<PAGE> 1
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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, 1998
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-12387
TENNECO INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 76-0515284
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1275 KING STREET 06831
GREENWICH, CT (Zip Code)
(Address of principal executive offices)
</TABLE>
Registrant's telephone number, including area code: (203) 863-1000
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<S> <C>
6.70% Notes due 2005; 7.45% Debentures due 2025; 8.075% New York Stock Exchange
Notes due 2002; 8.20% Notes due 1999; 9.20% Debentures due
2012; 10.075% Notes due 2001; 10.20% Debentures due 2008
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 OF SHARES MARKET VALUE HELD BY
HELD BY NON-AFFILIATES AT JANUARY 31, 1999 NON-AFFILIATES
- ------------------------------------------ --------------------
<S> <C>
Common Stock, 168,628,528 shares $5,206,405,802*
</TABLE>
- -------------------------
* Based upon the closing sale price on the Composite Tape for the Common Stock
on January 29, 1999.
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, 169,073,896 shares outstanding as of January 31, 1999.
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 Annual
Meeting of Shareowners to be Held May 11, 1999 Part III
</TABLE>
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<PAGE> 2
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 "will," "may," "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
bases underlying the forward-looking statement, the Company cautions that, while
it believes such assumptions or bases to be reasonable and makes them in good
faith, assumed facts or bases almost always vary from actual results, and the
differences between assumed facts or bases 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 Specialty
and Paperboard 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 certain packaging products is
also subject to changes in consumer preferences.
Demand and pricing of Tenneco Automotive, Specialty Packaging and
Paperboard 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 Paperboard
Packaging's markets had an adverse influence on its results of operations in the
fourth quarter of 1998 and in 1997 and 1996. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Years 1998 and
1997" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Years 1997 and 1996."
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 certain Specialty Packaging and
Paperboard 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. Similarly, a number of
Tenneco employees are represented by unions under collective bargaining
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
significant customer or the Company could have an adverse impact on the Company.
For example, the General Motors
i
<PAGE> 3
strike in 1998 reduced second and third quarter revenue and income growth in
Tenneco Automotive's original equipment business.
Risks Associated with International Operations. The Company operates
facilities and sells products in countries throughout the world. As a result,
the Company is subject to 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, regulatory changes and other governmental actions,
including the ability to receive regulatory approvals and the timing of such
approvals; (ii) results of analyses regarding the Company's strategic
alternatives; (iii) material substitution; (iv) 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; (v) new
technologies; (vi) the Company's ability to integrate operations of acquired
businesses quickly and in a cost-effective manner; (vii) changes in distribution
channels or competitive conditions in the markets and countries where the
Company operates; (viii) capital availability or costs, including changes in
interest rates, market perceptions of the industries in which the Company
operates or ratings of securities; (ix) increases in the cost of compliance with
regulations, including environmental regulations, and environmental liabilities
in excess of the amount reserved; (x) changes by the Financial Accounting
Standards Board or the Securities and Exchange Commission of authoritative
generally accepted accounting principles or policies; and (xi) the timing and
occurrence (or non-occurrence) of transactions and events which may be subject
to circumstances beyond the Company's control.
ii
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
PART I
Item 1. Business.................................................... 1
Tenneco Inc. ............................................. 1
Contributions of Major Businesses......................... 2
Automotive................................................ 3
Specialty Packaging....................................... 10
Paperboard Packaging...................................... 14
Tenneco Business Services................................. 17
Environmental Matters..................................... 18
Certain Reorganization Agreements......................... 18
Item 2. Properties.................................................. 18
Item 3. Legal Proceedings........................................... 20
Item 4. Submission of Matters to a Vote of Security Holders......... 21
Item 4.1. Executive Officers of the Registrant........................ 21
PART II
Item 5. Market for Registrant's Common Equity and Related 22
Stockholder Matters.........................................
Item 6. Selected Financial Data..................................... 23
Item 7. Management's Discussion and Analysis of Financial Condition 25
and Results of Operations...................................
Item 8. Financial Statements and Supplementary Data................. 40
Item 9. Changes in and Disagreements with Accountants on Accounting 76
and Financial Disclosure....................................
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 76
Item 11. Executive Compensation...................................... 76
Item 12. Security Ownership of Certain Beneficial Owners and 76
Management..................................................
Item 13. Certain Relationships and Related Transactions.............. 76
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 76
8-K.........................................................
</TABLE>
iii
<PAGE> 5
PART I
ITEM 1. BUSINESS.
TENNECO INC.
Tenneco Inc., a Delaware corporation, is a global manufacturing company
with operations in automotive parts ("Automotive"), specialty packaging
("Specialty Packaging"), and folding carton and containerboard packaging
("Paperboard 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. Specialty
Packaging is among the world's leading and most diversified packaging
manufacturers, providing packaging products for food service, supermarket,
consumer, institutional and industrial markets. Paperboard Packaging
manufactures and sells containerboard, corrugated, folding carton, lumber and
building products. As used herein, the term "Tenneco" or the "Company" refers to
Tenneco Inc. and its consolidated subsidiaries and, as the context requires,
"Automotive," "Specialty Packaging" and "Paperboard Packaging" refer to the
subsidiaries and affiliates of Tenneco Inc. engaged in the automotive parts,
specialty packaging, and folding carton and containerboard packaging businesses,
respectively.
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, Specialty Packaging, Paperboard 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.
On July 21, 1998, Tenneco announced that its Board of Directors had
authorized management to develop a broad range of strategic alternatives
designed to better realize the long-term value of its businesses for
shareowners. Among the options is the separation of the automotive,
containerboard packaging and specialty packaging businesses. In addition,
Tenneco announced a cost reduction program expected to result in annual savings
of $135 million. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Strategic Alternatives Analysis" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Years 1998 and 1997 -- Restructuring and Other Charges."
On January 26, 1999, Tenneco announced that it had entered into an
agreement to contribute the containerboard assets of its Paperboard Packaging
business into a new joint venture with Madison Dearborn Partners in exchange for
cash and debt assumption totaling approximately $2 billion, assumption of the
containerboard business liabilities and a 45% common equity interest in the
joint venture. These assets represent substantially all of the assets of the
Paperboard Packaging segment and include four mills, 67 corrugated products
facilities and an ownership or controlling interest in approximately 950,000
acres of timberland. Paperboard Packaging's folding carton business is not
included in the transaction. The joint venture entity (to be called Packaging
Corporation of America) will be headed by Paul T. Stecko, who will serve as its
chairman and chief executive officer. Upon closing of the transaction, Mr.
Stecko will resign his position as president and chief operating officer of
Tenneco, but will continue to serve on Tenneco's Board of Directors. The
transaction is expected to close during the first half of 1999, subject to the
satisfaction of customary conditions including entering into certain financing
arrangements. Tenneco believes that this strategic repositioning of the business
will reduce the impact of the containerboard business's cyclicality on
1
<PAGE> 6
Tenneco's earnings, generate cash proceeds and still allow Tenneco to benefit,
to the extent of its 45% common equity interest, from this business. See
"Business -- Paperboard Packaging" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Strategic Alternatives
Analysis."
Tenneco continues to analyze the alternatives for Tenneco Automotive and
Specialty Packaging as well as Paperboard Packaging's folding carton business.
Those alternatives include a sale, merger, spin-off or public offering. Tenneco
will make public announcements of the expected transactions as those
transactions are determined.
CONTRIBUTIONS OF MAJOR BUSINESSES
Information concerning Tenneco's operating segments, geographic areas and
major products or groups of products is set forth in Note 12 to the Financial
Statements of Tenneco Inc. and Consolidated Subsidiaries. The following tables
summarize for each of the operating segments 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.
NET SALES AND OPERATING REVENUES FROM CONTINUING OPERATIONS:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- ------------- -------------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Automotive..................................... $3,237 43% $3,226 45% $2,980 45%
Specialty Packaging............................ 2,785 37 2,553 35 1,987 30
Paperboard Packaging........................... 1,674 22 1,521 21 1,683 26
Intergroup sales and other..................... (99) (2) (80) (1) (78) (1)
------ --- ------ --- ------ ---
Total..................................... $7,597 100% $7,220 100% $6,572 100%
====== === ====== === ====== ===
</TABLE>
INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST EXPENSE, INCOME TAXES, AND
MINORITY INTEREST:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- ------------- -------------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Automotive..................................... $248 39% $407 53% $249 40%
Specialty Packaging............................ 328 51 308 40 249 40
Paperboard Packaging........................... 131 20 63 9 152 24
Other.......................................... (66) (10) (14) (2) (22) (4)
------ --- ------ --- ------ ---
Total..................................... $641 100% $764 100% $628 100%
====== === ====== === ====== ===
</TABLE>
CAPITAL EXPENDITURES FOR CONTINUING OPERATIONS:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- ------------- -------------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Automotive..................................... $195 33% $211 38% $177 31%
Specialty Packaging............................ 190 32 227 41 172 30
Paperboard Packaging........................... 203(1) 34 108 19 169 30
Other.......................................... 4 1 12 2 55 9
------ --- ------ --- ------ ---
Total................................... $592 100% $558 100% $573 100%
====== === ====== === ====== ===
</TABLE>
Interest expense, income taxes, and minority interest related to continuing
operations that were not allocated to the operating segments of Tenneco are:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
(MILLIONS)
<S> <C> <C> <C>
Interest expense (net of interest
capitalized)................................. $240 $216 $195
Income tax expense............................. 116 163 194
Minority interest.............................. 30 24 21
</TABLE>
- -------------------------
(1) Includes $84 million related to the purchase of certain leased timberlands
in anticipation of the transfer of the containerboard assets to the joint
venture entity described above.
2
<PAGE> 7
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 products and systems primarily under the Walker(R) brand name
and its ride control products and systems 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 $520
billion in 1998. This market was comprised of approximately $420 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 on
emerging markets for additional growth opportunities, particularly China,
Eastern Europe, India and South 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 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 largely
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 1996 through 1998
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,
--------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
EXHAUST SYSTEMS PRODUCTS
Aftermarket............................................... $ 590 $ 686 $ 710
OE Market................................................. 1,224 1,067 989
------ ------ ------
1,814 1,753 1,699
------ ------ ------
RIDE CONTROL PRODUCTS
Aftermarket............................................... 685 782 768
OE Market................................................. 738 691 513
------ ------ ------
1,423 1,473 1,281
------ ------ ------
Total Tenneco Automotive............................... $3,237 $3,226 $2,980
====== ====== ======
</TABLE>
3
<PAGE> 8
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
------------------------------
YEAR ENDED DECEMBER 31,
------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
EXHAUST SYSTEMS PRODUCTS
Aftermarket............................................... 33% 39% 42%
OE Market................................................. 67 61 58
--- --- ---
100% 100% 100%
=== === ===
RIDE CONTROL PRODUCTS
Aftermarket............................................... 48% 53% 60%
OE Market................................................. 52 47 40
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
Brands
Tenneco Automotive manufactures and markets leading brand names. Monroe(R)
ride control products and systems and Walker(R) exhaust products and 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 more than 25 different OE customers on a global basis, and has
its products on 11 of the 15 top selling global car models. Its OE customers
include the following:
<TABLE>
<S> <C> <C>
NORTH AMERICA EUROPE INDIA
CAMI BMW Maruti Suzuki
DaimlerChrysler DaimlerChrysler
Ford DAF AUSTRALIA
Freightliner Daihatsu Ford
General Motors Fiat General Motors/Holden
Honda Ford Mitsubishi
Mazda Jaguar Toyota
Mitsubishi Lada
Navistar Leyland JAPAN
Nissan Mitsubishi Mazda
NUMMI Nissan Nissan
Toyota Opel Suzuki
Volkswagen Peugeot/Citroen Toyota
Porsche
SOUTH AMERICA Renault/Matra OTHER ASIA
DaimlerChrysler Rover/Land Rover DaimlerChrysler
Fiat Saab/Scania Citroen
Ford Toyota
General Motors Volkswagen/Audi/SEAT/Skoda
Honda Volvo
Renault
Toyota
Volkswagen
</TABLE>
4
<PAGE> 9
Tenneco Automotive's aftermarket customers include such wholesalers and
retailers as National Auto Parts Association ("NAPA"), Monro Muffler Brake and
Advance Auto in North America and Temot, Autodistribution International 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 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 10 of the 15 top-selling 1998 new car models worldwide
and seven of the top ten 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 suppliers.
Manufacturing and Engineering
Walker operates 32 manufacturing facilities outside the U.S. In the U.S.,
Walker operates 12 manufacturing facilities, three engineering and technical
facilities and seven distribution centers. See Item 2, "Properties." It also has
a controlling interest in two joint ventures that own manufacturing facilities
in China. Walker locates OE manufacturing facilities close to its OE customers,
when feasible, to provide just-in-time delivery opportunities.
Walker has established two engineering centers in North America and Europe,
near where its OE customers develop vehicles. Walker's engineering capabilities
include advanced predictive design tools, advanced prototyping processes and
state-of-the-art testing equipment. This allows Walker to provide just-in-time
delivery and when feasible in-line sequencing of exhaust systems.
During the 1990's, Walker expanded its converter and emission system design
development, test and manufacturing capabilities. These capabilities resulted in
new converter and emission control systems in 1998. This expanded technology
makes Walker a "full system" supplier, supplying complete exhaust systems from
the manifold to the tailpipe, in order to provide full emission and noise
control.
Strategic Acquisitions/Joint Ventures
As part of its international growth strategy, 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
Minuzzi, 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. In 1998, Tenneco
Automotive established a second joint venture in China (Shanghai) to supply
exhaust systems to the Central and Southern Chinese automotive markets. Also in
1998, Tenneco Automotive established a joint venture in India (Pune) to supply
exhaust systems to OE customers and the aftermarket.
5
<PAGE> 10
The following table sets forth for each of the years 1996 through 1998
information relating to Tenneco Automotive's sales of exhaust systems:
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
------------------------
YEAR ENDED DECEMBER 31,
------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
UNITED STATES SALES
Aftermarket............................................... 37% 43% 46%
OE Market................................................. 63 57 54
--- --- ---
100% 100% 100%
=== === ===
FOREIGN SALES
Aftermarket............................................... 30% 36% 38%
OE Market................................................. 70 64 62
--- --- ---
100% 100% 100%
=== === ===
TOTAL SALES BY GEOGRAPHIC AREA(a)
United States............................................. 41% 44% 44%
European Union............................................ 44 41 43
Canada.................................................... 7 7 6
Other areas............................................... 8 8 7
--- --- ---
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.
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 five manufacturing facilities and three engineering and
technical facilities in the United States and 16 manufacturing operations in
other jurisdictions. Monroe also has controlling interests in joint
6
<PAGE> 11
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 generally compromise either ride comfort or vehicle control.
Monroe's innovative 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. In late 1997,
Monroe further enhanced this technology by adding the Safe-Tech(TM) fluon piston
band, which improves shock absorber performance and durability.
Strategic Acquisitions/Joint Ventures
As a means of expanding its product lines and offering OE manufacturers
more complete modular ride control systems, 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, engine mounts and control arms, for the auto,
light truck and heavy truck markets. With this acquisition, Tenneco Automotive
has full capability to deliver complete suspension systems to 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.
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. In 1997, Tenneco Automotive entered
into a joint venture which resulted in its acquisition of majority ownership of
Armstrong, a 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.
7
<PAGE> 12
The following table sets forth for each of the years 1996 through 1998
information relating to Tenneco Automotive's sales of ride control equipment:
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
------------------------
YEAR ENDED DECEMBER 31,
------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
UNITED STATES SALES
Aftermarket............................................... 43% 50% 62%
OE Market................................................. 57 50 38
--- --- ---
100% 100% 100%
=== === ===
FOREIGN SALES
Aftermarket............................................... 53% 56% 59%
OE Market................................................. 47 44 41
--- --- ---
100% 100% 100%
=== === ===
TOTAL SALES BY GEOGRAPHIC AREA(a)
United States............................................. 47% 48% 48%
European Union............................................ 32 27 34
Canada.................................................... 3 3 3
Other areas............................................... 18 22 15
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
- -------------------------
(a) See Note 12 to Tenneco Inc. and Consolidated Subsidiaries Financial
Statements for certain information about foreign and domestic operations.
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 of
95%.
Tenneco Automotive sells its OE products directly. With respect to the
aftermarket, Tenneco Automotive employs six primary distribution techniques: (i)
the traditional three-step distribution system: warehouse distributors, jobbers
and installers; (ii) the specialty two-step distribution system: specialty
warehouse distributors and installers; (iii) sales to program marketing groups;
(iv) direct sales to retailers; (v) direct sales to installer chains; and (vi)
direct sales to car dealers.
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 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. Tenneco Automotive is also
aggressively responding to aftermarket customer consolidation and merging
channels of distribution.
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.
8
<PAGE> 13
Continue to Develop Value-Added Products
Tenneco Automotive, a Tier 1 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, strategic alliances and
cooperation development agreements in order to increase Tenneco Automotive's
ability to deliver such full-system capabilities. To this end, in 1998 Tenneco
Automotive concluded agreements with Siemens Automotive and Ohlins Racing A.B.
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, Tenneco Automotive has made 11 international acquisitions and
entered into five 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. 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.
Branding
Tenneco Automotive, whose major strategic strength is the performance of
its leading Monroe(R) and Walker(R) brand names, continues to emphasize product
value differentiation. Tenneco Automotive's primary brand names include: (i) the
Monroe Sensa-Trac(R) product line that has been enhanced by the new Safe-
Tech(TM) System technology incorporating a new piston band and piston and
valving design to improve performance and durability; (ii) Rancho(R) ride
control products for the high performance light truck market; (iii) DynoMax(TM)
high performance exhaust systems; and (iv) Walker's new Quiet-Flow(TM) muffler,
which features an open-flow design that increases exhaust flow, improves sound
quality and significantly reduces 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. Tenneco Automotive's brand equity is an important asset in a time of
customer consolidation and merging channels of distribution.
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.
9
<PAGE> 14
Operating Cost Leadership
Tenneco Automotive will continue to seek cost reductions as it standardizes
its products 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, 1999, Tenneco Automotive had approximately 23,600
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, marketing and distribution of its products.
SPECIALTY PACKAGING
Specialty Packaging provides packaging solutions for food service and food
storage, product protection during transportation and storage and consumer home
storage. Specialty Packaging also provides packaging solutions that assist in
merchandising through point of purchase displays. The business produces foam and
clear plastic packaging products for the food service industry, polyethylene
bags, industrial stretch film, plastic protective and flexible packaging,
honeycomb products, molded fiber, aluminum containers, industrial aluminum
materials, plastic building products, and disposable cookware, dinnerware and
storage and waste bags. Specialty plants convert paper, aluminum, polystyrene,
polyolefins (such as polyethylene and polypropylene) and PVC polymers into
value-added clear, foamed, flexible or rigid products.
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 One-Zip(R) and E-Z
Foil(R). Specialty Packaging's lightweight, rigid plastic packaging for in-store
deli, produce, bakery and catering applications maintains quality and enhances
presentation. Specialty Packaging also manufactures molded fiber for produce and
egg packaging, food service items and institutional tableware.
Specialty Packaging also manufactures protective, flexible and cushion
packaging that serves multiple industries including food, medical, automotive,
electronics, furniture, durable goods, building and construction. Products such
as technical and air encapsulated foam 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 protective packaging products include
padded mailers, a variety of laminated protective coverings and customized
packaging systems including proprietary equipment. 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. The medical products business produces disposable
surgical kits custom designed for specific procedures.
Specialty Packaging is headquartered in Lake Forest, Illinois.
OVERVIEW OF SPECIALTY PACKAGING INDUSTRY
The global packaging market is estimated at $400 billion, with nearly
one-quarter of the market in the United States, slightly less in Europe and the
balance spread throughout the rest of the world. Packaging remains one of the
most fragmented industries, with the top five companies comprising less than a
9% worldwide market share. By material type, Specialty Packaging participates in
the plastic, paper and
10
<PAGE> 15
aluminum categories, which are among the fastest growing. Demand for packaging
varies substantially with the end markets served.
The food service/supermarket, consumer and packer/processor packaging
market segments are benefiting from socio/demographic trends that increasingly
favor convenient food consumption practices and are fueling the rapidly growing
home meal replacement and carryout market segments. The North American market
for food service and food packaging is approximately $10 billion.
Protective/flexible packaging in Europe and North America represents a $5
billion market that serves such industries as electronics, furniture, automotive
and electronic commerce.
Specialty Packaging competes with a range of packaging producers, who
represent suppliers of alternative materials and structures, as well as
manufacturers serving different geographies and distribution channels.
ANALYSIS OF SPECIALTY PACKAGING'S REVENUES
The following tables set forth for each of the years 1996 through 1998
information relating to the sales of Specialty Packaging's primary businesses:
<TABLE>
<CAPTION>
NET SALES (MILLIONS)
--------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Disposable plastic, fiber, and aluminum packaging
products.................................................. $2,126 $2,105 $1,862
Plastic and fiber protective/flexible packaging products.... 607 399 78
Other....................................................... 52 49 47
------ ------ ------
Total Specialty Packaging.............................. $2,785 $2,553 $1,987
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
------------------------------
YEAR ENDED DECEMBER 31,
------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Disposable plastic, fiber, and aluminum packaging
products.................................................. 76% 83% 94%
Plastic and fiber protective/flexible packaging products.... 22 15 4
Other....................................................... 2 2 2
--- --- ---
Total Specialty Packaging.............................. 100% 100% 100%
=== === ===
Sales by Geographic Area(a)
United States............................................... 80% 83% 89%
European Union.............................................. 17 15 8
Canada...................................................... 1 1 2
Other areas................................................. 2 1 1
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
- -------------------------
(a) See Note 12 to Tenneco Inc. and Consolidated Subsidiaries Financial
Statements for certain information about foreign and domestic operations.
SALES AND MARKETING
Specialty Packaging's businesses utilize a sales and marketing organization
of 500 people to sell its products through three main business units: (i)
protective/flexible packaging, (ii) consumer products and (iii) food
service/supermarket.
Specialty Packaging's protective and flexible packaging group sells cushion
and surface protection to distributors, fabricators and directly to end-users
focusing on electronics, furniture and automotive markets worldwide.
The consumer group sells trash bags, food storage bags, disposable plates
and bowls and disposable aluminum cookware primarily to grocery stores and mass
merchandisers. These products are sold through a direct sales force and a
national network of brokers and manufacturers representatives.
11
<PAGE> 16
The food service/supermarket and packer/processor sales organizations sell
a broad line of disposable, rigid and flexible packaging made from plastic,
aluminum, molded fiber and pressed paperboard materials. Product lines consist
of disposable plates and bowls, carry out containers, rigid display containers,
microwavable and dual ovenable food containers, food and specialty retail bags
and foil wrap. The food service/supermarket sales are made primarily through a
network of independent distributors. A portion of sales are direct to end users.
The packer/processor organization primarily sells directly to large processors
with a portion of its sales going through distribution.
The industrial business groups sell stretch film, aluminum roll stock, foam
insulation and house wrap products. These businesses use a combination of direct
and distributor sales to reach their customer base.
MANUFACTURING AND ENGINEERING
In North America, Specialty Packaging operates 67 specialty business
facilities in 18 states, Canada and Mexico. Plastic and aluminum disposable food
service and consumer products, stretch films and building products are
manufactured at 25 plants. The protective operations convert paperboard into
honeycomb products at 12 plants, and 16 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) and kraft papers. Molded fiber packaging is produced at seven
locations; an eighth location manufactures tooling for the molded fiber plants.
Finally, ovenable paperboard products are manufactured at two facilities. A
research and development center for food packaging and process development is
located in a new facility in Canandaigua, New York. Design centers for
protective and flexible packaging and process development are located in Buffalo
Grove, Illinois, Grand Rapids and Troy, Michigan and Santa Fe Springs,
California.
Specialty Packaging currently operates or has an ownership interest in 27
international manufacturing operations. Eleven protective packaging plants in
Belgium, England, France, Germany, Italy, The Netherlands, Poland, Spain and
Hungary 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 a European manufacturer of molded
fiber and cushion packaging with manufacturing facilities in Elsfleth, Germany
and Great Yarmouth, England. Specialty Packaging's Alupack operation in Belp,
Switzerland produces smoothwall aluminum portion packs and specialty food
applications. In plastics, Specialty Packaging is a manufacturer of single-use
thermoformed plastic food containers and films in the United Kingdom, with four
manufacturing facilities in England, Scotland and Wales. Specialty Packaging
also has built a wood products operation in Romania. It participates in several
international joint ventures, including a folding carton plant in Dongguan,
China, a recycling venture in Budapest, Hungary and a corrugated converting
facility in Shaoxing, China.
STRATEGIC ACQUISITIONS/JOINT VENTURES
Specialty Packaging sales more than doubled with the acquisition of Mobil
Plastics in late 1995, growing its product portfolio to include foam containers,
meat and poultry trays, disposable plates and bowls, polyethylene film products,
produce bags and stretch film. The acquisition brought in well-known consumer
products including Hefty(R) trash bags and tableware and Baggies(R) food bags.
The Mobil Plastics acquisition also contributed state-of-the-art manufacturing
capabilities and new product technologies including the "OneZip" closure system
to Tenneco.
The acquisition of Amoco Foam Products Company ("Amoco Foam Products") in
August 1996 enhanced Specialty Packaging's distribution capabilities and market
coverage, especially among the food packer/processors. Amoco Foam Product's
portfolio also included foam tableware, hinged lid containers and food trays as
well as residential and commercial insulation products.
In line with its strategy of growing in value-added specialty packaging
applications, Tenneco entered the protective packaging sector through the
acquisition of Hexacomb, a kraft honeycomb producer, in 1995.
12
<PAGE> 17
By acquiring Koninklijke KNP BT's protective and flexible packaging
businesses in 1997, Tenneco broadened the scope of its protective packaging
business to include plastic foam, technical and air encapsulated foam and mailer
applications and entered the European and North African protective and flexible
packaging markets. Tenneco also acquired two honeycomb plants in 1997.
Tenneco acquired Richter Manufacturing, a West Coast manufacturer of foam
protective packaging products, in April 1998, expanding the geographical
coverage of its North American protective packaging operation. Tenneco also
augmented its ovenable paperboard manufacturing capacity in September 1998,
through the acquisition of a Champion International facility in Belvidere,
Illinois, allowing Tenneco to serve all segments of the market for this product.
In December 1998 Tenneco acquired the foam packaging business of Sentinel
Products Corp., a global leader in specialty polyolefin foams, to further
diversify its protective packaging product offering and to increase
manufacturing capacity. Tenneco also formed a joint venture with Sentinel to
produce and market polyolefin foam applications in a wide variety of
non-packaging markets including automotive, sports and leisure, medical and
adhesive tapes.
BUSINESS STRATEGY
The business has embarked upon an aggressive growth plan to be the leading
specialty packaging company, offering a broad line of products that provide
customers with the best packaging solutions. Since 1995, Specialty Packaging has
grown from $845 million to $2.785 billion in revenues through both acquisitions
and internal growth. Key elements of Specialty Packaging's strategy include
actions and plans to:
Drive Strong Internal Growth
Base businesses continue to exceed industry average growth rates by
targeting fast growing niche markets within foodservice, consumer, protective
and flexible business segments. With its geographical coverage and broad product
line, Specialty Packaging is a primary supplier to nationwide distributors and
has developed long-term relationships with key players in the consolidating
packaging and food service distribution sector.
Leverage Strong Brand Franchises
Specialty Packaging is leveraging the Hefty(R) brand, its leading consumer
brand, through product line extensions, including Hefty One-Zip(R)
storage/freezer bags and foam applications. Specialty Packaging has the leading
market share for consumer disposable aluminum foil in the United States with its
E-Z Foil(R) brand.
Focus on New Product and Process Innovation
Specialty Packaging emphasizes investing in technology and innovation to
maintain a leadership position in new product development. A successful example
of Specialty Packaging's development efforts is Hefty One-Zip(R), a patented
zipper closure system that has helped Specialty Packaging establish a strong
position in the consumer zipper storage/freezer market since the full-scale
launch of those products in 1996. Specialty Packaging is leveraging its position
in zipper closures through expansion of other slider closure applications.
Examples include Fast-Pak(TM) deli/bakery bags and Hefty SlideRite(TM) bags for
baby wipes, medical lab samples and other specialized applications. New
protective packaging introductions included Profiles(R) foams, a polyethylene
foam based material used in various markets such as building products and
furniture, and polypropylene foams with applications in both the automotive and
sport and leisure markets. Flexible packaging innovations included the
Propyflex(R) medical bag for fluids, which is chlorine free and satisfies all
the product requirements for transport reliability, flexibility and transparency
even after sterilization.
Additionally, food processor product innovations are underway such as
ActiveTech(TM) packaging, a proprietary modified atmospheric package ("MAP") for
case-ready red meat. Active Tech(TM) extends shelf life and maintains aesthetic
qualities through an oxygen "scavenger" technology.
13
<PAGE> 18
Grow Protective Packaging
Specialty Packaging has established a global protective packaging growth
platform with the acquisitions of Hexacomb, KNP-BT's protective packaging
business and, most recently, Richter and the foam packaging business of
Sentinel. With over $600 million in worldwide protective sales, Specialty
Packaging is a leading producer of protective packaging in Europe and is one of
the largest in the United States. Specialty Packaging's strategy is to secure
future growth from custom engineering and design capabilities that will provide
multi-material packaging solutions to market segments which are currently
growing at three times the rate of overall packaging growth.
Achieve Operating Cost Leadership
The volume and timing of Specialty Packaging's purchases of materials
provide opportunities to obtain a competitive advantage by reducing resin and
other raw material costs. Specialty Packaging also leverages its volumes and the
geographical reach of its end products to reduce transportation costs.
Internally, aggressive investment in retooling, rationalization and facility
integration allows Specialty Packaging to realize efficiencies and lower costs
in production. Additional initiatives are in place to streamline supply chain
costs, re-engineer operations and reduce working capital.
OTHER
As of January 1, 1999, Specialty Packaging had approximately 15,700
employees. It owns a number of domestic and foreign patents and trademarks and
other intellectual property relating to its products which are important to the
manufacture, marketing and distribution of such products.
The principal raw materials used by Specialty Packaging are plastic resin,
aluminum rollstock, recycled fiber and kraft linerboard. Each material is
obtained from a variety of suppliers, many of whom provide raw materials under
long-term contracts which minimize market volatility.
PAPERBOARD PACKAGING
Paperboard Packaging manufactures and sells corrugated containers,
containerboard, folding cartons and lumber and related wood products. In the
containerboard market, Paperboard Packaging ranks as the sixth largest producer
of containerboard in North America, producing 2.1 million tons annually, which
are converted by its corrugated container plants or sold to both domestic and
export customers. Its corrugated products include containers, sheets and pads
and value-added enhanced graphics packaging and displays. It also manufactures
and sells high-quality, innovative folding carton packaging featuring enhanced
graphics. Paperboard Packaging also participates in the wood products business
and has access to approximately 950,000 acres of timberland in the United States
through both owned and controlled properties.
Paperboard Packaging is headquartered in Lake Forest, Illinois.
OVERVIEW OF PAPERBOARD PACKAGING INDUSTRY
The United States packaging industry's 1998 production is estimated at
$90-$95 billion, with paperboard making up nearly 40% or $35 billion. Paperboard
packaging consists of three broad categories: containerboard (converted into
corrugated containers), boxboard (converted into folding cartons) and other
industrial converted products.
Domestic containerboard companies produced 34 million tons in 1998. The
containerboard market can be characterized as highly cyclical and fragmented,
with the top five producers making up just under 44% of the total. However, the
industry recently has seen some consolidation. With the recently announced
Smurfit-Stone and International Paper-Union Camp mergers, the top five producers
are expected to account for just under 52% of capacity. Containerboard demand is
dependent on both domestic corrugated box production, which closely tracks
industrial production and export activity. Corrugated box shipments have grown
at an annual rate of 2.5% over the past ten years.
14
<PAGE> 19
The $5.7 billion folding carton market is also highly fragmented, with more
than 300 producers. The top five producers currently account for less than half
of the industry. Folding carton demand is influenced by food packaging and other
non-durable goods demand.
Paperboard Packaging's operations face competition from other manufacturers
of packaging products, including manufacturers of alternative products, in each
of its geographic and product markets.
ANALYSIS OF PAPERBOARD PACKAGING'S REVENUES
The following tables set forth for each of the years 1996 through 1998
information relating to the sales of Paperboard Packaging's primary businesses:
<TABLE>
<CAPTION>
NET SALES (MILLIONS)
--------------------------
YEAR ENDED DECEMBER 31,
--------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Corrugated shipping containers and containerboard
products.................................................. $1,463 $1,326 $1,412
Folding cartons and recycled paperboard mill products....... 103 112 151
Other....................................................... 108 83 120
------ ------ ------
Total Paperboard Packaging............................. $1,674 $1,521 $1,683
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
--------------------------
YEAR ENDED DECEMBER 31,
--------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Corrugated shipping containers and containerboard
products.................................................. 87% 87% 84%
Folding cartons and recycled paperboard mill products....... 6 7 9
Other....................................................... 7 6 7
--- --- ---
Total Paperboard Packaging............................. 100% 100% 100%
=== === ===
Sales by Geographic Area(a)
United States............................................... 100% 100% 100%
=== === ===
</TABLE>
- -------------------------
(a) See Note 12 to Tenneco Inc. and Consolidated Subsidiaries Financial
Statements for certain information about foreign and domestic operations.
SALES AND MARKETING AND NEW PRODUCT DEVELOPMENT
Paperboard Packaging's corrugated container plants consume approximately
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 close to each mill. The balance of containerboard
production is exported or sold to other domestic converters and users.
Paperboard Packaging maintains a direct sales and marketing organization of
over 380 sales personnel serving both local and national accounts. The sales
organization consists primarily of sales representatives and a sales manager at
each manufacturing facility serving local and regional accounts, while corporate
account managers are positioned to correspond to customer locations. General
marketing support is maintained at Paperboard Packaging's headquarters.
Paperboard Packaging 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, 11
graphics facilities and approximately 70 sales personnel, new product
development engineers, and product graphics and design specialists. These
centers feature state-of-the-art computers and equipment for 24-hour design
turnaround and reduced product delivery times.
15
<PAGE> 20
MANUFACTURING AND ENGINEERING
Paperboard Packaging has two kraft linerboard mills and two corrugating
medium mills, located in Tennessee, Georgia, Michigan and Wisconsin,
respectively, which in 1998 collectively produced 2.1 million tons, or over 6%
of the industry's annual U.S. production. Over the last four years, Paperboard
Packaging has invested approximately $80 million at the Counce, Tennessee mill
to add more than 60,000 tons of annual capacity and enable 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. Paperboard Packaging operates three
paperstock recycling facilities that provide certain recycled fiber for the
Counce, Tennessee mill.
Domestically, Paperboard Packaging's corrugated container network includes
67 geographically dispersed plants in 26 states. Based on 1998 volume, these
plants manufacture approximately 6% of the industry's total annual U.S.
corrugated shipments. Engineers at Paperboard Packaging's headquarters and at
its manufacturing support center located in Skokie, Illinois provide technical
support to its plant and mill operations. In addition, Paperboard 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.
Paperboard Packaging operates five folding carton plants in the West and
Midwest. These plants produce high quality, innovative folding carton products
utilizing the latest in printing and cutting technology for the sheet-fed offset
and narrow-web flexo processes. Their annual production of 53,000 tons
represents 2% of the industry's annual U.S. production.
As of January 1, 1999, Paperboard Packaging owned, leased, managed or had
cutting rights on approximately 950,000 acres of timberland in Alabama, Florida,
Georgia, Mississippi, Tennessee, and Wisconsin. In 1998, 1997 and 1996,
approximately 36%, 35% and 37%, respectively, of the virgin fiber used by
Paperboard Packaging's mill operations was obtained from owned or controlled
timberlands. The balance of virgin fiber was purchased from numerous open market
wood sellers. To maximize the value of the timber harvested or purchased,
Paperboard Packaging operates a wood drying facility and three wood products
operations which produce hardwood and pine lumber. Paperboard Packaging is also
a party to a joint venture in a chip mill.
STRATEGIC ACQUISITIONS/JOINT VENTURES
Paperboard Packaging has a value added growth strategy, which was advanced
in 1995 with the acquisition of seven corrugated container manufacturing
facilities. For example, four of these facilities expanded Paperboard
Packaging's graphics and printing capabilities and broadened its offering of
products and services to include a variety of point-of-purchase displays and
point-of-sale packaging, rotogravure preprint, litho-lamination and advanced
graphics design.
In June 1996, Paperboard Packaging entered into a joint venture with
Caraustar Industries pursuant to which Paperboard Packaging contributed two
recycled paperboard mills and a recovered paper stock and brokerage operation.
In exchange, Tenneco received cash and a 20% equity position in the joint
venture, which interest it sold to Caraustar in June 1998. The aforementioned
mills continue to supply recycled paperboard to Paperboard Packaging's folding
carton plants.
In 1997, Paperboard Packaging acquired an additional specialty sheet plant
in Allentown, Pennsylvania, and a set-up box plant in Rochester, New York. In
1998, Paperboard Packaging acquired a wax cascading plant in Eaton Park, Florida
to enhance its Winter Haven, Florida container plant's produce packaging product
lines.
BUSINESS STRATEGY
Paperboard Packaging's strategy consists of: (i) improving customer and
product mix; (ii) increasing the value-added product offerings and (iii)
continuing to focus on cost reductions. Since 1995, acquisitions in specialty
corrugated graphics products have reduced Paperboard Packaging's sensitivity to
raw material prices and provided capabilities to penetrate greater value-added
market segments. Currently, approximately 10% of
16
<PAGE> 21
Paperboard Packaging's business is in higher margin enhanced graphics,
point-of-purchase displays and point-of-sale packaging. In 1997, Paperboard
Packaging's Counce, Tennessee linerboard mill substantially increased its
capabilities to produce lightweight linerboard, which represents higher margin
and higher growth potential. From late 1996 through 1998, cost reductions of
approximately $80 million were achieved at the containerboard mills. A key
element in achieving these cost savings has been Paperboard Packaging's fiber
flexibility, which allows the containerboard mills to manage their mix of virgin
and recycled fiber sources to take advantage of changing market conditions. In
the folding carton market segment, new product and process innovations have
included structural innovations like the EconoPour(R) family of integral paper
pour spouts and the RepelKote(TM) anti-infestation coating for dry food
packaging.
As part of the strategic alternatives announced in 1998, in January 1999
Tenneco entered into an agreement to contribute the containerboard assets of
Paperboard Packaging into a new joint venture with Madison Dearborn Partners in
exchange for cash and debt assumption totaling approximately $2 billion and a
45% common equity interest in the joint venture. These assets represent
substantially all of the assets of the Paperboard Packaging segment and include
four mills, 67 corrugated products facilities and an ownership or controlling
interest in approximately 950,000 acres of timberland. Paperboard Packaging's
folding carton business is not included in the transaction. The joint venture
entity (to be called Packaging Corporation of America) will be headed by Paul T.
Stecko, who will serve as its chairman and chief executive officer. Upon closing
of the transaction, Mr. Stecko will resign his position as president and chief
operating officer of Tenneco, but will continue to serve on Tenneco's Board of
Directors. The transaction is expected to be completed during the first half of
1999, subject to the satisfaction of customary conditions including entering
into certain financing arrangements. See "Business -- Tenneco Inc." and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Strategic Alternative Analysis."
OTHER
As of January 1, 1999, Paperboard Packaging had approximately 8,400
employees. Paperboard 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 Paperboard Packaging are important in
the manufacturing, marketing and distribution of its products.
The principal raw materials used by Paperboard Packaging in its
manufacturing operations are pulpwood, sawtimber and recycled fiber. Paperboard
Packaging obtains its pulpwood and sawtimber from timberland owned or controlled
by it as well as from outside purchases. Recycled fiber is supplied from outside
contractual sources as well as internally from its three recycling facilities
and its own containerboard clippings and trim.
TENNECO BUSINESS SERVICES
Tenneco Business Services ("TBS") designs, implements and administers
shared administrative service programs and data processing 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, financial reporting, general accounting, accounts
payable, 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; (iv) mainframes and distributed systems operations; (v)
telecommunications and network operations and management; (vi) help desk
support; and (vii) disaster recovery support.
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, 1999, TBS had approximately 350 employees.
TBS is headquartered in The Woodlands, Texas, and its data center is
located in Lincolnshire, Illinois.
17
<PAGE> 22
ENVIRONMENTAL MATTERS
The Company estimates that its subsidiaries will make capital expenditures
for environmental matters of approximately $39 million in 1999 and that capital
expenditures for environmental matters will be approximately $110 million in the
aggregate for the years 1999 through 2009.
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
Tenneco Inc. and Consolidated Subsidiaries.
CERTAIN REORGANIZATION AGREEMENTS
In connection with the Distributions, described on page 1 of this Annual
Report, Tenneco, Old Tenneco and Newport News entered into certain agreements,
described below, governing their relationship following the Distributions and
providing for the allocation of tax and certain other liabilities and
obligations arising from periods prior to the Distributions.
Tenneco, Old Tenneco and Newport News entered into a Distribution
Agreement, dated November 1, 1996, pursuant to which the Distributions and
certain corporate transactions required to effect the Distributions were
accomplished. The Distribution Agreement provides for, among other things, the
assumption of liabilities and cross indemnities designed to allocate generally,
effective as of the date of the Distributions, financial responsibility for the
liabilities of Old Tenneco arising out of or in connection with (i) Tenneco
Automotive, Specialty Packaging and Paperboard 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 Supply Participation Agreement which permits
Newport News to participate in certain national supplier relationships; (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 owns its executive offices at 1275 King Street, Greenwich,
Connecticut 06831, and its telephone number at that address is (203) 863-1000.
In connection with the Company's strategic actions, previously discussed, the
Company is studying a number of options including the potential disposition of
its
18
<PAGE> 23
headquarters facility in Greenwich, Connecticut and the consolidation of its
executive offices with the existing operational headquarters in Lake Forest,
Illinois.
Automotive
In the United States, Walker operates 12 manufacturing facilities and three
engineering and technical facilities. In addition, Walker operates 32
manufacturing facilities located in Argentina, Australia, Brazil, Canada, China,
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 five 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, South Africa, Spain, 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 sales offices in Japan and
Singapore.
Of the 72 properties described above, 54 are owned and 18 are leased. Eight
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.
Specialty Packaging
In North America, Specialty Packaging operates a total of 63 manufacturing
facilities, of which 35 are owned and 28 are leased. These facilities consist of
35 specialty products manufacturing facilities and 28 protective packaging
facilities. The specialty products manufacturing facilities consist of seven
molded fiber product plants, one molded fiber tooling fabrication facility, two
ovenable paperboard plants, and 25 plants that manufacture disposable plastic
and aluminum packaging products. The 28 protective package facilities include 12
paperboard honeycomb products plants, 15 other plants that manufacture plastic,
foam and other protective packaging products. In addition, Specialty Packaging
participates in a protective plastics joint venture in Chihuahua, Mexico. In
addition to the 63 manufacturing facilities, there are four research and design
centers.
Internationally, Specialty Packaging operates 24 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
four are leased. In addition, Specialty Packaging participates in three joint
venture operations in China and Hungary. The international operations include
two folding carton operations, one paperboard honeycomb products operation, one
corrugated container plant, a waste paper recycling center, a wood products
operation, 18 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.
Paperboard Packaging
Paperboard Packaging operates a total of 84 manufacturing facilities, of
which 56 are owned, 27 are leased, and one is held by a joint venture. These
facilities consist of 67 corrugated products facilities (65 box plants, one
corrugated products wax cascading facility and one machine rebuild facility),
five folding carton plants, four wood products facilities, and four mills with
nine containerboard machines. Two of the mills (located in Georgia and
Wisconsin), including substantially all of the equipment associated with both
mills, are held under lease. Additionally, Paperboard Packaging participates in
a joint venture chip mill. Three recycled paperstock facilities provide raw
materials for the Counce, Tennessee mill. All facilities are located within the
continental United States.
19
<PAGE> 24
TBS
TBS operates out of its headquarters in The Woodlands, Texas, and its data
center is located in Lincolnshire, Illinois. Both facilities 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 1, 1999, the Company had been designated as a potentially
responsible party in seven "Superfund" sites. The Company has estimated its
share of the remediation costs for these sites to be approximately $4 million in
the aggregate and has established reserves that it believes are adequate for
such costs. Because the clean-up costs are estimates and are subject to revision
as more information becomes available about the extent of remediation required,
the Company's estimate of its remediation costs could change. Moreover,
liability under the Comprehensive Environmental Response, Compensation and
Liability Act is joint and several, meaning that the Company could be required
to pay in excess of its share of remediation costs. The Company's understanding
of the financial strength of other potentially responsible parties has been
considered, where appropriate, in the Company's determination of its estimated
liability. The Company believes that the costs associated with its current
status as a potentially responsible party in the Superfund sites referenced
above will not be material to its consolidated financial position or results of
operations.
For additional information concerning environmental matters, see Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," Item 1. "Business and Properties" and the caption "Environmental
Matters" under Note 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"), which covers salaried employees of Newport News and other Tenneco
divisions, and the 1986 asset valuation for the TRP and its cost accounting
treatment. On January 15, 1999, Newport News entered into a settlement agreement
with the Federal Government regarding the TRP. Under a separate agreement,
Tenneco agreed to pay Newport News $14.5 million with respect to this and other
matters. This payment had no material impact on Tenneco's financial condition or
results of operations.
The Company and its subsidiaries are parties to various 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 financial position or results of
operations.
20
<PAGE> 25
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 1998.
ITEM 4.1. EXECUTIVE OFFICERS OF THE REGISTRANT.
Set forth below is a list of the executive officers of Tenneco Inc. at
March 1, 1999. 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 EFFECTIVE DATE
DECEMBER 31, 1998) OFFICES HELD* OF TERM
------------------ ------------- --------------
<S> <C> <C>
Dana G. Mead (62)................... 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 (54)................. Director November 1998
President November 1998
Chief Operating Officer January 1997
Theodore R. Tetzlaff (54)........... General Counsel July 1992
Robert T. Blakely (57).............. Executive Vice President May 1996
Chief Financial Officer July 1981
John J. Castellani (47)............. Executive Vice President January 1997
Karl A. Stewart (55)................ 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 November 1998 Paul T. Stecko has been serving as a Director
and from December 1993 to June 1997 served 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 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.
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<PAGE> 26
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.
<TABLE>
<CAPTION>
SALE
PRICES
----------------- DIVIDENDS
QUARTER HIGH LOW PAID
------- ---- --- ---------
<S> <C> <C> <C>
1998
1st....................................... 45 36 .30
2nd....................................... 47 1/2 37 .30
3rd....................................... 38 7/8 30 7/8 .30
4th....................................... 37 7/16 29 1/2 .30
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
</TABLE>
As of January 31, 1999, there were approximately 81,896 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, 1998, 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.
22
<PAGE> 27
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>
1998(a) 1997(a) 1996(a) 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA(b):
Net sales and operating revenues from
continuing operations --
Automotive........................... $ 3,237 $ 3,226 $ 2,980 $ 2,479 $ 1,989
Specialty Packaging.................. 2,785 2,553 1,987 845 636
Paperboard Packaging................. 1,674 1,521 1,683 1,923 1,560
Intergroup sales and other........... (99) (80) (78) (26) (19)
----------- ----------- ----------- ----------- -----------
Total............................. $ 7,597 $ 7,220 $ 6,572 $ 5,221 $ 4,166
=========== =========== =========== =========== ===========
Income from continuing operations before
interest expense, income taxes, and
minority interest --
Automotive........................... $ 248 $ 407 $ 249 $ 240 $ 223
Specialty Packaging.................. 328 308 249 39 68
Paperboard Packaging................. 131 63 152 391 141
Other................................ (66) (14) (22) 2 24
----------- ----------- ----------- ----------- -----------
Total............................. 641 764 628 672 456
Interest expense (net of interest
capitalized)(c)........................ 240 216 195 160 104
Income tax expense....................... 116 163 194 231 114
Minority interest........................ 30 24 21 23 --
----------- ----------- ----------- ----------- -----------
Income from continuing operations........ 255 361 218 258 238
Income from discontinued operations, net
of income tax(d)....................... -- -- 428 477 214
Extraordinary loss, net of income
tax(e)................................. -- -- (236) -- (5)
Cumulative effect of changes in
accounting principles, net of income
tax(f)................................. -- (46) -- -- (39)
----------- ----------- ----------- ----------- -----------
Net income............................... 255 315 410 735 408
Preferred stock dividends................ -- -- 12 12 60
----------- ----------- ----------- ----------- -----------
Net income to common stock............... $ 255 $ 315 $ 398 $ 723 $ 348
=========== =========== =========== =========== ===========
Average number of shares of common stock
outstanding(g) --
Basic................................ 168,505,573 170,264,731 169,609,373 172,764,198 162,307,189
Diluted.............................. 168,834,531 170,801,636 170,526,112 173,511,654 162,912,425
Earnings per average share of common
stock(g) --
Basic:
Continuing operations............. $ 1.52 $ 2.12 $ 1.29 $ 1.49 $ 1.17
Discontinued operations(d)........ -- -- 2.45 2.70 1.25
Extraordinary loss(e)............. -- -- (1.39) -- (.03)
Cumulative effect of changes in
accounting principles(f)........ -- (.27) -- -- (.24)
----------- ----------- ----------- ----------- -----------
$ 1.52 $ 1.85 $ 2.35 $ 4.19 $ 2.15
=========== =========== =========== =========== ===========
Diluted:
Continuing operations............. $ 1.51 $ 2.11 $ 1.28 $ 1.48 $ 1.17
Discontinued operations(d)........ -- -- 2.44 2.69 1.24
Extraordinary loss(e)............. -- -- (1.38) -- (.03)
Cumulative effect of changes in
accounting principles(f)........ -- (.27) -- -- (.24)
----------- ----------- ----------- ----------- -----------
$ 1.51 $ 1.84 $ 2.34 $ 4.17 $ 2.14
=========== =========== =========== =========== ===========
Cash dividends per common share.......... $ 1.20 $ 1.20 $ 1.80 $ 1.60 $ 1.60
</TABLE>
23
<PAGE> 28
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
YEARS ENDED DECEMBER 31, -- (CONTINUED)
(MILLIONS)
<TABLE>
<CAPTION>
1998(a) 1997(a) 1996(a) 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA(b):
Net assets of discontinued operations.... $ -- $ -- $ -- $ 1,045 $ 1,858
Total assets............................. 8,791 8,332 7,587 7,413 5,853
Short-term debt(c)....................... 1,071 278 236 384 108
Long-term debt(c)........................ 2,360 2,633 2,067 1,648 1,039
Minority interest........................ 421 424 304 301 301
Shareowners' equity...................... 2,504 2,528 2,646 3,148 2,900
STATEMENT OF CASH FLOWS DATA(b):
Net cash provided by operating
activities............................. $ 532 $ 519 $ 253 $ 1,443 $ 450
Net cash used by investing activities.... (759) (897) (693) (1,146) (117)
Net cash provided (used) by financing
activities............................. 216 354 147 (356) (151)
Capital expenditures for continuing
operations............................. (592) (558) (573) (562) (280)
</TABLE>
- -------------------------
(a) For a discussion of the significant items affecting comparability of the
financial information for 1998, 1997, and 1996, see Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
See also Notes 1 and 2 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 Specialty 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 Automotive's
acquisition of Clevite for $328 million in July 1996. See Note 4 to the
Financial Statements of Tenneco Inc. and Consolidated Subsidiaries for
additional information.
(c) Debt amounts for 1995 and 1994 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 for additional information.
(d) 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.
(e) 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 2 to the Financial
Statements of Tenneco Inc. and Consolidated Subsidiaries.
(f) 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 ("FAS") 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.
(g) The average number of shares of common stock outstanding and 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 8 to
the Financial Statements of Tenneco Inc. and Consolidated Subsidiaries for
information regarding the computation of earnings per share of common stock.
24
<PAGE> 29
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
STRATEGIC ALTERNATIVES ANALYSIS
On July 21, 1998, Tenneco announced that its Board of Directors had
authorized management to develop a broad range of strategic alternatives
designed to better realize the long-term value of its businesses for its
shareowners. Among the options is the separation of the automotive,
containerboard packaging and specialty packaging businesses.
On January 26, 1999, Tenneco announced that it had entered into an
agreement to contribute the containerboard assets of its Paperboard Packaging
business into a new joint venture with Madison Dearborn Partners, in exchange
for cash and debt assumption totaling approximately $2 billion and a 45 percent
common equity interest in the joint venture. These assets represent
substantially all of the assets of the Paperboard Packaging segment and include
four mills, 67 corrugated products plants and an ownership or controlling
interest in approximately 950,000 acres of timberland. Paperboard Packaging's
folding carton business is not included in the transaction. In connection with
the transaction, Tenneco Packaging Inc. will borrow approximately $1.8 billion,
the majority of which will be used to acquire assets used by the containerboard
business pursuant to operating leases and timber cutting rights, with the
remainder remitted to Tenneco for corporate debt reduction. Tenneco Packaging
Inc. will then contribute the containerboard business assets (subject to the new
indebtedness and the containerboard business liabilities) to a joint venture in
exchange for approximately $240 million in cash and a 45 percent common equity
interest in the joint venture, valued at approximately $200 million. As a result
of the sale transaction, Tenneco expects to recognize a pre-tax loss in 1999 of
approximately $380 million to $395 million. Subject to certain customary closing
conditions, the transaction is expected to close during the first half of 1999.
Subsequent to closing, Tenneco will account for its remaining 45 percent
interest in the containerboard business on the equity method of accounting.
Tenneco continues to analyze the alternatives for Automotive and Specialty
Packaging as well as Paperboard Packaging's folding carton business. Those
alternatives include a sale, merger, spin-off or public offering. Tenneco will
make public announcements of the expected transactions as those transactions are
determined.
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 1998 AND 1997
RESULTS OF CONTINUING OPERATIONS
Tenneco reported income from continuing operations of $255 million for the
year ended December 31, 1998, compared to $361 million for the same period in
1997. The 1998 figure includes a $64 million after-tax charge to restructure the
Company's automotive aftermarket business and to reduce overhead and
manufacturing costs throughout every part of Tenneco's business. Excluding the
restructuring charge, Tenneco's income from continuing operations for the 1998
period was $319 million compared to $361 million for the year ended December 31,
1997. The decline results from lower earnings at Automotive combined with costs
related to Tenneco's data center consolidation effort, offset in part by
stronger results in Paperboard Packaging and record results in Specialty
Packaging. Higher interest expense and minority interest also contributed to the
earnings decline.
NET SALES AND OPERATING REVENUES
<TABLE>
<CAPTION>
%
1998 1997 CHANGE
------ ------ ------
(MILLIONS)
<S> <C> <C> <C>
Automotive............................................ $3,237 $3,226 --%
Specialty Packaging................................... 2,785 2,553 9
Paperboard Packaging.................................. 1,674 1,521 10
Intergroup sales and other............................ (99) (80) NM
------ ------
$7,597 $7,220 5%
====== ======
</TABLE>
25
<PAGE> 30
Automotive's revenue for 1998 was essentially flat with 1997 as increases
in original equipment revenue in North America and Europe of $215 million were
offset by a $165 million decline in aftermarket revenues throughout the world, a
$54 million reduction due to the adverse impact of a strong U.S. dollar, with
the remaining change due to the mix of products sold. Original equipment revenue
was up as Automotive continued to place its ride control and exhaust products on
many of the world's best-selling vehicles. Lower aftermarket demand was driven
by customer consolidations that temporarily increased field inventory levels in
North America and Europe; milder than normal winter weather; and continuing soft
Asian and South American replacement markets. Additionally, Tenneco Automotive
continued to reduce its quarterly promotional programs in an effort to better
balance supply and demand going into 1999.
Specialty Packaging's revenue increase of $232 million resulted primarily
from full year inclusion of the protective and flexible packaging businesses
acquired from NV Koninklijke KNP BT ("KNP") in 1997 and from the May 1998
acquisition of Richter Manufacturing, a leading producer of protective packaging
for the western United States. The KNP businesses contributed $160 million of
incremental revenue in 1998 measured through the first anniversary of their
acquisition in late April 1997. Richter Manufacturing revenue during 1998 was
$39 million. The remaining revenue increase reflects higher volumes in numerous
product lines which more than offset lower pricing.
Paperboard Packaging's revenue increased by $153 million over 1997 levels.
This increase is primarily attributable to improved pricing which occurred
during the first three quarters of the year, offset in part by lower pricing
during the fourth quarter. Favorable volume accounted for the remaining revenue
increase.
INCOME BEFORE INTEREST EXPENSE, INCOME TAXES, AND MINORITY INTEREST (OPERATING
INCOME)
RESTRUCTURING AND OTHER CHARGES
On July 21, 1998, Tenneco announced its intention to initiate a
restructuring plan designed to reduce administrative and operational overhead
costs in every part of Tenneco's business. In the fourth quarter of 1998,
Tenneco's Board of Directors approved an extensive restructuring plan to
accomplish the overhead reduction goals as well as to consolidate the
manufacturing and distribution operations of Automotive's North American
aftermarket business and certain manufacturing operations in the Paperboard
Packaging and Specialty Packaging businesses. The restructuring plan is expected
to result in $135 million in annual savings, 80 percent of which is expected to
be realized in 1999. Tenneco recorded a pre-tax charge of $100 million, $64
million after-tax or 38 cents per share, in the fourth quarter of 1998 related
to this restructuring plan. Of the pre-tax charge, for operational restructuring
actions, $36 million is related to the Automotive aftermarket restructuring, $10
million is related to the Specialty Packaging restructuring, and $10 million is
related to the Paperboard Packaging restructuring. The staff and related cost
reduction plan, which covers staff reductions at both the operating units and at
corporate, is expected to cost $44 million. The charge was recognized in the
results of operations for each segment where the costs will be incurred.
Including the charges for the staff and related cost reductions, Automotive
recorded a charge of $53 million, Specialty Packaging a charge of $18 million,
Paperboard Packaging a charge of $17 million and Tenneco's corporate operations
a charge of $12 million.
The Automotive aftermarket restructuring involves closing two plant
locations and five distribution centers and the elimination of 302 positions at
those locations. The Paperboard Packaging restructuring plan involves closing
four box plants and the elimination of 78 positions at those plants. The
Specialty Packaging restructuring plan involves the elimination of production
lines at two plants and the closure of one plant. Additionally, Specialty
Packaging will exit four joint ventures. These actions involve the elimination
of 104 positions. The staff and related cost reduction plan involves the
elimination of 834 administrative positions in Tenneco's three business units
and its corporate operations.
The fixed assets at the locations to be closed and for the production lines
to be eliminated, as well as the joint venture investments, were written down to
their estimated fair value. No significant cash proceeds are expected to be
received from the ultimate disposal of these assets.
26
<PAGE> 31
As of December 31, 1998, approximately 500 employees had been terminated
pursuant to the restructuring plan.
Amounts related to the restructuring plan are shown in the following table:
<TABLE>
<CAPTION>
FOURTH
1998 QUARTER CHARGED BALANCE AT
RESTRUCTURING 1998 TO ASSET DECEMBER 31,
CHARGE PAYMENTS ACCOUNTS 1998
------------- -------- -------- ------------
(MILLIONS)
<S> <C> <C> <C> <C>
Severance............................ $ 44 $10 $-- $34
Asset impairments.................... 49 -- 49 --
Facility exit costs.................. 7 -- -- 7
---- --- --- ---
$100 $10 $49 $41
==== === === ===
</TABLE>
Tenneco expects the balance of the restructuring liability will be expended
during 1999 and that the restructuring actions will be complete by the fourth
quarter of 1999.
OPERATING INCOME
Excluding these restructuring charges, a comparison of Tenneco's 1998 and
1997 operating income is as follows:
<TABLE>
<CAPTION>
%
1998 1997 CHANGE
---- ---- ------
(MILLIONS)
<S> <C> <C> <C>
Automotive............................................... $301 $407 (26)%
Specialty Packaging...................................... 346 308 12
Paperboard Packaging..................................... 148 63 135
Other.................................................... (54) (14) NM
---- ----
$741 $764 (3)%
==== ====
</TABLE>
Automotive's operating income in 1998 reflected strong volume growth in the
original equipment business which was more than offset by lower volumes in the
aftermarket. The net impact of volume was a decline in operating income of $43
million. Adverse currency movements caused a further deterioration of $14
million. The 1997 operating income included $10 million related to the favorable
resolution of a legal action and a net reduction of $4 million in certain
reserves, primarily related to ongoing reorganization initiatives which had
proceeded more rapidly and efficiently than planned, allowing Automotive to
adjust its cost estimate for completing the initiatives. Charges in 1998 for bad
debts, a higher level of costs related to customer acquisition activity and
marketing, and pricing adjustments in the original equipment business produced
the balance of the earnings decline.
Specialty Packaging's operating income increase reflected $24 million from
acquired businesses through the one-year anniversary of their acquisitions as
well as higher unit volumes, primarily in Hefty One-Zip(R), food service foam,
and consumer tableware products. Lower raw material costs approximately offset
price reductions to customers. In addition, Specialty Packaging incurred
approximately $7 million in one-time costs related to an information systems
project in North America.
The operating income of Paperboard Packaging's business in 1998 included a
$15 million pre-tax gain on the sale of its remaining 20 percent interest in a
recycled paperboard joint venture with Caraustar Industries and a $17 million
gain on the sale of non-strategic timberland assets. In 1997, operating income
included a $38 million gain on refinancing of two containerboard mill leases and
a $5 million gain from a timberland management transaction. Excluding these
items, Paperboard Packaging's operating income increased by $96 million,
primarily as a result of higher linerboard and medium pricing, and higher
volumes during the year.
27
<PAGE> 32
Tenneco's "Other" operating loss increased in 1998 over 1997 levels
primarily as a result of higher costs related to Tenneco's data center
consolidation effort, which more than offset lower unabsorbed costs at Tenneco's
administrative services operation. Tenneco began consolidating its North
American data center operations in 1998. The operating costs of the data center
will continue into 1999 and beyond.
OUTLOOK
Automotive anticipates improved results in 1999. In the original equipment
market, Automotive was awarded 44 new platforms during 1998. Its products are
incorporated in 11 of the 15 top selling global car models. The growth generated
in the original equipment market from the award of new platforms and placement
of Automotive's products on top selling models will be partially offset by
engineering costs for new automobile original equipment platforms, which must be
expensed as they are incurred beginning in 1999 pursuant to the previously
described change in accounting principle for start-up costs. The inventory
position of Automotive's North American aftermarket customers which contributed
to the 1998 results is expected to continue to gradually improve in 1999, while
consolidation in the automotive aftermarket parts distribution business in
Europe is expected to contribute to low sales growth levels there as well.
Nevertheless, the recently announced aftermarket restructuring and overhead cost
reduction program should position Automotive to deliver both revenue growth and
improved operating margins in 1999.
Specialty Packaging's future is primarily based on the strength of its
brands. The breadth of the Hefty brand was enhanced during 1998 with the
introduction of new products including Easy Flaps(R) waste bags and Fast-Pak(TM)
deli bags with Slide Rite(TM) technology. The Hexacomb(R) and Jiffy(TM) brand
names have helped to make Specialty Packaging a leading producer of protective
packaging in Europe and one of the largest in the United States. During 1998
Specialty Packaging introduced the Big Breakfast deluxe foam package for the new
breakfast meal from McDonalds. This, other new product introductions,
acquisitions including Richter Manufacturing, and the higher growth rate of
Specialty Packaging's market segments should lead to volume increases. Mix
management and cost reductions should combine with the volume gains to produce
increased earnings in 1999.
The sale of the containerboard packaging business is expected to reduce the
cyclicality of Tenneco's earnings while Tenneco will still benefit from its 45
percent common equity interest in the joint venture to be formed as a result of
the transaction.
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 $240 million, a $24 million increase
over 1997. The increase reflects a higher borrowing level during 1998, resulting
from inclusion for the full year of amounts used to acquire the protective and
flexible packaging business of KNP in late April 1997, a higher level of working
capital to support higher revenue levels and Tenneco's share repurchase
activity.
INCOME TAXES
Tenneco's effective tax rate for 1998 was 29 percent, compared to 30
percent for 1997. The 1998 effective tax rate was lower than the statutory rate
as a result of certain non-recurring foreign and state tax benefits, lower
foreign tax rates and a reduction in Tenneco's estimated tax liabilities related
to certain global tax audits. The 1997 effective tax rate benefitted from the
non-recurring impact of certain foreign tax benefits and the benefit of
previously unrecognized deferred tax assets.
MINORITY INTEREST
Minority interest was $30 million in 1998, compared to $24 million in 1997.
This primarily represents dividends on the preferred stock of a U.S. subsidiary.
In December 1997, this subsidiary issued additional
28
<PAGE> 33
preferred stock. See Note 10 to the Financial Statements of Tenneco Inc. and
Consolidated Subsidiaries for additional information.
CHANGES IN ACCOUNTING PRINCIPLES
Tenneco's 1997 net income included a $46 million after-tax charge for the
cumulative effect of a change in accounting principle related to requirements of
the Financial Accounting Standards Board's ("FASB") 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 March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use," which establishes
new accounting and reporting standards for the costs of computer software
developed or obtained for internal use. This statement will be applied
prospectively and is effective for fiscal years beginning after December 15,
1998. Tenneco currently capitalizes costs for purchase and development of
software which is used in its business operations. Consequently, the impact of
this new standard will not have a significant effect on Tenneco's financial
position or results of operations.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities," which requires costs of start-up activities to be expensed
as incurred. This statement is effective for fiscal years beginning after
December 15, 1998. The statement requires previously capitalized costs related
to start-up activities to be expensed as a cumulative effect of a change in
accounting principle when the statement is adopted. Tenneco capitalizes certain
costs related to start-up activities, primarily engineering costs for new
automobile original equipment platforms. Tenneco expects to record an after-tax
charge for the cumulative effect of this change in accounting principle upon
adoption of approximately $100 million. Tenneco will adopt this new accounting
principle in the first quarter of 1999.
In June 1998, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This statement establishes new accounting and reporting standards
requiring that all derivative instruments (including certain derivative
instruments embedded in other contracts) be recorded in the balance sheet as
either an asset or liability measured at its fair value. The statement requires
that changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Special accounting for
qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement and requires that a company
must formally document, designate and assess the effectiveness of transactions
that receive hedge accounting. This statement cannot be applied retroactively
and is effective for all fiscal years beginning after June 15, 1999. Tenneco is
currently evaluating the new standard but has not yet determined the impact it
will have on its financial position or results of operations.
In the fourth quarter of 1998, Tenneco adopted the provisions of SFAS No.
131, "Disclosures About Segments of An Enterprise and Related Information." As a
result, Tenneco began reporting Automotive, Specialty Packaging and Paperboard
Packaging segments in its financial statements. Segment data for all prior
periods has been restated to reflect the new segment reporting requirements.
EARNINGS PER SHARE
Income from continuing operations was $1.51 per share on a diluted basis
for 1998, compared to $2.11 per share in 1997. (All references to earnings per
share in this Management's Discussion and Analysis are on a diluted basis unless
otherwise noted.) For 1997, Tenneco also recorded the cumulative effect of a
change in accounting principle noted above of $.27 per share, resulting in net
income of $1.84 per share. For 1998, net income was equal to income from
continuing operations.
29
<PAGE> 34
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
<TABLE>
<CAPTION>
1998 1997
----- -----
(MILLIONS)
<S> <C> <C>
Cash provided (used) by:
Operating activities...................................... $ 532 $ 519
Investing activities...................................... (759) (897)
Financing activities...................................... 216 354
</TABLE>
OPERATING ACTIVITIES
Cash flow provided by operating activities was $13 million higher in 1998
than in 1997. Income before depreciation, depletion and amortization was $23
million lower than in 1997, as a result of the restructuring charge taken during
the fourth quarter of 1998, for which the bulk of the cash outflows will occur
during 1999. Without this charge, income before depreciation, depletion and
amortization would have been $41 million higher in 1998 than in 1997. Noncash
charges for deferred income taxes were higher in 1997 than in 1998, primarily as
a result of tax benefits derived from the 1996 reorganization and debt
realignment and a 1996 tax net operating loss which was carried back to earlier
years. Components of working capital used significantly less cash in 1998,
primarily as a result of payment of certain liabilities in 1997, including those
incurred in connection with the 1996 reorganization, combined with increases in
liabilities in 1998 associated with the restructuring charge. Other operating
activities improved by $38 million primarily resulting from the absence in 1998
of an adjustment to offset non-cash income from the mill lease refinancing which
occurred in 1997.
INVESTING ACTIVITIES
Investing activities used $138 million less cash in 1998 than in 1997.
Acquisitions were lower by $210 million. During 1998, the most significant
acquisitions were Richter Manufacturing, a North American protective packaging
business, and the Belvidere, Illinois ovenable paperboard tray manufacturing
facility of Champion International. Acquisition activity in 1997 primarily
related to the purchase of KNP's protective and flexible packaging business.
Partially offsetting this lower level of acquisition activity was an increase in
capital expenditures. Capital expenditures in 1998 included $84 million spent to
acquire certain leased timberlands in contemplation of the separation of the
containerboard assets from Tenneco's other businesses. In January 1999, Tenneco
spent $50,000 to complete the transaction to purchase these timberlands. Absent
this transaction, which was necessary to position the containerboard business
for its eventual sale, capital expenditures declined $50 million in 1998,
reflecting lower spending in both the Automotive and Specialty Packaging
segments.
FINANCING ACTIVITIES
Financing activities in 1998 generated $138 million less cash than in 1997.
During 1997, a Tenneco subsidiary issued preferred stock, the net proceeds of
which were $99 million. During 1998, Tenneco repurchased $22 million more of its
common stock than in 1997. 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 of these debt offerings was $593 million. During 1998, Tenneco's
short-term debt (excluding current maturities on long-term debt) increased by
$540 million.
LIQUIDITY
At December 31, 1998, Tenneco's 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
30
<PAGE> 35
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 $576 million at December 31,
1998. There were no borrowings under this credit facility at December 31, 1998.
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 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, 1998, Tenneco's ratio of debt to total capitalization as defined in
the credit facility was 57.9 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.
Following Tenneco's July 21, 1998 announcement regarding its analysis of
strategic alternatives, Standard and Poor's and Moody's debt rating agencies
placed the rating on Tenneco's debt in review, pending the outcome of Tenneco's
strategic alternatives analysis. In consideration of the rating agency actions
and the possibility that the strategic alternatives analysis could result in the
separation of the automotive, specialty packaging, and containerboard
businesses, which could require a realignment of Tenneco's long-term debt,
Tenneco has financed its capital needs with short-term debt during the year.
Consequently, Tenneco's short-term debt at December 31, 1998 was $549 million
higher than at December 31, 1997. Tenneco believes that its existing committed
credit facility, supplemented by the net proceeds from the sale of the
containerboard business, are adequate to meet its 1999 capital requirements,
including scheduled long-term debt retirements of $250 million. However, should
additional financing be required, Tenneco's current debt covenants would allow
it to borrow up to an additional $2.3 billion which Tenneco believes it could
obtain at commercially reasonable rates.
CAPITAL COMMITMENTS
Tenneco estimates that expenditures of approximately $305 million will be
required after December 31, 1998, to complete facilities and projects authorized
at such date, and substantial commitments have been made in connection
therewith. Of this amount, $49 million is in support of the containerboard
business, which Tenneco has reached an agreement to sell as discussed above.
CAPITALIZATION
<TABLE>
<CAPTION>
%
1998 1997 CHANGE
------ ------ ------
(MILLIONS)
<S> <C> <C> <C>
Short-term debt and current maturities.............. $1,071 $ 278 285%
Long-term debt...................................... 2,360 2,633 (10)
Minority interest................................... 421 424 (1)
Common shareowners' equity.......................... 2,504 2,528 (1)
------ ------
Total capitalization...................... $6,356 $5,863 8%
====== ======
</TABLE>
Tenneco's debt to capitalization ratio was 54.0 percent at December 31,
1998, compared to 49.7 percent at December 31, 1997. The increase in the ratio
is attributable to the additional debt issued during 1998 as described under
"Cash Flow-Financing Activities" above, as well as a decline in equity resulting
from net income in 1998 being more than offset by dividends and share
repurchases.
DIVIDENDS ON COMMON STOCK
Tenneco Inc. declared dividends on its common shares of $.30 per share for
each quarter in 1998. Declaration of dividends is at the discretion of the Board
of Directors. The Board has not adopted a dividend
31
<PAGE> 36
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 are evaluated separately from the liability and, when assured, are
recorded and reported separately from the associated liability in the financial
statements.
At February 1, 1999, Tenneco had been designated as a potentially
responsible party in seven "Superfund" sites. Tenneco has estimated its share of
the remediation costs for these sites to be approximately $4 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 $35 million in 1999 and that capital expenditures for
environmental matters will be approximately $104 million in the aggregate for
the years 1999 through 2009.
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.
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
32
<PAGE> 37
for foreign currency forward purchase and sale contracts as of December 31,
1998. All contracts in the following table mature in 1999.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------------------------
WEIGHTED
NOTIONAL AMOUNT AVERAGE FAIR VALUE
IN FOREIGN CURRENCY SETTLEMENT RATES IN U.S. DOLLARS
------------------- ---------------- ---------------
(MILLIONS EXCEPT SETTLEMENT RATES)
<S> <C> <C> <C> <C>
Belgian Francs -Purchase 594 0.029 $ 17
-Sell (644) 0.029 (19)
British Pounds -Purchase 98 1.660 163
-Sell (152) 1.660 (252)
Canadian Dollars -Purchase 112 0.654 73
-Sell (176) 0.654 (115)
Danish Krone -Purchase 79 0.157 12
-Sell -- -- --
French Francs -Purchase 497 0.179 89
-Sell (97) 0.179 (17)
German Marks -Purchase 3 0.599 2
-Sell (56) 0.599 (33)
Portuguese Escudo -Purchase 1,947 0.006 11
-Sell (30) 0.006 --
Spanish Pesetas -Purchase 4,545 0.007 32
-Sell (325) 0.007 (2)
U.S. Dollars -Purchase 105 1.000 105
-Sell (33) 1.000 (33)
Other -Purchase 395 .043 17
-Sell (719) 0.068 (49)
-----
$ 1
=====
</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.
The table below provides information about Tenneco's financial instruments
that are sensitive to interest rate risk.
<TABLE>
<CAPTION>
ESTIMATED MATURITY DATES FAIR VALUE AT
---------------------------------------------------------- DECEMBER 31,
1999 2000 2001 2002 2003 THEREAFTER TOTAL 1998(a)
---- ---- ---- ---- ---- ---------- ------ -------------
(MILLIONS EXCEPT EFFECTIVE INTEREST RATES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Short-term debt (excluding
current maturities)......... $821 $ -- $ -- $ -- $ -- $ -- $ 821 $ 821
Average effective interest
rate..................... 5.9% --% --% --% --% --%
Long-term debt (including
current maturities)......... $250 $ 10 $187 $498 $ 7 $1,583 $2,535 $2,606
Average effective interest
rate..................... 6.4% 12.0% 6.8% 6.8% 11.2% 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, 1998.
33
<PAGE> 38
Tenneco also has other obligations which are sensitive to changes in the
market rate of interest. A subsidiary has issued preferred stock with a rate
amount of $400 million which pays a dividend based upon the current market rate
of interest. See Note 10 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 $825 million. See Note 13 to the Financial Statements of Tenneco
Inc. and Consolidated Subsidiaries.
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
utilizing date-sensitive data, were structured to use a two-digit date field
meaning that they will not be able to properly recognize dates in the Year 2000.
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 and equipment are expected to
remain in place beyond 1999, Tenneco has a detailed process in place to identify
and assess Year 2000 issues and to remediate, replace or establish alternative
procedures addressing non-Year 2000 compliant systems, hardware, and equipment.
Tenneco has substantially completed inventorying its systems and equipment
including computer systems and business applications as well as date-sensitive
technology embedded in its equipment and facilities. Tenneco continues to plan
for and undertake remediation, replacement, or alternative procedures for non-
compliant Year 2000 systems and equipment; and test remediated, replaced, or
alternative procedures for systems and equipment. Tenneco has confirmed that
none of its products are date-sensitive. Remediation, replacement, or
alternative procedures for systems and equipment are being undertaken on a
business priority basis. This is ongoing and was completed at some locations in
1998 with the remainder to be completed through the third quarter of 1999.
Testing will occur in the same time frame. Also, Tenneco is contacting its major
customers, suppliers, financial institutions, and others with whom it conducts
business to determine whether they will be able to resolve in a timely manner
Year 2000 problems possibly affecting Tenneco. As part of its planning and
readiness activities, Tenneco is developing Year 2000 contingency plans for
critical business processes such as banking, data center operations and
just-in-time manufacturing operations. Contingency plans also will be developed
on a business unit basis, where needed, to respond to previously undetected Year
2000 problems and business interruption from suppliers.
Based upon current estimates, Tenneco believes it will incur costs which
may range from approximately $50 to $60 million to address Year 2000 issues and
implement the necessary changes to its existing systems and equipment. As of
December 31, 1998, approximately $14 million of the costs have already been
incurred. These costs are being expensed as they are incurred, except that in
certain instances Tenneco may determine that replacing existing computer systems
or equipment may be more effective and efficient, particularly where additional
functionality is available. These replacements would be capitalized and would
reduce the estimated expense associated with Year 2000 issues.
In the event Tenneco is unable to complete the remediation, replacement, or
alternative procedures for critical systems and equipment in a timely manner or
if those with whom Tenneco conducts business are unsuccessful in implementing
timely solutions, Year 2000 issues could have a material adverse effect on
Tenneco's results of operations. At this time, the potential effect in the event
Tenneco and/or third parties are unable to timely resolve Year 2000 problems is
not determinable; however, Tenneco believes it will be able to resolve its own
Year 2000 issues.
EURO CONVERSION
The European Monetary Union resulted in the adoption of a common currency,
the "Euro", among eleven European nations. The Euro is being adopted over a
three-year transition period beginning January 1, 1999. In October 1997, Tenneco
established a cross-functional Euro Committee, comprised of representatives of
the
34
<PAGE> 39
Company's operational divisions as well as its corporate offices. That Committee
had two principal objectives: (i) to determine the impact of the Euro on the
Company's business operations, and (ii) to recommend and facilitate
implementation of those steps necessary to ensure that Tenneco would be fully
prepared for the Euro's introduction. As of January 1, 1999, Tenneco has
implemented those Euro conversion procedures that it had determined to be
necessary and prudent to adopt by that date, and is on track to becoming fully
"Euro ready" on or before the conclusion of the three-year Euro transition
period. Tenneco believes that the costs associated with transitioning to the
Euro will not be material to its consolidated financial position or the results
of its operations.
YEARS 1997 AND 1996
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 ("Automotive"), packaging ("Specialty Packaging" and
"Paperboard 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 Automotive, Specialty Packaging and Paperboard 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 2 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.
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 Automotive
and Specialty Packaging, offset by lower results at Paperboard Packaging
reflecting lower containerboard pricing. A lower effective tax rate for 1997
compared to 1996 also contributed to the improved results.
35
<PAGE> 40
NET SALES AND OPERATING REVENUES
<TABLE>
<CAPTION>
%
1997 1996 CHANGE
------ ------ ------
(MILLIONS)
<S> <C> <C> <C>
Automotive............................................ $3,226 $2,980 8%
Specialty Packaging................................... 2,553 1,987 28
Paperboard Packaging.................................. 1,521 1,683 (10)
Intergroup sales and other............................ (80) (78) NM
------ ------
$7,220 $6,572 10%
====== ======
</TABLE>
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 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.
Specialty Packaging experienced gains of $566 million during 1997 over
1996. This growth 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 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 decline in revenues in Paperboard Packaging of $162 million was
primarily attributable to lower linerboard and medium prices. 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>
Automotive............................................... $407 $249 63%
Specialty Packaging...................................... 308 249 24
Paperboard Packaging..................................... 63 152 (59)
Other.................................................... (14) (22) NM
---- ----
$764 $628 22%
==== ====
</TABLE>
During 1996, 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
36
<PAGE> 41
income of more than $30 million. During the third quarter of 1997, 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 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.
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'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 $90 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.
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.
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 Specialty
Packaging and 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 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 10
to the Financial Statements of Tenneco Inc. and Consolidated Subsidiaries for
additional information.
37
<PAGE> 42
CHANGE IN ACCOUNTING PRINCIPLE
As required by the FASB'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," 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. 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 per share. 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 8 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>
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 Automotive acquired Clevite
and Specialty Packaging acquired the foam products business. There were other
less significant acquisitions in both years at both Automotive and Specialty
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.
38
<PAGE> 43
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.
39
<PAGE> 44
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.................... 41
Statements of income for each of the three years in the
period ended December 31, 1998............................ 42
Balance sheets -- December 31, 1998 and 1997................ 43
Statements of cash flows for each of the three years in the
period ended December 31, 1998............................ 44
Statements of changes in shareowners' equity for each of the
three years in the period ended December 31, 1998......... 45
Statements of comprehensive income for each of the three
years in the period ended December 31, 1998............... 46
Notes to financial statements............................... 47
</TABLE>
40
<PAGE> 45
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, 1998
and 1997, and the related statements of income, cash flows, changes in
shareowners' equity and comprehensive income for each of the three years in the
period ended December 31, 1998. 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, 1998 and 1997, and the results of
their operations and cash flows for each of the three years in the period ended
December 31, 1998, 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, 1999
41
<PAGE> 46
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1998 1997 1996
------------- ------------- -------------
(MILLIONS EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C>
REVENUES
Net sales and operating revenues --
Automotive............................................ $ 3,237 $ 3,226 $ 2,980
Specialty Packaging................................... 2,785 2,553 1,987
Paperboard Packaging.................................. 1,674 1,521 1,683
Intergroup sales and other............................ (99) (80) (78)
----------- ----------- -----------
7,597 7,220 6,572
Other income, net....................................... 8 98 76
----------- ----------- -----------
7,605 7,318 6,648
----------- ----------- -----------
COSTS AND EXPENSES
Cost of sales (exclusive of depreciation shown below)... 5,344 5,206 4,762
Engineering, research, and development.................. 66 68 92
Selling, general, and administrative.................... 1,106 915 857
Depreciation, depletion, and amortization............... 448 365 309
----------- ----------- -----------
6,964 6,554 6,020
----------- ----------- -----------
INCOME BEFORE INTEREST EXPENSE, INCOME TAXES, AND MINORITY
INTEREST................................................ 641 764 628
Interest expense (net of interest capitalized)........ 240 216 195
Income tax expense.................................... 116 163 194
Minority interest..................................... 30 24 21
----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS......................... 255 361 218
Income from discontinued operations, net of income tax.... -- -- 428
----------- ----------- -----------
Income before extraordinary loss.......................... 255 361 646
Extraordinary loss, net of income tax..................... -- -- (236)
----------- ----------- -----------
Income before cumulative effect of change in accounting
principle............................................... 255 361 410
Cumulative effect of change in accounting principle, net
of income tax........................................... -- (46) --
----------- ----------- -----------
NET INCOME................................................ 255 315 410
Preferred stock dividends................................. -- -- 12
----------- ----------- -----------
NET INCOME TO COMMON STOCK................................ $ 255 $ 315 $ 398
=========== =========== ===========
EARNINGS PER SHARE
Average shares of common stock outstanding --
Basic................................................. 168,505,573 170,264,731 169,609,373
Diluted............................................... 168,834,531 170,801,636 170,526,112
Basic earnings per share of common stock --
Continuing operations................................. $ 1.52 $ 2.12 $ 1.29
Discontinued operations............................... -- -- 2.45
Extraordinary loss.................................... -- -- (1.39)
Cumulative effect of change in accounting principle... -- (.27) --
----------- ----------- -----------
$ 1.52 $ 1.85 $ 2.35
=========== =========== ===========
Diluted earnings per share of common stock --
Continuing operations................................. $ 1.51 $ 2.11 $ 1.28
Discontinued operations............................... -- -- 2.44
Extraordinary loss.................................... -- -- (1.38)
Cumulative effect of change in accounting principle... -- (.27) --
----------- ----------- -----------
$ 1.51 $ 1.84 $ 2.34
=========== =========== ===========
Cash dividends per share of common stock.................. $ 1.20 $ 1.20 $ 1.80
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements of income.
42
<PAGE> 47
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1998 1997
------ ------
(MILLIONS)
<S> <C> <C>
ASSETS
Current assets:
Cash and temporary cash investments....................... $ 36 $ 41
Receivables --
Customer notes and accounts, net....................... 773 729
Income taxes........................................... 18 63
Other.................................................. 73 17
Inventories............................................... 988 950
Deferred income taxes..................................... 59 63
Prepayments and other..................................... 210 252
------ ------
2,157 2,115
------ ------
Other assets:
Long-term notes receivable, net........................... 46 49
Goodwill and intangibles, net............................. 1,613 1,577
Deferred income taxes..................................... 37 55
Pension assets............................................ 843 747
Other..................................................... 467 334
------ ------
3,006 2,762
------ ------
Plant, property, and equipment, at cost..................... 5,737 5,284
Less -- Reserves for depreciation, depletion, and
amortization........................................... 2,109 1,829
------ ------
3,628 3,455
------ ------
$8,791 $8,332
====== ======
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Short-term debt (including current maturities on long-term
debt).................................................. $1,071 $ 278
Trade payables............................................ 701 687
Taxes accrued............................................. 57 96
Accrued liabilities....................................... 368 344
Other..................................................... 190 256
------ ------
2,387 1,661
------ ------
Long-term debt.............................................. 2,360 2,633
------ ------
Deferred income taxes....................................... 649 614
------ ------
Postretirement benefits..................................... 310 228
------ ------
Deferred credits and other liabilities...................... 160 244
------ ------
Commitments and contingencies
Minority interest........................................... 421 424
------ ------
Shareowners' equity:
Common stock.............................................. 2 2
Premium on common stock and other capital surplus......... 2,710 2,679
Accumulated other comprehensive income.................... (91) (122)
Retained earnings......................................... 142 89
------ ------
2,763 2,648
Less -- Shares held as treasury stock, at cost............ 259 120
------ ------
2,504 2,528
------ ------
$8,791 $8,332
====== ======
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
43
<PAGE> 48
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1998 1997 1996
----- ----- -------
(MILLIONS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Income from continuing operations........................... $ 255 $ 361 $ 218
Adjustments to reconcile income from continuing operations
to cash provided (used) by continuing operations--
Depreciation, depletion, and amortization............... 448 365 309
Deferred income taxes................................... 73 235 23
(Gain) loss on sale of businesses and assets, net....... (5) 21 (64)
Changes in components of working capital--
(Increase) decrease in receivables.................... (44) (56) 104
(Increase) decrease in inventories.................... (20) (31) 18
(Increase) decrease in prepayments and other current
assets............................................... 29 (108) 45
Increase (decrease) in payables....................... (56) 74 (70)
Increase (decrease) in taxes accrued.................. (31) (45) 31
Increase (decrease) in interest accrued............... -- 29 5
Increase (decrease) in other current liabilities...... 35 (136) (98)
Other................................................... (152) (190) (18)
----- ----- -------
Cash provided (used) by continuing operations............... 532 519 503
Cash provided (used) by discontinued operations............. -- -- (250)
----- ----- -------
Net cash provided (used) by operating activities............ 532 519 253
----- ----- -------
INVESTING ACTIVITIES
Net proceeds related to the sale of discontinued
operations................................................ -- -- 1,051
Net proceeds from sale of businesses and assets............. 32 29 149
Expenditures for plant, property, and equipment............. (592) (558) (573)
Acquisitions of businesses.................................. (104) (314) (748)
Expenditures for plant, property, and equipment and business
acquisitions--discontinued operations..................... -- -- (398)
Investments and other....................................... (95) (54) (174)
----- ----- -------
Net cash provided (used) by investing activities............ (759) (897) (693)
----- ----- -------
FINANCING ACTIVITIES
Issuance of common, treasury, and SECT shares............... 50 48 164
Purchase of common stock.................................... (154) (132) (172)
Issuance of NPS Preferred Stock............................. -- -- 296
Issuance of equity securities by a subsidiary............... -- 99 --
Redemption of preferred stock............................... -- -- (20)
Issuance of long-term debt.................................. 4 597 2,800
Retirement of long-term debt................................ (21) (23) (2,288)
Net increase (decrease) in short-term debt excluding current
maturities on long-term debt.............................. 540 (31) (221)
Cash transferred in Merger and Distributions................ -- -- (99)
Dividends (common and preferred)............................ (203) (204) (313)
----- ----- -------
Net cash provided (used) by financing activities............ 216 354 147
----- ----- -------
Effect of foreign exchange rate changes on cash and
temporary cash investments................................ 6 3 1
----- ----- -------
Increase (decrease) in cash and temporary cash
investments............................................... (5) (21) (292)
Cash and temporary cash investments, January 1.............. 41 62 354
----- ----- -------
Cash and temporary cash investments, December 31 (Note)..... $ 36 $ 41 $ 62
===== ===== =======
Cash paid during the year for interest...................... $ 259 $ 206 $ 489
Cash paid during the year for income taxes (net of
refunds).................................................. $ 80 $(145) $ 685
</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.
44
<PAGE> 49
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------
1998 1997 1996
--------------------- --------------------- ---------------------
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................................ 172,569,889 2 171,567,658 2 191,351,615 957
Issued pursuant to benefit plans............... 1,100,308 -- 1,002,231 -- 84,796 --
Recapitalization of New Tenneco................ -- -- -- -- (19,868,753) (955)
----------- ------ ----------- ------ ----------- ------
Balance December 31.............................. 173,670,197 2 172,569,889 2 171,567,658 2
=========== ------ =========== ------ =========== ------
STOCK EMPLOYEE COMPENSATION TRUST (SECT)
Balance January 1................................ -- -- (215)
Shares issued.................................. -- -- 216
Adjustment to market value..................... -- -- (1)
------ ------ ------
Balance December 31.............................. -- -- --
------ ------ ------
PREMIUM ON COMMON STOCK AND OTHER CAPITAL SURPLUS
Balance January 1................................ 2,679 2,642 3,602
Premium on common stock issued pursuant to
benefit plans................................ 31 37 28
Adjustment of SECT to market value............. -- -- 1
Merger of energy business...................... -- -- (372)
Distribution of shipbuilding business.......... -- -- (270)
Recapitalization of New Tenneco................ -- -- (348)
Other.......................................... -- -- 1
------ ------ ------
Balance December 31.............................. 2,710 2,679 2,642
------ ------ ------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance January 1................................ (122) 23 26
Other comprehensive income..................... 31 (145) (3)
------ ------ ------
Balance December 31.............................. (91) (122) 23
------ ------ ------
RETAINED EARNINGS (ACCUMULATED DEFICIT)
Balance January 1................................ 89 (21) (469)
Net income..................................... 255 315 410
Dividends--
Preferred stock.............................. -- -- (9)
Common stock................................. (202) (205) (312)
Accretion of excess of redemption value of
preferred stock over fair value at date of
issue........................................ -- -- (3)
Recapitalization of New Tenneco................ -- -- 362
------ ------ ------
Balance December 31.............................. 142 89 (21)
------ ------ ------
LESS -- COMMON STOCK HELD AS TREASURY STOCK, AT
COST
Balance January 1................................ 2,928,189 120 -- -- 16,422,619 753
Shares acquired................................ 4,380,382 161 3,280,755 134 5,118,904 267
Shares issued pursuant to benefit and dividend
reinvestment plans........................... (550,893) (22) (352,566) (14) (1,672,770) (79)
Recapitalization of New Tenneco................ -- -- -- -- (19,868,753) (941)
----------- ------ ----------- ------ ----------- ------
Balance December 31.............................. 6,757,678 259 2,928,189 120 -- --
=========== ------ =========== ------ =========== ------
Total........................................ $2,504 $2,528 $2,646
====== ====== ======
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements of changes in shareowners' equity.
45
<PAGE> 50
<TABLE>
<CAPTION>
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------
1998 1997 1996
----------------------------- ----------------------------- -----------------------------
ACCUMULATED ACCUMULATED ACCUMULATED
OTHER OTHER OTHER
COMPREHENSIVE COMPREHENSIVE COMPREHENSIVE COMPREHENSIVE COMPREHENSIVE COMPREHENSIVE
INCOME INCOME INCOME INCOME INCOME INCOME
------------- ------------- ------------- ------------- ------------- -------------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
NET INCOME........................ $ 255 $ 315 $ 410
------------- ------------- -------------
ACCUMULATED OTHER COMPREHENSIVE
INCOME
CUMULATIVE TRANSLATION
ADJUSTMENT
Balance January 1............... $ (122) $ 23 $ 26
Translation of foreign
currency statements......... 40 40 (160) (160) 39 39
Hedges of net investment in
foreign subsidiaries........ -- -- 23 23 (47) (47)
Income tax benefit
(expense)................... -- -- (8) (8) 16 16
Reclassification adjustment
for disposition of
investments in foreign
subsidiaries................ -- -- -- -- (11) (11)
------------- ------------- -------------
Balance December 31............. (82) (122) 23
------------- ------------- -------------
ADDITIONAL MINIMUM PENSION
LIABILITY ADJUSTMENT
Balance January 1............... -- -- --
Additional minimum pension
liability adjustment........ (15) (15) -- -- -- --
Income tax benefit
(expense)................... 6 6 -- -- -- --
------------- ------------- -------------
Balance December 31............. (9) -- --
------------- ------------- -------------
Balance December 31............... $ (91) $ (122) $ 23
============= ============= =============
------------- ------------- -------------
Other comprehensive income........ 31 (145) (3)
------------- ------------- -------------
COMPREHENSIVE INCOME.............. $ 286 $ 170 $ 407
============= ============= =============
</TABLE>
The accompanying notes to financial statements are an integral part
of these statements of comprehensive income.
46
<PAGE> 51
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 ("Automotive"), packaging ("Specialty Packaging" and
"Paperboard Packaging") and administrative services ("Tenneco Business
Services") businesses of Old Tenneco. These transactions and their accounting
treatment are described in more detail in Note 2, "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.
Changes in Accounting Principles
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("FAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement establishes new
accounting and reporting standards requiring that all derivative instruments
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair value. The statement requires that changes in the derivative's fair value
be recognized currently in earnings unless specific hedge accounting criteria
are met. Special accounting for qualifying hedges allows a derivative's gains
and losses to offset related results on the hedged item in the income statement
and requires that a company must formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting. This statement
cannot be applied retroactively and is effective for all fiscal years beginning
after June 15, 1999. Tenneco is currently evaluating the new standard but has
not yet determined the impact it will have on its financial position or results
of operations.
In April 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-5, "Reporting on the Costs of
Start-Up Activities," which requires costs of start-up activities to be expensed
as incurred. This statement is effective for fiscal years beginning after
December 15, 1998. The statement requires previously capitalized costs related
to start-up activities to be expensed as a cumulative effect of a change in
accounting principle when the statement is adopted. Tenneco capitalizes certain
costs related to start-up activities, primarily engineering costs for new
automobile original equipment platforms. Tenneco expects to record an after-tax
charge for the cumulative effect of this change in accounting principle upon
adoption of approximately $100 million. Tenneco will adopt this new accounting
principle in the first quarter of 1999.
In March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," which establishes new
accounting and reporting standards for the costs of computer software developed
or obtained for internal use. This statement will be applied prospectively and
is effective for fiscal years beginning after December 15, 1998. The impact of
this new standard will not have a significant effect on Tenneco's financial
position or results of operations.
47
<PAGE> 52
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Tenneco adopted FAS No. 131, "Disclosure about Segments of an Enterprise
and Related Information," and FAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits," in 1998. Disclosures required by
these statements for earlier periods presented have been restated on a
comparative basis.
As required by the FASB'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.
Inventories
At December 31, 1998 and 1997, inventory by major classification was as
follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
(MILLIONS)
<S> <C> <C>
Finished goods.............................................. $484 $467
Work in process............................................. 139 100
Raw materials............................................... 226 265
Materials and supplies...................................... 139 118
---- ----
$988 $950
==== ====
</TABLE>
Inventories are stated at the lower of cost or market. A portion of total
inventories (49% and 44% at December 31, 1998 and 1997, 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 $16 million and $45 million higher at December 31,
1998 and 1997, respectively.
Customer Acquisition Costs
Tenneco capitalizes certain costs it incurs in connection with the
acquisition of new customer contracts to sell its automotive aftermarket
products. These new customer acquisition costs are incurred in exchange for
contracts in which the aftermarket customer agrees to purchase Tenneco's
automotive aftermarket products exclusively for periods of time ranging up to
three years. These costs are amortized over the initial contract period. At
December 31, 1998 and 1997, the net capitalized costs related to these
activities was $54 million and $47 million, respectively.
48
<PAGE> 53
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Goodwill and Intangibles, net
At December 31, 1998 and 1997, goodwill and intangibles, net of
amortization, by major category were as follows:
<TABLE>
<CAPTION>
1998 1997
------ ------
(MILLIONS)
<S> <C> <C>
Goodwill.................................................... $1,225 $1,212
Trademarks.................................................. 178 182
Patents..................................................... 153 160
Other....................................................... 57 23
------ ------
$1,613 $1,577
====== ======
</TABLE>
Goodwill is being amortized on a straight-line basis over periods ranging
from 20 years to 40 years. Such amortization amounted to $41 million, $36
million, and $21 million for 1998, 1997, and 1996, respectively, and is included
in the statements of income caption "Depreciation, depletion, and amortization."
Tenneco has capitalized certain intangible assets, primarily trademarks and
patents, based on their estimated fair value at date of acquisition.
Amortization is provided on these intangible assets on a straight-line basis
over periods ranging from 5 to 40 years. Such amortization amounted to $22
million, $24 million, and $26 million in 1998, 1997, and 1996, respectively, and
is included in the statements of income caption "Depreciation, depletion, and
amortization."
Plant, Property, and Equipment, at Cost
At December 31, 1998 and 1997, plant, property, and equipment, at cost, by
major category was as follows:
<TABLE>
<CAPTION>
1998 1997
------ ------
(MILLIONS)
<S> <C> <C>
Land, buildings, and improvements........................... $1,428 $1,371
Machinery and equipment..................................... 3,869 3,411
Other, including construction in progress................... 440 502
------ ------
$5,737 $5,284
====== ======
</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 $88 million and $60 million were
outstanding at December 31, 1998 and 1997, respectively.
At December 31, 1998 and 1997, the short and long-term allowance for
doubtful accounts on accounts and notes receivable was $55 million and $35
million, respectively.
Other Long-Term Assets
Tenneco capitalizes certain costs related to start-up activities, primarily
engineering costs for new automobile original equipment platforms, which are
included in the balance sheet caption "Other assets -- Other." The platform
engineering costs are amortized over the life of the underlying supply
agreements and
49
<PAGE> 54
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
other start-up costs are amortized over the periods benefited, generally two
years. Start-up costs capitalized, net of amortization, at December 31, 1998 and
1997, were $152 million and $99 million, respectively. Tenneco will adopt a new
accounting standard in the first quarter of 1999, which will require these costs
to be expensed. Refer to "Changes in Accounting Principles" discussed previously
in this footnote.
Tenneco capitalizes certain costs related to the purchase and development
of software which is used in its business operations. The costs attributable to
these software systems are amortized over their estimated useful lives based on
various factors such as the effects of obsolescence, technology and other
economic factors. Capitalized software development costs, net of amortization,
were $207 million and $151 million at December 31, 1998 and 1997, respectively.
As described previously in this footnote, Tenneco will adopt SOP 98-1 regarding
software cost capitalization. The impact of this new standard will not have a
significant effect on Tenneco's financial position or results of operations.
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."
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 $850 million at December 31, 1998. 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.
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 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
50
<PAGE> 55
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
In 1996, 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 2, "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 2, "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 $58 million, $53 million, and $60 million for 1998,
1997, and 1996, 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 Paperboard Packaging's folding carton
operations and the realignment of 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. All actions related to the realignment plan have been completed.
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 "Accumulated other comprehensive income."
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
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
51
<PAGE> 56
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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
"Accumulated other comprehensive income." 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" and
"Environmental Liabilities" sections of this footnote and Notes 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 1998 presentations.
2. DISCONTINUED OPERATIONS, DISPOSITION OF ASSETS, AND EXTRAORDINARY LOSS
Strategic Alternatives Analysis
On July 21, 1998, Tenneco announced that its Board of Directors had
authorized management to develop a broad range of strategic alternatives. Among
the options to be considered is the separation of the automotive, containerboard
packaging, and specialty packaging businesses.
On January 26, 1999, Tenneco announced that it had entered into an
agreement to contribute the containerboard assets of its Paperboard Packaging
business into a new joint venture with Madison Dearborn Partners, in exchange
for cash and debt assumption totaling approximately $2 billion, and a 45 percent
common equity interest in the joint venture. These assets represent
substantially all of the assets of the Paperboard Packaging segment and include
four mills, 67 corrugated products plants and an ownership or controlling
interest in approximately 950,000 acres of timberland. Paperboard Packaging's
folding carton business is not included in the transaction. In connection with
the transaction, Tenneco Packaging Inc. will borrow approximately $1.8 billion,
the majority of which will be used to acquire assets used by the containerboard
business pursuant to operating leases and timber cutting rights, with the
remainder remitted to Tenneco for corporate debt reduction. Tenneco Packaging
Inc. will then contribute the containerboard business assets (subject to the new
indebtedness and the containerboard business liabilities) to a joint venture in
exchange for approximately $240 million in cash and a 45 percent common equity
interest in the joint venture, valued at approximately $200 million. As a result
of the sale transaction, Tenneco expects to recognize a pre-tax loss in 1999 of
approximately $380 million to $395 million. Subject to certain customary closing
conditions, the transaction is expected to close during the first half of 1999.
Subsequent to closing, Tenneco will account for its remaining 45 percent
interest in the containerboard business on the equity method of accounting.
Tenneco continues to analyze the alternatives for Automotive and Specialty
Packaging as well as Paperboard Packaging's folding carton business. Those
alternatives include a sale, merger, spin-off or public offering. Tenneco will
make public announcements of the expected transaction as those transactions are
determined.
52
<PAGE> 57
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 Automotive, Specialty Packaging, Paperboard
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
Natural Gas Company ("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 Automotive, Specialty Packaging and Paperboard 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."
Results of operations for the year ended December 31, 1996, for the energy
business were as follows:
<TABLE>
<CAPTION>
(MILLIONS)
<S> <C>
Net sales and operating revenues............................ $2,512
======
Income before income taxes and interest allocation.......... $ 291
Income tax expense.......................................... (78)
------
Income before interest allocation........................... 213
Allocated interest expense, net of income tax (Note)........ (86)
------
Income from discontinued operations before transaction
costs..................................................... $ 127
======
</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.
53
<PAGE> 58
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
Results of operations for the year ended December 31, 1996, for the
shipbuilding business were as follows:
<TABLE>
<CAPTION>
(MILLIONS)
<S> <C>
Net sales and operating revenues............................ $1,822
======
Income before income taxes and interest allocation.......... $ 133
Income tax expense.......................................... (43)
------
Income before interest allocation........................... 90
Allocated interest expense, net of income tax (Note)........ (20)
------
Income from discontinued operations before transaction
costs..................................................... $ 70
======
</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 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.
54
<PAGE> 59
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Results of operations for the year ended December 31, 1996, for the farm
and construction equipment segment were as follows:
<TABLE>
<CAPTION>
(MILLIONS)
<S> <C>
Net sales and operating revenues............................ $ --
====
Income before income taxes and interest allocation.......... $ 1
Income tax benefit.......................................... --
----
Income before interest allocation........................... 1
Allocated interest expense, net of income tax (Note)........ (2)
----
Loss from operations........................................ (1)
----
Gain on disposition......................................... 423
Income tax expense from disposition......................... (83)
----
Net gain on disposition..................................... 340
----
Income from discontinued operations......................... $339
====
</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.
Disposition of Assets
In the second quarter of 1996, Paperboard Packaging entered into an
agreement to form a joint venture with Caraustar Industries whereby Paperboard
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. Paperboard Packaging sold its remaining interest in the joint
venture and recognized a $15 million pre-tax gain in the second quarter of 1998.
In addition, Paperboard Packaging recognized a $17 million pre-tax gain on the
sale of non-strategic timberland assets in the third quarter of 1998.
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.
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.
3. RESTRUCTURING AND OTHER CHARGES
On July 21, 1998, Tenneco announced its intention to initiate a
restructuring plan designed to reduce administrative and operational overhead
costs in every part of Tenneco's business. In the fourth quarter of
55
<PAGE> 60
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1998, Tenneco's Board of Directors approved an extensive restructuring plan to
accomplish the overhead reduction goals as well as to consolidate the
manufacturing and distribution operations of Automotive's North American
aftermarket business and certain manufacturing operations in the Paperboard
Packaging and Specialty Packaging businesses. Tenneco recorded a pre-tax charge
of $100 million, $64 million after-tax or 38 cents per share, in the fourth
quarter of 1998 related to this restructuring plan. Of the pre-tax charge, for
operational restructuring actions, $36 million is related to the Automotive
aftermarket restructuring, $10 million is related to the Specialty Packaging
restructuring, and $10 million is related to the Paperboard Packaging
restructuring. The staff and related cost reduction plan, which covers staff
reductions at both the operating units and at corporate, is expected to cost $44
million. The charge was recognized in the results of operations for each segment
where the costs will be incurred. Including the charges for the staff and
related cost reductions, Automotive recorded a charge of $53 million, Specialty
Packaging a charge of $18 million, Paperboard Packaging a charge of $17 million
and Tenneco's corporate operations a charge of $12 million.
The Automotive aftermarket restructuring involves closing two plant
locations and five distribution centers and the elimination of 302 positions at
those locations. The Paperboard Packaging restructuring plan involves closing
four box plants and the elimination of 78 positions at those plants. The
Specialty Packaging restructuring plan involves the elimination of production
lines at two plants and the closure of one plant. Additionally, Specialty
Packaging will exit four joint ventures. These actions involve the elimination
of 104 positions. The staff and related cost reduction plan involves the
elimination of 834 administrative positions in Tenneco's three business units
and its corporate operations.
The fixed assets at the locations to be closed and for the production lines
to be eliminated, as well as the joint venture investments, were written down to
their estimated fair value. No significant cash proceeds are expected to be
received from the ultimate disposal of these assets.
As of December 31, 1998, approximately 500 employees had been terminated
pursuant to the restructuring plan.
Amounts related to the restructuring plan are shown in the following table:
<TABLE>
<CAPTION>
FOURTH
1998 QUARTER CHARGED BALANCE AT
RESTRUCTURING 1998 TO ASSET DECEMBER 31,
CHARGE PAYMENTS ACCOUNTS 1998
------------- -------- -------- ------------
(MILLIONS)
<S> <C> <C> <C> <C>
Severance.................................. $ 44 $10 $-- $34
Asset impairments.......................... 49 -- 49 --
Facility exit costs........................ 7 -- -- 7
---- --- --- ---
$100 $10 $49 $41
==== === === ===
</TABLE>
Tenneco expects the balance of the restructuring liability will be expended
during 1999 and that the restructuring actions will be complete by the fourth
quarter of 1999.
4. ACQUISITIONS
In 1998, Tenneco made three acquisitions in the Specialty Packaging
business and one in the Automotive business for approximately $101 million and
$3 million, respectively.
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
Specialty 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.
56
<PAGE> 61
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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
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 Specialty 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.
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."
5. LONG-TERM DEBT, SHORT-TERM DEBT, AND FINANCING ARRANGEMENTS
Long-Term Debt
A summary of long-term debt obligations of Tenneco at December 31, 1998 and
1997, is set forth in the following table:
<TABLE>
<CAPTION>
1998 1997
------ ------
(MILLIONS)
<S> <C> <C>
Tenneco Inc. --
Debentures due 2008 through 2027, average effective
interest rate 7.5% in 1998 and in 1997 (net of $64
million in 1998 and $68 million in 1997 of unamortized
premium)............................................... $1,213 $1,217
Notes due 1999 through 2007, average effective interest
rate 6.7% in 1998 and in 1997 (net of $33 million in
1998 and $47 million in 1997 of unamortized premium)... 1,344 1,358
Other subsidiaries --
Notes due 1999 through 2016, average effective interest
rate 10.7% in 1998 and 11.2% in 1997 (net of $22
million in 1998 and $24 million in 1997 of unamortized
discount).............................................. 53 64
------ ------
2,610 2,639
Less -- current maturities.................................. 250 6
------ ------
Total long-term debt................................... $2,360 $2,633
====== ======
</TABLE>
Approximately $70 million of gross plant, property, and equipment at
December 31, 1998 and 1997, was pledged as collateral to secure $17 million and
$26 million, respectively, principal amounts of long-term debt.
The aggregate maturities and sinking fund requirements applicable to the
issues outstanding at December 31, 1998, are $250 million, $10 million, $187
million, $498 million, and $7 million for 1999, 2000, 2001, 2002, and 2003,
respectively.
57
<PAGE> 62
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, 1998 and 1997, are as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------- -------------------------
COMMERCIAL CREDIT COMMERCIAL CREDIT
PAPER AGREEMENTS* PAPER AGREEMENTS*
---------- ----------- ---------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Outstanding borrowings at end of year........... $576 $245 $203 $ 69
Weighted average interest rate on outstanding
borrowings at end of year..................... 5.8% 6.3% 5.9% 6.7%
Approximate maximum month-end outstanding
borrowings during year........................ $576 $245 $613 $123
Approximate average month-end outstanding
borrowings during year........................ $447 $157 $372 $ 52
Weighted average interest rate on approximate
average month-end outstanding borrowings
during year................................... 5.8% 6.9% 5.7% 8.4%
</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 $576(b) $1,174
Subsidiaries' credit agreements...................... Various 131 123 8
------ ---- ------
$1,881 $699 $1,182
====== ==== ======
</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, 1998, 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, 1998, Tenneco's ratio of debt to total
capitalization as defined in the credit facility was 57.9%. In addition, the
credit
58
<PAGE> 63
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
facility imposes certain other restrictions, none of which are expected to limit
the Company's ability to operate its business in the ordinary course.
6. FINANCIAL INSTRUMENTS
The carrying and estimated fair values of Tenneco's financial instruments
by class at December 31, 1998 and 1997, were as follows:
<TABLE>
<CAPTION>
1998 1997
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- -------
(MILLIONS)
ASSETS (LIABILITIES)
<S> <C> <C> <C> <C>
Long-term debt (including current maturities)........... $(2,610) $(2,606) $(2,639) $(2,606)
Instruments With Off-Balance-Sheet Risk
Foreign currency contracts............................ 1 1 2 2
Financial guarantees.................................. -- (13) -- (15)
</TABLE>
Asset and Liability Instruments
The fair value of cash and temporary cash investments, short and long-term
receivables, accounts payable, and short-term debt was considered to be the same
as or was not determined to be materially different from the carrying amount. At
December 31, 1998 and 1997, respectively, Tenneco's aggregate customer and
long-term receivable balance was concentrated by segment as follows: Automotive,
61% and 63%, respectively, Specialty Packaging, 32% and 26%, respectively, and
Paperboard Packaging, 7% and 11%, respectively.
Long-term debt -- The fair value of fixed-rate long-term debt was based on
the market value of debt with similar maturities and interest rates.
Instruments With Off-Balance-Sheet Risk
Foreign Currency Contracts -- Note 1, "Summary of Accounting Policies --
Risk Management Activities" describes Tenneco's use of and accounting for
foreign currency exchange contracts. The following table summarizes by major
currency the contractual amounts of foreign currency contracts utilized by
Tenneco:
<TABLE>
<CAPTION>
NOTIONAL AMOUNT
------------------------------------
DECEMBER 31, DECEMBER 31,
1998 1997
---------------- ----------------
PURCHASE SELL PURCHASE SELL
-------- ---- -------- ----
(MILLIONS)
<S> <C> <C> <C> <C>
Foreign currency contracts (in US$):
Belgian Francs............................................ $ 17 $ 19 $ 24 $ 6
British Pounds............................................ 163 252 156 257
Canadian Dollars.......................................... 73 115 58 16
French Francs............................................. 89 17 52 1
German Marks.............................................. 2 33 4 121
Spanish Pesetas........................................... 32 2 12 1
U.S. Dollars.............................................. 105 33 92 --
Other..................................................... 40 49 61 55
---- ---- ---- ----
$521 $520 $459 $457
==== ==== ==== ====
</TABLE>
59
<PAGE> 64
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Based on exchange rates at December 31, 1998 and 1997, 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 $13 million and $15 million at December 31, 1998 and 1997,
respectively, primarily with respect to letters of credit and other guarantees
supporting various financing and operating activities.
7. INCOME TAXES
The domestic and foreign components of income from continuing operations
before income taxes are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------
1998 1997 1996
---- ---- ----
(MILLIONS)
<S> <C> <C> <C>
U.S. income before income taxes............................. $136 $259 $248
Foreign income before income taxes.......................... 265 289 185
---- ---- ----
Income before income taxes.................................. $401 $548 $433
==== ==== ====
</TABLE>
Following is a comparative analysis of the components of income tax expense
applicable to continuing operations:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------------
1998 1997 1996
---- ----- ----
(MILLIONS)
<S> <C> <C> <C>
Current --
U.S. ..................................................... $ 27 $(133) $ 92
State and local........................................... (25) 2 23
Foreign................................................... 41 59 56
---- ----- ----
43 (72) 171
---- ----- ----
Deferred --
U.S. ..................................................... 14 190 15
Foreign, state and other.................................. 59 45 8
---- ----- ----
73 235 23
---- ----- ----
Income tax expense.......................................... $116 $ 163 $194
==== ===== ====
</TABLE>
60
<PAGE> 65
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Following is a reconciliation of income taxes computed at the statutory
U.S. federal income tax rate (35% for all years presented) to the income tax
expense reflected in the statements of income:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------
1998 1997 1996
---- ---- ----
(MILLIONS)
<S> <C> <C> <C>
Tax expense computed at the statutory U.S. federal income
tax rate.................................................. $140 $192 $152
Increases (reductions) in income tax expense resulting from:
Foreign income taxed at different rates and foreign losses
with no tax benefit.................................... (11) (33) 7
State and local taxes on income, net of U.S. federal
income tax benefit..................................... (2) 23 15
Recognition of previously unbenefited loss
carryforwards.......................................... (5) (11) --
Amortization of nondeductible goodwill.................... 8 6 7
Other..................................................... (14) (14) 13
---- ---- ----
Income tax expense.......................................... $116 $163 $194
==== ==== ====
</TABLE>
The components of Tenneco's net deferred tax liability were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1998 1997
---- ----
(MILLIONS)
<S> <C> <C>
Deferred tax assets --
Tax loss carryforwards:
U.S. .................................................. $199 $101
State.................................................. 14 --
Foreign................................................ 71 81
Postretirement benefits other than pensions............... 56 53
Other..................................................... 52 31
Valuation allowance....................................... (38) (29)
---- ----
Net deferred tax asset............................... 354 237
---- ----
Deferred tax liabilities --
Tax over book depreciation................................ 510 371
Pensions.................................................. 240 229
Other..................................................... 157 133
---- ----
Total deferred tax liability......................... 907 733
---- ----
Net deferred tax liability................................ $553 $496
==== ====
</TABLE>
As reflected by the valuation allowance in the table above, Tenneco had
potential tax benefits of $38 million and $29 million at December 31, 1998 and
1997, 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.
Of the $568 million of U.S. tax loss carryforwards which exist at December
31, 1998, $354 million expire in 2012 and $214 million expire in 2018. The $192
million of state tax loss carryforwards which exist at December 31, 1998, will
expire in varying amounts over the period from 2000 to 2012. Of the $185 million
of foreign tax loss carryforwards which exist at December 31, 1998, $136 million
do not expire and the remainder expires in varying amounts over the period from
1999 to 2008.
In connection with the corporate reorganization transactions discussed in
Note 2, "Discontinued Operations, Disposition of Assets, and Extraordinary
Loss," Tenneco entered into a tax sharing agreement
61
<PAGE> 66
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
with Newport News, Old Tenneco, and El Paso. The tax sharing agreement provides,
among other things, for the allocation among the parties of tax liabilities
arising before, as a result of, and after the Distributions. For periods after
the Distributions, Tenneco will be liable for taxes imposed on its businesses,
Old Tenneco will be liable for taxes imposed on the energy business, and Newport
News will be liable for taxes imposed on the shipbuilding business. In the case
of federal income taxes imposed on the activities of the Old Tenneco
consolidated group before the Distributions, Tenneco and Newport News are
generally liable to Old Tenneco for federal income taxes attributable to their
respective businesses, and those entities have been allocated an agreed-upon
share of estimated tax payments made by Old Tenneco.
8. COMMON STOCK
Tenneco Inc. has authorized 350 million shares ($.01 par value) of common
stock, of which 173,670,197 shares and 172,569,889 shares were issued at
December 31, 1998 and 1997, respectively. Tenneco Inc. held 6,757,678 shares and
2,928,189 shares of treasury stock at December 31, 1998 and 1997, respectively.
Stock Repurchase Plans
During 1997, Tenneco initiated a common stock repurchase program to acquire
up to 8.5 million shares. Approximately 7.5 million shares have been acquired
under this program at a total cost of approximately $289 million. All purchases
executed through this program were in the open market or negotiated purchases.
Reserved
The total number of shares of Tenneco Inc. common stock reserved at
December 31, 1998 and 1997, were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
ORIGINAL ISSUE SHARES 1998 1997
--------------------- ---------- ----------
<S> <C> <C>
Thrift Plan............................................ 74,576 167,223
Restricted Stock Plans................................. -- 33,796
Stock Ownership Plan................................... 16,199,114 16,556,126
Employee Stock Purchase Plan........................... 1,642,037 2,255,232
---------- ----------
17,915,727 19,012,377
========== ==========
TREASURY STOCK
--------------
Thrift Plan............................................ 201,541 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 ("SARs"), 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.
62
<PAGE> 67
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 1998, 1997, and 1996, Tenneco granted 640,810, 494,350, and
465,075 shares and units, respectively, with a weighted average fair value based
on the price of Tenneco's stock on the grant date of $38.03, $43.08, and $48.54
per share, respectively. Any restricted stock and performance shares awarded
after the Distributions are issued under the 1996 Stock Ownership Plan. At
December 31, 1998, 351,220 restricted shares at an average price of $37.76 per
share, 562,145 performance shares at an average price of $41.35 per share, and
31,000 restricted units at an average price of $37.72 per unit 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. From January 1, 1996, through October 31, 1996, 3,300 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 per share. On November 1, 1996, all
outstanding restricted shares were vested. 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 1998, 1997, and 1996, 1,700, 5,040,
and 23,464 restricted shares and units, respectively, were issued under the new
plan at a weighted average fair value of Tenneco Inc.'s stock on the grant date
of $37.31, $45.19, and $45.31 per share, respectively. At December 31, 1998,
27,696 restricted shares at an average price of $44.80 per share and 300
restricted units at an average price of $45.19 per unit 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 613,195,
244,768, and 657,936 shares to employees in 1998, 1997, and 1996, 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 $6.31, $11.16, and $10.84 in 1998, 1997, and 1996,
respectively.
63
<PAGE> 68
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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>
1998 1997 1996
--------------------- --------------------- ---------------------
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.... 11,924,072 $43.42 10,877,758 $43.41 3,019,116 $46.99
Granted -- Options.............. 1,745,480 37.30 2,928,669 42.91 8,178,600 46.17
Exercised -- Options............ (122,609) 38.58 (312,979) 39.64 (817,212) 45.29
-- SARs.............. -- -- -- -- (25,741) 36.23
Issuance of New Tenneco
options...................... -- -- -- -- 5,015,258 41.19
Cancelled....................... (1,123,639) 43.53 (1,569,376) 43.19 (4,492,263) 46.01
---------- ---------- ----------
Outstanding, end of year.......... 12,423,304 $42.58 11,924,072 $43.42 10,877,758 $43.41
========== ========== ==========
Options exercisable at end of
year............................ 3,989,654 $40.66 2,703,948 $40.84 1,809,596 $41.67
Weighted average fair value of
options granted during the
year............................ $ 10.82 $ 12.62 $ 11.37
</TABLE>
The fair value of each option granted during 1998, 1997, and 1996 is
estimated on the date of grant using the Black-Scholes option pricing model
using the following weighted-average assumptions for grants in 1998, 1997, and
1996, respectively: (i) risk-free interest rates of 5.7%, 6.6%, and 5.9%; (ii)
expected lives of 9.9, 7.5, and 5.0 years; (iii) expected volatility 25.6%,
25.6%, and 25.1%; and (iv) dividend yield of 3.2%, 2.8%, and 3.4%.
The following table reflects summarized information about stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- ----------------------
WEIGHTED AVG. WEIGHTED WEIGHTED
NUMBER REMAINING AVG. NUMBER AVG.
OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
RANGE OF EXERCISE PRICE AT 12/31/98 LIFE PRICE AT 12/31/98 PRICE
----------------------- ----------- ------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$31 to $38............................... 2,525,490 13.8 years $36.40 1,323,014 $35.82
$38 to $44............................... 2,771,004 11.7 40.91 1,638,084 41.10
$44 to $51............................... 7,126,810 11.9 45.42 1,028,556 46.18
---------- ---------
12,423,304 3,989,654
========== =========
</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 1998 of $3
million, 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. 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, 1998, 1997, and 1996, would have been lower by $33 million or $.19
per both basic and diluted common share, $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 for 1997 versus 1996
was primarily the result of stock options issued subsequent to the Transaction.
64
<PAGE> 69
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Stock Employee Compensation Trust (SECT)
In November 1992, Tenneco established the SECT to fund a portion of its
obligations arising from its various employee compensation and benefit plans.
Tenneco issued 12 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.
Grantor Trust
In August 1998, Tenneco established a grantor trust and issued 1.9 million
shares of common stock to the trust. This grantor trust is a so-called "rabbi
trust" designed to assure the payment of deferred compensation and supplemental
pension benefits. The trust is consolidated in Tenneco's financial statements
and the shares are reflected in the financial statements as treasury stock.
Consequently, the shares of common stock issued to the trust are not considered
to be outstanding in the computation of earnings per share.
Qualified Offer Rights Plan
On September 9, 1998, Tenneco adopted a Qualified Offer Rights Plan and
established an independent Board committee to review it every three years. The
Qualified Offer Rights 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 shareholders. Generally, under the
Qualified Offer Rights Plan, if a person becomes the beneficial owner of 20
percent or more of Tenneco's outstanding common stock, other than pursuant to a
"qualified offer", each right will entitle its holder to purchase, at the
right's exercise price, a number of shares of common stock of Tenneco or, under
certain circumstances, of the acquiring person having a market value of twice
the right's exercise price. Rights held by the 20 percent or more holder will
become void and will not be exercisable.
The rights will not become exercisable in connection with a "qualified
offer," which is an all-cash tender offer for all outstanding common stock that
is fully financed, remains open for a period of at least 60 business days,
results in the offeror owning at least 85% of the common stock after
consummation of the offer, assures a prompt second-step acquisition of shares
not purchased in the initial offer, at the same price as the initial offer, and
meets certain other requirements.
In connection with the adoption of the Qualified Offer Rights Plan, the
Board of Directors also adopted a three-year independent director evaluation
("TIDE") mechanism. Under the TIDE mechanism, an independent Board committee
will review, on an ongoing basis, the Qualified Offer Rights Plan and
developments in rights plans generally, and, if it deems appropriate, recommend
modification or termination of the Qualified Offer Rights Plan. The independent
committee will report to Tenneco's Board at least every three years as to
whether the Qualified Offer Rights Plan continues to be in the best interests of
Tenneco's shareholders.
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.
65
<PAGE> 70
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Earnings Per Share
Earnings per share of common stock outstanding were computed as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1998 1997 1996
------------- ------------- -------------
(MILLIONS EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C>
Basic Earnings Per Share --
Income from continuing operations(a)................ $ 255 $ 361 $ 218
=========== =========== ===========
Average shares of common stock outstanding(b)....... 168,505,573 170,264,731 169,609,373
=========== =========== ===========
Earnings from continuing operations per average
share of common stock............................ $ 1.52 $ 2.12 $ 1.29
=========== =========== ===========
Diluted Earnings Per Share --
Income from continuing operations(a)................ $ 255 $ 361 $ 218
=========== =========== ===========
Average shares of common stock outstanding(b)....... 168,505,573 170,264,731 169,609,373
Effect of dilutive securities:
Restricted stock............................... 52,930 -- 516,336
Stock options.................................. 88,236 452,867 400,403
Performance shares............................. 187,792 84,038 --
----------- ----------- -----------
Average shares of common stock outstanding including
dilutive securities.............................. 168,834,531 170,801,636 170,526,112
=========== =========== ===========
Earnings from continuing operations per average
share of common stock............................ $ 1.51 $ 2.11 $ 1.28
=========== =========== ===========
</TABLE>
- -------------------------
Notes: (a) All preferred stock outstanding before the Merger was acquired by El
Paso. Therefore, preferred stock dividends were included in the
computation of earnings per share from discontinued operations for
1996. There was no preferred stock outstanding in 1998 or 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 the year
ended December 31, 1996, the SECT used 4,358,084 shares. At December
31, 1996, all shares were used. Stock repurchase plans also affect
common stock outstanding. Refer to "Stock Employee Compensation Trust
(SECT)" and "Stock Repurchase Plans" discussed previously in this
footnote.
9. PREFERRED STOCK
Tenneco had 50 million shares of preferred stock ($.01 par value)
authorized at December 31, 1998 and 1997. No shares of preferred stock were
outstanding at the respective dates. Tenneco has designated and reserved 2.0
million shares of the preferred stock as junior preferred stock for the
Qualified Offer 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, 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
66
<PAGE> 71
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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
-----------------------
SHARES AMOUNT
---------- ------
(MILLIONS EXCEPT SHARE
AMOUNTS)
<S> <C> <C>
Balance January 1........................................... 1,390,993 $ 130
Shares redeemed........................................... (195,751) (20)
Merger of energy business................................. (1,195,242) (113)
Accretion of excess of redemption value over fair value at
date of issue.......................................... -- 3
---------- -----
Balance December 31......................................... -- $ --
========== =====
</TABLE>
10. MINORITY INTEREST
At December 31, 1998 and 1997, Tenneco reported minority interest in the
balance sheet of $421 million and $424 million, respectively. At December 31,
1998, $394 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 Specialty 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 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, 1998, 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 6.66%,
6.92%, and 6.83% for 1998, 1997, and 1996, respectively. Additionally, the
holder of the preferred stock is entitled to receive, when and if declared by
the Board of Directors of TIHC, participating dividends based on the operating
income growth rate of TIHC 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."
11. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
Tenneco has pension 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.
Tenneco has postretirement health care and life insurance plans that cover
a majority 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
67
<PAGE> 72
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
A summary of the change in benefit obligation, the change in plan assets,
the development of net amount recognized, and the amounts recognized in the
statement of financial position for the pension plans and postretirement benefit
plans follows:
<TABLE>
<CAPTION>
PENSION POSTRETIREMENT
--------------- ---------------
1998 1997 1998 1997
------ ------ ------ ------
(MILLIONS)
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at September 30 of the previous year... $3,145 $2,805 $ 178 $ 167
Currency rate conversion.................................. 1 -- -- --
Service cost.............................................. 41 35 5 5
Interest cost............................................. 235 211 13 12
Plan amendments........................................... 45 8 -- --
Actuarial loss (gain)..................................... 334 283 8 5
Acquisitions.............................................. -- 13 -- --
Benefits paid............................................. (224) (210) (16) (12)
Participants' contributions............................... -- -- 1 1
------ ------ ----- -----
Benefit obligation at September 30........................ $3,577 $3,145 $ 189 $ 178
====== ====== ===== =====
Change in plan assets:
Fair value at September 30 of the previous year........... $4,109 $3,459 $ -- $ --
Currency rate conversion.................................. (1) 4 -- --
Actual return on plan assets.............................. 463 835 -- --
Employer contributions.................................... 12 9 15 11
Participants' contributions............................... 2 -- 1 1
Acquisitions.............................................. -- 12 -- --
Benefits paid............................................. (224) (210) (16) (12)
------ ------ ----- -----
Fair value at September 30................................ $4,361 $4,109 $ -- $ --
====== ====== ===== =====
Development of net amount recognized:
Funded status at September 30............................. $ 784 $ 964 $(189) $(178)
Contributions during the fourth quarter................... 2 2 4 3
Unrecognized cost:
Actuarial loss (gain).................................. (128) (328) 38 33
Prior service cost..................................... 83 71 (5) (8)
Transition liability (asset)........................... (50) (73) -- --
------ ------ ----- -----
Net amount recognized at December 31...................... $ 691 $ 636 $(152) $(150)
====== ====== ===== =====
Amounts recognized in the statement of financial position:
Prepaid benefit cost...................................... $ 745 $ 674 $ -- $ --
Accrued benefit cost...................................... (95) (42) (152) (150)
Intangible asset.......................................... 26 4 -- --
Accumulated other comprehensive income.................... 15 -- -- --
------ ------ ----- -----
Net amount recognized..................................... $ 691 $ 636 $(152) $(150)
====== ====== ===== =====
</TABLE>
- -------------------------
Note: Assets of one plan may not be utilized to pay benefits of other plans.
Additionally, the prepaid (accrued) 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.
68
<PAGE> 73
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Net periodic pension costs (income) from continuing operations for the
years 1998, 1997, and 1996, consist of the following components:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
(MILLIONS)
<S> <C> <C> <C>
Service cost -- benefits earned during the year............. $ 41 $ 35 $ 31
Interest on prior year's projected benefit obligation....... 235 211 148
Expected return on plan assets.............................. (333) (310) (208)
Net amortization:
Actuarial loss (gain)..................................... 2 -- 3
Prior service cost........................................ 12 12 12
Transition liability (asset).............................. (21) (21) (15)
----- ----- -----
Net pension costs (income).................................. $ (64) $ (73) $ (29)
===== ===== =====
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for all pension plans with accumulated benefit obligations
in excess of plan assets were $203 million, $191 million, and $95 million,
respectively, as of September 30, 1998, and $52 million, $50 million, and $10
million, respectively, as of September 30, 1997.
The weighted average discount rates (which are based on long-term market
rates) used in determining the 1998, 1997, and 1996 actuarial present value of
the benefit obligations were 7.0%, 7.75%, and 7.75%, respectively. The rate of
increase in future compensation was 4.8%, 5.0%, and 5.0%, for 1998, 1997, and
1996, respectively. The weighted average expected long-term rate of return on
plan assets for 1998, 1997, and 1996 was 10.0% for each year.
Net periodic postretirement benefit cost from continuing operations for the
years 1998, 1997, and 1996 consist of the following components:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(MILLIONS)
<S> <C> <C> <C>
Service cost -- benefits earned during the year............. $ 5 $ 5 $ 4
Interest on accumulated postretirement benefit obligation... 13 12 11
Net amortization:
Prior service cost........................................ (2) (2) (2)
Actuarial loss (gain)..................................... 2 1 1
--- --- ---
Net periodic postretirement benefit cost.................... $18 $16 $14
=== === ===
</TABLE>
The initial weighted average assumed health care cost trend rate used in
determining the 1998, 1997, and 1996 accumulated postretirement benefit
obligation was 5%, 5%, and 6%, respectively, declining to 5% in 1997 and
remaining at that level thereafter.
Increasing the assumed health care cost trend rate by one percentage point
in each year would increase the 1998, 1997, and 1996 accumulated postretirement
benefit obligations by approximately $15 million, $14 million, and $13 million,
respectively, and would increase the aggregate of the service cost and interest
cost components of the net periodic postretirement benefit cost by approximately
$2 million each year for 1998, 1997, and 1996.
Decreasing the assumed health care cost trend rate by one percentage point
in each year would decrease the 1998 accumulated postretirement benefit
obligation by approximately $14 million and would decrease the aggregate of
service cost and interest cost components of the net periodic postretirement
benefit cost by $2 million.
69
<PAGE> 74
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The discount rates (which are based on long-term market rates) used in
determining the 1998, 1997, and 1996 accumulated postretirement benefit
obligations were 7.00%, 7.75%, and 7.75%, respectively.
12. SEGMENT AND GEOGRAPHIC AREA INFORMATION
Tenneco is a global manufacturer with the following major operating
segments:
Automotive -- Manufacture and sale of exhaust and ride control systems
for both the original equipment and replacement markets.
Specialty Packaging -- Manufacture and sale of specialty and
protective packaging products for consumer, institutional, and industrial
markets.
Paperboard Packaging -- Manufacture and sale of packaging materials,
cartons, and containers for industrial markets.
The accounting policies of the segments are the same as those described in
Note 1, "Summary of Accounting Policies." Tenneco evaluates operating
performance based primarily on income before interest expense, income taxes, and
minority interest. Individual operating segments have not been aggregated within
these reportable segments.
Products are transferred between segments and geographic areas on a basis
intended to reflect as nearly as possible the "market value" of the products.
The following table sets forth information relating to Tenneco's external
customer and intersegment revenues for each product or each group of similar
products:
<TABLE>
<CAPTION>
NET SALES AND OPERATING
REVENUES
YEAR ENDED DECEMBER 31,
--------------------------
1998 1997 1996
------ ------ ------
(MILLIONS)
<S> <C> <C> <C>
AUTOMOTIVE
Exhaust systems products.................................. $1,814 $1,753 $1,699
Ride control products..................................... 1,423 1,473 1,281
------ ------ ------
Total Automotive....................................... 3,237 3,226 2,980
------ ------ ------
SPECIALTY PACKAGING
Disposable plastic, fiber, and aluminum packaging
products............................................... 2,126 2,105 1,862
Plastic and fiber protective and flexible packaging
products............................................... 607 399 78
Other..................................................... 52 49 47
------ ------ ------
Total Specialty Packaging.............................. 2,785 2,553 1,987
------ ------ ------
PAPERBOARD PACKAGING
Corrugated shipping containers and containerboard
products............................................... 1,463 1,326 1,412
Folding cartons and recycled paperboard mill products..... 103 112 151
Other..................................................... 108 83 120
------ ------ ------
Total Paperboard Packaging............................. 1,674 1,521 1,683
------ ------ ------
INTERGROUP SALES AND OTHER.................................. (99) (80) (78)
------ ------ ------
CONSOLIDATED................................................ $7,597 $7,220 $6,572
====== ====== ======
</TABLE>
70
<PAGE> 75
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
SPECIALTY PAPERBOARD &
AUTOMOTIVE PACKAGING PACKAGING OTHER ELIMS CONSOLIDATED
---------- --------- ---------- ------ ------- ------------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
AT DECEMBER 31, 1998, AND FOR THE YEAR THEN ENDED
Revenues from external customers................... $3,237 $2,785 $1,570 $ 5 $ -- $7,597
Intersegment revenues.............................. -- -- 104 -- (104) --
Equity income...................................... -- -- 1 -- -- 1
Interest income.................................... 5 1 1 1 -- 8
Depreciation, depletion, and amortization.......... 150 176 99 23 -- 448
Income before interest, income taxes, and minority
interest......................................... 248 328 131 (66) -- 641
Income from discontinued operations................ -- -- -- -- -- --
Extraordinary loss................................. -- -- -- -- -- --
Cumulative effect of change in accounting
principle........................................ -- -- -- -- -- --
Total assets (Note)................................ 2,827 3,245 1,497 1,430 (208) 8,791
Investment in affiliated companies................. 1 17 1 -- -- 19
Capital expenditures............................... 195 190 203 4 -- 592
Noncash items other than depreciation, depletion,
and amortization................................. (13) 22 (28) (64) -- (83)
AT DECEMBER 31, 1997, AND FOR THE YEAR THEN ENDED
Revenues from external customers................... $3,226 $2,553 $1,431 $ 10 $ -- $7,220
Intersegment revenues.............................. -- -- 90 -- (90) --
Equity income...................................... -- 1 2 -- -- 3
Interest income.................................... 3 -- 1 1 -- 5
Depreciation, depletion, and amortization.......... 110 143 90 22 -- 365
Income before interest, income taxes, and minority
interest......................................... 407 308 63 (14) -- 764
Income from discontinued operations................ -- -- -- -- -- --
Extraordinary loss................................. -- -- -- -- -- --
Cumulative effect of change in accounting
principle........................................ (7) (11) (4) (24) -- (46)
Total assets (Note)................................ 2,754 3,208 1,423 1,166 (219) 8,332
Investment in affiliated companies................. 2 9 16 -- -- 27
Capital expenditures............................... 211 227 108 12 -- 558
Noncash items other than depreciation, depletion,
and amortization................................. (23) 10 (38) (69) -- (120)
AT DECEMBER 31, 1996, AND FOR THE YEAR THEN ENDED
Revenues from external customers................... $2,980 $1,987 $1,605 $ -- $ -- $6,572
Intersegment revenues.............................. -- -- 78 -- (78) --
Equity income...................................... -- -- -- -- -- --
Interest income.................................... 3 -- 1 4 -- 8
Depreciation, depletion, and amortization.......... 94 123 82 10 -- 309
Income before interest, income taxes, and minority
interest......................................... 249 249 152 (22) -- 628
Income from discontinued operations................ -- -- -- 428 -- 428
Extraordinary loss................................. -- -- -- (236) -- (236)
Cumulative effect of change in accounting
principle........................................ -- -- -- -- -- --
Total assets (Note)................................ 2,557 2,557 1,345 1,236 (108) 7,587
Investment in affiliated companies................. 2 9 15 1 -- 27
Capital expenditures............................... 177 172 169 55 -- 573
Noncash items other than depreciation, depletion,
and amortization................................. (3) (2) (45) (49) -- (99)
</TABLE>
- -------------------------
Note: The Other segment's total assets includes pension assets retained by
Tenneco related to certain employees of Tenneco's discontinued operations.
71
<PAGE> 76
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
GEOGRAPHIC AREA
-------------------
UNITED RECLASS &
STATES FOREIGN(a) ELIMS CONSOLIDATED
------ ---------- --------- ------------
(MILLIONS)
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1998, AND FOR THE YEAR THEN ENDED
Revenues from external customers(b)................... $5,214 $2,383 $ -- $7,597
Long-lived assets(c).................................. 3,918 1,066 -- 4,984
Total assets.......................................... 6,582 2,287 (78) 8,791
AT DECEMBER 31, 1997, AND FOR THE YEAR THEN ENDED
Revenues from external customers(b)................... $5,049 $2,171 $ -- $7,220
Long-lived assets(c).................................. 3,680 905 -- 4,585
Total assets.......................................... 6,345 2,053 (66) 8,332
AT DECEMBER 31, 1996, AND FOR THE YEAR THEN ENDED
Revenues from external customers(b)................... $4,708 $1,864 $ -- $6,572
Long-lived assets(c).................................. 3,511 752 -- 4,263
Total assets.......................................... 5,977 1,685 (75) 7,587
</TABLE>
- -------------------------
Notes: (a) Revenues from external customers and long-lived assets for individual
foreign countries are not material.
(b) Revenues are attributed to countries based on location of the seller.
(c) Long-lived assets include all long-term assets except goodwill,
intangibles, and deferred tax assets.
13. COMMITMENTS AND CONTINGENCIES
Capital Commitments
Tenneco estimates that expenditures aggregating approximately $305 million
will be required after December 31, 1998, to complete facilities and projects
authorized at such date, and substantial commitments have been made in
connection therewith. Of this amount, $49 million is in support of the
containerboard business, which Tenneco has reached an agreement to sell. See
Note 2, "Discontinued Operations, Disposition of Assets, and Extraordinary
Loss."
Lease Commitments
Tenneco holds certain of its facilities, equipment, and other assets under
long-term leases. Excluding certain leases held by Tenneco's containerboard
business, the minimum lease payments under non-cancelable operating leases with
lease terms in excess of one year are $69 million, $55 million, $43 million, $34
million, and $72 million for the years 1999, 2000, 2001, 2002, and 2003,
respectively, and $150 million for subsequent years.
Tenneco's containerboard business holds certain mill and timberland assets
under operating leases with financial investors (the "Lessor"). In connection
with the pending sale of the containerboard business described in Note 2 to
these financial statements, Tenneco may purchase the mill and timberland assets
prior to the sale. At December 31, 1998, minimum lease payments under the
containerboard leases are $68 million for the years 1999, 2000, and 2001, $18
million for the years 2002 and 2003, and $34 million for subsequent years.
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,
72
<PAGE> 77
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 1998, 1997, and 1996, was $163 million, $163 million, and $179 million,
respectively, including minimum rentals under non-cancelable operating leases of
$139 million, $155 million, and $151 million for the corresponding periods.
Certain of Tenneco Packaging Inc.'s various lease agreements, all related
to the containerboard business, require that it complies 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, and subsequent amendments,
in order to incur funded debt, Tenneco Packaging Inc. must maintain a pre-tax
cash flow coverage ratio, as defined, on a cumulative four quarter basis of a
minimum of 1.75, 2.00, and 1.25 at December 31, 1998, 1997, and 1996,
respectively. Tenneco Packaging Inc. was in compliance with all of its covenants
at December 31, 1998.
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"), which covers salaried employees of Newport News and other Tenneco
divisions and the 1986 asset valuation for the TRP and its cost accounting
treatment. On January 15, 1999, Newport News entered into a settlement agreement
with the Federal Government regarding the TRP. Tenneco agreed to pay Newport
News $14.5 million with respect to this and other matters. This payment had no
material impact on Tenneco's 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.
73
<PAGE> 78
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
CUMULATIVE
INCOME BEFORE EFFECT OF
INTEREST INCOME CHANGE IN
NET SALES EXPENSE, BEFORE CUMULATIVE ACCOUNTING
AND INCOME TAXES, EFFECT OF CHANGE PRINCIPLE,
OPERATING AND MINORITY IN ACCOUNTING NET OF NET INCOME
QUARTER REVENUES INTEREST PRINCIPLE INCOME TAX (LOSS)
------- --------- ------------- ----------------- ---------- ----------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
1998
1st............................. $1,809 $186 $ 75 $ -- $ 75
2nd............................. 1,996 276 137 -- 137
3rd............................. 1,915 206 103 -- 103
4th............................. 1,877 (27) (60) -- (60)
------ ---- ---- ----- ----
$7,597 $641 $255 $ -- $255
====== ==== ==== ===== ====
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
====== ==== ==== ===== ====
</TABLE>
<TABLE>
<CAPTION>
BASIC EARNINGS (LOSS) PER SHARE OF COMMON STOCK
-------------------------------------------------
CUMULATIVE
BEFORE CUMULATIVE EFFECT OF
EFFECT OF CHANGE CHANGE IN
IN ACCOUNTING ACCOUNTING NET INCOME
QUARTER PRINCIPLE PRINCIPLE (LOSS)
------- ----------------- ---------- ----------
<S> <C> <C> <C>
1998
1st................................................. $ .44 $ -- $ .44
2nd................................................. .81 -- .81
3rd................................................. .62 -- .62
4th................................................. (.36) -- (.36)
----- ----- -----
$1.52 $ -- $1.52
===== ===== =====
1997
1st................................................. $ .44 $ -- $ .44
2nd................................................. .61 -- .61
3rd................................................. .62 -- .62
4th................................................. .45 (.27) .18
----- ----- -----
$2.12 $(.27) $1.85
===== ===== =====
</TABLE>
74
<PAGE> 79
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DILUTED EARNINGS (LOSS) PER SHARE OF
COMMON STOCK
--------------------------------------
BEFORE
CUMULATIVE CUMULATIVE
EFFECT OF EFFECT OF
CHANGE IN CHANGE IN
ACCOUNTING ACCOUNTING NET INCOME
QUARTER PRINCIPLE PRINCIPLE (LOSS)
------- ---------- ---------- ----------
<S> <C> <C> <C>
1998
1st....................................................... $ .44 $ -- $ .44
2nd....................................................... .81 -- .81
3rd....................................................... .62 -- .62
4th....................................................... (.36) -- (.36)
----- ----- -----
$1.51 $ -- $1.51
===== ===== =====
1997
1st....................................................... $ .44 $ -- $ .44
2nd....................................................... .61 -- .61
3rd....................................................... .62 -- .62
4th....................................................... .44 (.27) .17
----- ----- -----
$2.11 $(.27) $1.84
===== ===== =====
</TABLE>
- -------------------------
Note: Reference is made to Notes 1, 2, 3, 4 and 8 and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" for items
affecting quarterly results. The sum of the quarters may not equal the
total of the respective year's earnings per share 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.)
75
<PAGE> 80
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 11, 1999, 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."
76
<PAGE> 81
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, 1998............................. 78
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..........................
</TABLE>
77
<PAGE> 82
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 CHARGED CHARGED
AT TO 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, 1998............ $35 $ 25 $ 4 $ 9 $55
=== ==== === === ===
Year Ended December 31, 1997............ $32 $ 7 $ 7 $11 $35
=== ==== === === ===
Year Ended December 31, 1996............ $24 $ 12 $-- $ 4 $32
=== ==== === === ===
</TABLE>
78
<PAGE> 83
REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the quarter ended
December 31, 1998.
EXHIBITS
The following exhibits are filed with Tenneco Inc.'s Annual Report on Form
10-K for the fiscal year ended December 31, 1998, 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
- ------- -----------
<S> <C> <C>
2 -- None.
3.1(a) -- Restated Certificate of Incorporation of Tenneco Inc. dated
December 11, 1996 (incorporated herein by reference from
Exhibit 3.1(a) of Tenneco Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1997, File No. 1-12387).
3.1(b) -- Certificate of Amendment, dated December 11, 1996
(incorporated herein by reference from Exhibit 3.1(c) of
Tenneco Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1997, File No. 1-12387).
3.1(c) -- Certificate of Ownership and Merger, dated July 8, 1997
(incorporated herein by reference from Exhibit 3.1(d) of
Tenneco Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1997, File No. 1-12387).
3.1(d) -- Certificate of Designation of Series B Junior Participating
Preferred Stock dated September 9, 1998 (incorporated herein
by reference from Exhibit 3.1(d) of Tenneco Inc.'s Quarterly
Report on Form 10-Q for the quarter ended September 30,
1998, File No. 1-12387).
3.1(e) -- Certificate of Elimination of the Series A Participating
Junior Preferred Stock of Tenneco Inc. dated September 11,
1998 (incorporated herein by reference from Exhibit 3.1(e)
of Tenneco Inc.'s Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998, File No. 1-12387).
*3.2 -- Amended By-laws of Tenneco Inc.
4.1 -- Form of Specimen Stock Certificate of Tenneco Inc. Common
Stock (incorporated herein by reference from Exhibit 4.1 of
Tenneco Inc.'s Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998, File No. 1-12387).
4.2 -- Qualified Offer Plan Rights Agreement dated as of September
9, 1998 by and between Tenneco Inc. and First Chicago Trust
Company of New York, as Rights Agent (incorporated herein by
reference from Exhibit 4.1 of Tenneco Inc.'s Current Report
on Form 8-K dated September 24, 1998, 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).
</TABLE>
79
<PAGE> 84
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C> <C>
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).
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).
*4.3(l) -- Registration Rights Agreement dated as of August 28, 1998 by
and between Tenneco Inc. and Dana G. Mead, Theodore R.
Tetzlaff, Paul T. Stecko and Robert T. Blakely, not
individually but solely as trustees under that certain
Tenneco Inc. Rabbi Trust dated as of August 28, 1998.
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).
</TABLE>
80
<PAGE> 85
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C> <C>
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).
10.7 -- First Amendment to Tax Sharing Agreement, dated as of
December 11, 1996 among El Paso Tennessee Pipeline Co.
(formerly Tenneco Inc.), Tenneco Inc. (formerly New Tenneco
Inc.) and Newport News Shipbuilding Inc. (incorporated
herein by reference from Exhibit 10.7 of Tenneco Inc.'s
Annual Report on Form 10-K for the year ended December 31,
1996, File No. 1-12387).
10.8 -- Transition Services Agreement, dated June 19, 1996, by and
among, Tenneco Business Services, Inc., El Paso Tennessee
Pipeline Co. (formerly Tenneco Inc.) and El Paso Natural Gas
Company (incorporated herein by reference from Exhibit 10.8
of Tenneco Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1996, File No. 1-12387).
10.9 -- Trademark Transition License Agreement, dated December 11,
1996, by and between Newport News Shipbuilding Inc. and
Tenneco Inc. (formerly New Tenneco Inc.) (incorporated
herein by reference from Exhibit 10.9 of Tenneco Inc.'s
Annual Report on Form 10-K for the year ended December 31,
1996, File No. 1-12387).
10.10 -- Trademark Transition License Agreement, dated December 11,
1996, by and between Tenneco Inc. (formerly New Tenneco
Inc.) and El Paso Tennessee Pipeline Co. (formerly Tenneco
Inc.) (incorporated herein by reference from Exhibit 10.10
of Tenneco Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1996, File No. 1-12387).
10.11 -- 1997 Tenneco Inc. Board of Directors Deferred Compensation
Plan (incorporated herein by reference from Exhibit 10.11 of
Tenneco Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1997, File No. 1-12387).
10.12 -- Executive Incentive Compensation Plan (incorporated herein
by reference from Exhibit 10.12 of Tenneco Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1997,
File No. 1-12387).
10.13 -- Tenneco Inc. Deferred Compensation Plan (incorporated herein
by reference from Exhibit 10.13 of Tenneco Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1997,
File No. 1-12387).
*10.14 -- Amended and Restated Tenneco Inc. Supplemental Executive
Retirement Plan.
10.15 -- 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).
</TABLE>
81
<PAGE> 86
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C> <C>
10.16 -- Amended and Restated Tenneco Benefits Protection Trust
(incorporated herein by reference from Exhibit 10.17 of
Tenneco's Form 10, File No. 1-12387).
10.17 -- 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).
10.18 -- 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).
10.19 -- 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).
10.20 -- 1996 Tenneco Inc. Stock Ownership Plan, as amended
(incorporated herein by reference from Exhibit 10.11 of
Tenneco Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1997, File No. 1-12387).
10.21 -- Release Agreement dated July 6, 1998 between Stacy S. Dick,
Pamela Dick and Tenneco Management Company (incorporated
herein by reference from Exhibit 10.22 of Tenneco's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1998, File No. 1-12387).
10.22 -- 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).
10.23 -- 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).
10.24 -- Timberland Lease, dated January 31, 1991, by and between
Four States Timber Venture and Packaging Corporation of
America, as amended (incorporated herein by reference from
Exhibit 10.26 of Tenneco Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1997, File No. 1-12387).
10.25 -- 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).
10.26 -- Tenneco Inc. Rabbi Trust (incorporated herein by reference
from Exhibit 10.22 of Tenneco Inc.'s Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998, File No.
1-12387).
10.27 -- Letter Agreement dated September 24, 1998 between Robert T.
Blakely and Tenneco Inc. (incorporated herein by reference
from Exhibit 10.23 of Tenneco Inc.'s Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998, File No.
1-12387).
*10.28 -- Letter Agreement dated September 24, 1998 between John J.
Castellani and Tenneco Inc.
10.29 -- Tenneco Benefits Protection Trust Appointment of Successor
Trustee dated September 28, 1998 (incorporated herein by
reference from Exhibit 10.24 of Tenneco Inc.'s Quarterly
Report on Form 10-Q for the quarter ended September 30,
1998, File No. 1-12387).
*10.30 -- Contribution Agreement, dated as of January 25, 1999, among
Tenneco Packaging Inc., PCA Holdings LLC, and Packaging
Corporation of America.
11 -- None.
*12 -- Computation of Ratio of Earnings to Fixed Charges.
13 -- None.
16 -- None.
</TABLE>
82
<PAGE> 87
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C> <C>
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
Henry U. Harris, Jr.
Belton K. Johnson
Sir David Plastow
Roger B. Porter
Paul T. Stecko
William L. Weiss
Clifton R. Wharton, Jr.
*27 -- Financial Data Schedule, 12/31/98.
28 -- None.
99 -- None.
</TABLE>
83
<PAGE> 88
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.
By /s/ DANA G. MEAD
------------------------------------
Dana G. Mead
Chairman and Chief Executive Officer
Date: March 10, 1999
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
--------- ----- ----
<C> <C> <S> <C>
/s/ DANA G. MEAD Principal Executive March 10, 1999
- -------------------------------------------------------- Officer and Director
Dana G. Mead
/s/ ROBERT T. BLAKELY Principal Financial and March 10, 1999
- -------------------------------------------------------- Accounting Officer
Robert T. Blakely
Mark Andrews, W. Michael Blumenthal, Directors March 10, 1999
Larry D. Brady, M. Kathryn Eickhoff,
Henry U. Harris, Jr., Belton K. Johnson,
Sir David Plastow, Roger B. Porter,
Paul T. Stecko, William L. Weiss,
Clifton R. Wharton, Jr.
By: /s/ THEODORE R. TETZLAFF
-----------------------------------------------
Theodore R. Tetzlaff
Attorney-in-fact
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EXHIBIT 3.2
BY-LAWS
OF
TENNECO INC.
AS AMENDED DECEMBER 2, 1998
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BY-LAWS
OF
TENNECO INC.
AS AMENDED DECEMBER 2, 1998
ARTICLE I
PLACE OF STOCKHOLDER MEETINGS
Section 1. All meetings of the stockholders of the corporation shall be
held at such place or places, within or without the State of Delaware, as may
from time to time be fixed by the Board of Directors of the corporation (the
"Board"), or as shall be specified or fixed in the respective notices or waivers
of notice thereof.
ANNUAL MEETING
Section 2. The Annual Meeting of Stockholders shall be held on such date
and at such time as may be fixed by the Board and stated in the notice thereof,
for the purpose of electing directors and for the transaction of only such other
business as is properly brought before the meeting in accordance with these
By-Laws.
To be properly brought before the meeting, business must be either (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board, (b) otherwise properly brought before the meeting by
or at the direction of the Board, or (c) otherwise properly brought before the
meeting by a stockholder. In addition to any other applicable requirements, for
business to be properly brought before the Annual Meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary of
the corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the corporation, not
less than 50 days nor more than 75 days prior to the meeting; provided, however,
that in the event that less than 65 days' notice or prior public disclosure of
the date of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not later than the close of
business on the 15th day following the day on which such notice of the date of
the Annual Meeting was mailed or such public disclosure was made, whichever
first occurs. A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the Annual Meeting (i) a brief
description of the business desired to be brought before the Annual Meeting and
the reasons for conducting such business at the Annual Meeting, (ii) the name
and record address of the stockholder proposing such business, (iii) the class
and number of shares of the corporation which are beneficially owned by the
stockholder, and (iv) any material interest of the stockholder in such business.
Notwithstanding anything in these By-Laws to the contrary, no business
shall be transacted at the Annual Meeting except in accordance with the
procedures set forth in this Section, provided, however, that nothing in this
Section shall be deemed to preclude discussion by any stockholder of any
business properly brought before the Annual Meeting.
The Chairman of the Annual Meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting in accordance with the provisions of this Section, and if he should so
determine, he shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted.
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SPECIAL MEETING
Section 3. Subject to the rights of the holders of any series of preferred
stock, par value $.01 per share, of the corporation (the "Preferred Stock") to
elect additional directors under specified circumstances, special meetings of
the stockholders shall be called by the Board. The business transacted at a
special meeting shall be confined to the purposes specified in the notice
thereof. Special meetings shall be held at such date and at such time as the
Board may designate.
NOTICE OF MEETING
Section 4. Written notice of each meeting of stockholders, stating the
place, date and hour of the meeting, and the purpose or purposes thereof, shall
be mailed not less than ten nor more than sixty days before the date of such
meeting to each stockholder entitled to vote thereat.
QUORUM
Section 5. Unless otherwise provided by statute, the holders of shares of
stock entitled to cast a majority of votes at a meeting, present either in
person or by proxy, shall constitute a quorum at such meeting. The Secretary of
the corporation or in his absence an Assistant Secretary or an appointee of the
presiding officer of the meeting, shall act as the Secretary of the meeting.
VOTING
Section 6. Except as otherwise provided by law or the Restated Certificate
of Incorporation, each stockholder entitled to vote at any meeting shall be
entitled to one vote, in person or by proxy, for each share held of record on
the record date fixed as provided in Section 4 of Article V of these By-Laws for
determining the stockholders entitled to vote at such meeting. Except as
otherwise provided by law, the Restated Certificate of Incorporation or these
By-Laws, the vote of a majority of any quorum shall be sufficient to elect
directors and to pass any resolution within the power of the holders of all the
outstanding shares.
Elections of directors need not be by written ballot; provided, however,
that by resolution duly adopted, a vote by written ballot may be required.
PROXIES
Section 7. Each stockholder entitled to vote at a meeting of stockholders
or to express consent or dissent to corporate action in writing without a
meeting may authorize another person or persons to act for him by proxy, but no
such proxy shall be voted or acted upon after three years from its date, unless
the proxy provides for a longer period. A proxy shall be irrevocable if it
states that it is irrevocable and if, and only as long as, it is coupled with an
interest sufficient in law to support an irrevocable power. A stockholder may
revoke any proxy which is not irrevocable by attending the meeting and voting in
person or by filing an instrument revoking the proxy or by delivering a proxy in
accordance with applicable law bearing a later date to the Secretary of the
corporation. In order to be exercised at a meeting of stockholders, proxies
shall be delivered to the Secretary of the corporation or his representative at
or before the time of such meeting.
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INSPECTORS
Section 8. At each meeting of the stockholders the polls shall be opened
and closed; the proxies and ballots shall be received and be taken in charge,
and all questions touching the qualification of voters and the validity of
proxies and the acceptance or rejection of votes shall be decided by three
Inspectors, two of whom shall have power to make a decision. Such Inspectors
shall be appointed by the Board before the meeting, or in default thereof by the
presiding officer at the meeting, and shall be sworn to the faithful performance
of their duties. If any of the Inspectors previously appointed shall fail to
attend or refuse or be unable to serve, substitutes shall be appointed by the
presiding officer.
CONDUCT OF MEETINGS
Section 9. The date and time of the opening and the closing of the polls
for each matter upon which the stockholders will vote at a meeting shall be
announced at the meeting by the chairman of the meeting. The Board may adopt by
resolution such rules and regulations for the conduct of the meeting of
stockholders as it shall deem appropriate. Except to the extent inconsistent
with such rules and regulations as adopted by the Board, the chairman of any
meeting of stockholders shall have the right and authority to prescribe such
rules, regulations and procedures and to do all such acts as, in the judgment of
such chairman, are appropriate for the proper conduct of the meeting. Such
rules, regulations or procedures, whether adopted by the Board or prescribed by
the chairman of the meeting, may include, without limitation, the following: (i)
the establishment of an agenda or order of business for the meeting; (ii) rules
and procedures for maintaining order at the meeting and the safety of those
present; (iii) limitations on attendance at or participation in the meeting to
stockholders of record of the corporation, their duly authorized and constituted
proxies or such other persons as the chairman of the meeting shall determine;
(iv) restrictions on entry to the meeting after the time fixed for the
commencement thereof; and (v) limitations on the time allotted to questions or
comments by participants. Unless and to the extent determined by the Board or
the chairman of the meeting, meetings of stockholders shall not be required to
be held in accordance with the rules of parliamentary procedure.
ARTICLE II
BOARD OF DIRECTORS
NUMBER; METHOD OF ELECTION;
TERMS OF OFFICE AND QUALIFICATION
Section 1. The business and affairs of the corporation shall be managed
under the direction of the Board. The number of directors which shall constitute
the entire Board shall not be less than eight nor more than sixteen and shall be
determined from time to time by resolution adopted by a majority of the entire
Board.
Nominations of persons for election to the Board of the corporation at the
Annual Meeting of Stockholders may be made at a meeting of stockholders by or at
the direction of the Board of Directors by any nominating committee or person
appointed by the Board or by any stockholder of the corporation entitled to vote
for the election of directors at the meeting who complies with the notice
procedures set forth in this Article II. Such nominations, other than those made
by or at the direction of the Board, shall be made pursuant to timely notice in
writing to the Secretary of the corporation. To be timely, a stockholder's
notice shall be delivered to or mailed and received at the principal executive
offices of the corporation not less than 50 days nor more than 75 days prior to
the meeting; provided, however, that in the event that less than 65 days' notice
or prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the
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stockholder to be timely must be so received not later than the close of
business on the 15th day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made, whichever first
occurs. Such stockholder's notice to the Secretary shall set forth (a) as to
each person whom the stockholder proposes to nominate for election or reelection
as a director, (i) the name, age, business address and residence of the person,
(ii) the principal occupation or employment of the person, (iii) the class and
number of shares of capital stock of the corporation which are beneficially
owned by the person and (iv) any other information relating to the person that
is required to be disclosed in solicitations for proxies for election of
directors pursuant to the Securities Exchange Act of 1934 as amended; and (b) as
to the stockholder giving the notice (i) the name and record address of the
stockholder and (ii) the class and number of shares of capital stock of the
corporation which are beneficially owned by the stockholder. The corporation may
require any proposed nominee to furnish such other information as may reasonably
be required by the corporation to determine the eligibility of such proposed
nominee to serve as director of the corporation. No person shall be eligible for
election as a director of the corporation at the Annual Meeting of Stockholders
unless nominated in accordance with the procedures set forth herein. The
Chairman of the meeting shall, if the facts warrant, determine and declare to
the meeting that a nomination was not made in accordance with the foregoing
procedure, and if he should so determine, he shall so declare to the meeting and
the defective nomination shall be disregarded.
Any director may resign his office at any time by delivering his
resignation in writing to the corporation, and the acceptance of such
resignation unless required by the terms thereof shall not be necessary to make
such resignation effective.
No person who shall have attained the age of 72 shall be eligible for
election or reelection, as the case may be, as a director of the corporation.
MEETINGS
Section 2. The Board may hold its meetings and have an office in such place
or places within or without the State of Delaware as the Board by resolution
from time to time may determine.
The Board may in its discretion provide for regular or stated meetings of
the Board. Notice of regular or stated meetings need not be given. Special
meetings of the Board shall be held whenever called by direction of the Chief
Executive Officer, the President or any two of the directors.
Notice of any special meeting shall be given by the Secretary to each
director either by mail or by telegram, facsimile, telephone or other electronic
communication or transmission. If mailed, such notice shall be deemed adequately
delivered when deposited in the United States mails so addressed, with postage
thereon prepaid, at least three days before such meeting. If by telegram, such
notice shall be deemed adequately delivered when the telegram is delivered to
the telegraph corporation at least twenty-four hours before such meeting. If by
facsimile, telephone or other electronic communication or transmission, such
notice shall be transmitted at least twenty-four hours before such meeting.
Unless otherwise indicated in the notice thereof, any and all business may be
transacted at a special meeting.
Except as otherwise provided by applicable law, at any meeting at which
every director shall be present, even though without notice, any business may be
transacted. No notice of any adjourned meeting need be given.
The Board shall meet immediately after election, following the Annual
Meeting of Stockholders, for the purpose of organizing, for the election of
corporate officers as hereinafter specified, and for the transaction of any
other business which may come before it. No notice of such meeting shall be
necessary.
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QUORUM
Section 3. Except as otherwise expressly required by these By-Laws or by
statute, a majority of the directors then in office (but not less than one-third
of the total number of directors constituting the entire Board) shall be present
at any meeting of the Board in order to constitute a quorum for the transaction
of business at such meeting, and the vote of a majority of the directors present
at any such meeting at which quorum is present shall be necessary for the
passage of any resolution or for an act to be the act of the Board. In the
absence of a quorum, a majority of the directors present may adjourn such
meeting from time to time until a quorum shall be present. Notice of any
adjourned meeting need not be given.
COMPENSATION OF BOARD OF DIRECTORS
Section 4. Each director (other than a director who is a salaried officer
of the corporation or of any subsidiary of the corporation), in consideration of
his serving as such, shall be entitled to receive from the corporation such
amount per annum and such fees for attendance at meetings of the Board or of any
committee of the Board (a "Committee"), or both, as the Board shall from time to
time determine. The Board may likewise provide that the corporation shall
reimburse each director or member of a Committee for any expenses incurred by
him on account of his attendance at any such meeting. Nothing contained in this
Section shall be construed to preclude any director from serving the corporation
in any other capacity and receiving compensation therefor.
ARTICLE III
COMMITTEES OF THE BOARD
COMMITTEES
Section 1. The Board shall elect from the directors an Executive Committee,
a Compensation Committee, an Audit Committee, a Nominating and Business
Development Committee and any other Committee which the Board may by resolution
prescribe. Any such other Committee shall be comprised of such persons and shall
possess such authority as shall be set forth in such resolution.
PROCEDURE
Section 2. (1) Each Committee shall fix its own rules of procedure and
shall meet where and as provided by such rules. Unless otherwise stated in these
By-Laws, a majority of a Committee shall constitute a quorum.
(2) In the absence or disqualification of a member of any Committee, the
members of such Committee present at any meeting, and not disqualified from
voting, whether or not they constitute a quorum, may unanimously appoint another
member of the Board to act at the meeting in the place of any such absent or
disqualified member. Fees in connection with such appointments shall be
established by the Board.
REPORTS TO THE BOARD
Section 3. All completed actions by the Executive, Audit and Compensation
Committees shall be reported to the Board at the next succeeding Board meeting
and shall be subject to revision or alteration by the Board, provided, that no
acts or rights of third parties shall be affected by any such revision or
alteration.
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EXECUTIVE COMMITTEE
Section 4. The Board shall elect an Executive Committee comprised of the
Chief Executive Officer and not less than four additional members of the Board.
During the interval between the meetings of the Board, the Executive Committee
shall possess and may exercise all the powers of the Board in the management and
direction of all the business and affairs of the corporation (except the matters
hereinafter assigned to the Compensation Committee) including, without
limitation, the power and authority to declare dividends and to authorize the
issuance of stock, in such manner as the Executive Committee shall deem best for
the interests of the corporation in all cases in which specific directions shall
not have been given by the Board.
COMPENSATION COMMITTEE
Section 5. The Board shall elect a Compensation Committee consisting of at
least four members of the Board, none of whom shall be officers or employees of
the corporation or of any subsidiary corporation. The Board shall appoint a
chairman of such Committee who shall be one of its members. The Compensation
Committee shall have such authority and duties as the Board by resolution shall
prescribe.
AUDIT COMMITTEE
Section 6. The Board shall elect from among its members an Audit Committee
consisting of at least three members. The Board shall appoint a chairman of said
Committee who shall be one of its members. The Audit Committee shall have such
authority and duties as the Board by resolution shall prescribe. In no event
shall a director who is also an officer or employee of the corporation or any of
its subsidiary companies serve as a member of such Committee. The Chief
Executive Officer shall have the right to attend (but not vote at) each meeting
of such Committee.
NOMINATING AND MANAGEMENT DEVELOPMENT COMMITTEE
Section 7. The Board shall elect from among its members a Nominating and
Management Development Committee consisting of at least three members. The Board
shall appoint a chairman of said Committee who shall be one of its members. The
Nominating and Management Development Committee shall have such authority and
duties as the Board by resolution shall prescribe. In no event shall a director
who is also an officer or employee of the corporation or any of its subsidiary
companies serve as a member of such Committee. The Chief Executive Officer shall
have the right to attend (but not vote at) each meeting of such Committee.
ARTICLE IV
OFFICERS
GENERAL PROVISIONS
Section 1. The corporate officers of the corporation shall consist of the
following: a Chairman and/or a President, one of whom shall be designated Chief
Executive Officer and each of whom shall be chosen from the Board; one or more
Vice Chairman, Executive Vice Presidents, Senior Vice Presidents, Vice
Presidents and Assistant Vice Presidents; a General Counsel, a Secretary, one or
more Assistant Secretaries, a Treasurer, one or more Assistant Treasurers, a
Controller, and such other officers as the Board may from time to time
designate. Insofar as permitted by statute, the same person may hold two or more
offices. All officers chosen by the Board shall each have such powers and duties
as generally pertain to their respective offices, subject to the specific
provisions of this Article IV.
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The Chairman and/or President, each Vice Chairman, Executive Vice
President, Senior Vice President and Vice President, the General Counsel, the
Secretary and any Assistant Secretary, the Treasurer and any Assistant
Treasurer, and the Controller shall be elected by the Board. Each such officer
shall hold office until his successor is elected or appointed and qualified or
until his earlier death, resignation or removal.
Any officer may be removed, with or without cause, at any time by the
Board.
A vacancy in any office may be filled for the unexpired portion of the term
in the same manner as provided in these By-Laws for election or appointment to
such office.
POWERS AND DUTIES OF THE CHIEF EXECUTIVE OFFICER
Section 2. The Chief Executive Officer shall have general charge and
management of the affairs, property and business of the corporation, subject to
the Board, the Executive Committee and the provisions of these By-Laws. The
Chief Executive Officer or in his absence such other individual as the Board may
select, shall preside at all meetings of the stockholders. He shall also preside
at meetings of the Board and the Executive Committee, and in his absence the
Board or the Executive Committee, as the case may be, shall appoint one of their
number to preside.
The Chief Executive Officer shall perform all duties assigned to him in
these By-Laws and such other duties as may from time to time be assigned to him
by the Board. He shall have the power to appoint and remove, with or without
cause, such officers, other than those elected by the Board as provided for in
these By-Laws, as in his judgment may be necessary or proper for the transaction
of the business of the corporation, and shall determine their duties, all
subject to ratification by the Board.
POWERS AND DUTIES OF OTHER OFFICERS
Section 3. The Chairman shall perform such duties as may from time to time
be assigned to him by the Board, the Executive Committee or the Chief Executive
Officer.
Section 4. Each Vice Chairman shall perform such duties as may from time to
time be assigned to him by the Board, the Executive Committee or the Chief
Executive Officer.
Section 5. The President shall perform such duties as may from time to time
be assigned to him by the Board, the Executive Committee or the Chief Executive
Officer.
Section 6. Each Executive Vice President shall perform such duties as may
from time to time be assigned to him by the Board, the Executive Committee or
the Chief Executive Officer.
Section 7. Each Senior Vice President shall perform such duties as may from
time to time be assigned to him by the Board, the Executive Committee or the
Chief Executive Officer.
Section 8. Each Vice President and Assistant Vice President shall perform
such duties as may from time to time be assigned to him by the Board, the
Executive Committee, the Chief Executive Officer or an Executive Vice President.
Section 9. The General Counsel shall have general supervision and control
of all of the corporation's legal business. He shall perform such other duties
as may be assigned to him by the Board, the Executive Committee or the Chief
Executive Officer.
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Section 10. The Secretary or an Assistant Secretary shall record the
proceedings of all meetings of the Board, the Executive Committee of the Board
and the stockholders, in books kept for that purpose. The Secretary shall be the
custodian of the corporate seal, and he or an Assistant Secretary shall affix
the same to and countersign papers requiring such acts; and he and the Assistant
Secretaries shall perform such other duties as may be required by the Board, the
Executive Committee or the Chief Executive Officer.
Section 11. The Treasurer and Assistant Treasurers shall have care and
custody of all funds of the corporation and disburse and administer the same
under the direction of the Board, the Executive Committee or the Chief Executive
Officer and shall perform such other duties as the Board, the Executive
Committee or the Chief Executive Officer shall assign to them.
Section 12. The Controller shall maintain adequate records of all assets,
liabilities and transactions of the corporation and see that audits thereof are
currently and regularly made; and he shall perform such other duties as may be
required by the Board, the Executive Committee or the Chief Executive Officer.
SALARIES AND APPOINTMENTS
Section 13. The salaries of corporate officers shall be fixed by the
Compensation Committee provided for in Section 5 of Article III hereof, except
that the fixing of salaries below certain levels, determinable from time to time
by the Compensation Committee, may in the discretion of the Committee be
delegated to the Chief Executive Officer, subject to the approval of the Board.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 14. (1) The corporation shall indemnify and hold harmless, to the
fullest extent permitted by applicable law as it presently exists or may
hereafter be amended, any person (an "Indemnitee") who was or is made or is
threatened to be made a party or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative, including
appeals (a "proceeding"), by reason of the fact that he, or a person for whom he
is the legal representative, is or was a director or officer of the corporation
or, while a director or officer of the corporation, is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust, enterprise or nonprofit
entity, including service with respect to employee benefit plans, against all
liability and loss suffered and expenses (including attorneys' fees) reasonably
incurred by such Indemnitee. Notwithstanding the preceding sentence, except as
otherwise provided in paragraph (3) of this Section 14, the corporation shall be
required to indemnify an Indemnitee in connection with a proceeding (or part
thereof) commenced by such Indemnitee only if the commencement of such
proceeding (or part thereof) by the Indemnitee was authorized by the Board.
(2) The corporation shall pay the expenses (including attorneys' fees)
incurred by an Indemnitee in defending any proceeding in advance of its final
disposition, provided, however, that, to the extent required by law, such
payment of expenses in advance of the final disposition of the proceeding shall
be made only upon receipt of an undertaking by the Indemnitee to repay all
amounts advanced if it should be ultimately determined that the Indemnitee is
not entitled to be indemnified under this Section 14 or otherwise.
(3) If a claim for indemnification or payment of expenses under this
Section 14 is not paid in full within thirty days after a written claim therefor
by the Indemnitee has been received by the corporation, the Indemnitee may file
suit to recover the unpaid amount of such claim and, if successful in whole or
in part, shall be entitled to be paid the expense of prosecuting such claim. In
any such action the corporation shall have the burden of proving that the
Indemnitee is not entitled to the requested indemnification or payment of
expenses under applicable law.
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(4) The rights conferred on any Indemnitee by this Section 14 shall not be
exclusive of any other rights which such Indemnitee may have or hereafter
acquire under any statute, provision of the Restated Certificate of
Incorporation, these By-Laws, agreement, vote of stockholders or disinterested
directors or otherwise.
(5) The corporation's obligation, if any, to indemnify or to advance
expenses to any Indemnitee who was or is serving at its request as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, enterprise or nonprofit entity shall be reduced by any amount such
Indemnitee may collect as indemnification or advancement of expenses from such
other corporation, partnership, joint venture, trust, enterprise or nonprofit
enterprise.
(6) Any repeal or modification of the foregoing provisions of this Section
14 shall not adversely affect any right or protection hereunder of any
Indemnitee in respect of any act or omission occurring prior to the time of such
repeal or modification.
(7) This Section 14 shall not limit the right of the corporation, to the
extent and in the manner permitted by law, to indemnify and to advance expenses
to persons other than Indemnitees when and as authorized by appropriate
corporate action.
ARTICLE V
CAPITAL STOCK
CERTIFICATES OF STOCK
Section 1. Certificates of stock certifying the number of shares owned
shall be issued to each stockholder in such form not inconsistent with the
Restated Certificate of Incorporation as shall be approved by the Board. Such
certificates of stock shall be numbered and registered in the order in which
they are issued and shall be signed by the Chairman, the President or a Vice
President, and by the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary. Any and all of the signatures on the certificates may be a
facsimile.
TRANSFER OF SHARES
Section 2. Transfers of shares shall be made only upon the books of the
corporation by the holder, in person, or by power of attorney duly executed and
filed with the Secretary of the corporation, and on the surrender of the
certificate or certificates of such shares, properly assigned. The corporation
may, if and whenever the Board shall so determine, maintain one or more offices
or agencies, each in charge of an agent designated by the Board, where the
shares of the capital stock of the corporation shall be transferred and/or
registered. The Board may also make such additional rules and regulations as it
may deem expedient concerning the issue, transfer and registration of
certificates for shares of the capital stock of the corporation.
LOST, STOLEN OR DESTROYED CERTIFICATES
Section 3. The corporation may issue a new certificate of capital stock of
the corporation in place of any certificate theretofore issued by the
corporation, alleged to have been lost, stolen or destroyed, and the corporation
may, but shall not be obligated to, require the owner of the alleged lost,
stolen or destroyed certificate, or his legal representatives, to give the
corporation a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate, as the officers of the
corporation may, in their discretion, require.
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FIXING OF RECORD DATE
Section 4. In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board, and which record date: (1) in the case of determination of
stockholders entitled to vote at any meeting of stockholders or adjournment
thereof, shall, unless otherwise required by law, not be more than sixty nor
less than ten days before the date of such meeting; (2) in the case of
determination of stockholders entitled to express consent to corporate action in
writing without a meeting, shall not be more than ten days from the date upon
which the resolution fixing the record date is adopted by the Board; and (3) in
the case of any other action, shall not be more than sixty days prior to such
other action. If no record date is fixed by the Board: (1) the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held; (2) the record date
for determining stockholders entitled to express consent to corporate action in
writing without a meeting shall be determined in accordance with Article VI of
these By-Laws; and (3) the record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the Board
adopts the resolution relating thereto. A determination of stockholders of
record entitled to notice of or to vote at a meeting of stockholders shall apply
to any adjournment of the meeting; provided, however, that the Board may fix a
new record date for the adjourned meeting.
ARTICLE VI
CONSENTS TO CORPORATE ACTION
RECORD DATE
Section 1. The record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting shall be as fixed by
the Board or as otherwise established under this Section. Any person seeking to
have the stockholders authorize or take corporate action by written consent
without a meeting shall by written notice addressed to the Secretary and
delivered to the corporation, request that a record date be fixed for such
purpose. The Board may fix a record date for such purpose which shall be no more
than 10 days after the date upon which the resolution fixing the record date is
adopted by the Board and shall not precede the date such resolution is adopted.
If the Board fails within 10 days after the corporation receives such notice to
fix a record date for such purpose, the record date shall be the day on which
the first written consent is delivered to the corporation in the manner
described in Section 2 below unless prior action by the Board is required under
the General Corporation Law of Delaware, in which event the record date shall be
at the close of business on the day on which the Board adopts the resolution
taking such prior action.
PROCEDURES
Section 2. Every written consent purporting to take or authorizing the
taking of corporate action and/or related revocations (each such written consent
and related revocation is referred to in this Article VI as a "Consent") shall
bear the date of signature of each stockholder who signs the Consent, and no
Consent shall be effective to take the corporate action referred to therein
unless, within 60 days of the earliest dated Consent delivered in the manner
required by this Section 2, Consents signed by a sufficient number of
stockholders to take such action are delivered to the corporation.
<PAGE> 12
11
A Consent shall be delivered to the corporation by delivery to its
registered office in the State of Delaware, its principal place of business, or
an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery to the
corporation's registered office shall be made by hand or by certified or
registered mail, return receipt requested.
In the event of the delivery to the corporation of a Consent, the Secretary
of the corporation shall provide for the safe-keeping of such Consent and shall
promptly conduct such ministerial review of the sufficiency of the Consents and
of the validity of the action to be taken by shareholder consent as he deems
necessary or appropriate, including, without limitation, whether the holders of
a number of shares having the requisite voting power to authorize or take the
action specified in the Consent have given consent; provided, however, that if
the corporate action to which the Consent relates is the removal or replacement
of one or more members of the Board, the Secretary of the corporation shall
promptly designate two persons, who shall not be members of the Board, to serve
as Inspectors with respect to such Consent and such Inspectors shall discharge
the functions of the Secretary of the corporation under this Section 2. If after
such investigation the Secretary or the Inspectors (as the case may be) shall
determine that the Consent is valid and that the action therein specified has
been validly authorized, that fact shall forthwith be certified on the records
of the corporation kept for the purpose of recording the proceedings of meetings
of stockholders, and the Consent shall be filed in such records, at which time
the Consent shall become effective as stockholder action. In conducting the
investigation required by this Section 2, the Secretary or the Inspectors (as
the case may be) may, at the expense of the corporation, retain special legal
counsel and any other necessary or appropriate professional advisors, and such
other personnel as they may deem necessary or appropriate to assist them, and
shall be fully protected in relying in good faith upon the opinion of such
counsel or advisors.
ARTICLE VII
MISCELLANEOUS
DIVIDENDS AND RESERVES
Section 1. Dividends upon the capital stock of the corporation may be
declared as permitted by law by the Board or the Executive Committee at any
regular or special meeting. Before payment of any dividend or making any
distribution of profits, there may be set aside out of the surplus or net
profits of the corporation such sum or sums as the Board or the Executive
Committee, from time to time, in their absolute discretion, think proper as a
reserve fund to meet contingencies, or for such other purposes as the Board or
Executive Committee shall think conducive to the interests of the corporation,
and any reserve so established may be abolished and restored to the surplus
account by like action of the Board or the Executive Committee.
SEAL
Section 2. The seal of the corporation shall bear the corporate name of the
corporation, the year of its incorporation and the words "Corporate Seal,
Delaware".
WAIVER
Section 3. Whenever any notice whatever is required to be given by statute
or under the provisions of the Restated Certificate of Incorporation or these
By-Laws, a waiver thereof in writing signed by the person or persons entitled to
such notice, whether before or after the time stated therein, shall be deemed
equivalent thereto. Neither the business to be transacted at, nor the purpose
of, any annual or special meeting of the stockholders or the Board, as the case
may be, need be specified in any waiver of notice of such meeting.
<PAGE> 13
12
FISCAL YEAR
Section 4. The fiscal year of the corporation shall begin with January
first and end with December thirty-first.
CONTRACTS
Section 5. Except as otherwise required by law, the Restated Certificate of
Incorporation or these By-Laws, any contracts or other instruments may be
executed and delivered in the name and on the behalf of the corporation by such
officer or officers of the corporation as the Board may from time to time
direct. Such authority may be general or confined to specific instances as the
Board may determine. The Chairman of the Board, the President or any Vice
President may execute bonds, contracts, deeds, leases and other instruments to
be made or executed for or on behalf of the corporation. Subject to any
restrictions imposed by the Board, the Chairman of the Board, the President or
any Vice President of the corporation may delegate contractual powers to others
under his jurisdiction, it being understood, however, that any such delegation
of power shall not relieve such officer of responsibility with respect to the
exercise of such delegated power.
PROXIES
Section 6. Unless otherwise provided by resolution adopted by the Board,
the Chairman of the Board, the President or any Vice President may from time to
time appoint an attorney or attorneys or agent or agents of the corporation, in
the name and on behalf of the corporation, to cast the votes which the
corporation may be entitled to cast as the holder of stock or other securities
in any other corporation or other entity, any of whose stock or other securities
may be held by the corporation, at meetings of the holders of the stock or other
securities of such other corporation or other entity, or to consent in writing,
in the name of the corporation as such holder, to any action by such other
corporation or other entity, and may instruct the person or persons so appointed
as to the manner of casting such votes or giving such consent, and may execute
or cause to be executed in the name and on behalf of the corporation and under
its corporate seal or otherwise, all such written proxies or other instruments
as he may deem necessary or proper in the premises.
AMENDMENTS
Section 7. The Board from time to time shall have the power to make, alter,
amend or repeal any and all of these By-Laws, but any By-Laws so made, altered
or repealed by the Board may be amended, altered or repealed by the
stockholders.
<PAGE> 14
13
CERTIFICATION
The undersigned hereby certifies that he is the duly elected and acting
Secretary of Tenneco Inc., a Delaware corporation, and the keeper of its
corporate records and minutes. The undersigned further hereby certifies that the
above and foregoing is a true and correct copy of the By-Laws of said
corporation, as in force at the date hereof.
WITNESS the hand of the undersigned and the seal of said corporation, this
day of , .
--------------------------------------
--------------------------------------
Secretary
<PAGE> 1
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is dated as of
August 28, 1998, by and between TENNECO INC., a Delaware corporation (the
"Company"), and Dana G. Mead, Theodore R. Tetzlaff, Paul T. Stecko and Robert T.
Blakely, not individually but solely as trustees (collectively, the "Trustee")
under that certain Tenneco Inc. Rabbi Trust, dated as of August 28, 1998 (the
"Trust").
WHEREAS, the Company and the Trustee have established the Trust to hold
assets until certain amounts are paid to participants under certain designated
nonqualified deferred compensation plan(s) and supplemental pension
arrangements; and
WHEREAS, in connection with entering into the Trust, the Company has
agreed to provide the registration rights set forth in this Agreement for the
benefit of the Trust; and
WHEREAS, the parties desire to enter into this Agreement to set forth
their agreement regarding certain registration rights with respect to the Common
Stock (and any other securities issued in respect thereof or in exchange
therefor) held by the Trust.
NOW, THEREFORE, the parties hereto agree as follows:
1. Demand Registrations.
(a) Upon written notice by the Trustee to the Company at any time and
from time to time after the date hereof requesting that the Company effect the
registration under the Securities Act of 1933 (the "Securities Act") of any or
all of the securities of the Company now or hereafter held by the Trust (or
such shares or other securities into which or for which such securities are
changed, converted or exchanged upon any reclassification, share combination,
share subdivision, share dividend, share exchange, merger, consolidation or
similar transaction or event, together with such shares or other securities
received through dividends, reinvestment of dividends or otherwise) (the
"Registrable Securities"), which notice shall specify the intended method(s) of
disposition of such Registrable Securities, the Company shall use its best
efforts to effect the registration under the Securities Act and applicable
state securities laws of such Registrable Securities for disposition in
accordance with such intended method(s) of disposition.
(b) Notwithstanding any other provision of this Agreement to the
contrary, a registration requested by the Trustee shall not be deemed to have
been effected: (i) unless it has become effective, (ii) if after it has become
effective such registration is interfered with by any stop order, injunction or
other order or requirement of the Securities and Exchange Commission ("SEC") or
other governmental agency or court for any reason other than a misrepresentation
or an omission by the Trustee and, as a result thereof, the Registrable
Securities requested to be registered cannot be completely distributed in
accordance with the plan of distribution set forth in the registration statement
or (iii) if the conditions to closing specified in any purchase agreement or
underwriting agreement entered into in connection with any such registration are
not satisfied or waived other than by reason of some act or omission by the
Trustee.
<PAGE> 2
(c) In the event that any registration pursuant to this Section shall
involve, in whole or in part, an underwritten offering, the Trustee shall have
the right to designate an underwriter or underwriters as the lead or managing
underwriters of such underwritten offering and, in connection with each
registration, the Trustee may select counsel to represent the Trustee.
(d) As to any particular Registrable Securities, such Registrable
Securities shall cease to be Registrable Securities when (i) a registration
statement with respect to the sale by the Trust shall have been declared
effective under the Securities Act and such securities shall have been disposed
of in accordance with such registration statement, (ii) such securities shall
have been distributed to the public in accordance with Rule 144 promulgated
under the Securities Act ("Rule 144"), or (iii) such securities shall have been
otherwise transferred, new certificates for them not bearing a legend
restricting further transfer shall have been delivered by the Company and
subsequent disposition of them shall not require registration or qualification
of them under the Securities Act or any state securities or blue sky law then in
effect.
2. Expenses. The Company shall pay any and all expenses incident to
performance of or compliance with each registration of securities pursuant to
this Agreement, including, without limitation, (i) the fees, disbursements and
expenses of the Company's counsel and accountants and the fees, disbursements
and expenses of counsel selected by the Trust in accordance with this Agreement
in connection with the registration of the securities to be disposed of; (ii)
all expenses, including filing fees, in connection with the preparation,
printing and filing of the registration statement, any preliminary prospectus or
final prospectus, any other offering document and amendments and supplements
thereto and the mailing and delivering of copies thereof to any underwriters and
dealers; (iii) the cost of printing or producing any underwriting agreements and
blue sky or legal investment memoranda and any other documents in connection
with the offering, sale or delivery of the securities to be disposed of; (iv)
all expenses in connection with the qualification of the securities to be
disposed of for offering and sale under state securities laws, including the
fees, disbursements and expenses of counsel for the underwriters or the Trustee
in connection with such qualification and in connection with any blue sky and
legal investment surveys; (v) the filing fees incident to securing any required
review by the National Association of Securities Dealers, Inc. of the terms of
the sale of the securities to be disposed of; (vi) transfer agents' and
registrars' fees and expenses and the fees and expenses of any other agent or
trustee appointed in connection with such offering; (vii) all security engraving
and security printing expenses; (viii) all fees, disbursements and expenses
payable in connection with the listing of the securities on any securities
exchange or automated interdealer quotation system or the rating of such
securities, (ix) any other fees, disbursements and expenses of underwriters
customarily paid by the sellers of securities, and underwriting discounts and
commissions and transfer taxes, if any, and (x) other out-of-pocket expenses of
the Trust. Notwithstanding the foregoing, each of the Trust and the Company
shall be responsible for its own internal administrative and similar costs.
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<PAGE> 3
3. Registration and Qualification. If and whenever the Company is required
to effect the registration of any Registrable Securities under the Securities
Act as provided in Section 1, the Company shall as promptly as practicable:
(a) prepare, file and use its reasonable best efforts to cause to become
effective a registration statement under the Securities Act relating to the
Registrable Securities to be offered;
(b) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective and to comply
with the provisions of the Securities Act with respect to the disposition of all
Registrable Securities until the earlier of (A) such time as all of such
Registrable Securities have been disposed of in accordance with the intended
methods of disposition set forth in such registration statement and (B) the
expiration of six months after such registration statement becomes effective;
provided, that such six-month period shall be extended for such number of days
that equals the number of days elapsing from (x) the date the written notice
contemplated by paragraph (f) below is given by the Company to (y) the date on
which the Company delivers to the Trustee the supplement or amendment
contemplated by paragraph (f) below;
(c) furnish to the Trustee and to any underwriter of such Registrable
Securities such number of conformed copies of such registration statement and of
each such amendment and supplement thereto (in each case including all
exhibits), such number of copies of the prospectus included in such registration
statement (including each preliminary prospectus and any summary prospectus), in
conformity with the requirements of the Securities Act, such documents
incorporated by reference in such registration statement or prospectus, and such
other documents, as the Trustee or such underwriter may reasonably request, and
upon request a copy of any and all transmittal letters or other correspondence
to or received from, the SEC or any other governmental agency or self-regulatory
body or other body having jurisdiction (including any domestic or foreign
securities exchange) relating to such offering;
(d) use its reasonable best efforts to register or qualify all
Registrable Securities covered by such registration statement under the
securities or blue sky laws of such U.S. jurisdictions as the Trustee or any
underwriter to such Registrable Securities shall request, and use its reasonable
best efforts to obtain all appropriate registrations, permits and consents in
connection therewith, and do any and all other acts and things which may be
necessary or advisable to enable the Trustee or any such underwriter to
consummate the disposition in such jurisdictions of its Registrable Securities
covered by such registration statement;
(e) (i) furnish to the Trustee and to any underwriter of such
Registrable Securities an opinion of counsel for the Company addressed to the
Trustee and dated the date of the closing under the underwriting agreement (if
any) (or if such offering is not underwritten, dated the effective date of the
registration statement) and (ii) furnish to the Trustee and to any underwriter
of such Registrable Securities a "cold comfort" letter addressed to the Trustee
and signed by the
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<PAGE> 4
independent public accountants who have audited the financial statements of the
Company included in such registration statement, in each such case covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) as are customarily covered in opinions of
issuer's counsel and in accountants' letters delivered to underwriters in
underwritten public offerings of securities and such other matters as the
Trustee may reasonably request and, in the case of such accountants' letter,
with respect to events subsequent to the date of such financial statements;
(f) as promptly as practicable, notify the Trustee in writing (i) at any
time when a prospectus relating to a registration pursuant to Section 1 is
required to be delivered under the Securities Act, of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading and (ii) of any request by the SEC or any other regulatory body
or other body having jurisdiction for any amendment of or supplement to any
registration statement or other document relating to such offering, and in
either such case, at the request of the Trustee, prepare and furnish to the
Trustee a reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading;
(g) if requested by the Trustee or the lead or managing underwriters,
use its best efforts to list all such Registrable Securities covered by such
registration on each securities exchange and automated inter-dealer quotation
system on which a class of common equity securities of the Company is then
listed; and
(h) furnish for delivery in connection with the closing of any offering
of Registrable Securities pursuant to a registration effected pursuant to
Sections 1 or 2 unlegended certificates representing ownership of the
Registrable Securities being sold in such denominations as shall be requested by
the Trustee or the underwriters.
4. Underwriting; Due Diligence.
(a) If requested by the underwriters for any underwritten offering of
Registrable Securities pursuant to a registration requested under this
Agreement, the Company shall enter into an underwriting agreement with such
underwriters for such offering, which agreement will contain such
representations and warranties by the Company and such other terms and
provisions as are customarily contained in underwriting agreements of the
Company to the extent relevant and as are customarily contained in underwriting
agreements generally with respect to secondary distributions to the extent
relevant, including, without limitation, indemnification and contribution
provisions substantially to the effect and to the extent provided in Section
5(a), and
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<PAGE> 5
agreements as to the provision of opinions of counsel and accountants' letters
to the effect and to the extent provided in Section 3(e). The Trust shall be a
party to any such underwriting agreement and the representations and warranties
by, and the other agreements on the part of, the Company to and for the benefit
of such underwriters, shall also be made to and for the benefit of the Trust.
Such underwriting agreement shall also contain such representations and
warranties by the Trust and such other terms and provisions as are customarily
contained in underwriting agreements with respect to secondary distributions,
when relevant, including, without limitation, indemnification and contribution
provisions substantially to the effect and to the extent provided in Section
5(b).
(b) In connection with the preparation and filing of each registration
statement registering Registrable Securities under the Securities Act pursuant
to this Agreement, the Company shall give the Trustee and the underwriters, if
any, and their respective counsel and accountants, such access to its books and
records and such opportunities to discuss the business of the Company with its
officers and the independent public accountants who have certified the financial
statements of the Company as shall be necessary, in the opinion of the Trustee
and such underwriters or their respective counsel, to conduct a reasonable
investigation within the meaning of the Securities Act.
5. Indemnification and Contribution.
(a) In the case of each offering of Registrable Securities made pursuant
to this Agreement, the Company agrees to indemnify and hold harmless, to the
extent permitted by law, the Trustee, the Trust, each underwriter of Registrable
Securities so offered and each individual or entity (each a "Person"), if any,
who controls any of the foregoing Persons within the meaning of the Securities
Act and the officers, directors, affiliates, employees and agents of each of the
foregoing, against any and all losses, liabilities, costs (including reasonable
attorney's fees and disbursements), claims and damages, joint or several, to
which they or any of them may become subject, under the Securities Act or
otherwise, including any amount paid in settlement of any litigation commenced
or threatened, insofar as such losses, liabilities, costs, claims and damages
(or actions or proceedings in respect thereof, whether or not such indemnified
Person is a party thereto) arise out of or are based upon any untrue statement
by the Company or alleged untrue statement by the Company of a material fact
contained in the registration statement (or in any preliminary or final
prospectus included therein) or in any offering memorandum or other offering
document relating to the offering and sale of such Registrable Securities
prepared by the Company or at its direction, or any amendment thereof or
supplement thereto, or in any document incorporated by reference therein, or any
omission by the Company or alleged omission by the Company to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading; provided that the Company shall not be liable to any
Person in any such case to the extent that any such loss, liability, cost, claim
or damage arises out of or relates to any untrue statement or alleged untrue
statement, or any omission or alleged omission, if such statement or omission
shall have been made in reliance upon and in conformity with information
relating to the Trust or an underwriter furnished in
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<PAGE> 6
writing to the Company by or on behalf of the Trust or such underwriter
specifically for use in the registration statement (or in any preliminary or
final prospectus included therein), offering memorandum or other offering
document, or any amendment thereof or supplement thereto. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of the Trust or any underwriter and shall survive the transfer of such
securities. The foregoing indemnity agreement is in addition to any liability
that the Company may otherwise have to the Trust or any underwriter of the
Registrable Securities or any controlling Person of the foregoing and the
officers, directors, affiliates, employees and agents of each of the foregoing;
provided, further, that, in the case of an offering with respect to which the
Trust has designated the lead or managing underwriters (or the Trust is offering
Registrable Securities directly, without an underwriter), this indemnity does
not apply to any loss, liability, cost, claim or damage arising out of or
relating to any untrue statement or alleged untrue statement or omission or
alleged omission in any preliminary prospectus or offering memorandum if a copy
of a final prospectus or offering memorandum was not sent or given by or on
behalf of any underwriter (or the Trust) to such Person asserting such loss,
liability, cost, claim or damage at or prior to the written confirmation of the
sale of the Registrable Securities as required by the Securities Act and such
untrue statement or omission had been corrected in such final prospectus or
offering memorandum.
(b) In the case of each offering made pursuant to this Agreement, the
Trust, by exercising its registration rights hereunder, agrees to indemnify and
hold harmless, and to cause each underwriter of Registrable Securities included
in such offering (in the same manner and to the same extent as set forth in
Section 5(a)) to agree to indemnify and hold harmless, the Company, each other
underwriter who participates in such offering, each other holder with securities
included in such offering, each Person, if any, who controls any of the
foregoing within the meaning of the Securities Act and the officers, directors,
affiliates, employees and agents of each of the foregoing, against any and all
losses, liabilities, costs (including reasonable attorney's fees and
disbursements), claims and damages to which they or any of them may become
subject, under the Securities Act or otherwise, including any amount paid in
settlement of any litigation commenced or threatened, insofar as such losses,
liabilities, costs, claims and damages (or actions or proceedings in respect
thereof, whether or not such indemnified Person is a party thereto) arise out of
or are based upon any untrue statement or alleged untrue statement by the
Trustee or underwriter, as the case may be, of a material fact contained in the
registration statement (or in any preliminary or final prospectus included
therein) or in any offering memorandum or other offering document relating to
the offering and sale of such Registrable Securities prepared by the Company or
at its direction, or any amendment thereof or supplement thereto, or any
omission by the Trust or underwriter, as the case may be, or alleged omission by
the Trustee or underwriter, as the case may be, of a material fact required to
be stated therein or necessary to make the statements therein not misleading,
but in each case only to the extent that such untrue statement of a material
fact is contained in, or such material fact is omitted from, information
relating to the Trust or underwriter, as the case may be, furnished in writing
to the Company by or on behalf of the Trust or underwriter, as the case may be,
specifically for use in such registration statement (or in any preliminary or
final prospectus included therein), offering
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<PAGE> 7
memorandum or other offering document, or any amendment thereof or supplement
thereto. The foregoing indemnity is in addition to any liability which the Trust
or underwriter, as the case may be, may otherwise have to the Company, or
controlling persons and the officers, directors, affiliates, employees, and
agents of each of the foregoing; provided that, in the case of an offering made
pursuant to this Agreement with respect to which the Company has designated the
lead or managing underwriters (or the Company is offering securities directly,
without an underwriter), this indemnity does not apply to any loss, liability,
cost, claim, or damage arising out of or based upon any untrue statement or
alleged untrue statement or omission or alleged omission in any preliminary
prospectus or offering memorandum if a copy of a final prospectus or offering
memorandum was not sent or given by or on behalf of any underwriter (or the
Company, as the case may be) to such Person asserting such loss, liability,
cost, claim or damage at or prior to the written confirmation of the sale of the
Registrable Securities as required by the Securities Act and such untrue
statement or omission had been corrected in such final prospectus or offering
memorandum.
(c) Each party indemnified under paragraph (a) or (b) above shall,
promptly after receipt of notice of a claim or action against such indemnified
party in respect of which indemnity may be sought hereunder, notify the
indemnifying party in writing of the claim or action; provided, that the failure
to notify the indemnifying party shall not relieve it from any liability that it
may have to an indemnified party on account of the indemnity agreement contained
in paragraph (a) or (b) above otherwise than under such subsection. If any such
claim or action shall be brought against an indemnified party, and it shall have
notified the indemnifying party thereof, unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified party and
indemnifying parties may exist in respect of such claim, the indemnifying party
shall be entitled to participate therein, and, to the extent that it wishes,
jointly with any other similarly notified indemnifying party, to assume the
defense thereof with counsel satisfactory to the indemnified party (who shall
not, except with the consent of the indemnified party, be counsel to the
indemnifying party). After notice from the indemnifying party to the indemnified
party of its election to assume the defense of such claim or action, the
indemnifying party shall not be liable to the indemnified party under this
Section 5 for any legal or other expenses subsequently incurred by the
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. If the indemnifying party does not assume the defense of
such claim or action, it is understood that the indemnifying party shall not, in
connection with any one such claim or action or separate but substantially
similar or related claims or actions in the same jurisdiction arising out of the
same general allegations or circumstances, be liable for the fees and expenses
of more than one separate firm of attorneys (in addition to one separate firm of
local attorneys in each such jurisdiction) at any time for all such indemnified
parties. Any indemnifying party against whom indemnity may be sought under this
Section 5 shall not be liable to indemnify an indemnified party if such
indemnified party settles such claim or action without the consent of the
indemnifying party, which consent shall not be unreasonably withheld.
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<PAGE> 8
(d) If the indemnification provided for in this Section 5 shall for any
reason be unavailable (other than in accordance with its terms) to an
indemnified party in respect of any loss, liability, cost, claim or damage
referred to therein, then each indemnifying party shall, in lieu of indemnifying
such indemnified party, contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, cost, claim or damage in
such proportion as shall be appropriate to reflect the relative fault of the
indemnifying party on the one hand and the indemnified party on the other with
respect to the statements or omissions which resulted in such loss, liability,
cost, claim or damage as well as any other relevant equitable considerations.
The relative fault shall be determined by reference to whether the untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact relates to information supplied by the indemnifying party
on the one hand or the indemnified party on the other, the intent of the parties
and their relative knowledge, access to information and opportunity to correct
or prevent such statement or omission, but not by reference to any indemnified
party's stock ownership in the Company. The amount paid or payable by an
indemnified party as a result of the loss, cost, claim, damage or liability, or
action in respect thereof, referred to above in this paragraph (d) shall be
deemed to include, for purposes of this paragraph (d), any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
(e) Indemnification and contribution similar to that specified in the
preceding paragraphs of this Section 5 (with appropriate modifications) shall be
given by the Company, the Trust and underwriters with respect to any required
registration or other qualification of securities under any state law or
regulation or governmental authority.
(f) The obligations of the parties under this Section 5 shall be in
addition to any liability which any party may otherwise have to any other party.
6. Black-Out Period. The Company agrees not to effect, for itself or on
behalf of any other person or entity, any public sale or distribution of any
Common Stock or other equity security of the Company, or any securities
convertible into or exchangeable or exercisable for such securities, during the
period beginning 7 days before, and ending 180 days (or such lesser period as
may be permitted by the Trustee) after, the effective date of a registration
statement filed in connection with the registration of the Registrable
Securities hereunder. Such black-out period shall not apply to public sales or
distributions that: (a) have been consented to in writing by the Trustee, or
(b) in the opinion of the lead or managing underwriter designated by the
Trustee can be effected without an adverse effect on the price, timing or
distribution of the Registrable Securities offered pursuant to a registration
statement hereunder. In the event the black-out period does not apply pursuant
to clauses (a) or (b) hereof, the Company may effect such public sale or
distribution only on the terms and conditions (including, without limitation,
the amount and timing of the public sale or distribution) established by the
Trustee or the underwriter, as the case may be.
7. Rule 144 and Form S-3.
(a) The Company shall use its best efforts to ensure that the conditions
to the availability of Rule 144 set forth in paragraph (c) thereof shall be
satisfied. Upon the request of the Trustee, the Company will deliver to the
Trustee a written statement as to whether it has complied with such
requirements.
(b) The Company shall to use its reasonable efforts to cause all
conditions to the availability of Form S-3 (or any successor form) under the
Securities Act for the filing of registration statements under this Agreement to
be met.
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<PAGE> 9
8. Miscellaneous.
(a) Entire Agreement. This Agreement constitutes the entire agreement
between the Company and the Trustee with respect to the transactions
contemplated hereby and supersedes all prior agreements or understandings among
the parties with respect thereto.
(b) Headings. Descriptive headings are for convenience only and shall
not control or affect the meaning or construction of any provision of this
Agreement.
(c) Notices. All notices or other communications provided for in this
Agreement shall be in writing and shall be sent by confirmed telecopy (with an
undertaking to provide a hard copy) or delivered by hand or sent by overnight
courier service prepaid to the address specified below.
If to the Company: If to the Trust or Trustee:
TENNECO INC. TENNECO INC. RABBI TRUST
1275 King Street c/o TENNECO INC.
Greenwich, CT 06831 1275 King Street
Attention: Corporate Secretary Greenwich, CT 06831
Attention: Corporate Secretary
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith.
(d) Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
(e) Successor Trustee and Successor Trust. The Trust and Trustee may
assign this Agreement. As used herein, the "Trustee" shall include any and all
successor trustees of the Trust, and the "Trust" shall include any and all
successor trusts. Each successor trustee and successor trust shall be entitled
to the benefits and may enforce this Agreement as if an original party hereto.
-9-
<PAGE> 10
(f) Amendments. This Agreement shall not be altered or otherwise amended
except pursuant to an instrument in writing signed by the Company and the
Trustee.
(g) Transferability. The registration and other rights granted to the
Trust hereunder may be transferred or assigned by the Trust to a third party in
connection with a sale or other transfer of all shares of Common Stock then
owned by the Trust to such third party.
(h) Choice of Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
-10-
<PAGE> 11
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
duly executed and delivered as of the date first above written.
TENNECO INC.
/s/ KARL A. STEWART
-----------------------------------------
By: Karl A. Stewart
Its: Vice President
TENNECO INC. RABBI TRUST
dated August 28, 1998
By: /s/ DANA G. MEAD
--------------------------------------
Dana G. Mead, not individually
but solely as trustee
By: /s/ THEODORE R. TETZLAFF
--------------------------------------
Theodore R. Tetzlaff, not individually
but solely as trustee
By: /s/ PAUL T. STECKO
--------------------------------------
Paul T. Stecko, not individually
but solely as trustee
By: /s/ ROBERT T. BLAKELY
--------------------------------------
Robert T. Blakely, not individually
but solely as trustee
-11-
<PAGE> 1
EX-10.14
TENNECO INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(As Amended and Restated Generally Effective as of January 1, 1997)
PURPOSE
-------
The Tenneco Inc. Supplemental Executive Retirement Plan (the "Plan") is
maintained by Tenneco Inc. (the "Company") as an unfunded plan for the purpose
of providing retirement benefits with respect to certain employees that are
equal to retirement benefits lost under the Tenneco Inc. Retirement Plan (the
"Retirement Plan" or the "TRP") as a result of the imposition of the limitations
contained in the Internal Revenue Code of 1986, as amended (the "Code"). The
portion of the Plan that provides for benefits limited by Code Section 415 is
maintained as an "excess benefit plan" as described in Section 3(36) of the
Employee Retirement Income Security Act of 1974 as amended ("ERISA"). The other
benefits provided for under the Plan are only available to a "select group of
management or highly compensated employees" as determined by the Tenneco
Benefits Committee, and the portion of the Plan providing such benefits is
intended to satisfy the ERISA exemption requirements for a plan limited to such
a group.
THE PLAN
--------
1. Effective Date
--------------
The effective date of this amendment and restatement of the Plan is
January 1, 1997. The benefit entitlement, if any, under the Plan or under the
Tenneco Inc. Benefit Equalization Plan (the "BEP"), which has been merged into
this Plan, of any person who separated from service prior to that date shall be
governed by the provisions of the Plan or the BEP as either was in effect from
time to time prior to that date.
2. Eligibility
-----------
An employee shall be eligible for benefits under this Plan if the
employee is a participant in the Retirement Plan or is provided a benefit under
Section 11 hereof.
3. Amount of Benefit
-----------------
The benefit payable under this Plan to a Participant, or to the
Participant's Eligible Spouse, Eligible Child(ren), joint annuitant or other
beneficiary(ies), all as determined under the provisions of the Retirement Plan,
shall equal the excess, if any, of (a) over (b) where:
(a) is the benefit that would be paid under the Retirement
Plan if the provisions of the Retirement Plan were administered without
regard to the limitations imposed by the Code and, only with respect to
Participants who, at any time, were participants in the Tenneco
Inc. Executive Incentive Compensation Plan ("EICP"), if Final Average
Compensation, as computed under the Retirement Plan, were determined on
the basis of compensation paid during the three calendar years (of the
five calendar year period ending no later than the calendar year
immediately preceding his or her termination or retirement) for which
such compensation is the highest, and increased by the quotient of (i)
the total of the cash bonuses, as defined below, paid to the
Participant in the three calendar years (during the
-1-
<PAGE> 2
same five calendar year period ending no later than the calendar year
immediately preceding his or her termination or retirement) for which
such total is the highest, divided by (ii) three or such lesser number
of calendar years (included in such period) in which such bonuses were
paid to the Participant; provided, that the calendar year including his
or her termination or retirement shall be included if such event
follows the payment of regular bonuses for that year; and provided,
that bonuses and salary, respectively, deferred at the election of the
Participant shall be counted only in the year that they would have been
paid absent such election, and provided further, that, effective with
respect to bonuses that relate to the period on and after January 1,
1998, the foregoing language shall be applied to count bonuses which
relate to a calendar year as paid in that year, for example, 1998
bonuses will be counted in 1998 notwithstanding the fact that they are
actually paid in 1999; and
(b) is the benefit that is payable under the Retirement Plan.
Notwithstanding the foregoing, if, except as otherwise provided in
writing, an employee is granted credit for purposes of benefit accrual under the
Retirement Plan for service rendered prior to the time that the employee became
a participant in the Retirement Plan, such employee shall be credited with such
service under this Plan only if and to the extent determined by the Tenneco
Benefits Committee. Unless otherwise provided in writing, no benefit shall be
payable under the Plan unless a benefit also is payable under the Retirement
Plan.
Cash bonus means only cash bonuses paid under the EICP and the cash
special bonuses paid in January 1997.
4. Form of Benefit
---------------
Any benefit under this Plan shall be paid in the same form and manner
as the benefit payments made to, or with respect to, the Participant under the
TRP. Notwithstanding the preceding sentence, no benefit is payable hereunder
prior to 60 days after the Participant has separated from service, unless the
Tenneco Benefits Committee so determines. Prior to the commencement of benefits
but, in no event later than 24 months after the Participant has separated from
service, and only with respect to a Participant or beneficiary who at any time
was a participant in the EICP, such Participant or beneficiary may elect, but
only with the approval of the Tenneco Benefits Committee, to receive payment of
such benefit in the form of a lump sum or annuity, provided that in cases where
a Participant has chosen a lump sum and the exact amount of a Participant's
benefit cannot be determined by the date elected for payment, a preliminary lump
sum shall be paid with respect to amounts that can be clearly ascertained then,
with the remainder to be issued in a subsequent lump sum when that amount is
exactly determined by the Tenneco Benefits Committee or its delegee. In
addition, with respect to all Plan participants, if the benefit payable from
this Plan (expressed as an age 65 life annuity) would be less than $50 per
month, the benefit payable from this Plan automatically shall be paid as a lump
sum.
The actuarial factors set forth in the TRP shall be used to compute
benefits hereunder, provided that, for purposes of any lump sum payment that may
be payable under the Plan, the interest rate used shall be the annual rate of
interest on 30-year Treasury securities as specified by the IRS for the second
calendar month preceding the first day of the Plan Year during which the annuity
starting date occurs, and the applicable mortality table described in Rev. Rul.
95-6, 1995-1 C.B. (page 80), or in such other formal guidance as may be issued
from time to time by the IRS.
-2-
<PAGE> 3
5. Unfunded Plan
-------------
This Plan shall be maintained as an unfunded non-qualified deferred
compensation plan. All benefits under this Plan shall be payable from the
general assets of Tenneco Inc. No person shall be entitled to receive any
benefits under this Plan from the funds of the Retirement Plan.
6. No Assignment
-------------
No benefit under this Plan shall be assignable or alienable or
subjected, by attachment or otherwise, to the claims of creditors of any person.
7. No Guarantee of Employment
--------------------------
This Plan shall not be construed to give any Participant the right to
be retained in the employment of Tenneco Inc. or any of its affiliates.
8. Operation and Administration
----------------------------
This Plan shall be operated under the direction of the Compensation and
Benefits Committee of the Board of Directors of Tenneco Inc. and administered by
the Tenneco Benefits Committee.
The Tenneco Benefits Committee's decision in all matters involving the
interpretation and application of this Plan shall be final and binding. The
Tenneco Benefits Committee shall establish a claims procedure which is
consistent with the claims procedure employed under the TRP.
9. Governing Law
-------------
To the extent not preempted by federal law, this Plan shall be
construed, administered and enforced in accordance with the laws of the State of
Delaware.
10. Amendment and Discontinuance
----------------------------
Tenneco Inc. expects to continue this Plan indefinitely but reserves
the right, by action of the Compensation and Benefits Committee of its Board of
Directors, to amend or discontinue it. However, no such amendment or
discontinuance shall impair or adversely affect any benefits accrued under this
Plan as of the date of such action.
-3-
<PAGE> 4
11. Special Appendix
----------------
The Company may from time to time determine to provide certain persons
additional supplemental pension benefits, which may be reflected in a Special
Appendix hereto or in such other document as the Company shall determine.
References in a Special Appendix or such other document to the "Plan" are to
this Plan.
IN WITNESS WHEREOF, and as conclusive evidence of the adoption of the
foregoing, Tenneco Inc., a Delaware corporation, has caused these presents to be
duly executed in its name and behalf by its proper officers thereunto duly
authorized this 9th day of September, 1998.
TENNECO INC.
By: /s/ Barry R. Schuman
----------------------------------------
Its: Senior Vice President - Human Resources
-4-
<PAGE> 5
MEAD SPECIAL APPENDIX
TO THE
TENNECO INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN ("PLAN")
This Special Appendix sets forth certain special provisions of
the Plan with respect to the benefits of Dana G. Mead ("Mead").
1. Mead shall be entitled to monthly pension benefits in the amount
determined under Section 2 hereof commencing on the first day of the
calendar month immediately following the termination of his employment
with the Tenneco Management Company (the "Company").
2. The monthly pension benefits to which Mead shall be entitled shall
be equal to the greater of (a) or (b), where
(a) equals the benefits to which Mead would be entitled
under the Tenneco Inc. Retirement Plan (the "TRP")
and this Plan, computed using Final Average Earnings,
as defined in Section 3 hereof, and Years of Credited
Service, as defined in Section 4 hereof, and
substituting the rules of Sections 1, 5 and 6 hereof
for the generally applicable rules of such plans; and
(b) equals 2.48% of Mead's Final Average Earnings, as
defined in Section 3 hereof, times his Years of
Credited Service, as defined in Section 4 hereof, and
substituting the rules of Sections 1, 5 and 6 hereof
for the generally applicable rules of such plans.
3. "Final Average Earnings" means the quotient of (i) Mead's Earnings,
as defined below, for the 3 calendar years in which his Earnings were
the highest in the 5 consecutive calendar year period ending prior to
his termination of employment, divided by (ii) 36. "Earnings" means
regular base salary plus Executive Incentive Compensation Plan bonus
earned (regardless of when paid) with respect to that period.
4. "Years of Credited Service" means the total of (i) 14 2/3 plus (ii)
Mead's Actual Tenneco Service, as defined below. "Actual Tenneco
Service" means the period, in whole years and fractions thereof with
each month or portion thereof counting as one-twelfth of one year, from
April 1, 1992 through the date of Mead's termination of employment with
the Company.
5. The benefits provided hereunder shall be paid in the joint and 50%
survivor form of annuity if Mead is married at the time benefits are to
commence -- i.e., to Mead for life and, after his death, 50% of the
monthly amount payable during Mead's life continuing to the spouse, if
any, to whom he was legally married at the date of the commencement of
payment of benefits hereunder and to whom he was so married on the date
of his death. There shall be no reduction in the amount of the benefits
payable during Mead's life on account of payment in the joint and 50%
survivor form. The benefits provided hereunder shall be paid in the
life only form of annuity if Mead is not married at the time that
benefit
<PAGE> 6
payments are to commence. Subject to the rules stated in the
immediately following paragraph, Mead may elect to receive such
benefits in another form which is the actuarial equivalent of the
normal form of benefit specified above for his marital status at the
time in question. At Mead's election, the Company will purchase and
distribute to him an annuity contract issued by an insurance company
acceptable to Mead to provide such benefits.
If his termination of employment is effective after he attains
age 62 or earlier with the consent of the Company, Mead may elect to
receive such benefits in the form of a lump sum distribution. If a lump
sum distribution is elected, it shall be computed under the assumptions
then in use with respect to the TRP, or its successor; provided, that
in no event shall the interest assumption be greater than the Pension
Benefit Guaranty Corporation immediate annuity interest rate in effect
as of January 1 of the year in which the payment is to be made, and
provided further that the mortality table shall be no less favorable to
Mead or his Beneficiary than the 1983 group annuity table, 50% male,
50% female mix.
Mead may elect that the lump sum benefit be paid at some date
certain which is later than the date specified for benefit commencement
in Section 1 hereof. Any such election shall be irrevocable and must be
filed no later than 90 days prior to the date benefits would otherwise
commence hereunder. If he makes such an election, the lump sum amount
computed above shall be credited with interest at the prime rate
prevailing from time to time from the date specified in Section 1 above
until the date of actual payment.
6. If Mead dies before commencing to receive the benefits described
hereunder, his Beneficiary will receive a death benefit in a lump sum
distribution which is the present value of the benefits which he has
accrued hereunder as of the date of his death computed in accordance
with the rules set forth herein, including the interest assumption
specified in Section 5 hereof. Without limiting the generality of the
foregoing, it is specifically provided that the special alternative
death benefit called for by the TRP as in effect on December 31, 1994,
shall apply if that produces a higher benefit.
7. The benefits provided hereunder are in lieu of any benefits to which
Mead might otherwise be entitled under the TRP, Tenneco Inc. Benefit
Equalization Plan or this Plan, but shall not adversely affect his
entitlement to benefits under any other plan, fund or program
maintained by the Company, nor shall benefits provided under any other
such plan fund or program be offset against or otherwise reduce the
benefits provided for hereunder.
8. For the purpose of calculating Mead's Final Average Earnings, the
Company shall determine an amount that shall be used as a cash bonus
number (the "Hypothetical Bonus") for any year in which Mead has
received something in lieu of a cash bonus. Notwithstanding the
foregoing, a Hypothetical Bonus shall be counted only in circumstances
in which it would yield larger monthly pension benefits.
-2-
<PAGE> 7
STECKO SPECIAL APPENDIX
TO THE
TENNECO INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN ("PLAN")
This Special Appendix sets forth certain special provisions of
the Plan with respect to the benefits of Paul T. Stecko ("Stecko").
The aggregate monthly pension benefits to which Stecko shall
be entitled under the Plan and this Special Appendix shall be computed
as if his participation in the TRP had commenced on his employment
commencement date and shall be no less than the amount to which Stecko
would have been entitled if Stecko's coverage under the International
Paper defined benefit plans in effect as of December 3, 1993 had
continued until Stecko's separation from service with Tenneco (the
"Company"), less any benefits Stecko is entitled to receive from such
International Paper defined benefit plans. In the event that Stecko's
employment is terminated for any reason other than cause before
November 1, 1999, he shall nevertheless be deemed to have attained age
55 for all purposes in this Special Appendix, including without
limitation, the computation of benefits under such International Paper
plans; provided, that only the amounts actually payable from the
International Paper plans shall be used as offsets. The amount of the
benefits payable under the International Paper defined benefit plans
shall be computed as a single life annuity based on the actuarial
factors applicable to each such plan. If Stecko would not otherwise
meet the service requirements for early retirement eligibility under
the Tenneco Inc. Retirement Plan ("TRP"), this Plan and this Special
Appendix (collectively, the "Tenneco Plans"), but he would meet such
service requirements counting his years of service with International
Paper, he shall be entitled to monthly benefits hereunder which, when
taken together with monthly benefits to which he is entitled under the
Tenneco Plans and the International Paper defined benefit plans, are no
less than the benefits to which he would have been entitled (subject to
the rule stated in the first sentence above) had he met such
requirements.
For purposes of determining the amount to which Stecko would
have been entitled if Stecko's coverage under the International Paper
defined benefit plans in effect as of December 3, 1993 had continued
until Stecko's separation from service with the Company (i.e., the
minimum benefit described above), all of Stecko's service with
International Paper and the Company, shall be aggregated to determine
whether Stecko has met the service requirements for early retirement
eligibility under the International Paper defined benefit plans. If
Stecko dies before commencing to receive the benefits described
hereunder, his beneficiary will receive a death benefit which is the
present value of the benefits which he has accrued hereunder as of the
date of his death.
<PAGE> 8
BLAKELY SPECIAL APPENDIX
TO THE
TENNECO INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN ("PLAN")
This Special Appendix sets forth certain special provisions of the Plan
with respect to the benefits of Robert T. Blakely ("Blakely").
The monthly pension benefits to which Blakely shall be
entitled hereunder shall be equal to the benefits to which Blakely
would be entitled under the Plan, except that, if Blakely retains his
position as Executive Vice President and Chief Financial Officer of
Tenneco Inc. until the earlier of (i) December 31, 1999 or (ii) the
date that the Chief Executive Officer of Tenneco Inc. determines that
his services with respect to the strategic review announced in 1998 and
related transactions are completed, for all purposes, including without
limitation benefit accrual, death benefits, normal retirement and
eligibility for early retirement benefits, Blakely shall be deemed to
have 25 years of service and 25 years of participation. If Blakely dies
before commencing to receive the benefits described hereunder, his
beneficiary will receive a death benefit which is the present value of
the benefits which he has accrued hereunder as of the date of his
death. This benefit enhancement is consistent with those provided to
other senior executives.
<PAGE> 9
TETZLAFF SPECIAL APPENDIX
TO THE
TENNECO INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN ("PLAN")
This Special Appendix sets forth certain special provisions of
the Plan with respect to the benefits of Theodore R. Tetzlaff ("Tetzlaff").
The monthly pension benefits to which Tetzlaff shall be
entitled shall be equal to the benefits to which Tetzlaff would be
entitled under the Plan if he were a participant in the Tenneco Inc.
Retirement Plan ("TRP"), computed using the following special
provisions:
(a) Tetzlaff's service and participation will be
regarded as beginning July 1, 1992.
(b) Tetzlaff's retainer and bonus for each calendar year
will be prorated for each month that Tetzlaff
performs services for the Company as an officer
during the calendar year to arrive at a covered
monthly compensation under the TRP formula.
(c) If Tetzlaff reaches age 55 while performing services
for the Company as an officer, Tetzlaff will be
eligible for an early retirement benefit with
subsidized reduction factors parallel to the TRP
factors, even though Tetzlaff does not have the
service or participation required under the TRP
provisions.
(d) Tetzlaff's guaranteed minimum annual life only
benefit will be as follows:
Age at Commencement
Of Benefits
-------------------
Age 55 $100,000 per year
Age 60 $200,000 per year
Age 65 $300,000 per year
with a prorated guaranteed minimum annual life only
benefit between the above ages.
(e) In all other respects, the provisions of the Plan
shall apply.
If Tetzlaff dies before commencing to receive the benefits
described hereunder, his beneficiary will receive a death benefit which
is the present value of the benefits which he has accrued hereunder as
of the date of his death.
<PAGE> 10
J. CASTELLANI BENEFITS
UNDER THE
TENNECO INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN ("PLAN")
The benefits of John J. Castellani ("Castellani") under the
Plan will be adjusted as follows:
The monthly normal retirement pension benefits to which
Castellani shall be entitled hereunder shall be equal to the normal
retirement pension benefits to which Castellani would be entitled under
the Plan, deeming him to have a total of 20 years of service and 20
years of participation (including both actual and deemed service and
participation), for all purposes (including without limitation benefit
accrual, death benefits, normal retirement and eligibility for early
retirement benefits), and subtracting any normal retirement benefit
payable to Castellani from TRW's qualified defined benefit pension
plan. If Castellani dies before commencing to receive the benefits
described hereunder, his beneficiary will receive a death benefit which
is the present value of the benefits which he has accrued hereunder as
of the date of his death.
Castellani shall be entitled to benefits hereunder prior to
his normal retirement under the following rules. If Castellani becomes
entitled to benefits under the Tenneco Inc. Retirement Plan ("TRP")
under its generally applicable rules prior to Castellani attaining
normal retirement, Castellani shall be entitled to a benefit hereunder
equal to the benefit that would be payable under the TRP at the time in
question if the benefit stated in the foregoing paragraph were
Castellani's normal retirement benefit under the TRP.
<PAGE> 1
EXHIBIT 10.28
[LETTERHEAD OF TENNECO]
[LOGO OF TENNECO]
September 24, 1998
Mr. John J. Castellani
Tenneco
1275 King Street
Greenwich, CT 06831
Dear John:
If your employment with Tenneco Inc., any majority owned subsidiary of Tenneco
Inc. and any business entity which results from a restructuring of Tenneco Inc.
is terminated either by the Company other than Discharge for Cause or after you
have incurred a Constructive Termination as those terms are defined in the
Tenneco Inc. Change in Control Severance Benefit Plan for Key Executives (the
"Plan") as though a Change in Control had occurred, the Company will provide
you with the following, subject to applicable tax withholding and any amounts
due the Company, but conditioned upon your (and your spouse's) execution of a
separation agreement that the Company will tender including a general release
and such other documents as it may require:
- - You will be entitled to receive a pro rata adjusted target bonus for
the year in which your employment terminates.
- - You will be paid severance in an amount equal to three times your then
current annual base salary.
- - Your restricted shares will be vested and distributed to you in shares;
your outstanding performance shares will be deemed to have been earned at
target and will be paid out in shares; and your stock options will be
deemed exercisable for the lesser of (i) a period of 5 years from your
termination or (ii) the remaining period for which the option would have
been outstanding under its generally applicable terms as granted,
disregarding any rules that would have shortened such period. You will
have the same rights with respect to any stock options to which you become
entitled upon the conversion of existing Tenneco Inc. stock options to
options of the Company or another entity.
<PAGE> 2
Mr. John J. Castellani
September 24, 1998
Page 2
- - The Company will forgive the principal balance of the note you executed in
connection with your move from Washington, D.C. to Greenwich, and accrued
interest.
- - You will be deemed to have 20 years of service and participation for
purposes of computing benefits under the Tenneco Inc. Supplemental
Executive Retirement Plan. This benefit enhancement is consistent with
those provided to other senior executives.
Depending upon the course of events, you may have rights which arise under the
Plan and the Tenneco Benefits Protection Trust (the "Trust"). To the extent
that this occurs and the rights which arise under the Plan and Trust are
greater than those described above, you will receive the benefit of those
greater rights, but the items described in this letter would count against
your rights under the Plan and Trust.
Sincerely,
/s/ Barry R. Schuman
--------------------------------------
Barry R. Schuman
Senior Vice President, Human Resources
APPROVED BY:
/s/ Dana G. Mead
--------------------------------------
Dana G. Mead
Chairman and Chief Executive Officer
Date: 9/29/98
---------------------------------
<PAGE> 1
EXHIBIT 10.30
CONTRIBUTION AGREEMENT
AMONG
TENNECO PACKAGING INC.,
PCA HOLDINGS LLC
AND
PACKAGING CORPORATION OF AMERICA
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I
DEFINITIONS AND TERMS......................................................................................3
1.1 Specific Definitions.....................................................................3
1.2 Other Terms.............................................................................16
1.3 Other Definitional Provisions...........................................................16
ARTICLE II
ORGANIZATION OF NEWCO;
CONTRIBUTION OF THE CONTAINERBOARD BUSINESS...............................................................17
2.1 Organization of Newco...................................................................17
2.2 Contribution and Purchase of Assets; Assumption of Liabilities..........................17
2.3 Retained Assets and Retained Liabilities................................................18
2.4 Closing Mechanics.......................................................................18
2.5 Post-Closing Adjustment.................................................................20
2.6 Purchase Price Adjustment Following Public Sale By TPI..................................22
2.7 Transfer Taxes and Recording Fees.......................................................22
2.8 Certain Transfers.......................................................................22
2.9 Appraisal...............................................................................23
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF TPI.....................................................................23
3.1 Organization and Qualification..........................................................23
3.2 Corporate Authorization.................................................................23
3.3 Consents and Approvals..................................................................24
3.4 Non-Contravention.......................................................................24
3.5 Binding Effect..........................................................................24
3.6 Financial Statements: Absence of Certain Changes........................................24
3.7 Litigation and Claims...................................................................26
3.8 Taxes...................................................................................26
3.9 Employee Benefits.......................................................................27
3.10 Compliance with Laws....................................................................27
3.11 Environmental Matters...................................................................27
3.12 Intellectual Property...................................................................28
3.13 Labor Matters...........................................................................29
3.14 Contracts...............................................................................29
3.15 Real Estate Leases......................................................................30
3.16 Entire Business; Title to Property......................................................30
3.17 Finders' Fees...........................................................................31
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
3.18 Insurance...............................................................................31
3.19 No Undisclosed Liabilities. ............................................................32
3.20 No Other Representations or Warranties..................................................32
3.21 Closing Date............................................................................32
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PCA.....................................................................32
4.1 Organization and Qualification..........................................................32
4.2 Authorization...........................................................................32
4.3 Consents and Approvals..................................................................33
4.4 Non-Contravention.......................................................................33
4.5 Binding Effect..........................................................................33
4.6 Finders' Fees...........................................................................33
4.7 Financial Capability....................................................................33
4.8 Newco Liabilities.......................................................................34
4.9 No Other Representations or Warranties..................................................34
4.10 Closing Date............................................................................34
ARTICLE V
COVENANTS.................................................................................................34
5.1 Access..................................................................................34
5.2 Conduct of Business.....................................................................34
5.3 Reasonable Efforts......................................................................36
5.4 Covenants Regarding Employees...........................................................37
5.5 Compliance with WARN and Similar Laws...................................................38
5.6 Further Assurances......................................................................38
5.7 Use of Tenneco Marks....................................................................39
5.8 Certain Matters Related to Retained and Assumed Liabilities.............................39
5.9 Intercompany Agreements.................................................................39
5.10 Records and Retention and Access........................................................40
5.11 Insurance...............................................................................40
5.12 Noncompetition..........................................................................40
5.13 ........................................................................................41
5.14 Delivery of Most Recent Year End Statement and the Stub Period Statements
and Regulation S-X Financial Statements.................................................41
5.15 Consent of TPI Auditors. ...............................................................42
5.16 Covenant Regarding Campbell Road Property...............................................42
5.17 ........................................................................................42
ARTICLE VI
CONDITIONS TO CLOSING.....................................................................................42
6.1 Conditions to the Obligations of PCA and TPI............................................42
</TABLE>
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<TABLE>
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6.2 Conditions to the Obligations of PCA....................................................43
6.3 Conditions to the Obligations of TPI....................................................45
ARTICLE VII
SURVIVAL; INDEMNIFICATION.................................................................................46
7.1 Survival................................................................................46
7.2 Indemnification by PCA and Newco........................................................46
7.3 Indemnification by TPI..................................................................47
7.4 Indemnification Procedures..............................................................48
7.5 Acknowledgment Regarding Environmental Liabilities......................................50
7.6 Computation of Losses Subject to Indemnification........................................50
7.7 Characterization of Indemnification Payments............................................51
ARTICLE VIII
TAX COVENANTS.............................................................................................51
8.1 Liability for Taxes.....................................................................51
8.2 Preparation of Tax Returns..............................................................52
8.3 Amended Tax Returns.....................................................................53
8.4 Carrybacks and Carryforwards............................................................54
8.5 Additional Tax Matters..................................................................54
8.6 Tax Controversies; Cooperation..........................................................55
ARTICLE IX
TERMINATION...............................................................................................56
9.1 Termination.............................................................................56
9.2 Effect of Termination...................................................................57
ARTICLE X
MISCELLANEOUS.............................................................................................57
10.1 Notices.................................................................................57
10.2 Amendment; Waiver.......................................................................58
10.3 Assignment..............................................................................59
10.4 Entire Agreement........................................................................59
10.5 Fulfillment of Obligations..............................................................59
10.6 Parties in Interest.....................................................................59
10.7 Public Disclosure.......................................................................59
10.8 Expenses................................................................................59
10.9 Schedules...............................................................................59
10.10 Bulk Transfer Laws......................................................................60
10.11 Governing Law; Submission to Jurisdiction; Selection of Forum...........................60
10.12 Counterparts............................................................................60
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<TABLE>
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10.13 Headings................................................................................60
10.14 Severability............................................................................60
</TABLE>
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<PAGE> 6
CONTRIBUTION AGREEMENT
CONTRIBUTION AGREEMENT dated as of January 25, 1999, among
TENNECO PACKAGING INC., a Delaware corporation ("TPI"), PCA Holdings LLC, a
Delaware limited liability company ("PCA"), and Packaging Corporation of
America, a Delaware corporation ("Newco").
PRELIMINARY STATEMENTS
A. TPI is engaged, in part, in the business of producing
containerboard and corrugated packaging products (excluding folding carton and
honeycomb paperboard - type products), (as currently conducted at four paper
mills located at Counce, Tennessee, Valdosta, Georgia, Tomahawk, Wisconsin and
Filer City, Michigan (the "Mills"), 70 box plants, two recycling facilities,
four wood products facilities and certain timberlands and related facilities,
the "Containerboard Business").
B. PCA recognizes that TPI has substantial experience and
expertise in the ownership, management and operation of the Containerboard
Business and desires to invest in the operation of the Containerboard Business.
PCA and TPI have determined that it is advisable to form a joint venture
corporation to facilitate PCA's investment in the operation of the
Containerboard Business and have caused Newco to be incorporated under the laws
of the State of Delaware as such joint venture corporation.
C. As of the date hereof, the Purchased Property (as defined
below) is subject to various lease and financing arrangements, all of which
lease and financing arrangements are described on Schedule PS-1 (the "Existing
Financing Arrangements").
D. Upon the terms and subject to the conditions set forth more
fully herein, each of TPI, PCA and Newco desires to cause PCA's investment in
the Containerboard Business and the initial capitalization of Newco to be
consummated as described below, which will occur in the following order but,
except as otherwise specifically provided herein, will be consummated
contemporaneously as part of the Closing:
First: PCA will arrange, negotiate and obtain on behalf of TPI
and/or Newco, subject to Section 5.3(b) hereof, credit
facilities and other financings as set forth in the
Commitment Letters (the "New Financing Arrangements") in an
aggregate principal amount sufficient to fund the borrowings
by TPI contemplated by paragraph D.2 below, and those New
Financing Arrangements under which TPI is the initial
borrower will be assigned to, and assumed by, Newco in
connection with the transactions contemplated hereby (such
that following the assignment to and assumption by Newco,
the lenders shall not thereafter have recourse against PCA
or TPI in respect thereof, but shall then have a security
interest in the assets of Newco, including the Contributed
Assets). Capitalized terms used in these Preliminary
Statements and not otherwise defined shall have the meaning
ascribed thereto in the Commitment Letters.
<PAGE> 7
Second: TPI will borrow $1.06 billion under the Term Loan Facilities
on an unsecured basis.
Third: TPI will issue $700 million of Senior Subordinated Notes, or
if elected by TPI, draw down under the Bridge Loan.
Fourth: TPI will contribute the Contributed Assets (including the
Containerboard Business) to Newco free and clear of (i) all
indebtedness for borrowed money or any other obligation that
is fixed as to amount or certainty, other than the Assumed
Indebtedness and (ii) all Encumbrances (other than Permitted
Encumbrances but free and clear of all Encumbrances with
respect to the Existing Financing Arrangements).
Fifth: In consideration of the Contributed Assets, Newco will (i)
assume from TPI $1.06 billion under the Term Loan
Facilities, (ii) enter into the Credit Facilities and become
the Borrower under the Senior Secured Financing, (iii) grant
the lenders under the Senior Secured Financing a security
interest in the assets of Newco, including the Contributed
Assets, and (iv) pay the required fees and expenses with
respect thereto.
Sixth: In consideration of the Contributed Assets, Newco will
assume TPI's obligations under the $700 million Senior
Subordinated Notes (or the Bridge Loan if applicable) and
issue replacement Senior Subordinated Notes (or notes
evidencing the Bridge Loan if applicable). Newco will pay
the required fees and expenses with respect to the Senior
Subordinated Notes (or the Bridge Loan if applicable,
provided that in such case TPI will pay the 1.5% Commitment
Fee on behalf of Newco and PCA).
Seventh: Subject to adjustment pursuant to paragraph F below, Newco
(or if requested by the underwriters, a holding company)
will issue $100 million of Deferred-Pay Financing and will
pay the required fees and expenses with respect thereto.
Eighth: Subject to adjustment pursuant to paragraph E below, PCA
will contribute $236.5 million in cash (the "Cash
Contribution") to Newco, and Newco will issue to PCA in
respect thereof 55% of Newco's outstanding common stock,
$.01 par value (the "Common Stock").
Ninth: In consideration of the Contributed Assets, Newco will
assume the Assumed Liabilities, and subject to paragraph E
below, Newco will issue to TPI 45% of Newco's outstanding
Common Stock and distribute to TPI cash in an amount equal
to $246.5 million less the dollar amount of the PIK
Preferred, if any, issued to TPI and/or its designees, as
contemplated by paragraph F below (the "Cash Distribution").
Subject to paragraph E below, immediately following such
actions PCA and TPI will own Newco
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<PAGE> 8
Common Stock representing 55% and 45%, respectively, of the
issued and outstanding common equity of Newco.
For purposes of the Closing hereunder, each of the above actions will be deemed
to occur as part of an integrated Closing and the Closing will not be deemed to
have occurred and no such action shall be effective unless and until all such
actions have been completed, at which time the Closing will be deemed effective.
E. In addition to the issuance of Common Stock to TPI and
PCA, at the Closing and during the 120-day period following the Closing, Newco
may, at PCA's direction, sell shares of the Common Stock, at the same price per
share as such stock is being purchased by PCA, representing up to 5% of the
outstanding Common Stock of Newco (on a fully diluted basis) to certain members
of Newco's management (the "Management Stock"), on the terms set forth on
Schedule PS-2. TPI shall have the option to be exclusively diluted with respect
to such purchases of Management Stock by delivering notice of its election to be
exclusively diluted to PCA on or before the date on which TPI delivers to PCA
the Most Recent Year End Statement in accordance with Section 5.14 hereof (a
"Dilution Notice"). If TPI delivers PCA a Dilution Notice by such date, then to
the extent such members of management purchase Management Stock at Closing,
Newco shall issue fewer shares to TPI (equal to the number of shares of
Management Stock purchased by management at Closing), in which event the Cash
Distribution will be increased by an amount equal to the aggregate purchase
price of the Management Stock purchased at Closing (provided the per share
purchase price for the Management Stock is equal to the price per share paid for
Common Stock purchased by PCA hereunder). If TPI does not deliver a Dilution
Notice in accordance with the terms hereof, TPI and PCA shall be diluted pro
rata with respect to issuances of Management Stock, so that the number of shares
of Common Stock purchased or received by PCA or TPI shall be reduced by an
aggregate number of shares of Management Stock purchased by management at
Closing in a ratio of 55 to 45, the Cash Contribution shall be reduced by an
amount equal to 55% of the aggregate purchase price of the Management Stock
purchased at Closing, and the Cash Distribution shall be increased by an amount
equal to 45% of the aggregate purchase price of the Management Stock purchased
at Closing. To the extent members of management purchase Management Stock after
the Closing, the provisions of Section 5.17 shall apply.
F. In the event the Deferred-Pay Financing is not sold as
part of the New Financing Arrangements, (i) PCA and/or its designees shall
purchase $55 million of PIK Preferred for $55 million, and (ii) Newco shall
issue $45 million of PIK Preferred to TPI and/or its designees.
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<PAGE> 9
NOW, THEREFORE, TPI, PCA, and Newco agree as follows:
ARTICLE I
DEFINITIONS AND TERMS
1.1 SPECIFIC DEFINITIONS. As used in this Agreement, the
following terms shall have the meanings set forth or as referenced below:
(a) "ACC" shall have the meaning set forth in Section
3.16(c).
(b) "ACQUISITION PROPOSAL" shall have the meaning set forth
in Section 5.13.
(c) "ADJUSTED CASH CONTRIBUTION" means, as of any date, the
Cash Contribution, minus (i) the product determined by multiplying (A) the
purchase price paid per share of Common Stock purchased by PCA hereunder at
Closing times (B)the number of shares of Common Stock transferred by PCA to any
Person other than a PCA Affiliate, minus (ii) the aggregate amount of any cash
payments previously paid to PCA in satisfaction of indemnity obligations to PCA
under Section 7.3 hereof, and minus (iii) any distributions (other than pro rata
stock dividends, splits or combinations) previously made by Newco to PCA.
(d) "AFFILIATES" shall mean, with respect to any Person, any
Persons directly or indirectly controlling, controlled by or under common
control with, such other Person as of the date on which, or at any time during
the period for which, the determination of affiliation is being made. For the
purpose of this definition, "control" means (i) the ownership or control of 50%
or more of the equity interest in any Person, or (ii) the ability to direct or
cause the direction of the management or affairs of a Person, whether through
the direct or indirect ownership of voting interests, by contract or otherwise.
(e) "AGREEMENT" shall mean this Agreement (including the
Preliminary Statements set forth above and all Exhibits), as the same may be
amended or supplemented from time to time in accordance with the terms hereof.
(f) "ANCILLARY AGREEMENTS" shall mean the Facility Use
Agreement, the Human Resources Agreement, the Registration Rights Agreement, the
Stockholders Agreement, the Supply Agreements, and the Transition Services
Agreement.
(g) "APPLICABLE TAX LAW" shall mean any Law of any nation,
state, region, province, locality, municipality or other jurisdiction relating
to Taxes, including regulations and other official pronouncements of any
governmental entity or political subdivision of such jurisdiction charged with
interpreting such Laws.
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<PAGE> 10
(h) "APPRAISAL" shall have the meaning set forth in Section
2.9.
(i) "ASSUMED INDEBTEDNESS" shall have the meaning set forth
in the Preliminary Statements hereto.
(j) "ASSUMED LIABILITIES" shall mean all debts, liabilities,
commitments, or obligations whatsoever, other than Retained Liabilities, Related
to the Containerboard Business or Related to the Contributed Assets, whether
arising before or after the Closing and whether known or unknown, fixed or
contingent, including the following:
(i) all debts, liabilities, obligations or
commitments related to or arising under the Contracts to the extent
such Contracts are assigned to Newco, including the Real Estate Leases
provided that, the foregoing notwithstanding the Assumed Liabilities
shall not include any liabilities and obligations arising under any
Contract which is not identified in the Disclosure Memorandum except as
follows: (A) if such Contract is for an amount of $1,000,000 or less
and (i) is entered into in the ordinary course of business; (ii) the
terms of which are customary and normal for the Containerboard Business
specifically and the containerboard industry generally and on market
rates at the time entered into, and (iii) all of the fees, expenses,
penalties, liabilities and other payment obligations (or commitments
therefor) arising thereunder which were incurred during the 12-month
period ending December 31, 1998 have been paid and have been (or will
be) properly reflected on the Most Recent Year End Statement and, if
applicable, Final Working Capital Statement), such Contract shall be an
Assumed Liability; and (B) if such Contract is for an amount greater
than $1,000,000 or otherwise does not meet the conditions set forth in
clause (A), such Contract shall be an Assumed Liability only if and to
the extent Newco elects to assume such Contract in accordance with
Section 5.21 hereof.
(ii) all debts, liabilities, obligations or
commitments Related to the Real Property;
(iii) the Current Liabilities;
(iv) the Assumed Indebtedness;
(v) except for the Retained Environmental
Liabilities, all liabilities under Environmental Laws Related to the
ownership, operation or conduct of the Containerboard Business or the
Real Property; and
(vi) except for the Retained Litigation, all
liabilities with respect to all actions, suits, proceedings, disputes,
claims or investigations Related to the Containerboard Business or that
otherwise are Related to the Contributed Assets, at law, in equity or
otherwise.
(k) "AUDITED FINANCIAL STATEMENTS" shall have the meaning
set forth in Section 3.6(a).
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(l) "AUDITOR CONSENT LETTER" shall have the meaning set
forth in Section 5.15.
(m) "BOOKS AND RECORDS" shall mean all lists, files and
documents Relating to customers, suppliers and products of the Containerboard
Business, the Contributed Assets, or the Assumed Liabilities, and all general
ledgers and underlying books of original entry and other financial records of
the Containerboard Business, except to the extent included in the Retained
Assets and except for employee records and files.
(n) "BUSINESS DAY" shall mean any day other than a Saturday,
a Sunday or a day on which banks in New York City are authorized or obligated by
law or executive order to close.
(o) "CAMPBELL ROAD PROPERTY" shall mean that Real Property
identified as Item 1.I. on Schedule 1.1(vvv).
(p) "CAP" shall have the meaning set forth in Section
7.2(c).
(q) "CASH CONTRIBUTION" shall have the meaning set forth in
the Preliminary Statements hereto.
(r) "CASH DISTRIBUTION" shall have the meaning set forth in
the Preliminary Statements hereto.
(s) "CHOSEN COURTS" shall have the meaning set forth in
Section 10.11.
(t) "CLOSING" shall mean the closing of the transactions
contemplated by this Agreement.
(u) "CLOSING DATE" shall have the meaning set forth in
Section 2.4.
(v) "CLOSING WORKING CAPITAL" shall have the meaning set
forth in Section 2.5(a).
(w) "CLOSING WORKING CAPITAL STATEMENT" shall have the
meaning set forth in Section 2.5(a).
(x) "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
(y) "COMMITMENT LETTERS" shall have the meaning set forth in
Section 4.7(b).
(z) "COMMON STOCK" shall have the meaning set forth in the
Preliminary Statements hereto.
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<PAGE> 12
(aa) "CONFIDENTIALITY AGREEMENT" shall mean the
Confidentiality Agreement dated November 20, 1998, between Madison Dearborn
Partners, Inc. and TPI.
(bb) "CONSENT" shall mean any consent, approval,
authorization, waiver, permit, grant, franchise, concession, agreement, license,
exemption or order of, registration, certificate, declaration or filing with, or
report or notice to any Person, including any Governmental Authority, including
those identified on Schedule 3.3.
(cc) "CONTAINERBOARD BUSINESS" shall have the meaning set
forth in the Preliminary Statements hereto.
(dd) "CONTRACTS" shall mean all agreements, contracts,
leases, timber deeds, purchase orders, trade billback, refund and other
arrangements, incentive agreements, commitments, collective bargaining
agreements, and licenses that are Related to the Containerboard Business or the
Contributed Assets or to which the Contributed Assets are subject, except to the
extent included in the Retained Assets.
(ee) "CONTRIBUTED ASSETS" shall mean all of the assets of
TPI which Relate to the Containerboard Business, whether tangible or intangible,
real or personal, as they exist on the date hereof, with such changes, deletions
or additions thereto as may occur from the date hereof to the Closing Date in
the ordinary course of business (except, in each case, for the Retained Assets),
including the following:
(i) the Real Property;
(ii) the Fixtures and Equipment;
(iii) the Current Assets;
(iv) the Intellectual Property and the PCA Mark;
(v) the Books and Records;
(vi) the Contracts other than (A) Existing Financing
Arrangements, and (B) Contracts not included in the Assumed Liabilities
pursuant to the exception set forth in Section 1.1(j)(i) (unless and to
the extent assumed by Newco pursuant to Section 5.21 hereof);
(vii) the stock or other ownership interests of the
Contributed Subsidiaries;
(viii) all prepaid Taxes, to the extent such prepaid
Taxes are reflected on the Final Working Capital Statement;
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<PAGE> 13
(ix) all refunds of Taxes, to the extent such
refunds of Taxes are reflected on the Final Working Capital Statement;
(x) the Purchased Property; and
(xi) all Governmental Authorizations which are
transferable without obtaining any Consent.
(ff) "CONTRIBUTED SUBSIDIARIES" shall mean those
Subsidiaries listed on Schedule 1.1(ff).
(gg) "CPA FIRM" shall have the meaning set forth in Section
2.5(b).
(hh) "CURRENT ASSETS" shall mean Inventory, accounts
receivables (including the gross amount of any factored accounts receivable),
deposits, and all other current assets of the Containerboard Business other than
(i) cash, cash accounts, disbursement accounts, outstanding checks and
disbursements in transit, investment securities and other short-term and
medium-term investments (other than such items, if any, which are securing the
performance of any obligations included in the Assumed Liabilities), and (ii)
Non-Trade accounts receivable from TPI or its Affiliates. For purposes of this
Agreement, an account receivable shall be deemed "Non-Trade" if it (i) is not
supported by an issued invoice, (ii) is not of the type reflected on the Most
Recent Statement of Assets and Liabilities, and (iii) is not the result of an
arms' length sale of goods or services to a third party or a bona fide sale of
goods or services to a third party.
(ii) "CURRENT LIABILITIES" shall mean all of TPI's current
liabilities to the extent Related to the Containerboard Business other than (i)
Non-Trade accounts payable to TPI or its Affiliates, (ii) cash accounts,
disbursement accounts, outstanding checks and disbursements in transit, and
(iii) federal, state, local and foreign income Taxes with respect to the Tax
Periods, or portions thereof, ending on or before the Closing Date. For purposes
of this Agreement, an account payable shall be deemed "Non-Trade" if (i) it is
not supported by an issued invoice, (ii) is not of the type reflected on the
Most Recent Statement of Assets and Liabilities, and (iii) is not the result of
a of an arms' length purchase of goods or services from a third party or bona
fide purchase of goods or services from a third party. Liabilities for Taxes
(other than federal, state, local or foreign income taxes) shall be Current
Liabilities only to the extent such Tax is reflected in the Final Working
Capital Statement, it being understood that in no event will any Taxes arising
with respect to federal, state, local, or foreign income be included as a
Current Liability.
(jj) "DEDUCTIBLE" shall have the meaning set forth in
Section 7.2(c).
(kk) "DETERMINATION DATE" shall mean 7:59 a.m. on the
Closing Date.
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(ll) "DISCLOSURE MEMORANDUM" shall mean the Disclosure
Memorandum dated the date hereof delivered by TPI to PCA and Newco in connection
with this Agreement. References herein to "Schedules" are to the various
Schedules of the Disclosure Memorandum.
(mm) "DILUTION NOTICE" shall have the meaning set forth in
the Preliminary Statements.
(nn) "ENCUMBRANCES" shall mean liens, charges, encumbrances,
security interests, options or any other restrictions or third-party rights.
(oo) "ENVIRONMENTAL LAW" shall mean any applicable federal,
state, local, common or foreign law, statute, ordinance, rule, regulation, code,
order, judgment, decree or injunction relating to (i) the protection of the
environment (including air, water vapor, surface water, groundwater, drinking
water supply, surface or subsurface land), or (ii) the exposure to, or the use,
storage, recycling, treatment, generation, transportation, processing, handling,
labeling, protection, release or disposal of, Hazardous Substances, or workplace
safety or health.
(pp) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
(qq) "EXISTING FINANCING ARRANGEMENTS" shall have the
meaning set forth in the Preliminary Statements hereto.
(rr) "FACILITY USE AGREEMENT" shall mean an agreement at the
price as set forth on Exhibit 1.1(ggggg), and otherwise in form and substance
reasonably satisfactory to PCA and TPI, to be entered into by Newco and TPI as
of the Closing pursuant to which TPI grants Newco the right to use the first
floor and related common areas (including the cafeteria, parking, and other
ancillary areas and facilities) of TPI's facility located in Lake Forest,
Illinois.
(ss) "FINAL WORKING CAPITAL STATEMENT" shall have the
meaning set forth in Section 2.5(b).
(tt) "FINANCIAL STATEMENTS" shall have the meaning set forth
in Section 3.6(a).
(uu) "FIXTURES AND EQUIPMENT" shall mean all furniture,
fixtures, furnishings, machinery, vehicles, equipment (including computer
hardware, computer terminals, network servers, and research and development
equipment) and other tangible personal property Related to the Containerboard
Business.
(vv) "FORMER FACILITY" shall mean a facility or property
previously owned or operated by TPI or its predecessors in the conduct of the
Containerboard Business that is not located on the Real Property or the Retained
Real Property.
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(ww) "GAAP" shall mean United States generally accepted
accounting principles, consistently applied.
(xx) "GOVERNMENTAL AUTHORITY" shall mean any nation or
government, any state, province or other political subdivision thereof and any
entity exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, including any government authority,
agency, department, board, commission or instrumentality of the United States,
any State of the United States or any political subdivision thereof.
(yy) "GOVERNMENTAL AUTHORIZATIONS" shall mean all licenses,
permits, franchises, certificates of occupancy, other certificates and other
authorizations and approvals required to carry on the Containerboard Business as
currently conducted under the applicable laws, ordinances or regulations of any
Governmental Authority.
(zz) "HAZARDOUS SUBSTANCES" shall mean (i) petroleum,
petroleum byproducts and any petroleum fractions; (ii) materials which contain
any substance defined as a hazardous or toxic substance or words of similar
meaning or effect under the following United States federal statutes and their
state counterparts, as well as such statutes' implementing regulations: the
Hazardous Materials Transportation Act, the Resource Conservation and Recovery
Act, the Comprehensive Environmental Response, Compensation and Liability Act,
the Clean Water Act, the Safe Drinking Water Act, the Atomic Energy Act, the
Toxic Substances Control Act, the Federal Insecticide, Fungicide, and
Rodenticide Act, and the Clean Air Act; and (iii) any other materials as to
which liability or standards of conduct are imposed pursuant to any
Environmental Law.
(aaa) "HSR ACT" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
(bbb) "HUMAN RESOURCES AGREEMENT" shall mean an agreement to
be entered into on the Closing Date by and among Tenneco, TPI and Newco in the
form of Exhibit 1.1(bbb) attached hereto.
(ccc) "INDEMNIFICATION CLAIM NOTICE" shall have the meaning
set forth in Section 7.4(a).
(ddd) "INDEMNIFIED PARTIES" shall have the meaning set forth
in Section 7.3(a).
(eee) "INDEMNIFYING PARTY" shall have the meaning set forth
in Section 7.4(a).
(fff) "INITIAL PRICE" per share means (i) in the case of an
initial Public Offering, the initial offering price per share, and (ii) in the
case of a Spin-Off, the average closing price per share on each of the 10
Business Days commencing on the first Business Day which is 30 days after the
effective date of the Spin-Off, provided that if TPI or Goldman, Sachs &
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<PAGE> 16
Co., or their respective Affiliates, shall have purchased any shares of Newco
through the public market during such period, then the Initial Price shall be
the lower of (x) the closing price on the effective date of the Spin-Off, and
(y) the average closing price per share on each of the 10 Business Days
commencing on the first Business Day which is 30 days after the effective date
of the Spin-Off.
(ggg) "INTELLECTUAL PROPERTY" shall mean (except to the
extent included in the Retained Assets) the following intellectual property (and
the rights associated therewith) Related to the Containerboard Business or the
Contributed Assets: trademarks, service marks, brand names, certification marks,
trade dress, assumed names, Internet Domain names, trade names and other
indications of origin, the goodwill associated with the foregoing and
registrations in any jurisdiction of, and applications in any jurisdiction to
register, the foregoing, including any extension, modification or renewal of any
such registration or application; patents, applications for patents (including
divisionals, continuations, continuations-in-part and renewal applications), and
any renewals, extensions or reissues thereof, in any jurisdiction; patent
disclosures and innovations (whether or not patentable and whether or not
reduced to practice); non-public information, trade secrets and confidential
information and rights in any jurisdiction to limit the use or disclosure
thereof by any Person; copyrighted works and registrations or applications for
registration of copyrights in any jurisdiction, and any renewals or extensions
thereof; software; any similar intellectual property or proprietary rights; and
any claims or causes of action arising out of or related to any infringement or
misappropriation of any of the foregoing occurring before or after the Closing.
(hhh) "INVENTORY" shall mean all inventory held for resale
in the Containerboard Business, all raw materials, work in process, finished
products, office supplies, storeroom inventory, spare parts and equipment,
wrapping, supply and packaging items, of the Containerboard Business.
(iii) "KNOWLEDGE" or any similar phrase means the actual
knowledge of those management employees of TPI identified on Schedule 1.1(iii),
after due inquiry.
(jjj) "LAWS" shall mean any federal, state, foreign or local
law, statute, ordinance, rule, code, regulation, order, judgment or decree of
any Governmental Authority.
(kkk) "LEASED REAL PROPERTY" shall mean all land (including,
to the extent included in any such lease, any timberlands and tree farms
associated with the Mills), buildings, fixtures and other real property leased
on the date hereof by TPI or one of the Contributed Subsidiaries as lessee
pursuant to the Real Estate Leases used by the Containerboard Business, other
than the real property identified as "Transition Real Property" on Schedule
1.1(ggggg).
(lll) "LEMELSON PATENTS" shall have the meaning set forth in
Section 6.2(k).
(mmm) "LOSSES" shall have the meaning set forth in Section
7.2.
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(nnn) "MATERIAL ADVERSE CHANGE" shall mean a change that is
materially adverse to the value of the Contributed Assets or the Containerboard
Business taken as a whole or materially adverse to the business, financial
condition or results of operations or business prospects of the Containerboard
Business taken as a whole; provided that any change identified on Schedule
1.1(nnn) shall not constitute a Material Adverse Change. The scope of this
definition of "Material Adverse Change" shall in no way be construed to be
applicable to or to limit in any respect the determination of "Material Adverse
Effect" or "Material Adverse Change" as used in the Commitment Letters, or the
agreements and indentures contemplated thereby, by the lenders thereunder with
respect to the conditions precedent to such lenders' obligation to consummate
the New Financing Arrangements.
(ooo) "MATERIAL ADVERSE EFFECT" shall mean an effect that is
materially adverse to the value of the Contributed Assets or the Containerboard
Business taken as a whole or materially adverse to the business, financial
condition or results of operations or business prospects of the Containerboard
Business taken as a whole; provided that any effect arising from or attributable
to any condition, event or circumstance identified on Schedule 1.1(nnn) shall
not constitute a Material Adverse Effect. The scope of the definition of
"Material Adverse Effect"shall in no way be construed to be applicable to or to
limit in any respect the determination of "Material Adverse Effect" or "Material
Adverse Change" as used in the Commitment Letters, or the agreements and
indentures contemplated thereby, by the lenders thereunder with respect to the
conditions precedent to such lenders' obligation to consummate the New Financing
Arrangements.
(ppp) "MDP TRANSACTION FEE" has the meaning set forth in
Section 4.6.
(qqq) "MOST RECENT STATEMENT OF ASSETS AND LIABILITIES"
shall have the meaning set forth in Section 3.6(a).
(rrr) "MOST RECENT YEAR END STATEMENT" shall have the
meaning set forth in Section 3.6(a).
(sss) "NET WORKING CAPITAL" shall mean the excess of Current
Assets over Current Liabilities on a consolidated basis determined in accordance
with Section 2.5.
(ttt) "NEW FINANCING ARRANGEMENTS" shall have the meaning
set forth in the Preliminary Statements hereto.
(uuu) "NONCOMPETE PERIOD" shall have the meaning set forth
in Section 5.12(a).
(vvv) "OBJECTION" shall have the meaning set forth in
Section 2.5(b).
(www) "OWNED REAL PROPERTY" shall mean all land (including
any timberlands and tree farms associated with the Mills) and all buildings,
fixtures, and other improvements
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located thereon, and all easements, rights-of-way and appurtenances thereto,
owned by TPI or one of the Contributed Subsidiaries which is identified on
Schedule 1.1(vvv).
(xxx) "PCA INDEMNIFIED PARTIES" shall have the meaning set
forth in Section 7.3(a).
(yyy) "PCA MARKS" shall mean any mark that includes the
phrase "Packaging Corporation of America" or the word "PCA" or any variation
thereof and any trademark symbol or logo using such phrase or name and any
variation thereof.
(zzz) "PERMITTED ENCUMBRANCES" shall have the meaning set
forth in Section 3.16(b).
(aaaa) "PERSON" shall mean an individual, a corporation, a
partnership, an association, a trust or other entity or organization.
(bbbb) "PIK PREFERRED" shall mean the Preferred Stock, as
such term is defined in the Commitment Letters.
(cccc) "POST-CLOSING PERIOD" shall mean, with respect to any
Contributed Subsidiary, any Tax Period commencing after the Closing Date and the
portion of any Straddle Period commencing after the Closing Date.
(dddd) "PRE-CLOSING PERIOD" shall mean, with respect to any
Contributed Subsidiary, any Tax Period ending on or before the Closing Date and
the portion of any Straddle Period ending on the Closing Date.
(eeee) "PROCEEDING" shall have the meaning set forth in
Section 7.4(a).
(ffff) "PUBLIC OFFERING" shall mean a public offering
pursuant to an effective registration statement under the Securities Act (or any
comparable form under any similar statute then in force), covering the offer and
sale of Common Stock for the account of Newco and/or selling stockholders to the
public.
(gggg) "PURCHASED PROPERTY" shall mean all land (including
any timberlands and tree farms associated with the Mills) and all buildings,
fixtures, other improvements, machinery and equipment located thereon, and all
easements, rights-of-way and appurtenances thereto, that are subject to the
Existing Financing Arrangements listed on Schedule PS-1.
(hhhh) "REAL ESTATE LEASES" shall mean those agreements
pursuant to which TPI or one or more of the Contributed Subsidiaries leases,
subleases, licenses, or otherwise uses or licenses, real property, including
land (and everything growing upon the land, to the extent included in such Real
Estate Lease), buildings, structures and improvements thereon or appurtenances
thereto, which are identified on Schedule 1.1(gggg).
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<PAGE> 19
(iiii) "REAL PROPERTY" shall mean the Owned Real Property
(and the applicable Purchased Property) and the Leased Real Property.
(jjjj) "REGISTRATION RIGHTS AGREEMENT" shall have the
meaning set forth in Section 2.1(c).
(kkkk) "RELATED TO" OR "RELATING TO" shall mean primarily
related to, or used primarily in connection with.
(llll) "REQUIRED CONSENT" shall mean any Consents
specifically identified on Schedule 3.3 as a "Required Consent" and each other
material Consent, which may be a Consent listed on Schedule 3.3.
(mmmm) "RETAINED ASSETS" shall mean
(i) the assets (including real property, tangible
personal property, accounts receivable, intellectual property and
contracts) Related to all businesses conducted by TPI and any of its
Affiliates, including but not limited to, their plastics and aluminum
packaging, aluminum, plastics, folding carton, molded fiber, cushion
protective packaging (including all honeycomb paperboard-type
products), flexible packaging, and foam building products businesses,
and all tangible assets located at TPI's Lake Forest, Illinois
facility, but not including any assets Related to the Containerboard
Business;
(ii) the stock or other ownership interests of all
Subsidiaries of TPI other than the Contributed Subsidiaries;
(iii) all cash and cash accounts, disbursement
accounts, outstanding checks and disbursements, investment securities
and other short-term and medium-term investments and Non-Trade accounts
receivable from TPI and its Affiliates and the notes receivable listed
in Schedule 1.1(llll)(iii);
(iv) all deferred Tax assets of TPI;
(v) all prepaid Taxes to the extent such prepaid
Taxes are not reflected on the Final Working Capital Statement;
(vi) all refunds of Taxes to the extent such Taxes
are not reflected on the Final Working Capital Statement;
(vii) all Tax Returns of TPI;
(viii) all Books and Records which TPI is required
by law to retain, provided that TPI shall provide Newco with complete
copies of such Books and Records;
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<PAGE> 20
(ix) all Tenneco Plans, and all assets of the
Tenneco Plans;
(x) all Governmental Authorizations to the extent
not transferable without obtaining a Consent;
(xi) the Tenneco Marks;
(xii) the Retained Real Property and any financial
instruments related to the Retained Real Property;
(xiii) all of TPI's or Tenneco's insurance policies
Related to the Containerboard Business and, subject to the rights of
Newco and obligations of TPI and TPI's Affiliates, respectively, set
forth in Section 5.11, all rights under such insurance policies; and
(xiv) any Contracts not included in the Assumed
Liabilities pursuant to the exception set forth in Section 1.1(j)(i)
(unless and to the extent assumed by Newco pursuant to Section 5.21
hereof).
(nnnn)"RETAINED ENVIRONMENTAL LIABILITIES" has the meaning
set forth in the definition of "Retained Liabilities."
(oooo) "RETAINED LIABILITIES" shall mean all of the
following debts, liabilities, commitments or obligations, whether arising before
or after the Closing and whether known or unknown, fixed or contingent:
(i) all liabilities Related to the Retained Assets;
(ii) all (A) liabilities under Environmental Laws
with respect to any property to which the Containerboard Business
disposed or arranged for the disposal of Hazardous Substances prior to
Closing, other than (x) at the Real Property, or (y) at locations other
than the Retained Real Property where Hazardous Substances may have
migrated or are alleged to have migrated from the Real Property, (B)
liabilities under Environmental Laws with respect to any Former
Facility, and (C) liabilities in connection with the Retained Real
Property (collectively, the "Retained Environmental Liabilities");
(iii) all liabilities arising out of the actions,
suits, proceedings, disputes, claims or investigations identified in
Schedule 1.1(nnnn)(iii) (the "Retained Litigation") and all Losses
arising out of the three matters listed in Section 5.18 of this
Agreement to the extent Newco's Losses in connection therewith exceed
the limitations set forth in such section;
(iv) all liabilities which are retained by Tenneco
or TPI under the Ancillary Agreements;
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<PAGE> 21
(v) all liabilities under the Tenneco Plans, except
to the extent such liabilities are specifically assumed by Newco
pursuant to the Human Resources Agreement;
(vi) all liabilities for Taxes imposed with respect
to the taxable periods, or portions thereof, ending on or before the
Closing Date except to the extent that any such Taxes are Current
Liabilities and are reflected on the Final Working Capital Statement;
(vii) all liabilities for "non-trade" accounts
payable to TPI or its Affiliates which arise prior to the Closing Date;
(viii) all liabilities for indebtedness for
borrowed money and any other obligation which is fixed as to amount and
certainty as of the Closing or which is secured by a lien that is not a
Permitted Encumbrance on any of the Contributed Assets, including any
liabilities under the Existing Financing Arrangements, but not
including (A) the Assumed Indebtedness, (B) Assumed Liabilities as
shown on the Final Working Capital Statement and (C) liabilities under
Contracts included in the Contributed Assets;
(ix) all severance, termination, change of control
and similar agreements, payments, debts, obligations or liabilities
with respect to any director, officer, employee or consultant of TPI or
any of its Subsidiaries which exist as of or prior to the Closing
(after taking into account the transactions contemplated by this
Agreement), other than (i) obligations under any collective bargaining
agreement, (ii) obligations of the type described in Section 2.3 (v) of
the Human Resources Agreement, and (iii) obligations under any
employment, consulting, or other agreement entered into by Newco;
(x) all liabilities and obligations under any
employment, consulting, or other agreement or arrangement between TPI
or its Affiliates and William Sweeney, including any liabilities or
obligations to Mr. Sweeney which exist as of or prior to the
Closing (including after taking into account the transactions
contemplated by this Agreement and including severance and pension
benefits, costs, or other expenses), except to the extent assumed by
Newco under the Human Resources Agreement;
(xi) all other liabilities and obligations for
which TPI has expressly assumed responsibility pursuant to this
Agreement or the Ancillary Agreements;
(xii) all debts, liabilities or obligations
whatsoever, that do not Relate to the Containerboard Business or that
do not otherwise Relate to the Contributed Assets; and
(xiii) all liabilities and obligations arising
under any Contract which is not identified in the Disclosure Memorandum
except as follows: (A) if such Contract is for an amount of $1,000,000
or less and (i) is entered into in the ordinary course of
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<PAGE> 22
business; (ii) the terms of which are customary and normal for the
Containerboard Business specifically and the containerboard industry
generally and on market rates at the time entered into, and (iii) all
of the fees, expenses, penalties, liabilities and other payment
obligations (or commitments therefor) arising thereunder which were
incurred during the 12-month period ending December 31, 1998 have been
paid and have been (or will be) properly reflected on the Most Recent
Year End Statement, and, if applicable, Final Working Capital
Statement), such Contract shall not be a Retained Liability; and (B)
if such Contract is for an amount greater than $1,000,000 or otherwise
does not meet the conditions set forth in clause (A), such Contract
shall be a Retained Liability only if and to the extent Newco does not
elect to assume such Contract in accordance with Section 5.21 hereof.
(pppp) "RETAINED LITIGATION" has the meaning set forth in
the definition of "Retained Liabilities."
(qqqq) "RETAINED REAL PROPERTY" shall mean the real property
identified on Schedule 1.1(pppp).
(rrrr) "SPIN-OFF" shall mean any distribution by TPI or its
Affiliates of any class or series of Newco Common Stock to TPI's or such
Affiliate's public stockholders.
(ssss) "STRADDLE PERIOD" shall mean, with respect to any
Contributed Subsidiary, any Tax Period that begins before and ends after the
Closing Date.
(tttt) "STOCKHOLDERS AGREEMENT" shall have the meaning set
forth in Section 2.1(b) hereof.
(uuuu) "STUB PERIOD FINANCIAL STATEMENTS" shall have the
meaning set forth in Section 3.6(b).
(vvvv) "SUBSIDIARY" shall mean, with respect to any Person,
any corporation, partnership, joint venture or other legal entity of which such
Person, either directly or through or together with any other Subsidiary of such
Person, owns any equity interests.
(wwww) "SUPPLY AGREEMENTS" shall mean the supply agreements,
to be entered into at Closing by and among Newco, TPI and TPI's affiliates in
form and substance satisfactory to each of TPI and PCA, setting forth the terms
and conditions pursuant to which Newco agrees to supply to TPI and its
Affiliates, and TPI and its Affiliates agree to purchase from Newco, certain
products, at prices set forth on Schedule 1.1(vvvv), for a period of five years
from the Closing Date.
(xxxx) "SURVIVAL PERIOD" shall have the meaning set forth in
Section 7.1.
(yyyy) "TARGET WORKING CAPITAL" has the meaning set forth in
Section 2.5(e).
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<PAGE> 23
(zzzz) "TAX AUTHORITY" shall mean, with respect to any Tax,
the governmental entity or political subdivision thereof that imposes such Tax,
and the agency (if any) charged with the collection of such Taxes for such
entity or subdivision.
(aaaaa) "TAX BENEFIT" shall mean the amount by which a
Person's Tax liability is actually reduced (including any related interest
actually received from a Tax Authority in connection therewith).
(bbbbb) "TAX PERIOD" shall mean, with respect to any Tax,
the period for which the Tax is reported as provided under Applicable Tax Laws.
(ccccc) "TAX RETURN" shall mean, with respect to any Tax,
any information return with respect to such Tax, any report, statement,
declaration or document required to be filed under the Applicable Tax Law in
respect of such Tax, any claim for refund of Taxes paid, and any amendment or
supplement to any of the foregoing.
(ddddd) "TAXES" shall mean all federal, state, local or
foreign taxes, including but not limited to income, gross receipts, windfall
profits, goods and services, value added, severance, property, production,
sales, use, license, excise, franchise, employment, withholding or similar
taxes, together with any interest, additions or penalties with respect thereto
and any interest in respect of such additions or penalties.
(eeeee) "TENNECO" means Tenneco Inc., a Delaware
corporation.
(fffff) "TENNECO MARK" shall mean any mark that includes the
word "Tenneco" or "Tenn" or any variation thereof, the Tenneco "horizon" symbol,
and any trademark, symbol or logo using the "Tenneco" or "Tenn" name or such
symbol or any variation thereof.
(ggggg) "TENNECO PLANS" means all employee benefit plans,
and all assets and liabilities related to such employee benefit plans, of TPI,
or any Affiliate of TPI, including Tenneco.
(hhhhh) "TRANSITION SERVICES AGREEMENT" shall mean a
mutually satisfactory agreement to be entered into at Closing between Newco and
TPI under which TPI and its Affiliates will provide transition services
requested by Newco in order to allow it to operate the Containerboard Business
after Closing in a manner consistent with past practices. The charge to Newco
for such services will be TPI's or such Affiliate's (as the case may be) actual
cost on a fully loaded basis without allocation of corporate overhead (the "TPI
Cost"). To the extent of any services reflected in any of the eight service
categories on Schedule 1.1 (ggggg) , the charge to Newco for each such service
will be the lesser of (i) TPI's Cost for such services, and (ii) 105% of the
cost for such service set forth on such Schedule. The Transition Services
Agreement shall be for an initial one year term. Newco may extend the term
beyond the initial term for up to six months for an upcharge of 15%. Newco may
terminate any such services under the Transition Services Agreement on 90 days
written notice to TPI. Newco may reduce or phase-down the services to be
provided during the initial term or renewal term
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<PAGE> 24
under the Transition Services Agreement upon reasonable written notice to TPI,
in which case the charge to Newco will be reduced to reflect the actual TPI Cost
for rendering such reduced service.
(iiiii) "TPI INDEMNIFIED PARTIES" shall have the meaning
set forth in Section 7.2(a).
(jjjjj) "TRANSFER COSTS" shall have the meaning set
forth in Section 2.7.
(kkkkk) "WARN" shall have the meaning set forth in
Section 5.5.
(lllll) "WARN OBLIGATIONS" shall have the meaning set
forth in Section 5.5.
1.2 OTHER TERMS. Other terms may be defined elsewhere in the
text of this Agreement, and unless otherwise indicated shall have such meanings
throughout this Agreement.
1.3 OTHER DEFINITIONAL PROVISIONS.
(a) The words "hereof", "herein", and "hereunder" and words
of similar import, when used in this Agreement, shall refer to this Agreement as
a whole and not to any particular provision of this Agreement. The word
"including" means "including without limitation."
(b) The terms defined in the singular shall have a
comparable meaning when used in the plural, and vice versa.
(c) The terms "dollars" and "$" shall mean United States
dollars.
ARTICLE II
ORGANIZATION OF NEWCO;
CONTRIBUTION OF THE CONTAINERBOARD BUSINESS
2.1 ORGANIZATION OF NEWCO. At or prior to Closing, TPI,
Newco and PCA shall cause each of the following to occur:
(a) CORPORATE DOCUMENTS. Newco's certificate of
incorporation shall be amended and restated to be as set forth as Exhibit 2.1A
hereto (except that such certificate of incorporation shall be amended to create
a series of preferred stock entitled "Series A Preferred Stock as contemplated
by the Stockholders Agreement) and Newco shall adopt amended and restated
by-laws in form and substance satisfactory to PCA and TPI, which by-laws shall
include all provisions required by the Stockholders Agreement to be included in
Newco's by-laws.
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<PAGE> 25
(b) STOCKHOLDERS AGREEMENT. TPI, PCA and Newco shall enter
into a Stockholders Agreement in the form of Exhibit 2.1B.
(c) REGISTRATION RIGHTS AGREEMENT. TPI, PCA and Newco shall
enter into a Registration Rights Agreement in the form of Exhibit 2.1C.
2.2 CONTRIBUTION AND PURCHASE OF ASSETS; ASSUMPTION OF
LIABILITIES.
(a) BORROWING OF ASSUMED INDEBTEDNESS; REPAYMENT OF EXISTING
FINANCING ARRANGEMENTS. Immediately prior to the Closing, subject to Article VI,
TPI will borrow the Assumed Indebtedness under the New Financing Arrangements
and will use the proceeds to repay in full the Existing Financing Arrangements
such that TPI shall own all of the Purchased Property free and clear of all
Encumbrances (other than Permitted Encumbrances, but free and clear of all
Encumbrances with respect to Existing Financing Arrangements), and the Purchased
Property shall constitute a part of the Contributed Assets. On the terms and
subject to the conditions set forth herein and in the Ancillary Agreements, at
the Closing the parties shall take the following actions, in the order set forth
below, provided that such actions shall take place contemporaneously as part of
the Closing.
(b) PCA CASH CONTRIBUTION; ISSUANCE OF COMMON STOCK. PCA
will contribute the Cash Contribution to Newco, and Newco will issue to PCA the
number of fully paid, nonassessable shares of Common Stock determined in
accordance with the Preliminary Statements.
(c) CONTRIBUTION OF CONTRIBUTED ASSETS; ASSUMPTION OF
LIABILITIES. (i) TPI shall contribute, convey, transfer, assign and deliver to
Newco, and Newco shall accept and acquire from TPI, all right, title and
interest of TPI in and to the Contributed Assets, free and clear of all
Encumbrances (other than Permitted Encumbrances but free and clear of all
Encumbrances with respect to Existing Financing Arrangements); (ii) Newco shall
assume and agree to pay, honor, discharge and perform the Assumed Liabilities
only and shall assume no other liabilities and obligations of any kind or
nature; and (iii) Newco will issue to TPI the number of fully paid,
nonassessable shares of Common Stock determined in accordance with the
Preliminary Statements and pay TPI cash in an amount equal to the Cash
Distribution.
(d) ADJUSTMENT FOR MANAGEMENT PURCHASES. To the extent
members of Newco management purchase Management Stock at Closing, the number of
shares of Common Stock issued to TPI and PCA, and the amounts of the Cash
Distribution and the Cash Contribution, shall be adjusted as set forth in the
Preliminary Statements.
2.3 RETAINED ASSETS AND RETAINED LIABILITIES.
Notwithstanding anything herein to the contrary, (i) from and after the Closing
each of TPI and its Affiliates shall retain all of its direct or indirect right,
title and interest in and to, and there shall be excluded from the sale,
conveyance, assignment or transfer to Newco hereunder, the Retained Assets and
the Retained Liabilities, and (ii) the Retained Liabilities shall not be assumed
by Newco hereunder.
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2.4 CLOSING MECHANICS. The Closing shall take place at the
offices of PCA's counsel at 8:00 a.m. (Chicago time), on the date which is the
later of (i) the 90th day following the execution of this Agreement, (ii) the
second Business Day following the satisfaction or waiver (by the party entitled
to waive the condition) of each condition to the Closing set forth in Article
VI, and (iii) the 45th day following delivery of the Most Recent Year End
Statement and the Regulation S-X Financial Statements pursuant to Section 5.14,
provided that on or prior to any such date TPI shall have provided to Newco any
quarterly financial statements for any calendar quarter ended more than 30 days
prior to such date (unless the foregoing condition is waived by PCA in its sole
discretion), or at such other time and place as the parties hereto may mutually
agree. The date on which the Closing occurs is called the "Closing Date." The
Closing shall be deemed effective at 8:00 a.m. (Chicago time) on the Closing
Date. To effect the steps set forth in Section 2.2 hereof, the parties shall
execute and deliver to each other and to third parties, as appropriate, all
documents reasonably necessary to effect the Closing. Without limiting the
generality of the foregoing,
(a) TPI DELIVERIES. TPI shall execute and deliver to Newco
and PCA:
(i) to Newco, deeds, in limited warranty or other
similar form, in form and substance reasonably acceptable to PCA,
transferring all Owned Real Property (and the applicable Purchased
Property) to Newco;
(ii) to Newco, assignments, or where necessary
subleases, in form and substance reasonably acceptable to PCA,
assigning or subleasing to Newco all Real Property Leases;
(iii) to Newco, assignments, in form and substance
reasonably acceptable to PCA, assigning to Newco all Intellectual
Property and the PCA Marks;
(iv) to Newco, bills of sale, certificates of
title, and all other instruments of transfer, in form and substance
reasonably acceptable to PCA, transferring to Newco all Contributed
Assets other than the Real Property or the Intellectual Property which
are being transferred to Newco pursuant to conveyance documents in
clauses (i) - (iii) above;
(v) to Newco, such instruments of assumption and
other instruments or documents, in form and substance reasonably
acceptable to PCA, as may be necessary to effect TPI's assignment of
the Assumed Liabilities to Newco;
(vi) to Newco or PCA, as appropriate, a duly
executed copy of each of the Ancillary Agreements to which TPI is a
party;
(vii) to PCA, a copy of the opinion of Jenner &
Block, TPI's counsel, in form and substance reasonably satisfactory to
PCA;
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(viii) to PCA, evidence reasonably satisfactory to
PCA that all Encumbrances other than Permitted Encumbrances on any of
the Contributed Assets have been released;
(ix) to Newco, stock certificates or other evidence
of ownership of each of the Contributed Subsidiaries, in each case duly
endorsed for transfer to Newco;
(x) the certificates and other documents to be
delivered pursuant to Section 6.2(a) and (b); and
(xi) such other instruments or documents, in form
and substance reasonably acceptable to PCA, as may be necessary to
effect the Closing and the contribution of the Contributed Assets in
accordance with this Agreement.
(b) PCA DELIVERIES. PCA shall execute and deliver to Newco
and TPI:
(i) to Newco or TPI, as appropriate, a duly
executed copy of each of the Ancillary Agreements to which PCA is a
party;
(ii) to TPI, a copy of the opinion of Kirkland &
Ellis, PCA's counsel, in form and substance reasonably satisfactory to
TPI;
(iii) to Newco, the Cash Contribution;
(iv) the certificates and other documents to be
delivered by PCA pursuant to Section 6.3(a) and (b); and
(v) such other instruments or documents, in form
and substance reasonably acceptable to TPI, as may be necessary to
effect the Closing.
(c) NEWCO DELIVERIES. Newco shall execute and deliver to TPI
and PCA:
(i) to TPI and PCA, such instruments of assumption
and other instruments or documents, in form and substance reasonably
acceptable to TPI, as may be necessary to effect Newco's assumption of
the Assumed Liabilities, including all documentation required by the
lenders of the Assumed Indebtedness, and to cause such lenders to
release TPI from and PCA any liability from the Assumed Indebtedness;
(ii) to TPI or PCA, as appropriate, a duly executed
copy of each of the Ancillary Agreements to which Newco is a party;
(iii) to PCA, stock certificates representing that
number of shares of Common Stock in Newco issuable to PCA as determined
in accordance with the Preliminary Statements hereof;
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(iv) to TPI, stock certificates representing that
number of shares of Common Stock in Newco issuable to TPI as determined
in accordance with the Preliminary Statements hereof;
(v) to TPI, the Cash Distribution; and
(vi) such other instruments or documents, in form
and substance reasonably acceptable to TPI and PCA, as may be necessary
to effect the Closing.
2.5 POST-CLOSING ADJUSTMENT.
(a) Within 60 days following the Closing, TPI shall, at its
expense and with cooperation from Newco's employees and access to Newco's books
and records, prepare or cause to be prepared, and deliver to PCA and Newco a
statement (the "Closing Working Capital Statement") which shall set forth the
Net Working Capital of the Containerboard Business as of the Determination Date
(the "Closing Working Capital") and as of the date of the Most Recent Statement
of Assets and Liabilities. The amounts so computed shall be used to determine
the amount of the payment between TPI and Newco in accordance with this Section
2.5 (the "Post Closing Adjustment"). The Closing Working Capital Statement shall
be prepared using the same principles, practices and procedures that were used
in preparing the Most Recent Statement of Assets and Liabilities.
Notwithstanding the foregoing, the following paragraphs (i) through (viii) shall
take precedence over such principles, practices and procedures in the
preparation of the Closing Working Capital Statement:
(i) The Current Assets included in the Closing
Working Capital Statement will be adjusted to exclude the Retained
Assets, the LIFO reserve and any current assets related to Tenneco
defined benefit pension plans and shall not be taken into account in
computing the Post Closing Adjustment.
(ii) The Current Liabilities included in the
Closing Working Capital Statement will be adjusted to exclude the
Retained Liabilities. Any current liabilities related to Tenneco's
defined benefit pension plans shall not be taken into account in
computing the Post Closing Adjustment.
(iii) The Most Recent Statement of Assets and
Liabilities does not, and the Closing Working Capital Statement will
not, include any accrual or deferral related to federal, state, local
or foreign income Taxes.
(iv) The Closing Working Capital Statement shall
not include any dollar amounts related to the Existing Financing
Arrangements.
(v) The Closing Working Capital Statement shall not
include any dollar amounts related to the New Financing Arrangements.
No Post Closing Adjustment shall result from the purchase during the
period from the date of the Most Recent Statement of Assets and
Liabilities to the Determination Date of any assets which
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were leased at the date of the Most Recent Statement of Assets and
Liabilities.
(vi) The Closing Working Capital Statement shall
not include any liabilities related to bonuses or incentive
compensation earned in 1998.
(vii) Any change in accounting principles after the
date of the Most Recent Statement of Assets and Liabilities (including
any changes required by GAAP) will not apply in determining the Closing
Working Capital Statement.
(viii) The Closing Working Capital Statement shall
exclude any increase or decrease in Current Assets or Current
Liabilities resulting directly from accounting for the Transaction.
(b) PCA and PCA's accountants and Newco and Newco's
accountants shall have 30 days after the delivery by TPI of the Closing Working
Capital Statement to review the Closing Working Capital Statement. In the event
that PCA or Newco determines that the Closing Working Capital as derived from
the Closing Working Capital Statement has not been determined on the basis set
forth herein, PCA or Newco shall inform TPI in writing (the "Objection"),
setting forth a specific description of the basis of the Objection and the
adjustments to the Closing Working Capital which PCA or Newco believes should be
made, which Objection must be delivered to TPI on or before the last day of such
30-day period. TPI shall then have 30 days to review and respond to the
Objection. TPI and PCA and Newco shall attempt in good faith to reach an
agreement with respect to any matters in dispute. If TPI and PCA and Newco are
unable to resolve all of their disagreements with respect to the determination
of the foregoing items within 45 days following the delivery of Objection, they
shall refer their remaining differences to a "Big Five" firm of independent
public accountants as to which TPI and PCA and Newco mutually agree (the "CPA
Firm"), who shall, acting as experts and not as arbitrators, determine in
accordance with this Agreement, and only with respect to the remaining
differences so submitted, whether and to what extent, if any, the Closing
Working Capital as derived from the Closing Working Capital Statement requires
adjustment. TPI and PCA and Newco shall direct the CPA Firm to use its best
efforts to render its determination within 30 days after such submission. The
CPA Firm's determination shall be conclusive and binding upon Newco, PCA and
TPI. The fees and disbursements of the CPA Firm shall be paid by Newco. PCA,
Newco and TPI shall make readily available to the CPA Firm all relevant books
and records and any work papers (including those of the parties' respective
accountants) relating to the Closing Working Capital Statement and all other
items reasonably requested by the CPA Firm. The "Final Working Capital
Statement" shall be (i) the Closing Working Capital Statement in the event that
no Objection is delivered by PCA or Newco during the 30-day period specified
above, or (ii) the Closing Working Capital Statement, as adjusted by either (x)
the agreement of TPI, PCA and Newco or (y) the CPA Firm.
(c) PCA and Newco shall have the opportunity to participate
in the preparation of the Closing Working Capital Statement by (i) observing the
physical inventory taken in connection therewith (which may begin prior to the
Closing Date), (ii) attending any audit planning meetings in connection
therewith, (iii) meeting with and discussing procedures
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with TPI and its accountants, and (iv) otherwise having full access to all
information used by TPI in preparing the Closing Working Capital Statement,
including the Books and Records and the work papers of its accountants (subject
to PCA or Newco executing any necessary waivers or indemnifications required by
TPI's accountants).
(d) In reviewing the Objection, TPI and its accountants
shall have full access to all information used by PCA or Newco in preparing the
Objection, including the work papers of PCA's and Newco's accountants (subject
to TPI executing any necessary waivers or indemnifications required by PCA's and
Newco's accountants).
(e) If the Closing Working Capital as reflected on the Final
Working Capital Statement is less than the Working Capital of the Containerboard
Business determined on the Most Recent Statement of Assets and Liabilities,
subject to adjustments as set forth in this Section 2.5(a)(i-viii) (the "Target
Working Capital"), then within 10 Business Days following issuance of the Final
Working Capital Statement, TPI shall make a payment to Newco equal to such net
change, plus interest at the prime rate (as set forth in the "Money Rates"
section of The Wall Street Journal) on such amount from the Closing Date through
the date of payment. If the Closing Working Capital as reflected on the Final
Working Capital Statement is greater than the Target Working Capital, then
within 10 Business Days following issuance of the Final Working Capital
Statement, Newco shall make a payment to TPI equal to such net change, plus
interest at the prime rate (as set forth in the "Money Rates" section of The
Wall Street Journal) on such amount from the Closing Date through the date of
payment.
(f) Payments made by TPI pursuant to this Section 2.5 shall
be deemed to result in adjustments to the Cash Distribution made to TPI in
partial payment for the Contributed Assets for all purposes of this Agreement,
including for purposes of (i) the tax appraisal pursuant to Section 2.9 hereof
and (ii) the purchase price adjustment under Section 2.6 hereof.
(g) In preparing the Closing Working Capital Statement, (i)
liabilities of Newco related to this transaction shall not be treated as
liabilities, and (ii) no liabilities or reserves shall be established for
matters for which PCA, TPI or Newco is (or but for the Cap or the Deductible
would be) entitled to indemnification hereunder.
2.6 PURCHASE PRICE ADJUSTMENT FOLLOWING CERTAIN SALES OF
COMMON STOCK BY TPI. If
(a) during the one year period following the
Closing Date, (i) Newco or TPI shall sell any of its shares of Common
Stock in Newco pursuant to an initial Public Offering undertaken by
Newco pursuant an exercise by TPI of its Demand Registration Right (as
defined in the Registration Rights Agreement) under the Registration
Rights Agreement, or (ii) TPI sells, transfers or distributes any of
its shares of common stock in Newco pursuant to a Spin-Off, and
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(b) the Initial Price per share is less than result
of (i) the Adjusted Cash Contribution, divided by (ii) the number of
outstanding shares of common stock of Newco issued to PCA as of the
Closing hereunder and held by PCA and its Affiliates as of the date the
calculation under this Section 2.6 is being made,
then TPI shall pay to PCA an amount equal to the product of such difference per
share, times (y) the number of shares of common stock of Newco then held by PCA
and its Affiliates, provided that the maximum amount to be paid by TPI under
this Section 2.6 shall not exceed the lesser of (A) $64,500,000 and (B) 15% of
the market value of Newco based on the Initial Price per share of the Public
Offering or Spin-Off giving rise to the calculation under this Section 2.6 but
excluding any shares issued or issuable in connection with such event). At TPI's
option, any payment under this Section 2.6 may be paid in cash, in shares of
Common Stock (valued at the Initial Price), or in a combination of cash and
shares of Common Stock. In the event of a reorganization, recapitalization,
stock dividend or stock split, or combination or other change in the shares of
Newco's common stock, the parties shall make appropriate and equitable
adjustments to the foregoing computation in order to prevent the dilution or
enlargement of rights under this Section 2.6. This Section 2.6 shall not apply
to any Spin-Off by TPI after Newco has had an initial Public Offering (unless
such Spin-Off is part of the initial Public Offering).
2.7 TRANSFER TAXES AND RECORDING FEES. One half of any and all
Taxes (other than Taxes imposed on income or gains) or fees imposed or incurred
by reason of the transfer of the Contributed Assets hereunder and/or the filing
or recording of any instruments necessary to effect the transfer of the
Contributed Assets hereunder, regardless of when such Taxes or fees are levied
or imposed, including sales, use, value-added, excise, real estate transfer,
lease assignment, stamp, documentary and similar Taxes and fees (the "Transfer
Costs") shall be the responsibility of, and shall be paid by each of TPI and
Newco. Newco shall prepare all Tax Returns required to be filed in respect of
Transfer Costs, and PCA and TPI shall have the right to review and approve all
such Tax Returns, upon approval, to be timely filed (if such filing is the
responsibility of TPI or any of its Affiliates under applicable Law and to the
extent that such Tax Returns are approved and given to TPI by Newco in final
form before the applicable due dates thereof). In the event Transfer Costs are
imposed on or incurred by TPI or its Affiliates in excess of its share
hereunder, Newco shall promptly reimburse TPI and its Affiliates for such
excess. In the event Transfer Costs are imposed on or incurred by Newco in
excess of its share hereunder, TPI shall promptly reimburse Newco for such
excess.
2.8 CERTAIN TRANSFERS. TPI shall use commercially reasonable
efforts to obtain, at its sole expense, each Consent listed on Schedule 3.3
(other than those Consents marked with an asterisk on Schedule 3.3), and any
other material Consent not listed on Section 3.3, if any, if such Consent is
required to operate the Containerboard Business after Closing as such business
has been operated over the 12-month period immediately prior to Closing. If
prior to Closing TPI shall not have obtained any such Consent (other than a
Required Consent), the failure to obtain such Consent shall not prevent the
Closing, unless the failure to obtain such Consent, could, individually or
together with the failure to obtain other Consents, have a Material Adverse
Effect or preclude any closing condition to be satisfied. If TPI has not
obtained a Consent (other than a Required Consent), the Closing of the
transactions
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contemplated by this Agreement shall not constitute a transfer, or any attempted
transfer of any Contract or asset, the transfer of which requires such Consent.
Rather, following the Closing, TPI shall use commercially reasonable efforts at
TPI's sole expense, and PCA and Newco shall cooperate in such efforts, to obtain
promptly such Consent or to enter into reasonable and lawful arrangements
(including subleasing or subcontracting if permitted) reasonably acceptable to
Newco to provide to Newco the full economic (taking into account Tax costs and
benefits) and operational benefits and liabilities which Newco would have had
such Consent been obtained as of Closing. Once such Consent for the transfer of
a Contributed Asset not transferred at the Closing is obtained on terms
reasonably satisfactory to Newco, TPI shall promptly transfer or cause to be
transferred, such Contributed Asset to Newco for no additional consideration.
2.9 APPRAISAL. Newco shall obtain a professional appraisal
(the "Appraisal") which sets forth separately the fair market values of the
Contributed Assets, and, within 90 days after the Closing Date, Newco shall
provide a copy of such Appraisal to TPI and PCA. Within 15 days after the
receipt of such appraisal, each of TPI and PCA will submit in writing to the
other and to Newco any changes it proposes be made to such Appraisal, and Newco,
TPI, and PCA will endeavor in good faith to resolve any differences with respect
to the Appraisal. Subject to the requirements of Applicable Tax Law or election,
all Tax Returns and reports filed by Newco, PCA and TPI will be prepared
consistently with the Appraisal, as modified by any subsequent agreement of
Newco, TPI and PCA.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF TPI
TPI represents and warrants to PCA and Newco as follows:
3.1 ORGANIZATION AND QUALIFICATION. TPI and each of the
Contributed Subsidiaries is a corporation duly organized, validly existing and
in good standing under the laws of the state of Delaware and has all requisite
corporate power and authority to own and operate the Contributed Assets and to
carry on the Containerboard Business as currently conducted. TPI and each of the
Contributed Subsidiaries is duly qualified to do business and is in good
standing as a foreign corporation in the jurisdictions listed on Schedule 3.1
with respect to TPI or the applicable Contributed Subsidiary which are the only
jurisdictions where the ownership or operation of the Contributed Assets or the
conduct of the Containerboard Business requires such qualification.
3.2 CORPORATE AUTHORIZATION. TPI has full corporate power and
authority to execute and deliver this Agreement and each of the Ancillary
Agreements, and to perform its obligations hereunder and thereunder. The
execution, delivery and performance by TPI of this Agreement and each of the
Ancillary Agreements have been duly and validly authorized and no additional
corporate authorization or consent is required in connection with the execution,
delivery and performance by TPI of this Agreement and each of the Ancillary
Agreements.
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3.3 CONSENTS AND APPROVALS. Except as specifically set forth
in Schedule 3.3 or as required by the HSR Act, no Consent is required to be
obtained by TPI from, and no notice or filing is required to be given by TPI to
or made by TPI with, any Governmental Authority or other Person or under any
Contract listed, or required to be listed, on Schedule 3.14 in connection with
the execution, delivery and performance by TPI of this Agreement and each of the
Ancillary Agreements and the contribution of the Contributed Assets.
3.4 NON-CONTRAVENTION. Except as set forth on Schedule 3.3,
the execution, delivery and performance by TPI of this Agreement and each of the
Ancillary Agreements, and the consummation of the transactions contemplated
hereby and thereby, does not and will not (i) violate any provision of the
certificate of incorporation or bylaws of TPI, (ii) subject to obtaining the
Consents referred to in Section 3.3, conflict with, or result in the breach of,
or constitute a default under, or result in the termination, cancellation or
acceleration (whether after the filing of notice or the lapse of time or both)
of any right or obligation of TPI under, or to a loss of any benefit to which
TPI is entitled under, any Contract or result in the creation of any Encumbrance
(other than a Permitted Encumbrance) upon any of the Contributed Assets; or
(iii) assuming compliance with the matters set forth in Section 3.3, violate, or
result in a breach of or constitute a default under any law, rule, regulation,
judgment, injunction, order, decree or other restriction of any court or
governmental authority to which TPI is subject, including any Governmental
Authorization.
3.5 BINDING EFFECT. This Agreement constitutes, and each of
the Ancillary Agreements when executed and delivered by the parties thereto will
constitute, a valid and legally binding obligation of TPI, enforceable in
accordance with its terms, subject to bankruptcy, insolvency, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors, rights and to general equity principles.
3.6 FINANCIAL STATEMENTS: ABSENCE OF CERTAIN CHANGES. Subject
to the matters set forth on Section 3.6:
(a) The following financial statements of the Containerboard
Business are (and, with respect to the Most Recent Year End Statement, will be
prior to the Closing Date) attached as Schedule 3.6: (i) the audited combined
financial statements of the Containerboard Business (collectively, the "Audited
Financial Statements") as of and for the years ended December 31, 1996, 1997 and
1998 (the "Most Recent Year End Statement"); (ii) the unaudited combined
statement of assets, liabilities and interdivision accounts of the
Containerboard Business as of September 30, 1998 (the "Most Recent Statement of
Assets and Liabilities"); and collectively with statements described in the
foregoing clause (i) , the "Financial Statements"). The Financial Statements
present (or, in the case of the Most Recent Year End Statement, will present),
in all material respects, the financial condition of the Containerboard Business
as of the dates thereof, or the results of operations for the periods then
ended, as the case may be. The Financial Statements were (or, in the case of the
Most Recent Year End Statement, will be) consistent with the Books and Records,
which are complete and accurate in all material respects.
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(b) TPI will either (i) engage AA on behalf of Newco to audit
the combined statement of assets, liabilities, and interdivision account as of
the Closing Date, and the related statements of revenues, expenses, and
interdivision account and cash flows for the period from January 1, 1999 to the
Closing Date (the "Stub Period Financial Statements"), or (ii) cooperate with
Newco in the audit of the Stub Period Financial Statements.
(c) The Audited Financial Statements were (or, in the case of
the Most Recent Year End Statement and the Stub Period Statements, will be)
prepared in accordance with GAAP. All of the liabilities reflected in the
Financial Statements are Related to the Containerboard Business and arose out of
or were incurred in connection with the conduct of the Containerboard Business.
(d) The Inventory shown on the Financial Statements was
determined in accordance with GAAP, and is stated at the lower of cost or market
on a LIFO basis. This representation shall not be deemed to constitute a
warranty or guaranty that all such Inventory shall be sold.
(e) All accounts receivable reflected on the Financial
Statements are, and all accounts receivable reflected on the Most Recent Year
End Statement and the Stub Period Statements will be, bona fide receivables,
accounted for in accordance with GAAP, and subject to no setoffs or
counterclaims, representing amounts due with respect to actual transactions in
the operation of the Containerboard Business; it being understood that this
representation shall not be deemed to constitute a warranty or guaranty that all
such accounts receivable shall be collected.
(f) Except as set forth in Schedule 3.6(e) or otherwise
disclosed in this Agreement, since December 31, 1997, TPI has conducted the
Containerboard Business in the ordinary and usual course and, other than in the
ordinary and usual course, has not, with respect to the Containerboard Business:
(i) sold, assigned, pledged, hypothecated or otherwise transferred any of the
Contributed Assets, other than for such sales, assignments, pledges,
hypothecations or other transfers which could not, individually or in the
aggregate, have a Material Adverse Effect; (ii) terminated or materially amended
any Contracts that are individually or in the aggregate material to the
Containerboard Business; (iii) suffered any extraordinary damage, destruction or
other casualty loss; (iv) except for normal salary administration for employees
of the Containerboard Business, increases pursuant to collective bargaining
agreements, or other compensation increases (including bonuses), in each case in
the ordinary course of business, increased the compensation payable or to become
payable by TPI to any of the employees of the Containerboard Business or
increased any bonus, insurance, pension or other employee benefit plan, payment
or arrangement made by TPI, for or with any such employees; or (v) entered into
an agreement to do any of the foregoing.
3.7 LITIGATION AND CLAIMS. Except as disclosed on Schedule
3.7:
(a) There is no action (whether civil, criminal or
administrative), suit, demand, claim, dispute, hearing, proceeding (including
condemnation or other proceeding in
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eminent domain) or investigation pending or, to the Knowledge of TPI,
threatened, Related to the Containerboard Business or any of the Contributed
Assets or included in the Assumed Liabilities.
(b) None of the Contributed Assets is subject to any order,
writ, judgment, award, injunction, or decree of or settlement enforceable in any
court or governmental or regulatory authority of competent jurisdiction or any
arbitrator or arbitrators.
3.8 TAXES. Except as disclosed on Schedule 3.8:
(a) TPI has duly and timely filed (or has caused to be duly
and timely filed) each Tax Return required to be filed with any Tax Authority
which includes or is based upon the Contributed Assets, or the operations,
ownership or activities of the Containerboard Business, and all Taxes due and
payable (whether or not shown on or required to be shown on a Tax Return) have
been paid prior to their due dates; provided, however, that the representations
and warranties set forth in this paragraph are made only to the extent that (i)
such Taxes are or may become Encumbrances on the Contributed Assets, or (ii)
Newco is or may be liable in the capacity of transferee of the Contributed
Assets.
(b) TPI has duly and timely filed (or has caused to be duly
and timely filed) each Tax Return which includes or is based upon the assets,
operations, ownership or activities of any of the Contributed Subsidiaries, and
all Taxes due and payable (whether or not shown on or required to be shown on a
Tax Return) have been paid prior to their due dates.
(c) None of TPI (with respect to the Containerboard Business)
and the Contributed Subsidiaries has made any payments, is obligated to make any
payments or is a party to any agreement that could obligate it to make any
future payments that will not be deductible under Sections 162(m) or 280G of the
Code.
(d) None of the Contributed Assets or the assets of the
Contributed Subsidiaries (i) is subject to any lien arising in connection with
any failure or alleged failure to pay any Tax, (ii) secures any debt the
interest on which is Tax-exempt under Section 103(a) of the Code, (iii) is
required to be or is being depreciated under the alternative depreciation system
under Section 168(g)(2) of the Code, (iv) is "limited use property" with the
meaning of Revenue Procedure 76-30 or (v) will be treated as owned by any other
person pursuant to the provisions of former Section 168(f)(8) of the Code.
(e) TPI (with respect to the Containerboard Business) and the
Contributed Subsidiaries have withheld and paid each material Tax required to
have been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, shareholder or other party.
(f) There are no pending, threatened, or proposed audits,
assessments or claims from any Tax Authority for deficiencies, penalties or
interest against TPI (with respect to the Contributed Assets or the
Containerboard Business) any of the Contributed Subsidiaries or any of their
assets, operations or activities.
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(g) No Contributed Subsidiary owns, directly or indirectly,
and none of the Contributed Assets consists of any interest in any entity
classified as a partnership for United States federal income Tax purposes.
(h) TPI's aggregate tax basis in the stock of the
Containerboard Subsidiaries, determined immediately prior to the Closing, shall
not exceed the aggregate tax basis of the net assets of the Containerboard
Subsidiaries immediately prior to the Closing, by more than $100,000,000.
3.9 EMPLOYEE BENEFITS. Each Tenneco Plan which is an employee
benefit plan, as defined in Section 3(3) of ERISA, has been and is being
maintained in substantial compliance with all applicable laws, including ERISA
and the Code, and each plan that is intended to be qualified under Section
401(a) of the Code is so qualified and has received a determination of such
qualification from the Internal Revenue Service. Except as provided on Schedule
3.9, no employee of the Containerboard Business is covered by a "multiemployer
plan" as defined in Section 4001(a)(3) of ERISA. None of the Tenneco Plans
obligates Newco to pay separation, severance, termination or similar-type
benefits solely as a result of any transaction contemplated by this Agreement or
solely as a result of a "change in control" (as such term is defined in Section
280G of the Code). No liability to the PBGC (except for routine payment of
premiums), Internal Revenue Service, Department of Labor, or otherwise has been
or is expected to be incurred with respect to any Tenneco Plan that is subject
to Title IV of ERISA which could result in a material liability to Newco.
3.10 COMPLIANCE WITH LAWS. Except as set forth in Schedule
3.10, the Containerboard Business is being conducted in compliance in all
material respects with all Laws material to the Containerboard Business and as
of the Closing, Newco will have (subject to obtaining the Consents) all
Governmental Authorizations necessary for the conduct of the Containerboard
Business as currently conducted in all material respects and as shall be
conducted immediately following Closing (assuming no material change in
operations of the Containerboard Business from the manner of operation prior to
Closing); it being understood that nothing in this representation is intended to
address any compliance issue that is the subject of the representations and
warranties set forth in Sections 3.7, 3.8, 3.9, 3.11, 3.12, or 3.13 hereof, and
that TPI makes no representations as to the transferability or assignability of
any such Governmental Authorizations. TPI has not received written notice that
any Governmental Authorization may be suspended, revoked, materially modified or
canceled.
3.11 ENVIRONMENTAL MATTERS. Except as set forth in Schedule
3.11 and, in each case, other than as Relates to a Retained Liability:
(a) TPI has complied during the past five years and is
currently in compliance with all applicable Environmental Laws with respect to
the Containerboard Business, and there are no liabilities under any
Environmental Law with respect to the Containerboard Business;
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(b) TPI has not received any written notice of any material
violation or alleged material violation of, or any material liability under, any
Environmental Law in connection with the Containerboard Business during the
past five years; and
(c) there are no material writs, injunctions, decrees, orders
or judgments outstanding, or any actions, suits, proceedings or investigations
pending or, to the Knowledge of TPI, threatened, relating to compliance with or
liability under any Environmental Law affecting the Containerboard Business or
the Contributed Assets.
3.12 INTELLECTUAL PROPERTY.
(a) Schedule 3.12 sets forth a list and description (including
the country of registration) of all registered Intellectual Property currently
(or, to the Knowledge of TPI, within the last 12 months) used in the
Containerboard Business. No third party has rights in, or otherwise has the
right to restrict TPI's use of, such Intellectual Property, and, to TPI's
Knowledge (without any inquiry), no third party has rights in, or otherwise has
the right to restrict Newco's use of the PCA Marks as of and following the
Closing.
(b) To the Knowledge of TPI, no product (or component thereof
or process) currently used, sold or manufactured by the Containerboard Business
infringes on, misappropriates, or otherwise violates a valid and enforceable
intellectual property right of any other Person.
(c) There are no actions or proceedings pending or, to the
Knowledge of TPI, threatened challenging, and, to the Knowledge of TPI, no
Person is infringing or otherwise violating, the Intellectual Property, except
for challenges, infringements or violations which, individually or in the
aggregate, would not have a Material Adverse Effect. As of November 1, 1995, to
TPI's Knowledge (without any inquiry), no Person was infringing on or otherwise
violating the PCA Marks.
(d) All of the Intellectual Property used in the
Containerboard Business and all of TPI's interest in the PCA Marks will be
transferred to Newco at Closing, except for the Intellectual Property that is
used by TPI to provide services under the Transition Services Agreement, and
such transferred Intellectual Property and the PCA Marks will be available to
Newco after Closing on the same terms and conditions under which it was
available to TPI prior to the Closing.
(e) Attached hereto as Schedule 3.12(e) is a copy of the
provisions in Tenneco's most recent Form 10-Q describing Tenneco's efforts at
addressing the Year 2000 issue in Tenneco's business. The information set forth
therein is accurate as of the date hereof, in all material respects. TPI has
developed and begun implementing a Project Plan to remediate and/or replace
software, firmware, hardware (whether general or special purpose) or other
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similar or related items of automated, computerized or software systems that are
used or relied upon in the Containerboard Business (each a "Computer System"),
but are not Year 2000 ready. Such remediation and/or replacement is scheduled to
be completed in 1999. Year 2000 ready means that the Computer System when used
in accordance with its associated documentation is Year 2000 compliant, or is
not Year 2000 compliant but will process date data accurately with the
implementation of a tested procedure, or is not 2000 compliant but will not
cause any processing problem. Year 2000 compliant means that the applicable
Computer System when used in accordance with its associated documentation will
accurately process date data such that: no value for a date prior to year 2028
will cause any interruption in processing; date-based functionality operates
consistently for dates prior to, during and after Year 2000 (through year 2027);
in all interfaces and data storage, the century any date is specified either
explicitly or by algorithms or inferencing rules; and leap years will be
accurately recognized and processed. If implemented properly, the Project Plan
should be successful in making all material Computer Systems Year 2000 ready,
except to the extent that a Computer Systems interfaces or exchanges data with
other software, firmware, hardware or other similar or related items of
automated, computerized or software systems that are not Year 2000 compliant.
3.13 LABOR MATTERS. Except as disclosed on Schedule 3.13:
(a) TPI is not a party to any labor or collective bargaining
agreement with respect to employees of the Containerboard Business, no such
employees are represented by any labor organization and, to the Knowledge of
TPI, there are no organizing or decertification activities (including any demand
for recognition or certification proceedings pending or threatened to be brought
or filed with the National Labor Relations Board or other labor relations
tribunal) involving TPI;
(b) There are no strikes, work stoppages, slowdowns, lockouts,
unfair labor practice charges pending or, to the Knowledge of TPI, threatened
against or involving the employees of the Containerboard Business;
(c) There are no complaints, charges, claims or grievances
against TPI pending or, to the Knowledge of TPI, threatened to be brought or
filed with any governmental authority, arbitrator or court based on or arising
out of the employment by TPI of any employee of the Containerboard Business,
except for those which, individually or in the aggregate, would not have a
Material Adverse Effect; and
(d) TPI is in compliance with all Laws relating to the
employment of labor, including all such Laws relating to wages, hours,
collective bargaining, discrimination, civil rights, safety and health,
immigration, workers' compensation, layoffs, and the collection and payment of
withholding and/or Social Security Taxes and similar Taxes.
3.14 CONTRACTS. Schedule 3.14 sets forth a list, as of the
date hereof, of each Contract that is Related to the Containerboard Business
other than (a) Real Estate Leases, which are listed on Schedule 1.1(gggg), and
collective bargaining agreements which are listed on Schedule 3.13, (b) purchase
orders or similar agreements for the purchase or sale of goods or
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services in the ordinary and usual course of business, (c) confidentiality
agreements entered into in the usual course of business in connection with the
purchase and sale of Inventory, and (d) any Contract which requires a payment or
imposes an obligation on either party thereto less than $1,000,000 in the
aggregate. Schedule 3.14 also identifies any Contract that contains a
non-compete covenant or similar provision that could restrict Newco in its
conduct of the Containerboard Business following Closing, any employment
agreement with any employee of the Containerboard Business, any employment
agreement included in the Contributed Assets or Assumed Liabilities, and any
Contract between any Affiliates of TPI, on one hand, and TPI or any of the
Contributed Subsidiaries, on the other hand, which is related to the
Containerboard Business. Each Contract set forth on Schedule 3.14 is a valid and
binding agreement of TPI and, to the Knowledge of TPI, is in full force and
effect. Except as otherwise provided in Schedule 3.14, TPI is not in, and, to
TPI's knowledge, no other party thereto is, in default in any material respect
under any Contract listed on Schedule 3.14 or any collective bargaining
agreement listed on Schedule 3.13. Schedule 3.14 lists all of the Contracts that
are material to the Containerboard Business other than those referred to in
clauses (a) through (d) above.
3.15 REAL ESTATE LEASES. Schedule 1.1(gggg) sets forth a list,
as of the date hereof, of each material written Real Estate Lease with a term of
more than one month that is related to the Containerboard Business. Each Real
Estate Lease set forth on Schedule 1.1(gggg) is a valid and binding agreement of
TPI and is in full force and effect. There are no defaults under any Real Estate
Lease listed on Schedule 1.1(gggg) which defaults have not been cured or waived
and which would, individually or in the aggregate, have a Material Adverse
Effect. If the Real Estate Leases that are part of the Existing Financing
Arrangements are terminated prior to closing, as contemplated herein, TPI shall
own title to the assets subject to such Real Estate Leases, upon such
termination, the assets subject to such Real Estate Leases shall be deemed
Purchased Property.
3.16 ENTIRE BUSINESS; TITLE TO PROPERTY.
(a) Except as set forth in Schedule 3.16(a) and Schedule
3.6(e), the Contributed Assets, the assets held by the Contributed Subsidiaries,
the intangible Retained Assets (including cash and cash accounts, disbursement
accounts, invested securities and other short and medium term investments, the
Tenneco Marks, the Tenneco Plans, and TPI's and Tenneco's insurance policies),
and the rights specifically provided or made available to Newco under the
Ancillary Agreements include all of the buildings, machinery, equipment and
other assets (whether tangible or intangible) necessary and adequate for Newco
immediately after Closing to conduct in all material respects the Containerboard
Business as conducted as of the date hereof and as of September 30, 1998, and as
conducted during the 12-month period prior to the date hereof (subject to
changes expressly permitted by the terms hereof to be made after the date
hereof).
(b) TPI has (or in the case of the Purchased Property, will
have on the Closing Date) good (and, in the case of Owned Real Property and
Purchased Property (as applicable), marketable) title to, or a valid and binding
leasehold interest in, the Contributed Assets, free and clear of all
Encumbrances, except (i) as set forth in Schedule 3.16(b); (ii) any
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Encumbrances expressly disclosed in the Financial Statements; (iii) liens for
Taxes (which are not related to income, sales or withholding Taxes), assessments
and other governmental charges not yet due and payable or due but not delinquent
as of the Closing Date or being contested in good faith by appropriate
proceedings and for which adequate reserves have been established in accordance
with GAAP on the Final Working Capital Statement; (iv) mechanic's, workmen's,
repairmen's, warehousemen's, carriers, or other like liens arising or incurred
in the ordinary course of business for amounts which are not delinquent and
which will not individually or in the aggregate have a Material Adverse Effect,
original purchase price conditional sales contracts and equipment leases with
third parties entered into in the ordinary course of business; (v) with respect
to the Real Property, (A) easements, quasi-easements, licenses, covenants,
rights-of-way and other similar restrictions, including any other agreements,
conditions, restrictions, or other matters which would be shown by a current
title report or other similar report or listing, (B) any conditions that may be
shown by a current survey, title report or physical inspection, and (C) zoning,
building and other similar restrictions, none of which Encumbrances in (A)
through (C) materially impairs the uses of the Real Property as currently used
in the Containerboard Business or materially detracts from the value thereof as
currently used in the Containerboard Business; and (vi) Encumbrances not
described in items (i) - (v) immediately preceding and which, individually or in
the aggregate, would not have a Material Adverse Effect (all items included in
(i) through (vi), including any matter set forth in Schedule 3.16(b), are
referred to collectively herein as the "Permitted Encumbrances"); provided,
however that as of the Closing Date and for any periods of time thereafter
(including for purposes of Section 2.4 and Article VI), "Permitted Encumbrances"
shall not include any Encumbrances granted or arising in connection with the
Existing Financing Arrangements.
(c) The capital structure of each of the Contributed
Subsidiaries is as set forth in Schedule 3.16(c). The shares of stock of the
Contributed Subsidiaries included in the Contributed Assets constitute 100% of
the issued and outstanding shares of stock of each Contributed Subsidiary,
except for American Cellulose Corporation ("ACC"). The shares of stock of ACC
included in the Contributed Assets constitute 50% of the issued and outstanding
shares of stock of ACC, the remainder of which is owned as set forth on Schedule
3.16(c) hereof. All shares of stock of the Contributed Subsidiaries included in
the Contributed Assets are validly issued, fully paid and non-assessable. Except
as set forth in the ACC Agreement (as hereinafter defined) (i) there are no
options, warrants, or similar rights to purchase any of the shares of any of the
Contributed Subsidiaries, and no obligations binding upon any Contributed
Subsidiary to issue, sell, redeem, purchase or exchange any of its capital stock
or any right relating thereto, and (ii) there are shareholders' agreements,
voting agreements, voting trusts or other agreements or rights of third parties
with respect to or affecting any of the Contributed Subsidiaries or any of their
shares of stock.
(d) The Contributed Assets and the assets of the Contributed
Subsidiaries are in operating condition and repair (subject to normal wear and
tear) and are in a condition to allow the continued conduct after the Closing by
Newco of the Containerboard Business as it is currently conducted in all
material respects.
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3.17 FINDERS' FEES. Except for Goldman, Sachs & Co., whose
fees will be paid by TPI, there is no investment banker, broker or finder which
has been retained by or is authorized to act on behalf of TPI who might be
entitled to any fee or commission from PCA or Newco in connection with the
transactions contemplated by this Agreement.
3.18 INSURANCE. Schedule 3.18 attached hereto sets forth the
following information with respect to each insurance policy to which TPI, with
respect to the Containerboard Business, has been a party, a named insured, or
otherwise the beneficiary of coverage at any time within the past five years:
(a) the name of the insurer, the name of the policyholder, and
the name of each covered insured;
(b) the scope, period and amount of coverage; and
(c) a description of any retroactive premium adjustments or
other loss-sharing arrangements.
Schedule 3.18 also describes any self insurance arrangements affecting the
Containerboard Business.
3.19 NO UNDISCLOSED LIABILITIES. TPI does not have any
material obligations or liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise, whether or not known to TPI, whether due or to become
due and regardless of when asserted) arising out of transactions entered into at
or prior to the Closing, or any action or inaction at or prior to the Closing,
or any state of facts existing at or prior to the Closing other than: (i)
liabilities set forth on the Most Recent Statement of Assets and Liabilities
(including any notes thereto, if any), (ii) liabilities and obligations arising
from or in connection with matters disclosed pursuant to TPI's representations
and warranties in this Agreement or in the Disclosure Memorandum (none of which,
except as set forth on Schedule 3.7, is a liability resulting from a breach of
contract, breach of warranty, tort, infringement claim or lawsuit), (iii)
liabilities and obligations which have arisen after September 30, 1998, in the
ordinary course of business (none of which, except as set forth on Schedule 3.7,
is a liability resulting from a breach of contract, breach of warranty, tort,
infringement claim or lawsuit).
3.20 NO OTHER REPRESENTATIONS OR WARRANTIES. Except for the
representations and warranties contained in this Article III, neither TPI nor
any other Person makes any other express or implied representation or warranty
on behalf of TPI.
3.21 CLOSING DATE. The representations and warranties of TPI
contained in this Article III and elsewhere in this Agreement and all
information contained in any exhibit, schedule or attachment hereto or in any
certificate or other writing delivered by, or on behalf of, TPI pursuant to this
Agreement to PCA or Newco shall be true and correct in all respects on the
Closing Date as though then made, except as affected by the transactions
expressly contemplated by this Agreement. TPI shall have the right to update the
Schedules up to five
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Business days prior to Closing to reflect changes in the Containerboard Business
between the date hereof and the Closing Date, provided that such changes are
actions taken by TPI permitted under Section 5.2 without PCA's prior consent and
that no such changes shall be deemed to cure any breach that existed as of the
date hereof (none of which relates to any liability resulting from a breach of
contract, breach of warranty, tort, infringement claim or lawsuit).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PCA
PCA represents and warrants to TPI and Newco as follows:
4.1 ORGANIZATION AND QUALIFICATION. PCA is a limited liability
company duly formed, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite limited liability
company power and authority to own and operate and to carry on its business as
currently conducted. PCA is duly qualified to do business and is in good
standing as a foreign limited liability company in each jurisdiction where the
ownership of its properties or the operation of its business requires such
qualification.
4.2 AUTHORIZATION. PCA has full power and authority to execute
and deliver this Agreement and each of the Ancillary Agreements, and to perform
its obligations hereunder and thereunder. The execution, delivery and
performance by PCA of this Agreement and each of the Ancillary Agreements have
been duly and validly authorized and no additional authorization or consent is
required in connection with the execution, delivery and performance by PCA of
this Agreement and each of the Ancillary Agreements.
4.3 CONSENTS AND APPROVALS. Except as required by the HSR Act,
no consent is required to be obtained by PCA from, and no notice or filing is
required to be given by PCA to, or made by PCA with, any Governmental Authority
or other Person in connection with the execution, delivery and performance by
PCA of this Agreement and each of the Ancillary Agreements.
4.4 NON-CONTRAVENTION. The execution, delivery and performance
by PCA of this Agreement and each of the Ancillary Agreements, and the
consummation of the transactions contemplated hereby and thereby, does not and
will not (i) violate any provision of the charter, bylaws or other
organizational documents of PCA or (ii) assuming compliance with the matters set
forth in Section 4.3, violate or result in a breach of or constitute a default
under any law, rule, regulation, judgment, injunction, order, decree or other
restriction of any court or governmental authority to which PCA is subject,
including any Governmental Authorization.
4.5 BINDING EFFECT. This Agreement constitutes, and each of
the Ancillary Agreements when executed and delivered by the parties thereto will
constitute, a valid and legally binding obligation of PCA enforceable in
accordance with its terms, subject to
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bankruptcy, insolvency, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general equity
principles.
4.6 FINDERS' FEES. Except for fees payable pursuant to the
Commitment Letters and a fee in the amount of $15,000,000 to be paid to Madison
Dearborn Capital Partners, Inc. or its designated affiliates at Closing (the
"MDP Transaction Fee"), which fees will be paid by Newco, there is no fee or
commission payable from TPI or Newco to any investment banker, broker or finder
which has been retained by or is authorized to act on behalf of PCA or any
Subsidiary of PCA in connection with the transactions contemplated by this
Agreement.
4.7 FINANCIAL CAPABILITY.
(a) On the Closing Date PCA will have, sufficient funds to
fund the Cash Contribution.
(b) PCA has received the commitment letters with respect to
the New Financing Arrangements attached hereto as Schedule 4.7(b) (the
"Commitment Letters"). As of the date of this Agreement, the Commitment Letters
are in full force and effect and have not been amended or rescinded. The
Commitment Letters set forth, to the best of PCA's knowledge, to the extent
customarily set forth in commitment letters of such nature from such Persons,
all the conditions to and material terms of the New Financing Arrangements. PCA
has paid all fees and other amounts required by such Commitment Letters to be
paid by it prior to the Closing, which amounts may be reimbursed by Newco to
PCA, or paid directly by Newco, following Closing (provided that such
reimbursement or any obligation with respect thereto shall not be included or
incorporated in, or reflected as a Current Liability on, the Closing Working
Capital Statement or the Final Working Capital Statement).
4.8 NO OTHER REPRESENTATIONS OR WARRANTIES. Except for the
representations and warranties contained in this Article IV, neither PCA nor any
other Person makes any other express or implied representation or warranty on
behalf of PCA.
4.9 CLOSING DATE. The representations and warranties by PCA
contained in this Article IV and elsewhere in this Agreement, and all
information contained in any exhibit, schedule or attachment hereto or in any
certificate or other writing delivered by, or on behalf of, PCA pursuant to this
Agreement to TPI or its representatives shall be true and correct in all
respects on the Closing Date as though then made, except as affected by the
transactions expressly contemplated by this Agreement.
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ARTICLE V
COVENANTS
5.1 ACCESS. Prior to the Closing, TPI shall permit PCA and its
representatives to have full access, during regular business hours and upon
reasonable advance notice, to the Contributed Assets and the Containerboard
Business, subject to reasonable rules and regulations of TPI, and shall furnish,
or cause to be furnished, to PCA, any financial and operating data and other
information that is available with respect to the Containerboard Business, the
Contributed Assets, or the Assumed Liabilities as PCA shall from time to time
reasonably request. PCA shall abide by the terms of the Confidentiality
Agreement with respect to such access and any information furnished to it or its
representatives pursuant to this Section 5.1. Notwithstanding anything herein to
the contrary, PCA shall not be permitted to perform any invasive testing of any
of the Real Property without specific additional authorization from TPI (which
consent shall not be unreasonably withheld), or to perform any testing which
would cause a breach of any Real Estate Lease to which TPI is a party, provided
that, upon request from PCA, TPI shall use reasonable efforts to obtain any
necessary consent to permit such testing.
5.2 CONDUCT OF BUSINESS. During the period from the date
hereof to the Closing, except as otherwise contemplated by this Agreement or as
PCA shall otherwise agree in writing in advance, TPI shall conduct the
Containerboard Business in the ordinary and usual course. During the period from
the date hereof to the Closing, except as otherwise expressly provided for in
this Agreement or as PCA shall otherwise consent (which consent shall not be
unreasonably withheld), with respect to the Containerboard Business, the
Contributed Assets or the Assumed Liabilities other than in the ordinary and
usual course or as set forth in Schedule 5.2, TPI shall not:
(a) enter into commitments for new capital expenditures in
excess of $10,000,000 in the aggregate to the extent not otherwise contemplated
in the 1999 business plan for the Containerboard Business;
(b) dispose of or otherwise transfer, or incur, create or
assume any Encumbrance (other than Permitted Encumbrances) on (i) any individual
fixed asset of the Containerboard Business if the greater of the book value or
the fair market value of such fixed asset exceeds $1,000,000, or (ii) any group
of fixed assets of the Containerboard Business if the greater of the book value
or the fair market value of such fixed assets, taken as a whole and which in the
aggregate during such period, exceeds $2,500,000, and such dispositions or
transfers, in either case, are in the ordinary course of business;
(c) institute any material change in the methods of purchase,
sale, lease or accounting or engage in any activity which would accelerate the
collection of TPI's accounts or notes receivable, delay the payment of the TPI's
accounts payable, or reduce or otherwise restrict the amount of Inventory
(including raw material, packaging, work-in-process, or finished goods) on hand;
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(d) acquire (by merger, exchange, consolidation, acquisition
of stock or assets or otherwise) any corporation, partnership, joint venture or
other business organization or division or material assets thereof;
(e) grant licenses of Intellectual Property to any Person or
allow registered Intellectual Property to lapse, expire or become abandoned;
(f) amend any Contributed Subsidiary's certificate of
incorporation, bylaws or other charter documents;
(g) grant (or agree to grant) any salary or wage increases or
(as it relates to employees of the Containerboard Business) materially change or
amend any employee benefit or welfare plan, other than pursuant to renegotiation
of any collective bargaining agreements in the normal course; or
(h) make any loans or advances to, guarantees for the benefit
of or investments in any Person, other than intercompany loans to Affiliates of
TPI;
(i) agree, in writing or otherwise, to do any of the foregoing
or to take any other action which would be required to be disclosed in Schedule
3.6(e);
(j) enter into any transactions with Affiliates not in the
ordinary course of business consistent with past practice; and
(k) enter into any Contracts required to be disclosed
hereunder, other than timber leases, cutting rights agreements, and similar
agreements entered into in the ordinary course of business at fair value
consistent with past practices.
TPI will:
(a) use its commercially reasonable efforts to (A)
preserve intact the organization and goodwill of the
Containerboard Business, (B) keep available the services of
its officers and employees as a group (provided that such
efforts shall not require TPI to pay any bonuses or other
amounts beyond normal compensation to such persons), (C)
maintain satisfactory relationships with its material
suppliers and customers and other Persons having business
relationships with it, and (D) maintain all Governmental
Authorizations;
(b) maintain its facilities and assets in good
condition and repair and replace its facilities and assets in
a manner consistent with past practices and make capital
expenditures in the ordinary course of business in an
aggregate amount consistent with the 1999 Annual Operating
Plan; and
(c) notify PCA of any emergency or other change in
the normal course of the Containerboard Business or in the
condition of the Contributed
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Assets or the Assumed Liabilities or the operation of the
Containerboard Business and of any governmental or third
party complaint, investigation or hearing (or communication
indicating that such a complaint, investigation or hearing
is or may be contemplated), if such emergency, change,
complaint, investigation or hearing could reasonably be
expected, individually or in the aggregate, to have a
Material Adverse Effect.
5.3 REASONABLE EFFORTS. Each of TPI and PCA will use
commercially reasonable efforts to fulfill the conditions precedent to its
respective obligations hereunder and to secure as promptly as practicable all
Consents required to be obtained by it in connection with the transactions
contemplated hereby, and TPI and PCA will cooperate in all reasonable requests
to fulfill the conditions precedent to their and the other party's obligations
described in this Section 5.3. Without limiting the generality of the foregoing,
(a) TPI and PCA will file within 5 Business Days of the date
hereof the required notice (including all documentary materials) under the HSR
Act and promptly file any additional information requested as soon as
practicable after receipt of request therefor.
(b) PCA, TPI and Newco each shall use all reasonable efforts
to satisfy all conditions precedent in the Commitment Letters and to otherwise
obtain, on behalf of TPI and Newco, the New Financing Arrangements. TPI shall
use its reasonable efforts to cooperate with PCA in connection with the New
Financing Arrangements, including providing information to and permitting the
lenders and their representatives access to the Contributed Assets and the
Containerboard Business, as set forth in Section 5.1 hereof. Such information
shall include all existing title insurance policies and surveys for the Real
Property, to the extent such items are in TPI's reasonable control. In addition,
TPI shall provide affidavits and customary title insurance undertakings
(including gap and non-imputation undertakings) with respect to the Real
Property to the extent reasonably required by the title insurer. TPI shall have
the opportunity to review and participate in the preparation of the New
Financing Arrangements. The New Financing Arrangements shall be on the terms no
less favorable to Newco as set forth in the Commitment Letters. The New
Financing Arrangements shall provide (unless waived by TPI in its sole
discretion and notwithstanding any provision in the Commitment Letters) that:
(i) the PIK Preferred generally shall have the
terms set forth on Schedule 5.3, and that in the event the Deferred-Pay
Financing (as defined in the Commitment Letters) is not sold to the
underwriter, then (A) PCA and/or its designees will purchase $55
million of PIK Preferred, and (B) TPI and/or its designees will receive
$45 million of PIK Preferred without additional payment;
(ii) the New Financing Arrangements shall not
create a security interest on any of TPI's assets, including the
Contributed Assets prior to their contribution to Newco hereunder; and
(iii) there are no materially adverse consequences
to Newco which arise under the terms of the New Financing Arrangements
as a result of a sale of all or
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a portion of TPI's equity interest in Newco (e.g., such sale will not
trigger a change of control default), and there are no restrictions or
limitations in the New Financing Arrangements on TPI's ability to sell
or transfer all or any portion of TPI's equity interest in Newco; and
(iv) all of the proceeds of the New Financing
Arrangements (other than from the Deferred-Pay Financing) shall be
initially loaned to TPI, and thereafter assumed by Newco as the Assumed
Indebtedness, as set forth in the Preliminary Statements hereof.
In addition, the material terms of the New Financing Arrangements (taken as a
whole) shall be as favorable to Newco and TPI as financing arrangements then
reasonably available in the financial markets to Newco in connection with the
transactions contemplated hereby. In the event TPI is not reasonably satisfied
with the New Financing Arrangements because the condition in the immediately
preceding sentence has not been met, then TPI's sole remedy will be to arrange
for substitute New Financing Arrangements on terms which are in all material
respects no less favorable to Newco or PCA than under the proposed New Financing
Arrangements. TPI shall have the right, at TPI's sole discretion, to direct PCA
to make the necessary elections under the New Financing Arrangements (i) to
cause Newco to obtain a commitment for the Bridge Loan (defined in the
Commitment Letters), provided that if TPI makes such election, TPI shall pay the
1.5% Commitment Fee attributable to such Bridge Loan as set forth in the
Commitment Letters, with Newco paying any other fees or costs associated with
such Bridge Loan, and (ii) direct that all of the New Financing Arrangements
initially be at the TPI level or to direct that a portion of such New Financing
Arrangements initially be at the Newco level, to the extent PCA has the right to
make such elections in the Commitment Letters. PCA shall make such elections as
directed in writing by TPI, and shall not make such elections absent such
directions from TPI.
(c) TPI shall use its commercially reasonable efforts to
obtain prior to the Closing fee simple title to all of the Purchased Property.
5.4 COVENANTS REGARDING EMPLOYEES.
(a) At Closing, TPI and Newco shall enter into the Human
Resources Agreement, and shall take all actions required by them pursuant to
such Human Resources Agreement.
(b) Tenneco shall retain sponsorship of the Tenneco Plans, and
neither Newco nor PCA shall be entitled to any assets of the Tenneco Plans.
(c) For a period of three years from the Closing Date, other
than pursuant to the Human Resources Agreement:
(i) neither Newco, PCA nor any Affiliate of Newco
will contact, solicit, induce or encourage any employee of TPI or any
Affiliate of TPI, to leave such
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employment, or contact, solicit or approach any employee of TPI or any
Affiliate of TPI for the purpose of offering employment to or hiring
(whether as an employee, consultant, independent contractor or
otherwise) without the prior written consent of TPI, and
(ii) TPI will not contact, solicit, induce or
encourage any employee of Newco or any Affiliate of Newco to leave such
employment, or contact, solicit or approach any employee of Newco for
the purpose of offering employment to or hiring (whether as an
employee, consultant, independent contractor or otherwise) without the
prior written consent of Newco.
The foregoing clauses (i) and (ii) shall not apply to any employee who shall
contact or approach such Person in response to a general solicitation for
employment.
5.5 COMPLIANCE WITH WARN AND SIMILAR LAWS. TPI and Newco do
not anticipate that there will be any major employment losses as a consequence
of the transactions contemplated by this Agreement and the Human Resources
Agreement that might trigger obligations under the Worker Adjustment and
Retraining Notification ("WARN") Act, 29 U.S.C. Section 2101 et seq., or under
any similar provision of any federal, state, regional, foreign, or local law,
rule, or regulation (referred to collectively as "WARN Obligations").
Nevertheless, to the extent that any WARN Obligations might arise as a
consequence of the transactions contemplated by this Agreement, it is agreed
that Newco will timely give all notices required to be given under WARN or other
similar statutes or regulations of any jurisdiction relating to any plant
closing or mass layoff or as otherwise required by any such statute. For this
purpose, Newco shall be deemed to have caused a mass layoff if the mass layoff
would not have occurred but for Newco's failure to employ the employees of the
Containerboard Business in accordance with the terms of this Agreement and the
Human Resources Agreement.
5.6 FURTHER ASSURANCES. At any time after the Closing Date,
TPI, PCA and Newco shall promptly execute, acknowledge and deliver any other
assurances or documents reasonably requested by Newco, PCA or TPI, as the case
may be, and necessary for them or it to satisfy their or its respective
obligations hereunder or obtain the benefits contemplated hereby. Without
limiting the generality of the foregoing, Newco agrees that if any of the
Contributed Subsidiaries are found to own assets that are not part of the
Contributed Assets (that is, such assets are not Related to the Containerboard
Business), or if any Retained Assets are inadvertently transferred to Newco,
Newco shall transfer such assets to TPI, or as TPI shall direct, at TPI's
expense but without consideration. Similarly, if after the Closing TPI
identifies any assets that should have been transferred to Newco as part of the
Contributed Assets, but were not, TPI shall transfer such assets to Newco at
TPI's expense without further consideration.
5.7 USE OF TENNECO MARKS. Except as set forth in this Section
5.7, after the Closing Newco shall not use the Tenneco Marks, except that for a
period of one year following the Closing Date Newco may (a) continue to produce
materials with such Tenneco Marks until changes can be made to plates, molds,
and similar items so as to allow Newco to
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produce materials without such Tenneco Marks, (b) use the Tenneco Marks on
products, labels, packaging and promotional materials that are in existence as
of the Closing Date or produced pursuant to clause (a) above, and (c) use
signage, invoices and stationery in existence as of the Closing Date bearing a
Tenneco Mark. Subject to the preceding sentence, Newco shall cease using the
Tenneco Marks as soon as possible after closing during such one year period and,
following the periods described above, Newco shall cease all use of any Tenneco
Marks.
5.8 CERTAIN MATTERS RELATED TO RETAINED AND ASSUMED
LIABILITIES.
(a) With respect to all Retained Liabilities, Newco
Indemnified Parties shall, at TPI's expense, reasonably cooperate with TPI,
provide TPI as promptly as possible with notices and other information received
by such parties as well as all relevant materials, information and data
requested by TPI and shall grant TPI, without charge, reasonable access to
employees of the Containerboard Business and to the Real Property.
(b) With respect to all Assumed Liabilities, TPI Indemnified
Parties shall, at Newco's expense, reasonably cooperate with Newco, provide
Newco as promptly as possible with notices and other information received by
such parties as well as all relevant materials, information and data requested
by Newco and shall grant Newco, without charge, reasonable access to employees
of TPI.
5.9 INTERCOMPANY AGREEMENTS. In the period between execution
of this Agreement and the Closing, TPI shall terminate and shall cause its
Affiliates to terminate, any and all agreements (i) between TPI, on one hand,
and any of the Contributed Subsidiaries, on the other hand, or (ii) between TPI,
on one hand, and any of TPI's Affiliates, on the other hand, to the extent such
agreements Relate to the Containerboard Business. Without limiting the
generality of the foregoing, all intercompany loans and Non-Trade accounts
receivable and Non-Trade accounts payable between TPI, and any of its
Affiliates, on one hand, and any of the Contributed Subsidiaries, on the other
hand, shall be eliminated via dividend or capital contribution.
5.10 RECORDS AND RETENTION AND ACCESS. Newco shall keep and
preserve in an organized and retrievable manner the Books and Records for at
least seven years from the Closing Date. Newco shall neither dispose of nor
destroy such Books and Records without first offering to turn over possession
thereof to TPI by written notice to TPI at least thirty (30) days prior to the
proposed date of such disposition or destruction. While such Books and Records
remain in existence, each party shall allow the other party, its
representatives, attorneys and accountants, if accompanied by the party's tax
representatives, accountants or attorneys, at the requesting party's expense,
access to the Books and Records upon reasonable request and advance notice and
during normal business hours for the purpose of interviewing, examining and
copying in connection with such parties' preparation of financial.
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5.11 INSURANCE.
(a) TPI shall use commercially reasonable efforts to assign to
Newco, to the fullest extent, all of the benefits and rights under any insurance
policies held by TPI and/or any of its Affiliates with respect to any Losses
arising out of, related to or in connection with the Contributed Assets, the
Assumed Liabilities and the Containerboard Business with respect to events
occurring prior to the Closing Date. Newco shall have the right to such benefits
and rights only to the extent actually paid or payable, and exclusive of any
deductibles (including pass through deductibles for which TPI or any Affiliate
is required to reimburse the insurer). To the extent such assignment is not
permitted, TPI shall use commercially reasonable efforts on Newco's behalf to
obtain such proceeds or benefits for Newco, or otherwise to provide Newco with
the benefit equivalent to that which would have been available had such
assignment been permitted.
(b) TPI shall cooperate with Newco in obtaining insurance
policies for the Containerboard Business to be in effect from and after Closing.
Notwithstanding such assistance, all decisions with respect to such policies
shall be made solely by Newco, and TPI shall not have any liability, whether to
Newco or to any other Person, whether as an advisor, broker or otherwise, under
any other theory, in connection with providing such assistance and cooperation.
TPI makes no assurances whatsoever with respect to such insurance coverage,
including the availability or price thereof.
5.12 NONCOMPETITION. From and after the Closing:
(a) Noncompetition. In consideration of the mutual covenants
provided for herein, during the period beginning on the Closing Date and ending
on the fifth anniversary of the Closing Date (the "Noncompete Period"), neither
TPI nor any of its Affiliates shall (i) sell containerboard or corrugated
products (other than the sale of folding carton and honeycomb paperboard-type
products), or otherwise engage in the business of the Containerboard Business
(as conducted as of Closing), anywhere within the United States, or (ii) induce
or attempt to induce any customer or other business relation of Newco or any of
its Affiliates to terminate such relationship with Newco; provided that TPI
shall not deemed to be competing in violation of this Section 5.12 by virtue of
its or their (x) ownership of less than 5% of the outstanding stock of any
publicly-traded corporation, (y) acquisition of any Person (whether by asset
purchase, stock purchase, merger or otherwise) engaged in the sale of
containerboard or corrugated products if such sales are not such Person's
primary business and such sales are less than $100 million per year; and (z)
sales of goods or services other than sales of goods or services made in the
Containerboard Business as of the Closing Date (e.g., sales of plastic, foam,
molded fiber, folding carton, honeycomb paperboard-type products and other
products not sold by the Containerboard Business as of the Closing Date). This
Section 5.12 shall not apply to any entity which might acquire TPI, or any
Affiliate of TPI, or any assets or division of TPI, subject to the terms of the
Stockholders Agreement.
(b) Severability. The parties hereto agree that the covenant
set forth in Section 5.12(a) is reasonable with respect to its duration,
geographical area and scope. If the final judgment of a court of competent
jurisdiction declares that any term or provision of Section 5.12(a) is invalid
or unenforceable, the parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration
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or area of the term or provision, to delete specific words or phrases, or to
replace any invalid or unenforceable term or provision with a term or provision
that is valid and enforceable and that comes closest to expressing the intention
of the invalid or unenforceable term or provision, and this Agreement shall be
enforceable as so modified after the expiration of the time within which the
judgment may be appealed.
(c) Remedy for Breach. TPI, PCA and Newco acknowledge and
agree that in the event of a breach of any of the provisions of this Section
5.12, monetary damages shall not constitute a sufficient remedy. Consequently,
in the event of any such breach, PCA, Newco and/or their respective successors
or assigns may, in addition to other rights and remedies existing in their
favor, apply to any court of law or equity of competent jurisdiction for
specific performance and/or injunctive or other relief in order to enforce or
prevent any violation of the provision hereof.
5.13 EXCLUSIVITY. TPI and Tenneco will not, and will not
permit or cause their respective officers, directors, agents and Affiliates to,
discuss a possible sale or other disposition of all or any part of the assets of
the Containerboard Business other than the sale of Inventory in the ordinary
course of business or other sales or dispositions permitted by this Agreement
(whether by merger, reorganization, recapitalization or otherwise) with any
party other than PCA and its Affiliates (an "Acquisition Proposal"), or provide
any information to any other party regarding the Containerboard Business other
than information which is traditionally provided in the regular course of its
business operations to third parties where TPI or Tenneco and its officers,
directors, agents and Affiliates have no reason to believe that such information
may be utilized to evaluate a possible sale or other disposition of the
Containerboard Business. TPI and its officers, directors and Affiliates (i) do
not have any agreement, arrangement or understanding with any third party with
respect to any Acquisition Proposal (other than confidentiality agreements),
(ii) will cease and cause to be terminated any and all discussions with third
parties regarding any Acquisition Proposal and (iii) will promptly notify PCA if
any Acquisition Proposal, or any inquiry or contact with any Person or entity
with respect thereto, is made.
5.14 DELIVERY OF MOST RECENT YEAR END STATEMENT AND THE STUB
PERIOD STATEMENTS AND REGULATION S-X FINANCIAL STATEMENTS. As soon as
practicable, but in any event no later than March 31, 1999 TPI will deliver to
PCA a copy of the Most Recent Year End Statement, which statements shall be
attached as part of Schedule 3.6. Prior to the Closing, TPI shall furnish or
shall cause TPI's independent accountants to furnish audited financial
statements for the Containerboard Business for the years ended December 31,
1996, 1997 and 1998 in a form meeting the requirements of Regulation S-X of the
Securities Act of 1933, as amended ("Regulation S-X"). In addition, prior to the
Closing, or as soon as practicable thereafter in the case of (iii) below, TPI
shall provide to Newco: (i) unaudited selected financial data as of and for the
years ended December 31, 1994 and 1995 (as described in Regulation S-K of the
Securities Act of 1933, as amended); (ii) unaudited condensed combined
statements of assets, liabilities and interdivision account as of March 31,
1998, June 30, 1998, and September 30, 1998, and the related unaudited condensed
combined statements of revenues, expenses and interdivision account and cash
flows for the three months ended March 31, 1998,
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the three and six months ended June 30, 1998, and the three and nine months
ended September 30, 1998; and (iii) in the event the Closing Date is later than
March 31, 1999, unaudited condensed combined statements of assets, liabilities
and interdivision account and the related unaudited condensed combined
statements of revenues, expenses and interdivision account and cash flows for
any interim periods as are required by Regulation S-X. The financial statements
and financial data in (i) through (iii) are collectively known as the
"Regulation S-X Financial Statements." The Regulation S-X Financial Statements
will be prepared in accordance with GAAP and in a form meeting the requirements
of Regulation S-X for Newco's or its Subsidiaries' registration statement and
any amendments thereto in connection with the New Financing Arrangements.
5.15 CONSENT OF TPI AUDITORS. TPI shall use its commercially
reasonable efforts to obtain prior to the Closing the written agreement (the
"Auditor Consent Letter") of Arthur Anderson LLP ("AA") to permit the use of the
Audited Financial Statements and any applicable Stub Period Financial Statements
(a) in connection with Newco's offerings of securities as contemplated by the
Commitment Letters, and (b) subject to AA's normal procedures, in other private
or public offerings of securities as may be reasonably requested by Newco. In
addition, TPI will use commercially reasonable efforts to cause AA to provide a
comfort letter in accordance with SAS 72 for any such offering.
5.16 COVENANT REGARDING CAMPBELL ROAD PROPERTY. Prior to the
Closing, TPI shall permit PCA and its representatives to have full access, in
accordance with Section 5.1 hereof, to the Campbell Road Property for the
purposes of conducting such due diligence review of such property as PCA
reasonably deems appropriate. If, based upon such review, PCA identifies any
existing environmental conditions the reasonable costs of addressing which could
reasonably be expected to exceed $1,000,000 within five years from the Closing
Date, PCA may, in its sole discretion, elect to instruct TPI to retain the
Campbell Road Property, in which case, the Campbell Road Property shall
constitute Retained Real Property rather than Owned Real Property for purposes
hereof and TPI shall be deemed to have consented to the appropriate revisions to
the Schedules and any other necessary amendments to this Agreement to reflect
such election.
5.17 POST CLOSING SALES OF MANAGEMENT STOCK. If (i) TPI has
delivered PCA a Dilution Notice in accordance with the terms hereof and (ii) any
members of management purchase Management Stock in the 120-day period following
the Closing Date, then either (x) TPI shall sell shares of its Common Stock to
such members of management, on the same terms as Newco would sell such shares,
provided that such sales by TPI would not violate any state and federal
securities laws and are in compliance with and pursuant to an exemption from
registration under all state and federal securities laws, or (y) in the event
that such sales by TPI cannot be implemented due to such restrictions in the
foregoing clause (x), Newco shall sell such shares of Common Stock to such
members of Management, and shall simultaneously redeem from TPI one share of
Common Stock for each share sold to such Persons, at a redemption price per
share equal to the per share price paid by the Persons purchasing such
Management Stock (provided such amount is equal to the price per share paid for
Common Stock purchased by PCA at Closing hereunder), provided such sales and
redemptions are permitted under the
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New Financing Arrangements. Any shares sold by TPI under this Section 5.17 shall
not be subject to, or entitle the holder to any of the benefits of, the
Stockholders Agreement or the Registration Rights Agreement.
5.18 CERTAIN LITIGATION AND CLAIMS. TPI shall indemnify Newco
if and to the extent any Losses for the following matters exceeds the following
amounts:
<TABLE>
<CAPTION>
<S> <C>
Matter No. 3.A on Schedule 3.7: $350,000
Matter No. 1.K on Schedule 3.7: $150,000
Matter No. 2.F on Schedule 3.7: $250,000
</TABLE>
Newco shall use its commercially reasonable efforts to settle or otherwise
resolve such matters, in accordance with Newco's reasonable business judgment,
for the least amount practical. Upon request, Newco will inform TPI as to the
status of such matters. In the event Newco proposes a definitive settlement, for
which a settlement agreement has been agreed to by all of the other parties
thereto, that TPI does not approve, Newco may pay TPI the amount of such
settlement (up to the aforesaid limits), and TPI shall be responsible for, and
indemnify Newco from and against, all Losses in connection with such matters
5.19 ACC.
(a) The parties acknowledge that the shares of ACC held by TPI
are subject to the terms and conditions set forth in that certain
Subscription and Shareholders Agreement dated as of August 21, 1989,
between Larry E. Homan ("Homan") and TPI (the "ACC Agreement"), a true
and complete copy of which has been previously delivered to PCA.
(b) Within 30 days from the date hereof, Newco shall instruct
TPI to (i) seek Homan's consent to the transfer of the ACC shares to
Newco without triggering the provisions of Section 5.1 or 5.2 of the
ACC Agreement, (ii) deliver an Offering Notice (as defined in the ACC
Agreement) to Homan under Section 5.1 of the ACC Agreement with respect
to the proposed transfer of the ACC shares to Newco, at a price to be
reasonably determined (based upon estimated fair market value) by TPI
and Newco, granting Homan a right of first refusal to purchase the
shares of ACC owned by TPI at such price on the terms set forth in
Section 5.1 of the ACC Agreement, or (iii) deliver a Notice of Purchase
(as defined in the ACC Agreement) to Homan under Section 5.2 of the ACC
Agreement, at a price determined by Newco, granting Homan the right to
purchase TPI's shares of ACC at such price, and requiring TPI to
purchase Homan's shares at such price if Homan does not elect to
purchase TPI's shares.
(c) If Homan consents to the transfer of the ACC shares to
Newco, or if an Offering Notice is given pursuant to Section
5.19(b)(ii) and Homan does not elect to purchase TPI's shares of ACC,
such shares shall be contributed to Newco as part of the Contributed
Assets. If an Offering Notice is given pursuant to Section 5.19(b)(ii)
or a Notice of Purchase is given pursuant to Section 5.19(b)(iii) and
Homan
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elects to purchase TPI's shares of ACC, TPI shall sell such shares to
Homan and Newco shall receive the proceeds thereof. If a Notice of
Purchase is given pursuant to Section 5.19(b)(iii) and Homan does not
elect to purchase TPI's shares of ACC, Newco shall purchase Homan's
shares of ACC, and TPI's shares of ACC shall be contributed to Newco
as part of the Contributed Assets.
(d) In no event shall the Cash Contribution, the Cash
Distribution, or the stock issuances contemplated by this Agreement be
effected by the disposition or transfer of the ACC shares.
5.20 WRITE DOWN. Prior to Closing, TPI will write down the
Contributed Assets to fair market value based on the value of the consideration
received by TPI pursuant to this Contribution Agreement unless prohibited by
GAAP. The parties agree that 100% of the Common Stock of Newco will have a fair
market value of $430 million immediately after the transactions contemplated by
this Agreement.
5.21 NEWCO RIGHT TO ASSUME CERTAIN CONTRACTS. Newco shall have
the right to assume any Contract not included in the Assumed Liabilities by
reason of the exclusion in Section 1.1(j)(i) thereof. Newco must assume or
reject such Contract within 30 days after discovery or notice of such Contract.
If Newco assumes such Contract, such Contract shall be included in the
Contributed Assets. Any such assumption must be for all benefits and obligations
under the Contract arising from and after the date of assumption, provided that,
notwithstanding such assumption, TPI shall be liable for performance of all
obligations incurred prior to the date of assumption, and shall indemnify Newco
against any and all Losses attributable to such Contract arising or based on
event occurring prior to the date on which Newco elects to assume such Contract.
ARTICLE VI
CONDITIONS TO CLOSING
6.1 CONDITIONS TO THE OBLIGATIONS OF PCA AND TPI. The
obligations of the parties hereto to effect the Closing and otherwise under
Article II hereof are subject to the satisfaction (or waiver by both PCA and
TPI) prior to the Closing of the following conditions:
(a) HSR ACT. All filings under the HSR Act shall have been
made and any required waiting period under such laws (including any extensions
thereof obtained by request or other action of any governmental authority)
applicable to the transactions contemplated hereby shall have expired or been
earlier terminated.
(b) NO INJUNCTIONS. No court or governmental authority of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, non-appealable judgment, decree,
injunction or other order which is in effect on the Closing Date and prohibits
the consummation of the Closing.
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6.2 CONDITIONS TO THE OBLIGATIONS OF PCA. The obligations of
PCA to effect the Closing and otherwise under Article II hereof are subject to
the satisfaction (or waiver by PCA) prior to the Closing, of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of TPI contained herein shall have been true and correct in all
material respects when made and shall be true and correct in all respects as of
the Closing, as if made as of the Closing (except that representations and
warranties that are made as of a specific date need be true in all material
respects only as of such date), except to the extent the failure of any such
representations or warranties to be true and correct in all respects could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect, and PCA shall have received a certificate to such effect dated
the Closing Date and executed by a duly authorized officer of TPI.
(b) COVENANTS. The covenants and agreements of TPI to be
performed on or prior to the Closing shall have been duly performed in all
material respects, and PCA shall have received a certificate to such effect
dated the Closing Date and executed by a duly authorized officer of TPI.
(c) MOST RECENT YEAR END STATEMENT. TPI shall have delivered
the Most Recent Year End Statement to PCA prepared and presented in accordance
with Sections 3.6 and 5.14 and on a consistent basis with the audited financial
statements for the year ended December 31, 1997. The Most Recent Year End
Statement shall demonstrate Adjusted EBITDA, as described in this Section
6.2(c), of at least $309.8 million. Adjusted EBITDA is defined as operating
profit adjusted for the following items (if reflected in Most Recent Year End
Statement): plus (i) interest expense, plus (ii) depreciation, depletion and
amortization expenses, plus (iii) lease expense related to leases terminated as
a result of the transaction, minus (iv) amortization of deferred gain on
refinanced leases included in operating profit, plus (v) the amount of corporate
allocations minus management's estimate of total divisional and corporate
overhead costs ($69.2 million) plus divisional overhead costs, plus (vi) charge
related to the 1998 restructuring included in operating profit, and plus (vii)
rebates TPI or its Affiliates included in operating profit. An example of the
foregoing calculation is set forth on Schedule 6.2(c).
(d) NEW FINANCING ARRANGEMENTS; NO LIENS OR INDEBTEDNESS. PCA
shall have obtained, on behalf of TPI for assignment to and assumption by Newco
at Closing, the New Financing Arrangements under which TPI is to be the initial
borrower, and shall have obtained on behalf of Newco all other New Financing
Arrangements, in each case as described in the Commitment Letters or otherwise
on a basis reasonably satisfactory to PCA and TPI (as provided in Section
5.3(b)), and all conditions to funding under the New Financing Arrangements
shall have been satisfied or waived by requisite lenders thereunder. Each of the
Contributed Assets shall be free and clear of all Encumbrances other than
Permitted Encumbrances, and the Containerboard Business shall not have or be
liable for any indebtedness (meaning, for purposes hereof, any indebtedness for
borrowed money or any other obligation that is fixed as to amount or certainty),
or obligation giving rise to any lien on any of the
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Contributed Assets (other that the Permitted Encumbrances) other than the
Assumed Indebtedness. The Purchased Property and all other Contributed Assets
shall be free and clear of all Encumbrances with respect to Existing Financing
Arrangements.
(e) NO MATERIAL ADVERSE CHANGE. Since the date of the Most
Recent Statement of Assets and Liabilities, the Containerboard Business shall
not have suffered a Material Adverse Change.
(f) TPI REQUIRED CONSENTS. TPI shall have obtained and
delivered copies to PCA of all Required Consents identified on Schedule 3.3 and
any other Consents reasonably indicated by PCA or Newco's lenders in connection
with the New Financing Arrangements as required for the continued operation of
the Containerboard Business by Newco following Closing in accordance with past
practices.
(g) SENIOR MANAGEMENT ARRANGEMENTS. Newco shall have entered
into an employment arrangement with Mr. Paul T. Stecko on the terms set forth in
that certain letter dated January 25, 1999, between PCA and Mr. Stecko, and as
of Closing Mr. Stecko shall confirm that he is willing to serve in the capacity
and on the terms set forth in such letter.
(h) RESIGNATION OF OFFICERS AND DIRECTORS. All officers and
directors of the Contributed Subsidiaries shall resign, effective as of the
Closing, except as PCA shall otherwise request.
(i) CLOSING DOCUMENTS. TPI and Newco shall have executed and
delivered to Newco and PCA all of these documents, instruments, agreements and
other deliveries described in Sections 2.4(a) and 2.4(c).
(j) ESTOPPEL CERTIFICATES. TPI shall have obtained and
delivered estoppel certificates with respect to those sites for which estoppel
certificates shall have been requested by the lenders in connection with the New
Financing Arrangements.
(k) LEMELSON SETTLEMENT. Either (i) Newco shall have received
from the Lemelson Foundation Partnership, either directly or through TPI, a
royalty-free license or sublicense under all patents relating to machine vision,
bar coding or flexible manufacturing that either have issued, or that in the
future may issue, with Jerome H. Lemelson as a named inventor and which patents
are now, or in the future may be owned by, or able to be licensed by, the
Lemelson Foundation Partnership (collectively the "Lemelson Patents") and such
license or sublicense shall include the right for Newco to make, use, sell
and/or lease any and all products, apparatus, methods and services of the
Containerboard Business, subject to any additional terms and conditions included
in the royalty-free license (or sublicense), or (ii) in the event such a license
or sublicense is not obtained by Closing, TPI shall defend indemnify and hold
harmless the PCA Indemnified Parties from, against and in respect of any claim
of infringement of the Lemelson Patents asserted against any of the PCA
Indemnified Parties, directly or indirectly, relating to or arising out of Newco
making, using, selling and/or leasing products, apparatus, methods and services
of the Containerboard Business; provided TPI's obligations hereunder shall apply
only to the extent of the levels of production of the Containerboard Business
affected by the Lemelson Patents as of the Closing Date.
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(l) AUDITOR CONSENT LETTER. TPI shall have obtained and
delivered a copy to PCA of the Auditor Consent Letter and related "cold comfort"
letter for the financing arrangements contemplated as part of the New Financing
Arrangements, each of which shall be in form and substance reasonably
satisfactory to PCA.
(m) EXISTING FINANCING ARRANGEMENTS; LEASED REAL PROPERTY. TPI
shall have delivered to PCA, in form and substance reasonably satisfactory to
PCA, evidence that all of the obligations arising under or related to the
Existing Financing Arrangements have been paid and satisfied in full and that
TPI has obtained a fee simple interest in all of the Purchased Property, free
and clear of all Encumbrances other than Permitted Encumbrances, but free and
clear of all Encumbrances in connection with the Existing Financing
Arrangements.
(n) NO SHARED FACILITIES. Except as provided in the Facility
Use Agreement and for the Transition Real Property, none of the Owned Real
Property or the Leased Real Property or other assets of the Containerboard
Business shall be owned, used or occupied in whole or in part by TPI or any of
its Affiliates other than in connection with the operation of the Containerboard
Business.
6.3 CONDITIONS TO THE OBLIGATIONS OF TPI. The obligations of
TPI to effect the Closing and otherwise under Article II hereof are subject to
the satisfaction (or waiver by TPI) prior to the Closing of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of PCA contained herein shall have been true and correct in all
material respects when made and shall be true and correct in all respects as of
the Closing, as if made as of the Closing (except that representations and
warranties that are made as of a specific date need be true in all material
respects only as of such date), except to the extent the failure of any such
representations or warranties to be true and correct in all respects, could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect and TPI shall have received a certificate to such effect dated
the Closing Date and executed by a duly authorized officer of PCA.
(b) COVENANTS. The covenants and agreements of PCA to be
performed on or prior to the Closing shall have been duly performed in all
material respects, and TPI shall have received a certificate to such effect
dated the Closing Date and executed by a duly authorized officer of PCA.
(c) NEW FINANCING ARRANGEMENTS. PCA shall have obtained on
behalf of TPI, for assignment to and assumption by Newco at Closing, the New
Financing Arrangements under which TPI is to be the initial borrower and all
conditions to funding such New Financing Arrangements shall have been satisfied
or waived. PCA shall have obtained on
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behalf of Newco all other New Financing Arrangements and all conditions to
funding under such New Financing Arrangements shall have been satisfied or
waived.
(d) MANAGEMENT INCENTIVE PLAN. Any stock option, management
incentive, stock appreciation, phantom stock, or other similar plan established
for Newco's management as of the Closing whereby such persons receive, or
receive options or rights to acquire, any equity in Newco or equity-based
compensation shall provide that the maximum amount of equity or equity
equivalents (such as stock appreciation rights or phantom stock) that may be
earned, acquired, paid or distributed under such plan, together with Management
Stock issued at the Closing or within 120 days following Closing, shall not
exceed 9.8% of the outstanding equity (in a fully diluted basis) of Newco.
(e) CLOSING DOCUMENTS. PCA and Newco shall have executed and
delivered to TPI and Newco, all of those documents, instruments, agreements and
other deliveries described in Section 2.4(b) and Section 2.4(i).
ARTICLE VII
SURVIVAL; INDEMNIFICATION
7.1 SURVIVAL. The representations and warranties contained in
this Agreement shall survive the Closing (regardless of any investigation,
inquiry or examination made by or on behalf of, or any knowledge of any party
hereto or the acceptance of any party or on its behalf of a certificate and
opinion) for the respective periods (each, a "Survival Period") set forth in
this Section 7.1. All of the representations and warranties of TPI contained in
this Agreement and all claims and causes of action with respect thereto shall
terminate upon expiration of the 18 month period commencing on the Closing Date,
except that (a) the representations and warranties set forth in Section 3.8
shall survive until the expiration of the applicable statute of limitation
(including any extension thereof), (b) the representations and warranties set
forth in Sections 3.1-3.5, 3.16(a)-(c), 3.17, and 4.1-4.6 shall have no
expiration date and (c) the representations and warranty set forth in Section
3.19 shall survive only until Closing. Any claim for indemnification for breach
of a representation and warranty must be made during the applicable Survival
Period. In the event notice of any claim for indemnification for a breach of a
representation or warranty is given (within the meaning of Section 10.1) within
the applicable Survival Period, an Indemnifying Party's obligations with respect
to such indemnification claim shall survive until such time as such claim is
finally resolved.
7.2 INDEMNIFICATION BY PCA AND NEWCO.
(a) PCA shall indemnify, defend and hold harmless TPI, its
Affiliates and, if applicable, their respective directors, officers,
shareholders, partners, members, attorneys, accountants, agents and employees
and their heirs, successors and assigns (the "TPI Indemnified Parties") from,
against and in respect of any damages, claims, losses, charges, actions, suits,
proceedings, deficiencies, Taxes, interest, penalties, and reasonable costs and
expenses (including reasonable attorneys' fees, removal costs, remediation
costs, closure costs, fines,
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penalties and expenses of investigation and ongoing monitoring) (collectively,
the "Losses") imposed on, sustained, incurred or suffered by or asserted against
any of the TPI Indemnified Parties, directly or indirectly, relating to or
arising out of (i) subject to Section 7.2(c), any breach of any representation
or warranty made by PCA contained in this Agreement, and (ii) the breach of any
covenant or agreement of PCA contained in this Agreement.
(b) Newco shall indemnify, defend and hold harmless the TPI
Indemnified Parties and the PCA Indemnified Parties from, against and in respect
of any Losses imposed on, sustained, incurred or suffered by or asserted against
any of the TPI Indemnified Parties or the PCA Indemnified Parties, directly or
indirectly, relating to or arising out of (i) the breach of any covenant or
agreement of Newco contained in this Agreement, and (ii) the Assumed
Liabilities; provided that Newco shall have no indemnification obligations
hereunder in respect of Losses incurred or suffered by a Person solely in such
Person's capacity as an equity holder or a debt holder (such as a diminution of
value of such equity or debt) of Newco.
(c) PCA shall not be liable to the TPI Indemnified Parties for
any Losses with respect to the matters contained in Section 7.2(a)(i) except to
the extent (and then only to the extent) the Losses therefrom exceed an
aggregate amount equal to $12,500,000 (the "Deductible"), and then only for all
such Losses in excess thereof up to an aggregate amount equal to $150,000,000
(the "Cap"); provided that Losses from breaches of the representations and
warranties in Sections 4.1-4.6 shall not be subject to the Cap and the
Deductible.
(d) TPI acknowledges that this Article VII constitutes TPI's
sole remedy against PCA or Newco with respect to any of the matters referred to
herein other than with respect to claims based on fraud, including any Losses or
liability under any Environmental Law or with respect to any Hazardous
Substances, and expressly waives any other rights or causes of action, including
under any Environmental Law or with respect to any claim involving the presence
of or exposure to any Hazardous Substances.
7.3 INDEMNIFICATION BY TPI.
(a) TPI shall indemnify, defend and hold harmless Newco, PCA,
their Affiliates and, if applicable, their respective directors, officers,
shareholders, partners, members, lenders, attorneys, accountants, agents and
employees and their heirs, successors and assigns (the "PCA Indemnified Parties"
and, collectively with the TPI Indemnified Parties, the "Indemnified Parties")
from, against and in respect and to the extent of any Losses imposed on,
sustained, incurred or suffered by or asserted against each of the PCA
Indemnified Parties, directly or indirectly, relating to or arising out of
(i) subject to Section 7.3(b), any breach of any
representation or warranty made by TPI contained in this
Agreement;
(ii) the Retained Liabilities;
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(iii) the breach of any covenant or agreement of
TPI contained in this Agreement;
(iv) provided such claim is made during the
18-month period commencing on the Closing Date, any
liabilities from any Losses arising from, related to or
incurred in connection with any state of facts or conditions
or transactions (or series of facts, conditions or
transactions) existing at or prior to the Closing Related to
the Containerboard Business, other than (A) the Assumed
Indebtedness, (B) the liabilities reflected on the Final
Working Capital Statement, (C) liabilities and obligations
disclosed pursuant to TPI's representations or warranties in
this Agreement or in the Disclosure Memorandum (none of which
relates to any liability resulting from a breach
of contract, breach of warranty, tort, infringement claim or
lawsuit), (D) matters arising from or in connection with the
matters disclosed on Schedule 3.7 or Schedule 3.11, and (E)
other liabilities incurred in the ordinary course of business
(none of which is or relates to any liability resulting from a
breach of contract, breach of warranty, tort, infringement
claim or lawsuit); provided, however, that if a liability for
a matter which for indemnification is sought under this clause
(iv) would also constitute a breach of a representation or
warranty of TPI in Article III hereof (other than Section
3.19), TPI's sole obligation with respect to such liability,
if any, shall be determined pursuant to Section 7.3(a)(i)
hereof and not this Section 7.3(a)(iv), and provided further
that TPI shall not have any liability with respect to a matter
that is the subject of a representation and warranty hereunder
but which was not required to be disclosed hereunder or in the
Disclosure Memorandum due to the specific thresholds or
exclusions included in such representation and warranty; and
(v) any liabilities arising with respect to the
matters described in Section 6.2(k)(ii).
Newco and PCA acknowledge that Section 5.12(c), Section 5.18, and this Article
VII constitute Newco's and PCA's sole remedy with respect to any of the covered
by this Article VII, other than with respect to claims based on fraud, including
any Losses or liability under any Environmental Law or with respect to any
Hazardous Substances and expressly waives any other rights or causes of action,
including under any Environmental Law or with respect to any claim involving the
presence of or exposure to any Hazardous Substances.
(b) TPI shall not be liable to the PCA Indemnified Parties for
any Losses with respect to the matters contained in Section 7.3(a)(i) except to
the extent (and then only to the extent) the Losses therefrom exceed an
aggregate amount equal to the Deductible, and then only for all such Losses in
excess thereof up to an aggregate amount equal to the Cap; provided that Losses
from breaches of the representations and warranties in Sections 3.1-3.5, 3.8,
3.16(a)-(c) and 3.17 shall not be subject to the Cap or the Deductible. TPI
shall not be liable to the PCA Indemnified Parties for any Losses for which and
to the extent (and only to the extent) a reserve is specifically provided on the
Final Working Capital Statement that was
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not specifically provided in the Most Recent Statement of Assets or Liabilities,
or to the extent of any increase in any such reserve on the Final Working
Capital Statement from the amount of such reserve on the Most Recent Statement
of Assets and Liabilities. In order to avoid double counting, the portion of any
Loss incurred or sustained by Newco and PCA, respectively, will be determined
after giving effect to indemnification payments (if any) made in respect of such
Loss to the other Person. In the event of a breach of the representation
contained in Section 3.8(h), the amount of any Loss shall be determined in the
same manner in which Tax Benefits are determined under Section 7.6.
7.4 INDEMNIFICATION PROCEDURES.
(a) Any Indemnified Person making a claim for indemnification
pursuant to Section 7.2 or 7.3 above must give the party from whom
indemnification is sought (an "Indemnifying Party") written notice of such claim
describing such claim with reasonable particularity and the nature and amount of
such Loss to the extent that the nature and amount of such Loss is known at such
time) (an "Indemnification Claim Notice") promptly after the Indemnified Party
receives any written notice of any action, lawsuit, proceeding, investigation or
other claim (a "Proceeding") against or involving the Indemnified Party by a
Governmental Authority or other third party or otherwise discovers the
liability, obligations or facts giving rise to such claim for indemnification;
provided that the failure to notify or delay in notifying an Indemnifying Party
will not relieve the Indemnifying Party of its obligations pursuant to Section
7.2 or 7.3, as applicable, except to the extent that (and only to the extent
that) such failure shall have caused the damages for which the Indemnifying
Party is obligated to be greater than such damages would have been had the
Indemnified Party given the Indemnifying Party prompt notice hereunder.
(b) The Indemnifying Party shall have 30 days from the
personal delivery or mailing of the Indemnification Claim Notice (the "Notice
Period") to notify the Indemnified Party (i) whether or not the Indemnifying
Party disputes the liability of the Indemnifying Party to the Indemnified Party
hereunder with respect to such claim or demand and (ii) whether or not it
desires to defend the Indemnified Party against such claim or demand.
(c) If (i) the Indemnifying Party agrees in writing to be,
responsible for the full amount of such Loss, and (ii) the claim for
indemnification does not relate to a matter (A) that, if determined adversely,
could reasonably be expected to expose the Indemnified Party to criminal
prosecution or penalties, (B) that, if determined adversely, could reasonably be
expected to result in the imposition of a consent order, injunction or decree
which would restrict the activity or conduct of the Indemnified Party or any
Affiliate thereof, or (C) for which the Indemnified Party shall have reasonably
concluded, in good faith, after consultation with the Indemnifying Party, that
such representation is likely to result in a conflict of interest or materially
jeopardize the viability of such defense, then the Indemnifying Party shall have
the right to defend the Indemnified Party by appropriate proceedings and shall
have the sole power to direct and control such defense. If any Indemnified Party
desires to participate in any such defense, it may do so at its sole cost and
expense. The Indemnifying Party in no event shall have
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any right to control (as opposed to participate in pursuant to Section 7.4(d)
hereof) the defense of any claim and shall pay the expenses of the Indemnified
Party's defense of such claim if:
(x) the Indemnifying Party does not agree in
writing to be responsible for the full amount of any claim;
(y) the claim for indemnification Relates to a
matter (A) that, if determined adversely, could reasonably be expected
to expose the Indemnified Party to criminal prosecution or penalties,
(B) that, if determined adversely, could reasonably be expected to
result in the imposition of a consent order, injunction or decree which
would restrict the activity or conduct of the Indemnified Party or any
Affiliate thereof, (C) for which the Indemnified party shall have
reasonably concluded, in good faith, after consultation with the
Indemnifying Party, that such representations is likely to result in a
conflict of interest or materially jeopardize the viability of such
defense; or
(z) a court determines that the Indemnified Party
is not vigorously defending the claim.
(d) If the claim relates to a matter for which both the
Indemnifying Party and any Indemnified Party could be liable or responsible
hereunder, such as a Loss for which both parties could be partially liable due
to the Cap and Deductible, the Indemnifying Party and the Indemnified Parties
shall cooperate in good faith in the defense of such action. No party shall
settle any claim without the prior consent of the other party (which consent
shall not be unreasonably withheld); provided, however, that an Indemnified
Party shall not be required to consent to any settlement if the proposed
settlement (i) does not provide for a full release of all claims against such
Indemnified Party, (ii) is on a basis which would result in the imposition of a
consent order, injunction or decree or any other restriction on the activity or
conduct of such Indemnified Party, or (iii) is on a basis which could, in such
Indemnified Party's judgment, expose such Indemnified Party to criminal
liability or required an admission of wrongdoing by such Indemnified Party;
provided further that, the foregoing notwithstanding, an Indemnified Party may
settle or compromise any claim without the prior consent of the Indemnifying
Party if under Section 7.3(c) the Indemnifying Party had no right to control the
defense of such claim. If an Indemnified Party does not consent to a definitive
settlement proposed by the Indemnifying Party (with respect to which a
settlement agreement has been agreed to by all parties other than the
Indemnified Party) which settlement satisfies the foregoing clauses (i) through
(iii) or if the Indemnifying Party does not consent to a settlement proposed by
an Indemnified Party, then the party declining such settlement shall thereafter
have full control of the defense of such claim, and the maximum liability of the
party that proposed such settlement shall be determined as though such matter
had settled on the terms so proposed, and, if applicable, the amount of the
proposed settlement, together with all legal costs and expenses incurred in
connection with such matter through and including the proposed settlement date,
shall be deemed the amount of the Loss of the Indemnified Party for purposes of
determining whether the Cap and Deductible have been met. If both parties agree
to the settlement, the relative liabilities of the parties for such Losses shall
be determined as provided in the other provisions of this Article VII.
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(e) All costs and expenses incurred by the Indemnifying Party
in defending claim or demand under Section 7.4(c), and all costs and expenses
incurred by the Indemnified Party in defending claim or demand which the
Indemnifying Party has elected not to defend (including by virtue of its failure
to give timely notice to the Indemnified Party) or is not permitted to defend
under Section 7.4(c) shall be a liability of, and shall be paid by, the
Indemnifying Party.
(f) To the extent the Indemnifying Party shall direct, control
or participate in the defense or settlement of any third-party claim or demand,
the Indemnified Party will give the Indemnifying Party and its counsel access
to, during normal business hours, the relevant business records and other
documents, and shall permit them to consult with the employees and counsel of
the Indemnified Party. The Indemnifying Party and Indemnified Parties shall use
their best efforts in the defense of all such claims.
7.5 ACKNOWLEDGMENT REGARDING ENVIRONMENTAL LIABILITIES. PCA
and TPI acknowledge the allocation of relative responsibility for liabilities
under Environmental Laws under this Agreement is a material term of this
Agreement, and that (i) they have taken such matters into consideration in
determining the financial and other terms of this transaction, and (ii) they
understand that Newco is accepting all risks resulting or arising in any way
from any known or unknown liabilities in connection with such matters (other
than the Retained Environmental Liabilities or liabilities as to which
indemnification is provided under Section 7.3(a)) and TPI is retaining all risks
relating the Retained Environmental Liabilities and indemnifying Newco for
certain Losses relating to environmental matters under Section 7.3(a), and (iii)
they acknowledge that neither shall have any claim of any nature against the
other or the other's Affiliates in connection with any matters relating to known
or unknown soil or groundwater contamination or any other claims under any
Environmental Laws, other than as set forth herein.
7.6 COMPUTATION OF LOSSES SUBJECT TO INDEMNIFICATION. The
amount of any Loss for which indemnification is provided under this Article VII
shall be computed net of any insurance proceeds actually received by the
Indemnified Party in connection with such Loss. Indemnification for any Loss
shall be determined and paid without reduction for any Tax Benefits not yet
realized by the Indemnified Party. The Indemnified Party will pay to the
Indemnifying Party the amount of any Tax Benefits attributable to the Loss
actually realized by the Indemnified Party promptly after such Tax Benefits are
realized; provided, however, that in the event such Tax Benefits are realized
prior to the indemnification payment hereunder, such indemnification payment
shall be reduced by Tax Benefits previously realized in lieu of a separate
payment to the Indemnifying Party. The amount of any Tax Benefit shall be
determined (i) by comparing the liability of the Indemnified Party for Taxes,
determined without the Loss, to the liability of the Indemnified Party for
Taxes, taking into account the Loss and (ii) by treating any items attributable
to the Loss as the last items claimed by the Indemnified Party in any given Tax
Period. The amount of any Loss for which indemnification is provided under this
Article VII shall exclude consequential and punitive damages and lost profits by
an Indemnified Party, provided that any consequential or punitive damages or
lost profits of a third party for which an Indemnified Party is liable shall be
included in computing such Indemnified Party's Loss.
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7.7 CHARACTERIZATION OF INDEMNIFICATION PAYMENTS. All amounts
paid by PCA, Newco, or TPI, as the case may be, under Article II, Article V,
this Article VII, or Article VIII shall be treated as adjustments to the amount
contributed to Newco by PCA or TPI, pursuant to Section 2.4(a) or (b) hereof, as
appropriate for all Tax purposes.
ARTICLE VIII
TAX COVENANTS
8.1 LIABILITY FOR TAXES.
(a) TPI shall be liable for, and shall indemnify, defend and
hold Newco harmless from and against, any and all Taxes imposed on or with
respect to the Contributed Subsidiaries, or their respective assets, operations
or activities for any Pre-Closing Period, except to the extent that any such
Taxes are a Current Liability and are reflected on the Final Working Capital
Statement.
(b) Newco shall be liable for, and shall indemnify, defend and
hold TPI harmless from and against, any and all Taxes imposed on or with respect
to the Contributed Subsidiaries or their respective operations, ownership,
assets or activities for any Post-Closing Period.
(c) Tax items shall be apportioned between Pre-Closing Periods
and Post-Closing Periods based on a closing of the books and records of the
relevant entity or entities as of the Closing Date (provided that (i)
depreciation, amortization and depletion for any Straddle Period shall be
apportioned on a daily pro rata basis and (ii) any Taxes imposed on a periodic
basis (including real property Taxes, but not including Taxes based on income
and receipts) for any Straddle Period shall be apportioned on a daily pro rata
basis). Notwithstanding anything to the contrary in the preceding sentence, the
parties agree that for U.S. federal income Tax purposes, Tax items for any
Straddle Period shall be apportioned between Pre-Closing Periods and
Post-Closing Periods in accordance with U.S. Treasury Regulation Section
1.1502-76(b), which regulation shall be reasonably interpreted by the parties in
a manner intended to achieve the method of apportionment described in the
preceding sentence. Neither TPI nor PCA will exercise any option or election
(including any election to ratably allocate a Tax year's items under Treasury
Regulation Section 1.1502-76(b)(2)(ii)) to allocate Tax items in a manner
inconsistent with this section.
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8.2 PREPARATION OF TAX RETURNS.
(a) TPI shall have the right and obligation to timely prepare
and file, and cause to be timely prepared and filed, when due, any Tax Return
that is required to include the operations, ownership, assets or activities of
TPI, with respect to the Contributed Assets, or of any Contributed Subsidiary
for Tax Periods ending on or before the Closing Date. TPI shall provide Newco
with copies of any such Tax Returns (to the extent that they relate to the
Contributed Assets or the Containerboard Business and reasonably may have a
material effect on Newco's and its Affiliates' liability for Taxes) at least 30
days prior to the due date (as extended) for filing such Tax Returns. In the
event that Newco reasonably determines that any such Tax Return should be
modified, Newco shall notify TPI of Newco's proposed modifications no later than
15 days from the date of receipt of such Tax Return. To the extent that TPI
disagrees with such modifications, Newco and TPI shall endeavor to agree on the
positions to be taken on such return. To the extent that they are unable to do
so, a "Big-Five" accounting firm (other than the regular auditor of TPI or
Newco) shall be retained to determine the position to be taken, with the fees
and expenses of such accounting firm to be borne equally by TPI and Newco. Any
such Tax Return which TPI is required to prepare under the terms hereof shall
(to the extent such Tax Return relates to the Contributed Assets or the
Containerboard Business and reasonably may have a material effect on Newco's or
its Affiliates' Tax liability) be prepared in accordance with past Tax
accounting practices used with respect to the Tax Returns in question (unless
such past practices are no longer permissible under the Applicable Tax Law), and
to the extent any item is not covered by such past practices (or such past
practices are no longer permissible under the Applicable Tax Law), in accordance
with reasonable Tax accounting practices selected by TPI. Newco shall have the
right and obligation to timely prepare and file, or cause to be timely prepared
and filed, when due, all Tax Returns that are required to include the
operations, ownership, assets or activities Related to the Containerboard
Business or of any Contributed Subsidiary for any Tax Period ending after the
Closing Date (including, solely with respect to the Contributed Subsidiaries,
Straddle Period Returns). Newco shall provide TPI with copies of any Straddle
Period Tax Returns required to be filed by Newco hereunder at least 30 days
prior to the due date (as extended) for filing such Tax Returns. In the event
TPI reasonably determines that any Straddle Period Tax Return should be
modified, TPI shall notify Newco of TPI's proposed modifications no later than
fifteen days from the date of receipt of such Tax Return. To the extent that
Newco disagrees with such modifications, Newco and TPI shall endeavor to agree
on the positions to be taken on such return. To the extent that they are unable
to do so, a "Big Five" accounting firm (other than the regular auditor of TPI or
Newco) shall be retained to determine the position to be taken, with the fees
and expenses of such accounting firm to be borne equally by TPI and Newco. Any
Straddle Period Tax Return which Newco is required to prepare under the terms
hereof shall be prepared in accordance with past Tax accounting practices used
with respect to the Tax Returns in question (unless such past practices are no
longer permissible under the Applicable Tax Law), and to the extent any item is
not covered by such past practices (or such past practices are no longer
permissible under the Applicable Tax Law), in accordance with reasonable Tax
accounting practices selected by Newco.
(b) TPI shall prepare and provide to Newco such Tax
information as is reasonably requested by Newco with respect to the operations,
ownership, assets or activities of TPI, with respect to the Contributed Assets,
or of any Contributed Subsidiary for Straddle
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Periods to the extent such information is relevant to any Tax Return which Newco
has the right and obligation hereunder to file.
(c) The party not preparing a Tax Return shall pay the party
preparing such Tax Return an amount equal to the non-preparing party's share of
the Taxes shown on such Tax Return, if any, determined in accordance with the
principles of Articles VII and VIII, not later than 2 business days before the
filing of such Tax Return.
8.3 AMENDED TAX RETURNS.
(a) Any amended Tax Return or claim for Tax refund for any
Contributed Subsidiary for any Pre-Closing Period other than a Straddle Period
shall be filed, or caused to be filed, only by TPI who shall not be obligated to
make (or cause to be made) such filing. TPI shall not, without the prior written
consent of Newco (which consent shall not be unreasonably withheld or delayed),
make or cause to be made, any such filing, to the extent such filing, if
accepted, reasonably might change the Tax liability of Newco or any Affiliate of
Newco for any Post-Closing Period. At Newco's request, TPI shall file an amended
Tax Return with respect to Taxes accrued on the Final Working Capital Statement,
except to the extent TPI reasonably objects.
(b) Any amended Tax Return or claim for Tax refund for any
Straddle Period shall be filed by the party responsible for filing the original
Tax Return hereunder if either Newco or TPI so requests, except that such filing
shall not be done without the consent (which shall not be unreasonably withheld
or delayed) of Newco (if the request is made by TPI) or of TPI (if the request
is made by Newco).
(c) Any amended Tax Return or claim for Tax refund for any
Post-Closing Period other than a Straddle Period shall be filed, or caused to be
filed, only by Newco, who shall not be obligated to make (or cause to be made)
such filing. Newco shall not, without the prior written consent of TPI (which
consent shall not be unreasonably withheld or delayed) file, or cause to be
filed, any such filing to the extent that such filing, if accepted, reasonably
might change the Tax liability of TPI or any Affiliates of TPI for any
Pre-Closing Period.
8.4 CARRYBACKS AND CARRYFORWARDS.
(a) To the extent permitted by Applicable Tax Law, unless TPI,
in its sole and absolute discretion, consents, Newco shall not and shall not
permit any Contributed Subsidiary to carry back any losses or credits accruing
after the Closing Date to any Tax Return of TPI, a Contributed Subsidiary, or
any Affiliate of either TPI or a Contributed Subsidiary for any Pre-Closing
Period. To the extent permitted by Applicable Tax Law, Newco shall and shall
cause each Contributed Subsidiary to make any elections and take all such
actions necessary to avoid any such carry back. To the extent that, under
Applicable Tax Law, a Contributed Subsidiary is required to carry back any
losses or credits accruing after the Closing Date to any Tax Return of TPI or
its Affiliates, TPI shall pay to Newco the amount of any Tax Benefit actually
realized by TPI and its Affiliates as a result of such carryback promptly after
such Tax
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Benefits are realized. The amount of any Tax Benefit shall be determined (i) by
comparing the liability of TPI and its Affiliates for Taxes, determined without
the carryback, to the liability of TPI and its Affiliates for Taxes, taking into
account the carryback and (ii) by treating the carryback as the last item
claimed by TPI and its Affiliates in any given Tax Period.
(b) TPI shall not be liable hereunder for any decrease to any
net operating loss carry forward or any other Tax attributes available to a
Contributed Subsidiary resulting from adjustments to any item of income,
deduction, credit, or exclusion on Tax Returns for which TPI is responsible.
8.5 ADDITIONAL TAX MATTERS.
(a) As of the Closing Date, TPI shall cause all Tax
allocation, Tax sharing, Tax reimbursement and similar arrangements or
agreements between TPI and its Affiliates, on the one hand, and any of the
Contributed Subsidiaries, on the other, to be extinguished and terminated with
respect to such Contributed Subsidiaries and any rights or obligations existing
under any such agreement or arrangement to be no longer enforceable.
(b) After the Closing Date, Newco will cause appropriate
employees of the Contributed Subsidiaries to prepare usual and customary Tax
Return packages with respect to the Tax Period beginning January 1, 1999 and
ending as of the Closing Date. Newco will use its commercially reasonable
efforts to cause such Tax Return packages to be delivered to TPI on or before
March 1, 2000, but in any event not later that May 1, 2000.
(c) TPI and Newco agree that Newco has acquired substantially
all of the property used in the Containerboard Business and that in connection
therewith Newco will employ individuals who immediately before the Closing Date
were employed in such trade or business by TPI. Accordingly, pursuant to Rev.
Proc. 96-60, 1996-2 C.B. 399, provided that TPI makes available to Newco all
necessary payroll records for the calendar year that includes the Closing Date,
Newco will furnish a Form W-2 to each employee employed by Newco who had been
employed by TPI, disclosing all wages and other compensation paid for such
calendar year, and Taxes withheld therefrom, and TPI will be relieved of the
responsibility to do so.
(d) If Newco or any Contributed Subsidiary receives a Tax
refund with respect to Taxes of any Contributed Subsidiary attributable to a
Pre-Closing Period (other than a Tax refund accrued on the Final Working Capital
Statement or a refund of Taxes accrued on the Final Working Capital Statement )
Newco shall pay, within the thirty (30) days following the receipt of such Tax
refund, the amount of such Tax refund, net of any Taxes imposed thereon, to TPI.
If TPI receives a Tax refund with respect to Taxes of any Contributed Subsidiary
attributable to any Post-Closing Period or any Taxes accrued on the Final
Working Capital Statement, TPI will pay, within thirty (30) days following the
receipt of such Tax refund, the amount of such Tax refund, net of any Taxes
imposed thereon, to Newco. In the case of any Tax refund with respect to Taxes
of a Contributed Subsidiary attributable to a Straddle Period, the Tax refund
shall be apportioned between Pre-Closing Periods and Post-Closing Periods in
accordance with the principles of Section 8.1(c) hereof; provided that to the
extent
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any Tax refund for a Straddle Period was accrued on the Final Working Capital
Statement, such refund shall be for the account of Newco. The reduction of any
Tax refund amount under this Section 8.5(d) by the amount of Taxes imposed on
the payor's receipt of such refund, shall be determined in the same manner in
which Tax Benefits are determined and paid under Section 7.6.
(e) To the extent requested by TPI, Newco agrees that it will
timely file all required applications and notices with the appropriate
authorities to the extent necessary, under the applicable forest Tax laws, to
maintain the current property tax classification of TPI's timberland properties
being contributed to Newco under the terms hereof, except to the extent that any
such filing would adversely affect Newco.
8.6 TAX CONTROVERSIES; COOPERATION.
(a) TPI shall control any audit, dispute, administrative,
judicial or other proceeding related to Tax Returns filed for Pre-Closing
Periods, and Newco shall control any audit, dispute, administrative, judicial or
other proceeding related to Tax Returns filed for Post-Closing Periods and
Straddle Periods of any Contributed Subsidiary. Subject to the preceding
sentence, in the event an adverse determination may result in each party having
responsibility for any amount of Taxes, each party shall be entitled to fully
participate in that portion of the proceedings relating to the Taxes with
respect to which it may incur liability hereunder. For purposes of this Section
8.6(a), the term "participation" shall include (i) participation in conferences,
meetings or proceedings with any Tax Authority, the subject matter of which
includes an item for which such party may have liability hereunder, (ii)
participation in appearances before any court or tribunal, the subject matter of
which includes an item for which a party may have liability hereunder, and (iii)
with respect to the matters described in the preceding clauses (i) and (ii),
participation in the submission and determination of the content of the
documentation, protests, memorandum of fact and law, briefs, and the conduct of
oral arguments and presentations.
(b) Newco and TPI shall not agree to settle any Tax liability
or compromise any claim with respect to Taxes, which settlement or compromise
may affect the liability for Taxes (or right to a Tax Benefit) hereunder of the
other party, without such other party's consent (which consent shall not be
unreasonably withheld or delayed).
(c) Newco and TPI shall bear their own expenses incurred in
connection with audits and other administrative judicial proceedings relating to
Taxes for which such party and its Affiliates are liable.
(d) TPI on the one hand, and Newco and the Contributed
Subsidiaries, on the other, shall cooperate (and cause their Affiliates to
cooperate) with each other and with each other's agents, including accounting
firms and legal counsel, in connection with Tax matters relating to the
Contributed Assets and the Contributed Subsidiaries, including (i) preparation
and filing of Tax Returns, (ii) determining the liability and amount of any
Taxes due or the right to and amount of any refund of Taxes, (iii) examinations
of Tax Returns, and (iv) any
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administrative or judicial proceeding in respect of Taxes assessed or proposed
to be assessed. Such cooperation shall include each party making all
information and documents in its possession relating to the Contributed
Subsidiaries available to the other party. The parties shall retain all Tax
Returns, schedules and work papers, and all material records and other
documents relating thereto, until one year after the expiration of the
applicable statute of limitations (including, to the extent notified by any
party, any extension thereof) of the Tax Period to which such Tax Returns and
other documents and information relate. Each of the parties shall also make
available to the other party, as reasonably requested and available, personnel
(including officers, directors, employees and agents) responsible for
preparing, maintaining, and interpreting information and documents relevant to
Taxes, and personnel reasonably required as witnesses or for purposes of
providing information or documents in connection with any administrative or
judicial proceedings relating to Taxes.
ARTICLE IX
TERMINATION
9.1 TERMINATION. This Agreement may be terminated at any time
prior to the Closing:
(a) by agreement of PCA and TPI;
(b) by either PCA or TPI by giving written notice of such
termination to the other party if the Closing shall not have occurred on or
prior to June 30, 1999, provided that the terminating party is not in material
breach of its obligations under this Agreement;
(c) by either PCA or TPI if there shall be in effect any law
or regulation that prohibits the consummation of the Closing or if consummation
of the Closing would violate any non-appealable final order, decree or judgment
of any court or governmental body having competent jurisdiction;
(d) by TPI if, as a result of action or inaction by PCA, the
Closing shall not have occurred on or prior to the date that is 10 Business Days
following the date on which the Closing is required to occur pursuant to Section
2.4;
(e) by PCA if, as a result of action or inaction by TPI, the
Closing shall not have occurred on or prior to the date that is 10 Business Days
following the date on which the Closing is required to occur pursuant to Section
2.4; or
(f) by either party, prior to Closing, following a material
breach of this Agreement by the other party hereto, upon 10 Business Days'
written notice to the breaching party, unless such breach is cured within such
10 Business Day period; provided that the terminating party is not in material
breach of its obligations under this Agreement.
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9.2 EFFECT OF TERMINATION. In the event of the termination of
this Agreement in accordance with Section 9.1, this Agreement shall thereafter
become void and have no effect, and no party hereto shall have any liability to
the other party hereto or their respective Affiliates, directors, officers or
employees, except for the obligations of the parties hereto contained in this
Section 9.2 and in Sections 10.1, 10.7, 10.8 and 10.11, and except that nothing
herein will relieve any party from liability for any breach of this Agreement
prior to such termination. Upon such termination, PCA shall (i) return
immediately all of the originals or copies of the Books and Records to TPI, (ii)
return (or, at TPI's option, destroy) all other copies of any Evaluation
Material (as defined in the Confidentiality Agreement) in its possession or in
the possession of its Affiliates, directors, officers, employees, agents and
attorneys, and (iii) hold, and cause each of said parties to hold, all of such
materials and the information contained in the Books and Records or Evaluation
Material in confidence subject to the terms of the Confidentiality Agreement.
ARTICLE X
MISCELLANEOUS
10.1 NOTICES. All notices or other communications hereunder
shall be deemed to have been duly given and made if in writing and if served by
personal delivery upon the party for whom it is intended, if delivered by
registered or certified mail, return receipt requested, or by a national courier
service, or if sent by facsimile transmission; provided that the facsimile
transmission is promptly confirmed by telephone confirmation thereof, to the
Person at the address or facsimile number set forth below, or such other address
or facsimile number as may be designated in writing hereafter, in the same
manner, by such Person:
To PCA: PCA HOLDINGS LLC
c/o Madison Dearborn Partners, Inc.
Three First National Plaza
Suite 3800
Chicago, IL 60602
Telephone: (312) 895-1000
Fax: (312) 895-1056
Attn: Samuel M. Mencoff
Justin S. Huscher
With a copy to: KIRKLAND & ELLIS
200 East Randolph Drive
Chicago, IL 60601
Telephone: (312) 861-2000
Fax: (312) 861-2200
Attn: William S. Kirsch, P.C.
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<PAGE> 71
To TPI: TENNECO PACKAGING INC.
1900 West Field Court
Lake Forest, Illinois 60045
Telephone: (847) 482-2447
Fax: (847) 482-4589
Attn: President
With a copy to: TENNECO PACKAGING INC.
1900 West Field Court
Lake Forest, Illinois 60045
Telephone: (847) 482-2430
Fax: (847) 482-4589
Attn: General Counsel
10.2 AMENDMENT; WAIVER. Any provision of this Agreement may be
amended or waived if, and only if, such amendment or waiver is in writing and
signed, in the case of an amendment, by PCA and TPI, or in the case of a waiver,
by the party against whom the waiver is to be effective. No failure or delay by
any party in exercising any right, power or privilege hereunder shall operate as
a waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided shall be cumulative and not
exclusive of any rights or remedies provided by law.
10.3 ASSIGNMENT. No party to this Agreement may assign any of
its rights or obligations under this Agreement without the prior written consent
of the other party hereto (not to be unreasonably withheld), except that (i) a
party may collaterally assign its rights and obligations under this Agreement to
a lender as security for a loan to Newco or its Subsidiaries, (ii) following
Closing, PCA and TPI may assign their rights, but not their obligations, to any
Person to whom PCA or TPI may transfer their shares in Newco, and (iii) Newco
may assign its rights under this Agreement in connection with any sale of all or
any portion of timberland (and tree farms associated with the Mills) including
any assets or operations related to or located thereon, to the extent such
assigned rights relate to the assets so sold.
10.4 ENTIRE AGREEMENT. This Agreement (including the
Preliminary Statements, all Schedules and Exhibits hereto and the Ancillary
Agreements) contains the entire agreement between the parties hereto with
respect to the subject matter hereof and supersedes all prior agreements and
understandings, oral or written, with respect to such matters, except for the
obligations of the parties under the Confidentiality Agreement and the
obligations of Madison Dearborn Partners, Inc., set forth in that certain letter
dated January 25, 1999, to Goldman, Sachs & Co., which obligations will remain
in full force and effect.
10.5 FULFILLMENT OF OBLIGATIONS. Any obligation of any party
to any other party under this Agreement or any of the Ancillary Agreements,
which obligation is performed, satisfied or fulfilled by an Affiliate of such
party, shall be deemed to have been performed, satisfied or fulfilled by such
party.
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<PAGE> 72
10.6 PARTIES IN INTEREST. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns. Nothing in this Agreement, express or implied,
is intended to confer upon any Person other than PCA, TPI, Newco or their
respective successors or permitted assigns, any rights or remedies under or by
reason of this Agreement.
10.7 PUBLIC DISCLOSURE. Notwithstanding anything herein to the
contrary, except as may be required to comply with the requirements of any
applicable Laws and the rules and regulations of each stock exchange upon which
the securities of one of the parties (or its Affiliate) is listed, no press
release or similar public announcement or communication shall, prior to the
Closing, be made or caused to be made concerning the execution or performance of
this Agreement unless specifically approved in advance by all parties hereto.
10.8 EXPENSES. Except as otherwise expressly provided in this
Agreement, whether or not the transactions contemplated by this Agreement are
consummated, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be borne by the party incurring
such expenses. Notwithstanding the foregoing, (a) all expenses of PCA shall be
paid by Newco, (b) all legal and accounting fees and expenses of TPI incurred in
connection with negotiating the terms of this Agreement and the Ancillary
Agreements and otherwise in connection with the transactions contemplated under
this Agreement and the Ancillary Agreements (not to exceed $2,000,000) shall be
paid by Newco, (c) the 1.5% Commitment Fee with respect to the Bridge Loan
pursuant to the Commitment Letters, if such commitment is obtained by Newco
pursuant to the direction of TPI, shall be paid by TPI as set forth in Section
5.3(b) hereof, and (d) the MDP Transaction Fee shall be paid by Newco, provided
that the aggregate amount of bank fees and expenses (excluding any Commitment
Fee with respect to the Bridge Loan) paid by Newco plus the MDP Transaction Fee
shall not exceed $90 million.
10.9 SCHEDULES. The disclosure of any matter in any Schedule
shall not be deemed to constitute an admission by PCA or TPI or to otherwise
imply that any such matter is material for the purposes of this Agreement.
10.10 BULK TRANSFER LAWS. PCA and Newco acknowledge that TPI
has not taken, and does not intend to take, any action required to comply with
any applicable bulk sale or bulk transfer laws or similar laws; provided that
TPI shall indemnify PCA for any Losses arising from such non-compliance.
10.11 GOVERNING LAW; SUBMISSION TO JURISDICTION; SELECTION OF
FORUM. This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Illinois. Each party hereto agrees that it shall bring
any action or proceeding in respect of any claim arising out of or related to
this Agreement or the transactions contained in or contemplated by this
Agreement, whether in tort or contract or at law or in equity, exclusively in
the United States District Court for the Northern District of Illinois or any
state court located in Cook County, Illinois (the "Chosen Courts") and (i)
irrevocably submits to the exclusive jurisdiction of the Chosen Courts, (ii)
waives any objection to laying venue in any such action
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<PAGE> 73
or proceeding in the Chosen Courts, (iii) waives any objection that the Chosen
Courts are an inconvenient forum or do not have jurisdiction over any party
hereto, and (iv) agrees that service of process upon such party in any such
action or proceeding shall be effective if notice is given in accordance with
Section 10.1 of this Agreement.
10.12 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, and all of which
shall constitute one and the same Agreement.
10.13 HEADINGS. The heading references herein and the table of
contents hereto are for convenience purposes only, do not constitute a part of
this Agreement and shall not be deemed to limit or affect any of the provisions
hereof.
10.14 SEVERABILITY. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any Person or any
circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (b) the remainder of this Agreement and the application of such
provision to other Persons or circumstances shall not be affected by such
invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application
thereof, in any other jurisdiction.
* * * * *
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<PAGE> 74
IN WITNESS WHEREOF, the parties have executed this
Contribution Agreement as of the date first written above.
TENNECO PACKAGING INC.
By: /s/ T.R. Tetzlaff
------------------------
Name: Theodore R. Tetzlaff
Title: General Counsel
PCA HOLDINGS LLC
By: /s/ Samuel M. Mencoff
------------------------
Name: Samuel M. Mencoff
Title: Managing Director
PACKAGING CORPORATION OF
AMERICA
By: /s/ Samuel M. Mencoff
------------------------
Name: Samuel M. Mencoff
Title: Vice President
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<PAGE> 75
SCHEDULES AND EXHIBITS
<TABLE>
<CAPTION>
SCHEDULES
- ---------
<S> <C>
Schedule PS-1 - Existing Financing Arrangements
Schedule PS-2 - Term Sheet for Management Stock Purchases
Schedule 1.1(ff) - Contributed Subsidiaries
Schedule 1.1(hhh) - TPI Employees with "Knowledge"
Schedule 1.1(mmm) - Exceptions to Material Adverse Change or Effect
Schedule 1.1(vvv) - Owned Real Property
Schedule 1.1(gggg) - Real Estate Leases
Schedule 1.1(pppp) - Retained Real Property
Schedule 1.1(llll)(iii) - Retained Notes Receivable
Schedule 1.1(nnnn)(iii) - Retained Litigation
Schedule 1.1(vvvv) - Supply Agreement Pricing Terms
Schedule 1.1(ggggg) - Services and Pricing under Transition Services
Agreement and Facility Use Agreement
Schedule 2.5 - Target Capital Expenditure
Schedule 3.1 - TPI Qualifications
Schedule 3.3 - TPI Consent and Approvals
Schedule 3.6 - Certain Matters Related to Financial Statements
Schedule 3.6 - Financing Statements
Schedule 3.6(e) - Changes Since 12/31/97
Schedule 3.7 - Litigation and Claims
Schedule 3.8 - Taxes
Schedule 3.9 - Employee Benefits
Schedule 3.10 - Compliance with Laws
Schedule 3.11 - Environmental Matters
Schedule 3.12 - Intellectual Property
Schedule 3.12(e) - Year 2000 language from most recent 10-Q
Schedule 3.13 - Labor Matters
Schedule 3.14 - Contracts
Schedule 3.16(a) - Exceptions to Entire Business
Schedule 3.16(b) - Encumbrances
Schedule 3.16(c) - Capital Structure of Contributed Subsidiaries
Schedule 3.18 - Insurance
Schedule 4.7(b) - PCA New Financing Arrangement Commitment Letters
Schedule 5.2 - Conduct of Business
Schedule 5.3 - Terms of PIK Preferred
Schedule 6.2(c) - Adjusted EBITDA
</TABLE>
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<PAGE> 76
EXHIBITS
- --------
Exhibit 1.1(aaa) - Human Resources Agreement
Exhibit 2.1A. - Newco Certificate of Incorporation
Exhibit 2.1B - Stockholders Agreement
Exhibit 2.1C - Registration Rights Agreement
<PAGE> 77
================================================================================
STOCKHOLDERS AGREEMENT
BY AND AMONG
TENNECO PACKAGING INC.,
PCA HOLDINGS LLC
AND
PACKAGING CORPORATION OF AMERICA
[CLOSING DATE TO BE INSERTED]
================================================================================
<PAGE> 78
STOCKHOLDERS AGREEMENT
THIS STOCKHOLDERS AGREEMENT (this "AGREEMENT") is made and
entered into as of the ____ day of __________, 1999, by and among TENNECO
PACKAGING INC., a Delaware corporation ("TPI"), PCA HOLDINGS LLC, a Delaware
limited liability company ("PCA"), and PACKAGING CORPORATION OF AMERICA, a
Delaware corporation ("NEWCO").
RECITALS
WHEREAS, TPI, PCA and Newco are parties to that certain
Contribution Agreement, dated as of January __, 1999 (the "CONTRIBUTION
AGREEMENT");
WHEREAS, pursuant to and subject to the terms and conditions
of the Contribution Agreement, each of TPI and PCA will contribute certain
assets to Newco or a Subsidiary of Newco in exchange for shares of the common
stock, $.01 par value per share (the "COMMON STOCK"), of Newco;
WHEREAS, PCA recognizes that TPI has substantial experience
and expertise in the ownership, management and operation of the Containerboard
Business (as such term and each other capitalized term used but not otherwise
defined herein is defined in the Contribution Agreement);
WHEREAS, TPI, PCA and Newco desire to enter into this
Agreement to set forth certain arrangements with respect to the ownership,
operation and management of Newco and its Subsidiaries; and
WHEREAS, the execution and delivery of this Agreement is a
condition to each of TPI's and PCA's respective obligation to effect the
Closing.
NOW, THEREFORE, in consideration of the foregoing and of the
mutual covenants and undertakings contained herein, and subject to and on the
terms and conditions herein set forth, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND TERMS
1.1 CERTAIN DEFINITIONS. As used herein, the following terms
shall have the meanings set forth or as referenced below:
"AFFILIATE" shall mean, with respect to any Person, any other
Person directly or indirectly controlling, controlled by or under common control
with such first Person as of the date on which, or at any time during the period
for which, the determination of affiliation is being made. For the purpose of
this definition, "control" means (i) the ownership or control of 50% or more of
the equity interest in any Person, or (ii) the ability to direct or cause the
direction of the management or affairs of a Person, whether through the direct
or indirect ownership of voting interests, by contract or otherwise.
<PAGE> 79
"AGREEMENT" shall mean this Agreement, including the exhibits
hereto, as the same may be amended or supplemented from time to time in
accordance with the terms hereof.
"BOARD" shall mean the Board of Directors of Newco.
"BUSINESS DAY" shall mean any day other than a Saturday, a
Sunday or a day on which banks in Chicago, Illinois are authorized or obligated
by Law or executive order to close.
"COMMISSION" shall mean the Securities and Exchange Commission
or any other federal agency at the time administering the Securities Act.
"COMMON STOCK" shall have the meaning set forth in the
Recitals hereto.
"CONTRIBUTION AGREEMENT" shall have the meaning set forth in
the Recitals hereto.
"CPA FIRM" shall mean the independent public auditor selected
pursuant to SECTION 4.3, or any subsequent independent public auditor of the
books and records of Newco appointed by the Board in accordance with the terms
of this Agreement.
"DEMAND REGISTRATION" shall have the meaning set forth in the
Registration Rights Agreement.
"DGCL" shall mean the General Corporation Law of the State of
Delaware.
"ENCUMBRANCES" shall mean liens, charges, encumbrances,
mortgages, pledges, security interests, options or any other restrictions or
third-party rights.
"EXEMPT SALE" shall mean: (i) any Transfer of Shares to an
Affiliate of the selling party; (ii) any distribution of securities by a Person
to its direct or indirect equity owners; (iii) an assignment or pledge of Shares
in connection with the incurrence, maintenance or renewal of indebtedness of
Newco or its Subsidiaries; (iv) any Transfer of Shares pursuant to a Public
Sale; and (v) any Transfer of Shares to directors, officers, or employees of
Newco or its Subsidiaries.
"GAAP" shall mean United States generally accepted accounting
principles, consistently applied.
"INDEPENDENT THIRD PARTY" means any Person who, immediately
prior to the contemplated transaction, is not the owner of in excess of 5% of
any class or series of Newco's common equity on a fully-diluted basis (a "5%
OWNER") and who is not an Affiliate of any such 5% Owner.
"LAW" shall mean any federal, state, foreign or local law,
constitutional provision, code, statute, ordinance, rule, regulation, order,
judgment or decree of any governmental authority.
"MANAGEMENT BUY-IN" shall mean the purchase of Management
Stock as contemplated by the Contribution Agreement.
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<PAGE> 80
"NEWCO" shall mean Packaging Corporation of America, a
Delaware Corporation.
"NEW SECURITIES" shall mean any shares of capital stock or
other equity securities (or debt securities convertible into such equity
securities) of Newco, whether now authorized or not, and rights, options or
warrants to purchase said shares of capital stock and securities of any type
whatsoever that are, or may become, convertible into shares of Newco capital
stock or other Newco equity securities; provided, however, that the term "New
Securities" shall not include: (i) securities issued in connection with any
stock split, stock dividend, reclassification or recapitalization of Newco; (ii)
shares of Common Stock issued to employees, consultants, officers or directors
of Newco or its Subsidiaries pursuant to: (A) the exercise of any stock option,
stock purchase or stock bonus plan, agreement or arrangement for the primary
purpose of soliciting or retaining the services of such Persons and which is
hereafter approved by the Board; or (B) the exercise of any stock option issued
pursuant to the Share Performance Plan; (iii) securities issued in a Public
Offering; (iv) securities issued in connection with the acquisition of any
business, assets or securities of another Person in compliance with SECTION 3.6
hereof; and (v) securities issued to any lender of Newco or one of its
Subsidiaries in compliance with SECTION 3.6 hereof.
"PCA" shall mean PCA Holdings LLC, a Delaware limited
liability company.
"PCA HOLDERS" shall collectively refer to PCA together with
any other Stockholders who directly or indirectly acquire any Shares from: (i)
PCA; or (ii) TPI pursuant to an Initial Period Pro-Rata Tag-Along as provided in
SUBSECTION 6.3(b)(ii) below.
"PERMITTED ENCUMBRANCES" shall mean liens for taxes,
assessments and other governmental charges not yet due and payable or due but
not delinquent or being contested in good faith by appropriate proceedings.
"PERSON" shall mean an individual, a corporation, a
partnership, an association, a trust, a limited liability company or any other
entity or organization.
"PRO RATA PORTION" shall mean, with respect to each
Stockholder, that number of shares of New Securities as is equal to the product
of (i) the total number of New Securities proposed to be issued or otherwise
transferred multiplied by (ii) a fraction, the numerator of which is the number
of shares of Common Stock (including any common equity issued or issuable in
respect of such Common Stock) held by such Stockholder immediately prior to such
issuance or transfer, and the denominator of which is the total number of shares
of Common Stock (including any such common equity issued or issuable in respect
of such Common Stock) which are held by all Stockholders.
"PUBLIC OFFERING" shall mean an underwritten public offering
pursuant to an effective registration statement under the Securities Act (or any
comparable form under any similar statute then in force), covering the offer and
sale of Common Stock.
"PUBLIC SALE" means: (i) any sale of Common Stock pursuant to
a Public Offering; or (ii) any Spin-Off.
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<PAGE> 81
"REGISTRATION RIGHTS AGREEMENT" shall have the meaning set
forth in the Contribution Agreement.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
or any similar federal statute, and the rules and regulations of the Commission
thereunder, as shall be in effect at the time.
"SERIES A PREFERRED STOCK" shall mean the one hundred (100)
authorized, issued and outstanding shares of Series A Preferred Stock entitled
to elect the CEO Director, with TPI holding 45 shares and PCA holding 55 shares,
respectively, of such Series A Preferred Stock.
"SHARE PERFORMANCE PLAN" shall mean the equity incentive plan
for directors, officers and employees of Newco and its Subsidiaries.
"SHARE PERFORMANCE PLAN AMOUNT" means the number of shares of
Common Stock equal to (i) 9.8% of the fully diluted Common Stock of Newco at
Closing, less (ii) the aggregate percentage of Common Stock sold pursuant to the
Management Buy-In.
"SHARES" shall mean any Common Stock held by any Stockholder
(including any equity securities issued or issuable in respect of such Common
Stock pursuant to a stock split, stock dividend, reclassification, combination,
merger, consolidation, recapitalization or other reorganization) and any other
capital stock of any class or series of Newco held by any Stockholder. As to any
particular Shares, such shares shall cease to be Shares for all purposes of this
Agreement when they have been sold or transferred pursuant to a Public Sale, and
the transferee of any Shares pursuant to a Public Sale shall not be considered a
Stockholder for purposes of this Agreement by virtue of the ownership of Shares
transferred pursuant to such Public Sale.
"SPIN-OFF" shall mean any distribution by TPI or one of its
Affiliates of all of its Shares of any class or series to its public
stockholders, if any.
"STOCKHOLDERS" means TPI, PCA and each Person other than Newco
who is or becomes bound by this Agreement; provided, however, that anything
contained in this Agreement to the contrary notwithstanding, directors, officers
and employees who directly or indirectly acquire Shares from TPI and PCA
pursuant to the Management Buy-In shall not be Stockholders for purposes of this
Agreement or bound by the terms hereof. Stockholders are sometimes individually
referred to herein as a "STOCKHOLDER".
"SUBSIDIARY" shall mean, with respect to any Person, any
corporation, limited liability company, partnership, joint venture or other
legal entity of which such Person, either directly or through or together with
any other Subsidiary of such Person, owns 50% or more of the equity interests.
"SUBSIDIARY BOARD" has the meaning set forth in SECTION 3.3.
"TPI" shall mean Tenneco Packaging Inc., a Delaware
corporation.
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<PAGE> 82
"TPI HOLDERS" shall collectively refer to: (i) TPI; and (ii)
any other Stockholders who directly or indirectly acquire any Shares from TPI
except for Stockholders who directly or indirectly acquire Shares from TPI
pursuant to an Initial Period Pro-Rata Tag-Along as provided in SUBSECTION
6.3(b)(ii) below.
"TPI REGISTRABLE SECURITIES" shall have the meaning set forth
in the Registration Rights Agreement.
"VOTING STOCK" shall mean securities of Newco of any class or
series the holders of which are entitled to vote generally in the election of
directors of Newco.
1.2 OTHER DEFINITIONAL PROVISIONS.
(a) The words "hereof", "herein", and "hereunder", and words
of similar import, when used in this Agreement, shall refer to this Agreement as
a whole and not to any particular provision of this Agreement.
(b) The terms defined in the singular shall have a comparable
meaning when used in the plural, and vice versa.
(c) The terms "dollars" and "$" shall mean United States
dollars.
(d) The term "including" shall be deemed to mean "including
without limitation."
(e) Capitalized terms used but not otherwise defined herein
shall have the meanings ascribed to such terms in the Contribution Agreement.
ARTICLE II
BUSINESS AND OPERATIONS OF NEWCO
2.1 PURPOSES AND BUSINESS. Except as otherwise approved
pursuant to SECTION 3.6(i)(c), the sole and exclusive purpose of Newco and its
Subsidiaries shall be to engage in the business of producing and selling
containerboard and corrugated packaging products (other than folding carton,
molded fiber and honeycomb paperboard-type products), including without
limitation, the Containerboard Business (the "BUSINESS SCOPE"). Newco shall not
and shall not permit any of its Subsidiaries to (and PCA shall not cause or, to
the extent reasonably within PCA's control, permit Newco or any of its
Subsidiaries to) engage in any other activity or business except to the extent
approved by the Board in accordance with the terms and conditions hereof.
2.2 PRINCIPAL EXECUTIVE OFFICES. The principal executive
offices of Newco shall be located at 1900 West Field Court, Lake Forest,
Illinois or such other location as determined by the Board.
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<PAGE> 83
2.3 ANNUAL BUSINESS PLAN.
(a) PREPARATION. No later than 90 days prior to the expiration
of any fiscal year of Newco, the Board shall discuss and approve (in the manner
set forth in SECTION 3.6 hereof) an annual business plan and budget for Newco
and its Subsidiaries (the "ANNUAL BUSINESS PLAN") for the next succeeding fiscal
year, which plan shall address, among other things:
(i) The general business direction, policies and programs
for Newco and its Subsidiaries during such period;
(ii) A budget for Newco and its Subsidiaries for such
period, setting forth projected revenues, costs and
expenses (including capital expenditures);
(iii) The extent to which Newco and/or its Subsidiaries
will make any expenditures in connection with
business acquisitions; and
(iv) Information, plans, budgets, forecasts and
projections of the nature included in the annual
business plan for 1999 set forth as EXHIBIT 2.3(a),
which shall be the initial Annual Business Plan.
The Board is expressly empowered to delegate to the management of Newco the
responsibility for the initial preparation of each Annual Business Plan, subject
to the final approval of each such plan by the Board as provided herein.
(b) EFFECT OF ANNUAL BUSINESS PLAN. The parties agree that the
business and operations of Newco and its Subsidiaries will be conducted in
accordance with the applicable Annual Business Plan in all material respects and
in compliance with SECTION 3.6 hereof.
ARTICLE III
BOARD OF DIRECTORS
3.1 GENERAL. From and after the Closing, each Stockholder will
vote all of its respective Shares and any other Voting Stock over which it
possesses direct or indirect voting power and will take all other necessary or
desirable actions within its direct or indirect control (whether in its capacity
as a stockholder of Newco or otherwise), and Newco will take all necessary and
desirable actions within its control, in order to give effect to the provisions
of this ARTICLE III. By way of example and without limiting the generality of
the foregoing, TPI and PCA shall amend the Certificate of Incorporation or
By-laws or both, as applicable, of Newco and each Subsidiary to incorporate and
effectuate the provisions in this ARTICLE III and to authorize and designate the
Series A Preferred Stock for the purpose of implementing the provisions relating
to the CEO Director as provided herein. With respect to the enumeration of the
matters in SECTION 3.6 below, such matters shall be set forth in the By-laws
(and not the Certificate of Incorporation) except with respect to the
establishment of committees of the Board and each Subsidiary Board and the
dissolution of Newco, which matters shall be set forth in the Certificate of
Incorporation.
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<PAGE> 84
3.2 POWERS. Subject to the provisions of the DGCL, the
Certificate of Incorporation of Newco, the By-laws of Newco and this Agreement,
the business and affairs of Newco shall be managed by or under the direction of
the Board.
3.3 SIZE AND COMPOSITION. The Board shall consist of six
individuals as follows: (i) two directors shall be designated in writing by TPI;
(ii) three directors shall be designated in writing by PCA; and (iii) the
remaining director shall be the Chief Executive Officer of Newco (the "CEO
Director"). The directors in the preceding clause (i) (the "TPI DIRECTORS") and
in the preceding clause (ii) (the "THE PCA DIRECTORS") are sometimes
collectively referred to as the "TPI/PCA DIRECTORS." TPI and PCA, as the holders
of the Series A Preferred Stock and thus entitled to elect the CEO Director,
shall: (x) at each election of directors (or filling of a vacancy with respect
to the CEO Director), elect the individual then serving as the Chief Executive
Officer of Newco as the CEO Director; and (y) remove the CEO Director if the CEO
Director ceases to serve as the Chief Executive Officer of the Company. The size
and composition of the board of directors or similar governing body of each
Subsidiary of Newco (each, a "SUBSIDIARY BOARD") and the manner in which the
initial members and any subsequent members (including any subsequent member
selected or appointed to fill a vacancy) of any such Subsidiary Board will be
the same as that of the Board. Anything to the contrary contained herein
notwithstanding, the rights of each of TPI and PCA to designate directors as
provided herein shall not be assignable (by operation of law, the transfer of
Shares or otherwise) without the prior written consent of the other; provided,
however, that each of TPI and PCA shall be entitled to assign its rights to
designate directors as provided herein to one of its Affiliates that is (or
becomes) a Stockholder without the prior written consent of the other. If
directed by PCA, a representative of J.P. Morgan & Co. shall be entitled to
attend meetings of (and receive information provided to the directors of) the
Board and each Subsidiary Board; provided, however, that such representative
shall not be or have any rights of a director of the Board or any Subsidiary
Board.
3.4 TERM; REMOVAL; VACANCIES. The members of the Board or any
Subsidiary Board other than the CEO Director shall hold office at the pleasure
of the Stockholder which designated them. Any such Stockholder may at any time,
by written notice to the other Stockholder and Newco, remove (with or without
cause) any member of the Board or any Subsidiary Board designated by such
Stockholder other than the CEO Director. Subject to applicable Law, no member of
the Board or any Subsidiary Board may be removed except by written request by
the Stockholder that designated the same. In the event a vacancy occurs on the
Board (or a Subsidiary Board) for any reason, the vacancy will be filled by the
written designation of the Stockholder entitled to designate the director
creating the vacancy.
3.5 NOTICE; QUORUM. Meetings of the Board and any Subsidiary
Board may be called upon three days' prior written notice to all directors
stating the purpose or purposes thereof. Such notice shall be effective upon
receipt, in the case of personal delivery or facsimile transmission,
and five Business Days after deposit with the U.S. Postal Service, postage
prepaid, if mailed. The presence in person of three of the five TPI/PCA
Directors shall constitute a quorum for the transaction of business at any
special, annual or regular meeting of the Board or any Subsidiary Board. Each
Stockholder shall use its reasonable efforts to ensure that a quorum is present
at any duly convened meeting of the Board or any Subsidiary Board and each of
TPI and PCA may designate by written notice to the other an alternate
representative to act in the absence of any of its
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<PAGE> 85
designates at any such meeting. If at any meeting of the Board or any Subsidiary
Board a quorum is not present, a majority of the directors present may, without
further notice, adjourn the meeting from time to time until a quorum is
obtained.
3.6 VOTING. Each member of the Board and each Subsidiary Board
shall be entitled to cast one vote on each matter considered by such Board and
Subsidiary Board, respectively; provided, however, that in the event that a vote
would result in a 3-3 tie with respect to a matter, the CEO Director shall not
be entitled to vote with respect to such matter (the Board and each Subsidiary
Board shall poll its members prior to any vote to effectuate the purposes of
this sentence). Except as otherwise expressly provided by this Agreement, the
act of a majority of the members of the Board and each Subsidiary Board present
at any meeting at which a quorum is present shall constitute an act of the Board
or Subsidiary Board, as applicable. Notwithstanding anything to the contrary
contained herein: (i) the following matters shall require, in addition to any
other vote required by applicable law, the affirmative vote of at least four of
the five TPI/PCA Directors; (ii) Newco shall not directly or indirectly take,
and shall not permit any of its Subsidiaries to directly or indirectly take, any
of the following actions without first obtaining such approval; and (iii) PCA
shall not cause or, to the extent reasonably within PCA's control, permit Newco
or any of its Subsidiaries to take any of the following actions without first
obtaining such approval:
(i) (a) the approval of any Annual Business Plan, (b) any
material change to an approved Annual Business Plan, and (c) engaging
in or the ownership or operation of any activities or business by Newco
and/or any of its Subsidiaries which are not within the Business Scope;
(ii) subject to applicable Law, any dissolution or liquidation
of Newco;
(iii) (a) during the 12-month period beginning on the Closing
Date, any amendment of the certificate of incorporation, articles of
incorporation, by-laws or other governing documents of Newco or any of
its Subsidiaries (other than such amendment which may be necessary in
connection with other actions (or inactions) which would be permissible
under this Agreement but for this clause (a)); and (b) from and after
such 12-month period, any amendment of the certificate of
incorporation, articles of incorporation, by-laws or other governing
documents of Newco or any of its Subsidiaries which would: (1) treat
any TPI Holder disproportionately vis-a-vis any PCA Holder; (2) place
any restriction or limitation on the ability of any TPI Holder to
Transfer all or any portion of its Shares or reduce the consideration
received or to be received by such TPI Holder in connection with such
Transfer; or (3) cause such governing documents, taken as a whole, to
be less favorable to a stockholder than the typical governing documents
of a publicly traded company engaged in a business within the Business
Scope;
(iv) any merger, consolidation, reorganization (except as
provided in Section 253 of the DGCL and except for a merger,
consolidation or reorganization in which the consideration to be
received by TPI is cash, publicly traded securities or a combination
thereof, and TPI Holders are not treated disproportionately or
differently than PCA Holders) or the issuance of capital stock or other
securities of Newco or any of its Subsidiaries (other than the
formation of or issuance of securities of a wholly-owned Subsidiary,
the issuance of up to the
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number of shares of Common Stock equal to the Share Performance Plan
Amount pursuant to the Share Performance Plan and other than issuances
of a number of shares of Common Stock which, on a cumulative basis from
and after the Closing, does not exceed 5% of the number of shares of
Common Stock outstanding as of the Closing and other than issuances
pursuant to the Management Buy-In);
(v) the sale, transfer, exchange, license, assignment or other
disposition by Newco and/or any of its Subsidiaries of assets having a
fair market value exceeding $32.5 million in any transaction or series
of related transactions (excluding sales of inventory and other assets
in the ordinary course of business and timberlands sales pursuant to
SECTION 5.2 hereof), except in each case for Permitted Encumbrances;
(vi) the acquisition of assets (tangible or intangible) by
Newco and/or any of its Subsidiaries (including any capital expenditure
not included in the approved Annual Business Plan) for an acquisition
price exceeding $32.5 million in value in any transaction or series of
related transactions (excluding acquisitions of inventory and other
assets in the ordinary course of business);
(vii) the acquisition of another Person or an existing
business from another Person in any transaction or series of related
transactions or the entry into any partnership or formal joint venture
or similar arrangement involving an acquisition price or investment
exceeding $32.5 million in value;
(viii) the refinancing of existing indebtedness, amendment of
any existing loan or financing arrangement or incurrence of any new
indebtedness by Newco and/or any of its Subsidiaries on terms which
either: (a) are, taken as a whole, less favorable to Newco and its
Subsidiaries than the terms then reasonably available in the financial
markets to similarly situated borrowers; (b) place any restriction or
limitation on the ability of any TPI Holder to Transfer all or any
portion of its Shares; or (c) include any event of default or other
materially adverse consequence to Newco and/or any of its Subsidiaries
(including, for example, an increase in the interest rate) as a result
of a sale of all or a portion of any Stockholder's Shares;
(ix) the making or guarantee by Newco or any of its
Subsidiaries of any loan or advance to any Person except: (a) in the
ordinary course of business; (b) to a wholly owned Subsidiary; (c) for
advances to employees in amounts not to exceed $500,000 to any one
individual and $5 million in the aggregate; (d) for loans or advances
made in connection with any acquisition of the business, capital stock
or assets or any other Person that is otherwise permitted or approved
as provided by this SECTION 3.6; and (e) guarantees, loans and advances
in connection with the Management Buy-In and Share Performance Plan,
not to exceed $15 million in the aggregate;
(x) the entry into, or amendment of, contracts or other
transactions between Newco and/or any of its Subsidiaries, on the one
hand, and a Stockholder or any Affiliate thereof, on the other hand
except for: (a) the execution and delivery of the Contribution
Agreement, Ancillary Agreements and other documents and agreements to
be delivered by
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Newco at Closing pursuant to the Contribution Agreement; and (b)
contracts, amendments and transactions which are no less favorable to
Newco and its Subsidiaries than could be obtained from TPI or its
Affiliates or Independent Third Parties negotiated on an arms-length
basis;
(xi) the direct or indirect redemption, retirement, purchase
or other acquisition of any equity securities of Newco or any of its
Subsidiaries (other than securities of its wholly owned Subsidiary)
except for pro rata redemptions with respect to the proceeds received
from the disposition of the timberlands or any of the assets or
operations related thereto or located thereon;
(xii) the appointment of the members of any committee of the
Board or any Subsidiary Board, unless at least one member of such
committee is a director who was designated by TPI;
(xiii) (a) the creation of any Subsidiary, unless: (1) all of
the equity interests of such Subsidiary are owned by Newco, or by
another Subsidiary in which all the equity interests of such other
Subsidiary are owned directly or indirectly by Newco; and (2) the
by-laws or similar governing documents of each such Subsidiary contain
provisions regarding the size, composition, quorum requirements and
voting of the board of directors equivalent to those provided for
herein with respect to Newco; and (b) the Transfer of any equity
interest in a Subsidiary other than to Newco or another Subsidiary in
which all the equity interests of such other Subsidiary are owned by
Newco.
(xiv) removal of the independent public auditors of Newco or a
Subsidiary of Newco or appointment of any public auditors which are not
one of the Big Five accounting firms; and
(xv) delegation of any of the matters covered by any of
clauses (i) through (xiv) above to any committee of the Board or
committee of any Subsidiary Board.
Notwithstanding the foregoing: (i) the approvals required by
this SECTION 3.6 with respect to any of the matters in SUBSECTIONS (ii) THROUGH
(xv) above shall not apply to any matter included in an Annual Business Plan
which has been approved pursuant to this SECTION 3.6; and (ii) nothing in this
SECTION 3.6 shall restrict the sale of the timberlands or any of the assets or
operations related thereto or located thereon.
TPI hereby covenants and agrees, as more fully described in
this paragraph, that it shall use its reasonable good faith efforts to not cause
or, to the extent reasonably within its control, permit any member of the Board
or Subsidiary Board designated by TPI to withhold approval of a matter
recommended for approval by management of Newco and presented to the Board or
Subsidiary Board for consideration which requires the affirmative vote of four
of the five TPI/PCA Directors pursuant to this SECTION 3.6. TPI's covenant and
agreement in the preceding sentence: (i) shall relate only to matters, the
approval of which TPI determines in good faith are in the best interests of TPI
and its stockholders and Affiliates; and (ii) is exclusive to TPI and shall not
be binding upon any direct or indirect transferee of TPI's Shares.
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3.7 TELEPHONIC MEETINGS; WRITTEN CONSENTS. Except as may
otherwise be provided by applicable Law, any action required or permitted to be
taken at any meeting of the Board or any committee thereof may be taken without
a meeting pursuant to a written consent, in compliance with the DGCL and SECTION
3.6 hereof and such written consent is filed with the minutes of the proceedings
of the Board or such committee. Any meeting of the Board or any committee
thereof may be held by conference telephone or similar communication equipment,
so long as all Board or committee members participating in the meeting can hear
one another clearly, and participation in a meeting by use of conference
telephone or similar communication equipment shall constitute presence in person
at such meeting.
3.8 INITIAL DIRECTORS. TPI and PCA shall make their
designations pursuant to SECTION 3.3 on or prior to the Closing Date.
3.9 RECAPITALIZATION OF NEWCO UNDER CERTAIN CIRCUMSTANCES. For
any Public Offering or Spin-Off prior to the time Newco becomes subject to the
Exchange Act with respect to Shares: (i) Newco shall use commercially reasonable
efforts to effect a stock split, stock dividend or stock combination which, in
the opinion of the managing underwriter for the Public Offering or TPI's
financial advisor in connection with a Spin-Off, is desirable for the sale,
marketing or distribution of the Shares to the public; and (ii) each Stockholder
agrees to vote all of its respective Shares and any other Voting Stock over
which it posses direct or indirect voting power in order to cause such stock
split, dividend or combination to be effected consistent with the provisions of
this SECTION 3.9.
ARTICLE IV
ACCOUNTING, BOOKS AND RECORDS
4.1 FISCAL YEAR. The fiscal year of Newco shall be the period
commencing January 1 in any year and ending December 31 of that year, except
that the first fiscal year of Newco shall commence on the Closing Date and end
on December 31 of the year in which the Closing Date occurs.
4.2 BOOKS AND RECORDS. Newco shall keep at its principal
executive offices books and records typically maintained by Persons engaged in
similar businesses and which set forth a true, accurate and complete account of
the business and affairs of Newco and its Subsidiaries, including a fair
presentation of all income, expenditures, assets and liabilities thereof. Such
books and records shall include all information reasonably necessary to permit
the preparation of financial statements required by applicable Law in accordance
with GAAP. Each Stockholder who, together with its Affiliates, owns 17-1/2% or
more of the outstanding common equity of Newco (a "17-1/2% Stockholder") and its
respective authorized representatives shall have the right, at all reasonable
times and upon reasonable advance written notice to Newco, to have access to,
inspect, audit and copy the original books, records, files, securities,
vouchers, canceled checks, employment records, bank statements, bank deposit
slips, bank reconciliations, cash receipts and disbursement records, and other
documents of Newco and its Subsidiaries.
4.3 AUDITORS. Newco shall engage one of the Big Five
accounting firms as the initial independent public auditors of Newco and its
Subsidiaries.
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4.4 REPORTING. Newco shall use its reasonable best efforts to
deliver to each Stockholder unaudited consolidated interim financial statements
for Newco and its Subsidiaries for such fiscal quarter (including a balance
sheet as of the end of such period and statements of income, stockholders'
equity and cash flows for such period within 30 days after the close of each
fiscal quarter. Newco will use its reasonable best efforts to deliver to each
Stockholder within 60 days after the close of each fiscal year of Newco
consolidated annual financial statements for Newco and its Subsidiaries for such
fiscal year (including a balance sheet as of the end of such fiscal year and
statements of income, stockholders' equity and cash flows for such fiscal year),
in each case audited and certified by the CPA Firm. Such annual and interim
financial statements shall contain such statements and schedules, prepared in
accordance with the requirements of the Stockholders, as may be requested in
writing by any of the 17-1/2% Stockholders. Newco shall bear the cost of
providing financial and accounting information reasonably required by any of the
17-1/2% Stockholders in the preparation of such 17-1/2% Stockholder's own
financial statements. Such annual and interim financial statements shall be
prepared in accordance with GAAP, shall be true and accurate in all material
respects and shall present fairly the financial position and results of
operations of Newco.
4.5 STOCKHOLDER'S AUDIT. Upon reasonable advance written
notice to Newco, any Stockholder may request an audit of the books and records
of Newco and its Subsidiaries (a "STOCKHOLDER'S AUDIT") by an independent
auditor of its selection, other than the CPA Firm. Any Stockholder's Audit shall
be at the expense of the requesting 17-1/2% Stockholder unless material error or
fraud is found, in which case such audit shall be at the expense of Newco. All
information obtained by any 17-1/2% Stockholder in any such audit shall be
treated as confidential.
4.6 CONSENT OF NEWCO AUDITORS. Upon request from time to time
by TPI, Newco shall use its commercially reasonable efforts to obtain the
written agreements of Newco's auditors to permit the use of Newco's Audited
Financial Statements in connection with TPI's and/or its Affiliates filings made
with the Securities and Exchange Commission and, subject to such auditor's
normal procedures, in private or public offerings of securities of TPI and/or
its Affiliates as may be reasonably requested by TPI. In addition, Newco will
use commercially reasonable efforts to cause Newco's auditors to provide a
comfort letter in accordance with SAS 72 for any such offering.
ARTICLE V
CERTAIN MATTERS REGARDING STOCKHOLDERS AND NEWCO
5.1 TRANSACTIONS BETWEEN STOCKHOLDERS AND NEWCO. The
Stockholders hereby approve on behalf of Newco the Contribution Agreement and
each of the Ancillary Agreements and other documents and agreements to be
delivered by Newco at the Closing pursuant to the Contribution Agreement, and
the transactions contemplated thereby.
5.2 SALE OF TIMBERLANDS. Newco, TPI and PCA hereby acknowledge
that it is their mutual intention to effect a sale for cash of the timberlands
(and the assets and operations related thereto and located thereon) included in
the Contributed Assets and to distribute the net proceeds from any such sale as
soon as practicable following the Closing Date. If and to the extent the net
proceeds from any such sale are distributed to the holders of the Common Stock,
such distribution shall be on a pro-rata basis among such holders.
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ARTICLE VI
TRANSFER OF SHARES
6.1 GENERAL. No Stockholder will directly or indirectly sell,
assign, pledge, encumber, hypothecate, dispose of or otherwise transfer
("TRANSFER") any Shares or interest in any Shares, agree to any such Transfer or
permit any such interest to be subject to Transfer, directly or indirectly, by
merger or other operation of law, agreement or otherwise, except pursuant to and
in compliance with the provisions of this ARTICLE VI. Any purported Transfer in
any other manner, unless otherwise expressly permitted by this ARTICLE VI, shall
be null and void, and shall not be recognized or given effect by Newco or any
Stockholder. Any other provision of this Agreement, including, without
limitation, in this Article VI, to the contrary notwithstanding (except pursuant
to Section 8.1), neither TPI nor PCA shall Transfer any Shares of the Series A
Preferred Stock prior to the termination of this Agreement.
6.2 TRANSFERS BY TPI HOLDERS.
(a) PERMITTED TRANSFERS. A TPI Holder may at any time, without
the consent of any other Stockholder, Transfer any or all of its Shares or
interests in Shares to any Affiliate or third Person or Persons or pursuant to a
Public Sale, subject to the remaining provisions of this SECTION 6.2; provided,
however, that, except in the case of a Public Sale, TPI shall not Transfer any
Shares to any other Person then engaged, directly or indirectly, in a business
within the Business Scope with annual revenues from such business in excess of
$100 million without PCA's prior written consent. The foregoing consent right
shall not be assignable by PCA or inure to the benefit of any transferee,
successor or assign of PCA, except for an Affiliate of PCA who is (or becomes) a
Stockholder. Notwithstanding the foregoing and except in the case of a Public
Sale or sale to directors, officers or employees of Newco pursuant to the
Management Buy-In, any Transfer of Shares by a TPI Holder shall be null and void
and Newco shall refuse to recognize such Transfer unless the transferee executes
and delivers to each party hereto an agreement (a "TPI JOINDER AGREEMENT"): (i)
acknowledging that all Shares or interests in any Shares so transferred are and
shall remain subject to this Agreement; and (ii) agreeing to be bound hereby.
Upon execution of a TPI Joinder Agreement, except as otherwise expressly
provided herein and except for any right hereunder to consent to any action or
proposed action (including, without limitation, any proposed Transfer of
Shares), the rights of the transferring TPI Holder hereunder with respect to the
Shares transferred shall be assigned to such transferree. Any TPI Holder shall
notify the other parties of any intended Transfer of Shares or interests in
Shares pursuant to this SECTION 6.2 (other than pursuant to an Exempt Sale),
giving the name and address of the intended transferee; provided, however, that
no otherwise valid Transfer shall be rendered invalid solely as a result of a
failure to give notice hereunder. Transferees of a TPI Holder shall assume all
obligations of the transferring TPI Holder hereunder, but, except with respect
to an Affiliate of TPI, shall not be entitled to any rights of a TPI Holder.
6.3 TRANSFERS BY PCA HOLDERS.
(a) PERMITTED TRANSFERS. A PCA Holder may at any time, without
the consent of any other Stockholder, (i) Transfer any or all of its Shares to
an affiliate of PCA, (ii) Transfer any
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or all its Shares pursuant to an Exempt Sale, or (iii) sell any or all of its
Shares to any other third Person or Persons or pursuant to a Public Sale or
otherwise Transfer Shares, subject to the remaining provisions of this SECTION
6.3. The foregoing consent right shall not be assignable by TPI or inure to the
benefit of any transferee, successor or assign of TPI, except for an Affiliate
of TPI who is (or becomes) a Stockholder. Notwithstanding the foregoing and
except in the case of a Public Sale or sale to directors, officers or employees
of Newco pursuant to the Management Buy-In, any Transfer of Shares by an PCA
Holder shall be null and void and Newco shall refuse to recognize such Transfer
unless the transferee executes and delivers to each party hereto an agreement
(an "PCA JOINDER AGREEMENT"): (i) acknowledging that all Shares or interests in
any Shares so transferred are and shall remain subject to this Agreement; and
(ii) agreeing to be bound hereby. Upon execution of an PCA Joinder Agreement,
except as otherwise expressly provided herein and except for any right hereunder
to consent to any action or proposed action (including, without limitation, any
proposed Transfer of Shares), the rights of the transferring PCA Holder
hereunder with respect to the Shares transferred shall be assigned to such
transferee. Any PCA Holder shall notify the other parties of any intended
Transfer of Shares or interests in Shares pursuant to this SECTION 6.3 (other
than an Exempt Sale), giving the name and address of the intended transferee;
provided, however, that no otherwise valid Transfer shall be rendered invalid
solely as a result of a failure to give notice hereunder.
(b) TAG-ALONG RIGHTS. TPI and its Affiliates shall have
tag-along rights as provided in this SECTION 6.3(b):
(i) In the event any PCA Holder desires to sell all or any
part of any class or series of its Shares to a third Person (other than pursuant
to an Exempt Sale), it shall provide prior written notice (the "SALE NOTICE") to
TPI setting forth in reasonable detail the terms and conditions on which the
proposed sale is to be made and identifying the proposed purchaser. TPI shall
have the option (the "TAG-ALONG OPTION") to sell any or all of its Shares of the
same class and series to the proposed purchaser on the terms and conditions set
forth in such Sale Notice subject to the provisions set forth in this Section
6.3(b). TPI shall exercise its Tag-Along Option by giving written notice to PCA
within ten Business Days following its receipt of the Sale Notice, which notice
shall specify the number of Shares of the same class and series as to which TPI
is exercising its Tag- Along Right (the "SPECIFIED SHARES"). In the event TPI
exercises its Tag-Along Option with respect to any Sale Notice: (A) if such
exercise is within 14 months after the Closing Date, the PCA Holder shall not be
entitled to sell any of its Shares unless and until the prospective purchasers
or PCA has purchased all of the Specified Shares; and (B) if such exercise is
more than 14 months after the Closing Date, TPI shall be entitled to sell its
pro rata share (based on the number of Shares proposed to be sold by the PCA
Holder and TPI, respectively) of the Shares proposed to be sold by the PCA
Holder in the Sale Notice, in each case on terms and conditions no less
favorable than specified in the Sale Notice or otherwise applicable to the sale
to such prospective purchasers by the PCA Holder. In the event TPI does not
exercise its Tag-Along Option with respect to any Sale Notice, the PCA Holder
shall be entitled to sell all or any part of its Shares as specified in the Sale
Notice to the prospective purchaser specified in the Sale Notice on the terms
and conditions set forth in the Sale Notice (subject to the provisions of the
third sentence of SECTION 6.3(a) hereof).
(ii) Notwithstanding SUBSECTION 6.3(b)(i) above, with respect
to sales by a PCA Holder of any part of any class or series of its Shares to a
third Person (other than pursuant to an Exempt Sale) prior to the expiration of
the six-month period beginning on the Closing Date at a per
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share price which does not exceed the per share price paid (excluding any
interest for the carrying cost of such Share) by such PCA Holder for such Shares
pursuant to the Contribution Agreement:
(A) TPI and its Affiliates shall not have a Tag-Along
Option during such six-month period for (i) sales of
Shares (other than PIK Preferred) in the aggregate
amount of $40 million; and (ii) the sale of 9.3% of
the number of Shares of PIK Preferred issued at
Closing ("EXCLUDED TAG-ALONG SALES); and
(B) TPI shall have a Tag-Along Option on a pro-rata basis
(i.e., on the same basis applicable 14 months after
the Closing Date as provided in SUBSECTION 6.3(b)(i)
above) with respect to such sales of Shares by PCA
Holders during such six-month period in excess of the
Excluded Tag Along Sales up to an aggregate amount of
consideration for such additional sales of $100
million (the "INITIAL PERIOD PRO-RATA TAG -ALONG").
The provisions of this SUBSECTION 6.3(b)(ii) shall terminate upon the expiration
of the six-month period beginning on the Closing Date.
(iii) Notwithstanding anything in this Agreement to the
contrary, the rights under this SECTION 6.3(b) shall be exclusive to TPI and its
Affiliates and shall not be assignable to or inure to the benefit of any
transferee of TPI or any successors or assigns of TPI, other than Affiliates of
TPI.
6.4 DRAG-ALONG RIGHTS.
(a) DRAG-ALONG SALE. If a sale of all or substantially all of
Newco's assets determined on a consolidated basis or a sale of all or
substantially all of Newco's outstanding capital stock (whether by merger,
recapitalization, consolidation, reorganization, combination or otherwise) to
any Independent Third Party or group of Independent Third Parties is approved by
the Board or the holders of a majority of the Shares of Common Stock held by the
PCA Holders (a "DRAG-ALONG SALE"), each Stockholder will consent to raise no
objections against such Drag-Along Sale on the terms and subject to the
conditions set forth in the remaining provisions of this SECTION 6.4.
(b) DRAG-ALONG NOTICE. A notice regarding any Drag-Along Sale
(a "DRAG-ALONG NOTICE") shall be delivered within two Business Days following
approval of any Drag-Along Sale by Newco or the PCA Holders to each Stockholder.
The Drag-Along Notice shall include a copy of a bona fide offer from the
intended buyer, which shall set forth the principal terms of the Drag-Along
Sale, including the name and address of the intended buyer.
(c) DRAG-ALONG SALE OBLIGATIONS. In connection with any
Drag-Along Sale, the Stockholders shall, and shall elect directors who shall,
take all necessary or desirable actions in connection with the consummation of
the Drag-Along Sale. If the Drag-Along Sale is structured as: (i) a merger or
consolidation, each Stockholder shall waive any dissenters rights, appraisal
rights or similar rights in connection with such merger or consolidation; (ii) a
sale of stock, each Stockholder shall agree to sell all of its Shares and rights
to acquire Shares on the terms and conditions so approved; or (iii) a sale or
assets, each Stockholder shall vote in favor of such sale and any
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subsequent liquidation of Newco or other distribution of the proceeds therefrom.
Each Stockholder shall take all necessary or desirable actions in connection
with the consummation of the Drag-Along Sale reasonably requested by PCA or
Newco, and each Stockholder shall be obligated to agree on a pro rata, several
(and not joint) basis (based on the share of the aggregate proceeds paid in such
Drag-Along Sale) to any indemnification obligations that the PCA Holders agree
to provide in connection with such Drag-Along Sale (other than any such
obligations that relate specifically to a particular holder of Shares such as
indemnification with respect to representations and warranties given by a holder
regarding such holder's title to and ownership of Shares).
(d) CONDITIONS TO DRAG-ALONG SALE OBLIGATIONS. The obligations
of each Stockholder with respect to a Drag-Along Sale are subject to the
satisfaction of the following conditions: (i) the consideration to be received
by the Stockholders with respect to the Drag-Along Sale shall consist only of
cash, publicly-traded securities, or a combination of cash and publicly-traded
Securities; (ii) if any holders of a class or series of Shares are given an
option as to the form and amount of consideration to be received, each holder of
such class or series of Shares will be given the same option; (iii) each holder
of then currently exercisable rights to acquire shares of a class or series of
Shares will be given an opportunity to exercise such rights prior to the
consummation of the Drag-Along Sale and participate in such sale as holders of
such class or series of Shares; and (iv) each Stockholder shall be entitled to
receive consideration per each Share in connection with the Drag-Along Sale at
least equivalent to the consideration received per each Share of the same class
and series by any PCA Holder in connection with the Drag-Along Sale.
(e) EXPENSES. Each Stockholder will bear its pro-rata share
(based on the share of the aggregate proceeds paid in such Drag-Along Sale) of
the costs of any sale of Shares pursuant to a Drag-Along Sale to the extent such
costs are incurred for the benefit of all holders of Common Stock and are not
otherwise paid by Newco or the acquiring party. For purposes of this SECTION
6.4(e), costs incurred in exercising reasonable efforts to take all necessary
actions in connection with the consummation of a Drag-Along Sale in accordance
with this SECTION 6.4 shall be deemed to be for the benefit of all holders of
Common Stock. Costs incurred by Stockholders on their own behalf will not be
considered costs of the transaction hereunder.
(f) EXCEPTION TO DRAG-ALONG. Notwithstanding anything to the
contrary contained in this SECTION 6.4, no Stockholder shall have any obligation
under this SECTION 6.4 with respect to a Drag-Along Sale if the Drag-Along
Notice with respect to the Drag-Along Sale is received by TPI after the holders
of TPI Registrable Securities have requested a Demand Registration and for a
period thereafter ending on the date following consummation of the sale of all
Shares subject to such Demand Registration unless, in the opinion of the
managing underwriter for such Demand Registration, the per Share consideration
payable pursuant to the Drag-Along Sale exceeds the net proceeds per Share
expected to be received by selling stockholders pursuant to the Demand
Registration.
6.5 INDIRECT TRANSFERS OF INTERESTS. Any Transfer of equity
securities of PCA which results in the group of Persons holding such equity
securities immediately following the transactions contemplated in the
Contribution Agreement from ceasing to beneficially own, as a group, directly or
indirectly, 50.1% or more of the equity securities of PCA or enough voting
equity of PCA to be able to cause a majority of the board of managers (or
equivalent governing body or
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members) to be elected shall be deemed to be a Transfer of Shares hereunder and
any such Transfer shall be subject to the provisions of this ARTICLE VI as if
PCA had directly transferred Shares.
6.6 LEGENDS. A copy of this Agreement shall be filed with the
Secretary of Newco and kept with the records of Newco. Each of the Stockholders
hereby agrees that each outstanding certificate representing Shares shall bear a
conspicuous legend reading substantially as follows:
"The securities represented by this Certificate have not been
registered under the Securities Act of 1933 or the applicable state and
other securities laws and may not be sold, pledged, hypothecated,
encumbered, disposed of or otherwise transferred without compliance
with the Securities Act of 1933 or any exemption thereunder and
applicable state and other securities laws. The securities represented
by this Certificate are subject to the restrictions on transfer and
other provisions of a Stockholders Agreement dated as of __________,
1999, (as amended from time to time, the "Agreement") by and among
Packing Corporation of America (the "Company") and certain of its
stockholders, and may not be sold, pledged, hypothecated, encumbered,
disposed of or otherwise transferred except in accordance therewith. A
copy of the Agreement is on file at the principal executive offices of
the Company.
ARTICLE VII
RIGHTS ON NEW SECURITY ISSUANCE
7.1 PREEMPTIVE RIGHTS. Newco hereby grants to each Stockholder
the irrevocable and exclusive first option (the "FIRST OPTION") to purchase all
or part of its Pro Rata Portion of any New Securities which Newco may, from time
to time after the date of this Agreement, propose to issue and sell or otherwise
transfer.
7.2 NOTICES WITH RESPECT TO PROPOSED ISSUANCE OF NEW
SECURITIES. In the event Newco proposes to undertake an issuance or other
transfer of New Securities, it shall give each Stockholder entitled to a First
Option pursuant to this ARTICLE VII written notice (the "COMPANY NOTICE") of its
intention, describing in detail the type of New Securities, the price and the
terms upon which Newco proposes to issue or otherwise transfer such New
Securities. Each such Stockholder shall have 10 Business Days from the date of
receipt of any such Company Notice to agree to purchase, pursuant to the
exercise of the First Option, up to such Stockholder's Pro Rata Portion of each
type and class and series of such New Securities (i.e., the same strips) for the
price and upon the terms and conditions specified in the Company Notice by
giving written notice to Newco and stating therein the quantity of New
Securities to be purchased.
7.3 COMPANY'S RIGHT TO COMPLETE PROPOSED SALE OF NEW
SECURITIES TO THE EXTENT PREEMPTIVE RIGHTS ARE NOT EXERCISED. In the event the
Stockholders fail to exercise a preemptive right with respect to any New
Securities within the periods specified in SECTION 7.2, Newco shall have 90 days
thereafter to sell or enter into an agreement (pursuant to which the sale of
such New Securities shall be closed, if at all, within 45 days from the date of
said agreement) to sell the New Securities not elected to be purchased by the
Stockholders at the price and upon terms not
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substantially more favorable to the prospective purchasers of such securities
than those specified in Newco Notice. In the event Newco has not sold the New
Securities or entered into an agreement to sell the New Securities within said
90-day period. Newco shall not thereafter issue or sell or otherwise transfer
such New Securities without first offering such securities to the Stockholders
in the manner provided in this ARTICLE VII.
7.4 CLOSING OF PURCHASE. If a Stockholder elects to purchase
up to its Pro Rata Portion of any New Securities set forth in any Company
Notice, such purchase shall be consummated at such time and at such location
selected by Newco upon reasonable advance notice. At the consummation of any
purchase and sale of New Securities pursuant to this ARTICLE VII: (i) Newco
shall issue or otherwise transfer to the Stockholder the certificates evidencing
the New Securities being purchased, together with such other documents or
instruments reasonably required by counsel for the Stockholder to consummate
such purchase and sale; (ii) the Stockholder will deliver the cash consideration
payable by wire transfer of immediately available funds to an account or
accounts designated in writing by Newco (such designation to be made no later
than two Business Days prior to the date of such consummation); (iii) Newco
shall deliver to the Stockholder a written representation that the New
Securities are being purchased and sold free and clear of any and all
Encumbrances; and (iv) the Stockholder shall deliver to Newco such written
investment representations as may reasonably be required by counsel to Newco for
securities Laws purposes and all other applicable representations and warranties
as other purchasers of New Securities. Notwithstanding the foregoing, any
purchase of New Securities pursuant to this Article VII shall be on the same
terms and conditions as set forth in the Company Notice.
ARTICLE VIII
TERM
8.1 TERM. Subject to the next sentence, unless earlier
terminated by mutual agreement of TPI and PCA, this Agreement shall terminate
upon the earliest to occur of: (i) the complete liquidation or dissolution of
Newco or its Subsidiaries; (ii) a Public Offering; (iii) such date as TPI and
its Affiliates first hold less than 17-1/2% of Newco's outstanding Common Stock
or; (iv) the acquisition of all or substantially all of the stock or assets of
TPI (whether by stock sale, asset sale, merger, consolidation, combination or
otherwise) by a Person engaged, directly or indirectly, in a business within the
Business Scope with annual revenues from such business in excess of $100
million; provided; however, that in the case of termination pursuant to clause
(iv), TPI (or its successor in interest) shall (unless or until this Agreement
is terminated pursuant to clauses (i)-(iii)) have the right at each election of
directors to designate as the two TPI Directors of Newco and each Subsidiary who
are not directors, officers, employees or affiliates of such Person and are
approved by PCA, such approval not to be unreasonably withheld; provided,
further, that in case of any termination pursuant to this SECTION 8.1, unless
otherwise determined by PCA, this Agreement shall nevertheless remain in full
force and effect with respect to the drag-along provisions set forth in SECTION
6.4 and all related definitions and provisions to the extent necessary or
desirable to give full force and effect to SECTION 6.4. The rights of each of
TPI and PCA to terminate this Agreement by mutual agreement and the right of PCA
to terminate this Agreement with respect to the drag-along provisions of SECTION
6.4 are not assignable by TPI or PCA, and shall not inure to the benefit of any
transferee, successor or assign of TPI or TPI, other than to an Affiliate of
such party who is (or
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becomes) a Stockholder, without the prior written consent of the other. Upon the
termination of this Agreement pursuant to clauses (i)-(iv) (regardless of
whether certain provisions of this Agreement survive such termination), TPI
shall sell the 45 shares of Series A Preferred Stock held by it to PCA for the
fair market value thereof, as determined by the auditors of Newco.
ARTICLE IX
MISCELLANEOUS
9.1 NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed to have been given if: (i) delivered in
person (to the individual whose attention is specified below) or via facsimile
(followed immediately with a copy in the manner specified in clause (ii)
hereof); (ii) sent by prepaid first-class registered or certified mail, return
receipt requested; or (iii) sent by recognized overnight courier service, as
follows:
to Newco:
Packaging Corporation of America
1900 West Field Court
Lake Forest, IL 60045
Attention: President
to TPI:
Tenneco Packaging Inc.
1900 West Field Court
Lake Forest, IL 60045
Attention: President
Facsimile: (847) 482-4589
with a copy to:
Tenneco Packaging Inc.
1900 West Field Court
Lake Forest, IL 60045
Attention: General Counsel
Facsimile: (847) 482-4589
with a copy to:
Jenner & Block
One IBM Plaza
Chicago, Illinois 60611
Attention: Timothy R. Donovan
Facsimile: (312) 840-7271
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to PCA:
PCA Packaging LLC
c/o Madison Dearborn Partners, Inc.
Three First National Plaza
Suite 3800
Chicago, IL 60602
Attention: Samuel M. Mencoff
Justin S. Huscher
Facsimile: (312) 895-1056
with a copy to:
Kirkland & Ellis
200 E. Randolph Drive
Chicago, IL 60601
Attention: William S. Kirsch, P.C.
Facsimile: (312) 861-2200
to other Stockholders:
To the address which appears
on the books and records
of Newco
or to such other address as any party hereto may, from time to time, designate
in a written notice given in like manner. All notices and other communications
hereunder shall be effective: (i) the day of delivery when delivered by hand,
facsimile or overnight courier; and (ii) three Business Days from the date
deposited in the mail in the manner specified above.
9.2 AMENDMENT; WAIVER. Any provision of this Agreement may be
amended or waived if, and only if, such amendment or waiver is in writing and
signed: (i) in the case of an amendment, by: (A) Newco; (B) Stockholders holding
a majority of the Shares of Common Stock held by the TPI Holders; (C)
Stockholders holding a majority of the Shares of Common Stock held by PCA
Holders; and (D) by each of PCA and TPI (in each case only so long as such
Person or any of its Affiliates is a Stockholder); or (ii) in the case of a
waiver, by the party against whom the waiver is to be effective. The rights of
TPI and PCA to consent to a amendment to this Agreement shall not be assignable
by TPI or PCA and shall not inure to the benefit of any transferee, successor or
assign of TPI or PCA, other than to an Affiliate of such party who is a (or in
connection therewith, becomes) Stockholder, without the prior written consent of
the other. No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. Except as otherwise provided
herein, the rights and remedies herein provided shall be cumulative and not
exclusive of any rights or remedies provided by law.
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9.3 ASSIGNMENT. Except as otherwise expressly provided herein,
no party to this Agreement may assign any of its rights or obligations under
this Agreement without the prior written consent of the other parties hereto.
9.4 ENTIRE AGREEMENT. This Agreement (including the exhibits
hereto), contains the entire agreement among the parties hereto with respect to
the subject matter hereof and supersedes all prior agreements and
understandings, oral or written, with respect to such matters.
9.5 PUBLIC DISCLOSURE. Each of the parties hereby agrees that,
except as may be required to comply with the requirements of any applicable Laws
or the rules and regulations of any stock exchange upon which its securities (or
the securities of one of its Affiliates) are traded, it shall not make or permit
to be made any press release or similar public announcement or communication
concerning the execution or performance of this Agreement unless specifically
approved in advance by all parties hereto. In the event, however, that legal
counsel for any party is of the opinion that a press release or similar public
announcement or communication is required by Law or by the rules and regulations
of any stock exchange on which such party's securities (or the securities of one
of such party's Affiliates) are traded, then such party may issue a public
announcement limited solely to that which legal counsel for such party advises
is required under such Law or such rules and regulations (and the party making
any such announcement shall provide a copy thereof to the other party for review
before issuing such announcement).
9.6 PARTIES IN INTEREST. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns. Nothing in this Agreement, express or implied,
is intended to confer upon any Person other than Newco, TPI, PCA or their
respective successors or permitted assigns, any rights or remedies under or by
reason of this Agreement.
9.7 GOVERNING LAW; SUBMISSION TO JURISDICTION; SELECTION OF
FORUM. This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Delaware, without giving effect to its principles of
conflicts of laws. Each party hereto agrees that it shall bring any action or
proceeding in respect of any claim arising out of or related to this agreement
or the transactions contained in or contemplated by this agreement, whether in
tort or contract or at law or in equity, exclusively in any United States
federal court or any state court located in the State of Illinois (the "CHOSEN
COURTS") and: (i) irrevocably submits to the exclusive jurisdiction of the
Chosen Courts; (ii) waives any objection to laying venue in any such action or
proceeding in the Chosen Courts; (iii) waives any objection that the Chosen
Courts are an inconvenient forum or do not have jurisdiction over any party
hereto; and (iv) agrees that service of process upon such party in any such
action or proceeding shall be effective if notice is given in accordance with
SECTION 9.1 of this Agreement.
9.8 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, and all of which
shall constitute one and the same Agreement.
9.9 SEVERABILITY. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof or
thereof. If any provision of this Agreement, or the application thereof to
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<PAGE> 99
any Person or any circumstance, is invalid or unenforceable: (a) a suitable and
equitable provision shall be substituted therefor in order to carry out, so far
as may be valid and enforceable, the intent and purpose of such invalid or
unenforceable provision; and (b) the remainder of this Agreement and the
application of such provision to other Persons or circumstances shall not be
affected by such invalidity or unenforceability, nor shall such invalidity or
unenforceability affect the validity or enforceability of such provision, or the
application thereof, in any other jurisdiction.
9.10 HEADINGS. The heading references and the table of
contents herein are for convenience purposes only, do not constitute a part of
this Agreement and shall not be deemed to limit or affect any of the provisions
hereof.
9.11 EQUITABLE RELIEF. Each party acknowledges that money
damages would be inadequate to protect against any actual or threatened breach
of this Agreement by any party and that each party shall be entitled to
equitable relief, including specific performance and/or injunction, without
posting bond or other security in order to enforce or prevent any violations of
the provisions of this Agreement.
9.12 NO PARTNERSHIP. This Agreement shall not constitute an
appointment of any party as the agent of any other party, nor shall any party
have any right or authority to assume, create or incur in any manner any
obligation or other liability of any kind, express or implied, against, in the
name or on behalf of, any other party. Nothing herein or in the transactions
contemplated by this Agreement shall be construed as, or deemed to be, the
formation of a partnership by or among the parties hereto.
* * * *
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<PAGE> 100
IN WITNESS WHEREOF, the parties have executed or caused this
Agreement to be executed as of the date first written above.
TENNECO PACKAGING INC.
By:
-----------------------------
Name:
Title:
PCA HOLDINGS LLC
By:
-----------------------------
Name:
Title:
PACKAGING CORPORATION OF AMERICA
By:
-----------------------------
Name:
Title:
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<PAGE> 101
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement ("AGREEMENT") is made this
__ day of __________, 1999 by and among Tenneco Packaging Inc., a Delaware
corporation ("TPI"), PCA Holdings LLC, a Delaware limited liability company
("PCA"), and Packaging Corporation of America, a Delaware corporation ("NEWCO").
PRELIMINARY RECITALS
1. TPI, PCA and Newco are parties to that certain Contribution
Agreement, dated as of __________, 1999 (the "CONTRIBUTION AGREEMENT"), relating
to the organization, ownership and management of Newco and certain other
matters.
2. As an inducement to TPI and PCA to enter into and
consummate the transactions contemplated by the Contribution Agreement, Newco
has agreed to provide certain registration rights to TPI and PCA and transferees
(to the extent provided herein) of their equity securities of Newco as provided
herein.
NOW, THEREFORE, the parties hereto AGREE as follows:
1. CERTAIN DEFINITIONS.
"COMMON STOCK" means the common stock, par value $.01 per
share, of Newco.
"PERSON" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, a limited
liability company or other unincorporated organization, and a governmental
entity or any department, agency or political subdivision thereof.
"PIK SECURITIES" means the preferred stock of Newco with a
pay-in-kind feature, as described in the Commitment Letters (as such term is
defined in the Contribution Agreement).
"REGISTRABLE SECURITIES" means, as of any date: (i) Common
Stock and PIK Securities issued pursuant to the Contribution Agreement to TPI,
PCA or any of their respective Affiliates on the date hereof; and (ii) any
Common Stock or PIK Securities issued or issuable with respect to the Common
Stock or PIK Securities in the preceding clause (i) by way of or in connection
with a stock dividend, stock split, combination of shares, share subdivision,
share exchange, recapitalization, merger, consolidation or other reorganization
or transaction (including without limitation any PIK Securities issued pursuant
to the terms of PIK Securities). As of any date, Registrable Securities owned by
TPI or any of its Affiliates are sometimes referred to herein as "TPI
REGISTRABLE SECURITIES." As of any date, Registrable Securities owned by PCA or
any of its Affiliates are sometimes referred to herein as "PCA REGISTRABLE
SECURITIES." As of any date, Registrable Securities owned by any direct or
indirect transferee of TPI (other than an Affiliate of
<PAGE> 102
TPI) or by any direct or indirect transferee of PCA (other than an Affiliate of
PCA) are sometimes referred to herein as "TRANSFEREE REGISTRABLE SECURITIES." As
to any particular Registrable Securities, such securities will cease to be
Registrable Securities when they have been distributed to the public pursuant to
a offering registered under the Securities Act of 1933, as amended from time to
time (the "SECURITIES ACT"), or distributed to the public in compliance with
Rule 144 under the Securities Act. For purposes of this Agreement, a Person will
be deemed to be a holder of Registrable Securities whenever such Person has the
right to acquire directly or indirectly such Registrable Securities (upon
conversion or exercise in connection with a transfer of securities or otherwise,
but disregarding any restrictions or limitations upon the exercise of such
right), whether or not such acquisition has actually been effected.
"REGISTRATION EXPENSES" means any and all expenses incident to
performance of, or compliance with any registration of securities pursuant to,
this Agreement, including, without limitation: (i) the fees, disbursements and
expenses of Newco's counsel and accountants; (ii) the fees, disbursements and
expenses of one or more firms, as applicable pursuant to the terms of this
Agreement, selected as counsel for the holders of the Registrable Securities in
connection with the registration of the securities to be disposed of; (iii) all
expenses, including registration and filing fees, in connection with the
preparation, printing, filing and distribution of the registration statement,
any preliminary prospectus or final prospectus, term sheets and any other
offering documents, and amendments and supplements thereto, and the mailing and
delivering of copies thereof to any underwriters and dealers; (iv) the cost of
printing or producing any underwriting agreements and blue sky or legal
investment memoranda, and any other documents in connection with the offering,
sale or delivery of the securities to be disposed of; (v) all expenses in
connection with the qualification of the securities to be disposed of for
offering and sale under state securities laws, including the fees, disbursements
and expenses of counsel for the underwriters or the holders of the Registrable
Securities in connection with such qualification and in connection with any blue
sky and legal investment surveys; (vi) the filing fees incident to securing any
required review by the National Association of Securities Dealers, Inc. of the
terms of the sale of the securities to be disposed of; (vii) transfer agents'
and registrars' fees and expenses and the fees and expenses of any other agent
or trustee appointed in connection with such offering; (viii) all security
engraving and security printing expenses; (ix) all fees, disbursements and
expenses payable in connection with the listing of the securities on any
securities exchange or automated interdealer quotation system and the rating of
such securities; (x) any other fees, disbursements and expenses of underwriters
customarily paid by the sellers of securities (excluding underwriting discounts
and commissions); (xi) all liability insurance expense; and (xii) other
out-of-pocket expenses of the holders of the Registrable Securities
participating in such registration. Notwithstanding the foregoing, each holder
of the Registrable Securities and Newco shall be responsible for its own
internal administrative and similar costs.
2. DEMAND REGISTRATIONS.
(a) GENERAL. At any time and from time to time, upon written
notice from either the holders of at least 75% of the TPI Registrable Securities
or the holders of at least 75% of the PCA Registrable Securities requesting that
Newco effect the registration under the Securities Act of any or all the TPI
Registrable Securities or the PCA Registrable Securities, respectively, Newco
shall effect the registration (under the Securities Act and applicable state
securities laws) of such securities (and other Registrable Securities subject to
Sections 2(c) and 2(d) below) in accordance with such
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notice, Section 5 below and the other provisions of this Agreement. The notice
shall specify the approximate number of Registrable Securities to be registered
and the expected per share price range for the offering. A registration pursuant
to this Section 2 is sometimes referred to herein as a "DEMAND REGISTRATION."
(b) LIMITATIONS ON DEMAND REGISTRATIONS; DEMAND REGISTRATION
FORMS AND EXPENSES. The holders of the TPI Registrable Securities, on the one
hand, and the holders of the PCA Registrable Securities, on the other hand, each
shall be entitled to separately request pursuant to this Section 2:
(i) three (3) effected registrations on Form S-1
or any similar or successor long form
registration including, without limitation,
Form A contemplated by the Securities and
Exchange Commission ("SEC") in Release No.
33-7606 dated October 15, 1998 (the
"AIRCRAFT CARRIER RELEASE") ("LONG-FORM
REGISTRATIONS") in which Newco shall pay all
Registration Expenses;
(ii) an unlimited number of registrations on Form
S-2 or S-3 or any similar or successor short
form registration including, without
limitation, Form B contemplated by the SEC
in the Aircraft Carrier Release ("SHORT-FORM
REGISTRATIONS") in which Newco shall pay all
Registration Expenses; and
(iii) an unlimited number of Long-Form
Registrations in which the holders of the
Registrable Securities participating in such
registration shall pay all Registration
Expenses.
For purposes of clause (iii) above, each holder of securities included in
accordance with this Agreement in any registration pursuant to clause (iii)
shall pay those Registration Expenses allocable to the registration of such
holder's securities so included, and any Registration Expenses not so allocable
will be borne by all sellers of securities included in such registration in
proportion to the aggregate selling price of the securities to be so registered.
Newco shall pay and be solely responsible for Registration Expenses with respect
to registrations effected under clause (i) and (ii) above.
After Newco has become subject to the Securities Exchange Act
of 1934, as amended from time to time ("EXCHANGE ACT"), Newco will use its
reasonable best efforts to make Short-Form Registrations available for the sale
of Registrable Securities. Demand Registrations will be Short- Form
Registrations whenever Newco is permitted to use any applicable short form;
provided, however, that Newco shall nevertheless use a Long-Form Registration
Statement in the event that both: (i) the use of a Short-Form Registration
Statement would limit the offering to existing security holders, qualified
institutional buyers or other classes of offerees or would otherwise, in the
opinion of the managing underwriters, have an adverse effect on the offering
under the Securities Act and regulations thereunder as then in effect; and (ii)
the holders of 90% of the TPI Registrable Securities or PCA Registrable
Securities, as the case may be, initially requesting the Demand Registration
direct in such request that Newco utilize a Long-Form Registration Statement.
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Notwithstanding any other provision of this Agreement to the
contrary, a registration requested hereunder shall not be deemed to have been
effected: (i) unless it has become and remains effective for the period
specified in Section 5(b); (ii) if after it has become effective such
registration is interfered with by any stop order, injunction or other order or
requirement of the Securities and Exchange Commission ("SEC") or other
governmental agency or court for any reason other than due solely to the fault
of the holders of the Registrable Securities participating therein and, as a
result thereof, the Registrable Securities requested to be registered cannot be
completely distributed in accordance with the plan of distribution set forth in
the registration statement; or (iii) if the conditions to closing specified in
any purchase agreement or underwriting agreement entered into in connection with
any such registration are not satisfied or waived other than due solely to the
fault of the holders of the Registrable Securities participating therein. In
addition, a Demand Registration initially requested by the holders of the TPI
Registrable Securities shall not be deemed to have been effected if the holders
of the TPI Registrable Securities are unable, as a result of the priority
provisions in Section 2(d) below, to sell at least 90% of the TPI Registrable
Securities initially requested to be included in such registration. Similarly, a
Demand Registration initially requested by the holders of the PCA Registrable
Securities shall not be deemed to have been effected if the holders of the PCA
Registrable Securities are unable, as a result of the priority provisions in
Section 2(d) below, to sell at least 90% of the PCA Registrable Securities
initially requested to be included in such registration.
(c) NOTICE TO OTHER HOLDERS; SELECTION OF UNDERWRITER AND
HOLDER'S COUNSEL. Within five (5) days after receipt of a request for a Demand
Registration, Newco will give prompt written notice (in any event within five
(5) days after its receipt of notice of any exercise of Demand Registration
rights under this Agreement) of such request to all other holders of Registrable
Securities, and subject to Section 2(d) below, will include within such
registration all Registrable Securities with respect to which Newco has received
written requests for inclusion therein within fifteen (15) days after receipt of
Newco's notice. The holders of a majority of the TPI Registrable Securities or
PCA Registrable Securities, as applicable, submitting the initial request (i.e.
excluding the holders submitting requests after Newco's notice) shall have the
right to select the investment bankers and managers for the offering, subject to
the approval of the other holders of the TPI Registrable Securities and PCA
Registerable Securities, if any, participating in such registration pursuant to
this Agreement, which approval shall not be unreasonably withheld.
Counsel for all holders of Registrable Securities in
connection with such registration shall be selected: (i) by the holders of a
majority of the TPI Registrable Securities, if holders of the TPI Registrable
Securities make the initial registration request; or (ii) by the holders of a
majority of the PCA Registrable Securities, if the holders of the PCA
Registrable Securities make the initial registration request; provided, however,
if the holders of a majority of the PCA Registrable Securities, on the one hand,
and a majority of the TPI Registrable Securities, on the other hand, reasonably
conclude, after consultation with the other, that such representation is likely
to result in a conflict of interest or materially adversely affect either
group's rights in connection with such registration, then the holders of a
majority of the PCA Registrable Securities and the holders of a majority of the
TPI Registrable Securities, respectively, shall each be entitled to select a
separate firm to represent them as counsel in connection with such registration.
The fees and expenses of such firm or firms acting as counsel for the holders of
the Registrable Securities shall be paid by Newco.
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(d) PRIORITY ON DEMAND REGISTRATIONS. Newco shall not include
in any Demand Registration any securities which are not Registrable Securities
without the prior written consent of the holders of at least 90% of the
Registrable Securities included in such registration. If a Demand Registration
is an underwritten offering and the managing underwriters advise Newco in
writing that in their opinion the number of Registrable Securities and, if
permitted hereunder, other securities requested to be included in such offering
exceeds the number of Registrable Securities and other securities, if any, which
can be sold in an orderly manner in such offering within a price range
acceptable to the holders of a majority of the TPI Registrable Securities or PCA
Registrable Securities, as applicable, initially requesting registration, Newco
will include in such registration:
(A) if requested by the holders of the TPI
Registrable Securities or by the holders of the PCA
Registrable Securities at any time during the 14-month period
commencing on the date hereof (the "SPECIAL PRIORITY PERIOD"),
only the number of Registrable Securities which such
underwriters advise in writing can be sold in such manner and
within such price range in the following order of priority:
(i) first, the TPI Registrable Securities, if
any, requested to be included therein,
pro-rata among the holders of such TPI
Registrable Securities on the basis of the
number of shares requested to be included by
each such holder;
(ii) second, the PCA Registrable Securities, if
any, requested to be included therein,
pro-rata among the holders of such PCA
Registrable Securities on the basis of the
number of shares requested to be included by
each such holder;
(iii) third, the Transferee Registrable
Securities, if any, requested to be included
therein, pro-rata among the holders of such
Transferee Registrable Securities on the
basis of the number of shares requested to
be included by each such holder; and
(iv) fourth, any other securities requested to be
included in such registration; and
(B) if requested by the holders of the TPI
Registrable Securities or by the holders of the PCA
Registrable Securities at any time after the Special Priority
Period, only the number of Registrable Securities which such
underwriters advise in writing can be sold in such manner and
within such price range in the following order of priority:
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(i) first, the TPI Registrable Securities and
the PCA Registrable Securities requested to
be included therein, pro-rata among the
holders of such Registrable Securities on
the basis of the number of shares requested
to be included by each such holder;
(ii) second, the Transferee Registrable
Securities, if any, requested to be included
therein, pro-rata among the holders of such
Transferee Registrable Securities on the
basis of the number of shares requested to
be included by each such holder; and
(iii) third, any other securities requested to be
included in such registration.
(e) RESTRICTIONS ON DEMAND REGISTRATIONS. Newco will not be
obligated to effect any Demand Registration within 90 days after the effective
date of a previous Demand Registration or previous registration in which holders
of Registrable Securities were given piggyback rights pursuant to Section 3 at
an offering price acceptable to the holders of the Registrable Securities and in
which there was no reduction in the number of Registrable Securities requested
to be included. Additionally, Newco may postpone for up to 90 days (on not more
than one occasion during any 12-month period) the filing or the effectiveness of
a registration statement for a Demand Registration if, based on the advice of
counsel, Newco reasonably determines that such Demand Registration would likely
have an adverse effect on any proposal or plan by Newco to engage in any
acquisition of assets (other than in the ordinary course of business) or any
merger, consolidation, tender offer or similar transaction; provided, however,
that in such event, the holders of Registrable Securities initially requesting
such Demand Registration will be entitled to withdraw such request and, if such
request is withdrawn, such Demand Registration will not count as one of the
permitted Demand Registrations hereunder and Newco will pay all Registration
Expenses in connection with such registration.
(f) OTHER REGISTRATION RIGHTS. Newco will not register for the
benefit of any Person other than TPI, PCA or their respective direct or indirect
transferees, or grant to any such other Person the right to request Newco to
register or to participate in Piggyback Registrations with respect to, any
equity securities of Newco, or any securities convertible or exchangeable into
or exercisable for such securities, without the prior written consent of both
(i) TPI, as long as it or any of its Affiliates owns any TPI Registrable
Securities and (ii) PCA, as long as it or any of its Affiliates owns any PCA
Registrable Securities.
3. PIGGYBACK REGISTRATIONS.
(a) GENERAL; NOTICE TO HOLDERS. In addition to the
registration rights in Section 2 above, whenever Newco proposes to register any
of its securities under the Securities Act (other than pursuant to a Demand
Registration hereunder) and the registration form to be used may be used for the
registration of Registrable Securities, Newco will give prompt written notice
(in any event within five (5) days after its receipt of notice of any exercise
of demand registration rights other than under this Agreement) to all holders of
Registrable Securities of its intention to effect such a registra tion. Subject
to Sections 3(c) and 3(d) below, Newco shall include in such registration all
Registrable
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Securities with respect to which Newco has received written requests for
inclusion therein within fifteen (15) days after the receipt of Newco's notice.
Registrations under this Section 3 are sometimes referred to herein as
"PIGGYBACK REGISTRATIONS."
(b) NUMBER OF PIGGYBACK REGISTRATIONS; PIGGYBACK REGISTRATION
EXPENSES. The holders of the Registrable Securities shall be entitled to
participate in an unlimited number of Piggyback Registrations. The Registration
Expenses of the holders of Registrable Securities will be paid by Newco in all
Piggyback Registrations.
(c) PRIORITY ON PRIMARY PIGGYBACK REGISTRATIONS. Subject to
Section 3(f) below, if a Piggyback Registration is an underwritten primary
registration on behalf of Newco, and the managing underwriters advise Newco in
writing that in their opinion the number of securities requested to be included
in such registration exceeds the number which can be sold in an orderly manner
in such offering within a price range acceptable to Newco, Newco will include in
such registration:
(A) in the case of a registration with respect to
which Newco has provided notice under Section 3(a) above at
any time during the Special Priority Period, only the number
of securities (including Registrable Securities) which such
underwriters advise in writing can be sold in such manner and
within such price range in the following order of priority:
(i) first, the securities Newco proposes to sell;
(ii) second, the TPI Registrable Securities, if
any, requested to be included therein,
pro-rata among the holders of such TPI
Registrable Securities on the basis of the
number of shares requested to be included by
each such holder;
(iii) third, the PCA Registrable Securities, if
any, requested to be included therein,
pro-rata among the holders of such PCA
Registrable Securities on the basis of the
number of shares requested to be included by
each such holder;
(iv) fourth, the Transferee Registrable
Securities, if any, requested to be included
therein, pro-rata among the holders of such
Transferee Registrable Securities on the
basis of the number of shares requested to
be included by each such holder; and
(v) fifth, any other securities requested to be
included in such registration; and
(B) in the case of a registration with respect to
which Newco has provided notice under Section 3(a) above at
any time after the Special Priority Period, only the number of
securities (including Registrable Securities) which such
underwriters advise in writing can be sold in such manner and
within such price range in the following order of priority:
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(i) first, the securities Newco proposes to sell;
(ii) second, the TPI Registrable Securities and
the PCA Registrable Securities, if any,
requested to be included therein, pro-rata
among the holders of such Registrable
Securities on the basis of the number of
shares requested to be included by each such
holder;
(iii) third, the Transferee Registrable
Securities, if any, requested to be included
therein, pro-rata among the holders of such
Transferee Registrable Securities on the
basis of the number of shares requested to
be included by each such holder; and
(iv) fourth, any other securities requested to be
included in such registration.
(d) PRIORITY ON SECONDARY PIGGYBACK REGISTRATIONS. Subject to
Section 3(f) below, if a Piggyback Registration is an underwritten secondary
registration on behalf of holders of Newco's securities, and the managing
underwriters advise Newco in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number
which can be sold in an orderly manner in such offering within a price range
acceptable to the holders initially requesting such registration, Newco will
include in such registration:
(A) in the case of a registration with respect to
which Newco has provided notice under Section 3(a) above at
any time during the Special Priority Period, only the number
of securities (including Registrable Securities) which can be
sold in such manner and within such price range in the
following order of priority:
(i) first, the securities requested to be
included therein by the holders requesting
such registration and the TPI Registrable
Securities, if any, requested to be included
therein, pro-rata among the holders of such
securities (including Registrable
Securities) on the basis of the number of
shares requested to be included by each such
holder;
(ii) second, the PCA Registrable Securities, if
any, requested to be included therein,
pro-rata among the holders of such PCA
Registrable Securities on the basis of the
number of shares requested to be included by
each such holder;
(iii) third, the Transferee Registrable
Securities, if any, requested to be included
therein, pro-rata among the holders of such
Transferee Registrable Securities on the
basis of the number of shares requested to
be included by each such holder; and
(iv) fourth, any other securities requested to be
included in such registration; and
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(B) in the case of a registration with respect to
which Newco has provided notice under Section 3(a) above at
any time after the Special Priority Period, only the number of
securities (including Registrable Securities) which can be
sold in such manner and within such price range in the
following order of priority:
(i) first, the securities requested to be
included therein by the holders requesting
such registration, the TPI Registrable
Securities, if any, requested to be included
therein, and the PCA Registrable Securities,
if any, requested to be included therein,
pro-rata among the holders of such
securities (including Registrable
Securities) on the basis of the number of
shares requested to be included by each such
holder;
(ii) second, the Transferee Registrable
Securities, if any, requested to be included
therein, pro-rata among the holders of such
Transferee Registrable Securities on the
basis of the number of shares requested to
be included by each such holder; and
(iii) third, any other securities requested to be
included in such registration.
(e) SELECTION OF UNDERWRITER AND HOLDER'S COUNSEL. If any
Piggyback Registration is an underwritten offering, the selection of investment
bankers and managers for the offering must be approved by the holders of a
majority of the Registrable Securities included in such Piggyback Registration.
Such approval will not be unreasonably withheld. The holders of the TPI
Registrable Securities and the PCA Registrable Securities shall have the right
to select one or two firms as counsel as provided in Section 2(c) above, the
fees and expenses of which shall be paid by Newco.
(f) OTHER REGISTRATIONS. If Newco has been requested by the
holders of Registrable Securities to file a registration statement pursuant to
Section 2 above or if it has filed a Registration Statement pursuant to this
Section 3, and if such previous request or registration has not been withdrawn
or abandoned, Newco will not file or cause to be effected any other registration
of any of its equity securities or securities convertible or exchangeable into
or exercisable for its equity securities under the Securities Act (except on
Form S-8 or any successor form), whether on its own behalf or at the request of
any holder or holders of such securities, until the expiration of the
effectiveness period required under Section 5(b) below.
4. HOLDBACK AGREEMENTS.
(a) AGREEMENT BY HOLDERS. Each holder of Registrable
Securities agrees not to effect any public sale or distribution (including sales
pursuant to Rule 144 under the Securities Act) of equity securities of Newco, or
any securities convertible into or exchangeable or exercisable for such
securities, during the seven days prior to and the 180-day period beginning on
the effective date of any underwritten Demand Registration or any underwritten
Piggyback Registration in which
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<PAGE> 110
Registrable Securities are included (except as part of such underwritten
registration), unless the underwriters managing the registered public offering
otherwise agree.
(b) AGREEMENTS BY NEWCO. Newco agrees: (i) not to effect or
facilitate any public sale or distribution of its equity securities, or any
securities convertible into or exchangeable or exercisable for such securities,
during the thirty days prior to and during the 180-day period beginning on the
effective date of any underwritten Demand Registration or Piggyback Registration
(except as part of such underwritten Piggyback Registration or pursuant to
registrations on Form S-8 or any successor form), unless the underwriters
managing the registered public offering (and in the case of a Demand
Registration, the holders of a majority of the Registrable Securities included
therein) otherwise agree; and (ii) to cause Newco's directors, officers and
affiliates not to effect or facilitate any public sale or distribution
(including sales pursuant to Rule 144 under the Securities Act) of any equity
securities, or any securities convertible into or exchangeable or exercisable
for such securities during such period (except as part of such underwritten
registration, if otherwise permitted), unless the underwriters managing the
registered public offering, the holders of a majority of the TPI Registrable
Securities participating in such registration and the holders of a majority of
the PCA Registrable Securities participating in such registration otherwise
agree.
5. REGISTRATION AND QUALIFICATION. If and whenever Newco is
required to effect the registration of any Registrable Securities, Newco shall
as promptly as possible:
(a) prepare, file and use its reasonable best efforts to cause
to become effective a registration statement under the Securities Act relating
to the Registrable Securities to be offered and effect the sale of such
Registrable Securities, in each case in accordance with the intended method of
disposition thereof (Newco shall cause such registration statement to be
effective as promptly as possible but in any event within 120 days of the
request);
(b) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
to comply with the provisions of the Securities Act with respect to the
disposition of all Registrable Securities included therein until the earlier of:
(i) such time as all of such Registrable Securities included therein have been
disposed of in accordance with the intended methods of disposition; and (ii) the
expiration of 180 days after such registration statement becomes effective;
provided, that such 180-day period shall be extended for such number of days
that equals the number of days elapsing from (x) the date the written notice
contemplated by paragraph 5(g) below is given by Newco to (y) the date on which
Newco delivers to the holders of the Registrable Securities included in such
registration statement the supplement or amendment contemplated by paragraph
5(g) below;
(c) provide copies of all registration statements, prospectus
and amendments and supplements to each firm selected by the holders of the
Registrable Securities in accordance with this Agreement at least ten days prior
to the filing thereof (if practicable, at least one day in the case of an
amendment or supplement prepared pursuant to Section 5(g) below), with such
counsel being provided with the opportunity (but not the obligation) to review
and comment on such documents;
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<PAGE> 111
(d) furnish to the holders of the Registrable Securities
included in such registration statement and to any underwriter of such
Registrable Securities such number of conformed copies of such registration
statement and of each such amendment and supplement thereto (in each case
including all exhibits), such number of copies of the prospectus included in
such registration statement (including each preliminary prospectus and any
summary prospectus) in conformity with the requirements of the Securities Act,
such documents incorporated by reference in such registration statement or
prospectus, such number of other offering documents, copies of any and all
transmittal letters or other correspondence to or received from, the SEC or any
other governmental agency or self-regulatory body or other body having
jurisdiction (including any domestic or foreign securities exchange) relating to
such offering, and such other documents, as the holders of such Registrable
Securities or such underwriter may reasonably request;
(e) use its reasonable best efforts to register or qualify all
Registrable Securities covered by such registration statement under the
securities or blue sky laws of such jurisdictions as the holders of the
Registrable Securities included in such registration statement or any
underwriter of such Registrable Securities shall request, and use its reasonable
best efforts to obtain all appropriate registrations, permits and consents in
connection therewith, and do any and all other acts and things which may be
necessary or advisable to enable such holders of such Registrable Securities or
any such underwriter to consummate the disposition in such jurisdictions of its
Registrable Securities covered by such registration statement;
(f) furnish to the holders of the Registrable Securities
included in such registration statement and to any underwriter of such
Registrable Securities: (i) an opinion of counsel for Newco addressed to the
holders of such Registrable Securities and dated the date of the closing under
the underwriting agreement (if any) (or if such offering is not underwritten,
dated the effective date of the registration statement); and (ii) a "cold
comfort" letter addressed to the holders of such Registrable Securities and
signed by the independent public accountants who have audited the financial
statements of Newco included in such registration statement, in each such case
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) as are customarily covered in
opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities and such other
matters as the holders of such Securities may reasonably request and, in the
case of such accountants' letter, with respect to events subsequent to the date
of such financial statements;
(g) as promptly as practicable, notify the holders of the
Registrable Securities included in such registration statement in writing: (i)
at any time when a prospectus relating to a registration statement hereunder is
required to be delivered under the Securities Act, of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; and (ii) of any request by the SEC or any other regulatory body
or other body having jurisdiction for any amendment of or supplement to any
registration statement or other document relating to such offering, and in
either such case, prepare and furnish to the holders of such Registrable
Securities a reasonable number of copies of a supplement to or an amendment of
such prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading;
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<PAGE> 112
(h) cause all such Registrable Securities included in such
registration statement to be listed on each securities exchange on which similar
securities issued by Newco are then listed and, if not so listed, to be listed
on the New York Stock Exchange;
(i) furnish for delivery in connection with the closing of any
offering of Registrable Securities pursuant to a registration hereunder
unlegended certificates representing ownership of the Registrable Securities
being sold in such denominations as shall be requested by the holders of the
Registrable Securities or the underwriters;
(j) provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such registration
statement;
(k) enter into such customary agreements and take all such
other actions as the holders of a majority of the Registrable Securities being
sold or the underwriters, if any, reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities (including effecting a
stock split or a combination of shares);
(l) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering the
period of at least twelve months beginning with the first day of Newco's first
full calendar quarter after the effective date of the registration statement,
which earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder;
(m) permit any holder of Registrable Securities which holder,
in its sole and exclusive judgment, might be deemed to be an underwriter or a
controlling person of Newco, to participate in the preparation of such
registration statement and to require the insertion therein of material,
furnished to Newco in writing, which in the reasonable judgment of such holder
and its counsel should be included; and
(n) in the event of the issuance of any stop order suspending
the effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any Common Stock included in such registration statement for sale in any
jurisdiction, Newco will use its reasonable best efforts promptly to obtain the
withdrawal of such order.
If any such registration or comparable statement refers to any
holder of Registrable Securities by name or otherwise as the holder of any
securities of Newco and if in its sole and exclusive judgment, such holder is or
might be deemed to be a controlling person of Newco, such holder will have the
right to require: (i) the insertion therein of language, in form and substance
satisfactory to such holder and presented to Newco in writing, to the effect
that the holding by such holder of such securities is not to be construed as a
recommendation by such holder of the investment quality of Newco's securities
covered thereby and that such holding does not imply that such holder will
assist in meeting any future financial requirements of Newco; or (ii) in the
event that such reference to such holder by name or otherwise is not required by
the Securities Act or any similar
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<PAGE> 113
federal statute then in force, the deletion of the reference to such holder;
provided that with respect to this clause (ii) such holder will furnish to Newco
an opinion of counsel to such effect.
6. RECAPITALIZATION; UNDERWRITING; DUE DILIGENCE.
(a) For any Piggyback Registration or Demand Registration
prior to the time Newco becomes subject to the Exchange Act with respect to
Registrable Securities, Newco shall effect a stock split, stock dividend or
stock combination which in the opinion of the underwriters is desirable for the
sale and marketing of the Registrable Securities to the public.
(b) If requested by the underwriters for any underwritten
offering of Registrable Securities pursuant to a registration requested under
this Agreement, Newco shall enter into an underwriting agreement with such
underwriters for such offering, which agreement will contain such
representations and warranties by Newco and such other terms and provisions as
are customarily contained in underwriting agreements of Newco to the extent
relevant and as are customarily contained in underwriting agreements generally
with respect to secondary distributions to the extent relevant, including,
without limitation, indemnification and contribution provisions substantially to
the effect and to the extent provided in Section 7(a), and agreements as to the
provision of opinions of counsel and accountants' letters to the effect and to
the extent provided in Section 5(f). Subject to Section 9 below, the holders of
the Registrable Securities included in such registration shall be parties to any
such underwriting agreement and the representations and warranties by, and the
other agreements on the part of, Newco to and for the benefit of such
underwriters, shall also be made to and for the benefit of the holders of such
Registrable Securities.
(c) In connection with the preparation and filing of each
registration statement registering Registrable Securities under the Securities
Act pursuant to this Agreement, Newco shall give the holders of the Registrable
Securities included in such registration and the underwriters, if any, and their
respective counsel, accountants and agents, the opportunity (but such persons
shall not have the obligation) to review the books and records of Newco and to
discuss the business of Newco with its officers and the independent public
accountants who have certified the financial statements of Newco as shall be
necessary, in the opinion of the holders of such Registrable Securities and such
underwriters or their respective counsel, to conduct a reasonable investigation
within the meaning of the Securities Act.
7. INDEMNIFICATION.
(a) NEWCO INDEMNIFICATION. Newco agrees to indemnify, to the
extent permitted by law, each holder of Registrable Securities, its officers and
directors and each Person who controls such holder (within the meaning of the
Securities Act) and the officers, directors, affiliates, employees and agents of
each of the foregoing (whether or not any litigation is commenced or threatened
and whether or not such indemnified Persons are parties to any litigation
commenced or threatened), against all losses, claims, damages, liabilities and
expenses including, without limitation, attorneys' fees, expert fees and amounts
paid in settlement, resulting from or arising out of any untrue or alleged
untrue statement of material fact contained in any registration statement,
prospectus or preliminary prospectus or any amendment thereof or supplement
thereto or any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein not
<PAGE> 114
misleading, except insofar as the same are caused by or contained in any
information furnished in writing to Newco by such holder expressly for use
therein or by such holder's failure to deliver a copy of the registration
statement or prospectus or any amendments or supplements thereto after Newco has
furnished such holder with a sufficient number of copies of the same. In
connection with an underwritten offering, Newco will indemnify such
underwriters, their officers and directors and each Person who controls such
underwriters (within the meaning of the Securities Act) to the same extent as
provided above with respect to the indemnification of the holders of Registrable
Securities. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of the holders of the Registrable
Securities or any underwriter and shall survive the transfer of such securities.
The foregoing indemnity agreement is in addition to any liability that Newco may
otherwise have to the holders of the Registrable Securities or any underwriter
of the Registrable Securities or any controlling Person of the foregoing and the
officers, directors, affiliates, employees and agents of each of the foregoing.
(b) HOLDER INDEMNIFICATION. In connection with any
registration statement in which a holder of Registrable Securities is
participating, each such holder agrees to indemnify, to the extent permitted by
law, Newco, its directors and officers and each Person who controls Newco
(within the meaning of the Securities Act) and the officers, directors,
affiliates, employees and agents of each of the foregoing (whether or not any
litigation is commenced or threatened and whether or not such indemnified
Persons are parties to any litigation commenced or threatened), against any
losses, claims, damages, liabilities and expenses including, without limitation,
attorneys' fees, expert fees and amounts paid in settlement, resulting from or
arising out of any untrue or alleged untrue statement of material fact contained
in the registration statement, prospectus or preliminary prospectus or any
amendment thereof or supplement thereto or any omission or alleged omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading, but only to the extent that such untrue statement or
omission is contained in any information furnished in writing to Newco by such
holder expressly for use in such registration statement; provided, however, that
the obligation to indemnify will be individual to each such holder and will be
limited to the net amount of proceeds received by such holder from the sale of
Registrable Securities pursuant to such registration statement.
(c) RESOLUTION OF CLAIMS. Any Person entitled to
indemnification hereunder will: (i) give prompt written notice to the
indemnifying party of any claim with respect to which it seeks indemnification
hereunder; and (ii) unless in such indemnified party's reasonable judgment a
conflict of interest between such indemnified and indemnifying parties may exist
with respect to such claim, permit such indemnifying party to assume the defense
of such claim with counsel reasonably satisfactory to the indemnified party. If
such defense is assumed, the indemnifying party will not be subject to any
liability for any settlement made by the indemnified party without its consent
(but such consent will not be unreasonably withheld). An indemnifying party who
is not entitled to, or elects not to, assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim, unless in the
reasonable judgment of any indemnified party a conflict of interest may exist
between such indemnified party and any other of such indemnified parties with
respect to such claim.
(d) CONTRIBUTION. If the indemnification provided for in this
Section 7 shall for any reason be unavailable (other than in accordance with its
terms) to an indemnified party in respect
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of any loss, claim, damage, liability or expense referred to therein, then each
indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage, liability or expense in such proportion as shall be
appropriate to reflect the relative fault of the indemnifying party on the one
hand and the indemnified party on the other with respect to the statements or
omissions which resulted in such loss, claim, damage, liability or expense as
well as any other relevant equitable considerations. The relative fault shall be
determined by reference to whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by the indemnifying party on the one hand or the
indemnified party on the other. The amount paid or payable by an indemnified
party as a result of the loss, cost, claim, damage, liability or expense, or
action in respect thereof, referred to above in this Section 7(d) shall be
deemed to include, for purposes of this Section 7(d), any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. In any event, a holder's obligation
to provide contribution pursuant to this Section 7(d) shall be limited to the
net amount of proceeds received by such holder from the sale of Registrable
Securities pursuant to such registration statement.
(e) STATE SECURITIES LAWS. Indemnification and contribution
similar to that specified in the preceding paragraphs of this Section 7 (with
appropriate modifications) shall be given by Newco, the holders of the
Registrable Securities and underwriters with respect to any required
registration or other qualification of securities under any state law or
regulation or governmental authority.
(f) OTHER RIGHTS. The obligations of the parties under this
Section 7 shall be in addition to any liability which any party may otherwise
have to any other party.
8. RULE 144. Newco shall use its reasonable best efforts to
ensure that the conditions to the availability of Rule 144 set forth in
paragraph (c) thereof shall be satisfied. Upon the request of the holders of a
majority of the TPI Registrable Securities or the holders of a majority of the
PCA Registrable Securities, Newco will deliver to such holders a written
statement as to whether it has complied with such requirements.
9. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No holder of
Registrable Securities may participate in any registration hereunder which is
underwritten unless such holder: (a) agrees to sell such holder's securities on
the basis provided in any underwriting arrangements contemplated by such
offering; and (b) completes and executes all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents required under the
terms of such underwriting arrangements; provided, however, that no holder of
Registrable Securities included in any underwritten registration will be
required to make: (i) any representations or warranties to Newco, the
underwriters or other Persons other than representations and warranties
regarding such holder and such holder's intended method of distribution; or (ii)
any indemnities to Newco, the underwriter or other Persons on terms which are
not substantially identical to the provisions in Section 7(b) above.
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10. MISCELLANEOUS.
(a) NO INCONSISTENT AGREEMENTS. Newco represents and warrants
to the holders of the Registrable Securities that it has not entered into, and
agrees with the holders of the Registrable Securities that it will not hereafter
enter into, any agreement with respect to its securities which is inconsistent
or conflicts with, or violates the rights granted to the holders of Registrable
Securities in, this Agreement.
(b) ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES. In addition
to Newco's obligations under Section 6(a) above, Newco will not take any action,
or permit any change to occur, with respect to its securities which would
adversely affect the ability of the holders of Registrable Securities to include
such Registrable Securities in a registration undertaken pursuant to this Agree
ment or which would adversely affect the marketability of such Registrable
Securities in any such registration (including effecting a stock split or a
combination of shares).
(c) REMEDIES. Each holder of Registrable Securities will have
all rights and remedies set forth in this Agreement, Newco's Certificate of
Incorporation and all rights and remedies which such holders have been granted
at any time under any other agreement and all of the rights which such holders
have under any law. Any Person having any rights under any provision of this
Agreement will be entitled to enforce such rights specifically, without posting
a bond or other security, to recover damages by reason of any breach of any
provision of this Agreement and to exercise all other rights granted by law.
(d) AMENDMENTS; WAIVER. Except as otherwise expressly provided
herein, the provisions of this Agreement may be amended and Newco may take any
action herein prohibited, or omit to perform any act herein required to be
performed by it, only if Newco has obtained the written consent of both: (i)
TPI, as long as it or any of its Affiliates owns any TPI Registrable Securities;
and (ii) PCA, as long as it or any of its Affiliates owns any PCA Registrable
Securities. No other course of dealing between Newco and the holder of any
Registrable Securities or any delay in exercising any rights hereunder or under
the Certificate of Incorporation will operate as a waiver of any rights of any
such holders. For purposes of this Agreement, shares held by Newco or any of its
Subsidiaries will not be deemed to be Registrable Securities. If Newco pays any
consideration to any holder of Registrable Securities for such holder's consent
to any amendment, modification or waiver hereunder, Newco will also pay each
other holder granting its consent hereunder equivalent consideration computed on
a pro rata basis.
In the event that the Securities Act, Exchange Act and/or
regulations thereunder, respectively, are amended in a material respect and one
or more of such amendments reduce or diminish the benefits hereunder to the
holders of the Registrable Securities, including, without limitation, amendments
which may be adopted in connection with the Aircraft Carrier Release (any such
reducing or diminishing amendments being referred to herein as "SECURITIES LAW
AMENDMENTS"), Newco shall, upon the written request of both (i) TPI, as long as
it or any of its Affiliates owns any TPI Registrable Securities, and (ii) PCA,
as long as it or any of its Affiliates owns any PCA Registrable Securities,
amend this Agreement to provide the holders of the Registrable Securities with
benefits which, after giving effect to such Securities Law Amendments, are
equivalent to the benefits hereunder absent such Securities Law Amendments.
-16-
<PAGE> 117
(e) HEADINGS. The headings in this Agreement are inserted for
convenience only and shall not be deemed to define or limit the scope of any
section or subsection.
(f) NOTICES. All requests, notices, demands or other
communications shall be in writing and will be deemed to have been given when
delivered to the recipient, when received by facsimile, one (1) business day
after the date when sent to the recipient by overnight courier service or five
(5) business days after the date when mailed to the recipient by certified or
registered mail, return receipt requested and postage prepaid. Such requests,
notices, demands and other communications will be sent to TPI, PCA and to Newco
at the addresses indicated below:
If to TPI:
Tenneco Packaging Inc.
1900 West Field Court
Lake Forest, Illinois 60045
Attn: General Counsel
Telecopy: 847/482-4589
With a copy to:
Jenner & Block
One IBM Plaza
Chicago, Illinois 60611
Attn: Timothy R. Donovan, Esq.
Telecopy: 312/840-7271
If to PCA:
PCA Holdings, LLC
c/o Madison Dearborn Partners, Inc.
Three First National Plaza
Suite 3800
Chicago, Illinois 60602
Attn: Samuel M. Mencoff
Justin S. Huscher
Telecopy: (312) 895-1056
With a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attn: William S. Kirsh, P.C.
Telecopy: 312/861-2200
-17-
<PAGE> 118
If to Newco:
Packaging Corporation of America
---------------------------------
---------------------------------
---------------------------------
Telecopy:
------------------------
or to such other address or to the attention of such other Person as the
recipient party has specified by prior written notice in accordance with the
procedures provided above. Notices to any other holders of Registrable
Securities shall be sent to the address specified by prior written notice to
Newco, TPI and PCA in accordance with the procedures provided above.
(g) NO THIRD-PARTY BENEFICIARIES. Subject to Section 10(k),
this Agreement will not confer any rights or remedies upon any Person other than
Newco, TPI and PCA and their respective successors.
(h) ENTIRE AGREEMENT. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the parties and
supersedes any prior understandings, agreements, or representations by or among
the parties, written or oral, that may have related in any way to the subject
matter hereof.
(i) GOVERNING LAW. The corporate law of the State of Delaware
will govern all issues concerning the relative rights of Newco and its
stockholders. All other questions concerning the construction, validity and
interpretation of this Agreement will be governed by the internal law, and not
the law of conflicts, of the State of Illinois.
(j) SEVERABILITY. In the event any provision in this Agreement
is held to be invalid as applied to any fact or circumstance, it shall be
ineffective only to the extent of such invalidity, and such invalidity shall not
affect the other provisions of this Agreement or the same provision as applied
to any other fact or circumstance.
(k) SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon the parties hereto and their respective successors and any Person who
becomes a holder of Registrable Securities. This Agreement shall inure to the
benefit of and be enforceable by the parties hereto and their respective
successors and any Person who becomes a holder of Registrable Securities (to the
extent provided herein with respect to Registrable Securities of the type held
by such holder).
(l) COUNTERPARTS. This Agreement may be executed in
counterparts.
(m) TERMINATION. The rights of all holders of TPI Registrable
Securities under this Agreement shall terminate as of the date when TPI,
together with its Affiliates, holds Registrable Securities with a fair market
value of less than $500,000.
-18-
<PAGE> 119
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
NEWCO:
Packaging Corporation of America
By
------------------------------------
Its
-----------------------------------
TPI:
Tenneco Packaging Inc.
By
------------------------------------
Its
-----------------------------------
PCA:
PCA Holdings, LLC
By
------------------------------------
Its
-----------------------------------
-19-
<PAGE> 1
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,
------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Income from continuing operations........................... $255 $361 $218 $258 $238
Add:
Interest.................................................. 240 216 195 160 104
Portion of rentals representative of interest factor...... 54 54 60 57 52
Preferred stock dividend requirements of majority-owned
subsidiaries........................................... 28 21 21 23 --
Income tax expense and other taxes on income.............. 116 163 194 231 114
Amortization of interest capitalized...................... 2 2 2 2 1
Undistributed (earnings) losses of affiliated companies in
which less than a 50% voting interest is owned......... 2 2 (1) -- --
---- ---- ---- ---- ----
Earnings as defined.................................. $697 $819 $689 $731 $509
==== ==== ==== ==== ====
Interest.................................................... $240 $216 $195 $160 $104
Interest capitalized........................................ 1 2 6 5 2
Portion of rentals representative of interest factor........ 54 54 60 57 52
Preferred stock dividend requirements of majority-owned
subsidiaries on a pre-tax basis........................... 43 33 37 42 --
---- ---- ---- ---- ----
Fixed charges as defined............................. $338 $305 $298 $264 $158
==== ==== ==== ==== ====
Ratio of earnings to fixed charges.......................... 2.06 2.69 2.31 2.77 3.22
==== ==== ==== ==== ====
</TABLE>
<PAGE> 1
EXHIBIT 21
TENNECO INC. AND SUBSIDIARIES AND AFFILIATES
AS OF DECEMBER 31, 1998
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
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).............................. 99.75
(Tenneco Inc. owns 99.75%; and Kobusch Folien GmbH owns .25%)
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%)
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).......................... <1
(Tenneco Inc. owns >99%; and Scriptoria N.V. owns <1%)
Sentinel GmbH Verpackungen (Germany).............................. 99
(Tenneco Inc. owns >99%; and Scriptoria N.V. owns <1%)
Tenneco Asia Inc. (Delaware)...................................... 100
Tenneco Asheville Inc. (Delaware)................................. 100
Tenneco Automotive Deutschland GmbH (Germany)..................... 1
(Tenneco Inc. owns 1%; and Tenneco Deutschland
Holdinggesellschaft mbH owns 99%)
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.)
1
<PAGE> 2
TENNECO INC. AND SUBSIDIARIES AND AFFILIATES
AS OF DECEMBER 31, 1998
Subsidiaries of Tenneco Inc. (Delaware)
Subsidiaries of Tenneco Automotive Inc. (Delaware)
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%)
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
Precision Modular Assembly Corp. (Delaware).................. 100
Rancho Industries Europe B.V. (Netherlands).................. 100
Tenneco Automotive Foreign Sales Corporation Limited.
(Jamaica).................................................... 99
(Tenneco Automotive Inc. owns 99%; and Tenneco Inc.
owns 1%)
Tenneco Automotive Japan Ltd. (Japan)........................ 100
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 100% 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
Autopartes Walker S.A. de C.V. (Mexico)................ 100
Consorcio Terranova S.A. de C.V. (Mexico)........... 99.99
(Autopartes Walker S.A. de C.V. owns 99.99%;
and Josan Latinamericana S.A. de C.V.,
an unaffiliated company, owns 0.01%)
Monroe-Mexico S.A. de C.V. (Mexico)................. 100
Tenneco Automotive Servicios de Mexico, S.A.
de C.V. (Mexico)................................ 0.01
(Proveedora Walker S. de R.L. de C.V. owns
49,999 shares, and Monroe-Mexico, S.A.
de C.V. owns 1 share)
Proveedora Walker S. de R.L. de C.V. (Mexico)....... 99.99
(Autopartes Walker S.A. de C.V. owns 99.99%;
and Pullmex S. de R.L. de C.V. owns .01%)
Pullmex S. de R.L. de C.V. (Mexico)............. 0.01
(Proveedora Walker S. de R.L. de C.V.
owns 0.01% and Autopartes Walker S.A.
de C.V. owns 99.99%)
Tenneco Automotive Servicios de Mexico, S.A.
de C.V. (Mexico)................................ 99.99
(Proveedora Walker S. de R.L. de C.V. owns
49,999 shares, and Monroe-Mexico, S.A.
de C.V. owns 1 share)
Pullmex S. de R.L. de C.V........................... 99.99
(Autopartes Walker S.A. de C.V. owns 99.9%;
and Proveedora Walker S. de R.L.
de C.V. owns 0.1%)
Proveedora Walker S. de R.L. de C.V. (Mexico)... 0.01
(Pullmex S. de R.L. de C.V. owns 0.01%;
and Autopartes Walker S.A. de C.V.
owns 99.99%)
2
<PAGE> 3
TENNECO INC. AND SUBSIDIARIES AND AFFILIATES
AS OF DECEMBER 31, 1998
Subsidiaries of Tenneco Inc. (Delaware)
Subsidiaries of Tenneco Automotive Inc. (Delaware)
Subsidiaries of The Pullman Company (Delaware)
Clevite Industries Inc. (Delaware).................... 100%
Peabody International Corporation (Delaware).......... 100
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
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
Tenneco Brazil Ltda. (Brazil)......................... 100
Tenneco Automotive Brazil Ltda. (Brazil).......... 100
Tenneco Automotive RSA Company (Delaware)...................... 100
Tenneco Automotive Trading Company (Delaware).................. 100
Tenneco Brake, Inc. (Delaware)................................. 100
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 Vermoegensverwaltung,
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%)
ELGIRA Montagebetrieb fur Abgasanlagen
Rastatt GmbH (Germany)................................ 50
(Heinrich Gillet GmbH & Co. KG owns 50%; and
an unaffiliated party owns 50%)
Exhaust Systems Technology Limited (United Kingdom)... 0.01
(Heinrich Gillet GmbH & Co. owns 0.01%; and
Gillet Torsmaskiner UK Limited owns 99.99%)
3
<PAGE> 4
TENNECO INC. AND SUBSIDIARIES AND AFFILIATES
AS OF DECEMBER 31, 1998
Subsidiaries of Tenneco Inc. (Delaware)
Subsidiaries of Tenneco Deutschland Holdinggesellschaft mbH (Germany)
Subsidiaries of Heinrich Gillet GmbH & Co. KG (Germany)
Gillet-Abgassysteme Zickau Gmbh (Germany)................. 100 %
Elagest AB (Sweden)................................... 50
(Gillet-Abgassysteme Zickau GmbH owns 50%; and
an unaffiliated party owns 50%)
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)...................... 0.25
(Kobusch Folien GmbH owns 0.25%; and Tenneco Inc.
owns 99.75%)
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
Tenneco Automotive Deutschland GmbH (Germany).................. 99
(Tenneco Deutschland Holdinggesellschaft mbH owns 99%;
and Tenneco Inc. owns 1%)
WALKER GILLET (Europe) GmbH (Germany).......................... 100
Tenneco Europe Limited (Delaware).................................. 100
- ---------------------
(1)
- - In dissolution
4
<PAGE> 5
TENNECO INC. AND SUBSIDIARIES AND AFFILIATES
AS OF DECEMBER 31, 1998
Subsidiaries of Tenneco Inc. (Delaware)
Subsidiaries of Tenneco Europe Limited (Delaware)
Wimetal S. A. (France)......................................... <1 %
(Tenneco Europe Limited owns 1 share; Walker
Limited owns 1 share; Walker France S.A. owns 99%;
and each of David Zerhusen, Howard van Schoyck,
Daniel Barth, Daniel Bellanger, Herman Weltens and
Theo Bonneu, affiliated persons, owns 1 share)
Tenneco Inc. (Nevada).............................................. 100
Tenneco International Business Development Limited (Delaware)...... 100
Ambassador Packaging (Ireland) Limited (Ireland)............... 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 100% of Variable Rate
Voting Participating Preferred Stock)
Alupak, A.G. (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)................... 99.3
(Tenneco International Holding Corp. owns 99.3%;
Tenneco Automotive Europe N.V. owns 1 share;
and each of Larry Stevenson, Geert Everaert,
Theo Bonneu, Roy Kolotylo, Joe Budo and Robert
Vlassenroot owns 1 share)
Tenneco Automotive Europe Coordination
Center N.V. (Belgium).................................... 0.1
(Tenneco Automotive Europe N.V. owns 99.9%; and
Monroe Auto Equipement France, S.A. owns 0.1%)
Monroe Packaging N.V. (Belgium).......................... 0.1
(Tenneco Automotive 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%)
Tenneco Automotive Europe N.V. (Belgium)....................... 100
Monroe Amortisor Imalat Ve Ticaret A.S. (Turkey).......... 99.85
(Tenneco Automotive Europe N.V. owns 99.85%;
and various unaffiliated individual stockholders
own 0.15%)
- --------------------
(1)
In dissolution
5
<PAGE> 6
TENNECO INC. AND SUBSIDIARIES AND AFFILIATES
AS OF DECEMBER 31, 1998
Subsidiaries of Tenneco Inc. (Delaware)
Subsidiaries of International Holding Corp. (Delaware)
Subsidiaries of Tenneco Automotive Europe N.V. (Belgium)
Monroe Auto Equipement France. S.A. (France)............ <1
(Tenneco International Holding Corp. owns 99.3%;
Tenneco Automotive Europe N.V. owns 1 share;
and each of Larry Stevenson, Geert Everaert,
Theo Bonneu, Roy Kolotylo, Joe Budo and Robert
Vlassenroot owns 1 share. The subsidiaries of
Monroe Auto Equipement France S.A. are
listed on page 5.)
Tenneco Automotive Europe Coordination
Center N.V. (Belgium)................................... 99.9
(Tenneco Automotive Europe N.V. owns 99.9%; and
Monroe Auto Equipement France, S.A. owns 0.1%)
Monroe Packaging N.V. (Belgium)......................... 99.9
(Tenneco Automotive 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 International Holding Corp. owns 1%; and
Tenneco Global Holdings Inc. owns 99%)
Tenneco Automotive Sverige A.B. (Sweden)..................... 100
Tenneco Canada Inc. (Ontario)................................ 100
Tenneco Credit Canada Corporation (Alberta)............. 100
Tenneco Global Holdings Inc. (Delaware)...................... 100
Fric-Rot S.A.I.C. (Argentina)........................... 54.99
(Tenneco Global Holdings Inc. owns 54.99%;
Maco Inversiones S.A. owns 44.85%; Thomas E. Evans,
an affiliated person, owns .01%; and
unaffiliated parties own .15%)
Maco Inversiones S.A. (Argentina)....................... 100
Fric-Rot S.A.I.C. (Argentina)....................... 44.85
(Maco Inversiones S.A. owns 44.85%;
Tenneco Global Holdings Inc. owns 54.99%;
Thomas E. Evans, an affiliated person, owns
.01%; and unaffiliated parties own .15%)
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 Global Holdings Inc. owns 99%;
Tenneco International Holdings Corp. owns 1%)
Tenneco Mauritius Limited (Mauritius)................... 100
6
<PAGE> 7
TENNECO INC. AND SUBSIDIARIES AND AFFILIATES
AS OF DECEMBER 31, 1998
Subsidiaries of Tenneco Inc. (Delaware)
Subsidiaries of Tenneco International Holdings Corp. (Delaware)
Subsidiaries of Tenneco Global Holdings Inc. (Delaware)
Subsidiaries of Tenneco Mauritius Limited (Mauritius)
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%)
Tenneco Automotive India Private Limited (India)..... 100
Walker Exhaust India Private Limited (India)..... <100
(Tenneco Automotive India Private Limited
owns less than 100%; and an unaffiliated
party owns the balance)
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
Monroe Manufacturing (Pty.) Ltd. (South Africa)...... 100
Tenneco Automotive Port Elizabeth (Proprietary) Limited
(South Africa)........................................... 100
Tenneco Automotive Portugal - Componentes para
Automovel, S.A.
(Portugal)............................................... 100
Walker Danmark A/S (Denmark)............................. 100
Walker France S.A. (France)................................... 100
(Tenneco International Holding Corp. owns 470,371 shares;
Daniel Bellanger owns 16 shares; Robert Bellanger owns
8 shares; and each of Walker Europe, Inc., Alain Bellanger,
Theodore Bonneu, Roy Kolotylo and David Zerhusen owns 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 David Zerhusen, Howard van Schoyck, Daniel
Barth, 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 Europe B.V. (Netherlands)....................... 100
Nederlandse Pillo-Pak Maatshchappij B.V. (Netherlands)........ 100
Tenneco Packaging Hungary Holdings Inc. (Delaware)................ 100
Tenneco Packaging Inc. (Delaware)................................. 100
7
<PAGE> 8
TENNECO INC. AND SUBSIDIARIES AND AFFILIATES
AS OF DECEMBER 31, 1998
Subsidiaries of Tenneco Inc. (Delaware)
Subsidiaries of Tenneco Packaging Inc. (Delaware)
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
Valdosta Southern Railroad Company (Florida).............. 100
Dahlonega Packaging Corporation (Delaware)..................... 100
Dixie Container Corporation (Virginia)......................... 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%)
Kinarot Pallet Ltd. (Israel)...................... 50
(Ha'Lakoach Ha'Neeman owns 50%; and I.M.A.
Engineering, an Israeli company and a
non-affiliate, owns 50%
Yamaton Ltd. (Israel)............................. 33.3
(Ha'Lakoach Ha'Neeman owns 33.3%; and
non-affiliates, Kibbutz Ein Hamifietz
and Kibbutz Ga'aton own 66.7%
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%. Subsidiaries
are listed above.)
Hexajapan Company, Ltd. (Japan)........................... 60
(Hexacomb Corporation owns 60%; and
non-affiliates owns 40%)
Packaging Corporation of America (Nevada)...................... 100
PCA Box Company (Delaware)(1)................................... 100
PCA Hydro, Inc. (Delaware)..................................... 100
PCA Romania Srl (Romania)...................................... 50
(Tenneco Packaging Inc. owns 50%; and Kraftcorr Inc.,
an unaffiliated company, owns 50%)
- --------------------
(1)
In dissolution
8
<PAGE> 9
TENNECO INC. AND SUBSIDIARIES AND AFFILIATES
AS OF DECEMBER 31, 1998
Subsidiaries of Tenneco Inc. (Delaware)
Subsidiaries of Tenneco Packaging Inc. (Delaware)
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)(1)..................... 100
Tenneco CPI Holding Company (Delaware)......................... 100
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)(2)........................................... 100
Budafok Recycling Waste Paper Recovery Ltd. (Hungary)..... 63.8
(Tenneco Packaging Hungary Packaging Material
Limited owns 63.8%; and Asco Hungaria Kft., an
unaffiliated company, owns 36.2%)
Tenneco Packaging Specialty and Consumer Products
Inc. (Delaware)............................................... 100
Tenneco Protective Packaging Inc. (Delaware)................... 100
AVI Technologies, Inc. (Delaware)......................... 100
Tenneco Rochester Acquisition Inc. (Delaware)(1)............... 100
Tenneco Windsor Box & Display, Inc. (Delaware)(1).............. 100
798795 Ontario Limited (Ontario)............................... 100
Astro-Valcour, Ltd. (Ontario)............................. 100
Tenneco Packaging Canada Inc. (Ontario)................... 100
Tenneco Packaging - Hexacomb Limited (Ontario)............ 100
Shearmat Structures Ltd. (Manitoba)................... 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 Packaging International Holdings Inc. owns 2%;
and Tenneco Inc. owns 98%)
- ---------------
(1) In dissolution
(2) This company is commonly referred to as "Tenneco Packaging Hungary Kft."
9
<PAGE> 10
TENNECO INC. AND SUBSIDIARIES AND AFFILIATES
AS OF DECEMBER 31, 1998
Subsidiaries of Tenneco Inc. (Delaware)
Subsidiaries of Tenneco Packaging International Holdings Inc. (Delaware)
Scriptoria N.V. (Belgium)...................................... <1 %
(Tenneco Packaging International Holdings Inc. owns
<1% or 18 shares; Tenneco Inc. owns approximately
99.6%; 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)...................................... <1
(Tenneco Packaging International Holdings Inc.
owns <1% or 1 share; and Tenneco Inc. owns 99+%)
Tenneco Packaging Leasing Company (Delaware)....................... 100
Counce Limited Partnership (Texas Limited Partnership)......... 5
(Tenneco Packaging Leasing Company owns 5%, as
General Partner; and Tenneco Inc. owns 95%,
as Limited Partner)
Counce Finance Corporation (Delaware)..................... 100
Tenneco Packaging RSA Company (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)
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.)............................... <1
(The Baldwin Group owns <1% or 1 share
J&W Baldwin (Holdings) Ltd. owns 99.9%)
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 <1% or 1 share)
Jiffy Rugated Products Limited (U.K.)................. 99.9
(Baldwin Packaging Limited owns 99.9%; and
The Baldwin Group owns <1% or 1 share)
J&W Baldwin (Manchester) Limited (U.K.)............... 99.9
(Baldwin Packaging Limited owns 99.9%;
and The Baldwin Group owns <1% or 1 share)
10
<PAGE> 11
TENNECO INC. AND SUBSIDIARIES AND AFFILIATES
AS OF DECEMBER 31, 1998
Subsidiaries of Tenneco Inc. (Delaware)
Subsidiaries of The Baldwin Group, Ltd. (U.K.)
Subsidiaries of J&W Baldwin (Holdings) Ltd. (U.K.)
Jifcour (UK) Limited (U.K.)............................... 99.9%
(J&W Baldwin (Holdings) Ltd. owns 99.9%; and
The Baldwin Group, Ltd. owns <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 <1% or 1 share)
Pentland Packaging Limited (Scotland).................... 99.9
(J&W Baldwin (Holdings) Ltd. owns 99.9%; and
The Baldwin Group, Ltd. owns <1% or 1 share)
J&W Baldwin (Manchester) Limited (U.K.)....................... <1
(The Baldwin Group, Ltd. owns <1% or 1 share; and
Baldwin Packaging Limited owns 99.9%)
Jifcour (UK) Limited (U.K.)................................... <1
(The Baldwin Group, Ltd. owns <1% or 1 share; and
J&W Baldwin (Holdings) Ltd. owns 99.9%)
Jiffy Packaging Company Ltd. (U.K.)........................... <1
(The Baldwin Group, Ltd. owns <1% or 1 share; and
J&W Baldwin (Holdings) Ltd. owns 99.9%)
Jiffy Rugated Products Limited (U.K.)......................... <1
(The Baldwin Group, Ltd. owns <1% or 1 share; and
Baldwin Packaging Limited owns 99.9%)
Pentland Packaging Limited (Scotland)......................... <1
(The Baldwin Group, Ltd. owns <1% or 1 share; and
J&W Baldwin (Holdings) Ltd. owns 99.9%)
Thompson and Stammers Dunmow (Number 6) Limited (United Kingdom).. 100
Thompson and Stammers Dunmow (Number 7) Limited (United Kingdom).. 100
TMC Texas Inc. (Delaware)......................................... 100
Walker Europe, Inc. (Delaware).................................... 100
Walker France S.A. (France)................................... <1
(Tenneco International Holding Corp. owns
470,371 shares; Daniel Ballenger owns 16 shares;
Robert Bellanger owns 8 shares; and each of Walker
Europe, Inc., Alain Bellanger, Theodore Bonneu,
Roy Kolotylo and David Zerhusen owns 1 share)
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
total equity)
11
<PAGE> 12
TENNECO INC. AND SUBSIDIARIES AND AFFILIATES
AS OF DECEMBER 31, 1998
Subsidiaries of Tenneco Inc. (Delaware)
Subsidiaries of Walker Limited (United Kingdom)
Subsidiaries of Gillet Torsmaskiner UK Limited (United Kingdom)
Exhaust Systems Technology Limited (United Kingdom)...... 99.99%
(Gillet Torsmaskiner UK Limited owns 99.99%;
and Heinrich Gillet GmbH & Co. owns .01%)
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 Management (Europe) Limited (United Kingdom).......... 100
Tenneco Packaging Limited (Scotland)......................... 100
Alpha Products (Bristol) Limited (United Kingdom)........ 100
Brucefield Plastics Limited (Scotland)................... 100
Polbeth Packaging (Corby) Limited (Scotland)............. 100
Tenneco Packaging (Caerphilly) Limited (United Kingdom).. 100
Tenneco Packaging (Films) Limited (United Kingdom)....... 100
Tenneco Packaging (Livingston) Limited (Scotland)........ 100
Tenneco Packaging (Stanley) Limited (United Kingdom)..... 100
Tenneco Packaging (UK) Limited (United Kingdom)............... 100
Wimetal S. A. (France)........................................ <1
(Walker Limited owns 1 share; Tenneco Europe Limited
owns 1 share; Walker France S.A. owns 99%; and each
of David Zerhusen, Howard van Schoyck, Daniel Barth,
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 <1% or 1 share)
Wood Products Leasing Company (Delaware).......................... 100
12
<PAGE> 1
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, 1999, included in the Annual
Report of Tenneco Inc. on Form 10-K for the year ended December 31, 1998, into
the following Registration Statements previously filed with the Securities and
Exchange Commission:
<TABLE>
<CAPTION>
REGISTRATION NO. FORM SECURITIES REGISTERED
---------------- ---- ---------------------
<S> <C> <C>
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.
333-48777 S-8 710,000 shares of Common Stock issuable under the Hourly
Thrift Plan and Salaried Thrift Plan.
</TABLE>
ARTHUR ANDERSEN LLP
Houston, Texas
March 10, 1999
<PAGE> 1
EXHIBIT 24
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, 1998, 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 9th
day of March 1999.
/s/ MARK ANDREWS
--------------------------------------
Mark Andrews
<PAGE> 2
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, 1998, 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 9th
day of March 1999.
/s/ W. MICHAEL BLUMENTHAL
--------------------------------------
W. Michael Blumenthal
<PAGE> 3
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, 1998, 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 9th
day of March 1999.
/s/ LARRY D. BRADY
--------------------------------------
Larry D. Brady
<PAGE> 4
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 him 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, 1998, 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 9th
day of March 1999.
/s/ M. KATHRYN EICKHOFF
--------------------------------------
M. Kathryn Eickhoff
<PAGE> 5
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, 1998, 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 9th
day of March 1999.
/s/ HENRY U. HARRIS, JR.
--------------------------------------
Henry U. Harris, Jr.
<PAGE> 6
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, 1998, 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 9th
day of March 1999.
/s/ BELTON K. JOHNSON
--------------------------------------
Belton K. Johnson
<PAGE> 7
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, 1998, 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 9th
day of March 1999.
/s/ DAVID PLASTOW
--------------------------------------
Sir David Plastow
<PAGE> 8
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, 1998, 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 9th
day of March 1999.
/s/ ROGER B. PORTER
--------------------------------------
Roger B. Porter
<PAGE> 9
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, 1998, 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 9th
day of March 1999.
/s/ PAUL T. STECKO
--------------------------------------
Paul T. Stecko
<PAGE> 10
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, 1998, 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 9th
day of March 1999.
/s/ WILLIAM L. WEISS
--------------------------------------
William L. Weiss
<PAGE> 11
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, 1998, 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 9th
day of March 1999.
/s/ CLIFTON R. WHARTON, JR.
--------------------------------------
Clifton R. Wharton, Jr.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Tenneco Inc.
and Consolidated Subsidiaries Financial Statements and is qualified in its
entirety by reference to such Financial Statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 36
<SECURITIES> 0
<RECEIVABLES> 773
<ALLOWANCES> 0
<INVENTORY> 988
<CURRENT-ASSETS> 2,157
<PP&E> 5,737
<DEPRECIATION> 2,109
<TOTAL-ASSETS> 8,791
<CURRENT-LIABILITIES> 2,387
<BONDS> 2,360
0
0
<COMMON> 2
<OTHER-SE> 2,502
<TOTAL-LIABILITY-AND-EQUITY> 8,791
<SALES> 7,597
<TOTAL-REVENUES> 7,597
<CGS> 5,410
<TOTAL-COSTS> 5,410
<OTHER-EXPENSES> 1,554
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 240
<INCOME-PRETAX> 401
<INCOME-TAX> 116
<INCOME-CONTINUING> 255
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 255
<EPS-PRIMARY> 1.52
<EPS-DILUTED> 1.51
</TABLE>
