<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(mark one)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-12387
TENNECO INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0515284
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
06831
1275 KING STREET, GREENWICH, CT (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (203) 863-1000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
<S> <C>
6.70% Notes due 2005;
7.45% Debentures due
2025; 8.075% Notes due
2002; 8.20% Notes
due 1999; 9.20%
Debentures due 2012;
10.075% Notes due 2001;
10.20% Debentures
due 2008................ New York Stock Exchange
Common Stock, par value
$.01 per share.......... New York, Chicago, Pacific and London Stock Exchanges
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [_]
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO
THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. [X]
STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES
OF THE REGISTRANT. THE AGGREGATE MARKET VALUE SHALL BE COMPUTED BY REFERENCE
TO THE PRICE AT WHICH THE STOCK WAS SOLD, OR THE AVERAGE BID AND ASKED PRICES
OF SUCH STOCK, AS OF A SPECIFIED DATE WITHIN 60 DAYS PRIOR TO THE DATE OF
FILING.
<TABLE>
<CAPTION>
CLASS OF VOTING STOCK AND NUMBER MARKET VALUE
OF SHARES HELD
HELD BY NON-AFFILIATES AT BY NON-
JANUARY 31, 1997 AFFILIATES
-------------------------------- ---------------
<S> <C>
Common Stock, 171,235,101 shares $6,849,404,040*
</TABLE>
- --------
* Based upon the closing sale price on the Composite Tape for the Common Stock
on January 31, 1997.
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE. Common Stock, par
value $.01 per share, 171,717,373 shares outstanding as of January 31, 1997.
DOCUMENTS INCORPORATED BY REFERENCE:
<TABLE>
<CAPTION>
PART OF THE FORM 10-K
DOCUMENT INTO WHICH INCORPORATED
-------- -----------------------
<S> <C>
Tenneco Inc.'s Definitive Proxy Statement for the Part III
Annual Meeting
of Stockholders to be Held May 13, 1997
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
CAUTIONARY STATEMENT FOR PURPOSES OF "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Annual Report contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 concerning, among other
things, the prospects and developments of the Company (as defined) 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 "anticipates," "anticipated," "intend," "intends,"
"intended," "goal," "estimate," "estimates," "estimated," "expects," "expect,"
"expected," "project," "projects," "projections," "plans," "should," "designed
to," "foreseeable future," "believe," "believes," and "scheduled" and similar
terms and phrases.
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.
The Company's actual results may differ significantly from the results
discussed in the forward-looking statements. Factors that might cause such a
difference include the following:
Changes in Consumer Demand and Prices. Demand for Tenneco Automotive
original equipment products is subject to the level of consumer demand for
new vehicles which are equipped with Tenneco Automotive parts. The level of
new car purchases is cyclical, affected by such factors as interest rates,
consumer confidence, patterns of consumer spending and the automobile
replacement cycle. Demand for Tenneco Automotive aftermarket products
varies based upon such factors as the level of new vehicle purchases, which
initially displaces demand for aftermarket products, the severity of winter
weather, which increases the demand for aftermarket products, and other
factors including the average useful life of parts and number of miles
driven. Demand for certain Tenneco Packaging products is also cyclical. For
example, demand for protective packaging is driven by trends in the
building, construction, automotive and durable goods markets. Demand for
packaging products is also subject to changes in consumer preferences.
Demand and pricing of Tenneco Automotive and Tenneco Packaging products
is subject to economic conditions and other factors present in the various
domestic and international markets where the products are sold. For
example, lower containerboard prices in Tenneco Packaging's markets had an
adverse influence on its results of operations in 1996. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Years 1996 and 1995--Tenneco Packaging."
Changes in Prices of Raw Materials. Significant increases in the cost of
certain raw materials used in the Company's products, to the extent not
timely reflected in the Company's prices or mitigated through long term
supply contracts, could adversely impact the Company's results. For
example, the cost of plastic resin and paper materials in Tenneco Packaging
products can be volatile.
Possible Labor Interruptions. Substantially all of the hourly employees
of North American original equipment manufacturers are represented by the
United Automobile, Aerospace and Agricultural Implement Workers of America
(the "UAW") under similar collective bargaining agreements. Original
equipment manufacturers in other countries are also subject to labor
agreements. A work stoppage or strike at the production facilities of a
significant customer, at the Company's facilities, or at a supplier of a
customer or the Company could have an adverse impact on the Company.
Risks Associated with International Operations. Both Tenneco Packaging
and Tenneco Automotive operate facilities and sell products in countries
throughout the world. As a result, the Company is subject to risks
associated with operating in foreign countries, including devaluations and
fluctuations in currency
i
<PAGE>
exchange rates, imposition of limitations on conversion of foreign
currencies into U.S. dollars or remittance of dividends and other payments
by foreign subsidiaries, imposition or increase of withholding and other
taxes on remittances and other payments by foreign subsidiaries,
hyperinflation in certain foreign countries, and imposition or increase of
investment and other restrictions by foreign governments.
Other Factors. In addition to the factors described above, the Company
may be adversely impacted by a number of other matters and uncertainties,
including: (i) potential legislation or regulatory changes; (ii) material
substitution; (iii) new technologies; (iv) changes in distribution channels
or competitive conditions in the markets and countries where the Company
operates; (v) changes in capital availability or costs, such as changes in
interest rates, market perceptions of the industries in which the Company
operates or ratings of securities; (vi) increases in the cost of compliance
with regulations, including environmental regulations, and environmental
liabilities in excess of the amount reserved; and (vii) changes by the
Financial Accounting Standards Board or the Securities and Exchange
Commission of authoritative generally accepted accounting principles or
policies.
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I
Item 1. Business.............................................................................. 1
Tenneco Inc.......................................................................... 1
Contributions of Major Businesses.................................................... 1
Tenneco Automotive................................................................... 2
Tenneco Packaging.................................................................... 9
Tenneco Business Services............................................................ 15
Environmental Matters................................................................ 16
Certain Reorganization Agreements.................................................... 16
Item 2. Properties............................................................................ 17
Item 3. Legal Proceedings..................................................................... 18
Item 4. Submission of Matters to a Vote of Security Holders................................... 19
Item 4.1. Executive Officers of the Registrant.................................................. 20
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................. 21
Item 6. Selected Financial Data............................................................... 23
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. 25
Item 8. Financial Statements and Supplementary Data........................................... 37
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.. 73
PART III
Item 10. Directors and Executive Officers of the Registrant.................................... 73
Item 11. Executive Compensation................................................................ 73
Item 12. Security Ownership of Certain Beneficial Owners and Management........................ 73
Item 13. Certain Relationships and Related Transactions........................................ 73
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....................... 73
</TABLE>
iii
<PAGE>
PART I
ITEM 1. BUSINESS.
TENNECO INC.
Tenneco Inc., a Delaware corporation, is a global manufacturing company with
operations in automotive parts ("Tenneco Automotive") and packaging ("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 Packaging is among
the world's leading and most diversified packaging companies, manufacturing
packaging products for consumer, institutional and industrial markets. As used
herein, the term "Tenneco" or the "Company" refers to Tenneco Inc. and its
consolidated subsidiaries.
The Company was incorporated August 26, 1996 under the name "New Tenneco
Inc." as a wholly owned subsidiary of the company then known as Tenneco Inc.
("Old Tenneco"). The Company was formed to facilitate Old Tenneco's corporate
transformation from a highly diversified industrial corporation to a global
manufacturing company focused on its automotive and packaging businesses. As
part of this transformation, Old Tenneco undertook a series of transactions
during the latter portion of 1996 whereby the businesses and assets of Old
Tenneco were restructured so that the assets, liabilities and operations of
Tenneco Automotive, Tenneco Packaging and Old Tenneco's administrative
services businesses were owned and operated by the Company and the assets,
liabilities and operations of Old Tenneco's shipbuilding business were owned
and operated by Newport News Shipbuilding Inc., another wholly owned
subsidiary of Old Tenneco ("Newport News"). Following this internal
restructuring, on December 11, 1996 Old Tenneco spun-off the Company and
Newport News by distributing all of the common stock of each company to Old
Tenneco's common stockholders (the "Distributions"). Following the
Distributions, on December 12, 1996 a subsidiary of El Paso Natural Gas
Company ("El Paso") was merged (the "Merger") into Old Tenneco (which then
consisted solely of Old Tenneco's remaining active businesses and certain
discontinued operations), with Old Tenneco surviving the Merger as a
subsidiary of El Paso, and with the Company succeeding to the name "Tenneco
Inc." Unless the context otherwise requires, references to "Tenneco" and the
"Company" for periods prior to the Distributions are to Old Tenneco.
The separation of the Company from the remainder of the businesses,
operations and companies then constituting Old Tenneco was structured as a
spin-off of the Company for legal, tax and other reasons. However, the Company
succeeded to certain important aspects of the Old Tenneco business,
organization and affairs, namely: (i) the Company succeeded to the name
"Tenneco Inc.;" (ii) the business conducted by the Company principally
consists of Tenneco Automotive and Tenneco Packaging, which combined
represented over half of the assets, revenues, and operating income of the
businesses, operations, and companies previously constituting Old Tenneco;
(iii) the Company's Board of Directors consists of those individuals
comprising the Old Tenneco Board of Directors immediately prior to the
Distribution; (iv) the Company's executive management consists substantially
of those individuals comprising Old Tenneco's executive management; and (v)
the Company retained as its headquarters the former headquarters of Old
Tenneco in Greenwich, Connecticut.
CONTRIBUTIONS OF MAJOR BUSINESSES
Information concerning Tenneco's principal industry segments and geographic
areas is set forth in Note 13 to the Financial Statements of Tenneco Inc. and
Consolidated Subsidiaries. The following tables summarize for each of the
major business groups of Tenneco for the periods indicated: (i) net sales and
operating revenues from continuing operations; (ii) income from continuing
operations before interest expense, income taxes and minority interest; and
(iii) capital expenditures for continuing operations.
1
<PAGE>
NET SALES AND OPERATING REVENUES FROM CONTINUING OPERATIONS:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Automotive............................... $2,980 45% $2,479 47% $1,989 48%
Packaging................................ 3,602 55 2,752 53 2,184 52
Intergroup sales and other............... (10) -- (10) -- (7) --
------ --- ------ --- ------ ---
Total.................................. $6,572 100% $5,221 100% $4,166 100%
====== === ====== === ====== ===
</TABLE>
INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST EXPENSE, INCOME TAXES AND
MINORITY INTEREST:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(MILLIONS)
<S> <C> <C> <C>
Automotive...................................................... $249 $240 $223
Packaging....................................................... 401 430 209
Other........................................................... (22) 2 24
---- ---- ----
Total......................................................... $628 $672 $456
==== ==== ====
</TABLE>
CAPITAL EXPENDITURES FOR CONTINUING OPERATIONS:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(DOLLAR AMOUNTS IN
MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Automotive........................................ $177 31% $208 37% $113 40%
Packaging......................................... 341 60 316 56 166 59
Other............................................. 55 9 38 7 1 1
---- --- ---- --- ---- ---
Total........................................... $573 100% $562 100% $280 100%
==== === ==== === ==== ===
</TABLE>
The total amount of interest expense, income taxes and minority interest
from continuing operations that was not allocated to the major business groups
of Tenneco during the relevant periods is as follows:
<TABLE>
<CAPTION>
1995
1996 1994
---- ---- ----
(MILLIONS)
<S> <C> <C> <C>
Interest expense (net of interest capitalized).................. $195 $160 $104
Income tax expense.............................................. 194 231 114
Minority interest............................................... 21 23 --
</TABLE>
TENNECO AUTOMOTIVE
Tenneco Automotive is one of the world's largest manufacturers and marketers
of automotive exhaust and ride control systems for the original equipment
("OE") market and aftermarket. Tenneco Automotive is a global business that
sells its products in over 100 countries, manufacturing and marketing its
automotive exhaust systems primarily under the Walker(R) brand name and its
ride control equipment primarily under the Monroe(R) brand name.
Tenneco Automotive is headquartered in Deerfield, Illinois.
OVERVIEW OF AUTOMOTIVE PARTS INDUSTRY
The global market for automotive parts was estimated at approximately $435.3
billion in 1995, the most recent year for which industry data is available.
This market was comprised of approximately $352 billion in OE sales and
approximately $83.3 billion in aftermarket sales. With the North American and
Western European
2
<PAGE>
automotive markets becoming relatively mature, OE manufacturers 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 as original equipment in large quantities directly to
the vehicle manufacturers; and (ii) aftermarket sales, in which replacement
parts are sold as replacement parts in varying quantities to a wide range of
wholesalers, retailers and repair shops. 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. Demand for aftermarket products
varies based upon such factors as the level of new automobile purchases, which
initially displaces demand for aftermarket products, the severity of winter
weather, which increases the demand for aftermarket products, and other
factors including the average useful life of parts and number of miles driven.
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.
ANALYSIS OF TENNECO AUTOMOTIVE'S REVENUES
The following table sets forth for each of the years 1994 through 1996
certain information relating to the net sales of Tenneco Automotive, the two
primary businesses of Tenneco Automotive and the aftermarket and OE market
within each primary business:
<TABLE>
<CAPTION>
NET SALES (MILLIONS)
----------------------
YEAR ENDED DECEMBER
31,
----------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
EXHAUST SYSTEMS BUSINESS
Aftermarket........................................... $ 710 $ 637 $ 609
OE Market............................................. 989 829 465
------ ------ ------
1,699 1,466 1,074
------ ------ ------
RIDE CONTROL BUSINESS
Aftermarket........................................... 768 687 644
OE Market............................................. 513 326 271
------ ------ ------
1,281 1,013 915
------ ------ ------
Total Tenneco Automotive............................ $2,980 $2,479 $1,989
====== ====== ======
<CAPTION>
PERCENTAGE OF NET
SALES
----------------------
YEAR ENDED DECEMBER
31,
----------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
EXHAUST SYSTEMS BUSINESS
Aftermarket........................................... 42% 43% 57%
OE Market............................................. 58 57 43
------ ------ ------
100% 100% 100%
====== ====== ======
RIDE CONTROL BUSINESS
Aftermarket........................................... 60% 68% 70%
OE Market............................................. 40 32 30
------ ------ ------
100% 100% 100%
====== ====== ======
</TABLE>
3
<PAGE>
Brands
Tenneco Automotive manufactures and markets leading brand names. 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
anticipated that they will be incorporated within these existing Monroe(R) and
Walker(R) brand name families.
Customers
Tenneco Automotive has developed long-standing business relationships with
many of its customers around the world, working together 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 priorities has been recognized by numerous customers who
awarded Tenneco Automotive 48 supplier quality awards in 1996.
Tenneco Automotive serves both the OE market and the aftermarket. Tenneco
Automotive serves over 25 different OE customers on a global basis, including
the following:
NORTH AMERICA EUROPE INDIA
CAMI BMW
Chrysler Chrysler Maruti Suzuki
Ford DAF
General Motors Daihatsu AUSTRALIA
Honda Fiat
Mazda Ford Ford
Mitsubishi Jaguar General Motors/Holden
Nissan Lada Mitsubishi
NUMMI Leyland Toyota
Toyota Mercedes-Benz
Mitsubishi JAPAN
SOUTH AMERICA Nissan
Chrysler Opel Mazda
Fiat Peugeot/Citroen Nissan
Ford Porsche Suzuki
General Motors Renault/Matra Toyota
Renault Rover/Land Rover
Toyota Saab/Scania OTHER ASIA
Volkswagen Toyota
Volkswagen/Audi/SEAT/Skoda Chrysler
Volvo Citroen
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
Automotive 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, reduced pollutants and optimized engine performance.
4
<PAGE>
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, pipes, exhaust accessories and
electronic noise cancellation products. Founded in 1888 and a division of
Tenneco since 1967, Walker is the aftermarket 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 seven of the 10
top-selling 1996 new car models in the U.S. and 9 of the 10 top-selling light
trucks in the U.S. Walker has long been the European aftermarket leader for
exhaust systems, and with the acquisition of Heinrich Gillet GmbH & Co.
("Gillet") in 1994, Walker became Europe's leading OE exhaust systems supplier.
Manufacturing and Engineering
Walker operates 26 manufacturing facilities outside the U.S. In the U.S.,
Walker operates 10 manufacturing facilities and seven distribution centers. See
Item 2, "Properties." Walker locates its manufacturing facilities in close
proximity to its OE customers to provide just-in-time delivery opportunities.
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 recast Tenneco Automotive as a market leader in exhaust systems for the
OE market in Europe and brought many new OE customers to the Walker business.
In 1995, Walker acquired ownership of Manufacturas Fonos, S.L. ("Fonos"),
Spain's largest participant in the exhaust systems aftermarket, and Perfection
Automotive Products, a U.S. catalytic converter producer, further expanding
Walker's presence in the exhaust systems replacement market. In 1996, Walker
established a joint venture in China (Dalian) to supply exhaust systems to the
northern Chinese automotive market and expanded its North American heavy duty
truck aftermarket business through the acquisition of Stemco Inc.
The following table sets forth for each of the years 1994 through 1996
information relating to Tenneco Automotive's sales of exhaust systems:
<TABLE>
<CAPTION>
PERCENTAGE OF SALES
---------------------------
YEAR ENDED DECEMBER 31,
---------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
United States Sales
Aftermarket..................................... 46% 46% 48%
OE Market....................................... 54 54 52
------- ------- -------
100% 100% 100%
======= ======= =======
Foreign Sales
Aftermarket..................................... 38% 42% 68%
OE Market....................................... 62 58 32
------- ------- -------
100% 100% 100%
======= ======= =======
Total Sales by Geographic Area(a)
United States................................... 44% 42% 58%
European Union.................................. 43 45 24
Canada.......................................... 6 7 10
Other areas..................................... 7 6 8
------- ------- -------
100% 100% 100%
======= ======= =======
</TABLE>
- --------
(a) See Note 13 to the Tenneco Inc. and Consolidated Subsidiaries Financial
Statements for certain information about foreign and domestic operations
and export sales.
5
<PAGE>
RIDE CONTROL PRODUCTS
Tenneco Automotive designs, manufactures and distributes ride control
products primarily under the Monroe(R) brand name. Tenneco Automotive's ride
control products consist of hydraulic shock absorbers, air adjustable shock
absorbers, gas charged shock absorbers and struts, electronically adjustable
suspension systems, vibration control components, bushings, springs and
modular assembles. Tenneco Automotive manufactures and markets replacement
shock absorbers for virtually all North American, European and Asian makes of
automobiles. In addition, Tenneco Automotive manufactures and markets shock
absorbers and struts for use on passenger cars and trucks, as well as for
other uses such as exercise and other recreational equipment. Founded in 1916,
Monroe introduced the world's first automotive shock absorber in 1926 and
became part of Tenneco 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.
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 contact between the vehicle's tires and the road. Adhesion is
directly influenced by shock absorber and strut performance. Worn shocks and
struts can allow weight to transfer from side to side (roll), from front to
rear (sway) and up and down (bounce). Shocks are designed to maintain vertical
loads placed on tires by providing resistance to vehicle roll, sway and
bounce. Variations in tire to road contact can affect a vehicle's handling and
braking performance and the safe operation of a vehicle; thus, by maintaining
the tire-to-road contact, Monroe's ride control products are actually designed
to function as safety components of a vehicle rather than merely providing a
comfortable ride.
Manufacturing and Engineering
Monroe has 10 manufacturing facilities in the United States and 16 foreign
manufacturing operations. Monroe also has controlling interests in joint
ventures that own manufacturing operations in China and India as described
below. See also Item 2, "Properties." 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 and semi-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 grooved-tube, gas-charged shocks
and struts provide 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 units become
overheated (fade). This technology 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 OE manufacturers a
more complete modular ride control system, in July 1996 Tenneco Automotive
acquired The Pullman Company and its Clevite products division ("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 OE
manufacturers. 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. 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.
6
<PAGE>
The following table sets forth information relating to Tenneco Automotive's
sales of ride control equipment:
<TABLE>
<CAPTION>
PERCENTAGE OF SALES
---------------------------
YEAR ENDED DECEMBER 31,
---------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
United States Sales
Aftermarket..................................... 62% 70% 72%
OE Market....................................... 38 30 28
------- ------- -------
100% 100% 100%
======= ======= =======
Foreign Sales
Aftermarket..................................... 59% 66% 69%
OE Market....................................... 41 34 31
------- ------- -------
100% 100% 100%
======= ======= =======
Total Sales by Geographic Area(a)
United States................................... 48% 48% 49%
European Union.................................. 34 36 32
Canada.......................................... 3 3 5
Other areas..................................... 15 13 14
======= ======= =======
100% 100% 100%
======= ======= =======
</TABLE>
- --------
(a) See Note 13 to Tenneco Inc. and Consolidated Subsidiaries Financial
Statements for certain information about foreign and domestic operations
and export sales.
SALES AND MARKETING
Both the exhaust and ride control businesses utilize similar sales and
marketing systems to distribute Tenneco Automotive products. Both businesses
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 exceeding 95%.
Tenneco Automotive sells its OE 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
programmed marketing groups.
STRATEGY
Tenneco Automotive's primary goal is to grow and enhance its position as a
global leader in the manufacture 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 OE supplier base, (ii) increased outsourcing by OE
manufacturers, particularly of more complex components, assemblies, modules
and complete systems to sophisticated, independent suppliers, and (iii) growth
of emerging markets for both OE 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(R) and Walker(R) brand names and their market shares, intends
to emphasize product differentiation to give consumers added reasons for
specifying their brands. For example, Monroe(R) introduced a premium grade
shock and strut called Sensa-Trac(R) in 1994, which helped it gain its
technological leadership in the ride control market, while Rancho(R) is the
leading ride control brand in the high performance light truck market. Walker
Advantage(R) and
7
<PAGE>
DynoMaxTM brands are the leaders in their product categories. Tenneco
Automotive is also 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 solidify its core businesses with its primary
customers while increasing market share with customers with whom it has not
fully realized its potential market penetration. These objectives are designed
to enable Tenneco Automotive to respond better to the OE manufacturers'
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 Value-Added Products
Tenneco Automotive, a first tier supplier to many customers, intends to
continue to manufacture value-added products and to develop strategic
alliances with other suppliers to OE customers in order to facilitate
development of these products, including the development of highly engineered
or complex assemblies or modular 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
supplied 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 OE manufacturers 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 to pursue
appropriate strategic acquisitions, joint ventures and strategic alliances in
order to increase Tenneco Automotive's ability to deliver such full-system
capabilities. For example, its recent acquisition of Clevite now gives Tenneco
Automotive the ability to deliver more complete suspension systems to OE
manufacturers.
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 international 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 Turkey. In September 1996,
Tenneco Automotive acquired full ownership of a shock absorber company in
Turkey in which it previously held a 16.7% ownership interest. In December
1996, Tenneco Automotive acquired 94% of the voting stock of Fric-Rot
S.A.I.C., the leading producer and marketer of ride control products in
Argentina for approximately $52 million. In 1996 Tenneco Automotive also
expanded its presence in Australia's ride control product market with the
acquisition of National Springs. The recent international acquisitions
complement the November 1994 acquisition of Gillet, Europe's largest supplier
of automotive exhaust equipment for the OE 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,
8
<PAGE>
gain access to new customers and achieve leadership positions within new
geographic markets, while drawing on the strengths of existing distribution
channels and OE customer relationships. Tenneco Automotive has developed
comprehensive plans to integrate quickly 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
lower cost facilities; and reducing selling, distribution, purchasing and
administrative costs.
Operating Cost Leadership
Tenneco Automotive will continue to seek cost reductions as it standardizes
its product and processes throughout its international operations, improves
its information technology, increases efficiency through employee training,
invests in more efficient machinery and enhances the global coordination of
purchasing, costing and quoting procedures.
OTHER
As of January 1, 1997, Tenneco Automotive had approximately 23,000
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.
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 manufactures
corrugated containers, folding cartons and containerboard, has a joint venture
in recycled paperboard, and offers value-added products such as enhanced
graphics packaging and displays and kraft honeycomb products. Its specialty
products business 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), Hefty
OneZip(R), and E-Z Foil(R).
Tenneco Packaging is headquartered in Evanston, Illinois.
OVERVIEW OF PACKAGING INDUSTRY
The global packaging market is estimated at nearly $400 billion, with nearly
one-third of the market in North America, slightly less in Europe and the
balance spread throughout the rest of the world. Packaging as an industry
remains one of the most fragmented major industries, with the top five
companies comprising only a 10% worldwide market share.
Tenneco Packaging now ranks by sales as the fourth largest packaging
manufacturer in North America and the tenth largest in the world. Within
packaging material categories, Tenneco Packaging participates in the three
growing categories of paper, plastic and aluminum, with substantial or leading
market shares in virtually all of its product categories. 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.
9
<PAGE>
BUSINESS STRATEGY
Tenneco Packaging has embarked upon an aggressive growth plan to be the
leading specialty packaging company offering a broad line of products to
provide customers with the best packaging solutions. In the past two years,
Tenneco Packaging has nearly doubled its size to $3.6 billion in revenues
through internal growth in its base businesses, productivity gains and 12
acquisitions.
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 packaging
(including the full year impact of the Amoco Foam Products Company ("Amoco
Foam Products") purchase completed in August, 1996), 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 its sensitivity to raw
material prices and offer greater opportunities to add value. Currently,
nearly 25% 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 intends to continue to pursue value-added,
non-cyclical growth opportunities, maintain market leadership positions in its
primary businesses and leverage its new product development expertise.
As with other manufacturing companies whose results of operations are
subject to general economic and market conditions and other factors, Tenneco
Packaging's business results may be adversely impacted by raw material cost
fluctuations, changes in consumer preferences and other matters. See
"Cautionary Statement for Purposes of "Safe Harbor' Provisions of the Private
Securities Litigation Reform Act of 1995." However, Tenneco Packaging believes
it 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 designed to
meet stringent customer quality requirements and service needs. Tenneco
Packaging intends to spend approximately $97 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.
ANALYSIS OF TENNECO PACKAGING'S REVENUES
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.
10
<PAGE>
The following tables set forth information relating to the net sales of both
of Tenneco Packaging's primary businesses, in dollars and by percentages:
<TABLE>
<CAPTION>
NET SALES (MILLIONS)
-----------------------
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
PAPERBOARD BUSINESS
Corrugated shipping containers and containerboard
products............................................ $ 1,432 $ 1,589 $ 1,214
Folding cartons and recycled paperboard mill
products............................................ 149 204 196
Paper stock and other................................ 119 135 119
------- ------- -------
1,700 1,928 1,529
------- ------- -------
SPECIALTY BUSINESS
Disposable plastic and aluminum packaging products... 1,669 593 434
Molded fiber products................................ 193 191 186
Other................................................ 40 40 35
------- ------- -------
1,902 824 655
------- ------- -------
Total Tenneco Packaging............................ $ 3,602 $ 2,752 $ 2,184
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
---------------------------
YEAR ENDED DECEMBER 31,
---------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
PAPERBOARD BUSINESS
Corrugated shipping containers and containerboard
products......................................... 40% 58% 56%
Folding cartons and recycled paperboard mill
products......................................... 4 7 9
Paper stock and other............................. 3 5 5
------- ------- -------
47 70 70
------- ------- -------
SPECIALTY BUSINESS
Disposable plastic and aluminum packaging
products......................................... 47% 22% 20%
Molded fiber products............................. 5 7 9
Other............................................. 1 1 1
------- ------- -------
53 30 30
------- ------- -------
Total Tenneco Packaging......................... 100% 100% 100%
======= ======= =======
SALES BY GEOGRAPHIC AREA(A)
United States..................................... 91% 91% 90%
European Union.................................... 5 5 6
Canada............................................ 2 1 1
Other areas....................................... 2 3 3
------- ------- -------
100% 100% 100%
======= ======= =======
</TABLE>
- --------
(a) See Note 13 to Tenneco Inc. and Consolidated Subsidiaries Financial
Statements for certain information about foreign and domestic operations
and export sales.
PAPERBOARD PRODUCTS
The paperboard business manufactures and sells corrugated containers,
folding cartons, containerboard, lumber and building products, and has a joint
venture in recycled paperboard. The business' product line includes value-
added products such as enhanced graphics packaging and displays and kraft
honeycomb products. The paperboard business produces over two million tons of
containerboard annually that is converted by its
11
<PAGE>
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 mills operated by Tenneco Packaging or supplied through
trade partnerships for other grades in exchange for product produced at mills
operated by Tenneco Packaging. This helps assure a secure supply of
containerboard in a wide variety of grades to meet the requirements of its
customers. The paperboard business 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 one million acres of timberland in the United
States through both owned and leased properties.
Sales and Marketing and New Product Development
Tenneco Packaging's paperboard business maintains a direct sales and
marketing organization of over 400 sales personnel serving both local and
national accounts. The sales organization consists primarily of sales
representatives and a sales manager at each facility serving local and
regional accounts, while corporate account managers are located to correspond
to customer requirements. Division marketing support is maintained at
corporate headquarters.
Tenneco Packaging's paperboard business 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 six 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 collectively
accounted for 6% of the industry's annual U.S. production, or 2.1 million
tons, in 1996. Over the last three years, Tenneco Packaging has invested $75.7
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 65
geographically dispersed plants that, based on 1996 revenue, manufacture
approximately 6% of the industry's total annual U.S. corrugated shipments, as
well as eight kraft paper honeycomb product plants, making Tenneco Packaging
one of the top six integrated producers. Tenneco Packaging also operates six
folding carton plants located primarily in the Midwest. One folding carton
plant is expected to be closed in 1997.
As of January 1, 1997, Tenneco Packaging owned approximately 190,000 acres
of timberland in Alabama, 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 1996, 1995 and
1994, approximately 32%, 30% and 28%, respectively, of the virgin fiber used
by Tenneco Packaging in its mill operations was obtained from timberlands
owned or utilized by Tenneco Packaging. The balance of virgin fiber was
purchased from numerous open market wood sellers.
To maximize the value of the timber harvested or purchased, Tenneco
Packaging operates a wood drying facility and three wood products operations
which produce hardwood and pine lumber. Tenneco Packaging is also a party to a
joint venture in a chip mill.
Tenneco Packaging's paperboard business 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 has a design organization which includes more than 60
structural, graphic and package engineering specialists for its corrugated and
folding carton converting operations.
12
<PAGE>
Strategic Acquisitions/Joint Ventures
As part of Tenneco Packaging's value-added growth strategy, eight
acquisitions were made during 1995 in the paperboard business. 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.
In 1995 Tenneco Packaging also added to its network of specialty sheet
plants by acquiring 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 into 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. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Years 1996 and 1995--Results of
Operations."
SPECIALTY PRODUCTS
Tenneco Packaging's specialty business 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 as Hefty(R), Baggies(R),
Hefty OneZip(R) 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 business products are marketed to five primary market categories:
food service, supermarkets, institutional, packer processor and industrial
users. The specialty business maintains a sales and marketing organization of
nearly 270 sales personnel. The sales organization is specialized by market
category and its teams work in alliance with strategic customers to build
sales. Approximately 85% of the specialty business' products are sold to its
distributors, while the remainder are sold directly to retailers.
Tenneco Packaging markets consumer products primarily through three classes
of retailers or channels of trade: (i) grocery (supermarkets and convenience
stores); (ii) non-food (mass merchandisers, drug stores, hardware stores, home
centers); and (iii) warehouse clubs. Tenneco Packaging's approximately 75
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.
Manufacturing and Engineering
In North America, Tenneco Packaging operates 31 specialty business
facilities. With the acquisition of the Mobil Plastics Division of Mobil Oil
Corporation ("Mobil Plastics") and Amoco Foam Products, Tenneco
13
<PAGE>
Packaging now has polystyrene production in 18 locations in 13 states. The
plastics business 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; a seventh location manufactures
tooling for the molded fiber plants. 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 business 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 business'
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 business and added new technologies and
product development capabilities. The acquisition provided strong consumer
branded products such as Hefty(R) trash bags, Baggies(R) food bags, and Hefty
OneZip(R) food storage bags. The plastics division acquired from Mobil also
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 approximately $288 million, manufactures foam
polystyrene tableware including cups, plates, carrying trays; hinged-lid food
containers; packaging trays, primarily for meat and poultry; and industrial
products for residential and commercial construction applications.
INTERNATIONAL
Tenneco Packaging has a growing international presence with a 1996 revenue
base of approximately $228 million and an additional $80 million in export
sales to approximately 40 countries, manufacturing products that serve a wide
range of packaging needs. Tenneco Packaging 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 14
international manufacturing operations. 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
plastics, 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, paperboard honeycomb products
operations in Israel and Japan, and a corrugated converting facility in
Zhejiang, China.
14
<PAGE>
Acquisitions/Business Development
In 1995, Tenneco Packaging purchased Penlea and Delyn, two plastic
thermoforming operations in the United Kingdom. In Romania, Tenneco Packaging
is negotiating for harvesting rights in excess of 1.8 million cubic meters of
timber and is constructing a wood processing plant for value-added furniture
components, to be supported by a full sawmill operation.
OTHER
As of January 1, 1997, Tenneco Packaging had approximately 21,000 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.
TENNECO BUSINESS SERVICES
Tenneco Business Services ("TBS") designs, implements and administers shared
administrative service programs for Tenneco's businesses as well as on an "as
requested" basis for former Tenneco business entities and affiliates.
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 and affiliates such as Case
Corporation, Newport News and Old Tenneco. However, TBS is in the process of
investigating opportunities to provide similar services to outside businesses.
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 January, 1997, TBS had approximately 362 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.
15
<PAGE>
ENVIRONMENTAL MATTERS
The Company estimates that its subsidiaries will make capital expenditures
for environmental matters of approximately $18 million in 1997 and that
capital expenditures for environmental matters will be approximately $76
million in the aggregate for the years 1997 through 2007.
For information regarding environmental matters, see Item 3, "Legal
Proceedings," Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and Note 14 to the Financial Statements
of the Tenneco Inc. and Consolidated Subsidiaries.
CERTAIN REORGANIZATION AGREEMENTS
In connection with the Distributions, described on page 1 of this Annual
Report, Tenneco, Old Tenneco and Newport News entered into certain agreements,
described below, governing their relationship following the Distributions and
providing for the allocation of tax and certain other liabilities and
obligations arising from periods prior to the Distributions.
Tenneco, Old Tenneco and Newport News entered into a Distribution Agreement,
dated November 1, 1996, pursuant to which the Distributions and certain
corporate transactions required to effect the Distributions were accomplished.
The Distribution Agreement provides for, among other things, the assumption of
liabilities and cross indemnities designed to allocate generally, effective as
of the date of the Distributions, financial responsibility for the liabilities
of Old Tenneco arising out of or in connection with (i) Tenneco Automotive,
Tenneco Packaging and TBS to the Company, (ii) Old Tenneco's shipbuilding
businesses to Newport News and its subsidiaries, and (iii) Old Tenneco's
remaining active businesses (consisting primarily of the transportation and
marketing of natural gas) and certain discontinued operations to Old Tenneco
and its subsidiaries.
In addition, as contemplated by the Distribution Agreement, the Company
entered into certain ancillary agreements (collectively, the "Ancillary
Agreements") with Old Tenneco and/or Newport News prior to the consummation of
the Distributions which further effectuated the restructuring of Old Tenneco
and govern various aspects of the post-Distributions relationship among the
parties.
The Ancillary Agreements include: (i) the Benefits Agreement, which provided
for allocations of responsibilities among the Company, Old Tenneco and Newport
News with respect to employee compensation, benefit and labor matters; (ii)
the Tax Sharing Agreement, pursuant to which the Company, Old Tenneco and
Newport News will allocate liabilities for taxes arising prior to, as a result
of, and subsequent to the Distributions; (iii) the Debt and Cash Allocation
Agreement which provided 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 the funds provided by) the
Company, Old Tenneco and Newport News; (iv) the TBS Services Agreement
pursuant to which TBS will continue to provide certain administrative and
other services to Newport News until December 31, 1998; (v) the Transition
Services Agreement pursuant to which TBS will continue to provide certain
administration and other services to Old Tenneco until June 30, 1997; (vi)
Trademark Transition License Agreements allowing Old Tenneco and Newport News
to use certain of the trademarks and tradenames of Tenneco for certain
specified periods of time for certain purposes; and (vii) the Insurance
Agreement, which provides for the continuing rights and obligations of the
Company, Old Tenneco and Newport News with respect to various pre-
Distributions insurance programs. With respect to certain obligations under
the Benefits Agreement, see Item 3, "Legal Proceedings--Other Proceedings" and
Note 14 to the Financial Statements of Tenneco Inc. and Consolidated
Subsidiaries.
16
<PAGE>
ITEM 2. PROPERTIES.
Corporate Headquarters
The Company's executive offices are located at 1275 King Street, Greenwich,
Connecticut 06831, and its telephone number at that address is (203) 863-1000.
Tenneco Automotive
In the United States, Walker operates ten manufacturing facilities and seven
distribution centers, three of which are located at manufacturing facilities,
and also has two engineering and technical facilities. In addition, Walker
operates 26 manufacturing facilities located in Argentina, Australia, Brazil,
Canada, China, the Czech Republic, Denmark, France, Germany, Mexico, Portugal,
South Africa, Spain, Sweden, and the United Kingdom. Walker also has
engineering and technical centers in Australia and Germany.
In the United States, Monroe has 10 manufacturing facilities and one
research and development facility and three distribution centers. In addition,
Monroe has 20 foreign manufacturing operations in Argentina, Australia,
Belgium, Brazil, Canada, China, the Czech Republic, India, Mexico, New
Zealand, Spain, Turkey and the United Kingdom. Tenneco Automotive also has a
sales office in Japan.
Of the 78 properties described above, 50 are owned, 23 are leased, and five
are held through joint ventures.
Tenneco Packaging
In North America, Tenneco Packaging operates a total of 125 facilities, of
which 75 are owned, 46 are leased, and four are held through joint ventures..
The paperboard business group has 73 corrugated products plants, six folding
carton plants and nine containerboard machines at four mills. Two of the mills
(located in Georgia and Wisconsin), including substantially all of the
equipment associated with both mills, are leased from third parties.
Additionally, the paperboard business group operates a wood products group
including two hardwood facilities, one pine lumber plant, one air drying
facility for wood, and a joint venture in a chip mill. Two recycled paperstock
facilities provide raw materials for the mills. Tenneco Packaging also has a
minority equity position in two recycled paperboard mills and one recycling
center and brokerage operation.
In January 1997, Tenneco Packaging reached an agreement pursuant to which
another lessor acquired the two mills located in Georgia and Wisconsin
discussed above directly from Tenneco's original lessor and entered into a new
lease with Tenneco Packaging.
Tenneco Packaging's specialty business 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 14 facilities, of which four are
owned, five are leased, and five are held through joint ventures. These
include three folding carton operations, two paperboard honeycomb products
operations, one corrugated container plant and a wood products operation.
Additionally, it also manufactures plastics products at four locations,
aluminum portion packs at one facility, and molded fiber products at two
locations.
TBS
TBS operates out of its headquarters in The Woodlands, Texas, as well as
offices in Evanston, Illinois, Newport News, Virginia and Houston, Texas. The
properties utilized by TBS are leased.
17
<PAGE>
General
Tenneco believes that substantially all of its plants and equipment are, in
general, well maintained and in good operating condition. They are considered
adequate for present needs and as supplemented by planned construction are
expected to remain adequate for the near future.
Tenneco also believes that 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.
ITEM 3. LEGAL PROCEEDINGS.
(1) Environmental Proceedings.
On August 2, 1993, the U.S. Department of Justice filed suit for $1 million
against Tenneco Packaging in the Federal District Court for the Northern
District of Indiana, alleging that wastewater from Tenneco Packaging's molded
fiber products plant in Griffith, Indiana, interfered with or damaged the Town
of Griffith's municipal sewage pumping station on two occasions in 1991 and
1993, resulting in discharges by the Town of Griffith of untreated wastewater
into a river. Tenneco Packaging and the Department of Justice have executed a
Consent Decree which has been lodged with the court, published for public
notice and comment, and submitted to the court for approval. The Consent
Decree will require the Company to pay a civil penalty to the United States of
$200,000 and a civil penalty of $50,000 to the State of Indiana. The Consent
Decree also will require the Company to install up to $250,000 of equipment to
reduce the plant's raw water usage and its wastewater discharge.
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 and the EPA have entered into
a Consent Agreement and Consent Order resolving this administrative
proceedings. The Consent Agreement and Consent Order, which was signed on
January 17, 1997, required the Company to pay a penalty of $95,000.
(2) Potential Superfund Liability.
At February 20, 1997, the Company had been designated as a potentially
responsible party in 4 "Superfund" sites. The Company has estimated its share
of the remediation costs for these sites to be between $6 million and $9
million in the aggregate and has established 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 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 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 sites referenced above will not be material to its consolidated
financial position or results of operations.
For additional information concerning environmental matters, see Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," Item 1. "Business and Properties" and the caption "Environmental
Matters" under Note 14, to the Financial Statements of Tenneco Inc. and
Consolidated Subsidiaries.
18
<PAGE>
(3) Other Proceedings.
The Company and Newport News have received letters from the Defense Contract
Audit Agency (the "DCAA"), inquiring about certain aspects of the
Distributions, including the disposition of the Tenneco Inc. Retirement Plan
(the "TRP"). The DCAA has been advised that (i) the TRP will retain the
liability for all benefits accrued by the Newport News salaried employees
through December 31, 1996, (ii) the Newport News salaried employees will not
accrue additional benefits under the TRP after December 31, 1996, and (iii) no
liabilities or assets of the TRP will be transferred from the TRP to any plan
maintained by Newport News. A determination of the ratio of assets to
liabilities of the TRP attributable to Newport News will be based on facts,
assumptions and legal issues which are complicated and uncertain; however, it
is likely that the U.S. Government will assert a claim against Newport News
with respect to the amount, if any, by which the assets of the TRP
attributable to its employees are alleged to exceed the liabilities. The
Company, with the full cooperation of Newport News, will defend against any
claim by the U.S. Government, and in the event there is a determination that
an amount is due to the U.S. Government, the Company and Newport News will
share the obligation for such amount plus the amount of related defense
expenses, in the ratio of 80% and 20%, respectively. At this preliminary
stage, it is impossible to predict with certainty any eventual outcome
regarding this matter; however, the Company does not believe that this matter
will have a material adverse effect on its consolidated financial position or
results of operations.
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 not have a material adverse effect on the Company's consolidated
financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Prior to the consummation of the Distributions on December 11, 1996, Old
Tenneco indirectly owned 100% of the capital stock of the Company. Pursuant to
four consents dated as of December 11, 1996, the following matters were
submitted to a vote of, and were approved by, the Company's sole stockholder
at the time, Old Tenneco: (i) the authorization to take the actions necessary
to consummate: (x) the Agreement and Plan of Merger dated as of June 19, 1996
between El Paso Natural Gas Company, El Paso Merger Company and Old Tenneco,
(y) the Distribution Agreement dated as of November 1, 1996 among Old Tenneco,
the Company and Newport News and (z) the Debt and Cash Allocation Agreement
among Old Tenneco, the Company and Newport News; (ii) the transfer of debt
obligations of Old Tenneco acquired by the Company to Old Tenneco for funds
equal to the fair market value of the debt issued by the Company to acquire
such debt obligations; (iii) the declaration and payment of a cash dividend on
December 11, 1996 equal to (x) the funds received by the Company from Old
Tenneco in exchange for the debt obligations of Old Tenneco acquired by the
Company and (y) the proceeds of the draw under the Company's new credit
facility; (iv) the adoption of the Restated Certificate of Incorporation of
the Company; (v) the distribution of Common Stock, par value $0.01 per share,
of the Company equal to the number of shares of Common Stock, par value $5.00
per share, of Old Tenneco as of the close of business on December 11, 1996,
less 600; (vi) the amendment of the Restated Certificate of Incorporation upon
consummation of the merger between Old Tenneco and El Paso Merger Company to
change the name of the Company to "Tenneco Inc."; (vii) the adoption of the
Amended and Restated By-Laws of the Company; (viii) the election of (x) Mark
Andrews, W. Michael Blumenthal, Belton K. Johnson, and William L. Weiss as
Class I Directors, (y) M. Kathryn Eickhoff, Peter T. Flawn, John B. McCoy, and
Dana G. Mead as Class II Directors, and (z) Henry U. Harris, Jr., Sir David
Plastow, and Clifton R. Wharton, Jr. as Class III Directors; (ix) the
distribution on December 11, 1996 of shares of Common Stock, par value $0.01
per share, of the Company consisting of the net intercompany receivable owed
to the Company by Old Tenneco; and (x) the adoption of the following plans:
(t) 1996 Tenneco Inc. Stock Ownership Plan, (u) Tenneco Inc. 1997 Employee
Stock Purchase Plan, (v) Tenneco Thrift Plan, (w) Tenneco Thrift Plan for
Hourly Employees, (x) Tenneco Inc. Board of Directors Restricted Stock and
Restricted Unit Program, (y) Tenneco Inc. Board of Directors Restricted Stock
Program, and (z) Tenneco 401(k) Savings Plan for Chippewa Falls.
19
<PAGE>
ITEM 4.1 EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is a list of the executive officers of Tenneco Inc. at March
1, 1997. Each of such officers has served in the capacities indicated below
with Tenneco Inc. (or, for periods prior to the Distributions, with Old
Tenneco) since the dates indicated below:
<TABLE>
<CAPTION>
NAME (AND AGE AT DECEMBER 31, 1996) OFFICES HELD* EFFECTIVE DATE OF TERM
- ----------------------------------- ------------- ----------------------
<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
Paul T. Stecko (52)..... Chief Operating Officer January 1997
Theodore R. Tetzlaff
(52)................... General Counsel July 1992
Stacy S. Dick (40)...... Executive Vice President January 1996
Robert T. Blakely (55).. Executive Vice President May 1996
Chief Financial Officer July 1981
John J. Castellani (45). Executive Vice President January 1997
Barry R. Schuman (55)... Senior Vice President--Human Resources March 1993
Kenneth D. Allen (57)... Vice President March 1987
Theodore Austell, III
(40)................... Vice President--Government Relations January 1997
Ilene S. Gordon (43).... Vice President--Operations May 1994
John L. Howard (39)..... Vice President--Law December 1996
Jack Lascar (42)........ Vice President--Investor Relations July 1994
Mark A. McCollum (37)... Vice President and Controller May 1995
Robert S. McKinney (55). 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
</TABLE>
- --------
* Unless otherwise indicated, all offices held are with Tenneco Inc. (or, for
periods prior to (i) the Distributions, Old Tenneco, and (ii) December
1987, the Company which at the time was known as Tenneco Inc.).
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 in the positions indicated 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; he has served as an
executive officer of Tenneco since March 1992, when he joined Tenneco as Chief
Operating Officer and was elected President one month later; (ii) since 1993
Paul T. Stecko has also been serving as the President and Chief Executive
Officer of Tenneco Packaging; from 1977 to 1993, he was employed by
International Paper Co., last serving as Vice President and General Manager of
Publications Papers, Bristols and Converting Papers; (iii) Theodore R.
Tetzlaff has been a partner in the law firm of Jenner & Block, Chicago, for
more than five years; (iv) from 1985 to 1992, Stacy S. Dick was employed by
The First Boston Corporation, last serving in the capacity of Managing
Director; from August 1992 to January 1996 he served as Senior Vice
President--Strategy of Tenneco; (v) from 1980 to 1992, John J. Castellani was
employed by TRW Inc., last serving in the capacity of Vice President of
Government Relations; from August 1992 to March 1995 he served as Vice
President--Government Relations of Tenneco and from March 1995 to January 1997
he served as Senior Vice President--Government Relations of Tenneco; (vi) from
1988 until his employment by Tenneco in 1992, Barry R. Schuman was employed by
Union Pacific Railroad Company, last
20
<PAGE>
serving in the capacity of Vice President of Human Resources; (vii) Theodore
Austell III joined Tenneco in 1992 as Director of Federal Relations, and from
1996 to 1997 he served as Executive Director of Government Relations; (viii)
from 1988 to 1990 John L. Howard served as Associate Deputy Attorney General
at the United States Department of Justice, and from 1990 to 1993 he served as
Counsel to the Vice President of the United States and General Counsel and
Ethics Advisor for the Office of the Vice President and for the President's
Council on Competitiveness; from 1993 to 1995 he served as Senior Corporate
Counsel, and from 1995 to 1996 he served as Assistant General Counsel, of
Tenneco; (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;
(x) from 1990 to May 1996 Robert S. McKinney was chief information officer and
a member of the board of directors of Paine Webber, and (xi) 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. For purposes of
the preceding sentence, "Tenneco" refers to Old Tenneco for periods prior to
the Distributions and to Tenneco Inc. for periods after the Distributions.
Tenneco Inc.'s Board of Directors is divided into three classes of directors
serving staggered three-year terms, with a minimum of eight directors and a
maximum of sixteen directors. At each annual meeting of stockholders,
successors to the directors whose terms expire at such meeting are elected.
Officers are elected at the annual meeting of directors held immediately
following the annual meeting of stockholders.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The outstanding shares of Common Stock, par value $.01 per share, of Tenneco
Inc. (the "Common Stock") are listed on the New York, Chicago, Pacific and
London Stock Exchanges.
The Common Stock began "regular way" trading on the New York Stock Exchange
on December 12, 1996 (the business day immediately following the
Distributions). See "Business--Tenneco Inc." The following table sets forth
the high and low sales prices of Common Stock on the New York Stock Exchange
Composite Transactions Tape, and the dividends paid per share of Common Stock:
(i) for the Company after the Distributions and Merger and (ii) for Old
Tenneco prior to the Distributions and Merger.
<TABLE>
<CAPTION>
SALE PRICES
-------------
DIVIDENDS
QUARTER HIGH LOW PAID
------- ------ ------ ---------
<S> <C> <C> <C>
1996
1st 57 7/8 47 5/8 .45
2nd 57 5/8 49 5/8 .45
3rd 51 7/8 45 5/8 .45
4th (thru 12/11) 52 5/8 46 1/2 .45
4th (after 12/11) 47 1/2 43 3/8 --
1995
1st 47 3/8 42 1/4 .40
2nd 48 5/8 45 1/8 .40
3rd 50 1/4 44 7/8 .40
4th 50 3/8 41 7/8 .40
</TABLE>
As of January 31, 1997, there were approximately 95,570 holders of record,
including brokers and other nominees.
The declaration of dividends on Tenneco capital stock is at the discretion
of its Board of Directors. The Board has not adopted a dividend policy as
such; subject to legal and contractual restrictions, its decisions regarding
dividends are based on all considerations that in its business judgment are
relevant at the time,
21
<PAGE>
including past and projected earnings, cash flows, economic, business and
securities market conditions and anticipated developments concerning Tenneco's
business and operations. For additional information concerning the payment of
dividends by Tenneco, see Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Under applicable corporate law, dividends may be paid by Tenneco out of
"surplus" (as defined under the law) or, if there is not a surplus, out of net
profits for the year in which the dividends are declared or the preceding
fiscal year. At December 31, 1996, Tenneco had surplus of approximately $2.6
billion for the payment of dividends, and Tenneco will also be able to pay
dividends out of any net profits for the current and prior fiscal year.
22
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------
1996(A) 1995(A) 1994(A) 1993 1992
----------- ----------- ----------- ----------- -----------
(MILLIONS EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME
(LOSS) DATA(B):
Net sales and operating
revenues from
continuing
operations--
Automotive............ $ 2,980 $ 2,479 $ 1,989 $ 1,785 $ 1,763
Packaging............. 3,602 2,752 2,184 2,042 2,078
Intergroup sales and
other................ (10) (10) (7) (7) (5)
----------- ----------- ----------- ----------- -----------
Total................. $ 6,572 $ 5,221 $ 4,166 $ 3,820 $ 3,836
=========== =========== =========== =========== ===========
Income from continuing
operations before
interest expense,
income taxes and
minority interest--
Automotive............ $ 249 $ 240 $ 223 $ 222 $ 237
Packaging............. 401 430 209 139 221
Other................. (22) 2 24 20 7
----------- ----------- ----------- ----------- -----------
Total................. 628 672 456 381 465
Interest expense (net
of interest
capitalized).......... 195 160 104 101 102
Income tax expense..... 194 231 114 115 154
Minority interest...... 21 23 -- -- --
----------- ----------- ----------- ----------- -----------
Income from continuing
operations............ 218 258 238 165 209
Income (loss) from
discontinued
operations, net of
income tax(d)......... 428 477 214 (c) 286 (c) (821)(c)
Extraordinary loss, net
of income tax......... (236)(e) -- (5) (25) (12)
Cumulative effect of
changes in accounting
principles, net of
income tax............ -- -- (39)(f) -- (699)(f)
----------- ----------- ----------- ----------- -----------
Net income (loss)...... 410 735 408 426 (1,323)
Preferred stock
dividends............. 12 12 12 14 16
----------- ----------- ----------- ----------- -----------
Net income (loss) to
common stock.......... $ 398 $ 723 $ 396 $ 412 $ (1,339)
=========== =========== =========== =========== ===========
Average number of
shares of common stock
outstanding........... 170,635,277 173,995,941 180,084,909 168,772,852 144,110,151
Earnings (loss) per
average share of
common stock--
Continuing operations. $ 1.28 $ 1.48 $ 1.32 $ .98 $ 1.45
Discontinued
operations........... 2.43 2.68 1.13 1.61 (5.80)
Extraordinary loss.... (1.38) -- (.03) (.15) (.08)
Cumulative effect of
changes in accounting
principles........... -- -- (.22) -- (4.86)
----------- ----------- ----------- ----------- -----------
Net earnings (loss)... $ 2.33 $ 4.16 $ 2.20 (h) $ 2.44 (h) $ (9.29)(h)
=========== =========== =========== =========== ===========
Cash dividends per
common share.......... $ 1.80 $ 1.60 $ 1.60 $ 1.60 $ 1.60
BALANCE SHEET DATA(B):
Net assets of
discontinued
operations............ $ -- $ 1,045 $ 1,858 $ 2,008 $ 1,329
Total assets........... 7,587 7,413 5,853 5,097 4,229
Short-term debt(g)..... 236 384 108 94 182
Long-term debt(g)...... 2,067 1,648 1,039 1,178 1,675
Minority interest...... 304 301 301 1 1
Shareowners' equity.... 2,646 3,148 2,900 2,601 1,330
STATEMENT OF CASH FLOWS
DATA(B):
Net cash provided
(used) by operating
activities............ $ 253 $ 1,443 $ 450 $ 1,615 $ 929
Net cash provided
(used) by investing
activities............ (693) (1,146) (117) (338) 105
Net cash provided
(used) by financing
activities............ 147 (356) (151) (1,166) (1,136)
Capital expenditures
for continuing
operations............ (573) (562) (280) (217) (159)
</TABLE>
23
<PAGE>
- --------
(a) For a discussion of the significant items affecting comparability of the
financial information for 1996, 1995 and 1994, see Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
See also Note 1 to the Financial Statements of Tenneco Inc. and
Consolidated Subsidiaries for a discussion of the Merger and Distributions
transactions.
(b) During the years presented, Tenneco completed numerous acquisitions, the
most significant of which were Tenneco Packaging's acquisition of Mobil
Plastics for $1.3 billion in late 1995 and Amoco Foam Products for $310
million in August 1996, and Tenneco Automotive's acquisition of Clevite
for approximately $328 million in July 1996. See Note 3 to the Financial
Statements of Tenneco Inc. and Consolidated Subsidiaries.
(c) Includes a restructuring charge of $920 million related to the
discontinued farm and construction equipment business in 1992 reduced by
$20 million in 1993 and $16 million in 1994.
(d) Discontinued operations reflected in the above periods includes Tenneco's
energy and shipbuilding operations, which, as a result of the Merger and
Distributions, respectively, were treated as discontinued in December
1996, its farm and construction equipment operations, which were
discontinued in March 1996, its chemicals and brakes operations, which
were discontinued during 1994, and its minerals and pulp chemicals
operations, which were discontinued in 1992.
(e) Represents the extraordinary loss recognized in the realignment of
Tenneco's consolidated indebtedness preceding the Merger and
Distributions. See Notes 4 and 5 to the Financial Statements of Tenneco
Inc. and Consolidated Subsidiaries.
(f) In 1994, Tenneco adopted FAS No. 112, "Employers' Accounting for
Postemployment Benefits". In 1992, Tenneco adopted FAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions,"
and FAS No. 109, "Accounting for Income Taxes."
(g) Amounts for 1995 and prior years are net of allocations for corporate debt
to the net assets of the discontinued energy and shipbuilding operations.
The allocation is based on the proportion of Tenneco's investment in the
energy operations' and shipbuilding operations' net assets to Tenneco
consolidated net assets plus debt. See Note 5 to the Financial Statements
of Tenneco Inc. and Consolidated Subsidiaries.
(h) For purposes of computing earnings per share, Series A preferred stock was
included in average common shares outstanding until its conversion into
common stock in December 1994; therefore, the preferred dividends paid
were not deducted from net income (loss) to determine net income (loss) to
common stock. The inclusion of Series A preferred stock in the computation
of earnings per share was antidilutive for the years and certain quarters
in 1994, 1993 and 1992. Other convertible securities and common stock
equivalents outstanding during each of the five years ended December 31,
1996, 1995, 1994, 1993, and 1992 were not materially dilutive.
24
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following review of Tenneco's financial condition and results of
operations should be read in conjunction with the financial statements and
related notes of Tenneco Inc. and Consolidated Subsidiaries presented on pages
39 to 72.
THE MERGER AND DISTRIBUTIONS
The Company was incorporated August 26, 1996 under the name of "New Tenneco
Inc." as a wholly-owned subsidiary of the company then known as Tenneco Inc.
("Old Tenneco"). The Company was formed to facilitate Old Tenneco's corporate
transformation from a highly diversified industrial corporation to a global
manufacturing company focused on its automotive and packaging businesses. As
part of this transformation, Old Tenneco undertook a series of transactions
during 1996 to reorganize its historical businesses (the "Transaction") such
that the assets, liabilities, and operations of its automotive ("Tenneco
Automotive"), packaging ("Tenneco Packaging"), and administrative services
businesses, (individually, "Tenneco Business Services" and collectively with
Tenneco Automotive and Tenneco Packaging, the "Industrial Business") were
owned and operated by the Company and the assets, liabilities, and operations
of its shipbuilding business (the "Shipbuilding Business") were owned and
operated by Newport News Shipbuilding Inc. ("Newport News"), another wholly-
owned subsidiary of Old Tenneco. On December 11, 1996, Old Tenneco spun-off
the Company and Newport News by distributing all of the common stock of each
company to Old Tenneco's shareowners (the "Distributions"). Following the
Distributions, on December 12, 1996, an indirect subsidiary of El Paso Natural
Gas Company ("El Paso") was merged (the "Merger") into Old Tenneco, which then
consisted solely of Old Tenneco's remaining active businesses, principally in
the energy industry, and certain discontinued operations (the "Energy
Business"), with Old Tenneco surviving the Merger as a subsidiary of El Paso.
Immediately subsequent to the Merger, Old Tenneco was renamed "El Paso
Tennessee Pipeline Co.", and New Tenneco was renamed "Tenneco Inc."
In preparation for the Merger and Distributions, Old Tenneco realigned $3.8
billion of indebtedness (the "Debt Realignment") through various cash tender
offers, debt exchanges, defeasances, and other retirements. The cash funding
required to consummate the Debt Realignment was financed through internally
generated cash, borrowings under new credit facilities of both Old Tenneco and
New Tenneco, borrowings under a new credit facility and other financings at
Newport News, and proceeds from the issuance by Old Tenneco of its 8%
cumulative junior preferred stock ("NPS Preferred Stock"). See Note 5 to
Tenneco Inc. and Consolidated Subsidiaries Financial Statements.
In connection with the Distributions, one share of New Tenneco common stock
($.01 par value) was issued for each share of Old Tenneco common stock ($5.00
par value) and one share of Newport News common stock was issued for each five
shares of Old Tenneco common stock. Also, in connection with the Merger, Old
Tenneco shareowners received shares of El Paso common stock valued at
approximately $914 million in the aggregate in exchange for their shares of
Old Tenneco common and preferred stock. See Notes 8 and 9 to Tenneco Inc. and
Consolidated Subsidiaries Financial Statements.
New Tenneco principally consists of Tenneco Automotive and Tenneco
Packaging, which combined represented over half of the assets, revenues, and
operating income of the businesses, operations, and companies previously
constituting Old Tenneco. Consequently, the following Management's Discussion
and Analysis of Financial Condition and Results of Operations, and the
consolidated financial statements included elsewhere herein present the net
assets and results of operations of the Shipbuilding Business and the Energy
Business as discontinued operations of New Tenneco. See Note 4 to Tenneco Inc.
and Consolidated Subsidiaries Financial Statements.
Unless the context otherwise requires, references to "Tenneco" or the
"Company" are to (i) Old Tenneco and its consolidated subsidiaries (treating,
however, the Shipbuilding Business and Energy Business as discontinued
operations) for all periods prior to the close of business on December 11,
1996, the effective date
25
<PAGE>
of the Distributions and (ii) Tenneco Inc. (formerly known as New Tenneco
Inc.) and its consolidated subsidiaries for all periods subsequent to December
11, 1996.
YEARS 1996 AND 1995
RESULTS OF OPERATIONS
Tenneco's income from continuing operations for 1996 was $218 million,
compared with $258 million in 1995. Record results from Tenneco Automotive and
Tenneco Packaging's specialty business were offset by declines in results at
Tenneco Packaging's paperboard business, due largely to significantly weaker
containerboard prices, and charges related to realignment actions at Tenneco
Automotive and Tenneco Packaging and costs associated with the Transaction.
Earnings per share from continuing operations were $1.28 per average common
share in 1996, compared with $1.48 per average common share in 1995. Average
common shares outstanding for 1996 were 171 million, a 2 percent decrease from
the prior year, resulting primarily from Tenneco's share repurchase programs.
See Note 8 to Tenneco Inc. and Consolidated Subsidiaries Financial Statements.
In 1996, Tenneco recorded income from discontinued operations of $428 million,
or $2.43 per average common share, compared with $477 million, or $2.68 per
average common share, in 1995 related to the discontinued operations of the
Energy Business, the Shipbuilding Business, and the farm and construction
equipment business.
An extraordinary loss for 1996 of $236 million, or $1.38 per average common
share, was incurred in connection with the Debt Realignment. Net income to
common stock for 1996 was $398 million, or $2.33 per average common share,
compared with net income to common stock of $723 million, or $4.16 per average
common share, for 1995.
NET SALES AND OPERATING REVENUES
<TABLE>
<CAPTION>
%
1996 1995 CHANGE
------- ------ ------
(MILLIONS)
<S> <C> <C> <C>
Tenneco Automotive ..................................... $ 2,980 $2,479 20%
Tenneco Packaging....................................... 3,602 2,752 31%
Intergroup sales and other.............................. (10) (10) --
------- ------ ---
$ 6,572 $5,221 26%
======= ====== ===
</TABLE>
Net sales and operating revenues for 1996 increased $1,351 million to $6,572
million, compared with $5,221 million in 1995. This increase was due primarily
to strong market conditions in the automotive parts industry and revenues from
businesses acquired in late 1995 and 1996. Record revenues were reported at
Tenneco Automotive and by the specialty business of Tenneco Packaging.
INCOME BEFORE INTEREST EXPENSE, INCOME TAXES, AND MINORITY INTEREST (OPERATING
INCOME)
<TABLE>
<CAPTION>
%
1996 1995 CHANGE
---- ---- ------
(MILLIONS)
<S> <C> <C> <C>
Tenneco Automotive............................................ $249 $240 4%
Tenneco Packaging............................................. 401 430 (7%)
Other......................................................... (22) 2 NM
---- ---- ---
$628 $672 (7%)
==== ==== ===
</TABLE>
Operating income for 1996 decreased $44 million to $628 million, compared
with $672 million in 1995. Tenneco Packaging's specialty business reported
record results due primarily to the results of the recent
26
<PAGE>
acquisitions of the foam products and plastics businesses. See Note 3 to
Tenneco Inc. and Consolidated Subsidiaries Financial Statements. Tenneco
Automotive reported record operating income as a result of strong volumes,
recent acquisitions, and operating cost initiatives in both the ride control
and exhaust systems businesses. Also, Tenneco realized gains on sales of
assets and businesses in 1996 that were in excess of amounts earned in 1995.
These increases were offset by lower operating income at Tenneco Packaging's
paperboard business due to lower containerboard prices, costs related to the
realignment actions at Tenneco Automotive and Tenneco Packaging, and costs
related to the acceleration of certain employee benefits in connection with
the Transaction. The results of Tenneco Automotive and Tenneco Packaging are
separately discussed below.
Significant transactions affecting the comparability of operating income
between 1996 and 1995 are:
. Pre-tax gains on sales of assets and businesses of $64 million in 1996
(primarily the sale of two recycled paperboard mills and a recycling center
and brokerage operation), compared with gains of $15 million in 1995
(primarily from the sale of a recycled medium mill in North Carolina);
. A pre-tax charge of $17 million in 1996 related to the acceleration of
certain employee benefits in connection with the Transaction;
. A pre-tax charge of $64 million in 1996 to (i) streamline the original
equipment and aftermarket manufacturing operations of the exhaust systems
business in Europe and the aftermarket operations of the exhaust systems
business in North America; and (ii) realign Tenneco Automotive's ride
control product line;
. A pre-tax charge of $6 million in 1996 to reorganize Tenneco
Packaging's folding carton operations;
. A pre-tax charge of $30 million in 1995 to reorganize Tenneco
Packaging's molded fiber and aluminum foil packaging operations; and
. A pre-tax charge of $10 million in 1995 for start-up costs associated
with Tenneco Automotive's hydroforming process in connection with new
product launches.
TENNECO AUTOMOTIVE
<TABLE>
<CAPTION>
%
1996 1995 CHANGE
------ ------ ------
(MILLIONS)
<S> <C> <C> <C>
Revenues .................................................. $2,980 $2,479 20%
Operating Income........................................... $ 249 $ 240 4%
</TABLE>
Revenues in 1996 from Tenneco Automotive's exhaust systems business
increased $233 million to $1,699 million, compared with $1,466 million in
1995. Revenues generated by the exhaust systems business in North America
increased $140 million in 1996. Approximately $92 million of this increase was
due to increased sales in the North American original equipment ("OE") market,
as Tenneco Automotive initiated a significant number of new product launches
in 1996. The $48 million, or 14 percent, increase in North American
aftermarket exhaust systems revenues resulted primarily from gains in overall
market share. In Europe, exhaust systems revenues increased $82 million due to
increased sales to manufacturers, such as Mercedes, Porsche and Volkswagen.
European aftermarket exhaust systems revenues increased $25 million over 1995
revenues primarily in Spain as a result of a 1995 third quarter acquisition.
Operating income for the exhaust systems business in 1996 increased $6
million to $120 million, compared with $114 million in 1995. The 1996 results
included a charge of $40 million to streamline the OE market and aftermarket
manufacturing operations in Europe and the aftermarket operations in North
America. Excluding the 1996 realignment charge and the $10 million of higher
than usual 1995 start up costs, 1996 operating income increased $36 million to
$160 million. This 29 percent increase resulted primarily from increased
volumes and manufacturing and distribution efficiencies achieved through
streamlining distribution and product consolidations.
27
<PAGE>
Revenues in 1996 from Tenneco Automotive's ride control business increased
by $268 million to $1,281 million, compared with $1,013 million in 1995. Sixty
percent, or $161 million, of this increase resulted from higher sales volume
in the North American and European OE markets, driven by both new contracts
and the mid-year acquisition of The Pullman Company and its Clevite products
division ("Clevite"). Clevite contributed $96 million of revenues in the North
American OE market. See Note 3 to Tenneco Inc. and Consolidated Subsidiaries
Financial Statements. Worldwide aftermarket revenues increased $81 million, or
12 percent, due mainly to aggressive Sensa-Trac(R) marketing programs. In
Europe, the success of ride control's premium product strategy resulted in the
near-quadrupling of the Sensa-Trac(R) sales mix from 1995. Revenues in Mexico
nearly tripled in 1996, and Canada reported an increase of 25 percent,
compared with 1995.
Operating income for the ride control business in 1996 increased $3 million
to $129 million, compared with $126 million in 1995. These results included a
charge of $24 million to realign the ride control product line. Excluding the
realignment charge, operating income increased $27 million to $153 million.
This higher operating income resulted from increased revenues from volumes,
better product mix driven by Sensa-Trac(R) and continued focus on operating
cost leadership.
Tenneco Automotive's margins decreased to 8.4 percent in 1996, compared with
9.7 percent in 1995 due to the 1996 realignment charges. Excluding the
realignment charges, margins improved to 10.5 percent in 1996.
TENNECO AUTOMOTIVE'S DISTRIBUTION OF REVENUES
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Aftermarket........................................................... 50% 53%
OE Market............................................................. 50% 47%
</TABLE>
OUTLOOK
In 1997, both the exhaust systems business and ride control business are
expected to continue to gain new supply contracts for OE platforms in the
United States, primarily in sport utility vehicles and light trucks. This
should allow Tenneco Automotive to show continued improvement in the OE
market.
In the aftermarket, the exhaust systems business should continue to benefit
from industry consolidation and thereby gain market share in 1997 through new
contracts and product introductions, as well as continued penetration of niche
markets, such as heavy duty exhausts, high performance products and catalytic
converters. The 1997 outlook for the ride control business is also positive.
The base business continues to benefit from the growing popularity and demand
for Sensa-Trac(R) products.
In 1997, new European product launches are scheduled for six additional
vehicles, including the Volkswagen platform (Golf successor) and GM's Opel T-
Car (Astra successor). In the European aftermarket, improved sales mix,
combined with penetration from new product introductions and continued
operating cost reductions, should allow Tenneco Automotive to post increased
earnings in 1997.
This "Outlook" section contains forward-looking statements. See "Cautionary
Statement for Purposes of "Safe Harbor' Provisions of the Private Securities
Litigation Reform Act of 1995" for a description of certain factors that could
cause actual results to differ from anticipated results and other matters.
TENNECO PACKAGING
<TABLE>
<CAPTION>
%
1996 1995 CHANGE
------ ------ ------
(MILLIONS)
<S> <C> <C> <C>
Revenues .................................................. $3,602 $2,752 31%
Operating Income........................................... $ 401 $ 430 (7%)
</TABLE>
28
<PAGE>
Tenneco Packaging's specialty business reported record results in 1996 as
revenues increased $1,078 million to $1,902 million, compared with $824
million in 1995. This increase was driven by the recently acquired plastics
and foam products businesses which combined contributed revenues of $1,164
million in 1996, compared with $106 million of revenues contributed by the
plastics business in 1995. See Note 3 to Tenneco Inc. and Consolidated
Subsidiaries Financial Statements.
The specialty business earned $237 million in operating income for 1996, an
increase of $176 million, excluding a 1995 restructuring charge of $30 million
for molded fiber and aluminum foil packaging operations. The plastics and foam
products businesses contributed operating income of $150 million in 1996,
compared with only $15 million contributed by the plastics business in 1995.
Excluding the 1995 restructuring charge, operating margins improved 5
percentage points to 12.5 percent as a result of three major factors: volume
growth, primarily through acquisitions, enriched product mix, and reduced
costs by combining acquired businesses with pre-existing operations. The major
contributors to reduced operating costs were lower prices for both polystyrene
and aluminum.
The paperboard business reported revenues in 1996 of $1,700 million,
compared with $1,928 million in 1995. Revenues were lower as a result of
weaker containerboard prices, which averaged 27 percent less compared with
1995. As a result, 1996 operating income declined $265 million to $120
million, compared with $385 million in 1995, excluding gains on asset sales
and a $6 million realignment charge for the folding carton operations.
Including asset sales and the 1996 realignment charge, operating income was
$164 million in 1996, compared with $399 million in 1995. Volume increases of
2 percent and a better mix of higher value added and enhanced graphics
business partially offset the softness in containerboard prices. The
paperboard business reported a $50 million pre-tax gain in 1996 from the sale
of the two recycled paperboard mills and a recycling center and brokerage
operation to a joint venture with Caraustar Industries, while 1995 included a
$14 million pre-tax gain from the sale of a recycled medium mill in North
Carolina.
TENNECO PACKAGING'S DISTRIBUTION OF REVENUES
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Paperboard Business................................................... 47% 70%
Specialty Business.................................................... 53% 30%
</TABLE>
OUTLOOK
As a result of acquisitions and operational changes made in 1995 and 1996,
Tenneco Packaging has a much higher margin product base and expects continued
strong revenues and operating income in the specialty business in 1997, as
well as continued margin expansion.
Profitability of the specialty business is expected to continue to improve
in 1997 due primarily to volume growth, product mix management and cost
leverage. Continued consumer shifts toward convenience packaging are expected
to generate strong market growth in Tenneco Packaging's key market segments.
Volume growth in the consumer market is expected to continue to come from
product innovations such as Hefty OneZip(R) food storage bags, further
reinforcing Tenneco Packaging's increasingly strong position in that market.
Additionally, the specialty business is expected to benefit from a full year
of ownership of the foam products business along with acquisition integration
actions and synergies.
In the paperboard business, the industry outlook for containerboard remains
uncertain. Industry fundamentals show signs of improvement. Box demand
continues to strengthen, increasing nearly 5 percent in the fourth quarter
over 1995, while containerboard exports surged 80 percent in the same period.
Sustained economic growth coupled with slower capacity expansion should
contribute to market improvements.
29
<PAGE>
Looking forward, Tenneco Packaging remains committed to further reducing
cyclicality by entering select new markets or expanding existing operations in
value-added packaging while improving internal operating efficiencies.
This "Outlook" section contains forward looking statements. See "Cautionary
Statement for Purposes of "Safe Harbor' Provisions of the Private Securities
Litigation Reform Act of 1995" for a description of certain factors that could
cause actual results to differ from anticipated results and other matters.
OTHER
Tenneco reported other operating loss of $22 million for 1996, compared with
$2 million of operating income in 1995. The 1996 loss included a $17 million
charge related to the acceleration of certain employee benefits in connection
with the Transaction.
INTEREST EXPENSE (NET OF INTEREST CAPITALIZED)
Tenneco's 1996 interest expense was $195 million, compared with $160 million
in 1995. This increase resulted primarily from the funding of acquisitions,
including Clevite and the foam products business in 1996 and the plastics
business in late 1995. Interest capitalized was $6 million in 1996, compared
with $5 million in 1995.
INCOME TAXES
The 1996 effective tax rate was 44.8 percent, compared with 45.1 percent in
1995. The 1996 effective tax rate was higher than the federal statutory tax
rate due primarily to the realignment costs incurred in the European
operations of Tenneco Automotive's exhaust systems business, which were not
fully tax benefited, nondeductible goodwill, and state income taxes.
MINORITY INTEREST
Minority interest was $21 million in 1996, compared with $23 million in
1995, which related to dividends on preferred stock of a U.S. subsidiary for
both years. See Note 10 to Tenneco Inc. and Consolidated Subsidiaries
Financial Statements.
DISCONTINUED OPERATIONS AND EXTRAORDINARY LOSS
Income from discontinued operations in 1996 of $428 million, net of income
tax expense of $129 million, or $2.43 per average common share, reflected the
net income of the Energy Business and the Shipbuilding Business through
December 11, 1996, prior to the consummation of the Merger and the
Distributions, respectively. Income from discontinued operations for 1996 also
included Tenneco's share of the net loss of the farm and construction
equipment business. Additionally, income from discontinued operations included
a $340 million gain, net of income tax expense of $83 million, on the sale of
Tenneco's remaining investment in Case Corporation ("Case"), and transaction
costs--consisting primarily of financial advisory, legal, accounting,
printing, and other costs--of $108 million, net of an income tax benefit of
$17 million, that were incurred in connection with the Transaction.
Income from discontinued operations for the Energy Business in 1996 was $127
million, net of income tax expense of $32 million. Income from discontinued
operations for the Shipbuilding Business in 1996 was $70 million, net of
income tax expense of $32 million. Loss from discontinued operations for the
farm and construction equipment business was $1 million for 1996, net of an
income tax benefit of $1 million.
Income from discontinued operations in 1995 was $477 million, net of income
tax expense of $30 million, or $2.68 per average common share, and was
attributable to the operations of the Energy Business, the
30
<PAGE>
Shipbuilding Business, and the farm and construction equipment business. The
1995 discontinued operations also included a gain from the sale of Case stock
of $101 million and a $32 million gain from the sale of a Case subordinated
note, net of income tax expense of $2 million.
Income from discontinued operations for the Energy Business in 1995 was $158
million, net of an income tax benefit of $11 million. Income from discontinued
operations for the Shipbuilding Business in 1995 was $73 million, net of
income tax expense of $58 million. Income from discontinued operations for the
farm and construction equipment business in 1995 was $113 million, net of an
income tax benefit of $19 million.
Extraordinary loss for 1996 was $236 million, net of income tax benefit of
$126 million, or $1.38 per average common share. The extraordinary loss was
incurred as a result of the Debt Realignment and consists principally of the
fair value paid in the cash tender offers and the fair value of debt exchanged
in the debt exchange offers in excess of the historical net carrying value for
the debt tendered and exchanged. See Note 4 to Tenneco Inc. and Consolidated
Subsidiaries Financial Statements for additional information.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
<TABLE>
<CAPTION>
1996 1995
---- ------
(MILLIONS)
<S> <C> <C>
Cash provided (used) by:
Operating activities............................................ $253 $1,443
Investing activities............................................ (693) (1,146)
Financing activities............................................ 147 (356)
</TABLE>
OPERATING ACTIVITIES
Operating cash flows from continuing operations for 1996 increased $113
million, compared with 1995. This increase was due primarily to improvements
in the working capital of continuing businesses which contributed $131 million
to the higher operating cash flows. Inventory growth declined in 1996 at both
Tenneco Automotive and Tenneco Packaging from streamlining product
distribution and implementing new programs to minimize inventory levels.
Operating cash flows from discontinued operations declined $1,303 million in
1996, compared with 1995, due to tax payments for the settlement of tax
liabilities, lower sales of trade accounts receivable and gas contract
settlements at the Energy Business of $318 million.
INVESTING ACTIVITIES
Cash used for acquisitions of businesses during 1996 of $789 million
resulted primarily from the acquisitions of Amoco Foam Products for $310
million and Clevite for $328 million. Tenneco also invested $573 million in
capital expenditures in its continuing businesses and $357 million in its
discontinued operations during 1996. Capital expenditures in continuing
businesses included $177 million for Tenneco Automotive, $341 million for
Tenneco Packaging, and $55 million for Tenneco Business Services and other
operations.
For Tenneco Packaging, these expenditures included $14 million for a sawmill
and wood products business in Romania, $36 million to expand production
capacity of polystyrene foam products for the foodservice disposables and
consumer plate businesses, $12 million for the customer-linked manufacturing
system of the specialty business and $10 million to complete improvements to a
paper machine at the Counce, Tennessee, mill.
Tenneco Automotive's capital spending included $22 million related to new OE
business and $32 million for systems integration and automation projects. In
addition, Tenneco Automotive's spending also included $8 million to expand
capacity and take advantage of synergies related to recent acquisitions.
31
<PAGE>
Net proceeds related to the sale of discontinued operations of $1,051
million in 1996 resulted primarily from the sale of the remaining Case common
stock for $788 million along with proceeds from the sale of a pipeline
interest. Net proceeds related to the sale of discontinued operations in 1995
resulted from the sale of Albright & Wilson chemicals operations, the sale of
Case common stock, and the sale of a Case subordinated note.
Net proceeds from sales of businesses and assets during 1996 were $149
million, which included $115 million from the sale of two recycled paperboard
mills and a recycling center and brokerage operation to a joint venture with
Caraustar Industries.
FINANCING ACTIVITIES
Cash flows from financing activities were $147 million in 1996, which
included the issuance of $2.8 billion of long-term debt, issuance of the NPS
Preferred Stock of $296 million, repayment of net short-term debt of $221
million, and the early retirement of $2.3 billion of long-term debt in
connection with the consummation of the Debt Realignment and the other
components of the Transaction. Tenneco also used cash flows during 1996 to
reacquire its common stock for $172 million and to pay $313 million in
dividends on its common and preferred stock. In 1995, Tenneco had a net
increase of $503 million in debt (primarily related to the funding of
acquisitions), reacquired common stock of $655 million, and paid dividends on
its common and preferred stock of $286 million.
CHANGE IN ACCOUNTING PRINCIPLES
In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position 96-1 "Environmental Remediation Liabilities,"
which establishes new accounting and reporting standards for the recognition
and disclosure of environmental remediation liabilities. The provisions of the
statement are effective for fiscal years beginning after December 15, 1996.
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 these new standards is not expected to have a
significant effect on Tenneco's financial position or results of operations.
LIQUIDITY
At December 31, 1996, Tenneco's principal credit facility was a $1.75
billion committed financing arrangement with a syndicate of banks and other
financial institutions which expires in 2001. Committed borrowings under this
credit facility bear interest at an annual rate equal to, at the borrower'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 based on the credit
rating of Tenneco's long-term debt; or (iii) a rate based on money market
rates pursuant to competitive bids by the syndicate banks.
The credit facility requires that Tenneco's ratio of debt to total
capitalization not exceed 70%. Compliance with this requirement is a condition
for any incremental borrowings under the credit facility and failure to meet
the requirement enables the syndicate banks to require repayment of any
outstanding loans after a 30-day cure period. In addition, the credit facility
imposes certain other restrictions, none of which are expected to limit
Tenneco's ability to operate its businesses in the ordinary course.
32
<PAGE>
CAPITAL COMMITMENTS
Tenneco estimates that expenditures of approximately $350 million will be
required after December 31, 1996, to complete facilities and projects
authorized at such date, and substantial commitments have been made in
connection therewith. This amount includes approximately $97 million which
Tenneco Packaging intends to spend 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.
Also included in capital commitments is $40 million which Tenneco Automotive
anticipates that it will spend on expansion of businesses acquired in 1995 and
1996, and $24 million to complete systems development and implementation
effects at Tenneco Business Services supporting the consolidation of common
administrative transactions.
Tenneco believes it has adequate resources available to finance its future
requirements, including capital expenditures for existing operations plus
potential strategic acquisitions.
CAPITALIZATION
<TABLE>
<CAPTION>
%
1996 1995 CHANGE
------ ------ ------
(MILLIONS)
<S> <C> <C> <C>
Short-term debt and current maturities..................... $ 236 $ 384 (39%)
Long-term debt............................................. 2,067 1,648 25%
Minority interest.......................................... 304 301 1%
Common shareowners' equity................................. 2,646 3,148 (16%)
------ ------ ----
Total capitalization..................................... $5,253 $5,481 (4%)
====== ====== ====
</TABLE>
The primary reason for the increase in debt is the issuance of debt for the
Amoco Foam Products and Clevite acquisitions. Tenneco's ratio of debt to total
capitalization was 43.8 percent at December 31, 1996, compared with 37.1
percent at December 31, 1995. Tenneco's shareowners' equity decreased during
1996 primarily as a result of the Transaction.
DIVIDENDS ON COMMON STOCK
Tenneco Inc. declared dividends on its common shares of $.45 per share for
each quarter in 1996. Following the Merger and Distributions, in December
1996, the Board of Directors declared a dividend of $.30 per share for the
first quarter of 1997. Declaration of dividends is at the discretion of the
Board of Directors. The Board has not adopted a dividend policy as such.
Subject to legal and contractual restrictions, its decisions regarding
dividends are 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 Tenneco's business and operations.
ENVIRONMENTAL MATTERS
Tenneco and certain of its subsidiaries and affiliates are parties to
environmental proceedings. Expenditures for ongoing compliance with
environmental regulations that relate to current operations are expensed or
capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations, and 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
33
<PAGE>
new information. These liabilities are included in the balance sheet at their
undiscounted amounts. Recoveries are evaluated separately from the liability
and, when assured, are recorded and reported separately from the associated
liability in the financial statements.
At February 20, 1997, Tenneco had been designated as a potentially
responsible party in 4 "Superfund" sites. Tenneco has estimated its share of
the remediation costs for these sites to be between $6 million and $9 million
in the aggregate and has established reserves that it believes are adequate
for such costs. Because the clean-up costs are estimates and are subject to
revision as more information becomes available about the extent of remediation
required, Tenneco's estimate of its remediation costs could change. Moreover,
liability under the Comprehensive Environmental Response, Compensation and
Liability Act is joint and several, meaning that Tenneco could be required to
pay in excess of its share of remediation costs. Tenneco's understanding of
the financial strength of other potentially responsible parties has been
considered, where appropriate, in Tenneco's determination of its estimated
liability. Tenneco believes that the costs associated with its current status
as a potentially responsible party in the Superfund sites referenced above
will not be material to its consolidated financial position or results of
operations.
YEARS 1995 AND 1994
RESULTS OF OPERATIONS
NET SALES AND OPERATING REVENUES
Revenues for 1995 were $5.22 billion, up from $4.17 billion in 1994. Tenneco
Automotive's revenues were $2,479 million, up $490 million, a 25 percent
increase, compared with 1994. The increase in 1995 revenues was due primarily
to revenues from recent acquisitions, increased new vehicle production in
North America and an improving European economy. Aftermarket revenues in
Europe also benefited from volume increases and a recent acquisition. Tenneco
Packaging's revenues increased $568 million, or 26 percent, to $2.75 billion
in 1995, as a result of strong improvements in linerboard prices during 1995
that began in late 1994 and continued until the end of 1995.
INCOME BEFORE INTEREST EXPENSE, INCOME TAXES AND MINORITY INTEREST (OPERATING
INCOME)
Operating income was $672 million for 1995, an improvement of $216 million,
compared with 1994's operating income of $456 million. Excluding gains from
asset sales and other special charges discussed below, 1995 operating income
increased $220 million, or 46 percent, compared with 1994. This increase was
due primarily to improved pricing in Tenneco Packaging's paperboard business.
Tenneco Automotive's operating income for 1995 was $240 million, compared
with $223 million in 1994. Operating income for the exhaust systems business
increased in 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.
Tenneco Automotive's exhaust systems 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 start-up costs of $10 million in 1995 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.
Operating income for the ride control business 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.
Tenneco Automotive's margins were 9.7 percent in 1995, compared with 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
operating margins improved to 8.1 percent from 7.8 percent as a result of
improved economic conditions.
34
<PAGE>
Tenneco Packaging's operating income for 1995 was $430 million, compared
with $209 million in 1994. The 1995 operating income included a gain of $14
million on the sale of a recycled medium mill in North Carolina and a
restructuring charge of $30 million for its molded fiber and aluminum foil
packaging operations.
Tenneco Packaging's paperboard business earned $399 million, up $260
million, compared with 1994. 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. The specialty business earned $31 million in
operating income in 1995, a $39 million decrease, compared with 1994 results.
The specialty business recorded a restructuring charge of $30 million in 1995
for its molded fiber and aluminum foil packaging operations and recognized
operating income of $15 million from the recently acquired plastics business.
Excluding these two items, the decline in operating income for specialty
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.
Tenneco reported other operating income of $2 million for 1995, compared
with $24 million for 1994. This decrease in other operating income resulted
from lower interest income on temporary cash investments.
INTEREST EXPENSE (NET OF INTEREST CAPITALIZED)
Tenneco's interest expense in 1995 was $160 million, compared with $104
million in 1994. The higher interest expense in 1995, compared with 1994, is
principally due to higher levels of debt resulting from recent acquisitions.
Interest capitalized was $5 million in 1995 compared with $2 million in 1994
due to higher levels of capital spending in 1995.
INCOME TAXES
Income tax expense for 1995 was $231 million, compared with $114 million in
1994. Tenneco's effective tax rate was 45.1 percent in 1995, compared with
32.4 percent in 1994.
The increased 1995 tax expense resulted primarily from higher pre-tax income
and higher foreign tax expense. In 1994, Tenneco recorded tax benefits from
the realization of deferred tax assets resulting from consolidation of
Tenneco's German operations.
MINORITY INTEREST
Minority interest of $23 million for 1995 related to dividends on preferred
stock of a U.S. subsidiary which was issued in December 1994.
DISCONTINUED OPERATIONS AND EXTRAORDINARY LOSS
Income from discontinued operations in 1995 of $477 million, net of income
tax expense of $30 million, or $2.68 per average common share, reflected the
net income of the Energy Business, the Shipbuilding Business, and the farm and
construction equipment business. The 1995 discontinued operations also
included a gain from the sale of Case stock of $101 million and a gain from
the sale of a Case subordinated note of $32 million, net of income tax expense
of $2 million.
Income from discontinued operations for the Energy Business in 1995 was $158
million, net of an income tax benefit of $11 million. Income from discontinued
operations for the Shipbuilding Business in 1995 was $73
35
<PAGE>
million, net of income tax expense of $58 million. Income from discontinued
operations for the farm and construction equipment business in 1995 was $113
million, net of an income tax benefit of $19 million.
Income from discontinued operations in 1994 of $214 million, net of income
tax expense of $265 million, or $1.13 per average common share, reflected the
net income of the Energy Business, the Shipbuilding Business, the farm and
construction equipment business, and the chemicals and brakes businesses.
Extraordinary loss for 1994 was $5 million, net of an income tax benefit of
$2 million, or $.03 per average common share. The loss resulted from
redemption premiums from prepaying high interest-bearing long-term debt.
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE
Effective January 1, 1994, Tenneco adopted FAS No. 112, "Employers'
Accounting for Postemployment Benefits," using the cumulative catch-up method.
It requires employers to account for postemployment benefits for former or
inactive employees after employment but before retirement on the accrual basis
rather than the "pay-as-you-go" basis. As a result of adopting this statement,
an after-tax charge of $39 million was recorded in 1994.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
<TABLE>
<CAPTION>
1995 1994
------- -----
(MILLIONS)
<S> <C> <C>
Cash provided (used) by:
Operating activities.......................................... $ 1,443 $ 450
Investing activities.......................................... (1,146) (117)
Financing activities.......................................... (356) (151)
</TABLE>
OPERATING ACTIVITIES
Operating cash flows from continuing operations for 1995 declined compared
with 1994. This decline was due primarily 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.
Operating cash flows from discontinued operations for 1995 improved as
Tenneco generated $858 million from the collection and sale of customer
receivables, compared with cash used in 1994 of $417 million. This increase
was due primarily to trade receivables sold to Asset Securitization
Cooperative Corporation, which were $783 million higher in 1995, compared with
1994. The increase in collections of receivables was also due in part to the
collection of approximately $300 million of Case retail receivables in 1995.
Operating cash flows in 1995 also benefited from lower interest and tax
payments, compared with 1994.
INVESTING ACTIVITIES
Net proceeds from the sale of discontinued operations, primarily the
Albright & Wilson chemicals operations, 16.1 million shares of Case stock and
the Case subordinated note, provided $1,539 million of cash in 1995. Net
proceeds from sales of businesses and assets for 1995 were $56 million, which
included the $30 million proceeds from the sale of a recycled medium mill in
North Carolina.
Cash used for business acquisitions for 1995 totaled $1,702 million. The
largest single transaction in 1995 was the acquisition of the plastics
business from Mobil by Tenneco Packaging for $1.3 billion. In addition, the
Energy Business and Tenneco Automotive also made acquisitions during the year.
36
<PAGE>
During 1994, Tenneco's cash sources included $843 million in proceeds from
sale of discontinued operations and sales of businesses and assets (primarily
the Case initial and secondary public offerings for $694 million).
Further, Tenneco invested $562 million in capital expenditures in its
continuing businesses during 1995. Capital expenditures included $208 million
for Tenneco Automotive, $316 million for Tenneco Packaging, and $38 million
related to Tenneco's other operations. 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 in cash, and
$24 million for expanding a key exhaust plant and distribution center. 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. Capital expenditures increased in
1995, compared with the prior year in all businesses.
FINANCING ACTIVITIES
Tenneco accessed its credit facilities, the commercial paper market and the
long-term debt markets during 1995 for $1,016 million. Included in the $1,016
million of debt funding obtained during the year was $600 million in long-term
debt issued in December 1995, $300 million issued at an interest rate of 7 1/4
percent due in 2025 and $300 million issued at an interest rate of 6 1/2
percent due in 2005.
Besides business expansion, Tenneco used its cash flow during 1995 for the
scheduled retirement of $513 million in long-term debt, to reacquire Tenneco
Inc. common stock for $655 million and to pay $286 million in dividends on its
common and preferred stock. In December 1994, Tenneco sold a 25 percent
preferred stock interest in a subsidiary, which resulted in net cash proceeds
of $296 million. This was included in the balance sheet as minority interest
at December 31, 1994. Furthermore, in 1994 Tenneco had a net reduction of $111
million in debt (primarily as a result of the Case offerings and
deconsolidation of Case), and paid dividends on its common and preferred stock
of $318 million.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS OF TENNECO INC.
AND CONSOLIDATED SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of independent public accountants.................................. 38
Statements of income for each of the three years in the period ended
December 31, 1996........................................................ 39
Balance sheets--December 31, 1996 and 1995................................ 40
Statements of cash flows for each of the three years in the period ended
December 31, 1996........................................................ 41
Statements of changes in shareowners' equity for each of the three years
in the period ended
December 31, 1996........................................................ 42
Notes to financial statements............................................. 43
</TABLE>
37
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Tenneco Inc.:
We have audited the accompanying balance sheets of Tenneco Inc. (a Delaware
corporation) and consolidated subsidiaries (see Note 1) as of December 31,
1996 and 1995, and the related statements of income, cash flows and changes in
shareowners' equity for each of the three years in the period ended December
31, 1996. These financial statements and the schedule referred to below are
the responsibility of Tenneco Inc.'s management. Our responsibility is to
express an opinion on these 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 financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Tenneco Inc. and
consolidated subsidiaries as of December 31, 1996 and 1995, and the results of
their operations, cash flows and changes in shareowners' equity for each of
the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
As discussed in Note 2 to the financial statements, effective January 1,
1994, Tenneco changed its method of accounting for postemployment benefits.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule listed in the
index to Part IV, Item 14 relating to Tenneco Inc. and consolidated
subsidiaries is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
The supplemental schedule has been subjected to the auditing procedures
applied in the audits of the basic 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 financial statements of Tenneco Inc.
and consolidated subsidiaries taken as a whole.
Arthur Andersen LLP
Houston, Texas
February 17, 1997
38
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
----------- ----------- -----------
(MILLIONS EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C>
REVENUES
Net sales and operating revenues--
Automotive.......................... $ 2,980 $ 2,479 $ 1,989
Packaging........................... 3,602 2,752 2,184
Intergroup sales and other.......... (10) (10) (7)
----------- ----------- -----------
6,572 5,221 4,166
Other income, net..................... 76 39 (2)
----------- ----------- -----------
6,648 5,260 4,164
----------- ----------- -----------
COSTS AND EXPENSES
Cost of sales (exclusive of
depreciation shown below)............ 4,762 3,737 3,050
Engineering, research and development. 92 67 43
Selling, general and administrative... 857 588 473
Depreciation, depletion and
amortization......................... 309 196 142
----------- ----------- -----------
6,020 4,588 3,708
----------- ----------- -----------
INCOME BEFORE INTEREST EXPENSE, INCOME
TAXES AND MINORITY INTEREST............ 628 672 456
Interest expense (net of interest
capitalized)......................... 195 160 104
Income tax expense.................... 194 231 114
Minority interest..................... 21 23 --
----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS....... 218 258 238
Income from discontinued operations, net
of income tax.......................... 428 477 214
----------- ----------- -----------
Income before extraordinary loss........ 646 735 452
Extraordinary loss, net of income tax... (236) -- (5)
----------- ----------- -----------
Income before cumulative effect of
change in accounting principle......... 410 735 447
Cumulative effect of change in
accounting principle, net of income
tax.................................... -- -- (39)
----------- ----------- -----------
NET INCOME.............................. 410 735 408
Preferred stock dividends............... 12 12 12
----------- ----------- -----------
NET INCOME TO COMMON STOCK.............. $ 398 $ 723 $ 396
=========== =========== ===========
PER SHARE
Average number of shares of common stock
outstanding............................ 170,635,277 173,995,941 180,084,909
Earnings (loss) per average share of
common stock--
Continuing operations................. $ 1.28 $ 1.48 $ 1.32
Discontinued operations............... 2.43 2.68 1.13
Extraordinary loss.................... (1.38) -- (.03)
Cumulative effect of change of
accounting principle................. -- -- (.22)
----------- ----------- -----------
$ 2.33 $ 4.16 $ 2.20
=========== =========== ===========
Cash dividends per share of common
stock.................................. $ 1.80 $ 1.60 $ 1.60
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements of income.
39
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
ASSETS 1996 1995
------ ------ ------
(MILLIONS)
<S> <C> <C>
Current assets:
Cash and temporary cash investments.............................. $ 62 $ 354
Receivables--
Customer notes and accounts, net............................... 561 351
Affiliated companies........................................... -- 117
Income taxes................................................... -- 41
Other.......................................................... 138 54
Inventories...................................................... 878 838
Deferred income taxes............................................ 95 23
Prepayments and other............................................ 189 168
------ ------
1,923 1,946
------ ------
Other assets:
Long-term notes receivable....................................... 20 16
Goodwill and intangibles, net.................................... 1,341 1,024
Deferred income taxes............................................ 60 52
Pension assets................................................... 547 433
Other............................................................ 444 239
------ ------
2,412 1,764
------ ------
Plant, property and equipment, at cost............................. 4,870 4,138
Less--Reserves for depreciation, depletion and amortization...... 1,618 1,480
------ ------
3,252 2,658
------ ------
Net assets of discontinued operations.............................. -- 1,045
------ ------
$7,587 $7,413
====== ======
<CAPTION>
LIABILITIES AND SHAREOWNERS' EQUITY
-----------------------------------
<S> <C> <C>
Current liabilities:
Short-term debt (including current maturities on long-term debt). $ 236 $ 384
Payables--
Trade.......................................................... 651 589
Affiliated companies........................................... -- 47
Taxes accrued.................................................... 91 45
Accrued liabilities.............................................. 308 237
Other............................................................ 335 257
------ ------
1,621 1,559
------ ------
Long-term debt..................................................... 2,067 1,648
------ ------
Deferred income taxes.............................................. 476 435
------ ------
Postretirement benefits............................................ 168 156
------ ------
Deferred credits and other liabilities............................. 305 166
------ ------
Commitments and contingencies
Minority interest.................................................. 304 301
------ ------
Shareowners' equity:
Common stock..................................................... 2 957
Stock Employee Compensation Trust (common stock held in trust)... -- (215)
Premium on common stock and other capital surplus................ 2,642 3,602
Cumulative translation adjustments............................... 23 26
Retained earnings (accumulated deficit).......................... (21) (469)
------ ------
2,646 3,901
Less--Shares held as treasury stock, at cost..................... -- 753
------ ------
2,646 3,148
------ ------
$7,587 $7,413
====== ======
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
40
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------------
1996 1995 1994
------ ------ ------
(MILLIONS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Income from continuing operations..................... $ 218 $ 258 $ 238
Adjustments to reconcile income from continuing
operations to cash provided (used) by continuing
operations--
Depreciation, depletion and amortization............ 309 196 142
Deferred income taxes............................... 23 75 19
Gain on sale of businesses and assets, net.......... (64) (15) (5)
Changes in components of working capital--
(Increase) decrease in receivables................ 104 30 87
(Increase) decrease in inventories................ 18 (102) (57)
(Increase) decrease in prepayments and other
current assets................................... 45 (39) 8
Increase (decrease) in payables................... (70) 7 69
Increase (decrease) in taxes accrued.............. 31 23 (17)
Increase (decrease) in other current liabilities.. (93) (15) (3)
Other............................................... (18) (28) 20
------ ------ ------
Cash provided (used) by continuing operations......... 503 390 501
Cash provided (used) by discontinued operations....... (250) 1,053 (51)
------ ------ ------
Net cash provided (used) by operating activities...... 253 1,443 450
------ ------ ------
INVESTING ACTIVITIES
Net proceeds related to the sale of discontinued
operations........................................... 1,051 1,539 827
Net proceeds from sale of businesses and assets....... 149 56 16
Expenditures for plant, property and equipment--
Continuing operations............................... (573) (562) (280)
Discontinued operations............................. (357) (418) (524)
Acquisitions of businesses............................ (789) (1,702) (51)
Investments and other................................. (174) (59) (105)
------ ------ ------
Net cash provided (used) by investing activities...... (693) (1,146) (117)
------ ------ ------
FINANCING ACTIVITIES
Issuance of common, treasury and SECT shares.......... 164 102 188
Purchase of common stock.............................. (172) (655) (26)
Issuance of NPS Preferred Stock....................... 296 -- --
Issuance of equity securities by a subsidiary......... -- -- 296
Redemption of equity securities by a subsidiary....... -- -- (160)
Redemption of preferred stock......................... (20) (20) (20)
Issuance of long-term debt............................ 2,800 595 980
Retirement of long-term debt.......................... (2,288) (513) (1,466)
Net increase (decrease) in short-term debt excluding
current maturities on long-term debt................. (221) 421 375
Cash transferred in Merger and Distributions.......... (99) -- --
Dividends (common and preferred)...................... (313) (286) (318)
------ ------ ------
Net cash provided (used) by financing activities...... 147 (356) (151)
------ ------ ------
Effect of foreign exchange rate changes on cash and
temporary cash investments........................... 1 8 5
------ ------ ------
Increase (decrease) in cash and temporary cash
investments.......................................... (292) (51) 187
Cash and temporary cash investments, January 1........ 354 405 218
------ ------ ------
Cash and temporary cash investments, December 31
(Note)............................................... $ 62 $ 354 $ 405
====== ====== ======
Cash paid during the year for interest................ $ 489 $ 459 $ 613
Cash paid during the year for income taxes (net of
refunds)............................................. $ 685 $ 168 $ 240
</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 financial statements are an integral part of these
statements of cash flows.
41
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
1996 1995 1994
------------------- ------------------- -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ------ ----------- ------ ----------- ------
(MILLIONS EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
PREFERRED STOCK
Balance January 1....... -- $ -- -- $ -- 8,935,175 $ 9
Series A preferred
stock converted....... -- -- -- -- (8,935,175) (9)
Issuance of NPS
Preferred Stock....... 6,000,000 296 -- -- -- --
Merger of Energy
Business.............. (6,000,000) (296) -- -- -- --
----------- ------ ----------- ------ ----------- ------
Balance December 31..... -- -- -- -- -- --
=========== ------ =========== ------ =========== ------
COMMON STOCK
Balance January 1....... 191,351,615 957 191,335,193 957 173,953,012 870
Issued to convert
Series A preferred
stock................. -- -- -- -- 17,342,763 87
Issued pursuant to
benefit plans......... 84,796 -- 3,761 -- 37,996 --
Recapitalization of
New Tenneco........... (19,868,753) (955) -- -- -- --
Other.................. -- -- 12,661 -- 1,422 --
----------- ------ ----------- ------ ----------- ------
Balance December 31..... 171,567,658 2 191,351,615 957 191,335,193 957
=========== ------ =========== ------ =========== ------
STOCK EMPLOYEE
COMPENSATION TRUST
(SECT)
Balance January 1....... (215) (298) (499)
Shares issued.......... 216 118 115
Adjustment to market
value................. (1) (35) 86
------ ------ ------
Balance December 31..... -- (215) (298)
------ ------ ------
PREMIUM ON COMMON STOCK
AND OTHER CAPITAL
SURPLUS
Balance January 1....... 3,602 3,553 3,714
Premium on common
stock issued pursuant
to benefit plans...... 28 -- 2
Conversion of Series A
preferred stock....... -- -- (78)
Adjustment of SECT to
market value.......... 1 35 (86)
Merger of Energy
Business.............. (372) -- --
Distribution of
Shipbuilding
Business.............. (270) -- --
Recapitalization of
New Tenneco........... (348) -- --
Other.................. 1 14 1
------ ------ ------
Balance December 31..... 2,642 3,602 3,553
------ ------ ------
CUMULATIVE TRANSLATION
ADJUSTMENTS
Balance January 1....... 26 (237) (303)
Translation of foreign
currency statements... 39 25 68
Disposition of
investments in
foreign subsidiaries.. (11) 235 --
Hedges of net
investment in foreign
subsidiaries (net of
income taxes)......... (31) 3 (2)
------ ------ ------
Balance December 31..... 23 26 (237)
------ ------ ------
RETAINED EARNINGS
(ACCUMULATED DEFICIT)
Balance January 1....... (469) (905) (980)
Net income............. 410 735 408
Dividends--
Preferred stock...... (9) (9) (8)
Series A preferred
stock............... -- -- (48)
Common stock......... (312) (287) (273)
Accretion of excess of
redemption value of
preferred stock over
fair value at date of
issue................. (3) (3) (4)
Recapitalization of
New Tenneco........... 362 -- --
------ ------ ------
Balance December 31..... (21) (469) (905)
------ ------ ------
LESS--COMMON STOCK HELD
AS TREASURY STOCK, AT
COST
Balance January 1....... 16,422,619 753 3,617,510 170 4,166,835 210
Shares acquired........ 5,118,904 267 14,066,214 641 1,731,263 75
Shares issued to
acquire businesses.... -- -- (1,229,614) (56) -- --
Shares issued pursuant
to benefit and
dividend
reinvestment plans.... (1,672,770) (79) (31,491) (2) (2,280,588) (115)
Recapitalization of
New Tenneco........... (19,868,753) (941) -- -- -- --
----------- ------ ----------- ------ ----------- ------
Balance December 31..... -- -- 16,422,619 753 3,617,510 170
=========== ------ =========== ------ =========== ------
Total.................. $2,646 $3,148 $2,900
====== ====== ======
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements of changes in shareowners' equity.
42
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. MERGER AND DISTRIBUTIONS
During 1996, Tenneco Inc. ("Old Tenneco") undertook a series of transactions
to reorganize its historical businesses (the "Transaction"). Prior to the
Transaction, Old Tenneco restructured its businesses such that the assets,
liabilities, and operations of its automotive ("Tenneco Automotive"),
packaging ("Tenneco Packaging"), and administrative services businesses
(collectively, the "Industrial Business") were owned and operated by New
Tenneco Inc. ("New Tenneco"), a new wholly-owned subsidiary of Old Tenneco,
and the assets, liabilities, and operations of its shipbuilding business (the
"Shipbuilding Business") were owned and operated by Newport News Shipbuilding
Inc. ("Newport News"), another wholly-owned subsidiary of Old Tenneco. On
December 11, 1996, Old Tenneco spun-off New Tenneco and Newport News by
distributing all of the common stock of each company to Old Tenneco's
shareowners (the "Distributions"). Following the Distributions, on December
12, 1996, a subsidiary of El Paso Natural Gas Company ("El Paso") was merged
(the "Merger") into Old Tenneco, which then consisted solely of Old Tenneco's
remaining active businesses, principally in the energy industry, and certain
discontinued operations (the "Energy Business"), with Old Tenneco surviving
the Merger as a subsidiary of El Paso. Immediately subsequent to the Merger,
Old Tenneco was renamed "El Paso Tennessee Pipeline Co.", and New Tenneco was
renamed "Tenneco Inc."
In preparation for the Merger and Distributions, Old Tenneco realigned $3.8
billion of indebtedness (the "Debt Realignment") through various cash tender
offers, debt exchanges, defeasances, and other retirements. The cash funding
required to consummate the Debt Realignment was financed through internally
generated cash, borrowings under new credit facilities of both Old Tenneco and
New Tenneco, borrowings under a new credit facility and other financings at
Newport News, and proceeds from the issuance of the 8 1/4% cumulative junior
preferred stock ("NPS Preferred Stock"), which was retained by Old Tenneco in
the Merger. See Note 5, "Long-Term Debt, Short-Term Debt, and Financing
Arrangements," for further discussion of the Debt Realignment.
Although the separation of the Industrial Business from the remainder of the
businesses, operations, and companies constituting Old Tenneco was structured
as a "spin-off" of New Tenneco for legal, tax, and other reasons, New Tenneco
succeeded to certain important aspects of the Old Tenneco business,
organization, and affairs, namely: (i) New Tenneco was renamed "Tenneco Inc."
upon the consummation of the Merger; (ii) the Industrial Business conducted by
New Tenneco principally consists of Tenneco Automotive and Tenneco Packaging,
which combined represented over half of the assets, revenues, and operating
income of the businesses, operations, and companies previously constituting
Old Tenneco; (iii) New Tenneco's Board of Directors consists of those persons
previously comprising Old Tenneco's Board of Directors; (iv) New Tenneco's
executive management consists substantially of Old Tenneco's executive
management; and (v) New Tenneco retained as its headquarters the former
headquarters of Old Tenneco in Greenwich, Connecticut. Consequently, the
consolidated financial statements present the net assets and results of
operations of the Shipbuilding Business and the Energy Business as
discontinued operations. Shareowner approval of the Transaction was received
in a special meeting on December 10, 1996. Reference is made to Note 4,
"Discontinued Operations, Disposition of Assets, and Extraordinary Loss."
In connection with the Distributions, one share of New Tenneco common stock
($.01 par value) was issued for each share of Old Tenneco common stock ($5.00
par value) and one share of Newport News common stock was issued for each five
shares of Old Tenneco common stock. Also, in connection with the Merger, Old
Tenneco shareowners received shares of El Paso common stock valued at
approximately $914 million in the aggregate in exchange for their shares of
Old Tenneco common and preferred stock. The treasury shares held by Old
Tenneco did not participate in the Merger and Distributions and such shares
were retained by Old Tenneco in the Merger. Subsequent to the Transaction, the
common equity of Tenneco Inc. relates solely to the shares of New Tenneco
(renamed Tenneco Inc.) common stock issued in the Distributions. In connection
with the Transaction, the accumulated retained earnings (deficit) of Old
Tenneco was eliminated. Retained earnings
43
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
shown on the December 31, 1996 balance sheet represents net earnings (losses)
accumulated after the date of the Transaction. The effects of the issuance of
New Tenneco common stock in the Distributions, the retention of treasury
shares by Old Tenneco, and the elimination of Old Tenneco's retained earnings
(deficit) have been reflected in the statements of changes in shareowners'
equity as "Recapitalization of New Tenneco."
For purposes of these financial statements, "Tenneco" or the "Company"
refers to Old Tenneco and its subsidiaries prior to the Transaction, and to
Tenneco Inc., formerly known as New Tenneco Inc., and its subsidiaries
subsequent to the Transaction.
2. SUMMARY OF ACCOUNTING POLICIES
Consolidation and Presentation
The financial statements of the Company include all majority-owned
subsidiaries. Investments in 20% to 50% owned companies where Tenneco has the
ability to exert significant influence over operating and financial policies
are carried at cost plus equity in undistributed earnings since the date of
acquisition and cumulative translation adjustments. All significant
intercompany transactions have been eliminated.
Income Taxes
Tenneco 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 financial statements. Deferred
tax assets are reduced by a valuation allowance when, based upon management's
estimates, it is more likely than not that a portion of the deferred tax
assets will not be realized in a future period. The estimates utilized in the
recognition of deferred tax assets are subject to revision in future periods
based on new facts or circumstances.
Tenneco 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 $610 million at December 31, 1996. 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, Tenneco entered into a tax sharing
agreement with Newport News, Old Tenneco, and El Paso. The tax sharing
agreement provides, among other things, for the allocation among the parties
of tax liabilities arising prior to, as a result of, and subsequent to the
Distributions. For periods subsequent to the Distributions, Tenneco will be
liable for taxes imposed on the Industrial Business, Old Tenneco will be
liable for taxes imposed on the Energy Business, and Newport News will be
liable for taxes imposed on the Shipbuilding Business. In the case of federal
income taxes imposed on the activities of the Old Tenneco consolidated group
prior to the Distributions, Tenneco and Newport News are generally liable to
Old Tenneco for federal income taxes attributable to the Industrial Business
and Shipbuilding Business, respectively, and those entities have been
allocated an agreed-upon share of estimated tax payments made by Old Tenneco.
Changes in Accounting Principles
In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position 96-1, "Environmental Remediation Liabilities,"
which establishes new accounting and reporting standards for the recognition
and disclosure of environmental remediation liabilities. The provisions of the
statement are effective for fiscal years beginning after December 15, 1996.
The impact of this new standard is not expected to have a significant effect
on Tenneco's financial position or results of operations.
44
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 is not expected to have a significant effect
on Tenneco's financial position or results of operations.
Tenneco adopted FAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," in the first quarter of
1996. FAS No. 121 establishes new accounting standards for measuring the
impairment of long-lived assets. The adoption of this new standard did not
have a significant effect on Tenneco's financial position or results of
operations.
Effective January 1, 1994, Tenneco adopted FAS No. 112, "Employers'
Accounting for Postemployment Benefits." This 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. Tenneco recorded an after-tax charge in 1994
of $39 million ($.22 per average common share), which was reported as a
cumulative effect of change in accounting principle.
Inventories
At December 31, 1996 and 1995, inventory by major classification was as
follows:
<TABLE>
<CAPTION>
1996 1995
----- -----
(MILLIONS)
<S> <C> <C>
Finished goods................................................ $ 408 $ 396
Work in process............................................... 118 102
Raw materials................................................. 245 253
Materials and supplies........................................ 107 87
----- -----
$878 $ 838
===== =====
</TABLE>
Inventories are stated at the lower of cost or market. A portion of total
inventories (46% and 47% at December 31, 1996 and 1995, respectively) is
valued using the "last-in, first-out" method. 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 Tenneco for all
inventories, inventories would have been $54 million, $48 million, and $46
million higher at December 31, 1996, 1995, and 1994, respectively.
Goodwill and Intangibles
At December 31, 1996 and 1995, goodwill and intangibles by major category
were as follows:
<TABLE>
<CAPTION>
1996 1995
------ ------
(MILLIONS)
<S> <C> <C>
Goodwill.................................................... $ 963 $ 632
Trademarks.................................................. 187 194
Patents..................................................... 156 160
Other....................................................... 35 38
------ ------
$1,341 $1,024
====== ======
</TABLE>
45
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Goodwill is being amortized on a straight-line basis over periods ranging
from 25 years to 40 years. Such amortization amounted to $21 million, $10
million, and $8 million for 1996, 1995, and 1994, respectively, and is included
in the statements of income caption, "Depreciation, depletion and
amortization."
Tenneco 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. Such amortization amounted to $26
million in 1996 and was not significant during 1995 and 1994, and is included
in the statements of income caption, "Depreciation, depletion and
amortization."
The majority of goodwill and intangibles at December 31, 1996, resulted from
the acquisition of the plastics division of Mobil Corporation in November 1995
and the 1996 acquisitions of The Pullman Company and its Clevite products
division ("Clevite") and Amoco Foam Products Company, a unit of Amoco Chemical
Company ("Amoco Foam Products"). See Note 3, "Acquisitions," for further
information on these acquisitions.
Plant, Property, and Equipment, at Cost
At December 31, 1996 and 1995, plant, property, and equipment, at cost, by
major category was as follows:
<TABLE>
<CAPTION>
1996 1995
------ ------
(MILLIONS)
<S> <C> <C>
Land, buildings, and improvements.......................... $1,339 $1,125
Machinery and equipment.................................... 2,956 2,446
Other, including construction in progress.................. 575 567
------ ------
$4,870 $4,138
====== ======
</TABLE>
Depreciation of Tenneco's properties is provided on a straight-line basis
over the estimated useful lives of the 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 $45 million and $53 million were outstanding
at December 31, 1996 and 1995, respectively.
At December 31, 1996 and 1995, the allowance for doubtful accounts and notes
receivable was $32 million and $24 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
46
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
based on actual costs or new information. These liabilities are included in
the balance sheet at their undiscounted amounts. Recoveries are evaluated
separately from the liability and, when assured, are recorded and reported
separately from the associated liability in the financial statements. For
further information on this subject, reference is made to Note 14,
"Commitments and Contingencies."
Earnings Per Share
Earnings per share of common stock are based on the average number of shares
of common stock outstanding during each period. For purposes of computing
earnings per share, Series A preferred stock was included in average common
shares outstanding until its conversion into common stock in December 1994;
therefore, the preferred dividends paid were not deducted from net income to
determine net income to common stock. The inclusion of Series A preferred
stock in the computation of earnings per share was antidilutive for the year
and certain quarters in 1994. Other convertible securities and common stock
equivalents outstanding during each of the three years ended December 31,
1996, 1995, and 1994, were not materially dilutive. Tenneco's preferred stock
was converted into El Paso common stock as part of the Merger; therefore,
preferred stock dividends have been deducted from income from discontinued
operations in determining earnings per share.
In 1992, 12,000,000 shares of common stock were issued to the Stock Employee
Compensation Trust ("SECT"). Shares of common stock issued to a related trust
are not considered to be outstanding in the computation of average shares of
common stock outstanding until the shares are utilized to fund the obligations
for which the trust was established. During the years ended December 31, 1996,
1995, and 1994, the SECT issued 4,358,084, 2,697,770, and 2,464,721 shares,
respectively. All of the remaining shares held by the SECT were issued during
the first nine months of 1996 to fund employee benefits and other obligations
of the trust.
Under Tenneco's stock repurchase programs, a total of approximately 17
million shares of Tenneco Inc. common stock have been acquired since December
1994. All treasury shares were retained by Old Tenneco in connection with the
Merger. For further information, reference is made to Note 8, "Common Stock."
Allocation of Corporate Debt and Interest Expense
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, prior
to the Transaction, has been allocated to the discontinued Energy Business and
the discontinued Shipbuilding Business based upon the ratio of the Energy
Business and Shipbuilding Business net assets to Tenneco's consolidated net
assets plus debt. Interest expense, net of tax, has been allocated to
Tenneco's discontinued operations (see Note 4) based on the same allocation
methodology.
Research and Development
Research and development costs are expensed as incurred. Research and
development expenses were $60 million, $42 million, and $27 million for 1996,
1995, and 1994, respectively, and were charged to "Engineering, research, and
development expenses."
Realignment Charges
In 1996, the Company recorded charges of approximately $70 million in
connection with the reorganization of Tenneco Packaging's folding carton
operations and the realignment of Tenneco Automotive's: (i) Walker exhaust
system original equipment and aftermarket manufacturing operations in Europe,
(ii) Walker aftermarket operations in North America, and (iii) Monroe's ride
control product line.
47
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In 1995, Tenneco Packaging recorded charges of approximately $30 million in
connection with the realignment of molded fiber and aluminum foil operations.
In 1994, Tenneco Automotive recorded charges of approximately $17 million in
connection with plant consolidations in Europe associated with the acquisition
of Gillet and approximately $5 million associated with the closing of a plant
in Ohio.
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, "Cumulative translation adjustments."
Risk Management Activities
Tenneco is currently a party to financial instruments to mitigate 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
Tenneco's net investments in foreign subsidiaries are recognized in the
balance sheet caption, "Cumulative translation adjustments." Net gains or
losses on 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 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.
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 Tenneco'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 Tenneco's financial statements.
Reclassifications
Prior years' financial statements have been reclassified where appropriate
to conform to 1996 presentations.
3. ACQUISITIONS
In June 1996, Tenneco entered into agreements to acquire Clevite for
approximately $328 million and 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.
Tenneco closed the acquisition of Amoco Foam Products in August 1996, and
Amoco Foam Products became part of Tenneco Packaging. Also during 1996,
Tenneco completed the acquisitions of or investments in various other
businesses and joint ventures, principally in the automotive parts industry,
for total consideration of approximately $110 million.
A preliminary allocation of the purchase price has been made for these
acquisitions. A final determination of the purchase price allocation will be
made upon the completion of certain ongoing appraisals; however,
48
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
management does not believe that any adjustments to the preliminary purchase
price allocation will be material to Tenneco's financial position or results
of operations.
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. The following unaudited pro forma information of Tenneco
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 purchase price allocation related to the
acquisition, together with estimates of the related income tax effects.
<TABLE>
<CAPTION>
(UNAUDITED)
YEARS ENDED
DECEMBER 31,
-------------
1995 1994
------ ------
(MILLIONS
EXCEPT SHARE
AMOUNTS)
<S> <C> <C>
Net sales and operating revenues........................... $6,217 $5,203
Income from continuing operations.......................... $ 268 $ 181
Earnings per average share of common stock from continuing
operations................................................ $ 1.54 $ 1.01
</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 that may be attained in the future.
Also during 1995, Tenneco Packaging completed additional acquisitions of
eight paperboard packaging businesses and two specialty packaging businesses
for a total purchase price of approximately $196 million. In addition, Tenneco
Automotive completed four acquisitions in 1995 for a total purchase price of
approximately $54 million.
All of the acquisitions discussed above have been accounted for as
purchases; accordingly, the purchase price has been allocated to the assets
purchased, and the liabilities assumed based on their fair values. 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, net."
4. DISCONTINUED OPERATIONS, DISPOSITION OF ASSETS, AND EXTRAORDINARY LOSS
Discontinued Operations
The Energy Business and Shipbuilding Business
As a result of the Merger, El Paso indirectly acquired the net assets of the
Energy Business, including approximately $2.8 billion of debt and preferred
stock obligations, as well as certain liabilities related to operations
previously discontinued by Old Tenneco. See Note 1, "Merger and
Distributions," for additional information.
49
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Net assets as of December 31, 1995 and 1994, and results of operations for
the years ended December 31, 1996, 1995, and 1994, for the Energy Business are
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
(MILLIONS)
<S> <C> <C> <C>
Net assets at December 31 (Note)....................... $ -- $ 452 $ 334
====== ====== ======
Net sales and operating revenues....................... $2,512 $1,921 $2,381
====== ====== ======
Income before income taxes and interest allocation..... $ 291 $ 269 $ 384
Income tax expense..................................... (78) (32) (122)
------ ------ ------
Income before interest allocation...................... 213 237 262
Allocated interest expense, net of income tax (Note)... (86) (79) (92)
------ ------ ------
Income from discontinued operations before transaction
costs................................................. $ 127 $ 158 $ 170
====== ====== ======
</TABLE>
- --------
Note: Reference is made to Note 2, "Summary of Accounting Policies--Allocation
of Corporate Debt and Interest Expense," for a discussion of the allocation of
corporate debt and interest expense to discontinued operations.
On December 11, 1996, one day prior to the Merger, Old Tenneco completed the
distribution of the common stock of Newport News to the holders of Old Tenneco
common stock. As part of the Distributions, Newport News retained the net
assets of the Shipbuilding Business, including approximately $600 million of
debt which had been issued during November 1996 in connection with the Debt
Realignment. See Note 1, "Merger and Distributions," for additional
information.
Net assets as of December 31, 1995 and 1994, and results of operations for
the years ended December 31, 1996, 1995, and 1994, for the Shipbuilding
Business are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
(MILLIONS)
<S> <C> <C> <C>
Net assets at December 31 (Note)....................... $ -- $ 270 $ 198
====== ====== ======
Net sales and operating revenues....................... $1,822 $1,756 $1,753
====== ====== ======
Income before income taxes and interest allocation..... $ 133 $ 160 $ 200
Income tax expense..................................... (43) (68) (85)
------ ------ ------
Income before interest allocation...................... 90 92 115
Allocated interest expense, net of income tax (Note)... (20) (19) (20)
------ ------ ------
Income from discontinued operations before transaction
costs................................................. $ 70 $ 73 $ 95
====== ====== ======
</TABLE>
- --------
Note: Reference is made to Note 2, "Summary of Accounting Policies--Allocation
of Corporate Debt and Interest Expense," for a discussion of the allocation of
corporate debt and interest expense to discontinued operations.
The costs incurred to complete the Transaction, consisting primarily of
financial advisory, legal, accounting, printing and other costs, of
approximately $108 million, net of a $17 million income tax benefit, have been
recorded as a component of 1996 income from discontinued operations.
50
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Farm and Construction Equipment Operations
In June 1994, Tenneco completed an initial public offering ("IPO") of
approximately 29% of the common stock of Case Corporation ("Case"), the holder
of Tenneco's farm and construction equipment segment. In November 1994, a
secondary offering of Case common stock reduced Tenneco's ownership interest
in Case to approximately 44%. Combined proceeds from the two transactions was
$694 million, net of commissions and offering expenses. The combined gain on
the transactions was $36 million, including a $7 million tax benefit. In an
August 1995 public offering, Tenneco sold an additional 16.1 million shares of
Case common stock for net proceeds of approximately $540 million. The sale
resulted in a gain of $101 million and reduced Tenneco's ownership in Case
from 44% to 21%. In December 1995, Tenneco sold to a third party a
subordinated note receivable due from Case, which was received as part of the
reorganization preceding the Case IPO, for net proceeds of $298 million and
recognized a gain of $32 million. In March 1996, Tenneco sold its remaining
15.2 million shares of common stock of Case in a public offering. Net proceeds
of approximately $788 million were received, resulting in a gain of $340
million, net of $83 million in income tax expense.
Net assets as of December 31, 1995 and 1994, and results of operations for
the years ended December 31, 1996, 1995, and 1994, for the farm and
construction equipment segment are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----- ---- ------
(MILLIONS)
<S> <C> <C> <C>
Net assets at December 31.................................. $ -- $323 $ 794
===== ==== ======
Net sales and operating revenues........................... $ -- $ -- $3,881
===== ==== ======
Income before income taxes and interest allocation......... $ 1 $126 $ 210
Income tax (expense) benefit............................... -- 8 (59)
----- ---- ------
Income before interest allocation ......................... 1 134 151
Allocated interest expense, net of income tax (Note)....... (2) (21) (49)
----- ---- ------
Income (loss) from operations.............................. (1) 113 102
----- ---- ------
Gains on dispositions ..................................... 423 135 29
Income tax (expense) benefit from disposition.............. (83) (2) 7
----- ---- ------
Net gains on dispositions.................................. 340 133 36
----- ---- ------
Income from discontinued operations........................ $ 339 $246 $ 138
===== ==== ======
</TABLE>
- --------
Note: Reference is made to Note 2, "Summary of Accounting Policies--Allocation
of Corporate Debt and Interest Expense," for a discussion of the allocation of
corporate debt and interest expense to discontinued operations.
Chemicals and Brakes Operations
In March 1995, Tenneco completed an IPO of 100% of its Albright & Wilson
chemicals segment. The offering was underwritten in the United Kingdom and was
offered primarily in the United Kingdom. Also in 1994, Tenneco sold its brakes
operation. Net proceeds from sales of the chemicals and the brakes operations
were approximately $700 million and $18 million, respectively.
51
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Net assets and results from the chemicals and brakes operations as of and for
the year ended December 31, 1994, are as follows:
<TABLE>
<CAPTION>
1994
----------------
CHEMICALS BRAKES
--------- ------
(MILLIONS)
<S> <C> <C>
Net assets at December 31...................................... $ 633 $ --
===== ====
Net sales and operating revenues............................... $ 986 $ 62
===== ====
Income (loss) before income taxes and interest allocation...... $ 40 $ (8)
Income tax (expense) benefit................................... (9) 5
----- ----
Income (loss) before interest allocation....................... 31 (3)
Allocated interest expense, net of income tax (Note)........... (19) (2)
----- ----
Income (loss) from operations.................................. 12 (5)
----- ----
Loss on disposition............................................ (55) (41)
Income tax (expense) benefit from disposition.................. (115) 15
----- ----
Net loss on disposition........................................ (170) (26)
----- ----
Loss from discontinued operations.............................. $(158) $(31)
===== ====
</TABLE>
- --------
Note: Reference is made to Note 2, "Summary of Accounting Policies--Allocation
of Corporate Debt and Interest Expense," for a discussion of the allocation of
corporate debt and interest expense to discontinued operations.
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 a fiber recycling operation and brokerage
business to the joint venture in return for cash and an equity interest in the
joint venture. Proceeds from the sale were approximately $115 million and the
Company recognized a $50 million pre-tax gain in the second quarter of 1996.
In 1995, Tenneco sold certain facilities and assets, principally at its
Tenneco Packaging segment. Proceeds from these dispositions totaled
approximately $56 million, resulting in a pre-tax gain of $15 million.
During 1994, Tenneco 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.
Gains and losses on the sale of businesses and assets have been included in
"Other income, net" for the accompanying statements of income.
Extraordinary Loss
As discussed further in Note 5, "Long-Term Debt, Short-Term Debt and
Financing Arrangements," Tenneco completed the Debt Realignment to realign and
divide its consolidated indebtedness in contemplation of the Merger and
Distributions. As a result of the Debt Realignment, Tenneco recognized an
extraordinary loss of approximately $236 million, net of a tax benefit of
approximately $126 million. This extraordinary loss consists principally of the
fair value paid in the cash tender offers and the fair value of debt exchanged
in the debt exchange offers in excess of the historical net carrying value for
the debt tendered and exchanged.
52
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In June 1994, an extraordinary loss of $5 million was recorded, net of an
income tax benefit of approximately $2 million, for the redemption premium
resulting from the prepayment of debt.
5. LONG-TERM DEBT, SHORT-TERM DEBT, AND FINANCING ARRANGEMENTS
In contemplation of the Merger and Distributions, Tenneco initiated the Debt
Realignment to restructure, realign, and divide its consolidated indebtedness.
As part of the Debt Realignment, Tenneco completed certain cash tender offers
for approximately $1.5 billion aggregate principal amount of outstanding notes
and debentures (the "Cash Tender Offers"). In addition, approximately $1.9
billion aggregate principal amount of Old Tenneco notes and debentures were
exchanged, in a noncash transaction, into notes and debentures of New Tenneco
and were recorded by New Tenneco based on the fair value of such debt on the
date of exchange (the "Exchange Offers"). Certain other components of
Tenneco's historical consolidated short-term and long-term debt were defeased,
redeemed or retired in the Debt Realignment. The cash funding requirements of
the Debt Realignment were financed with internally generated cash, new
borrowings by Old Tenneco, Newport News and New Tenneco and proceeds from the
issuance of the NPS Preferred Stock by Old Tenneco. All obligations relating
to the NPS Preferred Stock and all borrowings under the Old Tenneco credit
facility and the other remaining debt of the Energy Business, including the
debt which was not tendered or exchanged in the Debt Realignment, were
retained by Old Tenneco in the Merger. Similarly, all borrowings made by New
Tenneco and Newport News in connection with the Debt Realignment were retained
by Tenneco and Newport News, respectively, after the Distribution.
Subsequent to the Merger and Distributions, the majority of Tenneco's long-
term debt consists of the notes and debentures exchanged pursuant to the
Exchange Offers and the majority of its short-term debt consists of commercial
paper borrowings. The summary of long-term and short-term debt amounts at
December 31, 1995, presented below represents the historical consolidated
indebtedness of Tenneco, the majority of which was subject to the Debt
Realignment, and includes a reduction for the amount of corporate debt
allocated to the net assets of the discontinued Energy Business and
Shipbuilding Business. See Note 2, "Summary of Significant Accounting
Policies--Allocation of Corporate Debt and Interest Expense."
53
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Long-Term Debt
A summary of long-term debt obligations of Tenneco at December 31, 1996 and
1995, is set forth in the following table:
<TABLE>
<CAPTION>
1996 1995
------ ------
(MILLIONS)
<S> <C> <C>
Tenneco Inc.--
Debentures due 2008 through 2025, average effective interest
rate 7.3% in 1996 and 8.7% in 1995 (including $76 million in
1996 of unamortized premium and net of $2 million in 1995 of
unamortized discount).......................................... $ 725 $ 698
Notes due 1999 through 2012, average effective interest rate
6.7% in 1996 and 8.8% in 1995 (including $60 million in 1996 of
unamortized premium and net of $5 million in 1995 of
unamortized discount).......................................... 1,271 1,962
Tennessee Gas Pipeline Company--
Debentures due 2011, effective interest rate 15.1% (net of $216
million of unamortized discount)............................... -- 184
Notes due 1996 through 1997, average effective interest rate
9.7% (net of $5 million of unamortized discount)............... -- 573
Tenneco Credit Corporation--
Senior notes due 1996 through 2001, average effective interest
rate 9.7% (net of $1 million of unamortized discount).......... -- 549
Medium-term notes due 1996 through 2002, average interest rate
9.0%........................................................... -- 38
Subordinated notes due 1998 through 2001, average interest rate
9.9%........................................................... -- 92
Other subsidiaries--
Notes due 1997 through 2016, average effective interest rate
7.2% in 1996 and 10.1% in 1995 (net of $23 million in 1996 and
$46 million in 1995 of unamortized discount)................... 79 75
------ ------
2,075 4,171
Less--current maturities......................................... 8 420
------ ------
Total long-term debt............................................. 2,067 3,751
Less--long-term corporate debt allocated to net assets of
discontinued operations......................................... -- 2,103
------ ------
Total long-term debt, net of allocation to net assets of
discontinued operations......................................... $2,067 $1,648
====== ======
</TABLE>
At December 31, 1996 and 1995, approximately $70 million and $72 million,
respectively, of gross plant, property and equipment was pledged as collateral
to secure $25 million and $30 million, respectively, principal amounts of
long-term debt.
The aggregate maturities and sinking fund requirements applicable to the
issues outstanding at December 31, 1996 are $8 million, $9 million, $255
million, $9 million, and $186 million for 1997, 1998, 1999, 2000, and 2001,
respectively.
54
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Short-Term Debt
Tenneco uses commercial paper, lines of credit and overnight borrowings to
finance its short-term capital requirements. Information regarding short-term
debt as of and for the years ended December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---------------------- ----------------------
COMMERCIAL CREDIT COMMERCIAL CREDIT
PAPER AGREEMENTS* PAPER AGREEMENTS*
---------- ----------- ---------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Outstanding borrowings at end of
year............................ $219 $ 9 $346 $101
Weighted average interest rate on
outstanding borrowings at end of
year............................ 5.6% 6.5% 6.2% 7.2%
Approximate maximum month-end
outstanding borrowings during
year............................ $336 $2,580 $615 $486
Approximate average month-end
outstanding borrowings during
year............................ $108 $ 800 $109 $103
Weighted average interest rate on
approximate average month-end
outstanding borrowings during
year............................ 5.7% 6.5% 6.2% 8.6%
</TABLE>
- --------
* Includes borrowings under both committed credit facilities and uncommitted
lines of credit and similar arrangements.
Tenneco had other short-term borrowings outstanding of $41 million at
December 31, 1995.
Short-Term Corporate Debt Allocation
<TABLE>
<CAPTION>
1996 1995
----- -----
(MILLIONS)
<S> <C> <C>
Current maturities on long-term debt............................... $ 8 $ 420
Commercial paper................................................... 219 346
Credit agreements.................................................. 9 101
Other.............................................................. -- 41
----- -----
Total short-term debt.............................................. 236 908
Less-short-term corporate debt allocated to net assets of
discontinued operations........................................... -- 524
----- -----
Total short-term debt, net of allocation to discontinued
operations........................................................ $ 236 $ 384
===== =====
</TABLE>
Financing Arrangements
<TABLE>
<CAPTION>
COMMITTED CREDIT FACILITIES(A)
-------------------------------
TERM COMMITMENTS UTILIZED AVAILABLE
------- ----------- -------- ---------
(MILLIONS)
<S> <C> <C> <C> <C>
Tenneco Inc. credit agreements.......... 2001 $1,750 $219(b) $1,531
Subsidiaries' credit agreements......... Various 49 5 44
------ ---- ------
$1,799 $224 $1,575
====== ==== ======
</TABLE>
- --------
Notes: (a) Tenneco and its subsidiaries generally are required to pay
commitment fees on the unused portion of the total commitment and
facility fees on the total commitment.
(b) Tenneco's committed long-term credit facilities support its
commercial paper borrowings; consequently, the amount available under
the committed long-term credit facilities is reduced by outstanding
commercial paper borrowings.
55
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1996, Tenneco's principal credit facility was a $1.75
billion committed financing arrangement with a syndicate of banks and other
financial institutions which expires in 2001. Committed borrowings under this
credit facility bear interest at an annual rate equal to, at the borrower'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 based on the credit
rating of Tenneco's long-term debt; or (iii) a rate based on money market
rates pursuant to competitive bids by the syndicate banks.
The credit facility requires that the Company's consolidated ratio of debt
to total capitalization not exceed 70%. Compliance with this requirement is a
condition for any incremental borrowings under the credit facility and failure
to meet the requirement enables the syndicate banks to require repayment of
any outstanding loans after a 30-day cure period. In addition, the credit
facility imposes certain other restrictions, none of which are expected to
limit the Company's ability to operate its business in the ordinary course.
6. FINANCIAL INSTRUMENTS
The carrying and estimated fair values of Tenneco's financial instruments by
class at December 31, 1996 and 1995, were as follows:
<TABLE>
<CAPTION>
1996 1995
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- -------
(MILLIONS)
ASSETS (LIABILITIES)
<S> <C> <C> <C> <C>
Long-term debt (including current
maturities) (Note)........................ $(2,075) $(2,069) $(4,171) $(4,759)
Instruments With Off-Balance-Sheet Risk
Foreign currency contracts............... 1 1 5 4
Financial guarantees..................... -- (15) -- (15)
</TABLE>
- --------
Note: The carrying amount and estimated fair value of long-term debt for 1995
includes amounts allocated to net assets of discontinued operations.
Asset and Liability Instruments
The fair value of cash and temporary cash investments, receivables, accounts
payable, and short-term debt was considered to be the same as or was not
determined to be materially different from the carrying amount. At December
31, 1996 and 1995, respectively, Tenneco's aggregate customer and long-term
receivable balance was concentrated by industry segment as follows: Tenneco
Automotive, 69% and 77%, respectively, and Tenneco Packaging, 31% and 23%,
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
Foreign Currency Contracts--Tenneco utilizes foreign exchange forward
contracts to hedge the translation effects of Tenneco's investment in net
assets in certain foreign subsidiaries. Pursuant to these arrangements,
Tenneco recognized aggregate after-tax translation gains (losses) of $(31)
million, $3 million and $(2) million for 1996, 1995, and 1994, respectively,
which have been included in the balance sheet caption, "Cumulative translation
adjustments."
In the normal course of business, Tenneco and its foreign subsidiaries also
routinely enter into various foreign currency forward purchase and sale
contracts to hedge the transaction effect of exchange rate movements
56
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
on receivables and payables denominated in foreign currencies. These foreign
currency contracts generally mature in one year or less.
In managing its foreign currency exposures, Tenneco identifies naturally
occurring offsetting positions and then hedges residual exposures. The
following table summarizes by major currency the contractual amounts of
foreign currency contracts utilized by Tenneco:
<TABLE>
<CAPTION>
NOTIONAL AMOUNT
----------------------------------------
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- --------------------
PURCHASE SELL PURCHASE SELL
---------- -------- ---------- ---------
(MILLIONS)
<S> <C> <C> <C> <C>
Foreign currency contracts (in US$):
Australian Dollars.................. $ 6 $ 34 $ 1 $ 202
British Pounds...................... 344 153 81 125
Canadian Dollars.................... 128 120 23 50
French Francs....................... 47 22 44 16
German Marks........................ 73 110 -- 11
U.S. Dollars........................ 65 304 240 81
Other............................... 118 37 127 72
-------- -------- -------- ---------
$ 781 $ 780 $ 516 $ 557
======== ======== ======== =========
</TABLE>
Based on exchange rates at December 31, 1996 and 1995, the cost of replacing
these contracts in the event of non-performance by the counterparties would
not have been material.
Guarantees--At December 31, 1996 and 1995, Tenneco had guaranteed payment
and performance of approximately $15 million, primarily with respect to
letters of credit and other guarantees supporting various financing and
operating activities.
7. INCOME TAXES
The domestic and foreign components of income from continuing operations
before income taxes are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------
1996 1995 1994
---- ---- ----
(MILLIONS)
<S> <C> <C> <C>
U.S. income before income taxes................................. $248 $361 $242
Foreign income before income taxes.............................. 185 151 110
---- ---- ----
Income before income taxes...................................... $433 $512 $352
==== ==== ====
</TABLE>
57
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Following is a comparative analysis of the components of income tax expense
applicable to continuing operations:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------
1996 1995 1994
---- ----- -----
(MILLIONS)
<S> <C> <C> <C>
Current--
U.S......................................................... $ 92 $ 54 $ 42
State and local............................................. 23 38 23
Foreign..................................................... 56 64 30
---- ----- -----
171 156 95
==== ===== =====
Deferred--
U.S......................................................... 15 61 31
Foreign and other........................................... 8 14 (12)
---- ----- -----
23 75 19
==== ===== =====
Income tax expense............................................ $194 $ 231 $ 114
==== ===== =====
</TABLE>
Following is a reconciliation of income taxes computed at the statutory U.S.
federal income tax rate (35% for all years presented) to the income tax expense
reflected in the statements of income:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------
1996 1995 1994
---- ----- ----
(MILLIONS)
<S> <C> <C> <C>
Tax expense computed at the statutory U.S. federal income tax
rate......................................................... $152 $ 179 $123
Increases (reductions) in income tax expense resulting from:
Foreign income taxed at different rates and foreign losses
with no tax benefit........................................ 7 17 (12)
State and local taxes on income, net of U.S. federal income
tax benefit................................................ 15 25 16
Amortization of nondeductible goodwill...................... 7 4 3
Recognition of previously unbenefited foreign loss
carryforwards.............................................. -- -- (12)
Other....................................................... 13 6 (4)
---- ----- ----
Income tax expense............................................ $194 $ 231 $114
==== ===== ====
</TABLE>
The components of Tenneco's net deferred tax liability at December 31, 1996
and 1995, were as follows:
<TABLE>
<CAPTION>
1996 1995
---- -----
(MILLIONS)
<S> <C> <C>
Deferred tax assets--
Tax loss carryforwards........................................... $114 $ 83
Postretirement benefits other than pensions...................... 51 41
Other............................................................ 56 31
Valuation allowance.............................................. (119) (83)
---- -----
Net deferred tax asset......................................... 102 72
---- -----
Deferred tax liabilities--
Tax over book depreciation....................................... 238 204
Pension.......................................................... 184 158
Book versus tax gains and losses on asset disposals.............. -- 63
Other............................................................ 1 7
---- -----
Total deferred tax liability................................... 423 432
---- -----
Net deferred tax liability....................................... $321 $ 360
==== =====
</TABLE>
58
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
As reflected by the valuation allowance in the table above, Tenneco had
potential tax benefits of $119 million and $83 million at December 31, 1996
and 1995, respectively, which were not recognized in the 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, 1996, Tenneco had tax benefits of $114 million from foreign net
operating loss carryforwards which do not expire.
8. COMMON STOCK
At December 31, 1996, Tenneco had authorized 350,000,000 shares ($ .01 par
value) of common stock of which 171,567,658 shares were issued. At December
31, 1995, Old Tenneco had authorized 350,000,000 shares ($5.00 par value) of
common stock of which 191,351,615 shares were issued. The SECT held no shares
at December 31, 1996. At December 31, 1995, the SECT held 4,358,084 shares,
which are included in the issued shares quoted above. Tenneco Inc. held no
shares of treasury stock at December 31, 1996. The 16,422,619 shares of
treasury stock held at December 31, 1995, were retained by Old Tenneco in the
Merger. See Note 1, "Merger and Distributions."
Stock Repurchase Plans
In 1996, Tenneco completed the $500 million common stock repurchase program
initiated in December 1994. In 1995, Tenneco announced two additional
repurchase programs, one for up to 3 million shares and another for 2.5
million shares. Purchases executed through the programs were made in the open
market or in negotiated purchases. Under these programs, approximately 17
million shares have been acquired at a total cost of over $750 million. All
treasury stock purchased under these programs became the treasury stock of Old
Tenneco.
Reserved
The total number of shares of Tenneco Inc. common stock reserved for
issuance at December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
ORIGINAL ISSUE SHARES 1996 1995
--------------------- ---------- ---------
<S> <C> <C>
Thrift Plan.......................................... 476,372 --
Restricted Stock Plans............................... 62,000 323,706
Stock Ownership Plan................................. 17,000,000 3,241,573
Employee Stock Purchase Plan......................... 2,500,000 --
Performance Unit Plan................................ -- 1,654,494
Other................................................ -- 35,820
---------- ---------
20,038,372 5,255,593
========== =========
</TABLE>
Stock Plans
Tenneco Inc. Stock Ownership Plan--In May 1994 Tenneco adopted the 1994
Tenneco Inc. Stock Ownership Plan (the "1994 Stock Ownership Plan"), effective
as of December 8, 1993. This plan provided Tenneco the latitude to grant a
variety of awards, such as common stock, performance units, and stock options,
to officers and key employees of the Tenneco companies. In conjunction with
the Merger, all options held by employees of the Energy Business were vested
and any unexercised options were cancelled as of December 11, 1996. In
connection with the Distributions, options held by employees of the
Shipbuilding Business were cancelled as of December 11, 1996, and were
subsequently replaced with options granted under a new stock
59
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
ownership plan adopted by Newport News. All Old Tenneco stock options granted
to New Tenneco employees prior to the Distributions were, in connection with
the Distributions, cancelled and replaced with options to purchase New Tenneco
common stock pursuant to a new stock ownership plan adopted by New Tenneco in
December 1996 (the "1996 Stock Ownership Plan"). The options were replaced
with the appropriate number of New Tenneco options so that the aggregate
option value thereof immediately after the Distributions equaled the aggregate
value thereof immediately before the Distributions. The 1994 Stock Ownership
Plan was terminated effective as of December 11, 1996.
The 1996 Stock Ownership Plan permits the granting of a variety of awards,
including common stock, restricted stock, performance units, stock
appreciation rights, and stock options to officers and employees of Tenneco.
Tenneco can issue up to 17,000,000 shares of common stock under the 1996 Stock
Ownership Plan, which will terminate December 31, 2001.
Key Employee Restricted Stock and Performance Shares--Tenneco has granted
restricted stock and restricted units under various employee restricted stock
plans to certain key employees. These awards generally require, among other
things, that the employee remain an employee of Tenneco during the restriction
period. Tenneco has also granted performance shares to certain key employees
which will vest based upon the attainment of specified goals within four years
from the date of grant. During 1996, 1995, and 1994, Tenneco granted 465,075,
481,625 and 395,840 shares and units, respectively, with a weighted average
fair value based on the price of Tenneco's stock on the grant date of $48.54,
$43.62, and $52.91 per share, respectively. Any restricted stock and
performance shares awarded after the Distributions will be issued under the
1996 Stock Ownership Plan. At December 31, 1996, no restricted shares or
performance shares were outstanding.
Under another arrangement, restricted stock or restricted units are issued
annually to each member of the Board of Directors who is not also an officer
of Tenneco. During 1996, 1995, and 1994, 3,300, 3,000, and 2,500 restricted
shares were issued at a weighted average fair value of Tenneco Inc.'s stock on
the grant date of $48.25, $42.88, and $53.94 per share, respectively. In
December 1996, Tenneco adopted a new restricted stock and unit plan for each
member of the Board of Directors who is not also an officer of Tenneco. At
December 31, 1996, 23,464 restricted shares were outstanding under the new
plan.
In conjunction with the Transaction, all outstanding restricted shares and
performance shares as of November 1, 1996, were vested and Tenneco recognized
an after-tax compensation expense of $18 million, of which approximately $7
million related to restricted stock and performance shares awarded to
employees of the Energy Business and Shipbuilding Business.
Employee Stock Purchase Plan--In June 1992 Tenneco initiated an Employee
Stock Purchase Plan (the "ESPP"). The ESPP allows U.S. and Canadian Tenneco
employees to purchase Tenneco Inc. common stock at a 15% discount. Each year
employees participating in the ESPP may purchase shares with a discounted
value not to exceed $21,250. Under the ESPP, Tenneco sold 657,936, 633,495,
and 588,325 shares to employees in 1996, 1995, and 1994, respectively. The
weighted average fair value of the employee purchase right, which was
estimated using the Black-Scholes option pricing model and the assumptions
described below except that the average life of each purchase right was
assumed to be 90 days, was $10.84 and $9.39 in 1996 and 1995, respectively.
The ESPP was terminated as of the date of the Distributions. The Company
adopted a new employee stock purchase plan effective April 1, 1997. At
December 31, 1996, Tenneco had reserved 2,500,000 shares to be issued pursuant
to the new employee stock purchase plan.
60
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following table reflects the status and activity for all stock options
issued by Tenneco Inc., including those outside the option plans discussed
above, for the periods indicated:
<TABLE>
<CAPTION>
1996 1995 1994
------------------- ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED
SHARES AVG. SHARES AVG. SHARES AVG.
UNDER EXERCISE UNDER EXERCISE UNDER EXERCISE
STOCK OPTIONS OPTION PRICES OPTION PRICES OPTION PRICES
------------- ---------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning
of year................ 3,019,116 $46.99 2,084,942 $51.08 434,114 $40.57
Granted--Options...... 8,178,600 46.17 1,493,505 43.01 1,718,320 53.84
Exercised--Options.... 817,212 45.29 2,700 41.30 2,250 40.54
--SARs............ 25,741 36.23 45,215 40.47 28,832 41.10
Issuance of New
Tenneco options...... 5,015,258 41.19 -- -- -- --
Cancelled............. 4,492,263 46.01 511,416 52.63 36,410 53.88
---------- ------ --------- ------ --------- ------
Outstanding, end of
year................... 10,877,758 $43.41 3,019,116 $46.99 2,084,942 $51.08
========== ====== ========= ====== ========= ======
Options exercisable at
end of year............ 1,809,596 $41.67 846,889 $47.80 471,732 $42.21
========== ====== ========= ====== ========= ======
Weighted average fair
value of options
granted during the
year................... $ 11.37 $ 11.82
========== =========
</TABLE>
The fair value of each option granted during 1996 and 1995 is estimated on
the date of grant using the Black-Scholes option pricing model using the
following weighted-average assumptions for grants in 1996 and 1995,
respectively: (i) risk-free interest rates of 5.9% and 7.1%; (ii) expected
lives of 5.0 years and 5.0 years; (iii) expected volatility 25.1% and 28.9%;
and (iv) dividend yield of 3.4% and 3.6%.
The following table reflects summarized information about stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------- --------------------
WEIGHTED
AVG. WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING AVG. NUMBER AVG.
EXERCISE OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
PRICE AT 12/31/96 LIFE PRICE AT 12/31/96 PRICE
-------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$31 to $37................ 1,440,642 7.3 years $35.81 669,442 $34.52
37 to 43................ 2,246,527 8.9 41.54 138,157 41.43
43 to 50................ 7,190,589 13.8 45.52 1,001,997 46.46
---------- ---------
10,877,758 1,809,596
========== =========
</TABLE>
Tenneco applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," to its stock-based compensation plans. Tenneco
recognized after-tax stock-based compensation expense in 1996 of $27 million,
of which $9 million related to restricted stock and performance shares awarded
to employees of the Energy Business and the Shipbuilding Business. Stock-based
compensation expense recognized in 1995 and 1994 was not material. Had
compensation costs for Tenneco's stock-based compensation plans been
determined in accordance with FAS No. 123, "Accounting for Stock-Based
Compensation," based on the fair value at the grant dates for the awards under
those plans, Tenneco's pro forma net income to common stock and earnings per
average common share for the years ended December 31, 1996 and 1995, would
have been lower by $14 million, or $.08 per average common share, and $7
million, or $.05 per average common share, respectively.
61
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Stock Employee Compensation Trust (SECT)
In November 1992, Tenneco established the SECT to fund a portion of its
obligations arising from its various employee compensation and benefit plans.
Tenneco issued 12,000,000 shares of treasury stock to the SECT in exchange for
a promissory note of $432 million that accrued interest at the rate of 7.8%
per annum. At December 31, 1996, all shares have been utilized.
Shareholder Rights Plan
In connection with the Distributions, New Tenneco Inc. adopted a Shareholder
Rights Plan ("the Plan"), which is substantially the same as the provisions of
the Old Tenneco Shareholder Rights Plan adopted in 1988. The Plan was adopted
to deter coercive takeover tactics and to prevent a potential acquiror from
gaining control of Tenneco without offering a fair price to all Tenneco Inc.
shareholders. Under the Plan, each outstanding share of Tenneco Inc. common
stock receives one Right, exercisable at $130, subject to adjustment. In the
event a person or group acquires 20% or more of the outstanding Tenneco Inc.
common stock other than pursuant to an offer for all shares of such common
stock that is fair and in the best interests of Tenneco Inc. and its
shareholders, or has in the judgment of the Tenneco Inc. Board of Directors
acquired a substantial amount of common stock under certain motives deemed
adverse to Tenneco's best interests, each Right entitles the holder to
purchase shares of common stock or other securities of Tenneco Inc. or, under
certain circumstances, of the acquiring person, having a value of twice the
exercise price. The Rights, under certain circumstances, are redeemable by
Tenneco Inc. at a price of $.02 per Right. The Plan is scheduled to terminate
in 1998.
Dividend Reinvestment and Stock Purchase Plan
Under the Tenneco Inc. Dividend Reinvestment and Stock Purchase Plan,
holders of Tenneco Inc. common stock may apply their cash dividends and
optional cash investments to the purchase of additional shares of Tenneco Inc.
common stock.
9. PREFERRED STOCK
Tenneco had 50,000,000 shares of preferred stock ($.01 par value) authorized
at December 31, 1996, and had 15,000,000 shares of preferred stock authorized
at December 31, 1995. No shares of preferred stock were outstanding at
December 31, 1996. Tenneco has designated and reserved 3,500,000 shares of the
preferred stock as junior preferred stock for the Shareholder Rights Plan.
In connection with the Transaction and as part of the Debt Realignment, Old
Tenneco issued the NPS Preferred Stock in November 1996 for proceeds of
approximately $296 million. The proceeds from the issuance were used to fund a
portion of the cash tender offers made in connection with the Debt Realignment
and other cash requirements preceding the Merger. As a result of the Merger,
the obligations relating to the NPS Preferred Stock remained with Old Tenneco.
In December 1991, Tenneco issued 17,870,350 Depositary Shares, each
representing one-half of a share of a new series of cumulative preferred stock
designated as Series A preferred stock. On December 16, 1994, Tenneco
exercised its option to call all of the outstanding shares, which were
converted into shares of Tenneco Inc. common stock. In addition, $11 million
was paid for dividends on the Series A preferred stock that were accrued but
unpaid at the conversion date.
Tenneco's $7.40 and $4.50 preferred stock (the "Preferred Stock"), issues
had a mandatory redemption value of $100 per share (an aggregate of $139
million at December 31, 1995). Tenneco recorded these preferred stocks at
their fair value at the date of original issue (an aggregate of $250 million)
and made periodic accretions
62
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
of the excess of the redemption value over the fair value at the date of
issue. Such accretions are included in the statements of income caption,
"Preferred stock dividends" as a reduction of net income to arrive at net
income to common stock. As part of the Merger, the Preferred Stock was
acquired by El Paso in exchange for El Paso common stock. Consequently, the
Preferred Stock has been included in the net assets of discontinued operations
in the accompanying balance sheet.
Changes in Preferred Stock with Mandatory Redemption Provisions
<TABLE>
<CAPTION>
1996 1995 1994
------------------ ----------------- -----------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------ --------- ------ --------- ------
(MILLIONS EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Balance January 1....... 1,390,993 $130 1,586,764 $147 1,782,508 $163
Shares redeemed........ (195,751) (20) (195,771) (20) (195,744) (20)
Merger of Energy
Business.............. (1,195,242) (113) -- -- -- --
Accretion of excess of
redemption value over
fair value at date of
issue................. -- 3 -- 3 -- 4
---------- ---- --------- ---- --------- ----
Balance December 31..... -- $ -- 1,390,993 $130 1,586,764 $147
========== ==== ========= ==== ========= ====
</TABLE>
10. MINORITY INTEREST
At December 31, 1996 and 1995, Tenneco reported minority interest in the
balance sheet of $304 million and $301 million, respectively. At December 31,
1996, $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 consolidated in
Tenneco's financial statements, and the investor's preferred stock interest
has been recorded as "Minority interest" in the balance sheet.
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. The weighted
average rate paid on TIHC preferred stock was 6.83% and 7.30% for 1996 and
1995, respectively. Additionally, beginning in 1996, the holder of the
12,000,000 shares of preferred stock is 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
Tenneco's statements of income as "Minority interest."
11. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
Postretirement Benefits
Tenneco has postretirement health care and life insurance plans that cover
substantially all of its domestic employees. For salaried employees, the plans
cover employees retiring from Tenneco on or after attaining age 55 who have
had at least 10 years service with Tenneco after attaining age 45. For hourly
employees, the postretirement benefit plans generally cover employees who
retire pursuant to one of Tenneco's hourly employee retirement plans. All of
these benefits may be subject to deductibles, copayment provisions, and other
limitations, and Tenneco has reserved the right to change these benefits.
Tenneco's postretirement benefit plans are not funded.
63
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Accrued postretirement benefits costs related to employees of the Energy
Business, and certain retirees of previously discontinued operations, were
retained by Old Tenneco in the Merger. In addition, accrued postretirement
benefit costs related to employees of the Shipbuilding Business were retained
by Newport News in the Distributions. Consequently, the accrued postretirement
benefit amounts for those discontinued businesses are excluded from the
disclosures presented herein for all periods.
The funded status of the postretirement benefit plans reconciles with
amounts recognized in the balance sheet at December 31, 1996 and 1995, as
follows (Note):
<TABLE>
<CAPTION>
1996 1995
------ -----
(MILLIONS)
<S> <C> <C>
Actuarial present value of accumulated postretirement benefit
obligation at September 30:
Retirees...................................................... $ 98 $ 82
Fully eligible active plan participants....................... 28 19
Other active plan participants................................ 41 33
------ -----
Total accumulated postretirement benefit obligation............. 167 134
Plan assets at fair value at September 30....................... -- --
------ -----
Accumulated postretirement benefit obligation in excess of plan
assets at September 30......................................... (167) (134)
Claims paid during the fourth quarter........................... 3 2
Unrecognized reduction of prior service obligations resulting
from plan amendments .......................................... (10) (12)
Unrecognized net loss resulting from plan experience and changes
in actuarial assumptions....................................... 29 30
------ -----
Accrued postretirement benefit cost at December 31.............. $ (145) $(114)
====== =====
</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.
The net periodic postretirement benefit cost from continuing operations for
the years 1996, 1995, and 1994 consist of the following components:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(MILLIONS)
<S> <C> <C> <C>
Service cost for benefits earned during the year................ $ 4 $ 3 $ 4
Interest cost on accumulated postretirement benefit obligation.. 11 10 10
Net amortization of unrecognized amounts........................ (1) (1) (1)
--- --- ---
Net periodic postretirement benefit cost........................ $14 $12 $13
=== === ===
</TABLE>
The initial weighted average assumed health care cost trend rate used in
determining the 1996, 1995, and 1994 accumulated postretirement benefit
obligation was 6%, 7%, and 8%, 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 1996, 1995, and 1994 accumulated
postretirement benefit obligations by approximately $13 million, $12 million,
and $10 million, respectively, and would increase the aggregate of the service
cost and interest cost components of the net postretirement benefit cost for
1996, 1995, and 1994 by approximately $2 million, $1 million, and $1 million,
respectively.
The discount rates (which are based on long-term market rates) used in
determining the 1996, 1995, and 1994 accumulated postretirement benefit
obligations were 7.75%, 7.75%, and 8.25%, respectively.
64
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Postemployment Benefits
Tenneco adopted FAS No. 112, "Employers' Accounting for Postemployment
Benefits," in the first quarter of 1994. This 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 rule reduced 1994 net
income by $39 million, net of income tax benefits of $26 million, which was
reported as the cumulative effect of a change in accounting principle.
12. PENSION PLANS
Tenneco has retirement plans that cover substantially all of its employees.
Benefits are based on years of service and, for most salaried employees, on
final average compensation. Tenneco's funding policies are to contribute to
the plans amounts necessary to satisfy the funding requirement of federal laws
and regulations. Plan assets consist principally of listed equity and fixed
income securities. Also included in the table below are pension obligations
and assets retained by Tenneco related to certain former employees of
Tenneco's discontinued operations.
As part of the Transaction, Tenneco retained the liabilities and related
assets for pension benefits under the Tenneco Inc. Retirement Plan (the
"TRP"), including amounts related to employees of the Energy Business and
Shipbuilding Business accrued through the last day of the month in which
Merger and Distributions were consummated. Consequently, the disclosures below
as of December 31, 1996, include all TRP pension obligations and assets
retained by Tenneco subsequent to the Transaction. Certain other pension
plans, principally related to hourly personnel of the Shipbuilding Business,
were retained by Newport News in the Distributions, and are excluded from the
disclosures herein for all periods.
65
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The funded status of the plans reconcile with amounts on the balance sheet
at December 31, 1996 and 1995, as follows:
<TABLE>
<CAPTION>
PLANS IN
PLANS IN WHICH
WHICH ASSETS ACCUMULATED
EXCEED BENEFITS
ACCUMULATED EXCEED ALL PLANS
BENEFITS ASSETS (NOTE)
-------------- ------------ --------------
1996 1995 1996 1995 1996 1995
------ ------ ----- ----- ------ ------
(MILLIONS)
<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..... $2,555 $1,793 $ 92 $ 35 $2,647 $1,828
Non-vested benefit obligation. 41 38 9 4 50 42
------ ------ ----- ----- ------ ------
Accumulated benefit
obligation................... 2,596 1,831 101 39 2,697 1,870
Additional amounts related to
projected salary increases..... 104 72 4 3 108 75
------ ------ ----- ----- ------ ------
Total projected benefit
obligation at September 30..... 2,700 1,903 105 42 2,805 1,945
Plan assets at fair value at
September 30................... 3,402 2,233 57 8 3,459 2,241
------ ------ ----- ----- ------ ------
Plan assets in excess of (less
than) total projected benefit
obligation at September 30..... 702 330 (48) (34) 654 296
Contributions during the fourth
quarter........................ 1 4 -- -- 1 4
Unrecognized net (gain) loss
resulting from plan experience
and changes in actuarial
assumptions.................... (87) 142 2 2 (85) 144
Unrecognized prior service
obligations resulting from plan
amendments..................... 70 75 4 1 74 76
Remaining unrecognized net
obligation (asset) at initial
application.................... (94) (80) -- 1 (94) (79)
Adjustment recorded to recognize
minimum liability.............. -- -- (5) (2) (5) (2)
------ ------ ----- ----- ------ ------
Prepaid (accrued) pension cost
at December 31................. $ 592 $ 471 $ (47) $ (32) $ 545 $ 439
====== ====== ===== ===== ====== ======
</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
1996, 1995, and 1994 consist of the following components:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- ----------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Service cost--benefits earned during the
year..................................... $ 31 $ 23 $ 29
Interest accrued on prior years projected
benefit obligation....................... 148 144 110
Expected return on plan assets--
Actual (return) loss.................... (349) (387) 16
Unrecognized excess (deficiency) of
actual return over expected return..... 141 188 (175)
---- ---- ----
(208) (199) (159)
Net amortization of unrecognized amounts.. -- (3) 1
----- ---- ----
Net pension income........................ $ (29) $(35) $(19)
===== ==== ====
</TABLE>
66
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The weighted average discount rates (which are based on long-term market
rates) used in determining the 1996, 1995, and 1994 actuarial present value of
the benefit obligations were 7.8%, 7.8%, and 8.3%, respectively. The rate of
increase in future compensation was 5.0%, 5.1%, and 5.1% for 1996, 1995, and
1994, respectively. The weighted average expected long-term rate of return on
plan assets was 10% for 1996, 1995, and 1994.
13. SEGMENT AND GEOGRAPHIC AREA INFORMATION
Tenneco is a global manufacturer with the following major 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, institutional, and industrial
markets.
For a discussion of the discontinued operations of Tenneco's energy,
shipbuilding, farm and construction equipment, and chemicals segments, see
Note 4, "Discontinued Operations, Disposition of Assets and Extraordinary
Loss."
67
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following tables summarize certain segment and geographic information of
Tenneco's businesses:
<TABLE>
<CAPTION>
SEGMENT RECLASS.
------------------------------------------- AND
DISCONTINUED ELIMINA- CONSOL-
AUTOMOTIVE PACKAGING OPERATIONS(C) OTHER(D) TION IDATED
---------- --------- ------------- -------- -------- -------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
AT DECEMBER 31, 1996,
AND FOR THE YEAR THEN
ENDED
Net sales and operating
revenues............... $2,980 $3,602 $ -- $ -- $ (10) $6,572
====== ====== ===== ===== ===== ======
Operating profit........ 262 415 -- 23 -- 700
Equity in net income of
affiliated companies... -- -- -- -- -- --
General corporate
expenses............... (13) (14) -- (45) -- (72)
------ ------ ----- ----- ----- ------
Income before interest
expense, income taxes
and minority interest.. 249 401 -- (22) -- 628
====== ====== ===== ===== ===== ======
Identifiable assets..... 2,555 3,878 -- 1,235 (108) 7,560
Investment in affiliated
companies.............. 2 24 -- 1 -- 27
------ ------ ----- ----- ----- ------
Total assets........... 2,557 3,902 -- 1,236 (108) 7,587
====== ====== ===== ===== ===== ======
Depreciation, depletion
and amortization....... 94 205 -- 10 -- 309
====== ====== ===== ===== ===== ======
Capital expenditures for
continuing operations.. 177 341 -- 55 -- 573
====== ====== ===== ===== ===== ======
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 -- 1,176 (94) 6,361
Investment in affiliated
companies.............. 3 4 -- -- -- 7
Identifiable net assets
related to discontinued
operations............. -- -- 433 -- -- 433
Investment in affiliated
companies related to
discontinued
operations............. -- -- 612 -- -- 612
------ ------ ----- ----- ----- ------
Total assets........... 1,877 3,409 1,045 1,176 (94) 7,413
====== ====== ===== ===== ===== ======
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 -- 1,137 (156) 3,990
Investment in affiliated
companies.............. 2 3 -- -- -- 5
Identifiable net assets
related to discontinued
operations............. -- -- 967 -- (101) 866
Investment in affiliated
companies related to
discontinued
operations............. -- -- 992 -- -- 992
------ ------ ----- ----- ----- ------
Total assets........... 1,474 1,540 1,959 1,137 (257) 5,853
====== ====== ===== ===== ===== ======
Depreciation, depletion
and amortization....... 51 89 -- 2 -- 142
====== ====== ===== ===== ===== ======
Capital expenditures for
continuing operations.. 113 166 -- 1 -- 280
====== ====== ===== ===== ===== ======
</TABLE>
See Notes on page 70.
68
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
GEOGRAPHIC AREA(B)(C)
------------------------------- RECLASS.
UNITED EUROPEAN OTHER AND
STATES CANADA UNION FOREIGN ELIMINATION CONSOLIDATED
------ ------ -------- ------- ----------- ------------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
AT DECEMBER 31, 1996,
AND FOR THE YEAR THEN
ENDED
Net sales and operating
revenues:
Sales to unaffiliated
customers............. $4,708 $194 $1,295 $375 $ -- $6,572
Transfers among
geographic areas(a)... 99 49 29 36 (213) --
------ ---- ------ ---- ----- ------
Total................ 4,807 243 1,324 411 (213) 6,572
====== ==== ====== ==== ===== ======
Operating profit........ 513 30 121 36 -- 700
Equity in net income
(loss) of affiliated
companies.............. 1 -- -- (1) -- --
General corporate
expenses............... (72) -- -- -- -- (72)
------ ---- ------ ---- ----- ------
Income before interest
expense, income taxes
and minority interest.. 442 30 121 35 -- 628
====== ==== ====== ==== ===== ======
Identifiable assets..... 5,960 173 1,079 449 (101) 7,560
Investment in affiliated
companies.............. 17 -- 2 8 -- 27
------ ---- ------ ---- ----- ------
Total assets......... 5,977 173 1,081 457 (101) 7,587
====== ==== ====== ==== ===== ======
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
affiliatedcompanies.... 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..... 4,915 207 1,077 241 (79) 6,361
Investment in affiliated
companies.............. 3 -- 2 2 -- 7
Identifiable net assets
related to discontinued
operations............. 168 -- -- 265 -- 433
Investment in affiliated
companies related to
discontinued
operations............. 574 2 -- 36 -- 612
------ ---- ------ ---- ----- ------
Total assets......... 5,660 209 1,079 544 (79) 7,413
====== ==== ====== ==== ===== ======
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..... 2,784 141 1,149 17 (101) 3,990
Investment in affiliated
companies.............. 4 -- -- 1 -- 5
Identifiable net assets
related to discontinued
operations............. 433 -- 403 30 -- 866
Investment in affiliated
companies related to
discontinued
operations............. 915 -- 3 74 -- 992
------ ---- ------ ---- ----- ------
Total assets......... 4,136 141 1,555 122 (101) 5,853
====== ==== ====== ==== ===== ======
</TABLE>
See Notes on following page.
69
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
- --------
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, Tenneco's segments principally market their
products and services in the United States, with significant sales in
the European Union and other foreign countries.
(c) Tenneco's Energy Business, Shipbuilding Business, farm and
construction equipment and chemicals operations have been reflected
as discontinued operations in the accompanying financial statements.
Reference is made to Note 4, "Discontinued Operations, Disposition of
Assets, and Extraordinary Loss," for further information.
(d) Included in "Other" are the operations of Tenneco Business Services
("TBS"). TBS designs, implements, and administers shared
administrative service programs for Tenneco as well as certain other
former Tenneco businesses.
Tenneco is engaged in the sale of products for export from the United
States. Such sales are reflected in the table below:
<TABLE>
<CAPTION>
GEOGRAPHIC AREA PRINCIPAL PRODUCTS 1996 1995 1994
--------------- --------------------------------------------- ---- ---- ----
(MILLIONS)
<C> <S> <C> <C> <C>
Canada......... Ride control systems, paperboard products,
molded and pressed pulp goods, corrugated
boxes, aluminum, and plastics $119 $ 72 $ 75
European Union. Molded and pressed pulp goods, paperboard
products, corrugated boxes, aluminum, and
plastics 24 23 21
Other Foreign.. Ride control systems, molded and pressed pulp
goods, paperboard products, corrugated boxes,
aluminum, and plastics 124 69 49
---- ---- ----
Total Export Sales............................................ $267 $164 $145
==== ==== ====
</TABLE>
14. COMMITMENTS AND CONTINGENCIES
Capital Commitments
Tenneco estimates that expenditures aggregating approximately $350 million
will be required after December 31, 1996, to complete facilities and projects
authorized at such date, and substantial commitments have been made in
connection therewith.
Lease Commitments
Tenneco holds certain of its facilities, equipment and other assets under
long-term leases. The minimum rental commitments under non-cancelable
operating leases with lease terms in excess of one year are $167 million, $133
million, $119 million, $112 million, and $109 million for the years 1997,
1998, 1999, 2000, and 2001, respectively, and $243 million for subsequent
years. Of these amounts, $100 million for 1997, $79 million for 1998, $79
million for 1999, $79 million for 2000, $79 million for 2001, and $23 million
for subsequent years are lease payment commitments to financial investors (the
"Lessor") for certain mill and timberlands assets.
Following the initial lease period, Tenneco may, under the provisions of the
lease agreements, extend the leases on terms mutually negotiated with the
Lessor or purchase the leased assets under conditions specified in the lease
agreements. If the purchase options are not exercised or the leases are not
extended, Tenneco will make a residual guarantee payment to the Lessor of
approximately $650 million, which will be refunded up to the total amount of
the residual guarantee payment based on the Lessor's subsequent sales price
for the leased assets. Throughout the lease period, Tenneco is required to
maintain the leased properties.
Commitments under capital leases were not significant to the accompanying
financial statements. Total rental expense for continuing operations for the
years 1996, 1995, and 1994, was $179 million, $171 million, and $161 million,
respectively, including minimum rentals under non-cancelable operating leases
of $151 million, $148 million, and $143 million for the corresponding periods.
70
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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, 1996. Tenneco
Packaging was in compliance with all of its covenants at December 31, 1996.
Litigation
Tenneco and Newport News have received letters from the Defense Contract
Audit Agency (the "DCAA"), inquiring about certain aspects of the
Distributions, including the disposition of the TRP. The DCAA has been advised
that (i) the TRP will retain the liability for all benefits accrued by the
Newport News salaried employees through December 31, 1996, (ii) the Newport
News salaried employees will not accrue additional benefits under the TRP
after December 31, 1996, and (iii) no liabilities or assets of the TRP will be
transferred from the TRP to any plan maintained by Newport News. A
determination of the ratio of assets to liabilities of the TRP attributable to
Newport News will be based on facts, assumptions and legal issues which are
complicated and uncertain; however, it is likely that the U.S. Government will
assert a claim against Newport News with respect to the amount, if any, by
which the assets of the TRP attributable to its employees are alleged to
exceed the liabilities. Tenneco, with the full cooperation of Newport News,
will defend against any claim by the U.S. Government, and in the event there
is a determination that an amount is due to the U.S. Government, Tenneco and
Newport News will share the obligation for such amount plus the amount of
related defense expenses, in the ratio of 80% and 20%, respectively. At this
preliminary stage, it is impossible to predict with certainty any eventual
outcome regarding this matter; however, Tenneco does not believe that this
matter will have a material adverse effect on its consolidated financial
position or results of operations.
Tenneco and its subsidiaries are parties to various other legal proceedings
arising from their operations. Tenneco 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 Tenneco Inc. and its
subsidiaries.
Environmental Matters
Tenneco and its subsidiaries are subject to a variety of environmental and
pollution control laws and regulations in all jurisdictions in which they
operate. Tenneco has provided reserves for compliance with these laws and
regulations where it is probable that a liability exists and where Tenneco can
make a reasonable estimate of the liability. The estimated liabilities
recorded are subject to change as more information becomes available regarding
the magnitude of possible clean up costs and the timing, varying costs, and
effectiveness of alternative clean up technologies. However, Tenneco believes
that any additional costs which arise as more information becomes available
will not have a material effect on the financial condition or results of
operations of Tenneco.
71
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
INCOME BEFORE INCOME (LOSS)
INTEREST FROM
NET SALES EXPENSE, INCOME (LOSS) DISCONTINUED
AND INCOME TAXES FROM OPERATIONS, EXTRAORDINARY NET
OPERATING AND MINORITY CONTINUING NET OF LOSS, NET OF INCOME
QUARTER REVENUES INTEREST OPERATIONS INCOME TAX INCOME TAX (LOSS)
------- --------- ------------- ------------- ------------ ------------- ------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
1996 1st................ $ 1,539 $161 $ 60 $435 $ -- $495
2nd................... 1,694 253 118 43 -- 161
3rd................... 1,653 171 76 40 (1) 115
4th................... 1,686 43 (36) (90) (235) (361)
------- ---- ---- ---- ----- ----
$ 6,572 $628 $218 $428 $(236) $410
======= ==== ==== ==== ===== ====
1995 1st................ $ 1,237 $177 $ 76 $ 77 $ -- $153
2nd................... 1,340 201 92 93 -- 185
3rd................... 1,263 173 73 141 -- 214
4th................... 1,381 121 17 166 -- 183
------- ---- ---- ---- ----- ----
$ 5,221 $672 $258 $477 $ -- $735
======= ==== ==== ==== ===== ====
</TABLE>
<TABLE>
<CAPTION>
EARNINGS (LOSS) PER AVERAGE SHARE OF COMMON
STOCK
------------------------------------------------
CONTINUING DISCONTINUED EXTRAORDINARY NET INCOME
QUARTER OPERATIONS OPERATIONS LOSS (LOSS)
------- ---------- ------------ ------------- ----------
<S> <C> <C> <C> <C>
1996 1st...................... $ .34 $2.55 $ -- $2.89
2nd......................... .70 .23 -- .93
3rd......................... .45 .22 (.01) .66
4th......................... (.21) (.57) (1.37) (2.15)
----- ----- ------ -----
$1.28 $2.43 $(1.38) $2.33
===== ===== ====== =====
1995 1st...................... $ .43 $ .41 $ -- $ .84
2nd......................... .53 .52 -- 1.05
3rd......................... .42 .81 -- 1.23
4th......................... .10 .95 -- 1.05
----- ----- ------ -----
$1.48 $2.68 $ -- $4.16
===== ===== ====== =====
</TABLE>
- --------
Notes: Reference is made to Notes 3, 4 and 8 and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for items affecting
quarterly results. The sum of the quarters may not equal the total of the
respective year's earnings per share due to changes in the weighted average
shares outstanding throughout the year.
(The preceding notes are an integral part of the foregoing financial
statements.)
72
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There has been no change in accountants, nor has there been any disagreement
on any matter of accounting principles or practices or financial disclosure,
which in either case is required to be reported pursuant to this Item 9.
PART III
Item 10, "Directors and Executive Officers of the Registrant," Item 11,
"Executive Compensation," Item 12, "Security Ownership of Certain Beneficial
Owners and Management," and Item 13, "Certain Relationships and Related
Transactions," have been omitted from this report inasmuch as Tenneco Inc.
will file with the Securities and Exchange Commission pursuant to Regulation
14A within 120 days after the end of the fiscal year covered by this report a
definitive Proxy Statement for the Annual Meeting of Shareowners of Tenneco
Inc. to be held on May 13, 1997, at which meeting the shareowners will vote
upon the election of directors. The information under the caption "Election of
Directors" in such Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
FINANCIAL STATEMENTS INCLUDED IN ITEM 8
See "Index to Financial Statements of Tenneco Inc. and Consolidated
Subsidiaries" set forth in Item 8, "Financial Statements and Supplementary
Data."
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES INCLUDED IN ITEM 14
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Schedules of Tenneco Inc. and Consolidated Subsidiaries--Schedule II--
Valuation and qualifying accounts--three years ended December 31, 1996.. 74
</TABLE>
SCHEDULES OMITTED AS NOT REQUIRED OR INAPPLICABLE
Schedule I-- Condensed financial information of registrant
Schedule III-- Real estate and accumulated depreciation
Schedule IV-- Mortgage loans on real estate
Schedule V-- Supplemental Information Concerning Property--Casualty
Insurance Operations
73
<PAGE>
SCHEDULE II
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
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,
1996.................. $24 $12 $-- $ 4 $32
=== === === === ===
Year Ended December 31,
1995.................. $15 $20 $-- $11 $24
=== === === === ===
Year Ended December 31,
1994.................. $15 $ 5 $-- $ 5 $15
=== === === === ===
</TABLE>
74
<PAGE>
REPORTS ON FORM 8-K
On December 26, 1996, the Company filed a Current Report on Form 8-K with
the Securities and Exchange Commission reporting pursuant to Items 2 and 5
thereof the Distribution and related transactions. On February 24, 1997, the
Company filed a Current Report on Form 8-K/A, amending the initial filing to
include therein the pro forma financial information required by Form 8-K and
omitted from the initial filing in reliance on Item 7 thereof.
EXHIBITS
The following exhibits are filed with Tenneco Inc.'s Annual Report on Form
10-K for the fiscal year ended December 31, 1996, or incorporated therein by
reference (exhibits designated by an asterisk are filed with the Report; all
other exhibits are incorporated by reference):
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
<C> <S>
2 --None.
*3.1 --Restated Certificate of Incorporation of Tenneco Inc.
*3.2 --Amended and Restated By-laws of Tenneco Inc.
4.1 --Form of Specimen Stock Certificate of Tenneco Inc. Common Stock
(incorporated herein by reference from Exhibit 4.1 of Tenneco Inc.'s
Form 10, File No. 1-12387).
*4.2 --Rights Agreement, dated as of December 11, 1996, by and between
Tenneco Inc. (formerly New Tenneco Inc.) and First Chicago Trust
Company of New York, as Rights Agent.
4.3(a) --Indenture, dated as of November 1, 1996, between Tenneco Inc.
(formerly New Tenneco Inc.) and The Chase Manhattan Bank, as Trustee
(incorporated herein by reference from Exhibit 4.1 of Tenneco Inc.'s
Form S-4, Registration No. 333-14003).
*4.3(b) --First Supplemental Indenture dated as of December 11, 1996 to
Indenture dated as of
November 1, 1996 between Tenneco Inc. (formerly New Tenneco Inc.)
and The Chase Manhattan Bank, as Trustee.
*4.3(c) --Second Supplemental Indenture dated as of December 11, 1996 to
Indenture dated as of
November 1, 1996 between Tenneco Inc. (formerly New Tenneco Inc.)
and The Chase Manhattan Bank, as Trustee.
*4.3(d) --Third Supplemental Indenture dated as of December 11, 1996 to
Indenture dated as of
November 1, 1996 between Tenneco Inc. (formerly New Tenneco Inc.)
and The Chase Manhattan Bank, as Trustee.
*4.3(e) --Fourth Supplemental Indenture dated as of December 11, 1996 to
Indenture dated as of
November 1, 1996 between Tenneco Inc. (formerly New Tenneco Inc.)
and The Chase Manhattan Bank, as Trustee.
*4.3(f) --Fifth Supplemental Indenture dated as of December 11, 1996 to
Indenture dated as of
November 1, 1996 between Tenneco Inc. (formerly New Tenneco Inc.)
and The Chase Manhattan Bank, as Trustee.
*4.3(g) --Sixth Supplemental Indenture dated as of December 11, 1996 to
Indenture dated as of
November 1, 1996 between Tenneco Inc. (formerly New Tenneco Inc.)
and The Chase Manhattan Bank, as Trustee.
*4.3(h) --Seventh Supplemental Indenture dated as of December 11, 1996 to
Indenture dated as of November 1, 1996 between Tenneco Inc.
(formerly New Tenneco Inc.) and The Chase Manhattan Bank, as
Trustee.
9 --None.
</TABLE>
75
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.1 --Distribution Agreement, dated November 1, 1996, by and among El Paso
Tennessee Pipeline Co. (formerly Tenneco Inc.), Tenneco Inc.
(formerly New Tenneco Inc.), and Newport News Shipbuilding Inc.
(incorporated herein by reference from Exhibit 2 of Tenneco Inc.'s
Form 10, File No. 1-12387).
*10.2 --Amendment No. 1 to Distribution Agreement, dated as of December 11,
1996, by and among El Paso Tennessee Pipeline Co. (formerly Tenneco
Inc.), Tenneco Inc. (following New Tenneco Inc.), and Newport News
Shipbuilding Inc.
*10.3 --Debt and Cash Allocation Agreement, dated December 11, 1996, by and
among El Paso Tennessee Pipeline Co. (formerly Tenneco Inc.), Tenneco
Inc. (formerly New Tenneco Inc.), and Newport News Shipbuilding Inc.
*10.4 --Benefits Agreement, dated December 11, 1996, by and among El Paso
Tennessee Pipeline Co. (formerly Tenneco Inc.), Tenneco Inc.
(formerly New Tenneco Inc.), and Newport News Shipbuilding Inc.
*10.5 --Insurance Agreement, dated December 11, 1996, by and among El Paso
Tennessee Pipeline Co. (formerly Tenneco Inc.), Tenneco Inc.
(formerly New Tenneco Inc.), and Newport News Shipbuilding Inc.
*10.6 --Tax Sharing Agreement, dated December 11, 1996, by and among El Paso
Tennessee Pipeline Co. (formerly Tenneco Inc.), Newport News
Shipbuilding Inc., Tenneco Inc. (formerly New Tenneco Inc.), and El
Paso Natural Gas Company.
*10.7 --First Amendment to Tax Sharing Agreement, dated as of December 11,
1996 among El Paso Tennessee Pipeline Co. (formerly Tenneco Inc.),
Tenneco Inc. (formerly New Tenneco Inc.) and Newport News
Shipbuilding Inc.
*10.8 --Transition Services Agreement, dated June 19, 1996, by and among,
Tenneco Business Services, Inc., El Paso Tennessee Pipeline Co.
(formerly Tenneco Inc.) and El Paso Natural Gas Company.
*10.9 --Trademark Transition License Agreement, dated December 11, 1996, by
and between Newport News Shipbuilding Inc. and Tenneco Inc. (formerly
New Tenneco Inc.).
*10.10 --Trademark Transition License Agreement, dated December 11, 1996, by
and between Tenneco Inc. (formerly New Tenneco Inc.) and El Paso
Tennessee Pipeline Co. (formerly Tenneco Inc.).
10.11 --Amended and Restated Tenneco Inc. Board of Directors Deferred
Compensation Plan (incorporated herein by reference from Exhibit 10.8
of Tenneco's Form 10, File No. 1-12387).
10.12 --Amended and Restated Tenneco Inc. Executive Incentive Compensation
Plan (incorporated herein by reference from Exhibit 10.9 of Tenneco's
Form 10, File No. 1-12387).
10.13 --Tenneco Inc. Deferred Compensation Plan (incorporated herein by
reference from Exhibit 10.10 of Tenneco's Form 10, File No. 1-12387).
10.14 --Tenneco Inc. 1996 Deferred Compensation Plan (incorporated herein by
reference from Exhibit 10.11 of Tenneco's Form 10, File No. 1-12387).
10.15 --Amended and Restated Tenneco Inc. Supplemental Executive Retirement
Plan (incorporated herein by reference from Exhibit 10.12 of
Tenneco's Form 10, File No. 1-12387).
10.16 --Amended and Restated Tenneco Inc. Benefit Equalization Plan
(incorporated herein by reference from Exhibit 10.13 of Tenneco's
Form 10, File No. 1-12387).
10.17 --Amended and Restated Tenneco Inc. Outside Directors Retirement Plan
(incorporated herein by reference from Exhibit 10.14 of Tenneco's
Form 10, File No. 1-12387).
10.18 --Amended and Restated Supplemental Pension Agreement, dated September
12, 1995 between Dana G. Mead and Tenneco Inc (incorporated herein by
reference from Exhibit 10.15 of Tenneco's Form 10, File No. 1-12387).
10.19 --Amended and Restated Tenneco Inc. Change in Control Severance
Benefit Plan for Key Executives (incorporated herein by reference
from Exhibit 10.16 of Tenneco's Form 10, File No. 1-12387).
10.20 --Amended and Restated Tenneco Benefits Protection Trust (incorporated
herein by reference from Exhibit 10.17 of Tenneco's Form 10, File No.
1-12387).
10.21 --Employment Agreement, dated June 29, 1992 between Stacy S. Dick and
Tenneco Inc (incorporated herein by reference from Exhibit 10.18 of
Tenneco's Form 10, File No. 1-12387).
</TABLE>
76
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.22 --Employment Agreement, dated March 12, 1992 between Dana G. Mead and
Tenneco Inc (incorporated herein by reference from Exhibit 10.19 of
Tenneco's Form 10, File No. 1-12387).
10.23 --Employment Agreement, dated December 3, 1993 between Paul T. Stecko
and Tenneco Packaging Inc (incorporated herein by reference from
Exhibit 10.20 of Tenneco's Form 10, File No. 1-12387).
10.24 --Agreement, dated September 9, 1992 between Theodore R. Tetzlaff and
Tenneco Inc (incorporated herein by reference from Exhibit 10.21 of
Tenneco's Form 10, File No. 1-12387).
10.25 --Tenneco Inc. Directors Restricted Stock Program (incorporated herein
by reference from Exhibit 10.22 of Tenneco's Form 10, File No. 1-
12387).
10.26 --Tenneco Inc. Directors Restricted Stock and Restricted Unit Program
(incorporated herein by reference from Exhibit 10.23 of Tenneco's
Form 10, File No. 1-12387).
10.27 --1996 Tenneco Inc. Stock Ownership Plan (incorporated herein by
reference from Exhibit 10.24 of Tenneco's Form 10, File No. 1-12387).
*10.28 --Amended and Restated Mill I Lease, dated as of November 4, 1996,
between Credit Suisse Leasing 92A, L.P. and Tenneco Packaging Inc.
*10.29 --Amended and Restated Mill II Lease, dated as of November 4, 1996,
between Credit Suisse Leasing 92A, L.P., and Tenneco Packaging Inc.
10.30 --Timberland Lease, dated January 31, 1991, by and between Four States
Timber Venture and Packaging Corporation of America (incorporated
herein by reference from Exhibit 10.27 of Tenneco Inc.'s Form 10,
File No. 1-12387).
10.31 --Professional Services Agreement, dated August 22, 1996, by and
between Tenneco Business Services Inc. and Newport News Shipbuilding
Inc. (incorporated herein by reference from Exhibit 10.28 of Tenneco
Inc.'s Form 10, File No. 1-12387).
*11 --Computation of Earnings (Loss) Per Share of Common Stock.
*12 --Computation of Ratio of Earnings to Fixed Charges.
13 --None.
16 --None.
18 --None.
*21 --Subsidiaries of Tenneco Inc.
22 --None.
*23 --Consent of Arthur Andersen LLP
*24 --Powers of Attorney of the following directors of Tenneco Inc.:
Mark Andrews
W. Michael Blumenthal
M. Kathryn Eickhoff
Peter T. Flawn
Henry U. Harris, Jr.
Belton K. Johnson
John B. McCoy
Sir David Plastow
William L. Weiss
Clifton R. Wharton, Jr.
*27.1 --Financial Data Schedule, FYE 12/31/96
*27.2 --Financial Data Schedule, FYE 12/31/95
28 --None.
99 --None.
</TABLE>
77
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
Tenneco Inc.
/s/ Dana G. Mead
By___________________________________
Dana G. Mead
Chairman and Chief Executive Officer
Date: March 11, 1997
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING ON BEHALF OF THE REGISTRANT AND
IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Dana G. Mead Principal Executive Officer March 11, 1997
____________________________________ and Director
Dana G. Mead
/s/ Robert T. Blakely Principal Financial and March 11, 1997
____________________________________ Accounting Officer
Robert T. Blakely
Mark Andrews, W. Michael Blumenthal, Directors
M. Kathryn Eickhoff, Peter T.
Flawn, Henry U. Harris, Jr., Belton
K. Johnson, John B. McCoy, Sir
David Plastow, William L. Weiss,
Clifton R. Wharton, Jr.
</TABLE>
/s/ Theodore R. Tetzlaff
By ____________________________ March 11, 1997
Attorney-in-fact
78
<PAGE>
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
NEW TENNECO INC.
New Tenneco Inc., a corporation duly organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify that:
1. The Restated Certificate of Incorporation of the Corporation is
hereby amended by deleting Article FIRST thereof and inserting the following in
lieu thereof:
"FIRST: The name of the corporation is Tenneco Inc."
2. The foregoing amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware and by written consent of the then sole stockholder of the Corporation
in accordance with 228 of the General Corporation Law of the State of Delaware.
3. The foregoing amendment to the Restated Certificate of
Incorporation of the Corporation shall be effective at 8:00 a.m. Eastern
Standard Time on December 12, 1996.
<PAGE>
IN WITNESS WHEREOF, said New Tenneco Inc. has caused this Certificate to be
signed as of the 11th day of December, 1996.
NEW TENNECO INC.
By: /s/ Karl A. Stewart
----------------------------------
Name: Karl A. Stewart
Office: Vice President and Secretary
<PAGE>
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.
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.
1
<PAGE>
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 any additional director of any
class elected to fill a newly created directorship resulting from an increase
in such class shall hold office for a term that shall coincide with the
remaining term of that class, but in no case shall a decrease in the number of
directors shorten the term of any incumbent director. A director shall hold
office until the annual meeting for the year in which his term expires and
until his successor shall be elected and shall qualify, subject, however, to
prior death, resignation, retirement, disqualification or removal from office.
Any vacancy on the Board of Directors that results from an increase in the
number of directors may be filled by a majority of the Board of Directors then
in office, provided that a quorum is present, and any other vacancy occurring
in the Board of Directors may be filled by a majority of the directors then in
office, even if less than a quorum, or by a sole remaining director. Directors
chosen to fill any such vacancy shall hold office for a term expiring at the
annual meeting of stockholders at which the term of office of the class to
which they have been elected expires and until such director's successor shall
have been duly elected and qualified.
Notwithstanding the foregoing, whenever the holders of any one or more
series of Preferred Stock shall have the right, voting separately as a class
or series, to elect directors, the election, removal, term of office, filling
of vacancies and other features of such directorships shall be governed by the
terms of this Restated Certificate of Incorporation applicable thereto, and
such directors so elected shall not be divided into classes pursuant to this
Article FIFTH unless expressly provided by such terms.
B. The Board of Directors shall be authorized to adopt, make, amend, alter,
change, add to or repeal the By-Laws of the corporation, subject to the power
of the stockholders to amend, alter, change, add to or repeal the By-Laws made
by the Board of Directors.
C. Unless and except to the extent that the By-Laws of the corporation shall
so require, the election of directors of the corporation need not be by
written ballot.
SIXTH: A. In addition to any affirmative vote required by law or this
Restated Certificate of Incorporation or the By-Laws of the corporation, and
except as otherwise expressly provided in Section B of this Article SIXTH, a
Business Combination (as hereinafter defined) with, or proposed by or on
behalf of, any Interested Stockholder (as hereinafter defined) or any
Affiliate or Associate (as hereinafter defined) of any Interested Stockholder
or any person who thereafter would be an Affiliate or Associate of such
Interested Stockholder shall, except as otherwise prohibited by applicable
law, require the affirmative vote of not less than 66 2/3% of the votes
2
<PAGE>
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.
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 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
3
<PAGE>
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.
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 subsequent provisions). The proxy or
information statement shall contain on
4
<PAGE>
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) 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.
5
<PAGE>
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 November
1, 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
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 December 11, 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
December 11, 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.
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
6
<PAGE>
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.
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.
7
<PAGE>
H. Notwithstanding any other provisions of this Restated Certificate of
Incorporation or the By-Laws of the corporation (and notwithstanding the fact
that a lesser percentage or separate class vote may be specified by law, this
Restated Certificate of Incorporation or the By-Laws of the corporation), any
proposal to amend or repeal, or to adopt any provision of this Restated
Certificate of Incorporation inconsistent with, this Article SIXTH which is
proposed by or on behalf of an Interested Stockholder or an Affiliate or
Associate of an Interested Stockholder shall require the affirmative vote of
the holders of not less than 66 2/3% of the votes entitled to be cast by the
holders of all the then outstanding shares of Voting Stock, voting together as
a single class, excluding Voting Stock beneficially owned by any Interested
Stockholder, provided, however, that this Section H shall not apply to, and
such 66 2/3% vote shall not be required for, any amendment or repeal of, or
the adoption of any provision inconsistent with, this Article SIXTH
unanimously recommended by the Board of Directors if all of such directors are
persons who would be eligible to serve as Continuing Directors within the
meaning of Paragraph 8 of Section C of this Article SIXTH.
SEVENTH: A director of the corporation shall not be liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except to the extent such exemption from liability or
limitation thereof is not permitted under the General Corporation Law of the
State of Delaware as the same exists or may hereafter be amended. 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 11th day of December, 1996.
NEW TENNECO INC.
By: /s/ Dana G. Mead
__________________________________
Name: Dana G. Mead
Office: Chairman and Chief
Executive Officer
8
<PAGE>
BY-LAWS
OF
TENNECO INC.
AMENDED AND RESTATED AS OF DECEMBER 11, 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 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 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
1
<PAGE>
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 an 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.
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
2
<PAGE>
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 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 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
3
<PAGE>
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.
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
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.
4
<PAGE>
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,
a Compensation Committee, an Audit Committee, a Nominating and Business
Development 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.
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
5
<PAGE>
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.
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 General Counsel, the Secretary and
any Assistant Secretary, the Treasurer and any Assistant Treasurer, and the
Controller 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,
6
<PAGE>
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.
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 Committee or the Chief Executive
Officer.
7
<PAGE>
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.
(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.
8
<PAGE>
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.
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
9
<PAGE>
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 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 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.
10
<PAGE>
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 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
11
<PAGE>
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.
CERTIFICATION
The undersigned hereby certifies that he is the duly elected and acting
Secretary of 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
12
<PAGE>
Exhibit 4.2
________________________
NEW TENNECO INC.
and
FIRST CHICAGO TRUST COMPANY OF NEW YORK
Rights Agent
RIGHTS AGREEMENT
Dated as of December 11, 1996
________________________
<PAGE>
Table of Contents
-----------------
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
1 Certain Definitions................................................ 1
2 Appointment of Rights Agent........................................ 5
3 Issue of Rights Certificates....................................... 5
4 Form of Rights Certificates........................................ 7
5 Countersignature and Registration.................................. 8
6 Transfer, Split Up, Combination and Exchange of Rights Certificates;
Mutilated, Destroyed, Lost or Stolen Rights Certificates........... 9
7 Exercise of Rights; Purchase Price; Expiration Date of Rights...... 9
8 Cancellation and Destruction of Rights Certificates................ 11
9 Reservation and Availability of Capital Stock...................... 11
10 Preferred Stock Record Date........................................ 13
11 Adjustment of Purchase Price, Number and Kind of Shares or
Number of Rights................................................... 13
12 Certificate of Adjusted Purchase Price or Number of Shares......... 21
13 Consolidation, Merger or Sale or Transfer of Assets or Earning
Power.............................................................. 22
14 Fractional Rights and Fractional Shares............................ 24
15 Rights of Action................................................... 25
16 Agreement of Rights Holders........................................ 25
17 Rights Certificate Holder Not Deemed a Stockholder................. 26
18 Concerning the Rights Agent........................................ 27
19 Merger or Consolidation or Change of Name of Rights Agent.......... 27
20 Duties of Rights Agent............................................. 28
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
21 Change of Rights Agent.............................................. 29
22 Issuance of New Rights Certificates................................. 30
23 Redemption and Termination.......................................... 31
24 Notice of Certain Events............................................ 31
25 Notices............................................................. 32
26 Supplements and Amendments.......................................... 33
27 Successors.......................................................... 33
28 Determinations and Actions by the Board of Directors, etc........... 33
29 Benefits of this Agreement.......................................... 34
30 Severability........................................................ 34
31 Governing Law....................................................... 34
32 Counterparts........................................................ 34
33 Descriptive Headings................................................ 34
</TABLE>
Exhibit A -- Certificate of Designation, Preferences and Rights
Exhibit B -- Form of Rights Certificate
Exhibit C -- Form of Summary of Rights
-iii-
<PAGE>
RIGHTS AGREEMENT
----------------
RIGHTS AGREEMENT, dated as of December 11, 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 December 11, 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.
-1-
<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
-2-
<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 November 1, 1996.
-3-
<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.
(dd) "Spread" shall have the meaning set forth in Section
11(a)(iii) hereof.
-4-
<PAGE>
(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 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
-5-
<PAGE>
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 issued pursuant to the Industrial Distribution) shall also
be deemed to be certificates for Rights, and shall bear the following legend:
-6-
<PAGE>
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 December 11, 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.
(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)
-7-
<PAGE>
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.
(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.
-8-
<PAGE>
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 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
-9-
<PAGE>
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.
(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.
-10-
<PAGE>
(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
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
-11-
<PAGE>
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.
(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-
-12-
<PAGE>
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 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,
-13-
<PAGE>
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 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,
-14-
<PAGE>
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 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
-15-
<PAGE>
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 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
-16-
<PAGE>
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
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
-17-
<PAGE>
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 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
-18-
<PAGE>
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) 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
-19-
<PAGE>
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 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
-20-
<PAGE>
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 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.
-21-
<PAGE>
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" 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.
-22-
<PAGE>
(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
(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).
-23-
<PAGE>
(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 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
-24-
<PAGE>
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 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;
-25-
<PAGE>
(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 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.
-26-
<PAGE>
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
-27-
<PAGE>
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.
-28-
<PAGE>
(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 the case may be, and to each transfer agent of the Common Stock
and Preferred Stock, by
-29-
<PAGE>
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 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
-30-
<PAGE>
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 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
-31-
<PAGE>
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
Attention: President
-32-
<PAGE>
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 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
-33-
<PAGE>
(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.
-34-
<PAGE>
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 /s/ Karl A. Stewart By /s/ Dana G. Mead
----------------------------------- --------------------------------
Name: Karl A. Stewart Name: Dana G. Mead
Title: Vice President and Secretary Title: Chairman and Chief
Executive Officer
Attest: FIRST CHICAGO TRUST COMPANY
OF NEW YORK
By /s/ Charles D. Keryc By /s/ Kathleen D. Whelply
----------------------------------- --------------------------------
Name: Charles D. Keryc Name: Kathleen D. Whelply
Title: Vice President Title: Assistant Vice President
-35-
<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 December 11, 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, and 100 times the
aggregate per share amount (payable in cash, based upon the fair market value
-1-
<PAGE>
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 December 11, 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 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
-2-
<PAGE>
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 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
-3-
<PAGE>
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 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
-4-
<PAGE>
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 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
-5-
<PAGE>
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 11th day
of December, 1996.
NEW TENNECO INC.
_______________________
[Name]
Chairman of the Board
Attest:
___________________
[Name]
Secretary
-6-
<PAGE>
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 December 11, 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 from the Company at any time prior to 5:00 P.M. (Greenwich, Connecticut
time) on June 10,
* The portion of the legend in brackets shall be inserted only if
applicable and shall replace the preceding sentence.
-1-
<PAGE>
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 December 11, 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 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.
-2-
<PAGE>
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 December 11, 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 December 11, 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").
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
-2-
<PAGE>
Common Stock certificates issued after December 11, 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.
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
-3-
<PAGE>
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,
AS TRUSTEE
------------------
FIRST SUPPLEMENTAL INDENTURE
DATED AS OF DECEMBER 11, 1996
TO
INDENTURE
DATED AS OF NOVEMBER 1, 1996
------------------
PROVIDING FOR THE ISSUANCE OF
10.20% DEBENTURES DUE 2008
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
First Supplemental Indenture dated as of December 11, 1996 between New
Tenneco Inc., a corporation duly organized and existing under the laws of the
State of Delaware (hereinafter called the "Company"), and The Chase Manhattan
Bank, a New York banking corporation, as trustee (hereinafter called the
"Trustee").
Whereas, the Company has heretofore executed and delivered to the Trustee an
indenture dated as of November 1, 1996 (hereinafter called the "Original
Indenture"), to provide for the issue of an unlimited amount of debentures,
notes and/or other debt obligations of the Company (hereinafter referred to as
the "Securities"), the terms of which are to be determined as set forth in
Section 2.3 of the Original Indenture; and
Whereas, Section 8.1 of the Original Indenture provides, among other things,
that the Company and the Trustee may enter into indentures supplemental to the
Original Indenture for, among other things, the purpose of setting forth the
terms of Securities of any series; and
Whereas, the Company desires to create a series of the Securities in an
aggregate principal amount of $250,000,000 to be designated the "10.20%
Debentures due 2008" (the "Debentures"), and all action on the part of the
Company necessary to authorize the issuance of the Debentures under the
Original Indenture and this First Supplemental Indenture has been duly taken;
and
Whereas, all acts and things necessary to make the Debentures, when executed
by the Company and authenticated and delivered by the Trustee as in the
Original Indenture provided, the valid and binding obligations of the Company,
and to constitute these presents a valid and binding supplemental indenture
and agreement according to its terms, have been done and performed;
Now, therefore, in consideration of the premises and of the mutual covenants
herein contained, and of the acceptance of this trust by the Trustee, and of
the sum of one dollar to the Company duly paid by the Trustee at the execution
and delivery of these presents, and of other valuable consideration the
receipt whereof is hereby acknowledged and in order to authorize the
authentication and delivery of and to set forth the terms of the Debentures,
<PAGE>
It is hereby covenanted, declared and agreed by and between the parties
hereto, for the benefit of holders of the Debentures issued under the Original
Indenture, as follows:
ARTICLE 1.
Terms and Issuance of 10.20% Debentures Due 2008
Section 1.1. Issue of Debentures. A series of Securities which shall be
designated the "10.20% Debentures due 2008" shall be executed, authenticated
and delivered in accordance with the provisions of, and shall in all respects
be subject to, the terms, conditions and covenants of the Indenture, including
without limitation the terms set forth in this First Supplemental Indenture
(including the form of Debentures set forth in Section 1.2 hereof). The
aggregate principal amount of Debentures which may be authenticated and
delivered under the Indenture shall not, except as permitted by the provisions
of Sections 2.8, 2.9, 2.11, 8.5 and 12.3 of the Indenture, exceed
$250,000,000. The entire amount of Debentures may forthwith be executed by the
Company and delivered to the Trustee and shall be authenticated by the Trustee
and delivered to or upon the order of the Company pursuant to Section 2.4 of
the Indenture.
Section 1.2. Forms of Debentures and Authentication Certificate. The forms
of the Debentures and the Trustee's certificate of authentication shall be
substantially as follows:
[form of face of debenture]
NEW TENNECO INC.
10.20% DEBENTURE DUE 2008
No. $
New Tenneco Inc., a corporation organized and existing under the laws of the
State of Delaware (hereinafter called the "Company," which term shall include
any successor corporation as defined in the Indenture hereinafter referred
to), for value received, hereby promises to pay to or registered
assigns, the sum of Dollars on March 15, 2008, in any coin or currency
of the United States of America which at the time of payment is legal tender
for the payment of public and private debts, and to pay to the registered
holder hereof as hereinafter provided interest thereon at the rate per annum
specified in the title hereof in like coin or currency, from the September 15
or the March 15 next preceding the date hereof to which interest has been
paid, unless the date hereof is a September 15 or March 15
2
<PAGE>
to which interest on the Debentures has been paid, in which case from the date
hereof, or unless no interest has been paid on the Debentures since the
original issue date (hereinafter referred to) of this Debenture, in which case
from the original issue date, semi-annually on September 15 and March 15 in
each year, until payment of said principal sum has been made or duly provided
for, and to pay interest on any overdue principal and (to the extent permitted
by law) on any overdue installment of interest at the rate of 10.20% per
annum. Notwithstanding the foregoing, when there is no existing default in the
payment of interest on the Debentures, if the date hereof is after August 31
or February 28 (or 29) and prior to the following September 15 or March 15, as
the case may be, this Debenture shall bear interest from such September 15 or
March 15 or, if no interest has been paid on the Debentures since the original
issue date of this Debenture, from the original issue date; provided, however,
that if the Company shall default in the payment of interest due on such
September 15 or March 15, then this Debenture shall bear interest from the
September 15 or March 15 to which interest has been paid or, if no interest
has been paid on the Debentures since the original issue date of this
Debenture, from the original issue date. The interest so payable on any
September 15 or March 15 will, subject to certain exceptions provided in the
Indenture hereinafter referred to, be paid to the person in whose name this
Debenture is registered at the close of business on the August 31 or February
28 (or 29), as the case may be, next preceding such September 15 or March 15,
or if such August 31 or February 28 (or 29) is not a business day, the
business day next preceding such August 31 or February 28 (or 29). Interest on
this Debenture shall be computed on the basis of a 360-day year of twelve 30-
day months. Both principal of and interest on this Debenture are payable at
the principal office of the Trustee in the Borough of Manhattan, The City of
New York, New York; provided, however, that payment of interest may be made,
at the option of the Company, by check mailed to the address of the person
entitled thereto as such address shall appear on the Debenture register. The
original issue date in respect of the Debentures is December 11, 1996.
ADDITIONAL PROVISIONS OF THIS DEBENTURE ARE CONTAINED ON THE REVERSE HEREOF
AND SUCH PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS THOUGH
FULLY SET FORTH AT THIS PLACE.
This Debenture shall not be entitled to any benefit under the Indenture
hereafter referred to, or become valid or obligatory for any purpose, until
the Trustee under the Indenture shall have signed the form of certificate of
authentication endorsed hereon.
3
<PAGE>
In Witness Whereof, New Tenneco Inc. has caused this Instrument to be signed
in its name by its Chairman of the Board or its President or a Vice President,
and its corporate seal (or a facsimile thereof) to be hereto affixed and
attested by its Secretary or an Assistant Secretary.
Dated ..........................
New Tenneco Inc.
By .......................................
Chairman of the Board
Attest:
................................
Secretary.
[form of reverse of debenture]
NEW TENNECO INC.
10.20% DEBENTURE DUE 2008
This Debenture is one of a duly authorized issue of Debentures of the
Company known as its 10.20% Debentures due 2008 (herein called the
"Debentures"), limited to the aggregate principal amount of $250,000,000, all
issued under and equally entitled to the benefits of an Indenture (herein,
together with any amendments and supplements thereto, including without
limitation the form and terms of Securities issued pursuant thereto, called
the
4
<PAGE>
"Indenture"), dated as of November 1, 1996, executed by the Company to The
Chase Manhattan Bank (herein, together with any successor thereto, called the
"Trustee"), as Trustee, to which Indenture reference is hereby made for a
statement of the rights thereunder of the Trustee and of the registered
holders of the Debentures and of the duties thereunder of the Trustee and the
Company.
The Debentures are not subject to redemption by the Company prior to
maturity.
The Debentures are subject to repayment on March 15, 1998, in whole or in
part, in increments of $1,000 or integral multiples of $1,000 in excess of
$1,000, provided that the portion of the principal amount of any Debenture not
being repaid shall be at least $1,000, at the option of the holders thereof at
a repayment price equal to the principal amount thereof to be repaid, together
with interest payable thereon to the repayment date. For this Debenture to be
repaid at the option of the holder, the Company must receive at the corporate
trust office of the Trustee in the Borough of Manhattan, The City of New York,
during the period from and including January 15, 1998 to and including
February 15, 1998 or, if February 15, 1998 is not a Business Day, the next
succeeding Business Day, (i) this Debenture with the form entitled "Option to
Elect Repayment" below duly completed or (ii) a telegram, telex, facsimile
transmission or letter from a member of a national securities exchange or the
National Association of Securities Dealers, Inc. or a commercial bank or trust
company in the United States of America setting forth the name of the holder
of the Debenture, the principal amount of the Debenture, the amount of such
Debenture to be repaid, a statement that the option to elect repayment is
being made thereby and a guarantee that the Debenture to be repaid with the
form entitled "Option to Elect Repayment" on the reverse thereof duly
completed will be received by the Company no later than five Business days
after the date of such telegram, telex, facsimile transmission or letter, and
such Debenture and form duly completed are received by the Company by such
fifth Business Day. Either form of notice duly received during the period from
and including January 15, 1998 to and including February 15, 1998 shall be
irrevocable. All questions as to the validity, eligibility (including time of
receipt) and acceptance of any Debentures for repayment will be determined by
the Company, whose determination shall be final and binding.
The Indenture permits the Company to issue unsecured debentures, notes
and/or other evidences of indebtedness in one or more series ("Securities") up
to such principal amount or amounts as may be authorized in accordance with
the terms of the Indenture.
5
<PAGE>
To the extent permitted by, and as provided in, the Indenture, modifications
or alterations of the Indenture and of the rights and obligations of the
Company and of the holders of the Debentures may be made with the consent of
the Company and with the consent of the holders of not less than a majority in
principal amount of the Securities of all series then outstanding under the
Indenture (treated as a single class) which are affected by the modification
or amendment thereto; provided, however, that without the consent of the
holder hereof no such modification or alteration shall be made which will
affect the terms of payment of the principal of or interest on this Debenture.
In case a default, as defined in the Indenture, shall occur, the principal
of all the Debentures at any such time outstanding under the Indenture may be
declared or may become due and payable, upon the conditions and in the manner
and with the effect provided in the Indenture. The Indenture provides that
such declaration may in certain events be waived by the holders of a majority
in principal amount of the Debentures outstanding in the case of payment
defaults on the Debentures and in certain other events by the holders of a
majority in principal amount of the Securities of all series then outstanding
under the Indenture (treated as a single class) which are affected thereby.
The Indenture provides that no holder of any Debenture may enforce any
remedy under the Indenture except in the case of refusal or neglect of the
Trustee to act after notice of default and after request by the holders of a
majority in principal amount of the outstanding Debentures in certain events
(and in certain other events by the holders of a majority in principal amount
of the Securities of all series then outstanding under the Indenture, treated
as a single class, which are affected thereby) and the offer to the Trustee of
security and indemnity satisfactory to it; provided, however, that such
provision shall not prevent the holder hereof from enforcing payment of the
principal of or interest on this Debenture.
The transfer of this Debenture is registrable by the registered holder
hereof, in person or by duly authorized attorney, at the agency of the Company
in the Borough of Manhattan, The City of New York, New York, on books of the
Company to be kept for that purpose at said agency, upon surrender and
cancellation of this Debenture and on presentation of a duly executed written
instrument of transfer, and thereupon a new Debenture or Debentures, of the
same aggregate principal amount and in authorized denominations, will be
issued to the transferee or transferees in exchange herefor; and this
Debenture, with or without other Debentures, may in like manner be exchanged
for one
6
<PAGE>
or more new Debentures of other authorized denominations but of the same
aggregate principal amount; all subject to the terms and conditions set forth
in the Indenture.
The Company, the Trustee, any paying agent and any Registrar of the
Debentures may deem and treat the person in whose name this Debenture is
registered as the absolute owner hereof for all purposes whatsoever, and
neither the Company nor the Trustee nor any paying agent nor any Registrar of
the Debentures shall be affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or the interest
on, this Debenture, or for any claim based hereon or on the Indenture, against
any incorporator, or against any stockholder, director or officer, as such,
past, present or future, of the Company, or of any predecessor or successor
corporation, either directly or through the Company or any such predecessor or
successor corporation, whether by virtue of any constitution, statute or rule
of law, or by the enforcement of any assessment or penalty or otherwise, all
such liability, whether at common law, in equity, by any constitution, statute
or otherwise, of incorporators, stockholders, directors or officers being
released by every owner hereof by the acceptance of this Debenture and as part
of the consideration for the issue hereof, and being likewise released by the
terms of the Indenture; provided, however, that nothing herein or in the
Indenture contained shall be taken to prevent recourse to and the enforcement
of the liability, if any, of any stockholder or subscriber to capital stock of
the Company upon or in respect of shares of capital stock not fully paid up.
All terms used in this Debenture which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
7
<PAGE>
OPTION TO ELECT REPAYMENT
The undersigned hereby irrevocably requests and instructs the Company to
repay the within Debenture (or portion thereof specified below) pursuant to
its terms at a price equal to the principal amount thereof, together with
interest to the repayment date, to the undersigned, at
- -------------------------------------------------------------------------------
Tax I.D. No.
- -------------------------------------------------------------------------------
(Please Print or Typewrite Name, Address and Tax Identification Number of the
Undersigned)
For this Debenture to be repaid the Company must receive at the corporate
trust office of the Trustee in the Borough of Manhattan, The City of New York
or at such additional place or places of which the Company shall from time to
time notify the holder of the within Debenture during the period from and
including January 15, 1998 to and including February 15, 1998 or, if February
15, 1998 is not a Business Day, the next succeeding Business Day, (i) this
Debenture with this "Option to Elect Repayment" form duly completed or (ii) a
telegram, telex, facsimile transmission or letter from a member of a national
securities exchange or the National Association of Securities Dealers, Inc. or
a commercial bank or trust company in the United States of America setting
forth the name of the holder of the Debenture, the principal amount of the
Debenture, the amount of the Debenture to be repaid, a statement that the
option to elect repayment is being made thereby and a guarantee that the
Debenture to be repaid with the form entitled "Option to Elect Repayment" on
the reverse of the Debenture duly completed will be received by the Company
not later than five Business Days after the date of such telegram, telex,
facsimile transmission or letter, and such Debenture and form duly completed
are received by the Company by such fifth Business Day.
If less than the entire principal amount of the within Debenture is to be
repaid, specify the portion thereof (which shall be $1,000 or an integral
multiple of $1,000 in excess of $1,000) which the holder elects to have
repaid: $ ; and specify the denomination or denominations (which shall be
$1,000 or an integral multiple of $1,000 in excess of $1,000) of the Debenture
or Debentures to be issued to the holder for the amount of the portion of the
8
<PAGE>
within Debenture not being repaid (in the absence of any such specification,
one such Debenture will be issued for the portion not being repaid: $ ).
Dated: -------------------------------------
NOTICE: The signature on this Option to Elect
Repayment must correspond with the name as
written upon the face of this instrument in
every particular without alteration or
enlargement or any other change whatsoever.
[form of trustee's certificate of authentication]
This Debenture is one of the 10.20% Debentures due 2008 described in the
within-mentioned Indenture.
THE CHASE MANHATTAN BANK,
Trustee,
By _________________________________________
Authorized Officer.
ARTICLE 2.
Miscellaneous
Section 2.1. Execution as Supplemental Indenture. This First Supplemental
Indenture is executed and shall be construed as an indenture supplemental to
the Original Indenture and, as provided in the Original Indenture, this First
Supplemental Indenture forms a part thereof. Except as herein expressly
otherwise defined, the use of the terms and expressions herein is in
accordance with the definitions, uses and constructions contained in the
Original Indenture.
Section 2.2. Responsibility for Recitals, Etc. The recitals herein and in
the Debentures (except in the Trustee's certificate of authentication) shall
be taken as the statements of the Company, and the Trustee assumes no
responsibility for the correctness thereof. The Trustee makes no
representations as to the validity or sufficiency of this First Supplemental
Indenture or of the Debentures. The Trustee shall not be accountable for the
use or application by the Company of the Debentures or of the proceeds
thereof.
9
<PAGE>
Section 2.3. Provisions Binding on Company's Successors. All the covenants,
stipulations, promises and agreements in this First Supplemental Indenture
contained by the Company shall bind its successors and assigns whether so
expressed or not.
Section 2.4. New York Contract. THIS FIRST SUPPLEMENTAL INDENTURE AND EACH
DEBENTURE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF
NEW YORK, AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS
OF SAID STATE.
Section 2.5. Execution and Counterparts. This First Supplemental Indenture
may be executed in any number of courterparts, each of which shall be an
original but such counterparts shall together constitute but one and the same
instrument.
In Witness Whereof, said New Tenneco Inc. has caused this First Supplemental
Indenture to be executed in its corporate name by its President or one of its
Vice Presidents, and said The Chase Manhattan Bank has caused this Indenture
to be executed in its Corporate name by one of its Vice Presidents as of
December 11, 1996.
New Tenneco Inc.
/s/ Karen A. Osar
By _________________________________________
Karen A. Osar
Vice President and Treasurer
The Chase Manhattan Bank
/s/ Ronald J. Halleran
By _________________________________________
Ronald J. Halleran
Second Vice President
10
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NEW TENNECO INC.
AND
THE CHASE MANHATTAN BANK,
AS TRUSTEE
------------------
SECOND SUPPLEMENTAL INDENTURE
DATED AS OF DECEMBER 11, 1996
TO
INDENTURE
DATED AS OF NOVEMBER 1, 1996
------------------
PROVIDING FOR THE ISSUANCE OF
6.70% NOTES DUE 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Second Supplemental Indenture dated as of December 11, 1996 between New
Tenneco Inc., a corporation duly organized and existing under the laws of the
State of Delaware (hereinafter called the "Company"), and The Chase Manhattan
Bank, a New York banking corporation, as trustee (hereinafter called the
"Trustee").
Whereas, the Company has heretofore executed and delivered to the Trustee an
indenture dated as of November 1, 1996 (hereinafter called the "Original
Indenture"), to provide for the issue of an unlimited amount of debentures,
notes and/or other debt obligations of the Company (hereinafter referred to as
the "Securities"), the terms of which are to be determined as set forth in
Section 2.3 of the Original Indenture; and
Whereas, Section 8.1 of the Original Indenture provides, among other things,
that the Company and the Trustee may enter into indentures supplemental to the
Original Indenture for, among other things, the purpose of setting forth the
terms of Securities of any series; and
Whereas, the Company desires to create a series of the Securities in an
aggregate principal amount of $300,000,000 to be designated the "6.70% Notes
due 2005" (the "Notes"), and all action on the part of the Company necessary
to authorize the issuance of the Notes under the Original Indenture and this
Second Supplemental Indenture has been duly taken; and
Whereas, all acts and things necessary to make the Notes, when executed by
the Company and authenticated and delivered by the Trustee as in the Original
Indenture provided, the valid and binding obligations of the Company, and to
constitute these presents a valid and binding supplemental indenture and
agreement according to its terms, have been done and performed;
Now, therefore, in consideration of the premises and of the mutual covenants
herein contained, and of the acceptance of this trust by the Trustee, and of
the sum of one dollar to the Company duly paid by the Trustee at the execution
and delivery of these presents, and of other valuable consideration the
receipt whereof is hereby acknowledged and in order to authorize the
authentication and delivery of and to set forth the terms of the Notes,
<PAGE>
It is hereby covenanted, declared and agreed by and between the parties
hereto, for the benefit of holders of the Notes issued under the Original
Indenture, as follows:
ARTICLE 1.
Terms and Issuance of 6.70% Notes Due 2005
Section 1.1. Issue of Notes. A series of Securities which shall be
designated the "6.70% Notes due 2005" shall be executed, authenticated and
delivered in accordance with the provisions of, and shall in all respects be
subject to, the terms, conditions and covenants of the Indenture, including
without limitation the terms set forth in this Second Supplemental Indenture
(including the form of Notes set forth in Section 1.2 hereof). The aggregate
principal amount of Notes which may be authenticated and delivered under the
Indenture shall not, except as permitted by the provisions of Sections 2.8,
2.9, 2.11, 8.5 and 12.3 of the Indenture, exceed $300,000,000. The entire
amount of Notes may forthwith be executed by the Company and delivered to the
Trustee and shall be authenticated by the Trustee and delivered to or upon the
order of the Company pursuant to Section 2.4 of the Indenture.
Section 1.2. Forms of Notes and Authentication Certificate. The forms of the
Notes and the Trustee's certificate of authentication shall be substantially
as follows:
[form of face of note]
NEW TENNECO INC.
6.70% NOTE DUE 2005
No. $
CUSIP
New Tenneco Inc., a corporation organized and existing under the laws of the
State of Delaware (hereinafter called the "Company," which term shall include
any successor corporation as defined in the Indenture hereinafter referred
to), for value received, hereby promises to pay to or registered assigns, the
sum of Dollars on December 15, 2005, in any coin or currency of the United
States of America which at the time of payment is legal tender for the payment
of public and private debts, and to pay to the registered holder hereof as
hereinafter provided interest thereon at the rate per annum specified in the
title hereof in like coin or currency, from the June 15 or December 15 next
preceding the date hereof to which interest has been paid,
2
<PAGE>
unless the date hereof is a June 15 or December 15 to which interest on the
Notes has been paid, in which case from the date hereof, or unless no interest
has been paid on the Notes since the original issue date (hereinafter referred
to) of this Note, in which case from the original issue date, semi-annually on
June 15 and December 15 in each year commencing June 15, 1997, until payment
of said principal sum has been made or duly provided for, and to pay interest
on any overdue principal and (to the extent permitted by law) on any overdue
installment of interest at the rate of 6.70% per annum. Notwithstanding the
foregoing, when there is no existing default in the payment of interest on the
Notes, if the date hereof is after May 31 or November 30 and prior to the
following June 15 or December 15, as the case may be, this Note shall bear
interest from such June 15 or December 15, or, if no interest has been paid on
the Notes since the original issue date of this Note, from the original issue
date; provided, however, that if the Company shall default in the payment of
interest due on such June 15 or December 15, then this Note shall bear
interest from the June 15 or December 15 to which interest has been paid or,
if no interest has been paid on the Notes since the original issue date of
this Note, from the original issue date. The interest so payable on any June
15 or December 15 will, subject to certain exceptions provided in the
Indenture hereinafter referred to, be paid to the person in whose name this
Note is registered at the close of business on the May 31 or November 30, as
the case may be, next preceding such June 15 or December 15, or if such May 31
or November 30 is not a business day, the business day next preceding such May
31 or November 30. Interest on this Note shall be computed on the basis of a
360-day year consisting of twelve 30-day months. Both principal of and
interest on this Note are payable at the principal office of the Trustee in
the Borough of Manhattan, The City of New York, New York; provided, however,
that payment of interest may be made, at the option of the Company, by check
mailed to the address of the person entitled thereto as such address shall
appear on the Note register. The original issue date in respect of the Notes
is December 11, 1996.
ADDITIONAL PROVISIONS OF THIS NOTE ARE CONTAINED ON THE REVERSE HEREOF AND
SUCH PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS THOUGH FULLY
SET FORTH AT THIS PLACE.
This Note shall not be entitled to any benefit under the Indenture
hereinafter referred to, or become valid or obligatory for any purpose, until
the Trustee under the Indenture shall have signed the form of certificate of
authentication endorsed hereon.
3
<PAGE>
In Witness Whereof, New Tenneco Inc. has caused this Instrument to be signed
in its name by its Chairman of the Board or its President or a Vice President,
and its corporate seal (or a facsimile thereof) to be hereto affixed and
attested by its Secretary or an Assistant Secretary.
Dated ..........................
New Tenneco Inc.
By .......................................
Chairman of the Board
Attest:
................................
Secretary
[form of reverse of note]
NEW TENNECO INC.
6.70% NOTE DUE 2005
This Note is one of a duly authorized issue of Notes of the Company known as
its 6.70% Notes due 2005 (herein called the "Notes"), limited to the aggregate
principal amount of $300,000,000, all issued under and equally entitled to the
benefits of an Indenture (herein, together with any amendments and supplements
thereto, including without limitation the form and terms of Securities issued
pursuant thereto, called the "Indenture"), dated as of November 1, 1996,
executed by the Company to The Chase Manhattan Bank (herein, together with any
successor thereto, called the "Trustee"), as Trustee, to which Indenture
reference is hereby made for a statement of the rights thereunder of the
Trustee and of the registered holders of the Notes and of the duties
thereunder of the Trustee and the Company.
The Notes will be redeemable as a whole or in part, at the option of the
Company at any time, at a redemption price equal to the greater of (i) 100% of
their principal amount and (ii) the sum of the present values of the
4
<PAGE>
remaining scheduled payments of principal and interest thereon discounted to
the date of redemption on a semiannual basis (assuming a 360-day year
consisting of twelve 30-day months) at the Treasury Yield plus 10 basis
points, plus in each case accrued interest to the date of redemption.
"Treasury Yield" means, with respect to any redemption date, the rate per
annum equal to the semiannual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed
as a percentage of its principal amount) equal to the Comparable Treasury
Price for such redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable
to the remaining term of the Notes that would be utilized, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to the remaining
term of the Notes. "Independent Investment Banker" means Morgan Stanley & Co.
Incorporated or, if such firm is unwilling or unable to select the Comparable
Treasury Issue, an independent investment banking institution of national
standing appointed by the Trustee.
"Comparable Treasury Price" means, with respect to any redemption date, (i)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
business day preceding such redemption date, as set forth in the daily
statistical release (or any successor release) published by the Federal
Reserve Bank of New York and designated "Composite 3:00 p.m. Quotations for
U.S. Government Securities" or (ii) if such release (or any successor release)
is not published or does not contain such prices on such business day, (A) the
average of the Reference Treasury Dealer Quotations for such redemption date,
after excluding the highest and lowest such Reference Treasury Dealer
Quotations, or (B) if the Trustee obtains fewer than four such Reference
Treasury Dealer Quotations, the average of all such Quotations. "Reference
Treasury Dealer Quotations" means, with respect to each Reference Treasury
Dealer and any redemption date, the average, as determined by the Trustee, of
the bid and asked prices for the Comparable Treasury Issue (expressed in each
case as a percentage of its principal amount) quoted in writing to the Trustee
by such Reference Treasury Dealer at 5:00 p.m. on the third business day
preceding such redemption date.
"Reference Treasury Dealer" means each of Morgan Stanley & Co. Incorporated,
CS First Boston Corporation, Lehman Brothers Inc. and
5
<PAGE>
Salomon Brothers Inc and their respective successors; provided however, that
if any of the foregoing cease to be a primary U.S. Government Securities
dealer in New York City (a "Primary Treasury Dealer"), the Company shall
substitute therefor another Primary Treasury Dealer.
Holders of Notes to be redeemed will receive notice thereof by first-class
mail at least 30 and not more than 60 days prior to the date fixed for
redemption.
The Indenture permits the Company to issue unsecured debentures, notes
and/or other evidences of indebtedness in one or more series ("Securities") up
to such principal amount or amounts as may be authorized in accordance with
the terms of the Indenture.
To the extent permitted by, and as provided in, the Indenture, modifications
or alterations of the Indenture and of the rights and obligations of the
Company and of the holders of the Notes may be made with the consent of the
Company and with the consent of the holders of not less than a majority in
principal amount of the Securities of all series then outstanding under the
Indenture (treated as a single class) which are affected by the modification
or amendment thereto; provided, however, that without the consent of the
holder hereof no such modification or alteration shall be made which will
affect the terms of payment of the principal of or interest on this Note.
In case a default, as defined in the Indenture, shall occur, the principal
of all the Notes at any such time outstanding under the Indenture may be
declared or may become due and payable, upon the conditions and in the manner
and with the effect provided in the Indenture. The Indenture provides that
such declaration may in certain events be waived by the holders of a majority
in principal amount of the Notes outstanding in the case of payment defaults
on the Notes and in certain other events by the holders of a majority in
principal amount of the Securities of all series then outstanding under the
Indenture (treated as a single class) which are affected thereby.
The Indenture provides that no holder of any Note may enforce any remedy
under the Indenture except in the case of refusal or neglect of the Trustee to
act after notice of default and after request by the holders of a majority in
principal amount of the outstanding Notes in certain events (and in certain
other events by the holders of a majority in principal amount of the
Securities of all series then outstanding under the Indenture, treated as a
single class, which are affected thereby) and the offer to the Trustee of
security and indemnity satisfactory to it; provided, however, that such
provision shall not
6
<PAGE>
prevent the holder hereof from enforcing payment of the principal of or
interest on this Note.
The transfer of this Note is registrable by the registered holder hereof, in
person or by duly authorized attorney, at the agency of the Company in the
Borough of Manhattan, The City of New York, New York, on books of the Company
to be kept for that purpose at said agency, upon surrender and cancellation of
this Note and on presentation of a duly executed written instrument of
transfer, and thereupon a new Note or Notes, of the same aggregate principal
amount and in authorized denominations, will be issued to the transferee or
transferees in exchange herefor; and this Note, with or without other Notes,
may in like manner be exchanged for one or more new Notes of other authorized
denominations but of the same aggregate principal amount; all subject to the
terms and conditions set forth in the Indenture.
The Company, the Trustee, any paying agent and any Registrar of the Notes
may deem and treat the person in whose name this Note is registered as the
absolute owner hereof for all purposes whatsoever, and neither the Company nor
the Trustee nor any paying agent nor any Registrar of the Notes shall be
affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or the interest
on, this Note, or for any claim based hereon or on the Indenture, against any
incorporator, or against any stockholder, director or officer, as such, past,
present or future, of the Company, or of any predecessor or successor
corporation, either directly or through the Company or any such predecessor or
successor corporation, whether by virtue of any constitution, statute or rule
of law, or by the enforcement of any assessment or penalty or otherwise, all
such liability, whether at common law, in equity, by any constitution, statute
or otherwise, of incorporators, stockholders, directors or officers being
released by every owner hereof by the acceptance of this Note and as part of
the consideration for the issue hereof, and being likewise released by the
terms of the Indenture; provided, however, that nothing herein or in the
Indenture contained shall be taken to prevent recourse to and the enforcement
of the liability, if any, of any stockholder or subscriber to capital stock of
the Company upon or in respect of shares of capital stock not fully paid up.
All terms used in this Note which are defined in the Indenture shall have
the meanings assigned to them in the Indenture.
7
<PAGE>
[form of trustee's certificate of authentication]
This Note is one of the 6.70% Notes due 2005 described in the within-
mentioned Indenture.
THE CHASE MANHATTAN BANK,
Trustee,
By........................................
Authorized Officer.
ARTICLE 2.
Miscellaneous
Section 2.1. Execution as Supplemental Indenture. This Second Supplemental
Indenture is executed and shall be construed as an indenture supplemental to
the Original Indenture and, as provided in the Original Indenture, this Second
Supplemental Indenture forms a part thereof. Except as herein expressly
otherwise defined, the use of the terms and expressions herein is in
accordance with the definitions, uses and constructions contained in the
Original Indenture.
Section 2.2. Responsibility for Recitals, Etc. The recitals herein and in
the Notes (except in the Trustee's certificate of authentication) shall be
taken as the statements of the Company, and the Trustee assumes no
responsibility for the correctness thereof. The Trustee makes no
representations as to the validity or sufficiency of this Second Supplemental
Indenture or of the Notes. The Trustee shall not be accountable for the use or
application by the Company of the Notes or of the proceeds thereof.
Section 2.3. Provisions Binding on Company's Successors. All the covenants,
stipulations, promises and agreements in this Second Supplemental Indenture
contained by the Company shall bind its successors and assigns whether so
expressed or not.
SECTION 2.4. NEW YORK CONTRACT. THIS SECOND SUPPLEMENTAL INDENTURE AND EACH
NOTE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF NEW
YORK, AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF
SAID STATE WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
8
<PAGE>
Section 2.5. Execution and Counterparts. This Second Supplemental Indenture
may be executed in any number of counterparts, each of which shall be an
original but such counterparts shall together constitute but one and the same
instrument.
In Witness Whereof, said New Tenneco Inc. has caused this Second
Supplemental Indenture to be executed in its corporate name by its Chairman of
the Board or its President or one of its Vice Presidents, and said The Chase
Manhattan Bank has caused this Second Supplemental Indenture to be executed in
its corporate name by one of its Vice Presidents as of December 11, 1996.
New Tenneco Inc.
/s/ Karen A. Osar
By _________________________________________
Karen A. Osar
Vice President and Treasurer
The Chase Manhattan Bank
/s/ Ronald J. Halleran
By _________________________________________
Ronald J. Halleran
Second Vice President
9
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NEW TENNECO INC.
AND
THE CHASE MANHATTAN BANK,
AS TRUSTEE
------------------
THIRD SUPPLEMENTAL INDENTURE
DATED AS OF DECEMBER 11, 1996
TO
INDENTURE
DATED AS OF NOVEMBER 1, 1996
------------------
PROVIDING FOR THE ISSUANCE OF
7.45% DEBENTURES DUE 2025
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Third Supplemental Indenture dated as of December 11, 1996 between New
Tenneco Inc., a corporation duly organized and existing under the laws of the
State of Delaware (hereinafter called the "Company"), and The Chase Manhattan
Bank, a New York banking corporation, as trustee (hereinafter called the
"Trustee").
Whereas, the Company has heretofore executed and delivered to the Trustee an
indenture dated as of November 1, 1996 (hereinafter called the "Original
Indenture"), to provide for the issue of an unlimited amount of debentures,
notes and/or other debt obligations of the Company (hereinafter referred to as
the "Securities"), the terms of which are to be determined as set forth in
Section 2.3 of the Original Indenture; and
Whereas, Section 8.1 of the Original Indenture provides, among other things,
that the Company and the Trustee may enter into indentures supplemental to the
Original Indenture for, among other things, the purpose of setting forth the
terms of Securities of any series; and
Whereas, the Company desires to create a series of the Securities in an
aggregate principal amount of $300,000,000 to be designated the "7.45%
Debentures due 2025" (the "Debentures"), and all action on the part of the
Company necessary to authorize the issuance of the Debentures under the
Original Indenture and this Third Supplemental Indenture has been duly taken;
and
Whereas, all acts and things necessary to make the Debentures, when executed
by the Company and authenticated and delivered by the Trustee as in the
Original Indenture provided, the valid and binding obligations of the Company,
and to constitute these presents a valid and binding supplemental indenture
and agreement according to its terms, have been done and performed;
Now, therefore, in consideration of the premises and of the mutual covenants
herein contained, and of the acceptance of this trust by the Trustee, and of
the sum of one dollar to the Company duly paid by the Trustee at the execution
and delivery of these presents, and of other valuable consideration the
receipt whereof is hereby acknowledged and in order to authorize the
authentication and delivery of and to set forth the terms of the Debentures,
<PAGE>
It is hereby covenanted, declared and agreed by and between the parties
hereto, for the benefit of holders of the Debentures issued under the Original
Indenture, as follows:
ARTICLE 1.
Terms and Issuance of 7.45% Debentures Due 2025
Section 1.1. Issue of Debentures. A series of Securities which shall be
designated the "7.45% Debentures due 2025" shall be executed, authenticated
and delivered in accordance with the provisions of, and shall in all respects
be subject to, the terms, conditions and covenants of the Indenture, including
without limitation the terms set forth in this Third Supplemental Indenture
(including the form of Debentures set forth in Section 1.2 hereof). The
aggregate principal amount of Debentures which may be authenticated and
delivered under the Indenture shall not, except as permitted by the provisions
of Sections 2.8, 2.9, 2.11, 8.5 and 12.3 of the Indenture, exceed
$300,000,000. The entire amount of Debentures may forthwith be executed by the
Company and delivered to the Trustee and shall be authenticated by the Trustee
and delivered to or upon the order of the Company pursuant to Section 2.4 of
the Indenture.
Section 1.2. Forms of Debentures and Authentication Certificate. The forms
of the Debentures and the Trustee's certificate of authentication shall be
substantially as follows:
[form of face of debenture]
NEW TENNECO INC.
7.45% DEBENTURE DUE 2025
No. $
New Tenneco Inc., a corporation organized and existing under the laws of the
State of Delaware (hereinafter called the "Company," which term shall include
any successor corporation as defined in the Indenture hereinafter referred
to), for value received, hereby promises to pay to or registered
assigns, the sum of Dollars on December 15, 2025, in any coin or
currency of the United States of America which at the time of payment is legal
tender for the payment of public and private debts, and to pay to the
registered holder hereof as hereinafter provided interest thereon at the rate
per annum specified in the title hereof in like coin or currency, from
2
<PAGE>
the June 15 or December 15 next preceding the date hereof to which interest
has been paid, unless the date hereof is a June 15 or December 15 to which
interest on the Debentures has been paid, in which case from the date hereof,
or unless no interest has been paid on the Debentures since the original
issue date (hereinafter referred to) of this Debenture, in which case from the
original issue date, semi-annually on June 15 and December 15 in each year
commencing June 15, 1997, until payment of said principal sum has been made or
duly provided for, and to pay interest on any overdue principal and (to the
extent permitted by law) on any overdue installment of interest at the rate of
7.45% per annum. Notwithstanding the foregoing, when there is no existing
default in the payment of interest on the Debentures, if the date hereof is
after May 31 or November 30 and prior to the following June 15 or December 15,
as the case may be, this Debenture shall bear interest from such June 15 or
December 15, or, if no interest has been paid on the Debentures since the
original issue date of this Debenture, from the original issue date; provided,
however, that if the Company shall default in the payment of interest due on
such June 15 or December 15, then this Debenture shall bear interest from the
June 15 or December 15 to which interest has been paid or, if no interest has
been paid on the Debentures since the original issue date of this Debenture,
from the original issue date. The interest so payable on any June 15 or
December 15 will, subject to certain exceptions provided in the Indenture
hereinafter referred to, be paid to the person in whose name this Debenture is
registered at the close of business on the May 31 or November 30, as the case
may be, next preceding such June 15 or December 15, or if such May 31 or
November 30 is not a business day, the business day next preceding such May 31
or November 30. Interest on this Debenture shall be computed on the basis of a
360-day year of twelve 30-day months. Both principal of and interest on this
Debenture are payable at the principal office of the Trustee in the Borough of
Manhattan, The City of New York, New York; provided, however, that payment of
interest may be made, at the option of the Company, by check mailed to the
address of the person entitled thereto as such address shall appear on the
Debenture register. The original issue date in respect of the Debentures is
December 11, 1996.
ADDITIONAL PROVISIONS OF THIS DEBENTURE ARE CONTAINED ON THE REVERSE HEREOF
AND SUCH PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS THOUGH
FULLY SET FORTH AT THIS PLACE.
This Debenture shall not be entitled to any benefit under the Indenture
hereafter referred to, or become valid or obligatory for any purpose, until
the Trustee under the Indenture shall have signed the form of certificate of
authentication endorsed hereon.
3
<PAGE>
In Witness Whereof, New Tenneco Inc. has caused this Instrument to be signed
in its name by its Chairman of the Board or its President or a Vice President,
and its corporate seal (or a facsimile thereof) to be hereto affixed and
attested by its Secretary or an Assistant Secretary.
Dated ..........................
New Tenneco Inc.
By .......................................
Chairman of the Board
Attest:
................................
Secretary
[form of reverse of debenture]
NEW TENNECO INC.
7.45% DEBENTURE DUE 2025
This Debenture is one of a duly authorized issue of Debentures of the
Company known as its 7.45% Debentures due 2025 (herein called the
"Debentures"), limited to the aggregate principal amount of $300,000,000, all
issued under and equally entitled to the benefits of an Indenture (herein,
together with any amendments and supplements thereto, including without
limitation the form and terms of Securities issued pursuant thereto, called
the
4
<PAGE>
"Indenture"), dated as of November 1, 1996, executed by the Company to The
Chase Manhattan Bank (herein, together with any successor thereto, called the
"Trustee"), as Trustee, to which Indenture reference is hereby made for a
statement of the rights thereunder of the Trustee and of the registered
holders of the Debentures and of the duties thereunder of the Trustee and the
Company.
The Debentures will not be redeemable prior to maturity.
The Indenture permits the Company to issue unsecured debentures, notes
and/or other evidences of indebtedness in one or more series ("Securities") up
to such principal amount or amounts as may be authorized in accordance with
the terms of the Indenture.
To the extent permitted by, and as provided in, the Indenture, modifications
or alterations of the Indenture and of the rights and obligations of the
Company and of the holders of the Debentures may be made with the consent of
the Company and with the consent of the holders of not less than a majority in
principal amount of the Securities of all series then outstanding under the
Indenture (treated as a single class) which are affected by the modification
or amendment thereto; provided, however, that without the consent of the
holder hereof no such modification or alteration shall be made which will
affect the terms of payment of the principal of or interest on this Debenture.
In case a default, as defined in the Indenture, shall occur, the principal
of all the Debentures at any such time outstanding under the Indenture may be
declared or may become due and payable, upon the conditions and in the manner
and with the effect provided in the Indenture. The Indenture provides that
such declaration may in certain events be waived by the holders of a majority
in principal amount of the Debentures outstanding in the case of payment
defaults on the Debentures and in certain other events by the holders of a
majority in principal amount of the Securities of all series then outstanding
under the Indenture (treated as a single class) which are affected thereby.
The Indenture provides that no holder of any Debenture may enforce any
remedy under the Indenture except in the case of refusal or neglect of the
Trustee to act after notice of default and after request by the holders of a
majority in principal amount of the outstanding Debentures in certain events
(and in certain other events by the holders of a majority in principal amount
of the Securities of all series then outstanding under the Indenture, treated
as a single class, which are affected thereby) and the offer to the Trustee of
5
<PAGE>
security and indemnity satisfactory to it; provided, however, that such
provision shall not prevent the holder hereof from enforcing payment of the
principal of or interest on this Debenture.
The transfer of this Debenture is registrable by the registered holder
hereof, in person or by duly authorized attorney, at the agency of the Company
in the Borough of Manhattan, The City of New York, New York, on books of the
Company to be kept for that purpose at said agency, upon surrender and
cancellation of this Debenture and on presentation of a duly executed written
instrument of transfer, and thereupon a new Debenture or Debentures, of the
same aggregate principal amount and in authorized denominations, will be
issued to the transferee or transferees in exchange herefor; and this
Debenture, with or without other Debentures, may in like manner be exchanged
for one or more new Debentures of other authorized denominations but of the
same aggregate principal amount; all subject to the terms and conditions set
forth in the Indenture.
The Company, the Trustee, any paying agent and any Registrar of the
Debentures may deem and treat the person in whose name this Debenture is
registered as the absolute owner hereof for all purposes whatsoever, and
neither the Company nor the Trustee nor any paying agent nor any Registrar of
the Debentures shall be affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or the interest
on, this Debenture, or for any claim based hereon or on the Indenture, against
any incorporator, or against any stockholder, director or officer, as such,
past, present or future, of the Company, or of any predecessor or successor
corporation, either directly or through the Company or any such predecessor or
successor corporation, whether by virtue of any constitution, statute or rule
of law, or by the enforcement of any assessment or penalty or otherwise, all
such liability, whether at common law, in equity, by any constitution, statute
or otherwise, of incorporators, stockholders, directors or officers being
released by every owner hereof by the acceptance of this Debenture and as part
of the consideration for the issue hereof, and being likewise released by the
terms of the Indenture; provided, however, that nothing herein or in the
Indenture contained shall be taken to prevent recourse to and the enforcement
of the liability, if any, of any stockholder or subscriber to capital stock of
the Company upon or in respect of shares of capital stock not fully paid up.
All terms used in this Debenture which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
6
<PAGE>
[form of trustee's certificate of authentication]
This Debenture is one of the 7.45% Debentures due 2025 described in the
within-mentioned Indenture.
THE CHASE MANHATTAN BANK,
Trustee,
By _________________________________________
Authorized Officer.
ARTICLE 2.
Miscellaneous
Section 2.1. Execution as Supplemental Indenture. This Third Supplemental
Indenture is executed and shall be construed as an indenture supplemental to
the Original Indenture and, as provided in the Original Indenture, this Third
Supplemental Indenture forms a part thereof. Except as herein expressly
otherwise defined, the use of the terms and expressions herein is in
accordance with the definitions, uses and constructions contained in the
Original Indenture.
Section 2.2. Responsibility for Recitals, Etc. The recitals herein and in
the Debentures (except in the Trustee's certificate of authentication) shall
be taken as the statements of the Company, and the Trustee assumes no
responsibility for the correctness thereof. The Trustee makes no
representations as to the validity or sufficiency of this Third Supplemental
Indenture or of the Debentures. The Trustee shall not be accountable for the
use or application by the Company of the Debentures or of the proceeds
thereof.
Section 2.3. Provisions Binding on Company's Successors. All the covenants,
stipulations, promises and agreements in this Third Supplemental Indenture
contained by the Company shall bind its successors and assigns whether so
expressed or not.
Section 2.4. New York Contract. THIS THIRD SUPPLEMENTAL INDENTURE AND EACH
DEBENTURE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF
NEW YORK, AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS
OF SAID STATE.
7
<PAGE>
Section 2.5. Execution and Counterparts. This Third Supplemental Indenture
may be executed in any number of courterparts, each of which shall be an
original but such counterparts shall together constitute but one and the same
instrument.
In Witness Whereof, said New Tenneco Inc. has caused this Third Supplemental
Indenture to be executed in its corporate name by its President or one of its
Vice Presidents, and said The Chase Manhattan Bank has caused this Indenture
to be executed in its Corporate name by one of its Vice Presidents as of
December 11, 1996.
New Tenneco Inc.
/s/ Karen A. Osar
By _________________________________________
Karen A. Osar
Vice President and Treasurer
The Chase Manhattan Bank
/s/ Ronald J. Halleran
By _________________________________________
Ronald J. Halleran
Second Vice President
8
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NEW TENNECO INC.
AND
THE CHASE MANHATTAN BANK,
AS TRUSTEE
------------------
FOURTH SUPPLEMENTAL INDENTURE
DATED AS OF DECEMBER 11, 1996
TO
INDENTURE
DATED AS OF NOVEMBER 1, 1996
------------------
PROVIDING FOR THE ISSUANCE OF
9.20% DEBENTURES DUE 2012
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Fourth Supplemental Indenture dated as of December 11, 1996 between New
Tenneco Inc., a corporation duly organized and existing under the laws of the
State of Delaware (hereinafter called the "Company"), and The Chase Manhattan
Bank, a New York banking corporation, as trustee (hereinafter called the
"Trustee").
Whereas, the Company has heretofore executed and delivered to the Trustee an
indenture dated as of November 1, 1996 (hereinafter called the "Original
Indenture"), to provide for the issue of an unlimited amount of debentures,
notes and/or other debt obligations of the Company (hereinafter referred to as
the "Securities"), the terms of which are to be determined as set forth in
Section 2.3 of the Original Indenture; and
Whereas, Section 8.1 of the Original Indenture provides, among other things,
that the Company and the Trustee may enter into indentures supplemental to the
Original Indenture for, among other things, the purpose of setting forth the
terms of Securities of any series; and
Whereas, the Company desires to create a series of the Securities in an
aggregate principal amount of $150,000,000 to be designated the "9.20%
Debentures due 2012" (the "Debentures"), and all action on the part of the
Company necessary to authorize the issuance of the Debentures under the
Original Indenture and this Fourth Supplemental Indenture has been duly taken;
and
Whereas, all acts and things necessary to make the Debentures, when executed
by the Company and authenticated and delivered by the Trustee as in the
Original Indenture provided, the valid and binding obligations of the Company,
and to constitute these presents a valid and binding supplemental indenture
and agreement according to its terms, have been done and performed;
Now, therefore, in consideration of the premises and of the mutual covenants
herein contained, and of the acceptance of this trust by the Trustee, and of
the sum of one dollar to the Company duly paid by the Trustee at the execution
and delivery of these presents, and of other valuable consideration the
receipt whereof is hereby acknowledged and in order to authorize the
authentication and delivery of and to set forth the terms of the Debentures,
<PAGE>
It is hereby covenanted, declared and agreed by and between the parties
hereto, for the benefit of holders of the Debentures issued under the Original
Indenture, as follows:
ARTICLE 1.
Terms and Issuance of 9.20% Debentures Due 2012
Section 1.1. Issue of Debentures. A series of Securities which shall be
designated the "9.20% Debentures due 2012" shall be executed, authenticated
and delivered in accordance with the provisions of, and shall in all respects
be subject to, the terms, conditions and covenants of the Indenture, including
without limitation the terms set forth in this Fourth Supplemental Indenture
(including the form of Debentures set forth in Section 1.2 hereof). The
aggregate principal amount of Debentures which may be authenticated and
delivered under the Indenture shall not, except as permitted by the provisions
of Sections 2.8, 2.9, 2.11, 8.5 and 12.3 of the Indenture, exceed
$150,000,000. The entire amount of Debentures may forthwith be executed by the
Company and delivered to the Trustee and shall be authenticated by the Trustee
and delivered to or upon the order of the Company pursuant to Section 2.4 of
the Indenture.
Section 1.2. Forms of Debentures and Authentication Certificate. The forms
of the Debentures and the Trustee's certificate of authentication shall be
substantially as follows:
[form of face of debenture]
NEW TENNECO INC.
9.20% DEBENTURE DUE 2012
No. $
New Tenneco Inc., a corporation organized and existing under the laws of the
State of Delaware (hereinafter called the "Company," which term shall include
any successor corporation as defined in the Indenture hereinafter referred
to), for value received, hereby promises to pay to or registered
assigns, the sum of Dollars on November 15, 2012, in any coin or
currency of the United States of America which at the time of payment is legal
tender for the payment of public and private debts, and to pay to the
registered holder hereof as hereinafter provided interest thereon at the rate
per annum specified in the title hereof in like coin or currency, from
2
<PAGE>
the May 15 or November 15 next preceding the date hereof to which interest has
been paid, unless the date hereof is a May 15 or November 15 to which interest
on the Debentures has been paid, in which case from the date hereof, or unless
no interest has been paid on the Debentures since the original issue date
(hereinafter referred to) of this Debenture, in which case from the original
issue date, semi-annually on May 15 and November 15 in each year, until
payment of said principal sum has been made or duly provided for, and to pay
interest on any overdue principal and (to the extent permitted by law) on any
overdue installment of interest at the rate of 9.20% per annum.
Notwithstanding the foregoing, when there is no existing default in the
payment of interest on the Debentures, if the date hereof is after April 30 or
October 31 and prior to the following May 15 or November 15, as the case may
be, this Debenture shall bear interest from such May 15 or November 15 or, if
no interest has been paid on the Debentures since the original issue date of
this Debenture, from the original issue date; provided, however, that if the
Company shall default in the payment of interest due on such May 15 or
November 15, then this Debenture shall bear interest from the May 15 or
November 15 to which interest has been paid or, if no interest has been paid
on the Debentures since the original issue date of this Debenture, from the
original issue date. The interest so payable on any May 15 or November 15
will, subject to certain exceptions provided in the Indenture hereinafter
referred to, be paid to the person in whose name this Debenture is registered
at the close of business on the April 30 or October 31, as the case may be,
next preceding such May 15 or November 15, or if such April 30 or October 31
is not a business day, the business day next preceding such April 30 or
October 31. Interest on this Debenture shall be computed on the basis of a
360-day year of twelve 30-day months. Both principal of and interest on this
Debenture are payable at the principal office of the Trustee in the Borough of
Manhattan, The City of New York, New York; provided, however, that payment of
interest may be made, at the option of the Company, by check mailed to the
address of the person entitled thereto as such address shall appear on the
Debenture register. The original issue date in respect of the Debentures is
December 11, 1996.
ADDITIONAL PROVISIONS OF THIS DEBENTURE ARE CONTAINED ON THE REVERSE HEREOF
AND SUCH PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS THOUGH
FULLY SET FORTH AT THIS PLACE.
This Debenture shall not be entitled to any benefit under the Indenture
hereafter referred to, or become valid or obligatory for any purpose, until
the Trustee under the Indenture shall have signed the form of certificate of
authentication endorsed hereon.
3
<PAGE>
In Witness Whereof, New Tenneco Inc. has caused this Instrument to be signed
in its name by its Chairman of the Board or its President or a Vice President,
and its corporate seal (or a facsimile thereof) to be hereto affixed and
attested by its Secretary or an Assistant Secretary.
Dated ..........................
New Tenneco Inc.
By .......................................
Chairman of the Board
Attest:
................................
Secretary
[form of reverse of debenture]
NEW TENNECO INC.
9.20% DEBENTURE DUE 2012
This Debenture is one of a duly authorized issue of Debentures of the
Company known as its 9.20% Debentures due 2012 (herein called the
"Debentures"), limited to the aggregate principal amount of $150,000,000, all
issued under and equally entitled to the benefits of an Indenture (herein,
together with any amendments and supplements thereto, including without
limitation the form and terms of Securities issued pursuant thereto, called
the
4
<PAGE>
"Indenture"), dated as of November 1, 1996, executed by the Company to The
Chase Manhattan Bank (herein, together with any successor thereto, called the
"Trustee"), as Trustee, to which Indenture reference is hereby made for a
statement of the rights thereunder of the Trustee and of the registered
holders of the Debentures and of the duties thereunder of the Trustee and the
Company.
The Debentures are not subject to redemption by the Company prior to
maturity.
The Indenture permits the Company to issue unsecured debentures, notes
and/or other evidences of indebtedness in one or more series ("Securities") up
to such principal amount or amounts as may be authorized in accordance with
the terms of the Indenture.
To the extent permitted by, and as provided in, the Indenture, modifications
or alterations of the Indenture and of the rights and obligations of the
Company and of the holders of the Debentures may be made with the consent of
the Company and with the consent of the holders of not less than a majority in
principal amount of the Securities of all series then outstanding under the
Indenture (treated as a single class) which are affected by the modification
or amendment thereto; provided, however, that without the consent of the
holder hereof no such modification or alteration shall be made which will
affect the terms of payment of the principal of or interest on this Debenture.
In case a default, as defined in the Indenture, shall occur, the principal
of all the Debentures at any such time outstanding under the Indenture may be
declared or may become due and payable, upon the conditions and in the manner
and with the effect provided in the Indenture. The Indenture provides that
such declaration may in certain events be waived by the holders of a majority
in principal amount of the Debentures outstanding in the case of payment
defaults on the Debentures and in certain other events by the holders of a
majority in principal amount of the Securities of all series then outstanding
under the Indenture (treated as a single class) which are affected thereby.
The Indenture provides that no holder of any Debenture may enforce any
remedy under the Indenture except in the case of refusal or neglect of the
Trustee to act after notice of default and after request by the holders of a
majority in principal amount of the outstanding Debentures in certain events
(and in certain other events by the holders of a majority in principal amount
of the Securities of all series then outstanding under the Indenture, treated
as
5
<PAGE>
a single class, which are affected thereby) and the offer to the Trustee of
security and indemnity satisfactory to it; provided, however, that such
provision shall not prevent the holder hereof from enforcing payment of the
principal of or interest on this Debenture.
The transfer of this Debenture is registrable by the registered holder
hereof, in person or by duly authorized attorney, at the agency of the Company
in the Borough of Manhattan, The City of New York, New York, on books of the
Company to be kept for that purpose at said agency, upon surrender and
cancellation of this Debenture and on presentation of a duly executed written
instrument of transfer, and thereupon a new Debenture or Debentures, of the
same aggregate principal amount and in authorized denominations, will be
issued to the transferee or transferees in exchange herefor; and this
Debenture, with or without other Debentures, may in like manner be exchanged
for one or more new Debentures of other authorized denominations but of the
same aggregate principal amount; all subject to the terms and conditions set
forth in the Indenture.
The Company, the Trustee, any paying agent and any Registrar of the
Debentures may deem and treat the person in whose name this Debenture is
registered as the absolute owner hereof for all purposes whatsoever, and
neither the Company nor the Trustee nor any paying agent nor any Registrar of
the Debentures shall be affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or the interest
on, this Debenture, or for any claim based hereon or on the Indenture, against
any incorporator, or against any stockholder, director or officer, as such,
past, present or future, of the Company, or of any predecessor or successor
corporation, either directly or through the Company or any such predecessor or
successor corporation, whether by virtue of any constitution, statute or rule
of law, or by the enforcement of any assessment or penalty or otherwise, all
such liability, whether at common law, in equity, by any constitution, statute
or otherwise, of incorporators, stockholders, directors or officers being
released by every owner hereof by the acceptance of this Debenture and as part
of the consideration for the issue hereof, and being likewise released by the
terms of the Indenture; provided, however, that nothing herein or in the
Indenture contained shall be taken to prevent recourse to and the enforcement
of the liability, if any, of any stockholder or subscriber to capital stock of
the Company upon or in respect of shares of capital stock not fully paid up.
All terms used in this Debenture which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
6
<PAGE>
[form of trustee's certificate of authentication]
This Debenture is one of the 9.20% Debentures due 2012 described in the
within-mentioned Indenture.
THE CHASE MANHATTAN BANK,
Trustee,
By _________________________________________
Authorized Officer.
ARTICLE 2.
Miscellaneous
Section 2.1. Execution as Supplemental Indenture. This Fourth Supplemental
Indenture is executed and shall be construed as an indenture supplemental to
the Original Indenture and, as provided in the Original Indenture, this Fourth
Supplemental Indenture forms a part thereof. Except as herein expressly
otherwise defined, the use of the terms and expressions herein is in
accordance with the definitions, uses and constructions contained in the
Original Indenture.
Section 2.2. Responsibility for Recitals, Etc. The recitals herein and in
the Debentures (except in the Trustee's certificate of authentication) shall
be taken as the statements of the Company, and the Trustee assumes no
responsibility for the correctness thereof. The Trustee makes no
representations as to the validity or sufficiency of this Fourth Supplemental
Indenture or of the Debentures. The Trustee shall not be accountable for the
use or application by the Company of the Debentures or of the proceeds
thereof.
Section 2.3. Provisions Binding on Company's Successors. All the covenants,
stipulations, promises and agreements in this Fourth Supplemental Indenture
contained by the Company shall bind its successors and assigns whether so
expressed or not.
Section 2.4. New York Contract. THIS FOURTH SUPPLEMENTAL INDENTURE AND EACH
DEBENTURE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF
NEW YORK, AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS
OF SAID STATE.
7
<PAGE>
Section 2.5. Execution and Counterparts. This Fourth Supplemental Indenture
may be executed in any number of courterparts, each of which shall be an
original but such counterparts shall together constitute but one and the same
instrument.
In Witness Whereof, said New Tenneco Inc. has caused this Fourth
Supplemental Indenture to be executed in its corporate name by its President
or one of its Vice Presidents, and said The Chase Manhattan Bank has caused
this Indenture to be executed in its Corporate name by one of its Vice
Presidents as of December 11, 1996.
New Tenneco Inc.
/s/ Karen A. Osar
By _________________________________________
Karen A. Osar
Vice President and Treasurer
The Chase Manhattan Bank
/s/ Ronald J. Halleran
By _________________________________________
Ronald J. Halleran
Second Vice President
8
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NEW TENNECO INC.
AND
THE CHASE MANHATTAN BANK,
AS TRUSTEE
------------------
FIFTH SUPPLEMENTAL INDENTURE
DATED AS OF DECEMBER 11, 1996
TO
INDENTURE
DATED AS OF NOVEMBER 1, 1996
------------------
PROVIDING FOR THE ISSUANCE OF
8.075% NOTES DUE 2002
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Fifth Supplemental Indenture dated as of December 11, 1996 between New
Tenneco Inc., a corporation duly organized and existing under the laws of the
State of Delaware (hereinafter called the "Company"), and The Chase Manhattan
Bank, a New York banking corporation, as trustee (hereinafter called the
"Trustee").
Whereas, the Company has heretofore executed and delivered to the Trustee an
indenture dated as of November 1, 1996 (hereinafter called the "Original
Indenture"), to provide for the issue of an unlimited amount of debentures,
notes and/or other debt obligations of the Company (hereinafter referred to as
the "Securities"), the terms of which are to be determined as set forth in
Section 2.3 of the Original Indenture; and
Whereas, Section 8.1 of the Original Indenture provides, among other things,
that the Company and the Trustee may enter into indentures supplemental to the
Original Indenture for, among other things, the purpose of setting forth the
terms of Securities of any series; and
Whereas, the Company desires to create a series of the Securities in an
aggregate principal amount of $500,000,000 to be designated the "8.075% Notes
due 2002" (the "Notes"), and all action on the part of the Company necessary
to authorize the issuance of the Notes under the Original Indenture and this
Fifth Supplemental Indenture has been duly taken; and
Whereas, all acts and things necessary to make the Notes, when executed by
the Company and authenticated and delivered by the Trustee as in the Original
Indenture provided, the valid and binding obligations of the Company, and to
constitute these presents a valid and binding supplemental indenture and
agreement according to its terms, have been done and performed;
Now, therefore, in consideration of the premises and of the mutual covenants
herein contained, and of the acceptance of this trust by the Trustee, and of
the sum of one dollar to the Company duly paid by the Trustee at the execution
and delivery of these presents, and of other valuable consideration the
receipt whereof is hereby acknowledged and in order to authorize the
authentication and delivery of and to set forth the terms of the Notes,
<PAGE>
It is hereby covenanted, declared and agreed by and between the parties
hereto, for the benefit of holders of the Notes issued under the Original
Indenture, as follows:
ARTICLE 1.
Terms and Issuance of 8.075% Notes Due 2002
Section 1.1. Issue of Notes. A series of Securities which shall be
designated the "8.075% Notes due 2002" shall be executed, authenticated and
delivered in accordance with the provisions of, and shall in all respects be
subject to, the terms, conditions and covenants of the Indenture, including
without limitation the terms set forth in this Fifth Supplemental Indenture
(including the form of Notes set forth in Section 1.2 hereof). The aggregate
principal amount of Notes which may be authenticated and delivered under the
Indenture shall not, except as permitted by the provisions of Sections 2.8,
2.9, 2.11, 8.5 and 12.3 of the Indenture, exceed $500,000,000. The entire
amount of Notes may forthwith be executed by the Company and delivered to the
Trustee and shall be authenticated by the Trustee and delivered to or upon the
order of the Company pursuant to Section 2.4 of the Indenture.
Section 1.2. Forms of Notes and Authentication Certificate. The forms of the
Notes and the Trustee's certificate of authentication shall be substantially
as follows:
[form of face of note]
NEW TENNECO INC.
8.075% NOTE DUE 2002
No. $
CUSIP
New Tenneco Inc., a corporation organized and existing under the laws of the
State of Delaware (hereinafter called the "Company," which term shall include
any successor corporation as defined in the Indenture hereinafter referred
to), for value received, hereby promises to pay to or registered assigns, the
sum of Dollars on October 1, 2002, in any coin or currency of the United
States of America which at the time of payment is legal tender for the payment
of public and private debts, and to pay to the registered holder hereof as
hereinafter provided interest thereon at the rate per annum specified in the
title hereof in like coin or currency, from the April 1 or October 1 next
preceding the date hereof to which interest has been paid, unless the date
hereof
2
<PAGE>
is a April 1 or October 1 to which interest on the Notes has been paid, in
which case from the date hereof, or unless no interest has been paid on the
Notes since the original issue date (hereinafter referred to) of this Note, in
which case from the original issue date, semi-annually on April 1 and October
1 in each year, until payment of said principal sum has been made or duly
provided for, and to pay interest on any overdue principal and (to the extent
permitted by law) on any overdue installment of interest at the rate of 8.075%
per annum. Notwithstanding the foregoing, when there is no existing default in
the payment of interest on the Notes, if the date hereof is after March 16 or
September 16 and prior to the following April 1 or October 1, as the case may
be, this Note shall bear interest from such April 1 or October 1, or, if no
interest has been paid on the Notes since the original issue date of this
Note, from the original issue date; provided however, that if the Company
shall default in the payment of interest due on such April 1 or October 1,
then this Note shall bear interest from the April 1 or October 1 to which
interest has been paid or, if no interest has been paid on the Notes since the
original issue date of this Note, from the original issue date. The interest
so payable on any April 1 or October 1 will, subject to certain exceptions
provided in the Indenture hereinafter referred to, be paid to the person in
whose name this Note is registered at the close of business on the March 16 or
September 16, as the case may be, next preceding such April 1 or October 1, or
if such March 16 or September 16 is not a business day, the business day next
preceding such March 16 or September 16. Interest on this Note shall be
computed on the basis of a 360-day year consisting of twelve 30-day months.
Both principal of and interest on this Note are payable at the principal
office of the Trustee in the Borough of Manhattan, The City of New York, New
York; provided, however, that payment of interest may be made, at the option
of the Company, by check mailed to the address of the person entitled thereto
as such address shall appear on the Note register. The original issue date in
respect of the Notes is December 11, 1996.
ADDITIONAL PROVISIONS OF THIS NOTE ARE CONTAINED ON THE REVERSE HEREOF AND
SUCH PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS THOUGH FULLY
SET FORTH AT THIS PLACE.
This Note shall not be entitled to any benefit under the Indenture
hereinafter referred to, or become valid or obligatory for any purpose, until
the Trustee under the Indenture shall have signed the form of certificate of
authentication endorsed hereon.
3
<PAGE>
In Witness Whereof, New Tenneco Inc. has caused this Instrument to be signed
in its name by its Chairman of the Board or its President or a Vice President,
and its corporate seal (or a facsimile thereof) to be hereto affixed and
attested by its Secretary or an Assistant Secretary.
Dated ..........................
New Tenneco Inc.
By .......................................
Chairman of the Board
Attest:
................................
Secretary
[form of reverse of note]
NEW TENNECO INC.
8.075% NOTE DUE 2002
This Note is one of a duly authorized issue of Notes of the Company known as
its 8.075% Notes due 2002 (herein called the "Notes"), limited to the
aggregate principal amount of $500,000,000, all issued under and equally
entitled to the benefits of an Indenture (herein, together with any amendments
and supplements thereto, including without limitation the form and terms of
Securities issued pursuant thereto, called the "Indenture"), dated as of
November 1, 1996, executed by the Company to The Chase Manhattan Bank (herein,
together with any successor thereto, called the "Trustee"), as Trustee, to
which Indenture reference is hereby made for a statement of the rights
thereunder of the Trustee and of the registered holders of the Notes and of
the duties thereunder of the Trustee and the Company.
The Notes are not subject to redemption prior to maturity.
4
<PAGE>
The Indenture permits the Company to issue unsecured debentures, notes
and/or other evidences of indebtedness in one or more series ("Securities") up
to such principal amount or amounts as may be authorized in accordance with
the terms of the Indenture.
To the extent permitted by, and as provided in, the Indenture, modifications
or alterations of the Indenture and of the rights and obligations of the
Company and of the holders of the Notes may be made with the consent of the
Company and with the consent of the holders of not less than a majority in
principal amount of the Securities of all series then outstanding under the
Indenture (treated as a single class) which are affected by the modification
or amendment thereto; provided, however, that without the consent of the
holder hereof no such modification or alteration shall be made which will
affect the terms of payment of the principal of or interest on this Note.
In case a default, as defined in the Indenture, shall occur, the principal
of all the Notes at any such time outstanding under the Indenture may be
declared or may become due and payable, upon the conditions and in the manner
and with the effect provided in the Indenture. The Indenture provides that
such declaration may in certain events be waived by the holders of a majority
in principal amount of the Notes outstanding in the case of payment defaults
on the Notes and in certain other events by the holders of a majority in
principal amount of the Securities of all series then outstanding under the
Indenture (treated as a single class) which are affected thereby.
The Indenture provides that no holder of any Note may enforce any remedy
under the Indenture except in the case of refusal or neglect of the Trustee to
act after notice of default and after request by the holders of a majority in
principal amount of the outstanding Notes in certain events (and in certain
other events by the holders of a majority in principal amount of the
Securities of all series then outstanding under the Indenture, treated as a
single class, which are affected thereby) and the offer to the Trustee of
security and indemnity satisfactory to it; provided, however, that such
provision shall not prevent the holder hereof from enforcing payment of the
principal of or interest on this Note.
The transfer of this Note is registrable by the registered holder hereof, in
person or by duly authorized attorney, at the agency of the Company in the
Borough of Manhattan, The City of New York, New York, on books of the Company
to be kept for that purpose at said agency, upon surrender and cancellation of
this Note and on presentation of a duly executed written instrument of
transfer, and thereupon a new Note or Notes, of the same aggregate principal
amount and in authorized denominations, will be issued to the
5
<PAGE>
transferee or transferees in exchange herefor; and this Note, with or without
other Notes, may in like manner be exchanged for one or more new Notes of
other authorized denominations but of the same aggregate principal amount; all
subject to the terms and conditions set forth in the Indenture.
The Company, the Trustee, any paying agent and any Registrar of the Notes
may deem and treat the person in whose name this Note is registered as the
absolute owner hereof for all purposes whatsoever, and neither the Company nor
the Trustee nor any paying agent nor any Registrar of the Notes shall be
affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or the interest
on, this Note, or for any claim based hereon or on the Indenture, against any
incorporator, or against any stockholder, director or officer, as such, past,
present or future, of the Company, or of any predecessor or successor
corporation, either directly or through the Company or any such predecessor or
successor corporation, whether by virtue of any constitution, statute or rule
of law, or by the enforcement of any assessment or penalty or otherwise, all
such liability, whether at common law, in equity, by any constitution, statute
or otherwise, of incorporators, stockholders, directors or officers being
released by every owner hereof by the acceptance of this Note and as part of
the consideration for the issue hereof, and being likewise released by the
terms of the Indenture; provided, however, that nothing herein or in the
Indenture contained shall be taken to prevent recourse to and the enforcement
of the liability, if any, of any stockholder or subscriber to capital stock of
the Company upon or in respect of shares of capital stock not fully paid up.
All terms used in this Note which are defined in the Indenture shall have
the meanings assigned to them in the Indenture.
[form of trustee's certificate of authentication]
This Note is one of the 8.075% Notes due 2002 described in the within-
mentioned Indenture.
THE CHASE MANHATTAN BANK,
Trustee,
By........................................
Authorized Officer.
6
<PAGE>
ARTICLE 2.
Miscellaneous
Section 2.1. Execution as Supplemental Indenture. This Fifth Supplemental
Indenture is executed and shall be construed as an indenture supplemental to
the Original Indenture and, as provided in the Original Indenture, this Fifth
Supplemental Indenture forms a part thereof. Except as herein expressly
otherwise defined, the use of the terms and expressions herein is in
accordance with the definitions, uses and constructions contained in the
Original Indenture.
Section 2.2. Responsibility for Recitals, Etc. The recitals herein and in
the Notes (except in the Trustee's certificate of authentication) shall be
taken as the statements of the Company, and the Trustee assumes no
responsibility for the correctness thereof. The Trustee makes no
representations as to the validity or sufficiency of this Fifth Supplemental
Indenture or of the Notes. The Trustee shall not be accountable for the use or
application by the Company of the Notes or of the proceeds thereof.
Section 2.3. Provisions Binding on Company's Successors. All the covenants,
stipulations, promises and agreements in this Fifth Supplemental Indenture
contained by the Company shall bind its successors and assigns whether so
expressed or not.
SECTION 2.4. NEW YORK CONTRACT. THIS FIFTH SUPPLEMENTAL INDENTURE AND EACH
NOTE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF NEW
YORK, AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF
SAID STATE WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
Section 2.5. Execution and Counterparts. This Fifth Supplemental Indenture
may be executed in any number of counterparts, each of which shall be an
original but such counterparts shall together constitute but one and the same
instrument.
7
<PAGE>
In Witness Whereof, said New Tenneco Inc. has caused this Fifth Supplemental
Indenture to be executed in its corporate name by its Chairman of the Board or
its President or one of its Vice Presidents, and said The Chase Manhattan Bank
has caused this Fifth Supplemental Indenture to be executed in its corporate
name by one of its Vice Presidents as of December 11, 1996.
New Tenneco Inc.
/s/ Karen A. Osar
By _________________________________________
Karen A. Osar
Vice President and Treasurer
The Chase Manhattan Bank
/s/ Ronald J. Halleran
By _________________________________________
Ronald J. Halleran
Second Vice President
8
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NEW TENNECO INC.
AND
THE CHASE MANHATTAN BANK,
AS TRUSTEE
------------------
SIXTH SUPPLEMENTAL INDENTURE
DATED AS OF DECEMBER 11, 1996
TO
INDENTURE
DATED AS OF NOVEMBER 1, 1996
------------------
PROVIDING FOR THE ISSUANCE OF
8.20% NOTES DUE 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Sixth Supplemental Indenture dated as of December 11, 1996 between New
Tenneco Inc., a corporation duly organized and existing under the laws of the
State of Delaware (hereinafter called the "Company"), and The Chase Manhattan
Bank, a New York banking corporation, as trustee (hereinafter called the
"Trustee").
Whereas, the Company has heretofore executed and delivered to the Trustee an
indenture dated as of November 1, 1996 (hereinafter called the "Original
Indenture"), to provide for the issue of an unlimited amount of debentures,
notes and/or other debt obligations of the Company (hereinafter referred to as
the "Securities"), the terms of which are to be determined as set forth in
Section 2.3 of the Original Indenture; and
Whereas, Section 8.1 of the Original Indenture provides, among other things,
that the Company and the Trustee may enter into indentures supplemental to the
Original Indenture for, among other things, the purpose of setting forth the
terms of Securities of any series; and
Whereas, the Company desires to create a series of the Securities in an
aggregate principal amount of $250,000,000 to be designated the "8.20% Notes
due 1999" (the "Notes"), and all action on the part of the Company necessary
to authorize the issuance of the Notes under the Original Indenture and this
Sixth Supplemental Indenture has been duly taken; and
Whereas, all acts and things necessary to make the Notes, when executed by
the Company and authenticated and delivered by the Trustee as in the Original
Indenture provided, the valid and binding obligations of the Company, and to
constitute these presents a valid and binding supplemental indenture and
agreement according to its terms, have been done and performed;
Now, therefore, in consideration of the premises and of the mutual covenants
herein contained, and of the acceptance of this trust by the Trustee, and of
the sum of one dollar to the Company duly paid by the Trustee at the execution
and delivery of these presents, and of other valuable consideration the
receipt whereof is hereby acknowledged and in order to authorize the
authentication and delivery of and to set forth the terms of the Notes,
<PAGE>
It is hereby covenanted, declared and agreed by and between the parties
hereto, for the benefit of holders of the Notes issued under the Original
Indenture, as follows:
ARTICLE 1.
Terms and Issuance of 8.20% Notes Due 1999
Section 1.1. Issue of Notes. A series of Securities which shall be
designated the "8.20 Notes due 1999" shall be executed, authenticated and
delivered in accordance with the provisions of, and shall in all respects be
subject to, the terms, conditions and covenants of the Indenture, including
without limitation the terms set forth in this Sixth Supplemental Indenture
(including the form of Notes set forth in Section 1.2 hereof). The aggregate
principal amount of Notes which may be authenticated and delivered under the
Indenture shall not, except as permitted by the provisions of Sections 2.8,
2.9, 2.11, 8.5 and 12.3 of the Indenture, exceed $250,000,000. The entire
amount of Notes may forthwith be executed by the Company and delivered to the
Trustee and shall be authenticated by the Trustee and delivered to or upon the
order of the Company pursuant to Section 2.4 of the Indenture.
Section 1.2. Forms of Notes and Authentication Certificate. The forms of the
Notes and the Trustee's certificate of authentication shall be substantially
as follows:
[form of face of note]
NEW TENNECO INC.
8.20% NOTE DUE 2002
No. $
CUSIP
New Tenneco Inc., a corporation organized and existing under the laws of the
State of Delaware (hereinafter called the "Company," which term shall include
any successor corporation as defined in the Indenture hereinafter referred
to), for value received, hereby promises to pay to or registered assigns, the
sum of Dollars on November 15, 1999, in any coin or currency of the United
States of America which at the time of payment is legal tender for the payment
of public and private debts, and to pay to the registered holder hereof as
hereinafter provided interest thereon at the rate per annum specified in the
title hereof in like coin or currency, from the May 15 or November 15 next
preceding the date hereof to which interest has been paid,
2
<PAGE>
unless the date hereof is a May 15 or November 15 to which interest on the
Notes has been paid, in which case from the date hereof, or unless no interest
has been paid on the Notes since the original issue date (hereinafter referred
to) of this Note, in which case from the original issue date, semi-annually on
May 15 and November 15 in each year, until payment of said principal sum has
been made or duly provided for, and to pay interest on any overdue principal
and (to the extent permitted by law) on any overdue installment of interest at
the rate of 8.20% per annum. Notwithstanding the foregoing, when there is no
existing default in the payment of interest on the Notes, if the date hereof
is after April 30 or October 31 and prior to the following May 15 or November
15, as the case may be, this Note shall bear interest from such May 15 or
November 15, or, if no interest has been paid on the Notes since the original
issue date of this Note, from the original issue date; provided, however, that
if the Company shall default in the payment of interest due on such May 15 or
November 15, then this Note shall bear interest from the May 15 or November 15
to which interest has been paid or, if no interest has been paid on the Notes
since the original issue date of this Note, from the original issue date. The
interest so payable on any May 15 or November 15 will, subject to certain
exceptions provided in the Indenture hereinafter referred to, be paid to the
person in whose name this Note is registered at the close of business on the
April 30 or October 31, as the case may be, next preceding such May 15 or
November 15, or if such April 30 or October 31 is not a business day, the
business day next preceding such April 30 or October 31. Interest on this Note
shall be computed on the basis of a 360-day year consisting of twelve 30-day
months. Both principal of and interest on this Note are payable at the
principal office of the Trustee in the Borough of Manhattan, The City of New
York, New York; provided, however, that payment of interest may be made, at
the option of the Company, by check mailed to the address of the person
entitled thereto as such address shall appear on the Note register. The
original issue date in respect of the Notes is December 11, 1996.
ADDITIONAL PROVISIONS OF THIS NOTE ARE CONTAINED ON THE REVERSE HEREOF AND
SUCH PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS THOUGH FULLY
SET FORTH AT THIS PLACE.
This Note shall not be entitled to any benefit under the Indenture
hereinafter referred to, or become valid or obligatory for any purpose, until
the Trustee under the Indenture shall have signed the form of certificate of
authentication endorsed hereon.
In Witness Whereof, New Tenneco Inc. has caused this Instrument to be signed
in its name by its Chairman of the Board or its President or a Vice
3
<PAGE>
President, and its corporate seal (or a facsimile thereof) to be hereto
affixed and attested by its Secretary or an Assistant Secretary.
Dated ..........................
New Tenneco Inc.
By .......................................
Chairman of the Board
Attest:
................................
Secretary
[form of reverse of note]
NEW TENNECO INC.
8.20% NOTE DUE 1999
This Note is one of a duly authorized issue of Notes of the Company known as
its 8.20% Notes due 1999 (herein called the "Notes"), limited to the aggregate
principal amount of $250,000,000, all issued under and equally entitled to the
benefits of an Indenture (herein, together with any amendments and supplements
thereto, including without limitation the form and terms of Securities issued
pursuant thereto, called the "Indenture"), dated as of November 1, 1996,
executed by the Company to The Chase Manhattan Bank (herein, together with any
successor thereto, called the "Trustee"), as Trustee, to which Indenture
reference is hereby made for a statement of the rights thereunder of the
Trustee and of the registered holders of the Notes and of the duties
thereunder of the Trustee and the Company.
The Notes are not subject to redemption prior to maturity.
The Indenture permits the Company to issue unsecured debentures, notes
and/or other evidences of indebtedness in one or more series ("Securities") up
4
<PAGE>
to such principal amount or amounts as may be authorized in accordance with
the terms of the Indenture.
To the extent permitted by, and as provided in, the Indenture, modifications
or alterations of the Indenture and of the rights and obligations of the
Company and of the holders of the Notes may be made with the consent of the
Company and with the consent of the holders of not less than a majority in
principal amount of the Securities of all series then outstanding under the
Indenture (treated as a single class) which are affected by the modification
or amendment thereto; provided, however, that without the consent of the
holder hereof no such modification or alteration shall be made which will
affect the terms of payment of the principal of or interest on this Note.
In case a default, as defined in the Indenture, shall occur, the principal
of all the Notes at any such time outstanding under the Indenture may be
declared or may become due and payable, upon the conditions and in the manner
and with the effect provided in the Indenture. The Indenture provides that
such declaration may in certain events be waived by the holders of a majority
in principal amount of the Notes outstanding in the case of payment defaults
on the Notes and in certain other events by the holders of a majority in
principal amount of the Securities of all series then outstanding under the
Indenture (treated as a single class) which are affected thereby.
The Indenture provides that no holder of any Note may enforce any remedy
under the Indenture except in the case of refusal or neglect of the Trustee to
act after notice of default and after request by the holders of a majority in
principal amount of the outstanding Notes in certain events (and in certain
other events by the holders of a majority in principal amount of the
Securities of all series then outstanding under the Indenture, treated as a
single class, which are affected thereby) and the offer to the Trustee of
security and indemnity satisfactory to it; provided, however, that such
provision shall not prevent the holder hereof from enforcing payment of the
principal of or interest on this Note.
The transfer of this Note is registrable by the registered holder hereof, in
person or by duly authorized attorney, at the agency of the Company in the
Borough of Manhattan, The City of New York, New York, on books of the Company
to be kept for that purpose at said agency, upon surrender and cancellation of
this Note and on presentation of a duly executed written instrument of
transfer, and thereupon a new Note or Notes, of the same aggregate principal
amount and in authorized denominations, will be issued to the transferee or
transferees in exchange herefor; and this Note, with or without other Notes,
may in like manner be exchanged for one or more new Notes of other
5
<PAGE>
authorized denominations but of the same aggregate principal amount; all
subject to the terms and conditions set forth in the Indenture.
The Company, the Trustee, any paying agent and any Registrar of the Notes
may deem and treat the person in whose name this Note is registered as the
absolute owner hereof for all purposes whatsoever, and neither the Company nor
the Trustee nor any paying agent nor any Registrar of the Notes shall be
affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or the interest
on, this Note, or for any claim based hereon or on the Indenture, against any
incorporator, or against any stockholder, director or officer, as such, past,
present or future, of the Company, or of any predecessor or successor
corporation, either directly or through the Company or any such predecessor or
successor corporation, whether by virtue of any constitution, statute or rule
of law, or by the enforcement of any assessment or penalty or otherwise, all
such liability, whether at common law, in equity, by any constitution, statute
or otherwise, of incorporators, stockholders, directors or officers being
released by every owner hereof by the acceptance of this Note and as part of
the consideration for the issue hereof, and being likewise released by the
terms of the Indenture; provided, however, that nothing herein or in the
Indenture contained shall be taken to prevent recourse to and the enforcement
of the liability, if any, of any stockholder or subscriber to capital stock of
the Company upon or in respect of shares of capital stock not fully paid up.
All terms used in this Note which are defined in the Indenture shall have
the meanings assigned to them in the Indenture.
[form of trustee's certificate of authentication]
This Note is one of the 8.20% Notes due 1999 described in the within-
mentioned Indenture.
THE CHASE MANHATTAN BANK,
Trustee,
By........................................
Authorized Officer.
6
<PAGE>
ARTICLE 2.
Miscellaneous
Section 2.1. Execution as Supplemental Indenture. This Sixth Supplemental
Indenture is executed and shall be construed as an indenture supplemental to
the Original Indenture and, as provided in the Original Indenture, this Sixth
Supplemental Indenture forms a part thereof. Except as herein expressly
otherwise defined, the use of the terms and expressions herein is in
accordance with the definitions, uses and constructions contained in the
Original Indenture.
Section 2.2. Responsibility for Recitals, Etc. The recitals herein and in
the Notes (except in the Trustee's certificate of authentication) shall be
taken as the statements of the Company, and the Trustee assumes no
responsibility for the correctness thereof. The Trustee makes no
representations as to the validity or sufficiency of this Sixth Supplemental
Indenture or of the Notes. The Trustee shall not be accountable for the use or
application by the Company of the Notes or of the proceeds thereof.
Section 2.3. Provisions Binding on Company's Successors. All the covenants,
stipulations, promises and agreements in this Sixth Supplemental Indenture
contained by the Company shall bind its successors and assigns whether so
expressed or not.
SECTION 2.4. NEW YORK CONTRACT. THIS SIXTH SUPPLEMENTAL INDENTURE AND EACH
NOTE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF NEW
YORK, AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF
SAID STATE WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
Section 2.5. Execution and Counterparts. This Sixth Supplemental Indenture
may be executed in any number of counterparts, each of which shall be an
original but such counterparts shall together constitute but one and the same
instrument.
7
<PAGE>
In Witness Whereof, said New Tenneco Inc. has caused this Sixth Supplemental
Indenture to be executed in its corporate name by its Chairman of the Board or
its President or one of its Vice Presidents, and said The Chase Manhattan Bank
has caused this Sixth Supplemental Indenture to be executed in its corporate
name by one of its Vice Presidents as of December 11, 1996.
New Tenneco Inc.
/s/ Karen A. Osar
By _________________________________________
Karen A. Osar
Vice President and Treasurer
The Chase Manhattan Bank
/s/ Ronald J. Halleran
By _________________________________________
Ronald J. Halleran
Second Vice President
8
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NEW TENNECO INC.
AND
THE CHASE MANHATTAN BANK,
AS TRUSTEE
------------------
SEVENTH SUPPLEMENTAL INDENTURE
DATED AS OF DECEMBER 11, 1996
TO
INDENTURE
DATED AS OF NOVEMBER 1, 1996
------------------
PROVIDING FOR THE ISSUANCE OF
10.075% NOTES DUE 2001
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Seventh Supplemental Indenture dated as of December 11, 1996 between New
Tenneco Inc., a corporation duly organized and existing under the laws of the
State of Delaware (hereinafter called the "Company"), and The Chase Manhattan
Bank, a New York banking corporation, as trustee (hereinafter called the
"Trustee").
Whereas, the Company has heretofore executed and delivered to the Trustee an
indenture dated as of November 1, 1996 (hereinafter called the "Original
Indenture"), to provide for the issue of an unlimited amount of debentures,
notes and/or other debt obligations of the Company (hereinafter referred to as
the "Securities"), the terms of which are to be determined as set forth in
Section 2.3 of the Original Indenture; and
Whereas, Section 8.1 of the Original Indenture provides, among other things,
that the Company and the Trustee may enter into indentures supplemental to the
Original Indenture for, among other things, the purpose of setting forth the
terms of Securities of any series; and
Whereas, the Company desires to create a series of the Securities in an
aggregate principal amount of $200,000,000 to be designated the "10.075% Notes
due 2001" (the "Notes"), and all action on the part of the Company necessary
to authorize the issuance of the Notes under the Original Indenture and this
Seventh Supplemental Indenture has been duly taken; and
Whereas, all acts and things necessary to make the Notes, when executed by
the Company and authenticated and delivered by the Trustee as in the Original
Indenture provided, the valid and binding obligations of the Company, and to
constitute these presents a valid and binding supplemental indenture and
agreement according to its terms, have been done and performed;
Now, therefore, in consideration of the premises and of the mutual covenants
herein contained, and of the acceptance of this trust by the Trustee, and of
the sum of one dollar to the Company duly paid by the Trustee at the execution
and delivery of these presents, and of other valuable consideration the
receipt whereof is hereby acknowledged and in order to authorize the
authentication and delivery of and to set forth the terms of the Notes,
<PAGE>
It is hereby covenanted, declared and agreed by and between the parties
hereto, for the benefit of holders of the Notes issued under the Original
Indenture, as follows:
ARTICLE 1.
Terms and Issuance of 10.075% Notes Due 2001
Section 1.1. Issue of Notes. A series of Securities which shall be
designated the "10.075% Notes due 2001" shall be executed, authenticated and
delivered in accordance with the provisions of, and shall in all respects be
subject to, the terms, conditions and covenants of the Indenture, including
without limitation the terms set forth in this Seventh Supplemental Indenture
(including the form of Notes set forth in Section 1.2 hereof). The aggregate
principal amount of Notes which may be authenticated and delivered under the
Indenture shall not, except as permitted by the provisions of Sections 2.8,
2.9, 2.11, 8.5 and 12.3 of the Indenture, exceed $200,000,000. The entire
amount of Notes may forthwith be executed by the Company and delivered to the
Trustee and shall be authenticated by the Trustee and delivered to or upon the
order of the Company pursuant to Section 2.4 of the Indenture.
Section 1.2. Forms of Notes and Authentication Certificate. The forms of the
Notes and the Trustee's certificate of authentication shall be substantially
as follows:
[form of face of note]
NEW TENNECO INC.
10.075% NOTE DUE 2001
No. $
CUSIP
New Tenneco Inc., a corporation organized and existing under the laws of the
State of Delaware (hereinafter called the "Company," which term shall include
any successor corporation as defined in the Indenture hereinafter referred
to), for value received, hereby promises to pay to or registered assigns, the
sum of Dollars on February 1, 2001, in any coin or currency of the United
States of America which at the time of payment is legal tender for the payment
of public and private debts, and to pay to the registered holder hereof as
hereinafter provided interest thereon at the rate per annum specified in the
title hereof in like coin or currency, from the February 1 or August 1 next
preceding the date hereof to which interest has been paid, unless the date
hereof
2
<PAGE>
is a February 1 or August 1 to which interest on the Notes has been paid, in
which case from the date hereof, or unless no interest has been paid on the
Notes since the original issue date (hereinafter referred to) of this Note, in
which case from the original issue date, semi-annually on February 1 or August
1 in each year, until payment of said principal sum has been made or duly
provided for, and to pay interest on any overdue principal and (to the extent
permitted by law) on any overdue installment of interest at the rate of
10.075% per annum. Notwithstanding the foregoing, when there is no existing
default in the payment of interest on the Notes, if the date hereof is after
January 16 or July 16 and prior to the following February 1 or August 1, as
the case may be, this Note shall bear interest from such February 1 or August
1, or, if no interest has been paid on the Notes since the original issue date
of this Note, from the original issue date; provided, however, that if the
Company shall default in the payment of interest due on such February 1 or
August 1, then this Note shall bear interest from the February 1 or August 1
to which interest has been paid or, if no interest has been paid on the Notes
since the original issue date of this Note, from the original issue date. The
interest so payable on any February 1 or August 1 will, subject to certain
exceptions provided in the Indenture hereinafter referred to, be paid to the
person in whose name this Note is registered at the close of business on the
January 16 or July 16, as the case may be, next preceding such February 1 or
August 1, or if such January 16 or July 16 is not a business day, the business
day next preceding such January 16 or July 16. Interest on this Note shall be
computed on the basis of a 360-day year consisting of twelve 30-day months.
Both principal of and interest on this Note are payable at the principal
office of the Trustee in the Borough of Manhattan, The City of New York, New
York; provided, however, that payment of interest may be made, at the option
of the Company, by check mailed to the address of the person entitled thereto
as such address shall appear on the Note register. The original issue date in
respect of the Notes is December 11, 1996.
ADDITIONAL PROVISIONS OF THIS NOTE ARE CONTAINED ON THE REVERSE HEREOF AND
SUCH PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS THOUGH FULLY
SET FORTH AT THIS PLACE.
This Note shall not be entitled to any benefit under the Indenture
hereinafter referred to, or become valid or obligatory for any purpose, until
the Trustee under the Indenture shall have signed the form of certificate of
authentication endorsed hereon.
In Witness Whereof, New Tenneco Inc. has caused this Instrument to be signed
in its name by its Chairman of the Board or its President or a Vice
3
<PAGE>
President, and its corporate seal (or a facsimile thereof) to be hereto
affixed and attested by its Secretary or an Assistant Secretary.
Dated ..........................
New Tenneco Inc.
By .......................................
Chairman of the Board
Attest:
................................
Secretary
[form of reverse of note]
NEW TENNECO INC.
10.075% NOTE DUE 2001
This Note is one of a duly authorized issue of Notes of the Company known as
its 10.075% Notes due 2001 (herein called the "Notes"), limited to the
aggregate principal amount of $200,000,000, all issued under and equally
entitled to the benefits of an Indenture (herein, together with any amendments
and supplements thereto, including without limitation the form and terms of
Securities issued pursuant thereto, called the "Indenture"), dated as of
November 1, 1996, executed by the Company to The Chase Manhattan Bank (herein,
together with any successor thereto, called the "Trustee"), as Trustee, to
which Indenture reference is hereby made for a statement of the rights
thereunder of the Trustee and of the registered holders of the Notes and of
the duties thereunder of the Trustee and the Company.
The Notes are not subject to redemption prior to maturity.
The Indenture permits the Company to issue unsecured debentures, notes
and/or other evidences of indebtedness in one or more series ("Securities") up
4
<PAGE>
to such principal amount or amounts as may be authorized in accordance with
the terms of the Indenture.
To the extent permitted by, and as provided in, the Indenture, modifications
or alterations of the Indenture and of the rights and obligations of the
Company and of the holders of the Notes may be made with the consent of the
Company and with the consent of the holders of not less than a majority in
principal amount of the Securities of all series then outstanding under the
Indenture (treated as a single class) which are affected by the modification
or amendment thereto; provided, however, that without the consent of the
holder hereof no such modification or alteration shall be made which will
affect the terms of payment of the principal of or interest on this Note.
In case a default, as defined in the Indenture, shall occur, the principal
of all the Notes at any such time outstanding under the Indenture may be
declared or may become due and payable, upon the conditions and in the manner
and with the effect provided in the Indenture. The Indenture provides that
such declaration may in certain events be waived by the holders of a majority
in principal amount of the Notes outstanding in the case of payment defaults
on the Notes and in certain other events by the holders of a majority in
principal amount of the Securities of all series then outstanding under the
Indenture (treated as a single class) which are affected thereby.
The Indenture provides that no holder of any Note may enforce any remedy
under the Indenture except in the case of refusal or neglect of the Trustee to
act after notice of default and after request by the holders of a majority in
principal amount of the outstanding Notes in certain events (and in certain
other events by the holders of a majority in principal amount of the
Securities of all series then outstanding under the Indenture, treated as a
single class, which are affected thereby) and the offer to the Trustee of
security and indemnity satisfactory to it; provided, however, that such
provision shall not prevent the holder hereof from enforcing payment of the
principal of or interest on this Note.
The transfer of this Note is registrable by the registered holder hereof, in
person or by duly authorized attorney, at the agency of the Company in the
Borough of Manhattan, The City of New York, New York, on books of the Company
to be kept for that purpose at said agency, upon surrender and cancellation of
this Note and on presentation of a duly executed written instrument of
transfer, and thereupon a new Note or Notes, of the same aggregate principal
amount and in authorized denominations, will be issued to the transferee or
transferees in exchange herefor; and this Note, with or without other Notes,
may in like manner be exchanged for one or more new Notes of other
5
<PAGE>
authorized denominations but of the same aggregate principal amount; all
subject to the terms and conditions set forth in the Indenture.
The Company, the Trustee, any paying agent and any Registrar of the Notes
may deem and treat the person in whose name this Note is registered as the
absolute owner hereof for all purposes whatsoever, and neither the Company nor
the Trustee nor any paying agent nor any Registrar of the Notes shall be
affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or the interest
on, this Note, or for any claim based hereon or on the Indenture, against any
incorporator, or against any stockholder, director or officer, as such, past,
present or future, of the Company, or of any predecessor or successor
corporation, either directly or through the Company or any such predecessor or
successor corporation, whether by virtue of any constitution, statute or rule
of law, or by the enforcement of any assessment or penalty or otherwise, all
such liability, whether at common law, in equity, by any constitution, statute
or otherwise, of incorporators, stockholders, directors or officers being
released by every owner hereof by the acceptance of this Note and as part of
the consideration for the issue hereof, and being likewise released by the
terms of the Indenture; provided, however, that nothing herein or in the
Indenture contained shall be taken to prevent recourse to and the enforcement
of the liability, if any, of any stockholder or subscriber to capital stock of
the Company upon or in respect of shares of capital stock not fully paid up.
All terms used in this Note which are defined in the Indenture shall have
the meanings assigned to them in the Indenture.
[form of trustee's certificate of authentication]
This Note is one of the 10.075% Notes due 2001 described in the within-
mentioned Indenture.
THE CHASE MANHATTAN BANK,
Trustee,
By........................................
Authorized Officer.
6
<PAGE>
ARTICLE 2.
Miscellaneous
Section 2.1. Execution as Supplemental Indenture. This Seventh Supplemental
Indenture is executed and shall be construed as an indenture supplemental to
the Original Indenture and, as provided in the Original Indenture, this
Seventh Supplemental Indenture forms a part thereof. Except as herein
expressly otherwise defined, the use of the terms and expressions herein is in
accordance with the definitions, uses and constructions contained in the
Original Indenture.
Section 2.2. Responsibility for Recitals, Etc. The recitals herein and in
the Notes (except in the Trustee's certificate of authentication) shall be
taken as the statements of the Company, and the Trustee assumes no
responsibility for the correctness thereof. The Trustee makes no
representations as to the validity or sufficiency of this Seventh Supplemental
Indenture or of the Notes. The Trustee shall not be accountable for the use or
application by the Company of the Notes or of the proceeds thereof.
Section 2.3. Provisions Binding on Company's Successors. All the covenants,
stipulations, promises and agreements in this Seventh Supplemental Indenture
contained by the Company shall bind its successors and assigns whether so
expressed or not.
SECTION 2.4. NEW YORK CONTRACT. THIS SEVENTH SUPPLEMENTAL INDENTURE AND EACH
NOTE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF NEW
YORK, AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF
SAID STATE.
Section 2.5. Execution and Counterparts. This Seventh Supplemental Indenture
may be executed in any number of counterparts, each of which shall be an
original but such counterparts shall together constitute but one and the same
instrument.
7
<PAGE>
In Witness Whereof, said New Tenneco Inc. has caused this Seventh
Supplemental Indenture to be executed in its corporate name by its Chairman of
the Board or its President or one of its Vice Presidents, and said The Chase
Manhattan Bank has caused this Seventh Supplemental Indenture to be executed
in its corporate name by one of its Vice Presidents as of December 11, 1996.
New Tenneco Inc.
/s/ Karen A. Osar
By _________________________________________
Karen A. Osar
Vice President and Treasurer
The Chase Manhattan Bank
/s/ Ronald J. Halleran
By _________________________________________
Ronald J. Halleran
Second Vice President
8
<PAGE>
EXHIBIT 10.2
AMENDMENT NO. 1 TO DISTRIBUTION AGREEMENT
THIS AMENDMENT NO. 1 TO DISTRIBUTION AGREEMENT (this "Amendment") is made
and entered into as of this 11th day of December, 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
A. Tenneco, Industrial Company and Shipbuilding Company previously
entered into a Distribution Agreement, dated as of November 1, 1996 (the
"Distribution Agreement"), pursuant to which, among other things, Tenneco will
separate and divide its existing business so that (i) its automotive, packaging
and business services businesses (the "Industrial Business") shall be owned
directly and indirectly by Industrial Company and (ii) the shipbuilding business
(the "Shipbuilding Business") shall be owned directly and indirectly
Shipbuilding Company.
B. Tenneco, Industrial Company and Shipbuilding Company desire to amend
the Distribution Agreement as specifically permitted thereunder.
NOW, THEREFORE, in consideration of the mutual promises and agreements of
the parties set forth herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
A G R E E M E N T S
1. Terms. Unless otherwise defined herein, terms used herein shall have
the meaning ascribed thereto as set forth in the Distribution Agreement.
2. Amendments. Tenneco, Industrial Company and Shipbuilding Company have
determined pursuant to Section 2.01 of the Distribution Agreement that: (a) it
is necessary to amend, supplement, modify and, in certain respects, eliminate
certain of the Corporate Restructuring Transactions to properly divide the
existing businesses of Tenneco so that (i) the Industrial Business shall be
owned directly and indirectly by Industrial Company and (ii) the Shipbuilding
Business shall be owned directly and indirectly by the Shipbuilding Company, and
(b) that such amendments, modifications, supplements and eliminations neither
individually or in the aggregate, adversely affect the Energy Business nor
materially delay or prevent the consummation of the Merger. Accordingly,
<PAGE>
pursuant to Section 2.01 and Section 8.08 of the Distribution Agreement, the
Distribution Agreement is hereby amended as follows:
a. Section 5.04(c) of the Distribution Agreement is hereby amended by
deleting the term "Shipbuilding Subsidiary" in the first line and inserting the
term "Shipbuilding Company" in lieu thereof.
b. Exhibit B to the Distribution Agreement is hereby deleted in its
entirety and the Exhibit B attached hereto is substituted in lieu thereof.
c. Exhibit E to the Distribution Agreement is hereby deleted in its
entirety and the Exhibit E attached hereto is substituted in lieu thereof.
d. Exhibit G to the Distribution Agreement is hereby deleted in its
entirety and the Exhibit G attached hereto is substituted in lieu thereof.
e. Exhibit J to the Distribution Agreement is hereby deleted in its
entirety and the Exhibit J attached hereto is substituted in lieu thereof.
3. Distribution Agreement in Full Force. Except as herein amended or
modified, the Distribution Agreement shall remain unchanged and in full force
and effect and is hereby ratified, approved and confirmed in all respects.
4. References. After the date hereof, all references in the Distribution
Agreement to "Agreement," "hereof" or similar terms shall refer to the
Distribution Agreement as hereby amended.
5. Successors and Assigns. This Amendment shall be binding upon and inure
to the benefit of Tenneco, Industrial Company and Shipbuilding Company and their
respective successors and assigns.
6. Governing Law. This Amendment shall be governed by and construed in
accordance with the internal laws, and not the laws of conflict, of the State of
Delaware.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first written above.
TENNECO INC.
By: /s/ Karl A. Stewart
-------------------------
Name: Karl A. Stewart
------------------
Title: Vice President
------------------
NEW TENNECO INC.
By: /s/ Robert G. Simpson
-------------------------
Name: Robert G. Simpson
------------------
Title: Vice President
------------------
NEWPORT NEWS SHIPBUILDING INC.
By: /s/ Stephen B. Clarkson
--------------------------
Name: Stephen B. Clarkson
-------------------
Title: Vice President
-------------------
<PAGE>
Exhibit B
to the
Distribution Agreement
<PAGE>
PROJECT LIZA
TRANSACTION STEPS
Set forth below are the transactions that, as applicable, the members of
each of the Energy Group, Industrial Group, and Shipbuilding Group will
consummate in connection with the Distributions and Merger. Capitalized terms
used but not otherwise defined herein have the meaning ascribed to them under
the Distribution Agreement.
A. REALIGNMENT OF INTERCOMPANY ACCOUNTS
Except as otherwise provided in Section B below, the following transactions
will be effected as of October 31, 1996 to realign the intercompany accounts of
the Groups. As a result of these transactions, Tenneco will have one net
intercompany account receivable or payable with New Tenneco Inc. ("Industrial
Company") and one net intercompany account receivable or payable with Newport
News Shipbuilding Inc. ("Shipbuilding Company"), and all other intercompany
accounts payable or receivable of members of each Group (other than trade
accounts) will be exclusively between members of that Group. Following
completion of these transactions, there will be no further transfers of funds
between members of the different Groups other than pursuant to transactions
occurring in the ordinary course of business (trade accounts), transfers from or
to Tenneco and either Industrial Company or Shipbuilding Company, and transfers
required or otherwise permitted pursuant to these Corporate Restructuring
Transactions.
1. Realignment of Industrial Group Intercompany Accounts. Each member of
the Industrial Group having a net intercompany receivable from a member of the
Energy Group or the Shipbuilding Group (excluding trade accounts receivable)
will transfer such net intercompany receivable to Industrial Company in exchange
for an intercompany advance receivable from Industrial Company in an amount
equal to the amount of the net intercompany receivable transferred. Industrial
Company will assume the net intercompany payable of each member of the
Industrial Group having a net intercompany payable to a member of the Energy
Group or the Shipbuilding Group (excluding trade accounts payable) in exchange
for the issuance by each such Industrial Group member of an intercompany advance
payable to Industrial Company in an amount equal to the amount of the net
intercompany payable assumed. Industrial Company will consent to the assumption
of other net intercompany payables by Shipbuilding Company or Tenneco as
provided in this Section A.
2. Realignment of Shipbuilding Group Intercompany Accounts. Shipbuilding
Company will cause each member of the Shipbuilding Group having a net
intercompany receivable from a member of the Industrial Group or the Energy
Group to transfer such net intercompany receivable to Shipbuilding Company in
exchange for an intercompany advance receivable from Shipbuilding Company in an
amount equal to the amount of the net intercompany receivable transferred.
Shipbuilding Company will assume the net intercompany payable of each member of
the Shipbuilding Group having a net intercompany payable to a member of the
Industrial Group or the Energy Group (excluding trade accounts payable) in
exchange for the issuance by each such Shipbuilding Group member of an
intercompany advance payable to Shipbuilding Company in an amount equal to the
amount of the net intercompany payable assumed. Shipbuilding Company will
<PAGE>
Project Liza Transaction Steps
Page 2
consent to the assumption of other net intercompany payables by Industrial
Company or Tenneco as provided in this section A.
3. Realignment of Energy Group Intercompany Accounts. Tenneco will cause
each member of the Energy Group having a net intercompany receivable from a
member of the Industrial Group or the Shipbuilding Group to transfer such net
intercompany receivable to Tenneco in exchange for an intercompany advance
receivable from Tenneco in an amount equal to the amount of the net intercompany
receivable transferred. Tenneco will assume the net intercompany payable of each
member of the Energy Group having a net intercompany payable to a member of the
Industrial Group or the Shipbuilding Group (excluding trade accounts payable) in
exchange for the issuance by each such Energy Group member of an intercompany
advance payable to Tenneco in an amount equal to the amount of the net
intercompany payable assumed. Tenneco will consent to the assumption of other
net intercompany payables by Industrial Company or Shipbuilding Company as
provided in this section A.
4. Realignment of Intercompany Accounts Between Industrial Company and
Shipbuilding Company. If after the completion of steps A(1) through A(3),
Industrial Company has a net intercompany receivable from Shipbuilding Company
(excluding trade accounts), Tenneco will assume Shipbuilding Company's net
payable to Industrial Company in exchange for the issuance by Shipbuilding
Company of an intercompany advance payable to Tenneco in an amount equal to the
amount of the net intercompany payable assumed. If after the completion of steps
A(1) through A(3), Shipbuilding Company has a net intercompany receivable from
Industrial Company, Tenneco will assume Industrial Company's net payable to
Shipbuilding Company in exchange for the issuance by Industrial Company of an
intercompany advance payable to Tenneco having a face amount equal to the face
amount of the net intercompany payable assumed.
B. Preliminary Debt Realignment Transactions
1. Capitalization or Liquidation of Subsidiaries. The following
transactions will be effected to increase the capitalization of various
subsidiaries and to liquidate other subsidiaries. Except as otherwise noted, the
transfers are effective as of 10/31/96. Transfers of funds will be accomplished
by daylight overdrafts.
a. Newport News Shipbuilding and Dry Dock Company ("Newport News")
will transfer to Newport News Industrial Corporation ("NNIC") as a contribution
to capital $1,700,000. NNIC will transfer the funds to Newport News as an
intercompany advance.
b. NNIC will transfer to Newport News Industrial Corporation of Ohio
("NNICO") as a contribution to capital $200,000. NNICO will transfer the funds
to NNIC as an intercompany advance.
c. TGP will transfer to TII as a contribution to capital the
intercompany account payable owed by Tenneco Automotive Trading Company ("TATC")
to TGP as of August 31, 1996 ($___________).
<PAGE>
Project Liza Transaction Steps
Page 3
d. TII will transfer to TATC as a contribution to capital the
intercompany account payable received by TII in step B(1)(c).
e. TGP will transfer to Tenneco Brake Inc. as a contribution to
capital $15,000,000. Tenneco Brake Inc. will transfer the funds to TGP as an
intercompany advance. The intercompany advance will be settled as provided in
Section A above.
f. TGP will transfer to Walker Electronic Silencing Inc. as a
contribution to capital $10,000,000. Walker Electronic Silencing Inc. will
transfer the funds to TGP as a intercompany advance. The intercompany advance
will be settled as provided in Section A above.
g. TGP will transfer to TII as a contribution to capital the
intercompany account payable owed by Walker Europe Inc. to TGP as of October 31,
1996 ($_____________). TII will transfer to Walker Europe Inc. as a
contribution to capital (1) the intercompany account payable received pursuant
to the previous sentence, and (2) $10,000,000. Walker Europe Inc. will transfer
$10,000,000 to TII as an intercompany advance. The intercompany advance will be
settled as provided in Section A above.
h. Effective as of October 30, 1996, Tenneco will transfer to Tenneco
Liquidation Company (f/k/a Tenneco Business Services Inc.) ("TBS") as a
contribution to capital $60,000,000. TBS will transfer the funds to Tenneco as
an intercompany advance. The intercompany advance will be settled as provided
in Section A above. Effective as of October 31, 1996, Tenneco will transfer to
TBS as a contribution to capital the intercompany account payable owed by TBS to
Tenneco as of August 31, 1996 ($___________).
i. Tenneco Corporation will transfer to Tenneco Independent Power I
Company as a contribution to capital $5,000,000. Tenneco Independent Power I
Company will transfer the funds to Tenneco Corporation as an intercompany
advance.
j. Tenneco Corporation will transfer to Tenneco Independent Power II
Company as a contribution to capital $1,000,000. Tenneco Independent Power II
Company will transfer the funds to Tenneco Corporation as an intercompany
advance.
k. Tenneco Corporation will transfer to Tenneco Minerals Company -
Nevada as a contribution to capital $5,000,000. Tenneco Minerals Company -
Nevada will transfer the funds to Tenneco Corporation as an intercompany
advance.
l. Tenneco Corporation will transfer to Tenneco Oil Company as a
contribution to capital $700,000,000. Tenneco Oil Company will transfer the
funds to Tenneco Corporation as a intercompany advance.
m. Tenneco Corporation will transfer to Tenneco Power Generation
Company as a contribution to capital $5,000,000. Tenneco Power Generation
Company will transfer the funds to Tenneco Corporation as an intercompany
advance.
<PAGE>
Project Liza Transaction Steps
Page 4
n. Tenneco Power Generation Company will transfer to Tenneco Ethanol
Company as a contribution to capital $10,000,000. Tenneco Ethanol Company will
transfer the funds to Tenneco Power Generation Company as an intercompany
advance.
o. The following subsidiaries will merge into their respective parent
corporations as indicated below:
Subsidiary Parent
- ------------------------------------- -----------------------------------
Holmes Machinery Company The Pullman Company
Pullman RSC Company The Pullman Company
Pullman Aircraft Products Inc. Pullman Aerospace, Inc.
Pullman Aerospace Inc. The Pullman Company
Peabody Instruments, Inc. Peabody International Corporation
Peabody Noise Control Inc. Peabody International Corporation
Holmes Blowers Inc. Peabody International Corporation
Peabody Solid Wastes Management Inc.- Peabody International Corporation
DeWald
Peabody ABC Corp. Peabody International Corporation
Peabody Pumps, Inc. Peabody International Corporation
Galco Inc. Peabody International Corporation
2. Refinancing of TIHC Liquidity Facility and TIHC Loans to Tenneco.
Effective as of November 1, 1996, Tenneco International Holding Corp. (Delaware)
("TIHC") will restructure its credit facility with Tenneco Credit corporation
("TCC") and its loans to Tenneco as follows:
a. Tenneco will transfer to Industrial Company as an intercompany
advance an amount of funds equal to $25,000,000.
b. Industrial Company will transfer the funds received in step B(2)(a)
to Tenneco Automotive Inc. (f/k/a Monroe Auto Equipment Company; see step C(13))
("TAI") as an intercompany advance.
c. TAI will enter into a credit facility with TIHC on terms identical
to the terms of the credit facility currently existing between TIHC and TCC.
TAI will transfer the funds received in step B(2)(b) to TIHC as an advance of
funds under the terms of the TAI/TIHC credit facility.
d. Tenneco will transfer to TIHC an amount of funds equal to the
accrued balance through October 31, 1996 on TIHC's net intercompany loan to
Tenneco, and the loan shall be canceled.
e. From the funds received in steps B(2)(c) and B(2)(d), TIHC will
transfer to TCC an amount of funds equal to the accrued balance through October
31, 1996 under TIHC's credit facility with TCC, and the credit facility will be
terminated.
f. TCC will transfer the funds received in step B(2)(e) to Tenneco as
an intercomapny loan.
<PAGE>
Project Liza Transaction Steps
Page 5
g. TIHC will transfer any funds remaining after the transfer described
in step B(2)(e) to Industrial Company as an intercompany loan (on terms
substantively identical to the terms of the prior loan to Tenneco).
h. Industrial Company will transfer the funds received in step B(2)(g)
to Tenneco as an intercompany advance.
There will be no actual transfers of funds in step B(2); the intercompany
transfers will be accomplished though journal entries.
3. Purchase of Diamond Notes. Sara Lee Corporation currently holds a note
issued by Tenneco Packaging Inc. to Diamond International Inc. (the "TPI Diamond
Note") and two notes issued by Tenneco International Inc. ("TII") to Diamond
International Inc. (the "TII Diamond Note"). Tenneco Corporation's distribution
of the stock of Shipbuilding Company and Industrial Company in step C(16) may
violate certain provisions of a guarantee agreement executed by Tenneco
Corporation in connection with the issuance of the Diamond Note. To eliminate
the possibility of a violation of the agreement, the Diamond Notes will be
purchased from Sara Lee on November 15, 1996 as follows:
a. Tenneco will transfer to Industrial Company as an intercompany
advance an amount of funds equal to the purchase price of the TPI Diamond Note
($1,365,000).
b. Industrial Company will transfer the funds received in Step B(3)(a)
to Tenneco Packaging Inc. as an intercompany advance.
c. Tenneco will transfer to TII as an intercompany advance an amount
of funds equal to the fair market value of the TII Diamond Notes ($3,769,000
plus $673,000).
d. Tenneco Packaging Inc. and TII will transfer the funds received in
steps B(3)(b) and B(3)(c) to Sara Lee Corporation in exchange for the TPI
Diamond Note and the TII Diamond Note, respectively.
Step B(3) will be accomplished by a direct transfer of funds ($5,807,000) from
Tenneco to Sara Lee Corporation. The intercompany transfers will be
accomplished through Journal entries.
4. TCC Sale of Case Receivables. Effective as of December 5, 1996, TCC will
sell all of its interest in the receivables relating to the business of Case
Corporation (the "Case Receivables") to a newly formed wholly owned Industrial
Company subsidiary ("Tenneco Retail Receivables Company") as follows:
a. Tenneco will transfer to Industrial Company as an intercompany
advance an amount of funds equal to the fair market value of the Case
Receivables (approximately $160,000,000).
<PAGE>
Project Liza Transaction Steps
Page 6
b. Industrial Company will transfer the funds received in step B(4)(a)
to Tenneco Retail Receivables Company as an intercompany advance.
c. Tenneco Retail Receivables Company will transfer the funds received
in step B(4)(b) to TCC in exchange for the Case Receivables.
d. TCC will transfer the funds received in step B(4)(c) to Tenneco as
an intercompany loan.
e. Tenneco Retail Receivables Company will sell all or a portion of
the Case Receivables to a third party for cash.
f. Tenneco Retail Receivables Company will transfer the funds received
in step B(4)(e) to Industrial Company as a repayment of the intercompany advance
received from Industrial Company in step B(4)(b).
g. Industrial Company will transfer the funds received in step B(4)(e)
to Tenneco as a repayment of the intercompany advance received from Tenneco in
step B(4)(a). Tenneco will use the funds to repay short-term borrowings under
its credit facility or for other corporate purposes.
The funds to be received in step B(4)(e) will be transferred directly from the
third party's bank to Tenneco's credit facility administrative agent for credit
to Tenneco's account. No other funds transfers will be required in step B(4).
5. TCC Transfer of Interest in Industrial Group Receivables. Effective as of
December 9, 1996, TCC will transfer all of its interest and obligations
associated with the receivables relating to the Industrial Business (the
"Industrial Receivables"), including TCC's rights and obligations under
agreements with ASCC to the extent related to the Industrial Receivables, to a
newly formed wholly owned Industrial Company subsidiary ("TMC Texas Inc.") as
follows:
a. Tenneco will transfer to Industrial Company as an intercompany
advance an amount of funds equal to the fair market value of the Industrial
Receivables ($_________________).
b. Industrial Company will transfer the funds received in step B(5)(a)
to TMC Texas Inc. as an intercompany advance.
c. TMC Texas Inc. will transfer the funds received in step B(5)(b) to
TCC in exchange for the Industrial Receivables.
d. TCC will transfer the funds received in step B(5)(c) to Tenneco as
an intercompany loan.
6. Sale of Hvide Van Ommeren Interest. Intentionally omitted.
<PAGE>
Project Liza Transaction Steps
Page 7
7. Termination of Eastern Insurance Company Non-Energy Business
a. On June 21, 1996, Eastern Insurance Company Limited ("Eastern")
paid a dividend of $20,118,711 out of its earned surplus to TGP. TGP transferred
the funds to Tenneco as an intercompany advance.
b. On September 23, 1996, Eastern transferred funds to Tenneco
Management Company in the amount of $34,200,289 representing the amount
described in Section 4.3(c)(i) of the Insurance Agreement attached as Exhibit H
to the Distribution Agreement (i.e., "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").
c. Effective as of [October 31, 1996], Eastern will transfer funds to
Industrial Company in the amount of $2,181,014 representing the amount described
in Section 4.3(c)(iii) of the Insurance Agreement attached as Exhibit H to the
Distribution Agreement (i.e., "50% of '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").
8. Consents of Lessors and Creditors. As soon as practical, the following
consents will be obtained to permit the transactions contemplated by the
Corporate Restructuring Transactions:
a. Counce. The lenders under loan agreements with Counce Finance
Corporation (the "Counce Noteholders") must consent to the distribution by
Tenneco Corporation of substantially all of its assets as contemplated
by paragraph 16 of the Corporate Restructuring Transactions and to the transfer
of the Counce Limited Partnership partnership interests as contemplated by
steps C(6), C(9), and C(15A).
b. GECC Leases. The lenders, equity holder, and trustee under the
Tenneco Packaging Inc. mill leases must consent to Tenneco Packaging Inc.
ceasing to be an affiliate of Tenneco as contemplated by step D(1).
c. Tenneco International Holding Corp. MW Investors L.L.C., as holder
of the Variable Rate Voting Participating Preferred Stock of Tenneco
International Holding Corp., must consent to Tenneco International Holding Corp.
ceasing to be an affiliate of Tenneco as contemplated by step D(1).
9. Execution of Underwriting Agreement. On November 12, 1996, Tenneco will
enter into a firm commitment underwriting agreement with a group of underwriters
relating to the issuance by Tenneco to the underwriter of shares of voting
junior preferred stock of Industrial Company ("New Preferred Stock") for
$300,000,000 cash less underwriting discount.
10. NPS Issuance. On November 18, 1996, Tenneco will issue the New
Preferred Stock to the underwriters in exchange for cash of $300,000,000 less
underwriting discount. Tenneco will use the funds to pay down existing credit
facilities.
<PAGE>
Project Liza Transaction Steps
Page 8
11. Defeasance of a Portion of Tenneco's Consolidated Debt. On December 6,
1996, Tenneco will defease a portion of the debt of TGP and TCC as follows:
a. Tenneco will borrow $283,369,921.01 under Tenneco's existing credit
facilities to effect a defeasance of the following debt obligations:
----------------------------------------------------------------------
Interest
Issuer Face Amount Coupon Maturity at Maturity
----------------------------------------------------------------------
TGP $250,000,000 9.00% 01/15/97 $11,250,000
TCC $ 7,500,000 8.50% 01/30/97 $ 318,750
TCC $ 500,000 8.50% 03/17/97 $ 21,250
TCC $ 3,000,000 8.50% 03/24/97 $ 127,500
TCC $ 5,000,000 8.52% 03/28/97 $ 213,000
TCC $ 6,600,000 8.57% 03/18/97 $ 282,810
------------ -----------
Total $272,600,000 $12,213,310
============= ===========
b. Tenneco will transfer $23,237,635.59 to TCC from the funds
described in step B(11)(a) to defease the TCC debt identified in step B(11)(a).
The transfer will be treated as a payment by Tenneco against its intercompany
loan payable to TCC.
c. Tenneco will transfer $260,132,285.42 to TGP as an intercompany
advance from the funds described in step B(11)(a) to defease the TGP debt
identified in step B(11)(a).
d. TCC will transfer the funds received in step B(11)(b) to JP Morgan,
which will use such funds to purchase U.S. Treasury securities and will transfer
such securities to the indenture trustee in accordance with the terms of the
indenture relating to TCC's debt obligations identified in step B(11)(a) to
effect a legal defeasance of such obligations under the terms of the indenture.
e. TGP will transfer the funds received in step B(11)(c) to JP Morgan,
which will use such funds to purchase U.S. Treasury securities and will transfer
such securities to the indenture trustee in accordance with the terms of the
indenture relating to TGP's debt obligations identified in step B(11)(a) to
effect a legal defeasance of such obligations under the terms of the indenture.
f. The indenture trustee will transfer to Industrial Company any
proceeds from the defeasance portfolio (including investment of such proceeds)
in excess of the amounts necessary to pay the defeased debt at maturity.
12. Consent of $4.50 Preferred. Approval of the Transaction requires the
affirmative vote of holders of a majority of the outstanding shares of Tenneco's
$4.50 Preferred Stock and $7.40 Preferred Stock voting as a class. To ensure
that the holders of Tenneco's $4.50 Preferred Stock vote in favor of the
transaction, Tenneco will obtain an irrevocable proxy from the holders in
exchange for amending the Merger Agreement to fix the formula for determining
the number of shares of Acquiror Parent voting common stock to be paid to the
holders in the Merger.
13. Declaration of Accrued Dividends. Dividends on $4.50 Preferred Stock
otherwise due on March 12, 1997 will be declared on December 4, 1996, payable
to holders of record on December
<PAGE>
Project Liza Transaction Steps
Page 9
9, 1996, and payable on December 12, 1996. Dividends on $7.40 Preferred Stock
otherwise due on December 31, 1996 will declared on October 8, 1996, payable to
holders of record on November 22, 1996, and payable on December 31, 1996.
C. IMPLEMENTATION OF CORPORATE RESTRUCTURING TRANSACTIONS
The following transactions will be effected following the receipt of the
IRS Ruling Letter and on or before the Distribution Date (December 11, 1996)
pursuant to the requirement in Section 2.01 of the Distribution Agreement that
the parties and their affiliates "take such action or actions as is necessary
to cause, effect and consummate the Corporate Restructuring Transactions."
Transactions occurring on the same day shall be deemed to have occurred in the
order listed herein regardless of the order in which the documentation is
executed, filed, or accepted, and regardless of the order in which the funds or
other assets are transferred.
1. Effective as of October 31, 1996, TGP will transfer all of the assets
and associated liabilities of and relating to the Walker muffler shop
distribution center operation located in Carson, California (the "MSDC
BUSINESS") to Tenneco Corporation as a contribution to capital.
2. Effective as of October 31, 1996, Tenneco Corporation will transfer
the MSDC Business to Industrial Company as a contribution to capital. Any title
transfer documents required for steps C(1) and C(2) should reflect the transfer
of the assets directly from TGP to Industrial Company.
3. The following transactions will be effected implement the requirement
that Tenneco Corporation satisfy the active business requirements of I.R.C.(S)
355(b):
a. Effective as of October 31, 1996, TGP will transfer all of the
stock of Midwestern Gas Transmission Company (Delaware) ("MIDWESTERN") to
Tenneco Corporation as a contribution to capital.
b. Effective as of October 31, 1996, Tenneco Energy Resources
Corporation (Delaware)("TERC") will merge into Channel Industries Gas Company
(Delaware)("CIGC"), a wholly owned subsidiary of TERC, with CIGC as the
surviving corporation. In the merger, all of the shares of TERC stock held by
Tenneco Corporation will be canceled, and Tenneco Corporation will become the
owner of all of the shares of CIGC stock formerly held by TERC. As a result of
the merger, CIGC will become a wholly owned direct subsidiary of Tenneco
Corporation, and all of TERC's assets other than the stock of CIGC will become
assets of CIGC.
c. Effective as of October 31, 1996, Tenneco Corporation will
transfer to New Midwestern Inc., a newly formed wholly owned subsidiary of
Tenneco Corporation, as a contribution to capital all of Tenneco Corporation's
Energy Business assets other than stock of subsidiaries, and all of its
liabilities other than liabilities for accrued taxes.
d. Effective as of October 31, 1996, Tenneco Corporation will
transfer to Midwestern as a contribution to capital all of the stock of the
following companies:
Entrade Engine Company (Kentucky)
<PAGE>
Project Liza Transaction Steps
Page 10
H.T. Gathering Company (Texas) (50%)/1/
Petro-Tex Chemical Corporation (Delaware) (in dissolution)
SWL Security Corp. (Texas)
TGP Corporation (Delaware)
Tenneco Minerals Company - California (Delaware)
Tenneco Minerals Company - Nevada (Delaware)
Tenneco OCS Company, Inc. (Delaware)
Tenneco Oil Company (Delaware)
Tenneco Polymers, Inc. (Delaware)
Tennessee Overthrust Gas Company (Delaware)
New Midwestern Inc.
e. Effective as of October 31, 1996, Tenneco Corporation will
transfer to CIGC as a contribution to capital all of the stock owned by Tenneco
Corporation in the following companies:
Deepsea Ventures, Inc. (Delaware)
Tenneco Independent Power I Company (Delaware)
Tenneco Independent Power II Company (Delaware)
Tenneco Insurance Ventures (Delaware)
Tenneco Power Generation Company (Delaware)
Following step C(3), Tenneco Corporation will have no assets other than the
stock of the following companies:
Autopartes Walker, S.A. de C.V. (Mexico) (0.02%)
Channel Industries Gas Company (Delaware)
Midwestern Gas Transmission Company (Delaware)
Newport News Shipbuilding Inc. (Delaware)
New Tenneco Inc. (Delaware)
Tenneco Deutschland Holdinggesellschaft mbH (Germany) (99.97%)
Walker Deutschland GmbH (Germany) (1%)
Tenneco International Holding Corp. (7.82% interest in Common
Stock)
4. Effective as of October 31, 1996, Tenneco will transfer to TGP as a
contribution to capital all of its assets other than cash, the interest rate
swap contracts entered into in August 1996 relating to the Consolidated Debt,
the note receivable from I.C.H. Corporation, the stock to be transferred in step
C(12), and the stock of TGP, and all of its liabilities other than the
Consolidated Debt issued by Tenneco, accrued taxes, unpaid dividends, and the
intercompany payables due to Industrial Company and Shipbuilding Company. The
assets to be transferred to TGP include stock of the following companies:
- -----------
/1/ Tenneco Corporation owns 50% of the issued and outstanding Class A Voting
Stock and 20% of the Class B Nonvoting Stock, 29% of the total equity; and
Houston Pipe Line Company, an unaffiliated company, owns 50% of the issued and
outstanding Class A Voting Stock and 80% of the Class B Nonvoting Stock, 71% of
the total equity.
<PAGE>
Project Liza Transaction Steps
Page 11
Greater Houston Small Business Equity Fund, Inc. (Texas)
Kern County Land Company (Delaware)
MESBIC Financial Corporation of Houston (Texas)
Tenneco Credit Corporation (Delaware)
Tenneco MLP Inc. (Delaware)
5. Effective as of October 31, 1996, Newport News Industrial Corporation
(Virginia) will transfer all of its assets and trade accounts payable to
Shipbuilding Company in exchange for a Shipbuilding Company $4,000,000
promissory note.
6. Subject to receipt of the consent of the Counce Noteholders referred to
in step B(8)(a), effective as of November 30, 1996 TCC will transfer all of its
interest as a limited partner in Counce Limited Partnership, a Texas Limited
Partnership ("Counce"), to Tenneco Corporation in exchange for Voting Preferred
Stock of Tenneco Corporation having a fair market value equal to the aggregate
appraised value of the partnership interest transferred by TCC.
7. Effective as of November 30, 1996, Tenneco Equipment Corporation
("TEC") will transfer (a) all of TEC's interest in the shares of the Common
Stock of TIHC, and (b) all of TEC's interest in the shares of $8.00 Junior
Preferred Stock of TIHC to Tenneco Corporation in exchange for Voting Preferred
Stock of Tenneco Corporation having a fair market value equal to the aggregate
appraised value of the stock transferred by TEC.
8. Effective as of November 30, 1996, TII will transfer all of its
ownership interest (100% unless otherwise indicated) in the following companies
to Tenneco Corporation in exchange for (a) a $50,000 promissory note issued by
Tenneco Corporation and (b) Voting Preferred Stock of Tenneco Corporation. The
consideration issued by Tenneco Corporation will have an aggregate fair market
value equal to the aggregate appraised value of the stock transferred by TII.
Autopartes Walker, S.A. de C.V. (Mexico) (0.02%)
Omni-Pac GmbH (Germany) (1%)
Omni-Pac S.A.R.L. (France) (97%)
Tenneco Automotive Trading Company
Tenneco International Holding Corp. (71.84% interest in Common
Stock and 50% interest in $8.00 Junior Preferred Stock)
Tenneco United Kingdom Holdings Limited
Walker Europe, Inc.
Walker Norge A/S (Norway)
9. Subject to receipt of the consent of the Counce Noteholders referred to
in step B(8)(a), effective as of November 30, 1996 Shipbuilding Company will
transfer its interest as general partner in Counce Limited Partnership to PCA
Leasing Company as a contribution to capital.
10A. On or shortly before the Distribution Date, Shipbuilding Company will
issue $400,000,000 principal amount of high-yield notes, the proceeds of which
(after payment of issuance expenses) will be placed in an escrow account until
the Distribution Date, at which time the funds
<PAGE>
Project Liza Transaction Steps
Page 12
will be transferred to Shipbuilding Company account number 910-2-780 609 at The
Chase Manhattan Bank.
10B. On the Distribution Date, Shipbuilding Company will borrow
$215,000,000 under its credit facility. The funds will be deposited in
Shipbuilding Company account number 910-2-780 609 at The Chase Manhattan Bank.
From the proceeds of the credit facility borrowing and the proceeds of the high-
yield notes released from the escrow described in step C(10A), Shipbuilding
Company will transfer $600,000,000 to NNS Delaware Management Company as a
contribution to capital. NNS Delaware Management Company will loan the funds to
Newport News Shipbuilding and Dry Dock Company. Newport News Shipbuilding and
Dry Dock Company will transfer the proceeds of the loan, plus Shipbuilding
Company's net intercompany receivable from Tenneco, to Tenneco Corporation as a
dividend. Tenneco Corporation will loan the funds received from Shipbuilding
Company to Tenneco. Tenneco will use all of the funds to retire existing TGP
debt as contemplated by the tender offers described in step C(16B), and to
retire existing Tenneco and TCC debt as contemplated by step C(20). To document
that the funds received by Tenneco were used to retire debt, the funds will be
transferred directly from Shipbuilding Company account number 910-2-780 609 at
The Chase Manhattan Bank to the account to be used by The Chase Manhattan Bank
as Depositary for the offers to purchase debt of TGP, TCC, and Tenneco as
contemplated by steps C(16B) and C(20) (account number 910-2-758 084).
11. On the Distribution Date following consummation of step C(10B),
Shipbuilding Company will transfer all of its stock in Tenneco Packaging Inc. to
Tenneco Corporation as a distribution with respect to stock (i.e., return on
contributed surplus), and will transfer all of its stock of PCA Leasing Company
as a dividend.
12. Effective as of October 31, 1996, Tenneco will transfer all of its
ownership interest (100% unless otherwise indicated) in the following companies
to TGP as a contribution to capital and in exchange and consideration for
additional shares of stock of TGP.
Autopartes Walker, S.A. de C.V. (Mexico) (0.02%)
Tenneco Windsor Box & Display Inc. (f/k/a/ DeLine Box & Display,
Inc.)
Tenneco Asia Inc.
Tenneco Brazil Ltda. (Brazil)
Tenneco Business Services Holdings Inc. (f/k/a Tenneco Business
Services Inc.)
Tenneco Foam Products Company (f/k/a Amoco Foam Products Company)
Tenneco Management Company (f/k/a 1275, Inc.)
Tenneco Moorhead Acquisition Inc.
Tenneco Packaging Hungary Holdings Inc.
Tenneco Romania Holdings Inc.
13. Effective as of October 31, 1996, Monroe Auto Equipment Company will
change its name to Tenneco Automotive Inc., and will create three divisions:
Monroe Auto Equipment Company division
Walker Manufacturing Company division
Tenneco Automotive Headquarters division
<PAGE>
Project Liza Transaction Steps
Page 13
Effective as of October 31, 1996 following the name change referred to in the
previous sentence. TGP will transfer all of the assets and related liabilities
of the Walker Manufacturing Company division of TGP (other than the MSDC
Business transferred in step C(1) and (2)) to the Walker Manufacturing Company
Division of Tenneco Automotive Inc., and will transfer all of the assets and
liabilities of the Tenneco Automotive Headquarters Division to the Tenneco
Automotive Headquarters division of Tenneco Automotive Inc., in each case as a
contribution to capital. For purposes of this transfer, TGP's Asheville, N.C.
plant shall not be treated as part of the Walker Manufacturing Company
division's assets nor as part of the Tenneco Automotive Headquarters Division's
Assets. See Step 21 for the transfer of the Asheville, N.C. property.
14. Effective as of October 31, 1996 following consummation of step C(12)
TGP will transfer all of its ownership interest (100% unless otherwise
indicated) in the following assets to Tenneco Corporation as a contribution to
capital and in exchange and consideration for additional shares of common stock
of Tenneco Corporation.
Autopartes Walker, S.A. de C.V. (Mexico) (99.94)/2/
Tenneco Automotive Inc. (f/k/a Monroe Auto Equipment Company)
Monroe-Mexico S.A. de C.V. (Mexico) (0.01%)
Proveedora Walker S.A. de C.V. (Mexico) (99.99%)/3/
Tenneco Automotive Foreign Sales Corporation Ltd. (Jamaica) (1%)
Tenneco Brake, Inc.
Walker Electronic Silencing, Inc.
Walker Manufacturing Company
Stock Received in Step (12) above
---------------------------------
Tenneco Windsor Box & Display Inc. (f/k/a DeLine Box & Display,
Inc.)
Tenneco Asia Inc.
Tenneco Brazil Ltda (Brazil)
Tenneco Business Services Holdings Inc. (f/k/a Tenneco Business
Services Inc.)
Tenneco Foam Products Company (f/k/a Amoco Foam Products Company)
Tenneco Management Company (f/k/a/ 1275, Inc.)
Tenneco Moorhead Acquisition Inc.
Tenneco Packaging Hungary Holdings Inc.
Tenneco Romania Holdings Inc.
- ----------------------
/2/ Includes 0.02% interest acquired from Tenneco in step 12 above.
/3/ TGP owns 49,999 shares, and Tenneco Automotive Inc. (f/k/a Monroe Auto
Equipment Company) owns 1 share.
<PAGE>
Project Liza Transaction Steps
Page 14
15A. Effective as of October 31, 1996 following the consummation of step
C(14), Tenneco Corporation will transfer all of its ownership interest (100%
unless otherwise indicated) in the following entities to Industrial Company as a
contribution to capital and in exchange and consideration for additional shares
of stock of Industrial Company.
Stock Owned at October 30, 1996
-------------------------------
Tenneco Deutschland Holdinggesellschaft mbH (Germany)
Tenneco Inc. (Nevada)
Walker Deutschland GmbH (Germany) (1%)
Stock and Assets Received in Step (14)
--------------------------------------
Autopartes Walker, S.A. de C.V. (Mexico) (99.96%)/4/
Tenneco Automotive Inc. (f/k/a Monroe Auto Equipment Company)
Monroe-Mexico S.A. de C.V. (Mexico) (0.01%)
Proveedora Walker S.A. de C.V. (Mexico) (99.99%)
Tenneco Automotive Foreign Sales Corporation Ltd. (Jamaica) (1%)
Tenneco Brake, Inc.
Walker Electronic Silencing, Inc.
Walker Manufacturing Company
Tenneco Windsor Box & Display Inc. (f/k/a DeLine Box & Display,
Inc.)
Tenneco Asia Inc.
Tenneco Brazil Ltda. (Brazil)
Tenneco Business Services Holdings Inc. (f/k/a Tenneco Business
Services Inc.)
Tenneco Foam Products Company (f/k/a Amoco Foam Products Company)
Tenneco Management Company (f/k/a 1275, Inc.)
Tenneco Moorhead Acquisition Inc.
Tenneco Packaging Hungary Holdings Inc.
Tenneco Romania Holdings Inc.
15B. Effective as of December 5, 1996 or December 6, 1996, TGP will
transfer to Tenneco Management Company as a contribution to capital the
following assets:
a. All trademarks, trade names, service marks, company or operating
unit names containing the word "Tenneco" or any variation of the name "Tenneco",
such as those names with a "Tenn" or "Ten" syllable and respective applications
or registrations therefor wherever used or registered, except that Tenneco and
the other members of the Energy Group shall retain the right to use the name
"Tennessee" in their respective corporate names or otherwise in respect of the
Energy Business.
- -------------------------
/4/ Includes: 0.02% interest owned by Tenneco Corporation at 12/31/95; and
99.94% interest acquired from TGP. Tenneco Automotive Inc. (f/k/a Monroe Auto
Equipment Company) continues to own 0.02% of the stock.
<PAGE>
Project Liza Transaction Steps
Page 15
b. All other intellectual property that does not solely and directly
relate to the Energy Business and/or the Shipbuilding Business, including but
not limited to patents, copyrights, trademarks, service marks, tradenames,
know-how, trade secrets, licenses and rights therein.
15C. Effective as of November 30, 1996 following the consummation of steps
C(6) through C(8), Tenneco Corporation will transfer all of its ownership
interest (100% unless otherwise indicated) in the following entities to
Industrial Company as a contribution to capital and in exchange and
consideration for additional shares of stock of Industrial Company. The transfer
of the Counce Limited Partnership interest is subject to receipt of the consent
of the Counce Noteholders referred to in step B(8)(a).
Stock and Partnership Interest Received in Steps (6)-(8)
--------------------------------------------------------
Counce Limited Partnership (95% limited partner interest)
Tenneco International Holding Corp. (100% interest in Common
Stock and 100% interest in $8.00 Junior Preferred Stock
Autopartes Walker, S.A. de C.V. (Mexico) (0.02%)
Omni-Pac Gmbh (Germany (1%)
Omni-Pac S.A.R.L. (France) (97%)
Tenneco Automotive Trading Company
Tenneco United Kingdom Holdings Limited
Walker Europe, Inc.
Walker Norge A/S (Norway)
15D. Effective as of December 1, 1996, TGP will transfer to Tenneco
Corporation as a contribution to capital the assets listed on Schedule 1.
Tenneco Corporation will transfer the assets to Industrial Company as a
contribution to capital. Industrial Company will transfer the assets to Tenneco
Management Company as a contribution to capital./5/
15E. On the Distribution Date following the consummation of step C(11),
Tenneco Corporation will transfer the stock of the following entities to
Industrial Company as a contribution to capital:
Stock Received in Step (11)
--------------------------
Tenneco Packaging Inc.
PCA Leasing Company
15F. On the Distribution Date following the consummation of steps C(1)
through C(15E), Tenneco Corporation will transfer all of its assets (excluding
the stock of Industrial Company, Shipbuilding Company, Midwestern, and CIGC, but
including the intercompany receivable from Tenneco received in step C(10B) and
all of its liabilities (excluding liabilities for accrued taxes) to Midwestern
as a contribution to capital. Midwestern will transfer such assets and
liabilities to New
- -----------------------------
/5/ These transfers are being effected as of December 1, 1996 because the
transfer of the partnership interest in Waukegan Corporate Aviation Facilities
cannot become effective earlier than the first day of the month following the
month in which the transfer is approved by the partnership.
<PAGE>
Project Liza Transaction Steps
Page 16
Midwestern as a contribution to capital. Tenneco Corporation shall not acquire
any assets following the consummation of step C(15F) and Tenneco Corporation and
Midwestern will enter into an agreement pursuant to which any assets
inadvertently acquired by Tenneco Corporation following the consummation in step
C(15F) will be deemed contributed to the capital of Midwestern immediately upon
acquisition without any further action by the parties.
16A. On the Distribution Date following the consummation of steps C(1)
through C(15F), Tenneco Corporation will transfer all of the stock of
Shipbuilding Company and Industrial Company to TGP as a distribution with
respect to stock (i.e., return of contributed surplus).
16B. On the Distribution Date following the consummation of step C(16A) and
prior to the consummation of step C(17), Tenneco will purchase the debt of TGP
as follows:
a. Pursuant to a tender offer made on November 8, 1996, Tenneco will
purchase the debt of TGP validly tendered by the holders (and not withdrawn) at
or prior to 5:00 p.m. New York City Time on December 10, 1996 (the "Expiration
Time")./6/ Using the funds received by Tenneco in step C(10B) (which are being
held by The Chase Manhattan Bank as Depositary for the offers to purchase TGP,
TCC, and Tenneco debt), on the Distribution Date Tenneco will purchase the
tendered TGP debt, excluding interest to be paid by TGP. Also on the
Distribution Date, TGP will transfer to The Chase Manhattan Bank as Depositary
for the tender offers an amount of funds equal to the interest to be paid by TGP
pursuant to the terms of the tender offer. To document TGP's payment of interest
on the tendered debt, on the Distribution Date Tenneco will make an actual
transfer of funds into a TGP account (as an intercompany advance), and TGP will
transfer funds from that account to Chase's Depositary account.
b. Tenneco will transfer the TGP debt acquired in step C(16B)(a) to
TGP in exchange for cash equal to Tenneco's cost of acquiring the debt
(including fees and expenses paid by Tenneco in connection with the purchase of
the TGP debt, but excluding accrued interest paid by TGP), thereby extinguishing
the debt.
c. Tenneco will transfer the cash received in step C(16B)(b) to TGP as
an intercompany advance.
The transfers of cash described in steps C(16B)(b) and C(16B)(c) will be
accomplished using a daylight overdraft.
17. On the Distribution Date following the consummation of steps C(16A) and
C(16B), TGP will transfer all of the stock of Shipbuilding Company and
Industrial Company to Tenneco as a distribution with respect to stock (i.e.,
return of contributed surplus).
18. On the Distribution Date following the consummation of step C(17),
Industrial Company will transfer to Tenneco as a dividend the net intercompany
account payable owed by Tenneco to Industrial Company.
- --------------------------
/6/ These Transaction Steps assume that the tender offer will not be extended or
earlier terminated.
<PAGE>
Project Liza Transaction Steps
Page 17
19. On the Distribution Date following the consummation of step C(17),
Industrial Company will participate in the Debt Realignment as follows:
a. Industrial Company will borrow $347,000,000 under a new credit
facility an amount equal to the amount necessary to fund, after payment of
credit facility expenses, a dividend to Tenneco (see step C(19)(d)) which, when
used by Tenneco to fund the retirement of debt pursuant to the Tenneco debt
tender offer, will cause the Actual Energy Debt Amount to be equal to the Base
Amount, as estimated on the Distribution Date.
b. Industrial Company's offer to exchange up to $1,950,000,000 face
amount of Industrial Company debt for certain Tenneco debt will expire at 5:00
p.m. New York City time on December 10, 1996 (the "expiration time")./7/
Pursuant to the exchange offer, Industrial Company will accept for exchange
Tenneco debt validly tendered and not withdrawn as of the expiration time, and
will acquire such Tenneco debt by issuing new debt in exchange therefor on the
first NYSE trading day following the expiration time (the "issuance date," which
is also the Distribution Date). On the Distribution Date, Industrial Company
will deliver the new debt certificates to The Chase Manhattan Bank as exchange
agent for the holders of Tenneco debt participating in the exchange. The
exchange agent will deliver the new debt certificates to such holders on the
third trading day following the expiration time (the "exchange date"). Also on
the Distribution Date, Industrial Company will transfer cash (from the funds
received in step C(19)(a)) to the exchange agent equal to the amount of interest
accrued on the exchanged Tenneco debt up to but excluding the issuance date;
provided that Tenneco, and not Industrial Company, will pay accrued interest up
to the issuance date on exchanged Tenneco debt for which the record date for any
interest payment is prior to the Distribution Date and for which the payment
date for such interest payment is after the issuance date. Interest on the new
debt will accrue from and including the issuance date ("straddle interest"). To
document Tenneco's payment of straddle interest on the exchange debt as required
by the exchange offer, Tenneco will transfer funds equal to the required payment
of straddle interest from a Tenneco Inc. account to the account to be used by
The Chase Manhattan Bank as exchange agent for the payment of such interest
pursuant to the exchange offer.
c. Tenneco will transfer to Industrial Company in exchange for the
Tenneco debt acquired by Industrial Company in step C(19)(b) an amount of funds
equal to the fair market value of the debt issued by Industrial Company to
acquire the Tenneco debt in step C(19)(b), plus the accrued interest to be paid
by Industrial Company on the Tenneco debt, plus any fees and expenses incurred
by Industrial Company in connection with the exchange.
d. Industrial Company will transfer to Tenneco as a dividend the
funds received in steps C(19)(a) and C(19)(c) remaining after payment of accrued
interest on the tendered Tenneco debt and expenses related to the credit
facility and debt exchange.
To document that the funds received in step C(19)(a) and transferred to Tenneco
in step C(19)(d) were used by Tenneco to retire debt, the funds will be
transferred directly from Morgan Guaranty
- ---------------------
/7/ These Transaction Steps assume that the exchange offer will not be extended
or earlier terminated.
<PAGE>
Project Liza Transaction Steps
Page 18
Trust Company of New York as administrative agent for the lenders under the
Industrial Company credit facility to The Chase Manhattan Bank as Depositary for
the Tenneco debt tender offer (see step C(20)(b)). The funds to be received by
Industrial Company in step C(19)(c) and then transferred to Tenneco in step
C(19)(d) will be arranged under a daylight overdraft facility.
20. On the Distribution Date following the consummation of step C(17),
Tenneco will participate in the Debt Realignment as follows:
a. Tenneco will borrow $2,164,000,000 under a new credit facility (the
"Tenneco Credit Facility") an amount equal to the amount necessary to cause the
Actual Energy Debt Amount to be equal to the Base Amount, as estimated on the
Distribution Date, taking into account funds utilized in the Debt Realignment.
b. Pursuant to a tender offer made on November 8, 1996, Tenneco will
purchase the debt of Tenneco and TCC validly tendered by the holders (and not
withdrawn) at or prior to 5:00 p.m. New York City Time on December 10, 1996 (the
"Expiration Time")./8/ From the funds received in step C(20)(a), on the
Distribution Date Tenneco will transfer to The Chase Manhattan Bank as
Depositary for the tender offers an amount of funds sufficient to fund the
purchases of the tendered Tenneco and TCC debt, taking into account the funds
deposited with Chase as Depositary as described in steps C(10B) and C(19)(d) and
the utilization of a portion of such funds as contemplated by step C(16B)(a).
Chase will use such funds to effect the purchases of the tendered Tenneco and
TCC debt on behalf of Tenneco.
c. Tenneco will transfer to TCC the debt of TCC acquired in step
C(20)(b) in exchange for cash equal to Tenneco's cost of acquiring the TCC debt,
including accrued interest plus any fees and expenses incurred by Tenneco in
connection with the acquisition of the TCC debt. Tenneco will use the cash to
repay its intercompany loan from TCC or to make an intercompany advance to TCC.
Step C(20)(c) will be accomplished using a daylight overdraft.
d. Tenneco will repay all of its outstanding bank debt and commercial
paper, pay transaction expenses, transfer funds to Shipbuilding Company and TGP
as necessary to fund the Guaranteed Shipbuilding Cash Amount and the Guaranteed
Energy Cash Amount, respectively (as defined in the Debt and Cash Allocation
Agreement), and fund cash expenditures of Tenneco and its affiliates for the
Distribution Date. To the extent the Shipbuilding Group cash and cash
equivalents on the Distribution Date (taking into account all of the foregoing
transactions) exceeds the Guaranteed Shipbuilding Cash Amount, the excess shall
be transferred by Shipbuilding Company to Tenneco as a dividend. To the extent
the Energy Group cash and cash equivalents on the Distribution Date (taking into
account all of the foregoing transactions, and including the dividend described
in the previous sentence) exceeds the Guaranteed Energy Cash Amount, Tenneco
shall transfer such excess to Industrial Company as a contribution to capital.
e. Tenneco will transfer to TGP as a contribution to capital all of
its assets other than the stock of TGP and the note receivable from I.C.H.
Corporation, and all of its liabilities other than
- ----------------
/8/ These Transaction Steps assume that the tender offer will not be extended or
earlier terminated.
<PAGE>
Project Liza Transaction Steps
Page 19
the Consolidated Debt issued by Tenneco (as defined in the Debt Realignment Plan
attached as Exhibit C to the Merger Agreement, including the untendered portions
of Tenneco public debt and the Tenneco Revolving Debt incurred under the Tenneco
Credit Facility), accrued taxes, and unpaid dividends.
Following step 20, Tenneco should have no assets other than the stock of TGP and
the note receivable from I.C.H. Corporation, and no liabilities other than the
Tenneco Credit Facility, the untendered portion of the Tenneco Consolidated
Debt, accrued taxes, and unpaid dividends. Tenneco shall not acquire any assets
following the consummation of step 20, and Tenneco and TGP will enter into an
agreement pursuant to which any assets inadvertently acquired by Tenneco
following the consummation of step 20 will be deemed contributed to the capital
of TGP immediately upon acquisition without any further action by the parties.
21. Effective as of November 30, 1996, TGP will transfer to Tenneco
Asheville Inc., a newly formed wholly owned subsidiary of TGP, as a contribution
to capital the assets and liabilities associated with the Walker Manufacturing
property located in Asheville, NC. TGP will then transfer the stock of Tenneco
Asheville Inc. to Tenneco Corporation as a contribution to capital, and Tenneco
Corporation will transfer the stock of Tenneco Asheville Inc. to Industrial
Company as a contribution to capital.
22. Effective as of November 1, 1996, Tenneco Liquidation Company
(formerly Tenneco Business Services Inc.) will transfer all of its assets and
liabilities to Tenneco Business Services Inc. (formerly Tenneco Technology
Services Inc.). Tenneco Liquidation Company will change its name to Tenneco
Business Services Holdings Inc.
23. On the Distribution Date immediately before the Distributions,
Industrial Company and Shipbuilding Company will issue a stock dividend to
Tenneco as provided in Section 2.02 of the Distribution Agreement.
D. Distributions and Merger
1. On the Distribution Date following the consummation of steps C(1)
through C(23), Tenneco will distribute all of the stock of Industrial Company
and Shipbuilding Company to Tenneco shareholders as a distribution with respect
to stock (i.e., return of contributed surplus) pro rata on the basis of one
share of Industrial Company stock for one share of Tenneco common stock
outstanding and on the basis of one share of Shipbuilding Company stock for five
shares of Tenneco common stock outstanding. Cash will be paid in lieu of issuing
fractional shares of Shipbuilding Company stock. Each share of stock of
Industrial Company and Shipbuilding Company will have attached to it stock
purchase rights (the "Rights") which will entitle the holder to purchase certain
stock of Industrial Company or Shipbuilding Company, as the case may be, upon
the occurrence of certain triggering events.
2. Effective as of the Distribution Date, the account of the employees of
the Shipbuilding Business in the Tenneco Thrift Plan will be transferred to a
Shipbuilding Company qualified plan (the "Shipbuilding Company Thrift Plan") as
of the distribution date. The Shipbuilding Company Thrift Plan will include an
employee stock ownership plan ("ESOP"), and Shipbuilding Company
<PAGE>
Project Liza Transaction Steps
Page 20
stock received with respect to Tenneco stock on their accounts will held subject
to the terms of the ESOP.
3. Effective as of 8:00 a.m. EST on the day following the Distribution
Date, Industrial Company, Acquiror, Acquiror Sub A1, and Acquiror Parent will
consummate the merger of Acquiror Sub A1 into Tenneco (the "Merger").
E. Post-Merger Transactions
1. [Describe transfers of 401(k) accounts and communication of opportunity
to sell shares of non-employer stock.]
2. [Describe settlement of cash under Debt and Cash Allocation Agreement.
If there is a transfer of excess cash from Shipbuilding Company to Industrial
Company, the transfer should be treated as dividend by Shipbuilding Company to
Tenneco and a contribution by Tenneco to the capital of Industrial Company
immediately prior to step D(1). If there is a transfer of cash from Industrial
Company to Shipbuilding Company, the transfer should be treated as dividend by
Industrial Company to Tenneco and a contribution by Tenneco to the capital of
Shipbuilding Company immediately prior to step D(1). Any transfer of cash from
Tenneco to Industrial Company should be treated as a contribution by Tenneco to
the capital Industrial Company immediately prior to step D(1), and any transfer
of cash from Industrial Company to Tenneco should be treated as a dividend by
Industrial Company to Tenneco immediately prior to step D(1).]
3. Effective as of December 12, 1996, Tenneco will make arrangements for
the funding of the Energy Business cash requirements without flowing cash
through Tenneco and without creating any intercompany receivables held by
Tenneco. As soon as practical after the Effective Time, Tenneco will close all
of its bank accounts.
<PAGE>
Project Liza Transaction Steps
Page 21
Schedule 1
Pursuant to the Corporate Restructuring Transactions, the following assets owned
by TGP shall be transferred to Tenneco Management Company.
1. Aviation Assets.
a. All fixed wing corporate aircraft (except the Gulfstream G-II,
serial number 248, and Rolls Royce Spey Model 511-8 engines, manufacturer's
Serial Numbers 9816 and 9844), and spare parts for the aircraft which as of the
Effective Time will not have a net book value in excess of $1 million.
b. Limited partner interest in the Waukegan Corporate Aviation
Facilities, an Illinois limited partnership (which owns the Waukegan, Illinois
airport hangar facility and common facilities), the furniture, fixtures, and
equipment owned by TGP located at the Waukegan aviation facilities, the stock of
Corporate Hangar Services, Inc., an Illinois corporation (which is the corporate
general partner of Waukegan Corporate Aviation Facility), and TGP's sublease of
the aviation facilities from Waukegan Corporate Aviation Facilities.
c. Certain furniture, fixtures, and equipment located in the
Houston, Texas airport hangar facilities associated with the fixed-wing aircraft
described in clause (a), which at the Effective Time will not have a net book
value in excess of $1 million.
2. Furniture, Fixtures, and Equipment. Furniture, fixtures, and equipment
(including furnishings and computer equipment) which as of the Effective Time
will not have a net book value in excess of $2 million located in:
a. Greenwich, CT Management Center.
b. Washington, D.C. office.
c. Houston, Texas office.
3. Albright & Wilson Note. The long-term note receivable from Albright &
Wilson Americas Inc. in the amount of $6,936,384 as of October 31, 1996.
<PAGE>
Exhibit E
to the
Distribution Agreement
<PAGE>
ENERGY SUBSIDIARIES
Subsidiaries of Tenneco Inc. (Delaware)
Tennessee Gas Pipeline Company (Delaware)............................ 100%
Altamont Service Corporation (Delaware)............................ 100
Altamont Gas Transmission Canada Limited (Canada)................ 100
(Altamont Service Corporation is the registered holder of all
of the issued and outstanding shares of Altamont Gas
Transmission Canada Limited, as Trustee for Altamont Gas
Transmission Company, a Joint Venture)
Border Gas Inc. (Delaware) (a close corp.)......................... 37.5
(Tennessee Gas Pipeline Company owns 100% of the Class A Common
Stock, 37.5% of the total equity, and 37.5% of the total voting
stock; unaffiliated companies (Texas Eastern Transmission
Corporation, El Paso Natural Gas Company, Transcontinental Gas
Pipe Line Corporation, Southern Natural Gas Company, and Florida
Gas Transmission Company) own the remaining stock and equity.
Eastern Insurance Company Limited (Bermuda)........................ 100
East Tennessee Natural Gas Company (Tennessee)..................... 100
Tenneco East Natural Gas L.P. (Delaware Limited Partnership)..... 1
(East Tennessee Natural Gas Company, as General Partner, owns
1%; and Tenneco East Corporation, as Limited Partner, owns 99%.)
Energy TRACS, Inc. (Delaware)...................................... 100
Greater Houston Small Business Equity Fund, Inc. (Texas)........... ??
------------------------------------------------------------------------
Kern County Land Company (Delaware)................................ 100
Tenneco Equipment Corporation (Delaware)......................... 100
Marlin Drilling Co., Inc. (Delaware)
Bluefin Supply Company (Delaware)............................ 100
Marlin do Brasil Perfuacoes Maritimas Ltda. (Brazil)......... 0.16
(in dissolution)
Bluefin Supply Company owns 0.16%; and Marlin Drilling Co.,
Inc. owns 99.84%)
Marlin do Brasil Perfuacoes Maritimas Ltda. (Brazil)........ 99.84
(in dissolution)
Marlin Drilling Co., Inc. owns 99.84%; and Bluefin Supply
Company owns 0.16%)
Tenneco Equipment Holding I Company (Delaware)................. 100
Tenneco Equipment Holding II Company (Delaware)................ 100
Tenneco Equipment Holding III Company (Delaware)............... 100
Tenneco Equipment Holding V Company (North Dakota)............. 100
Tenneco Equipment Holding IV Company (Wisconsin)............... 100
Tenneco Equipment Holding VI Company (Illinois)................ 100
Tenneco West, Inc. (Delaware).................................... 100
Kern County Land Company, Inc. (California).................... 100
Kern River Corporation (Delaware).................................. 0.01
Land Ventures, Inc. (Delaware)..................................... 100
MESBIC Financial Corporation of Houston (Texas).................... ??
------------------------------------------------------------------------
Midwestern Gas Marketing Company (Delaware)........................ 100
Mont Belvieu Land Company (Delaware)............................... 100
1
<PAGE>
<TABLE>
<CAPTION>
ENERGY SUBSIDIARIES
<S> <C>
Subsidiaries of Tenneco Inc.
Subsidiaries of Tennessee Gas Pipeline Company
New Tenn Company (Delaware)............................................ 100
(New Tenn Company and New Tennessee Gas Pipeline are in the process
of being merged into Tennessee Gas Pipeline Company.)
New Tennessee Gas Pipeline Company (Delaware).......................... 100
(New Tenn Company and New Tennessee Gas Pipeline are in the process
of being merged into Tennessee Gas Pipeline Company.)
S.K. Petroleum Company (Delaware)...................................... 100
Sandbar Petroleum Company (Delaware)................................... 100
Tennchase Inc. (Texas)................................................. 100
Tenneco Alaska, Inc. (Alaska).......................................... 100
Tenneco-Altamont Corporation (Delaware)................................ 100
Altamont Gas Transmission Company (Delaware Joint Venture)........... 53.34
(Tenneco-Altamont Corporation owns 53 1/3%; Amoco Altamont
Company, an unaffiliated company, owns 33 1/3%; and Entech
Altamont, Inc., an unaffiliated company, owns 13 1/3%.)
Tenneco Argentina Corporation (Delaware)............................... 100
Tenneco Baja California Corporation (Delaware)......................... 100
Tenneco Communications Corporation (Delaware).......................... 100
Tenneco Corporation (Delaware)......................................... 100
(Tennessee Gas Pipeline Company owns 100% of the Common Stock;
Tenneco Credit Corporation owns ___% of the Second Preferred
Stock; Tenneco Equipment Corporation owns ___% of the Second
Preferred Stock; and Tenneco International Inc. owns ___% of the
Second Preferred Stock.)
Channel Industries Gas Company (Delaware)............................ 100
Tenneco Energy Marketing Company (Kentucky)........................ 100
Creole Gas Pipeline Corporation (Louisiana)...................... 100
Entrade Pipeline Company (Kentucky).............................. 100
Channel Gas Marketing Company (Delaware)........................... 100
Oasis Pipe Line Company (Delaware)............................... 30
(Channel Gas Marketing Company owns 100% of the issued and
outstanding Series B Preference Stock and 30% of the Common
Stock, 30% of total equity; Dow Chemical Company, an
unaffiliated company owns 100% of the issued and outstanding
Series A Preference Stock and 70% of the Common Stock, 70%
of total equity.)
Tenneco Gas Processing Company (Delaware).......................... 100
Tenneco Independent Power I Company (Delaware)..................... 100
Tenneco Independent Power II Company (Delaware).................... 100
Tenneco Insurance Ventures (Delaware).............................. 100
Tenneco Offshore Gathering Company (Delaware)...................... 100
Tennessee Gas Marketing Company (Delaware)......................... 100
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
ENERGY SUBSIDIARIES
<S> <C>
Subsidiaries of Tenneco Inc.
Subsidiaries of Tennessee Gas Pipeline Company
Subsidiaries of Tenneco Corporation
Subsidiaries of Channel Industries Gas Company
Tenneco Power Generation Company (Delaware)........................ 100
Orange Acquisition, Inc. (Delaware).............................. 100
Orange Cogeneration Limited Partnership (Delaware Limited
Partnership)................................................... 49.5
(Orange Acquisition, Inc. owns 49.5% as a Limited Partner;
CSW Orange, Inc., an unaffiliated company, owns ___% as a
Limited Partner; and Orange Cogeneration GP, Inc. owns
---% as General Partner.)
Orange Cogeneration GP II, Inc. (Delaware)..................... 50
(Tenneco Power Generation Company owns 50%; and CSW
Development-I, Inc., an unaffiliated company, owns 50%.)
Orange Cogeneration G.P., Inc. (Delaware)...................... 100
Polk Power GP II, Inc. (Delaware)................................ 50
(Tenneco Power Generation Company owns 50% and CSW
Development-I, Inc., an unaffiliated company, owns 50%.)
Polk Power GP, Inc............................................. 100
Tenneco Ethanol Company (Delaware)............................... 100
Tenneco Ethanol Services Company (Delaware)...................... 100
West Campus Cogeneration Company (Delaware)...................... 100
Midwestern Gas Transmission Company (Delaware)....................... 100
Deepsea Ventures, Inc. (Delaware).................................. ??
Entrade Engine Company (Kentucky).................................. 100
H.T. Gathering Company (Texas)..................................... 50
(Midwestern Gas Transmission Company owns 50% of the issued
and outstanding Class A Voting Stock and 20% of the Class B
Nonvoting Stock, 29% of the total equity; and Houston Pipe
Line Company, an unaffiliated company, owns 50% of the issued
and outstanding Class A Voting Stock and 80% of the Class B
Nonvoting Stock, 71% of the total equity.)
New Midwestern Inc. (Delaware)..................................... 100
Petro-Tex Chemical Corporation (Delaware) (in dissolution)......... 100
(Certificate of Dissolution was filed in Delaware on
January 18, 1995, Final dissolution date will be
January 18, 1998, subject to settlement of any other outstanding
business.)
SWL Security Corp. (Texas)......................................... 100
Tenneco Midwest Natural Gas L.P. (Delaware Limited Partnership).... 1
(Midwestern Gas Transmission Company, as General Partner, owns
1%; and Tenneco Midwest Corporation, as Limited Partner owns
99%.)
Tenneco Minerals Company - California (Delaware)................... 100
Tenneco Minerals Company - Nevada (Delaware)....................... 100
Tenneco OCS Company, Inc. (Delaware)............................... 100
Tenneco Oil Company (Delaware)..................................... 100
</TABLE>
3
<PAGE>
ENERGY SUBSIDIARIES
Subsidiaries of Tenneco Inc.
Subsidiaries of Tennessee Gas Pipeline Company
Subsidiaries of Tenneco Corporation
Subsidiaries of Midwestern Gas Transmission Company
Tenneco Polymers, Inc. (Delaware) ................................. 100
Tenneco Eastern Realty, Inc. (New Jersey) ......................... 100
Tennessee Overthrust Gas Company (Delaware) ....................... 100
Overthrust Pipeline Company (Delaware General Partner) .......... 18
(Tennessee Overthrust Gas Company owns an 18% general partnership
interest; unaffiliated parties own 82% partnership interest)
TCP Corporation (Delaware) ........................................ 100
Tenneco Credit Corporation (Delaware) ................................. 100
TenFac Corporation (Delaware) ....................................... 100
Tenneco Deepwater Gathering Company (Delaware) ........................ 100
Tenneco Delta XII Gas Co., Inc. (Delaware) ............................ 100
Tenneco East Corporation (Delaware) ................................... 100
Tenneco East Natural Gas L.P. (Delaware Limited Partnership) ........ 99
(Tenneco East Corporation, as Limited Partner, owns 99%; and East
Tennessee Natural Gas Company, as General Partner, owns 1%.)
Tenneco Energy Europe Inc. (Delaware) ................................. 100
Tenneco Energy Hungary Inc. (Delaware) .............................. 99
[Tenneco Energy Hungary B.V. (Netherlands) ......................... ??]
Tenneco Energy Ltd. (Canada) .......................................... 100
Tenneco Energy Services Company (Delaware) ............................ 100
GreyStar Corporation (Texas) ........................................ 50
(Tenneco Energy Services Company owns 50%, and unaffiliated parties
own 50%. Tenneco Energy Services Company owns 1,135,294 shares of
Series B Preferred Stock, $0.01 par value per share.)
Tenneco Energy AIRCO Inc. (Delaware) ............................... 100
Tenneco Energy OGS Inc. (Delaware) ................................. 100
Tenneco Energy TEPSCO Inc. (Delaware) .............................. 100
Tenneco Energy Inc. (Delaware) ....................................... 100
Tenneco EIS Company (Delaware) ..................................... 100
Tenneco EIS Canada Ltd. (Alberta) ................................ 100
Tenneco Gas Transporation Company (Delaware) ....................... 100
Tenneco Gas Canada, Ltd. (Ontario) ................................... 100
Tenneco Gas International Inc. (Delaware) ............................ 100
Tenneco Energy China Inc. (Delaware) ............................... 100
Tenneco Gas Brazil Corporation (Delaware) .......................... 100
Tenneco Gas International Servicos do Brasil Ltda (Brazil) ....... 100
Tenneco Gas Chile Corporation (Delaware) ........................... 100
Tenneco Energy International (East Asia/Pacific) Inc. (Delaware) ... 100
Tenneco Gas Services (Chile) Corporation (Delaware) ................ 100
Tenneco Gas Transportes S.A. (Chile) ............................. 100
Tenneco Gas Latin America Inc. (Delaware) .......................... 100
4
<PAGE>
<TABLE>
<CAPTION>
ENERGY SUBSIDIARIES
<S> <C>
Subsidiaries of Tenneco Inc.
Subsidiaries of Tennessee Gas Pipeline Company
Tenneco Gas Louisiana Inc. (Delaware).................................... 100
Martin Exploration Company (Delaware).................................. 100
Tenneco Gas Production Corporation (Delaware)............................ 100
Tenneco Gas Properties Inc. (Delaware)................................... 100
Tenneco Gas Services, Inc. (Delaware).................................... 100
Tenneco Gas Supply Corporation (Delaware)................................ 100
Tenneco Gas Australia Inc. (Delaware).................................... 100
Tenneco Holdings Pty. Ltd. (Australia)................................. 100
Sulawesi Energy Pty Ltd. (Australia)................................. 50
(Upon the acquisition of the Energy Equity subsidiaries
contemplated for the South Sulawesi Project, Tenneco
Holdings Pty. Ltd. will own 50%, and an unaffiliated
company will own 50%.)
PT Energi Sengkang (Indonesia)..................................... 95
(Upon the acquisition of the Energy Equity subsidiaries
contemplated for the South Sulawesi Project, Sulawesi
Energy Pty. Ltd. will own 95% and an unaffiliated company
will own 5%.)
Tenneco Energy Australia Pty. Limited (Australia).................... 100
Tenneco Energy Queensland Pty. Limited (Australia)................. 100
Tenneco Energy South Australia Pty. Limited (Australia)............ 100
Tenneco Energy Operations and Maintenance Pty. Ltd. (Australia)...... 100
Energy Management Technical Systems Pty. Ltd. (Australia).......... 50
(Upon the acquisition of the Energy Equity subsidiaries
contemplated for the South Sulawesi Project, Tenneco
Energy Operations and Maintenance Pty. Ltd. will own 50%,
and an Unaffiliated company will own 50%.)
Tenneco Sulawesi Gas Pty. Ltd. (Australia)........................... 100
Energy Equity (Sengkang) Pty. Ltd. (Australia)..................... 50
(Upon the acquisition of the Energy Equity subsidiaries
contemplated For the South Sulawesi Project, Tenneco
Sulawesi Gas Pty. Ltd. will own 50%, and an unaffiliated
company will own 50%.)
Galtee Limited (Cayman Islands)........................................ 100
Tenneco International Inc. (Delaware)..................................... 100
Tenneco Nederland B.V. (Netherlands)................................... 100
Tenneco Offshore Netherlands Company (Delaware)........................ 100
Tenneco Liquids Corporation (Delaware)................................... 100
Tenneco Marketing Services Company (Delaware)............................ 100
Tenneco MLP Inc. (Delaware).............................................. 100
Polk Power Partners, L.P. (Delaware Limited Partnership)............. 100
(Tenneco MLP Inc. owns ____% as a Limited Partner;
CSW Mulberry, Inc., an unaffiliated company, owns ____%
as a Limited Partner; GPSF-A Inc., an Unaffiliated
company owns ____% as Preferred Limited Partner; and
Polk Power GP, Inc. owns _____% as the General Partner.)
Tenneco MTBE, Inc. (Delaware)............................................ 100
</TABLE>
5
<PAGE>
ENERGY SUBSIDIARIES
Subsidiaries of Tenneco Inc.
Subsidiaries of Tennessee Gas Pipeline Company
Tenneco Midwest Corporation (Delaware) ................................ 100
Tenneco Midwest Natural Gas L.P. (Delaware Limited Partnership ...... 99
(Tenneco Midwest Corporation, as Limited Partner, owns 99%; and
Midwestern Gas Transmission Company, as General Partner, owns 1%.)
Tenneco Pittsfield Corporation (Delaware) ............................. 100
Tenneco Portland Corporation (Delaware) ............................... 100
Tenneco Realty, Inc. (Delaware) ....................................... 100
Tenneco SNG Inc. (Delaware) ........................................... 100
Tenneco Texas Acquisition Inc. (Delaware) ............................. 100
Tenneco Trinidad LNG, Inc. (Delaware) ................................. 100
Tenneco Ventures Bolivia Corporation (Delaware) ....................... 100
Tenneco Ventures Corporation (Delaware) ............................... 100
Tenneco Ventures Poland Corporation (Delaware) ........................ 100
Tenneco Western Market Center Corporation (Delaware) .................. 100
The Western Market Center Joint Venture (Joint Venture) ............. 50
(Tenneco Western Market Center Corporation owns 50%; Entech Gas
Ventures, Inc., an unaffiliated company, owns 15%; Questar WMC
Corporation, an unaffiliated company, owns 25%; and Fuels WMC
Corporation, an unaffiliated company, owns 10%.)
Tenneco Western Market Center Service Corporation (Delaware) ......... 100
TennEcon Services, Inc. (Delaware) ................................... 100
Tenneco Energy Technology Consulting Services Inc. (Delaware)....... 100
Tennessee Gas Transmission Company (Delaware) ........................ 100
Tennessee Storage Company (Delaware) ................................. 100
Tennessee Trailblazer Gas Company (Delaware) ......................... 100
Ten Ten Parking Garage Inc. (Delaware) ............................... 100
The Fontanelle Corporation (Louisiana)................................ 100
The F and E Oyster Partnership (Louisiana Partnership).............. 64
(The Fontanelle Corporation owns 64% as General Partner; and
Expedite Oyster, Inc., an unaffiliated company, owns 36% as
General Partner.)
The LaChute Corporation (Louisiana) .................................. 100
6
<PAGE>
Exhibit G
to the
Distribution Agreement
<PAGE>
<TABLE>
<CAPTION>
INDUSTRIAL SUBSIDIARIES
<S> <C>
Subsidiaries of Industrial Company
Autopartes Walker, S.A. de C.V. (Mexico)................................ 99.98%
(Industrial Company owns 99.98% and Tenneco Automotive Inc. owns
.02%)
Counce Limited Partnership (Texas Limited Partnership).................. 95
(Industrial Company owns 95%, as Limited Partner; and PCA Leasing
Company owns 5%, as General Partner)
Counce Finance Corporation (Delaware)................................. 100
Monroe-Mexico S.A. de C.V. (Mexico)..................................... 0.01
(Industrial Company owns 0.01%; and Tenneco Automotive Inc. owns
99.99%)
Omni-Pac GmbH (Germany)................................................. 1
(Tenneco Deutschland Holdinggesellschaft mbH owns 99%; and Industrial
Company owns 1%)
Omni-Pac S.A.R.L. (France).............................................. 97
(Omni-Pac GmbH owns 3%; and Industrial Company owns 97%)
PCA Leasing Company (Delaware).......................................... 100
Counce Limited Partnership (Texas Limited Partnership)................ 5
(Industrial Company owns 95%, as Limited Partner; and PCA Leasing
Company owns 5%, as General Partner)
Counce Finance Corporation (Delaware)............................... 100
Proveedora Walker S.A. de C.V. (Mexico)................................. 99.99
(Industrial Company owns 49,999 shares, and Tenneco Automotive Inc.
owns 1 share)
Tenneco Asia Inc. (Delaware)............................................ 100
Tenneco Asheville Inc. (Delaware)....................................... 100
Tenneco Automotive Foreign Sales Corporation Limited (Jamaica).......... 1
(Industrial Company owns 1%; and Tenneco Automotive Inc. owns 99%)
Tenneco Automotive Inc. (f/k/a Monroe Auto Equipment Company) (Delaware) 100
Autopartes Walker, S.A. de C.V. (Mexico).............................. 0.02
(Industrial Company owns 99.98%; Tenneco Automotive Inc. owns
0.02%)
Beijing Monroe Automotive Shock Absorber Company Ltd (China).......... 51
(Tenneco Automotive Inc. owns 51%; and Beijing Automotive Industry
Corporation, ana unaffiliated company, owns 49%)
Consorcio Terranova S.A. de C.V. (Mexico)
Tenneco Automotive Inc. 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%)
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
INDUSTRIAL SUBSIDIARIES
<S> <C>
Subsidiaries of Industrial Company
Subsidiaries of Tenneco Automotive Inc.
Tenneco Automotive Italia S.r.l. (Italy)............................. 15
(Tenneco Automotive Inc. owns 85%; and Monroe Auto Equipement
France, S.A. owns 15%)
Monroe Auto Pecas S.A. (Brazil)........................................ 2.82
(Tenneco Automotive Inc. 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
(Tenneco Automotive Inc. owns 99.99%; and Industrial Company owns
0.01%)
Precision Modular Assembly Corp. (Delaware)............................ 100
Rancho Industries Europe B.V. (Netherlands)............................ 100
Tenneco Automotive Foreign Sales Corporation Limited (Jamaica)......... 99
(Tenneco Automotive Inc. owns 99%; and Industrial Company owns 1%)
Tenneco Automotive International Sales Corporation (DE-In Dissolution). 100
Tenneco Automotive Italia S.r.l. (Italy)............................... 85
(Tenneco Automotive Inc. owns 85%; and Monroe Auto Equipement
France, S.A. owns 15%)
Tenneco Automotive Japan Ltd. (Japan).................................. 100
The Pullman Company (Delaware)......................................... 100
Axios Produtos de Elastomeros Limitada (Brazil)...................... 99
(99% The Pullman Company; 1% Peabody International Corporation)
Clevite Industries Inc. (Delaware)................................... 100
Peabody International Corporation (Delaware)......................... 100
Axios Produtos de Elastomeros Limitada (Brazil).................... 1
(99% The Pullman Company; 1% Peabody International Corporation)
Barasset Corporation (Ohio)........................................ 100
Peabody Galion Corporation (Delaware).............................. 100
Peabody Gordon-Piatt, Inc. (Delaware).............................. 100
Peabody N.E., Inc. (Delaware)...................................... 100
Peabody World Trade Corporation (Delaware)......................... 100
Pullmex, S.A. de C.V. (Mexico)................................... 0.1
(99% The Pullman Company; 0.1% Peabody World Trade Corporation)
Peabody-Myers Corporation (Illinois)............................... 100
Pullman Canada Ltd. (Canada)....................................... 61
(61% Peabody International Corporation; 39% The Pullman Company)
Pullman Canada Ltd. (Canada)......................................... 39
(61% Peabody International Corporation; 39% The Pullman Company)
Pullman Standard, Inc. (Delaware).................................... 100
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
INDUSTRIAL SUBSIDIARIES
<S> <C>
Subsidiaries of Industrial Company
Pullmex, S.A. de C.V. (Mexico)....................................... 99.9
(99.9% The Pullman Company; 0.1% 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%;
Tenneco Automotive Inc. owns 2.82%; and Monteiro Aranha S/A,
an unaffiliated company owns 14.47%)
Tenneco Business Services Holdings Inc. (f/k/a Tenneco Business Services
Inc.).................................................................. 100
Tenneco Business Services Inc. (f/k/a Tenneco Technology Services Inc.) 100
Tenneco Deutschland Holdinggesellschaft mbH (Germany)................... 99.97
(Industrial Company 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, mbH 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%)
Omni-Pac Ekco GmbH Verpackungsmittel (Germany)......................... 100
Omni-Pac 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-Pack GmbH (Germany)............................................... 99
(Tenneco Deutschland Holdinggesellschaft mbH owns 99%; and
Industrial Company owns 1%)
Omni-Pac ApS (Denmark).............................................. 100
Omni-Pac A.B. (Sweden)............................................... 100
Omni-Pack S.A.R.L. (France).......................................... 3
(Omni-Pac GmbH owns 3%; and Industrial Company owns 97%)
Walker Deutschland GmbH (Germany)...................................... 99
(Tenneco Deutschland Holdinggesellschaft mbH owns 99%; and
Industrial Company owns 1%
Walker Gillet (Europe) GmbH (Germany).................................. 100
Tenneco Foam Products Company............................................ 100
Tenneco Inc. (Nevada).................................................... 100
3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INDUSTRIAL SUBSIDIARIES
<S> <C>
Subsidiaries of Industrial Company
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 own 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
Louis Minuzzi E. Hijos S.A.I.C. (Argentina)........................ 100??
Monroe Springs (New Zealand) Pty. Ltd. (New Zealand)................. 100
Monroe Spain, S.A. (f/k/a 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
Reknowned Automotive Products Manufacturers Ltd. (India)............. 51
Thibault Investments Limited (Mauritius)............................. 100
Hydraulics Limited (India)......................................... 51
(Thibault Investments Limited owns 51% and Bangalore Union
Services Limited, an unaffiliated company, owns 49%)
Tenneco Holdings Denmark 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 Denmark A/S (Denmark)......................................... 100
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
INDUSTRIAL SUBSIDIARIES
<S> <C>
Subsidiaries of Industrial Company
Subsidiaries of Tenneco International Holding Corp. (Delaware)
Subsidiaries of Tenneco Holdings Danmark A/S (Denmark)
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%)
Walker France S.A. (France)............................................ 100
Constructions Metallurgiques de Wissembourg - Wimetal (France)....... 100
Societe Europeenne des Ensembles-Montes (France)................... 100
Gillet Tubes Technologies G.T.T. (France)............................ 100
Walker Sverige A.B. (Sweden)........................................... 100
Tenneco Management Company (Delaware).................................... 100
Tenneco Moorhead Acquisition Inc. (Delaware)............................. 100
Tenneco Packaging Hungary Holdings 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
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. (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>
<TABLE>
<CAPTION>
INDUSTRIAL SUBSIDIARIES
<S> <C>
Subsidiaries of Industrial Company
Subsidiaries of Tenneco Packaging Inc.
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 Retail Receivables Company (Delaware)............................ 100
Tenneco Romania Holdings Inc. (Delaware)................................. 100
Tenneco United Kingdom Holdings Limited (Delaware)....................... 100
Monroe Europe (UK) Limited (United Kingdom)............................ 82
(Tenneco United Holdings Limited 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
6
</TABLE>
<PAGE>
INDUSTRIAL SUBSIDIARIES
Subsidiaries of Industrial Company
Subsidiaries of Tenneco United Kingdom Holdings Limited (Delaware)
Thompson and Stammers Dunmow (Number 8) Limited (United Kingdom) 100
Walker Limited (United Kingdom)................................. 100
Gillet Exhaust Manufacturing Limited (United Kingdom)......... 100
Gillet Pressings Cardiff Limited (United Kingdom)............. 100
Gillet 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
Gillet 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. (f/k/a Deline Box & Display)
(Delaware)..................................................... 100
TMC Texas Inc. (Delaware)........................................ 100
Walker Deutschland GmbH (Germany) ............................... 1
(Industrial Company owns 1%; and Tenneco Deutschland
Holdinggesellsschaft mbH owns 99%)
Walker Europe, Inc. (Delaware)................................... 100
Walker Electronic Silencing Inc. (f/k/a Walker Electronic
Mufflers) (Delaware)........................................... 100
Walker Noise Cancellation Technologies (New York Partnership).. 100
(Walker Electronic Silencing Inc. owns 50% as General
Partner; and Expedite Oyster, Inc., an unaffiliated company,
owns 50% as General Partner)
Walker Manufacturing Company (Delaware).......................... 100
Ced's Inc. (Illinois).......................................... 100
Walker Norge A/S (Norway)........................................ 100
7
<PAGE>
Exhibit J
to the
Distribution Agreement
<PAGE>
SHIPBUILDING SUBSIDIARIES
Subsidiaries of Newport News Shipbuilding Inc. (Delaware) formerly known as
Tenneco InterAmerica Inc.)
Newport News Shipbuilding and Dry Dock Company (Virginia ............ 100%
Asheville Industries Inc. (North Carolina) ........................ 100
Greeneville Industries Inc. (Virginia)............................. 100
Newport News Global Corporation (U.S. Virgin Islands).............. 100
Newport News Industrial Corporation (Virginia)..................... 100
Newport News Industrial Corporation of Ohio (Ohio)............... 100
Newport News Reactor Services, Inc. (Virginia)..................... 100
Tenneco Tanker Holding Corporation (Delaware)...................... 100
The James River Oyster Corporation (Virginia)...................... 100
NNS Delaware Management Company (Delaware).......................... 100
<PAGE>
DEBT AND CASH ALLOCATION AGREEMENT
THIS DEBT AND CASH ALLOCATION AGREEMENT (this "Agreement") is made and
entered into as of this 11 day of December, 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 November 1, 1996 (the "Distribution
Agreement"), the parties have entered into this Agreement regarding the
allocation of the Cash and Cash Equivalents and Consolidated Debt of Tenneco
and its consolidated subsidiaries as of the Effective Time. For purposes of
this Agreement only, the "Effective Time" means 12:01 AM, Houston time, on the
date on which the Merger Effective Time occurs.
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained in this Agreement and the Distribution Agreement, each of
the parties hereto, on behalf of itself and each of the other members of its
Group over which it has direct or indirect legal or effective control, hereby
agrees as follows:
1. Certain Definitions. Capitalized terms which are used herein but which
are not defined below in this SECTION 1 or in any of the other provisions or
Sections of this Agreement or in the Distribution Agreement, shall have the
meaning ascribed to such terms in the Debt Realignment Plan attached as
Exhibit C to the Merger Agreement.
(a) "Actual Energy Debt Amount" means the aggregate amount, as of the
Effective Time, of the following, without duplication:
(i) the then outstanding amount of the Tenneco Revolving Debt plus
accrued and accreted interest and fees and expenses in respect thereof
(as reflected on the Energy Adjusted Closing Balance Sheet) ; plus
(ii) the Consolidated Public Debt Value; plus
(iii) the then outstanding principal amount of Consolidated Debt of
Tenneco and the Energy Subsidiaries other than that which is described
in clauses (i) and (ii) above (for this purpose undrawn letters of
credit and guarantees shall not be treated as outstanding) plus accrued
and accreted interest and fees and expenses in respect thereof as
reflected on the Energy Adjusted Closing Balance Sheet; plus
(iv) except as otherwise expressly provided in the Merger Agreement
or the Distribution Agreement, the unpaid amount of all direct and out
of pocket fees, costs and expenses (as reflected on the Energy Adjusted
Closing Balance Sheet) incurred on or prior to the Effective Time by
Tenneco and its subsidiaries in respect of the transactions
contemplated under the Debt Realignment, with respect to the Merger
Agreement, the NPS Issuance and with respect to the Distribution
Agreement, including, without limitation, the Corporate Restructuring
Transactions, the Distributions, the Merger and the other related
transactions, including by way of example items specifically set forth
on Schedule 1 to the extent incurred in respect of the aforesaid
transactions (collectively, the "Tenneco Transaction Expenses");
(v) any sales and use, gross receipts or other transfer Taxes
(including Gains Taxes and Transfer Taxes, as defined in the Merger
Agreement) imposed as a result of the Corporate Restructuring
Transactions or otherwise occurring pursuant to the Distribution
Agreement or the Merger Agreement, excluding, however, any stamp duty
imposed by the Stamp Act 1894 (Queensland) as a result of the Merger;
plus
(vi) Restructuring Taxes (as defined in the Tax Sharing Agreement),
except (A) for Taxes resulting from the deferred intercompany items on
Schedule 2, and (B) to the extent the IRS ruling provides the
Transactions (as defined in the Tax Sharing Agreement) are tax-free;
plus
<PAGE>
(vii) the then outstanding amount of any off-balance sheet
indebtedness incurred after June 19, 1996 and before the Effective Time
to finance the acquisition of any additional interest in the Oasis
Pipeline;
(viii) dividends declared by Tenneco on its common stock, $4.50
Preferred Stock and $7.40 Preferred Stock which have not been paid
prior to the Effective Time but as to which the record date is before
the Effective Time; plus
(ix) the total amount of dividends accrued on the shares of New
Preferred Stock issued pursuant the NPS Issuance that remain unpaid as
of the Effective Time.
The parties hereto hereby acknowledge and agree that the Actual Energy Debt
Amount shall include any amounts (including interest, fees and other charges)
that may be due and owing ASCC under or as a result of the factoring
arrangement between ASCC and Tenneco (and/or any of its Subsidiaries) other
than the amount of Factored Proceeds (the "ASCC Amount").
(b) "Actual Energy Expenditures Amount" means the actual amount of
capital expenditures (determined on a basis consistent with the past
accounting practices of the Energy Business and the 1996 capital budget
provided to Acquiror) made and paid for by the Energy Business from and
after January 1, 1996 to and including the Effective Time, including,
without limitation any capital expenditures in respect of the 70 MW
Dunaferr power project in Hungary; provided, however, that any amount paid
for the acquisition of any additional interest in either Tenneco Energy
Resources Inc. or the Oasis Pipeline or to repair any gas pipeline shall
not be capital expenditures for any purpose under this Agreement and shall
not be included in the Actual Energy Expenditures Amount.
(c) "Allocated Energy Debt" means the total amount of indebtedness
(including accrued and accreted interest and fees and expenses) outstanding
as of the Effective Time under each of the Tenneco Revolving Debt, the
Consolidated Debt (other than the Tenneco Revolving Debt) of Tenneco and
the Energy Subsidiaries and the Tenneco Transaction Expenses, and any and
all such indebtedness outstanding or other obligations and liabilities
incurred or accrued under any of the foregoing from time to time and at any
time after the Effective Time.
(d) "Allocated Industrial Debt" means the total amount of indebtedness
(including accrued and accreted interest and fees and expenses) outstanding
under the Industrial Debt Securities as of the Effective Time, any and all
such indebtedness outstanding from time to time thereafter and all other
obligations and liabilities incurred or accrued at any time under the
Industrial Debt Securities.
(e) "Allocated Shipbuilding Debt" means the total amount of indebtedness
(including accrued and accreted interest and fees and expenses) outstanding
under the Shipbuilding Credit Facility as of the Effective Time, any and
all such indebtedness outstanding from time to time at any time thereafter
and all other obligations and liabilities incurred or accrued at any time
under the Shipbuilding Credit Facility.
(f) "Auditors" has the meaning ascribed to such term in SECTION 6 below.
(g) "Base Amount" means an amount equal to $2,650,000,000, (i) plus,
without duplication, the sum of (A) with respect to Tenneco gas purchase
contracts, the amount of all cash payments made by Tenneco and/or any of
its Subsidiaries during the period commencing on the date of Merger
Agreement and ending as of the Effective Time as a result or in respect of
any settlement, judgment or satisfaction of a bond in excess of the market
price for gas received by Tenneco and/or any of its Subsidiaries reduced by
the amount of any cash payments received from customers, insurers or other
third parties with respect thereto (other than ones refunded prior to the
Effective Time) or with respect to any gas supply realignment costs which
are so recovered (and not refunded) on or prior to the Effective Time, (B)
the purchase price paid by Tenneco and/or any of its subsidiaries to
acquire any additional interest in the Oasis Pipeline, (C) the amount of
all cash payments made by Tenneco and/or any of the Energy Subsidiaries
during the period commencing on the date of the Merger Agreement and ending
on the Closing Date in settlement of any significant claim, action, suit or
proceeding to the extent such matter would be an Energy Liability and with
the consent of Acquiror, which shall not be arbitrarily withheld
(including, without limitation, cash
2
<PAGE>
payments in settlement of claims against Tenneco and/or any of its
affiliates arising from the Stock Purchase Agreement dated as of July 31,
1986 by and between Tenneco Inc. and I.C.H. Corporation) reduced by the
amount of any cash payments received by Tenneco or any of the Energy
Subsidiaries during such period from customers, insurers or other third
parties with respect thereto, and (D) the total amount of the specific
additions or increases to the Base Amount set forth on SCHEDULE 4 attached
hereto, (ii) less, without duplication, the sum of (A) the gross amount of
cash proceeds from the NPS Issuance (as defined in the Merger Agreement)
less the amount of any expenses, fees or other out-of-pocket costs related
thereto which are included in the Actual Energy Debt Amount), and (B) the
total amount of the specific subtractions and reductions to the Base Amount
set forth on SCHEDULE 4 attached hereto.
(h) "Cash and Cash Equivalents" has the meaning ascribed to such term
under United States generally accepted accounting principles; provided,
that in all events checks issued by Tenneco and the Energy Subsidiaries
which remain unpaid as of the Effective Time shall be deducted from Cash
and Cash Equivalents, and checks received by Tenneco and the Energy
Subsidiaries which remain uncollected prior to the Effective Time (other
than checks that have been dishonored) shall be included in Cash and Cash
Equivalents.
(i) "Consolidated Public Debt Value" means the value (including any
accrued and unpaid interest thereon) of publicly-held Consolidated Debt of
Tenneco and the Energy Subsidiaries outstanding as of the Effective Time
(as reflected on the Energy Adjusted Closing Balance Sheet), calculated and
determined by Tenneco and Acquiror or if, they are unable to agree, by a
nationally recognized investment banking firm selected by mutual agreement
between Tenneco and Acquiror, as of the close of business on the fifth
(5th) business day preceding the Effective Time based on the applicable
spreads to treasuries and the applicable benchmark treasury securities
listed on Schedule 3.
(j) "Closing Calendar Month" means the calendar month in which the
Effective Time occurs.
(k) "Debt Realignment" has the meaning ascribed to such term in the
Merger Agreement.
(l) "Dispute" has the meaning ascribed to such term in SECTION 6 below.
(m) "Energy Adjusted Closing Balance Sheet" has the meaning ascribed to
such term in SECTION 6 below.
(n) "Energy Closing Balance Sheet" has the meaning ascribed to such term
in SECTION 6 below.
(o) "Energy Receivables" means any and all accounts receivable of the
Energy Business (after giving effect to the Corporate Restructuring
Transactions and the Distributions and, therefore, specifically excluding
receivables relating to the business of Case Corporation and the Industrial
Business).
(p) "Factored Proceeds" means the total amount of outstanding cash
proceeds received by Tenneco from ASCC, as of the last business day of the
month preceding the Closing Calendar Month, through the factoring of Energy
Receivables, which amount shall not exceed $100,000,000.
(q) "Guaranteed Energy Cash Amount" has the meaning ascribed to such term
in SECTION 5 below.
(r) "Guaranteed Shipbuilding Cash Amount" has the meaning ascribed to
such term in SECTION 5 below.
(s) "Independent Auditors" has the meaning ascribed to such term in
SECTION 6 below.
(t) "Industrial Debt Securities" means, collectively, the notes,
debentures and other debt securities issued by Industrial Company in
exchange for certain issues of the Consolidated Debt pursuant to and in
accordance with the debt exchange by Industrial Company contemplated under
the Debt Realignment.
(u) "Merger Agreement" means the Amended and Restated Agreement and Plan
of Merger, dated as of June 19, 1996, among Tenneco, El Paso Natural Gas
Company and El Paso Merger Company, as amended from time to time.
(v) "Merger Closing Date" means the date on which the Merger is
consummated.
3
<PAGE>
(w) "Required Energy Expenditures Amount" means an aggregate amount of
capital expenditures (determined on a basis consistent with the past
accounting practices of the Energy Business and the 1996 capital budget
provided to Acquiror) by the Energy Business for 1996 equal to
$333,200,000, plus an amount of capital expenditures by the Energy Business
for 1997 equal to $27,750,000 per month for each month (or pro rata portion
thereof) from January 1, 1997 to the Effective Time.
(x) "Shipbuilding Adjusted Closing Balance Sheet" has the meaning
ascribed to such term in SECTION 6 below.
(y) "Shipbuilding Closing Balance Sheet" has the meaning ascribed to such
term in SECTION 6 below.
(z) "Shipbuilding Credit Facility" has the meaning ascribed to such term
in SECTION 3 below.
(aa) "Tenneco Allocation Percentage" means a fraction, the numerator of
which is the total number of business days remaining in the Closing
Calendar Month from and after the Effective Time (including the day on
which the Effective Time occurs), and the denominator of which is the total
number of business days in the Closing Calendar Month.
(bb) "Tenneco Revolving Debt" has the meaning ascribed to such term in
SECTION 2 below.
2. Tenneco Credit Facility and Tenneco Revolving Debt. Tenneco shall, at its
expense, have the sole right and authority to, and will use its commercially
reasonable efforts to, have in place prior to the Distribution Date a credit
facility for itself (with such guarantees of its obligations thereunder by the
Energy Subsidiaries as it deems necessary) in an aggregate principal amount
sufficient (together with other available funds to Tenneco) to fund the
tenders, redemptions, prepayments, defeasances and maturities contemplated
under the Debt Realignment; to pay all the fees, costs and expenses incurred
by Tenneco and its subsidiaries in preparing for, negotiating and effecting
the Distributions, the Merger and the Debt Realignment and any financings in
connection therewith; and for other general corporate purposes (including,
without limitation, working capital, the repayment or refinancing of
Consolidated Debt and the payments of dividends). This facility shall be in
effect at, and shall have a remaining stated maturity of at least 180 days
following, the closing of the Merger and the Distributions. The aggregate
amount of debt (including accrued and accreted interest and fees and expenses)
outstanding as of the Effective Time under this facility is hereinafter called
the "Tenneco Revolving Debt".
Notwithstanding anything contained herein, (a) contemporaneously with the
Distributions, Tenneco and the Energy Subsidiaries shall be removed as obligor
under (and released from liability with respect to) any indebtedness for
borrowed money for which Tenneco or its subsidiaries are liable and which are
assumed by the Industrial Company or the Shipbuilding Company pursuant to the
terms hereof and the Distribution Agreement, (b) any Tenneco Revolving Debt
shall be prepayable without penalty, subject to customary notice provisions,
(c) in respect of publicly-traded Consolidated Debt, between the date of the
Merger Agreement and the Effective Time there shall be no (i) extension of
maturity or average life, (ii) increase in interest rates or (iii) adverse
change in defeasance or redemption provisions with respect to any indebtedness
for borrowed money for which Tenneco or the Energy Subsidiaries will be liable
on or after the Effective Time and (d) except for the Tenneco Revolving Debt,
no indebtedness for borrowed money of Tenneco or the Energy Subsidiaries at
the Effective Time shall contain any affirmative or negative financial or
operational covenants other than ones that are (x) mutually acceptable to
Tenneco and Acquiror or (y) no more restrictive in the aggregate and
substantially equivalent to those set forth in the Indenture dated as of
January 1, 1992 of El Paso Natural Gas Company as in effect as of the date of
the Merger Agreement (other than Section 10.05 of the Indenture).
3. Shipbuilding Credit Facility and Shipbuilding Revolving Debt. Prior to
the Distributions (and at such time as Tenneco shall request), Shipbuilding
Company shall, at its expense, obtain and have in place a credit facility (the
"Shipbuilding Credit Facility") for itself (with such guarantees of its
obligations thereunder by the Shipbuilding Subsidiaries as is necessary to
obtain the Shipbuilding Credit Facility) in an aggregate principal amount of
at least $600 million (the "Minimum Debt Amount") and shall borrow the Minimum
Debt Amount thereunder and distribute the proceeds of such borrowing to
Tenneco (or such subsidiary of Tenneco as Tenneco shall designate) at such
time on or prior to the consummation of the Distributions as Tenneco shall
request.
4
<PAGE>
4. Allocation and Assumption of Debt.
(a) Allocated Energy Debt. On the Distribution Date, Tenneco shall assume,
and shall thereafter be solely liable and responsible for, the Allocated
Energy Debt. Tenneco hereby acknowledges and agrees that the Allocated Energy
Debt shall constitute an Energy Group Liability as defined in the Distribution
Agreement.
(b) Allocated Industrial Debt. On the Distribution Date, Industrial Company
shall assume, and shall thereafter be solely liable and responsible for, the
Allocated Industrial Debt. Industrial Company hereby acknowledges and agrees
that the Allocated Industrial Debt shall constitute an Industrial Group
Liability as defined in the Distribution Agreement.
(c) Allocated Shipbuilding Debt. On the Distribution Date, Shipbuilding
Company shall assume, and shall thereafter be solely liable and responsible
for, the Allocated Shipbuilding Debt. Shipbuilding Company hereby acknowledges
and agrees that the Allocated Shipbuilding Debt shall constitute a
Shipbuilding Group Liability as defined in the Distribution Agreement.
5. Allocation of Cash and Cash Equivalents. Prior to or contemporaneously
with the consummation of the Distributions, each of the parties hereto shall
make such transfers of the Cash and Cash Equivalents of Tenneco and its
consolidated subsidiaries (prior to giving effect to the Distributions) so
that to the extent possible, based on estimates of the aggregate amount of
Cash and Cash Equivalents of Tenneco and its consolidated subsidiaries then on
hand, (a) Tenneco and the Energy Subsidiaries, on a consolidated basis, shall,
as of the Effective Time, have an aggregate amount of Cash and Cash
Equivalents equal to the sum of the following:
(i) $25.0 million,
(ii) the product of (A) the Tenneco Allocation Percentage, and (B) the
lesser of (I) $100 million and (II) the total amount of the Factored
Proceeds (the lesser of such amounts being referred to as the "Section 5
Amount") and
(iii) should the Effective Time occur after the day of the month on which
Tenneco generally collects receivables from customers of its regulated
pipeline business (typically, the 25th day of a month), the lesser of the
amount of (A) the Section 5 Amount owing to ASCC as of the Effective Time,
and (B) the total amount of such receivables actually collected by Tenneco
or any of its Subsidiaries during the period beginning on the day such
receivables are first collected and ending at the Effective Time (the
"Actual Collection Amount"), so long as that amount is owing to ASCC as of
the Effective Time. It is expressly understood that as of the Effective
Time all payables and receivables are for the account of Acquiror.
(the sum of the amounts described in the immediately preceding clause (i),
(ii) and (iii) is hereinafter, referred to as the "Guaranteed Energy Cash
Amount"), and (b) Shipbuilding Company and the Shipbuilding Subsidiaries, on a
consolidated basis, shall, as of the close of business on the Merger Closing
Date, have an aggregate of $5 million of Cash and Cash Equivalents (the
"Guaranteed Shipbuilding Cash Amount"). All remaining Cash and Cash
Equivalents of Tenneco and its consolidated subsidiaries shall be allocated to
Industrial Company and the Industrial Subsidiaries.
6. Post Distribution Audit.
(a) Preparation of Closing Balance Sheets. As soon as practicable after the
Merger Closing Date, but in any event within 60 days following the Merger
Closing Date, Industrial Company shall cause Arthur Andersen LLP (the
"Auditors") to:
(i) conduct an audit of Tenneco and the Energy Subsidiaries to determine
the aggregate amount, as of the Effective Time, of each of the Factored
Proceeds, the Section 5 Amount, the Actual Collection Amount, the Tenneco
Revolving Debt, the Consolidated Debt (other than the Tenneco Revolving
Debt) of Tenneco and the Energy Subsidiaries, the Tenneco Transaction
Expenses, the Cash and Cash Equivalents of Tenneco
5
<PAGE>
and the Energy Subsidiaries and the Actual Energy Expenditures Amount, and
to prepare and deliver to each of Industrial Company and Tenneco a
consolidated balance sheet for Tenneco and the Energy Subsidiaries as of
the Effective Time reflecting (x) the amount of each of the foregoing
(other than the aggregate amount of the Factored Proceeds, the Section 5
Amount, the Actual Collection Amount (which shall be set forth in a
footnote to such consolidated balance sheet) and the Consolidated Debt
valued as part of the Consolidated Public Debt Value) and (y) the
Consolidated Public Debt Value (the "Energy Closing Balance Sheet"); and
(ii) conduct an audit of Shipbuilding Company and the Shipbuilding
Subsidiaries to determine the aggregate amount of the Cash and Cash
Equivalents of Shipbuilding Company and the Shipbuilding Subsidiaries as of
the Effective Time, and to prepare and deliver to each of Industrial
Company and Shipbuilding Company a consolidated balance sheet for
Shipbuilding Company and the Shipbuilding Subsidiaries as of the Effective
Time reflecting the aggregate amount of such Cash and Cash Equivalents (the
"Shipbuilding Closing Balance Sheet").
The Energy Closing Balance Sheet and the Shipbuilding Closing Balance Sheet
shall each be prepared on the basis of an audit conducted by the Auditors in
accordance with generally accepted auditing standards and prepared in
accordance with generally accepted accounting principles consistently applied
and without giving effect to any change in accounting principles required on
account of the consummation of the Merger or the Distributions, except that,
to the extent that any definition contained herein contemplates inclusion or
exclusion of an item that would not be included or excluded under generally
accepted accounting principles, the Auditors shall compute such item in
accordance with such definition. During the course of the preparation of the
Energy Closing Balance Sheet and the Shipbuilding Closing Balance Sheet by the
Auditors, and during any period in which there is a dispute regarding either
the Energy Closing Balance Sheet or the Shipbuilding Closing Balance Sheet,
each of Tenneco, Industrial Company and Shipbuilding Company, as the case may
be, shall cooperate with the Auditors and each other and shall have access to
all work papers of the Auditors and all pertinent accounting and other records
of Tenneco and the Energy Subsidiaries and Shipbuilding Company and the
Shipbuilding Subsidiaries, as applicable. Tenneco shall pay the fees and
expenses of the Auditors. Notwithstanding any provision of this Agreement or
the Distribution Agreement, the Claims Deposit (as defined in Insurance
Agreement) shall not be included as Cash and Cash Equivalents of Tenneco and
the Energy Subsidiaries.
(b) Disputes Regarding Closing Balance Sheet. Unless (i) in the case of the
Energy Closing Balance Sheet, Tenneco delivers written notice to Industrial
Company on or prior to the 30th day after its receipt of the Energy Closing
Balance Sheet that it disputes any of the amounts set forth on the Energy
Closing Balance Sheet (hereinafter, an "Energy Dispute"), or (ii) in the case
of the Shipbuilding Closing Balance Sheet, Shipbuilding Company delivers
written notice to Industrial Company on or prior to the 30th day after its
receipt of the Shipbuilding Closing Balance Sheet that it disputes the amount
of Cash and Cash Equivalents set forth on the Shipbuilding Closing Balance
Sheet (hereinafter, a "Shipbuilding Dispute") then, as applicable, Tenneco
and/or Shipbuilding Company shall be deemed to have accepted and agreed to the
Energy Closing Balance Sheet or the Shipbuilding Closing Balance Sheet, as
applicable, in the form in which it was delivered to it by the Auditors. If
such a notice of an Energy Dispute is given by Tenneco or a notice of a
Shipbuilding Dispute is given by Shipbuilding Company (in either case such
party being hereinafter referred to as the "Disputing Party") within such 30-
day period, then Industrial Company and the Disputing Party shall, within 15
days after the giving of any such notice, attempt to resolve such Energy
Dispute or Shipbuilding Dispute, as the case may be, and agree in writing upon
the final content of the Energy Closing Balance Sheet or Shipbuilding Closing
Balance Sheet, as the case may be. In the event that the Disputing Party and
Industrial Company are unable to resolve any Energy Dispute or Shipbuilding
Dispute, as the case may be, within such 15-day period, then the certified
public accounting firm of Ernst & Young or another mutually acceptable
independent accounting firm (the "Independent Auditors") shall be employed as
arbitrator hereunder to settle such Energy Dispute and/or Shipbuilding
Dispute, as the case may be, as soon as practicable. The Independent Auditors
shall have access to all documents and facilities necessary to perform its
function as arbitrator. The determination of the Independent Auditors with
respect to any Energy Dispute and/or Shipbuilding Dispute, as the case may be,
shall be final and binding on the applicable parties hereto. Industrial
Company and the Disputing Party shall each pay one-half ( 1/2) of the fees and
expenses of the Independent Auditors for such services. Industrial Company and
the
6
<PAGE>
Disputing Party each agree to execute, if requested by the Independent
Auditors, a reasonable engagement letter. The term "Energy Adjusted Closing
Balance Sheet," as used herein, shall mean the definitive Energy Closing
Balance Sheet agreed to by Tenneco and Industrial Company or, as the case may
be, the definitive Energy Closing Balance Sheet resulting from the
determinations made by the Independent Auditors in accordance with this
Section 6(b) (in addition to the matters theretofore agreed to by Tenneco and
Industrial Company). The term "Shipbuilding Closing Balance Sheet," as used
herein, shall mean the definitive Shipbuilding Closing Balance Sheet agreed to
by Shipbuilding Company and Industrial Company or, as the case may be, the
definitive Shipbuilding Closing Balance Sheet resulting from the
determinations made by the Independent Auditors in accordance with this
SECTION 6(B) (in addition to the matters theretofore agreed to by Shipbuilding
Company and Industrial Company). The date on which the Energy Adjusted Closing
Balance Sheet is determined and provided to each of Industrial Company and
Tenneco pursuant to this SECTION 6(B) is hereinafter referred to as the
"Energy Determination Date". The date on which the Shipbuilding Adjusted
Closing Balance Sheet is determined and provided to each of Industrial Company
and Shipbuilding Company pursuant to this SECTION 6(B) is hereinafter referred
to as the "Shipbuilding Determination Date".
7. Post Distribution Adjustments and Cash Payments.
(a) Adjustments and Payments Relating to Consolidated Debt. If the Actual
Energy Debt Amount exceeds the Base Amount, Industrial Company shall pay
Tenneco the amount of such excess in cash within 10 days after the Energy
Determination Date. If, on the other hand, the Actual Energy Debt Amount is
less than the Base Amount, Tenneco shall pay Industrial Company the amount of
such deficiency in cash within 10 days after the Energy Determination Date.
(b) Adjustments and Payments Relating to Cash and Cash Equivalents.
(i) Adjustments and Payments Relating to Shipbuilding Company. If the
amount of Cash and Cash Equivalents of Shipbuilding Company and the
Shipbuilding Subsidiaries as reflected on the Shipbuilding Adjusted
Closing Balance Sheet is less than the Guaranteed Shipbuilding Cash
Amount, Industrial Company shall pay Shipbuilding Company the amount of
such deficiency in cash within 10 days after the Shipbuilding
Determination Date. If, on the other hand, the amount of Cash and Cash
Equivalents of Shipbuilding Company and the Shipbuilding Subsidiaries
as reflected on the Shipbuilding Adjusted Closing Balance Sheet exceeds
the Guaranteed Shipbuilding Cash Amount, Shipbuilding shall pay
Industrial Company the amount of such excess in cash within 10 days
after the Shipbuilding Determination Date.
(ii) Adjustments and Payments Relating to Tenneco. (A) If the amount
of Cash and Cash Equivalents of Tenneco and the Energy Subsidiaries as
reflected on the Energy Adjusted Closing Balance Sheet is less than the
Guaranteed Energy Cash Amount, Industrial Company shall pay Tenneco the
amount of such deficiency in cash within 10 days after the Energy
Determination Date. If, on the other hand, the amount of Cash and Cash
Equivalents of Tenneco and the Energy Subsidiaries as reflected on the
Energy Adjusted Closing Balance Sheet exceeds the Guaranteed Energy
Cash Amount, Tenneco shall pay Industrial Company the amount of such
excess in cash within 10 days after the Energy Determination Date.
(B) If the Actual Energy Expenditures Amount as reflected on the
Energy Adjusted Closing Balance Sheet is less than the Required Energy
Expenditures Amount, Industrial Company shall pay Tenneco the amount of
such deficiency in cash within 10 days after the Energy Determination
Date. If, on the other hand, the Actual Energy Expenditures Amount as
reflected on the Energy Adjusted Closing Balance Sheet is greater than
the Required Energy Expenditures Amount, Tenneco shall pay to
Industrial Company the amount of such excess in cash within 10 days
after the Energy Determination Date.
(C) Each of Tenneco and Industrial Company hereby agrees that the
amount of any cash payment otherwise due it under any provision of this
SECTION 7 may be offset against and reduced, on a dollar for dollar
basis, in respect of any cash payment it may otherwise be required to
make to the other pursuant to and in accordance with any other
provision of this SECTION 7, and that the amount of such offset and
reduction shall be treated as payment of its obligations under any
provision of this SECTION 7 to the extent of such offset and reduction.
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 /s/ Mark A. McCullum
-------------------------------------
Name: Mark A. McCullum
Title: Vice President
NEW TENNECO INC.
By /s/ Karen R. Osar
-------------------------------------
Name: Karen R. Osar
Title: Vice President
NEWPORT NEWS SHIPBUILDING INC.
(formerly known as Tenneco
InterAmerica Inc.)
By /s/ Stephen B. Clarkson
-------------------------------------
Name: Stephen B. Clarkson
Title: Vice President, General Counsel
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
<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>
<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.
<PAGE>
SCHEDULE 4
TO
DEBT AND CASH ALLOCATION AGREEMENT
ADDITIONAL ADJUSTMENTS TO BASE AMOUNT
1. Indonesia (the South Sulawesi Project)
(a) All expenditures made by Acquiror at any time from and after June 19,
1996 with respect to this project shall have no effect whatsoever on the Base
Amount or the calculation thereof.
(b) All expenditures actually incurred and paid by any of Tenneco or its
consolidated subsidiaries at any time between June 19, 1996 and the Effective
Time (the "PRE-CLOSING PERIOD") shall be added to the Base Amount (but shall
not be included as a capital expenditure for purposes of determining the
Actual Energy Expenditures Amount); provided, however, the Base Amount will be
reduced by the amount of any Net Cash Proceeds (as defined) received by
Tenneco or any of its consolidated subsidiaries during the Pre-Closing Period
from any monetization of this project during the Pre-Closing Period. As used
in the Schedule 4, the term "Net Cash Proceeds" means the total amount of cash
proceeds actually received by the party in question during the Pre-Closing
Period from the consummation during the Pre-Closing Period of the transaction
or transactions in question, less the sum of any and all costs, expenses and
taxes related to the transaction or transactions in question which either are
(i) actually incurred and paid by Tenneco or any of its consolidated
subsidiaries prior to or at the Effective Time (other than taxes based upon
income, which shall not be deducted from cash proceeds in determining Net Cash
Proceeds), or (ii) incurred but not paid prior to or at the Effective Time by
any member of either the Industrial Group and/or Shipbuilding Group and which
will remain an obligation or liability of such entity (or any member of its
Group) after giving effect to the Distributions without reimbursement therefor
by Tenneco or any other member of the Energy Group.
2. Orange Cogeneration Project
(a) All expenditures made by Acquiror at any time from and after June 19,
1996 with respect to this project shall have no effect whatsoever on the Base
Amount or the calculation thereof.
(b) All expenditures actually incurred and paid by any of Tenneco or its
consolidated subsidiaries at any time during the Pre-Closing Period shall be
added to the Base Amount (but shall not be included as a capital expenditure
for purposes of determining the Actual Energy Expenditures Amount); provided,
however, the Base Amount will be reduced by the amount of any Net Cash
Proceeds received by Tenneco or any of its consolidated subsidiaries during
the Pre-Closing Period from any monetization of this project during the Pre-
Closing Period.
3. Australian Infrastructure Bonds
(a) The Base Amount shall be reduced by any Net Cash Proceeds received by
Tenneco or any of its consolidated subsidiaries during the Pre-Closing Period
from any off-balance sheet financing in respect of this project.
4. Asset Sales
(a) Microwave Licenses. The Base Amount shall be reduced by the aggregate
amount of Microwave Net Cash Proceeds (as defined below) from any sale or
assignment during the Pre-Closing Period of private operational-fixed
microwave licenses issued by the Federal Communications Commission. As used
herein, "Microwave Net Cash Proceeds" means the gross cash proceeds actually
received by Tenneco or any of its consolidated subsidiaries less the sum of
(i) the total amount of relocation costs and cost and expenses of rebuilding
an acceptable replacement communication system that are actually incurred and
paid by Tenneco or any of its consolidated subsidiaries during the Pre-Closing
Period (or incurred by any member of the Industrial Group or Shipbuilding
Group and remain unpaid as of the Effective Time), and (ii) the amount of any
taxes incurred in connection with any such sale or assignment which are either
(A) actually incurred and paid by Tenneco or any of its consolidated
subsidiaries prior to the Effective Time (other than taxes based upon income,
which shall not be deducted from cash proceeds in determining Net Cash
Proceeds), or (B) incurred by any member of the Shipbuilding Group or
Industrial Group and remain unpaid as of the Effective Time and which will
remain an obligation or liability of such entity (or any member of its Group)
after giving effect to the Distributions without reimbursement therefor by
Tenneco or any other member of the Energy Group.
<PAGE>
5. Land Sales
(a) 960 Acre Parcel Located Along Galveston Bay at Ingleside, Texas. The
Base Amount shall be reduced by the total amount of Net Cash Proceeds actually
received by Tenneco or any of its consolidated subsidiaries at any time during
the Pre-Closing Period, in connection with the sale of the above referenced
property.
(b) Westchase Development in West Houston (also known as Tract 6A). The Base
Amount shall be reduced by the total amount of Net Cash Proceeds actually
received by Tenneco or any of its consolidated subsidiaries at any time during
the Pre-Closing Period in connection with the sale of the above referenced
property.
(c) 1625 West Loop (also known as Post Oak Ranch). The Base Amount shall be
reduced by the total amount of Net Cash Proceeds actually received by Tenneco
or any of its consolidated subsidiaries at any time during the Pre-Closing
Period in connection with the sale of the above referenced property.
6. Sales of Gas Turbines
The Base Amount shall be reduced by the total amount of Net Cash Proceeds
actually received by Tenneco or any of its consolidated subsidiaries (and
credited to the account of Industrial Company under the Debt and Cash
Allocation Agreement) from its sale of any gas turbines at any time during the
Pre-Closing Period.
7. ICH Tax Indemnity Matter
The Base Amount shall be increased (without duplication) by any cash payment
(up to a maximum amount, however, of $19.0 million) made by Tenneco or any of
its consolidated subsidiaries during the Pre-Closing Period in respect of the
settlement of the ICH tax indemnity matter.
8. Payments due on Settlement of Certain Lawsuits During the Pre-Closing
Period
All cash payments actually received by Tenneco or any of its consolidated
subsidiaries during the Pre-Closing Period in respect of any settlement of any
of the lawsuits or other proceedings identified and referred to in paragraph 9
of, and Schedule G-2 to, Exhibit G to the Merger Agreement shall, to the
extent provided for under the terms described under paragraph 9 of such
Exhibit G, be for the account of Industrial Company and shall not be included
in the Guaranteed Energy Cash Amount or have any effect on the Base Amount or
the calculation thereof.
9. Hedging Transactions
Any hedging transactions and all costs and expenses with respect thereto
that are entered into in connection with or in anticipation of the Debt
Realignment shall be for the benefit or detriment of Industrial Company and
shall have no effect whatsoever on the Base Amount or the calculation thereof.
10. Rate Refunds Payable to Customers
The Base Amount shall be reduced by the amount, calculated as of the
Effective Time, of any rate refunds, including interest, which would be
payable to customers pursuant to the rate settlement filed with the Federal
Energy Regulatory Commission at Docket No. RP95-112 and have not been paid as
of the Effective Time, whether such amounts are to be paid to customers or
credited against gas supply realignment costs pursuant to a settlement with
customers.
11. Sale of Tenneco Ventures
The Base Amount shall be reduced by the aggregate amount of Net Cash
Proceeds actually received by Tenneco or any of its subsidiaries from any sale
of Tenneco Ventures during the Pre-Closing Period.
12. Bonuses for Energy Employees
(a) The total amount of cash bonuses for Energy Employees for the calendar
year 1996 (the "1996 Bonus Amount") shall be pro rated based on the date on
which the Effective Time occurs and shall be shared between Tenneco and
Industrial Company based on such pro ration as follows:
2
<PAGE>
(i) Tenneco shall be responsible and liable for the payment of that
portion (the "Tenneco Bonus Portion") of the 1996 Bonus Amount that equals
the product of (A) the 1996 Bonus Amount, and (B) a fraction, the numerator
of which is the number of days remaining in the 1996 calendar year
following the day on which the Effective Time occurs (the "Effective Day"),
and the denominator of which is 365.
(ii) New Tenneco shall be responsible and liable for the payment of that
portion of the 1996 Bonus Amount that equals the amount by which the 1996
Bonus Amount exceeds the Tenneco Bonus Portion.
(b) Each of Tenneco's and New Tenneco's liability for its share of the 1996
Bonus Amount shall be accounted for in the Merger as follows:
(i) If 100% of the 1996 Bonus Amount is paid on or before the Effective
Time, the Base Amount shall be increased by the Tenneco Bonus Portion.
(ii) If as of the Effective Time, the amount of the 1996 Bonus Amount
that has not been paid exceeds the Tenneco Bonus Portion, the Base Amount
shall be reduced by the amount of such excess.
(iii) If as of the Effective Time, the amount of the 1996 Bonus Amount
that has not been paid equals the Tenneco Bonus Portion, the Base Amount
shall not be increased or decreased in respect of the 1996 Bonus Amount.
(c) The 1996 Bonus Amount shall be determined by Tenneco prior to the
Effective Time with the consent of Acquiror which shall not be unreasonably
withheld.
13. Non Cash Proceeds
Any proceeds received by Tenneco or any of its subsidiaries from the
transactions described in paragraphs 1, 2, 3, 4, 5, 6 and 11 other than cash
proceeds shall be for the account of Acquiror and shall be retained by or
distributed to the Energy Business.
3
<PAGE>
BENEFITS AGREEMENT
THIS BENEFITS AGREEMENT is made and entered into as of this 11 day of
December, 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 November 1, 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 or
any other agency of the DOD 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 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.
<PAGE>
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").
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.
2
<PAGE>
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.
Any indemnity amount owed by Industrial Company to Shipbuilding Company
pursuant to this Subsection 4.05(c) shall be computed and paid by Industrial
Company on a pre-tax basis, i.e. not taking into account any tax benefits
realized by Shipbuilding Company with respect to payments made by Shipbuilding
Company and to which such indemnity relates; subject, however to the
following:
(1) The parties intend that any payments made by Shipbuilding Company
which are indemnified by Industrial Company pursuant to this Subsection
4.05(c) will be deductible by Shipbuilding Company for federal income tax
purposes, and that any indemnity payment made by Industrial Company to
Shipbuilding Company pursuant to this Subsection 4.05(c) will be treated
for federal income tax purposes as a contribution to the capital of
Shipbuilding Company immediately prior to the Distribution Date
(collectively, the "INTENDED TAX TREATMENT");
(2) Shipbuilding Company will report on its applicable state and federal
income tax returns any indemnity amount received from Industrial Company
pursuant to this Subsection 4.05(c), and any payment made by Shipbuilding
Company to which such indemnity payment relates, in a manner that is
consistent with the Intended Tax Treatment;
(3) Upon the filing by Shipbuilding Company or its affiliates of any
state or federal income tax return claiming a deduction, loss, credit or
similar item with respect to payments made by Shipbuilding Company
3
<PAGE>
for which Shipbuilding Company has been indemnified pursuant to this
Subsection 4.05(c), Shipbuilding Company shall pay to Industrial Company
the amount of any tax benefit realized by Shipbuilding Company with respect
to such payments;
(4) Notwithstanding anything to the contrary in the Tax Sharing
Agreement, in the event the IRS challenges the Intended Tax Treatment the
parties agree that (1) Industrial Company shall have the exclusive right to
control the defense or prosecution of the portion of any tax contest
relating to such tax treatment, including settlement of any item relating
to such tax treatment and (2) Industrial Company shall be liable for, and
shall indemnify and hold Shipbuilding Company harmless from, any tax
liability resulting from any adjustment to the Intended Tax Treatment.
Notwithstanding anything to the contrary in the preceding sentence, if the
parties determine in good faith that filing a return based on the Intended Tax
Treatment would not properly report the items in question, then the timing and
amount of payments made pursuant to the preceding sentence shall be modified
to take into account the revised tax treatment of such items.
(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.
(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
4
<PAGE>
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.
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
5
<PAGE>
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 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
<PAGE>
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 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.
7
<PAGE>
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
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
8
<PAGE>
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.
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
9
<PAGE>
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: /s/ Karl A. Stewart
----------------------------------
Name: Karl A. Stewart
-------------------------------
Title: Vice President
-------------------------------
NEWPORT NEWS SHIPBUILDING INC.
(formerly known as Tenneco
InterAmerica Inc.)
By: /s/ Stephen B. Clarkson
----------------------------------
Name: Stephen B. Clarkson
-------------------------------
Title: Vice President
-------------------------------
NEW TENNECO INC.
By: /s/ Robert G. Simpsen
----------------------------------
Name: Robert G. Simpsen
-------------------------------
Title: Vice President
-------------------------------
10
<PAGE>
INSURANCE AGREEMENT
This Insurance Agreement (the "AGREEMENT") is made and entered into as of
this 11th day of December, 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 November 1, 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 (the "Distributions") 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 December 11,
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.
"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.
1
<PAGE>
"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 (or such
entity and its subsidiaries and/or affiliates) 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 November 1, 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.
"DISTRIBUTION TIME" shall mean the time at which the Distributions become
effective.
"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 ASSETS" shall have the meaning set forth in the Distribution
Agreement.
"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.
"INDUSTRIAL" shall mean, when unqualified, the Industrial Assets, Industrial
Liabilities, Prior Industrial Businesses and/or Industrial Business.
2
<PAGE>
"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 (or such entity and its subsidiaries and/or
affiliates) 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" shall have the meaning set forth in the Distribution Agreement.
"MERGER AGREEMENT" shall have the meaning set forth in the Distribution
Agreement.
"MERGER TIME" shall mean the time at which the Merger becomes effective.
"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
(or such entity and its subsidiaries and/or affiliates) 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.
3
<PAGE>
"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 (or such entity and its subsidiaries and/or
affiliates) 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 (or such entity and its subsidiaries
and/or affiliates) 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 (or such entity and its subsidiaries and/or
affiliates) 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 with respect to coverage under any Policy for
any Covered Person, the time as of which coverage under said Policy is to be
cancelled with respect to that Covered Person pursuant to the terms hereof.
"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.
4
<PAGE>
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 (and, at the option of Industrial Company,
its subsidiaries and affiliates after giving effect to the Distributions) is
added as a named insured under those Current Occurrence-Based Policies
identified on SCHEDULE 2.1-A hereto (the "TRANSFERRED OCCURRENCE-BASED
POLICIES"), effective as of the Distribution 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, (A) the
Distribution Time, with respect to any Industrial Covered Person or
Shipbuilding Covered Person, and (B) the Merger Time, with respect to any
Energy Covered Person. Industrial Company agrees to be added 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 (and, at the option of Industrial Company,
its subsidiaries and affiliates after giving effect to the Distributions) is
added as a named insured under those Current Claims-Made Policies identified
on SCHEDULE 2.2-A hereto (the "TRANSFERRED CLAIMS-MADE POLICIES"), effective
as of the Distribution 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, (A) the Distribution Time, with
respect to any Industrial Covered Person or Shipbuilding Covered Person, and
(B) the Merger Time, with respect to any Energy Covered Person. Industrial
Company agrees to be added 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
add Industrial Company as a named insured under any Transferred Policy without
Consent thereto if such addition without such Consent would constitute a
breach of such Transferred Policy. If Consent to such addition 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 addition been obtained prior to the Distribution
Date.
ARTICLE III
COVERAGE
3.1 Maintenance of Coverage Through Merger Time. From the date hereof up to
the Merger Time, the parties hereto agree to use their best efforts 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
5
<PAGE>
their terms relate except to the extent coverage under any such Policy is to
be terminated hereunder prior to the Merger Time (it being understood that
there shall be no obligation hereunder to maintain in full force and effect
coverage under any such Policy which, by operation of the terms of such
Policy, is terminated as to any Covered Person as a result of the
Distributions).
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, coverage under the Transferred
Occurrence-Based Policies shall be terminated (it being understood that such
Transferred 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 on or after the (A) Merger Time, with respect to any Energy Covered
Person and (B) Distribution Time, with respect to any Shipbuilding Covered
Person. From and after the Distribution Time and Merger Time, coverage under
any Transferred Occurrence-Based Policy may, at the option of Industrial
Company and subject to the rights of the insurers thereunder, 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, 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 on or after the (A) Merger Time,
with respect to any Energy Covered Person, and (B) Distribution Time, with
respect to any Shipbuilding Covered Person or Industrial Covered Person.
(c) Access to Policies Following Termination Time. Notwithstanding the
provisions of Sections 3.2(a) and 3.2(b) hereof, from and after their
respective Termination Time under any Occurrence-Based Policy 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 such 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 such 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,
6
<PAGE>
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 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, 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 (A) the Merger Time, with respect to
any Energy Covered Person, and (B) the Distribution Time, with respect to any
Shipbuilding Covered Person. From and after the Distribution Time and Merger
Time, coverage under any Transferred Claims-Made Policy may, at the option of
Industrial Company and subject to the rights of the insurers thereunder,
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, 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 (A) the Merger
Time, with respect to any Energy Covered Person, and (B) the Distribution
Time, with respect to any Shipbuilding Covered Person or Industrial Covered
Person.
(c) Access to Policies Following Termination Time. Notwithstanding the
provisions of Sections 3.3(a) and 3.3(b) hereof, from and after their
respective Termination Time under any Claims-Made Policy 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 such
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 such
Termination Time and which are incurred
7
<PAGE>
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 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 Distribution 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 Distribution 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 Distribution
Time, coverage under any of the Retained Policies may, at the option of
Tenneco and subject to the rights of the insurers thereunder, continue for any
Energy Covered Person upon the terms and conditions of such Retained Policies
(it being understood that the insurer under the Retained Policies currently in
effect has expressed its intention to cancel coverage thereunder as of the
Merger Time).
8
<PAGE>
(b) Access to Policies and Policy Limits. Notwithstanding the provisions of
Section 3.4(a) hereof, from and after the Distribution 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 Distribution 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 Policies,
effective as of the Distribution Time coverage under the Eastern Policies
shall be terminated (it being understood that such Eastern Policies in full
force and effect as of the Distribution 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 on or after
the Distribution Time. From and after the Distribution Time, coverage under
the Eastern Policies may, at the option of Tenneco and subject to the rights
of the insurers thereunder, continue for any Energy Covered Person upon the
terms and conditions of the Eastern Policies.
(b) Access to Eastern Policies Following Distribution Time. Notwithstanding
the provisions of Sections 3.5(a) hereof, from and after the Distribution 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 Distribution 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 Distribution 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 Distribution Time.
9
<PAGE>
3.6 Coverage Under Exclusive Policies. From and after the Distribution Time,
coverage under any Exclusive Policy may (at the option of the party or parties
shown as the named insured thereunder, and subject to the rights of the
insurers thereunder) 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.
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 Distribution 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
10
<PAGE>
Distribution 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
Distribution 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.
4.2 Retained Policies.
(a) Premiums, Costs and Other Charges. From and after the Distribution 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 Distribution 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
Distribution 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 Distribution 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).
11
<PAGE>
(b) Deductibles, Retentions and Self-Insured Amounts. From and after the
Distribution 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
Distribution 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 Distribution Time in
respect of claims relating to any Industrial Covered Person which have been
reported prior to the Distribution 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 Distribution
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
Distribution Time under the excess liability programs of the Eastern Policies
with respect to Industrial and Energy.
4.4 Exclusive Policies. From and after the Distribution 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
12
<PAGE>
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 Distribution 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 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 Distribution 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
13
<PAGE>
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
Distribution 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 Distribution
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 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
January 31, 1998 (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 31 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 Distribution 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 Distribution 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 Distribution Time, and (ii)
the denominator of which is equal to the Yearly Total Reserves for such Yearly
Period.
14
<PAGE>
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 Distribution 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 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.
15
<PAGE>
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.
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.
16
<PAGE>
IN WITNESS WHEREOF, the parties have made and entered into this Insurance
Agreement as of the date first set forth above.
TENNECO INC.
/S/ Karen R. Osar
By:__________________________________
Karen R. Osar
Name:________________________________
Vice President and Treasurer
Title:_______________________________
NEW TENNECO INC.
/S/ Karen R. Osar
By:__________________________________
Karen R. Osar
Name:________________________________
Vice President and Treasurer
Title:_______________________________
NEWPORT NEWS SHIPBUILDING INC.
/S/ Stephen B. Clarkson
By:__________________________________
Stephen B. Clarkson
Name:________________________________
Vice President
Title:_______________________________
17
<PAGE>
SCHEDULE A
TO INSURANCE AGREEMENT
CURRENT CLAIMS-MADE POLICIES
<TABLE>
<CAPTION>
OTHER POLICY
SCHED. TYPE OF COVERAGE POLICY NUMBER DATES UNDERWRITER LIMITS DEDUCTIBLES
- ------ ---------------- ------------- ------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
2.2-A Excess Liability XLUMB 00912 9/1/96-97 XL Insurance Company- $100,000,000xs
Bermuda $100,000,000
2.2-B Excess Liability UO5138609 9/1/96-97 OCIL-Bermuda $100,000,000xs
$200,000,000
2.2-B Excess Liability TGT 5035/4 9/1/96-97 ACE Insurance Company- $200,000,000xs
Bermuda $300,000,000
2.2-B Fiduciary Liability NIA 0120905-96 3/1/96-97 Reliance $ 50,000,000 $500,000
71FF 1010075268CM Aetna
8141-48-49-A Federal
2.2-B ERISA Bond (Crime) 483-89-89 9/1/96-97 National Union Fire $ 15,000,000 NIL
Ins. Co. (AIG)
</TABLE>
18
<PAGE>
SCHEDULE B
TO INSURANCE AGREEMENT
CURRENT OCCURRENCE-BASED POLICIES
<TABLE>
<CAPTION>
OTHER TYPE OF
SCHED. COVERAGE POLICY NUMBER POLICY DATES UNDERWRITER LIMITS
------ -------- ------------- ------------ ----------- ------
<C> <S> <C> <C> <C> <C>
2.1-B Excess Liability DL039795/07 9/1/96-97 Gerling-Konzern $10,000,000 xs
$10,000,000
2.1-B Excess Liability BE8180249RA 9/1/96-97 American $25,000,000 xs
International (AIG) $20,000,000
Specialty Lines Ins. Co.
2.1-B Excess Liability DL188696/01 9/1/96-97 Gerling-Konzern $25,000,000 xs
$45,000,000
2.1-B Excess Liability EU 0835533-01 9/1/96-97 Steadfast Insurance Co. $22,000,000 xs
(Zurich) $70,000,000
2.1-B Excess Liability XTP 48390 9/1/96-97 United National Insur. Co. $8,000,000 xs
(Front for Amer Re) $92,000,000
2.1-B Automobile--Mexico HLN 00261 1/1/96-97 Seguros Comercial BI: $30,000/
America $60,000
PD: $30,000
2.1-A Aircraft Products Lia- 46 MPP 154779 9/1/96-97 Associated Aviation $150,000,000
bility Underwriters Aggr. Cov. A
$100,000,000
Aggr. Cov. B
$150,000,000
Aggr. Cov. A & B
2.1-A Aviation Hull & Liabil- 46BVH-153922 7/1/94-97 Associated Aviation $100,000,000
ity Underwriters Per Occurrence
2.1-B Ocean Cargo EIPH1008 7/1/96-97 ESIS International, Inc. $10,000,000
One Conveyance
2.1-A All Risk Property Dam- YMM800856 6/1/96-97 Royal Insurance $2,000,000,000
age/ Blanket Per Occur.
Business Interruption
(Global)
2.1-B Comprehensive Boiler & BMI-SA-9138264-20 11/1/96-97 Hartford Steam Boiler $100,000,000
Machinery Per Accident
Property
Damage/Business
Interruption
2.1-B Foreign Public & Prod- 62/99102/D 9/1/96-97 Gerling-Konzern $2,000,000
ucts Liability Per Occurrence
Insurance (Primary Cov-
er)
2.1-B Umbrella Excess Liabil- W51010 9/1/96-97 Winterthur (Front for $8,000,000
ity Eastern Insurance Co.) Any One
Occurrence
xs $2,000,000
2.1-B Employer's Liability 054/095/6000 Not avail. Eagle Star Not avail.
5626/1 Insurance Company
Limited
2.1-B Personal Accident--Eu- 5.011.926 7/1/92 until CIGNA 600,000 Pounds
rope cancelled Sterling per person
2,500,000
Pounds Sterling per acc.
2.1-B Nuclear Energy Liability NS-0379 1/1/96- Nuclear Energy Liability $20,000,000
Insurance 12/31/96 Insurance Association
<CAPTION>
DEDUCTIBLES
------ -----------
<C>
$10,000,000
Per Occurrence
$5,000,000
Per Occ.-USA/Can.
$250,000
Per Occ.-
Rest of World
$5,000,000
Any One Accident
$5,000 per Claim
$50,000 Pollution
</TABLE>
19
<PAGE>
SCHEDULE C
TO INSURANCE AGREEMENT
EASTERN POLICIES
<TABLE>
<CAPTION>
TYPE OF POLICY POLICY
COVERAGE NUMBER DATES UNDERWRITER LIMITS DEDUCTIBLES
-------- ------ ------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C>
Excess Li- 96ED2501 9/1/96-97 Eastern Insurance Company $8,000,000xs
ability Limited-Bermuda $2,000,000
Contingent 96ED2801 1/1/96-97 Eastern Insurance Company
Liability Limited-Bermuda
</TABLE>
20
<PAGE>
SCHEDULE D
TO INSURANCE AGREEMENT
CURRENT RETAINED POLICIES
<TABLE>
<CAPTION>
POLICY POLICY
TYPE OF COVERAGE NUMBER DATES UNDERWRITER LIMITS DEDUCTIBLES
---------------- ------ ------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C>
Workers' Compensation WLRC 9/1/96-97 Bankers Standard $2,000,000 $2,000,000
Texas-Ded. 42203063 Ins. Co.
Workers' Compensation WLRC 9/1/96-97 Pacific Employers $2,000,000 $2,000,000
Other States-Ded. 42203051 Ins. Co.
Workers' Compensation CCSC 9/1/96-97 Pacific Employers $2,000,000 $2,000,000
Retro 42203087 Ins. Co.
Workers' Compensation 1810017884 9/1/96-97 Maine Employers' $100,000/$500,000 $5,000
Maine Mutual $100,000
General Liability HDOG 9/1/96-97 CIGNA Property & $2,000,000 $2,000,000
18967248 Casualty Ins. Co.
Automobile Liability ISAH 9/1/96-97 CIGNA Property & $2,000,000 $2,000,000
007131641 Casualty Ins. Co.
Environmental HDCG 9/1/96-97 CIGNA Property & $1,000,000 $1,000,000
18967285 Casualty Ins. Co.
Automobile Liability - CAC391021 9/1/96-97 CIGNA Ins. Co. of $2,000,000 $2,000,000
Canada Canada
General Liability - CGLO23835 9/1/96-97 CIGNA Ins. Co. of $2,000,000 $2,000,000
Canada Canada
Railroad Protective- ORPG 8/1/96-97 Indemnity Ins. Co. of $2,000,000/ $2,000,000/
Besemer 18968617 North America (CIGNA) $6,000,000 $6,000,000
& Lake Erie RR Co.
Railroad Protective- ORPG 8/1/96-97 CIGNA Property & $2,000,000/ $2,000,000/
Boston 18968575 Casualty Insur. Co. $6,000,000 $6,000,000
& Maine Corp.
Railroad Protective- ORPG 4/8/96-97 Indemnity Ins. Co. of $2,000,000/ $2,000,000/
AMTRAK 18967923 North America (CIGNA) $6,000,000 $6,000,000
Railroad Protective- ORPG 4/8/96-97 Indemnity Ins. Co. of $2,000,000/ $2,000,000/
Mass. 18967881 North America (CIGNA) $6,000,000 $6,000,000
Bay Transp.
New York State OCPG 10/10/96-97 CIGNA $500,000/ $500,000/
Owners & Contractors 18968629 $500,000 $500,000
Protective Liability
</TABLE>
21
<PAGE>
SCHEDULE E
TO INSURANCE AGREEMENT
CURRENT TENNECO EXCLUSIVE POLICIES
<TABLE>
<CAPTION>
POLICY POLICY
TYPE OF COVERAGE NUMBER DATES UNDERWRITER LIMITS DEDUCTIBLES
- ---------------------------- ----------- ---------- ----------------------------- ------------------------- ------------------
<S> <C> <C> <C> <C> <C>
Tenneco Gas Production SWO5505896 6/19/96-97 St. Paul Surplus $1,000,000 $2,500
General Liability Lines Ins. Co. Each Occurrence
$1,000,000
Prod/CO Agg.
Tenneco Gas Production SPO5511912 6/19/96-97 St. Paul Surplus $10,000,000 $10,000
Umbrella Liability Lines Ins. Co. Each Occurrence,
$10,000,000
Prod/CO Agg.
Tenneco Gas South America 82/900194/D 7/24/95- Gerling-Konzern $2,000,000 $10,000
Construction Risk Liability 1/24/97
Tenneco Gas Australia CXC 042840 7/24/95- CIGNA $8,000,000 xs
Construction Risk Liability 1/24/97 $2,000,000
Excess Liability BE 9320742 4/26/96-97 National Union $10,000,000 $500,000
Michigan Production Fire Ins. Co. (AIG) Each Occurrence SIR
Company Gen. Agg. & Prod/CO Agg.
Offshore Property/OEE Pkg. MMA 96-134 7/27/96-97 UNI 17.0%; Sec. IA Sec. IA
Sec. IA&B - Offshore Prop. Gjensidige 14.0%; -- Per Schedule -- $5,000,000
Sec. II - OEE Vesta 15.0%; (100%) AOO
Sec. III - Protector 8.0%; Sec. IB Sec. IB
Charterer's Liab. Commonwealth 13.0%; -- Per Schedule -- $1,000,000
Hull & Co. 5.0%; (100%) AOO
All American Sec. II Sec. II
Marine Slip. 5.0%; OEE $50,000,000 -- $200,000
Reliance 5.0%; OCSLA $35,000,000 (100%) AOO
C.T. Bowring 18.0% CCC $5,000,000 OCSLA $200,000
(100%) Per Occ.
CCC $50,000
(100%) Per Occ.
Sec. III
Sec. III -- $50,000
--$1,000,000 (100%) AOO
Construction All Risk HG 015595 10/5/95- National Vulcan Cornhill Ins. Aus. $209,032,000 Aus. $30,000
12/31/96 SR International All Perils except:
Royal Insurance Global Aus. $250,000
Generali Windstorm, Flood,
SCOR and Earth Movement
Worker's Compensation-- E 13344308 Ongoing (Placed with Government) TBD
South Australia
Employer Cost Control 03P002771 7/31/96-97 CIGNA Maximum Weekly
Insurance Benefit: $500
Professional Indemnity 9617VK18625 7/28/96-97 HIH Casualty & General TBD $20,000 each and
Insurance Ltd. every claim
Motor Vehicle MV 452743 7/31/96-97 CIC Insurance Own Damage:
$24,000
Primary GL/AL/EL CXC 042960 8/13/96-97 CIGNA International $1,000,000
Mexico - Scada/Pemex Ea. Occurrence,
Gen Agg. & Prod/CO Agg.
(Contingent Auto)
$2,000,000 BI by Accident
$2,000,000 BI by disease
(Each Employee)
$2,000,000 BI by disease
(Policy Limit)
Follow Form Excess CXC 042962 8/26/96-97 CIGNA International $19,000,000 Any One
Mexico - Scada/Pemex Occur. & Aggregate
Foreign Workers' Comp. CXC 042979 11/1/96-97 CIGNA International $2,000,000
EPIP 8190265/ 11/1/96-97 American International $10,000,000
8190266 Specialty Lines
Ins. Co. (AIG)
Crime 4843124 11/1/96- AIG $1,000,000
11/1/97
</TABLE>
22
<PAGE>
SCHEDULE 2.1-A
TO INSURANCE AGREEMENT
TRANSFERRED OCCURRENCE-BASED POLICIES
<TABLE>
<CAPTION>
OTHER POLICY
SCHED. TYPE OF COVERAGE POLICY NUMBER DATES UNDERWRITER LIMITS DEDUCTIBLES
- ------ ---------------- ------------- ------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
B All Risk Property YMM800856 6/1/96-97 Royal Insurance $2,000,000,000 $5,000,000
Damage/Business Blanket per Occur. Per Occ.-USA/Can.
Interruption (Global) $250,000,
Per Occ.-Rest of World
B Aircraft Products Liability 46 MPP 154779 9/1/96-97 Associated Aviation $150,000,000
Underwriters Aggr. Cov. A
$100,000,000
Aggr. Cov. B
$150,000,000
Aggr. Cov. A & B
B Aviation Hull & Liability 46BVH-153922 7/1/94-97 Associated Aviation $100,000,000
Underwriters Per Occurrence
</TABLE>
23
<PAGE>
SCHEDULE 2.1-B
TO INSURANCE AGREEMENT
CANCELLED OCCURRENCE-BASED POLICIES
<TABLE>
<CAPTION>
OTHER
SCHED. TYPE OF COVERAGE POLICY NUMBER POLICY DATES UNDERWRITER LIMITS
- ------ ---------------- ------------- ------------ ----------- ------
<S> <C> <C> <C> <C> <C>
B Excess Liability DL039795/07 9/1/96-97 Gerling-Konzern $10,000,000xs
$10,000,000
B Excess Liability BE8180249RA 9/1/96-97 American International (AIG) $25,000,000xs
Specialty Lines Ins. Co. $20,000,000
B Excess Liability DL188696/01 9/1/96-97 Gerling-Konzern $25,000,000xs
$45,000,000
B Excess Liability EU 0835533-01 9/1/96-97 Steadfast Insurance Co. (Zurich) $22,000,000xs
$70,000,000
B Excess Liability XTP 48390 9/1/96-97 United National Insur. Co. $8,000,000xs
(Front for Amer Re) $92,000,000
B Automobile-Mexico HLN 00261 1/1/96-97 Seguros Comercial America BI: $30,000/$60,000
PD: $30,000
B Ocean Cargo EIPH1006 7/1/96-97 ESIS International, Inc. $10,000,000
One Conveyance
B Comprehensive Boiler & BMI-SA- 11/1/96-97 Hartford Steam Boiler $100,000,000
Machinery Property 9138264-20 Per Accident
Damage/Business
Interruption
B Foreign Public & Products 62/99102/D 9/1/96-97 Gerling-Konzern $2,000,000
Liability Insurance Per Occurrence
(Primary Cover)
B Umbrella Excess Liability W51010 9/1/96-97 Winterthur (Front for $8,000,000
Eastern Insurance Co.) Any One Occurrence
xs $2,000,000
B Employer's Liability 054/950/ Not avail. Eagle Star Not avail.
60005626/1 Insurance Company
Limited
B Personal Accident-Europe 5.011.926 7/1/92 until CIGNA 800,000 Pounds
cancelled Sterling per person
2,500,000 Pounds
Sterling per acc.
B Nuclear Energy NS-0379 1/1/96- Nuclear Energy $20,000,000
Liability Insurance 12/31/96 Liability Insurance
Association
<CAPTION>
OTHER
SCHED. DEDUCTIBLES
- ------ -----------
<S> <C>
B
B
B
B
B
B
B $10,000,000
Per Occurrence
B $5,000,000
Any One Accident
B $5,000 per Claim
$50,000 Pollution
B
B
B
B
</TABLE>
24
<PAGE>
SCHEDULE 2.2-A
TO INSURANCE AGREEMENT
TRANSFERRED CLAIMS-MADE POLICIES
<TABLE>
<CAPTION>
OTHER POLICY
SCHED. TYPE OF COVERAGE NUMBER POLICY DATES UNDERWRITER LIMITS DEDUCTIBLES
------ ---------------- ------ ------------ ----------- ------ -----------
<C> <S> <C> <C> <C> <C> <C>
A Excess Liability XLUMB 00912 9/1/96-97 XL Insurance Company $100,000,000 xs
-Bermuda $100,000,000
</TABLE>
25
<PAGE>
SCHEDULE 2.2-B
TO INSURANCE AGREEMENT
CANCELLED CLAIMS-MADE POLICIES
<TABLE>
<CAPTION>
OTHER
SCHED. TYPE OF COVERAGE POLICY NUMBER POLICY DATES UNDERWRITER LIMITS DEDUCTIBLES
------ ---------------- ------------- ------------ ----------- ------ -----------
<C> <S> <C> <C> <C> <C> <C>
A Excess Liability UO5138609 9/1/96-97 OCIL-Bermuda $100,000,000 xs
$200,000,000
A Excess Liability TGT 5035/4 9/1/96-97 ACE Insurance Company $200,000,000 xs
-Bermuda $300,000,000
A Fiduciary Liability NIA 0120995-96 3/1/96-97 Reliance $50,000,000 $500,000
71FF 101007525BCM Aetna
8141-48-49-A Federal
A ERISA Bond (Crime) 483-89-89 9/1/96-97 National Union Fire $15,000,000 NIL
Ins. Co. (AIG)
</TABLE>
26
<PAGE>
SCHEDULE 7.1-A
TO INSURANCE AGREEMENT
LETTERS OF CREDIT CURRENTLY IN PLACE
<TABLE>
<CAPTION>
LOC BANK LOC# AMOUNT
--- ---- ---- ------
<S> <C> <C> <C>
CIGNA Program NationsBank 130995 $22,000,000
CIGNA Program Texas Commerce I-422502 18,000,000
CA Self Insurance Bank of America LASB-119266 1,147,981
</TABLE>
27
<PAGE>
SCHEDULE 7.1-B
TO INSURANCE AGREEMENT
SURETY BONDS CURRENTLY IN PLACE
See attached schedule.
28
<PAGE>
TAX SHARING AGREEMENT
This Agreement is entered into as of December 11, 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.
<PAGE>
"ALLOCATED FEDERAL TAX LIABILITY" shall have the meaning provided in Section
5.01(b)(i).
"BASE AMOUNT ADJUSTMENT ITEMS" means any Tax Items arising from the amounts
described in clause (i)(A) of the definition of Base Amount in the Debt and
Cash Allocation Agreement attached as Exhibit C to the Distribution Agreement
(relating to gas supply realignment costs and recoveries of such costs) or in
clause (i)(C) of such definition of Base Amount (relating to payments made in
settlement of any significant Energy Liability (as defined in the Merger
Agreement)), and any Tax Items related to such amounts (such as income accrued
with respect to payments to be received after the Distribution Date from
customers, insurers, or other third parties with respect to gas supply
realignment costs or settlements of Energy Liabilities).
"CARRYBACK" means any net operating loss, net capital loss, excess tax
credit, or other similar Tax item which may or must be carried from one Tax
Period to another Tax Period under the Code or other applicable Tax Law.
"CODE" means the U.S. Internal Revenue Code of 1986, as amended, or any
successor law.
"COMPANIES" means Tenneco, Shipbuilding Company, and Industrial Company,
collectively, and "COMPANY" means any one of Tenneco, Shipbuilding Company, or
Industrial Company.
"CONSOLIDATED OR COMBINED INCOME TAX" means any Income Tax computed by
reference to the assets and activities of members of more than one Group.
"CONSOLIDATED OR COMBINED STATE INCOME TAX" means any State Income Tax
computed by reference to the assets and activities of members of more than one
Group.
"CONSOLIDATED TAX LIABILITY" means, with respect to any Tenneco Federal
Consolidated Return, the "tax liability of the group" as that term is used in
Treasury Regulation Section 1.1552-1(a)(1) (including applicable interest,
additions to the tax, additional amounts, and penalties as provided in the
Code), adjusted as follows:
(i) such tax liability shall be treated as including any alternative
minimum tax liability under Code Section 55;
(ii) in the case of the Tax Period which includes the Distribution Date,
the Consolidated Tax Liability shall be computed as if the Distribution
Date were the last day of the Tax Period; and
(iii) Base Amount Adjustment Items and Debt Discharge Items shall be
disregarded.
"CUMULATIVE FEDERAL TAX PAYMENT" shall have the meaning provided in Section
5.01(b)(ii).
"DEBT DISCHARGE ITEMS" means any Tax Items arising from the Debt Realignment
(as defined in the Merger Agreement).
"DISTRIBUTION AGREEMENT" means the agreement, as amended from time to time,
setting forth the corporate transactions required to effect the distribution
to Tenneco shareholders of Shipbuilding Common Shares and Industrial Common
Shares, and to which this Tax Sharing Agreement is attached as an exhibit.
"DISTRIBUTION DATE" means the Distribution Date as that term is defined in
the Distribution Agreement.
"DISTRIBUTIONS" means the distributions to Tenneco shareholders on the
Distribution Date of all of the outstanding stock of Industrial Company and
Shipbuilding Company owned by Tenneco.
"EFFECTIVE TIME" shall have the meaning provided in the Merger Agreement.
"ENERGY INVESTMENTS GROUP" means the corporations, or divisions of
corporations, identified on Schedule 3.
"FEDERAL ALLOCATION METHOD" shall have the meaning provided in Section
2.02(a).
2
<PAGE>
"FEDERAL INCOME TAX" means any Tax imposed by Subtitle A or F of the Code.
"FEDERAL TAX ADJUSTMENT" shall have the meaning provided in Section 2.02(b).
"FOREIGN INCOME TAX" means any Tax imposed by any foreign country or any
possession of the United States, or by any political subdivision of any
foreign country or United States possession, which is an income tax as defined
in Treasury Regulation Section 1.901-2.
"GROUP" means the Tenneco Group, the Shipbuilding Group, and the Industrial
Group, as the context requires.
"GSR ITEMS" means, for any Tax Period: (a) the deductions or losses
allowable in such Tax Period attributable to (i) the payment of gas supply
realignment costs as described in clause (i) of the definition of Base Amount
in the Debt and Cash Allocation Agreement attached as Exhibit C to the
Distribution Agreement, or (ii) the payment in any Post-Distribution Tax
Period of gas supply realignment costs incurred pursuant to contracts entered
into on or prior to the Distribution Date; and (b) any taxable income or gain
recognized in such Tax Period attributable to the recovery of such costs from
customers, insurers, or third parties or attributable to any reduction in any
previously deducted payments.
"INCOME TAX" means any Federal Income Tax, State Income Tax, or Foreign
Income Tax.
"INDUSTRIAL ADJUSTMENT" means any proposed adjustment by a Tax Authority or
claim for refund asserted in a Tax Contest to the extent Industrial Company
would be exclusively liable for any resulting Tax under this Agreement and
exclusively entitled to receive any resulting Tax Benefit under this
Agreement. For purposes of this Agreement, any proposed adjustment relating to
Tenneco Business Services Inc. (or the predecessor shared services project of
Tenneco) shall be an Industrial Adjustment, and Industrial Company shall be
liable for any Taxes (and shall be entitled to receive any Tax Benefit)
arising from such adjustments.
"INDUSTRIAL COMPANY" means New Tenneco Inc., a Delaware corporation, and any
successor.
"INDUSTRIAL GROUP" means Industrial Company and its Affiliates as determined
immediately after the Distributions, modified as provided in Section 18.
"INDUSTRIAL GROUP PRIOR FEDERAL TAX LIABILITY" shall have the meaning
provided in Section 2.02(b)(ii).
"INDUSTRIAL GROUP PRIOR STATE TAX LIABILITY" shall have the meaning provided
in Section 2.03(b)(ii)(B).
"INDUSTRIAL GROUP RECOMPUTED FEDERAL TAX LIABILITY" shall have the meaning
provided in Section 2.02(b)(i).
"INDUSTRIAL GROUP RECOMPUTED STATE TAX LIABILITY" shall have the meaning
provided in Section 2.03(b)(ii)(A).
"JOINT ADJUSTMENT" means any proposed adjustment by a Tax Authority or claim
for refund asserted in a Tax Contest which is neither an Industrial
Adjustment, a Shipbuilding Adjustment, nor a Tenneco Adjustment.
"MERGER" means the merger of El Paso Merger Company with and into Tenneco as
described in the Merger Agreement.
"MERGER AGREEMENT" means the Amended and Restated 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
6
<PAGE>
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
7
<PAGE>
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
8
<PAGE>
(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
9
<PAGE>
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.).
10
<PAGE>
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.
11
<PAGE>
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
12
<PAGE>
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
13
<PAGE>
Responsible Company in a manner consistent with the provisions of
Section 2.02(a) (relating to allocation of the Consolidated Tax
Liability in accordance with the Federal Allocation Method) (the
"Allocated Federal Tax Liability"), over
(ii) the cumulative net payments with respect to such Tax Return
prior to such Payment Date by the members of the Industrial Group (the
"Cumulative Federal Tax Payment").
If the Industrial Group Cumulative Federal Tax Payment is greater than the
Industrial Group Allocated Federal Tax Liability as of any Payment Date,
then Tenneco shall pay such excess to Industrial Company within 30 days of
Tenneco's receipt of the corresponding Tax Benefit (i.e., through either a
reduction in Tenneco's otherwise required Tax payment, or a refund of prior
tax payments). Any amount due under Section 2.02(c) with respect to the
Energy Investments Group net operating loss or taxable income as reported
on the Tenneco Federal Consolidated Tax Return for the taxable year ended
December 31, 1996 shall be paid within 30 days following the Payment Date
which is the date the return is filed, and any subsequent adjustment to the
payment due under Section 2.02(c) shall be paid with interest as determined
in a manner consistent with the provisions of Section 5.02.
(c) Computation and Payment of Shipbuilding Company Liability With
Respect to Tax Due. Within the time for any payment under paragraph (b) of
this subsection, the Responsible Company shall also notify Tenneco, if
necessary, and Shipbuilding Company in writing of the Shipbuilding Group
Allocated Federal Tax Liability and the Shipbuilding Group Cumulative
Federal Tax Payment (computed in manner consistent with paragraph (b) of
this subsection). If the Shipbuilding Group Allocated Federal Tax Liability
exceeds the Shipbuilding Group Cumulative Federal Tax Payment, then
Shipbuilding Company shall pay such excess to Tenneco within three business
days following receipt of such notice. If the Shipbuilding Group Cumulative
Federal Tax Payment exceeds the Shipbuilding Group Allocated Federal Tax
Liability, then Tenneco shall pay such excess to Shipbuilding Company
within 30 days of Tenneco's receipt of the corresponding Tax Benefit (i.e.,
either a reduction in Tenneco's otherwise required Tax payment, or a refund
of estimated tax payments).
(d) Deemed Cumulative Federal Tax Payment for First Payment Date After
the Distribution Date. For purposes of Sections 5.01(b)(ii) and 5.01(c)
with respect to the Tenneco Federal Consolidated Tax Return for the taxable
year ended December 31, 1996, the Industrial Group's Cumulative Federal Tax
Payment shall be equal to $49,000,000, and the Shipbuilding Group's
Cumulative Federal Tax Payment shall be equal to $40,000,000.
(e) Interest on Intergroup Tax Allocation Payments. In the case of any
payments to Tenneco required under paragraphs (b) or (c) of this subsection
5.01, the payor shall also pay to Tenneco an amount of interest computed at
the Prime Rate on the amount of the payment required based on the number of
days from the applicable Payment Date to the date of payment. In the case
of any payments by Tenneco required under paragraphs (b) or (c) of this
subsection 5.01, Tenneco shall also pay to the payee an amount of interest
computed at the Prime Rate on the amount of the payment required based on
the number of days from the date of receipt of the Tax Benefit to the date
of payment of such amount to the payee.
(f) Representation Regarding Cumulative 1996 Federal Income Tax Payments.
Industrial Company represents and warrants to Tenneco that, as of the the
date hereof, $205,500,000 of cumulative net payments have been made by
Tenneco, and credited by the Internal Revenue Service, with respect to the
1996 Tenneco Federal Consolidated Return.
5.02 Payment of Federal Income Tax Related to Adjustments
(a) Adjustments Resulting in Underpayments. Tenneco shall pay to the
Internal Revenue Service when due any additional Federal Income Tax
required to be paid as a result of any adjustment to the Tax liability with
respect to any Tenneco Federal Consolidated Return for any Pre-Distribution
Period. The Responsible Company shall compute the amount attributable to
Industrial Group and the Shipbuilding Group in accordance with Section
2.02(b) and Industrial Company and Shipbuilding Company shall pay to
Tenneco any amount due Tenneco under Section 2.02(b) within 30 days from
the later of (i) the date the additional Tax was paid by Tenneco or (ii)
the date of receipt by Industrial Company or Shipbuilding Company (as
applicable) of a written notice and demand from Tenneco for payment of the
amount due, accompanied by evidence of payment and a statement detailing
the Taxes paid and describing in reasonable detail the
14
<PAGE>
particulars relating thereto. Any amount due to Industrial Company or
Shipbuilding Company under Section 2.02(b) shall be paid within 30 days
from the date the additional Tax was paid by Tenneco to the Internal
Revenue Service. Any payments required under this Section 5.02(a) shall
include interest computed at the Prime Rate based on the number of days
from the date the additional Tax was paid by Tenneco to the date of the
payment under this Section 5.02(a).
(b) Adjustments Resulting in Overpayments. Within 30 days of receipt by
Tenneco of any Tax Benefit resulting from any adjustment to the
Consolidated Tax Liability with respect to any Tenneco Federal Consolidated
Return for any Pre-Distribution Period, Tenneco shall pay to Industrial
Company and Shipbuilding Company, or Industrial Company and Shipbuilding
Company shall pay to Tenneco (as the case may be), their respective amounts
due from or to Tenneco as determined by the Responsible Company in
accordance with Section 2.02(b). Any payments required under this Section
5.02(a) shall include interest computed at the Prime Rate based on the
number of days from the date the Tax Benefit was received by Tenneco to the
date of payment to Industrial Company or Shipbuilding Company under this
Section 5.02(b).
5.03 Payment of State Income Tax With Respect to Returns Filed After the
Distribution Date
(a) Computation and Payment of Tax Due. At least three business days
prior to any Payment Date for any Tax Return with respect to any State
Income Tax, the Responsible Company shall compute the amount of Tax
required to be paid to the applicable Tax Authority (taking into account
the requirements of Section 4.05 relating to consistent accounting
practices) with respect to such Tax Return on such Payment Date and--
(i) If such Tax Return is with respect to a Consolidated or Combined
State Income Tax, the Responsible Company shall, if Tenneco is not the
Responsible Company with respect to such Tax Return, notify Tenneco in
writing of the amount of Tax required to be paid on such Payment Date.
Tenneco will pay such amount to such Tax Authority on or before such
Payment Date.
(ii) If such Tax Return is with respect to a Separate Company Tax,
the Responsible Company shall, if it is not the Company liable for the
Tax reported on such Tax Return, notify the Company liable for such Tax
in writing of the amount of Tax required to be paid on such Payment
Date. The Company liable for such Tax will pay such amount to such Tax
Authority on or before such Payment Date.
(b) Computation and Payment of Industrial Company Liability and
Shipbuilding Company Liability With Respect to Tax Due. Within 120 days
following the due date (including extensions) for filing any Tax Return for
any Consolidated or Combined State Income Tax (excluding any Tax Return
with respect to payment of estimated Taxes or Taxes due with a request for
extension of time to file), (i) Industrial Company shall pay to Tenneco the
tax liability allocable to the Industrial Group as determined by the
Responsible Company under the provisions of Section 2.03(b)(i), plus
interest computed at the Prime Rate on the amount of the payment based on
the number of days from the due date (including extensions) to the date of
payment by Industrial Company to Tenneco, and (ii) the Responsible Company
shall notify Tenneco (if Tenneco is not the Responsible Company with
respect to such Tax Return) and Shipbuilding Company in writing of the tax
liability allocable to the Shipbuilding Group as determined by the
Responsible Company under the provisions of Section 2.03(b)(i). Within
three business days following receipt of such notice, Shipbuilding Company
shall pay to Tenneco the Shipbuilding Group's allocated tax liability as
set forth in such notice, plus interest computed at the Prime Rate on the
amount of the payment based on the number of days from the due date
(including extensions) to the date of payment by Shipbuilding Company to
Tenneco.
5.04 Payment of State Income Taxes Related to Adjustments
(a) Adjustments Resulting in Underpayments. Tenneco shall pay to the
applicable Tax Authority when due any additional State Income Tax required
to be paid as a result of any adjustment to the tax liability with respect
to any Tax Return for any Consolidated or Combined State Income Tax for any
Pre-Distribution Period. Industrial Company and Shipbuilding Company shall
pay to Tenneco their respective shares of any such additional Tax payment
determined by the Responsible Company in accordance with Section
2.03(b)(ii) within 120 days from the later of (i) the date the additional
Tax was paid by Tenneco or
15
<PAGE>
(ii) the date of receipt by Industrial Company or Shipbuilding Company (as
applicable) of a written notice and demand from Tenneco for payment of the
amount due, accompanied by evidence of payment and a statement detailing
the Taxes paid and describing in reasonable detail the particulars relating
thereto. Industrial Company and Shipbuilding Company shall also pay to
Tenneco interest on their respective shares of such Tax computed at the
Prime Rate based on the number of days from the date the additional Tax was
paid by Tenneco to the date of their payment to Tenneco under this Section
5.04(a).
(b) Adjustments Resulting in Overpayments. Within 120 days of receipt by
Tenneco of any Tax Benefit resulting from any adjustment to the tax
liability with respect to any Tax Return for any Consolidated or Combined
State Income Tax for any Pre-Distribution Period, Tenneco shall pay to
Industrial Company and Shipbuilding Company their respective shares of any
such Tax Benefit determined by the Responsible Company in accordance with
Section 2.03(b)(ii). Tenneco shall also pay to Industrial Company or
Shipbuilding Company interest on their respective shares of such Tax
Benefit computed at the Prime Rate based on the number of days from the
date the Tax Benefit was received by Tenneco to the date of payment to
Industrial Company or Shipbuilding Company under this Section 5.04(b).
5.05 Payment of Separate Company Taxes. Each Company shall pay, or shall
cause to be paid, to the applicable Tax Authority when due all Separate
Company Taxes owed by such Company or a member of such Company's Group.
5.06 Indemnification Payments. If any Company (the "payor") is required to
pay to a Tax Authority a Tax that another Company (the "responsible party") is
required to pay to such Taxing Authority under this Agreement, the responsible
party shall reimburse the payor within 30 days of delivery by the payor to the
responsible party of an invoice for the amount due, accompanied by evidence of
payment and a statement detailing the Taxes paid and describing in reasonable
detail the particulars relating thereto. The reimbursement shall include
interest on the Tax payment computed at the Prime Rate based on the number of
days from the date of the payment to the Tax Authority to the date of
reimbursement under this Section 5.06.
Section 6. Tax Benefits
6.01 General Rule. If a member of one Group receives any Tax Benefit with
respect to any Taxes for which a member of another Group is liable hereunder,
the Company receiving such Tax Benefit shall make a payment to the Company who
is liable for such Taxes hereunder within 30 days following receipt of the Tax
Benefit in an amount equal to the Tax Benefit (including any Tax Benefit
realized as a result of the payment), plus interest on such amount computed at
the Prime Rate based on the number of days from the date of receipt of the Tax
Benefit to the date of payment of such amount under this Section 6.01.
6.02 Debt Discharge Items
(a) Any Tax Benefit attributable to Debt Discharge Items (determined in
accordance with the principles of Section 6.04) shall be credited against
any amount owed by Industrial Company to Tenneco under Sections 5.01(b) or
5.03(b), and any excess Tax Benefit shall be paid by Tenneco to Industrial
Company as an amount owed by Tenneco to Industrial Company under Sections
5.01(b) or 5.03(b). If the Tax Benefit is subsequently adjusted (including
any adjustment to the Tax Benefit received as a reduction in otherwise
required estimated tax payments), Industrial Company shall pay to Tenneco
an amount equal to any reduction in the Tax Benefit, and Tenneco shall pay
to Industrial Company an amount equal to any increase in the Tax Benefit,
in each case under Section 5.01(b) (in the case of adjustments to Tax
payments), or Sections 5.02 or 5.04 (in the case of audit adjustments).
(b) Any Tax liability attributable to Debt Discharge Items (determined in
accordance with the principles of Section 6.04) shall be paid by Industrial
Company to Tenneco as an additional amount owed by Industrial Company to
Tenneco under Section 5.01(b) or 5.03(b). Any adjustment to such Tax
liability shall be paid under Section 5.01(b) (in the case of adjustments
to Tax payments), or Sections 5.02 or 5.04 (in the case of audit
adjustments).
16
<PAGE>
(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
17
<PAGE>
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
18
<PAGE>
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.
19
<PAGE>
Section 13. Employee Matters. Each of the Companies agrees to utilize, or
cause its Affiliates to utilize, the alternative procedure set forth in
Revenue Procedure 84-77, 1984-2 C.B. 753, with respect to wage reporting.
Section 14. Treatment of Payments; Tax Gross Up
14.01 Treatment of Tax Indemnity and Tax Benefit Payments. In the absence of
any change in tax treatment under the Code or other applicable Tax Law,
(a) any Tax indemnity payments made by a Company under Section 5 shall be
reported for Tax purposes by the payor and the recipient as distributions
or capital contributions, as appropriate, occurring immediately before the
distribution of the Industrial Common Shares and the Shipbuilding Common
Shares to Tenneco shareholders on the Distribution Date, but only to the
extent the payment does not relate to a Tax allocated to the payor in
accordance with Treasury Regulation Section 1.1502-33(d) (or under
corresponding principles of other applicable Tax Laws), and
(b) any Tax Benefit payments made by a Company under Section 6, shall be
reported for Tax purposes by the payor and the recipient as distributions
or capital contributions, as appropriate, occurring immediately before the
distribution of Industrial Common Shares and Shipbuilding Common Shares to
Tenneco shareholders on the Distribution Date, but only to the extent the
payment does not relate to a Tax allocated to the payor in accordance with
Treasury Regulation Section 1.1502-33(d) (or under corresponding principles
of other applicable Tax Laws).
14.02 Tax Gross Up. If notwithstanding the manner in which Tax indemnity
payments and Tax Benefit payments were reported, there is an adjustment to the
Tax liability of a Company as a result of its receipt of a payment pursuant to
this Agreement, such payment shall be appropriately adjusted so that the
amount of such payment, reduced by the amount of all Income Taxes payable with
respect to the receipt thereof (but taking into account all correlative Tax
Benefits resulting from the payment of such Income Taxes), shall equal the
amount of the payment which the Company receiving such payment would otherwise
be entitled to receive pursuant to this Agreement.
14.03 Interest Under This Agreement. Anything herein to the contrary
notwithstanding, to the extent one Company ("indemnitor") makes a payment of
interest to another Company ("indemnitee") under this Agreement with respect
to the period from the date that the indemnitee made a payment of Tax to a Tax
Authority to the date that the indemnitor reimbursed the indemnitee for such
Tax payment, or with respect to the period from the date that the indemnitor
received a Tax Benefit to the date indemnitor paid the Tax Benefit to the
indemnitee, the interest payment shall be treated as interest expense to the
indemnitor (deductible to the extent provided by law) and as interest income
by the indemnitee (includible in income to the extent provided by law). The
amount of the payment shall not be adjusted under Section 14.02 to take into
account any associated Tax Benefit to the indemnitor or increase in Tax to the
indemnitee.
Section 15. Disagreements. If after good faith negotiations the parties
cannot agree on the application of this Agreement to any matter, then the
matter will be referred to a nationally recognized accounting firm acceptable
to each of the parties (the "Accounting Firm"). The Accounting Firm shall
furnish written notice to the parties of its resolution of any such
disagreement as soon as practical, but in any event no later than 45 days
after its acceptance of the matter for resolution. Any such resolution by the
Accounting Firm will be conclusive and binding on all parties to this
Agreement. In accordance with Section 17, each party shall pay its own fees
and expenses (including the fees and expenses of its representatives) incurred
in connection with the referral of the matter to the Accounting Firm. All fees
and expenses of the Accounting Firm in connection with such referral shall be
shared equally by the parties affected by the matter.
Section 16. Late Payments. Any amount owed by one party to another party
under this Agreement which is not paid when due shall bear interest at the
Prime Rate plus two percent, compounded semiannually, from the due date of the
payment to the date paid. To the extent interest required to be paid under
this Section 16 duplicates interest required to be paid under any other
provision of this Agreement, interest shall be computed at
20
<PAGE>
the higher of the interest rate provided under this Section 16 or the interest
rate provided under such other provision.
Section 17. Expenses. Except as provided in Section 15, each party and its
Affiliates shall bear their own expenses incurred in connection with
preparation of Tax Returns, Tax Contests, and other matters related to Taxes
under the provisions of this Agreement.
Section 18. Special Rules for Determining Members of Groups. For purposes of
this Agreement, the following special rules shall apply for determining the
members of the Industrial Group and members of the Shipbuilding Group:
18.01 Tennessee Gas Pipeline Company. The assets and activities of Tennessee
Gas Pipeline Company for Pre-Distribution Periods that comprise the Walker
Manufacturing Company Division, the Tenneco Automotive Headquarters Division,
and the Tenneco Brakes Division, as jointly determined by Industrial Company
and Tenneco in accordance with past practices, shall be combined and treated
as a separate corporate entity which is a member of the Industrial Group.
18.02 Former Affiliates of Shipbuilding Group or Industrial Group. The
entities listed on Schedule 1 attached hereto shall be treated as members of
the Shipbuilding Group, and the entities listed on Schedule 2 attached hereto
shall be treated as members of the Industrial Group. Any entity substantially
all of the assets and liabilities of which have been transferred to a member
of the Shipbuilding Group (e.g., by a statutory merger) shall be treated as a
member of the Shipbuilding Group, and any entity substantially all of the
assets and liabilities of which have been transferred to a member of the
Industrial Group shall be treated as a member of the Industrial Group. For
example, Newport News Shipbuilding and Dry Dock Company, a Virginia
corporation, shall, by virtue of its merger into Tenneco InterAmerica Inc., be
treated as a member of the Shipbuilding Group. For purposes of this paragraph,
Tenneco's Affiliates shall not be limited to persons who are Affiliates
immediately after the Distributions.
Section 19. General Provisions
19.01 Addresses and Notices. Any notice, demand, request or report required
or permitted to be given or made to any party under this Agreement shall be in
writing and shall be deemed given or made when delivered in party or when sent
by first class mail or by other commercially reasonable means of written
communication (including delivery by an internationally recognized courier
service or by facsimile transmission) to the party at the party's address as
follows:
If to Shipbuilding Company:
Director, Taxes
Newport News Shipbuilding and Dry Dock Company
4101 Washington Avenue
Newport News, VA 23607
If to Tenneco:
Director, Taxes
Tennessee Gas Pipeline Co.
1010 Milam Street
Houston, Texas 77002
With a copy to:
Director, Taxes
El Paso Natural Gas Co.
One Paul Kayser Center
100 North Stanton Street
El Paso, Texas 79901
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: /s/ Robert G. Simpson
_________________________________
Its: Vice President, Tax
_________________________________
Newport News Shipbuilding Inc.
By: /s/ Stephen B. Clarkson
_________________________________
Its: Vice President, General Counsel
________________________________
New Tenneco Inc.
By: /s/ Robert G. Simpson
_________________________________
Robert G. Simpson
Vice President, Taxes
El Paso Natural Gas Company
By: /s/ Britton White, Jr.
_________________________________
Its: Senior Vice President
_________________________________
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)
<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.
<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
<PAGE>
FIRST AMENDMENT TO THE TAX SHARING AGREEMENT
--------------------------------------------
This FIRST AMENDMENT (the "Amendment") to the TAX SHARING AGREEMENT,
dated as of December 11, 1996 (the "Agreement"), among Tenneco Inc., a Delaware
corporation ("Tenneco"), New Tenneco Inc., a Delaware corporation ("Industrial
Company"), Newport News Shipbuilding Inc. (formerly known as Tenneco
InterAmerica Inc.), a Delaware corporation ("Shipbuilding Company"), and El Paso
Natural Gas Company, a Delaware corporation, is entered into as of December 11,
1996. Unless otherwise defined herein, capitalized terms used in this Amendment
shall have the meaning assigned to such terms in the Agreement.
WHEREAS, the parties have executed the Agreement; and
WHEREAS, the parties hereto wish to amend the Agreement to provide for
the allocation between the parties of State Income Taxes for 1996, including any
estimated tax payments with respect to 1996 State Income Taxes and State Income
Tax overpayments for 1995 which are carried forward and applied as payments on
1996 State Income Tax liabilities, together with refunds (when received) in
connection with State Tax Returns as originally filed for 1996 or prior years;
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, the Companies hereby agree as follows:
Section 1. Total 1996 State Income Tax Liabilities. The total 1996
---------------------------------------
State Income Tax liability allocated to each Group (the "separate State Tax
Liability") shall be the sum of:
(a) in the case of any State Income Tax which is a Separate
Company Tax, the amount of Separate Company Tax imposed on any members of
such Group; and
(b) in the case of any Consolidated or Combined State Income
Tax, the product of (I) the actual State Income Tax liability shown on the
relevant Tax Returns (before application of estimated tax payments and
other such credits) and (II) a fraction, the numerator of which is the
State Income Tax liability of such Group, computed as if all the members of
such Group included in the computation of such Tax had filed a consolidated
or combined Tax Return for such Group's members based on the income,
apportionment factors, and
<PAGE>
other items of such members (the "Hypothetical State Tax Liability"),
and the denominator of which is the sum of the Hypothetical State Tax
Liabilities of all of the Groups,
such that the sum of the Separate State Tax Liabilities of the three Groups
is equal to the total 1996 State Income Tax liabilities shown on the Tax Returns
of all of the Groups (the "Total 1996 State Tax Liability"). The determination
of the Separate Company Tax, the actual State Income Tax liability shown on the
relevant Tax Returns and the Hypothetical State Tax Liability shall be made
without regard to Base Amount Adjustment Items and Debt Discharge Items.
Section 2. 1996 Estimated Tax Payments. "1996 Estimated Tax
---------------------------
Payments" shall mean any estimated tax payments made with respect to the first
three quarters of 1996 in connection with all Tax Returns filed in all States
(including any overpayments of State Income Tax for 1995 which are carried
forward and applied as payments on 1996 State Tax Returns). In the event that
the 1996 Estimated Tax Payments exceed, or are less than, the Total 1996 State
Tax Liability, such excess or deficit, as the case may be, shall be shared by
the three Groups. Each Group's share shall be determined by multiplying such
excess or deficit by a fraction, (a) the numerator of which is the Separate
State Tax Liability determined for such Group, and (b) the denominator of which
is the Total 1996 State Tax Liability, with appropriate payments being made by
Industrial Company or Shipbuilding Company, to achieve the appropriate sharing
of the 1996 Estimated Tax Payments.
Section 3. Fourth Quarter Estimated Tax Payments. Industrial
-------------------------------------
Company shall pay to the appropriate State taxing authorities the estimated
taxes due with respect to the fourth quarter of 1996 (which shall not include
any payment on a normal due date of a 1996 Tax Return in connection with
obtaining an extension for the filing of such Tax Return). Industrial Company
shall be reimbursed, without interest, after all of the allocations for the 1996
Estimated Tax Payments have been made. Shipbuilding Company shall reimburse
Industrial Company for the portion of such fourth quarter payments relating to
Separate Company Tax of the Shipbuilding Group (if any), and Tenneco shall
reimburse Industrial Company for the portion of such fourth quarter payments
relating to Separate Company Tax of the Tenneco Group (if any) and for the
portion of such fourth quarter payments relating to Consolidated or Combined
State Income Tax.
-2-
<PAGE>
Section 4. Refunds.
-------
(a) With respect to refunds received after the Distribution Date in
connection with State Tax Returns as originally filed for 1995 or prior years,
(i) in the case of any Tax Return relating to a Separate company Tax, such
refunds shall be allocated to the Group whose members are included in such Tax
Return, and (ii) in the case of any Tax Return relating to a Consolidated or
combined State Income Tax, such refund shall be allocated to each Group based
upon its respective share of the Tax liability, as shown in such Tax Return and,
as was previously billed out to members of the Group by Tenneco.
(b) Any refunds received in connection with Tax Returns for Consolidated
or Combined State Income Tax for 1996 shall be for the account of Tenneco,
subject to the allocation provided in Sections 1 and 2 of this Amendment.
Section 5. Coordination With Agreement. This Amendment constitutes
---------------------------
the entire agreement among the parties pertaining to the subject matter of this
Amendment and supersedes anything to the contrary relating to State Income Taxes
in the Agreement, but is specifically subject to Sections 2.03(b)(ii), 6.02 and
6.03 of the Agreement. To the extent that a Tax liability is allocated under
this Amendment, such liability shall not be secondarily allocated under the
Agreement.
Section 6. Right to Review Tax Returns. The Responsible Company
---------------------------
with respect to any 1996 State Tax Return shall make such Tax Return and related
workpapers available for review by the other Companies, as requested.
Section 7. Binding Effect. This Amendment shall be binding upon
--------------
and inure to the benefit of the parties hereto and their successors and assigns.
Section 8. No Other Amendments. This Amendment is limited as
-------------------
specified and shall not constitute a modification, acceptance or waiver of any
other provision of the Agreement.
Section 9. Counterparts. This Amendment 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.
Section 10. Governing Law. This Amendment and the rights and
-------------
obligations of the parties hereunder shall be construed in accordance with and
governed by the law of the State of Delaware.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed by the respective officers as of the date set forth above.
TENNECO INC.
By /s/ Robert G. Simpson
---------------------------------
Title: Vice President
NEWPORT NEWS SHIPBUILDING INC.
By /s/ Stephen B. Clarkson
---------------------------------
Title: Vice President
NEW TENNECO INC.
By /s/ Robert G. Simpson
---------------------------------
Title: Vice President
EL PASO NATURAL GAS COMPANY
By /s/ Britton White, Jr.
---------------------------------
Title: Senior Vice President
<PAGE>
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 /s/ Matthew Appel
__________________________________
TENNECO INC.
By /s/ Michael W. Meyer
__________________________________
EL PASO NATURAL GAS COMPANY
By /s/ Britton White, Jr.
__________________________________
2
<PAGE>
TRADEMARK TRANSITION LICENSE AGREEMENT
Agreement made as of this 11th day of December, 1996, ("Effective Date") by
and between Tenneco Management 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 Inc., 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 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.
<PAGE>
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.
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
2
<PAGE>
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.
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
/s/ James Gaughan By: /s/ Mark A. McCullum
- ------------------------------- ----------------------------------
Assistant Secretary Vice President
Attest: LICENSEE
/s/ James Gaughan By: /s/ Stephen B. Clarkson
- ------------------------------- ----------------------------------
Assistant Secretary Vice President
3
<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>
<PAGE>
EXHIBIT B
Ships
Custom and naval shipbuilding, drydock and ship repair services.
Naval architectural design.
<PAGE>
TRADEMARK TRANSITION LICENSE AGREEMENT
Agreement made as of this 11 day of December, 1996 ("Effective Date") by
and between Tenneco Management 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. (to be renamed El Paso Tennessee Pipeline Co.), 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.
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.
<PAGE>
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.
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
2
<PAGE>
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
/s/ James Gaughon By: /s/ Mark A. McCullum
- ------------------------------- ----------------------------------
Assistant Secretary Vice President
Attest: LICENSEE
/s/ James Gaughon By: /s/ Karen R. Osar
- ------------------------------- ----------------------------------
Assistant Secretary Vice President
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>
<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.
<PAGE>
EXHIBIT 10.28
------------------------------------------
AMENDED AND RESTATED MILL I LEASE
-------------------------------------------
between
CREDIT SUISSE LEASING 92A, L.P.,
as Lessor
and
TENNECO PACKAGING INC.,
as Lessee
Dated: As of November 4, 1996
Location: Town of Bradley
County of Lincoln
State of Wisconsin
THIS LEASE HAS BEEN MANUALLY EXECUTED IN COUNTERPARTS NUMBERED CONSECUTIVELY
FROM l TO __. TO THE EXTENT, IF ANY, THAT THIS LEASE CONSTITUTES CHATTEL PAPER
(AS SUCH TERM IS DEFINED IN THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN ANY
APPLICABLE JURISDICTION), NO SECURITY INTEREST IN THIS LEASE MAY BE CREATED
THROUGH THE TRANSFER OR POSSESSION OF ANY COUNTERPART OF THIS LEASE OTHER THAN
COUNTERPART NO. 1.
This is Counterpart No. ____
1
<PAGE>
TABLE OF CONTENTS
(Not a part of the Lease)
Paragraph Page
- --------- ----
1. Lease of Mill I Property; Title and Condition................... 2
2. Use; Quiet Enjoyment; Ownership; Hazardous Materials............ 2
2A. Acquisition; Construction; Financing............................ 4
3. Term............................................................ 5
4. Rent............................................................ 5
5. Net Lease; Non-Terminability.................................... 6
6. Taxes and Assessments; Compliance with Law; Certain Agreements.. 7
7. Matters of Title................................................ 8
8. [Intentionally Omitted]......................................... 10
9. Maintenance and Repair; Inspection.............................. 10
i
<PAGE>
Paragraph Page
- --------- ----
10. Mill I Alterations; Removal..................................... 11
11. Lessee's Right to Contest Real Property Taxes................... 13
12. Condemnation and Casualty....................................... 14
13. Environmental Event............................................. 18
14. Offer to Purchase............................................... 23
15. Procedure Upon Purchase......................................... 24
16. Insurance....................................................... 26
17. Subletting; Assignability; Amendment of Facility Agreements..... 29
18. Permitted Contests.............................................. 30
19. Default Provisions.............................................. 32
20. Additional Rights; Mortgage..................................... 35
ii
<PAGE>
Paragraph Page
- --------- ----
21. Notices, Demands and Other Instruments.......................... 41
22. No Default Certificate.......................................... 41
23. Surrender....................................................... 42
24. Severability; Binding Effect; Governing Law; Non-Recourse....... 44
25. Headings and Table of Contents.................................. 45
26. Lessor's Right to Cure Lessee's Default......................... 45
27. Lessee's Options Upon Expiration................................ 45
28. Protective Expenditures......................................... 50
29. Limitations on Amounts Payable.................................. 51
30. No Merger of Title.............................................. 51
31. Payments to the Agent........................................... 51
iii
<PAGE>
Paragraph Page
- --------- ----
32. Remaining Moneys................................................ 51
33. Replace and Supersede........................................... 52
Schedule A - Description of the Mill I Parcel
Schedule B - Fixed Rent and Additional Rent Schedule
Schedule C - Environmental Disclosure
Exhibit A - Performance Tests
iv
<PAGE>
AMENDED AND RESTATED MILL I LEASE dated as of November 4, 1996 (this "Lease")
-----
between CREDIT SUISSE LEASING 92A, L.P., a Delaware limited partnership (the
"Lessor"), having an address at 11 Madison Avenue, New York, New York 10010 and
------
TENNECO PACKAGING INC., a Delaware corporation (the "Lessee"), having an address
------
at 1603 Orrington Avenue, Evanston, Illinois 60201. The schedules and exhibits
referred to in this Lease are hereby incorporated by reference herein.
Capitalized terms used but not defined herein shall have the respective meanings
set forth in the Participation Agreement dated as of November 4, 1996, by and
among NEW TENNECO INC., the Lessee, the Lessor, STATE STREET BANK AND TRUST
COMPANY, as Collateral Agent, and CITIBANK, N.A., as Agent, and the Persons
named therein as Note Holders (as the same may be amended, modified or
supplemented from time to time, the "Participation Agreement").
-----------------------
Preliminary Statement
---------------------
The Lessor and the Lessee entered into a certain Mill I Lease dated as
of November 4, 1996, pursuant to which the Lessor agreed to sublease the Mill I
Parcel and lease Mill I, the Mill I Improvements and the Mill I Alterations to
the Lessee on the terms and subject to the provisions therein set forth (the
"Original Mill I Lease"). The Lessor and the Lessee wish to modify and amend
- ----------------------
certain provisions of the Original Mill I Lease and to restate, in its entirety,
the provisions of the Original Mill I Lease, all in the manner hereinafter set
forth. It is intended by the Lessor and the Lessee that (a) this Lease replaces
in its entirety and supersedes in all respects the Original Mill I Lease and (b)
that all references in the Participation Agreement and any of the Operative
Documents to the "Mill I Lease" shall mean and refer to this Lease.
As of the Financing Closing Date, the Lessor will have acquired a
leasehold interest in the Mill I Parcel described on Schedule A hereto and fee
title to Mill I located on the Mill I Parcel. The Lessor wishes to sublease the
Mill I Parcel, and lease Mill I, the Mill I Improvements and the Mill I
Alterations to the Lessee (for convenience of reference, such sublease of the
Mill I Parcel and lease of Mill I, the Mill I Improvements, the Mill I
Alterations and the balance of the Mill I Property being collectively referred
to as the lease of the Mill I Property) and the Lessee wishes to lease the same
from the Lessor for the Term, or the Extended Term (as defined below), as
applicable, and on the terms and subject to the provisions hereafter set forth.
1
<PAGE>
NOW, THEREFORE, the parties do hereby agree as follows:
1. Lease of Mill I Property; Title and Condition. (a) In
---------------------------------------------
consideration of the rents and covenants herein stipulated to be paid and
performed by the Lessee, for the Term, or the Extended Term (as applicable), and
upon the terms and conditions herein specified, (i) the Lessor hereby leases to
the Lessee the Mill I Property and (ii) the Lessee hereby leases and accepts
from the Lessor the Mill I Property. The Mill I Property is leased to the
Lessee subject to (w) the terms, covenants and provisions of the Mill I Ground
Lease, (x) all applicable Legal Requirements and all of the insurance
requirements set forth in paragraphs 16(a) through (c) hereof (collectively, the
"Insurance Requirements") now or hereafter in effect; (y) all Permitted
----------------------
Encumbrances; and (z) the terms, covenants and provisions of this Lease. The
Lessee has, as of the date hereof, examined the Mill I Property and title
thereto and has found the same satisfactory for all purposes of this Lease.
(b) THE LESSOR MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR
IMPLIED, WITH RESPECT TO THE MILL I PROPERTY OR ANY FIXTURE OR OTHER ITEM
CONSTITUTING A PORTION THEREOF, OR THE LOCATION, USE, DESCRIPTION, DESIGN,
MERCHANTABILITY, FITNESS FOR USE FOR ANY PARTICULAR PURPOSE, CONDITION OR
DURABILITY THEREOF OR AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN,
OR AS TO THE LESSOR'S TITLE THERETO OR OWNERSHIP THEREOF OR OTHERWISE, IT BEING
AGREED THAT ALL RISKS INCIDENT THERETO ARE TO BE BORNE BY THE LESSEE. IN THE
EVENT OF ANY DEFECT OR DEFICIENCY OF ANY NATURE IN THE MILL I PROPERTY OR ANY
FIXTURE OR OTHER ITEM CONSTITUTING A PORTION THEREOF, OR LESSOR'S TITLE TO ANY
OF THE SAME, WHETHER PATENT OR LATENT, THE LESSOR SHALL HAVE NO RESPONSIBILITY
OR LIABILITY WITH RESPECT THERETO. THE PROVISIONS OF THIS PARAGRAPH 1(b) HAVE
BEEN NEGOTIATED AND ARE INTENDED TO BE A COMPLETE EXCLUSION AND NEGATION OF ANY
AND ALL WARRANTIES AND REPRESENTATIONS, EXPRESS OR IMPLIED, BY THE LESSOR WITH
RESPECT TO THE MILL I PROPERTY OR ANY FIXTURE OR OTHER ITEM CONSTITUTING A
PORTION THEREOF, WHETHER ARISING PURSUANT TO THE UCC OR ANY OTHER LAW, NOW OR
HEREAFTER IN EFFECT.
2. Use; Quiet Enjoyment; Ownership; Hazardous Materials. (a) The Lessee shall
----------------------------------------------------
use the Mill I Property solely as a pulp and paper mill facility, storage
facilities and related business offices, in a manner consistent with the
provisions of paragraph 9. The Lessee covenants that it will cause Mill I, the
Mill I Improvements and the Mill I Alterations (to the extent the same are or
become an integral part of the Mill I Property) at all times to be located on
the Mill I Parcel.
2
<PAGE>
(b) During the Term or the Extended Term, the Lessor covenants that, unless a
Default or an Event of Default or a Major Environmental Event has occurred and
is continuing, it will not, and will not permit any party claiming by or under
the Lessor (subject to the terms, covenants and provisions of the Ground Lease)
to, (i) grant, create or suffer to exist any Lien upon the Mill I Property (or
any part thereof or interest therein) other than the Permitted Encumbrances
(excluding therefrom any Lessor's Lien); or (ii) interfere with the peaceful and
quiet possession and enjoyment of the Mill I Property by the Lessee; provided,
--------
however, that the Lessor, the Agent, the Collateral Agent, the Equity Investor,
- -------
the Independent Engineer, the Environmental Consultant, the Appraiser and their
respective successors, assigns, representatives and agents (the "Lessor Group")
------------
may, upon advance written notice to the Lessee (unless any member of the Lessor
Group, each in its sole discretion, has reason to believe that a Default, an
Event of Default or a Major Environmental Event has occurred and is continuing
or other exigent or emergency conditions exist, in which case no such notice
shall be necessary), enter upon and examine the Mill I Property or any part
thereof (including all records directly related to the Mill I Property) at
reasonable times in compliance with and subject to Lessee's standard safety and
security procedures, in effect from time to time; provided, further, that if a
-------- -------
Default, an Event of Default or a Major Environmental Event has occurred and is
continuing or if the Lessee has exercised its option to terminate this Lease
pursuant to clause (ii) of paragraph 27(a), then the Lessee shall give the
Lessor Group such additional access to the Mill I Property and to the Lessee's
books and records relating to the management, operation, use, maintenance,
renovation, construction or occupancy of the Mill I Property as it may require
for any purpose, including, without limitation, for marketing, selling,
operating or otherwise disposing of the Mill I Property.
(c) The Lessor will not, and will not permit any party claiming by, through or
under the Lessor to assign, transfer, lease or convey the Mill I Property or
this Lease, or any part thereof or interest therein other than to the Collateral
Agent. The foregoing restriction will not apply to (i) removal of the Mill I
Alterations by the Lessee to the extent permitted under this Lease or (ii) any
assignment, transfer or conveyance of the Mill I Property or this Lease to the
Collateral Agent or as otherwise permitted under the Interparty Agreement or
under the Participation Agreement; provided that any such assignment,
-------- ----
3
<PAGE>
transfer or conveyance (prior to the Expiration Date or when an Event of Default
does not exist) is expressly subordinate to the rights of the Lessee under this
Lease and (y) subject to the rights of the Lessee to purchase the Mill I
Property pursuant to the Operative Documents.
(d) The Lessor, at the Lessee's sole cost and expense, shall cooperate or assist
with the Lessee's efforts to obtain all services, Permits and contracts
necessary and useful for the renovation and construction of the Mill I
Improvements and the acquisition, operation and maintenance of the Mill I
Property for the intended purposes thereof, and the Lessor may, and to the
extent required in paragraph 7(c) shall, execute such documents or papers as may
be reasonably necessary for such purposes. The Lessee further covenants that it
shall at its own cost and expense on behalf of and in the name of the Lessor,
apply for, obtain and maintain all Permits required in order to permit the
lawful ownership of the Mill I Property by the Lessor during the Term or the
Extended Term, as the case may be.
(e) Any failure by the Lessor or such other Person to comply with the foregoing
provisions of this paragraph 2 or any other provisions of this Lease shall not
give the Lessee any right to cancel or terminate this Lease, or to abate, reduce
or make deduction from or offset against any Fixed Rent, Additional Rent or
other sum payable under this Lease, or to fail to perform or observe any other
covenant, agreement or obligation hereunder.
(f) The Lessee shall, and it shall require and ensure that any and all
sublessees, employees, contractors, subcontractors, agents, representatives,
affiliates, consultants, occupants and any and all other Persons, subject to
paragraph 13, (i) comply with all applicable Environmental Laws, and (ii) use,
employ, process, emit, generate, store, handle, transport, dispose of and/or
arrange for the disposal of any and all Hazardous Materials in, on or, directly
or indirectly, related to or in connection with the Mill I Property or any part
thereof in a manner consistent with prudent industry practice and in compliance
with all applicable Environmental Laws, and in a manner which does not pose a
significant risk to human health, safety (including occupational health and
safety) or the environment. The Lessor and the Lessee hereby acknowledge and
agree that the Lessee's obligations hereunder with respect to Hazardous
Materials and Environmental Laws are intended to bind the Lessee with respect to
matters and conditions on, in, under, beneath, from, with respect to, affecting,
related to, in connection with, or involving the Mill I Property or any part
thereof.
4
<PAGE>
2A. Acquisition; Construction; Financing. (a) The Lessee has entered into the
------------------------------------
Agency Agreement with the Lessor pursuant to which the Lessee as Construction
Agent has agreed to complete the renovation and construction of such Mill I
Improvements as the Lessee, in its sole discretion, shall determine to construct
as contemplated by the Participation Agreement. The Mill I Improvements shall,
as the construction of same is completed upon the Mill I Parcel, become a part
of Mill I, and title thereto shall remain in the Lessor.
(b) In order to finance the acquisition by the Lessor of its leasehold interest
in the Mill I Parcel and its ownership interest in the balance of the Mill I
Property and to finance the cost of renovation and construction of the Mill I
Improvements, if any, the Note Holders, as contemplated by the Participation
Agreement, will advance to the Agent on behalf of the Lessor the Actual Project
Costs up to their respective Note Commitments, and in consideration therefor,
the Lessor will issue A-Notes and B-Notes to the Note Holders, and the Equity
Investors, as contemplated by the Participation Agreement, will make an Equity
Investment in the Mill I Property in an amount up to the Equity Investment
Amount.
3. Term. The Mill I Property is leased for an initial term (the "Term") which
---- ----
shall commence on the Financing Closing Date and shall terminate on January 30,
2002 (the "Expiration Date"), or such earlier date as this Lease shall be
---------------
terminated pursuant to any provision hereof; provided, however, this Lease may
-------- -------
be extended for an Extended Term pursuant to paragraph 27(d) hereof.
4. Rent. (a) During the Term (or the Extended Term, as applicable), the
----
Lessee shall pay to the Agent, on behalf of the Lessor, Fixed Rent on each
Payment Date in the amounts determined in accordance with Schedule B hereto and
Additional Rent (as defined below) in the amounts determined in accordance with
(and at the times required under) the Operative Documents.
(b) All amounts that the Lessee is required to pay to the Lessor pursuant to
this Lease (other than Fixed Rent), including, but not limited to, (i) unpaid
Charges and all amounts set forth in paragraph 4(e)(ii) hereof, (ii) all sums,
costs and expenses pursuant to paragraphs 23 and 26 hereof, (iii) all costs and
expenses relating to the Mill I Property or the Lessee's use or the Lessor's
ownership thereof (or leasehold interest therein), (iv) any and all amounts
payable upon transfer or purchase of (or otherwise relating to) the Mill I
Property, together with every fine, penalty, interest and cost that may be added
for non-payment or late payment thereof, and
5
<PAGE>
(v) all Additional Costs, shall constitute "Additional Rent". The Lessor shall
---------------
give the Lessee notice of any Additional Rent due hereunder promptly after it
has knowledge of such Additional Rent, and shall use reasonable efforts to
notify the Lessee in advance of the due date and amount of such Additional Rent;
provided that failure to give such prompt notice shall not relieve the Lessee of
its obligation to pay such Additional Rent, subject to, as applicable, the
Lessee's rights, if any, under paragraph 18 hereof. Additional Rent shall be
payable as provided for in Section II of Schedule B or as otherwise provided in
this Lease.
(c) The Lessee shall pay to the Lessor, on demand, interest at the Default Rate
on all amounts payable by it to the Lessor hereunder from the due date thereof
until paid in full.
(d) All amounts payable by the Lessee hereunder shall be paid in lawful money of
the United States of America and in immediately available funds by 11:00 a.m.
(New York City time) on the applicable Payment Date or on the date when due,
unless any such due date is not a Business Day, in which case payment shall be
due and payable on the next succeeding Business Day, at the Agent's address as
set forth in Schedule I to the Participation Agreement, or at such other address
or to such other person in the United States of America or in such other manner
as the Lessor from time to time may designate to the Lessee by written
instructions.
(e) The Lessee shall perform all of its obligations under this Lease at its sole
cost and expense and shall pay, when due and without notice or demand (except as
otherwise provided in this Lease), all amounts due hereunder, under Section 8.13
of the Participation Agreement, or under the other Operative Documents or
Securitization Documents. The Lessee agrees to pay on demand (i) all Charges
(subject to Lessee's rights pursuant to paragraphs 11 and 18) and (ii) all
indemnity obligations and all charges, reasonable fees, expenses and out-of-
pocket costs of the Lessor, Lessor's Special Counsel, the Note Holders, the
Equity Investors, the Collateral Agent and the Agent and other amounts, in
accordance with the Participation Agreement.
5. Net Lease; Non-Terminability. (a) This Lease is a net lease and, except
----------------------------
as otherwise expressly provided in this Lease, any present or future Law to the
contrary notwithstanding, shall not terminate, nor shall the Lessee be entitled
to any abatement, reduction, set-off, counterclaim, defense or deduction with
respect to any Fixed Rent, Additional Rent or other sum payable hereunder.
Except as otherwise expressly provided in this Lease, the obligations of the
Lessee shall not
6
<PAGE>
be affected by reason of: (i) any damage to or destruction of the Mill I
Property or any part thereof by any cause whatsoever (including, without
limitation, by fire, Casualty or act of God or enemy or any other force majeure
event); (ii) any Condemnation, including, without limitation, a temporary
Condemnation of the Mill I Property or any part thereof; (iii) any prohibition,
limitation, restriction or prevention of the Lessee's use, occupancy or
enjoyment of the Mill I Property or any part thereof by any Person; (iv) any
matter affecting title to the Mill I Property or any part thereof; (v) any
eviction of the Lessee from, or loss of possession by the Lessee of, the Mill I
Property or any part thereof, by reason of title paramount or otherwise; (vi)
any default by the Lessor hereunder or under any other Operative Document or
Securitization Document; (vii) the invalidity or unenforceability of any
provision hereof or in the other Operative Documents or the impossibility or
illegality of performance by the Lessor or the Lessee or both; (viii) any action
of any Federal, state or local governmental authority; or (ix) any other cause
or occurrence whatsoever, whether similar or dissimilar to the foregoing. The
parties intend that the obligations of the Lessee hereunder shall continue
unaffected unless such obligations shall have been modified or terminated
pursuant to an express provision of this Lease.
(b) The Lessee shall remain obligated under this Lease in accordance with its
terms and shall not take any action to terminate, rescind or avoid this Lease,
notwithstanding any bankruptcy, insolvency, reorganization, liquidation,
dissolution or other proceeding affecting the Lessor or any action with respect
to this Lease which may be taken by any trustee, receiver or liquidator or by
any court. Except as expressly permitted in this Lease, the Lessee waives all
rights to terminate or surrender this Lease, or to any abatement or deferment of
Fixed Rent, Additional Rent or other sums payable hereunder or under the other
Operative Documents. The Lessee shall remain obligated under this Lease in
accordance with its terms, and the Lessee hereby waives any and all rights now
or hereafter conferred by Law or otherwise to modify or to avoid strict
compliance with its obligations under this Lease. All payments made to or for
the benefit of the Lessor hereunder as required hereby shall be final, and the
Lessee shall not seek to recover any such payment or any part thereof for any
reason whatsoever, absent manifest error.
6. Taxes and Assessments; Compliance with Law; Certain Agreements.
--------------------------------------------------------------
(a) The Lessee shall pay or cause to be paid,
7
<PAGE>
subject to paragraph 18, all Property Charges before the same become delinquent.
If any Property Charge may legally be paid in installments, such Property Charge
may be so paid in installments; provided that, the Lessee shall pay all such
installments on or before the Expiration Date or earlier termination of this
Lease.
(b) Subject to paragraph 13, the Lessee shall, at the Lessee's sole expense,
comply, and cause the Mill I Property to comply, in all material respects, with
all Legal Requirements; provided, however, the Lessee shall not be obligated to
-------- -------
comply with any Legal Requirement whose application or validity is being
contested diligently and in good faith by appropriate proceedings (and provided
that the failure to comply with such Legal Requirements during such contest is
not reasonably likely to have a Material Adverse Effect). "Legal Requirements"
----- ------------
means (i) all Laws, foreseen or unforeseen, ordinary or extraordinary, or
arising from any restriction of record or otherwise, which now or at any time
hereafter may be applicable to the (A) Lessor, as holder of the leasehold estate
in the Mill I Parcel and the owner of the balance of the Mill I Property; (B)
the Lessee, as lessee hereunder; or (C) the Mill I Property or any part thereof,
or any of the adjoining sidewalks, or the ownership, construction, operation,
mortgaging, occupancy, possession, use, non-use or condition of the Mill I
Property or any part thereof and any other governmental rules, orders and
determinations now or hereafter enacted, made or issued, and applicable to the
Lessor, as lessee of the Mill I Parcel or as owner of the balance of the Mill I
Property, the Lessee, as lessee hereunder, or the Mill I Property or any part
thereof or the ownership, construction, operation, mortgaging, occupancy,
possession, use, non-use or condition thereof whether or not presently
contemplated; and (ii) all agreements (including, without limitation, all
Facility Agreements), Permits, covenants, and restrictions applicable to the
Mill I Property or any part thereof or the ownership, construction, operation,
mortgaging, occupancy, possession, use, non-use or condition thereof.
(c) The Lessee shall, and (unless a Default, an Event of Default or a
Major Environmental Event has occurred and is continuing and the Lessor has
revoked such authority) is hereby authorized by the Lessor to, fully and
promptly keep, observe, perform and satisfy, on behalf of the Lessor, any and
all obligations, conditions, covenants and restrictions of or on the Lessor
under the Ground Lease and any and all Facility Agreements so that there will be
no default thereunder and so
8
<PAGE>
that the other parties thereunder shall be and remain at all times obliged to
perform their obligations thereunder, and the Lessee, to the extent within its
control, shall not permit to exist any condition, event or fact that could allow
or serve as a basis or justification for any such Person to avoid such
performance.
7. Matters of Title. (a) The Lessee shall not create or permit to be created
----------------
or exist, and shall promptly remove and discharge, any Lien upon this Lease, the
Mill I Property or any other part thereof or interest therein, or upon any Fixed
Rent, Additional Rent or other sum paid hereunder, which Lien arises for any
reason, including, without limitation, any and all Liens which arise out of the
ownership, leasing, use, condition, occupancy, construction, possession, repair
or rebuilding of the Mill I Property or any part thereof (including, without
limitation, by reason of construction and start-up of the Mill I Improvements)
or by reason of labor or materials furnished or claimed to have been furnished
to the Lessee or for the Mill I Improvements or any part thereof, but excluding
Permitted Encumbrances and Liens created by the Operative Documents. Lessee's
obligation to remove any of the above-described Liens arising prior to the
termination of this Lease (or arising due to circumstances occurring prior to
the termination of this Lease) shall survive the termination of this Lease.
Nothing contained in this Lease shall be considered as constituting the consent
or request of the Lessor, express or implied, to or for the performance by any
contractor, laborer, materialman or vendor of any labor or services or for the
furnishing of any materials for any construction, alteration, addition, repair
or demolition of or to the Mill I Property or any part thereof. NOTICE IS HEREBY
GIVEN THAT THE LESSOR IS NOT AND SHALL NOT BE LIABLE FOR ANY LABOR, SERVICES OR
MATERIALS FURNISHED OR TO BE FURNISHED TO THE LESSEE, OR TO ANYONE HOLDING OR
POSSESSING THE MILL I PROPERTY OR ANY PART THEREOF THROUGH OR UNDER THE LESSEE,
AND THAT NO MECHANIC'S OR OTHER SIMILAR STATUTORY LIENS FOR ANY LABOR, SERVICES
OR MATERIALS SHALL ATTACH TO OR AFFECT THE LESSOR'S INTEREST OR ESTATE IN THE
MILL I PROPERTY OR ANY PART THEREOF.
(b) The Lessee hereby acknowledges that this Lease shall at all times be subject
and subordinate to the Mill I Mortgage. However, so long as no Event of Default
under this Lease shall have occurred and be continuing, in the event of a Lessor
Event of Default (as defined in the Interparty Agreement), the Collateral Agent
will not (i) take any action to disturb the Lessee's possession and occupancy of
the Mill I Property nor to
9
<PAGE>
diminish or interfere with any of the Lessee's rights and priveleges under this
Lease, and/or (ii) join the Lessee as a party defendant in any action or
proceeding for the purpose of terminating the Lessee's interest and estate under
this Lease.
(c) The Lessor agrees that the Lessee during the Term shall have the exclusive
right (so long as no Default, Event of Default or Major Environmental Event has
occurred and is continuing) to secure subdivision approvals, site plan
approvals, annexation or de-annexation approvals, zoning variances and Permits
necessary or desirable for the development, use, operation, maintenance or
condition of the Mill I Property or any part thereof; provided that the fair
--------
market value, marketability or use of the Mill I Property is not lessened by any
such action. The Lessor agrees to execute such documents and take all other
actions as shall be reasonably requested, and otherwise cooperate with the
Lessee, in connection with the matters described above; provided, however, that
-------- -------
all costs and expenses incurred by the Lessor in connection therewith shall be
borne by the Lessee and that the Lessor shall not be required to execute any
documents which would, in the reasonable opinion of the Agent or Lessor,
adversely affect the value, marketability or use of the Mill I Property or
otherwise adversely affect the transactions contemplated by the Operative
Documents or the interests of the Lessor, the Equity Investors or the Note
Holders.
8. [Intentionally Omitted.]
9. Maintenance and Repair; Inspection. (a) Subject to paragraph 12, the
----------------------------------
Lessee, at its own cost and expense, will manage and maintain the Mill I
Property in good mechanical condition and repair (ordinary wear and tear
excepted), in accordance with prudent industry practice and in a manner
consistent with that of other similar properties owned or operated by it or its
Affiliates similarly situated, and will take all action, and will make all
changes and repairs, structural and nonstructural, foreseen and unforeseen,
ordinary and extraordinary, which may be required to maintain the Mill I
Property in good mechanical condition and repair (ordinary wear and tear
excepted), in accordance with prudent industry practice, and in compliance with
all Legal Requirements (subject to paragraph 13) and Insurance Requirements at
any time in effect. The Lessee shall, in accordance with prudent industry
practice, repair or replace each item constituting Mill I and/or the Mill I
Improvements that shall have become worn out, damaged, inoperative or obsolete
in whole or in part; provided, however, that (i) the fair market value,
-------- -------
marketability or use of
10
<PAGE>
the Mill I Property shall not be lessened and (ii) such replacements shall be of
a type currently used in the industry for the same purpose and having a
remaining useful life at least as long as that of Mill I or the Mill I
Improvements (or any part thereof), as the case may be, repaired or replaced
(prior to obsolescence, loss or damage and the like). All repairs, replacements
and rebuilding by the Lessee hereunder, to the extent permitted by Law, shall
immediately become and shall remain part of the Mill I Property of the Lessor,
subject to this Lease. The Lessor shall not be required to, and Lessee hereby
waives any right to require the Lessor to, manage, maintain, replace, repair or
rebuild Mill I, the Mill I Improvements or any part thereof and the Lessee
waives any and all rights it may now or hereafter have to make any repairs at
the cost and expense of the Lessor pursuant to any Legal Requirement, Insurance
Requirement, or otherwise, at any time in effect.
(b) Except for Permitted Encumbrances, in the event that all or any part of Mill
I or the Mill I Improvements shall encroach upon any property or right-of-way
adjoining or adjacent to the Mill I Parcel or any part thereof, or shall violate
any agreements or conditions affecting the Mill I Property or any part thereof,
or shall obstruct any easement or right-of-way to which the Mill I Property or
any part thereof may be subject, then the Lessee shall, at its sole cost and
expense, either (i) contest such matter pursuant to paragraph 18 hereof, (ii)
obtain valid and effective Permits for or consents to such encroachments and/or
violations (without any liability to the Lessor, the Agent, the Equity Investors
or the Note Holders for which such parties are not indemnified by the Lessee) or
waivers or settlements of all claims, liabilities and damages resulting
therefrom, or (iii) make such changes, including alteration or removal, to Mill
I or the Mill I Improvements (as the case may be) and take such other action as
shall be reasonably necessary to rectify such encroachments, violations,
hindrances, obstructions or impairments, subject to the Lessor's consent if and
to the extent required by paragraph 10(a) hereof.
(c) Within 60 days after the end of the first three quarters of each fiscal year
and within 90 days after the end of the fourth fiscal quarter of each fiscal
year the Lessee shall give the Lessor and the Agent prompt written notice of any
mechanical problems which required non-scheduled shutdown of operations of Mill
I for fifteen (15) consecutive days or an aggregate of thirty (30) days during
the fiscal quarter just ended and shall state the specific reasons for such
shutdown.
11
<PAGE>
(d) The Lessor Group shall have the right (which may be delegated to its
consultants and authorized representatives) to inspect the Mill I Property and
records directly related to the operation of the Mill I Property and to discuss
such of the affairs, finances, and accounts as are relevant to the Operative
Documents with the officers of Lessee, in all cases, at reasonable times in
compliance with and subject to Lessee's reasonable security and safety
procedures, in effect from time to time. Any such inspection shall be made after
advance written notice to the Lessee is given; provided, however, that no
-------- -------
advance written notice need be given if any member of the Lessor Group, in its
sole discretion, has reason to believe that a Default, Event of Default or a
Major Environmental Event has occurred or other exigent or emergency conditions
exist; and provided further, that all such inspections upon the occurrence and
-------- -------
during the continuance of a Default, an Event of Default or a Major
Environmental Event shall be at the expense of the Lessee.
10. Mill I Alterations; Removal. (a) At any time, so long as no Default,
---------------------------
Major Environmental Event or Event of Default shall have occurred and be
continuing, the Lessee may, at its own cost and expense, make Mill I Alterations
to the Mill I Property or any part thereof; provided, however, that (i) the fair
-------- -------
market value of the Mill I Property shall not be lessened by such Mill I
Alterations; (ii) such Mill I Alterations shall not diminish the capacity,
utility, efficiency, or remaining useful life of the Mill I Property or any part
thereof; and (iii) such work shall be completed in a good and workmanlike manner
free and clear of any Liens for labor, services or materials (other than
Permitted Encumbrances) and in compliance with all applicable Legal Requirements
and Insurance Requirements. "Mill I Alterations" means any and all additions to,
------------------
alterations of or replacements for the Mill I Property or any part thereof made
by or for the Lessee, at the cost and expense of the Lessee, excluding Mill I
Improvements and any replacements installed as part of scheduled maintenance
procedures.
(b) Title to all Mill I Alterations shall vest in the Lessor (free and clear of
all Liens, except Permitted Encumbrances) subject to the right of Lessee to
remove such Mill I Alterations as provided hereunder. Upon any removal of the
Mill I Alterations permitted hereunder, the Lessor (at the expense of the
Lessee) shall execute and deliver to the Lessee such instruments and releases as
are reasonably required to transfer the Mill I Alterations to the Lessee
pursuant to instruments in each case containing no representation or warranty
(expressed or
12
<PAGE>
implied) except that such Mill I Alterations are free and clear of any Lien
created under the Operative Documents or any Lessor Lien.
(c) So long as no Default, Major Environmental Event or Event of Default shall
have occurred and be continuing, the Lessee shall be permitted at any time
during, or upon the expiration or termination of, the Term or the Extended Term
as applicable, and at its sole cost and expense, to remove or demolish any Mill
I Alterations in accordance with prudent industry practices; provided, however,
-------- -------
that, such removal shall not (i) impair the intended use or reduce the fair
market value of the Mill I Property or any part thereof below its fair market
value at the commencement of the Term; (ii) diminish the capacity, efficiency,
utility or remaining useful life of the Mill I Property or any part thereof
below the capacity, efficiency, utility or remaining useful life as of the
commencement of the Term; or (iii) cause a violation of any Legal Requirement or
Insurance Requirement or significantly increase any risk of liability under any
Environmental Law or any risk to human health or the environment. Any damage to
the Mill I Property or any part thereof caused by such removal shall promptly be
repaired by the Lessee and the Mill I Property (and each and every part thereof)
shall be restored to its condition (or the reasonable equivalent thereof) as it
existed immediately prior to the construction of such removed Mill I
Alterations, at the Lessee's sole cost and expense. The Lessee may place upon
the Mill I Parcel or any part thereof any inventory, fixtures, machinery,
equipment or other property belonging to the Lessee or third parties and remove
the same at any time during the Term or the Extended Term, as applicable (to the
extent the same are not nor become an integral part of the Mill I Property and
so long as no Default, Event of Default or Major Environmental Event shall have
occurred and be continuing), and Lessee may (to the extent the same are not or
do not become an integral part of the Mill I Property and so long as no Default,
Event of Default or Major Environmental Event shall have occurred and be
continuing), and at the request of the Lessor shall, remove the same at the
expiration or termination hereof unless the Lessee shall have paid the Offer
Purchase Price and purchased the Mill I Property pursuant to the terms of this
Lease; provided that any damage to the Mill I Property or any part thereof
--------
caused by such removal shall promptly be repaired by the Lessee, and the Mill I
Property (and each and every part thereof) restored to its condition (or the
reasonable equivalent thereof) as it existed immediately prior to the placement
of any such
13
<PAGE>
property upon the Mill I Parcel, all at the Lessee's sole cost and expense.
(d) Not less than 30 days before the beginning of each calendar year, the Lessee
shall provide the Lessor and the Agent with a report of the Lessee's capital
spending plans for the ensuing calendar year for Mill I Alterations and
supporting details describing any single capital expenditure for a Mill I
Alteration in excess of $5 million. Such report shall be accompanied by a
certification from the Lessee to the effect that all such planned Mill I
Alterations will comply with the standards set forth in paragraph 10(a).
11. Lessee's Right to Contest Real Property Taxes. The Lessee, at its own cost
---------------------------------------------
and expense and in compliance with paragraph 18, shall have the sole right, at
any time, to seek, in good faith, a reduction in the assessed valuation of the
Mill I Property or any part thereof or to contest, in good faith, any real or
personal property taxes for the Mill I Property or any part thereof. The Lessor
shall not be required to join in any proceeding or contest brought by the Lessee
unless the provisions of any Legal Requirement require that the proceeding or
contest be brought by or in the name of the owner of the Mill I Property. In
that case the Lessor shall join in the proceeding or contest or permit it to be
brought in the Lessor's name as long as the Lessee reimburses the Lessor for any
and all costs and expenses incurred by the Lessor in connection therewith. The
Lessee, on a final non-appealable determination of the proceeding or contest,
shall immediately pay, discharge and satisfy any decision or judgment rendered,
together with all costs, interest and penalties incidental to the decision or
judgment.
12. Condemnation and Casualty. (a) General. The Lessee hereby irrevocably
------------------------- -------
assigns to the Lessor any award or compensation or insurance payment or other
proceeds to which the Lessee may become entitled by reason of its interest in
the Mill I Property or any part thereof (other than proceeds from business
interruption insurance) if (i) the Mill I Property or any part thereof is
damaged or destroyed by fire or other casualty (each, a "Casualty") or (ii)
--------
the use, occupancy or title of the Mill I Property or any part thereof is taken
or requisitioned or sold in, or on account of any actual or threatened
condemnation or eminent domain proceedings, or other action by any Person having
the power of eminent domain or condemnation (each, a "Condemnation"); provided,
------------ --------
however, that the Lessee shall be entitled to any proceeds as a result of any
- -------
Condemnation or Casualty affecting the Mill I Alterations to the
14
<PAGE>
extent that the Lessee would otherwise be entitled to remove such Mill I
Alterations pursuant to paragraph 10(c); and provided, further, that the Lessee
-------- -------
shall be entitled to any proceeds as a result of any Condemnation or Casualty
for which the award, compensation, insurance payment, or other proceeds to which
the Lessee may be entitled does not exceed $100,000 (the "Excluded Proceeds").
-----------------
The Lessee shall promptly notify the Lessor in writing of any such Casualty or
Condemnation and shall appear in any proceeding or action to defend, negotiate,
prosecute or adjust any claim for any award or compensation or insurance payment
on account of any Casualty or Condemnation and shall take all appropriate action
in connection with any Casualty or Condemnation, including the employment of
counsel reasonably satisfactory to the Lessor. The Lessor shall have the right
to appear and participate and to employ counsel in any such proceeding or
action, and the fees and expenses of such counsel shall be paid by the Lessee.
If the Lessee shall elect not to appear or shall fail to prosecute diligently,
the Lessor may assume the prosecution thereof and the Lessee shall pay all of
the costs and expenses of the Lessor (including, but not limited to, fees and
expenses of Lessor's Special Counsel) and the fees and expenses of Special
Counsel. No settlement of any such proceeding or action shall be made by the
Lessee or the Lessor without the written consent of the other party hereto,
which consent shall not unreasonably be withheld, conditioned or delayed.
Any and all amounts in excess of the self insured retention limits hereunder
representing proceeds (other than proceeds from business interruption insurance,
proceeds with respect to Mill I Alterations permitted to be removed pursuant to
paragraph 10(c) and Excluded Proceeds) paid in connection with any such
Condemnation or Casualty, as the case may be (collectively, the "Proceeds"),
--------
shall be paid over to the Proceeds Trustee (as defined below) to be held in
trust by such Proceeds Trustee and distributed pursuant to this paragraph 12 and
paragraph 15 hereof or pursuant to the Interparty Agreement, as appropriate (all
such Proceeds, less the costs and expenses incurred by the Lessor and the Lessee
in collecting such amounts, but including any reimbursement by the Lessee for
costs and expenses in connection therewith to which the Lessor, the Equity
Investors and the Note Holders are entitled pursuant to the Operative Documents,
are the "Net Proceeds"). Any and all Proceeds received by the Lessee in
------------
connection with any such proceeding or action shall be paid over to the Lessor,
shall be segregated
15
<PAGE>
from other funds of the Lessor and shall be forthwith paid over to the Proceeds
Trustee. The Lessee agrees that this Lease shall control the rights of the
Lessor and the Lessee in any such Proceeds, and any present or future Law to the
contrary is hereby waived. Any and all reasonable charges, fees and expenses of
the Proceeds Trustee shall be paid from the Net Proceeds. "Proceeds Trustee"
----------------
shall mean the Agent or such title company or other independent bank or trust
company as may be designated by the Lessor.
16
<PAGE>
(b) Condemnation or Casualty with Termination.
-----------------------------------------
(i) Within ten (10) days after the amount of the Proceeds to be paid
to the Lessee or the Proceeds Trustee is determined, the Lessee shall decide
whether the Lessee shall rebuild, replace and repair the damage to the Mill I
Property; provided, however, that the Lessee shall not be obligated to rebuild
-------- -------
any Mill I Alterations to the extent that the Lessee would otherwise have been
entitled to remove such Mill I Alterations pursuant to paragraph 10(c). If the
Lessee decides not to rebuild, replace and repair the damage to the Mill I
Property, the Lessee shall, within such ten (10) day period, deliver to the
Lessor an Offer to Purchase in accordance with paragraphs 14 and 15 hereof.
Prior to the Closing Date, the Lessee shall continue to pay all Fixed Rent,
Additional Rent and all other amounts due hereunder.
(ii) If a Casualty or Condemnation occurs during the Term (or the
Extended Term, as applicable) and the Lessor has received an opinion, which
shall be at the Lessee's sole cost and expense, of the Independent Engineer to
the effect that the restoration of the Mill I Property could not be expected to
restore and rebuild the Mill I Property to its previous capacity, efficiency and
remaining useful life or such restoration and rebuilding could not be expected
to be completed in full prior to the Expiration Date or that the cost of such
restoration or rebuilding would exceed 25% of the fair market value of the Mill
I Property immediately prior to such Casualty or Condemnation, then the Lessor
may, in its sole discretion, deliver a notice ("Lessor Termination Notice")
-------------------------
declaring Lessor's intention to terminate this Lease and the Lessee shall be
deemed to have delivered to the Lessor as of the date of the Lessor Termination
Notice an Offer to Purchase in accordance with paragraphs 14 and 15 hereof.
(c) Condemnation or Casualty Without Termination. If, after a
--------------------------------------------
Casualty or Condemnation, the Lessee has not given an Offer to Purchase and
Lessor has not given a Lessor Termination Notice in accordance with paragraph
12(b), then this Lease shall continue in full force and effect, and the Lessee
shall, at its sole cost and expense, promptly commence and diligently pursue to
completion the rebuilding, replacement or repair of any damage to the Mill I
Parcel, Mill I and the Mill I Improvements caused by such event in conformity
with the requirements of paragraph 9 or 10, as applicable, in order to restore
the Mill I Parcel, Mill I and the Mill I Improvements (in the case of a
Condemnation, as nearly as practicable) to the value and operating condition
thereof immediately prior to such event. In connection with such restoration
the Lessee shall, before beginning such restoration, submit plans and
specifications for such restoration, together with an estimate of the cost
thereof, and all necessary construction contracts therefor for the Lessor's and
the Independent Engineer's approval, which will not be unreasonably withheld,
conditioned or delayed; provided that (i) the capacity, efficiency and utility
--------
of the Mill I Parcel, Mill I and the Mill I Improvements shall not, after such
restoration, be less than the capacity, efficiency and utility prior to such
Casualty or
17
<PAGE>
Condemnation; (ii) the fair market value of the Mill I Parcel, Mill I and the
Mill I Improvements shall not, after such restoration, be less than its fair
market value prior to such Casualty or Condemnation; and (iii) if the estimated
cost to complete such restoration exceeds the amount of Net Proceeds, the Lessor
is, in its sole judgment, satisfied that the Lessee shall have sufficient funds
(the "Excess Funds") available to pay such excess, which Excess Funds shall be
------------
deposited by the Lessee with the Proceeds Trustee and distributed to the Lessee
as hereinafter provided. If the conditions set forth in the foregoing proviso
are not satisfied, the Lessee shall be deemed to have made an Offer to Purchase.
Such work shall be completed in a good and workmanlike manner free and clear of
all Liens for labor, services or materials (except Permitted Encumbrances) and
in compliance with all applicable Legal Requirements and Insurance Requirements.
Upon completion of such work, the Lessee shall cause the Independent Engineer to
deliver a certificate to the effect that final completion of the work has
occurred and that the operating condition of the Mill I Property, after taking
into consideration the restoration, is equivalent to, or better than, the
operating condition that existed immediately prior to the Casualty or
Condemnation assuming compliance with paragraph 9 hereof. All fees and expenses
of the Independent Engineer in connection with any rebuilding and restoration
shall be at the Lessee's sole cost and expense.
The Lessee shall be entitled to receive payment from the Net Proceeds
or the Excess Funds, as the case may be, from time to time as such work of
rebuilding, replacement or repair progresses, but only after presentation of
certificates of the Independent Engineer, delivered by the Lessee to the
Proceeds Trustee (with a copy to the Lessor) from time to time as such work of
rebuilding, replacement or repair progresses. Each such certificate of the
Independent Engineer shall describe the work for which the Lessee is requesting
permission to pay or requesting payment and the cost incurred by the Lessee in
connection therewith and shall state that such work has been properly completed
and that the Lessee has not theretofore received payment for such work, and
shall be accompanied by (i) an Officer's Certificate of the Lessee certifying
that no Default, Event of Default or Major Environmental Event has occurred and
is continuing and that the Net Proceeds and Excess Funds held by the Proceeds
Trustee are adequate to complete such rebuilding, replacement or repair in
accordance with this paragraph 12(c), and (ii) duly executed Lien waivers
executed by each materialman or mechanic furnishing materials or labor for which
the Lessee is requesting permission to pay or requesting payment. The Proceeds
Trustee shall deliver, or cause to be
18
<PAGE>
delivered, payment within five (5) Business Days after its receipt of the
certificates required above. In connection with such payments, the Proceeds
Trustee shall first apply the Excess Funds to the cost of such restoration prior
to the disbursement of any Net Proceeds by the Proceeds Trustee for such
purpose. Upon receipt by the Proceeds Trustee (with a copy to the Lessor) of an
Officer's Certificate from the Lessee, to the effect that final payment has been
made for any such work and stating that the rebuilding, replacement or repair
has been completed in compliance with the terms and conditions of this Lease,
the remaining amount of such Net Proceeds shall be paid to the Lessee. The
Lessee shall be responsible for the cost of any such repair, rebuilding or
restoration in excess of such Net Proceeds and Excess Funds, for which cost the
Lessee shall make adequate provision acceptable to the Lessor.
(d) Temporary Condemnation or Lease Termination. Notwithstanding any
-------------------------------------------
provision to the contrary contained in this paragraph 12, in the event of any
temporary Condemnation this Lease shall remain in full force and effect, and
provided no Default, Event of Default or Major Environmental Event has occurred
and is continuing, the Lessee shall be entitled to receive the Net Proceeds
allocable to such temporary Condemnation, except that if this Lease shall expire
or terminate during such temporary Condemnation, then the Lessee shall be
entitled to the Net Proceeds allocable to the period after the termination or
expiration of this Lease only if it has paid the Offer Purchase Price for the
Mill I Property.
13. Environmental Event. (a) The Lessee shall promptly, but in any
-------------------
case within five (5) Business Days after discovery thereof, notify the Lessor,
the Agent, the Collateral Agent, the Equity Investors and the Note Holders of
the occurrence of a Reportable Environmental Event. For purposes hereof, an
"Environmental Event" shall mean (i) any environmental event, occurrence, or
- --------------------
condition in, on, beneath, from or involving the Mill I Property or any part
thereof (including, but not limited to, the presence, emission or release of
Hazardous Materials in violation of any Environmental Law or the violation of
any applicable Environmental Law) that could reasonably be expected to result in
any ordered remediation or corrective action required by Environmental Laws, or
other liability under Environmental Laws, or that poses a significant risk to
human health or the environment or (ii) the receipt by the Lessee of
notification that the Lessee, the Lessor, the Mill I Property or any part
thereof is the subject of an Environmental Action in
19
<PAGE>
connection with the Mill I Property that could reasonably be expected to result
in any ordered remediation or corrective action required by Environmental Laws
or other liability under Environmental Laws; provided, however, that as of the
date hereof none of the matters described on Schedule C hereto shall be deemed
an Environmental Event. For purposes hereof, a "Reportable Environmental Event"
------------------------------
shall mean an Environmental Event with respect to which the Remediation Costs
could reasonably be expected to exceed $1 million, or, when added to the
remaining Remediation Costs for all other then existing Environmental Events,
could reasonably be expected to exceed $5 million. For purposes hereof,
"Remediation Costs" include, but are not limited to, losses, fines, damages,
-----------------
civil or criminal penalties, judgments, costs and expenses (including reasonable
fees and expenses of legal counsel and consultants) incurred within a ten year
period commencing with the discovery of the Environmental Event, and arising
from activities to clean-up, remove, treat or in any other way respond to an
Environmental Event as required by Environmental Laws or as may be necessary to
avoid creating a significant risk to human health or the environment and any
other damages related thereto.
(b) If following the receipt of a notice of a Reportable
Environmental Event pursuant to paragraph 13(a), the Lessor, the Agent, or the
Holders of the Majority Interests, each in its or their sole discretion,
determines that the Remediation Costs for each Reportable Environmental Event,
alone or when combined with the remaining Remediation Costs for all other then
existing Environmental Events, could reasonably be expected to exceed $25
million, the Lessor, the Agent, the Collateral Agent or the Holders of the
Majority Interests may, at the expense of the Lessee, cause the Environmental
Consultant to conduct an environmental audit of the affected portions of the
Mill I Property and report the results of such audit to the Lessor, the Agent,
the Equity Investors, the Note Holders and the Lessee. If the Environmental
Consultant determines that the remaining Remediation Costs for all then existing
Environmental Events could reasonably be expected to exceed $25 million (an
"Environmental Trigger") but could not reasonably be expected to exceed $50
---------------------
million, the Lessee shall proceed diligently to prosecute the remediation or
cure of such Environmental Event that gave rise to the Environmental Trigger
prior to the expiration of a period of 120 days following the discovery of such
Environmental Event (the "Initial Cure Period"). If,
--------------------
20
<PAGE>
however, such Environmental Event is not capable of being fully remediated or
cured within the Initial Cure Period, despite diligent efforts by the Lessee,
the Initial Cure Period shall be extended at the written request of the Lessee
as to such Environmental Event (i) for so long as the Lessee is proceeding
diligently to remediate in full or cure such Environmental Event and, in the
opinion of the Environmental Consultant the remaining Remediation Costs for all
then existing Environmental Events could not reasonably be expected to exceed
$50 million and (ii) for so long as the Guarantor's senior unsecured long-term
debt is rated at least Baa3 by Moody's or BBB- by S&P or, if not rated by
Moody's or S&P, has an implied rating of at least BBB- by S&P.
(c) If, in the opinion of the Environmental Consultant, the remaining
Remediation Costs for the Environmental Events contributing to the Environmental
Trigger could reasonably be expected to exceed $50 million (a "Major
-----
Environmental Event") but could not reasonably be expected to exceed $100
- -------------------
million, and the Environmental Event that gave rise to such Major Environmental
Event is not capable of being fully remediated or cured within the Initial Cure
Period, the Initial Cure Period shall be extended at the written request of the
Lessee as to such Environmental Event for so long as the Lessee is proceeding
diligently to remediate in full or cure such Environmental Event and all of the
following conditions are satisfied:
(i) As promptly as reasonably practicable and in any event not
less than thirty (30) days prior to the end of the Initial Cure Period, the
Lessee shall have submitted to the Agent (a) a copy of its plan of remediation,
containing time and cost budgets and other supporting information, and (b) a
copy of its written request for an extension specifying the date to which such
extension is requested.
(ii) The Lessor shall have received a report from the
Environmental Consultant to the effect that the Environmental Consultant has
reviewed the Lessee's plan of remediation and has found such plan to be in
accordance with applicable Environmental Laws, consistent with prudent practices
of the industry, and otherwise acceptable. The Lessor shall direct the
Environmental Consultant to complete and submit such report before the end of
the Initial Cure Period. If such report has not been completed as of the end of
the Initial Cure Period, the cure period shall be deemed extended pending
completion of such report, except to the extent that failure to submit such
report on a timely basis is due in part or in whole to the failure or
unreasonable delay of Lessee to provide cooperation and/or information
reasonably required to complete such report.
(iii) The Lessee shall have delivered to the Lessor an
irrevocable and unconditional direct pay letter of credit, having a term
coterminous with the Term (or Extended Term, as applicable), issued by a
commercial bank organized under the laws of the United States or any political
subdivision thereof having a combined capital and surplus of at least $500
million and having long-term unsecured debt
21
<PAGE>
securities then rated "A" or better by S&P and "A2" or better by Moody's and in
an amount equal to 125% of the amount by which the remaining Remediation Costs
for such Environmental Event as estimated by the Environmental Consultant are
reasonably expected to exceed $50 million. Such letter of credit shall be
increased or decreased from time to time, but not less frequently than annually,
by an amount equal to 125% of any increases or decreases in the remaining
Remediation Costs as estimated by the Environmental Consultant. Such letter of
credit shall provide that drawings may be made thereon by the Lessor upon
certification by the Lessor to the issuer that an Event of Default has occurred
and is continuing or the Term (or Extended Term as applicable) has expired and
the Lessee has failed to purchase the Mill I Property in accordance with the
terms of this Lease.
(iv) The senior unsecured long-term debt of the Guarantor shall
at all times be rated at least Baa3 by Moody's or BBB- or better by S&P or, if
not rated by Moody's or S&P, has an implied rating of at least BBB- by S&P.
(v) (a) The Lessor shall have received a legal opinion
acceptable to Lessor (from counsel selected by the Lessor and the Agent and
acceptable to the Lessee) to the effect that the Lessee has obtained all permits
necessary to remediate the Environmental Event, or, to the extent such permits
are not then required, such counsel has no reason to believe that such required
permits cannot be obtained at such time as required, as well as other legal
matters reasonably requested by the Lessor. (b) The Lessor and the Agent shall
also have received a legal opinion acceptable to Lessor and the Agent (from
counsel selected by the Lessor and the Agent and acceptable to the Lessee)
addressing any change in Law after the Financing Closing Date regarding the
scope of protection from liability for Remediation Costs afforded to the Lessor
and the Agent under Environmental Laws. Without prejudice to the rights of the
Agent or the Holders of the Majority Interests under paragraph 13(d) of this
Lease, to the extent such opinion is not satisfactory to the Lessor (because of
a change of law or a change in interpretation thereof) the Lessee shall have the
right to find a replacement Lessor within 30 days after the Lessor notifies the
Lessee that such opinion is unsatisfactory to the Lessor. Upon replacement of
the Lessor hereunder, the Lessor (for the benefit of the Equity Investors) shall
receive in immediately available funds from its assignee an amount equal to the
stated amount of the Equity Investment then outstanding, accrued and unpaid
Distributions thereon to the date of payment and all other amounts due and
payable to the Lessor and each Equity Investor under the Operative Documents.
(c) Such legal counsel shall be directed by the Lessor to complete and submit
such opinions before the end of the Initial Cure Period. If such opinions are
not completed before the end of the Initial Cure Period, the cure period shall
be deemed extended pending completion of such opinions except to the extent that
failure to submit such opinions on a timely basis is due in part or in whole to
the failure of Lessee to timely provide available information reasonably
required to complete such opinions.
(vi) The Lessee shall deliver to the Lessor and the Agent monthly
progress reports during the Initial Cure Period, and quarterly progress reports
every three months thereafter, with respect to such curative actions or
remediation, including a status report on the Remediation Costs incurred and the
estimated remaining Remediation Costs, in form and substance satisfactory to the
Lessor and the Agent.
(vii) The Lessor and the Agent shall receive a report every three
months after the end of the Initial Cure Period from the Environmental
Consultant to the effect that the Lessee is complying with the remediation plan
in all material respects and with all Environmental Laws applicable to the
Environmental Event.
(viii) Upon completion of the remediation plan, the Lessor, the
Agent and the Collateral Agent shall receive a report from the Environmental
Consultant to the effect that the Lessee has
22
<PAGE>
fully implemented the plan and is in compliance with all Environmental Laws
applicable to the Environmental Event.
(d) If an Environmental Event has occurred that results in an
Environmental Trigger or a Major Environmental Event and the Environmental Event
cannot be cured through a Permitted Remediation or if the Lessee fails to
satisfy any of the requirements in the last sentence of paragraph 13(b) or any
of the applicable conditions in paragraph 13(c) (an "Environmental Default"),
---------------------
the Lessor, the Agent, or the Holders of the Majority Interests shall have the
option, each in its or their sole discretion, to require the Lessee to purchase
the Mill I Property for the Offer Purchase Price by giving written notice to the
Lessor, and the Lessee shall then be deemed to have delivered to the Lessor, as
of the date of receipt of such notice, an Offer to Purchase in accordance with
paragraphs 14 and 15. A "Permitted Remediation" means any remediation of an
---------------------
Environmental Event undertaken by the Lessee in compliance with the requirements
of this paragraph 13, the remaining Remediation Costs of which, when combined
with the remaining Remediation Costs of all other Environmental Events then
existing, are not reasonably expected to exceed $100 million, which is permitted
and effected, at the cost of the Lessee, in compliance with all applicable
Environmental Laws.
(e) Irrespective of whether a Major Environmental Event or an
Environmental Trigger has occurred, the Lessee shall immediately initiate, and
diligently pursue at its sole cost and expense, such actions as may be necessary
to comply in all respects with all applicable Environmental Laws and to
alleviate any significant risk to human health or the environment if the same
arises from a condition on or in respect of the Mill I Property or any part
thereof, whether existing prior to, on or after the date of this Lease. Once
the Lessee commences such actions, the Lessee shall thereafter diligently and
expeditiously proceed to comply in a timely manner with all Environmental Laws
and to eliminate any significant risk to human health or the environment and
shall, at the reasonable request of the Lessor or the Agent, give periodic
progress reports on its compliance efforts and actions.
(f) In connection with the formulation and implementation of any
remediation plan, or the evaluation or review thereof, the Lessor, the Agent,
the Note Holders, the Equity Investors,
23
<PAGE>
the Environmental Consultant, and their respective agents and legal counsel
shall not communicate with regulatory authorities without the prior written
consent of the Lessee unless an Environmental Trigger shall have occurred and be
continuing. If any Environmental Trigger shall have occurred and be continuing,
the Lessor, the Agent, the Note Holders, the Equity Investor, the Environmental
Consultant and their respective agents and legal counsel shall first provide an
opportunity to the Lessee to participate in such communications, except to the
extent that such communications are required by Law.
(g) A Major Environmental Event shall not be deemed to be continuing
after the date upon which the remaining Remediation Costs from the Environmental
Event that gave rise to such Major Environmental Event, when combined with the
remaining Remediation Costs for all other Environmental Events contributing to
such Major Environmental Event, could no longer reasonably be expected to exceed
$50 million. An Environmental Trigger shall not be deemed to be continuing
after the date upon which the remaining Remediation Costs for the Environmental
Event that gave rise to such Environmental Trigger, when combined with the
remaining Remediation Costs for all other Environmental Events contributing to
such Environmental Trigger, could no longer reasonably be expected to exceed $25
million.
14. Offer to Purchase. (a) At any time during the Term (or the
-----------------
Extended Term, as applicable), Lessee may (unless otherwise required to do so,
in which case it shall) deliver to the Lessor and the Agent an irrevocable
written offer to purchase the Mill I Property in its entirety (an "Offer to
--------
Purchase") at least 20 days in advance of the Closing Date upon and subject to
- --------
the applicable terms of this Lease.
(b) Any Offer to Purchase delivered or deemed to be delivered by the Lessee
hereunder shall, notwithstanding anything to the contrary set forth therein, be
irrevocable and unconditional and shall set forth the Closing Date and
Termination Value to be paid by Lessee.
(c) The Lessor shall be deemed to have accepted such Offer to Purchase the Mill
I Property on the date the Lessor receives the same. The procedure for the
purchase of the Mill I Property and the purchase price therefor shall be
governed by paragraph 15 hereof.
15. Procedure Upon Purchase. (a) The date of the closing of the Lessee's (or
-----------------------
its designee's) purchase of the Mill I Property (the "Closing Date") shall be
------------
(i) on the Expiration Date pursuant to paragraph 27 hereof, or (ii) if the
Lessee shall deliver (or shall be deemed to have delivered) an Offer to
24
<PAGE>
Purchase pursuant to paragraph 14(a) hereof, on the next scheduled Payment Date
following the date of Lessor's acceptance or deemed acceptance of such Offer to
Purchase, or (iii) if the Lessee shall deliver (or be deemed to have delivered)
an Offer to Purchase pursuant to paragraphs 12(b), 12(c) or 13(d), on the
fifteenth day following the date of Lessor's acceptance or deemed acceptance of
such Offer to Purchase, or (iv) if the Lessee shall pay the Offer Purchase Price
pursuant to paragraph 19(h), on the date of the Lessor's receipt of the Offer
Purchase Price. On the Closing Date, upon receipt by the Agent of the Offer
Purchase Price, the Lessor shall convey, or cause to be conveyed, the Mill I
Property (or, in the case of Casualty or Condemnation, the remaining portion
thereof) to the Lessee or its designee by an appropriate recordable assignment
of the leasehold interest in the Mill I Parcel, limited warranty deed and bill
of sale to Mill I, the Mill I Improvements and the Mill I Alterations and
assignment of the Facility Agreements (other than the rights of the Lessor to
any indemnities thereunder), in each case containing no representation or
warranty (expressed or implied) except that the Mill I Property is free and
clear of Lessor Liens.
(b) On the Closing Date, the Lessee shall pay, or cause to be paid, to the
Agent (on behalf of the Lessor) the Termination Value for the Mill I Property,
as specified in the Offer to Purchase related thereto, and all Fixed Rent,
Additional Rent and other sums then due and payable hereunder and under the
other Operative Documents relating to the Mill I Property up to and including
such Closing Date (such amounts, plus all Closing Costs, are herein referred to
as the "Offer Purchase Price"), and the Lessor shall simultaneously (i) deliver
--------------------
to the Lessee or its designee the instruments referred to in paragraph 15(a)
above with respect to the Mill I Property and any other instruments reasonably
necessary to assign and convey to the Lessee or its designee the Mill I Property
and assign all Facility Agreements related to the Mill I Property (other than
any rights of the Lessor to any indemnities thereunder) and any other related
property then required to be assigned pursuant hereto, and (ii) convey, or cause
to be conveyed, to the Lessee or its designee any Net Proceeds related to the
Mill I Property and/or the right to receive the same. Additionally, on the
Closing Date, upon receipt of the Termination Value, Lessor and the Collateral
Agent shall execute the releases and take the other actions described in Section
8.23(b) of the Participation Agreement.
(c) Upon the completion of any purchase of the Mill I Property pursuant to this
paragraph 15, but not prior thereto, this Lease shall terminate except with
respect to obligations and liabilities of the Lessee, actual or contingent,
which have arisen with respect to the Mill I Property or under the Operative
Documents on or prior to such date of purchase, and except as elsewhere
expressly provided herein or in the other Operative Documents.
25
<PAGE>
(d) Notwithstanding any provisions of this Lease or the Participation
Agreement to the contrary, the Lessee shall not be required to acquire title to
the Mill I Property until such time that all necessary filings and notifications
under the HSR Act or any similar Law shall have been made (including any filing
or provision of required additional information or documents) and the waiting
period referred to in the HSR Act applicable to such purchase shall have expired
or been terminated (without any objection or prohibition of such purchase). The
Lessee hereby covenants to use its best efforts to secure the prompt termination
of such waiting period without objection or prohibition. Notwithstanding the
foregoing, if the Lessee is precluded from acquiring the Mill I Property or any
part thereof pursuant to the HSR Act or any similar Law, the Lessee shall pay
the Termination Value attributable to the Mill I Property within the time and in
the manner described in this paragraph 15 as a consequence of the Lessee's
exercise or deemed exercise of its purchase option hereunder. However, if the
Lessee pays the Termination Value in compliance with the preceding sentence,
then Lessee shall be entitled to continue to lease the Mill I Property for an
additional rental payment of $1 per annum under the terms and provisions of this
Lease for an extended term expiring on the earlier to occur of (i) three (3)
years from the date the Lessee delivers (or is deemed to have delivered) the
Offer to Purchase or (ii) that date that the Lessee is no longer precluded from
purchasing the Mill I Property pursuant to the HSR Act or any similar Law. If
Lessee does not purchase the Mill I Property prior to the expiration of such
extended term, then Lessor shall thereafter sell the Mill I Property and
distribute the proceeds from such sale in accordance with the Interparty
Agreement. If, prior to the voluntary exercise by the Lessee of the purchase
options hereunder, the Lessee is unable to obtain a ruling that a filing under
the HSR Act or any similar Law is not required in order to consummate such
purchase, then the Lessor shall execute such conditional sales contracts and
other documents necessary to permit the Lessee to complete such filing before
irrevocably exercising its purchase option. As a condition to executing such
conditional sales contracts and other documents, the Lessee shall deliver to the
Lessor an agreement obligating the Lessee to fully indemnify the Lessor from all
liabilities, damages, costs and expenses arising from the execution of such
documents and the completion of such filing.
16. Insurance. (a) The Lessee (or the Guarantor in lieu of the Lessee) will
---------
purchase and maintain, or cause to be purchased and maintained, insurance with
respect to the Mill I Property of the following types and in the following
amounts (or in such greater amounts as may become necessary from time to time to
prevent the Lessor, the Lessee, the Collateral Agent, the Equity Investors, CXC,
CXC'S Credit Enhancer, the Agent and the Note Holders from becoming co-insurers
of any loss), and in no event in amounts less than those maintained by the
Lessee or its Affiliates for other similar facilities owned and/or operated by
them:
(i) Property Insurance: Insurance against physical damage to the
------------------
Mill I Property (with sublimits and deductibles as are acceptable to Lessor and
with a maximum self-insured retention allowable of $5 million) caused by perils
now or hereafter embraced by or defined in an "all risks" insurance policy,
including flood, earth movement, earthquake, subsidence and collapse, business
interruption/extra expense and boiler and machinery coverage (which boiler and
machinery coverage is currently self-insured for up to $5 million);
(ii) General Liability Insurance: Comprehensive general liability
---------------------------
(including contractual, completed operations and product liability) insurance
against claims for bodily injury (including death), personal injury and property
damage occurring on, in or in respect of the Mill I
26
<PAGE>
Property or resulting from activities on or related to the Mill I Property and
other properties of the Guarantor and its subsidiaries, in the minimum combined
single limit amount of $100 million, for each occurrence for bodily injury (or
death) and/or property damage with a maximum self-insured retention allowable of
$10 million;
(iii) Workers' Compensation Insurance: Workers' compensation
-------------------------------
insurance at statutory levels and employers' liability insurance or self-
insurance as permitted by Law;
(iv) Builder's Risk Insurance: During the construction of any
------------------------
Mill I Improvements or Mill I Alterations, builder's "all risks" and "general
risks" insurance or equivalent coverage (with sublimits and deductibles as are
acceptable to Lessor and with a maximum self-insured retention allowable of $5
million), including flood, earth movement, earthquake, subsidence and collapse,
business interruption/extra expense and testing and commissioning coverage with
respect to the Mill I Property and any on-site and off-site work and materials
related thereto protecting the Lessee, the Lessor and all contractors and
subcontractors in an amount not less than the full replacement cost of such on-
site and off-site work;
(v) Flood Insurance: To the extent that the ALTA/ASCM surveys
---------------
of the Parcels delivered pursuant to Section 2.01(g) of the Participation
Agreement indicate that any portion of Mill I, the Mill I Facility, the Mill I
Improvements or the Mill I Alterations may lie in a flood zone, flood insurance
in amounts acceptable to the Lessor; and
(vi) Other Insurance: Such other insurance, including automobile
---------------
liability, in such amounts and against such risks, as is either (x) customarily
carried by companies owning, operating or leasing property or conducting
businesses similar and/or similarly situated to the Mill I Property and/or the
Lessee, or (y) reasonably requested from time to time by Lessor to the extent
available on commercially reasonable terms.
Such insurance shall be written by companies (other than Lloyd's of
London) that are nationally recognized (or other recognized international
insurers with an ISI rating of not less than BBB); primary insurance shall be
written by companies rated at least AXI in the most recent edition of Best's Key
Rating Guide, or as otherwise agreed to by the Agent, the Lessor, the Collateral
Agent, the Majority Interests, selected by the Lessee and, other than the
insurance specified in paragraphs 16(a)(i), (iii) and (iv), shall name the
Collateral Agent as loss payee and the Lessor, CXC, the Equity Investors, CXC'S
Credit Enhancer, T.P.I., the Collateral Agent and the Agent, on its own behalf
and on behalf of the Note Holders, as additional insureds, as their interests
may appear. Notwithstanding the foregoing, in no event will the Lessee be
required to maintain coverage in amounts in excess of those maintained for
businesses similar in size and nature to the Lessee.
(b) The insurance referred to in paragraphs 16(a)(i) and (iv) for the
Mill I Property (as appropriate) may be a blanket policy and shall (i) at all
times be in an amount at least equal to the greater of (x) one hundred percent
(100%) of the full replacement cost value of the Mill I Property (as
appropriate) and the Lessee's leasehold improvements and (y)
27
<PAGE>
$410,000,000; (ii) name the Collateral Agent as loss payee and the Lessor, CXC,
the Equity Investors, CXC's Credit Enhancer, T.P.I., the Collateral Agent and
the Agent, on its own behalf and on behalf of the Note Holders, as additional
insureds, as their interests may appear; (iii) provide that the interests of the
Lessor, the Agent, the Collateral Agent, the Equity Investors and the Note
Holders shall be insured regardless of any intentional or willful breach or
violation by the Lessee of any warranties, declarations or conditions contained
in such insurance; (iv) provide that such insurance shall not be invalidated by
any act, omission or negligence of the Lessee, the Lessor, the Agent, the
Collateral Agent, the Equity Investors or the Note Holders, nor by any
foreclosure or other proceedings or notices thereof relating to the Mill I
Property (as appropriate) or any part thereof, nor by legal title to, or
ownership of the Mill I Property or any part thereof becoming vested in or by
Lessor or its agents, nor by occupancy or use of the Mill I Property or any part
thereof for purposes more hazardous than permitted by such policy; and (v)
provide that all partial loss insurance claims pertaining to the Mill I Property
(as appropriate) or any part thereof shall be adjusted by the insurers
thereunder with the Lessee.
All policies of insurance required to be maintained pursuant to
paragraph 16(a)(ii) which cover liability for bodily injury or property damage
shall provide that all provisions of such insurance, except the limits of
liability (which shall be applicable to all insureds as a group) and liability
premiums (which shall be solely a liability of the Lessee), and shall operate in
the same manner as if there were a separate policy covering each such insured
and/or additional insured, without right of contribution from any other
insurance which may be carried by an insured and/or additional insured.
Every policy required under paragraph 16(a) shall (i) expressly
provide that it will not be canceled or terminated except upon thirty (30) days'
written notice to the Lessor, the Lessee and the Collateral Agent; (ii) except
for liability coverage, include a waiver of all rights of subrogation against
the Lessor, the Agent, the Collateral Agent, the Equity Investors, and the Note
Holders and any recourse against the Lessor, the Agent, the Collateral Agent,
the Equity Investors or the Note Holders for payment of any premiums or
assessments under any policy; and (iii) not contain a provision relieving the
insurer thereunder of liability for any loss by reason of the existence of other
policies of insurance covering the Mill I Property or any part thereof against
the peril involved, whether
28
<PAGE>
collectible or not. The Lessee shall advise the Lessor promptly of any policy
cancellation or any change adversely affecting the coverage provided thereby.
(c) The Lessee shall deliver to the Lessor the certificates of
insurance and any other documentation required by the Lessor evidencing the
existence of all insurance which is required to be maintained by the Lessee
hereunder including descriptions of the previously mentioned Insurance
Requirements, such delivery to be made (i) as provided in Section 2.01(k) of the
Participation Agreement, (ii) within thirty (30) days after the issuance of any
additional policies or amendments or supplements to any of such insurance, and
(iii) at least thirty (30) days prior to the expiration date of any such
insurance. The Lessee shall notify the Lessor, the Agent and the Collateral
Agent of any nonrenewal of any policy required hereunder and shall cause each
insurer under each policy required hereunder to give the Lessor notice of any
lapse under any such policy. The Lessee shall not obtain or carry separate
insurance concurrent in form, or contributing in the event of loss, with that
required by this paragraph 16 unless the Collateral Agent is named as loss payee
and the Lessor, CXC, the Equity Investors, CXC's Credit Enhancer, T.P.I., the
Collateral Agent and the Agent, on its own behalf and on behalf of the Note
Holders are named as additional insureds therein. The Lessee shall immediately
notify the Lessor, the Agent, the Collateral Agent, the Equity Investors, and
the Note Holders whenever any such separate insurance is obtained and shall
deliver to the Lessor the certificates of insurance and any other documentation
(other than blanket policies) required by Lessor evidencing the same as is
required hereunder.
(d) The requirements of this paragraph 16 shall not be construed to
negate or modify the Lessee's obligations under Section 8.14 of the
Participation Agreement.
17. Subletting; Assignability; Amendment of Facility Agreements. (a)
-----------------------------------------------------------
The Lessee shall not sublet the Mill I Property, or any part thereof, unless (i)
at the time of any such sublease, no Default, Event of Default or Major
Environmental Event shall have occurred and be continuing; (ii) prior to such
sublet, the Guarantor shall have confirmed that its obligations under the
Guaranty shall not be affected thereby; (iii) any such sublease shall by its
terms be expressly made subject and subordinate to the terms of this Lease (and
the Ground Lease and the Mill I Mortgage) and shall expire on or before the last
day of the Term (or the Extended Term, as the case may be) of this Lease; (iv)
the Lessee shall provide the
29
<PAGE>
Lessor with notice of such sublease sixty (60) days prior to the effective date
of such sublease; (v) except with respect to Affiliates, the Lessee shall
provide the Lessor ten (10) Business Days prior to the effective date of such
sublease with a conformed copy of the instrument creating such sublease; (vi)
except with respect to Affiliates, the Lessor has consented to such sublease;
and (vii) except with respect to Affiliates, such sublease shall be made on
commercially reasonable terms.
(b) No sublease pursuant to this paragraph 17 shall modify or limit
any right or power of the Lessor hereunder or affect or reduce any obligation of
the Lessee hereunder, and all such obligations of the Lessee shall continue in
full force and effect as obligations of a principal and not of a guarantor or
surety, as though no subletting had been made or occupancy permitted.
(c) If the Lessee shall request, in connection with any sublease,
that the Lessor execute an attornment and non-disturbance agreement with respect
to such sublease, the Lessor shall consider each such sublease on a case-by-case
basis and may consent to its execution and delivery of an attornment and non-
disturbance agreement.
(d) Except as permitted in paragraph 17(a), the Lessee shall not
mortgage, pledge, assign or otherwise encumber its interest in and to this Lease
or in and to any sublease or the rentals payable thereunder without the prior
written consent of the Lessor except that the Lessee may assign its right to
purchase Mill I Property without the consent of the Lessor so long as the Lessee
remains liable for the performance and payment of the purchase obligation. Any
sublease made, and any mortgage, pledge or assignment of the Lessee's interest
hereunder or under any such sublease granted, otherwise than as expressly
permitted by this paragraph 17, shall be null and void and of no force or
effect.
(e) The Lessee shall have the exclusive right to amend or supplement
the Facility Agreements, on the conditions that (i) the fair market value or use
of the Mill I Property is not lessened thereby, and (ii) the amendment or
supplement is not consummated without Lessor's consent (unless Lessee has
delivered an Offer to Purchase the Mill I Property or unless such amendment or
supplement could not reasonably be expected to result in a Material Adverse
Effect). Except pursuant to any sublease or assignment of this Lease permitted
hereunder, the Lessee may not assign its rights in the Facility Agreements
without the prior written consent of Lessor.
30
<PAGE>
18. Permitted Contests. (a) So long as (w) no Lessor Termination
------------------
Notice has been delivered, (x) no Default, Event of Default or Major
Environmental Event has occurred and is continuing, (y) the Lessee shall not
have notified the Lessor pursuant to paragraph 27(a)(ii) that it is terminating
this Lease and abandoning the Mill I Property or (z) the Lessee shall not have
otherwise surrendered or be required to surrender the Mill I Property to the
Lessor for any reason (including, without limitation, pursuant to paragraph
23(a)), the Lessee shall not be required, nor shall the Lessor have the right,
to pay, discharge or remove any Charges or to comply or cause the Mill I
Property or any part thereof to comply with any applicable Legal Requirement or
to pay any materialman's, laborer's or undischarged or unremoved Lien, as long
as the Lessee shall at its sole cost and expense contest, or cause to be
contested, diligently and in good faith, the existence, amount or validity
thereof by appropriate proceedings, which shall (i) in the case of an unpaid
Property Charge or undischarged or unremoved Lien, prevent the collection
thereof from the Lessor or against the Mill I Property or any part thereof, (ii)
prevent the sale, forfeiture or loss of the Mill I Property or any part thereof,
and (iii) in the case of a Legal Requirement, not subject the Lessor, the Agent,
the Collateral Agent, the Equity Investors, or the Note Holders to the risk of
any criminal liability or civil penalties or fines for failure to comply
therewith. The Lessee shall give such assurances as may be reasonably demanded
by the Lessor to insure ultimate payment of such Charges or the discharge or
removal of any such materialman's, laborer's or mechanic's Lien or to insure
compliance with such Legal Requirement and to prevent any sale or forfeiture of
the Mill I Property, or any part thereof, or any interference with or deductions
from any Fixed Rent, Additional Rent or any other sum required to be paid by the
Lessee hereunder by reason of such non-payment, non-discharge, non-removal or
non-compliance.
(b) The Lessor shall cooperate with the Lessee in any contest and
shall allow the Lessee to conduct such contest (in the name of the Lessor, if
necessary) at the Lessee's sole cost and expense; provided that the Lessor shall
-------- ----
not be required to execute any documents which would materially adversely affect
the fair market value, use or operation of the Mill I Property (or any part
thereof) or subject the Lessor, the Agent, the Collateral Agent, any Equity
Investor or any Note Holder to any liability or result in the admission of
liability, guilt or culpability on the part of such Persons. The Lessee shall
notify the Lessor of each such proceeding at least ten days
31
<PAGE>
prior to the commencement thereof, which notice shall describe such proceeding
in reasonable detail.
(c) The Lessee shall, promptly after the final determination
(including appeals) of any contest brought by it pursuant to this paragraph 18,
pay and discharge all amounts which shall be determined to be payable therein
and shall be entitled to receive and retain for its own account all amounts
refunded and/or rebated as a result of any such contest and if the Lessor
receives any amount as a result of such contest to which it is not otherwise
entitled pursuant to this Lease, it shall promptly return such amount to the
Lessee.
(d) Except as otherwise specifically provided in this Lease, this
paragraph 18 shall not apply in the case of Charges upon, or in respect of, any
Person other than the Lessor (or the lessor under the Ground Lease) or in
respect of the property or income of any such Person.
19. Default Provisions. (a) An Event of Default as defined in the
------------------
Participation Agreement shall constitute an "Event of Default" under this Lease.
----------------
(b) The Lessor may take all steps to protect and enforce the rights
of the Lessor or obligations of the Lessee hereunder, whether by action, suit or
proceeding at law or in equity (for the specific performance of any covenant,
condition or agreement contained in this Lease, or in aid of the execution of
any power herein granted or for any foreclosure, or for the enforcement of any
other appropriate legal or equitable remedy) or otherwise as the Lessor shall
deem necessary or advisable.
(c) (i) If an Event of Default shall have occurred and be continuing,
including an Event of Default arising from the breach of a covenant, condition
or other provision hereof, then upon five (5) Business Days' prior written
notice by the Lessor to the Lessee, in addition to all other rights, remedies or
recourses available, the Lessor may either (A) terminate this Lease or (B)
terminate the Lessee's right to possession of the Mill I Property or any part
thereof. If the Lessor should elect to terminate this Lease as provided in
clause (A) above, then this Lease and the estate hereby granted shall expire and
terminate at midnight on the fifth (5th) Business Day (or such later date as may
be specified therein) after the date of such notice, as fully and completely and
with the same effect as if such date was the date herein fixed for the
expiration of the Term and all rights of the Lessee shall terminate, but the
Lessee shall remain liable as hereinafter provided.
(ii) Should the Lessor elect not to terminate this Lease, this Lease
shall continue in effect and the Lessor may
32
<PAGE>
enforce all the Lessor's rights and remedies under this Lease including the
right to recover the Fixed and Additional Rent as each becomes due under this
Lease. For the purposes hereof, the following do not constitute a termination of
this Lease:
(A) Acts of maintenance or preservation of the Mill I Property or
any part thereof or efforts to relet the Mill I Property or any part thereof,
including, without limitation, termination of any sublease of the Mill I
Property to a third party and removal of such subtenant from the Mill I
Property;
(B) The appointment of a receiver upon initiative of the Lessor
to protect the Lessor's interest under this Lease; and/or
(C) The exercise of any rights under the Mill I Mortgage.
(d) If an Event of Default shall have occurred and be continuing,
and the Lessor has elected to terminate this Lease or terminate the Lessee's
right to possession of the Mill I Property or part thereof, upon five (5)
Business Days' notice, the Lessor shall have (i) the right, whether or not this
Lease shall have been terminated pursuant to paragraph 19(c) hereof, to re-enter
and repossess the Mill I Property or any part thereof, as the Lessor may elect,
by summary proceedings, ejectment, any other legal action or in any other lawful
manner the Lessor determines to be necessary or desirable and (ii) the right to
remove all Persons and property therefrom. The Lessor shall be under no
liability by reason of any such re-entry, repossession or removal. No such re-
entry or repossession of the Mill I Property or any part thereof shall be
construed as an election by the Lessor to terminate this Lease unless a notice
of such termination is given to the Lessee pursuant to paragraph 19(c) hereof,
or unless such termination is decreed by a court or other governmental tribunal
of competent jurisdiction. Should the Lessor elect to re-enter the Mill I
Property as herein provided or should the Lessor take possession pursuant to
legal proceedings or pursuant to any notice provided for by Law or upon
termination of this Lease of the Lessee's right to possession of the Mill I
Property or any part thereof pursuant to paragraph 19(c) hereof or otherwise as
permitted by Law, the Lessee shall peaceably quit and surrender the Mill I
Property or any part thereof to the Lessor. In any such event, neither the
Lessee nor any Person claiming through or under the Lessee, by virtue of any
Law, shall be entitled to possession or to remain in possession of the Mill I
Property or any such part thereof,
33
<PAGE>
but shall forthwith quit and surrender the Mill I Property to the Lessor.
(e) At any time or from time to time after the re-entry or
repossession of the Mill I Property or any part thereof pursuant to paragraph
19(d) hereof, whether or not this Lease shall have been terminated pursuant to
paragraph 19(c) hereof, the Lessor may (but shall be under no obligation to)
relet the Mill I Property or any part thereof, for the account of the Lessee,
without notice to the Lessee, for such term or terms and on such conditions and
for such uses as the Lessor, in its sole and absolute discretion, may determine.
The Lessor may collect and receive any rents or other proceeds payable by reason
of such reletting. The Lessor shall not be liable for any failure to relet the
Mill I Property or any part thereof or for any failure to collect any rent due
upon any such reletting.
(f) No termination of this Lease or of the Lessee's right to
possession of the Mill I Property or any part thereof pursuant to paragraph
19(c) hereof, or by operation of Law, and no re-entry or repossession of the
Mill I Property or any part thereof, pursuant to paragraph 19(d) hereof, and no
reletting of the Mill I Property or any part thereof pursuant to paragraph 19(e)
hereof, shall relieve the Lessee of its liabilities and obligations hereunder,
all of which shall survive such termination, re-entry, repossession or
reletting.
(g) In the event of any termination of this Lease or of the Lessee's
right to possession of the Mill I Property or any part thereof by reason of the
occurrence of any Event of Default, the Lessee shall pay to the Lessor all Fixed
Rent, Additional Rent and other sums required to be paid to and including the
date of such termination of this Lease or of the Lessee's right to possession;
and thereafter, until the end of the Term or the Extended Term, as applicable,
whether or not the Mill I Property or any part thereof shall have been relet,
the Lessee to the extent permitted by applicable Law shall be liable to the
Lessor for, and shall pay to the Agent (on behalf of the Lessor), on the days on
which such amounts would be payable under this Lease in the absence of such
termination, re-entry or repossession, as agreed current damages and not as a
penalty: all Fixed Rent, Additional Rent and other sums which would be payable
under this Lease by the Lessee, in the absence of such termination, re-entry or
repossession, and all costs (including attorneys' fees and expenses) incurred by
the Lessor hereunder (payable on demand) and all costs of any environmental
remediation pursuant to paragraph 13. To the extent permitted by Law, at such
time after the termination or expiration of this
34
<PAGE>
Lease as the Lessee shall have paid all amounts required to be paid by it under
this Lease and the other Operative Documents and the Lessee shall have
discharged any and all obligations to the Lessor, the Equity Investors and the
Note Holders, then the Lessor shall pay and assign to the Lessee, when received,
the net proceeds, if any, of any reletting effected for the account of the
Lessee pursuant to paragraph 19(e), and any residual interest in the Mill I
Property after deducting from such proceeds all of the Lessor's expenses in
connection with such reletting (including, but not limited to, all repossession
costs, brokerage commissions, attorneys' fees and expenses, employees' expenses,
alteration costs and expenses of preparation for such reletting and all costs of
any environmental remediation pursuant to paragraph 13).
(h) Notwithstanding the foregoing, if an Event of Default shall have
occurred, the Lessee may within 5 Business Days after the earliest of the
Lessor's or Agent's notice of such occurrence thereafter pay to the Agent, on
behalf of the Lessor, an amount equal to the Offer Purchase Price in which event
the Lessor shall be obligated to convey the Mill I Property to the Lessee in
compliance with paragraph 15.
(i) At any time after such termination of the Term (or the Extended
Term) of this Lease or re-entry or repossession of the Mill I Property by reason
of the occurrence of an Event of Default, the Lessor shall be entitled to
recover from the Lessee, and the Lessee will pay to the Agent (on behalf of the
Lessor) on demand, in lieu of all liquidated damages in respect of Fixed Rent
beyond the date of such demand (but in addition to any claim for current damages
in respect of Fixed Rent or Additional Rent prior to the date of such demand),
an amount equal to the Termination Value, in which event the Lessor shall be
obligated to convey the Mill I Property to the Lessee in compliance with
paragraph 15.
20. Additional Rights; Mortgage. (a) No right or remedy hereunder
---------------------------
shall be exclusive of any other right or remedy, but shall be cumulative and in
addition to any other right or remedy hereunder or under the other Operative
Documents or now or hereafter existing at Law or in equity and the exercise by
the Lessor or the Collateral Agent of any one or more of such rights, powers or
remedies shall not preclude the simultaneous exercise of any or all of such
other rights, powers or remedies. Failure to insist upon the strict performance
of any provision hereof or to exercise any option, right, power or remedy
contained herein shall not constitute a waiver or relinquishment thereof for the
future. Receipt by the Lessor
35
<PAGE>
(or by the Agent on behalf of the Lessor) of any Fixed Rent, Additional Rent,
Residual Guaranty, Termination Value or other sum payable hereunder or under any
other Operative Document with knowledge of the breach by the Lessee of any
provision hereof shall not constitute a waiver of such breach, and no waiver by
the Lessor of any provision hereof shall be deemed to have been made unless made
in writing. The Lessor shall be entitled to injunctive relief in case of the
violation or attempted or threatened violation of any of the provisions hereof,
a decree compelling performance of any of the provisions hereof or any other
remedy allowed to the Lessor at law or in equity.
(b) Except as otherwise provided in Section 19(h), the Lessee hereby
waives and surrenders for itself and all those claiming under it, including
creditors of all kinds, (i) any right and privilege which they may have under
any applicable law or otherwise to redeem the Mill I Property or any part
thereof or to have a continuance of this Lease after termination of the Lessee's
right of occupancy by Law or by any legal process or writ, or under the terms of
this Lease, or after the termination of the Term (or Extended Term, as the case
may be) of this Lease as herein provided and (ii) the benefits of any Law which
exempts property from liability for debt or for distress for rent.
(c) If an Event of Default exists hereunder, the Lessee shall pay to
the Agent (on behalf of the Lessor) on demand all fees and out-of-pocket
expenses incurred by the Lessor in enforcing its rights under this Lease,
including attorneys' fees and expenses.
(d) The Lessor and the Lessee intend that the Lessee shall treat this
Lease, for accounting purposes, as an operating lease. Notwithstanding the
intent of the parties, if a court of competent jurisdiction determines that the
transaction represented by this Lease and the other Operative Documents will be
treated as a financing transaction, then the parties hereto intend that (i) this
Lease be treated as the repayment and security provisions of a loan by Lessor to
Lessee in a principal amount equal to the sum of (x) the Acquisition Costs of
the Mill I Property plus (y) the aggregate of all Advances made with respect to
the Mill I Property, plus any other amounts owing to the Lessor or the
Collateral Agent, Note Holders or Equity Investors (collectively, the "Secured
-------
Party") under the Operative Documents including, without limitation, Fixed Rent,
- -----
Additional Rent, the Offer Purchase Price and the Termination Value
(collectively, the "Mill I Loan Amount"), but not to exceed the principal sum of
------------------
Eight Hundred Eighty Seven Million
36
<PAGE>
Five Hundred Thousand Dollars ($887,500,000), (ii) all payments of Fixed Rent,
Additional Rent, the Offer Purchase Price and the Termination Value be treated
as payments of principal, interest and other amounts owing with respect to such
Mill I Loan Amount, respectively, (iii) the Lessee should be treated as entitled
to all benefits of ownership of the Mill I Property or any part thereof, and
(iv) this Lease be treated
(aa) as a mortgage from Lessee, as mortgagor, to the Lessor, as
mortgagee, for the benefit of Secured Party securing the Mill I Loan Amount,
encumbering that portion of the Mill I Property constituting real property, and
is made under those provisions of the existing laws of the State of Wisconsin
relating to mortgages and that the Lessee, as mortgagor hereby does, effective
as of the date of this Lease, mortgage, give, grant, bargain, sell, alien,
enfeoff, convey, confirm and assign unto Lessor, as mortgagee, or any successor
thereto, for the benefit of the Secured Party, Lessee's right, title and
interest in and to any real property of any kind or character comprising the
Mill I Property, whether now owned or hereafter acquired, and all proceeds
therefrom, to have and to hold said real property and all parts, rights, members
and appurtenances thereof to the use, benefit and behoof of the Lessor, for the
use and benefit of the Secured Party, and as part of this mortgage conveyance,
as additional security for the Mill I Loan Amount, Lessee does hereby, effective
as of the date of this Lease, sell, assign, transfer, demise and set over unto
Lessor all of Lessee's right, title and interest in and to the Mill I Ground
Lease, all other leases, the Mill I Property, the possession thereof, and all
the rents now due and which may hereafter become due under or by virtue of the
leases, whether written or verbal, or any letting of, or any agreement for the
use or occupancy of any part of the Mill I Property, it being the intention to
hereby establish a present and absolute transfer and assignment of all such
leases and agreements and all the avails thereunder unto Lessor. This
assignment shall run with the land and be good and valid as against Lessee and
those claiming by, under or through Lessee from the date of the execution of
this Lease. This assignment shall continue and remain in full force and effect
during any foreclosure proceedings relating to the Mill I Wisconsin Tenneco
Mortgage and the period of redemption, if any, and until the Mill I Loan Amount
shall have been paid in full. This assignment shall not be exercised unless and
until an Event of Default shall occur and be continuing and in such event (i) it
shall not be necessary for Lessor to take any action for Lessor to be
37
<PAGE>
entitled to all rents, issues, profits and leases, (ii) Lessor may, at its sole
option without any prior notice to or approval of Lessee, take any action to
enforce this assignment including without limitation, by notifying any or all
tenants to pay directly to Lessor all rent, issues, and profits arising out of
the Mill I Property, and all payments required to be made pursuant to or by
virtue of any lease agreements, and (iii) Lessor shall be entitled to all rents,
issues, profits and leases pertaining to the Mill I Property and to enforce this
assignment without seeking the appointment of a receiver, commencing a
foreclosure action, obtaining possession of the Mill I Property or making
demand. Lessee hereby grants Lessor a power of attorney and does hereby
irrevocably appoint Lessor its agent (effective upon the occurrence and during
the continuance of an Event of Default) for the management of the Mill I
Property and Lessor may let and re-let the Mill I Property or any part thereof
according to its own discretion and may make such repairs to the Mill I Property
as it considers expedient and may do anything in and about the Mill I Property
that Lessee might do, Lessee hereby ratifying and confirming anything and
everything that Lessor may do. This assignment and power of attorney shall
continue until the Mill I Loan Amount has been fully paid, satisfied and
performed; and
(bb) as a security agreement from the Lessee, as debtor, to the
Lessor, as secured party, for the benefit of Secured Party securing the Mill I
Loan Amount, encumbering all personal property comprising the Mill I Property,
whether now owned or hereafter acquired and all proceeds therefrom.
(this Lease, in its capacity as such mortgage, assignment and security
agreement, the "Mill I Wisconsin Tenneco Mortgage"), and that the Lessee, as
---------------------------------
debtor, hereby, effective as of the date of this Lease, grants to the Lessor,
for the use and benefit of the Secured Party, a lien on and security interest in
the equipment, fixtures and all other personal property of any kind or character
comprising the Mill I Property and all proceeds therefrom. The Lessor shall
have all of the rights, powers and remedies of a mortgagee and a secured party
available under applicable law, including, without limitation, judicial
foreclosure. The filing of this Lease (or a memorandum hereof) shall be deemed
to constitute the filing of a mortgage and the filing of any financing statement
in connection with this Lease shall be deemed to constitute the filing of a
financing statement to perfect the security interest in the Mill I Property
aforesaid to secure the payment of all amounts due from
38
<PAGE>
time to time from the Lessee to the Lessor under this Lease and the other
Operative Documents.
(e) The Mill I Wisconsin Tenneco Mortgage secures and shall be
security for the entire Mill I Loan Amount if a court of competent jurisdication
determines that the transaction represented by this Lease and the other
Operative Documents will be treated as a financing transaction. Secured Party
shall not be obligated to make any future advances, except in accordance with
the Participation Agreement and the other Operative Documents and
(notwithstanding any language to the contrary contained herein, in the
Participation Agreement or in any of the other Operative Documents) if all
subsequent lien holders of record (other then the holder of any Lien which is a
Permitted Encumbrance) execute subordination agreements satisfactory to Secured
Party in form and content. In order to preserve the mortgage and security
interest provided for herein, each of the Lessor and the Lessee agrees to abide
by the following provisions with regard to the Mill I Property (for purposes of
this paragraph, hereinafter referred to as "Mill I Collateral"):
-----------------
(1) Change in Location of Mill I Collateral or the Lessee's Name,
-------------------------------------------------------------
Structure or Location. The Lessee (i) will notify the Secured Party on or
- ---------------------
before the date of any change in (A) the location of the Mill I Collateral (B)
the location of Lessee's chief executive office or address, (C) the name of the
Lessee and (D) the corporate structure of the Lessee, and (ii) will, on or
before the date of any such change, prepare and file new or amended financing
statements as necessary so that the Secured Party shall continue to have a
perfected Lien (subject only to Permitted Encumbrances) in the Mill I Collateral
after any such change.
(2) Documents; Mill I Collateral in Possession of Third Parties. If
-----------------------------------------------------------
certificates of title or other documents evidencing ownership or possession of
the Mill I Collateral are issued or outstanding, the Lessee will cause the
interest of the Secured Party to be properly noted thereon and will, forthwith
upon receipt, deliver same to the Secured Party. If any Mill I Collateral is at
any time in the possession or control of any warehouseman, bailee, agent or
independent contractor, the Lessee shall notify such Person of the Secured
Party's security interest in such Mill I Collateral. Upon the Secured Party's
request, the Lessee shall instruct any such Person to hold all such Mill I
Collateral for the Secured Party's account subject to the Lessee's instructions,
or, if an Event of Default shall have occurred and be continuing, subject to the
Secured Party's instructions.
39
<PAGE>
(3) Sale, Disposition or Encumbrance of Mill I Collateral. Except for
-----------------------------------------------------
Permitted Encumbrances and contests permitted under Paragraph 18, as permitted
by this Lease or any of the other Operative Documents or with the Secured
Party's prior written consent, the Lessee will not in any way encumber any of
the Mill I Collateral (or permit or suffer any of the Mill I Collateral to be
encumbered) or sell, assign, lend, rent, lease or otherwise dispose of or
transfer any of the Mill I Collateral to or in favor of any Person other than
the Secured Party.
(4) Proceeds of Mill I Collateral. Except as permitted by this Lease
-----------------------------
or any of the other Operative Documents, the Lessee will deliver to the Secured
Party promptly upon receipt all proceeds delivered to the Lessee from the sale
or disposition of any Mill I Collateral. This paragraph shall not be construed
to permit sales or dispositions of the Mill I Collateral except as may be
elsewhere expressly permitted by this Lease or the other Operative Documents.
(5) Further Assurances. Upon the request of the Secured Party, Lessee
------------------
shall (at Lessee's expense) execute and deliver all such mortgages, assignments,
security agreements, certificates, financing statements, memoranda, or other
documents and give further assurances and do all other acts and things as the
Secured Party may reasonably request to perfect the Secured Party's interest in
the Mill I Collateral or to protect, enforce or otherwise effect the Secured
Party's rights and remedies hereunder, all in form and substance satisfactory to
the Secured Party.
(6) Mill I Collateral Attached to other Property. In the event that
--------------------------------------------
the Mill I Collateral is to be attached or affixed to any real property, the
Lessee hereby agrees that a financing statement which is a fixture filing may be
filed for record in any appropriate real estate records. If the Lessee is not
the record owner of such real property, other than the Mill I Property, it will
provide the Secured Party with any additional security documents or financing
statements necessary for the perfection of the Secured Party's Lien and mortgage
in the Mill I Collateral, as requested by the Secured Party.
(7) Mill I Loan Amount. Should the Mill I Loan Amount be paid
------------------
according to the tenor and effect thereof when the same becomes due and payable
hereunder, and should Lessee perform all covenants contained in the Operative
Documents in a timely manner, then the Mill I Wisconsin Tenneco Mortgage shall
be cancelled and surrendered.
40
<PAGE>
(8) Mortgage Remedies. If an Event of Default shall have occurred
-----------------
and be continuing, the Lessor, at the direction of the Agent and in accordance
with the Interparty Agreement, shall have the right
(i) to exercise any and all remedies available to a mortgagee under
Wisconsin law (and without prejudice to the rights of the Secured Party to
exercise any remedies described in the Participation Agreement, the Interparty
Agreement or any other Operative Documents).
(ii) to declare the Mill I Loan Amount and all other obligations of
Lessee secured by the Mill I Wisconsin Tenneco Mortgage immediately due and
payable without further notice. If Secured Party exercises its option to
accelerate the Mill I Loan Amount and all other obligations of Lessee secured by
the Mill I Wisconsin Tenneco Mortgage, such amounts shall be collectible in a
suit at law or by foreclosure action, or both, or by exercise of any other
remedy available in law or equity.
(iii) in any action to foreclose the Mill I Wisconsin Tenneco
Mortgage, Lessor shall be at liberty, without notice, to apply for the
appointment of a receiver of the rents, and shall be entitled to the appointment
of such receiver as a matter of right, without regard to the value of the Mill I
Property as security for the Mill I Loan Amount, or the solvency or insolvency
of any person then liable for the payment of the Mill I Loan Amount. Under such
circumstances, Lessee agrees that the court may appoint a receiver of the Mill I
Property without bond, and may empower the receiver to take possession of the
Mill I Property and collect the rents, issues and profits of the Mill I
Property, and exercise such other powers as the court may grant until the
confirmation of sale, and may order the rents, issues and profits, when so
collected, to be held and applied as provided under subclause (iv) hereof,
unless the court directs otherwise.
(iv) (a) to grant, bargain, sell, release and convey the Mill I
Property at public auction or venue and on such sale, to execute and deliver to
the purchaser or purchasers, their heirs, successors and assigns, good, ample
and sufficient deed or deeds of conveyance in law, pursuant to the statute in
such case made and provided and to apply the proceeds of such sale in the manner
hereinafter provided.
(b) Lessee agrees to the provisions of (S)846.103, Wis. Stats., and
as the same may be amended or renumbered from time to time, permitting Lessor,
upon an express allegation in a complaint, filed in a mortgage foreclosure
action, waiving the
41
<PAGE>
right to judgment for deficiency, to hold the foreclosure sale of real estate
three months after a foreclosure judgment is entered. Lessor is also entitled to
all other or additional remedies permitted by law to mortgagees existing on the
date this Lease is signed and/or existing at the time of default.
(c) Upon a foreclosure sale of the Mill I Property or any part
thereof, the proceeds of such sale shall be applied in the following order:
(x) to the payment of all costs of the suit or foreclosure,
including reasonable attorney's fees and the cost of title evidence;
(y) to the payment of all other expenses of Lessor; and
(z) then in accordance with the Interparty Agreement.
21. Notices, Demands and Other Instruments. All notices, demands,
--------------------------------------
offers, consents and other instruments given pursuant to this Lease shall be
sent to the parties hereto at the addresses set forth on Schedule I to the
Participation Agreement and shall be given in the manner and shall be effective
at the times and under the terms set forth in Section 8.02 of the Participation
Agreement. The Lessee shall send to the Agent copies of all notices, demands,
offers, consents, advices and other instruments hereunder sent to the Lessor.
22. No Default Certificate. Each party hereto shall, at the
----------------------
reasonable request of the other party hereto, deliver to such other party a
certificate stating whether such first party has knowledge that, or has received
notice from any person that, any Casualty, Condemnation, Default, Major
Environmental Event, Environmental Default, Environmental Trigger or Event of
Default has occurred and is continuing.
23. Surrender. (a) If upon the expiration or termination of the
---------
Term (or the Extended Term, as the case may be) or the termination of Lessee's
possession of the Mill I Property, Lessee or its designee has not purchased the
Mill I Property as provided hereunder, the Lessee shall surrender (i) the Mill I
Parcel to the Lessor in the condition in which the Mill I Parcel was upon the
commencement of the Term hereof (together with all easements, rights of way or
other rights as Lessor may require to assure unrestricted access to the Mill I
Parcel), (ii) Mill I in the operating condition, efficiency, utility and with
the remaining useful life, it had upon the commencement of the Term, except as
repaired, rebuilt, renovated, altered, added to or built as permitted or
required hereby and except for ordinary wear and tear, and (iii) the Mill I
Improvements and the Mill I Alterations in good operating
42
<PAGE>
condition, in substantially the condition the same were in when constructed or
installed on the Mill I Parcel, except for ordinary wear and tear. To the extent
that the Mill I Property is not in compliance with the above upon such
expiration or termination (except as a consequence of a Casualty or
Condemnation, as to which paragraph 12 applies), the Lessee shall pay to the
Agent (on behalf of the Lessor) such additional amounts as are required to place
it in compliance therewith.
(b) The Lessee shall also surrender the Mill I Property to the Lessor
free and clear of all Liens, easements, consents and restrictive covenants and
agreements affecting the Mill I Property (other than (i) rights reserved to or
vested in any municipality or public authority, by the terms of any franchise,
grant, license, Permit or provision of Law, to purchase, condemn, appropriate or
recapture, or designate a purchaser of the Mill I Property, (ii) rights reserved
to or vested in any municipality or public authority to control or regulate the
use of the Mill I Property or to use the Mill I Property in any manner, (iii)
easements, rights-of-way, servitudes, restrictions, encroachments and other
minor defects, encumbrances and irregularities in title to the Mill I Property
which do not, individually or in the aggregate, materially and adversely affect
the value, condition, marketability or operation of the Mill I Property or the
Lessor's ownership thereof, (iv) the Ground Leases and the Mortgages, (v) Liens
existing on the Financing Closing Date and set forth in the Title Policy, and
(vi) Lessor Liens.
(c) The Lessee shall also surrender the Mill I Property in a condition
such that it is in compliance with all applicable Environmental Laws then
enacted or then proposed by any governmental agency (irrespective of whether the
deadline for such compliance would otherwise expire after the end of the Term or
the Extended Term, as applicable). Nothing contained in this paragraph 23 shall
relieve or discharge or in any way affect the obligation of the Lessee to cure
promptly pursuant to this Lease any violations of Legal Requirements referred to
in this Lease, or to pay and discharge any Liens and Impositions against the
Mill I Property, subject, however, to the right of the Lessee to contest the
same pursuant to the provisions of paragraphs 11 and 18. Lessee shall
cooperate, to the fullest extent permitted by Law, with the Lessor, its
subsequent lessees, operators or purchasers to effect the transfer of all of
Lessee's Applicable Permits for the Mill I Property to such Persons.
43
<PAGE>
(d) The Lessee, at its sole cost and expense, shall remove from the
Mill I Property on or prior to such expiration or termination, all property
situated thereon which is not owned by the Lessor and shall repair any damage
caused by such removal and shall restore the Mill I Property to the condition
and working order (or reasonable equivalent thereof) in which it existed
immediately prior to the installation of such property, except for ordinary wear
and tear. Lessee shall indemnify and hold harmless the Lessor, its successors
and assigns against any loss, liability, cost, expense, penalty or claim arising
out of the Lessee's removal of such property from the Mill I Property including,
without limitation, any environmental liability arising therefrom. Any such
property of the Lessee not so removed shall become the property of the Lessor,
and the Lessor may cause such property to be removed from the Mill I Property
and disposed of, and the cost of any such removal and disposition of the
Lessee's property and of repairing any damage caused by such removal and of the
restoration of the Mill I Property to the condition and working order (or
reasonable equivalent thereof) in which it existed immediately prior to the
installation of such property, ordinary wear and tear excepted, shall be borne
by the Lessee.
(e) The Lessee shall comply with the conditions set forth in paragraph
27(b) of this Lease in addition to those set forth in this paragraph 23.
(f) The obligations of the Lessee under this paragraph 23 shall
survive the expiration or any termination of the Term (or the Extended Term, as
the case may be) of this Lease (whether by operation of Law or otherwise) for
all matters described in this paragraph 23 which occur or arise prior to such
expiration or termination or arise out of or result from facts, events, claims,
liabilities, actions or conditions occurring, arising or existing on or before
such expiration or termination.
24. Severability; Binding Effect; Governing Law; Non-Recourse. (a)
---------------------------------------------------------
Except as expressly provided otherwise in this Lease, each provision hereof
shall be separate and independent and the breach of any such provision by the
Lessee, or a breach of any obligation hereunder by the Lessor, shall not
discharge or relieve the Lessee from its obligations to perform each and every
covenant to be performed by the Lessee hereunder. If any provision hereof or
the application thereof to any Person or circumstance shall be invalid or
unenforceable, the remaining provisions hereof, or the application of such
provision to Persons or circumstances other than those as to which it is
44
<PAGE>
invalid or unenforceable, shall not be affected thereby, and each provision
hereof shall be valid and shall be enforceable to the extent permitted by Law.
(b) All provisions contained in this Lease shall be binding upon,
inure to the benefit of and be enforceable by, the respective permitted
successors and assigns of the Lessor and the Lessee to the same extent as if
each successor and assignee were named as a party hereto. Except for subleases
and assignments permitted or created in accordance with paragraph l7 hereof, the
Lessee may not assign its rights hereunder or any interest herein without the
prior written consent of the Lessor. Subject to the provisions of Section 2(c)
of this Lease and the other Operative Documents, the Lessor may assign all or
any part of the Mill I Property and/or its rights under this Lease. All
amendments, waivers, consents or approvals arising pursuant to this Lease shall
be consummated in accordance with the Participation Agreement. Any amendment,
waiver, consent or approval made otherwise than as expressly permitted by this
paragraph 24 shall be null and void.
(c) THIS LEASE SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF WISCONSIN WITHOUT REGARD TO CONFLICTS OF LAWS
PROVISIONS.
(d) The parties may sign this Lease in any number of counterparts and
on separate counterparts, each of which shall be an original but all of which
when taken together shall constitute one and the same instrument, except that,
if this Lease constitutes "chattel paper" within the meaning of the UCC only one
counterpart stamped or marked "COUNTERPART NUMBER ONE" or "COUNTERPART NUMBER l"
shall constitute, to the extent applicable, "chattel paper" or other
"collateral" within the meaning of the Uniform Commercial Code in effect in any
jurisdiction.
(e) No recourse shall be had against the Lessor, the Agent, the
Collateral Agent, the Equity Investor or any Note Holder or their respective
successors, assigns, directors, officers, partners, employees, agents or
shareholders, for any claim based on any failure by the Lessor in the
performance or observance of any of the agreements, covenants or provisions
contained in this Lease and in the event of any such failure, recourse shall be
had solely against the Mill I Property; provided, however, that nothing
-------- -------
contained in this Lease shall be taken to prevent enforcement of any claim
against the Lessor or any other Person arising out of or in connection with this
Lease based on fraud, gross negligence or willful misconduct of the Lessor or
such other Person and nothing shall prevent
45
<PAGE>
enforcement against any other Person to which any part thereof shall have been
transferred, or obligations undertaken or assumed in writing by such Person.
25. Headings and Table of Contents. The table of contents and the
------------------------------
headings of the various paragraphs and schedules of this Lease are for
convenience only and shall not affect the meaning of the terms and conditions of
this Lease.
26. Lessor's Right to Cure Lessee's Default. If the Lessee shall
---------------------------------------
fail to make any payment or perform any act required to be made or performed
under this Lease, the Lessor, without waiving any default or releasing Lessee
from any obligation, may (but shall be under no obligation to) make such payment
or perform such act for the account and at the cost and expense of the Lessee,
and may enter upon the Mill I Property for such purpose and take all such action
thereon as, at the Lessor's sole discretion, may be necessary or appropriate
therefor. No such entry shall be deemed an eviction of the Lessee or a breach
of the Lessor's covenant for quiet possession pursuant to paragraph 2(b). All
sums so paid by the Lessor and all costs and expenses (including, without
limitation, reasonable attorneys' fees and expenses so incurred, together with
interest thereon at the Default Rate to the extent permitted by Law) shall be
paid by the Lessee to the Lessor on demand as Additional Rent.
27. Lessee's Options Upon Expiration. (a) In addition to its rights
--------------------------------
under paragraphs l2 and 14 hereof, Lessee shall elect either to (i) by written
notice given at least three (3) months prior to the Expiration Date (or later if
permitted or required under paragraph 27(d)) deliver an Offer to Purchase the
Mill I Property in its entirety and purchase the Mill I Property on the
Expiration Date upon payment of an amount equal to the Offer Purchase Price, in
which case the transfer of the Mill I Property shall be governed by the terms of
paragraphs 14 and 15 (and in which case, this Lease (with the exception of any
provision hereof or under the other Operative Documents under which the Lessee
indemnifies the Lessor or others from liability in connection with this Lease,
or otherwise specifies that such provision survives termination hereof or under
the other Operative Documents) shall terminate on the Closing Date); (ii) so
long as no Default, Event of Default or Major Environmental Event has occurred
and is continuing by written notice given at least twelve (12) months prior to
the Expiration Date, and subject to the satisfaction of the conditions set forth
in paragraphs 27(b) and 27(c) hereof, terminate this Lease, abandon the Mill I
Property as of the Expiration Date and
46
<PAGE>
pay to the Agent, on behalf of the Lessor on the Expiration Date, in addition to
any Fixed Rent, Additional Rent and any other amounts then due and payable to
the Lessor hereunder, an amount equal to the Series A Portion of the Adjusted
Capitalized Cost of the Mill I Property (the "Residual Guaranty"); or (iii) by
-----------------
written notice given at least three (3) months prior to the Expiration Date, and
subject to the conditions set forth in paragraph 27(d), extend this Lease for
the Extended Term.
(b) Upon the election of the Lessee to terminate this Lease pursuant
to paragraph 27(a)(ii) hereof, the Lessee shall provide, or cause to be provided
or accomplished, at the sole cost and expense of the Lessee, to or for the
benefit of the Lessor and the holders of the Instruments, at least thirty (30)
days but not more than sixty (60) days prior to the Expiration Date or date of
such other termination of this Lease each of the following (other than the
documentation contemplated under clause (b)(ii)(F) which must be delivered five
days prior to the Expiration Date) (collectively, the "Return Conditions"):
-----------------
(i) an environmental audit of the Mill I Property, performed by
environmental consultants selected by the Lessor, satisfactory in scope and
content to the Agent, the Lessor, the Collateral Agent, each Equity Investor and
each Note Holder, each in its sole discretion.
(ii) a report of the Appraiser and/or the Independent Engineer,
satisfactory in scope and content to the Lessor, the Collateral Agent, the
Agent, the Equity Investors and the Note Holders, each in their sole discretion,
to the effect that (A) the Mill I Improvements, if any, have been completed; (B)
the Mill I Property has been constructed or maintained in accordance with the
terms and conditions of the Lease and the other Operative Documents and the
requirements of all Legal Requirements, Applicable Permits and prudent industry
standards for pulp and paper mills in Wisconsin; (C) the Lessee shall not be
rebuilding or restoring or required to rebuild or restore the Mill I Property or
any part thereof pursuant to paragraph 12(c) of this Lease; (D) the Mill I
Property meets or exceeds the performance tests specified on Exhibit A hereto
(the "Performance Tests") taking into account any modifications to the
------------------
Performance Tests necessitated by the Mill I Improvements (as determined by the
Independent Engineer) which will insure that, at a minimum, the Mill I Property
(including the Mill I Improvements, if any,) can operate at the required
capacity, efficiency, utility and reliability required to meet the terms of any
existing contracts involving the Mill I Property (including the Mill I
Improvements) on the Expiration Date (or date of such other termination of the
Lease); (E) all mechanical, electrical, security, plumbing, fire safety,
telecommunications, structural and other building systems in the Mill I Property
are operating properly in accordance with standards and specifications for such
systems not less than those in effect on the date hereof, subject to the
provisions of paragraph 23 hereof (and such other standards and specifications
as may be required by applicable Legal Requirements); and (F) no Condemnation or
Casualty has occurred which has not been remedied in accordance with the terms
of the Operative Documents;
(iii) delivery of a services agreement to the Lessor (in form and
substance satisfactory to the Agent, the Lessor, the Equity Investors and the
Note Holders each in their sole and absolute discretion), containing among other
things, evidence that the Lessee has made arrangements satisfactory to the Agent
in its sole and absolute discretion for the provision of all services necessary
to
47
<PAGE>
maintain, own, operate or sell the Mill I Property (including obtaining all
necessary intellectual property, surveys, permits, rights of way, manuals and
contracts specifically associated with the Mill I Property and required for the
operation of the Mill I Property as then being operated);
(iv) an endorsement to the previously delivered ALTA extended
coverage owner's title insurance policy issued by the Title Company, marked
"premium paid" and increasing the coverage of such policy to an aggregate amount
equal to the lesser of (i) the maximum insurable amount or (ii) the Adjusted
Capitalized Cost of the Mill I Property, subject only to Permitted Encumbrances
and otherwise in form and substance satisfactory to the Note Holders, the Equity
Investors, the Lessor and Special Counsel, to be delivered to the Note Holders,
the Equity Investors, the Lessor and Special Counsel, together with copies of
all documents relating to the Permitted Encumbrances referred to therein,
showing record title of the Lessor in the (leasehold estate in and to the) Mill
I Property, and in and to Mill I, the Mill I Improvements and the Mill I
Alterations;
(v) all Fixed Rent and Additional Rent shall have been paid in
full through such expiration or termination of the Term (or the Extended Term,
as applicable);
(vi) the Lessee shall remove, or cause the removal of, at the
Lessee's sole expense, any inventory, fixtures, machinery, equipment or other
property belonging to the Lessee or third parties in compliance with paragraph
10(b) and 23(d) of this Lease; and
(vii) if directed to do so by the Lessor, the Lessee (at its
expense) shall execute and deliver any and all further instruments, agreements
and documents as may, in the reasonable opinion of the Lessor, be necessary to
confirm the termination and expiration of this Lease and to acknowledge that the
Lessee, from the date of termination and expiration, ceases to have any interest
in the Mill I Property under this Lease and to confirm the Lessor's ownership of
the Mill I Property.
(c) Upon the Lessee's election to terminate this Lease pursuant
to and in compliance with paragraph 27(a)(ii) the Lessee shall use reasonable
efforts during the twelve-month period prior to the Expiration Date
("Remarketing Period") to obtain bids from unrelated third parties for the Mill
------------------
I Property. All bids received by the Lessee shall immediately be copied to the
Lessor and the Agent in writing, setting forth the amount of such bid and the
name and address of the person submitting such bid. The Lessor, the Agent, the
Equity Investors and each Note Holder shall have the right, but not the
obligation, to seek bids for the Mill I Property during the Remarketing Period
or at any time thereafter. On the Expiration Date or at any time thereafter,
provided that all conditions of this paragraph 27 have been met, the Collateral
Agent may (but is not obligated to) sell the Mill I Property for cash to the
bidder, if any, who shall have submitted the highest bid during the Remarketing
Period or any time thereafter on an as-is basis and without recourse or
warranty, subject to the provisions of Section 3.01 of the Interparty Agreement.
The Lessor shall be entitled to keep the proceeds of such sale after payment of
Closing Costs (the "Net Sale Proceeds"), and Lessee shall have no further claim
-----------------
thereto except to the extent such Net Sale
48
<PAGE>
Proceeds exceed the outstanding obligations of the Lessee under the Operative
Documents.
(d) So long as no Default, Event of Default or Major Environmental
Event exists, the Lessee may request (in its sole discretion), by written notice
given to the Agent at least 3 months prior to the Expiration Date an extension
of this Lease for one additional period of up to five years (the "Extended
--------
Term"). The Lessor and the Lessee shall determine the Applicable Rate for the
- ----
Extended Term, consistent with the terms outlined below in this paragraph 27(d),
and the Lessee shall undertake to enter into all amendments and supplements to
the Operative Documents and such other agreements as the Lessor in its sole
discretion determines to be necessary and appropriate in connection therewith
including, without limitation, delivery to Agent of an appraisal of the Mill I
Property (satisfactory in form and substance to the Agent in its sole
discretion). If the Lease is extended for the Extended Term, the Lessee shall
pay the Agent a remarketing fee, the amount of which shall be determined one
month prior to the commencement of the Extended Term. Fixed Rent during the
Extended Term shall be paid monthly in arrears, and include an annual amount
(payable annually in arrears) to be applied (i) to the outstanding principal
amount of the Notes, and (ii) to the outstanding stated amount of the Equity
Investment, such annual amount to be based on an amortization schedule
(determined by reference to the appraisal described in this paragraph 27(d) and
agreed to by the Note Holders and the Equity Investors in their sole
discretion).
(e) The Applicable Rate, the principal amount of the commitments to be
agreed upon by each Note Holder and each Equity Investor and Commitment Fees
payable during the Extended Term shall be determined as follows:
(i) Within ten (10) days after receipt of Lessee's request to
extend this Lease pursuant to this paragraph 27(d), the Agent shall, in
accordance with provisions of the letter agreement of even date herewith (the
"Extension Letter") among the Lessee and each APA Purchaser, the manager under
----------------
the Management Agreement, CNAI, the Equity Investor, the Lessor and the
Collateral Agent, consult with each party to the Extension Letter to determine
(A) the amount of the Applicable Rate, the Fixed Rent and the Commitment Fees,
if any, for the Extended Term at which the Note Holders, the Equity Investors
and other applicable Persons are willing to continue their respective interests
for the Extended Term (the "Proposed Extension Rates"), or (B) whether any such
------------------------
Person is unwilling to continue its interest during the Extended Term; and the
Agent shall promptly thereafter notify the Lessee thereof.
(ii) If the Agent notifies the Lessee of the Proposed Extension
Rates, the Lessee shall, within five Business Days after such notice, notify the
Agent whether the Lessee is willing to accept the Proposed Extension Rates for
the Extended Term and, if not, at what Applicable Rate, Fixed Rent and
Commitment Fees the Lessee is willing to accept for the Extended Term (the
"Lessee's Extension Rates"); provided, however, that in the event that the
------------------------ -------- -------
Equity Investor and the Lessor are the same person, the
49
<PAGE>
Lessee agrees that any extension of this Lease agreed to by the Lessee with
either the Equity Investor or the Lessor shall also include such other Person.
(iii) If any party to the Extension Letter notifies the Agent
that it is unwilling to extend this Lease in accordance with clause (i)(B) above
or if the Lessee notifies the Agent that it is unwilling to accept the Proposed
Extension Rates and advises the Agent of the Lessee's Extension Rates as set
forth above, the Agent shall use reasonable efforts to locate replacement
lenders, investors and other Persons as necessary to extend this Lease for the
Extended Term on Lessee's Extension Rates.
(iv) If the Lessee fails to give the Agent the notice described
in clause (ii) of this paragraph 27(e), or, if within one month after Lessee's
request to extend this Lease pursuant to paragraph 27(d), the Agent has been
unable to locate replacement lenders, investors or other Persons as necessary to
extend this Lease for the Extended Term on Lessee's Extension Rates, the Agent
shall notify the Lessee and the Lessee, within five Business Days after such
notice shall give the Agent notice of either (x) the Lessee's agreement to
extend this Lease for the Extended Term at the Proposed Extension Rates, if any,
or (y) in all other cases, the Lessee's election pursuant to paragraph 27(a)(i)
hereof; provided, that if the Lessee fails to give the Agent such notice, the
Lessee shall be deemed to have given notice of its election pursuant to
paragraph 27(a)(i) hereof.
(e) If Lessee is unable to satisfy one or more of the conditions set
forth in paragraphs 27(b) and 27(c) hereof, or fails to elect either (i) or (ii)
under paragraph 27(a) hereof, the Lessee shall be deemed to have elected to
proceed under paragraph 27(a)(i) hereof, in which case Lessee shall purchase the
Mill I Property pursuant to and in accordance with said paragraph 27(a)(i).
28. Protective Expenditures. At any time after the expiration or
-----------------------
other termination of this Lease, if the Lessee has not purchased the Mill I
Property pursuant to the terms of this Lease, any Note Holder, any Equity
Investor or the Lessor shall have the right to pay, or to fund the Collateral
Agent's payment of, (i) real estate Taxes due and owing with respect to the Mill
I Property or (ii) insurance premiums required to maintain the coverage required
during the Term of this Lease pursuant to Section 5.01(o) of the Participation
Agreement (each a "Protective Expenditure"). Reimbursement of Protective
----------------------
Expenditures made by any Note Holder, any Equity Investor or the Lessor in
accordance with this paragraph 28 shall be made upon a sale of the Mill I
Property pursuant to the provisions set forth in the Interparty Agreement.
29. Limitations on Amounts Payable. Notwithstanding anything to the
------------------------------
contrary contained in this Lease or any of the other Operative Documents, the
amounts which the Lessee is obliged to pay, as Fixed Rent pursuant to this Lease
and the other Operative Documents, and the amounts which Lessor, Agent, the
Equity Investors and the Note Holders are entitled to receive as Fixed Rent
pursuant to this Lease and other Operative
50
<PAGE>
Documents, are subject to limitations pursuant to Section 8.17 of the
Participation Agreement.
30. No Merger of Title. There shall be no merger of this Lease nor
------------------
of the leasehold estate created by this Lease with the ownership of the Mill I
Parcel, Mill I, the Mill I Improvements or the Mill I Alterations by reason of
the fact that the same Person may acquire, own or hold, directly or indirectly,
this Lease or the leasehold estate created by this Lease or any interest in this
Lease or interest in the fee or leasehold ownership of the Mill I Parcel, Mill
I, the Mill I Improvements or the Mill I Alterations and no such merger shall
occur unless and until all Persons having any interest in (x) the leasehold
estate created by this Lease and (y) the ownership of the Mill I Parcel, Mill I,
the Mill I Improvements or the Mill I Alterations, or any part thereof shall
join in a written instrument effecting such merger and shall duly record the
same.
31. Payments to the Agent. The Lessee hereby acknowledges, and the
---------------------
Lessor hereby directs, that all payments of Fixed Rent, Additional Rent and
other sums due to the Lessor hereunder shall be made to the Agent, on behalf of
the Lessor, to the account specified for the Agent in Schedule I to the
Participation Agreement.
32. Remaining Moneys. Except as otherwise provided for herein or in
----------------
the Interparty Agreement, any and all moneys remaining, and all residual
interests in the Mill I Property after all payments of interest on and principal
of the Notes, and all payments of current yield on and the stated amount of the
Equity Investment and all payments of other sums due to the parties entitled
thereto under the Operative Documents, have been made in accordance with the
Operative Documents, shall be paid and assigned to the Lessee.
33. Replace and Supersede. This Lease replaces and supersedes in all
---------------------
respects the Original Mill I Lease, which Original Mill I Lease shall, from and
after the date hereof, be of no further force or effect.
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be
duly executed by their respective Officers thereunto duly authorized as of the
date hereof.
LESSOR:
CREDIT SUISSE LEASING
92A, L.P.
By:
CREDIT SUISSE FIRST BOSTON,
its general partner
By: /s/ Richard P. O'Day
------------------------
Name: Richard P. O'Day
Title: Associate
By: /s/ Rita A. Santelli
------------------------
Name: Rita A. Santelli
Title: Associate
51
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
The foregoing instrument was acknowledged before me this 31st day of
January, 1997, by Richard O'Day, as Associate of CREDIT SUISSE FIRST BOSTON, the
general partner of CREDIT SUISSE LEASING 92A, L.P., a Delaware limited
partnership, in his capacity as Associate of such general partner and on behalf
of said limited partnership. He is personally known to me or has produced
___________________ as identification.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal at my office in New York, New York the day and year last above
written.
(SEAL)
/s/ Daniel E. Carroll
-------------------------------
Printed Name: Daniel E. Carroll
Notary Public in and for said State
Commissioned in New York County
My Commission Expires:
August 31, 1997
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
The foregoing instrument was acknowledged before me this 31st day of
January, 1997, by Rita A. Santelli as Associate of CREDIT SUISSE FIRST BOSTON,
the general partner of CREDIT SUISSE LEASING 92A, L.P., a Delaware limited
partnership, in his capacity as Associate of such general partner and on behalf
of said limited partnership. He is personally known to me or has produced
___________________ as identification.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal at my office in New York, New York the day and year last above
written.
(SEAL)
/s/ Daniel E. Carroll
-------------------------------
Printed Name: Daniel E. Carroll
Notary Public in and for said State
Commissioned in New York County
My Commission Expires:
August 31, 1997
<PAGE>
LESSEE:
TENNECO PACKAGING INC.
Attest:/s/ James D. Gaughan By:/s/ Karen R. Osar
-------------------- -----------------
Name: James D. Gaughan Name: Karen R. Osar
Title: Assistant Secretary Title: Vice President
[Seal]
Agreed to and Accepted:
CITIBANK, N.A., as Agent
By:/s/ Carolyn R. Bodner
----------------------
Name: Carolyn R. Bodner
Title: Vice President
<PAGE>
STATE OF New York )
: ss.:
COUNTY OF New York )
On this 31st day of January, 1997, before me personally appeared Karen
R. Osar, to me personally known, who being by me duly sworn, did say that
[he/she] is the Vice President of TENNECO PACKAGING, INC., a Delaware
corporation, and that the seal affixed to the foregoing instrument is the
corporate seal of said general partner and that said instrument was signed and
sealed on behalf of said general partner by authority of its Board of Directors,
and said Vice President acknowledged said instrument to be the free act and deed
of said general partner.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal at my office in Westchester County the day and year last above
written.
/s/ Nancy Mangano
------------------------------
P r i n t e d
Name: Nancy Mangano
-----------------
Notary Public in and for said State
Commissioned in Westchester County
My Commission Expires:
May 31, 1997
-1-
<PAGE>
SCHEDULE A
----------
Description of the Mill I Parcel
--------------------------------
LAND IN THE CITY OF ________, ________ COUNTY, ________, legally described as
follows:
A-1
<PAGE>
SCHEDULE B
----------
Fixed Rent and Additional Rent Schedule
---------------------------------------
Capitalized terms used herein and not defined herein shall have the meanings
- --------------------------------------------------------------------------------
assigned to them in the Lease (including terms defined by reference in the Lease
- --------------------------------------------------------------------------------
to the other Operative Documents).
- ----------------------------------
I. Fixed Rent
----------
A. The "Adjusted Capitalized Cost" of the Mill I Property as a whole
-------------------------
at any time during the Term (or the Extended Term, as applicable) is
(i) the sum of each of the aggregate unpaid principal amounts of the
A-Notes and the B-Notes (without taking into account any prepayment
pursuant to the last sentence of Section 2.04 of the Loan Agreement)
at such time and the unpaid stated amount of the Equity Investment at
such time times (ii) the Mill I Percentage.
B. "Fixed Securitization Costs" shall mean, without duplication of
--------------------------
any of the following fixed securitization costs and without
duplication of any other fixed costs related to the Operative
Documents or the Securitization Documents payable by the Lessee, the
fee of the Managing Agent pursuant to the Management Agreement or any
related fee letter, the fee of the Servicing Agent pursuant to the
Servicing Agreement or any related fee letter, and the monthly
commitment fee payable to CXC's Credit Enhancer pursuant to the
Securitization Fee Letter.
C. The "Mill I Percentage" means initially the updated appraised
-----------------
fair market value of the Mill I Property divided by the Acquisition
Costs and thereafter the percentage calculated by dividing (i) the
Actual Project Costs actually expended on the Mill I Property (on and
as of the date of such calculation) by (ii) the sum of the Actual
Project Costs actually expended on the Mill I Property (on and as of
the date of such calculation) plus the Actual Project Costs actually
expended on the Mill II Property (on and as of the date of such
calculation).
B-1
<PAGE>
D. Fixed Rent during the Term (or the Extended Term, as applicable)
shall be due and payable in arrears on each Payment Date (subject, in
the case of Fixed Securitization Costs, to the rights of Lessee under,
and the limitations on such payments contained in, the Operative
Documents). "Fixed Rent" for each Payment Date during the Term shall
----- ----
be equal to the product of (i) the portion of Adjusted Capitalized
Cost represented by each Instrument multiplied by (ii) the Applicable
-------------
Rate for each Instrument in effect prior to such Payment Date; plus
----
Fixed Securitization Costs.
B-2
<PAGE>
II. Additional Rent
---------------
A. In addition to such Additional Rent as may otherwise be payable
under the Lease, Lessee shall pay, without duplication, within five
(5) days after a demand therefor (but subject in all cases to the
rights of Lessee under, and the limitations on such payments contained
in, the Operative Documents) as Additional Rent, without duplication,
all Additional Costs. Promptly after the Lessor receives notice from
any Note Holder, Equity Investor or such other Persons requesting
payment of any Additional Costs to be payable as Additional Rent the
Lessor shall notify Lessee of the same. The failure to provide such
notice as to any Additional Costs shall not affect the right of any
Equity Investor, Note Holder or such other Person to recover
Additional Rent for the same.
B. "Additional Costs" shall mean all Break Costs, Funding Costs,
----------------
Reserve Costs, Increased Costs, Charges, Other Taxes, Variable
Securitization Fees, Illegality Costs and other amounts required to be
paid (or indemnified against) by the Lessee pursuant to Article V of
the Participation Agreement.
C. Upon requesting that Lessee pay Additional Rent pursuant to
paragraph II. A. above, the Lessor shall deliver to Lessee a
certificate in reasonable detail executed by the Equity Investors,
Note Holders or such other Persons requesting payment of Additional
Costs, as the case may be, charging such Additional Rent and (i)
setting forth the basis for and the Amount of such Additional Rent,
and (ii) in the case of Increased Costs, stating that such Increased
Costs are generally being charged by such Equity Investor or Note
Holder to other similarly situated Persons under similar arrangements.
Such certificate shall be conclusive and binding for all purposes,
absent manifest error, unless such certificate fails to set forth the
information required above.
B-3
<PAGE>
Exhibit A
---------
Performance Tests
-----------------
A-1
<PAGE>
STATE OF )
- --------------------
: ss.:
COUNTY OF __________)
The foregoing instrument was acknowledged before me this ____ day of
__________, 1997, by _______________, as _____________ of CREDIT SUISSE FIRST
BOSTON, the general partner of CREDIT SUISSE LEASING 92A, L.P., a Delaware
limited partnership, in his capacity as _________________ of such general
partner and on behalf of said limited partnership. He is personally known to me
or has produced ___________________ as identification.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal at my office in _______________________ the day and year last
(SEAL)
above written.
Printed Name:
Notary Public in and for said State
Commissioned in ___________ County
My Commission Expires:
-1-
<PAGE>
AMENDED AND RESTATED MILL II LEASE
-------------------------------------------
between
CREDIT SUISSE LEASING 92A, L.P.,
as Lessor
and
TENNECO PACKAGING INC.,
as Lessee
Dated: As of November 4, 1996
Location: City of Valdosta
County of Lowndes
State of Georgia
and
County of Hamilton
State of Florida
NOTE TO TAX EXAMINER IN ACCORDANCE WITH TECHNICAL ASSISTANCE ADVISEMENT #96-M-
002 ISSUED BY THE DEPARTMENT OF REVENUE, DOCUMENTARY STAMP TAXES ARE DUE AND
PAYABLE UPON RECORDATION OF THIS LEASE. THE CALCULATION OF THE DOCUMENTARY
STAMP TAXES IS BASED ON THE ASSUMPTION THAT THE VALUE OF THE COLLATERAL LOCATED
IN FLORIDA IS MORE THAN THE PRORATA AMOUNT OF THE LOAN IN ACCORDANCE WITH RULE
12B-4.053(32)(c), FLORIDA ADMINISTRATIVE CODE. THE AMOUNT OF THE NOTES MADE,
EXECUTED AND DELIVERED OUTSIDE OF THE STATE OF FLORIDA IS IN THE AGGREGATE
PRINCIPAL AMOUNT OF $860,875,000.00 AND THE VALUE OF THE COLLATERAL LOCATED IN
FLORIDA IS $260,000.00. THE VALUE OF THE COLLATERAL LOCATED OUTSIDE OF THE
STATE OF FLORIDA IS $860,615,000.00. THIS LEASE DOES NOT ENCUMBER ANY REAL
PROPERTY; THEREFORE, THE INTANGIBLE TAX UNDER SECTION 199.133, FLORIDA STATUTES,
IS NOT DUE.
<PAGE>
THIS LEASE HAS BEEN MANUALLY EXECUTED IN COUNTERPARTS NUMBERED CONSECUTIVELY
FROM l TO __. TO THE EXTENT, IF ANY, THAT THIS LEASE CONSTITUTES CHATTEL PAPER
(AS SUCH TERM IS DEFINED IN THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN ANY
APPLICABLE JURISDICTION), NO SECURITY INTEREST IN THIS LEASE MAY BE CREATED
THROUGH THE TRANSFER OR POSSESSION OF ANY COUNTERPART OF THIS LEASE OTHER THAN
COUNTERPART NO. 1.
This is Counterpart No. ____
2
<PAGE>
TABLE OF CONTENTS
(Not a part of the Lease)
<TABLE>
<CAPTION>
Paragraph Page
- --------- ----
<S> <C>
1. Lease of Mill II Property; Title and Condition........ 2
2. Use; Quiet Enjoyment; Ownership;
Hazardous Materials................................... 2
2A. Acquisition; Construction; Financing.................. 4
3. Term.................................................. 5
4. Rent.................................................. 5
5. Net Lease; Non-Terminability.......................... 6
6. Taxes and Assessments; Compliance with Law;
Certain Agreements.................................... 7
7. Matters of Title...................................... 8
8. [Intentionally Omitted]............................... 10
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Paragraph Page
- --------- ----
<S> <C>
9 Maintenance and Repair; Inspection.................... 10
10. Mill II Alterations; Removal.......................... 12
11. Lessee's Right to Contest Real Property Taxes......... 13
12. Condemnation and Casualty............................. 14
13. Environmental Event................................... 18
14. Offer to Purchase..................................... 23
15. Procedure Upon Purchase............................... 24
16. Insurance............................................. 26
17. Subletting; Assignability; Amendment of
Facility Agreements................................ 29
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Paragraph Page
- --------- ----
<S> <C>
18. Permitted Contests.................................... 30
19. Default Provisions.................................... 32
20. Additional Rights; Mortgage........................... 35
21. Notices, Demands and Other Instruments................ 44
22. No Default Certificate................................ 44
23. Surrender............................................. 44
24. Severability; Binding Effect; Governing Law;
Non-Recourse........................................ 46
25. Headings and Table of Contents........................ 47
26. Lessor's Right to Cure Lessee's Default............... 47
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
Paragraph Page
- --------- ----
<S> <C>
27. Lessee's Options Upon Expiration...................... 48
28. Protective Expenditures............................... 53
29. Limitations on Amounts Payable........................ 53
30. No Merger of Title.................................... 53
31. Payments to the Agent................................. 54
32. Remaining Moneys...................................... 54
33. Replace and Supersede................................. 54
Schedule A - Description of the Mill II Parcel
Schedule B - Fixed Rent and Additional Rent Schedule
Schedule C - Environmental Disclosure
Exhibit A - Performance Tests
</TABLE>
iv
<PAGE>
AMENDED AND RESTATED MILL II LEASE dated as of November 4, 1996 (this "Lease")
between CREDIT SUISSE LEASING 92A, L.P., a Delaware limited partnership (the
"Lessor"), having an address at 11 Madison Avenue, New York, New York 10010 and
------
TENNECO PACKAGING INC., a Delaware corporation (the "Lessee"), having an address
------
at 1603 Orrington Avenue, Evanston, Illinois 60201. The schedules and exhibits
referred to in this Lease are hereby incorporated by reference herein.
Capitalized terms used but not defined herein shall have the respective meanings
set forth in the Participation Agreement dated as of November 4, 1996, by and
among NEW TENNECO INC., the Lessee, the Lessor, STATE STREET BANK AND TRUST
COMPANY, as Collateral Agent, and CITIBANK, N.A., as Agent, and the Persons
named therein as Note Holders (as the same may be amended, modified or
supplemented from time to time, the "Participation Agreement").
-----------------------
Preliminary Statement
---------------------
The Lessor and the Lessee entered into a certain Mill II Lease dated
as of November 4, 1996, pursuant to which the Lessor agreed to sublease the Mill
II Parcel and lease Mill II, the Mill II Improvements and the Mill II
Alterations to the Lessee on the terms and subject to the provisions therein set
forth (the "Original Mill II Lease"). The Lessor and the Lessee wish to modify
----------------------
and amend certain provisions of the Original Mill II Lease and to restate, in
its entirety, the provisions of the Original Mill II Lease, all in the manner
hereinafter set forth. It is intended by the Lessor and the Lessee that (a)
this Lease replaces in its entirety and supersedes in all respects the Original
Mill II Lease and (b) that all references in the Participation Agreement and any
of the Operative Documents to the "Mill II Lease" shall mean and refer to this
Lease.
As of the Financing Closing Date, the Lessor will have acquired a
leasehold interest in the Mill II Parcel described on Schedule A hereto and fee
title to Mill II located on the Mill II Parcel. The Lessor wishes to sublease
the Mill II Parcel, and lease Mill II, the Mill II Improvements and the Mill II
Alterations to the Lessee (for convenience of reference, such sublease of the
Mill II Parcel and lease of Mill II, the Mill II Improvements, the Mill II
Alterations and the balance of the Mill II Property being collectively referred
to as the lease of the Mill II Property) and the Lessee wishes to lease the same
from the Lessor for the Term, or the Extended Term (as defined
1
<PAGE>
below), as applicable, and on the terms and subject to the provisions
hereinafter set forth.
NOW, THEREFORE, the parties do hereby agree as follows:
1. Lease of Mill II Property; Title and Condition. (a) In
----------------------------------------------
consideration of the rents and covenants herein stipulated to be paid and
performed by the Lessee for the Term, or the Extended Term (as applicable) and
upon the terms and conditions herein specified, (i) the Lessor hereby leases to
the Lessee the Mill II Property and (ii) the Lessee hereby leases and accepts
from the Lessor the Mill II Property. The Mill II Property is leased to the
Lessee subject to (w) the terms, covenants and provisions of the Mill II Ground
Lease, (x) all applicable Legal Requirements and all of the insurance
requirements set forth in paragraphs 16(a) through (c) hereof (collectively, the
"Insurance Requirements") now or hereafter in effect; (y) all Permitted
----------------------
Encumbrances; and (z) the terms, covenants and provisions of this Lease. The
Lessee has as of the date hereof, examined the Mill II Property and title
thereto and has found the same satisfactory for all purposes of this Lease.
(b) THE LESSOR MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR
IMPLIED, WITH RESPECT TO THE MILL II PROPERTY OR ANY FIXTURE OR OTHER ITEM
CONSTITUTING A PORTION THEREOF, OR THE LOCATION, USE, DESCRIPTION, DESIGN,
MERCHANTABILITY, FITNESS FOR USE FOR ANY PARTICULAR PURPOSE, CONDITION OR
DURABILITY THEREOF OR AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN,
OR AS TO THE LESSOR'S TITLE THERETO OR OWNERSHIP THEREOF OR OTHERWISE, IT BEING
AGREED THAT ALL RISKS INCIDENT THERETO ARE TO BE BORNE BY THE LESSEE. IN THE
EVENT OF ANY DEFECT OR DEFICIENCY OF ANY NATURE IN THE MILL II PROPERTY OR ANY
FIXTURE OR OTHER ITEM CONSTITUTING A PORTION THEREOF, OR LESSOR'S TITLE TO ANY
OF THE SAME, WHETHER PATENT OR LATENT, THE LESSOR SHALL HAVE NO RESPONSIBILITY
OR LIABILITY WITH RESPECT THERETO. THE PROVISIONS OF THIS PARAGRAPH 1(b) HAVE
BEEN NEGOTIATED AND ARE INTENDED TO BE A COMPLETE EXCLUSION AND NEGATION OF ANY
AND ALL WARRANTIES AND REPRESENTATIONS, EXPRESS OR IMPLIED, BY THE LESSOR WITH
RESPECT TO THE MILL II PROPERTY OR ANY FIXTURE OR OTHER ITEM CONSTITUTING A
PORTION THEREOF, WHETHER ARISING PURSUANT TO THE UCC OR ANY OTHER LAW, NOW OR
HEREAFTER IN EFFECT.
2. Use; Quiet Enjoyment; Ownership; Hazardous Materials. (a) The
----------------------------------------------------
Lessee shall use the Mill II Property solely as a pulp
2
<PAGE>
and paper mill facility, storage facilities and related business offices, in a
manner consistent with the provisions of paragraph 9. The Lessee covenants that
it will cause Mill II, the Mill II Improvements and the Mill II Alterations (to
the extent the same are or become an integral part of the Mill II Property) at
all times to be located on the Mill II Parcel.
(b) During the Term or the Extended Term, the Lessor covenants that,
unless a Default or an Event of Default or a Major Environmental Event has
occurred and is continuing, it will not, and will not permit any party claiming
by or under the Lessor (subject to the terms, covenants and provisions of the
Ground Lease) to, (i) grant, create or suffer to exist any Lien upon the Mill II
Property (or any part thereof or interest therein) other than the Permitted
Encumbrances (excluding therefrom any Lessor's Lien); or (ii) interfere with the
peaceful and quiet possession and enjoyment of the Mill II Property by the
Lessee; provided, however, that the Lessor, the Agent, the Collateral Agent, the
-------- -------
Equity Investor, the Independent Engineer, the Environmental Consultant, the
Appraiser and their respective successors, assigns, representatives and agents
(the "Lessor Group") may, upon advance written notice to the Lessee (unless any
------------
member of the Lessor Group, each in its sole discretion, has reason to believe
that a Default, an Event of Default or a Major Environmental Event has occurred
and is continuing or other exigent or emergency conditions exist, in which case
no such notice shall be necessary), enter upon and examine the Mill II Property
or any part thereof (including all records directly related to the Mill II
Property) at reasonable times in compliance with and subject to Lessee's
standard safety and security procedures, in effect from time to time; provided,
--------
further, that if a Default, an Event of Default or a Major Environmental Event
- -------
has occurred and is continuing or if the Lessee has exercised its option to
terminate this Lease pursuant to clause (ii) of paragraph 27(a), then the Lessee
shall give the Lessor Group such additional access to the Mill II Property and
to the Lessee's books and records relating to the management, operation, use,
maintenance, renovation, construction or occupancy of the Mill II Property as it
may require for any purpose, including, without limitation, for marketing,
selling, operating or otherwise disposing of the Mill II Property.
3
<PAGE>
(c) The Lessor will not, and will not permit any party claiming by,
through or under the Lessor to assign, transfer, lease or convey the Mill II
Property or this Lease, or any part thereof or interest therein other than to
the Collateral Agent. The foregoing restriction will not apply to (i) removal
of the Mill II Alterations by the Lessee to the extent permitted under this
Lease or (ii) any assignment, transfer or conveyance of the Mill II Property or
this Lease to the Collateral Agent or as otherwise permitted under the
Interparty Agreement or under the Participation Agreement; provided that any
-------- ----
such assignment, transfer or conveyance (prior to the Expiration Date or when an
Event of Default does not exist) is expressly subordinate to the rights of the
Lessee under this Lease and (y) subject to the rights of the Lessee to purchase
the Mill II Property pursuant to the Operative Documents.
(d) The Lessor, at the Lessee's sole cost and expense, shall
cooperate or assist with the Lessee's efforts to obtain all services, Permits
and contracts necessary and useful for the renovation and construction of the
Mill II Improvements and the acquisition, operation and maintenance of the Mill
II Property for the intended purposes thereof, and the Lessor may, and to the
extent required in paragraph 7(c) shall, execute such documents or papers as may
be reasonably necessary for such purposes. The Lessee further covenants that it
shall at its own cost and expense on behalf of and in the name of the Lessor,
apply for, obtain and maintain all Permits required in order to permit the
lawful ownership of the Mill II Property by the Lessor during the Term or the
Extended Term, as the case may be.
(e) Any failure by the Lessor or such other Person to comply with the
foregoing provisions of this paragraph 2 or any other provisions of this Lease
shall not give the Lessee any right to cancel or terminate this Lease, or to
abate, reduce or make deduction from or offset against any Fixed Rent,
Additional Rent or other sum payable under this Lease, or to fail to perform or
observe any other covenant, agreement or obligation hereunder.
(f) The Lessee shall, and it shall require and ensure that any and
all sublessees, employees, contractors, subcontractors, agents, representatives,
affiliates, consultants, occupants and any and all other Persons, subject to
paragraph 13, (i) comply with all applicable Environmental Laws, and (ii) use,
employ,
4
<PAGE>
process, emit, generate, store, handle, transport, dispose of and/or arrange for
the disposal of any and all Hazardous Materials in, on or, directly or
indirectly, related to or in connection with the Mill II Property or any part
thereof in a manner consistent with prudent industry practice and in compliance
with all applicable Environmental Laws, and in a manner which does not pose a
significant risk to human health, safety (including occupational health and
safety) or the environment. The Lessor and the Lessee hereby acknowledge and
agree that the Lessee's obligations hereunder with respect to Hazardous
Materials and Environmental Laws are intended to bind the Lessee with respect to
matters and conditions on, in, under, beneath, from, with respect to, affecting,
related to, in connection with, or involving the Mill II Property or any part
thereof.
2A. Acquisition; Construction; Financing. (a) The Lessee has entered
------------------------------------
into the Agency Agreement with the Lessor pursuant to which the Lessee as
Construction Agent has agreed to complete the renovation and construction of
such Mill II Improvements as the Lessee, in its sole discretion, shall determine
to construct as contemplated by the Participation Agreement. The Mill II
Improvements shall, as the construction of same is completed upon the Mill II
Parcel, become a part of Mill II, and title thereto shall remain in the Lessor.
(b) In order to finance the acquisition by the Lessor of its
leasehold interest in the Mill II Parcel and its ownership interest in the
balance of the Mill II Property and to finance the cost of renovation and
construction of the Mill II Improvements, if any, the Note Holders, as
contemplated by the Participation Agreement, will advance to the Agent on behalf
of the Lessor the Actual Project Costs up to their respective Note Commitments,
and in consideration therefor, the Lessor will issue A-Notes and B-Notes to the
Note Holders, and the Equity Investors, as contemplated by the Participation
Agreement, will make an Equity Investment in the Mill II Property in an amount
up to the Equity Investment Amount.
3. Term. The Mill II Property is leased for an initial term (the
----
"Term") which shall commence on the Financing Closing Date and shall terminate
- -----
on January 30, 2002 (the "Expiration Date"), or such earlier date as this Lease
---------------
shall be terminated pursuant to any provision hereof; provided, however, this
-------- -------
Lease may be
5
<PAGE>
extended for an Extended Term pursuant to paragraph 27(d) hereof.
4. Rent. (a) During the Term (or the Extended Term, as
----
applicable), the Lessee shall pay to the Agent, on behalf of the Lessor, Fixed
Rent on each Payment Date in the amounts determined in accordance with Schedule
B hereto and Additional Rent (as defined below) in the amounts determined in
accordance with (and at the times required under) the Operative Documents.
(b) All amounts that the Lessee is required to pay to the Lessor
pursuant to this Lease (other than Fixed Rent), including, but not limited to,
(i) unpaid Charges and all amounts set forth in paragraph 4(e)(ii) hereof, (ii)
all sums, costs and expenses pursuant to paragraphs 23 and 26 hereof, (iii) all
costs and expenses relating to the Mill II Property or the Lessee's use or the
Lessor's ownership thereof (or leasehold interest therein), (iv) any and all
amounts payable upon transfer or purchase of (or otherwise relating to) the Mill
II Property, together with every fine, penalty, interest and cost that may be
added for non-payment or late payment thereof, and (v) all Additional Costs,
shall constitute "Additional Rent". The Lessor shall give the Lessee notice of
---------------
any Additional Rent due hereunder promptly after it has knowledge of such
Additional Rent, and shall use reasonable efforts to notify the Lessee in
advance of the due date and amount of such Additional Rent; provided that
failure to give such prompt notice shall not relieve the Lessee of its
obligation to pay such Additional Rent, subject to, as applicable, the Lessee's
rights, if any, under paragraph 18 hereof. Additional Rent shall be payable as
provided for in Section II of Schedule B or as otherwise provided in this Lease.
(c) The Lessee shall pay to the Lessor, on demand, interest at the
Default Rate on all amounts payable by it to the Lessor hereunder from the due
date thereof until paid in full.
(d) All amounts payable by the Lessee hereunder shall be paid in
lawful money of the United States of America and in immediately available funds
by 11:00 a.m. (New York City time) on the applicable Payment Date or on the date
when due, unless any such due date is not a Business Day, in which case payment
shall be due and payable on the next succeeding Business Day, at the Agent's
address as set forth in Schedule I to the
6
<PAGE>
Participation Agreement, or at such other address or to such other person in the
United States of America or in such other manner as the Lessor from time to time
may designate to the Lessee by written instructions.
(e) The Lessee shall perform all of its obligations under this Lease
at its sole cost and expense and shall pay, when due and without notice or
demand (except as otherwise provided in this Lease), all amounts due hereunder,
under Section 8.13 of the Participation Agreement, or under the other Operative
Documents or Securitization Documents. The Lessee agrees to pay on demand (i)
all Charges (subject to Lessee's rights pursuant to paragraphs 11 and 18) and
(ii) all indemnity obligations and all charges, reasonable fees, expenses and
out-of-pocket costs of the Lessor, Lessor's Special Counsel, the Note Holders,
the Equity Investors, the Collateral Agent and the Agent and other amounts, in
accordance with the Participation Agreement.
5. Net Lease; Non-Terminability. (a) This Lease is a net lease
----------------------------
and, except as otherwise expressly provided in this Lease, any present or future
Law to the contrary notwithstanding, shall not terminate, nor shall the Lessee
be entitled to any abatement, reduction, set-off, counterclaim, defense or
deduction with respect to any Fixed Rent, Additional Rent or other sum payable
hereunder. Except as otherwise expressly provided in this Lease, the
obligations of the Lessee shall not be affected by reason of: (i) any damage to
or destruction of the Mill II Property or any part thereof by any cause
whatsoever (including, without limitation, by fire, Casualty or act of God or
enemy or any other force majeure event); (ii) any Condemnation, including,
without limitation, a temporary Condemnation of the Mill II Property or any part
thereof; (iii) any prohibition, limitation, restriction or prevention of the
Lessee's use, occupancy or enjoyment of the Mill II Property or any part thereof
by any Person; (iv) any matter affecting title to the Mill II Property or any
part thereof; (v) any eviction of the Lessee from, or loss of possession by the
Lessee of, the Mill II Property or any part thereof, by reason of title
paramount or otherwise; (vi) any default by the Lessor hereunder or under any
other Operative Document or Securitization Document; (vii) the invalidity or
unenforceability of any provision hereof or in the other Operative Documents or
the impossibility or illegality of performance by the Lessor or the Lessee or
both; (viii) any action of any Federal, state or local
7
<PAGE>
governmental authority; or (ix) any other cause or occurrence whatsoever,
whether similar or dissimilar to the foregoing. The parties intend that the
obligations of the Lessee hereunder shall continue unaffected unless such
obligations shall have been modified or terminated pursuant to an express
provision of this Lease.
(b) The Lessee shall remain obligated under this Lease in accordance
with its terms and shall not take any action to terminate, rescind or avoid this
Lease, notwithstanding any bankruptcy, insolvency, reorganization, liquidation,
dissolution or other proceeding affecting the Lessor or any action with respect
to this Lease which may be taken by any trustee, receiver or liquidator or by
any court. Except as expressly permitted in this Lease, the Lessee waives all
rights to terminate or surrender this Lease, or to any abatement or deferment of
Fixed Rent, Additional Rent or other sums payable hereunder or under the other
Operative Documents. The Lessee shall remain obligated under this Lease in
accordance with its terms, and the Lessee hereby waives any and all rights now
or hereafter conferred by Law or otherwise to modify or to avoid strict
compliance with its obligations under this Lease. All payments made to or for
the benefit of the Lessor hereunder as required hereby shall be final, and the
Lessee shall not seek to recover any such payment or any part thereof for any
reason whatsoever, absent manifest error.
6. Taxes and Assessments; Compliance with Law; Certain Agreements.
--------------------------------------------------------------
(a) The Lessee shall pay or cause to be paid, subject to paragraph 18, all
Property Charges before the same become delinquent. If any Property Charge may
legally be paid in installments, such Property Charge may be so paid in
installments; provided that, the Lessee shall pay all such installments on or
before the Expiration Date or earlier termination of this Lease.
(b) Subject to paragraph 13, the Lessee shall, at the Lessee's sole
expense, comply, and cause the Mill II Property to comply, in all material
respects, with all Legal Requirements; provided, however, the Lessee shall not
-------- -------
be obligated to comply with any Legal Requirement whose application or validity
is being contested diligently and in good faith by appropriate proceedings (and
provided that the failure to comply with such
8
<PAGE>
Legal Requirements during such contest is not reasonably likely to have a
Material Adverse Effect). "Legal Requirements" means (i) all Laws, foreseen or
----- ------------
unforeseen, ordinary or extraordinary, or arising from any restriction of record
or otherwise, which now or at any time hereafter may be applicable to the (A)
Lessor, as holder of the leasehold estate in the Mill II Parcel and the owner of
the balance of the Mill II Property; (B) the Lessee, as lessee hereunder; or (C)
the Mill II Property or any part thereof, or any of the adjoining sidewalks, or
the ownership, construction, operation, mortgaging, occupancy, possession, use,
non-use or condition of the Mill II Property or any part thereof and any other
governmental rules, orders and determinations now or hereafter enacted, made or
issued, and applicable to the Lessor, as lessee of the Mill II Parcel or as
owner of the balance of the Mill II Property, the Lessee, as lessee hereunder,
or the Mill II Property or any part thereof or the ownership, construction,
operation, mortgaging, occupancy, possession, use, non-use or condition thereof
whether or not presently contemplated; and (ii) all agreements (including,
without limitation, all Facility Agreements), Permits, covenants, and
restrictions applicable to the Mill II Property or any part thereof or the
ownership, construction, operation, mortgaging, occupancy, possession, use, non-
use or condition thereof.
(c) The Lessee shall, and (unless a Default, an Event of Default or a
Major Environmental Event has occurred and is continuing and the Lessor has
revoked such authority) is hereby authorized by the Lessor to, fully and
promptly keep, observe, perform and satisfy, on behalf of the Lessor, any and
all obligations, conditions, covenants and restrictions of or on the Lessor
under the Ground Lease and any and all Facility Agreements so that there will be
no default thereunder and so that the other parties thereunder shall be and
remain at all times obliged to perform their obligations thereunder, and the
Lessee, to the extent within its control, shall not permit to exist any
condition, event or fact that could allow or serve as a basis or justification
for any such Person to avoid such performance.
7. Matters of Title. (a) The Lessee shall not create or permit to
----------------
be created or exist, and shall promptly remove and discharge, any Lien upon this
Lease, the Mill II Property or any other part thereof or interest therein, or
upon any Fixed Rent,
9
<PAGE>
Additional Rent or other sum paid hereunder, which Lien arises for any reason,
including, without limitation, any and all Liens which arise out of the
ownership, leasing, use, condition, occupancy, construction, possession, repair
or rebuilding of the Mill II Property or any part thereof (including, without
limitation, by reason of construction and start-up of the Mill II Improvements)
or by reason of labor or materials furnished or claimed to have been furnished
to the Lessee or for the Mill II Improvements or any part thereof, but excluding
Permitted Encumbrances and Liens created by the Operative Documents. Lessee's
obligation to remove any of the above-described Liens arising prior to the
termination of this Lease (or arising due to circumstances occurring prior to
the termination of this Lease) shall survive the termination of this Lease.
Nothing contained in this Lease shall be considered as constituting the consent
or request of the Lessor, express or implied, to or for the performance by any
contractor, laborer, materialman or vendor of any labor or services or for the
furnishing of any materials for any construction, alteration, addition, repair
or demolition of or to the Mill II Property or any part thereof. NOTICE IS
HEREBY GIVEN THAT THE LESSOR IS NOT AND SHALL NOT BE LIABLE FOR ANY LABOR,
SERVICES OR MATERIALS FURNISHED OR TO BE FURNISHED TO THE LESSEE, OR TO ANYONE
HOLDING OR POSSESSING THE MILL II PROPERTY OR ANY PART THEREOF THROUGH OR UNDER
THE LESSEE, AND THAT NO MECHANIC'S OR OTHER SIMILAR STATUTORY LIENS FOR ANY
LABOR, SERVICES OR MATERIALS SHALL ATTACH TO OR AFFECT THE LESSOR'S INTEREST OR
ESTATE IN THE MILL II PROPERTY OR ANY PART THEREOF.
(b) The Lessee hereby acknowledges that this Lease shall at all times
be subject and subordinate to the Deed of Trust and the Florida Mortgage.
However, so long as no Event of Default under this Lease shall have occurred and
be continuing, in the event of a Lessor Event of Default (as defined in the
Interparty Agreement), the Collateral Agent will not (i) take any action to
disturb the Lessee's possession and occupancy of the Mill II Property nor to
diminish or interfere with any of the Lessee's rights and priveleges under this
Lease, and/or (ii) join the Lessee as a party defendant in any action or
proceeding for the purpose of terminating the Lessee's interest and estate under
this Lease.
10
<PAGE>
(c) The Lessor agrees that the Lessee during the Term shall have the
exclusive right (so long as no Default, Event of Default or Major Environmental
Event has occurred and is continuing) to secure subdivision approvals, site plan
approvals, annexation or de-annexation approvals, zoning variances and Permits
necessary or desirable for the development, use, operation, maintenance or
condition of the Mill II Property or any part thereof; provided that the fair
--------
market value, marketability or use of the Mill II Property is not lessened by
any such action. The Lessor agrees to execute such documents and take all other
actions as shall be reasonably requested, and otherwise cooperate with the
Lessee, in connection with the matters described above; provided, however, that
-------- -------
all costs and expenses incurred by the Lessor in connection therewith shall be
borne by the Lessee and that the Lessor shall not be required to execute any
documents which would, in the reasonable opinion of the Agent or Lessor,
adversely affect the value, marketability or use of the Mill II Property or
otherwise adversely affect the transactions contemplated by the Operative
Documents or the interests of the Lessor, the Equity Investors or the Note
Holders.
8. [Intentionally Omitted.]
9. Maintenance and Repair; Inspection. (a) Subject to paragraph
----------------------------------
12, the Lessee, at its own cost and expense, will manage and maintain the Mill
II Property in good mechanical condition and repair (ordinary wear and tear
excepted), in accordance with prudent industry practice and in a manner
consistent with that of other similar properties owned or operated by it or its
Affiliates similarly situated, and will take all action, and will make all
changes and repairs, structural and nonstructural, foreseen and unforeseen,
ordinary and extraordinary, which may be required to maintain the Mill II
Property in good mechanical condition and repair (ordinary wear and tear
excepted), in accordance with prudent industry practice, and in compliance with
all Legal Requirements (subject to paragraph 13) and Insurance Requirements at
any time in effect. The Lessee shall, in accordance with prudent industry
practice, repair or replace each item constituting Mill II and/or the Mill II
Improvements that shall have become worn out, damaged, inoperative or obsolete
in whole or in part; provided, however, that (i) the fair market value,
-------- -------
marketability or use of the Mill II Property shall not be lessened and (ii) such
11
<PAGE>
replacements shall be of a type currently used in the industry for the same
purpose and having a remaining useful life at least as long as that of Mill II
or the Mill II Improvements (or any part thereof), as the case may be, repaired
or replaced (prior to obsolescence, loss or damage and the like). All repairs,
replacements and rebuilding by the Lessee hereunder, to the extent permitted by
Law, shall immediately become and shall remain part of the Mill II Property of
the Lessor, subject to this Lease. The Lessor shall not be required to, and
Lessee hereby waives any right to require the Lessor to, manage, maintain,
replace, repair or rebuild Mill II, the Mill II Improvements or any part thereof
and the Lessee waives any and all rights it may now or hereafter have to make
any repairs at the cost and expense of the Lessor pursuant to any Legal
Requirement, Insurance Requirement, or otherwise, at any time in effect.
(b) Except for Permitted Encumbrances, in the event that all or any
part of Mill II or the Mill II Improvements shall encroach upon any property or
right-of-way adjoining or adjacent to the Mill II Parcel or any part thereof, or
shall violate any agreements or conditions affecting the Mill II Property or any
part thereof, or shall obstruct any easement or right-of-way to which the Mill
II Property or any part thereof may be subject, then the Lessee shall, at its
sole cost and expense, either (i) contest such matter pursuant to paragraph 18
hereof, (ii) obtain valid and effective Permits for or consents to such
encroachments and/or violations (without any liability to the Lessor, the Agent,
the Equity Investors or the Note Holders for which such parties are not
indemnified by the Lessee) or waivers or settlements of all claims, liabilities
and damages resulting therefrom, or (iii) make such changes, including
alteration or removal, to Mill II or the Mill II Improvements (as the case may
be) and take such other action as shall be reasonably necessary to rectify such
encroachments, violations, hindrances, obstructions or impairments, subject to
the Lessor's consent if and to the extent required by paragraph 10(a) hereof.
(c) Within 60 days after the end of the first three quarters of each
fiscal year and within 90 days after the end of the fourth fiscal quarter of
each fiscal year the Lessee shall give the Lessor and the Agent prompt written
notice of any mechanical
12
<PAGE>
problems which required non-scheduled shutdown of operations of Mill II for
fifteen (15) consecutive days or an aggregate of thirty (30) days during the
fiscal quarter just ended and shall state the specific reasons for such
shutdown.
(d) The Lessor Group shall have the right (which may be delegated to
its consultants and authorized representatives) to inspect the Mill II Property
and records directly related to the operation of the Mill II Property and to
discuss such of the affairs, finances, and accounts as are relevant to the
Operative Documents with the officers of Lessee, in all cases, at reasonable
times in compliance with and subject to Lessee's reasonable security and safety
procedures, in effect from time to time. Any such inspection shall be made
after advance written notice to the Lessee is given; provided, however, that no
-------- -------
advance written notice need be given if any member of the Lessor Group, in its
sole discretion, has reason to believe that a Default, Event of Default or a
Major Environmental Event has occurred or other exigent or emergency conditions
exist; and provided further, that all such inspections upon the occurrence and
-------- -------
during the continuance of a Default, an Event of Default or a Major
Environmental Event shall be at the expense of the Lessee.
10. Mill II Alterations; Removal. (a) At any time, so long as no
----------------------------
Default, Major Environmental Event or Event of Default shall have occurred and
be continuing, the Lessee may, at its own cost and expense, make Mill II
Alterations to the Mill II Property or any part thereof; provided, however, that
-------- -------
(i) the fair market value of the Mill II Property shall not be lessened by such
Mill II Alterations; (ii) such Mill II Alterations shall not diminish the
capacity, utility, efficiency, or remaining useful life of the Mill II Property
or any part thereof; and (iii) such work shall be completed in a good and
workmanlike manner free and clear of any Liens for labor, services or materials
(other than Permitted Encumbrances) and in compliance with all applicable Legal
Requirements and Insurance Requirements. "Mill II Alterations" means any and
-------------------
all additions to, alterations of or replacements for the Mill II Property or any
part thereof made by or for the Lessee, at the cost and expense of the Lessee,
excluding Mill II Improvements and any replacements installed as part of
scheduled maintenance procedures.
(b) Title to all Mill II Alterations shall vest in the Lessor (free
and clear of all Liens, except Permitted Encumbrances)
13
<PAGE>
subject to the right of Lessee to remove such Mill II Alterations as provided
hereunder. Upon any removal of the Mill II Alterations permitted hereunder, the
Lessor (at the expense of the Lessee) shall execute and deliver to the Lessee
such instruments and releases as are reasonably required to transfer the Mill II
Alterations to the Lessee pursuant to instruments in each case containing no
representation or warranty (expressed or implied) except that such Mill II
Alterations are free and clear of any Lien created under the Operative Documents
or any Lessor Lien or other adverse interest of any kind created or caused by
the Lessor or any person claiming by, through or under the Lessor.
(c) So long as no Default, Major Environmental Event or Event of
Default shall have occurred and be continuing, the Lessee shall be permitted at
any time during, or upon the expiration or termination of, the Term or the
Extended Term as applicable, and at its sole cost and expense, to remove or
demolish any Mill II Alterations in accordance with prudent industry practices;
provided, however, that, such removal shall not (i) impair the intended use or
- -------- -------
reduce the fair market value of the Mill II Property or any part thereof below
its fair market value at the commencement of the Term; (ii) diminish the
capacity, efficiency, utility or remaining useful life of the Mill II Property
or any part thereof below the capacity, efficiency, utility or remaining useful
life as of the commencement of the Term; or (iii) cause a violation of any Legal
Requirement or Insurance Requirement or significantly increase any risk of
liability under any Environmental Law or any risk to human health or the
environment. Any damage to the Mill II Property or any part thereof caused by
such removal shall promptly be repaired by the Lessee and the Mill II Property
(and each and every part thereof) shall be restored to its condition (or the
reasonable equivalent thereof) as it existed immediately prior to the
construction of such removed Mill II Alterations, at the Lessee's sole cost and
expense. The Lessee may place upon the Mill II Parcel or any part thereof any
inventory, fixtures, machinery, equipment or other property belonging to the
Lessee or third parties and remove the same at any time during the Term or the
Extended Term, as applicable (to the extent the same are not nor become an
integral part of the Mill II Property and so
14
<PAGE>
long as no Default, Event of Default or Major Environmental Event shall have
occurred and be continuing), and Lessee may (to the extent the same are not or
do not become an integral part of the Mill II Property and so long as no
Default, Event of Default or Major Environmental Event shall have occurred and
be continuing), and at the request of the Lessor shall, remove the same at the
expiration or termination hereof unless the Lessee shall have paid the Offer
Purchase Price and purchased the Mill II Property pursuant to the terms of this
Lease; provided that any damage to the Mill II Property or any part thereof
caused by such removal shall promptly be repaired by the Lessee, and the Mill II
Property (and each and every part thereof) restored to its condition (or the
reasonable equivalent thereof) as it existed immediately prior to the placement
of any such property upon the Mill II Parcel, all at the Lessee's sole cost and
expense.
(d) Not less than 30 days before the beginning of each calendar year,
the Lessee shall provide the Lessor and the Agent with a report of the Lessee's
capital spending plans for the ensuing calendar year for Mill II Alterations and
supporting details describing any single capital expenditure for a Mill II
Alteration in excess of $5 million. Such report shall be accompanied by a
certification from the Lessee to the effect that all such planned Mill II
Alterations will comply with the standards set forth in paragraph 10(a).
11. Lessee's Right to Contest Real Property Taxes. The Lessee, at
---------------------------------------------
its own cost and expense and in compliance with paragraph 18, shall have the
sole right, at any time, to seek, in good faith, a reduction in the assessed
valuation of the Mill II Property or any part thereof or to contest, in good
faith, any real or personal property taxes for the Mill II Property or any part
thereof. The Lessor shall not be required to join in any proceeding or contest
brought by the Lessee unless the provisions of any Legal Requirement require
that the proceeding or contest be brought by or in the name of the owner of the
Mill II Property. In that case the Lessor shall join in the proceeding or
contest or permit it to be brought in the Lessor's name as long as the Lessee
reimburses the Lessor for any and all costs and expenses incurred by the Lessor
in connection therewith. The Lessee, on a final non-appealable determination of
the proceeding or contest, shall immediately pay, discharge and satisfy any
decision or judgment rendered, together with all
15
<PAGE>
costs, interest and penalties incidental to the decision or judgment.
12. Condemnation and Casualty. (a) General. The Lessee hereby
------------------------- -------
irrevocably assigns to the Lessor any award or compensation or insurance payment
or other proceeds to which the Lessee may become entitled by reason of its
interest in the Mill II Property or any part thereof (other than proceeds from
business interruption insurance) if (i) the Mill II Property or any part thereof
is damaged or destroyed by fire or other casualty (each, a "Casualty") or (ii)
--------
the use, occupancy or title of the Mill II Property or any part thereof is taken
or requisitioned or sold in, or on account of any actual or threatened
condemnation or eminent domain proceedings, or other action by any Person having
the power of eminent domain or condemnation (each, a "Condemnation"); provided,
------------ --------
however, that the Lessee shall be entitled to any proceeds as a result of any
- -------
Condemnation or Casualty affecting the Mill II Alterations to the extent that
the Lessee would otherwise be entitled to remove such Mill II Alterations
pursuant to paragraph 10(c); and provided, further, that the Lessee shall be
-------- -------
entitled to any proceeds as a result of any Condemnation or Casualty for which
the award, compensation, insurance payment, or other proceeds to which the
Lessee may be entitled does not exceed $100,000 (the "Excluded Proceeds").
-----------------
The Lessee shall promptly notify the Lessor in writing of any such
Casualty or Condemnation and shall appear in any proceeding or action to defend,
negotiate, prosecute or adjust any claim for any award or compensation or
insurance payment on account of any Casualty or Condemnation and shall take all
appropriate action in connection with any Casualty or Condemnation, including
the employment of counsel reasonably satisfactory to the Lessor. The Lessor
shall have the right to appear and participate and to employ counsel in any such
proceeding or action, and the fees and expenses of such counsel shall be paid by
the Lessee. If the Lessee shall elect not to appear or shall fail to prosecute
diligently, the Lessor may assume the prosecution thereof and the Lessee shall
pay all of the costs and expenses of the Lessor (including, but not limited to,
fees and expenses of Lessor's Special Counsel) and the fees and expenses of
Special Counsel. No settlement of any such
16
<PAGE>
proceeding or action shall be made by the Lessee or the Lessor without the
written consent of the other party hereto, which consent shall not unreasonably
be withheld, conditioned or delayed.
Any and all amounts in excess of the self insured retention limits
hereunder representing proceeds (other than proceeds from business interruption
insurance, proceeds with respect to Mill II Alterations permitted to be removed
pursuant to paragraph 10(c) and Excluded Proceeds) paid in connection with any
such Condemnation or Casualty, as the case may be (collectively, the
"Proceeds"), shall be paid over to the Proceeds Trustee (as defined below) to be
--------
held in trust by such Proceeds Trustee and distributed pursuant to this
paragraph 12 and paragraph 15 hereof or pursuant to the Interparty Agreement, as
appropriate (all such Proceeds, less the costs and expenses incurred by the
Lessor and the Lessee in collecting such amounts, but including any
reimbursement by the Lessee for costs and expenses in connection therewith to
which the Lessor, the Equity Investors and the Note Holders are entitled
pursuant to the Operative Documents, are the "Net Proceeds"). Any and all
------------
Proceeds received by the Lessee in connection with any such proceeding or action
shall be paid over to the Lessor, shall be segregated from other funds of the
Lessor and shall be forthwith paid over to the Proceeds Trustee. The Lessee
agrees that this Lease shall control the rights of the Lessor and the Lessee in
any such Proceeds, and any present or future Law to the contrary is hereby
waived. Any and all reasonable charges, fees and expenses of the Proceeds
Trustee shall be paid from the Net Proceeds. "Proceeds Trustee" shall mean the
----------------
Agent or such title company or other independent bank or trust company as may be
designated by the Lessor.
17
<PAGE>
(b) Condemnation or Casualty with Termination.
-----------------------------------------
(i) Within ten (10) days after the amount of the Proceeds to be
paid to the Lessee or the Proceeds Trustee is determined, the Lessee shall
decide whether the Lessee shall rebuild, replace and repair the damage to the
Mill II Property; provided, however, that the Lessee shall not be obligated to
-------- -------
rebuild any Mill II Alterations to the extent that the Lessee would otherwise
have been entitled to remove such Mill II Alterations pursuant to paragraph
10(c). If the Lessee decides not to rebuild, replace and repair the damage to
the Mill II Property, the Lessee shall, within such ten (10) day period, deliver
to the Lessor an Offer to Purchase in accordance with paragraphs 14 and 15
hereof. Prior to the Closing Date, the Lessee shall continue to pay all Fixed
Rent, Additional Rent and all other amounts due hereunder.
(ii) If a Casualty or Condemnation occurs during the Term (or the
Extended Term, as applicable) and the Lessor has received an opinion, which
shall be at the Lessee's sole cost and expense, of the Independent Engineer to
the effect that the restoration of the Mill II Property could not be expected to
restore and rebuild the Mill II Property to its previous capacity, efficiency
and remaining useful life or such restoration and rebuilding could not be
expected to be completed in full prior to the Expiration Date or that the cost
of such restoration or rebuilding would exceed 25% of the fair market value of
the Mill II Property immediately prior to such Casualty or Condemnation, then
the Lessor may, in its sole discretion, deliver a notice ("Lessor Termination
------------------
Notice") declaring Lessor's intention to terminate this Lease and the Lessee
- ------
shall be deemed to have delivered to the Lessor as of the date of the Lessor
Termination Notice an Offer to Purchase in accordance with paragraphs 14 and 15
hereof.
(c) Condemnation or Casualty Without Termination. If, after a
--------------------------------------------
Casualty or Condemnation, the Lessee has not given an Offer to Purchase and
Lessor has not given a Lessor Termination Notice in accordance with paragraph
12(b), then this Lease shall continue in full force and effect, and the Lessee
shall, at its sole cost and expense, promptly commence and diligently pursue to
completion the rebuilding, replacement or repair of any damage to the Mill II
Parcel, Mill II and the Mill II Improvements caused by such event in conformity
with the requirements of paragraph 9 or 10, as applicable, in order to restore
the Mill II Parcel, Mill II and the Mill II Improvements (in the case of a
Condemnation, as nearly as practicable) to the value and operating condition
thereof immediately prior to such event. In connection with such restoration
the Lessee shall, before beginning such restoration, submit plans and
specifications for such restoration, together with an estimate of the cost
thereof, and all necessary construction contracts therefor for the Lessor's and
the Independent Engineer's approval, which will not be unreasonably withheld,
conditioned or delayed; provided that (i) the capacity, efficiency and utility
--------
of the Mill II Parcel, Mill II and the Mill II
18
<PAGE>
Improvements shall not, after such restoration, be less than the capacity,
efficiency and utility prior to such Casualty or Condemnation; (ii) the fair
market value of the Mill II Parcel, Mill II and the Mill II Improvements shall
not, after such restoration, be less than its fair market value prior to such
Casualty or Condemnation; and (iii) if the estimated cost to complete such
restoration exceeds the amount of Net Proceeds, the Lessor is, in its sole
judgment, satisfied that the Lessee shall have sufficient funds (the "Excess
------
Funds") available to pay such excess, which Excess Funds shall be deposited by
- -----
the Lessee with the Proceeds Trustee and distributed to the Lessee as
hereinafter provided. If the conditions set forth in the foregoing proviso are
not satisfied, the Lessee shall be deemed to have made an Offer to Purchase.
Such work shall be completed in a good and workmanlike manner free and clear of
all Liens for labor, services or materials (except Permitted Encumbrances) and
in compliance with all applicable Legal Requirements and Insurance Requirements.
Upon completion of such work, the Lessee shall cause the Independent Engineer to
deliver a certificate to the effect that final completion of the work has
occurred and that the operating condition of the Mill II Property, after taking
into consideration the restoration, is equivalent to, or better than, the
operating condition that existed immediately prior to the Casualty or
Condemnation assuming compliance with paragraph 9 hereof. All fees and expenses
of the Independent Engineer in connection with any rebuilding and restoration
shall be at the Lessee's sole cost and expense.
The Lessee shall be entitled to receive payment from the Net Proceeds
or the Excess Funds, as the case may be, from time to time as such work of
rebuilding, replacement or repair progresses, but only after presentation of
certificates of the Independent Engineer, delivered by the Lessee to the
Proceeds Trustee (with a copy to the Lessor) from time to time as such work of
rebuilding, replacement or repair progresses. Each such certificate of the
Independent Engineer shall describe the work for which the Lessee is requesting
permission to pay or requesting payment and the cost incurred by the Lessee in
connection therewith and shall state that such work has been properly completed
and that the Lessee has not theretofore received payment for such work, and
shall be accompanied by (i) an Officer's Certificate of the Lessee certifying
that no
19
<PAGE>
Default, Event of Default or Major Environmental Event has occurred and is
continuing and that the Net Proceeds and Excess Funds held by the Proceeds
Trustee are adequate to complete such rebuilding, replacement or repair in
accordance with this paragraph 12(c), and (ii) duly executed Lien waivers
executed by each materialman or mechanic furnishing materials or labor for which
the Lessee is requesting permission to pay or requesting payment. The Proceeds
Trustee shall deliver, or cause to be delivered, payment within five (5)
Business Days after its receipt of the certificates required above. In
connection with such payments, the Proceeds Trustee shall first apply the Excess
Funds to the cost of such restoration prior to the disbursement of any Net
Proceeds by the Proceeds Trustee for such purpose. Upon receipt by the Proceeds
Trustee (with a copy to the Lessor) of an Officer's Certificate from the Lessee,
to the effect that final payment has been made for any such work and stating
that the rebuilding, replacement or repair has been completed in compliance with
the terms and conditions of this Lease, the remaining amount of such Net
Proceeds shall be paid to the Lessee. The Lessee shall be responsible for the
cost of any such repair, rebuilding or restoration in excess of such Net
Proceeds and Excess Funds, for which cost the Lessee shall make adequate
provision acceptable to the Lessor.
(d) Temporary Condemnation or Lease Termination. Notwithstanding any
-------------------------------------------
provision to the contrary contained in this paragraph 12, in the event of any
temporary Condemnation this Lease shall remain in full force and effect, and
provided no Default, Event of Default or Major Environmental Event has occurred
and is continuing, the Lessee shall be entitled to receive the Net Proceeds
allocable to such temporary Condemnation, except that if this Lease shall expire
or terminate during such temporary Condemnation, then the Lessee shall be
entitled to the Net Proceeds allocable to the period after the termination or
expiration of this Lease only if it has paid the Offer Purchase Price for the
Mill II Property.
13. Environmental Event. (a) The Lessee shall promptly, but in any
-------------------
case within five (5) Business Days after discovery thereof, notify the Lessor,
the Agent, the Collateral Agent, the Equity Investors and the Note Holders of
the occurrence of a Reportable Environmental Event. For
20
<PAGE>
purposes hereof, an "Environmental Event" shall mean (i) any environmental
-------------------
event, occurrence, or condition in, on, beneath, from or involving the Mill II
Property or any part thereof (including, but not limited to, the presence,
emission or release of Hazardous Materials in violation of any Environmental Law
or the violation of any applicable Environmental Law) that could reasonably be
expected to result in any ordered remediation or corrective action required by
Environmental Laws, or other liability under Environmental Laws, or that poses a
significant risk to human health or the environment or (ii) the receipt by the
Lessee of notification that the Lessee, the Lessor, the Mill II Property or any
part thereof is the subject of an Environmental Action in connection with the
Mill II Property that could reasonably be expected to result in any ordered
remediation or corrective action required by Environmental Laws or other
liability under Environmental Laws; provided, however, that as of the date
hereof none of the matters described on Schedule C hereto shall be deemed an
Environmental Event. For purposes hereof, a "Reportable Environmental Event"
------------------------------
shall mean an Environmental Event with respect to which the Remediation Costs
could reasonably be expected to exceed $1 million, or, when added to the
remaining Remediation Costs for all other then existing Environmental Events,
could reasonably be expected to exceed $5 million. For purposes hereof,
"Remediation Costs" include, but are not limited to, losses, fines, damages,
-----------------
civil or criminal penalties, judgments, costs and expenses (including reasonable
fees and expenses of legal counsel and consultants) incurred within a ten year
period commencing with the discovery of the Environmental Event, and arising
from activities to clean-up, remove, treat or in any other way respond to an
Environmental Event as required by Environmental Laws or as may be necessary to
avoid creating a significant risk to human health or the environment and any
other damages related thereto.
(b) If following the receipt of a notice of a Reportable Environmental
Event pursuant to paragraph 13(a), the Lessor, the Agent, or the Holders of the
Majority Interests, each in its or their sole discretion, determines that the
Remediation Costs for each Reportable Environmental Event, alone or when
combined with the remaining Remediation Costs for all other then existing
Environmental Events, could
21
<PAGE>
reasonably be expected to exceed $25 million, the Lessor, the Agent, the
Collateral Agent or the Holders of the Majority Interests may, at the expense of
the Lessee, cause the Environmental Consultant to conduct an environmental audit
of the affected portions of the Mill II Property and report the results of such
audit to the Lessor, the Agent, the Equity Investors, the Note Holders and the
Lessee. If the Environmental Consultant determines that the remaining
Remediation Costs for all then existing Environmental Events could reasonably be
expected to exceed $25 million (an "Environmental Trigger") but could not
---------------------
reasonably be expected to exceed $50 million, the Lessee shall proceed
diligently to prosecute the remediation or cure of such Environmental Event that
gave rise to the Environmental Trigger prior to the expiration of a period of
120 days following the discovery of such Environmental Event (the "Initial Cure
------------
Period"). If, however, such Environmental Event is not capable of being fully
- ------
remediated or cured within the Initial Cure Period, despite diligent efforts by
the Lessee, the Initial Cure Period shall be extended at the written request of
the Lessee as to such Environmental Event (i) for so long as the Lessee is
proceeding diligently to remediate in full or cure such Environmental Event and,
in the opinion of the Environmental Consultant the remaining Remediation Costs
for all then existing Environmental Events could not reasonably be expected to
exceed $50 million and (ii) for so long as the Guarantor's senior unsecured
long-term debt is rated at least Baa3 by Moody's or BBB- by S&P or, if not rated
by Moody's or S&P, has an implied rating of at least BBB- by S&P.
(c) If, in the opinion of the Environmental Consultant, the remaining
Remediation Costs for the Environmental Events contributing to the Environmental
Trigger could reasonably be expected to exceed $50 million (a "Major
-----
Environmental Event") but could not reasonably be expected to exceed $100
- -------------------
million, and the Environmental Event that gave rise to such Major Environmental
Event is not capable of being fully remediated or cured within the Initial Cure
Period, the Initial Cure Period shall be extended at the written request of the
Lessee as to such Environmental Event for so long as
22
<PAGE>
the Lessee is proceeding diligently to remediate in full or cure such
Environmental Event and all of the following conditions are satisfied:
(i) As promptly as reasonably practicable and in any event not
less than thirty (30) days prior to the end of the Initial Cure Period, the
Lessee shall have submitted to the Agent (a) a copy of its plan of remediation,
containing time and cost budgets and other supporting information, and (b) a
copy of its written request for an extension specifying the date to which such
extension is requested.
(ii) The Lessor shall have received a report from the
Environmental Consultant to the effect that the Environmental Consultant has
reviewed the Lessee's plan of remediation and has found such plan to be in
accordance with applicable Environmental Laws, consistent with prudent practices
of the industry, and otherwise acceptable. The Lessor shall direct the
Environmental Consultant to complete and submit such report before the end of
the Initial Cure Period. If such report has not been completed as of the end of
the Initial Cure Period, the cure period shall be deemed extended pending
completion of such report, except to the extent that failure to submit such
report on a timely basis is due in part or in whole to the failure or
unreasonable delay of Lessee to provide cooperation and/or information
reasonably required to complete such report.
(iii) The Lessee shall have delivered to the Lessor an
irrevocable and unconditional direct pay letter of credit, having a term
coterminous with the Term (or Extended Term, as applicable), issued by a
commercial bank organized under the laws of the United States or any political
subdivision thereof having a combined capital and surplus of at least $500
million and having long-term unsecured debt securities then rated "A" or better
by S&P and "A2" or better by Moody's and in an amount equal to 125% of the
amount by which the remaining Remediation Costs for such Environmental Event as
estimated by the Environmental Consultant are reasonably expected to exceed $50
million. Such letter of credit shall be increased or decreased from time to
time, but not less frequently than annually, by an amount equal to 125% of any
increases or decreases in the remaining Remediation Costs as estimated by the
Environmental Consultant. Such letter of credit shall provide that drawings may
be made thereon by the Lessor upon certification by the Lessor to the issuer
that an Event of Default has occurred and is continuing or the Term (or Extended
Term as applicable) has expired and the Lessee has failed to purchase the Mill
II Property in accordance with the terms of this Lease.
(iv) The senior unsecured long-term debt of the Guarantor shall
at all times be rated at least Baa3 by Moody's or BBB- or better by S&P or, if
not rated by Moody's or S&P, has an implied rating of at least BBB- by S&P.
(v) (a) The Lessor shall have received a legal opinion
acceptable to Lessor (from counsel selected by the Lessor and the Agent and
acceptable to the Lessee) to the effect that the Lessee has obtained all permits
necessary to remediate the Environmental Event, or, to the extent such permits
are not then required, such counsel has no reason to believe that such required
permits cannot be obtained at such time as required, as well as other legal
matters reasonably requested by the Lessor. (b) The Lessor and the Agent shall
also have received a legal opinion acceptable to Lessor and the Agent (from
counsel selected by the Lessor and the Agent and acceptable to the Lessee)
addressing any change in Law after the Financing Closing Date regarding the
scope of protection from liability for Remediation Costs afforded to the Lessor
and the Agent under Environmental Laws. Without prejudice to the rights of the
Agent or the
23
<PAGE>
Holders of the Majority Interests under paragraph 13(d) of this Lease, to the
extent such opinion is not satisfactory to the Lessor (because of a change of
law or a change in interpretation thereof) the Lessee shall have the right to
find a replacement Lessor within 30 days after the Lessor notifies the Lessee
that such opinion is unsatisfactory to the Lessor. Upon replacement of the
Lessor hereunder, the Lessor (for the benefit of the Equity Investors) shall
receive in immediately available funds from its assignee an amount equal to the
stated amount of the Equity Investment then outstanding, accrued yield thereon
to the date of payment and all other amounts due and payable to the Lessor and
each Equity Investor under the Operative Documents. (c) Such legal counsel shall
be directed by the Lessor to complete and submit such opinions before the end of
the Initial Cure Period. If such opinions are not completed before the end of
the Initial Cure Period, the cure period shall be deemed extended pending
completion of such opinions except to the extent that failure to submit such
opinions on a timely basis is due in part or in whole to the failure of Lessee
to timely provide available information reasonably required to complete such
opinions.
(vi) The Lessee shall deliver to the Lessor and the Agent
monthly progress reports during the Initial Cure Period, and quarterly progress
reports every three months thereafter, with respect to such curative actions or
remediation, including a status report on the Remediation Costs incurred and the
estimated remaining Remediation Costs, in form and substance satisfactory to the
Lessor and the Agent.
(vii) The Lessor and the Agent shall receive a report every three
months after the end of the Initial Cure Period from the Environmental
Consultant to the effect that the Lessee is complying with the remediation plan
in all material respects and with all Environmental Laws applicable to the
Environmental Event.
(viii) Upon completion of the remediation plan, the Lessor, the
Agent and the Collateral Agent shall receive a report from the Environmental
Consultant to the effect that the Lessee has fully implemented the plan and is
in compliance with all Environmental Laws applicable to the Environmental Event.
(d) If an Environmental Event has occurred that results in an
Environmental Trigger or a Major Environmental Event and the Environmental Event
cannot be cured through a Permitted Remediation or if the Lessee fails to
satisfy any of the requirements in the last sentence of paragraph 13(b) or any
of the applicable conditions in paragraph 13(c) (an "Environmental Default"),
---------------------
the Lessor, the Agent, or the Holders of the Majority Interests shall have the
option, each in its or their sole discretion, to require the Lessee to purchase
the Mill II Property for the Offer Purchase Price by giving written notice to
the Lessor, and the Lessee shall then be deemed to have delivered to the Lessor,
as of the date of receipt of such notice, an Offer to Purchase in accordance
with paragraphs 14 and 15. A "Permitted Remediation" means any remediation of an
---------------------
Environmental Event undertaken by the Lessee in compliance with the requirements
of this paragraph
24
<PAGE>
13, the remaining Remediation Costs of which, when combined with the remaining
Remediation Costs of all other Environmental Events then existing, are not
reasonably expected to exceed $100 million, which is permitted and effected, at
the cost of the Lessee, in compliance with all applicable Environmental Laws.
(e) Irrespective of whether a Major Environmental Event or an
Environmental Trigger has occurred, the Lessee shall immediately initiate, and
diligently pursue at its sole cost and expense, such actions as may be necessary
to comply in all respects with all applicable Environmental Laws and to
alleviate any significant risk to human health or the environment if the same
arises from a condition on or in respect of the Mill II Property or any part
thereof, whether existing prior to, on or after the date of this Lease. Once
the Lessee commences such actions, the Lessee shall thereafter diligently and
expeditiously proceed to comply in a timely manner with all Environmental Laws
and to eliminate any significant risk to human health or the environment and
shall, at the reasonable request of the Lessor or the Agent, give periodic
progress reports on its compliance efforts and actions.
(f) In connection with the formulation and implementation of any
remediation plan, or the evaluation or review thereof, the Lessor, the Agent,
the Note Holders, the Equity Investors, the Environmental Consultant, and their
respective agents and legal counsel shall not communicate with regulatory
authorities without the prior written consent of the Lessee unless an
Environmental Trigger shall have occurred and be continuing. If any
Environmental Trigger shall have occurred and be continuing, the Lessor, the
Agent, the Note Holders, the Equity Investor, the Environmental Consultant and
their respective agents and legal counsel shall first provide an opportunity to
the Lessee to participate in such communications, except to the extent that such
communications are required by Law.
(g) A Major Environmental Event shall not be deemed to be continuing
after the date upon which the remaining Remediation Costs from the Environmental
Event that
25
<PAGE>
gave rise to such Major Environmental Event, when combined with the remaining
Remediation Costs for all other Environmental Events contributing to such Major
Environmental Event, could no longer reasonably be expected to exceed $50
million. An Environmental Trigger shall not be deemed to be continuing after the
date upon which the remaining Remediation Costs for the Environmental Event that
gave rise to such Environmental Trigger, when combined with the remaining
Remediation Costs for all other Environmental Events contributing to such
Environmental Trigger, could no longer reasonably be expected to exceed $25
million.
14. Offer to Purchase. (a) At any time during the Term (or the Extended Term,
-----------------
as applicable), Lessee may (unless otherwise required to do so, in which case it
shall) deliver to the Lessor and the Agent an irrevocable written offer to
purchase the Mill II Property in its entirety (an "Offer to Purchase") at least
-----------------
20 days in advance of the Closing Date upon and subject to the applicable terms
of this Lease.
(b) Any Offer to Purchase delivered or deemed to be delivered by the Lessee
hereunder shall, notwithstanding anything to the contrary set forth therein, be
irrevocable and unconditional and shall set forth the Closing Date and
Termination Value to be paid by Lessee.
(c) The Lessor shall be deemed to have accepted such Offer to Purchase the Mill
II Property on the date the Lessor receives the same. The procedure for the
purchase of the Mill II Property and the purchase price therefor shall be
governed by paragraph 15 hereof.
15. Procedure Upon Purchase. (a) The date of the closing of the Lessee's (or
-----------------------
its designee's) purchase of the Mill II Property (the "Closing Date") shall be
------------
(i) on the Expiration Date pursuant to paragraph 27 hereof, or (ii) if the
Lessee shall deliver (or shall be deemed to have delivered) an Offer to Purchase
pursuant to paragraph 14(a) hereof, on the next scheduled Payment Date following
the date of Lessor's acceptance or deemed acceptance of such Offer to Purchase,
or (iii) if the Lessee shall deliver (or be deemed to have delivered) an Offer
to Purchase pursuant to paragraphs 12(b), 12(c) or 13(d), on the fifteenth day
following the date of Lessor's acceptance or deemed acceptance of such Offer to
Purchase, or (iv) if the Lessee shall pay the Offer Purchase
26
<PAGE>
Price pursuant to paragraph 19(h), on the date of the Lessor's receipt of the
Offer Purchase Price. On the Closing Date, upon receipt by the Agent of the
Offer Purchase Price, the Lessor shall convey, or cause to be conveyed, the Mill
II Property (or, in the case of Casualty or Condemnation, the remaining portion
thereof) to the Lessee or its designee by an appropriate recordable assignment
of the leasehold interest in the Mill II Parcel, limited warranty deed and bill
of sale to Mill II, the Mill II Improvements and the Mill II Alterations and
assignment of the Facility Agreements (other than the rights of the Lessor to
any indemnities thereunder), in each case containing no representation or
warranty (expressed or implied) except that the Mill II Property is free and
clear of Lessor Liens.
(b) On the Closing Date, the Lessee shall pay, or cause to be paid, to the Agent
(on behalf of the Lessor) the Termination Value for the Mill II Property, as
specified in the Offer to Purchase related thereto, and all Fixed Rent,
Additional Rent and other sums then due and payable hereunder and under the
other Operative Documents relating to the Mill II Property up to and including
such Closing Date (such amounts, plus all Closing Costs, are herein referred to
as the "Offer Purchase Price"), and the Lessor shall simultaneously (i) deliver
--------------------
to the Lessee or its designee the instruments referred to in paragraph 15(a)
above with respect to the Mill II Property and any other instruments reasonably
necessary to assign and convey to the Lessee or its designee the Mill II
Property and assign all Facility Agreements related to the Mill II Property
(other than any rights of the Lessor to any indemnities thereunder) and any
other related property then required to be assigned pursuant hereto, and (ii)
convey, or cause to be conveyed, to the Lessee or its designee any Net Proceeds
related to the Mill II Property and/or the right to receive the same.
Additionally, on the Closing Date, upon receipt of the Termination Value, Lessor
and the Collateral Agent shall execute the releases and take the other actions
described in Section 8.23(b) of the Participation Agreement.
(c) Upon the completion of any purchase of the Mill II Property pursuant to this
paragraph 15, but not prior thereto, this Lease shall terminate except with
respect to obligations and liabilities of the Lessee, actual or contingent,
which have arisen with respect to the Mill II Property or under the Operative
Documents on or prior to such date of purchase, and except as elsewhere
expressly provided herein or in the other Operative Documents.
(d) Notwithstanding any provisions of this Lease or the Participation Agreement
to the contrary, the Lessee shall not be required to acquire title to the Mill
II Property until such time that all necessary filings and notifications under
the HSR Act or any similar Law shall have been made (including any filing or
provision of required additional information or documents) and the waiting
period referred to in the HSR Act applicable to such purchase shall have expired
or been terminated (without any objection or prohibition of such purchase). The
Lessee hereby covenants to use its best efforts to secure the prompt termination
of such waiting period
27
<PAGE>
without objection or prohibition. Notwithstanding the foregoing, if the Lessee
is precluded from acquiring the Mill II Property or any part thereof pursuant to
the HSR Act or any similar Law, the Lessee shall pay the Termination Value
attributable to the Mill II Property within the time and in the manner described
in this paragraph 15 as a consequence of the Lessee's exercise or deemed
exercise of its purchase option hereunder. However, if the Lessee pays the
Termination Value in compliance with the preceding sentence, then Lessee shall
be entitled to continue to lease the Mill II Property for an additional rental
payment of $1 per annum under the terms and provisions of this Lease for an
extended term expiring on the earlier to occur of (i) three (3) years from the
date the Lessee delivers (or is deemed to have delivered) the Offer to Purchase
or (ii) that date that the Lessee is no longer precluded from purchasing the
Mill II Property pursuant to the HSR Act or any similar Law. If Lessee does not
purchase the Mill II Property prior to the expiration of such extended term,
then Lessor shall thereafter sell the Mill II Property and distribute the
proceeds from such sale in accordance with the Interparty Agreement. If, prior
to the voluntary exercise by the Lessee of the purchase options hereunder, the
Lessee is unable to obtain a ruling that a filing under the HSR Act or any
similar Law is not required in order to consummate such purchase, then the
Lessor shall execute such conditional sales contracts and other documents
necessary to permit the Lessee to complete such filing before irrevocably
exercising its purchase option. As a condition to executing such conditional
sales contracts and other documents, the Lessee shall deliver to the Lessor an
agreement obligating the Lessee to fully indemnify the Lessor from all
liabilities, damages, costs and expenses arising from the execution of such
documents and the completion of such filing.
16. Insurance. (a) The Lessee (or the Guarantor in lieu of the Lessee) will
---------
purchase and maintain, or cause to be purchased and maintained, insurance with
respect to the Mill II Property of the following types and in the following
amounts (or in such greater amounts as may become necessary from time to time to
prevent the Lessor, the Lessee, the Collateral Agent, the Equity Investors, CXC,
CXC'S Credit Enhancer, the Agent and the Note Holders from becoming co-insurers
of any loss), and in no event in amounts less than those maintained by the
Lessee or its Affiliates for other similar facilities owned and/or operated by
them:
(i) Property Insurance: Insurance against physical damage to the
------------------
Mill II Property (with sublimits and deductibles as are acceptable to Lessor and
with a maximum self-insured retention allowable of $5 million) caused by perils
now or hereafter embraced by or defined in an "all risks" insurance policy,
including flood, earth movement, earthquake, subsidence and collapse, business
interruption/extra expense and boiler and machinery coverage (which boiler and
machinery coverage is currently self-insured for up to $5 million);
(ii) General Liability Insurance: Comprehensive general liability
---------------------------
(including contractual, completed operations and product liability) insurance
against claims for bodily injury (including death), personal injury and property
damage occurring on, in or in respect of the Mill II Property or resulting from
activities on or related to the Mill II Property and other properties of the
28
<PAGE>
Guarantor and its subsidiaries, in the minimum combined single limit amount of
$100 million, for each occurrence for bodily injury (or death) and/or property
damage with a maximum self-insured retention allowable of $10 million;
(iii) Workers' Compensation Insurance: Workers' compensation
-------------------------------
insurance at statutory levels and employers' liability insurance or self-
insurance as permitted by Law;
(iv) Builder's Risk Insurance: During the construction of any
------------------------
Mill II Improvements or Mill II Alterations, builder's "all risks" and "general
risks" insurance or equivalent coverage (with sublimits and deductibles as are
acceptable to Lessor and with a maximum self-insured retention allowable of $5
million), including flood, earth movement, earthquake, subsidence and collapse,
business interruption/extra expense and testing and commissioning coverage with
respect to the Mill II Property and any on-site and off-site work and materials
related thereto protecting the Lessee, the Lessor and all contractors and
subcontractors in an amount not less than the full replacement cost of such on-
site and off-site work;
(v) Flood Insurance: To the extent that the ALTA/ASCM surveys
---------------
of the Parcels delivered pursuant to Section 2.01(g) of the Participation
Agreement indicate that any portion of Mill II, the Mill II Facility, the Mill
II Improvements or the Mill II Alterations may lie in a flood zone, flood
insurance in amounts acceptable to the Lessor; and
(vi) Other Insurance: Such other insurance, including
---------------
automobile liability, in such amounts and against such risks, as is either (x)
customarily carried by companies owning, operating or leasing property or
conducting businesses similar and/or similarly situated to the Mill II Property
and/or the Lessee, or (y) reasonably requested from time to time by Lessor to
the extent available on commercially reasonable terms.
Such insurance shall be written by companies (other than Lloyd's of
London) that are nationally recognized (or other recognized international
insurers with an ISI rating of not less than BBB); primary insurance shall be
written by companies rated at least AXI in the most recent edition of Best's Key
Rating Guide, or as otherwise agreed to by the Agent, the Lessor, the Collateral
Agent, the Majority Interests, selected by the Lessee and, other than the
insurance specified in paragraphs 16(a)(i), (iii) and (iv), shall name the
Collateral Agent as loss payee and the Lessor, CXC, the Equity Investors, CXC'S
Credit Enhancer, T.P.I., the Collateral Agent and the Agent, on its own behalf
and on behalf of the Note Holders, as additional insureds, as their interests
may appear. Notwithstanding the foregoing, in no event will the Lessee be
required to maintain coverage in amounts in excess of those maintained for
businesses similar in size and nature to the Lessee.
(b) The insurance referred to in paragraphs 16(a)(i) and (iv) for the
Mill II Property (as appropriate) may be a blanket policy and shall (i) at all
times be in an amount at least equal to the greater of (x) one hundred percent
(100%) of
29
<PAGE>
the full replacement cost value of the Mill II Property (as appropriate) and the
Lessee's leasehold improvements and (y) $350,000,000; (ii) name the Collateral
Agent as loss payee and the Lessor, CXC, the Equity Investors, CXC's Credit
Enhancer, T.P.I., the Collateral Agent and the Agent, on its own behalf and on
behalf of the Note Holders, as additional insureds, as their interests may
appear; (iii) provide that the interests of the Lessor, the Agent, the
Collateral Agent, the Equity Investors and the Note Holders shall be insured
regardless of any intentional or willful breach or violation by the Lessee of
any warranties, declarations or conditions contained in such insurance; (iv)
provide that such insurance shall not be invalidated by any act, omission or
negligence of the Lessee, the Lessor, the Agent, the Collateral Agent, the
Equity Investors or the Note Holders, nor by any foreclosure or other
proceedings or notices thereof relating to the Mill II Property (as appropriate)
or any part thereof, nor by legal title to, or ownership of the Mill II Property
or any part thereof becoming vested in or by Lessor or its agents, nor by
occupancy or use of the Mill II Property or any part thereof for purposes more
hazardous than permitted by such policy; and (v) provide that all partial loss
insurance claims pertaining to the Mill II Property (as appropriate) or any part
thereof shall be adjusted by the insurers thereunder with the Lessee.
All policies of insurance required to be maintained pursuant to
paragraph 16(a)(ii) which cover liability for bodily injury or property damage
shall provide that all provisions of such insurance, except the limits of
liability (which shall be applicable to all insureds as a group) and liability
premiums (which shall be solely a liability of the Lessee), and shall operate in
the same manner as if there were a separate policy covering each such insured
and/or additional insured, without right of contribution from any other
insurance which may be carried by an insured and/or additional insured.
Every policy required under paragraph 16(a) shall (i) expressly
provide that it will not be canceled or terminated except upon thirty (30) days'
written notice to the Lessor, the Lessee and the Collateral Agent; (ii) except
for liability coverage, include a waiver of all rights of subrogation against
the Lessor, the Agent, the Collateral Agent, the Equity
30
<PAGE>
Investors, and the Note Holders and any recourse against the Lessor, the Agent,
the Collateral Agent, the Equity Investors or the Note Holders for payment of
any premiums or assessments under any policy; and (iii) not contain a provision
relieving the insurer thereunder of liability for any loss by reason of the
existence of other policies of insurance covering the Mill II Property or any
part thereof against the peril involved, whether collectible or not. The Lessee
shall advise the Lessor promptly of any policy cancellation or any change
adversely affecting the coverage provided thereby.
(c) The Lessee shall deliver to the Lessor the certificates of
insurance and any other documentation required by the Lessor evidencing the
existence of all insurance which is required to be maintained by the Lessee
hereunder including descriptions of the previously mentioned Insurance
Requirements, such delivery to be made (i) as provided in Section 2.01(k) of the
Participation Agreement, (ii) within thirty (30) days after the issuance of any
additional policies or amendments or supplements to any of such insurance, and
(iii) at least thirty (30) days prior to the expiration date of any such
insurance. The Lessee shall notify the Lessor, the Agent and the Collateral
Agent of any nonrenewal of any policy required hereunder and shall cause each
insurer under each policy required hereunder to give the Lessor notice of any
lapse under any such policy. The Lessee shall not obtain or carry separate
insurance concurrent in form, or contributing in the event of loss, with that
required by this paragraph 16 unless the Collateral Agent is named as loss payee
and the Lessor, CXC, the Equity Investors, CXC's Credit Enhancer, T.P.I., the
Collateral Agent and the Agent, on its own behalf and on behalf of the Note
Holders are named as additional insureds therein. The Lessee shall immediately
notify the Lessor, the Agent, the Collateral Agent, the Equity Investors, and
the Note Holders whenever any such separate insurance is obtained and shall
deliver to the Lessor the certificates of insurance and any other documentation
(other than blanket policies) required by Lessor evidencing the same as is
required hereunder.
(d) The requirements of this paragraph 16 shall not be construed to
negate or modify the Lessee's obligations under Section 8.14 of the
Participation Agreement.
17. Subletting; Assignability; Amendment of Facility Agreements. (a)
-----------------------------------------------------------
The Lessee shall not sublet the Mill II
31
<PAGE>
Property, or any part thereof, unless (i) at the time of any such sublease, no
Default, Event of Default or Major Environmental Event shall have occurred and
be continuing; (ii) prior to such sublet, the Guarantor shall have confirmed
that its obligations under the Guaranty shall not be affected thereby; (iii) any
such sublease shall by its terms be expressly made subject and subordinate to
the terms of this Lease (and the Ground Lease, the Florida Mortgage and the Deed
of Trust) and shall expire on or before the last day of the Term (or the
Extended Term, as the case may be) of this Lease; (iv) the Lessee shall provide
the Lessor with notice of such sublease sixty (60) days prior to the effective
date of such sublease; (v) except with respect to Affiliates, the Lessee shall
provide the Lessor ten (10) Business Days prior to the effective date of such
sublease with a conformed copy of the instrument creating such sublease; (vi)
except with respect to Affiliates, the Lessor has consented to such sublease;
and (vii) except with respect to Affiliates, such sublease shall be made on
commercially reasonable terms.
(b) No sublease pursuant to this paragraph 17 shall modify or limit
any right or power of the Lessor hereunder or affect or reduce any obligation of
the Lessee hereunder, and all such obligations of the Lessee shall continue in
full force and effect as obligations of a principal and not of a guarantor or
surety, as though no subletting had been made or occupancy permitted.
(c) If the Lessee shall request, in connection with any sublease, that
the Lessor execute an attornment and non-disturbance agreement with respect to
such sublease, the Lessor shall consider each such sublease on a case-by-case
basis and may consent to its execution and delivery of an attornment and non-
disturbance agreement.
(d) Except as permitted in paragraph 17(a), the Lessee shall not
mortgage, pledge, assign or otherwise encumber its interest in and to this Lease
or in and to any sublease or the rentals payable thereunder without the prior
written consent of the Lessor except that the Lessee may assign its right to
purchase Mill II Property without the consent of the Lessor so long as the
Lessee remains liable for the performance and payment of the purchase
obligation. Any sublease made, and any
32
<PAGE>
mortgage, pledge or assignment of the Lessee's interest hereunder or under any
such sublease granted, otherwise than as expressly permitted by this paragraph
17, shall be null and void and of no force or effect.
(e) The Lessee shall have the exclusive right to amend or supplement
the Facility Agreements, on the conditions that (i) the fair market value or use
of the Mill II Property is not lessened thereby, and (ii) the amendment or
supplement is not consummated without Lessor's consent (unless Lessee has
delivered an Offer to Purchase the Mill II Property) or unless such amendment or
supplement could not reasonably be expected to result in a Material Adverse
Effect. Except pursuant to any sublease or assignment of this Lease permitted
hereunder, the Lessee may not assign its rights in the Facility Agreements
without the prior written consent of Lessor.
18. Permitted Contests. (a) So long as (w) no Lessor Termination
------------------
Notice has been delivered, (x) no Default, Event of Default or Major
Environmental Event has occurred and is continuing, (y) the Lessee shall not
have notified the Lessor pursuant to paragraph 27(a)(ii) that it is terminating
this Lease and abandoning the Mill II Property or (z) the Lessee shall not have
otherwise surrendered or be required to surrender the Mill II Property to the
Lessor for any reason (including, without limitation, pursuant to paragraph
23(a)), the Lessee shall not be required, nor shall the Lessor have the right,
to pay, discharge or remove any Charges or to comply or cause the Mill II
Property or any part thereof to comply with any applicable Legal Requirement or
to pay any materialman's, laborer's or undischarged or unremoved Lien, as long
as the Lessee shall at its sole cost and expense contest, or cause to be
contested, diligently and in good faith, the existence, amount or validity
thereof by appropriate proceedings, which shall (i) in the case of an unpaid
Property Charge or undischarged or unremoved Lien, prevent the collection
thereof from the Lessor or against the Mill II Property or any part thereof,
(ii) prevent the sale, forfeiture or loss of the Mill II Property or any part
thereof, and (iii) in the case of a Legal Requirement, not subject the Lessor,
the Agent, the Collateral Agent, the Equity Investors, or the Note Holders to
the risk of any criminal liability or civil penalties or fines for failure to
comply therewith. The Lessee shall give such assurances as may be reasonably
demanded by the Lessor to insure
33
<PAGE>
ultimate payment of such Charges or the discharge or removal of any such
materialman's, laborer's or mechanic's Lien or to insure compliance with such
Legal Requirement and to prevent any sale or forfeiture of the Mill II Property,
or any part thereof, or any interference with or deductions from any Fixed Rent,
Additional Rent or any other sum required to be paid by the Lessee hereunder by
reason of such non-payment, non-discharge, non-removal or non-compliance.
(b) The Lessor shall cooperate with the Lessee in any contest and
shall allow the Lessee to conduct such contest (in the name of the Lessor, if
necessary) at the Lessee's sole cost and expense; provided that the Lessor shall
-------- ----
not be required to execute any documents which would materially adversely affect
the fair market value, use or operation of the Mill II Property (or any part
thereof) or subject the Lessor, the Agent, the Collateral Agent, any Equity
Investor or any Note Holder to any liability or result in the admission of
liability, guilt or culpability on the part of such Persons. The Lessee shall
notify the Lessor of each such proceeding at least ten days prior to the
commencement thereof, which notice shall describe such proceeding in reasonable
detail.
(c) The Lessee shall, promptly after the final determination
(including appeals) of any contest brought by it pursuant to this paragraph 18,
pay and discharge all amounts which shall be determined to be payable therein
and shall be entitled to receive and retain for its own account all amounts
refunded and/or rebated as a result of any such contest and if the Lessor
receives any amount as a result of such contest to which it is not otherwise
entitled pursuant to this Lease, it shall promptly return such amount to the
Lessee.
(d) Except as otherwise specifically provided in this Lease, this
paragraph 18 shall not apply in the case of Charges upon, or in respect of, any
Person other than the Lessor (or the lessor under the Ground Lease) or in
respect of the property or income of any such Person.
19. Default Provisions. (a) An Event of Default as defined in the
------------------
Participation Agreement shall constitute an "Event of Default" under this Lease.
----------------
(b) The Lessor may take all steps to protect and enforce the rights of
the Lessor or obligations of the Lessee
34
<PAGE>
hereunder, whether by action, suit or proceeding at law or in equity (for the
specific performance of any covenant, condition or agreement contained in this
Lease, or in aid of the execution of any power herein granted or for any
foreclosure, or for the enforcement of any other appropriate legal or equitable
remedy) or otherwise as the Lessor shall deem necessary or advisable.
(c) (i) If an Event of Default shall have occurred and be continuing,
including an Event of Default arising from the breach of a covenant, condition
or other provision hereof, then upon five (5) Business Days' prior written
notice by the Lessor to the Lessee, in addition to all other rights, remedies or
recourses available, the Lessor may either (A) terminate this Lease or (B)
terminate the Lessee's right to possession of the Mill II Property or any part
thereof. If the Lessor should elect to terminate this Lease as provided in
clause (A) above, then this Lease and the estate hereby granted shall expire and
terminate at midnight on the fifth (5th) Business Day (or such later date as may
be specified therein) after the date of such notice, as fully and completely and
with the same effect as if such date was the date herein fixed for the
expiration of the Term and all rights of the Lessee shall terminate, but the
Lessee shall remain liable as hereinafter provided.
(ii) Should the Lessor elect not to terminate this Lease, this
Lease shall continue in effect and the Lessor may enforce all the Lessor's
rights and remedies under this Lease including the right to recover the Fixed
and Additional Rent as each becomes due under this Lease. For the purposes
hereof, the following do not constitute a termination of this Lease:
(A) Acts of maintenance or preservation of the Mill II Property
or any part thereof or efforts to relet the Mill II Property or any part
thereof, including, without limitation, termination of any sublease of the Mill
II Property to a third party and removal of such subtenant from the Mill II
Property;
(B) The appointment of a receiver upon initiative of the Lessor
to protect the Lessor's interest under this Lease; and/or
(C) The exercise of any rights under the Florida Mortgage or the
Deed of Trust.
(d) If an Event of Default shall have occurred and be
continuing, and the Lessor has elected to terminate this Lease or terminate the
Lessee's right to possession of the Mill II Property or part thereof, upon five
(5) Business Days' notice, the Lessor shall have (i) the right, whether or not
this Lease
35
<PAGE>
shall have been terminated pursuant to paragraph 19(c) hereof, to re-enter and
repossess the Mill II Property or any part thereof, as the Lessor may elect, by
summary proceedings, ejectment, any other legal action or in any other lawful
manner the Lessor determines to be necessary or desirable and (ii) the right to
remove all Persons and property therefrom. The Lessor shall be under no
liability by reason of any such re-entry, repossession or removal. No such re-
entry or repossession of the Mill II Property or any part thereof shall be
construed as an election by the Lessor to terminate this Lease unless a notice
of such termination is given to the Lessee pursuant to paragraph 19(c) hereof,
or unless such termination is decreed by a court or other governmental tribunal
of competent jurisdiction. Should the Lessor elect to re-enter the Mill II
Property as herein provided or should the Lessor take possession pursuant to
legal proceedings or pursuant to any notice provided for by Law or upon
termination of this Lease of the Lessee's right to possession of the Mill II
Property or any part thereof pursuant to paragraph 19(c) hereof or otherwise as
permitted by Law, the Lessee shall peaceably quit and surrender the Mill II
Property or any part thereof to the Lessor. In any such event, neither the
Lessee nor any Person claiming through or under the Lessee, by virtue of any
Law, shall be entitled to possession or to remain in possession of the Mill II
Property or any such part thereof, but shall forthwith quit and surrender the
Mill II Property to the Lessor.
(e) At any time or from time to time after the re-entry or
repossession of the Mill II Property or any part thereof pursuant to paragraph
19(d) hereof, whether or not this Lease shall have been terminated pursuant to
paragraph 19(c) hereof, the Lessor may (but shall be under no obligation to)
relet the Mill II Property or any part thereof, for the account of the Lessee,
without notice to the Lessee, for such term or terms and on such conditions and
for such uses as the Lessor, in its sole and absolute discretion, may determine.
The Lessor may collect and receive any rents or other proceeds payable by reason
of such reletting. The Lessor shall not be liable for any failure to relet the
Mill II Property or any part thereof or for any failure to collect any rent due
upon any such reletting.
36
<PAGE>
(f) No termination of this Lease or of the Lessee's right to
possession of the Mill II Property or any part thereof pursuant to paragraph
19(c) hereof, or by operation of Law, and no re-entry or repossession of the
Mill II Property or any part thereof, pursuant to paragraph 19(d) hereof, and no
reletting of the Mill II Property or any part thereof pursuant to paragraph
19(e) hereof, shall relieve the Lessee of its liabilities and obligations
hereunder, all of which shall survive such termination, re-entry, repossession
or reletting.
(g) In the event of any termination of this Lease or of the Lessee's
right to possession of the Mill II Property or any part thereof by reason of the
occurrence of any Event of Default, the Lessee shall pay to the Lessor all Fixed
Rent, Additional Rent and other sums required to be paid to and including the
date of such termination of this Lease or of the Lessee's right to possession;
and thereafter, until the end of the Term or the Extended Term, as applicable,
whether or not the Mill II Property or any part thereof shall have been relet,
the Lessee to the extent permitted by applicable Law shall be liable to the
Lessor for, and shall pay to the Agent (on behalf of the Lessor), on the days on
which such amounts would be payable under this Lease in the absence of such
termination, re-entry or repossession, as agreed current damages and not as a
penalty: all Fixed Rent, Additional Rent and other sums which would be payable
under this Lease by the Lessee, in the absence of such termination, re-entry or
repossession, and all costs (including attorneys' fees and expenses) incurred by
the Lessor hereunder (payable on demand) and all costs of any environmental
remediation pursuant to paragraph 13. To the extent permitted by Law, at such
time after the termination or expiration of this Lease as the Lessee shall have
paid all amounts required to be paid by it under this Lease and the other
Operative Documents and the Lessee shall have discharged any and all obligations
to the Lessor, the Equity Investors and the Note Holders, then the Lessor shall
pay and assign to the Lessee, when received, the net proceeds, if any, of any
reletting effected for the account of the Lessee pursuant to paragraph 19(e),
and any residual interest in the Mill II Property after deducting from such
proceeds all of the Lessor's expenses in connection with such reletting
(including, but not limited to, all repossession costs, brokerage commissions,
attorneys' fees and expenses, employees' expenses, alteration costs and expenses
of
37
<PAGE>
preparation for such reletting and all costs of any environmental remediation
pursuant to paragraph 13).
(h) Notwithstanding the foregoing, if an Event of Default shall have
occurred, the Lessee may within 5 Business Days after the earliest of the
Lessor's or Agent's notice of such occurrence thereafter pay to the Agent, on
behalf of the Lessor, an amount equal to the Offer Purchase Price in which event
the Lessor shall be obligated to convey the Mill II Property to the Lessee in
compliance with paragraph 15.
(i) At any time after such termination of the Term (or the Extended
Term) of this Lease or re-entry or repossession of the Mill II Property by
reason of the occurrence of an Event of Default, the Lessor shall be entitled to
recover from the Lessee, and the Lessee will pay to the Agent (on behalf of the
Lessor) on demand, in lieu of all liquidated damages in respect of Fixed Rent
beyond the date of such demand (but in addition to any claim for current damages
in respect of Fixed Rent or Additional Rent prior to the date of such demand),
an amount equal to the Termination Value, in which event the Lessor shall be
obligated to convey the Mill II Property to the Lessee in compliance with
paragraph 15.
20. Additional Rights; Mortgage. (a) No right or remedy hereunder
---------------------------
shall be exclusive of any other right or remedy, but shall be cumulative and in
addition to any other right or remedy hereunder or under the other Operative
Documents or now or hereafter existing at Law or in equity and the exercise by
the Lessor or the Collateral Agent of any one or more of such rights, powers or
remedies shall not preclude the simultaneous exercise of any or all of such
other rights, powers or remedies. Failure to insist upon the strict performance
of any provision hereof or to exercise any option, right, power or remedy
contained herein shall not constitute a waiver or relinquishment thereof for the
future. Receipt by the Lessor (or by the Agent on behalf of the Lessor) of any
Fixed Rent, Additional Rent, Residual Guaranty, Termination Value or other sum
payable hereunder or under any other Operative Document with knowledge of the
breach by the Lessee of any provision hereof shall not constitute a waiver of
such breach, and no waiver by the Lessor of any provision hereof shall be deemed
to have been made unless made in writing. The Lessor shall be entitled to
38
<PAGE>
injunctive relief in case of the violation or attempted or threatened violation
of any of the provisions hereof, a decree compelling performance of any of the
provisions hereof or any other remedy allowed to the Lessor at law or in equity.
(b) Except as otherwise provided in Section 19(h), the Lessee hereby
waives and surrenders for itself and all those claiming under it, including
creditors of all kinds, (i) any right and privilege which they may have under
any applicable law or otherwise to redeem the Mill II Property or any part
thereof or to have a continuance of this Lease after termination of the Lessee's
right of occupancy by Law or by any legal process or writ, or under the terms of
this Lease, or after the termination of the Term (or Extended Term, as the case
may be) of this Lease as herein provided and (ii) the benefits of any Law which
exempts property from liability for debt or for distress for rent.
(c) If an Event of Default exists hereunder, the Lessee shall pay to
the Agent (on behalf of the Lessor) on demand all fees and out-of-pocket
expenses incurred by the Lessor in enforcing its rights under this Lease,
including attorneys' fees and expenses.
(d) The Lessor and the Lessee intend that the Lessee shall treat this
Lease, for accounting purposes, as an operating lease. Notwithstanding the
intent of the parties, if a court of competent jurisdiction determines that the
transaction represented by this Lease and the other Operative Documents will be
treated as a financing transaction, then the parties hereto intend that (i) this
Lease be treated as the repayment and security provisions of a loan by Lessor to
Lessee in a principal amount equal to the sum of (x) the Acquisition Costs of
the Mill II Property plus (y) the aggregate of all Advances made with respect to
the Mill II Property plus any other amounts owing to the Lessor or the
Collateral Agent, Note Holders or Equity Investors (collectively, the "Secured
-------
Party") under the Operative Documents, including, without limitation, Fixed
- -----
Rent, Additional Rent, the Offer Purchase Price and the Termination Value
(collectively, the "Mill II Loan Amount"), but not to exceed the principal
-------------------
amount of Eight Hundred Eighty Seven Million Five Hundred Thousand Dollars
($887,500,000), (ii) all payments of Fixed Rent, Additional Rent, the Offer
Purchase Price and the Termination Value be treated as payments of principal,
interest and other amounts owing with respect to such
39
<PAGE>
Mill II Loan Amount, respectively, (iii) the Lessee should be treated as
entitled to all benefits of ownership of the Mill II Property or any part
thereof, (iv) this Lease be treated (A) with respect to the portion of the Mill
II Property situate in the State of Georgia (a) as a deed to secure debt and
security agreement from Lessee, as Grantor, to the Lessor, as Grantee, passing
title to that portion of the Mill II Property (situate in the State of Georgia)
constituting real property, and is made under those provisions of the existing
laws of the State of Georgia relating to deeds to secure debt, and not as a
mortgage and that the Lessee, as Grantor, hereby grants, bargains, sells,
conveys, assigns, transfers and sets over unto the Lessor, as Grantee, for the
use and benefit of the Secured Party, Lessee's right, title and interest in and
to any real property of any kind or character comprising the Mill II Property,
whether now owned or hereafter acquired, and all proceeds therefrom, to have and
to hold said real property and all parts, rights, members and appurtenances
thereof to the use, benefit and behoof of the Lessor, for the use and benefit of
the Secured Party; and (b) as a security agreement from the Lessee, as debtor,
to the Lessor, as secured party, encumbering all personal property (situate in
the State of Georgia) comprising the Mill II Property whether now owned or
hereafter acquired, and all proceeds therefrom (this Lease, in its capacity as
such deed to secure debt and security agreement, the "Mill II Georgia Tenneco
-----------------------
Mortgage"), and that the Lessee, hereby grants to the Lessor for the use and
- --------
benefit of the Secured Party, a Lien on and security interest in the equipment,
fixtures, and any and all other personal property of any kind or character
comprising the Mill II Property (situate in the State of Georgia) whether now
owned or hereafter acquired, and all proceeds therefrom, in each case being
effective as of the date of this Lease, and (B) with respect to the portion of
the Mill II Property situate in the State of Florida, (a) as a mortgage from
Lessee, as mortgagor, to the Lessor, as mortgagee, encumbering that portion of
the Mill II Property (situate in the State of Florida) constituting real
property, and is made under those provisions of the existing laws of the State
of Florida relating to mortgages and that the Lessee, as mortgagor hereby does,
effective as of the date of this Lease, mortgage, give, grant,
40
<PAGE>
bargain, sell, alien, enfeoff, convey, confirm and assign unto Lessor, as
mortgagee, for the benefit of the Secured Party, Lessee's right, title and
interest in and to any real property of any kind or character comprising the
Mill II Property, whether now owned or hereafter acquired, and all proceeds
therefrom, to have and to hold said real property and all parts, rights, members
and appurtenances thereof to the use, benefit and behoof of the Lessor, for the
use and benefit of the Secured Party, and (b) as a security agreement from the
Lessee, as debtor, to the Lessor, as secured party, encumbering all personal
property (situate in the State of Florida) comprising the Mill II Property
whether now owned or hereafter acquired, and all proceeds therefrom (this Lease,
in its capacity as such mortgage and security agreement, the "Mill II Florida
---------------
Tenneco Mortgage"), and that the Lessee, as debtor, hereby grants to the Lessor,
- ----------------
for the use and benefit of the Secured Party a Lien on and security interest in
the equipment, fixtures and all other personal property of any kind or character
comprising the Mill II Property (situate in the State of Florida) whether now
owned or hereafter acquired, and all proceeds therefrom, in each case being
effective as of the date of this Lease. In such event, the Lessor shall have all
of the rights, powers and remedies of (I) (with respect to the portion of the
Mill II Property situate in the State of Georgia) a grantee and a secured party
available under applicable law, including, without limitation, judicial or
nonjudicial foreclosure or power of sale, as and to the extent available under
applicable law, and (II) (with respect to the portion of the Mill II Property
situate in the State of Florida) a mortgagee and a secured party available under
applicable law, including, without limitation, judicial foreclosure as and to
the extent available under applicable law, and the amounts secured by the liens
and security interests described above shall be the Mill II Loan Amount, plus
any other amounts owing to the Lessor or the Secured Party under the Operative
Documents. The filing of this Lease (or a memorandum hereof) shall be deemed to
constitute the filing (x) with respect to the portion of the Mill II Property
situate in the State of Georgia, of a deed to secure debt and the filing of any
financing statement in connection with this Lease shall be deemed to constitute
the filing of a financing statement to perfect the deed to secure debt security
title and security interests in the Mill II Property as aforesaid to secure the
payment of all
41
<PAGE>
amounts due from time to time from the Lessee to the Lessor under this Lease and
the other Operative Documents, and (y) with respect to the portion of the Mill
II Property situate in the State of Florida, a mortgage and the filing of any
financing statement in connection with this Lease shall be deemed to constitute
the filing of a financing statement to perfect the security interest in the Mill
II Property aforesaid to secure the payment of all amounts due from time to time
from the Lessee to the Lessor under this Lease and the other Operative
Documents. (the "Mill II Georgia Tenneco Mortgage" and the "Mill II Florida
-------------------------------- ---------------
Tenneco Mortgage" shall, collectively, be referred to as the "Mill II Tenneco
- --------------- ---------------
Mortgage").
- --------
(e) In addition, if a court of competent jurisdication determines
that the transaction represented by this Lease and the other Operative Documents
will be treated as a financing transaction, then as additional security for the
payment of the Mill II Loan Amount and the observance and performance by Lessee
of this Lease and the Mill II Tenneco Mortgage, Lessee does hereby, effective as
of the date of this Lease, sell, assign, transfer and set over unto Lessor all
of Lessee's right, title and interest in and to the Mill II Ground Lease, all
other leases, the Mill II Property, the possession thereof, and all the rents
now due and which may hereafter become due under or by virtue of any other
leases, whether written or verbal, or any letting of, or any agreement for the
use or occupancy of any part of the Mill II Property, it being the intention to
hereby establish a present and absolute transfer and assignment of all such
leases and agreements and all the avails thereunder unto Lessor. This
assignment shall run with the land and be good and valid as against Lessee and
those claiming by, under or through Lessee from the date of the execution of
this Lease. This assignment shall not be exercised unless and until an Event of
Default shall occur and be continuing and shall continue and remain in full
force and effect during any foreclosure proceedings relating to this Mill II
Tenneco Mortgage and the period of redemption, if any, and until the Mill II
Loan Amount shall have been paid in full.
(f) The Mill II Tenneco Mortgage secures and shall be security for the
entire Mill II Loan Amount if a court of competent jurisdiction determines that
the transaction
42
<PAGE>
represented by this Lease and the other Operative Documents will be treated as a
financing transaction. Nothing contained herein shall be deemed an obligation on
the part of the Secured Party to make any further advances, except in accordance
with the Participation Agreement and the other Operative Documents. In order to
preserve the Lien, security interest and security title (as appropriate with
respect to the portion of the Mill II Property situate in the State of Florida
or Georgia) provided for herein, each of the Lessor and the Lessee agrees to
abide by the following provisions with regard to the Mill II Property (for
purposes of this paragraph, hereinafter referred to as "Mill II Collateral"):
------------------
(1) Change in Location of Mill II Collateral or the Lessee's Name,
--------------------------------------------------------------
Structure or Location. The Lessee (i) will notify the Secured Party on or
- ---------------------
before the date of any change in (A) the location of the Mill II Collateral (B)
the location of Lessee's chief executive office or address, (C) the name of the
Lessee and (D) the corporate structure of the Lessee, and (ii) will, on or
before the date of any such change, prepare and file new or amended financing
statements as necessary so that the Secured Party shall continue to have a
perfected Lien (subject only to Permitted Encumbrances) in the Collateral after
any such change.
(2) Documents; Mill II Collateral in Possession of Third Parties. If
------------------------------------------------------------
certificates of title or other documents evidencing ownership or possession of
the Mill II Collateral are issued or outstanding, the Lessee will cause the
interest of the Secured Party to be properly noted thereon and will, forthwith
upon receipt, deliver same to the Secured Party. If any Mill II Collateral is
at any time in the possession or control of any warehouseman, bailee, agent or
independent contractor, the Lessee shall notify such Person of the Secured
Party's security interest in such Mill II Collateral. Upon the Secured Party's
request, the Lessee shall instruct any such Person to hold all such Mill II
Collateral for the Secured Party's account subject to the Lessee's instructions,
or, if an Event of Default shall have occurred and be continuing, subject to the
Secured Party's instructions.
(3) Sale, Disposition or Encumbrance of Mill II Collateral. Except
------------------------------------------------------
for Permitted Encumbrances and contests permitted under paragraph 18, as
permitted by this Lease or any of the other Operative Documents or with the
Secured Party's
43
<PAGE>
prior written consent, the Lessee will not in any way encumber any of the Mill
II Collateral (or permit or suffer any of the Mill II Collateral to be
encumbered) or sell, assign, lend, rent, lease or otherwise dispose of or
transfer any of the Mill II Collateral to or in favor of any Person other than
the Secured Party.
(4) Proceeds of Mill II Collateral. Except as permitted by this Lease
------------------------------
or any of the other Operative Documents, the Lessee will deliver to the Secured
Party promptly upon receipt all proceeds delivered to the Lessee from the sale
or disposition of any Mill II Collateral. This paragraph shall not be construed
to permit sales or dispositions of the Mill II Collateral except as may be
elsewhere expressly permitted by this Lease or the other Operative Documents.
(5) Further Assurances. Upon the request of the Secured Party, the
------------------
Lessee shall (at the Lessee's expense) execute and deliver all such mortgages,
deeds of trust, deeds to secure debt, assignments, certificates, financing
statements or other documents and give further assurances and do all other acts
and things as the Secured Party may reasonably request to perfect the Secured
Party's interest in the Mill II Collateral or to protect, enforce or otherwise
effect the Secured Party's rights and remedies hereunder, all in form and
substance satisfactory to the Secured Party.
(6) Mill II Collateral Attached to other Property. In the event that
---------------------------------------------
the Mill II Collateral is to be attached or affixed to any real property, the
Lessee hereby agrees that a financing statement which is a fixture filing may be
filed for record in any appropriate real estate records. If the Lessee is not
the record owner of such real property, it will provide the Secured Party with
any additional security documents or financing statements necessary for the
perfection of the Secured Party's Lien in the Mill II Collateral, as requested
by the Secured Party.
(7) Mill II Loan Amount. Should the Mill II Loan Amount be paid
-------------------
according to the tenor and effect thereof when the same becomes due and payable
hereunder, and should Lessee perform all covenants contained in the Operative
Documents in a timely manner, then the Mill II Tenneco Mortgage shall be
cancelled and surrendered.
44
<PAGE>
(8) Mortgage Remedies. (a) With respect to the Mill II Georgia
-----------------
Tenneco Mortgage, if an Event of Default shall have occurred and be continuing,
the Lessor, at the direction of Agent and in accordance with the Interparty
Agreement, may sell the portion of the Mill II Property situated in the State of
Georgia or any part thereof, at one or more public sale or sales before the door
of the courthouse of the county in which the Mill II Property is situated, to
the highest bidder for cash, in order to satisfy the Mill II Loan Amount and all
expenses of sale and of all proceedings in connection therewith, including
reasonable attorneys' fees, after advertising the same, place and terms of sale
once a week for four (4) weeks immediately preceding such sale (but without
regard to the number of days) in a newspaper in which Sheriffs' Sales are
advertised in said county. At any such public sale, the Lessor, as Grantee, may
execute and deliver to the purchaser a conveyance of Lessee' interests in the
Mill II Property situate in the State of Georgia and to this end, Lessee, as
Grantor, hereby constitutes and appoints Lessor the agent and attorney-in-fact
of Lessee to make such sale and conveyance, and thereby to divest Lessee of all
right, title and equity that Lessee may have in and to the portion of the Mill
II Property situate in the State of Georgia and to vest the same in the
purchaser or purchasers at such sale or sales and all the acts and doings of
said agent and attorney-in-fact are hereby ratified and confirmed and any
recitals in said conveyance or conveyances as to facts essential to a valid sale
shall be binding upon Lessee. The aforesaid power of sale and agency hereby
granted are coupled with an interest and are irrevocable by death or otherwise,
are granted as cumulative of the other remedies provided hereby or by law for
collection of the Mill II Loan Amount and shall not be exhausted by one exercise
thereof but may be exercised until full payment or the Mill II Loan Amount and
performance of all the obligations under the Operative Documents. In the event
of any sale under this subparagraph 8(a) by virtue of the exercise of the powers
herein granted, pursuant to any order and any judicial proceeding or otherwise,
the portion of the Mill II Property situate in the State of Georgia may be sold
as an entirety or in separate parcels and in such manner or order as Lessor,
upon direction by Agent, in its sole discretion may elect, and if Lessor so
elects, until the entire portion of the Mill II Property situate in the State of
Georgia is sold or the Mill II Loan Amount is
45
<PAGE>
paid and the obligations under the Operative Documents performed in full. If the
Mill II Loan Amount is now or hereafter further secured by any chattel
mortgages, pledges, guarantees, assignments of lease or security instruments,
Lessor, as Grantee, may at its option exhaust the remedies granted under any of
said security instruments either concurrently or independently, and in such
order as Lessor, as Grantee, may determine. Upon any foreclosure sale pursuant
to the power herein granted or otherwise, Lessor, as Grantee, may bid for and
purchase the portion of the Mill II Property situate in the State of Georgia and
shall be entitled to apply all or any part of the Mill II Loan Amount secured
hereby as a credit to the purchase price.
(b) With respect to the Mill II Florida Tenneco Mortgage, if an
Event of Default shall have occurred and be continuing, the Lessor, at the
direction of the Agent and in accordance with the Interparty Agreement, shall
have the right
(i) to exercise any and all remedies available to a mortgagee under
Florida law (and without prejudice to the rights of the Secured Party to
exercise any remedies described in the Participation Agreement, the Interparty
Agreement or the other Operative Documents).
(ii) to declare the Mill II Loan Amount and all other obligations of
Lessee secured by the Mill II Florida Tenneco Mortgage immediately due and
payable without further notice.
(iii) to the extent permitted by law, to take immediate possession of
the Mill II Property situate in the State of Florida or any part thereof (which
Lessee agrees to surrender to Lessor) and manage, control or lease same to such
person or persons and exercise all other rights granted to a mortgagee under
applicable Florida law. The taking of possession under this paragraph shall not
prevent concurrent or later proceedings for the foreclosure sale of the portion
of the Mill II Property situated in the State of Florida as provided elsewhere
herein.
(iv) to apply, on ex parte motion to any court of competent
jurisdiction, for the appointment of a receiver and shall be entitled to the
appointment of such receiver as a matter of right, without regard to the value
of the Mill II
46
<PAGE>
Property (situate in the State of Florida) as security for the Mill II Loan
Amount, or the solvency or insolvency of any person then liable for the payment
of the Mill II Loan Amount. In addition to the rights of protection afforded to
Lessor by Section 697.07, Florida Statutes (1995), as amended (and not as an
election of remedies), Lessor shall be entitled, as a matter of strict right and
without regard to the value or occupancy of any security for the obligations
secured by the Mill II Florida Tenneco Mortgage, to have a receiver appointed by
a court, without notice to Lessee, to enter upon and take possession of the
portion of the Mill II Collateral situated in the State of Florida, collect the
rents therefrom and thereof and apply the same as the court may direct, such
receiver to have all the rights and powers permitted under the laws of Florida.
The expenses, including receiver's fees, reasonable attorneys' fees (including
any incurred in appeals), costs and agent's compensation, incurred pursuant to
the powers herein contained shall be secured by the Mill II Florida Tenneco
Mortgage. The right to enter and take possession of the Mill II Property
(situate in the State of Florida), to manage and operate the same, to collect
the rents therefrom and thereof, whether by a receiver or otherwise, shall be
cumulative to any other right or remedy hereunder or afforded by law, and may be
exercised concurrently therewith or independently thereof. Lessor shall be
liable to account only for such rents actually received by Lessor, whether
received pursuant to this paragraph or otherwise. The Lessee hereby specifically
waives the right to object to the appointment of a receiver as aforesaid and
hereby consents that such appointment shall be made as an admitted equity and as
a matter of absolute right to the Lessor and that the same may be done without
notice to the Lessee or any other defendant to such suit.
(v) to foreclose on the Mill II Florida Tenneco Mortgage and in case
of sale in an action or proceeding to foreclose the Lessor shall have the right
to sell the Mill II Property situate in the State of Florida in parts or as an
entirety. It is intended hereby to give to Lessor the widest possible
discretion permitted by law with respect to all aspects of any such sale or
sales.
(vi) to exercise all other remedies available, whether at law or
equity, in such order as Lessor may elect.
47
<PAGE>
It shall also not be necessary that Lessor pay any Impositions, premiums or
other Charges regarding which Lessee is in default before Lessor may invoke its
rights hereunder. All such other rights and remedies available to Lessor with
respect to the Mill II Florida Tenneco Mortgage shall be cumulative and may be
pursued concurrently or successively. The failure or omission on the part of
Lessor to exercise the option for acceleration of maturity and/or foreclosure or
to timely exercise any other option, right, or remedy conferred upon the Lessor
herein, or the acceptance by Lessor of partial payments hereunder, shall not
constitute a waiver of any default or the right to exercise any such option, but
such option shall remain continuously in force. Acceleration of maturity, once
claimed hereunder by Lessor, at the option of Lessor, may be rescinded by
written acknowledgment to that effect by Lessor, but the tender and acceptance
of partial payments alone shall not, in any way, effect or rescind such
acceleration of maturity. The obtaining of a judgment or decree on the Mill II
Loan Amount, whether in the State of Florida or elsewhere, shall not in anyway
affect the lien of the Mill II Florida Tenneco Mortgage upon the Mill II
Property situate in the State of Florida covered hereby, and any judgment or
decree so obtained shall be secured hereby to the same extent as said Mill II
Loan Amount is now secured.
21. Notices, Demands and Other Instruments. All notices, demands,
--------------------------------------
offers, consents and other instruments given pursuant to this Lease shall be
sent to the parties hereto at the addresses set forth on Schedule I to the
Participation Agreement and shall be given in the manner and shall be effective
at the times and under the terms set forth in Section 8.02 of the Participation
Agreement. The Lessee shall send to the Agent copies of all notices, demands,
offers, consents, advices and other instruments hereunder sent to the Lessor.
22. No Default Certificate. Each party hereto shall, at the
----------------------
reasonable request of the other party hereto, deliver to such other party a
certificate stating whether such first party has knowledge that, or has received
notice from any person that, any Casualty, Condemnation, Default, Major
Environmental Event,
48
<PAGE>
Environmental Default, Environmental Trigger or Event of Default has occurred
and is continuing.
23. Surrender. (a) If upon the expiration or termination of the
---------
Term (or the Extended Term, as the case may be) or the termination of Lessee's
possession of the Mill II Property, Lessee or its designee has not purchased the
Mill II Property as provided hereunder, the Lessee shall surrender (i) the Mill
II Parcel to the Lessor in the condition in which the Mill II Parcel was upon
the commencement of the Term hereof (together with all easements, rights of way
or other rights as Lessor may require to assure unrestricted access to the Mill
II Parcel), (ii) Mill II in the operating condition, efficiency, utility and
with the remaining useful life, it had upon the commencement of the Term, except
as repaired, rebuilt, renovated, altered, added to or built as permitted or
required hereby and except for ordinary wear and tear, and (iii) the Mill II
Improvements and the Mill II Alterations in good operating condition, in
substantially the condition the same were in when constructed or installed on
the Mill II Parcel, except for ordinary wear and tear. To the extent that the
Mill II Property is not in compliance with the above upon such expiration or
termination (except as a consequence of a Casualty or Condemnation, as to which
paragraph 12 applies), the Lessee shall pay to the Agent (on behalf of the
Lessor) such additional amounts as are required to place it in compliance
therewith.
(b) The Lessee shall also surrender the Mill II Property to the Lessor
free and clear of all Liens, easements, consents and restrictive covenants and
agreements affecting the Mill II Property (other than (i) rights reserved to or
vested in any municipality or public authority, by the terms of any franchise,
grant, license, Permit or provision of Law, to purchase, condemn, appropriate or
recapture, or designate a purchaser of the Mill II Property, (ii) rights
reserved to or vested in any municipality or public authority to control or
regulate the use of the Mill II Property or to use the Mill II Property in any
manner, (iii) easements, rights-of-way, servitudes, restrictions, encroachments
and other minor defects, encumbrances and irregularities in title to the Mill II
Property which do not, individually or in the aggregate, materially and
adversely affect the value, condition, marketability or operation of the Mill II
Property or the Lessor's ownership thereof, (iv) the Ground Leases and the
Mortgages, (v) Liens
49
<PAGE>
existing on the Financing Closing Date and set forth in the Title Policy, and
(vi) Lessor Liens.
(c) The Lessee shall also surrender the Mill II Property in a
condition such that it is in compliance with all applicable Environmental Laws
then enacted or then proposed by any governmental agency (irrespective of
whether the deadline for such compliance would otherwise expire after the end of
the Term or the Extended Term, as applicable). Nothing contained in this
paragraph 23 shall relieve or discharge or in any way affect the obligation of
the Lessee to cure promptly pursuant to this Lease any violations of Legal
Requirements referred to in this Lease, or to pay and discharge any Liens and
Impositions against the Mill II Property, subject, however, to the right of the
Lessee to contest the same pursuant to the provisions of paragraphs 11 and 18.
Lessee shall cooperate, to the fullest extent permitted by Law, with the Lessor,
its subsequent lessees, operators or purchasers to effect the transfer of all of
Lessee's Applicable Permits for the Mill II Property to such Persons.
(d) The Lessee, at its sole cost and expense, shall remove from the
Mill II Property on or prior to such expiration or termination, all property
situated thereon which is not owned by the Lessor and shall repair any damage
caused by such removal and shall restore the Mill II Property to the condition
and working order (or reasonable equivalent thereof) in which it existed
immediately prior to the installation of such property, except for ordinary wear
and tear. Lessee shall indemnify and hold harmless the Lessor, its successors
and assigns against any loss, liability, cost, expense, penalty or claim arising
out of the Lessee's removal of such property from the Mill II Property
including, without limitation, any environmental liability arising therefrom.
Any such property of the Lessee not so removed shall become the property of the
Lessor, and the Lessor may cause such property to be removed from the Mill II
Property and disposed of, and the cost of any such removal and disposition of
the Lessee's property and of repairing any damage caused by such removal and of
the restoration of the Mill II Property to the condition and working order (or
reasonable equivalent thereof) in which it existed immediately prior to the
50
<PAGE>
installation of such property, ordinary wear and tear excepted, shall be borne
by the Lessee.
(e) The Lessee shall comply with the conditions set forth in paragraph
27(b) of this Lease in addition to those set forth in this paragraph 23.
(f) The obligations of the Lessee under this paragraph 23 shall
survive the expiration or any termination of the Term (or the Extended Term, as
the case may be) of this Lease (whether by operation of Law or otherwise) for
all matters described in this paragraph 23 which occur or arise prior to such
expiration or termination or arise out of or result from facts, events, claims,
liabilities, actions or conditions occurring, arising or existing on or before
such expiration or termination.
24. Severability; Binding Effect; Governing Law; Non-Recourse. (a)
---------------------------------------------------------
Except as expressly provided otherwise in this Lease, each provision hereof
shall be separate and independent and the breach of any such provision by the
Lessee, or a breach of any obligation hereunder by the Lessor, shall not
discharge or relieve the Lessee from its obligations to perform each and every
covenant to be performed by the Lessee hereunder. If any provision hereof or
the application thereof to any Person or circumstance shall be invalid or
unenforceable, the remaining provisions hereof, or the application of such
provision to Persons or circumstances other than those as to which it is invalid
or unenforceable, shall not be affected thereby, and each provision hereof shall
be valid and shall be enforceable to the extent permitted by Law.
(b) All provisions contained in this Lease shall be binding upon,
inure to the benefit of and be enforceable by, the respective permitted
successors and assigns of the Lessor and the Lessee to the same extent as if
each successor and assignee were named as a party hereto. Except for subleases
and assignments permitted or created in accordance with paragraph l7 hereof, the
Lessee may not assign its rights hereunder or any interest herein without the
prior written consent of the Lessor. Subject to the provisions of Section 2(c)
of this Lease and the other Operative Documents, the Lessor may assign all or
any part of the Mill II Property and/or its rights under this Lease. All
amendments, waivers, consents or approvals arising pursuant to this Lease shall
be consummated in accordance with the Participation Agreement. Any amendment,
waiver, consent or
51
<PAGE>
approval made otherwise than as expressly permitted by this paragraph 24 shall
be null and void.
(c) THIS LEASE SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH
THE LAWS OF THE STATES OF GEORGIA AND FLORIDA, AS APPLICABLE, WITHOUT REGARD TO
CONFLICTS OF LAWS PROVISIONS.
(d) The parties may sign this Lease in any number of counterparts and
on separate counterparts, each of which shall be an original but all of which
when taken together shall constitute one and the same instrument, except that,
if this Lease constitutes "chattel paper" within the meaning of the UCC only one
counterpart stamped or marked "COUNTERPART NUMBER ONE" or "COUNTERPART NUMBER l"
shall constitute, to the extent applicable, "chattel paper" or other
"collateral" within the meaning of the Uniform Commercial Code in effect in any
jurisdiction.
(e) No recourse shall be had against the Lessor, the Agent, the
Collateral Agent, the Equity Investor or any Note Holder or their respective
successors, assigns, directors, officers, partners, employees, agents or
shareholders, for any claim based on any failure by the Lessor in the
performance or observance of any of the agreements, covenants or provisions
contained in this Lease and in the event of any such failure, recourse shall be
had solely against the Mill II Property; provided, however, that nothing
-------- -------
contained in this Lease shall be taken to prevent enforcement of any claim
against the Lessor or any other Person arising out of or in connection with this
Lease based on fraud, gross negligence or willful misconduct of the Lessor or
such other Person and nothing shall prevent enforcement against any other Person
to which any part thereof shall have been transferred, or obligations undertaken
or assumed in writing by such Person.
25. Headings and Table of Contents. The table of contents and the
------------------------------
headings of the various paragraphs and schedules of this Lease are for
convenience only and shall not affect the meaning of the terms and conditions of
this Lease.
26. Lessor's Right to Cure Lessee's Default. If the Lessee shall
---------------------------------------
fail to make any payment or perform any act required to be made or performed
under this Lease, the Lessor, without waiving any default or releasing Lessee
from any
52
<PAGE>
obligation, may (but shall be under no obligation to) make such payment
or perform such act for the account and at the cost and expense of the Lessee,
and may enter upon the Mill II Property for such purpose and take all such
action thereon as, at the Lessor's sole discretion, may be necessary or
appropriate therefor. No such entry shall be deemed an eviction of the Lessee
or a breach of the Lessor's covenant for quiet possession pursuant to paragraph
2(b). All sums so paid by the Lessor and all costs and expenses (including,
without limitation, reasonable attorneys' fees and expenses so incurred,
together with interest thereon at the Default Rate to the extent permitted by
Law) shall be paid by the Lessee to the Lessor on demand as Additional Rent.
27. Lessee's Options Upon Expiration. (a) In addition to its rights
--------------------------------
under paragraphs l2 and 14 hereof, Lessee shall elect either to (i) by written
notice given at least three (3) months prior to the Expiration Date (or later if
permitted or required under paragraph 27(d)) deliver an Offer to Purchase the
Mill II Property in its entirety and purchase the Mill II Property on the
Expiration Date upon payment of an amount equal to the Offer Purchase Price, in
which case the transfer of the Mill II Property shall be governed by the terms
of paragraphs 14 and 15 (and in which case, this Lease (with the exception of
any provision hereof or under the other Operative Documents under which the
Lessee indemnifies the Lessor or others from liability in connection with this
Lease, or otherwise specifies that such provision survives termination hereof or
under the other Operative Documents) shall terminate on the Closing Date); (ii)
so long as no Default, Event of Default or Major Environmental Event has
occurred and is continuing by written notice given at least twelve (12) months
prior to the Expiration Date, and subject to the satisfaction of the conditions
set forth in paragraphs 27(b) and 27(c) hereof, terminate this Lease, abandon
the Mill II Property as of the Expiration Date and pay to the Agent, on behalf
of the Lessor on the Expiration Date, in addition to any Fixed Rent, Additional
Rent and any other amounts then due and payable to the Lessor hereunder, an
amount equal to the Series A Portion of the Adjusted Capitalized Cost of the
Mill II Property (the "Residual Guaranty"); or (iii) by written notice given at
-----------------
least three (3) months prior to the Expiration Date, and subject to the
conditions set forth in paragraph 27(d), extend this Lease for the Extended
Term.
53
<PAGE>
(b) Upon the election of the Lessee to terminate this Lease pursuant
to paragraph 27(a)(ii) hereof, the Lessee shall provide, or cause to be provided
or accomplished, at the sole cost and expense of the Lessee, to or for the
benefit of the Lessor and the holders of the Instruments, at least thirty (30)
days but not more than sixty (60) days prior to the Expiration Date or date of
such other termination of this Lease each of the following (other than the
documentation contemplated under clause (b)(ii)(F) which must be delivered five
days prior to the Expiration Date) (collectively, the "Return Conditions"):
-----------------
(i) an environmental audit of the Mill II Property, performed by
environmental consultants selected by the Lessor, satisfactory in scope and
content to the Agent, the Lessor, the Collateral Agent, each Equity Investor and
each Note Holder, each in its sole discretion.
(ii) a report of the Appraiser and/or the Independent Engineer,
satisfactory in scope and content to the Lessor, the Collateral Agent, the
Agent, the Equity Investors and the Note Holders, each in their sole discretion,
to the effect that (A) the Mill II Improvements, if any, have been completed;
(B) the Mill II Property has been constructed or maintained in accordance with
the terms and conditions of the Lease and the other Operative Documents and the
requirements of all Legal Requirements, Applicable Permits and prudent industry
standards for pulp and paper mills in Wisconsin; (C) the Lessee shall not be
rebuilding or restoring or required to rebuild or restore the Mill II Property
or any part thereof pursuant to paragraph 12(c) of this Lease; (D) the Mill II
Property meets or exceeds the performance tests specified on Exhibit A hereto
(the "Performance Tests") taking into account any modifications to the
-----------------
Performance Tests necessitated by the Mill II Improvements (as determined by the
Independent Engineer) which will insure that, at a minimum, the Mill II Property
(including the Mill II Improvements, if any,) can operate at the required
capacity, efficiency, utility and reliability required to meet the terms of any
existing contracts involving the Mill II Property (including the Mill II
Improvements) on the Expiration Date (or date of such other termination of the
Lease); (E) all mechanical, electrical, security, plumbing, fire safety,
telecommunications, structural and other building systems in the Mill II
Property are operating properly in accordance with standards and specifications
for such systems not less than those in effect on the date hereof, subject to
the provisions of paragraph 23 hereof (and such other standards and
specifications as may be required by applicable Legal Requirements); and (F) no
Condemnation or Casualty has occurred which has not been remedied in accordance
with the terms of the Operative Documents;
(iii) delivery of a services agreement to the Lessor (in form and
substance satisfactory to the Agent, the Lessor, the Equity Investors and the
Note Holders each in their sole and absolute discretion), containing among other
things, evidence that the Lessee has made arrangements satisfactory to the Agent
in its sole and absolute discretion for the provision of all services necessary
to maintain, own, operate or sell the Mill II Property (including obtaining all
necessary intellectual property, surveys, permits, rights of way, manuals and
contracts specifically associated with the Mill II Property and required for the
operation of the Mill II Property as then being operated);
54
<PAGE>
(iv) an endorsement to the previously delivered ALTA extended
coverage owner's title insurance policy issued by the Title Company, marked
"premium paid" and increasing the coverage of such policy to an aggregate amount
equal to the lesser of (i) the maximum insurable amount or (ii) the Adjusted
Capitalized Cost of the Mill II Property, subject only to Permitted Encumbrances
and otherwise in form and substance satisfactory to the Note Holders, the Equity
Investors, the Lessor and Special Counsel, to be delivered to the Note Holders,
the Equity Investors, the Lessor and Special Counsel, together with copies of
all documents relating to the Permitted Encumbrances referred to therein,
showing record title of the Lessor in the (leasehold estate in and to the) Mill
II Property, and in and to Mill II, the Mill II Improvements and the Mill II
Alterations;
(v) all Fixed Rent and Additional Rent shall have been paid in
full through such expiration or termination of the Term (or the Extended Term,
as applicable);
(vi) the Lessee shall remove, or cause the removal of, at the
Lessee's sole expense, any inventory, fixtures, machinery, equipment or other
property belonging to the Lessee or third parties in compliance with paragraph
10(b) and 23(d) of this Lease; and
(vii) if directed to do so by the Lessor, the Lessee (at its
expense) shall execute and deliver any and all further instruments, agreements
and documents as may, in the reasonable opinion of the Lessor, be necessary to
confirm the termination and expiration of this Lease and to acknowledge that the
Lessee, from the date of termination and expiration, ceases to have any interest
in the Mill II Property under this Lease and to confirm the Lessor's ownership
of the Mill II Property.
(c) Upon the Lessee's election to terminate this Lease pursuant to and
in compliance with paragraph 27(a)(ii) the Lessee shall use reasonable efforts
during the twelve-month period prior to the Expiration Date ("Remarketing
-----------
Period") to obtain bids from unrelated third parties for the Mill II Property.
- ------
All bids received by the Lessee shall immediately be copied to the Lessor and
the Agent in writing, setting forth the amount of such bid and the name and
address of the person submitting such bid. The Lessor, the Agent, the Equity
Investors and each Note Holder shall have the right, but not the obligation, to
seek bids for the Mill II Property during the Remarketing Period or at any time
thereafter. On the Expiration Date or at any time thereafter, provided that all
conditions of this paragraph 27 have been met, the Collateral Agent may (but is
not obligated to) sell the Mill II Property for cash to the bidder, if any, who
shall have submitted the highest bid during the Remarketing Period or any time
thereafter on an as-is basis and without recourse or warranty, subject to the
provisions of Section 3.01 of the Interparty Agreement. The Lessor shall be
entitled to keep the proceeds of such sale after payment of Closing Costs (the
"Net Sale Proceeds"), and Lessee shall have no further claim thereto except to
- ------------------
the extent such Net Sale
55
<PAGE>
Proceeds exceed the outstanding obligations of the Lessee under the Operative
Documents.
(d) So long as no Default, Event of Default or Major Environmental
Event exists, the Lessee may request (in its sole discretion), by written notice
given to the Agent at least 3 months prior to the Expiration Date an extension
of this Lease for one additional period of up to five years (the "Extended
--------
Term"). The Lessor and the Lessee shall determine the Applicable Rate for the
- ----
Extended Term, consistent with the terms outlined below in this paragraph 27(d),
and the Lessee shall undertake to enter into all amendments and supplements to
the Operative Documents and such other agreements as the Lessor in its sole
discretion determines to be necessary and appropriate in connection therewith
including, without limitation, delivery to Agent of an appraisal of the Mill II
Property (satisfactory in form and substance to the Agent in its sole
discretion). If the Lease is extended for the Extended Term, the Lessee shall
pay the Agent a remarketing fee, the amount of which shall be determined one
month prior to the commencement of the Extended Term. Fixed Rent during the
Extended Term shall be paid monthly in arrears, and include an annual amount
(payable annually in arrears) to be applied (i) to the outstanding principal
amount of the Notes, and (ii) to the outstanding stated amount of the Equity
Investment, such annual amount to be based on an amortization schedule
(determined by reference to the appraisal described in this paragraph 27(d) and
agreed to by the Note Holders and the Equity Investors in their sole
discretion).
(e) The Applicable Rate, the principal amount of the commitments to be
agreed upon by each Note Holder and each Equity Investor and Commitment Fees
payable during the Extended Term shall be determined as follows:
(i) Within ten (10) days after receipt of Lessee's request to
extend this Lease pursuant to this paragraph 27(d), the Agent shall, in
accordance with provisions of the letter agreement of even date herewith (the
"Extension Letter") among the Lessee and each APA Purchaser, the manager under
----------------
the Management Agreement, CNAI, the Equity Investor, the Lessor and the
Collateral Agent, consult with each party to the Extension Letter to determine
(A) the amount of the Applicable Rate, the Fixed Rent and the Commitment Fees,
if any, for the Extended Term at which the Note Holders, the Equity Investors
and other applicable Persons are willing to continue their respective interests
for the Extended Term (the "Proposed Extension Rates"), or (B) whether any such
------------------------
Person is unwilling to continue its interest during the Extended Term; and the
Agent shall promptly thereafter notify the Lessee thereof.
56
<PAGE>
(ii) If the Agent notifies the Lessee of the Proposed Extension
Rates, the Lessee shall, within five Business Days after such notice, notify the
Agent whether the Lessee is willing to accept the Proposed Extension Rates for
the Extended Term and, if not, at what Applicable Rate, Fixed Rent and
Commitment Fees the Lessee is willing to accept for the Extended Term (the
"Lessee's Extension Rates"); provided, however, that in the event that the
------------------------ -------- -------
Equity Investor and the Lessor are the same person, the Lessee agrees that any
extension of this Lease agreed to by the Lessee with either the Equity Investor
or the Lessor shall also include such other Person.
(iii) If any party to the Extension Letter notifies the Agent that it
is unwilling to extend this Lease in accordance with clause (i)(B) above or if
the Lessee notifies the Agent that it is unwilling to accept the Proposed
Extension Rates and advises the Agent of the Lessee's Extension Rates as set
forth above, the Agent shall use reasonable efforts to locate replacement
lenders, investors and other Persons as necessary to extend this Lease for the
Extended Term on Lessee's Extension Rates.
(iv) If the Lessee fails to give the Agent the notice described in
clause (ii) of this paragraph 27(e), or, if within one month after Lessee's
request to extend this Lease pursuant to paragraph 27(d), the Agent has been
unable to locate replacement lenders, investors or other Persons as necessary to
extend this Lease for the Extended Term on Lessee's Extension Rates, the Agent
shall notify the Lessee and the Lessee, within five Business Days after such
notice shall give the Agent notice of either (x) the Lessee's agreement to
extend this Lease for the Extended Term at the Proposed Extension Rates, if any,
or (y) in all other cases, the Lessee's election pursuant to paragraph 27(a)(i)
hereof; provided, that if the Lessee fails to give the Agent such notice, the
Lessee shall be deemed to have given notice of its election pursuant to
paragraph 27(a)(i) hereof.
(e) If Lessee is unable to satisfy one or more of the conditions set
forth in paragraphs 27(b) and 27(c) hereof, or fails to elect either (i) or (ii)
under paragraph 27(a) hereof, the Lessee shall be deemed to have elected to
proceed under paragraph 27(a)(i) hereof, in which case Lessee shall purchase the
Mill II Property pursuant to and in accordance with said paragraph 27(a)(i).
28. Protective Expenditures. At any time after the expiration or
-----------------------
other termination of this Lease, if the Lessee has not purchased the Mill II
Property pursuant to the terms of this Lease, any Note Holder, any Equity
Investor or the Lessor shall have the right to pay, or to fund the Collateral
Agent's payment of, (i) real estate Taxes due and owing with respect to the Mill
II Property or (ii) insurance premiums required to maintain the coverage
required during the Term of this Lease pursuant to Section 5.01(o) of the
Participation Agreement (each a "Protective Expenditure"). Reimbursement of
----------------------
Protective Expenditures made by any Note Holder, any Equity Investor or the
Lessor in accordance with this paragraph 28 shall be made upon a sale of the
Mill II Property pursuant to the provisions set forth in the Interparty
Agreement.
57
<PAGE>
29. Limitations on Amounts Payable. Notwithstanding anything to the
------------------------------
contrary contained in this Lease or any of the other Operative Documents, the
amounts which the Lessee is obliged to pay, as Fixed Rent pursuant to this Lease
and the other Operative Documents, and the amounts which Lessor, Agent, the
Equity Investors and the Note Holders are entitled to receive as Fixed Rent
pursuant to this Lease and other Operative Documents, are subject to limitations
pursuant to Section 8.17 of the Participation Agreement.
30. No Merger of Title. There shall be no merger of this Lease nor
------------------
of the leasehold estate created by this Lease with the ownership of the Mill II
Parcel, Mill II, the Mill II Improvements or the Mill II Alterations by reason
of the fact that the same Person may acquire, own or hold, directly or
indirectly, this Lease or the leasehold estate created by this Lease or any
interest in this Lease or interest in the fee or leasehold ownership of the Mill
II Parcel, Mill II, the Mill II Improvements or the Mill II Alterations and no
such merger shall occur unless and until all Persons having any interest in (x)
the leasehold estate created by this Lease and (y) the ownership of the Mill II
Parcel, Mill II, the Mill II Improvements or the Mill II Alterations, or any
part thereof shall join in a written instrument effecting such merger and shall
duly record the same.
31. Payments to the Agent. The Lessee hereby acknowledges, and the
---------------------
Lessor hereby directs, that all payments of Fixed Rent, Additional Rent and
other sums due to the Lessor hereunder shall be made to the Agent, on behalf of
the Lessor, to the account specified for the Agent in Schedule I to the
Participation Agreement.
32. Remaining Moneys. Except as otherwise provided for herein or in
----------------
the Interparty Agreement, any and all moneys remaining, and all residual
interests in the Mill II Property after all payments of interest on and
principal of the Notes, and all payments of current yield on and the stated
amount of the Equity Investment and all payments of other sums due to the
parties entitled thereto under the Operative Documents, have been made in
accordance with the Operative Documents, shall be paid and assigned to the
Lessee.
33. Replace and Supersede. This Lease replaces and supersedes in all
---------------------
respects the Original Mill II Lease, which
58
<PAGE>
Original Mill II Lease shall, from and after the date hereof, be of no further
force or effect.
59
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be
duly executed by their respective Officers thereunto duly authorized as of the
date hereof.
LESSOR:
CREDIT SUISSE LEASING 92A, L.P.
By: CREDIT SUISSE FIRST BOSTON,
its general partner
/s/ Ann E. Diaz By: /s/ Richard P. O'Day
- --------------------------- ---------------------------
Print Name Ann E. Diaz Name: Richard P. O'Day
Title: Associate
/s/ Jennifer Sequin
- ---------------------------
Print Name Jennifer Sequin
/s/ Ann E. Diaz By: /s/ Rita A. Santelli
- --------------------------- ---------------------------
Print Name Ann E. Diaz Name: Rita A. Santelli
Title: Associate
/s/ Jennifer Sequin
- ---------------------------
Print Name Jennifer Sequin
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
The foregoing instrument was acknowledged before me this 31st day of
January, 1997, by Richard P. O'Day, as Associate of CREDIT SUISSE FIRST BOSTON,
the general partner of CREDIT SUISSE LEASING 92A, L.P., a Delaware limited
partnership, in his capacity as Associate of such general partner and on behalf
of said limited partnership. He is personally known to me or has produced
_____________________ as identification.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal at my office in New York, New York the day and year last above
written.
(SEAL)
/s/ Susan L. Adler
-----------------------------------
Printed Name: Susan L. Adler
Notary Public in and for said State
Commissioned in New York County
[Notary Public]
My Commission Expires:
November 4, 1997
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
The foregoing instrument was acknowledged before me this 31st day of
January, 1997, by Rita A. Santelli, as Associate of CREDIT SUISSE FIRST BOSTON,
the general partner of CREDIT SUISSE LEASING 92A, L.P., a Delaware limited
partnership, in her capacity as Associate of such general partner and on behalf
of said limited partnership. She is personally known to me or has produced
_____________________ as identification.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal my office in New York, New York the day and year last above
written.
(SEAL)
/s/ Susan L. Adler
-----------------------------------
Printed Name: Susan L. Adler
Notary Public in and for said State
Commissioned in New York County
[Notary Public]
My Commission Expire:
November 4, 1997
<PAGE>
LESSEE:
Witness/Attest: TENNECO PACKAGING INC.
Attest: /s/ James D. Gaughan By:/s/ Karen R. Osar
----------------------------- -----------------------------------
Print Name James D. Gaughan Name: Karen R. Osar
Assistant Secretary Vice President
/s/ Paul Novas
-----------------------------
Print Name Paul Novas [CORPORATE SEAL]
Witness: /s/ John Baldwin
----------------------------
Name: John Baldwin
Title: Assistant Treasurer
Tenneco Inc.
Agreed to and Accepted:
Witness/Attest: CITIBANK, N.A., as Agent
/s/ Priscilla Audiffied By: /s/ Carolyn R. Bodmer
----------------------------- ----------------------------------
Print Name Priscilla Audiffied Name: Carolyn R. Bodmer
Title: Vice President
/s/ Lillian Bercari
-----------------------------
Print Name Lillian Bercari
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF WESTCHESTER)
On this 31st day of January, 1997, before me personally appeared
Karen R. Osar, to me personally known, who being by me duly sworn, did say that
she is the Vice President of TENNECO PACKAGING, INC., a Delaware corporation,
and that the seal affixed to the foregoing instrument is the corporate seal of
said corporation and that said instrument was signed and sealed on behalf of
said corporation by authority of its Board of Directors, and said Vice President
acknowledged said instrument to be the free act and deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal at my office in Westchester County the day and year last
above written.
(SEAL)
/s/ Nancy Mangano
-----------------------------------
Printed Name: Nancy Mangano
Notary Public in and for said State
Commissioned in Westchester County
My Commission Expire:
May 31, 1997
[Notary Public]
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF QUEENS )
On this 31st day of January, 1997, before me personally appeared
Carolyn R. Bodmer, to me personally known, who being by me duly sworn, did say
that she is the Vice President of Citibank, N.A., and that said instrument was
signed on behalf of said corporation by authority of its Board of Directors, and
said Vice President acknowledged said instrument to be the free act and deed of
said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal at my office in Long Island City, N.Y. the day and year last
above written.
(SEAL)
/s/ Lillian M. Bercari
-----------------------------------
Printed Name: Lillian M. Bercari
Notary Public in and for said State
Commissioned in Kings County
[Notary Public]
My Commission Expire:
Oct. 11, 1998
<PAGE>
SCHEDULE A
----------
Description of the Mill II Parcel
---------------------------------
LAND IN THE CITY OF ________, ________ COUNTY, ________, legally described as
follows:
-55-
<PAGE>
SCHEDULE B
----------
Fixed Rent and Additional Rent Schedule
---------------------------------------
Capitalized terms used herein and not defined herein shall have the meanings
- ----------------------------------------------------------------------------
assigned to them in the Lease (including terms defined by reference in the Lease
- --------------------------------------------------------------------------------
to the other Operative Documents).
- ----------------------------------
I. Fixed Rent
----------
A. The "Adjusted Capitalized Cost" of the Mill II Property as a
-------------------------
whole at any time during the Term (or the Extended Term, as
applicable) is (i) the sum of each of the aggregate unpaid principal
amounts of the A-Notes and the B-Notes (without taking into account
any prepayment pursuant to the last sentence of Section 2.04 of the
Loan Agreement) at such time and the unpaid stated amount of the
Equity Investment at such time times (ii) the Mill II Percentage.
B. "Fixed Securitization Costs" shall mean, without duplication of
--------------------------
any of the following fixed securitization costs and without
duplication of any other fixed costs related to the Operative
Documents or the Securitization Documents payable by the Lessee, the
fee of the Managing Agent pursuant to the Management Agreement or any
related fee letter, the fee of the Servicing Agent pursuant to the
Servicing Agreement or any related fee letter, and the monthly
commitment fee payable to CXC's Credit Enhancer pursuant to the
Securitization Fee Letter.
C. The "Mill II Percentage" means initially the updated appraised
------------------
fair market value of the Mill II Property divided by the Acquisition
Costs and thereafter the percentage calculated by dividing (i) the
Actual Project Costs actually expended on the Mill II Property (on and
as of the date of such calculation) by (ii) the sum of the Actual
Project Costs actually expended on the Mill II Property (on and as of
the date of such calculation) plus the
B-1
<PAGE>
Actual Project Costs actually expended on the Mill II Property (on and
as of the date of such calculation).
D. Fixed Rent during the Term (or the Extended Term, as applicable)
shall be due and payable in arrears on each Payment Date (subject, in
the case of Fixed Securitization Costs, to the rights of Lessee under,
and the limitations on such payments contained in, the Operative
Documents). "Fixed Rent" for each Payment Date during the Term shall
----------
be equal to the product of (i) the portion of Adjusted Capitalized
Cost represented by each Instrument multiplied by (ii) the Applicable
-------------
Rate for each Instrument in effect prior to such Payment Date; plus
----
Fixed Securitization Costs.
B-2
<PAGE>
II. Additional Rent
---------------
A. In addition to such Additional Rent as may otherwise be payable
under the Lease, Lessee shall pay, without duplication, within five
(5) days after a demand therefor (but subject in all cases to the
rights of Lessee under, and the limitations on such payments contained
in, the Operative Documents) as Additional Rent, without duplication,
all Additional Costs. Promptly after the Lessor receives notice from
any Note Holder, Equity Investor or such other Persons requesting
payment of any Additional Costs to be payable as Additional Rent the
Lessor shall notify Lessee of the same. The failure to provide such
notice as to any Additional Costs shall not affect the right of any
Equity Investor, Note Holder or such other Person to recover
Additional Rent for the same.
B. "Additional Costs" shall mean all Break Costs, Funding Costs,
----------------
Reserve Costs, Increased Costs, Charges, Other Taxes, Variable
Securitization Fees, Illegality Costs and other amounts required to be
paid (or indemnified against) by the Lessee pursuant to Article V of
the Participation Agreement.
C. Upon requesting that Lessee pay Additional Rent pursuant to
paragraph II. A. above, the Lessor shall deliver to Lessee a
certificate in reasonable detail executed by the Equity Investors,
Note Holders or such other Persons requesting payment of Additional
Costs, as the case may be, charging such Additional Rent and (i)
setting forth the basis for and the Amount of such Additional Rent,
and (ii) in the case of Increased Costs, stating that such Increased
Costs are generally being charged by such Equity Investor or Note
Holder to other similarly situated Persons under similar arrangements.
Such certificate shall be conclusive and binding for all purposes,
absent manifest error, unless such certificate fails to set forth the
information required above.
B-3
<PAGE>
Exhibit A
---------
Performance Tests
-----------------
A-1
<PAGE>
-1-
<PAGE>
EXHIBIT 11
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE OF COMMON STOCK
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
----------- ----------- -----------
(MILLIONS EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C>
COMPUTATION FOR STATEMENTS OF INCOME
Primary Earnings Per Share (average
shares outstanding):
Income from continuing operations.... $ 218 $ 258 $ 238
Income from discontinued operations,
net of income tax................... 428 477 214
----------- ----------- -----------
Income before extraordinary loss..... 646 735 452
Extraordinary loss, net of income
tax................................. (236) -- (5)
----------- ----------- -----------
Income before cumulative effect of
change in accounting principle...... 410 735 447
Cumulative effect of change in
accounting principle, net of income
tax................................. -- -- (39)
----------- ----------- -----------
Net income........................... 410 735 408
Preferred stock dividends............ 12 12 12
----------- ----------- -----------
Net income to common stock........... $ 398 $ 723 $ 396
=========== =========== ===========
Average shares of common stock
outstanding(a)(b)................... 170,635,277 173,995,941 180,084,909
=========== =========== ===========
Earnings (loss) per average share of
common stock:
Continuing operations.............. $ 1.28 $ 1.48 $ 1.32
Discontinued operations............ 2.43 2.68 1.13
Extraordinary loss................. (1.38) -- (.03)
Cumulative effect of change in
accounting principle.............. -- -- (.22)
----------- ----------- -----------
$ 2.33 $ 4.16 $ 2.20
=========== =========== ===========
ADDITIONAL COMPUTATIONS(C)
Net income to common stock, per above.. $ 398 $ 723 $ 396
=========== =========== ===========
Primary Earnings Per Share (including
common stock equivalents):
Average shares of common stock
outstanding(a)(b)................... 170,635,277 173,995,941 180,084,909
Incremental common shares applicable
to common stock options based on the
common stock daily average market
price during the year............... 400,403 64,329 74,087
Incremental common shares applicable
to performance units based upon the
attainment of specified goals....... -- 27,625 --
----------- ----------- -----------
Average common shares, as adjusted... 171,035,680 174,087,895 180,158,996
=========== =========== ===========
Earnings (loss) per average share of
common stock (including common stock
equivalents):
Continuing operations.............. $ 1.28 $ 1.48 $ 1.32
Discontinued operations............ 2.43 2.68 1.13
Extraordinary loss................. (1.38) -- (.03)
Cumulative effect of change in
accounting principle.............. -- -- (.22)
----------- ----------- -----------
$ 2.33 $ 4.16 $ 2.20
=========== =========== ===========
</TABLE>
(table continued on next page)
<PAGE>
(table continued from previous page)
<TABLE>
<S> <C> <C> <C>
Fully Diluted Earnings Per Share:
Average shares of common stock
outstanding(a)(b)................... 170,635,277 173,995,941 180,084,909
Incremental common shares applicable
to common stock options based on the
more dilutive of the common stock
ending or average market price
during the year..................... 465,998 94,418 75,223
Average common shares issuable
assuming conversion of Tenneco Inc.
10% loan stock...................... -- -- 41,356
Incremental common shares applicable
to performance units based upon the
attainment of specified goals....... -- 27,625 --
----------- ----------- -----------
Average common shares assuming full
dilution............................ 171,101,275 174,117,984 180,201,488
=========== =========== ===========
Fully diluted earnings (loss) per
average share, assuming conversion
of all applicable securities:
Continuing operations.............. $ 1.28 $ 1.48 $ 1.32
Discontinued operations............ 2.43 2.68 1.13
Extraordinary loss................. (1.38) -- (.03)
Cumulative effect of change in
accounting principle.............. -- -- (.22)
----------- ----------- -----------
$ 2.33 $ 4.16 $ 2.20
=========== =========== ===========
</TABLE>
- --------
NOTES:
(a) In 1992, 12,000,000 shares of common stock were issued to the Tenneco Inc.
Stock Employee Compensation Trust ("SECT"). Shares of common stock issued
to a related trust are not considered to be outstanding in the computation
of average shares of common stock until the shares are utilized to fund
the obligations for which the trust was established. During each of the
years ended December 31, 1996, 1995 and 1994, the SECT utilized 4,358,084,
2,697,770 and 2,464,721 shares, respectively.
(b) For purposes of computing earnings per share, Series A preferred stock was
converted into common stock under the Contingent Share method. The above
computation includes 8,935,175 shares of Series A preferred stock which
were converted into 17,342,763 shares of common stock. In December 1994,
all of the outstanding shares of Series A preferred stock were converted
into Tenneco Inc. common stock. The inclusion of Series A preferred stock
in the computation of earnings per share was antidilutive for the year and
certain quarters in 1994.
(c) These calculations are submitted in accordance with Securities and
Exchange Commission requirements although not required by Accounting
Principles Board Opinion No. 15 because they result in dilution of less
than 3%.
<PAGE>
EXHIBIT 12
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
COMBINED WITH 50% OWNED UNCONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Income from continuing operations.................... $218 $258 $238 $165 $209
Add:
Interest........................................... 195 160 104 101 102
Portion of rentals representative of interest
factor............................................ 60 57 52 47 47
Preferred stock dividend requirements of majority-
owned subsidiaries................................ 21 23 -- -- --
Income tax expense and other taxes on income....... 194 231 114 115 154
Amortization of interest capitalized............... 2 2 1 -- 1
Undistributed (earnings) losses of affiliated
companies in which less than a 50% voting interest
is owned.......................................... (1) -- -- -- 2
---- ---- ---- ---- ----
Earnings as defined.............................. $689 $731 $509 $428 $515
==== ==== ==== ==== ====
Interest............................................. $195 $160 $104 $101 $102
Interest capitalized................................. 6 5 2 1 1
Portion of rentals representative of interest factor. 60 57 52 47 47
Preferred stock dividend requirements of majority-
owned subsidiaries on a pre-tax basis............... 37 42 -- -- --
---- ---- ---- ---- ----
Fixed charges as defined......................... $298 $264 $158 $149 $150
==== ==== ==== ==== ====
Ratio of earnings to fixed charges................... 2.31 2.77 3.22 2.87 3.43
==== ==== ==== ==== ====
</TABLE>
<PAGE>
TENNECO INC. SUBSIDIARIES AND AFFILIATES
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
Subsidiaries of Tenneco Inc.
<S> <C>
Autopartes Walker, S.A. de C.V. (Mexico)........................................ 99.98%
(Tenneco Inc. owns 99.98% and Tenneco Automotive Inc. owns .02%)
Counce Limited Partnership (Texas Limited Partnership).......................... 95
(Tenneco Inc. owns 95%, as Limited Partner; and PCA Leasing Company owns
5%, as General Partner)
Counce Finance Corporation (Delaware)........................................ 100
Monroe-Mexico S.A. de C.V. (Mexico)............................................. 0.01
(Tenneco Inc. owns 0.01%; and Tenneco Automotive Inc. owns 99.99%)
Omni-Pac GmbH (Germany)......................................................... 1
(Tenneco Deutschland Holdinggesellschaft mbH owns 99%; and Tenneco Inc.
owns 1%)
Omni-Pac S.A.R.L. (France)...................................................... 97
(Omni-Pac GmbH owns 3%; and Tenneco Inc. owns 97%)
PCA Leasing Company (Delaware).................................................. 100
Counce Limited Partnership (Texas Limited Partnership)....................... 5
(Tenneco Inc. owns 95%, as Limited Partner; and PCA Leasing Company
owns 5%, as General Partner)
Counce Finance Corporation (Delaware)...................................... 100
Proveedora Walker S.A. de C.V. (Mexico)......................................... 99.99
(Tenneco Inc. owns 49,999 shares, and Tenneco Automotive Inc. owns 1 share)
Tenneco Asia Inc. (Delaware).................................................... 100
Tenneco Asheville Inc. (Delaware)............................................... 100
Tenneco Automotive Foreign Sales Corporation Limited (Jamaica).................. 1
(Tenneco Inc. owns 1%; and Tenneco Automotive Inc. owns 99%)
Tenneco Automotive Inc. (f/k/a Monroe Auto Equipment Company)(Delaware)......... 100
Autopartes Walker, S.A. de C.V. (Mexico)..................................... 0.02
(Tenneco Inc. owns 99.98%; Tenneco Automotive Inc. owns 0.02%)
Beijing Monroe Automobile Shock Absorber Company Ltd (China)................. 51
(Tenneco Automotive Inc. owns 51%; and Beijing Automotive Industry
Corporation, an unaffiliated company, owns 49%)
Consorcio Terranova S.A. de C.V. (Mexico)....................................
(Tenneco Automotive Inc. 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%)
</TABLE>
1
<PAGE>
TENNECO INC. SUBSIDIARIES AND AFFILIATES
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Subsidiaries of Tenneco Inc.
Subsidiaries of Tenneco Automotive Inc.
Tenneco Automotive Italia S.r.l. (Italy)....................................... 15
(Tenneco Automotive Inc. owns 85%; and Monroe Auto
Equipement France, S.A. owns 15%)
Monroe Auto Pecas S.A. (Brazil).................................................. 2.82
(Tenneco Automotive Inc. 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
(Tenneco Automotive Inc. owns 99.99%; and Tenneco Inc. owns 0.01%)
Precision Modular Assembly Corp. (Delaware)...................................... 100
Rancho Industries Europe B.V. (Netherlands)...................................... 100
Tenneco Automotive Foreign Sales Corporation Limited
(Jamaica)....................................................................... 99
(Tenneco Automotive Inc. owns 99%; and Tenneco Inc. owns 1%)
Tenneco Automotive International Sales Corporation (DE-In
Dissolution).................................................................... 100
Tenneco Automotive Italia S.r.l. (Italy)......................................... 85
(Tenneco Automotive Inc. owns 85%; and Monroe Auto
Equipement France, S.A. owns 15%)
Tenneco Automotive Japan Ltd. (Japan)............................................ 100
The Pullman Company (Delaware)................................................... 100
Axios Produtos de Elastomeros Limitada (Brazil)................................ 99
(99% The Pullman Company; 1% Peabody
International Corporation)
Clevite Industries Inc. (Delaware)............................................. 100
Peabody International Corporation (Delaware)................................... 100
Axios Produtos de Elastomeros Limitada (Brazil)............................. 1
(99% The Pullman Company; 1% Peabody
International Corporation)
Barasset Corporation (Ohio)................................................. 100
Peabody Galion Corporation (Delaware)....................................... 100
Peabody Gordon-Piatt, Inc. (Delaware)....................................... 100
Peabody N.E., Inc. (Delaware)............................................... 100
Peabody World Trade Corporation (Delaware).................................. 100
Pullmex, S.A. de C.V. (Mexico)............................................ 0.1
(99.9% The Pullman Company; 0.1% Peabody World Trade
Corporation)
Peabody-Myers Corporation (Illinois)........................................ 100
Pullman Canada Ltd. (Canada)................................................ 61
(61% Peabody International Corporation; 39%
The Pullman Company)
Pullman Canada Ltd. (Canada)................................................... 39
(61% Peabody International Corporation; 39% The Pullman Company)
Pullman Standard, Inc. (Delaware).............................................. 100
</TABLE>
2
<PAGE>
TENNECO INC. SUBSIDIARIES AND AFFILIATES
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Subsidiaries of Tenneco Inc.
Subsidiaries of Tenneco Automotive Inc.
Subsidiaries of The Pullman Company
Pullmex, S.A. de C.V. (Mexico).................................................. 99.9
(99.9% The Pullman Company; 0.1% 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%; Tenneco
Automotive Inc. owns 2.82%; and Monteiro Aranha S/A, an unaffiliated
company owns 14.47%)
Tenneco Business Services Holdings Inc............................................... 100
Tenneco Business Services Inc........................................................ 100
Tenneco Deutschland Holdinggesellschaft mbH (Germany)................................ 99.97
(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-Pac 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 Tenneco Inc.
owns 1%)
Omni-Pac ApS (Denmark).......................................................... 100
Omni-Pac A.B. (Sweden).......................................................... 100
Omni-Pac S.A.R.L. (France)...................................................... 3
(Omni-Pac GmbH owns 3%; and Tenneco Inc. owns 97%)
Walker Deutschland GmbH (Germany)................................................. 99
(Tenneco Deutschland Holdinggesellschaft mbH owns 99%; and Tenneco Inc. owns 1%)
</TABLE>
3
<PAGE>
TENNECO INC. SUBSIDIARIES AND AFFILIATES
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Subsidiaries of Tenneco Inc.
Subsidiaries of Tenneco Deutschland Holdinnggesellschaft mbH Walker Gillet
(Europe) GmbH (Germany)........................................................... 100
Tenneco Foam Products Company........................................................ 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)............................... 99.85
(S.A. Monroe Europe N.V. owns 99.85%; and various unaffiliated individual
stockholders own 0.15%)
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
Louis Minuzzi E. Hijos S.A.I.C. (Argentina)..................................... 100??
Monroe Springs (New Zealand) Pty. Ltd. (New Zealand)............................ 100
Monroe Spain, S.A. (Spain)................................................... 100
Gillet Iberica, S.A. (Spain)................................................. 100
Manufacturas Fonos, S.L. (Spain)............................................. 100
Omni-Pac Embalajes S.A. (Spain).............................................. 100
Reknowned Automotive Products Manufacturers Ltd. (India)........................ 51
Monroe Czechia s.r.o. (Czech Republic).......................................... 100
Tenneco (Mauritius) Limited (Mauritius)......................................... 100
Hydraulics Limited (India)................................................... 51
(Tenneco (Mauritius) Limited owns 51% and Bangalore Union
Services Limited, an unaffiliated company, owns 49%)
Tenneco Holdings Danmark A/S (Denmark)............................................ 100
</TABLE>
4
<PAGE>
TENNECO INC. SUBSIDIARIES AND AFFILIATES
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Subsidiaries of Tenneco Inc.
Subsidiaries of Tenneco International Holding Corp. (Delaware)
Subsidiaries of Tenneco Holdings Danmark A/S (Denmark)
Gillet Exhaust Technologie (Proprietary) Limited (South Africa)............ 100
Gillet Lazne Belohrad, s.r.o. (Czech Republic)............................. 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%) Walker France S.A. (France).......... 100
Constructions Metallurgiques de Wissembourg - Wimetal (France)............. 100
Societe Europeenne des Ensembles-Montes (France)........................ 100
Gillet Tubes Technologies G.T.T. (France).................................. 100
Walker Sverige A.B. (Sweden)................................................. 100
Tenneco Management Company (Delaware)........................................... 100
Tenneco Moorhead Acquisition Inc. (Delaware).................................... 100
Tenneco Packaging Hungary Holdings 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
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
Glacier-Cor US Corporation (Delaware)...................................... 100
Glacier-Cor US Holding Corporation (Delaware)........................... 100
Packaging Corporation of America (Nevada).................................... 100
PCA Box Company (Delaware)................................................... 100
PCA-Budafok (Kartongyar) Kft. (Hungary)...................................... 100
PCA Hydro, Inc. (Delaware)................................................... 100
</TABLE>
5
<PAGE>
TENNECO INC. SUBSIDIARIES AND AFFILIATES
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Subsidiaries of Tenneco Inc.
Subsidiaries of Tenneco Packaging Inc.
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
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 CPI Holding Company (Delaware)...................................... 100
Tenneco Packaging Limited (Scotland)........................................ 100
Tenneco Plastics Company (Delaware)......................................... 100
798795 Ontario Limited (Ontario)............................................ 100
PCA Canada Inc. (Ontario)................................................. 100
Tenneco Retail Receivables Company (Delaware).................................. 100
Tenneco Romania Holdings Inc. (Delaware)....................................... 100
Tenneco Packaging-Romania S.R.L. (Romania).................................. 100
Tenneco United Kingdom Holdings Limited (Delaware)............................. 100
Monroe Europe (UK) Limited (United Kingdom)................................. 82
(Tenneco United Holdings Limited owns 82%; and S.A. Monroe Europe N.V.
owns 18%)
Omni-Pac U.K. Limited (United Kingdom)...................................... 100
Tenneco Packaging (UK) Limited (Scotland)................................... 100
Alpha Products (Bristol Limited (United Kingdom).......................... 100
Tenneco Packaging (Films) Limited (United Kingdom)........................ 100
Tenneco Packaging (Caerphilly) Limited (United Kingdom)................... 100
Tenneco Packaging (Stanley) Limited (United Kingdom)...................... 100
Tenneco Packaging (Livingston) 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
</TABLE>
6
<PAGE>
TENNECO INC. SUBSIDIARIES AND AFFILIATES
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Subsidiaries of Tenneco Inc.
Subsidiaries of Tenneco United Kingdom Holdings Limited (Delaware)
Subsidiaries of Tenneco International Finance Limited (United Kingdom)
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
Gillet Pressings Cardiff Limited (United Kingdom)............................ 100
Gillet 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 Gillet
Gmbh & Co. KG & AB Torsmaskiner, an unaffiliated company owns 0.01%)
Tenneco - Walker UK Ltd. (United Kingdom).................................... 100
J.W. Hartley (Motor Trade) Limited (United Kingdom)....................... 100
Walker (UK) Limited (United Kingdom)...................................... 100
Tenneco Windsor Box & Display, Inc. (Delaware).................................... 100
TMC Texas Inc. (Delaware)......................................................... 100
Walker Deutschland GmbH (Germany)................................................. 1
(Tenneco Inc. owns 1%; and Tenneco Deutschland Holdinggesellsschaft mbH
owns 99%)
Walker Europe, Inc. (Delaware).................................................... 100
Walker Electronic Silencing Inc.(f/k/a Walker Electronic Mufflers) (Delaware)..... 100
Walker Manufacturing Company (Delaware)........................................... 100
Ced's Inc. (Illinois).......................................................... 100
Walker Norge A/S (Norway)......................................................... 100
</TABLE>
7
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated February 17, 1997, included in the Annual Report
of Tenneco Inc. on Form 10-K for the year ended December 31, 1996, into the
following Registration Statements previously filed with the Securities and
Exchange Commission:
<TABLE>
<C> <C> <S>
333-17485 S-8 Common Stock, par value $.01 per share, of Tenneco Inc.
(formerly New Tenneco Inc.)
("Common Stock") issuable under the 1996 Tenneco Inc. Stock
Ownership Plan.
333-17483 S-8 Common Stock issuable under the Tenneco Inc. Board of Directors
Restricted Stock Program and Tenneco Inc. Board of Directors
Restricted Stock and Restricted Unit Program.
333-17487 S-8 Common Stock issuable under the Tenneco Thrift Plan for Hourly
Employees, Tenneco Packaging 401(k) Savings Plan, Tenneco Thrift
Plan, and Tenneco 401(k) Savings Plan for Chippewa Falls.
</TABLE>
ARTHUR ANDERSEN LLP
Houston, Texas
March 11, 1997
<PAGE>
TENNECO INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, in his capacity as a
Director of Tenneco Inc. (the "Company"), whose signature appears immediately
below, constitutes and appoints Theodore R. Tetzlaff and Karl A. Stewart, and
each of them, severally, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to execute an Annual Report on Form 10-K
for the fiscal year ended December 31, 1996, and any and all amendments thereto,
and to file the same with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission and the exchanges on
which the Company's common stock is listed. Each of said attorneys shall have
the power to act hereunder with or without the other of said attorneys and shall
have full power and authority to do and perform, in the name and on behalf of
the undersigned, each and every act and thing requisite and necessary to be
done, as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or either of them, or their or his substitutes or substitute, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 11th
day of March, 1997.
/s/ MARK ANDREWS
---------------------------------------------
Mark Andrews
<PAGE>
TENNECO INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, in his capacity as a
Director of Tenneco Inc. (the "Company"), whose signature appears immediately
below, constitutes and appoints Theodore R. Tetzlaff and Karl A. Stewart, and
each of them, severally, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to execute an Annual Report on Form 10-K
for the fiscal year ended December 31, 1996, and any and all amendments thereto,
and to file the same with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission and the exchanges on
which the Company's common stock is listed. Each of said attorneys shall have
the power to act hereunder with or without the other of said attorneys and shall
have full power and authority to do and perform, in the name and on behalf of
the undersigned, each and every act and thing requisite and necessary to be
done, as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or either of them, or their or his substitutes or substitute, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 11th
day of March, 1997.
/s/ W. MICHAEL BLUMENTHAL
---------------------------------------------
W. Michael Blumenthal
<PAGE>
TENNECO INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, in his capacity as a
Director of Tenneco Inc. (the "Company"), whose signature appears immediately
below, constitutes and appoints Theodore R. Tetzlaff and Karl A. Stewart, and
each of them, severally, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to execute an Annual Report on Form 10-K
for the fiscal year ended December 31, 1996, and any and all amendments thereto,
and to file the same with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission and the exchanges on
which the Company's common stock is listed. Each of said attorneys shall have
the power to act hereunder with or without the other of said attorneys and shall
have full power and authority to do and perform, in the name and on behalf of
the undersigned, each and every act and thing requisite and necessary to be
done, as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or either of them, or their or his substitutes or substitute, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 11th
day of March, 1997.
/s/ CLIFTON R. WHARTON, JR.
---------------------------------------------
Clifton R. Wharton, Jr.
<PAGE>
TENNECO INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, in her capacity as a
Director of Tenneco Inc. (the "Company"), whose signature appears immediately
below, constitutes and appoints Theodore R. Tetzlaff and Karl A. Stewart, and
each of them, severally, her true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for her and in her name, place
and stead, in any and all capacities, to execute an Annual Report on Form 10-K
for the fiscal year ended December 31, 1996, and any and all amendments thereto,
and to file the same with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission and the exchanges on
which the Company's common stock is listed. Each of said attorneys shall have
the power to act hereunder with or without the other of said attorneys and shall
have full power and authority to do and perform, in the name and on behalf of
the undersigned, each and every act and thing requisite and necessary to be
done, as fully and to all intents and purposes as she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or either of them, or their or his substitutes or substitute, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 11th
day of March, 1997.
/s/ M. KATHRYN EICKHOFF
---------------------------------------------
M. Kathryn Eickhoff
<PAGE>
TENNECO INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, in his capacity as a
Director of Tenneco Inc. (the "Company"), whose signature appears immediately
below, constitutes and appoints Theodore R. Tetzlaff and Karl A. Stewart, and
each of them, severally, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to execute an Annual Report on Form 10-K
for the fiscal year ended December 31, 1996, and any and all amendments thereto,
and to file the same with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission and the exchanges on
which the Company's common stock is listed. Each of said attorneys shall have
the power to act hereunder with or without the other of said attorneys and shall
have full power and authority to do and perform, in the name and on behalf of
the undersigned, each and every act and thing requisite and necessary to be
done, as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or either of them, or their or his substitutes or substitute, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 11th
day of March, 1997.
/s/ PETER T. FLAWN
---------------------------------------------
Peter T. Flawn
<PAGE>
TENNECO INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, in his capacity as a
Director of Tenneco Inc. (the "Company"), whose signature appears immediately
below, constitutes and appoints Theodore R. Tetzlaff and Karl A. Stewart, and
each of them, severally, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to execute an Annual Report on Form 10-K
for the fiscal year ended December 31, 1996, and any and all amendments thereto,
and to file the same with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission and the exchanges on
which the Company's common stock is listed. Each of said attorneys shall have
the power to act hereunder with or without the other of said attorneys and shall
have full power and authority to do and perform, in the name and on behalf of
the undersigned, each and every act and thing requisite and necessary to be
done, as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or either of them, or their or his substitutes or substitute, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 11th
day of March, 1997.
/s/ HENRY U. HARRIS, JR.
---------------------------------------------
Henry U. Harris, Jr.
<PAGE>
TENNECO INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, in his capacity as a
Director of Tenneco Inc., (the "Company"), whose signature appears immediately
below, constitutes and appoints Theodore R. Tetzlaff and Karl A. Stewart, and
each of them, severally, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to execute an Annual Report on Form 10-K
for the fiscal year ended December 31, 1996, and any and all amendments thereto,
and to file the same with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission and the
exchanges on which the Company's common stock is listed. Each of said attorneys
shall have the power to act hereunder with or without the other of said
attorneys and shall have full power and authority to do and perform, in the name
and on behalf of the undersigned, each and every act and thing requisite and
necessary to be done, as fully and to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents or either of them, or their or his substitutes or substitute,
may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 11th
day of March, 1997.
/s/ BELTON K. JOHNSON
---------------------------------------------
Belton K. Johnson
<PAGE>
TENNECO INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, in his capacity as a
Director of Tenneco Inc. (the "Company"), whose signature appears immediately
below, constitutes and appoints Theodore R. Tetzlaff and Karl A. Stewart, and
each of them, severally, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to execute an Annual Report on Form 10-K
for the fiscal year ended December 31, 1996, and any and all amendments thereto,
and to file the same with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission and the exchanges on
which the Company's common stock is listed. Each of said attorneys shall have
the power to act hereunder with or without the other of said attorneys and shall
have full power and authority to do and perform, in the name and on behalf of
the undersigned, each and every act and thing requisite and necessary to be
done, as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or either of them, or their or his substitutes or substitute, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 11th
day of March, 1997.
/s/ JOHN B. MCCOY
---------------------------------------------
John B. McCoy
<PAGE>
TENNECO INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, in his capacity as a
Director of Tenneco Inc. (the "Company"), whose signature appears immediately
below, constitutes and appoints Theodore R. Tetzlaff and Karl A. Stewart, and
each of them, severally, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to execute an Annual Report on Form 10-K
for the fiscal year ended December 31, 1996, and any and all amendments thereto,
and to file the same with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission and the exchanges on
which the Company's common stock is listed. Each of said attorneys shall have
the power to act hereunder with or without the other of said attorneys and shall
have full power and authority to do and perform, in the name and on behalf of
the undersigned, each and every act and thing requisite and necessary to be
done, as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or either of them, or their or his substitutes or substitute, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 11th
day of March, 1997.
/s/ WILLIAM L. WEISS
---------------------------------------------
William L. Weiss
<PAGE>
TENNECO INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, in his capacity as a
Director of Tenneco Inc. (the "Company"), whose signature appears immediately
below, constitutes and appoints Theodore R. Tetzlaff and Karl A. Stewart, and
each of them, severally, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to execute an Annual Report on Form 10-K
for the fiscal year ended December 31, 1996, and any and all amendments thereto,
and to file the same with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission and the exchanges on
which the Company's common stock is listed. Each of said attorneys shall have
the power to act hereunder with or without the other of said attorneys and shall
have full power and authority to do and perform, in the name and on behalf of
the undersigned, each and every act and thing requisite and necessary to be
done, as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or either of them, or their or his substitutes or substitute, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 11th
day of March, 1997.
/s/ SIR DAVID PLASTOW
---------------------------------------------
Sir David Plastow
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from the
Tenneco Inc. and Consolidated Subsidiaries Financial Statements and is
qualified in its entirety by reference to such Financial Statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 62
<SECURITIES> 0
<RECEIVABLES> 699
<ALLOWANCES> 0
<INVENTORY> 878
<CURRENT-ASSETS> 1,923
<PP&E> 4,870
<DEPRECIATION> 1,618
<TOTAL-ASSETS> 7,587
<CURRENT-LIABILITIES> 1,621
<BONDS> 2,067
<COMMON> 2
0
0
<OTHER-SE> 2,644
<TOTAL-LIABILITY-AND-EQUITY> 7,587
<SALES> 6,572
<TOTAL-REVENUES> 6,648
<CGS> 4,762
<TOTAL-COSTS> 4,762
<OTHER-EXPENSES> 1,258
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 195
<INCOME-PRETAX> 433
<INCOME-TAX> 194
<INCOME-CONTINUING> 218
<DISCONTINUED> 428
<EXTRAORDINARY> (236)
<CHANGES> 0
<NET-INCOME> 410
<EPS-PRIMARY> 2.33
<EPS-DILUTED> 2.33
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains amended summary financial information extracted
from the Tenneco Inc. and Consolidated Subsidiaries Financial Statements and is
qualified in its entirety by reference to such Financial Statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 354
<SECURITIES> 0
<RECEIVABLES> 563
<ALLOWANCES> 0
<INVENTORY> 838
<CURRENT-ASSETS> 1,946
<PP&E> 4,138
<DEPRECIATION> 1,480
<TOTAL-ASSETS> 7,413
<CURRENT-LIABILITIES> 1,559
<BONDS> 1,648
<COMMON> 957
0
0
<OTHER-SE> 2,191
<TOTAL-LIABILITY-AND-EQUITY> 7,413
<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> 477
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 735
<EPS-PRIMARY> 4.16
<EPS-DILUTED> 4.16
</TABLE>
