<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
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)
<TABLE>
<S> <C>
DELAWARE 76-0515284
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1275 KING STREET, GREENWICH, CT 06831
(Address of principal executive
offices) (Zip Code)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (203) 863-1000
------------------------
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 the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date.
Common Stock, par value $.01 per share: 169,641,034 shares as of March 31,
1998.
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<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Tenneco Inc. and Consolidated Subsidiaries--
Statements of Income.............................. 2
Statements of Cash Flows.......................... 3
Balance Sheets.................................... 4
Statements of Changes in Shareowners' Equity...... 5
Notes to Financial Statements..................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations......... 8
Item 3. Quantitative and Qualitative Disclosures About
Market Risk........................................... *
PART II--OTHER INFORMATION
Item 1. Legal Proceedings.............................. *
Item 2. Changes in Securities.......................... *
Item 3. Defaults Upon Senior Securities................ *
Item 4. Submission of Matters to a Vote of Security
Holders............................................... *
Item 5. Other Information.............................. *
Item 6. Exhibits and Reports on Form 8-K............... 12
</TABLE>
- - ------------
* No response to this item is included herein for the reason that it is
inapplicable or the answer to such item is negative.
CAUTIONARY STATEMENT
Tenneco's future results may be impacted by a number of matters and
uncertainties, including: (i) changes in consumer demand and prices; (ii)
potential legislation or regulatory changes; (iii) material substitution and
changes in the prices of raw materials; (iv) possible labor interruptions; (v)
certain risks associated with operating in foreign countries, such as
devaluations and fluctuations in currency exchange rates; (vi) new technologies;
(vii) changes in distribution channels or competitive conditions in the markets
and countries where Tenneco operates; (viii) increases in the cost of compliance
with regulations, including environmental regulations, and environmental
liabilities in excess of the amount reserved; (ix) changes in capital
availability or costs; (x) the ability of Tenneco and those with which it
conducts business to timely resolve the Year 2000 issue (relating to potential
computer and equipment failures by or at the change in the century),
unanticipated costs of resolving the Year 2000 issue, and the costs and impacts
if the Year 2000 issue is not timely resolved; and (xi) changes by the Financial
Accounting Standards Board or other accounting regulatory bodies of
authoritative generally accepted accounting principles or policies.
1
<PAGE> 3
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1998 1997
----------- -----------
(MILLIONS EXCEPT SHARE
AMOUNTS)
<S> <C> <C>
REVENUES
Net sales and operating revenues--
Automotive........................................ $ 800 $ 778
Packaging......................................... 1,009 852
Intergroup sales and other........................ -- (1)
----------- -----------
1,809 1,629
Other income, net...................................... 16 40
----------- -----------
1,825 1,669
----------- -----------
COSTS AND EXPENSES
Cost of sales (exclusive of depreciation shown
below)................................................ 1,268 1,191
Engineering, research, and development................. 19 16
Selling, general, and administrative................... 242 211
Depreciation, depletion, and amortization.............. 110 92
----------- -----------
1,639 1,510
----------- -----------
INCOME BEFORE INTEREST EXPENSE, INCOME TAXES, AND MINORITY
INTEREST.................................................. 186 159
Interest expense (net of interest capitalized)......... 56 45
Income tax expense..................................... 47 33
Minority interest...................................... 8 5
----------- -----------
NET INCOME.................................................. $ 75 $ 76
=========== ===========
PER SHARE
Average shares of common stock outstanding--
Basic............................................. 169,542,371 171,284,192
Diluted........................................... 170,065,712 171,373,061
Earnings per average share of common stock--
Basic............................................. $ .44 $ .44
=========== ===========
Diluted........................................... $ .44 $ .44
=========== ===========
Cash dividends per share of common stock............... $ .30 $ .30
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements of income.
2
<PAGE> 4
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
-------------
1998 1997
----- -----
(MILLIONS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 75 $ 76
Adjustments to reconcile net income to net cash provided
(used) by operating activities--
Depreciation, depletion, and amortization.............. 110 92
Deferred income taxes.................................. 30 54
Loss on sale of businesses and assets, net............. 6 6
Changes in components of working capital--
(Increase) decrease in receivables................ (87) (12)
(Increase) decrease in inventories................ (51) (44)
(Increase) decrease in prepayments and other
current assets................................... (12) (29)
Increase (decrease) in payables................... (36) (59)
Increase (decrease) in taxes accrued.............. 3 (15)
Increase (decrease) in interest accrued........... 30 33
Increase (decrease) in other current
liabilities...................................... (40) (106)
Other.................................................. (62) (19)
----- -----
Net cash provided (used) by operating activities............ (34) (23)
----- -----
INVESTING ACTIVITIES
Net proceeds from sale of assets............................ 1 --
Expenditures for plant, property, and equipment............. (102) (81)
Acquisition of businesses................................... -- (1)
Investments and other....................................... (5) 17
----- -----
Net cash provided (used) by investing activities............ (106) (65)
----- -----
FINANCING ACTIVITIES
Issuance of common and treasury shares...................... 13 10
Purchase of common stock.................................... (11) (51)
Issuance of long-term debt.................................. 3 2
Retirement of long-term debt................................ (3) (3)
Net increase (decrease) in short-term debt excluding current
maturities on long-term debt.............................. 177 237
Dividends (common).......................................... (51) (52)
----- -----
Net cash provided (used) by financing activities............ 128 143
----- -----
Effect of foreign exchange rate changes on cash and
temporary cash investments................................ -- (1)
----- -----
Increase (decrease) in cash and temporary cash
investments............................................... (12) 54
Cash and temporary cash investments, January 1.............. 41 62
----- -----
Cash and temporary cash investments, March 31 (Note)........ $ 29 $ 116
===== =====
Cash paid during the period for interest.................... $ 31 $ 13
Cash paid during the period for income taxes (net of
refunds).................................................. $ 17 $ 11
</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.
3
<PAGE> 5
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, MARCH 31,
--------- ------------ ---------
1998 1997 1997
--------- ------------ ---------
(MILLIONS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and temporary cash investments..................... $ 29 $ 41 $ 116
Receivables--
Customer notes and accounts, net................... 799 729 679
Income taxes....................................... 60 63 --
Other.............................................. 24 17 18
Inventories--
Finished goods..................................... 494 467 444
Work in process.................................... 116 100 106
Raw materials...................................... 252 265 249
Materials and supplies............................. 135 118 111
Deferred income taxes................................... 70 63 100
Prepayments and other................................... 294 252 202
------ ------ ------
2,273 2,115 2,025
------ ------ ------
Other assets:
Long-term notes receivable, net......................... 47 49 17
Goodwill and intangibles, net........................... 1,593 1,577 1,365
Deferred income taxes................................... 53 55 51
Pension assets.......................................... 771 747 618
Other................................................... 338 334 366
------ ------ ------
2,802 2,762 2,417
------ ------ ------
Plant, property, and equipment, at cost..................... 5,368 5,284 4,870
Less--Reserves for depreciation, depletion, and
amortization.......................................... 1,896 1,829 1,690
------ ------ ------
3,472 3,455 3,180
------ ------ ------
$8,547 $8,332 $7,622
====== ====== ======
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Short-term debt (including current maturities on
long-term debt)....................................... $ 476 $ 278 $ 472
Trade payables.......................................... 682 687 625
Taxes accrued........................................... 97 96 78
Accrued liabilities..................................... 323 344 262
Other................................................... 272 256 284
------ ------ ------
1,850 1,661 1,721
------ ------ ------
Long-term debt.............................................. 2,640 2,633 2,045
------ ------ ------
Deferred income taxes....................................... 651 614 520
------ ------ ------
Postretirement benefits..................................... 233 228 171
------ ------ ------
Deferred credits and other liabilities...................... 223 244 306
------ ------ ------
Commitments and contingencies
Minority interest........................................... 422 424 304
------ ------ ------
Shareowners' equity:
Common stock............................................ 2 2 2
Premium on common stock and other capital surplus....... 2,690 2,679 2,652
Cumulative translation adjustments...................... (145) (122) (35)
Retained earnings (accumulated deficit)................. 113 89 3
------ ------ ------
2,660 2,648 2,622
Less--Shares held as treasury stock, at cost............ 132 120 67
------ ------ ------
2,528 2,528 2,555
------ ------ ------
$8,547 $8,332 $7,622
====== ====== ======
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
4
<PAGE> 6
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------------------
1998 1997
-------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------ ----------- ------
(MILLIONS EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C>
COMMON STOCK
Balance January 1.................................. 172,569,889 $ 2 171,567,658 $ 2
Issued pursuant to benefit plans.............. 280,146 -- 365,679 --
----------- ------ ----------- ------
Balance March 31................................... 172,850,035 2 171,933,337 2
=========== ------ =========== ------
PREMIUM ON COMMON STOCK AND OTHER CAPITAL SURPLUS
Balance January 1.................................. 2,679 2,642
Premium on common stock issued pursuant to
benefit plans............................... 11 10
------ ------
Balance March 31................................... 2,690 2,652
------ ------
CUMULATIVE TRANSLATION ADJUSTMENTS
Balance January 1.................................. (122) 23
Translation of foreign currency statements.... (23) (70)
Hedges of net investment in foreign
subsidiaries (net of income taxes).......... -- 12
------ ------
Balance March 31................................... (145) (35)
------ ------
RETAINED EARNINGS (ACCUMULATED DEFICIT)
Balance January 1.................................. 89 (21)
Net income.................................... 75 76
Dividends on common stock..................... (51) (52)
------ ------
Balance March 31................................... 113 3
------ ------
LESS -- COMMON STOCK HELD AS TREASURY STOCK, AT
COST
Balance January 1.................................. 2,928,189 120 -- --
Shares acquired............................... 341,500 14 1,693,300 67
Shares issued pursuant to benefit and dividend
reinvestment plans.......................... (60,688) (2) -- --
----------- ------ ----------- ------
Balance March 31................................... 3,209,001 132 1,693,300 67
=========== ------ =========== ------
Total......................................... $2,528 $2,555
====== ======
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements of changes in shareowners' equity.
5
<PAGE> 7
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(1) In the opinion of Tenneco Inc. (the "Company"), the accompanying
unaudited consolidated financial statements of Tenneco Inc. and its consolidated
subsidiaries ("Tenneco") contain all adjustments (consisting of normal recurring
adjustments) necessary to present fairly the financial position, results of
operations, changes in shareowners' equity, and cash flows for the periods
indicated. The unaudited interim consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles. The consolidated
financial statements of Tenneco include all majority-owned subsidiaries of the
Company. Investments in 20% to 50% owned companies where the Company has the
ability to exert significant influence over operating and financial policies are
carried at cost plus equity in undistributed earnings and cumulative translation
adjustments since date of acquisition.
Prior year's financial statements have been reclassified where appropriate
to conform to 1998 presentations.
(2) Tenneco is a party to various legal proceedings arising from its
operations. Tenneco believes that the outcome of these proceedings, individually
and in the aggregate, will not have a material adverse effect on its financial
position or results of operations.
(3) Tenneco is subject to a variety of environmental and pollution control
laws and regulations in all jurisdictions in which it operates. 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
cleanup costs and the timing, varying costs, and effectiveness of alternative
cleanup technologies. However, Tenneco believes that any additional costs which
may arise as more information becomes available will not have a material adverse
effect on its financial position or results of operations.
(4) In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use," which establishes
new accounting and reporting standards for the costs of computer software
developed or obtained for internal use. This statement will be applied
prospectively and is effective for financial statements beginning after December
15, 1998. The impact of this new standard is not expected to have a significant
effect on Tenneco's financial position or results of operations.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities," which requires costs of start-up activities to be expensed
as incurred. This statement is effective for financial statements beginning
after December 15, 1998. The statement requires capitalized costs related to
start-up activities to be expensed as a cumulative effect of a change in
accounting principle when the statement is adopted. Tenneco capitalizes certain
costs related to start-up activities and is currently evaluating the new
standard but has not yet determined the impact it will have on its financial
position or results of operations.
6
<PAGE> 8
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
(5) Earnings per share of common stock outstanding were computed as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------
1998 1997
----------- -----------
(MILLIONS EXCEPT SHARE
AND PER SHARE AMOUNTS)
<S> <C> <C>
Basic Earnings Per Share--
Net income................................... $ 75 $ 76
----------- -----------
Average shares of common stock outstanding... 169,542,371 171,284,192
=========== ===========
Earnings per average share of common stock... $ .44 $ .44
=========== ===========
Diluted Earnings Per Share--
Net income................................... $ 75 $ 76
----------- -----------
Average shares of common stock outstanding... 169,542,371 171,284,192
Effect of dilutive securities:
Restricted stock........................ 27,632 --
Stock options........................... 250,061 --
Performance shares...................... 245,648 88,869
----------- -----------
Average shares of common stock outstanding
including dilutive securities.............. 170,065,712 171,373,061
=========== ===========
Earnings per average share of common stock... $ .44 $ .44
=========== ===========
</TABLE>
(6) Tenneco adopted Financial Accounting Standards ("FAS") No. 130,
"Reporting Comprehensive Income," in the first quarter of 1998. FAS No. 130
establishes new accounting standards for reporting and display of comprehensive
income and its components. Comprehensive income is the total of net income and
all other nonowner changes in equity in a given period. For the three months
ended March 31, 1998 and 1997, Tenneco's comprehensive income was $52 million
and $18 million, respectively.
The above notes are an integral part of the foregoing financial statements.
7
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Tenneco reported net income of $75 million, or 44 cents per share on a
diluted basis, for the quarter ended March 31, 1998. (All references to earnings
per share in this Management's Discussion and Analysis are on a diluted basis
unless otherwise noted.) Net income for the first quarter of 1997 was $76
million or 44 cents per share. However, the results for the first quarter of
1997 included a one-time after-tax gain of $23 million, or $.13 per share, which
resulted from the refinancing of two containerboard mill leases. Before this
gain, net income for the quarter ended March 31, 1997 was $53 million, or $.31
per share. The increase from 1997 to 1998 excluding the first quarter 1997
one-time gain resulted from strong performance at both Tenneco Automotive and
Tenneco Packaging. The performance at the operating units was partially offset
by a higher 1998 effective tax rate and greater interest expense.
REVENUES
<TABLE>
<CAPTION>
FIRST QUARTER
--------------------------
1998 1997 % CHANGE
------ ------ --------
(MILLIONS)
<S> <C> <C> <C>
Tenneco Automotive................................... $ 800 $ 778 3%
Tenneco Packaging.................................... 1,009 852 18%
Intergroup sales and other........................... -- (1) --
------ ------
$1,809 $1,629 11%
====== ======
</TABLE>
Tenneco Automotive's higher first quarter 1998 revenues resulted from
strong sales performance and companies acquired in 1997. Volume gains added $40
million to revenue in the first quarter of 1998. These volume gains resulted
from higher original equipment sales, particularly in North America and Europe.
A total of 18 new vehicle launches to which Tenneco Automotive supplied parts in
the first quarter of 1998 contributed to this volume increase. Worldwide,
Tenneco Automotive supplies exhaust and/or ride control products on most of the
top selling vehicles and is particularly strong in the fast growing North
American light truck and sport utility vehicle segment. The higher original
equipment sales volumes were partially offset by a soft aftermarket in both
North America and Europe. Mild winter weather and declining automotive parts
replacement rates contributed to the aftermarket decline. Tenneco Automotive
began the North American launch of two new aftermarket product lines in the
quarter, helping to lessen the impact of the soft aftermarket. The products
launched were Sensa-Trac(R) with Safe-Tech(TM) shocks and struts and the
Quiet-Flow(TM) muffler.
Companies acquired in 1997, including an exhaust supplier in Mexico and a
ride control joint venture in South Africa, contributed $14 million to revenue
growth.
Partially offsetting Tenneco Automotive's first quarter 1998 revenue
increase was the continued impact of the strong US dollar on revenues earned in
overseas markets. The impact of the strong dollar was $31 million.
Tenneco Packaging's revenue increase occurred in both its specialty and
paperboard businesses. Specialty packaging's revenues increased to $630 million
in the first quarter of 1998 from $504 million in the same period of 1997. The
flexible and protective packaging businesses acquired in April 1997 from NV
Koninklijke KNP BT (KNP) contributed $121 million to this revenue increase. The
remaining increase resulted primarily from favorable pricing in the first
quarter of 1998, particularly in consumer waste bags, aluminum and stretch film.
The paperboard packaging business earned revenues of $379 million in the
first quarter of 1998, up $31 million from the first quarter of 1997. Improved
pricing accounted for this revenue gain. Linerboard pricing continued its
recovery from the depressed prices of early 1997.
8
<PAGE> 10
OPERATING INCOME
<TABLE>
<CAPTION>
FIRST QUARTER
----------------------
1998 1997 % CHANGE
---- ---- --------
(MILLIONS)
<S> <C> <C> <C>
Tenneco Automotive..................................... $ 89 $ 80 11%
Tenneco Packaging...................................... 108 80 35%
Other.................................................. (11) (1) NM
---- ----
$186 $159 17%
==== ====
</TABLE>
The largest contributor to Tenneco Automotive's operating income increase
was the cost reduction initiatives begun during 1997. Net of inflation and other
cost changes, the cost reduction initiatives contributed $11 million to first
quarter 1998 results. Acquisitions added another $2 million to first quarter
results. While the increase in original equipment volumes had a positive impact
on revenues, the volume declines in the aftermarket, where Tenneco earns higher
margins, largely offset that positive impact at the operating income line. The
strong U.S. dollar partially offset Tenneco Automotive's operating income
increase, reducing operating income earned in foreign markets by $4 million for
the first quarter of 1998.
Tenneco Packaging's operating income increase occurred in both the
specialty and paperboard packaging businesses. Specialty packaging's operating
income increased to $74 million in the first quarter of 1998, up from $49
million in the prior year's quarter. Operating income earned from the flexible
and protective packaging businesses acquired from KNP added $12 million to
operating income in the quarter. Cost reduction initiatives and lower resin
prices contributed $7 million of the operating income increase. The remainder of
the operating income increase resulted from the improved pricing discussed under
"Revenues" above combined with a more favorable product mix as unit volume sales
of higher margin products increased during the quarter.
Paperboard packaging recorded the one-time mill lease refinancing gain in
the first quarter of 1997, the operating income impact of which was $38 million.
Before this gain, paperboard packaging's operating income increased $41 million
to $34 million in the first quarter of 1998. Improved pricing for linerboard and
higher volumes in the 1998 quarter contributed $35 million to the improvement
while lower costs accounted for the remainder of the operating income increase.
OTHER
Tenneco's Other expenses increased to $11 million in the first quarter
primarily as a result of costs incurred in the effort to consolidate Tenneco's
North American data center operations and integrate the data center operations
of recently acquired businesses. The consolidation effort will continue
throughout 1998.
INTEREST EXPENSE (NET OF INTEREST CAPITALIZED)
Interest expense increased $11 million for the first quarter of 1998
compared to the first quarter of 1997. This increase is primarily attributable
to debt issued to finance acquisitions as well as Tenneco's share repurchase
activity.
INCOME TAXES
Tenneco's effective tax rate for the first quarter of 1998 was 36 percent
compared to 29 percent in the 1997 first quarter. The 1997 first quarter rate
was lower as a result of non-recurring foreign tax benefits recognized in that
quarter.
9
<PAGE> 11
MINORITY INTEREST
Minority interest primarily represents dividends on the preferred stock of
a subsidiary. The increase of $3 million in the first quarter of 1998 resulted
from the dividends paid on additional subsidiary preferred stock which was
issued in December 1997.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
FIRST QUARTER
-------------
1998 1997
----- -----
(MILLIONS)
<S> <C> <C>
Cash provided (used) by:
Operating activities...................................... $(34) $(23)
Investing activities...................................... (106) (65)
Financing activities...................................... 128 143
</TABLE>
Cash flow from operating activities declined by $11 million in the first
quarter of 1998 compared to the same period in 1997. Income before non-cash
charges for depreciation and deferred income taxes declined by $7 million in the
first quarter of 1998. The lower use of cash in the components of working
capital, which improved by $39 million in the first quarter of 1998 compared to
the same period in 1997, offset by lower cash flow for other operating
activities of $43 million in the first quarter of 1998, caused the remainder of
the decline in operating cash flow.
The increase in cash used for investing activities was principally related
to a higher level of capital expenditures in the first quarter of 1998. Capital
expenditures were $40 million at Automotive, $60 million at Packaging and $2
million for the consolidated data center for the first quarter of 1998, compared
to $37 million at Automotive and $44 million at Packaging for the same period in
1997. Cash flow for other investing activities declined by $22 million during
the first quarter of 1998. Other investing activities during the first quarter
of 1997 included cash adjustments related to acquired companies which did not
recur in 1998.
Financing activities provided cash of $128 million in 1998. Tenneco
incurred short-term debt financing in the first quarter of 1998 of $177 million
to meet its financing needs for capital expenditures and working capital during
the first quarter. This compares to $237 million in short-term debt incurred in
the first quarter of 1997. Tenneco issued $13 million in common stock, primarily
related to employee benefit plans, and repurchased $11 million of common stock
pursuant to its share repurchase program during the first quarter of 1998. This
compares to $10 million in stock issuances and $51 million in share repurchases
in the first quarter of 1997. For the quarter, common stock dividends were $51
million in 1998 and $52 million in 1997.
CAPITALIZATION
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
(MILLIONS)
<S> <C> <C>
Short-term debt......................................... $ 476 $ 278
Long-term debt.......................................... 2,640 2,633
Minority interest....................................... 422 424
Shareowners' equity..................................... 2,528 2,528
------ ------
$6,066 $5,863
====== ======
</TABLE>
The increase in debt for the first quarter represents the use of cash
described above. Equity remained unchanged as net income for the quarter was
offset by dividends, share repurchases, and cumulative translation adjustments
resulting from the strong U.S. dollar. As a result of those changes, Tenneco's
debt to capitalization ratio increased to 51.4 percent at March 31, 1998, from
49.7 percent at December 31, 1997.
Tenneco believes it has adequate capital resources available to it to meet
its future capital needs, including strategic acquisitions and announced share
repurchases.
10
<PAGE> 12
CHANGES IN ACCOUNTING PRINCIPLES
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use," which establishes
new accounting and reporting standards for the costs of computer software
developed or obtained for internal use. This statement will be applied
prospectively and is effective for financial statements beginning after December
15, 1998. The impact of this new standard is not expected to have a significant
effect on Tenneco's financial position or results of operations.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities," which requires costs of start-up activities to be expensed
as incurred. This statement is effective for financial statements beginning
after December 15, 1998. The statement requires capitalized costs related to
start-up activities to be expensed as a cumulative effect of a change in
accounting principle when the statement is adopted. Tenneco capitalizes certain
costs related to start-up activities and is currently evaluating the new
standard but has not yet determined the impact on its financial position or
results of operations.
11
<PAGE> 13
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The exhibits filed herewith are listed in the exhibit index which
follows the signature page and immediately precedes the exhibits filed.
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the quarter
ended March 31, 1998.
12
<PAGE> 14
SIGNATURE
Pursuant to the requirements 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.
By: /s/ ROBERT T. BLAKELY
------------------------------------
Robert T. Blakely
Executive Vice President and
Chief Financial Officer
Date: May 13, 1998
13
<PAGE> 15
EXHIBITS
The following exhibits are filed with Tenneco Inc.'s Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998, or incorporated therein by
reference (exhibits designated by an asterisk are filed with the Report; all
other exhibits are incorporated by reference):
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - --------- -----------
<C> <C> <S>
2 -- None.
3.1(a) -- Restated Certificate of Incorporation of Tenneco Inc. dated
December 11, 1996 (incorporated herein by reference from
Exhibit 3.1(a) of Tenneco Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1997).
3.1(b) -- Certificate of Designation, Preferences and Rights of Series
A Participating Junior Preferred Stock, dated December 11,
1996 (incorporated herein by reference from Exhibit 3.1(b)
of Tenneco Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1997).
3.1(c) -- Certificate of Amendment, dated December 11, 1996
(incorporated herein by reference from Exhibit 3.1(c) of
Tenneco Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1997).
3.1(d) -- Certificate of Ownership and Merger, dated July 8, 1997
(incorporated herein by reference from Exhibit 3.1(d) of
Tenneco Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1997).
3.2 -- Amended and Restated By-laws of Tenneco Inc. (incorporated
herein by reference from Exhibit 3.2 of Tenneco Inc.'s
Annual Report on Form 10-K for the year ended December 31,
1996, File No. 1-12387).
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
(incorporated herein by reference from Exhibit 4.2 of
Tenneco Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1996, File No. 1-12387).
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 (incorporated herein by reference from
Exhibit 4.3(b) of Tenneco Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1996, File No. 1-12387).
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 (incorporated herein by reference from
Exhibit 4.3(c) of Tenneco Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1996, File No. 1-12387).
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 (incorporated herein by reference from
Exhibit 4.3(d) of Tenneco Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1996, File No. 1-12387).
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 (incorporated herein by reference from
Exhibit 4.3(e) of Tenneco Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1996, File No. 1-12387).
</TABLE>
14
<PAGE> 16
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - --------- -----------
<C> <C> <S>
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 (incorporated herein by reference from
Exhibit 4.3(f) of Tenneco Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1996, File No. 1-12387).
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 (incorporated herein by reference from
Exhibit 4.3(g) of Tenneco Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1996, File No. 1-12387).
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 (incorporated herein by reference from
Exhibit 4.3(h) of Tenneco Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1996, File No. 1-12387).
4.3(i) -- Eighth Supplemental Indenture, dated as of April 28, 1997,
to 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 Current Report on Form 8-K
dated April 23, 1997, File No. 1-12387).
4.3(j) -- Ninth Supplemental Indenture, dated as of April 28, 1997, to
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 4.2 of Tenneco Inc.'s Current Report on Form 8-K
dated April 23, 1997, File No. 1-12387).
4.3(k) -- Tenth Supplemental Indenture, dated as of July 16, 1997, to
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 Current Report on Form 8-K
dated June 11, 1997, File No. 1-12387).
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. (formerly New
Tenneco Inc.), and Newport News Shipbuilding Inc.
(incorporated herein by reference from Exhibit 10.2 of
Tenneco Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1996, File No. 1-12387).
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. (incorporated herein by
reference from Exhibit 10.3 of Tenneco Inc.'s Annual Report
on Form 10-K for the year ended December 31, 1996, File No.
1-12387).
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. (incorporated herein by reference from
Exhibit 10.4 of Tenneco Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1996, File No. 1-12387).
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. (incorporated herein by reference from
Exhibit 10.5 of Tenneco Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1996, File No. 1-12387).
</TABLE>
15
<PAGE> 17
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - --------- -----------
<C> <C> <S>
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 (incorporated
herein by reference from Exhibit 10.6 of Tenneco Inc.'s
Annual Report on Form 10-K for the year ended December 31,
1996, File No. 1-12387).
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. (incorporated
herein by reference from Exhibit 10.7 of Tenneco Inc.'s
Annual Report on Form 10-K for the year ended December 31,
1996, File No. 1-12387).
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 (incorporated herein by reference from Exhibit 10.8
of Tenneco Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1996, File No. 1-12387).
10.9 -- Trademark Transition License Agreement, dated December 11,
1996, by and between Newport News Shipbuilding Inc. and
Tenneco Inc. (formerly New Tenneco Inc.) (incorporated
herein by reference from Exhibit 10.9 of Tenneco Inc.'s
Annual Report on Form 10-K for the year ended December 31,
1996, File No. 1-12387).
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.) (incorporated herein by reference from Exhibit 10.10
of Tenneco Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1996, File No. 1-12387).
10.11 -- 1997 Tenneco Inc. Board of Directors Deferred Compensation
Plan (incorporated herein by reference from Exhibit 10.11 of
Tenneco Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1997).
10.12 -- Executive Incentive Compensation Plan (incorporated herein
by reference from Exhibit 10.12 of Tenneco Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1997).
10.13 -- Tenneco Inc. Deferred Compensation Plan (incorporated herein
by reference from Exhibit 10.13 of Tenneco Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1997).
10.14 -- 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).
10.15 -- 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).
10.16 -- 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).
10.17 -- 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).
*10.18 -- Amended and Restated Tenneco Benefits Protection Trust.
10.19 -- 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).
10.20 -- 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).
</TABLE>
16
<PAGE> 18
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - --------- -----------
<C> <C> <S>
10.21 -- 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).
10.22 -- 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).
10.23 -- 1996 Tenneco Inc. Stock Ownership Plan, as amended
(incorporated herein by reference from Exhibit 10.23 of
Tenneco Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1997).
10.24 -- Amended and Restated Mill I Lease, dated as of November 4,
1996, between Credit Suisse Leasing 92A, L.P. and Tenneco
Packaging Inc. (incorporated herein by reference from
Exhibit 10.28 of Tenneco Inc.'s Form 10-K for the year ended
December 31, 1996, File No. 1-12387).
10.25 -- Amended and Restated Mill II Lease, dated as of November 4,
1996, between Credit Suisse Leasing 92A, L.P. and Tenneco
Packaging Inc. (incorporated herein by reference from
Exhibit 10.29 of Tenneco Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1996, File No. 1-12387).
10.26 -- Timberland Lease, dated January 31, 1991, by and between
Four States Timber Venture and Packaging Corporation of
America, as amended (incorporated herein by reference from
Exhibit 10.26 of Tenneco Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1997).
10.27 -- Professional Services Agreement, dated August 22, 1996, by
and between Tenneco Business Services Inc. and Newport News
Shipbuilding and Dry Dock Company (incorporated herein by
reference from Exhibit 10.28 of Tenneco Inc.'s Form 10, File
No. 1-12387).
*10.28 -- Termination Agreement, dated April 23, 1998, by and between
Tenneco Business Services Inc. and Newport News Shipbuilding
and Dry Dock Company, a wholly-owned subsidiary of Newport
News Shipbuilding Inc., relating to Professional Services
Agreement, dated August 22, 1996.
11 -- None.
*12 -- Computation of Ratio of Earnings to Fixed Charges.
15 -- None.
18 -- None.
19 -- None.
22 -- None.
24 -- None.
*27.1 -- Financial Data Schedule.
28 -- None.
99 -- None.
</TABLE>
- - -------------------------
Note: Exhibits designated by an asterisk are filed with this Report; all others
are incorporated by reference.
17
<PAGE> 19
Tenneco Logo
<PAGE> 1
----------------------------------
TENNECO
BENEFITS PROTECTION TRUST
----------------------------------
(as amended and restated
effective as of April 1, 1998)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE PAGE
------- ----
<S> <C>
FIRST: Definitions...........................................................1
SECOND: Creation of Trust....................................................3
THIRD: Payments from the Trust...............................................5
FOURTH: Management of Trust Assets...........................................5
FIFTH: Administrative Powers.................................................7
SIXTH: Taxes, Expenses and Compensation of Trustee...........................7
SEVENTH: General Duties of Trustee...........................................8
EIGHTH: Indemnification......................................................9
NINTH: No Duty to Advance Funds..............................................9
TENTH: Accounts..............................................................9
ELEVENTH: Administration of the Plans; Communications.......................10
TWELFTH: Resignation or Removal of Trustee..................................11
THIRTEENTH: Amendment of Agreement; Termination of Trust....................12
FOURTEENTH: Prohibition of Diversion........................................13
FIFTEENTH: Prohibition of Assignment of Interest............................13
SIXTEENTH: Miscellaneous....................................................13
SCHEDULE 1..................................................................16
SCHEDULE 1 SUPPLEMENT.......................................................17
</TABLE>
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<PAGE> 3
TENNECO BENEFITS PROTECTION TRUST AGREEMENT
(as amended and restated
effective as of April 1, 1998)
THIS AGREEMENT, made as of the 1st day of April 1998, by and between
Tenneco Inc., a corporation organized and existing under the laws of the State
of Delaware (hereinafter referred to as the "Company" or "Tenneco"), and Dana
G. Mead, Theodore R. Tetz1aff, Stacy S. Dick and Robert T. Blakely (hereinafter
referred to individually and collectively as the "Trustee").
WITNESSETH:
WHEREAS, the Company desires to amend and restate the Trust;
NOW, THEREFORE, the Company and the Trustee agree as follows:
FIRST: Definitions.
(a) "Affiliate" shall mean any corporation, partnership or other entity,
the majority interest in which is held by the Company, directly or through one
or more intermediaries.
(b) "Change in Control" shall mean the first to occur of the following
events (but no event other than the following events), except as otherwise
provided below:
(i) Any person and any of their affiliates or associates becomes the
beneficial owner, directly or indirectly, of securities of Tenneco representing
twenty-five percent (25%) or more of the combined voting power of Tenneco's
then outstanding securities having general voting rights, and a majority of the
Incumbent Board (as hereinafter defined) does not approve the acquisition
(other than in response to a Threatened Change in Control under circumstances
making it reasonably apparent that a change in control of Tenneco has become
inevitable) before the acquisition occurs. Notwithstanding the foregoing, a
Change in Control shall not be deemed to occur (i), solely because twenty-five
percent (25%) or more of the combined voting power of Tenneco's then
outstanding securities having general voting rights is acquired by one or more
employee benefit plans maintained by Tenneco; or
(ii) Members of the Incumbent Board cease to constitute a majority of
the Tenneco Board (as hereinafter defined); or
(iii) The consummation of any plan of merger, consolidation or
combination between Tenneco and any person including becoming a subsidiary of
any other person without members of the Incumbent Board, as constituted
immediately prior to the merger, consolidation or combination constituting a
majority of the board of directors of (A) the successor corporation, or, (B) if
the surviving or successor corporation is a majority-owned subsidiary of
another corporation or corporations, the ultimate parent of the surviving or
successor corporation; or
<PAGE> 4
(iv) The consummation of any sale, exchange or other disposition of
all or substantially all of the Company's assets without members of the
Incumbent Board immediately prior to any sale, exchange or disposition of all
or substantially all of the Company's assets constituting a majority of the
board of directors of (A) the corporation which holds such assets after such
disposition, or, (B) if such corporation is a majority-owned subsidiary of
another corporation or corporations, the ultimate parent of such corporation;
or
(v) if any person and any of their affiliates and associates, shall
elect or have elected, during any period not exceeding 24 months, at least 25%
of the members of the Tenneco Board, without the approval of the Incumbent
Board and such members are comprised of persons not serving as members of the
Tenneco Board immediately prior to the formation of such group or the first
solicitation of proxies by such shareholder;
provided however, that the Incumbent Board may determine that any
transaction is not a Change in Control.
For purposes of this definition, the terms "person" and "beneficial owner"
shall have the meaning set forth in Sections 3(a) and 13(d) of the Securities
Exchange Act of 1934, as amended, and in the regulations promulgated
thereunder. If the Trustee requests in writing that the Company determine or
furnish evidence to enable the Trustee to determine whether a Change in Control
has occurred, the Company shall do so in writing as soon as practicable
following receipt of such request.
(c) "Threatened Change in Control" shall mean each of the following events
(but no event other than the following events), except as otherwise provided
below:
(i) Any person, (as defined in Paragraph (b) above), and any of their
affiliates and associates without the prior approval of a majority of the
Incumbent Board
(A) becomes the beneficial owner, (as defined in
(b) above), directly or indirectly, of securities of
Tenneco representing fifteen percent (15%) or more of
the combined voting power of Tenneco's then
outstanding securities having general voting rights,
or
(B) initiates a tender offer to acquire (as the
beneficial owner as defined in (b) above) securities
of Tenneco representing fifteen (15%) or more of the
combined voting power of Tenneco's then outstanding
securities having general voting rights.
Notwithstanding the foregoing, a Threatened Change in
Control shall not be deemed to occur pursuant to this
(i) solely because fifteen percent (15%) or more of
the combined voting power of Tenneco's then
outstanding securities having general voting rights is
acquired by one or more employee benefit plans
maintained by Tenneco; or
(ii) Three or more directors, whose election or nomination for
election is not approved by a majority of the Incumbent Board, are elected
within any single twelve-month period to serve on the Tenneco Board; or
-2-
<PAGE> 5
(iii) The Company notifies the Trustee in writing that the Incumbent
Board has determined that a Threatened Change in Control exists;
provided however the Incumbent Board may determine that any transaction
is not a Threatened Change in Control.
(d) "Threatened Change in Control Period" shall mean the period beginning
on the date a Threatened Change in Control occurs and ending on the earliest
of:
(i) If the Threatened Change in Control was caused by an event
described in Subparagraph (c)(i), on the date first subsequent to the date on
which the person referred to therein does not own securities of Tenneco
representing fifteen percent (15%) or more of the combined voting power of
Tenneco's then outstanding securities having general voting rights, or
terminates the tender offer instituted by him as the case may be; or
(ii) If the Threatened Change in Control was caused by an event
described in Subparagraph (c)(ii), on the date first subsequent to the date on
which each member of the Tenneco Board shall be either a member of the
Incumbent Board or an individual whose election or nomination for election as a
director was approved by a majority of the Incumbent Board.
(iii) If the Threatened Change in Control shall be deemed to have
occurred by reason of the notice described in Subparagraph (c)(iii), on the
date the Trustee shall be notified by the Company in writing that the Incumbent
Board has determined that the circumstances which constituted the Threatened
Change in Control no longer exist; or
(iv) the date the Change in Control occurs.
(e) "Tenneco Board" shall mean the Board of Directors of Tenneco.
(f) "Incumbent Board" shall mean (i) the members of the Tenneco Board on
May 15, 1996, to the extent that they continue to serve as members of the
Tenneco Board, and (ii) any individual who becomes a member of the Tenneco
Board after May 15, 1996, if his election or nomination for election as a
director was approved by a vote of at least three quarters of the then
Incumbent Board.
(g) "Plan or Plans" means the plans, arrangements and structures set forth
on Schedule 1.
(h) "Plan Sponsor" means the corporate entity that maintains any of the
Plans set forth on Schedule 1.
SECOND: Creation of Trust.
(a) The Company hereby establishes with the Trustee and the Trustee hereby
accepts the Tenneco Benefits Protection Trust (the "Trust") consisting of:
-3-
<PAGE> 6
(i) an irrevocable letter of credit in an amount not less than three
million dollars ($3,000,000) obtained by the Company at its expense, and cash
in the amount of two million dollars ($2,000,000), as well as any earnings
thereon, and realized and unrealized gains (net of any losses) attributable
thereto, to the extent not withdrawn from the Trust by the Company pursuant
hereto. The Company shall continue to maintain such letter of credit in effect
until it is replaced by cash or another irrevocable letter of credit or this
Agreement terminates, whichever occurs first. The Company shall renew or
replace such letter of credit at least thirty (30) days before its expiration
for an additional period of one (1) year. If such letter of credit, or any
such renewal is not renewed or replaced by a letter of credit delivered to the
Trustee at least thirty (30) days before the expiration of the predecessor
letter of credit, the Trustee may draw down the full amount of such letter of
credit and hold the proceeds pursuant to the terms of this Agreement. The
Trustee may also draw down on such letter of credit at any time the Trustee
determines the proceeds of such letter of credit are necessary to allow the
Trustee to fulfill its obligations under this Agreement. The proceeds of such
letter of credit shall be available to the Trustee upon the Trustee's
presentation of its sight draft. The Company may, at any time, replace such
letter of credit with another irrevocable letter of credit having substantially
similar terms or an equal amount of cash or any combination thereof. Any
letter of credit shall be issued by a bank reasonably acceptable to the
Trustee, and shall be in a form reasonably acceptable to the Trustee; and
(ii) such additional cash or other property acceptable to the Trustee
as shall be paid or delivered to the Trustee as described herein from time to
time to provide benefits under one or more Plans, together with the earnings,
income, additions and appreciation thereon and thereto. At any time such
payments or deliveries are made, the Company shall designate to the Trustee, in
writing, the Plan or Plans to which the payment or delivery shall be allocated.
(b) The Trustee, for investment purposes only, may commingle all Trust
assets and treat them as a single fund, but the records of the Trustee at all
times shall show the percentages of the Trust allocable to each of the several
Plans.
(c) The Company and the Trustee agree that the Trust created herein shall
not be revocable by the Company or by any successor thereto during a Threatened
Change in Control Period or after a Change in Control, and is intended to be a
grantor trust under the provisions of Sections 671 through 678 of the Internal
Revenue Code of 1986, as amended.
(d) Except as provided in this subparagraph (d), the Company may, from
time to time, add to or withdraw from the assets of the Trust, but subject to
the termination provisions hereof, such withdrawal may not reduce the cash in
the Trust below two million dollars ($2,000,000) plus the letter of credit
described in Subparagraph (a)(i), above, or its proceeds. The Company may
direct that certain funds subsequently added to the Trust be available for the
payment of benefits under one or more designated Plans, but such additional
funds shall also be available to pay the fees and expenses of the Trustee if
the amounts transferred pursuant to Subparagraph (a)(i) are exhausted.
Notwithstanding the foregoing, the Company shall not make any withdrawal from
the Trust during a Threatened Change in Control Period or after a Change in
Control.
-4-
<PAGE> 7
(e) Within five business days following a Threatened Change of Control,
the Company shall deposit cash and stock to the Trust equal to the amounts
specified in Schedule 1 Supplement. Such deposits shall become irrevocable
upon the occurrence of a Change in Control or during a Threatened Change in
Control Period.
(f) Upon the expiration of the Threatened Change in Control Period and
absent a Change in Control, the amounts deposited into the Trust as described
in (e) above adjusted for investment experience and expenses shall be returned
to Tenneco.
THIRD: Payments from the Trust.
(a) Subject to the rules hereof, the Trustee, from time to time upon
receipt (other than during a Threatened Change in Control Period) of direction
from the Company prior to a Change in Control shall make payments from the
Trust, as specified in such direction to such persons, in such manner and in
such amounts as the Company shall direct.
(b) The Company shall, from time to time, furnish the Trustee with such
written information regarding the participants and beneficiaries under the
Plans and the amount and method of determination of benefits under the Plans
(hereinafter referred to as "Participant Data") as the Company deems relevant
or as the Trustee shall request in writing. The Company shall, during a
Threatened Change in Control Period, and after a Change in Control, furnish the
Trustee with Participant Data at least once each year or at such other times as
the Trustee reasonably requests. Such Participant Data will be for the Plans
set forth in Schedule 1. The Company, prior to a Change in Control, will, from
time to time, update Schedule 1 as Plans are added, terminated or amended.
During a Threatened Change in Control Period or after a Change in Control
and notwithstanding any other provisions of this Agreement, the Trustee may,
without direction from the Company, make payments to participants and
beneficiaries in such manner and in such amounts as the Trustee shall determine
they are entitled to be paid under the Plans and the terms hereof, including
without limitation, Schedule 1 Supplement (to the extent funded through the
Trust) based on the most recent Participant Data furnished to the Trustee by
the Company prior to a Change in Control and any supplemental information
furnished to the Trustee by a participant or beneficiary upon which the Trustee
may reasonably rely in making such determination.
(c) Any unpaid benefits due participants and beneficiaries shall be paid
by the Plan Sponsor.
FOURTH: Management of Trust Assets.
(a) Prior to a Change in Control, Trust assets will be invested by the
Trustee (i) in obligations of the United States or any agency thereof or in
obligations guaranteed by the United States or any agency thereof, having a
term of not more than five (5) years, or (ii) in shares of one or more mutual
funds which principally invest in such obligations. Prior to a Change in
Control, but not during a Threatened Change in Control Period, the Company may
change the requirement described in the first sentence of this Article.
-5-
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(b) After a Change in Control, the Trustee shall have exclusive authority
and discretion to manage and control the Trust assets and may employ investment
managers and other professionals including affiliates of the Trustee to manage
the investment of the Trust assets. Pursuant to such authority and discretion,
the Trustee may exercise, from time to time and at any time, the power:
(i) To invest and reinvest the Trust, without distinction between
principal and income, in shares of stock (whether common or preferred) or other
evidences of ownership, bonds, debentures, notes or other evidences of
indebtedness, unsecured or secured by mortgages on real or personal property
wherever situated (including any part interest in a bond and mortgage or note
and mortgage whether insured or uninsured) and other property, or part interest
in property, real or personal, foreign or domestic, and in order to reduce the
rate of interest rate fluctuations, contracts, as either buyer or seller, for
the future delivery of United States Treasury securities and comparable Federal
government-backed securities;
(ii) To sell, convey, redeem, exchange, grant options for the purchase
or exchange of, or otherwise dispose of, any real or personal property, at
public or private sale, for cash or upon credit, with or without security,
without obligation on the part of any person dealing with the Trustee to see to
the application of the proceeds of or to inquire into the validity, expediency
or propriety of any such disposition;
(iii) To exercise, personally or by general or limited proxy, the right
to vote any shares of stock, bonds or other securities held in the Trust; to
delegate discretionary voting power to trustees of a voting trust for any
period of time; and to exercise, personally or by power of attorney, any other
right appurtenant to any securities or other property of the Trust;
(iv) To join in or oppose any reorganization, recapitalization,
consolidation, merger or liquidation, or any plan therefor, or any lease,
mortgage or sale of the property of any organization the securities of which
are held in the Trust; to pay from the Trust any assessments, charges or
compensation specified in any plan of reorganization, recapitalization,
consolidation, merger or liquidation; to deposit any property with any
committee or depositary; and to retain any property allotted to the Trust in
any reorganization, recapitalization, consolidation, merger or liquidation;
(v) To exercise or sell any conversion or subscription or other
rights appurtenant to any stock, security or other property held in the Trust;
(vi) To borrow from any lender (including the Trustee in its
individual capacity) money, in any amount and upon any reasonable terms and
conditions, for purposes of this Agreement, and to pledge or mortgage any
property held in the Trust to secure the repayment of any such loan;
(vii) To compromise, settle or arbitrate any claim, debt, or obligation
of or against the Trust; to enforce or abstain from enforcing any right, claim,
debt or obligation; and to abandon any property determined by it to be
worthless;
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<PAGE> 9
(viii) To make loans of securities held in the Trust to registered
brokers and dealers upon such terms and conditions as are permitted by
applicable law and regulations, and in each instance to permit the securities
so lent to be registered in the name of the borrower or a nominee of the
borrower, provided that in each instance the loan is adequately secured and
neither the borrower nor any affiliate of the borrower has discretionary
authority or control with respect to the assets of the Trust involved in the
transaction or renders investment advice with respect to those assets; and
(ix) To invest and reinvest any property in the Trust in any other
form or type of investment not specifically mentioned in this Paragraph, to the
extent permitted by law.
(x) To employ suitable agents including but not limited to
custodians, actuaries, accountants and counsel and to pay their reasonable
expenses and compensation.
FIFTH: Administrative Powers.
The Trustee shall have and in its sole and absolute discretion may
exercise from time to time and at any time the following administrative powers
and authority with respect to the Trust:
(a) To hold property of the Trust in its own name or in the name of a
nominee or nominees, without disclosure of the Trust, or in bearer form so that
it will pass by delivery, but no such holding shall relieve the Trustee of its
responsibility for the safe custody and disposition of the Trust in accordance
herewith; the Trustee's books and records shall at all times show that such
property is part of the Trust; and the Trustee shall be absolutely liable for
any loss occasioned by the acts of its nominee or nominees with respect to
securities registered in the name of the nominee or nominees;
(b) To organize and incorporate under the laws of any state it may deem
advisable one or more corporations (and to acquire an interest in any such
corporation that it may have organized and incorporated) for the purpose of
acquiring and holding title to any property, interests or rights that the
Trustee is authorized to acquire hereunder;
(c) To employ in the management of the Trust suitable agents;
(d) To make, execute and deliver, as Trustee, any deeds, conveyances,
leases, mortgages, contracts, waivers or other instruments in writing that the
Trustee may deem necessary or desirable in the exercise of its powers under
this Agreement; and
(e) To do all other acts that the Trustee may deem necessary or proper to
carry out any of the powers set forth herein hereof or otherwise in the best
interests of the Trust, provided further that a majority of any non-corporate
Trustee(s) shall be necessary to authorize any action under this Agreement.
SIXTH: Taxes, Expenses and Compensation of Trustee.
(a) The Company shall pay any Federal, state, local or other taxes imposed
or levied with respect to the corpus and/or income of the Trust or any part
thereof under existing or future
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laws, and the Company, in its discretion, or the Trustee, in its discretion,
may contest the validity or amount of any tax, assessment, claim or demand
respecting the Trust or any part thereof. The Trustee shall deduct any payroll
taxes required to be withheld with respect to any payments made pursuant to the
Trust.
(b) The Trustee, without direction from the Company, shall pay from the
Trust the reasonable and necessary expenses and compensation of counsel and all
other reasonable and necessary expenses of managing and administering the Trust
and Plans that are not paid by the Company including, but not limited to,
computer time charges, data retrieval and input costs, and charges for time
expended by personnel of the Trustee and those persons retained by the Trustee
in fulfilling the Trustee's duties.
(c) The Company shall pay to the Trustee from time to time such reasonable
compensation for its services as Trustee as is agreed to by the Company and the
Trustee from time to time, but until paid, such compensation and reimbursement
for expenses incurred by the Trustee pursuant hereto shall constitute a charge
upon the Trust, such charge to have priority over any payments due participants
or beneficiaries under the Plans; provided, that any officer of the Company
serving as Trustee shall serve without compensation but shall nevertheless be
entitled to reimbursement of expenses.
(d) After a Change in Control, the Trustee shall bill the Company
directly, on a monthly basis, for all expenses and fees which amounts shall be
immediately due and payable. The Trustee may commence legal action to recover
any amount not paid within thirty (30) days of the billing date, and shall be
obligated to commence such an action if the Company's failure to pay causes a
reduction below $2,000,000 in the assets of the Trust attributable to
contributions made pursuant to Subparagraph (a)(i) of Article SECOND.
SEVENTH: General Duties of Trustee.
(a) Subject to the rules hereof, the Trustee shall discharge its duties
under this Agreement solely in the interest of the participants in the Plans
and their beneficiaries and (i) for the exclusive purpose of providing benefits
to such participants and their beneficiaries and defraying reasonable expenses
of administering the Plans; and (ii) with the care, skill, prudence and
diligence under the circumstances then prevailing that a prudent man acting in
a like capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims.
(b) The Trustee may consult with counsel, who may be counsel for the
Trustee in its individual capacity, (or, prior to a Change in Control, for the
Company) and shall not be deemed imprudent by reason of its taking or
refraining from taking any action in accordance with the opinion of counsel.
(c) (1) Within ninety (90) days after a Change in Control, the Company
shall notify participants and beneficiaries of the Plans in writing of the
Trustee's availability to aid them in pursuing any claims they may have against
the Company under the terms of those of the Plans under which they are covered.
If the Company fails to do so, the Trustee shall provide such notification.
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<PAGE> 11
(2) If, after a Change in Control, a participant or beneficiary
notifies the Trustee that the Company or an Affiliate or any other party, if
applicable has refused to pay a claim asserted by the participant or
beneficiary under any of the Plans, then, unless the Trustee shall determine
that the claim has no basis in law or fact (in which case the Trustee shall
notify the participant or beneficiary of such determination and shall take no
further action with respect to the claim), the Trustee shall, in its
discretion:
(A) pay the participant or beneficiary the
amount of the claim from the Trust assets; or
(B) commence negotiations and legal proceedings
to recover on the claim on behalf of the participant
or beneficiary in accordance with subsection C below.
(C) to the extent that the Trustee determines to
commence negotiations and legal proceeds, it:
(i) shall direct the course of the litigation and shall keep the
participant or beneficiary informed of the progress of the litigation as the
Trustee deems appropriate.
(ii) if the Trustee determines that all reasonable litigation efforts
have been exhausted but the participant or beneficiary has not received all
that he or she is entitled to receive, the Trustee may in its discretion pay
additional amounts to such person out of the assets of the Trust.
EIGHTH: Indemnification.
The Company agrees, to the extent permitted by law, to indemnify and hold
the Trustee harmless from and against any liability that it may incur in the
administration of the Trust and the Plans, unless arising from the Trustee's
own gross negligence or willful breach of its obligations under this Agreement.
The Trustee shall not be required to give any bond or any other security for
the faithful performance of its duties under this Agreement, except as required
by law.
NINTH: No Duty to Advance Funds.
The Trustee shall have no obligation to advance its own funds for the
purposes of fulfilling its responsibilities under this Agreement, and its
obligations to incur expenses shall at all times be limited to amounts in the
Trust available to be applied toward such expenses.
TENTH: Accounts.
(a)(i) The Trustee shall keep accurate and detailed accounts of all its
receipts, investments and disbursements under this Agreement on a calendar year
basis. Such person or persons as the Company shall designate shall be allowed
to inspect the books of account relating to the Trust upon request at any
reasonable time during the business hours of the Trustee.
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<PAGE> 12
(ii) Within 120 days after the close of each calendar year, the
Trustee shall transmit to the Company, and certify the accuracy of, a written
statement of the assets and liabilities of the Trust, showing the current value
of each asset at that date, and a written account of all the Trustee's
transactions relating to the Trust during the period from the last previous
accounting to the close of that year. For the purposes of this Subparagraph,
the date of the Trustee's resignation or removal or the date of termination of
the Trust shall be deemed to be the close of a year.
(iii) Unless the Company shall have filed with the Trustee written
exceptions or objections to any such statement and account within 120 days
after receipt thereof, the Company shall be deemed to have approved such
statement and account; and in such case or upon the written approval by the
Company of any such statement and account, the Trustee shall be forever
released and discharged with respect to all matters and things contained in
such statement and account as though it had been settled by decree of a court
of competent jurisdiction in an action or proceeding to which the Company and
all persons having any beneficial interest in the Trust were parties.
(b) Nothing contained in this Agreement or in the Plans shall deprive the
Trustee of the right to have a judicial settlement of its accounts. In any
proceeding for a judicial settlement of the Trustee's accounts or for
instructions in connection with the Trust, the only other necessary party
thereto in addition to the Trustee shall be the Company. If the Trustee so
elects, it may bring in as a party or parties defendant any other person or
persons. No person interested in the Trust, other than the Company, shall have
a right to compel an accounting, judicial or otherwise, by the Trustee, and
each such person shall be bound by all accountings by the Trustee to the
Company, as herein provided, as if the account had been settled by decree of a
court of competent jurisdiction in an action or proceeding to which such person
was a party.
ELEVENTH: Administration of the Plans; Communications.
(a) The Plans shall be administered as provided therein and pursuant to
the terms hereof including, without limitation, Schedule 1 Supplement. The
Trustee shall not be responsible in any respect for administering the Plans nor
shall the Trustee be responsible for the adequacy of the Trust to meet and
discharge all payments and liabilities under the Plans. The Trustee shall be
further protected in relying upon any written notice, instruction, direction or
other communication signed by an officer of the Company who is authorized to
execute and deliver, in the name and on behalf of the Company, documents or
instruments relating to the Trust (hereinafter an "authorized officer"). The
Company, from time to time, shall furnish the Trustee with the names and
specimen signatures of the authorized officers and shall promptly notify the
Trustee of the termination of office of any authorized officer and the
appointment of a successor thereto. Until notified to the contrary, the
Trustee shall be fully protected in relying upon the most recent list of the
authorized officers furnished to it by the Company.
(b) Any action required by any provision of this Agreement to be taken by
the Tenneco Board shall be evidenced by a resolution of such Board certified to
the Trustee by the Secretary or an Assistant Secretary of the Company, and the
Trustee shall be fully protected in relying upon any resolution so certified to
it. Unless other evidence with respect thereto has been periodically
prescribed in this Agreement, any other action of the Company under any
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<PAGE> 13
provision of this Agreement, including any approval of or exceptions to the
Trustee's accounts, shall be evidenced by a certificate signed by an authorized
officer, and the Trustee shall be fully protected in relying upon such
certificate. The Trustee may accept a certificate signed by an authorized
officer as proof of any fact or matter that it deems necessary or desirable to
have established in the administration of the Trust (unless other evidence of
such fact or matter is expressly prescribed herein), and the Trustee shall be
fully protected in relying upon the statements in the certificate.
(c) The Trustee shall be entitled conclusively to rely upon any written
notice, instruction, direction, certificate or other communication reasonably
believed by it to be genuine and to be signed by an authorized officer, and the
Trustee shall be under no duty to make investigation or inquiry as to the truth
or accuracy of any statement contained therein.
(d) Until written notice is given to the contrary, communications to the
Trustee shall be sent to it at Tenneco Inc., 1275 King Street, Greenwich,
Connecticut 06831, Attn: Dana Mead; communications to the Company shall be sent
to it at its office at 1275 King Street, Greenwich, Connecticut 06831, Attn:
Corporate Secretary.
TWELFTH: Resignation or Removal of Trustee.
(a) A Trustee may resign at any time other than during a Threatened Change
in Control Period or after a Change in Control upon 30 days written notice to
the Company or such shorter period as is acceptable to the Company. During a
Threatened Change in Control Period or after a Change in Control, a Trustee may
resign only under one of the following circumstances:
(i) In the case of a corporate Trustee only, the Trustee is no longer
in the business, or is actively in the process of removing itself from the
business, of acting as trustee for employee benefit plans.
(ii) The Trustee determines that a conflict of interest exists which
would prohibit it from fulfilling its duties under this Agreement in an
ethically proper manner. The Trustee shall use its best efforts to avoid the
creation of such a conflict.
(iii) The assets of the Trust have been exhausted or are insufficient
to pay accrued and reasonably anticipated fees and expenses of the Trustee
hereunder, the Company has refused to pay voluntarily the Trustee's accrued
fees and expenses as required hereunder and the Trustee has been unsuccessful
in obtaining a court order requiring the Company to make such payments or has
been unable to collect on a judgment for such accrued fees and expenses.
(iv) The death or incapacity of a Trustee. Notwithstanding the above,
a corporate Trustee may resign for reasons set forth in (i) or (ii) above only
if it has obtained the agreement of a bank with assets in excess of $2 billion
and net worth in excess of $100 million to replace it as trustee under the
terms of this Agreement.
In addition, upon the death, incapacity or resignation of a non-corporate
Trustee(s), the remaining non-corporate Trustee(s) shall appoint the successor
Trustee(s).
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(b) The Tenneco Board, may, other than during a Threatened Change in
Control Period, remove a Trustee before a Change in Control, upon 30 days
written notice to the Trustee, or upon shorter notice if acceptable to the
Trustee. The Company may not remove a Trustee during a Threatened Change in
Control Period or after a Change in Control. In the event a Trustee resigns or
is removed, the Trustee shall have a right to have its accounts settled as
provided herein.
(c) Each successor trustee shall have the powers and duties conferred upon
the Trustee in this Agreement, and the term "Trustee" as used in this Agreement
shall be deemed to include any successor trustee. Upon designation or
appointment of a successor trustee, the Trustee shall transfer and deliver the
Trust to the successor trustee, reserving such sums as the Trustee shall deem
necessary to defray its expenses in settling its accounts, to pay any of its
compensation due and unpaid and to discharge any obligation of the Trust for
which the Trustee may be liable. If the sums so reserved are not sufficient
for these purposes, the Trustee shall be entitled to recover the amount of any
deficiency from either the Company or from the Trust through the successor
trustee, or both. When the Trust shall have been transferred and delivered to
the successor trustee and the accounts of the Trustee have been settled as
provided herein, the Trustee shall be released and discharged from all further
accountability or liability for the Trust and shall not be responsible in any
way for the further disposition of the Trust or any part thereof.
THIRTEENTH: Amendment of Agreement; Termination of Trust.
(a) Subject to Paragraph (b) below, the Company expressly reserves the
right at any time to amend or terminate this Agreement of the Trust created
thereby to any extent that it may deem advisable by action of the Compensation
and Benefits Committee of the Tenneco Board. No amendment shall be made
without the Trustee's consent thereto in writing if, and to the extent that,
the effect of such amendment is to increase the Trustee's responsibilities
hereunder. Such proposed amendment shall be delivered to the Trustee as a
written instrument of amendment, duly executed and acknowledged by the Company
and accompanied by a certified copy of a resolution of the Compensation and
Benefits Committee of the Tenneco Board. The Company also shall deliver to the
Trustee a copy of any modifications or amendments to the Plans. The Trustee's
consent shall not be required for the termination of the Trust or its removal
as Trustee.
(b) Notwithstanding any other provision of this Agreement other than the
following sentence, the provisions of this Agreement and the Trust created
thereby may not be amended or terminated by the Company or the Trustee during a
Threatened Change in Control Period or after a Change in Control. The Company,
during a Threatened Change in Control Period, or the Trustee, after a Change in
Control, upon written advice of counsel, may amend the provisions of this
Agreement to the extent required by applicable law.
(c) In the event the Company terminates the Trust prior to the occurrence
of a Change in Control, other than during a Threatened Change in Control
Period, the Trustee shall reserve such sums it deems necessary to pay its fees
and expenses, and shall distribute all remaining assets of the Trust in
accordance with the written directions of the Company.
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<PAGE> 15
(d) The Trust shall continue in effect until payment or provision has been
made for all benefits payable under the Plans. Upon termination of the Trust,
the Trustee shall have a right to have its accounts settled. Any assets
remaining in the Trust after payment or provision for all benefits payable
under the Plans, and after the Trustee has reserved such sums as it deems
necessary for the payment of its expenses and fees hereunder, shall be paid in
accordance with the written directions of the Company. When the Trust assets
shall have been so applied or distributed and the accounts of the Trustee shall
have been so settled, the Trustee shall be released and discharged from all
further accountability or liability respecting the Trust.
FOURTEENTH: Prohibition of Diversion.
(a) At no time prior to the satisfaction of all liabilities with respect
to the beneficiaries under this Trust shall any part of the corpus and/or
income of the Trust be used for, or diverted to, purposes other than for the
exclusive benefit of such beneficiaries or defraying the fees and reasonable
expenses of the Trustee hereunder, and the assets of the Trust shall never
inure to the benefit of the Company and shall be held for the exclusive
purposes of providing benefits to participants in the Plans and their
beneficiaries and defraying the fees and reasonable expenses of administering
the Plans or performing any of the Trustee's duties under this Agreement.
(b) Notwithstanding any provision of this Agreement to the contrary, the
assets of the Trust shall at all times be subject to claims of the creditors of
the Company. Upon notice that the Company may be insolvent, the Trustee shall
not pay benefits from such Trust assets, shall hold the assets for the general
creditors of the Company, shall promptly seek a judicial determination
regarding the insolvency of the Company, and shall deliver the assets of the
Trust to satisfy the claims of creditors, as directed by the court. The
Trustee shall resume payments from such Trust assets under the terms of the
Trust only after determining that the Company is not insolvent or after
receiving a judicial decision to that effect. The Company shall have the duty
to inform the Trustee of the insolvency of the Company. The Company shall be
considered insolvent if it is unable to pay its debts as they mature or if it
is subject to a pending proceeding as a debtor under the Bankruptcy Code.
FIFTEENTH: Prohibition of Assignment of Interest.
No interest, right or claim in or to any part of the Trust or any payment
therefrom shall be assignable, transferable or subject to sale, mortgage,
pledge, hypothecation, commutation, anticipation, garnishment, attachment
execution or levy of any kind, and the Trustee shall not recognize any attempt
to assign, transfer, sell, mortgage, pledge, hypothecate, commute or anticipate
the same, except to the extent required by law.
SIXTEENTH: Miscellaneous.
(a) This Agreement shall be interpreted, construed and enforced, and the
trust hereby created shall be administered, in accordance with the laws of the
United States and of the State of Delaware. Prior to a Change in Control,
nothing in this Agreement shall be construed to subject the Trust created
hereunder to the Employee Retirement Income Security Act of 1974, as amended.
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(b) The titles to Articles of this Agreement are placed herein for
convenience of reference only, and the Agreement is not to be construed by
reference thereto.
(c) This Agreement shall bind and inure to the benefit of the successors
and assigns of the Company and the Trustee, respectively, and the Plans.
(d) This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original but all of which together shall
constitute but one instrument, which may be sufficiently evidenced by any
counterpart.
(e) If any provision of this Agreement is determined to be invalid or
unenforceable, the remaining provisions shall not for that reason alone also be
determined to be invalid or unenforceable.
(f) This document supersedes in its entirety and amends and restates the
Tenneco Benefits Protection Trust made as of May 19, 1988 and as amended and
restated effective as of October 1, 1996.
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<PAGE> 17
(g) IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in their respective names as of the day and year first above
written.
TENNECO INC.
By: /s/ Karl A. Stewart
-------------------------------
Its: Vice President & Secretary
-------------------------------
TRUSTEE
/s/ Dana G. Mead
-------------------------------
Dana G. Mead
/s/ Theodore R. Tetzlaff
-------------------------------
Theodore R. Tetzlaff
/s/ Stacy S. Dick
-------------------------------
Stacy S. Dick
/s/ Robert T. Blakely
-------------------------------
Robert T. Blakely
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<PAGE> 18
SCHEDULE 1
-------------------------------------------
I. EXECUTIVE NON-QUALIFIED PLANS
Tenneco Inc. Deferred Compensation Plan
1997 Tenneco Inc. Board of Directors Deferred Compensation Plan
Tenneco Inc. Pilots' Supplemental Retirement Plan
Tenneco Inc. Executive Incentive Compensation Plan
Tenneco Inc. Supplemental Executive Retirement Plan
1996 Tenneco Inc. Stock Ownership Plan
Supplemental Pensions For Dana Mead, Stacy Dick, Arthur House, Theodore
Tetzlaff, W.R. Phillips, Paul Stecko, Barry Schuman and Robert Blakely.
II. SALARY CONTINUATION ARRANGEMENTS
Tenneco Inc. Change in Control Severance Benefit Plan for Key Executives
III. OTHER
Health, life and disability plans.
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SCHEDULE 1
SUPPLEMENT
------------------------------------------
TENNECO INC.
BENEFITS PROTECTION PROGRAM
------------------------------------------
Set out below is a description of the special rights which will
arise with respect to the Plans, upon a Change in Control
(sometimes referred to as a "CIC") and which are to be protected
by this program.
I. EXECUTIVE NON-QUALIFIED PLANS
A. Tenneco Inc. Deferred Compensation Plan and 1997 Tenneco Inc. Board of
Directors Deferred Compensation Plan
1. Upon a threatened Change of Control, Tenneco will calculate the
account balance of each participant (estimated as at the end of the
then calendar year) and will deposit the aggregate amount so
calculated into the Benefits Protection Trust within five business
days of the Threatened Change in Control.
B. Tenneco Inc. Pilots' Supplemental Retirement Plan
1. Upon a Threatened Change in Control, Tenneco will estimate (as
of the end of the then calendar year) the amount of the benefits
payable under the plan and will deposit this amount into the
Benefits Protection Trust within five business days of the
Threatened Change in Control.
C. Tenneco Inc. Executive Incentive Compensation Plan
1. Upon a Threatened Change in Control, Tenneco will deposit into
the Benefits Protection Trust within five business days of a
Threatened Change in Control an amount equal to the aggregate
corporate and divisional individual target incentive award for the
current year (or for the immediately preceding year, if no such
target awards have been established for the current year), to be
paid out by the Trustee, on behalf of the Company, in accordance
with the provisions of the Plan.
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D. Tenneco Inc. Supplemental Executive Retirement Plan
1. Upon a Threatened Change in Control, Tenneco will estimate (as
of the end of the then calendar year) the amount of the benefits
payable under the plan and will deposit this amount into the
Benefits Protection Trust within five business days of a Threatened
Change in Control.
E. 1996 Tenneco Inc. Stock Ownership Plan.
1. (a) Upon a Change in Control, all Stock Options granted under
the plan shall become fully exercisable.
(b) Upon a Threatened Change in Control all Stock Appreciation
Rights granted under the plan shall become fully vested. Tenneco
will estimate the amount payable to employees holding Stock
Appreciation Rights and will deposit this amount into the Benefits
Protection Trust within five business days of the Threatened Change
in Control.
(c) Upon a Threatened Change in Control, certificates for all
Restricted Stock then held by Tenneco together with funds in an
amount estimated to be sufficient to pay the aggregate cash
settlement amounts payable upon reversion of such shares in the
event of a Change in Control and a subsequent discharge or
Constructive Termination of the participants (which estimate may
not be based on an assumed fair market value per share in excess of
150% of the fair market value on the date of the Threatened Change
in Control) will be deposited into the Benefits Protection Trust
within five business days of a Threatened Change in Control.
(d) Upon a Threatened Change in Control, Tenneco will estimate the
aggregate amount payable under the Performance Units, issued
pursuant to the plan and will deposit the amount so estimated into
the Benefits Protection Trust within five business days of the
Threatened Change in Control.
(e) Upon a threatened Change in Control, Tenneco will estimate the
aggregate amount payable under the Stock Equivalent Units and
Dividend Equivalent Units and will deposit the amount so estimated
into the Benefits Protection Trust within five business days of the
Threatened Change in Control.
(f) If after a Change in Control has occurred, a participant in the
1996 Tenneco Inc. Stock Ownership Plan is separated from service as
an employee, a non-employee officer or a director either because he
or she is discharged, provided such discharge is not a Discharge
for Cause, or because of Constructive Termination, such participant
shall be entitled to be paid in cash the total of the fair market
value, determined as of the date of such separation, of any
Restricted Stock, Performance Units, Stock Equivalent Units and
Dividend Equivalents which he or she held immediately prior to such
separation from service to the extent that he or she would not
otherwise receive the value thereof. The terms
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"Stock Options, Stock Appreciation Rights, Restricted Stock,
Performance Units, Stock Equivalent Units and Dividend Equivalents"
shall have the meaning ascribed to those terms in the 1996 Tenneco
Inc. Stock Ownership Plan, and the terms "Discharge for Cause" and
"Constructive Termination" shall have the meaning ascribed to those
terms in the Tenneco Inc. Change in Control Severance Benefit Plan
for Key Employees.
F. Supplemental Pensions.
1. Employees, and Officers Protected - Dana Mead, Stacy Dick,
Arthur House, John Castellani, Theodore Tetzlaff, W. R. Phillips,
Paul Stecko, Barry Schuman and Robert Blakely.
2. Plan Provision - Upon a Threatened Change in Control, Tenneco
will estimate (as of the end of the then calendar year) the amount
of the benefits payable under the supplemental pension agreements
and will deposit the amount so estimated into the Benefits
Protection Trust within five business days of the Threatened Change
in Control.
II. SALARY AND OTHER CONTINUATION ARRANGEMENTS
Upon a Threatened Change in Control, Tenneco will estimate the aggregate
amount that it reasonably anticipates may become payable under the
Tenneco Inc. Change in Control Severance Benefit Plan for Key Executives
and will deposit the amount so estimated into the Benefits Protection
Trust within five business days of the Threatened Change in Control.
III. OTHER
Persons who become entitled to payments under the Tenneco Inc. Change in
Control Severance Benefit Plan for Key Employees, and their eligible
dependents, shall continue to be covered by the health, life and
disability plans applicable to comparably situated active employees as in
effect from time to time and subject to the rules thereof for the period
described below. For persons entitled to Executive Group I benefits, and
their eligible dependents, the period is three (3) years from his or her
separation from service. For persons entitled to Executive Group II
benefits, the period is two (2) years from his or her separation from
service. This period of coverage will not count against the minimum
period of health coverage required by the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA"), and persons covered by this
provision will be afforded their applicable COBRA rights at the end of
the health coverage provided for herein. The terms "Executive Group I"
and "Executive Group II" shall have the meaning ascribed to those terms
in the Tenneco Inc. Change in Control Severance Benefit Plan for Key
Employees.
-19-
<PAGE> 22
Upon a Threatened Change in Control, Tenneco shall estimate the amount
that it reasonably anticipates will be sufficient to defray these
obligations and will deposit that amount in the Benefits Protection Trust
within five business days of the Threatened Change in Control.
-20-
<PAGE> 1
EXHIBIT 10.28
TBS LEGAL DEPARTMENT
Draft: April 20, 1998
DatCenTerm-11
TERMINATION AGREEMENT
THIS TERMINATION AGREEMENT (this "Termination Agreement") is made and
entered into on the 23rd day of April, 1998 by and between Newport News
Shipbuilding and Dry Dock Company ("NNS"), a wholly-owned subsidiary of Newport
News Shipbuilding Inc. and Tenneco Business Services Inc., formerly known as
Tenneco Technology Services Inc., a wholly-owned subsidiary of Tenneco Inc.
RECITALS:
WHEREAS, on August 22, 1996 NNS and Tenneco Technology Services Inc.
("TTS") entered into (i) a Professional Services Agreement ("PSA"), a copy of
which is attached hereto as Exhibit A, pursuant to which TTS was to provide
certain mainframe data processing and distributed system services (the
"Services") to NNS and (ii) a Lease (the "Lease"), a copy of which is attached
hereto as Exhibit B, pursuant to which NNS leased to TTS certain office space
in Newport News, Virginia to be used as a center for the provision by TTS of
the Services to NNS and similar mainframe services to Tenneco Business Services
Inc. and its affiliates (the "Data Center");
WHEREAS, effective October 15, 1996, TTS changed its name to Tenneco
Business Services Inc. ("TBS");
WHEREAS, effective December 12, 1996 TBS and NNS were no longer
affiliates of one another;
WHEREAS, TBS intends in July 1998 to relocate its computer operations
(excluding NNS operations) at the Data Center to Lincolnshire, Illinois;
WHEREAS, NNS desires to be responsible for providing its own Services;
and
WHEREAS, the parties desire to terminate the PSA and the Lease on the
terms and subject to the conditions set forth in this Termination Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained in
this Termination Agreement and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1
<PAGE> 2
1. Termination; Provision of Services After Termination.
(a) The PSA and the Lease shall be terminated effective
July 31, 1998 (the "Termination Date").
(b) If TBS is unable to relocate its computer operations to
Lincolnshire, Illinois by the Termination Date, NNS, upon receiving a
written request from TBS, shall provide TBS with mainframe data
processing services substantially similar to those currently provided
TBS and its affiliates at the Data Center by TBS an a month-to-month
basis for up to three months at a rate of $ 500,000 per month,
prorated for any portion of a month such services are performed.
2. Settlement and Release.
Effective as of the Termination Date, TBS, on behalf of itself and
each entity controlling, controlled by or under common control with it
(the "Tenneco Group"), and NNS, on behalf of itself and each entity
controlling, controlled by or under common control with it (the "NNS
Group") each hereby releases and forever discharges each other party,
such other party's subsidiaries and affiliates and all of the
respective employees, officers, directors, shareholders and agents of
such other party, of and from all and any manner of actions, causes of
action, suits, debts, sums of money, accounts, costs, expenses,
damages, fees, claims, demands and liabilities whatsoever in law or in
equity which such party had against or now has against such other
party, or which such party hereafter can, shall or may have, arising
out of or related to the PSA or the Lease, or the actions or inactions
of any of such other party or any member of the Tenneco Group or the
NNS Group, as the case may be, under or related to the PSA or the
Lease. Except as specifically described in this Section 2, no other
obligations or liabilities are being settled and released pursuant to
this Termination Agreement.
3. Covenants.
(a) Prior to the Termination Date, each party shall use all
commercially reasonable efforts to cause the suppliers under the
contracts listed on
2
<PAGE> 3
Exhibit B hereto to enter into new contracts for the provision of
similar services with NNS. Each party shall bear its own expenses
associated with the negotiation of such new contracts.
(b) TBS shall use all commercially reasonable efforts to
comply, on or before the Termination Date, with the provisions of
Section 4 and Section 9 k of the Lease.
(c) On or prior to the Termination Date (i) NNS shall pay
to TBS all amounts due for Services provided prior to such date and
(ii) subject to adjustment once the actual amount due for rent under
the Lease is determined, TBS shall pay to NNS the estimated amount of
such rent due for periods prior to the Termination Date.
(d) Notwithstanding any provisions of the PSA regarding the
solicitation and hiring of TBS Data Center employees, NNS may begin
the solicitation of such employees on or after the date of this
Termination Agreement; provided, however, (i) NNS may not make any
offers to employ such persons pursuant to which employment would
commence prior to the Termination Date and (ii) the decisions to make
or not to make any such offers shall be at the sole discretion of NNS.
4. Indemnification. Each party (the "Indemnifying Party") shall
indemnify, hold harmless and defend the other party and its respective
present and future parents, subsidiaries, commonly controlled
entities, affiliates, directors, officers, employees and agents
("Related Parties") from and against any and all liabilities, claims,
penalties, forfeitures, suits, and the costs and expenses incident
thereto, which all or any of them may hereinafter suffer, incur,
become responsible for, to the extent caused by: (i) the breach of any
term or provision of this Termination Agreement by the Indemnifying
Party or its Related Parties: (ii) any violation or alleged violation
or statutes; ordinances, orders, rules or regulations of any
governmental entity or agency by the Indemnifying Party or its Related
Parties in the performance of this Termination Agreement; (iii)
violation of any software licensing agreements by the Indemnifying
Party or its Related Parties in the performance of this Termination
Agreement or (iv) any negligent, grossly negligent or willful act or
omission of the Indemnifying Party or its Related Parties in the
performance of this Termination Agreement.
3
<PAGE> 4
5. Notices. Any and all notices and other communication
necessary or desirable to be served hereunder shall be either
personally delivered or sent by telecopy, prepaid same-day or
overnight delivery service, proof of delivery requested, or United
States certified or registered mail, postage prepaid, return receipt
requested, addressed as follows:
If to NNS:
Information Services
Newport News Shipbuilding
4101 Washington Ave.
Newport News, VA 23607
Attention: S. C. Hassell
Telecopier No.: (757) 688-1900
With a copy to:
Legal Department
Newport News Shipbuilding
4101 Washington Ave.
Newport News, VA 23607
Attention: A. L. Pharr
Telecopier No.: (757) 380-3875
If to TBS:
Tenneco Business Services Inc.
8401 New Trails Drive
The Woodlands, Texas 77387
Attention: Mark Harner
Telecopier No.: (281) 539-6812
With a copy to:
Tenneco Business Services Inc.
8401 New Trails Drive
The Woodlands, Texas 77387
Attention: Legal Department
Telecopier No.: (281) 539-6809
or to such other address or addresses as either party hereto may
designate for itself from time to time in a written notice served upon
the other
4
<PAGE> 5
party hereto in accordance herewith. Any notice sent as hereinabove
provided shall be deemed delivered upon receipt or refusal of
delivery.
6. Choice of Law; Venue. This Termination Agreement shall be
governed by, construed and enforced in accordance with the laws of the
State of New York without regard to its conflicts of laws.
7. Interpretation. This Termination Agreement has been
reviewed and negotiated by counsel for both the parties and,
consequently, the parties agree that this Termination Agreement shall
not be construed against the drafter.
8. No Waiver. The terms, covenants, representations,
warranties and conditions of this Termination Agreement may be waived
only by a written instrument executed by the party waiving compliance.
No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided shall be cumulative
and not exclusive of any rights or remedies provided by law.
9. Severability. In the event any provision of this
Termination Agreement is invalid as applied to any fact or
circumstance, its invalidity shall not affect the validity of any
other provision or of the same provision as applied to any other fact
or circumstance. If any provision of this Termination Agreement is so
broad as to be unenforceable, such provision shall be interpreted to
be only so broad as enforceable.
10. Entire Agreement. This Termination Agreement, together
with all Exhibits hereto and documents incorporated herein by
reference, constitutes the entire agreement between the parties, and
supersedes all prior or contemporaneous oral or written agreements and
related documents and correspondence concerning the subject matter
hereof. The parties shall not be bound by, or liable for, any
statement, covenant, representation, promise, inducement or
understanding not set forth herein. The contents of any and all bids
or proposals, including any descriptions, discussions, or exceptions
offered or
5
<PAGE> 6
taken, which are not specifically incorporated herein, are not a part
of this Termination Agreement and shall have no effect or influence
upon its interpretation.
11. Counterparts. This Termination Agreement may be executed
in any number of counterparts, and each counterpart shall constitute
an original instrument, and all such separate counterparts taken
together shall constitute one and the same agreement.
12. No Third Party Beneficiaries; No Agency. This Termination
Agreement is made solely for the benefit of the parties hereto and
shall not give rise to any rights of any kind to any other third
parties.
13. Amendment. No amendment or modification of any of the
terms or conditions of this Termination Agreement shall be valid
unless reduced to writing and executed by the parties hereto.
14. Headings. The Section headings have been inserted for
convenience only and are not intended to affect the meaning or
interpretation of this Termination Agreement.
IN WITNESS WHEREOF, the parties have duly executed this Termination Agreement
on the date and year first set forth above.
NEWPORT NEWS SHIPBUILDING AND
DRY DOCK COMPANY
BY: /s/ T. C. SCHIEVELBEIN
-----------------------------
Printed Name: T. C. Schievelbein
Title: Executive Vice President
TENNECO BUSINESS SERVICES INC.
By: /s/ ROBERT G. SIMPSON
-----------------------------
Printed Name: Robert G. Simpson
Title: General Manager
6
<PAGE> 7
EXHIBIT A
PROFESSIONAL SERVICES AGREEMENT
SEE ATTACHED
7
<PAGE> 8
EXHIBIT C
SERVICE CONTRACTS
1. IBM Business Recovery Services
2. Data Base of Virginia
3. First Image Management Company
11
<PAGE> 1
EXHIBIT 12
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
COMBINED WITH 50% OWNED UNCONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
--------------
1998 1997
----- -----
<S> <C> <C>
Net income.................................................. $ 75 $ 76
Add:
Interest............................................... 56 45
Portion of rentals representative of interest factor... 13 13
Preferred stock dividend requirements of majority-owned
subsidiaries.......................................... 7 5
Income tax expense and other taxes on income........... 47 33
Amortization of interest capitalized................... 1 1
Undistributed (earnings) losses of affiliated companies
in which less than a 50% voting interest is owned..... -- (1)
----- -----
Earnings as defined............................... $ 199 $ 172
===== =====
Interest.................................................... $ 56 $ 45
Interest capitalized........................................ -- 1
Portion of rentals representative of interest factor........ 13 13
Preferred stock dividend requirements of majority-owned
subsidiaries on a pre-tax basis........................... 11 7
----- -----
Fixed charges as defined.......................... $ 80 $ 66
===== =====
Ratio of earnings to fixed charges.......................... 2.49 2.61
===== =====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 29
<SECURITIES> 0
<RECEIVABLES> 799
<ALLOWANCES> 0
<INVENTORY> 997
<CURRENT-ASSETS> 2,273
<PP&E> 5,368
<DEPRECIATION> 1,896
<TOTAL-ASSETS> 8,547
<CURRENT-LIABILITIES> 1,850
<BONDS> 2,640
0
0
<COMMON> 2
<OTHER-SE> 2,526
<TOTAL-LIABILITY-AND-EQUITY> 8,547
<SALES> 1,809
<TOTAL-REVENUES> 1,809
<CGS> 1,287
<TOTAL-COSTS> 1,287
<OTHER-EXPENSES> 352
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 56
<INCOME-PRETAX> 130
<INCOME-TAX> 47
<INCOME-CONTINUING> 75
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 75
<EPS-PRIMARY> .44
<EPS-DILUTED> .44
</TABLE>
