
provided in Section 4.02(a), Lessee shall pay the purchase price of the Facility
Assets on the date fixed for purchase and shall simultaneously pay all Rent due
and all Rent accrued through and including such date, whereupon Lessor shall
Transfer the Facility to
<PAGE>
Lessee. If Lessee exercises its right to purchase the Facility Assets pursuant
to Section 4.02(a)(ii), so long as no Default or Event of Default exists, Lessee
may elect (by so specifying in the notice delivered pursuant to Section 4.02(a))
to assume the Indenture and the Loan Certificates in accordance with Section
6.09 of the Indenture, and the purchase price of the Facility Assets shall be
reduced by the unpaid principal amount of the Loan Certificates assumed. If
Lessee shall fail to pay for or purchase the Facility Assets an the date fixed
for purchase, it shall lose its right to purchase the Facility Assets pursuant
to the relevant clause of Section 4.02(a) (but its right, if any, to purchase
under the other clauses shall be unaffected) and any Lessor Party may proceed by
appropriate court action to recover damages or obtain other appropriate relief,
including specific performance, with respect to such failure.
(c) Determinations. Promptly after Lessee shall have given a notice
pursuant to clause (i), (iii), (iv) or (vi) of Section 4.02(a), Lessee and Owner
Participant shall agree upon the Fair Market Sale Value of the Facility Assets
as of the date fixed for purchase or, if they shall fail to agree within 30 days
after the giving of such notice, such Fair Market Sale Value shall be determined
by the Appraisal Procedure.
SECTION 4.03. Obsolescence Termination. (a) Right to Terminate.
Unless an Event of Loss shall have occurred or an Event of Default shall exist
at the time of giving the notice referred to below or at the date fixed for
termination, Lessee shall have the right at any time during the Basic Term to
terminate this Lease on the Rent Date specified in such notice, but only if
Lessee shall have determined (and shall have delivered to each Lessor Party an
Officer's Certificate to the effect) that the Facility Assets have become
obsolete, surplus or uneconomic to Lessee's purposes for any reason, including
government mandated Alterations. In order to exercise such right, Lessee shall
notify each Lessor Party thereof in writing not more than 12 months nor less
than 6 months prior to the date fixed for termination, which notice shall be
irrevocable. From and after the giving of such notice, Lessee shall, as agent
for Lessor, use all reasonable efforts to sell the Facility Assets for the best
cash price obtainable. On the date fixed for termination, Lessor shall (subject
to receipt of the sales price and all additional payments specified in the next
sentence and subject to its rights set forth in Section 4.03(b)), Transfer the
Facility for cash to the purchaser (who may not be Lessee or any Affiliate
thereof) who has offered the highest cash price. The total sales price realized
at such sale shall be retained by Lessor and on the date fixed for termination
Lessee shall pay to Lessor the excess, if any, of the Stipulated Loss Value as
of the date fixed for termination over the sales price of the Facility after
deducting all expenses incurred by Lessor Parties in connection with such
Transfer, and Lessee shall simultaneously pay all Rent due and all Rent accrued
through and including the date fixed for termination, whereupon the Term shall
end. If a Transfer shall not have occurred on or as of the date fixed for
termination, the Facility shall continue to be subject to this Lease and this
Lease shall continue in full force and effect with respect thereto, Lessee shall
be required to make a Supplemental Rent payment in the amount specified in
Section 4.04 of the Indenture and, unless such nonoccurrence results from
default by the purchaser, Lessee shall thereafter have no right of termina-
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tion under this Section 4.03. No Lessor Party shall be under any duty to solicit
bids or sales, to inquire into the efforts of Lessee to obtain bids or otherwise
to take any action in connection with any such sale other than the obligation of
Lessor to Transfer the Facility as provided above.
(b) Retention. Notwithstanding Section 4.03(a), Lessor may, at the
direction of Owner Participant, on not less than 90 days' prior written notice
to Lessee, refuse to Transfer the Facility pursuant to Section 4.03(a), in which
case (i) Lessee shall not be obligated to pay the amounts specified in the
antepenultimate sentence of Section 4.03(a) but rather shall pay to Lessor on
the date fixed for termination all Rent due and all Rent accrued through and
including the date fixed for termination and (ii) Lessor or Owner Participant
shall contemporaneously pay to Indenture Trustee on such date such amount as
may, when added to amounts held or received by Indenture Trustee for such
purpose, be required to make the payments specified in clauses "First" through
"Fourth" of Section 3.02 of the Indenture, whereupon (and only whereupon) the
Term shall end.
ARTICLE V
Return of Facility
------------------
SECTION 5.01. Return of Facility. Unless the Facility shall have
been or is being Transferred to Lessee pursuant to this Lease, Lessee shall
return the Facility to Lessor or to any transferee or assignee of Lessor on the
Termination Date by surrendering the same into the possession of Lessor or such
transferee or assignee free and clear of all Liens other than Lessor Liens and
Permitted Encumbrances and in the condition required by Section 7.02 and Article
X and free of all Hazardous Substances and Hazardous Wastes except those that
are present in compliance with law. In addition, at the end of the Term, if
requested to do so by Lessor, Lessee shall, at Lessor's risk and expense and
without unreasonably interfering with Lessee's operations, dismantle, crate,
remove and ship the Facility Assets as specified by Lessor.
SECTION 5.02. Disposition Services. If Lessee shall not have
exercised any of its rights provided in Article IV, during the last six months
of the Term, Lessee will fully cooperate with Lessor and Owner Participant in
connection with efforts to lease or dispose of the Facility.
ARTICLE VI
Lessor Agreements and Rights
----------------------------
SECTION 6.01. Quiet Enjoyment. So long as no Event of Default
exists, Lessee shall have the right to, and Lessor Parties shall not take or
cause to be
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taken any action contrary to Lessee's right to quiet enjoyment of, or the
continuing possession, use and operation of the Facility during the Term, except
in accordance with the provisions of this Lease.
SECTION 6.02. Disclaimer of Warranties. The warranty set forth in
Section 6.01 is in lieu of all other representations and warranties of any
Lessor Party, whether written, oral or implied, with respect to this Lease or
the Facility. As between each Lessor Party and Lessee, execution by Lessee of
this Lease shall be conclusive proof of the compliance of the Facility with all
requirements of this Lease, and LESSOR LEASES AND LESSEE TAKES THE FACILITY AND
EACH PART THEREOF AS IS AND WHERE LOCATED, and no Lessor Party shall be deemed
to have made, and EACH LESSOR PARTY HEREBY DISCLAIMS, ANY OTHER REPRESENTATION
OR WARRANTY, EITHER EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING
THE DESIGN OR CONDITION OF THE FACILITY OR ANY PART THEREOF, THE MERCHANTABILITY
THEREOF OR THE FITNESS THEREOF FOR ANY PARTICULAR PURPOSE, TITLE TO THE FACILITY
OR ANY PART THEREOF, THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREOF OR
CONFORMITY THEREOF TO SPECIFICATIONS, OR THE PRESENCE OR ABSENCE OF ANY LATENT
OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, NOR SHALL ANY LESSOR PARTY BE
LIABLE FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING LIABILITY IN TORT,
STRICT OR OTHERWISE), it being agreed that all such risks, as between each
Lessor Party and Lessee, are to be borne by Lessee. Lessee has made such
investigation as it deems appropriate regarding the Facility and its entering
into the Operative Documents. The provisions of this Section 6.02 have been
negotiated, and, except as provided in Section 6.01, the foregoing provisions
are intended to be a complete exclusion and negation of any representation or
warranty by any Lessor Party, express or implied, with respect to this Lease or
the Facility that may arise pursuant to any Governnmental Rule now or hereafter
in effect or otherwise.
SECTION 6.03. Inspection. Any Lessor Party and its authorized
representatives may enter upon, inspect and examine, at their own expense
(unless an Event of Default exists, in which case such expense shall be for the
account of Lessee), the Facility and the books and records of Lessee relative
thereto, and make copies and extracts therefrom. Any Participant may discuss
Lessee's affairs, finances and accounts with Lessee's officers. Owner
Participant, any Loan Participant as of the date hereof or other Loan
Participants holding individually or in the aggregate at least $5,000,000 in
aggregate principal amount of the Loan Certificates, may request, specifying a
reasonable basis for doing so, that the chief financial officer of Lessee
arrange a meeting with Lessee's independent public accountants to discuss
Lessee's affairs, finances and accounts, and upon such request, such chief
financial officer shall arrange for such meeting to take place promptly but in
any event within 10 Business Days, provided that if the chief financial officer
shall not arrange such a meeting, any such Participant or Participants may
arrange such a meeting with Lessee's independent public accountants. Lessee
authorizes such accountants to discuss with each of Owner
10
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Participant and any such Loan Participant and their authorized representatives
the affairs, finances and accounts of Lessee at such meeting. Representatives of
Lessee shall be afforded an opportunity to be present at any such meeting with
Lessee's independent public accountants. Lessee shall furnish to each Lessor
Party statements accurate in all material respects regarding the condition and
state of repair of the Facility, as often as may be reasonably requested. No
Lessor Party shall have any duty to make any such inspection or inquiry and
shall not incur any liability or obligation by reason of not making any such
inspection or inquiry. Each Lessor Party shall treat all information received
pursuant to the terms of this Section 6.03 as required by the terms of Section
9.12 of the Participation Agreement. Notwithstanding the foregoing, no Loan
Certificateholder (other than an institutional investor) that is a direct or
indirect competitor of Lessee shall have the rights set forth in this Section
6.03.
SECTION 6.04. Right to Perform for Lessee. If Lessee shall fail to
make any payment of Rent or shall fail to perform or comply with any of its
other agreements contained herein (including in Article XI), any Lessor Party
may, but shall not be obligated to, make such payment or perform or comply with
such agreement, and the amount of such payment and the amount of all costs and
expenses (including reasonable attorneys' and other professionals' fees and
expenses) incurred by such Lessor Party in connection with such payment or the
performance of or compliance with such agreement, as the case may be, together
with interest thereon at the Designated Rate, shall be payable by Lessee upon
demand.
ARTICLE VII
Lessee Agreements
-----------------
SECTION 7.01. Indemnification. Whether or not any of the
transactions contemplated by the Operative Documents shall be consummated,
Lessee shall pay, assume liability for, indemnify, protect, defend, save and
hold harmless each Indemnified Person from and against, on an After-Tax Basis,
any and all Claims imposed on, incurred by or asserted against any Indemnified
Person (whether because of act or omission by such Indemnified Person or
otherwise and whether or not such Indemnified Person shall also be indemnified
as to any such Claim by any other Person, including Sellers), in any way
relating to or arising out of (i) the Facility or any part thereof, (ii) any
Operative Document, any Acquisition Agreement, the issuance, purchase or sale of
the Loan Certificates or the making of any investment in the Facility, any
payment made pursuant thereto or any other transaction contemplated by any
Operative Document or Acquisition Agreement or (iii) the manufacture, financing,
refinancing, construction, purchase, acceptance, rejection, ownership,
acquisition, delivery, nondelivery, lease, sublease, preparation, installation,
storage, maintenance, repair, transportation, transfer of title, abandonment,
possession, rental, use, operation, condition, sale, return or other application
or disposition of all or any part of the Facility or any interest therein,
including (A) claims or penalties arising from any violation of law (including
any environmental Governmental Rule) or liability
11
<PAGE>
in tort (strict or otherwise) or from the active or passive negligence of any
Indemnified Person, (B) loss of or damage to any property or the environment or
death or injury to any Person, (C) latent or other defects, whether or not
discoverable, (D) any claim for patent, trademark or copyright infringement and
(D) any Claim arising as a direct or indirect result of the presence on or
under, or escape, seepage, leakage, spillage, discharge, emission or release
from any of Ground Lessor's or Lessee's property (including the Site and the
Facility) or property under Ground Lessor's or Lessee's control of, any
Hazardous Substance or any Hazardous Waste or arising out of or resulting from
the environmental condition of any such property or the applicability of any
Governmental Rule relating to any Hazardous Substance, whether or not occasioned
wholly or in part by any condition, accident or event caused by any act or
omission of Ground Lessor or Lessee or arising out of or resulting from the
violation of any Governmental Rule applicable to the Site or the Facility or
with respect to any activity conducted thereon; provided, however, that Lessee
shall not be required to indemnify any Indemnified Person pursuant to this
sentence for (i) any Claim in respect of the Facility to the extent arising from
acts or events not attributable to Lessee which occur after possession of the
Facility has been returned and delivered to Lessor in accordance with Section
5.01 (or, if such return occurs when an Event of Default exists, after full
compliance by Lessee with all its obligations under this Lease as of such date),
(ii) any Claim resulting solely from acts which would constitute the willful
misconduct or gross negligence of such Indemnified Person (unless imputed to
such Indemnified Person by reason of the Facility or its interest therein),
(iii) any Transaction Expense to be paid by Owner Participant or (iv) any Taxes,
except as provided above with respect to the obligation to make payments on an
After-Tax Basis. If any Indemnified Person or Lessee shall have received written
notice of any Claim indemnifiable under this Section 7.01, it shall give prompt
notice thereof to Lessee or such Indemnified Person, as the case may be, but the
failure to give such notice shall not affect any obligations under this Section
7.01. Upon payment in full to any Indemnified Person of any indemnity pursuant
to this Section 7.01, Lessee shall be subrogated to any right of such
Indemnified Person in respect of the matter against which such indemnity has
been paid. Unless, in the reasonable judgment of Lessee, no reasonable basis
exists for defending against the Claim giving rise to a Claim for which Lessee
is obligated to indemnify such Indemnified Person, such Indemnified Person shall
either (A) defend against such claim itself, in which case such Indemnified
Person shall control such defense but shall consult with Lessee concerning the
conduct thereof, or (B) permit Lessee to defend against such claim, in which
case such Indemnified Person shall cooperate with Lessee by providing such
witnesses, documents and other assistance as Lessee say reasonably request.
Neither such Indemnified Person nor Lessee shall settle the contest of such
claim without the written consent of the other, which consent will not be
unreasonably withheld. Notwithstanding the two preceding sentences, an
Indemnified Person shall have no obligation thereunder if (i) a Lease Default or
Lease Event of Default shall exist, (ii) any material danger exists of (A)
foreclosure, sale, forfeiture or loss of, or imposition of any Lien, other than
a Permitted Lien, on the Facility or substantial interference with the operation
of the Facility or (B) any criminal liability of such Indemnified Person or
(iii) Lessee shall not have delivered to such Indemnified Person an
acknowledgement of its obligations under
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this Section 7.01 without prejudice to its right to contest claims as provided
above. Nothing contained in this paragraph shall be construed as a guaranty by
Lessee of any residual value in the Facility or as a guaranty of the Loan
Certificates.
Without limitation of the foregoing, Lessee shall pay (i) the ongoing
fees, expenses and disbursements of Owner Trustee and Indenture Trustee, on a
pre-tax basis, (ii) all costs and expenses incurred by any Lessor Party in
connection with (A) any Event of Default, (B) the entering into or giving, or
withholding of any supplement, amendment, modification, waiver or consent with
respect to any Operative Document or any Acquisition Agreement, (C) any Event of
Loss or, after the occurrence of any Default or Event of Default which is
continuing any transfer of all or any part of the right, title and interest of
Lessor or Owner Trustee in the Facility or in, to and under any Operative
Document or any Acquisition Agreement or (D) any Refinancing or Additional
Financing and (iii) all Supplemental Rent to whoever is entitled thereto.
SECTION 7.02. Compliance with Laws. (a) Lessee shall comply with all
Governmental Rules and Governmental Actions, including those relating to
pollution and environmental matters applicable to or pertaining to the property,
business and operations of Lessee, including the Facility; provided that Lessee
shall not be deemed to be in breach of this covenant so long as it is in good
faith contesting the applicability or validity of any Governmental Rule or
Governmental Action, or defending any alleged violation thereof, by appropriate
proceedings being diligently conducted and such contest would not violate clause
(x), (y) or (z) of the definition of Permitted Liens, and provided further that
the payment of any fine or penalty imposed by a Governmental Authority and the
cure of any continuing noncompliance shall be deemed to effect a complete and
satisfactory cure of the related breach of this Section 7.02(a).
(b) Lessee shall promptly (but in any case not more than 10 days after
the and of the calendar month in which any such event occurs) notify each Lessor
Party in writing of any of the following events: (i) a Responsible Officer
obtains knowledge that the disposition, use, refining, generation, manufacture,
production, storage, handling, treatment, transfer, release, processing or
transportation of any Hazardous Substance or Hazardous Waste by, at, or in
connection with the operation of, the Facility has been done in material
violation of any Governmental Rule or Governmental Action, (ii) any material
Governmental Rule or Governmental Action is entered or taken by any Governmental
Authority (other than the promulgation of a rule or regulation of general
applicability) against Lessee with respect to the Facility or the Facility's
business or operations as a result of any Hazardous Substance or Hazardous Waste
on, or emanating from or generated by, the Facility or (iii) any material claim
made by any third party relating to any Hazardous Substance or Hazardous Waste
on, or emanating from or generated by, the Facility (any such material
violation, order, action or claim, an "Environmental Violation"). After the
occurrence of any Environmental Violation, Lessee shall forthwith prepare and
deliver to each of the parties identified in the next sentence a Remedial Plan
addressing such Environmental Violation wherein Lessee shall describe and
undertake such actions as may be
13
<PAGE>
necessary and appropriate and consistent with good business practices for the
complete remediation of such Environmental Violation at the earliest practicable
date; provided, that such Remedial Plan shall be deemed to satisfy the foregoing
requirements if such Remedial Plan shall have been approved, and reasonable
evidence of such approval shall have been provided to Lessor and Indenture
Trustee, by all Governmental Authorities having jurisdiction over the subject
matter thereof. The Remedial Plan shall be delivered to each Lessor Party not
more than 30 days after notice of the related Environmental Violation was given
by Lessee (or required hereunder to have been so given or, in the case of the
Environmental Violation described in the proviso to the next sentence, on or
before March 1, 1991). For purposes of this Section 7.02(b), a violation, order,
action or claim described in clause (i), (ii) or (iii) above shall be an
Environmental Violation if (x) the compliance with, remediation or satisfaction
of, such violation, order, action or claim could, together with any fines or
penalties imposed in connection therewith, reasonably be expected to cost (the
"Cleanup Cost") (A) $5 million or more or (B) $1 million or more if such Cleanup
Cost, together, with the Cleanup Costs associated with all other then
outstanding environmental violations having a Cleanup Cost of $1 million or
more, exceeds $5 million; provided that the deficiencies in the wastewater
treatment system and the related groundwater contamination at the Facility
described in the Dames & Moore environmental audit report of December 7, 1990,
shall be deemed to be an Environmental Violation.
(c) Lessee shall diligently and promptly take all necessary actions to
remedy each Environmental Violation in accordance with the provisions of the
relevant Remedial Plan (including the schedules and the periodic reporting
obligations set forth therein); provided that, subject to Lessee's right to
contest as set forth in Section 7.02(a) above, Lessee shall take all remedial
actions required of it by any Governmental Authority with respect to any
Environmental Violation.
SECTION 7.03. No Liens. Lessee shall not directly or indirectly
create, incurs assume or suffer to exist at any time, whether voluntarily or by
operation of law, Liens (other than Permitted Liens) on Lessee's assets or any
portion thereof except for (i) Liens on assets acquired subsequent to the
Closing Date by Lessee (and in the case of real property so acquired, on any
improvements or additions or replacements thereto) securing Debt not at any time
exceeding the acquisition cost of such assets and incurred at or before or
within 90 days after the time such assets are so acquired and not extending to
any other assets; (ii) Liens for extensions, renewals or refundings of
obligations secured by Liens permitted by clause (i) not in excess of the amount
being extended, renewed or refunded; (iii) Liens for Taxes or other governmental
charges or mechanics', materialmen's, carriers', employees', warehousemen's,
repairers' or other similar Liens incurred in the ordinary course of business,
in each case which are not yet due or which are being contested in good faith by
appropriate proceedings (so long as such contest does not violate clause (x),
(y) or (z) of clause (iii) of the definition of Permitted Liens); (iv) pledges
or deposits to secure payment of workmen's compensation, good faith deposits in
connection with tenders, contracts (other than contracts for the repayment of
Debt), deposits to secure public or statutory obligations, deposits to secure or
in lieu of surety or appeal bonds
14
<PAGE>
and pledges or deposits for similar purposes in the ordinary course of business;
(v) leases on property owned by Lessee and landlords' liens on property held
under lease; (vi) encumbrances under contracts and contract rights relating to
the sale of assets, including options and rights of first refusal; (vii) other
Liens or encumbrances on real property incurred in the ordinary course of
business and not in connection with the borrowing of money or the obtaining of
advances or credit which do not in the aggregate materially detract from the
value of such real property subject thereto or materially impair the use thereof
in the operation of Lessee's business; and (viii) other Liens securing
obligations for the payment of money which do not at the time of encumbrance,
taken together with all other such Liens then encumbering Lessee's property,
exceed an amount equal to 10% of Lessee's consolidated total assets (as shown on
the most recent balance sheet delivered pursuant to Section 6.03 of the
Participation Agreement).
SECTION 7.04. Merger, Consolidation, etc. Except as hereinafter
provided in this Section 7.04, Lessee shall maintain its corporate existence.
Lessee shall not consolidate or merge with or into any other Person or sell,
transfer, convey or lease all or substantially all of its assets (treating for
such purpose all sales, transfers conveyances and leases of assets during any 24
month period as if constituting a single transaction) to any Person or cease to
be a subsidiary of Tenneco Inc., unless:
(a) such Person is before and after such transaction a Subsidiary of
Tenneco Inc. or the prior written consent of Owner Participant has been
obtained;
(b) the successor formed by such consolidation or merger or that
acquires by conveyance, transfer or lease all or substantially all its
assets as an entirety (i) shall be a corporation organized under the laws of
the United States of America, a state thereof or the District of Columbia,
(ii) shall execute and deliver to Indenture Trustee, Owner Trustee and each
Participant an agreement in form and substance satisfactory to each of them
containing an assumption by such successor of the due and punctual
performance of each covenant, obligation and condition of the Operative
Documents and Acquisition Agreements to be performed or observed by Lessee,
(iii) immediately after such transaction would be permitted to incur an
additional $1 of Funded Debt in accordance with Section 7.05, (iv)
immediately after such transaction would be permitted to make a Restricted
Payment of at least $1 in accordance with Section 7.06 and (v) immediately
after such transaction no Event of Default would exist;
(c) immediately after Lessee ceases to be a Subsidiary of Tenneco Inc.
(i) Lessee would be permitted to incur an additional $1 of Funded Debt in
accordance with Section 7.05, (ii) Lessee would be permitted to make a
Restricted Payment of at least $1 in accordance with Section 7.06 and (iii)
no Event of Default would exist; and
15
<PAGE>
(d) Lessee shall have delivered to each Lessor Party an Officer's
Certificate and an opinion of counsel satisfactory to each such Person,
stating that such transaction, and any assumption agreement required by
paragraph (b) of this Section 7.04, complies with this Section 7.04 and that
all conditions precedent relating to such transaction have been complied
with.
Upon consummation of any such transaction in accordance with this
Section 7.04, the successor shall succeed to, and be substituted for, and may
exercise every right and power of, Lessee under the Operative Documents and
Acquisition Agreements with the same effect as if such successor had been named
therein. No such transaction shall have the effect of releasing Lessee or any
successor that shall theretofore have become such in the manner prescribed in
this Section 7.04 from its liability under the Operative Documents or the
Acquisition Agreements.
SECTION 7.05. Debt. Neither Lessee nor any of its Subsidiaries shall
incur any Funded Debt unless immediately thereafter, upon giving pro forma
effect thereto, Cash Flow Coverage of Fixed Charges would exceed 2.0 and Funded
Debt of Lessee and its Subsidiaries, an a consolidated basis, would not exceed
55% of Total Capital of Lessee and its Subsidiaries, on a consolidated basis.
For purposes of the foregoing, "Cash Flow Coverage of Fixed Charges" means, for
the four fiscal quarterly periods ending immediately prior to the date of
determination thereof, the ratio of Net Income before taxes plus depreciation
and interest expense and lease rentals minus capital expenditures (other than
Known Modifications financed by Owner Participant) to interest expense and lease
rentals and dividends on all mandatorily redeemable preferred stock of Lessee
and its Subsidiaries.
SECTION 7.06. Restricted Payments. (a) Lessee shall not pay or
declare any Restricted Payment (other than as permitted by Section 7.06(b)) if
(i) immediately after the making thereof Funded Debt of Lessee and its
Subsidiaries, on a consolidated basis, would exceed 50% of Total Capital of
Lessee and its Subsidiaries, on a consolidated basis, or (ii) the making thereof
would cause Lessee's Net Worth to be less than $800 million or (iii) there shall
exist any Default or Event of Default under this Lease or any default or event
of default under the Other Lease.
(b) Neither Lessee nor any of its Subsidiaries shall make or permit to
exist any loan or advance to Tenneco Inc. or any of its Affiliates except loans
or advances to Tenneco Inc. that are payable upon demand, bear interest, payable
at least annually, at a rate equal to the prime rate as quoted by Morgan
Guaranty Trust Company of New York from time to time and are made out of cash
generated in the ordinary course of operations of Lessee or its Subsidiaries and
only if (I) Tenneco Inc. owns, directly or indirectly, all the outstanding
equity securities of Lessee and either (i) all publicly held debt obligations of
Tenneco Inc. having a maturity of one year or more from the date of issue are
rated at least investment grade by Moody's and Standard & Poors, or (ii)
arrangements have been made which are in all respects satisfactory to Owner
Participant and Loan Participants, whereby return of the amount loaned or
advanced is unconditionally guaranteed, (II) Funded Debt of Lessee and its
16
<PAGE>
Subsidiaries, on a consolidated basis, does not exceed 55% of the excess of
Total Capital of Lessee and its Subsidiaries, on a consolidated basis, over the
aggregate amount of all loans and advances to Tenneco Inc. and (III) no Default
or Event of Default exists.
SECTION 7.07. Transactions with Affiliates. Lessee shall conduct all
transactions (including payments and receipt of benefits) with any of its
Affiliates in a manner consistent with the conduct of transactions among Tenneco
Inc. and all its Subsidiaries and on terms which, in the case of a material
transaction, the Board of Directors of Lessee has determined in good faith to be
in the best interests of Lessee and not materially adverse to Participants.
Schedule 7.07 sets forth an accurate description of the tax sharing arrangements
between Lessee and Tenneco Inc. as of the Closing Date and no tax sharing
agreement between Lessee and Tenneco Inc. or any Affiliate thereof shall be
altered or revised in any way which would materially alter Lessee's cash flow.
ARTICLE VIII
General Tax Indemnity
---------------------
SECTION 8.01. Indemnity. All payments by Lessee in connection with
the Overall Transaction shall be free of withholdings of any nature whatsoever
(including any withholdings in respect of payments pursuant to this Article
VIII). If Lessee is required to make any payment upon which any withholding is
required, Lessee shall pay an additional amount such that the net amount
actually received by the Person entitled to receive such payment will, after
such withholding, equal the full amount of the payment then due. If for any
reason, Lessee is required to make any payment to a taxing authority or to any
such Person as a result of the application of the preceding sentence that
relates to or is a result of any Tax imposed on or with respect to any such
Person which Tax is not the responsibility of Lessee under the terms of this
Section 8.01, then such Person shall, within 30 days after receipt of notice of
payment of the Tax and appropriate payment documentation with respect thereto,
pay to Lessee an amount which equals the amount paid by Lessee with respect to
or as a result of such Tax that is not the responsibility of Lessee increased by
the amount of any net tax savings to such Person attributable to the making of
such payment to Lessee.
Except as provided in Section 8.02, Lessee shall pay on an After-Tax
Basis, and on written demand shall indemnify, defend and hold each Indemnified
Person harmless on an After-Tax Basis from and against, any and all Taxes
imposed on or with respect to any Indemnified Person, Lessee, any sublessee, the
Facility, the Site or any portion thereof or interest therein by any Federal,
state or local government or other taxing authority in the United States, or any
government or taxing authority of or in a foreign country or any international
authority, in connection with or in any way relating to (a) the manufacture,
construction, financing, refinancing, purchase, acquisition, acceptance,
rejection, delivery, nondelivery, transport, ownership,
17
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assembly, possession, repossession, operation, use, condition, maintenance,
repair, sale, dismantling, return, abandonment, preparation, installation,
storage, replacement, redelivery, leasing, subleasing, modification, transfer of
title, rebuilding, rental, importation, exportation or other application or
disposition of, or the imposition of any Lien (or incurrence of any liability to
refund or pay over any amount as a result of any Lien) on, the Facility, the
Site or any portion thereof or interest therein, (b) the payment of Rent or the
receipts or earnings arising from or received with respect to the Facility, the
Site or any portion thereof or any interest therein, (c) the Loan Certificates
and the Indenture, their issuance, execution, filing, recording, sale, delivery,
refinancing, assumption, exchange, reoptimization or acquisition, or the
payments of any amounts thereon, (d) the property, or other proceeds with
respect to the property, held by Indenture Trustee under the Indenture, (e) any
other amount paid or payable pursuant to any Operative Document, (f) the
Facility, the Site or any portion thereof or any interest therein, (g) all or
any of the Operative Documents, any other documents contemplated thereby and any
amendments and supplements thereto, and (h) otherwise with respect to or in
connection with the Overall Transaction (whether or not any of the transactions
contemplated by the Operative Documents shall be consummated). The term "Taxes"
shall mean any and all fees (including documentation, license and registration
fees), taxes (including income, gross receipts, value-added, sales, use,
property (personal and real, tangible and intangible), intangible taxes,
intangible recording taxes, documentary stamp and stamp taxes), levies, imposts,
duties, charges, assessments or withholdings of any nature whatsoever, together
with any and all penalties, fines, additions thereto and interest thereon.
SECTION 8.02. Exclusions from General Tax Indemnity. Section 8.01
(except for the first two sentences of the first paragraph thereof) shall not
apply to:
(a) in the case of Owner Participant and any Loan Participant, Taxes
(other than Taxes that are or are in the nature of sales, use, property,
value-added, license or rental Taxes) imposed by the United States Federal
government pursuant to Subtitle A of the Code or any successor provision
(including any minimum Taxes, withholding Taxes and any Taxes on or measured
by any items of tax preference), other than in the case of any Loan
Participant (i) Taxes that would not have been imposed if a change in the
Amortization Schedules pursuant to Section 2.03(b) of the Indenture had not
occurred and (ii) Taxes that would not have been imposed if Lessee had not
assumed the Loan Certificates pursuant to Section 6.09 of the Indenture or
Section 4.02(b) of the Lease;
(b) in the case of Owner Participant and Loan Participants, Taxes
(other than Taxes that are or are in the nature of sales, use, property,
value-added, license or rental Taxes and other than any Taxes imposed by any
government or taxing authority outside the United States as a result of the
location of the Facility Assets or any part thereof in the jurisdiction
imposing the Tax ("Indemnified Foreign-Taxes")) imposed on an Indemnified
Person that are based upon or measured by gross or not income or gross or
net receipts of
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such Indemnified Person (including any capital gains Taxes, minimum Taxes
and any Taxes on or measured by any items of tax preference) other than in
the case of any Loan Participant (i) Taxes that would not have been imposed
if a change in the Amortization Schedules pursuant to Section 2.03(b) of the
Indenture had not occurred, (ii) Taxes that would not have been imposed if
Lessee had not assumed the Loan Certificates pursuant to Section 6.09 of the
Indenture or Section 4.02(b) of this Lease, (iii) Taxes that would not have
been imposed if the loans evidenced by the Loan Certificates had been made
directly to Lessee and (iv) Taxes imposed by any jurisdiction other than a
taxing jurisdiction in which such Loan Participant is subject to such Taxes
without regard to the transactions contemplated by the operative Documents.
(c) in the case of Owner Participant and Loan Participants, franchise
Taxes imposed on an Indemnified Person and Taxes on capital or net worth of
an Indemnified Person (in each case, other than Taxes that are or are in the
nature of sales, use, property, value-added, license or rental Taxes and
other than Indemnified Foreign Taxes) other than, in the case of any Loan
Participant (i) Taxes that would not have been imposed if the loans
evidenced by the Loan Certificates had been made directly to Lessee and (ii)
Taxes imposed by any jurisdiction other than a taxing jurisdiction in which
such Loan Participant is subject to such Taxes without regard to the
transactions contemplated by the Operative Documents;
(d) Taxes that are based on, or measured by, the fees or other
compensation received by Owner Trustee or Indenture Trustee for acting as
trustees under the Trust Agreement and the Indenture, respectively;
(e) Taxes that have not been paid or credited and that are being
contested in accordance with the provisions of Section 8.03, during the
pendency of such contest, so long as Lessor shall be receiving all payments
required under this Lease and holders of the Loan Certificates shall be
receiving all payments required under the Loan Certificates when payable
without reduction for such Taxes;
(f) Taxes that are imposed an any Indemnified Person as a result of
such Indemnified Person's gross negligence or willful misconduct (other than
gross negligence or willful misconduct imputed to such Indemnified Person
solely by reason of its interest in the Facility or its participation in the
Overall Transaction);
(g) Taxes imposed on an Indemnified Person that result from any
voluntary transfer (it being understood that the term "voluntary transfer"
does not include any transfer provided for in the Operative Documents (other
than pursuant to Article VII of the Participation Agreement or Section 15.02
of this Lease and, if Lessor shall receive an amount at least equal to the
applicable Stipulated Loss Value free and clear of any such Taxes, other
than pursuant to
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Section 4.03 of this Lease) or any transfer to Lessee or any Affiliate
thereof) by such Indemnified Person of any interest in the Facility, the
Site or any part thereof or any interest arising under the Operative
Documents, or from any involuntary transfer by such Indemnified Person of
any of the foregoing interests in connection with any bankruptcy or other
proceeding for the relief of debtors in which such Indemnified Person is the
debtor (except if such proceeding shall have been caused by the Lessee);
provided, however, that the exception set forth in this subparagraph (h)
shall not apply if any such transfer shall occur at any time while a Lease
Event of Default shall have occurred and be continuing;
(h) other than in the case of Loan Participants, Indenture Trustee and
Indenture Estate, Taxes imposed on an Indemnified Person by any jurisdiction
that would not have been imposed an such Indemnified Person but for
activities of such Indemnified Person in such jurisdiction which activities
are unrelated to the transactions contemplated by the Operative Documents;
(i) Taxes imposed on an Indemnified Person (A) that result from the
failure of such Indemnified Person to file tax returns properly and on a
timely basis (unless such failure results from a failure of Lessee to
properly and timely file an Indemnified Person's tax return that Lessee
(rather than the Indemnified Person) is required to file under Section 8.07
or to notify such Indemnified Person of its obligation to file such return
in cases where the requirement for filing arises from such Indemnified
Person's participation in the transactions contemplated by the Operative
Documents), or (B) that would not have been imposed but for the failure of
such Indemnified Person to comply with certification, reporting or other
similar requirements of the jurisdiction imposing such Tax (unless such
failure results from a failure of Lessee to notify such Indemnified Person
of its obligation to comply with such requirements in cases in which such
requirements arise from such Indemnified Person's participation in the
transactions contemplated by the Operative Documents);
(j) Taxes relating to the Facility Assets or any interest therein
imposed on an Indemnified Person for any period following the expiration or
early termination of the Lease; provided, however, that this exclusion (j)
shall not apply to (x) Taxes imposed on Indenture Trustee or the holder of
any Loan Certificate so long as any Loan Certificate is outstanding, (y)
Taxes relating to events occurring prior to or simultaneously with such
expiration or early termination and (z) Taxes incurred in connection with
the exercise of any remedies pursuant to Section 14.01 following the
occurrence of a Lease Event of Default;
(k) Taxes imposed on or with respect to an Indemnified Person arising
as a result of a material failure of such Indemnified Person to fulfill its
obligations with respect to the contest of any claim in accordance with
Section 8.03 of this Lease;
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(l) Taxes included in and paid as part of Transaction Expenses or in
Lessor's Cost;
(m) Taxes imposed on an Indemnified Person that would not have been
imposed but for the status of such Indemnified Person as other than a United
States person (as defined in Section 7701(a) of the Code) for United States
Federal or other income tax purposes; and
(n) in the case of any Loan Participant, Taxes imposed on a transferee
of such Loan Participant in excess of the Taxes that would have been imposed
on such Loan Participant if no transfer had occurred.
SECTION 8.03. Contests. (a) If any written claim shall be made
against any Indemnified Person or if any proceeding shall be commenced against
any Indemnified Person (including a written notice of such proceeding) for any
Taxes as to which Lessee shall have an indemnity obligation pursuant to Section
8.01, such Indemnified Person shall promptly notify Lessee in writing and shall
not take any action with respect to such claim or Tax without the consent of
Lessee for 30 days after the giving of such notice to Lessee; provided, however,
that the failure to so notify Lessee shall not relieve Lessee of its obligations
under this Article VIII unless such failure precludes Lessee from pursuing a
contest of such Taxes; provided further, however, that, if such Indemnified
Person shall be required by law or regulation to take action prior to the end of
such 30-day period, such Indemnified Person shall, in such notice to Lessee, so
inform Lessee, and such Indemnified Person shall not take any action with
respect to such claim or Tax without the consent of Lessee before the date such
Indemnified Person shall be required to take action. If requested by Lessee in
writing within 30 days after the giving of such notice (or by such earlier date
referred to in the preceding sentence), such Indemnified Person shall, at the
expense of Lessee (including all costs, expenses and reasonable attorneys' and
accountants' fees and disbursements), in good faith contest the validity,
applicability or amount of such Taxes by, in the case of a contest involving
only Taxes for which Lessee is liable (a "Lessee-Controlled Contest"), in the
Lessee's sole discretion, or, in the case of any other contest (an "Indemnified
Person-Controlled Contest"), in such Indemnified Person's sole discretion, (i)
resisting payment thereof, (ii) not paying the same except under protest, if
protest shall be necessary and proper, or (iii) if payment shall be made, using
reasonable efforts to obtain a refund thereof in appropriate administrative and
judicial proceedings; provided, however, that in no event shall such Indemnified
Person be required to contest the imposition of any Tax for which Lessee is
obligated pursuant to this Article VIII unless (t) Lessee shall have made all
payments than payable under the terms of the Operative Documents; (u) no Lease
Event of Default shall have occurred and be continuing; (v) prior to taking such
action, Lessee shall have furnished, if requested by such Indemnified Person,
such Indemnified Person with an opinion of Dewey Ballantine or other independent
tax counsel selected by Lessee and reasonably acceptable to such Indemnified
Person to the effect that a reasonable basis exists for such contest; (w) Lessee
shall have acknowledged its liability to such Indemnified Person for an
indemnity payment pursuant to this Article VIII as a result
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of such claim or Tax if and to the extent such Indemnified Person shall not
prevail in the contest of such claim or Tax, provided that such acknowledgment
shall be of no force or effect to the extent the contest is resolved on an
articulated basis that clearly does not constitute a basis for indemnification
hereunder; (x) Lessee shall have agreed in writing to pay such Indemnified
Person all reasonable costs and expenses that such Indemnified Person shall
incur in connection with contesting such claim (including all costs, expenses,
reasonable legal and accounting fees and disbursements); (y) such Indemnified
Person, Indenture Trustee and Owner Participant shall have reasonably determined
that the action to be taken will not result in any material danger of sale,
forfeiture or loss of, or the creation of any Lien (except if Lessee shall have
adequately bonded such Lien or otherwise made provision to protect the interests
of such Indemnified Person, Loan Participants and Owner Participant in a manner
reasonably satisfactory to such Indemnified Person, Indenture Trustee and Owner
Participant) on the Facility or any interest therein or in any interference with
timely payments of Rent or any amount on the Loan Certificates from time to time
becoming due and payable; and (z) if such contest shall involve payment of the
claim, Lessee shall advance the amount thereof plus interest, penalties and
additions to tax with respect thereto to such Indemnified Person on an interest-
free basis and with no additional net after-tax cost to such Indemnified Person.
In the sole discretion of an Indemnified Person, any contest required to be
pursued by such Indemnified Person pursuant to this Article VIII shall be
conducted by Lessee in the name of such Indemnified Person or Lessee. Lessee
shall control the conduct (including the choice of forum) of a Lessee-Controlled
Contest and the relevant Indemnified Person shall control the conduct (including
the choice of forum) of an Indemnified Person-Controlled Contest. In addition,
so long as no Lease Event of Default shall have occurred and be continuing,
Lessee may, at its expense, in the name of Lessee or, with the consent of such
Indemnified Person (which consent will not unreasonably be withheld), in the
name of such Indemnified Person, contest (and control the contest of), including
by way of suit for refund, any Taxes as to which Lessee would have an indemnity
obligation pursuant to Section 8.01, if such contest can be conducted
independently of any proceeding involving a tax liability of such Indemnified
Person that is not indemnified by Lessee hereunder; provided, however, that
Lessee may take no action in contesting any claim if Indenture Trustee, such
Indemnified Person or Owner Participant shall have reasonably determined that
such action will result in any material danger of sale, forfeiture or loss of,
or the creation of any Lien (except if Lessee shall have adequately bonded such
Lien or otherwise made provision to protect the interests of such Indemnified
Person and Owner Participant in a manner reasonably satisfactory to them) on the
Facility or any interest therein or any interference with timely payments of
Rent or any amounts on the Loan Certificates from time to time becoming due and
payable.
(b) Notwithstanding anything contained in Section 8.03(a), an
Indemnified Person will not be required to contest or to permit Lessee to
contest the imposition of any Taxes if such Indemnified Person (1) shall waive
its right to indemnity under this Article VIII with respect to such Taxes and
(2) shall pay to Lessee any amount previously paid or advanced by Lessee
pursuant to this Article VIII by way of reimbursement with respect to such
Taxes.
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SECTION 8.04. Refunds. If any Indemnified Person shall receive a
refund of all or any part of any Taxes paid, reimbursed or advanced by Lessee,
such Indemnified Person shall pay to Lessee within 30 days of such receipt an
amount equal to the lesser of (a) the amount of such refund plus any net tax
benefit (taking into account any Taxes incurred by such Indemnified Person by
reason of the receipt of such refund) realized by such Indemnified Person as a
result of any payment by such Indemnified Person and pursuant to this sentence,
and (b) the tax payment, reimbursement or advance to such Indemnified Person
made by Lessee that gave rise to such refund; provided, however, that such
Indemnified Person shall not be obligated to make any payment to Lessee pursuant
to this or the next succeeding sentence while a Lease Event of Default shall
have occurred and be continuing. If, in addition to such refund, such
Indemnified Person shall receive or be credited an amount representing interest
on the amount of such refund, such Indemnified Person shall pay to Lessee within
30 days of such receipt that proportion of such interest that shall be fairly
attributable to Taxes paid, reimbursed or advanced by Lessee prior to the
receipt of such refund.
SECTION 8.05. Tax Savings. If an Indemnified Person shall realize,
against any tax for which an indemnity payment is not required of Lessee
pursuant to this Article VIII, any net tax saving or credit from any amount with
respect to which Lessee has indemnified such Indemnified Person, its Affiliates
or (A) in the case of Owner Participant, any net tax saving or credit with
respect to Taxes for which Lessee has indemnified Owner Trustee, or the Trust
Estate or (B) in the case of any Loan Participant, any net tax saving or credit
with respect to Taxes for which Lessee has indemnified Indenture Trustee or the
Indenture Estate (it being understood that any such net tax saving or credit
shall not be deemed to exist to the extent that such other person referred to in
clause (A) or (B), as the case may be, realizes an unindemnified tax detriment)
pursuant to this Article VIII, the Indemnified Person realizing such tax saving
or credit, so long as no Lease Event of Default shall have occurred and be
continuing, shall pay to Lessee within 30 days after such Indemnified Person
shall have realized such tax saving or credit the amount of such saving or
credit, together with the amount of any tax saving resulting from any payment
pursuant to this sentence; provided, however, that the aggregate amount payable
pursuant to this sentence in respect of any tax saving or credit shall not
exceed the amount previously paid by Lessee with respect to the Tax that gave
rise to such saving or credit. Each Indemnified Person agrees to use its good
faith efforts (consistent with its overall tax position) to claim any credit or
tax savings available to it that would reduce the amount of Lessee's indemnity
obligations under this Article VIII or that would give rise to a payment to
Lessee under this Article VIII.
SECTION 8.06. Payments. Any amount payable to an Indemnified Person
pursuant to this Article VIII shall be paid within 30 days after receipt of a
written demand therefor from such Indemnified Person accompanied by a written
statement describing in reasonable detail the amount so payable but not before
the date 10 days prior to the date that the relevant Taxes are due.
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SECTION 8.07. Reports. If any report, return or statement is
required to be filed with respect to any Taxes that are subject to
indemnification under this Article VIII, Lessee shall promptly notify the
appropriate Indemnified Person of such requirement and, if permitted by
applicable laws to do so, Lessee shall timely file such report, return or
statement with respect to such Taxes, except for any such report, return or
statement that such Indemnified Person has notified Lessee that such Indemnified
Person intends to file; provided, however, that such Indemnified Person shall
have furnished Lessee, at Lessee's request and expense, with such information,
not within the control of Lessee, as is in such Indemnified Person's control and
is reasonably available to such Indemnified Person and necessary to file such
report, return or statement; and provided, further, that if Lessee is not
permitted by applicable laws to file any such report, return or statement,
Lessee will promptly notify the appropriate Indemnified Person that it is not so
permitted. With respect to any report, return or statement that is required to
be filed with respect to any Taxes that are subject to indemnification under
this Article VIII, Lessee shall either show the ownership of the Facility in
Lessor and send a copy of such reports return or statement to Lessor and the
appropriate Indemnified Person or, where not permitted to so show such
ownership, shall promptly notify the Lessor of such requirement and prepare and
deliver to the Lessor and the appropriate Indemnified Person a proposed form of
such report, return or statement within a reasonable time prior to the time such
report, return or statement is to be filed.
SECTION 8.08. Verification. At Lessee's request, the calculation of
the amount (but not the existence or scope of any liability for payment under
this Article VIII) of any indemnity payment by Lessee pursuant to this Article
VIII or any payment by an Indemnified Person to Lessee pursuant to this Article
VIII shall be verified and certified by a nationally recognized accounting firm
mutually acceptable to such Indemnified Person and Lessee that does not
represent either such Indemnified Person or Lessee. The costs of such
verification shall be borne by Lessee unless such verification reveals an error
in the Indemnified Person's favor of 5% or more of the amount actually payable
in which event the cost of such verification shall be borne by the Indemnified
Person.
ARTICLE IX
Special Tax Indemnities
-----------------------
SECTION 9.01. Tax Assumptions. The Basic Rent payable by Lessee and
Net Economic Return have been computed on the basis of the following tax
assumptions:
(a) for Federal income tax purposes the Trust Estate will be treated
as a trust subject to the provisions of Section 671 through 679 of the
Code, and Owner Participant will, as the owner of the entire interest in
the Trust Estate, take into account in computing its Federal income tax
liability all items of
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income, loss, gain, deduction and credit (including the MACRS Deductions
(as hereinafter defined)) of the Trust Estate;
(b) the Lease will be treated as a true lease under which Owner
Participant will be treated as owner and lessor and Lessee will be treated
as lessee;
(c) for Federal income tax purposes, including for purposes of
Section 861 of the Code, all amounts includible in the gross income of
Owner Participant, Lessor or the Trust Estate with respect to the
transactions contemplated by the Operative Documents and all deductions and
credits allowable to Owner Participant, Lessor or the Trust Estate with
respect to the transactions contemplated by the Operative Documents will be
treated as derived from, or allocable to, sources within the United States;
(d) the Federal rate of tax on the taxable income of Lessor will be
34%;
(e) Owner Participant, as the owner of the Facility Assets as of the
Closing Date, will be entitled to such deductions, credits and other
benefits as are provided by the Code to an owner of property, including (A)
as to an amount (the "Seven-year Amount") equal to 92.988% of Lessor's
Cost, deductions for cost recovery with respect to the Facility Assets
under Section 168(b)(1) of the Code computed using a seven-year recovery
period, the 200% declining-balance method (switching to straight-line) and
the half-year convention, resulting in deductions in an amount equal to
14.29% of the Seven-year Amount in the taxable year of Lessor that includes
the Closing Date and 24.49%, l7.49%, 12.49%, 8.93%, 8.92%, 8.93% and 4.46%
of the Seven-year Amount (such percentages to be calculated to more than
two decimal places for purposes of determining the actual deductions) in
its succeeding seven taxable years, respectively, (B) an to an amount (the
"Nonresidential Real Property Amount") equal to 7.012% of Lessor's Cost,
deductions for cost recovery with respect to the Facility under Section
168(b) of the Code computed using a 31.5-year recovery period, the
straight-line method and the mid-month convention, resulting in deductions
in an amount equal to 3.042% of the Nonresidential Real Property Amount in
the taxable year of Lessor that includes the Closing Date, 3.175% in the
succeeding thirty taxable years and 1.720% in the last taxable year (the
deductions referred to in clauses (A) and (B) being hereinafter referred to
as the "MACRS Deductions");
(f) neither Owner Participant, Lessor nor the Trust Estate will at
any time be required for Federal income tax purposes to include in its
gross income any amount with respect to the transactions contemplated by
the Operative Documents other than (i) payments of Basic Rent in the
amounts specified herein accrued ratably over the six-month period
preceding the date on which each such payment is required to be made; (ii)
the amount of any payment of Stipulated
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Loss Value on the date such amount is paid under this Lease (but not
earlier than the date an which such amount is required to be paid under
this Lease); (iii) any amount paid to Lessor or Owner Participant and
specifically identified as interest under the Operative Documents on the
date such amount is paid; (iv) any amount paid to Lessor or Owner
Participant under the Operative Documents, the calculation of which is
specifically determined under the Operative Documents to include any amount
necessary to hold Lessor or Owner Participant harmless against the income
tax consequences of the receipt or accrual thereof; (v) any amount to the
extent offset in the same taxable year of Lessee or Owner Participant in
which such amount is included in income by a related deduction of the same
tax character which deduction is not otherwise taken into account pursuant
to this Section 9.01; (vi) payment by Lessee, of the purchase option price
pursuant to its exercise of its purchase option pursuant to Section 4.02 on
the date such amount is paid; and (vii) the "good-faith deposit" referred
to in Section 6.01(c) of the Participation Agreement, if such good-faith
deposit is retained by Owner Participant pursuant to clause (ii) of that
Section 6.01(c);
(g) Lessor's taxable year that includes the Closing Date will be a
full taxable year consisting of 12 months and each taxable year of Lessor
thereafter will be the calendar year ending December 31; and
(h) Owner Participant will be entitled for Federal income tax
purposes to (A) deductions with respect to interest on the Loan
Certificates in the amounts and at the times interest is stated to accrue
on the Loan Certificates pursuant to Section 163 of the Code and to current
deductions with respect to premium, if any, and all other amounts (except
principal) paid or accrued on the Loan Certificates (such deductions
hereinafter referred to as the "Interest Deductions") and (B) deductions
with respect to the amortization of an amount equal to Transaction Expenses
with respect to the Facility ratably over the Interim and Basic Terms (such
deductions hereinafter referred to as the "Amortization Deductions").
For purposes of Section 9.01(e), the term "Lessor's Cost" does not
include any Alterations financed by Lessor or Owner Participant. At the time of
any such financing, the assumptions set forth in this Section 9.01 shall be
revised to reflect the assumptions applicable to such Alterations.
SECTION 9.02. Records. Lessee shall maintain, or cause to be
maintained, such records as shall be reasonably necessary in order to verify the
factual basis for the matters referred to in this Article IX. Lessee shall make
the records referred to in the preceding sentence available, or cause such
records to be made available, for inspection by Owner Participant or its
authorized agents, during normal business hours at the Facility, upon request
by, and five days' prior written notice from, Owner Participant. Lessee shall,
at its expense, upon request by Owner Participant, provide a copy of such
records which shall be certified to be a true copy
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by an affidavit attached thereto and executed by an officer of Lessee.
Notwithstanding the preceding sentence, Owner Participant or its authorized
agents shall have the right to make copies and extracts of any such records at
their sole expense. Lessee shall have no obligation to make available its income
tax returns and may impose reasonable confidentiality requirements for any
information or records provided under this Section 9.02. In addition, Lessee
shall have no obligation under this Section 9.02 with respect to records
disposed of after Lessee has requested and received Owner Participant's written
consent (which consent shall not be unreasonably withheld) for such disposal.
SECTION 9.03. Representations, Warranties and Covenants of Lessee.
Lessee represents, warrants and covenants that:
(a) assuming that Owner Participant is treated as owner of the
Facility Assets for Federal income tax purposes, in the hands of Owner
Participant the Facility Assets will be eligible for the MACRS Deduction;
(b) the Facility Assets will not be treated as "tax-exempt bond
financed property" as defined in Section 168(g)(5) of the Code and Owner
Participant will not be required, except by reason of an act or omission of
Owner Participant unrelated to the transactions contemplated by the
Operative Documents, to use the "alternative depreciation system" described
in Section 168(g) of the Code;
(c) the Facility Assets do not and will not constitute "public
utility property" as defined in Section 168(i)(10) of the Code, unless such
status shall result from acts or omissions of Owner Participant unrelated
to its participation in the transactions contemplated by the Operative
Documents, and will not be subject to the provisions of Sections 168(f)(2)
of the Code;
(d) the Facility Assets will be placed in service no later than the
Closing Date;
(e) as of the Closing Date, the Facility Assets will require no
improvements, modifications or additions (other than the Known Alterations)
in order to be rendered complete for their intended use by Lessee and
Lessee has no present intention to make any specific non-severable
improvements, modifications or additions (other than the Known Alterations
and the Work in Progress) to the Facility Assets;
(f) all written information supplied by Lessee or any of its
Affiliates or either of Sellers or their Affiliates to any independent
appraiser or engineer in connection with the appraisal referred to in
Section 4.02(t) of the Participation Agreement (and, in the case of written
information supplied by either of Sellers or their Affiliates, specifically
identified in writing by such appraiser or engineer, and confirmed by
Lessee as having been provided by Sellers or their Affiliates), with
respect to the description, nature, function, testing and cost of
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the Facility, including facts relating to its intended use, economic life
and residual value, was complete (to the best of Lessee's knowledge) and
accurate in all material respects at the time given and on the Closing
Date, and neither Lessee nor any Affiliate has any reason to believe that
any of the conclusions set forth in the appraisal are in any manner
incorrect or misleading; provided, however, that while the projections and
estimates made by Lessee or Sellers that are included in such information
were made in good faith, Lessee does not make any representations as to the
reasonableness or accuracy of any estimates or projections included in such
information;
(g) no loss, damage, destruction, condemnation, seizure,
confiscation, theft, forfeiture, requisition of title or requisition of use
with respect to the Facility or any portion thereof that does not
constitute an Event of Loss will result in the disallowance, loss,
recapture or deferral of all or any portion of the MACRS Deductions or the
Interest Deductions;
(h) on the Closing Date, there will not be any portion of the
acquisition cost of the Facility Assets paid for or incurred by Lessee or
any Affiliate thereof for which Lessee shall not have been reimbursed by
Owner Participant;
(i) the basis of the Facility Assets will not be reduced and the
Interest Deductions will not be affected at any time as a result of, or in
connection with, the characterization as interest or original issue
discount of any amount denominated as principal under any Loan Certificate
pursuant to the application of Section 483, 1272, 1273, 1274, 1275 or 7872
of the Code;
(j) neither Lessee nor any of its Affiliates has acquired or will
acquire any of the Loan Certificates except as permitted by Section
4.02(b); and
(k) neither Lessee nor any Affiliate will at any time take any
action, directly or indirectly, or file any returns or other documents
inconsistent with the tax assumptions set forth in Section 9.01, and Lessee
and each Affiliate will file such returns, maintain such records, take such
actions and execute such documents an Owner Participant may request in
writing as being reasonably necessary to facilitate accomplishment of the
intent thereof.
SECTION 9.04. Indemnity. If directly as a result of:
(A) any act or omission (other than an act or omission expressly
required by the Operative Documents and other than (v) the execution
and delivery of the Operative Documents, (w) the exercise of Lessee's
right to purchase the Facility Assets pursuant to Section 4.02, to
renew this Lease pursuant to Section 4.01 or to terminate this Lease
early pursuant to Section 4.03, (x) a Refinancing of the Loan
Certificates in accordance with Section 8.01 of the Participation
Agreement or any
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assumption by Lessee of the Loan Certificates in accordance with the
provisions of Section 4.02(b), (y) the making of the Known Alterations
in accordance with the provisions of Section 8.02 of the Participation
Agreement and (z) any sublease of the Facility Assets in accordance
with the provisions of Section 15.01 to a Person who is not a "tax-
exempt entity'" within the meaning of Section 168(h) of the Code) on
the part of Lessee, any officer, employee, agent of Lessee, any
Affiliate of Lessee, any sublessee, assignee, user or person in
possession of the Facility Assets, the Site or any part thereof, or
any Person claiming by, through or under Lessee in each case other
than Lessor, Owner Participant, their Affiliates or anyone claiming
through them (other than Lessee) (any of the foregoing being
hereinafter referred to as a "Lessee Person"); or
(B) (i) any breach or inaccuracy of any representation,
warranty or covenant set forth in Section 9.03 hereof or Section 5.01
or 5.06 of the Participation Agreement an the part of Lessee or any
Lessee Person or (ii) any exercise of any remedies by Indenture
Trustee or one or more holders of any Loan Certificate resulting from
any breach by Lessee of any obligation under the Operative Documents
or of any covenant contained therein); or
(C) any bankruptcy of Lessee or any Lessee Person or other
proceedings for the relief of debtors involving Lessee or any Lessee
Person or any foreclosure on or against Lessee or any Lessee Person;
or
(D) any non-use of, repair or replacement of, or the making of
any addition, modification or improvement (other than the Known
Alterations or the Work in Progress) to, or any payment of any
warranty not permitted to be retained by Lessor or Owner Participant
in respect of, the Facility Assets or any part thereof;
Owner Participant shall lose, shall suffer a disallowance of, shall suffer a
delay in claiming, shall not have the right to claim, shall not claim (based on
a written opinion of Cravath, Swaine & Moore or other independent tax counsel
selected by Owner Participant and reasonably acceptable to Lessee ("Owner
Participant's Tax Counsel") to the effect that there is no substantial authority
for such claim (an "Owner Participant Opinion")), or shall be required to
recapture all or any portion of the MACRS Deductions, the Interest Deductions or
the Amortization Deductions (any such event being hereinafter referred to as a
"Loss"), then Lessee shall pay to Owner Participant on an After-Tax Basis as an
indemnity not later than 30 days after written notice to Lessee by Owner
Participant of such Loss specifying in reasonable detail the calculation of such
Loss and the event giving rise thereto, such amount (calculated pursuant to
Section 9.09) as shall, taking into account any interest and any penalties and
additions to tax payable as a result of and properly attributable to such Loss
or any contest of such Loss (net of any deductions currently available for, such
interest, penalties or additions), cause Owner Participant's Net Economic Return
(computed
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otherwise on the same assumptions (other than the changed assumptions giving
rise to Lessee's payment) as were utilized by Owner Participant in originally
computing the Basic Rent set forth in Section 3.01) to equal the Net Economic
Return (as so computed) that would have been realized by Owner Participant if
such Loss had not occurred. In lieu of such payment Lessee may elect to (i) pay
on an After-Tax Basis to Owner Participant, within 30 days after such written
notice by, Owner Participant, an amount (calculated pursuant to Section 9.09)
equal to the Federal income taxes payable by Owner Participant as a result of
such Loss and any interest and any penalties and additions to tax imposed as a
result of and properly attributable to such Loss or the contest of such Loss
(net of any deductions currently available for such interest, penalties or
additions) or (ii) unless this Lease shall have terminated, pay the indemnity
described in the next preceding sentence by increasing payments of Basic Rent
(commencing on the Rent Date following notice by Owner Participant of such Loss)
by such amounts as are necessary, taking into account such indemnity, to
preserve Owner Participant's Net Economic Return, adjusted to reflect any
increase in the per annum rate paid at the time of determination on five-year
Treasury Certificates issued by the United States of America from the rate paid
on such Treasury Certificates on the date five days prior to the Closing Date.
SECTION 9.05. Foreign Tax Credit Indemnity. If, by reason of the
location of the Facility Assets, the Site or any part of any thereof outside the
United States prior to the termination of the Lease, any item of income, gain,
loss, deduction or credit with respect to the transactions contemplated by the
Operative Documents shall not be treated as derived from, or allocable to,
sources within the United States for a given taxable year (any such event
hereinafter referred to as a "Foreign Allocation"), then Lessee shall pay to
Owner Participant on an After-Tax Basis within 30 days after written demand
therefor from Owner Participant as an indemnity, an amount equal to the sun of:
(1) the excess of (x) the foreign tax credits to which Owner Participant would
have been entitled for such year had no such Foreign Allocation occurred over
(y) the foreign tax credit to which Owner Participant was limited taking into
account such Foreign Allocation; and (2) the amount of any interest and any
penalties and additions to tax (taking currently allowable deductions into
account) payable as a result of and properly attributable to such Foreign
Allocation. The amount payable to Owner Participant pursuant to this Section
9.05 shall be paid not later than 30 days after written demand by Owner
Participant accompanied by a written statement describing in reasonable detail
such Foreign Allocation and the computation of the amount so payable.
SECTION 9.06. Income Inclusion: Reverse Indemnities. (a) If, directly
as a result of an event described in Section 9.04 (A), (B), (C) or (D) or
directly as a result of the payment by any Lessee Person of any expenses of any
Indemnified Person pursuant to Section 8.03(a) or 9.08, at any time Owner
Participant, Lessor or the Trust Estate is required to include in its Federal
gross income with respect to any period prior to the termination of the Lease
(or, if the Lease shall have terminated as the result of an Event of Default,
with respect to any period) an amount in respect of the transactions
contemplated by the Operative Documents other than the
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amounts described in Section 9.01(f)(i) through (vii) at the times described
therein (an "Income Inclusion"), then Lessee shall pay to Owner Participant on
an After-Tax Basis within 30 days after written demand therefor from Owner
Participant accompanied by a written statement describing in reasonable detail
the calculation of the event giving rise to such Income Inclusion and the
computation of the amount so payable, as an indemnity, an amount (calculated in
accordance with Section 9.09) equal to the sum of (x) the net aggregate
additional Federal, state and local income taxes or franchise taxes based an
income payable by Owner Participant from time to time as a result of such Income
Inclusion plus (y) the amount of any interest and any penalties and additions to
tax (taking currently allowable deductions into account) payable as a result of
and properly attributable to any such Income Inclusion. In lieu of such payment
Lessee may elect to (i) pay Owner Participant as an indemnity on an After-Tax
Basis, within 30 days of such written notice by Owner Participant, such amount
(calculated pursuant to Section 9.09) as shall, taking into account any interest
and any penalties and additions to tax payable as a result of and properly
attributable to such Income Inclusion (net of any deductions currently available
for such interest, penalties or additions) cause Owner Participant's Net
Economic Return (computed otherwise on the same assumptions (other than the
changed assumptions giving rise to Lessee's payment) as were utilized by Owner
Participant in originally computing the Basic Rent as set forth in Section 3.01)
to equal the Net Economic Return (as so computed) that would have been realized
by Owner Participant if such Income Inclusion had not occurred or (ii) unless
this Lease shall have terminated, pay the indemnity described in clause (i)
above by increasing payments of Basic Rent by such amounts as are necessary to
preserve Owner Participant's Net Economic Return, adjusted to reflect any
increase in the per annum rate paid at the time of determination on five-year
Treasury Certificates issued by the United States of America from the rate paid
on such Treasury Certificates on the date five days prior to the Closing Date.
(b) If as a result of any such Loss or Income Inclusion with respect
to which Lessee shall have paid an indemnity pursuant to Section 9.04 or 9.05 or
this Section 9.06, the Federal (or in the case of an Income Inclusion, the
Federal, state or local) income taxes paid by Owner Participant for any taxable
year shall be less than the amount of such taxes that would have been payable by
Owner Participant taking into account the assumptions set forth in Section 9.09
had no such Loss or Income Inclusion occurred and such reduction was not
previously taken into account in calculating the amount of Lessee's indemnity
obligation, then Owner Participant shall pay Lessee the net amount of such
savings in taxes (calculated in accordance with Section 9.09) plus the amount of
any additional Federal, state or local income tax benefits realized by Owner
Participant as a result of any payment pursuant to this sentence; provided,
however, that Owner Participant shall not be obligated to make any payment
pursuant to this sentence to the extent that the amount of such payment would
exceed (x) the amount of all prior payments by Lessee to Owner Participant
pursuant to Section 9.04 or 9.05 or this Section 9.06 in respect of the Loss or
Income Inclusion that gave rise to such tax benefits less (y), the amount of all
prior payments by Owner Participant to Lessee hereunder. Any payment due to
Lessee from Owner Participant pursuant to this Section 9.06(b) shall be paid
within 30 days after Owner Participant is
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deemed to realize any such savings in its income taxes or additional tax
benefits, as the case may be.
SECTION 9.07. Excluded Losses. Notwithstanding any other provision
of Section 9.04, 9.05 or 9.06, no indemnity shall be payable pursuant to Section
9.04, 9.05 or 9.06, if such Loss or Income Inclusion results directly from any
of the following events:
(a) the failure of Lessor or Owner Participant to have a full taxable
year for its taxable year in which the Closing Date occurs, for purposes of
claiming cost recovery deductions;
(b) a determination by a United States taxing authority that the
terms and conditions of the Operative Documents fail to result in this
Lease being treated as a true lease for Federal income tax purposes, or
that Owner Participant is not the purchaser, owner or lessor of the
Facility Assets except if such determination shall result directly from any
inaccuracy of the representations, warranties or covenants contained in
Section 9.03 (e), (f), (j) or (k) or Section 5.01 (a), (b), (d), (e), (j),
or (l) or 5.06 (a), (b), (d) or (e) of the Participation Agreement;
(c) the classification as a taxable entity of the trust created by
the Trust Agreement
(d) noncompliance with Section 467 of the Code except (i) in
connection with a change in the rental schedule after a Default or Event of
Default shall have occurred or (ii) if any Lessee Person shall deduct any
payment of Basic Rent in any period other than the period to which such
payment is allocated hereunder unless such Lessee Person shall have
received an opinion of Dewey, Ballantine or other independent tax counsel
selected by Lessee Person and reasonably acceptable to Owner Participant to
the effect that there is no reasonable basis for deducting such payments in
the periods to which such payments are allocated under this Lease;
(e) the failure of Owner Participant to contest any proposed
adjustment that it is required to contest pursuant to Section 9.08 in
accordance with such provision;
(f) except with respect to any replacement or substitution of the
Facility or any part of any thereof, any change in the Code enacted after
the Closing Date;
(g) except as provided in Section 9.05, the treatment of any item of
income, gain, loss or deduction as having been derived from sources outside
the United States (under Section 861 of the Code or otherwise);
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(h) the existence of the provisions set forth in Section 6.01(b) of
the Participation Agreement or Section 3.01(a) of this Lease;
(i) a voluntary transfer (it being understood that the term
"voluntary transfer" does not include any transfer provided for in the
Operative Documents (other than pursuant to Article VII of the
Participation Agreement or Section 15.02 of this Lease) or any transfer to
Lessee or any Affiliate thereof) by Owner Participant of any interest in
the Facility or any part thereof or any interest arising under the
Operative Documents or from any involuntary transfer by Owner Participant
of any of the foregoing interests in connection with any bankruptcy or
other proceeding for the relief of debtors in which Owner Participant or
Owner Trustee is the debtor (except if such proceeding shall have been
caused by Lessee); provided, however, that the exception set forth in this
subparagraph (i) shall not apply if any such transfer shall occur at any
time while a Lease Event of Default shall have occurred and be continuing;
(j) an event which results in Lessee making a payment of Stipulated
Loss Value or Termination Value or any amount determined by reference to
Stipulated Loss Value or Termination Value;
(k) a failure by Owner Participant or Owner Trustee to claim in a
timely and proper manner all or any portion of the Federal income tax
benefits set forth in Section 9.01 or the inclusion in gross income of an
amount with respect to an Income Inclusion in each case unless as a result
of the receipt of an opinion described in Section 9.04 that there is no
substantial authority for such claim or such exclusion from gross income;
(l) Owner Participant or Owner Trustee being or becoming a "tax-
exempt entity" within the meaning of Section 168 of the Code;
(m) a reorganization, liquidation, merger, consolidation or other
structural change of Owner Participant, Owner Trustee or any Affiliate of
either thereof unrelated to the Transactions contemplated by the Operative
Documents;
(n) the imposition of any minimum tax, alternative minimum tax or tax
on tax preference items;
(o) the application of Section 168(d)(3) of the Code;
(p) the treatment of the Facility Assets as "public utility property"
within the meaning of Section 168(i)(10) of the Code as a result of the
identity or status of Owner Participant or Owner Trustee or any Affiliate
of either other than as the result of such party's participation in the
Overall Transaction; or
(q) the inaccuracy of any conclusion set forth in the appraisal
referred to in Section 4.02(t) of the Participation Agreement unless such
inaccuracy
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results in the inaccuracy of Section 9.03(a) hereof or results from the
inaccuracy of Section 9.03(f) hereof.
SECTION 9.08. Contest Provisions. (a) If the Internal Revenue
Service or other appropriate taxing authority shall propose an adjustment in the
Federal income taxes of Owner Participant for which Lessee may be required to
indemnify Owner Participant pursuant to this Article IX, then Owner Participant
shall give Lessee prompt written notice of such adjustment: provided, however,
that the failure to so notify Lessee shall not relieve Lessee of its obligations
under this Article IX unless such failure precludes Lessee from exercising its
contest rights under this Section 9.08. If requested by Lessee in writing
within 20 days, Owner Participant shall request an opinion of Owner
Participant's Tax Counsel, the cost of which shall be borne by Lessee, as to
whether there in a reasonable basis in law and in fact for the contest of such
adjustment. If the opinion is to that effect and if Lessee promptly (but no
later than 15 days thereafter) requests Owner Participant to do so, Owner
Participant shall contest the proposed adjustment in good faith unless the
aggregate amount of the indemnity that Lessee would be required to pay with
respect thereto would not exceed $200,000; provided, however, that Owner
Participant shall determine in its sole discretion the nature of all action to
be taken to contest such proposed adjustment including (i) whether any action to
contest such proposed adjustment shall initially be by way of judicial or
administrative proceedings, or both, (ii) whether any such proposed adjustment
shall be contested by resisting payment thereof or by paying the same and
seeking a refund thereof and (iii) if Owner Participant shall undertake judicial
action with respect to such proposed adjustment, the court or other judicial
body before which such action shall be commenced. Although Owner Participant
agrees to consult in good faith with Lessee on matters relating to the contest
and to consider in good faith timely suggestions from Lessee with respect to the
contest (including suggestions as to choice of forum), Owner Participant shall
have full control over any contest pursuant to this Section 9.08 and shall not,
except as specifically provided below, be obligated to pursue an appeal from any
judicial determination. Subject to satisfaction of the other conditions set
forth in this Section 9.08, Owner Participant shall be obligated to pursue (but
only to one additional judicial level and in no event to the United States
Supreme Court), with respect to a determination by a court, an appeal with
respect to such determination if Owner Participant shall have received, at the
expense of Lessee, an opinion of Owner Participant's Tax Counsel to the effect
that the basis in law and in fact for Owner Participant's position exceeds the
basis in law and in fact against such position. At any time, whether before or
after commencing to take the action set forth in this Section 9.08, Owner
Participant may decline to take any such action that it would otherwise be
required to take pursuant to this Section 9.08 with respect to all or any
portion of a proposed adjustment by notifying Lessee in writing that Lessee is
relieved of its obligations to indemnify Owner Participant with respect to the
adjustment or such portion, as the case may be, in which event Owner Participant
shall repay any indemnity amount previously advanced by Lessee with respect to
such adjustment (but not any costs or expenses with respect to any contest).
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(b) Owner Participant shall not be required to take any action
pursuant to this Section 9.08 unless and until Lessee shall have acknowledged
its indemnity obligation provided that such acknowledgment shall be of no force
or effect if the contest is resolved on an articulated basis that clearly does
not constitute a basis for indemnification hereunder and shall have agreed to
indemnify Owner Participant in a manner reasonably satisfactory to Owner
Participant for any liability or loss which Owner Participant may incur as a
result of contesting the validity of any proposed adjustment and shall have
agreed to pay to Owner Participant on demand all costs and expenses which Owner
Participant may incur in connection with contesting such proposed adjustment
(including fees and disbursements of counsel). If Owner Participant determines
to contest any adjustment by paying the additional tax and suing for a refund,
Lessee shall pay to Owner Participant an amount equal to the sum, on an After-
Tax Basis, of any tax, interest, penalties and additions to tax which are
required to be paid. Upon receipt by Owner Participant of a refund of any
amounts paid by it based on the adjustment in respect of which amounts it shall
have previously been paid funds by Lessee, Owner Participant shall pay to
Lessee, the amount of such refund net of any tax consequences of the receipt of
such refund (or such portion thereof as is properly allocable to the adjustment)
together with any interest received by it on such refund and any tax savings
resulting from such payment. In lieu of the payment referred to in the second
preceding sentence, Lessee may elect to lend to Owner Participant, on an
interest-free basis, an amount equal to the sum of any tax, interest, penalties
and additions to tax which are required to be paid in order to conduct such
contest; provided, however, that Lessee shall have agreed to indemnify Owner
Participant, in a manner reasonably acceptable to Owner Participant, for any
additional taxes, interest, penalties and additions to tax which Owner
Participant may be required to pay in respect of the receipt of such loan.
SECTION 9.09. Determination of Payments. (a) Whenever it may be
necessary for purposes of this Article IX to determine the amount of any Income
Inclusion, or the amount of any tax savings resulting from an Income Inclusion,
such determination shall be made on the assumption that the Federal, state and
local income taxes of Owner Participant are payable at the highest marginal
statutory tax rates in effect for corporate taxpayers for the respective years
to which such Income Inclusion or tax savings relate (the "Effective Rate").
When determining the amount of any Loss suffered by Owner Participant, or the
amount of any tax savings resulting from a Loss, such determination shall be
made on the basis of the assumption that the Federal income taxes of Owner
Participant are payable at the rate set forth in Section 9.01(d) (the "Assumed
Rate") and on the assumption that in computing its Federal income tax liability,
Owner Participant can currently fully utilize the tax benefits that are the
subject of any Loss or that result from a Loss against taxes payable at the
Assumed Rate. In calculating the amount payable with respect to an Income
Inclusion, or the tax savings resulting therefrom, it shall be conclusively
presumed that, for any taxable year of Owner Participant, Owner Participant
suffers a corresponding Income Inclusion for state and local income tax purposes
in any circumstance in which it suffers an Income Inclusion (and realizes
corresponding state and local income tax benefits resulting from an Income
Inclusion when such benefits are available for Federal income tax purposes)
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respectively. For purposes of determining the amount of tax savings from any
payment by the Owner Participant to Lessee, it shall be assumed that Federal,
state and local taxes are payable by Owner Participant at the highest marginal
statutory rates in effect for the relevant period. The determination of the
amount payable to Owner Participant under this Article IX shall be made by Owner
Participant, who shall furnish Lessee with a notice setting forth in reasonable
detail the computations and methods used in computing such amount. Lessee agrees
that it will not have the right to inspect the tax returns, books, records or
any other documents of Owner Participant in connection with any computation
pursuant to this Article IX.
(b) At the request of Lessee, the calculation of any amount (but not
the existence of any liability for payment under this Article IX) payable
pursuant to this Article IX and any corresponding adjustment to Stipulated Loss
Value shall be verified or corrected by a nationally recognized accounting firm
mutually acceptable to Owner Participant and Lessee that does not currently
represent either Owner Participant or Lessee. The cost of such verification or
correction will be borne by Lessee unless the initial calculation was incorrect
in the Owner Participant's favor by more than 5% of the amount actually
determined in which event the cost of such verification shall be borne by Owner
Participant.
SECTION 9.10. Affiliated Group. For purposes of this Article IX, the
term "Owner Participant" shall include any member of an affiliated group of
corporations of which Owner Participant is, or may become, a member if
consolidated or combined returns are or shall be filed for such affiliated group
for Federal income tax purposes (and, with respect to amounts payable in
connection with an Income Inclusion and amounts payable in order to make
payments on an After-Tax Basis, if consolidated or combined returns are filed
for state or local income tax purposes).
SECTION 9.11. Recalculation. If an amount shall be payable pursuant
to this Article IX, the schedules of Stipulated Loss Value shall, to the extent
appropriate, be adjusted by Owner Participant based on the original assumptions
used in preparing such schedules, other than those assumptions changed as a
result of the event giving rise to such adjustment. If an Event of Loss or
termination or any other event giving rise to a payment of Stipulated Loss Value
or an amount determined by reference thereto occurs and as a result thereof the
date as of which Owner Participant shall have been affected for Federal income
tax purposes shall be earlier than the date assumed in calculating the relevant
amount of Stipulated Loss Value, then such Stipulated Loss Value shall be
appropriately increased by Owner Participant based otherwise on the same
assumptions on which such Stipulated Loss Value was originally calculated.
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ARTICLE X
Lessee Agreements Relating to Facility
--------------------------------------
SECTION 10.01. Liens. (a) Lessee shall not directly or indirectly
create incur, assume or suffer to exist any Lien on or with respect to the
Facility or any portion thereof or interest therein or any part of the Trust
Estate or the Indenture Estate, including Basic Rent or Supplemental Rent or any
amount or part thereof, except Permitted Liens (including Lessor Liens), and
Lessee shall notify each Lessor Party in writing promptly after Lessee becomes
aware of the existence of any such Lien, and will promptly, at its sole expense,
take such action as may be necessary duly to discharge any such Lien.
(b) Nothing contained in this Lease shall be deemed or construed in
any way as constituting the consent or request of any Lessor Party, express or
implied by inference or otherwise, to any contractor, subcontractor, laborer or
materialman for the performance of any labor or the furnishing of any materials
for any specific improvement, alteration to or repair of the Facility, nor as
giving Lessee a right, power or authority to contract for or permit the
rendering of any services or the furnishing of any materials whether as agent of
or on behalf of or to the benefit of any Lessor Party or otherwise, or that
would give rise to the filing of any mechanic's or materialman's liens against
Lessor's interest in the Facility. Notice is hereby given that neither any
Lessor Party nor any of Lessor Party's agents shall be liable for any labor or
materials furnished or to be furnished to Lessee upon credit, and that no
mechanic's or other Lien for such labor or materials shall attach to or affect
any estate or interest of Lessor in and to the Facility. Nothing contained in
this Lease shall be deemed or construed to constitute Lessee as any Lessor
Party's agent or contractor for the performance of any work by Lessee on or with
respect to the Facility. Lessee hereby acknowledges that any such work
performed by Lessee is to be performed solely for the benefit of Lessee and not
for the benefit of any Lessor Party.
SECTION 10.02. Operation, Maintenance and Completion. (a) Lessee
shall at all times (i) operate, service, maintain and repair the Facility (x) in
accordance with standards of prudence applicable to the paper industry and
standards at least as high as those standards applicable to comparable
facilities owned or leased by Lessee, with such operating standards as shall be
required to enforce all material warranty claims against dealers, manufacturers,
vendors, contractors and subcontractors and with the terms and conditions of all
insurance policies in effect at any time with respect thereto and (y) to the
extent required to maintain the Facility in good operating condition and repair,
ordinary wear and tear excepted, and to cause the Facility to continue to have
the capacity and functional ability to perform, on a continuing basis and in
normal commercial operations, the functions for which it was designed, (ii)
comply with all Governmental Rules and Governmental Actions affecting the
Facility or the use, operation or maintenance thereof (except that Lessee may
contest in good faith by appropriate proceedings any such Governmental Rule or
Governmental Action so long an such contest does not violate clause (x), (y) or
(z) of clause (iii) of the
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definition of Permitted Liens) and (iii) keep and maintain proper books and
records relating to all services rendered and all funds expended for operation
and maintenance of the Facility or the acquisition, construction or installation
of all Parts and Alterations, all in accordance with customary practices in the
paper industry. Except as expressly provided herein, Lessor shall not be
obliged in any way to maintain, alter, repair, rebuild or replace the Facility
or any part thereof, and Lessee expressly waives the right to perform any such
action at the expense of Lessor pursuant to any law at any time in effect.
(b) Lessee shall diligently complete or cause to be completed each of
the works in progress listed on Schedule 10.02 ("Work in Progress") in such
manner that when completed all Work in Progress will (i) have been completed and
constructed in a good and workmanlike manner in accordance with good
construction and engineering practice and the plans and specifications
therefore, (ii) conform in all material respects to the description thereof
contained in Schedule 10.02, (iii) have been tested and found to operate
satisfactorily, have been placed in commercial operation on a continuing basis
and have demonstrated the capacity and functional ability to perform the
functions for which such Work in Progress was specifically designed in
accordance with the plans and specifications therefor and (iv) comply with all
applicable Governmental Rules and Governmental Actions. Upon each part of Work
in Progress being completed in accordance with this Section 10.02(b), Lessee
shall deliver to each Lessor Party a notice certifying as to such completion.
(c) Except in the ordinary course of business, Lessee shall not
remove or permit to be removed from the Site any of the Facility Assets, except
as permitted by this Lease or any other Operative Documents.
SECTION 10.03. Reports. To the extent permissible, Lessee shall
prepare and file in timely fashion, or, where Lessor shall be required to file,
Lessee shall prepare and deliver to Lessor within a reasonable time prior to the
date for filing, any reports with respect to the condition or operation of the
Facility that shall be required to be filed with any Governmental Authority.
SECTION 10.04. Replacement of Parts. Except after the occurrence of
an Event of Loss, Lessee will promptly repair or replace any necessary or useful
Part which may from time to time fail to function in accordance with its
intended use, or become worn out, destroyed, damaged beyond repair, lost,
condemned, confiscated, stolen or seized for any reason whatsoever. In
addition, in the ordinary course of maintenance, service, repair or testing,
Lessee may remove any Part, but Lessee shall cause such Part to be replaced by a
replacement Part as promptly as practicable.
All replacement Parts shall be free and clear of all Liens except
Permitted Liens and shall be in at least as good operating condition as, and
shall have a value and utility at least equal to, the Parts replaced, assuming
such replaced Parts were in at least the condition and repair required to be
maintained hereunder. Each Part at any time removed from the Facility shall
remain the property of Lessor, no
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matter where located, until such time as such Part shall be replaced by a
replacement Part which has been incorporated in the Facility and which meets the
requirements for replacement Parts specified above. Immediately upon any
replacement Part becoming incorporated in the Facility, without further act, (i)
title to the removed Part shall thereupon vest in Lessee or such other Person as
shall be designated by Lessee, free and clear of all rights of Lessor Parties,
(ii) title to such replacement Part shall thereupon vest in Lessor and be
subject to the Indenture and (iii) such replacement Part shall become subject to
this Lease and be deemed a part of the Facility for all purposes hereof to the
same extent as the Part originally incorporated in the Facility. Prior to or on
the date of installation of any replacement Part with a value in excess of
$1,000,000 individually or $4,000,000 in the aggregate with other replacement
Parts, Lessee will (x) use all reasonable efforts to furnish Lessor with a full
warranty bill of sale conveying title to such replacement Part to Lessor free
and clear of all Liens except Permitted Liens and (y) furnish each Lessor Party
with such evidence of Lessor's title to, and the condition of, such replacement
Part as such Lessor Party may request.
SECTION 10.05. Required Alterations. Notwithstanding Section 10.09,
Lessee shall make all Severable and Non-Severable Alterations to the Facility as
may be required from time to time to meet the requirements of Governmental Rules
or Governmental Actions. All such Alterations shall be completed in a good and
workmanlike manner, with reasonable dispatch.
SECTION 10.06. Optional Alterations. Lessee may from time to time
make such Severable and Non-Severable Alterations to the Facility which are not
required pursuant to Section 10.05 as Lessee may deem desirable in the proper
conduct of its business provided that (i) no such Alteration shall materially
diminish the value, utility, condition or useful life of the Facility below the
value, utility, useful life and condition thereof immediately prior to such
Alteration, assuming the Facility was then in at least the condition and repair
required to be maintained by the terms of this Lease, and (ii) such Alteration
shall not be in replacement of, or in substitution for, any Part originally
incorporated in the Facility or any Part title to which shall have vested in
Lessor. All such Alterations shall be completed in a good and workmanlike
manner, with reasonable dispatch.
SECTION 10.07. Reports of Alterations. On or before March 31 of each
year and on the Termination Date, Lessee shall furnish each Lessor Party with a
report stating the total cost of all Alterations and describing separately and
in reasonable detail each Alteration (or related group of Alterations) of value
in excess of $1,000,000 made during the period from the date hereof to the end
of the preceding calendar year in the case of the first such report or during
the period from the end of the period covered by the last previous report to the
date one month prior to such report in the case of subsequent reports.
SECTION 10.08. Title to Alterations. Title to each Alteration shall
without further act vest in Lessor and be deemed to constitute a part of the
Facility and be subject to this Lease if such Alteration is required pursuant to
Section 10.05 or is a
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Non-Severable Alteration or is financed by Owner Participant or Lessor pursuant
to Section 10.09. If (i) no Event of Default shall exist (or upon all Events of
Default having been cured), (ii) such Alteration has not been financed by Lessor
or Owner Participant pursuant to Section 10.09 and is not included in Work in
Progress and (iii) Lessee shall have provided to each Lessor Party (x) a
certificate substantially in the form of Schedule 10.08 of a licensed
professional engineer to the effect that such Alteration is not required
pursuant to Section 10.05 and is Severable and (y) the written agreement of each
Person (other than Lessee) in which title to such Alteration shall vest to be
bound by the remainder of this Section 10.08, then title to such Alteration
shall vest in Lessee (or any such Person), subject to the rights of Lessor
provided in the remainder of this Section 10.08. Any Alteration covered by the
preceding sentence may, so long as such removal shall not result in any
violation of any Governmental Rule or Governmental Action nor cause any material
damage to the Facility and so long as no Default or Event of Default shall
exist, be removed by Lessee (or such other Person) prior to delivery of the
Facility to Lessor in accordance with the provisions of this Lease upon 30 days'
prior written notice to each Lessor Party. However, Lessor may purchase for cash
any such Alteration at the time it would have been so removed by giving to
Lessee (or such other Person) written notice of its election to do so within 15
days after receipt of such prior written notice. The purchase price of such
Alteration shall be the Fair Market Sale Value thereof as of the date of
purchase as determined by mutual agreement of Owner Participant and Lessee or,
in the absence of such agreement, by the Appraisal Procedure.
SECTION 10.09. Funding of Alterations. Certain Alterations may be
funded by Lessor or Owner Participant in accordance with Section 8.02 of the
Participation Agreement and in accordance with the terms of the Indenture.
Lessee shall afford Lessor the opportunity to finance other Alterations on terms
mutually acceptable to Lessee and Owner Participant.
SECTION 10.10. Identification. Lessee shall maintain in prominent
places at the Site throughout the Term plates or other appropriate markings
bearing the inscription "PROPERTY OF THE CONNECTICUT NATIONAL BANK, AS OWNER
TRUSTEE, LESSOR" and, so long as the Facility shall constitute part of the
Indenture Estate, the inscription "STATE STREET BANK AND TRUST COMPANY OF
CONNECTICUT, N.A., AS INDENTURE TRUSTEE, SECURED PARTY" in letters not less than
two inches in height. Except as above provided or as otherwise directed by a
Lessor Party, Lessee shall not allow the name of any Person other than that of
Lessee to be placed on any part of the Facility as a designation that might
reasonably be interpreted as a claim of ownership or right to possession or use
thereof.
SECTION 10.11. Manuals, Logs, Plans and Specifications. Lessee shall
keep on file and maintain at the Site manuals and logs relating to the Facility,
maintenance and repair reports in sufficient detail to indicate the nature and
date of major work done and a complete set of all plans and specifications for
the Facility, and shall make such manuals, logs, reports and plans and
specifications available to any Lessor Party upon reasonable request. Unless
the Facility shall have been Transferred
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to Lessee pursuant to this Lease, on the Termination Date Lessee shall deliver
to Lessor a complete set, current as of the Termination Date, of all such
manuals, logs, reports and plans and specifications, and all work drawings and
similar documents with respect to this Facility.
ARTICLE XI
Insurance
---------
SECTION 11.01. Coverage. Without limiting any of the other
obligations or liabilities of Lessee under this Lease, Lessee will at all times
during the Term carry and maintain at least the following minimum insurance
coverage with respect to the Facility in each case with insurers of recognized
responsibility and acceptable to Owner Participant and Indenture Trustee:
(i) Comprehensive general liability insurance in an amount not less
than $100,000,000 including premises/operations, broad form contractual,
products and completed operations, independent contractors, broad form
property damage and personal injury;
(ii) Workers compensation insurance in compliance with applicable
laws and employer's liability insurance in an amount not less than
$100,000,000;
(iii) Auto liability insurance in an amount not less than
$100,000,000 covering owned, non-owned and hired, vehicles;
(iv) All-risk property insurance covering loss or damage to the
Facility including fire and extended coverage, collapse, flood, earthquake
and comprehensive boiler machinery including production equipment, written
in an amount at least equal to the lesser of $285,000,000 (computed as the
sum of actual insurance coverage plus the then existing deductible only to
the extent permitted hereunder) and the Stipulated Loss Value; and
(v) Business interruption insurance written on a gross earnings
form covering loss of net profits and continuing expenses including Rent
payments, written in an amount equivalent to the sum of two years of net
profits, continuing expenses and Rent payments and not including any
coinsurance penalty;
and in any event shall maintain insurance in amounts and against risks which are
not less than that which is customarily maintained with respect to similar
properties owned, leased or operated by Lessee. The amounts of insurance
specified above may not be reduced and the amount of the deductible or self-
insured retention shall not exceed $25,000,000 without the prior written consent
of Owner Participant and Indenture
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Trustee. Any insurance described in this Section 11.01 may be carried under
blanket policies maintained by Lessee or its Affiliates so long as such policies
otherwise comply with the provision or its Affiliates of this Section 11.01.
SECTION 11.02. Endorsements. Any insurance carried in accordance
with Section 11.01 shall provide or be endorsed to provide:
(i) with respect to the insurance referred to in Section 11.01(i)
and (iii), Lessor, Owner Participant and Indenture Trustee are named as
additional insureds with the understanding that any obligation imposed upon
the insured (including the liability to pay premiums, but excluding any
obligation of the insured to cooperate with any insurer or any insurer's
representative in the investigation, defense or settlement of any claim
covered under such insurance) shall be the sole obligation of Lessee and not
that of any other insured; and with respect to the insurance referred to in
Section 11.01(iv) and (v), Lessor, Owner Participant and Indenture Trustee
are named as loss payees;
(ii) proceeds received under any policy shall be payable in
accordance with Section 11.04;
(iii) the insurer thereunder waives all rights of subrogation against
Lessor, any Participant and Indenture Trustee;
(iv) such insurance shall be primary without right of contribution
from any other insurance carried by or on behalf of Lessee, Lessor, Owner
Participant, Indenture Trustee, any Loan Participant or any other Person
with respect to its interest in the Facility except in the event of loss or
liability resulting solely from such Person's gross negligence;
(v) with respect to all liability insurance, all terms, conditions,
insuring agreements and endorsements, with the exception of limits of
liability, shall operate in the same manner as if there were a separate
policy covering each insured;
(vi) if insurance (other than that provided by Oil Insurance
Limited) is cancelled for any reason other than non-payment of premium, such
cancellation shall not be effective as to additional insureds and/or loss
payees named on the policies until 30 days after written notice of
cancellation is tendered by the insurer to each of them; if insurance (other
than that provided by Oil Insurance Limited) is cancelled by reason of non-
payment of premium, such cancellation shall not be effective as to
additional insureds and/or loss payees named in the policy until 10 days
after written notice of cancellation is tendered by the insurer to each of
them; upon any cancellation or notice of impending cancellation of insurance
provided by Oil Insurance Limited, Lessee will immediately give written
notice of such cancellation or impending cancellation to Owner Participant
and Indenture Trustee; and
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(vii) to the extent a material change endorsement is commercially
available, the policies shall be endorsed to provide that any material
change or reduction in the coverage shall not be effective as to additional
insureds or loss payees named an the policies until 30 days after written
notice of such change or reduction is tendered to each of them; to the
extent such an endorsement is not commercially available, Lessee shall
promptly give notice of any such material change or reduction in the
coverage to Owner Participant and Indenture Trustee.
SECTION 11.03. Adjustment of Losses. The loss, if any, covered under
any insurance required to be carried by paragraph (iv) or (v) of Section 11.01
shall be adjusted with the insurance companies or otherwise collected including
the filing of appropriate proceedings, by Lessee, subject to the approval of
Owner Participant and Indenture Trustee if the loss exceeds $25,000,000.
SECTION 11.04. Application of Insurance Proceeds. Subject to Section
12.04, all insurance proceeds (except under insurance described in Section
11.06) up to $10,000,000 on account of any physical loss or damage to the
Facility or any part thereof (less the actual costs, fees and expenses incurred
in the collection thereof) shall be paid to Lessee, and all insurance proceeds
(except under insurance described in Section 11.06) equal to or greater than
$10,000,000 in the aggregate on account of such physical loss or damage shall be
paid to Indenture Trustee (or to Lessor after discharge of the lien of the
Indenture) and all such proceeds shall be applied or dealt with as follows:
(a) All such proceeds not in respect of an Event of Loss shall be
paid over to Lessee or as it may direct from time to time as restoration
progresses, to pay (or reimburse Lessee for) the cost of restoration, if
the amount of such proceeds received by Indenture Trustee or Lessor,
together with such additional amounts, if any, theretofore expended by
Lessee out of its own funds for such restoration, are sufficient to pay the
estimated cost of completing such restoration, then, but only upon a
written application and an Officer's Certificate of Lessee showing in
reasonable detail the nature of such restoration, the actual cash
expenditures made to date for such restoration and the estimated cost to
complete such restoration and stating that no Default or Event of Default
exists (which certification shall be concurred in by a licensed
professional engineer). Upon the written request of Lessee, accompanied by
evidence satisfactory to Owner Participant and Indenture Trustee that such
restoration has been completed and the costs thereof paid in full and that
there are no mechanics' or similar Liens for labor or materials supplied in
connection therewith, the balance, if any, of such proceeds shall be paid
over or assigned to Lessee or as it may direct.
(b) All such proceeds in respect of an Event of Loss shall be dealt
with in accordance with Section 12.02.
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SECTION 11.05. Evidence of Insurance. On or before the execution of
this Lease and thereafter on the anniversary date hereof, Lessee shall cause to
be furnished to each Lessor Party (a) certifications, executed by each insurer
or by an authorized representative of each insurer where it is not practical for
such insurer to do so, with respect to all insurance relating to the Facility,
identifying underwriters, type of insurance, insurance limits (including
applicable deductibles) and policy term and specifically listing the special
provisions required by Section 11.02 and (b) an Officer's Certificate of Lessee
and a certificate of an independent insurance broker, each specifying the full
insurable value of the Facility and stating that all premiums then due have been
paid and that, in the opinion of the signer or signers thereof, is in accordance
with the terms of this Article XI. Upon request, Lessee will furnish each
Lessor Party with copies of all insurance policies, binders and cover notes or
other evidence of such insurance.
SECTION 11.06. Additional Insurance. Nothing in this Article XI
shall prohibit any Lessor party from maintaining, at its expense, additional
insurance for its own account with respect to loss or damage to the Facility or
any part thereof.
SECTION 11.07. Insurance Report. Concurrently with the furnishing of
the certification referred to in Section 11.05(b), Lessee shall provide a report
from an independent insurance broker stating that all premiums then due have
been paid and that, in the opinion of such broker, the insurance then carried
and provided through such broker and maintained is in accordance with the terms
of this Article XI. Furthermore, Lessee shall cause such broker to advise
Lessor promptly in writing of any default in the payment of any premiums or any
other act or omission on the part of any Person of which such broker has
knowledge which might invalidate or render unenforceable in whole or in part,
any insurance provided through such broker hereunder. Lessor may at its sole
option obtain such insurance if not provided by Lessee and, in such event,
Lessee shall reimburse Lessor upon demand for the cost thereof.
ARTICLE XII
Events of Loss
--------------
SECTION 12.01. Payment of Stipulated Loss Value. If the Facility or
any substantial part thereof shall suffer an Event of Loss or substantial
destruction, damage, loss, condemnation, confiscation, theft or seizure for any
reason whatsoever, such fact shall promptly, and in any event within five
Business Days, be reported by Lessee to each Lessor Party. If an Event of Loss
shall occur, Lessee shall pay as compensation for the Event of Loss the
Stipulation Loss Value determined as of the Rent Date next preceding the
occurrence of the Event of Loss. From the date of the Event of Loss to and
including the date of payment of such Stipulated Loss Value hereinafter
specified, all Rent shall continue to the paid when due. Such Stipulated Loss
Value shall be paid on the Rent Date next succeeding the occurrence of the Event
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of Loss, unless the Event of Loss shall have occurred less than 30 days prior to
such Rent Date, in which case such Stipulated Loss Value, together with interest
thereon at the Payment Rate from such Rent Date to and including the date of
payment, shall be paid on the 60th day after the date of such occurrence. Upon
payment in full of such Stipulated Loss Value, together with all Rent due and
owing through and including the date of such payment and such interest, if any,
the Term shall end and Lessor shall Transfer the Facility to Lessee.
SECTION 12.02. Application of Other Payments on an Event of Loss.
Any payments (except under insurance described in Section 11.06) received at any
time by any Lessor Party or Lessee from any Governmental Authority insurer or
other Person (except Lessee) as a result of the occurrence of an Event of Loss
shall be applied as follows:
(a) all such payments received at any time by Lessee shall be
promptly paid to Indenture Trustee (or Lessor after release of the lien of
the Indenture) for application pursuant to the following provisions of this
Section 12.02, except that Lessee may retain any amounts that would at the
time be payable to Lessee as reimbursement under the provisions of
paragraph (b) below;
(b) so much of such payments as shall not exceed the Stipulated Loss
Value required to be paid by Lessee pursuant to Section 12.01 shall be
applied in reduction of Lessee's obligation to pay such amount if not
already paid by Lessee or, if already paid by Lessee, shall be applied to
reimburse Lessee for its payment of such amount; and
(c) the balance, if any, of such payments remaining thereafter shall
be divided between Lessor and Lessee as their interests may appear except
that any such balance resulting from such insurance shall be paid to
Lessee.
SECTION 12.03. Application of Payments Not Relating to an Event of
Loss. Unless a Default or Event of Default shall exist, payments (except under
insurance described in Section 11.06) received at any time by any Lessor Party
or Lessee from any Governmental Authority, insurer or other Person with respect
to any destruction, damage, loss, condemnation, confiscation, theft or seizure
of or requisition of title to or use of the Facility or any part thereof not
constituting an Event of Loss shall be paid to or retained by Indenture Trustee
(or Lessor after release of the lien of the Indenture) and first shall be
applied in accordance with the provisions of Section 11.04(a) (other than the
last sentence thereof) to restore or replace what has been destroyed, damaged,
lost, condemned, confiscated, stolen, seized or requisitioned, and second in
accordance with the provisions of Section 12.02.
SECTION 12.04. Other Dispositions. Notwithstanding the foregoing
provisions of this Article XII, so long as a Default or Event of Default shall
exist, any amount that would otherwise be payable to or for the account of, or
that would
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otherwise be retained by, Lessee pursuant to Article XI or this Article XII
shall be paid to Indenture Trustee (or Lessor after release of the lien of the
Indenture) as security for the obligations of Lessee under this Lease and, at
such time thereafter as no Default or Event of Default shall exist, such amount
shall be paid promptly to Lessee unless this Lease shall have theretofore been
declared to be in default, in which event such amount shall be disposed of in
accordance with the provisions hereof, of the Indenture and of the Trust
Agreement.
ARTICLE XIII
Events of Default
-----------------
The term Event of Default shall mean any of the following events
(whatever the reason for such Event of Default and whether it shall be voluntary
or involuntary or come about or be effected by operation of law or be pursuant
to or in compliance with any Governmental Rule):
(a) Lessee shall fail to pay (A) Basic Rent or Stipulated Loss Value
within 5 days after payment thereof shall have become due or (B)
Supplemental Rent or any other payment under the Operative Documents within
15 days after payment thereof shall have become due;
(b) Lessee shall fail to maintain insurance as required by Article
XI;
(c) Lessee shall fail to perform or observe any covenant, condition
or agreement to be performed or observed by it under Section 7.02(b),
7.02(c), 7.03, 7.04, 7.05 or 7.06;
(d) Lessee shall fail to perform or observe any other covenant,
condition or agreement to be performed or observed by it under this Lease
(other than Article VIII and IX) or any Operative Document (other than
Section 6.06 of the Participation Agreement) and such failure shall
continue for a period of 45 days (180 days if such failure is capable of
being cured (other than solely by payment of money) by Lessee and Lessee if
proceeding diligently to cure such failure) after the earlier to occur of
(A) Actual Knowledge of such failure by a Responsible Officer of Lessee and
(B) receipt by Lessee of notice specifying such failure and requiring it to
be remedied; provided that failure to perform or observe any covenant,
condition or agreement set forth in Section 7.02(a) with respect to
compliance with environmental Governmental Rules or Governmental Actions
shall not be an Event of Default under this paragraph (d) unless (x) with
respect to events for which the aggregate amount of outstanding Cleanup
Costs then known to Lessee could reasonably be expected to exceed $25
million in the aggregate (but excluding from such calculation each event
not relating to the Other Facility having a Cleanup Cost not exceeding $5
million and each event relating to the Facility or the Other Facility
having a Cleanup
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Cost not exceeding $100,000), after giving effect to the aggregate amount
of all such Cleanup Costs, on a pro forma basis as of the end of the last
calendar month immediately prior to the expiration of the applicable grace
period (treating such Cleanup Costs as a reduction of Net Worth), Lessee
would be unable to pay or declare any Restricted Payment under the terms of
Section 7.06 or (y) with respect to events related to the Facility for
which the aggregate amount of outstanding Cleanup Costs then known to
Lessee could reasonably be expected to exceed $10 million in the aggregate
(but excluding from such calculation any such event having a Cleanup Cost
not exceeding $100,000), as of the end of the last calendar month
immediately prior to the expiration of the applicable grace period, the
aggregate outstanding principal amount of the Loan Certificates would be
more than 80% of the Fair Market Sale Value of the Facility taking into
account the existence of each event having a Cleanup Cost equal to or
exceeding $100,000 and the aggregate amount of Cleanup Costs which could
reasonably be expected to be associated with all such events (any such
deficiency, herein the "Loan to Value Deficiency"); provided, further, that
Lessee shall have an additional period of 30 days to cure any event that
would otherwise be an Event of Default under the preceding clause (y) by
providing to Lessor and Indenture Trustee such collateral, letters of
credit or other arrangements (herein the "Deficiency Collateral") which are
in all respects satisfactory to Lessor and Indenture Trustee in order to
secure Lessee's obligations under this Lease in an amount equal to the Loan
to Value Deficiency (it being understood that such Deficiency Collateral
shall be released by Lessor and Indenture Trustee at such time as Lessee
shall have demonstrated to each thereof that there no longer would exist an
Event of Default under such clause (y) without the additional credit
support provided by the Deficiency Collateral;
(e) any representation or warranty made by Lessee (other than in
Section 9.03) hereunder or under the Participation Agreement shall prove to
have been incorrect in a material respect as of the date when made,
provided that (i) such representation or warranty shall continue to be
material at the time it has been discovered to be incorrect and (ii) if the
event or condition causing such representation or warranty to be incorrect
is capable of being remedied, such event or condition shall not have been
remedied within 45 days after the earlier to occur of (A) Lessee obtaining
Actual Knowledge of such incorrectness and (B) written notice of such
incorrectness having been given to Lessee by Lessor or Indenture Trustee or
(iii) if the event or condition causing such representation or warranty to
be incorrect is not capable of being cured, upon written notice from any
Participant;
(f) Lessee shall commence a voluntary case or other proceeding
seeking liquidation, reorganization or other relief with respect to itself
or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial
part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such
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official in an involuntary case or other proceeding commenced against it,
or shall make a general assignment for the benefit of creditors, or shall
fail generally to pay its debts as they become due, or shall take any
corporate action to authorize any of the foregoing, or an involuntary case
or other proceeding shall be commenced against Lessee seeking liquidation,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or similar law now or hereafter in effect or the
appointment of a trustee, receiver, liquidator, custodian or other similar
official of it or any substantial part of its property, and such
involuntary case or other proceeding shall remain undismissed and unstayed
for a period of 60 days;
(g) with respect to any Debt of Lessee in excess of $25,000,000,
failure to pay such Debt at maturity or beyond any applicable grace period
or a default or event of default in respect thereof which results in
acceleration of the maturity of such Debt;
(h) final judgment for the payment of money in excess of $25,000,000
shall be rendered against Lessee and Lessee shall not, within 30 days from
the entry thereof, have discharged the same or provided for its discharge
in accordance with its terms or bonded the same or procured a stay of
execution thereof; or
(i) an Event of Default as defined in the other Lease shall have
occurred and be continuing, and the Loan Certificates associated with such
other Lease shall have been accelerated.
ARTICLE XIV
Enforcement
-----------
SECTION 14.01. Remedies. If an Event of Default shall have occurred
and be continuing, Lessor may at any time thereafter exercise one or more of the
following as Lessor in its sole discretion shall elect:
(a) Lessor may, by notice to Lessee, declare this Lease to be in
default or rescind or terminate this Lease;
(b) Lessor may (i) demand that Lessee, and thereupon Lessee shall,
return the Facility promptly to Lessor in the manner and condition required
by, and otherwise in accordance with the provisions of, this Lease as if
the Facility were being returned at the and of the Term and (ii) enter upon
the premises where the Facility shall be located and take immediate
possession of (to the exclusion of Lessee) the Facility, or remove the
Facility, or both, by summary proceedings or otherwise, all without
incurring liability to Lessee for or by reason of such entry or taking of
possession, whether for the restoration of
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damage to property caused by such taking or otherwise; provided that no
reentry or taking possession of the Facility by Lessor shall be construed
as an election on its part to terminate this Lease unless Lessor gives
written notice to Lessee of such intention or the termination thereof shall
be decreed by a court of competent jurisdiction; provided further that
notwithstanding any reletting without termination, Lessor may at any time
thereafter elect to terminate this Lease for such previous default; and
provided further that Lessee does hereby waive any defense to any action by
Lessor to obtain possession of the Facility, which defense is based upon
payment of the Rent and related expenses claimed in any such proceeding
after filing of a complaint for such possession by Lessor;
(c) Lessor may sell the Facility, with or without any of its interest
under the Ground Lease, the Support Agreement and the License Agreement, or
any part thereof, at public or private sale, as Lessor may determine, free
and clear of any rights of Lessee and without any duty to Lessee with
respect to such action or inaction or any proceeds with respect thereto
(except to the extent required by paragraph (e) or (f) below if Lessor
shall elect to exercise its rights thereunder) in which event Lessee's
obligation to pay Basic Rent hereunder for periods commencing after the
date of such sale shall be terminated or proportionately reduced, as the
case may be (except to the extent that Basic Rent is to be included in
computations under paragraph (e) or (f) below if Lessor shall elect to
exercise its rights thereunder);
(d) Lessor may hold, keep idle or lease to others all or any part of
the Facility, as Lessor in its sole discretion may determine, free and
clear of any rights of Lessee and without any duty to Lessee with respect
to such action or inaction or any proceeds with respect to such action or
inaction, except that Lessee's obligation to pay basic Rent for periods
commencing after Lessee shall have been deprived of use of the Facility
pursuant to this paragraph (d) shall be reduced by the net proceeds, if
any, received by Lessor from leasing the Facility to any Person other than
Lessee for the same periods or any portion thereof;
(e) Lessor may, whether or not Lessor shall have exercised or shall
thereafter at any time exercise its rights under paragraph (b), (c) or (d)
above, demand, by written notice to Lessee specifying a payment date which
shall be a Rent Date not earlier than 10 days after the date of such
notice, that Lessee pay to Lessor, and Lessee shall pay to Lessor, on the
Rent Date specified in such notice, because it would be extremely
impracticable and difficult to calculate the damage and harm which Lessor
would suffer due to Lessee's default, as liquidated damages for loss of a
bargain and not as a penalty (in lieu of Basic Rent due after the Rent Date
specified in such notice) any unpaid Rent due through and including the
Rent Date specified in such notice plus whichever of the following amounts
Lessor, in its sole discretion, shall specify in such notice (together with
interest on such amount at the Designated Rate from the Rent Date specified
in such notice to the date of actual payment), and Lessee and
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Lessor hereby acknowledge that any such amount will be a reasonable
estimate of the total damage that Lessor will suffer due to Lessee's
default:
(i) an amount equal to the excess, if any, of Stipulated Loss
Value, computed as of the Rent Date specified in such notice, over the
Fair Market Rental Value of the Facility until the end of the
remaining useful life of the Facility, after discounting such Fair
Market Rental Value semiannually to present value as of the Rent Date
specified in such notice at a rate of 10% per annum;
(ii) an amount equal to the excess, if any, of such Stipulated
Loss Value over the Fair Market Sale Value of the Facility as of the
Rent Date specified in such notice;
(iii) an amount equal to the excess of (A) the present value as
of the Rent Date specified in such notice of all installments of Basic
Rent until the end of the Basic Term or applicable Renewal Term,
discounted semiannually at a rate of 10% per annum, over (B) the
present value as of such Rent Date of the Fair Market Rental Value of
the Facility until the end of the Basic Term or applicable Renewal
Term, discounted semiannually at a rate of 10% per annum; or
(iv) an amount equal to such Stipulated Loss Value and, in this
event, upon full payment by the Lessee of all sums due hereunder and
under all other Operative Documents, Lessor shall Transfer the
Facility to Lessee, whereupon this Lease shall terminate;
(f) if Lessor shall have sold all the Facility, together with its
interest under the Support Agreement, the License Agreement and the Ground
Lease, pursuant to paragraph (c) above, Lessor, in lieu of exercising its
rights under paragraph (e) above with respect to the Facility, may demand,
because it would be extremely impracticable and difficult to calculate the
damage and harm which Lessor would suffer due to Lessee's default, that
Lessee pay to Lessor and Lessee shall pay to Lessor on the date of such
sale, as liquidated damages for loss of a bargain and not as a penalty (in
lieu of Basic Rent due for periods commencing after the next Rent Date
following the date of such sale) any unpaid Rent due through such Rent
Date, plus the amount of any deficiency between the net proceeds of such
sale and Stipulated Loss Value, computed as of such Rent Date, and the net
proceeds of such sale, together with interest at the Designated Rate on the
amount of such Rent and such deficiency from the date of such sale until
the date of actual payment, and Lessee and Lessor hereby acknowledge that
the foregoing is a reasonable estimate of the total damage that Lessor will
suffer due to Lessee's default; or
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(g) Lessor may exercise any other right or remedy that may be
available to it under applicable law or proceed by appropriate court action
to enforce the terms hereof or to recover damages for the breach hereof.
SECTION 14.02. No Release. No rescission or termination of this
Lease, in whole or in part, or repossession of the Facility or exercise of any
remedy under Section 14.01 shall, except as specifically provided therein,
relieve Lessee of any of its liabilities and obligations hereunder. In
addition, Lessee shall be liable, except as otherwise provided above, for any
and all unpaid Rent due hereunder before, after or during the exercise of any of
the foregoing remedies, including all reasonable legal fees and other costs and
expenses incurred by any Lessor Party by reason of the occurrence of any Default
or Event of Default or the exercise of Lessor's remedies with respect thereto
and including all costs and expenses incurred in connection with the return of
the Facility in the manner and condition required by, and otherwise in
accordance with the provisions of, this Lease as if the Facility were being
returned at the end of the Term. At any sale of the Facility or any part
thereof pursuant to Section 14.01, any Lessor Party may bid for and purchase
such property.
SECTION 14.03. Remedies Cumulative. To the extent permitted by, and
subject to the mandatory requirements of, applicable law, each and every right,
power and remedy under Section 14.01 or otherwise available to Lessor shall be
cumulative and shall be in addition to every other right, power and remedy, and
each and every right, power and remedy may be exercised from time to time and as
often and in such order as may be deemed expedient by Lessor, and the exercise
or the beginning of exercise of any such right, power or remedy shall not
exhaust the same or be construed to be a waiver of the right to exercise at the
same time or thereafter the same or any other right, power or remedy. No delay
or omission by Lessor in the exercise of any right, power or remedy shall
restrict Lessor from exercising the same or any other right, power or remedy
thereafter nor be construed to be a waiver of any Default or Event of Default or
to be an acquiescence therein. No express or implied waiver by Lessor of any
Default or Event of Default shall in any way be, or be construed to be, a waiver
of any future or subsequent Default or Event of Default. To the extent
permitted by applicable law, Lessee hereby waives any rights now or hereafter
conferred by statute or otherwise that may require Lessor to sell, lease or
otherwise use the Facility or any part thereof in mitigation of Lessor's damages
or that may otherwise limit or modify any of Lessor's rights or remedies under
this Article XIV.
ARTICLE XV
Assignments and Subleases
-------------------------
SECTION 15.01. Assignment or Sublease by Lessee. Except with the
prior written consent of each Lessor Party, Lessee shall not assign, transfer or
encumber (except for Permitted Liens) all or any of its leasehold interest or
other rights
51
<PAGE>
under this Lease nor sublease the Facility or any part thereof if such
amendment, modification, supplement or waiver would have a material adverse
affect on Lessee or the Facility) unless (i) the sublessee is a United States
Affiliate of Tenneco Inc. or a corporation consented to by owner Participant and
Indenture Trustee (such consent not to be unreasonably withheld) or whose long-
term unsecured debt obligations are rated at least investment grade by Moody's
(ii) such sublease shall not extend beyond the end of the Basic Term, shall
prohibit further subleasing and shall require the sublessee to operate the
property subleased for its intended purpose and to comply with all operating
permits and with covenants relating to maintenance and environmental standards
at least as rigorous as those set forth in this Lease, (iii) such sublease shall
not impair or diminish any of the rights of any Lessor Party or obligations of
Lessee hereunder or under any other Operative Document, which rights and
obligations shall continue in full force and effect as though no sublease had
been made, (iv) Owner Participant shall have received an opinion from its tax
counsel that such sublease would not cause an unindemnified event causing the
loss of tax benefits, (v) such sublease shall be expressly subject and
subordinate to the provisions of this Lease and the Operative Documents,
including the rights of Lessor to enforce remedies under Article XIV if an Event
of Default shall exist, and (vi) Lessee shall have effectively assigned to
Lessor as security for the performance by Lessee of its obligations hereunder,
in a manner satisfactory to each Lessor Party, such sublease and all rentals and
other proceeds payable thereunder. Lessee shall not, without the prior written
consent of each Lessor Party, part with the possession or control, or suffer or
allow to pass out of its possession or control, the Facility or any part
thereof, except to the extent permitted by the provisions of this Lease. Lessee
shall give each Lessor Party written notice of any such assignment transfer or
encumbrance.
SECTION 15.02. Assignment by Lessor; Security for Lessor's
Obligations to Indenture Trustee. Lessor may assign, transfer or encumber this
Lease or all or any of its interests and rights hereunder without the consent of
Lessee if, in the case of an assignment, the assignee or, in the case of an
assignment to a trustee, the beneficiary of the trust or the parent of such
assignee or beneficiary who has guaranteed the obligations of such assignee or
beneficiary, has a net worth of at least $100 million. In addition, in order to
secure the indebtedness evidenced by the Loan Certificates, the Indenture
provides, among other things, for the assignment by Lessor to Indenture Trustee
of its right, title and interest in, to and under this Lease, to the extent set
forth in the Indenture, and for the creation of a mortgage lien on and security
interest in the Facility in favor of Indenture Trustee. Lessee hereby consents
to such assignment and to the creation of such mortgage and security interest
and acknowledges receipt of copies of the Indentures. Lessee hereby further
consents to any assignment arising as a consequence of or at any time subsequent
to the exercise of remedies pursuant to the Indenture, including any assignment
to or by any purchaser at a foreclosure sale. Lessee will furnish to Indenture
Trustee, counterparts of all writings required to be delivered hereunder by
Lessee to Lessor. Unless and until Lessee shall have received written notice
from Indenture Trustee that the lien of the Indenture has been discharged, (i)
Lessee shall make all payments of Basic Rent, and all other amounts payable
hereunder to Lessor to the extent assigned to Indenture Trustee, to
52
<PAGE>
Indenture Trustee at such office as Indenture Trustee may specify from time to
time by notice to Lessor and Lessee, and the right of Indenture Trustee to
receive all such payments shall not be subject to any defense, counterclaim,
setoff or other right or claim of any kind which Lessee may be able to assert
against Lessor or Owner Participant in an action brought by either thereof on
this Lease and (ii) to the extent provided in the Indenture, Indenture Trustee
shall have the right to exercise the rights of Lessor under this Lease (and,
without prejudice to Lessee's rights under other Operative Documents, Lessor
shall have no liability to Lessee hereunder for acts of Indenture Trustee which
interrupt Lessee's possession or use of the Facility unless such acts are at the
request or direction of Lessor) and Lessee shall have no liability to Lessor for
reasonably relying on instructions of Indenture Trustee pursuant to this
sentence.
ARTICLE XVI
Miscellaneous
-------------
SECTION 16.01. Further Assurances. Lessee shall cause the Operative
Documents and any amendments, supplements and modifications to any of them
(together with any other instruments, financing statements, continuation
statements records or papers necessary in connection therewith) to be recorded
and/or filed and rerecorded and/or refiled in each jurisdiction as and to the
extent necessary in order to, and shall take such other actions as may from time
to time be necessary to, establish, perfect and maintain (a) Lessor's right,
title and interest in and to the Facility, subject to no Liens other than
Permitted Liens, (b) for the benefit of Indenture Trustee and the holders of
Loan Certificates, the first mortgage lien and first priority security interest
provided for in the Indenture and (c) each of the rights and other interests
created by the Indenture or by any other Operative Document in any Participant,
Lessor, Indenture Trustee or any holder of a Loan Certificate. Lessee will
promptly and duly execute and deliver to each Lessor Party such documents and
assurances and take such further action as any of them may from time to time
reasonably request in order to carry out more effectively the intent and purpose
of this Lease and to establish and protect the rights and remedies created or
intended to be created in favor of Lessor, and to establish, perfect, and
maintain Lessor's rights, title and interest in and to the Facility and, for the
benefit of Indenture Trustee, the first mortgage lien and first priority
security interest provided for in the Indenture, including, if requested by any
Lessor Party, the recording or filing of counterparts or appropriate memoranda
of any Operative Document or of such financing statements or other documents
with respect hereto as any Lessor Party may from time to time reasonably
request.
Lessee shall, at the time Lessee shall furnish its annual financial
statements pursuant to Section 6.03 of the Participation Agreement, furnish to
each Lessor Party an opinion of counsel for Lessee (which may be regularly
employed by Lessee), satisfactory to each Lessor Party, stating that all
recordings and filings, if any, necessary or advisable to perfect or continue
the perfection of Lessor's rights title and
53
<PAGE>
interest in and to the Facility and any Parts and Alterations incorporated in
the Facility pursuant to Article X, and to perfect or continue the perfection
for the benefit of Indenture Trustee of a valid first mortgage lien and first
priority security interest in the Indenture Estate provided for in the
Indenture, have been made and stating the requirements of applicable law with
respect to the rerecording or refiling of such documents in order to continue
and preserve such right, title and interest and such first mortgage lien and
first priority security interest.
SECTION 16.02. Notices. Unless otherwise specifically provided
herein, all notices and other communications required or permitted hereunder
shall be in writing and shall be addressed and became effective as provided in
the Participation Agreement.
SECTION 16.03. Severability. Any provision of this Lease that shall
be prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable law, Lessee hereby waives any provision of law that
renders any provision hereof prohibited or unenforceable in any respect.
SECTION 16.04. Survival. The representations, warranties and
indemnities of the parties provided for in the Operative Documents and the
parties' obligations under any and all thereof shall survive the execution and
delivery of this Lease, the investment by Owner Participant, the issuance of the
Loan Certificates, any disposition of any interest of any Lessor Party in the
Facility and the expiration, cancellation or other termination of any of the
Operative Documents, and shall be and continue in effect notwithstanding any
investigation made by any of such parties and the fact that any Lessor Party may
waive compliance with any of the other terms, provisions or conditions of any of
the Operative Documents. The obligations of Lessee to pay Supplemental Rent and
the obligations of Lessee under Articles VIII and IX and Sections 5.01, 7.01 and
16.12 shall survive the expiration or termination of this Lease. The extension
of any applicable statute of limitations by Lessor, Indenture Trustee, Lessee,
any Participant or any Indemnified Person shall not affect such survival.
SECTION 16.05. Successors and Assigns. This Lease shall be binding
upon and inure to the benefit of Lessee, Lessor Parties and their respective
successors and permitted assigns, and, to the extent provided in the next
sentence, each Indemnified Person and its successors and assigns. The
obligations of Lessee under Articles VIII and IX and Section 7.01 are expressly
made for the benefit of, and shall be enforceable by, any Indemnified Person or
Person indemnified thereunder, separately or together, without resorting to any
other right of indemnification or declaring this Lease to be in default and
notwithstanding any assignment by Lessor of this Lease or any of its rights
hereunder or any disposition by any Lessor Party of all or any part of its
interest in the Facility or the Operative Documents. All payments
54
<PAGE>
required to be made pursuant to such Sections shall be made directly to, or as
otherwise requested by, the Indemnified Person entitled thereto upon written
demand by such Indemnified Person.
SECTION 16.06. Amendment. Except where any necessary consent is
otherwise expressly stated, neither this Lease nor any of the terms hereof may
be terminated, amended, supplemented waived or modified orally, but only by an
instrument in writing signed by the party against which the enforcement of the
termination amendment, supplement, waiver or modification shall be sought and,
in the case of Lessor, consented to by Owner Participant and Indenture Trustee,
except as otherwise expressly sot forth in Section 9.01 of the Indenture.
SECTION 16.07. Headings. The Table of Contents and headings of the
various Articles and Sections of this Lease are for convenience of reference
only and shall not modify, define or limit any of the terms or provisions,
hereof.
SECTION 16.08. Counterparts. This Lease may be executed by the
parties hereto in separate counterparts. All such counterparts shall together
constitute but one and the same instrument. It shall not be necessary for any
counterpart to bear the signature of both parties.
SECTION 16.09. GOVERNING LAW. THIS LEASE SHALL IN ALL RESPECTS BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF NEW YORK, INCLUDING
ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, EXCEPT TO THE EXTENT THAT
WISCONSIN LAW MAY BE MANDATORILY APPLICABLE HERETO.
SECTION 16.10. True Lease. This Lease is an agreement of lease and
does not convey to Lessee any right, title or interest in or to the Facility
except as a lessee.
SECTION 16.11. Liabilities of Owner Trustee. The Connecticut
National Bank is entering into this lease solely as trustee as provided in the
Trust Agreement and not in its individual capacity, and in no case whatsoever
shall The Connecticut National Bank be personally liable for, or for any loss in
respect of, any of the statements, representations, warranties, agreements or
obligations of Owner Trustee hereunder, as to all of which Lessee agrees to look
solely to the Trust Estate; provided, however, that The Connecticut National
Bank in its individual capacity shall be liable hereunder for its own gross
negligence or willful misconduct. Owner Participant shall not be-liable for any
matter hereunder except as expressly provided in Article VIII or IX of the
Participation Agreement. Each time a successor Owner Trustee is appointed in
accordance with the terms of the Trust Agreement, such successor Owner Trustee
shall, without further act, succeed to all the rights, duties, immunities and
obligations of Lessor hereunder and under the other Operative Documents, and the
predecessor Owner Trustee shall be released from all further duties and
obligations hereunder and under the other Operative Agreements, all without the
necessity of any consent or
55
<PAGE>
approval by Lessee and without in any way altering the terms of this Lease or
such other Operative Document or the obligations of Lessee hereunder or
thereunder. Lessee shall, upon receipt of written notice of the appointment of
a successor owner Trustee under the Trust Agreement, promptly make such
modifications and changes to reflect such appointment as shall be reasonably
requested by such successor Owner Trustee in such insurance policies, schedules,
certificates and other instruments relating to the Facility or this Lease or the
other Operative Documents, all in form and substance satisfactory to such
successor.
SECTION 16.12. Consent to Jurisdiction; Forum Selection. Each party
hereto hereby irrevocably submits to the jurisdiction of any New York state
court or any Federal court located in the State of New York over any action or
proceeding commenced or maintained by any other party to this Lease and arising
out of or relating to this Lease or any other Operative Document or Acquisition
Agreement to which it is a party, and each party hereto hereby irrevocably
agrees that all claims in respect of such action or proceeding may be heard in
such state or Federal court. Each party hereto hereby irrevocably waives any
objection it may now have or hereafter acquire to the laying of venue of any
such action or proceeding brought in any such court and any claim it may now or
hereafter acquire that any such action or proceeding brought in any such court
has been brought in an inconvenient forum. Each party hereto agrees that final
judgment in any such action or proceeding brought in any such court shall be
conclusive and binding upon such party hereto and may be enforced in any
competent court located elsewhere. Each party hereto irrevocably consents to
the service of the summons and complaint and any other process in any such
action or proceeding by the mailing of copies of such process to such party
hereto at its address referred to in Section 9.01 of the Participation Agreement
by registered or certified mail, return receipt requested. Nothing in this
Section 16.12 shall affect the right of any Person to serve legal process in any
other manner permitted by law. Each party hereto further agrees that the
Federal or state courts located in New York, New York, will have exclusive
jurisdiction over any action which is either directly or indirectly related to
the business relationship evidenced by this Lease. The parties further waive
all question of personal jurisdiction or venue for the purposes of carrying out
this Section 16.12.
56
<PAGE>
IN WITNESS WHEREOF, the parties hereto have each caused this Lease to
be duly executed and sealed by their respective officers thereunto duly
authorized.
THE CONNECTICUT NATIONAL BANK,
not in its individual capacity
but solely as trustee under the
Trust Agreement,
By: /s/ Philip G. Kane, Jr.
------------------------
Title: Vice President
Attest: /s/ Frank McDonald, Jr.
---------------------------
Title: Vice President
Signed, sealed and delivered [BANK SEAL]
in the presence of:
____________________________
Witness
____________________________
Notary Public
PACKAGING CORPORATION OF AMERICA,
By: /s/ R.D. Harlow
---------------------------------
Title: Senior Vice President
Attest: /s/ Randolph W. Bryant
----------------------------
Title: Assistant Secretary
[CORPORATE SEAL]
Signed, sealed and delivered
in the presence of:
____________________________
Witness
____________________________
Notary Public
57
<PAGE>
STATE OF NEW YORK )
) SS
COUNTY OF NEW YORK )
Personally came before me, this 30th day of January, 1991, the above
named PHILIP G. KANE, JR. and FRANK McDONALD, JR., the Vice President and Vice
President of THE CONNECTICUT NATIONAL BANK, to me known to be the officers of
said corporation who executed the foregoing instrument and acknowledged the same
as the lease of the Facility between such corporation and PACKAGING CORPORATION
OF AMERICA.
/s/ Gina M. Wondolowski
-----------------------------
Notary Public
STATE OF NEW YORK )
) SS
COUNTY OF NEW YORK )
Personally came before me, this 30th day of January, 1991, the above
named ROBERT De HARLOW and R.W, BRYANT, the Senior Vice President and Assistant
Secretary of PACKAGING CORPORATION OF AMERICA, to me known to be the officers of
said corporation who executed the foregoing instrument and acknowledged the same
as the lease of the Facility between such corporation and THE CONNECTICUT
NATIONAL BANK.
/s/ Gina M. Wondolowski
-----------------------------
Notary Public
58
<PAGE>
Exhibit 10.26
-------------
===============================================================================
LEASE AGREEMENT, VALDOSTA
Dated as of January 30, 1991
between
THE CONNECTICUT NATIONAL BANK,
(but not as to the State of Florida), and
PHILIP G. KANE, JR., FRANK McDONALD, JR.,
and WILLIAM R. MUNROE,
as Owner Trustee,
Lessor
and
PACKAGING CORPORATION OF AMERICA,
Lessee
_________________________________
Papermill in
Valdosta, GA
_________________________________
This Lease has been executed in multiple counterparts. No security
interest in Lessor's right, title and interest in and to this Lease may be
created through the transfer or possession of any counterpart other than the
original counterpart. ONLY THE ORIGINAL COUNTERPART CONTAINS THE RECEIPT
THEREFOR EXECUTED BY STATE STREET BANK AND TRUST COMPANY OF CONNECTICUT,
NATIONAL ASSOCIATION, AS INDENTURE TRUSTEE, ON THE SIGNATURE PAGE THEREOF. THIS
IS NOT THE ORIGINAL COUNTERPART.
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I - Definitions........................................................1
ARTICLE II - Lease of Facility.................................................1
SECTION 2.01. Lease...............................................1
SECTION 2.02. Personal Property...................................1
SECTION 2.03. Enforcement of Warranties...........................1
SECTION 2.04. Site Sublease.......................................2
ARTICLE III - Rent.............................................................2
SECTION 3.01. Interim Rent and Basic Rent.........................2
SECTION 3.02. Supplemental Rent...................................2
SECTION 3.03. Adjustments.........................................3
SECTION 3.04. Method of Payment...................................4
SECTION 3.05. Late Payment........................................5
SECTION 3.06. Net Lease; No Setoff; etc...........................5
ARTICLE IV - Lessee Options....................................................6
SECTION 4.01. Renewal.............................................6
SECTION 4.02. Purchase............................................7
SECTION 4.03. Obsolescence Termination............................8
ARTICLE V - Return of Facility.................................................9
SECTION 5.01. Return of Facility..................................9
SECTION 5.02. Disposition Services................................9
ARTICLE VI - Lessor Agreements and Rights.....................................10
SECTION 6.01. Quiet Enjoyment....................................10
SECTION 6.02. Disclaimer of Warranties...........................10
SECTION 6.03. Inspection.........................................10
SECTION 6.04. Right to Perform for Lessee........................11
ARTICLE VII - Lessee Agreements...............................................11
SECTION 7.01. Indemnification....................................11
SECTION 7.02. Compliance with Laws...............................13
SECTION 7.03. No Liens...........................................14
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
SECTION 7.04. Merger, Consolidation, etc.........................15
SECTION 7.05. Debt...............................................16
SECTION 7.06. Restricted Payments................................16
SECTION 7.07. Transactions with Affiliates.......................17
ARTICLE VIII - General Tax Indemnity..........................................17
SECTION 8.01. Indemnity..........................................17
SECTION 8.02. Exclusions from General Tax
Indemnity..........................................18
SECTION 8.03. Contests...........................................21
SECTION 8.04. Refunds............................................22
SECTION 8.05. Tax Savings........................................23
SECTION 8.06. Payments...........................................23
SECTION 8.07. Reports............................................23
SECTION 8.08. Verification.......................................24
ARTICLE IX - Special Tax Indemnities..........................................24
SECTION 9.01. Tax Assumptions....................................24
SECTION 9.02. Records............................................26
SECTION 9.03. Representations, Warranties and
Covenants of Lessee................................27
SECTION 9.04. Indemnity..........................................28
SECTION 9.05. Foreign Tax Credit Indemnity.......................30
SECTION 9.06. Income Inclusion: Reverse Indemnities..............30
SECTION 9.07. Excluded Losses....................................32
SECTION 9.08. Contest Provisions.................................34
SECTION 9.09. Determination of Payments..........................35
SECTION 9.10 Affiliated Group...................................36
SECTION 9.11 Recalculation......................................36
ARTICLE X - Lessee Agreements Relating to Facility............................37
SECTION 10.01 Liens..............................................37
SECTION 10.02 Operation, Maintenance and Completion..............37
SECTION 10.03 Reports............................................38
SECTION 10.04 Replacement of Parts...............................38
SECTION 10.05 Required Alterations...............................39
SECTION 10.06 Optional Alterations...............................39
SECTION 10.07 Reports of Alterations.............................39
SECTION 10.08 Title to Alterations...............................40
SECTION 10.09 Funding of Alterations.............................40
SECTION 10.10 Identification.....................................40
SECTION 10.11 Manuals, Logs, Plans and Specifications............40
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
ARTICLE XI - Insurance........................................................41
SECTION 11.01. Coverage...........................................41
SECTION 11.02 Endorsements.......................................42
SECTION 11.03 Adjustment of Losses...............................43
SECTION 11.04 Application of Insurance Proceeds..................43
SECTION 11.05 Evidence of Insurance..............................44
SECTION 11.06 Additional Insurance...............................44
SECTION 11.07 Insurance Report...................................44
ARTICLE XII - Events of Loss..................................................44
SECTION 12.01 Payment of Stipulated Loss Value...................44
SECTION 12.02 Application of Other Payments on an
Event of Loss......................................45
SECTION 12.03 Application of Payments Not
Relating to an Event of Loss.......................45
SECTION 12.04 Other Dispositions.................................45
ARTICLE XIII - Events of Default..............................................46
ARTICLE XIV - Enforcement.....................................................48
SECTION 14.01 Remedies...........................................48
SECTION 14.02 No Release.........................................51
SECTION 14.03 Remedies Cumulative................................51
ARTICLE XV - Assignments and Subleases........................................51
SECTION 15.01 Assignment or Sublease by Lessee...................51
SECTION 15.02 Assignment by Lessor; Security for Lessor's
Obligations to Indenture Trustee...................52
ARTICLE XVI - Miscellaneous...................................................53
SECTION 16.01 Further Assurances.................................53
SECTION 16.02 Notices............................................54
SECTION 16.03 Severability.......................................54
SECTION 16.04 Survival...........................................54
SECTION 16.05 Successors and Assigns.............................54
SECTION 16.06 Amendment..........................................55
SECTION 16.07 Headings...........................................55
SECTION 16.08 Counterparts.......................................55
SECTION 16.09 Govering Law.......................................55
SECTION 16.10 True Lease.........................................55
SECTION 16.11 Liabilities of Owner Trustee.......................55
</TABLE>
-iii-
<PAGE>
<TABLE>
<S> <C>
SECTION 16.12 Consent to Jurisdiction; Forum Selection...........56
</TABLE>
-iv-
<PAGE>
LEASE AGREEMENT, VALDOSTA dated as of January 30, 1991,
between THE CONNECTICUT NATIONAL BANK, a national banking
association, not in its individual capacity but solely as trustee
under the Trust Agreement (but not with respect to any portion of
the Facility located in the State of Florida), PHILIP G. KANE,
JR., FRANK McDONALD, JR., and WILLIAM R. MUNROE, not in their
individual capacities but solely as trustees under the Trust
Agreement, collectively as Lessor, and PACKAGING CORPORATION OF
AMERICA, a Delaware corporation, as Lessee.
In consideration of the mutual agreements herein contained and other
good and valuable consideration, receipt of which is hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I
Definitions
-----------
Capitalized terms used herein have the meanings assigned to them in
Exhibit A hereto, and the rules of usage contained in Exhibit A are applicable
hereto. All references to the "lien of the Indenture" or the creation of a
"mortgage lien" shall, to the extent that any portion of the Site is located in
Georgia, mean the security title created in the Indenture.
ARTICLE II
Lease of Facility
-----------------
SECTION 2.01. Lease. On the Closing Date, subject to all the terms
and conditions of this Lease and the satisfaction of the conditions set forth in
the Participation Agreement, Lessor shall lease, and hereby as of the Closing
Date does lease, the Facility Assets to Lessee, and Lessee shall lease, and
hereby as of the Closing Date does lease, the Facility Assets from Lessor, for
the Term or such shorter period as may result from earlier termination of this
Lease as provided herein. The interest conveyed by this Section 2.01 is a
usufruct and not an estate in real property to the extent permitted by law.
SECTION 2.02. Personal Property. It is the express intention of
Lessor and Lessee that the Facility Assets shall at all times be and remain
personal property as to all Persons and for all purposes to the fullest extent
permitted by law.
SECTION 2.03. Enforcement of Warranties. Lessor hereby authorizes
Lessee (except at such time as a Default or Event of Default exists) to assert
and enforce during the Term for Lessor's account all Lessor's claims and rights
under the
<PAGE>
Acquisition Agreements against Sellers and under any warranties and indemnities
of and claims against dealers, manufacturers, vendors, contractors and
subcontractors relating to the Facility which were assigned to Lessor pursuant
to the Acquisition Agreements. Any amount received by Lessee under any such
warranty, indemnity or claim shall be applied as provided in Section 12.03.
SECTION 2.04. Site Sublease. On the Closing Date, subject to all the
terms and conditions of this Lease and satisfaction of the conditions set forth
in the Participation Agreement, Lessor shall sublease, and hereby as of the
Closing Date does sublease, the Site to Lessee and Lessee shall sublease, and
hereby as of the Closing Date does sublease, the Site from Lessor, for the Term
or such shorter period as may result from earlier termination of this Lease as
provided herein. During the term of such sublease, Lessee shall pay Lessor on
each anniversary of the Closing Date $100 per annum as a sublease rental payment
for the Site for the year preceding such anniversary of the Site; provided,
however, that Lessor hereby directs Lessee to deliver each such sublease rental
payment to Ground Lessor as payment, on behalf of Ground Lessee, of the rental
payments due under the Ground Lease. Notwithstanding any provision to the
contrary contained in this Lease, it is understood that such sublease is and
shall at all times remain subordinate to the Ground Lease.
ARTICLE III
Rent
----
SECTION 3.01. Interim Rent and Basic Rent. (a) Lessee shall pay to
Lessor, in respect of the Facility Assets, rent for the Interim Term on July 31,
1991, in an amount equal to all accrued and unpaid interest on the Loan
Certificates payable on such date not paid by Owner Participant as required by
Section 6.01(b) of the Participation Agreement.
(b) Lessee shall pay to Lessor, in respect of the Facility Assets,
Basic Rent in installments in arrears on the Rent Dates during the Basic Term,
each such installment to be in an amount equal to the percentage of Lessor's
Cost set forth opposite such Rent Date on Schedule A. Such amounts of Basic
Rent are subject to adjustment pursuant to Section 3.03. Lessee shall pay Basic
Rent with respect to any Renewal Term as provided in Section 4.01.
(c) Each installment of Interim Rent and Basic Rent shall be payable
and paid in the manner set forth in Section 3.04.
SECTION 3.02. Supplemental Rent. Lessee shall pay to Lessor, or to
whoever shall be entitled thereto, any and all Supplemental Rent promptly as the
same shall become due and payable. Lessee shall pay, as Supplemental Rent,
amounts equal to all amounts payable by Lessor under the Indenture, including
any premium payable in connection with the prepayment of any Loan Certificate
(but excluding principal of and
-2-
<PAGE>
interest on the Loan Certificates) and all amounts payable to Owner Participant
in respect of the commitment fee payable pursuant to Section 8.02 of the
Participation Agreement.
SECTION 3.03. Adjustments. If at any time
(i) any of the Variable Assumptions set forth in Schedule 3.03(i) is
incorrect,
(ii) the Refinancing occurs at the request of Lessee pursuant to
Section 8.01 of the Participation Agreement,
(iii) Lessor finances the cost of any Alterations pursuant to Section
8.02 of the Participation Agreement,
(iv) a Change in Tax Law occurs or clause (ii) of section 9.04 is
applicable, or
(v) any Work in Progress is not completed by April 30, 1991,
the schedules of Basic Rent and Stipulated Loss Values shall be adjusted (upward
or downward) to preserve Net Economic Return and the percentages set forth in
clauses (ii) and (v) of Section 4.02(a) shall be adjusted (upward or downward)
based on the original method of computation thereof (but taking into account, in
the case of clause (iii) above, any change in the conclusion of an appraiser
mutually agreeable to Owner Participant and Lessee arising in respect of such
Alterations, it being understood that the issue will be presented to such
appraiser), except that, in the case of clause (v) above, the percentages set
forth in Section 9.01(e) shall be adjusted as applicable and except that, in the
case of clause (iii) above, the portion of Net Economic Return with respect to
such Alterations shall be adjusted to reflect the assumptions set forth in
Schedule 3.03(i) and to reflect any increase or decrease, at the time of
determination, in the per annum rate paid an five-year Treasury Certificates
issued by the United States of America from the rate paid an such Treasury
Certificates on the date five days prior to the Closing Dates. All such
adjustments shall be made as soon as practicable after the occurrence of the
event giving rise thereto and shall be made in respect of installments of Basic
Rent falling due after the determination thereof, except that if the next Rent
Date falls due within 30 days after such determination, such adjustments shall
be made in respect of all installments of Basic Rent falling due after such Rent
Date. All such adjustments (x) shall be in compliance with the provisions of
Revenue Procedure 75-21 and Revenue Procedure 75-28, (y) shall not cause the
Lease to be treated as a "disqualified leaseback or long-term agreement" within
the meaning of Section 467 of the Code and shall be made in a manner otherwise
designed to comply with Section 467 of the Code and any regulations thereunder
(except that, in connection with an adjustment made within four months after the
Closing Date to take into account Transaction Expenses, such compliance with
Section 467 shall be required to the extent the original calculation of Interim
and Basic Rent would have so complied and, in connection with an adjustment
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made pursuant to clause (iii) above with respect to Known Alterations, if such
compliance, taking into account each payment of Basic Rent as so adjusted, would
increase the net present value of Basic Rent over the net present value of Basic
Rent if such compliance with Section 467 were required to this extent the
original calculation of Interim and Basic Rent would have so complied, then,
unless Lessee, and Owner Participant shall otherwise agree, the portion of Basic
Rent attributable to such Known Alterations shall be treated as a separate
tranche of Basic Rent and such compliance with Section 467 shall be required
with respect to such separate tranche of Basic Rent attributable to such Known
Alterations) and (z) to the extent not inconsistent with the foregoing clauses
(x) and (y), shall generally preserve, to the extent practicable, the original
pattern of payments of Basic Rent. Such adjustments may, but need not, be
reflected in an amendment to this Lease but shall become effective upon
completion and verification of the computations, as provided in this Section
3.03. Upon the occurrence of an event requiring an adjustment, Owner
Participant shall make the necessary computations as soon as practicable and
furnish to Lessee, Owner Trustee and Indenture Trustee an instrument setting
forth the adjusted schedules. Upon request of Lessee made within a reasonable
time following the delivery to Lessee by Owner Participant of such instrument,
such amounts shall be verified by the independent public accounting firm that
audits owner Participant's financial statements. The cost of such verification
shall be borne by Lessee unless such verification results in a reduction of 2%
or more in the net present value of Basic Rent as computed by Owner Participant,
in which case such cost shall be borne by Owner Participant.
Notwithstanding any other provision in this Lease or in any of the
other Operative Documents, under all circumstances the Basic Rent payable on any
Rent Date during the Basic Term will be an amount at least sufficient to pay in
full on such Rent Date the aggregate amount of principal of and interest on the
Loan Certificates scheduled to be payable on such Rent Date, and each payment of
Stipulated Loss Value will be in an amount at least sufficient, when combined
with any Rent payable simultaneously therewith, to pay the unpaid principal
amount of and unpaid and accrued interest on and premium then payable on all
Loan Certificates outstanding at the time Stipulated Loss Value and such Rent is
due and payable hereunder.
SECTION 3.04. Method of Payment. Subject to section 15.02, Interim
Rent and Basic Rent payable to Lessor shall be paid to Owner Participant's
Account No. 50-205-776 at Bankers Trust Company, New York, N.Y., ABA No. 0210-
0103-3 GECC/T&I Depository Account (and shall reference "1991 Packaging
Corporation Tomahawk"), or to such other account at such other place as owner
Participant shall specify in writing. Each payment of Rent shall be initiated
into the Federal Reserve Funds wire transfer system and such initiation shall
have been confirmed by telephone or other notice by the initiating bank to
Indenture Trustee and Lessor prior to 12:00 noon, local time at the place of
receipt, on the scheduled date on which such payment shall be due, unless such
scheduled date shall not be a Business Day, in which case such payment shall be
made on the next Business Day and be accompanied by interest at the Payment Rate
on the amount of such payment from and including such scheduled date to the date
of payment.
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SECTION 3.05. Late Payment. If any Rent shall not be paid when due,
Lessee shall pay to Lessor (or, in the case of Supplemental Rent, to whoever
shall be entitled thereto), as Supplemental Rent, interest (to the extent
permitted by law) on such overdue amount from and including the due date thereof
to but excluding the date of payment thereof (unless such payment shall not have
been initiated into the Federal Reserve Funds wire transfer system or such
initiation shall not have been confirmed by telephone or other notice by the
initiating bank to Indenture Trustee and Lessor prior to 12:00 noon, local time
at the place of receipt, on such date of payment, in which case such date of
payment shall be included) at the Designated Rate. If any Rent shall be paid an
the date when due, but either not initiated into the Federal Reserve Funds wire
transfer system or such initiation shall not have been confirmed by telephone or
other notice by the initiating bank to Indenture Trustee and Lessor prior to
12:00 noon, local time at the place of receipt interest shall be payable as
aforesaid for one day.
SECTION 3.06. Net Lease; No Setoff; etc. This Lease is a net lease
and, notwithstanding any other provision of this Lease except as may be
expressly provided herein or in Section 6.01(b) of the Participation Agreement,
all Rent shall be paid without notice, demand, counterclaim, setoff, deduction
or defense and without abatement, suspension, deferment, diminution or
reduction. The obligations and liabilities of Lessee hereunder shall in no way
be released, discharged or otherwise affected (except as may be expressly
provided herein or in Section 6.01(b) of the Participation Agreement) for any
reason, including: (a) any defect in the condition, merchantability, quality or
fitness for use of the Facility or any part thereof; (b) any damage to, removal,
abandonment salvage, loss, scrapping or destruction of or any requisition or
taking of the Facility or any part thereof; (c) any restriction, prevention or
curtailment of or interference with any use of the Facility or any part thereof;
(d) any defect in or any Lien on the Facility or any part thereof; (e) any
change, waiver, extension, indulgence or other action or omission in respect of
any obligation or liability of Lessee or Lessor; (f) any bankruptcy insolvency,
reorganization composition, adjustment, dissolution, liquidation or other like
proceeding relating to Lessee, any Lessor Party, any holder of Loan Certificates
or any other Person, or any action taken with respect to this Lease by any
trustee or receiver of any Person mentioned above, or by any court; (g) any
claim that Lessee has or might have against any Person, including any failure on
the part of any Lessor Party to perform or comply with any of the terms hereof
or of any other agreement; (i) any invalidity or unenforceability or
disaffirmance of this Lease or any provision hereof or any of the other
Operative Documents or any provision of any thereof, in each case whether
against or by Lessee or otherwise; or (j) any other occurrence whatsoever,
whether similar or dissimilar to the foregoing, whether or not Lessee shall have
notice or knowledge of any of the foregoing.
This Lease shall be noncancelable by Lessee, and, except as expressly
provided herein, Lessee, to the extent permitted by law, waives all rights now
or hereafter conferred by statute or otherwise to quit, terminate or surrender
this Lease, or to any diminution or reduction of Rent payable by Lessee
hereunder. All payments by Lessee made hereunder shall be final, absent
manifest error, and Lessee shall not seek to recover any such payment or any
part thereof for any reason whatsoever, absent
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manifest error. If for any reason whatsoever this Lease shall be terminated in
whole or part by operation of Law or otherwise except as expressly provided
herein, Lessee shall nonetheless pay an amount equal to each Rent payment at the
time and in the manner that such payment would have become due and payable under
the terms of this Lease if it had not been terminated in whole or in part. All
covenants and agreements of Lessee shall be performed at its cost, expense and
risk unless expressly otherwise stated. Nothing in this.Article III shall be
construed as a guaranty by Lessee of any residual value in the Facility or as a
guaranty of the Loan Certificates.
ARTICLE IV
Lessee Options
--------------
SECTION 4.01. Renewal. (a) Right to Renew. Unless the Facility
Assets shall have been sold or disposed of pursuant to this Lease or an Event of
Loss shall have occurred or a Default described in clause (a) or (f) of Article
XIII or an Event of Default shall exist at the time of giving the notice
referred to below or at the commencement of the relevant Renewal Term, Lessee
shall have the right to renew this Lease (i) at the end of the Basic Term for
the Fixed Price Renewal Term and (ii) at the end of the Basic Term or the Fixed
Price Renewal Term, if elected, or a Fair Market Renewal Term, if elected, for a
Fair Market Renewal Term. In order to exercise any such right, Lessee shall
notify each Lessor Party thereof in writing not more than 12 month nor less than
6 months prior to the commencement of the relevant Renewal Term, which notice
shall be irrevocable and shall specify the type of renewal term elected in
accordance with this Section 4.01(a) and the duration thereof (which shall be an
integral multiple of six months, shall not end after the end of the Ground Lease
Term and, in the case of a Fair Market Renewal Term, shall be at least one year
and not more than five years or, in the case of the Fixed Price Renewal Term,
shall be, subject to Section 4.01(c), at least one year and not more than 50% of
the Basic Term). If Lessee shall fail to renew this Lease as provided above,
Lessor shall, subject to Section 4.02, be free to lease or dispose of all or any
part of the Facility to any other Person on any terms acceptable to Owner
Participant.
(b) Terms. All the terms and provisions of this Lease shall be
applicable during any Renewal Term. Less shall pay to Lessor as Basic Rent for
the Facility Assets (i) on each of the Rent Dates during the Fixed Price Renewal
Term an amount equal to 60% of the average of the installments of Basic Rent
payable during the Basic Term and (ii) on each of the Rent Dates during any Fair
Market Renewal Term an amount equal to the Fair Market Rental Value of the
Facility Assets.
(c) Determinations. Promptly after Lessee shall have given a notice
pursuant to Section 4.01(a), Lessee and Owner Participant shall agree upon the
Fair Market Rental Value (if such notice designates a Fair Market Renewal Term)
of the Facility Assets, the Fair Market Sale Value of the Facility Assets, the
useful life of the Facility Assets and the first date at which the Facility
Assets will no longer be expected
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to have a Fair Market Sale Value of at least 20% of Lessors' Cost after
eliminating the effect of any inflation or deflation since the closing Date,
each as of the commencement of the relevant Renewal Term, or, if they shall fail
to agree within 30 days after the giving of such notice, such values, life and
date shall be determined by the Appraisal Procedure. Promptly after any such
determination, Schedule B hereto shall be modified to set forth therein the Fair
Market Sale Value so determined as the Stipulated Loss Value applicable at the
commencement of such Renewal Term, amortized ratably in semiannual steps over
the estimated remaining useful life of the Facility Assets. If Lessee has
elected the Fixed Price Renewal Term and either the date at which 75% of the
redetermined useful life of the Facility Assets will have expired or the first
date at which the Facility Assets will not longer be expected to have a Fair
Market Sale Value of at least 20% of Lessor's Cost, as determined above, is
before the Rent Date on which the Fixed Price Renewal Term would otherwise end,
the duration thereof shall automatically be reduced so that it ends on the
latest Rent Date which precedes the earlier of the two dates mentioned above.
SECTION 4.02. Purchase. (a) Right to Purchase. Unless the Facility
Assets shall have been sold or disposed of pursuant to this Lease or an Event of
Loss shall have occurred or an Event of Default shall exist at the time of
giving the notice referred to below or at the date fixed for purchase, Lessee
shall have the right, at its option, to purchase the Facility Assets as the time
and at the price as follows: (i) on July 31, 2001, January 31, 2002, or July
31, 2002, for a purchase price equal to the greater of Stipulated Loss Value on
such Rent Date and the Fair Market Sale Value of the Facility Assets on such
Rent Date, (ii) on January 31, 1997, for a purchase price equal to 112.10784139%
of Lessor's Cost, (iii) on the first Rent Date occurring more than 90 days after
Lessee shall have delivered to Lessor and Indenture Trustee an Officer's
Certificate in form and substance satisfactory to each of them evidencing in
reasonable detail that Burdensome Alterations are required and have not yet been
effected (if such Rent Date is after the fifth anniversary of the Closing Date)
or, if there shall occurred a Burdensome Event, on the first Rent Date occurring
more than 90 days after such occurrence, in either case for a purchase price
equal to the greater of Stipulated Loss Value on such Rent Date and the Fair
Market Sale Value of the Facility Assets on such Rent Date, (iv) on the last day
of the Basic Term, for a purchase price equal to the Fair Market Sale Value of
the Facility Assets, (v) on the last day of the Basic Term, for a purchase price
equal to 60.00% of Lessors' Cost or (vi) on the last day of any Renewal Term,
for a purchase price qual to the Fair Market Sale Value of the Facility Assets
on such date. IN order to exercise any such right, Lessee shall notify each
Lessor Party thereof in writing not more than 12 months nor less than 6 months
(30 days in the case of clause (iii) above) prior to the date fixed for
purchase, which notice shall be irrevocable and shall specify the basis for the
notice, the option selected and the date purchase is to be made. If Lessee
shall fail to purchase the Facility Assets pursuant to this Section 4.02 at the
end of the Term (including any elected Renewal Term), Lessor shall, subject to
Section 4.01, be free to lease or dispose of all or any part of the Facility
assets to any other Person on any terms acceptable to Owner Participant.
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(b) Payments. If Lessee has elected to purchase the Facility Assets
as provided in Section 4.02(a), Lessee shall pay the purchase price of the
Facility Assets on the date fixed for purchase and shall simultaneously pay all
Rent due and all Rent accrued through and including such date, whereupon Lessor
shall Transfer the Facility to Lessee. If Lessee exercises its right to
purchase the Facility Assets pursuant to Section 4.02(a)(ii), so long as no
Default or Event of Default exists, Lessee may elect (by so specifying in the
notice delivered pursuant to Section 4.02(a)) to assume the Indenture and the
Loan Certificates in accordance with Section 6.09 of the Indenture, and the
purchase price of the Facility Assets shall be reduced by the unpaid principal
amount of the Loan Certificates assumed. If Lessee shall fail to pay for or
purchase the Facility Assets an the date fixed for purchase, it shall lose its
right to purchase the Facility Assets pursuant to the relevant clause of Section
4.02(a) (but its right, if any, to purchase under the other clauses shall be
unaffected) and any Lessor Party may proceed by appropriate court action to
recover damages or obtain other appropriate relief, including specific
performance, with respect to such failure.
(c) Determinations. Promptly after Lessee shall have given a notice
pursuant to clause (i), (iii), (iv) or (vi) of Section 4.02(a), Lessee and Owner
Participant shall agree upon the Fair Market Sale Value of the Facility Assets
as of the date fixed for purchase or, if they shall fail to agree within 30 days
after the giving of such notice, such Fair Market Sale Value shall be determined
by the Appraisal Procedure.
SECTION 4.03. Obsolescence Termination. (a) Right to Terminate..
Unless an Event of Loss shall have occurred or an Event of Default shall exist
at the time of giving the notice referred to below or at the date fixed for
termination, Lessee shall have the right at any time during the Basic Term to
terminate this Lease on the Rent Date specified in such notice, but only if
Lessee shall have determined (and shall have delivered to each Lessor Party an
Officer's Certificate to the effect) that the Facility Assets have become
obsolete, surplus or uneconomic to Lessee's purposes for any reason, including
government mandated Alterations. In order to exercise such right, Lessee shall
notify each Lessor Party thereof in writing not more than 12 months nor less
than 6 months prior to the date fixed for termination, which notice shall be
irrevocable. From and after the giving of such notice, Lessee shall, as agent
for Lessor, use all reasonable efforts to sell the Facility Assets for the best
cash price obtainable. On the date fixed for termination, Lessor shall (subject
to receipt of the sales price and all additional payments specified in the next
sentence and subject to its rights set forth in Section 4.03(b)), Transfer the
Facility for cash to the purchaser (who may not be Lessee or any Affiliate
thereof) who has offered the highest cash price. The total sales price realized
at such sale shall be retained by Lessor and on the date fixed for termination
Lessee shall pay to Lessor the excess, if any, of the Stipulated Loss Value as
of the date fixed for termination over the sales price of the Facility after
deducting all expenses incurred by Lessor Parties in connection with such
Transfer, and Lessee shall simultaneously pay all Rent due and all Rent accrued
through and including the date fixed for termination, whereupon the Term shall
end. If a Transfer shall not have occurred on or as of the date fixed for
termination, the Facility shall continue to be subject to this Lease and this
Lease shall continue in full force and effect with respect
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thereto, Lessee shall be required to make a Supplemental Rent payment in the
amount specified in Section 4.04 of the Indenture and, unless such nonoccurrence
results from default by the purchaser, Lessee shall thereafter have no right of
termination under this Section 4.03. No Lessor Party shall be under any duty to
solicit bids or sales, to inquire into the efforts of Lessee to obtain bids or
otherwise to take any action in connection with any such sale other than the
obligation of Lessor to Transfer the Facility as provided above.
(b) Retention. Notwithstanding Section 4.03(a), Lessor may, at the
direction of Owner Participant, on not less than 90 days' prior written notice
to Lessee, refuse to Transfer the Facility pursuant to Section 4.03(a), in which
case (i) Lessee shall not be obligated to pay the amounts specified in the
antepenultimate sentence of Section 4.03(a) but rather shall pay to Lessor on
the date fixed for termination all Rent due and all Rent accrued through and
including the date fixed for termination and (ii) Lessor or Owner Participant
shall contemporaneously pay to Indenture Trustee on such date such amount as
may, when added to amounts held or received by Indenture Trustee for such
purpose, be required to make the payments specified in clauses "First" through
"Fourth" of Section 3.02 of the Indenture, whereupon (and only whereupon) the
Term shall end.
ARTICLE V
Return of Facility
------------------
SECTION 5.01. Return of Facility. Unless the Facility shall have
been or is being Transferred to Lessee pursuant to this Lease, Lessee shall
return the Facility to Lessor or to any transferee or assignee of Lessor on the
Termination Date by surrendering the same into the possession of Lessor or such
transferee or assignee free and clear of all Liens other than Lessor Liens and
Permitted Encumbrances and in the condition required by Section 7.02 and Article
X and free of all Hazardous Substances and Hazardous Wastes except those that
are present in compliance with law. In addition, at the end of the Term, if
requested to do so by Lessor, Lessee shall, at Lessor's risk and expense and
without unreasonably interfering with Lessee's operations, dismantle, crate,
remove and ship the Facility Assets as specified by Lessor.
SECTION 5.02. Disposition Services. If Lessee shall not have
exercised any of its rights provided in Article IV, during the last six months
of the Term, Lessee will fully cooperate with Lessor and Owner Participant in
connection with efforts to lease or dispose of the Facility.
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ARTICLE VI
Lessor Agreements and Rights
----------------------------
SECTION 6.01. Quiet Enjoyment. So long as no Event of Default
exists, Lessee shall have the right to, and Lessor Parties shall not take or
cause to be taken any action contrary to Lessee's right to quiet enjoyment of,
or the continuing possession, use and operation of the Facility during the Term,
except in accordance with the provisions of this Lease.
SECTION 6.02. Disclaimer of Warranties. The warranty set forth in
Section 6.01 is in lieu of all other representations and warranties of any
Lessor Party, whether written, oral or implied, with respect to this Lease or
the Facility. As between each Lessor Party and Lessee, execution by Lessee of
this Lease shall be conclusive proof of the compliance of the Facility with all
requirements of this Lease, and LESSOR LEASES AND LESSEE TAKES THE FACILITY AND
EACH PART THEREOF AS IS AND WHERE LOCATED, and no Lessor Party shall be deemed
to have made, and EACH LESSOR PARTY HEREBY DISCLAIMS, ANY OTHER REPRESENTATION
OR WARRANTY, EITHER EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING
THE DESIGN OR CONDITION OF THE FACILITY OR ANY PART THEREOF, THE MERCHANTABILITY
THEREOF OR THE FITNESS THEREOF FOR ANY PARTICULAR PURPOSE, TITLE TO THE FACILITY
OR ANY PART THEREOF, THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREOF OR
CONFORMITY THEREOF TO SPECIFICATIONS, OR THE PRESENCE OR ABSENCE OF ANY LATENT
OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, NOR SHALL ANY LESSOR PARTY BE
LIABLE FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING LIABILITY IN TORT,
STRICT OR OTHERWISE), it being agreed that all such risks, as between each
Lessor Party and Lessee, are to be borne by Lessee. Lessee has made such
investigation as it deems appropriate regarding the Facility and its entering
into the Operative Documents. The provisions of this Section 6.02 have been
negotiated, and, except as provided in Section 6.01, the foregoing provisions
are intended to be a complete exclusion and negation of any representation or
warranty by any Lessor Party, express or implied, with respect to this Lease or
the Facility that may arise pursuant to any Governnmental Rule now or hereafter
in effect or otherwise.
SECTION 6.03. Inspection. Any Lessor Party and its authorized
representatives may enter upon, inspect and examine, at their own expense
(unless an Event of Default exists, in which case such expense shall be for the
account of Lessee), the Facility and the books and records of Lessee relative
thereto, and make copies and extracts therefrom. Any Participant may discuss
Lessee's affairs, finances and accounts with Lessee's officers. Owner
Participant, any Loan Participant as of the date hereof or other Loan
Participants holding individually or in the aggregate at least $5,000,000 in
aggregate principal amount of the Loan Certificates, may request, specifying a
reasonable basis for doing so, that the chief financial officer of Lessee
arrange a meeting with Lessee's independent public accountants to discuss
Lessee's affairs,
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finances and accounts, and upon such request, such chief financial officer shall
arrange for such meeting to take place promptly but in any event within 10
Business Days, provided that if the chief financial officer shall not arrange
such a meeting, any such Participant or Participants may arrange such a meeting
with Lessee's independent public accountants. Lessee authorizes such
accountants to discuss with each of Owner Participant and any such Loan
Participant and their authorized representatives the affairs, finances and
accounts of Lessee at such meeting. Representatives of Lessee shall be afforded
an opportunity to be present at any such meeting with Lessee's independent
public accountants. Lessee shall furnish to each Lessor Party statements
accurate in all material respects regarding the condition and state of repair of
the Facility, as often as may be reasonably requested. No Lessor Party shall
have any duty to make any such inspection or inquiry and shall not incur any
liability or obligation by reason of not making any such inspection or inquiry.
Each Lessor Party shall treat all information received pursuant to the terms of
this Section 6.03 as required by the terms of Section 9.12 of the Participation
Agreement. Notwithstanding the foregoing, no Loan Certificateholder (other than
an institutional investor) that is a direct or indirect competitor of Lessee
shall have the rights set forth in this Section 6.03.
SECTION 6.04. Right to Perform for Lessee. If Lessee shall fail to
make any payment of Rent or shall fail to perform or comply with any of its
other agreements contained herein (including in Article XI), any Lessor Party
may, but shall not be obligated to, make such payment or perform or comply with
such agreement, and the amount of such payment and the amount of all costs and
expenses (including reasonable attorneys' and other professionals' fees and
expenses) incurred by such Lessor Party in connection with such payment or the
performance of or compliance with such agreement, as the case may be, together
with interest thereon at the Designated Rate, shall be payable by Lessee upon
demand.
ARTICLE VII
Lessee Agreements
-----------------
SECTION 7.01. Indemnification. Whether or not any of the
transactions contemplated by the Operative Documents shall be consummated,
Lessee shall pay, assume liability for, indemnify, protect, defend, save and
hold harmless each Indemnified Person from and against, on an After-Tax Basis,
any and all Claims imposed on, incurred by or asserted against any Indemnified
Person (whether because of act or omission by such Indemnified Person or
otherwise and whether or not such Indemnified Person shall also be indemnified
as to any such Claim by any other Person, including Sellers), in any way
relating to or arising out of (i) the Facility or any part thereof, (ii) any
Operative Document, any Acquisition Agreement, the issuance, purchase or sale of
the Loan Certificates or the making of any investment in the Facility, any
payment made pursuant thereto or any other transaction contemplated by any
Operative Document or Acquisition Agreement or (iii) the manufacture, financing,
refinancing, construction, purchase, acceptance, rejection, ownership,
acquisition,
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delivery, nondelivery, lease, sublease, preparation, installation, storage,
maintenance, repair, transportation, transfer of title, abandonment, possession,
rental, use, operation, condition, sale, return or other application or
disposition of all or any part of the Facility or any interest therein,
including (A) claims or penalties arising from any violation of law (including
any environmental Governmental Rule) or liability in tort (strict or otherwise)
or from the active or passive negligence of any Indemnified Person, (B) loss of
or damage to any property or the environment or death or injury to any Person,
(C) latent or other defects, whether or not discoverable, (D) any claim for
patent, trademark or copyright infringement and (E) any Claim arising as a
direct or indirect result of the presence on or under, or escape, seepage,
leakage, spillage, discharge, emission or release from any of Ground Lessor's or
Lessee's property (including the Site and the Facility) or property under Ground
Lessor's or Lessee's control of, any Hazardous Substance or any Hazardous Waste
or arising out of or resulting from the environmental condition of any such
property or the applicability of any Governmental Rule relating to any Hazardous
Substance, whether or not occasioned wholly or in part by any condition,
accident or event caused by any act or omission of Ground Lessor or Lessee or
arising out of or resulting from the violation of any Governmental Rule
applicable to the Site or the Facility or with respect to any activity conducted
thereon; provided, however, that Lessee shall not be required to indemnify any
Indemnified Person pursuant to this sentence for (i) any Claim in respect of the
Facility to the extent arising from acts or events not attributable to Lessee
which occur after possession of the Facility has been returned and delivered to
Lessor in accordance with Section 5.01 (or, if such return occurs when an Event
of Default exists, after full compliance by Lessee with all its obligations
under this Lease as of such date), (ii) any Claim resulting solely from acts
which would constitute the willful misconduct or gross negligence of such
Indemnified Person (unless imputed to such Indemnified Person by reason of the
Facility or its interest therein), (iii) any Transaction Expense to be paid by
Owner Participant or (iv) any Taxes, except as provided above with respect to
the obligation to make payments on an After-Tax Basis. If any Indemnified
Person or Lessee shall have received written notice of any Claim indemnifiable
under this Section 7.01, it shall give prompt notice thereof to Lessee or such
Indemnified Person, as the case may be, but the failure to give such notice
shall not affect any obligations under this Section 7.01. Upon payment in full
to any Indemnified Person of any indemnity pursuant to this Section 7.01, Lessee
shall be subrogated to any right of such Indemnified Person in respect of the
matter against which such indemnity has been paid. Unless, in the reasonable
judgment of Lessee, no reasonable basis exists for defending against the Claim
giving rise to a Claim for which Lessee is obligated to indemnify such
Indemnified Person, such Indemnified Person shall either (A) defend against such
claim itself, in which case such Indemnified Person shall control such defense
but shall consult with Lessee concerning the conduct thereof, or (B) permit
Lessee to defend against such claim, in which case such Indemnified Person shall
cooperate with Lessee by providing such witnesses, documents and other
assistance as Lessee say reasonably request. Neither such Indemnified Person
nor Lessee shall settle the contest of such claim without the written consent of
the other, which consent will not be unreasonably withheld. Notwithstanding the
two preceding sentences, an Indemnified Person shall have no obligation
thereunder if (i) a Lease Default or Lease Event of Default shall
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exist, (ii) any material danger exists of (A) foreclosure, sale, forfeiture or
loss of, or imposition of any Lien, other than a Permitted Lien, on the Facility
or substantial interference with the operation of the Facility or (B) any
criminal liability of such Indemnified Person or (iii) Lessee shall not have
delivered to such Indemnified Person an acknowledgement of its obligations under
this Section 7.01 without prejudice to its right to contest claims as provided
above. Nothing contained in this paragraph shall be construed as a guaranty by
Lessee of any residual value in the Facility or as a guaranty of the Loan
Certificates.
Without limitation of the foregoing, Lessee shall pay (i) the ongoing
fees, expenses and disbursements of Owner Trustee and Indenture Trustee, on a
pre-tax basis, (ii) all costs and expenses incurred by any Lessor Party in
connection with (A) any Event of Default, (B) the entering into or giving, or
withholding of any supplement, amendment, modification, waiver or consent with
respect to any Operative Document or any Acquisition Agreement, (C) any Event of
Loss or, after the occurrence of any Default or Event of Default which is
continuing, any transfer of all or any part of the right, title and interest of
Lessor or Owner Trustee in the Facility or in, to and under any Operative
Document or any Acquisition Agreement or (D) any Refinancing or Additional
Financing and (iii) all Supplemental Rent to whoever is entitled thereto.
SECTION 7.02. Compliance with Laws. (a) Lessee shall comply with
all Governmental Rules and Governmental Actions, including those relating to
pollution and environmental matters applicable to or pertaining to the property,
business and operations of Lessee, including the Facility; provided that Lessee
shall not be deemed to be in breach of this covenant so long as it is in good
faith contesting the applicability or validity of any Governmental Rule or
Governmental Action, or defending any alleged violation thereof, by appropriate
proceedings being diligently conducted and such contest would not violate clause
(x), (y) or (z) of the definition of Permitted Liens, and provided further that
the payment of any fine or penalty imposed by a Governmental Authority and the
cure of any continuing noncompliance shall be deemed to effect a complete and
satisfactory cure of the related breach of this Section 7.02(a).
(b) Lessee shall promptly (but in any case not more than 10 days after
the and of the calendar month in which any such event occurs) notify each Lessor
Party in writing of any of the following events: (i) a Responsible Officer
obtains knowledge that the disposition, use, refining, generation, manufacture,
production, storage, handling, treatment, transfer, release, processing or
transportation of any Hazardous Substance or Hazardous Waste by, at, or in
connection with the operation of, the Facility has been done in material
violation of any Governmental Rule or Governmental Action, (ii) any material
Governmental Rule or Governmental Action is entered or taken by any Governmental
Authority (other than the promulgation of a rule or regulation of general
applicability) against Lessee with respect to the Facility or the Facility's
business or operations as a result of any Hazardous Substance or Hazardous Waste
on, or emanating from or generated by, the Facility or (iii) any material claim
made by any third party relating to any Hazardous Substance or Hazardous Waste
on, or emanating from or generated by, the Facility (any such material
violation, order, action or claim,
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an "Environmental Violation"). After the occurrence of any Environmental
Violation, Lessee shall forthwith prepare and deliver to each of the parties
identified in the next sentence a Remedial Plan addressing such Environmental
Violation wherein Lessee shall describe and undertake such actions as may be
necessary and appropriate and consistent with good business practices for the
complete remediation of such Environmental Violation at the earliest practicable
date; provided, that such Remedial Plan shall be deemed to satisfy the foregoing
requirements if such Remedial Plan shall have been approved, and reasonable
evidence of such approval shall have been provided to Lessor and Indenture
Trustee, by all Governmental Authorities having jurisdiction over the subject
matter thereof. The Remedial Plan shall be delivered to each Lessor Party not
more than 30 days after notice of the related Environmental Violation was given
by Lessee (or required hereunder to have been so given). For purposes of this
Section 7.02(b), a violation, order, action or claim described in clause (i),
(ii) or (iii) above shall be an Environmental Violation if (x) the compliance
with, remediation or satisfaction of, such violation, order, action or claim
could, together with any fines or penalties imposed in connection therewith,
reasonably be expected to cost (the "Cleanup Cost") (A) $5 million or more or
(B) $1 million or more if such Cleanup Cost, together, with the Cleanup Costs
associated with all other then outstanding environmental violations having a
Cleanup Cost of $1 million or more, exceeds $5 million.
(c) Lessee shall diligently and promptly take all necessary actions to
remedy each Environmental Violation in accordance with the provisions of the
relevant Remedial Plan (including the schedules and the periodic reporting
obligations set forth therein); provided that, subject to Lessee's right to
contest as set forth in Section 7.02(a) above, Lessee shall take all remedial
actions required of it by any Governmental Authority with respect to any
Environmental Violation.
SECTION 7.03. No Liens. Lessee shall not directly or indirectly
create, incurs assume or suffer to exist at any time, whether voluntarily or by
operation of law, Liens (other than Permitted Liens) on Lessee's assets or any
portion thereof except for (i) Liens on assets acquired subsequent to the
Closing Date by Lessee (and in the case of real property so acquired, on any
improvements or additions or replacements thereto) securing Debt not at any time
exceeding the acquisition cost of such assets and incurred at or before or
within 90 days after the time such assets are so acquired and not extending to
any other assets; (ii) Liens for extensions, renewals or refundings of
obligations secured by Liens permitted by clause (i) not in excess of the amount
being extended, renewed or refunded; (iii) Liens for Taxes or other governmental
charges or mechanics', materialmen's, carriers', employees', warehousemen's,
repairers' or other similar Liens incurred in the ordinary course of business,
in each case which are not yet due or which are being contested in good faith by
appropriate proceedings (so long as such contest does not violate clause (x),
(y) or (z) of clause (iii) of the definition of Permitted Liens); (iv) pledges
or deposits to secure payment of workmen's compensation, good faith deposits in
connection with tenders, contracts (other than contracts for the repayment of
Debt), deposits to secure public or statutory obligations, deposits to secure or
in lieu of surety or appeal bonds and pledges or deposits for similar purposes
in the ordinary course of business; (v) leases on property owned by
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Lessee and landlords' liens on property held under lease; (vi) encumbrances
under contracts and contract rights relating to the sale of assets, including
options and rights of first refusal; (vii) other Liens or encumbrances on real
property incurred in the ordinary course of business and not in connection with
the borrowing of money or the obtaining of advances or credit which do not in
the aggregate materially detract from the value of such real property subject
thereto or materially impair the use thereof in the operation of Lessee's
business; and (viii) other Liens securing obligations for the payment of money
which do not at the time of encumbrance, taken together with all other such
Liens then encumbering Lessee's property, exceed an amount equal to 10% of
Lessee's consolidated total assets (as shown on the most recent balance sheet
delivered pursuant to Section 6.03 of the Participation Agreement).
SECTION 7.04. Merger, Consolidation, etc. Except as hereinafter
provided in this Section 7.04, Lessee shall maintain its corporate existence.
Lessee shall not consolidate or merge with or into any other Person or sell,
transfer, convey or lease all or substantially all of its assets (treating for
such purpose all sales, transfers conveyances and leases of assets during any 24
month period as if constituting a single transaction) to any Person or cease to
be a subsidiary of Tenneco Inc., unless:
(a) such Person is before and after such transaction a Subsidiary of
Tenneco Inc. or the prior written consent of Owner Participant has been
obtained;
(b) the successor formed by such consolidation or merger or that
acquires by conveyance, transfer or lease all or substantially all its
assets as an entirety (i) shall be a corporation organized under the laws
of the United States of America, a state thereof or the District of
Columbia, (ii) shall execute and deliver to Indenture Trustee, Owner
Trustee and each Participant an agreement in form and substance
satisfactory to each of them containing an assumption by such successor of
the due and punctual performance of each covenant, obligation and condition
of the Operative Documents and Acquisition Agreements to be performed or
observed by Lessee, (iii) immediately after such transaction would be
permitted to incur an additional $1 of Funded Debt in accordance with
Section 7.05, (iv) immediately after such transaction would be permitted to
make a Restricted Payment of at least $1 in accordance with Section 7.06
and (v) immediately after such transaction no Event of Default would exist;
(c) immediately after Lessee ceases to be a Subsidiary of Tenneco Inc.
(i) Lessee would be permitted to incur an additional $1 of Funded Debt in
accordance with Section 7.05, (ii) Lessee would be permitted to make a
Restricted Payment of at least $1 in accordance with Section 7.06 and (iii)
no Event of Default would exist; and
(d) Lessee shall have delivered to each Lessor Party an Officer's
Certificate and an opinion of counsel satisfactory to each such Person,
stating that such transaction, and any assumption agreement required by
paragraph (b) of
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this Section 7.04, complies with this Section 7.04 and that all conditions
precedent relating to such transaction have been complied with.
Upon consummation of any such transaction in accordance with this
Section 7.04, the successor shall succeed to, and be substituted for, and may
exercise every right and power of, Lessee under the Operative Documents and
Acquisition Agreements with the same effect as if such successor had been named
therein. No such transaction shall have the effect of releasing Lessee or any
successor that shall theretofore have become such in the manner prescribed in
this Section 7.04 from its liability under the Operative Documents or the
Acquisition Agreements.
SECTION 7.05. Debt. Neither Lessee nor any of its Subsidiaries shall
incur any Funded Debt unless immediately thereafter, upon giving pro forma
effect thereto, Cash Flow Coverage of Fixed Charges would exceed 2.0 and Funded
Debt of Lessee and its Subsidiaries, an a consolidated basis, would not exceed
55% of Total Capital of Lessee and its Subsidiaries, on a consolidated basis.
For purposes of the foregoing, "Cash Flow Coverage of Fixed Charges" means, for
the four fiscal quarterly periods ending immediately prior to the date of
determination thereof, the ratio of Net Income before taxes plus depreciation
and interest expense and lease rentals minus capital expenditures (other than
Known Modifications financed by Owner Participant) to interest expense and lease
rentals and dividends on all mandatorily redeemable preferred stock of Lessee
and its Subsidiaries.
SECTION 7.06. Restricted Payments. (a) Lessee shall not pay or
declare any Restricted Payment (other than as permitted by Section 7.06(b)) if
(i) immediately after the making thereof Funded Debt of Lessee and its
Subsidiaries, on a consolidated basis, would exceed 50% of Total Capital of
Lessee and its Subsidiaries, on a consolidated basis, or (ii) the making thereof
would cause Lessee's Net Worth to be less than $800 million or (iii) there shall
exist any Default or Event of Default under this Lease or any default or event
of default under the Other Lease.
(b) Neither Lessee nor any of its Subsidiaries shall make or permit to
exist any loan or advance to Tenneco Inc. or any of its Affiliates except loans
or advances to Tenneco Inc. that are payable upon demand, bear interest, payable
at least annually, at a rate equal to the prime rate as quoted by Morgan
Guaranty Trust Company of New York from time to time and are made out of cash
generated in the ordinary course of operations of Lessee or its Subsidiaries and
only if (I) Tenneco Inc. owns, directly or indirectly, all the outstanding
equity securities of Lessee and either (i) all publicly held debt obligations of
Tenneco Inc. having a maturity of one year or more from the date of issue are
rated at least investment grade by Moody's and Standard & Poors, or (ii)
arrangements have been made which are in all respects satisfactory to Owner
Participant and Loan Participants, whereby return of the amount loaned or
advanced is unconditionally guaranteed, (II) Funded Debt of Lessee and its
Subsidiaries, on a consolidated basis, does not exceed 55% of the excess of
Total Capital of Lessee and its Subsidiaries, on a consolidated basis, over the
aggregate amount of all loans and advances to Tenneco Inc. and (III) no Default
or Event of Default exists.
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SECTION 7.07. Transactions with Affiliates. Lessee shall conduct all
transactions (including payments and receipt of benefits) with any of its
Affiliates in a manner consistent with the conduct of transactions among Tenneco
Inc. and all its Subsidiaries and on terms which, in the case of a material
transaction, the Board of Directors of Lessee has determined in good faith to be
in the best interests of Lessee and not materially adverse to Participants.
Schedule 7.07 sets forth an accurate description of the tax sharing arrangements
between Lessee and Tenneco Inc. as of the Closing Date and no tax sharing
agreement between Lessee and Tenneco Inc. or any Affiliate thereof shall be
altered or revised in any way which would materially alter Lessee's cash flow.
ARTICLE VIII
General Tax Indemnity
---------------------
SECTION 8.01. Indemnity. All payments by Lessee in connection with
the Overall Transaction shall be free of withholdings of any nature whatsoever
(including any withholdings in respect of payments pursuant to this Article
VIII). If Lessee is required to make any payment upon which any withholding is
required, Lessee shall pay an additional amount such that the net amount
actually received by the Person entitled to receive such payment will, after
such withholding, equal the full amount of the payment then due. If for any
reason, Lessee is required to make any payment to a taxing authority or to any
such Person as a result of the application of the preceding sentence that
relates to or is a result of any Tax imposed on or with respect to any such
Person which Tax is not the responsibility of Lessee under the terms of this
Section 8.01, then such Person shall, within 30 days after receipt of notice of
payment of the Tax and appropriate payment documentation with respect thereto,
pay to Lessee an amount which equals the amount paid by Lessee with respect to
or as a result of such Tax that is not the responsibility of Lessee increased by
the amount of any net tax savings to such Person attributable to the making of
such payment to Lessee.
Except as provided in Section 8.02, Lessee shall pay on an After-Tax
Basis, and on written demand shall indemnify, defend and hold each Indemnified
Person harmless on an After-Tax Basis from and against, any and all Taxes
imposed on or with respect to any Indemnified Person, Lessee, any sublessee, the
Facility, the Site or any portion thereof or interest therein by any Federal,
state or local government or other taxing authority in the United States, or any
government or taxing authority of or in a foreign country or any international
authority, in connection with or in any way relating to (a) the manufacture,
construction, financing, refinancing, purchase, acquisition, acceptance,
rejection, delivery, nondelivery, transport, ownership, assembly, possession,
repossession, operation, use, condition, maintenance, repair, sale, dismantling,
return, abandonment, preparation, installation, storage, replacement,
redelivery, leasing, subleasing, modification, transfer of title, rebuilding,
rental, importation, exportation or other application or disposition of, or the
imposition of any Lien (or incurrence of any liability to refund or pay over any
amount as a result of any Lien) on, the Facility, the
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Site or any portion thereof or interest therein, (b) the payment of Rent or the
receipts or earnings arising from or received with respect to the Facility, the
Site or any portion thereof or any interest therein, (c) the Loan Certificates
and the Indenture, their issuance, execution, filing, recording, sale, delivery,
refinancing, assumption, exchange, reoptimization or acquisition, or the
payments of any amounts thereon, (d) the property, or other proceeds with
respect to the property, held by Indenture Trustee under the Indenture, (e) any
other amount paid or payable pursuant to any Operative Document, (f) the
Facility, the Site or any portion thereof or any interest therein, (g) all or
any of the Operative Documents, any other documents contemplated thereby and any
amendments and supplements thereto, and (h) otherwise with respect to or in
connection with the Overall Transaction (whether or not any of the transactions
contemplated by the Operative Documents shall be consummated). The term "Taxes"
shall mean any and all fees (including documentation, license and registration
fees), taxes (including income, gross receipts, value-added, sales, use,
property (personal and real, tangible and intangible), intangible taxes,
intangible recording taxes, documentary stamp and stamp taxes), levies, imposts,
duties, charges, assessments or withholdings of any nature whatsoever, together
with any and all penalties, fines, additions thereto and interest thereon.
SECTION 8.02. Exclusions from General Tax Indemnity. Section 8.01
(except for the first two sentences of the first paragraph thereof) shall not
apply to:
(a) in the case of Owner Participant and any Loan Participant, Taxes
(other than Taxes that are or are in the nature of sales, use, property,
value-added, license or rental Taxes) imposed by the United States Federal
government pursuant to Subtitle A of the Code or any successor provision
(including any minimum Taxes, withholding Taxes and any Taxes on or
measured by any items of tax preference), other than in the case of any
Loan Participant (i) Taxes that would not have been imposed if a change in
the Amortization Schedules pursuant to Section 2.03(b) of the Indenture had
not occurred and (ii) Taxes that would not have been imposed if Lessee had
not assumed the Loan Certificates pursuant to Section 6.09 of the Indenture
or Section 4.02(b) of the Lease;
(b) in the case of Owner Participant and Loan Participants, Taxes
(other than Taxes that are or are in the nature of sales, use, property,
value-added, license or rental Taxes and other than any Taxes imposed by
any government or taxing authority outside the United States as a result of
the location of the Facility Assets or any part thereof in the jurisdiction
imposing the Tax ("Indemnified Foreign-Taxeses")) imposed on an Indemnified
Person that are based upon or measured by gross or net income or gross or
net receipts of such Indemnified Person (including any capital gains Taxes,
minimum Taxes and any Taxes on or measured by any items of tax preference)
other than in the case of any Loan Participant (i) Taxes that would not
have been imposed if a change in the Amortization Schedules pursuant to
Section 2.03(b) of the Indenture had not occurred, (ii) Taxes that would
not have been imposed if Lessee had not assumed the Loan Certificates
pursuant to Section 6.09 of the Indenture or
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Section 4.02(b) of this Lease, (iii) Taxes that would not have been imposed
if the loans evidenced by the Loan Certificates had been made directly to
Lessee and (iv) Taxes imposed by any jurisdiction other than a taxing
jurisdiction in which such Loan Participant is subject to such Taxes
without regard to the transactions contemplated by the operative Documents.
(c) in the case of Owner Participant and Loan Participants, franchise
Taxes imposed on an Indemnified Person and Taxes on capital or net worth of
an Indemnified Person (in each case, other than Taxes that are or are in
the nature of sales, use, property, value-added, license or rental Taxes
and other than Indemnified Foreign Taxes) other than, in the case of any
Loan Participant (i) Taxes that would not have been imposed if the loans
evidenced by the Loan Certificates had been made directly to Lessee and
(ii) Taxes imposed by any jurisdiction other than a taxing jurisdiction in
which such Loan Participant is subject to such Taxes without regard to the
transactions contemplated by the Operative Documents;
(d) Taxes that are based on, or measured by, the fees or other
compensation received by Owner Trustee or Indenture Trustee for acting as
trustees under the Trust Agreement and the Indenture, respectively;
(e) Taxes that have not been paid or credited and that are being
contested in accordance with the provisions of Section 8.03, during the
pendency of such contest, so long as Lessor shall be receiving all payments
required under this Lease and holders of the Loan Certificates shall be
receiving all payments required under the Loan Certificates when payable
without reduction for such Taxes;
(f) Taxes that are imposed an any Indemnified Person as a result of
such Indemnified Person's gross negligence or willful misconduct (other
than gross negligence or willful misconduct imputed to such Indemnified
Person solely by reason of its interest in the Facility or its
participation in the Overall Transaction);
(g) Taxes imposed on an Indemnified Person that result from any
voluntary transfer (it being understood that the term "voluntary transfer"
does not include any transfer provided for in the Operative Documents
(other than pursuant to Article VII of the Participation Agreement or
Section 15.02 of this Lease and, if Lessor shall receive an amount at least
equal to the applicable Stipulated Loss Value free and clear of any such
Taxes, other than pursuant to Section 4.03 of this Lease) or any transfer
to Lessee or any Affiliate thereof) by such Indemnified Person of any
interest in the Facility, the Site or any part thereof or any interest
arising under the Operative Documents, or from any involuntary transfer by
such Indemnified Person of any of the foregoing interests in connection
with any bankruptcy or other proceeding for the relief of debtors in which
such Indemnified Person is the debtor (except if such proceeding shall
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have been caused by the Lessee); provided, however, that the exception set
forth in this subparagraph (h) shall not apply if any such transfer shall
occur at any time while a Lease Event of Default shall have occurred and be
continuing;
(h) other than in the case of Loan Participants, Indenture Trustee and
Indenture Estate, Taxes imposed on an Indemnified Person by any
jurisdiction that would not have been imposed an such Indemnified Person
but for activities of such Indemnified Person in such jurisdiction which
activities are unrelated to the transactions contemplated by the Operative
Documents;
(i) Taxes imposed on an Indemnified Person (A) that result from the
failure of such Indemnified Person to file tax returns properly and on a
timely basis (unless such failure results from a failure of Lessee to
properly and timely file an Indemnified Person's tax return that Lessee
(rather than the Indemnified Person) is required to file under Section 8.07
or to notify such Indemnified Person of its obligation to file such return
in cases where the requirement for filing arises from such Indemnified
Person's participation in the transactions contemplated by the Operative
Documents), or (B) that would not have been imposed but for the failure of
such Indemnified Person to comply with certification, reporting or other
similar requirements of the jurisdiction imposing such Tax (unless such
failure results from a failure of Lessee to notify such Indemnified Person
of its obligation to comply with such requirements in cases in which such
requirements arise from such Indemnified Person's participation in the
transactions contemplated by the Operative Documents);
(j) Taxes relating to the Facility Assets or any interest therein
imposed on an Indemnified Person for any period following the expiration or
early termination of the Lease; provided, however, that this exclusion (j)
shall not apply to (x) Taxes imposed on Indenture Trustee or the holder of
any Loan Certificate so long as any Loan Certificate is outstanding, (y)
Taxes relating to events occurring prior to or simultaneously with such
expiration or early termination and (z) Taxes incurred in connection with
the exercise of any remedies pursuant to Section 14.01 following the
occurrence of a Lease Event of Default;
(k) Taxes imposed on or with respect to an Indemnified Person arising
as a result of a material failure of such Indemnified Person to fulfill its
obligations with respect to the contest of any claim in accordance with
Section 8.03 of this Lease;
(l) Taxes included in and paid as part of Transaction Expenses or in
Lessor's Cost;
(m) Taxes imposed on an Indemnified Person that would not have been
imposed but for the status of such Indemnified Person as other than a
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United States person (as defined in Section 7701(a) of the Code) for United
States Federal or other income tax purposes; and
(n) in the case of any Loan Participant, Taxes imposed on a transferee
of such Loan Participant in excess of the Taxes that would have been
imposed on such Loan Participant if no transfer had occurred.
SECTION 8.03. Contests. (a) If any written claim shall be made
against any Indemnified Person or if any proceeding shall be commenced against
any Indemnified Person (including a written notice of such proceeding) for any
Taxes as to which Lessee shall have an indemnity obligation pursuant to Section
8.01, such Indemnified Person shall promptly notify Lessee in writing and shall
not take any action with respect to such claim or Tax without the consent of
Lessee for 30 days after the giving of such notice to Lessee; provided, however,
that the failure to so notify Lessee shall not relieve Lessee of its obligations
under this Article VIII unless such failure precludes Lessee from pursuing a
contest of such Taxes; provided further, however, that, if such Indemnified
Person shall be required by law or regulation to take action prior to the end of
such 30-day period, such Indemnified Person shall, in such notice to Lessee, so
inform Lessee, and such Indemnified Person shall not take any action with
respect to such claim or Tax without the consent of Lessee before the date such
Indemnified Person shall be required to take action. If requested by Lessee in
writing within 30 days after the giving of such notice (or by such earlier date
referred to in the preceding sentence), such Indemnified Person shall, at the
expense of Lessee (including all costs, expenses and reasonable attorneys' and
accountants' fees and disbursements), in good faith contest the validity,
applicability or amount of such Taxes by, in the case of a contest involving
only Taxes for which Lessee is liable (a "Lessee-Controlled Contest"), in the
Lessee's sole discretion, or, in the case of any other contest (an "Indemnified
Person-Controlled Contest"), in such Indemnified Person's sole discretion, (i)
resisting payment thereof, (ii) not paying the same except under protest, if
protest shall be necessary and proper, or (iii) if payment shall be made, using
reasonable efforts to obtain a refund thereof in appropriate administrative and
judicial proceedings; provided, however, that in no event shall such Indemnified
Person be required to contest the imposition of any Tax for which Lessee is
obligated pursuant to this Article VIII unless (t) Lessee shall have made all
payments than payable under the terms of the Operative Documents; (u) no Lease
Event of Default shall have occurred and be continuing; (v) prior to taking such
action, Lessee shall have furnished, if requested by such Indemnified Person,
such Indemnified Person with an opinion of Dewey Ballantine or other independent
tax counsel selected by Lessee and reasonably acceptable to such Indemnified
Person to the effect that a reasonable basis exists for such contest; (w) Lessee
shall have acknowledged its liability to such Indemnified Person for an
indemnity payment pursuant to this Article VIII as a result of such claim or Tax
if and to the extent such Indemnified Person shall not prevail in the contest of
such claim or Tax, provided that such acknowledgment shall be of no force or
effect to the extent the contest is resolved on an articulated basis that
clearly does not constitute a basis for indemnification hereunder; (x) Lessee
shall have agreed in writing to pay such Indemnified Person all reasonable costs
and expenses that such Indemnified Person shall
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incur in connection with contesting such claim (including all costs, expenses,
reasonable legal and accounting fees and disbursements); (y) such Indemnified
Person, Indenture Trustee and Owner Participant shall have reasonably determined
that the action to be taken will not result in any material danger of sale,
forfeiture or loss of, or the creation of any Lien (except if Lessee shall have
adequately bonded such Lien or otherwise made provision to protect the interests
of such Indemnified Person, Loan Participants and Owner Participant in a manner
reasonably satisfactory to such Indemnified Person, Indenture Trustee and Owner
Participant) on the Facility or any interest therein or in any interference with
timely payments of Rent or any amount on the Loan Certificates from time to time
becoming due and payable; and (z) if such contest shall involve payment of the
claim, Lessee shall advance the amount thereof plus interest, penalties and
additions to tax with respect thereto to such Indemnified Person on an interest-
free basis and with no additional net after-tax cost to such Indemnified Person.
In the sole discretion of an Indemnified Person, any contest required to be
pursued by such Indemnified Person pursuant to this Article VIII shall be
conducted by Lessee in the name of such Indemnified Person or Lessee. Lessee
shall control the conduct (including the choice of forum) of a Lessee-Controlled
Contest and the relevant Indemnified Person shall control the conduct (including
the choice of forum) of an Indemnified Person-Controlled Contest. In addition,
so long as no Lease Event of Default shall have occurred and be continuing,
Lessee may, at its expense, in the name of Lessee or, with the consent of such
Indemnified Person (which consent will not unreasonably be withheld), in the
name of such Indemnified Person, contest (and control the contest of), including
by way of suit for refund, any Taxes as to which Lessee would have an indemnity
obligation pursuant to Section 8.01, if such contest can be conducted
independently of any proceeding involving a tax liability of such Indemnified
Person that is not indemnified by Lessee hereunder; provided, however, that
Lessee may take no action in contesting any claim if Indenture Trustee, such
Indemnified Person or Owner Participant shall have reasonably determined that
such action will result in any material danger of sale, forfeiture or loss of,
or the creation of any Lien (except if Lessee shall have adequately bonded such
Lien or otherwise made provision to protect the interests of such Indemnified
Person and Owner Participant in a manner reasonably satisfactory to them) on the
Facility or any interest therein or any interference with timely payments of
Rent or any amounts on the Loan Certificates from time to time becoming due and
payable.
(b) Notwithstanding anything contained in Section 8.03(a), an
Indemnified Person will not be required to contest or to permit Lessee to
contest the imposition of any Taxes if such Indemnified Person (1) shall waive
its right to indemnity under this Article VIII with respect to such Taxes and
(2) shall pay to Lessee any amount previously paid or advanced by Lessee
pursuant to this Article VIII by way of reimbursement with respect to such
Taxes.
SECTION 8.04. Refunds. If any Indemnified Person shall receive a
refund of all or any part of any Taxes paid, reimbursed or advanced by Lessee,
such Indemnified Person shall pay to Lessee within 30 days of such receipt an
amount equal to the lesser of (a) the amount of such refund plus any net tax
benefit (taking into
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account any Taxes incurred by such Indemnified Person by reason of the receipt
of such refund) realized by such Indemnified Person as a result of any payment
by such Indemnified Person and pursuant to this sentence, and (b) the tax
payment, reimbursement or advance to such Indemnified Person made by Lessee that
gave rise to such refund; provided, however, that such Indemnified Person shall
not be obligated to make any payment to Lessee pursuant to this or the next
succeeding sentence while a Lease Event of Default shall have occurred and be
continuing. If, in addition to such refund, such Indemnified Person shall
receive or be credited an amount representing interest on the amount of such
refund, such Indemnified Person shall pay to Lessee within 30 days of such
receipt that proportion of such interest that shall be fairly attributable to
Taxes paid, reimbursed or advanced by Lessee prior to the receipt of such
refund.
SECTION 8.05. Tax Savings. If an Indemnified Person shall realize,
against any tax for which an indemnity payment is not required of Lessee
pursuant to this Article VIII, any net tax saving or credit from any amount with
respect to which Lessee has indemnified such Indemnified Person, its Affiliates
or (A) in the case of Owner Participant, any net tax saving or credit with
respect to Taxes for which Lessee has indemnified Owner Trustee, or the Trust
Estate or (B) in the case of any Loan Participant, any net tax saving or credit
with respect to Taxes for which Lessee has indemnified Indenture Trustee or the
Indenture Estate (it being understood that any such net tax saving or credit
shall not be deemed to exist to the extent that such other person referred to in
clause (A) or (B), as the case may be, realizes an unindemnified tax detriment)
pursuant to this Article VIII, the Indemnified Person realizing such tax saving
or credit, so long as no Lease Event of Default shall have occurred and be
continuing, shall pay to Lessee within 30 days after such Indemnified Person
shall have realized such tax saving or credit the amount of such saving or
credit, together with the amount of any tax saving resulting from any payment
pursuant to this sentence; provided, however, that the aggregate amount payable
pursuant to this sentence in respect of any tax saving or credit shall not
exceed the amount previously paid by Lessee with respect to the Tax that gave
rise to such saving or credit. Each Indemnified Person agrees to use its good
faith efforts (consistent with its overall tax position) to claim any credit or
tax savings available to it that would reduce the amount of Lessee's indemnity
obligations under this Article VIII or that would give rise to a payment to
Lessee under this Article VIII.
SECTION 8.06. Payments. Any amount payable to an Indemnified Person
pursuant to this Article VIII shall be paid within 30 days after receipt of a
written demand therefor from such Indemnified Person accompanied by a written
statement describing in reasonable detail the amount so payable but not before
the date 10 days prior to the date that the relevant Taxes are due.
SECTION 8.07. Reports. If any report, return or statement is
required to be filed with respect to any Taxes that are subject to
indemnification under this Article VIII, Lessee shall promptly notify the
appropriate Indemnified Person of such requirement and, if permitted by
applicable laws to do so, Lessee shall timely file such
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report, return or statement with respect to such Taxes, except for any such
report, return or statement that such Indemnified Person has notified Lessee
that such Indemnified Person intends to file; provided, however, that such
Indemnified Person shall have furnished Lessee, at Lessee's request and expense,
with such information, not within the control of Lessee, as is in such
Indemnified Person's control and is reasonably available to such Indemnified
Person and necessary to file such report, return or statement; and provided,
further, that if Lessee is not permitted by applicable laws to file any such
report, return or statement, Lessee will promptly notify the appropriate
Indemnified Person that it is not so permitted. With respect to any report,
return or statement that is required to be filed with respect to any Taxes that
are subject to indemnification under this Article VIII, Lessee shall either show
the ownership of the Facility in Lessor and send a copy of such reports return
or statement to Lessor and the appropriate Indemnified Person or, where not
permitted to so show such ownership, shall promptly notify the Lessor of such
requirement and prepare and deliver to the Lessor and the appropriate
Indemnified Person a proposed form of such report, return or statement within a
reasonable time prior to the time such report, return or statement is to be
filed.
SECTION 8.08. Verification. At Lessee's request, the calculation of
the amount (but not the existence or scope of any liability for payment under
this Article VIII) of any indemnity payment by Lessee pursuant to this Article
VIII or any payment by an Indemnified Person to Lessee pursuant to this Article
VIII shall be verified and certified by a nationally recognized accounting firm
mutually acceptable to such Indemnified Person and Lessee that does not
represent either such Indemnified Person or Lessee. The costs of such
verification shall be borne by Lessee unless such verification reveals an error
in the Indemnified Person's favor of 5% or more of the amount actually payable
in which event the cost of such verification shall be borne by the Indemnified
Person.
ARTICLE IX
Special Tax Indemnities
-----------------------
SECTION 9.01. Tax Assumptions. The Basic Rent payable by Lessee and
Net Economic Return have been computed on the basis of the following tax
assumptions:
(a) for Federal income tax purposes the Trust Estate will be treated
as a trust subject to the provisions of Section 671 through 679 of the
Code, and Owner Participant will, as the owner of the entire interest in
the Trust Estate, take into account in computing its Federal income tax
liability all items of income, loss, gain, deduction and credit (including
the MACRS Deductions (as hereinafter defined)) of the Trust Estate;
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(b) the Lease will be treated as a true lease under which Owner
Participant will be treated as owner and lessor and Lessee will be treated
as lessee;
(c) for Federal income tax purposes, including for purposes of Section
861 of the Code, all amounts includible in the gross income of Owner
Participant, Lessor or the Trust Estate with respect to the transactions
contemplated by the Operative Documents and all deductions and credits
allowable to Owner Participant, Lessor or the Trust Estate with respect to
the transactions contemplated by the Operative Documents will be treated as
derived from, or allocable to, sources within the United States;
(d) the Federal rate of tax on the taxable income of Lessor will be
34%;
(e) Owner Participant, as the owner of the Facility Assets as of the
Closing Date, will be entitled to such deductions, credits and other
benefits as are provided by the Code to an owner of property, including (A)
as to an amount (the "Seven-year Amount") equal to 97.800% of Lessor's
Cost, deductions for cost recovery with respect to the Facility Assets
under Section 168(b)(1) of the Code computed using a seven-year recovery
period, the 200% declining-balance method (switching to straight-line) and
the half-year convention, resulting in deductions in an amount equal to
14.29% of the Seven-year Amount in the taxable year of Lessor that includes
the Closing Date and 24.49%, l7.49%, 12.49%, 8.93%, 8.92%, 8.93% and 4.46%
of the Seven-year Amount (such percentages to be calculated to more than
two decimal places for purposes of determining the actual deductions) in
its succeeding seven taxable years, respectively, (B) an to an amount (the
"Nonresidential Real Property Amount") equal to 7.012% of Lessor's Cost,
deductions for cost recovery with respect to the Facility under Section
168(b) of the Code computed using a 31.5-year recovery period, the
straight-line method and the mid-month convention, resulting in deductions
in an amount equal to 3.042% of the Nonresidential Real Property Amount in
the taxable year of Lessor that includes the Closing Date, 3.175% in the
succeeding thirty taxable years and 1.720% in the last taxable year and (C)
as to an amount (the "Fifteen-year amount" equal to .005% % of Lessor's
Cost, deductions for cost recovery with respect to the Facility under
Section 168(b) of the Code computer using a fifteen-year recovery period,
the 150% declining-balance method (switching to straight-line) and the
half-year convention, resulting in deductions in an amount equal to 5.00%
of the Fifteen-year Amount in the taxable year of Lessor that includes the
Closing Date and 9.50%, 8.55%, 7.70%, 6.93%, 6.23%, 5.90%, 5.90%, 5.91%,
5.90%, 5.91%, 5.90%, 5.91%, 5.90%, 5.91% and 2.95% in its succeeding
fifteen taxable years, respectively (the deductions referred to in clauses
(A), (B) and (c) being hereinafter referred to as the "MACRS Deductions");
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(f) neither Owner Participant, Lessor nor the Trust Estate will at any
time be required for Federal income tax purposes to include in its gross
income any amount with respect to the transactions contemplated by the
Operative Documents other than (i) payments of Basic Rent in the amounts
specified herein accrued ratably over the six-month period preceding the
date on which each such payment is required to be made; (ii) the amount of
any payment of Stipulated Loss Value on the date such amount is paid under
this Lease (but not earlier than the date an which such amount is required
to be paid under this Lease); (iii) any amount paid to Lessor or Owner
Participant and specifically identified as interest under the Operative
Documents on the date such amount is paid; (iv) any amount paid to Lessor
or Owner Participant under the Operative Documents, the calculation of
which is specifically determined under the Operative Documents to include
any amount necessary to hold Lessor or Owner Participant harmless against
the income tax consequences of the receipt or accrual thereof; (v) any
amount to the extent offset in the same taxable year of Lessee or Owner
Participant in which such amount is included in income by a related
deduction of the same tax character which deduction is not otherwise taken
into account pursuant to this Section 9.01; (vi) payment by Lessee, of the
purchase option price pursuant to its exercise of its purchase option
pursuant to Section 4.02 on the date such amount is paid; and (vii) the
"good-faith deposit" referred to in Section 6.01(c) of the Participation
Agreement, if such good-faith deposit is retained by Owner Participant
pursuant to clause (ii) of that Section 6.01(c);
(g) Lessor's taxable year that includes the Closing Date will be a
full taxable year consisting of 12 months and each taxable year of Lessor
thereafter will be the calendar year ending December 31; and
(h) Owner Participant will be entitled for Federal income tax purposes
to (A) deductions with respect to interest on the Loan Certificates in the
amounts and at the times interest is stated to accrue on the Loan
Certificates pursuant to Section 163 of the Code and to current deductions
with respect to premium, if any, and all other amounts (except principal)
paid or accrued on the Loan Certificates (such deductions hereinafter
referred to as the "Interest Deductions") and (B) deductions with respect
to the amortization of an amount equal to Transaction Expenses with respect
to the Facility ratably over the Interim and Basic Terms (such deductions
hereinafter referred to as the "Amortization Deductions").
For purposes of Section 9.01(e), the term "Lessor's Cost" does not
include any Alterations financed by Lessor or Owner Participant. At the time of
any such financing, the assumptions set forth in this Section 9.01 shall be
revised to reflect the assumptions applicable to such Alterations.
SECTION 9.02. Records. Lessee shall maintain, or cause to be
maintained, such records as shall be reasonably necessary in order to verify the
factual basis for the matters referred to in this Article IX. Lessee shall make
the records
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referred to in the preceding sentence available, or cause such records to be
made available, for inspection by Owner Participant or its authorized agents,
during normal business hours at the Facility, upon request by, and five days'
prior written notice from, Owner Participant. Lessee shall, at its expense,
upon request by Owner Participant, provide a copy of such records which shall be
certified to be a true copy by an affidavit attached thereto and executed by an
officer of Lessee. Notwithstanding the preceding sentence, Owner Participant or
its authorized agents shall have the right to make copies and extracts of any
such records at their sole expense. Lessee shall have no obligation to make
available its income tax returns and may impose reasonable confidentiality
requirements for any information or records provided under this Section 9.02.
In addition, Lessee shall have no obligation under this Section 9.02 with
respect to records disposed of after Lessee has requested and received Owner
Participant's written consent (which consent shall not be unreasonably withheld)
for such disposal.
SECTION 9.03. Representations, Warranties and Covenants of Lessee.
Lessee represents, warrants and covenants that:
(a) assuming that Owner Participant is treated as owner of the
Facility Assets for Federal income tax purposes, in the hands of Owner
Participant the Facility Assets will be eligible for the MACRS Deduction;
(b) the Facility Assets will not be treated as "tax-exempt bond
financed property" as defined in Section 168(g)(5) of the Code and Owner
Participant will not be required, except by reason of an act or omission of
Owner Participant unrelated to the transactions contemplated by the
Operative Documents, to use the "alternative depreciation system" described
in Section 168(g) of the Code;
(c) the Facility Assets do not and will not constitute "public utility
property" as defined in Section 168(i)(10) of the Code, unless such status
shall result from acts or omissions of Owner Participant unrelated to its
participation in the transactions contemplated by the Operative Documents,
and will not be subject to the provisions of Sections 168(f)(2) of the
Code;
(d) the Facility Assets will be placed in service no later than the
Closing Date;
(e) as of the Closing Date, the Facility Assets will require no
improvements, modifications or additions (other than the Known Alterations)
in order to be rendered complete for their intended use by Lessee and
Lessee has no present intention to make any specific non-severable
improvements, modifications or additions (other than the Known Alterations
and the Work in Progress) to the Facility Assets;
(f) all written information supplied by Lessee or any of its
Affiliates or either of Sellers or their Affiliates to any independent
appraiser or engineer in
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connection with the appraisal referred to in Section 4.02(t) of the
Participation Agreement (and, in the case of written information supplied
by either of Sellers or their Affiliates, specifically identified in
writing by such appraiser or engineer, and confirmed by Lessee as having
been provided by Sellers or their Affiliates), with respect to the
description, nature, function, testing and cost of the Facility, including
facts relating to its intended use, economic life and residual value, was
complete (to the best of Lessee's knowledge) and accurate in all material
respects at the time given and on the Closing Date, and neither Lessee nor
any Affiliate has any reason to believe that any of the conclusions set
forth in the appraisal are in any manner incorrect or misleading; provided,
however, that while the projections and estimates made by Lessee or Sellers
that are included in such information were made in good faith, Lessee does
not make any representations as to the reasonableness or accuracy of any
estimates or projections included in such information;
(g) no loss, damage, destruction, condemnation, seizure, confiscation,
theft, forfeiture, requisition of title or requisition of use with respect
to the Facility or any portion thereof that does not constitute an Event of
Loss will result in the disallowance, loss, recapture or deferral of all or
any portion of the MACRS Deductions or the Interest Deductions;
(h) on the Closing Date, there will not be any portion of the
acquisition cost of the Facility Assets paid for or incurred by Lessee or
any Affiliate thereof for which Lessee shall not have been reimbursed by
Owner Participant;
(i) the basis of the Facility Assets will not be reduced and the
Interest Deductions will not be affected at any time as a result of, or in
connection with, the characterization as interest or original issue
discount of any amount denominated as principal under any Loan Certificate
pursuant to the application of Section 483, 1272, 1273, 1274, 1275 or 7872
of the Code;
(j) neither Lessee nor any of its Affiliates has acquired or will
acquire any of the Loan Certificates except as permitted by Section
4.02(b); and
(k) neither Lessee nor any Affiliate will at any time take any action,
directly or indirectly, or file any returns or other documents inconsistent
with the tax assumptions set forth in Section 9.01, and Lessee and each
Affiliate will file such returns, maintain such records, take such actions
and execute such documents an Owner Participant may request in writing as
being reasonably necessary to facilitate accomplishment of the intent
thereof.
SECTION 9.04. Indemnity. If directly as a result of:
(A) any act or omission (other than an act or omission expressly
required by the Operative Documents and other than (v) the
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execution and delivery of the Operative Documents, (w) the exercise of
Lessee's right to purchase the Facility Assets pursuant to Section
4.02, to renew this Lease pursuant to Section 4.01 or to terminate
this Lease early pursuant to Section 4.03, (x) a Refinancing of the
Loan Certificates in accordance with Section 8.01 of the Participation
Agreement or any assumption by Lessee of the Loan Certificates in
accordance with the provisions of Section 4.02(b), (y) the making of
the Known Alterations in accordance with the provisions of Section
8.02 of the Participation Agreement and (z) any sublease of the
Facility Assets in accordance with the provisions of Section 15.01 to
a Person who is not a "tax-exempt entity'" within the meaning of
Section 168(h) of the Code) on the part of Lessee, any officer,
employee, agent of Lessee, any Affiliate of Lessee, any sublessee,
assignee, user or person in possession of the Facility Assets, the
Site or any part thereof, or any Person claiming by, through or under
Lessee in each case other than Lessor, Owner Participant, their
Affiliates or anyone claiming through them (other than Lessee) (any of
the foregoing being hereinafter referred to as a "Lessee Person"); or
(B) (i) any breach or inaccuracy of any representation, warranty
or covenant set forth in Section 9.03 hereof or Section 5.01 or 5.06
of the Participation Agreement an the part of Lessee or any Lessee
Person or (ii) any exercise of any remedies by Indenture Trustee or
one or more holders of any Loan Certificate resulting from any breach
by Lessee of any obligation under the Operative Documents or of any
covenant contained therein); or
(C) any bankruptcy of Lessee or any Lessee Person or other
proceedings for the relief of debtors involving Lessee or any Lessee
Person or any foreclosure on or against Lessee or any Lessee Person;
or
(D) any non-use of, repair or replacement of, or the making of
any addition, modification or improvement (other than the Known
Alterations or the Work in Progress) to, or any payment of any
warranty not permitted to be retained by Lessor or Owner Participant
in respect of, the Facility Assets or any part thereof;
Owner Participant shall lose, shall suffer a disallowance of, shall suffer a
delay in claiming, shall not have the right to claim, shall not claim (based on
a written opinion of Cravath, Swaine & Moore or other independent tax counsel
selected by Owner Participant and reasonably acceptable to Lessee ("Owner
Participant's Tax Counsel") to the effect that there is no substantial authority
for such claim (an "Owner Participant Opinion")), or shall be required to
recapture all or any portion of the MACRS Deductions, the Interest Deductions or
the Amortization Deductions (any such event being hereinafter referred to as a
"Loss"), then Lessee shall pay to Owner Participant on an After-Tax Basis as an
indemnity not later than 30 days after written notice to Lessee by Owner
Participant of such Loss specifying in reasonable detail the calculation of
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such Loss and the event giving rise thereto, such amount (calculated pursuant to
Section 9.09) as shall, taking into account any interest and any penalties and
additions to tax payable as a result of and properly attributable to such Loss
or any contest of such Loss (net of any deductions currently available for, such
interest, penalties or additions), cause Owner Participant's Net Economic Return
(computed otherwise on the same assumptions (other than the changed assumptions
giving rise to Lessee's payment) as were utilized by Owner Participant in
originally computing the Basic Rent set forth in Section 3.01) to equal the Net
Economic Return (as so computed) that would have been realized by Owner
Participant if such Loss had not occurred. In lieu of such payment Lessee may
elect to (i) pay on an After-Tax Basis to Owner Participant, within 30 days
after such written notice by, Owner Participant, an amount (calculated pursuant
to Section 9.09) equal to the Federal income taxes payable by Owner Participant
as a result of such Loss and any interest and any penalties and additions to tax
imposed as a result of and properly attributable to such Loss or the contest of
such Loss (net of any deductions currently available for such interest,
penalties or additions) or (ii) unless this Lease shall have terminated, pay the
indemnity described in the next preceding sentence by increasing payments of
Basic Rent (commencing on the Rent Date following notice by Owner Participant of
such Loss) by such amounts as are necessary, taking into account such indemnity,
to preserve Owner Participant's Net Economic Return, adjusted to reflect any
increase in the per annum rate paid at the time of determination on five-year
Treasury Certificates issued by the United States of America from the rate paid
on such Treasury Certificates on the date five days prior to the Closing Date.
SECTION 9.05. Foreign Tax Credit Indemnity. If, by reason of the
location of the Facility Assets, the Site or any part of any thereof outside the
United States prior to the termination of the Lease, any item of income, gain,
loss, deduction or credit with respect to the transactions contemplated by the
Operative Documents shall not be treated as derived from, or allocable to,
sources within the United States for a given taxable year (any such event
hereinafter referred to as a "Foreign Allocation"), then Lessee shall pay to
Owner Participant on an After-Tax Basis within 30 days after written demand
therefor from Owner Participant as an indemnity, an amount equal to the sun of:
(1) the excess of (x) the foreign tax credits to which Owner Participant would
have been entitled for such year had no such Foreign Allocation occurred over
(y) the foreign tax credit to which Owner Participant was limited taking into
account such Foreign Allocation; and (2) the amount of any interest and any
penalties and additions to tax (taking currently allowable deductions into
account) payable as a result of and properly attributable to such Foreign
Allocation. The amount payable to Owner Participant pursuant to this Section
9.05 shall be paid not later than 30 days after written demand by Owner
Participant accompanied by a written statement describing in reasonable detail
such Foreign Allocation and the computation of the amount so payable.
SECTION 9.06. Income Inclusion: Reverse Indemnities. (a) If,
directly as a result of an event described in Section 9.04 (A), (B), (C) or (D)
or directly as a result of the payment by any Lessee Person of any expenses of
any Indemnified Person pursuant to Section 8.03(a) or 9.08, at any time Owner
Participant, Lessor or the Trust
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Estate is required to include in its Federal gross income with respect to any
period prior to the termination of the Lease (or, if the Lease shall have
terminated as the result of an Event of Default, with respect to any period) an
amount in respect of the transactions contemplated by the Operative Documents
other than the amounts described in Section 9.01(f)(i) through (vii) at the
times described therein (an "Income Inclusion"), then Lessee shall pay to Owner
Participant on an After-Tax Basis within 30 days after written demand therefor
from Owner Participant accompanied by a written statement describing in
reasonable detail the calculation of the event giving rise to such Income
Inclusion and the computation of the amount so payable, as an indemnity, an
amount (calculated in accordance with Section 9.09) equal to the sum of (x) the
net aggregate additional Federal, state and local income taxes or franchise
taxes based an income payable by Owner Participant from time to time as a result
of such Income Inclusion plus (y) the amount of any interest and any penalties
and additions to tax (taking currently allowable deductions into account)
payable as a result of and properly attributable to any such Income Inclusion.
In lieu of such payment Lessee may elect to (i) pay Owner Participant as an
indemnity on an After-Tax Basis, within 30 days of such written notice by Owner
Participant, such amount (calculated pursuant to Section 9.09) as shall, taking
into account any interest and any penalties and additions to tax payable as a
result of and properly attributable to such Income Inclusion (net of any
deductions currently available for such interest, penalties or additions) cause
Owner Participant's Net Economic Return (computed otherwise on the same
assumptions (other than the changed assumptions giving rise to Lessee's payment)
as were utilized by Owner Participant in originally computing the Basic Rent as
set forth in Section 3.01) to equal the Net Economic Return (as so computed)
that would have been realized by Owner Participant if such Income Inclusion had
not occurred or (ii) unless this Lease shall have terminated, pay the indemnity
described in clause (i) above by increasing payments of Basic Rent by such
amounts as are necessary to preserve Owner Participant's Net Economic Return,
adjusted to reflect any increase in the per annum rate paid at the time of
determination on five-year Treasury Certificates issued by the United States of
America from the rate paid on such Treasury Certificates on the date five days
prior to the Closing Date.
(b) If as a result of any such Loss or Income Inclusion with respect
to which Lessee shall have paid an indemnity pursuant to Section 9.04 or 9.05 or
this Section 9.06, the Federal (or in the case of an Income Inclusion, the
Federal, state or local) income taxes paid by Owner Participant for any taxable
year shall be less than the amount of such taxes that would have been payable by
Owner Participant taking into account the assumptions set forth in Section 9.09
had no such Loss or Income Inclusion occurred and such reduction was not
previously taken into account in calculating the amount of Lessee's indemnity
obligation, then Owner Participant shall pay Lessee the net amount of such
savings in taxes (calculated in accordance with Section 9.09) plus the amount of
any additional Federal, state or local income tax benefits realized by Owner
Participant as a result of any payment pursuant to this sentence; provided,
however, that Owner Participant shall not be obligated to make any payment
pursuant to this sentence to the extent that the amount of such payment would
exceed (x) the amount of all prior payments by Lessee to Owner Participant
pursuant to Section 9.04
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or 9.05 or this Section 9.06 in respect of the Loss or Income Inclusion that
gave rise to such tax benefits less (y), the amount of all prior payments by
Owner Participant to Lessee hereunder. Any payment due to Lessee from Owner
Participant pursuant to this Section 9.06(b) shall be paid within 30 days after
Owner Participant is deemed to realize any such savings in its income taxes or
additional tax benefits, as the case may be.
SECTION 9.07. Excluded Losses. Notwithstanding any other provision
of Section 9.04, 9.05 or 9.06, no indemnity shall be payable pursuant to Section
9.04, 9.05 or 9.06, if such Loss or Income Inclusion results directly from any
of the following events:
(a) the failure of Lessor or Owner Participant to have a full taxable
year for its taxable year in which the Closing Date occurs, for purposes of
claiming cost recovery deductions;
(b) a determination by a United States taxing authority that the
terms and conditions of the Operative Documents fail to result in this
Lease being treated as a true lease for Federal income tax purposes, or
that Owner Participant is not the purchaser, owner or lessor of the
Facility Assets except if such determination shall result directly from any
inaccuracy of the representations, warranties or covenants contained in
Section 9.03 (e), (f), (j) or (k) or Section 5.01 (a), (b), (d), (e), (j),
or (l) or 5.06 (a), (b), (d) or (e) of the Participation Agreement;
(c) the classification as a taxable entity of the trust created by
the Trust Agreement
(d) noncompliance with Section 467 of the Code except (i) in
connection with a change in the rental schedule after a Default or Event of
Default shall have occurred or (ii) if any Lessee Person shall deduct any
payment of Basic Rent in any period other than the period to which such
payment is allocated hereunder unless such Lessee Person shall have
received an opinion of Dewey, Ballantine or other independent tax counsel
selected by Lessee Person and reasonably acceptable to Owner Participant to
the effect that there is no reasonable basis for deducting such payments in
the periods to which such payments are allocated under this Lease;
(e) the failure of Owner Participant to contest any proposed
adjustment that it is required to contest pursuant to Section 9.08 in
accordance with such provision;
(f) except with respect to any replacement or substitution of the
Facility or any part of any thereof, any change in the Code enacted after
the Closing Date;
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(g) except as provided in Section 9.05, the treatment of any item of
income, gain, loss or deduction as having been derived from sources outside
the United States (under Section 861 of the Code or otherwise);
(h) the existence of the provisions set forth in Section 6.01(b) of
the Participation Agreement or Section 3.01(a) of this Lease;
(i) a voluntary transfer (it being understood that the term
"voluntary transfer" does not include any transfer provided for in the
Operative Documents (other than pursuant to Article VII of the
Participation Agreement or Section 15.02 of this Lease) or any transfer to
Lessee or any Affiliate thereof) by Owner Participant of any interest in
the Facility or any part thereof or any interest arising under the
Operative Documents or from any involuntary transfer by Owner Participant
of any of the foregoing interests in connection with any bankruptcy or
other proceeding for the relief of debtors in which Owner Participant or
Owner Trustee is the debtor (except if such proceeding shall have been
caused by Lessee); provided, however, that the exception set forth in this
subparagraph (i) shall not apply if any such transfer shall occur at any
time while a Lease Event of Default shall have occurred and be continuing;
(j) an event which results in Lessee making a payment of Stipulated
Loss Value or Termination Value or any amount determined by reference to
Stipulated Loss Value or Termination Value;
(k) a failure by Owner Participant or Owner Trustee to claim in a
timely and proper manner all or any portion of the Federal income tax
benefits set forth in Section 9.01 or the inclusion in gross income of an
amount with respect to an Income Inclusion in each case unless as a result
of the receipt of an opinion described in Section 9.04 that there is no
substantial authority for such claim or such exclusion from gross income;
(l) Owner Participant or Owner Trustee being or becoming a "tax-
exempt entity" within the meaning of Section 168 of the Code;
(m) a reorganization, liquidation, merger, consolidation or other
structural change of Owner Participant, Owner Trustee or any Affiliate of
either thereof unrelated to the Transactions contemplated by the Operative
Documents;
(n) the imposition of any minimum tax, alternative minimum tax or tax
on tax preference items;
(o) the application of Section 168(d)(3) of the Code;
(p) the treatment of the Facility Assets as "public utility property"
within the meaning of Section 168(i)(10) of the Code as a result of the
identity
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or status of Owner Participant or Owner Trustee or any Affiliate of either
other than as the result of such party's participation in the Overall
Transaction; or
(q) the inaccuracy of any conclusion set forth in the appraisal
referred to in Section 4.02(t) of the Participation Agreement unless such
inaccuracy results in the inaccuracy of Section 9.03(a) hereof or results
from the inaccuracy of Section 9.03(f) hereof.
SECTION 9.08. Contest Provisions. (a) If the Internal Revenue
Service or other appropriate taxing authority shall propose an adjustment in the
Federal income taxes of Owner Participant for which Lessee may be required to
indemnify Owner Participant pursuant to this Article IX, then Owner Participant
shall give Lessee prompt written notice of such adjustment: provided, however,
that the failure to so notify Lessee shall not relieve Lessee of its obligations
under this Article IX unless such failure precludes Lessee from exercising its
contest rights under this Section 9.08. If requested by Lessee in writing
within 20 days, Owner Participant shall request an opinion of Owner
Participant's Tax Counsel, the cost of which shall be borne by Lessee, as to
whether there in a reasonable basis in law and in fact for the contest of such
adjustment. If the opinion is to that effect and if Lessee promptly (but no
later than 15 days thereafter) requests Owner Participant to do so, Owner
Participant shall contest the proposed adjustment in good faith unless the
aggregate amount of the indemnity that Lessee would be required to pay with
respect thereto would not exceed $200,000; provided, however, that Owner
Participant shall determine in its sole discretion the nature of all action to
be taken to contest such proposed adjustment including (i) whether any action to
contest such proposed adjustment shall initially be by way of judicial or
administrative proceedings, or both, (ii) whether any such proposed adjustment
shall be contested by resisting payment thereof or by paying the same and
seeking a refund thereof and (iii) if Owner Participant shall undertake judicial
action with respect to such proposed adjustment, the court or other judicial
body before which such action shall be commenced. Although Owner Participant
agrees to consult in good faith with Lessee on matters relating to the contest
and to consider in good faith timely suggestions from Lessee with respect to the
contest (including suggestions as to choice of forum), Owner Participant shall
have full control over any contest pursuant to this Section 9.08 and shall not,
except as specifically provided below, be obligated to pursue an appeal from any
judicial determination. Subject to satisfaction of the other conditions set
forth in this Section 9.08, Owner Participant shall be obligated to pursue (but
only to one additional judicial level and in no event to the United States
Supreme Court), with respect to a determination by a court, an appeal with
respect to such determination if Owner Participant shall have received, at the
expense of Lessee, an opinion of Owner Participant's Tax Counsel to the effect
that the basis in law and in fact for Owner Participant's position exceeds the
basis in law and in fact against such position. At any time, whether before or
after commencing to take the action set forth in this Section 9.08, Owner
Participant may decline to take any such action that it would otherwise be
required to take pursuant to this Section 9.08 with respect to all or any
portion of a proposed adjustment by notifying Lessee in writing that Lessee is
relieved of its obligations to indemnify Owner Participant with respect to the
adjustment
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or such portion, as the case may be, in which event Owner Participant shall
repay any indemnity amount previously advanced by Lessee with respect to such
adjustment (but not any costs or expenses with respect to any contest).
(b) Owner Participant shall not be required to take any action
pursuant to this Section 9.08 unless and until Lessee shall have acknowledged
its indemnity obligation provided that such acknowledgment shall be of no force
or effect if the contest is resolved on an articulated basis that clearly does
not constitute a basis for indemnification hereunder and shall have agreed to
indemnify Owner Participant in a manner reasonably satisfactory to Owner
Participant for any liability or loss which Owner Participant may incur as a
result of contesting the validity of any proposed adjustment and shall have
agreed to pay to Owner Participant on demand all costs and expenses which Owner
Participant may incur in connection with contesting such proposed adjustment
(including fees and disbursements of counsel). If Owner Participant determines
to contest any adjustment by paying the additional tax and suing for a refund,
Lessee shall pay to Owner Participant an amount equal to the sum, on an After-
Tax Basis, of any tax, interest, penalties and additions to tax which are
required to be paid. Upon receipt by Owner Participant of a refund of any
amounts paid by it based on the adjustment in respect of which amounts it shall
have previously been paid funds by Lessee, Owner Participant shall pay to
Lessee, the amount of such refund net of any tax consequences of the receipt of
such refund (or such portion thereof as is properly allocable to the adjustment)
together with any interest received by it on such refund and any tax savings
resulting from such payment. In lieu of the payment referred to in the second
preceding sentence, Lessee may elect to lend to Owner Participant, on an
interest-free basis, an amount equal to the sum of any tax, interest, penalties
and additions to tax which are required to be paid in order to conduct such
contest; provided, however, that Lessee shall have agreed to indemnify Owner
Participant, in a manner reasonably acceptable to Owner Participant, for any
additional taxes, interest, penalties and additions to tax which Owner
Participant may be required to pay in respect of the receipt of such loan.
SECTION 9.09. Determination of Payments. (a) Whenever it may be
necessary for purposes of this Article IX to determine the amount of any Income
Inclusion, or the amount of any tax savings resulting from an Income Inclusion,
such determination shall be made on the assumption that the Federal, state and
local income taxes of Owner Participant are payable at the highest marginal
statutory tax rates in effect for corporate taxpayers for the respective years
to which such Income Inclusion or tax savings relate (the "Effective Rate").
When determining the amount of any Loss suffered by Owner Participant, or the
amount of any tax savings resulting from a Loss, such determination shall be
made on the basis of the assumption that the Federal income taxes of Owner
Participant are payable at the rate set forth in Section 9.01(d) (the "Assumed
Rate") and on the assumption that in computing its Federal income tax liability,
Owner Participant can currently fully utilize the tax benefits that are the
subject of any Loss or that result from a Loss against taxes payable at the
Assumed Rate. In calculating the amount payable with respect to an Income
Inclusion, or the tax savings resulting therefrom, it shall be conclusively
presumed that, for any taxable year of
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Owner Participant, Owner Participant suffers a corresponding Income Inclusion
for state and local income tax purposes in any circumstance in which it suffers
an Income Inclusion (and realizes corresponding state and local income tax
benefits resulting from an Income Inclusion when such benefits are available for
Federal income tax purposes) respectively. For purposes of determining the
amount of tax savings from any payment by the Owner Participant to Lessee, it
shall be assumed that Federal, state and local taxes are payable by Owner
Participant at the highest marginal statutory rates in effect for the relevant
period. The determination of the amount payable to Owner Participant under this
Article IX shall be made by Owner Participant, who shall furnish Lessee with a
notice setting forth in reasonable detail the computations and methods used in
computing such amount. Lessee agrees that it will not have the right to inspect
the tax returns, books, records or any other documents of Owner Participant in
connection with any computation pursuant to this Article IX.
(b) At the request of Lessee, the calculation of any amount (but not
the existence of any liability for payment under this Article IX) payable
pursuant to this Article IX and any corresponding adjustment to stipulated Loss
Value shall be verified or corrected by a nationally recognized accounting firm
mutually acceptable to Owner Participant and Lessee that does not currently
represent either Owner Participant or Lessee. The cost of such verification or
correction will be borne by Lessee unless the initial calculation was incorrect
in the Owner Participant's favor by more than 5% of the amount actually
determined in which event the cost of such verification shall be borne by Owner
Participant.
SECTION 9.10 Affiliated Group. For purposes of this Article IX, the
term "Owner Participant" shall include any member of an affiliated group of
corporations of which Owner Participant is, or may become, a member if
consolidated or combined returns are or shall be filed for such affiliated group
for Federal income tax purposes (and, with respect to amounts payable in
connection with an Income Inclusion and amounts payable in order to make
payments on an After-Tax Basis, if consolidated or combined returns are filed
for state or local income tax purposes).
SECTION 9.11 Recalculation. If an amount shall be payable pursuant
to this Article IX, the schedules of Stipulated Loss Value shall, to the extent
appropriate, be adjusted by Owner Participant based on the original assumptions
used in preparing such schedules, other than those assumptions changed as a
result of the event giving rise to such adjustment. If an Event of Loss or
termination or any other event giving rise to a payment of Stipulated Loss Value
or an amount determined by reference thereto occurs and as a result thereof the
date as of which Owner Participant shall have been affected for Federal income
tax purposes shall be earlier than the date assumed in calculating the relevant
amount of Stipulated Loss Value, then such Stipulated Loss Value shall be
appropriately increased by Owner Participant based otherwise on the same
assumptions on which such Stipulated Loss Value was originally calculated.
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ARTICLE X
Lessee Agreements Relating to Facility
--------------------------------------
SECTION 10.01 Liens. (a) Lessee shall not directly or indirectly
create incur, assume or suffer to exist any Lien on or with respect to the
Facility or any portion thereof or interest therein or any part of the Trust
Estate or the Indenture Estate, including Basic Rent or Supplemental Rent or any
amount or part thereof, except Permitted Liens (including Lessor Liens), and
Lessee shall notify each Lessor Party in writing promptly after Lessee becomes
aware of the existence of any such Lien, and will promptly, at its sole expense,
take such action as may be necessary duly to discharge any such Lien.
(b) Nothing contained in this Lease shall be deemed or construed in
any way as constituting the consent or request of any Lessor Party, express or
implied by inference or otherwise, to any contractor, subcontractor, laborer or
materialman for the performance of any labor or the furnishing of any materials
for any specific improvement, alteration to or repair of the Facility, nor as
giving Lessee a right, power or authority to contract for or permit the
rendering of any services or the furnishing of any materials whether as agent of
or o behalf of or to the benefit of any Lessor Party or otherwise, or that would
give rise to the filing of any mechanic's or materialman's liens against any
Lessor Party's interest in the Facility. Notice is hereby given that neither
any Lessor Party nor any of any Lessor Party's agents shall be liable for any
labor or materials furnished or to be furnished to Lessee upon credit, and that
no mechanic's or other Lien for such labor or materials shall attach to or
affect any estate or interest of Lessor in and to the Facility. Nothing
contained in this Lease shall be deemed or construed to constitute Lessee as any
Lessor Party's agent or contractor for the performance of any work by Lessee on
or with respect to the Facility. Lessee hereby acknowledges that any such work
performed by Lessee is to be performed solely for the benefit of Lessee and not
for the benefit of any Lessor Party.
SECTION 10.02 Operation, Maintenance and Completion. (a) Lessee
shall at all times (i) operate, service, maintain and repair the Facility (x) in
accordance with standards of prudence applicable to the paper industry and
standards at least as high as those standards applicable to comparable
facilities owned or leased by Lessee, with such operating standards as shall be
required to enforce all material warranty claims against dealers, manufacturers,
vendors, contractors and subcontractors, and with the terms and conditions of
all insurance policies in effect at any time with respect thereto and (y) to the
extent required to maintain the Facility in good operating condition and repair,
ordinary wear and tear excepted, and to cause the Facility to continue to have
the capacity and functional ability to perform, on a continuing basis and in
normal commercial operations, the functions for which it was designed, (ii)
comply with all Governmental Rules and Governmental Actions affecting the
Facility or the use, operation or maintenance thereof (except that Lessee may
contest in good faith by appropriate proceedings any such Governmental Rule or
Governmental Action so long an such contest does not violate clause (x), (y) or
(z) of clause (iii) of the
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definition of Permitted Liens) and (iii) keep and maintain proper books and
records relating to all services rendered and all funds expended for operation
and maintenance of the Facility or the acquisition, construction or installation
of all Parts and Alterations, all in accordance with customary practices in the
paper industry. Except as expressly provided herein, Lessor shall not be
obliged in any way to maintain, alter, repair, rebuild or replace the Facility
or any part thereof, and Lessee expressly waives the right to perform any such
action at the expense of Lessor pursuant to any law at any time in effect.
(b) Lessee shall diligently complete or cause to be completed each of
the works in progress listed on Schedule 10.02 ("Work in Progress") in such
manner that when completed all Work in Progress will (i) have been completed and
constructed in a good and workmanlike manner in accordance with good
construction and engineering practice and the plans and specifications
therefore, (ii) conform in all material respects to the description thereof
contained in Schedule 10.02, (iii) have been tested and found to operate
satisfactorily, have been placed in commercial operation on a continuing basis
and have demonstrated the capacity and functional ability to perform the
functions for which such Work in Progress was specifically designed in
accordance with the plans and specifications therefor and (iv) comply with all
applicable Governmental Rules and Governmental Actions. Upon each part of Work
in Progress being completed in accordance with this Section 10.02(b), Lessee
shall deliver to each Lessor Party a notice certifying as to such completion.
(c) Except in the ordinary course of business, Lessee shall not
remove or permit to be removed from the Site any of the Facility Assets, except
as permitted by this Lease or any other Operative Documents.
(d) Leessee hereby waives any obligation of Lessor under the
provisions of O.C.G.A. (S) 44-7-13.
SECTION 10.03 Reports. To the extent permissible, Lessee shall
prepare and file in timely fashion, or, where Lessor shall be required to file,
Lessee shall prepare and deliver to Lessor within a reasonable time prior to the
date for filing, any reports with respect to the condition or operation of the
Facility that shall be required to be filed with any Governmental Authority.
SECTION 10.04 Replacement of Parts. Except after the occurrence of
an Event of Loss, Lessee will promptly repair or replace any necessary or useful
Part which may from time to time fail to function in accordance with its
intended use, or become worn out, destroyed, damaged beyond repair, lost,
condemned, confiscated, stolen or seized for any reason whatsoever. In
addition, in the ordinary course of maintenance, service, repair or testing,
Lessee may remove any Part, but Lessee shall cause such Part to be replaced by a
replacement Part as promptly as practicable.
All replacement Parts shall be free and clear of all Liens except
Permitted Liens and shall be in at least as good operating condition as, and
shall have a value and
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utility at least equal to, the Parts replaced, assuming such replaced Parts were
in at least the condition and repair required to be maintained hereunder. Each
Part at any time removed from the Facility shall remain the property of Lessor,
no matter where located, until such time as such Part shall be replaced by a
replacement Part which has been incorporated in the Facility and which meets the
requirements for replacement Parts specified above. Immediately upon any
replacement Part becoming incorporated in the Facility, without further act, (i)
title to the removed Part shall thereupon vest in Lessee or such other Person as
shall be designated by Lessee, free and clear of all rights of Lessor Parties,
(ii) title to such replacement Part shall thereupon vest in Lessor and be
subject to the Indenture and (iii) such replacement Part shall become subject to
this Lease and be deemed a part of the Facility for all purposes hereof to the
same extent as the Part originally incorporated in the Facility. Prior to or on
the date of installation of any replacement Part with a value in excess of
$1,000,000 individually or $4,000,000 in the aggregate with other replacement
Parts, Lessee will (x) use all reasonable efforts to furnish Lessor with a full
warranty bill of sale conveying title to such replacement Part to Lessor free
and clear of all Liens except Permitted Liens and (y) furnish each Lessor Party
with such evidence of Lessor's title to, and the condition of, such replacement
Part as such Lessor Party may request.
SECTION 10.05 Required Alterations. Notwithstanding Section 10.09,
Lessee shall make all Severable and Non-Severable Alterations to the Facility as
may be required from time to time to meet the requirements of Governmental Rules
or Governmental Actions. All such Alterations shall be completed in a good and
workmanlike manner, with reasonable dispatch.
SECTION 10.06 Optional Alterations. Lessee may from time to time
make such Severable and Non-Severable Alterations to the Facility which are not
required pursuant to Section 10.05 as Lessee may deem desirable in the proper
conduct of its business provided that (i) no such Alteration shall materially
diminish the value, utility, condition or useful life of the Facility below the
value, utility, useful life and condition thereof immediately prior to such
Alteration, assuming the Facility was then in at least the condition and repair
required to be maintained by the terms of this Lease, and (ii) such Alteration
shall not be in replacement of, or in substitution for, any Part originally
incorporated in the Facility or any Part title to which shall have vested in
Lessor. All such Alterations shall be completed in a good and workmanlike
manner, with reasonable dispatch.
SECTION 10.07 Reports of Alterations. On or before March 31 of each
year and on the Termination Date, Lessee shall furnish each Lessor Party with a
report stating the total cost of all Alterations and describing separately and
in reasonable detail each Alteration (or related group of Alterations) of value
in excess of $1,000,000 made during the period from the date hereof to the end
of the preceding calendar year in the case of the first such report or during
the period from the end of the period covered by the last previous report to the
date one month prior to such report in the case of subsequent reports.
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SECTION 10.08 Title to Alterations. Title to each Alteration shall
without further act vest in Lessor and be deemed to constitute a part of the
Facility and be subject to this Lease if such Alteration is required pursuant to
Section 10.05 or is a Non-Severable Alteration or is financed by Owner
Participant or Lessor pursuant to Section 10.09. If (i) no Event of Default
shall exist (or upon all Events of Default having been cured), (ii) such
Alteration has not been financed by Lessor or Owner Participant pursuant to
Section 10.09 and is not included in Work in Progress and (iii) Lessee shall
have provided to each Lessor Party (x) a certificate substantially in the form
of Schedule 10.08 of a licensed professional engineer to the effect that such
Alteration is not required pursuant to Section 10.05 and is Severable and (y)
the written agreement of each Person (other than Lessee) in which title to such
Alteration shall vest to be bound by the remainder of this Section 10.08, then
title to such Alteration shall vest in Lessee (or any such Person), subject to
the rights of Lessor provided in the remainder of this Section 10.08. Any
Alteration covered by the preceding sentence may, so long as such removal shall
not result in any violation of any Governmental Rule or Governmental Action nor
cause any material damage to the Facility and so long as no Default or Event of
Default shall exist, be removed by Lessee (or such other Person) prior to
delivery of the Facility to Lessor in accordance with the provisions of this
Lease upon 30 days' prior written notice to each Lessor Party. However, Lessor
may purchase for cash any such Alteration at the time it would have been so
removed by giving to Lessee (or such other Person) written notice of its
election to do so within 15 days after receipt of such prior written notice.
The purchase price of such Alteration shall be the Fair Market Sale Value
thereof as of the date of purchase as determined by mutual agreement of Owner
Participant and Lessee or, in the absence of such agreement, by the Appraisal
Procedure.
SECTION 10.09 Funding of Alterations. Certain Alterations may be
funded by Lessor or Owner Participant in accordance with Section 8.02 of the
Participation Agreement and in accordance with the terms of the Indenture.
Lessee shall afford Lessor the opportunity to finance other Alterations on terms
mutually acceptable to Lessee and Owner Participant.
SECTION 10.10 Identification. Lessee shall maintain in prominent
places at the Site (other than in Florida) throughout the Term plates or other
appropriate markings bearing the inscription "PROPERTY OF THE CONNECTICUT
NATIONAL BANK, AS OWNER TRUSTEE, LESSOR" and, so long as the Facility shall
constitute part of the Indenture Estate, the inscription "STATE STREET BANK AND
TRUST COMPANY OF CONNECTICUT, N.A., AS INDENTURE TRUSTEE, SECURED PARTY" in
letters not less than two inches in height. Except as above provided or as
otherwise directed by a Lessor Party, Lessee shall not allow the name of any
Person other than that of Lessee to be placed on any part of the Facility as a
designation that might reasonably be interpreted as a claim of ownership or
right to possession or use thereof.
SECTION 10.11 Manuals, Logs, Plans and Specifications. Lessee shall
keep on file and maintain at the Site manuals and logs relating to the Facility,
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maintenance and repair reports in sufficient detail to indicate the nature and
date of major work done and a complete set of all plans and specifications for
the Facility, and shall make such manuals, logs, reports and plans and
specifications available to any Lessor Party upon reasonable request. Unless
the Facility shall have been Transferred to Lessee pursuant to this Lease, on
the Termination Date Lessee shall deliver to Lessor a complete set, current as
of the Termination Date, of all such manuals, logs, reports and plans and
specifications, and all work drawings and similar documents with respect to this
Facility.
ARTICLE XI
Insurance
---------
SECTION 11.01. Coverage. Without limiting any of the other
obligations or liabilities of Lessee under this Lease, Lessee will at all times
during the Term carry and maintain at least the following minimum insurance
coverage with respect to the Facility in each case with insurers of recognized
responsibility and acceptable to Owner Participant and Indenture Trustee:
(i) Comprehensive general liability insurance in an amount not less
than $100,000,000 including premises/operations, broad form contractual,
products and completed operations, independent contractors, broad form
property damage and personal injury;
(ii) Workers compensation insurance in compliance with applicable laws
and employer's liability insurance in an amount not less than $100,000,000;
(iii) Auto liability insurance in an amount not less than $100,000,000
covering owned, non-owned and hired, vehicles;
(iv) All-risk property insurance covering loss or damage to the
Facility including fire and extended coverage, collapse, flood, earthquake
and comprehensive boiler machinery including production equipment, written
in a minimum amount of $200,000,000 (computed as the sum of actual
insurance coverage plus the then existing deductible only to the extent
permitted hereunder); and
(v) Business interruption insurance written on a gross earnings form
covering loss of net profits and continuing expenses including Rent
payments, written in an amount equivalent to the sum of two years of net
profits, continuing expenses and Rent payments and not including any
coinsurance penalty;
and in any event shall maintain insurance in amounts and against risks which are
not less than that which is customarily maintained with respect to similar
properties owned,
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leased or operated by Lessee. The amounts of insurance specified above may not
be reduced and the amount of the deductible or self-insured retention shall not
exceed $25,000,000 without the prior written consent of Owner Participant and
Indenture Trustee. Any insurance described in this Section 11.01 may be carried
under blanket policies maintained by Lessee or its Affiliates so long as such
policies otherwise comply with the provision or its Affiliates of this Section
11.01.
SECTION 11.02 Endorsements. Any insurance carried in accordance with
Section 11.01 shall provide or be endorsed to provide:
(i) with respect to the insurance referred to in Section 11.01(i) and
(iii), Lessor, Owner Participant and Indenture Trustee are named as
additional insureds with the understanding that any obligation imposed upon
the insured (including the liability to pay premiums, but excluding any
obligation of the insured to cooperate with any insurer or any insurer's
representative in the investigation, defense or settlement of any claim
covered under such insurance) shall be the sole obligation of Lessee and
not that of any other insured; and with respect to the insurance referred
to in Section 11.01(iv) and (v), Lessor, Owner Participant and Indenture
Trustee are named as loss payees;
(ii) proceeds received under any policy shall be payable in accordance
with Section 11.04;
(iii) the insurer thereunder waives all rights of subrogation against
Lessor, any Participant and Indenture Trustee;
(iv) such insurance shall be primary without right of contribution
from any other insurance carried by or on behalf of Lessee, Lessor, Owner
Participant, Indenture Trustee, any Loan Participant or any other Person
with respect to its interest in the Facility except in the event of loss or
liability resulting solely from such Person's gross negligence;
(v) with respect to all liability insurance, all terms, conditions,
insuring agreements and endorsements, with the exception of limits of
liability, shall operate in the same manner as if there were a separate
policy covering each insured;
(vi) if insurance (other than that provided by Oil Insurance Limited)
is cancelled for any reason other than non-payment of premium, such
cancellation shall not be effective as to additional insureds and/or loss
payees named on the policies until 30 days after written notice of
cancellation is tendered by the insurer to each of them; if insurance
(other than that provided by Oil Insurance Limited) is cancelled by reason
of non-payment of premium, such cancellation shall not be effective as to
additional insureds and/or loss payees named in the policy until 10 days
after written notice of cancellation is tendered by the insurer to each of
them; upon any cancellation or notice of impending cancellation of
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insurance provided by Oil Insurance Limited, Lessee will immediately give
written notice of such cancellation or impending cancellation to Owner
Participant and Indenture Trustee; and
(vii) to the extent a material change endorsement is commercially
available, the policies shall be endorsed to provide that any material
change or reduction in the coverage shall not be effective as to additional
insureds or loss payees named an the policies until 30 days after written
notice of such change or reduction is tendered to each of them; to the
extent such an endorsement is not commercially available, Lessee shall
promptly give notice of any such material change or reduction in the
coverage to Owner Participant and Indenture Trustee.
SECTION 11.03 Adjustment of Losses. The loss, if any, covered under
any insurance required to be carried by paragraph (iv) or (v) of Section 11.01
shall be adjusted with the insurance companies or otherwise collected including
the filing of appropriate proceedings, by Lessee, subject to the approval of
Owner Participant and Indenture Trustee if the loss exceeds $25,000,000.
SECTION 11.04 Application of Insurance Proceeds. Subject to Section
12.04, all insurance proceeds (except under insurance described in Section
11.06) up to $10,000,000 on account of any physical loss or damage to the
Facility or any part thereof (less the actual costs, fees and expenses incurred
in the collection thereof) shall be paid to Lessee, and all insurance proceeds
(except under insurance described in Section 11.06) equal to or greater than
$10,000,000 in the aggregate on account of such physical loss or damage shall be
paid to Indenture Trustee (or to Lessor after discharge of the lien of the
Indenture) and all such proceeds shall be applied or dealt with as follows:
(a) All such proceeds not in respect of an Event of Loss shall be paid
over to Lessee or as it may direct from time to time as restoration
progresses, to pay (or reimburse Lessee for) the cost of restoration, if
the amount of such proceeds received by Indenture Trustee or Lessor,
together with such additional amounts, if any, theretofore expended by
Lessee out of its own funds for such restoration, are sufficient to pay the
estimated cost of completing such restoration, then, but only upon a
written application and an Officer's Certificate of Lessee showing in
reasonable detail the nature of such restoration, the actual cash
expenditures made to date for such restoration and the estimated cost to
complete such restoration and stating that no Default or Event of Default
exists (which certification shall be concurred in by a licensed
professional engineer). Upon the written request of Lessee, accompanied by
evidence satisfactory to Owner Participant and Indenture Trustee that such
restoration has been completed and the costs thereof paid in full and that
there are no mechanics' or similar Liens for labor or materials supplied in
connection therewith, the balance, if any, of such proceeds shall be paid
over or assigned to Lessee or as it may direct.
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(b) All such proceeds in respect of an Event of Loss shall be dealt
with in accordance with Section 12.02.
SECTION 11.05 Evidence of Insurance. On or before the execution of
this Lease and thereafter on the anniversary date hereof, Lessee shall cause to
be furnished to each Lessor Party (a) certifications, executed by each insurer
or by an authorized representative of each insurer where it is not practical for
such insurer to do so, with respect to all insurance relating to the Facility,
identifying underwriters, type of insurance, insurance limits (including
applicable deductibles) and policy term and specifically listing the special
provisions required by Section 11.02 and (b) an Officer's Certificate of Lessee
and a certificate of an independent insurance broker, each specifying the full
insurable value of the Facility and stating that all premiums then due have been
paid and that, in the opinion of the signer or signers thereof, is in accordance
with the terms of this Article XI. Upon request, Lessee will furnish each
Lessor Party with copies of all insurance policies, binders and cover notes or
other evidence of such insurance.
SECTION 11.06 Additional Insurance. Nothing in this Article XI shall
prohibit any Lessor party from maintaining, at its expense, additional insurance
for its own account with respect to loss or damage to the Facility or any part
thereof.
SECTION 11.07 Insurance Report. Concurrently with the furnishing of
the certification referred to in Section 11.05(b), Lessee shall provide a report
from an independent insurance broker stating that all premiums then due have
been paid and that, in the opinion of such broker, the insurance then carried
and provided through such broker and maintained is in accordance with the terms
of this Article XI. Furthermore, Lessee shall cause such broker to advise
Lessor promptly in writing of any default in the payment of any premiums or any
other act or omission on the part of any Person of which such broker has
knowledge which might invalidate or render unenforceable in whole or in part,
any insurance provided through such broker hereunder. Lessor may at its sole
option obtain such insurance if not provided by Lessee and, in such event,
Lessee shall reimburse Lessor upon demand for the cost thereof.
ARTICLE XII
Events of Loss
--------------
SECTION 12.01 Payment of Stipulated Loss Value. If the Facility or
any substantial part thereof shall suffer an Event of Loss or substantial
destruction, damage, loss, condemnation, confiscation, theft or seizure for any
reason whatsoever, such fact shall promptly, and in any event within five
Business Days, be reported by Lessee to each Lessor Party. If an Event of Loss
shall occur, Lessee shall pay as compensation for the Event of Loss the
Stipulation Loss Value determined as of the Rent Date next preceding the
occurrence of the Event of Loss. From the date of the Event of Loss to and
including the date of payment of such Stipulated Loss Value
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hereinafter specified, all Rent shall continue to the paid when due. Such
Stipulated Loss Value shall be paid on the Rent Date next succeeding the
occurrence of the Event of Loss, unless the Event of Loss shall have occurred
less than 30 days prior to such Rent Date, in which case such Stipulated Loss
Value, together with interest thereon at the Payment Rate from such Rent Date to
and including the date of payment, shall be paid on the 60th day after the date
of such occurrence. Upon payment in full of such Stipulated Loss Value,
together with all Rent due and owing through and including the date of such
payment and such interest, if any, the Term shall end and Lessor shall Transfer
the Facility to Lessee.
SECTION 12.02 Application of Other Payments on an Event of Loss. Any
payments (except under insurance described in Section 11.06) received at any
time by any Lessor Party or Lessee from any Governmental Authority insurer or
other Person (except Lessee) as a result of the occurrence of an Event of Loss
shall be applied as follows:
(a) all such payments received at any time by Lessee shall be promptly
paid to Indenture Trustee (or Lessor after release of the lien of the
Indenture) for application pursuant to the following provisions of this
Section 12.02, except that Lessee may retain any amounts that would at the
time be payable to Lessee as reimbursement under the provisions of
paragraph (b) below;
(b) so much of such payments as shall not exceed the Stipulated Loss
Value required to be paid by Lessee pursuant to Section 12.01 shall be
applied in reduction of Lessee's obligation to pay such amount if not
already paid by Lessee or, if already paid by Lessee, shall be applied to
reimburse Lessee for its payment of such amount; and
(c) the balance, if any, of such payments remaining thereafter shall
be divided between Lessor and Lessee as their interests may appear except
that any such balance resulting from such insurance shall be paid to
Lessee.
SECTION 12.03 Application of Payments Not Relating to an Event of
Loss. Unless a Default or Event of Default shall exist, payments (except under
insurance described in Section 11.06) received at any time by any Lessor Party
or Lessee from any Governmental Authority, insurer or other Person with respect
to any destruction, damage, loss, condemnation, confiscation, theft or seizure
of or requisition of title to or use of the Facility or any part thereof not
constituting an Event of Loss shall be paid to or retained by Indenture Trustee
(or Lessor after release of the lien of the Indenture) and first shall be
applied in accordance with the provisions of Section 11.04(a) (other than the
last sentence thereof) to restore or replace what has been destroyed, damaged,
lost, condemned, confiscated, stolen, seized or requisitioned, and second in
accordance with the provisions of Section 12.02.
SECTION 12.04 Other Dispositions. Notwithstanding the foregoing
provisions of this Article XII, so long as a Default or Event of Default shall
exist, any
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amount that would otherwise be payable to or for the account of, or that would
otherwise be retained by, Lessee pursuant to Article XI or this Article XII
shall be paid to Indenture Trustee (or Lessor after release of the lien of the
Indenture) as security for the obligations of Lessee under this Lease and, at
such time thereafter as no Default or Event of Default shall exist, such amount
shall be paid promptly to Lessee unless this Lease shall have theretofore been
declared to be in default, in which event such amount shall be disposed of in
accordance with the provisions hereof, of the Indenture and of the Trust
Agreement.
ARTICLE XIII
Events of Default
-----------------
The term Event of Default shall mean any of the following events
(whatever the reason for such Event of Default and whether it shall be voluntary
or involuntary or come about or be effected by operation of law or be pursuant
to or in compliance with any Governmental Rule):
(a) Lessee shall fail to pay (A) Basic Rent or Stipulated Loss Value
within 5 days after payment thereof shall have become due or (B)
Supplemental Rent or any other payment under the Operative Documents within
15 days after payment thereof shall have become due;
(b) Lessee shall fail to maintain insurance as required by Article XI;
(c) Lessee shall fail to perform or observe any covenant, condition or
agreement to be performed or observed by it under Section 7.02(b), 7.02(c),
7.03, 7.04, 7.05 or 7.06;
(d) Lessee shall fail to perform or observe any other covenant,
condition or agreement to be performed or observed by it under this Lease
(other than Article VIII and IX) or any Operative Document (other than
Section 6.06 of the Participation Agreement) and such failure shall
continue for a period of 45 days (180 days if such failure is capable of
being cured (other than solely by payment of money) by Lessee and Lessee if
proceeding diligently to cure such failure) after the earlier to occur of
(A) Actual Knowledge of such failure by a Responsible Officer of Lessee and
(B) receipt by Lessee of notice specifying such failure and requiring it to
be remedied; provided that failure to perform or observe any covenant,
condition or agreement set forth in Section 7.02(a) with respect to
compliance with environmental Governmental Rules or Governmental Actions
shall not be an Event of Default under this paragraph (d) unless (x) with
respect to events for which the aggregate amount of outstanding Cleanup
Costs then known to Lessee could reasonably be expected to exceed $25
million in the aggregate (but excluding from such calculation each event
not relating to the Other Facility having a Cleanup Cost not exceeding $5
million and each event
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relating to the Facility or the Other Facility having a Cleanup Cost not
exceeding $100,000), after giving effect to the aggregate amount of all
such Cleanup Costs, on a pro forma basis as of the end of the last calendar
month immediately prior to the expiration of the applicable grace period
(treating such Cleanup Costs as a reduction of Net Worth), Lessee would be
unable to pay or declare any Restricted Payment under the terms of Section
7.06 or (y) with respect to events related to the Facility for which the
aggregate amount of outstanding Cleanup Costs then known to Lessee could
reasonably be expected to exceed $10 million in the aggregate (but
excluding from such calculation any such event having a Cleanup Cost not
exceeding $100,000), as of the end of the last calendar month immediately
prior to the expiration of the applicable grace period, the aggregate
outstanding principal amount of the Loan Certificates would be more than
80% of the Fair Market Sale Value of the Facility taking into account the
existence of each event having a Cleanup Cost equal to or exceeding
$100,000 and the aggregate amount of Cleanup Costs which could reasonably
be expected to be associated with all such events (any such deficiency,
herein the "Loan to Value Deficiency"); provided, further, that Lessee
shall have an additional period of 30 days to cure any event that would
otherwise be an Event of Default under the preceding clause (y) by
providing to Lessor and Indenture Trustee such collateral, letters of
credit or other arrangements (herein the "Deficiency Collateral") which are
in all respects satisfactory to Lessor and Indenture Trustee in order to
secure Lessee's obligations under this Lease in an amount equal to the Loan
to Value Deficiency (it being understood that such Deficiency Collateral
shall be released by Lessor and Indenture Trustee at such time as Lessee
shall have demonstrated to each thereof that there no longer would exist an
Event of Default under such clause (y) without the additional credit
support provided by the Deficiency Collateral;
(e) any representation or warranty made by Lessee (other than in
Section 9.03) hereunder or under the Participation Agreement shall prove to
have been incorrect in a material respect as of the date when made,
provided that (i) such representation or warranty shall continue to be
material at the time it has been discovered to be incorrect and (ii) if the
event or condition causing such representation or warranty to be incorrect
is capable of being remedied, such event or condition shall not have been
remedied within 45 days after the earlier to occur of (A) Lessee obtaining
Actual Knowledge of such incorrectness and (B) written notice of such
incorrectness having been given to Lessee by Lessor or Indenture Trustee or
(iii) if the event or condition causing such representation or warranty to
be incorrect is not capable of being cured, upon written notice from any
Participant;
(f) Lessee shall commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to itself or its
debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial
part of its property, or shall consent
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to any such relief or to the appointment of or taking possession by any
such official in an involuntary case or other proceeding commenced against
it, or shall make a general assignment for the benefit of creditors, or
shall fail generally to pay its debts as they become due, or shall take any
corporate action to authorize any of the foregoing, or an involuntary case
or other proceeding shall be commenced against Lessee seeking liquidation,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or similar law now or hereafter in effect or the
appointment of a trustee, receiver, liquidator, custodian or other similar
official of it or any substantial part of its property, and such
involuntary case or other proceeding shall remain undismissed and unstayed
for a period of 60 days;
(g) with respect to any Debt of Lessee in excess of $25,000,000,
failure to pay such Debt at maturity or beyond any applicable grace period
or a default or event of default in respect thereof which results in
acceleration of the maturity of such Debt;
(h) final judgment for the payment of money in excess of $25,000,000
shall be rendered against Lessee and Lessee shall not, within 30 days from
the entry thereof, have discharged the same or provided for its discharge
in accordance with its terms or bonded the same or procured a stay of
execution thereof; or
(i) an Event of Default as defined in the other Lease shall have
occurred and be continuing, and the Loan Certificates associated with such
other Lease shall have been accelerated.
ARTICLE XIV
Enforcement
-----------
SECTION 14.01 Remedies. If an Event of Default shall have occurred
and be continuing, Lessor may at any time thereafter exercise one or more of the
following as Lessor in its sole discretion shall elect:
(a) Lessor may, by notice to Lessee, declare this Lease to be in
default or rescind or terminate this Lease;
(b) Lessor may (i) demand that Lessee, and thereupon Lessee shall,
return the Facility promptly to Lessor in the manner and condition required
by, and otherwise in accordance with the provisions of, this Lease as if
the Facility were being returned at the and of the Term and (ii) enter upon
the premises where the Facility shall be located and take immediate
possession of (to the exclusion of Lessee) the Facility, or remove the
Facility, or both, by summary proceedings or otherwise, all without
incurring liability to Lessee for or by
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reason of such entry or taking of possession, whether for the restoration
of damage to property caused by such taking or otherwise; provided that no
reentry or taking possession of the Facility by Lessor shall be construed
as an election on its part to terminate this Lease unless Lessor gives
written notice to Lessee of such intention or the termination thereof shall
be decreed by a court of competent jurisdiction; provided further that
notwithstanding any reletting without termination, Lessor may at any time
thereafter elect to terminate this Lease for such previous default; and
provided further that Lessee does hereby waive any defense to any action by
Lessor to obtain possession of the Facility, which defense is based upon
payment of the Rent and related expenses claimed in any such proceeding
after filing of a complaint for such possession by Lessor;
(c) Lessor may sell the Facility, with or without any of its interest
under the Ground Lease, the Support Agreement and the License Agreement, or
any part thereof, at public or private sale, as Lessor may determine, free
and clear of any rights of Lessee and without any duty to Lessee with
respect to such action or inaction or any proceeds with respect thereto
(except to the extent required by paragraph (e) or (f) below if Lessor
shall elect to exercise its rights thereunder) in which event Lessee's
obligation to pay Basic Rent hereunder for periods commencing after the
date of such sale shall be terminated or proportionately reduced, as the
case may be (except to the extent that Basic Rent is to be included in
computations under paragraph (e) or (f) below if Lessor shall elect to
exercise its rights thereunder);
(d) Lessor may hold, keep idle or lease to others all or any part of
the Facility, as Lessor in its sole discretion may determine, free and
clear of any rights of Lessee and without any duty to Lessee with respect
to such action or inaction or any proceeds with respect to such action or
inaction, except that Lessee's obligation to pay basic Rent for periods
commencing after Lessee shall have been deprived of use of the Facility
pursuant to this paragraph (d) shall be reduced by the net proceeds, if
any, received by Lessor from leasing the Facility to any Person other than
Lessee for the same periods or any portion thereof;
(e) Lessor may, whether or not Lessor shall have exercised or shall
thereafter at any time exercise its rights under paragraph (b), (c) or (d)
above, demand, by written notice to Lessee specifying a payment date which
shall be a Rent Date not earlier than 10 days after the date of such
notice, that Lessee pay to Lessor, and Lessee shall pay to Lessor, on the
Rent Date specified in such notice, because it would be extremely
impracticable and difficult to calculate the damage and harm which Lessor
would suffer due to Lessee's default, as liquidated damages for loss of a
bargain and not as a penalty (in lieu of Basic Rent due after the Rent Date
specified in such notice) any unpaid Rent due through and including the
Rent Date specified in such notice plus whichever of the following amounts
Lessor, in its sole discretion, shall specify in such notice (together with
interest on such amount at the Designated Rate from the Rent Date specified
in such notice to the date of actual payment), and Lessee and
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Lessor hereby acknowledge that any such amount will be a reasonable
estimate of the total damage that Lessor will suffer due to Lessee's
default:
(i) an amount equal to the excess, if any, of Stipulated Loss
Value, computed as of the Rent Date specified in such notice, over the
Fair Market Rental Value of the Facility until the end of the
remaining useful life of the Facility, after discounting such Fair
Market Rental Value semiannually to present value as of the Rent Date
specified in such notice at a rate of 10% per annum;
(ii) an amount equal to the excess, if any, of such Stipulated
Loss Value over the Fair Market Sale Value of the Facility as of the
Rent Date specified in such notice;
(iii) an amount equal to the excess of (A) the present value as
of the Rent Date specified in such notice of all installments of Basic
Rent until the end of the Basic Term or applicable Renewal Term,
discounted semiannually at a rate of 10% per annum, over (B) the
present value as of such Rent Date of the Fair Market Rental Value of
the Facility until the end of the Basic Term or applicable Renewal
Term, discounted semiannually at a rate of 10% per annum; or
(iv) an amount equal to such Stipulated Loss Value and, in this
event, upon full payment by the Lessee of all sums due hereunder and
under all other Operative Documents, Lessor shall Transfer the
Facility to Lessee, whereupon this Lease shall terminate;
(f) if Lessor shall have sold all the Facility, together with its
interest under the Support Agreement, the License Agreement and the Ground
Lease, pursuant to paragraph (c) above, Lessor, in lieu of exercising its
rights under paragraph (e) above with respect to the Facility, may demand,
because it would be extremely impracticable and difficult to calculate the
damage and harm which Lessor would suffer due to Lessee's default, that
Lessee pay to Lessor and Lessee shall pay to Lessor on the date of such
sale, as liquidated damages for loss of a bargain and not as a penalty (in
lieu of Basic Rent due for periods commencing after the next Rent Date
following the date of such sale) any unpaid Rent due through such Rent
Date, plus the amount of any deficiency between the net proceeds of such
sale and Stipulated Loss Value, computed as of such Rent Date, and the net
proceeds of such sale, together with interest at the Designated Rate on the
amount of such Rent and such deficiency from the date of such sale until
the date of actual payment, and Lessee and Lessor hereby acknowledge that
the foregoing is a reasonable estimate of the total damage that Lessor will
suffer due to Lessee's default; or
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(g) Lessor may exercise any other right or remedy that may be
available to it under applicable law or proceed by appropriate court action
to enforce the terms hereof or to recover damages for the breach hereof.
SECTION 14.02 No Release. No rescission or termination of this
Lease, in whole or in part, or repossession of the Facility or exercise of any
remedy under Section 14.01 shall, except as specifically provided therein,
relieve Lessee of any of its liabilities and obligations hereunder. In
addition, Lessee shall be liable, except as otherwise provided above, for any
and all unpaid Rent due hereunder before, after or during the exercise of any of
the foregoing remedies, including all reasonable legal fees and other costs and
expenses incurred by any Lessor Party by reason of the occurrence of any Default
or Event of Default or the exercise of Lessor's remedies with respect thereto
and including all costs and expenses incurred in connection with the return of
the Facility in the manner and condition required by, and otherwise in
accordance with the provisions of, this Lease as if the Facility were being
returned at the end of the Term. At any sale of the Facility or any part
thereof pursuant to Section 14.01, any Lessor Party may bid for and purchase
such property.
SECTION 14.03 Remedies Cumulative. To the extent permitted by, and
subject to the mandatory requirements of, applicable law, each and every right,
power and remedy under Section 14.01 or otherwise available to Lessor shall be
cumulative and shall be in addition to every other right, power and remedy, and
each and every right, power and remedy may be exercised from time to time and as
often and in such order as may be deemed expedient by Lessor, and the exercise
or the beginning of exercise of any such right, power or remedy shall not
exhaust the same or be construed to be a waiver of the right to exercise at the
same time or thereafter the same or any other right, power or remedy. No delay
or omission by Lessor in the exercise of any right, power or remedy shall
restrict Lessor from exercising the same or any other right, power or remedy
thereafter nor be construed to be a waiver of any Default or Event of Default or
to be an acquiescence therein. No express or implied waiver by Lessor of any
Default or Event of Default shall in any way be, or be construed to be, a waiver
of any future or subsequent Default or Event of Default. To the extent
permitted by applicable law, Lessee hereby waives any rights now or hereafter
conferred by statute or otherwise that may require Lessor to sell, lease or
otherwise use the Facility or any part thereof in mitigation of Lessor's damages
or that may otherwise limit or modify any of Lessor's rights or remedies under
this Article XIV.
ARTICLE XV
Assignments and Subleases
-------------------------
SECTION 15.01 Assignment or Sublease by Lessee. Except with the
prior written consent of each Lessor Party, Lessee shall not assign, transfer or
encumber (except for Permitted Liens) all or any of its leasehold interest or
other rights under this Lease nor sublease the Facility or any part thereof if
such amendment, modification,
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supplement or waiver would have a material adverse affect on Lessee or the
Facility) unless (i) the sublessee is a United States Affiliate of Tenneco Inc.
or a corporation consented to by owner Participant and Indenture Trustee (such
consent not to be unreasonably withheld) or whose long-term unsecured debt
obligations are rated at least investment grade by Moody's (ii) such sublease
shall not extend beyond the end of the Basic Term, shall prohibit further
subleasing and shall require the sublessee to operate the property subleased for
its intended purpose and to comply with all operating permits and with covenants
relating to maintenance and environmental standards at least as rigorous as
those set forth in this Lease, (iii) such sublease shall not impair or diminish
any of the rights of any Lessor Party or obligations of Lessee hereunder or
under any other Operative Document, which rights and obligations shall continue
in full force and effect as though no sublease had been made, (iv) Owner
Participant shall have received an opinion from its tax counsel that such
sublease would not cause an unindemnified event causing the loss of tax
benefits, (v) such sublease shall be expressly subject and subordinate to the
provisions of this Lease and the Operative Documents, including the rights of
Lessor to enforce remedies under Article XIV if an Event of Default shall exist,
and (vi) Lessee shall have effectively assigned to Lessor as security for the
performance by Lessee of its obligations hereunder, in a manner satisfactory to
each Lessor Party, such sublease and all rentals and other proceeds payable
thereunder. Lessee shall not, without the prior written consent of each Lessor
Party, part with the possession or control, or suffer or allow to pass out of
its possession or control, the Facility or any part thereof, except to the
extent permitted by the provisions of this Lease. Lessee shall give each Lessor
Party written notice of any such assignment transfer or encumbrance.
SECTION 15.02 Assignment by Lessor; Security for Lessor's Obligations
to Indenture Trustee. Lessor may assign, transfer or encumber this Lease or all
or any of its interests and rights hereunder without the consent of Lessee if,
in the case of an assignment, the assignee or, in the case of an assignment to a
trustee, the beneficiary of the trust or the parent of such assignee or
beneficiary who has guaranteed the obligations of such assignee or beneficiary,
has a net worth of at least $100 million. In addition, in order to secure the
indebtedness evidenced by the Loan Certificates, the Indenture provides, among
other things, for the assignment by Lessor to Indenture Trustee of its right,
title and interest in, to and under this Lease, to the extent set forth in the
Indenture, and for the creation of a mortgage lien on and security interest in
the Facility in favor of Indenture Trustee. Lessee hereby consents to such
assignment and to the creation of such mortgage and security interest and
acknowledges receipt of copies of the Indentures. Lessee hereby further
consents to any assignment arising as a consequence of or at any time subsequent
to the exercise of remedies pursuant to the Indenture, including any assignment
to or by any purchaser at a foreclosure sale. Lessee will furnish to Indenture
Trustee, counterparts of all writings required to be delivered hereunder by
Lessee to Lessor. Unless and until Lessee shall have received written notice
from Indenture Trustee that the lien of the Indenture has been discharged, (i)
Lessee shall make all payments of Basic Rent, and all other amounts payable
hereunder to Lessor to the extent assigned to Indenture Trustee, to Indenture
Trustee at such office as Indenture Trustee may specify from time to time by
notice to Lessor and Lessee, and
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the right of Indenture Trustee to receive all such payments shall not be subject
to any defense, counterclaim, setoff or other right or claim of any kind which
Lessee may be able to assert against Lessor or Owner Participant in an action
brought by either thereof on this Lease and (ii) to the extent provided in the
Indenture, Indenture Trustee shall have the right to exercise the rights of
Lessor under this Lease (and, without prejudice to Lessee's rights under other
Operative Documents, Lessor shall have no liability to Lessee hereunder for acts
of Indenture Trustee which interrupt Lessee's possession or use of the Facility
unless such acts are at the request or direction of Lessor) and Lessee shall
have no liability to Lessor for reasonably relying on instructions of Indenture
Trustee pursuant to this sentence.
ARTICLE XVI
Miscellaneous
-------------
SECTION 16.01 Further Assurances. Lessee shall cause the Operative
Documents and any amendments, supplements and modifications to any of them
(together with any other instruments, financing statements, continuation
statements records or papers necessary in connection therewith) to be recorded
and/or filed and rerecorded and/or refiled in each jurisdiction as and to the
extent necessary in order to, and shall take such other actions as may from time
to time be necessary to, establish, perfect and maintain (a) Lessor's right,
title and interest in and to the Facility, subject to no Liens other than
Permitted Liens, (b) for the benefit of Indenture Trustee and the holders of
Loan Certificates, the first mortgage lien and first priority security interest
provided for in the Indenture and (c) each of the rights and other interests
created by the Indenture or by any other Operative Document in any Participant,
Lessor, Indenture Trustee or any holder of a Loan Certificate. Lessee will
promptly and duly execute and deliver to each Lessor Party such documents and
assurances and take such further action as any of them may from time to time
reasonably request in order to carry out more effectively the intent and purpose
of this Lease and to establish and protect the rights and remedies created or
intended to be created in favor of Lessor, and to establish, perfect, and
maintain Lessor's rights, title and interest in and to the Facility and, for the
benefit of Indenture Trustee, the first mortgage lien and first priority
security interest provided for in the Indenture, including, if requested by any
Lessor Party, the recording or filing of counterparts or appropriate memoranda
of any Operative Document or of such financing statements or other documents
with respect hereto as any Lessor Party may from time to time reasonably
request.
Lessee shall, at the time Lessee shall furnish its annual financial
statements pursuant to Section 6.03 of the Participation Agreement, furnish to
each Lessor Party an opinion of counsel for Lessee (which may be regularly
employed by Lessee), satisfactory to each Lessor Party, stating that all
recordings and filings, if any, necessary or advisable to perfect or continue
the perfection of Lessor's rights title and interest in and to the Facility and
any Parts and Alterations incorporated in the Facility pursuant to Article X,
and to perfect or continue the perfection for the benefit of
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Indenture Trustee of a valid first mortgage lien and first priority security
interest in the Indenture Estate provided for in the Indenture, have been made
and stating the requirements of applicable law with respect to the rerecording
or refiling of such documents in order to continue and preserve such right,
title and interest and such first mortgage lien and first priority security
interest.
SECTION 16.02 Notices. Unless otherwise specifically provided
herein, all notices and other communications required or permitted hereunder
shall be in writing and shall be addressed and became effective as provided in
the Participation Agreement.
SECTION 16.03 Severability. Any provision of this Lease that shall
be prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable law, Lessee hereby waives any provision of law that
renders any provision hereof prohibited or unenforceable in any respect.
SECTION 16.04 Survival. The representations, warranties and
indemnities of the parties provided for in the Operative Documents and the
parties' obligations under any and all thereof shall survive the execution and
delivery of this Lease, the investment by Owner Participant, the issuance of the
Loan Certificates, any disposition of any interest of any Lessor Party in the
Facility and the expiration, cancellation or other termination of any of the
Operative Documents, and shall be and continue in effect notwithstanding any
investigation made by any of such parties and the fact that any Lessor Party may
waive compliance with any of the other terms, provisions or conditions of any of
the Operative Documents. The obligations of Lessee to pay Supplemental Rent and
the obligations of Lessee under Articles VIII and IX and Sections 5.01, 7.01 and
16.12 shall survive the expiration or termination of this Lease. The extension
of any applicable statute of limitations by Lessor, Indenture Trustee, Lessee,
any Participant or any Indemnified Person shall not affect such survival.
SECTION 16.05 Successors and Assigns. This Lease shall be binding
upon and inure to the benefit of Lessee, Lessor Parties and their respective
successors and permitted assigns, and, to the extent provided in the next
sentence, each Indemnified Person and its successors and assigns. The
obligations of Lessee under Articles VIII and IX and Section 7.01 are expressly
made for the benefit of, and shall be enforceable by, any Indemnified Person or
Person indemnified thereunder, separately or together, without resorting to any
other right of indemnification or declaring this Lease to be in default and
notwithstanding any assignment by Lessor of this Lease or any of its rights
hereunder or any disposition by any Lessor Party of all or any part of its
interest in the Facility or the Operative Documents. All payments required to
be made pursuant to such Sections shall be made directly to, or as otherwise
requested by, the Indemnified Person entitled thereto upon written demand by
such Indemnified Person.
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SECTION 16.06 Amendment. Except where any necessary consent is
otherwise expressly stated, neither this Lease nor any of the terms hereof may
be terminated, amended, supplemented waived or modified orally, but only by an
instrument in writing signed by the party against which the enforcement of the
termination amendment, supplement, waiver or modification shall be sought and,
in the case of Lessor, consented to by Owner Participant and Indenture Trustee,
except as otherwise expressly sot forth in Section 9.01 of the Indenture.
SECTION 16.07 Headings. The Table of Contents and headings of the
various Articles and Sections of this Lease are for convenience of reference
only and shall not modify, define or limit any of the terms or provisions,
hereof.
SECTION 16.08 Counterparts. This Lease may be executed by the
parties hereto in separate counterparts. All such counterparts shall together
constitute but one and the same instrument. It shall not be necessary for any
counterpart to bear the signature of both parties.
SECTION 16.09 GOVERNING LAW. THIS LEASE SHALL IN ALL RESPECTS BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF NEW YORK, INCLUDING
ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, EXCEPT TO THE EXTENT THAT
WISCONSIN LAW MAY BE MANDATORILY APPLICABLE HERETO.
SECTION 16.10 True Lease. This Lease is an agreement of lease and
does not convey to Lessee any right, title or interest in or to the Facility
except as a lessee.
SECTION 16.11 Liabilities of Owner Trustee. The Connecticut National
Bank is entering into this lease solely as trustee as provided in the Trust
Agreement and not in its individual capacity, and in no case whatsoever shall
The Connecticut National Bank be personally liable for, or for any loss in
respect of, any of the statements, representations, warranties, agreements or
obligations of Owner Trustee hereunder, as to all of which Lessee agrees to look
solely to the Trust Estate; provided, however, that The Connecticut National
Bank in its individual capacity shall be liable hereunder for its own gross
negligence or willful misconduct. Owner Participant shall not be-liable for any
matter hereunder except as expressly provided in Article VIII or IX of the
Participation Agreement. Each time a successor Owner Trustee is appointed in
accordance with the terms of the Trust Agreement, such successor Owner Trustee
shall, without further act, succeed to all the rights, duties, immunities and
obligations of Lessor hereunder and under the other Operative Documents, and the
predecessor Owner Trustee shall be released from all further duties and
obligations hereunder and under the other Operative Agreements, all without the
necessity of any consent or approval by Lessee and without in any way altering
the terms of this Lease or such other Operative Document or the obligations of
Lessee hereunder or thereunder. Lessee shall, upon receipt of written notice of
the appointment of a successor owner Trustee under the Trust Agreement, promptly
make such modifications and changes to reflect such
-55-
<PAGE>
appointment as shall be reasonably requested by such successor Owner Trustee in
such insurance policies, schedules, certificates and other instruments relating
to the Facility or this Lease or the other Operative Documents, all in form and
substance satisfactory to such successor.
SECTION 16.12 Consent to Jurisdiction; Forum Selection. Each party
hereto hereby irrevocably submits to the jurisdiction of any New York state
court or any Federal court located in the State of New York over any action or
proceeding commenced or maintained by any other party to this Lease and arising
out of or relating to this Lease or any other Operative Document or Acquisition
Agreement to which it is a party, and each party hereto hereby irrevocably
agrees that all claims in respect of such action or proceeding may be heard in
such state or Federal court. Each party hereto hereby irrevocably waives any
objection it may now have or hereafter acquire to the laying of venue of any
such action or proceeding brought in any such court and any claim it may now or
hereafter acquire that any such action or proceeding brought in any such court
has been brought in an inconvenient forum. Each party hereto agrees that final
judgment in any such action or proceeding brought in any such court shall be
conclusive and binding upon such party hereto and may be enforced in any
competent court located elsewhere. Each party hereto irrevocably consents to
the service of the summons and complaint and any other process in any such
action or proceeding by the mailing of copies of such process to such party
hereto at its address referred to in Section 9.01 of the Participation Agreement
by registered or certified mail, return receipt requested. Nothing in this
Section 16.12 shall affect the right of any Person to serve legal process in any
other manner permitted by law. Each party hereto further agrees that the
Federal or state courts located in New York, New York, will have exclusive
jurisdiction over any action which is either directly or indirectly related to
the business relationship evidenced by this Lease. The parties further waive
all question of personal jurisdiction or venue for the purposes of carrying out
this Section 16.12.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have each caused this Lease to
be duly executed and sealed by their respective officers thereunto duly
authorized.
THE CONNECTICUT NATIONAL BANK,
not in its individual capacity but solely as
trustee under the Trust Agreement (but not with
respect to any portion of the Facility located
in the State of Florida)
Signed, sealed and delivered
in the presence of:
By: /s/ Philip G. Kane, Jr.
- ---------------------------- ------------------------------------------
Witness Title: Vice President
By: /s/ Frank McDonald, Jr.
- ---------------------------- ------------------------------------------
Witness Title: Vice President
[BANK SEAL]
/s/ Philip G. Kane, Jr.
---------------------------------------------
PHILIP G. KANE, JR., not in his individual
capacity but solely as Owner Trustee under
Trust Agreement dated as of January 31, 1991,
Signed, sealed and delivered
in the presence of:
_________________________________
Witness
__________________________________
Witness
-57-
<PAGE>
/s/ Frank McDonald, Jr.
---------------------------------------------
FRANK McDONALD, JR., not in his individual
capacity but solely as Owner Trustee under
Trust Agreement dated as of January 31, 1991,
Signed, sealed and delivered
in the presence of:
_________________________________
Witness
__________________________________
Witness
/s/ William R. Munroe
---------------------------------------------
WILLIAM R. MUNROE, not in his individual
capacity but solely as Owner Trustee under
Trust Agreement dated as of January 31, 1991,
Signed, sealed and delivered
in the presence of:
_________________________________
Witness
__________________________________
Witness
-58-
<PAGE>
PACKAGING CORPORATION OF AMERICA,
By: /s/ R.D. Harlow
------------------------------------------
Title: Senior Vice President
Attest: /s/ Randolph W. Bryant
----------------------------
Title: Assistant Secretary
[CORPORATE SEAL]
Signed, sealed and delivered
in the presence of:
____________________________
Witness
____________________________
Witness
-59-
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
The foregoing instrument was acknowledged before me this January 31,
1991, by Philip G. Kane, Jr., Vice President of The Connecticut National Bank, a
national banking association, as Owner Trustee pursuant to the Trust Agreement.
/s/ Gina M. Wondolowski
-----------------------------------
Notary Public
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
The foregoing instrument was acknowledged before me this January 31,
1991, by Philip G. Kane, Jr., Frank McDonald, Jr., and William R. Munroe, as
Owner Trustee pursuant to the Trust Agreement.
/s/ Gina M. Wondolowski
-----------------------------------
Notary Public
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
The foregoing instrument was acknowledged before me this January 31,
1991, by Robert D. Harlow, Senior Vice President of Packaging Corporation of
America, a Delaware corporation.
/s/ Gina M. Wondolowski
-----------------------------------
Notary Public
-60-
<PAGE>
EXHIBIT 10.27
-------------
TIMBERLAND LEASE
BY AND BETWEEN
FOUR STATES TIMBER VENTURE
(as Lessor)
and
PACKAGING CORPORATION OF AMERICA
(as Lessee)
January 31, 1991
This document was prepared by:
Haynes R. Roberts, Esq.
Sutherland, Asbill & Brennan
999 Peachtree Street, N.E.
Atlanta, Georgia 30309-3996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<C> <C>
1. PROPERTY............................................................... 2
1.1 DESCRIPTION; LEASE TERM.......................................... 2
1.2 ADDITIONS AND DELETIONS.......................................... 2
1.3 ASSIGNMENT OF PERMITS............................................ 3
2. RENT................................................................... 3
2.1 BASIC RENT....................................................... 3
2.2 MANNER OF PAYMENT; BASIC RENT NET................................ 4
2.3 ADDITIONAL RENT; DEFAULT INTEREST................................ 5
2.4 TAX TREATMENT.................................................... 5
3. FINANCIAL STATEMENTS AND REGULATORY FILINGS............................ 5
4. NO COUNTERCLAIM, ABATEMENT, ETC........................................ 6
5. CONDITION AND USE OF PROPERTY; MINERAL RIGHTS.......................... 7
6. IMPOSITIONS............................................................ 8
7. COMPLIANCE, ETC........................................................ 9
7.1 COMPLIANCE WITH REQUIREMENTS, ETC................................ 9
7.2 RECORDING........................................................ 9
8. LIENS, ETC............................................................. 10
9. PERMITTED CONTESTS..................................................... 10
10. NO CLAIMS AGAINST LESSOR, ETC.......................................... 10
11. INDEMNIFICATIONS AND COVENANTS OF LESSEE............................... 11
11.1 GENERAL INDEMNIFICATION.......................................... 11
11.2 ENVIRONMENTAL COVENANTS AND INDEMNITIES.......................... 12
12. UTILITY SERVICES....................................................... 14
13. QUIET ENJOYMENT........................................................ 14
13.1 QUIET ENJOYMENT GENERALLY........................................ 14
13.2 LOSS OF TITLE TO PROPERTY........................................ 14
14. LESSEE'S EQUIPMENT..................................................... 14
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C> <C>
15. INSURANCE....................................................... 15
15.1 RISKS TO BE INSURED....................................... 15
15.2 POLICY PROVISIONS......................................... 15
15.3 EVIDENCE OF INSURANCE..................................... 16
16. TAKING.......................................................... 16
16.1 LESSEE TO GIVE NOTICE, ETC................................ 16
16.2 TOTAL TAKING.............................................. 16
16.3 PARTIAL TAXING............................................ 16
16.4 APPLICATION OF AWARDS AND OTHER PAYMENTS.................. 16
16.5 AWARD IF LESSEE IN DEFAULT................................ 17
16.6 REDUCTION OF RENT UPON PAYMENT TO LESSOR.................. 17
17. ASSIGNMENT OF SUBRENTS ETC...................................... 17
18. PERFORMANCE ON BEHALF OF LESSEE................................. 17
19. ASSIGNMENTS, MORTGAGES, SUBLEASES, ETC.......................... 18
20. EVENTS OF DEFAULT; TERMINATION.................................. 18
21. ENTRY BY LESSOR................................................. 20
22. REPOSSESSIONS ETC............................................... 21
23. RELETTING....................................................... 21
24. SURVIVAL OF LESSEE'S OBLIGATIONS; DAMAGES....................... 21
24.1 TERMINATION OF LEASE NOT TO RELIEVE LESSEE OF
OBLIGATIONS............................................... 21
24.2 CURRENT DAMAGES........................................... 21
24.3 FINAL DAMAGES............................................. 22
25. LESSEE'S WAIVER OF STATUTORY RIGHTS............................. 22
26. NO WAIVER, ETC., BY LESSOR OR LESSEE............................ 23
27. LESSOR'S REMEDIES, ETC., CUMULATIVE............................. 23
28. ACCEPTANCE OF SURRENDER......................................... 23
29. NO MERGER OF TITLE.............................................. 23
30. ESTOPPEL CERTIFICATE............................................ 23
31. CONVEYANCE BY LESSOR............................................ 24
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C> <C>
32. END OF LEASE TERM............................................... 24
33. PROVISIONS SUBJECT TO APPLICABLE LAW............................ 24
34. TIMBER MANAGEMENT AND CUTTING PROVISIONS........................ 24
34.1 GENERAL TIMBER MANAGEMENT OBLIGATIONS..................... 24
34.2 TIMBER CUTTING PRIVILEGES................................. 28
34.3 LOSS OF PRE-MERCHANTABLE PLANTED TREES BY
CASUALTY.................................................. 30
34.4 FORESTRY CONSULTANT....................................... 30
34.5 TIMBER CRUISE............................................. 33
34.7 ANNUAL REPORTS............................................ 34
34.8 TIMBER SPECIFICATIONS AND CALCULATIONS.................... 35
35. DISPOSITION OF PROPERTY......................................... 35
35.1 LESSEE'S OPTION TO PURCHASE............................... 35
35.2 SALE OF TIMBERLANDS DURING THE INITIAL LEASE.............. 36
35.3 SALE OF PROPERTY DURING THE EXTENSION PERIODS............. 39
35.4 SALES PURSUANT TO OPTION AGREEMENTS....................... 39
36. APPRAISAL....................................................... 39
37. REPRESENTATIONS, WARRANTIES AND COVENANTS OF
LESSEE.................................................... 40
37.1 GENERAL REPRESENTATIONS AND WARRANTIES.................... 40
37.2 COVENANTS................................................. 42
37.3 MUTUAL REPRESENTATIONS REGARDING ENFORCEABILITY........... 46
40. NOTICES, ETC.................................................... 59
41. MISCELLANEOUS................................................... 61
42. PARTITION OF LEASE.............................................. 61
43. FOREST TAX LAWS................................................. 62
</TABLE>
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<PAGE>
EXHIBITS
--------
EXHIBIT A LEGAL DESCRIPTIONS
EXHIBIT B PERMITTED EXCEPTIONS
EXHIBIT C LIST OF IMPROVEMENTS, PERSONAL PROPERTY
AND INTANGIBLES
EXHIBITS D-1 CATEGORIES, ADJUSTMENT AMOUNTS AND
THROUGH D-3 ADMINISTRATIVE AMOUNTS
EXHIBIT E TIMBER CRUISE SPECIFICATIONS
EXHIBITS F-1 AND F-2 FORMS OF ANNUAL REPORT OF FORESTRY CONSULTANT
EXHIBIT G PERMITTED INVESTMENTS
EXHIBIT H INITIAL CUTTING RIGHTS
EXHIBIT I PERMITS
EXHIBIT J OPTION AGREEMENTS
EXHIBIT K SUPPLIED MATERIALS
-iv-
<PAGE>
TIMBERLAND LEASE
----------------
TIMBERLAND LEASE, dated January 31, 1991 by and between FOUR STATES TIMBER
VENTURE, a joint venture formed under the laws of the State of Georgia
("Lessor") having its principal office and place of business at One John Hancock
Place, Boston, Massachusetts 02117, and PACKAGING CORPORATION OF AMERICA, a
Delaware corporation ("Lessee"), having its principal office and place of
business in Evanston, Illinois.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Tenneco Inc, ("Tenneco") has entered into that certain Asset
Purchase Agreement dated as of September 26, 1990 (the "Purchase Agreement"),
among Georgia-Pacific Corporation ("G-P"), Nekoosa Packaging Corporation
("NPC"), NP Northern Woodlands Inc., ("Woodlands") and Nekoosa Papers, Inc.
("Papers") (G-P, NPC, Woodlands and Papers being hereinafter referred to
collectively and severally as "Sellers") and Tenneco, whereby Tenneco has the
right to acquire from the Sellers the Property described in Section 1.1 hereof;
WHEREAS, Metropolitan Life Insurance Company ("Metropolitan") and John
Hancock Mutual Life Insurance Company ("John Hancock") desired to jointly
acquire all right, title and interest to the Property which Tenneco had a right
to acquire pursuant to the Purchase Agreement;
WHEREAS, for the purpose of acquiring the Property from Sellers,
Metropolitan and John Hancock formed Lessor;
WHEREAS, pursuant to the Timberland Acquisition Agreement dated as of
January 31, 1991, made by and among Tenneco, Lessee, John Hancock and
Metropolitan (the "Acquisition Agreement"), Lessor acquired all of Tenneco's
right to acquire the Property pursuant to the Purchase Agreement and to assume
certain obligations associated therewith on the condition that Lessor lease the
Property to Lessee; and
WHEREAS, as of the date hereof Lessor has acquired the Property from
Sellers.
NOW, THEREFORE, in consideration of the premises and the mutual agreements,
covenants and provisions hereinafter set forth, the parties agree as follows:
DEFINITIONS
-----------
Unless otherwise defined herein, capitalized terms have the meanings given
to such terms in Section 39 hereof.
<PAGE>
1. PROPERTY.
1.1 DESCRIPTION; LEASE TERM. Upon and subject to the conditions and
limitations set forth below, Lessor leases to Lessee, and Lessee rents from
Lessor, the following property (the "Property"):
(a) all the land described on Exhibit A attached hereto and hereby
made a part hereof (the "Land"), subject to the Permitted Exceptions set forth
on Exhibit B attached hereto and hereby made a part hereof (the "Permitted
Exceptions");
(b) all buildings, structures and other improvements now or hereafter
located on the Land, including without limitation, those improvements described
on Exhibit C attached hereto and hereby made a part hereof (the "Improvements");
(c) all timber and trees now or hereafter standing or lying on or
planted or growing in the soil of the Land (the "Timber");
(d) all rights of way or of use, servitudes, licenses, tenements,
hereditaments, appurtenances and easements now or hereafter belonging or
pertaining to any of the foregoing; and
(e) all personal and intangible property described on Exhibit C
hereto.
TO HAVE AND TO HOLD for a term commencing on the date hereof (the
"Commencement Date") and expiring at midnight on December 31, 2002, unless
extended or terminated as hereinafter provided.
1.2 ADDITIONS AND DELETIONS. The Property leased hereunder is intended to
be the same property acquired by Lessor in accordance with the Purchase
Agreement, Pursuant to Section 5.13 of the Purchase Agreement, Lessor may
reconvey to the Sellers certain portions of the Property which are deemed
unacceptable by Lessor, and pursuant to Section 5,16 of the Purchase Agreement
the Sellers may be required to convey additional or substitute properties to
Lessor. Pursuant to Section 8.3 of the Acquisition Agreement, Lessors may
convey certain portions of the Property to Lessee. Any Property conveyed to or
by Lessor in accordance with the provisions of the Purchase Agreement or the
Acquisition Agreement shall automatically be subject to or released from this
Lease, as the case may be, and Lessor and Lessee shall enter into any amendments
to this Lease which are necessary from time to time to evidence such additions
or deletions, The term "Property" as used in this Lease shall mean the Property
described in Section 1.1 hereof together with any additions thereto or deletions
therefrom contemplated by this Section 1.2 and the applicable sections of the
Purchase Agreement or the Acquisition Agreement.
-2-
<PAGE>
1.3 ASSIGNMENT OF PERMITS. Upon and subject to the conditions and
limitations set forth below, Lessor hereby assigns, to the extent assignable,
all right, title and interest in and to the permits which are more particularly
described on attached hereto and incorporated herein by this reference (the
"Permits"), The parties hereto hereby agree that this is a revocable assignment
and that such assignment shall be deemed revoked upon the expiration or earlier
termination of this Lease or upon Lessor's repossession of the Property in
accordance with the provisions of Section 22 hereof.
2. RENT.
2.1 BASIC RENT. Lessee will pay to Lessor rent during the Lease Term
as follows:
(a) QUARTERLY RENT. Lessee shall pay to Lessor, in advance, on
the Commencement Date and thereafter on the first day of each January, April,
July and October during the Lease Term an installment of rent ("Quarterly Rent")
in an amount calculated as follows:
(i) Each installment of Quarterly Rent paid during the
First Lease Year shall be in an amount equal to 2,6875% of the Base Value;
provided, however, that until such time as the Base Value can be established
hereunder, Lessee shall pay Quarterly Rent in the amount of $4,646,499.00;
provided, further, that Lessee's first installment of Quarterly Rent shall be
reduced by an amount equal to Daily Quarterly Rent times the number of calendar
days from and including January 1, 1991 to but not including the Commencement
Date; provided, further, that if, upon determination of the Base Value
hereunder, it is determined that Lessee has paid Quarterly Rent in excess of
2,6875% of Base Value, such excess amount shall be offset by Lessee against the
immediately succeeding installments of Quarterly Rent;
(ii) Installments of Quarterly Rent paid during the Second
Lease Year and each successive Lease Year thereafter during the Lease Term shall
be in an amount equal to the Quarterly Rent in effect at the end of the previous
Lease Year less an amount equal to 2,6875% of the Annual Rent actually paid by
Lessee with respect to the previous Lease Year in accordance with the provisions
of subsection 2,1(b) hereof as such Annual Rent may be adjusted from time to
time in accordance with the provisions hereof; and
(iii) Notwithstanding the foregoing, in the event any
portion of the Property is sold by Lessor free and clear of this Lease, is the
subject of a Taking or is otherwise released from this Lease prior to the end of
the Lease Term, installments of Quarterly Rent shall be adjusted and thereafter
paid by Lessee in an amount equal to (A) the amount of Quarterly Rent which
would have otherwise been payable had no such sales, Takings or releases
occurred minus (B) the product obtained by multiplying the Cumulative Allocation
Ratio after such sale, Taking or release times the amount of
-3-
<PAGE>
Quarterly Rent which would have otherwise been payable had no such sales,
Takings or releases occurred, In addition to the adjustment provided in the
preceding sentence, the Quarterly Rent for the calendar quarter following such
sale, Taking or release shall be reduced by an amount equal to the product of
(X) the difference between the Daily Quarterly Rent prior to and the Daily
Quarterly Rent after the sale, Taking or release and (Y) the actual number of
days from and including the date of such sale, Taking or release to but not
including the date upon which such Quarterly Rent payment becomes due.
(b) ANNUAL RENT.
(i) In addition to the Quarterly Rent provided for in
subsection 2.1(a) above, Lessee shall pay to Lessors in arrears, commencing
January 1. 1992, and continuing on the first day of each Lease Year thereafter
during the Initial Lease Term, an installment of re, (the "Annual Rent") in an
amount equal to $1,192,366,00 less 5.71% of the amount, if any, by which the
Adjusted Base Value exceeds the Base Value; provided, however, that the Annual
Rent Payment for the First Lease Year shall be equal to $1,192,366,00 less 5,71%
of the amount, if any, by which the Adjusted Base Value exceeds the Base Value
times eleven twelfths (11/12ths).
(ii) Notwithstanding the foregoing, in the event any portion of
the Property is sold by Lessor free and clear of this Lease, is the subject of a
Taking or is otherwise released from this Lease prior to the end of the Lease
Term, for the Lease Year in which such sale, Taking or release takes place, the
Annual Rent for such year shall be reduced by an amount equal to the product of
(A) the difference between the Daily Annual Rent prior to and the Daily Annual
Rent after such sale, Taking or release and (B) the actual number of days from
and including the date of such sale, Taking or release to but not including the
first day of the next Lease Year. The installments of Annual Rent required to be
paid by Lessee pursuant to subsection 2.1(b)(i) above for Lease Years beginning
subsequent to the Lease Year in which such sale, Taking or release took place
shall be adjusted and thereafter paid in an amount equal to (X) the Annual Rent
payment which would have otherwise been payable had no such sales, Takings or
releases occurred minus (Y) the product obtained by multiplying the Cumulative
Allocation Ratio after such sale, Taking or release times the Annual Rent
payment which would have otherwise been payable had no such sales, Takings or
releases occurred.
(c) BASIC RENT. The term "Basic Rent" refers collectively to the
Quarterly Rent and the Annual Rent, as each may be adjusted from time to time,
The parties stipulate that the Basic Rent reflects the fair rental value of the
Property for the Lease Term.
2.2 MANNER OF PAYMENT; BASIC RENT NET. Basic Rent and all other sums
payable to Lessor hereunder shall be wired to Lessor by Lessee before noon
(E.S.T. or E.D.T., as applicable) an the due date thereof by Fedwire transfer
through the Federal Reserve System of immediately available funds in U.S.
dollars to the account or
-4-
<PAGE>
accounts designated by Lessor by written notice at least three Business Days
prior to such due date, or at such place, by such method and to such Person as
Lessor from time to time may designate. An identification number confirming such
wire shall also be delivered to Lessor prior to the noon deadline. Basic Rent
shall be absolutely net to Lessor so that this Lease shall yield to Lessor the
full amount of the installments of Basic Rent throughout the Lease Term without
deduction, Nothing contained in the preceding sentence shall be construed so as
to obligate Lessee to pay any Excluded Taxes. If for any reason, Lessee is
required by law or order to make any payment to any tax or governmental
authority of Excluded Taxes, by way of withholding or otherwise, Lessor shall
within 30 days after receipt from Lessee of notice of payment of such Excluded
Taxes and appropriate payment documentation with respect thereto, pay to Lessee
an amount which equals the amount of such Excluded Taxes paid to such tax or
governmental authority. Whenever any payment hereunder is due on a day which is
not a Business Day, the date for payment thereof shall be extended to the next
succeeding Business Day.
2.3 ADDITIONAL RENT; DEFAULT INTEREST. Lessee will also pay from
time to time as provided in this Lease, as additional rent, all other amounts
and obligations which Lessee herein agrees to pay to Lessor or is required to
pay to Lessor in accordance with the provisions of this Lease ("Additional
Rent"). Lessee shall also pay Default Interest on Basic Rent and Additional
Rent (if such Additional Rent is not paid within ten days after demand from
Lessor for such payment) from the due date or the date of such demand, as the
case may be, until payment thereof, In the event of any failure on the part of
Lessee to pay any Additional Rent, Lessor shall have all the rights, powers and
remedies provided for in this Lease or at law or in equity or otherwise in the
case of non-payment of Basic Rent.
2.4 TAX TREATMENT. For Federal and state income tax purposes, Lessor
and Lessee shall each report all amounts of Basic Rent and Additional Rent, as
defined herein (but not any other item which Lessee may incur hereunder or pay
to any Person other than Lessor under the terms of this Lease) as rental income
and rental expense, respectively.
3. FINANCIAL STATEMENTS AND REGULATORY FILINGS.
(a) Lessee, at its expense, shall furnish to Lessor as soon as
practical after the end of each fiscal year of Lessee, and in any event within
120 days thereafter, a consolidated balance sheet of Lessee and its consolidated
subsidiaries as of the end of such fiscal year and the related statements of
income, stockholder's equity and cash flows (or such similar or additional
statement then required by GAAP) for such fiscal year prepared in accordance
with GAAP, setting forth in each case in comparative form the figures for the
previous fiscal year, all certified by independent public accountants of
nationally recognized standing who are retained by Tenneco to audit its year-end
financial statements;
-5-
<PAGE>
(b) Lessee shall furnish to Lessor as soon as practical after the end
of each of the first three fiscal quarters of each fiscal year of Lessee, and in
any event within 60 days thereafter, a balance sheet of Lessee as at the end of
such period and the related statements of income, stockholder's equity and cash
flows (or such similar or additional statement then required by GAAP), prepared
in accordance with GAAP, using a comparable format and comparable categories as
the last audited financial statement and accompanied by a certificate of the
chief financial officer of Lessee to the effect that to the best of his
knowledge such statements present fairly the financial condition and results of
operations of Lessee, subject to normal year-end adjustments;
(c) In addition to the financial statements delivered in accordance
with subsections (a) and (b) above, Lessee shall furnish to Lessor as soon as
practical after the end of each fiscal year of Lessee, and in any event within
120 days thereafter, a statement of Operating Expenses for the previous year,
certified as being true and correct by the chief financial officer of Lessee;
(d) Lessee shall provide to Lessor, within 30 days following the date
of such filing, copies of any and all reports on Forms 10-K. 10-Q and 8-K (or
their equivalent) and such other reports as Lessor may reasonably specify from
time to time, filed with the Securities and Exchange Commission by Lessee, its
ultimate parent company and any and all intermediary parent companies in
accordance with the provisions of applicable law; and
(e) Lessee will permit any Person designated by Lessor in writing, at
the expense of Lessor, and subject to such limitations as Lessee may reasonably
impose to ensure compliance with any applicable legal or contractual
restrictions, to visit and inspect any of the properties of Lessee, to examine
the corporate books and financial records of Lessee (other than income tax
records) and to make copies thereof or extracts therefrom, and to discuss the
affairs, finances and accounts of Lessee with the principal officers of Lessee,
all at such reasonable times and as often as Lessor may reasonably request.
4. NO COUNTERCLAIM, ABATEMENT, ETC. Basic Rent and Additional Rent shall
be paid without notice, demand, counterclaim, setoff, deduction or defense and
without abatement, suspension, deferment, diminution or reduction, and the
obligations and liabilities of Lessee hereunder shall in no way be released,
discharged or otherwise affected (except as expressly provided herein) by reason
of: (a) any damage to or destruction of or any Taking of the Property or any
part thereof; (b) any restriction or prevention of or interference with any use
of the Property or any part thereof; (c) any title defect or encumbrance or any
eviction from the Property or any part thereof by title paramount or otherwise;
(d) any bankruptcy, insolvency, reorganization, composition, adjustment,
dissolution, liquidation or other like proceeding relating to Lessor, or any
action taken with respect to this Lease by any trustee or receiver of Lessor
(other than a rejection of this Lease by such trustee or receiver pursuant to
the provisions of (S)365 of the Bankruptcy Code), or by any court, in any such
proceeding; (e) any claim which Lessee has or might have against Lessor; (f) any
failure
-6-
<PAGE>
on the part of Lessor to perform or comply with any of the terms hereof or of
any other agreement with Lessee; or (g) any other occurrence whatsoever, whether
similar or dissimilar to the foregoing; whether or not Lessee shall have notice
or knowledge of any of the foregoing. Except as expressly provided herein,
Lessee waives all rights now or hereafter conferred by statute or otherwise
(other than the right, if any, as may be available to Lessee to reject this
Lease in accordance with the provisions of (S)365 of the Bankruptcy Code, to the
extent that such right is not waivable under applicable law) to quit, terminate
or surrender this Lease or the Property or any part thereof, or to any
abatement, suspension, deferment, diminution or reduction of Basic Rent,
Additional Rent or any other sum payable by Lessee hereunder.
5. CONDITION AND USE OF PROPERTY; MINERAL RIGHTS.
(a) Lessee specifically acknowledges and agrees that Lessor has no
greater knowledge of the Property than does Lessee, that Lessor makes no
representation or warranty with respect to the title to or the condition of the
Property or its fitness or availability for any particular use and that Lessor
shall not be liable for any latent or patent defect therein, Except as expressly
provided herein, Lessee shall have no right to avoid any duty or obligation
under this Lease, including the obligation to pay rent hereunder, on account of
the condition of the Property or Lessor's title thereto. Lessee shall use the
Property for the production and harvesting of timber in accordance with Section
34 hereof, and other incidental and nonconflicting uses including, without
limitation, farming, hunting and fishing, All other uses by Lessee shall be
subject to the prior written approval of Lessor, which approval maybe given or
withheld as Lessor, in its sole discretion, shall determine, provided that the
use of the Property for any other purpose as may be approved by Lessor must at
all times comply in all respects with all requirements, limitations and
restrictions, that Lessor may from time to time impose. Except as may be
expressly permitted elsewhere in this Lease, Lessee will not do or, if within
Lessee's power, permit any act or thing which might materially impair the value,
usefulness or marketability of the Property or any part thereof, or which
constitutes a public or private nuisance or waste, Lessee expressly covenants to
operate and maintain the Property as required by Section 34 hereof, During the
Lease Term and except as prohibited by applicable law, Lessee shall be entitled
to enter into and receive income from hunting and fishing leases, farm rental
agreements and other incidental uses of the Property which do not conflict with
title provisions of Section 34 hereof; provided, however, that annual rentals
therefrom may not exceed $5,000,000.00 in the aggregate without the prior
written consent of Lessor.
(b) Subject to Section 35 hereof and notwithstanding any other
provision contained in this Lease to the contrary, Lessor hereby (i) expressly
retains all rights to exploit oil, gas, minerals and other subsurface reserves
located on, in or under the Property (the "Mineral Rights"), (ii) shall be
entitled to exploit the Mineral Rights at any time and from time to time during
the Lease Term and (iii) shall be entitled to receive 100% of the income
therefrom, Lessee agrees to cooperate with Lessor in connection with any such
exploitation of the Mineral Rights by Lessor on the Property, In the event
Lessor's exploitation of the Mineral Rights (by strip mining or otherwise)
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materially interferes with Lessee's ability to conduct its commercial timber
operations on any portion of the Property, the affected portion of the Property
shall be specifically identified by Lessor and shall be released from the terms
and provisions of this Lease, whereupon Basic Rent shall be reduced in
accordance with the provisions of Section 2,1 hereof.
6. IMPOSITIONS. Subject to Section 9 hereof relating to contests, Lessee
will pay all Impositions on or before the due date thereof, and will furnish to
Lessor for inspection within 30 days after written request by Lessor, official
receipts of the appropriate taxing authority or other proof satisfactory to
Lessor evidencing such payment of Impositions. If by law any Imposition may be
paid in installments, Lessee shall be entitled to pay in those installments as
they become due from time to time; and any Imposition relating to any tax,
accounting or other fiscal period of the taxing authority, part of which is
included within the term of this Lease and a part of which extends beyond such
term shall be apportioned between Lessor and Lessee as of the expiration of the
term of this Lease; provided, however, that Lessor shall be permitted to offset
any amounts which it would otherwise be required to pay to Lessee as a result of
such apportionment against any Basic Rent and/or Additional Rent which is due
and owing to Lessor as of the date of such apportionment. Notwithstanding the
foregoing, in the event a notice of Imposition is delivered to Lessor but not to
Lessee, Lessor shall promptly forward such notice to Lessee so that Lessee may
pay such Imposition in a timely manner as provided herein, If Lessor receives
such a notice of Imposition more than 15 Business Days prior to the due date
thereof and fails to deliver such notice to Lessee on or before the fifth
Business Day prior to the due date thereof, and as a result of such failure,
Lessee is unable to pay such Imposition in a timely fashion, Lessee shall be
permitted to offset against the next succeeding installments of Quarterly Rent
any interest, penalties, fines or other costs which it is required to pay as a
result of the late payment of the Imposition, The provisions of the preceding
sentence shall not be applicable in the event Lessee receives notice of such
Imposition from a source other than Lessor or its constituent venturers prior to
the due date thereof. Lessee shall not be in default hereunder for failure to
pay any impositions on or before the due date thereof if Lessee did not receive
notice thereof at least five Business Days prior to the due date thereof;
provided, however, that in such event, Lessee shall be required to pay such
Imposition within ten Business Days following receipt of such notice (unless
such Imposition is being properly contested in accordance with the provisions of
Section 9 hereof). Lessor agrees to cooperate (at Lessee's expense) with Lessee
in Lessee's efforts to minimize impositions with respect to the Property,
including the filing of exemptions and other actions, so long as Lessor believes
that such efforts are reasonable under the circumstances. Lessor shall, at the
request of Lessee, forward to Lessee copies of all relevant documentation
(including copies of returns) in Lessor's possession, or the possession of
Lessor's agents, representatives or constituent joint venturers, relating to
Impositions on the Property.
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7. COMPLIANCE, ETC.
7.1 COMPLIANCE WITH REQUIREMENTS, ETC. Subject to the provisions of
Sections 6 and 9 hereof, Lessee, at its expense, will promptly and diligently
(a) comply with all Legal Requirements and Insurance Requirements and (b) comply
with any instruments of record at the time in force affecting the Property or
any part thereof, other than in each case those:
(i) whose application or validity is being contested in good
faith by appropriate proceeding in accordance with the provisions of Section 9
hereof.
(ii) compliance with which shall have been excused or exempted
by a nonconforming use permit, waiver, extension or forbearance exempting the
Property therefrom, or
(iii) the failure with which to comply would not result in any
material adverse consequences to Lessor or have a material adverse effect upon
Lessee's ability to perform its obligations under this Lease. For purposes of
this subsection, a material adverse consequence shall include, without
limitation, any material risk of (w) the sale, forfeiture or loss of the
Property or any material portion thereof, (x) a lien being created against the
Property in violation of the provisions of Section 8 hereof, (y) material
interference with the operation, use or disposition of the Property, or any
material portion thereof, or with the payment of Basic Rent or Additional Rent
under this Lease, or (z) any liability (including any criminal liability) on the
part of, or any adverse effect on, the Lessor, its agents, employees, officers
or constituent joint venturers, or any of their agents, employees, officers or
directors other than civil liability related to tax obligations which are
assumed by Lessee hereunder.
7.2 RECORDING. The parties hereto agree that:
(a) Lessor or Lessee shall, at the request of the other, execute and
deliver counterparts of this Lease or counterparts of a memorandum of this,
Lease for the purpose of recording, but such memorandum shall not under any
circumstances be deemed to modify or to change any of the provisions of this
Lease; provided, however, that Lessor and Lessee agree not to record this Lease
in its entirety except in those jurisdictions where the recording of a
memorandum or short-form of lease does not provide adequate protection of the
rights of Lessor and Lessee under this Lease against claims of third parties;
(b) after the expiration or termination of this Lease, Lessee shall,
at the request of Lessor, within 20 Business Days following the request of
Lessor, execute and deliver to Lessor an instrument cancelling of record any
memorandum of this Lease which was recorded; and
(c) Lessee shall promptly, upon the reasonable request of the Lessor
and at the Lessee's expense, execute, acknowledge and deliver, or cause the
execution,
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acknowledgement and delivery of, and thereafter register, file or record in the
appropriate governmental office, any document or instrument necessary to
preserve and protect any right of Lessor under this Lease and shall furnish to
Lessor an opinion satisfactory to Lessor, of counsel satisfactory to Lessor,
with respect to the adequacy of such registration, filing and recording.
8. LIENS, ETC. During the term of this Lease, Lessee will not directly
or indirectly create or permit to be created or to remain, and will discharge
any Lien on the Property or any part thereof, Lessee's interest therein, or
Basic Rent or Additional Rent other than (a) this Lease, (b) Liens for
Impositions or judgments not yet due and payable, or payable without the
addition of any fine, penalty, interest or cost for non-payment, or being
contested as permitted by Sections 6 or 9 hereof, (c) Permitted Exceptions, (d)
Liens which are not created or permitted by Lessee but arise solely from acts or
agreements of Lessor, and (e) Liens of mechanics, materialmen, suppliers or
vendors, or rights thereto, incurred in the ordinary course of business for sums
which under the terms of the related contracts are not at the time due.
9. PERMITTED CONTESTS. Lessee, at its expense, may contest, after prior
written notice to Lessor, by appropriate legal proceedings conducted in good
faith and with due diligence, the amount or validity or application, in whole or
in part, of any Imposition, judgment, Lien or Legal Requirement or the
application of any instrument of record referred to in Section 7.1 hereof,
provided that (a) Lessee shall first make all contested payments, under protest
if it desires, unless the legal proceedings instituted by Lessee shall suspend
the collection of such contested amounts from Lessor, from Basic Rent and
Additional Rent and from the Property, (b) neither the value or marketability of
the Property or any part thereof or interest therein would be adversely affected
by such contest nor would the Property or any part thereof or interest therein
or any such Basic Rent or Additional Rent be in any danger of being sold,
forfeited, lost or interfered with, and (c) neither Lessor nor its agents,
employees, officers or constituent joint venturers, nor any of their agents,
employees, officers or directors would be subject to any additional civil
liability (other than additional interest of penalties or additions which Lessee
is obligated to pay hereunder which may accrue with respect to any tax
obligation being contested hereunder) or any criminal liability because of
Lessee's failure to comply therewith and the Property would not be subject to
the imposition of any Lien in violation of Section 8 hereof as a result of such
failure.
10. NO CLAIMS AGAINST LESSOR, ETC. Nothing contained in this Lease shall
constitute any consent or request by Lessor, express or implied, for the
performance of any labor or services or the furnishing of any materials or other
property in respect of the Property or any part thereof, nor as giving Lessee
any right, power or authority to contract for or permit the performance of any
labor or services or the furnishing of any materials or other property in such
fashion as would permit the making of any claim against Lessor or the Property
or any part thereof except as permitted by Section 8 hereof.
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11. INDEMNIFICATIONS AND COVENANTS OF LESSEE.
11.1 GENERAL INDEMNIFICATION. Lessee will protect, defend, indemnify
and save harmless Lessor from and against all litigation, liabilities,
obligations, claims, damages, penalties, causes of action, costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses, but
excluding any Excluded Taxes) imposed upon or incurred by or asserted against
Lessor or the Property or any part thereof by reason of the occurrence or
existence during the Lease Term of any of the following, unless arising solely
from acts which would constitute the willful misconduct or gross negligence of
Lessor:
(a) ownership of the Property or any interest therein, or
receipt of any rent or other sum therefrom;
(b) any accident, injury to or death of persons (including
workmen) or loss of or damage to property occurring on or about the Property or
any part thereof or the adjoining streets or ways;
(c) any use, non-use or condition of the Property or any part
thereof;
(d) any failure on the part of Lessee to perform or comply with
any of the terms of this Lease;
(e) performance of any labor or services or the furnishing of
any materials or other property in respect of the Property or any part thereof;
or
(f) any other loss or liability incurred or suffered by Lessor
in connection with the Property or this Lease.
In case any action, suit or proceeding is brought against Lessor by reason of
any such occurrence, Lessee will (unless an Event of Default has occurred and is
continuing hereunder, in which case
Lessor may elect to control, at Lessee's expense, the defense of such action,
suit or proceeding), at Lessee's expense, resist and defend such action, suit or
proceeding, or cause the same to be resisted and defended by counsel designated
by Lessee and approved by Lessor; provided, however, that Lessee shall consult
with Lessor with respect to such defense and shall keep Lessor apprised as to
the status of such defense; provided, further, that, in the event Lessee
proposes to enter into a settlement agreement with respect to any such action,
suit or proceeding Lessee will send notice to Lessor of such proposed
settlement, and Lessor shall have a period of 30 days after receipt of such
notice to reject, in its reasonable judgment, such settlement. Failure to
reject such settlement within such 30-day period shall be deemed to be an
acceptance of such settlement, In the event Lessor rejects such settlement,
Lessor shall assume the defense of such action, suit or proceeding, at its own
cost and expense; provided,
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however, that if Lessor rejects any such proposed settlement and assumes the
defense of such action, suit or proceeding, Lessee shall in any event only be
obligated to indemnify Lessor for such action, suit or proceeding in the amount
of the proposed settlement rejected by Lessor; provided, further, if Lessor
believes that Lessee is not diligently pursuing the defense of any such action,
suit or proceeding, Lessor shall have the option, but not the obligation, to
assume such defense, and if Lessor assumes such defense, Lessor (i) shall
conduct such defense diligently with a view to minimizing the costs of disposing
of such action, suit or proceeding, (ii) Lessor shall advise Lessee of all
settlement offers received in respect thereof and (iii) Lessee shall have no
liability in respect of such action, suit or proceeding in excess of the amount
of any settlement offer proposed to Lessor in writing by the person asserting
such action, suit or proceeding to which Lessee shall have offered to perform.
The obligations of Lessee under this section shall survive the expiration or
earlier termination of this Lease, Lessee shall not be required to indemnify
Lessor against any such occurrence which arises from acts or events not
attributable to Lessee which occur after possession of the Property has been
returned and delivered by Lessee to Lessor or after such Property has been
released from this Lease; provided, however, if an Event of Default shall exist
at the time of any such return and delivery of the Property by Lessee to Lessor,
then Lessee's indemnification obligations shall continue until such time as
Lessee shall have fully complied with all of its obligations under this Lease;
provided, further, that Lessee shall not be required to indemnify Lessor solely
on account of a decline in the market value of the Property not caused directly
or indirectly by an act or omission of Lessee.
11.2 ENVIRONMENTAL COVENANTS AND INDEMNITIES. Lessee hereby covenants
that:
(a) Lessee will not engage in any activity on, or with respect
to, the Property which would result in the generation, manufacture, refining,
treatment, storage or handling or disposal of, or the conduct or performance of
any abnormally dangerous activity in connection with, any Hazardous Material
which would subject the Lessor to any liability under or pursuant to any
Environmental Law; provided, however, that Lessee shall be permitted to use
Hazardous Materials on the Property which are ordinarily used in commercial
timber management activities, provided (i) the use of any such Hazardous
Materials is not prohibited by any Environmental Law, (ii) that Lessee uses such
Hazardous Materials in a safe and responsible manner and in accordance with the
method of application approved by the manufacturer of each such Hazardous
Materials, (iii) that Lessee uses such Hazardous Materials in strict accordance
with any and all Environmental Laws applicable to the use thereof, and (iv)
that, before using any such Hazardous Materials on all or any portion of the
Property, Lessee shall have obtained any and all permits which may from time to
time be required by any regulatory agency or other public body as a condition to
such use. The provisions of this subsection 11,2(a) shall in no way limit the
indemnity obligations of Lessee arising pursuant to the provisions of subsection
11.2(c) hereof;
(b) Subject to the provisions of Section 9 hereof, Lessee will
comply with the requirements of all Environmental Laws now or hereafter in
effect
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which would subject Lessor to any liability or subject the Property to any Lien
under or pursuant to any Environmental Law, Lessee will promptly upon discovery
notify Lessor of any release of any Hazardous Material, whether before or after
the Commencement Date, at, upon, under, or within the Property which is required
to be reported to any federal, state or local governmental agency or authority
pursuant to the provisions of any Environmental Law, including the presence of
asbestos or asbestos-containing materials, PCB's, radon gas, or urea
formaldehyde foam insulation on the Property. Lessee will notify Lessor of the
receipt by Lessee of any notice from any governmental agency or authority or
from any tenant or other occupant or from any other person with respect to any
alleged such release or presence of Hazardous Materials, promptly upon receipt
of such notice, Lessee will send Lessor copies of all results of tests of
underground storage tanks on the Property;
(c) Lessee agrees to indemnify and hold Lessor harmless from
and against any and all litigation, loss, cost, damage, liability, and expense,
including but not limited to reasonable attorneys' fees, suffered or incurred by
or threatened against Lessor at any time, whether before, during, or after
enforcement of Lessor's rights and remedies upon default, on account of any
release of any Hazardous Material (unless arising solely from acts which would
constitute the willful misconduct or gross negligence of Lessor), whether before
or after the Commencement Date, at, upon, under, within or adjacent to the
Property, including the presence of asbestos or asbestos containing materials,
PCBIs, radon gas, or urea formaldehyde foam insulation at the Property,
including but not limited to (a) the imposition by any governmental authority of
any Lien or any so called "super priority lien" upon the Property or any part
thereof, (b) clean-up costs, (c) investigation and monitoring costs, (d)
liability for personal injury or property damage or damage to the environment,
and (e) fines, penalties and punitive or exemplary damages, Lessee shall not be
required to indemnify Lessor against any such occurrence which arises from acts
or events not attributable to Lessee which acts or events occur after possession
of the Property has been returned and delivered by Lessee to Lessor or after
such Property has been released from this Lease; provided, however, if an Event
of Default shall exist at the time of any such return and delivery of the
Property by Lessee to Lessor, then Lessee's indemnification obligations shall
continue until such time as Lessee shall have fully complied with all of its
obligations under this Lease. The provisions of this subparagraph shall survive
the expiration or earlier termination of this Lease; and
(d) Without limitation of any of Lessor's other rights under
this Lease, Lessor will have the right, but not the obligation, to enter onto
the Property and to take such other actions as it deems necessary or advisable
to clean up, remove, resolve or minimize the impact of, or otherwise deal with,
any release of any Hazardous Material, whether before or after the Commencement
Date, at, under, upon or within the Property or any other breach of any
Environmental Law relating to the Property upon its receipt of any notice from
any person or entity, including, without limitation, the United States
Environmental Protection Agency, asserting the existence of any such release or
breach on or pertaining to the Property which, if true, would be reasonably
expected to result in an order, suit or other action against Lessee or Lessor
affecting any
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part of the Property by any governmental agency or otherwise which, in the sole
opinion of Lessor, would be reasonably expected to jeopardize Lessee's ability
to perform its obligations under the Lease or materially and adversely affect
the value of the Property. All costs and expenses incurred by Lessor in the
exercise of any such rights will be payable by Lessee upon demand, together with
Default Interest thereon.
12. UTILITY SERVICES. Lessee will pay or cause to be paid all charges for
all public or private utility services and all protective services at any time
rendered to or in connection with the Property or any part thereof.
13. QUIET ENJOYMENT.
13.1 QUIET ENJOYMENT GENERALLY. Lessor covenants that, so long as
no Event of Default shall have occurred and be continuing hereunder, Lessee
shall not be hindered or molested by Lessor (or any person claiming by, through
or under Lessor) in its enjoyment of the Property, which enjoyment-is subject to
the Permitted Exceptions, In the event Lessee does not have standing to pursue
such action against any other Person interfering with Lessee's peaceful
possession of the Property in its own name, Lessee shall be permitted to pursue
in Lessor's name any action against any third party necessary to defend Lessee's
interest in the Property, provided Lessee indemnifier Lessor fully against any
liability, damage, costs or expenses arising out of or related to such action.
13.2 LOSS OF TITLE TO PROPERTY. In the event title to all or any
portion of the Property is lost because of a title defect, whether or not such
title defect is a Permitted Exception, Lessee's obligation to pay rent with
respect to such portion of the Property shall not abate and Lessee will continue
to pay rent to Lessor with respect to such Property without adjustment;
provided, however, that Lessee's rental obligation with respect to any such
portion of the Property lost because of a title defect shall abate and Basic
Rent shall be adjusted in accordance with the provisions of Section 2.1 hereof
as if such portion of the Property had been sold as of the date Lessor receives
from the title insurance company or companies insuring Lessor's title to the
Property (and/or from Lessee or any other Person to the extent that title
insurance proceeds received by Lessor are insufficient) a payment of monies
equal to the greater of (i) the Make-Whole Price applicable to such portion of
the Property calculated as of the date possession of such portion of the
Property is actually lost and (ii) the excess of (a) the value obtained by
compounding quarterly the Allocated Base Value of the portion of the Property
lost because of the title defect at a rate of 11% per annum from the
Commencement Date of this Lease to the date possession of such portion of the
Property is actually lost over (b) the sum of the values obtained by compounding
quarterly at a rate of 11% per annum each payment of Allocated Quarterly Rent
and Compounding annually at a rate of 11% per annum each payment of Allocated
Annual Rent from the dates each such payments were actually made to the date
possession of such portion of the Property is actually lost.
14. LESSEE'S EQUIPMENT. All Lessee's Equipment shall be the property of
Lessee, provided that upon the occurrence of an Event of Default, Lessor shall,
to the
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extent permitted by law, have (in addition to all other rights) a right of
distress for rent and a Lien on all Lessee's Equipment (other than Lessee's
Equipment not owned by Lessee) then on the Property as security for all Basic
Rent and Additional Rent, Any of Lessee's Equipment (other than Lessee's
Equipment not owned by Lessee) not removed by Lessee at its expense within 90
days after any repossession of the Property by Lessor (whether or not this Lease
has been terminated) shall be considered abandoned by Lessee and may be
appropriated, sold, destroyed, or otherwise disposed of by Lessor, Lessee will
pay Lessor, upon demand, all costs and expenses incurred by Lessor in removing,
storing or disposing of any of Lessee's Equipment. Lessee will immediately
repair at its expense all damage to the Property or any part thereof caused by
any removal of Lessee's Equipment therefrom, whether effected by Lessee, or any
other Person, Except as may be required by applicable law, Lessor shall not be
responsible for any loss of or damage to Lessee's Equipment.
15. INSURANCE.
15.1 RISKS TO BE INSURED. Lessee, at its expense, will cause to be
carried and maintained (a) all risks physical damage insurance with respect to
the Improvements; (b) workers' compensation and employers' liability insurance
with a limit of not less than $500,000; (c) commercial general liability
insurance covering all operations of the insured against all claims for personal
injury, bodily injury, death and property damage, including contractual
liability, in such amount and in such form as Lessee customarily maintains with
respect to similar properties owned, leased or operated by Lessee (but in no
event less than $100,000,000); (d) comprehensive automobile liability insurance
covering all owned, non-owned and hired automobiles or automotive equipment with
a combined single limit of not less than $3,000,000 for bodily injury or
property damage; and in any event shall maintain insurance in amounts and
against risks which are not less than that which are customarily maintained with
respect to similar properties owned, leased or operated by Lessee. The amounts
of insurance specified above may not be reduced and the amount of the deductible
or self-insured retention shall not exceed $25,000,000 without the prior written
consent of Lessor. Any insurance described in this Section 15.1 may be carried
under blanket policies as long as such policies otherwise comply with the
provisions of this Section 15,1.
15.2 POLICY PROVISIONS. Lessor shall be named as a "Loss Payee" on
all applicable all risks physical damage insurance policies, With the exception
of the worker's compensation insurance, the general liability policies shall
name Lessor as an additional insured with respect to liability arising out of
the Property or related operations, To the extent such an endorsement is
commercially obtainable, all policies required hereunder shall further provide
that no cancellation, reduction in amount or material change in coverage shall
be effective until at least 30 days after notice of such cancellation, change or
reduction is tendered to Lessor by the insurer. Lessee waives all rights of
subrogation against Lessor and all policies required hereunder shall each
contain a clause waiving subrogation against Lessor.
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15.3 EVIDENCE OF INSURANCE. Upon the execution of this Lease and
thereafter not less than 15 days prior to the expiration date of any applicable
policy, Lessee will deliver to Lessor a certificate of the insurer, satisfactory
to Lessor in substance and form I as to the issuance and effectiveness of such
policy and the amount of coverage afforded thereby.
16. TAKING.
16.1 LESSEE TO GIVE NOTICE, ETC. In case of a Taking of all or any
part of the Property, or the commencement of any proceedings or negotiations
which might result in such Taking, the party receiving notice of the
commencement of such proceedings or negotiations will promptly give written
notice thereof to the other party hereto, generally describing the nature and
extent of such Taking or the nature of such proceedings and negotiations and the
nature and extent of the Taking which might result therefrom, as the case may
be. Lessor and Lessee may each file and prosecute their respective claims for
an award, but all awards and other payments on account of a Taking shall be paid
to Lessor and shall be applied as hereinafter provided.
16.2 TOTAL TAKING. In case of a Taking (other than for temporary
use) of all or substantially all of the Property, this Lease shall terminate as
of the date of such Taking, Any Taking of the Property of the character referred
to in this Section 16.2 which results in the termination of this Lease is
referred to as a "Total Taking."
16.3 PARTIAL TAXING. In case of a Taking of the Property other than
a Total Taking, this Lease shall remain in full force and effect as to the
portion of the Property remaining immediately after such Taking, without any
abatement or reduction of Basic Rent or Additional Rent, except as provided in
Section 16.6.
16.4 APPLICATION OF AWARDS AND OTHER PAYMENTS. Awards and other
payments on account of a Taking (less costs, fees and expenses incurred by
Lessor and Lessee in connection therewith) shall be applied as follows:
(a) Net awards and other payments received on account of a
Taking other than a Taking for temporary use shall be paid (i) first, to Lessor
in an amount up to and including the greater of the Minimum Return Price or the
Make-Whole Price applicable to the portion of the Property lost as a result of
such Taking, and (ii) the balance, if any, of such awards or payments shall be
paid to Lessee;
(b) Net awards and other payments received on account of a
Taking for temporary use during the Lease Term shall be applied to the payment
of the installments of Basic Rent and Additional Rent becoming due and payable
hereunder during the period of such temporary Taking, and the balance, if any,
of such awards and payments shall, unless an Event of Default has occurred and
is continuing hereunder, be paid to Lessee; and
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(c) Lessee hereby irrevocably assigns to Lessor any and all
separate awards to which it may in the future be entitled in connection with any
Taking, together with the right to collect and receive such awards, In the event
separate awards are granted to Lessor and Lessee as a result of any such Taking,
such awards shall be deemed a single award, shall be paid to Lessor and shall
thereafter be distributed in accordance with the provisions of subsections
16.4(a) and 16.4(b) hereof.
16.5 AWARD IF LESSEE IN DEFAULT. Notwithstanding the foregoing,
if at the time of any Taking or at any time thereafter, an Event of Default has
occurred and is continuing under this Lease, Lessor is hereby authorized and
empowered, in the name and on behalf of Lessee, to file and prosecute Lessee's
claim, if any, for an award on account of any Taking and to collect such award
and apply the same, after deducting all costs, fees and expenses incident to the
collection thereof, to the curing of such Event of Default and any other then
existing Default under this Lease.
16.6 REDUCTION OF RENT UPON PAYMENT TO LESSOR. In the event a
Taking of all or any portion of the Property (other than a Taking for a
temporary use) shall occur during the Lease Term, Basic Rent shall be reduced
from and after the date of such Taking in accordance with the provisions of
Section 2.1 hereof.
17. ASSIGNMENT OF-SUBRENTS ETC. Lessee hereby irrevocably assigns
to Lessor all rents due or to become due from any sublessee or any tenant or
occupant of the Property or any part thereof, and all amounts due or to become
due to Lessee under any contract referred to in paragraph (j) of Section 34.1
hereof, together with the right to collect and receive such rents and amounts;
provided, however, that, so long as no Event of Default has occurred and is
continuing, Lessee shall have the right to collect such rents and amounts for
its own use and purposes and Lessee shall not be obligated to pay over to Lessor
any such rents, Lessor shall apply to the Basic Rent and Additional Rent due
under this Lease the net amount (after deducting all costs and expenses incident
to the collection thereof and the operation and maintenance, including repairs,
of the Property or any part thereof) of any rents and amounts so collected or
received by it. In the event the net amount of any such rents collected or
received by Lessee during any Lease Year exceeds the total amount of Basic Rent
required to be paid by Lessee in such Lease Year, Lessee shall pay to Lessor, as
Additional Rent, 80% of such excess amount, Nothing contained in this section
shall be construed so as to permit Lessee to sublet all or any portion of the
Property without the express written consent of Lessor, which consent may be
withheld by Lessor in its sole discretion, except as set forth in Section 5(a)
hereof.
18. PERFORMANCE ON BEHALF OF LESSEE. In the event that Lessee shall
fail to make any payment or perform any act required hereunder to be made or
performed by Lessee, then Lessor may, but shall be under no obligation to, make
such payment or perform such act with the same effect as if made or performed by
Lessee. Entry by Lessor upon the Property or any part thereof for such purpose
shall not waive or release Lessee from any obligation or default hereunder.
Lessee shall promptly reimburse Lessor for all sums so paid and all costs and
expenses so incurred in
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connection with the performance of any such act by Lessor, and shall also pay to
Lessor Default Interest on such sums, calculated from the date such sums were
advanced or incurred by Lessor.
19. ASSIGNMENTS, MORTGAGES, SUBLEASES, ETC. Except as expressly
permitted in Sections 5 and 8 hereof, Lessee's interest in this Lease may not be
sold, conveyed, transferred, assigned, mortgaged, pledged or encumbered in any
manner whatsoever. So long as no Event of Default shall have occurred and be
continuing hereunder, Lessee shall have the right to sublease portions of the
Land, provided (a) Lessee first obtains Lessor's prior written consent to each
such subletting, which consent may be given or withheld by Lessor in its sole
discretion, except as set forth in Section 5(a) hereof, and (b) that each such
sublease shall expressly provide that the interest of the sublessee thereunder
is subject and subordinate to this Lease. No such subletting nor the entry by
Lessee into any contract referred to in Section 34.1(j) hereof shall release
Lessee from any obligations and liabilities hereunder, Lessee shall remain
primarily liable on and under the covenants, conditions and obligations of this
Lease as the principal party to this Lease and not as a surety thereof. Nothing
shall relieve or release Lessee of its liability hereunder except an express
written release executed by Lessor. If any portion of the Land is sublet or
occupied by any Person other than Lessee, or if Lessee enters into any contract
referred to in Section 34.1(j) hereof. Lessor may, during the continuance of any
Event of Default hereunder, collect rent from the sublessee or occupant and any
amounts due under any such contract and apply the same in accordance with
Section 17 hereof. The collection or application by Lessor of any such amounts
shall not constitute a waiver of the provisions of this Section 19, or an
acceptance of such sublessee or occupant as tenant, or a release of Lessee from
the further performance by Lessee of the terms, covenants and conditions of this
Lease. Any violation of any provision of this Lease, whether by act or omission,
by any sublessee, occupant or Person with whom Lessee has contracted shall be a
violation of such provision by Lessee, it being the intention of the parties
hereto that Lessee shall assume and be liable to Lessor for any and all acts and
omissions of any and all sublessees and occupants of the Land and Persons with
whom Lessee has contracted; provided, however, that Lessee shall not be
responsible for any acts or omissions of any sublessee under a sublease entered
into in the name of Lessee pursuant to Section 23 hereof.
20. EVENTS OF DEFAULT; TERMINATION. If any one or more of the
following events (each of which is referred to in this Lease as an "Event of
Default") shall occur:
(a) if Lessee shall fail to pay any Basic Rent within five
days after the due date thereof;
(b) if Lessee shall fail to pay any Additional Rent within
five days after the due date thereof;
(c) if Lessee shall fail to perform or comply with any term
or provision of this Lease other than a failure to pay Basic Rent or Additional
Rent and
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such failure shall continue for more than 30 days from the earlier of (i) the
date upon which Lessor gives notice of such failure to Lessee or (ii) the date
upon which the principal operating officer of Lessee responsible for the
operations of the Property determines that such failure has occurred; provided
that, in the case of any such failure that is susceptible of cure by the Lessee,
but that cannot with diligence be cured within such 30 day period, if Lessee
shall have promptly commenced to cure the same and shall thereafter prosecute
the curing thereof with diligence, the period within which such failure may be
cured shall be extended for such further period (not exceeding 90 days) as shall
reasonably be required for the curing thereof with diligence;
(d) if Lessee shall make an assignment for the benefit of
creditors, or shall be generally not paying its debts as they become due or
shall commence a case under the Bankruptcy Code, or shall file any petition or
answer seeking for itself any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future statute, law or regulation, or shall file any answer admitting or shall
fail timely to contest the material allegations of a petition filed against it
in any such proceeding, or shall seek or consent to or acquiesce in the
appointment of any trustee, custodian, receiver or liquidator of Lessee or any
material part of its properties;
(e) if, without the consent or acquiescence of Lessee, an
order shall be entered constituting an order for relief or approving a petition
for relief or reorganization or any other petition seeking any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or other
similar relief under any present or future statute, law or regulation, or if any
such petition shall be filed against Lessee and such petition shall not be
dismissed within 60 days, or if, without the consent or acquiescence of Lessee,
an order shall be entered appointing a trustee, custodian, receiver or
liquidator of Lessee or of any material part of its properties, and such
appointment shall not be dismissed within 60 days;
(f) if a final judgment for the payment of money of more
than $20,000,000.00 shall be rendered against Lessee and within 60 days after
the entry thereif, such judgment shall not have been removed or its enforcement
stayed by bond or otherwise;
(g) if Lessee shall fail to comply in all material respects
with the requirements of any note, mortgage, deed to secure debt, security
agreement or other instrument or document evidencing, securing or otherwise
relating to any indebtedness for monies borrowed of $20,000,000.00 or more owed
by Lessee to Lessor or to any third party and as a result thereof such
indebtedness becomes due before its stated maturity, or if Lessee shall fail to
comply in all material respects with the requirements of any lease with Lessor,
either of the GECC Leases or with the requirements of any Material Lease, and as
i result of such failure Lessor, GECC or the lessor under such Material Lease
shall terminate such lease or shall exercise its right to retake possession of
the leased property without terminating such lease;
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(h) if any representation or warranty made by Lessee under
this Lease, under the Acquisition Agreement or in any officer's certificate
shall prove to have been inaccurate in any material respect when made (unless
such inaccuracy was unintentional and is no longer material) and Lessee shall
fail to take such action as is necessary to make such warranty or representation
true and accurate within a period of 30 days after Lessor shall have notified
Lessee of such inaccuracy; or
(i) if any one or more of the following shall occur:
(ii) Lessee shall cease to be a wholly-owned subsidiary of
Tenneco;
(iii) Lessee shall be sold to, merged into or consolidated with
any other corporation, or substantially all of its assets shall be sold, whether
or not such transaction is permitted under the provisions of Section 38 hereof;
(iv) 30% or more of the outstanding common stock of Lessee
shall be repurchased by Lessee during any 12 month period; or
(v) Lessee shall pay or declare a dividend;
and as a result of the occurrence of (i), (ii), (iii) or (iv), the Net Worth of
Lessee immediately thereafter shall not be at least 50% of the level of Lessee's
Net Worth as of the fiscal year-end immediately preceding such occurrence; then,
and in any such event (regardless of the pendency of any proceeding which has or
might have the effect of preventing Lessee from complying with the terms of this
Lease), Lessor, at any time thereafter so long as such event shall be continuing
may give a written termination notice to Lessee, and on the date specified in
such notice this Lease shall terminate and, subject to Section 24, the Lease
Term shall expire and terminate, and all rights of Lessee under this Lease shall
cease, unless before such date (i) all arrears of Basic Rent and Additional Rent
payable by Lessee under this Lease (together with Default Interest thereon) and
all costs and expenses (including, without limitation, reasonable attorneys'
fees and expenses) incurred by or on behalf of Lessor hereunder, shall have been
paid by Lessee, and (ii) all other Defaults at the time existing under this
Lease shall have been fully remedied to the satisfaction of Lessor, Lessee shall
reimburse Lessor for all costs and expenses incurred by or on behalf of Lessor
(including, without limitation, attorneys' fees and expenses) occasioned by any
Default by Lessee under this Lease.
21. ENTRY BY LESSOR. Lessor and its authorized representatives shall
have the right to enter the Property or any part thereof at any time (a) for the
purpose of inspecting the same or for the purpose of doing any work under
Section 18, and to take all such action thereon as may be necessary or
appropriate for any such purpose (but nothing contained in this Lease shall
create or imply any duty on the part of Lessor to make any such inspection or do
any such work), and (b) for the purpose of showing the Property to prospective
purchasers, lessees or mortgagees, and (c) during the 12-month period preceding
the expiration of the Initial Lease Term and at all times during the Extension
Period, to display on the Property advertisements for sale or letting if such
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advertisements do not interfere with the business conducted on the Property, No
such entry shall constitute an eviction of Lessee, During any such entry of the
Property, Lessor or its representatives shall not unduly interfere with Lessee's
operations. Notwithstanding the foregoing, so long as no Event of Default has
occurred and is continuing under this Lease, Lessor agrees that it will enter
Lessee's business offices on the Property only during Lessee's regular business
hours after providing Lessee reasonable prior notice of such entry.
22. REPOSSESSIONS ETC. If an Event of Default shall have occurred and
be continuing, Lessor, whether or not the Lease Term shall have been terminated
pursuant to Section 20, may enter upon and repossess the Property or any part
thereof by force, summary proceedings, ejectment or otherwise, and may remove
Lessee and all other persons and any and all property therefrom as permitted by
and in accordance with applicable law, Unless otherwise provided under
applicable law, Lessor shall be under no liability for or by reason of any such
entry, repossession or removal.
23. RELETTING. At any time or from time to time after the
repossession of the Property or any part thereof pursuant to Section 22, whether
or not the Lease Term shall have been terminated pursuant to Section 20, Lessor
may (but shall be under no obligation to) relet the Property or any part thereof
for the account of Lessee, in the name of Lessee or Lessor or otherwise, without
notice to Lessee, for such term or terms (which may be greater or less than the
period which would otherwise have constituted the balance of the Lease Term) and
on such conditions (which may include concessions or free rent) and for such
uses as Lessor, in its sole discretion, may determine, and may collect and
receive the rents therefor. Lessor shall not be responsible or liable for any
failure to relet the Property or any part thereof or for any failure to collect
any rent due upon any such reletting.
24. SURVIVAL OF LESSEE'S OBLIGATIONS; DAMAGES.
24.1 TERMINATION OF LEASE NOT TO RELIEVE LESSEE OF OBLIGATIONS.
No expiration or termination of the Lease Term pursuant to Section 20 or by
operation of law, or otherwise (except as expressly provided herein), and no
repossession of the Property or any part thereof pursuant to Section 22, or
otherwise, shall relieve Lessee of its liabilities and obligations hereunder,
all of which shall survive such expiration, termination or repossession.
24.2 CURRENT DAMAGES. In the event of any such expiration,
termination, or repossession, Lessee will pay to Lessor all Basic Rent and
Additional Rent up to the time of such expiration, termination or repossession,
and thereafter Lessee, until the end of what would have been the Lease Term in
the absence of such expiration, termination or repossession, and whether or not
the Property or any part thereof shall have been relet, shall be liable to
Lessor for, and shall pay to Lessor, as liquidated and agreed current damages
for Lessee's default, (a) all Basic Rent and Additional Rent which would be
payable under this Lease by Lessee in the absence of such expiration,
termination or repossession, less (b) all net rents collected by Lessor
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from sublessees, tenants and occupants plus the net proceeds, if any, of any
reletting pursuant to Section 23 after deducting from such rents and proceeds
all of Lessor's reasonable expenses in connection with such collection and
reletting (including, without limitation, repossession costs, brokerage
commissions, accounting expenses, attorneys' fees and expenses, employees'
expenses, promotional expenses, and expenses of preparation for such collection
and reletting). Lessee will pay such current damages on the payment dates of
installments of Basic Rent applicable in the absence of such expiration,
termination or repossession, and Lessor shall be entitled to recover the same
from Lessee on each such date.
24.3 FINAL DAMAGES. At any time after any such expiration,
termination or repossession, whether or not Lessor shall have collected any
current damages as aforesaid, Lessor shall be entitled to recover from Lessee
and Lessee will pay to Lessor on demand, as and for liquidated and agreed final
damages for Lessee's default and in lieu of all current damages beyond the date
of such demand, an amount equal to the present value of the excess, if any, of
(a) all Basic Rent and Additional Rent which would be payable under this Lease
from the date of such demand (or, if it be earlier, the date to which Lessee
shall have satisfied in full its obligations under Section 24.2 to pay current
damages) for what would be the then unexpired Lease Term in the absence of such
expiration, termination or repossession over (b) the then fair net rental value
of the Property for the same period, such present value to be determined using a
discount rate equal to the Average Life Treasury Rate, In the event a dispute
arises between the parties as to the then fair net rental value of the Property,
such fair net rental value shall be determined as of the date of calculation by
an appraiser appointed by Lessor in its sole discretion who is competent,
qualified by training and experience in appraising timberlands, disinterested
and independent and who is a member in good standing of the Association of
Consulting Foresters. All costs, fees and expenses of any such appraiser
appointed by Lessor to determine the fair net rental value of the Property shall
be paid by Lessee. Lessee will also pay to Lessor all reasonable expenses
incurred by Lessor in connection with the reletting of the Property including,
without limitation, repossession costs, brokerage commissions, accounting
expenses, attorneys' fees and expenses, employees' expenses, promotional
expenses, and expenses of preparation for such reletting, Upon the payment of
such final damages, this Lease if not already terminated, shall be deemed
terminated, If any statute or rule of law shall validly limit the amount of such
liquidated final damages to less than the amount above agreed upon, Lessor shall
be entitled to the maximum amount allowable under such statute or rule of law.
25. LESSEE'S WAIVER OF STATUTORY RIGHTS. In the event of any
termination of the Lease Term pursuant to Section 20 or any repossession of the
Property pursuant to Section 22, Lessee, so far as permitted by law, waives (a)
any notice of re-entry or of the institution of legal proceedings to that end,
(b) any right of redemption, re-entry or repossession, and (c) the benefits of
any laws now or hereafter in force exempting property from liability for rent or
for debt.
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26. NO WAIVER, ETC., BY LESSOR OR LESSEE. No failure by Lessor or
Lessee to insist upon the strict performance of any term hereof or to exercise
any right, power or remedy consequent upon a breach thereof, and no submission
by Lessee or acceptance by Lessor of full or partial rent during the continuance
of any such breach, shall constitute a waiver of any such breach or of any such
term. No waiver of any breach shall affect or alter this Lease, which shall
continue in full force and effect, or the respective rights of Lessor or Lessee
with respect to any other then existing or subsequent breach.
27. LESSOR'S REMEDIES, ETC., CUMULATIVE. Each right, power and
remedy of Lessor provided for in this Lease or now or hereafter existing at law
or in equity or by statute or otherwise shall be cumulative and concurrent and
shall be in addition to every other right, power or remedy provided for in this
Lease or now or hereafter existing at law or in equity or by statute or
otherwise, and the exercise or beginning of the exercise by Lessor of any one or
more of the rights, powers or remedies provided for in this Lease or now or
hereafter existing at law or in equity or by statute or otherwise shall not
preclude the simultaneous or later exercise by Lessor of any or all such other
rights, powers or remedies.
28. ACCEPTANCE OF SURRENDER. No termination or surrender of this
Lease or surrender of the Property or any part thereof or any interest therein
by Lessee shall be valid or effective unless agreed to and accepted in writing
by Lessor, and no act by any representative or agent of Lessor, other than such
a written agreement and acceptance by Lessor, shall constitute an acceptance
thereof.
29. NO MERGER OF TITLE. There shall be no merger of the leasehold
estate created by this Lease with the fee estate in the Property by reason of
the fact that the same person may own or hold (a) the leasehold estate created
by this Lease or any interest in such leasehold estate, and (b) the fee estate
in the Property or any interest in such fee estate; and no such merger shall
occur unless and until all persons having any interest in (i) the leasehold
estate created by this Lease, and (ii) the fee estate in the Property, shall
join in a written instrument effecting such merger and shall duly record the
same.
30. ESTOPPEL CERTIFICATE.
(a) BY LESSEE. Lessee will execute, acknowledge and deliver to
Lessor, as soon as reasonably practicable, but in no event later than 30 days
following receipt of a request therefor from Lessor, a certificate certifying
that (i) this Lease is unmodified and in full force and effect (or, if there
have been modifications, that the Lease is in full force and effect, as
modified, and stating the modifications), (ii) the dates, if any, to which Basic
Rent and Additional Rent have been paid, and (iii) no notice has been received
by Lessee of any Default which has not been cured, except as to Defaults
specified in said certificate. Any such certificate may be relied upon by any
prospective purchaser or mortgagee of the Property or any part thereof.
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(b) BY LESSOR. Lessor will execute, acknowledge and deliver to
Lessee, within 30 days following a request therefor from Lessee, a certificate
certifying that (i) this Lease is unmodified and in full force and effect (or,
if there have been modifications, that the Lease is in full force and effect, as
modified, and stating the modifications), (ii) the dates, if any, to which Basic
Rent and Additional Rent have been paid, and (iii) Lessor is unaware of any
Default which has not been cured, except for the Defaults specified in said
certificate. Any such certificate may be relied upon by any permitted assignee
of this Lease or any permitted sublessee of the Property or any part thereof.
31. CONVEYANCE BY LESSOR. In case the Lessor or any successor
thereto shall convey or otherwise dispose of the Property by transfer which does
not violate the provisions of Section 35.2(a) hereof, it shall thereupon be
released from all liabilities and obligations of Lessor under this Lease (except
those accruing prior to such conveyance or other disposition) and such
liabilities and obligations shall be binding solely on the then owner of the
Property, provided such owner expressly assumes the liabilities and obligations
of Lessor under this Lease.
32. END OF LEASE TERM. Upon the expiration or other termination of
the Lease Term, Lessee shall quit and surrender to Lessor the Property in good
order and condition, and shall remove all Lessee's Equipment therefrom, In the
event Lessee fails to so vacate the Property, such hold over shall be as a
tenant at sufferance and not as a tenant at will. Lessee shall pay Lessor, on
demand, as rent for the period of such hold over an amount equal to one and one-
quarter (1.25) times the Quarterly Rent which would have been payable by Lessee
had the hold over period been a part of the Lease Term, together with the amount
of any actual direct or consequential damages suffered or incurred by Lessor on
account of such hold over by Lessee or any violation by Lessee of any other term
or condition of this Lease during such hold over period, In no event shall the
payment of rent during such hold over period cause Lessee to be or be deemed to
be a tenant at will. No holding over by Lessee, whether with or without consent
of Lessor, shall operate to extend the Lease Term except as otherwise expressly
provided in a written agreement executed by both Lessor and Lessee.
33. PROVISIONS SUBJECT TO APPLICABLE LAW. All rights, powers and
remedies provided herein may be exercised only to the extent that the exercise
thereof does not violate any applicable law, and are intended to be limited to
the extent necessary so that they will not render this Lease invalid,
unenforceable or not entitled to be recorded under any applicable law. If any
term of this Lease shall be held to be invalid, illegal or unenforceable, the
validity of the other terms of this Lease shall in no way be affected thereby.
34. TIMBER MANAGEMENT AND CUTTING PROVISIONS.
34.1 GENERAL TIMBER MANAGEMENT OBLIGATIONS. Lessee covenants
and agrees that the Property shall be operated for its highest and best use as
timberland, having due regard to soil conditions, stand arrangements and other
factors
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relevant to the conduct of sound silvicultural and harvesting practices, Lessee
agrees that any intermediate harvesting of Timber shall be carried out in a
manner calculated to produce the maximum growth per acre, consistent with the
production of the highest quality and greatest quantity of Merchantable Timber,
Lessee shall have the right to manage the Property for maximum pulpwood
production and to utilize all products, including sawtimber, as pulpwood,
provided the Timber is properly accounted for by Lessee as pulpwood or
sawtimber, as the case may be, in accordance with the timber classifications,
specifications, utilization limits and calculation standards set forth on
Exhibit E hereto. Lessee further covenants and agrees:
(a) HARVESTING OPERATIONS. That all Timber cutting shall
be conducted in such a manner as to realize the greatest return from the
individual tree and from the timber stand, to effect suitable utilization of the
Land, to assure the early and complete regeneration of stands of desirable
Timber, and to bring about their optimum development both as to growth and
quality; that trees shall be cut as close to the ground as practicable in order
to leave the lowest stump, with jump-butting to be used when necessary; that all
desirable trees which are not at the time being harvested, including young
trees, shall be protected against unnecessary injury from felling, skidding and
hauling; and that all measures reasonably practicable shall be used to prevent
soil erosion including the proper location of skidways and roads.
(b) RESTRICTIONS ON GRAZING AND USE OF FIRE. That Lessee
shall not permit grazing of livestock on the Land in such a way as to be
injurious to forest regeneration, soils or forest growth, or permit the use of
fire for eradication of noxious growth or for any other reason whatsoever except
with Lessor's prior written consent; provided, however, application of fire in a
controlled manner for the benefit of timber production ("prescribed burning")
may be utilized in the management of the Property, without Lessor's prior
written consent, if (i) state and county fire protection agencies are notified
and all fire protection and other applicable laws are followed, (ii) appropriate
equipment and trained personnel are available and utilized, (M) fire is applied
only when weather conditions are favorable, and (iv) the prescribed burning area
is isolated from other areas by appropriate natural or man-made fire breaks.
(c) SALVAGE. That to the extent economically feasible, all
trees which are dead, diseased, fallen or otherwise damaged by casualty, shall
be salvaged and harvested in accordance with sound silvicultural practices and
shall be reported pursuant to Section 34.5 hereof.
(d) FIRE PROTECTION. That all measures shall be taken
which are reasonably necessary to protect the Land and the Timber from loss by
fire, which measures shall be at least equal to fire-control practices generally
followed on timber-producing property in the same general area, including the
adoption of suitable prevention and control measures, the maintenance of
adequate fire-fighting equipment, proper disposal of slash and slabs, and full
cooperation with county, state and federal agencies on matters of fire
prevention and control.
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(e) MAINTENANCE OF ROADS. That an adequate system of roads and
roadways shall be maintained in such manner as to permit access of mobile fire-
fighting equipment and logging equipment to all parts of the Land.
(f) REGENERATION OF THE SOUTHERN TIMBERLANDS. That Lessee shall
take care to leave the Southern Timberlands in the same general condition at the
end of the Lease Term as existed on the Commencement Date of this Lease. Thus,
all reasonable measures shall be taken to insure proper regeneration of Timber
on the Southern Timberlands. This means, all portions of the Southern
Timberlands which are economically suited for growing pine trees and which have
either been clear-cut or are without adequate seed source shall be site-prepared
and replanted in pine seedlings using to the extent available the most superior
type, so as to establish and maintain pine trees on all portions of the Southern
Timberlands which are economically suited for the production of pine timber, Any
clear-cut area shall be site prepared and replanted within 18 months of such
clear-cutting. In areas of the Southern Timberlands which have not been clear-
cut but which are without adequate seed source and are economically suited for
the production of pine timber, Lessee shall institute and maintain a planting
program designed adequately to reforest such land. For each one acre of the
Southern Timberlands clear-cut but not site-prepared and replanted prior to the
expiration of the Lease Term, Lessee shall pay to Lessor the sum of $150.00 per
acre to be retained as a performance deposit until the clear-cut acreage is
site-prepared and replanted satisfactorily to Lessor. Lessee shall have until
the expiration of the 18 month period following the clear-cutting to which the
performance deposit relates to site-prepare and replant the clear-cut acreage
and obtain a refund of said deposit, which shall be retained by Lessor if site
preparation and replanting have not been completed by such time; provided,
however, if such 18 month period shall have expired prior to the expiration of
the Lease Term, then Lessee shall have a period of 12 months following the
expiration of the Lease Term to complete such site preparation and replanting
and to obtain a refund of said deposit. The preceding sentence shall not be
construed in any way so as to relieve Lessee of its obligation to site-prepare
and replant within 18 months of any clear-cutting during the Lease Term and any
failure by Lessee so to site-prepare and replant within such 18 months shall
constitute a Default under this Lease.
(g) REGENERATION OF THE NORTHERN TIMBERLANDS. That Lessee shall
take care to leave the Northern Timberlands in the same general condition at the
end of the Lease Term as existed on the Commencement Date of this Lease. Thus,
all reasonable measures shall be taken to insure proper regeneration of Timber
on the Northern Timberlands. This means, each clear-cut area (except for Lowland
Brush (Spruce) described on Exhibit D-3 hereof) within the Northern Timberlands
which cannot be adequately regenerated by natural means shall be site-prepared
and replanted in coniferous or hardwood seedlings suitable for the site using to
the extent available the most superior type. Any clear-cut area which has not
regenerated naturally within 12 months of such clear-cutting shall be site-
prepared and replanted within 24 months of such clear-cutting. In areas of the
Northern Timberlands which have not been clear-cut but which are unable to
regenerate naturally, Lessee shall institute and maintain a planting program
designed adequately to reforest such land. For each one acre of clear-
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cut land in the Northern Timberlands requiring site preparation and replanting
which is not site prepared and replanted prior to the expiration of the Lease
Term, Lessee shall pay to Lessor the sum of $150,00 per acre to be retained as a
performance deposit until such acreage is site-prepared and replanted
satisfactorily to Lessor, Lessee shall have until the expiration of the 24 month
period following the clear-cutting to which the performance deposit relates to
site-prepare and replant such acreage and obtain a refund of said deposit, which
shall be retained by Lessor if site preparation and replanting have not been
completed by such time; provided, however, if such 24 month period shall have
expired prior to the expiration of the Lease Term, Lessee shall have a period of
12 months following the expiration of the Lease Term to complete such site
preparation and replanting and to obtain a refund of said deposit. The preceding
sentence shall not be construed in any way so as to relieve Lessee of its
obligation to site-prepare and replant within 24 months of any clear-cutting
during the Lease Term which has not regenerated naturally within 12 months
following such clear-cutting and any failure by Lessee so to site-prepare and
replant within such 24 months shall constitute a Default under this Lease.
(h) CONTROL OF DISEASE. That, to the extent economically
feasible, there shall be maintained at all times in accordance with sound
silvicultural practices all reasonable and effective measures to prevent the
development of and to control the spread of disease and insect infestation on
the Land, including, but not limited to, the shifting of logging operations to
remove diseased or insect-infested trees and other trees threatened with disease
or insect infestation, and all such other accepted forest sanitation and control
measures as are necessary to prevent the development and spread of disease and
insect infestation.
(i) TRESPASS. That the Land shall be marked to indicate the
boundaries thereof in a Conspicuous manner satisfactory to Lessor; that such
markings shall be renewed from time to time as may be necessary clearly to
maintain public notice of boundaries; and that Lessee shall cause the Land to be
inspected for the purpose of preventing trespass of any type or nature,
including unauthorized cutting of Timber.
(j) CONTRACTS. That no contracts or agreements (whether written
or oral) for the lease, sale or disposition of Timber wherein third parties are
granted the privilege of entry upon the Land for cutting and removal of Timber
or the care or management of all or part of the Property shall be made without
the prior written approval of Lessor; provided, however, that so long as no
Event of Default shall have occurred and be continuing hereunder, no prior
written approval of Lessor shall be required for any such contracts or
agreements which (i) have a term of 1_ months or less, but in no event expiring
after December 31, 2002 (except that any such contract may expire after December
31, 2002, provided such contract expressly provides that it will terminate,
without cost or penalty to Lessor, upon the sale by Lessor of all or any portion
of the Property affected by such contract), (ii) require payment or delivery of
goods and/or services by Lessee in an aggregate amount of less than $500,000.00,
and (iii) are expressly subject and subordinate to this Lease; provided,
further, however, that no written approval of Lessor shall be required in
connection with the assumption by
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Lessee of various contracts of Sellers by instrument of even date herewith
pursuant to the provisions of the Purchase Agreement and the Acquisition
Agreement.
34.2 TIMBER CUTTING PRIVILEGES. Lessee agrees neither to cut or
remove nor permit the cutting or removal of any Timber without the prior written
consent of Lessor, except as expressly provided herein, Unless a Default has
occurred and is continuing under this Section 34.2 or unless an Event of Default
has occurred and is continuing under any provision of this Lease, Lessee shall
have the right to cut and remove Merchantable Timber from the Land, but only in
strict accordance with the following provisions:
(a) ANNUAL CUTTING PRIVILEGE. As soon as reasonably possible
after the Commencement Date of this Lease and thereafter on or before the last
day of the Fifth and Tenth Lease Years, Lessee shall cause the Forestry
Consultant to deliver to the Lessor a Projected Growth Report for the next five
years itemized by Category, Lessee's timber cutting right during the Lease Term
shall be based upon such Projected Growth Reports as follows:
(i) During each Lease Year of the Initial Lease Term, Lessee
shall have the right to cut up to 100% of the average projected annual growth
(net of mortality) by Category as determined by the Forestry Consultant in the
Projected Growth Report applicable to such Lease Year. If mortality exceeds
average projected annual growth in any Category during any Lease Year, such
excess shall be deducted from Lessee's cutting rights for such Category for the
following Lease Years. Lessee may, at its option, elect to cut less than 100% of
such average projected annual growth during any Lease Year and, in such event,
Lessee shall be permitted to cut, without penalty, the remainder of such
projected growth in any subsequent Lease Year covered by the five-year Projected
Growth Report applicable to such Lease Year; and
(ii) During each Lease Year during the Extension Period, Lessee
shall have the right to cut up to 75% of the average projected annual growth
(net of mortality) by Category as determined by the Forestry Consultant in the
Projected Growth Report applicable to such Lease Year, If mortality exceeds 75%
of average projected annual growth in any Category during any Lease Year, such
excess shall be deducted from Lessee's cutting rights for such Category for the
following Lease Years;
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provided, however, that:
A. the permitted volume of cutting in any Category for any
Lease Year shall be reduced by an amount equal to the
excess volume, if any, cut or removed during the
preceding Lease Years pursuant to paragraph (b) of this
Section 34.2, multiplied by 1.5;
B. the Forestry Consultant shall revise and update its
Projected Growth Report annually to reflect each sale,
Taking or release of all or any portion of the
Property during the Lease Term and Lessee's timber
cutting privilege shall be adjusted in conformity with
such revised report;
C. the permitted volume of cutting in any Category for the
Sixth through the Fifteenth Lease Years shall be
increased or decreased to correct any growth projection
errors applicable to prior periods which are revealed
by the Cruise performed by the Forestry Consultant at
the end of the Fifth and Tenth Lease Years;
D. in the event the Annual Report delivered by the
Forestry Consultant indicates that variances exist
between the actual growth of Timber by Category and the
projections set forth in the Projected Growth Report,
Lessor or Lessee, with the consent of the other, which
consent is not to be unreasonably withheld by either
party, shall have the right to require the Forestry
Consultant to revise the Projected Growth Report to
reflect such variances and Lessee's Timber cutting
right shall be adjusted in conformity with such revised
report; and
E. until such time as the Forestry Consultant shall
deliver its initial Projected Growth Report to Lessor
and Lessee and provided Lessee would otherwise be
permitted to cut Timber in accordance with the
provisions of this Section 34.2, Lessee shall be
permitted to cut the volumes of Timber by Category set
forth on Exhibit H attached hereto and incorporated
herein by this reference.
(b) EXCESS CUTTING. Subject strictly to compliance by Lessee
with this paragraph (b) of this Section 34.2, Lessee may without default cut and
remove
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Merchantable Timber in excess of the volumes permitted under paragraph (a) of
this Section 34.2, provided, that such excess cutting in any Lease Year does not
exceed 10% (on a non-cumulative basis) of the volume (in any Category) in such
Lease Year permitted to be cut under paragraph (a) of this Section 34.2;
provided further, that with respect to each such excess volume of each Category
of Merchantable Timber, Lessee shall be required to pay as Additional Rent to
Lessor an amount equal to the greater of (i) 150% of the amount calculated by
multiplying such excess volume of each Category times the applicable Adjustment
Amount Per Cord for each Category set forth on Exhibits D-1, D-2 and D-3 hereto,
or (ii) 150% of the fair market value of the excess Merchantable Timber cut, as
determined by the Forestry Consultant as of the last day of such Lease Year.
(c) MERCHANTABLE TIMBER CUT BY OTHERS; LOSS OF MERCHANTABLE TIMBER
BY CASUALTY. All Merchantable Timber on the Land which is cut or removed by any
Person other than Lessee or which is lost or destroyed by fire, windstorm,
disease, infestation, act of government or war or third parties or any similar
cause (other than that which is lost as a result of a Taking), whether or not
salvaged, shall be deemed to have been cut or removed by Lessee for purposes of
this Lease; provided, however, the volumes of any Merchantable Timber so lost or
destroyed shall not be deemed to have been cut or removed by Lessee for purposes
of the lot limitation set forth in the first proviso in the first sentence of
paragraph (b) of this Section 34.2 so long as Lessee shall have paid the
Additional Rent with respect to such lost or destroyed Merchantable Timber
required to be paid under the second proviso in the first sentence of paragraph
(b) of this Section 34.2.
(d) TITLE TO MERCHANTABLE TIMBER. Title to all Merchantable Timber
located on the Property is now and shall remain vested in Lessor throughout the
Lease Term; provided, however, that title to any Merchantable Timber which is
cut or removed from the Property by Lessee in strict accordance with the
provisions of this Section 34.2, shall, upon such cutting and removal, vest in
Lessee.
34.3 LOSS OF PRE-MERCHANTABLE PLANTED TREES BY CASUALTY. In the
event any Pre-Merchantable Planted Trees are lost or destroyed by fire,
windstorm, disease, infestation, act of government or war or third parties or
any similar cause (other than that which is lost as a result of a Taking), then,
in any such event Lessee shall site-prepare and replant the acreage of such lost
or destroyed Pre-Merchantable Planted Trees in the same manner and within the
same time as would be required by Section 34.1 if said acreage had been clear-
cut.
34.4 FORESTRY CONSULTANT.
(a) APPOINTMENT. Lessee hereby acknowledges and agrees that
Lessor shall have the right, at all times during the Term of this Lease and at
Lessee's sole cost and expense, to employ an independent forestry consulting
firm or firms of established reputation to act on behalf of Lessor hereunder
(the "Forestry Consultant"). Lessor and Lessee further acknowledge and agree
that, with respect to the Southern
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Timberlands, the initial Forestry Consultant shall be Resource Management, Inc.,
and, with respect to the Northern Timberlands, the initial Forestry Consultant
shall be George Banzhaf & Company.
(b) Duties. During the Lease Term the Forestry Consultant shall:
(i) periodically perform a Cruise of the Property and prepare
a Projected Growth Report with respect thereto in accordance with the provisions
of section 34.5 hereof ;
(ii) upon completion of the initial Cruise, prepare an
appraisal by Category of the fair market value of the Property as of the
Commencement Date of this Lease (the "Property Appraisal") to be delivered to
Lessor and Lessee on or before March 1, 1991;
(iii) prepare an Annual Report with respect to the Property in
accordance with the provisions of Section 34.7 hereof;
(iv) make periodic determinations of acreage and timber
volumes by Category with respect to portions of the Property to be sold, taken
or otherwise released from this Lease;
(v) verify any and all reports, certifications or other
information provided by Lessee to Lessor in accordance with the provisions of
this Lease;
(vi) monitor Lessee's business and activities on the Property
to assure compliance by Lessee with the provisions of this Lease;
(vii) notify Lessor of any Default or Event of Default
hereunder promptly upon obtaining knowledge of same;
(viii) notify Lessor if for any reason it becomes impossible
for such Forestry Consultant faithfully and fully to perform its obligations
hereunder;
(ix) accept no obligation or responsibility to Lessee which is
inconsistent with the faithful discharge of such Forestry Consultant's
obligations to Lessor hereunder; and
(x) perform such other duties with respect to the Property and
this Lease as Lessor may from time to time reasonably request.
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(c) RECORDS. All of the records of the Forestry Consultant relating
to the Property, including without limitation, all books, maps, surveys,
photographs, reports and similar information, shall be and become the property
of Lessor shall be held by the Forestry Consultant as agent for Lessor and shall
be furnished or made available to Lessor as it may from time to time request.
Lessee shall have the right to examine and make copies of the foregoing, all at
Lessee's expense, as the Lessee may from time to time reasonably request.
(d) PAYMENT OF FEES. Lessee covenants and agrees to pay all fees and
to reimburse all expenses of the Forestry Consultant hereunder, If Lessee fails
or refuses to pay any fees or to reimburse any expenses of the Forestry
Consultant when due, Lessor may at its election advance and pay any such sum and
said sum, together with Default Interest thereon calculated from the due date
thereof, shall be paid by Lessee to Lessor as Additional Rent on or before the
fifth day following the date upon which Lessor advances such amount.
(e) TERMINATION OF FORESTRY CONSULTANT'S EMPLOYMENT.
(i) Lessor shall have the right to terminate the
employment of the Forestry Consultant at any time, with or without cause, by
giving 30 days advance written notice of such termination to the Forestry
Consultant and to Lessee.
(ii) Lessee shall have the right to terminate the
employment of the Forestry Consultant at any time for cause consisting of
failure to perform, or bad faith, negligence, or misconduct in the performance
of, its duties as the Forestry Consultant hereunder, by giving 30 days advance
written notice of such termination to the Forestry Consultant and to Lessor.
(iii) Upon the termination of the employment of the Forestry
Consultant by either the Lessor or Lessee, then the other party shall have the
right to propose a successor Forestry Consultant.
(iv) In the event of the resignation of the Forestry
Consultant, Lessor shall have the right to propose a successor Forestry
Consultant.
(v) In the event Lessor and Lessee, after good faith
negotiations have been attempted by Lessor, do not for any reason agree in
writing on the appointment of a successor Forestry Consultant within 30 days
after such termination or resignation, and provided Lessor desires that a
successor Forestry Consultant be appointed, then Lessor shall provide to Lessee
a list of three forestry consulting firms which are acceptable to Lessor, and
Lessee shall have ten Business Days following receipt of such list to select one
of the three consulting firms listed thereon to act as Forestry Consultant
hereunder; provided, however, if Lessee fails to make its selection within such
ten-day period, Lessor shall have the right but not the obligation to appoint a
successor Forestry Consultant in its sole discretion.
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(vi) In case of termination of the employment of the
Forestry Consultant by the Lessee, the effective date of such termination shall
be extended, if so requested by the Lessor, until the successor Forestry
Consultant has accepted the engagement and is in a position fully to perform the
duties of the Forestry Consultant hereunder; provided, however, that no such
extension shall be for a period in excess of 90 days from the original
termination date set forth in Lessee's notice of termination.
(f) No Obligation to Utilize Consultant. Notwithstanding the
foregoing, Lessor shall have no obligation to utilize the services of a Forestry
Consultant under the terms of this Section 34.4. For any period of time during
which there is no Forestry Consultant employed and acting as such, Lessor shall
have the right to take such steps as it considers necessary to make the
determinations, verifications and inspections to be made by the Forestry
Consultant hereunder, by its own employees or otherwise. Lessee agrees to pay
and reimburse all reasonable costs and expenses incurred by Lessor in making
such determinations, verifications and inspections that would otherwise be
performed by the Forestry Consultant, including without limitation, travel
expenses and the reasonable fees and expenses of independent foresters,
surveyors, engineers and attorneys.
(g) Cooperation. Lessee covenants to cooperate fully with the
Forestry Consultant in good faith so as to aid the Forestry Consultant in
performing its duties hereunder.
34.5 TIMBER CRUISE. Lessee shall cause the Forestry Consultant to
perform a cruise (in each case, the "Cruise") of the Property at Lessee's sole
expense on or before March 1, 1991 to verify the actual timber volumes and
acreages by Category included in the Property as of the Commencement Date of
this Lease and thereafter as of December 31, 1995 and December 31, 2000 to
verify the actual timber volumes and acreages by Category included in the
Property as of each of such dates. Each Cruise shall be conducted in accordance
with the cruise specifications set forth on Exhibit E attached hereto and
incorporated herein by this reference. The results of each Cruise shall be
delivered in report form to Lessor and Lessee on or before the due date thereof
and shall include a projected annual growth report for the Property for the five
year period commencing on such due date, itemized by Category (in each case, the
"Projected Growth Report"). In connection with the initial Cruise, the Forestry
Consultant shall also prepare and deliver the Property Appraisal. In the event
that Lessor or Lessee disagrees in good faith with any determination (volume
and/or acreage) by the Forestry Consultant, such party shall deliver to the
other party a written notice of objection (the "Objection Notice") and the
parties hereto shall undertake to negotiate in good faith to resolve their
differences) or, at the option of either the Lessor or Lessee, a reputable
forestry consulting firm shall be appointed by the Lessor and Lessee to resolve
such dispute, one-half the cost of which shall be borne by each party. In the
event Lessor and Lessee, after good faith negotiations have been attempted by
Lessor, do not for any reason agree on a forestry consulting firm within 30 days
following the date the objection Notice is delivered by the objecting party,
Lessor shall provide to Lessee a list of three
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forestry consulting firms which are acceptable to Lessor, and Lessee shall have
ten Business Days following receipt of such list to select one of the three
consulting firms listed thereon to resolve the dispute; provided, however, if
Lessee fails to make its selection within said ten-day period, Lessor shall have
the right to appoint such reputable forestry consulting firm in its sole
discretion.
34.6 SEMI-ANNUAL REPORTS. Lessee covenants to furnish to the Forestry
Consultant and to the Lessor not later than 45 days after the end of each
calendar semi-annual period, a semiannual report with respect to the Southern
Timberlands in a form substantially similar to that attached hereto as Exhibit
F-1 and incorporated herein by this reference and with respect to the Northern
Timberlands in a form substantially similar to that attached hereto as Exhibit
F-2 and incorporated herein by this reference, with full and accurate
information furnished in completion thereof, for each management unit of the
Property, including in addition to the information requested therein a current
compartment map (in such detail as Lessor or the Forestry Consultant may
reasonably specify from time to time) for each compartment in which a change
occurred in the volumes or acreages of Land or Timber (other than a change
merely by reason of timber growth) and such other information as Lessor or the
Forestry Consultant may reasonably request from time to time with respect to
timber activity on the Property including without limitation, new plantings,
Timber cutting, Timber utilization, Timber damage by casualty, loss of Timber or
Land by eminent domain or condemnation, and improvement of the Property. The
information to be furnished to the Forestry Consultant and Lessor shall also
include a statement setting forth the Administrative Amount of the Property by
Category as of the end of the semi-annual period covered by said report. In
addition, the Lessee covenants to furnish to the Forestry Consultant and to the
Lessor, a synopsis of all changes in acreage and volumes of Land and Timber for
the Lease Year through the semi-annual period covered by the report.
34.7 ANNUAL REPORTS. In addition to the semi-annual reports required
by Section 34.6 above, Lessee covenants to furnish to the Lessor not later than
90 days after the end of every Lease Year an annual report of the Forestry
Consultant (the "Annual Report") addressed to the Lessee and to the Lessor, for
the preceding Lease Year. The Annual Report shall contain the following:
(i) a detailed report of all matters and transactions
involving or affecting the Property in such detail as may be reasonably
required;
(ii) the certification of the Forestry Consultant, as of
December 31 of the Lease Year covered by the report, as to the acreage of
Land, volume of Merchantable Timber by Category and acreage of Pre-
Merchantable Planted Pine contained within the Property;
(iii) the opinion of the Forestry Consultant as to whether
the actual growth of Timber on the Property during such period was
consistent with
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the projections set forth in the Projected Growth Report applicable to such
period and, if not, setting forth the variances therefrom by Category; and
(iv) a reconciliation of the timber inventory and projected
growth to take into account all changes in volumes and acreages of Timber
and Land within the Property through December 31 of the Lease Year covered
by the report.
34.8 TIMBER SPECIFICATIONS AND CALCULATIONS. The timber classifications,
specifications, utilization limits and calculation standards set forth on
Exhibit E to this Lease with respect to the Southern Timberlands and the
Northern Timberlands are hereby agreed to by Lessor and Lessee and shall be used
for all purposes under this Lease.
35. DISPOSITION OF PROPERTY.
35.1 LESSEE'S OPTION TO PURCHASE. Provided this Lease has not been
terminated for any reason by either Lessor or Lessee prior thereto, Lessee shall
have, at its option but with no obligation, the right to purchase all of
Lessor's right, title and interest in the Property and, to the extent
transferable, the Permits (the "Purchase Option") for a purchase price equal to
the Purchase option Price, upon giving Lessor written notice of its election to
purchase not less than 90 days prior to the expiration of the Initial Lease
Term. If Lessee fails to give notice of its election to purchase within the
time herein allowed or if this Lease is terminated prior to giving such notice,
the Purchase option shall expire and shall be of no further force or effect.
The purchase transaction shall be consummated on December 31, 2002 or on such
other day during December 2002 as Lessor and Lessee shall agree to in writing
(the "Option Closing Date") by delivery of limited warranty deeds and special
warranty deeds to Lessee, or such other party as Lessee may direct, against
payment of the Purchase Option Price in immediately available funds (excepting
from such deeds such portion, if any, of the Property as shall have been sold by
Lessor prior to the Option Closing Date pursuant to Section 35.2 hereof, taken
by a Taking or otherwise released from this Lease pursuant to the terms hereof),
and the title so to be transferred may be subject to (a) any and all defects in
title and rights of third parties existing at the date Lessor acquired the
Property, (b) the lien or effect of any and all Impositions and any and all
Legal Requirements, (c) encumbrances and exceptions arising as a result of
action taken by Lessor to enforce its rights and remedies under this Lease, and
(d) any and all rights of third parties created or suffered by Lessee or by
Lessor with the consent of or at the request of Lessee or as a result of any act
or failure to act of Lessee, but shall be free of any other defects of title or
rights of third parties created or permitted over the objections of Lessee by
Lessor or Liens for Excluded Taxes, except this Lease. Lessee shall pay or
cause to be paid, and shall indemnify and hold Lessor harmless against, all
charges incident to the proposed conveyance (whether or not the same shall be
consummated), including, without limitation, all reasonable counsel fees and
expenses, all escrow fees, recording fees, title insurance premiums, survey
costs and all applicable transfer taxes, deed taxes, stamp taxes or similar
taxes imposed by reason of the
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conveyance of title to the Property by Lessor to Lessee or the execution,
delivery and recording of the deeds, it being the intent hereof that the
Purchase Option Price paid to Lessor for the Property shall be absolutely net to
Lessor and that such conveyance be effected without cost or expense to Lessor;
provided, however, Lessee shall not be responsible for or obligated to indemnify
Lessor for any Excluded Taxes hereunder other than transfer taxes, deed taxes,
stamp taxes or similar taxes. Lessee hereby acknowledges and agrees that, in the
event Lessee for any reason does not exercise the Purchase Option, the Lease
Term will immediately be extended to include the Extension Period.
35.2 SALE OF TIMBERLANDS DURING THE INITIAL LEASE TERM.
(a) Lessor's Right to Sell. Lessor shall have the right at all times
during the Initial Lease Term to sell all or any portion of the Timberlands
subject to this Lease and the Purchase Option without the consent or approval of
Lessee;
(b) Lessee's Right to Market; Requirements for Sale. On or before the
30th day following its receipt of the Annual Report of the Forestry Consultant
each Lease Year during the Initial Lease Term, Lessor shall identify 80,000
acres of the Timberlands (as identified by Lessor from time to time hereinafter
referred to as the "Pre-Approved Property") which Lessee shall be permitted to
market for sale on behalf of Lessor during the twelve-month period commencing
April 1 of each Lease Year during the Initial Lease Term (the "Marketing
Period"). The Pre-Approved Property shall not include and shall be in addition
to the Non-Strategic Lands. Lessor hereby agrees that it will sell all or any
remaining portion of the Non-Strategic Lands and up to 27,000 acres of the Pre-
Approved Property per Lease Year during the Initial Lease Term to one or more
purchasers identified by Lessee, provided:
(i) no Default or Event of Default shall exist under this
Lease as of the date of Lessor's request pursuant to subsection 35.2(c) or
as of the date of any such proposed sale;
(ii) the proposed sale shall be an arm's length transaction
with a Person who is not a Related Entity and who is otherwise acceptable
to Lessor in its reasonable discretion;
(iii) the net proceeds (after deduction of all closing costs
and any other costs and expenses in connection with such sale, including
any taxes imposed or recaptured under any Forest Tax Law) received by
Lessor as a result of any such sale shall be no less than the greater of
the Minimum Return Price or the Make-Whole Price applicable to such sale;
(iv) all conveyance instruments and other documentation in
connection with such sale shall be in form and substance satisfactory to
Lessor;
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(v) Lessee shall have complied fully with the requirements of
subsection 35.2(c) hereof as they relate to such proposed sale; and
(vi) all information and certifications set forth in the
certificates required under subsection 35.2(c) shall be true, accurate and
complete. Lessor's agreement to sell up to 27,000 acres of the Pre-Approved
Property per Lease Year during the Initial Lease Term shall be on a
cumulative basis, but in no event shall Lessor be required to (A) sell more
than 80,000 acres of the Timberlands during any Lease Year or (B) process
more than ten written requests for sale delivered by Lessee in accordance
with the provisions of subparagraph (c) below during any Lease Year. Lessee
shall pay all costs and expenses related to any such sale, including any
and all expenses incurred by Lessor in connection therewith.
Notwithstanding the foregoing, Lessor shall have until June 1, 1991 to
identify the Non-Strategic Lands and the Pre-Approved Property for the
initial Marketing Period.
(c) Documentation Required. Not less than 60 days prior to the date
upon which any proposed sale under subsection 35.2(b) is to occur, Lessee shall
provide a written request for such sale to Lessor, which request shall include
the following documentation, all of which must be in form and substance
satisfactory to Lessor:
(i) a legal description of the tract or tracts to be sold;
(ii) if less than an entire contiguous tract (as described in
the legal descriptions attached hereto as Exhibit A) is to be sold, a plat of
survey of the portion of the Timberlands to be sold prepared by a reputable
registered engineer or land surveyor acceptable to Lessor;
(iii) a certificate from the Forestry
Consultant:
A. stating that access to the remaining Timberlands after such
sale will not be materially impaired and will be adequate
for commercial forestry operations;
B. listing by Category the amounts of acreage and volumes of
Land and Timber contained within the tract or tracts to be
sold, which listing shall be based on the results of a
current stratified cruise complying with the cruise
specifications set forth on Exhibit E attached hereto, and
describing any Improvements thereon;
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C. setting forth a detailed computation of the Administrative
Amount of the tract or tracts to be sold; and
D. stating to the best of the knowledge and belief of the
Forestry Consultant that no Default or Event of Default
then exists under this Lease;
(iv) a certificate from the principal operating officer of
Lessee responsible for Lessee's operations on the Property:
A. stating that no Default or Event of Default then exists
under this Lease;
B. setting forth a detailed computation of the Make-Whole
Price and Minimum Return Price applicable to such sale;
C. stating that the proposed sale will not impair the
marketability or value of the remaining Timberlands or
materially impair the accessibility of the remaining
Timberlands;
D. stating that, to the best of the knowledge and belief of
such officer, the information contained in the certificate
delivered by the Forestry Consultant in connection with
such sale is true, accurate and complete; and
E. stating that the proposed sale is to be an arm's length
transaction with one or more Persons, none of whom is a
Related Entity; and
(v) a true, correct and complete copy of the contract for the
sale of the tract or tracts to be sold;
(d) Excess Proceeds. Any proceeds received by Lessor as a result of
any sale of Timberlands in accordance with the provisions of subsection (b)
above which are in excess of the greater of the Minimum Return Price or the
Make-Whole Price applicable to such sale shall be paid by Lessor to Lessee;
(e) Other Sales. In the event Lessee wishes to market for sale
during the Initial Lease Term portions of the Timberlands which are not included
in the
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Pre-Approved Property or which are in excess of the amount of acreage which
Lessor has agreed to sell pursuant to subsection 35.2(b) hereof, Lessee may
submit a written request to Lessor to sell such additional property, which
request shall comply with the provisions of subsection 35.2(c) hereof, Lessor
shall have a period of not less than 90 days from the date Lessee makes such
written request and provides such materials to evaluate the proposed sale and to
decide whether to approve such sale, which approval may be given or denied by
Lessor in its sole discretion; provided, however, Lessor agrees that it will, in
good faith, consider such request, but Lessor shall be entitled to deny such
request if Lessor determines, in its sole discretion, that such sale would not
be in the best interest of Lessor for any reason; and
(f) Release of Property Sold. This Lease shall terminate with
respect to any portion of the Property sold pursuant to this Section 35.2(b) and
Basic Rent shall thereupon be adjusted in accordance with the provisions of
Section 2.1 hereof.
35.3 SALE OF PROPERTY DURING THE EXTENSION PERIODS. Lessor shall
have the right at all times during the Extension Period to sell all or any
portion of the Property free and clear of this Lease without the consent or
approval of Lessee. In the event of such a sale during the Extension Period,
Lessee shall be entitled to receive from Lessor 20% of the excess, if any, of
the sales proceeds from such sale (net of all costs and expenses of such sale,
including without limitation, brokerage commissions and attorney's fees) over
the Adjusted Base Value of the Property. Upon the expiration of the Lease Term,
Lessee's right to receive any portion of proceeds from the sale of all or a
portion of the Property shall cease.
35.4 SALES PURSUANT TO OPTION AGREEMENTS. The documents described on
Exhibit J attached hereto and incorporated herein by this reference (the "Option
Agreements") grant to third parties options to purchase portions of the
Property. Upon the sale of any portion of the Property pursuant to the
provisions of any of the Option Agreements, the proceeds from such sale (less
costs, fees and expenses incurred by Lessor and Lessee in connection therewith)
shall be paid (i) first, to Lessor in an amount up to and including the greater
of the Minimum Return Price or the Make-Whole Price applicable to the portion of
the Property sold, and (ii) the balance, if any, of such proceeds shall be paid
to Lessee.
36. APPRAISAL. In the event the Agreed Value has not been
established by Lessor and Lessee on or before the 180th day prior to the
expiration of the Initial Lease Term (the "Determination Date"), the Agreed
Value shall be determined as follows:
(a) Not later than the 15th day after the Determination Date, Lessor
and Lessee shall each appoint one appraiser and shall give notice of such
appointment to the other party. If either party shall fail or refuse so to
appoint an appraiser and give notice thereof within said 15-day period, then the
appraiser appointed by the other party shall appoint a second appraiser within
ten days after the expiration of said 15-day period, each of the two appraisers
so appointed shall individually determine
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the Agreed Value within 30 days after the appointment of the second appraiser,
and the average of the two values so determined shall be deemed to be the Agreed
Value for purposes of this Lease and shall be final and binding upon the
parties. If Lessor and Lessee have each appointed an appraiser and given notice
thereof within said 15-day period, then the two appraisers so appointed shall
appoint a third appraiser within ten days after the expiration of said 15-day
period. Within 30 days after the appointment of the third appraisal, each of the
three appraisers shall individually determine the Agreed Value, and the average
of the two highest values determined by said appraisers shall be deemed to be
the Agreed Value for purposes of this Lease and shall be final and binding upon
the parties.
(b) All appraisers appointed hereunder shall be competent,
qualified by training and experience in appraising timberlands, disinterested
and independent and shall be members in good standing of the Association of
Consulting Foresters, and all appraisal reports shall be rendered in writing and
signed by the appraiser making the report. Each party shall pay the costs, fees
and expenses of the appraiser appointed by it and one-half of the costs, fees
and expenses of the appraiser appointed by the other appraiser or appraisers.
37. REPRESENTATIONS, WARRANTIES AND COVENANTS OF LESSEE.
37.1 GENERAL REPRESENTATIONS AND WARRANTIES. Lessee hereby warrants
and represents to Lessor that:
(a) Lessee is a corporation duly incorporated and validly
existing under the laws of the State of Delaware, is in good standing therein,
is duly qualified to do business and is in good standing in the States of
Florida, Georgia, Michigan and Wisconsin, and has full corporate power and
authority to enter into this Lease and to perform its obligations hereunder;
(b) The execution and delivery of this Lease by Lessee and the
performance of its obligations hereunder have been duly authorized by all
necessary corporate action and will not violate any provision of law or of its
charter or by-laws or result in the breach of or constitute a default under any
material indenture or other agreement or instrument to which Lessee is a party
or by which Lessee or the Property may be bound or affected;
(c) The consolidated balance sheet of the Lessee and its
Subsidiaries dated September 30, 1990, and the related consolidated statements
of income, retained earnings and cash flow which have been delivered to Lessor
by Lessee have been prepared in accordance with GAAP applied on a consistent
basis throughout the period involved and fairly present (i) the financial
condition of Lessee and its Subsidiaries as of the date of such balance sheet,
and (ii) the results of operations of the Lessee and its Subsidiaries for the
period then ended;
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(d) No material adverse change in the business, operations,
properties, assets or financial condition of the Lessee has occurred subsequent
to September 30, 1990;
(e) Lessee possesses all trademarks, trade names, copyrights,
patents, governmental licenses, franchises, certificates, consents, permits and
approvals necessary to enable it to carry on its business in all material
respects as now conducted and to own or operate the properties material to its
business as now owned or operated, without conflict with rights of others, and
that all such trademarks, trade names, copyrights, patents, governmental
licenses, franchises, certificates, consents, permits and approvals which are
material to Lessee are valid and subsisting;
(f) No actions, suits or proceedings are pending or, to the
knowledge of the Lessee, threatened against or affecting the Lessee at law or in
equity before or by any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, or before any arbitrator of any kind, which involve any transaction
herein contemplated or would have a material adverse change on the business,
operations, properties, assets or financial condition of the Lessee; and that
Lessee is not in default or in violation of any Legal Requirement which would
have a material adverse effect on its ability to perform any of its obligations
hereunder;
(g) None of the materials listed on Exhibit K attached hereto
and incorporated herein by this reference (the "Supplied Materials") which were
furnished to Lessor in writing by Lessee or by Tenneco on behalf of Lessee in
connection with this Lease contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
contained therein not misleading in light of the circumstances in which made
except for changes reflected in the report of Dames & Moore dated December 7,
1990; and except for changes reflected in the Supplied Materials and in such
report of Dames & Moore, no facts have come to the attention of any officer of
Lessee which leads any such officer to believe that the Confidential offering
Memorandum dated June 1990 prepared by Goldman, Sachs & Co, and Wasserstein
Parella & Co., Inc., relating to the sale of the Property by Sellers, a copy of
which was delivered to Lessor, contains any untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements
contained therein not misleading in light of the circumstances in which made;
provided, however, that while the projections and estimates made by Lessee that
are included in the Supplied Materials were made in good faith, Lessee does not
make any representation as to the reasonableness or accuracy of any estimates or
projections included in any of the Supplied Materials;
(h) No employee benefit plan established or maintained by the
Lessee, which is subject to Part 3 of Subtitle B of Title I of ERISA, had an
accumulated funding deficiency (as such term is defined in Section 302 of ERISA)
as of the last day of the most recent fiscal year of such plan ended prior to
the date hereof which was or would have been material to the Lessee and its
Subsidiaries taken as a whole; no liability
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to the Pension Benefit Guaranty Corporation has been, or is expected by Lessee
to be, incurred with respect to any employee benefit plan maintained by the
Lessee or any of its Subsidiaries, which is subject to Part 3 of Subtitle B of
Title I of ERISA, which would be material to the Lessee and its Subsidiaries
taken as a whole; and Lessee is in compliance in all material respects with all
applicable provisions of ERISA and the regulations and published interpretations
thereunder;
(i) As of the date hereof, Lessee has filed all tax returns
which are required to be filed by it and has paid all taxes shown to be due
pursuant to such returns and all other taxes, assessments, fees and other
governmental charges upon the Lessee and upon its properties, assets, income and
franchises, except those being contested by the Lessee, those the nonpayment of
which would not have a material adverse effect on the Lessee, or those which are
not yet due and payable; and
(j) All filings and notifications required to be made by Lessee
and its parent company, Tenneco, in connection with this Lease and the
transactions contemplated by the Purchase Agreement and the Acquisition
Agreement under the provisions of the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, have been made, and the applicable waiting period,
including any extensions thereof, has expired. No additional action of, or
filing with, any governmental or public body or authority is required in
connection with the execution, delivery and performance of this Lease (other
than routine filings with the Securities and Exchange Commission and other
governmental entities required or contemplated by this Lease).
37.2 COVENANTS. The following are additional covenants of the
Lessee:
(a) Except as permitted by Section 38 hereof, Lessee will at all
times (i) conduct continuously and operate actively its business, (ii) keep in
full force and effect its corporate existence and, where noncompliance would
materially and adversely interfere with Lessee's ability to perform its
obligations hereunder, comply with all the laws and regulations governing the
conduct of its business, and (iii) make all such reports and pay all such
franchise and other taxes and license fees and do all such other similar acts
and things as may be lawfully required to maintain its rights, licenses, leases,
powers and franchises under the laws of the United States and of the States of
Georgia, Florida, Michigan and Wisconsin;
(b) Lessee and its Subsidiaries shall not incur any Funded Debt
unless immediately thereafter total Pre-Tax Cash Flow coverage of Fixed Charges
would exceed 2.0 times, and total Funded Debt would not exceed 55% of Total
Capital;
(c) Lessee shall be permitted to incur short-term debt,
including intercompany debt, for working capital purposes; provided that a
portion of such short-term debt that is outstanding during any 12 month period
shall be deemed to be Funded Debt at the time of determination, with such
portion to be equal to the lowest daily
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average principal amount outstanding for any period of 30 consecutive days
during the preceding 12 month period;
(d) Lessee shall not at any time, whether voluntarily or by operation
of law, without the prior written consent of Lessor, mortgage, pledge, or
otherwise encumber or place any Lien, or permit same, on its assets or any
portion thereof, except for the following:
(i) any Lien upon any property or assets of Lessee in existence
at the Commencement Date, or created pursuant to an "after-acquired
property" clause or similar term (including Liens created upon substitution
of cash or collateral of similar value) in existence at the Commencement
Date, or any mortgage, pledge agreement, security agreement or other
similar instrument in existence on the Commencement Date;
(ii) any Lien upon any property or assets of Lessee created at
the time of the acquisition of such property or assets by Lessee or within
90 days after such time to secure all or a portion of the purchase price
for such property or assets or debt incurred to finance such purchase
price;
(iii) any Lien upon any property or assets existing thereon at
the time of the acquisition thereof by Lessee (whether or not the
obligations secured thereby are assumed by the Lessee);
(iv) the assumption by Lessee of obligations secured by any
Lien existing at the time of the acquisition by Lessee of the property or
assets subject to such Lien;
(v) any extension, renewal or refunding of any Lien permitted
by subsections (i), (ii), (iii) or (iv) of this Section 37.2(d) on
substantially the same property or assets theretofore subject thereto or
any part thereof, securing debt not in excess of the amount outstanding on
the date of such extension, renewal or refunding;
(vi) any Lien created or assumed by the Lessee in connection
with the issuance of debt the interest on which is excludable from gross
income of the holder of such debt pursuant to the Code for the purpose of
financing, in whole or in part, the acquisition or construction of property
or assets to be used by the Lessee;
(vii) any governmental Lien, mechanics', materialmen's,
carriers' or similar Lien incurred in the ordinary course of business which
is not yet due and payable or which is being contested in good faith by
appropriate proceedings and any undetermined Lien which is incidental to
construction;
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(viii) the right reserved to, or vested in, any municipality or
public authority by the terms of any right, power, franchise, grant,
license, permit or by any provision of law, to purchase or recapture or to
designate a purchaser of, any property;
(ix) Liens for taxes and assessments which are (A) for the
then current tax period or year, (B) not at the time delinquent or (C)
delinquent but the validity of which is being contested at the time by
Lessee in good faith;
(x) Liens of, or to secure performance of, leases;
(xi) any Lien upon, or deposits of, any assets in favor of any
surety company or clerk of court for the purpose of obtaining indemnity or
stay of judicial proceedings, provided that the aggregate book value of all
assets so deposited does not exceed 25% of the consolidated Net Worth of
Lessee, as shown on a balance sheet as of the end of the most recent fiscal
quarter prior to any such deposit for which a balance sheet is available;
(xii) any Lien upon property or assets acquired or sold by
Lessee resulting from the exercise of any rights arising out of defaults on
receivables;
(xiii) any Lien incurred in the ordinary course of business in
connection with workmen's compensation or unemployment insurance, or to
secure obligations imposed by statute or governmental regulations;
(xiv) any Lien upon any property or assets in accordance with
customary banking practice to secure any debt incurred by Lessee in
connection with the exporting of goods to, or between, or the marketing of
goods in, or the importing of goods from, foreign countries;
(xv) any Lien upon any additions, improvements, replacements,
repairs, fixtures, appurtenances or component parts thereof attaching to or
required to be attached to property or assets pursuant to the terms of any
mortgage, pledge agreement, security agreement or other similar instrument,
creating a Lien upon such property or assets permitted by subdivisions (i)
through (xvi) inclusive of this Section 37.2(d); or
(xvi) any Lien securing any debt in an amount which, together
with all other debt secured by a Lien that is not otherwise permitted by
this Section 37.2(d), does not at the time of the incurrence of the debt so
secured exceed 12% of Lessee's total Tangible Assets, as shown on a balance
sheet as of the end of the most recent fiscal quarter prior to the
incurrence of such debt for which a balance sheet is available;
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provided, however, that nothing contained in this Section 37.2(d) shall be
construed to permit any Lien to be placed on the Property, Lessee's interest
therein, on Basic Rent or on Additional Rent, except as permitted pursuant to
the provisions of Section 8 hereof;
(e) Lessee shall not pay or declare any dividend or distribution
if:
(i) immediately thereafter Funded Debt would exceed 50%
of Total Capital; or
(ii) immediately thereafter Lessee's Net Worth would be
less than $800 million; or
(iii) there shall exist either a Default in the payment of
Basic Rent or Additional Rent or an Event of Default under any provision of
this Lease, or any default shall exist under either of the GECC Leases or
under any Material Lease; or
(iv) there shall exist a default in the payment of money
or any other default under any debt obligation of Lessee having an
outstanding principal balance in excess of $20,000,000,00; or
(v) such payment or declaration would cause an Event of
Default to occur under subsection 20(i) hereof;
provided, however, that Lessee may make distributions of funds in excess of its
current requirements which would otherwise be prohibited by this covenant if,
prior to such distribution, the return of such funds to Lessee is guaranteed in
form and substance satisfactory to Lessor;
(f) Lessee shall not make any intercompany loans, except that
Lessee may make intercompany loans to Tenneco, payable upon demand, out of cash
generated from Lessee's operations, subject to the following:
(i) Lessee shall have the right to make such loans to
Tenneco, without limitation as to amount, so long as Tenneco's long-term
debt securities are rated investment grade by both Moody's and Standard &
Poors;
(ii) if at any time Tenneco's long-term debt securities
are not rated as investment grade by either Moody's or Standard & Poors,
such loans to Tenneco shall not exceed $25,000,000.00 at any time
outstanding; and
(iii) in determining Net Worth and Total Capital for the
purposes of this Section 37.2, all intercompany loans outstanding at the
time of such determination that are in excess of $100,000,000.00 shall be
deducted;
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(g) Lessee shall restrict its short term investments of surplus
cash to investments listed in, and in conformance with, Tenneco Corporate Policy
TCP 3-104 which is set forth on Exhibit G attached hereto and incorporated
herein by this reference ("Permitted Investments") provided, however, that
Lessee shall be permitted to revise Policy TCP 3-104 from time to time, but such
amendment shall not be effective for purposes of this Lease until Lessee has
provided Lessor a copy of such amendment. Lessor hereby expressly reserves the
right to object to any specific changes in investment policy provided for in
such amendment which Lessor, acting reasonably, finds unacceptable and any
specific changes objected to by Lessor shall not be effective hereunder;
(h) Lessee shall conduct all intercompany transactions in a
manner consistent with all other Tenneco subsidiaries and such intercompany
transactions shall at all times be in the best interest of Lessee. Any existing
tax sharing agreements between Lessee and Tenneco shall not be revised in any
way so as to materially alter the cash flow of Lessee available under such
agreement. Any intercompany loan to Tenneco shall bear a market rate of
interest; and
(i) Lessee hereby covenants to deliver notice to Lessor of the
occurrence or existence of any Default or Event of Default hereunder within five
business days after the date upon which the principal operating officer of
Lessee responsible for Lessee's operations with respect to this Lease determines
that a Default or Event of Default has occurred.
37.3 MUTUAL REPRESENTATIONS REGARDING ENFORCEABILITY.
(a) Lessor hereby warrants and represents to Lessee that this
Lease has been duly executed and delivered by Lessor, and that this Lease
constitutes the legal, valid and binding obligation of Lessor, enforceable
against Lessor in accordance with its terms.
(b) Lessee hereby warrants and represents to Lessor that this
Lease has been duly executed and delivered by Lessee, and that this Lease
constitutes the legal, valid and binding obligation of Lessee, enforceable
against Lessee in accordance with its terms.
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EXHIBIT A
Page 4 of 5
right-of-way of Grant Road; thence, proceed N 42 (degrees) 15'E along the
Eastern right-of-way of Grant Road for a distance of 354.17' to a point
which is the point of curvature; thence, proceed along the arc of a curve
having a delta angle (LT) of 20 (degrees) 05', a tangent of 104.05' and a
radius of 587.58' for a distance of 106.3' to a point; thence, proceed S 87
(degrees) 19' E for a distance of 669.7' to a point located on the original
lot line between lots 484 and 485 which is the Point of Beginning.
The above described parcel of land contains 6.79 acres and is more fully
described according to a plat of survey prepared by James L. Conine,
Georgia Registered Surveyor No. 1545.
11th Land District - Sirmans Tract
507 All that tract or parcel of land situate, lying and being in Land Lot 507
of the 11th Land District of Lanier County, Georgia, containing 102.387
acres and being more particularly shown on a plat of survey entitled SURVEY
FOR ALAN G. SIRMANS AND FRANCES A. FAIN SIRMANS, dated 5/14/82, prepared by
Charles M. Harris, Georgia Registered Surveyor #2031, and recorded in Plat
Record Book 3, page 44, in the office of the Clerk of the Superior Court of
Lanier County, Georgia, which said plat of survey and the record thereof
are herein incorporated by reference for all purposes of description, and
being more particularly described as follows: Commence at the NW corner of
Land Lot 507 of the 11th Land District for a P.O.B.; thence North 89
(degrees) 40' 33" East a distance of 1495.61 feet; thence South 00
(degrees) 02' 38" East a distance of 1524.46 feet; thence South 01
(degrees) 22' 00" East a distance of 1480.94 feet; thence South 89
(degrees) 37' 40" West a distance of 1489.33 feet; thence North 00
(degrees) 48' 55" West a distance of 3006.50 feet to the P.O.B. Said
property is the same property described in a Warranty Deed dated July 12,
1978 from Gordan B. Sirmans (A/K/A Gordon Sirmans) to Alan G. Sirmans and
Frances A. Fain Sirmans recorded in Deed Book 34, page 151, aforesaid
records of Lanier County, Georgia.
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Agreed Value: the value of the Property as of the Option Closing Date
as agreed to by Lessor and Lessee not less than 180 days prior to the end of the
Initial Lease Term for purposes of determining the Purchase option Price;
provided, however, that if Lessor and Lessee cannot agree on a value for the
Property on or before said 180th day, such value shall be determined by
independent appraisers in accordance with the provisions of Section 36 of this
Lease.
Allocated Adjusted Bass Value: for any portion of the Property, a
value determined by applying the Adjustment Amounts set forth on Exhibits D-1,
D-2 and D-3 to actual unit measurements of acreage and volume by Category, as
determined by the Forestry Consultant, for such portion as of the date of
calculation.
Allocated Annual Rent Payment: for any portion of the Property being
sold, taken or released during the Initial Lease Term, an amount determined by
multiplying the Allocation Ratio for such portion of the Property times the
Annual Rent amount determined in accordance with the provisions of Section
2.1(b)(i) hereof (giving no effect to any previous sale, Taking or release
of,any portion of the Property).
Allocated Base Value: for any portion of the Property, the amount
determined by multiplying the Allocation Ratio for such portion of the Property
times the Base Value.
Allocated Quarterly Rent Payments: for any portion of the Property
being sold, taken or released during the Initial Lease Term, an amount
determined by multiplying the Allocation Ratio for such portion of the Property
times the Quarterly Rent amount determined in accordance with the provisions of
subsections 2,1(a)(i) and 2.1(a)(ii) hereof (giving no effect to any previous
sale, Taking or release of any portion of the Property).
Allocation Ratio: for any portion of the Property, the ratio of the
Allocated Adjusted Base Value of such portion to the Adjusted Base Value.
Annual Rent: as defined in paragraph (b) of Section 2.1.
Appraised Value: the fair market value of the Property as of the
Commencement Date of this Lease as set forth in the Property Appraisal.
Assumed Value: $172,893,000.00.
Average Life Treasury Rate: the yield as of the date of calculation
on the United States Treasury security having a Weighted Average Life to
Maturity nearest to the Weighted Average Life to Maturity of the amounts
discounted in calculating the Make-Whole Price, in calculating Lessor's final
damages under Section 24.3 hereof, in determining whether a lease is a Material
Lease or in determining Funded Debt related to a Material Lease, plus 50 basis
points. In calculating the Make-Whole Price for any sale, Taking or release of
all or any portion of the Property during the First, Second and
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Third Lease Years, the Average Life Treasury Rate shall be increased by an
additional 25 basis points.
Bankruptcy Code: means the United States Bankruptcy Code, 11 U,S,C,
(S)(S)101-1330, as amended from time to time.
Base Value: the lesser of the Appraised Value, the Adjusted Base
Value or the Assumed Value.
Basic Rent: as defined in Section 2.1(c) hereof.
Business Day: means a day other than a Saturday, Sunday or other day
on which commercial banks in Chicago or New York are required by law to close.
Capital Lease: means and includes at any time any lease of property,
real or personal, which in accordance with GAAP would at such time be required
to be capitalized on the balance sheet of the Lessee.
Capital Lease Obligation: means at any time the capitalized amount of
the rental commitment under a Capital Lease which in accordance with GAAP would
at such time be required to be shown on a balance sheet.
Category: shall mean with respect to the:
(a) Southern Timberlands: each of the categories of Land,
Merchantable Timber and Pre-Merchantable Planted Pine set forth on Exhibits D-1
and D-2 hereto; and
(b) Northern Timberlands: each of the Categories of Land and
Merchantable Timber set forth on Exhibit D-3 hereto.
Code: the Internal Revenue Code of 1986, as amended from time to
time.
Commencement Date: as defined in Section 1.1 hereof.
Cruise: as defined in Section 34.5.
Cumulative Allocation Ratio: the sum of the Allocation Ratios of each
and every portion of the Property sold, taken or otherwise released during the
Initial Lease Term.
Daily Annual Rent: an amount determined by dividing the amount of
Annual Rent required to be paid by Lessee in accordance with the provisions of
subsection 2.1(b) hereof by the actual number of days in the Lease Year for
which such calculation is being made, as may be adjusted from time to time in
connection with any sale, Taking or release of all or any portion of the
Property.
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Daily Quarterly Rent: an amount determined by dividing the amount of
Quarterly Rent required to be paid by Lessee in accordance with the provisions
of subsection 2.1(a) hereof by the actual number of days in the calendar quarter
for which such calculation is being made, as may be adjusted from time to time
in connection with any sale, Taking or release of all or any portion of the
Property.
Default: any condition or event which constitutes or which, after
notice or lapse of time or both, would constitute an Event of Default.
Default Interest: interest calculated at a rate equal to the lesser
of: (a) the greater of (i) 12.75% per annum or (ii) two percent (2%) per annum
over the rate announced from time to time by The Chase Manhattan Bank, N.A. as
its prime interest rate per annum (or, in the event The Chase Manhattan Bank,
N,A. shall for any reason discontinue announcing its prime interest rate, the
prime interest rate announced by a similar financial institution selected by
Lessor), and (b) the highest rate per annum permitted to be charged in
accordance with applicable law.
Environmental Law: any applicable federal, state or local law, rule
or regulation relating to: (a) releases or threatened releases of Hazardous
Materials; (b) the manufacture, handling, transport, use, treatment, storage or
disposal of Hazardous Materials or materials containing Hazardous Materials; or
(c) otherwise relating to pollution of the environment or the protection of
human health, including but not limited to, the Resource Conservation and
Recovery Act of 1976, 42 U.S.C. (S)(S)6901 et seq., as amended, and the
regulations promulgated from time to time thereunder, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.,
(S)(S)9601 et seq., as amended, and the regulations promulgated from time to
time thereunder, the Hazardous Materials Transportation Act, 42 U.S.C.
(S)(S)1801 et seq., as amended, and the regulations promulgated from time to
time thereunder, The Clean Air Act, 42 U.S.C. (S)(S)7401 et seq., as amended,
and the regulations promulgated from time to time thereunder, The Clean Water
Act, 33 U.S.C. (S)(S)1251 at et seq., as amended, and the regulations
promulgated from time to time thereunder, and The Toxic Substances Control Act,
15 U.S.C. (S)(S)2601 et seq., as amended, and the regulations promulgated from
time to time thereunder.
ERISA: the Employee Retirement Income Security Act of 1974, as
amended from time to time.
Event of Default: as defined in Section 20.
Excluded Taxes: In each instance as they apply to the Lessor (but
only to the extent they apply to the Lessor): (i) taxes, assessments, fees and
charges imposed on, based on, or measured by, net or gross income, gross or net
receipts, capital, net worth, franchises or similar items (including without
limitation, any minimum taxes or taxes on items of tax preference) other than
Rent Taxes or property taxes; (ii) taxes and charges resulting from any sale,
assignment or disposition of any interest in this Lease or the Property (other
than (A) any property taxes or other taxes recaptured or assessed by any
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governmental authority under any Forest Tax Law which were previously exempted
or deferred, but which became due and payable as a result of such sale,
assignment or disposition and (B) any transfer taxes, deed taxes, stamp taxes or
similar taxes, in each case to the extent required to be paid by Lessee pursuant
to the provisions of this Lease); (iii) capital gains taxes, excess profits
taxes, franchise taxes, taxes on doing business and other similar taxes other
than Rent Taxes or property taxes; (iv) foreign taxes; (v) taxes, assessments,
fees and charges imposed by any jurisdiction that would not have been imposed
but for activities of Lessor or its constituent joint venturers unrelated to
this Lease and the Property or which are attributable to other activities,
operations and assets of the Lessor or its constituent joint venturers; (vi) any
property taxes or other taxes recaptured or assessed by any governmental
authority under any Forest Tax Law which are required to be paid by Lessor in
accordance with the provisions of Section 43 hereof; and (vii) any amounts
specifically assessed in lieu of any of the aforementioned taxes, assessments,
fees or charges, and interest, additions and penalties in respect thereof.
Extension Period: a period of three years commencing January 1, 2003
and expiring December 31, 2005, during which the Lessee shall continue to lease
the Property from Lessor under the terms contained herein, such extension period
to (i) occur only in the event Lessee for any reason does not exercise its
Purchase Option and (ii) terminate with respect to any portion of the Property
upon the sale of such portion by the Lessor.
Fixed Charges: all interest, capitalized interest, lease payments
(whether operating or capital and including payments required under this Lease)r
and amortization of debt discount required to be paid or to be incurred by
Lessee in accordance with GAAP or any such items the payment or collection of
which has been guaranteed by Lessee.
Forest Tax Laws: collectively and severally (i) the Commercial Forest
Act, Michigan Compiled Laws Annotated (S)(S)320.301-320.314; (ii) the Forestry
Reserve Act, Michigan Compiled Laws Annotated (S)320.104; (iii) the Private
Forestry Act, Michigan Compiled Laws Annotated (S)(S)320.271-320.281; (iv) the
Forest Cropland Law, Wisconsin Statutes (S)(S)77.01-77.14; (v) the Woodland Tax
Law, Wisconsin Statutes (S)77.16; (vi) the Managed Forest Land Law, Wisconsin
Statutes (S)(S)77.80-77.87; (vii) Florida Statutes (S)193.461 (Agricultural
Lands; classification and assessment); and (viii) any and all similar laws now
enacted or which may be enacted in the future under the laws of the States of
Florida, Georgia, Wisconsin or Michigan which grant tax exemptions, deferrals or
reductions with respect to property taxes.
Forestry Consultant: as defined in Section 34.4.
Funded Debt: means without duplication, whether incurred directly,
assumed or guaranteed by Lessee or secured by a Lien permitted under Section
37.2(d) hereof, the following: (i) all indebtedness for monies borrowed which by
its terms matures more than one year from the date as of which any calculation
of Funded Debt is
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made, (ii) any indebtedness for monies borrowed maturing within one year from
such date which is renewable at the option of the obligor beyond one year from
such date, including any indebtedness for monies borrowed renewable or
extendable (whether or not theretofore renewed or extended) under, or payable
from the proceeds of other indebtedness for monies borrowed which may be
incurred pursuant to the provisions of, any revolving credit agreement or other
similar agreement but excluding all payments in respect of any indebtedness for
monies borrowed otherwise covered by this definition (whether installment,
serial maturity, sinking fund or otherwise) which are required to be made less
than one year after any date of determination of Funded Debt, (iii) all Capital
Lease Obligations, and (iv) the present value of all remaining payment
obligations (calculated using a discount rate equal to the Average Life Treasury
Rate) under any operating lease which is a Material Lease.
GAAP: means such accounting principles as conform at the time to the
generally accepted accounting principles announced by the Financial Accounting
Standards Board or its equivalent.
GECC Leases: means the leases of even date herewith between Lessee
and certain lessors affiliated with General Electric Capital Corporation which
relate to papermills located in Tomahawk, Wisconsin, and Valdosta, Georgia.
Hazardous Materials: any material, waste, contaminate or other
substance which is defined and/or regulated as hazardous or toxic (or as a
pollutant under any Environmental Law enacted by the State of Florida) under or
pursuant to any applicable Environmental Law.
Impositions: all taxes, assessments (including, without limitation,
all assessments for public improvements or benefits, whether or not commenced or
completed prior to the date hereof and whether or not to be completed within the
term hereof), ground rents, water, sewer or similar rents, rates and charges,
excises, levies, license fees, permit fees, inspection fees and other
authorization fees and similar charges, in each case, whether general or
special, ordinary or extraordinary, of every character (including all interest,
additions and penalties thereon), which at any time during or in respect of the
term hereof are assessed, levied, confirmed or imposed on or in respect of or
become a Lien upon (a) the Property or any part thereof, or any rent therefrom
(whether under this Lease or any sublease) or any estate, right or interest
therein, or (b) any occupancy, use or possession of or activity conducted on the
Property or any part thereof, The term "Impositions" as used herein shall
specifically include all Rent Taxes and shall specifically exclude all Excluded
Taxes.
Improvements: as defined in paragraph (b) of Section 1.
Initial Lease Term: the First through the Twelfth Lease Years,
inclusive.
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Insurance Requirements: all terms of any insurance policy covering or
applicable to the Property or any part thereof, all requirements of the issuer
of any such policy, and the terms of Section 15 hereof.
Land: as defined in Paragraph (a) of Section 1.
Lease: this Lease, as at the time amended, modified or supplemented.
Lease Term: the Initial Lease Term and the Extension Period unless
earlier terminated in accordance with the provisions of this Lease.
Lease Year: (a) The Lease Years during the Initial Lease Term
hereunder shall be as follows:
First Lease Year Commencement Date through December 31, 1991
Second Lease Year January 1, 1992 through December 31, 1992
Third Lease Year January 1, 1993 through December 31, 1993
Fourth Lease Year January 1, 1994 through December 31, 1994
Fifth Lease Year January 1, 1995 through December 31, 1995
Sixth Lease Year January 1, 1996 through December 31, 1996
Seventh Lease Year January 1, 1997 through December 31, 1997
Eighth Lease Year January 1, 1998 through December 31, 1998
Ninth Lease Year January 1, 1999 through December 31, 1999
Tenth Lease Year January 1, 2000 through December 31, 2000
Eleventh Lease Year January 1, 2001 through December 31, 2001
Twelfth Lease Year January 1, 2002 through December 31, 2002
(b) The Lease Years during the Extension Period hereunder shall
be as follows:
Thirteenth Lease Year January 1, 2003 through December 31, 2003
Fourteenth Lease Year January 1, 2004 through December 31, 2004
Fifteenth Lease Year January 1, 2005 through December 31, 2005
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Legal Requirements: all laws, statutes, codes, acts, ordinances,
orders, judgments, decrees, injunctions, rules, regulations, permits, licenses,
franchises, authorizations, directions and requirements of all governments,
departments commissions, boards, courts, authorities, agencies, officials and
officers, ordinary or extraordinary, which now or at any time hereafter may be
applicable to the Property or any part thereof, or any of the adjoining
sidewalks, curbs, vaults and vault space, if any, streets or ways, or any use or
condition of the Property or any part thereof, including, but not limited to,
all federal, state and local Environmental Laws.
Losses's Equipment: all of the following which are owned or held for
use by Lessee: (i) all fixtures, machinery, apparatus, furniture, furnishings
and other equipment and (ii) all temporary or auxiliary structures installed by
Lessee in or about the Property or any part thereof.
Lien: any mortgage, deed of trust, deed to secure debt, pledge,
security interest, lien or other encumbrance.
Make-Whole Price: With respect to the sale, Taking or release of any
portion of the Property, the sum of the values calculated in (i), (ii) and (iii)
below. The values in (i), (ii) and (iii) below shall be obtained by discounting
at the Average Life Treasury Rate to the date of such sale, Taking or release
the following amounts:
(i) All Allocated Quarterly Rent Payments from each and every date of
the Initial Lease Term following the date of such sale, Taking or
release on which an installment of Quarterly Rent would normally
be due if no such sale, Taking or release had occurred;
(ii) All Allocated Annual Rent Payments from each and every date of
the Initial Lease Term following the date of such sale, Taking or
release on which an installment of Annual Rent would normally be
due if no such sale, Taking or release had occurred; and
(iii) the excess of Allocated Base Value with respect to the portion of
the Property being sold, taken or released over the sum of the
Allocated Annual Rent Payments with respect to the portion of the
Property being sold, taken or released which would normally have
been due during the Initial Lease Term if no such sale, Taking or
release had occurred, from the twelfth anniversary of this Lease.
Material Lease: any lease to which Lessee is a party, whether
capital or operating in nature, under which the present value of all remaining
payment obligations, calculated at a discount rate equal to the Average Life
Treasury Rate, is greater than or equal to $20,000,000.00.
Merchantable Timber: Pine Pulpwood, Hardwood Pulpwood, Pine
Sawtimber, Hardwood Sawtimber, Cypress Pulpwood, Cypress Sawtimber, Conifer
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Pulpwood and Conifer Sawtimber, as determined using the timber specifications,
utilization limits and calculation standards set forth on Exhibit E attached
hereto.
Mineral Rights: as defined in Section 5(b) hereof.
Minimum Return Price: with respect to the sale, Taking or release of
all or any portion of the Property, the greater of (i) or (ii) calculated as
follows:
(i) the Allocated Base Value for the portion of the Property being sold or
taken plus 80% of the excess, if any, of the gross sales price of, net
award from or other proceeds from the portion of the Property to be
sold, taken or released over the Allocated Base Value for such
portion. During the Initial Lease Term only, such excess may be net
of (a) Operating Expenses attributable to such portion of the
Property, but only to the extent of such excess, and (b) the sum of
Allocated Annual Rent Payments previously made with respect to the
portion of the Property being sold, taken or released.
(ii) the excess of (a) the value obtained by compounding quarterly the
Allocated Base Value of the portion of the Property to be sold, taken
or released at the applicable Minimum Return Rate from the
Commencement Date of this Lease to the date of such sale, Taking or
release over (b) the sum of the values obtained by compounding
quarterly at the applicable Minimum Return Rate each Allocated
Quarterly Rent Payment and compounding annually at the applicable
Minimum Return Rate each Allocated Annual Rent Payment from the date
each such payment was actually made to the date of such sale, Taking
or release.
Minimum Return Rate: 15% per annum; 13% per annum for sales of Non-
Strategic Lands.
Moody's: means Moody's Investors Service, Inc.
Net Worth: the excess of Lessee's total assets over Lessee's total
liabilities as determined in accordance with GAAP.
Non-Strategic Lands: not more than 30,000 acres of the Property
identified by Lessee and approved by Lessor as being non-strategic which may be
sold during the Lease Term in accordance with the provisions of Section 35.2.
Northern Timberlands: those portions of the Property located in the
States of Michigan and Wisconsin.
Operating Expenses: all reasonable and customary costs and expenses
incurred by Lessee during the Initial Lease Term in connection with the care and
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maintenance of the Property, including without limitation, site preparation
expenses, planting expenses and boundary and road maintenance expenses, but
specifically excluding real property taxes, such expenses not to exceed the
lesser of (i) $3.00 per acre of the Property per Lease Year (partial Lease Years
to be prorated on a per them basis), or (ii) the excess, if any, of the Agreed
Value over the Adjusted Base Value.
Option Closing Date: as defined in Section 35.1 hereof.
Permitted Exceptions: as defined in paragraph (a) of Section 1.
Person: an individual, a corporation, an association, a partnership,
a joint venture, an organization, or other business entity, or a governmental or
political unit or agency.
Planted Pine: growing pine trees on the Land which have been planted
in accordance with standards and practices followed generally by pulp and paper
companies in planting pine on their own pine-growing lands in the same area.
Pre-Merchantable Planted Trees: all growing trees on the Land which
have been planted by Lessee in accordance with the provisions of Sections
34.1(f) and 34.1(g) and all pre-merchantable planted pine trees otherwise
located on the Southern Timberlands and identified in accordance with the
provisions and specifications of Exhibit E attached hereto.
Pre-Tax Cash Flow: Income before Federal income taxes for Lessee and
its consolidated subsidiaries determined in accordance with GAAP, plus Fixed
Charges and any and all depreciation, depletion, amortization and other non-cash
items charged against income (including deferred Federal income taxes), less
extraordinary non-cash gains resulting from the disposition of real or personal
property by Lessee, less any and all capital expenditures.
Projected Growth Report: as defined in Section 34.5 hereof.
Property: as defined in Section 1.
Property Appraisal: as defined in Section 34.4(b)(ii) hereof.
Purchase Option Price: an amount equal to the sum of the following
amounts:
(a) the Remaining Base Value less the excess of(i) the sum of all
installments of Annual Rent paid by Lessee during the Initial Lease Term prior
to the exercise of the Purchase Option over (ii) the sum of all Allocated Annual
Rent Payments associated with sales of portions of the Property sold, taken or
released prior to exercise of the Purchase Option;
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(b) 80% of the excess, if any, of the Agreed Value over the Remaining
Base Value (such excess to be net of Operating Expenses attributable to the
remaining unsold Property at the time the Purchase option is exercised, but only
to the extent of such excess); and
(c) the amount of any and all Basic Rent and Additional Rent owed to
Lessor by Lessee as of the Option Closing Date.
Quarterly Rent: as defined in Section 2.1(a) hereof.
Related Entity: a Person (1) which directly or indirectly, through
one or more intermediaries, controls, or is controlled by, or is under common
control with, Lessee, (2) which beneficially owns or holds 5% or more of any
class of the Voting Stock of Lessee, (3) 5% of the Voting Stock (or in the case
of a Person which is not a corporation, 5% or more of the equity interest) of
which is beneficially owned or held by Lessee or a Subsidiary or (4) which is a
Subsidiary. The term "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 the ownership of voting securities, by contract or
otherwise.
Remaining Base Value: the excess, if any, of the Base Value over the
product of the Base Value times the Cumulative Allocation Ratio.
Rent Taxes: any and all rental, sales and use taxes or other similar
taxes levied or imposed by any city, county or state or other governmental body
having authority, including, without limitation, taxes imposed under (i) Florida
Statutes (S)212.031 and (ii) Michigan Compiled Laws Annotated (S)208.1 et seq.,
(the "SBTA"); provided, however, that the SBTA shall be included within the
definition of Rent Taxes only to the extent of the lesser of (x) the actual tax
imposed on Lessor by the SBTA or (y)the deemed tax imposed on Lessor by the SBTA
computed with the following modifications and limitations:
(a) All income and revenue items of Lessor (including income and
revenues from the sale, assignment or disposition of any interest in or portion
of this Lease or the Property) other than Basic Rent shall be excluded from the
computation of the SBTA;
(b) All expenditures and other costs of Lessor resulting from
activities associated with this Lease which are deductible in calculating the
SBTA shall be deducted;
(c) All adjustments to the "tax base" and "adjusted tax base" (as
such terms are defined in the SBTA) of Lessor made in computing the SBTA shall
be excluded from such computation if such adjustments relate to activities of
Lessor which are not associated with this Lease or such adjustments increase the
"tax base" or
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"adjusted tax base" by items which are Excluded Taxes or otherwise not
reimbursable by Lessee under this Lease.
(d) All assets, revenues and expenditures of Lessor from activities
which are not associated with this Lease shall be excluded from any allocation
or apportionment factors of Lessor used in computing the SBTA;
(e) All exemptions and credits available to Lessor with respect to
the SBTA shall be included in the computation of the SBTA in amounts,
respectively, which bear the same ratio to the sum of such exemptions and
credits, respectively, as the ratio of Basic Rent bears to the total income of
Lessor; and that all requests by Lessor for payment or reimbursement of tax
imposed by the SBTA, under this Lease, shall be accompanied by a true copy of
Lessor's actual SBTA return and a detailed computation of the deemed tax imposed
by the SBTA, with the modifications and limitations set forth in provisions (a)
through (e) above.
Southern Timberlands: those portions of the Property located in the
States of Florida and Georgia.
Standard & Poors: means Standard & Poor's Corporation.
Subsidiary: (a) any corporation at least a majority of whose
outstanding stock having ordinary voting power for the election of a majority of
the members of the board of directors (or other governing body) of such
corporation (other than stock having such power only by reason of the happening
of a contingency) shall at the time be owned by the Lessee and/or one or more
Subsidiaries of the Lessee, and (b) any partnership or joint venture in which
Lessee, either alone or in conjunction with one or more of its subsidiaries,
shall at the time own more than a 50% interest.
Taking: a taking during the term hereof of all or any part of the
Property, or any leasehold or other interest therein or right accruing thereto,
as the result of the exercise of the right of condemnation or eminent domain or
a sale in lieu or in anticipation of such exercise.
Tangible Assets: Lessee's total assets as determined in accordance
with GAAP excluding (i) any goodwill shown on Lessee's balance sheet, (ii) any
prepaid expenses, and (iii) any and all intangible assets owned by Lessee.
Timber: as defined in paragraph (c) of Section 1.
Timberlands: collectively, the Land, Timber and Improvements as
defined in Section I hereof.
Total Capital: Funded Debt plus Net Worth.
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Unavoidable Delays: delays due to strikes, acts of God, governmental
restrictions, enemy action, riot, civil commotion, fire, unavoidable casualty or
other causes beyond the control of Lessee, provided that no delay shall be
deemed an Unavoidable Delay if the Property or any part thereof or any interest
therein, the Basic Rent or Additional Rent would be in any danger of being sold,
forfeited, lost or interfered with, or if Lessor or Lessee would be in danger of
incurring any civil or criminal liability for failure to perform the required
act. Lack of funds shall not be deemed a cause beyond the control of Lessee.
Voting Stock: securities of any class or classes of a corporation the
holders of which are ordinarily, in the absence of contingencies, entitled to
elect a majority of the corporate directors (or Persons performing similar
functions).
Weighted Average Life to Maturity: means (a) with respect to any
United States Treasury security, the period from the date of determination to
the date of maturity of such security (provided that only securities whose
entire principal amount matures at one time and whose maturity cannot be
accelerated by the issuer are to be considered), (b) with respect to this Lease,
as of the date of determination, the number of years (rounded to the nearest
one-twelfth) obtained by dividing the then Remaining Dollar-Years of this Lease
by the Allocated Base Value, and (c) with respect to any lease other than this
Lease, as of the date of determination, the number of years (rounded to the
nearest one-twelfth) obtained by dividing the then Remaining Dollar-Years of
such lease by the sum of all remaining payments to be made by Lessee to the
lessor during the remaining term of such lease. For the purposes of this
definition, "Remaining Dollar-Years" means the sum of the amounts obtained by
multiplying each Owed Amount by the number of years (calculated to the nearest
one-twelfth) which will elapse between the time of such determination and the
date such Owed Amount would normally be due. For purposes of this definition,
"Owed Amount" means, with respect to a sale, Taking or release of a portion of
the Property, (x) each Allocated Annual Rent Payment from the date of such sale,
Taking or release to the end of the Initial Lease Term, and (y) the excess of
the Allocated Base Value with respect to the portion of the Property being sold,
taken or released over the sum of (x) above (such excess deemed to be normally
due on the 12th anniversary of this Lease), and with respect to any lease other
than this Lease, any payment required to be made by Lessee to the lessor
thereunder.
40. NOTICES, ETC. All notices and other communications hereunder shall be
in writing and shall be sent by confirmed telecopy transmission and by first
class registered or certified mail, postage prepaid, (a) if to Lessee.
Packaging Corporation of America
1603 Orrington Avenue
Evanston, Illinois 60204
Attention: Robert D. Harlow
Senior Vice President
Telecopy: (708) 570-3044
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with a copy to: Tenneco Inc.
Tenneco Building
P.O. Box 2511
Houston, Texas 77252-2511
Attention: Corporate Secretary
Telecopy: (713) 757-3581
or at such other address as Lessee shall have furnished in
writing to Lessor, or (b) if to Lessor.
Four States Timber Venture
c/o John Hancock Mutual Life Insurance
Company
One John Hancock Place
P.O. Box 111 T-44
Boston, Massachusetts 02117
Attention: Ken Hines, Jr,
Telecopy: (617) 572-1165
with copies to: John Hancock Mutual Life Insurance Company
Forest Industry Financing
Suite 101
12 Siebald Street
Statesboro, Georgia 30458
Attention: Amos M. Connell
Telecopy: (912) 764-5047
Metropolitan Life Insurance Company
Suite 700 - 8717 West 110th Street
Overland Park, Kansas 66210-2101
Attention: Vice President
Telecopy: (913) 661-2254
Agricultural Investments
East Central Branch Office
Metropolitan Life Insurance Company
2230 Chester Boulevard
Richmond, Indiana 47374-1288
Attention: Manager
Telecopy: (913) 661-2254
Metropolitan Life Insurance Company
500 Park Boulevard - Suite 545
Itasca, Illinois 60143-1267
Attention: Associate General Counsel
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Telecopy: (708) 250-8098
Sutherland, Asbill & Brennan
999 Peachtree Street, N.E.
Atlanta, Georgia 30309-3996
Attention: Haynes R. Roberts, Esq.
Telecopy: (404) 853-8806
or at such other address as Lessor shall have furnished in writing to Lessee.
Each notice will be deemed delivered upon the earlier of the confirmed facsimile
transmission of such notice or three days after deposit of such notice in the
United States Mail.
41. MISCELLANEOUS (a) This Lease may be changed, waived, discharged, or
terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought. It is
the intention of the parties hereto to create an estate for years in the
Property and to create the relationship of Lessor and Lessee and no other
relationship whatsoever and nothing contained herein shall be construed to
create between Lessor and Lessee any association, partnership or joint venture
or the relationship of debtor and creditor or of principal and agent for any
purpose whatsoever. This Lease shall be binding upon and inure to the benefit of
and be enforceable by the respective successors and assigns of the parties
hereto. The headings in this Lease are for purposes of reference only and shall
not limit or define the meaning hereof. This Lease may be executed in any number
of counterparts, each of which is an original, but all of which shall constitute
one instrument. Time is of the essence with respect to each and every covenant,
requirement and obligation on Lessee's part to be complied with or performed
hereunder.
(b) The terms and provisions this Lease shall be governed by the laws
of the State of Georgia except for those matters which relate to enforcement
against any of the Property, which matters shall be governed by the applicable
laws of the state or states in which the Property is located.
42. PARTITION OF LEASE In the event the Persons who constitute the joint
venturers of Lessor (hereinafter referred to collectively as the "Venturers" and
individually as a "Venturer") shall at any time divide the Property between or
among themselves in connection with a termination of Lessor, then such Venturers
shall have the right to divide this Lease into two or more new, separate leases
(hereinafter referred to as the "New Leases"), each of which shall be between a
Venturer (or its successors, assigns or designees), as lessor, and Lessee, as
lessee, shall cover and relate to the portion of the Property conveyed to such
Venturer in connection with such division (and Exhibit A thereto shall describe
only such portion of the Property), and shall be in the same form and contain
the same terms and provisions as this Lease, except as follows: (a) each of the
New Leases shall provide that in the event Lessee exercises the Purchase option
under any of the New Leases, Lessee must exercise the Purchase Option under all
of the New Leases, and the closing of the purchase by Lessee pursuant to Section
35.1 of each New Lease shall be contingent upon the closing of all purchases by
Lessee pursuant to Section 35.1 of all of the New Leases; (b) each of the New
Leases shall provide that
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the occurrence of any Event of Default under any of the New Leases shall
constitute an Event of Default under all of the New Leases; and (c) each of the
following figures in this Lease shall be changed in each of the New Leases to
the figure representing the pro rata share thereof of the Venturer which is the
lessor thereunder: (i) the figure "$1,192,366.00" appearing in Section
2.1(b)(i); (ii) the figure "$5,000,000.00" appearing in Section 5(a); (iii) the
figures "80,000" and "27,000" appearing in Section 35.2(b); (iv) the figure
"$172,893,000.00" appearing in the definition of "Assumed Value" in Section 39;
and (v) the figure "30,000" appearing in the definition of "Non-Strategic Lands"
in Section 39. Lessee agrees to cooperate with the Venturers by executing and
delivering the New Leases and taking such other actions as are reasonably
necessary or desirable to accomplish such division, provided that the Venturers
shall be responsible for paying all costs and expenses associated with or
resulting from such division and the preparation and recordation of the New
Leases.
43. FOREST TAX LAWS. Notwithstanding anything contained in this Lease to
the contrary, the following agreements are made with respect to taxes imposed by
and other matters associated with Forest Tax Laws:
(a) Lessee shall at all times during the Lease Term comply with such
requirements as are necessary to maintain and preserve the tax status and
accompanying tax benefits of all portions of the Property currently enrolled in,
listed or designated under any of the Forest Tax Laws as of the Commencement
Date of this Lease, Lessee may, at its option, elect to subject additional
portions of the Property to the provisions of any Forest Tax Law, provided such
subjection does not unreasonably interfere with commercial forestry operations
on the Property. Lessor agrees that it will cooperate with Lessee in complying
with the provisions of the Forest Tax Laws.
(b) Lessee shall pay to the appropriate governmental authorities any
and all assessments or charges which may be imposed under any Forest Tax Law
with respect to all or any portion of the Property, as a result of the transfer
of the Property to Lessor pursuant to the Purchase Agreement, any transfer of
all or any portion of the Property in accordance with Section 35.2(b) hereof
(which cost may be deducted from the gross proceeds of such sale in accordance
with the provisions of said Section 35.2(b)), any Taking of all or any portion
of the Property (which cost may be deducted from the gross amount of any awards,
payments or proceeds received in connection with such Taking in accordance with
the provisions of Section 16 hereof) or as a result of Lessee's failure to
comply with the provisions of any Forest Tax Law.
(c) Lessor shall pay all assessments or charges which may be imposed
under any Forest Tax Law relating to any transfer of all or any portion of the
Property in accordance with Section 35.2(a) hereof, any mineral lease or mining
activity entered into or performed by or on behalf of Lessor with respect to all
or any portion of the Property or any other affirmative action taken by Lessor,
without the express written consent of Lessee which changes the tax status of
all or any portion of the Property under any Forest Tax Law.
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(d) Lessee shall be responsible for preparing and filing any notices
or certificates required to be filed under any Forest Tax Law in connection with
the sale of the Property by Lessor to Lessee pursuant to the provisions of
Section 35.1 hereof, and Lessee shall be responsible for payment of any charges
or assessments imposed under any Forest Tax Law in connection with such sale;
provided, however, Lessor agrees that it will cooperate with Lessee in
preparing, executing and filing such notices or certificates so as to avoid, to
the extent possible, the imposition of charges or assessments under any Forest
Tax Law in connection with such sale.
(SIGNATURES BEGIN ON FOLLOWING PAGE]
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IN WITNESS WHEREOF, Lessor and Lessee have caused this lease to be executed
and their seals to be hereunto affixed and attested by their officers thereunto
duly authorized.
LESSOR:
FOUR STATES TIMBER VENTURE, a Georgia
Joint Venture, by both of its joint
venturers
Signed, sealed and By: John Hancock Mutual Life
delivered in the presence Insurance Company
of:
By: /s/ Wm. R. Gordon
-------------------------------------
/s/ Valerie Van Der Meer Name:
- ----------------------------- ------------------------------
Name: Title:
- ------------------------------ -----------------------------
Witness
Attest: /s/ Barry P. Sanboln
-------------------------
/s/ Neil Able Name:
- ----------------------------- -----------------------------
Name: Title:
------------------------ ----------------------------
Witness
[CORPORATE SEAL]
- ------------------------------
Name:
-------------------------
Notary Public
[NOTARIAL SEAL]
Signed, sealed and By: Metropolitan Life Insurance
delivered in the presence Company
of:
By: /s/ Gerald J. Hoenig
--------------------
/s/ Kathleen Curdy Name:
- ----------------------------- ------------------------
Name:
------------------------ Title:
Witness -----------------------
/s/ Sandra R. Nauman Name: /s/ Nancy J. Hammer
- --------------------------- ------------------------
Name:
---------------------- Title:
Witness -----------------------
[CORPORATE SEAL]
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/s/ Merrit J. Massergill
- ----------------------------------
Name:
-----------------------------
Notary Public
[NOTARIAL SEAL]
Signed, sealed and LESSEE:
delivered in the presence
of: PACKAGING CORPORATION OF AMERICA
/s/ M. W. Meyer
---------------------------------
Name: By: /s/ R. D. Harlow
----------------------------- -------------------------------------
Witness: Name: -------------------------------
Title:
-------------------------------
/s/ W. G. Collins
- ----------------------------------
Name: Attest: /s/ Karl A. Stewart
----------------------------- ---------------------------------
Witness Name: ------------------------
/s/ Merritt J. Massergill Title: -----------------------
- ----------------------------------
Name:
----------------------------- [CORPORATE SEAL]
Notary Public
[NOTARIAL SEAL]
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EXHIBIT 12
THE BUSINESSES OF NEW TENNECO
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEARS ENDED DECEMBER 31,
--------------------- -----------------------------
PRO FORMA PRO FORMA
1996 1996 1995 1995 1995 1994 1993 1992 1991
--------- ----- ----- --------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income from continuing
operations............. $ 205 $ 178 $ 168 $ 328 $ 258 $ 238 $ 165 $ 209 $ 139
Add:
Interest.............. 83 100 74 166 160 104 101 103 112
Portion of rentals
representative of in-
terest factor........ 31 31 26 57 57 52 47 47 44
Preferred stock divi-
dend requirements of
majority-owned
subsidiaries......... 10 10 12 23 23 -- -- -- --
Income tax expense and
other taxes on
income............... 147 126 124 291 231 114 115 156 92
Amortization of inter-
est capitalized...... 1 1 1 2 2 1 -- 1 1
Undistributed (earn-
ings) losses of af-
filiated companies in
which less than a 50%
voting interest is
owned................ -- -- -- -- -- -- -- 2 2
----- ----- ----- ----- ----- ----- ----- ----- -----
Earnings as defined. $ 477 $ 446 $ 405 $ 867 $ 731 $ 509 $ 428 $ 518 $ 390
===== ===== ===== ===== ===== ===== ===== ===== =====
Interest................ $ 83 $ 100 $ 74 $ 166 $ 160 $ 104 $ 101 $ 103 $ 112
Interest capitalized.... 5 5 1 5 5 2 1 1 4
Portion of rentals rep-
resentative of interest
factor................. 31 31 26 57 57 52 47 47 44
Preferred stock dividend
requirements of
majority-owned subsidi-
aries on a pretax ba-
sis.................... 17 16 20 42 42 -- -- -- --
----- ----- ----- ----- ----- ----- ----- ----- -----
Fixed charges as de-
fined.............. $ 136 $ 152 $ 121 $ 270 $ 264 $ 158 $ 149 $ 151 $ 160
===== ===== ===== ===== ===== ===== ===== ===== =====
Ratio of earnings to
fixed charges.......... 3.51 2.93 3.35 3.21 2.77 3.22 2.87 3.43 2.44
===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
<PAGE>
EXHIBIT 21
----------
NEW TENNECO INC. SUBSIDIARIES AND AFFILIATES
--------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
New Tenneco Inc.
Autopartes Walker, S.A. de C.V. (Mexico)........................................... 99.98%
(New Tenneco Inc. owns 99.98% and Monroe Auto Equipment Company owns .02%
Counce Limited Partnership (Texas Limited Partnership)............................. 95
(New Tenneco Inc. owns 95%, as Limited Partner; and Tenneco Packaging, Inc. owns
5%, as General Partner)
Counce Finance Corporation (Delaware)........................................... 100
Monroe-Mexico S.A. de C.V. (Mexico)............................................. 0.01
(New Tenneco Inc. owns 0.01%; and Monroe Auto Equipment Company owns 99.99%)
Omni-Pac GmbH (Germany)............................................................ 1
(Tenneco Deutschland Holdinggesellschaft mbH owns 99%; and New Tenneco Inc. owns
1%)
Omni-Pac S.A.R.L. (France)......................................................... 97
(Omni-Pac GmbH owns 3%; and New Tenneco Inc. owns 97%
Tenneco Asia Inc. (Delaware)....................................................... 100
Tenneco Automotive Foreign Sales Corporation Limited (Jamaica).................. 1
(New Tenneco Inc. owns 1%; and Monroe Auto Equipment Company owns 99%)
Tenneco Automotive Inc. (Delaware)................................................. 100
Autopartes Walker, S.A. de C.V. (Mexico)........................................ 0.02
(New Tenneco Inc. owns 99.98%; Monroe Auto Equipment Company owns 0.02%)
Beijing Monroe Automobile Shock Absorber Company Ltd. (China)................... 51
(Monroe Auto Equipment Company owns 51%; and Beijing Automotive Industry
Corporation, an unaffiliated company, owns 49%)
Consorcio Terranova S.A. de C.V. (Mexico)....................................... 99.99
(Monroe Auto Equipment Company owns 99.99%; and Josan Latinamericana S.A.
de C.V., an unaffiliated company, owns 0.01%)
McPherson Strut Company Inc. (Delaware)......................................... 100
Monroe Auto Equipement France, S.A. (France).................................... 100
Monroe Europe Coordination Center N.V. (Belgium)............................. 0.1
(S.A. Monroe Europe N.V. owns 99.9%; and Monroe Auto Equipement France,
S.A. owns 0.1%)
Monroe Packaging N.V. (Belgium).............................................. 0.1
(S.A. Monroe Europe N.V. owns 99.9%; and Monroe Auto Equipement
France, S.A. owns 0.1%)
Tenneco Automotive Italia S.r.l. (Italy)..................................... 15
(Monroe Auto Equipment Company owns 85%; and Monroe Auto Equipment
France, S.A. owns 15%)
Monroe Auto Pecas S.A. (Brazil).................................................... 2.82
(Monroe Auto Equipment Company owns 2.82%; Monroe do Brasil Industria e
Comercio Ltda. Owns 82.71%; and Monteiro Aranha S/A, an unaffiliated company,
owns 14.47%)
Monroe-Mexico S.A. de C.V. (Mexico)................................................ 99.99
</TABLE>
<PAGE>
Subsidiaries of New Tenneco Inc.
- --------------------------------
<TABLE>
<CAPTION>
(Monroe Auto Equipment Company owns 99.99%; and New Tenneco Inc. owns
0.01%)
<S> <C>
Precision Modular Assembly Corp. (Delaware)..................................................................... 100
Rancho Industries Europe B.V. (Netherlands)..................................................................... 100
Tenneco Automotive Foreign Sales Corporation Limited (Jamaica).................................................. 99
(Monroe Auto Equipment Company owns 99%; and New Tenneco Inc. owns 1%)
Tenneco Automotive International Sales Corporation (Delaware (In Dissolution)................................... 100
Tenneco Automotive Italia S.r.1. (Italy)........................................................................ 85
(Monroe Auto Equipment Company owns 85%; and Monroe Auto Equipement
France, S.A. owns 15%)
Tenneco Automotive Japan Ltd. (Japan)........................................................................... 100
The Pullman Company.......................................................................................... 100
Axios Produtos de Elastomeros Limitada (Brazil).......................................................... 99
(The Pullman Company owns 99% and Peabody International Corporation
owns 1%)
Clevite Industries Inc. (Delaware)....................................................................... 100
Holmes Machinery Company (Delaware)...................................................................... 100
Peabody International Corporation (Delaware)............................................................. 100
Axios Produtos de Elastomeros Limitada (Brazil)....................................................... 1
(The Pullman Company owns 99% and Peabody International
Corporation owns 1%)
Barasset Corp. (Ohio)................................................................................. 100
Galco, Inc. (Delaware)................................................................................ 100
Holmes Blowers, Inc (Illinois)........................................................................ 100
Peabody ABC Corp. (Delaware).......................................................................... 100
Peabody Galion Corporation (Delaware)................................................................. 100
Peabody Gordon-Piatt, Inc. (Delaware)................................................................. 100
Peabody Instruments, Inc. (Delaware).................................................................. 100
Peabody-Myers Corporation (Illinois).................................................................. 100
Peabody N.E., Inc. (Delaware)......................................................................... 100
Peabody Noise Control, Inc. (Ohio).................................................................... 100
Peabody Pumps, Inc. (California)...................................................................... 100
Peabody Solid Wastes Mgmt. Inc. - Dewald (California)................................................. 100
Peabody World Trade Corporation (Delaware)............................................................ 100
Pullmex, S.A. de C.V. (Mexico)..................................................................... 0.1
(The Pullman Company owns 99.9% and Peabody World Trade
Corporation owns 0.1% (approximately one share of the total
5,131,260 shares issued is held by Peabody World Trade
Corporation))
Pullman Canada Ltd. (Canada).......................................................................... 61
(Peabody International Corporation owns 61% (383 shares) and The
Pullman Company owns 39% (244 shares))
Pullman Aerospace, Inc. (Delaware)....................................................................... 100
Pullman Aircraft Products, Inc........................................................................... 100
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
Subsidiaries of New Tenneco Inc.
- --------------------------------
<S> <C>
Pullman Canada Ltd...................................................................................... 39
(Peabody International Corporation owns 61% (383 shares) and The Pullman
Company owns 39% (244 shares))
Pullman RSC Company (Delaware).......................................................................... 100
Pullman Standard Inc. (Delaware)........................................................................ 100
Pullmex, S.A. de C.V. (Mexico).......................................................................... 99.9
(The Pullman Company owns 99.9% and Peabody World Trade Corporation
owns 0.1% (approximately one share of the total 5,131,260 shares issued
is held by Peabody World Trade Corporation))
Tenneco Automotive Trading Company (Delaware)................................................................. 100
Tenneco Brake, Inc. (Delaware)................................................................................ 100
Tenneco Brazil Ltda. (Brazil)................................................................................. 100
Monroe do Brazil Industria e Comercio Ltda. (Brazil).......................................................... 100
Monroe Auto Pecas S.A. (Brazil)............................................................................ 82.71
(Monroe do Brazil Industria e Comercio Ltda. Owns 82.71%; Monroe Auto
Equipment Company owns 2.82%; and Monteiro Aranha S/A, an unaffiliated company
owns 14.47%)
Tenneco Business Services Inc. (Delaware)..................................................................... 100
Tenneco Deutschland Holdinggesellschaft mbH (Germany)......................................................... 99.97
(New Tenneco Inc. owns 99.97%; and Atlas Bermoegensverwaltung, an unaffiliated
company, owns 0.03%)
GILLET Unternehmesverwaltungs (Germany).................................................................... 100
Heinrich Gillet GmbH & Co. KG (Germany)................................................................. 0.1
(GILLET Unternehmesverwaltungs GmbH owns 0.1%; and Tenneco
Deutschland Holdinggesellschaft mbH owns 99.9%)
Heinrich Gillet GmbH & Co. KG (Germany).................................................................... 99.9
(Tenneco Deutschland Holdinggesellschaft mbH owns 99.9%; and GILLET
Unternehmesverwaltungs GmbH owns 0.1%)
Gillet-Abgassysteme Zwickau Gmbh (Germany).............................................................. 100
Mastra-Gillet Industria e Comercio Ltda. (Brazil)....................................................... 50
(Heinrich Gillet GmbH & Co. KG owns 50%; and Mastra Industria e
Comercio Ltda., an unaffiliated company, owns 50%)
Monroe Auto Equipment GmbH (Germany)....................................................................... 100
Omni-Pac Ekco GmbH Verpackungsmittel (Germany)............................................................. 100
Omni-Pack Poland sp. z o.o. (Poland)................................................................... 100
PCA Embalajes Espana, S.L. (Spain)..................................................................... 1
(Omni-Pac Ekco GmbH Verpackungsmittel owns 1%; and PCA
Verpackungsmittel GmbH owns 99%)
Omni-Pac GmbH (Germany).................................................................................... 99
(Tenneco Deutschland Holdinggesellschaft mbH owns 99%; and New Tenneco
Inc. owns 1%)
Omni-Pac ApS (Denmark).................................................................................. 100
Omni-Pac A.B. (Sweden).................................................................................. 100
Omni-Pac S.A.R.L. (France).............................................................................. 3
</TABLE>
-3-
<PAGE>
Subsidiaries of New Tenneco Inc.
- --------------------------------
<TABLE>
<CAPTION>
<S> <C>
(Omni-Pac GmbH owns 3%; and New Tenneco Inc. owns 97%)
Walker Deutschland GmbH (Germany).......................................... 99
(Tenneco Deutschland Holdinggesellschaft mbH owns 99%; and New
Tenneco Inc. owns 1%)
Walker Gillet (Europe) GmbH (Germany)................................... 100
Tenneco Foam Products Company (Delaware)........................................ 100
Tenneco Hexacomb Acquisition Inv. (Delaware).................................... 100
Tenneco Inc. (Nevada)........................................................... 100
Tenneco International Holding Corp. (Delaware).................................. 100
Monroe Australia Pty. Limited (Australia).................................... 100
Monroe Springs (Australia) Pty. Ltd. (Australia)........................... 100
Monroe Superannuation Pty. Ltd. (Australia)................................ 100
Walker Australia Pty. Limited (Australia).................................. 100
S.A. Monroe Europe N.V. (Belgium)............................................... 100
Borusan Amortisor Imalat Ve Ticaret A.S. (Turkey)............................ 16.67
(S.A. Monroe Europe N.V. owns 16.67%; Borusan Holding AS, an
unaffiliated company, owns 83.03%; and various unaffiliated individual
stockholders owns 0.3%)
Monroe Europe Coordination Center N.V. (Belgium)............................. 99.9
(S.A. Monroe Europe N.V. owns 99.9%; and Monroe Auto Equipement
France, S.A. owns 0.1%)
Monroe Europe (UK) Limited (United Kingdom).................................. 18
(S.A. Monroe Europe N.V. owns 18%; and Tenneco United Kingdom Holdings
Limited owns 82%)
Monroe Packaging N.V. (Belgium).............................................. 99.9
(S.A. Monroe Europe N.V. owns 99.9%; and Monroe Auto Equipement
France, S.A. owns 0.1%)
Tenneco Canada Inc. (Ontario)................................................... 51.28
(Tenneco International Holding Corp. Owns 100% of the issued and
outstanding Common Stock, 51.28% of total equity; and Tenneco United Kingdom
Holdings Limited owns 100% of the Class A Stock, 48.72% of total equity)
98174 Ontario Limited (Ontario)............................................... 100
Tenneco Canada Wholesale Finance Company (Alberta)............................ 100
Tenneco Credit Canada Corporation (Alberta)................................... 100
Tenneco Espana Holdings, Inc. (Delaware)........................................ 100
Monroe Springs (New Zealand) Pty. Ltd. (New Zealand)......................... 100
Tenneco Espana S.A. (Spain)................................................ 100
Gillet Iberica, S.A. (Spain)............................................... 100
Manufacturas Fonos, S.L. (Spain)........................................... 100
Omni-Pac Embalajes S.A. (Spain)............................................ 100
Thibault Investments Limited (Mauritius)..................................... 100
Hydraulics Limited (India)................................................ 51
(Thibault Investments Limited owns 51% and Bangalore Union Services
Limited, an unaffiliated company, owns 49%)
</TABLE>
-4-
<PAGE>
Subsidiaries of New Tenneco Inc.
- --------------------------------
<TABLE>
<CAPTION>
<S> <C>
Tenneco Holdings Danmark A/S (Denmark)........................................................ 100
Gillet Exhaust Technologie (Proprietary) Limited (South Africa)100
Gillet Lazne Belohrad, s.r.o. (Republic of Czechoslovakia).............................. 100
Heinrich Gillet Portuguesa - Sistemas de Escape, Lda. (Portugal......................... 100
Walker Danmark A/S (Denmark)............................................................ 100
Walker Inapal Escapes, S.a. (Portugal).................................................. 90
(Tenneco Holdings Danmark A/S owns 90%; Inapal, Industria Nacional de
Acessorios Para Automoveis, SA, an unaffiliated company, owns 9.99%; and
Walker Danmark A/S owns 0.01%)
Tenneco Liquidation Company (Delaware)............................................................ 100
Tenneco Management Company (Delaware)............................................................. 100
Tenneco Moorhead Acquisition Inc. (Delaware)...................................................... 100
Tenneco Packaging Inc. (Delaware)................................................................. 100
A&E Plastics, Inc. (Delaware)................................................................ 100
Alupak A.G. (Switzerland).................................................................... 100
American Cellulose Corporation (Delaware).................................................... 50
(Tenneco Packaging Inc. owns 50%; and Larry E. Homan, an unaffiliated individual,
owns 50%)
The Corinth and Counce Railroad Company (Mississippi)........................................ 100
Marinette, Tomahawk & Western Railroad Company (Wisconsin).............................. 100
Valdosta Southern Railroad Company (Florida)............................................ 100
Counce Limited Partnership (Texas Limited Partnership)....................................... 5
(New Tenneco Inc. owns 95%, as Limited Partner; and Tenneco Packaging Inc.
owns 5%, as General Partner)
Dahlonega Packaging Corporation (Delaware)................................................... 100
Dixie Container Corporation (Virginia)....................................................... 100
Dixie Convoy Corporation (North Carolina).................................................... 100
Dongguan PCA packaging Co., Ltd. (Peoples Republic of China)................................. 50
(Tenneco Packaging Inc. owns 50%; and Dongguan Dong Ya Color Printing &
Packaging Factory, an unaffiliated company, owns 50%)
EKCO Products, Inc. (Illinois)............................................................... 100
E-Z Por Corporation (Delaware)............................................................... 100
Hexacomb Corporation (Illinois).............................................................. 100
Hexacomb International Sales Corporation (U.S. Virgin Islands).......................... 100
Packaging Corporation of America (Nevada).................................................... 100
PCA Box Company (Delaware)................................................................... 100
PCA-Budafok (Kartongyar) Kft. (Hungary)...................................................... 100
PCA Hydro, Inc. (Delawre).................................................................... 100
PCA Leasing Company (Delaware)............................................................... 100
PCA Romania Srl (Romania).................................................................... 50
(Tenneco Packaging Inc. owns 50%; and Kraftcorr Inc., an unaffiliated company
owns 50%)
PCA Tomahawk Corporation (Delaware).......................................................... 100
PCA Valdosta Corporation (Delaware).......................................................... 100
</TABLE>
-5-
<PAGE>
Subsidiaries of New Tenneco Inc.
- --------------------------------
<TABLE>
<S> <C>
PCA Verpackungsmittel GmbH (Germany)................................................100
PCA Embalajes Espana S.L. (Spain).................................................99
(PCA Verpackungsmittel GmbH owns 99%; and Omni-Pac Ekco GmbH
Verpackungsmittel owns 1%)
PCA West Inc. (Delaware)............................................................100
Coast-Packaging Company (California General Partnership).........................50
(PCA West Inc. owns 50%, as General Partner; and J.G. Haddy Sales
Company, an unaffiliated company, owns 50%, as General Partner)
Pressware International, Inc. (Delaware)............................................100
Revere Foil Containers, Inc. (Delaware).............................................100
Tenneco Packaging-Romania S.R.L. (Romania)..........................................100
Tenneco Plastics Company (Delaware).................................................100
798795 Ontario Limited (Ontario)....................................................100
PCA Canada Inc. (Ontario)........................................................100
Tenneco Romania Holdings Inc. (Delaware)...............................................100
Tenneco United Kingdom Holdings Limited (Delaware).....................................100
Monroe Europe (UK) Limited (United Kingdom)..........................................82
(Tenneco United Holdings Limtied owns 82%; and S.A. Monroe Europe N.V.
owns 18%)
Omni-Pac U.K. Limited (United Kingdom)..............................................100
Packaging Corporation of America (UK) Limited (Scotland)............................100
Alpha Products (Bristol Limited (United Kingdom)................................100
Calendered Plastics Limited (United Kingdom)....................................100
Delyn Packaging Limited (United Kingdom)........................................100
Penlea Plastics Limited (United Kingdom)........................................100
Polbeth Packaging Limited (Scotland)............................................100
Brucefield Plastics Limited (Scotland)......................................100
Polbeth Packaging (Corby) Limited (Scotland)................................100
Tenneco Canada Inc. (Ontario) 48.72
(Tenneco United Kingdom Holdings Limited owns 100% of the Class A Stock,
48.72% of total equity; and Tenneco International Holding Corporation owns
100% of the issued and outstanding common stock, 51.28% of total equity)
Tenneco Europe Limited (Delaware)...................................................100
Tenneco Asia Limited (United Kingdom)............................................100
Tenneco International Finance Limited (United Kingdom)..............................100
Tenneco International Finance B.V. (Netherlands)....................................100
Tenneco Management (Europe) Limited (United Kingdom)................................100
Tenneco Packaging (UK) Limited (United Kingdom).....................................100
Tenneco West Limited (United Kingdom)...............................................100
Thompson and Stammers Dunmow (Number 6) Limited (United Kingdom)....................100
Thompson and Stammers Dunmow (Number 7) Limited (United Kingdom)....................100
Thompson and Stammers Dunmow (Number 8) Limited (United Kingdom)....................100
Walker Limited (United Kingdom).....................................................100
Gillet Exhaust Manufacturing Limited (United Kingdom)............................100
</TABLE>
-6-
<PAGE>
Subsidiaries of New Tenneco Inc.
- --------------------------------
<TABLE>
<S> <C>
Gillett Pressings Cardiff Limited (United Kingdom).............................100
Gillett Torsmaskiner UK Limited (United Kingdom)................................50
(Walker Limited owns 100 A Ordinary Shares, 50% of total equity; and AB
Torsmaskiner, an unaffiliated company, owns 100 B Ordinary Shares, 50% of
total equity)
Exhaust Systems Technology Limited (United Kingdom)......................99.99
(Gillet Torsmaskiner UK Limited owns 99.99%; and Heinrich Gillett
Gmbh & Co. KG & AB Torsmaskiner, an unaffiliated company owns 0.01%)
Walker UK Ltd. (United Kingdom)................................................100
J.W. Hartley (Motor Trade) Limited (United Kingdom).........................100
Tenneco - Walker (UK) Limited (United Kingdom)..............................100
Tenneco Windsor Box & Display Inc. (Delaware)..........................................100
Walker Deutschland GmbH (Germany)........................................................1
(New Tenneco Inc. owns 1%; and Tenneco Deutschland Holdinggesellsschaft mbH
owns 99%) Walker Europe, Inc. (Delaware)............................................100
Walker Electronic Mufflers, Inc. (Delaware)............................................100
Walker Noise Cancellation Technologies (New York Partnership).......................100
(Walker Electronic Mufflers, Inc. owns 50% as General Partner; and Expedite
Oyster, Inc., an unaffiliated company, owns 50% as General Partner)
Walker France S.A. (France)............................................................100
Constructions Mettalurgiques de Wissembourg - Wimetal (France)..................100
Societte Europeenne des Esembles-Montes (France).............................100
Gillet Tubes Technologies G.T.T. (France).......................................100
Walker Manufacturing Company (Delaware)................................................100
Ced's Inc. (Illinois)...............................................................100
Walker Norge A/S (Norway)..............................................................100
Walker Sverige A.B. (Sweden)...........................................................100
</TABLE>
-7-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
The Business of New Tenneco Combined Financial Statements and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 103
<SECURITIES> 0
<RECEIVABLES> 351
<ALLOWANCES> 0
<INVENTORY> 838
<CURRENT-ASSETS> 1,695
<PP&E> 4,138
<DEPRECIATION> 1,480
<TOTAL-ASSETS> 6,117
<CURRENT-LIABILITIES> 1,559
<BONDS> 1,648
<COMMON> 0
0
0
<OTHER-SE> 1,852
<TOTAL-LIABILITY-AND-EQUITY> 6,117
<SALES> 5,221
<TOTAL-REVENUES> 5,221
<CGS> 3,737
<TOTAL-COSTS> 3,737
<OTHER-EXPENSES> 851
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 160
<INCOME-PRETAX> 512
<INCOME-TAX> 231
<INCOME-CONTINUING> 258
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 258
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
The Business of New Tenneco Combined Financial Statements and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 129
<SECURITIES> 0
<RECEIVABLES> 477
<ALLOWANCES> 0
<INVENTORY> 820
<CURRENT-ASSETS> 2,002
<PP&E> 4,332
<DEPRECIATION> 1,584
<TOTAL-ASSETS> 6,523
<CURRENT-LIABILITIES> 1,710
<BONDS> 1,573
<COMMON> 0
0
0
<OTHER-SE> 2,168
<TOTAL-LIABILITY-AND-EQUITY> 6,523
<SALES> 3,233
<TOTAL-REVENUES> 3,233
<CGS> 2,303
<TOTAL-COSTS> 2,303
<OTHER-EXPENSES> 587
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 100
<INCOME-PRETAX> 314
<INCOME-TAX> 126
<INCOME-CONTINUING> 178
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 178
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
