<PAGE>
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(mark one)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-12387
TENNECO INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0515284
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
06831
1275 KING STREET, GREENWICH, CT (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (203) 863-1000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------------------
<S> <C>
6.70% Notes due 2005; 7.45% Debentures
due 2025; 8.075% Notes due 2002;
8.20% Notes due 1999; 9.20%
Debentures due 2012; 10.075% Notes
due 2001; 10.20% Debentures due 2008. New York Stock Exchange
Common Stock, par value $.01 per
share................................ New York, Chicago, Pacific and London Stock Exchanges
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [_]
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO
THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. [X]
STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES
OF THE REGISTRANT. THE AGGREGATE MARKET VALUE SHALL BE COMPUTED BY REFERENCE
TO THE PRICE AT WHICH THE STOCK WAS SOLD, OR THE AVERAGE BID AND ASKED PRICES
OF SUCH STOCK, AS OF A SPECIFIED DATE WITHIN 60 DAYS PRIOR TO THE DATE OF
FILING.
<TABLE>
<CAPTION>
CLASS OF VOTING STOCK AND NUMBER MARKET VALUE
OF SHARES HELD
HELD BY NON-AFFILIATES AT BY NON-
JANUARY 31, 1998 AFFILIATES
-------------------------------- ---------------
<S> <C>
Common Stock, 169,409,746 shares $6,882,270,931*
</TABLE>
- - --------
*Based upon the closing sale price on the Composite Tape for the Common Stock
on January 30, 1998.
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE. Common Stock, par
value $.01 per share, 169,812,786 shares outstanding as of January 31, 1998.
DOCUMENTS INCORPORATED BY REFERENCE:
<TABLE>
<CAPTION>
PART OF THE FORM 10-K
DOCUMENT INTO WHICH INCORPORATED
-------- -----------------------
<S> <C>
Tenneco Inc.'s Definitive Proxy Statement for the Part III
Annual Meeting of Stockholders to be Held May 12, 1998
</TABLE>
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
<PAGE>
CAUTIONARY STATEMENT FOR PURPOSES OF "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Annual Report contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 concerning, among other
things, the prospects and developments of the Company (as defined) and
business strategies for its operations, all of which are subject to risks and
uncertainties. These forward-looking statements are identified as "forward-
looking statements" or by their use of terms (and variations thereof) and
phrases such as "anticipates," "intend," "goal," "continued," "estimate,"
"expects," "project," "potential," "forecast," "plans," "should," "designed
to," "foreseeable future," "outlook," "believe," and "scheduled" and similar
terms (and variations thereof) and phrases.
When a forward-looking statement includes a statement of the assumptions or
basis underlying the forward-looking statement, the Company cautions that,
while it believes such assumptions or basis to be reasonable and makes them in
good faith, assumed facts or basis almost always vary from actual results, and
the differences between assumed facts or basis and actual results can be
material, depending upon the circumstances. Where, in any forward-looking
statement, the Company or its management expresses an expectation or belief as
to future results, such expectation or belief is expressed in good faith and
believed to have a reasonable basis, but there can be no assurance that the
statement of expectation or belief will result or be achieved or accomplished.
The Company's actual results may differ significantly from the results
discussed in the forward-looking statements. Factors that might cause such a
difference include the following:
Changes in Consumer Demand and Prices. Demand for Tenneco Automotive
original equipment products is subject to the level of consumer demand for
new vehicles that are equipped with Tenneco Automotive parts. The level of
new car purchases is cyclical, affected by such factors as interest rates,
consumer confidence, patterns of consumer spending and the automobile
replacement cycle. Demand for Tenneco Automotive aftermarket products
varies based upon such factors as the level of new vehicle purchases, which
initially displaces demand for aftermarket products, the severity of winter
weather, which increases the demand for aftermarket products, and other
factors including the average useful life of parts and number of miles
driven. Demand for certain Tenneco Packaging products is also cyclical. For
example, demand for protective packaging is driven by trends in the
building, construction, automotive and durable goods markets. Demand for
packaging products is also subject to changes in consumer preferences.
Demand and pricing of Tenneco Automotive and Tenneco Packaging products
are subject to economic conditions and other factors present in the various
domestic and international markets where the products are sold. For
example, lower containerboard prices in Tenneco Packaging's markets had an
adverse influence on its results of operations in 1997 and 1996. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Years 1997 and 1996" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Years 1996 and 1995--
Tenneco Packaging."
Changes in Prices of Raw Materials. Significant increases in the cost of
certain raw materials used in the Company's products, to the extent they
are not timely reflected in the Company's prices or mitigated through long-
term supply contracts, could adversely impact the Company's results. For
example, the cost of plastic resin and paper materials in Tenneco Packaging
products can be volatile.
Possible Labor Interruptions. Substantially all of the hourly employees
of North American original equipment manufacturers are represented by the
United Automobile, Aerospace and Agricultural Implement Workers of America
(the "UAW") under similar collective bargaining agreements. Original
equipment manufacturers in other countries are also subject to labor
agreements. A work stoppage or strike at the production facilities of a
significant customer, at the Company's facilities, or at a supplier of a
customer or the Company could have an adverse impact on the Company.
Risks Associated with International Operations. Both Tenneco Packaging
and Tenneco Automotive operate facilities and sell products in countries
throughout the world. As a result, the Company is subject to
i
<PAGE>
risks associated with selling and operating in foreign countries, including
devaluations and fluctuations in currency exchange rates, imposition of
limitations on conversion of foreign currencies into U.S. dollars or
remittance of dividends and other payments by foreign subsidiaries,
imposition or increase of withholding and other taxes on remittances and
other payments by foreign subsidiaries, hyperinflation in certain foreign
countries, and imposition or increase of investment and other restrictions
by foreign governments.
Other Factors. In addition to the factors described above, the Company
may be impacted by a number of other matters and uncertainties, including:
(i) potential legislation or regulatory changes; (ii) material
substitution; (iii) the ability of the Company 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; (iv) new
technologies; (v) changes in distribution channels or competitive
conditions in the markets and countries where the Company operates; (vi)
changes in capital availability or costs, such as changes in interest
rates, market perceptions of the industries in which the Company operates
or ratings of securities; (vii) increases in the cost of compliance with
regulations, including environmental regulations, and environmental
liabilities in excess of the amount reserved; and (viii) changes by the
Financial Accounting Standards Board or the Securities and Exchange
Commission of authoritative generally accepted accounting principles or
policies.
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
PART I
Item 1. Business....................................................... 1
Tenneco Inc................................................... 1
Contributions of Major Businesses............................. 1
Tenneco Automotive............................................ 2
Tenneco Packaging............................................. 9
Tenneco Business Services..................................... 16
Environmental Matters......................................... 16
Certain Reorganization Agreements............................. 17
Item 2. Properties..................................................... 17
Item 3. Legal Proceedings.............................................. 18
Item 4. Submission of Matters to a Vote of Security Holders............ 19
Item 4.1. Executive Officers of the Registrant........................... 20
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters........................................................ 21
Item 6. Selected Financial Data........................................ 22
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 24
Item 8. Financial Statements and Supplementary Data.................... 36
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure........................................... 69
PART III
Item 10. Directors and Executive Officers of the Registrant............. 69
Item 11. Executive Compensation......................................... 69
Item 12. Security Ownership of Certain Beneficial Owners and Management. 69
Item 13. Certain Relationships and Related Transactions................. 69
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-
K.............................................................. 69
</TABLE>
iii
<PAGE>
PART I
ITEM 1. BUSINESS.
TENNECO INC.
Tenneco Inc., a Delaware corporation, is a global manufacturing company with
operations in automotive parts ("Tenneco Automotive") and packaging ("Tenneco
Packaging"). Tenneco Automotive is one of the world's leading manufacturers of
automotive exhaust and ride control systems for both the original equipment
market and the replacement market, or aftermarket. Tenneco Packaging is among
the world's leading and most diversified packaging companies, manufacturing
packaging products for consumer, institutional and industrial markets. As used
herein, the term "Tenneco" or the "Company" refers to Tenneco Inc. and its
consolidated subsidiaries.
The Company was incorporated August 26, 1996, under the name "New Tenneco
Inc." as a wholly-owned subsidiary of the company then known as Tenneco Inc.
("Old Tenneco"). The Company was formed to facilitate Old Tenneco's corporate
transformation from a highly diversified industrial corporation to a global
manufacturing company focused on its automotive and packaging businesses. As
part of this transformation, Old Tenneco undertook a series of transactions
during the latter portion of 1996 whereby the businesses and assets of Old
Tenneco were restructured so that the assets, liabilities and operations of
Tenneco Automotive, Tenneco Packaging and Old Tenneco's administrative
services businesses were owned and operated by the Company and the assets,
liabilities and operations of Old Tenneco's shipbuilding business were owned
and operated by Newport News Shipbuilding Inc., another wholly-owned
subsidiary of Old Tenneco ("Newport News"). Following this internal
restructuring, on December 11, 1996, Old Tenneco spun-off the Company and
Newport News by distributing all of the common stock of each company to Old
Tenneco's common stockholders (the "Distributions"). Following the
Distributions, on December 12, 1996, a subsidiary of El Paso Natural Gas
Company ("El Paso") was merged (the "Merger") into Old Tenneco (which then
consisted solely of Old Tenneco's remaining active businesses and certain
discontinued operations), with Old Tenneco surviving the Merger as a
subsidiary of El Paso, and with the Company succeeding to the name "Tenneco
Inc." Unless the context otherwise requires, references to "Tenneco" and the
"Company" for periods prior to the Distributions are to Old Tenneco.
The separation of the Company from the remainder of the businesses,
operations and companies then constituting Old Tenneco was structured as a
spin-off of the Company for legal, tax and other reasons. However, the Company
succeeded to certain important aspects of the Old Tenneco business,
organization and affairs, namely: (i) the Company succeeded to the name
"Tenneco Inc.;" (ii) the business conducted by the Company principally
consists of Tenneco Automotive and Tenneco Packaging, which combined
represented over half of the assets, revenues, and operating income of the
businesses, operations, and companies previously constituting Old Tenneco;
(iii) the Company's Board of Directors consisted of those individuals
comprising the Old Tenneco Board of Directors immediately prior to the
Distributions; (iv) the Company's executive management consisted substantially
of those individuals comprising Old Tenneco's executive management; and (v)
the Company retained as its headquarters the former headquarters of Old
Tenneco in Greenwich, Connecticut.
CONTRIBUTIONS OF MAJOR BUSINESSES
Information concerning Tenneco's principal industry segments and geographic
areas is set forth in Note 12 to the Financial Statements of Tenneco Inc. and
Consolidated Subsidiaries. The following tables summarize for each of the
major business groups of Tenneco for the periods indicated: (i) net sales and
operating revenues from continuing operations; (ii) income from continuing
operations before interest expense, income taxes and minority interest; and
(iii) capital expenditures for continuing operations.
1
<PAGE>
NET SALES AND OPERATING REVENUES FROM CONTINUING OPERATIONS:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Automotive............................... $3,226 45% $2,980 45% $2,479 47%
Packaging................................ 3,995 55 3,602 55 2,752 53
Intergroup sales and other............... (1) -- (10) -- (10) --
------ --- ------ --- ------ ---
Total.................................. $7,220 100% $6,572 100% $5,221 100%
====== === ====== === ====== ===
</TABLE>
INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST EXPENSE, INCOME TAXES, AND
MINORITY INTEREST:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- --------
(DOLLAR AMOUNTS IN
MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Automotive.................................... $407 53 % $249 40 % $240 36%
Packaging..................................... 371 49 401 64 430 64
Other......................................... (14) (2) (22) (4) 2 --
---- --- ---- --- ---- ---
Total....................................... $764 100 % $628 100 % $672 100%
==== === ==== === ==== ===
</TABLE>
CAPITAL EXPENDITURES FOR CONTINUING OPERATIONS:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(DOLLAR AMOUNTS IN
MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Automotive........................................ $211 38% $177 31% $208 37%
Packaging......................................... 335 60 341 60 316 56
Other............................................. 12 2 55 9 38 7
---- --- ---- --- ---- ---
Total........................................... $558 100% $573 100% $562 100%
==== === ==== === ==== ===
</TABLE>
Interest expense, income taxes, and minority interest related to continuing
operations that were not allocated to the major business groups of Tenneco
are:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(MILLIONS)
<S> <C> <C> <C>
Interest expense (net of interest capitalized).................. $216 $195 $160
Income tax expense.............................................. 163 194 231
Minority interest............................................... 24 21 23
</TABLE>
TENNECO AUTOMOTIVE
Tenneco Automotive is one of the world's largest manufacturers and marketers
of automotive exhaust and ride control systems for the original equipment
("OE") market and aftermarket. Tenneco Automotive is a global business that
sells its products in over 100 countries, manufacturing and marketing its
automotive exhaust systems primarily under the Walker(R) brand name and its
ride control equipment primarily under the Monroe(R) brand name.
Tenneco Automotive is headquartered in Lake Forest, Illinois.
OVERVIEW OF AUTOMOTIVE PARTS INDUSTRY
The global market for automotive parts was estimated at approximately $500
billion in 1996, the most recent year for which industry data is available.
This market was comprised of approximately $400 billion in OE sales and
approximately $100 billion in aftermarket sales. With the North American and
Western European automotive markets becoming relatively mature, OE
manufacturers and automotive parts suppliers are increasingly focusing
2
<PAGE>
on emerging markets for additional growth opportunities, particularly China,
Eastern Europe, India and Latin America.
The automotive parts industry is generally separated into two categories:
(i) OE sales, in which parts are sold as original equipment in large
quantities directly to the vehicle manufacturers; and (ii) aftermarket sales,
in which parts are sold as replacement parts in varying quantities to a wide
range of wholesalers, retailers and repair shops. Demand for automotive parts
in the OE market is driven by the number of new vehicle sales, which in turn
is determined by prevailing economic conditions. Demand for aftermarket
products varies based upon such factors as the level of new automobile
purchases, which initially displaces demand for aftermarket products, the
severity of winter weather, which increases the demand for aftermarket
products, and other factors including the average useful life of parts and
number of miles driven.
The operations of Tenneco Automotive face competition from other
manufacturers of automotive equipment, including affiliates of certain of its
customers, in both the OE market and the aftermarket.
ANALYSIS OF TENNECO AUTOMOTIVE'S REVENUES
The following table sets forth for each of the years 1995 through 1997
certain information relating to the net sales of Tenneco Automotive, the two
primary product lines of Tenneco Automotive and the aftermarket and OE market
within each primary product line:
<TABLE>
<CAPTION>
NET SALES (MILLIONS)
----------------------
YEAR ENDED DECEMBER
31,
----------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
EXHAUST SYSTEMS PRODUCTS
Aftermarket........................................... $ 686 $ 710 $ 637
OE Market............................................. 1,067 989 829
------ ------ ------
1,753 1,699 1,466
------ ------ ------
RIDE CONTROL PRODUCTS
Aftermarket........................................... 782 768 687
OE Market............................................. 691 513 326
------ ------ ------
1,473 1,281 1,013
------ ------ ------
Total Tenneco Automotive............................ $3,226 $2,980 $2,479
====== ====== ======
<CAPTION>
PERCENTAGE OF NET
SALES
----------------------
YEAR ENDED DECEMBER
31,
----------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
EXHAUST SYSTEMS PRODUCTS
Aftermarket........................................... 39% 42% 43%
OE Market............................................. 61 58 57
------ ------ ------
100% 100% 100%
====== ====== ======
RIDE CONTROL PRODUCTS
Aftermarket........................................... 53% 60% 68%
OE Market............................................. 47 40 32
------ ------ ------
100% 100% 100%
====== ====== ======
</TABLE>
3
<PAGE>
Brands
Tenneco Automotive manufactures and markets leading brand names. Monroe(R)
ride control products and Walker(R) exhaust systems are two of the most
recognized brand names in the automotive parts industry. As Tenneco Automotive
acquires related product lines, it is anticipated that they will be
incorporated within these existing Monroe(R) and Walker(R) brand name
families.
Customers
Tenneco Automotive has developed long-standing business relationships with
many of its customers around the world, working together in all stages of
production, including design, development, component sourcing, quality
assurance, manufacturing and delivery. Tenneco Automotive has a strong and
established reputation with its customers for providing high quality products
at competitive prices as well as for timely delivery and customer service.
Tenneco Automotive serves both the OE market and the aftermarket. Tenneco
Automotive serves over 25 different OE customers on a global basis, and has
its products on 11 of the 15 top selling global models. Its OE customers
include the following:
NORTH AMERICA EUROPE INDIA
CAMI BMW
Chrysler Chrysler Maruti Suzuki
Ford DAF
General Motors Daihatsu AUSTRALIA
Honda Fiat Ford
Mazda Ford General
Mitsubishi Jaguar Motors/Holden
Nissan Lada Mitsubishi
NUMMI Leyland Toyota
Toyota Mercedes-Benz
Mitsubishi JAPAN
SOUTH AMERICA Nissan Mazda
Chrysler Opel Nissan
Fiat Peugeot/Citroen Suzuki
Ford Porsche Toyota
General Motors Renault/Matra
Renault Rover/Land Rover OTHER ASIA
Toyota Saab/Scania Chrysler
Volkswagen Toyota Citroen
Volkswagen/Audi/SEAT/Skoda
Volvo
Tenneco Automotive's aftermarket customers include such wholesalers and
retailers as National Auto Parts Association ("NAPA"), Midas International
Corp. ("Midas"), Speedy Muffler King and Western Auto in North America and
Midas, Pit Stop and Kwik-Fit in Europe.
EXHAUST SYSTEMS
Automotive exhaust systems play a critical role in safely conveying noxious
exhaust gases away from the passenger compartment, reducing the level of
pollutants and reducing engine exhaust noise to an acceptable level. Precise
engineering of the manifold, pipe, catalytic converter and muffler leads to a
pleasant, tuned engine sound, reduced pollutants and optimized engine
performance.
Tenneco Automotive designs, manufactures and distributes exhaust systems
primarily under the Walker(R) brand name. These products include a variety of
automotive exhaust systems and emission control products, including mufflers,
catalytic converters, tubular exhaust manifolds, pipes, exhaust accessories
and electronic
4
<PAGE>
noise cancellation products. Tenneco entered this product line in 1967 with
the acquisition of Walker Manufacturing Company which was founded in 1888 (the
affiliates of Tenneco that produce exhaust and emission control products are
collectively referred to herein as "Walker"). Walker is the aftermarket leader
for exhaust systems in North America, Europe and Australia. Walker is a
leading supplier in the OE market in the U.S. as well, supplying exhaust
systems used in 11 of the 15 top-selling 1997 new car models worldwide and all
of the ten top-selling light trucks in the U.S. Walker has long been the
European aftermarket leader for exhaust systems, and with the acquisition of
Heinrich Gillet GmbH & Co. ("Gillet") in 1994, Walker became one of Europe's
leading OE exhaust systems supplier.
Manufacturing and Engineering
Walker operates 28 manufacturing facilities outside the U.S. In the U.S.,
Walker operates ten manufacturing facilities and seven distribution centers.
See Item 2, "Properties." It also has a controlling interest in a joint
venture that owns a manufacturing facility in China. Walker locates
manufacturing facilities in close proximity to its OE customers to provide
just-in-time delivery opportunities.
Strategic Acquisitions/Joint Ventures
As part of its international growth strategy, Tenneco Automotive acquired
ownership of Gillet, a manufacturer of exhaust systems, in November 1994. The
acquisition of Gillet recast Tenneco Automotive as a market leader in exhaust
systems for the OE market in Europe and brought many new OE customers to the
Walker business.
In 1995, Tenneco Automotive acquired ownership of Manufacturas Fonos, S.L.
("Fonos"), Spain's largest participant in the exhaust systems aftermarket, and
Perfection Automotive Products, a U.S. catalytic converter producer, further
expanding Tenneco Automotive's presence in the exhaust systems replacement
market. In 1996, Tenneco Automotive established a joint venture in China
(Dalian) to supply exhaust systems to the northern Chinese automotive market,
expanded its North American heavy duty truck aftermarket business through the
acquisition of Stemco Inc. and acquired the second largest manufacturer of
exhaust products in Argentina. In 1997, Tenneco Automotive acquired Autocan, a
Mexican catalytic converter and exhaust pipe assembly manufacturer. It also
acquired the manufacturing operations of MICHEL, a privately owned, Polish-
based manufacturer of replacement market exhaust systems for passenger cars in
Eastern Europe, including Poland, Hungary, the Czech Republic and Slovakia.
The following table sets forth for each of the years 1995 through 1997
information relating to Tenneco Automotive's sales of exhaust systems:
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
---------------------------
YEAR ENDED DECEMBER 31,
---------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
United States Sales
Aftermarket..................................... 43% 46% 46%
OE Market....................................... 57 54 54
------- ------- -------
100% 100% 100%
======= ======= =======
Foreign Sales
Aftermarket..................................... 36% 38% 42%
OE Market....................................... 64 62 58
------- ------- -------
100% 100% 100%
======= ======= =======
Total Sales by Geographic Area(a)
United States................................... 44% 44% 42%
European Union.................................. 41 43 45
Canada.......................................... 7 6 7
Other areas..................................... 8 7 6
------- ------- -------
100% 100% 100%
======= ======= =======
</TABLE>
- - --------
(a) See Note 12 to the Tenneco Inc. and Consolidated Subsidiaries Financial
Statements for certain information about foreign and domestic operations
and export sales.
5
<PAGE>
RIDE CONTROL PRODUCTS
Tenneco Automotive designs, manufactures and distributes ride control
products primarily under the Monroe(R) brand name. Tenneco Automotive's ride
control products consist of hydraulic shock absorbers, air adjustable shock
absorbers, gas charged shock absorbers and struts, electronically adjustable
suspension systems, vibration control components, bushings, springs and
modular assemblies. Tenneco Automotive manufactures and markets replacement
shock absorbers for virtually all North American, European and Asian makes of
automobiles. In addition, Tenneco Automotive manufactures and markets shock
absorbers and struts for use on passenger cars and trucks, as well as for
other uses such as exercise and other recreational equipment. Tenneco entered
the ride control product line in 1977 with the acquisition of Monroe Auto
Equipment, which was founded in 1916, and introduced the world's first
automotive shock absorber in 1926 (the affiliates of Tenneco that produce ride
control products are collectively referred to herein as "Monroe"). Monroe is
the market leader for ride control equipment in the aftermarket in North
America, Europe and Australia, as well as in the OE market in Australia.
Superior ride control is governed by a vehicle's suspension system,
including its shocks and struts. Shocks and struts are components that help
maintain vertical loads placed on a vehicle's tires to help keep the tires in
contact with the road. A vehicle's ability to steer, brake and accelerate
depends on the contact between the vehicle's tires and the road. Adhesion is
directly influenced by shock absorber and strut performance. Worn shocks and
struts can allow weight to transfer from side to side (roll), from front to
rear (sway) and up and down (bounce). Shocks are designed to maintain vertical
loads placed on tires by providing resistance to vehicle roll, sway and
bounce. Variations in tire to road contact can affect a vehicle's handling and
braking performance and the safe operation of a vehicle; thus, by maintaining
the tire-to-road contact, Monroe's ride control products are designed to
function as safety components of a vehicle in addition to providing a
comfortable ride.
Manufacturing and Engineering
Monroe has ten manufacturing facilities in the United States and 16
manufacturing operations in other jurisdictions. Monroe also has controlling
interests in joint ventures that own manufacturing operations in China, India
and South Africa as described below. See also Item 2, "Properties." In
designing its shock absorbers and struts, Monroe uses advanced engineering and
test capabilities to provide product reliability, endurance and performance.
Monroe's engineering capabilities feature state-of-the-art testing equipment
and advanced computer aided design equipment. Monroe's dedication to
innovative solutions has led to such technological advances as adaptive
dampening systems; manual, hydraulic and electronically adjustable suspensions
and semi-active systems; and air and hydraulic leveling systems. Conventional
shocks and struts were only able to provide either ride comfort or vehicle
control. Monroe's innovative new grooved-tube, gas-charged shocks and struts
provide both ride comfort and vehicle control, resulting in improved handling
(less roll), reduced vibration, a wider range of vehicle control and a
lessening of the reduction in performance as the units become overheated
(fade). This technology can be found in Monroe's premium quality Sensa-Trac(R)
shocks.
Strategic Acquisitions/Joint Ventures
As a means of expanding its product lines and offering OE manufacturers a
more complete modular ride control system, in July 1996, Tenneco Automotive
acquired The Pullman Company and its Clevite products division ("Clevite").
Clevite is a leading OE manufacturer of elastomeric vibration control
components, including bushings and engine mounts, for the auto, light truck
and heavy truck markets. With this acquisition, Tenneco Automotive now has
full capability to deliver complete suspension systems to the OE
manufacturers. The Clevite acquisition also complemented Tenneco Automotive's
interest in global growth opportunities, as both Clevite and Monroe have
manufacturing operations in Mexico and Brazil.
6
<PAGE>
In August 1995, Tenneco Automotive purchased a ride control manufacturing
facility near Prague in the Czech Republic. In September 1996, Tenneco
Automotive acquired full ownership of a shock absorber company in Turkey in
which it previously held a 16.7% ownership interest. In December 1996, Tenneco
Automotive acquired 94% of the voting stock of Fric-Rot S.A.I.C., the leading
producer and marketer of ride control products in Argentina. In 1997, Tenneco
Automotive increased its interest in Fric-Rot to more than 99% through the
purchase of additional shares. In 1996, Tenneco Automotive also expanded its
presence in Australia's ride control product market with the acquisition of
National Springs. And in 1997, Tenneco Automotive entered into a joint venture
which resulted in its acquisition of majority ownership of the leading South
African manufacturer of ride control products. Tenneco Automotive has a 51%
interest in a joint venture that has three ride control manufacturing
facilities in India and has a 51% interest in a joint venture that has one
ride control manufacturing facility in China. It is anticipated that the joint
venture in India will also manufacture exhaust systems.
The following table sets forth information relating to Tenneco Automotive's
sales of ride control equipment:
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
---------------------------
YEAR ENDED DECEMBER 31,
---------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
United States Sales
Aftermarket..................................... 50% 62% 70%
OE Market....................................... 50 38 30
------- ------- -------
100% 100% 100%
======= ======= =======
Foreign Sales
Aftermarket..................................... 56% 59% 66%
OE Market....................................... 44 41 34
------- ------- -------
100% 100% 100%
======= ======= =======
Total Sales by Geographic Area(a)
United States................................... 48% 48% 48%
European Union.................................. 27 34 36
Canada.......................................... 3 3 3
Other areas..................................... 22 15 13
------- ------- -------
100% 100% 100%
======= ======= =======
</TABLE>
- - --------
(a) See Note 12 to Tenneco Inc. and Consolidated Subsidiaries Financial
Statements for certain information about foreign and domestic operations
and export sales.
SALES AND MARKETING
Tenneco Automotive's sales and marketing systems utilize a dedicated sales
force and consumer brand marketing professionals together with extensive
marketing support, including trade and consumer marketing, promotions and
general advertising. Tenneco Automotive maintains a customer order fill rate
exceeding 95%.
Tenneco Automotive sells its OE products directly. With respect to the
aftermarket, Tenneco Automotive employs three primary distribution techniques:
(i) the traditional three-step distribution system: warehouse distributors,
jobbers and installers; (ii) direct sales to retailers; and (iii) sales to
programmed marketing groups.
BUSINESS STRATEGY
Tenneco Automotive's primary goal is to grow and enhance its position as a
global leader in the manufacture of exhaust and ride control systems. Tenneco
Automotive intends to capitalize on certain significant existing and emerging
trends in the automotive industry, including (i) the consolidation and
globalization of the
7
<PAGE>
OE supplier base, (ii) increased outsourcing by OE manufacturers, particularly
of more complex components, assemblies, modules and complete systems to
sophisticated, independent suppliers, and (iii) growth of emerging markets for
both OE and replacement markets. Key components of Tenneco Automotive's
strategy include:
Branding
Tenneco Automotive, whose major strategic strength is the performance of its
leading Monroe(R) and Walker(R) brand names and their market shares, intends
to emphasize product differentiation to give consumers added reasons for
specifying their brands. For example, in 1994, Monroe introduced a premium
grade Sensa-Trac(R) shock and strut which helped it gain its technological
leadership in the ride control market. In 1997, Monroe enhanced its Sensa-
Trac(R) product line through the introduction of its new Safe-Tech(TM) System
technology. This technology incorporates a new piston band and piston and
valving design to improve performance and durability. Rancho(R) ride control
products are the leading ride control brand in the high performance light
truck market. The DynoMax(TM) high performance exhaust system is the leader in
its product category. The Walker Advantage(R) muffler was also the leader in
its product category until it was replaced in 1997 by Walker's new Quiet-
Flow(TM) muffler, a premium exhaust product that features a new, open-flow
design that increases exhaust flow and results in improved sound quality and
significantly less exhaust backpressure when compared to other replacement
mufflers. Tenneco Automotive is also capitalizing on its brand strength by
incorporating newly acquired product lines within existing product families,
as it did with Gillet.
Maintain Focus on Core Business
Tenneco Automotive intends to solidify its core businesses with its primary
customers while increasing market share with customers with whom it has not
fully realized its potential market penetration. These objectives are designed
to enable Tenneco Automotive to respond better to the OE manufacturers'
evolving purchasing requirements, where in addition to manufacturing, the
supplier is required to provide design, engineering and project management
support for a complete package of integrated products.
Continue to Develop Value-Added Products
Tenneco Automotive, a first tier supplier to many customers, intends to
continue to manufacture value-added products and to develop strategic
alliances with other suppliers to OE customers in order to facilitate
development of these products, including the development of highly engineered
or complex assemblies or modular systems. Tenneco Automotive intends to expand
its product lines by continuing to identify and fill new fast-growing niche
markets, by developing new products for existing markets, by acquiring
companies with product portfolios that complement the products currently
supplied by Tenneco Automotive and by establishing strategic alliances with
other suppliers.
Increase Ability to Provide Full-System Capabilities
The automotive parts industry is encountering a consolidation of parts
suppliers as OE manufacturers require suppliers to provide design assistance
and innovation and full-system capabilities rather than just specific parts.
In response to this trend, the Company plans to dedicate more resources
towards strengthening technical capability and design expertise and to pursue
appropriate strategic acquisitions, joint ventures and strategic alliances in
order to increase Tenneco Automotive's ability to deliver such full-system
capabilities. For example, the acquisition of Clevite provided Tenneco
Automotive the ability to deliver more complete suspension systems to OE
manufacturers.
International Expansion
As Tenneco Automotive's OE customers expand their assembly operations
globally and in response to the development of global aftermarkets, Tenneco
Automotive plans to continue its international expansion through internal
growth as well as joint ventures, acquisitions and strategic alliances. For
example, since August 1995,
8
<PAGE>
Tenneco Automotive has made ten international acquisitions and entered into
four international joint ventures. These strategic initiatives have given
Tenneco Automotive an enhanced presence in Argentina, Brazil, China,
Australia, the Czech Republic, Mexico, New Zealand, Poland, South Africa,
Spain, India and Turkey. The recent international acquisitions complement the
November 1994 acquisition of Gillet, Europe's largest supplier of automotive
exhaust equipment for the OE market, which has already been successfully
integrated into Tenneco Automotive. Rather than segment the world, Tenneco
Automotive is integrating its international operations through the
standardization of products and processes, improvements in information
technology and the global coordination of purchasing, costing and quoting
procedures.
Strategic Acquisitions
Strategic acquisitions have also been an important element of Tenneco
Automotive's growth. Through such acquisitions, Tenneco Automotive can expand
its product portfolio, gain access to new customers and achieve leadership
positions within new geographic markets. Where appropriate, Tenneco Automotive
intends to continue to pursue acquisition opportunities in order to achieve
these objectives and enhance profitability.
Operating Cost Leadership
Tenneco Automotive will continue to seek cost reductions as it standardizes
its product and processes throughout its international operations, improves
its information technology, increases efficiency through employee training,
invests in more efficient machinery and enhances the global coordination of
purchasing, costing and quoting procedures.
OTHER
As of January 1, 1998, Tenneco Automotive had approximately 26,000
employees.
The principal raw material utilized by Tenneco Automotive is steel. Tenneco
Automotive believes that an adequate supply of steel can presently be obtained
from a number of different domestic and foreign suppliers.
Tenneco Automotive holds a number of domestic and foreign patents and
trademarks relating to its products and businesses. It manufactures and
distributes its products primarily under the Walker(R) and Monroe(R) brand
names, which are well recognized in the marketplace. The patents, trademarks
and other intellectual property owned by Tenneco Automotive are important in
the manufacturing and distribution of its products.
TENNECO PACKAGING
Tenneco Packaging is among the world's leading and most diversified
packaging companies, manufacturing and selling packaging products for
consumer, institutional and industrial markets. The paperboard business
manufactures corrugated containers, folding cartons, containerboard, and
lumber and building products, has a 20% equity investment in a recycled
paperboard business, and offers value-added products such as enhanced graphics
packaging and displays. Its specialty products business produces disposable
aluminum and plastic food containers; molded fiber and pressed paperboard
products; polyethylene bags; and industrial stretch wrap. The specialty
products business also includes protective packaging and flexible products
such as kraft honeycomb products, foam and bubble packaging and multi-color
flexible film packaging. Tenneco Packaging's consumer products include the
Hefty(R), Baggies(R), Hefty OneZip(R), and E-Z Foil(R) brand names.
Tenneco Packaging is headquartered in Lake Forest, Illinois.
OVERVIEW OF PACKAGING INDUSTRY
The global packaging market is estimated at $400 billion, with nearly one-
third of the market in North America, slightly less in Europe and the balance
spread throughout the rest of the world. Packaging as an
9
<PAGE>
industry remains one of the most fragmented major industries, with the top
five companies comprising only a 10% worldwide market share.
Tenneco Packaging ranks by sales as one of the largest packaging
manufacturers in North America and in the world. Within packaging material
categories, Tenneco Packaging participates in the three growing categories of
paper, plastic and aluminum, with substantial or leading market shares in
virtually all of its product categories. The operations of Tenneco Packaging
face competition from other manufacturers of packaging products, including
manufacturers of alternative products, in each of its geographic and product
markets.
BUSINESS STRATEGY
Tenneco Packaging has embarked upon an aggressive growth plan to be the
leading specialty packaging company offering a broad line of products to
provide customers with the best packaging solutions. Since 1994, Tenneco
Packaging has nearly doubled its size to $4.0 billion in revenues through
acquisitions, internal growth in its base businesses and productivity gains.
As a result of the following business development activities, Tenneco
Packaging has reduced its sensitivity to cyclicality in the paperboard
business:
. Tenneco Packaging's business is now 64% specialty packaging (including
the full year impact of the Amoco Foam Products Company ("Amoco Foam
Products") purchase completed in August 1996, as well as the part-year
results of the protective and flexible packaging businesses of NV
Koninklijke KNP BT acquired in the second quarter of 1997), which
reduces exposure to business cycles. In addition, the November 1995
purchase of Hexacomb Corporation, the world's largest supplier of kraft
paper honeycomb products used for protective packaging, is another
example of Tenneco Packaging's pursuit of non-cyclical growth
opportunities.
. On the paperboard side, nine acquisitions in specialty corrugated
graphics products and services have reduced its sensitivity to raw
material prices and offer greater opportunities to add value.
Currently, nearly 27% of Tenneco Packaging's paperboard business is in
higher margin, enhanced graphics including folding cartons, point-of-
purchase displays and point-of-sale packaging.
In the future, Tenneco Packaging intends to continue to pursue value-added
growth opportunities which reduce sensitivity to economic cyclicality,
maintain market leadership positions in its primary businesses and actively
market its new product development expertise.
As with other manufacturing companies whose results of operations are
subject to general economic and market conditions and other factors, Tenneco
Packaging's business results may be adversely impacted by raw material cost
fluctuations, changes in consumer preferences and other matters. See
"Cautionary Statement for Purposes of "Safe Harbor' Provisions of the Private
Securities Litigation Reform Act of 1995." Tenneco Packaging believes it has
positioned itself to deal strategically with these economic and market
challenges through its:
. Multi-material focus, broad product line and concentration of growth in
packaging that offers customers greater functionality and value;
. Fiber flexibility, which enables Tenneco Packaging's paperboard
business to manage its mix of virgin and recycled fiber sources to take
advantage of changing market conditions;
. Raw material purchasing leverage in both fiber and plastic resin;
. Technology and new product development expertise, offering innovative
packaging design and materials applications; and
. Global expansion strategy of growing its international business through
value-added acquisitions, joint ventures, and multi-national customer
partnerships.
Tenneco Packaging believes that factors key to its success include a focused
strategic direction, operating cost leadership, management expertise, a
committed and skilled workforce and a systems infrastructure designed
10
<PAGE>
to meet stringent customer quality requirements and service needs. Tenneco
Packaging had spent approximately $72 million through December 31, 1997, and
plans to spend an additional $74 million by the end of 1998, to provide state-
of-the-art customer linked manufacturing systems, shop floor scheduling and
real-time data for marketing and production management.
ANALYSIS OF TENNECO PACKAGING'S REVENUES
Tenneco Packaging is an industry leader in the manufacture and sale of
packaging products, offering a wide range of fiber- and plastic-based
materials and packaging for institutional and industrial applications, as well
as aluminum and plastic-based specialty packaging for consumer, retail, food
service and food processing applications.
The following tables set forth information relating to the net sales of
Tenneco Packaging's primary businesses, in dollars and by percentages:
<TABLE>
<CAPTION>
NET SALES (MILLIONS)
-----------------------
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
PAPERBOARD BUSINESS
Corrugated shipping containers and containerboard
products............................................ $ 1,257 $ 1,354 $ 1,582
Folding cartons and recycled paperboard mill
products............................................ 104 149 204
Paper stock and other................................ 84 119 135
------- ------- -------
1,445 1,622 1,921
------- ------- -------
SPECIALTY BUSINESS
Disposable plastic and aluminum packaging products... 1,935 1,669 593
Molded fiber products................................ 170 193 191
Plastic and fiber protective packaging products...... 399 78 7
Other................................................ 46 40 40
------- ------- -------
2,550 1,980 831
------- ------- -------
Total Tenneco Packaging............................ $ 3,995 $ 3,602 $ 2,752
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
---------------------------
YEAR ENDED DECEMBER 31,
---------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
PAPERBOARD BUSINESS
Corrugated shipping containers and containerboard
products......................................... 31% 38% 58%
Folding cartons and recycled paperboard mill
products......................................... 3 4 7
Paper stock and other............................. 2 3 5
------- ------- -------
36 45 70
------- ------- -------
SPECIALTY BUSINESS
Disposable plastic and aluminum packaging
products......................................... 49 47 22
Molded fiber products............................. 4 5 7
Plastic and fiber protective packaging products... 10 2 --
Other............................................. 1 1 1
------- ------- -------
64 55 30
------- ------- -------
Total Tenneco Packaging......................... 100% 100% 100%
======= ======= =======
SALES BY GEOGRAPHIC AREA(A)
United States..................................... 86% 91% 91%
European Union.................................... 10 5 5
Canada............................................ 2 2 1
Other areas....................................... 2 2 3
------- ------- -------
100% 100% 100%
======= ======= =======
</TABLE>
- - --------
(a) See Note 12 to Tenneco Inc. and Consolidated Subsidiaries Financial
Statements for certain information about foreign and domestic operations
and export sales.
11
<PAGE>
PAPERBOARD BUSINESS
The paperboard business manufactures and sells corrugated containers,
folding cartons, containerboard, and lumber and building products, and has a
20% equity investment in a recycled paperboard business. A portion of the
container and folding carton business includes value-added products such as
enhanced graphics packaging and displays. The paperboard business produces
over two million tons of containerboard annually that is converted by its
corrugated container plants and sold to both domestic and export customers.
Tenneco Packaging's container plants consume over 80% of its mills'
containerboard production, which is either shipped directly to the plants or
traded for containerboard produced by the mills of other companies. Such
trades provide the various grades and widths of containerboard needed by the
container plants and help reduce freight costs through shipments of
containerboard to plants closest to each mill. The balance of Tenneco
Packaging's containerboard production is exported or sold to other domestic
converters and users. The paperboard business also produces high quality,
innovative folding carton products utilizing the latest in printing and
cutting technology for the sheet-fed offset and narrow-web flexo processes.
Finally, Tenneco Packaging participates in the wood products business and has
access to approximately one million acres of timberland in the United States
through both owned and leased properties.
Sales and Marketing and New Product Development
Tenneco Packaging's paperboard business maintains a direct sales and
marketing organization of over 400 sales personnel serving both local and
national accounts. The sales organization consists primarily of sales
representatives and a sales manager at each facility serving local and
regional accounts, while corporate account managers are positioned to
correspond to customer locations. Division marketing support is maintained at
Packaging's corporate headquarters.
Tenneco Packaging's paperboard business has established a nationwide network
of new product development and creative packaging design centers to develop
and manufacture product packaging and product display solutions to meet more
sophisticated, complex customer needs. This network includes eight regional
design centers, 10 primary and mid-range graphics facilities and approximately
70 sales personnel, new product development engineers, and product graphics
and design specialists. These centers offer state-of-the-art computers and
equipment for 24-hour design turnaround and reduced product delivery times.
Manufacturing and Engineering
Tenneco Packaging has two kraft linerboard mills and two medium mills,
located in Tennessee, Georgia, Michigan and Wisconsin, respectively, which in
1997 collectively accounted for 6% of the industry's annual U.S. production,
or 2.1 million tons. Over the last three years, Tenneco Packaging has invested
$77 million at the Counce, Tennessee mill, which added 50,000 tons annually of
capacity and enabled the mill to meet a growing demand for lighter weight
board. Each of the mills has a strong focus on quality and is ISO 9002
certified. Tenneco Packaging's two paperstock recycling facilities provide
some of the Counce, Tennessee mill's recycled fiber requirements.
Domestically, Tenneco Packaging's corrugated container network includes 68
geographically dispersed plants in 26 states. Based on 1997 revenue, these
plants manufacture approximately 6% of the industry's total annual U.S.
corrugated shipments, making Tenneco Packaging one of the top six integrated
producers. Tenneco Packaging also operates five folding carton plants in
western and midwestern states.
As of January 1, 1998, Tenneco Packaging owned, leased, managed or had
cutting rights on approximately one million acres of timberland in Alabama,
Florida, Georgia, Mississippi, Tennessee, and Wisconsin. In 1997, 1996 and
1995, approximately 44%, 32% and 30%, respectively, of the virgin fiber used
by Tenneco Packaging in its mill operations was obtained from timberlands
owned or utilized by Tenneco Packaging. The balance of virgin fiber was
purchased from numerous open market wood sellers.
12
<PAGE>
To maximize the value of the timber harvested or purchased, Tenneco
Packaging operates a wood drying facility and three wood products operations
which produce hardwood and pine lumber. Tenneco Packaging is also a party to a
joint venture in a chip mill.
Tenneco Packaging's paperboard business operates a manufacturing and
technical support center located in Skokie, Illinois which provides
engineering, manufacturing and technical support to its corrugated operations.
In addition, Tenneco Packaging has design capability throughout its
manufacturing organization which includes over 100 structural, graphic and
package engineering specialists for its corrugated and folding carton
converting operations.
Strategic Acquisitions/Joint Ventures
As part of Tenneco Packaging's value-added growth strategy, seven
acquisitions were made during 1995 in the paperboard business. Tenneco
Packaging expanded its graphics and printing capabilities to that of a full
service supplier of point-of-purchase displays and point-of-sale packaging by
acquiring four facilities with expertise in high impact graphics and design.
The addition of Lux Packaging, in Waco, Texas; the United Group in Los
Angeles, California; Menasha Corporation's South Brunswick, New Jersey plant;
and DeLine Box in Windsor, Colorado have broadened Tenneco Packaging's
offering of products and services to include permanent point-of-purchase
displays, rotogravure preprint, litho-lamination and advanced graphics design.
In 1995, Tenneco Packaging also added to its network of specialty sheet plants
by acquiring Mid-Michigan Container in Michigan; Sun King Container in El
Paso, Texas; and Domtar Packaging's Watertown, New York facility.
In June 1996, Tenneco Packaging and Caraustar entered into a joint venture
pursuant to which Tenneco Packaging contributed its two recycled paperboard
mills (Rittman, Ohio and Tama, Iowa) and a recovered paper stock and brokerage
operation for cash and a 20% equity position in the business. The mills will
continue to supply recycled paperboard to Tenneco Packaging's five folding
carton plants.
In 1997, Tenneco Packaging acquired an additional specialty sheet plant,
CorriAcres Design & Packaging in Allentown, Pennsylvania, and a set-up box
plant from Eastman Kodak in Rochester, New York.
SPECIALTY BUSINESS
Tenneco Packaging's specialty business provides packaging solutions that
provide convenience to consumers and institutions, protect products during
transportation and storage, and enhance product display at point of
purchase.The business produces foam and clear plastic packaging products for
the food service industry, polyethylene bags, industrial stretch film, plastic
protective and flexible packaging, paperboard honeycomb products, molded
fiber, pressed paperboard and aluminium containers, industrial aluminum,
plastic building products, and disposable cookware, dinnerware and storage and
waste bags. The specialty plants convert paper, aluminum, polystyrene,
polyolefins (such as polyethylene and polypropylene) and PVC polymers into
value-added clear, foamed, flexible or rigid products.
Tenneco Packaging's lightweight, rigid plastic packaging for in-store deli,
produce, bakery and catering applications maintain quality and enhance
presentation. Consumer products such as plastic food storage and trash bags,
foam and molded fiber dinnerware, disposable aluminum baking pans and related
products are sold through a variety of retail outlets. Consumer products are
sold under such recognized brand names as Hefty(R), Baggies(R), Hefty
OneZip(R) and E-Z Foil(R). Tenneco Packaging also manufactures molded fiber
for produce and egg packaging, food service items and institutional tableware.
Tenneco Packaging also manufactures protective and flexible packaging that
serves multiple industries including food, medical, electronics, furniture,
durable goods, building and construction. Products such as air cushion plastic
packaging and very light weight polyethylene and polypropylene foam sheets are
used for cushioning and surface protection. Paperboard honeycomb and foamed
plank products protect against shock, vibration and thermal damage and also
have structural and mechanical cooling applications. Other converted
13
<PAGE>
protective packaging products include padded mailers and a variety of
laminated protective coverings. Flexible products include value added printed
barrier films for the protection, storage and display of food products, as
well as polypropylene medical bags used for sterile intravenous fluid
delivery.
Sales and Marketing
The disposable plastic and aluminum products, stretch film, and molded fiber
and pressed paperboard products of the specialty business are marketed to five
primary market categories: food service, supermarkets, institutional, packer
processor and industrial users. The specialty business serves these markets
through a sales and marketing organization of approximately 350 sales
personnel. The sales organization is specialized by market category and its
teams work in alliance with strategic customers to build sales. Approximately
85% of these specialty business products are sold to distributors, while the
remainder are sold directly to retailers.
Plastic protective and flexible packaging products are marketed throughout
North America and Europe. Approximately 60% of the products are sold through a
well-developed network of packaging distributors and fabricators, and the
remaining 40% are sold directly to end users. Approximately 80% of paperboard
honeycomb products are designed and sold by a sales and marketing organization
of approximately 45 employees directly to end-use customers; the remaining 20%
are sold to fabricators for further processing.
Tenneco Packaging markets consumer products primarily through three classes
of retailers or channels of trade: (i) grocery (supermarkets and convenience
stores); (ii) non-food (mass merchandisers, drug stores, hardware stores, home
centers); and (iii) warehouse clubs. Tenneco Packaging's approximately 100
consumer products' internal sales management personnel are augmented by a
national network of grocery brokers and manufacturing representatives to
provide headquarter and in-store sales coverage for the grocery channel.
Tenneco Packaging's consumer products personnel cover warehouse clubs and
selected non-food retailers on a direct basis.
Manufacturing and Engineering
In North America, Tenneco Packaging operates 58 specialty business
facilities in 18 states and Canada. Plastic disposable food service and
consumer products, stretch films and building products are manufactured at 21
plants. Aluminum rolls are converted at five locations, including two
locations shared with polystyrene production. A sixth aluminum facility
packages disposable containers for sale to the consumer. The protective
packaging operations convert paperboard into honeycomb products at 12 plants,
and 12 other plants apply extrusion, foaming and converting technologies to
produce clear, foamed, flexible or rigid plastic protective packaging from
polystyrene, polyolefins (such as polyethylene and polypropylene), PVC
polymers, and kraft papers. Molded fiber packaging is produced in six
locations; a seventh location manufactures tooling for the molded fiber
plants. Finally, pressed paperboard products are manufactured at one facility
in Columbus, Ohio. Research and development centers for packaging and process
development are currently located in Macedon, New York and Northbrook,
Illinois and will be consolidated in a new facility in Canandaigua, New York
in 1998.
Tenneco Packaging currently operates or has an ownership interest in 29
international manufacturing operations. Eight protective packaging plants in
Belgium, England, France, Germany, Italy, The Netherlands and Poland make
plastic air cushion and foam sheet products, including mailers. Five flexible
products plants in Egypt and Germany make high quality flexible films, bags,
labels and pouches, printed and converted paper bags, and disposable medical
packaging. Omni-Pac is Europe's leading manufacturer of molded fiber packaging
with facilities in Elsfleth, Germany and Great Yarmouth, England. Tenneco
Packaging's Alupak operation in Belp, Switzerland is a major producer of
smoothwall aluminum portion packs. In plastics, Tenneco Packaging has the
leading share of single-use thermoformed plastic food containers in the United
Kingdom, with five manufacturing facilities in England, Scotland and Wales.
Tenneco Packaging also operates a folding carton plant in Budapest, Hungary
and has built a wood products operation in Romania. It participates in several
international joint
14
<PAGE>
ventures, including folding carton plants in Donngguan, China and Bucharest,
Romania, paperboard honeycomb products operations in Israel and Japan, and a
corrugated converting facility in Shaoxing, China.
Strategic Acquisitions/Joint Ventures
Tenneco Packaging acquired Mobil Plastics in late 1995, which more than
doubled the size of its specialty business and added new technologies and
product development capabilities. The acquisition provided strong consumer
branded products such as Hefty(R) trash bags and tableware, Baggies(R) food
bags, and Hefty OneZip(R) food storage bags. The plastics division acquired
from Mobil also manufactures clear and foam polystyrene food service
containers; plates and meat trays; and polyethylene film products, including
can liners, produce and retail bags, and industrial disposable packaging.
Tenneco Packaging also increased its protective packaging capabilities through
the purchase of Hexacomb Corporation, the world's largest supplier of
paperboard honeycomb products used for protective packaging, materials
handling, and specialized structural applications. In Europe, Tenneco
Packaging purchased Penlea and Delyn, two plastic thermoforming operations in
the United Kingdom.
In August 1996, Tenneco Packaging purchased Amoco Foam Products which
manufactures foam polystyrene tableware including cups, plates, carrying
trays; hinged-lid food containers; packaging trays, primarily for meat and
poultry; and industrial products for residential and commercial construction
applications. In addition, during 1996 Tenneco Packaging entered into two
honeycomb joint ventures.
In April 1997, Tenneco acquired the protective and flexible packaging
businesses of NV Koninklijke KNP BT. The acquisition consisted of a protective
packaging business with operations in Europe and North America and a European
flexible packaging business. The combined operations accounted for $542
million in 1996 sales and employ approximately 3,000 worldwide. The protective
packaging honeycomb business grew in 1997 with the acquisition of two plants
in Tillsonburg, Ontario, and Columbia, South Carolina, and two new joint
ventures in Israel. In Romania, Tenneco Packaging is negotiating for rights to
harvest timber and has built a wood processing plant for value-added furniture
components, to be supported by a full sawmill operation.
OTHER
As of January 1, 1998, Tenneco Packaging had approximately 23,000 employees.
Tenneco Packaging holds a number of domestic and foreign patents and
trademarks relating to its products and businesses. The patents, trademarks
and other intellectual property owned by Tenneco Packaging are important in
the manufacturing, marketing and distribution of its products.
The principal raw materials used by Tenneco Packaging in its manufacturing
operations are virgin pulp, recycled fiber, plastic resin and aluminum roll
stock. Tenneco Packaging obtains its virgin pulp from timberland owned or
controlled by it as well as from outside purchases. Recycled fiber is supplied
from both outside contractual sources as well as internally from its two
recycling centers and its own containerboard clippings and trim. Tenneco
Packaging obtains plastic resin and aluminum roll stock from various
suppliers.
15
<PAGE>
TENNECO BUSINESS SERVICES
Tenneco Business Services ("TBS") designs, implements and administers shared
administrative service programs for Tenneco's businesses as well as on an "as
requested" basis for former Tenneco business entities and affiliates.
Primary service areas of TBS include (i) Financial Accounting Services,
including asset management, general accounting, purchasing and payables,
travel and entertainment, and systems support; (ii) Employee Benefits
Administration for all major salaried and hourly benefit plans; (iii) Human
Resources and Payroll Services, including payroll processing, relocation
services, government compliance services and expatriate relocation and
repatriation services; and (iv) Technology Services, including main frame
computing services and telecommunication services.
TBS has to date only serviced other Tenneco businesses and, on an as
requested basis, former Tenneco businesses and affiliates such as Newport
News. However, TBS continues to evaluate the possibility of providing similar
services to outside businesses.
In connection with its operations, TBS holds numerous software licenses,
owns and operates computer equipment and has agreements with numerous vendors
for supplies and services.
As of January 1, 1998, TBS had approximately 335 employees.
Although to date TBS has provided its administrative programs exclusively to
current and former Tenneco businesses, should TBS attempt to provide similar
services to outside businesses it will face intense competition from other
providers of administrative services, many of whom are larger and have more
experience providing administrative services in a competitive environment.
TBS is headquartered in The Woodlands, Texas.
ENVIRONMENTAL MATTERS
The Company estimates that its subsidiaries will make capital expenditures
for environmental matters of approximately $25 million in 1998 and that
capital expenditures for environmental matters will be approximately $105
million in the aggregate for the years 1998 through 2008.
For information regarding environmental matters, see Item 3, "Legal
Proceedings," Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and Note 13 to the Financial Statements
of the Tenneco Inc. and Consolidated Subsidiaries.
16
<PAGE>
CERTAIN REORGANIZATION AGREEMENTS
In connection with the Distributions, described on page 1 of this Annual
Report, Tenneco, Old Tenneco and Newport News entered into certain agreements,
described below, governing their relationship following the Distributions and
providing for the allocation of tax and certain other liabilities and
obligations arising from periods prior to the Distributions.
Tenneco, Old Tenneco and Newport News entered into a Distribution Agreement,
dated November 1, 1996, pursuant to which the Distributions and certain
corporate transactions required to effect the Distributions were accomplished.
The Distribution Agreement provides for, among other things, the assumption of
liabilities and cross indemnities designed to allocate generally, effective as
of the date of the Distributions, financial responsibility for the liabilities
of Old Tenneco arising out of or in connection with (i) Tenneco Automotive,
Tenneco Packaging and TBS to the Company, (ii) Old Tenneco's shipbuilding
businesses to Newport News and its subsidiaries, and (iii) Old Tenneco's
remaining active businesses (consisting primarily of the transportation and
marketing of natural gas) and certain discontinued operations to Old Tenneco
and its subsidiaries.
In addition, as contemplated by the Distribution Agreement, the Company
entered into certain ancillary agreements (collectively, the "Ancillary
Agreements") with Old Tenneco and/or Newport News prior to the consummation of
the Distributions which further effectuated the restructuring of Old Tenneco
and govern various aspects of the post-Distributions relationship among the
parties.
The Ancillary Agreements include: (i) the Benefits Agreement, which provides
for allocations of responsibilities among the Company, Old Tenneco and Newport
News with respect to employee compensation, benefit and labor matters; (ii)
the Tax Sharing Agreement, pursuant to which the Company, Old Tenneco and
Newport News will allocate liabilities for taxes arising prior to, as a result
of, and subsequent to the Distributions; (iii) the Debt and Cash Allocation
Agreement which provided for, among other things, the allocation of cash
among, and the restructuring and refinancing of certain of the debt of Tenneco
existing prior to the Distributions by (or with the funds provided by) the
Company, Old Tenneco and Newport News; (iv) the TBS Services Agreement
pursuant to which TBS will continue to provide certain administrative and
other services to Newport News until December 31, 1998; (v) Trademark
Transition License Agreements allowing Old Tenneco and Newport News to use
certain of the trademarks and tradenames of Tenneco for certain specified
periods of time for certain purposes; and (vi) the Insurance Agreement, which
provides for the continuing rights and obligations of the Company, Old Tenneco
and Newport News with respect to various pre-Distributions insurance programs.
With respect to certain obligations under the Benefits Agreement, see Item 3,
"Legal Proceedings--Other Proceedings" and Note 13 to the Financial Statements
of Tenneco Inc. and Consolidated Subsidiaries.
ITEM 2. PROPERTIES.
Corporate Headquarters
The Company's executive offices are located at 1275 King Street, Greenwich,
Connecticut 06831, and its telephone number at that address is (203) 863-1000.
Tenneco Automotive
In the United States, Walker operates ten manufacturing facilities and two
engineering and technical facilities. In addition, Walker operates 28
manufacturing facilities located in Argentina, Australia, Brazil, Canada,
China, the Czech Republic, Denmark, France, Germany, Mexico, Poland, Portugal,
South Africa, Spain, Sweden, and the United Kingdom. Walker also has
engineering and technical centers in Australia and Germany which are located
at manufacturing facilities.
In the United States, Monroe has ten manufacturing facilities and three
engineering and technical facilities, one of which is located at a
manufacturing facility. In addition, Monroe has 16 manufacturing operations in
Argentina, Australia, Belgium, Brazil, Canada, China, the Czech Republic,
India, Mexico, New Zealand, Spain,
17
<PAGE>
Turkey and the United Kingdom. Monroe also has engineering and technical
facilities in Australia and Belgium which are located at manufacturing
facilities. Tenneco Automotive has a sales office in Japan.
Of the 69 properties described above, 55 are owned and 14 are leased. Five
of the properties are held through joint ventures. Tenneco Automotive also has
distribution facilities at its manufacturing sites and at a few offsite
locations, substantially all of which are leased.
Tenneco Packaging
In North America, Tenneco Packaging operates a total of 143 manufacturing
facilities, of which 88 are owned, 54 are leased, and one is held by a joint
venture. The paperboard business group has 68 corrugated products plants, one
machine rebuild facility, five folding carton plants and nine containerboard
machines at four mills. Two of the mills (located in Georgia and Wisconsin),
including substantially all of the equipment associated with both mills, are
held under lease. Additionally, the paperboard business group operates four
wood products facilities and participates in a joint venture chip mill. Two
recycled paperstock facilities provide raw materials for the mills. Tenneco
Packaging also has a minority equity position in two recycled paperboard mills
and one recycling center. The 58 North American manufacturing facilities of
the specialty business include seven molded fiber products plants and a molded
fiber tooling fabrication facility, 12 paperboard honeycomb products plants,
one pressed paperboard plant, and 37 plants that manufacture disposable
plastic and aluminum packaging products, protective packaging, and other
plastic and aluminum products.
Internationally, Tenneco Packaging operates 23 manufacturing facilities in
Belgium, Egypt, France, Germany, Hungary, Italy, The Netherlands, Poland,
Romania, Spain, Switzerland, and the United Kingdom, of which 20 are owned and
three are leased. In addition, Tenneco Packaging participates in six joint
venture operations in China, Israel, Japan and Romania. The international
operations include three folding carton operations, four paperboard honeycomb
products operations, one corrugated container plant, a wood products
operation, 17 plants for the manufacture of protective, flexible, or
thermoformed plastics products and specialty films, one aluminum portion pack
operation, and two molded fiber products plants.
TBS
TBS operates out of its headquarters in The Woodlands, Texas, as well as
offices in Newport News, Virginia and Houston, Texas. The properties utilized
by TBS are leased.
General
Tenneco believes that substantially all of its plants and equipment are, in
general, well maintained and in good operating condition. They are considered
adequate for present needs and as supplemented by planned construction are
expected to remain adequate for the near future.
Tenneco also believes that its subsidiaries have generally satisfactory
title to the properties owned and used in their respective businesses, subject
to liens for current taxes and easements, restrictions and other liens which
do not materially detract from the value of such property or the interests
therein or the use of such properties in their businesses.
ITEM 3. LEGAL PROCEEDINGS.
(1) Potential Superfund Liability.
At February 18, 1998, the Company had been designated as a potentially
responsible party in 4 "Superfund" sites. The Company has estimated its share
of the remediation costs for these sites to be approximately $5 million in the
aggregate and has established reserves that it believes are adequate for such
costs. Because the clean-up costs are estimates and are subject to revision as
more information becomes available
18
<PAGE>
about the extent of remediation required, the Company's estimate of its
remediation costs could change. Moreover, liability under the Comprehensive
Environmental Response, Compensation and Liability Act is joint and several,
meaning that the Company could be required to pay in excess of its share of
remediation costs. The Company's understanding of the financial strength of
other potentially responsible parties has been considered, where appropriate,
in the Company's determination of its estimated liability. The Company
believes that the costs associated with its current status as a potentially
responsible party in the Superfund sites referenced above will not be material
to its consolidated financial position or results of operations.
For additional information concerning environmental matters, see Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," Item 1. "Business and Properties" and the caption "Environmental
Matters" under Note 13, to the Financial Statements of Tenneco Inc. and
Consolidated Subsidiaries.
(2) Other Proceedings.
The Company and Newport News have received letters from the Defense Contract
Audit Agency (the "DCAA"), inquiring about certain aspects of the
Distributions, including the disposition of the Tenneco Inc. Retirement Plan
(the "TRP") and the 1986 asset valuation for the TRP and its cost accounting
treatment. The DCAA has been advised that (i) the TRP will retain the
liability for all benefits accrued by the Newport News salaried employees
through December 31, 1996, (ii) the Newport News salaried employees will not
accrue additional benefits under the TRP after December 31, 1996, and (iii) no
liabilities or assets of the TRP will be transferred from the TRP to any plan
maintained by Newport News. A determination of the ratio of assets to
liabilities of the TRP attributable to Newport News will be based on facts,
assumptions and legal issues that are complicated and uncertain; however, it
is likely that the U.S. Government will assert a claim against Newport News
with respect to the amount, if any, by which the assets of the TRP
attributable to its employees are alleged to exceed the liabilities. The
Company, with the full cooperation of Newport News, will defend against any
claim by the U.S. Government, and in the event there is a determination that
an amount is due to the U.S. Government, the Company and Newport News will
share the obligation for such amount plus the amount of related defense
expenses, in the ratio of 80% and 20%, respectively. At this preliminary
stage, it is impossible to predict with certainty any eventual outcome
regarding this matter; however, the Company does not believe that this matter
will have a material adverse effect on its consolidated financial position or
results of operations.
The Company and its subsidiaries are parties to numerous other legal
proceedings arising from their operations. The Company believes that the
outcome of these other proceedings, individually and in the aggregate, will
not have a material adverse effect on the Company's consolidated financial
position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of 1997.
19
<PAGE>
ITEM 4.1. EXECUTIVE OFFICERS OF THE REGISTRANT.
Set forth below is a list of the executive officers of Tenneco Inc. at March
1, 1998. Each of such executive officers has served in the capacities
indicated below with Tenneco Inc. (or, for periods prior to the Distributions,
with Old Tenneco) since the dates indicated below:
<TABLE>
<CAPTION>
NAME (AND AGE AT DECEMBER 31, 1997) OFFICES HELD* EFFECTIVE DATE OF TERM
----------------------------------- ------------- ----------------------
<S> <C> <C>
Dana G. Mead (61)..... Chairman May 1994
Chief Executive Officer February 1994
Director April 1992
Chairman of the Executive Committee February 1994
Member of the Executive Committee May 1992
Paul T. Stecko (53)... Chief Operating Officer January 1997
Theodore R. Tetzlaff
(53)................. General Counsel July 1992
Stacy S. Dick (41).... Executive Vice President January 1996
Robert T. Blakely
(56)................. Executive Vice President May 1996
Chief Financial Officer July 1981
John J. Castellani
(46)................. Executive Vice President January 1997
Barry R. Schuman (56). Senior Vice President--Human Resources March 1993
Karl A. Stewart (54).. Vice President May 1991
Secretary May 1986
</TABLE>
- - --------
* Unless otherwise indicated, all offices held are with Tenneco Inc. (or, for
periods prior to (i) the Distributions, Old Tenneco, and (ii) December
1987, the Company which at the time was known as Tenneco Inc.).
Each of the executive officers of Tenneco has been continuously engaged in
the business of Tenneco, its subsidiaries, affiliates or predecessor companies
during the past five years in the positions indicated except that: (i) Dana G.
Mead has served as an executive officer of Tenneco since March 1992, when he
joined Tenneco as Chief Operating Officer and was elected President one month
later; (ii) since 1993 Paul T. Stecko has also been serving as the President
and Chief Executive Officer of Tenneco Packaging; from 1977 to 1993, he was
employed by International Paper Co., last serving as Vice President and
General Manager of Publications Papers, Bristols and Converting Papers; (iii)
Theodore R. Tetzlaff has been a partner in the law firm of Jenner & Block,
Chicago, for more than five years; (iv) from August 1992 to January 1996,
Stacy S. Dick served as Senior Vice President--Strategy of Tenneco; and (v)
from August 1992 to March 1995 John J. Castellani served as Vice President--
Government Relations of Tenneco and from March 1995 to January 1997 he served
as Senior Vice President--Government Relations of Tenneco. For purposes of the
preceding sentence, "Tenneco" refers to Old Tenneco for periods prior to the
Distributions and to Tenneco Inc. for periods after the Distributions.
Tenneco Inc.'s Board of Directors is divided into three classes of directors
serving staggered three-year terms, with a minimum of eight directors and a
maximum of sixteen directors. At each annual meeting of stockholders,
successors to the directors whose terms expire at such meeting are elected.
Officers are elected at the annual meeting of directors held immediately
following the annual meeting of stockholders.
20
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The outstanding shares of Common Stock, par value $.01 per share, of Tenneco
Inc. (the "Common Stock") are listed on the New York, Chicago, Pacific and
London Stock Exchanges.
The Common Stock began "regular way" trading on the New York Stock Exchange
on December 12, 1996 (the business day immediately following the
Distributions). See "Business--Tenneco Inc." The following table sets forth
the high and low sales prices of Common Stock on the New York Stock Exchange
Composite Transactions Tape, and the dividends paid per share of Common Stock:
(i) for the Company after the Distributions and Merger and (ii) for Old
Tenneco prior to the Distributions and Merger.
<TABLE>
<CAPTION>
SALE
PRICES
---------- DIVIDENDS
QUARTER HIGH LOW PAID
------- ------ --- ---------
<S> <C> <C> <C>
1997
1st 46 38 .30
2nd 46 3/4 38 .30
3rd 50 3/4 43 11/16 .30
4th 52 1/8 37 5/16 .30
1996
1st 57 7/8 47 5/8 .45
2nd 57 5/8 49 5/8 .45
3rd 51 7/8 45 5/8 .45
4th (thru 12/11) 52 5/8 46 1/2 .45
4th (after
12/11) 47 1/2 43 3/8 --
</TABLE>
As of January 31, 1998, there were approximately 88,044 holders of record,
including brokers and other nominees.
The declaration of dividends on Tenneco capital stock is at the discretion
of its Board of Directors. The Board has not adopted a dividend policy as
such; subject to legal and contractual restrictions, its decisions regarding
dividends are based on all considerations that in its business judgment are
relevant at the time, including past and projected earnings, cash flows,
economic, business and securities market conditions and anticipated
developments concerning Tenneco's business and operations. For additional
information concerning the payment of dividends by Tenneco, see Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Under applicable corporate law, dividends may be paid by Tenneco out of
"surplus" (as defined under the law) or, if there is not a surplus, out of net
profits for the year in which the dividends are declared or the preceding
fiscal year. At December 31, 1997, Tenneco had surplus of approximately $2.8
billion for the payment of dividends, and Tenneco will also be able to pay
dividends out of any net profits for the current and prior fiscal year.
21
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
YEARS ENDED DECEMBER 31,
(MILLIONS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997(A) 1996(A) 1995(A) 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME
DATA(B):
Net sales and operating
revenues from
continuing
operations--
Automotive............ $ 3,226 $ 2,980 $ 2,479 $ 1,989 $ 1,785
Packaging............. 3,995 3,602 2,752 2,184 2,042
Intergroup sales and
other................ (1) (10) (10) (7) (7)
----------- ----------- ----------- ----------- -----------
Total................ $ 7,220 $ 6,572 $ 5,221 $ 4,166 $ 3,820
=========== =========== =========== =========== ===========
Income from continuing
operations before
interest expense,
income taxes, and
minority interest--
Automotive............ $ 407 $ 249 $ 240 $ 223 $ 222
Packaging............. 371 401 430 209 139
Other................. (14) (22) 2 24 20
----------- ----------- ----------- ----------- -----------
Total................ 764 628 672 456 381
Interest expense (net
of interest
capitalized)(g)....... 216 195 160 104 101
Income tax expense..... 163 194 231 114 115
Minority interest...... 24 21 23 -- --
----------- ----------- ----------- ----------- -----------
Income from continuing
operations............ 361 218 258 238 165
Income from
discontinued
operations, net of
income tax(c)......... -- 428 477 214 286
Extraordinary loss, net
of income tax(d)...... -- (236) -- (5) (25)
Cumulative effect of
changes in accounting
principles, net of
income tax(e)......... (46) -- -- (39) --
----------- ----------- ----------- ----------- -----------
Net income............. 315 410 735 408 426
Preferred stock
dividends............. -- 12 12 60 64
----------- ----------- ----------- ----------- -----------
Net income to common
stock................. $ 315 $ 398 $ 723 $ 348 $ 362
=========== =========== =========== =========== ===========
Average number of
shares of common stock
outstanding(f)--
Basic................. 170,264,731 169,609,373 172,764,198 162,307,189 149,392,887
Diluted............... 170,801,636 170,526,112 173,511,654 162,912,425 150,061,478
Earnings per average
share of common
stock(f)--
Basic:
Continuing
operations.......... $ 2.12 $ 1.29 $ 1.49 $ 1.17 $ .76
Discontinued
operations(c)....... -- 2.45 2.70 1.25 1.82
Extraordinary
loss(d)............. -- (1.39) -- (.03) (.16)
Cumulative effect of
changes in
accounting
principles(e)....... (.27) -- -- (.24) --
----------- ----------- ----------- ----------- -----------
$ 1.85 $ 2.35 $ 4.19 $ 2.15 $ 2.42
=========== =========== =========== =========== ===========
Diluted:
Continuing
operations.......... $ 2.11 $ 1.28 $ 1.48 $ 1.17 $ .76
Discontinued
operations(c)....... -- 2.44 2.69 1.24 1.81
Extraordinary
loss(d)............. -- (1.38) -- (.03) (.16)
Cumulative effect of
changes in
accounting
principles(e)....... (.27) -- -- (.24) --
----------- ----------- ----------- ----------- -----------
$ 1.84 $ 2.34 $ 4.17 $ 2.14 $ 2.41
=========== =========== =========== =========== ===========
Cash dividends per
common share.......... $ 1.20 $ 1.80 $ 1.60 $ 1.60 $ 1.60
BALANCE SHEET DATA(B):
Net assets of
discontinued
operations............ $ -- $ -- $ 1,045 $ 1,858 $ 1,878
Total assets........... 8,332 7,587 7,413 5,853 5,097
Short-term debt(g)..... 278 236 384 108 94
Long-term debt(g)...... 2,633 2,067 1,648 1,039 1,178
Minority interest...... 424 304 301 301 1
Shareowners' equity.... 2,528 2,646 3,148 2,900 2,601
STATEMENT OF CASH FLOWS
DATA(B):
Net cash provided
(used) by operating
activities............ $ 519 $ 253 $ 1,443 $ 450 $ 1,615
Net cash provided
(used) by investing
activities............ (897) (693) (1,146) (117) (338)
Net cash provided
(used) by financing
activities............ 354 147 (356) (151) (1,166)
Capital expenditures
for continuing
operations............ (558) (573) (562) (280) (217)
</TABLE>
22
<PAGE>
- - --------
(a) For a discussion of the significant items affecting comparability of the
financial information for 1997, 1996 and 1995, see Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
See also Notes 1 and 3 to the Financial Statements of Tenneco Inc. and
Consolidated Subsidiaries for a discussion of the Merger and Distributions
transactions.
(b) During the years presented, Tenneco completed numerous acquisitions, the
most significant of which were Tenneco Packaging's acquisitions of Mobil
Plastics for $1.3 billion in late 1995, Amoco Foam Products for $310
million in August 1996, and the protective and flexible packaging
businesses of NV Koninklijke KNP BT for $380 million in April 1997 and
Tenneco Automotive's acquisition of Clevite for $328 million in July 1996.
See Note 2 to the Financial Statements of Tenneco Inc. and Consolidated
Subsidiaries.
(c) Discontinued operations reflected in the above periods include Tenneco's
energy and shipbuilding operations, which were discontinued in December
1996, its farm and construction equipment operations, which were
discontinued in March 1996, and its chemicals and brakes operations, which
were discontinued during 1994.
(d) Represents Tenneco's costs related to prepayment of debt, including the
1996 loss recognized in the realignment of Tenneco's consolidated
indebtedness preceding the Merger and Distributions. See Note 3 to the
Financial Statements of Tenneco Inc. and Consolidated Subsidiaries.
(e) In 1997, Tenneco implemented Financial Accounting Standards Board's
Emerging Issues Task Force Issue 97-13, "Accounting for Costs Incurred in
Connection with a Consulting Contract that Combines Business Process
Reengineering and Information Technology Transformation." In 1994, Tenneco
adopted Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits." See Note 1 to the Financial
Statements of Tenneco Inc. and Consolidated Subsidiaries for additional
information regarding changes in accounting principles.
(f) All earnings per share amounts have been restated to reflect the adoption
of FAS No. 128, "Earnings per Share," effective December 15, 1997. See Note
1 and Note 7 to the Financial Statements of Tenneco Inc. and Consolidated
Subsidiaries for information regarding the computation of earnings per
share of common stock.
(g) Debt amounts for 1995 and prior years are net of allocations for corporate
debt to the net assets of discontinued energy and shipbuilding operations.
Interest expense for 1996 and prior years is net of interest expense
allocated to income from discontinued operations. The allocation is based
on the proportion of Tenneco's investment in the energy operations' and
shipbuilding operations' net assets to Tenneco consolidated net assets plus
debt. See Note 1 to the Financial Statements of Tenneco Inc. and
Consolidated Subsidiaries.
23
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The year ended December 31, 1997, represents the first full year of Tenneco
Inc. and consolidated subsidiaries' operation as a global manufacturing
company focused on its automotive parts and packaging businesses.
Tenneco Inc. was spun-off from the company previously known as Tenneco Inc.
("Old Tenneco") on December 11, 1996, following a series of transactions
undertaken to realign the assets, liabilities and operations of Old Tenneco
such that the automotive parts ("Tenneco Automotive"), packaging ("Tenneco
Packaging") and the administrative services ("Tenneco Business Services")
businesses were owned by Tenneco Inc. and the shipbuilding business was owned
by Newport News Shipbuilding Inc. ("Newport News"). Old Tenneco distributed
the shares of Tenneco Inc. and Newport News to its shareowners on December 11,
1996. On December 12, 1996, Old Tenneco, which then consisted primarily of the
energy business ("Energy") and certain previously discontinued operations of
Old Tenneco, merged with a subsidiary of El Paso Natural Gas Company.
Although the separation of Tenneco Inc. from Old Tenneco was structured as a
spin-off for legal, tax and other reasons, Tenneco Inc. kept certain important
aspects of Old Tenneco, including its executive management, Board of Directors
and headquarters. Most importantly, the combined assets, revenues, and
operating income of Tenneco Automotive and Tenneco Packaging represented more
than half the assets, revenues and operating income of Old Tenneco prior to
the distributions and merger. Consequently, this Management's Discussion and
Analysis of Financial Condition and Results of Operations and Tenneco's
financial statements for periods prior to the distributions and merger present
the net assets and results of operations of Old Tenneco's shipbuilding and
energy businesses, as well as its farm and construction equipment business
which was disposed of before the distributions and merger, as discontinued
operations. Refer to Note 3 to the Financial Statements of Tenneco Inc. and
Consolidated Subsidiaries for further discussion.
For purposes of this Management's Discussion and Analysis "Tenneco" or the
"Company" refers to Old Tenneco and its subsidiaries before the above
described corporate reorganization transactions and to Tenneco Inc., formerly
known as New Tenneco Inc., and its subsidiaries after those transactions.
The following review of Tenneco's financial condition and results of
operations should be read in conjunction with the financial statements and
related notes of Tenneco Inc. and Consolidated Subsidiaries.
YEARS 1997 AND 1996
RESULTS OF CONTINUING OPERATIONS
Tenneco reported income from continuing operations for the year ended
December 31, 1997, of $361 million compared to $218 million for the same
period in 1996. The improvement resulted from record operating results at
Tenneco Automotive and at Tenneco Packaging's specialty packaging business,
offset by lower results at Tenneco Packaging's paperboard packaging business
reflecting lower containerboard pricing. A lower effective tax rate for 1997
compared to 1996 also contributed to the improved results.
NET SALES AND OPERATING REVENUES
<TABLE>
<CAPTION>
%
1997 1996 CHANGE
------ ------ ------
(MILLIONS)
<S> <C> <C> <C>
Tenneco Automotive....................................... $3,226 $2,980 8%
Tenneco Packaging........................................ 3,995 3,602 11%
Intergroup sales and other............................... (1) (10) NM
------ ------ ---
$7,220 $6,572 10%
====== ====== ===
</TABLE>
Tenneco Automotive's revenue increase over 1996 resulted from acquisition
performance, volume gains, and improved pricing and product mix. Companies
acquired in 1996 and 1997 contributed $238 million to
24
<PAGE>
revenue gains during 1997. For companies acquired in 1996, these revenue gains
include only revenues earned through the first anniversary of the 1996
acquisition. Performance following the first year of ownership is included in
the other year over year measures of performance. Volume growth with both
existing and new customers resulted in revenue increases of $128 million,
while improved price realizations and a more favorable product mix added $35
million to 1997 revenues. These revenue gains were partially offset by the
impact of the strong U.S. dollar in overseas markets, which resulted in $141
million in lower revenues than would have been realized had the U.S. dollar
not strengthened during the year.
Revenue growth at Tenneco Packaging was driven by strong growth in the
specialty packaging business, which experienced revenue gains of $570 million
during 1997 over 1996. A decline in revenues in the paperboard packaging
business of $177 million was primarily attributable to lower linerboard and
medium prices.
Revenue growth in the specialty packaging business, from $1,980 million in
1996 to $2,550 million in 1997, was primarily generated by unit volume sales
growth and revenues earned by companies acquired in 1996 and 1997. The
protective and flexible packaging businesses acquired from NV Koninklijke KNP
BT (KNP) in late April 1997, along with revenues from the foam products
business calculated through the first anniversary of its August 1996
acquisition, contributed $491 million to specialty packaging's revenue growth
during 1997. Unit volume sales increases, primarily in specialty packaging's
consumer markets and clear plastic containers, accounted for significant
revenue increases as well. Partially offsetting revenue growth from
acquisitions and volumes was lower pricing in the specialty packaging consumer
market which negatively impacted revenues by $53 million.
The revenue decline in the paperboard packaging business resulted primarily
from lower linerboard and medium prices during 1997 compared to 1996.
Paperboard packaging implemented price increases during the second half of
1997, resulting in greater average fourth quarter 1997 prices for linerboard
and medium than the comparable period in 1996. Consequently, in the fourth
quarter of 1997, the paperboard packaging business experienced a slight
increase in revenues of $8 million compared to the fourth quarter of 1996.
INCOME BEFORE INTEREST EXPENSE, INCOME TAXES, AND MINORITY INTEREST (OPERATING
INCOME)
<TABLE>
<CAPTION>
%
1997 1996 CHANGE
----- ----- ------
(MILLIONS)
<S> <C> <C> <C>
Tenneco Automotive......................................... $ 407 $ 249 63%
Tenneco Packaging.......................................... 371 401 (7%)
Other...................................................... (14) (22) NM
----- ----- ---
$ 764 $628 22%
===== ===== ===
</TABLE>
During 1996, Tenneco Automotive recorded a pre-tax charge of $64 million to
streamline certain exhaust operations and realign the ride control product
line. Absent this charge, 1996 operating income would have been $313 million.
The remaining increase in operating income during 1997 is primarily
attributable to acquisition performance, cost reduction initiatives, and
improved realizations, partially offset by the impact of the strong U.S.
dollar in overseas markets. Acquisitions, including the impact of 1996
transactions calculated through the first anniversary of the date of each
acquisition, added $35 million to 1997 operating income. Cost reduction
initiatives contributed more than $40 million to the 1997 operating income
improvement while improved pricing realization and product mix combined with
volume growth resulted in higher 1997 operating income of more than $30
million. During the third quarter of 1997, Tenneco Automotive benefited from a
net reduction of $4 million in certain reserves, primarily related to ongoing
reorganization initiatives which have proceeded more rapidly and efficiently
than planned, allowing Tenneco Automotive to adjust its cost estimates for
completing these initiatives. Additionally, favorable resolution of a legal
action contributed $10 million to third quarter 1997 results. Partially
offsetting these operating income gains was the impact of the strong U.S.
dollar on overseas earnings, which reduced 1997 operating income by $22
million, and fourth quarter charges totaling $4 million related to a customer
bankruptcy and a prior asset sale.
25
<PAGE>
Tenneco Packaging's overall operating income decline was composed of higher
operating income in the specialty packaging business, where operating income
grew from $242 million in 1996 to $307 million in 1997, offset by lower
operating income in the paperboard packaging business, which posted 1997
operating income of $64 million compared to 1996 operating income of $159
million.
The higher operating income for the specialty packaging business in 1997
resulted primarily from $76 million in operating income generated by the
protective and flexible packaging businesses acquired from KNP in late April
1997 and the foam products acquisition calculated through the first
anniversary of its August 1996 acquisition. A portion of the 1997 earnings
from the foam products acquisition resulted from cost savings realized by the
integration of the acquired company into specialty packaging's existing
business. The positive impact on operating income of the volume gains
described previously under "Net Sales and Operating Revenues" was largely
offset by lower pricing particularly in the consumer market.
The operating income of the paperboard packaging business in 1996 included a
$50 million gain on the sale of certain recycled paperboard assets to a joint
venture with Caraustar Industries and a charge of $6 million to reorganize
Tenneco Packaging's folding carton operations. Operating income in 1997
included a one-time $38 million gain which resulted from the refinancing of
two containerboard mill leases. Absent these transactions, operating income
for the paperboard packaging business declined $89 million in 1997 compared to
1996. The single largest factor contributing to this decline was linerboard
and medium pricing, which on an annual basis were 15 percent and 19 percent,
respectively, lower in 1997 than in 1996. In total, pricing for the paperboard
packaging business, which includes containerboard mills and corrugated and
folding carton facilities, reduced 1997 operating income by $120 million.
Partially offsetting this lower pricing was $40 million in cost reductions at
the mills and the $5 million positive impact from a third quarter 1997
timberland management transaction.
As previously reported, Tenneco management has been studying various
possible strategic alternatives (including divestitures, spin-offs and joint
venture arrangements) concerning some or all of the Company's containerboard
mills, timberlands and other related operations. To date, management has not
identified any acceptable alternatives and there can be no assurance as to
whether or when any such alternatives will be identified or implemented.
Tenneco's Other operating loss increased in 1997 compared to 1996 before a
charge of $17 million related to the acceleration of certain employee benefits
in connection with the December 1996 corporate reorganization. The increase
resulted from a higher level of unallocated administrative costs primarily
related to Tenneco's administrative services unit which began operation in
late 1996.
OUTLOOK
Tenneco Automotive is supplying original equipment for more than 40 product
launches around the world, which should contribute to revenue growth in 1998.
In the aftermarket, Tenneco Automotive will introduce the all-new Walker(R)
Quiet-FlowTM premium replacement muffler line as well as the next generation
of Monroe's(R) highly successful Sensa-Trac(R) premium shock and strut line
featuring "Safe-Tech" technology for enhanced ride control and comfort.
Tenneco Automotive expects that its superior product offerings and premium
product mix will permit it to outperform a soft aftermarket. In addition,
Tenneco Automotive expects to complete the final piece of its worldwide
restructuring effort in early 1998. These actions are expected to generate
more than $80 million in annual cost savings when complete; more than $40
million was realized in 1997 as the actions were undertaken.
The outlook for Tenneco Packaging's specialty packaging business is positive
as volume growth, new product introductions, mix management, and cost
reductions are expected to provide continued operating income gains. Resin
prices are forecast to remain relatively stable in 1998 while revenues should
benefit from continued strong, 4 to 5 percent growth in specialty packaging's
market segment. Tenneco Packaging's paperboard packaging business should
benefit from favorable industry dynamics, including lower containerboard
inventories and continued strong demand for corrugated boxes. In addition,
ongoing cost reduction efforts, which yielded $40 million in cost reductions
during 1997, should result in additional cost savings in 1998.
26
<PAGE>
This "Outlook" section contains forward-looking statements. See "Cautionary
Statement for Purposes of 'Safe Harbor' Provisions of the Private Securities
Litigation Reform Act of 1995" for a description of certain factors that could
cause actual results to differ from anticipated results and other matters.
INTEREST EXPENSE (NET OF INTEREST CAPITALIZED)
Tenneco incurred interest expense of $216 million during 1997, an increase
of $21 million over 1996. The increase reflects a higher level of borrowings
during 1997, resulting primarily from acquisitions made in both Tenneco
Packaging and Tenneco Automotive, as well as Tenneco's share repurchase
activity.
INCOME TAXES
Tenneco's effective tax rate for 1997 was 30 percent, compared to 45 percent
for 1996. The 1997 tax rate was lower than the statutory rate due to the non-
recurring impact of certain foreign tax benefits and the benefit of previously
unrecognized deferred tax assets. For 1996, the effective tax rate was in
excess of the statutory rate primarily as a result of the realignment charges
recorded for Tenneco Automotive's European operations which were not fully
benefited for tax purposes.
MINORITY INTEREST
Minority interest in 1997 was $24 million compared to $21 million in 1996.
This primarily represents dividends on the preferred stock of a U.S.
subsidiary. In December 1997, this subsidiary issued additional preferred
stock. See Note 9 to Tenneco Inc. and Consolidated Subsidiaries Financial
Statements for additional information.
CHANGE IN ACCOUNTING PRINCIPLE
As required by the Financial Accounting Standards Board's Emerging Issues
Task Force ("EITF") Issue 97-13, "Accounting for Costs Incurred in Connection
with a Consulting Contract that Combines Business Process Reeingineering and
Information Technology Transformation," Tenneco recorded an after-tax charge
of $46 million in the fourth quarter of 1997, which was reported as a
cumulative effect of a change in accounting principle.
EARNINGS PER SHARE
Income from continuing operations was $2.11 per share on a diluted basis in
1997, up from $1.28 per share in 1996. (All references to earnings per share
in this Management's Discussion and Analysis are on a diluted basis unless
otherwise noted). Tenneco also recorded the cumulative effect of a change in
accounting principle discussed above of $.27 per share, resulting in net
income of $1.84 per share for 1997. During 1996, discontinued operations
earned $2.44 per share while Tenneco recorded an extraordinary loss on
retirement of debt of $1.38. Net income in 1996 was $2.34 per share.
Discontinued operations and extraordinary loss are discussed below. Average
shares of common stock outstanding increased slightly during 1997. For further
information regarding the calculation of earnings per share, refer to Note 7
to the Financial Statements of Tenneco Inc. and Consolidated Subsidiaries.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
<TABLE>
<CAPTION>
1997 1996
----- -----
(MILLIONS)
<S> <C> <C>
Cash provided (used) by:
Operating activities............................................ $ 519 $ 253
Investing activities............................................ (897) (693)
Financing activities............................................ 354 147
</TABLE>
27
<PAGE>
OPERATING ACTIVITIES
Cash flow provided by operating activities was $266 million higher in 1997
than 1996. Tenneco's discontinued operations used $250 million in operating
cash flow in 1996, resulting in a 1997 increase in operating cash flow from
continuing operations of $16 million. Tenneco experienced higher operating
cash flow during 1997 from several sources. Income before depreciation was
higher in 1997 by $199 million. Tenneco also generated cash flow benefits from
tax refunds during 1997, resulting primarily from tax benefits derived from
the December 1996 reorganization and debt realignment and a 1996 tax net
operating loss which was carried back to earlier years. These positive
benefits were partially offset by changes in the components of working
capital, reflecting higher levels of activity and reduction of certain
liabilities, including those incurred in connection with the December 1996
transactions.
INVESTING ACTIVITIES
During 1997, Tenneco's investing cash flows included expenditures of $314
million for businesses acquired, primarily the flexible and protective
packaging businesses of KNP in late April 1997. This compares to cash expended
for business acquisitions of $748 million in 1996, when Tenneco Automotive
acquired Clevite and Tenneco Packaging acquired the foam products business.
There were other less significant acquisitions in both years at both Tenneco
Automotive and Tenneco Packaging. Capital expenditures for continuing
operations in 1997 were $15 million lower than 1996, reflecting lower activity
in Tenneco's "Other" segment. During 1996, the sale of discontinued operations
provided $1,051 million of investing cash flow, primarily from Tenneco's
remaining Case Corporation shares and a business owned by Energy. Tenneco also
spent $398 million in 1996 for capital expenditures and business acquisitions
at Energy and Newport News.
FINANCING ACTIVITIES
During 1997, Tenneco refinanced a portion of its short term debt by issuing
$100 million of 10 year 7 1/2% notes, $200 million of 30 year 7 7/8%
debentures, and $300 million of 20 year 7 5/8% debentures. The net proceeds to
Tenneco of these debt offerings was $593 million. Tenneco retired $23 million
in long-term debt during 1997 according to its terms and reduced short-term
debt by a net $31 million. A subsidiary of Tenneco also issued preferred
stock, the net proceeds of which were $99 million. During 1996, financing
activities included the debt realignment executed in December to facilitate
the separation of New Tenneco, Energy, and Newport News, as well as the
issuance of $296 million in preferred stock by Old Tenneco which remained with
Old Tenneco in the Energy merger. During 1997, Tenneco issued $48 million in
common stock, related to employee benefit plans, and repurchased $132 million
in common stock under its common stock repurchase plan. Tenneco also paid 1997
dividends on its common stock of $204 million. Activity in 1996 included
common stock issued of $164 million, common stock repurchases of $172 million,
common and preferred stock dividends of $313 million and cash of $99 million
transferred to Energy and Newport News in the December 1996 corporate
reorganization.
LIQUIDITY
At December 31, 1997, Tenneco's principal credit facility was a $1.75
billion committed financing arrangement with a syndicate of banks which
expires in 2001. Committed borrowings under this credit facility bear interest
at an annual rate equal to, at the borrower's option, either (i) a rate
consisting of the higher of Morgan Guaranty Trust Company of New York's prime
rate or the federal funds rate plus 50 basis points; (ii) the London Interbank
Offering Rate plus a margin determined based on the credit rating of Tenneco's
unsecured senior debt; or (iii) a rate based on money market rates pursuant to
competitive bids by the syndicate banks. Tenneco maintains unused availability
under this line of credit at least equal to 100 percent of its commercial
paper notes outstanding which were $203 million at December 31, 1997. There
were no borrowings under this credit facility at December 31, 1997.
The credit facility requires that Tenneco's ratio of debt to total
capitalization, as defined in the credit facility, not exceed 70%. Compliance
with this requirement is a condition for any incremental borrowings under the
credit
28
<PAGE>
facility, and failure to meet the requirement enables the syndicate banks to
require repayment of any outstanding loans after a 30-day cure period. At
December 31, 1997, Tenneco's ratio of debt to total capitalization as defined
in the credit facility was 53.5 percent. In addition, the credit facility
imposes certain other restrictions, none of which are expected to limit
Tenneco's ability to operate its businesses in the ordinary course.
CAPITAL COMMITMENTS
Tenneco estimates that expenditures of approximately $380 million will be
required after December 31, 1997, to complete facilities and projects
authorized at such date, and substantial commitments have been made in
connection therewith.
Tenneco believes it has adequate resources available to finance its future
requirements, including capital expenditures for existing operations plus
potential strategic acquisitions.
CAPITALIZATION
<TABLE>
<CAPTION>
%
1997 1996 CHANGE
------ ------ ------
(MILLIONS)
<S> <C> <C> <C>
Short-term debt and current maturities..................... $ 278 $ 236 18%
Long-term debt............................................. 2,633 2,067 27%
Minority interest.......................................... 424 304 39%
Common shareowners' equity................................. 2,528 2,646 (4%)
------ ------ ---
Total capitalization..................................... $5,863 $5,253 12%
====== ====== ===
</TABLE>
Tenneco's debt to capitalization ratio was 49.7 percent at December 31,
1997, compared to 43.8 percent at December 31, 1996. The increase in the ratio
is attributable to the additional debt issued during 1997 as described under
"Cash Flow-Financing Activities" above, as well as a decline in equity
resulting from net income in 1997 being more than offset by dividends, share
repurchases, and cumulative translation adjustments resulting from the strong
U.S. dollar.
DIVIDENDS ON COMMON STOCK
Tenneco Inc. declared dividends on its common shares of $.30 per share for
each quarter in 1997. Declaration of dividends is at the discretion of the
Board of Directors. The Board has not adopted a dividend policy as such.
Subject to legal and contractual restrictions, its decisions regarding
dividends are based on all considerations that in its business judgment are
relevant at the time, including past and projected earnings, cash flows,
economic, business and securities market conditions, and anticipated
developments concerning Tenneco's business and operations.
ENVIRONMENTAL MATTERS
Tenneco and certain of its subsidiaries and affiliates are parties to
environmental proceedings. Expenditures for ongoing compliance with
environmental regulations that relate to current operations are expensed or
capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations and which do not contribute to current or future
revenue generation are expensed. Liabilities are recorded when environmental
assessments indicate that remedial efforts are probable and the costs can be
reasonably estimated. Estimates of the liability are based upon currently
available facts, existing technology, and presently enacted laws and
regulations taking into consideration the likely effects of inflation and
other societal and economic factors. All available evidence is considered
including prior experience in remediation of contaminated sites, other
companies' clean-up experience and data released by the United States
Environmental Protection Agency or other organizations. These estimated
liabilities are subject to revision in future periods based on actual costs or
new information. These liabilities are included in the balance sheet at their
undiscounted amounts. Recoveries
29
<PAGE>
are evaluated separately from the liability and, when assured, are recorded
and reported separately from the associated liability in the financial
statements.
At February 18, 1998, Tenneco had been designated as a potentially
responsible party in 4 "Superfund" sites. Tenneco has estimated its share of
the remediation costs for these sites to be approximately $5 million in the
aggregate and has established reserves that it believes are adequate for such
costs. Because the clean-up costs are estimates and are subject to revision as
more information becomes available about the extent of remediation required,
Tenneco's estimate of its remediation costs could change. Moreover, liability
under the Comprehensive Environmental Response, Compensation and Liability Act
is joint and several, meaning that Tenneco could be required to pay in excess
of its share of remediation costs. Tenneco's understanding of the financial
strength of other potentially responsible parties has been considered, where
appropriate, in Tenneco's determination of its estimated liability. Tenneco
believes that the costs associated with its current status as a potentially
responsible party in the Superfund sites referenced above will not be material
to its consolidated financial position or results of operations.
Tenneco estimates that it will make capital expenditures for environmental
matters of approximately $25 million in 1998 and that capital expenditures for
environmental matters will be approximately $105 million in the aggregate for
the years 1998 through 2008.
DERIVATIVE FINANCIAL INSTRUMENTS
Foreign Currency Exchange Rate Risk
Tenneco uses derivative financial instruments, principally foreign currency
forward purchase and sale contracts with terms of less than one year, to hedge
its exposure to changes in foreign currency exchange rates. Tenneco's primary
exposure to changes in foreign currency rates results from intercompany loans
made between Tenneco affiliates to minimize the need for borrowings from third
parties. Additionally, Tenneco enters into foreign currency forward purchase
and sale contracts to mitigate its exposure to changes in exchange rates on
intercompany and third party trade receivables and payables. Tenneco has from
time to time also entered into forward contracts to hedge its net investment
in foreign subsidiaries. Tenneco does not currently enter into derivative
financial instruments for speculative purposes.
30
<PAGE>
In managing its foreign currency exposures, Tenneco identifies and
aggregates naturally occurring offsetting positions and then hedges residual
exposures through third party derivative contracts. The following table
summarizes by major currency the notional amounts, weighted average settlement
rates, and fair value for foreign currency forward purchase and sale contracts
as of December 31, 1997. All contracts in the following table mature in 1998.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------
FAIR VALUE
NOTIONAL AMOUNT IN WEIGHTED AVERAGE IN U.S.
FOREIGN CURRENCY SETTLEMENT RATES DOLLARS
------------------ ---------------- ----------
(MILLIONS EXCEPT SETTLEMENT RATES)
<S> <C> <C> <C>
Belgian Francs --Purchase......... 883 0.0270 $ 24
--Sell............. (238) 0.0270 (6)
British Pounds --Purchase......... 95 1.6508 156
--Sell............. (156) 1.6508 (257)
Canadian Dollars --Purchase......... 83 0.6992 58
--Sell............. (23) 0.6992 (16)
Danish Krone --Purchase......... 152 0.1460 22
--Sell............. -- -- --
French Francs --Purchase......... 312 0.1663 52
--Sell............. (6) 0.1663 (1)
German Marks --Purchase......... 7 0.5561 4
--Sell............. (218) 0.5561 (121)
Italian Lire --Purchase......... 1,850 0.0006 1
--Sell............. -- 0.0006 --
Portuguese Escudo--Purchase......... 1,029 0.0054 6
--Sell............. (196) 0.0054 (1)
Spanish Pesetas --Purchase......... 1,823 0.0066 12
--Sell............. (224) 0.0066 (1)
U.S. Dollars --Purchase......... 92 1.0000 92
--Sell............. -- -- --
Other --Purchase......... 138 0.2318 32
--Sell............. (667) 0.0803 (54)
-----
$ 2
=====
</TABLE>
Interest Rate Risk
Tenneco's financial instruments that are sensitive to market risk for
changes in interest rates are its debt securities. Tenneco primarily uses
commercial paper to finance its short-term capital requirements. Since
commercial paper generally matures in three months or less, Tenneco pays a
current market rate of interest on these borrowings. Tenneco finances its
long-term capital requirements with long-term debt which matures over periods
ranging up to 30 years. All of Tenneco's existing long-term debt obligations
have fixed interest rates, and Tenneco has no current plans to redeem its
long-term debt obligations before their stated maturities. Consequently,
Tenneco is not exposed to cash flow or fair value risk from market interest
rate changes on its long-term debt portfolio. Should Tenneco decide to redeem
its long-term debt securities prior to their stated maturities, it would
generally incur costs based on the fair value of the debt at that time.
31
<PAGE>
The table below provides information about Tenneco's financial instruments
that are sensitive to interest rate risk.
<TABLE>
<CAPTION>
FAIR VALUE
ESTIMATED MATURITY DATES AT
---------------------------------------- DECEMBER 31,
1998 1999 2000 2001 2002 THEREAFTER TOTAL 1997(A)
---- ---- ---- ---- ---- ---------- ------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Short-term debt
(excluding current
maturities)............ $272 $ -- $ -- $ -- $ -- $ -- $ 272 $ 272
Average effective
interest rate......... 6.1% --% --% --% --% --%
Long-term debt
(including current
maturities)............ $ 6 $260 $ 12 $188 $496 $1,586 $2,548 $2,606
Average effective
interest rate......... 10.2% 6.6% 11.7% 6.8% 6.7% 7.6%
</TABLE>
- - --------
(a) Fair value of short-term debt was considered to be the same as or was not
determined to be materially different from the carrying amount. The fair
value of fixed-rate long term debt was generally based on the market value
of Tenneco debt offered in open market exchanges at December 31, 1997.
Tenneco also has other obligations which are sensitive to changes in the
market rate of interest. A subsidiary has issued preferred stock with a face
amount of $400 million which pays a dividend based upon the current market
rate of interest. See Note 9 to Tenneco Inc. and Consolidated Subsidiaries
Financial Statements. Tenneco also has certain lease obligations which require
lease payments that vary with market rates of interest. The underlying value
of the leased assets on which the lease payments vary with interest rates is
approximately $770 million. See Note 13 to Tenneco Inc. and Consolidated
Subsidiaries Financial Statements.
The statements and other information (including the tables) in this
"Derivative Financial Instruments" section constitute "forward-looking
statements."
YEAR 2000
Many computer software systems, as well as certain hardware and equipment
containing date sensitive data, were structured to utilize a two-digit date
field meaning that they may not be able to properly recognize dates in the
Year 2000. This could result in significant system and equipment failures.
Tenneco has a detailed process in place to identify potential Year 2000
problems and implement solutions. Tenneco's significant technology
transformation projects are addressing the Year 2000 issue in those areas
where replacement systems are being installed for other business reasons.
Where existing systems are expected to remain in place beyond 1999, Tenneco is
implementing systems changes utilizing a combination of internal and external
resources. In addition, Tenneco has begun to communicate with its major
suppliers, financial institutions, and others with whom it conducts business
to determine that they will be able to resolve the Year 2000 issue in matters
affecting Tenneco. While Tenneco believes it will be able to resolve the Year
2000 issue in a timely manner, if it is unable to complete the installation of
replacement systems and the required changes to existing critical systems, or
if those with whom Tenneco conducts business are unsuccessful in implementing
timely solutions, the Year 2000 issue could have a material adverse effect on
Tenneco's results of operations. Based upon current estimates, Tenneco
believes that it will incur costs which may range from approximately $20
million to $30 million during 1998 and 1999 to implement the necessary changes
to its existing systems. These costs are being expensed as they are incurred.
As Tenneco implements solutions to the Year 2000 issue, in certain instances
it may determine that replacing existing systems, hardware, or equipment may
be more efficient and effective, particularly where additional functionality
is available. Replacement of systems, hardware, or equipment would be
capitalized and would reduce the estimated 1998 and 1999 expense associated
with the Year 2000 issue.
YEARS 1996 AND 1995
NET SALES AND OPERATING REVENUES
<TABLE>
<CAPTION>
%
1996 1995 CHANGE
------- ------ ------
(MILLIONS)
<S> <C> <C> <C>
Tenneco Automotive...................................... $ 2,980 $2,479 20%
Tenneco Packaging....................................... 3,602 2,752 31%
Intergroup sales and other.............................. (10) (10) --
------- ------ ---
$ 6,572 $5,221 26%
======= ====== ===
</TABLE>
32
<PAGE>
Net sales and operating revenues for 1996 increased $1,351 million to $6,572
million, compared with $5,221 million in 1995. This increase was due primarily
to strong market conditions in the automotive parts industry and revenues from
businesses acquired in late 1995 and 1996. Record revenues were reported at
Tenneco Automotive and by the specialty business of Tenneco Packaging.
INCOME BEFORE INTEREST EXPENSE, INCOME TAXES, AND MINORITY INTEREST (OPERATING
INCOME)
<TABLE>
<CAPTION>
%
1996 1995 CHANGE
----- ----- ------
(MILLIONS)
<S> <C> <C> <C>
Tenneco Automotive.......................................... $ 249 $240 4%
Tenneco Packaging........................................... 401 430 (7%)
Other....................................................... (22) 2 NM
----- ----- ---
$628 $672 (7%)
===== ===== ===
</TABLE>
Operating income for 1996 decreased $44 million to $628 million, compared
with $672 million in 1995. Tenneco Packaging's specialty business reported
record results due primarily to the results of the recent acquisitions of the
foam products and plastics businesses. See Note 2 to Tenneco Inc. and
Consolidated Subsidiaries Financial Statements. Tenneco Automotive reported
record operating income as a result of strong volumes, recent acquisitions,
and operating cost initiatives in both the ride control and exhaust systems
businesses. Also, Tenneco realized gains on sales of assets and businesses in
1996 that were in excess of amounts earned in 1995. These increases were
offset by lower operating income at Tenneco Packaging's paperboard business
due to lower containerboard prices, costs related to the realignment actions
at Tenneco Automotive and Tenneco Packaging, and costs related to the
acceleration of certain employee benefits in connection with the distributions
and merger. The results of Tenneco Automotive and Tenneco Packaging are
separately discussed below.
TENNECO AUTOMOTIVE
Tenneco Automotive's 1996 revenue increase resulted primarily from higher
sales volumes and an improved product mix combined with benefits from
acquisitions. New product launches and higher sales volumes to manufacturers,
including revenue earned from Clevite after its acquisition, contributed $335
million to 1996 revenue growth. Revenue from companies acquired included $96
million in the North American original equipment market earned by Clevite.
Market share growth in the aftermarket and aggressive Sensa-Trac(R) marketing
programs contributed $129 million. Revenue growth in the European aftermarket
exhaust business of $25 million was mainly due to a 1995 third quarter
acquisition in Spain.
Tenneco Automotive's 1996 operating income included $64 million in charges
to streamline certain exhaust operations and realign the ride control product
line. Absent these charges and the 1995 higher than usual start-up costs of
$10 million, the operating income increase was $63 million. The improvement
results from the volume and product mix improvements discussed above as well
as manufacturing and distribution efficiencies and continued focus on
operating cost leadership.
Tenneco Automotive's margins decreased to 8.4 percent in 1996, compared with
9.7 percent in 1995 due to the 1996 realignment charges. Excluding the
realignment charges, margins improved to 10.5 percent in 1996.
TENNECO PACKAGING
Tenneco Packaging's specialty business reported record results in 1996 as
revenues increased $1,149 million to $1,980 million, compared with $831
million in 1995. This increase was driven by the acquisition of the plastics
and foam products businesses which combined contributed revenues of $1,165
million in 1996, compared with $106 million of revenues contributed by the
plastics business in 1995.
33
<PAGE>
The specialty business earned $242 million in operating income for 1996, an
increase of $180 million, excluding a 1995 restructuring charge of $30 million
for molded fiber and aluminum foil packaging operations. The plastics and foam
products businesses contributed operating income of $150 million in 1996,
compared with only $15 million contributed by the plastics business in 1995.
Excluding the 1995 restructuring charge, operating margins improved 5
percentage points to 12.2 percent as a result of three major factors: volume
growth, primarily through acquisitions, enriched product mix, and reduced
costs by combining acquired businesses with pre-existing operations. The major
contributors to reduced operating costs were lower prices for both polystyrene
and aluminum.
The paperboard business reported revenues in 1996 of $1,622 million,
compared with $1,921 million in 1995. Revenues were lower as a result of
weaker containerboard prices, which averaged 27 percent less compared with
1995. As a result, 1996 operating income declined $269 million to $115
million, compared with $384 million in 1995, excluding gains on asset sales
and a $6 million realignment charge for the folding carton operations.
Including asset sales and the 1996 realignment charge, operating income was
$159 million in 1996, compared with $398 million in 1995. Volume increases of
2 percent and a better mix of higher value added and enhanced graphics
business partially offset the softness in containerboard prices. The
paperboard business reported a $50 million pre-tax gain in 1996 from the sale
of the two recycled paperboard mills and a recycling center and brokerage
operation to a joint venture with Caraustar Industries, while 1995 included a
$14 million pre-tax gain from the sale of a recycled medium mill in North
Carolina.
OTHER
Tenneco reported an Other operating loss of $22 million for 1996, compared
with $2 million of operating income in 1995. The 1996 loss included a $17
million charge related to the acceleration of certain employee benefits in
connection with the distributions and merger.
INTEREST EXPENSE (NET OF INTEREST CAPITALIZED)
Tenneco's 1996 interest expense was $195 million, compared with $160 million
in 1995. This increase resulted primarily from the funding of acquisitions,
including Clevite and the foam products business in 1996 and the plastics
business in late 1995.
INCOME TAXES
The effective tax rate was 45 percent in both 1996 and 1995. The 1996
effective tax rate was higher than the federal statutory tax rate due
primarily to the realignment costs incurred in the European operations of
Tenneco Automotive's exhaust systems business, which were not fully tax
benefited, nondeductible goodwill, and state income taxes.
MINORITY INTEREST
Minority interest was $21 million in 1996, compared with $23 million in
1995, which primarily related to dividends on preferred stock of a U.S.
subsidiary for both years.
DISCONTINUED OPERATIONS AND EXTRAORDINARY LOSS
Income from discontinued operations in 1996 of $428 million, net of income
tax expense of $129 million, or $2.44 per share, reflected the net income of
Energy and Newport News through December 11, 1996, prior to the consummation
of the corporate reorganization. Income from discontinued operations for 1996
also included Tenneco's share of the net loss of the farm and construction
equipment business. Additionally, income from discontinued operations included
a $340 million gain, net of income tax expense of $83 million, on the sale of
Tenneco's remaining investment in Case, and transaction costs--consisting
primarily of financial advisory, legal, accounting, printing, and other
costs--of $108 million, net of an income tax benefit of $17 million, that were
incurred in connection with the corporate reorganization.
34
<PAGE>
Income from discontinued operations for Energy in 1996 was $127 million, net
of income tax expense of $32 million. Income from discontinued operations for
Newport News in 1996 was $70 million, net of income tax expense of $32
million. Loss from discontinued operations for the farm and construction
equipment business was $1 million for 1996, net of an income tax benefit of $1
million.
Income from discontinued operations in 1995 was $477 million, net of income
tax expense of $30 million, or $2.69 per share, and was attributable to the
operations of Energy, Newport News, and the farm and construction equipment
business. The 1995 discontinued operations also included a gain from the sale
of Case stock of $101 million and a $32 million gain from the sale of a Case
subordinated note, net of income tax expense of $2 million.
Income from discontinued operations for Energy in 1995 was $158 million, net
of an income tax benefit of $11 million. Income from discontinued operations
for Newport News in 1995 was $73 million, net of income tax expense of $58
million. Income from discontinued operations for the farm and construction
equipment business in 1995 was $113 million, net of an income tax benefit of
$19 million.
Extraordinary loss for 1996 was $236 million, net of income tax benefit of
$126 million, or $1.38 per share. The extraordinary loss was incurred as a
result of the debt realignment undertaken before the December 1996 corporate
reorganization and consists principally of the fair value paid in the cash
tender offers and the fair value of debt exchanged in the debt exchange offers
in excess of the historical net carrying value for the debt tendered and
exchanged.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
<TABLE>
<CAPTION>
1996 1995
---- ------
(MILLIONS)
<S> <C> <C>
Cash provided (used) by:
Operating activities............................................ $253 $1,443
Investing activities............................................ (693) (1,146)
Financing activities............................................ 147 (356)
</TABLE>
OPERATING ACTIVITIES
Operating cash flows from continuing operations for 1996 increased $113
million, compared with 1995. This increase was due primarily to improvements
in the working capital of continuing businesses which contributed $131 million
to the higher operating cash flows. Inventory growth declined in 1996 at both
Tenneco Automotive and Tenneco Packaging from streamlining product
distribution and implementing new programs to minimize inventory levels.
Operating cash flows from discontinued operations declined $1,303 million in
1996, compared with 1995, due to tax payments for the settlement of prior year
tax liabilities, lower sales of trade accounts receivable, and gas contract
settlements at Energy of $318 million.
INVESTING ACTIVITIES
Cash used for acquisitions of businesses during 1996 of $789 million
resulted primarily from the acquisitions of the foam products business for
$310 million and Clevite for $328 million. Tenneco also invested $573 million
in capital expenditures in its continuing businesses and $398 million in its
discontinued operations during 1996. Capital expenditures in continuing
businesses included $177 million for Tenneco Automotive, $341 million for
Tenneco Packaging, and $55 million for Tenneco Business Services and other
operations.
35
<PAGE>
For Tenneco Packaging, these expenditures included $14 million for a sawmill
and wood products business in Romania, $36 million to expand production
capacity of polystyrene foam products for the foodservice disposables and
consumer plate businesses, $12 million for the customer-linked manufacturing
system of the specialty business, and $10 million to complete improvements to
a paper machine at the Counce, Tennessee, mill.
Tenneco Automotive's capital spending included $22 million related to new OE
business and $32 million for systems integration and automation projects. In
addition, Tenneco Automotive's spending also included $8 million to expand
capacity and take advantage of synergies related to recent acquisitions.
Net proceeds related to the sale of discontinued operations of $1,051
million in 1996 resulted primarily from the sale of the remaining Case common
stock for $788 million along with proceeds from the sale of a pipeline
interest. Net proceeds related to the sale of discontinued operations in 1995
resulted from the sale of Albright & Wilson chemicals operations, the sale of
Case common stock, and the sale of a Case subordinated note.
Net proceeds from sales of businesses and assets during 1996 were $149
million, which included $115 million from the sale of two recycled paperboard
mills and a recycling center and brokerage operation to a joint venture with
Caraustar Industries.
FINANCING ACTIVITIES
Cash flows from financing activities were $147 million in 1996, which
included the issuance of $2.8 billion of long-term debt, issuance of preferred
stock of $296 million assumed by El Paso in the corporate reorganization,
repayment of net short-term debt of $221 million, and the early retirement of
$2.3 billion of long-term debt in connection with the consummation of the debt
realignment and the other components of the corporate reorganization. Tenneco
also used cash flows during 1996 to reacquire its common stock for $172
million and to pay $313 million in dividends on its common and preferred
stock. In 1995, Tenneco had a net increase of $503 million in debt (primarily
related to the funding of acquisitions), reacquired common stock of $655
million, and paid dividends on its common and preferred stock of $286 million.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS OF TENNECO INC.
AND CONSOLIDATED SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of independent public accountants................................... 37
Statements of income for each of the three years in the period ended
December 31, 1997......................................................... 38
Balance sheets--December 31, 1997 and 1996................................. 39
Statements of cash flows for each of the three years in the period ended
December 31, 1997......................................................... 40
Statements of changes in shareowners' equity for each of the three years
in the period ended December 31, 1997..................................... 41
Notes to financial statements.............................................. 42
</TABLE>
36
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Tenneco Inc.:
We have audited the accompanying balance sheets of Tenneco Inc. (a Delaware
corporation) and consolidated subsidiaries (see Note 1) as of December 31,
1997 and 1996, and the related statements of income, cash flows and changes in
shareowners' equity for each of the three years in the period ended December
31, 1997. These financial statements and the schedule referred to below are
the responsibility of Tenneco Inc.'s management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Tenneco Inc. and
consolidated subsidiaries as of December 31, 1997 and 1996, and the results of
their operations, cash flows and changes in shareowners' equity for each of
the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the financial statements, in the fourth quarter of
1997, Tenneco Inc. and consolidated subsidiaries changed their method of
accounting for certain costs incurred in connection with information
technology transformation projects.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule listed in the
index to Part IV, Item 14 relating to Tenneco Inc. and consolidated
subsidiaries is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
The supplemental schedule has been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion,
fairly states in all material respects the financial data required to be set
forth therein in relation to the basic financial statements of Tenneco Inc.
and consolidated subsidiaries taken as a whole.
Arthur Andersen LLP
Houston, Texas
February 17, 1998
37
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
(MILLIONS EXCEPT SHARE AND PER
SHARE AMOUNTS)
<S> <C> <C> <C>
REVENUES
Net sales and operating revenues--
Automotive.......................... $ 3,226 $ 2,980 $ 2,479
Packaging........................... 3,995 3,602 2,752
Intergroup sales and other.......... (1) (10) (10)
----------- ----------- -----------
7,220 6,572 5,221
Other income, net..................... 98 76 39
----------- ----------- -----------
7,318 6,648 5,260
----------- ----------- -----------
COSTS AND EXPENSES
Cost of sales (exclusive of
depreciation shown below)............ 5,206 4,762 3,737
Engineering, research, and
development.......................... 68 92 67
Selling, general, and administrative.. 915 857 588
Depreciation, depletion, and
amortization......................... 365 309 196
----------- ----------- -----------
6,554 6,020 4,588
----------- ----------- -----------
INCOME BEFORE INTEREST EXPENSE, INCOME
TAXES, AND MINORITY INTEREST 764 628 672
Interest expense (net of interest
capitalized)......................... 216 195 160
Income tax expense.................... 163 194 231
Minority interest..................... 24 21 23
----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS....... 361 218 258
Income from discontinued operations, net
of income tax.......................... -- 428 477
----------- ----------- -----------
Income before extraordinary loss........ 361 646 735
Extraordinary loss, net of income tax... -- (236) --
----------- ----------- -----------
Income before cumulative effect of
change in accounting principle......... 361 410 735
Cumulative effect of change in
accounting principle, net of income
tax.................................... (46) -- --
----------- ----------- -----------
NET INCOME.............................. 315 410 735
Preferred stock dividends............... -- 12 12
----------- ----------- -----------
NET INCOME TO COMMON STOCK.............. $ 315 $ 398 $ 723
=========== =========== ===========
EARNINGS PER SHARE
Average shares of common stock
outstanding--
Basic................................. 170,264,731 169,609,373 172,764,198
Diluted............................... 170,801,636 170,526,112 173,511,654
Basic earnings per share of common
stock--
Continuing operations................. $ 2.12 $ 1.29 $ 1.49
Discontinued operations............... -- 2.45 2.70
Extraordinary loss.................... -- (1.39) --
Cumulative effect of change in
accounting principle................. (.27) -- --
----------- ----------- -----------
$ 1.85 $ 2.35 $ 4.19
=========== =========== ===========
Diluted earnings per share of common
stock--
Continuing operations................. $ 2.11 $ 1.28 $ 1.48
Discontinued operations............... -- 2.44 2.69
Extraordinary loss.................... -- (1.38) --
Cumulative effect of change in
accounting principle................. (.27) -- --
----------- ----------- -----------
$ 1.84 $ 2.34 $ 4.17
=========== =========== ===========
Cash dividends per share of common
stock.................................. $ 1.20 $ 1.80 $ 1.60
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements of income.
38
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
ASSETS 1997 1996
------ ------ ------
(MILLIONS)
<S> <C> <C>
Current assets:
Cash and temporary cash investments.............................. $ 41 $ 62
Receivables--
Customer notes and accounts, net............................... 729 561
Income taxes................................................... 63 --
Other.......................................................... 17 138
Inventories...................................................... 950 878
Deferred income taxes............................................ 63 95
Prepayments and other............................................ 252 189
------ ------
2,115 1,923
------ ------
Other assets:
Long-term notes receivable, net.................................. 49 20
Goodwill and intangibles, net.................................... 1,577 1,341
Deferred income taxes............................................ 55 60
Pension assets................................................... 747 547
Other............................................................ 334 444
------ ------
2,762 2,412
------ ------
Plant, property, and equipment, at cost............................ 5,284 4,870
Less--Reserves for depreciation, depletion, and amortization..... 1,829 1,618
------ ------
3,455 3,252
------ ------
$8,332 $7,587
====== ======
<CAPTION>
LIABILITIES AND SHAREOWNERS' EQUITY
-----------------------------------
<S> <C> <C>
Current liabilities:
Short-term debt (including current maturities on long-term debt). $ 278 $ 236
Trade payables................................................... 687 651
Taxes accrued.................................................... 96 91
Accrued liabilities.............................................. 344 308
Other............................................................ 256 335
------ ------
1,661 1,621
------ ------
Long-term debt..................................................... 2,633 2,067
------ ------
Deferred income taxes.............................................. 614 476
------ ------
Postretirement benefits............................................ 228 168
------ ------
Deferred credits and other liabilities............................. 244 305
------ ------
Commitments and contingencies
Minority interest.................................................. 424 304
------ ------
Shareowners' equity:
Common stock..................................................... 2 2
Premium on common stock and other capital surplus................ 2,679 2,642
Cumulative translation adjustments............................... (122) 23
Retained earnings (accumulated deficit).......................... 89 (21)
------ ------
2,648 2,646
Less--Shares held as treasury stock, at cost..................... 120 --
------ ------
2,528 2,646
------ ------
$8,332 $7,587
====== ======
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
39
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------------
1997 1996 1995
----- ------- -------
(MILLIONS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Income from continuing operations.................... $ 361 $ 218 $ 258
Adjustments to reconcile income from continuing
operations to cash provided (used) by continuing
operations--
Depreciation, depletion, and amortization.......... 365 309 196
Deferred income taxes.............................. 235 23 75
(Gain) loss on sale of businesses and assets, net.. 21 (64) (15)
Changes in components of working capital--
(Increase) decrease in receivables............... (56) 104 30
(Increase) decrease in inventories............... (31) 18 (102)
(Increase) decrease in prepayments and other
current assets.................................. (108) 45 (39)
Increase (decrease) in payables.................. 74 (70) 7
Increase (decrease) in taxes accrued............. (45) 31 23
Increase (decrease) in interest accrued.......... 29 5 --
Increase (decrease) in other current liabilities. (136) (98) (15)
Other.............................................. (190) (18) (28)
----- ------- -------
Cash provided (used) by continuing operations........ 519 503 390
Cash provided (used) by discontinued operations...... -- (250) 1,053
----- ------- -------
Net cash provided (used) by operating activities..... 519 253 1,443
----- ------- -------
INVESTING ACTIVITIES
Net proceeds related to the sale of discontinued
operations.......................................... -- 1,051 1,539
Net proceeds from sale of businesses and assets...... 29 149 56
Expenditures for plant, property, and equipment...... (558) (573) (562)
Acquisitions of businesses........................... (314) (748) (1,461)
Expenditures for plant, property, and equipment and
business acquisitions--discontinued operations...... -- (398) (659)
Investments and other................................ (54) (174) (59)
----- ------- -------
Net cash provided (used) by investing activities..... (897) (693) (1,146)
----- ------- -------
FINANCING ACTIVITIES
Issuance of common, treasury, and SECT shares........ 48 164 102
Purchase of common stock............................. (132) (172) (655)
Issuance of NPS Preferred Stock...................... -- 296 --
Issuance of equity securities by a subsidiary........ 99 -- --
Redemption of preferred stock........................ -- (20) (20)
Issuance of long-term debt........................... 597 2,800 595
Retirement of long-term debt......................... (23) (2,288) (513)
Net increase (decrease) in short-term debt excluding
current maturities on long-term debt................ (31) (221) 421
Cash transferred in Merger and Distributions......... -- (99) --
Dividends (common and preferred)..................... (204) (313) (286)
----- ------- -------
Net cash provided (used) by financing activities..... 354 147 (356)
----- ------- -------
Effect of foreign exchange rate changes on cash and
temporary cash investments.......................... 3 1 8
----- ------- -------
Increase (decrease) in cash and temporary cash
investments......................................... (21) (292) (51)
Cash and temporary cash investments, January 1....... 62 354 405
----- ------- -------
Cash and temporary cash investments, December 31
(Note).............................................. $ 41 $ 62 $ 354
===== ======= =======
Cash paid during the year for interest............... $ 206 $ 489 $ 459
Cash paid during the year for income taxes (net of
refunds)............................................ $(145) $ 685 $ 168
</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.
40
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
1997 1996 1995
------------------- ------------------- -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ------ ----------- ------ ----------- ------
(MILLIONS EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
PREFERRED STOCK
Balance January 1....... -- $ -- -- $ -- -- $ --
Issuance of NPS
Preferred Stock....... -- -- 6,000,000 296 -- --
Merger of energy
business.............. -- -- (6,000,000) (296) -- --
----------- ------ ----------- ------ ----------- ------
Balance December 31..... -- -- -- -- -- --
=========== ------ =========== ------ =========== ------
COMMON STOCK
Balance January 1....... 171,567,658 2 191,351,615 957 191,335,193 957
Issued pursuant to
benefit plans......... 1,002,231 -- 84,796 -- 3,761 --
Recapitalization of
New Tenneco........... -- -- (19,868,753) (955) -- --
Other.................. -- -- -- -- 12,661 --
----------- ------ ----------- ------ ----------- ------
Balance December 31..... 172,569,889 2 171,567,658 2 191,351,615 957
=========== ------ =========== ------ =========== ------
STOCK EMPLOYEE
COMPENSATION TRUST
(SECT)
Balance January 1....... -- (215) (298)
Shares issued.......... -- 216 118
Adjustment to market
value................. -- (1) (35)
------ ------ ------
Balance December 31..... -- -- (215)
------ ------ ------
PREMIUM ON COMMON STOCK
AND OTHER CAPITAL
SURPLUS
Balance January 1....... 2,642 3,602 3,553
Premium on common
stock issued pursuant
to benefit plans...... 37 28 --
Adjustment of SECT to
market value.......... -- 1 35
Merger of energy
business.............. -- (372) --
Distribution of
shipbuilding
business.............. -- (270) --
Recapitalization of
New Tenneco........... -- (348) --
Other.................. -- 1 14
------ ------ ------
Balance December 31..... 2,679 2,642 3,602
------ ------ ------
CUMULATIVE TRANSLATION
ADJUSTMENTS
Balance January 1....... 23 26 (237)
Translation of foreign
currency statements... (160) 39 25
Disposition of
investments in
foreign subsidiaries.. -- (11) 235
Hedges of net
investment in foreign
subsidiaries (net of
income taxes)......... 15 (31) 3
------ ------ ------
Balance December 31..... (122) 23 26
------ ------ ------
RETAINED EARNINGS
(ACCUMULATED DEFICIT)
Balance January 1....... (21) (469) (905)
Net income............. 315 410 735
Dividends--
Preferred stock...... -- (9) (9)
Common stock......... (205) (312) (287)
Accretion of excess of
redemption value of
preferred stock over
fair value at date of
issue................. -- (3) (3)
Recapitalization of
New Tenneco........... -- 362 --
------ ------ ------
Balance December 31..... 89 (21) (469)
------ ------ ------
LESS--COMMON STOCK HELD
AS TREASURY STOCK, AT
COST
Balance January 1....... -- -- 16,422,619 753 3,617,510 170
Shares acquired........ 3,280,755 134 5,118,904 267 14,066,214 641
Shares issued to
acquire businesses.... -- -- -- -- (1,229,614) (56)
Shares issued pursuant
to benefit and
dividend
reinvestment plans.... (352,566) (14) (1,672,770) (79) (31,491) (2)
Recapitalization of
New Tenneco........... -- -- (19,868,753) (941) -- --
----------- ------ ----------- ------ ----------- ------
Balance December 31..... 2,928,189 120 -- -- 16,422,619 753
=========== ------ =========== ------ =========== ------
Total.................. $2,528 $2,646 $3,148
====== ====== ======
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements of changes in shareowners' equity.
41
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF ACCOUNTING POLICIES
Consolidation and Presentation
The financial statements of Tenneco Inc. and consolidated subsidiaries
("Tenneco") include all majority-owned subsidiaries. Investments in 20% to 50%
owned companies where Tenneco has the ability to exert significant influence
over operating and financial policies are carried at cost plus equity in
undistributed earnings since the date of acquisition and cumulative
translation adjustments. All significant intercompany transactions have been
eliminated.
In December 1996, Tenneco Inc. was spun-off from the company formerly known
as Tenneco Inc. ("Old Tenneco") in a series of transactions (the
"Transaction"), which included distributions (the "Distributions") to Old
Tenneco shareowners and a subsequent merger (the "Merger"). Following the
Transaction, Tenneco owned the automotive parts ("Tenneco Automotive"),
packaging ("Tenneco Packaging") and administrative services ("Tenneco Business
Services") businesses of Old Tenneco. These transactions and their accounting
treatment are described in more detail in Note 3, "Discontinued Operations,
Disposition of Assets, and Extraordinary Loss."
For purposes of these financial statements, "Tenneco" or the "Company"
refers to Old Tenneco and its subsidiaries before the Transaction and to
Tenneco Inc., formerly known as New Tenneco Inc. ("New Tenneco"), and its
subsidiaries subsequent to the Transaction.
Income Taxes
Tenneco utilizes the liability method of accounting for income taxes whereby
it recognizes deferred tax assets and liabilities for the future tax
consequences of temporary differences between the tax basis of assets and
liabilities and their reported amounts in the financial statements. Deferred
tax assets are reduced by a valuation allowance when, based upon management's
estimates, it is more likely than not that a portion of the deferred tax
assets will not be realized in a future period. The estimates utilized in the
recognition of deferred tax assets are subject to revision in future periods
based on new facts or circumstances.
Tenneco does not provide for U.S. income taxes on unremitted earnings of
foreign subsidiaries as it is the present intention of management to reinvest
the unremitted earnings in its foreign operations. Unremitted earnings of
foreign subsidiaries are approximately $740 million at December 31, 1997. It
is not practicable to determine the amount of U.S. income taxes that would be
payable upon remittance of the assets that represent those earnings.
Changes in Accounting Principles
As required by the Financial Accounting Standards Board's Emerging Issues
Task Force ("EITF") Issue 97-13, "Accounting for Costs Incurred in Connection
with a Consulting Contract that Combines Business Process Reengineering and
Information Technology Transformation," Tenneco recorded an after-tax charge
of $46 million ($.27 per common share on both the basic and diluted bases),
net of a tax benefit of $28 million, in the fourth quarter of 1997. EITF 97-13
establishes the accounting treatment and an allocation methodology for certain
consulting and other costs incurred in connection with information technology
transformation efforts. This charge was reported as a cumulative effect of
change in accounting principle.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("FAS") No. 128, "Earnings Per Share," which
established new standards for computing and presenting earnings per share. The
provisions of the statement are effective for fiscal years ending after
December 15, 1997, and accordingly have been adopted in the accompanying
financial statements including the restatement
42
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
of previously reported earnings per share. Basic and diluted earnings per
share, as reported, are not materially different from earnings per share as
calculated in accordance with Accounting Principles Board Opinion No. 15, the
previous earnings per share standard.
Effective January 1, 1997, Tenneco adopted the American Institute of
Certified Public Accountants Statement of Position 96-1, "Environmental
Remediation Liabilities." This statement established new accounting and
reporting standards for recognizing and disclosing environmental remediation
liabilities. Tenneco also adopted FAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." This new
statement established new accounting and reporting standards for transfers and
servicing of financial assets and extinguishing liabilities. The adoption of
these new standards did not have a significant effect on Tenneco's financial
position or results of operations.
Tenneco adopted FAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," in the first quarter of
1996. FAS No. 121 establishes new accounting standards for measuring the
impairment of long-lived assets. The adoption of this new standard did not
have a significant effect on Tenneco's financial position or results of
operations.
Inventories
At December 31, 1997 and 1996, inventory by major classification was as
follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
(MILLIONS)
<S> <C> <C>
Finished goods.............................................. $ 467 $ 408
Work in process............................................. 100 118
Raw materials............................................... 265 245
Materials and supplies...................................... 118 107
------ ------
$ 950 $878
====== ======
Inventories are stated at the lower of cost or market. A portion of total
inventories (44% and 46% at December 31, 1997 and 1996, respectively) is valued
using the "last-in, first-out" method. All other inventories are valued on the
"first-in, first-out" ("FIFO") or "average" methods. If the FIFO or average
method of inventory accounting had been used by Tenneco for all inventories,
inventories would have been $45 million and $54 million higher at December 31,
1997 and 1996, respectively.
Goodwill and Intangibles
At December 31, 1997 and 1996, goodwill and intangibles by major category
were as follows:
<CAPTION>
1997 1996
------ ------
(MILLIONS)
<S> <C> <C>
Goodwill.................................................... $1,212 $ 963
Trademarks.................................................. 182 187
Patents..................................................... 160 156
Other....................................................... 23 35
------ ------
$1,577 $1,341
====== ======
</TABLE>
Goodwill is being amortized on a straight-line basis over periods ranging
from 20 years to 40 years. Such amortization amounted to $36 million, $21
million, and $10 million for 1997, 1996, and 1995, respectively, and is
included in the statements of income caption, "Depreciation, depletion and
amortization."
43
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Tenneco has capitalized certain intangible assets, primarily trademarks and
patents, based on their estimated fair value at date of acquisition.
Amortization is provided on these intangible assets on a straight-line basis
over periods ranging from 5 to 40 years. Such amortization amounted to $24
million and $26 million in 1997 and 1996, was not significant during 1995, and
is included in the statements of income caption, "Depreciation, depletion and
amortization."
Plant, Property, and Equipment, at Cost
At December 31, 1997 and 1996, plant, property, and equipment, at cost, by
major category was as follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
(MILLIONS)
<S> <C> <C>
Land, buildings, and improvements.......................... $1,371 $1,339
Machinery and equipment.................................... 3,411 2,956
Other, including construction in progress.................. 502 575
------ ------
$5,284 $4,870
====== ======
</TABLE>
Depreciation of Tenneco's properties is provided on a straight-line basis
over the estimated useful lives of the assets. Useful lives range from 10 to
40 years for buildings and improvements and from 3 to 25 years for machinery
and equipment. Depletion of timber and timberlands is provided on a unit-of-
production basis.
Notes Receivable and Allowance for Doubtful Accounts
Short and long-term notes receivable of $60 million and $65 million were
outstanding at December 31, 1997 and 1996, respectively.
At December 31, 1997 and 1996, the short and long-term allowance for
doubtful accounts on accounts and notes receivable was $35 million and $32
million, respectively.
Environmental Liabilities
Expenditures for ongoing compliance with environmental regulations that
relate to current operations are expensed or capitalized as appropriate.
Expenditures that relate to an existing condition caused by past operations
and that do not contribute to current or future revenue generation are
expensed. Liabilities are recorded when environmental assessments indicate
that remedial efforts are probable and the costs can be reasonably estimated.
Estimates of the liability are based upon currently available facts, existing
technology, and presently enacted laws and regulations taking into
consideration the likely effects of inflation and other societal and economic
factors. All available evidence is considered including prior experience in
remediation of contaminated sites, other companies' clean-up experience, and
data released by the United States Environmental Protection Agency or other
organizations. These estimated liabilities are subject to revision in future
periods based on actual costs or new information. These liabilities are
included in the balance sheet at their undiscounted amounts. Recoveries are
evaluated separately from the liability and, when assured, are recorded and
reported separately from the associated liability in the financial statements.
For further information on this subject, refer to Note 13, "Commitments and
Contingencies."
Earnings Per Share
According to the requirements of FAS No. 128, "Earnings Per Share," basic
earnings per share are computed by dividing income available to common
shareowners by the weighted-average number of common shares outstanding. The
computation of diluted earnings per share is similar to the computation of
basic earnings
44
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
per share except that the weighted-average number of shares outstanding is
adjusted to include estimates of additional shares that would be issued if
potentially dilutive common shares had been issued. In addition, income
available to common shareowners is adjusted to include any changes in income
or loss that would result from the assumed issuance of the dilutive common
shares.
Tenneco's preferred stock outstanding before the Merger was converted into
El Paso Natural Gas Company ("El Paso") common stock as part of the Merger;
therefore, preferred stock dividends have been deducted from income from
discontinued operations in determining earnings per share. For more
information regarding the Merger, see Note 3, "Discontinued Operations,
Disposition of Assets, and Extraordinary Loss."
Allocation of Corporate Debt and Interest Expense
Tenneco's historical practice has been to incur indebtedness for its
consolidated group at the parent company level or at a limited number of
subsidiaries, rather than at the operating company level, and to centrally
manage various cash functions. Consequently, corporate debt of Tenneco
outstanding before the Transaction has been allocated to discontinued
operations based upon the ratio of the discontinued operations' net assets to
Tenneco's consolidated net assets plus debt. Interest expense, net of tax, has
been allocated to Tenneco's discontinued operations based on the same
allocation methodology. See Note 3, "Discontinued Operations, Disposition of
Assets, and Extraordinary Loss," for further discussion regarding the
Transaction.
Research and Development
Research and development costs are expensed as incurred. Research and
development expenses were $53 million, $60 million, and $42 million for 1997,
1996, and 1995, respectively, and are included in the income statement caption
"Engineering, research, and development expenses."
Realignment Charges
In 1996, the Company recorded charges of approximately $70 million in
connection with the reorganization of Tenneco Packaging's folding carton
operations and the realignment of Tenneco Automotive's: (i) Walker exhaust
system original equipment and aftermarket manufacturing operations in Europe,
(ii) Walker aftermarket operations in North America, and (iii) Monroe ride
control product line.
In 1995, Tenneco Packaging recorded charges of approximately $30 million in
connection with the realignment of molded fiber and aluminum foil operations.
Foreign Currency Translation
Financial statements of international operations are translated into U.S.
dollars using the exchange rate at each balance sheet date for assets and
liabilities and the weighted average exchange rate for each applicable period
for revenues, expenses, and gains and losses. Translation adjustments are
reflected in the balance sheet caption "Cumulative translation adjustments."
Risk Management Activities
Tenneco uses derivative financial instruments, principally foreign currency
forward purchase and sale contracts with terms of less than one year, to hedge
its exposure to changes in foreign currency exchange rates. Tenneco's primary
exposure to changes in foreign currency rates results from intercompany loans
made between Tenneco affiliates to minimize the need for borrowings from third
parties. Net gains or losses on these foreign currency exchange contracts that
are designated as hedges are recognized in the income statement to offset the
45
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
foreign currency gain or loss on the underlying transaction. Additionally,
Tenneco enters into foreign currency forward purchase and sale contracts to
mitigate its exposure to changes in exchange rates on intercompany and third
party trade receivables and payables. Since these anticipated transactions are
not firm commitments, Tenneco marks these forward contracts to market each
period and records any gain or loss in the income statement. Tenneco has from
time to time also entered into forward contracts to hedge its net investment
in foreign subsidiaries. The after-tax net gains or losses on these contracts
are recognized on the accrual basis in the balance sheet caption "Cumulative
translation adjustments." In the statement of cash flows, cash receipts or
payments related to these exchange contracts are classified consistent with
the cash flows from the transaction being hedged.
Tenneco does not currently enter into derivative financial instruments for
speculative purposes.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in determining the reported amounts of Tenneco's assets,
liabilities, revenues, and expenses. Reference is made to the "Income Taxes"
section of this footnote and Notes 10, 11, and 13 for additional information
on significant estimates included in Tenneco's financial statements.
Reclassifications
Prior years' financial statements have been reclassified where appropriate
to conform to 1997 presentations.
2. ACQUISITIONS
In March 1997, Tenneco entered into an agreement to acquire the protective
and flexible packaging division of NV Koninklijke KNP BT ("KNP"), a Dutch
distribution, paper and packaging firm, for approximately $380 million
including debt assumed and preferred stock of a subsidiary issued to a seller.
Upon completion of the KNP acquisition in late April 1997, KNP became a part
of Tenneco Packaging. Also during 1997, Tenneco completed acquisitions or
investments in other businesses and joint ventures, principally, in the
automotive parts industry, for total consideration of approximately $38
million.
A preliminary allocation of the purchase price has been made for these
acquisitions. A final determination of the purchase price allocation will be
made upon the completion of certain ongoing appraisals; however, management
does not believe that any adjustments to the preliminary purchase price
allocation will be material to Tenneco's financial position or results of
operations.
In June 1996, Tenneco entered into agreements to acquire Clevite for $328
million and Amoco Foam Products for $310 million. Clevite makes suspension
bushings and other elastomeric parts for cars and trucks. Upon completion of
the Clevite acquisition in July 1996, Clevite's operations became part of
Tenneco Automotive. Amoco Foam Products manufactures expanded polystyrene
tableware, hinged-lid food containers, packaging trays, and industrial
products for residential and commercial construction applications. Tenneco
closed the acquisition of Amoco Foam Products in August 1996, and Amoco Foam
Products became part of Tenneco Packaging. Also during 1996, Tenneco completed
the acquisitions of or investments in various other businesses and joint
ventures, principally in the automotive parts industry, for total
consideration of approximately $110 million.
In November 1995, Tenneco Packaging acquired the plastics division of Mobil
Corporation for $1.3 billion. The plastics business is one of the largest
North American producers of polyethylene and polystyrene consumer and food
service packaging.
46
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Also during 1995, Tenneco Packaging completed additional acquisitions of
seven paperboard packaging businesses and three specialty packaging businesses
for a total purchase price of approximately $196 million. In addition, Tenneco
Automotive completed four acquisitions in 1995 for a total purchase price of
approximately $54 million.
All of the acquisitions discussed above have been accounted for as
purchases; accordingly, the purchase price has been allocated to the assets
purchased and the liabilities assumed based on their fair values. The excess
of the purchase price over the fair value of the net assets acquired is
included in the balance sheet caption "Goodwill and intangibles, net."
3. DISCONTINUED OPERATIONS, DISPOSITION OF ASSETS, AND EXTRAORDINARY LOSS
Discontinued Operations
The Energy Business and Shipbuilding Business
Tenneco Inc. was spun-off from Old Tenneco on December 11, 1996, following a
series of transactions undertaken to realign the assets, liabilities, and
operations of Old Tenneco such that Tenneco Automotive, Tenneco Packaging, and
Tenneco Business Services were owned by New Tenneco and the shipbuilding
business was owned by Newport News Shipbuilding Inc. ("Newport News"). On
December 11, 1996, Old Tenneco distributed the shares of New Tenneco and
Newport News to its shareowners. On December 12, 1996, Old Tenneco, which then
consisted primarily of the energy business and certain previously discontinued
operations of Old Tenneco, merged with a subsidiary of El Paso.
Although the separation of Tenneco Inc. from Old Tenneco was structured as a
spin-off for legal, tax and other reasons, Tenneco Inc. kept certain important
aspects of Old Tenneco, including its executive management, Board of
Directors, and headquarters. Most importantly, the combined assets, revenues,
and operating income of Tenneco Automotive and Tenneco Packaging represented
more than half the assets, revenues, and operating income of Old Tenneco
before the Distributions and Merger. Consequently, Tenneco Inc.'s financial
statements for periods before the Distributions and Merger present the net
assets and results of operations of Old Tenneco's shipbuilding and energy
businesses, as well as its farm and construction equipment business which was
disposed of before the Distributions and Merger, as discontinued operations.
In connection with the Distributions, one share of New Tenneco common stock
($.01 par value) was issued for each share of Old Tenneco common stock ($5.00
par value) and one share of Newport News common stock was issued for each five
shares of Old Tenneco common stock. Also, in connection with the Merger, Old
Tenneco shareowners received shares of El Paso common stock valued at
approximately $914 million in the aggregate in exchange for their shares of
Old Tenneco common and preferred stock. The treasury shares held by Old
Tenneco did not participate in the Merger and Distributions and were retained
by Old Tenneco in the Merger. Subsequent to the Transaction, the common equity
of Tenneco Inc. relates solely to the shares of New Tenneco common stock
issued in the Distributions. In connection with the Transaction, the retained
earnings (accumulated deficit) of Old Tenneco was eliminated. Retained
earnings (accumulated deficit) shown on the balance sheets represents net
earnings (losses) accumulated after the date of the Transaction. The effects
of the issuance of New Tenneco common stock in the Distributions, the
retention of treasury shares by Old Tenneco, and the elimination of Old
Tenneco's retained earnings (accumulated deficit) have been reflected in the
statements of changes in shareowners' equity as "Recapitalization of New
Tenneco."
47
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Net assets as of December 31, 1995, and results of operations for the years
ended December 31, 1996 and 1995, for the energy business were as follows:
<TABLE>
<CAPTION>
1996 1995
------ ------
(MILLIONS)
<S> <C> <C>
Net assets at December 31 (Note)................................ $ -- $ 452
====== ======
Net sales and operating revenues................................ $2,512 $1,921
====== ======
Income before income taxes and interest allocation.............. $ 291 $ 269
Income tax expense.............................................. (78) (32)
------ ------
Income before interest allocation............................... 213 237
Allocated interest expense, net of income tax (Note)............ (86) (79)
------ ------
Income from discontinued operations before transaction costs.... $ 127 $ 158
====== ======
</TABLE>
- - --------
Note: Reference is made to Note 1, "Summary of Accounting Policies--Allocation
of Corporate Debt and Interest Expense," for a discussion of the allocation of
corporate debt and interest expense to discontinued operations.
On December 11, 1996, one day before the Merger, Old Tenneco completed the
distribution of the common stock of Newport News to the holders of Old Tenneco
common stock. As part of the Distributions, Newport News retained the net
assets of the shipbuilding business, including approximately $600 million of
debt that had been issued during November 1996.
Net assets as of December 31, 1995, and results of operations for the years
ended December 31, 1996 and 1995, for the shipbuilding business were as
follows:
<TABLE>
<CAPTION>
1996 1995
------ ------
(MILLIONS)
<S> <C> <C>
Net assets at December 31 (Note)................................ $ -- $ 270
====== ======
Net sales and operating revenues................................ $1,822 $1,756
====== ======
Income before income taxes and interest allocation.............. $ 133 $ 160
Income tax expense.............................................. (43) (68)
------ ------
Income before interest allocation............................... 90 92
Allocated interest expense, net of income tax (Note)............ (20) (19)
------ ------
Income from discontinued operations before transaction costs.... $ 70 $ 73
====== ======
</TABLE>
- - --------
Note: Reference is made to Note 1, "Summary of Accounting Policies--Allocation
of Corporate Debt and Interest Expense," for a discussion of the allocation of
corporate debt and interest expense to discontinued operations.
The costs incurred to complete the Transaction, consisting primarily of
financial advisory, legal, accounting, printing, and other costs, of
approximately $108 million, net of a $17 million income tax benefit, were
recorded as a component of 1996 income from discontinued operations.
Farm and Construction Equipment Operations
In June 1994, Tenneco completed an initial public offering ("IPO") of
approximately 29% of the common stock of Case Corporation ("Case"), the holder
of Tenneco's farm and construction equipment segment. In November 1994, a
secondary offering of Case common stock reduced Tenneco's ownership interest
in Case to approximately 44%. Combined proceeds from the two transactions was
$694 million, net of commissions and
48
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
offering expenses. The combined gain on the transactions was $36 million,
including a $7 million tax benefit. In an August 1995 public offering, Tenneco
sold an additional 16.1 million shares of Case common stock for net proceeds
of approximately $540 million. The sale resulted in a gain of $101 million and
reduced Tenneco's ownership in Case from 44% to 21%. In December 1995, Tenneco
sold to a third party a subordinated note receivable due from Case, which was
received as part of the reorganization preceding the Case IPO, for net
proceeds of $298 million and recognized a gain of $32 million. In March 1996,
Tenneco sold its remaining 15.2 million shares of common stock of Case in a
public offering. Net proceeds of approximately $788 million were received,
resulting in a gain of $340 million, net of $83 million in income tax expense.
Net assets as of December 31, 1995, and results of operations for the years
ended December 31, 1996 and 1995, for the farm and construction equipment
segment are as follows:
<TABLE>
<CAPTION>
1996 1995
----- -----
(MILLIONS)
<S> <C> <C>
Net assets at December 31......................................... $ -- $ 323
===== =====
Net sales and operating revenues.................................. $ -- $ --
===== =====
Income before income taxes and interest allocation................ $ 1 $ 126
Income tax benefit................................................ -- 8
----- -----
Income before interest allocation................................. 1 134
Allocated interest expense, net of income tax (Note).............. (2) (21)
----- -----
Income (loss) from operations..................................... (1) 113
----- -----
Gains on dispositions............................................. 423 135
Income tax expense from disposition............................... (83) (2)
----- -----
Net gains on dispositions......................................... 340 133
----- -----
Income from discontinued operations............................... $ 339 $ 246
===== =====
</TABLE>
- - --------
Note: Reference is made to Note 1, "Summary of Accounting Policies--Allocation
of Corporate Debt and Interest Expense," for a discussion of the allocation of
corporate debt and interest expense to discontinued operations.
Chemicals Operations
In March 1995, Tenneco completed an IPO of 100% of its Albright & Wilson
chemicals segment which was reflected as discontinued operations in the 1994
financial statements. The offering was underwritten in the United Kingdom and
was offered primarily in the United Kingdom. Net proceeds from the sale of the
chemicals operations were approximately $700 million.
Disposition of Assets
In the second quarter of 1996, Tenneco Packaging entered into an agreement
to form a joint venture with Caraustar Industries whereby Tenneco Packaging
sold its two recycled paperboard mills and a fiber recycling operation and
brokerage business to the joint venture in return for cash and an equity
interest in the joint venture. Proceeds from the sale were approximately $115
million and the Company recognized a $50 million pre-tax gain in the second
quarter of 1996.
In 1995, Tenneco sold certain facilities and assets, principally at its
Tenneco Packaging segment. Proceeds from these dispositions totaled
approximately $56 million, resulting in a pre-tax gain of $15 million.
Gains and losses on the sale of businesses and assets have been included in
the caption "Other income, net" in the accompanying statements of income.
49
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Extraordinary Loss
In preparation for the Transaction, Old Tenneco realigned $3.8 billion of
indebtedness (the "Debt Realignment") through various cash tender offers, debt
exchanges, defeasances, and other retirements. The cash funding required to
consummate the Debt Realignment was financed through internally generated
cash, borrowings under new credit facilities of both Old Tenneco and New
Tenneco, borrowings under a new credit facility and other financings at
Newport News, and proceeds from the issuance of 8 1/4% cumulative junior
preferred stock ("NPS Preferred Stock"), which was retained by Old Tenneco in
the Merger. As a result of the Merger, El Paso indirectly acquired
approximately $2.8 billion of debt and preferred stock obligations as well as
certain liabilities related to operations previously discontinued by Old
Tenneco.
As a result of the Debt Realignment, Tenneco recognized an extraordinary
loss of approximately $236 million, net of a tax benefit of approximately $126
million. This extraordinary loss consists principally of the fair value paid
in the cash tender offers and the fair value of debt exchanged in the debt
exchange offers in excess of the historical net carrying value for the debt
tendered and exchanged.
4. LONG-TERM DEBT, SHORT-TERM DEBT, AND FINANCING ARRANGEMENTS
Long-Term Debt
A summary of long-term debt obligations of Tenneco at December 31, 1997 and
1996, is set forth in the following table:
<TABLE>
<CAPTION>
1997 1996
------ ------
(MILLIONS)
<S> <C> <C>
Tenneco Inc.--
Debentures due 2008 through 2027, average effective interest
rate 7.5% in 1997 and 7.3% in 1996 (net of $68 million in 1997
and $76 million in 1996 of unamortized premium)............... $1,217 $ 725
Notes due 1999 through 2007, average effective interest rate
6.7% in 1997 and 1996 (net of $47 million in 1997 and $60
million in 1996 of unamortized premium)....................... 1,358 1,271
Other subsidiaries--
Notes due 1998 through 2016, average effective interest rate
11.2% in 1997 and 7.2% in 1996 (net of $24 million in 1997 and
$23 million in 1996 of unamortized discount).................. 64 79
------ ------
2,639 2,075
Less--current maturities........................................ 6 8
------ ------
Total long-term debt............................................ $2,633 $2,067
====== ======
</TABLE>
Approximately $70 million of gross plant, property, and equipment at
December 31, 1997 and 1996, was pledged as collateral to secure $26 million
and $25 million, respectively, principal amounts of long-term debt.
The aggregate maturities and sinking fund requirements applicable to the
issues outstanding at December 31, 1997 are $6 million, $260 million, $12
million, $188 million, and $496 million for 1998, 1999, 2000, 2001, and 2002,
respectively.
50
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Short-Term Debt
Tenneco uses commercial paper, lines of credit, and overnight borrowings to
finance its short-term capital requirements. Information regarding short-term
debt as of and for the years ended December 31, 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
1997 1996
---------------------- ----------------------
COMMERCIAL CREDIT COMMERCIAL CREDIT
PAPER AGREEMENTS* PAPER AGREEMENTS*
---------- ----------- ---------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Outstanding borrowings at end of
year............................ $203 $ 69 $219 $ 9
Weighted average interest rate on
outstanding borrowings at end of
year............................ 5.9% 6.7% 5.6% 6.5%
Approximate maximum month-end
outstanding borrowings during
year............................ $613 $123 $336 $2,580
Approximate average month-end
outstanding borrowings during
year............................ $372 $ 52 $108 $ 800
Weighted average interest rate on
approximate average month-end
outstanding borrowings during
year............................ 5.7% 8.4% 5.7% 6.5%
</TABLE>
- - --------
* Includes borrowings under both committed credit facilities and uncommitted
lines of credit and similar arrangements.
Financing Arrangements
<TABLE>
<CAPTION>
COMMITTED CREDIT FACILITIES(A)
-------------------------------
TERM COMMITMENTS UTILIZED AVAILABLE
------- ----------- -------- ---------
(MILLIONS)
<S> <C> <C> <C> <C>
Tenneco Inc. credit agreements.......... 2001 $1,750 $203(b) $1,547
Subsidiaries' credit agreements......... Various 56 29 27
------ ---- ------
$1,806 $232 $1,574
====== ==== ======
</TABLE>
- - --------
Notes: (a) Tenneco and its subsidiaries generally are required to pay
commitment fees on the unused portion of the total commitment and
facility fees on the total commitment.
(b) Tenneco's committed long-term credit facilities support its
commercial paper borrowings; consequently, the amount available under
the committed long-term credit facilities is reduced by outstanding
commercial paper borrowings.
At December 31, 1997, Tenneco's principal credit facility, which expires in
2001, was a $1.75 billion committed financing arrangement with a syndicate of
banks and other financial institutions. Committed borrowings under this credit
facility bear interest at an annual rate equal to, at the borrower's option,
either (i) a rate consisting of the higher of Morgan Guaranty Trust Company of
New York's prime rate or the federal funds rate plus 50 basis points; (ii) a
rate of LIBOR plus a margin determined based on the credit rating of Tenneco's
long-term debt; or (iii) a rate based on money market rates pursuant to
competitive bids by the syndicate banks.
The credit facility requires that the Company's consolidated ratio of debt
to total capitalization, as defined in the credit facility, not exceed 70%.
Compliance with this requirement is a condition for any incremental borrowings
under the credit facility and failure to meet the requirement enables the
syndicate banks to require repayment of any outstanding loans after a 30-day
cure period. At December 31, 1997, Tenneco's ratio of debt to total
capitalization as defined in the credit facility was 53.5%. In addition, the
credit facility imposes certain other restrictions, none of which are expected
to limit the Company's ability to operate its business in the ordinary course.
51
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. FINANCIAL INSTRUMENTS
The carrying and estimated fair values of Tenneco's financial instruments by
class at December 31, 1997 and 1996, were as follows:
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- -------
(MILLIONS)
ASSETS (LIABILITIES)
<S> <C> <C> <C> <C>
Long-term debt (including current
maturities)............................... $(2,639) $(2,606) $(2,075) $(2,069)
Instruments With Off-Balance-Sheet Risk....
Foreign currency contracts............... 2 2 1 1
Financial guarantees..................... -- (15) -- (15)
</TABLE>
Asset and Liability Instruments
The fair value of cash and temporary cash investments, short and long-term
receivables, accounts payable, and short-term debt was considered to be the
same as or was not determined to be materially different from the carrying
amount. At December 31, 1997 and 1996, respectively, Tenneco's aggregate
customer and long-term receivable balance was concentrated by industry segment
as follows: Tenneco Automotive, 63% and 69%, respectively, and Tenneco
Packaging, 37% and 31%, respectively.
Long-term debt--The fair value of fixed-rate long-term debt was based on the
market value of debt with similar maturities and interest rates.
Instruments With Off-Balance-Sheet Risk
Foreign Currency Contracts--Note 1, "Summary of Accounting Policies--Risk
Management Activities" describes Tenneco's use of and accounting for foreign
currency exchange contracts. The following table summarizes by major currency
the contractual amounts of foreign currency contracts utilized by Tenneco:
<TABLE>
<CAPTION>
NOTIONAL AMOUNT
---------------------------------------
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------- -------------------
PURCHASE SELL PURCHASE SELL
---------- -------- ---------- --------
(MILLIONS)
<S> <C> <C> <C> <C>
Foreign currency contracts (in US$):
Belgian Francs....................... $ 24 $ 6 $ 34 $ --
British Pounds....................... 156 257 344 153
Canadian Dollars..................... 58 16 128 120
Danish Krone......................... 22 -- 37 1
French Francs........................ 52 1 47 22
German Marks......................... 4 121 73 110
U.S. Dollars......................... 92 -- 65 304
Other................................ 51 56 53 70
-------- -------- -------- --------
$ 459 $ 457 $ 781 $ 780
======== ======== ======== ========
</TABLE>
Based on exchange rates at December 31, 1997 and 1996, the cost of replacing
these contracts in the event of non-performance by the counterparties would
not have been material.
Guarantees--Tenneco had guaranteed payment and performance of approximately
$15 million at December 31, 1997 and 1996, primarily with respect to letters
of credit and other guarantees supporting various financing and operating
activities.
52
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. INCOME TAXES
The domestic and foreign components of income from continuing operations
before income taxes are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------
1997 1996 1995
---- ---- ----
(MILLIONS)
<S> <C> <C> <C>
U.S. income before income taxes................................. $259 $248 $361
Foreign income before income taxes.............................. 289 185 151
---- ---- ----
Income before income taxes...................................... $548 $433 $512
==== ==== ====
</TABLE>
Following is a comparative analysis of the components of income tax expense
applicable to continuing operations:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------
1997 1996 1995
----- ---- -----
(MILLIONS)
<S> <C> <C> <C>
Current--
U.S........................................................ $(133) $ 92 $ 54
State and local............................................ 2 23 38
Foreign.................................................... 59 56 64
----- ---- -----
(72) 171 156
----- ---- -----
Deferred--
U.S........................................................ 190 15 61
Foreign, state and other................................... 45 8 14
----- ---- -----
235 23 75
----- ---- -----
Income tax expense........................................... $ 163 $194 $ 231
===== ==== =====
</TABLE>
Following is a reconciliation of income taxes computed at the statutory U.S.
federal income tax rate (35% for all years presented) to the income tax
expense reflected in the statements of income:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------
1997 1996 1995
---- ---- ----
(MILLIONS)
<S> <C> <C> <C>
Tax expense computed at the statutory U.S. federal income tax
rate.......................................................... $192 $152 $179
Increases (reductions) in income tax expense resulting from:
Foreign income taxed at different rates and foreign losses
with no tax benefit......................................... (33) 7 17
State and local taxes on income, net of U.S. federal income
tax benefit................................................. 23 15 25
Recognition of previously unbenefited loss carryforwards..... (11) -- --
Amortization of nondeductible goodwill....................... 6 7 4
Other........................................................ (14) 13 6
---- ---- ----
Income tax expense............................................. $163 $194 $231
==== ==== ====
</TABLE>
53
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The components of Tenneco's net deferred tax liability were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1997 1996
----- -----
(MILLIONS)
<S> <C> <C>
Deferred tax assets--
Tax loss carryforwards:
U.S......................................................... $ 101 $ --
Foreign..................................................... 81 102
Postretirement benefits other than pensions.................. 53 51
Other........................................................ 31 59
Valuation allowance.......................................... (29) (60)
----- -----
Net deferred tax asset..................................... 237 152
----- -----
Deferred tax liabilities--
Tax over book depreciation................................... 371 215
Pensions..................................................... 229 184
Other........................................................ 133 74
----- -----
Total deferred tax liability............................... 733 473
----- -----
Net deferred tax liability................................... $ 496 $ 321
===== =====
</TABLE>
As reflected by the valuation allowance in the table above, Tenneco had
potential tax benefits of $29 million and $60 million at December 31, 1997 and
1996, respectively, which were not recognized in the statements of income when
generated. These unrecognized tax benefits resulted primarily from foreign tax
loss carryforwards which are available to reduce future foreign tax
liabilities.
All of the U.S. tax loss carryforwards, $289 million at December 31, 1997,
expire in 2012. Of the foreign tax loss carryforwards at December 31, 1997, $3
million will expire in 2001, $21 million will expire in 2003, and $175 million
do not expire.
In connection with the corporate reorganization transactions discussed in
Note 3, "Discontinued Operations, Disposition of Assets and Extraordinary
Loss," Tenneco entered into a tax sharing agreement with Newport News, Old
Tenneco and El Paso. The tax sharing agreement provides, among other things,
for the allocation among the parties of tax liabilities arising before, as a
result of, and after the Distributions. For periods after the Distributions,
Tenneco will be liable for taxes imposed on its businesses, Old Tenneco will
be liable for taxes imposed on the energy business, and Newport News will be
liable for taxes imposed on the shipbuilding business. In the case of federal
income taxes imposed on the activities of the Old Tenneco consolidated group
before the Distributions, Tenneco and Newport News are generally liable to Old
Tenneco for federal income taxes attributable to their respective businesses,
and those entities have been allocated an agreed-upon share of estimated tax
payments made by Old Tenneco.
7. COMMON STOCK
Tenneco Inc. has authorized 350 million shares ($ .01 par value) of common
stock, of which 172,569,889 shares and 171,567,658 shares were issued at
December 31, 1997 and 1996, respectively. Tenneco Inc. held 2,928,189 shares
of treasury stock at December 31, 1997, and no shares of treasury stock at
December 31, 1996.
Stock Repurchase Plans
During 1997, Tenneco initiated a common stock repurchase program to acquire
up to 8.5 million shares. Approximately 3.2 million shares have been acquired
under this program at a total cost of approximately $132 million.
54
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Under common stock repurchase programs announced in 1994 and 1995,
approximately 17 million shares of Old Tenneco stock were acquired at a total
cost of over $750 million. All treasury stock purchased under these programs
became the treasury stock of Old Tenneco.
All purchases executed through these programs were in the open market or
negotiated purchases.
Reserved
The total number of shares of Tenneco Inc. common stock reserved at December
31, 1997 and 1996, were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
ORIGINAL ISSUE SHARES 1997 1996
--------------------- ---------- ----------
<S> <C> <C>
Thrift Plan..................................... 167,223 476,372
Restricted Stock Plans.......................... 33,796 62,000
Stock Ownership Plan............................ 16,556,126 17,000,000
Employee Stock Purchase Plan.................... 2,255,232 2,500,000
---------- ----------
19,012,377 20,038,372
========== ==========
<CAPTION>
TREASURY STOCK
--------------
<S> <C> <C>
Thrift Plan..................................... 42,434 --
========== ==========
</TABLE>
Stock Plans
Tenneco Inc. Stock Ownership Plan--In December 1996, Tenneco adopted the
1996 Stock Ownership Plan, which permits the granting of a variety of awards,
including common stock, restricted stock, performance shares, stock
appreciation rights, and stock options to directors, officers, and employees
of Tenneco. Tenneco can issue up to 17,000,000 shares of common stock under
the 1996 Stock Ownership Plan, which will terminate December 31, 2001. All Old
Tenneco stock options granted to New Tenneco employees before the
Distributions were, in connection with the Distributions, cancelled and
replaced with options to purchase New Tenneco common stock according to the
provisions of the 1996 Stock Ownership Plan. The options were replaced with
the appropriate number of New Tenneco options so that the aggregate option
value immediately after the Distributions equaled the aggregate value
immediately before the Distributions. The 1994 Stock Ownership Plan was
terminated effective as of December 11, 1996.
Restricted Stock and Performance Shares--Tenneco has granted restricted
stock and restricted units under the 1996 Stock Ownership Plan to certain key
employees. These awards generally require, among other things, that the
employee remain an employee of Tenneco during the restriction period. Tenneco
has also granted performance shares to certain key employees which will vest
based upon the attainment of specified performance goals within four years
from the date of grant. During 1997, 1996, and 1995, Tenneco granted 494,350,
465,075, and 481,625 shares and units, respectively, with a weighted average
fair value based on the price of Tenneco's stock on the grant date of $43.06,
$48.54, and $43.62 per share, respectively. Any restricted stock and
performance shares awarded after the Distributions are issued under the 1996
Stock Ownership Plan. At December 31, 1997, 127,270 restricted shares at an
average price of $42.53 per share, 324,395 performance shares at an average
price of $43.26 per share, and no restricted units were outstanding under this
plan.
Under another arrangement, restricted stock or restricted units are issued
annually to each member of the Board of Directors who is not also an officer
of Tenneco. During 1996 and 1995, 3,300, and 3,000 restricted shares were
issued with a weighted average fair value based on the price of Tenneco's
stock on the grant date of $48.25 and $42.88 per share, respectively. On
November 1, 1996, all outstanding restricted shares were vested.
55
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In December 1996, Tenneco adopted a new restricted stock and unit plan for
each member of the Board of Directors who is not also an officer of Tenneco.
During 1997 and 1996, 5,040 and 23,464 restricted shares were issued under the
new plan at a weighted average fair value of Tenneco Inc.'s stock on the grant
date of $45.19 and $45.31 per share, respectively. At December 31, 1997,
28,504 restricted shares at an average price of $45.29 per share were
outstanding under the new plan.
In conjunction with the Transaction, all outstanding restricted shares and
performance shares as of November 1, 1996, were vested and Tenneco recognized
an after-tax compensation expense of $18 million, of which approximately $7
million related to restricted stock and performance shares awarded to
employees of the energy business and shipbuilding business.
Employee Stock Purchase Plan--In June 1992, Tenneco initiated an Employee
Stock Purchase Plan (the "1992 ESPP"). The 1992 ESPP was terminated as of the
date of the Distributions. Effective April 1, 1997, Tenneco adopted a new ESPP
with provisions similar to the 1992 ESPP. The ESPP allows U.S. and Canadian
Tenneco employees to purchase Tenneco Inc. common stock at a 15% discount.
Each year employees participating in the ESPP may purchase shares with a
discounted value not to exceed $21,250. Under the respective ESPPs, Tenneco
sold 244,768, 657,936, and 633,495 shares to employees in 1997, 1996, and
1995, respectively. The weighted average fair value of the employee purchase
right, which was estimated using the Black-Scholes option pricing model and
the assumptions described below except that the average life of each purchase
right was assumed to be 90 days, was $11.16, $10.84, and $9.39 in 1997, 1996,
and 1995, respectively.
Stock Options--The following table reflects the status and activity for all
stock options issued by Tenneco Inc., including those outside the option plans
discussed above, for the periods indicated:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------- -------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
SHARES AVG. SHARES AVG. SHARES AVG.
UNDER EXERCISE UNDER EXERCISE UNDER EXERCISE
STOCK OPTIONS OPTION PRICES OPTION PRICES OPTION PRICES
------------- ---------- -------- ---------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning
of year................ 10,877,758 $43.41 3,019,116 $46.99 2,084,942 $51.08
Granted--Options...... 2,928,669 42.91 8,178,600 46.17 1,493,505 43.01
Exercised--Options.... (312,979) 39.64 (817,212) 45.29 (2,700) 41.30
--SARs....... -- -- (25,741) 36.23 (45,215) 40.47
Issuance of New
Tenneco options...... -- -- 5,015,258 41.19 -- --
Cancelled............. (1,569,376) 43.19 (4,492,263) 46.01 (511,416) 52.63
---------- ------ ---------- ------ --------- ------
Outstanding, end of
year................... 11,924,072 $43.42 10,877,758 $43.41 3,019,116 $46.99
========== ====== ========== ====== ========= ======
Options exercisable at
end of year............ 2,703,948 $40.84 1,809,596 $41.67 846,889 $47.80
========== ====== ========== ====== ========= ======
Weighted average fair
value of options
granted during the
year................... $ 12.62 $ 11.37 $ 11.82
========== ========== =========
</TABLE>
The fair value of each option granted during 1997, 1996, and 1995 is
estimated on the date of grant using the Black-Scholes option pricing model
using the following weighted-average assumptions for grants in 1997, 1996, and
1995, respectively: (i) risk-free interest rates of 6.6%, 5.9%, and 7.1%; (ii)
expected lives of 7.5, 5.0, and 5.0 years; (iii) expected volatility 25.6%,
25.1%, and 28.9%; and (iv) dividend yield of 2.8%, 3.4%, and 3.6%.
56
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following table reflects summarized information about stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------- --------------------
WEIGHTED
AVG. WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING AVG. NUMBER AVG.
EXERCISE OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
PRICE AT 12/31/97 LIFE PRICE AT 12/31/97 PRICE
-------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$31 to $38................ 1,025,863 6.1 years $35.36 767,724 $34.83
$38 to $44................ 2,995,118 12.8 40.90 1,104,075 40.93
$44 to $51................ 7,903,091 12.9 45.42 832,149 46.25
---------- ---------
11,924,072 2,703,948
========== =========
</TABLE>
Tenneco applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," to account for its stock-based compensation plans.
Tenneco recognized after-tax stock-based compensation expense in 1997 of $5
million and in 1996 of $27 million, of which $9 million related to restricted
stock and performance shares awarded to employees of the energy business and
the shipbuilding business. Stock-based compensation expense recognized in 1995
was not material. Had compensation costs for Tenneco's stock-based
compensation plans been determined in accordance with FAS No. 123, "Accounting
for Stock-Based Compensation," based on the fair value at the grant dates for
the awards under those plans, Tenneco's pro forma net income to common stock
and earnings per share of common stock for the years ended December 31, 1997
and 1996, would have been lower by $34 million, or $.20 per both basic and
diluted common share, and $14 million, or $.08 per both basic and diluted
common share, respectively. The increase in compensation expense was primarily
the result of stock options issued subsequent to the Transaction.
Stock Employee Compensation Trust (SECT)
In November 1992, Tenneco established the SECT to fund a portion of its
obligations arising from its various employee compensation and benefit plans.
Tenneco issued 12 million shares of treasury stock to the SECT in exchange for
a promissory note of $432 million that accrued interest at the rate of 7.8%
per annum. At December 31, 1996, all shares had been utilized.
Shareholder Rights Plan
In connection with the Distributions, Tenneco Inc. adopted a Shareholder
Rights Plan (the "Plan"), which is substantially the same as the provisions of
the Old Tenneco Shareholder Rights Plan adopted in 1988. The Plan was adopted
to deter coercive takeover tactics and to prevent a potential acquiror from
gaining control of Tenneco in a transaction which is not in the best interests
of Tenneco Inc. shareholders. Under the Plan, each outstanding share of
Tenneco Inc. common stock receives one Right, exercisable at $130, subject to
adjustment. In the event a person or group (i) acquires 20% or more of the
outstanding Tenneco Inc. common stock other than pursuant to an offer for all
shares of such common stock that a majority of the members of the Board of
Directors who are not officers of the Company determines is fair and in the
best interests of Tenneco Inc. and its shareholders, or (ii) has in the
judgment of the Tenneco Inc. Board of Directors acquired 10% or more of the
outstanding Tenneco Inc. common stock under certain motives deemed adverse to
Tenneco's best interests, each Right entitles the holder to purchase shares of
common stock or other securities of Tenneco Inc. or, under certain
circumstances, of the acquiring person, having a value of twice the exercise
price. The Rights, under certain circumstances, are redeemable by Tenneco Inc.
at a price of $.02 per Right. The Plan is scheduled to terminate in 1998.
57
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Dividend Reinvestment and Stock Purchase Plan
Under the Tenneco Inc. Dividend Reinvestment and Stock Purchase Plan, holders
of Tenneco Inc. common stock may apply their cash dividends and optional cash
investments to the purchase of additional shares of Tenneco Inc. common stock.
Earnings Per Share
Earnings per share of common stock outstanding were computed as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
----------- ----------- -----------
(MILLIONS EXCEPT SHARE AND PER
SHARE AMOUNTS)
<S> <C> <C> <C>
Basic Earnings Per Share--
Income from continuing operations(a)..... $ 361 $ 218 $ 258
=========== =========== ===========
Average shares of common stock
outstanding(b).......................... 170,264,731 169,609,373 172,764,198
=========== =========== ===========
Earnings from continuing operations per
average share of common stock........... $ 2.12 $ 1.29 $ 1.49
=========== =========== ===========
Diluted Earnings Per Share--
Income from continuing operations(a)..... $ 361 $ 218 $ 258
Impact of assumed conversion of
convertible debt(c)..................... -- -- --
----------- ----------- -----------
Income from continuing operations
including assumed conversion............ $ 361 $ 218 $ 258
=========== =========== ===========
Average shares of common stock
outstanding(b).......................... 170,264,731 169,609,373 172,764,198
Effect of dilutive securities:
Restricted stock....................... -- 516,336 626,732
Stock options.......................... 452,867 400,403 64,329
Performance shares..................... 84,038 -- 27,625
Convertible debt(c).................... -- -- 28,770
----------- ----------- -----------
Average shares of common stock
outstanding including dilutive
securities.............................. 170,801,636 170,526,112 173,511,654
=========== =========== ===========
Earnings from continuing operations per
average share of common stock........... $ 2.11 $ 1.28 $ 1.48
=========== =========== ===========
</TABLE>
- - --------
Notes: (a) All preferred stock outstanding before the Merger was acquired by El
Paso. Therefore, preferred stock dividends are included in the
computation of earnings per share from discontinued operations for
1996 and 1995. There was no preferred stock outstanding in 1997.
(b) In 1992, 12 million shares of common stock were issued to the SECT.
Shares of common stock issued to a related trust are not considered
to be outstanding in the computation of average shares until the
shares are used to fund the obligations of the trust. During each of
the years ended December 31, 1996 and 1995, the SECT used 4,358,084
and 2,697,770 shares, respectively. At December 31, 1996, all shares
were used. Stock repurchase plans also affect common stock
outstanding. See Note 7 for additional information regarding these
plans.
(c) During 1995, Tenneco Inc. 10% loan stock outstanding was convertible
into common stock. The impact of the assumed conversion on income
from continuing operations was $12,746 and on average shares of
common stock outstanding was 28,770 shares. At December 31, 1995, all
loan stock was converted.
58
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. PREFERRED STOCK
Tenneco had 50 million shares of preferred stock ($.01 par value) authorized
at December 31, 1997 and 1996. No shares of preferred stock were outstanding
at the respective dates. Tenneco has designated and reserved 3.5 million
shares of the preferred stock as junior preferred stock for the Shareholder
Rights Plan.
As part of the Merger, Tenneco's $7.40 and $4.50 preferred stock (the
"Preferred Stock") was acquired by El Paso in exchange for El Paso common
stock. Consequently the $7.40 and $4.50 preferred stock dividends have been
subtracted from discontinued operations to compute basic and diluted earnings
per share. Before the Merger, Tenneco made periodic accretions of the excess
of the redemption value over the fair value of the Preferred Stock at the date
of issue. Such accretions have been included in the statements of income
caption, "Preferred stock dividends" as a reduction of net income to arrive at
net income to common stock.
In connection with the Transaction and as part of the Debt Realignment, Old
Tenneco issued the NPS Preferred Stock in November 1996 for proceeds of
approximately $296 million. The proceeds from the issuance were used to fund a
portion of the cash tender offers made in connection with the Debt Realignment
and other cash requirements preceding the Merger. As a result of the Merger,
the obligations relating to the NPS Preferred Stock remained with Old Tenneco.
Changes in Preferred Stock with Mandatory Redemption Provisions
<TABLE>
<CAPTION>
1996 1995
------------------ -----------------
SHARES AMOUNT SHARES AMOUNT
---------- ------ --------- ------
(MILLIONS EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Balance January 1......................... 1,390,993 $130 1,586,764 $147
Shares redeemed.......................... (195,751) (20) (195,771) (20)
Merger of energy business................ (1,195,242) (113) -- --
Accretion of excess of redemption value
over fair value at date of issue........ -- 3 -- 3
---------- ---- --------- ----
Balance December 31....................... -- $ -- 1,390,993 $130
========== ==== ========= ====
</TABLE>
9. MINORITY INTEREST
At December 31, 1997 and 1996, Tenneco reported minority interest in the
balance sheet of $424 million and $304 million, respectively. At December 31,
1997, $392 million of minority interest resulted from the December 1994 and
December 1997 sales of preferred stock ($300 million and $100 million,
respectively) of Tenneco International Holding Corp. ("TIHC") to a financial
investor. Subsequent to each sale, the investor had approximately a 25%
interest in TIHC, consisting of 100% of the issued and outstanding variable
rate voting preferred stock of TIHC. Tenneco and certain of its subsidiaries
hold 100% of the issued and outstanding $8.00 junior preferred stock and
common stock of TIHC. TIHC holds certain assets including the capital stock of
Alupack A.G., a subsidiary included in the Tenneco Packaging segment, Tenneco
Canada Inc., S.A. Monroe Europe N.V., Monroe Australia Proprietary Limited,
Walker France S.A., and other subsidiaries included in the Tenneco Automotive
segment. For financial reporting purposes, the assets, liabilities, and
earnings of TIHC and its subsidiaries are consolidated in Tenneco's financial
statements, and the investor's preferred stock interest has been recorded as
"Minority interest" in the balance sheet.
As of December 31, 1997, dividends on the TIHC preferred stock are based on
the aggregate issue price of $400 million times a rate per annum equal to .92%
over LIBOR and are payable quarterly in arrears on the last business day of
each quarter. The weighted average rate paid on TIHC preferred stock was 6.92%
and 6.83% for 1997 and 1996, respectively. Additionally, the holder of the
preferred stock is entitled to receive, when and if
59
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
declared by the Board of Directors of TIHC, participating dividends based on
the operating income growth rate of TIHC and its subsidiaries. For financial
reporting purposes, dividends paid by TIHC to its financial investor have been
recorded in Tenneco's statements of income as "Minority interest."
10. POSTRETIREMENT BENEFITS
Tenneco has postretirement health care and life insurance plans that cover
substantially all of its domestic employees. For salaried employees, the plans
cover employees retiring from Tenneco on or after attaining age 55 who have
had at least 10 years service with Tenneco after attaining age 45. For hourly
employees, the postretirement benefit plans generally cover employees who
retire according to one of Tenneco's hourly employee retirement plans. All of
these benefits may be subject to deductibles, copayment provisions, and other
limitations, and Tenneco has reserved the right to change these benefits.
Tenneco's postretirement benefit plans are not funded.
The funded status of the postretirement benefit plans reconciles with
amounts recognized in the balance sheet at December 31, 1997 and 1996, as
follows (Note):
<TABLE>
<CAPTION>
1997 1996
----- -----
(MILLIONS)
<S> <C> <C>
Actuarial present value of accumulated postretirement benefit
obligation at September 30:
Retirees....................................................... $ 107 $ 98
Fully eligible active plan participants........................ 27 28
Other active plan participants................................. 44 41
----- -----
Total accumulated postretirement benefit obligation.............. 178 167
Plan assets at fair value at September 30........................ -- --
----- -----
Accumulated postretirement benefit obligation in excess of plan
assets at September 30.......................................... (178) (167)
Claims paid during the fourth quarter............................ 3 3
Unrecognized reduction of prior service obligations resulting
from plan amendments............................................ (8) (10)
Unrecognized net loss resulting from plan experience and changes
in actuarial assumptions........................................ 33 29
----- -----
Accrued postretirement benefit cost at December 31............... $(150) $(145)
===== =====
</TABLE>
- - --------
Note:The accrued postretirement benefit cost has been recorded based upon
certain actuarial estimates as described below. Those estimates are subject to
revision in future periods given new facts or circumstances.
The net periodic postretirement benefit cost from continuing operations for
the years 1997, 1996, and 1995 consist of the following components:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(MILLIONS)
<S> <C> <C> <C>
Service cost for benefits earned during the year................ $ 5 $ 4 $ 3
Interest cost on accumulated postretirement benefit obligation.. 12 11 10
Net amortization of unrecognized amounts........................ (1) (1) (1)
--- --- ---
Net periodic postretirement benefit cost........................ $16 $14 $12
=== === ===
</TABLE>
The initial weighted average assumed health care cost trend rate used in
determining the 1997, 1996, and 1995 accumulated postretirement benefit
obligation was 5%, 6%, and 7%, respectively, remaining at 5% thereafter.
Increasing the assumed health care cost trend rate by one percentage-point
in each year would increase the 1997, 1996, and 1995 accumulated
postretirement benefit obligations by approximately $14 million, $13 million,
60
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
and $12 million, respectively, and would increase the aggregate of the service
cost and interest cost components of the net postretirement benefit cost for
1997, 1996, and 1995 by approximately $2 million, $2 million, and $1 million,
respectively.
The discount rate (which is based on long-term market rates) used in
determining the accumulated postretirement benefit obligation was 7.75% for
1997, 1996, and 1995.
11. PENSION PLANS
Tenneco has retirement plans that cover substantially all of its employees.
Benefits are based on years of service and, for most salaried employees, on
final average compensation. Tenneco's funding policies are to contribute to
the plans amounts necessary to satisfy the funding requirement of federal laws
and regulations. Plan assets consist principally of listed equity and fixed
income securities. Also included in the table below are pension obligations
and assets retained by Tenneco related to certain employees of Tenneco's
discontinued operations.
The funded status of the plans reconcile with amounts on the balance sheet
at December 31, 1997 and 1996, as follows:
<TABLE>
<CAPTION>
PLANS IN
PLANS IN WHICH
WHICH ASSETS ACCUMULATED
EXCEED BENEFITS
ACCUMULATED EXCEED ALL PLANS
BENEFITS ASSETS (NOTE)
-------------- ------------ --------------
1997 1996 1997 1996 1997 1996
------ ------ ----- ----- ------ ------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Actuarial present value of
benefits based on service to
date and present pay levels at
September 30:
Vested benefit obligation..... $2,892 $2,555 $ 43 $ 92 $2,935 $2,647
Non-vested benefit obligation. 72 41 7 9 79 50
------ ------ ----- ----- ------ ------
Accumulated benefit
obligation................... 2,964 2,596 50 101 3,014 2,697
Additional amounts related to
projected salary increases..... 129 104 2 4 131 108
------ ------ ----- ----- ------ ------
Total projected benefit
obligation at September 30..... 3,093 2,700 52 105 3,145 2,805
Plan assets at fair value at
September 30................... 4,099 3,402 10 57 4,109 3,459
------ ------ ----- ----- ------ ------
Plan assets in excess of (less
than) total projected benefit
obligation at September 30..... 1,006 702 (42) (48) 964 654
Contributions during the fourth
quarter........................ 2 1 -- -- 2 1
Unrecognized net (gain) loss
resulting from plan experience
and changes in actuarial
assumptions.................... (328) (87) -- 2 (328) (85)
Unrecognized prior service
obligations resulting from plan
amendments..................... 67 70 4 4 71 74
Remaining unrecognized net
obligation (asset) at initial
application.................... (73) (94) -- -- (73) (94)
Adjustment recorded to recognize
minimum liability.............. -- -- (4) (5) (4) (5)
------ ------ ----- ----- ------ ------
Prepaid (accrued) pension cost
at December 31................. $ 674 $ 592 $ (42) $ (47) $ 632 $ 545
====== ====== ===== ===== ====== ======
</TABLE>
- - --------
Note: Assets of one plan may not be utilized to pay benefits of other plans.
Additionally, the prepaid (accrued) pension cost has been recorded based upon
certain actuarial estimates as described below. Those estimates are subject to
revision in future periods given new facts or circumstances.
61
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Net periodic pension costs (income) from continuing operations for the years
1997, 1996, and 1995 consist of the following components:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Service cost--benefits earned during the
year................................... $ 35 $ 31 $ 23
Interest accrued on prior years
projected benefit obligation........... 211 148 144
Expected return on plan assets--
Actual (return) loss.................. (835) (349) (387)
Unrecognized excess (deficiency) of
actual return over expected return... 525 141 188
---- ---- ----
(310) (208) (199)
Net amortization of unrecognized
amounts................................ (9) -- (3)
----- ----- -----
Net pension income...................... $ (73) $ (29) $ (35)
===== ===== =====
</TABLE>
The weighted average discount rate (which is based on long-term market
rates) used in determining the actuarial present value of the benefit
obligation was 7.75% for 1997, 1996, and 1995. The rate of increase in future
compensation was 5.0%, 5.0%, and 5.1% for 1997, 1996, and 1995, respectively.
The weighted average expected long-term rate of return on plan assets was 10%
for 1997, 1996, and 1995.
12. SEGMENT AND GEOGRAPHIC AREA INFORMATION
Tenneco is a global manufacturer with the following major business segments:
Tenneco Automotive
Manufacture and sale of exhaust and ride control systems for both the
original equipment and replacement markets.
Tenneco Packaging
Manufacture and sale of packaging materials, cartons, containers, and
specialty and protective packaging products for consumer, institutional, and
industrial markets.
62
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following tables summarize certain segment and geographic information of
Tenneco's businesses:
<TABLE>
<CAPTION>
SEGMENT RECLASS
------------------------------------------- AND
DISCONTINUED ELIMINA- CONSOL-
AUTOMOTIVE PACKAGING OPERATIONS(A) OTHER(B) TION IDATED
---------- --------- ------------- -------- -------- -------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
AT DECEMBER 31, 1997,
AND FOR THE YEAR THEN
ENDED
Net sales and operating
revenues............... $3,226 $3,995 $ -- $ 10 $ (11) $7,220
====== ====== ===== ===== ===== ======
Operating profit........ 420 382 -- (13) -- 789
Equity in net income of
affiliated companies... -- 3 -- -- -- 3
General corporate
expenses............... (13) (14) -- (1) -- (28)
------ ------ ----- ----- ----- ------
Income before interest
expense, income taxes,
and minority interest.. 407 371 -- (14) -- 764
====== ====== ===== ===== ===== ======
Identifiable assets..... 2,752 4,606 -- 1,166 (219) 8,305
Investment in affiliated
companies.............. 2 25 -- -- -- 27
------ ------ ----- ----- ----- ------
Total assets........... 2,754 4,631 -- 1,166 (219) 8,332
====== ====== ===== ===== ===== ======
Depreciation, depletion,
and amortization....... 110 233 -- 22 -- 365
====== ====== ===== ===== ===== ======
Capital expenditures for
continuing operations.. 211 335 -- 12 -- 558
====== ====== ===== ===== ===== ======
AT DECEMBER 31, 1996,
AND FOR THE YEAR THEN
ENDED
Net sales and operating
revenues............... $2,980 $3,602 $ -- $ -- $ (10) $6,572
====== ====== ===== ===== ===== ======
Operating profit........ 262 415 -- (15) -- 662
Equity in net income of
affiliated companies... -- -- -- -- -- --
General corporate
expenses............... (13) (14) -- (7) -- (34)
------ ------ ----- ----- ----- ------
Income before interest
expense, income taxes,
and minority interest.. 249 401 -- (22) -- 628
====== ====== ===== ===== ===== ======
Identifiable assets..... 2,555 3,878 -- 1,235 (108) 7,560
Investment in affiliated
companies.............. 2 24 -- 1 -- 27
------ ------ ----- ----- ----- ------
Total assets........... 2,557 3,902 -- 1,236 (108) 7,587
====== ====== ===== ===== ===== ======
Depreciation, depletion,
and amortization....... 94 205 -- 10 -- 309
====== ====== ===== ===== ===== ======
Capital expenditures for
continuing operations.. 177 341 -- 55 -- 573
====== ====== ===== ===== ===== ======
AT DECEMBER 31, 1995,
AND FOR THE YEAR THEN
ENDED
Net sales and operating
revenues............... $2,479 $2,752 $ -- $ -- $ (10) $5,221
====== ====== ===== ===== ===== ======
Operating profit........ 248 440 -- 7 -- 695
Equity in net income of
affiliated companies... 1 -- -- -- -- 1
General corporate
expenses............... (9) (10) -- (5) -- (24)
------ ------ ----- ----- ----- ------
Income before interest
expense, income taxes,
and minority interest.. 240 430 -- 2 -- 672
====== ====== ===== ===== ===== ======
Identifiable assets..... 1,874 3,405 -- 1,176 (94) 6,361
Investment in affiliated
companies.............. 3 4 -- -- -- 7
Identifiable net assets
related to discontinued
operations............. -- -- 433 -- -- 433
Investment in affiliated
companies related to
discontinued
operations............. -- -- 612 -- -- 612
------ ------ ----- ----- ----- ------
Total assets........... 1,877 3,409 1,045 1,176 (94) 7,413
====== ====== ===== ===== ===== ======
Depreciation, depletion,
and amortization....... 84 110 -- 2 -- 196
====== ====== ===== ===== ===== ======
Capital expenditures for
continuing operations.. 208 316 -- 38 -- 562
====== ====== ===== ===== ===== ======
</TABLE>
See Notes on page 65.
63
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
GEOGRAPHIC AREA(D)
-------------------------------
UNITED EUROPEAN OTHER RECLASS AND
STATES CANADA UNION FOREIGN ELIMINATION CONSOLIDATED
------ ------ -------- ------- ----------- ------------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
AT DECEMBER 31, 1997,
AND FOR THE YEAR THEN
ENDED
Net sales and operating
revenues:
Sales to unaffiliated
customers............. $5,049 $207 $1,475 $489 $ -- $7,220
Transfers among
geographic areas(c)... 116 52 52 41 (261) --
------ ---- ------ ---- ----- ------
Total................ 5,165 259 1,527 530 (261) 7,220
====== ==== ====== ==== ===== ======
Operating profit........ 482 38 208 61 -- 789
Equity in net income of
affiliated companies... 3 -- -- -- -- 3
General corporate
expenses............... (28) -- -- -- -- (28)
------ ---- ------ ---- ----- ------
Income before interest
expense, income taxes,
and minority interest.. 457 38 208 61 -- 764
====== ==== ====== ==== ===== ======
Identifiable assets..... 6,328 191 1,398 491 (103) 8,305
Investment in affiliated
companies.............. 17 -- 2 8 -- 27
------ ---- ------ ---- ----- ------
Total assets......... 6,345 191 1,400 499 (103) 8,332
====== ==== ====== ==== ===== ======
AT DECEMBER 31, 1996,
AND FOR THE YEAR THEN
ENDED
Net sales and operating
revenues:
Sales to unaffiliated
customers............. $4,708 $194 $1,295 $375 $ -- $6,572
Transfers among
geographic areas(c)... 99 49 29 36 (213) --
------ ---- ------ ---- ----- ------
Total................ 4,807 243 1,324 411 (213) 6,572
====== ==== ====== ==== ===== ======
Operating profit........ 475 30 121 36 -- 662
Equity in net income of
affiliated companies... 1 -- -- (1) -- --
General corporate
expenses............... (34) -- -- -- -- (34)
------ ---- ------ ---- ----- ------
Income before interest
expense, income taxes,
and minority interest.. 442 30 121 35 -- 628
====== ==== ====== ==== ===== ======
Identifiable assets..... 5,960 173 1,079 449 (101) 7,560
Investment in affiliated
companies.............. 17 -- 2 8 -- 27
------ ---- ------ ---- ----- ------
Total assets......... 5,977 173 1,081 457 (101) 7,587
====== ==== ====== ==== ===== ======
AT DECEMBER 31, 1995,
AND FOR THE YEAR THEN
ENDED
Net sales and operating
revenues:
Sales to unaffiliated
customers............. $3,683 $149 $1,140 $249 $ -- $5,221
Transfers among
geographic areas(c)... 75 43 27 21 (166) --
------ ---- ------ ---- ----- ------
Total................ 3,758 192 1,167 270 (166) 5,221
====== ==== ====== ==== ===== ======
Operating profit........ 548 20 102 25 -- 695
Equity in net income of
affiliated companies... 1 -- 1 (1) -- 1
General corporate
expenses............... (24) -- -- -- -- (24)
------ ---- ------ ---- ----- ------
Income before interest
expense, income taxes,
and minority interest.. 525 20 103 24 -- 672
====== ==== ====== ==== ===== ======
Identifiable assets..... 4,915 207 1,077 241 (79) 6,361
Investment in affiliated
companies.............. 3 -- 2 2 -- 7
Identifiable net assets
related to discontinued
operations............. 168 -- -- 265 -- 433
Investment in affiliated
companies related to
discontinued
operations............. 574 2 -- 36 -- 612
------ ---- ------ ---- ----- ------
Total assets......... 5,660 209 1,079 544 (79) 7,413
====== ==== ====== ==== ===== ======
</TABLE>
See Notes on following page.
64
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
- - --------
Notes: (a) Tenneco's energy business, shipbuilding business, farm and
construction equipment operations, and chemicals operations have
been reflected as discontinued operations in the accompanying
financial statements. Reference is made to Note 3, "Discontinued
Operations, Disposition of Assets, and Extraordinary Loss," for
further information.
(b) Included in "Other" are the operations of Tenneco Business Services
("TBS"). TBS designs, implements, and administers shared
administrative service programs for Tenneco and performs certain
administrative services for certain other former Tenneco businesses.
(c) Products are transferred between geographic areas on a basis intended
to reflect as nearly as possible the "market value" of the products.
(d) As reflected above, Tenneco's segments principally market their
products and services in the United States, with significant sales in
the European Union and other foreign countries.
Tenneco is engaged in the sale of products for export from the United
States. Such sales are reflected in the table below:
<TABLE>
<CAPTION>
GEOGRAPHIC AREA PRINCIPAL PRODUCTS 1997 1996 1995
--------------- --------------------------------------------- ---- ---- ----
(MILLIONS)
<C> <S> <C> <C> <C>
Canada......... Ride control systems, exhaust systems,
paperboard products, molded and pressed pulp
goods, corrugated boxes, aluminum, and
plastics $182 $119 $ 72
European Union. Ride control systems, exhaust systems, molded
and pressed pulp goods, paperboard products,
corrugated boxes, aluminum, and plastics 35 24 23
Other Foreign.. Ride control systems, exhaust systems, molded
and pressed pulp goods, paperboard products,
corrugated boxes, aluminum, and plastics 139 124 69
---- ---- ----
Total Export Sales............................................ $356 $267 $164
==== ==== ====
</TABLE>
13. COMMITMENTS AND CONTINGENCIES
Capital Commitments
Tenneco estimates that expenditures aggregating approximately $380 million
will be required after December 31, 1997, to complete facilities and projects
authorized at such date, and substantial commitments have been made in
connection therewith.
Lease Commitments
Tenneco holds certain of its facilities, equipment, and other assets under
long-term leases. The minimum lease payments under non-cancelable operating
leases with lease terms in excess of one year are $135 million, $123 million,
$110 million, $104 million, and $50 million for the years 1998, 1999, 2000,
2001, and 2002, respectively, and $233 million for subsequent years. Of these
amounts, $78 million for 1998, $78 million for 1999, $78 million for 2000, $77
million for 2001, $27 million for 2002, and $74 million for subsequent years
are lease payment commitments to financial investors (the "Lessor") for
certain mill and timberlands assets.
Following the initial mill asset lease period, Tenneco may, under the
provisions of the lease agreements, extend the leases on terms mutually
negotiated with the Lessor or purchase the leased assets under conditions
specified in the lease agreements. If the purchase options are not exercised
or the leases are not extended, Tenneco will make a residual guarantee payment
to the Lessor of approximately $658 million, which will be refunded up to the
total amount of the residual guarantee payment based on the Lessor's
subsequent sales price for the leased assets. Throughout the lease period,
Tenneco is required to maintain the leased properties.
65
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In January 1997, Tenneco refinanced two mill asset leases resulting in a
pre-tax gain of $38 million which is included in the caption "Other income,
net."
Commitments under capital leases were not significant to the accompanying
financial statements. Total rental expense for continuing operations for the
years 1997, 1996, and 1995, was $163 million, $179 million, and $171 million,
respectively, including minimum rentals under non-cancelable operating leases
of $155 million, $151 million, and $148 million for the corresponding periods.
Tenneco Packaging's various lease agreements require that it comply with
certain covenants and restrictions, including financial ratios that, among
other things, place limitations on incurring additional "funded debt" as
defined by the agreements. Under the provisions of the timber lease
agreements, in order to incur funded debt, Tenneco Packaging must maintain a
pre-tax cash flow coverage ratio, as defined, on a cumulative four quarter
basis of a minimum of 2.0, subsequently modified to 1.25 through December 31,
1996. Tenneco Packaging was in compliance with all of its covenants at
December 31, 1997.
Litigation
Tenneco Inc. and Newport News have received letters from the Defense
Contract Audit Agency (the "DCAA"), inquiring about certain aspects of the
Distributions, including the disposition of the Tenneco Inc. Retirement Plan
("TRP") and the 1986 asset valuation for the TRP and its cost accounting
treatment. The DCAA has been advised that (i) the TRP will retain the
liability for all benefits accrued by the Newport News salaried employees
through December 31, 1996, (ii) the Newport News salaried employees will not
accrue additional benefits under the TRP after December 31, 1996, and (iii) no
liabilities or assets of the TRP will be transferred from the TRP to any plan
maintained by Newport News. A determination of the ratio of assets to
liabilities of the TRP attributable to Newport News will be based on facts,
assumptions, and legal issues that are complicated and uncertain; however, it
is likely that the U.S. Government will assert a claim against Newport News
with respect to the amount, if any, by which the assets of the TRP
attributable to its employees are alleged to exceed the liabilities. Tenneco,
with the full cooperation of Newport News, will defend against any claim by
the U.S. Government, and in the event there is a determination that an amount
is due to the U.S. Government, Tenneco and Newport News will share the
obligation for such amount plus the amount of related defense expenses, in the
ratio of 80% and 20%, respectively. At this preliminary stage, it is
impossible to predict with certainty any eventual outcome regarding this
matter; however, Tenneco does not believe that this matter will have a
material adverse effect on its consolidated financial position or results of
operations.
Tenneco Inc. and its subsidiaries are parties to various other legal
proceedings arising from their operations. Tenneco believes that the outcome
of these proceedings, individually and in the aggregate, will have no material
effect on the financial position or results of operations of Tenneco Inc. and
its subsidiaries.
Environmental Matters
Tenneco Inc. and its subsidiaries are subject to a variety of environmental
and pollution control laws and regulations in all jurisdictions in which they
operate. Tenneco has provided reserves for compliance with these laws and
regulations where it is probable that a liability exists and where Tenneco can
make a reasonable estimate of the liability. The estimated liabilities
recorded are subject to change as more information becomes available regarding
the magnitude of possible clean-up costs and the timing, varying costs, and
effectiveness of alternative clean-up technologies. However, Tenneco believes
that any additional costs which arise as more information becomes available
will not have a material effect on the financial condition or results of
operations of Tenneco.
66
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
CUMULATIVE
INCOME BEFORE INCOME (LOSS) EFFECT OF
INTEREST FROM CHANGE IN
NET SALES EXPENSE, INCOME (LOSS) DISCONTINUED ACCOUNTING
AND INCOME TAXES, FROM OPERATIONS, EXTRAORDINARY PRINCIPLE, NET
OPERATING AND MINORITY CONTINUING NET OF LOSS, NET OF NET OF INCOME
QUARTER REVENUES INTEREST OPERATIONS INCOME TAX INCOME TAX INCOME TAX (LOSS)
------- --------- ------------- ------------- ------------ ------------- ---------- ------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
1997 1st................ $1,629 $159 $ 76 $ -- $ -- $ -- $ 76
2nd................... 1,892 212 104 -- -- -- 104
3rd................... 1,831 226 105 -- -- -- 105
4th................... 1,868 167 76 -- -- (46) 30
------ ---- ---- ---- ----- ---- -----
$7,220 $764 $361 $ -- $ -- $(46) $ 315
====== ==== ==== ==== ===== ==== =====
1996 1st................ $1,539 $161 $ 60 $435 $ -- $ -- $ 495
2nd................... 1,694 253 118 43 -- -- 161
3rd................... 1,653 171 76 40 (1) -- 115
4th................... 1,686 43 (36) (90) (235) -- (361)
------ ---- ---- ---- ----- ---- -----
$6,572 $628 $218 $428 $(236) $ -- $ 410
====== ==== ==== ==== ===== ==== =====
</TABLE>
<TABLE>
<CAPTION>
BASIC EARNINGS (LOSS) PER SHARE OF COMMON STOCK
-----------------------------------------------------------
CUMULATIVE
EFFECT OF
CHANGE IN
CONTINUING DISCONTINUED EXTRAORDINARY ACCOUNTING NET INCOME
QUARTER OPERATIONS OPERATIONS LOSS PRINCIPLE (LOSS)
------- ---------- ------------ ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1997 1st........... $ .44 $ -- $ -- $ -- $ .44
2nd.............. .61 -- -- -- .61
3rd.............. .62 -- -- -- .62
4th.............. .45 -- -- (.27) .18
----- ----- ------ ----- ------
$2.12 $ -- $ -- $(.27) $ 1.85
===== ===== ====== ===== ======
1996 1st........... $ .34 $2.57 $ -- $ -- $ 2.91
2nd.............. .71 .23 -- -- .94
3rd.............. .45 .22 (.01) -- .66
4th.............. (.21) (.56) (1.37) -- (2.14)
----- ----- ------ ----- ------
$1.29 $2.45 $(1.39) $ -- $ 2.35
===== ===== ====== ===== ======
</TABLE>
67
<PAGE>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
DILUTED EARNINGS (LOSS) PER SHARE OF COMMON STOCK
-----------------------------------------------------------
CUMULATIVE
EFFECT OF
CHANGE IN
CONTINUING DISCONTINUED EXTRAORDINARY ACCOUNTING NET INCOME
QUARTER OPERATIONS OPERATIONS LOSS PRINCIPLE (LOSS)
------- ---------- ------------ ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1997 1st........... $ .44 $ -- $ -- $ -- $ .44
2nd.............. .61 -- -- -- .61
3rd.............. .62 -- -- -- .62
4th.............. .44 -- -- (.27) .17
----- ----- ------ ----- ------
$2.11 $ -- $ -- $(.27) $ 1.84
===== ===== ====== ===== ======
1996 1st........... $ .34 $2.55 $ -- $ -- $ 2.89
2nd.............. .70 .23 -- -- .93
3rd.............. .45 .22 (.01) -- .66
4th.............. (.21) (.56) (1.37) -- (2.14)
----- ----- ------ ----- ------
$1.28 $2.44 $(1.38) $ -- $ 2.34
===== ===== ====== ===== ======
</TABLE>
- - --------
Notes: Reference is made to Notes 1, 2, 3 and 7 and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" for items
affecting quarterly results. The sum of the quarters may not equal the total
of the respective year's earnings per share on either a basic or diluted basis
due to changes in the weighted average shares outstanding throughout the year.
(The preceding notes are an integral part of the foregoing financial
statements.)
68
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There has been no change in accountants, nor has there been any disagreement
on any matter of accounting principles or practices or financial disclosure,
which in either case is required to be reported pursuant to this Item 9.
PART III
Item 10, "Directors and Executive Officers of the Registrant," Item 11,
"Executive Compensation," Item 12, "Security Ownership of Certain Beneficial
Owners and Management," and Item 13, "Certain Relationships and Related
Transactions," have been omitted from this report inasmuch as Tenneco Inc.
will file with the Securities and Exchange Commission pursuant to Regulation
14A within 120 days after the end of the fiscal year covered by this report a
definitive Proxy Statement for the Annual Meeting of Shareowners of Tenneco
Inc. to be held on May 12, 1998, at which meeting the shareowners will vote
upon the election of directors. The information under the caption "Election of
Directors" in such Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
FINANCIAL STATEMENTS INCLUDED IN ITEM 8
See "Index to Financial Statements of Tenneco Inc. and Consolidated
Subsidiaries" set forth in Item 8, "Financial Statements and Supplementary
Data."
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES INCLUDED IN ITEM 14
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Schedules of Tenneco Inc. and Consolidated Subsidiaries--Schedule II--
Valuation and qualifying accounts--three years ended December 31, 1997.. 70
</TABLE>
SCHEDULES OMITTED AS NOT REQUIRED OR INAPPLICABLE
Schedule I-- Condensed financial information of registrant
Schedule III-- Real estate and accumulated depreciation
Schedule IV-- Mortgage loans on real estate
Schedule V-- Supplemental information concerning property--casualty
insurance operations
69
<PAGE>
SCHEDULE II
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(MILLIONS)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- - ------------------------------------------------------------------------------
ADDITIONS
---------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END
DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS OF YEAR
- - ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful
Accounts and Notes
Deducted from Assets to
Which it Applies:
Year Ended December 31,
1997.................. $32 $ 7 $ 7 $11 $35
=== === === === ===
Year Ended December 31,
1996.................. $24 $12 $-- $ 4 $32
=== === === === ===
Year Ended December 31,
1995.................. $15 $20 $-- $11 $24
=== === === === ===
</TABLE>
70
<PAGE>
REPORTS ON FORM 8-K
On October 23, 1997, the Company filed a Current Report on Form 8-K with
respect to a press release issued on October 21, 1997 announcing the Company's
earnings in the quarter ended September 30, 1997 and other matters.
EXHIBITS
The following exhibits are filed with Tenneco Inc.'s Annual Report on Form
10-K for the fiscal year ended December 31, 1997, or incorporated therein by
reference (exhibits designated by an asterisk are filed with the Report; all
other exhibits are incorporated by reference):
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
<C> <S>
2 --None.
*3.1(a) --Restated Certificate of Incorporation of Tenneco Inc. dated
December 11, 1996.
*3.1(b) --Certificate of Designation, Preferences and Rights of Series A
Participating Junior Preferred Stock, dated December 11, 1996.
*3.1(c) --Certificate of Amendment, dated December 11, 1996.
*3.1(d) --Certificate of Ownership and Merger, dated July 8, 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>
71
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
<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).
9 --None.
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).
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).
</TABLE>
72
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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.
*10.12 -- Executive Incentive Compensation Plan.
*10.13 --Tenneco Inc. Deferred Compensation Plan.
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 (incorporated
herein by reference from Exhibit 10.17 of Tenneco's Form 10, File No.
1-12387).
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).
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.
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 Annual Report on 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 10.28 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.
</TABLE>
73
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.27 --Professional Services Agreement, dated August 22, 1996, by and
between Tenneco Business Services Inc. and Newport News Shipbuilding
Inc. (incorporated herein by reference from Exhibit 10.28 of Tenneco
Inc.'s Form 10, File No. 1-12387).
11 --None.
*12 --Computation of Ratio of Earnings to Fixed Charges.
13 --None.
16 --None.
18 --None.
*21 --Subsidiaries of Tenneco Inc.
22 --None.
*23 --Consent of Arthur Andersen LLP.
*24 --Powers of Attorney of the following directors of Tenneco Inc.:
Mark Andrews
W. Michael Blumenthal
Larry D. Brady
M. Kathryn Eickhoff
Peter T. Flawn
Henry U. Harris, Jr.
Belton K. Johnson
Sir David Plastow
Roger B. Porter
William L. Weiss
Clifton R. Wharton, Jr.
*27.1 --Financial Data Schedule, 12/31/97.
*27.2 --Restated Financial Data Schedule, 9/30/97.
*27.3 --Restated Financial Data Schedule, 6/30/97.
*27.4 --Restated Financial Data Schedule, 3/31/97.
*27.5 --Restated Financial Data Schedule, 12/31/96.
*27.6 --Restated Financial Data Schedule, 9/30/96.
*27.7 --Restated Financial Data Schedule, 6/30/96.
*27.8 --Restated Financial Data Schedule, 3/31/96.
*27.9 --Restated Financial Data Schedule, 12/31/95.
28 --None.
99 --None.
</TABLE>
74
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
Tenneco Inc.
/s/ Dana G. Mead
By___________________________________
Dana G. Mead
Chairman and Chief Executive Officer
Date: March 13, 1998
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING ON BEHALF OF THE REGISTRANT AND
IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Dana G. Mead Principal Executive March 13, 1998
___________________________________________ Officer and Director
Dana G. Mead
/s/ Robert T. Blakely Principal Financial and March 13, 1998
___________________________________________ Accounting Officer
Robert T. Blakely
Mark Andrews, W. Michael Blumenthal, Larry Directors
D. Brady, M. Kathryn Eickhoff, Peter T.
Flawn, Henry U. Harris, Jr., Belton K.
Johnson, Sir David Plastow, Roger B.
Porter, William L. Weiss, Clifton R.
Wharton, Jr.
</TABLE>
/s/ Theodore R. Tetzlaff
By __________________________________ March 13, 1998
Attorney-in-fact
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<PAGE>
EXHIBIT 3.1(a)
RESTATED CERTIFICATE OF INCORPORATION
OF
NEW TENNECO INC.
* * * * *
The present name of the corporation is New Tenneco Inc. The corporation was
incorporated under that name by the filing of its original Certificate of
Incorporation with the Secretary of State of the State of Delaware on August
26, 1996. This Restated Certificate of Incorporation of the corporation, which
both restates and further amends the provisions of the corporation's
Certificate of Incorporation, was duly adopted in accordance with the
provisions of Sections 242 and 245 of the General Corporation Law of the State
of Delaware and by the written consent of its sole stockholder in accordance
with Section 228 of the General Corporation Law of the State of Delaware. The
Certificate of Incorporation of the corporation is hereby amended and restated
to read in its entirety as follows:
FIRST: The name of the corporation is New Tenneco Inc.
SECOND: The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: A. The total number of shares of all classes of stock which the
corporation shall be authorized to issue is 400,000,000 shares, divided into
350,000,000 shares of Common Stock, par value $.01 per share (herein called
"Common Stock"), and 50,000,000 shares of Preferred Stock, par value $.01 per
share (herein called "Preferred Stock").
B. The Board of Directors of the corporation (the "Board of Directors") is
hereby expressly authorized, by resolution or resolutions thereof, to provide,
out of the unissued shares of Preferred Stock, for series of Preferred Stock
and, with respect to each such series, to fix the number of shares
constituting such series and the designation of such series, the voting powers
(if any) of the shares of such series, and the preferences and relative,
participating, optional or other special rights, if any, and any
qualifications, limitations or restrictions thereof, of the shares of such
series. The powers, preferences and relative, participating, optional and
other special rights of each series of Preferred Stock, and the
qualifications, limitations or restrictions thereof, if any, may differ from
those of any and all other series at any time outstanding.
C. Except as may otherwise be provided in this Restated Certificate of
Incorporation (including any certificate filed with the Secretary of State of
the State of Delaware establishing the terms of a series of Preferred Stock in
accordance with Section B of this Article FOURTH) or by applicable law, each
holder of Common Stock, as such, shall be entitled to one vote for each share
of Common Stock held of record by such holder on all matters on which
stockholders generally are entitled to vote, and no holder of any series of
Preferred Stock, as such, shall be entitled to any voting powers in respect
thereof.
D. Subject to applicable law and the rights, if any, of the holders of any
outstanding series of Preferred Stock, dividends may be declared and paid on
the Common Stock at such times and in such amounts as the Board of Directors
in its discretion shall determine.
E. Upon the dissolution, liquidation or winding up of the corporation,
subject to the rights, if any, of the holders of any outstanding series of
Preferred Stock, the holders of the Common Stock shall be entitled to receive
the assets of the corporation available for distribution to its stockholders
ratably in proportion to the number of shares held by them.
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<PAGE>
F. The corporation shall be entitled to treat the person in whose name any
share of its stock is registered as the owner thereof for all purposes and
shall not be bound to recognize any equitable or other claim to, or interest
in, such share on the part of any other person, whether or not the corporation
shall have notice thereof, except as expressly provided by applicable law.
FIFTH: A. The business and affairs of the corporation shall be managed by or
under the direction of the Board of Directors consisting of not less than
eight nor more than sixteen directors, with the exact number of directors
constituting the entire Board of Directors to be determined from time to time
by resolution adopted by the affirmative vote of a majority of the entire
Board of Directors. For purposes of this Restated Certificate of
Incorporation, "the entire Board of Directors" shall mean the number of
directors that would be in office if there were no vacancies nor any unfilled
newly created directorships.
The Board of Directors shall be divided into three classes, Class I, Class
II and Class III. Each class shall consist, as nearly as may be possible, of
one-third of the number of directors constituting the entire Board of
Directors. Class I directors shall be initially elected for a term expiring at
the first succeeding annual meeting of stockholders, Class II directors shall
be initially elected for a term expiring at the second succeeding annual
meeting of stockholders, and Class III directors shall be initially elected
for a term expiring at the third succeeding annual meeting of stockholders. At
each annual meeting of the stockholders following 1996, successors to the
class of directors whose term expires at that annual meeting shall be elected
for a term expiring at the third succeeding annual meeting of stockholders. If
the number of directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of directors in
each class as nearly equal as possible, and any additional director of any
class elected to fill a newly created directorship resulting from an increase
in such class shall hold office for a term that shall coincide with the
remaining term of that class, but in no case shall a decrease in the number of
directors shorten the term of any incumbent director. A director shall hold
office until the annual meeting for the year in which his term expires and
until his successor shall be elected and shall qualify, subject, however, to
prior death, resignation, retirement, disqualification or removal from office.
Any vacancy on the Board of Directors that results from an increase in the
number of directors may be filled by a majority of the Board of Directors then
in office, provided that a quorum is present, and any other vacancy occurring
in the Board of Directors may be filled by a majority of the directors then in
office, even if less than a quorum, or by a sole remaining director. Directors
chosen to fill any such vacancy shall hold office for a term expiring at the
annual meeting of stockholders at which the term of office of the class to
which they have been elected expires and until such director's successor shall
have been duly elected and qualified.
Notwithstanding the foregoing, whenever the holders of any one or more
series of Preferred Stock shall have the right, voting separately as a class
or series, to elect directors, the election, removal, term of office, filling
of vacancies and other features of such directorships shall be governed by the
terms of this Restated Certificate of Incorporation applicable thereto, and
such directors so elected shall not be divided into classes pursuant to this
Article FIFTH unless expressly provided by such terms.
B. The Board of Directors shall be authorized to adopt, make, amend, alter,
change, add to or repeal the By-Laws of the corporation, subject to the power
of the stockholders to amend, alter, change, add to or repeal the By-Laws made
by the Board of Directors.
C. Unless and except to the extent that the By-Laws of the corporation shall
so require, the election of directors of the corporation need not be by
written ballot.
SIXTH: A. In addition to any affirmative vote required by law or this
Restated Certificate of Incorporation or the By-Laws of the corporation, and
except as otherwise expressly provided in Section B of this Article SIXTH, a
Business Combination (as hereinafter defined) with, or proposed by or on
behalf of, any Interested Stockholder (as hereinafter defined) or any
Affiliate or Associate (as hereinafter defined) of any Interested Stockholder
or any person who thereafter would be an Affiliate or Associate of such
Interested Stockholder shall, except as otherwise prohibited by applicable
law, require the affirmative vote of not less than 66 2/3% of the votes
2
<PAGE>
entitled to be cast by the holders of all the then outstanding shares of
Voting Stock (as hereinafter defined), voting together as a single class,
excluding Voting Stock beneficially owned by any Interested Stockholder. Such
affirmative vote shall be required notwithstanding the fact that no vote may
be required, or that a lesser percentage or separate class vote may be
specified, by law or in any agreement with any national securities exchange or
otherwise.
B. The provisions of Section A of this Article SIXTH shall not be applicable
to any particular Business Combination, and such Business Combination shall
require only such affirmative vote, if any, as is required by law or by any
other provision of this Restated Certificate of Incorporation or the By-Laws
of the corporation, or any agreement with any national securities exchange, if
all of the conditions specified in either of the following Paragraphs 1 or 2
are met or, in the case of a Business Combination not involving the payment of
consideration to the holders of the corporation's outstanding Capital Stock
(as hereinafter defined), if the condition specified in the following
Paragraph 1 is met:
1. The Business Combination shall have been approved, either specifically
or as a transaction which is within an approved category of transactions,
by a majority (whether such approval is made prior to or subsequent to the
acquisition of, or announcement or public disclosure of the intention to
acquire, beneficial ownership of the Voting Stock that caused the
Interested Stockholder to become an Interested Stockholder) of the
Continuing Directors (as hereinafter defined).
2. All of the following conditions shall have been met:
a. the aggregate amount of cash and the Fair Market Value (as
hereinafter defined), as of the date of the consummation of the
Business Combination, of consideration other than cash to be received
per share by holders of Common Stock in such Business Combination shall
be at least equal to the highest amount determined under clauses (i)
and (ii) below:
(i) (if applicable) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees)
paid by or on behalf of the Interested Stockholder for any share of
Common Stock in connection with the acquisition by the Interested
Stockholder of beneficial ownership of shares of Common Stock (x)
within the two-year period immediately prior to the first public
announcement of the proposed Business Combination (the "Announcement
Date") or (y) in the transaction in which it became an Interested
Stockholder, whichever is higher, in either case as adjusted for any
subsequent stock split, stock dividend, subdivision or
reclassification with respect to Common Stock; and
(ii) the Fair Market Value per share of Common Stock on the
Announcement Date or on the date on which the Interested Stockholder
became an Interested Stockholder (the "Determination Date"),
whichever is higher, as adjusted for any subsequent stock split,
stock dividend, subdivision or reclassification with respect to
Common Stock.
b. The aggregate amount of cash and the Fair Market Value, as of the
date of the consummation of the Business Combination, of consideration
other than cash to be received per share by holders of shares of any
class or series of outstanding Capital Stock, other than Common Stock,
shall be at least equal to the highest amount determined under clauses
(i), (ii), (iii) and (iv) below:
(i) (if applicable) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees)
paid by or on behalf of the Interested Stockholder for any share of
such class or series of Capital Stock in connection with the
acquisition by the Interested Stockholder of beneficial ownership of
shares of such class or series of Capital Stock (x) within the two-
year period immediately prior to the Announcement Date, or (y) in
the transaction in which it became an Interested Stockholder,
whichever is higher, in either case as adjusted for any subsequent
stock split, stock dividend, subdivision or reclassification with
respect to such class or series of Capital Stock;
(ii) the Fair Market Value per share of such class or series of
Capital Stock on the Announcement Date or on the Determination Date,
whichever is higher, as adjusted for any
3
<PAGE>
subsequent stock split, stock dividend, subdivision or
reclassification with respect to such class or series of Capital
Stock;
(iii) (if applicable) the price per share equal to the Fair Market
Value per share of such class or series of Capital Stock determined
pursuant to the immediately preceding clause (ii), multiplied by the
ratio of (x) the highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid by or
on behalf of the Interested Stockholder for any share of such class
or series of Capital Stock in connection with the acquisition by the
Interested Stockholder of beneficial ownership of shares of such
class or series of Capital Stock within the two-year period
immediately prior to the Announcement Date, as adjusted for any
subsequent stock split, stock dividend, subdivision or
reclassification with respect to such class or series of Capital
Stock to (y) the Fair Market Value per share of such class or series
of Capital Stock on the first day in such two-year period on which
the Interested Stockholder acquired beneficial ownership of any
share of such class or series of Capital Stock, as adjusted for any
subsequent stock split, stock dividend, subdivision or
reclassification with respect to such class or series of Capital
Stock; and
(iv) (if applicable) the highest preferential amount per share to
which the holders of shares of such class or series of Capital Stock
would be entitled in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the
corporation regardless of whether the Business Combination to be
consummated constitutes such an event.
The provisions of this Paragraph 2 shall be required to be met with
respect to every class or series of outstanding Capital Stock, whether
or not the Interested Stockholder has previously acquired beneficial
ownership of any shares of a particular class or series of Capital
Stock.
c. The consideration to be received by holders of a particular class
or series of outstanding Capital Stock shall be in cash or in the same
form as previously has been paid by or on behalf of the Interested
Stockholder in connection with its direct or indirect acquisition of
beneficial ownership of shares of such class or series of Capital
Stock. If the consideration so paid for shares of any class or series
of Capital Stock varied as to form, the form of consideration for such
class or series of Capital Stock shall be either cash or the form used
to acquire beneficial ownership of the largest number of shares of such
class or series of Capital Stock previously acquired by the Interested
Stockholder.
d. After the Determination Date and prior to the consummation of such
Business Combination: (i) except as approved by a majority of the
Continuing Directors, there shall have been no failure to declare and
pay at the regular date therefor any full quarterly dividends (whether
or not cumulative) payable in accordance with the terms of any
outstanding Capital Stock; (ii) there shall have been no reduction in
the annual rate of dividends paid on the Common Stock (except as
necessary to reflect any stock split, stock dividend or subdivision of
the Common Stock), except as approved by a majority of the Continuing
Directors; (iii) there shall have been an increase in the annual rate
of dividends paid on the Common Stock as necessary to reflect any
reclassification (including any reverse stock split), recapitalization,
reorganization or any similar transaction that has the effect of
reducing the number of outstanding shares of Common Stock, unless the
failure so to increase such annual rate is approved by a majority of
the Continuing Directors; and (iv) such Interested Stockholder shall
not have become the beneficial owner of any additional shares of
Capital Stock except as part of the transaction that results in such
Interested Stockholder becoming an Interested Stockholder and except in
a transaction that, after giving effect thereto, would not result in
any increase in the Interested Stockholder's percentage beneficial
ownership of any class or series of Capital Stock.
e. A proxy or information statement describing the proposed Business
Combination and complying with the requirements of the Securities
Exchange Act of 1934 and the rules and regulations thereunder (the
"Act") (or any subsequent provisions replacing such Act, rules or
regulations) shall be mailed to all stockholders of the corporation at
least 30 days prior to the consummation of such Business Combination
(whether or not such proxy or information statement is required to be
mailed pursuant to such Act or subsequent provisions). The proxy or
information statement shall contain on
4
<PAGE>
the first page thereof, in a prominent place, any statement as to the
advisability (or inadvisability) of the Business Combination that the
Continuing Directors, or any of them, may choose to make and, if deemed
advisable by a majority of the Continuing Directors, the opinion of an
investment banking firm selected by a majority of the Continuing
Directors as to the fairness (or not) of the terms of the Business
Combination from a financial point of view to the holders of the
outstanding shares of Capital Stock other than the Interested
Stockholder and its Affiliates or Associates (as hereinafter defined),
such investment banking firm to be paid a reasonable fee for its
services by the corporation.
f. Such Interested Stockholder shall not have made any major change
in the corporation's business or equity capital structure without the
approval of a majority of the Continuing Directors.
C. The following definitions shall apply with respect to this Article SIXTH:
1. The term "Business Combination" shall mean:
a. any merger or consolidation of the corporation or any Subsidiary
(as hereinafter defined) with (i) any Interested Stockholder or (ii)
any other company (whether or not itself an Interested Stockholder)
which is or after such merger or consolidation would be an Affiliate or
Associate of an Interested Stockholder; or
b. any sale, lease, exchange, mortgage, pledge, transfer or other
disposition or security arrangement, investment, loan, advance,
guarantee, agreement to purchase, agreement to pay, extension of
credit, joint venture participation or other arrangement (in one
transaction or a series of transactions) with or for the benefit of any
Interested Stockholder or any Affiliate or Associate of any Interested
Stockholder involving any assets, securities or commitments of the
corporation, any Subsidiary or any Interested Stockholder or any
Affiliate or Associate of any Interested Stockholder which (except for
any arrangement, whether as employee, consultant or otherwise, other
than as a director, pursuant to which any Interested Stockholder or any
Affiliate or Associate thereof shall, directly or indirectly, have any
control over or responsibility for the management of any aspect of the
business or affairs of the corporation, with respect to which
arrangements the value tests set forth below shall not apply), together
with all other such arrangements (including all contemplated future
events), has an aggregate Fair Market Value and/or involves aggregate
commitments of $25,000,000 or more or constitutes more than five
percent of the book value of the total assets (in the case of
transactions involving assets or commitments other than capital stock)
or five percent of the stockholders' equity (in the case of
transactions in capital stock) of the entity in question (the
"Substantial Part"), as reflected in the most recent fiscal year-end
consolidated balance sheet of such entity existing at the time the
stockholders of the corporation would be required to approve or
authorize the Business Combination involving the assets, securities
and/or commitments constituting any Substantial Part; or
c. the adoption of any plan or proposal for the liquidation or
dissolution of the corporation or for any amendment to the
corporation's By-Laws; or
d. any reclassification of securities (including any reverse stock
split), or recapitalization of the corporation, or any merger or
consolidation of the corporation with any of its Subsidiaries or any
other transaction (whether or not with or otherwise involving an
Interested Stockholder) that has the effect, directly or indirectly, of
increasing the proportionate share of any class or series of Capital
Stock, or any securities convertible into Capital Stock or into equity
securities of any Subsidiary, that is beneficially owned by any
Interested Stockholder or any Affiliate or Associate of any Interested
Stockholder, or
e. any agreement, contract or other arrangement providing for any one
or more of the actions specified in the foregoing clauses (a) to (d).
2. The term "Capital Stock" shall mean all capital stock of the
corporation authorized to be issued from time to time under Article FOURTH
of this Restated Certificate of Incorporation, and the term "Voting Stock"
shall mean all Capital Stock which by its terms may be voted on all matters
submitted to stockholders of the corporation generally.
5
<PAGE>
3. The term "person" shall mean any individual, firm, company or other
entity and shall include any group comprised of any person and any other
person with whom such person or any Affiliate or Associate of such person
has any agreement, arrangement or understanding, directly or indirectly,
for the purpose of acquiring, holding, voting or disposing of Capital
Stock.
4. The term "Interested Stockholder" shall mean any person (other than (i)
the corporation or any Subsidiary, any profit-sharing, employee stock
ownership or other employee benefit plan of the corporation or any Subsidiary
or any trustee or fiduciary with respect to any such plan or holding Voting
Stock for the purpose of funding any such plan or funding other employee
benefits for employees of the corporation or any Subsidiary when acting in
such capacity, and (ii) until immediately following the Industrial
Distribution (as defined in the Distribution Agreement, dated as of November
1, 1996, among the corporation, Newport News Shipbuilding Inc., a Delaware
corporation, and the corporation known as of the date thereof as Tenneco Inc.,
a Delaware corporation ("Old Tenneco")), Old Tenneco or any subsidiary of Old
Tenneco) who (a) is or has announced or publicly disclosed a plan or intention
to become the beneficial owner of Voting Stock representing five percent or
more of the votes entitled to be cast by the holders of all then outstanding
shares of Voting Stock; or (b) is an Affiliate or Associate of the corporation
and at any time within the two-year period immediately prior to the date in
question was the beneficial owner of Voting Stock representing five percent or
more of the votes entitled to be cast by the holders of all then outstanding
shares of Voting Stock.
5. A person shall be a "beneficial owner" of any Capital Stock (a) which
such person or any of its Affiliates or Associates beneficially owns,
directly or indirectly; (b) which such person or any of its Affiliates or
Associates has, directly or indirectly, (i) the right to acquire (whether
such right is exercisable immediately or subject only to the passage of
time), pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants or options, or
otherwise, or (ii) the right to vote pursuant to any agreement, arrangement
or understanding; or (c) which are beneficially owned, directly or
indirectly, by any other person with which such person or any of its
Affiliates or Associates has any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting or disposing of any shares of
Capital Stock. For the purposes of determining whether a person is an
Interested Stockholder pursuant to Paragraph 4 of this Section C, the
number of shares of Capital Stock deemed to be outstanding shall include
shares deemed beneficially owned by such person through application of this
Paragraph 5 of Section C, but shall not include any other shares of Capital
Stock that may be issuable pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights, warrants or options,
or otherwise. Notwithstanding the foregoing, for purposes of this Article
SIXTH, a person shall not be deemed a "beneficial owner" of any Capital
Stock which such person has the right to acquire upon exercise of the
Rights issued pursuant to the Rights Agreement, dated as of December 11, 1996,
between the corporation and First Chicago Trust Company of New York
(including any successor rights plan thereto, the "Rights Agreement"), if
such person would not be deemed the beneficial owner of such Capital Stock
under the terms of such Rights Agreement.
6. The terms "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 under the Act as in effect on
December 11, 1996 (the term "registrant" in said Rule 12b-2 meaning in this
case the corporation).
7. The term "Subsidiary" means any company of which a majority of any
class of equity securities are beneficially owned by the corporation;
provided, however, that for the purposes of the definition of Interested
Stockholder set forth in Paragraph 4 of this Section C, the term
"Subsidiary" shall mean only a company of which a majority of each class of
equity security is beneficially owned by the corporation.
8. The term "Continuing Director" means any member of the Board of
Directors, while such person is a member of the Board of Directors, who is
not an Affiliate or Associate or representative of the Interested
Stockholder and was a member of the Board of Directors prior to the time
that the Interested Stockholder became an Interested Stockholder, and any
successor of a Continuing Director while such successor is a member of the
Board of Directors, who is not an Affiliate or Associate or representative
of the Interested
6
<PAGE>
Stockholder and is recommended or elected to succeed the Continuing
Director by a majority of Continuing Directors.
9. The term "Fair Market Value" means (a) in the case of cash, the amount
of such cash; (b) in the case of stock, the highest closing sale price
during the 30-day period immediately preceding the date in question of a
share of such stock on the Composite Tape for New York Stock Exchange-
Listed Stocks, or, if such stock is not quoted on the Composite Tape, on
the New York Stock Exchange, or, if such stock is not listed on such
Exchange, on the principal United States securities exchange registered
under the Act on which such stock is listed, or, if such stock is not
listed on any such exchange, the highest closing bid quotation with respect
to a share of such stock during the 30-day period preceding the date in
question on The Nasdaq Stock Market or any similar system then in use, or
if no such quotations are available, the fair market value on the date in
question of a share of such stock as determined by a majority of the
Continuing Directors in good faith; and (c) in the case of property other
than cash or stock, the fair market value of such property on the date in
question as determined in good faith by a majority of the Continuing
Directors.
10. In the event of any Business Combination in which the corporation
survives, the phrase "consideration other than cash to be received" as used
in Paragraphs 2.a and 2.b of Section B of this Article SIXTH shall include
the shares of Common Stock and/or the shares of any other class or series
of Capital Stock retained by the holders of such shares.
D. A majority of the Continuing Directors shall have the power and duty to
determine for the purposes of this Article SIXTH, on the basis of information
known to them after reasonable inquiry, all questions arising under this
Article SIXTH, including, without limitation, (a) whether a person is an
Interested Stockholder, (b) the number of shares of Capital Stock or other
securities beneficially owned by any person, (c) whether a person is an
Affiliate or Associate of another, (d) whether a Proposed Action is with, or
proposed by, or on behalf of an Interested Stockholder or an Affiliate or
Associate of an Interested Stockholder, (e) whether the assets that are the
subject of any Business Combination have, or the consideration to be received
for the issuance or transfer of securities by the corporation or any
Subsidiary in any Business Combination has, an aggregate Fair Market Value of
$25,000,000 or more, and (f) whether the assets or securities that are the
subject of any Business Combination constitute a Substantial Part. Any such
determination made in good faith shall be binding and conclusive on all
parties.
E. Nothing contained in this Article SIXTH shall be construed to relieve any
Interested Stockholder from any fiduciary obligation imposed by law.
F. The fact that any Business Combination complies with the provisions of
Section B of this Article SIXTH shall not be construed to impose any fiduciary
duty, obligation or responsibility on the Board of Directors, or any member
thereof, to approve such Business Combination or recommend its adoption or
approval to the stockholders of the corporation, nor shall such compliance
limit, prohibit or otherwise restrict in any manner the Board of Directors, or
any member thereof, with respect to evaluations of or actions and responses
taken with respect to such Business Combination.
G. For the purposes of this Article SIXTH, a Business Combination or any
proposal to amend or repeal, or to adopt any provision of this Restated
Certificate of Incorporation inconsistent with, this Article SIXTH
(collectively, "Proposed Action"), is presumed to have been proposed by or on
behalf of an Interested Stockholder or an Affiliate or Associate of an
Interested Stockholder or a person who thereafter would become such if (1)
after the Interested Stockholder became such, the Proposed Action is proposed
following the election of any director of the corporation who with respect to
such Interested Stockholder would not qualify to serve as a Continuing
Director or (2) such Interested Stockholder, Affiliate, Associate or person
votes for or consents to the adoption of any such Proposed Action, unless as
to such Interested Stockholder, Affiliate, Associate or person a majority of
the Continuing Directors makes a good faith determination that such Proposed
Action is not proposed by or on behalf of such Interested Stockholder,
Affiliate, Associate or person, based on information known to them after
reasonable inquiry.
7
<PAGE>
H. Notwithstanding any other provisions of this Restated Certificate of
Incorporation or the By-Laws of the corporation (and notwithstanding the fact
that a lesser percentage or separate class vote may be specified by law, this
Restated Certificate of Incorporation or the By-Laws of the corporation), any
proposal to amend or repeal, or to adopt any provision of this Restated
Certificate of Incorporation inconsistent with, this Article SIXTH which is
proposed by or on behalf of an Interested Stockholder or an Affiliate or
Associate of an Interested Stockholder shall require the affirmative vote of
the holders of not less than 66 2/3% of the votes entitled to be cast by the
holders of all the then outstanding shares of Voting Stock, voting together as
a single class, excluding Voting Stock beneficially owned by any Interested
Stockholder, provided, however, that this Section H shall not apply to, and
such 66 2/3% vote shall not be required for, any amendment or repeal of, or
the adoption of any provision inconsistent with, this Article SIXTH
unanimously recommended by the Board of Directors if all of such directors are
persons who would be eligible to serve as Continuing Directors within the
meaning of Paragraph 8 of Section C of this Article SIXTH.
SEVENTH: A director of the corporation shall not be liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except to the extent such exemption from liability or
limitation thereof is not permitted under the General Corporation Law of the
State of Delaware as the same exists or may hereafter be amended. Any
amendment, modification or repeal of the foregoing sentence shall not
adversely affect any right or protection of a director of the corporation
hereunder in respect of any act or omission occurring prior to the time of
such amendment, modification or repeal.
EIGHTH: Subject to the provisions of this Restated Certificate of
Incorporation and applicable law, the corporation reserves the right at any
time and from time to time to amend, alter, change or repeal any provision
contained in this Restated Certificate of Incorporation, and any other
provisions authorized by the laws of the State of Delaware at the time in
force may be added or inserted, in the manner now or hereafter prescribed
herein or by applicable law, and all rights, preferences and privileges of
whatsoever nature conferred upon stockholders, directors or any other persons
whomsoever by and pursuant to this Restated Certificate of Incorporation in
its present form or as hereafter amended are granted subject to the right
reserved in this Article EIGHTH.
IN WITNESS WHEREOF, the undersigned has executed this Restated Certificate
of Incorporation this 11th day of December, 1996.
NEW TENNECO INC.
By: /s/ Dana G. Mead
__________________________________
Name: Dana G. Mead
Office: Chairman and Chief
Executive Officer
8
<PAGE>
EXHIBIT 3.1(b)
CERTIFICATE OF DESIGNATION,
PREFERENCES AND RIGHTS OF SERIES A
PARTICIPATING JUNIOR PREFERRED STOCK
NEW TENNECO INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
The undersigned, Chairman of the Board and Secretary of New Tenneco Inc., a
corporation organized and existing under the General Corporation Law of the
State of Delaware (the "Corporation"), in accordance with the provisions of
Section 103 thereof, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors by the
Restated Certificate of Incorporation of the said Corporation, the said Board of
Directors on December 11, 1996, adopted the following resolution creating a
series of 3,500,000 shares of Preferred Stock designated as Series A
Participating Junior Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board of Directors
of this Corporation in accordance with the provisions of its Restated
Certificate of Incorporation, a series of Preferred Stock of the Corporation be
and it hereby is created, and that the designation and amount thereof and the
voting powers, preferences and relative, participating, optional and other
special rights of the shares of such series, and the qualifications, limitations
or restrictions thereof are as follows:
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series A Participating Junior Preferred Stock" and the number of
shares constituting such series shall be 3,500,000.
Section 2. Dividends and Distributions.
(A) The dividend rate on the shares of Series A Participating Junior
Preferred Stock for each quarterly dividend period (hereinafter referred to as a
"quarterly dividend period"), which quarterly dividend periods shall commence on
January 1, April 1, July 1 and October 1 in each year (each such date being
referred to herein as a "Quarterly Dividend Payment Date") (or in the case of
original issuance, from the date of original issuance) and shall end on and
include the day next preceding the first date of the next quarterly dividend
period, shall be equal (rounded to the nearest cent) to the greater of (a) $5.00
or (b) subject to the provision for adjustment hereinafter set forth, 100 times
the aggregate per share amount of all cash dividends, and 100 times the
aggregate per share amount (payable in cash, based upon the fair market value at
the time the non-cash dividend or other distribution is declared as determined
in good faith by the Board of Directors) of all non-cash dividends or other
distributions other than a dividend payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared (but not withdrawn) on the common stock, par value
<PAGE>
$.01 per share, of this Corporation (the "Common Stock") during the immediately
preceding quarterly dividend period, or, with respect to the first quarterly
dividend period, since the first issuance of any share or fraction of a share of
Series A Participating Junior Preferred Stock. In the event the Corporation
shall at any time after December 11, 1996 (the "Record Date") (i) declare any
dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the amount to which holders of
shares of Series A Participating Junior Preferred Stock were entitled
immediately prior to such event under clause (b) of the preceding sentence shall
be adjusted by multiplying such amount by a fraction the numerator of which is
the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Participating Junior Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares of Series
A Participating Junior Preferred Stock, unless the date of issue of such shares
is prior to the record date for the first Quarterly Dividend Payment Date, in
which case dividends on such shares shall begin to accrue from the date of issue
of such shares, or unless the date of issue is a Quarterly Dividend Payment Date
or is a date after the record date for the determination of holders of shares of
Series A Participating Junior Preferred Stock entitled to receive a quarterly
dividend and before such Quarterly Dividend Payment Date, in each of which
events such dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of Series A Participating Junior
Preferred Stock in an amount less than the total amount of such dividends at the
time accrued and payable on such shares shall be allocated pro rata on a share-
by-share basis among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of holders of shares of
Series A Participating Junior Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be no more
than 45 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A Participating
Junior Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each
share of Series A Participating Junior Preferred Stock shall entitle the holder
thereof to 100 votes on all matters submitted to a vote of the stockholders of
the Corporation and will vote together with the shares of Common Stock as one
class on all such matters. In the event the Corporation shall at any time after
the Record Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the number of votes per share to which holders of shares of Series A
Participating Junior Preferred Stock were entitled immediately prior to such
event shall be adjusted by multiplying such number by a fraction the numerator
of which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.
<PAGE>
(B) (i) If at any time dividends on any Series A Participating Junior
Preferred Stock shall be in arrears in an amount equal to six quarterly
dividends thereon, the holders of the Series A Participating Junior Preferred
Stock, voting as a separate series from all other series of Preferred Stock and
classes of capital stock, shall be entitled to elect two members of the Board of
Directors in addition to any Directors elected by any other series, class or
classes of securities and the authorized number of Directors will automatically
be increased by two. Promptly thereafter, the Board of Directors of this
Corporation shall, as soon as may be practicable, call a special meeting of
holders of Series A Participating Junior Preferred Stock for the purpose of
electing such members of the Board of Directors. Said special meeting shall in
any event be held within 45 days of the occurrences of such arrearage.
(ii) During any period when the holders of Series A Participating
Junior Preferred Stock, voting as a separate series, shall be entitled and shall
have exercised their right to elect two Directors, then and during such time as
such right continues (a) the then authorized number of Directors shall be
increased by two, and the holders of Series A Participating Junior Preferred
Stock, voting as a separate series, shall be entitled to elect the additional
Directors so provided for, and (b) each additional Director shall not be a
member of Class I, Class II or Class III of the Board of Directors, but shall
serve until the next annual meeting of stockholders for the election of
Directors, or until his successor shall be elected and shall qualify, or until
his right to hold such office terminates pursuant to the provisions of this
Section 3B.
(iii) A Director elected pursuant to the terms hereof may be removed
without cause by the holders of Series A Participating Junior Preferred Stock
entitled to vote in an election of such Director.
(iv) If, during any interval between annual meetings of stockholders
for the election of Directors and while the holders of Series A Participating
Junior Preferred Stock shall be entitled to elect two Directors, there is no
such Director in office by reason of resignation, death or removal, then,
promptly thereafter, the Board of Directors shall cause a special meeting of the
holders of Series A Participating Junior Preferred Stock for the purpose of
filling such vacancy and such vacancy shall be filled at such special meeting.
Such special meeting shall in any event be held within 45 days of the occurrence
of such vacancy.
(v) At such time as the arrearage is fully cured, and all dividends
accumulated and unpaid on any shares of Series A Participating Junior Preferred
Stock outstanding are paid, and, in addition thereto, at least one regular
dividend has been paid subsequent to curing such arrearage, the term of office
of any Director elected pursuant hereto, or his successor, shall automatically
terminate, and the authorized number of Directors shall automatically decrease
by two, the rights of the holders of the shares of the Series A Participating
Junior Preferred Stock to vote as provided in this Section 3(B) shall cease,
subject to renewal from time to time upon the same terms and conditions, and the
holders of shares of the Series A Participating Junior Preferred Stock shall
have only the voting rights elsewhere herein set forth.
Section 4. Reacquired Shares. Any shares of Series A Participating Junior
Preferred Stock Purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the acquisition
thereof. All such shares shall upon their
<PAGE>
cancellation become authorized but unissued shares of Preferred Stock and may be
reissued as part of a new series of Preferred Stock to be created by resolution
or resolutions of the Board of Directors, subject to the conditions and
restrictions on issuance set forth herein.
Section 5. Liquidation, Dissolution or Winding Up. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, the holders of the Series A Participating Junior Preferred Stock
shall be entitled to receive the greater of (a) $100.00 per share, plus accrued
dividends to the date of distribution, whether or not earned or declared, or (b)
an amount per share, subject to the provision for adjustment hereinafter set
forth, equal to 100 times the aggregate amount to be distributed per share to
holders of Common Stock. In the event the Corporation shall at any time after
the Record Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the amount to which holders of shares of Series A Participating Junior Preferred
Stock were entitled immediately prior to such event pursuant to clause (b) of
the preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
Section 6. Optional Redemption. (a) The Company shall have the option to
redeem the whole or any part of the Series A Participating Junior Preferred
Stock at any time at a redemption price equal to, subject to the provision for
adjustment hereinafter set forth, 100 times the "current per share market price"
of the Common Stock on the date of the mailing of the notice of redemption,
together with unpaid accumulated dividends to the date of such redemption. In
the event the Company shall at any time after the Record Date (i) declare any
dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the amount to which holders of
shares of Series A Participating Junior Preferred Stock were otherwise entitled
immediately prior to such event under the preceding sentence shall be adjusted
by multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event. The "current per share market
price" on any date shall be deemed to be the average of the closing price per
share of such Common Stock for the 10 consecutive Trading Days (as such term is
hereinafter defined) immediately prior to such date. The closing price for each
day shall be the last sale price, regular way, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices, regular way,
in either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the New York
Stock Exchange or, if the Common Stock is not listed or admitted to trading on
the New York Stock Exchange, as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the principal national securities exchange on which the Common Stock
is listed or admitted to trading or, if the Common Stock is not listed or
admitted to trading on any national securities exchange, the last quoted price
or, if not so quoted the average of the high bid and low asked prices in the
over-the-counter market, as reported by The Nasdaq Stock Market
<PAGE>
("NASDAQ") or such other system then in use or, if on any such date, the Common
Stock is not quoted by any such organization, the average of the closing bid and
asked prices as furnished by a professional market maker making a market in the
Common Stock selected by the Board of Directors of the Company. If on such date
no such market maker is making a market in the Common Stock, the fair value of
the Common Stock on such date as determined in good faith by the Board of
Directors of the Company shall be used. The term "Trading Day" shall mean a day
on which the principal national securities exchange on which the Common Stock is
listed or admitted to trading is open for the transaction of business or, if the
Common Stock is not listed or admitted to trading on any national securities
exchange, a Monday, Tuesday, Wednesday, Thursday or Friday on which banking
institutions in the State of New York are not authorized or obligated by law or
executive order to close.
(b) Notice of any such redemption shall be given by mailing to the
holders of the Series A Participating Junior Preferred Stock a notice of such
redemption, first class postage prepaid, not later than the thirtieth day and
not earlier than the sixtieth day before the date fixed for redemption, at their
last address as the same shall appear upon the books of the Company. Any notice
which is mailed in the manner herein provided shall be conclusively presumed to
have been duly given, whether or not the shareholder received such notice, and
failure duly to give such notice by mail, or any defect in such notice, to any
holder of Series A Participating Junior Preferred Stock shall not affect the
validity of the proceedings for the redemption of such Series A Participating
Junior Preferred Stock. If less than all the outstanding shares of Series A
Participating Junior Preferred Stock are to be redeemed, the redemption shall be
made by lot as determined by the Board of Directors.
(c) The notice of redemption to each holder of Series A Participating
Junior Preferred Stock shall specify (a) the number of shares of Series A
Participating Junior Preferred Stock of such holder to be redeemed, (b) the date
fixed for redemption, (c) the redemption price and (d) the place of payment of
the redemption price.
(d) If any such notice of redemption shall have been duly given or if
the Company shall have given to the bank or trust company hereinafter referred
to irrevocable written authorization promptly to give or complete such notice,
and if on or before the redemption date specified therein the funds necessary
for such redemption shall have been deposited by the Company with the bank or
trust company designated in such notice, doing business in Greenwich,
Connecticut, and having a capital, surplus and undivided profits aggregating at
least $25,000,000 according to its last published statement of condition, in
trust for the benefit of the holders of Series A Participating Junior Preferred
Stock called for redemption, then, notwithstanding that any certificate for such
shares so called for redemption shall not have been surrendered for
cancellation, from and after the time of such deposit all such shares called for
redemption shall no longer be deemed outstanding and all rights with respect to
such shares shall no longer be deemed outstanding and shall forthwith cease and
terminate, except the right of the holders thereof to receive from such bank or
trust company at any time after the time of such deposit the funds so deposited,
without interest, and the right to exercise, up to the close of business on the
fifth day before the date fixed for redemption. In case less than all the shares
represented by any surrendered certificate are redeemed, a new certificate shall
be issued representing the unredeemed shares. Any interest accrued on such funds
shall be paid to
<PAGE>
the Company from time to time. Any funds so deposited and unclaimed at the end
of six years from such redemption date shall be repaid to the Company, after
which the holders of shares of Series A Participating Junior Preferred Stock
called for redemption shall look only to the Company for payment thereof.
Section 7. Fractional Shares. Series A Participating Junior Preferred
Stock may be issued in fractions of a share that shall entitle the holder, in
proportion to such holders fractional shares, to exercise voting rights, receive
dividends, participate in distributions and to have the benefit of all other
rights of holders of Series A Participating Junior Preferred Stock.
IN WITNESS WHEREOF, we have executed and subscribed this Certificate and do
affirm the foregoing as true under the penalties of perjury as of the 11th day
of December, 1996.
NEW TENNECO INC.
/s/ DANA G. MEAD
____________________________________
Dana G. Mead
Chairman and Chief Executive Officer
Attest:
/s/ KARL A. STEWART
____________________________
Karl A. Stewart
Vice President and Secretary
<PAGE>
EXHIBIT 3.1(c)
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
NEW TENNECO INC.
New Tenneco Inc., a corporation duly organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify that:
1. The Restated Certificate of Incorporation of the Corporation is
hereby amended by deleting Article FIRST thereof and inserting the following in
lieu thereof:
"FIRST: The name of the corporation is Tenneco Inc."
2. The foregoing amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware and by written consent of the then sole stockholder of the Corporation
in accordance with 228 of the General Corporation Law of the State of Delaware.
3. The foregoing amendment to the Restated Certificate of
Incorporation of the Corporation shall be effective at 8:00 a.m. Eastern
Standard Time on December 12, 1996.
<PAGE>
IN WITNESS WHEREOF, said New Tenneco Inc. has caused this Certificate to be
signed as of the 11th day of December, 1996.
NEW TENNECO INC.
By: /s/ Karl A. Stewart
----------------------------------
Name: Karl A. Stewart
Office: Vice President and Secretary
<PAGE>
EXHIBIT 3.1(d)
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
TENNECO UNITED KINGDOM HOLDINGS LIMITED
WITH AND INTO
TENNECO INC.
- - --------------------------------------------------------------------------------
Pursuant to Section 253 of the
General Corporation of Law of the States of Delaware
- - --------------------------------------------------------------------------------
TENNECO INC., a Delaware corporation (the "Company"), does hereby
certify to the following facts relating to the merger (the "Merger") of TENNECO
UNITED KINGDOM HOLDINGS LIMITED, a Delaware corporation (the "Subsidiary") with
and into the Company, with the Company remaining as the surviving corporation:
FIRST: The Company is incorporated pursuant to the General Corporation
Law of the State of Delaware (the "DGCL"). The Subsidiary is incorporated
pursuant to the DGCL.
SECOND: The Company owns all of the outstanding shares of each class of
capital stock of the Subsidiary.
<PAGE>
THIRD: The Board of Directors of the Company, by the following
resolutions duly adopted on July 8, 1997, determined to merge the Subsidiary
with and into the Company pursuant to Section 253 of the DGCL:
WHEREAS, TENNECO INC., a
Delaware corporation (the "Company"), owns
all of the outstanding shares of the capital
stock of TENNECO UNITED KINGDOM
HOLDINGS LIMITED, a Delaware corpora-
tion ("Subsidiary");and
WHEREAS, the Board of Directors of
the Company has deemed it advisable that the
Subsidiary be merged with and into the Com-
pany pursuant to Section 253 of the General
Corporation Law of the State of Delaware;
NOW, THEREFORE, BE IT AND IT HEREBY IS
RESOLVED, that the Subsidiary be
merged with and into the Company (the
"Merger"); and it is further
RESOLVED, that by virtue of the
Merger and without any action on the part of
the holder thereof, each then outstanding share
of common stock of the Company shall remain
unchanged and continue to remain outstanding
as one share of common stock of the Com-
pany immediately prior to the Merger; and it
is further
RESOLVED, that by virtue of the
Merger and without any action on the part of
the holder thereof, each then outstanding share
of common stock of the Subsidiary shall be
cancelled and no consideration shall be issued
in respect thereof; and it is further
-2-
<PAGE>
RESOLVED, that the proper officers
of the Company be and they hereby are autho-
rized and directed to make, execute and ac-
knowledge, in the name and under the corpo-
rate seal of the Company, a certificate of
ownership and merger for the purpose of
effecting the Merger and to file the same in the
office of the Secretary of State of the State of
Delaware, and to do all other acts and things
that may be necessary to carry out and effectu-
ate the purpose and intent of the resolutions
relating to the Merger; and it is further
FOURTH: The Company shall be the surviving corporation of the Merger.
FIFTH: The certificate of incorporation of the Company as in effect
immediately prior to the effective time of the Merger shall be the certificate
of incorporation of the surviving corporation.
IN WITNESS WHEREOF, the Company has caused this Certificate of
Ownership and Merger to be executed by its duly authorized officer this 8th
day of July, 1997.
TENNECO INC.
By: /s/ Karl A. Stewart
----------------------------
Name: Karl A. Stewart
Office: Vice President and Secretary
-3-
<PAGE>
EXHIBIT 10.11
12/97
1997 TENNECO INC. BOARD OF DIRECTORS
DEFERRED COMPENSATION PLAN
1. Purpose. Each member of the Board of Directors of Tenneco Inc., (the
"Board") who is not also an employee of Tenneco Inc. (the "Company") or any
of its subsidiaries, is entitled to receive cash compensation from the
Company for service on the Board and, if applicable, on one or more of the
committees of the Board and/or on the Board of Managers of the Tenneco
Foundation ("Director's Compensation"). Generally, Director's Compensation
is paid on a current basis. It is the purpose of this plan to provide a
method to defer the payment of Director's Compensation, with deferred
compensation subject to adjustment for interest at prime rate, changes in
the value of selected mutual funds, or changes in the value of Tenneco
stock during the period of deferral, in order to enhance the ability of the
Company to attract and retain individuals of experience, ability, industry,
loyalty and inventiveness to serve on the Board.
2. Participation. Any director of the Company who is not also a salaried
employee of the Company or any of its subsidiaries may become a Participant
in this Plan by electing to defer all or any portion of Director's
Compensation otherwise payable for a particular calendar year (the
"Deferred Year"), provided, however, that any election, occurring after
August 26, 1996 by a Participant who is subject to the reporting and short
swing profits liability provisions of Section 16 of the Securities Exchange
Act of 1934, as amended including an election relating to the form of
distribution or, to defer income into a "Tenneco stock index account" shall
not be effective until such election and the transactions contemplated
thereby shall have been specifically approved by the Committee to the
extent such approval is required to avoid liability under said Section 16
and the regulations thereunder. Amounts deferred under this Section 2
shall be referred to as the "Deferred Amounts". Once received by the
Committee, an election cannot be revoked. Such election shall be made in
writing in such form as shall be approved for such purpose by the Senior
Vice President - Human Resources of the Company, which form shall, among
other things, specify: the Deferred Year; the amount of Director's
Compensation to be deferred; the investment elections; the time at which
distribution of the Participant's Account for the Deferred Year shall
commence; and the form of distribution. To be effective, the completed
election form must be filed with the Senior Vice President - Human
Resources of the Company prior to the first day of the Deferred Year.
<PAGE>
3. Accounting. The Company shall establish a Director's deferred compensation
ledger under which a Participant's Account for the Deferred Year shall be
created in the name of each participant who elects to defer Director's
Compensation for a particular Deferred Year. Each Participant's Account for
a Deferred Year shall be maintained in accordance with the following rules:
A. Crediting of Deferred Director's Compensation. Director's
Compensation deferred pursuant to this Plan shall be credited to the
Participant's Account for the Deferred Year as of the last day of the
month within the Deferred Year during which the compensation would
otherwise have been payable.
B. Adjustments to Deferred Amounts. The Committee shall credit the
balance of the Participant's Deferred Compensation Account with an
earnings factor. The earnings factor will equal the amount the
Participant's Deferred Compensation Account would have earned if it
had been invested in the investment options listed below. The
Participant is permitted to select the investment option used to
determine the earnings factor and may change the selection at any
time. The Participant may choose more than one investment option in
increments of at least one (1) percent. The company reserves the right
to change or amend any of the investment options at any time.
The investment options used to determine the earnings factor are:
(1) The prime rate of interest as reported by The Chase Manhattan
Bank at the first day of each calendar month.
(2) Tenneco Stock Index Account A - amount of deferral will be
invested in Tenneco Stock Equivalent Unit Account. Any investment
in this account will be measured solely by the performance of the
company's common stock (including dividends that will be
reinvested). This investment option will be settled in cash.
(3) Tenneco Stock Index Account B - amount of deferral will be
invested in Tenneco Stock Equivalent Unit Account. Any
investments in this account will be measured solely by the
performance of the company's common stock (including dividends
that will be reinvested). This investment option will be settled
in Tenneco stock.
(4) The return for selected Mutual Funds currently offered in the
Tenneco Inc. Thrift Plan:
(a) Fidelity Growth Company Fund
(b) BZW Barclays U.S. Debt Index Fund (Bond)
(c) BZW Barclays Daily Equity Index Fund
Tenneco is under no obligation to acquire or provide any of the
investments designated by a Participant, and any investment actually
made by Tenneco will be made solely in the name of Tenneco and will
remain the property of Tenneco.
<PAGE>
The crediting of an earnings factor shall occur so long as there
is a balance in the Participant's Deferred Compensation Account
regardless of whether the Participant has terminated employment
with Tenneco.
C. Statement. The Company shall furnish each Participant with an
annual statement showing the closing balance for the respective
calendar year of each Participant's Accounts.
4. Distribution From Account
A. Form of Distribution. Distribution of a Participant's Account for a
Deferred Year shall be made in whichever of the following payment
forms was designated by the Participant in the election form which
deferred Director's Compensation to the Account:
1. Single sum;
2. Two annual installments;
3. Three annual installments;
4. Four annual installments; or
5. Five annual installments.
The amount of any installment shall be determined by dividing the net
balance of the Participant's Account for the Deferred Year by the number of
installments then unpaid.
B. Payment Date. Distribution of a Participant's Account for a Deferred
Year shall commence as soon as administratively feasible following the
earliest of (i) the expiration of the calendar year during which the
Participant ceases to be a director of the Company, or (ii) the date
for commencement of payment designated in the election form which
deferred Director's Compensation to the Account. If an installment
type payment form has been designated, each subsequent installment
shall be made as soon as administratively feasible in the calendar
year in which such installment falls due.
C. Designation of Beneficiary. A Participant may at any time designate
the beneficiary or beneficiaries to whom any payment made from the
Participant's Accounts shall be made after the Participant's death.
Such designation shall be in writing and shall not become effective
until filed with the Senior Vice President - Human Resources of the
Company. If no designation is on file with the Senior Vice President
- Human Resources of the Company or if the person so designated is not
living or otherwise in existence at the time of the Participant's
death, then the deceased Participant's estate shall be deemed to be
the Participant's designated beneficiary. If the designated
beneficiary survives the Participant's death but dies thereafter
before all distributions from the Participant's Accounts have been
made, any remaining distribution shall be made to the estate of the
designated beneficiary. Distribution of a Participant's Account for a
Deferred Year to the designated beneficiary or the estate of the
designated beneficiary shall be made in such payment form and at such
time as has been designated by the Participant in the election form
which deferred Director's Compensation to the Account.
<PAGE>
5. Nature and Source of Payments. Any amount credited by the Company to
Participant's Accounts shall constitute a liability of the Company to the
Participant or, after the Participant's death, to the designated
beneficiary. Any payment with respect to a Participant's Accounts shall be
made from the general funds of the Company. No special or separate fund
shall be established or segregation of assets made to assure such payment
and no Participant and/or designated beneficiary shall have any interest in
any particular asset of the Company by virtue of the existence of a credit
balance in the Participant's Accounts.
6. Administration. The Board has authorized the Senior Vice President - Human
Resources of the Company to administer, construe and interpret this Plan
and his construction and interpretation of any provision of this Plan shall
be final, conclusive and binding upon the Company and any Participant
and/or designated beneficiary. The Senior Vice President - Human Resources
of the Company shall not be liable for any act done or determination made
in good faith.
7. Non-Alienation of Benefits. No benefit under this Plan shall be subject in
any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, or charge, and any attempt at such shall be void. Benefits
under this Plan shall not in any way be subject to the debts, contracts,
liabilities, engagements, or torts of the person who shall be entitled to
the payment thereof, nor shall such benefits be subject to attachment,
garnishment, or legal process for or against such person.
8. Plan Amendment or Termination. The Board may terminate this Plan at any
time or may amend or modify this Plan at any time and from time to time;
provided, however, that the amendment or termination of this Plan shall in
no way affect the right of a Participant and/or, following the
Participant's death, the designated beneficiary to the receipt of the then
credit balances of the Participant's Accounts.
<PAGE>
EXHIBIT 10.12
TENNECO INC.
-----------
1997 EXECUTIVE INCENTIVE COMPENSATION PLAN
------------------------------------------
PLAN DOCUMENT
-------------
EFFECTIVE: JANUARY 1, 1997
<PAGE>
TENNECO INC.
-----------
EXECUTIVE INCENTIVE COMPENSATION PLAN
-------------------------------------
Section 1. Establishment and Purpose
-------------------------------------
1.1 Establishment of the Plan. Tenneco Inc. hereby establishes the
"TENNECO INC. EXECUTIVE INCENTIVE COMPENSATION PLAN" (The "Plan"), set forth
herein, effective January 1, 1997.
1.2 Purpose. The objectives of the Plan are to:
(a) Reinforce a results-oriented management culture with executive
pay that varies according to corporate, division, and individual performance
against extraordinarily aggressive goals.
(b) Provide incentives, in the form of substantial reward potential,
for executives to remain employees of the Company.
(c) Focus on business results that include financial measures such
as net income, cash flow, working capital, and economic value added (EVA) with
improvement in quality, safety, environmental, risk management, effective
leadership and equal employment opportunities performance.
(d) De-emphasize fixed compensation in the form of base salary and
place greater emphasis on variable performance-based compensation.
(e) Provide key executives with competitive levels of total current
compensation and incentive earning opportunities commensurate with the results
achieved and individual performance.
(f) Provide plans that are simple and easy to describe and
understand.
Section 2. Plan Definitions
----------------------------
(a) Company means Tenneco Inc. and any successor employer which
adopts the Plan and any subsidiary corporation designated by the Board as
eligible to participate in the Plan; except that when used with reference to
authority under the Plan, Company shall mean Tenneco Inc. exclusively.
(b) Board means the Board of Directors of the Company.
<PAGE>
(c) Compensation and Benefits Committee means those members of the
Compensation and Benefits Committee of the Board who are not employees of the
Company. This Committee is charged with the overall responsibility for this
Plan.
(d) Corporate means the entity which is responsible for the overall
management and staff support functions of the Company.
(e) Division means each operating organizational entity which,
through the conduct of its business, produces revenues for the Company.
(f) Executive means a regular, full-time salaried employee of the
Company who is in a position meeting the defined eligibility criteria for
participation in the Plan.
(g) Participant means an executive who has been approved for
participation in the Plan.
(h) Effective Date means January 1, 1997.
(i) Plan Year means the calendar year.
(j) Salary grade means the position classification assigned to the
Participant in accordance with the position evaluation system adopted by Tenneco
Management for Plan purposes.
(k) EICP Objectives means the "Target" (Budget) level of financial
objectives (e.g., net income, cash flow, and economic value added (EVA) or other
operating measurements for the Plan Year, assigned annually by the Company to
each Division. This represents the expected level of achievement for the Plan
Year. The target goal (budget) for Corporate will be the Company's consolidated
operating measurements.
(l) Individual Incentive Target Award means the anticipated
individual incentive award to be allocated to a Participant in the event EICP
objectives are met and his/her individual performance is fully satisfactory.
The schedule of individual incentive target awards applicable to the various
salary grades shall be determined by the Company.
Section 3. Eligibility and Participation
-----------------------------------------
3.1 Eligibility and Participation. Eligibility for participants in the
Plan will be limited to those key executives who, by the nature and scope of
their positions, regularly and directly make or influence policy decisions which
significantly impact the overall results or success of the Company. The Company
will receive recommendations for participation from Division Chief Executive
Officers and appropriate Corporate Staff Officers. Each such nominated executive
shall become a Participant upon being approved by the Company. All such
<PAGE>
executives approved for participation shall be notified of their selection as
soon as practical following approval.
3.2 Cessation of Participation. The Company may withdraw its
approval of an existing position at any time during the Plan Year. Participants
whose employment is terminated during the Plan Year for reasons other than
disability, death, or retirement under a Company retirement plan shall forfeit
participation in the Plan unless otherwise authorized by the Company. At the
sole discretion of the Company, participation may be prorated for participants
who become disabled, die, retire or are assigned to non-eligible position during
the Plan Year.
Section 4. Fund Generation
---------------------------
4.1 Division/Corporate Incentive Amounts. Annually, the Company
shall establish Division and Corporate EICP Objectives (Target/Budget)
applicable to each participating Division. In addition, the Company shall
determine for each participating Division a target incentive amount equal to the
sum of individual incentive targets. The Company may adjust the target
incentive amount during the Plan Year to accommodate the admission or
elimination of Participants to the Plan and to incorporate adjustments to
individual incentive targets of Participants whose salary grade changes during
the Plan Year. Division and corporate incentive funds will be determined based
on the budgeted financial objectives (e.g., net income, cash flow, and EVA) with
each weighted to reflect appropriate emphasis.
The size of the incentive fund applicable to each division will be determined as
follows:
FINANCIAL OBJECTIVES
--------------------
A preliminary fund will be established based on performance against
financial objectives from the Annual Operating Plan (AOP).
- Performance on AOP will generate a fund equal to the sum of
individual target awards.
- Performance below AOP will not result in an incentive fund except as
determined by Tenneco Management taking into consideration the
reasons that AOP was not attained.
- Performance above AOP may result in a higher than target level fund
as determined by Tenneco Management taking into consideration the
reasons that AOP was exceeded.
<PAGE>
NON-FINANCIAL OBJECTIVES
------------------------
Quantitative Adjustments
------------------------
Once the preliminary fund is established, the following quantitative
adjustment factors will be applied to determine a final incentive
fund:
- Working Capital Performance
- Environmental Performance
- Safety & Health Performance
- Quality Performance
- EEO Performance
Each of these quantitative adjustment factors will be applied a
maximum of 5% for a total increase/decrease to the fund of as much as
25%.
Qualitative Adjustments
----------------------
The following qualitative adjustment factors for overall leadership
will also be applied.
- Global Market Development
- Customer Satisfaction
- Leadership of Change
- Leadership Development (Recruiting/Staffing/Training)
- Operational Considerations (Quality of Earnings)
Theses qualitative factors will be applied a maximum of 2% for a total
increase/decrease to the fund as much as 10%.
4.2 Committee Authority. The Committee shall have the right at any
time in its sole discretion to modify, eliminate or withdraw for such period or
periods as it may determine, the incentive amounts, in part or in whole, to be
made available under this Section 4 for payment of awards to any or all
participating Corporate or Division entities or any Participant or Participants
hereunder.
Section 5. Determination of Individual Awards
----------------------------------------------
5.1 Determination of Individual Incentive Target Awards. Annually,
the Compensation and Benefits Committee shall determine the Salary Grade
applicable to the Chairman and CEO of the Company and the Company shall
determine the salary grade applicable to all other Participants. Each
Participant's individual incentive target award will be determined by the
Company.
<PAGE>
5.2 Determination of Individual Incentive Awards. Actual individual
awards to be paid to Participants will vary above or below the assigned
individual incentive target awards dependent upon each individual's performance
in accordance with guidelines prescribed by the Company. The actual award to a
Participant must be approved by both the Company and the Compensation and
Benefits Committee (or only the Committee for awards applicable to the Chairman
and President of the Company) and shall not exceed 100% of the Participant's
annual base salary without approval of the Committee.
Section 6. Form of Timing of Awards
------------------------------------
Payment of Individual Awards. The actual awards to be paid to
participants in accordance with Section 5.2 shall be paid in cash as soon as
practical once final operating performance is available.
Section 7. Administration
--------------------------
This Plan shall be administered by the Company in accordance with
rules that may be established from time to time by the Compensation and Benefits
Committee. The determination of the Company as to any disputed question arising
under this Plan, including any question of construction or interpretation, shall
be final, binding, and conclusive upon all persons.
Section 8. Amendment and Termination
--------------------------------------
The Committee, in its absolute discretion and without notice, may at
any time and from time to time modify or amend, in whole or in part, any or all
of the provisions of this Plan, or suspend or terminate it entirely.
Section 9. Applicable Laws
---------------------------
This Plan shall be construed, administered and governed in all
respects under and by the laws of the State of Connecticut.
<PAGE>
EXHIBIT 10.13
12/97
TENNECO INC. DEFERRED COMPENSATION PLAN
1. PURPOSE
The purpose of the Tenneco Inc. Deferred Compensation Plan (the "Plan") is to
provide to a select group of management or highly compensated employees of
Tenneco Inc. and its subsidiaries and affiliates (hereinafter collectively
referred to as "Tenneco") an opportunity to defer compensation received by them
from Tenneco in accordance with the terms and conditions set forth herein.
2. ADOPTION AND ADMINISTRATION
The Plan shall be adopted by the Board of Directors of Tenneco, Inc. and
administered by the Compensation and Benefits Committee of the Tenneco Inc.
Board of Directors (the "Committee"). The Committee shall have sole and
complete authority and discretion to interpret the terms and provisions of the
Plan and to adopt, alter and repeal such administrative rules, regulations and
practices governing the operation of the Plan, and to determine facts under the
Plan as it shall from time to time deem advisable.
3. ELIGIBILITY
U.S. paid participants in the Tenneco Inc. Executive Incentive Compensation Plan
shall be eligible to participate in the Plan.
Such persons shall be collectively referred to as the "Participant" or
"Participants" as the case may be.
4. ELECTION TO DEFER
(a) A Participant may elect in writing to defer receipt of all or a
specified portion of his or her bonuses or incentive compensation
to be received during a calendar year, provided, however, that any
election, occurring after August 15, 1996 by a Participant who is
subject to the reporting and short swing profits liability
provisions of Section 16 of the Securities Exchange Act of 1934, as
amended including an election relating to the form of distribution
or to defer income into a "Tenneco stock index account" pursuant to
Section 6 of the Plan shall not be effective until such election
and the transactions comtemplated thereby shall have been
specifically approved by the Committee to the extent such approval
is required to avoid liability under Section 16 and the regulations
thereunder. Amounts deferred under this Section 4(a) shall be
referred to as the "Deferred Amounts". Once received by the
Committee, an election cannot be revoked.
<PAGE>
(b) Except as provided in this Section 4(b) or in Section 14, the
election must be made prior to September 30 of the calendar year
in which the bonus or incentive compensation will be awarded. A
Participant must make a separate election with respect to each
calendar year of participation in the Plan. A new Participant in
the Plan shall have 30 days following his or her notification by
the Committee of his or her eligibility to participate in the
Plan to make an election with respect to bonus or incentive
compensation to be awarded within the calendar year.
(c) As specified by the Participant in the election to defer, the
period of deferral shall be until the Participant dies,
terminates employment with Tenneco, or until a specific date
selected by the Participant in the election to defer.
5. ESTABLISHMENT OF DEFERRED COMPENSATION ACCOUNT
At the time of the Participant's initial election to defer pursuant to Section 4
or 13, the Tenneco company which employed the Participant shall establish a
memorandum account (a "Deferred Compensation Account") for such Participant on
its books. The Deferred Account shall be credited to the Participant's Deferred
Compensation Account as of the day on which the Participant would otherwise be
entitled to receive the bonus or incentive compensation. Any required
withholding for taxes (e.g. Social Security taxes) on the Deferred Amount shall
be made from other compensation of the Participant. Adjustments as provided in
Section 6 below, shall be made to the Participant's Deferred Compensation
Account.
6. ADJUSTMENTS TO DEFERRED AMOUNTS
The Committee shall credit the balance of the Participant's Deferred
Compensation Account with an earnings factor. The earnings factor will equal
the amount the Participant's Deferred Compensation Account would have earned if
it had been invested in the investment options listed below. The Participant is
permitted to select the investment option used to determine the earnings factor
and may change the selection at any time. The Participant may choose more than
one investment option in increments of at least one (1) percent. The company
reserves the right to change or amend any of the investment options at any time.
The investment options used to determine the earnings factor are:
(a) The prime rate of interest as reported by The Chase Manhattan Bank
at the first day of each calendar month.
2
<PAGE>
(b) Tenneco stock index account -- amount of deferral will be invested
in Tenneco stock equivalent unit account. Any investment in this
account will be measured solely by the performance of the company's
common stock (including dividends that will be reinvested).
(c) The return for selected Mutual Funds currently offered in the
Tenneco Inc. Thrift Plan:
(1) Fidelity Growth Company Fund
(2) Barclays U.S. Debt Index Fund (Bond)
(3) Barclays Daily Equity Index Fund
Tenneco is under no obligation to acquire or provide any of the investments
designated by a Participant, and any investments actually made by Tenneco will
be made solely in the name of Tenneco and will remain the property of Tenneco.
The crediting of an earnings factor shall occur so long as there is a balance in
the Participant's Deferred Compensation Account regardless of whether the
Participant has terminated employment with Tenneco.
7. PAYMENT OF DEFERRED AMOUNTS
(a) Except as otherwise provided in subsection (b), (c) or (d) below, a
Participant's Deferred Amount shall be paid, or commence to be
paid, to the Participant, or the Participant's beneficiary, as soon
as practicable after:
(i) the Participant's death
(ii) the termination of Participant's Tenneco employment, or
(iii) the date specified in the election made by the Participant.
In the event of the Participant's death, payment of the balance in
the Participant's Deferred Compensation Account shall be
made,either (i) in a lump sum or (ii) in a number of annual
installments, not to exceed five, as soon as administratively
feasible to the Participant's designated beneficiary, or if none,
to the Participant's estate.
(b) The Participant may elect to receive payment of the balance of his
or her Deferred Compensation Account either (i) in a lump sum upon
termination or (ii) in a single payment at a specified date prior
to termination or (iii) in a number of post termination annual
installments, not to exceed five, as the Participant shall elect.
The distribution election must be made at least one year before the
Deferred Amount is payable and must have approval of the Committee.
If no election is made, a lump sum payment will be made upon a
Participant's termination.
3
<PAGE>
(c) Anything contained in this Section to the contrary not
withstanding, in the event a Participant incurs a severe financial
hardship, the Committee, in its sole discretion and upon written
application of such Participant, may direct immediate payment of
all or a portion of the then current value of such Participant's
Deferred Compensation Account; provided that such payment shall in
no event exceed the amount necessary to alleviate such financial
hardship; and provided further that in the case of such payment,
the Participant's Deferred Compensation Account will be reduced by
110% of the amount of such payment.
8. PARTICIPANT REPORTS
The Committee shall provide a statement to the Participant quarterly concerning
the status of his or her Deferred Compensation Account.
9. TRANSFERABILITY OF INTEREST
During the period of deferral, all Deferred Amounts shall be considered as
general assets of the Tenneco companies which employ or have employed the
Participant for use as they deem necessary and shall be subject to the claims of
the companies' creditors.
The rights and interests of a Participant during the period of deferral shall
be those of a general creditor except that such Participant's rights and
interests may not be reached by the creditors of the Participant or the
beneficiary, or anticipated, assigned, pledged, transferred or otherwise
encumbered except in the event of the death of the Participant, and then only by
will or the laws of descent and distribution.
10. AMENDMENT, SUSPENSION AND TERMINATION
Tenneco Inc. at any time may amend, suspend or terminate the Plan or any portion
thereof in such manner and to such extent as it may deem advisable and in the
best interests of Tenneco. No amendment, suspension and termination shall reduce
the amount then credited to a Participant's Deferred Compensation Account.
11. UNFUNDED OBLIGATION
The Plan shall not be funded; no trust, escrow or other provisions shall be
established to secure payments due under the Plan; and the Plan shall be
regarded as unfunded for purposes of the Employee Retirement Income Security Act
of 1974, as amended, and the Internal Revenue Code. A Participant shall be
treated as a general, unsecured creditor at all times under the Plan, and shall
have no rights to any specific assets of any Tenneco company. All amounts
credited to the memorandum accounts of the Participants will remain general
assets of the respective companies.
4
<PAGE>
12. NO RIGHT TO EMPLOYMENT OR OTHER BENEFITS
Nothing contained herein shall be construed as conferring upon any Participant
the right to continue in the employ of Tenneco. Any compensation deferred and
any payments made under this Plan shall not be included in creditable
compensation in computing benefits under any employee benefit plan of Tenneco
except to the extent expressly provided for therein.
13. DISPUTE RESOLUTION
By participating in the Plan, the Participant agrees that any dispute arising
under the Plan shall be resolved by binding arbitration in Greenwich,
Connecticut under the rules of the American Arbitration Association and that
there will be no remedy besides the disputed deferred compensation amount at
issue.
14. EFFECTIVE DATE
The Plan shall be effective on January 1, 1997 if previously approved by the
Board of Directors of Tenneco Inc.; otherwise it shall be effective immediately
after such approval. After such effective date, eligible Participants shall be
permitted to make within 30 days an initial election to defer under Section 4
with respect to the bonus or incentive compensation to be awarded within the
first calendar year of the Plan.
5
<PAGE>
EXHIBIT 10.23
12/97
1996 TENNECO INC. STOCK OWNERSHIP PLAN
1. PURPOSE
The purpose of the Plan is to promote the long-term success of the Company
for the benefit of shareholders by encouraging its directors, officers and key
employees to have meaningful investments in the Company so that, as stockholders
themselves, those individuals will be more likely to represent the views and
interest of other stockholders and by providing incentives to such directors,
officers and key employees for continued service. The Company believes that the
possibility of participation under the Plan will provide this group of
directors, officers and employees an incentive to perform more effectively and
will assist the Company in attracting and retaining people of outstanding
training, experience and ability.
2. DEFINITIONS
"Authorized Plan Shares" has the meaning set forth in Section 6(a).
"Award" means an award or grant made to a Participant under Section 8.
"Award Agreement" means the agreement provided in connection with an Award
under Section 12.
"Award Date" means the date that an Award is made, as specified in an Award
Agreement.
"Board of Directors" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor legislation.
"Company" means Tenneco Inc.
"Committee" means the Compensation and Benefits Committee of the Board of
Directors, or any successor committee thereto.
"Common Stock" means the Company's common stock, $.01 par value per share.
"Covered Employees" shall have the meaning specified in Section 162(m)(3)
of the Code.
"Dividend Equivalent" means an amount equal to the amount of the cash
dividends that are declared and become payable after the Award Date for the
Award to which it relates and on or before the Settlement Date for such Award.
1
<PAGE>
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" on any date means the average of the highest and the
lowest sales prices of a share of Common Stock on the Composite Tape for such
date, as reported by the National Quotation Bureau Incorporated, provided that
if (i) no sales of Common Stock are included on the Composite Tape for such
date, or (ii) in the opinion of the Committee, the sales of Common Stock on such
date are insufficient to constitute a representative market, then the Fair
Market Value of a share of Common Stock on such date shall be deemed to be the
average of the highest and lowest prices of a share of Common Stock as reported
on said Composite Tape for the next preceding day on which (x) sales of Common
Stock are included and (y) the circumstances described in this clause (ii) do
not exist.
"ISO" means any Stock Option designated in an Award Agreement as an
"Incentive Stock Option" within the meaning of Section 422 of the Code.
"Non-Qualified Stock Option" means any Stock Option that is not an ISO.
"Option Price" means the purchase price of one share of Common Stock under
a Stock Option.
"Participant" means a director, employee or officer of a Tenneco Company
who has been selected by the Committee to receive an Award under the Plan.
"Performance Unit" means an Award denominated in cash, the amount of which
may be based on performance of the Participant of Tenneco Inc. or of any
subsidiary or division thereof.
"Plan" means this 1996 Tenneco Inc. Stock Ownership Plan, as amended from
time to time.
"Reload Stock Option" means a Stock Option (i) that is awarded, either
automatically in accordance with the terms of an Award Agreement in which one or
more other Awards are made or by separate Award, upon the exercise of a stock
option granted under this Plan or otherwise where the option price is paid by
the option holder by delivery of shares of Common Stock on the Settlement Date
for such exercise and (ii) that entitles such holder to purchase the number of
shares so delivered for an Option Price equal to the Fair Market Value of a
share of Common Stock on such Settlement Date.
"Restricted Stock" means shares of Common Stock subject to restrictions and
conditions pursuant to Section 8(c).
"Rule 16b-3" means Regulation Section 240.16b-3 of the rules and
regulations of the Securities and Exchange Commission promulgated under the
Exchange Act.
2
<PAGE>
"Settlement Date" means, (i) with respect to any Stock Option that has been
exercised in whole or in part, the date or dates upon which shares of Common
Stock are to be delivered to the Participant and the Option Price therefor paid,
(ii) with respect to any SARs that have been exercised, the date or dates upon
which a cash payment is to be made to the Participant, or in the case of SARs
that are to be settled in shares of Common Stock, the date or dates upon which
such shares are to be delivered to the Participant, (iii) with respect to
Performance Units, the date or dates upon which cash or shares of Common Stock
are to be delivered to the Participant, (iv) with respect to Dividend
Equivalents, the date upon which payment thereof is to be made, and (v) with
respect to Stock Equivalent Units, the date upon which payment thereof is to be
made, in each case, determined in accordance with the terms of the Award
Agreement under which any such Award was made.
"Stock Appreciation Right" or "SAR" means an Award that entitles the
Participant to receive on the Settlement Date an amount equal to the excess of
(i) the Fair Market Value of a share of Common Stock on the date of
exercise of the SAR over
(ii) the Fair Market Value of one share of Common Stock on the Award
Date or any other higher amount specified in the Award Agreement.
"Stock Equivalent Unit" means an Award that entitles the Participant to
receive on the Settlement Date an amount equal to the Fair Market Value of one
share of Common Stock on such date.
"Stock Option" or "Option" means any right to purchase shares of Common
Stock (including a Reload Stock Option) awarded pursuant to Section 8(a).
"Tenneco Company" means the Company, any stock corporation of which a
majority of the capital stock generally entitled to vote for directors is owned
directly or indirectly by the Company, and any other company designated as such
by the Committee, but only during the period of such ownership or designation.
3. TERM
The Plan shall be effective as of October 8, 1996, and shall remain in
effect through December 31, 2001. After termination of the Plan, no further
Awards may be granted other than Reload Stock Options granted in accordance with
Award Agreements existing as of December 31, 2001, but outstanding Awards shall
remain effective in accordance with their terms and the terms of the Plan.
3
<PAGE>
4. PLAN ADMINISTRATION
(a) The Committee shall be responsible for administering the Plan.
(i) Composition of the Committee. The Committee shall be comprised of
two or more members of the Board of Directors, all of whom shall be "non-
employee directors" as defined in Rule 16b-3 and "outside directors" as
that term is used in Section 162 of the Code and the regulations
promulgated thereunder.
(ii) Powers. The Committee shall have full and exclusive
discretionary power to interpret the Plan and to determine eligibility for
benefits and to adopt such rules, regulations and guidelines for
administering the Plan as the Committee may deem necessary or proper. Such
power shall include, but not be limited to, selecting Award recipients,
establishing all Award terms and conditions and, subject to Section 13,
adopting modifications and amendments to the Plan or any Award Agreement,
including without limitation, any that are necessary to comply with the
laws of the countries in which the Company or its affiliates operate.
(iii) Delegation. The Committee may delegate to one or more of its
members or to one or more agents or advisors such non-discretionary
administrative duties as it may deem advisable, and the Committee or any
person to whom it has delegated duties as aforesaid may employ one or more
persons to render advice with respect to any responsibility the Committee
or such person may have under the Plan.
(b) The Committee may employee attorneys, consultants, accountants and
other persons, and the Committee, the Company and it officers and directors
shall be entitled to rely upon the advice, opinions or valuations of any such
persons. All actions taken and all interpretations and determinations made by
the Committee in good faith shall be final and binding upon the Participants,
the Company and all other interested persons. No member of the Committee shall
be personally liable for any action, determination, or interpretation made in
good faith with respect to the Plan or Awards, and all members of the Committee
shall be fully protected by the Company, to the fullest extent permitted by
applicable law, in respect of any such action, determination and interpretation.
5. ELIGIBILITY
Awards will be limited to persons who are directors, officers, or key
employees of the Tenneco Companies. In determining the persons to whom Awards
shall be made, the Committee shall, in its discretion, take into account the
nature of the person's duties, past and potential contributions to the success
of the Tenneco Companies and such other factors as the Committee shall deem
relevant in connection with accomplishing the purposes of the Plan. A person
who has received an Award or Awards may receive an additional Award or Awards.
For purposes of this Section 5, the terms "director", "employee" and "officer"
shall also include any former director, employee or former
4
<PAGE>
officer of a Tenneco Company eligible to receive a replacement award as
contemplated in the third sentence of Section 8.
6. AUTHORIZED AWARDS; LIMITATIONS
(a) Except for adjustments pursuant to Section 7, the maximum number of
shares of Common Stock that shall be available for issuance under the Plan (the
"Authorized Plan Shares") shall be 17,000,000 (approximately 10% of the issued
and outstanding shares of Common Stock on the effective date of the Plan).
(b) Except for adjustments pursuant to Section 7, in no event (i) shall
more than 6.0 million of the Authorized Plan Shares be available for issuance
pursuant to the exercise of ISOs awarded under the Plan; and (ii) shall more
than 5.0 million of the Authorized Plan Shares be available for issuance
pursuant to Restricted Stock Awards.
(c) If an Award expires unexercised or is forfeited, surrendered,
canceled, terminated or settled in cash in lieu of Common Stock, the shares of
Common Stock that were theretofore subject (or potentially subject) to such
Award may again be made subject to an Award Agreement.
(d) Common Stock that may be issued under the Plan may be either
authorized and unissued shares, or issued shares that have been reacquired by
the Company and that are being held as treasury shares. No fractional shares of
Common Stock shall be issued under the Plan; provided, however, that cash, in an
amount equal to the Fair Market Value of a fractional share of Common Stock as
of the Settlement Date of the Award, shall be paid in lieu of any fractional
shares in the settlement of Awards payable in shares of Common Stock.
(e) In no event shall the number of shares of Common Stock subject to
Stock Options plus the number of shares underlying SARs awarded to any one
Participant during the period from October 8, 1996, through December 31, 2001,
exceed 10% of the Authorized Plan Shares. In all events, determinations under
the preceding sentence shall be made in a manner that is consistent with Code
Section 162 and the regulations promulgated thereunder.
7. ADJUSTMENTS AND REORGANIZATIONS
The Committee may make such adjustments to Awards granted under the Plan
(including the terms, exercise price and otherwise) as it deems appropriate in
the event of changes that impact the Company, the Company's share price, or
share status, provided that any such actions are consistently and equitable
applied to all affected Participants; provided, that, notwithstanding any other
provision hereof, insofar as any Award is subject to performance goals
established to qualify payments thereunder as "performance-based compensation"
as described in Section 162(m) of the Code, the Committee shall have no power to
adjust such Awards other than (i) negative discretion and (ii) the power to
adjust Awards for corporate transactions, in either case to the extent
permissible under regulations interpreting Code Section 162(m).
5
<PAGE>
In the event of any merger, reorganization, consolidation,
recapitalization, separation, liquidation, stock dividend, extraordinary
dividend, spin-off, split-off, rights offering, share combination, or other
change in the corporate structure of the Company affecting the Common Stock, the
number and kind of shares that may be delivered under the Plan shall be subject
to such equitable adjustment as the Committee, in its sole discretion, may deem
appropriate in order to preserve the benefits or potential benefits to be made
available under the Plan, and the number and kind and price of shares subject to
outstanding Awards and any other terms of outstanding Awards shall be subject to
such equitable adjustment as the Committee, in its sole discretion, may deem
appropriate in order to prevent dilution or enlargement of outstanding Awards.
8. AWARDS
The Committee shall determine the type and amount of any Award to be made
to any Participant; provided, however, that, except as provided in paragraph
(g), no Awards granted pursuant to this Plan shall vest in less than six months
after the date the Award is granted. Awards may be granted singly, in
combination, or in tandem. Awards may also be made in combination or in tandem
with, in replacement of, as alternatives to, or as the payment form for, grants
or rights under any other employee benefit or compensation plan of the Tenneco
Companies, including any such employee benefit or compensation plan of any
acquired entity.
(a) Stock Options.
(i) Grants. Stock Options (including Reload Stock Options)
granted under this Plan may be either of the following:
(1) an ISO or
(2) a Non-Qualified Stock Option
The Committee may grant any Participant one or more ISOs, Non-Qualified
Stock Options, or both types of Stock Options, in each case with or without
SARs or Reload Stock Options or any other form of Award. Stock Options granted
pursuant to this Plan shall be subject to such additional terms, conditions, or
restrictions as may be provided in the Award Agreement relating to such Stock
Option.
(ii) Option Price. The Option Price of a Stock Option shall not be less
than 100% of the Fair Market Value of a share of Common Stock on the Award Date;
provided, however, that in the case of a Stock Option granted retroactively in
tandem with or as a substitution for another Award, the Option Price shall be
not less than 100% of the Fair Market Value of a share of Common Stock on the
date of such other Award; and provided further that in any case ISOs shall have
a price equal to 100% of the Fair Market Value of a share of Common Stock on the
Award Date.
(iii) ISOs. Anything in this Plan to the contrary notwithstanding, no
term of this Plan relating to ISOs shall be interpreted, amended or altered, nor
shall any discretion or authority awarded under
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<PAGE>
the Plan be exercised,so as to disqualify this Plan under Section 422 of the
Code, or, without the consent of the Participants affected, to disqualify any
ISO under Section 422 of the Code.
An ISO shall not be granted to an individual who, on the date of grant,
owns stock possessing more than 10% of the total combined voting power of all
classes of stock of the employing Company or of its parent or any subsidiary
corporation.
The aggregate Fair Market Value, determined on the Award Date, of the
shares of Common Stock or other stock with respect to which one or more ISOs (or
other "incentive stock options," within the meaning of Subsection (b) of Section
422 of the Code, under all other stock option plans of the Participant's
employing Company and its parent and subsidiary corporation) that are
exercisable for the first time by the Participant during any particular calendar
year shall not exceed the $100,000 limitation imposed by Section 422(d) of the
Code.
(iv) Manner of Payment of Option Price. The Option Price shall be paid in
full at the time of the exercise of the Stock Option and may be paid in any of
the following methods or combinations thereof;
(A) In United States dollars in cash, check, bank draft or money order
payable to the order of the Company;
(B) By the delivery of shares of Common Stock having an aggregate Fair
Market Value on the date of such exercise to the Option Price;
(C) Participants may simultaneously exercise Stock Option and sell
their shares of Common Stock acquired thereby and apply the proceeds to the
payment of the Option Price pursuant to the procedures established by the
Committee; and
(D) In any other manner that the committee shall approve.
(E) Any shares of Common Stock required or permitted to be sold by an
executive officer of the Company in connection with the payment of the
Option Price shall be transferred to the Company.
(v) Reload Stock Options. The Committee may award Reload Stock Options to
any Participant either in combination with other Awards or in separate Award
Agreements that grant Reload Stock Options upon exercise of outstanding stock
options granted under this Plan or otherwise.
(b) Stock Appreciation Rights.
(i) Grants. The Committee may award any Participant SARs, which shall
be subject to such additional terms, conditions, or restrictions as may be
provided in the Award Agreement
7
<PAGE>
relating to such SAR Award, including any limits on aggregate
appreciation. SARs may be settled in Common Stock or cash or both.
(ii) Award Price. The Award Price per share of Common Stock of a SAR
shall be fixed in the Award Agreement and shall be not less than 100% of
the Fair Market Value of a share of Common Stock on the date of the award;
provided, however, that in the case of a SAR awarded retroactively in
tandem with or as a substitution for another Award, the Award Price per
share of a SAR shall be not less than 100% of the Fair Market Value of a
share of Common Stock on the date of such other Award.
(iii) Distribution of SARs. SARs shall be exercisable in accordance
with the conditions and procedures set out in the Award Agreement relating to
such SAR Award.
(c) Restricted Stock. The Committee may award Restricted Stock to any
Participant. Awards of Restricted Stock shall be subject to such conditions and
restrictions as are established by the Committee and set forth in the Award
Agreement, which may include, but are not limited to, continued service with the
Company, achievement of specific business objectives, and other measurements of
individual or business unit or Company performance.
(d) Stock Equivalent Units. The Committee may award Stock Equivalent Units
to any Participant. All or part of any Stock Equivalent Units Award may be
subject to conditions and restrictions established by the Committee, and set
forth in the Award Agreement, which may include some or all of the following;
continued service with the Company, achievement of specific business objectives,
and other measurements of individual or business unit or Company performance
that may include but shall not be limited to, earnings per share, net profits,
total shareholder return, cash flow, return on shareholders' equity, EVA, and
cumulative return on net assets employed. Without limiting the generality of the
foregoing, it is intended that the Committee shall establish performance goals
applicable to Stock Equivalent Units granted to participants who, in the
judgment of the Committee, may be Covered Employees in such manner as shall
permit it to qualify as "performance-based compensation" as described in Section
162(m)(4)(C) of the Code. The maximum number of Stock Equivalent Units that may
be granted to any Participant in any one calendar year shall not exceed 100,000.
(e) Dividend Equivalents. The Committee may provide in any Award Agreement
in which Stock Equivalent Units are awarded that such Stock Equivalent Units may
accrue Dividend Equivalents. In lieu of awarding Dividend Equivalents, the
Committee may provide for automatic awards of additional Stock Equivalent Units
on each date that cash dividends are paid on the Common Stock in an amount equal
to (i) the product of the dividend per share on the Common Stock times the total
number of Stock Equivalent Units then held by the Participant, divided by (ii)
the Fair Market Value of the Common Stock on the dividend payment date.
(f) Performance Units. Performance Units shall be based on attainment over
a specified period of individual performance targets or on other parameters that
may include but shall not be
8
<PAGE>
limited to, earnings per share, net profits, total shareholder return, cash
flow, return on shareholders' equity, EVA, and cumulative return on net assets
employed. Performance Units may be settled in Common Stock or cash or both.
Without limiting the generality of the foregoing, it is intended that the
Committee shall establish performance goals applicable to Performance Units
granted to Participants who, in the judgment of the Committee, may be Covered
Employees in such a manner as shall permit payments with respect thereto to
qualify as "performance-based compensation" as described in Section 162(m)(4)(C)
of the Code. The maximum amount of compensation that may be paid to any one
Participant with respect to any one year shall be $2,000,000.
(g) The Committee may also, in its sole discretion, shorten or terminate
the restricted period or waive any other conditions for the lapse of
restrictions with respect to all or any portion of any Award. Notwithstanding
the foregoing, all restricted periods shall terminate and the Awards shall be
fully vested with respect to any Participant upon the Participant's Retirement,
death, or Total Disability, coincident with termination of employment with
Tenneco Companies. For purposes of this Section 8:
"Retirement" means the Participants termination of employment with the
Tenneco Company at a time when, under the Tenneco Inc. Retirement Plan or under
any other retirement plan that is maintained by a Tenneco Company and that is
determined by the Committee to be the functional equivalent of the Tenneco Inc.
Retirement Plan, the Participant is eligible to receive an immediately payable
normal retirement benefit, or, if approved by the Committee, the Participant is
eligible to receive an immediately payable early retirement benefit under such
plans; and
"Total Disability" means the permanent inability of the Participant, which
is a result of accident or sickness, to perform such Participant's occupation or
employment for which the Participant is suited by reason of the Participant's
previous training, education and experience and which results in the termination
of the Participant's employment with any Tenneco Company.
9. DIVIDENDS
The Committee may provide in the appropriate Award Agreement that dividends
on Restricted Stock may be paid currently in cash or credited to a Participant's
account for subsequent distribution as determined by the Committee. The Award
Agreement may provide for the reinvestment of dividends paid on Restricted Stock
in shares of Common Stock.
10. DEFERRALS AND SETTLEMENTS
Settlement of Awards may be in the form of cash, Common Stock, other
Awards, or in combinations thereof as the Committee shall determine, and which
such other restrictions as it may impose. The Committee may also require or
permit Participants to defer the issuance or vesting of shares or the settlement
of Awards under such rules and procedures as it may establish under the Plan.
The Committee may also provide that deferred settlements include the payment of
or crediting
9
<PAGE>
of interest on, the deferral amounts or the payment or crediting of Dividend
Equivalents on deferred settlements denominated in shares.
11. TRANSFERABILITY AND BENEFICIARIES
No Awards under the Plan shall be assignable, alienable, saleable or
otherwise transferable other than by will or the laws of descent and
distribution, or pursuant to a qualified domestic relations order (as defined by
the Code) or Title I of the Employee Retirement Income Security Act, or the
rules thereunder unless otherwise determined by the Committee.
The Committee may determine that options granted to a participant who is a
director or an officer or employee with a rank of Corporate Senior Vice
President or above may be transferred to his or her children or trusts for the
benefit of such children.
12. AWARD AGREEMENTS
Awards under the Plan shall be evidenced by Award Agreements that set forth
the details, conditions and limitations for each Award, which may include the
term of an Award (except that (i) except as provided in Section 8(g), no Award
shall vest in less than six months after the date the Award is granted and (ii)
in no event shall the term of any ISO exceed a period of ten years from the date
of its grant), the provisions applicable in the event the Participant's
employment terminates, and the Company's authority to unilaterally or
bilaterally amend, modify, suspend, cancel or rescind any Award.
13. AMENDMENTS; COMPLIANCE WITH RULE 16b-3
The Committee may suspend, terminate, or amend the Plan as it deems
necessary or appropriate to better achieve the purposes of the Plan, except
that, without the approval of the Company's shareholders, no such amendment
shall be made for which shareholder approval is necessary to comply with any
applicable tax or regulatory requirement, including for these purposes any
approval requirement which is a prerequisite for exemptive relief under Section
16b of the Exchange Act.
14. TAX WITHHOLDING
The Company shall have the right to (i) make deductions from any settlement
of an Award made under the Plan, including the delivery of vesting of shares, or
require shares or cash or both be withheld from any Award, in each case in an
amount sufficient to satisfy withholding of any federal, state or local taxes
required by law, or (ii) take such other action as may be necessary or
appropriate to satisfy any such withholding obligations. The Committee may
determine the manner in which such tax withholding may be satisfied, and may
permit shares of Common Stock (rounded up to the next whole number) to be used
to satisfy required tax withholding based on the Fair Market Value of any such
shares of Common Stock, as of the Settlement Date of the applicable Award.
10
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15. OTHER COMPANY BENEFIT AND COMPENSATION PROGRAMS
Unless otherwise specifically determined by the Committee, settlements of
Awards received by a Participant under the Plan shall not be deemed a part of
the Participant's regular, recurring compensation for purposes of calculating
payments or benefits from any Company benefit plan, severance program or
severance pay law and any country. Further, the Company may adopt other
compensation programs, plans or arrangements as it deems appropriate or
necessary.
16. UNFUNDED PLAN
Unless otherwise determined by the Committee, the Plan shall be unfunded
and shall not create (or be construed to create) a trust or a separate fund or
funds. The Plan shall not establish any fiduciary relationship between the
Company and any Participant or other person. To the extent any person holds any
rights by virtue of a grant awarded under the Plan, such right (unless otherwise
determined by the Committee) shall be no greater than the right of an unsecured
general creditor of the Company.
17. FUTURE RIGHTS
No person shall have any claim or right to be granted an award under the
Plan, and no Participant shall have any right under the Plan to be retained in
the employment of the Company or its affiliates.
18. GOVERNING LAW
The validity, construction and effect of the Plan, and any actions taken or
relating to the Plan, shall be determined in accordance with the laws of the
State of Delaware and applicable federal law.
19. SUCCESSORS AND ASSIGNS
The Plan shall be binding on all successors and assigns of a Participant,
including, without limitation, the estate of such Participant and the executor,
administrator or trustee of such estate, or any receiver or trustee in
bankruptcy or representative of the Participant's creditors.
20. RIGHTS AS A SHAREHOLDER
Except as otherwise provided in any Award Agreement, a Participant shall
have no rights as a shareholder of the Company until he or she becomes the
holder of record of Common Stock.
21.
No Award or other transaction shall be permitted under this Plan which
would have the effect of imposing liability for a participant under Section 16
of the Exchange Act. Irrespective of any other provision of this Plan or Award
Agreement, any such Award or other transaction purportedly made under or
pursuant to this Plan shall be void, ab initio.
11
<PAGE>
EXHIBIT 10.26
TIMBERLAND LEASE
BY AND BETWEEN
FOUR STATES TIMBER VENTURE
(as Lessor)
and
PACKAGING CORPORATION OF AMERICA
(as Lessee)
January 31, 1991
This document was prepared by:
Haynes R. Roberts, Esq.
Sutherland, Asbill & Brennan
999 Peachtree Street, N.E.
Atlanta, Georgia 30309-3996
<PAGE>
TABLE OF CONTENTS
1. PROPERTY............................................................... 2
1.1 DESCRIPTION; LEASE TERM........................................... 2
1.2 ADDITIONS AND DELETIONS........................................... 2
1.3 ASSIGNMENT OF PERMITS............................................. 3
2. RENT................................................................... 3
2.1 BASIC RENT........................................................ 3
2.2 MANNER OF PAYMENT; BASIC RENT NET................................. 4
2.3 ADDITIONAL RENT; DEFAULT INTEREST................................. 5
2.4 TAX TREATMENT..................................................... 5
3. FINANCIAL STATEMENTS AND REGULATORY FILINGS............................ 5
4. NO COUNTERCLAIM, ABATEMENT, ETC........................................ 6
5. CONDITION AND USE OF PROPERTY; MINERAL RIGHTS.......................... 7
6. IMPOSITIONS............................................................ 8
7. COMPLIANCE, ETC........................................................ 9
7.1 COMPLIANCE WITH REQUIREMENTS, ETC................................. 9
7.2 RECORDING......................................................... 9
8. LIENS, ETC............................................................. 10
9. PERMITTED CONTESTS..................................................... 10
10. NO CLAIMS AGAINST LESSOR, ETC.......................................... 10
11. INDEMNIFICATIONS AND COVENANTS OF LESSEE............................... 11
11.1 GENERAL INDEMNIFICATION........................................... 11
11.2 ENVIRONMENTAL COVENANTS AND INDEMNITIES........................... 12
12. UTILITY SERVICES....................................................... 14
13. QUIET ENJOYMENT........................................................ 14
13.1 QUIET ENJOYMENT GENERALLY......................................... 14
13.2 LOSS OF TITLE TO PROPERTY......................................... 14
14. LESSEE'S EQUIPMENT..................................................... 14
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15. INSURANCE.............................................................. 15
15.1 RISKS TO BE INSURED............................................... 15
15.2 POLICY PROVISIONS................................................. 15
15.3 EVIDENCE OF INSURANCE............................................. 16
16. TAKING................................................................. 16
16.1 LESSEE TO GIVE NOTICE, ETC........................................ 16
16.2 TOTAL TAKING...................................................... 16
16.3 PARTIAL TAXING.................................................... 16
16.4 APPLICATION OF AWARDS AND OTHER PAYMENTS.......................... 16
16.5 AWARD IF LESSEE IN DEFAULT........................................ 17
16.6 REDUCTION OF RENT UPON PAYMENT TO LESSOR.......................... 17
17. ASSIGNMENT OF SUBRENTS ETC............................................. 17
18. PERFORMANCE ON BEHALF OF LESSEE........................................ 17
19. ASSIGNMENTS, MORTGAGES, SUBLEASES, ETC................................. 18
20. EVENTS OF DEFAULT; TERMINATION......................................... 18
21. ENTRY BY LESSOR........................................................ 20
22. REPOSSESSIONS ETC...................................................... 21
23. RELETTING.............................................................. 21
24. SURVIVAL OF LESSEE'S OBLIGATIONS; DAMAGES.............................. 21
24.1 TERMINATION OF LEASE NOT TO RELIEVE LESSEE OF OBLIGATIONS......... 21
24.2 CURRENT DAMAGES................................................... 21
24.3 FINAL DAMAGES..................................................... 22
25. LESSEE'S WAIVER OF STATUTORY RIGHTS.................................... 22
26. NO WAIVER, ETC., BY LESSOR OR LESSEE................................... 23
27. LESSOR'S REMEDIES, ETC., CUMULATIVE.................................... 23
28. ACCEPTANCE OF SURRENDER................................................ 23
29. NO MERGER OF TITLE..................................................... 23
30. ESTOPPEL CERTIFICATE................................................... 23
31. CONVEYANCE BY LESSOR................................................... 24
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<PAGE>
32. END OF LEASE TERM...................................................... 24
33. PROVISIONS SUBJECT TO APPLICABLE LAW................................... 24
34. TIMBER MANAGEMENT AND CUTTING PROVISIONS............................... 24
34.1 GENERAL TIMBER MANAGEMENT OBLIGATIONS............................. 24
34.2 TIMBER CUTTING PRIVILEGES......................................... 28
34.3 LOSS OF PRE-MERCHANTABLE PLANTED TREES BY CASUALTY................ 30
34.4 FORESTRY CONSULTANT............................................... 30
34.5 TIMBER CRUISE..................................................... 33
34.7 ANNUAL REPORTS.................................................... 34
34.8 TIMBER SPECIFICATIONS AND CALCULATIONS............................ 35
35. DISPOSITION OF PROPERTY................................................ 35
35.1 LESSEE'S OPTION TO PURCHASE....................................... 35
35.2 SALE OF TIMBERLANDS DURING THE INITIAL LEASE...................... 36
35.3 SALE OF PROPERTY DURING THE EXTENSION PERIODS..................... 39
35.4 SALES PURSUANT TO OPTION AGREEMENTS............................... 39
36. APPRAISAL.............................................................. 39
37. REPRESENTATIONS, WARRANTIES AND COVENANTS OF LESSEE.................... 40
37.1 GENERAL REPRESENTATIONS AND WARRANTIES............................ 40
37.2 COVENANTS......................................................... 42
37.3 MUTUAL REPRESENTATIONS REGARDING ENFORCEABILITY................... 46
40. NOTICES, ETC........................................................... 59
41. MISCELLANEOUS.......................................................... 61
42. PARTITION OF LEASE..................................................... 61
43. FOREST TAX LAWS......................................................... 62
-iii-
<PAGE>
EXHIBITS
--------
EXHIBIT A LEGAL DESCRIPTIONS
EXHIBIT B PERMITTED EXCEPTIONS
EXHIBIT C LIST OF IMPROVEMENTS, PERSONAL PROPERTY
AND INTANGIBLES
EXHIBITS D-1 CATEGORIES, ADJUSTMENT AMOUNTS AND
THROUGH D-3 ADMINISTRATIVE AMOUNTS
EXHIBIT E TIMBER CRUISE SPECIFICATIONS
EXHIBITS F-1 AND F-2 FORMS OF ANNUAL REPORT OF FORESTRY CONSULTANT
EXHIBIT G PERMITTED INVESTMENTS
EXHIBIT H INITIAL CUTTING RIGHTS
EXHIBIT I PERMITS
EXHIBIT J OPTION AGREEMENTS
EXHIBIT K SUPPLIED MATERIALS
-iv-
<PAGE>
TIMBERLAND LEASE
TIMBERLAND LEASE, dated January 31, 1991 by and between FOUR STATES TIMBER
VENTURE, a joint venture formed under the laws of the State of Georgia
("Lessor") having its principal office and place of business at One John Hancock
Place, Boston, Massachusetts 02117, and PACKAGING CORPORATION OF AMERICA, a
Delaware corporation ("Lessee"), having its principal office and place of
business in Evanston, Illinois.
W I T N E S S E T H:
WHEREAS, Tenneco Inc, ("Tenneco") has entered into that certain Asset
Purchase Agreement dated as of September 26, 1990 (the "Purchase Agreement"),
among Georgia-Pacific Corporation ("G-P"), Nekoosa Packaging Corporation
("NPC"), NP Northern Woodlands Inc., ("Woodlands") and Nekoosa Papers, Inc.
("Papers") (G-P, NPC, Woodlands and Papers being hereinafter referred to
collectively and severally as "Sellers") and Tenneco, whereby Tenneco has the
right to acquire from the Sellers the Property described in Section 1.1 hereof;
WHEREAS, Metropolitan Life Insurance Company ("Metropolitan") and John
Hancock Mutual Life Insurance Company ("John Hancock") desired to jointly
acquire all right, title and interest to the Property which Tenneco had a right
to acquire pursuant to the Purchase Agreement;
WHEREAS, for the purpose of acquiring the Property from Sellers,
Metropolitan and John Hancock formed Lessor;
WHEREAS, pursuant to the Timberland Acquisition Agreement dated as of
January 31, 1991, made by and among Tenneco, Lessee, John Hancock and
Metropolitan (the "Acquisition Agreement"), Lessor acquired all of Tenneco's
right to acquire the Property pursuant to the Purchase Agreement and to assume
certain obligations associated therewith on the condition that Lessor lease the
Property to Lessee; and
WHEREAS, as of the date hereof Lessor has acquired the Property from
Sellers.
NOW, THEREFORE, in consideration of the premises and the mutual agreements,
covenants and provisions hereinafter set forth, the parties agree as follows:
DEFINITIONS
Unless otherwise defined herein, capitalized terms have the meanings given
to such terms in Section 39 hereof.
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1. PROPERTY.
1.1 DESCRIPTION; LEASE TERM. Upon and subject to the conditions and
limitations set forth below, Lessor leases to Lessee, and Lessee rents from
Lessor, the following property (the "Property"):
(a) all the land described on Exhibit A attached hereto and hereby
made a part hereof (the "Land"), subject to the Permitted Exceptions set forth
on Exhibit B attached hereto and hereby made a part hereof (the "Permitted
Exceptions");
(b) all buildings, structures and other improvements now or hereafter
located on the Land, including without limitation, those improvements described
on Exhibit C attached hereto and hereby made a part hereof (the "Improvements");
(c) all timber and trees now or hereafter standing or lying on or
planted or growing in the soil of the Land (the "Timber");
(d) all rights of way or of use, servitudes, licenses, tenements,
hereditaments, appurtenances and easements now or hereafter belonging or
pertaining to any of the foregoing; and
(e) all personal and intangible property described on Exhibit C
hereto.
TO HAVE AND TO HOLD for a term commencing on the date hereof (the
"Commencement Date") and expiring at midnight on December 31, 2002, unless
extended or terminated as hereinafter provided.
1.2 ADDITIONS AND DELETIONS. The Property leased hereunder is intended to
be the same property acquired by Lessor in accordance with the Purchase
Agreement, Pursuant to Section 5.13 of the Purchase Agreement, Lessor may
reconvey to the Sellers certain portions of the Property which are deemed
unacceptable by Lessor, and pursuant to Section 5,16 of the Purchase Agreement
the Sellers may be required to convey additional or substitute properties to
Lessor. Pursuant to Section 8.3 of the Acquisition Agreement, Lessors may
convey certain portions of the Property to Lessee. Any Property conveyed to or
by Lessor in accordance with the provisions of the Purchase Agreement or the
Acquisition Agreement shall automatically be subject to or released from this
Lease, as the case may be, and Lessor and Lessee shall enter into any amendments
to this Lease which are necessary from time to time to evidence such additions
or deletions, The term "Property" as used in this Lease shall mean the Property
described in Section 1.1 hereof together with any additions thereto or deletions
therefrom contemplated by this Section 1.2 and the applicable sections of the
Purchase Agreement or the Acquisition Agreement.
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1.3 ASSIGNMENT OF PERMITS. Upon and subject to the conditions and
limitations set forth below, Lessor hereby assigns, to the extent assignable,
all right, title and interest in and to the permits which are more particularly
described on attached hereto and incorporated herein by this reference (the
"Permits"), The parties hereto hereby agree that this is a revocable assignment
and that such assignment shall be deemed revoked upon the expiration or earlier
termination of this Lease or upon Lessor's repossession of the Property in
accordance with the provisions of Section 22 hereof.
2. RENT.
2.1 BASIC RENT. Lessee will pay to Lessor rent during the Lease Term
as follows:
(a) QUARTERLY RENT. Lessee shall pay to Lessor, in advance, on the
Commencement Date and thereafter on the first day of each January, April, July
and October during the Lease Term an installment of rent ("Quarterly Rent") in
an amount calculated as follows:
(i) Each installment of Quarterly Rent paid during the First
Lease Year shall be in an amount equal to 2,6875% of the Base Value; provided,
however, that until such time as the Base Value can be established hereunder,
Lessee shall pay Quarterly Rent in the amount of $4,646,499.00; provided,
further, that Lessee's first installment of Quarterly Rent shall be reduced by
an amount equal to Daily Quarterly Rent times the number of calendar days from
and including January 1, 1991 to but not including the Commencement Date;
provided, further, that if, upon determination of the Base Value hereunder, it
is determined that Lessee has paid Quarterly Rent in excess of 2,6875% of Base
Value, such excess amount shall be offset by Lessee against the immediately
succeeding installments of Quarterly Rent;
(ii) Installments of Quarterly Rent paid during the Second Lease
Year and each successive Lease Year thereafter during the Lease Term shall be in
an amount equal to the Quarterly Rent in effect at the end of the previous Lease
Year less an amount equal to 2,6875% of the Annual Rent actually paid by Lessee
with respect to the previous Lease Year in accordance with the provisions of
subsection 2,1(b) hereof as such Annual Rent may be adjusted from time to time
in accordance with the provisions hereof; and
(iii) Notwithstanding the foregoing, in the event any portion of
the Property is sold by Lessor free and clear of this Lease, is the subject of a
Taking or is otherwise released from this Lease prior to the end of the Lease
Term, installments of Quarterly Rent shall be adjusted and thereafter paid by
Lessee in an amount equal to (A) the amount of Quarterly Rent which would have
otherwise been payable had no such sales, Takings or releases occurred minus (B)
the product obtained by multiplying the Cumulative Allocation Ratio after such
sale, Taking or release times the amount of
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Quarterly Rent which would have otherwise been payable had no such sales,
Takings or releases occurred, In addition to the adjustment provided in the
preceding sentence, the Quarterly Rent for the calendar quarter following such
sale, Taking or release shall be reduced by an amount equal to the product of
(X) the difference between the Daily Quarterly Rent prior to and the Daily
Quarterly Rent after the sale, Taking or release and (Y) the actual number of
days from and including the date of such sale, Taking or release to but not
including the date upon which such Quarterly Rent payment becomes due.
(b) ANNUAL RENT.
(i) In addition to the Quarterly Rent provided for in
subsection 2.1(a) above, Lessee shall pay to Lessors in arrears, commencing
January 1. 1992, and continuing on the first day of each Lease Year thereafter
during the Initial Lease Term, an installment of re, (the "Annual Rent") in an
amount equal to $1,192,366,00 less 5.71% of the amount, if any, by which the
Adjusted Base Value exceeds the Base Value; provided, however, that the Annual
Rent Payment for the First Lease Year shall be equal to $1,192,366,00 less 5,71%
of the amount, if any, by which the Adjusted Base Value exceeds the Base Value
times eleven twelfths (11/12ths).
(ii) Notwithstanding the foregoing, in the event any portion of
the Property is sold by Lessor free and clear of this Lease, is the subject of a
Taking or is otherwise released from this Lease prior to the end of the Lease
Term, for the Lease Year in which such sale, Taking or release takes place, the
Annual Rent for such year shall be reduced by an amount equal to the product of
(A) the difference between the Daily Annual Rent prior to and the Daily Annual
Rent after such sale, Taking or release and (B) the actual number of days from
and including the date of such sale, Taking or release to but not including the
first day of the next Lease Year. The installments of Annual Rent required to be
paid by Lessee pursuant to subsection 2.1(b)(i) above for Lease Years beginning
subsequent to the Lease Year in which such sale, Taking or release took place
shall be adjusted and thereafter paid in an amount equal to (X) the Annual Rent
payment which would have otherwise been payable had no such sales, Takings or
releases occurred minus (Y) the product obtained by multiplying the Cumulative
Allocation Ratio after such sale, Taking or release times the Annual Rent
payment which would have otherwise been payable had no such sales, Takings or
releases occurred.
(c) BASIC RENT. The term "Basic Rent" refers collectively to the
Quarterly Rent and the Annual Rent, as each may be adjusted from time to time,
The parties stipulate that the Basic Rent reflects the fair rental value of the
Property for the Lease Term.
2.2 MANNER OF PAYMENT; BASIC RENT NET. Basic Rent and all other sums
payable to Lessor hereunder shall be wired to Lessor by Lessee before noon
(E.S.T. or E.D.T., as applicable) an the due date thereof by Fedwire transfer
through the Federal Reserve System of immediately available funds in U.S.
dollars to the account or
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accounts designated by Lessor by written notice at least three Business Days
prior to such due date, or at such place, by such method and to such Person as
Lessor from time to time may designate. An identification number confirming such
wire shall also be delivered to Lessor prior to the noon deadline. Basic Rent
shall be absolutely net to Lessor so that this Lease shall yield to Lessor the
full amount of the installments of Basic Rent throughout the Lease Term without
deduction, Nothing contained in the preceding sentence shall be construed so as
to obligate Lessee to pay any Excluded Taxes. If for any reason, Lessee is
required by law or order to make any payment to any tax or governmental
authority of Excluded Taxes, by way of withholding or otherwise, Lessor shall
within 30 days after receipt from Lessee of notice of payment of such Excluded
Taxes and appropriate payment documentation with respect thereto, pay to Lessee
an amount which equals the amount of such Excluded Taxes paid to such tax or
governmental authority. Whenever any payment hereunder is due on a day which is
not a Business Day, the date for payment thereof shall be extended to the next
succeeding Business Day.
2.3 ADDITIONAL RENT; DEFAULT INTEREST. Lessee will also pay from
time to time as provided in this Lease, as additional rent, all other amounts
and obligations which Lessee herein agrees to pay to Lessor or is required to
pay to Lessor in accordance with the provisions of this Lease ("Additional
Rent"). Lessee shall also pay Default Interest on Basic Rent and Additional Rent
(if such Additional Rent is not paid within ten days after demand from Lessor
for such payment) from the due date or the date of such demand, as the case may
be, until payment thereof, In the event of any failure on the part of Lessee to
pay any Additional Rent, Lessor shall have all the rights, powers and remedies
provided for in this Lease or at law or in equity or otherwise in the case of
non-payment of Basic Rent.
2.4 TAX TREATMENT. For Federal and state income tax purposes, Lessor
and Lessee shall each report all amounts of Basic Rent and Additional Rent, as
defined herein (but not any other item which Lessee may incur hereunder or pay
to any Person other than Lessor under the terms of this Lease) as rental income
and rental expense, respectively.
3. FINANCIAL STATEMENTS AND REGULATORY FILINGS.
(a) Lessee, at its expense, shall furnish to Lessor as soon as
practical after the end of each fiscal year of Lessee, and in any event within
120 days thereafter, a consolidated balance sheet of Lessee and its consolidated
subsidiaries as of the end of such fiscal year and the related statements of
income, stockholder's equity and cash flows (or such similar or additional
statement then required by GAAP) for such fiscal year prepared in accordance
with GAAP, setting forth in each case in comparative form the figures for the
previous fiscal year, all certified by independent public accountants of
nationally recognized standing who are retained by Tenneco to audit its year-end
financial statements;
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(b) Lessee shall furnish to Lessor as soon as practical after the end
of each of the first three fiscal quarters of each fiscal year of Lessee, and in
any event within 60 days thereafter, a balance sheet of Lessee as at the end of
such period and the related statements of income, stockholder's equity and cash
flows (or such similar or additional statement then required by GAAP), prepared
in accordance with GAAP, using a comparable format and comparable categories as
the last audited financial statement and accompanied by a certificate of the
chief financial officer of Lessee to the effect that to the best of his
knowledge such statements present fairly the financial condition and results of
operations of Lessee, subject to normal year-end adjustments;
(c) In addition to the financial statements delivered in accordance
with subsections (a) and (b) above, Lessee shall furnish to Lessor as soon as
practical after the end of each fiscal year of Lessee, and in any event within
120 days thereafter, a statement of Operating Expenses for the previous year,
certified as being true and correct by the chief financial officer of Lessee;
(d) Lessee shall provide to Lessor, within 30 days following the date
of such filing, copies of any and all reports on Forms 10-K. 10-Q and 8-K (or
their equivalent) and such other reports as Lessor may reasonably specify from
time to time, filed with the Securities and Exchange Commission by Lessee, its
ultimate parent company and any and all intermediary parent companies in
accordance with the provisions of applicable law; and
(e) Lessee will permit any Person designated by Lessor in writing, at
the expense of Lessor, and subject to such limitations as Lessee may reasonably
impose to ensure compliance with any applicable legal or contractual
restrictions, to visit and inspect any of the properties of Lessee, to examine
the corporate books and financial records of Lessee (other than income tax
records) and to make copies thereof or extracts therefrom, and to discuss the
affairs, finances and accounts of Lessee with the principal officers of Lessee,
all at such reasonable times and as often as Lessor may reasonably request.
4. NO COUNTERCLAIM, ABATEMENT, ETC. Basic Rent and Additional Rent shall
be paid without notice, demand, counterclaim, setoff, deduction or defense and
without abatement, suspension, deferment, diminution or reduction, and the
obligations and liabilities of Lessee hereunder shall in no way be released,
discharged or otherwise affected (except as expressly provided herein) by reason
of: (a) any damage to or destruction of or any Taking of the Property or any
part thereof; (b) any restriction or prevention of or interference with any use
of the Property or any part thereof; (c) any title defect or encumbrance or any
eviction from the Property or any part thereof by title paramount or otherwise;
(d) any bankruptcy, insolvency, reorganization, composition, adjustment,
dissolution, liquidation or other like proceeding relating to Lessor, or any
action taken with respect to this Lease by any trustee or receiver of Lessor
(other than a rejection of this Lease by such trustee or receiver pursuant to
the provisions of (S)365 of the Bankruptcy Code), or by any court, in any such
proceeding; (e) any claim which Lessee has or might have against Lessor; (f) any
failure
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on the part of Lessor to perform or comply with any of the terms hereof or of
any other agreement with Lessee; or (g) any other occurrence whatsoever, whether
similar or dissimilar to the foregoing; whether or not Lessee shall have notice
or knowledge of any of the foregoing. Except as expressly provided herein,
Lessee waives all rights now or hereafter conferred by statute or otherwise
(other than the right, if any, as may be available to Lessee to reject this
Lease in accordance with the provisions of (S)365 of the Bankruptcy Code, to the
extent that such right is not waivable under applicable law) to quit, terminate
or surrender this Lease or the Property or any part thereof, or to any
abatement, suspension, deferment, diminution or reduction of Basic Rent,
Additional Rent or any other sum payable by Lessee hereunder.
5. CONDITION AND USE OF PROPERTY; MINERAL RIGHTS.
(a) Lessee specifically acknowledges and agrees that Lessor has no
greater knowledge of the Property than does Lessee, that Lessor makes no
representation or warranty with respect to the title to or the condition of the
Property or its fitness or availability for any particular use and that Lessor
shall not be liable for any latent or patent defect therein, Except as expressly
provided herein, Lessee shall have no right to avoid any duty or obligation
under this Lease, including the obligation to pay rent hereunder, on account of
the condition of the Property or Lessor's title thereto. Lessee shall use the
Property for the production and harvesting of timber in accordance with Section
34 hereof, and other incidental and nonconflicting uses including, without
limitation, farming, hunting and fishing, All other uses by Lessee shall be
subject to the prior written approval of Lessor, which approval maybe given or
withheld as Lessor, in its sole discretion, shall determine, provided that the
use of the Property for any other purpose as may be approved by Lessor must at
all times comply in all respects with all requirements, limitations and
restrictions, that Lessor may from time to time impose. Except as may be
expressly permitted elsewhere in this Lease, Lessee will not do or, if within
Lessee's power, permit any act or thing which might materially impair the value,
usefulness or marketability of the Property or any part thereof, or which
constitutes a public or private nuisance or waste, Lessee expressly covenants to
operate and maintain the Property as required by Section 34 hereof, During the
Lease Term and except as prohibited by applicable law, Lessee shall be entitled
to enter into and receive income from hunting and fishing leases, farm rental
agreements and other incidental uses of the Property which do not conflict with
title provisions of Section 34 hereof; provided, however, that annual rentals
therefrom may not exceed $5,000,000.00 in the aggregate without the prior
written consent of Lessor.
(b) Subject to Section 35 hereof and notwithstanding any other
provision contained in this Lease to the contrary, Lessor hereby (i) expressly
retains all rights to exploit oil, gas, minerals and other subsurface reserves
located on, in or under the Property (the "Mineral Rights"), (ii) shall be
entitled to exploit the Mineral Rights at any time and from time to time during
the Lease Term and (iii) shall be entitled to receive 100% of the income
therefrom, Lessee agrees to cooperate with Lessor in connection with any such
exploitation of the Mineral Rights by Lessor on the Property, In the event
Lessor's exploitation of the Mineral Rights (by strip mining or otherwise)
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materially interferes with Lessee's ability to conduct its commercial timber
operations on any portion of the Property, the affected portion of the Property
shall be specifically identified by Lessor and shall be released from the terms
and provisions of this Lease, whereupon Basic Rent shall be reduced in
accordance with the provisions of Section 2,1 hereof.
6. IMPOSITIONS. Subject to Section 9 hereof relating to contests, Lessee
will pay all Impositions on or before the due date thereof, and will furnish to
Lessor for inspection within 30 days after written request by Lessor, official
receipts of the appropriate taxing authority or other proof satisfactory to
Lessor evidencing such payment of Impositions. If by law any Imposition may be
paid in installments, Lessee shall be entitled to pay in those installments as
they become due from time to time; and any Imposition relating to any tax,
accounting or other fiscal period of the taxing authority, part of which is
included within the term of this Lease and a part of which extends beyond such
term shall be apportioned between Lessor and Lessee as of the expiration of the
term of this Lease; provided, however, that Lessor shall be permitted to offset
any amounts which it would otherwise be required to pay to Lessee as a result of
such apportionment against any Basic Rent and/or Additional Rent which is due
and owing to Lessor as of the date of such apportionment. Notwithstanding the
foregoing, in the event a notice of Imposition is delivered to Lessor but not to
Lessee, Lessor shall promptly forward such notice to Lessee so that Lessee may
pay such Imposition in a timely manner as provided herein, If Lessor receives
such a notice of Imposition more than 15 Business Days prior to the due date
thereof and fails to deliver such notice to Lessee on or before the fifth
Business Day prior to the due date thereof, and as a result of such failure,
Lessee is unable to pay such Imposition in a timely fashion, Lessee shall be
permitted to offset against the next succeeding installments of Quarterly Rent
any interest, penalties, fines or other costs which it is required to pay as a
result of the late payment of the Imposition, The provisions of the preceding
sentence shall not be applicable in the event Lessee receives notice of such
Imposition from a source other than Lessor or its constituent venturers prior to
the due date thereof. Lessee shall not be in default hereunder for failure to
pay any impositions on or before the due date thereof if Lessee did not receive
notice thereof at least five Business Days prior to the due date thereof;
provided, however, that in such event, Lessee shall be required to pay such
Imposition within ten Business Days following receipt of such notice (unless
such Imposition is being properly contested in accordance with the provisions of
Section 9 hereof). Lessor agrees to cooperate (at Lessee's expense) with Lessee
in Lessee's efforts to minimize impositions with respect to the Property,
including the filing of exemptions and other actions, so long as Lessor believes
that such efforts are reasonable under the circumstances. Lessor shall, at the
request of Lessee, forward to Lessee copies of all relevant documentation
(including copies of returns) in Lessor's possession, or the possession of
Lessor's agents, representatives or constituent joint venturers, relating to
Impositions on the Property.
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7. COMPLIANCE, ETC.
7.1 COMPLIANCE WITH REQUIREMENTS, ETC. Subject to the provisions of
Sections 6 and 9 hereof, Lessee, at its expense, will promptly and diligently
(a) comply with all Legal Requirements and Insurance Requirements and (b) comply
with any instruments of record at the time in force affecting the Property or
any part thereof, other than in each case those:
(i) whose application or validity is being contested in good
faith by appropriate proceeding in accordance with the provisions of Section 9
hereof.
(ii) compliance with which shall have been excused or exempted
by a nonconforming use permit, waiver, extension or forbearance exempting the
Property therefrom, or
(iii) the failure with which to comply would not result in any
material adverse consequences to Lessor or have a material adverse effect upon
Lessee's ability to perform its obligations under this Lease. For purposes of
this subsection, a material adverse consequence shall include, without
limitation, any material risk of (w) the sale, forfeiture or loss of the
Property or any material portion thereof, (x) a lien being created against the
Property in violation of the provisions of Section 8 hereof, (y) material
interference with the operation, use or disposition of the Property, or any
material portion thereof, or with the payment of Basic Rent or Additional Rent
under this Lease, or (z) any liability (including any criminal liability) on the
part of, or any adverse effect on, the Lessor, its agents, employees, officers
or constituent joint venturers, or any of their agents, employees, officers or
directors other than civil liability related to tax obligations which are
assumed by Lessee hereunder.
7.2 RECORDING. The parties hereto agree that:
(a) Lessor or Lessee shall, at the request of the other, execute and
deliver counterparts of this Lease or counterparts of a memorandum of this,
Lease for the purpose of recording, but such memorandum shall not under any
circumstances be deemed to modify or to change any of the provisions of this
Lease; provided, however, that Lessor and Lessee agree not to record this Lease
in its entirety except in those jurisdictions where the recording of a
memorandum or short-form of lease does not provide adequate protection of the
rights of Lessor and Lessee under this Lease against claims of third parties;
(b) after the expiration or termination of this Lease, Lessee shall,
at the request of Lessor, within 20 Business Days following the request of
Lessor, execute and deliver to Lessor an instrument cancelling of record any
memorandum of this Lease which was recorded; and
(c) Lessee shall promptly, upon the reasonable request of the Lessor
and at the Lessee's expense, execute, acknowledge and deliver, or cause the
execution,
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acknowledgement and delivery of, and thereafter register, file or record in the
appropriate governmental office, any document or instrument necessary to
preserve and protect any right of Lessor under this Lease and shall furnish to
Lessor an opinion satisfactory to Lessor, of counsel satisfactory to Lessor,
with respect to the adequacy of such registration, filing and recording.
8. LIENS, ETC. During the term of this Lease, Lessee will not directly
or indirectly create or permit to be created or to remain, and will discharge
any Lien on the Property or any part thereof, Lessee's interest therein, or
Basic Rent or Additional Rent other than (a) this Lease, (b) Liens for
Impositions or judgments not yet due and payable, or payable without the
addition of any fine, penalty, interest or cost for non-payment, or being
contested as permitted by Sections 6 or 9 hereof, (c) Permitted Exceptions, (d)
Liens which are not created or permitted by Lessee but arise solely from acts or
agreements of Lessor, and (e) Liens of mechanics, materialmen, suppliers or
vendors, or rights thereto, incurred in the ordinary course of business for sums
which under the terms of the related contracts are not at the time due.
9. PERMITTED CONTESTS. Lessee, at its expense, may contest, after prior
written notice to Lessor, by appropriate legal proceedings conducted in good
faith and with due diligence, the amount or validity or application, in whole or
in part, of any Imposition, judgment, Lien or Legal Requirement or the
application of any instrument of record referred to in Section 7.1 hereof,
provided that (a) Lessee shall first make all contested payments, under protest
if it desires, unless the legal proceedings instituted by Lessee shall suspend
the collection of such contested amounts from Lessor, from Basic Rent and
Additional Rent and from the Property, (b) neither the value or marketability of
the Property or any part thereof or interest therein would be adversely affected
by such contest nor would the Property or any part thereof or interest therein
or any such Basic Rent or Additional Rent be in any danger of being sold,
forfeited, lost or interfered with, and (c) neither Lessor nor its agents,
employees, officers or constituent joint venturers, nor any of their agents,
employees, officers or directors would be subject to any additional civil
liability (other than additional interest of penalties or additions which Lessee
is obligated to pay hereunder which may accrue with respect to any tax
obligation being contested hereunder) or any criminal liability because of
Lessee's failure to comply therewith and the Property would not be subject to
the imposition of any Lien in violation of Section 8 hereof as a result of such
failure.
10. NO CLAIMS AGAINST LESSOR, ETC. Nothing contained in this Lease shall
constitute any consent or request by Lessor, express or implied, for the
performance of any labor or services or the furnishing of any materials or other
property in respect of the Property or any part thereof, nor as giving Lessee
any right, power or authority to contract for or permit the performance of any
labor or services or the furnishing of any materials or other property in such
fashion as would permit the making of any claim against Lessor or the Property
or any part thereof except as permitted by Section 8 hereof.
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11. INDEMNIFICATIONS AND COVENANTS OF LESSEE.
11.1 GENERAL INDEMNIFICATION. Lessee will protect, defend, indemnify
and save harmless Lessor from and against all litigation, liabilities,
obligations, claims, damages, penalties, causes of action, costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses, but
excluding any Excluded Taxes) imposed upon or incurred by or asserted against
Lessor or the Property or any part thereof by reason of the occurrence or
existence during the Lease Term of any of the following, unless arising solely
from acts which would constitute the willful misconduct or gross negligence of
Lessor:
(a) ownership of the Property or any interest therein, or
receipt of any rent or other sum therefrom;
(b) any accident, injury to or death of persons (including
workmen) or loss of or damage to property occurring on or about the Property or
any part thereof or the adjoining streets or ways;
(c) any use, non-use or condition of the Property or any part
thereof;
(d) any failure on the part of Lessee to perform or comply with
any of the terms of this Lease;
(e) performance of any labor or services or the furnishing of
any materials or other property in respect of the Property or any part thereof;
or
(f) any other loss or liability incurred or suffered by Lessor
in connection with the Property or this Lease.
In case any action, suit or proceeding is brought against Lessor by reason of
any such occurrence, Lessee will (unless an Event of Default has occurred and is
continuing hereunder, in which case
Lessor may elect to control, at Lessee's expense, the defense of such action,
suit or proceeding), at Lessee's expense, resist and defend such action, suit or
proceeding, or cause the same to be resisted and defended by counsel designated
by Lessee and approved by Lessor; provided, however, that Lessee shall consult
with Lessor with respect to such defense and shall keep Lessor apprised as to
the status of such defense; provided, further, that, in the event Lessee
proposes to enter into a settlement agreement with respect to any such action,
suit or proceeding Lessee will send notice to Lessor of such proposed
settlement, and Lessor shall have a period of 30 days after receipt of such
notice to reject, in its reasonable judgment, such settlement. Failure to
reject such settlement within such 30-day period shall be deemed to be an
acceptance of such settlement, In the event Lessor rejects such settlement,
Lessor shall assume the defense of such action, suit or proceeding, at its own
cost and expense; provided,
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however, that if Lessor rejects any such proposed settlement and assumes the
defense of such action, suit or proceeding, Lessee shall in any event only be
obligated to indemnify Lessor for such action, suit or proceeding in the amount
of the proposed settlement rejected by Lessor; provided, further, if Lessor
believes that Lessee is not diligently pursuing the defense of any such action,
suit or proceeding, Lessor shall have the option, but not the obligation, to
assume such defense, and if Lessor assumes such defense, Lessor (i) shall
conduct such defense diligently with a view to minimizing the costs of disposing
of such action, suit or proceeding, (ii) Lessor shall advise Lessee of all
settlement offers received in respect thereof and (iii) Lessee shall have no
liability in respect of such action, suit or proceeding in excess of the amount
of any settlement offer proposed to Lessor in writing by the person asserting
such action, suit or proceeding to which Lessee shall have offered to perform.
The obligations of Lessee under this section shall survive the expiration or
earlier termination of this Lease, Lessee shall not be required to indemnify
Lessor against any such occurrence which arises from acts or events not
attributable to Lessee which occur after possession of the Property has been
returned and delivered by Lessee to Lessor or after such Property has been
released from this Lease; provided, however, if an Event of Default shall exist
at the time of any such return and delivery of the Property by Lessee to Lessor,
then Lessee's indemnification obligations shall continue until such time as
Lessee shall have fully complied with all of its obligations under this Lease;
provided, further, that Lessee shall not be required to indemnify Lessor solely
on account of a decline in the market value of the Property not caused directly
or indirectly by an act or omission of Lessee.
11.2 ENVIRONMENTAL COVENANTS AND INDEMNITIES. Lessee hereby covenants
that:
(a) Lessee will not engage in any activity on, or with respect
to, the Property which would result in the generation, manufacture, refining,
treatment, storage or handling or disposal of, or the conduct or performance of
any abnormally dangerous activity in connection with, any Hazardous Material
which would subject the Lessor to any liability under or pursuant to any
Environmental Law; provided, however, that Lessee shall be permitted to use
Hazardous Materials on the Property which are ordinarily used in commercial
timber management activities, provided (i) the use of any such Hazardous
Materials is not prohibited by any Environmental Law, (ii) that Lessee uses such
Hazardous Materials in a safe and responsible manner and in accordance with the
method of application approved by the manufacturer of each such Hazardous
Materials, (iii) that Lessee uses such Hazardous Materials in strict accordance
with any and all Environmental Laws applicable to the use thereof, and (iv)
that, before using any such Hazardous Materials on all or any portion of the
Property, Lessee shall have obtained any and all permits which may from time to
time be required by any regulatory agency or other public body as a condition to
such use. The provisions of this subsection 11,2(a) shall in no way limit the
indemnity obligations of Lessee arising pursuant to the provisions of subsection
11.2(c) hereof;
(b) Subject to the provisions of Section 9 hereof, Lessee will
comply with the requirements of all Environmental Laws now or hereafter in
effect
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which would subject Lessor to any liability or subject the Property to any Lien
under or pursuant to any Environmental Law, Lessee will promptly upon discovery
notify Lessor of any release of any Hazardous Material, whether before or after
the Commencement Date, at, upon, under, or within the Property which is required
to be reported to any federal, state or local governmental agency or authority
pursuant to the provisions of any Environmental Law, including the presence of
asbestos or asbestos-containing materials, PCB's, radon gas, or urea
formaldehyde foam insulation on the Property. Lessee will notify Lessor of the
receipt by Lessee of any notice from any governmental agency or authority or
from any tenant or other occupant or from any other person with respect to any
alleged such release or presence of Hazardous Materials, promptly upon receipt
of such notice, Lessee will send Lessor copies of all results of tests of
underground storage tanks on the Property;
(c) Lessee agrees to indemnify and hold Lessor harmless from
and against any and all litigation, loss, cost, damage, liability, and expense,
including but not limited to reasonable attorneys' fees, suffered or incurred by
or threatened against Lessor at any time, whether before, during, or after
enforcement of Lessor's rights and remedies upon default, on account of any
release of any Hazardous Material (unless arising solely from acts which would
constitute the willful misconduct or gross negligence of Lessor), whether before
or after the Commencement Date, at, upon, under, within or adjacent to the
Property, including the presence of asbestos or asbestos containing materials,
PCBIs, radon gas, or urea formaldehyde foam insulation at the Property,
including but not limited to (a) the imposition by any governmental authority of
any Lien or any so called "super priority lien" upon the Property or any part
thereof, (b) clean-up costs, (c) investigation and monitoring costs, (d)
liability for personal injury or property damage or damage to the environment,
and (e) fines, penalties and punitive or exemplary damages, Lessee shall not be
required to indemnify Lessor against any such occurrence which arises from acts
or events not attributable to Lessee which acts or events occur after possession
of the Property has been returned and delivered by Lessee to Lessor or after
such Property has been released from this Lease; provided, however, if an Event
of Default shall exist at the time of any such return and delivery of the
Property by Lessee to Lessor, then Lessee's indemnification obligations shall
continue until such time as Lessee shall have fully complied with all of its
obligations under this Lease. The provisions of this subparagraph shall survive
the expiration or earlier termination of this Lease; and
(d) Without limitation of any of Lessor's other rights under
this Lease, Lessor will have the right, but not the obligation, to enter onto
the Property and to take such other actions as it deems necessary or advisable
to clean up, remove, resolve or minimize the impact of, or otherwise deal with,
any release of any Hazardous Material, whether before or after the Commencement
Date, at, under, upon or within the Property or any other breach of any
Environmental Law relating to the Property upon its receipt of any notice from
any person or entity, including, without limitation, the United States
Environmental Protection Agency, asserting the existence of any such release or
breach on or pertaining to the Property which, if true, would be reasonably
expected to result in an order, suit or other action against Lessee or Lessor
affecting any
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part of the Property by any governmental agency or otherwise which, in the sole
opinion of Lessor, would be reasonably expected to jeopardize Lessee's ability
to perform its obligations under the Lease or materially and adversely affect
the value of the Property. All costs and expenses incurred by Lessor in the
exercise of any such rights will be payable by Lessee upon demand, together with
Default Interest thereon.
12. UTILITY SERVICES. Lessee will pay or cause to be paid all charges for
all public or private utility services and all protective services at any time
rendered to or in connection with the Property or any part thereof.
13. QUIET ENJOYMENT.
13.1 QUIET ENJOYMENT GENERALLY. Lessor covenants that, so long as no
Event of Default shall have occurred and be continuing hereunder, Lessee shall
not be hindered or molested by Lessor (or any person claiming by, through or
under Lessor) in its enjoyment of the Property, which enjoyment-is subject to
the Permitted Exceptions, In the event Lessee does not have standing to pursue
such action against any other Person interfering with Lessee's peaceful
possession of the Property in its own name, Lessee shall be permitted to pursue
in Lessor's name any action against any third party necessary to defend Lessee's
interest in the Property, provided Lessee indemnifier Lessor fully against any
liability, damage, costs or expenses arising out of or related to such action.
13.2 LOSS OF TITLE TO PROPERTY. In the event title to all or any
portion of the Property is lost because of a title defect, whether or not such
title defect is a Permitted Exception, Lessee's obligation to pay rent with
respect to such portion of the Property shall not abate and Lessee will continue
to pay rent to Lessor with respect to such Property without adjustment;
provided, however, that Lessee's rental obligation with respect to any such
portion of the Property lost because of a title defect shall abate and Basic
Rent shall be adjusted in accordance with the provisions of Section 2.1 hereof
as if such portion of the Property had been sold as of the date Lessor receives
from the title insurance company or companies insuring Lessor's title to the
Property (and/or from Lessee or any other Person to the extent that title
insurance proceeds received by Lessor are insufficient) a payment of monies
equal to the greater of (i) the Make-Whole Price applicable to such portion of
the Property calculated as of the date possession of such portion of the
Property is actually lost and (ii) the excess of (a) the value obtained by
compounding quarterly the Allocated Base Value of the portion of the Property
lost because of the title defect at a rate of 11% per annum from the
Commencement Date of this Lease to the date possession of such portion of the
Property is actually lost over (b) the sum of the values obtained by compounding
quarterly at a rate of 11% per annum each payment of Allocated Quarterly Rent
and Compounding annually at a rate of 11% per annum each payment of Allocated
Annual Rent from the dates each such payments were actually made to the date
possession of such portion of the Property is actually lost.
14. LESSEE'S EQUIPMENT. All Lessee's Equipment shall be the property of
Lessee, provided that upon the occurrence of an Event of Default, Lessor shall,
to the
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extent permitted by law, have (in addition to all other rights) a right of
distress for rent and a Lien on all Lessee's Equipment (other than Lessee's
Equipment not owned by Lessee) then on the Property as security for all Basic
Rent and Additional Rent, Any of Lessee's Equipment (other than Lessee's
Equipment not owned by Lessee) not removed by Lessee at its expense within 90
days after any repossession of the Property by Lessor (whether or not this Lease
has been terminated) shall be considered abandoned by Lessee and may be
appropriated, sold, destroyed, or otherwise disposed of by Lessor, Lessee will
pay Lessor, upon demand, all costs and expenses incurred by Lessor in removing,
storing or disposing of any of Lessee's Equipment. Lessee will immediately
repair at its expense all damage to the Property or any part thereof caused by
any removal of Lessee's Equipment therefrom, whether effected by Lessee, or any
other Person, Except as may be required by applicable law, Lessor shall not be
responsible for any loss of or damage to Lessee's Equipment.
15. INSURANCE.
15.1 RISKS TO BE INSURED. Lessee, at its expense, will cause to be
carried and maintained (a) all risks physical damage insurance with respect to
the Improvements; (b) workers' compensation and employers' liability insurance
with a limit of not less than $500,000; (c) commercial general liability
insurance covering all operations of the insured against all claims for personal
injury, bodily injury, death and property damage, including contractual
liability, in such amount and in such form as Lessee customarily maintains with
respect to similar properties owned, leased or operated by Lessee (but in no
event less than $100,000,000); (d) comprehensive automobile liability insurance
covering all owned, non-owned and hired automobiles or automotive equipment with
a combined single limit of not less than $3,000,000 for bodily injury or
property damage; and in any event shall maintain insurance in amounts and
against risks which are not less than that which are customarily maintained with
respect to similar properties owned, leased or operated by Lessee. The amounts
of insurance specified above may not be reduced and the amount of the deductible
or self-insured retention shall not exceed $25,000,000 without the prior written
consent of Lessor. Any insurance described in this Section 15.1 may be carried
under blanket policies as long as such policies otherwise comply with the
provisions of this Section 15.1.
15.2 POLICY PROVISIONS. Lessor shall be named as a "Loss Payee" on all
applicable all risks physical damage insurance policies, With the exception of
the worker's compensation insurance, the general liability policies shall name
Lessor as an additional insured with respect to liability arising out of the
Property or related operations, To the extent such an endorsement is
commercially obtainable, all policies required hereunder shall further provide
that no cancellation, reduction in amount or material change in coverage shall
be effective until at least 30 days after notice of such cancellation, change or
reduction is tendered to Lessor by the insurer. Lessee waives all rights of
subrogation against Lessor and all policies required hereunder shall each
contain a clause waiving subrogation against Lessor.
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15.3 EVIDENCE OF INSURANCE. Upon the execution of this Lease and
thereafter not less than 15 days prior to the expiration date of any applicable
policy, Lessee will deliver to Lessor a certificate of the insurer, satisfactory
to Lessor in substance and form I as to the issuance and effectiveness of such
policy and the amount of coverage afforded thereby.
16. TAKING.
16.1 LESSEE TO GIVE NOTICE, ETC. In case of a Taking of all or any
part of the Property, or the commencement of any proceedings or negotiations
which might result in such Taking, the party receiving notice of the
commencement of such proceedings or negotiations will promptly give written
notice thereof to the other party hereto, generally describing the nature and
extent of such Taking or the nature of such proceedings and negotiations and the
nature and extent of the Taking which might result therefrom, as the case may
be. Lessor and Lessee may each file and prosecute their respective claims for an
award, but all awards and other payments on account of a Taking shall be paid to
Lessor and shall be applied as hereinafter provided.
16.2 TOTAL TAKING. In case of a Taking (other than for temporary use)
of all or substantially all of the Property, this Lease shall terminate as of
the date of such Taking, Any Taking of the Property of the character referred to
in this Section 16.2 which results in the termination of this Lease is referred
to as a "Total Taking."
16.3 PARTIAL TAXING. In case of a Taking of the Property other than a
Total Taking, this Lease shall remain in full force and effect as to the portion
of the Property remaining immediately after such Taking, without any abatement
or reduction of Basic Rent or Additional Rent, except as provided in Section
16.6.
16.4 APPLICATION OF AWARDS AND OTHER PAYMENTS. Awards and other
payments on account of a Taking (less costs, fees and expenses incurred by
Lessor and Lessee in connection therewith) shall be applied as follows:
(a) Net awards and other payments received on account of a
Taking other than a Taking for temporary use shall be paid (i) first, to Lessor
in an amount up to and including the greater of the Minimum Return Price or the
Make-Whole Price applicable to the portion of the Property lost as a result of
such Taking, and (ii) the balance, if any, of such awards or payments shall be
paid to Lessee;
(b) Net awards and other payments received on account of a
Taking for temporary use during the Lease Term shall be applied to the payment
of the installments of Basic Rent and Additional Rent becoming due and payable
hereunder during the period of such temporary Taking, and the balance, if any,
of such awards and payments shall, unless an Event of Default has occurred and
is continuing hereunder, be paid to Lessee; and
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(c) Lessee hereby irrevocably assigns to Lessor any and all
separate awards to which it may in the future be entitled in connection with any
Taking, together with the right to collect and receive such awards, In the event
separate awards are granted to Lessor and Lessee as a result of any such Taking,
such awards shall be deemed a single award, shall be paid to Lessor and shall
thereafter be distributed in accordance with the provisions of subsections
16.4(a) and 16.4(b) hereof.
16.5 AWARD IF LESSEE IN DEFAULT. Notwithstanding the foregoing, if at
the time of any Taking or at any time thereafter, an Event of Default has
occurred and is continuing under this Lease, Lessor is hereby authorized and
empowered, in the name and on behalf of Lessee, to file and prosecute Lessee's
claim, if any, for an award on account of any Taking and to collect such award
and apply the same, after deducting all costs, fees and expenses incident to the
collection thereof, to the curing of such Event of Default and any other then
existing Default under this Lease.
16.6 REDUCTION OF RENT UPON PAYMENT TO LESSOR. In the event a Taking
of all or any portion of the Property (other than a Taking for a temporary use)
shall occur during the Lease Term, Basic Rent shall be reduced from and after
the date of such Taking in accordance with the provisions of Section 2.1 hereof.
17. ASSIGNMENT OF-SUBRENTS ETC. Lessee hereby irrevocably assigns to
Lessor all rents due or to become due from any sublessee or any tenant or
occupant of the Property or any part thereof, and all amounts due or to become
due to Lessee under any contract referred to in paragraph (j) of Section 34.1
hereof, together with the right to collect and receive such rents and amounts;
provided, however, that, so long as no Event of Default has occurred and is
continuing, Lessee shall have the right to collect such rents and amounts for
its own use and purposes and Lessee shall not be obligated to pay over to Lessor
any such rents, Lessor shall apply to the Basic Rent and Additional Rent due
under this Lease the net amount (after deducting all costs and expenses incident
to the collection thereof and the operation and maintenance, including repairs,
of the Property or any part thereof) of any rents and amounts so collected or
received by it. In the event the net amount of any such rents collected or
received by Lessee during any Lease Year exceeds the total amount of Basic Rent
required to be paid by Lessee in such Lease Year, Lessee shall pay to Lessor, as
Additional Rent, 80% of such excess amount, Nothing contained in this section
shall be construed so as to permit Lessee to sublet all or any portion of the
Property without the express written consent of Lessor, which consent may be
withheld by Lessor in its sole discretion, except as set forth in Section 5(a)
hereof.
18. PERFORMANCE ON BEHALF OF LESSEE. In the event that Lessee shall fail
to make any payment or perform any act required hereunder to be made or
performed by Lessee, then Lessor may, but shall be under no obligation to, make
such payment or perform such act with the same effect as if made or performed by
Lessee. Entry by Lessor upon the Property or any part thereof for such purpose
shall not waive or release Lessee from any obligation or default hereunder.
Lessee shall promptly reimburse Lessor for all sums so paid and all costs and
expenses so incurred in
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connection with the performance of any such act by Lessor, and shall also pay to
Lessor Default Interest on such sums, calculated from the date such sums were
advanced or incurred by Lessor.
19. ASSIGNMENTS, MORTGAGES, SUBLEASES, ETC. Except as expressly permitted
in Sections 5 and 8 hereof, Lessee's interest in this Lease may not be sold,
conveyed, transferred, assigned, mortgaged, pledged or encumbered in any manner
whatsoever. So long as no Event of Default shall have occurred and be continuing
hereunder, Lessee shall have the right to sublease portions of the Land,
provided (a) Lessee first obtains Lessor's prior written consent to each such
subletting, which consent may be given or withheld by Lessor in its sole
discretion, except as set forth in Section 5(a) hereof, and (b) that each such
sublease shall expressly provide that the interest of the sublessee thereunder
is subject and subordinate to this Lease. No such subletting nor the entry by
Lessee into any contract referred to in Section 34.1(j) hereof shall release
Lessee from any obligations and liabilities hereunder, Lessee shall remain
primarily liable on and under the covenants, conditions and obligations of this
Lease as the principal party to this Lease and not as a surety thereof. Nothing
shall relieve or release Lessee of its liability hereunder except an express
written release executed by Lessor. If any portion of the Land is sublet or
occupied by any Person other than Lessee, or if Lessee enters into any contract
referred to in Section 34.1(j) hereof. Lessor may, during the continuance of any
Event of Default hereunder, collect rent from the sublessee or occupant and any
amounts due under any such contract and apply the same in accordance with
Section 17 hereof. The collection or application by Lessor of any such amounts
shall not constitute a waiver of the provisions of this Section 19, or an
acceptance of such sublessee or occupant as tenant, or a release of Lessee from
the further performance by Lessee of the terms, covenants and conditions of this
Lease. Any violation of any provision of this Lease, whether by act or omission,
by any sublessee, occupant or Person with whom Lessee has contracted shall be a
violation of such provision by Lessee, it being the intention of the parties
hereto that Lessee shall assume and be liable to Lessor for any and all acts and
omissions of any and all sublessees and occupants of the Land and Persons with
whom Lessee has contracted; provided, however, that Lessee shall not be
responsible for any acts or omissions of any sublessee under a sublease entered
into in the name of Lessee pursuant to Section 23 hereof.
20. EVENTS OF DEFAULT; TERMINATION. If any one or more of the
following events (each of which is referred to in this Lease as an "Event of
Default") shall occur:
(a) if Lessee shall fail to pay any Basic Rent within five days after
the due date thereof;
(b) if Lessee shall fail to pay any Additional Rent within five days
after the due date thereof;
(c) if Lessee shall fail to perform or comply with any term or
provision of this Lease other than a failure to pay Basic Rent or Additional
Rent and
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such failure shall continue for more than 30 days from the earlier of (i) the
date upon which Lessor gives notice of such failure to Lessee or (ii) the date
upon which the principal operating officer of Lessee responsible for the
operations of the Property determines that such failure has occurred; provided
that, in the case of any such failure that is susceptible of cure by the Lessee,
but that cannot with diligence be cured within such 30 day period, if Lessee
shall have promptly commenced to cure the same and shall thereafter prosecute
the curing thereof with diligence, the period within which such failure may be
cured shall be extended for such further period (not exceeding 90 days) as shall
reasonably be required for the curing thereof with diligence;
(d) if Lessee shall make an assignment for the benefit of creditors,
or shall be generally not paying its debts as they become due or shall commence
a case under the Bankruptcy Code, or shall file any petition or answer seeking
for itself any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future statute,
law or regulation, or shall file any answer admitting or shall fail timely to
contest the material allegations of a petition filed against it in any such
proceeding, or shall seek or consent to or acquiesce in the appointment of any
trustee, custodian, receiver or liquidator of Lessee or any material part of its
properties;
(e) if, without the consent or acquiescence of Lessee, an order shall
be entered constituting an order for relief or approving a petition for relief
or reorganization or any other petition seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or other similar relief
under any present or future statute, law or regulation, or if any such petition
shall be filed against Lessee and such petition shall not be dismissed within 60
days, or if, without the consent or acquiescence of Lessee, an order shall be
entered appointing a trustee, custodian, receiver or liquidator of Lessee or of
any material part of its properties, and such appointment shall not be dismissed
within 60 days;
(f) if a final judgment for the payment of money of more than
$20,000,000.00 shall be rendered against Lessee and within 60 days after the
entry thereif, such judgment shall not have been removed or its enforcement
stayed by bond or otherwise;
(g) if Lessee shall fail to comply in all material respects with the
requirements of any note, mortgage, deed to secure debt, security agreement or
other instrument or document evidencing, securing or otherwise relating to any
indebtedness for monies borrowed of $20,000,000.00 or more owed by Lessee to
Lessor or to any third party and as a result thereof such indebtedness becomes
due before its stated maturity, or if Lessee shall fail to comply in all
material respects with the requirements of any lease with Lessor, either of the
GECC Leases or with the requirements of any Material Lease, and as i result of
such failure Lessor, GECC or the lessor under such Material Lease shall
terminate such lease or shall exercise its right to retake possession of the
leased property without terminating such lease;
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(h) if any representation or warranty made by Lessee under this
Lease, under the Acquisition Agreement or in any officer's certificate shall
prove to have been inaccurate in any material respect when made (unless such
inaccuracy was unintentional and is no longer material) and Lessee shall fail to
take such action as is necessary to make such warranty or representation true
and accurate within a period of 30 days after Lessor shall have notified Lessee
of such inaccuracy; or
(i) if any one or more of the following shall occur:
(ii) Lessee shall cease to be a wholly-owned subsidiary of
Tenneco;
(iii) Lessee shall be sold to, merged into or consolidated with
any other corporation, or substantially all of its assets shall be sold, whether
or not such transaction is permitted under the provisions of Section 38 hereof;
(iv) 30% or more of the outstanding common stock of Lessee shall
be repurchased by Lessee during any 12 month period; or
(v) Lessee shall pay or declare a dividend;
and as a result of the occurrence of (i), (ii), (iii) or (iv), the Net Worth of
Lessee immediately thereafter shall not be at least 50% of the level of Lessee's
Net Worth as of the fiscal year-end immediately preceding such occurrence; then,
and in any such event (regardless of the pendency of any proceeding which has or
might have the effect of preventing Lessee from complying with the terms of this
Lease), Lessor, at any time thereafter so long as such event shall be continuing
may give a written termination notice to Lessee, and on the date specified in
such notice this Lease shall terminate and, subject to Section 24, the Lease
Term shall expire and terminate, and all rights of Lessee under this Lease shall
cease, unless before such date (i) all arrears of Basic Rent and Additional Rent
payable by Lessee under this Lease (together with Default Interest thereon) and
all costs and expenses (including, without limitation, reasonable attorneys'
fees and expenses) incurred by or on behalf of Lessor hereunder, shall have been
paid by Lessee, and (ii) all other Defaults at the time existing under this
Lease shall have been fully remedied to the satisfaction of Lessor, Lessee shall
reimburse Lessor for all costs and expenses incurred by or on behalf of Lessor
(including, without limitation, attorneys' fees and expenses) occasioned by any
Default by Lessee under this Lease.
21. ENTRY BY LESSOR. Lessor and its authorized representatives shall have
the right to enter the Property or any part thereof at any time (a) for the
purpose of inspecting the same or for the purpose of doing any work under
Section 18, and to take all such action thereon as may be necessary or
appropriate for any such purpose (but nothing contained in this Lease shall
create or imply any duty on the part of Lessor to make any such inspection or do
any such work), and (b) for the purpose of showing the Property to prospective
purchasers, lessees or mortgagees, and (c) during the 12-month period preceding
the expiration of the Initial Lease Term and at all times during the Extension
Period, to display on the Property advertisements for sale or letting if such
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advertisements do not interfere with the business conducted on the Property, No
such entry shall constitute an eviction of Lessee, During any such entry of the
Property, Lessor or its representatives shall not unduly interfere with Lessee's
operations. Notwithstanding the foregoing, so long as no Event of Default has
occurred and is continuing under this Lease, Lessor agrees that it will enter
Lessee's business offices on the Property only during Lessee's regular business
hours after providing Lessee reasonable prior notice of such entry.
22. REPOSSESSIONS ETC. If an Event of Default shall have occurred and be
continuing, Lessor, whether or not the Lease Term shall have been terminated
pursuant to Section 20, may enter upon and repossess the Property or any part
thereof by force, summary proceedings, ejectment or otherwise, and may remove
Lessee and all other persons and any and all property therefrom as permitted by
and in accordance with applicable law, Unless otherwise provided under
applicable law, Lessor shall be under no liability for or by reason of any such
entry, repossession or removal.
23. RELETTING. At any time or from time to time after the repossession of
the Property or any part thereof pursuant to Section 22, whether or not the
Lease Term shall have been terminated pursuant to Section 20, Lessor may (but
shall be under no obligation to) relet the Property or any part thereof for the
account of Lessee, in the name of Lessee or Lessor or otherwise, without notice
to Lessee, for such term or terms (which may be greater or less than the period
which would otherwise have constituted the balance of the Lease Term) and on
such conditions (which may include concessions or free rent) and for such uses
as Lessor, in its sole discretion, may determine, and may collect and receive
the rents therefor. Lessor shall not be responsible or liable for any failure to
relet the Property or any part thereof or for any failure to collect any rent
due upon any such reletting.
24. SURVIVAL OF LESSEE'S OBLIGATIONS; DAMAGES.
24.1 TERMINATION OF LEASE NOT TO RELIEVE LESSEE OF OBLIGATIONS.
No expiration or termination of the Lease Term pursuant to Section 20 or by
operation of law, or otherwise (except as expressly provided herein), and no
repossession of the Property or any part thereof pursuant to Section 22, or
otherwise, shall relieve Lessee of its liabilities and obligations hereunder,
all of which shall survive such expiration, termination or repossession.
24.2 CURRENT DAMAGES. In the event of any such expiration,
termination, or repossession, Lessee will pay to Lessor all Basic Rent and
Additional Rent up to the time of such expiration, termination or repossession,
and thereafter Lessee, until the end of what would have been the Lease Term in
the absence of such expiration, termination or repossession, and whether or not
the Property or any part thereof shall have been relet, shall be liable to
Lessor for, and shall pay to Lessor, as liquidated and agreed current damages
for Lessee's default, (a) all Basic Rent and Additional Rent which would be
payable under this Lease by Lessee in the absence of such expiration,
termination or repossession, less (b) all net rents collected by Lessor
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from sublessees, tenants and occupants plus the net proceeds, if any, of any
reletting pursuant to Section 23 after deducting from such rents and proceeds
all of Lessor's reasonable expenses in connection with such collection and
reletting (including, without limitation, repossession costs, brokerage
commissions, accounting expenses, attorneys' fees and expenses, employees'
expenses, promotional expenses, and expenses of preparation for such collection
and reletting). Lessee will pay such current damages on the payment dates of
installments of Basic Rent applicable in the absence of such expiration,
termination or repossession, and Lessor shall be entitled to recover the same
from Lessee on each such date.
24.3 FINAL DAMAGES. At any time after any such expiration, termination
or repossession, whether or not Lessor shall have collected any current damages
as aforesaid, Lessor shall be entitled to recover from Lessee and Lessee will
pay to Lessor on demand, as and for liquidated and agreed final damages for
Lessee's default and in lieu of all current damages beyond the date of such
demand, an amount equal to the present value of the excess, if any, of (a) all
Basic Rent and Additional Rent which would be payable under this Lease from the
date of such demand (or, if it be earlier, the date to which Lessee shall have
satisfied in full its obligations under Section 24.2 to pay current damages) for
what would be the then unexpired Lease Term in the absence of such expiration,
termination or repossession over (b) the then fair net rental value of the
Property for the same period, such present value to be determined using a
discount rate equal to the Average Life Treasury Rate, In the event a dispute
arises between the parties as to the then fair net rental value of the Property,
such fair net rental value shall be determined as of the date of calculation by
an appraiser appointed by Lessor in its sole discretion who is competent,
qualified by training and experience in appraising timberlands, disinterested
and independent and who is a member in good standing of the Association of
Consulting Foresters. All costs, fees and expenses of any such appraiser
appointed by Lessor to determine the fair net rental value of the Property shall
be paid by Lessee. Lessee will also pay to Lessor all reasonable expenses
incurred by Lessor in connection with the reletting of the Property including,
without limitation, repossession costs, brokerage commissions, accounting
expenses, attorneys' fees and expenses, employees' expenses, promotional
expenses, and expenses of preparation for such reletting, Upon the payment of
such final damages, this Lease if not already terminated, shall be deemed
terminated, If any statute or rule of law shall validly limit the amount of such
liquidated final damages to less than the amount above agreed upon, Lessor shall
be entitled to the maximum amount allowable under such statute or rule of law.
25. LESSEE'S WAIVER OF STATUTORY RIGHTS. In the event of any termination
of the Lease Term pursuant to Section 20 or any repossession of the Property
pursuant to Section 22, Lessee, so far as permitted by law, waives (a) any
notice of re-entry or of the institution of legal proceedings to that end, (b)
any right of redemption, re-entry or repossession, and (c) the benefits of
any laws now or hereafter in force exempting property from liability for rent or
for debt.
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26. NO WAIVER, ETC., BY LESSOR OR LESSEE. No failure by Lessor or Lessee
to insist upon the strict performance of any term hereof or to exercise any
right, power or remedy consequent upon a breach thereof, and no submission by
Lessee or acceptance by Lessor of full or partial rent during the continuance of
any such breach, shall constitute a waiver of any such breach or of any such
term. No waiver of any breach shall affect or alter this Lease, which shall
continue in full force and effect, or the respective rights of Lessor or Lessee
with respect to any other then existing or subsequent breach.
27. LESSOR'S REMEDIES, ETC., CUMULATIVE. Each right, power and remedy of
Lessor provided for in this Lease or now or hereafter existing at law or in
equity or by statute or otherwise shall be cumulative and concurrent and shall
be in addition to every other right, power or remedy provided for in this Lease
or now or hereafter existing at law or in equity or by statute or otherwise, and
the exercise or beginning of the exercise by Lessor of any one or more of the
rights, powers or remedies provided for in this Lease or now or hereafter
existing at law or in equity or by statute or otherwise shall not preclude the
simultaneous or later exercise by Lessor of any or all such other rights, powers
or remedies.
28. ACCEPTANCE OF SURRENDER. No termination or surrender of this Lease or
surrender of the Property or any part thereof or any interest therein by Lessee
shall be valid or effective unless agreed to and accepted in writing by Lessor,
and no act by any representative or agent of Lessor, other than such a written
agreement and acceptance by Lessor, shall constitute an acceptance thereof.
29. NO MERGER OF TITLE. There shall be no merger of the leasehold estate
created by this Lease with the fee estate in the Property by reason of the fact
that the same person may own or hold (a) the leasehold estate created by this
Lease or any interest in such leasehold estate, and (b) the fee estate in the
Property or any interest in such fee estate; and no such merger shall occur
unless and until all persons having any interest in (i) the leasehold estate
created by this Lease, and (ii) the fee estate in the Property, shall join in a
written instrument effecting such merger and shall duly record the same.
30. ESTOPPEL CERTIFICATE.
(a) BY LESSEE. Lessee will execute, acknowledge and deliver to
Lessor, as soon as reasonably practicable, but in no event later than 30 days
following receipt of a request therefor from Lessor, a certificate certifying
that (i) this Lease is unmodified and in full force and effect (or, if there
have been modifications, that the Lease is in full force and effect, as
modified, and stating the modifications), (ii) the dates, if any, to which Basic
Rent and Additional Rent have been paid, and (iii) no notice has been received
by Lessee of any Default which has not been cured, except as to Defaults
specified in said certificate. Any such certificate may be relied upon by any
prospective purchaser or mortgagee of the Property or any part thereof.
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(b) BY LESSOR. Lessor will execute, acknowledge and deliver to
Lessee, within 30 days following a request therefor from Lessee, a certificate
certifying that (i) this Lease is unmodified and in full force and effect (or,
if there have been modifications, that the Lease is in full force and effect, as
modified, and stating the modifications), (ii) the dates, if any, to which Basic
Rent and Additional Rent have been paid, and (iii) Lessor is unaware of any
Default which has not been cured, except for the Defaults specified in said
certificate. Any such certificate may be relied upon by any permitted assignee
of this Lease or any permitted sublessee of the Property or any part thereof.
31. CONVEYANCE BY LESSOR. In case the Lessor or any successor thereto
shall convey or otherwise dispose of the Property by transfer which does not
violate the provisions of Section 35.2(a) hereof, it shall thereupon be released
from all liabilities and obligations of Lessor under this Lease (except those
accruing prior to such conveyance or other disposition) and such liabilities and
obligations shall be binding solely on the then owner of the Property, provided
such owner expressly assumes the liabilities and obligations of Lessor under
this Lease.
32. END OF LEASE TERM. Upon the expiration or other termination of the
Lease Term, Lessee shall quit and surrender to Lessor the Property in good order
and condition, and shall remove all Lessee's Equipment therefrom, In the event
Lessee fails to so vacate the Property, such hold over shall be as a tenant at
sufferance and not as a tenant at will. Lessee shall pay Lessor, on demand, as
rent for the period of such hold over an amount equal to one and onequarter
(1.25) times the Quarterly Rent which would have been payable by Lessee had the
hold over period been a part of the Lease Term, together with the amount of any
actual direct or consequential damages suffered or incurred by Lessor on account
of such hold over by Lessee or any violation by Lessee of any other term or
condition of this Lease during such hold over period, In no event shall the
payment of rent during such hold over period cause Lessee to be or be deemed to
be a tenant at will. No holding over by Lessee, whether with or without consent
of Lessor, shall operate to extend the Lease Term except as otherwise expressly
provided in a written agreement executed by both Lessor and Lessee.
33. PROVISIONS SUBJECT TO APPLICABLE LAW. All rights, powers and remedies
provided herein may be exercised only to the extent that the exercise thereof
does not violate any applicable law, and are intended to be limited to the
extent necessary so that they will not render this Lease invalid, unenforceable
or not entitled to be recorded under any applicable law. If any term of this
Lease shall be held to be invalid, illegal or unenforceable, the validity of the
other terms of this Lease shall in no way be affected thereby.
34. TIMBER MANAGEMENT AND CUTTING PROVISIONS.
34.1 GENERAL TIMBER MANAGEMENT OBLIGATIONS. Lessee covenants and
agrees that the Property shall be operated for its highest and best use as
timberland, having due regard to soil conditions, stand arrangements and other
factors
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relevant to the conduct of sound silvicultural and harvesting practices, Lessee
agrees that any intermediate harvesting of Timber shall be carried out in a
manner calculated to produce the maximum growth per acre, consistent with the
production of the highest quality and greatest quantity of Merchantable Timber,
Lessee shall have the right to manage the Property for maximum pulpwood
production and to utilize all products, including sawtimber, as pulpwood,
provided the Timber is properly accounted for by Lessee as pulpwood or
sawtimber, as the case may be, in accordance with the timber classifications,
specifications, utilization limits and calculation standards set forth on
Exhibit E hereto. Lessee further covenants and agrees:
(a) HARVESTING OPERATIONS. That all Timber cutting shall be
conducted in such a manner as to realize the greatest return from the individual
tree and from the timber stand, to effect suitable utilization of the Land, to
assure the early and complete regeneration of stands of desirable Timber, and to
bring about their optimum development both as to growth and quality; that trees
shall be cut as close to the ground as practicable in order to leave the lowest
stump, with jump-butting to be used when necessary; that all desirable trees
which are not at the time being harvested, including young trees, shall be
protected against unnecessary injury from felling, skidding and hauling; and
that all measures reasonably practicable shall be used to prevent soil erosion
including the proper location of skidways and roads.
(b) RESTRICTIONS ON GRAZING AND USE OF FIRE. That Lessee shall not
permit grazing of livestock on the Land in such a way as to be injurious to
forest regeneration, soils or forest growth, or permit the use of fire for
eradication of noxious growth or for any other reason whatsoever except with
Lessor's prior written consent; provided, however, application of fire in a
controlled manner for the benefit of timber production ("prescribed burning")
may be utilized in the management of the Property, without Lessor's prior
written consent, if (i) state and county fire protection agencies are notified
and all fire protection and other applicable laws are followed, (ii) appropriate
equipment and trained personnel are available and utilized, (M) fire is applied
only when weather conditions are favorable, and (iv) the prescribed burning area
is isolated from other areas by appropriate natural or man-made fire breaks.
(c) SALVAGE. That to the extent economically feasible, all trees
which are dead, diseased, fallen or otherwise damaged by casualty, shall be
salvaged and harvested in accordance with sound silvicultural practices and
shall be reported pursuant to Section 34.5 hereof.
(d) FIRE PROTECTION. That all measures shall be taken which are
reasonably necessary to protect the Land and the Timber from loss by fire, which
measures shall be at least equal to fire-control practices generally followed on
timber-producing property in the same general area, including the adoption of
suitable prevention and control measures, the maintenance of adequate fire-
fighting equipment, proper disposal of slash and slabs, and full cooperation
with county, state and federal agencies on matters of fire prevention and
control.
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(e) MAINTENANCE OF ROADS. That an adequate system of roads and
roadways shall be maintained in such manner as to permit access of mobile
firefighting equipment and logging equipment to all parts of the Land.
(f) REGENERATION OF THE SOUTHERN TIMBERLANDS. That Lessee shall take
care to leave the Southern Timberlands in the same general condition at the end
of the Lease Term as existed on the Commencement Date of this Lease. Thus, all
reasonable measures shall be taken to insure proper regeneration of Timber on
the Southern Timberlands. This means, all portions of the Southern Timberlands
which are economically suited for growing pine trees and which have either been
clear-cut or are without adequate seed source shall be site-prepared and
replanted in pine seedlings using to the extent available the most superior
type, so as to establish and maintain pine trees on all portions of the Southern
Timberlands which are economically suited for the production of pine timber, Any
clear-cut area shall be site prepared and replanted within 18 months of such
clear-cutting. In areas of the Southern Timberlands which have not been clearcut
but which are without adequate seed source and are economically suited for the
production of pine timber, Lessee shall institute and maintain a planting
program designed adequately to reforest such land. For each one acre of the
Southern Timberlands clear-cut but not site-prepared and replanted prior to the
expiration of the Lease Term, Lessee shall pay to Lessor the sum of $150.00 per
acre to be retained as a performance deposit until the clear-cut acreage is
site-prepared and replanted satisfactorily to Lessor. Lessee shall have until
the expiration of the 18 month period following the clear-cutting to which the
performance deposit relates to site-prepare and replant the clear-cut acreage
and obtain a refund of said deposit, which shall be retained by Lessor if site
preparation and replanting have not been completed by such time; provided,
however, if such 18 month period shall have expired prior to the expiration of
the Lease Term, then Lessee shall have a period of 12 months following the
expiration of the Lease Term to complete such site preparation and replanting
and to obtain a refund of said deposit. The preceding sentence shall not be
construed in any way so as to relieve Lessee of its obligation to site-prepare
and replant within 18 months of any clear-cutting during the Lease Term and any
failure by Lessee so to site-prepare and replant within such 18 months shall
constitute a Default under this Lease.
(g) REGENERATION OF THE NORTHERN TIMBERLANDS. That Lessee shall take
care to leave the Northern Timberlands in the same general condition at the end
of the Lease Term as existed on the Commencement Date of this Lease. Thus, all
reasonable measures shall be taken to insure proper regeneration of Timber on
the Northern Timberlands. This means, each clear-cut area (except for Lowland
Brush (Spruce) described on Exhibit D-3 hereof) within the Northern Timberlands
which cannot be adequately regenerated by natural means shall be site-prepared
and replanted in coniferous or hardwood seedlings suitable for the site using to
the extent available the most superior type. Any clear-cut area which has not
regenerated naturally within 12 months of such clear-cutting shall be
siteprepared and replanted within 24 months of such clear-cutting. In areas of
the Northern Timberlands which have not been clear-cut but which are unable to
regenerate naturally, Lessee shall institute and maintain a planting program
designed adequately to reforest such land. For each one acre of clear-
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cut land in the Northern Timberlands requiring site preparation and replanting
which is not site prepared and replanted prior to the expiration of the Lease
Term, Lessee shall pay to Lessor the sum of $150,00 per acre to be retained as a
performance deposit until such acreage is site-prepared and replanted
satisfactorily to Lessor, Lessee shall have until the expiration of the 24 month
period following the clear-cutting to which the performance deposit relates to
site-prepare and replant such acreage and obtain a refund of said deposit, which
shall be retained by Lessor if site preparation and replanting have not been
completed by such time; provided, however, if such 24 month period shall have
expired prior to the expiration of the Lease Term, Lessee shall have a period of
12 months following the expiration of the Lease Term to complete such site
preparation and replanting and to obtain a refund of said deposit. The preceding
sentence shall not be construed in any way so as to relieve Lessee of its
obligation to site-prepare and replant within 24 months of any clear-cutting
during the Lease Term which has not regenerated naturally within 12 months
following such clear-cutting and any failure by Lessee so to site-prepare and
replant within such 24 months shall constitute a Default under this Lease.
(h) CONTROL OF DISEASE. That, to the extent economically feasible,
there shall be maintained at all times in accordance with sound silvicultural
practices all reasonable and effective measures to prevent the development of
and to control the spread of disease and insect infestation on the Land,
including, but not limited to, the shifting of logging operations to remove
diseased or insect-infested trees and other trees threatened with disease or
insect infestation, and all such other accepted forest sanitation and control
measures as are necessary to prevent the development and spread of disease and
insect infestation.
(i) TRESPASS. That the Land shall be marked to indicate the
boundaries thereof in a Conspicuous manner satisfactory to Lessor; that such
markings shall be renewed from time to time as may be necessary clearly to
maintain public notice of boundaries; and that Lessee shall cause the Land to be
inspected for the purpose of preventing trespass of any type or nature,
including unauthorized cutting of Timber.
(j) CONTRACTS. That no contracts or agreements (whether written or
oral) for the lease, sale or disposition of Timber wherein third parties are
granted the privilege of entry upon the Land for cutting and removal of Timber
or the care or management of all or part of the Property shall be made without
the prior written approval of Lessor; provided, however, that so long as no
Event of Default shall have occurred and be continuing hereunder, no prior
written approval of Lessor shall be required for any such contracts or
agreements which (i) have a term of 1_ months or less, but in no event expiring
after December 31, 2002 (except that any such contract may expire after December
31, 2002, provided such contract expressly provides that it will terminate,
without cost or penalty to Lessor, upon the sale by Lessor of all or any portion
of the Property affected by such contract), (ii) require payment or delivery of
goods and/or services by Lessee in an aggregate amount of less than $500,000.00,
and (iii) are expressly subject and subordinate to this Lease; provided,
further, however, that no written approval of Lessor shall be required in
connection with the assumption by
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Lessee of various contracts of Sellers by instrument of even date herewith
pursuant to the provisions of the Purchase Agreement and the Acquisition
Agreement.
34.2 TIMBER CUTTING PRIVILEGES. Lessee agrees neither to cut or remove
nor permit the cutting or removal of any Timber without the prior written
consent of Lessor, except as expressly provided herein, Unless a Default has
occurred and is continuing under this Section 34.2 or unless an Event of Default
has occurred and is continuing under any provision of this Lease, Lessee shall
have the right to cut and remove Merchantable Timber from the Land, but only in
strict accordance with the following provisions:
(a) ANNUAL CUTTING PRIVILEGE. As soon as reasonably possible
after the Commencement Date of this Lease and thereafter on or before the last
day of the Fifth and Tenth Lease Years, Lessee shall cause the Forestry
Consultant to deliver to the Lessor a Projected Growth Report for the next five
years itemized by Category, Lessee's timber cutting right during the Lease Term
shall be based upon such Projected Growth Reports as follows:
(i) During each Lease Year of the Initial Lease Term, Lessee
shall have the right to cut up to 100% of the average projected annual growth
(net of mortality) by Category as determined by the Forestry Consultant in the
Projected Growth Report applicable to such Lease Year. If mortality exceeds
average projected annual growth in any Category during any Lease Year, such
excess shall be deducted from Lessee's cutting rights for such Category for the
following Lease Years. Lessee may, at its option, elect to cut less than 100% of
such average projected annual growth during any Lease Year and, in such event,
Lessee shall be permitted to cut, without penalty, the remainder of such
projected growth in any subsequent Lease Year covered by the five-year Projected
Growth Report applicable to such Lease Year; and
(ii) During each Lease Year during the Extension Period, Lessee
shall have the right to cut up to 75% of the average projected annual growth
(net of mortality) by Category as determined by the Forestry Consultant in the
Projected Growth Report applicable to such Lease Year, If mortality exceeds 75%
of average projected annual growth in any Category during any Lease Year, such
excess shall be deducted from Lessee's cutting rights for such Category for the
following Lease Years;
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provided, however, that:
A. the permitted volume of cutting in any Category for any
Lease Year shall be reduced by an amount equal to the
excess volume, if any, cut or removed during the
preceding Lease Years pursuant to paragraph (b) of this
Section 34.2, multiplied by 1.5;
B. the Forestry Consultant shall revise and update its
Projected Growth Report annually to reflect each sale,
Taking or release of all or any portion of the Property
during the Lease Term and Lessee's timber cutting
privilege shall be adjusted in conformity with such
revised report;
C. the permitted volume of cutting in any Category for the
Sixth through the Fifteenth Lease Years shall be
increased or decreased to correct any growth projection
errors applicable to prior periods which are revealed
by the Cruise performed by the Forestry Consultant at
the end of the Fifth and Tenth Lease Years;
D. in the event the Annual Report delivered by the
Forestry Consultant indicates that variances exist
between the actual growth of Timber by Category and the
projections set forth in the Projected Growth Report,
Lessor or Lessee, with the consent of the other, which
consent is not to be unreasonably withheld by either
party, shall have the right to require the Forestry
Consultant to revise the Projected Growth Report to
reflect such variances and Lessee's Timber cutting
right shall be adjusted in conformity with such revised
report; and
E. until such time as the Forestry Consultant shall
deliver its initial Projected Growth Report to Lessor
and Lessee and provided Lessee would otherwise be
permitted to cut Timber in accordance with the
provisions of this Section 34.2, Lessee shall be
permitted to cut the volumes of Timber by Category set
forth on Exhibit H attached hereto and incorporated
herein by this reference.
(b) EXCESS CUTTING. Subject strictly to compliance by Lessee with
this paragraph (b) of this Section 34.2, Lessee may without default cut and
remove
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Merchantable Timber in excess of the volumes permitted under paragraph (a) of
this Section 34.2, provided, that such excess cutting in any Lease Year does not
exceed 10% (on a non-cumulative basis) of the volume (in any Category) in such
Lease Year permitted to be cut under paragraph (a) of this Section 34.2;
provided further, that with respect to each such excess volume of each Category
of Merchantable Timber, Lessee shall be required to pay as Additional Rent to
Lessor an amount equal to the greater of (i) 150% of the amount calculated by
multiplying such excess volume of each Category times the applicable Adjustment
Amount Per Cord for each Category set forth on Exhibits D-1, D-2 and D-3 hereto,
or (ii) 150% of the fair market value of the excess Merchantable Timber cut, as
determined by the Forestry Consultant as of the last day of such Lease Year.
(c) MERCHANTABLE TIMBER CUT BY OTHERS; LOSS OF MERCHANTABLE TIMBER
BY CASUALTY. All Merchantable Timber on the Land which is cut or removed by any
Person other than Lessee or which is lost or destroyed by fire, windstorm,
disease, infestation, act of government or war or third parties or any similar
cause (other than that which is lost as a result of a Taking), whether or not
salvaged, shall be deemed to have been cut or removed by Lessee for purposes of
this Lease; provided, however, the volumes of any Merchantable Timber so lost or
destroyed shall not be deemed to have been cut or removed by Lessee for purposes
of the lot limitation set forth in the first proviso in the first sentence of
paragraph (b) of this Section 34.2 so long as Lessee shall have paid the
Additional Rent with respect to such lost or destroyed Merchantable Timber
required to be paid under the second proviso in the first sentence of paragraph
(b) of this Section 34.2.
(d) TITLE TO MERCHANTABLE TIMBER. Title to all Merchantable Timber
located on the Property is now and shall remain vested in Lessor throughout the
Lease Term; provided, however, that title to any Merchantable Timber which is
cut or removed from the Property by Lessee in strict accordance with the
provisions of this Section 34.2, shall, upon such cutting and removal, vest in
Lessee.
34.3 LOSS OF PRE-MERCHANTABLE PLANTED TREES BY CASUALTY. In the
event any Pre-Merchantable Planted Trees are lost or destroyed by fire,
windstorm, disease, infestation, act of government or war or third parties or
any similar cause (other than that which is lost as a result of a Taking), then,
in any such event Lessee shall site-prepare and replant the acreage of such lost
or destroyed Pre-Merchantable Planted Trees in the same manner and within the
same time as would be required by Section 34.1 if said acreage had been
clearcut.
34.4 FORESTRY CONSULTANT.
(a) APPOINTMENT. Lessee hereby acknowledges and agrees that Lessor
shall have the right, at all times during the Term of this Lease and at Lessee's
sole cost and expense, to employ an independent forestry consulting firm or
firms of established reputation to act on behalf of Lessor hereunder (the
"Forestry Consultant"). Lessor and Lessee further acknowledge and agree that,
with respect to the Southern
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Timberlands, the initial Forestry Consultant shall be Resource Management, Inc.,
and, with respect to the Northern Timberlands, the initial Forestry Consultant
shall be George Banzhaf & Company.
(b) Duties. During the Lease Term the Forestry Consultant shall:
(i) periodically perform a Cruise of the Property and prepare
a Projected Growth Report with respect thereto in accordance with the provisions
of section 34.5 hereof;
(ii) upon completion of the initial Cruise, prepare an
appraisal by Category of the fair market value of the Property as of the
Commencement Date of this Lease (the "Property Appraisal") to be delivered to
Lessor and Lessee on or before March 1, 1991;
(iii) prepare an Annual Report with respect to the Property in
accordance with the provisions of Section 34.7 hereof;
(iv) make periodic determinations of acreage and timber volumes
by Category with respect to portions of the Property to be sold, taken or
otherwise released from this Lease;
(v) verify any and all reports, certifications or other
information provided by Lessee to Lessor in accordance with the provisions of
this Lease;
(vi) monitor Lessee's business and activities on the Property
to assure compliance by Lessee with the provisions of this Lease;
(vii) notify Lessor of any Default or Event of Default hereunder
promptly upon obtaining knowledge of same;
(viii) notify Lessor if for any reason it becomes impossible for
such Forestry Consultant faithfully and fully to perform its obligations
hereunder;
(ix) accept no obligation or responsibility to Lessee which is
inconsistent with the faithful discharge of such Forestry Consultant's
obligations to Lessor hereunder; and
(x) perform such other duties with respect to the Property and
this Lease as Lessor may from time to time reasonably request.
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(c) RECORDS. All of the records of the Forestry Consultant relating
to the Property, including without limitation, all books, maps, surveys,
photographs, reports and similar information, shall be and become the property
of Lessor shall be held by the Forestry Consultant as agent for Lessor and shall
be furnished or made available to Lessor as it may from time to time request.
Lessee shall have the right to examine and make copies of the foregoing, all at
Lessee's expense, as the Lessee may from time to time reasonably request.
(d) PAYMENT OF FEES. Lessee covenants and agrees to pay all fees and
to reimburse all expenses of the Forestry Consultant hereunder, If Lessee fails
or refuses to pay any fees or to reimburse any expenses of the Forestry
Consultant when due, Lessor may at its election advance and pay any such sum and
said sum, together with Default Interest thereon calculated from the due date
thereof, shall be paid by Lessee to Lessor as Additional Rent on or before the
fifth day following the date upon which Lessor advances such amount.
(e) TERMINATION OF FORESTRY CONSULTANT'S EMPLOYMENT.
(i) Lessor shall have the right to terminate the employment of
the Forestry Consultant at any time, with or without cause, by giving 30 days
advance written notice of such termination to the Forestry Consultant and to
Lessee.
(ii) Lessee shall have the right to terminate the employment of
the Forestry Consultant at any time for cause consisting of failure to perform,
or bad faith, negligence, or misconduct in the performance of, its duties as the
Forestry Consultant hereunder, by giving 30 days advance written notice of such
termination to the Forestry Consultant and to Lessor.
(iii) Upon the termination of the employment of the Forestry
Consultant by either the Lessor or Lessee, then the other party shall have the
right to propose a successor Forestry Consultant.
(iv) In the event of the resignation of the Forestry
Consultant, Lessor shall have the right to propose a successor Forestry
Consultant.
(v) In the event Lessor and Lessee, after good faith
negotiations have been attempted by Lessor, do not for any reason agree in
writing on the appointment of a successor Forestry Consultant within 30 days
after such termination or resignation, and provided Lessor desires that a
successor Forestry Consultant be appointed, then Lessor shall provide to Lessee
a list of three forestry consulting firms which are acceptable to Lessor, and
Lessee shall have ten Business Days following receipt of such list to select one
of the three consulting firms listed thereon to act as Forestry Consultant
hereunder; provided, however, if Lessee fails to make its selection within such
ten-day period, Lessor shall have the right but not the obligation to appoint a
successor Forestry Consultant in its sole discretion.
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(vi) In case of termination of the employment of the Forestry
Consultant by the Lessee, the effective date of such termination shall be
extended, if so requested by the Lessor, until the successor Forestry Consultant
has accepted the engagement and is in a position fully to perform the duties of
the Forestry Consultant hereunder; provided, however, that no such extension
shall be for a period in excess of 90 days from the original termination date
set forth in Lessee's notice of termination.
(f) No Obligation to Utilize Consultant. Notwithstanding the
foregoing, Lessor shall have no obligation to utilize the services of a Forestry
Consultant under the terms of this Section 34.4. For any period of time during
which there is no Forestry Consultant employed and acting as such, Lessor shall
have the right to take such steps as it considers necessary to make the
determinations, verifications and inspections to be made by the Forestry
Consultant hereunder, by its own employees or otherwise. Lessee agrees to pay
and reimburse all reasonable costs and expenses incurred by Lessor in making
such determinations, verifications and inspections that would otherwise be
performed by the Forestry Consultant, including without limitation, travel
expenses and the reasonable fees and expenses of independent foresters,
surveyors, engineers and attorneys.
(g) Cooperation. Lessee covenants to cooperate fully with the
Forestry Consultant in good faith so as to aid the Forestry Consultant in
performing its duties hereunder.
34.5 TIMBER CRUISE. Lessee shall cause the Forestry Consultant to
perform a cruise (in each case, the "Cruise") of the Property at Lessee's sole
expense on or before March 1, 1991 to verify the actual timber volumes and
acreages by Category included in the Property as of the Commencement Date of
this Lease and thereafter as of December 31, 1995 and December 31, 2000 to
verify the actual timber volumes and acreages by Category included in the
Property as of each of such dates. Each Cruise shall be conducted in accordance
with the cruise specifications set forth on Exhibit E attached hereto and
incorporated herein by this reference. The results of each Cruise shall be
delivered in report form to Lessor and Lessee on or before the due date thereof
and shall include a projected annual growth report for the Property for the five
year period commencing on such due date, itemized by Category (in each case, the
"Projected Growth Report"). In connection with the initial Cruise, the Forestry
Consultant shall also prepare and deliver the Property Appraisal. In the event
that Lessor or Lessee disagrees in good faith with any determination (volume
and/or acreage) by the Forestry Consultant, such party shall deliver to the
other party a written notice of objection (the "Objection Notice") and the
parties hereto shall undertake to negotiate in good faith to resolve their
differences) or, at the option of either the Lessor or Lessee, a reputable
forestry consulting firm shall be appointed by the Lessor and Lessee to resolve
such dispute, one-half the cost of which shall be borne by each party. In the
event Lessor and Lessee, after good faith negotiations have been attempted by
Lessor, do not for any reason agree on a forestry consulting firm within 30 days
following the date the objection Notice is delivered by the objecting party,
Lessor shall provide to Lessee a list of three
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forestry consulting firms which are acceptable to Lessor, and Lessee shall have
ten Business Days following receipt of such list to select one of the three
consulting firms listed thereon to resolve the dispute; provided, however, if
Lessee fails to make its selection within said ten-day period, Lessor shall have
the right to appoint such reputable forestry consulting firm in its sole
discretion.
34.6 SEMI-ANNUAL REPORTS. Lessee covenants to furnish to the Forestry
Consultant and to the Lessor not later than 45 days after the end of each
calendar semi-annual period, a semiannual report with respect to the Southern
Timberlands in a form substantially similar to that attached hereto as Exhibit
F-1 and incorporated herein by this reference and with respect to the Northern
Timberlands in a form substantially similar to that attached hereto as Exhibit
F-2 and incorporated herein by this reference, with full and accurate
information furnished in completion thereof, for each management unit of the
Property, including in addition to the information requested therein a current
compartment map (in such detail as Lessor or the Forestry Consultant may
reasonably specify from time to time) for each compartment in which a change
occurred in the volumes or acreages of Land or Timber (other than a change
merely by reason of timber growth) and such other information as Lessor or the
Forestry Consultant may reasonably request from time to time with respect to
timber activity on the Property including without limitation, new plantings,
Timber cutting, Timber utilization, Timber damage by casualty, loss of Timber or
Land by eminent domain or condemnation, and improvement of the Property. The
information to be furnished to the Forestry Consultant and Lessor shall also
include a statement setting forth the Administrative Amount of the Property by
Category as of the end of the semi-annual period covered by said report. In
addition, the Lessee covenants to furnish to the Forestry Consultant and to the
Lessor, a synopsis of all changes in acreage and volumes of Land and Timber for
the Lease Year through the semi-annual period covered by the report.
34.7 ANNUAL REPORTS. In addition to the semi-annual reports required
by Section 34.6 above, Lessee covenants to furnish to the Lessor not later than
90 days after the end of every Lease Year an annual report of the Forestry
Consultant (the "Annual Report") addressed to the Lessee and to the Lessor, for
the preceding Lease Year. The Annual Report shall contain the following:
(i) a detailed report of all matters and transactions involving
or affecting the Property in such detail as may be reasonably required;
(ii) the certification of the Forestry Consultant, as of
December 31 of the Lease Year covered by the report, as to the acreage of
Land, volume of Merchantable Timber by Category and acreage of
PreMerchantable Planted Pine contained within the Property;
(iii) the opinion of the Forestry Consultant as to whether the
actual growth of Timber on the Property during such period was consistent
with
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the projections set forth in the Projected Growth Report applicable to such
period and, if not, setting forth the variances therefrom by Category; and
(iv) a reconciliation of the timber inventory and projected
growth to take into account all changes in volumes and acreages of Timber
and Land within the Property through December 31 of the Lease Year covered
by the report.
34.8 TIMBER SPECIFICATIONS AND CALCULATIONS. The timber classifications,
specifications, utilization limits and calculation standards set forth on
Exhibit E to this Lease with respect to the Southern Timberlands and the
Northern Timberlands are hereby agreed to by Lessor and Lessee and shall be used
for all purposes under this Lease.
35. DISPOSITION OF PROPERTY.
35.1 LESSEE'S OPTION TO PURCHASE. Provided this Lease has not been
terminated for any reason by either Lessor or Lessee prior thereto, Lessee shall
have, at its option but with no obligation, the right to purchase all of
Lessor's right, title and interest in the Property and, to the extent
transferable, the Permits (the "Purchase Option") for a purchase price equal to
the Purchase option Price, upon giving Lessor written notice of its election to
purchase not less than 90 days prior to the expiration of the Initial Lease
Term. If Lessee fails to give notice of its election to purchase within the
time herein allowed or if this Lease is terminated prior to giving such notice,
the Purchase option shall expire and shall be of no further force or effect. The
purchase transaction shall be consummated on December 31, 2002 or on such other
day during December 2002 as Lessor and Lessee shall agree to in writing (the
"Option Closing Date") by delivery of limited warranty deeds and special
warranty deeds to Lessee, or such other party as Lessee may direct, against
payment of the Purchase Option Price in immediately available funds (excepting
from such deeds such portion, if any, of the Property as shall have been sold by
Lessor prior to the Option Closing Date pursuant to Section 35.2 hereof, taken
by a Taking or otherwise released from this Lease pursuant to the terms hereof),
and the title so to be transferred may be subject to (a) any and all defects in
title and rights of third parties existing at the date Lessor acquired the
Property, (b) the lien or effect of any and all Impositions and any and all
Legal Requirements, (c) encumbrances and exceptions arising as a result of
action taken by Lessor to enforce its rights and remedies under this Lease, and
(d) any and all rights of third parties created or suffered by Lessee or by
Lessor with the consent of or at the request of Lessee or as a result of any act
or failure to act of Lessee, but shall be free of any other defects of title or
rights of third parties created or permitted over the objections of Lessee by
Lessor or Liens for Excluded Taxes, except this Lease. Lessee shall pay or
cause to be paid, and shall indemnify and hold Lessor harmless against, all
charges incident to the proposed conveyance (whether or not the same shall be
consummated), including, without limitation, all reasonable counsel fees and
expenses, all escrow fees, recording fees, title insurance premiums, survey
costs and all applicable transfer taxes, deed taxes, stamp taxes or similar
taxes imposed by reason of the
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conveyance of title to the Property by Lessor to Lessee or the execution,
delivery and recording of the deeds, it being the intent hereof that the
Purchase Option Price paid to Lessor for the Property shall be absolutely net to
Lessor and that such conveyance be effected without cost or expense to Lessor;
provided, however, Lessee shall not be responsible for or obligated to indemnify
Lessor for any Excluded Taxes hereunder other than transfer taxes, deed taxes,
stamp taxes or similar taxes. Lessee hereby acknowledges and agrees that, in the
event Lessee for any reason does not exercise the Purchase Option, the Lease
Term will immediately be extended to include the Extension Period.
35.2 SALE OF TIMBERLANDS DURING THE INITIAL LEASE TERM.
(a) Lessor's Right to Sell. Lessor shall have the right at all times
during the Initial Lease Term to sell all or any portion of the Timberlands
subject to this Lease and the Purchase Option without the consent or approval of
Lessee;
(b) Lessee's Right to Market; Requirements for Sale. On or before the
30th day following its receipt of the Annual Report of the Forestry Consultant
each Lease Year during the Initial Lease Term, Lessor shall identify 80,000
acres of the Timberlands (as identified by Lessor from time to time hereinafter
referred to as the "Pre-Approved Property") which Lessee shall be permitted to
market for sale on behalf of Lessor during the twelve-month period commencing
April 1 of each Lease Year during the Initial Lease Term (the "Marketing
Period"). The Pre-Approved Property shall not include and shall be in addition
to the Non-Strategic Lands. Lessor hereby agrees that it will sell all or any
remaining portion of the Non-Strategic Lands and up to 27,000 acres of the
PreApproved Property per Lease Year during the Initial Lease Term to one or more
purchasers identified by Lessee, provided:
(i) no Default or Event of Default shall exist under this Lease
as of the date of Lessor's request pursuant to subsection 35.2(c) or as of
the date of any such proposed sale;
(ii) the proposed sale shall be an arm's length transaction with
a Person who is not a Related Entity and who is otherwise acceptable to
Lessor in its reasonable discretion;
(iii) the net proceeds (after deduction of all closing costs and
any other costs and expenses in connection with such sale, including any
taxes imposed or recaptured under any Forest Tax Law) received by Lessor as
a result of any such sale shall be no less than the greater of the Minimum
Return Price or the Make-Whole Price applicable to such sale;
(iv) all conveyance instruments and other documentation in
connection with such sale shall be in form and substance satisfactory to
Lessor;
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(v) Lessee shall have complied fully with the requirements of
subsection 35.2(c) hereof as they relate to such proposed sale; and
(vi) all information and certifications set forth in the
certificates required under subsection 35.2(c) shall be true, accurate and
complete. Lessor's agreement to sell up to 27,000 acres of the Pre-Approved
Property per Lease Year during the Initial Lease Term shall be on a
cumulative basis, but in no event shall Lessor be required to (A) sell more
than 80,000 acres of the Timberlands during any Lease Year or (B) process
more than ten written requests for sale delivered by Lessee in accordance
with the provisions of subparagraph (c) below during any Lease Year. Lessee
shall pay all costs and expenses related to any such sale, including any
and all expenses incurred by Lessor in connection therewith.
Notwithstanding the foregoing, Lessor shall have until June 1, 1991 to
identify the Non-Strategic Lands and the Pre-Approved Property for the
initial Marketing Period.
(c) Documentation Required. Not less than 60 days prior to the date
upon which any proposed sale under subsection 35.2(b) is to occur, Lessee shall
provide a written request for such sale to Lessor, which request shall include
the following documentation, all of which must be in form and substance
satisfactory to Lessor:
(i) a legal description of the tract or tracts to be sold;
(ii) if less than an entire contiguous tract (as described in
the legal descriptions attached hereto as Exhibit A) is to be sold, a plat of
survey of the portion of the Timberlands to be sold prepared by a reputable
registered engineer or land surveyor acceptable to Lessor;
(iii) a certificate from the Forestry Consultant:
A. stating that access to the remaining Timberlands after such
sale will not be materially impaired and will be adequate
for commercial forestry operations;
B. listing by Category the amounts of acreage and volumes of
Land and Timber contained within the tract or tracts to be
sold, which listing shall be based on the results of a
current stratified cruise complying with the cruise
specifications set forth on Exhibit E attached hereto, and
describing any Improvements thereon;
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C. setting forth a detailed computation of the Administrative
Amount of the tract or tracts to be sold; and
D. stating to the best of the knowledge and belief of the
Forestry Consultant that no Default or Event of Default
then exists under this Lease;
(iv) a certificate from the principal operating officer of
Lessee responsible for Lessee's operations on the Property:
A. stating that no Default or Event of Default then exists
under this Lease;
B. setting forth a detailed computation of the Make-Whole
Price and Minimum Return Price applicable to such sale;
C. stating that the proposed sale will not impair the
marketability or value of the remaining Timberlands or
materially impair the accessibility of the remaining
Timberlands;
D. stating that, to the best of the knowledge and belief of
such officer, the information contained in the certificate
delivered by the Forestry Consultant in connection with
such sale is true, accurate and complete; and
E. stating that the proposed sale is to be an arm's length
transaction with one or more Persons, none of whom is a
Related Entity; and
(v) a true, correct and complete copy of the contract for the
sale of the tract or tracts to be sold;
(d) Excess Proceeds. Any proceeds received by Lessor as a result of
any sale of Timberlands in accordance with the provisions of subsection (b)
above which are in excess of the greater of the Minimum Return Price or the
Make-Whole Price applicable to such sale shall be paid by Lessor to Lessee;
(e) Other Sales. In the event Lessee wishes to market for sale
during the Initial Lease Term portions of the Timberlands which are not included
in the
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Pre-Approved Property or which are in excess of the amount of acreage which
Lessor has agreed to sell pursuant to subsection 35.2(b) hereof, Lessee may
submit a written request to Lessor to sell such additional property, which
request shall comply with the provisions of subsection 35.2(c) hereof, Lessor
shall have a period of not less than 90 days from the date Lessee makes such
written request and provides such materials to evaluate the proposed sale and to
decide whether to approve such sale, which approval may be given or denied by
Lessor in its sole discretion; provided, however, Lessor agrees that it will, in
good faith, consider such request, but Lessor shall be entitled to deny such
request if Lessor determines, in its sole discretion, that such sale would not
be in the best interest of Lessor for any reason; and
(f) Release of Property Sold. This Lease shall terminate with
respect to any portion of the Property sold pursuant to this Section 35.2(b) and
Basic Rent shall thereupon be adjusted in accordance with the provisions of
Section 2.1 hereof.
35.3 SALE OF PROPERTY DURING THE EXTENSION PERIODS. Lessor shall
have the right at all times during the Extension Period to sell all or any
portion of the Property free and clear of this Lease without the consent or
approval of Lessee. In the event of such a sale during the Extension Period,
Lessee shall be entitled to receive from Lessor 20% of the excess, if any, of
the sales proceeds from such sale (net of all costs and expenses of such sale,
including without limitation, brokerage commissions and attorney's fees) over
the Adjusted Base Value of the Property. Upon the expiration of the Lease Term,
Lessee's right to receive any portion of proceeds from the sale of all or a
portion of the Property shall cease.
35.4 SALES PURSUANT TO OPTION AGREEMENTS. The documents described on
Exhibit J attached hereto and incorporated herein by this reference (the "Option
Agreements") grant to third parties options to purchase portions of the
Property. Upon the sale of any portion of the Property pursuant to the
provisions of any of the Option Agreements, the proceeds from such sale (less
costs, fees and expenses incurred by Lessor and Lessee in connection therewith)
shall be paid (i) first, to Lessor in an amount up to and including the greater
of the Minimum Return Price or the Make-Whole Price applicable to the portion of
the Property sold, and (ii) the balance, if any, of such proceeds shall be paid
to Lessee.
36. APPRAISAL. In the event the Agreed Value has not been established by
Lessor and Lessee on or before the 180th day prior to the expiration of the
Initial Lease Term (the "Determination Date"), the Agreed Value shall be
determined as follows:
(a) Not later than the 15th day after the Determination Date, Lessor
and Lessee shall each appoint one appraiser and shall give notice of such
appointment to the other party. If either party shall fail or refuse so to
appoint an appraiser and give notice thereof within said 15-day period, then the
appraiser appointed by the other party shall appoint a second appraiser within
ten days after the expiration of said 15-day period, each of the two appraisers
so appointed shall individually determine
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the Agreed Value within 30 days after the appointment of the second appraiser,
and the average of the two values so determined shall be deemed to be the Agreed
Value for purposes of this Lease and shall be final and binding upon the
parties. If Lessor and Lessee have each appointed an appraiser and given notice
thereof within said 15-day period, then the two appraisers so appointed shall
appoint a third appraiser within ten days after the expiration of said 15-day
period. Within 30 days after the appointment of the third appraisal, each of the
three appraisers shall individually determine the Agreed Value, and the average
of the two highest values determined by said appraisers shall be deemed to be
the Agreed Value for purposes of this Lease and shall be final and binding upon
the parties.
(b) All appraisers appointed hereunder shall be competent, qualified
by training and experience in appraising timberlands, disinterested and
independent and shall be members in good standing of the Association of
Consulting Foresters, and all appraisal reports shall be rendered in writing and
signed by the appraiser making the report. Each party shall pay the costs, fees
and expenses of the appraiser appointed by it and one-half of the costs, fees
and expenses of the appraiser appointed by the other appraiser or appraisers.
37. REPRESENTATIONS, WARRANTIES AND COVENANTS OF LESSEE.
37.1 GENERAL REPRESENTATIONS AND WARRANTIES. Lessee hereby warrants
and represents to Lessor that:
(a) Lessee is a corporation duly incorporated and validly
existing under the laws of the State of Delaware, is in good standing therein,
is duly qualified to do business and is in good standing in the States of
Florida, Georgia, Michigan and Wisconsin, and has full corporate power and
authority to enter into this Lease and to perform its obligations hereunder;
(b) The execution and delivery of this Lease by Lessee and the
performance of its obligations hereunder have been duly authorized by all
necessary corporate action and will not violate any provision of law or of its
charter or by-laws or result in the breach of or constitute a default under any
material indenture or other agreement or instrument to which Lessee is a party
or by which Lessee or the Property may be bound or affected;
(c) The consolidated balance sheet of the Lessee and its
Subsidiaries dated September 30, 1990, and the related consolidated statements
of income, retained earnings and cash flow which have been delivered to Lessor
by Lessee have been prepared in accordance with GAAP applied on a consistent
basis throughout the period involved and fairly present (i) the financial
condition of Lessee and its Subsidiaries as of the date of such balance sheet,
and (ii) the results of operations of the Lessee and its Subsidiaries for the
period then ended;
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(d) No material adverse change in the business, operations,
properties, assets or financial condition of the Lessee has occurred subsequent
to September 30, 1990;
(e) Lessee possesses all trademarks, trade names, copyrights,
patents, governmental licenses, franchises, certificates, consents, permits and
approvals necessary to enable it to carry on its business in all material
respects as now conducted and to own or operate the properties material to its
business as now owned or operated, without conflict with rights of others, and
that all such trademarks, trade names, copyrights, patents, governmental
licenses, franchises, certificates, consents, permits and approvals which are
material to Lessee are valid and subsisting;
(f) No actions, suits or proceedings are pending or, to the
knowledge of the Lessee, threatened against or affecting the Lessee at law or in
equity before or by any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, or before any arbitrator of any kind, which involve any transaction
herein contemplated or would have a material adverse change on the business,
operations, properties, assets or financial condition of the Lessee; and that
Lessee is not in default or in violation of any Legal Requirement which would
have a material adverse effect on its ability to perform any of its obligations
hereunder;
(g) None of the materials listed on Exhibit K attached hereto
and incorporated herein by this reference (the "Supplied Materials") which were
furnished to Lessor in writing by Lessee or by Tenneco on behalf of Lessee in
connection with this Lease contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
contained therein not misleading in light of the circumstances in which made
except for changes reflected in the report of Dames & Moore dated December 7,
1990; and except for changes reflected in the Supplied Materials and in such
report of Dames & Moore, no facts have come to the attention of any officer of
Lessee which leads any such officer to believe that the Confidential offering
Memorandum dated June 1990 prepared by Goldman, Sachs & Co, and Wasserstein
Parella & Co., Inc., relating to the sale of the Property by Sellers, a copy of
which was delivered to Lessor, contains any untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements
contained therein not misleading in light of the circumstances in which made;
provided, however, that while the projections and estimates made by Lessee that
are included in the Supplied Materials were made in good faith, Lessee does not
make any representation as to the reasonableness or accuracy of any estimates or
projections included in any of the Supplied Materials;
(h) No employee benefit plan established or maintained by the
Lessee, which is subject to Part 3 of Subtitle B of Title I of ERISA, had an
accumulated funding deficiency (as such term is defined in Section 302 of ERISA)
as of the last day of the most recent fiscal year of such plan ended prior to
the date hereof which was or would have been material to the Lessee and its
Subsidiaries taken as a whole; no liability
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to the Pension Benefit Guaranty Corporation has been, or is expected by Lessee
to be, incurred with respect to any employee benefit plan maintained by the
Lessee or any of its Subsidiaries, which is subject to Part 3 of Subtitle B of
Title I of ERISA, which would be material to the Lessee and its Subsidiaries
taken as a whole; and Lessee is in compliance in all material respects with all
applicable provisions of ERISA and the regulations and published interpretations
thereunder;
(i) As of the date hereof, Lessee has filed all tax returns
which are required to be filed by it and has paid all taxes shown to be due
pursuant to such returns and all other taxes, assessments, fees and other
governmental charges upon the Lessee and upon its properties, assets, income and
franchises, except those being contested by the Lessee, those the nonpayment of
which would not have a material adverse effect on the Lessee, or those which are
not yet due and payable; and
(j) All filings and notifications required to be made by Lessee
and its parent company, Tenneco, in connection with this Lease and the
transactions contemplated by the Purchase Agreement and the Acquisition
Agreement under the provisions of the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, have been made, and the applicable waiting period,
including any extensions thereof, has expired. No additional action of, or
filing with, any governmental or public body or authority is required in
connection with the execution, delivery and performance of this Lease (other
than routine filings with the Securities and Exchange Commission and other
governmental entities required or contemplated by this Lease).
37.2 COVENANTS. The following are additional covenants of the
Lessee:
(a) Except as permitted by Section 38 hereof, Lessee will at
all times (i) conduct continuously and operate actively its business, (ii) keep
in full force and effect its corporate existence and, where noncompliance would
materially and adversely interfere with Lessee's ability to perform its
obligations hereunder, comply with all the laws and regulations governing the
conduct of its business, and (iii) make all such reports and pay all such
franchise and other taxes and license fees and do all such other similar acts
and things as may be lawfully required to maintain its rights, licenses, leases,
powers and franchises under the laws of the United States and of the States of
Georgia, Florida, Michigan and Wisconsin;
(b) Lessee and its Subsidiaries shall not incur any Funded Debt
unless immediately thereafter total Pre-Tax Cash Flow coverage of Fixed Charges
would exceed 2.0 times, and total Funded Debt would not exceed 55% of Total
Capital;
(c) Lessee shall be permitted to incur short-term debt,
including intercompany debt, for working capital purposes; provided that a
portion of such short-term debt that is outstanding during any 12 month period
shall be deemed to be Funded Debt at the time of determination, with such
portion to be equal to the lowest daily
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average principal amount outstanding for any period of 30 consecutive days
during the preceding 12 month period;
(d) Lessee shall not at any time, whether voluntarily or by operation
of law, without the prior written consent of Lessor, mortgage, pledge, or
otherwise encumber or place any Lien, or permit same, on its assets or any
portion thereof, except for the following:
(i) any Lien upon any property or assets of Lessee in
existence at the Commencement Date, or created pursuant to an "after-
acquired property" clause or similar term (including Liens created upon
substitution of cash or collateral of similar value) in existence at the
Commencement Date, or any mortgage, pledge agreement, security agreement or
other similar instrument in existence on the Commencement Date;
(ii) any Lien upon any property or assets of Lessee created at
the time of the acquisition of such property or assets by Lessee or within
90 days after such time to secure all or a portion of the purchase price
for such property or assets or debt incurred to finance such purchase
price;
(iii) any Lien upon any property or assets existing thereon at
the time of the acquisition thereof by Lessee (whether or not the
obligations secured thereby are assumed by the Lessee);
(iv) the assumption by Lessee of obligations secured by any
Lien existing at the time of the acquisition by Lessee of the property or
assets subject to such Lien;
(v) any extension, renewal or refunding of any Lien permitted
by subsections (i), (ii), (iii) or (iv) of this Section 37.2(d) on
substantially the same property or assets theretofore subject thereto or
any part thereof, securing debt not in excess of the amount outstanding on
the date of such extension, renewal or refunding;
(vi) any Lien created or assumed by the Lessee in connection
with the issuance of debt the interest on which is excludable from gross
income of the holder of such debt pursuant to the Code for the purpose of
financing, in whole or in part, the acquisition or construction of property
or assets to be used by the Lessee;
(vii) any governmental Lien, mechanics', materialmen's,
carriers' or similar Lien incurred in the ordinary course of business which
is not yet due and payable or which is being contested in good faith by
appropriate proceedings and any undetermined Lien which is incidental to
construction;
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(viii) the right reserved to, or vested in, any municipality or
public authority by the terms of any right, power, franchise, grant,
license, permit or by any provision of law, to purchase or recapture or to
designate a purchaser of, any property;
(ix) Liens for taxes and assessments which are (A) for the
then current tax period or year, (B) not at the time delinquent or (C)
delinquent but the validity of which is being contested at the time by
Lessee in good faith;
(x) Liens of, or to secure performance of, leases;
(xi) any Lien upon, or deposits of, any assets in favor of any
surety company or clerk of court for the purpose of obtaining indemnity or
stay of judicial proceedings, provided that the aggregate book value of all
assets so deposited does not exceed 25% of the consolidated Net Worth of
Lessee, as shown on a balance sheet as of the end of the most recent fiscal
quarter prior to any such deposit for which a balance sheet is available;
(xii) any Lien upon property or assets acquired or sold by
Lessee resulting from the exercise of any rights arising out of defaults on
receivables;
(xiii) any Lien incurred in the ordinary course of business in
connection with workmen's compensation or unemployment insurance, or to
secure obligations imposed by statute or governmental regulations;
(xiv) any Lien upon any property or assets in accordance with
customary banking practice to secure any debt incurred by Lessee in
connection with the exporting of goods to, or between, or the marketing of
goods in, or the importing of goods from, foreign countries;
(xv) any Lien upon any additions, improvements, replacements,
repairs, fixtures, appurtenances or component parts thereof attaching to or
required to be attached to property or assets pursuant to the terms of any
mortgage, pledge agreement, security agreement or other similar instrument,
creating a Lien upon such property or assets permitted by subdivisions (i)
through (xvi) inclusive of this Section 37.2(d); or
(xvi) any Lien securing any debt in an amount which, together
with all other debt secured by a Lien that is not otherwise permitted by
this Section 37.2(d), does not at the time of the incurrence of the debt so
secured exceed 12% of Lessee's total Tangible Assets, as shown on a balance
sheet as of the end of the most recent fiscal quarter prior to the
incurrence of such debt for which a balance sheet is available;
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provided, however, that nothing contained in this Section 37.2(d) shall be
construed to permit any Lien to be placed on the Property, Lessee's interest
therein, on Basic Rent or on Additional Rent, except as permitted pursuant to
the provisions of Section 8 hereof;
(e) Lessee shall not pay or declare any dividend or distribution if:
(i) immediately thereafter Funded Debt would exceed 50% of
Total Capital; or
(ii) immediately thereafter Lessee's Net Worth would be less
than $800 million; or
(iii) there shall exist either a Default in the payment of Basic
Rent or Additional Rent or an Event of Default under any provision of this
Lease, or any default shall exist under either of the GECC Leases or under
any Material Lease; or
(iv) there shall exist a default in the payment of money or any
other default under any debt obligation of Lessee having an outstanding
principal balance in excess of $20,000,000,00; or
(v) such payment or declaration would cause an Event of Default
to occur under subsection 20(i) hereof;
provided, however, that Lessee may make distributions of funds in excess of its
current requirements which would otherwise be prohibited by this covenant if,
prior to such distribution, the return of such funds to Lessee is guaranteed in
form and substance satisfactory to Lessor;
(f) Lessee shall not make any intercompany loans, except that Lessee
may make intercompany loans to Tenneco, payable upon demand, out of cash
generated from Lessee's operations, subject to the following:
(i) Lessee shall have the right to make such loans to Tenneco,
without limitation as to amount, so long as Tenneco's long-term debt
securities are rated investment grade by both Moody's and Standard & Poors;
(ii) if at any time Tenneco's long-term debt securities are not
rated as investment grade by either Moody's or Standard & Poors, such loans
to Tenneco shall not exceed $25,000,000.00 at any time outstanding; and
(iii) in determining Net Worth and Total Capital for the
purposes of this Section 37.2, all intercompany loans outstanding at the
time of such determination that are in excess of $100,000,000.00 shall be
deducted;
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(g) Lessee shall restrict its short term investments of surplus cash
to investments listed in, and in conformance with, Tenneco Corporate Policy TCP
3-104 which is set forth on Exhibit G attached hereto and incorporated herein by
this reference ("Permitted Investments") provided, however, that Lessee shall be
permitted to revise Policy TCP 3-104 from time to time, but such amendment shall
not be effective for purposes of this Lease until Lessee has provided Lessor a
copy of such amendment. Lessor hereby expressly reserves the right to object to
any specific changes in investment policy provided for in such amendment which
Lessor, acting reasonably, finds unacceptable and any specific changes objected
to by Lessor shall not be effective hereunder;
(h) Lessee shall conduct all intercompany transactions in a manner
consistent with all other Tenneco subsidiaries and such intercompany
transactions shall at all times be in the best interest of Lessee. Any existing
tax sharing agreements between Lessee and Tenneco shall not be revised in any
way so as to materially alter the cash flow of Lessee available under such
agreement. Any intercompany loan to Tenneco shall bear a market rate of
interest; and
(i) Lessee hereby covenants to deliver notice to Lessor of the
occurrence or existence of any Default or Event of Default hereunder within five
business days after the date upon which the principal operating officer of
Lessee responsible for Lessee's operations with respect to this Lease determines
that a Default or Event of Default has occurred.
37.3 MUTUAL REPRESENTATIONS REGARDING ENFORCEABILITY.
(a) Lessor hereby warrants and represents to Lessee that this
Lease has been duly executed and delivered by Lessor, and that this Lease
constitutes the legal, valid and binding obligation of Lessor, enforceable
against Lessor in accordance with its terms.
(b) Lessee hereby warrants and represents to Lessor that this
Lease has been duly executed and delivered by Lessee, and that this Lease
constitutes the legal, valid and binding obligation of Lessee, enforceable
against Lessee in accordance with its terms.
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38. NO CORPORATE MERGER, ETC. Lessee shall not enter into any merger,
consolidation or other corporate reorganization with, or sell all or
substantially all of its assets to, any other corporation, without the prior
written consent of Lessor; provided, however, that Lessee shall be permitted to
enter into a merger, consolidation or other reorganization with or a sale of all
or substantially all of its assets to, another wholly-owned subsidiary of
Tenneco, provided (i) the consolidated or purchasing entity would be permitted
to incur an additional $1.00 of debt without breaching the covenant of Lessee
contained in Section 37.2(b) hereof and would be permitted to distribute an
additional $1.00 without breaching the covenant of Lessee contained in Section
37.2(e) hereof, and (ii) such merger, consolidation, reorganization or sale does
not result in the occurrence of an Event of Default under Section 20(i) hereof.
39. DEFINITIONS. As used in this Lease the following terms have the
following respective meanings:
Additional Rent: as defined in Section 2.3.
Adjusted Base Value: the value of the Property determined as of
the Commencement Date by multiplying (i) the actual unit measurements of acreage
and timber volume for each Category, as determined in the initial Cruise by the
Forestry Consultant, by (ii) the Adjustment Amount for each Category set forth
on Exhibits D-1, D-2 and D-3 hereto.
Administrative Amount: shall be determined as follows:
(a) Southern Timberlands: as to any Category of Bare Land,
the acreage thereof multiplied by the Adjustment Amount Per Acre for such
Category set forth on Exhibits D-1 and D-2 hereto; as to any Category of
Pre-Merchantable Planted Pine, the acreage thereof multiplied by the Adjustment
Amount Per Acre for such Category set forth on Exhibits D-1 and D-2 hereto; as
to any Category of Merchantable Timber, the volume thereof multiplied by the
Adjustment Amount Per Cord for such Category set forth on Exhibits D-1 and D-2
hereto; and
(b) Northern Timberlands: as to any Category of Bare Land,
the acreage thereof multiplied by the Adjustment Amount Per Acre for such
Category set forth on Exhibit D-3 hereto; as to any Category or Merchantable
Timber, the volume thereof multiplied by the Adjustment Amount Per Cord for
such Category set forth on Exhibit D-3 hereto.
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Agreed Value: the value of the Property as of the Option Closing Date
as agreed to by Lessor and Lessee not less than 180 days prior to the end of the
Initial Lease Term for purposes of determining the Purchase option Price;
provided, however, that if Lessor and Lessee cannot agree on a value for the
Property on or before said 180th day, such value shall be determined by
independent appraisers in accordance with the provisions of Section 36 of this
Lease.
Allocated Adjusted Bass Value: for any portion of the Property, a
value determined by applying the Adjustment Amounts set forth on Exhibits D-1,
D-2 and D-3 to actual unit measurements of acreage and volume by Category, as
determined by the Forestry Consultant, for such portion as of the date of
calculation.
Allocated Annual Rent Payment: for any portion of the Property being
sold, taken or released during the Initial Lease Term, an amount determined by
multiplying the Allocation Ratio for such portion of the Property times the
Annual Rent amount determined in accordance with the provisions of Section
2.1(b)(i) hereof (giving no effect to any previous sale, Taking or release
of,any portion of the Property).
Allocated Base Value: for any portion of the Property, the amount
determined by multiplying the Allocation Ratio for such portion of the Property
times the Base Value.
Allocated Quarterly Rent Payments: for any portion of the Property
being sold, taken or released during the Initial Lease Term, an amount
determined by multiplying the Allocation Ratio for such portion of the Property
times the Quarterly Rent amount determined in accordance with the provisions of
subsections 2,1(a)(i) and 2.1(a)(ii) hereof (giving no effect to any previous
sale, Taking or release of any portion of the Property).
Allocation Ratio: for any portion of the Property, the ratio of the
Allocated Adjusted Base Value of such portion to the Adjusted Base Value.
Annual Rent: as defined in paragraph (b) of Section 2.1.
Appraised Value: the fair market value of the Property as of the
Commencement Date of this Lease as set forth in the Property Appraisal.
Assumed Value: $172,893,000.00.
Average Life Treasury Rate: the yield as of the date of calculation
on the United States Treasury security having a Weighted Average Life to
Maturity nearest to the Weighted Average Life to Maturity of the amounts
discounted in calculating the Make-Whole Price, in calculating Lessor's final
damages under Section 24.3 hereof, in determining whether a lease is a Material
Lease or in determining Funded Debt related to a Material Lease, plus 50 basis
points. In calculating the Make-Whole Price for any sale, Taking or release of
all or any portion of the Property during the First, Second and
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Third Lease Years, the Average Life Treasury Rate shall be increased by an
additional 25 basis points.
Bankruptcy Code: means the United States Bankruptcy Code, 11 U,S,C,
(S)(S)101-1330, as amended from time to time.
Base Value: the lesser of the Appraised Value, the Adjusted Base
Value or the Assumed Value.
Basic Rent: as defined in Section 2.1(c) hereof.
Business Day: means a day other than a Saturday, Sunday or other day
on which commercial banks in Chicago or New York are required by law to close.
Capital Lease: means and includes at any time any lease of property,
real or personal, which in accordance with GAAP would at such time be required
to be capitalized on the balance sheet of the Lessee.
Capital Lease Obligation: means at any time the capitalized amount of
the rental commitment under a Capital Lease which in accordance with GAAP would
at such time be required to be shown on a balance sheet.
Category: shall mean with respect to the:
(a) Southern Timberlands: each of the categories of Land,
Merchantable Timber and Pre-Merchantable Planted Pine set forth on Exhibits D-1
and D-2 hereto; and
(b) Northern Timberlands: each of the Categories of Land and
Merchantable Timber set forth on Exhibit D-3 hereto.
Code: the Internal Revenue Code of 1986, as amended from time to
time.
Commencement Date: as defined in Section 1.1 hereof.
Cruise: as defined in Section 34.5.
Cumulative Allocation Ratio: the sum of the Allocation Ratios of each
and every portion of the Property sold, taken or otherwise released during the
Initial Lease Term.
Daily Annual Rent: an amount determined by dividing the amount of
Annual Rent required to be paid by Lessee in accordance with the provisions of
subsection 2.1(b) hereof by the actual number of days in the Lease Year for
which such calculation is being made, as may be adjusted from time to time in
connection with any sale, Taking or release of all or any portion of the
Property.
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Daily Quarterly Rent: an amount determined by dividing the amount of
Quarterly Rent required to be paid by Lessee in accordance with the provisions
of subsection 2.1(a) hereof by the actual number of days in the calendar quarter
for which such calculation is being made, as may be adjusted from time to time
in connection with any sale, Taking or release of all or any portion of the
Property.
Default: any condition or event which constitutes or which, after
notice or lapse of time or both, would constitute an Event of Default.
Default Interest: interest calculated at a rate equal to the lesser
of: (a) the greater of (i) 12.75% per annum or (ii) two percent (2%) per annum
over the rate announced from time to time by The Chase Manhattan Bank, N.A. as
its prime interest rate per annum (or, in the event The Chase Manhattan Bank,
N,A. shall for any reason discontinue announcing its prime interest rate, the
prime interest rate announced by a similar financial institution selected by
Lessor), and (b) the highest rate per annum permitted to be charged in
accordance with applicable law.
Environmental Law: any applicable federal, state or local law, rule
or regulation relating to: (a) releases or threatened releases of Hazardous
Materials; (b) the manufacture, handling, transport, use, treatment, storage or
disposal of Hazardous Materials or materials containing Hazardous Materials; or
(c) otherwise relating to pollution of the environment or the protection of
human health, including but not limited to, the Resource Conservation and
Recovery Act of 1976, 42 U.S.C. (S)(S)6901 et seq., as amended, and the
regulations promulgated from time to time thereunder, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.,
(S)(S)9601 et seq., as amended, and the regulations promulgated from time to
time thereunder, the Hazardous Materials Transportation Act, 42 U.S.C.
(S)(S)1801 et seq., as amended, and the regulations promulgated from time to
time thereunder, The Clean Air Act, 42 U.S.C. (S)(S)7401 et seq., as amended,
and the regulations promulgated from time to time thereunder, The Clean Water
Act, 33 U.S.C. (S)(S)1251 at et seq., as amended, and the regulations
promulgated from time to time thereunder, and The Toxic Substances Control Act,
15 U.S.C. (S)(S)2601 et seq., as amended, and the regulations promulgated from
time to time thereunder.
ERISA: the Employee Retirement Income Security Act of 1974, as
amended from time to time.
Event of Default: as defined in Section 20.
Excluded Taxes: In each instance as they apply to the Lessor (but
only to the extent they apply to the Lessor): (i) taxes, assessments, fees and
charges imposed on, based on, or measured by, net or gross income, gross or net
receipts, capital, net worth, franchises or similar items (including without
limitation, any minimum taxes or taxes on items of tax preference) other than
Rent Taxes or property taxes; (ii) taxes and charges resulting from any sale,
assignment or disposition of any interest in this Lease or the Property (other
than (A) any property taxes or other taxes recaptured or assessed by any
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governmental authority under any Forest Tax Law which were previously exempted
or deferred, but which became due and payable as a result of such sale,
assignment or disposition and (B) any transfer taxes, deed taxes, stamp taxes or
similar taxes, in each case to the extent required to be paid by Lessee pursuant
to the provisions of this Lease); (iii) capital gains taxes, excess profits
taxes, franchise taxes, taxes on doing business and other similar taxes other
than Rent Taxes or property taxes; (iv) foreign taxes; (v) taxes, assessments,
fees and charges imposed by any jurisdiction that would not have been imposed
but for activities of Lessor or its constituent joint venturers unrelated to
this Lease and the Property or which are attributable to other activities,
operations and assets of the Lessor or its constituent joint venturers; (vi) any
property taxes or other taxes recaptured or assessed by any governmental
authority under any Forest Tax Law which are required to be paid by Lessor in
accordance with the provisions of Section 43 hereof; and (vii) any amounts
specifically assessed in lieu of any of the aforementioned taxes, assessments,
fees or charges, and interest, additions and penalties in respect thereof.
Extension Period: a period of three years commencing January 1, 2003
and expiring December 31, 2005, during which the Lessee shall continue to lease
the Property from Lessor under the terms contained herein, such extension period
to (i) occur only in the event Lessee for any reason does not exercise its
Purchase Option and (ii) terminate with respect to any portion of the Property
upon the sale of such portion by the Lessor.
Fixed Charges: all interest, capitalized interest, lease payments
(whether operating or capital and including payments required under this Lease)r
and amortization of debt discount required to be paid or to be incurred by
Lessee in accordance with GAAP or any such items the payment or collection of
which has been guaranteed by Lessee.
Forest Tax Laws: collectively and severally (i) the Commercial Forest
Act, Michigan Compiled Laws Annotated (S)(S)320.301-320.314; (ii) the Forestry
Reserve Act, Michigan Compiled Laws Annotated (S)320.104; (iii) the Private
Forestry Act, Michigan Compiled Laws Annotated (S)(S)320.271-320.281; (iv) the
Forest Cropland Law, Wisconsin Statutes (S)(S)77.01-77.14; (v) the Woodland Tax
Law, Wisconsin Statutes (S)77.16; (vi) the Managed Forest Land Law, Wisconsin
Statutes (S)(S)77.80-77.87; (vii) Florida Statutes (S)193.461 (Agricultural
Lands; classification and assessment); and (viii) any and all similar laws now
enacted or which may be enacted in the future under the laws of the States of
Florida, Georgia, Wisconsin or Michigan which grant tax exemptions, deferrals or
reductions with respect to property taxes.
Forestry Consultant: as defined in Section 34.4.
Funded Debt: means without duplication, whether incurred directly,
assumed or guaranteed by Lessee or secured by a Lien permitted under Section
37.2(d) hereof, the following: (i) all indebtedness for monies borrowed which by
its terms matures more than one year from the date as of which any calculation
of Funded Debt is
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made, (ii) any indebtedness for monies borrowed maturing within one year from
such date which is renewable at the option of the obligor beyond one year from
such date, including any indebtedness for monies borrowed renewable or
extendable (whether or not theretofore renewed or extended) under, or payable
from the proceeds of other indebtedness for monies borrowed which may be
incurred pursuant to the provisions of, any revolving credit agreement or other
similar agreement but excluding all payments in respect of any indebtedness for
monies borrowed otherwise covered by this definition (whether installment,
serial maturity, sinking fund or otherwise) which are required to be made less
than one year after any date of determination of Funded Debt, (iii) all Capital
Lease Obligations, and (iv) the present value of all remaining payment
obligations (calculated using a discount rate equal to the Average Life Treasury
Rate) under any operating lease which is a Material Lease.
GAAP: means such accounting principles as conform at the time to the
generally accepted accounting principles announced by the Financial Accounting
Standards Board or its equivalent.
GECC Leases: means the leases of even date herewith between Lessee
and certain lessors affiliated with General Electric Capital Corporation which
relate to papermills located in Tomahawk, Wisconsin, and Valdosta, Georgia.
Hazardous Materials: any material, waste, contaminate or other
substance which is defined and/or regulated as hazardous or toxic (or as a
pollutant under any Environmental Law enacted by the State of Florida) under or
pursuant to any applicable Environmental Law.
Impositions: all taxes, assessments (including, without limitation,
all assessments for public improvements or benefits, whether or not commenced or
completed prior to the date hereof and whether or not to be completed within the
term hereof), ground rents, water, sewer or similar rents, rates and charges,
excises, levies, license fees, permit fees, inspection fees and other
authorization fees and similar charges, in each case, whether general or
special, ordinary or extraordinary, of every character (including all interest,
additions and penalties thereon), which at any time during or in respect of the
term hereof are assessed, levied, confirmed or imposed on or in respect of or
become a Lien upon (a) the Property or any part thereof, or any rent therefrom
(whether under this Lease or any sublease) or any estate, right or interest
therein, or (b) any occupancy, use or possession of or activity conducted on the
Property or any part thereof, The term "Impositions" as used herein shall
specifically include all Rent Taxes and shall specifically exclude all Excluded
Taxes.
Improvements: as defined in paragraph (b) of Section 1.
Initial Lease Term: the First through the Twelfth Lease Years,
inclusive.
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Insurance Requirements: all terms of any insurance policy covering or
applicable to the Property or any part thereof, all requirements of the issuer
of any such policy, and the terms of Section 15 hereof.
Land: as defined in Paragraph (a) of Section 1.
Lease: this Lease, as at the time amended, modified or supplemented.
Lease Term: the Initial Lease Term and the Extension Period unless
earlier terminated in accordance with the provisions of this Lease.
Lease Year: (a) The Lease Years during the Initial Lease Term
hereunder shall be as follows:
First Lease Year Commencement Date through December 31, 1991
Second Lease Year January 1, 1992 through December 31, 1992
Third Lease Year January 1, 1993 through December 31, 1993
Fourth Lease Year January 1, 1994 through December 31, 1994
Fifth Lease Year January 1, 1995 through December 31, 1995
Sixth Lease Year January 1, 1996 through December 31, 1996
Seventh Lease Year January 1, 1997 through December 31, 1997
Eighth Lease Year January 1, 1998 through December 31, 1998
Ninth Lease Year January 1, 1999 through December 31, 1999
Tenth Lease Year January 1, 2000 through December 31, 2000
Eleventh Lease Year January 1, 2001 through December 31, 2001
Twelfth Lease Year January 1, 2002 through December 31, 2002
(b) The Lease Years during the Extension Period hereunder shall
be as follows:
Thirteenth Lease Year January 1, 2003 through December 31, 2003
Fourteenth Lease Year January 1, 2004 through December 31, 2004
Fifteenth Lease Year January 1, 2005 through December 31, 2005
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Legal Requirements: all laws, statutes, codes, acts, ordinances,
orders, judgments, decrees, injunctions, rules, regulations, permits, licenses,
franchises, authorizations, directions and requirements of all governments,
departments commissions, boards, courts, authorities, agencies, officials and
officers, ordinary or extraordinary, which now or at any time hereafter may be
applicable to the Property or any part thereof, or any of the adjoining
sidewalks, curbs, vaults and vault space, if any, streets or ways, or any use or
condition of the Property or any part thereof, including, but not limited to,
all federal, state and local Environmental Laws.
Lessees's Equipment: all of the following which are owned or held for
use by Lessee: (i) all fixtures, machinery, apparatus, furniture, furnishings
and other equipment and (ii) all temporary or auxiliary structures installed by
Lessee in or about the Property or any part thereof.
Lien: any mortgage, deed of trust, deed to secure debt, pledge,
security interest, lien or other encumbrance.
Make-Whole Price: With respect to the sale, Taking or release of any
portion of the Property, the sum of the values calculated in (i), (ii) and (iii)
below. The values in (i), (ii) and (iii) below shall be obtained by discounting
at the Average Life Treasury Rate to the date of such sale, Taking or release
the following amounts:
(i) All Allocated Quarterly Rent Payments from each and every date of
the Initial Lease Term following the date of such sale, Taking or
release on which an installment of Quarterly Rent would normally
be due if no such sale, Taking or release had occurred;
(ii) All Allocated Annual Rent Payments from each and every date of
the Initial Lease Term following the date of such sale, Taking or
release on which an installment of Annual Rent would normally be
due if no such sale, Taking or release had occurred; and
(iii) the excess of Allocated Base Value with respect to the portion of
the Property being sold, taken or released over the sum of the
Allocated Annual Rent Payments with respect to the portion of the
Property being sold, taken or released which would normally have
been due during the Initial Lease Term if no such sale, Taking or
release had occurred, from the twelfth anniversary of this Lease.
Material Lease: any lease to which Lessee is a party, whether
capital or operating in nature, under which the present value of all remaining
payment obligations, calculated at a discount rate equal to the Average Life
Treasury Rate, is greater than or equal to $20,000,000.00.
Merchantable Timber: Pine Pulpwood, Hardwood Pulpwood, Pine
Sawtimber, Hardwood Sawtimber, Cypress Pulpwood, Cypress Sawtimber, Conifer
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Pulpwood and Conifer Sawtimber, as determined using the timber specifications,
utilization limits and calculation standards set forth on Exhibit E attached
hereto.
Mineral Rights: as defined in Section 5(b) hereof.
Minimum Return Price: with respect to the sale, Taking or release of
all or any portion of the Property, the greater of (i) or (ii) calculated as
follows:
(i) the Allocated Base Value for the portion of the Property being sold or
taken plus 80% of the excess, if any, of the gross sales price of, net
award from or other proceeds from the portion of the Property to be
sold, taken or released over the Allocated Base Value for such
portion. During the Initial Lease Term only, such excess may be net
of (a) Operating Expenses attributable to such portion of the
Property, but only to the extent of such excess, and (b) the sum of
Allocated Annual Rent Payments previously made with respect to the
portion of the Property being sold, taken or released.
(ii) the excess of (a) the value obtained by compounding quarterly the
Allocated Base Value of the portion of the Property to be sold, taken
or released at the applicable Minimum Return Rate from the
Commencement Date of this Lease to the date of such sale, Taking or
release over (b) the sum of the values obtained by compounding
quarterly at the applicable Minimum Return Rate each Allocated
Quarterly Rent Payment and compounding annually at the applicable
Minimum Return Rate each Allocated Annual Rent Payment from the date
each such payment was actually made to the date of such sale, Taking
or release.
Minimum Return Rate: 15% per annum; 13% per annum for sales of
NonStrategic Lands.
Moody's: means Moody's Investors Service, Inc.
Net Worth: the excess of Lessee's total assets over Lessee's total
liabilities as determined in accordance with GAAP.
Non-Strategic Lands: not more than 30,000 acres of the Property
identified by Lessee and approved by Lessor as being non-strategic which may be
sold during the Lease Term in accordance with the provisions of Section 35.2.
Northern Timberlands: those portions of the Property located in the
States of Michigan and Wisconsin.
Operating Expenses: all reasonable and customary costs and expenses
incurred by Lessee during the Initial Lease Term in connection with the care and
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maintenance of the Property, including without limitation, site preparation
expenses, planting expenses and boundary and road maintenance expenses, but
specifically excluding real property taxes, such expenses not to exceed the
lesser of (i) $3.00 per acre of the Property per Lease Year (partial Lease Years
to be prorated on a per them basis), or (ii) the excess, if any, of the Agreed
Value over the Adjusted Base Value.
Option Closing Date: as defined in Section 35.1 hereof.
Permitted Exceptions: as defined in paragraph (a) of Section 1.
Person: an individual, a corporation, an association, a partnership,
a joint venture, an organization, or other business entity, or a governmental or
political unit or agency.
Planted Pine: growing pine trees on the Land which have been planted
in accordance with standards and practices followed generally by pulp and paper
companies in planting pine on their own pine-growing lands in the same area.
Pre-Merchantable Planted Trees: all growing trees on the Land which
have been planted by Lessee in accordance with the provisions of Sections
34.1(f) and 34.1(g) and all pre-merchantable planted pine trees otherwise
located on the Southern Timberlands and identified in accordance with the
provisions and specifications of Exhibit E attached hereto.
Pre-Tax Cash Flow: Income before Federal income taxes for Lessee and
its consolidated subsidiaries determined in accordance with GAAP, plus Fixed
Charges and any and all depreciation, depletion, amortization and other non-cash
items charged against income (including deferred Federal income taxes), less
extraordinary non-cash gains resulting from the disposition of real or personal
property by Lessee, less any and all capital expenditures.
Projected Growth Report: as defined in Section 34.5 hereof.
Property: as defined in Section 1.
Property Appraisal: as defined in Section 34.4(b)(ii) hereof.
Purchase Option Price: an amount equal to the sum of the following
amounts:
(a) the Remaining Base Value less the excess of(i) the sum of all
installments of Annual Rent paid by Lessee during the Initial Lease Term prior
to the exercise of the Purchase Option over (ii) the sum of all Allocated Annual
Rent Payments associated with sales of portions of the Property sold, taken or
released prior to exercise of the Purchase Option;
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(b) 80% of the excess, if any, of the Agreed Value over the Remaining
Base Value (such excess to be net of Operating Expenses attributable to the
remaining unsold Property at the time the Purchase option is exercised, but only
to the extent of such excess); and
(c) the amount of any and all Basic Rent and Additional Rent owed to
Lessor by Lessee as of the Option Closing Date.
Quarterly Rent: as defined in Section 2.1(a) hereof.
Related Entity: a Person (1) which directly or indirectly, through
one or more intermediaries, controls, or is controlled by, or is under common
control with, Lessee, (2) which beneficially owns or holds 5% or more of any
class of the Voting Stock of Lessee, (3) 5% of the Voting Stock (or in the case
of a Person which is not a corporation, 5% or more of the equity interest) of
which is beneficially owned or held by Lessee or a Subsidiary or (4) which is a
Subsidiary. The term "control" means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
Remaining Base Value: the excess, if any, of the Base Value over the
product of the Base Value times the Cumulative Allocation Ratio.
Rent Taxes: any and all rental, sales and use taxes or other similar
taxes levied or imposed by any city, county or state or other governmental body
having authority, including, without limitation, taxes imposed under (i) Florida
Statutes (S)212.031 and (ii) Michigan Compiled Laws Annotated (S)208.1 et seq.,
(the "SBTA"); provided, however, that the SBTA shall be included within the
definition of Rent Taxes only to the extent of the lesser of (x) the actual tax
imposed on Lessor by the SBTA or (y)the deemed tax imposed on Lessor by the SBTA
computed with the following modifications and limitations:
(a) All income and revenue items of Lessor (including income and
revenues from the sale, assignment or disposition of any interest in or portion
of this Lease or the Property) other than Basic Rent shall be excluded from the
computation of the SBTA;
(b) All expenditures and other costs of Lessor resulting from
activities associated with this Lease which are deductible in calculating the
SBTA shall be deducted;
(c) All adjustments to the "tax base" and "adjusted tax base" (as
such terms are defined in the SBTA) of Lessor made in computing the SBTA shall
be excluded from such computation if such adjustments relate to activities of
Lessor which are not associated with this Lease or such adjustments increase the
"tax base" or
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<PAGE>
"adjusted tax base" by items which are Excluded Taxes or otherwise not
reimbursable by Lessee under this Lease.
(d) All assets, revenues and expenditures of Lessor from activities
which are not associated with this Lease shall be excluded from any allocation
or apportionment factors of Lessor used in computing the SBTA;
(e) All exemptions and credits available to Lessor with respect to
the SBTA shall be included in the computation of the SBTA in amounts,
respectively, which bear the same ratio to the sum of such exemptions and
credits, respectively, as the ratio of Basic Rent bears to the total income of
Lessor; and that all requests by Lessor for payment or reimbursement of tax
imposed by the SBTA, under this Lease, shall be accompanied by a true copy of
Lessor's actual SBTA return and a detailed computation of the deemed tax imposed
by the SBTA, with the modifications and limitations set forth in provisions (a)
through (e) above.
Southern Timberlands: those portions of the Property located in the
States of Florida and Georgia.
Standard & Poors: means Standard & Poor's Corporation.
Subsidiary: (a) any corporation at least a majority of whose
outstanding stock having ordinary voting power for the election of a majority of
the members of the board of directors (or other governing body) of such
corporation (other than stock having such power only by reason of the happening
of a contingency) shall at the time be owned by the Lessee and/or one or more
Subsidiaries of the Lessee, and (b) any partnership or joint venture in which
Lessee, either alone or in conjunction with one or more of its subsidiaries,
shall at the time own more than a 50% interest.
Taking: a taking during the term hereof of all or any part of the
Property, or any leasehold or other interest therein or right accruing thereto,
as the result of the exercise of the right of condemnation or eminent domain or
a sale in lieu or in anticipation of such exercise.
Tangible Assets: Lessee's total assets as determined in accordance
with GAAP excluding (i) any goodwill shown on Lessee's balance sheet, (ii) any
prepaid expenses, and (iii) any and all intangible assets owned by Lessee.
Timber: as defined in paragraph (c) of Section 1.
Timberlands: collectively, the Land, Timber and Improvements as
defined in Section I hereof.
Total Capital: Funded Debt plus Net Worth.
-58-
<PAGE>
Unavoidable Delays: delays due to strikes, acts of God, governmental
restrictions, enemy action, riot, civil commotion, fire, unavoidable casualty or
other causes beyond the control of Lessee, provided that no delay shall be
deemed an Unavoidable Delay if the Property or any part thereof or any interest
therein, the Basic Rent or Additional Rent would be in any danger of being sold,
forfeited, lost or interfered with, or if Lessor or Lessee would be in danger of
incurring any civil or criminal liability for failure to perform the required
act. Lack of funds shall not be deemed a cause beyond the control of Lessee.
Voting Stock: securities of any class or classes of a corporation the
holders of which are ordinarily, in the absence of contingencies, entitled to
elect a majority of the corporate directors (or Persons performing similar
functions).
Weighted Average Life to Maturity: means (a) with respect to any
United States Treasury security, the period from the date of determination to
the date of maturity of such security (provided that only securities whose
entire principal amount matures at one time and whose maturity cannot be
accelerated by the issuer are to be considered), (b) with respect to this Lease,
as of the date of determination, the number of years (rounded to the nearest
one-twelfth) obtained by dividing the then Remaining Dollar-Years of this Lease
by the Allocated Base Value, and (c) with respect to any lease other than this
Lease, as of the date of determination, the number of years (rounded to the
nearest one-twelfth) obtained by dividing the then Remaining Dollar-Years of
such lease by the sum of all remaining payments to be made by Lessee to the
lessor during the remaining term of such lease. For the purposes of this
definition, "Remaining Dollar-Years" means the sum of the amounts obtained by
multiplying each Owed Amount by the number of years (calculated to the nearest
one-twelfth) which will elapse between the time of such determination and the
date such Owed Amount would normally be due. For purposes of this definition,
"Owed Amount" means, with respect to a sale, Taking or release of a portion of
the Property, (x) each Allocated Annual Rent Payment from the date of such sale,
Taking or release to the end of the Initial Lease Term, and (y) the excess of
the Allocated Base Value with respect to the portion of the Property being sold,
taken or released over the sum of (x) above (such excess deemed to be normally
due on the 12th anniversary of this Lease), and with respect to any lease other
than this Lease, any payment required to be made by Lessee to the lessor
thereunder.
40. NOTICES, ETC. All notices and other communications hereunder shall be
in writing and shall be sent by confirmed telecopy transmission and by first
class registered or certified mail, postage prepaid, (a) if to Lessee.
Packaging Corporation of America
1603 Orrington Avenue
Evanston, Illinois 60204
Attention: Robert D. Harlow
Senior Vice President
Telecopy: (708) 570-3044
-59-
<PAGE>
with a copy to: Tenneco Inc.
Tenneco Building
P.O. Box 2511
Houston, Texas 77252-2511
Attention: Corporate Secretary
Telecopy: (713) 757-3581
or at such other address as Lessee shall have furnished in writing to Lessor, or
(b) if to Lessor.
Four States Timber Venture
c/o John Hancock Mutual Life Insurance
Company
One John Hancock Place
P.O. Box 111 T-44
Boston, Massachusetts 02117
Attention: Ken Hines, Jr.
Telecopy: (617) 572-1165
with copies to: John Hancock Mutual Life Insurance Company
Forest Industry Financing
Suite 101
12 Siebald Street
Statesboro, Georgia 30458
Attention: Amos M. Connell
Telecopy: (912) 764-5047
Metropolitan Life Insurance Company
Suite 700 - 8717 West 110th Street
Overland Park, Kansas 66210-2101
Attention: Vice President
Telecopy: (913) 661-2254
Agricultural Investments
East Central Branch Office
Metropolitan Life Insurance Company
2230 Chester Boulevard
Richmond, Indiana 47374-1288
Attention: Manager
Telecopy: (913) 661-2254
Metropolitan Life Insurance Company
500 Park Boulevard - Suite 545
Itasca, Illinois 60143-1267
Attention: Associate General Counsel
-60-
<PAGE>
Telecopy: (708) 250-8098
Sutherland, Asbill & Brennan
999 Peachtree Street, N.E.
Atlanta, Georgia 30309-3996
Attention: Haynes R. Roberts, Esq.
Telecopy: (404) 853-8806
or at such other address as Lessor shall have furnished in writing to Lessee.
Each notice will be deemed delivered upon the earlier of the confirmed facsimile
transmission of such notice or three days after deposit of such notice in the
United States Mail.
41. MISCELLANEOUS (a) This Lease may be changed, waived, discharged, or
terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought. It is
the intention of the parties hereto to create an estate for years in the
Property and to create the relationship of Lessor and Lessee and no other
relationship whatsoever and nothing contained herein shall be construed to
create between Lessor and Lessee any association, partnership or joint venture
or the relationship of debtor and creditor or of principal and agent for any
purpose whatsoever. This Lease shall be binding upon and inure to the benefit of
and be enforceable by the respective successors and assigns of the parties
hereto. The headings in this Lease are for purposes of reference only and shall
not limit or define the meaning hereof. This Lease may be executed in any number
of counterparts, each of which is an original, but all of which shall constitute
one instrument. Time is of the essence with respect to each and every covenant,
requirement and obligation on Lessee's part to be complied with or performed
hereunder.
(b) The terms and provisions this Lease shall be governed by the laws
of the State of Georgia except for those matters which relate to enforcement
against any of the Property, which matters shall be governed by the applicable
laws of the state or states in which the Property is located.
42. PARTITION OF LEASE In the event the Persons who constitute the joint
venturers of Lessor (hereinafter referred to collectively as the "Venturers" and
individually as a "Venturer") shall at any time divide the Property between or
among themselves in connection with a termination of Lessor, then such Venturers
shall have the right to divide this Lease into two or more new, separate leases
(hereinafter referred to as the "New Leases"), each of which shall be between a
Venturer (or its successors, assigns or designees), as lessor, and Lessee, as
lessee, shall cover and relate to the portion of the Property conveyed to such
Venturer in connection with such division (and Exhibit A thereto shall describe
only such portion of the Property), and shall be in the same form and contain
the same terms and provisions as this Lease, except as follows: (a) each of the
New Leases shall provide that in the event Lessee exercises the Purchase option
under any of the New Leases, Lessee must exercise the Purchase Option under all
of the New Leases, and the closing of the purchase by Lessee pursuant to Section
35.1 of each New Lease shall be contingent upon the closing of all purchases by
Lessee pursuant to Section 35.1 of all of the New Leases; (b) each of the New
Leases shall provide that
-61-
<PAGE>
the occurrence of any Event of Default under any of the New Leases shall
constitute an Event of Default under all of the New Leases; and (c) each of the
following figures in this Lease shall be changed in each of the New Leases to
the figure representing the pro rata share thereof of the Venturer which is the
lessor thereunder: (i) the figure "$1,192,366.00" appearing in Section
2.1(b)(i); (ii) the figure "$5,000,000.00" appearing in Section 5(a); (iii) the
figures "80,000" and "27,000" appearing in Section 35.2(b); (iv) the figure
"$172,893,000.00" appearing in the definition of "Assumed Value" in Section 39;
and (v) the figure "30,000" appearing in the definition of "Non-Strategic Lands"
in Section 39. Lessee agrees to cooperate with the Venturers by executing and
delivering the New Leases and taking such other actions as are reasonably
necessary or desirable to accomplish such division, provided that the Venturers
shall be responsible for paying all costs and expenses associated with or
resulting from such division and the preparation and recordation of the New
Leases.
43. FOREST TAX LAWS. Notwithstanding anything contained in this Lease to
the contrary, the following agreements are made with respect to taxes imposed by
and other matters associated with Forest Tax Laws:
(a) Lessee shall at all times during the Lease Term comply with such
requirements as are necessary to maintain and preserve the tax status and
accompanying tax benefits of all portions of the Property currently enrolled in,
listed or designated under any of the Forest Tax Laws as of the Commencement
Date of this Lease, Lessee may, at its option, elect to subject additional
portions of the Property to the provisions of any Forest Tax Law, provided such
subjection does not unreasonably interfere with commercial forestry operations
on the Property. Lessor agrees that it will cooperate with Lessee in complying
with the provisions of the Forest Tax Laws.
(b) Lessee shall pay to the appropriate governmental authorities any
and all assessments or charges which may be imposed under any Forest Tax Law
with respect to all or any portion of the Property, as a result of the transfer
of the Property to Lessor pursuant to the Purchase Agreement, any transfer of
all or any portion of the Property in accordance with Section 35.2(b) hereof
(which cost may be deducted from the gross proceeds of such sale in accordance
with the provisions of said Section 35.2(b)), any Taking of all or any portion
of the Property (which cost may be deducted from the gross amount of any awards,
payments or proceeds received in connection with such Taking in accordance with
the provisions of Section 16 hereof) or as a result of Lessee's failure to
comply with the provisions of any Forest Tax Law.
(c) Lessor shall pay all assessments or charges which may be imposed
under any Forest Tax Law relating to any transfer of all or any portion of the
Property in accordance with Section 35.2(a) hereof, any mineral lease or mining
activity entered into or performed by or on behalf of Lessor with respect to all
or any portion of the Property or any other affirmative action taken by Lessor,
without the express written consent of Lessee which changes the tax status of
all or any portion of the Property under any Forest Tax Law.
-62-
<PAGE>
(d) Lessee shall be responsible for preparing and filing any notices
or certificates required to be filed under any Forest Tax Law in connection with
the sale of the Property by Lessor to Lessee pursuant to the provisions of
Section 35.1 hereof, and Lessee shall be responsible for payment of any charges
or assessments imposed under any Forest Tax Law in connection with such sale;
provided, however, Lessor agrees that it will cooperate with Lessee in
preparing, executing and filing such notices or certificates so as to avoid, to
the extent possible, the imposition of charges or assessments under any Forest
Tax Law in connection with such sale.
(SIGNATURES BEGIN ON FOLLOWING PAGE]
-63-
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have caused this lease to be executed
and their seals to be hereunto affixed and attested by their officers thereunto
duly authorized.
LESSOR:
FOUR STATES TIMBER VENTURE, a Georgia
Joint Venture, by both of its joint
venturers
Signed, sealed and By: John Hancock Mutual Life
delivered in the presence Insurance Company
of:
By: /s/ Wm. R. Gordon
-----------------------------
/s/ Valerie Van Der Meer Name:
------------------------- ------------------------
Name: Title:
------------------------- ------------------------
Witness
Attest: /s/ Barry P. Sanboln
----------------------
/s/ Neil Able Name:
------------------------- ------------------------
Name: Title:
------------------------- ------------------------
Witness
[CORPORATE SEAL]
- - -----------------------------
Name:
-------------------------
Notary Public
[NOTARIAL SEAL]
Signed, sealed and By: Metropolitan Life Insurance
delivered in the presence Company
of:
By: /s/ Gerald J. Hoenig
------------------------
/s/ Kathleen Curdy Name:
------------------------- ------------------------
Name: Title:
------------------------- ------------------------
Witness
/s/ Sandra R. Nauman Name: /s/ Nancy J. Hammer
------------------------- ------------------------
Name:
------------------------ Title:
Witness ------------------------
[CORPORATE SEAL]
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<PAGE>
/s/ Merrit J. Massergill
-------------------------
Name:
-------------------------
Notary Public
[NOTARIAL SEAL]
Signed, sealed and LESSEE:
delivered in the presence
of: PACKAGING CORPORATION OF AMERICA
/s/ M. W. Meyer
-------------------------
Name: By: /s/ R. D. Harlow
------------------------- ------------------------
Witness: Name:
------------------------
Title:
------------------------
/s/ W. G. Collins
-------------------------
Name: Attest: /s/ Karl A. Stewart
------------------------- ------------------------
Witness Name:
------------------------
/s/ Merritt J. Massergill Title:
------------------------- ------------------------
Name:
------------------------ [CORPORATE SEAL]
Notary Public
[NOTARIAL SEAL]
-65-
<PAGE>
FIRST, SECOND AND THIRD AMENDMENTS
TO
TIMBERLAND LEASE
BY AND BETWEEN
FOUR STATES TIMBER VENTURE
(as Lessor)
and
PACKAGING CORPORATION OF AMERICA
(As Lessee)
<PAGE>
FIRST AMENDMENT
TO
TIMBERLAND LEASE
----------------
THIS FIRST AMENDMENT TO TIMBERLAND LEASE, dated as of December 31, 1991,
made by and between FOUR STATES TIMBER VENTURE, a joint venture formed under the
laws of the State of Georgia ("Lessor"), having its principal office and place
of business at One John Hancock Place, Boston, Massachusetts 02117, and
PACKAGING CORPORATION OF AMERICA, a Delaware corporation ("Lessee"), having its
principal office and place of business in Evanston, Illinois.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Lessor and Lessee entered into that certain Timberland Lease dated
January 31, 1991 (the "Lease"), whereby Lessor leased to Lessee approximately
531,000 acres of timberland in the States of Florida, Georgia, Michigan and
Wisconsin; and
WHEREAS, Lessor and Lessee now desire to amend the terms and provisions of
the Lease in certain respects.
NOW, THEREFORE, for and in consideration of Ten Dollars ($10.00) and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and in consideration of mutual agreements, covenants and
provisions hereinafter set forth and set forth in the Lease, the parties hereto
hereby agree as follows:
1. Section 2.1(a)(i) of the Lease is hereby deleted in its entirety and the
following provision is inserted in lieu thereof:
(i) Each installment of Quarterly Rent paid during the First
Lease Year shall be in the amount of $4,646,499.00; provided, however,
that the installment of Quarterly Rent paid by Lessee on the
Commencement Date of the Lease was reduced by $1,497,205.23 to reflect
the fact that the Term of the Lease did not begin on the first day of
the Calendar Quarter.
2. Section 2.1(b)(i) of the Lease is hereby deleted in its entirety and the
following provision is inserted in lieu thereof:
(i) In addition to the Quarterly Rent provided for in subsection
2.1(a) above, Lessee shall pay to Lessor, in arrears, commencing January
1, 1992, and continuing on the first day of each Lease Year thereafter
during the Initial Lease Term, an
<PAGE>
installment of rent (the "Annual Rent") in the amount of $1,065,748.00;
provided, however, that the Annual Rent Payment for the First Lease Year
shall be in the amount of $976,935.67.
3. Section 34.1(g) of the Lease is hereby amended by deleting the
parenthetical "(except for Lowland Brush (spruce) described on Exhibit D-3
hereof)" from the 6th and 7th lines thereof and by inserting in lieu thereof the
parenthetical "(except for Lowland Brush (spruce) as defined in Article III of
Exhibit E)".
4. Section 34.2 of the Lease is hereby amended by adding the following
subsection 34.2(e) thereto:
(e) Approved Specia1 Cutting. In addition to the Merchantable Timber
which Lessee is permitted to cut and remove under the preceding
provisions of this section 34.2 of this Lease, Lessee may from time
to time cut and remove volumes of Timber from the Land, but only
with the prior written approval of Lessor and only in strict
accordance with the following provisions:
(i) Request Approval. In the event Lessee desires to cut and
remove additional Timber under this section 34.2(e), Lessee shall
send to Lessor a written request which shall identify the location
and acreage of the portion of the Land from which Lessee proposes
to cut such Timber, the estimated volume of Timber to be cut
therefrom, and the current per cord market value of such Timber.
Such request shall also specify timber marking specifications and
type of silvicultural treatment. Lessee shall also furnish such
other information as Lessor may require. Lessor shall have the
right, in its sole and absolute discretion, to deny such request or
approve such request in whole or in part and subject to such
conditions, limitations and requirements as Lessor may specify.
(ii) Conduct of Cutting. Lessee shall cut no Timber under this
section 34.2(e) unless (A) Lessee shall have received Lessor's
written approval thereof, (B) Lessee shall comply with all
conditions, limitations and requirements as may be specified by
Lessor, and (C) Lessor shall have
-2-
<PAGE>
approved the per cord market value for such Timber. All Timber cut
or removed from any portion of the Land identified by Lessee in a
request made pursuant to paragraph (i) of this section 34.2(e) and
approved by Lessor shall be subject to all provisions of this
section 34.2(e), and no such Timber shall be included in the
volumes of Timber cut or removed pursuant to sections 34.2(a) or
(b) hereof.
(iii) Reporting; Payments; Special Cutting Account. On or before
the tenth (10th) day of each calendar month, Lessee shall furnish
to Lessor a written report showing the volume of Timber cut or
removed pursuant to this section 34.2(e) during the preceding
calendar month and the market value of such Timber determined by
multiplying the number of cords thereof by the per cord market
value approved by Lessor. Lessee shall also furnish to Lessor a
calculation of the Administrative Amount for the Timber cut and
such other information as Lessor may require. Lessee shall deliver
to Lessor with each such report a payment equal to the greater of
the market value of such Timber as determined as aforesaid or the
Administrative Amount for such Timber. Each such payment shall be
deposited by Lessor into one or more interest-bearing accounts with
national banks (hereinafter collectively called the "Special
Cutting Account"). Lessor shall not be responsible for earning any
particular rate or amount of interest on the funds deposited in the
Special Cutting Account. Lessor shall withdraw and disburse said
funds as hereinafter provided.
(iv) Application of Funds. Upon the expiration of the Lease
Term, all funds in the Special Cutting Account, including all
interest earned, shall be withdrawn by Lessor and shall be retained
by and be the property of Lessor, provided that if Lessee exercises
its Purchase Option under section 35.1 of this Lease, then the
amount of such funds shall be applied as a credit against the
Purchase Option Price.
(v) Application of Funds Upon Default. Notwithstanding any
provision of this Lease to the contrary, upon the occurrence of any
Default under
-3-
<PAGE>
this Lease, Lessor shall have the right to withdraw any and all
funds then on deposit in the Special Cutting Account and to apply
said funds in payment of any amount then due from Lessee under any
provision of this Lease or in reimbursement of any sums paid by
Lessor or any costs or expenses incurred by Lessor on behalf of
Lessee under this Lease. Notwithstanding any provision of this
Lease to the contrary, in the event of any expiration, termination
or repossession referred to in section 24 of this Lease, Lessor
shall have the right to withdraw any and all funds then on deposit
in the Special Cutting Account and to apply said funds in payment
of any damages payable to Lessor under Section 24.
5. Section 35.2(d) of the Lease is hereby amended to provide that,
notwithstanding the provisions of said section, any and all cash proceeds
received in connection with a proposed sale to Timothy P. Gutsch of the "Pine
Lake Nursery Parcel", a 76.58 acre parcel located in Oneida County, Wisconsin,
shall be paid to and retained by Lessor. Lessee shall be entitled to receive and
retain any and all red pine seedlings which Timothy P. Gutsch may be obligated
to provide as additional consideration for such proposed sale.
6. Section 35.3 of the Lease is hereby amended by deleting the term
"Adjusted Base Value" from the 8th line thereof and by inserting in lieu thereof
the term "Base Value".
7. Section 39 of the Lease is hereby amended by:
(a) deleting the definition of "Adjusted Base Value"
in its entirety;
(b) redefining the term "Agreed Value" as follows:
AGREED VALUE: the sum of (i) the value of the Property as of the
Option Closing Date as agreed to by Lessor and Lessee not less than
180 days prior to the end of the Initial Lease Term; provided,
however, that if Lessor and Lessee cannot agree on a value for the
Property on or before said 180th day, such value shall be determined
by independent appraisers in accordance with the provisions of
Section 36 of this Lease, and (ii) the amount of funds, including
all interest earned, in the Special Cutting Account
-4-
<PAGE>
maintained by Lessor pursuant to the provisions of Section 34.2(e)
of this Lease as of the Option Closing Date.
(c) deleting the definition of "Allocated Adjusted Base Value" in its
entirety;
(d) redefining the term "Allocated Base Value" as follows:
ALLOCATED BASE VALUE: for any portion of the Property, a value
determined by applying the "Adjustment Amounts" set forth on
Exhibits D-1, D-2 and D-3 to actual unit measurements of acreage and
volume by Category, as determined by the Forestry Consultant, for
such portion as of the date of calculation;
(e) redefining the term "Allocation Ratio" as follows:
ALLOCATION RATIO: for any portion of the Property, the ratio of the
Allocated Base Value of such portion to the Base Value;
(f) deleting the definition of "Assumed Value" in its entirety;
(g) redefining the term "Base Value" as follows:
BASE VALUE: $172,893,000.00, determined by multiplying the
Adjustment Amounts set forth on Exhibits D-1, D-2 and D-3 by the
actual unit measurements of acreage and volume by Category, as
determined for the entire Property by the Forestry Consultant in its
initial Cruise; and
(h) deleting the term "Adjusted Base Value" from the definition of
"Operating Expenses" and by inserting in lieu thereof the term "Base
Value".
8. Section 42 of the Lease is hereby amended by (i) deleting the number
"$1,192,366.00" from line 27 thereof and inserting in lieu thereof the number
"$1,065,748.00", and (ii) deleting the term "Assumed Value" from the 30th and
31st lines thereof and by inserting in lieu the term "Base Value".
9. The Lease is hereby amended by deleting Exhibits D-1, D-2, D-3 and E
which are attached to the Lease in their
-5-
<PAGE>
entireties and by inserting in lieu thereof Exhibits D-1, D-2, D-3 and E which
are attached hereto and made a part hereof by this reference. Notwithstanding
the modification of Exhibit E effected hereby, the timber classifications,
specifications, utilization limits and calculation standards originally set
forth on Exhibit E to the Lease shall be used for purposes of determining
Lessee's timber cutting privileges under Section 34.2 of the Lease during the
First Lease Year. Thereafter, the timber classifications, utilization limits and
calculation standards set forth on Exhibit E to this agreement shall be used for
all purposes under the Lease.
10. Except as amended hereby, the terms and provisions of the Lease shall
remain in full force and effect, and Lessor and Lessee hereby ratify and
reaffirm the terms and provisions of the Lease, as amended hereby.
IN WITNESS WHEREOF, Lessor and Lessee, acting through their duly elected
and authorized officers, have caused this First Amendment to Timberland Lease to
be executed under seal as of the day and year first above written.
LESSOR:
FOUR STATES TIMBER VENTURE, a
Georgia Joint Venture, by both of
its joint venturers
Signed, sealed and By: John Hancock Mutual Life
delivered in the presence Insurance Company
of:
By: /s/ Paul A. Meissner, Jr.
/s/ Neil E. Auble --------------------------------
- - --------------------------- Name: Paul A. Meissner, Jr.
Name: Neil E. Auble Title: Assistant Treasurer
Witness
Attest:/s/ James H. Young
/s/ Susan A. Chase ----------------------------
- - --------------------------- Name: James H. Young
Name: Susan A. Chase Title: Assistant Secretary
Witness
[CORPORATE SEAL]
/s/ Marie C. O'Brien
- - ---------------------------
Name: Marie C. O'Brien
Notary Public
[NOTARIAL SEAL]
-6-
<PAGE>
Signed, sealed and By: Metropolitan Life Insurance
delivered in the presence Company
of:
/s/ Jacqueline A. Wollenburg By: Darrell J. Smith
- - ----------------------------- -------------------------------
Name: Jaqueline A. Wollenburg Name: Darrell J. Smith
------------------------ --------------------------
Witness Title: Assistant Vice President
-------------------------
/s/ Sandra J. Winters Attest: /s/ Kenneth L. Kollar
- - ----------------------------- ---------------------------
Name: Sandra J. Winters Name: Kenneth L. Kollar
------------------------ --------------------------
Witness Title: Assistant Secretary
-------------------------
[CORPORATE SEAL]
/s/ Nona Kay Jaimes
- - ------------------------------
Name: Nona Kay Jaimes
-------------------------
Notary Public
[NOTARIAL SEAL]
Signed, sealed and LESSEE:
delivered in the presence
of: PACKAGING CORPORATION OF AMERICA
- - -------------------------
Name: By:
-------------------- --------------------------------
Witness Name:
---------------------------
Title:
--------------------------
- - -------------------------
Name: Attest:
-------------------- ----------------------------
Witness Name:
---------------------------
Title:
--------------------------
- - ------------------------- [CORPORATE SEAL]
Name:
--------------------
Notary Public
[NOTARIAL SEAL]
-7-
<PAGE>
Signed, sealed and By: Metropolitan Life Insurance
delivered in the presence Company
of:
By:
- - ----------------------------- -------------------------------
Name: Name:
------------------------ --------------------------
Witness Title:
-------------------------
Attest:
- - ----------------------------- ---------------------------
Name: Name:
------------------------ --------------------------
Witness Title:
-------------------------
[CORPORATE SEAL]
- - ------------------------------
Name:
-------------------------
Notary Public
[NOTARIAL SEAL]
Signed, sealed and LESSEE:
delivered in the presence
of: PACKAGING CORPORATION OF AMERICA
/s/ M. T. Canavan
- - -------------------------
Name: M. T. Canavan By: /s/ R. D. Harlow
-------------------- --------------------------------
Witness Name: R. D. Harlow
---------------------------
Title: Senior Vice President
--------------------------
/s/ Mary C. Eckel
- - -------------------------
Name: Mary C. Eckel Attest: /s/ Jaime Taronji, Jr.
-------------------- ----------------------------
Witness Name: Jaime Taronji, Jr.
---------------------------
Title: Assistant Secretary
--------------------------
/s/ Artemis G. Vougis
- - ------------------------- [CORPORATE SEAL]
Name: Artemis G. Vougis
--------------------
Notary Public
[NOTARIAL SEAL]
-7-
<PAGE>
******* ACKNOWLEDGMENTS *******
STATE OF ILLINOIS)
:ss
COUNTY OF COOK)
The foregoing instrument was acknowledged before me this 9th day of
January, 1992 by R. D. Harlow and Jaime Taronji, Jr., as Senior Vice President
and Assistant Secretary, respectively, of Packaging Corporation of America, a
Delaware corporation, on behalf of the corporation.
/s/ Artemis G. Vougis
-------------------------------
Name: Artemis G. Vougis
--------------------------
Notary Public, Cook
-----------------
County,Illinois
------------------------
My Commission Expires:___________
[NOTARIAL SEAL]
STATE OF GEORGIA
COUNTY OF FULTON
The foregoing instrument was acknowledged before me this _________
day of ___________,199_ by__________________________ and_____________________,
as ___________________________________ and __________________________________,
respectively, of Metropolitan Life Insurance Company, a New York corporation, as
joint venturer of Four States Timber Venture, a Georgia joint venture, on behalf
of the joint venture.
--------------------------------
Name:
---------------------------
Notary Public,
------------------
County,
-------------------------
My Commission Expires:
----------
[NOTARIAL SEAL]
-8-
<PAGE>
******* ACKNOWLEDGMENTS *******
STATE OF GEORGIA)
:ss
COUNTY OF FULTON)
The foregoing instrument was acknowledged before me this ___ day of
_____________ by ____________ and __________________, as _____________________
and ___________________, respectively, of Packaging Corporation of America, a
Delaware corporation, on behalf of the corporation.
-------------------------------
Name:
--------------------------
Notary Public,
-----------------
County,
------------------------
My Commission Expires:___________
[NOTARIAL SEAL]
STATE OF KANSAS
COUNTY OF JOHNSON
The foregoing instrument was acknowledged before me this 17th day of
January, 1992 by Darrell J. Smith and Kenneth L. Kollar, as Assistant Vice-
President and Assistant Secretary, respectively, of Metropolitan Life Insurance
Company, a New York corporation, as joint venturer of Four States Timber
Venture, a Georgia joint venture, on behalf of the joint venture.
/s/ Nona Kay Jaimes
-------------------------------
Name:
--------------------------
Notary Public:
-----------------
County, Johnson
------------------------
My Commission Expires: 9-13-93
-----------
[NOTARIAL SEAL]
-8-
<PAGE>
STATE OF MASSACHUSETTS)
: ss
COUNTY OF SUFFOLK )
The foregoing instrument was acknowledged before me this 30th day of
December, 1991 by Paul A. Meissner, Jr. and James H. Young, as Assistant
Treasurer and Assistant Secretary, respectively, of John Hancock Mutual Life
Insurance Company, a Massachusetts corporation, as joint venturer of Four States
Timber Venture, a Georgia joint venture, on behalf of the joint venture.
/s/ Marie C. O'Brien
------------------------------
Name: Marie C. O'Brien
-------------------------
Notary Public,
----------------
County, Suffolk
-----------------------
My Commission Expires: 8-9-96
-----------
[NOTARIAL SEAL]
-9-
<PAGE>
EXHIBIT D-1
Categories, Adjustment Amounts and
Administrative Amounts Applicable
To The Southern Timberlands
(Florida - Hudson Tract)
I. Bare Land
<TABLE>
<CAPTION>
Adjustment
Amount
Per Acre Administrative
Exclusive Amount
Category Acreage of Timber by Category
-------- ------- ----------- --------------
<S> <C> <C> <C>
Pine Plantations 120,229 215.00 25,849,235
Natural Pine & Hardwood 91,893 81.00 7,443,333
Non-Productive 13,790 39.00 537,810
Productive Open 5,761 215.00 1,238,615
--------- ----------
TOTAL 231,673 35,068,993
========= ==========
II. Merchantable Timber
-------------------
Adjustment Administrative
Volume Amount Amount
Category (Cords) Per Cord by Category
-------- ------- ----------- --------------
Pine Sawtimber 438,659 39.00 17,107,701
Pine Pulpwood 682,739 21.75 14,849,573
HWD Sawtimber 97,924 15.00 1,468,860
HWD Pulpwood 1,089,942 4.75 5,177,224
CY Sawtimber 111,599 16.60 1,852,543
CY Pulpwood 604,605 7.50 4,534,537
--------- ----------
TOTAL 3,025,468 44,990,438
========= ==========
III. Pre-Merchantable Planted Pine
-----------------------------
Adjustment Administrative
Amount Amount
Category Acreage Per Acre by Category
-------- ------- ----------- --------------
0 - 5 years 13,384 150.00 2,007,600
6 - 10 years 13,124 250.00 3,281,000
11 - 15 years 25,419 350.00 8,896,650
--------- ----------
TOTAL 51,927 14,185,250
========= ==========
BUILDINGS AND IMPROVEMENTS 98,619
==========
GRAND TOTAL, HUDSON TRACT 94,343,300
==========
</TABLE>
<PAGE>
EXHIBIT D-2
Categories, Adjustment Amounts and Administrative
Amounts Applicable To The Southern Timberlands
(Florida and Georgia)
(Nekoosa and Brunswick Tracts)
I. Bare Land
---------
<TABLE>
<CAPTION>
Adjustment
Amount
Per Acre Administrative
Exclusive Amount
Category Acreage of Timber by Category
-------- ------- ----------- --------------
<S> <C> <C> <C>
Pine Plantations 51,253 250.00 12,813,250
Natural Pine & Hardwood 19,504 90.00 1,755,360
Non-Productive 1,873 42.00 78,666
Phosphate Lands 18,666 34.00 634,644
Productive Open 3,391 250.00 847,750
--------- -----------
TOTAL 94,687 16,129,670
========= ===========
II. Merchantable Timber
-------------------
Adjustment Administrative
Volume Amount Amount
Category (Cords) Per Cord by Category
-------- ------- ----------- --------------
Pine Sawtimber 230,931 42.00 9,699,102
Pine Pulpwood 485,741 26.00 12,629,266
HWD Sawtimber 31,037 17.00 527,629
HWD Pulpwood 284,167 6.00 1,705,002
CY Sawtimber 36,516 17.00 620,772
CY Pulpwood 114,837 5.00 574,185
--------- -----------
TOTAL 1,183,229 25,755,956
========= ===========
III. Pre-Merchantable Planted Pine
-----------------------------
Adjustment Administrative
Amount Amount
Category Acreage Per Acre by Category
-------- ------- ----------- --------------
0 - 5 years 7,529 166.00 1,249,814
6 - 10 years 9,696 271.00 2,627,616
11 - 15 years 7,995 382.00 3,054,090
--------- -----------
TOTAL 25,220 6,931,520
========= ===========
BUILDINGS AND IMPROVEMENTS 60,000
===========
GRAND TOTAL, NEKOOSA AND BRUNSWICK TRACTS 48,877,146
===========
GRAND TOTAL, SOUTHERN TIMBERLANDS 143,220,446
===========
</TABLE>
<PAGE>
EXHIBIT D-3
Categories, Adjustment Amounts and
Administrative Amounts Applicable
To The Northern Timberlands
(Michigan & Wisconsin)
I. Bare Land
---------
<TABLE>
<CAPTION>
Adjustment
Amount
Per Acre Administrative
Exclusive Amount
Category Acreage of Timber by Category
-------- ------- ----------- --------------
<S> <C> <C> <C>
Productive Land and
Regeneration 185,098 42.50 7,866,665
Non-Productive 4,939 10.00 49,390
Lowland Brush (Spruce) 13,641 15.00 204,615
--------- ----------
TOTAL 203,678 8,120,670
========= ==========
II. Merchantable Timber
-------------------
Adjustment Administrative
Volume Amount Amount
Category (Cords) Per Cord by Category
-------- ------- ----------- --------------
Conifer Sawtimber 400,198 14.00 5,602,772
Conifer Pulpwood 588,071 5.50 3,234,390
Hardwood Sawtimber 294,763 24.00 7,074,312
Hardwood Pulpwood 1,388,984 4.00 5,555,936
--------- -----------
TOTAL 2,672,016 21,467,410
========= ===========
BUILDINGS AND IMPROVEMENTS 84,474
===========
GRAND TOTAL, NORTHERN
TIMBERLANDS 29,672,554
===========
GRAND TOTAL--ALL TIMBERLANDS 172,893,000
===========
</TABLE>
<PAGE>
EXHIBIT E
TIMBER CRUISE SPECIFICATIONS
The Cruise shall be conducted using such forest sampling methods as are
necessary to produce accuracy within a range of 5% at the confidence level of
not less than 95%, and shall be reported separately with respect to the Southern
Timberlands and the Northern Timberlands. The Cruise shall cover all Timber and
Land within the Property and shall show by Category the acreage and volumes of
Timber within the Northern and Southern Timberlands. The Cruises shall be
supported by maps showing the location of sample plots. The Cruise data shall be
tallied separately and dated for each sample plot and the plot location keyed on
a map and flagged on the ground in a manner which will accommodate an
independent field audit of timber cruise measurements.
1. Southern Timber Categories.
A. Merchantable Timber Specifications. Merchantable Timber shall be
classified by species, product and size in the following Categories:
1. "Pine Pulpwood" means pine timber measuring less than 9.0 inches
diameter breast high ("DBH") but not less than 5.0 inches DBH, cull
Pine Sawtimber trees suitable only for pulpwood regardless of size, and
tops of Pine Sawtimber trees.
2. "Pine Sawtimber" means pine timber measuring not less than 9.0 inches
DBH and suitable for sawtimber, veneer, poles and piling.
3. "Hardwood Pulpwood" means hardwood timber measuring less than 11.0
inches DBH but not less than 5.0 inches DBH, cull Hardwood Sawtimber
trees suitable only for pulpwood regardless of size, and tops of
Hardwood Sawtimber trees.
4. "Hardwood Sawtimber" means hardwood timber measuring not less than 11.0
inches DBH and suitable for sawtimber and veneer.
5. "Cypress Pulpwood" means cypress timber measuring less than 11.0 inches
DBH but not less than 5.0 inches DBH, cull Cypress Sawtimber trees
suitable only for pulpwood regardless of size, and tops of Cypress
Sawtimber trees.
6. "Cypress Sawtimber" means cypress timber measuring not less than 11.0
inches DBH and suitable for sawtimber and veneer.
<PAGE>
B. Utilization Limits. Unless otherwise specified herein, Pine Sawtimber
minimum top diameter is 6.0 inches, outside bark, and Pine Pulpwood
minimum top diameter is 3.0 inches, outside bark.
Hardwood Sawtimber minimum top diameter is 10.0 inches, outside bark, and
Hardwood Pulpwood minimum top diameter is 4.0 inches, outside bark.
Cypress Sawtimber minimum top diameter is 10.0 inches, outside bark, and
Cypress Pulpwood minimum top diameter is 4.0 inches, outside bark.
C. Calculations. All volumes of timber shall be measured, reported and
accounted for in standard, stacked cords of 128 cubic feet including air
space. Computation shall be by local volume tables mutually agreeable to
Lessor and Lessee in their reasonable discretion.
II. Northern Timber Categories.
A. Merchantable Timber. Merchantable Timber shall be classified by species,
product and size in the following Categories:
1. "Conifer Pulpwood" means all conifer species of timber measuring less
than 11.0 inches DBH but not less than 5.0 inches DBH, cull Conifer
Sawtimber trees suitable only for pulpwood regardless of size, and
tops of Conifer Sawtimber trees.
2. "Conifer Sawtimber" means all conifer species of timber measuring not
less than 11.0 inches DBH and suitable for sawtimber, veneer, poles
and piling.
3. "Hardwood Pulpwood" means timber measuring less than 11.0 inches DBH
but not less than 5.0 inches DBH, cull Hardwood Sawtimber trees
suitable only for pulpwood regardless of size, and tops of Hardwood
Sawtimber trees.
4. "Hardwood Sawtimber" means hardwood timber measuring not less than
11.0 inches DBH and suitable for sawtimber and veneer.
B. Utilization Limits. Conifer Sawtimber minimum top diameter is 8 inches,
outside bark, and conifer pulpwood minimum top diameter is 3 inches,
outside bark.
Hardwood Sawtimber minimum top diameter is 10 inches, outside bark, and
Hardwood Pulpwood minimum top diameter is 4 inches, outside bark.
<PAGE>
C. Calculations. All volumes of timber shall be measured, reported and
accounted for in standard, stacked cords of 128 cubic feet including air
space. Computation shall be by local volume tables mutually agreeable to
Lessor in their reasonable discretion.
III. Other Specifications
A. Calculation of Land acreage shall be based upon:
1. Surveys and aerial photographs of the Property (to the extent
currently available), timber type maps and such other available
information generally utilized by professional foresters; and
2. Standards of calculation and measurement generally used in the
commercial forestry industry.
B. Determination of Southern pre-merchantable planted pine acreage by age
classes (ages 0-5; 6-10; 11-15 years) shall comply with the following
guidelines:
1. A fully stocked stand shall consist of at least 250 well spaced stems
per acre or 60 square feet of basal area per acre, measured at DBH;
and
2. Timber volumes shall not include any trees of merchantable size class
located in stands classified as pre-merchantable pine plantations.
C. "Lowland Brush (Spruce)" shall have the same meaning as "lowland brush
temporarily non-productive lands," as defined in that certain report of
timber cruise prepared for Georgia-Pacific Corporation by Steigerwaldt
Land Services, Inc. (Tomahawk, Wisconsin) dated June, 1990.
<PAGE>
SECOND AMENDMENT
TO
TIMBERLAND LEASE
BY AND BETWEEN
FOUR STATES TIMBER VENTURE
(as Lessor)
and
PACKAGING CORPORATION OF AMERICA
(as Lessee)
December 31, 1992
This document was prepared by:
Haynes R. Roberts, Esg.
Sutherland, Asbill & Brennan
999 Peachtree Street, N.E.
Atlanta, Georgia 30309-3996
<PAGE>
SECOND AMENDMENT
TO
TIMBERLAND LEASE
----------------
THIS SECOND AMENDMENT TO TIMBERLAND LEASE (hereinafter referred to as "this
Amendment"), dated as of December 31, 1992, made by and between FOUR STATES
TIMBER VENTURE, a joint venture formed under the laws of the State of Georgia
("Lessor"), having its principal office and place of business at One John
Hancock Place, Boston, Massachusetts 02117, and PACKAGING CORPORATION OF
AMERICA, a Delaware corporation ("Lessee"), having its principal office and
place of business in Evanston, Illinois.
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, Lessor and Lessee entered into that certain Timberland Lease dated
January 31, 1991 (as amended from time to time hereinafter referred to as the
"Lease"), whereby Lessor leased to Lessee approximately 531,000 acres of
timberland in the States of Florida, Georgia, Michigan and Wisconsin; and
WHEREAS, the Lease was amended in certain respects by that certain First
Amendment to Timberland Lease dated as of December 31, 1991, made by and between
Lessor and Lessee; and
WHEREAS, Lessor and Lessee desire to further amend the Lease in certain
respects;
NOW, THEREFORE, for and in consideration of Ten Dollars ($10.00) and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and in consideration of the mutual agreements, covenants and
provisions hereinafter set forth, the parties hereto hereby agree as follows:
ARTICLE I - AMENDMENTS
----------------------
Lessor and Lessee agree that the amendments to the Lease set forth in this
Article I shall be effective and binding on the parties hereto from and after
January 1, 1992.
1. Subsection 2.1(a)(iii) of the Lease is hereby deleted in its entirety and
the following is inserted in lieu thereof:
" (iii) In addition to the foregoing, in the event that any
portion of the Property is sold by Lessor free and clear of this Lease,
is the subject of a Taking or is otherwise released from this Lease
during any calendar quarter during the Lease Term, then beginning with
the installment of Quarterly Rent next
1
<PAGE>
due, installments of Quarterly Rent shall be adjusted (effective as of
the first day of the calendar quarter following the date on which such
sale, Taking or release took place) and thereafter paid by Lessee in an
amount equal to (A) the amount of Quarterly Rent installment which was
payable on the first day of the calendar quarter in which such sale,
Taking or release occurred (as such amount may have been previously
adjusted pursuant to subsection 2.1(a)(ii) hereof), minus (B) an amount
equal to 2.6875% of the sum of the Allocated Base Values of all portions
of the Property sold, taken or released during such calendar quarter. In
addition to the adjustment provided in the preceding sentence, if the
Allocated Base Value of the portion of the Property to be sold, taken or
released in any single transaction is $l,000,000 or more, the Quarterly
Rent for the calendar quarter following such sale, Taking or release
shall be reduced by an amount equal to the product of (X) the difference
between the Daily Quarterly Rent prior to and the Daily Quarterly Rent
after such sale, Taking or release and (Y) the actual number of days
from and including the date of such sale, Taking or release to but not
including the date upon which such Quarterly Rent payment becomes due."
2. Subsection 2.1(b)(ii) of the Lease is hereby deleted in its entirety and
the following is inserted in lieu thereof:
"(ii) Notwithstanding the foregoing, in the event any portion
of the Property is sold by Lessor free and clear of this Lease, is the
subject of a Taking or is otherwise released from this Lease prior to
the end of the Lease Term, for the Lease Year in which such sale, Taking
or release takes place, the Annual Rent for such year shall be reduced
as follows:
(A) for sales, Takings or releases occurring during the
first calendar quarter of such Lease Year, by an amount equal
to the product of (i) 0.61642% of the sum of the Allocated Base
Values of all portions of the Property sold, taken or released
during such calendar quarter times (ii) the factor 0.75;
(B) for sales, Takings or releases occurring during the
second calendar quarter of such Lease Year, by an amount equal
to the product of (i) 0.61642% of the sum of the Allocated Base
Values of all portions of the Property sold, taken or released
during such calendar quarter times (ii) the factor 0.50;
2
<PAGE>
(C) for sales, Takings or releases occurring during the
third calendar quarter of such Lease Year, by an amount equal to
the product of (i) 0.61642% of the sum of the Allocated Base
Values of all portions of the Property sold, taken or released
during such calendar quarter times (ii) the factor 0.25; and
(D) for sales, Takings or releases occurring during the
fourth calendar quarter of such Lease Year, Annual Rent shall
not be reduced.
In addition to the adjustment provided for above in this subsection (ii),
if the Allocated Base Value of the portion of the Property to be sold,
taken or released in any single transaction is $1,000,000 or more, the
Annual Rent for the Lease Year in which such sale, Taking or release takes
place shall be further reduced by an amount equal to the product of (A) the
difference between the Daily Annual Rent prior to and the Daily Annual Rent
after such sale, Taking or release and (B) the actual number of days from
and including the date of such sale, Taking or release to the end of the
calendar quarter in which such sale, Taking or release occurred.
The installments of Annual Rent required to be paid by Lessee pursuant to
subsection 2.1(b)(i) above for Lease Years beginning subsequent to the
Lease Year in which any such sale, Taking or release took place shall be
adjusted and thereafter paid in an amount equal to (X) $1,065,748 minus (Y)
an amount equal to 0.61642% of the sum of the Allocated Base Values of all
portions of the Property sold, taken or released during prior Lease Years."
3. Subsection 34.2(b) of the Lease is hereby amended by adding the
following sentence at the end of said subsection:
"Any Additional Rent payable by Lessee to Lessor under this
subsection (b) shall be paid by Lessee within twenty (20)
Business Days following receipt of written notice from Lessor
that such Additional Rent is due."
4. Subsection 34.2(e) (iii) of the Lease is hereby deleted in its
entirety and the following is inserted in lieu thereof:
"(iii) Reporting; Payments; Special Cutting Account. On
or before the tenth (10th) day of each calendar month, Lessee
shall furnish to Lessor a written report showing the volume of
Timber cut or removed pursuant to this section 34.2(e) during
the
3
<PAGE>
preceding calendar month and the market value of such Timber
determined by multiplying the number of cords thereof by the per
cord market value approved by Lessor. Lessee shall also furnish
to Lessor a calculation of the Administrative Amount for the
Timber cut and such other information as Lessor may require.
Lessee shall deliver to Lessor with each such report a payment
equal to the greater of the market value of such Timber as
determined as aforesaid or the Administrative Amount for such
Timber. Each such payment shall be deposited by Lessor into one
or more interest-bearing accounts with Bank One, Champaign-
Urbana or any other national bank or national banks reasonably
acceptable to Lessee (hereinafter collectively called the
"Special Cutting Account"). Lessor shall not be responsible for
earning any particular rate or amount of interest on the funds
deposited in the Special Cutting Account and Lessor shall not be
responsible for any loss of such funds caused by the insolvency
of the financial institution with which the Special Cutting
Account is established or by any other cause not within the
exclusive control of Lessor. Lessor shall withdraw and disburse
said funds as hereinafter provided."
5. Subsection 35.2(b) of the Lease is hereby amended by:
(a) deleting clause (iii) of said subsection 35.2(b) in its
entirety and by inserting the following in lieu thereof:
"(iii) for each sale of Property where the Allocated
Base Value of such Property is $1,000,000 or more, the Net Sales
Proceeds from any such sale shall be paid to Lessor (subject to
the provisions of subsection 35.2(d) hereof) and shall be no
less than the greater of the Minimum Return Price or the Make-
Whole Price applicable to such sale in each case calculated as
of the date such sale occurs (provided, however, if such Net
Sales Proceeds from such sale are less than the greater of the
Minimum Return Price or the Make-Whole Price applicable to such
sale, Lessee shall be permitted to pay to Lessor an amount equal
to such deficiency, and, upon payment of such amount, the
condition set forth in this clause (iii) shall be deemed
satisfied);" and
(b) by adding the following clause (vii) to said subsection
35.2(b):
"(vii) the Net Sales Proceeds from each sale of Property
where the Allocated Base Value of such
4
<PAGE>
Property is less than $1,000,000 shall be paid to Lessor and
shall be deposited by Lessor into one or more interest-bearing
accounts with Bank-One, Champaign-Urbana or any other national
bank or national banks reasonably acceptable to Lessee
(hereinafter collectively referred to as the "General Release
Account"), pending disbursement to Lessor and Lessee in
accordance with the provisions of subsection 35.2(g) below."
6. Subsection 35.2(c)(iv)(B) is hereby deleted in its entirety and
the following is inserted in lieu thereof:
"B. setting forth a detailed computation of the Net
Sales Proceeds from such sale (showing all deductions from the
gross sale" price and showing the amount of any deficiency which
Lessee may elect to pay to Lessor in satisfaction of the
requirements of subsection 35.2(b)(iii) hereof) and a detailed
computation of the Make-Whole Price and Minimum Return Price
applicable to such sale;"
7. Subsection 35.2(d) is hereby deleted in its entirety and the
following is inserted in lieu thereof:
"(d) Excess Proceeds. With respect to any sale of Property where
the Allocated Base Value of such Property is $1,000,000 or more,
the Net Sales Proceeds received by Lessor as a result of any such
sale which are in excess of the greater of the Minimum Return Price
or the Make-Whole Price applicable to such sale shall be paid by
Lessor to Lessee."
8. Section 35.2 of the Lease is hereby amended by adding thereto
the following subsections (g) and (h):
"(g) Disbursement of Sales Proceeds From General Release
Account. Within thirty (30) days after the end of each calendar
quarter during the Lease Term, Lessor shall deliver to Lessee a
written statement (the "Quarterly Sales Statement") setting forth a
detailed computation of (i) the Make-Whole Price and the Minimum
Return Price (using a Minimum Return Rate of 15% for purposes of
calculating the amount determined under clause (ii) of the
definition of Minimum Return Price in Section 39 hereof) applicable
to all sales of Property where, on an individual sale basis, the
Allocated Base Value of the Property was less than $1,000,000 which
occurred during the calendar quarter then ended, such calculations
to be made as if all of such sales were a single sale closing on
the last day of the calendar quarter then ended. Lessor shall
distribute the proceeds from all such sales made during the
calendar quarter then ended that are covered by such Quarterly
Sales Statement
5
<PAGE>
(including any accrued interest) from the General Release Account on a quarterly
basis in accordance with the computations set forth in the Quarterly Sales
Statement as follows:
(i) such proceeds shall be distributed first to Lessor until Lessor has
received the greater of the Minimum Return Price or the Make-Whole Price
determined as set forth above with respect to such sales; and
(ii) any such proceeds remaining in the General Release Account after Lessor
has received the amounts to which it is entitled pursuant to the preceding
subparagraph (i) shall be distributed to Lessee.
In the event that the proceeds in the General Release Account relating to sales
of Property made during the preceding calendar quarter, together with interest
thereon, are insufficient to pay to Lessor the greater of the Minimum Return
Price or the Make-Whole Price with respect to such sales as determined above,
Lessor shall note such deficiency in the Quarterly Sales Statement and Lessee
shall pay to Lessor, as Additional Rent and within fifteen (15) Business Days
after receipt of such Quarterly Sales Statement, an amount equal to the
deficiency set forth in such statement.
Lessor shall not be responsible for earning any particular rate or amount of
interest on the funds deposited in the General Release Account and shall not be
responsible for any loss of such funds caused by the insolvency of the financial
institution with which the General Release Account has been established or by
any other cause not within the exclusive control of Lessor; and
(h) Net Sales Proceeds. For purposes of this Lease, the term "Net Sales
Proceeds" shall mean, with respect to any sale of Property by Lessor pursuant to
the provisions of Section 35.2(b) hereof, the gross sales price due to Lessor
with respect to the Property sold less the following costs and expenses to the
extent such costs and expenses are incurred by Lessor in connection with such
sale and are customary and reasonable in amount: title insurance premiums, title
examination fees and expenses, survey costs, the cost of any appraisals approved
in advance in writing by Lessor, brokerage fees and commissions paid to any
Person other than Lessee or a Related Entity, recording costs, transfer taxes or
documentary stamp taxes, and the fees and expenses of the closing attorney to
the extent such fees and expenses are not excluded by clause (iv) below.
Notwithstanding the foregoing, Lessee expressly acknowledges and agrees that the
costs and expenses described in clauses (i), (ii), (iii) and (iv) below may not
be paid out of the
6
<PAGE>
proceeds received by Lessor in connection with any such sale, will be paid
directly by Lessee or will be reimbursed by Lessee to Lessor and will not be
deducted from the gross sale price of the Property being sold for purposes of
calculating the Net Sales Proceeds from such sale:
(i) Any and all commissions, fees, costs or expenses of any kind
incurred by or payable to Lessee or any Related Entity in connection
with such sale;
(ii) Any and all taxes, penalties or other amounts imposed or
recaptured under any Forest Tax Law in connection with or as a result of
such sale;
(iii) Any and all costs and expenses incurred by Lessor in
connection with such sale which are not customary and reasonable or
which would not have been incurred by Lessor if the Property sold had
not been encumbered by this Lease; and
(iv) Any and all attorneys' fees, costs and expenses incurred by
Lessor in connection with such sale which directly or indirectly relate
to questions or issues regarding this Lease or which would not have been
incurred by Lessor if the Property sold had not been encumbered by this
Lease. Lessor agrees that it will, in good faith, endeavor to keep such
attorneys' fees reasonable under the circumstances, but Lessee shall, in
any event, pay all attorneys' fees covered by the preceding sentence of
this clause (iv)."
9. Section 39 of the Lease is hereby amended as follows:
(a) by amending the definition of "Make-Whole Price" as follows:
(i) by inserting the following language in the fourth line of
the definition of "Make-Whole Price" after the word "discounting":
"(on a quarterly basis for the values in (i), on an annual basis
for the values in (ii) and on a semi-annual basis for the values
in (iii))"; and
(ii) by adding the following language at the end of the
definition of "Make-Whole Price":
7
<PAGE>
"For purposes of calculating the values of (i), (ii) and (iii)
above, each Lease Year shall be deemed to consist of 360 days
and four 90-day quarters.";
(b) by amending the definition of "Minimum Return Price" as follows:
(i) by deleting clause (i) in the definition of Minimum Return
Price and inserting in lieu thereof the following:
"(i) the Allocated Base Value for the portion of the Property being
sold, taken or released plus 80% of the excess, if any, of the Net
Sales Proceeds of, net award from or other proceeds from the
portion of the Property to be sold, taken or released over the
Allocated Base Value for such portion. During the Initial Lease
Term only, such excess may be net of (a) Operating Expenses
attributable to such portion of the Property, but only to the
extent of such excess, and (b) the sum of Allocated Annual Rent
Payments previously made or to be made on January 1 of the
following calendar year with respect to the portion of the Property
being sold, taken or released; and
(ii) by inserting the following language at the end of clause (ii)
in the definition of "Minimum Return Price":
"For purposes of calculating the values in (a) and (b) of this
subsection (ii), each Lease Year shall be deemed to consist of 360 days
and four 90-day quarters; and";
(c) by adding a definition of "Net Sales Proceeds" which reads as
follows:
"Net Sales Proceeds: as defined in Subsection 35.2(h) hereof"; and
(d) by amending the definition of "Non-Strategic Lands" to read as
follows:
"Non-Strategic Lands: The approximately 30,327 (plus or minus) acres of
Timberlands which were identified by Lessor in June 1991 as being non-
strategic which may be sold during the Lease Term in accordance with the
provisions of subsection 35.2."
8
<PAGE>
10. Subsection 43(b) of the Lease is hereby amended by deleting the
parenthetical "(which cost may be deducted from the gross proceeds of such sale
in accordance with the provisions of said Section 35.2(b))" from lines 7, 8 and
9 thereof.
11. The Lease is hereby amended by deleting Exhibit C thereto in its
entirety and by inserting in lieu thereof the Exhibit C which is attached hereto
as Schedule 1 and incorporated herein by this reference.
12. The Lease is hereby amended by deleting Exhibit D-3 thereto in its
entirety and by inserting in lieu thereof the Exhibit D-3 which is attached
hereto as Schedule 2 and incorporated herein by this reference.
13. The Lease is hereby amended by deleting Exhibit I thereto in its
entirety and by inserting in lieu thereof the Exhibit I which is attached hereto
as Schedule 3 and incorporated herein by this reference.
14. The Lease is hereby amended by deleting Exhibit J thereto in its
entirety and by inserting in lieu thereof the Exhibit J which is attached hereto
as Schedule 4 and incorporated herein by this reference.
ARTICLE II - GENERAL PROVISIONS
1. Unless otherwise defined herein, capitalized terms in this Agreement
shall have the meanings given to such terms in Section 39 of the Lease.
2. Except as amended hereby, the terms and provisions of the Lease shall
remain in full force and effect, and Lessor and Lessee hereby ratify and
reaffirm as of the date hereof the terms and provisions of the Lease, as amended
hereby.
3. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which shall constitute one
instrument.
4. This Agreement shall be binding upon and shall inure to the benefit of
and be enforceable by the respective successors and assigns of the parties
hereto.
* * * * * * * * * * * * * * * * * * * * * * * * *
[SIGNATURES BEGIN ON FOLLOWING PAGE]
9
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have caused this Second Amendment to
Timberland Lease to be executed and their seals to be hereunto affixed and
attested by their officers thereunto duly authorized.
LESSOR:
FOUR STATES TIMBER VENTURE, a
Georgia Joint Venture, by both of
its joint venturers
Signed, sealed and By: John Hancock Mutual Life
delivered in the presence Insurance Company
of:
By: /s/ Henry J. Desautel
---------------------------
/s/ Neil E. Auble Name: Henry J. Desautel
------------------------------ -----------------------
Name: Neil E. Auble Title: Assistant Treasurer
------------------------- ----------------------
Witness
Attest: /s/ Barry P. Sanborn
--------------------------
/s/ Susan Chase Name: Barry P. Sanborn
- - -------------------------------- -------------------------
Name: Susan Chase Title: Assistant Secretary
--------------------------- ------------------------
Witness
[CORPORATE SEAL]
/s/ Marie C. O'Brien
- - ---------------------------------
Name: Marie C. O'Brien
----------------------------
Notary Public
[NOTARIAL SEAL]
10
<PAGE>
Signed, sealed and By: Metropolitan Life Insurance
delivered in the presence Company
of:
/s/ Kathleen D. Condy By: /s/ Gerald J. Hoenig
- - ----------------------------- -------------------------------
Name: Kathleen D. Condy Name: Gerald J. Hoenig
------------------------ --------------------------
Witness Title: Associate General Counsel
-------------------------
/s/ Sherrill D. Ciuba Attest: /s/ Nancy J. Hammer
- - ----------------------------- ---------------------------
Name: Sherril D. Ciuba Name: Nancy J. Hammer
------------------------ --------------------------
Witness Title: Assistant Secretary
-------------------------
[CORPORATE SEAL]
/s/ Patricia A. Monahan
- - ------------------------------
Name: Patricia A. Monahan
-------------------------
Notary Public State of Georgia
My Commission Expires 2-18-98
[NOTARIAL SEAL]
Signed, sealed and LESSEE:
delivered in the presence
of: PACKAGING CORPORATION OF AMERICA
/s/ Maura T. Canavan
- - -------------------------
Name: Maura T. Canavan By: /s/ R. D. Harlow
-------------------- --------------------------------
Witness Name: R. D. Harlow
---------------------------
Title: Senior Vice President
--------------------------
/s/ Ramona Christian
- - -------------------------
Name:Ramona Christian Attest: /s/ John R. Olsen
-------------------- ----------------------------
Witness Name: John R. Olsen
---------------------------
Title: Assistant Secretary
--------------------------
/s/ Artemis G. Vougis
- - ------------------------- [CORPORATE SEAL]
Name: Artemis G. Vougis
--------------------
Notary Public
[NOTARIAL SEAL]
11
<PAGE>
******* ACKNOWLEDGMENTS *******
STATE OF GEORGIA
COUNTY OF DE KALB
The foregoing instrument was acknowledged before me this 11th day of March,
1993 by Gerald J. Hoenig and Nancy J. Hammer, as Associate General Counsel and
Assistant Secretary, respectively, of Metropolitan Life Insurance Company, a New
York corporation, as joint venturer of Four States Timber Venture, a Georgia
joint venture, on behalf of the joint venture.
/s/ Patricia A. Monahan
-------------------------------
Name: Patricia A. Monahan
--------------------------
Notary Public, State of Georgia
-----------------
My Commission Expires: 2-18-97
-----------
[NOTARIAL SEAL]
STATE OF MASSACHUSETTS)
: ss
COUNTY OF SUFFOLK )
The foregoing instrument was acknowledged before me this _________
day of ___________,1993 by__________________________ and_____________________,
as ___________________________________ and __________________________________,
respectively, of John Hancock Life Insurance Company, a Massachusetts
corporation, as joint venturer of Four States Timber Venture, a Georgia joint
venture, on behalf of the joint venture.
--------------------------------
Name:
---------------------------
Notary Public,
------------------
County,
-------------------------
My Commission Expires:
----------
[NOTARIAL SEAL]
12
<PAGE>
******* ACKNOWLEDGMENTS *******
STATE OF ________________
COUNTY OF _______________
The foregoing instrument was acknowledged before me this ____ day of _____,
1993 by ________________ and ___________________, as ___________________ and
___________________, respectively, of Metropolitan Life Insurance Company, a New
York corporation, as joint venturer of Four States Timber Venture, a Georgia
joint venture, on behalf of the joint venture.
-------------------------------
Name:
--------------------------
Notary Public,
-----------------
County,
------------------------
My Commission Expires:
-----------
[NOTARIAL SEAL]
STATE OF MASSACHUSETTS)
:SS
COUNTY OF SUFFOLK )
The foregoing instrument was acknowledged before me this 18th day of
February, 1993 by Henry J. Desautel and Barry P. Sanborn, as Assistant Treasurer
and Assistant Secretary, respectively, of John Hancock Life Insurance Company, a
Massachusetts corporation, as joint venturer of Four States Timber Venture, a
Georgia joint venture, on behalf of the joint venture.
/s/ Marie C. O'Brien
--------------------------------
Name: Marie C. O'Brien
---------------------------
Notary Public, Suffolk
------------------
County, Massachusetts
-------------------------
My Commission Expires: 8/9/96
----------
[NOTARIAL SEAL]
<PAGE>
STATE OF ILLINOIS
: ss
STATE OF COOK
The foregoing instrument was acknowledged before me this 4th day of
February, 1993 by R.D. Harlow and John R. Olsen, as Senior Vice President and
Assistant Secretary, respectively, of Packaging Corporation of America, a
Delaware corporation, on behalf of the corporation.
/s/ Artemis G. Vougis
-------------------------
Name: Artemis G. Vougis
Notary Public, Cook County,
Illinois
My Commission Expires: 6-29-96
-----------
[NOTARIAL SEAL]
<PAGE>
SCHEDULE 1
TO
SECOND AMENDMENT
TO
TIMBERLAND LEASE
- - ------------------------------------------------------------------------------
EXHIBIT C
--------
BUILDINGS, STRUCTURES AND IMPROVEMENTS
PERSONAL AND INTANGIBLE PROPERTY
--------------------------------
I. Description of Buildings, Structures and
Other Improvements Located on Timberlands
-----------------------------------------
State Location County
----- -------- ------
Central Repair Shop, Section 21-TlN-R14E Hamilton FL
Office, Parts Supply Nekoosa Forest
House, Storage Building
and Related Improvements
Seed Orchard Location - Section 25 T1S, R14E Hamilton FL
buildings and Nekoosa Forest
improvements
Corea/Damascas Woodyard Land Lot 161, 13th Miller GA
buildings and land district
improvements
Jasper Woodyard Section 6, TIN, R14E Hamilton FL
Minocqua Woodlands Office Section 23, T39N, Oneida WI
R6E
Pine Lake Shop Section 31, T39N, Oneida WI
R5E
II. Description of Personal and Intangible Property
-----------------------------------------------
Title records, aerial photographs, maps, charts, surveys, financial records
and other records relating to the Timberlands which were acquired by Lessor
from Sellers pursuant to that certain Bill of Sale and Assignment of even
date herewith from Sellers to Lessor.
14
<PAGE>
SCHEDULE 2
TO
SECOND AMENDMENT
TO
TIMBERLANDS LEASE
- - -------------------------------------------------------------------------------
EXHIBIT D-3
-----------
CATEGORIES, ADJUSTMENT AMOUNTS AND ADMINISTRATIVE
AMOUNTS APPLICABLE TO THE NORTHERN TIMBERLANDS
(MICHIGAN AND WISCONSIN)
Wisconsin Timberlands - Exhibit D-3-A
Michigan Timberlands - Exhibit D-3-B
15
<PAGE>
Wisconsin Allocation
Steigerwaldt Cruise
Updated 11-20-92
EXHIBIT D-3-A
Categories, Adjustment Amounts and
Administrative Amounts Applicable
To The Southern Timberlands
(Wisconsin)
I. Bare Land
<TABLE>
<CAPTION>
Adjustment
Amount
Per Acre Administrative
Exclusive Amount
Category Acreage of Timber by Category
-------- ------- ----------- --------------
<S> <C> <C> <C>
Productive Land and 138,852 70.00 9,719,640
Regeneration
Non-Productive 28,421 21.40793 608,435
Lowland Brush (Spruce)
--------- -------- ----------
TOTAL 167,273 10,328,075
==========
Adjustment Administrative
Volume Amount Amount
Category (Cords) Per Cord by Category
-------- ------- ----------- --------------
Conifer Sawtimber 135,600 19.00 2,576,400
Conifer Pulpwood 560,500 6.75 3,783,375
Hardwood Sawtimber 104,100 29.00 3,018,900
Hardwood Pulpwood 1,034,300 5.25 5,430,075
--------- ----- ----------
TOTAL 1,834,500 14,808,750
----------
BUILDING AND IMPROVEMENTS 84,474
----------
GRAND TOTAL, WISCONSIN
TIMBERLANDS 25,221,299
==========
</TABLE>
<PAGE>
Michigan Allocation
Steigerwaldt Cruise
Updated 11-20-92
EXHIBIT D-3-B
Categories, Adjustment Amounts and
Administrative Amounts Applicable
To The Northern Timberlands
(Michigan)
I. Bare Land
<TABLE>
<CAPTION>
Adjustment
Amount
Per Acre Administrative
Exclusive Amount
Category Acreage of Timber by Category
-------- ------- ----------- --------------
<S> <C> <C> <C>
Productive Land and 33,267 40.00 1,330,680
Regeneration
Non-Productive 3,138 16.50 51,775
Lowland Brush (Spruce)
--------- ----- -----------
TOTAL 36,405 1,382,455
===========
Adjustment Administrative
Volume Amount Amount
Category (Cords) Per Cord by Category
-------- ------- ----------- --------------
Conifer Sawtimber 21,200 10.00 212,000
Conifer Pulpwood 173,100 1.50 259,650
Hardwood Sawtimber 78,700 19.50 1,534,650
Hardwood Pulpwood 425,000 2.50 1,062,500
--------- ----- -----------
TOTAL 698,000 3,068,800
-----------
BUILDING AND IMPROVEMENTS 0
-----------
GRAND TOTAL, MICHIGAN
TIMBERLANDS 4,451,255
===========
GRAND TOTAL--ALL TIMBERLAND 172,893,000
===========
</TABLE>
<PAGE>
SCHEDULE 3
TO
SECOND AMENDMENT
TO
TIMBERLANDS LEASE
- - --------------------------------------------------------------------------------
EXHIBIT I
--------
PERMITS
-------
1. Water Use Permits (Suwanee River Management District)
# 2-91-00079 (Central Repair Shop)
# 2-83-00054 (Grain Bins)
# 2-83-00069 (Hickman Seed Orchard)
# 2-89-00049 (Clone Bank)
2. Surfacewater Management System Permits (Suwanee River Water Management
District)
# 4-91-00060 (Central Repair Shop)
16
<PAGE>
SCHEDULE 4
TO
SECOND AMENDMENT
OF
TIMBERLAND LEASE
- - -------------------------------------------------------------------------------
EXHIBIT J
--------
OPTION AGREEMENTS
-----------------
1. Option Agreement to Acquire Timberlands between Nekoosa Packaging Corporation
and Owens-Illinois Development Corporation dated February 23, 1988 (65O plus
or minus acres, Columbia County, Florida).
2. Deed to Phosphate Rock by and among Owens-Illinois Development Corporation,
Owens-Illinois, Inc. and Occidental Chemical Corporation, dated July 9, 1973
recorded in Deed Book 104, Page 16, Hamilton County, Florida records and in
Deed Book 307, Page 323, Columbia County, Florida records (Land in Hamilton
and Columbia Counties, Florida).
3. Deed to Phosphate Rock by and among Owens-Illinois Development Corporation,
Owens-Illinois, Inc. and Occidental Chemical & Phosphate Corporation dated
September 4, 1975 recorded in Deed Book 125, Page 23, Hamilton County,
Florida records and in Deed Book 352, Page 166, Columbia County, Florida
records (Land in Hamilton and Columbia Counties, Florida).
4. Deed to Phosphate Rock by and among Owens-Illinois Development Corporation,
Owens-Illinois, Inc. and Occidental Chemical and Phosphate Corporation dated
June 25, 1975, recorded in Deed Book 121, Page 339, Hamilton County, Florida
records (Land in Hamilton County, Florida).
5. Deed to Phosphate Rock by and among Owens-Illinois Development Corporation,
Owens-Illinois, Inc. and Monsanto Company dated July 9, 1973, recorded in
Deed Book 307, Page 257, Columbia County, Florida records (Land located in
Columbia County, Florida).
17
<PAGE>
THIRD AMENDMENT TO LEASE AGREEMENT
This THIRD AMENDMENT TO LEASE AGREEMENT (this "Amendment") dated as of
December 31, 1993, by and between FOUR STATES TIMBER VENTURE, a joint venture
formed under the laws of the State of Georgia ("Lessor"), and PACKAGING
CORPORATION OF AMERICA, a Delaware corporation ("Lessee").
W I T N E S S E T H:
WHEREAS, Lessor and Lessee entered into that certain Timberland Lease dated
January 31, 1991 (the "Original Lease"), whereby Lessor leased to Lessee
approximately 531,000 acres of timberland in the States of Florida, Georgia,
Michigan and Wisconsin;
WHEREAS, the Lease was amended by that certain First Amendment to
Timberlands Lease dated as of December 31, 1991, made by and between Lessor and
Lessee, and further amended by that certain Second Amendment to Timberlands
Lease dated as of December 31, 1992 (hereinafter, the Original Lease, as amended
by the First Amendment and the Second Amendment thereof, and as further amended
hereby and from time to time, shall be referred to as the "Lease");
WHEREAS, the parties desire to further amend the Lease in certain respects
and to make additional agreements relating to the Lease.
NOW, THEREFORE, in consideration of the premises and the mutual agreements,
covenants and provisions hereinafter set forth, the parties agree as follows:
I.
CAPITALIZED TERMS
All capitalized terms not otherwise defined herein or modified hereby shall
have the meaning ascribed to such terms in the Lease.
II.
AMENDMENTS TO LEASE
2.1 Amendment to Section 3. The text of Section 3 of the Lease is hereby
deleted in its entirety and replaced with the following text such that Section
3, as revised, reads in its entirety as follows:
<PAGE>
3. FINANCIAL STATEMENTS AND REGULATORY FILINGS. Lessee shall furnish to
Lessor:
(a) within 60 days after the end of each of the first three quarterly
fiscal periods of each year, a consolidated balance sheet of Lessee and its
consolidated subsidiaries as of the close of such period, together with the
related consolidated statements of income and cash flows for the portion of
Lessee's fiscal year then ended, setting forth in each case in comparative form
the figures for the corresponding portion of Lessee's previous fiscal year, all
in reasonable detail and certified (subject to normal year-end adjustments) by
an authorized financial officer of Lessee as fairly presenting the financial
condition of Lessee for such period and being prepared in accordance with
generally accepted accounting principles;
(b) within 120 days after the close of each of Lessee's fiscal years, a
consolidated balance sheet of Lessee and its consolidated subsidiaries as of the
close of such year, together with the related consolidated statements of income
and cash flows for such fiscal year, setting forth in comparative form the
figures for the previous fiscal year, all in reasonable detail and certified by
a recognized national firm of independent public accountants, including their
opinion thereon that such financial statements have been prepared in accordance
with generally accepted accounting principles consistently applied;
(c) within 60 days after the end of each quarter and within 120 days after
the close of each fiscal year of Lessee, a certificate of Lessee, signed by the
chief financial officer of Lessee, or his authorized designee, demonstrating, in
a form from time to time approved by Lessor, compliance with the Lease and
setting forth the method of calculating Debt and Funded Debt for purposes of
such Sections and to the effect that the signer has reviewed, or caused to be
reviewed by persons under such officer's supervision, all of the relevant
documents and agreements and has made, or caused to be made under such officer's
supervision, a review of the transactions (including filings required under this
Amendment and the Lease) and condition of Lessee during the preceding fiscal
period, and that such review has not disclosed the existence during such period,
nor does the signer have knowledge of the existence as at the date of such
certificate, of any condition or event that constitutes a Default or Event of
Default or, if any such condition or event existed or exists, specifying the
nature and period of existence thereof and what action Lessee has taken or is
taking or proposes to take with respect
2
<PAGE>
thereto, provided, however, that the reporting of any such condition or event
shall not affect any of the remedies available to Lessor under this Lease;
(d) concurrently with the delivery of the financial statements referred to
in clause (b) above, a letter of such independent public accountants
substantially in the form of Exhibit A;
(e) promptly upon their becoming available, all statements or reports or
other information filed by or on behalf of Lessee with or delivered to the
Securities and Exchange Commission;
(f) promptly after a responsible officer of Lessee becoming aware of the
existence thereof, an Officer's Certificate stating that a Default or Event of
Default has occurred and specifying the nature and period of existence thereof
and what action Lessee has taken or is taking or proposes to take with respect
thereto, provided, however, that the reporting of any such condition or event
shall not affect any of the remedies available to Lessor under this Lease;
(g) within 120 days after the close of each year, unaudited operating
income statements before interest expense and income tax for each major
operating group in existence for the reporting period and in formats used by
management of Lessee at the time;
(h) within 120 days after the close of each year, a statement of Operating
Expenses for the previous year, certified as being true and correct by the chief
financial officer of Lessee;
(i) from time to time such other information as Lessor may reasonably
request.
In addition to furnishing the foregoing items to Lessor, Lessee will permit
any Person designated by Lessor in writing, at the expense of Lessor, and
subject to such limitations as Lessee may reasonably impose to ensure compliance
with any applicable legal or contractual restrictions, to visit and inspect any
of the properties of Lessee, to examine the corporate books and financial
records of Lessee (other than income tax records) and to make copies thereof or
extracts therefrom, and to discuss the affairs, finances and accounts of Lessee
with the principal officers of Lessee, all at such reasonable times and as often
as Lessor may reasonably request.
3
<PAGE>
2.2 Amendment to Section 37.2(b). The text of Section 37.2(b) of the Lease
shall be deleted in its entirety and replaced with the following text such that
Section 37.2(b), as revised, shall read in its entirety as follows:
(b) Neither Lessee nor any of its Subsidiaries shall incur any Funded Debt
unless immediately thereafter, upon giving pro forma effect thereto, Cash Flow
Coverage of Fixed Charges would exceed (i) 1.1 at each quarterly calculation
date commencing December 31, 1993, through and including December 31, 1994, (ii)
1.25 at each quarterly calculation date after January 1, 1995, through and
including December 31, 1995, and (iii) 2.0 at each quarterly calculation date
after December 31, 1995, and Funded Debt of Lessee and its Subsidiaries, on a
consolidated basis, would not exceed 55% of the Total Capital of Lessee and its
Subsidiaries, on a consolidated basis. For purposes of the foregoing, "Cash Flow
Coverage of Fixed Charges" means, for the four fiscal quarterly periods ending
immediately prior to the date of determination thereof, the ratio of Net Income
before taxes plus depreciation and interest expense and lease rentals minus
capital expenditures (other than a Known Modification) to interest expense and
lease rentals and dividends on all mandatorily redeemable preferred stock of
Lessee and its Subsidiaries.
2.3 Amendment to Section 37.2(c). Section 37.2(c) of the Lease is hereby
deleted in its entirety.
2.4 Amendment to Section 37.2(e). The text of Section 37.2(e) of the Lease
is hereby deleted in its entirety and replaced with the following text such that
Section 37.2(e), as revised, reads in its entirety as follows:
(e) Lessee shall not pay or declare any Restricted Payment (other than as
permitted by Section 37.2(f)) if:
(i) immediately after the making thereof Funded Debt of Lessee and its
Subsidiaries, on a consolidated basis, would exceed 50% of Total Capital of
Lessee and its Subsidiaries, on a consolidated basis; or
(ii) the making thereof would cause Lessee's Net Worth to be less than $800
million; or
(iii) there shall exist any Default or Event of Default under this Lease;
or
(iv) such payment or declaration would cause an Event of Default to occur
under subsection 20(i) hereof.
4
<PAGE>
2.5 Amendment to Section 37.2(f). The text of Section 37.2(f) of the Lease
is hereby deleted in its entirety and replaced with the following text such that
Section 37.2(f), as revised, reads in its entirety as follows:
(f) Neither Lessee nor any of its Subsidiaries shall make or permit to
exist any loan or advance to Tenneco Inc. or any of its Affiliates except loans
or advances to Tenneco Inc. that are payable upon demand, bear interest payable
at least annually, at a rate equal to the prime rate as quoted by Morgan
Guaranty Trust Company of New York from time to time and are made out of cash
generated in the ordinary course of operations of Lessee or its Subsidiaries and
only if (I) Tenneco Inc. owns, directly or indirectly, all the outstanding
securities of Lessee and either (i) all publicly held debt obligations of
Tenneco Inc. having a maturity of one year or more from the date of issue are
rated at least investment grade by Moody's and Standard & Poors, or (ii)
arrangements have been made which are in all respects satisfactory to Lessor,
whereby return of the amount loaned or advanced is unconditionally guaranteed,
(II) Funded Debt of Lessee and its Subsidiaries, on a consolidated basis, does
not exceed 55% of the excess of Total Capital of Lessee and its Subsidiaries, on
a consolidated basis, over the aggregate amount of all loans and advances to
Tenneco Inc. and (III) no Default or Event of Default exists.
2.6 Amendments to Section 39.
(a) The defined terms "Fixed Charges" and "Pretax Cash Flow", as defined in
the Lease, are hereby deleted in their entirety without replacement.
(b) The definitions of the terms "Funded Debt", "Net Worth" and "Total
Capital" as set forth in the Lease are hereby deleted and replaced in their
entirety by the following definitions:
Funded Debt: of any Person on any date means (i) all Debt (except Debt for
borrowed money with a maturity of less than one year from the date of
determination of Funded Debt) and (ii) that portion of any Debt for borrowed
money with a maturity of less than one year from the date of determination of
Funded Debt that was outstanding at any time during the 12 full calendar months
preceding the date as of which Funded Debt is being determined which is equal to
the lowest daily average principal amount of all such Debt that was outstanding
for any period of 30 consecutive days during such 12-month period.
5
<PAGE>
Net Worth: of any Person on any date means the sum or the capital stock and
surplus (including earned surplus, capital surplus and the balance of the
current profit and loss account not transferred to surplus) accounts of such
Person on such date which would appear on a balance sheet of such Person on such
date prepared in accordance with generally accepted accounting principals, minus
any amounts attributable to good will added to such balance sheet after December
31, 1990; provided, however, that the resulting Net Worth shall be adjusted so
as to eliminate the effect of implementation of Statement of Financial
Accounting Standards Nos. 106 and 109 of the Financial Accounting Standards
Board.
Total Capital: of any Person means Funded Debt of such Person plus Net
Worth of such Person.
(c) Section 39 of the Lease is hereby further amended by adding the
following definitions:
Affiliate: of the specified Person means any other Person directly or
indirectly controlling, controlled by or under direct or indirect common control
with, such specified Person.
Debt: of any Person means at any date, without duplication, (i) all
obligations for borrowed money created or assumed by such Person, (ii) all
obligations of such Person to pay the deferred purchase price of property or
services, except such obligations arising in the ordinary course of business and
maturing less than one year from the date of creation thereof, (iii) all
obligations of such Person as lessee under capital leases and the net present
value (discounted semiannually in each case at a rate of 9% per annum) of all
rentals under operating lease (excluding (x) all operating leases which are of
motor vehicles or office equipment with an original term equal to or less than 5
years and (y) all other operating leases the net present value of which, as so
determined, is less than $5,000,000 individually and not more than $30,000,000
in the aggregate), (iv) all Debt of others secured by a Lien on any asset of
such Person and upon which such Person customarily pays interest, whether or not
such Debt is assumed by such Person, (v) the aggregate liquidation value of all
preferred stock of such Person that is mandatorily redeemable on any date on or
before the date which is 22 1/2 years from January 30, 1991, and (vi) to the
extent required to be reflected on a balance sheet of such Person prepared in
accordance with generally accepted accounting principals or in the footnotes
thereto, all
6
<PAGE>
Debt of others directly or indirectly guaranteed by such Person.
Known Modification: those capital expenditures identified in Exhibit B
hereto which have been or are to be financed by General Electric Capital
Corporation pursuant to a certain Participation Agreement dated as of January
30, 1991.
Net Income: of any Person with reference to any period means the net income
(or deficit) of such Person for such period, after deducting all operating
expenses, provisions for all taxes and reserves (including reserves for deferred
income taxes) and all other proper deductions, all determined in accordance with
generally accepted accounting principles; provided that there shall be excluded
(a) the income (or deficit) of any Subsidiary of such Person to the extent that
any such Subsidiary is prevented by contract or by law from paying dividends or
similar distributions, (b) any extraordinary gain, (c) any write-up of any
asset, (d) any gain arising from the acquisition of any securities or the
extinguishment of any Debt of such Person, (e) any net income or gain (but not
any net loss) during such period from any change in accounting, from any
discontinued operations or the disposition thereof, from any extraordinary
events or from any prior period adjustments and (f) in the case of a successor
to such Person by consolidation or merger or as a transferee of all or
substantially all its assets, any earnings of the successor prior to such
consolidation, merger or transfer of assets.
Restricted Payments: means (a) any loan or advance to any Affiliate of
Lessee, (b) the declaration or payment of any dividend on, or the incurrence of
any liability to make any other payment or distribution, direct or indirect, on
account of, any shares of any class of stock of Lessee now or hereafter
outstanding, except a dividend payable solely in shares of such class, and (c)
any payment or distribution on account of any redemption, retirement, purchase
or other acquisition, direct or indirect, of any shares of any class of stock of
Lessee now or hereafter outstanding, or of any warrants, options or other rights
to acquire any such shares of stock, or any other payment or distribution,
direct or indirect, in respect thereof.
7
<PAGE>
III.
ADDITIONAL AGREEMENTS
3.1 Information Provided by Lessee. Copies of all information required to
be provided to the Lessor by Lessee pursuant to Section 3 of the Lease shall
also be provided to the following parties at the addresses set forth below:
Metropolitan Life Insurance Company:
<TABLE>
<CAPTION>
<S> <C> <C>
Metropolitan Life Insurance Co. Metropolitan Life Insurance Co. Metropolitan Life Insurance Co.
Corporate Investments 8717 West 110th Street Agricultural Investments
One Lincoln Centre Suite 700 East Central Branch Office
Suite 800 Overland Park, Kansas 66210-2101 2230 Chester Boulevard
Oakbrook Terrace, Illinois 60181 Attention: Senior Vice President Richmond, Indiana 47374-1288
Attn: Vice President Attn: Manager
John Hancock Mutual Life Insurance Company:
John Hancock Mutual Life Insurance Company John Hancock Mutual Life
Bond and Corporate Finance Department 12 Siebald Street, Suite 101
200 Clarendon Street, 57th Floor Statesboro, Georgia 30458
Boston, Massachusetts 02117 Attn: Mr. Amos Connell
Attn: Mr. Ken Hines
</TABLE>
3.2 Waiver. Lessor hereby waives any violation of or non-compliance by
Lessee with subsections (b),(c), (e) and (f) of Section 37.2 of the Lease for
the period commencing and including December 31, 1993, through and including the
date this agreement is executed to the extent that any such violation or non-
compliance has occurred.
3.3 No Dividends. During the period commencing December 31, 1993 and ending
December 31, 1995, unless otherwise restricted in the Lease, Lessee shall not
pay or declare any dividend unless immediately thereafter Lessee would be
permitted to incur an additional $1 of Funded Debt.
3.4 Agreement Regarding Sale of Timberlands. Contemporaneously with the
execution of this Amendment, the Lessor and the Lessee shall have entered into
an agreement regarding sales of Non-Strategic Lands and Pre-Approved Property
(the "Letter Agreement"), the form and terms of which Letter Agreement are set
forth on Exhibit C hereto and incorporated herein by this reference for all
purposes as if the terms and provisions thereof were fully stated herein.
IV.
REPRESENTATIONS AND WARRANTIES OF LESSEE
Lessee hereby makes the following additional representations and warranties
under the Lease as of the date hereof:
8
<PAGE>
(a) Lessee is a corporation duly incorporated and validly existing
under the laws of the state of Delaware, is in good standing therein, is duly
qualified to do business and is in good standing in the States of Florida,
Georgia, Michigan and Wisconsin, and has full corporate power and authority to
enter into the Lease and this Amendment and to perform its obligations
thereunder and hereunder;
(b) The execution and delivery of the Lease and this Amendment by
Lessee and the performance of its obligations thereunder and hereunder have been
duly authorized by all necessary corporate action and will not violate any
provision of law or of its charter or by-laws or result in the breach of or
constitute a default under any material indenture or other agreement or
instrument to which Lessee is a party or by which Lessee or the Property may be
bound or affected;
(c) The consolidated balance sheet of the Lessee and its Subsidiaries
dated December 31, 1993, and the related consolidated statements of income,
retained earnings and cash flow which have been delivered to Lessor by Lessee
have been prepared in accordance with GAAP applied on a consistent basis
throughout the period involved and fairly present (i) the financial condition of
Lessee and its Subsidiaries as of the date of such balance sheet, and (ii) the
results of operations of the Lessee and its Subsidiaries for the period then
ended;
(d) No material adverse change in the business, operations,
properties, assets or financial condition of the Lessee has occurred subsequent
to December 31, 1993;
(e) Lessee possesses all trademarks, trade names, copyrights, patents,
governmental licenses, franchises, certificates, consents, permits and
approvals necessary to enable it to carry on its business in all material
respects as now conducted and to own or operate the properties material to its
business as now owned or operated, without conflict with rights of others, and
that all such trademarks, trade names, copyrights, patents, governmental
licenses, franchises, certificates, consents, permits and approvals which are
material to Lessee are valid and subsisting;
(f) No actions, suits or proceedings are pending or, to the knowledge
of the Lessee, threatened against or affecting the Lessee at law or in equity
before or by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, or
before any arbitrator of any kind, which involve any transaction herein
contemplated or would have a material adverse change on the business,
operations, properties, assets or financial condition of the Lessee; and that
Lessee is not in default or in violation of any Legal Requirement which would
have a material adverse effect on its ability to perform any of its obligations
hereunder (except as
9
<PAGE>
related to the incurrence of debt under the Valdosta, Tomahawk and Counce leases
which are currently under negotiation);
(g) The Packaging Corporation of America Amendments to Existing
Leveraged Lease Documentation March 1994 prepared by J.P. Morgan (the
"Memorandum"), relating to the amendment of the Lease, a copy of which was
delivered to Lessor, does not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
contained therein not misleading in light of the circumstances in which they
were made.
(h) No employee benefit plan established or maintained by the Lessee,
which is subject to Part 3 of Subtitle B of Title I of ERISA, had an accumulated
funding deficiency (as such term is defined in Section 302 of ERISA) as of the
last day of the most recent fiscal year of such plan ended prior to the date
hereof which was or would have been material to the Lessee and its Subsidiaries
taken as a whole; no liability to the Pension Benefit Guaranty Corporation has
been, or is expected by Lessee to be, incurred with respect to any employee
benefit plan maintained by the Lessee or any of its Subsidiaries, which is
subject to Part 3 of Subtitle B of Title I of ERISA, which would be material to
the Lessee and its Subsidiaries taken as a whole; and Lessee is in compliance in
all material respects with all applicable provisions of ERISA and the
regulations and published interpretations thereunder;
(i) As of the date hereof, Lessee has filed all tax returns which are
required to be filed by it and has paid all taxes shown to be due pursuant to
such returns and all other taxes, assessments, fees and other governmental
charges upon the Lessee and upon its properties, assets, income and franchises,
except those being contested by the Lessee, those the nonpayment of which would
not have a material adverse effect on the Lessee, or those which are not yet due
and payable; and
(j) All filings and notifications required to be made by Lessee and
its parent company, Tenneco, in connection with the Lease and this Amendment and
the transactions contemplated by the Purchase Agreement and the Acquisition
Agreement under the provisions of the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, have been made, and the applicable waiting period,
including any extensions thereof, has expired. No additional action of, or
filing with, any governmental or public body or authority is required in
connection with the execution, delivery and performance of the Lease or this
Amendment (other than routine filings with the Securities and Exchange
Commission and other governmental entities required or contemplated by the
Lease).
10
<PAGE>
V.
MISCELLANEOUS
5.1 Remainder in Full Force and Effect. All terms and provisions of the
Lease shall remain in full force and effect, except as amended hereby or waived.
5.2 Counterparts. This Amendment may be executed in any number of
counterparts, no one of which needs to be executed by all the parties, and this
Amendment shall be binding upon all the parties with the same force and effect
as if all the parties had signed the same document, and each such signed
counterpart shall constitute an original of the Amendment.
5.3 Successors and Assigns. This Amendment shall be binding upon and shall
inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto, subject to any limitations on assignment set
forth in the Lease.
IN WITNESS WHEREOF, Lessor and Lessee, acting through their duly elected
and authorized officers, have caused this Third Amendment to Timberland Lease to
be executed under seal as of the day and year first above written.
LESSOR:
FOUR STATES TIMBER VENTURE, a
Georgia Joint Venture, by both of
its joint venturers
Signed, sealed and By: John Hancock Mutual Life
delivered in the presence Insurance Company
of:
By: /s/ Ken Hines, Jr.
--------------------------------
- - --------------------------- Name: Ken Hines, Jr.
Name: Title: Sr. Investment Officer
----------------------
Witness
Attest:/s/ James H. Young
----------------------------
- - --------------------------- Name: James H. Young
Name: Title: Assistant Secretary
----------------------
Witness
[CORPORATE SEAL]
/s/ Marie C. O'Brien
- - ---------------------------
Name: Marie C. O'Brien
Notary Public
[NOTARIAL SEAL]
11
<PAGE>
Signed, sealed and By: Metropolitan Life Insurance
delivered in the presence Company
of:
By:
- - ----------------------------- -------------------------------
Name: Name:
------------------------ --------------------------
Witness Title:
-------------------------
Attest:
- - ----------------------------- ---------------------------
Name: Name:
------------------------ --------------------------
Witness Title:
-------------------------
[CORPORATE SEAL]
- - ------------------------------
Name:
-------------------------
Notary Public
[NOTARIAL SEAL]
Signed, sealed and LESSEE:
delivered in the presence
of: PACKAGING CORPORATION OF AMERICA
/s/ Terrance M. Phillips
- - --------------------------
Name: Terrance M. Phillips By: /s/ R. A. Page
--------------------- --------------------------------
Witness Name: R. A. Page
---------------------------
Title: Vice President Chief
Financial Officer
--------------------------
/s/ Armina Will
- - --------------------------
Name: Armina Will Attest: /s/ Jaime Taronji, Jr.
--------------------- ----------------------------
Witness Name: Jaime Taronji, Jr.
---------------------------
Title: Assistant Secretary
--------------------------
/s/ Ramona Christian
- - -------------------------- [CORPORATE SEAL]
Name:
---------------------
Notary Public
[NOTARIAL SEAL] OFFICIAL SEAL
RAMONA CHRISTIAN
NOTARY PUBLIC STATE OF ILLINOIS
MY COMMISSION EXP. OCT. 9, 1996
12
<PAGE>
Signed, sealed and By: Metropolitan Life Insurance
delivered in the presence Company
of:
/s/ Sherrill D. Ciuba By: /s/ Gerald J. Hoenig
- - ----------------------------- -------------------------------
Name: Sherrill D. Ciuba Name: Gerald J. Hoenig
------------------------ --------------------------
Witness Title: Associate General Counsel
-------------------------
/s/ Kathleen D. Crady Attest: /s/ Nancy J. Hammer
- - ----------------------------- ---------------------------
Name: Kathleen D. Crady Name: Nancy J. Hammer
------------------------ --------------------------
Witness Title: Assistant Secretary
-------------------------
[CORPORATE SEAL]
/s/ Sandra R. Newman
- - ------------------------------
Name: Sandra R. Newman
-------------------------
Notary Public
[NOTARIAL SEAL]
Notary Public, Georgia, State at Large
My Commission Expires Jan. 12, 1998
Signed, sealed and LESSEE:
delivered in the presence
of: PACKAGING CORPORATION OF AMERICA
By:
- - ------------------------- --------------------------------
Name: Name:
-------------------- ---------------------------
Witness Title:
--------------------------
Attest:
- - ------------------------- ----------------------------
Name: Name:
-------------------- ---------------------------
Witness Title:
--------------------------
- - ------------------------- [CORPORATE SEAL]
Name:
--------------------
Notary Public
[NOTARIAL SEAL]
12
<PAGE>
******* ACKNOWLEDGMENTS *******
STATE OF ILLINOIS)
:ss
COUNTY OF COOK)
The foregoing instrument was acknowledged before me this 25th day of
May, 1994 by Robert Page, as Vice President and Chief Financial Officer,
respectively, of Packaging Corporation of America, a Delaware corporation, on
behalf of the corporation.
/s/ Ramona Christian
-------------------------------
OFFICIAL SEAL Name:
RAMONA CHRISTIAN --------------------------
NOTARY PUBLIC STATE OF ILLINOIS Notary Public,
MY COMMISSION EXP. OCT. 9, 1996 -----------------
County,
------------------------
My Commission Expires:___________
[NOTARIAL SEAL]
STATE OF
:ss
COUNTY OF
The foregoing instrument was acknowledged before me this _________
day of ___________,199_ by__________________________ and_____________________,
as ___________________________________ and __________________________________,
respectively, of Metropolitan Life Insurance Company, a New York corporation, as
joint venturer of Four States Timber Venture, a Georgia joint venture, on behalf
of the joint venture.
--------------------------------
Name:
---------------------------
Notary Public,
------------------
County,
-------------------------
My Commission Expires:
----------
[NOTARIAL SEAL]
13
<PAGE>
COMMONWEALTH OF MASSACHUSETTS )
) : ss
COUNTY OF SUFFOLK )
The foregoing instrument was acknowledged before me this 25th day of
May, 1994 by Ken Hines and Jim Young, as Senior Investment Officer and Assistant
Secretary, respectively, of John Hancock Mutual Life Insurance Company, a
Massachusetts corporation, as joint venturer of Four States Timber Venture, a
Georgia joint venture, on behalf of the joint venture.
/s/ Marie C. O'Brien
------------------------------
Name: Marie C. O'Brien
-------------------------
Notary Public,
----------------
County, Suffolk
-----------------------
My Commission Expires: AUGUST 9, 1996
---------------
[NOTARIAL SEAL]
14
<PAGE>
EXHIBIT A
To Four States Timber Venture
c/o John Hancock Mutual Life Insurance Company
Metropolitan Life Insurance Company
We have audited, in accordance with generally accepted auditing standards, the
consolidated balance sheet of Packaging Corporation of America (a Delaware
corporation) as of December 31, 19__, and the related consolidated statements of
income, stockholder's equity and cash flows for the year then ended, and have
issued our report thereon dated February ___, 19__.
In connection with our audit, nothing came to our attention that caused us to
believe that Packaging Corporation of America was not in compliance with the
terms, covenants, provisions or conditions of Section 20 regarding events of
default under the Timberland Lease dated as of January 31, 1991, between Four
States Timber Venture and Packaging Corporation of America, insofar as they
related to accounting matters. However, our audit was not directed primarily
toward obtaining knowledge of such noncompliance.
This report is intended solely for the information and use of the Board of
Directors and management of Packaging Corporation of America and Four States
Timber Venture and should not be used for any other purpose.
Date:
----------------------------
15
<PAGE>
EXHIBIT B
Revised
1-25-91
Tomahawk & Valdosta Non-Severable
Modifications and Improvements
(Thousands of Dollars)
<TABLE>
<CAPTION>
Total 1991 1992 1993
------ ------ ------- ------
<S> <C> <C> <C> <C>
Valdosta
- - --------
TRS Fibreline Carryover 2,300 2,300
TRS Recovery 16,500 7,500 5,000 4,000
Papermachine 38,900 9,000 18,000 11,900
New Lime Kiln 18,100 8,100 10,000
Powerhouse Control Center 1,200 800 400
No. 4 Evaporator 1,200 400 800
Woodyard 2,300 1,400 900
Boiler Alterations 5,000 1,000 2,000 2,000
Tomahawk
- - --------
Woodroom 3,600 300 3,300
Pulp Mill 24,000 900 15,000 8,100
#2 Papermachine 1,700 1,700
#4 Papermachine 8,900 1,900 2,000 5,000
Steam Generation 3,400 1,400 500 1,500
------- ------ ------ ------
Total 127,100 34,900 58,000 34,200
</TABLE>
16
<PAGE>
EXHIBIT C
Packaging Corporation of America [Tenneco Logo Appears Here]
A Tenneco Company
Corporate Offices
1603 Orrington Avenue
Evanston, Illinois 80201-3853
(708) 492-5713
May 24, 1994
Mr. E. Kendall Hines, Jr.
John Hancock Mutual Life Insurance Company
John Hancock Tower - 57th Floor
200 Clarendon Street
Boston, MA 02117
Dear Ken:
This document constitutes a letter of agreement (hereinafter known as "Letter
of Agreement") which states the revised agreement of the parties as to matters
covered in Sections 35.2 and 39 of the Lease Agreement between Four States
Timber Venture ("Four States") and Packaging Corporation of America ("PCA")
dated January 31, 1991. All capitalized terms not otherwise defined herein shall
have the meaning ascribed to them in the Lease Agreement. This revised agreement
is limited to the following items:
1. No additions to Pre-Approved Property are required to be made until at
least 50% (minimum 7,833 acres) of the existing 15,665 acres of
Non-Strategic Lands as of April 19, 1994 have been sold; except, however,
at Four States' option, additional lands may be added to enhance the sale
of undesirable Pre-Approved Property.
2. PCA shall use its best efforts to market Non-Strategic Lands and
Pre-Approved Property according to the following priorities:
Northern Lands:
---------------
Priority I All remaining Non-Strategic Lands
Priority II All remaining Pre-Approved Property
Southern Lands:
---------------
Priority I All remaining Non-Strategic Lands
Priority II Pre-Approved Property in the Southern Timberlands
containing 50% or greater hardwood, cypress, and
non-productive land types
Priority III All other Pre-Approved Property
[PCA Logo Appears Here]
[Printed on Recycled Paper Logo Appears Here]
<PAGE>
Mr. E. Kendall Hines
May 24, 1994
Page Two
3. The Net Sales Proceeds to Four States on land sales shall be as follows:
Priority I and II The Net Sales Proceeds to Four States shall be the
greater of A or B:
A - Minimum Return Price -
The following changes shall be used to calculate the Minimum Return
Price:
(i) Minimum Return Rate shall be 10.75%, and
(ii) Allocated Base Value, plus 70% of the excess (as
determined in accordance with the definition of Minimum
Return Price in the Lease), shall be used to calculate the
amount defined in section (i) of the definition of Minimum
Return Price.
B - Make-Whole Price
Priority III No change from the Lease Agreement
4. The current Pre-Approved Property pool shall be reduced through sales
down to 60,000 acres. Once 50% of the Non-Strategic Lands have been sold
(7,833 acres), Four States shall maintain the pool of Pre-Approved
Property at 60,000 acres.
5. All land sales with an Allocated Base Value of less than $1,000,000 will
be pooled on an annual basis, rather than on a quarterly basis, and shall
be subject to the following:
a. At the end of the first quarter, a tentative settlement will be made
as provided in Section 35.2 of the Lease Agreement. In the event Net
Sales Proceeds exceed the greater of Minimum Return Price or the
Make-Whole Price (such an excess is hereafter referred to as an
"Excess"), each party will receive its share as provided in Section
35.2 of the Lease Agreement. In the event PCA is required to make up
a shortage in the amount due Four States, all Net Sales Proceeds will
be distributed to Four States, and a credit due to Four States will
be established.
b. At the end of the second quarter, a tentative settlement will be made
based on all sales occurring during the first and second quarters, as
in item 5(a) above. If there is an Excess, each party will receive
its share. If PCA is required to make up a shortage in the amount due
Four States, all Net Sales Proceeds will be distributed to Four
States, and a revised credit due to Four States will be established.
<PAGE>
Mr. E. Kendall Hines
May 24, 1994
Page Three
c. The above process will be continued through the third and fourth
quarters and a final cash settlement will be made at the end of the
fourth quarter of the calendar year with calculations to be made as if
all such sales were a single transaction closing on the 1st day of the
calendar year then ended.
d. Separate pools will be maintained for (i) Priority I and II lands, and
(ii) Priority III lands and other lands.
e. If at any time during the calendar year, the sum of all unpaid credits
to Four States from both (i) Priority I and II lands, and (ii)
Priority III lands and other lands exceeds $500,000, Lessee will
within ten days pay the Lessor the entire credit amount.
Notwithstanding any language to the contrary in the Lease Agreement, or any
prior amendments to the Lease Agreement, and contingent upon acceptance of these
changes by Four States, PCA agrees to abide by this Letter of Agreement during
the Initial Lease Term, or until both parties mutually consent to any further
revisions.
If you accept the terms of this Letter of Agreement, please sign the document
below, and return an original copy to my attention.
Sincerely,
/s/ Robert D. Harlow Reviewed
- - ---------------------
Robert D. Harlow PCA Law Department
Senior Vice President
Primary Mills Group By /s/ J.R. Olsen
--------------------
Agreed to this day of , 1994
---------- -----------
- - --------------------------------------------------------
Four States Timber Venture
by John Hancock Mutual Life Insurance Co., Joint Venturer
E. Kendall Hines
Sr. Investment Officer
<PAGE>
EXHIBIT 12
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
COMBINED WITH 50% OWNED UNCONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Income from continuing operations.................... $361 $218 $258 $238 $165
Add:
Interest........................................... 216 195 160 104 101
Portion of rentals representative of interest
factor............................................ 54 60 57 52 47
Preferred stock dividend requirements of majority-
owned subsidiaries................................ 21 21 23 -- --
Income tax expense and other taxes on income....... 163 194 231 114 115
Amortization of interest capitalized............... 2 2 2 1 --
Undistributed (earnings) losses of affiliated
companies in which less than a 50% voting interest
is owned.......................................... 2 (1) -- -- --
---- ---- ---- ---- ----
Earnings as defined.............................. $819 $689 $731 $509 $428
==== ==== ==== ==== ====
Interest............................................. $216 $195 $160 $104 $101
Interest capitalized................................. 2 6 5 2 1
Portion of rentals representative of interest factor. 54 60 57 52 47
Preferred stock dividend requirements of majority-
owned subsidiaries on a pre-tax basis............... 33 37 42 -- --
---- ---- ---- ---- ----
Fixed charges as defined......................... $305 $298 $264 $158 $149
==== ==== ==== ==== ====
Ratio of earnings to fixed charges................... 2.69 2.31 2.77 3.22 2.87
==== ==== ==== ==== ====
</TABLE>
<PAGE>
EXHIBIT 21
TENNECO INC. AND SUBSIDIARIES AND AFFILIATES
As of December 31, 1997
<TABLE>
<S> <C>
TENNECO INC. (DELAWARE)
Aircal S.A. (France)................................................................. 100%
(Tenneco Inc. owns all shares except seven which are held by its four directors
and Tenneco Packaging Inc., Tenneco Protective Packaging Inc. and Tenneco
Packaging International Holdings Inc.)
Airpack Japan K.K. (Japan)........................................................... 100
Airpack Polska Sp.Z.O.O. (Poland).................................................... 100
Airpack SPA (Italy).................................................................. 98
(Tenneco Inc. owns 98%; Tenneco Packaging International Holdings Inc.
owns 2%)
Altapack SPA (Italy).............................................................. 100
Spaac Srl (Italy) (In Liquidation)................................................ 100
Autopartes Walker, S.A. de C.V. (Mexico)............................................. 99.98
(Tenneco Inc. owns 99.98%; and Tenneco Automotive Inc. owns .02%)
Proveedora Walker S.A. de C.V. (Mexico).......................................... 99.99
(Autopartes Walker , S.A. de C.V. owns 49,999 shares; and Tenneco
Automotive Inc. owns 1 share)
Tenneco Automotive Servicios de Mexico, S.A. de C.V. (Mexico)............... 99.99
(Proveedora Walker S.A. de C.V. owns 49,999 shares, and
Monroe-Mexico, S.A. de C.V. owns 1 share)
Counce Limited Partnership (Texas Limited Partnership)............................... 95
(Tenneco Inc. owns 95%, as Limited Partner; and Tenneco Packaging Leasing
Company owns 5%, as General Partner)
Counce Finance Corporation (Delaware)............................................. 100
Greenmont Insurance Company (Vermont)................................................ 100
Kobusch Packaging Egypt Ltd. (Egypt)................................................. 99
(Tenneco Inc. owns 99%; and Kobusch Folien GmbH owns 1% or 140 shares)
Monroe-Mexico S.A. de C.V. (Mexico).................................................. 0.01
(Tenneco Inc. owns 0.01%; and Tenneco Automotive Inc. owns 99.99%)
Omni-Pac GmbH (Germany).............................................................. 1
(Tenneco Deutschland Holdinggesellschaft mbH owns 99%; and Tenneco Inc. owns 1%)
Omni-Pac S.A.R.L. (France)........................................................ 3
(Omni-Pac GmbH owns 3%; and Tenneco Inc. owns 97%)
Omni-Pac S.A.R.L. (France)........................................................... 97
(Tenneco Inc. owns 97%; and Omni-Pac GmbH owns 3%)
Protective & Flexible Packaging B.V. (Netherlands)................................... 100
Nederlandse Pillo-Pak Maatshcappij B.V. (Netherlands)............................. 100
Scriptoria N.V. (Belgium)............................................................ 99.6
(Tenneco Inc. owns approximately 99.6%; Tenneco Packaging International Holdings
Inc. owns 18 shares; and the remainder of the shares are held by unknown
third parties)
Sentinel GmbH Verpackungen (Germany).............................................. less than 1
(Tenneco Inc. owns >99%; and Scriptoria N.V. owns less than 1%)
</TABLE>
1
<PAGE>
<TABLE>
<S> <C>
Subsidiaries of Tenneco Inc. (Delaware)
Sentinel GmbH Verpackungen (Germany)................................................. 100%
(Tenneco Inc. owns >99%; and Scriptoria N.V. owns less than 1%)
Tenneco Asia Inc. (Delaware)......................................................... 100
Tenneco Asheville Inc. (Delaware).................................................... 100
Tenneco Automotive Foreign Sales Corporation Limited (Jamaica)....................... 1
(Tenneco Inc. owns 1%; and Tenneco Automotive Inc. owns 99%)
Tenneco Automotive Inc. (Delaware)................................................... 100
(Tenneco Inc. owns 100% of the common stock; and Tenneco Packaging Inc. owns 100%
of the non-voting preferred stock.)
Autopartes Walker, S.A. de C.V. (Mexico).......................................... 0.02
(Tenneco Inc. owns 99.98%; Tenneco Automotive Inc. owns 0.02%. The
subsidiaries of Autopartes Walker are listed on page 1 hereof.)
Beijing Monroe Automobile Shock Absorber Company Ltd (Peoples Republic of China).. 51
(Tenneco Automotive Inc. owns 51%; and Beijing Automotive Industry
Corporation, an unaffiliated company, owns 49%)
Consorcio Terranova S.A. de C.V. (Mexico)......................................... 99.99
(Tenneco Automotive Inc. owns 99.99%; and Josan Latinamericana S.A. de C.V., an
unaffiliated company, owns 0.01%)
Dalian Walker-Gillet Muffler Co. Ltd. (Peoples Republic of China)................. 55
(Tenneco Automotive Inc. owns 55%; and non-affiliates own 45%)
McPherson Strut Company Inc. (Delaware)........................................... 100
Monroe Auto Pecas S.A. (Brazil)................................................... 6.33
(Tenneco Automotive Inc. owns 6.33%; Walker do Brasil Industria Auto Pecas
Ltda. owns 79.19%; and Monteiro Aranha S/A, an unaffiliated company,
owns 14.48%)
Monroe-Mexico S.A. de C.V. (Mexico)............................................... 99.99
(Tenneco Automotive Inc. owns 99.99%; and Tenneco Inc. owns 0.01%)
Tenneco Automotive Servicios Mexico, S.A. de C.V. (Mexico)..................... 0.01
(Monroe-Mexico, S.A. de C.V. owns 1 share, and Proveedora Walker
S.A. de C.V. owns 99.99%)
Precision Modular Assembly Corp. (Delaware)....................................... 100
Proveedora Walker S.A. de C.V. (Mexico)........................................... less than 1
(Tenneco Automotive Inc. owns 1 share; and Autopartes Walker S.A. de C.V. owns
49,999 shares. The subsidiaries of Proveedora Walker S.A. de C.V. are listed
above.)
Rancho Industries Europe B.V. (Netherlands)....................................... 100
Tenneco Automotive Foreign Sales Corporation Limited (Jamaica).................... 99
(Tenneco Automotive Inc. owns 99%; and Tenneco Inc. owns 1%)
Tenneco Automotive International Sales Corporation (Delaware)/1/.................. 100
Tenneco Automotive Japan Ltd. (Japan)............................................. 100
</TABLE>
- - ---------
/1/ In dissolution.
2
<PAGE>
<TABLE>
<S> <C>
Subsidiaries of Tenneco Inc. (Delaware)
Subsidiaries of Tenneco Automotive Inc. (Delaware)
Tenneco International Holding Corp. (Delaware).................................... 4.77%
(Tenneco Inc. owns 95.23% of Common Stock and 75% of $8.00 Junior Preferred
Stock; Tenneco Automotive Inc. owns 4.77% of Common Stock and 25% of $8.00
Junior Preferred Stock; and MW Investors L.L.C., an unaffiliated company, owns
of Variable Rate Voting Participating Preferred Stock. The subsidiaries of
Tenneco International Holding Corp. are listed beginning on page 5 hereof.)
The Pullman Company (Delaware).................................................... 100
Monroe Axios Produtos de Elastomeros Limitada (Brazil)......................... 99
(The Pullman Company owns 99%; and Peabody International Corporation owns 1%)
Clevite Industries Inc. (Delaware)............................................. 100
Peabody International Corporation (Delaware)................................... 100
Monroe Axios Produtos de Elastomeros Limitada (Brazil)...................... 1
(Peabody International Corporation owns 1%; and The Pullman Company
owns 99%)
Barasset Corporation (Ohio)................................................. 100
Peabody Galion Corporation (Delaware)....................................... 100
Peabody Gordon-Piatt, Inc. (Delaware)....................................... 100
Peabody N.E., Inc. (Delaware)............................................... 100
Peabody World Trade Corporation (Delaware).................................. 100
Pullmex, S.A. de C.V. (Mexico)........................................... 0.1
(The Pullman Company owns 99.9%; and Peabody World Trade Corporation
owns 0.1%)
Peabody-Myers Corporation (Illinois)........................................ 100
Pullman Canada Ltd. (Canada)................................................ 61
(Peabody International Corporation owns 61%; and The Pullman Company
owns 39%)
Pullman Canada Ltd. (Canada)................................................... 39
(The Pullman Company owns 39%; and Peabody International Corporation
owns 61%)
Pullman Standard Inc. (Delaware)............................................... 100
Pullmex, S.A. de C.V. (Mexico)................................................. 99.9
(The Pullman Company owns 99.9%; and Peabody World Trade Corporation
owns 0.1%)
Tenneco Automotive Trading Company (Delaware)........................................ 100
Tenneco Brake, Inc. (Delaware)....................................................... 100
Tenneco Brazil Ltda. (Brazil)........................................................ 100
Walker do Brazil Industria Auto Pecas Ltda. (Brazil).............................. 100
Monroe Auto Pecas S.A. (Brazil)................................................ 79.19
(Walker do Brazil Industria Auto Pecas Ltda. owns 79.19%; Tenneco Automotive
Inc. owns 6.33%; and Monteiro Aranha S/A, an unaffiliated company
owns 14.48%)
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
Subsidiaries of Tenneco Inc. (Delaware)
Tenneco Business Services Holdings Inc. (Delaware)................................... 100%
Tenneco Business Services Inc. (Delaware)......................................... 100
Tenneco Deutschland Holdinggesellschaft mbH (Germany)................................ 99.97
(Tenneco Inc. owns 99.97%; and Atlas Bermoegensverwaltung, an unaffiliated
company, owns 0.03%)
GILLET Unternehmesverwaltungs GmbH (Germany)...................................... 100
Heinrich Gillet GmbH & Co. KG (Germany)........................................ 0.1
(GILLET Unternehmesverwaltungs GmbH owns 0.1%; and Tenneco
Deutschland Holdinggesellschaft mbH owns 99.9%. The subsidiaries of
Heinrich Gillet GmbH & Co. KG are listed below.)
Heinrich Gillet GmbH & Co. KG (Germany)........................................... 99.9
(Tenneco Deutschland Holdinggesellschaft mbH owns 99.9%; and GILLET
Unternehmesverwaltungs GmbH owns 0.1%)
Gillet-Abgassysteme Zwickau Gmbh (Germany)..................................... 100
Mastra-Gillet Industria e Comercio Ltda. (Brazil).............................. 50
(Heinrich Gillet GmbH & Co. KG owns 50%; and Mastra Industria e Comercio
Ltda., an unaffiliated company, owns 50%)
Montagewerk Abgastechnik Emden GmbH (Germany................................... 50
(Heinrich Gillet GmbH & Co. KG owns 50%; and an unaffiliated party
owns 50%)
Kobusch Folien GmbH (Germany)..................................................... 100
Kobusch Packaging Egypt Ltd. (Egypt)........................................... 1
(Tenneco Inc. owns 99%; and Kobusch Folien GmbH owns 1% or 140 shares)
Nord-West Verpackung GmbH (Germany)............................................... 100
Nord-West Wohnungsbau GmbH (Germany)........................................... 100
Omni-Pac Ekco GmbH Verpackungsmittel (Germany).................................... 100
Omni-Pac Poland Sp. z o.o. (Poland)............................................ 100
PCA Embalajes Espana, S.L. (Spain)............................................. 1
(Omni-Pac Ekco GmbH Verpackungsmittel owns 1%; and Tenneco Forest Products
GmbH owns 99%)
Omni-Pac GmbH (Germany)........................................................... 99
(Tenneco Deutschland Holdinggesellschaft mbH owns 99%; and Tenneco Inc.
owns 1%)
Omni-Pac ApS (Denmark)......................................................... 100
Omni-Pac A.B. (Sweden)......................................................... 100
Omni-Pac S.A.R.L. (France)..................................................... 3
(Omni-Pac GmbH owns 3%; and Tenneco Inc. owns 97%)
Sengewald Verpackungen GmbH (Germany)............................................. 100
Sengewald Klinikprodukte GmbH (Germany)........................................ 100
Sengewald France S.A.R.L. (France)/1/.......................................... 100
</TABLE>
- - ---------------
/1/ In dissolution
4
<PAGE>
<TABLE>
<S> <C>
Subsidiaries of Tenneco Inc. (Delaware)
Subsidiaries of Tenneco Deutschland Holdinggesellschaft mbH (Germany)
Walker Deutschland GmbH (Germany)................................................. 99%
(Tenneco Deutschland Holdinggesellschaft mbH owns 99%; and Tenneco Inc. owns 1%)
Walker Gillet (Europe) GmbH (Germany)............................................. 100
Tenneco Inc. (Nevada)................................................................ 100
Tenneco International Business Development Limited (Delaware)........................ 100
Tenneco International Finance Limited (United Kingdom)/1/............................ 100
Tenneco International Finance B.V. (Netherlands)..................................... 100
Tenneco International Holding Corp. (Delaware)....................................... 95.23
(Tenneco Inc. owns 95.23% of Common Stock and 75% of $8.00 Junior Preferred Stock;
Tenneco Automotive Inc. owns 4.77% of Common Stock and 25% of $8.00 Junior
Preferred Stock; and MW Investors L.L.C., an unaffiliated company, owns of
Variable Rate Voting Participating Preferred Stock)
Alupak, S.A. (Switzerland)........................................................ 100
Monroe Australia Pty. Limited (Australia)......................................... 100
Monroe Springs (Australia) Pty. Ltd. (Australia)............................... 100
Monroe Superannuation Pty. Ltd. (Australia).................................... 100
Walker Australia Pty. Limited (Australia)...................................... 100
Monroe Auto Equipement France, S.A. (France)...................................... 99.4
(Tenneco International Holding Corp. owns 99.4%; S.A. Monroe Europe N.V. owns
1 share; and each of Larry Stevenson, Geert Everaert, Theo Bonneu, Joe Budo and
Robert Vlassenroot own 1 share)
Monroe Equipement Coordination Center N.V. (Belgium)........................... 0.1
(S.A. Monroe Europe N.V. owns 99.9%; and Monroe Auto Equipement France, S.A.
owns 0.1%)
Monroe Packaging N.V. (Belgium)................................................ 0.1
(S.A. Monroe Europe N.V. owns 99.9%; and Monroe Auto Equipement France, S.A.
owns 0.1%)
Tenneco Automotive Italia S.r.l. (Italy)....................................... 15
(Tenneco International Holding Corp. owns 85%; and Monroe Auto Equipement
France, S.A. owns 15%)
S.A. Monroe Europe N.V. (Belgium)................................................. 100
Monroe Amortisor Imalat Ve Ticaret A.S. (Turkey)............................... 99.85
(S.A. Monroe Europe N.V. owns 99.85%; and various unaffiliated individual
stockholders own 0.15%)
</TABLE>
- - ---------------
/1/ In dissolution
5
<PAGE>
<TABLE>
<S> <C>
Subsidiaries of Tenneco Inc. (Delaware)
Subsidiaries of Tenneco International Holding Corp. (Delaware)
Subsidiaries of S.A. Monroe Europe N.V. (Belgium)
Monroe Auto Equipement France. S.A. (France)................................... less than 1%
(Tenneco International Holding Corp. owns 99.4%; S.A. Monroe Europe N.V.
owns 1 share; and each of Larry Stevenson, Geert Everaert, Theo Bonneu,
Joe Budo and Robert Vlassenroot own 1 share. The subsidiaries of Monroe
Auto Equipement France S.A. are listed above.)
Monroe Equipement Coordination Center N.V. (Belgium)........................... 99.9
(S.A. Monroe Europe N.V. owns 99.9%; and Monroe Auto Equipement France, S.A.
owns 0.1%)
Monroe Packaging N.V. (Belgium)................................................ 99.9
(S.A. Monroe Europe N.V. owns 99.9%; and Monroe Auto Equipement France, S.A.
owns 0.1%)
Tenneco Automotive Italia S.r.l. (Italy).......................................... 85
(Tenneco International Holding Corp. owns 85%; and Monroe Auto Equipement
France, S.A. owns 15%)
Tenneco Automotive Polska Sp. z.O.O............................................... 1
(Tenneco Espana Holdings, Inc. owns 99%; Tenneco International Holdings Corp.
owns 1%)
Tenneco Automotive Sweden A.B. (Sweden)........................................... 100
Tenneco Canada Inc. (Ontario)..................................................... 100
Tenneco Credit Canada Corporation (Alberta).................................... 100
Tenneco Espana Holdings, Inc. (Delaware).......................................... 100
Fric-Rot S.A.I.C. (Argentina).................................................. 48.72
(Tenneco Espana Holdings, Inc. owns 48.72%; and Maco Inversiones S.A.
owns 51.28%)
Maco Inversiones S.A. (Argentina).............................................. 100
Fric-Rot S.A.I.C. (Argentina)............................................... 51.28
(Maco Inversiones S.A. owns 51.28%; and Tenneco Espana Holdings, Inc.
owns 43.04%)
Monroe Springs (New Zealand) Pty. Ltd. (New Zealand)........................... 100
Monroe Czechia s.r.o. (Czech Republic)......................................... 100
Tenneco Automotive Iberica, S.A. (Spain)....................................... 100
Tenneco Packaging Hexacomb S.A. (Spain)..................................... 100
Tenneco Automotive Polska Sp. z.O.O. (Poland).................................. 99
(Tenneco Espana Holdings, Inc. owns 99%; Tenneco International Holdings
Corp. owns 1%)
Tenneco (Mauritius) Limited (Mauritius)........................................ 100
Hydraulics Limited (India).................................................. 51
(Tenneco (Mauritius) Limited owns 51% and Bangalore Union Services
Limited, an unaffiliated company, owns 49%)
Renowned Automotive Products Manufacturers Ltd. (India).................. 83
(Hydraulics Limited owns 83%; and non-affiliates own 17%)
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
Subsidiaries of Tenneco Inc. (Delaware)
Subsidiaries of Tenneco International Holding Corp. (Delaware)
Subsidiaries of Tenneco Espana Holdings, Inc. (Delaware)
Walker Argentina S.A.I.C. (Argentina).......................................... 100%
Tenneco Holdings Danmark A/S (Denmark)............................................ 100
Gillet Exhaust Technologie (Proprietary) Limited (South Africa)................ 100
Gillet Lazne Belohrad, s.r.o. (Czech Republic)................................. 100
Tenneco Automotive Holdings South Africa Pty. Ltd. (South Africa).............. 51
(Tenneco Holdings Danmark A/S owns 51%; and an unaffiliated party owns 49%)
Armstrong Hydraulics South Africa (Pty.) Ltd. (South Africa)................ 100
Armstrong Properties (Pty.) Ltd. (South Africa)............................. 100
Tenneco Automotive Port Elizabeth (Proprietary) Limited (South Africa)......... 100
Tenneco Automotive Portugal - Componentes para Automovel, S.A. (Portugal)...... 99.9
(Tenneco Holdings Danmark A/S owns 99.9%; and Walker Danmark A/S owns 0.01%)
Walker Danmark A/S (Denmark)................................................... 100
Walker France S.A. (France)/1/.................................................... 100
(Tenneco International Holding Corp. owns 470,373 shares; Daniel Bellanger owns
16 shares; Robert Bellanger owns 8 shares; and each of Walker Europe, Inc.,
Alain Bellanger and Theodore Bonneu own 1 share)
Gillet Tubes Technologies G.T.T. (France)...................................... 100
Wimetal S.A. (France).......................................................... 99
(Walker France S.A. owns 99%; Tenneco Europe Limited owns 1 share, Walker
Limited owns 1 share; and each of Kenneth Allen, Daniel Bellanger, Herman
Weltens and Theo Bonneu, affiliated persons, owns 1 share)
Walker France Constructeurs S.A.R.L. (France).................................. 100
Tenneco Management Company (Delaware)................................................ 100
Tenneco Packaging - Chile Holdings Inc. (Delaware)................................... 100
Tenneco Packaging - Chile S.A. (Chile)............................................ 100
Tenneco Packaging Hungary Holdings Inc. (Delaware)................................... 100
Tenneco Packaging Inc. (Delaware).................................................... 100
A&E Plastics, Inc. (Delaware)..................................................... 100
American Cellulose Corporation (Delaware)......................................... 50
(Tenneco Packaging Inc. owns 50%; and Larry E. Homan, an unaffiliated
individual, owns 50%)
The Corinth and Counce Railroad Company (Mississippi)............................. 100
Marinette, Tomahawk & Western Railroad Company (Wisconsin)..................... 100
Valdosta Southern Railroad Company (Florida).................................... 100
</TABLE>
- - ---------------
/1/ Daniel Bellanger is expected to transfer 8 shares to Jim Gray in March 1998.
7
<PAGE>
<TABLE>
<S> <C>
Subsidiaries of Tenneco Inc. (Delaware)
Subsidiaries of Tenneco Packaging Inc. (Delaware)
Dahlonega Packaging Corporation (Delaware)........................................ 100%
Dixie Container Corporation (Virginia)............................................ 100
Dixie Convoy Corporation (North Carolina)......................................... 100
Dongguan PCA Packaging Co., Ltd. (Peoples Republic of China)...................... 50
(Tenneco Packaging Inc. owns 50%; and Dongguan Dong Ya Color Printing &
Packaging Factory, an unaffiliated company, owns 50%)
EKCO Products, Inc. (Illinois).................................................... 100
E-Z Por Corporation (Delaware).................................................... 100
Glacier-Cor US Corporation (Delaware)............................................. 100
Glacier-Cor US Holding Corporation (Delaware).................................. 100
E. H. Carton Products - Management Company Ltd. (Israel).................... 50
(Glacier-Cor US Holding Corporation owns 50%; and non-affiliates owns 50%)
Ha'Lakoach Ha' Neeman Ha' Sheesheem Ou' Shena'yim Ltd. (Israel)............. 99
(Glacier-Cor US Holding Corporation owns 99%; and Hexacomb Corporation
owns 1%)
Hexacomb Corporation (Illinois)................................................... 100
Ha'Lakoach Ha' Neeman Ha' Sheesheem Ou' Shena'yim Ltd. (Israel)................ 1
(Hexacomb Corporation owns 1%; and Glacier-Cor US Holding Corporation
owns 99%)
Hexacomb International Sales Corporation (U.S. Virgin Islands)................. 100
Hexajapan Company, Ltd. (Japan)................................................ 60
(Hexacomb Corporation owns 60%; and non-affiliates owns 40%)
Packaging Corporation of America (Nevada)......................................... 100
PCA Box Company (Delaware)........................................................ 100
PCA Hydro, Inc. (Delaware)........................................................ 100
PCA Romania Srl (Romania)......................................................... 50
(Tenneco Packaging Inc. owns 50%; and Kraftcorr Inc., an unaffiliated
company, owns 50%)
PCA Tomahawk Corporation (Delaware)............................................... 100
PCA Valdosta Corporation (Delaware)............................................... 100
PCA West Inc. (Delaware).......................................................... 100
Coast-Packaging Company (California General Partnership)....................... 50
(PCA West Inc. owns 50%, as General Partner; and J. G. Haddy Sales Company,
an unaffiliated company, owns 50%, as General Partner)
Pressware International, Inc. (Delaware).......................................... 100
Revere Foil Containers, Inc. (Delaware)........................................... 100
Suncor, Inc. (South Carolina)..................................................... 100
Tenneco AVI Acquisition Inc. (Delaware)........................................... 100
Tenneco CAP Acquisition Inc. (Delaware) (In dissolution).......................... 100
Tenneco CPI Holding Company (Delaware)............................................ 100
Tenneco Foam Products Company (Delaware).......................................... 100
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
Subsidiaries of Tenneco Inc. (Delaware)
Subsidiaries of Tenneco Packaging Inc. (Delaware)
Tenneco Forest Products GmbH (Germany)............................................ 100%
PCA Embalajes Espana S.L. (Spain).............................................. 99
(Tenneco Forest Products GmbH owns 99%; and Omni-Pac Ekco GmbH
Verpackungsmittel owns 1%)
Tenneco Packaging de Mexico, S.A. de C.V. (Mexico)................................ 0.01
(Tenneco Packaging Inc. owns 1 share; and Tenneco Packaging International
Holdings Inc. owns 499,999 shares)
Tenneco Packaging Hungary Packaging Material Limited (Hungary)/1/................. 100
TPHH Property Development Kft. (Hungary)....................................... 100
Budafok Recycling Limited (Hungary)............................................ 63.8
(Tenneco Packaging Hungary Packaging Material Limited owns 63.8%; and Asco
Hungaria Kft., an unaffiliated company, owns 36.2%)
Tenneco Plastics Company (Delaware)............................................... 100
Tenneco Protective Packaging Inc. (Delaware)...................................... 100
AVI Technologies, Inc. (Delaware).............................................. 100
Tenneco Rochester Acquisition Inc. (Delaware)..................................... 100
798795 Ontario Limited (Ontario).................................................. 100
Astro-Valcour, Ltd. (Ontario).................................................. 100
Honeycomb Constructions Services Limited (Ontario)............................. 100
Shearmat Structures Ltd. (Manitoba)......................................... 100
PCA Canada Inc. (Ontario)...................................................... 100
Zhejing Zhongbao Packaging (Peoples Republic of China)............................ 37.5
(Tenneco Packaging Inc. owns 37.5%; and non-affiliates own 62.5%)
Tenneco Packaging International Holdings Inc. (Delaware)............................. 100
Airpack SPA (Italy)............................................................... 2
(Tenneco Inc. owns 98%; and Tenneco Packaging International Holdings Inc.
owns 2%)
Scriptoria N.V. (Belgium)......................................................... less than 1
(Tenneco Inc. owns approximately 99.6%; Tenneco Packaging International
Holdings Inc. owns less than 1% or 18 shares and the remainder of the shares
are held by unknown third parties)
Tenneco Packaging de Mexico, S.A. de C.V.......................................... 99.99
(Tenneco Packaging International Holdings Inc. owns 499,999 shares; and
Tenneco Packaging Inc. owns 1 share)
Wellenfoam N.V. (Belgium)......................................................... less than 1
(Tenneco Inc. owns 99+%; and Tenneco Packaging International Holdings Inc. owns
less than 1% or 1 share)
Tenneco Packaging Leasing Company (Delaware)......................................... 100
</TABLE>
- - ---------------
/1/ This company is commonly referred to as "Tenneco Packaging Hungary Kft."
9
<PAGE>
<TABLE>
<S> <C>
Subsidiaries of Tenneco Inc. (Delaware)
Subsidiaries of Tenneco Packaging Leasing Company (Delaware)
Counce Limited Partnership (Texas Limited Partnership)............................ 5%
(Tenneco Inc. owns 95%, as Limited Partner; and Tenneco Packaging Leasing
Company owns 5%, as General Partner)
Counce Finance Corporation (Delaware).......................................... 100
Tenneco PPI Company (Delaware)....................................................... 100
Tenneco Retail Receivables Company (Delaware)........................................ 100
Tenneco Romania Holdings Inc. (Delaware)............................................. 100
Tenneco Forest Products S.A. (Romania)............................................ 100
(Shawn Kelly, Richard Bierlich, Robert Haught and Brent Nyberg, all of whom are
affiliated, each hold share(s) of this company)
Tenneco Windsor Box & Display, Inc. (Delaware)....................................... 100
The Baldwin Group, Ltd. (U.K.)....................................................... 100
Ambassador Packaging Ltd. (U.K.).................................................. 100
Coastal Packaging Ltd. (U.K.).................................................. 100
Prempack Limited (U.K.)........................................................ 100
R & H Robinson (Sheffield) Ltd. (U.K.)......................................... 100
Baldwin Packaging Limited (U.K.).................................................. less than 1
(J&W Baldwin (Holdings) Ltd. owns 99.9%; and The Baldwin Group owns less than
1% or 1 share)
J&W Baldwin (Holdings) Ltd. (U.K.)................................................ 99.9
(The Baldwin Group, Ltd. holds all of the shares of J&W Baldwin (Holdings)
Ltd., except for one share which is held jointly by The Baldwin Group, Ltd.
and P. W. Taylor)
Baldwin Packaging Limited (U.K.)............................................... 99.9
(J&W Baldwin (Holdings) Ltd. owns 99.9%; and The Baldwin Group owns less
than 1% or 1 share)
Jiffy Rugated Products Limited (U.K.)....................................... 99.9
(Baldwin Packaging Limited owns 99.9%; and The Baldwin Group owns less than
1% or 1 share)
J&W Baldwin (Manchester) Limited (U.K.)..................................... 99.9
(Baldwin Packaging Limited owns 99.9%; and The Baldwin Group owns
less than 1% or 1 share)
Jifcour (UK) Limited (U.K.).................................................... 99.9
(J&W Baldwin (Holdings) Ltd. owns 99.9%; and The Baldwin Group, Ltd. owns
less than 1% or 1 share)
Jiffy Packaging Company Ltd. (U.K.)............................................ 99.9
(J&W Baldwin (Holdings) Ltd. owns 99.9%; and The Baldwin Group, Ltd. owns
less than 1% or 1 share)
Pentland Packaging Limited (Scotland).......................................... 99.9
(J&W Baldwin (Holdings) Ltd. owns 99.9%; and The Baldwin Group, Ltd. owns
less than 1% or 1 share)
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
Subsidiaries of Tenneco Inc. (Delaware)
Subsidiaries of The Baldwin Group, Ltd. (U.K.)
J&W Baldwin (Manchester) Limited (U.K.)........................................... less than 1%
(Baldwin Packaging Limited owns 99.9%; and The Baldwin Group, Ltd. owns
less than 1% or 1 share)
Jifcour (UK) Limited (U.K.)....................................................... less than 1
(J&W Baldwin (Holdings) Ltd. owns 99.9%; and The Baldwin Group, Ltd. owns
less than 1% or 1 share)
Jiffy Packaging Company Ltd. (U.K.)............................................... less than 1
(J&W Baldwin (Holdings) Ltd. owns 99.9%; and The Baldwin Group, Ltd. owns
less than 1% or 1 share)
Jiffy Rugated Products Limited (U.K.)............................................. less than 1
(Baldwin Packaging Limited owns 99.9%; and The Baldwin Group, Ltd. owns
less than 1% or 1 share)
Pentland Packaging Limited (Scotland)............................................. less than 1
(J&W Baldwin (Holdings) Ltd. owns 99.9%; and The Baldwin Group owns less than
1% or 1 share)
Thompson and Stammers Dunmow (Number 6) Limited (United Kingdom)/1/.................. 100
Thompson and Stammers Dunmow (Number 7) Limited (United Kingdom)/1/.................. 100
TMC Texas Inc. (Delaware)............................................................ 100
Walker Deutschland GmbH (Germany).................................................... 1
(Tenneco Inc. owns 1%; and Tenneco Deutschland Holdinggesellsschaft mbH owns 99%)
Walker Europe, Inc. (Delaware)....................................................... 100
Walker Electronic Silencing Inc. (Delaware).......................................... 100
Walker Limited (United Kingdom)...................................................... 100
Gillet Torsmaskiner UK Limited (United Kingdom)................................... 50
(Walker Limited owns 100 A Ordinary Shares, 50% of total equity; and AB
Torsmaskiner, an unaffiliated company, owns 100 B Ordinary Shares, 50%
of equity)
Omni-Pac U.K. Limited (United Kingdom)............................................ 100
Tenneco Automotive UK Limited (United Kingdom).................................... 100
Gillet Exhaust Manufacturing Limited (United Kingdom).......................... 100
Gillet Pressings Cardiff Limited (United Kingdom).............................. 100
Walker (UK) Limited (United Kingdom)........................................... 100
J.W. Hartley (Motor Trade) Limited (United Kingdom)......................... 100
Tenneco - Walker (U.K.) Ltd. (United Kingdom)............................... 100
Tenneco Europe Limited (Delaware)................................................. 100
Wimetal S. A. (France)......................................................... less than 1
(Tenneco Europe Limited owns 1 share; Walker Limited owns 1 share; Walker
France S.A. owns 99%; and each of Kenneth Allen, Daniel Bellanger, Herman
Weltens and Theo Bonneu, affiliated persons, owns 1 share)
</TABLE>
- - ---------------
/1/ In Dissolution
11
<PAGE>
<TABLE>
<S> <C>
Subsidiaries of Tenneco Inc. (Delaware)
Subsidiaries of Walker Limited (United Kingdom)
Tenneco Management (Europe) Limited (United Kingdom).............................. 100%
Tenneco Packaging Limited (Scotland)............................................. 100
Alpha Products (Bristol) Limited (United Kingdom).............................. 100
Tenneco Packaging (Caerphilly) Limited (United Kingdom)........................ 100
Tenneco Packaging (Films) Limited (United Kingdom)............................. 100
Tenneco Packaging (Livingston) Limited (Scotland).............................. 100
Brucefield Plastics Limited (Scotland)...................................... 100
Polbeth Packaging (Corby) Limited (Scotland)................................ 100
Tenneco Packaging (Stanley) Limited (United Kingdom)........................... 100
Tenneco Packaging (UK) Limited (United Kingdom)................................... 100
Wimetal S. A. (France)............................................................ less than 1
(Tenneco Europe Limited owns 1 share; Walker Limited owns 1 share; Walker
France S.A. owns 99%; and each of Kenneth Allen, Daniel Bellanger, Herman
Weltens and Theo Bonneu, affiliated persons, owns 1 share)
Walker Manufacturing Company (Delaware).............................................. 100
Ced's Inc. (Illinois)............................................................. 100
Walker Norge A/S (Norway)............................................................ 100
Wellenfoam N.V. (Belgium)............................................................ 99.9
(Tenneco Inc. owns 99.9%; and Tenneco Packaging International Holdings Inc. owns
less than 1% or 1 share)
Wood Products Leasing Company (Delaware).................................... 100
</TABLE>
12
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated February 17, 1998, included in the Annual Report
of Tenneco Inc. on Form 10-K for the year ended December 31, 1997, into the
following Registration Statements previously filed with the Securities and
Exchange Commission:
<TABLE>
<CAPTION>
REGISTRATION NO. FORM SECURITIES REGISTERED
---------------- ---- ---------------------
<C> <C> <S>
333-24291 S-3 $700,000,000 Tenneco Inc. debt securities of which
$100,000,000 remains available for issuance.
333-17485 S-8 17,000,000 shares of Common Stock, par value $.01 per
share of Tenneco Inc. (formerly New Tenneco Inc.)
("Common Stock") issuable under the 1996 Tenneco Inc.
Stock Ownership Plan.
333-30933 S-8 5,000 shares of Common Stock issuable under the Tenneco
Thrift Plan for Hourly Employees ("Hourly Thrift Plan")
and the Tenneco Thrift Plan ("Salaried Thrift Plan").
333-17487 S-8 462,000 shares of Common Stock issuable under the Hourly
Thrift Plan and the Salaried Thrift Plan.
333-41535 S-8 33,796 shares of Common Stock issuable under the 1996
Tenneco Inc. Stock Ownership Plan.
333-27279 S-8 64,000 shares of Common Stock issuable under the Hourly
Thrift Plan.
333-23249 S-8 2,500,000 shares of Common Stock issuable under the 1997
Employee Stock Purchase Plan.
333-27281 S-8 395,000 shares of Common Stock issuable under the Hourly
Thrift Plan and Salaried Thrift Plan.
333-41537 S-8 2,100 shares of Common Stock issuable under the Hourly
Thrift Plan.
</TABLE>
ARTHUR ANDERSEN LLP
Houston, Texas
March 13, 1998
<PAGE>
TENNECO INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, in his capacity as a
Director of Tenneco Inc. (the "Company"), whose signature appears immediately
below, constitutes and appoints Theodore R. Tetzlaff and Karl A. Stewart, and
each of them, severally, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to execute an Annual Report on Form 10-K
for the fiscal year ended December 31, 1997, and any and all amendments
thereto, and to file the same with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission and the
exchanges on which the Company's common stock is listed. Each of said
attorneys shall have the power to act hereunder with or without the other of
said attorneys and shall have full power and authority to do and perform, in
the name and on behalf of the undersigned, each and every act and thing
requisite and necessary to be done, as fully and to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or either of them, or their or his
substitutes or substitute, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 10th
day of March, 1998.
/s/ Mark Andrews
-------------------------------------
Mark Andrews
<PAGE>
TENNECO INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, in his capacity as a
Director of Tenneco Inc. (the "Company"), whose signature appears immediately
below, constitutes and appoints Theodore R. Tetzlaff and Karl A. Stewart, and
each of them, severally, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to execute an Annual Report on Form 10-K
for the fiscal year ended December 31, 1997, and any and all amendments
thereto, and to file the same with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission and the
exchanges on which the Company's common stock is listed. Each of said
attorneys shall have the power to act hereunder with or without the other of
said attorneys and shall have full power and authority to do and perform, in
the name and on behalf of the undersigned, each and every act and thing
requisite and necessary to be done, as fully and to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or either of them, or their or his
substitutes or substitute, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 10th
day of March, 1998.
/s/ W. Michael Blumenthal
-------------------------------------
W. Michael Blumenthal
<PAGE>
TENNECO INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, in his capacity as a
Director of Tenneco Inc. (the "Company"), whose signature appears immediately
below, constitutes and appoints Theodore R. Tetzlaff and Karl A. Stewart, and
each of them, severally, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to execute an Annual Report on Form 10-K
for the fiscal year ended December 31, 1997, and any and all amendments
thereto, and to file the same with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission and the
exchanges on which the Company's common stock is listed. Each of said
attorneys shall have the power to act hereunder with or without the other of
said attorneys and shall have full power and authority to do and perform, in
the name and on behalf of the undersigned, each and every act and thing
requisite and necessary to be done, as fully and to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or either of them, or their or his
substitutes or substitute, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 10th
day of March, 1998.
/s/ Clifton R. Wharton, Jr.
-------------------------------------
Clifton R. Wharton, Jr.
<PAGE>
TENNECO INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, in her capacity as a
Director of Tenneco Inc. (the "Company"), whose signature appears immediately
below, constitutes and appoints Theodore R. Tetzlaff and Karl A. Stewart, and
each of them, severally, her true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for her and in her name, place
and stead, in any and all capacities, to execute an Annual Report on Form 10-K
for the fiscal year ended December 31, 1997, and any and all amendments
thereto, and to file the same with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission and the
exchanges on which the Company's common stock is listed. Each of said
attorneys shall have the power to act hereunder with or without the other of
said attorneys and shall have full power and authority to do and perform, in
the name and on behalf of the undersigned, each and every act and thing
requisite and necessary to be done, as fully and to all intents and purposes
as she might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or either of them, or their or his
substitutes or substitute, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 10th
day of March, 1998.
/s/ M. Kathryn Eickhoff
-------------------------------------
M. Kathryn Eickhoff
<PAGE>
TENNECO INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, in his capacity as a
Director of Tenneco Inc. (the "Company"), whose signature appears immediately
below, constitutes and appoints Theodore R. Tetzlaff and Karl A. Stewart, and
each of them, severally, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to execute an Annual Report on Form 10-K
for the fiscal year ended December 31, 1997 and any and all amendments
thereto, and to file the same with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission and the
exchanges on which the Company's common stock is listed. Each of said
attorneys shall have the power to act hereunder with or without the other of
said attorneys and shall have full power and authority to do and perform, in
the name and on behalf of the undersigned, each and every act and thing
requisite and necessary to be done, as fully and to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or either of them, or their or his
substitutes or substitute, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 10th
day of March, 1998.
/s/ Peter T. Flawn
-------------------------------------
Peter T. Flawn
<PAGE>
TENNECO INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, in his capacity as a
Director of Tenneco Inc. (the "Company"), whose signature appears immediately
below, constitutes and appoints Theodore R. Tetzlaff and Karl A. Stewart, and
each of them, severally, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to execute an Annual Report on Form 10-K
for the fiscal year ended December 31, 1997, and any and all amendments
thereto, and to file the same with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission and the
exchanges on which the Company's common stock is listed. Each of said
attorneys shall have the power to act hereunder with or without the other of
said attorneys and shall have full power and authority to do and perform, in
the name and on behalf of the undersigned, each and every act and thing
requisite and necessary to be done, as fully and to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or either of them, or their or his
substitutes or substitute, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 10th
day of March, 1998.
/s/ Henry U. Harris, Jr.
-------------------------------------
Henry U. Harris, Jr.
<PAGE>
TENNECO INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, in his capacity as a
Director of Tenneco Inc., (the "Company"), whose signature appears immediately
below, constitutes and appoints Theodore R. Tetzlaff and Karl A. Stewart, and
each of them, severally, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to execute an Annual Report on Form 10-K
for the fiscal year ended December 31, 1997, and any and all amendments
thereto, and to file the same with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission and the
exchanges on which the Company's common stock is listed. Each of said
attorneys shall have the power to act hereunder with or without the other of
said attorneys and shall have full power and authority to do and perform, in
the name and on behalf of the undersigned, each and every act and thing
requisite and necessary to be done, as fully and to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or either of them, or their or his
substitutes or substitute, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 10th
day of March, 1998.
/s/ Belton K. Johnson
-------------------------------------
Belton K. Johnson
<PAGE>
TENNECO INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, in his capacity as a
Director of Tenneco Inc. (the "Company"), whose signature appears immediately
below, constitutes and appoints Theodore R. Tetzlaff and Karl A. Stewart, and
each of them, severally, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to execute an Annual Report on Form 10-K
for the fiscal year ended December 31, 1997, and any and all amendments
thereto, and to file the same with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission and the
exchanges on which the Company's common stock is listed. Each of said
attorneys shall have the power to act hereunder with or without the other of
said attorneys and shall have full power and authority to do and perform, in
the name and on behalf of the undersigned, each and every act and thing
requisite and necessary to be done, as fully and to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or either of them, or their or his
substitutes or substitute, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 10th
day of March, 1998.
/s/ Larry D. Brady
-------------------------------------
Larry D. Brady
<PAGE>
TENNECO INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, in his capacity as a
Director of Tenneco Inc. (the "Company"), whose signature appears immediately
below, constitutes and appoints Theodore R. Tetzlaff and Karl A. Stewart, and
each of them, severally, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to execute an Annual Report on Form 10-K
for the fiscal year ended December 31, 1997, and any and all amendments
thereto, and to file the same with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission and the
exchanges on which the Company's common stock is listed. Each of said
attorneys shall have the power to act hereunder with or without the other of
said attorneys and shall have full power and authority to do and perform, in
the name and on behalf of the undersigned, each and every act and thing
requisite and necessary to be done, as fully and to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or either of them, or their or his
substitutes or substitute, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 10th
day of March, 1998.
/s/ William L. Weiss
-------------------------------------
William L. Weiss
<PAGE>
TENNECO INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, in his capacity as a
Director of Tenneco Inc. (the "Company"), whose signature appears immediately
below, constitutes and appoints Theodore R. Tetzlaff and Karl A. Stewart, and
each of them, severally, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to execute an Annual Report on Form 10-K
for the fiscal year ended December 31, 1997, and any and all amendments
thereto, and to file the same with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission and the
exchanges on which the Company's common stock is listed. Each of said
attorneys shall have the power to act hereunder with or without the other of
said attorneys and shall have full power and authority to do and perform, in
the name and on behalf of the undersigned, each and every act and thing
requisite and necessary to be done, as fully and to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or either of them, or their or his
substitutes or substitute, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 10th
day of March, 1998.
/s/ Sir David Plastow
-------------------------------------
Sir David Plastow
<PAGE>
TENNECO INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, in his capacity as a
Director of Tenneco Inc. (the "Company"), whose signature appears immediately
below, constitutes and appoints Theodore R. Tetzlaff and Karl A. Stewart, and
each of them, severally, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to execute an Annual Report on Form 10-K
for the fiscal year ended December 31, 1997, and any and all amendments
thereto, and to file the same with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission and the
exchanges on which the Company's common stock is listed. Each of said
attorneys shall have the power to act hereunder with or without the other of
said attorneys and shall have full power and authority to do and perform, in
the name and on behalf of the undersigned, each and every act and thing
requisite and necessary to be done, as fully and to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or either of them, or their or his
substitutes or substitute, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 10th
day of March, 1998.
/s/ Roger B. Porter
-------------------------------------
Roger B. Porter
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from the
Tenneco Inc. and Consolidated Subsidiaries Financial Statements and is
qualified in its entirety by reference to such Financial Statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 41
<SECURITIES> 0
<RECEIVABLES> 729
<ALLOWANCES> 0
<INVENTORY> 950
<CURRENT-ASSETS> 2,115
<PP&E> 5,284
<DEPRECIATION> 1,829
<TOTAL-ASSETS> 8,332
<CURRENT-LIABILITIES> 1,661
<BONDS> 2,633
0
0
<COMMON> 2
<OTHER-SE> 2,526
<TOTAL-LIABILITY-AND-EQUITY> 8,332
<SALES> 7,220
<TOTAL-REVENUES> 7,220
<CGS> 5,274
<TOTAL-COSTS> 5,274
<OTHER-EXPENSES> 1,280
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 216
<INCOME-PRETAX> 548
<INCOME-TAX> 163
<INCOME-CONTINUING> 361
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (46)
<NET-INCOME> 315
<EPS-PRIMARY> 1.85
<EPS-DILUTED> 1.84
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from the
Tenneco Inc. and Consolidated Subsidiaries Financial Statements and is
qualified in its entirety by reference to such Financial Statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 40
<SECURITIES> 0
<RECEIVABLES> 795
<ALLOWANCES> 0
<INVENTORY> 954
<CURRENT-ASSETS> 2,190
<PP&E> 5,141
<DEPRECIATION> 1,795
<TOTAL-ASSETS> 8,388
<CURRENT-LIABILITIES> 1,699
<BONDS> 2,638
0
0
<COMMON> 2
<OTHER-SE> 2,596
<TOTAL-LIABILITY-AND-EQUITY> 8,388
<SALES> 5,352
<TOTAL-REVENUES> 5,352
<CGS> 3,894
<TOTAL-COSTS> 3,894
<OTHER-EXPENSES> 926
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 157
<INCOME-PRETAX> 440
<INCOME-TAX> 138
<INCOME-CONTINUING> 285
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 285
<EPS-PRIMARY> 1.67
<EPS-DILUTED> 1.67
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from the
Tenneco Inc. and Consolidated Subsidiaries Financial Statements and is
qualified in its entirety by reference to such Financial Statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 81
<SECURITIES> 0
<RECEIVABLES> 808
<ALLOWANCES> 0
<INVENTORY> 936
<CURRENT-ASSETS> 2,147
<PP&E> 5,029
<DEPRECIATION> 1,747
<TOTAL-ASSETS> 8,257
<CURRENT-LIABILITIES> 1,687
<BONDS> 2,663
0
0
<COMMON> 2
<OTHER-SE> 2,536
<TOTAL-LIABILITY-AND-EQUITY> 8,257
<SALES> 3,521
<TOTAL-REVENUES> 3,521
<CGS> 2,563
<TOTAL-COSTS> 2,563
<OTHER-EXPENSES> 628
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 98
<INCOME-PRETAX> 273
<INCOME-TAX> 82
<INCOME-CONTINUING> 180
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 180
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 1.05
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from the
Tenneco Inc. and Consolidated Subsidiaries Financial Statements and is
qualified in its entirety by reference to such Financial Statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 116
<SECURITIES> 0
<RECEIVABLES> 678
<ALLOWANCES> 0
<INVENTORY> 910
<CURRENT-ASSETS> 2,025
<PP&E> 4,870
<DEPRECIATION> 1,690
<TOTAL-ASSETS> 7,622
<CURRENT-LIABILITIES> 1,721
<BONDS> 2,045
0
0
<COMMON> 2
<OTHER-SE> 2,553
<TOTAL-LIABILITY-AND-EQUITY> 7,622
<SALES> 1,629
<TOTAL-REVENUES> 1,629
<CGS> 1,207
<TOTAL-COSTS> 1,207
<OTHER-EXPENSES> 303
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 45
<INCOME-PRETAX> 114
<INCOME-TAX> 33
<INCOME-CONTINUING> 76
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 76
<EPS-PRIMARY> .44
<EPS-DILUTED> .44
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from the
Tenneco Inc. and Consolidated Subsidiaries Financial Statements and is
qualified in its entirety by reference to such Financial Statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 62
<SECURITIES> 0
<RECEIVABLES> 561
<ALLOWANCES> 0
<INVENTORY> 878
<CURRENT-ASSETS> 1,923
<PP&E> 4,870
<DEPRECIATION> 1,618
<TOTAL-ASSETS> 7,587
<CURRENT-LIABILITIES> 1,621
<BONDS> 2,067
0
0
<COMMON> 2
<OTHER-SE> 2,644
<TOTAL-LIABILITY-AND-EQUITY> 7,587
<SALES> 6,572
<TOTAL-REVENUES> 6,572
<CGS> 4,854
<TOTAL-COSTS> 4,854
<OTHER-EXPENSES> 1,166
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 195
<INCOME-PRETAX> 433
<INCOME-TAX> 194
<INCOME-CONTINUING> 218
<DISCONTINUED> 428
<EXTRAORDINARY> (236)
<CHANGES> 0
<NET-INCOME> 410
<EPS-PRIMARY> 2.35
<EPS-DILUTED> 2.34
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from the
Tenneco Inc. and Consolidated Subsidiaries Financial Statements and is
qualified in its entirety by reference to such Financial Statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 165
<SECURITIES> 0
<RECEIVABLES> 529
<ALLOWANCES> 0
<INVENTORY> 882
<CURRENT-ASSETS> 2,048
<PP&E> 4,685
<DEPRECIATION> 1,586
<TOTAL-ASSETS> 8,535
<CURRENT-LIABILITIES> 2,190
<BONDS> 1,531
0
0
<COMMON> 957
<OTHER-SE> 2,705
<TOTAL-LIABILITY-AND-EQUITY> 8,535
<SALES> 4,886
<TOTAL-REVENUES> 4,886
<CGS> 3,580
<TOTAL-COSTS> 3,580
<OTHER-EXPENSES> 832
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 145
<INCOME-PRETAX> 440
<INCOME-TAX> 171
<INCOME-CONTINUING> 254
<DISCONTINUED> 518
<EXTRAORDINARY> (1)
<CHANGES> 0
<NET-INCOME> 771
<EPS-PRIMARY> 4.51
<EPS-DILUTED> 4.48
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from the
Tenneco Inc. and Consolidated Subsidiaries Financial Statements and is
qualified in its entirety by reference to such Financial Statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 229
<SECURITIES> 0
<RECEIVABLES> 477
<ALLOWANCES> 0
<INVENTORY> 820
<CURRENT-ASSETS> 2,102
<PP&E> 4,332
<DEPRECIATION> 1,584
<TOTAL-ASSETS> 7,924
<CURRENT-LIABILITIES> 1,710
<BONDS> 1,573
0
0
<COMMON> 957
<OTHER-SE> 2,612
<TOTAL-LIABILITY-AND-EQUITY> 7,924
<SALES> 3,233
<TOTAL-REVENUES> 3,233
<CGS> 2,347
<TOTAL-COSTS> 2,347
<OTHER-EXPENSES> 543
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 100
<INCOME-PRETAX> 314
<INCOME-TAX> 126
<INCOME-CONTINUING> 178
<DISCONTINUED> 478
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 656
<EPS-PRIMARY> 3.85
<EPS-DILUTED> 3.82
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from the
Tenneco Inc. and Consolidated Subsidiaries Financial Statements and is
qualified in its entirety by reference to such Financial Statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 237
<SECURITIES> 0
<RECEIVABLES> 470
<ALLOWANCES> 0
<INVENTORY> 880
<CURRENT-ASSETS> 1,999
<PP&E> 4,259
<DEPRECIATION> 1,531
<TOTAL-ASSETS> 7,940
<CURRENT-LIABILITIES> 1,680
<BONDS> 1,680
0
0
<COMMON> 957
<OTHER-SE> 2,575
<TOTAL-LIABILITY-AND-EQUITY> 7,940
<SALES> 1,539
<TOTAL-REVENUES> 1,539
<CGS> 1,132
<TOTAL-COSTS> 1,132
<OTHER-EXPENSES> 260
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47
<INCOME-PRETAX> 114
<INCOME-TAX> 49
<INCOME-CONTINUING> 60
<DISCONTINUED> 435
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 495
<EPS-PRIMARY> 2.91
<EPS-DILUTED> 2.89
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from the
Tenneco Inc. and Consolidated Subsidiaries Financial Statements and is
qualified in its entirety by reference to such Financial Statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 354
<SECURITIES> 0
<RECEIVABLES> 351
<ALLOWANCES> 0
<INVENTORY> 838
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0
0
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</TABLE>
